[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 10-15130 FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
NOVEMBER 22, 2011
Agency No. 17227-08
JOHN LEY
CLERK
DEANNA LANGILLE,
f.k.a. Deanna Birdsong,
Petitioner-Appellant,
versus
COMMISSIONER OF IRS,
Respondent-Appellee.
________________________
Petition for Review of a Decision of the
U.S. Tax Court
_________________________
(November 22, 2011)
Before EDMONDSON and ANDERSON, Circuit Judges, and LAWSON,* District
Judge.
PER CURIAM:
________________________
*Honorable Hugh Lawson, United States District Judge for the Middle District of Georgia, sitting
by designation.
Deanna Langille, proceeding pro se, appeals the Tax Court’s final decision in
favor of the Commissioner of the Internal Revenue Service (“Commissioner” of the
“IRS”) on her petition for redetermination of deficiency for 1993, 1994, and 1995
and its denial of her various post-trial motions. On appeal, she argues that the Tax
Court failed to deduct business expenses for her law practice and losses from her
residential rental activity. Langille also argues that her underpayment of taxes was
not due to fraud, as the Tax Court found. In her post-trial motions, including a
motion to reconsider, two motions for new trial, and two motions to vacate, she
contended that she suffered from serious iron anemia beginning in 1994 or 1995,
and was not well enough to try her case at the time of her tax hearing in 2009.
During her tax trial, a potential buyer of her law practice testified that
Langille told him that she maintained two sets of books: one that was a “wash” and
the other that contained the “real receipts,” which she did not disclose to the IRS.
An IRS agent testified that during the execution of a search warrant at Langille’s
law office, he found records of a bank account that she did not disclose to the IRS
in plastic trash bags, which he later discovered contained unreported legal income.
A tax examiner testified as to how she determined Langille’s tax liability using the
bank deposit method.
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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). We construe briefs filed by pro se litigants liberally.
Timson v. Sampson,
518 F.3d 870, 874 (11th Cir. 2008).
The Sixteenth Amendment to the U.S. Constitution provides that “Congress
shall have power to lay and collect taxes on incomes, from whatever source
derived.” U.S. CONST. Amend XVI. The Internal Revenue Code (“I.R.C.”)
imposes a tax on taxable income of every individual who is a citizen or resident of
the United States, and estates and trusts, with some exceptions not applicable here.
26 U.S.C. § 1(a)-(e);
26 C.F.R. § 1.1-1(a). An income earner who fails to do so is
subject to civil penalties if she does not file a proper income tax return and pay any
taxes she owes. See, e.g.,
26 U.S.C. § 6651(a) (imposing monetary penalties for
failing to file a tax return or pay taxes);
26 U.S.C. § 6654 (same if a taxpayer
underpays taxes).
I. TAX DEFICIENCIES
Langille argues that the tax examiner did not credit many of her business
expenses and instead treated them as personal expenses. She also contends that the
examiner duplicated her income where Langille transferred money into a different
account.
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The Commissioner’s determination of a deficiency is presumed correct, and
the taxpayer has the burden of proving by a preponderance of the evidence that it is
incorrect. Estate of Whitt,
751 F.2d at 1556. Pursuant to I.R.C. § 7491, the
burden of proof as to factual matters may shift from the taxpayer to the
Commissioner, but only if the taxpayer introduces credible evidence regarding a
factual matter affecting her liability and only if she has maintained all required
records and cooperated with reasonable requests from the Commissioner, such as
providing information and documents. I.R.C. § 7491(a),
26 U.S.C. § 7491(a).
Section 6001 of the I.R.C. requires taxpayers to keep and maintain financial
records sufficient to permit verification of income and expenses. I.R.C. § 6001,
26 U.S.C. § 6001. If such records are lacking, the Commissioner may reconstruct
the taxpayer’s income by any reasonable indirect method. Holland v. United
States,
348 U.S. 121, 130-32,
75 S.Ct. 127, 132-34,
99 L.Ed. 150 (1954);
26 U.S.C.
§ 446(b). One such method of reconstructing a taxpayer’s income indirectly is
through the bank deposits method. Reaves v. Comm’r of Internal Revenue,
295
F.2d 336, 337-38 (5th Cir. 1961); Nicholas v. Comm’r of Internal Revenue,
70 T.C.
1057, 1064 (1978). Indeed, the tax court has held that a taxpayer’s bank deposits
provide prima facie evidence of income, and the taxpayer has the burden of proving
that the bank deposits are not taxable income. Tokarski v. Comm’r of Internal
4
Revenue,
87 T.C. 74, 77 (1986).
A taxpayer may deduct expenses that are ordinary and necessary in carrying
on a trade or business, but may not deduct personal, living, or family expenses.
26
U.S.C. § 262(a). To be deductible, an item must: “(1) be paid or incurred during
the taxable year, (2) be for carrying on any trade or business, (3) be an expense,
(4) be a necessary expense, and (5) be an ordinary expense.” Comm’r of Internal
Revenue v. Lincoln Sav. & Loan Ass’n,
403 U.S. 345, 352,
91 S.Ct. 1893, 1898,
29
L.Ed.2d 519 (1971) (quotations omitted). 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 (11th
Cir. 1985).
Langille did not meet her burden to plead facts and issues with specificity
and did not substantiate her business deductions for the amount she claimed in
1993, 1994, and 1995, in order to overcome the presumption that the
Commissioner had correctly determined the tax deficiencies using the bank deposit
method. In both the Tax Court and on appeal, Langille made only generalized
assertions and failed to cite any record evidence to support same. Therefore, the
tax court did not clearly err in entering a decision in favor of the Commissioner.
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II. LOSSES FROM RENTAL ACTIVITY
Langille argues that her losses from her rental income should have been
deducted from her net income from her law practice, instead of being treated as
passive activity. Specifically, she submits that her rental business was in fact “an
active business” and her law practice and rental business were “one single
activity,” thus meeting the requirements for the exception to the passive activity
rule.
Determining whether Langille’s rental activities were a passive activity
involves a legal conclusion or the application of facts to law that we review de
novo. Estate of Whitt,
751 F.2d at 1556.
Section 469 of the I.R.C. generally prohibits the deduction of passive activity
losses from unrelated income, thus permitting passive losses to offset only passive
income. Schwalbach v. Comm’r of Internal Revenue,
111 T.C. 215, 223 (1998).
Passive income does not include gross income from interest, gain on the
disposition of property, and earned income. Id.; I.R.C. § 469(e);
26 U.S.C. §
469(e). A passive activity is one which involves the conduct of any trade or
business in which the taxpayer does not materially participate. I.R.C. § 469(c)(1);
26 U.S.C. § 469(c)(1). Rental activity is treated as per se passive activity
regardless of whether the taxpayer materially participates.
Id. at § 469(c)(2), (4).
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Congress carved out an exception for rental activities of real estate professionals,
effective for tax years beginning after December 31, 1993. See Estate of Quick v.
Comm’r of Internal Revenue,
110 T.C. 172, 184 (1998); Omnibus Budget
Reconciliation Act of 1993, Pub.L. 103-66, § 13143,
107 Stat. 440 (1993). The
exception applies if (1) more than half of the taxpayer’s personal services
performed in trades or businesses during the year are performed in “real property
trades or businesses” in which she materially participates, and (2) she performs
more than 750 hours of services in such “real property trades or businesses.” I.R.C.
§ 469(c)(7)(B);
26 U.S.C. § 469(c)(7)(B).
Langille’s residential rental activities do not qualify for the exception to the
passive rule. First, she has not asserted that she has met the requirement that she
worked more than 50% of her hours on real estate rental activities, rather than on
legal matters. See
id. § 469(c)(7)(B)(i). Further, she has not demonstrated that
she personally satisfied the 750-hour requirement under § 469(c)(7)(B). See id. §
469(c)(7)(B)(ii). Accordingly, the tax court properly determined that her
residential rental real estate activities were passive activities for the years in
question.1
1
We also reject Langille’s argument that her rental activities and her legal practice
were “one single activity” such that her personal services in the practice of law could count
toward satisfying the “more than 50%” requirement and the 750-hour requirement.
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III. FRAUD
Langille argues that her failure to complete and file detailed schedules with
her tax returns in 1993, 1994, and 1995 was due to her poor physical and mental
state and she provides various explanations for her accounting practices.
Because determining the existence of fraud is a question of fact, Petzoldt v.
Comm’r of Internal Revenue,
92 T.C. 661, 699 (1989), we review whether
Langille’s underpayment of taxes was due to fraud for clear error, Estate of Whitt,
751 F.2d at 1556.
The Commissioner has the burden of proving fraud by clear and convincing
evidence. I.R.C. § 454(a),
26 U.S.C. § 7454(a); Tax Court Rule 142(b). The tax
court has explained that the Commissioner must prove that the taxpayer underpaid
Section 469(c)(7)(C) forecloses this argument: that section’s definition of “real property trades or
businesses” is explicit and does not include the practice of law.
We also reject Langille’s argument that the Tax Court erred in failing to allow the
personal service time of Langille’s employees to count against the 750-hour requirement. Section
469(c)(7)(B)(ii) requires that “taxpayer” – not taxpayer’s employees – perform more than 750
hours in “real estate trades or businesses.” Moreover, Langille has failed to point to record
evidence supporting time that either she or her employees spent in “real estate trades or
businesses.”
To the extent that Langille argues that she should have benefitted from I.R.C. § 469(i)’s
offset of $25,000, she fails to note that under § 469(i)(3), that amount is gradually phased out
when the taxpayer’s adjusted gross income exceeds $100,000. The record show that the IRS in
fact gave Langille a credit for real estate expenses for both 1993 and 1995. The amount credited
was reduced in accordance with the phase-out formula contained in § 469(i)(3) because
Langille’s adjusted gross income exceeded $100,000 for the relevant years.
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her taxes in each year at issue and that she intended to evade taxes “by conduct
intended to conceal, mislead, or otherwise prevent the collection of taxes.” Parks
v. Comm’r of Internal Revenue,
94 T.C. 654, 660-61 (1990).
Section 6663 of the I.R.C. imposes an additional amount added to the tax
where “any part of any underpayment of tax required to be shown on a return is due
to fraud.” I.R.C. § 6663(a),
26 U.S.C. § 6663(a). If the Commissioner establishes
that any portion of the underpayment is attributable to fraud, then the entire
underpayment is treated as attributable to fraud, except as to the amount the
taxpayer establishes by a preponderance of evidence is not attributable to fraud.
Id.
§ 6663(b).
According to the tax court, fraud is an actual wrongdoing committed with the
intent “to evade a tax believed to be owing.” Marshall v. Comm’r of Internal
Revenue,
85 T.C. 267, 272 (1985). Fraud is never presumed, and the
Commissioner must produce “some independent evidence of fraudulent intent” to
establish fraud. Petzoldt,
92 T.C. at 699. Whether fraud exists is a question of
fact, and before finding fraud a court must consider the entire record and the
taxpayer’s entire course of conduct.
Id.
A nonexclusive list of factors that demonstrate fraudulent intent includes:
(1) understating income, (2) maintaining inadequate records, (3)
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failing to file tax returns, (4) giving implausible or inconsistent
explanations of behavior, (5) concealing assets, (6) failing to
cooperate with tax authorities, (7) engaging in illegal activities, (8)
attempting to conceal illegal activities, (9) dealing in cash and (10)
failing to make estimated tax payments.
Recklitis v. Comm’r of Internal Revenue,
91 T.C. 874, 910 (1988) (citing Bradford
v. Comm’r of Internal Revenue,
796 F.2d 303, 307-08 (9th Cir. 1986)).
The Commissioner has proved by clear and convincing evidence that
Langille intentionally omitted income in her tax returns and has shown that at least
some of Langille’s underpayment in each of the years at issue was due to fraud.
Langille has not demonstrated by a preponderance of the evidence that part of the
underpayment is not due to fraud, and thus, the entire underpayment for each year
was properly treated as due to fraud. See I.R.C. § 6663(b),
26 U.S.C. § 6663(b).
Accordingly, the Tax Court did not clearly err in finding that Langille’s
underpayment was due to fraud.
IV. POST-TRIAL MOTIONS
Langille argues that the Tax Court erred in denying her various post-trial
motions and failing to grant her a new hearing because she was too ill to prepare
for her 2009 tax hearing.
We review the tax court’s denial of a motion for reconsideration for abuse of
discretion. Byrd’s Estate, 388 F.2d at 234 (5th Cir. 1967). Tax Court Rule 162
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governs motions to vacate, but does not specify when the tax court should grant
such a motion. Tax Court Rule 162. Therefore, the tax court may look to
Fed.R.Civ.P. 60, as an analogous situation, for guidance on whether to grant
motions to vacate. See Tax Court Rule 1(b) (noting “[w]here in any instance there
is no applicable rule of procedure, the Court . . . may prescribe the procedure,
giving particular weight to the Federal Rules of Civil Procedure to the extent that
they are suitably adaptable to govern the matter at hand”). We review a district
court’s denial of a motion to vacate under Fed.R.Civ.P. 60(b) for abuse of
discretion. AIG Baker Sterling Heights, LLC v. American Multi-Cinema,
579 F.3d
1268, 1270 (11th Cir. 2009).
Under Fed.R.Civ.P. 60(b), a district court may modify a judgment for any of
the following reasons:
(1) mistake, inadvertence, surprise, or excusable neglect;
(2) newly discovered evidence that, with reasonable diligence,
could not have been discovered in time to move for a new trial
under Rule 59(b);
(3) fraud (whether previously called intrinsic or extrinsic),
misrepresentation, or other misconduct of an opposing party;
(4) the judgment is void;
(5) the judgment has been satisfied, released, or discharged; it is
based on an earlier judgment that has been reversed or vacated;
or applying it prospectively is no longer equitable; or
(6) any other reason justifying relief.
Fed.R.Civ.P. 60(b). Clause six, the catch-all provision that allows relief from a
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judgment or order for “any other reason justifying relief,” appears to be the only
clause that could apply to Langille’s situation. However, relief under this provision
is an “extraordinary remedy which may be invoked only upon a showing of
exceptional circumstances.” Griffin v. Swim-Tech Corp.,
722 F.2d 677, 680 (11th
Cir. 1984).
We readily conclude that the Tax Court did not abuse its discretion in
denying Langille’s post-trial motions. Langille never asserted any incapacity
because of health problems at or before trial; to the contrary, she announced she
was “good” at the beginning of trial. The Tax Court explicitly noted that it
observed no incapacity, no lack of lucidity, or any difficulty communicating, or any
health problems. Finally, even if Langille’s belated, post-trial evidence were
considered (which it should not be), it fails to support any incapacity at trial. As
the Tax Court pointed out, the only evidence related to medical treatment received
by Langille more than a month before trial, and Langille provided no affidavit of
any treating physician indicating the duration or severity or timing of any
impairment.
V. CONCLUSION
Upon review of the record and consideration of the parties’ briefs, we affirm
the Tax Court’s decision and its denial of Langille’s various motions.
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AFFIRMED.2
2
Langille’s motion to waive oral argument and submit the case on the briefs and
her “Open letter to Appellate court” is GRANTED. Accordingly, the case is removed from the
oral argument calendar. Langille’s “Motion to File Newly Discovered Information” is DENIED.
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