Mark D. Jasperson v. Commissioner of Internal Revenue , 658 F. App'x 962 ( 2016 )

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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 16-10883
Non-Argument Calendar
________________________
Agency No. 019496-13
MARK D. JASPERSON,
Petitioner - Appellant,
versus
COMMISSIONER OF INTERNAL REVENUE,
Respondent - Appellee.
________________________
Petition for Review of a Decision
of the U.S.Tax Court
________________________
(August 31, 2016)
Before TJOFLAT, ROSENBAUM and WILSON, Circuit Judges.
PER CURIAM:
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Mark Jasperson appeals the United States Tax Court’s decision determining
that he improperly claimed loss deductions for tax years 2008–2010 and is subject
to a 20% penalty of the amount of the understatement for each of those years.
After careful review, we affirm.
I.
In 1998, Jasperson, a former bankruptcy attorney, incorporated 5215
Development, Inc. (“5215 Development”). 5215 Development was an S
corporation that liquidated video stores. 1 Jasperson was the sole owner. Though
5215 Development was initially profitable, Jasperson claims that it lost $750,262
and $237,596 in 2005 and 2006 respectively. He carried forward those losses on
his individual returns for 2008–2010 claiming net operating loss (“NOL”)
deductions for those years. 2 For the years 2008–2010, Jasperson claimed NOL
carryover deductions of $217,768, $58,855, and $110,080 respectively.
Jasperson’s tax returns for the years 2008–2010 reflected those carryover
1
Subchapter S of the Internal Revenue Code allows shareholders of qualifying
corporations, “to elect a ‘pass-through’ taxation system under which income is subjected to only
one level of taxation. The corporation’s profits pass through directly to its shareholders on a pro
rata basis and are reported on the shareholders’ individual tax returns . . . . Corporate losses and
deductions are passed through in a similar manner.” Gitlitz v. Comm’r., 531 U.S. 206, 209, 121
S. Ct. 701, 704, 148 L. Ed. 2d 613 (2001); 26 U.S.C. § 1366(a)(1)(A). These corporations are
called S corporations.
2
An S corporation shareholder may carry forward losses on his individual tax income.
See 26 U.S.C. § 1366(d). A “net operating loss” is defined as “the excess of the deductions
allowed by this chapter over the gross income” for a given year. 26 U.S.C. § 172(c).
2
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deductions, but he did not attach detailed schedules to his returns explaining the
calculations underlying those deductions as is required by 26 C.F.R. § 1.172-1(c).3
In May of 2013, the Internal Revenue Service (“IRS”) sent Jasperson a
notice of deficiency stating that Jasperson owed $44,341, $21,379, and $26,245
for tax years 2008–2010 and that he was being penalized $8,868, $4,275, and
$5,249 for substantially understating his income for those years. The IRS notice of
deficiency stated that Jasperson’s NOL deductions for 2008–2010 were disallowed
because Jasperson could not substantiate that he incurred a deductible loss.
Jasperson challenged the IRS determination in the Tax Court. Although the
trial was originally scheduled for May 19, 2014, Jasperson requested a continuance
because he needed extra time to provide “sufficient documentation . . . of 5215
Development Inc.’s operations and losses suffered in years 2005 and 2006.” The
Tax Court granted Jasperson’s motion and the trial was held in February 2015.
Despite having nearly an extra year to marshal documents for the trial, Jasperson
never provided his individual 2005 or 2006 tax returns, nor any source documents,
such as invoices, credit card receipts and statements, bank statements, canceled
checks, etc., that would provide direct evidence of 5215 Development’s purported
losses in 2005 and 2006. Instead, Jasperson provided secondary information, like
3
That regulation provides, “Every taxpayer claiming a net operating loss deduction for
any taxable year shall file with his return for such year a concise statement setting forth the
amount of the net operating loss deduction claimed and all material and pertinent facts relative
thereto, including a detailed schedule showing the computation of the net operating loss
deduction.” 26 C.F.R. § 1.172-1(c).
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charts prepared by his accountants, that were supposedly based on source
documents—but those source documents were never provided to the IRS or the
court.4
The Tax Court sustained the IRS determinations. First, it determined that
Jasperson did not provide any evidence that he properly followed the Internal
Revenue Code’s (“IRC”) requirements for carrying forward NOLs, and as a result,
could not utilize them in the 2008–10 returns. Second, it determined that the
accuracy-related penalties were appropriate because Jasperson failed to show that
he gave accurate financial information to his tax preparers, and thus, he could not
claim his substantial understatements were good-faith mistakes. We affirm both
determinations.
II.
We review the Tax Court’s findings of fact for clear error and conclusions of
law de novo. Creel v. Comm’r, 419 F.3d 1135, 1139 (11th Cir. 2005); 28 U.S.C.
§ 7482(a)(1).
A.
In order to carry forward a NOL from a previous year, a taxpayer must
comply with 28 U.S.C. § 172(b). Section 172(b)(1)(A)(i)–(ii) requires that a
4
Jasperson also moved the Tax Court to admit several other “secondary evidence”
exhibits on the day of trial, which the Tax Court denied. Jasperson had wanted to introduce
ledgers, generated in 2014 by a 5215 Development employee, that showed balances in 2005 and
2006. The Tax Court correctly held that these were not properly authenticated, and moreover,
they would not have solved the problem of the absent source documents.
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taxpayer first carry back the NOL two years from the loss year, and then, if the loss
is not absorbed in the preceding two years, carry forward the remaining NOL to
each year subsequent to the loss year for up to twenty years until the NOL is gone.
In other words, for Jasperson to have properly carried forward his alleged NOL
from 2005, he would have first had to carry back his loss to 2004, then 2003, then
carry the NOL forward to 2006, then 2007, etc. The IRC does allow a taxpayer to
waive the carryback requirement, but “[s]uch election shall be made in such
manner as may be prescribed by the Secretary, and shall be made by the due date .
. . for filing the taxpayer’s return for the taxable year of the net operating loss for
which the election is to be in effect.” 28 U.S.C. § 172(b)(3). The regulations that
set forth the manner the election must be made require that it “be made by a
statement attached to the return (or amended return) for the taxable year” and that
it “shall indicate the section under which the election is being made and shall set
forth information to identify the election, the period for which it applies, and the
taxpayer’s basis for entitlement for making the election.” 26 C.F.R. § 301.9100-
12T(d).
Jasperson did not provide his tax returns from 2005 or 2006 to the Tax
Court, the supposed years his NOLs took place. As such, there is no basis to
assume that he properly waived the carryback requirement. See Gatlin v. Comm’r,
754 F.2d 921, 923 (11th Cir. 1985) (the burden is on the taxpayer to “come
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forward with evidence to support his entitlement to [a] deduction and the amount
of that entitlement.”). And Jasperson has provided virtually no evidence regarding
his finances for 2004 and 2003 to determine whether he carried his 2005 and 2006
NOLs back. Even the secondary evidence he provided is essentially silent on tax
years 2003 and 2004.5 The only witness other than Jasperson who was involved
with 5215 Development during those years testified that he did not even know if
the company was profitable in 2003. As a result, we cannot say the Tax Court
clearly erred by holding that Jasperson failed to prove that he carried back his
supposed 2005 and 2006 NOLs or that he validly waived the carryback
requirement even if he could prove the NOLs took place.
B.
Similarly, we cannot disturb the Tax Court’s determination that the IRS
correctly assessed penalties against Jasperson for substantially understating his
income tax for 2008–2010. A taxpayer has substantially understated his income
tax if the deficiency is greater than $5,000 or 10% of the tax required to be shown
on the return for the taxable year. 26 U.S.C. § 6662(d)(1). Jasperson does not
challenge that the deficiency determinations for 2008–2010 are greater than $5,000
Instead, he argues that he meets an exception the IRC provides for understating
5
One exhibit, an excel spreadsheet created by 5215 Development, does cryptically state
that the “2005 loss carryback to 2003” was “277,177.” But we do not know when that was
entered or what it was based on since nothing about 5215 Development’s 2003 finances are in
the record.
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income tax—that the taxpayer acted with “reasonable cause” and in “good faith.”
26 U.S.C. § 6664(c)(1). The burden is on the taxpayer to demonstrate “reasonable
cause” and “good faith” once the IRS has shown a substantial understatement. 26
C.F.R. § 1.6664-4(a). Jasperson claims that his reliance on the outside accountants
meets the exception. He is wrong.
Reliance on a tax professional can be the basis for meeting the “reasonable
cause” and “good faith” exception, but the taxpayer must demonstrate that he
provided accurate information to the tax professional. Neonatology Assocs, P.A. v.
Comm’r, 115 T.C. 43, 99 (2000), aff’d, 299 F.3d 221 (3d Cir. 2002); cf.
Gustashaw v. Comm’r, 696 F.3d 1124, 1139 (11th Cir. 2012) (In order to avail
himself of the § 6664(c) exception because of reliance on a tax professional’s
advice, “the taxpayer must show that the advice was based on ‘all pertinent facts
and circumstances’” (quoting 26 C.F.R. § 1.6664-4(c)(1)(i))). Jasperson provided
no evidence that his accountants had accurate information. As mentioned
previously, he provided no source documentation to substantiate any of his 2005
and 2006 losses. An accountant who worked for the firm that prepared both 5215
Development’s and Jasperson’s individual returns testified at trial that the
accounting firm did not “audit the numbers” Jasperson provided, meaning that it
did only minimal due diligence. The accounting firm relied on Jasperson and 5215
Development to provide accurate information, and since this Court, no less than
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the Tax Court, has no basis to assume that the information provided was accurate,
Jasperson has not carried his burden to show his reliance on an outside tax
professional meets the “reasonable cause” and “good faith” exception.
Accordingly, the judgment of the Tax Court is affirmed.
AFFIRMED.
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