Correcting Erroneous Information Returns, Form #04.001-SEDM
26 U.S. Code § 6201 - Assessment authority
26 U.S. Code § 6201 - Assessment authority
(d)Required reasonable verification of information returns
In any court proceeding, if a taxpayer asserts a reasonable dispute with respect to any item of income reported on an information return filed with the Secretary under subpart B or C of part III of subchapter A of chapter 61 by a third party and the taxpayer has fully cooperated with the Secretary (including providing, within a reasonable period of time, access to and inspection of all witnesses, information, and documents within the control of the taxpayer as reasonably requested by the Secretary), the Secretary shall have the burden of producing reasonable and probative information concerning such deficiency in addition to such information return.
Christiansen v. National Savings and Trust Co., 683 F.2d. 520, 529 (D.C. Cir. 1982):
"lay legal conclusions [such as information returns] are inadmissible in evidence"
[Christiansen v. National Savings and Trust Co., 683 F.2d. 520, 529 (D.C. Cir. 1982)]
Langbord v. U.S. Department of Treasury, CIVIL ACTION No. 06-5315, at *22 (E.D. Pa. July 5, 2011):
Generally, neither an expert witness nor a lay person may give testimony that amounts to a legal conclusion. Berckeley Inv. Group, Ltd. v. Colkitt, 455 F.3d. 195, 217 (3d Cir. 2006); Hogan v. American Telephone Telegraph, 812 F.2d. 409, 411-12 (8th Cir. 1987) (lay opinion is not helpful if couched as legal conclusion); Christiansen v. National Savings and Trust Co., 683 F.2d. 520, 529 (D.C. Cir. 1982) ("lay legal conclusions are inadmissible in evidence").
[Langbord v. U.S. Department of Treasury, CIVIL ACTION No. 06-5315, at *22 (E.D. Pa. July 5, 2011)]
T.C. Summary Opinion 2009-102 UNITED STATES TAX COURT NICHOLAS AND KERRI A. FITZPATRICK, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent:
In Taxpayer Bill of Rights [TBOR]2 sec. 602, 110 Stat. 1463, Congress required that the Government conduct a reasonable investigation of a disputed information return because of difficulties imposed on a taxpayer by third parties’ filing fraudulent information returns or issuing erroneous returns and refusing to correct the information. H. Rept. 104-506, at 36 (1996), 1996-3 C.B. 49, 84. In any Court proceeding where a taxpayer asserts a reasonable dispute with respect to income reported on a third-party information return and fully cooperates with the IRS, “the Secretary shall have the burden of producing reasonable and probative information concerning such deficiency in addition to such information return.”[7] Sec. 6201(d). Full cooperation requires informing the IRS of the dispute within a reasonable time. H. Rept. 104-506, supra at 36, 1996-3 C.B. at 84. In addition, a taxpayer must provide timely "access to and inspection of all witnesses, information, and documents within the control of the taxpayer". Sec. 6201(d).
[T.C. Summary Opinion 2009-102 UNITED STATES TAX COURT NICHOLAS AND KERRI A. FITZPATRICK, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent]
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FOOTNOTES:[7] Because sec. 6201(d) applies only to court proceedings, it does not bear directly on the Commissioner's administrative position, but it does bear directly on his litigation position. As indicated, petitioners are not seeking administrative costs. Thus, we need not decide whether the Commissioner's position qua administrative position was reasonable. Nevertheless, it is conceivable that a position could be reasonable at the administrative stage but less so at the litigation stage as a result of the sec. 6201 burden of production. Cf. Huffman v. Commissioner, 978 F.2d. 1139, 1148 (9th Cir. 1992) [*14] (the Commissioner's administrative position, established by the notice of deficiency, was not substantially justified, but his subsequent litigation position was substantially justified because in his answer he conceded the unreasonable position), affg. in part, revg. in part on other grounds and remanding T.C. Memo. 1991-144.
Portillo v. C.I.R., 988 F.2d. 27 (1993):
The government argues that its position was reasonable in light of the facts of this case. The contention is that it was reasonable to attribute veracity to Mr. Navarro rather than Mr. Portillo. The government makes this argument despite the ruling in Portillo that this was an arbitrary and erroneous basis for a notice of deficiency. Whether Navarro made a more 29*29 credible witness than Portillo is not the issue. A cursory reading of Portillo makes it clear that one person's word, i.e. "a naked assertion," is not sufficient support for a notice of deficiency.
"In these types of unreported income cases, the Commissioner ... [cannot] choose to rely solely upon the naked assertion that the taxpayer received a certain amount of unreported income for the tax period in question." Portillo, 932 F.2d at 1134. A naked assessment without any foundation is arbitrary and erroneous. United States v. Janis, 428 U.S. 433, 442, 96 S.Ct. 3021, 3026, 49 L.Ed.2d 1046 (1976). The previous panel of this Court held that the deficiency notice "lacked any ligaments of fact" and was "clearly erroneous" as a matter of law.[2] Portillo, 932 F.2d 1128, at page 1133 (5th Cir.1991). There can be no clearer indication from this Court that the government's position in relying on such an unsupported notice of deficiency was not justified. The facts of this case dictate that the denial of litigation costs was an abuse of discretion.
The government contends that the reversal of the initial Tax Court decision created a new rule. This "new rule" argument is supposed to lend credence to the reasonableness of the government's position in relying on the "old rule."
In asserting that a new rule was pronounced in this case, the government turns its back on United States v. Janis, 428 U.S. 433, 96 S.Ct. 3021, 49 L.Ed.2d 1046 (1976). Janis holds that where "the assessment is shown to be naked and without any foundation," it is not entitled to the presumption of correctness ordinarily conferred upon a notice of tax deficiency. The inception of this holding is found in Helvering v. Taylor, 293 U.S. 507, 55 S.Ct. 287, 79 L.Ed. 623, a case which was decided in 1935!
The unsubstantiated and unreliable 1099 Form submitted to the IRS by Navarro was insufficient to form a rational foundation for the tax assessment against the Portillos. This was made abundantly clear by the opinion rendered in the initial appeal. The Court found that the notice of deficiency lacked "any ligaments of fact" and that the assessment was "arbitrary and erroneous." Portillo, supra.
[Portillo v. C.I.R., 988 F.2d. 27 (1993)]
Cavoto v. Hayes, 634 F.3d. 921, 923 (7th Cir. 2011)
The district court rejected Cavoto's contention that a Form 1099-C filed by someone other than a financial entity is necessarily fraudulent. Although Hayes was not required to file a Form 1099-C, the court explained, she was not prohibited from doing so. Moreover, the court added, filing a Form 1099-C is not equivalent to filing a false return, so long as the information in the form is accurate. Cavoto v. Hayes, No. 08 C 6957, 2009 U.S. Dist. LEXIS 96868, 2009 WL 3380664, at *3-*4 (N.D. Ill. Oct. 19, 2009). The district court then conducted a bench trial to resolve the competing claims.
At trial the district court heard testimony from Hayes, Cavoto, and his ex-wife. The district court found that Cavoto had agreed with Hayes that she would loan him the $30,000 and in return he would repay the entire sum. Cavoto, 2010 U.S. Dist. LEXIS 66017, 2010 WL 2679973, at *5. Because Cavoto agreed to reimburse Hayes, according to the court, she had a good-faith belief that when she filed the Form 1099-C she was cancelling a bona fide debt, and this meant that the Form 1099-C was not fraudulent. 2010 U.S. Dist. LEXIS 66017, [WL] at *4. The district court also found that Hayes had shown Cavoto had breached the contract by failing to repay her, and thus found for her on this claim as well. 2010 U.S. Dist. LEXIS 66017, [WL] at *5.
[Cavoto v. Hayes, 634 F.3d. 921, 923 (7th Cir. 2011)]
[EDITORIAL: "good-faith belief" of the filer = not fraudulent. And as long as the information is accurate it cannot be said to be a false return REGARDLESS of who files it. Which means one can correct a 1099 oneself and need not persuade the filer to make the correction.Same with W-2 ]
Ross v. Commissioner of Internal Revenue, 169 F.2d 483, 496 (1st Cir. 1948)
If the Tax Court had supplied us with a finding as to the taxable year in which the disputed salary items were received, such a finding on a matter of proper tax accounting might well come within the doctrine of Dobson v. Commissioner, 1943, 320 U.S. 489, 64 S.Ct. 239, 88 L.Ed. 248; see also Commissioner v. Arnold, 1 Cir., 1945, 147 F.2d 23, 26. But no such finding is in the record. HN3 This court is without power on review of proceedings of the Tax Court to make any findings of fact. Helvering v. Ranking, 1935, 295 U.S. 123, 131, 55 S.Ct. 732, 79 L.Ed. 1343. If there were no more to the case, therefore, than what has already been discussed, we would have no alternative to reversing the decision and remanding the case to the Tax Court. Cf. Helvering v. Taylor, 1935, 293 U.S. 507, 55 S.Ct. 287, 79 L.Ed. 623.
But respondent has the right to urge on this court, and we have the right to consider on our own motion on appeal, other grounds which might justify the decision [**17] below regardless of the erroneous theory advanced by the Tax Court. LeTulle v. Scofield, 1940, 308 U.S. 415, 60 S.Ct. 313, 84 L.Ed. 355; Helvering v. Gowran, 1937, 302 U.S. 238, 58 S.Ct. 154, 82 L.Ed. 224; White v. Higgins, 1 Cir., 1940, 116 F.2d 312, 318. Accordingly, we consider the argument advanced by respondent that taxpayer cannot invoke the doctrine of constructive receipt and thereby take a position inconsistent with that taken by him from 1927 through 1932; and that, since the taxpayer has elected not to treat the items in question as income until physically reduced to possession, he is now bound by his election. Of course, having rejected the Tax Court's view of the case, even if we were to affirm its decision on one of these additional grounds we should have to order the deficiency found by the Tax Court for 1939 to be redetermined in accordance with the Commissioner's original deficiency notice for 1939, 1940, and 1941.
While ordinarily the question whether income is received is a matter of proper tax accounting, respondent here raises a problem going to the very nature of the doctrine of constructive receipt, and a problem dealing with the extent to which we should import [**18] principles of election, and perhaps of estoppel, into tax law. These are questions appropriate for determination by this court.
HN4 The doctrine of constructive receipt treats as taxable income which is unqualifiedly subject to the demand of a taxpayer on the cash receipts and disbursements method of accounting, whether or not such income has actually been received in cash. See 2 Mertens, Law of Federal Income Taxation, Sec. 10.01 (1942); Zysman, Constructive Receipt of Income, 16 Tax Mag. 715 (1938); Kaplan, The Doctrine of Constructive Receipt, 19 Taxes 547 (1941); Note, 53 Harv.L.Rev. 851, 854- 55 (1940). The doctrine has been incorporated in the Treasury Regulations from the beginning and is currently to be found in Regulations 111, Sec. 29.42-2:
HN5 'Income not reduced to possession.- Income which is credited to the account of or set apart for a taxpayer and which may be drawn upon by him at any time is subject to tax for the year during which so credited or set apart, although not then actually reduced to possession. To constitute receipt [*491] in such a case the income must be credited or set apart to the taxpayer without any substantial limitation or restriction as to the [**19] time or manner or payment or condition upon which payment is to be made, and must be made available to him so that it may be drawn at any time, and its receipt brought within his own control and disposition. A book entry, if made, should indicate an absolute transfer from one account to another. If a corporation contingently credits its employees with bonus stock, but the stock is not available to such employees until some future date, the mere crediting on the books of the corporation does not constitute receipt.' 5.
Examples of constructive receipt are set forth in Sec. 29.42-3. While they do not include salaries credited to an officer on the books of a corporation, it is settled that such items fall within the doctrine. E.g., Schoenheit v. Lucas, 4 Cir., 1930, 44 F.2d 476, 480, 481; Burns v. Commissioner, 5 Cir., 1929, 31 F.2d 399, certiorari denied, 1929, 280 U.S. 564, 50 S.Ct. 25, 74 L.Ed. 618; see 2 Mertens, supra, Sec. 10.13. We need not determine here whether or not, in the light of the restrictive agreements and the financial status of the corporation, petitioner's accrued salary was unqualifiedly subject to his demand in the years 1927 through 1932. These are questions [**20] of fact to be determined by findings of the Tax Court. Nevertheless, we should now pass on the respondent's suggestion that, even if such findings are made in the petitioner's favor, he may not invoke the doctrine of constructive receipt because the doctrine was designed only to protect the revenue and is not available for a taxpayer's defense, or, in the alternative, because the petitioner is now precluded from taking a position inconsistent with his theory in the years when the salary was credited to him.
The doctrine of constructive receipt was, no doubt, conceived by the Treasury in order to prevent a taxpayer from choosing the year in which to return income merely by choosing the year in which to reduce it to possession. Thereby the Treasury may subject income to taxation when the only thing preventing its reduction to possession is the volition of the taxpayer. But is the doctrine to be deemed merely an available tool of the Commissioner, or is it a test of realization of income within the meaning of Sec. 42 of the Code, 26 U.S.C.A. Int.Rev.Code 42, providing that income shall be taxed in the year it is received? If it is the former, the normal rule that income is taxable to [**21] a taxpayer on the cash system of accounting only when actually received in cash, or the equivalent of cash, remains unqualified except for the privilege of the Commissioner to reach items which satisfy Sec. 29.42-2 of his Regulations. If it is the latter, then it is a mandatory rule that items which satisfy Sec. 29.42-2 are 'received' and therefore taxable only in the year of 'constructive receipt,' and the taxpayer as well as the Commissioner may rely on it.
The Regulations themselves offer little help in solving this problem. Section 29.42-2 speaks of income which may be drawn upon at any time as 'subject to tax for the year during which so credited or set apart,' which suggests that the Commissioner has an option to treat such income as received or not, as he prefers; but the Regulation goes on to provide: 'To constitute receipt in such a case the income must be credited or set apart to the taxpayer without any substantial limitation,' from which the opposite conclusion may be drawn. (Italics supplied.) Nor do cases or commentaries resolve the ambiguity. Compare Raleigh v. United States, 1934, 5 F.Supp. 622, 78 Ct.Cl. 653; Alice H. Moran, 1932, 26 B.T.A. 1154, affirmed on other [**22] grounds, 1 Cir., 1933, 67 F.2d 610; J. o. W. Gravely, 1933, 29 B.T.A. 29; Dillis C. Knapp, 1940, 41 B.T.A. 23; George H. Letz, Cr., 1941, 45 B.T.A. 1011; Pacific Northwest Finance Corporation, 1944, 3 T.C. 498, 503; 2 Mertens, supra, Sec. 10.02; Note, 53 Harv.L.Rev. 851, 854-55 (1940), with Commissioner v. Scatena, 9 Cir., 1936, 85 F.2d 729; Commissioner v. Yates, 7 Cir., 1936, 86 F.2d 748; Loose v. United States, 8 Cir., [*492] 1934, 74 F.2d 147, 150; and William Steele, 1936, 34 B.T.A. 173, 176.
However, in this Circuit at least, it seems settled that the HN6 doctrine of constructive receipt can be asserted by a taxpayer to defeat an attempt to assert a tax in a later year. In Commissioner v. Arnold, 1 Cir., 1945, 147 F.2d 23, a loan account with an investment company was established for the benefit of the taxpayers. Interest was credited to them in years prior to 1935, and was actually received in 1935 on liquidation of the company. This court upheld the Tax Court's decision that amounts constructively received in prior years were not taxable in 1935. 6.
And even were this a problem of first impression, the same result is persuasive. We should suppose that by virtue of the doctrine [**23] of constructive receipt, a taxpayer has an affirmative obligation to report any income falling within its scope in his return for the year of such receipt, and that his failure to do so will subject him to such liabilities for interest, penalties, or even criminal prosecutions, as may be appropriate to his case. If this is so, the doctrine does not merely afford a special choice which the Commissioner may, if he sees fit, exercise retroactively against a taxpayer, but a rule of law determining what constitutes taxable income, and as such presumably binding on all parties. To allow the Commissioner to refrain, at his own option, from asserting his claim until years later is against the important policy underlying the statute of limitations. If this view means avoidance of taxation in some cases, it must be remembered that if such avoidance is fraudulent the tax may be assessed or collected at any time. Int. Rev. Code, Sec. 276(a), 26 U.S.C.A. INT.REV.CODE, 276(a). If every opportunity for escaping taxation is to be barred, even in the absence of fraud, such complete safeguards are for Congress to devise.
There remains the question whether a duty of consistent dealing with the government, [**24] or an election to treat the items in dispute as not received until reduced to possession, prevents a taxpayer from contesting the taxability of the accrued salary in the years of withdrawal. Latent in the case also is the problem whether petitioner's failure to report the accrued salaries as income when credited to him was a misrepresentation of fact sufficient- though innocent- to raise against him an estoppel in pais. Respondent has not expressly relied on this last point, but he has cited cases which advance it. At the outset it might be questioned whether any of these defenses of an equitable nature can now be raised when they have not been affirmatively pleaded or presented before the Tax Court. In Helvering v. Salvage, 1936, 297 U.S. 106, 108, 109, 56 S.Ct. 375, 376, 80 L.Ed. 51, the Supreme Court stated: 'Upon these conflicting claims, the Board of Tax Appeals took the matter. There the Commissioner asserted correctness of his action; he presented no affirmative defense; set up no claim of estoppel because of the taxpayer's failure properly to report 1922 gain. * * * The defense of estoppel was not before the Board. Under what we regard as the correct practice, General Utilities [**25] & Operating Co. v. Helvering, 296 U.S. 200, 56 S.Ct. 185, 80 L.Ed. 154, * * * the court (below) should have passed the point.' Cf. Tide Water Oil Co., 1934, 29 B.T.A. 1208; see 10 Mertens, supra, Sec. 60.03. Perhaps a distinction should be drawn, however, between a new argument to overturn a lower court decision, and the suggestion of a new ground for sustaining it, beyond, as it were, the lower court's judgment. 7.
If we are permitted to consider these equitable defenses, we are faced with 'one of the most confused and entangled subjects in all tax law.' United States v. Du Pont, D.C. Del., 1942, 47 F.Supp. 894, 896; see Maguire and Ziment, Hobson's Choice and Similar Practices in Federal Taxation, 48 Harv.L.Rev. 1281 (1935); Atlas, The Doctrine of Estoppel in Tax Cases, 3 Tax L.Rev. 71 (1947); Jones, Estoppel in Tax Litigation, 26 Geo.L.J. 868 (1938); Karol, The Doctrine of Estoppel, 23 Taxes 1132 (1945).
At the outset, a significant difference, certainly in terminology, is to be noted, between election and estoppel. The former is applicable where a taxpayer has had [**26] a choice of two methods of computing his tax, both legal; where the doctrine of election is applied he is not permitted to change his mind to the detriment of the revenue. Estoppel, on the other hand, applies where there was only one lawful course open, which was not followed by the taxpayer, as a result of which, in certain instances, he is barred from treating some later related transaction in the manner in which he would normally be permitted to deal with it.
The respondent's argument in this case appears to be couched in terms of election, and is based on the theory, which we have rejected, that constructive receipt is a rule the application of which is optional with the Commissioner, and that there was something akin to a real choice available to the petitioner before, or in, 1932. But under our view of constructive receipt, petitioner had no lawful choice other than to report as income such of his salary as was constructively received, either in 1932 or earlier. 8.
The Moran case was narrowly limited by this court in Commissioner v. Arnold, 1 Cir., 1945, 147 F.2d 23, and other recent decisions appear to require, as a condition to applying the doctrine of election, that the Code or Regulations specifically allow the taxpayer alternative methods of treating the transaction in question. 9.
Respondent offers another doctrine, which has found some judicial support, that a taxpayer must consistently follow the theory upon which his earlier returns were made. Although akin to estoppel, this rule differs from the usual variety of estoppel in that it is applied even where reliance is not based on any misstatement of fact, innocent or otherwise. See Comar Oil Co. v. Helvering, 8 Cir., 1939, 107 F.2d 709, 711, 712. The same theory was invoked to the disadvantage of the government in Dixie Margerine Co. v. Commissioner, 6 Cir., 1940, 115 F.2d 445, certiorari denied, 1936, 297 U.S. 713, 56 S.Ct. 589, 80 L.Ed. 999. See also Johnson v. Commissioner, 5 Cir., 1947, 162 F.2d 844, 846; Raleigh v. United States, 1934, 5 F.Supp. 622, 78 Ct.Cl. [**29] 653.
But this doctrine, characterized by Judge Learned Hand as 'a kind of estoppel as to the law,' ( Bennet v. Helvering, 2 Cir., 1943, 137 F.2d 537, 539, 149 A.L.R. 1146), has been rejected in this Circuit. Commissioner v. Saltonstall, 1 Cir., 1941, 124 F.2d 110. And the Second Circuit Has rejected it repeatedly. Bennet v. Helvering, supra; Lembcke v. Commissioner, 2 Cir., 1942, 126 F.2d 940; Schmidlapp v. Commissioner, 2 Cir., 1938, 96 F.2d 680, 118 A.L.R. 297; Bigelow v. Bowers, 2 Cir., 1934, 68 F.2d 839, certiorari denied, 1934, 292 U.S. 656, 54 S.Ct. 864, 78 L.Ed. 1504. While the doctrine is urged in the name of equity, it is far from clear where the equities are in this case. The statute of limitations itself has equitable aspects and the difficulty with respondent's argument is that 'it does not do equity unless supplemented by what in the end comes to a reassessment of the first tax' in violation of the statute of limitations. It appears nothing more than 'an excuse for reopening the earlier assessment in the face of the statute. * * * Were an assessment a judgment, there might be some basis for an estoppel of record in both situations (estoppel as to the law and as to the [**30] facts): The estoppel as to the law depending on how far questions of law are regarded as subject to the doctrine of res judicata. But estoppels by judgment have nothing to do with the equity of the particular case, and indeed often operate very harshly; and none of the decisions on this subject have ever suggested that the Commissioner's assessment creates an estoppel by judgment. They have been uniformly based upon some supposed equity.' Bennet v. Helvering, supra, 137 F.2d at pages 538, 539.
Moreover, if the taxpayer has been guilty of inconsistency, he has not been alone in that failing. Respondent arrived at his deficiency assessments for 1933 and 1934 on the theory that salary credited to petitioner was constructively received in those years; now he deserts that theory in so far as the years 1927 through 1932 are concerned. While the restrictive salary agreement in force until April, 1932, may justify his inconsistency as to prior years, there is nothing in the record which distinguishes the status of petitioner's accrued salary after April 1, 1932, from its status in 1933 and 1934. In several instances the Commissioner has been precluded from adopting a [*495] position [**31] inconsistent with one previously taken. Joseph Eichelberger & Co. v. Commissioner, 5 Cir., 1937, 88 F.2d 874; Ford Motor Co. v. United States, 1935, 9 F.Supp. 590, 81 Ct.Cl. 30, certiorari denied, 1935, 296 U.S. 636, 56 S.Ct. 170, 80 L.Ed. 452; see Orange Securities Corporation v. Commissioner, 5 Cir., 1942, 131 F.2d 662, 663; 10 Mertens, supra, Sec. 60.13.
It may be possible to spell out of respondent's contention that petitioner cannot change his position, the argument that petitioner, having made a misstatement of fact on which respondent has relied to his detriment, is now estopped to deny the truth of his former representation. Except for an inconclusive dictum in Helvering v. Salvage, supra, 10.
Respondent relies upon the decision of this court in Crane v. Commissioner, 1 Cir., 1934, 68 F.2d 640, wherein we held that a landlord's innocent failure to report as income the value of improvements made by a tenant to leased premises constituted a statement that no such income was received, so that where the government had relied on the statement to its detriment the landlord could not later deny its truth by adding the value of the improvements to his basis for gain or loss on selling the premises. This court recently approved the Crane case in Countway v. Commissioner, 1 Cir., 1942, 127 F.2d 69, explaining that, 'Where one is under a duty to disclose the existence of a fact, his non-disclosure of the fact is equivalent in legal effect to an affirmative statement that the fact does not exist.' 127 F.2d at page 76.
But in the Crane and Countway cases, knowledge of the facts not disclosed was not imputed to the government. They do not qualify the proposition that a party may not successfully claim reliance on a misrepresentation [**33] when he ought to have known the truth. Joyce v. Gentsch, 6 Cir., 1944, 141 F.2d 891; Helvering v. Schine Chain Theatres, Inc., 2 Cir., 1941, 121 F.2d 948; S. Rossin & Sons, Inc. v. Commissioner, 2 Cir., 1940, 113 F.2d 652; Hull v. Commissioner, 4 Cir., 1937, 87 F.2d 260; Helvering v. Brooklyn City R. Co., 2 Cir., 1934, 72 F.2d 274; see 10 Mertens, supra, Sec. 60.03. In the Brooklyn City R. Co. case, the Commissioner's claim of estoppel was defeated because the facts which he claimed to be misrepresented were available at all times on the books of the taxpayer. The record before us contains several references to the likelihood that respondent knew, or should have known, the true facts surrounding the accrual of petitioner's salaries and the unrestricted availability of these salaries after April, 1932. For example, in 1935 the Commissioner began to contest Chase's tax treatment of accrued salaries for 1932 and 1933, and thus apparently learned of the facts in question before the taxable year 1932 was barred as to Ross. Moreover, E. M. Chase Company always deducted the entire amount of the salaries of Chase and Ross on its corporate return, and the discrepancy [*496] between the [**34] individual returns and the corporate return was always evident, whether or not it registered on the official consciousness. And, as in the Brooklyn City R. Co. case, the accrued salary accounts of Chase and Ross were always disclosed on the financial statements of the company. A letter from the Internal Revenue Service to the company, dated December 29, 1933, shows indisputably that respondent knew of the accrued salaries and of petitioner's tax treatment of them. This letter, written when the taxable year 1932 was still open, reveals full knowledge on the part of the respondent of the operations of the company, including the gradual retirement of Chase's preferred stock. Under these circumstances respondent was justified in relying on Ross's returns for no more than the taxpayer's honest understanding of his liabilities, and it was respondent's duty to make up his own mind as to the taxability of the accrued salaries. Joyce v. Gentsch, supra; Commissioner v. Saltonstall, 1 Cir., 1941, 124 F.2d 110; Helvering v. Schine Chain Theatres, Inc., supra.
None of this evidence was contradicted by respondent prior to this appeal. Respondent did not even claim below that petitioner's returns [**35] from 1927 through 1932 failed to disclose that salaries were being accrued but not reported, let alone that such information was not available elsewhere to respondent. But even if the evidence does not establish that respondent knew, or should have known, prior to the running of the statute of limitations that Ross's accrued salaries were completely subject to withdrawal by 1932 at least, it seems clear that a party who relies on an estoppel has the burden of proving its component elements, and petitioner is not required to show the absence of any of them. Joyce v. Gentsch, supra; Hull v. Commissioner, supra; Helvering v. Brooklyn City R. Co., supra; see 10 Mertens, supra, Sec. 60.03. But cf. Commissioner v. Liberty Bank & Trust Co., 6 Cir., 1932, 59 F.2d 320.
HN7 A mere failure to report income is not a representation that such income has in fact not been received. Inasmuch as the tax incidence of so many transactions is as doubtful as it is, from the mere failure to report income no more significant inference should be drawn than the taxpayer's own interpretation of the law. And it seems settled that estoppel cannot be predicated upon a mere statement of law or silence resulting from [**36] an error of law. Commissioner v. American Light & Traction Co., 7 Cir., 1942, 125 F.2d 365; Commissioner v. Union Pacific R. Co., 2 Cir., 1936, 86 F.2d 637; United States v. Du Pont, D.C.DEL., 1942, 47 F.Supp. 894; Sugar Greek Coal & Mining Co., 1934, 31 B.T.A. 344; Tide Water Oil Company, 1934, 29 B.T.A. 1208 (1934).
Of course this court may not make findings as to the existence or lack of existence of facts sufficient to raise an estoppel. But even if the Tax Court on reconsideration of this case should find in the record justifiable reliance by the respondent on the petitioner's returns, it is our view that in the absence of either deliberate or unintentional misrepresentation of facts there can be no estoppel. It may be noted that if we were to hold that mere failure to report income results in estoppel and therefore in effect tolls the statute of limitations, we would be rendering virtually meaningless Sec. 275(c) of the Internal Revenue Code, 26 U.S.C.A. INT.REV. Code 275(c), which provides, 'If the taxpayer omits from gross income an amount properly includible therein which is in excess of 25 per centum of the amount of gross income stated in the return, the tax may be assessed [**37] * * * at any time within 5 years after the return was filed.'
In sum, we hold that the Tax Court erred in attributing to 1939 the disputed items of accrued salary, that if these items were constructively received when earned they cannot be treated as income in any later year, that the doctrine of election is inapplicable to the facts of this case, and, in the absence of misstatement of fact, intentional or otherwise, the petitioner cannot be estopped from asserting that the times were taxable only in the years in which constructively received.
Accordingly, the decision of the Tax Court is reversed and the case remanded to that court for further proceedings in accord with this opinion.
[Ross v. Commissioner of Internal Revenue, 169 F.2d 483, 496 (1st Cir. 1948)]
[EDITORIAL: In theory you can establish that no return is required by directly disputing the information return. A corrected info return or statement could function as a counter-affidavit to the original info return.
A failure to report income on a return should be inferred to mean the taxpayer interpreted the law in such a way as to determine that the income was not required to be reported.
Of course that does not mean the taxpayer's legal determination is necessarily CORRECT
But a duty arises from the return for the IRS to investigate or verify contrary information, if a reasonable dispute of an item on the information return is made, according to IRC 6201(d).
All the cases where the court says an information return is not conclusive evidence that income was received happen to involve 1099 forms. There are no cases involving a W-2 where a court has invoked this principle.
We think the reason why is simple: no one has EVER made a reasonable dispute of a W-2 information return in a case that made its way to court.
If one does not address the SS and Medicare "wages" reporting and the contributions shown under SS and Medicare reporting on the W-2, one cannot "reasonably dispute" the reporting of "wages" for income tax purposes on that W-2. ]
Mason v. Barnhart, 406 F.3d 962, 965 (8th Cir. 2005)
“Receipt of a Form 1099 does not conclusively establish that the recipient has reportable income.”
[Mason v. Barnhart, 406 F.3d 962, 965 (8th Cir. 2005)]
[EDITORIAL: That case references IRC 6201(d) which is applicable to ANY information return reporting income]
Cal. Found. for Indep. Living Ctrs. v. Cnty. of Sacramento, 142 F. Supp. 3d 1035, 1045 (E.D. Cal. 2015)
“Courts have found lay witness testimony unhelpful and thus inadmissible if it is mere speculation, an opinion of law, or if it usurps the jury's function. Weinstein, supra , § 701.03[3]; see also, e.g. , Nationwide Transp. Fin. v. Cass Info. Sys., Inc ., 523 F.3d 1051, 1060–61 (9th Cir.2008) (lay witnesses may not tell the finder of fact what result to reach); United States v. Freeman , 498 F.3d 893, 905 (9th Cir.2007) (speculative testimony was inadmissible); United States v. Crawford , 239 F.3d 1086, 1090 (9th Cir.2001) (legal conclusions are inadmissible when presented as lay testimony).”)
[Cal. Found. for Indep. Living Ctrs. v. Cnty. of Sacramento, 142 F. Supp. 3d 1035, 1045 (E.D. Cal. 2015)]
[EDITORIAL: This is why the IRS can never prove the legal conclusions reported by a third party information return filer. Inevitably the filer will be a lay witness or (even if they are a legal expert) will not have personal knowledge of the facts. No one hires a lawyer to follow you around while you work and then also file the W-2!]
United States v. Christensen, CR-14-8164-PCT-DGC (MHB), at *3 (D. Ariz. Mar. 24, 2016)
“Lay opinion testimony is not inadmissible solely because it addresses the ultimate issue in the case.”
[United States v. Christensen, CR-14-8164-PCT-DGC (MHB), at *3 (D. Ariz. Mar. 24, 2016)]
Lavino v. Jamison, 230 F.2d. 909 (1956)
“A return is not prima facie evidence of conclusions of law.”
[Lavino v. Jamison, 230 F.2d. 909 (1956)]
U.S. v. Scholl, 166 F.3d 964, 978 (9th Cir. 1999)
“However, a party need not prove that business records are accurate before they are admitted.”
[U.S. v. Scholl, 166 F.3d 964, 978 (9th Cir. 1999)]
Carrington Mortg. Servs. v. SFR Invs. Pool 1 , No. 2:17-cv-01837-RFB-BNW, at *9 (D. Nev. Sep. 29, 2020)
“A person authenticating business records is not required to attest as to the accuracy of every data entry.”
[Carrington Mortg. Servs. v. SFR Invs. Pool 1 , No. 2:17-cv-01837-RFB-BNW, at *9 (D. Nev. Sep. 29, 2020)]
U.S. v. Ray, 920 F.2d. 562, 565 (9th Cir. 1990)
“Business records are not normally self-proving.”
[U.S. v. Ray, 920 F.2d. 562, 565 (9th Cir. 1990)]
Munoz v. Giumarra Vineyards Corp., No. 1:09-CV-0703 AWI JLT, at *9 (E.D. Cal. Sep. 11, 2015)
“A business record does not have to be accurate to be admissible since generally, allegations that an exhibit is inaccurate goes to the weight of the evidence, not its admissibility.”
[Munoz v. Giumarra Vineyards Corp., No. 1:09-CV-0703 AWI JLT, at *9 (E.D. Cal. Sep. 11, 2015) ]
Government of Peru v. Johnson, 720 F. Supp. 810, 812 (C.D. Cal. 1989)
“Such an assertion is, of course, hearsay and, even though the documents may be business records kept in ordinary course, they should not be given great weight.”
[Government of Peru v. Johnson, 720 F. Supp. 810, 812 (C.D. Cal. 1989)]
Shockman v. Perez, No. 14-cv-1946-H (JMA), at *10 (S.D. Cal. Dec. 4, 2015)
“Business records are not testimonial evidence.”
[Shockman v. Perez, No. 14-cv-1946-H (JMA), at *10 (S.D. Cal. Dec. 4, 2015)]
United States v. Crawford , 239 F.3d 1086, 1090 (9th Cir.2001)
"legal conclusions are inadmissible when presented as lay testimony"
[United States v. Crawford , 239 F.3d 1086, 1090 (9th Cir.2001)]
Daines v. Alcatel, S.A., 105 F.Supp.2d 1153, 1155 (E.D. Wash. 2000)
Defendants are correct that the 1099s, on their own, do not create tax liability. Form 1099 is an informational return, filed by a third party to the relationship between the IRS and the taxpayer, which reports income as that third party believes it to be.
The Internal Revenue Code makes it clear that a Form 1099 is not the final word on what a taxpayer's taxable income is. As provided in 26 U.S.C. § 6201(d):
In any court proceeding, if a taxpayer asserts a reasonable dispute with respect to any item reported on an information return ... by a third party ... the [IRS] shall bear have the burden of producing reasonable and probative information concerning such deficiency in addition to such information return.The Tax Court has held that a Form 1099 is insufficient, on its own, to establish a taxpayer's taxable income. See Estate of Gryder v. Commissioner, T.C. Memo. 1993-141, 1993 WL 97427, 65 T.C.M. (CCH) 2298, T.C.M. (RIA) 93,141 (1993), citing Portillo v. Commissioner, 932 F.2d 1128 (5th Cir.1991). See also Portillo v. Commissioner, 988 F.2d 27, 29 (5th Cir. 1993) (a Form 1099 is "insufficient to form a rational foundation for the tax assessment against the [taxpayers in this case]."). Thus, while a Form 1099 can serve as the basis for the inception of an IRS investigation, it cannot and does not, on its own, create tax liability or establish how much income the taxpayer actually received.
[Daines v. Alcatel, S.A., 105 F. Supp. 2d 1153, 1155 (E.D. Wash. 2000)]