Scott v. Dep't of Revenue, TC 5192
| Decision Date | 19 April 2018 |
| Docket Number | TC 5192 |
| Parties | LESLIE SCOTT, Plaintiff, v. DEPARTMENT OF REVENUE, State of Oregon, Defendant. |
| Court | Oregon Tax Court |
This personal income tax case is before the court after trial.1 The tax years at issue are 2007 and 2008. Plaintiff Leslie Scott (taxpayer) appeals from notices of deficiency assessment for each year issued by Defendant Department of Revenue (the department).
The record in this case comprises taxpayer's exhibits 3, 4, 10, 13, and 15; the department's exhibits A, B, C, D, E, F, H, I, and K; and the testimony of taxpayer, taxpayer's accountant Toni Ellsworth (Ellsworth), and the department's auditor Alex Anderson (Anderson). The court will present the relevant evidence and facts for each year.
Taxpayer's 2007 federal income tax return (2007 federal return) was dated July 11, 2011. (Def's Ex C at 4.) The department contends that taxpayer filed his 2007 Oregon income tax return (2007 state return) at the same time. (Def's Closing Arg at 3.) There is no record of that--the 2007 state return included in Defendant's Exhibit C is undated and unsigned. (Def's Ex C at 2.) Nevertheless, taxpayer admits that his 2007 state return was filed late.
On taxpayer's 2007 state return, he reported $44,145 of income attributable to W-2 wages from Cognitive Enrichment Concepts. (Def's Exs C at 1, E at 1.)
On his 2007 federal return, taxpayer reported gross receipts of $34,505 on a Schedule C for Scott's Quality Care,2 a business taxpayer is involved with. (Def's Ex C at 5.) Taxpayer deducted $34,505 of other expenses, which were described as "TURNED OVER TO DEBRA." (Id. at 5-6.)
Taxpayer informed the court that Debra was his wife, Debra J. Scott. They have since separated, the details of which are not the proper subject of this opinion. Suffice it to say, the testimony in this case is that at least some of taxpayer's documentation issues stem from the facts and circumstances of that separation.
Also on taxpayer's 2007 federal return, taxpayer reported $14,418 of rents received on a Schedule E for property in Coos Bay, Oregon. (Def's Ex C at 7.) On line 18 of that Schedule E, taxpayer deducted $14,418 of other expenses, which were similarly described as "turned over to Debra." (Id.)
The department audited taxpayer's 2007 state return, concluding that audit on August 22, 2011. (Def's Ex H at 1.) The auditor made the following adjustments:3
The total amount of tax due on the auditor's report was $4,349, plus penalties of $1,957.05, for a total of $6,306.05. (Id.) Taxpayer did not pay the amount due.
Thereafter, the department issued a notice of deficiency assessment. That notice identified the amount of tax due ($4,349); the amount of penalties including a 5 percent penalty for failure to pay ($2,174.50); and the amount of interest on the unpaid tax ($1,053.33). In total, the notice informed taxpayer that he owed $7,576.83. (Def's Ex A at 1.) Taxpayer appealed from that notice to this court.4
In the department's Answer, it asserted a claim under ORS 305.575 to adjust the amount of gambling winnings determined by its auditor and disallow the offsetting gambling losses determined by its auditor.5 (Def's Ans, at 1-2.) At trial, the department introduced a wage and income transcript from the Internal Revenue Service (IRS), which listed W-2Gs totaling $189,208. (Def's Ex E at 2-27.) The department also asserted that taxpayer could not prove any gambling losses (an itemized deduction), and, accordingly, the standard deduction should be allowed to taxpayer. (Def's Closing Arg at 19.)
Taxpayer does not dispute the amount of gambling winnings for 2007. Taxpayer does, however, claim gambling losses. In support of that claim, taxpayer introduced annual activity reports from various casinos that show those casinos' records of taxpayer's total winnings and losses for the year. (Ptf's Ex 10 at 37-38.) Taxpayer also introduced ATM receipts, account statements, and canceled checks purportedly showing money withdrawn for gambling purposes. (See Ptf's Ex 10.)
Taxpayer also claims, and introduced evidence attempting to show, that he had expenses for his Schedule C gross receipts and Schedule E rents. Taxpayer also claims that the rents he received for a property referred to as the North Eighth Property should have been split between him and Debra Scott. That evidence, and other evidence relevant to the 2007 year, will be addressed in the analysis portion of this opinion.
Taxpayer's 2008 Oregon income tax return (2008 state return) was dated June 8, 2010. (Def's Ex D at 1.)
/ / / On taxpayer's 2008 state return, he reported $55,490 of income attributable to W-2 wages from "Debra J Scott." (Def's Exs D at 1, F at 1.)
Unlike in 2007, taxpayer did not file either a Schedule C or a Schedule E with his 2008 federal income tax return (2008 federal return). He reported no business receipts or rents received in 2008.
The department audited taxpayer's 2008 state return, concluding that audit on August 22, 2011. (Def's Ex I at 1.) The auditor made the following adjustments:
The total amount of tax due on the auditor's report was $5,120, plus the penalty of $1,024, for a total of $6,144. (Id. at 1.) Taxpayer did not pay the amount due.
Thereafter, the department issued a notice of deficiency assessment. That notice identified the amount of tax ($5,120); the amount of penalties including a 5 percent penalty for failure to pay ($1,280); and the amount of interest on the unpaid tax ($817.67). The total amount due was $7,217.67. (Def's Ex B at 1.)
As it did for tax year 2007, the department asserted a claim under ORS 305.575 in its Answer to adjust the amount of gambling winnings determined by its auditor, and to disallow the offsetting gambling losses determined by its auditor. (Def's Ans at 2-3.) At trial, the department introduced a wage and income transcript from the IRS, which listed W-2Gs totaling $223,141. (Def's Ex F at 2-39.) The department also asserted that taxpayer could not prove any gambling losses (an itemized deduction), and, accordingly, the standard deduction should be allowed to taxpayer. (Def's Closing Arg at 20.)
Taxpayer does not dispute the amount of gambling winnings, capital gains, dividends, or interest for 2008. Taxpayer does dispute the status of the "medical payments" as being received by him, and he disputes the total amount of rents attributable to him from the North Eighth Property. He also claims expenses for his various businesses and properties.
Taxpayer also claims gambling losses. In support of that claim, taxpayer introduced annual activity reports from various casinos that show those casinos' records of taxpayer's total winnings and losses for the year. (Ptf's Ex 10 at 9-12.) Taxpayer also introduced various ATM receipts, account statements, or canceled checks purportedly showing money he withdrew for gambling purposes.
This evidence, and other evidence relevant to 2008, will be addressed in the analysis portion of this opinion.
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The first issue in this case is whether taxpayer received $23,620 in "medical payments" reported on a form 1099-MISC using his social security number for 2008. The second issue is whether taxpayer substantiated any business expenses or income allocation for his various businesses and rental properties in 2007 and 2008. The third issue is whether the department proved taxpayer's gambling winnings for 2007 and 2008. The fourth issue is whether taxpayer substantiated any gambling losses for 2007 and 2008. The fifth issue is whether taxpayer substantiated any additional dependency exemptions not reported on his 2007 and 2008 returns. The sixth issue is whether the department correctly assessed penalties against taxpayer.
The court will address each issue in turn, but two preliminary matters must first be addressed.
First, the court considers the weight and persuasiveness of the evidence introduced in this case. Taxpayer has introduced various documents, as has the department. The court finds some of those documents extremely helpful. However, the court did not find the trial balances and income statements provided by taxpayer in Exhibits 3 and 4 to be helpful because taxpayer failed to attach any supporting documentation.6 The court received testimony that some amounts in these statements may pertain to activities for other entities and some amounts may be attributable at least in part to Debra Scott. The court ascribes no weight to these documents.
With respect to testimony, the court does not find helpful or credible the testimony of taxpayer concerning income or expense amounts. The court recognizes that the tax years and most of the events in this case occurred...
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