Kotmair v. Comm'r of Internal Revenue
| Citation | 86 T.C. 1253,86 T.C. No. 73 |
| Decision Date | 19 June 1986 |
| Docket Number | Docket No. 6716-84. |
| Parties | JOHN B. KOTMAIR, JR.,, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | United States Tax Court |
HELD, P's income for the years 1975 and 1976 redetermined;
HELD, P is not entitled to recompute his income under the complete d contract method.
HELD, P is not liable for additions to tax under sec. 6653(b), I.R.C. 1954;
HELD, the principles of collateral estoppel apply to proposed additions to tax under secs. 6651(a)(1) and 6653(a) I.R.C. 1954. John B. Kotmair, Jr., pro se.
John F. Dean, for the respondent.
Respondent determined deficiencies of income tax an d additions to tax against petitioner for the years and in the amounts as follows:
+------------------------------------------------+
¦ ¦ ¦Additions to tax¦
+-------------+-----------------+----------------¦
¦Calendar year¦Deficiency of tax¦sec. 6653(b)1 ¦
+-------------+-----------------+----------------¦
¦1974 ¦$81,551.80 ¦$40,775.90 ¦
+-------------+-----------------+----------------¦
¦1975 ¦73,748.90 ¦36,874.45 ¦
+-------------+-----------------+----------------¦
¦1976 ¦267,774.70 ¦133,887.35 ¦
+------------------------------------------------+
In addition to the above determinations, respondent, in his answer filed herein, affirmatively pleaded, as an alternative to his determinations of additions to tax under section 6653(b), that if the Court should find such additions to tax not applicable, petitioner was liable for additions to tax for each of the above years under the provisions of section 6651(a)(1) and also under section 6653(a).
After concessions,2 the issues which we must decide are:
1. Whether petitioner had unreported income for each of the years 1975 and 1976, and the amount thereof.
2. Whether, in the computation of petitioner's income under issue 1 above, petitioner is entitled to use the completed contract method of accounting, or is required to use the cash receipts and disbursements method.
3. Whether petitioner failed to file income tax returns for his calendar years 1975 and 1976.
4. Whether a part of any underpayment of tax in each of the years 1975 and 1976 is due to fraud within the meaning of section 6653(b).
5. In the event that the Court determines that additions to tax under section 6653(b) are not proper, whether petitioner is liable for additions to tax for the years 1975 and 1976 under the provisions of sections 6651(a)(1) and 6653(a).
A large part of the evidence herein was stipulated by the parties, and such stipulations of fact, with accompanying exhibits, are incorporated herein by this reference.
At the time of filing his petition herein, petitioner was a resident of Westminster, Maryland. During the years 1975 and 1976, petitioner was self-employed as a homebuilder, doing business as Free State Homebuilders, a sole proprietorship. Petitioner kept no regular set of books on any recognizable system of accounting with respect to his business. His records consisted of a mass of receipted bills, canceled checks, bank statements and the like, some of which were gathered together in folders or envelopes, apparently representing petitioner's attempt to allocate certain income and expenses to certain jobs he was working on during the year. Other such documents did not appear to relate clearly to any particular job and were not segregated.
In his statutory notice, respondent purported to redetermine petitioner's income on the cash receipts and disbursements basis. Respondent, however, treated all of petitioner's business receipts as income; except for allowing $221 and $19 as interest expense in 1975 and 1976, respectively, and allowing $984 of depreciation on petitioner's truck in each year, no other business deductions were allowed. As the result of stipulations and concessions at trial, however, and based upon the evidence presented, we find that petitioner's income from his business was as follows in the years in question:
+------------------------------------------------------+
¦ ¦1975 ¦1976 ¦
+----------------------+---------------+---------------¦
¦Gross receipts ¦$181,868.25 ¦$461,896.98 ¦
+----------------------+---------------+---------------¦
¦Cash business expenses¦1 (181,283.32)¦2 (445,709.04)¦
+----------------------+---------------+---------------¦
¦Depreciation ¦(984.00) ¦(984.00) ¦
+----------------------+---------------+---------------¦
¦Net income (loss) ¦(399.07) ¦15,203.94 ¦
+------------------------------------------------------+
In the year 1975, petitioner also had a lond-term capital gain resulting from the sale of a lot in Florida which he had purchased in 1970. His gain is computed as follows:
+-----------------------------------------+
¦Sales price of lot ¦ ¦$6,700.00¦
+---------------------+---------+---------¦
¦Less: Cost of lot ¦$2,950.00¦ ¦
+---------------------+---------+---------¦
¦Expenses of sale ¦679.50 ¦3,629.50 ¦
+---------------------+---------+---------¦
¦Gain on sale ¦ ¦3,070.50 ¦
+---------------------+---------+---------¦
¦Reportable gain after¦ ¦ ¦
+---------------------+---------+---------¦
¦sec. 1202 deduction ¦ ¦1,535.25 ¦
+-----------------------------------------+
In his statutory notice, respondent further allowed certain itemized deductions and exemptions to petitioner in each year, and recomputed petitioner's tax upon the basis of a married taxpayer filing a separate return, none of which was contested by petitioner. Finally, respondent determined petitioner was liable for additions to tax for fraud under section 6653(b), and, in the alternative, made claim in his answer herein for additions to tax under sections 6651(a)(1) and 6653(a) for each year.
Petitioner duly and timely filed income tax returns for 1971, 1972 and 1973. Thereafter, he apparently suffered a change of heart. For the years 1974, 1975 and 1976, petitioner filed Forms 1040 for each year (sometimes more than one for each year) which, after giving his name, address, social security number and employment status, and stating that he was married filing a separate return, gave no further information with respect to his income, deductions, exemptions, or any other information from which his taxable income and tax could be determined. Instead, by means of footnotes, interlineations, and numerous printed materials attached to the Forms 1040, petitioner made it clear that he did not intend to give any of the information called for by the return forms. Instead, he objected to doing so on numerous frivolous and meritless tax protester grounds.3 In effect, petitioner made it clear that he had no intention, of filing an individual income tax return, and challenged the Federal government's right to make him do so.
With regard to the application of the doctrine of collateral estoppel to the proposed addition to tax under section 6653(a), it does not appear that this or other courts have yet had occasion to speak on the point. We find, however, that the collateral estoppel argument is equally applicable and persuasive in this situation. The addition to tax under section 6653(a) is imposed if any part of the underpayment of tax is ‘due to negligence or intentional disregard of rules and regulations.‘11 We think that petitioner's conviction of willful failure to file returns for 1975 and 1976 under section 7203 conclusively establishes the following propositions: (a) that petitioner had the duty to file such returns; (b) that he failed to do so; and (c) that his failure to do so was willful, i.e., that he intentionally disregarded applicable rules and regulations requiring the filing of returns, section 6012(a)(1)(A), section 1.6012-1, Income Tax Regs.
The Federal government accepted petitioner's challenge, and in 1981, after a jury trial, petitioner was convicted of willfully failing to file income tax returns for the years 1975 and 1976, under the provisions of section 7203, and was imprisoned for a period of two years and fined the sum of $10,000.
Petitioner's failure to file timely income tax returns for 1975 an d 1976 was not due to reasonable cause and was due to his willful neglect.
Petitioner's failure to file income tax returns for each of the years 1975 and 1976 was due to his negligence or intentional disregard of rules and regulations.
OPINIONWith respect to the amounts of petitioner's unreported income for the years 1975 and 1976, the matter is essentially factual, and we have done the best we could with the record presented to us. Although respondent's original statutory notice of deficiency essentially allowed petitioner no business deductions with respect to his homebuilding business, the parties had, by the time of trial, reached agreement and stipulated as to substantial amounts of petitioner's business expenses for the years 1975 and 1976 which would be allowable herein, and we have taken these concessions and stipulations into account in our findings of fact.4 Our findings with regard to petitioner's gross receipts for each year are based on the stipulations of the parties and, for the most part, our findings as to allowable business expenses are based on the same stipulations, corrected for two obvious omissions in respondent's computations which are evident from the record. Although numerous other exhibits were admitted at trial, relating to various expenditures by petitioner in the years in question, no serious effort was made by petitioner to relate them to his business nor to justify them as allowable business...
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