                                T.C. Memo. 2014-219



                         UNITED STATES TAX COURT



                    R. JEAN FISHER, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 18291-12.                          Filed October 16, 2014.



      R. Jean Fisher, pro se.

      John R. Bampfield, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      KERRIGAN, Judge: Respondent determined the following deficiencies and

additions to tax with respect to petitioner’s Federal income tax for tax years 2002

through 2010:
                                        -2-

          [*2]                               Additions to tax
          Year   Deficiency    Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654
          2002   $143,852         $32,066          $35,629           $4,758
          2003     16,176            3,390            3,767            386
          2004     20,678            4,396            4,885            556
          2005     25,979            5,554            6,171            984
          2006     50,788           11,290           12,545           2,371
          2007     14,012            3,153                (1)            38
          2008     19,234            4,328                (1 )         618
          2009     16,605            3,736                (1)           398
          2010     12,080            2,718                (1)           259

      1
       The sec. 6651(a)(2) addition to tax for 2007 through 2010 had not yet
reached the 25% maximum as of the mailing date of the notice of deficiency.

      Unless otherwise indicated, all section reference are to the Internal Revenue

Code in effect for the years at issue, and all Rule references are to the Tax Court

Rules of Practice and Procedure. All monetary amounts are rounded to the nearest

dollar.

      After concessions the issues for consideration are whether amounts paid to

petitioner by the Richard W. Quisling, M.D., P.C. (Quisling), in tax years 2003

through 2010 are includible in gross income and whether petitioner is liable for

additions to tax pursuant to sections 6651(a)(1) and (2) and 6654.
                                        -3-

[*3]                           FINDINGS OF FACT

       Some of the facts have been stipulated and are so found. Petitioner resided

in Tennessee when she filed her petition.

       Petitioner did not file income tax returns for tax years 2002 through 2010.

Pursuant to section 6020(b) respondent prepared and signed substitutes for returns

for tax years 2002 through 2010.

       Richard W. Quisling is the sole shareholder of Quisling through which Dr.

Quisling operated a medical practice. Quisling paid petitioner the following

amounts for the tax years in issue:

                           Year               Payment
                           2002                  -0-
                           2003               $24,753
                           2004                46,595
                           2005                37,500
                           2006                48,000
                           2007                48,000
                           2008                55,000
                           2009                56,190
                           2010                49,836
                                          -4-

[*4] Quisling did not issue petitioner a Form 1099-MISC, Miscellaneous Income

for amounts paid in any year 2003 through 2010. Dr. Quisling’s wife, Pamela

Quisling, has been the bookkeeper for Quisling since 1977.

      Beginning in 2003 petitioner received payments from Quisling. The

payments were in the form of checks, and the date of the first check was March 15,

2003. From March 2003 through December 2010 Quisling made monthly

payments to petitioner.

      Petitioner sent Dr. Quisling a memorandum entitled “Memorandum of

Understanding on Loan Terms and Conditions”. This memorandum states:

      It has been revealed to me that the action of Blue Cross Blue Shield
      of Tennessee, Inc., * * * has created a financial burden upon your
      medical practice, because the medical services rendered by your
      medical practice rely upon payment(s) received by BCBST.
      Therefore, I am willing to develop a loan package * * * for the short-
      range and long-range impact upon the delivery of medical services by
      the “in-network-provider” as well as the “out-of-network provider”
      * * *.

The memorandum further states “[a] reasonable expectation of this Memorandum

of Understanding on Loan Terms and Conditions is that the loan proceedings will

be based upon a) your ability to loan and b) the completion of the research which

will result in profit to the undersigned in order that the loan can be repaid.”1


      1
          The term “undersigned” refers to petitioner.
                                        -5-

[*5] This memorandum, dated April 1, 2003, includes the signature of petitioner

but not the signature of Dr. Quisling. Petitioner sent Dr. Quisling a followup letter

to the memorandum requesting a memorandum of acceptance. The memorandum

of acceptance includes a signature alleged to be Dr. Quisling’s, but this signature

is not his.

       Petitioner did not make payments to Dr. Quisling. Neither Dr. Quisling nor

Mrs. Quisling demanded payment from petitioner.

       On February 5, 2011, petitioner faxed Dr. Quisling a letter referencing an

alleged purchase of medical equipment that Quisling made from petitioner’s

deceased husband. On February 25, 2011, Dr. Quisling’s attorney and the attorney

for Quisling, Vincent Zuccaro, sent petitioner a letter stating that Quisling had not

purchased any equipment from her husband or received a gift of property from her

or her husband. That same day Dr. Quisling also sent petitioner a letter stating

that he would no longer see her as a patient. Petitioner faxed an additional letter

to Dr. Quisling on February 28, 2011. Mr. Zuccaro sent petitioner a letter in

response and reiterated that petitioner should not contact Dr. Quisling and Mrs.

Quisling.
                                         -6-

[*6] Petitioner faxed letters to Mr. Zuccaro on February 28, March 1, 2, 10, 14,

and 25, and April 11, 2011. In these letters, petitioner appeared to be trying to

reach some type of settlement with Quisling.

      Petitioner for the years at issue made estimated income tax payments or had

tax withheld in the following amounts:

                           Year                Amount
                           2002                $1,336
                           2003                 1,107
                           2004                 1,138
                           2005                 1,293
                           2006                  608
                           2007                  -0-
                           2008                  -0-
                           2009                  -0-
                           2010                  -0-

      Respondent concedes that petitioner is not liable for an addition to tax

pursuant to section 6654 for tax year 2002.

                                     OPINION

      Petitioner has the burden of proving that respondent’s determination that the

amounts in issue are includible in gross income as compensation for services is

wrong. See Rule 142(a); Welch v. Helvering, 290 U.S. 111,115 (1933). Petitioner
                                        -7-

[*7] has not claimed or shown that she meets the requirements of section 7491(a)

to shift the burden of proof to respondent as to any relevant factual issue. The

Commissioner bears the initial burden of producing at least minimal evidence

linking the taxpayer to the tax-generating activity or the receipt of funds before the

general presumption of correctness attaches to a determination of unreported

income. United States v. Walton, 909 F.2d 915, 919 (6th Cir. 2007). Once the

Commissioner meets the burden of production on this issue, the burden of

persuasion shifts to the taxpayer to produce credible evidence that he or she did

not earn the alleged income or of proving that the Commissioner’s deficiency

calculations were not grounded on a minimal evidentiary foundation. Id.

      Respondent’s determinations in the notices of deficiency are based in

substantive evidence linking petitioner with the income at issue. Included among

the stipulated exhibits were 2004 and 2005 canceled checks of payments to

petitioner. We are satisfied that respondent has carried his burden with respect to

the unreported additional income.

I.    Income Received From Quisling

      Compensation for services is included in gross income. Sec. 61(a)(1).

Money received pursuant to a loan is not included in gross income because there is

an obligation to repay. See Commissioner v. Tufts, 461 U.S. 300, 307 (1983). A
                                         -8-

[*8] bona fide loan requires both parties to have an actual, good-faith intent to

establish a debtor-creditor relationship when the funds are advanced. Fisher v.

Commissioner, 54 T.C. 905, 909-910 (1970). An intent to establish a debtor-

creditor relationship exists if the debtor intends to repay the loan and the creditor

intends to enforce the repayment. Beaver v. Commissioner, 55. T.C. 85, 91

(1970); Fisher v. Commissioner, 54 T.C. at 909-910.

      Courts consider various factors to determine whether parties intended a

bona fide loan; no single factor is dispositive. See Welch v. Commissioner, 204

F.3d 1228, 1230 (9th Cir. 2000), aff’g T.C. Memo. 1998-121; Frierdich v.

Commissioner, 925 F.2d 180, 182 (7th Cir. 1991), aff’g T.C. Memo. 1989-393;

Kaider v. Commissioner, T.C. Memo. 2011-174, slip op. at 15-16. We examine

the following factors to determine whether payments to petitioner were loans:

      (1) the ability of the borrower to repay;

      (2) the existence or nonexistence of a debt instrument;

      (3) security, interest, a fixed repayment debt, and a repayment schedule;

      (4) how the parties’ records and conduct reflect the transaction;

      (5) whether the borrower has made repayments;

      (6) whether the lender had demanded repayment;
                                        -9-

[*9] (7) the likelihood that the loan was disguised compensation for services;

      and

      (8) the testimony of the purported borrower and lender.

See Welch v. Commissioner, 204 F.3d at 1230; Kaider v. Commissioner, T.C.

Memo. 2011-174.

      A.     The Ability of the Borrower To Repay

      If the parties did not intend that the funds be repaid after they were

advanced, it suggests that the parties did not intend a bona fide loan. See

Commissioner v. Makransky, 321 F.2d 598, 600 (3d Cir. 1963), aff’g 36 T.C. 446

(1961). Courts assess the ability to repay by whether there was “a reasonable

expectation of repayment in light of the economic realities of the situation.”

Fisher v. Commissioner, 54 T.C. at 910.

      Petitioner contends that payments made by Quisling were loans. Petitioner

testified that she needed the money to fund the research for a book that she was

writing. However, petitioner produced no evidence of the book including the

potential for publishing the book or any other evidence of her ability to repay. Dr.

Quisling testified that the payments were not loans and that he did not expect to be

repaid.
                                       - 10 -

[*10] B.     The Existence or Nonexistence of a Debt Instrument

       There is a memorandum dated April 1, 2003, entitled “Memorandum of

Understanding on Loan Terms and Conditions” which discusses terms of the

alleged loans. This memorandum is signed by petitioner. There is a memorandum

entitled “Memorandum of Acceptance” which is not dated and which includes a

signature for Dr. Quisling. Both Dr. Quisling and Mrs. Quisling testified that the

signature on the “Memorandum of Acceptance” is not his signature. Dr. Quisling

testified that he had never seen the document before respondent’s counsel showed

it to him.

       C.    Security, Interest, a Fixed Repayment Date, and a Repayment
             Schedule

       The memorandum outlining the terms of the alleged loan states:

       This Creative Reversal Installment Loan is based upon a 1.5% interest
       and/or the fed rate as dictated by the Federal Reserve Board,
       Washington, D.C. and therefore, activated whenever the interest rate
       @1.5% and/or the fed rate is lower. Payback of the loan is predicated
       upon the completion of topics within the medical science research and
       only activated upon any completion a research project in which a
       revenue stream is created.

There is no fixed repayment date or schedule. The provisions do not show the

intent to establish bona fide loans. Furthermore, these provisions are in a

document signed only by petitioner. Dr. Quisling testified that he had not seen the
                                       - 11 -

[*11] memorandum of understanding until respondent’s counsel showed him the

document.

      D.      How the Parties’ Records and Conduct Reflect the Transaction

      Petitioner testified that the payments were loans for a book, but there was no

evidence to support this contention. Petitioner’s records of loans were not

credible. Petitioner did not submit a loan agreement signed by Dr. Quisling. Dr.

Quisling and Mrs. Quisling were credible witnesses. They contended the

payments were for services petitioner performed related to patient billing and

other financial aspects of medical practice. Quisling did not issue petitioner

Forms 1099-MISC. However, Quisling had no documentation to support loans to

petitioner.

      E.      Whether the Borrower Has Made Repayment

      If the borrower has made repayment, it suggests that the parties intended a

bona fide loan. Welch v. Commissioner, 204 F.3d at 1231. Petitioner had not

made any payments.

      F.      Whether the Lender Has Demanded Repayment

      A demand for repayment suggests that the parties intend a bona fide loan.

See Estate of Rosen v. Commissioner, T.C. Memo. 2006-115. Quisling has not

demanded repayment.
                                       - 12 -

[*12] G.     The Likelihood That the Loans Were Disguised Compensation for
             Services

      Petitioner contends that the payments were loans to finance the cost of

research for her book. Dr. Quisling and Mrs. Quisling provided credible

testimony that the payments were made for services. The memorandum describing

the alleged loans discusses the development of a microeconomic and

macroeconomic model that will impact the short-range and long-range delivery of

medical services.

      Dr. Quisling and Mrs. Quisling testified that petitioner assisted with a Blue

Cross Blue Shield audit, billing issues, and lease agreements. Dr. Quisling

testified that petitioner was “discharged” in February 2011 because she asked for

documentation to buy equipment from her and she refused to provide information

such as her full name and Social Security number. Petitioner contends that she

must be “magical” if she was able to perform the services described by Dr.

Quisling and Mrs. Quisling.

      H.     Testimony of the Purported Borrower and Lender

      Petitioner testified the payments were loans, but she had no credible

supporting documentation. Petitioner testified that she sent Dr. Quisling a letter

dated April 1, 2003, providing guidance for the audit with Blue Cross Blue Shield.
                                        - 13 -

[*13] Petitioner testified that the Internal Revenue Service audited Quisling’s

returns in 2010 and not until then was there a request for her to fill out a Form

W-9, Request for Taxpayer Identification Number and Certification.

      Dr. Quisling and Mrs. Quisling testified the payments were for services, and

they provided credible testimony. Dr. Quisling testified that petitioner was paid

$10,000 in 2003 to assist with Blue Cross Blue Shield of Tennessee. He further

testified that after the successful outcome of the audit, petitioner resolved other

insurance disputes, assisted with credentialing committees, produced ideas for

advertising and business development, negotiated a dispute with Summit Hospital,

resolved a dispute with a new landlord, and confronted Humana Insurance in

Lexington, Kentucky. Mrs. Quisling testified that petitioner was paid $3,000 a

month for her services and the payments increased to $4,000 a month.

      Dr. Quisling testified that he asked petitioner to provide her Social Security

number in late 2010 and she refused. Dr. Quisling stopped paying petitioner in

December of 2010. On February 18, 2011, Dr. Quisling terminated petitioner as a

patient.

      Dr. Quisling and Mrs. Quisling testified that Quisling did not purchase any

equipment from petitioner’s deceased husband and that petitioner requested

information about the alleged purchases in February of 2011.
                                        - 14 -

[*14] Petitioner testified that she received loans from Dr. Quisling to write a

book. Her testimony was inconsistent and she submitted a letter referencing that

Dr. Quisling purchased equipment from her deceased husband.

II.    Conclusion

       We conclude that the payments Quisling made to petitioner in tax years

2003 through 2010 are included in petitioner’s gross income as compensation for

services. There is no evidence of an actual, good-faith intent to establish a debtor-

credit relationship. Dr. Quisling did not have a good-faith intent to enter a loan

agreement.

III.   Additions to Tax

       A.    Section 6651(a)(1)

       Section 6651(a)(1) authorizes the imposition of an addition to tax for failure

to file a timely return unless the taxpayer proves that such failure is due to

reasonable cause and is not due to willful neglect. See United States v. Boyle, 469

U.S. 241, 245 (1985); Harris v. Commissioner, T.C. Memo. 1998-332. The parties

stipulated that petitioner did not file income tax returns for tax years 2002 through

2010. This stipulation is sufficient to satisfy respondent’s burden of production

under section 7491(c). Petitioner did not show reasonable cause for her failure to
                                         - 15 -

[*15] file tax returns. Therefore, petitioner is liable for the addition to tax under

section 6651(a) for each of those years.

       B.     Section 6651(a)(2)

       Section 6651(a)(2) imposes an addition to tax for failure to timely pay the

amount shown on a return. In a case such as this where the taxpayer did not timely

file returns for the tax years at issue, the Commissioner must introduce evidence

that a valid substitute for return was made pursuant to section 6020(b). Sec.

6651(g)(2). The parties stipulated that substitutes for returns were prepared in

accordance with section 6020(b). Petitioner did not show reasonable cause for her

failure to file tax returns.

       We hold that petitioner is liable for the addition to tax under 6651(a)(2) for

each of tax years 2002 through 2010.

       C.     Section 6654

       Section 6654 imposes an addition to tax on an individual taxpayer who

underpays his or her estimated tax. A taxpayer has an obligation to pay estimated

tax for a particular year if he or she has a “required annual payment” for that year.

Sec. 6654(d). Because petitioner failed to file a return for each year in issue from

2003 through 2010, she was required to pay estimated tax equal to 90% of the tax

owed for each of those years. See sec. 6654(d)(1)(B). Petitioner failed to make
                                       - 16 -

[*16] those payments, and no exception to the addition to tax under section 6654

applies. See Grosshandler v. Commissioner, 75 T.C. 1, 20-21 (1980).

      We hold petitioner is liable for the addition to tax under section 6654 for

each of tax years 2003 through 2010.

      Any contentions we have not addressed are irrelevant, moot, or meritless.

      To reflect the foregoing,


                                                Decision will be entered

                                       under Rule 155.
