Randall C. and Leslie A. Whitney v. Commissioner

2011 T.C. Summary Opinion 106

• Court: United States Tax Court
• Decided: August 30, 2011
• Docket: 20393-09S
• Status: Unpublished

Opinion

T.C. Summary Opinion 2011-106

UNITED STATES TAX COURT

RANDALL C. AND LESLIE A. WHITNEY, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 20393-09S. Filed August 30, 2011.

Randall C. and Leslie A. Whitney, pro sese.

Chong S. Hong, for respondent.

HAINES, Judge: This case was heard pursuant to section 7463

of the Internal Revenue Code in effect when the petition was

filed.1 Pursuant to section 7463(b), the decision to be entered

is not reviewable by any other court, and this opinion shall not

be treated as precedent for any other case.

1 Unless otherwise indicated, all section references are to the Internal Revenue Code, as amended for the years at issue, and Rule references are to the Tax Court Rules of Practice and Procedure. Amounts are rounded to the nearest dollar. -2-

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

The first stipulation of facts and the stipulation of settled

issues, together with the attached exhibits, are incorporated

herein by this reference. At the time petitioners filed their

petition, they resided in California.

Respondent determined deficiencies in petitioners’ Federal

income tax and additions to tax as follows:

Additions to Tax Year Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2)

2003 $4,100 $923 $2,540 2004 667 --- ---

The sole issue remaining for decision is whether petitioners are

liable for the additions to tax pursuant to section 6651(a)(1)

and (2) for 2003.

Background

Petitioner Randall Whitney (Mr. Whitney) is a limited

partner in the Darrow Family Partnership (DFP). In 2003 DFP had

a disagreement with New York Life Insurance (NYL) regarding the

Federal tax consequences of an annuity held with NYL. DFP’s

position was that it should recognize income from the annuity

only when amounts were “paid out”. NYL issued DFP a Form 1099-R,

Distributions From Pensions, Annuities, Retirement or Profit-

Sharing Plans, IRAs, Insurance Contracts, etc., requiring DFP to

recognize income from the annuity that had accrued but had not

been distributed. As a result, DFP failed to timely issue Mr. -3-

Whitney a Schedule K-1, Partner’s Share of Income, Credits,

Deductions, etc., for 2003.

Petitioners filed Form 2688, Application for Additional

Extension of Time To File U.S. Individual Income Tax Return, for

2003, requesting an extension of their filing deadline to October

15, 2004. Respondent received petitioners’ return for 2003 on

April 8, 2005. Petitioners’ return for 2003 shows a tax

liability and wage withholding of $12,876 and $4,688,

respectively.

On July 10, 2009, respondent issued a notice of deficiency

to petitioners. Petitioners timely filed their petition with

this Court on August 26, 2009.

Discussion

I. Burden of Proof

The Commissioner has the burden of production with respect

to any penalty, addition to tax, or additional amount. Sec.

7491(c). The Commissioner satisfies this burden of production by

coming forward with sufficient evidence indicating that it is

appropriate to impose the penalty. See Higbee v. Commissioner,

116 T.C. 438, 446 (2001). Once the Commissioner satisfies this

burden of production, the taxpayer must persuade the Court that

the Commissioner’s determination is in error by supplying

sufficient evidence of an applicable exception. Id. -4-

II. Section 6651(a)(1) and (2) Additions to Tax

Section 6651(a)(1) imposes an addition to tax for failure to

file a return on the date prescribed unless the taxpayer can

establish that the failure is due to reasonable cause and not due

to willful neglect. The parties do not dispute that petitioners

failed to timely file a Federal income tax return for 2003.

Accordingly, respondent has satisfied his burden of production

under section 7491(c).

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

to pay the amount shown as tax on the taxpayer’s return on or

before the date prescribed unless the taxpayer can establish that

the failure is due to reasonable cause and not due to willful

neglect.2 Sufficient payments are made if the tax liability

shown on the return less the amount of tax paid by the statutory

due date is no greater than 10 percent of the amount of the tax

liability shown on the return. Sec. 301.6651-1(c)(3)(i), Proced.

& Admin. Regs.

Petitioners’ return for 2003 shows a tax liability of

$12,876. Respondent submitted Form 4340, Certification of

Assessments, Payments, and Other Specified Matters, certifying

that petitioners’ 2003 wage withholding was $4,688, far below the

2 The amount of the addition to tax under sec. 6651(a)(2) reduces the amount of the addition to tax under sec. 6651(a)(1) for any month to which an addition to tax applies under both paragraphs. Sec. 6651(c)(1). -5-

regulation’s requirement. Petitioners’ return for 2003 indicates

that they made additional payments towards their 2003 tax

liability. However, the Form 4340 does not reflect any

additional payments, respondent has no other records of these

payments, and petitioners have failed to present any proof that

such payments were made. Thus, respondent has produced

sufficient evidence that petitioners are liable for the section

6651(a)(2) addition to tax for 2003 unless an exception applies.

See Higbee v. Commissioner, supra at 446.

III. Reasonable Cause

Reasonable cause is a defense to the section 6651(a)(1) and

(2) additions to tax. To prove reasonable cause for a failure to

timely file, petitioners must show that they exercised ordinary

business care and prudence and were nevertheless unable to file

the return within the prescribed time. See Crocker v.

Commissioner, 92 T.C. 899, 913 (1989); sec. 301.6651-1(c)(1),

Proced. & Admin. Regs. To prove reasonable cause for a failure

to pay the amount shown as tax on a return, petitioners must show

that they exercised ordinary business care and prudence in

providing for payment of their tax liability and nevertheless

either were unable to pay the tax or would suffer undue hardship

if they paid the tax on the due date. See sec. 301.6651-1(c)(1),

Proced. & Admin. Regs. The determination of whether reasonable

cause exists is based on all the facts and circumstances. Estate -6-

of Hartsell v. Commissioner, T.C. Memo. 2004-211; Merriam v.

Commissioner, T.C. Memo. 1995-432, affd. without published

opinion 107 F.3d 877 (9th Cir. 1997).

Petitioners concede that they failed to file their return

for 2003 in time but argue that they had reasonable cause because

the dispute with NYL caused DFP to fail to provide Mr. Whitney’s

Schedule K-1 in time for them to timely file. Consequently, they

claim they did not have the information needed to timely file

their return for 2003. Petitioners further argue that because

they were unable to file a timely return, they were also unable

to timely pay the tax liability shown on their return.

The unavailability of information or records does not

necessarily establish reasonable cause for failure to file a

timely return. Elec. & Neon, Inc. v. Commissioner, 56 T.C. 1324,

1342-1343 (1971), affd. without published opinion 496 F.2d 876

(5th Cir. 1974). More specifically, a third party’s failure to

provide a necessary Schedule K-1 is not sufficient to establish

reasonable cause. See Van Ryswyk v. Commissioner, T.C. Memo.

2009-189; Dunne v. Commissioner, T.C. Memo. 2008-63. Petitioners

were required to timely file a return based upon the best

information available and to file thereafter an amended return if

necessary. See Estate of Vriniotis v. Commissioner, 79 T.C. 298,

311 (1982). -7-

Petitioners have failed to prove reasonable cause for

failing to timely file their return for 2003. Further, they have

not presented any evidence of economic hardship. Accordingly, we

sustain respondent’s determination with respect to the additions

to tax pursuant to section 6651(a)(1) and (2).

In reaching our holdings herein, we have considered all

arguments made, and, to the extent not mentioned above, we

conclude they are moot, irrelevant, or without merit.

To reflect the foregoing,

Decision will be entered

under Rule 155.