Opinion
22446-17
09-14-2021
Mark Eugene Anderson & Melanie McKemie Anderson, Petitioners, v. Commissioner of Internal Revenue, Respondent
ORDER 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. Pending before the Court is respondent's Motion to Dismiss for Lack of Prosecution (Motion to Dismiss) filed January 11, 2021, wherein he requests that this case be dismissed for failure to properly prosecute and that a decision be entered sustaining the deficiency, addition to tax, and accuracy-related penalty for petitioners' 2013 taxable year, as determined in the notice of deficiency upon which this case is based. For the reasons that follow, we will (1) grant respondent's Motion to Dismiss as to petitioner Mark Eugene Anderson, and (2) recharacterize respondent's Motion to Dismiss as a Motion for Summary Judgment as to petitioner Melanie McKemie Anderson, which we will also grant.
I. Background
Petitioners timely mailed their Petition for redetermination on October 23, 2017, and the Court received and filed it on October 27, 2017. In the Petition, each petitioner listed a different Georgia mailing address and a different telephone number. After the Petition was filed, this case was set for trial and subsequently continued six separate times. Each of the continuances was granted to allow time to resolve Ms. Anderson's claim for "innocent spouse" relief from joint and several liability under section 6015. This case was most recently set for trial by a Notice Setting Case for Trial served October 13, 2020 (Trial Notice), which advised the parties that the case had been set for a remote trial at the Atlanta, Georgia trial session commencing February 1, 2021.
All section references are to the Internal Revenue Code of 1986, as amended and in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
A Standing Pretrial Order was attached to the Trial Notice. The Standing Pretrial Order directed petitioners, among other things: (1) to "inform the Court right away" of any change in their mailing addresses, telephone numbers, or email addresses; (2) 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; (3) 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; and (4) to file, jointly with respondent, the stipulation of facts together with all stipulated documents, and separately, all documents and materials that they expected to use at trial that were not in the stipulation of facts, no later than January 19, 2021. 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 Mr. Anderson at the address he listed in the Petition and to Ms. Anderson at her then-current address of record were not returned.
Ms. Anderson filed a Notice of Change of Address on January 16, 2020, and her address in the Court's records was updated accordingly. She is now represented by counsel, who entered an appearance on her behalf on January 28, 2021.
On December 21, 2020, respondent filed a Motion for Order to Show Cause Why Proposed Facts and Evidence Should Not Be Accepted as Established Pursuant to Rule 91(f) (Rule 91(f) Motion). The Court thereafter issued an Order to Show Cause on January 8, 2021 (January 8 OSC), directing petitioners to show cause on or before January 21, 2021, why the matters set forth in the proposed Stipulation of Facts attached to respondent's Rule 91(f) Motion should not be deemed established for purposes of this case.
Respondent subsequently filed his Motion to Dismiss on January 11, 2021. In addition to seeking dismissal of this case on the ground that petitioners had failed to properly prosecute it, the Motion to Dismiss stated that Ms. Anderson "requested and has been granted innocent spouse relief from the deficiency and penalties asserted in the Statutory Notice of Deficiency for the 2013 taxable year." After filing the Motion to Dismiss, respondent contacted the Court to informally request a continuance in order to allow time for Ms. Anderson to file an amended petition concerning her request for innocent spouse relief. By Order and Order to Show Cause served January 22, 2021 (January 22 OSC), the Court continued the case and directed petitioners to file, on or before February 22, 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.
Copies of the January 8 OSC and the January 22 OSC were mailed to Mr. Anderson at the address he provided in the Petition and to Ms. Anderson at her address of record. The copies mailed to Ms. Anderson were not returned to the Court. However, the copy of the January 8 OSC mailed to Mr. Anderson was returned to the Court by the U.S. Postal Service on January 29, 2021, with the following notations on the envelope: "RETURN TO SENDER. ATTEMPTED - NOT KNOWN. UNABLE TO FORWARD." The copy of the January 22 OSC mailed to Mr. Anderson was returned to the Court on February 5, 2021, with the following notations on the envelope: "RETURN TO SENDER. NOT DELIVERABLE AS ADDRESSED. UNABLE TO FORWARD."
In order to verify Mr. Anderson's mailing address, the undersigned's Chambers Administrator (C.A.) telephoned him on February 19 and 22, 2021, at the number he provided in the Petition and left voicemail messages requesting a return call. In addition, the C.A. sent an email to Mr. Anderson on February 22, 2021, at the email address he provided in the Petition. Those attempts to contact Mr. Anderson were unsuccessful, and the Court thereafter directed respondent, by Order served February 26, 2021, to attempt to identify an alternate mailing address or telephone number for Mr. Anderson and to file a report describing the results of his efforts to do so.
On March 5, 2021, respondent filed a Status Report identifying three possible alternate addresses and three possible alternate telephone numbers for Mr. Anderson. By Order served March 23, 2021, which was mailed to Mr. Anderson at the address he provided in the Petition and at each of the three alternate addresses identified in respondent's Status Report, we advised Mr. Anderson that Rule 21(b)(4) requires a party in a Tax Court proceeding to promptly notify the Court of any change in his mailing address and telephone number, and we directed him to file a Notice of Change of Address by April 2, 2021, listing his current mailing address and current telephone number. We also extended the deadline for Mr. Anderson to respond to the January 8 OSC and the January 22 OSC until April 9, 2021. In addition, we directed the Clerk of the Court to attach to the copy of the Order served on Mr. Anderson additional copies of the January 8 OSC and the January 22 OSC, as well as a copy of the Court's Form 10, Notice of Change of Address. Finally, the Order stated: "Mr. Anderson is hereby warned that failure to file responses as directed in this Order may result in dismissal of this case and entry of decision against him under Rule 123(b) for failure properly to prosecute." Two copies of the Order and its attachments, served on Mr. Anderson at the address he listed in the Petition and at one of the three alternate addresses that respondent identified, were eventually returned to the Court. To date, however, the other two copies of the Order and its attachments, served on Mr. Anderson at the two remaining alternate addresses that respondent identified, have not been returned to the Court (and we thus presume they were delivered).
By Order served May 17, 2021 (Entry No. 62), which was mailed to Mr. Anderson at the address he provided in the Petition and at the two alternate addresses to which the Court's March 23, 2021 Order was apparently delivered, and which was also served on Ms. Anderson's counsel (who had recently appeared on her behalf), the Court made absolute its January 8 OSC concerning respondent's Rule 91(f) Motion on the ground that neither Mr. Anderson nor Ms. Anderson had made any response thereto. The Court accordingly deemed stipulated all matters set forth in respondent's proposed Stipulation of Facts attached to the Rule 91(f) Motion, including the following: (1) that a copy of petitioners' untimely filed joint Federal income tax return for 2013 was attached to the Stipulation of Facts; (2) that Mr. Anderson earned, and petitioners should have reported in their 2013 return on Schedule C, Profit or Loss From Business, $264,396 of income that was deposited into a bank account belonging to a corporate entity of which Mr. Anderson was the president and sole employee; (3) that Mr. Anderson received, and petitioners should have reported in their 2013 return on Schedule E, Supplemental Income and Loss, $14,231 of partnership income; (4) that petitioners incorrectly claimed certain credits, underreported their alternative minimum tax, underreported their self-employment tax, and claimed exemptions in excess of the amount to which they were entitled; (5) that petitioners are liable for an addition to tax under section 6651(a)(1) of $3,578.70 for failure to timely file their return; and (6) that petitioners are liable for an accuracy-related penalty under section 6662(a) of $15,221.40.
We note that Ms. Anderson's counsel entered her appearance one week after Ms. Anderson's response to the January 8 OSC was due. To date, Ms. Anderson has not responded to the January 8 OSC, and neither she nor her counsel has sought an extension of time to do so.
In the meantime, Ms. Anderson, through her counsel, had on February 12, 2021, filed a Motion for Leave to File First Amended Petition. Attached thereto was a proposed Amended Petition which asserted a claim for relief under section 6015. In a second Order served May 17, 2021 (Entry No. 63) the Court granted Ms. Anderson's Motion for Leave to File First Amended Petition and directed that the Amended Petition be filed as of that date. The Court also directed that the Order be served on Mr. Anderson at the address he provided in the Petition and at the two alternate addresses to which the Court's March 23, 2021 Order was apparently delivered.
As we pointed out in that Order, Mr. Anderson was aware of Ms. Anderson's intent to seek innocent spouse relief at least as early as September 20, 2018, when respondent first moved for a continuance in relation to Ms. Anderson's request for such relief.
The copies of both of the Court's May 17, 2021 Orders served on Mr. Anderson at the address he provided in the Petition and at his two alternate addresses were all eventually returned to the Court.
On June 2, 2021, respondent filed an Answer to Amended Petition in which he admits that Ms. Anderson is entitled to relief under section 6015 as sought in the Amended Petition.
To date, neither Mr. Anderson nor Ms. Anderson has responded to the Court's January 22 OSC directing each of them to file a response to respondent's Motion to Dismiss.
We note that Ms. Anderson's counsel entered her appearance more than three weeks before a response to the January 22 OSC was due.
II. Mr. Anderson's Failure to Properly Prosecute this Case
Because Mr. Anderson has failed to properly prosecute this case, we will grant respondent's Motion to Dismiss as to him. 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.
Mr. Anderson has not responded to respondent's counsel's repeated attempts to communicate with him by letter and by telephone since April of 2019. Additionally, Mr. Anderson has failed to comply with the Court's January 8 OSC concerning respondent's Rule 91(f) Motion, as well as the Court's January 22 OSC directing him to file a response to respondent's Motion to Dismiss, despite being warned by the Court's March 23, 2021 Order that failure to respond could result in a dismissal of the case and entry of a decision against him. He also has not filed a pretrial memorandum in this case. Finally, he has not responded to the Court's attempts to ascertain his current mailing address and telephone number.
Respondent's specific allegations concerning Mr. Anderson's failure to cooperate are detailed in his Rule 91(f) Motion and incorporated by reference in the Motion to Dismiss. Mr. Anderson could have disputed those allegations by responding to either the January 8 OSC or the January 22 OSC. Given Mr. Anderson's failure to do so, and the absence of any contrary evidence, we treat respondent's allegations as established for purposes of the Motion to Dismiss.
As discussed supra p. 4, two of the four copies of the Court's March 23, 2021 Order that were mailed to Mr. Anderson, which included as attachments additional copies of the January 8 OSC and the January 22 OSC, have not been returned to the Court.
Mr. Anderson's failure to comply with the terms of the Standing Pretrial Order requiring pretrial preparation has 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). Moreover, Mr. Anderson's failure to comply with the January 8 OSC and the January 22 OSC, in addition to his failure to provide the Court with a current address and telephone number as required by Rule 21(b)(4), the Standing Pretrial Order, and the Court's March 23, 2021 Order, has 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 did not appear for trial). None of Mr. Anderson's failures are excused. Accordingly, we conclude that it is appropriate to dismiss this case with respect to Mr. Anderson for failure to properly prosecute.
In the notice of deficiency, respondent determined a deficiency of $76,107 in petitioners' 2013 Federal income tax. Respondent therein determined, among other things, that petitioners received but failed to report the following two items of income: (1) $264,396 of gross receipts that should have been reported on Schedule C; and (2) $14,231 of partnership income that should have been reported on Schedule E. Mr. Anderson does not deny receiving the unreported income. Rather, he alleges in the Petition that the amounts in question were not taxable income but instead were loans that would be repaid in subsequent years.
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 Court of Appeals for the Eleventh Circuit, where appeal in this case lies absent a stipulation to the contrary, has held that the presumption of correctness applies once the Commissioner makes a "minimal evidentiary showing" to support a link between the taxpayer and an income-producing activity. See Blohm v. Commissioner, 994 F.2d 1542, 1549 (11th Cir. 1993), aff'g T.C. Memo. 1991-636. If the Commissioner produces evidence linking the taxpayer with an income-producing activity, the burden of proof shifts back to the taxpayer to prove by a preponderance of the evidence that the Commissioner's determinations are arbitrary or erroneous. Id.; see also Helvering v. Taylor, 293 U.S. 507, 515 (1935); Tokarski v. Commissioner, 87 T.C. 74, 76-77 (1986).
Respondent is relieved of that burden of production here because Mr. Anderson is deemed to have stipulated that the amounts in question were his income, which should have been reported on Schedules C and E to petitioners' 2013 return as respondent determined in the notice of deficiency. All of the material allegations set forth in the Petition in support of the assignments of error have been denied in respondent's Answer. Mr. Anderson 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.
We therefore need not address the alternative position set forth in the notice of deficiency that the $264,396 that should have been reported on Schedule C constituted a constructive dividend to Mr. Anderson.
In the notice of deficiency, respondent also determined that, for 2013, petitioners are liable for an addition to tax of $3,578.70 under section 6651(a)(1) and an accuracy-related penalty of $15,221.40 under section 6662(a). The Commissioner generally bears the burden of production with respect to any penalty, addition to tax, or other additional amount (generically, 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). The Commissioner's burden of production with respect to penalties includes showing compliance with the supervisory approval requirement of section 6751(b). See Graev v. Commissioner, 149 T.C. 485, 493 (2017), supplementing and overruling in part 147 T.C. 460 (2016); see also Chai v. Commissioner, 851 F.3d 190, 221 (2d Cir. 2017), aff'g in part, rev'g in part T.C. Memo. 2015-42. 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. Higbee v. Commissioner 116 T.C. 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).
In this case, the Petition does not explicitly assign error to respondent's penalty determinations. Even assuming that the Petition implicitly assigns error to those determinations, respondent bears no burden of production with respect thereto because Mr. Anderson is deemed to have stipulated that petitioners are liable for a section 6651(a)(1) addition to tax of $3,578.70 and a section 6662(a) accuracy-related penalty of $15,221.40. Mr. Anderson bears the burden of proof with respect to any exculpatory factors for those penalties. See Wheeler v. Commissioner, 127 T.C. at 206; Higbee v. Commissioner, 116 T.C. at 446-447. Since Mr. Anderson has adduced no evidence in support of any exculpatory factors, we sustain respondent's determination of the section 6651(a)(1) addition to tax and the section 6662(a) accuracy-related penalty with respect to him.
III. Summary Adjudication as to Ms. Anderson
Although Ms. Anderson, like Mr. Anderson, has to date failed to respond to the Court's January 22 OSC concerning respondent's Motion to Dismiss, she has continued, through counsel, to prosecute this case by pursuing a claim for relief from joint and several liability under section 6015. We accordingly conclude that this case should not be dismissed for lack of prosecution with respect to her. We will instead recharacterize respondent's Motion to Dismiss, insofar as it relates to Ms. Anderson, as a Motion for Summary Judgment under Rule 121. Because respondent concedes in that Motion and in his Answer to Ms. Anderson's Amended Petition that she is entitled to full relief under section 6015 with respect to petitioners' joint Federal income tax liability for the year at issue, Ms. Anderson will not be prejudiced by our disposition of the Motion under Rule 121. See First Rock Baptist Church Child Dev. Ctr. v. Commissioner, 148 T.C. 380, 388 (2017) (treating the Commissioner's motion to dismiss the case as moot as a motion for summary judgment where the taxpayer would not be prejudiced by such treatment).
Summary judgment "is intended to expedite litigation and avoid unnecessary and expensive trials." Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). Summary judgment may be granted where there is no genuine issue of material fact and a decision may be rendered as a matter of law. Rule 121(a) and (b). The moving party bears the burden of proving that there is no genuine issue of material fact, and factual inferences are viewed in a light most favorable to the nonmoving party. Craig v. Commissioner, 119 T.C. 252, 260 (2002); Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985). The party opposing summary judgment must set forth specific facts showing that a genuine question of material fact exists and may not rely merely on allegations or denials in the pleadings. Rule 121(d); Grant Creek Water Works Ltd. v. Commissioner, 91 T.C. 322, 325 (1988).
Because Ms. Anderson, like Mr. Anderson, did not respond to our January 8 OSC concerning respondent's Rule 91(f) Motion, she is likewise deemed to have stipulated the correctness of respondent's determinations as to petitioners' unreported income and their liability for an addition to tax under section 6651(a)(1) and an accuracy-related penalty under section 6662(a). She is also deemed to have stipulated the correctness of all other material adjustments set forth in the notice of deficiency. Consequently, there is no dispute concerning any material fact relating to Ms. Anderson's Federal income tax liability for the year at issue, and respondent is entitled to judgment as a matter of law sustaining his determinations in the notice of deficiency. However, respondent now concedes that, pursuant to section 6015, Ms. Anderson is entitled to full relief from her liability for the deficiency, addition to tax, and penalty determined in the notice of deficiency. Our decision will therefore reflect that concession.
Although paragraph 9 of the Stipulation of Facts misstates the combined amount of the sec. 32 Earned Income Credit (EIC) and sec. 25A(i) American Opportunity Tax Credit (AOC) claimed on petitioners' 2013 return as $1,787, it nevertheless states that the total combined amount of those credits that petitioners were entitled to claim was zero. Petitioners claimed an EIC of $1,787 on line 64a of their Form 1040, U.S. Individual Income Tax Return. Petitioners also claimed a total AOC of $1,788. As shown on Form 8863, Education Credits, attached to their return, petitioners calculated that of the maximum possible AOC of $2,500, they were entitled to claim $1,000 as a refundable credit (which they did on line 66 of Form 1040), and that they were entitled to claim $788 as a nonrefundable credit (which they did on line 49 of Form 1040). In the notice of deficiency, respondent separately disallowed petitioners' claims of the EIC and each portion of the AOC. In addition, paragraph 11 of the Stipulation of Facts erroneously states that respondent determined that the "correct" amount of petitioners' self-employment tax was $2,010, when he actually determined in the notice of deficiency that $2,010 was the difference between the amount petitioners reported--$526--and the amount they should have reported--$2,536. These errors are ultimately immaterial, since respondent concedes that Ms. Anderson is entitled to full relief from liability for the deficiency in tax. In any event, we are not bound by obviously erroneous stipulations. See, e.g., Cal-Maine Foods, Inc. v. Commissioner, 93 T.C. 181, 195-196 (1989).
The foregoing considered, it is
ORDERED that respondent's Motion to Dismiss for Lack of Prosecution, filed January 11, 2021, is recharacterized as respondent's Motion to Dismiss for Lack of Prosecution as to Petitioner Mark Eugene Anderson and Motion for Summary Judgment as to Petitioner Melanie McKemie Anderson. It is further
ORDERED that the Court's Order to Show Cause served January 22, 2021, is hereby made absolute as to petitioner Mark Eugene Anderson and is discharged as to petitioner Melanie McKemie Anderson. It is further
ORDERED that respondent's Motion to Dismiss for Lack of Prosecution as to Petitioner Mark Eugene Anderson is granted, in that this case is hereby dismissed for failure to properly prosecute as to petitioner Mark Eugene Anderson. It is further
ORDERED that respondent's Motion for Summary Judgment as to Petitioner Melanie McKemie Anderson is granted. It is further
ORDERED and DECIDED that, before application of I.R.C. section 6015, there is a deficiency in petitioners' 2013 Federal income tax due in the amount of $76,107, an addition to tax under I.R.C. section 6651(a)(1) due of $3,578.70, and a penalty under I.R.C. section 6662(a) due of $15,221.40; and
That, after application of I.R.C. section 6015, there is no deficiency, no addition to tax under I.R.C. section 6651(a)(1), and no penalty under I.R.C. section 6662(a) due from petitioner Melanie McKemie Anderson.