                                   T.C. Memo. 2016-5



                        UNITED STATES TAX COURT



                 JORGE QUINTANILLA, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 13556-12.                         Filed January 7, 2016.


      Jorge Quintanilla, pro se.

      Thomas T. Thomas, James A. Nelson, Catherine G. Chang, and Paulmikell

A. Fabian, for respondent.



            MEMORANDUM OPINION AND FINDINGS OF FACT


      HOLMES, Judge: Jorge Quintanilla grossed more than $84,000 in 2009

and almost $90,000 in 2010 as an exceptionally skilled production worker on

approximately 150 commercials shot in Southern California. He earned this

money both in his own name and through his corporation, and he says that he
                                        -2-

[*2] earned it as an independent contractor, not as an employee. The

Commissioner disagrees.

                                     OPINION

      There are only two issues that the parties fought about in this case, and the

law is settled for each.

      The big issue is whether Quintanilla correctly reported his business

expenses on Schedule C (the schedule that people who are in business for

themselves use to report their expenses) and not on Schedule A (the schedule that

people who work for somebody else use to report business expenses). The

distinction matters because the Code limits Schedule A deductions more than it

limits Schedule C deductions. The most important of these limits is the 2% rule:

An employee who incurs unreimbursed business expenses may deduct them only

as miscellaneous itemized deductions and only to the extent that they exceed 2%

of his adjusted gross income. Secs. 62(a)(2), 63(a), (d), 67(a) and (b), 162(a).1

Other Code sections, e.g., section 68, may limit these deductions even more. And

then there’s the dreaded alternative minimum tax, which can be triggered by

certain Schedule A deductions.

      1
         Section references are to the Internal Revenue Code, as amended and in
effect for the years at issue, and Rule references are to the Tax Court Rules of
Practice and Procedure.
                                       -3-

[*3] Independent contractors and self-employed persons report business

deductions on Schedule C. See Chapman v. Apfel, 236 F.3d 480, 486 (9th Cir.

2000); Weber v. Commissioner, 103 T.C. 378, 386 (1994), aff’d, 60 F.3d 1104

(4th Cir. 1995). The Code burdens these people in different ways, but in his

particular circumstances Quintanilla would be better off if he were one of them

and not someone else’s employee. And he makes three arguments for why he is an

independent contractor and not the employee of the various production companies

that he worked for. He claims first that he reported as an independent contractor

in 2008 and nothing changed over the next two years. He claims that he passes the

multifactor test built up by cases to distinguish common-law employees from

independent contractors. And he claims that he was a statutory employee--a

person who may be a common-law independent contractor but whom the Code

treats as if he were an employee for some purposes while still allowing him to

deduct business expenses on Schedule C. See sec. 3121(d)(3)(D); Rosato v.

Commissioner, T.C. Memo. 2010-39.

      We don’t have to spend much time on the first argument.

      Each tax year stands alone, and the Commissioner may challenge in a later

year what he permitted in an earlier one. Auto. Club of Mich. v. Commissioner,

353 U.S. 180 (1957); Rose v. Commissioner, 55 T.C. 28, 32 (1970). The
                                         -4-

[*4] Commissioner’s failure to challenge Quintanilla’s status for the 2008 tax year

doesn’t disable him from challenging that status for 2009 and 2010.

      The legal distinction between an independent contractor and a common-law

employee is also settled as a general matter, though it’s often murky in application.

We’ll start with the easy part: An independent contractor is one who works for

another but according to his own manner and method, free from direction or right

of direction in matters relating to performance of work save as to results. See

Prof’l & Exec. Leasing, Inc. v. Commissioner, 89 T.C. 225, 232-33 (1987), aff’d,

862 F.2d 751, 753 (9th Cir. 1988); Simpson v. Commissioner, 64 T.C. 974, 985

(1975); see also Ill. Tri-Seal Prods., Inc. v United States, 353 F.2d 216 (Ct. Cl.

1965).

      We have over the years built up a list of factors that we look at to decide

whether a worker has enough autonomy in his work to be an independent

contractor:

              !     the degree of control exercised by the principal over the
                    worker;

              !     the worker’s investment in his workplace;

              !     his opportunity to make a profit or suffer a loss;

              !     whether the principal can fire him;
                                         -5-

[*5]         !      whether the work is part of the principal’s regular business;

             !      the permanency of his relationship with the principal;

             !      the relationship the parties believed they were creating; and

             !      the principal’s provision of employee benefits.

See Ewens & Miller, Inc. v. Commissioner, 117 T.C. 263, 270 (2001); Weber, 103

T.C. at 387; Prof’l & Exec. Leasing, 89 T.C. at 232; Simpson, 64 T.C. at 984-85;

Cole v. Commissioner, T.C. Memo. 2006-44. Courts don’t weigh the factors

equally, and consider their significance differently depending on the particular

facts of a case. Weber, 103 T.C. at 387; Simpson, 64 T.C. at 985; Gamal-Eldin v.

Commissioner, T.C. Memo. 1988-150, aff’d, 876 F.2d 896 (9th Cir. 1989).

       A secondary issue is whether Quintanilla owes a penalty. The law here is

easy to state as well: Section 6662 imposes an “accuracy-related penalty” of 20%

of the portion of the underpayment of tax that is attributable to the taxpayer’s

negligence or to his disregard of rules or regulations. Sec. 6662(a) and (b)(1). A

taxpayer can escape the penalty if he shows that he had reasonable cause for the

underpayment and acted in good faith. Sec. 6664(c)(1). Whether a taxpayer acted

with reasonable cause and in good faith is a facts-and-circumstances decision, and

the most important fact is the extent of the taxpayer’s effort to assess his proper
                                         -6-

[*6] tax liability in light of his knowledge and experience. Sec. 1.6664-4(b)(1),

Income Tax Regs.

                               FINDINGS OF FACT

      Quintanilla timely filed his income tax returns for the 2009 and 2010 tax

years. The Commissioner determined that Quintanilla had a deficiency of more

than $11,000 for 2009, and $15,000 for 2010. He also tacked on an accuracy-

related penalty for both years. Quintanilla, a California resident, timely filed a

petition challenging these determinations.

      Quintanilla owned a company named Pre Call Studios, Inc. Pre Call filed a

Form 1120, U.S. Corporation Income Tax Return, for 2009. For 2010, Pre Call

Studios made an S-corporation election and filed a Form 1120S, U.S. Income Tax

Return for an S Corporation. Section 1362 allows a small business corporation to

elect treatment as an S corporation for tax purposes.

      Both Quintanilla and his accountant credibly testified about their

recordkeeping and tax-preparation routine. Quintanilla diligently collected

receipts and made notes about his expenses. He then organized them in envelopes

by category and handed them over to his mom, who acted as his bookkeeper.

Quintanilla or his mom gave the accountant all the documentation that he asked
                                         -7-

[*7] for. Quintanilla also relied on his accountant and had no reason to question

his competency.

      Quintanilla may not have been very sophisticated in his business

bookkeeping, but he was highly skilled in his field, which is production work on

advertisements and TV commercials. In 2009 and 2010 he worked on a number of

projects that lasted from one day to over a month for a variety of production

companies. We have no doubt that he possesses unique skills that are valuable to

this industry.

      His skills don’t fit snugly within the industry’s usual classifications, and

Quintanilla’s titles varied from job to job. They included “driver”, “hyphenate

driver,” and “set dresser.” Each of these titles has a defined meaning in the

industry: A “driver” drives people, props, or other equipment and may or may not

provide his own vehicle. A “hyphenate driver” is a driver who can also do a

second job such as build sets or provide other services. A “set dresser” can build

or paint a set, move sets or furniture, or act as a foreman and oversee a crew who

do these things. But the roles on the smaller crews of commercial shoots blur, and

Quintanilla’s title for a job did not always accurately describe what role he filled.

      We find that the production companies that hired Quintanilla hired him to

build sets. They expected him to provide any tools he needed to complete the job.
                                        -8-

[*8] Quintanilla has an enormous collection of tools--which he stores in two 40-

foot steel containers--that travels with him to jobsites. These containers are also

packed with machinery that Quintanilla uses to fabricate pieces of sets on the spot.

He described these containers and had photos that showed machinery including

power tools, specialty sanders, sledgehammers, welders, a nail gun, and more.

Some were quite expensive: He owned a German specialty sander that cost more

than $2500, and four welders that cost $3500 each. He also rents some equipment,

and his choice to buy or rent is his own.

      It’s common practice for production companies to hire people they know to

work on their projects, but these companies often outsource the paperwork to

firms that specialize in back-office chores. In 2009 and 2010 these payroll

companies included GEP Commprod Services, LLC, CAPS, Inc., Team

Alternatives, Monarch Consulting, and FSI Processing, Inc. Production

companies typically use the same handful of payroll companies. Thus, Quintanilla

might be paid by the same payroll company for six months, but actually be

working on 20 or more projects run by many different production companies.

      A key question in contractor-v.-employee cases is “who tells whom to do

what?” And in this industry, there’s not an easy answer. The production

companies describe what they would like the set to look like. They will often send
                                        -9-

[*9] a sketch and maybe a verbal description. Quintanilla then becomes

responsible for making the imagined set a reality. He has some discretion to alter

the sketch to make it work. And if a company doesn’t give him a sketch,

Quintanilla creates a workable sketch himself. He also has authority to hire

workers to help him complete the job.

      Quintanilla’s situation is also complicated by his decision to work

sometimes in his own name and sometimes through his corporation. We find that

the production companies didn’t much care--they were hiring Quintanilla’s

expertise one way or the other. And we believed Quintanilla when he said it

didn’t matter to him whether they asked for Pre Call or for Jorge Quintanilla--all

the calls went to the same cell phone number. He did say that he felt he had a bit

more clout and a bit fewer trust issues when he bargained with a production

company as a corporation. But we find that, aside from whom the check was made

out to, there was little practical difference between the conditions where

Quintanilla worked as himself and those where he worked through his corporation.

      There was, however, a difference in the paperwork involved. When a

production company hired Quintanilla as an individual, it would generally issue

him a Form W-2, Wage and Tax Statement. And the company listed on the Form

W-2 as the employer was usually a payroll company. Even a tiny bit of
                                           - 10 -

[*10] questioning showed that his situation is much different from most taxpayers

who get a W-2 from their employer, and nobody involved in this case thinks the

payroll company had any control whatsoever over how Quintanilla did his work.

Indeed, Quintanilla often performed different jobs for different production

companies while being paid by the same payroll company. He was hired for more

than 80 different jobs by production companies in 2009, but some of these

production companies hired him for multiple jobs at different times throughout the

year. The same was true in 2010.

        To show the bookkeeping tangle of these jobs, we list those just from 2009:

 Date       Payee          Production      Payroll        Job Title       Hours   Gross
                                           Company                                Pay

 1/7/09 -    Jorge         Knucklehead -   CAPS, Inc.     Driver          84.75   $5,097
 1/15/09     Quintanilla   JC Penney

 1/27/09-    Jorge         Digital         Team           Set Dresser -   60      $2500
 1/31/09     Quintanilla   Kitchen -       Alternatives   Driver
                           AAR Big
                           Numbers

 2/4/09-     Jorge         Park Avenue     N/A            Construction    24      $900
 2/5/09      Quintanilla   Teleproductio
                           ns

 2/8/09-     Jorge         Park Avenue     N/A            Construction    48      $1800
 2/11/-09    Quintanilla   Teleproductio
                           ns

 3/14/09-    George        Epoch Films -   CAPS, Inc.     Driver          30      $1200
 3/16/09     Quintanilla   Minute Maid

 3/14/09-    George        Epoch Films -   CAPS, Inc.     Driver Kit              $75
 3/16/09     Quintanilla   Minute Maid                    Rental
                                          - 11 -

[*11]       Pre Call      Chelsea         GEP Admin.   Driver         30       $1650
4/09/09     Studio        Pictures        Services
            Rentals

4/15/09     Pre Call      Chelsea         GEP Admin.   Driver         10       $550
            Studio        Pictures        Services
            Rentals

4/15/09     Jorge         Smuggler -      CAPS, Inc.   Hyphenate      10       $450
            Quintanilla   USPS                         Driver

4/14/09 -   Jorge         Epoch Films -   CAPS, Inc.   Driver         80       $3,800
4/23/09     Quintanilla   Wells Fargo

Check       Pre Call      Chelsea         GEP Admin.   Rent TNT       0        $100
Date        Studio        Pictures        Services
4/21/09     Rentals


5/28/09-    Jorge         Smuggler -      CAPS, Inc.   Driver         31       $1841
5/29/09     Quintanilla   Domino’s

6/16/09-    Jorge         Savant Film -   CAPS, Inc.   Hyphenate      53       $2508
6/22/09     Quintanilla   Purina                       Driver

6/28/09     Jorge         Imperial        CAPS, Inc.   Driver         8        $475
            Quintanilla   Woodpecker -
                          NFL

6/22/09-    Jorge         Smuggler -      CAPS, Inc.   Driver         49       $3164
6/25/09     Quintanilla   Best Buy

6/29/09-    Jorge         Smuggler -      CAPS, Inc.   Hyphenate      24.5     $1432
7/1/09      Quintanilla   Best Buy                     Driver

7/13/09-    Jorge         Anonymous       CAPS, Inc.   Driver         61.75    $3565
7/17/09     Quintanilla   Content --
                          Cadillac

7/19/09-    Jorge         Anonymous       CAPS, Inc.   Hyphenate 5-   113.75   $7,102
7/30/09     Quintanilla   Content --                   Ton
                          Cadillac

7/31/09     Jorge         Anonymous       CAPS, Inc.   5-Ton Truck    10       $500
            Quintanilla   Content --                   Driver
                          Cadillac


8/12/09-    Jorge         Anonymous       CAPS, Inc.   Set Dresser    88       $5,386
8/19/09     Quintanilla   Content --
                          Comcast
                                          - 12 -



[*12]       Jorge         Imperial        CAPS, Inc.    Driver         10      $500
9/22/09     Quintanilla   Woodpecker -
                          Budweiser

9/28/09-    Jorge         HSI/            GEP Admin.    Driver         20      $1000
10/1/09     Quintanilla   JC Penney       Services

10/05/09-   Jorge         Tool of North   CAPS, Inc.    Hyphenate      63      $3300
10/12/09    Quintanilla   America -                     Driver
                          Wendy’s

10/27/09-   Jorge         Furlined LLC    CAPS, Inc.    Hyphenate 5-   53      $2295
10/30/09    Quintanilla   - Target                      Ton

11/24/09    Jorge         Smuggler -      CAPS, Inc.    Hyphenate      15      $953
            Quintanilla   Gatorade                      Driver

12/11/09    Jorge         Anonymous       CAPS, Inc.    Hyphenate 5-   10      $500
            Quintanilla   Content --                    Ton
                          AT&T

12/13/09-   Jorge         Anonymous       CAPS, Inc.    Set Dresser    20      $1000
12/14/09    Quintanilla   Content --
                          AT&T

12/15/09-   Jorge         Anonymous       CAPS, Inc.    Set Dresser    30.25   $1699
12/17/09    Quintanilla   Content --
                          AT&T

12/18/09-   Jorge         Anonymous       CAPS, Inc.    Set Dresser    16      $1000
12/19/09    Quintanilla   Content --                    Travel
                          AT&T

12/21/09    Jorge         Anonymous       CAPS, Inc.    Driver         10      $500
            Quintanilla   Content --
                          AT&T

12/22/09    Jorge         Anonymous       CAPS, Inc.    Set Dresser    10      $500
            Quintanilla   Content --
                          AT&T

No Date     Jorge                         FSI                                  $33532
Provided    Quintanilla                   Processing,
(2009)                                    INC
                                        - 13 -

[*13] Of the nearly 1100 hours for which Quintanilla provided detailed work logs,

he spent 435 as a driver, 332 as a hyphenate driver, 224 as a set dresser, and 72

performing construction. In 2009 he worked only 40 hours through Pre Call, all as

a driver. He also earned a bit of income through Pre Call from renting tools and

equipment.

      We conclude that almost all these facts favor finding that Quintanilla was an

independent contractor and not an employee. The most important is that

Quintanilla had a large degree of control as to how to accomplish the tasks he had

to do throughout the year. A production company sometimes gave Quintanilla a

sketch drawn by a set designer. And sometimes it just gave him the director’s

vision for the project. But in either situation Quintanilla had a large degree of

independence in determining how to accomplish the project. He ordered props

and modified them to the specs, he had authority to hire additional workers as

needed, and he had the authority not to use workers that weren’t performing. The

Commissioner asserts that since the producers had a vision of the set in mind, the

production companies retained a large degree of control over Quintanilla. We

disagree--we find that Quintanilla had a large degree of discretion in how to

construct the set. He engineered sets from drawings and often told the producers
                                         - 14 -

[*14] that their initial vision needed to be modified. That he was given context for

building a set doesn’t translate into a lack of control.

      Quintanilla also provided all the tools used, and he invested heavily in them.

He also bought a number of high-dollar items required for his work. There is no

evidence to suggest that the production company supplied tools or a budget to

purchase the necessary equipment. The fact that a worker provides his or her own

tools or owns a vehicle that is used for his work weighs toward finding him to be

an independent contractor. Ewens & Miller, Inc., 117 T.C. at 271.

      An opportunity to earn a profit or suffer a loss also distinguishes an

independent contractor from an employee. Simpson, 64 T.C. at 988; Rosato v.

Commissioner, T.C. Memo. 2010-39. The Commissioner argues that the real

potential for profit or loss lies with the firms hired to plan marketing campaigns,

and with the production companies that the advertising firms hire to shoot

commercials and ads. And we agree that the players at these levels have the

potential to make greater profits or suffer greater losses. But even in the

production of commercials, Hollywood is a pioneer of the gig economy.

Production workers like Quintanilla have some real risk of profit or loss.

Quintanilla could accept or decline projects (and on occasion could submit a bid).

At times a production company would give a fixed fee for Quintanilla’s services.
                                        - 15 -

[*15] He credibly testified that he would prepare a budget to see if he could

perform the work for that amount.

      Production companies did sometimes hire Quintanilla subject to hourly

union scale rates, which are set by collective bargaining. But on other projects he

would set his own rate depending on the job at hand. While some companies paid

rent for the use of his tools, some refused, and he would increase his hourly rate to

compensate for their use. Some companies paid invoices that Quintanilla prepared

based on his estimates, while others paid on the basis of hours he billed and

reported to them. But on all these we find that he controlled which projects he

worked on and whether to accept the amounts he was offered.

      We also find that the production companies had the right to fire Quintanilla.

But there’s a bit of a qualification here--that right would very seldom be exercised.

As Quintanilla credibly explained, because of the short-term nature of the jobs, if a

production company or client were dissatisfied with someone’s work that person

would rarely be fired;2 he would instead just never get another phone call to work

for that particular production company or client.


      2
        See Beth A. Bechky, “Gaffers, Gofers, and Grips: Role-Based
Coordination in Temporary Organizations,” 17 Org. Sci., 9 (2006) (noting that the
film people don’t get fired due to the duration of projects and because often the
productions need the tools they provide.)
                                        - 16 -

[*16] Our cases tell us that work that is part of the principal’s regular business

indicates employee status. Simpson, 64 T.C. at 989; Rosato v. Commissioner,

T.C. Memo. 2010-39. But it’s a little bit hard to figure out exactly who is the

“principal” on a commercial shoot. If it’s an advertising agency, its “regular”

business might be to promote the products of its clients, and maybe not to produce

commercials. If the “principal” is a production company, its business might be

said to be the production of commercials, but not always set design and

construction. We think the arguments could go both ways on this factor, and find

it neutral.

       Another factor is the permanency of a working relationship--the more

permanent the relationship, the likelier it shows an employer-employee

relationship. Ewens & Miller, Inc., 117 T.C. at 273, Rosemann v. Commissioner,

T.C. Memo. 2009-185. The Commissioner asserts that Quintanilla was employed

by GEP Commprod Services LLC, CAPS, Inc., Park Avenue Teleproductions,

Team Alternatives, Monarch Consulting, and FSI Processing, Inc. Quintanilla

credibly testified at trial, however, that GEP and CAPS are payroll companies used

by several different production companies. Multiple production companies may

use the same payroll company, and thus the wages are totaled for the year. See

generally Cencast Servs., L.P. v. United States, 729 F.3d 1352, 1362 (Fed. Cir.
                                       - 17 -

[*17] 2013). For instance, Quintanilla was paid through CAPS for about six

months, but that was for over 20 independent projects.3 A review of invoices

submitted by the payroll companies shows that the payroll company name was at

the top of the invoice, the production company was listed below along with a

client code that identified the project, and then the wages were described. While

some production companies, such as Biscuit or Arrow Films, hired him several

times in a single year, it was always for separate ad campaigns--for example, Nike,

Starbucks, GMC--and often months apart.

      The longest commercial shoot that Quintanilla worked on was about one

month, but most are shorter. During the years at issue he worked on 80-100 jobs

per year. That the jobs were so short-term also suggests that Quintanilla was an

independent contractor rather than an employee.

      Throughout the years at issue Quintanilla had relationships with many

production companies and two unions. The relationships with production


      3
        If two or more related corporations employ the same individual, one of the
corporations can serve as the common paymaster for all of the related
corporations. See sec. 31.3121(s)-1, Employment Tax Regs. This allows the
group of companies to be treated as a single employer, which prevents them from
having to pay more in total Social Security and Medicare taxes than a single
employer would have to pay. Id. In this instance, however, Hollywood is again
different. The corporations that paid Quintanilla are not related, but many of them
use the same third-party payroll company.
                                        - 18 -

[*18] companies appear to have been transitory and task-focused.4 Neither party

intended to make a permanent or employer-employee relationship.

      So far, then, the usual factors don’t help the Commissioner much. But he

has one very strong argument left: Quintanilla is a union member, and many of his

jobs were priced at rates set through collectively bargained contracts. Union

contracts typically provide that workers are employees and not independent

contractors. See generally Kraus v. Commissioner, T.C. Memo. 2003-10.

Quintanilla credibly explained that he and many of his peers in the industry join

unions mainly to obtain health insurance and to a lesser extent to appear on call

boards. His experience was typical--he was a member of a union and received his

health insurance from it. That union required Quintanilla to show a minimum

number of hours to receive this insurance. But neither the union contracts nor the

production companies gave him vacation days or sick time. As Quintanilla

      4
         Somewhere there is probably an economist who’s formulated the equation
for defining when the overhead costs saved exceed the transaction costs incurred
for an industry like this, but sociologists have noticed this peculiarity of economic
life in Hollywood: “When systems of activity are assembled anew, substantial
control of fixed overhead can be achieved through short-term contracting. Ties
are also developed between entrepreneurs and film studios on a per-picture basis.”
Robert R. Faulkner & Andy B. Anderson, “Short-Term Projects and Emergent
Careers: Evidence from Hollywood”, 92 Am. J. of Soc. 879, 889 (1987). As
Faulkner and Anderson imply, however, these transaction costs can be kept down
with the predictability of individuals performing the same roles from job to job.
Id. at 890.
                                        - 19 -

[*19] credibly explained, if he wanted a vacation he would just not answer his

phone. And the union contracts even excluded fixed wages and working

conditions from their coverage--they expressly reserved the power of employees to

cut better deals if they could. Quintanilla testified that all of his jobs came from

personal connections and not one came from a union call board.5 See Susan

Christopherson & Michael Storper, “The Effects of Flexible Specialization on

Industrial Politics and the Labor Market: The Motion Picture Industry,” 42 Indus.

& Lab. Rel. Rev. 331, 335 (1989) (describing the roster system as an intermediary

labor market for temporary employment in relation to craft jobs.) At times he was

paid union rates, but at other times he negotiated his fee.

      Quintanilla credibly testified that everything in Hollywood is a negotiation,

and contracts are discussed daily. At times a studio even uses another studio’s

stage if the price is lower than the rate for its own stage. Continual negotiations

and ever-changing contracts are evidence that the studios didn’t intend to make a

permanent relationship. Employers don’t negotiate with their employees daily.6



      5
       “Temporary organizations contrast with traditional hierarchical
organizations as they are governed through networks of relationships.” Beth A.
Bechky, supra n. 2, at 3.
      6
          Coase, R. H., “The Nature of the Firm”, 4 Economica New Series, 391
(1937).
                                        - 20 -

[*20] After reviewing the factors, we find that Quintanilla is an independent

contractor. It follows that he appropriately deducted items on his Schedule C.7

With our ruling in his favor on the merits, the penalty also disappears.8



                                                      Decision will be entered

                                                 under Rule 155.




      7
        As for Quintanilla’s final argument, it is possible to be a statutory
employee if one is a common-law independent contractor. But he doesn’t fit any
of the categories of statutory employees listed in sec. 3121(d)(3), and it doesn’t
matter because independent contractors and statutory employees can both deduct
business expenses on Schedule C instead of Schedule A. Rosato v.
Commissioner, T.C. Memo. 2010-39.
      8
        There is a small issue for which this isn’t true--whether Quintanilla had to
pay tax on the state income-tax refunds he received in 2009 and 2010. The law is
black letter on this one: He must include refunds of state income taxes that he
deducted in a previous tax year. See Francisco v. Commissioner, 119 T.C. 317,
334 (2002), aff’d, 370 F.3d 1228 (D.C. Cir. 2004); Kadunc v. Commissioner, T.C.
Memo. 1997-92. Because he received a Form 1099-G, Certain Government
Payments, for each year at issue, we find him liable for the deficiency and
associated penalties attributable to his failure to include these refunds on his
returns. He didn’t contest this issue, and negligence is strongly indicated when a
taxpayer doesn’t report income for which he gets a 1099. Sec. 1.6662-3(b)(1)(i),
Income Tax Regs.; see also Vezey v. United States, 191 F.3d 462 (9th Cir. 1999);
Bachmann v. Commissioner, T.C. Memo 2009-51; sec. 1.6664-4(b)(1), Income
Tax Regs.
