Burnett v. CIR

• Court: Court of Appeals for the Fifth Circuit
• Decided: April 29, 2003
• Docket: 02-60928
• Status: Unpublished

Opinion

United States Court of Appeals Fifth Circuit F I L E D UNITED STATES COURT OF APPEALS April 28, 2003 FOR THE FIFTH CIRCUIT Charles R. Fulbruge III _______________________ Clerk

Summary Calendar No. 02-60928 _______________________

WESLEY W. BURNETT AND PATSIE R. BURNETT,

Petitioners-Appellants,

versus

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellee.

_________________________________________________________________

Appeal from a Decision of the United States Tax Court Docket No. 3265-01 _________________________________________________________________

Before JONES, STEWART and DENNIS, Circuit Judges.

PER CURIAM:*

Husband and wife Wesley W. Burnett and Patsie R. Burnett

(“Burnetts”) appeal the judgment of the United States Tax Court in

favor of the Commissioner of Internal Revenue (“Commissioner”),

which issued notices of deficiency to each of them on the basis of

their failure to file federal income tax returns for 1994, 1995,

* Pursuant to 5TH CIR. R. 47.5, the Court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4. 1996, and 1997. For the following reasons, the judgment of the Tax

Court is affirmed.

FACTS

During 1994, Mr. Burnett was employed by and received

wages from the Lubbock Independent School District (“Lubbock”).

For his work in the early part of the year he received $16,177. He

also received wages from Lubbock in September, October, and

November. The net (take-home) amount of these wages was $910,

$930, and $164, respectively. In December 1994, Mr. Burnett

repurchased a weekly newspaper, the Post Dispatch, which he had

previously sold in 1992. For each of the subsequent three subject

years, Mr. Burnett served as publisher of the paper, which he held

as a sole proprietorship.

The Burnetts have never filed a 1994, 1995, 1996, or 1997

federal income tax return. In September 1997, the Commissioner

requested a meeting with Mr. Burnett to discuss his federal income

tax liability for 1993 through 1996. Though he initially agreed to

speak with the Commissioner, he subsequently broke the date,

declaring that he was “not one made liable for any tax as defined

by the Internal Revenue Code.” In April 1998 the Commissioner

contacted Mrs. Burnett, who also refused to cooperate.

In December 2000, the Commissioner issued notices of

deficiency to the Burnetts for 1994, 1995, 1996, and 1997. The

Commissioner calculated the Burnetts’ tax deficiency for those

2 years in the following manner. On the basis of information

obtained via a summons issued to the Lubbock Independent School

District, the Commissioner listed $19,913 as taxable wage income

for 1994. Following a process described in great detail in the Tax

Court’s opinion, the Commissioner listed $85,550 as taxable

self-employment income for each of the other three years.

STANDARD OF REVIEW

This court reviews the Tax Court’s factual findings under

the clearly erroneous standard of review. Webb v. Commissioner,

394 F.2d 366, 372 (5th Cir. 1968). Legal conclusions are reviewed

de novo.

DISCUSSION

I. The Tax Court did not err in holding, as a matter of law, that the Internal Revenue Code does not require the Commissioner to prepare and execute a tax return before submitting a notice of deficiency.

The Burnetts argue that the Commissioner’s submission of

a notice of deficiency must be preceded by the filing of a tax

return. In the case of taxpayers who file their returns

voluntarily, the Commissioner may submit a notice of deficiency

without further ado. However, before submitting deficiency notices

to non-filers, the Burnetts contend that the Commissioner must

first prepare and subscribe a substitute return.

In support of this argument, the Burnetts present a

lengthy and ingenious reading of the text and legislative history

3 of 26 U.S.C. §§ 6020(b) & 6211, the details of which this court

need not repeat.

The Burnett’s argument was long ago rejected by this

court. Clark v. Campbell, 501 F.2d 108, 117 (5th Cir. 1974) (“the

Service may determine a deficiency in the absence of a return”).

We are bound by the previous circuit precedent, which in any event

accords with that of most of our sister circuits. See, e.g.,

Geiselman v. United States, 961 F.2d 1, 4-5 (1st Cir. 1992); Schiff

v. United States, 919 F.2d 830, 832-33 (2d Cir. 1990); United

States v. Silkman, 220 F.3d 935, 937 (8th Cir. 2000); Roat v.

Commissioner, 847 F.2d 1379, 1381 (9th Cir. 1988). See also Lainge

v. United States, 423 U.S. 161, 174 (1976) (“Where there has been

no tax return filed, the deficiency is the amount of tax due.”).

II. The Tax Court did not clearly err in finding, as a matter of fact, that the Commissioner had failed to meet its burden of proof.

The Burnetts argue that the Tax Court clearly erred in

finding that the Commissioner failed to meet its burden of proof,

because they have alleged that it “is crystal clear that the

Commissioner’s determination is arbitrary and excessive.” In

support of this argument, the Burnetts present a number of cases —

from this circuit, our sister circuits, and the Supreme Court —

establishing the proposition, they claim, that a petitioner’s

declaration that the Commissioner’s gross income determination is

“arbitrary and excessive” shifts the burden of proof to the

4 Commissioner. The Burnetts’ claim must fail, as the cases they

cite do not support this proposition.

Established law regarding the burden of proof in tax

deficiency cases holds that the Commissioner’s assessment is

presumed correct and that the taxpayer has the burden of disproving

the Commissioner’s estimation. Helvering v. Taylor, 293 U.S. 507,

515 (1935) (“The burden of proof shall be upon the petitioner”);

see also United States v. Janis, 428 U.S. 433, 440-41 (1976); Bull

v. United States, 295 U.S. 247, 259-60 (1935). With this

proposition the Burnetts do not appear to have any quarrel.

It is also established that a taxpayer satisfies this

burden of proof by demonstrating that the Commissioner’s

determination of gross income was “arbitrary and excessive.”

Taylor, 293 U.S. at 515 (when “the taxpayer’s evidence shows the

Commissioner’s determination to be arbitrary and excessive,” he

need not pay the sum which “he does not owe”). With this, we

think, the Burnetts are also in agreement.

Where they err, however, is in their assessment of what

quantity of evidence suffices to rebut the Commissioner’s

estimation. The Burnetts appear to argue that their mere assertion

that the assessment was “arbitrary and excessive” suffices, in all

cases, to defeat the Commissioner’s action. This is error, though

perhaps understandable, because in the Supreme Court’s most recent

pronouncement on this issue, Janis, 428 U.S. 433, the Court did say

that the taxpayer’s “assertion” was sufficient. The Court did so,

5 however, not because it wished to alter the general balance between

taxpayers and the government regarding the burden of proof in tax

deficiency cases, but, rather, because without a certain piece of

evidence at issue in the case (it had been suppressed under the

Exclusionary Rule), there was no foundation whatsoever for the

Commissioner’s assessment. The Court nevertheless clearly affirmed

the general rule:

In the usual situation . . . the District Court then could not properly grant judgment for the respondent on either aspect of the suit. But the present case may well not be the usual situation. What we have is a ‘naked’ assessment without any foundation whatsoever if what was seized by the Los Angeles police cannot be used in the formulation of the assessment.

Id. at 441. The general rule has been sustained in this court’s

various treatments of the question, see e.g., Carson v. United

States, 560 F.2d 693, 696-98 (5th Cir. 1977), and Portillo v.

Commissioner, 932 F.2d 1128, 1133 (5th Cir. 1991), and the

exceptional character of Janis was noted in Sealy Power, Ltd. v.

Commissioner, 46 F.3d 382, 386 n.9 (5th Cir. 1995). It is, in

short, error to ascribe any legal weight to the following

statement: “The Burnetts assert that it is crystal clear that the

Commissioner’s determination is arbitrary and excessive.” The law

is, rather, that the taxpayer must show, by a preponderance of the

evidence, that the Commissioner’s assessment was incorrect.

That being said, did the Tax Court clearly err in

concluding that the Burnetts had failed to demonstrate, by a

preponderance of the evidence, that the Commissioner’s assessment

6 of deficiency was incorrect? Our review of the arguments and

evidence leads to the conclusion that the Tax Court did not err —

clearly or otherwise.

According to the Burnetts, the Tax Court’s first error

was finding that Mr. Burnet’s 1994 wage income from the Lubbock

Independent School District was $19,913 rather than $16,177. The

Commissioner claims to have derived the larger figure from

information provided to it by the Lubbock Independent School

District; Mr. Burnet claims that the smaller figure is the accurate

one. Upon a review of the trial exhibits and transcript,

especially Mr. Burnet’s examination of the agent who prepared the

deficiency assessment, there is insufficient evidence in the record

for this court to conclude that the Tax Court’s assessment of the

evidence before it was clearly erroneous.

The Tax Court’s second alleged error was the attribution

of newspaper income to Mr. Burnet for 1995, 1996, and 1997. The

Burnetts raise multiple objections to the Commissioner’s methods of

calculating this income, however, the Commissioner’s

impressionistic but fact-based analysis was far superior to

anything that they deigned to present to the Tax Court. As the Tax

Court correctly notes, “Congress has given [the Commissioner] broad

discretion to use any method that he believes clearly reflects

income when he is forced to reconstruct the taxpayer’s income.”

T.C. Memo. 2002-181 at 18 (citing Estate of Bernstein v.

Commissioner, T.C. Memo. 1956-260, aff’d, 267 F.2d 879 (5th Cir.

7 1959)). On the basis of the Burnetts’ tax returns from 1992, when

they were in possession of the Post Dispatch, the Commissioner knew

that it was an income-generating enterprise. On the basis of the

figure for that return, as well as publicly available information

concerning the newspaper’s circulation and advertising rates, the

Commissioner arrived at a figure that was, at the very least,

plausibly correct. Lacking contrary evidence from the Burnetts,

the Tax Court cannot be said to have clearly erred in confirming

the Commissioner’s assessment.

III. The Tax Court did not err in holding that the Commissioner properly imposed penalties against the Burnetts.

The Burnetts argue that, because the deficiency notices

at issue in this appeal are invalid, the Tax Court was without

subject matter jurisdiction to impose penalties against them.

Because the deficiency notices are indeed valid, the argument must

fail.

Judgment AFFIRMED.