Smith v. Commissioner

1998 T.C. Memo. 91, 75 T.C.M. 1921, 1998 Tax Ct. Memo LEXIS 93

Opinion

KERN S. AND SOLEDAD D. SMITH, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Smith v. Commissioner

Tax Ct. Dkt. No. 27712-96

United States Tax Court

T.C. Memo 1998-91; 1998 Tax Ct. Memo LEXIS 93; 75 T.C.M. (CCH) 1921;

March 3, 1998, Filed

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Decision will be entered under Rule 155.

Thomas G. Schleier, for Respondent.

Kern S. Smith and Soledad D. Smith, pro sese.

PARR, JUDGE.

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PARR

MEMORANDUM OPINION

PARR, JUDGE: Respondent determined a deficiency in petitioners' Federal income tax for the taxable year 1993 in the amount of $60,448, an addition to tax of $15,113 under section 6651(a)(1), and a penalty of $12,090 under section 6662(a). All section references are to the Internal Revenue Code in effect for the taxable year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure, unless otherwise indicated.

After a concession, ¹ the issues for decision are as follows:

(1) Whether petitioners are entitled to previously unclaimed Schedule C deductions in excess of the amount conceded by respondent. We find they are not.

(2) Whether petitioners are liable for an addition to tax pursuant to section 6651 for late filing. We hold they are.

(3) Whether petitioners are liable for a penalty pursuant to d2section 6662 for negligence. We hold they are.

Certain automatic adjustments will be required in the calculation of self-employment tax and related items of a computational nature flowing from our findings.

Some of the facts have been stipulated and are so found. The stipulated facts and accompanying exhibits are incorporated into our findings by this reference. When they filed their petition herein, petitioners resided in Oakland, California.

Petitioners filed their individual Federal income tax return for 1993 on October 13, 1995. The return was due on April 15, 1994. Petitioners had neither sought nor been granted an extension of time in which to file.

Petitioners reported wages of $4,558 consisting of $950 paid to Mrs. Soledad Smith (Mrs. Smith) by Heritage Flamingo Apartments and $3,608.26 paid to Mr. Smith (petitioner) by Alameda Newspapers, Inc. On line 12 (business income) of Form 1040, petitioners reported $16,147. They did not attach a Schedule C as required, nor did they claim any deductions or cost of goods sold.

Petitioner also received nonemployee compensation from the Alameda Newspaper Group in the amount of $183,585 during 1993, which petitioners failed to report. Neither did they deduct any expenses connected with this sum.

A statutory notice of deficiency was sent to petitioners on October 1, 1996. On June 26, 1997, they attempted to file an amended income tax return, Form 1040X, on which they reported the $183,585 and claimed deductions totaling $178,636.

Although requested to do so, petitioners did not meet with respondent or present any substantiation for the claimed deductions until January 26, 1998, 6 days before the beginning of the trial session on which this case was scheduled. The Court's standing pre- trial order (which was served on petitioners by the Court on August 26, 1997, and a copy of which respondent had sent them when requesting an earlier meeting) stated: "Any documents or materials which a party expects to utilize in the event of trial * * *, but which are not stipulated, shall be identified in writing and exchanged by the parties at least 15 days before the first day of the trial session." No such documents were shown to respondent within the allotted time, and the Court ruled that they were inadmissible at trial. Nevertheless, in the interest of fairness respondent's agent did consider petitioners' documents and conceded deductions totaling $114,394, as follows: