                          T.C. Memo. 2010-248



                     UNITED STATES TAX COURT



             GEORGE ELLSWORTH HARRIS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 24102-06.               Filed November 15, 2010.



     George Ellsworth Harris, pro se.

     Noelle White, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     MORRISON, Judge:     This case presents the issue of whether

petitioner George Ellsworth Harris is required to include $50,000

that he received from Integrated Communications Systems Network

in his income for 1995.
                                -2-

                         FINDINGS OF FACT

     During 1995, Harris was the president and CEO of a video-

conferencing company called Integrated Communications Systems

Network.1   This company, which we will refer to as “Integrated”,

was a subchapter S corporation in 1995.     Harris was one of the

shareholders of Integrated.

     Harris’ salary was $10,000 per month during 1995.    During

that year, Harris was awarded a bonus of $60,000 for exceptional

performance in his handling of a particular transaction.    Because

of a shortage of cash for one or two months, Integrated did not

pay Harris the full amount of this salary and bonus during 1995.

Integrated reported on an IRS Form W-2, Wage and Tax Statement,

that it had paid him $175,014 in 1995.

     In 1995, Harris made payments to Integrated in order to

purchase stock.   He also made payments to Integrated as short-

term loans.   Integrated made substantial payments to Harris to

reimburse him for expenses for the use of his airplane on company

business.   Integrated issued Harris an IRS Form 1099-MISC ,

Miscellaneous Income, on which it reported that it had paid him

$59,000 in nonwage income during 1995.2


     1
      Some of the facts have been stipulated by the parties. The
Stipulation of Facts and its attached exhibits are incorporated
by reference.
     2
      The IRS has prescribed Form 1099-MISC for reporting certain
kinds of income other than wages. The form that Integrated
                                                   (continued...)
                                 -3-

     On his 1995 income tax return, which he filed in 1998,

Harris reported $175,014 on the line for “Wages, salaries, tips,

etc.” and $59,000 on the line for “Other income.”    The $59,000

entry was further described on the return as:

         1099 MISC                                     59,000.

Harris had an accounting firm prepare his return and did not

review it carefully before signing it.

     In 2001, Harris sent the IRS a letter on which he claimed

that his gross income for 1995 should be reduced by excluding the

$59,000 he had reported as “Other income.”     However, Harris later

conceded that $9,000 of the $59,000 represented a car allowance

that was includable in income.   In 2006, Harris filed an amended

return for 1995 on which he claimed that his gross income was

$50,000 less than he had originally reported.    The amended return

contained the explanation “TAXPAYER IMPROPERLY INCLUDED 1099MISC

IN AMOUNT OF $50,000 ON ORIGINAL RETURN FILED.”

     The IRS rejected the assertion on the amended return and

determined a deficiency of $30,223 in Harris’s 1995 income tax

for reasons unrelated to the tax treatment of the $50,000 entry.

Harris filed a petition with the Tax Court.3    Harris has now



     2
      (...continued)
issued Harris is not in the record. The record does not indicate
which of its preprinted boxes for various categories of income
Integrated may have used to report its payments to Harris.
     3
      Harris lived in Maryland at the time he filed the petition.
                                -4-

conceded that his tax treatment of the issues giving rise to the

deficiency was incorrect.   However, we still face the issue of

whether the $50,000 entry is includable in Harris’s income.

                              OPINION

     Harris contends that $50,000 of the $59,000 reported on the

Form 1099-MISC is not includable in his income.   His theory is

that the $50,000 was not compensation for services but was some

type of payment that is not includable in income, such as a

reimbursement for expenses, a repayment of a loan, or a return of

capital.

     The taxpayer generally has the burden of proof.    Rule

142(a), Tax Court Rules of Practice and Procedure.   This means

that if the evidence before us is in equipoise or otherwise

insufficient to carry that burden, we will generally sustain the

IRS’s determination.   See Elliott v. Commissioner, 40 T.C. 304,

311 (1963).   Section 7491(a) of the Internal Revenue Code shifts

to the IRS the burden of proof on a given factual issue relevant

to the taxpayer’s liability if the taxpayer introduces credible

evidence, has complied with applicable substantiation

requirements, has maintained all required records, and has

cooperated with reasonable information requests from the IRS.4

     4
      Sec. 7491(a) applies only to court proceedings arising in
connection with examinations commencing after its date of
enactment (July 22, 1998) and, in cases in which there is no
examination, to court proceedings arising in connection with
                                                   (continued...)
                                 -5-

     Credible evidence is the quality of evidence which,
     after critical analysis, the court would find
     sufficient upon which to base a decision on the issue
     if no contrary evidence were submitted (without regard
     to the judicial presumption of IRS correctness).

Weaver v. Commissioner, T.C. Memo. 2004-108 (using the definition

set forth in H. Conf. Rept. 105-599, at 240-241 (1998), 1998-3

C.B. 747, 994-995).    We have found evidence which is vague or

markedly incomplete not to be credible.    Weaver v. Commissioner,

supra.   The taxpayer has the burden of proving that the

requirements of section 7491 have been met.    See Miner v.

Commissioner, T.C. Memo. 2003-39; H. Conf. Rept. 105-599, supra,

at 239; S. Rept. 105-174, at 45 (1998), 1998-3 C.B. 537, 581.

Aside from section 7491, Harris has provided no other reason the

burden of proof should be shifted to the IRS.

     Harris argues that the $50,000 entry could have been a

nontaxable reimbursement, a loan repayment, or a return of

capital.   We agree that these are all possibilities.   But these

possibilities are not supported by credible evidence.

     Harris’s testimony that the $50,000 was non-taxable was

vague and uncertain.    For instance, he could not say whether the


     4
      (...continued)
taxable periods or events beginning or occurring after the date
of enactment. See Internal Revenue Service Restructuring and
Reform Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 685,
727. We infer that the effective-date provision has been
satisfied from the IRS’s acknowledgment that it audited Harris’s
1995 tax return and the fact that it argued about the substantive
requirements, but not the effective-date requirements, of sec.
7491(a).
                                 -6-

payment was a reimbursement, a loan repayment, a return of

capital, or some other type of non-taxable payment.

     James Carney, who was a director of Integrated and chairman

of its compensation committee, testified that the $175,014 amount

on the Form W-2 was “consistent” with his direct knowledge of

Harris’s total compensation for the year.    Carney admitted that

his knowledge of Harris’s compensation is incomplete.      He was not

familiar with how Integrated operated before April 1995.     He did

not personally handle the company’s payroll, maintain its books

from day to day, or prepare the Form W-2.

     One item of documentary evidence upon which Harris focuses

is a 1995 accounting entry that describes a $50,000 payment from

Integrated to Harris in October 1995 as relating to an “account

payable”.    There is no direct evidence that this entry

corresponds to a portion of the $59,000 reported on the Form

1099-MISC.    The accounting entry is an item on a “check register”

of Integrated’s disbursements greater than $20,000 over the

period September 25 through October 15, 1995.    Harris did not

present comprehensive accounting records for Integrated.     Harris

also did not otherwise establish that the entry reflects the

company’s only accounting event that could plausibly explain the

Form 1099-MISC.   We thus cannot infer from an absence of other

pertinent accounting entries that this particular entry

corresponds to the Form 1099-MISC.
                                -7-

     The trial record contains several checks drawn upon Harris’s

personal account for payment to Integrated early in 1995.     The

purpose of the payments that were effected by these checks is

unclear.   Each check was for tens of thousands of dollars.   One

check, dated January 24, 1995, was for $50,000.    Because this is

the same amount as the October 1995 “account payable” entry,

Harris asks us to conclude that he lent $50,000 to Integrated on

January 24, 1995, and that it repaid him in October 1995.     He has

not set forth credible evidence on this point.    Nothing in the

record indicates that his $50,000 payment was a loan.    And we do

not have enough information about his dealings with Integrated to

do more than speculate that the $50,000 payment Integrated made

was a return of his payment.   Moreover, as we discussed earlier,

Harris has not tied the $50,000 that was reflected in the

accounting entry to the $59,000 on the Form 1099-MISC.

      Harris contends that a document entitled “Other Deductions”

shows that Integrated did not deduct an amount corresponding to

the $50,000 entry that he maintains should be excluded from his

gross income.   He argues that the treatment by Integrated of the

$50,000 payment as nondeductible indicates that the payment was

not income to him.   We do not find the document to show whether
                                 -8-

Integrated claimed a deduction for the $50,000 amount.     It does

not purport to be a complete list of the deductions Integrated

claimed for 1995.

     In sum, Harris failed to offer any credible evidence in

support of his contention that his gross income should be reduced

by $50,000.   Consequently, there is no basis for shifting the

burden of proof to the IRS.

     To reflect the foregoing,


                                       Decision will be entered for

                                 respondent.
