                  T.C. Summary Opinion 2010-152



                      UNITED STATES TAX COURT



           JERRY M. AND JUDY L. SLOTA, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 22464-08S.              Filed October 12, 2010.



     Bob A. Goldman, for petitioners.

     Stephen A. Haller and James A. Kutten, for respondent.



     KROUPA, Judge:   This case was heard pursuant to the

provisions of section 74631 of the Internal Revenue Code in

effect when the petition was filed.   Pursuant to section 7463(b),

the decision to be entered is not reviewable by any other court,




     1
      All section references are to the Internal Revenue Code,
and all Rule references are to the Tax Court Rules of Practice
and Procedure, unless otherwise indicated.
                                - 2 -

and this opinion shall not be treated as precedent for any other

case.

     Respondent determined a $36,8712 deficiency and a $12,967

accuracy-related penalty under section 6662(a) with respect to

petitioners’ Federal income tax for 2005.     After concessions,

there are two issues for decision.3     The first issue is whether

income that petitioner Jerry Slota (Mr. Slota) transferred to a

newly organized corporation, Quad J, Inc. (the corporation), is

taxable to petitioners.    We hold that it is taxable to

petitioners, not the corporation.     The second issue is whether

petitioners are liable for the accuracy-related penalty.     We hold

that they are liable.

                             Background

     This case was submitted fully stipulated under Rule 122.

The stipulation of facts and the accompanying exhibits are

incorporated by this reference.    Petitioners resided in Washta,

Iowa at the time they filed the petition.

     Mr. Slota owned and operated a farm as a sole proprietor in

2005.    Mr. Slota’s farming operations consisted of planting,




     2
      All monetary amounts are rounded to the nearest dollar,
unless otherwise indicated.
     3
      Petitioners challenged no other adjustments in either their
petition or their briefs. Petitioners are therefore treated as
having conceded all adjustments made in the deficiency notice
other than the adjustments mentioned in this opinion. See
Rothstein v. Commissioner, 90 T.C. 488, 497 (1988).
                                - 3 -

cultivating and harvesting soybeans and corn (the crops).       Mr.

Slota generated income by selling the crops and receiving

periodic payments from the United States Department of

Agriculture (USDA).   Mr. Slota deposited the income from his

farming operations into petitioners’ farm bank account

(petitioners’ individual account).

     In September 2005 petitioners organized the corporation and

filed articles of incorporation with the Iowa secretary of state.

Petitioners were the sole shareholders and served as the only

directors of the corporation.   Petitioners and the corporation

did not sign or execute a deed, sales contract or other written

agreement conveying, transferring or leasing the land or the

crops from petitioners to the corporation.     The only asset

petitioners conveyed to the corporation upon its organization was

$10,000 from petitioners’ individual account to a bank account

established for the corporation (corporate account).

     In October 2005 Mr. Slota deposited all USDA payments

received in 2005 into petitioners’ individual account, except for

one USDA payment of $6,142 that petitioners deposited into the

corporate account.    Mr. Slota then transferred into the corporate

account the USDA payments he had deposited into petitioners’

individual account after October 5.     In addition, Mr. Slota

deposited into the corporate account all crop sales proceeds

received after October 5.
                               - 4 -

     Petitioners hired a tax adviser to prepare and file their

Federal income tax return for 2005.    Petitioners reported

$195,938 from crop sales and $61,416 in USDA payments on Schedule

F, Profit or Loss From Farming.4   Petitioners claimed an expense

deduction for $44,165 of USDA payments and $20,532 of crop sales

proceeds that petitioners deposited into or transferred to the

corporate account.   Petitioners reported only $481 of self-

employment tax liability.

     The corporation also filed a corporate Federal income tax

return for the fiscal year ending September 30, 2006.    The

corporation reported $370,647 of income that was offset by an

equal amount of expenses resulting in zero taxable income.

     Respondent examined petitioners’ Federal income tax return

for 2005.   Respondent determined that petitioners earned an

additional $103,930 from crop sales and USDA payments that

petitioners had deposited into or transferred to the corporate

account.5   During the examination, petitioners agreed to increase

their $481 reported tax liability to $28,445 and signed a Form

870, Waiver of Restrictions on Assessment and Collection of


     4
      Petitioners calculated their total sales of crops and
livestock by adding the total corn and soybean sales ($104,048 +
90,987) and hay sales ($903).
     5
      Respondent attributed as income to petitioners all monies
deposited into or transferred to the corporate account in 2005
but excluded the $6,142 USDA payment directly deposited into the
corporate account.
                                - 5 -

Deficiency in Tax (waiver form).    Respondent issued petitioners

the deficiency notice for the deficiency and the accuracy-related

penalty.

     Petitioners timely filed a petition for review with this

Court.

                             Discussion

     We are asked to decide whether petitioners are taxable on

amounts deposited into or transferred to the corporate account.

Petitioners claim that they transferred their crops and USDA

payments to the corporation and therefore the corporation, not

petitioners, must pay the tax on the income earned from the crop

sales and USDA payments.    Respondent argues that Mr. Slota

transferred the crop sales proceeds only, not the crops

themselves, and therefore petitioners earned the income and are

liable for the tax.    In addition, respondent contends that the

USDA payments at issue are income to petitioners because they

were issued in petitioners’ names, not in the corporation’s name.

We shall consider the parties’ arguments after first addressing

the burden of proof.

     The Commissioner’s determinations are generally presumed

correct, and taxpayers bear the burden of proving otherwise.

Rule 142(a).   Accordingly, petitioners bear the burden of

establishing that the crop sales proceeds and USDA payments are

not taxable to them.
                                 - 6 -

     The parties do not dispute the amount received from crop

sales proceeds and USDA payments.    Moreover, petitioners do not

challenge respondent’s use of the bank accounts and general

ledgers in determining the deficiency amount.   See Holland v.

United States, 348 U.S. 121, 132 (1954).    Rather, the parties

focus on whether petitioners are taxed on the crop sales proceeds

and USDA payments.

     It is a fundamental tax principle that income is taxed to

the party that earned the income.    Sec. 61(a); United States v.

Basye, 410 U.S. 441 (1973); Lucas v. Earl, 281 U.S. 111 (1930).

Here, the income came from soybean and corn sales and USDA

payments.   Petitioners seem to argue that the corporation, not

them, should be taxed on the income because they organized the

corporation in a nontaxable transaction that qualified under

section 351.   Petitioners also assert that they contributed the

crops and USDA payments to the corporation and therefore the

corporation earned the income.

     Petitioners’ focus on section 351 is misplaced.     That

section governs the transfer of property to a corporation in

exchange for stock in the corporation.   See sec. 351.    Moreover,

petitioners failed to provide any documents demonstrating that

they transferred the land or the crops to the corporation.

     The only property that petitioners assigned or transferred

to the corporation was the proceeds from the crop sales and the
                               - 7 -

USDA payments.   The assignment of income doctrine provides that a

taxpayer cannot escape tax liability for income the taxpayer

earned by transferring the income to another.    Lucas v. Earl,

supra.   It is equally fundamental that taxpayers may not avoid

paying tax on income by transferring crop sales proceeds to a

newly organized corporation in a section 351 transaction.

Weinberg v. Commissioner, 44 T.C. 233 (1965), affd. in part,

revd. in part and remanded sub nom. Commissioner v. Sugar Daddy,

Inc., 386 F.2d 836 (9th Cir. 1967).    Mr. Slota owned the farmland

and the crops and earned the income when he sold the crops.

Further, as the owner of the land and the crops, Mr. Slota, not

the corporation, received the payments from the USDA.

Accordingly, petitioners received the crop sales proceeds and

USDA payments on their own behalf.

     Petitioners have not presented evidence to show that they

transferred the soybeans, the corn or the underlying land to the

corporation.   Petitioners may not avoid taxation by assigning

income they earned to the corporation.   Petitioners have the

burden of proof, and they have failed to meet that burden.    We

conclude that petitioners, not the corporation, earned the income

from the crop sales and USDA payments.   Accordingly, we sustain

respondent’s determination that petitioners, not the corporation,

had unreported income.
                                 - 8 -

     We next address the accuracy-related penalty.         Petitioners

ask that we not sustain the penalty because they had a tax

adviser prepare the return.    Petitioners have not established,

however, that their reliance on their return preparer was

reasonable or in good faith.     Petitioners failed to submit any

evidence showing the return preparer’s experience or

qualifications and failed to show that they provided all the

necessary and accurate information to a tax adviser.         We cannot

simply accept petitioners’ bald assertion that they relied upon a

tax adviser as a defense against the accuracy-related penalty.

See Peacock v. Commissioner, T.C. Memo. 2002-122.          Accordingly,

we sustain respondent’s determination that petitioners are liable

for the accuracy-related penalty under section 6662(a) for 2005.

     We have considered all remaining arguments the parties made

and, to the extent not addressed, we conclude they are

irrelevant, moot, or meritless.

     To reflect the foregoing,


                                              Decision will be entered

                                         for respondent.
