United States Tax Court

United States Tax Court

T.C. Memo. 2022-101

WILLIAM T. ASHFORD,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

—————

Docket Nos. 17590-18, 2492-19.

Filed September 29, 2022.

—————

William T. Ashford, pro se.

Timothy J. Driscoll and Amy Dyar Seals, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

VASQUEZ, Judge: In these consolidated cases respondent

determined deficiencies and additions to tax with respect to petitioner’s

2013 and 2014 federal income tax as follows: 1

1 Unless otherwise indicated, all statutory references are to the Internal

Revenue Code, Title 26 U.S.C., in effect at all relevant times, and all Rule references

are to the Tax Court Rules of Practice and Procedure.

Served 09/29/22

2

[*2]

Additions to Tax

Year

Deficiency

§ 6651(a)(1)

§ 6651(a)(2) 2

§ 6654(a)

2013

$30,347

$6,756.08

$7,506.75

$538.57

2014

32,142

7,143.98

5,873.94

569.37

The issues for decision are whether petitioner (1) had unreported income

as set forth in the notices of deficiency; (2) is liable for the section 72(t)

additional tax relating to a distribution he received in 2013; (3) is liable

for additions to tax under section 6651(a)(1); (4) is liable for additions to

tax under section 6651(a)(2); (5) is liable for additions to tax under

section 6654(a); and (6) is liable for a frivolous position penalty under

section 6673(a)(1).

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. We

incorporate the First Stipulation of Facts and accompanying Exhibits by

this reference. Petitioner resided in North Carolina when the Petition

was filed.

Compensation for services and other economic activities

During taxable years 2013 and 2014 petitioner performed

services for Aviation Managed Solutions, Inc. (AMS), and served in the

Air National Guard. AMS paid petitioner $89,977 and $98,565 in 2013

and 2014, respectively, and reported those amounts on Forms 1099–

MISC, Miscellaneous Income. Petitioner also received wages of $5,924

and $6,380 in 2013 and 2014, respectively, from the Department of the

Air Force (Air Force). The Air Force reported those amounts on Forms

W–2, Wage and Tax Statement.

In 2013 petitioner received $4,300 from an individual retirement

account (IRA) held at National Financial Services, LLC, which reported

the distribution on Form 1099–R, Distributions From Pensions,

2 These amounts reflect the additions to tax under section 6651(a)(2) only

through the dates of the notices of deficiency. The additions to tax will continue to

accrue from the due date of the returns at a rate of 0.5% per month, or fraction thereof,

of nonpayment, not to exceed 25%.

3

[*3] Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance

Contracts, etc. Petitioner was under the age of 59-1/2 in 2013.

Substitutes for returns, notices of deficiency, and Tax Court proceedings

Although he filed an income tax return for 2012, petitioner did

not do so for 2013 or 2014. Having received no returns from petitioner

for the years in issue, respondent prepared substitutes for returns

(SFRs) on the basis of third-party reporting. 3 See § 6020(b). On

November 6 and June 6, 2018, respondent issued notices of deficiency

for 2013 and 2014, respectively. Therein respondent determined that

petitioner had taxable income as follows:

2013

2014

Retirement distribution

$4,300

-0-

Nonemployee compensation

89,977

$98,565

Wages

5,924

6,380

Total

$100,201

$104,945

The notices of deficiency also include determinations that petitioner is

liable for self-employment tax on the nonemployee compensation he

received for the years in issue. 4 Moreover, with respect to petitioner’s

2013 retirement distribution, respondent determined a 10% additional

tax under section 72(t).

In response to each notice, petitioner timely petitioned this Court,

and we consolidated these cases for trial, briefing, and opinion. Before

trial petitioner filed a Pretrial Memorandum, in which he advanced

frivolous arguments.

He also stipulated receiving the wages,

nonemployee compensation, and retirement distribution determined by

respondent. A remote trial was held at a Winston-Salem, North

Each SFR includes Form 4549, Income Tax Examination Changes, or

equivalent, Form 886–A, Explanation of Items, and Form 13496, IRC Section 6020(b)

Certification.

3

4 Petitioner does not address his liability for self-employment tax in his

Petitions or on brief and has therefore conceded the issue. See Rule 34(b)(4) (“Any

issue not raised in the assignments of error shall be deemed to be conceded.”); Mendes

v. Commissioner, 121 T.C. 308, 312–13 (2003); Rybak v. Commissioner, 91 T.C. 524,

566 (1988). For each year respondent determined self-employment tax, respondent

allowed petitioner a deduction for one-half of the self-employment tax to be paid.

4

[*4] Carolina, trial session of the Court. After trial, each party filed a

Simultaneous Opening Brief and Simultaneous Answering Brief.

Respondent’s Simultaneous Answering Brief includes a request that the

Court penalize petitioner pursuant to section 6673(a)(1).

OPINION

I.

Unreported income

A.

Burden of proof

The Commissioner’s determinations in a notice of deficiency are

generally presumed correct, and taxpayers bear the burden of proving

them erroneous. 5 Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933). The U.S. Court of Appeals for the Fourth Circuit, the appellate

venue in these cases absent stipulation to the contrary, has held that

the usual presumption of correctness applies in omitted income cases

where the Commissioner employs a “reasonable method of determining

income.” Williams v. Commissioner, 999 F.2d 760, 763–64 (4th Cir.

1993), aff’g T.C. Memo. 1992-153.

Respondent determined petitioner’s income on the basis of thirdparty information returns, and petitioner stipulated receiving the

amounts respondent determined. Respondent has thus shown reliance

on a reasonable method of determining income. See Robbins v.

Commissioner, T.C. Memo. 2017-247, at *6–7. The burden accordingly

shifts to petitioner to prove by a preponderance of the evidence that

respondent’s determinations are arbitrary or erroneous. See Helvering

v. Taylor, 293 U.S. 507, 515 (1935); Tokarski v. Commissioner, 87 T.C.

74, 76–77 (1986).

B.

Compensation and other income

Respondent determined that petitioner (1) had unreported wages

and nonemployee compensation for the years in issue and (2) had an

unreported retirement distribution for 2013. Petitioner disputes

5 Section 7491(a) provides that if, in any court proceeding, a taxpayer

introduces credible evidence with respect to any factual issue relevant to ascertaining

the liability for tax and meets other prerequisites, the burden of proof rests on the

Commissioner as to that factual issue. See Higbee v. Commissioner, 116 T.C. 438,

440–41 (2001). Petitioner has not shown that he satisfied the requirements of section

7491(a) to shift the burden of proof to respondent.

5

[*5] respondent’s determinations that he had taxable income for the

years in issue.

Section 1 imposes an income tax on taxable income, and section

63 defines taxable income as gross income minus deductions. Section

61(a) defines gross income to include “income from whatever source

derived.” More specifically, section 61(a)(1) includes in an individual’s

gross income any compensation for services. Amounts distributed from

an IRA are also includible in a taxpayer’s gross income as provided in

section 72 subject to certain exceptions. § 408(d)(1). Clearly, the wages,

nonemployee compensation, and retirement distribution received by

petitioner constitute gross income for federal income tax purposes. See

Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955) (stating

that gross income includes all accessions to wealth that are clearly

realized and under the control of the taxpayer); McNair v. Eggers, 788

F.2d 1509, 1510 (11th Cir. 1986) (per curiam) (describing the taxpayer’s

argument that his wages were not income as “patently frivolous”);

Grimes v. Commissioner, 82 T.C. 235, 237 (1984); Reiff v. Commissioner,

77 T.C. 1169, 1173 n.7 (1981).

Petitioner advances several arguments as to why the income he

stipulated receiving is nontaxable. For one, he cites a May 6, 2019,

Social Security Administration (SSA) statement pertaining to his 2013

taxable year. That document states: “Based on information provided to

us from the Internal Revenue Service, we are reducing the amount of

your self-employment income on your Social Security earnings record

from $83,093.00 to $0.00 for tax year 2013.” See § 6103(l)(1)(A) (“The

Secretary may . . . disclose returns and return information with respect

to . . . taxes imposed by chapters 2 [Tax on Self-Employment Income],

21, and 24, to the Social Security Administration for purposes of its

administration of the Social Security Act.”). Petitioner’s argument, as

we understand it, is that the SSA statement is a concession by

respondent that he did not have self-employment income for 2013.

However, respondent has not made such a concession in these

cases. To the contrary, the parties stipulated that petitioner had

received $89,977 from AMS for 2013. They also stipulated the

authenticity of a wage and income transcript showing that the $89,977

was reported as nonemployee compensation. Because petitioner’s

6

[*6] argument conflicts with stipulated facts, it has no merit. 6 See Rule

91(e) (“A stipulation shall be treated, to the extent of its terms, as a

conclusive admission by the parties to the stipulation, unless otherwise

permitted by the Court or agreed upon by those parties.”).

Petitioner also argues that the deficiencies are invalid because

(1) they are based on “Dummy Returns” and (2) respondent purportedly

lost his examination file for 2013. With respect to the former argument,

the contention that the Commissioner must file an SFR under section

6020(b) before determining a deficiency is frivolous. Stewart v.

Commissioner, T.C. Memo. 2005-212, 2005 Tax Ct. Memo LEXIS 212,

at *5 (citing Schiff v. United States, 919 F.2d 830, 832–33 (2d Cir. 1990)).

The Commissioner need not prepare an SFR under section 6020(b) in

order to determine a deficiency for a taxpayer who has not filed a return

for that year. Hartman v. Commissioner, 65 T.C. 542, 545 (1975);

Stewart, 2005 Tax Ct. Memo LEXIS 212, at *5. Where a taxpayer files

no return, the Commissioner may determine the deficiency as if a return

had been filed on which the taxpayer reported the amount of tax due

was zero; the deficiency is the amount of tax due. Laing v. United States,

423 U.S. 161, 174 (1976); Schiff, 919 F.2d at 832–33; Stewart, 2005 Tax

Ct. Memo LEXIS 212, at *5. In these cases petitioner did not file tax

returns for the years in issue, and respondent prepared SFRs before

issuing the deficiency notices. Even if we assumed that those SFRs

failed to satisfy the requirements of section 6020(b) (as petitioner

argues), the failure would not invalidate the deficiencies at bar.

As for petitioner’s contention that respondent lost his

examination file, a taxpayer may be entitled to due process relief if he

or she can show that the lost file includes documents that are material

in a constitutional sense. See Riland v. Commissioner, 79 T.C. 185, 195

(1982). However, “[t]he mere possibility that an item of undisclosed

information might have helped the defense, or might have affected the

outcome of the trial, does not establish ‘materiality’ in the constitutional

sense.” Id. (quoting United States v. Agurs, 427 U.S. 97, 109–10 (1976)).

Petitioner has not identified or even attempted to describe any specific

documents respondent purportedly lost. His argument therefore

amounts to mere speculation that respondent lost information that may

have helped him. Because such speculation does not establish

6 In April 2019 the IRS prematurely assessed the deficiency and additions to

tax for 2013 and then reversed that assessment the following month. The SSA’s

reduction of self-employment income from petitioner’s earnings record corresponds

with the IRS’s reversal of the premature assessment.

7

[*7] materiality in a constitutional sense, petitioner’s argument is

without merit.

Consequently,

unreported income. 7

II.

we

uphold

respondent’s

determinations

of

Additional tax under section 72(t)

For 2013 respondent determined that petitioner is liable for an

additional tax of $430 under section 72(t). Section 72(t)(1) imposes a

10% additional tax on the taxable amount of an early distribution from

a qualified retirement plan (as defined in section 4974(c)).

A

distribution is early if it is made before the recipient attains the age of

59-1/2. § 72(t)(2)(A)(i). However, the 10% additional tax does not apply

to certain distributions, such as those attributable to the taxpayer’s

disability or made for the payment of certain medical expenses. See

§ 72(t)(2)(A) and (B).

Petitioner does not address his liability for the section 72(t)

additional tax on brief. We therefore deem the issue conceded and

sustain respondent’s determination. See Mendes, 121 T.C. at 312–13 (“If

an argument is not pursued on brief, we may conclude that it has been

abandoned.”). 8

III.

Additions to tax

Section 6651(a)(1) provides for an addition to tax for failure to

timely file a return unless the taxpayer proves that the failure was due

to reasonable cause and not due to willful neglect. Section 6651(a)(2)

provides for an addition to tax for failure to timely pay the amount

shown as tax on a return unless the taxpayer proves that the failure was

due to reasonable cause and not due to willful neglect. Section 6654(a)

7 Petitioner also argues that the notice of deficiency for 2013 is ambiguous and

therefore invalid. This Court has held that a deficiency notice is valid if it objectively

places a reasonable taxpayer on notice that the Commissioner has determined a

deficiency in tax for a particular year and amount. Dees v. Commissioner, 148 T.C. 1,

6 (2017). The notice of deficiency clearly reflects respondent’s determination that

petitioner has a deficiency in income tax of $30,347 for 2013. Accordingly, the notice

is valid.

8 In any event, the parties stipulated petitioner’s receipt of a $4,300

distribution from a retirement account for 2013. Petitioner, who was under 59-1/2

years of age throughout 2013, has not established his eligibility for any of the

exceptions listed in the statute.

8

[*8] imposes an addition to tax on a taxpayer who fails to make required

payments of estimated tax.

With respect to additions to tax and penalties, section 7491(c)

ordinarily imposes the burden of production on the Commissioner.

Higbee, 116 T.C. at 446–47. However, petitioner made no assignments

of error as to the additions to tax that were determined in the notices of

deficiency. Petitioner is deemed to have conceded those items. See Rule

34(b)(4). Accordingly, respondent incurs no obligation to produce

evidence in support of those determinations pursuant to section 7491(c).

See Funk v. Commissioner, 123 T.C. 213, 218 (2004); Swain v.

Commissioner, 118 T.C. 358, 365 (2002).

In any event, the record establishes that petitioner was required

to file his federal income tax returns for 2013 and 2014 and pay the tax

due, and he failed to do so. Moreover, with respect to section 6651(a)(2),

for each year respondent prepared an SFR which meets the

requirements of section 6020(b). 9 See Wheeler v. Commissioner, 127 T.C.

200, 208–10 (2006), aff’d, 521 F.3d 1289 (10th Cir. 2008). Regarding

section 6654, the record establishes that petitioner failed to make his

required annual payments for the years in issue. 10

Petitioner disputes the additions to tax on brief and asserts that

the record lacks evidence of respondent’s compliance with section

6751(b)(1). That section provides: “No penalty under this title shall be

assessed unless the initial determination of such assessment is

personally approved (in writing) by the immediate supervisor of the

9 The SFRs comprise Forms 4549, 886–A, and 13496.

That combination of

documents is sufficient to constitute a valid SFR under section 6020(b). See Rader v.

Commissioner, 143 T.C. 376, 382 (2014) (citing Gleason v. Commissioner, T.C. Memo.

2011-154, 2011 WL 2600917, at *12), aff’d in part, 616 F. App’x 391 (10th Cir. 2015).

10 The section 6654 addition to tax is calculated with reference to four required

installment payments of the taxpayer’s estimated tax liability. § 6654(c)(1). Each

required installment of estimated tax is equal to 25% of the required annual payment.

§ 6654(d)(1)(A). The required annual payment is the lesser of (i) 90% of the tax shown

on the individual’s return for that year (or, if no return is filed, 90% of his or her tax

for such year), or (ii) if the individual filed a return for the immediately preceding

taxable year, 100% of the tax shown on that return. § 6654(d)(1)(B). With respect to

2013, petitioner admitted at trial that he had filed a return for 2012 showing tax due.

Although his 2013 account transcript reflects a withholding credit of $320, petitioner

has neither argued nor shown that his 2013 withholding equaled or exceeded the

amount of tax shown on his 2012 return. As for 2014, petitioner’s required annual

payment for that year was 90% of his tax for that year because he had not filed a return

for 2013 or 2014. Petitioner made no payments in 2014.

9

[*9] individual making such determination or such higher level official

as the Secretary may designate.” However, the additions to tax under

sections 6651(a) and 6654 are excepted from section 6751(b)(1), and they

may be assessed without supervisory approval. § 6751(b)(2)(A); ATL &

Sons Holdings, Inc. v. Commissioner, 152 T.C. 138, 150 (2019).

IV.

Frivolous position penalty

We now consider respondent’s request to impose a penalty against

petitioner pursuant to section 6673(a)(1). That section authorizes the

Court to require a taxpayer to pay a penalty to the United States in an

amount not to exceed $25,000 whenever it appears to the Court that the

taxpayer instituted or maintained the proceeding primarily for delay or

that the taxpayer’s position in the proceeding is frivolous or groundless.

Respondent contends that a penalty is appropriate because petitioner

advanced frivolous arguments throughout this proceeding.

As we have noted in this Opinion, some arguments raised by

petitioner have previously been found to be frivolous. However, this

appears to be petitioner’s first case in this Court. While we have

discretion to impose a penalty against him under section 6673(a)(1), we

decline to do so at this time. Nevertheless, we caution petitioner that

he risks penalties under section 6673(a)(1) if he presses similar

arguments in the future.

We have considered the parties’ arguments and, to the extent not

addressed herein, conclude that they are moot, irrelevant, or without

merit.

The foregoing considered,

An appropriate order will be issued denying respondent’s request

for a section 6673 penalty, and decisions will be entered for respondent.