The opinion
IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Income Tax
CHARLES THOMAS )
and CAROLYN THOMAS, )
)
Plaintiffs, ) TC-MD 150539C
)
v. )
)
DEPARTMENT OF REVENUE, )
State of Oregon, )
)
Defendant. ) FINAL DECISION1
Plaintiffs appeal Defendant’s deficiency assessment dated November 3, 2015, for the
2012 tax year. A trial was held in the Oregon Tax Court Mediation Center on March 30, 2016,
in Salem, Oregon. Michelle Hughes, Oregon Licensed Tax Consultant, appeared on behalf of
Plaintiffs. Charles Thomas (Thomas) testified on behalf of Plaintiffs. Kimberley Young
(Young) appeared and testified on behalf of Defendant. Plaintiffs’ Exhibits 1, 2, 3, and 6 were
received without objection. Defendant’s Exhibits C, E, G, H, K, and L were received without
objection.
I. STATEMENT OF FACTS
A. Plaintiffs’ Trial Testimony and Documentary Evidence
Thomas testified that he was a seasonal fresh water fishing guide in Alaska who earned
money taking customers on guided fishing trips. Thomas testified that he typically worked in
Alaska from May until the middle or end of September each year, including 2011 and 2012 (as
well as other years not relevant to this case). The parties agree that Thomas was licensed both in
1
This Final Decision incorporates without change the court’s Decision, entered July 13, 2016. The court
did not receive a statement of costs and disbursements within 14 days after its Decision was entered. See Tax Court
Rule–Magistrate Division (TCR–MD) 16 C(1).
FINAL DECISION TC-MD 150539C 1
Alaska and Oregon to conduct guided fishing trips. Thomas operated under the business name of
Chuck Thomas Professional Sportfishing. (Ptfs’ Exs 2 at 1-2, and 1 at 2.)
According to the undisputed testimony, Thomas kept a written record of all customers
who he took on guided fishing tours in Alaska, as required by Alaska fish and wildlife rules. As
the court understands the testimony, that log only included the names of the individuals boarding
the boat and their Alaska fishing license number. There may have been other information in the
log, but Thomas was not required to, nor did he, record the amount of money each customer paid
for the guided fishing trip. Plaintiffs did not submit that log into evidence. Thomas testified that
customers paid either by cash, check or credit card, but later during trial testified that customers
rarely pay in cash “these days.”
Plaintiffs submitted Thomas’s Joint Sales Tax Return for the Kenai Peninsula Borough
for the second and third quarters of 2011. (Ptfs’ Ex 1.) Thomas reported gross sales totaling
$32,003 for those two quarters, which, according to his testimony, were his total annual gross
receipts for 2011from his Alaska fishing business. (Id. at 1-2.) That matches the gross receipts
Thomas reported on his federal Schedule C for 2011. (Ptfs’ Ex 2.) Thomas further testified that
he made deposits in 2011, reflected in the business bank statements he provided, totaling
$23,319, which is $8,684 less than the gross receipts Plaintiffs reported for the two quarters
Thomas worked in Alaska that year. Thomas testified that the $8,684 difference was from cash
he earned from his Alaska guided fishing trips that he brought back with him to Oregon.
Thomas testified that he had nontaxable income in the form of gifts received from friends. He
did not elaborate. He then testified he made bank deposits in December 2011 and in January and
February 2012 from the $8,684 cash that he had on hand from the money he brought back from
Alaska in 2011. Thomas testified that the balance in his bank account was getting low in
FINAL DECISION TC-MD 150539C 2
December 2011 so he started making deposits from that cash on hand. On cross examination,
Thomas testified that he returned to Oregon from Alaska in September 2011 and that he did not
work after returning to Oregon from Alaska that year.
Plaintiffs submitted Thomas’s business bank account records for the month of April, and
June through December, of 2011. (Ptfs’ Ex 3.) Plaintiffs made reference to those bank
statements during the trial, but there was no direct testimony as to the contents or significance of
those documents. Plaintiffs did not submit any bank statements from 2012. The court reviewed
Plaintiffs’ 2011 bank statements and gleaned the following relevant information. Thomas’s
April 2011 business bank statement shows two direct deposits totaling $2,000. (Id. at 1.)
Thomas’s bank statements show total deposits of $1,294 in June 2011 from five separate
electronic deposits. (Id. at 4.) Total electronic and direct deposits for July, August, and
September were $9,256.10, $5,565.80, and $3,603.10, respectively. (Id. at 7, 10 and 13.) The
deposits for both August and September include single direct deposits towards the end of those
months in the amounts of $3,525 and $3,325, respectively. (Id. at 10, 13.) There were no
deposits in October or November, and one direct deposit of $1,500 in December of 2011. (Id. at
16, 18 and 20.)
B. Defendant’s Audit
Defendant selected Plaintiffs’ 2012 joint tax return for audit in August 2014. (Def’s Ex
D at 1.) On December 4, 2014, Defendant issued a proposed auditor’s report increasing
Plaintiffs’ taxable income by $12,766 based on a bank deposit analysis performed by the auditor
leading to an adjustment to Plaintiffs’ Schedule C gross receipts. (Id. at 11-13.) That proposed
adjustment resulted in additional tax owing in the amount of $1,150. (Id. at 11.) Plaintiffs were
given approximately two weeks to provide additional documentation if they disagreed with that
FINAL DECISION TC-MD 150539C 3
proposed adjustment. (Id. at 9.) The parties agreed during trial that Plaintiffs provided
Defendant with additional information. On January 21, 2015, Defendant issued a final Auditor’s
Report revising the amount of additional gross receipts down from $12,766 to $3,850. (Def’s Ex
F at 4.) That adjustment was based on information Plaintiffs provided showing that they had
$5,028 in 2011 tax refunds, “$487 in reimbursements already reported and taxed on the
secondary taxpayer’s W-2,” and “an explanation of $3,400 in deposits that were transferred from
[Plaintiffs’] personal account to the business account.” (Id.) The final Auditor’s Report found
$3,850 in unreported income which resulted in a tax to pay of $351 (down from the original
determination of $1,150 tax to pay). (Id. at 3.) Plaintiffs disagreed with Defendant’s final Audit
Report and submitted a written request for conference in February 2015. (Def’s Ex K at 1.)
Prior to the audit conference, held September 10, 2015, Plaintiffs submitted a letter to Defendant
dated August 25, 2015, stating: “I, Carolyn Thomas, loaned Charles E. Thomas, Jr. (Chuck
Thomas Professional Sportfishing LLC) $4000 in cash in increments during the early months of
2012 to pay business expenses.” (Id. at 9.) Defendant issued an audit conference letter
November 3, 2015, concluding that the August 25, 2015, letter and explanation given by Thomas
during the audit conference were not sufficient to prove that Plaintiffs had not understated their
income by $3,850. (Def’s Ex G at 1.) Plaintiffs appealed that determination to this court.
C. Defendant’s Position
Defendant’s representative Young, who reviewed Plaintiffs’ 2012 tax return and records
they provided before issuing the proposed and final auditor reports, testified about the audit
process and statements Thomas allegedly made during the audit interview. Young also briefly
went over her proposed and final auditor’s reports. Young also testified that the letter written by
Carolyn Thomas regarding an alleged loan in the amount of $4,000 was not considered
FINAL DECISION TC-MD 150539C 4
sufficient, by itself, to change Defendant’s finding that Plaintiffs had $3,850 in unreported
income. Young further testified that the letter regarding the $4,000 loan was not consistent with
Thomas’s trial testimony about the $8,684 in cash he brought back from Alaska in 2011 and kept
on hand for several months until his business account ran low on funds and he began depositing
that cash into his business account in December 2011, and January and February 2012. Young
concluded by stating that Plaintiffs had not provided any accurate records regarding Thomas’s
earned income, that there was no third-party substantiation to support Plaintiffs’ assertion that
they had cash on hand that accounted for the additional unreported income, but only Thomas’s
testimony. Defendant therefore requested that the court uphold its audit determination.
II. ANALYSIS
The issue in this case is whether Plaintiffs have established that the $3,850 Defendant
added to their 2012 Federal Schedule C, gross receipts, should be reversed. Plaintiffs bear the
burden on proof and must establish their case by a preponderance of the evidence. ORS
305.427.2 This court has previously ruled that “[p]reponderance of the evidence means the
greater weight of evidence, the more convincing evidence.” Feves v. Dept. of Rev., 4 OTR 302,
312 (1971) (citation omitted).
Plaintiffs have provided the court with virtually no persuasive evidence regarding the
disputed $3,850 Defendant determined was unreported Schedule C business income. Plaintiffs
acknowledge that there is a difference of $3,850 between the Schedule C income they reported in
2012 and their “bank statements.” Plaintiffs submitted an exhibit showing the $3,850 difference
between the reported 2012 Schedule C income and the bank deposits shown on their statements
for 2012, but they did not submit their 2012 bank statements into evidence, or even exchange
2
The court’s references to the Oregon Revised Statutes (ORS) are to 2015.
FINAL DECISION TC-MD 150539C 5
those documents prior to trial as possible evidence to be introduced at trial. Plaintiffs have
simply asked court to accept Thomas’s sworn testimony that he brought $8,684 back to Oregon
with him from Alaska in September 2011 and later deposited that money into his business
account sometime in 2012. That testimony is inconsistent with the letter Plaintiffs sent to
Defendant during the audit stating that Carolyn Thomas loaned Thomas’s fishing business
“$4000 in cash in increments during the early months of 2012 to pay business expenses.” (Def’s
Ex K at 9.) To further confuse matters, there was a brief bit of testimony from Thomas that the
“key to the case” was nontaxable income that either Thomas or Plaintiffs received from friends
in the form of gifts. It is unfortunate that Thomas did not keep track of the money his customers
paid him to go on his guided fresh water fishing excursions. A log book or receipts would have
been helpful in establishing Thomas’s 2012 business earnings.
III. CONCLUSION
On the record before it, the court concludes that Plaintiffs have failed to establish by a
preponderance of the evidence that they did not underreport Thomas’s 2012 business income by
$3,850. Now, therefore,
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FINAL DECISION TC-MD 150539C 6
IT IS THE DECISION OF THIS COURT that Plaintiffs’ appeal is denied and
Defendant’s 2012 assessment is upheld.
Dated this day of August 2016.
DAN ROBINSON
MAGISTRATE
If you want to appeal this Final Decision, file a complaint in the Regular
Division of the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR
97301-2563; or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.
Your complaint must be submitted within 60 days after the date of the Final
Decision or this Final Decision cannot be changed. TCR-MD 19 B.
This document was filed and entered on August 2, 2016.
FINAL DECISION TC-MD 150539C 7