The Tax Court in Brief – October 10th – October 14th, 2022
Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.
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Tax Litigation: The Week of October 10th, 2022, through October 14th, 2022
- Cochran v. Comm’r, 159 T.C. No. 4 | October 12, 2022 | Greaves, J. | Dkt. No. 21002-16
- Clark Raymond & Company, PLLC v. Comm’r, T.C. Memo. 2022-105 | October 13, 2022 | Gustafson, J. | Dkt. No. 2265-19 (partnership intangible assets, substantial economic effect, capital accounts, distributions, tests for economic effect and Treas. Reg. § 1.704-1)
Scheider v. Comm’r, T.C. Memo. 2022-104 | October 11, 2022 | Urda, J. | Dkt. No. 4048-20
Summary: Craig Schieder challenged a notice of deficiency issued by the IRS that determined a deficiency of $30,963 in his federal income tax for his 2017 tax year as well as an addition to tax under section 6651(a)(1) of $2,925. Schieder worked as a recreational vehicle (RV) salesperson for Colton Auto, Inc. (Colton), selling RVs manufactured by various companies. Schieder earned $139,448 from Colton, as well as assorted payments from several other companies. Schieder filed a federal income tax return for 2017 that was dated November 20, 2018. He claimed a refund of $17,965, reporting no income and itemized deductions of $8,782. He included a pay stub from Colton and Forms 1099-MISC, Miscellaneous Income, from the other companies. He also attached Forms 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., relating to each company, on which he represented that he had not received wages within the meaning of the Internal Revenue Code. Schieder claimed that the payments he received from the various companies neither constituted wages nor gains, profit, or income within the meaning of relevant law. Schieder presented what he claimed was the law on the subject. The IRS issued the notice of deficiency and penalty for the late filing of the return. In its notice the IRS increased Schieder’s taxable income to an amount based primarily upon the recognition of income from Colton and from one of the other companies. In the Tax Court proceeding, the IRS asserted an increased deficiency based upon additional unreported income not recognized in the notice of deficiency.
Key Issues: Whether the IRS’s determinations in the notice of deficiency as modified by the IRS’s adjustments made in pleadings in the Tax Court should be sustained?
Primary Holdings: Yes. The IRS plainly met its burden, and Schieder failed to adduce any evidence to show that the IRS’s determination were arbitrary or erroneous.
Key Points of Law:
Unreported Income. The IRS’s determinations in a notice of deficiency are generally presumed correct, and the taxpayer bears the burden of proving those determinations erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). In cases involving omitted income, the IRS must establish a minimal evidentiary showing connecting the taxpayer with the alleged income-producing activity or demonstrate that the taxpayer actually received unreported income. Walquist v. Commissioner, 152 T.C. 61, 67 (2019); Tucker v. Commissioner, T.C. Memo. 2014-51, at *12. Once the IRS has produced evidence as such, the burden of proof shifts to the taxpayer to prove by a preponderance of the evidence that the IRS’s determinations are arbitrary or erroneous. Helvering v. Taylor, 293 U.S. 507, 515 (1935); Tokarski v. Commissioner, 87 T.C. 74, 76–77 (1986).
Itemized Deductions. The taxpayer generally bears the burden of proving entitlement to any deduction or credit claimed on a return. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). The taxpayer is required to maintain records that are sufficient to enable the IRS to determine the correct tax liability and for any claimed deduction. See 26 U.S.C. § 6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001).
Increased Deficiency. The IRS retains the burden of proof as to the increased deficiency stemming from the income adjustments the IRS pleads for thin the Tax Court. See Rule 142(a).
Section 6651(a)(1) Addition to Tax. Section 6651(a)(1) imposes an addition to tax for the failure to timely file a required return unless the taxpayer can establish that the failure was due to “reasonable cause and not due to willful neglect.” United States v. Boyle, 469 U.S. 241, 243 (1985). The IRS bears the initial burden of production to show that the return was filed late. See 26 U.S.C. § 7491(c). The taxpayer then bears the burden of proving that the late filing was due to reasonable cause and not willful neglect. Boyle, 469 U.S. at 245; Higbee, 116 T.C. at 447.
Insight: Schieder elected not to testify at trial and did not submit a post-trial briefs. When a party fails to file a brief on issues that have been tried, the Tax Court may consider those issues waived or conceded. Schieder basically failed to present any evidence to satisfy his burdens of proof on the deficiency or additions to tax issues that formed the basis of his petition to the Tax Court.