David William Laudon v. Commissioner

2015 T.C. Summary Opinion 54
CourtUnited States Tax Court
DecidedSeptember 8, 2015
Docket27380-11S
StatusUnpublished

This text of 2015 T.C. Summary Opinion 54 (David William Laudon v. Commissioner) is published on Counsel Stack Legal Research, covering United States Tax Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
David William Laudon v. Commissioner, 2015 T.C. Summary Opinion 54 (tax 2015).

Opinion

PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b),THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE. T.C. Summary Opinion 2015-54

UNITED STATES TAX COURT

DAVID WILLIAM LAUDON, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 27380-11S. Filed September 8, 2015.

David William Laudon, pro se.

Christina L. Cook and John Schmittdiel, for respondent.

SUMMARY OPINION

HOLMES, Judge: David Laudon is a chiropractor licensed in Minnesota.

He made nearly $290,000 in bank deposits from 2007 to 2009 yet reported only a

bit less than $210,000 in gross receipts on his returns. He deducted as business

expenses for his chiropractic home office a Microsoft Xbox 360, Nintendo Wii,

and numerous pieces of hair-salon equipment. He also claimed deductions for -2-

driving tens of thousands of miles throughout Minnesota and the Dakotas--both to

treat patients and to perform an assortment of other services. The Commissioner

thought this was a stretch and urges us to support his adjustments.1

Background

Laudon owns and operates a rather unconventional chiropractic business in

Detroit Lakes, Minnesota. He treats some of his patients in his home and claims to

use roughly half of his house--the basement and half of the garage--for business.

Like many chiropractic offices, Laudon’s has beds, tables, and a waiting area. But

unlike most, his also comes equipped with a Wii, Xbox 360, big-screen TVs and,

for a time, a working hair salon.

Laudon testified that he also makes “house calls” and reported that he

racked up between 40,000 and 60,000 miles per year in his business vehicles. He

said that his patients often called him a psychiatrist, chauffeur, physician, peace

officer, or even a pheasant hunter.2 Some of Laudon’s stated reasons for making

1 We tried this small case in St. Paul under Internal Revenue Code section 7463(f). (All section citations are to the Code in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.) Trial as a small case means that this decision isn’t reviewable by any other court, and this opinion shouldn’t be cited as precedent. 2 But not a ghostbuster. The Commissioner rhetorically asserted that some of Laudon’s trips might have made more sense if he was claiming to be a (continued...) -3-

these trips strain credibility: for example, driving to a “schizophrenic” patient who

was--on more than one occasion--“running scared of demons” down a rural

Minnesota highway, or driving to a patient’s home in a Minneapolis suburb--

expensing 261 miles--because he had received a call from police that she had

overdosed on OxyContin prescribed by her physician. Laudon claimed to have

driven hundreds of miles per day--sometimes without a valid license--to see

patients, but several of these trips were for medical procedures he was not licensed

to perform. Even his testimony about multiple entries in the logs where he wrote

“DUI” was not credible: He claimed that these were not references to being

stopped by police while under the influence, or driving while his license was

suspended, but instead were his misspellings of a patient named “Dewey”--a

supposed patient of his. He testified that he took one business trip to pick up a

patient left stranded due to a domestic dispute with his girlfriend. And he even

testified about trips he made to test his patients’ urine:

2 (...continued) ghostbuster. Laudon then disclaimed any employment as a ghostbuster. In his reply brief the Commissioner conceded that Laudon was not “employed or under contract to perform work as a ghostbuster during the tax years at issue in this case.” We therefore need make no finding on the existence of a market for “supernatural elimination” in west-central Minnesota. See “Ghostbusters” (Columbia Pictures 1984). -4-

Absolutely we do * * * [test urine]. It’s part of the--I believe it’s Federal, you know, that they have--we have to abide by that. It’s specific gravity. You’re basically, looking for sugar, let alone height, weight, blood pressure. Make sure they’re not drunk, doing illegal drugs.

We find Laudon not credible in his testimony regarding his business

mileage, and this finding affects our views of his testimony’s credibility on every

other issue in the case.

These other issues arise from his unusual returns that reported no net

income:3

Year Gross Receipts Expenses Taxable Income 2007 $59,056 $111,250 $(60,944) 2008 67,068 71,005 (65,081) 2009 33,952 56,313 (84,393)

Laudon did, however, make unexplained deposits into his bank accounts. The

Commissioner analyzed these accounts and discovered that Laudon had put nearly

$80,000 more into them than he’d reported on his tax returns. The Commissioner

3 The gross receipts and expenses come from Laudon’s Schedules C, which constitute the biggest part of his returns. He combined his Schedule C losses with other items--Schedule A itemized deductions or the standard deduction depending on the year, his personal exemption, and large “other income” items that were carried-forward losses--to arrive at his taxable income. -5-

added this amount to Laudon’s income and disallowed many deductions. The

notice of deficiency determined:

Year Gross Receipts Expenses Taxable Income 2007 $71,056 $11,319 $46,766 2008 105,997 28,780 62,812 2009 62,014 23,290 26,138

Laudon filed a timely petition, and we tried his case in St. Paul. Laudon

remains a Minnesota resident, as he was when he began his case.

Discussion

A. Income

We first ask whether Laudon underreported his income. Laudon did not

keep records of his income in any decipherable form; and when this happens the

Commissioner may reconstruct a taxpayer’s income by using any rational method

that separates taxable income from nontaxable income and expenses. A bank-

deposits analysis is an acceptable method. See, e.g., Caulfield v. Commissioner,

33 F.3d 991, 993 (8th Cir. 1994), aff’g T.C. Memo. 1993-423.

For us to accept his bank-deposits analysis, the Commissioner must show

that Laudon operated an income-producing business for the tax years at issue, and

made regular deposits into this business’s bank accounts. He may then compute -6-

net taxable income by distinguishing taxable deposits from deposits of nontaxable

income and income from years not at issue. See United States v. Abodeely, 801

F.2d 1020, 1023 (8th Cir. 1986). Using this long-accepted method, the

Commissioner determined that Laudon had made net taxable deposits for the tax

years before us:4

Year Total Deposits Reported and Total unreported non-taxable taxable income income 2007 $99,578 $87,578 $12,000 2008 113,448 74,519 38,929 2009 74,862 46,800 28,062 Total 287,888 208,897 78,991

Because the Commissioner used an acceptable method of income

reconstruction, Laudon has the burden of proving that the Commissioner made

some mistake. See Caulfield, 33 F.3d at 993; Dodge v. Commissioner, 981 F.2d

350, 354 (8th Cir. 1992), aff’g 96 T.C. 172 (1991). Laudon contends that the

Commissioner failed to classify certain deposits as nontaxable, including

insurance payments for damage to several vehicles, one of which was involved in

a “high speed police chase” with a man “high on meth and cocaine.” He also

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