Opinion
17866-22
04-30-2024
GOLDMARK MANUFACTURING, INC., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Courtney D. Jones, Judge.
During taxable years 2008, 2009, 2010, and 2011 (taxable years at issue), petitioner Goldmark Manufacturing, Inc. (Goldmark) received substantial income but did not file income tax returns. The Internal Revenue Service (IRS) filed section 6020(b) substitutes for returns (SFRs) for the taxable years at issue. By notice of deficiency, dated May 11, 2022, the Commissioner determined deficiencies and the following additions to tax and penalties for the taxable years at issue: (1) fraudulent failure to file additions to tax (and in the alternative, accuracy-related substantial understatement penalties); (2) failure to pay additions to tax; and (3) failure to pay additions to tax for estimated tax.
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, regulatory references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure. All monetary amounts are rounded to the nearest dollar.
Pursuant to section 6213(a), Goldmark petitioned this Court seeking redetermination of the deficiencies in federal income tax, additions to tax, and penalties determined by the IRS for the taxable years at issue. This case is on the calendar of the Court's May 20, 2024, trial session for New York, New York. Currently before the Court are two motions filed by the parties: (1) Goldmark's Motion to Compel Discovery (Motion to Compel), filed February 21, 2024; and (2) respondent's Motion for Summary Judgment, filed on February 29, 2024. For the reasons discussed further below, we will deny Goldmark's Motion to Compel, and we will grant in part and deny in part respondent's Motion for Summary Judgment.
Background
The following background information is drawn from the parties' pleadings, and motion papers with the declarations and exhibits attached thereto. See Rule 121(c). We also rely on the facts deemed admitted pursuant to Rule 90(c). This background is stated solely for the purpose of resolving the present Motion and is not stated as findings of fact in this case. See Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994). Goldmark had its principal place of business in Brooklyn, New York, when it timely filed its Petition.
A. Goldmark's Business and Events Leading to Examination
Goldmark was involved in the gold industry during the taxable years at issue. The IRS opened an examination into Goldmark's sole shareholder, Simon Jalas, after he failed to file his individual income tax returns for the same taxable years at issue. On June 4, 2021, Revenue Agent Firdosa Khatib (RA Khatib) was assigned to take over the examination of Mr. Jalas's personal income taxes. During the examination, RA Khatib observed that Mr. Jalas used several different names for Goldmark, although all of those names were associated with the same employer identification number, and there was no record of any return filed since taxable year 2004. Accordingly, RA Khatib requested and received permission to expand the scope of the examination to include Goldmark.
B. Examination of Petitioner
Goldmark did not file an income tax return for any of the taxable years at issue. Accordingly, RA Khatib summonsed relevant records from HSBC, a bank where Goldmark maintained a business checking account. However, because of the lapse in time, HSBC was unable to produce copies of Goldmark's canceled checks. Relying on the HSBC bank statements, RA Khatib conducted a bank deposits analysis for the taxable years at issue.
On December 20, 2021, RA Khatib spoke with Mr. Jalas over the phone. During their conversation Mr. Jalas was vague and uncooperative. He claimed that Goldmark did not file returns for the taxable years at issue because it had gone out of business after a customer stole more than $2 million worth of gold. When asked questions related to his personal examination, Mr. Jalas denied that he earned any income and denied having knowledge of various income sources. Mr. Jalas refused to answer relevant questions, and he abruptly terminated the conversation after he was confronted with evidence that RA Khatib had obtained during the examinations.
Because Mr. Jalas was uncooperative and did not provide any information during the examination of Goldmark, RA Khatib relied on the HSBC bank statements to conduct her analysis. The examination revealed that Goldmark had substantial net deposits that it failed to report as income. The following table reflects the total net deposits in Goldmark's business account for the taxable years at issue:
2008
2009
2010
2011
Total Deposits
$5,720,967
$5,382,187
$899,175
$1,018,071
Nontaxable
-
-
-
700
Net Deposits
5,720,967
5,382,187
899,175
1,017,371
RA Khatib then allowed deductions for any disbursements that could be identified as legitimate business expenses. However, lacking any additional information-including the precise nature and type of Goldmark's business-RA Khatib was unable to make reasonable estimates of any additional expenses for the taxable years at issue. The following table reflects the expenditures that were allowed as business expenses for the taxable years at issue:
Year
Business Expenses Allowed
2008
$871,952
2009
92,648
2010
71,787
2011
12,635
Accordingly, the IRS determined that Goldmark had taxable income during the taxable years at issue in the amounts reflected in the following table:
Year
Taxable Income
2008
$4,849,015
2009
5,289,539
2010
827,388
2011
1,004,736
On February 9, 2022, the IRS prepared section 6020 SFRs for Goldmark for the taxable years at issue. On May 11, 2022, the IRS issued the Notice of Deficiency (NOD) for the taxable years at issue. The NOD set forth deficiencies, fraudulent failure to file additions to tax, failure to pay additions to tax, and failure to pay additions to tax for estimated tax in the following amounts:
| Year | Deficiency | Additions to Tax/Penalties | ||
| 2008 | $1,648,665 | $1,195,282 | $412,166 | $53,796 |
| 2009 | 1,798,443 | 1,303,871 | 449,611 | 43,261 |
| 2010 | 281,312 | 203,951 | 70,328 | 6,197 |
| 2011 | 341,610 | 247,667 | 85,403 | 6,864 |
In the alternative, if the Court finds that Goldmark is not liable for the fraudulent failure to file additions to tax under section 6651(f)(1), respondent asserts that Goldmark is liable for the substantial understatement penalty pursuant to section 6662(b)(2) and (d).
Discussion
I. Goldmark's Motion to Compel
First, on February 21, 2024, Goldmark filed its Motion to Compel. Therein, Goldmark asks the Court to enter an order that compels respondent to provide "copies of the actual checks that were issued against the [HSBC] account." Goldmark asserts that "[w]ithout having the proper documentation, the Taxpayer is unable to properly defend against the Government's taxable income calculations." On February 22, 2024, respondent filed a Notice of Objection to Motion to Compel Discovery. Respondent asserts that Goldmark did not follow proper procedure or discuss the Motion to Compel with respondent before filing it with the Court. Further, respondent explains that RA Khatib subpoenaed Goldmark's bank statements from HSBC, but HSBC was unable to provide copies of the canceled checks due to the passage of time. This contention is also supported by the Declaration of Revenue Agent Firdosa Khatib in Support of Motion for Summary Judgment (declaration of RA Khatib). Therefore, respondent asserts that Goldmark's Motion to Compel should be denied because respondent was also unable to obtain copies of the canceled checks, and therefore would be unable to fulfill the request.
As a condition precedent to formal discovery, parties must make a reasonable attempt to obtain discovery through informal means. Branerton Corp. v. Commissioner, 61 T.C. 691, 692 (1974); see also Rule 70(a)(1); Schneider Ints., L.P. v. Commissioner, 119 T.C. 151, 155-56 (2002). If the parties are unable to obtain discovery after a reasonable attempt to do so informally, only then do the formal procedures under our Rules govern. Schneider Ints., L.P., 119 T.C. at 156. If the parties resort to formal discovery procedures, Rule 72 governs the discovery of documents within the possession, custody, or control of the party on whom the request is served. See Rosenfeld v. Commissioner, 82 T.C. 105, 116-17 (1984) (stating that a party is required to produce documents to the extent that they are in their possession, custody, or control); see also Rule 72(a)(1) (same). A party must comply with the requirement for informal discovery under Rule 70 and the requirements of formal discovery under Rule 72 before seeking a Court order compelling discovery under Rules 72(b)(2) and 104(b).
In its Motion to Compel, Goldmark indicates that it previously made some informal discovery requests of respondent. However, respondent asserts that at no point between the filing of the Petition and the Motion to Compel did Goldmark seek copies of the "actual checks that were issued by the taxpayer." Informal discovery is required before invoking the use of the formal discovery procedures under our Rules. See Branerton Corp., 61 T.C. at 692. Additionally, Goldmark's Motion to Compel does not indicate whether petitioner has served any formal discovery requests on respondent. See Rule 72(a). Service of formal discovery requests on an opposing party, such as requests for production of documents, is required prior to the filing of a motion to compel discovery. See, generally, Rules 70 through 72. Discovery requests are not filed with the Court unless it becomes necessary for the serving party to file a motion to compel. Rule 72(b)(2). To obtain a ruling on a failure to produce a document, the requesting party shall file an appropriate motion with the Court and shall annex thereto the request, with proof of service on the other party, together with the response and objections if any. Id. Goldmark did not annex any documents to its Motion to Compel. In light of the foregoing failures, we will deny Goldmark's Motion to Compel.
II. Respondent's Motion for Summary Judgment
On February 29, 2024, respondent filed the Motion for Summary Judgment, as well as the Declaration of Max Valerio in Support of Motion for Summary Judgment (declaration of Valerio) and the declaration of RA Khatib. Respondent asks the Court to grant summary judgment on all issues and to find that there are deficiencies, penalties, and additions to tax as set forth in the NOD. On March 21, 2024, Goldmark filed an Opposition to Motion for Summary Judgement. Therein, Goldmark contends that there is a genuine issue of material fact relating to the allowable deductions for the taxable years at issue, the amount of which it asserts cannot be ascertained until respondent provides the canceled checks for the taxable years at issue. For the reasons discussed below, we will grant in part and deny in part respondent's Motion for Summary Judgment.
A. General Principles
1. Summary Judgment Standard
Summary judgment serves to "expedite litigation and avoid unnecessary and expensive trials." Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). We may grant summary judgment when there is no genuine dispute as to any material fact, and a decision may be rendered as a matter of law. See Rule 121(a)(2); Sundstrand Corp., 98 T.C. at 520. In deciding whether to grant summary judgment, we construe factual materials and inferences drawn from them in the light most favorable to the nonmoving party. Sundstrand Corp., 98 T.C. at 520 . The nonmoving party may not rest upon mere allegations nor denials in their pleadings and must set forth specific facts showing that there is a genuine dispute for trial. Rule 121(d); see also Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). On the basis of the record before the Court, we find that this case is, in part, appropriate for summary adjudication.
2. Deemed Admissions
Pursuant to Rule 90, respondent served the First Request for Admissions on November 3, 2023. Rule 90(c) provides that each request for admission "is deemed admitted unless, within 30 days after service of the request," the party to whom the request is directed serves an appropriate answer or objection as required by the Rules. Goldmark did not serve a response within 30 days or at any time since, and therefore the facts deemed admitted pursuant to Rule 90(c) are considered "conclusively established." See Rule 90(f). The facts deemed admitted pursuant to Rule 90 may be relied upon in deciding whether to grant respondent's Motion for Summary Judgment. See Essel Eyeware, Inc. v. Commissioner, T.C. Memo. 2024-11, at *6 (first citing Marshall v. Commissioner, 85 T.C. 267, 272-73 (1985); then citing Morrison v. Commissioner, 81 T.C. 644, 651-52 (1983); and then citing Doncaster v. Commissioner, 77 T.C. 334, 336 (1981)).
The First Request for Admissions (and thus the deemed admissions) contain several errant internal cross-references. In the declaration of Valerio, respondent explained that the discrepancies were due to a formatting issue and clarified the internal cross-references in the matters deemed admitted. The internal cross-references only served to enhance readability and therefore the errors do not affect the substance of the deemed admissions.
3. Burden of Proof
The Commissioner's determinations in a notice of deficiency are generally presumed correct, and the taxpayer bears the burden of proving them erroneous. Rule 142(a); see Welch v. Helvering, 290 U.S. 111, 115 (1933). In certain circumstances, section 7491 may shift to the Commissioner the burden of proof on certain factual issues. But that section applies only if the taxpayer (among other things) "introduces credible evidence" with respect to those issues. See § 7491(a). Petitioner has neither claimed, nor introduced credible evidence sufficient to show, that the burden of proof should shift to respondent under section 7491(a) as to any relevant factual issue. Therefore, Goldmark generally bears the burden of proof.
B. Analysis
1. Gross Income
"[G]ross income means all income from whatever source derived," including compensation for services such as wages and salaries, gross income derived from business, and dividends, among others. See § 61(a); Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429-31 (1955); Durland v. Commissioner, T.C. Memo. 2016-133, at *61. In the case of unreported income, the Commissioner must establish an evidentiary foundation connecting the taxpayer with the income-producing activity, see Llorente v. Commissioner, 649 F.2d 152, 156 (2d Cir. 1981), aff'g in part, rev'g in part and remanding 74 T.C. 260 (1980), or demonstrate that the taxpayer actually received income, Edwards v. Commissioner, 680 F.2d 1268, 1270-71 (9th Cir. 1982). "Once the Commissioner makes the required threshold showing, the burden shifts to the taxpayer to prove by a preponderance of the evidence that the Commissioner's determinations are arbitrary or erroneous." Essel Eyeware, Inc., T.C. Memo. 2024-11, at *7 (first quoting Walquist v. Commissioner, 152 T.C. 61, 67-68 (2019); and then citing Texasgulf, Inc. & Subsidiaries v. Commissioner, 172 F.3d 209, 214 (2d Cir. 1999), aff'g 107 T.C. 51 (1996)).
Taxpayers must maintain books and records sufficient to establish their income and expenses. See § 6001; Treas. Reg. § 1.6001-1(a). If they fail to do so, the Commissioner may reconstruct income through any method that is "reasonable in light of all surrounding facts and circumstances." See Petzoldt v. Commissioner, 92 T.C. 661, 687 (1989); see also § 446(b). The Court has long accepted the Commissioner's use of the bank deposits method to reconstruct income. See Clayton v. Commissioner, 102 T.C. 632, 645-46 (1994) (citing DiLeo v. Commissioner, 96 T.C. 858, 867 (1991), aff'd, 959 F.2d 16 (2d Cir. 1992)). Bank deposits are prima facie evidence of income, Tokarski v. Commissioner, 87 T.C. 74, 77 (1986), and the taxpayer has the burden of showing the determination is erroneous, Clayton, 102 T.C. at 645 (citing Estate of Mason v. Commissioner, 64 T.C. 651, 657 (1975), aff'd 566 F.2d 2 (6th Cir. 1977)). This method of income reconstruction assumes that all money deposited into the taxpayer's account is taxable, although the Commissioner must account for any nontaxable sources or deductible expenses of which he has knowledge. Clayton, 102 T.C. at 645-46. The Commissioner need not establish a likely source of income. Tokarski, 87 T.C. at 77 (citing Estate of Mason, 64 T.C. at 656-57).
Employing the bank deposits method, RA Khatib determined that Goldmark had total deposits of $5,720,967, $5,382,187, $899,175, and $1,018,017, respectively, for the taxable years at issue. RA Khatib then considered whether any deposits came from nontaxable sources. RA Khatib properly excluded such items when calculating the total net deposits, such as a deposit received on March 23, 2011, with the transaction description of "Deposit from MetLife-Refund." Otherwise, based on the available information, RA Khatib determined that none of the deposits constituted nontaxable or excludable income, receipts, cash, or other assets, and none of the deposits appeared to be gifts, inheritances, legacies, or devises.
The facts deemed admitted pursuant to Rule 90(c) suffice to establish that there is no genuine dispute as to the issue of unreported gross income. See Marshall, 85 T.C. at 272-73. The deemed admissions conclusively established that Goldmark had unreported gross receipts for the taxable years at issue of $5,720,967, $5,382,187, $899,175 and $1,017,371. Additionally, even in the absence of the deemed admissions, Goldmark has failed to argue that any of the bank deposits were nontaxable, and has not produced any evidence that could create a genuine dispute as to whether it received unreported income during the taxable years at issue. See Rule 121(d) (requiring nonmovant to set forth specific facts supported by evidence); Vallone v. Commissioner, 88 T.C. 794, 801 (1987). Goldmark has failed to come forward with any evidence demonstrating that the bank deposit analysis is arbitrary or erroneous. See Clayton, 102 T.C. at 645; DiLeo, 96 T.C. at 868; Harper v. Commissioner, 54 T.C. 1121, 1129 (1970); Brodsky v. Commissioner, T.C. Memo. 2001-240. Accordingly, we will grant summary judgment for respondent on the issue of petitioner's unreported gross income.
2. Business Deductions
Deductions are a matter of legislative grace, and taxpayers generally bear the burden of proving that claimed business expenses were actually incurred and were "ordinary and necessary." § 162(a); see also INDOPCO Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Taxpayers must keep and maintain adequate records sufficient to demonstrate the propriety of any claimed deduction, and to enable the IRS to determine the correct tax liability. See § 6001; Treas. Reg. § 1.6001-1(a); see also Higbee v. Commissioner, 116 T.C. 438, 440 (2001).
Certain expenses otherwise deductible under section 162(a) are subject to heightened substantiation requirements under section 274(d), and no deduction is permitted for personal, living, or family expenses unless expressly permitted by the Code, see § 262(a). If a taxpayer is unable to substantiate the precise amount of a deduction, the Court may invoke the "Cohan rule" and estimate an amount if there is an appropriate evidentiary basis for doing so. See Cohan v. Commissioner, 39 F.2d 540, 543-44 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-43 (1985). In estimating the amount of an allowable expense under the Cohan rule, the Court bears heavily against the taxpayer whose inexactitude is of his own making. Cohan v. Commissioner, 39 F.2d at 544. The Cohan rule is inapplicable to expenses subject to the strict substantiation requirements under section 274(d). See Sanford v. Commissioner, 50 T.C. 823, 828 (1968), aff'd per curiam, 412 F.2d 201 (2d Cir. 1969).
Mr. Jalas and Goldmark were uncooperative during the examination and did not provide any information to RA Khatib. Therefore, in completing the bank deposits analysis, RA Khatib allowed a deduction for any disbursement on the bank statement that could be identified as a legitimate business expense. In doing so, the Commissioner properly accounted for any deductible expenses of which he had knowledge. Clayton, 102 T.C. at 645-46.
In its Opposition to Motion for Summary Judgment, Goldmark asserts that there is a genuine issue of material fact "as to allowable expenses as an offset to the income and those material facts cannot be ascertained until the respondent provides that [sic] checks that were drawn on the taxpayer's bank account." However, the facts deemed admitted pursuant to Rule 90(c) suffice to establish that there is no genuine dispute as to the issue of business deductions. See Marshall, 85 T.C. at 272-73. The deemed admissions conclusively established that Goldmark had allowable expenses during the taxable years at issue of $871,952, $92,648, $71,787, and $12,635, respectively.
Additionally, even in the absence of the deemed admissions, Goldmark has failed to set forth any specific facts or evidence to show that there is a genuine dispute for trial. See Rule 121(d). Goldmark argues that there is a genuine issue of fact as to the allowable expenses and asserts that respondent must provide copies of the canceled checks. However, as previously discussed, the declaration of RA Khatib states that the IRS was unable to obtain copies of the canceled checks due to the passage of time. The Court can estimate the amount of deductible expenses in some instances, but only when the taxpayer provides evidence sufficient to establish a rational basis upon which the estimate can be made. Brookshire v. Commissioner, T.C. Memo. 2010-193, 2010 WL 3430772, at 3 (citing Vanicek v. Commissioner, 85 T.C. 731, 742-43 (1985)). Goldmark has failed to present any such evidence. Ultimately it is the taxpayer's responsibility to maintain sufficient books and records to establish its income and expenses. See § 6001; Treas. Reg. § 1.6001-1(a). The taxable years at issue remain open for assessment due to Goldmark's failure to file returns, see § 6501(b)(3), and Goldmark has failed to set forth any specific facts or evidence to show that there is a genuine dispute of fact for trial. Accordingly, we will grant summary judgment for respondent on the issue of petitioner's business expense deductions and will sustain respondent's deficiency determinations in the NOD for the taxable years at issue.
3. Penalties and Additions to Tax
The IRS determined that Goldmark is liable for fraudulent failure to file additions to tax under section 6651(f)(1), or in the alternative, accuracy-related penalties under section 6662(a) for the taxable years at issue. The IRS also determined that Goldmark is liable for section 6651(a)(2) failure to pay additions to tax for the taxable years at issue, and section 6655 failure to make estimated payments additions to tax for the taxable years at issue. Where appropriate, respondent may rely on deemed admissions to support the imposition of penalties, including on the issue of fraud. Marshall, 85 T.C. 267 (citing Doncaster, 77 T.C. at 334). We will address the additions to tax and penalties in turn.
a. Section 6651(f)(1) Fraudulent Failure to File Addition to Tax or, in the alternative, Section 6662(a) Accuracy Related Penalty
i. Section 6651(f)(1) Fraudulent Failure to File Addition to Tax
As its primary position, respondent determined that Goldmark is liable for section 6651(f)(1) fraudulent failure to file additions to tax. Section 6651(f)(1) provides that if a failure to file any return is fraudulent, an addition to tax of 15 percent per month of the amount required to be shown as tax on the return, not to exceed 75 percent in the aggregate, shall be imposed. An SFR prepared by the Commissioner pursuant to section 6020(b) does not qualify as a return for purposes of section 6651(f). See § 6651(g)(1). The Commissioner has the burden of proving fraud by clear and convincing evidence. See § 7454(a); Rule 142(b); Clayton, 102 T.C. at 646. Fraud may not be imputed or presumed, and mere suspicion is insufficient to sustain a finding of fraud. Beaver v. Commissioner, 55 T.C. 85, 92 (1970). To prove fraud, the Commissioner must show by affirmative evidence that the taxpayer intended to conceal, mislead, or otherwise prevent the collection of tax. Clayton, 102 T.C. at 647. The Commissioner may rely on deemed admissions pursuant to Rule 90 to prove fraud. Marshall, 85 T.C. at 272-23; Morrison, 81 T.C. at 651. However, summary judgment on the ultimate issue of fraud is generally inappropriate when issues of motive and intent are material. See Espinoza v. Commissioner, 78 T.C. 412, 417 (1982).
If both failure to file and failure to pay penalties are applicable to the same month, the former is reduced by the latter. See § 6651(c)(1).
Circumstances that may indicate fraudulent intent, often called "badges of fraud," include but are not limited to (1) understating income, (2) keeping inadequate records, (3) giving implausible or inconsistent explanations of behavior, (4) concealing income or assets, (5) failing to cooperate with tax authorities, (6) engaging in illegal activities, (7) supplying incomplete or misleading information to a tax return preparer, (8) providing testimony that lacks credibility, (9) filing false documents (including false tax returns), (10) failing to file tax returns, and (11) dealing in cash. Muhammad v. Commissioner, T.C. Memo. 2023-124, at *8 (collecting cases).
Respondent's Motion for Summary Judgment relies on the deemed admission that "[f]or [the taxable years at issue], petitioner is liable for the penalty for fraudulent failure to file under I.R.C. §[ ]6651(f) in the amounts determined in the statutory notice of deficiency . . . ." Under Rule 90(a), a request for admission must "relate to statements or opinions of fact or of the application of law to fact." Respondent's request for admission impermissibly seeks to admit a legal conclusion. See, e.g., Cement and Concrete Workers District Council Welfare Fund v. Manny P Concrete Co., Inc., No. 19-CV-2145 (WKF) (SJB), 2023 WL 3948751, at *6 (E.D.N.Y. June 12, 2023) (citing Coach, Inc. v. Horizon Trading USA Inc., 908 F.Supp.2d 426, 432 (S.D.N.Y. Nov. 7, 2012)) (explaining that certain categories of questions are considered improper in requests for admissions and are not deemed admitted, including those that force the defendant to admit legal conclusions); see also Fossil Group, Inc. v. Angel Seller LLC, 2022 WL 1216256, at *3 (E.D.N.Y. Feb. 28, 2022) (citing Coach, Inc., 908 F.Supp.2d at 433) (explaining that requests for admission that ask the opposing party to admit legal conclusions will not be deemed admitted due to the failure to respond).
Absent the improper and conclusory deemed admission, the record before the Court, including appropriate deemed admissions, does not support the imposition of the fraudulent failure to file penalty under section 6651(f)(1). Respondent has not met its burden of proof to support summary judgment. See Rules 121(c), 142(b). Accordingly, we will deny summary judgment with respect to the additions to tax under section 6651(f)(1) for the taxable years at issue.
ii. 6662(a) Accuracy Related Penalty
In the alternative, respondent asserts accuracy related penalties under section 6662(b)(2) and (d). The Code imposes a 20 percent penalty upon the portion of any under-payment attributable to any "substantial understatement of income tax." See § 6662(a), (b)(2). The penalty under section 6662(a) only applies where a return, other than an SFR pursuant to section 6020, has been filed. See § 6664(b). For subchapter C corporations, such as petitioner, a substantial understatement of income tax is an understatement that exceeds the lesser of 10 percent of the tax required to be shown on the return (or, if greater, $10,000) or $10 million. § 6662(d)(1)(B). The Commissioner has no burden of production with respect to the penalty where the taxpayer is a corporation. NT, Inc. v. Commissioner, 126 T.C. 191, 195 (2006) (explaining that section 7491(c), which places the burden of production with respect to penalties on the Commissioner, does not apply to corporations, but only to "individual[s]"); see also Acqis Tech., Inc. v. Commissioner, T.C. Memo. 2024-21, at *34 (same).
Respondent's Motion for Summary Judgment relies on the deemed admission that "[f]or [the taxable years at issue], petitioner is liable for the substantial understatement penalty under I.R.C. §[ ]6662(d) in the amounts determined in the statutory notice of deficiency . . . ." However, no such amounts are set forth in the notice of deficiency. Further, other deemed admissions provide that Goldmark did not file income tax returns for the taxable years at issue. The penalty under section 6662(a) "shall apply only in cases where a return of tax is filed (other than a return prepared by the Secretary under the authority of section 6020(b))." See § 6664(b). Given this discrepancy, and the fact that the request for admission also impermissibly seeks the admission of a legal conclusion, see supra Part II.B.3.a.i, we will deny summary judgment with respect to respondent's alternative position that Goldmark is liable for accuracy-related penalties under section 6662 for the taxable years at issue.
b. Section 6651(a)(2) Failure to Pay Addition to Tax
Section 6651(a)(2) imposes an addition to tax for the failure to timely pay the amount shown as tax due on a return, equal to 0.5 percent of the amount required to be shown as due on the return for each month the failure to pay persists, up to a maximum of 25 percent. The addition to tax under section 6651(a)(2) applies when an amount of tax is shown on a return. See, e.g., Cabirac v. Commissioner, 120 T.C. 163, 170 (2003). A return made by the Secretary under section 6020(b)-i.e., an SFR-is treated as "the return filed by the taxpayer for purposes of determining the amount of the addition" under section 6651(a)(2). See § 6651(g)(2). The addition to tax under section 6651(a)(2) applies unless such failure to pay was due to reasonable cause and not willful neglect. See El v. Commissioner, 144 T.C. 140, 150 (citing United States v. Boyle, 469 U.S. 241, 245 (1985)).
Once again, respondent does not have the burden of production under section 7491(c) because petitioner is a corporation. See NT, Inc., 126 T.C. at 195; see also Mei Prod. v. Commissioner, T.C. Memo. 2020-11, at *16, n.12. Nevertheless, respondent has shown, and it has also been deemed admitted, that respondent filed SFRs for Goldmark for the taxable years at issue. Goldmark has not argued or set forth any evidence that it paid the amounts at issue or that it had reasonable cause so as to raise a genuine issue of fact for trial. See Rule 121(d). Accordingly, we will sustain the additions to tax under section 6651(a)(2) for the taxable years at issue.
c. Section 6655 Corporation Estimated Income Tax Addition to Tax
Finally, we consider whether Goldmark is liable for additions to tax under section 6655 for the failure by a corporation to pay estimated tax payments. Section 6655, like section 6654, provides that "there shall be added to the tax" additions to tax when there is a failure by a corporation to pay "estimated tax." Section 6655 has no "reasonable cause" exception. See, e.g., ATL & Sons Holdings, Inc. v. Commissioner, 152 T.C. 138, 150 (2019). Similarly, respondent does not have the burden of production under section 7491(c) because petitioner is a corporation. See NT, Inc., 126 T.C. at 195. Goldmark has not set forth any evidence that raises a genuine issue of fact for trial. See Rule 121(d). Accordingly, we sustain the additions to tax under section 6655 for the taxable years at issue.
III. Conclusion
In conclusion, we will deny Goldmark's Motion to Compel (Doc. 21), and we will grant in part and deny in part respondent's Motion for Summary Judgment (Doc. 23). We sustain the Commissioner's deficiency determination as to Goldmark, as well as the imposition of additions to tax under section 6651(a)(2) and section 6655. However, as explained above, we deny respondent's Motion for Summary Judgment with respect to the fraudulent failure to file additions to tax under section 6651(f), as well as respondent's alternative position of accuracy related penalties under section 6662(b)(2) and (d). We have considered all of the arguments made by the parties, and to the extent not mentioned above, we conclude that they are moot, irrelevant, or without merit.
Upon due consideration, it is
ORDERED that Goldmark's Motion to Compel Discovery (Doc. 21), filed February 21, 2024, is denied. It is further
ORDERED that respondent's Motion for Summary Judgment (Doc. 23), filed February 29, 2024, is granted in part, and that the income tax deficiencies determined in respondent's Notice of Deficiency, dated May 11, 2022, are sustained, and that the failure to pay additions to tax under section 6651(a)(2) and failure to pay estimated income tax additions to tax under section 6655 are sustained. It is further
ORDERED that respondent's Motion for Summary Judgment (Doc. 23), filed February 29, 2024, is denied in all other respects.