Michael Stephens v. Commissioner of IRS

Filing

Opinion issued by court as to Appellant Michael Jack Stephens. Decision: Affirmed. Opinion type: Non-Published. Opinion method: Per Curiam.

Case: 13-14235

Date Filed: 05/08/2014

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[DO NOT PUBLISH]

IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
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No. 13-14235
Non-Argument Calendar
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Agency No. 1168-11

MICHAEL JACK STEPHENS,
Petitioner-Appellant,
versus

COMMISSIONER OF IRS,
Respondent-Appellee.
________________________
Petition for Review of a Decision
of the U.S. Tax Court
________________________
(May 8, 2014)
Before WILSON, MARTIN, and ANDERSON, Circuit Judges.
PER CURIAM:
Michael Jack Stephens, proceeding pro se, seeks review of the Tax Court’s
final decision accepting the Internal Revenue Service’s (IRS) tax deficiency

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determinations. The central issue is whether the Tax Court erred in its conclusion
that Stephens failed to substantiate his claimed deductions. Because we find no
error, we affirm.
I.
Stephens was a truck driver and the sole owner of Stephens Southern
Express, Inc. (SSEI), a subchapter S corporation. In each year between 2005 and
2008, SSEI timely filed Forms 1120S, U.S. Income Tax Return for an S
Corporation. In 2009, the IRS audited these returns and disallowed SSEI’s
claimed deductions. Because of the disallowance of SSEI’s deduction, SSEI had
additional taxable income. This meant that Stephens, as the sole shareholder of
SSEI, had additional income in those years as well. The IRS sent Stephens Notices
of Deficiencies (NOD) for each year.
Stephens filed a petition in Tax Court requesting a redetermination of these
deficiencies. The Tax Court held a trial and later issued a written order. At trial,
Stephens did not contest the amount of gross income that SSEI received in the
relevant tax years. Stephens only challenged the IRS’s determination that he was
not entitled to the deductions he claimed for each of those years.
The Tax Court’s order upheld the IRS’s deficiency determinations, finding
that Stephens had failed to substantiate his claimed deductions. Stephens then
appealed to this Court.
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II.
We review the Tax Court’s factual findings for clear error and its legal
conclusions de novo. Estate of Whitt v. Comm’r of Internal Revenue, 751 F.2d
1548, 1556 (11th Cir. 1985). The Commissioner’s deficiency determination is
presumed correct and the taxpayer has the burden of proving by a preponderance
of the evidence that it is incorrect. Id. We read briefs filed by pro se litigants
liberally. Timson v. Sampson, 518 F.3d 870, 874 (11th Cir. 2008).
Taxpayers bear the burden of submitting evidence that supports their claims
of entitlement to a deduction and the amount of that entitlement. Gatlin v. Comm’r
of Internal Revenue, 754 F.2d 921, 923–24 (11th Cir. 1985). Every taxpayer is
required to keep sufficient records to enable the Commissioner to establish the
amount of taxable income. 26 U.S.C. § 6001. When taxpayers’ records are lost or
destroyed through circumstances beyond their control, they are entitled to
substantiate the claimed deductions by use of other credible evidence. Villarreal v.
Comm’r of Internal Revenue, 76 T.C.M. (CCH) 920 (1998). However, the Tax
Court is not bound to accept a taxpayer’s unverified, undocumented testimony. Id.
A.
We first address Stephens’s main argument that the Tax Court erred by not
allowing SSEI’s claimed deductions for business expenses.

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Upon review of the record and the parties’ briefs, we conclude that the Tax
Court did not err in finding that Stephens failed to carry his burden of establishing
the claimed deductions. See Gatlin, 754 F.2d at 923–24. Throughout the
proceedings, Stephens failed to produce evidence to substantiate the full amount of
deductions that he claimed on SSEI’s tax filings. Although he claimed that his
deductions were permissible business deductions, the Tax Court was not bound to
accept his unverified assertions.
The case relied on by Stephens, Cohan v. Comm’r of Internal Revenue, 39
F.2d 540 (2d Cir. 1930), does not lead us to a contrary result. In Cohan, the
Second Circuit explained that where there was a basis for some amount of
deduction, the Tax Court could make an estimate of business expense deductions
when a taxpayer is unable to produce evidence substantiating the exact amount of a
claimed deduction. Id. at 543–44 (concluding Board of Tax Appeals “should make
as close an approximation as it can, bearing heavily if it chooses upon the taxpayer
whose inexactitude is of his own making”).
Here Stephens refused to present any receipts of his claimed expenses at
trial, instead stating he would “plead the Fifth.” His other testimony regarding
expenses was general and did not provide the Tax Court with evidence
“establishing the fact and general total amount of the [business] expenses” to allow

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an estimation. See Charron v. United States, 200 F.3d 785, 794 (Fed. Cir. 1999).
We therefore find no error in the Tax Court’s decision.
B.
Stephens makes a number of additional arguments that do not affect our
conclusion. First, Stephens challenges the legitimacy of the underlying audit.
Generally, the Tax Court will not review the evidence, motives, policies, or
procedures that may influence the IRS in making a determination to issue a NOD.
Gatlin, 754 F.2d at 923. This is because a trial before the Tax Court is a
proceeding de novo. Id. The determination of an individual’s tax liability must be
based on the merits of the case as presented in the Tax Court and not any previous
record developed at the administrative level. Id. We therefore conclude that
Stephens’s challenges to the underlying audit do not affect his tax liability and the
Tax Court correctly declined to address these issues.
Second, Stephens claims a violation of his Seventh Amendment right to a
trial by jury. We find no violation because there is no Seventh Amendment right
to a jury trial in Tax Court proceedings where a taxpayer is challenging a
deficiency amount. See Wickwire v. Reinecke, 275 U.S. 101, 105–06, 48 S. Ct.
43, 45 (1927).
Third, Stephens claims protection under the Fifth Amendment. However,
the Fifth Amendment does not apply to tax proceedings where the petitioner fails
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to demonstrate a real danger that the production of documents would subject him
to prosecution. Stubbs v. Comm’r of Internal Revenue, 797 F.2d 936, 938 n.2
(11th Cir. 1986). Stephens has not demonstrated any such danger in this case.
III.
For these reasons, the Tax Court did not err in determining that the IRS’s
deficiency determination was correct and we affirm.
AFFIRMED.

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