Jensen v. Dept. of Rev.

DECISION TC-MD 220410R 	1
IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Income Tax
JOHN E. JENSEN, 	)
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Plaintiff, 	TC-MD 220410R
v.
DEPARTMENT OF REVENUE,
State of Oregon,
DECISION	Defendant.
Plaintiff appealed Defendant’s Notice of Assessment, dated June 28, 2022, for the 2018
tax year. A remote trial was held on June 29, 2023. Plaintiff, John E. Jensen, appeared and
testified on his own behalf. Shannon Richards, Defendant’s auditor, appeared and testified on
behalf of Defendant. Plaintiff’s Exhibits 1 to 15 and Defendant’s Exhibits A to E were admitted
without objection. Defendant filed its Written Closing Statement on July 13, 2023.
I. STATEMENT OF FACTS
Plaintiff is a civil engineer. In 1977, Plaintiff opened his own consulting firm, a sole
proprietorship, hiring independent contractors as needed. (See Def’s Closing Statement at 1.)
Plaintiff testified that from the time he opened his business until the period at issue, he
personally mailed the Form 1099-MISCs to the Internal Revenue Service, the Department of
Revenue, and the independent contractors he hired. (See also Ptf’s Ex List at 5.)
In 2018, Plaintiff subcontracted work to Jace Design, a business owned by his son,
Jeffrey Jensen. (Ex 5; Ex 8.) Plaintiff testified that, at that time, he was unaware of the recent
change in regulation requiring that he file the Form 1099-MISC electronically using iWire; thus,
he sent it by mail, as he had done in the past. (See also Ptf’s Ex List at 5.) On his 2018 tax
return, Plaintiff claimed a deduction in the amount of $33,600 for wages paid to his son. (Ex 5.)

DECISION TC-MD 220410R 	2
Defendant disallowed Plaintiff’s deduction on the basis that Plaintiff failed to timely file the
Form 1099-MISC. (Ex B at 3-4; Ex C at 1.) On December 17, 2021, Plaintiff filed the Form
1099-MISC via iWire. (Ex B at 3.) Plaintiff admits his untimely filing of the Form 1099-MISC
was his mistake, though he requests the court still allow the deduction, arguing he was merely
unaware of the change in law and did not intend to evade payment of the tax. (Ex 12.)
Defendant requests the court uphold its adjustment denying Plaintiff’s deduction.
II. ANALYSIS
The issue is whether Plaintiff’s untimely filing of Form 1099-MISC bars him from
deducting payments made to a subcontractor. As the party seeking affirmative relief, Plaintiff
bears the burden of proof by a preponderance of the evidence. ORS 305.427.1
Federal tax provisions apply to this state tax case because, subject to modifications not
pertinent here, Oregon defines taxable income by reference to the federal tax code. See ORS
316.022(6); see also ORS 316.048. Generally, ordinary and necessary business expenses,
including “a reasonable allowance for salaries or other compensation for personal services
actually rendered[,]” are deductible under the Internal Revenue Code. IRC § 162(1). However,
Oregon law imposes a condition, such that no deduction for wages and compensation is allowed
where the payer “fails to report the payments as required by ORS 314.360 or 316.202[,]” unless
“the failure to report is due to reasonable cause and not done with the intent to evade payment of
the tax.” ORS 305.217.
ORS 314.360(1) requires federal information returns, such as Form 1099-MISC and
Form W-2, be filed with the Department of Revenue in the manner it prescribes. Beginning with
tax year 2017, the Department of Revenue requires those issuing fewer than 11 information
1 The court’s references to the Oregon Revised Statutes (ORS) are to the 2017 edition.

DECISION TC-MD 220410R 	3
returns file those returns electronically. OAR 150-314-0140(3), (6)(a).2 The Department of
Revenue may grant an exception upon a showing of undue hardship. OAR 150-314-0140(5).
Here, both parties agree Plaintiff was required to electronically file the Form 1099-MISC
for the 2018 tax year, but he failed to do so until after the deadline. Defendant has not granted
Plaintiff an exception to the filing requirement for undue hardship. See OAR 150-314-0140(5).
Thus, Plaintiff can only claim the deduction if he demonstrates that his failure to report was due
to reasonable cause and not done with the intent to evade payment of the tax. ORS 305.217.
OAR 150-305-0130 further provides that, in the case of a failure to file, “the expense will be
allowed if the individual or entity can show there was a circumstance beyond the individual or
entity’s control that caused the failure to file returns as required by law.”
OAR 150-305-0130(2).
In the present case, Plaintiff testified that his failure to timely file was due to his lack of
knowledge of the required change in filing method. Additionally, Plaintiff testified he did not
intend to evade payment of the tax, citing his long history of timely filing information returns as
support. Though the court views Plaintiff’s testimony as honest, ignorance of the law does not
satisfy either the standard of “reasonable cause” or a “circumstance beyond the individual or
entity’s control.” ORS 305.217; OAR 150-305-0130(2). While the court acknowledges the
challenge of keeping up with changes to the tax code, IRC section 6001 reflects the principle that
taxpayers are required to keep abreast of changes, and maintain their records accordingly.
Plaintiff has provided the court with no grounds upon which it can grant relief.
III. CONCLUSION
Plaintiff did not show reasonable cause for failing to timely file the Form 1099-MISC
2 Oregon Administrative Rule (OAR).

DECISION TC-MD 220410R 	4
with Defendant as required by ORS 305.217. 	Plaintiff is barred from claiming a deduction for
his payments to a subcontractor in 2018. Now, therefore,
IT IS THE DECISION OF THIS COURT that Plaintiff’s appeal, for the 2018 tax year, is
denied.
Dated this _____ day of February 2024.
RICHARD DAVIS
MAGISTRATE
If you want to appeal this Decision, file a complaint in the Regular Division of
the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR 97301-2563;
or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.
Your complaint must be submitted within 60 days after the date of this Decision
or this Decision cannot be changed. TCR-MD 19 B.
This document was signed by Magistrate Richard Davis and entered on
February 2, 2024.