T.C. Summary Opinion 2008-64
UNITED STATES TAX COURT
ORRIN LEIGH GROVER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 1239-06S. Filed June 9, 2008.
Orrin Leigh Grover, pro se.
Kelly A. Blaine, for respondent.
GERBER, 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 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for 2002, the taxable year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. - 2 -
and this opinion shall not be treated as precedent for any other
case. Respondent determined a $5,983 income tax deficiency for
petitioner’s 2002 tax year and also determined additions to tax
as follows: $1,346.17 under section 6651(a)(1), $837.62 under
section 6651(a)(2), and $199.91 under section 6654(a).
Petitioner failed to file a return for 2002, and the
deficiency was attributed to unreported income. Following the
deficiency determination, petitioner provided respondent with
income figures and business and personal expenses in excess of
the income. The issues we consider involve whether petitioner
has shown that respondent’s income tax deficiency determination
is excessive and whether petitioner is liable for the additions
to tax.2
Background
Some of the facts have been stipulated and are incorporated
by this reference. Petitioner, Orrin Grover, was a resident of
Oregon at the time his petition was filed. Petitioner, an
attorney, practiced law under the name Orrin L. Grover, P.C., an
Oregon professional corporation formed in 1984 which is an
2 Petitioner’s income and deduction information was provided to respondent after the issuance of the deficiency notice and late in the administrative process. That information was not subjected to audit and not agreed to by respondent in the form presented by petitioner. We are treating petitioner’s information as an alternative computation approach that has substance only to the extent proven at trial. - 3 -
S corporation for Federal tax purposes. Petitioner was licensed
to practice law in the States of California and Oregon.
Petitioner’s legal speciality has been the representation of
healthcare facilities, and his clients were spread over a broad
geographical region, including the States of Washington, Idaho,
Oregon, Nevada, California, Arizona, Texas, and Colorado. Most
of petitioner’s clients, during 2002, were in Oregon and
California, with the latter State representing approximately 80
percent of his business.
Petitioner and his wife owned a building in Woodburn,
Oregon, from which he operated his law practice. During 2002 his
practice was to work 3 or 4 days per week in California, (mainly
in San Francisco) and 1 or 2 days in his Oregon office. During
2002 petitioner spent 205 days in California, where he maintained
a satellite office in San Francisco. About 90 percent of his
business records were maintained in his Oregon office, and the
remaining 10 percent were in San Francisco. Petitioner claimed
travel and meals expenses while he was away from his Oregon
office. Petitioner did not maintain formal books and records of
his income and deductions and derived his claimed deductions from
underlying source material like invoices, summary records (credit
card bills and receipts), and collateral documentation (frequent
flyer records). - 4 -
Petitioner and his wife did not file an individual or a
joint Federal income tax return for 2002. Respondent determined
petitioner’s income and his 2002 deficiency from Forms 1099
received from payors. In connection with the pretrial
development of this case, petitioner submitted prepared-after-
the-fact 2002 tax returns. In particular he prepared a Form
1120S, U.S. Income Tax Return for an S Corporation, Orrin L.
Grover, P.C., and a joint Form 1040, U.S. Individual Income Tax
Return, for his and his wife’s 2002 tax year.3 In the Form 1120S
petitioner represented his 2002 income from the practice of law,
along the lines of the following summary (Amounts are rounded for
reporting purposes.):
Income $125,408 Expenses: Rent California office $18,000.00 Oregon office payment 6,300.00 Dues 1,000.00 Employee benefits: Health insurance 6,883.28 Employee drug benefit Bimart 599.62 Fairway 960.00 Employee copays 100.00 Medical/dental 2,252.50 Travel expense: Airfare 8,223.58 Airport shuttle/parking 1,045.00 Oakland airport parking 1,120.00 Additional shuttle 1,550.00 Car rental 916.51
3 We note that Mr. Grover is the sole petitioner in this case and that the document submitted to respondent after the issuance of the notice of deficiency and before the institution of this case has not been treated by the parties as a filed return for purposes of this controversy. - 5 -
Per diem travel expense: Meals 9,430.00 California auto expense 4,317.02 Miscellaneous travel 3,075.20 Other office expense 44,911.02 Additional expenses 17,505.95 Total deductions 128,189.00 Net loss from practice of law (2,781.00)
On the draft Form 1040 petitioner reported the pass-through
loss of $2,781 and offset that amount against $8,500 of net
income reported. The reported income on the Form 1040 consisted
of $10,000 from his wife’s consultant fee from Orrin L. Grover,
P.C., and $6,300 of her income from rentals less $7,800 of rental
expense. After accounting for exemptions and other miscellaneous
deductions, petitioner reflected no taxable income and a $1,201
employment tax liability for his own and his wife’s joint 2002
tax year. For convenience, we address each of petitioner’s
claimed deductions under a separate heading.
Discussion
Travel, Meals and Miscellaneous Expenses4
Petitioner claimed the following amounts for 2002:
Purpose Amount
Airfare $8,223.58 Shuttle and parking 1,045.00 Airport limo 1,550.00 Car rental 916.51 Airport parking 1,120.00 Meals expense 9,430.00 Miscellaneous travel 3,075.00 Total claimed 25,360.09
4 No question was raised concerning the burden with respect to the claimed deductions. - 6 -
Respondent agrees that amounts claimed for airfare, shuttle
and parking, airport limo, and car rental were expended but
argues that petitioner is not entitled to a deduction because the
travel was nondeductible commuting or not shown to have been
incurred for business purposes. With respect to the $1,120
claimed for airport parking respondent contends that it is also
not deductible because petitioner did not provide any supporting
evidence. The amounts claimed for meals and miscellaneous travel
are on a per diem basis, and respondent contends that the amounts
are nondeductible because petitioner was not away from home on
business.
To be deductible, travel expenses must be reasonable and
necessary and incurred while away from home in the pursuit of
business. Commissioner v. Flowers, 326 U.S. 465 (1946).
Respondent argues that petitioner failed to meet only one aspect
of the above-stated requirements for a deduction. Respondent
contends that petitioner did not incur the expenditure in pursuit
of business. Respondent does not challenge whether petitioner
was “away from home” when in California; instead, respondent
questions only the business purpose for the expenditures.
Respondent also argues that petitioner failed to meet
substantiation requirements with respect to certain of the
claimed deductions. Although petitioner spends a great deal of
time in California, his specialized practice causes him to travel
to several States. In addition, his law offices are in Oregon - 7 -
and California, and as much as 20 percent of his revenue was
earned outside of California. Petitioner maintains approximately
80 percent of his business records in Oregon. There is an
obvious and direct business purpose in this case for incurring
the travel expenses–-to earn income. Accordingly, we find that
petitioner would be entitled to deduct his travel expenses to the
extent he has met substantiation requirements.
Respondent also argues that petitioner’s choice to remain in
Oregon was a personal one, but we find that argument, in the
setting of this case, does not ring true. Petitioner has
business activity in several States, and during 2002 there was a
heavy concentration of activity in California. The principal
place of his legal operation was Oregon where he maintained an
office with most of his records. In effect, respondent’s
argument is that petitioner has no tax home. On the record here,
we reject that approach and find that petitioner’s business
travel to and expenses incurred in California were “away from
home” expenses.
Finally, respondent contends that petitioner did not
maintain adequate records so as to be able to deduct the travel
expenses. In that regard, section 274(d) provides for a higher
standard of substantiation for certain business expenses.
Generally, a taxpayer must substantiate expenditures “by adequate
records or by sufficient evidence corroborating his own - 8 -
statement.” Sec. 1.274-5T(c)(1), Temporary Income Tax Regs., 50
Fed. Reg. 46016 (Nov. 6, 1985).
With respect to the airfare ($8,223.58), shuttle and parking
($1,045), airport limo ($1,550), and car rental ($916.51),
petitioner provided documentary evidence, supplemented by his
testimony, to provide sufficient information to meet the
threshold for the statutory substantiation requirements. We
accordingly hold that petitioner is entitled to deductions for
airfare ($8,223.58), shuttle and parking ($1,045), airport limo
($1,550), and car rental ($916.51).
With respect to the airport parking ($1,120), meals expense
($9,430), and miscellaneous travel ($3,075), petitioner employed
a per diem basis using 205 days in California as the multiplier
times daily expenditure amounts for parking, meals, and travel.
The parking is based on daily cost, whereas petitioner explained
that the meals and miscellaneous expenses are based on the
established allowances to Federal Government employees.
Respondent makes the general arguments that petitioner is not
entitled to deduct business expenses while in California and that
he has failed to substantiate the amounts claimed. Respondent,
however, has not questioned petitioner’s method of computation
and his use of the per diem approach.
Under section 274, the Commissioner is authorized to
prescribe rules under which optional methods of computing
expenses, including per diem allowances for ordinary and - 9 -
necessary expenses for traveling away from home, may be regarded
as satisfying the substantiation requirements of section 274(d).
Sec. 1.274-5(j), Income Tax Regs. Under this authority, the
Commissioner issued Rev. Proc. 2001-47, 2001-2 C.B. 332
(applicable to petitioner’s travel January through September
2002), and Rev. Proc. 2002-63, 2002-2 C.B. 691 (applicable to
petitioner’s travel October 2002 through October 2003).
Under those revenue procedures, taxpayers may elect to use,
in lieu of substantiating actual expenses, certain authorized
methods for deemed substantiation of employee lodging, meal, and
incidental expenses incurred while traveling away from home. The
procedures include an optional method for use by self-employed
individuals who pay or incur meal costs to compute deductible
costs of business meals and incidental expenses paid or incurred
while traveling away from home.
Petitioner has not offered any evidence showing that he
incurred the daily $7 parking expense or that the cost is $7.
Therefore, we hold that he is not entitled to the $1,120 claimed
for airport parking. With respect to the $9,430 claimed as per
diem meal expense, we hold that petitioner is entitled to use the
alternative method and that he is therefore entitled to claim a
$9,430 deduction.5 Concerning the $3,075 of miscellaneous
5 Although the meals may be subject to the 50-percent limitation of sec. 274(n)(1), the outcome of this case is the same whether the entire $9,430 or one-half of that amount would (continued...) - 10 -
expenses, petitioner has not shown that he is entitled to amounts
in excess of the per diem allowance for meals and, accordingly,
is not entitled to claim that amount.
Of the $25,360.09 claimed for these business expenses,
petitioner is entitled to $21,165.09.
Other Claimed Expenses
Petitioner claimed the following expenses and respondent has
made the following concessions:
Amount Amount Conceded Amount in Item Claimed by Respondent Dispute
Health ins. premiums $6,883.28 $6,883.28 -0-
Telephone long distance 3,307.90 3,107.90 $200.00
Additional telephone 3,435.96 3,216.45 219.51
Office 1 supplies 4,886.31 309.51 4,576.80
Contract labor 7,438.81 2,270.81 5,168.00
Wells Fargo bank charge 4,510.00 784.00 3,726.00 1 Drug expenses 1,559.62 1,559.62 -0-
Medical copayment 100.00 100.00 -0- 1 These amounts are set forth in petitioner’s brief as opposed to the proposed return submitted to respondent in connection with the pretrial activity.
5 (...continued) be allowable. Accordingly, we need not delve into that nuance. - 11 -
As the above schedule reveals, respondent has fully conceded
the health insurance, drug expense, and medical copayment items.
With respect to the drug expense and medical copayment items,
however, respondent’s concession includes the stipulation that
they would be deductible only on Schedule A, Itemized Deductions,
of petitioner’s 2002 Form 1040 subject to the limitations imposed
on such deductions. Respondent’s concession that $6,883.28 is
deductible on petitioner’s Form 1120S is premised on a $2,065
increase in petitioner’s income on his Form 1040 under section
162(l). Therefore, the net effect of this item in the context of
this case is a $4,818.28 deduction.
We therefore consider the remaining four deduction items.
1. Telephone--Petitioner claimed $3,307.90 for telephone
and respondent conceded that petitioner is entitled to $3,107.90
or $200 less than the amount claimed. The remaining $200 is
represented by a check with a notation that it was for “Sprint
Residential”. Petitioner has not shown that the $200 was
expended for a business purpose, and we hold that he is entitled
to the amount conceded by respondent, $3,107.90, for business
telephone for 2002.
2. Office Supplies--Petitioner originally claimed $5,200.36
as office expenses, and on brief he claimed the reduced amount of
$4,886.31. Respondent concedes that petitioner is entitled to
$309.51 of office expenses for 2002. Petitioner provided checks
in support of his reduced claim of $4,886.31. Most of the checks - 12 -
were made to the order of Staples, Kinkos, Yes Graphics, or
Office Max. With the exception of a $324.05 check to Yes
Graphics for “Historical Research” on a book that petitioner was
writing, we find the amounts set forth on the checks to the
above-listed payees are deductible. Petitioner provided five
checks to “Mac Repairs” for repair of his computer and we hold
the amounts are deductible. Petitioner’s checks written to the
local newspaper (Woodburn Independent) in the amounts of $39.40
and $34.40 were for subrent of petitioner’s office space. Those
two amounts are not deductible because the office property was
either jointly owned or owned solely by petitioner’s wife and it
has not been shown what portion, if any, is attributable to
petitioner. Additionally, income from renting the office has not
been shown to be included in respondent’s determination.
Finally, petitioner provided checks written to Fry’s, but he was
unable to specify the items purchased and accordingly is not
entitled to deduct the amounts shown on the Fry’s checks as
business expenses. Overall, petitioner is entitled to deduct
$4,036.036 for office supplies.
3. Contract Labor--Court Reporter’s Fees--Petitioner
claimed $7,438.81 for contract labor, and respondent has conceded
$2,270.81 of the amount claimed. Of the remaining $5,168,
petitioner provided evidence of the payment by check of $1,100
6 This amount includes the amount of respondent’s concession of $309.51. - 13 -
which he has adequately identified as having been expended for
fees paid to a court reporter in connection with the handling of
a case. He did not, however, recall which case in particular was
involved and/or whether he was reimbursed by the client.
Petitioner did not provide records which would have identified
whether any reimbursement he may have received had been included
in the income he reported. Under those circumstances we must
hold that petitioner has not shown that he is entitled to deduct
$1,100 for court reporter’s fees.
Several of the checks petitioner produced were identified as
payments to an attorney and others who assisted petitioner in his
business activity. With respect to some of those items
petitioner did not have a record, nor could he recall the
specific case or the assistance provided. Accordingly,
petitioner has not shown entitlement to a deduction with respect
to those. Concerning $2,844 paid to Alicia Charapata, petitioner
explained that she worked in his office during the summer of 2002
assisting him as a secretary and file clerk. As those amounts
were for general overhead and not for a specific case or client,
the Court finds that it is unlikely that those amounts were
reimbursed by clients, and we hold them to be deductible.
Concerning all other claimed expenses, petitioner’s lack of
specificity and the possibility of client reimbursement, and/or
the subject matter of the expense (i.e., building maintenance),
render these items not deductible. - 14 -
Accordingly, petitioner is entitled to $2,844 in addition to
the $2,270.81 conceded by respondent for a total of $5,114.81 for
contract labor for 2002.
4. Wells Fargo Bank Charges--Petitioner incurred $4,510 in
overdraft charges in connection with his Wells Fargo Bank
account. Respondent has conceded that petitioner is entitled to
deduct $784 of those charges and that the remaining $3,726 is not
deductible because the charges were caused by petitioner’s errors
and such expenditures are not reasonable. The overdraft charges
for 2002 were caused because petitioner miscalculated his bank
balance on 21 occasions where he wrote multiple checks and the
bank charged him $32 per check because of the overdrafts.
Accordingly, on the occasion of petitioner’s 21 overdrafts, he
was charged $21 for an average of five to six checks that caused
the overdraft. Petitioner admits that it was his miscalculations
that caused the overdraft.
Respondent, referencing the statute and several cases,
argues that to be deductible, business expenses must be, among
other things, “reasonable”. The question here, therefore, is
whether petitioner’s actions were “reasonable”. Respondent
contends that the overdrafts were caused by petitioner’s errors
and are therefore unreasonable. It was ordinary and necessary
for petitioner to maintain a bank account and to pay his business
obligations by check. Clearly petitioner exhibited a lack of
acumen, and the bank charges were a cost of his doing business. - 15 -
In Bailey v. Commissioner, T.C. Memo. 1991-385, affd.
without published opinion 968 F.2d 25 (11th Cir. 1992), this
Court disallowed bank overdraft charges which in 2 of 3 years
exceeded $30,000. The Court observed that “[the taxpayers]
continued their practice of incurring and paying overdraft
charges over a 3-year period, and the total amounts paid were
substantial.” The taxpayers argued that they were having
financial difficulties and that they would intentionally overdraw
their bank account as a substitute or alternative to borrowing
funds. The Court rejected the taxpayers’ argument.
Petitioner’s overdraft charges were not the result of
intentional acts but a lack of acumen. By comparison, the
overdraft charges he incurred for 2002 were substantially less
than (10 percent of) the charges in Bailey. Each business may
incur some expense due to carelessness or lack of ability, and in
this case we do not find the amount to be unreasonable.
Furthermore, and although we do not wish to discourage
respondent from negotiating settlements and making concessions,
we have some difficulty understanding why respondent thought that
$784 of bank charges was acceptable and that $3,726 was not.
Accordingly, we hold that petitioner is entitled to deduct $3,726
in bank charges.
Miscellaneous Expenses
made the following concessions: - 16 - Amount Amount Conceded Amount in Item Claimed by Respondent Dispute
Postage, FedEx UPS $3,425.54 $3,425.54 -0-
California office utility 671.00 -0- $671.00
Historical book research 824.05 -0- 824.05
Legal research 204.00 204.00 -0-
Case costs and facility rental 7,819.50 -0- 7,819.50
California business expense 416.38 -0- 416.38
California office rent 18,000.00 -0- 18,000.00
Storage expense 895.00 -0- 895.00
Fax-n-file 1,289.07 -0- 1,289.07
Conference call fees 450.36 -0- 450.36
California auto 4,317.82 -0- 4,317.82
Costco 400.00 -0- 400.00
Interest paid 9,600.00 -0- 9,600.00
Oregon office utility 2,027.43 137.00 1,890.43
Professional dues 1,000.00 -0- 1,000.00
Oregon auto fuel 605.00 605.00 -0-
Book expense 1,830.00 -0- 1,830.00
Hardware and maintenance 572.66 -0- 572.66
Angela Grover’s services 10,000.00 10,000.00 -0-
Bank of America charges 1,800.00 1,800.00 -0-
Misc. business 1,684.00 -0- 1,684.00
Additional Cali- fornia expenses 1,100.00 -0- 1,100.00
Kinkos 97.63 -0- 97.63 - 17 -
With respect to the above-listed expenses that respondent
has not conceded, respondent argues, generally, that petitioner
has failed to carry his ultimate burden of persuasion.
Respondent admits that petitioner may have provided documentation
and testimony with respect to these items, but that he did not
make argument or advocate his position on brief. We consider
each item to discern and decide whether we agree with
respondent’s arguments.
California Office Rent and Utility
Petitioner claimed $18,000 and $671 for rent and utilities,
respectively, for his California office. Although petitioner
provided checks totaling $15,700 for the rent, there is a clear
pattern of $1,500 per month and regular payments. There is no
question about the reasonable and necessary nature of these
expenditures, and accordingly we hold that petitioner is entitled
to deduct the amounts claimed.
Historical Book Research
Petitioner claimed $824.05 for research on a book he
intended to write involving World War II. Respondent argues that
petitioner has not, to date, completed or published the book and
has not shown any connection with the business of his legal
practice. In addition, these costs may constitute capital
expenditures and/or be personal because petitioner has not shown
his intent in connection with this book. Accordingly, we hold
that petitioner is not entitled to claim the $824.05 deduction. - 18 -
Case Costs and Facility Rental, Legal Research, Fax-n-file, and Conference Call Fees
Petitioner claimed case costs and facility rental, legal
research, Fax-n-file, and conference call fees in the amounts of
$7,819.50, $204.00, $1,289.07, and $450.36, respectively. With
respect to each claimed deduction petitioner produced checks
evidencing payment of the amounts. Respondent, among other
arguments, contends that these types of expenses are normally
passed on to clients as reimbursable expenditures made on the
client’s behalf. Petitioner’s failure to keep adequate records
of such things limits his ability to show whether these items
were reimbursed by clients and/or whether they were included in
the income figure petitioner presented. Accordingly, we must
hold that petitioner is not entitled to deduct $7,819.50,
$204.00, $1,289.07, and $450.36, respectively. We note that
petitioner’s failure to keep adequate records was of his own
doing and the sole cause of this seemingly harsh result.
California Business Expense, Storage Expense, Oregon Office Utilities
Petitioner claimed California business expense, storage
expense, and Oregon office utilities of $416.38, $895, and
$2,027.43, respectively. With respect to each claimed deduction
petitioner produced checks evidencing payment of the amounts.
Unlike the items claimed that are reimbursable by clients, these
items are part of petitioner’s business overhead. Accordingly - 19 -
we hold that petitioner is entitled to deduct $416.38, $895.00,
and $2,027.43, respectively.
Interest Paid
Petitioner claimed $9,600 as interest paid on his Oregon
office property. In addition to a mathematical error under which
the $9,600 was overstated by $3,300, petitioner did not provide
substantiation of this amount. Even if petitioner had provided
substantiation, the real property was owned either by or jointly
with petitioner’s wife. Because petitioner and his wife did not
file a joint return and without more information, it would be
impossible to allocate the income and expenses even if petitioner
had provided sufficient substantiation of the amounts. For those
reasons, we hold that petitioner is not entitled to the $9,600
deduction for interest.
California Auto, Costco, Professional Dues, Book Expense, Hardware and Maintenance, Miscellaneous Business, Additional California Expenses, and Kinkos
Petitioner claimed deductions for California Auto, Costco,
professional dues, book expense, hardware and maintenance,
miscellaneous business, additional California expenses, and
Kinkos of $4,317.82, $400, $1,000, $1,830, $572.66, $1684,
$1,100, and $97.63, respectively. With respect to these claimed
deductions, petitioner failed to provide substantiation and,
essentially, made the claim based on his having reported it on
the return document that he provided to respondent for purposes
of this case. In other respects, petitioner has failed to - 20 -
provide the business purpose with respect these items.
Accordingly, petitioner is not entitled to deduct amounts of
$4,317.82, $400, $1,000, $1,830, $572.66, $1,684, $1,100, and
$97.63, respectively.
Summary of Adjustments
The purpose of going through each of petitioner’s claimed
deductions is to determine whether petitioner’s information would
result in an income tax deficiency smaller than the $5,903
determined by respondent. On the basis of our holdings,
petitioner’s income tax deficiency would not be reduced below the
amount determined by respondent. In the notice of deficiency,
respondent’s determination of an income tax deficiency was based
on total income of $26,096, which resulted in taxable income of
$17,329 after considering a $3,000 personal exemption and a
$3,925 standard deduction. It thus appears that petitioner has
not been able to show that his income was less than the amount
determined by respondent, and we accordingly hold that
respondent’s income tax deficiency for 2002 is sustained.7
7 At the conclusion of trial, respondent made an oral motion to conform the pleadings (Rule 41(b)(1)) to the proof. In effect, respondent sought to have the Court use as its starting point in calculating any deficiency the income petitioner reported on the tax return submitted to respondent before trial. The record in this case does not support a finding that petitioner’s income was more or less than the amount determined by respondent in the notice of deficiency. Accordingly, respondent’s motion will be denied. - 21 -
Additions to Tax for Failure To File, Pay, and Make Estimated Payments
Petitioner first argues that no additions to tax are due
because there is no income tax deficiency. Now that the Court
has decided that the income tax deficiency is to be sustained, we
consider petitioner’s secondary arguments. Section 7491(c)
places on respondent a burden of production with respect to the
additions to tax. The evidence in the record shows that no
return was filed or estimates made. Accordingly, respondent has
carried the burden of production with respect to the addition to
tax under section 6651(a)(1).
Section 6651(a)(1) provides for an addition to tax for
failure to timely file a return unless it can be shown that such
failure is due to reasonable cause and not due to willful
neglect. Petitioner bears the burden of proving that his failure
to file was due to reasonable cause and not willful neglect. See
Fischer v. Commissioner, 50 T.C. 164 (1968).
Petitioner contends that his failure to file is due to
reasonable cause because his wife became ill during 2002 and the
effects of that illness continued through 2002 and into
subsequent years. Petitioner also contends that his 2004 illness
presents a basis for reasonable cause. Petitioner contends that
his wife kept his books and that he relied upon her for the
information necessary to file. - 22 -
Petitioner has a duty to file his return, and the extent to
which the Court will treat his reliance upon others as reasonable
cause for failing to meet his filing obligation is limited.
United States v. Boyle, 469 U.S. 241 (1985). Petitioner,
although continuing to travel regularly to California for
business purposes, claims that his wife’s illness impeded his
ability to file a return by April 15, 2003. Although the Court
sympathizes with petitioner’s circumstances, his failure to file
was not due to reasonable cause. We also note that several years
later in 2006, when respondent sent petitioner a notice of
deficiency, his tax return and/or underlying records remained
unfiled/unprepared. In these circumstances we cannot accept
petitioner’s contention that his failure to file was for
reasonable cause, and we so find. Petitioner is therefore liable
for an addition to tax for failure to file his 2002 return.
Late Payment Addition to Tax
Section 6651(a)(2) provides for an addition to tax for
failure to pay the amount of tax shown on a return. The addition
to tax under section 6651(a)(2) applies only when an amount of
tax is shown on a return. See Cabirac v. Commissioner, 120 T.C.
163, 170 (2003). Petitioner failed to file a return before the
issuance of the notice of deficiency. After the issuance of the
notice of deficiency petitioner submitted return documents to
respondent for purposes of pretrial development of the case. The
return documents were not filed, and no assessments of tax based - 23 -
upon those documents were made. Those documents were made,
accordingly, not “returns” in the meaning of the statute. Id. at
170-174. Respondent has failed to carry his section 7491(c)
burden of production; i.e., showing a “return” with unpaid
balance.8 Accordingly, there can be no addition to tax under
section 6651(a)(2) in this case for lack of an unpaid amount of
tax shown on a return.
Failure To Pay Estimated Taxes
Section 6654 imposes an addition to tax for failure to pay
estimated taxes. Respondent’s burden of production with respect
to section 6654 is to show, at a minimum, that petitioner had a
required annual payment under section 6654(d). See Wheeler v.
Commissioner, 127 T.C. 200, 212 (2006), affd. 521 F.3d 1289 (10th
Cir. 2008). In order to meet that burden, respondent must
provide information about the filing of a prior year return.
Respondent contended that petitioner did not file a return for
2001, which is sufficient evidence to meet that burden. Section
6654 does not provide for a reasonable cause exception from the
addition to tax, and petitioner has not shown that he meets any
of the other criteria for an exception from the addition to tax
under section 6654(e). Accordingly, petitioner is liable for the
addition to tax for failure to pay estimated taxes.
8 We note that there was no evidence of substitutes for returns filed under sec. 6020(b) and that the documents petitioner submitted to respondent after the issuance of the notice of deficiency reflected losses and only limited potential for tax liability. - 24 -
To reflect the foregoing,
Decision will be entered
under Rule 155.