Mendes v. Commissioner of Internal Revenue, Docket No. 16032-95 (U.S.T.C. 12/11/2003)
| Decision Date | 11 December 2003 |
| Docket Number | Docket No. 16032-95. |
| Parties | FORTUNATO J. MENDES, Petitioner <U>v</U>. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | U.S. Tax Court |
P has been continuously incarcerated since June 17, 1988. For P's 1988 taxable year, R (1) determined a tax deficiency based upon amounts reported on information returns as having been paid to P during that year, (2) imposed the 10-percent additional tax under sec. 72(t)(1), I.R.C., and (3) determined that P was subject to additions to tax under secs. 6651(a)(1), 6653(a)(1), and 6654, I.R.C. More than 2 years after R issued the notice of deficiency, P filed a 1988 return in which he reported the income from the 1988 information returns and listed deductions and dependency exemptions, which, in total, exceeded the reported income, thereby resulting in a zero tax liability for 1988. P now denies (1) receipt of a portion of the income reported on his 1988 return and (2) liability for the 10-percent additional tax under sec. 72(t)(1), I.R.C. R denies that P is entitled to any of the claimed deductions and dependency exemptions.
3. Held, further, R's imposition of additions to tax under secs. 6651(a)(1), 6653(a)(1), and 6654, I.R.C., are sustained. P's 1988 return, filed more than 2 years after R's issuance of the notice of deficiency, is disregarded for purposes of computing the "required annual payment" under sec. 6654(d)(1)(B)(i), I.R.C.
Fortunato J. Mendes, pro se.
Wilton A. Baker, for respondent.
By notice of deficiency dated May 3, 1995 (the notice), respondent determined a deficiency in and additions to petitioner's Federal income tax for calendar year 1988 (sometimes, the audit year) as follows:
Additions to Tax
Deficiency Sec. 6651(a)(1) Sec. 6653(a)(1) Sec. 6654
$8,487 $2,122 $424 $484
The adjustments giving rise to the deficiency are respondent's inclusion in income of amounts reported on information returns as having been paid to petitioner during 1988 (sometimes, the income items), and his imposition of the 10-percent additional tax on early distributions from qualified retirement plans, offset by his allowance of the standard deduction and one personal exemption. In addition, respondent denies petitioner's claim, raised at trial, to deductions, losses, and additional personal exemptions on a 1988 Form 1040, U.S. Individual Income Tax Return (the 1988 return), that petitioner filed on or about May 14, 1997, more than 2 years after the notice was issued.
The issues for decision are whether, for the audit year, petitioner: (1) must include in gross income $40,347, consisting of dividends, interest, capital gains, and a distribution from a retirement account; (2) is entitled to itemized deductions of $11,850; (3) sustained a deductible loss of $6,724 in connection with his law practice; (4) sustained deductible losses totaling $29,455 in connection with the management of certain rental real property; (5) is entitled to dependency exemptions for three children (the dependency exemptions); (6) is liable for the 10-percent additional tax on early distributions from qualified retirement plans under section 72(t); and (7) is liable for additions to tax under (A) section 6651(a)(1) for failure to timely file the 1988 return, (B) section 6653(a)(1) for negligence, and (C) section 6654 for failure to pay estimated income tax.
Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. All dollar amounts have been rounded to the nearest dollar. Petitioner bears the burden of proof. Rule 142(a)(1).1
Some facts are stipulated and are so found. The stipulation of facts, with accompanying exhibits, is incorporated herein by this reference.
At the time the petition was filed, petitioner was incarcerated at the Maryland House of Corrections in Jessup, Maryland.
Petitioner has been continuously incarcerated since June 17, 1988, the date upon which he was arrested for the murder of an individual who was scheduled to testify against him regarding a cocaine trafficking charge. He was ultimately tried for and convicted of first degree murder and sentenced to life imprisonment with no chance of parole.3
Petitioner was a lawyer for 20 years. He was disbarred on October 23, 1991, as a result of his convictions.
Petitioner paid no taxes and filed no return for the audit year before the issuance of the notice. The additions to gross income set forth in the notice were reported on information returns (Forms 1099 or, in the case of Merrill Lynch Pierce Fenner & Smith, Inc. (Merrill Lynch), an equivalent tax reporting statement) as follows:
PayorClassificationAmount
Merrill Lynch Short-term capital gain1 $27,573
Bank of New York Short-term capital gain1 2,802
First Investors Tax Interest 259
Exempt Fund
Sovran Bank, NA Interest 138
Commonwealth Savings Interest 5
& Loan
Merrill Lynch Dividends 540
Raytheon Co. Dividends 8
National Bank of Gross distribution from 9,022
Washington retirement account ______
Total 40,347
On or about May 14, 1997, more than 2 years after the notice was issued, petitioner filed the 1988 return. On Schedules B Interest and Dividend Income, and D, Capital Gains and Losses, he listed all of the income items contained in the notice.4
On Schedule A, Itemized Deductions, of the 1988 return, petitioner listed the following itemized deductions:
Real estate taxes $1,420
Deductible points (interest) 10,430
______
Total 11,850
On Schedule C, Profit or Loss From Business, petitioner listed his principal business as "Lawyer", and, on a cash basis of accounting, showed zero gross receipts and total deductions of $6,724, for a net loss of $6,724.
On Schedule E, Supplemental Income (plus attachments), petitioner listed nine separate rental properties. He reported a loss on each of the properties and, on four of the properties, he reported zero rental income. He reported a total loss of $29,455 with respect to said properties.
Petitioner also claimed four personal exemptions: one for himself and one for each of three children.
The combination of personal exemptions, itemized deductions, and losses resulted in petitioner's reporting zero taxable income and zero tax due.
In the notice, respondent allowed petitioner one personal exemption of $1,950 and the $3,000 standard deduction appropriate for his filing status, married filing separately. In addition, respondent treated the $9,022 distribution from the National Bank of Washington as a premature distribution from a qualified retirement plan and imposed the 10-percent additional tax ($902) applicable to such distributions under section 72(t). Respondent also imposed additions to tax under sections 6651(a), 6653(a)(1), and 6654.
OPINIONOn the 1988 return, petitioner included in income all of the items that are contained in the notice's adjustment for additional income. During the trial, however, petitioner stated that he was contesting all but one of the income items: the $138 of interest from Sovran Bank.
It has been held repeatedly that positions taken in a tax return signed by a taxpayer may be treated as admissions. See Waring v. Commissioner, 412 F.2d 800, 801 (3d Cir. 1969), affg. T.C. Memo. 1968-126; Lare v. Commissioner, 62 T.C. 739, 750 (1974), affd. without published opinion 521 F.2d 1399 (3d Cir. 1975); Kaltreider v. Commissioner, 28 T.C. 121, 125-126 (1957), affd. 255 F.2d 833 (3d Cir. 1958). As we recently stated in Crigler v. Commissioner, T.C. Memo. 2003-93 (): "petitioner * * * cannot * * * disavow * * * returns [prepared by him] without cogent proof that they are incorrect." As discussed infra in Section I.B. and C., petitioner has failed to furnish such proof.
Other than making a vague assertion that he "was requires [sic] to and fully complied with the filing of * * * [the 1988 return] consistent with the 1099 information" (which suggests a mistaken belief that such reporting was required even though petitioner disputed the information), on brief, petitioner challenges only one of the income items: the short-term capital gain from the sale of 240 shares of IBM (the IBM stock).5 If an argument is not pursued on brief, we may conclude that it has been abandoned. See Clajon Gas Co. v. Commissioner, 119 T.C. 197, 213 n.17 (2002); Davis v. Commissioner, 119 T.C. 1 n.1 (2002); Nicklaus v. Commissioner, 117 T.C. 117, 120 n.4 (2001); Rybak v. Commissioner, 91 T.C. 524, 566 n.19 (1988).
Petitioner argues that there is no proof that Merrill Lynch sold the IBM stock at petitioner's request or that petitioner received the proceeds of that sale. During the trial, petitioner acknowledged that the Merrill Lynch tax reporting statement for 1988, together with the monthly statements for...
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