Opinion
18700-21S
09-14-2022
RAY R. GUERRA & SANDRA M. GUERRA, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER AND DECISION
Joseph W. Nega Judge
This deficiency case was previously calendared for trial on September 6, 2022, at the Fresno, California trial session. On August 15, 2022, respondent filed a Motion to Dismiss for Failure to Properly Prosecute (motion to dismiss). We find that petitioners failed to properly prosecute their case and therefore this case shall be dismissed pursuant to Rule 123.
All Rule references are to the Tax Court Rules of Practice and Procedure. Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C, in effect for the year at issue.
I. Background
By Notice of Trial issued May 4, 2022, this case was set for trial on September 6, 2022, in Fresno, California. The Court's notice of that date warned: "Your failure to appear may result in dismissal of the case and entry of decision against you." That warning was based on Rule 123, which provides:
(a) Default: If any party has failed to plead or otherwise proceed as provided by these Rules or as required by the Court, then such party may be held in default by the Court either on motion of another party or on the initiative of the Court. Thereafter, the Court may enter a decision against the defaulting party, upon such terms and conditions as the Court may deem proper, or may impose such sanctions (see, e.g., Rule 104) as the Court may deem appropriate. . . .
(b) Dismissal: For failure of a petitioner to properly prosecute or to comply with these Rules or any order of the Court or for other cause
which the Court deems sufficient, the Court may dismiss a case at any time and enter a decision against the petitioner. . . .
Served with the notice setting case for trial was a Standing Pretrial Order for Small Case, which set forth the steps required of the parties in preparation for trial or other resolution. The Standing Pretrial Order directed petitioners, inter alia: (1) to communicate and cooperate with respondent's counsel regarding settlement or, if the case could not be settled, the preparation of a stipulation of facts; (2) to serve on respondent's counsel and file with the Court a pretrial memorandum no later than 21 days before the first day of the trial session; (3) unless otherwise excused, to appear at the calendar call; and (4) to be prepared to try the case during the trial session of the Court. The Standing Pretrial Order warned: "If you do not follow this Order, the Judge may dismiss your case and enter a Decision against you." The copies of the Notice of Trial and Standing Pretrial Order mailed to petitioners at the address listed on the Petition were not returned as undeliverable.
On June 28, 2021, respondent issued to petitioners a notice of deficiency, determining a deficiency of $6,110 for the 2019 taxable year and an accuracy-related penalty in the amount of $1,222, pursuant to section 6662(a). The deficiency determined that petitioners had received cancellation of debt income from J.P. Morgan Chase in tax year 2019. On August 15, 2021, petitioners, through counsel, timely filed a Petition with this Court. In the Petition, petitioners alleged that the "Commissioner erred in issuing the deficiency on 'cancellation of debt income' because the taxpayer(s) were not the borrowers of the student loans in issue but were in fact guarantors of the loans" and "[a]s guarantors, they are not subject to cancellation of debt being included in income."
On August 15, 2022, respondent filed the motion to dismiss. In the motion to dismiss, respondent represents that eight separate attempts were made to contact petitioners' counsel, by letter and phone, both through respondent's counsel and through the Internal Revenue Service Independent Office of Appeals. None of these attempts received any response.
By Order issued August 19, 2022, the Court directed petitioners to file a response to the motion to dismiss on or before August 31, 2022, and set the motion for hearing during the Court's September 6, 2022, trial session. To date, no response has been received from or on behalf of petitioners.
On September 6, 2022, this case was called and recalled from the calendar during the Court's trial session. There was no appearance by or on behalf of petitioners. Counsel for respondent appeared and was heard on the motion to dismiss. Respondent's motion to dismiss was taken under advisement by the undersigned.
II. Discussion
The Court may dismiss a case at any time and enter a decision against the taxpayer for failure to properly prosecute his or her case, failure to comply with the Rules of the Court or any order of the Court, or for any cause which the Court deems sufficient. Rule 123(b); Edelson v. Commissioner, 829 F.2d 828, 831 (9th Cir. 1987), aff'g, T.C. Memo. 1986-223. The Court may also dismiss a case for lack of prosecution if the taxpayer inexcusably fails to appear at trial and does not otherwise participate in the resolution of the taxpayer's case. Rule 149(a); Harper v. Commissioner, 99 T.C. 533, 540 (1992); see also Brooks v. Commissioner, 82 T.C. 413, 429-30 (1984), aff'd without published opinion, 772 F.2d 910 (9th Cir. 1985).
Petitioners have failed to properly prosecute this case. Petitioners did not appear for trial on September 6, 2022, despite being warned by the Notice of Trial and Standing Pretrial Order that failure to appear could result in dismissal of the case and entry of decision against him. Petitioners have failed to communicate and cooperate with respondent's counsel to prepare for trial or otherwise resolve this case as directed by the Standing Pretrial Order. Additionally, petitioners failed to file a pretrial memorandum as directed by the Standing Pretrial Order. Accordingly, we conclude that it is appropriate to dismiss petitioners' case for lack of prosecution.
In general, the Commissioner's determinations in a notice of deficiency are presumed correct, and the petitioner bears the burden of proving them erroneous by a preponderance of the evidence. Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933). In unreported income cases, however, the presumption of correctness does not attach unless the Commissioner first establishes a minimal evidentiary foundation for the deficiency. See Banister v. Commissioner, T.C. Memo. 2008-201, 2008 WL 3925877, at *1 (citing Weimerskirch v. Commissioner, 596 F.3d 358, 360-62 (9th Cir. 1979), rev'g, 67 T.C. 672 (1977)), aff'd, 418 Fed.Appx. 637 (9th Cir. 2011); see also Reyes v. Commissioner, T.C. Memo. 2012-129, 2012 WL 1557391, at *2 (emphasizing burden of production is "minimal and need not include direct evidence").
Respondent has produced the notice of deficiency, which indicates that J.P. Morgan Chase reported to respondent that petitioners had received cancellation of indebtedness income. Cf. Banister v. Commissioner, 2008 WL 3925877, at *2. In addition, petitioners do not dispute that there was a cancellation of indebtedness; petitioners instead only contend that cancellation of indebtedness income was not attributable to them. Petitioners thus implicitly acknowledge at least some connection to the unreported income at issue. See id. (concluding that taxpayer implicitly acknowledged existence of some income and thus satisfied respondent's burden); see also Edwards v. Commissioner, 6800 F.2d 1268, 1271 (9th Cir. 1982) (concluding that unreported income deficiency determination was presumptively correct where Commissioner established that taxpayer owned an income-producing business during years at issue). We conclude that respondent has sufficiently satisfied his burden of production by establishing a minimal evidentiary foundation for the determination of unreported income. Respondent's deficiency determination is accordingly entitled to the presumption of correctness, which petitioners have failed to rebut.
In addition, respondent has satisfied his burden of production with respect to the determination of a substantial understatement penalty under section 6662(a). See § 7491(c). As a procedural matter, respondent has established that the section 6662(a) penalty was "automatically calculated through electronic means" within the meaning of section 6751(b)(2)(B) and is thus exempt from the written supervisory approval requirement under section 6751(b)(1). See Walquist v. Commissioner, 152 T.C. 61, 74-75 (2019). In addition, the notice of deficiency determined an understatement of income tax of $6,110, which exceeds both $5,000 and 10% of the tax required to be shown on the return. See § 6662(b)(1)(A). Upon due consideration and for cause more fully appearing in the transcript of the proceeding, it is
ORDERED that respondent's Motion to Dismiss for Failure to Properly Prosecute, filed August 15, 2022, is granted, and this case is hereby dismissed for failure to properly prosecute. It is further
ORDERED AND DECIDED that there is a deficiency in petitioners' 2019 Federal income tax due in the amount of $6,110. It is further
ORDERED AND DECIDED that there is a substantial understatement penalty due from petitioners for tax year 2019 under the provisions of section 6662(a) in the amount of $1,222.