The opinion
T.C. Memo. 2004-33
UNITED STATES TAX COURT
TONY J. CAVENDER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3822-02. Filed February 10, 2004.
Mark H. Westlake, for petitioner.
James L. May, Jr., for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
SWIFT, Judge: Respondent determined a deficiency in
petitioner’s 1998 Federal income tax and additions to tax as
follows:
Additions to Tax
Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654(a)
$63,183 $12,531 $7,518 $2,490
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All section references are to the Internal Revenue Code in
effect for the year in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
After concessions, the primary issue for decision is whether
petitioner received additional wage income in the amount of
$102,126.
FINDINGS OF FACT
Some facts are stipulated and are so found.
At the time the petition was filed, petitioner resided in
Fairview, Tennessee. Petitioner’s filing status for 1998 was
“married filing separate”.
In May 1998, petitioner incorporated under Tennessee law
Champion Home Centers, Inc. (Champion), to sell modular homes.
Throughout 1998, petitioner was an employee of and was the sole
shareholder in Champion. Although the record in this case does
not disclose petitioner’s particular title as an employee of
Champion, petitioner was in control of Champion.
In the fall of 1998, petitioner hired a part-time bookkeeper
to work for Champion. The bookkeeper worked 10 hours a week for
approximately 5 months.
On December 30, 1998, a check in the amount of $95,233 was
drawn on Champion’s checking account at Franklin National Bank.
The check was made payable to petitioner and stated on its face
that it related to “Payroll 12-31-98”. The check was made out by
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the bookkeeper and was signed by petitioner on behalf of
Champion.
The above check was received by and was endorsed by
petitioner as payee. Petitioner, however, did not actually
receive the $95,233 in cash. Rather, on March 29, 1999, the
endorsed but unnegotiated check was given by petitioner to
Franklin National Bank for deposit of the $95,233 face amount of
the check into Champion’s checking account. The bank treated the
transaction as if petitioner had cashed the check on March 29,
1999, and then immediately deposited the $95,233 back into
Champion’s checking account.
The above-referenced $95,233 check was numbered 1546.
Checks clearing Champion’s checking account in January 1999 were
numbered from 1524 to 1606 with the exception of check No. 1546.
Checks clearing Champion’s checking account in March 1999
generally were numbered from 1663 to 1755.
On the dates indicated, Champion’s bank statements reflected
the following positive balances:
Date Amount
10/30/98 $129,547.45
11/02/98 126,317.66
11/30/98 142,684.18
12/01/98 144,284.18
12/31/98 81,883.01
01/04/99 103,654.01
01/29/99 95,837.24
02/01/99 93,784.47
02/26/99 56,442.35
03/01/99 15,875.91
03/31/99 78,530.63
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In early 1999, there was issued to petitioner on behalf of
Champion a Form W-2, Wage and Tax Statement (W-2), reflecting
that during 1998 Champion had paid wages to petitioner in the
total amount of $129,541.
Petitioner’s 1998 individual Federal income tax return was
not timely filed.
Champion’s 1998 corporate Federal income tax return was
timely filed with respondent. On that corporate tax return, the
full $129,541 reflected as wages paid to petitioner on the above
W-2, including the $95,233 amount of check No. 1546, was
reflected as a wage expense deduction of Champion.
On November 5, 2001, pursuant to an audit and respondent’s
preparation of a substitute 1998 tax return for petitioner,
respondent mailed to petitioner a notice of deficiency for 1998
in which respondent determined, among other things, that the
$95,233 face amount of check No. 1546 constituted taxable wage
income to petitioner in 1998. Respondent also determined that
the additional $34,308 reflected on the W-2 issued to petitioner
constituted taxable wage income to petitioner in 1998.
In September 2002, petitioner hired a certified public
accountant to review petitioner’s and Champion’s books and
records and to prepare tax returns on behalf of petitioner and
Champion.
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In December 2002, shortly before trial herein, there was
issued to petitioner on behalf of Champion a Form W-2c, Corrected
Wage and Tax Statement for 1998. At the same time, there was
filed with respondent on behalf of Champion a Form W-3c,
Transmittal of Corrected Wage and Tax Statements for 1998. Both
statements reflected that, during 1998, Champion had paid wages
to petitioner in the total amount of only $27,415.
On December 27, 2002, petitioner filed with respondent his
original 1998 individual Federal income tax return, which the
accountant had prepared. On that return, petitioner reported
total wages received in 1998 from Champion of only $27,415.
Also on December 27, 2002, there was filed with respondent
on behalf of Champion an amended 1998 corporate Federal income
tax return for 1998, reflecting a $102,126 decrease in the
deduction claimed for wages paid to petitioner.1
OPINION
Taxable Wage Income
Section 61(a) defines gross income as “all income from
whatever source derived,” including compensation for services.
The Supreme Court has held that gross income includes “undeniable
accessions to wealth, clearly realized, and over which the
1
$129,541 (wage deduction claimed on Champion’s original
1998 corporate Federal income tax return) less $27,415 (wage
deduction claimed on Champion’s amended 1998 corporate Federal
income tax return) equals $102,126.
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taxpayers have complete dominion.” Commissioner v. Glenshaw
Glass Co., 348 U.S. 426, 431 (1955).
In Crary v. Commissioner, T.C. Memo. 1970-40, a taxpayer
paid to his employer the same amount of a paycheck the taxpayer
had received from his employer on the same day. We held that,
regardless of the subsequent payment to his employer, the amount
of the paycheck was to be included in the taxpayer’s income.
In Merritt v. Commissioner, T.C. Memo. 2003-187, a taxpayer
argued that he was entitled to reduce independent contractor fees
received from a law firm by an amount he, in the same year, paid
back to the firm. We held that the total amount of the fees
received by the taxpayer constituted taxable income regardless of
the amount later paid back to the firm.
Petitioner argues that the reason the $95,233 check from
Champion was made out to and was given to him was to support an
inflated wage expense deduction on Champion’s 1998 corporate tax
return. Petitioner alleges that the $95,233 check was not signed
by him on behalf of Champion until March 29, 1999, and that it
was backdated by Champion’s part-time bookkeeper to December 30,
1998.
Respondent contends that the full $95,233 reflected by check
No. 1546 should be treated as wage income to petitioner in 1998.
Champion’s bank statements indicate that the $95,233 check
was written in late December 1998. Checks with similar numbers,
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including those immediately preceding and succeeding check No.
1546, cleared Champion’s bank account in January 1999.
From October 1998 through January 1999, Champion’s bank
statements, with some variation, reflect significant positive
balances. Petitioner controlled Champion, and he had control
over the funds in Champion’s bank account.
Respondent’s determination herein “has the support of a
presumption of correctness, and the petitioner has the burden of
proving it to be wrong.” Welch v. Helvering, 290 U.S. 111, 115
(1933). Petitioner has not met this burden.2
Petitioner has offered no evidence that there was any
requirement or understanding that the $95,233 check would be
returned to Champion. At trial, none of Champion’s books and
records were produced. Petitioner failed to call Champion’s
bookkeeper as a witness. Wichita Terminal Elevator Co. v.
Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162 F.2d 513 (10th
Cir. 1947).
We conclude that, in addition to the $27,415 in wage income
not contested by petitioner, the $95,233 reflected by check No.
1546 is to be treated as wage income taxable to petitioner in
1998.
2
Petitioner has not satisfied the requirements of sec.
7491(a)(1) and (2) or the requirements of sec. 6201(d), under
which, in some circumstances, a shift to respondent in the burden
of proof or production may be available.
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For lack of contrary evidence, we also conclude that the
$6,893, the amount contested by petitioner above the face amount
of check No. 1546, constitutes taxable wage income to petitioner
in 1998. In summary, for 1998, petitioner is to be taxed on
total income relating to his employment with Champion in the
amount of $129,541.3
Dependency Exemptions
In order to be entitled to the two dependency exemptions at
issue in this case, each claimed dependent must qualify under the
statutory definition of “dependent”. Secs. 151(c)(1), 152. The
definition of “dependent” includes a son or daughter of the
taxpayer, over half of whose support was paid by the taxpayer,
and who, at the end of the year, was either under the age of 19
or under the age of 24 and also a student as defined by section
151(c)(4). Secs. 151(c)(1)(B), 152(a)(1).
Petitioner offered no evidence as to his entitlement to the
claimed exemptions. We deny petitioner’s claimed dependency
exemptions.
Additions to Tax
Section 6651(a)(1) imposes an addition to tax for a
taxpayer’s failure to timely file his individual Federal income
3
$27,415 uncontested, plus $95,233 check, plus $6,893
equals $129,541.
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tax return unless such failure is due to reasonable cause and not
due to willful neglect. Section 6654(a) imposes an addition to
tax for an individual taxpayer’s failure to pay estimated tax.
Petitioner acknowledges that his 1998 individual Federal
income tax return was not timely filed. The tax deficiency that
we have sustained herein, on the facts of this case, prima facie
establishes petitioner’s liability for the section 6654(a)
addition to tax for failure to pay estimated tax. The evidence
herein does not establish petitioner’s entitlement to any
exception to these additions to tax. See Mendes v. Commissioner,
121 T.C. 308, 324-325 (2003).
Petitioner is liable for the additions to tax under sections
6651(a)(1) and 6654(a).4
We have considered all arguments made herein, and, to the
extent not addressed, we conclude that they are without merit or
are irrelevant.
To reflect the foregoing,
Decision will be entered
under Rule 155.
4
Respondent has conceded the sec. 6651(a)(2) addition to
tax that was asserted against petitioner.