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Delgado v. Commissioner, T.C. Memo. 2021-84 | July 7, 2021 | Greaves, J. | Dkt. No. 191-20
Short Summary:
Two companies paid the Petitioner for services performed as an independent contractor. The companies submitted Forms 1099-MISC, Miscellaneous Income, to the IRS reporting the payments. For the tax period, the Petitioner timely filed two Forms 1040EZ, Income Return, reporting zero income. Based on the two Forms 1099-MISC it received, the IRS issued a Notice of Deficiency, which provided an increase in tax liability as well as a section 6662(a) penalty. Petitioner timely petitioned the court for redetermination based on the Petitioner’s interpretation of section 7701(a)(26).
Key Issues:
- Whether the IRS’s determination of the Petitioner’s tax liability and accuracy-related penalties is correct?
- Whether the Petitioner engaged in a trade or business as defined by section 7701(a)(26)?
Primary Holdings:
- The Court concluded the IRS’s determination was correct.
- The Tax Court concluded that the Petitioner was engaged in a trade or business defined by section 7701(a)(26) and that the Petitioner’s arguments were meritless.
Key Points of Law:
- The Commissioner’s determination of a deficiency is generally presumed correct, though the taxpayer may rebut this presumption. See IRC § 7491(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). For the presumption of correctness to attach to the notice of deficiency in unreported income cases, however, the Commissioner must establish some evidentiary foundation connecting the taxpayer with the income-producing activity or demonstrating that the taxpayer actually received unreported income. See Sealy Power, Ltd. v. Comm’r, 46 F.3d 382, 386 (5th Cir. 1995). If the Commissioner introduces some evidence that the taxpayer received unreported income, the burden shifts to the taxpayer, who must establish by a preponderance of the evidence that the deficiency was arbitrary or erroneous. See Portillo v. Comm’r, 932 F.2d 1128, 1133-1134 (5th Cir. 1991).
- Gross income includes compensation for services. Sec. 61(a)(1).
- Section 7701(a)(26) provides that the term “trade or business” includes the performance of the functions of a public office. However, section 7701(c) provides that the term “includes” is not to be interpreted to exclude other things otherwise within the meaning of the term defined. The Tax Court finds arguments seeking to convert “includes” to “includes only” to be frivolous. See Wnuck v. Comm’r, 136 T.C. 498, 506 (2011). Moreover, the overall theory that only those performing “the functions of a public office” need to pay Federal income tax has been consistently rejected as a common, frivolous, tax-protestor argument of no merit. Worsham v. Comm’r, T.C. Memo. 2012-219
- Section 1401(a) imposes, in addition to other taxes, a tax on the self-employment income of every individual. Self-employment income generally consists of the gross income derived by an individual from any trade or business carried on by such individual, less the allowable deductions attributable to such trade or business, during any taxable year. IRC § 1402(b).
Insight: The Court’s decision reminds potential tax protestors that the Courts ignore the persuasiveness and credibility of the arguments formulated in the depths of the internet and in a Bohemian book clubs.
Have a question? Contact Jason Freeman, Freeman Law, Texas.
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