Opinion
20398-19
05-22-2023
TANISHA TRICE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER OF SERVICE OF TRANSCRIPT
David Gustafson Judge
Pursuant to Rule 152(b) of the Tax Court Rules of Practice and Procedure, it is
ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to the Commissioner a copy of the pages of the transcript of the proceedings in this case before the undersigned judge at Washington, D.C., containing his oral findings of fact and opinion rendered at the trial session at which the case was heard.
In accordance with the oral findings of fact and opinion, decision will be entered for the Commissioner.
Bench Opinion by Judge David Gustafson
May 12, 2023
Tanisha Trice v. Commissioner of Internal Revenue
Docket No. 20398-19
THE COURT: The Court has decided to render the following as its oral findings of fact and opinion in this case. This bench opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code and Tax Court Rule 152; and it shall not be relied upon as precedent in any other case. References to sections in this opinion are to the Internal Revenue Code (26 U.S.C.), as amended and in effect at the relevant times. Dollar amounts are rounded.This is a deficiency case brought pursuant to section 6213(a), which involves disputed income received by Petitioner, Tanisha Trice, from the Social Security Administration ("SSA"). Ms. Trice asks us to redetermine a deficiency in her Federal income tax for the year 2017, as determined by respondent, the Commissioner of the Internal Revenue Service ("IRS"), and as set forth in the notice of deficiency ("NOD") sent to Ms. Trice on August 19, 2019. (Ex. 1-J, Doc. 25 at 12.) In composing this opinion, we assume that the reader is familiar with our prior orders (Docs. 29, 37, 41) and our previous opinion issued February 13, 2023, as Trice v. Commissioner, T.C. Memo. 2023-15 (Doc. 74).
PROCEDURAL HISTORY
Ms. Trice timely filed her petition on November 15, 2019. In response to a motion (Doc. 25) filed by the Commissioner, we ordered (see Doc. 29) that the Commissioner's proposed stipulations, including Exhibits 1-J through 9-R (Doc. 25, Ex. A), were deemed stipulated.
The income determination in the NOD was based on an information return filed by the SSA, Form SSA-1099 (Ex. 3-J), which reported gross benefits of $17,164, taxable net benefits of $15,635 after withholdings, additional reductions not affecting the taxable portion, and a total amount of $13,866 "paid by check or direct deposit". A pretrial hearing was held in this case on December 16, 2021 (see Docs. 36, 38), at which Ms. Trice testified (Doc. 38 at 6-7, 13-14) that in 2017 she received from the SSA only two payments, totaling $1,307. She also stated (at 13) that she did not have bank statements for the entire year. We concluded "that Ms. Trice has raised a 'reasonable dispute' about the possible inaccuracy of the SSA's information return, so that the Commissioner 'shall have the burden of producing reasonable and probative information . . . in addition to such information return.' I.R.C. sec. 6201(d)"; and we ordered further discovery (see Doc. 37).
The Commissioner conducted discovery from Ms. Trice's bank (see Doc. 60), obtained statements of Ms. Trice's bank account, and thereafter filed a motion for summary judgment (Doc. 66), to which Ms. Trice filed a response (Doc. 70), to which the Commissioner filed a reply (Doc. 71). The Commissioner's motion made a showing (not disputed by Ms. Trice) that in fact Ms. Trice's bank account received in 2017 net payments from the SSA totaling $13,866, as Form SSA-1099 had reported (not just $1,307, as she had insisted).
We issued our opinion (Doc. 74) on February 13, 2023, in which we held that there was no genuine dispute as to the material fact that Ms. Trice received $13,866, and we ordered that the disputed issue of her receipt of a taxable amount greater by $1,769 (i.e., taxable benefits of $15,635, as the Commissioner contended) would be the subject of trial. (We also held that no genuine dispute existed as to the computational reduction, pursuant to section 25A(d), of the Lifetime Learning Credit to which Ms. Trice was otherwise entitled.)
Trial of this case was scheduled to take place in Washington, D.C., on May 8, 2023. When this case was called from the calendar, the Commissioner was represented by Ka ("Matt") Tam, but Ms. Trice did not appear. We directed the trial clerk to attempt to reach Ms. Trice by telephone, but she was unable to do so. Notwithstanding the petitioner's non-appearance, we did not default the petitioner but rather called the case for trial, because of our previous holding that the Commissioner had a burden of production under section 6201(d). We received into evidence the deemed stipulation and its Exhibits 1-J through 9-R (Doc. 25, Ex. A) and the Commissioner's Exhibits 1001-R through 1006-R, which he had previously filed as proposed trial exhibits (Doc. 81). The Commissioner then rested and made a closing argument.
FINDINGS OF FACT
On the evidence before us, and using the burden- of-proof principles explained below, the Court finds the following facts:
Ms. Trice's 2017 income
In 2017 Ms. Trice received wages of $52,713 (Ex. 2-J, Form 1040, line 7), which are not in dispute. For that year, the SSA awarded to Ms. Trice gross disability benefits of $17,164. However, the SSA withheld from that gross amount "deductions" that totaled $3,298, leaving a balance of $13,866, which it paid to her bank account by direct deposit. (Ex. 3-J.)
SSA withholding and reporting
The SSA reported the benefit award and the deductions on Form SSA-1099. The SSA's deductions withheld from Ms. Trice's 2017 benefit award consisted of the following three components:
repayment of $1,529 of those 2017 benefits; premiums for Medicare, Part B, in the amount of $487; and other "deductions" amounting to $1,282.
The first of those three deductions (i.e., repayment of $1,529 of the 2017 benefits) is included both in Box 3 (the gross total of $17,164) and in Box 4 (the benefits repaid). When Box 4 is subtracted from Box 3, the result is the "net benefits" reported in Box 5. Form SSA-1099 instructed: "Part of your Social Security benefits may be taxable income for 2017. Use $15,635.00 from Box 5 below with IRS Notice 703 to see if any part of your benefits may be taxable on your Federal income tax return."
The parties did not introduce IRS Notice 703 into the record of our case, but the document is publicly available on the IRS's website, and we take judicial notice that the 2017 version of the notice (to be filed with this opinion as Exhibit 10-C) advises that, for a taxpayer with a filing status of "single" whose income exceeds $25,000, "[p]art of your social security benefits may be taxable." (As we explain below, that "part" is 85%.)
The second of these withheld deductions is also expressly reported on Form SSA-1099 as $487 of "Medicare Part B". That is, the premiums that Ms. Trice owed for her Medicare coverage were paid out of her social security disability benefits. That Medicare premium amount is not included in Box 4 (to reduce the taxable "net benefits" in Box 5).
The third component of the withheld "deductions" (i.e., $1,282) is the amount left after we subtract the $1,529 repayment of 2017 benefits from the amount of $2,811 that is reported as "Deductions for Work or Other Benefits". As we have noted, the $1,529 component of those deductions is explicitly characterized on the form as non-taxable, so the issue we must resolve is the nature of the remaining $1,282. That remaining amount is not included in Box 4 (to reduce the "net benefits" in Box 5), so the instructions (Ex. 1004-R, Doc. 81 at 18) enable us to infer that this remaining amount is "withhold[ing from] a Title II benefit [i.e., social security disability paid to a covered adult] to recover Title XVI or Title XVIII overpayments." All these "Titles" are subchapters of Chapter 7 ("Social Security") of Title 42 of the U.S. Code: "Title II" includes disability benefits for individuals covered by disability insurance-the benefits that Ms. Trice was awarded. "Title XVI" benefits, also known as "Supplemental Security Income", are for the blind, the elderly, and completely disabled individuals who have a demonstrated financial need (which apparently would not apply to Ms. Trice). And "Title XVIII" is commonly called Medicare (for which Ms. Trice was paying premiums and presumably received benefits). Evidently, in 2017 the SSA recovered $1,282 of overpaid Medicare benefits that had been previously paid to or on behalf of Ms. Trice.
Ms. Trice's tax return
Ms. Trice filed her 2017 Form 1040, "U.S. Individual Income Tax Return", in April 2018. (Doc. 68 at 12-21.) She claimed a filing status of "single". She did not report the Social Security benefits on her return; rather, Line 20a, "Social security benefits", was left blank. On line 7 she reported her wages of $52,713 (as to which there is no dispute); on line 37 she reported adjusted gross income ("AGI") of $50,450; on line 50 she reported "Education credits" of $2,000; and on line 63 she reported a "total tax" of $3,758. She reported "total payments" of $4,436 and claimed a refund of $678.
IRS examination
The IRS received the SSA's report of Ms. Trice's 2017 Social Security benefits. Apparently, the IRS compared that report to her 2017 return and noted her non- reporting of the disability benefits. The IRS increased her taxable income by $13,290 (i.e., 85% of her "net benefits" of $15,635) and, because of the resulting increase in her AGI, reduced the amount of education credit to which she was entitled (i.e., from $2,000 down to $452). The IRS issued an NOD to Ms. Trice on August 19, 2019, in which it determined, on the basis of those corrections, a tax deficiency of $4,860 for 2017.
OPINION
I. Burden of proof
Generally, the Commissioner's determination of a deficiency is presumed correct, and the taxpayer has the burden of proving it wrong. Tax Court Rule 142(a); see also Welch v. Helvering, 290 U.S. 111, 115 (1933). However, where the Commissioner alleges that a taxpayer failed to report income, he must "provide some predicate evidence connecting the taxpayer to the charged activity" before the presumption of correctness attaches to his determination. Gerardo v. Commissioner, 552 F.2d 549, 554 (3d Cir. 1977), aff'g in part, rev'g in part T.C. Memo. 1975-341. Once the Commissioner connects the taxpayer with the unreported income, then at trial the taxpayer would bear the burden of proving that she did not receive the income. See Williams v. Commissioner, 999 F.2d 760, 763 (4th Cir. 1993), aff'g T.C. Memo. 1992-153.
The NOD's determination of additional income to Ms. Trice was based on Form SSA-1099. Such reliance on an information return implicates section 6201(d), which provides: "In any court proceeding, if a taxpayer asserts a reasonable dispute with respect to any item of income reported on an information return . . . and the taxpayer has fully cooperated with the Secretary (including providing, within a reasonable period of time, access to and inspection of all witnesses, information, and documents within the control of the taxpayer as reasonably requested by the Secretary), the Secretary shall have the burden of producing reasonable and probative information concerning such deficiency in addition to such information return." That is, when determining income, the IRS may rely on a third-party payor's "information return" (such as Form 1099). But if a taxpayer "asserts a reasonable dispute" as to an income item reported on such a return, the Commissioner must "produc[e] reasonable and probative information . . . in addition to such information return." § 6201(d).
Crediting Ms. Trice's testimony that she received only a fraction of those payments (and that she did not have her bank statements for the entire 2017 year), we previously held that she had "assert[ed] a reasonable dispute" and that the Commissioner had a burden to "produc[e] reasonable and probative information" to corroborate the Form SSA-1099. Assuming correct our previous holding, we now hold that the Commissioner has met his burden by producing bank records showing Ms. Trice's receipt of $13,866-the amount asserted on Form SSA-1099, which Ms. Trice initially denied but eventually admitted receiving (see Doc. 70). Consequently, Ms. Trice bears the burden of proof as to her 2017 income.
II. Analysis
We previously held (Doc. 74), and Ms. Trice admits (Doc. 70), that 85% of her social security benefit is taxable income. She admits receiving $13,866, and contends that this is the pertinent amount (of which she admits 85% is taxable). The Commissioner contends that the greater amount of $15,635-the "net benefits" as reported on Form SSA-1099--is the pertinent amount. As to the difference of $1,769-consisting of withheld Medicare premiums of $487 plus $1,282 of previously overpaid Medicare benefits-Ms. Trice had the burden to disprove the fact of those withheld amounts, or to prove that the character of those amounts was such that (contrary to the reporting of the SSA) the withholding of those amounts from her benefit award reduced the taxable portion of that award. However, she failed to appear at trial, and she did not put on any evidence beyond the facts that had been previously deemed stipulated. We hold that 85% of the "net benefits" of $15,635 is taxable.
Consequently, Ms. Trice's taxable income was as determined in the NOD, and her Lifetime Learning Credit was therefore reduced as determined in the NOD (see Doc. 74 at 11-12). We will therefore enter decision in favor of the Commissioner.
This concludes the Court's oral Findings of Fact and Opinion in this case.
(Whereupon, at 2:16 p.m., the above-entitled matter was concluded.)