Laidlaw v. Comm'r
This text of 2017 T.C. Memo. 167 (Laidlaw v. Comm'r) 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.
Opinion
Decisions will be entered under
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
LARO,
Respondent determined deficiencies in petitioners' Federal income tax, as well as additions to tax under
| 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 |
*169
Free access — add to your briefcase to read the full text and ask questions with AI 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 Laidlaw v. Comm'r Docket Nos. 11180-12, 11182-12 T.C. Memo 2017-167; 2017 Tax Ct. Memo LEXIS 168; August 28, 2017, FiledDecisions will be entered under 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 *168 *168 Steven S. Brown, Angela B. Reynolds, David Weiner, LARO, Judge. LARO LARO, Respondent determined deficiencies in petitioners' Federal income tax, as well as additions to tax under
*169
The parties have settled all the issues in dispute save for the applicability of the additions to tax for failure to file required returns.*169 Thus we decide whether petitioners Jarold R. and Diane Laidlaw and petitioners Brent and Rebecca Laidlaw are liable for additions to tax under The parties submitted these cases fully stipulated under *170 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*170 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 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*171 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*171 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*172 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*172 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*173 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 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. 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 With respect to Brent and Rebecca Laidlaw, respondent in the notice of deficiency made adjustments to "Other Income" of $270,190 for tax year 2005,*176 $370,621 for tax year 2006, and $469,745 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 $249,346, $95,162, and $117,038, respectively. The parties also agree that Brent and Rebecca Laidlaw are liable for accuracy-related penalties under Individual income tax returns generally are due on April 15 of the year following the tax year to which the return relates. The parties agree that the due date for 2005 individual Federal income tax returns was April 17, 2006. And they do not*177 dispute that respondent received petitioners' 2005 Forms 1040 on October 16, 2006, which would have been timely if automatic extension requests had been filed. Petitioners claim that they timely applied for automatic extensions by depositing the applications in the U.S. mail on April 17, 2006. Respondent claims that he never received them and thus that petitioners' returns were filed late. Petitioners make no reasonable-cause*178 argument, so the remaining question is narrow: Did petitioners timely request extensions of time to file their returns? We find that they did not. Respondent asserts that he has carried his burden of production with respect to the additions to tax. Respondent asserts that a Form 4868 is not filed until it is delivered and received at the appropriate IRS location. Respondent maintains, first, that petitioners do not have proof of mailing or a copy of the envelope in which the extension requests purportedly were mailed and, second, that he has introduced account transcripts rebutting any presumption that he received the Forms 4868. Petitioners' case relies on the testimony of their*179 tax preparer, Mr. Morgan. Respondent does not believe Mr. Morgan to be credible because (1) the reliability of Mr. Morgan's recollections about mailing an envelope over a decade ago is dubious, (2) Mr. Morgan had many clients, (3) Mr. Morgan's billing records indicate that he began work on petitioners' extension*180 requests and tax estimates on the day of the filing deadline, and (4) Mr. Morgan failed to verify that the envelope ostensibly containing petitioners' Forms 4868 had proper postage. Respondent further contends that petitioners' timely filing of their extension requests and tax returns in prior years does not prove timely filing for tax year 2005. Petitioners, however, hold fast to their tax preparer's assertion that he mailed the Forms 4868 at the post office to the correct address with the proper postage affixed to the envelope. They contend that it is conceivable for the post office to lose items and for IRS employees to lose incoming mail or for respondent's account transcripts to not reflect all items received. They also dispute respondent's characterization of Mr. Morgan's credibility, which, they assert, is bolstered by his firm's records. Petitioners were important*180 clients of Mr. Morgan, and, they claim, he is more likely to remember mailing their Forms 4868, especially since this matter remained fresh in Mr. Morgan's mind because of his clients' audit by respondent and their subsequent Tax Court litigation. Petitioners look to Petitioners also rely on Respondent distinguishes Respondent further emphasizes that where a taxpayer proves proper mailing and the Commissioner proves nonreceipt of a document lost in transit, this Court*183 in Petitioners argue that the addition to tax assessed against Jarold and Diane Laidlaw should have been waived by respondent under his "First Time Abate" policy described in Respondent retorts that petitioners offer no authority for this argument aside from an IRM provision that, respondent claims, is not applicable in this case for several reasons: (1) there has been no assessment, so there can be no abatement; (2) petitioners have not requested any abatements, nor has respondent denied any; (3) the first-time abatement procedures are a form of administrative, not judicial,*184 relief; and (4) petitioners offer no standard of review by which this Court could consider their position. Alternatively, respondent maintains that even if the Court finds petitioners' 2005 Forms 4868 to have*184 been timely filed, those forms are invalid because petitioners did not make a bona fide and reasonable estimate of their tax liabilities or attempt to secure the information necessary therefor. Petitioners contend that the Court should reject*185 this theory. It is well settled in Tax Court jurisprudence, they argue, that an argument raised for the first time on brief is not allowed, particularly where it would deprive a party of the opportunity to present evidence, such as questioning Mr. Morgan about why he filled out the Forms 4868 as he did. As we noted earlier, respondent has met his burden of production by coming forward*186 with sufficient evidence indicating that it is appropriate to impose the Both sides have mustered exhaustive arguments about whether petitioners timely requested extensions of time to file their 2005 Federal income tax returns. But the matter comes down to a judgment of credibility. Petitioners assert that their tax preparer mailed their Forms 4868 in a single envelope on April 17, 2006. However, there is no copy of this envelope in the record. And the envelope, if indeed it was mailed, was not sent by certified mail, and there is no trackable record of mailing or delivery. Therefore, in the absence of any corroborating evidence, the entirety of petitioners' cases rests upon the testimony of Mr. Morgan. In evaluating extrinsic evidence to establish a document's timely mailing where the only proof thereof is a witness' testimony, the Court of Appeals for the Ninth Circuit instructs us that the witness' credibility is key. Moreover, we have reservations about the content of Mr. Morgan's testimony. While petitioners claim that Mr. Morgan's recollections have remained fresh because petitioners are significant clients who have undergone an audit and undertaken litigation in this Court, respondent casts doubt on whether Mr. Morgan could remember specific details of mundane events that transpired over a decade ago. Mr. Morgan*188 has many clients and prepares between 215 and 250 income tax returns annually, in addition to filing between 75 and 100 extension requests. *188 Multiple filing deadlines have passed since April 17, 2006, and we agree that it is incredible that Mr. Morgan would specifically remember filing petitioners' extension requests on that busy day. Indeed, he admitted in his deposition that he did not recall the days on which he filed Jarold and Diane Laidlaw's 2004 and 2006 extension requests, nor the days on which he filed Brent and Rebecca Laidlaw's 2004 and 2006 tax returns. To be sure, we are not impugning Mr. Morgan's integrity or honor. Perhaps his recollection is better than we surmise. However, we are unable to evaluate this because the parties decided to take Mr. Morgan's deposition and submit this case under We also do not think that petitioners' reliance on Further, we agree with respondent that petitioners' argument that Jarold and Diane Laidlaw should be entitled to benefit from respondent's "First Time Abate" policy has no merit. This policy, appearing in the IRM, is a form of administrative relief. Its location*191 at Because we find that petitioners did not timely file their Forms 4868 and are responsible for the Respondent has carried his burden of production as to the To reflect the foregoing and the parties' concessions, Footnotes
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