Laidlaw v. Comm'r
| Decision Date | 28 August 2017 |
| Docket Number | T.C. Memo. 2017-167,Docket No. 11180-12,Docket No. 11182-12. |
| Parties | JAROLD R. LAIDLAW AND DIANE LAIDLAW, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent BRENT LAIDLAW AND REBECCA LAIDLAW, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
The due date for Federal individual income tax returns for tax year 2005 was Apr. 17, 2006. Ps filed their returns for that year on Oct. 16, 2006. They claim to have sent by regular mail on Apr. 17, 2006, applications for extensions of time to file their returns, but R claims not to have received them. R determined that Ps are liable for I.R.C. sec. 6651(a)(1) additions to tax for failure to timely file required returns.
Held: Ps are liable for I.R.C. sec. 6651(a)(1) additions to tax because, while R has carried his I.R.C. sec. 7491(c) burden of production, Ps have not come forward with evidence sufficient to persuade the Court that R's determination is incorrect. Higbee v. Commissioner, 116 T.C. 438 (2001), followed. Steven S. Brown, Allen James White, and Denis J. Conlon, for petitioners.
Angela B. Reynolds, David Weiner, Elizabeth S. McBrearty, Kathryn E. Kelly, and Louis H. Hill, for respondent.
LARO, Judge: These cases arise out of respondent's adjustments to petitioners' returns for the 2005, 2006, and 2007 tax years. The cases were consolidated for trial, briefing, and opinion and were submitted fully stipulated under Rule 122.1
Respondent determined deficiencies in petitioners' Federal income tax, as well as additions to tax under section 6651(a)(1) and accuracy-related penalties under sections 6662(a) and 6662A, for the tax years and in the amounts as follows:
Jarold R. and Diane Laidlaw, docket No. 11180-12
Addition to tax Penalties Year Deficiency sec. 6651(a)(1) Sec. 6662(a) Sec. 6662A 2005 $65,852 $13,907.75 $13,170.40 -0- 2006 123,844 -0- 24,768.80 -0- 2007 132,674 -0- -0- $28,751.45
Brent and Rebecca Laidlaw, docket No. 11182-12
Addition to tax Penalties Year Deficiency sec. 6651(a)(1) Sec. 6662(a) Sec. 6662A 2005 $97,403 $24,350.75 $19,480.60 -0- 2006 132,311 -0- 26,462.20 -0- 2007 141,910 -0- -0- $33,539.80
The parties have settled all the issues in dispute save for the applicability of the additions to tax for failure to file required returns. Thus we decide whether petitioners Jarold R. and Diane Laidlaw and petitioners Brent and Rebecca Laidlaw are liable for additions to tax under section 6651(a)(1) for their respective 2005 tax years because they filed their Federal income tax returns after the date on which they were due. We hold that they are so liable.
The parties submitted these cases fully stipulated under Rule 122. The stipulations of fact and the facts drawn from stipulated exhibits are incorporated herein, as are the stipulations to be bound and stipulations of settled issues. Petitioners are residents of California. These cases are appealable to the Court of Appeals for the Ninth Circuit absent stipulation of the parties to the contrary.
Jarold R. Laidlaw and Brent Laidlaw are brothers who own interests in Laidlaw's Harley Davidson Sales, Inc. These cases arose from a dispute about the values of their life insurance policies obtained in connection with their company's participation in the Sterling Benefit Plan, a purported welfare benefit plan. Respondent sent notices of deficiency to petitioners on February 2, 2012, showing the increases in tax, additions to tax, and accuracy-related penalties indicated above. Petitioners timely filed their petitions for redetermination of the deficiencies.
Pursuant to stipulations to be bound, the main issue in these cases was resolved by the Court's Opinion in Our Country Home Enters., Inc. v. Commissioner, 145 T.C. 1 (2015). The parties executed and filed joint stipulations of settled issues resolving their disagreements about respondent's adjustments and the applicability of accuracy-related penalties under sections 6662(a) and 6662A. The only question remaining unresolved is whether for tax year 2005 petitioners are liable for section 6651(a)(1) additions to tax because they were late in filing their Federal income tax returns.
Petitioners have retained Javier E. Morgan, C.P.A., and his accounting firm as their accountant and tax return preparer for all tax years since 1998, including 2005. Mr. Morgan considers petitioners to be significant clients. For the years 2005 through 2015 Mr. Morgan prepared between 215 and 250 tax returns annually. For tax year 2005 he filed between 75 and 100 filing extension requests, approximately 90% of which he personally delivered to the post office. Mr. Morgan was aware of petitioners' distributions and wage income for 2005 and met with them at least monthly to review financial statements and other financial transactions. He also had access to and distribution authority over certain of their bank accounts.
On April 17, 2006, the due date for filing tax returns for the preceding tax year, Mr. Morgan decided to apply for extensions of time to file petitioners' 2005 Federal income tax returns because he did not yet have Schedules K-1, Partner's Share of Income, Deductions, Credits, etc., for that year. That day, Mr. Morgan and his staff prepared corresponding extension requests and estimates. Mr. Morgan's tax preparation business' billing records show that on April 17, 2006, he worked on "extensions" for Jarold and Diane Laidlaw and for Brent and Rebecca Laidlaw. In preparing the tax estimates for 2005, Mr. Morgan had in his possession Jarold Laidlaw's 2005 Forms W-2, Wage and Tax Statement, one from Laidlaw's Harley Davidson Sales, Inc., and the other from Laidlaw's Rental Center, Inc., which together showed wage income of $468,244. Mr. Morgan also had Brent Laidlaw's 2005 Forms W-2 from the same payors, together showing wage income of $501,149. Mr. Morgan was aware that petitioners had received partnership distributions reportable on Schedules K-1, which for Jarold and Diane Laidlaw were reported on their 2005 Form 1040, U.S. Individual Income Tax Return, as $124,455, and for Brent and Rebecca Laidlaw were reported as $124,162.
Petitioners filed Forms 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, for tax years 2002, 2003, and 2004.
The 2005 Forms 4868 provided by petitioners to respondent on November 22, 2016, but ostensibly prepared by Mr. Morgan on April 17, 2006, reported zero amounts for estimated total tax liability, total 2005 payments, balance due, and amount being paid presently. The 2005 forms were not sent by certified mail, and respondent claims not to have received them. Mr. Morgan avers that both Forms 4868 were mailed in the same envelope. There is no copy of the envelope in which the forms were mailed.2
For 2005 Jarold and Diane Laidlaw had $80,224 withheld for Federal income tax and excess Social Security tax from payments reported on Forms W-2. They also made two estimated tax payments for tax year 2005: $44,109 on October 20, 2005, and $32,500 on January 18, 2006. Thus, as of April 17, 2006, Jarold and Diane Laidlaw had made total payments of $156,833 for their 2005 income tax liability. Respondent received Jarold and Diane Laidlaw's 2005 Form 1040 on October 16, 2006. The return showed total tax liability of $146,612 and an overpayment of $10,221 (which was applied to the following tax year's estimated tax, albeit reduced by a $743 estimated tax penalty).
For 2005 Brent and Rebecca Laidlaw had $84,864 withheld for Federal income tax and excess Social Security tax from payments reported on Forms W-2. They also made two estimated tax payments for tax year 2005: $47,609 on October 20, 2005, and $32,500 on January 19, 2006. Thus, as of April 17, 2006, Brent and Rebecca Laidlaw had made total payments of $164,973 for their 2005 income tax liability. Respondent received Brent and Rebecca Laidlaw's 2005 Form 1040 on October 16, 2006. The return showed total tax liability of $190,306 and net tax owed of $26,473 (including a $1,140 estimated tax penalty); payment for the latter was submitted with the return.
On November 6, 2006, respondent assessed a $5,699.92 addition to tax under section 6651(a)(1) based on the information reported in Brent and Rebecca Laidlaw's return. Petitioners did not submit a written request for relief from the addition to tax and on January 22, 2007, paid the full amount assessed.3 No Form 843, Claim for Refund, has been filed with respect to this amount.
Respondent on February 2, 2012, mailed to Jarold and Diane Laidlaw and to Brent and Rebecca Laidlaw notices of deficiency for their respective tax years 2005, 2006, and 2007, showing the deficiencies, additions to tax, and accuracy-related penalties listed above. The last day to file a petition with this Court for each petitioner was May 2, 2012. The Court received both petitions on May 4, 2012, but because they were mailed on April 30, 2012, and bore corresponding postmarks, they are treated as timely filed. See sec. 7502(a).
With respect to Jarold and Diane Laidlaw, respondent in the notice of deficiency made adjustments to "Other Income" of $183,884 for tax year 2005, $346,900 for tax year 2006, and $402,682 for tax year 2007; there were additional correlative adjustments for those years due to itemized deduction phase-outs. The parties agree that the adjustments instead should be $197,713 (an increase under section 6214(a)), $84,138, and $110,714, respectively. The parties also agree that Jarold and Diane Laidlaw are liable for accuracy-related penalties under section 6662(a) for tax years 2005 and 2006 and under section 6662A for tax year 2007.
With respect to Brent and ...
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