Ghadiri-Asli v. Comm'r
| Decision Date | 23 October 2019 |
| Docket Number | Docket No. 15855-15.,T.C. Memo. 2019-142 |
| Parties | SEYED-JALIL GHADIRI-ASLI AND MOJDEH NAJLE-RAHIM, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
Seyed-Jalil Ghadiri-Asli and Mojdeh Najle-Rahim, pro sese.1
Sebastian Voth and Kevin R. Oveisi, for respondent.
THORNTON, Judge: Respondent determined deficiencies and fraud penalties under section 6663 with respect to petitioners' Federal income tax fortaxable years 2009, 2010, and 2011 (years at issue) as follows:2
| Year |
| Deficiency |
| Penalty |
| sec. 66631 |
| 2009 |
| $106,052 |
| $70,874 |
| 2010 |
| 197,421 |
| 116,570 |
| 2011 |
| 148,247 |
| 109,685 |
1Respondent determined, as an alternative to the fraud penalties, that petitioners are liable for sec. 6662(a) accuracy-related penalties of $2,310, $8,398, and $400 for taxable years 2009, 2010, and 2011, respectively.
After concessions,3 the issues for decision are whether petitioners, husband and wife: (1) failed to report income received by petitioner Mojdeh Najle-Rahim's (Dr. Najle-Rahim) medical practice; (2) overstated Dr. Najle-Rahim's medical practice's deductions; and (3) failed to report petitioner Seyed-Jalil Ghadiri-Asli's 2010 lawsuit settlement proceeds as income. Also at issue is whether petitioners are liable for the section 6663 civil fraud penalty (or alternatively the section 6662(a) accuracy-related penalty).
Some facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated by this reference. When they petitioned this Court, petitioners resided in California.
Mr. Ghadiri-Asli holds a bachelor of science degree in industrial and manufacturing engineering. After college he worked for several different firms in the aerospace industry before taking a position with Deutsch Engineered Connecting Devices (Deutsch), where he worked as an industrial engineer from 2003 to 2007. In this capacity he had significant management responsibilities and was also responsible for finding manufacturing materials, reducing costs, creating systems, modifying existing designs, and fixing manufacturing errors.
Mr. Ghadiri-Asli left his position with Deutsch under circumstances he stated that he was not permitted to discuss. In any event, the circumstances of his leaving caused him significant physical and mental health problems. In 2007 Mr.Ghadiri-Asli filed a lawsuit against Deutsch and an individual named Paul Titcombe, alleging, among other things, employment discrimination and wrongful termination. The lawsuit settled in 2010 for $90,000. The settlement agreement, signed April 27, 2010, states: The $90,000 settlement amount was paid by check made payable to Mr. Ghadiri-Asli's attorney's client trust fund account. Sometime later in 2010 Mr. Ghadiri-Asli received a check from his attorney's law firm for $55,000, representing the $90,000 settlement amount less attorney's fees of $35,000. Petitioners reported no part of the settlement proceeds and claimed no deduction for attorney's fees on their 2010 Federal income tax return.
During the years at issue Mr. Ghadiri-Asli was unemployed. He assisted in maintaining the marital home and caring for his and Dr. Najle-Rahim's children. In addition, as discussed in more detail below, he assisted Dr. Najle-Rahim in administrative aspects of her medical practice, including handling certain tax documents and depositing checks.
Dr. Najle-Rahim earned her medical degree in 1995. In 2006 she was certified as a specialist in infectious disease by the American Board of Internal Medicine, and in 2007 she started her own medical practice focusing on infectious disease. During the years at issue she operated the practice as a sole proprietorship.
As an infectious disease specialist, Dr. Najle-Rahim diagnosed and treated communicable diseases such as pneumonia, endocarditis, meningitis, and sepsis. To begin diagnosis and treatment of a patient, Dr. Najle-Rahim would speak with the patient and review all of his or her records, including lab and radiology reports. Depending on the circumstances, she would order additional tests, such as blood or urine tests, or prescribe medication. She would follow up by checking the results of any tests ordered, reviewing the progress of the patient, and adjusting the treatment as necessary. Dr. Najle-Rahim recorded all of the services she provided to her patients on "face sheets" that were included in the patients' charts.
Dr. Najle-Rahim was compensated for her services mainly by payments from Medicare, Medi-Cal, and insurance companies (third-party payors), as well as copayments made by patients.
Dr. Najle-Rahim's rent for her medical practice was no more than $400 per month until February 2011, when it increased to $1,000 per month.
Dr. Najle-Rahim did not maintain books and records for her medical practice or employ a bookkeeper. To administer billing and collect fees from third-party payors for the services she provided, Dr. Najle-Rahim hired an outside company, C&L Professional Billing Services (C&L).
C&L was established in 1998 by Candace MacSween, a registered nurse, and Lois Kahoilua, an experienced business administrator in the health industry. C&L employed 15 individuals and provided billing services for 35 to 40 doctors each year in a wide variety of practices, including general practitioners, cardiologists, endocrinologists, and general surgeons. For its services C&L charged a fee or commission of 6% of the payments the client-doctor received from payors.
Dr. Najle-Rahim would generally begin the billing process by mailing copies of her patients' face sheets to C&L, which would then scan them and enter the information into its computer system. C&L would establish a record for each patient and identify the medical procedures performed with a current procedural terminology code. A claim would then be generated, either on paper or electronically, and sent to the payor to respond, "hopefully with a payment," as Ms. MacSween stated.
Any payment would be sent directly to Dr. Najle-Rahim (not to C&L) along with an explanation of benefits, indicating the date and level of service, the payment method and amount, and whether any residual amount was billable to another party. Other correspondence regarding billing issues would also be sent directly to Dr. Najle-Rahim. If the correspondence related to a billing issue, e.g., a request for additional information, Dr. Najle-Rahim would send a copy of the correspondence to C&L for followup.
About once a week Dr. Najle-Rahim would mail to C&L a packet containing copies of the explanation of benefits forms and other correspondence. Upon receiving the packet, C&L would analyze the explanation of benefit forms to determine whether the third-party payor had properly paid the claim and whether any additional billing should be made either to the patient or to a secondary insurance company. If Dr. Najle-Rahim had other correspondence regarding billing issues, C&L would contact the payor to follow up.
In addition to providing billing services, C&L offered collection assistance to its clients, including Dr. Najle-Rahim. Such collection assistance generally involved recovering patient copays. C&L would bill the patient for copays if the doctor had not collected them at the time of service. If the patient failed to respond to three bills, C&L would consult with the client before taking any additional steps. Upon the client's express request, C&L would contact a collection agency (during the years at issue C&L engaged Financial Debt Recovery) to collect any unpaid balances on the client's behalf. Once a bill was sent to a collection agency, C&L would show it as a writeoff in the monthly client summary. Should the collection agency eventually collect the money, it would keep a percentage and send a check to Dr. Najle-Rahim for the balance.
At the end of each month Ms. MacSween and Ms. Kahoilua would review all of C&L's clients' documentation, including Dr. Najle-Rahim's, to ensure that all amounts were properly billed. Ms. MacSween would then prepare and send a monthly summary to each client, including Dr. Najle-Rahim. The data reported on Dr. Najle-Rahim's monthly summary was taken directly from the explanations of benefits C&L received from her. Each monthly summary consisted of a general ledger report that ran from the first through the last day of the month. The summaries for Dr. Najle-Rahim's medical practice reported the dates Dr. Najle-Rahim performed medical services; "total charges" (i.e., the gross charges) generated by the services provided; "corrected charges", reflecting errors that were subtracted from claims; "writeoffs", representing amounts that the billed payors had failed to pay (but that might still be collected through a collection agency); "total payments", representing actual payments made during the month as stated on each explanation of benefits; "net charges", representing the difference between total payments and any corrections; "net payments", representing payments less refunds paid; and "payment refunds", representing payors' overpayment claims against Dr. Najle-Rahim.
Attached to each monthly summary was an invoice showing the total monthly payments received by Dr. Najle-Rahim, a calculation of the 6% fee owed to C&L, and an amount due for reimbursement of C&L's postage expenses. The 6% fee was based on the payments received by Dr. Najle-Rahim as reported to C&L on the explanation of benefits forms.
C&L also provided its clients, including Dr. Najle-Rahim, with annual reports, summarizing the monthly reports.
After reviewing the C&L...
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