Opinion
10300-19
08-11-2021
ORDER OF DISMISSAL AND DECISION
Joseph H. Gale Judge.
This case was calendared for a remote trial at the trial session commencing February 1, 2021, in Atlanta, Georgia. On January 26, 2021, respondent filed a Motion to Dismiss for Lack of Prosecution (Motion to Dismiss), wherein he requests that this case be dismissed for lack of prosecution and that a decision be entered for petitioner's 2016 taxable year finding a deficiency and addition to tax in the amounts stated in respondent's Motion to Dismiss.
Respondent's Motion to Dismiss affords petitioner the benefit of a verbal settlement previously reached by petitioner and respondent's Office of Appeals, wherein respondent concedes the accuracy-related penalty determined in the notice of deficiency and seeks findings of a deficiency and addition to tax in lesser amounts than those determined in the notice of deficiency.
By Order served January 28, 2021, the Court calendared respondent's Motion to Dismiss for a remote hearing at the calendar call of the aforementioned trial session. The Order warned petitioner that failure to appear at the remote hearing could result in dismissal of the case and entry of a decision against him. When this case was called from the calendar on February 1, 2021, there was no appearance by or on behalf of petitioner.
The Court thereafter on April 22, 2021, issued an Order to Show Cause directing petitioner to file, on or before May 14, 2021, a response in writing, showing cause why respondent's Motion to Dismiss should not be granted and this case should not be dismissed for failure to properly prosecute. Both the Order served January 28, 2021, and the Order to Show Cause were mailed to petitioner at the address listed in the Petition. Neither mailing was returned. To date, petitioner has not responded to the Order to Show Cause.
A Notice of Remote Proceeding (Trial Notice), setting a trial date in this case for February 1, 2021, and explaining how to access the remote proceeding either by joining online via Zoomgov or by telephone, was mailed on November 20, 2020, to petitioner at the address listed in the Petition. The Trial Notice warned: "If you fail to appear the Court may dismiss your case for the failure to properly prosecute under Rule 149(a) of the Tax Court Rules of Practice and Procedure."
Rule references are to the Tax Court Rules of Practice and Procedure, and section references are to the Internal Revenue Code of 1986, as amended and in effect at all relevant times. Dollar amounts have been rounded to the nearest dollar.
A Standing Pretrial Order was attached to the Trial Notice. The Standing Pretrial Order directed petitioner, among other things: (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 file, jointly with respondent, a proposed stipulated decision or status report concerning a basis of settlement, or separately, a pretrial memorandum or motion to dismiss, no later than January 11, 2021; (3) to file, jointly with respondent, the stipulation of facts together with all stipulated documents, and separately, all documents and materials that petitioner expected to use at trial that were not in the stipulation of facts, no later than January 19, 2021; and (4) to be present on the trial date and prepared to try the case. The Standing Pretrial Order warned: "If you do not follow the provisions of this Order, the Judge may dismiss your case and enter a Decision against you." The copies of the Trial Notice and Standing Pretrial Order mailed to petitioner at the address listed in the Petition were not returned.
After the filing of the Petition in this case, petitioner and respondent's Office of Appeals reached a verbal basis for settlement, and respondent accordingly mailed to petitioner on September 24, 2020, a proposed stipulated decision. On October 6, 2020, petitioner advised respondent that petitioner had received the proposed stipulated decision, and that he would return a signed copy to respondent by mail within one week. Thereafter, in an effort to secure a signed copy of the proposed stipulated decision, respondent made numerous attempts to contact petitioner by telephone and by mail, but he has not responded to respondent's repeated attempts at communication and has not returned a signed copy of the proposed stipulated decision to respondent. Additionally, petitioner has not filed a pretrial memorandum in this case.
Respondent's specific allegations concerning petitioner's failure to cooperate are detailed in the Motion to Dismiss, which petitioner had an opportunity to dispute by appearing at the hearing on the Motion to Dismiss or by responding to the Order to Show Cause. Given petitioner's failure to dispute respondent's allegations, and the absence of any evidence to the contrary, we treat them as established for purposes of the Motion to Dismiss.
The Court may dismiss a case at any time and enter a decision against the taxpayer for failure properly to prosecute his case, failure to comply with the Rules of this Court or any order of the Court, or for any cause which the Court deems sufficient. Rule 123(b); Stearman v. Commissioner, 436 F.3d 533, 535-537 (5th Cir. 2006), aff'g T.C. Memo. 2005-39; Bauer v. Commissioner, 97 F.3d 45, 48-49 (4th Cir. 1996); Edelson v. Commissioner, 829 F.2d 828, 831 (9th Cir. 1987), aff'g T.C. Memo. 1986-223. In addition, the Court may dismiss a case for failure to properly prosecute if the taxpayer inexcusably fails to appear for trial and does not otherwise participate in the resolution of his claim. Rule 149(a); Tello v. Commissioner, 410 F.3d 743, 744 (5th Cir. 2005); Rollercade, Inc. v. Commissioner, 97 T.C. 113, 116-117 (1991).
Petitioner has failed to properly prosecute this case. Petitioner did not appear for trial on February 1, 2021, despite being warned by the Trial Notice, Standing Pretrial Order, and the Court's Order served January 28, 2021, that failure to appear could result in dismissal of the case and entry of a decision against him. Moreover, petitioner has failed to cooperate with respondent in the filing of a proposed stipulated decision, or to prepare for trial as directed in the Standing Pretrial Order. Furthermore, petitioner has failed to file a pretrial memorandum as directed by the Standing Pretrial Order. Finally, petitioner has failed to comply with the Court's Order to Show Cause directing him to file a response to respondent's Motion to Dismiss.
Petitioner's failure to appear for trial and failure to comply with the terms of the Standing Pretrial Order requiring adequate pretrial preparation have prejudiced respondent by causing him to expend resources that could have been expended elsewhere. See Jarvis v. Commissioner, 735 Fed.Appx. 21 (Mem), 22 (2d Cir. 2018); Tebedo v. Commissioner, 676 Fed.Appx. 750, 752 (10th Cir. 2017); cf. Pickett v. Commissioner, 240 Fed.Appx. 883, 884 (2d Cir. 2007) (finding the Commissioner prejudiced where taxpayers refused to appear for trial, thereby forcing "the agency to waste its resources in pointless litigation, thus diverting its ability to collect taxes elsewhere"). Moreover, petitioner's failure to appear for trial and failure to comply with the Standing Pretrial Order and Order to Show Cause have hindered the Court's management of its docket. See Tebedo v. Commissioner, 676 Fed.Appx. at 752 (finding taxpayer's "interference with the judicial process" was "obvious" where "he failed to comply with any of the court's orders, and decided not to appear for trial with no advance notice to the court"); Franklin v. Commissioner, 297 Fed.Appx. 307, 309-310 (5th Cir. 2008) (finding "a clear record of * * * delay and contumacious conduct" where taxpayer failed to appear for trial, failed to cooperate with the Commissioner, failed to comply with a court order, and failed to file a pretrial memorandum as directed by the standing pretrial order). None of petitioner's failures are excused.
We have balanced petitioner's interest in being heard, which has been diminished by his failure to meaningfully participate in these proceedings, against the Court's responsibility to manage its docket, and we have concluded that dismissal is warranted. See Jarvis v. Commissioner, 735 Fed.Appx. at 22; cf. Harris v. Commissioner, 748 Fed.Appx. 387, 389 (2d Cir. 2018); Pickett v. Commissioner, 240 Fed.Appx. at 884. We have also considered the efficacy of lesser sanctions and have concluded that such sanctions would be futile in view of petitioner's previous disregard of the Court's warnings. See Tebedo v. Commissioner, 676 Fed.Appx. at 752 (finding that where taxpayer "consistently failed to obey the court's orders, there * * * [was] no reason to think a lesser sanction would have been effective"); Franklin v. Commissioner, 297 Fed.Appx. at 309 ("Lesser sanctions are futile when, despite a judge's explicit warnings, a plaintiff neither cooperates nor appears at trial.").
Accordingly, we conclude that it is appropriate to dismiss petitioner's case for failure to properly prosecute. See Tebedo v. Commissioner, 676 Fed.Appx. at 752 (affirming dismissal for failure to prosecute where taxpayer failed to comply with Court orders and failed to appear for trial); Zubasic v. Commissioner, 671 Fed.Appx. 31 (Mem), 32 (3d Cir. 2016) (affirming dismissal for failure to prosecute where taxpayers failed to cooperate with the Commissioner, failed to submit a pretrial memorandum, and failed to appear for trial); Roulett v. Commissioner, 534 Fed.Appx. 915, 916 (11th Cir. 2013) (affirming dismissal for failure to prosecute where taxpayers failed to appear for trial and failed to file a pretrial memorandum); De Haas v. Commissioner, 418 Fed.Appx. 637 (9th Cir. 2011) (affirming dismissal for failure to prosecute where taxpayer failed to appear for trial), aff'g T.C. Memo. 2009-25; Klootwyk v. Commissioner, 418 Fed.Appx. 635 (9th Cir. 2011) (same), aff'g T.C. Memo. 2008-214; Fisher v. Commissioner, 375 Fed.Appx. 603, 603-604 (7th Cir. 2010) (affirming dismissal for failure to prosecute where taxpayer failed to comply with Court orders and failed to appear for trial); Taylor v. Commissioner, 271 Fed.Appx. 414, 416 (5th Cir. 2008) (affirming dismissal for failure to prosecute where taxpayers failed to appear for trial); Taylor v. Commissioner, 29 Fed.Appx. 19, 21-22 (2d Cir. 2001) (affirming dismissal for failure to prosecute where taxpayer failed to cooperate with the Commissioner, failed to respond to numerous inquiries from the Court, and failed to appear for trial); Duran v. Commissioner, 12 Fed.Appx. 588, 589 (9th Cir. 2001) (affirming dismissal for failure to prosecute where taxpayers failed to appear for trial).
In the notice of deficiency, respondent determined a deficiency of $8, 887 in petitioner's 2016 Federal income tax. Respondent therein determined, among other things, that petitioner received but failed to report $32, 202 in payment card and third-party network transactions. Respondent has attached to his Motion to Dismiss a copy of petitioner's Wage and Income Transcript for 2016, which indicates that the basis for the foregoing unreported income determination was a Form 1099-K, Payment Card and Third Party Network Transactions, issued by Etsy, Inc. in Brooklyn, New York.
A copy of the notice of deficiency is attached to respondent's Answer.
Respondent has also attached the Declaration of Gayle M. Hoopii-Aipia, a paralegal specialist for respondent. In her Declaration Ms. Hoopii-Aipia authenticates the Wage and Income Transcript as a record of a regularly conducted activity. See Rules 803(6), 902(11), Fed. R. Evid.
The Commissioner's determinations in a notice of deficiency are generally entitled to a presumption of correctness. See Rule 142(a). In a case involving unreported income, as in the instant matter, the U.S. Court of Appeals for the Ninth Circuit, where appeal in this case lies absent a stipulation to the contrary, has held that the presumption of correctness applies once the Commissioner introduces "some substantive evidence that the taxpayer received unreported income." Hardy v. Commissioner, 181 F.3d 1002, 1004 (9th Cir. 1999), aff'g T.C. Memo. 1997-97. "If the Commissioner introduces some evidence that the taxpayer received unreported income, the burden shifts to the taxpayer to show by a preponderance of the evidence that the deficiency was arbitrary or erroneous." Ibid.
As noted, respondent's unreported income determination is based on a Form 1099-K that he received from Etsy, Inc. in Brooklyn, New York. In support of his determination, respondent has proffered a copy of petitioner's Wage and Income Transcript for 2016, which indicates that the foregoing information return was issued, and that the amount in question was paid, to petitioner for 2016. The notice of deficiency attached to respondent's Answer indicates the same. In the Petition petitioner does not deny having received the income in question; rather, his claims therein appear to be limited to asserting his entitlement to certain deductions for various alleged business expenses.
We find that the proffered documents constitute sufficient evidence connecting petitioner to the unreported income in question, particularly in view of his failure to deny in the Petition that he received such income. See Nelson v. Commissioner, T.C. Memo. 2018-95, at *5-*6 (finding that a notice of deficiency and wage and income transcript indicating third-party payers paid the taxpayer the amounts in question sufficiently connected him to an income-producing activity).
Although sec. 6201(d) may in certain circumstances shift the burden of production to the Commissioner when a disputed information return forms the basis for his deficiency determination, we find that the provision does not apply here. First, in view of petitioner's failure to deny in the Petition that he received the unreported income in question, we find that he has not raised a reasonable dispute with respect to the information return in this case. Second, petitioner has failed to cooperate with respondent's counsel in litigating this case, and sec. 6201(d) applies only where "the taxpayer has fully cooperated with the Secretary" in the court proceeding.
All of the material allegations set forth in the Petition in support of the assignments of error have been denied in respondent's Answer. Petitioner has not claimed or shown entitlement to any shift in the burden of proof under section 7491(a). See sec. 7491(a)(2)(B). Accordingly, the burden of proof rests with petitioner concerning any error in the deficiency determination. As petitioner has adduced no evidence in support of the assignments of error in the Petition, he has failed to satisfy his burden of proof. We thus sustain the deficiency in full.
In the notice of deficiency, respondent also determined that petitioner is liable for a section 6662(a) accuracy-related penalty of $1, 777 and a section 6651(a)(1) addition to tax of $408. However, in his Motion to Dismiss respondent concedes the accuracy-related penalty and seeks an addition to tax under section 6651(a)(1) in a lesser amount of $193, affording petitioner the benefit of the verbal basis for settlement that he previously reached with respondent's Office of Appeals.
Section 6651(a)(1) imposes an addition to tax for failure to file a timely return, unless the taxpayer proves that such failure is due to reasonable cause and is not due to willful neglect.
The Commissioner generally bears the burden of production with respect to any penalty, addition to tax, or other additional amount (collectively, penalty), where the taxpayer has contested it in his petition. See sec. 7491(c); Funk v. Commissioner, 123 T.C. 213, 216-218 (2004); Swain v. Commissioner, 118 T.C. 358, 363-365 (2002). To satisfy the burden, the Commissioner must offer sufficient evidence to indicate that it is appropriate to impose the penalty. Higbee v. Commissioner, 116 T.C. 438, 446 (2001). If the Commissioner satisfies his burden of production, the taxpayer bears the burden of proving it is inappropriate to impose the penalty because of reasonable cause, substantial authority, or a similar provision. Id. at 446-447; see also sec. 6664(c); Wheeler v. Commissioner, 127 T.C. 200, 206 (2006), aff'd, 521 F.3d 1289 (10th Cir. 2008).
For certain penalties, sec. 6751(b)(1) requires written supervisory approval to be obtained before the penalty may be imposed, and in those circumstances the Commissioner's burden of production under sec. 7491(c) includes demonstrating his compliance with the foregoing written supervisory approval requirement. See Graev v. Commissioner, 149 T.C. 485, 493 (2017), supplementing and overruling in part 147 T.C. 460 (2016). However, written supervisory approval need not be obtained for the addition to tax at issue in this case. See sec. 6751(b)(2)(A).
Petitioner has not alleged any specific error in respondent's determination of the addition to tax. Where a petition fails to state a claim with respect to penalties, the Commissioner incurs no obligation to produce evidence in support of such determinations pursuant to section 7491(c). See Funk v. Commissioner, 123 T.C. at 218; Swain v. Commissioner, 118 T.C. at 364-365. Petitioner has failed to put the addition to tax at issue, and respondent accordingly bears no burden of production with respect to it.
Even if respondent bore the burden of production with respect to the addition to tax in this case, we find that he has satisfied that burden here. As noted, respondent has attached to his Motion to Dismiss a copy of petitioner's Wage and Income Transcript for 2016. A review of that transcript reveals that petitioner's 2016 return was not received until May 1, 2017 (i.e., after the filing deadline of April 18, 2017). The Wage and Income Transcript bears no indication that petitioner sought or received a filing extension, and petitioner has not alleged that such is the case. In view of the foregoing, we find that respondent has satisfied his burden of production with respect to the section 6651(a)(1) addition to tax.
As respondent notes in his Motion to Dismiss, April 15, 2017, fell on a Saturday, and April 17, 2017, was a holiday in the District of Columbia.
Petitioner bears the burden of proof with respect to any exculpatory factors for penalties. See Higbee v. Commissioner, 116 T.C. at 446-447; Wheeler v. Commissioner, 127 T.C. at 206. As petitioner has adduced no evidence in support of any exculpatory factors, we sustain respondent's determination of the additions to tax in this case.
The foregoing considered, it is
ORDERED that the Court's Order to Show Cause served April 22, 2021, is hereby made absolute. It is further
ORDERED that respondent's Motion to Dismiss for Lack of Prosecution, filed January 26, 2021, is granted, in that this case is hereby dismissed for failure to properly prosecute. It is further
ORDERED and DECIDED that there is a deficiency in petitioner's 2016 Federal income tax due in the amount of $4, 573 and an addition to tax under section 6651(a)(1) due of $193.