DocketNumber: No. 11638-99
Citation Numbers: 2001 T.C. Memo. 255, 82 T.C.M. 651, 2001 Tax Ct. Memo LEXIS 291
Filed Date: 9/28/2001
Status: Non-Precedential
Modified Date: 4/18/2021
2001 Tax Ct. Memo LEXIS 291">*291 An appropriate order and decision will be entered under Rule 155.
R attributed to Ps' various items with respect to two
trusts, on the grounds that such trusts were either shams or
grantor trusts, on the ground that the assignment of income
doctrine applied, or on the ground that Ps failed to report
certain trust items. R determined a
accuracy-related penalty against Ps. At trial, R moved for
penalties on account of delay and for other reasons, under sec.
1. HELD: Trust income attributed to Ps for substantially
the reasons stated by R.
2. HELD, FURTHER, Ps are liable for accuracy-related
penalties under
3. HELD, FURTHER, for various reasons, Ps are liable for a
penalty under
MEMORANDUM FINDINGS OF FACT AND OPINION
HALPERN, JUDGE: By notice of deficiency dated March 31, 1999 (the notice), respondent determined deficiencies in, and an addition and penalties with respect to, petitioners' 1992 through 1995 Federal income taxes, as follows:
Sec. 6651(a)
Year Deficiency Addition to Tax Penalty
____ __________ _______________ ____________
1992 $ 70,215 -- $ 14,043
1993 90,783 $ 4,547 18,157
1994 87,301 -- 17,460
1995 120,866 -- 24,173
Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. For convenience, monetary amounts have been rounded to the nearest dollar amount.
At the conclusion of the trial in this case, respondent moved that the Court impose penalties under
We must decide the following issues for each of the years in issue: 1
2001 Tax Ct. Memo LEXIS 291">*294 Whether petitioners understated their gross income by omitting certain items reported by petitioners on returns made by them for two trusts: Complete Connections Trust and J&R Trust. 2
Whether petitioners are liable for self-employment taxes (and are entitled to related deductions) on account of each's share of the trust items respondent determined petitioners omitted from gross income. 3
2001 Tax Ct. Memo LEXIS 291">*295 Whether the exemptions claimed by petitioners must be reduced on account of any increase in their adjusted gross income. 4
Whether petitioners are liable for accuracy-related penalties under
Finally, we must decide whether petitioners are liable for a penalty under
FINDINGS OF FACT
Some facts are stipulated and are so found. The first and second stipulations of facts, filed by the parties, with accompanying exhibits, are incorporated herein by this reference.
RESIDENCE
At the time the petition was filed, petitioners resided in Paso Robles, California.
COMPLETE CONNECTIONS
In 1985, petitioner Rita Snyder (Rita Snyder) applied to the City of El Paso de Robles, California (the city), for a business license. On the application form for that license (the application), she stated that she was the owner of the business in question, its name was "Complete2001 Tax Ct. Memo LEXIS 291">*296 Connection", and the type of business to be licensed was "business services". In 1988, she responded to a questionnaire from the city with respect to that business by stating that its name was "Complete Connections", it was owned by her and petitioner James Snyder (James Snyder), its business was "Income Tax/Accounting", and it was a sole proprietorship. On August 31, 1992, she applied for a renewal business license for the business named "Complete Connections", again stating that it was owned by her and James Snyder, and describing its business as "Computerized Accounting and Tax Services". On January 10, 1996, James Snyder filed a statement, "Fictitious Business Name Statement", with the County of San Luis Obispo, California. In that statement, Mr. Snyder stated that the fictitious business name was "Complete Connections Computer Systems", the name of the registrant was "James D. Snyder", and the business in question was conducted by an individual.
PETITIONERS' FEDERAL INCOME TAX RETURNS
For 1991, petitioners made a joint return of income on Form 1040, U.S. Individual Income Tax Return (the 1991 Form 1040). Attached to the 1991 Form 1040 is a Schedule C, Profit or Loss From Business2001 Tax Ct. Memo LEXIS 291">*297 (Sole Proprietorship) (the 1991 Schedule C). On the 1991 Schedule C, petitioners state that they are the proprietors of a business named "Complete Connections", the business of which is computer sales, bookkeeping, and taxes. The 1991 Schedule C shows gross receipts of $ 228,858, cost of goods sold of $ 113,974, other income of $ 186, expenses of $ 82,267, and a net profit of $ 32,803. The 1991 Form 1040 reports no income (or any other item) from any trust.
For 1992 through 1995, petitioners also made joint returns of income on Forms 1040, U.S. Individual Income Tax Returns (the 1992 through 1995 Forms 1040). Except for 1995, none of those returns reports any item identified with a business named "Complete Connections". For 1995, petitioners reported $ 7,750 of wages, $ 3,750 of which is identified on a Form W-2, Wage and Tax Statement, 1995, as being paid by Complete Connections Trust to James Snyder. The 1992 through 1995 Forms 1040 do, however, report the following amounts of income from J&R Trust:
Year Amount
____ ______
1992 $ 15,219
2001 Tax Ct. Memo LEXIS 291">*298 1993 11,773
1994 14,950
1995 18,659
FEDERAL INCOME TAX RETURNS FOR COMPLETE CONNECTIONS TRUST
Beginning with 1992, and continuing for 1993, 1994, and 1995, either Rita or James Snyder made a return of income on Form 1041, U.S. Fiduciary Return of Income (for 1992 and 1993) or U.S. Income Tax Return for Estates and Trust (for 1994 and 1995), claiming to report the income of Complete Connections Trust, a complex trust, created on January 1, 1992, and carrying on a business of the same name (such returns being referred to, collectively, as the Complete Connections Trust returns). Each of the Complete Connections Trust returns is signed by one or the other of James or Rita Snyder as a fiduciary. For 1992, one "Kevin R. Richards" is reported as a fiduciary, and, for 1995, such person is reported as "trustee". The business carried on under the name Complete Connections is described as, for 1992, bookkeeping, taxes, and computer sales and, for the remaining years, "business services." The Complete Connections Trust returns report the following amounts of2001 Tax Ct. Memo LEXIS 291">*299 gross receipts and miscellaneous income from such business and interest income unrelated to such business:
Gross Receipts
Year & Misc. Items Interest Total
____ ______________ ________ _____
1992 $ 183,482 -- $ 183,482
1993 229,466 $ 159 229,625
1994 214,517 221 214,738
1995 295,903 -- 295,903
The Complete Connections Trust returns report the following costs of goods sold, expenses, and net profits:
Cost of Goods
Year Sold Expenses Net profit
____ _____________ ________ __________
1992 $ 73,027 $ 80,028 $ 30,427
1993 107,168 84,013 38,285
1994 98,830 93,440 22,247
1995 147,637 123,466 24,800
The Complete2001 Tax Ct. Memo LEXIS 291">*300 Connections Trust returns report the following deductions on account of distributions of income to J&R Trust:
Year Amount
____ ______
1992 $ 30,427
1993 38,444
1994 21,608
1995 24,800
For each trust year in question, such income distribution deduction, along with a charitable contribution deduction of $ 860 for 1994, was sufficient to reduce reported taxable income to zero. A tax liability of zero was reported for each trust year, 1992 through 1995.
RITA SNYDER'S BUSINESS
During the years in issue, Rita Snyder engaged in business as a paid tax return preparer, under the name "Complete Connections".
COMPLETE CONNECTIONS CHECKING ACCOUNT
A business checking account, account number 002-502704, in the name of "Complete Connections" (the Complete Connections checking account), was opened at Santa Lucia National Bank no later than August 9, 1990, and was closed on January 28, 1999. The signature2001 Tax Ct. Memo LEXIS 291">*301 card for that account describes the account as a trust account and shows as signatories both Rita and James Snyder, each of whom is described as a manager. All checks drawn on the Complete Connections checking account during 1995 were signed by either James or Rita Snyder.
FEDERAL INCOME TAX RETURN FOR J&R TRUST
Beginning with 1992, and continuing for 1993, 1994, and 1995, either Rita or James Snyder made a return of income on Form 1041, U.S. Fiduciary Return of Income (for 1992 and 1993) or U.S. Income Tax Return for Estates and Trust (for 1994 and 1995), claiming to report the income of J&R Trust, a complex trust, created on January 1, 1992, and carrying on (1) a business named "J & R" and (2) other activities (such returns being referred to, collectively, as the J&R Trust returns). Each of the J&R Trust returns is signed by one or the other of James or Rita Snyder as a fiduciary. For 1992, one "Kevin R. Richards" is reported as a fiduciary, and, for 1995, one "David J. Snyder" is reported as "trustee". The business carried on under the name J & R is described as, for 1992, "management services" and, for the remaining years, "investments". The J&R Trust returns report the following2001 Tax Ct. Memo LEXIS 291">*302 amounts of gross receipts from such business and interest income unrelated to such business:
Year Gross Receipts Interest Total
____ ______________ ________ _____
1992 -- -- --
1993 $ 11,606 $ 159 $ 11,765
1994 15,000 334 15,334
1995 8,800 242 9,042
With respect to such business, the following expenses and net profits are reported:
Year Expenses Net profit
____ ________ __________
1992 $ 20,512 ($ 20,512)
1993 28,096 (16,490)
1994 4,233 10,767
1995 4,467 4,446
The J&R Trust returns also report net rental income and distributions received from Complete Connections Trust in the following amounts:
Year Rental 2001 Tax Ct. Memo LEXIS 291">*303 Distribution
____ ______ ____________
1992 $ 11,791 $ 30,427
1993 10,200 1 38,285
1994 (5,600)
1995 912 24,800
The J&R Trust returns report the following deductions on account of distributions of income to petitioners: 5
2001 Tax Ct. Memo LEXIS 291">*304 Year Distribution
____ ____________
1992 $ 18,673
1993 27,444
1994 35,643
1995 28,441
For each trust year in question, such income distribution deduction, along with charitable contribution deductions of $ 3,033, $ 4,710, $ 1,253, and $ 1,959 for such years, respectively, was sufficient to reduce reported taxable income to zero. A tax liability of zero was reported for each trust year, 1992 through 1995.
J&R CHECKING ACCOUNT
A business checking account, account 002-506610, in the name of "J & R 'A TRUST'" (the J&R checking account), was opened at Santa Lucia National Bank no later than February 25, 1994. The signature card for that account describes the account as a trust account and shows as signatories both Rita and James Snyder, each of whom is described as a manager. The address shown on the J&R checking account signature card, checks, and monthly statements is the same as the address shown on petitioners' tax returns. All checks drawn on the2001 Tax Ct. Memo LEXIS 291">*305 J&R checking account during 1995 were signed by either James or Rita Snyder. Such checks included checks drawn to the order of Rita Snyder, James Snyder, Robert C. Miller, D.D.S., Big Creek Lumber Co., Southern California Gas Co., Pacific Bell, All States, Wal Mart, Home Furniture Gallery, Dan's Economy Tires, Albertsons, Paso Robles Waste Disposal, New Covenant Church of God, K Mart, Steven J. Harmon, M.D., Central Coast Pathology, Payless Shoes, Musician's Emporium, Bakery Works, and Bauer Speck Student Council.
PETITIONERS' RESIDENCE
Petitioners purchased their personal residence (the residence), located at 386 Quarterhorse Lane, Paso Robles, California, on November 9, 1992. The grant deed by which they acquired the residence (the first grant deed) shows the grantees as "James D. Snyder and Rita K. Snyder, husband and wife as tenants in common". By grant deed dated November 11, 1992 (the second grant deed), petitioners (in the same capacity as in the first grant deed) transferred the residence to Kevin R. Richards and David J. Snyder, as trustees for J&R Trust. The second grant deed was recorded on August 12, 1993. Between the dates of execution and recordation of the second grant2001 Tax Ct. Memo LEXIS 291">*306 deed, by deed of trust dated June 15, 1993, and recorded June 23, 1993, petitioners, as "husband and wife", encumbered the residence to secure their indebtedness to United Savings Bank in the amount of $ 141,300.
RESPONDENT'S ADJUSTMENTS
Attached to the notice are statements listing and explaining respondent's adjustments to petitioners' income. Among the adjustments listed are the following, involving respondent's attribution to petitioners of income from Complete Connections Trust and J&R Trust:
Trust 1992 1993 1994 1995
_____ ____ ____ ____ ____
Comp. Conn. $ 194,205 $ 229,625 $ 214,738 $ 295,903
J&R -- 11,766 15,334 9,042
In the case of both trusts, respondent explains the adjustments as resulting from, alternatively, (1) respondent's disregard of the trust, since it "is a sham with no economic substance", (2) the status of the trust as a grantor trust, (3) application of the assignment of income doctrine (pursuant to which income is taxed to the true earner of that income), and (4) application of sections 652(a) 2001 Tax Ct. Memo LEXIS 291">*307 or 662(a) (including in the gross income of beneficiaries certain trust amounts). Also in the case of both trusts, respondent explains that petitioners have failed to show that they are entitled to any deductions in excess of the amounts determined by respondent.
OPINION
In pertinent part,
(2) Limitations. -- Paragraph (1) 2001 Tax Ct. Memo LEXIS 291">*308 shall apply with respect
to an issue only if --
(A) the taxpayer has complied with the requirements
under this title to substantiate any item; [and]
(B) the taxpayer has maintained all records required
under this title and has cooperated with reasonable
requests by the Secretary for witnesses, information,
documents, meetings, and interviews; * * *
The burden is on the taxpayer to show that the prerequisites are satisfied. See H. Conf. Rept. 105-599, at 240-241 (1998),
2001 Tax Ct. Memo LEXIS 291">*309
Respondent bears the burden of production with respect to penalties. See
1. PETITIONERS' ARGUMENTS
Respondent has adjusted petitioners' income by attributing to petitioners items of income reported by Complete Connections Trust and J&R Trust. Respondent has done so under the various theories set forth in our findings of fact. In the petition, petitioners have assigned error to such adjustments but have averred no facts in support of such assignments other than facts concerning perceived procedural errors by respondent. On brief, petitioners' principal argument is that respondent has committed procedural errors. We distill from the petition and petitioners' briefs the following components of petitioners' argument: (1) They did not receive a valid notice of deficiency, (2) no tax has been assessed, and (3) they were denied "due process" during the examination of their returns.
2. RESPONSE TO PETITIONERS' ARGUMENTS
Respondent sees no merit in petitioners' arguments. We agree with that observation.
a. VALIDITY OF NOTICE
Petitioners allege defects in the notice, including that it and its attachments (1) were not signed under2001 Tax Ct. Memo LEXIS 291">*310 penalties of perjury, (2) do not cite any "taxing statute" or contain "certified evidence" to support the adjustments, and (3) constitute hearsay.
A short answer to most of petitioners' complaints can be found in an opinion of the Court of Appeals for the Ninth Circuit, the Court of Appeals to which any appeal in this case likely would lie:
The Internal Revenue Code does not require the notice of
deficiency to be signed. See
Secretary determines that there is a deficiency * * * he is
authorized to send such deficiency to the taxpayer by certified
mail or registered mail"); see also
need not be signed). Moreover, in Scar v. Commissioner, we held
that "no particular form is required for a valid notice of
deficiency * * * and the Commissioner need not explain how the
deficiencies were determined."
1987) (citation omitted). * * *
Petitioners' hearsay objection is misplaced. The notice does not constitute hearsay, since it was not admitted into evidence for the truth of the matters asserted therein, see
b. ASSESSMENT OF TAX
Petitioners argue that, since respondent has not made an assessment of tax under section 6203, there is no deficiency and, therefore, the notice is invalid and this Court lacks jurisdiction.
Petitioners fail to understand that, generally, the determination of a deficiency in tax precedes assessment of the tax. In pertinent part,
c. AUDIT LEVEL PROCEDURES
Petitioners argue that they were deprived of due process because respondent allegedly did not follow administrative procedures during the audit of their returns.
Proceedings before the Tax Court are de novo; therefore, our determination of a taxpayer's liability is based on the merits of the case and not on the record developed at the administrative level.
1. INTRODUCTION
Notwithstanding the lack of merit to petitioners' arguments, petitioners have assigned error to respondent's adjustments. The evidence supports those adjustments, and petitioners have offered nothing in rebuttal. Based on the facts we have found, we infer (and find) the following additional facts: Both before and after the years in issue, petitioners carried on a proprietorship variously called "Complete Connection", "Complete Connections", or "Complete Connections Computer Systems" (without distinction, Complete Connections). During such preceding and following years, under the name Complete Connections, petitioners provided tax preparation, bookkeeping, and accounting services, and engaged in certain computer related services. During the years in issue, petitioners engaged in some or all of those2001 Tax Ct. Memo LEXIS 291">*315 activities and reported gross receipts from such activities and miscellaneous related items of income on returns they made for Complete Connections Trust. Petitioners exercised control over Complete Connections Trust, as evidenced by their signatures, as fiduciaries, on the Complete Connections Trust returns and their authority to write checks on the Complete Connections checking account. Petitioners distributed the income of Complete Connections Trust to J&R Trust. J&R Trust reported such income and also reported gross receipts from business and interest. Petitioners transferred their residence to J&R Trust, but continued to treat it as if they owned it, as evidenced by their use of the residence to secure an indebtedness of theirs after their purported transfer of it to the trust. Petitioners exercised control over J&R Trust, as evidenced by their signatures, as fiduciary, on the J&R Trust returns and their authority to write checks on the J&R checking account. Petitioners distributed the income of J&R Trust to themselves and used the J&R Trust account to pay their personal expenses, as evidenced by checks drawn, for instance, to Robert C. Miller, D.D.S., New Covenant Church of God, 2001 Tax Ct. Memo LEXIS 291">*316 K Mart, Steven J. Harmon, M.D., Central Coast Pathology, Payless Shoes, Musician's Emporium, Bakery Works, and Bauer Speck Student Council.
2. FUNDAMENTAL PRINCIPLES
A fundamental principle of tax law is that income is taxed to the person who earns it. See
Attempts to subvert * * * [the fundamental principle that income
is taxed to the person who earns it] by diverting income away
from its true earner to another entity by means of contractual
arrangements, however cleverly drafted, are not recognized as
dispositive for Federal income tax purposes, regardless of
whether such arrangements are otherwise valid under State law.
See
or entity who controlled the earning of such income, rather than
the person or entity who received the income. See
retains sufficient power and control over the assigned property
or over receipt of the income to make it reasonable to treat him
as the recipient of the income for tax purposes."). * * *
Pursuant to a second fundamental principle, we may ignore a transfer in trust as a sham where the transfer has not, in fact, altered any cognizable economic relationship between the putative transferor and the trust property. See, e.g.,
(1) Whether the taxpayer's relationship as grantor to the
property differed materially before and after the trust's
formation; (2) whether the trust had an independent trustee; (3)
whether an economic interest passed to other beneficiaries of
the trust; and (4) whether the taxpayer felt bound by any
restrictions imposed by the trust itself or by the law of
trusts. * * *
3. GRANTOR TRUST PROVISIONS
Under specified circumstances, the statutory grantor trust provisions (
4. ANALYSIS
a. INCOME
With respect to Complete Connections Trust, we have found that petitioners carried on the same business activities both before and after the trust reported income from such activities, and we have found that petitioners exercised control over the trust. Such facts are consistent with (1) respondent's application of the assignment of income doctrine to tax to petitioners at least the trust's income derived from their personal services and (2) his disregard of the trust as a sham, which would tax all of the trust's income to petitioners. Petitioners have failed to introduce into evidence any indenture or other document establishing the terms of Complete Connections Trust, nor have they obtained the testimony of Kevin Richards, who is described on two of the Complete Connections Trust returns as either2001 Tax Ct. Memo LEXIS 291">*320 fiduciary or trustee. Petitioners were made aware of the need for the trust documents during the examination of their returns for the years in issue, and such documents were requested during discovery. They have not demonstrated (nor would we easily believe) that they lacked access to such documents, nor have they shown that Mr. Richards is unavailable to testify. We infer from petitioners' failure to produce such evidence that either it does not exist or, if it does exist, it would be negative to petitioners.
With respect to J&R Trust, we have less information with respect to its business or income producing activities (we know it obtained title to the residence (petitioners' home) and paid their personal expenses). Nevertheless, we are confident that petitioners must take into account the trust's income attributed to them by respondent since, for similar reasons as with respect to Complete Connections Trust, petitioners have failed to prove that the trust should not be disregarded as a sham or is not a grantor trust.
b. DEDUCTIONS
In the case of both trusts, respondent has attributed to petitioners substantial amounts of gross receipts from business without allowing them various offsetting business deductions (and costs) claimed by the trusts. In the2001 Tax Ct. Memo LEXIS 291">*322 notice, respondent explains that petitioners have failed to show their entitlement to such deductions. In the petition, petitioners aver no facts concerning such deductions, and, on brief, they have proposed no fact, and made no argument, with respect to such deductions. At best, we know that Rita Snyder prepared tax returns and may have provided other business services. James Snyder testified that he was in the "general computer business", buying and selling computers and doing service work and installations. While we assume that James Snyder incurred costs in buying computers for resale, we have no basis other than the self- serving figures on the Complete Connections tax returns for estimating such costs. We need not accept those figures. A taxpayer must keep sufficient records to substantiate amounts, such as the cost of goods sold, required to be shown on a return. See
The income adjustment on account of Complete Connections Trust for 1992 is $ 194,205, while gross receipts reported by Complete Connections Trust for that year are only $ 183,482 (no miscellaneous items of income are reported). There is no explanation for that difference, and, therefore, we cannot sustain an income adjustment for 1992 on account of Complete Connections Trust2001 Tax Ct. Memo LEXIS 291">*324 in an amount greater than $ 183,482. For J&R Trust for all years, and for Complete Connections Trust for 1993 through 1995, we sustain income adjustments in the amounts determined by respondent, except as follows. For all years, income attributed from the trusts to petitioners must be reduced to reflect income distributions from J&R Trust to petitioners reported on the 1992 through 1995 Forms 1040 and salary payments and any other amounts so reported. The parties shall take such adjustments into account in making the Rule 155 computation here required.
Respondent bears the burden of production with respect to all penalties. See
1. INTRODUCTION
Respondent asks that we impose a penalty against petitioners under section 6673(a)(1). That section provides:
(a) Tax Court Proceedings. --
(1) Procedures instituted primarily for delay, etc. --
Whenever it appears to the Tax Court that --
(A) proceedings before it have been instituted or
maintained by the taxpayer primarily for delay,
(B) the taxpayer's position in such proceeding is
frivolous or groundless, or
(C) the taxpayer unreasonably failed to pursue
available administrative remedies,
the Tax Court, in its decision, may require the taxpayer2001 Tax Ct. Memo LEXIS 291">*327 to
pay to the United States a penalty not in excess of
$ 25,000.
The purpose of
2. THE PETITION
Petitioners' assignments of error include the following: Respondent's failures to show (1) "documented authority to impose a tax liability", (2) the "legal authority2001 Tax Ct. Memo LEXIS 291">*329 to impose a tax liability", and (4) "the authority source for the imposition of a legal tax obligation upon revenue sources from within the United States". Petitioners' averments in support of their assignments of error include the following:
The Notice of Deficiency is required by Internal Revenue Code to
be signed by a duly appointed assessment officer. There is
nothing indicated on form 4549-A, which is an attachment to the
Notice of Deficiency that clearly defines that a duly authorized
signature is present as required by the Internal Revenue Code
sec. 6201, nor are any of the forms in compliance to 26 USC
section 6065.
Petitioner, on information and belief, alleges that the sole
purpose of respondent's Notice of Deficiency is for the obvious
purpose of ensnaring the petitioner into a fraudulently obtained
Federal Tax Court jurisdiction.
On the provision that this petitioner is properly documented in
the Trust's "Individual Master File" (IMF), this Trust's source
of revenue is from within the United States and does not conform
to any federally regulated2001 Tax Ct. Memo LEXIS 291">*330 "taxable objects".
Petitioner, on information and belief, disputes the "statutory
grouping of gross income and the residual grouping of gross
income" as it may relate to this matter pursuant to 26 CFR
Those assignments and averments contain tax-protester rhetoric that we are all too familiar with, and which courts have rejected time and time again. See, e.g., our discussion supra at section II.A.2.a. (Validity of Notice);
3. FAILURE TO COOPERATE
By order dated April 26, 2000 (the order), we granted in part respondent's motions to compel responses to interrogatories and to compel production of documents (the motions). We granted the motions to the extent that we ordered compliance with such discovery. We set for hearing those portions of the motions seeking the imposition of sanctions if petitioners failed to comply with the order. We held such hearing on June 5, 2000 (the hearing), when this case was called from the calendar at the trial session of the Court commencing that day in San Francisco, California. We imposed sanctions because of petitioners' failure to comply with the order. In the motions, respondent detailed petitioners' failures to cooperate in the examination of the 1992 through 1995 Forms 1040 by respondent's agents prior to the issuance of the notice and their failure to cooperate in preparing this case for trial. Specifically, respondent claimed: "Petitioners James and Rita Snyder did not provide any documents or other information to the Internal Revenue Service during the audit of their 1992 through 1995 Forms 1040 Federal Income Tax Returns." Attached to the motions are copies of2001 Tax Ct. Memo LEXIS 291">*332 letters and documents evidencing respondent's repeated, unsuccessful efforts to obtain petitioners' cooperation in discovery. At the hearing, petitioners had the opportunity to rebut such claims that petitioners had failed to cooperate, but they did not. We accept those claims as true.
4. DELAY
Petitioners failed to cooperate in discovery, which we can (and do) consider as evidence of an intent to delay these proceedings. See, e.g.,
Petitioners refused to stipulate certain Government records, such as deeds to their home, and business licenses for Complete Connections Trust, which petitioners themselves completed and submitted to the appropriate local agency. As a result, respondent was forced to obtain certified copies of these records and offer them separately to the Court.
Petitioners filed a motion on June 5, 2000, requesting that the notice be declared invalid, which motion the Court denied. On October 2, 2000, petitioners filed another motion requesting that the notice be declared invalid despite the fact that the Court had already considered the issue, which motion the Court again denied.
Finally, on brief, petitioners have failed to address the substance of respondent's objections.
5. CONCLUSION
Petitioners are deserving of a penalty under
Without good reason, petitioners have burdened respondent and this Court with a case that we believe should not have been brought. As a penalty for such action, we impose a penalty under
An appropriate order and decision will be entered under Rule 155.
1. In their reply brief, petitioners state: "The statute of limitations has expired for the years in question. Respondent has failed to provide the petitioner any facts or evidence showing where the statute of limitation has been extended for any of the tax years in question." In pertinent part, Rule 39 provides that a party shall set forth in the party's pleading any matter constituting an affirmative defense, "including * * * the statute of limitations". The petition does not raise any issue with respect to the statute of limitations, and we cannot conclude that such issue was tried by consent. See Rule 41(b). The affirmative defense of statute of limitations is not before the Court. In any event, it appears that sec. 6501 would not limit the assessment or collection of any of the tax liabilities here in issue. See sec. 6501(a), (e)(1).↩
2. In naming, describing, or referring to Complete Connections Trust and J&R Trust, we use the term "trust" for convenience, without intending a finding that, in either case, a trust relationship did, in fact, exist.↩
3. The amount of petitioners' liability for self-employment taxes and the amount of the deductions under sec. 164(f) to which petitioners are entitled are computational matters, the resolution of which will depend upon our disposition of the gross income issue. Petitioners have not separately challenged such liability and deduction, and we do not further discuss those items.↩
4. This also is a computational matter, which petitioners have not separately challenged, and we will not further discuss it.↩
1. The difference between this amount and the deduction claimed by Complete Connections Trust for a distribution of income for the year is explained by J&R Trust's separate statement of interest income for the year.↩
5. Such distributions, when reduced by (1) interest from J&R Trust reported by petitioners and (2) some or all of the categories of depreciation allocated to them by J&R Trust, equal, almost to the dollar, the income reported by petitioners as having been received by J&R Trust:
Year Distribution Interest Depreciation Difference
____ ____________ ________ ____________ __________
1992 $ 18,673 -- $ 3,453 $ 15,222
1993 27,444 $ 76 15,535 11,773
1994 35,643 318 10,374 14,951
1995 28,441 226 9,555 18,660↩
6. Even if petitioners had not (by their counsel) so conceded, there is evidence to support such a finding. For instance, petitioners failed to respond to respondent's interrogatories (and were sanctioned by the Court for such failure) and failed to cooperate with respondent in stipulating facts for trial. Respondent's motions to compel production of documents and responses to interrogatories contain a litany of petitioners' failures to provide information to respondent during the audit of their income tax returns or cooperate in preparation of this case for trial. Petitioners have provided no rebuttal to such litany.↩
COMMISSIONER OF INT. REVENUE v. Oswego Falls Corp. , 71 F.2d 673 ( 1934 )
Cohan v. Commissioner of Internal Revenue , 39 F.2d 540 ( 1930 )
Wallace J. Vnuk and Frances R. Vnuk v. Commissioner of ... , 621 F.2d 1318 ( 1980 )
Frank Muhich, Virginia Muhich, and Midwest Portraits ... , 238 F.3d 860 ( 2001 )
Norman E. Coleman v. Commissioner of Internal Revenue, Gary ... , 791 F.2d 68 ( 1986 )
la-verne-schulz-and-barbara-schulz-v-commissioner-of-internal-revenue-la , 686 F.2d 490 ( 1982 )
Lucas v. Earl , 50 S. Ct. 241 ( 1930 )
George v. Zmuda and Walburga Zmuda v. Commissioner of ... , 731 F.2d 1417 ( 1984 )
Howard S. Scar and Ethel M. Scar v. Commissioner of ... , 814 F.2d 1363 ( 1987 )
Gregory W. McKay v. Commissioner of the Internal Revenue ... , 886 F.2d 1237 ( 1989 )
Ruth E. Urban v. Commissioner of Internal Revenue Service , 964 F.2d 888 ( 1992 )
Preben Norgaard Sandra C. Norgaard v. Commissioner Internal ... , 939 F.2d 874 ( 1991 )
Commissioner v. Sunnen , 68 S. Ct. 715 ( 1948 )
Commissioner v. Culbertson , 69 S. Ct. 1210 ( 1949 )
McKay v. Commissioner , 89 T.C. 1063 ( 1987 )