United States Tax Court Washington, DC 20217
QUINTIN K. KIILI,
Petitioner
v. Docket No. 16625-21.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
ORDER
Pursuant to Rule 152(b) of the Tax Court Rules of Practice and Procedure, it is
ORDERED that the Clerk of the Court shall transmit herewith to petitioner Quintin K. Kiili and to the Commissioner a copy of the pages of the transcript of the trial in this case before the undersigned at the Honolulu, Hawaii, remote session containing his oral findings of fact and opinion rendered at the trial session at which the case was heard.
In accordance with the oral findings of fact and opinion, an appropriate decision will be entered after the expiration of the 30-day period prescribed in Rule 231(a)(2)(B).
(Signed) Patrick J. Urda Judge
Served 05/26/22 3 1 Bench Opinion by Judge Patrick J Urda
2 April 14, 2022
3 Quintin K. Kiili v. Commissioner
4 Docket No. 16625-21
5 THE COURT: The Court has decided to render the
6 following as its oral findings of fact and opinion in this
7 case. This bench opinion is made pursuant to the
8 authority granted by section 7459(b) of the Internal
9 Revenue Code and Tax Court Rule 152, and it shall not be
10 relied upon as precedent in any other case. Rule
11 references in this opinion are to the Tax Court Rules of
12 Practice and Procedure, and section references are to the
13 Internal Revenue Code, as amended and in effect at all
14 relevant times.
15 By notice of deficiency dated February 22, 2021,
16 the Internal Revenue Service (IRS) determined a deficiency
17 of $2,200 in petitioner Quintin K. Kiili's 2018 Federal
18 income tax. The question before us is whether Mr. Kiili
19 correctly excluded Social Security benefits of $7,929 and
20 a state income tax refund of $1,372 from the taxable
21 income he reported on his 2018 tax return. We conclude
22 that he did not and that the Commissioner's determination
23 of a deficiency was correct.
24 We held a trial for this case remotely via
25 Zoom.gov on April 11, 2022, at the Court's trial session 4 1 for cases associated with Honolulu, Hawaii. Mr. Kiili
2 represented himself, while Heather L. Wolfe represented
3 the Commissioner. We find the following facts:
4 FINDINGS OF FACT
5 I. Mr. Kiili's 2018 Tax Reporting
6 On his 2018 federal income tax return, Mr. Kiili
7 reported wage income of $56,795 from his job working for
8 the state of Hawaii. He also reported Social Security
9 benefits of $9,328, identifying $7,929 of that amount as
10 taxable. He did not report any taxable refunds, credits,
11 or offsets of state and local income taxes. Based on his
12 tax reporting (and his federal tax withholdings), Mr.
13 Kiili asserted that he was entitled to a refund of $368.
14 II. IRS Examination and Notice of Deficiency
15 The IRS subsequently selected Mr. Kiili's 2018
16 tax return for examination. Based on third-party
17 reporting from the Hawaii Department of Taxation and the
18 Social Security Administration, the IRS concluded that he
19 had incorrectly failed to report a state income tax refund
20 of $1,372 and Social Security retirement benefits of
21 $7,929.
22 Based on these revised income figures, the IRS
23 determined a deficiency of $2,200 and issued Mr. Kiili a
24 corresponding notice of deficiency.
25 Mr. Kiili timely petitioned this Court for 5 1 redetermination. At the time he filed his petition, Mr.
2 Kiili resided in Hawaii.
3 OPINION
4 I. Burden of Proof
5 The Commissioner's determinations in a notice of
6 deficiency are generally presumed correct, and the
7 taxpayer bears the burden of proving error in the
8 determinations. See Rule 142(a); Welch v. Helvering, 290
9 U.S. 111, 115 (1933). Mr. Kiili does not contend, and the
10 evidence does not establish, that the burden of proof
11 should shift to the Commissioner under section 7491(a).
12 The U.S. Court of Appeals for the Ninth Circuit,
13 to which an appeal in this case would lie absent a
14 stipulation to the contrary, see § 7482(b)(1)(A), (2), has
15 held that for the presumption of correctness to attach to
16 a notice of deficiency in unreported income cases, the
17 Commissioner must establish some evidentiary foundation
18 connecting the taxpayer with the income-producing
19 activity, see Weimerskirch v. Commissioner, 596 F.2d 358,
20 361–62 (9th Cir. 1979), rev'g 67 T.C. 672 (1977), or
21 demonstrating that the taxpayer actually received
22 unreported income, see Edwards v. Commissioner, 680 F.2d
23 1268, 1270–71 (9th Cir. 1982). If the Commissioner
24 introduces some evidence that the taxpayer received
25 unreported income, the burden shifts to the taxpayer, who 6 1 must establish by a preponderance of the evidence that the
2 unreported income adjustment was arbitrary or erroneous.
3 See Hardy v. Commissioner, 181 F.3d 1002, 1004 (9th Cir.
4 1999), aff'g T.C. Memo. 1997-97.
5 In this case, there is no dispute that Mr. Kiili
6 received the unreported income at issue. The IRS
7 determined that Mr. Kiili failed to report income from two
8 distinct sources: Social Security benefits and his state
9 tax refund. The Commissioner has provided a certified
10 transcript stating that the IRS received a Form SSA-1099
11 benefits statement showing $18,656 of Social Security
12 payments made to Mr. Kiili in 2018 as well as a Form 1099-
13 G from the Hawaii Department of Taxation showing a $1,372
14 state income tax refund from 2017 paid to Mr. Kiili in
15 2018. At trial, Mr. Kiili did not dispute that he
16 received the unreported Social Security benefits or state
17 income tax refund. The Commissioner accordingly has
18 established the requisite minimal evidentiary foundation
19 linking Mr. Kiili and his activities to the unreported
20 income. See Alonim v. Commissioner, T.C. Memo. 2010-190,
21 2010 WL 3397493, at *1.
22 Mr. Kiili accordingly has the burden of proof to
23 show that the Commissioner's determinations were arbitrary
24 or erroneous.
25 II. Analysis 7 1 Although Mr. Kiili acknowledged the receipt of
2 Social Security benefits in 2018, he took the position
3 that these benefits were not taxable based upon a letter
4 he received from the Social Security Administration, which
5 stated "[i]f you are at full retirement age or older you
6 may keep all of your benefits no matter how much you
7 earn." Mr. Kiili drew the conclusion that, if he is
8 subject to tax on his Social Security benefits, then he
9 would not be keeping all the benefits.
10 Gross income generally means all income from
11 whatever source derived, including Social Security
12 benefits. See §§ 61, 86(a). Section 86(a) provides "that
13 gross income for a taxable year of any taxpayer includes
14 up to 85% of Social Security benefits received during the
15 taxable year." Brady v. Commissioner, T.C. Memo. 2013-1,
16 at *4. Mr. Kiili received $18,656 in Social Security
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United States Tax Court Washington, DC 20217
QUINTIN K. KIILI,
Petitioner
v. Docket No. 16625-21.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
ORDER
Pursuant to Rule 152(b) of the Tax Court Rules of Practice and Procedure, it is
ORDERED that the Clerk of the Court shall transmit herewith to petitioner Quintin K. Kiili and to the Commissioner a copy of the pages of the transcript of the trial in this case before the undersigned at the Honolulu, Hawaii, remote session containing his oral findings of fact and opinion rendered at the trial session at which the case was heard.
In accordance with the oral findings of fact and opinion, an appropriate decision will be entered after the expiration of the 30-day period prescribed in Rule 231(a)(2)(B).
(Signed) Patrick J. Urda Judge
Served 05/26/22 3 1 Bench Opinion by Judge Patrick J Urda
2 April 14, 2022
3 Quintin K. Kiili v. Commissioner
4 Docket No. 16625-21
5 THE COURT: The Court has decided to render the
6 following as its oral findings of fact and opinion in this
7 case. This bench opinion is made pursuant to the
8 authority granted by section 7459(b) of the Internal
9 Revenue Code and Tax Court Rule 152, and it shall not be
10 relied upon as precedent in any other case. Rule
11 references in this opinion are to the Tax Court Rules of
12 Practice and Procedure, and section references are to the
13 Internal Revenue Code, as amended and in effect at all
14 relevant times.
15 By notice of deficiency dated February 22, 2021,
16 the Internal Revenue Service (IRS) determined a deficiency
17 of $2,200 in petitioner Quintin K. Kiili's 2018 Federal
18 income tax. The question before us is whether Mr. Kiili
19 correctly excluded Social Security benefits of $7,929 and
20 a state income tax refund of $1,372 from the taxable
21 income he reported on his 2018 tax return. We conclude
22 that he did not and that the Commissioner's determination
23 of a deficiency was correct.
24 We held a trial for this case remotely via
25 Zoom.gov on April 11, 2022, at the Court's trial session 4 1 for cases associated with Honolulu, Hawaii. Mr. Kiili
2 represented himself, while Heather L. Wolfe represented
3 the Commissioner. We find the following facts:
4 FINDINGS OF FACT
5 I. Mr. Kiili's 2018 Tax Reporting
6 On his 2018 federal income tax return, Mr. Kiili
7 reported wage income of $56,795 from his job working for
8 the state of Hawaii. He also reported Social Security
9 benefits of $9,328, identifying $7,929 of that amount as
10 taxable. He did not report any taxable refunds, credits,
11 or offsets of state and local income taxes. Based on his
12 tax reporting (and his federal tax withholdings), Mr.
13 Kiili asserted that he was entitled to a refund of $368.
14 II. IRS Examination and Notice of Deficiency
15 The IRS subsequently selected Mr. Kiili's 2018
16 tax return for examination. Based on third-party
17 reporting from the Hawaii Department of Taxation and the
18 Social Security Administration, the IRS concluded that he
19 had incorrectly failed to report a state income tax refund
20 of $1,372 and Social Security retirement benefits of
21 $7,929.
22 Based on these revised income figures, the IRS
23 determined a deficiency of $2,200 and issued Mr. Kiili a
24 corresponding notice of deficiency.
25 Mr. Kiili timely petitioned this Court for 5 1 redetermination. At the time he filed his petition, Mr.
2 Kiili resided in Hawaii.
3 OPINION
4 I. Burden of Proof
5 The Commissioner's determinations in a notice of
6 deficiency are generally presumed correct, and the
7 taxpayer bears the burden of proving error in the
8 determinations. See Rule 142(a); Welch v. Helvering, 290
9 U.S. 111, 115 (1933). Mr. Kiili does not contend, and the
10 evidence does not establish, that the burden of proof
11 should shift to the Commissioner under section 7491(a).
12 The U.S. Court of Appeals for the Ninth Circuit,
13 to which an appeal in this case would lie absent a
14 stipulation to the contrary, see § 7482(b)(1)(A), (2), has
15 held that for the presumption of correctness to attach to
16 a notice of deficiency in unreported income cases, the
17 Commissioner must establish some evidentiary foundation
18 connecting the taxpayer with the income-producing
19 activity, see Weimerskirch v. Commissioner, 596 F.2d 358,
20 361–62 (9th Cir. 1979), rev'g 67 T.C. 672 (1977), or
21 demonstrating that the taxpayer actually received
22 unreported income, see Edwards v. Commissioner, 680 F.2d
23 1268, 1270–71 (9th Cir. 1982). If the Commissioner
24 introduces some evidence that the taxpayer received
25 unreported income, the burden shifts to the taxpayer, who 6 1 must establish by a preponderance of the evidence that the
2 unreported income adjustment was arbitrary or erroneous.
3 See Hardy v. Commissioner, 181 F.3d 1002, 1004 (9th Cir.
4 1999), aff'g T.C. Memo. 1997-97.
5 In this case, there is no dispute that Mr. Kiili
6 received the unreported income at issue. The IRS
7 determined that Mr. Kiili failed to report income from two
8 distinct sources: Social Security benefits and his state
9 tax refund. The Commissioner has provided a certified
10 transcript stating that the IRS received a Form SSA-1099
11 benefits statement showing $18,656 of Social Security
12 payments made to Mr. Kiili in 2018 as well as a Form 1099-
13 G from the Hawaii Department of Taxation showing a $1,372
14 state income tax refund from 2017 paid to Mr. Kiili in
15 2018. At trial, Mr. Kiili did not dispute that he
16 received the unreported Social Security benefits or state
17 income tax refund. The Commissioner accordingly has
18 established the requisite minimal evidentiary foundation
19 linking Mr. Kiili and his activities to the unreported
20 income. See Alonim v. Commissioner, T.C. Memo. 2010-190,
21 2010 WL 3397493, at *1.
22 Mr. Kiili accordingly has the burden of proof to
23 show that the Commissioner's determinations were arbitrary
24 or erroneous.
25 II. Analysis 7 1 Although Mr. Kiili acknowledged the receipt of
2 Social Security benefits in 2018, he took the position
3 that these benefits were not taxable based upon a letter
4 he received from the Social Security Administration, which
5 stated "[i]f you are at full retirement age or older you
6 may keep all of your benefits no matter how much you
7 earn." Mr. Kiili drew the conclusion that, if he is
8 subject to tax on his Social Security benefits, then he
9 would not be keeping all the benefits.
10 Gross income generally means all income from
11 whatever source derived, including Social Security
12 benefits. See §§ 61, 86(a). Section 86(a) provides "that
13 gross income for a taxable year of any taxpayer includes
14 up to 85% of Social Security benefits received during the
15 taxable year." Brady v. Commissioner, T.C. Memo. 2013-1,
16 at *4. Mr. Kiili received $18,656 in Social Security
17 benefits during 2018, and pursuant to section 86(a)(2)(B),
18 85% of the benefits were required to be included in his
19 gross income. The notice of deficiency determined that
20 $15,858 (85% of the total amount of Social Security
21 benefits) should be included in his gross income, and Mr.
22 Kiili has not demonstrated that this calculation was in
23 error.
24 As to the other income adjustment in the notice
25 of deficiency, Mr. Kiili raises no issue suggesting that 8 1 the state income tax refund he received in 2018 was not
2 taxable. He is therefore taxable on that item as well, as
3 determined in the notice of deficiency. See §§ 61,
4 111(a); Brashear v. Commissioner, T.C. Memo. 2012-136,
5 2012 WL 1698733 at *2.
6 We will accordingly sustain the deficiency
7 determinations stemming from the adjustments to Mr.
8 Kiili's gross income.
9 III. Conclusion
10 Based upon the evidence before the Court, we
11 conclude that the Commissioner did not err in determining
12 a deficiency of $2,200 in Mr. Kiili's 2018 taxes. We
13 accordingly will enter a decision in favor of the
14 Commissioner.
15 This concludes the Court's oral Findings of Fact
16 and Opinion in this case.
17 (Whereupon, at 10:25 a.m., the above-entitled
18 matter was concluded.)