Lukovsky v. Commissioner of Internal RevenueLukovsky v. Commissioner of Internal Revenue
- Reporters:
- , , , ,
- Before:
- Gustafson
Held: P‘s pension benefits are taxable and are not “amounts received under workmen‘s compensation acts as compensation for personal injuries or sickness” for purposes of
Held, further, P is not entitled to itemized deductions. Where P has the burden to prove his entitlement to those deductions but fails to produce substantiation of those deductions in compliance with the Court‘s order, R is entitled to partial summary judgment on the issue. See Celotex v. Catrett, 477 U.S. 317 (1986).
Held, further, P is liable for the additions to tax under
Held, further, genuine issues of material fact preclude summary judgment on the issues of: the precise amount of P‘s pension income in 2004; the precise amount of the taxable portion of P‘s Social Security benefits in 2004; the number of personal exemptions to which P is entitled; the amount of the standard deduction to which P is entitled; and P‘s liability under
Patricia M. Lukovsky, for petitioner.
James L. Gessford, for respondent.
GUSTAFSON, Judge: These cases are before the Court pursuant to
Background
The following facts are based on the pleadings, the parties’ partial stipulation filed August 19, 2009, and the exhibits submitted with the Commissioner‘s motion. At the time his petitions were filed, Mr. Lukovsky resided in Minnesota.
Mr. Lukovsky worked as a police officer in Duluth, Minnesota, until no later than May 1977, at which time he had been in active service for 25 years and was over the age of 50. (Consequently, he had served the requisite number of years to be entitled to a pension.) He applied for disability benefits, but his application was eventually denied. He began receiving pension benefits (not disability benefits) at least as early as March 1981.
Mr. Lukovsky apparently received no benefits for the period May 1977 through February 1981. In December 1981 he brought a lawsuit against the City of Duluth and its Police Department, alleging that they had wrongly denied him disability benefits. He apparently claimed both (1) that his pension benefits should have been characterized as disability benefits and (2) that he should have been given benefits before March 1981. Our record does not show the outcome of that lawsuit and, in particular, does not show that Mr. Lukovsky ever established his entitlement to disability benefits. As recently as September 2005 the State of Minnesota affirmed its denial of Mr. Lukovsky‘s claim for pre-1981 benefits and for disability benefits.
Mr. Lukovsky‘s income and expenses during the years at issue
In the three years at issue, Mr. Lukovsky received from Minnesota‘s Public Employees Retirement Association (PERA) pension benefits totaling $43,599.12 in 2002, $21,768.212 in 2004, and $45,968.88 in 2005. His endorsement of each of the monthly checks making those payments is preceded by the phrase “Cashed Under Protest Pending Legal Reconsideration” or words to the same effect.
| Income | 2002 | 2004 | 2005 |
|---|---|---|---|
| Social Security benefits | $3,112 | $3,223 | $3,313 |
| Mellon Bank dividends | 1-0- | 52 | 26 |
| IRS interest payment | --- | 89 | --- |
1Mr. Lukovsky received $26 in dividends from Mellon in 2002, but the parties have stipulated that it was not taxable.
For purposes of summary judgment, we assume that Mr. Lukovsky spent the following amounts for prescription medications for himself and his wife: $577.27 in 2002, $1,386.90 in 2004, and $1,283.37 in 2005.3
Mr. Lukovsky filed no Federal tax return for any of the five years 2001 through 2005--i.e., including the three years at issue. For the years at issue--2002, 2004, and 2005--he made no estimated tax payments or other payments of tax.
Consequently, in March 2008 the IRS prepared a substitute for return (SFR) for each year.4 On each SFR the IRS included the income described above (including the pension benefits). Each SFR allowed the standard deduction pursuant to
| Additions to Tax | ||||
|---|---|---|---|---|
| Year | Deficiency | Sec. 6651(a)(1) | Sec. 6651(a)(2) | Sec. 6654 |
| 2002 | $7,278 | $1,637.55 | $1,819.50 | $243.20 |
| 2004 | 6,443 | 1,449.67 | 1,159.74 | 184.61 |
| 2005 | 6,567 | 1,477.57 | 788.04 | 263.41 |
On June 16, 2008, the IRS issued to Mr. Lukovsky three statutory notices of deficiency--one for each of the years 2002, 2004, and 2005--determining in each year the deficiency of tax and additions to tax set out above.
Tax Court proceedings
On September 15, 2008, Mr. Lukovsky‘s daughter Patricia Lukovsky filed the petitions in these three cases. She signed each petition as his “POA” (power of attorney), and to each petition she attached a statement explaining that she is his daughter and is the sole care giver for him and her mother. The Court recognized her as Mr. Lukovsky‘s “next friend” pursuant to Rule 60(d). The petitions assert that Mr. Lukovsky is not taxable on his pension income and that, even if he is, he has deductions that would offset the income and reduce or eliminate his tax liability.5 Regarding deductions, the petitions allege that--
2.) The deductions are standard and do not reflect credits allowed for medical or dental expenses.
* * * * * * *
4.) The deductions do not reflect credits for property loss or casualty loss.
In April 2009 the Court issued notice to the parties that these cases would be tried at the Court‘s trial session beginning September 14, 2009, in St. Paul, Minnesota. With that notice, the Court issued its Standing Pretrial Order, which, inter alia, required as follows:
Any documents or materials which a party expects to utilize in the event of trial (except solely for impeachment), but which are not stipulated, shall be identified in writing and exchanged by the parties at least 14 days before the first day of the trial session [i.e., by August 31, 2009].
By motion filed July 16, 2009, and supplemented July 27, 2009, Ms. Lukovsky requested a continuance of trial, explaining that health problems--her parents’ and her own--made it difficult for her to meet the deadline for exchanging documents. The Court then held a telephone conference with the parties, during which the Court asked Ms. Lukovsky to state a date by which she would
that, on or before December 1, 2009, petitioner shall provide to the IRS all of the documents on which she will rely to substantiate the deductions at issue in this case.
Both at the telephone conference and in the order of August 14, 2009, the Court advised Ms. Lukovsky--
that any request to modify that schedule for medical reasons would have to be supported by a letter from a doctor that not only explains the difficulties that she is experiencing but also the expectation for a schedule on which the business of this case can be handled.
The parties filed a partial stipulation on August 19, 2009, that set out facts relevant to the income issues in the petitions; but Ms. Lukovsky did not otherwise comply with the Court‘s order. Rather, on November 30, 2009, Ms. Lukovsky filed a motion (dated November 24, 2009) to extend the time within which she was to comply with the Court‘s order and produce her documents to the Commissioner, explaining that medical issues had impeded her progress. She asked to be allowed “until the end of January 2010“--i.e., January 31, 2010. Since January 31 was a Sunday, the effective date of such an extension would be Monday,
Ms. Lukovsky is warned that, absent extraordinary circumstances, she should expect that no further enlargements or continuances will be granted. She should expect that any motions or requests based on medical allegations will be disregarded unless they are supported by a statement from a doctor. This case will be resolved on a reasonable schedule, with any documentation that Ms. Lukovsky can muster by February 1. The Court‘s unwillingness to allow indefinite delays is not based on impatience or a desire to disadvantage the petitioner, but rather is based both on the Court‘s need and obligation to resolve its business efficiently and on the fact that, as time passes, information becomes less and less available, as memories fade and documents scatter.
Thereafter, the Court received from Ms. Lukovsky various submissions explaining the hardships of her situation, including a February 17, 2010, filing that argued:
The information that is available at this stage * * * is sitting in our home. * * * Even if institutions may no longer have records of those years there are probably those or others safely tucked away at our home.
Still, Ms. Lukovsky had not identified those records nor provided them to the Commissioner.
The Commissioner served a motion for summary judgment on March 24, 2010. On March 29, 2010, the Court ordered Ms. Lukovsky as follows:
If petitioner disputes the motion [for summary judgment], then pursuant to Rule 121 the opposition to the motion should include affidavits and other evidence to show that there are disputes of fact that make summary judgment inappropriate and require a trial. The Court observes that, generally speaking, there appear to be three sets of issues in the case: (1) income issues (as to which the parties filed a stipulation of facts on August 19, 2009), (2) deduction issues (as to which respondent asserts that petitioner has not substantiated the deductions), and (3) additions to tax and penalties. Petitioner should respond as to each of these three sets of issues.
The deduction issues appear to implicate to [sic] the Court‘s prior orders in this case requiring petitioner to produce to the IRS the documents on which petitioner relies to dispute the deficiency that the IRS determined. If petitioner possesses documents that substantiate any deductions claimed, then certified copies of those documents should be included with the opposition to respondent‘s motion. Petitioner should expect that no deduction will be allowed in this case if it is not substantiated in petitioner‘s opposition.
Discussion
I. Summary judgment standards
Where the pertinent facts are not in dispute, a party may move for summary judgment to expedite the litigation and avoid an unnecessary trial. Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681 (1988). Summary judgment may be granted where there is no genuine issue as to any material fact and a decision may be rendered as a matter of law. Rule 121(a) and (b); see Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd., 17 F.3d 965 (7th Cir. 1994).
The party moving for summary judgment bears the burden of showing that there is no genuine issue as to any material fact, and factual inferences will be drawn in the manner most favorable to the party opposing summary judgment. Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985). Most of the facts pertinent to the income issues are stipulated, and no material factual disputes keep us from deciding whether the pension income is taxable. Where the issue is substantiation of deductions, the
As a general rule, the petitioner in a deficiency case bears the burden of proof, see Rule 142(a), and there is nothing in the record to suggest any reason that the burden would shift in this case. Thus, Ms. Lukovsky has the burden to substantiate Mr. Lukovsky‘s entitlement to any deductions. However, apart from the prescription medicine expenses described above, she has not come forward with any evidence to carry that burden--despite her general obligation under Rule 70(a)(1) to cooperate with informal discovery, despite the Standing Pretrial Order, and despite the Court‘s orders of August 14 and December 22, 2009, requiring her to “provide to the IRS all of the documents on which she will rely to substantiate the deductions at issue in this case.”
The Commissioner has therefore made an adequate showing to support a motion for summary judgment on the issue of
When a motion for summary judgment is made and supported as provided in this Rule, an adverse party may not rest upon the mere allegations or denials of such party‘s pleading, but such party‘s response, by affidavits or as otherwise provided in this Rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, then a decision, if appropriate, may be entered against such party.
Ms. Lukovsky was therefore not entitled to rely on her allegations in the petitions that Mr. Lukovsky had incurred “Medical or dental expenses” or “casualty loss” but rather was obliged to bring forward any evidence she has to substantiate these or any other claimed deductions. She did not do so.
II. Income issues
The facts relevant to most of the income issues are adequately set out in the parties’ stipulation filed August 19, 2009. That income is taxable, and the Commissioner is entitled to partial summary judgment, as we now show.
A. Pension income
The petitions allege that “[t]he income comes from a lifetime, non-taxable disability annuity.” We infer that Ms. Lukovsky contends that her father‘s pension benefits were “amounts received under workmen‘s compensation acts as compensation for personal injuries or sickness“, which are
The petitions allege: “Previous Tax Court Appeals have been entered into and have been resolved in the petitioner‘s favor.” If this is an argument that the outcome in this case should be bound by the outcome of previous Tax Court cases, that argument cannot succeed. The relevant doctrine is collateral estoppel, which the Supreme Court has summarized thus:
Under collateral estoppel, once a court has decided an issue of fact or law necessary to its judgment, that decision may preclude relitigation of the issue in a suit on a different cause of action * * *.
Allen v. McCurry, 449 U.S. 90, 94 (1980). Thus, if the Tax Court had previously decided that Mr. Lukovsky‘s pension income is not taxable, then Ms. Lukovsky could invoke that doctrine to attempt
We therefore hold that Mr. Lukovsky‘s pension income is taxable. However, there is a genuine issue of material fact as to the amount of that income in 2004 (i.e., whether or not to include $23,079 for which our record includes no Form 1099 or canceled checks; see supra note 2). We will therefore grant partial summary judgment on the pension income issue.
B. Other income
The parties have stipulated that Mr. Lukovsky received the interest and dividends at issue, and
Likewise, Ms. Lukovsky has suggested no reason that her father‘s Social Security benefits are not taxable to the extent provided in
However, as to 2004--for which we have held that there is a genuine issue of material fact as to the inclusion of $23,079 in Mr. Lukovsky‘s income (see supra note 2)--we cannot yet determine his modified adjusted gross income (as defined in
III. Deduction issues
Mr. Lukovsky filed no returns--and thus claimed no itemized deductions pursuant to
2.) The deductions are standard and do not reflect credits allowed for medical or dental expenses.
* * * * * * *
4.) The deductions do not reflect credits for property loss or casualty loss.
In this litigation the Commissioner attempted to learn the amounts of these alleged deductions and to obtain Ms. Lukovsky‘s substantiation for them, but she did not cooperate. The Court ordered her to provide her substantiation for them, but the only substantiation she supplied was for prescription medicine expenses in amounts that, in each year, were less than the standard deduction that was already allowed in the notice of deficiency. The Commissioner moved for summary judgment, and Ms. Lukovsky did not respond.
Under Celotex v. Catrett, 477 U.S. 317 (1986), it was incumbent on Ms. Lukovsky to respond with substantiating evidence in order to raise a genuine issue of material fact, and the Court explained this obligation to her in its order of March 29, 2010. She has substantiated expenses (prescription medicine) only in amounts less than the standard deduction that the IRS already allowed in the notices of deficiency. In the absence of substantiation of any further amounts, we now hold that there is no genuine issue on the matter of itemized deductions, and that
IV. Personal exemption issues
The petitions allege that “Petitioner received no credit for his own disability and related costs for himself and other disabled family members that he has assumed“. We construe broadly the petition of a pro se litigant, see Rule 31(d); Haines v. Kerner, 404 U.S. 519, 520 (1972), and we understand the petitions in these cases to raise the issue of personal exemptions under sections 151 and 152.9 The Commissioner did not move for summary judgment on this issue, and we do not resolve it in this opinion.
Under
A. Section 6651(a)(1)
In cases such as these, where the taxpayer did not timely file returns for the years at issue, the Commissioner must introduce evidence that a valid substitute for return was made for each year pursuant to
All three SFRs “contain sufficient information“; and the SFRs for 2002 and 2005 are subscribed as required by
As with the
C. Section 6654
For the years at issue Mr. Lukovsky made no payments of estimated tax--indeed, no tax payments of any kind.
the lesser of--
(i) 90 percent of the tax shown on the return for the taxable year (or, if no return is filed, 90 percent of the tax for such year), or
(ii) 100 percent of the tax shown on the return of the individual for the preceding taxable year.
Clause (ii) shall not apply if * * * the individual did not file a return for such preceding taxable year.
Thus, the Commissioner‘s burden of production under
The years at issue are 2002, 2004, and 2005, for which the “preceding taxable year[s]” are 2001, 2003, and 2004. For one of these preceding years (2004), the parties stipulated that Mr. Lukovsky filed no return. For the other two preceding years (2001 and 2003), the Commissioner submitted Forms 4340, “Certificate of Assessments, Payments, and Other Specified Matters“, showing that no returns were filed. The Commissioner has thus carried his burden of production under
Conclusion
We find that there is no genuine issue of material fact, and that the Commissioner is entitled to judgment as a matter of law, on the following issues:
- Mr. Lukovsky‘s interest and dividend income in the amounts stipulated is taxable.
- Mr. Lukovsky‘s pension benefits constitute taxable income in the amounts of $43,599.12 in 2002 and $45,968.88 in 2005 and in a not-yet-determined amount of no less than $21,768.21 in 2004.
- Mr. Lukovsky‘s Social Security benefits (which he received in the amounts stipulated) is taxable to the extent of 85 percent in the years 2002 and 2005 and to an undetermined extent in 2004.
Mr. Lukovsky has not substantiated itemized deductions in amounts greater than the standard deduction and is limited to the standard deduction (in amounts not yet determined). - For all three years, Mr. Lukovsky is liable for the failure-to-file addition to tax under section 6651(a)(1) and the addition under section 6654 for failure to pay estimated tax; and for 2002 and 2005 he is liable under section 6651(a)(2) for the failure-to-pay addition to tax.
However, we find that genuine issues of material fact remain as to--
- whether Mr. Lukovsky‘s pension income was limited to $21,768.21 in 2004 or included additional amounts;
- whether the taxable portion of Mr. Lukovsky‘s Social Security benefits in 2004 is other than as reflected in the notice of deficiency;
- whether, for any or all of the years at issue, Mr. Lukovsky is entitled to more personal exemptions than are reflected in the notices of deficiency;
- whether the standard deduction to which Mr. Lukovsky is entitled is, for any or all of the years at issue, greater than as reflected in the notices of deficiency; and
whether Mr. Lukovsky is liable under section 6651(a)(2) for the failure-to-pay addition to tax for 2004.
To reflect the foregoing,
An appropriate order will be issued.