Opinion
20703-18
08-12-2021
Daniel Jamal Threlkeld, Petitioner v. Commissioner of Internal Revenue, Respondent
ORDER OF DISMISSAL AND DECISION
Joseph H. Gale, Judge
This case was calendared for a remote trial at the trial session commencing March 22, 2021, in Nashville, Tennessee. On February 24, 2021, respondent filed a Motion to Dismiss for Failure to Properly Prosecute (Motion to Dismiss), wherein he requests that this case be dismissed for failure to properly prosecute and that a decision be entered sustaining the deficiency and certain of the additions to tax for petitioner's 2016 taxable year as determined in the notice of deficiency.
In the notice of deficiency respondent determined that petitioner was liable for additions to tax under I.R.C. secs. 6651(a)(1), 6651(a)(2), and 6654 for 2016. In his Motion to Dismiss respondent concedes the I.R.C. sec. 6654 addition to tax.
By Order and Order to Show Cause served March 1, 2021, the Court calendared respondent's Motion to Dismiss for a remote hearing at the calendar call of the aforementioned trial session and directed petitioner to file, on or before March 17, 2021, a response in writing, showing cause why respondent's Motion to Dismiss should not be granted and this case should not be dismissed for failure to properly prosecute. The Order warned petitioner that failure to appear for trial or failure to respond to the Order to Show Cause could result in dismissal of the case and entry of a decision against him. The copy of the Order mailed to petitioner at the address listed in the Petition was not returned. When this case was called from the calendar on March 22, 2021, there was no appearance by or on behalf of petitioner. To date, he has not responded to the Order to Show Cause.
A Notice Setting Case for Trial (Trial Notice), setting a trial date in this case for March 22, 2021, and explaining how to access the remote proceeding either by joining online via Zoomgov or by telephone, was mailed on November 10, 2020, to petitioner at the address listed in the Petition. The Trial Notice warned: "Your failure to appear may result in dismissal of the case and entry of decision against you."
A Standing Pretrial Order was attached to the Trial Notice. The Standing Pretrial Order directed petitioner, among other things: (1) to communicate and cooperate with respondent's counsel regarding settlement or, if the case could not be settled, the preparation of a stipulation of facts; (2) to file, jointly with respondent, a proposed stipulated decision or status report concerning a basis of settlement, or separately, a pretrial memorandum or motion to dismiss, no later than March 1, 2021; (3) to file, jointly with respondent, the stipulation of facts together with all stipulated documents, and separately, all documents and materials that petitioner expected to use at trial that were not in the stipulation of facts, no later than March 8, 2021; and (4) to be present on the trial date and prepared to try the case. The Standing Pretrial Order warned: "If you do not follow the provisions of this Order, the Judge may dismiss your case and enter a Decision against you." The copies of the Trial Notice and Standing Pretrial Order mailed to petitioner at the address listed in the Petition were not returned.
During the period after this case was set for trial, respondent's counsel sought petitioner's cooperation in preparing this case for trial by mailing him numerous letters, as well as a proposed stipulation of facts and exhibits. Respondent's counsel also emailed petitioner at the email address listed in the Petition, requesting that he contact respondent's counsel about this case. However, petitioner has not responded to respondent's counsel's repeated attempts at communication. Additionally, petitioner has not filed a pretrial memorandum in this case.
Respondent's specific allegations concerning petitioner's failure to cooperate are detailed in the Motion to Dismiss, which petitioner had an opportunity to dispute by appearing at the hearing on the Motion to Dismiss or by responding to the Order to Show Cause. Given petitioner's failure to dispute respondent's allegations, and the absence of any evidence to the contrary, we treat them as established for purposes of the Motion to Dismiss.
The Court may dismiss a case at any time and enter a decision against the taxpayer for failure properly to prosecute his case, failure to comply with the Rules of this Court or any order of the Court, or for any cause which the Court deems sufficient. Rule 123(b); Stearman v. Commissioner, 436 F.3d 533, 535-537 (5th Cir. 2006), aff'g T.C. Memo. 2005-39; Bauer v. Commissioner, 97 F.3d 45, 48-49 (4th Cir. 1996); Edelson v. Commissioner, 829 F.2d 828, 831 (9th Cir. 1987), aff'g T.C. Memo. 1986-223. In addition, the Court may dismiss a case for failure to properly prosecute if the taxpayer inexcusably fails to appear for trial and does not otherwise participate in the resolution of his claim. Rule 149(a); Tello v. Commissioner, 410 F.3d 743, 744 (5th Cir. 2005); Rollercade, Inc. v. Commissioner, 97 T.C. 113, 116-117 (1991).
Rule references are to the Tax Court Rules of Practice and Procedure, and section references are to the Internal Revenue Code of 1986, as amended and in effect at all relevant times. Dollar amounts have been rounded to the nearest dollar.
Petitioner has failed to properly prosecute this case. Petitioner did not appear for trial on March 22, 2021, despite being warned by the Trial Notice, Standing Pretrial Order, and the Court's Order to Show Cause, that failure to appear could result in dismissal of the case and entry of a decision against him. Moreover, petitioner has failed to cooperate with respondent's counsel to prepare for trial or otherwise resolve this case as directed in the Standing Pretrial Order. Furthermore, petitioner has failed to file a pretrial memorandum as directed by the Standing Pretrial Order. Finally, petitioner has failed to comply with the Court's Order to Show Cause directing him to file a response to respondent's Motion to Dismiss, despite being warned that a failure to respond could result in a dismissal of the case and entry of a decision against him.
Petitioner's failure to appear for trial and failure to comply with the terms of the Standing Pretrial Order requiring adequate pretrial preparation have prejudiced respondent by causing him to expend resources that could have been expended elsewhere. See Jarvis v. Commissioner, 735 Fed.Appx. 21 (Mem), 22 (2d Cir. 2018); Tebedo v. Commissioner, 676 Fed.Appx. 750, 752 (10th Cir. 2017); cf. Pickett v. Commissioner, 240 Fed.Appx. 883, 884 (2d Cir. 2007) (finding the Commissioner prejudiced where taxpayers refused to appear for trial, thereby forcing "the agency to waste its resources in pointless litigation, thus diverting its ability to collect taxes elsewhere"). Moreover, petitioner's failure to appear for trial and failure to comply with the Standing Pretrial Order and Order to Show Cause have hindered the Court's management of its docket. See Tebedo v. Commissioner, 676 Fed.Appx. at 752 (finding taxpayer's "interference with the judicial process" was "obvious" where "he failed to comply with any of the court's orders, and decided not to appear for trial with no advance notice to the court"); Franklin v. Commissioner, 297 Fed.Appx. 307, 309-310 (5th Cir. 2008) (finding "a clear record of * * * delay and contumacious conduct" where taxpayer failed to appear for trial, failed to cooperate with the Commissioner, failed to comply with a court order, and failed to file a pretrial memorandum as directed by the standing pretrial order). None of petitioner's failures are excused.
We have balanced petitioner's interest in being heard, which has been diminished by his failure to meaningfully participate in these proceedings, against the Court's responsibility to manage its docket, and we have concluded that dismissal is warranted. See Jarvis v. Commissioner, 735 Fed.Appx. at 22; cf. Harris v. Commissioner, 748 Fed.Appx. 387, 389 (2d Cir. 2018); Pickett v. Commissioner, 240 Fed.Appx. at 884. We have also considered the efficacy of lesser sanctions and have concluded that such sanctions would be futile in view of petitioner's previous disregard of the Court's warnings. See Tebedo v. Commissioner, 676 Fed.Appx. at 752 (finding that where taxpayer "consistently failed to obey the court's orders, there * * * [was] no reason to think a lesser sanction would have been effective"); Franklin v. Commissioner, 297 Fed.Appx. at 309 ("Lesser sanctions are futile when, despite a judge's explicit warnings, a plaintiff neither cooperates nor appears at trial.").
Accordingly, we conclude that it is appropriate to dismiss petitioner's case for failure to properly prosecute. See Tebedo v. Commissioner, 676 Fed.Appx. at 752 (affirming dismissal for failure to prosecute where taxpayer failed to comply with Court orders and failed to appear for trial); Zubasic v. Commissioner, 671 Fed.Appx. 31 (Mem), 32 (3d Cir. 2016) (affirming dismissal for failure to prosecute where taxpayers failed to cooperate with the Commissioner, failed to submit a pretrial memorandum, and failed to appear for trial); Roulett v. Commissioner, 534 Fed.Appx. 915, 916 (11th Cir. 2013) (affirming dismissal for failure to prosecute where taxpayers failed to appear for trial and failed to file a pretrial memorandum); De Haas v. Commissioner, 418 Fed.Appx. 637 (9th Cir. 2011) (affirming dismissal for failure to prosecute where taxpayer failed to appear for trial), aff'g T.C. Memo. 2009-25; Klootwyk v. Commissioner, 418 Fed.Appx. 635 (9th Cir. 2011) (same), aff'g T.C. Memo. 2008-214; Fisher v. Commissioner, 375 Fed.Appx. 603, 603-604 (7th Cir. 2010) (affirming dismissal for failure to prosecute where taxpayer failed to comply with Court orders and failed to appear for trial); Taylor v. Commissioner, 271 Fed.Appx. 414, 416 (5th Cir. 2008) (affirming dismissal for failure to prosecute where taxpayers failed to appear for trial); Taylor v. Commissioner, 29 Fed.Appx. 19, 21-22 (2d Cir. 2001) (affirming dismissal for failure to prosecute where taxpayer failed to cooperate with the Commissioner, failed to respond to numerous inquiries from the Court, and failed to appear for trial); Duran v. Commissioner, 12 Fed.Appx. 588, 589 (9th Cir. 2001) (affirming dismissal for failure to prosecute where taxpayers failed to appear for trial).
In the notice of deficiency, respondent determined a deficiency of $12, 356 in petitioner's 2016 Federal income tax. The notice of deficiency indicates that petitioner failed to file a Federal income tax return for 2016, and that, pursuant to section 6020(b), respondent prepared and filed a substitute for return reporting the following items of income: (1) Schedule C gross receipts of $5, 418; (2) wages of $67, 646; and (3) capital gains of $929. The notice of deficiency indicates that the foregoing unreported income determinations were based on information returns filed by third-party payers for the year at issue reporting that the amounts in question were paid to petitioner.
A copy of the notice of deficiency is attached as Exhibit A to respondent's Motion to Dismiss.
In the Petition petitioner does not dispute having received the foregoing items of unreported income. Rather, he asserts only that "[t]here are additional tax deductions that have not been considered."
The Commissioner's determinations in a notice of deficiency are generally entitled to a presumption of correctness. See Rule 142(a). In a case involving unreported income, as in the instant matter, the U.S. Court of Appeals for the Sixth Circuit, where appeal in this case lies absent a stipulation to the contrary, has held that before the Commissioner may rely on the presumption of correctness, the determination must be supported by at least a "minimal" factual predicate or foundation of substantive evidence linking the taxpayer to the income-producing activity or to the receipt of funds. See United States v. Walton, 909 F.2d 915, 918-919 (6th Cir. 1990); Richardson v. Commissioner, T.C. Memo. 2006-69, 2006 WL 931912, at *14, aff'd, 509 F.3d 736 (6th Cir. 2008). If the Commissioner produces evidence linking the taxpayer to the income-producing activity or to the receipt of funds, the burden of proof shifts back to the taxpayer to prove by a preponderance of the evidence that the Commissioner's determinations are arbitrary or erroneous. Helvering v. Taylor, 293 U.S. 507, 515 (1935); Tokarski v. Commissioner, 87 T.C. 74, 76-77 (1986).
Here, petitioner has not assigned error to respondent's determination that petitioner failed to report the items of income determined in the notice of deficiency, and we therefore deem him to have conceded that he received such income. See Rule 34(b)(4). Furthermore, even if petitioner had raised a dispute concerning the unreported income, the notice of deficiency itself--which indicates that respondent determined the specific amounts of the unreported income items based on information returns filed by third-party payers--would satisfy respondent's burden of production. See Banister v. Commissioner, T.C. Memo. 2008-201, 2008 WL 3925877, at *2 (finding that a notice of deficiency indicating third parties paid the taxpayer the specific amounts in question satisfied the minimal evidentiary burden, even though direct evidence was not in the record, where the taxpayer implicitly acknowledged that he received at least some income during the year at issue), aff'd, 418 Fed.Appx. 637 (9th Cir. 2011). Therefore, the presumption of correctness attaches to the notice of deficiency in this case.
Petitioner thus has not asserted a reasonable dispute with respect to respondent's unreported income determinations. Accordingly, sec. 6201(d), which may in certain circumstances shift the burden of production to the Commissioner when a disputed information return forms the basis of his deficiency determination, does not apply in this case.
The notice of deficiency, if offered for the truth of the matter asserted, is inadmissible hearsay. However, a court may properly consider hearsay evidence for the limited purpose of determining whether to shift the evidentiary burden from the taxpayer to the Commissioner. See Williams v. Commissioner, 999 F.2d 760, 765 (4th Cir. 1993) ("Hearsay evidence inadmissible for its truth value may nonetheless be considered in determining whether a burden of proof should be shifted from the Taxpayer to the Commissioner."), aff'g T.C. Memo. 1992-153; Avery v. Commissioner, 574 F.2d 467, 468 (9th Cir. 1978), aff'g T.C. Memo. 1976-129.
All of the material allegations set forth in the Petition in support of the assignments of error have been denied in respondent's Answer. Petitioner has not claimed or shown entitlement to any shift in the burden of proof under section 7491(a). See sec. 7491(a)(2)(B). Accordingly, the burden of proof rests with petitioner concerning any error in the deficiency determination. As petitioner has adduced no evidence in support of the assignments of error in the Petition, he has failed to satisfy his burden of proof. We thus sustain the deficiency in full.
In the notice of deficiency, respondent also determined that petitioner is liable for additions to tax under sections 6651(a)(1), 6651(a)(2), and 6654; however, in his Motion to Dismiss respondent concedes the addition to tax under section 6654. Section 6651(a)(1) imposes an addition to tax for failure to file a timely return, unless the taxpayer proves that such failure is due to reasonable cause and is not due to willful neglect. Section 6651(a)(2) imposes an addition to tax for failure to pay the amount of tax shown on a return, unless the taxpayer proves that such failure is due to reasonable cause and is not due to willful neglect.
The Commissioner generally bears the burden of production with respect to any penalty, addition to tax, or other additional amount (collectively, penalty), where the taxpayer has contested it in his petition. See sec. 7491(c); Funk v. Commissioner, 123 T.C. 213, 216-218 (2004); Swain v. Commissioner, 118 T.C. 358, 363-365 (2002). To satisfy the burden, the Commissioner must offer sufficient evidence to indicate that it is appropriate to impose the penalty. Higbee v. Commissioner, 116 T.C. 438, 446 (2001). If the Commissioner satisfies his burden of production, the taxpayer bears the burden of proving it is inappropriate to impose the penalty because of reasonable cause, substantial authority, or a similar provision. Id. at 446-447; see also sec. 6664(c); Wheeler v. Commissioner, 127 T.C. 200, 206 (2006), aff'd, 521 F.3d 1289 (10th Cir. 2008).
For certain penalties, sec. 6751(b)(1) requires written supervisory approval to be obtained before the penalty may be imposed, and in those circumstances the Commissioner's burden of production under sec. 7491(c) includes demonstrating his compliance with the foregoing written supervisory approval requirement. See Graev v. Commissioner, 149 T.C. 485, 493 (2017), supplementing and overruling in part 147 T.C. 460 (2016). However, written supervisory approval need not be obtained for the additions to tax at issue in this case. See sec. 6751(b)(2)(A).
Petitioner has not alleged any specific error in respondent's determination of the additions to tax. Where a petition fails to state a claim with respect to penalties, the Commissioner incurs no obligation to produce evidence in support of such determinations pursuant to section 7491(c). See Funk v. Commissioner, 123 T.C. at 218; Swain v. Commissioner, 118 T.C. at 364-365. Petitioner has failed to put the additions to tax at issue, and respondent accordingly bears no burden of production with respect to them.
Even if respondent bore the burden of production with respect to the additions to tax in this case, we find that he has satisfied that burden here. Respondent has attached to his Motion to Dismiss as Exhibit B a copy of petitioner's Wage and Income Transcript for 2016. A review of that transcript indicates, as does the notice of deficiency, that petitioner did not file a return for such year. Additionally, respondent has attached to his Motion to Dismiss as Exhibit C a copy of the substitute for return for 2016 stating a balance due for such year. In view of the foregoing, we find that respondent has satisfied his burden of production with respect to the additions to tax under sections 6651(a)(1) and 6651(a)(2).
Neither the Wage and Income Transcript nor the substitute for return is a certified copy or accompanied by a declaration attesting to its authenticity. See Rule 803(6), (8), 902(11), Fed.R.Evid. Consequently, both are inadmissible hearsay. However, as noted supra p. 6 n.6, courts may properly consider hearsay evidence for the limited purpose of determining whether to shift the evidentiary burden from the taxpayer to the Commissioner.
Petitioner bears the burden of proof with respect to any exculpatory factors for penalties. See Higbee v. Commissioner, 116 T.C. at 446-447; Wheeler v. Commissioner, 127 T.C. at 206. As petitioner has adduced no evidence in support of any exculpatory factors, we sustain respondent's determination of the additions to tax in this case.
The foregoing considered, it is
ORDERED that the Court's Order to Show Cause served March 1, 2021, is hereby made absolute. It is further
ORDERED that respondent's Motion to Dismiss for Failure to Properly Prosecute, filed February 24, 2021, is granted, and this case is hereby dismissed for failure to properly prosecute. It is further
ORDERED and DECIDED that there is a deficiency in petitioner's 2016 Federal income tax due in the amount of $12, 356 and additions to tax under sections 6651(a)(1) and 6651(a)(2) due of $2, 780 and $865, respectively.