T.C. Memo. 1997-28
UNITED STATES TAX COURT
RICHARD T. WALLACE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 22124-94. Filed January 15, 1997.
Richard T. Wallace, pro se.
Virginia L. Hamilton, for respondent.
MEMORANDUM OPINION
SCOTT, Judge: Respondent determined deficiencies in
petitioner's Federal income taxes and additions to tax for 1990
through 1993 as follows:
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Additions to Tax
Year Deficiency Sec. 6651(a)(1)1 Sec. 6654
1990 $5,472 $1,368 ---
1991 5,675 1,419 $324
1992 5,869 1,467 256
1993 6,124 612 257
The issues for decision are: (1) Whether petitioner
received taxable income in the amounts determined by respondent
during the years 1990 through 1993; (2) whether petitioner is
liable for self-employment taxes for each of the years 1990
through 1993; (3) whether petitioner is liable under section
6651(a) for the additions to tax for failure to file Federal
income tax returns for each of the years 1990 through 1993; and
(4) whether petitioner is liable under section 6654 for the
additions to tax for failure to make estimated tax payments for
each of the years 1991 through 1993.
This case was submitted with the facts fully stipulated
under Rule 122. The stipulation of facts and the exhibits
attached thereto are incorporated herein by reference. The
pertinent facts are summarized below.
Petitioner resided in Boulder, Colorado, at the time his
petition was filed in this case. He filed no Federal income tax
1
All section references are to the Internal Revenue Code
in effect for the years in issue, and all Rule references are to
the Tax Court Rules of Practice and Procedure, unless otherwise
indicated.
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returns and paid no Federal income taxes for 1990, 1991, 1992,
and 1993.
1. Determination of Taxable Income
Petitioner failed to provide any information as to the
amount or source of his income for the years 1990 through 1993.
During those years he was self-employed in the business of
selling hearing aids and giving hearing tests. He had been in
such business for about 20 years. Petitioner admitted during an
investigation by the Colorado Consumer Protection Office that
between July 1992 and January 1994, he had at least six business
transactions in Colorado. He also admitted that he transacted
most of his business in States other than Colorado and in six
foreign countries, but he refused to disclose any information
relating to such business.
Petitioner provided some support for his wife, Martha
Wallace, during the years 1992 and 1993.
In determining the amounts of petitioner's income for the
years 1990 through 1993, respondent used data obtained from the
U.S. Department of Labor, Bureau of Labor Statistics, which
detailed what it would cost a family of four to live, taking into
account food, housing, transportation, medical care, personal
care, and taxes. These figures were adjusted to one person,
based on the Bureau of Labor Statistics Survey of Consumer
Expenditures. Respondent subtracted all taxes contained in the
Bureau of Labor Statistics determination of necessary expenses.
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Respondent then took the adjusted expenditures for one person and
applied the Consumer Price Index based on the Denver area to
determine the necessary income for petitioner to live on during
1990 through 1993. Thus, the Bureau of Labor Statistics method
resulted in determined income of $22,034 for 1990, $22,886 for
1991, $23,733 for 1992, and $24,738 for 1993.
Section 61 provides, in part, that gross income means income
derived from business and as compensation for services. Section
63(b) provides that, in the case of an individual who does not
elect to itemize deductions, the term "taxable income" means
adjusted gross income minus the standard deduction and the
deduction for personal exemptions. Section 63(c) provides the
amount of the basic standard deduction for the years 1990 through
1993 for an individual married and filing separately. Respondent
allowed petitioner these deductions.
Section 151 provides for a personal exemption. Petitioner
presented no evidence that he is entitled to claim any exemption
other than for himself.
Petitioner was required to maintain books and records
sufficient to establish the amount of his gross income. Sec.
6001; DiLeo v. Commissioner, 96 T.C. 858, 867 (1991), affd. 959
F.2d 16 (2d Cir. 1992). He failed to do so. Therefore,
respondent was authorized to compute petitioner's income by any
method that clearly reflected income. Sec. 446(b); Holland v.
United States, 348 U.S. 121 (1954). Any such reconstruction of
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income need only be reasonable in light of all surrounding facts
and circumstances. Giddio v. Commissioner, 54 T.C. 1530, 1533
(1970). The Commissioner is given wide latitude in determining
which method of reconstruction to apply when a taxpayer fails to
maintain adequate books and records. Petzoldt v. Commissioner,
92 T.C. 661, 693 (1989).
In this case petitioner neither filed Federal income tax
returns for the years in issue nor provided information with
respect to his business income. Respondent, however, linked
petitioner to his self-employed business of selling hearing aids
and administering hearing tests, and determined from third-party
sources that petitioner received taxable income for the years in
issue. In these circumstances respondent had broad latitude in
using the method based on the Bureau of Labor Statistics
expenditures to determine petitioner's income. That method was
specifically approved by this Court in Giddio v. Commissioner, 54
T.C. at 1533. There we sustained the Commissioner's
determination of a taxpayer's deficiency computed by using Bureau
of Labor Statistics data showing the normal cost of supporting a
family in the locality where he lived in order to arrive at
taxable income.
We disagree with petitioner's primary contention that
respondent's determination is arbitrary and excessive and that
therefore respondent bears the burden of proving that he had
taxable income.
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The Commissioner's deficiency determination is generally
afforded a presumption of correctness. United States v. Janis,
428 U.S. 433, 441-442 (1976); Welch v. Helvering, 290 U.S. 111,
115 (1933). However, in nonfiler cases, such as this one, there
are decisions holding that the Commissioner cannot sustain a
deficiency determination or assessment unless there is some
predicate evidence showing that the taxpayer received income from
the charged activity. United States v. Janis, supra at 442;
Anastasato v. Commissioner, 794 F.2d 884, 887 (3d Cir. 1986);
Gerardo v. Commissioner, 552 F.2d 549, 554 (3d Cir. 1977); see
also Dellacroce v. Commissioner, 83 T.C. 269 (1984). The
evidentiary foundation need only be minimal. Weimerskirch v.
Commissioner, 596 F.2d 358, 361 (9th Cir. 1979).
Petitioner has incorrectly asserted that respondent has
presented no such evidence. As previously indicated, the
evidence links petitioner to an income-producing activity. It
also shows that he carried on his hearing aid business in
Colorado and other States and in foreign countries. In view of
these facts and circumstances, we conclude that respondent's
determination has not been shown to be either arbitrary or
excessive. The burden of proving error in the determination
remained with petitioner. He failed to carry it.
Petitioner's reliance on Senter v. Commissioner, T.C. Memo.
1995-311, is misplaced. In Senter the Commissioner produced no
predicate evidence that the taxpayer received unreported income
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for the years at issue. That is not the situation here. The
cases of Scar v. Commissioner, 814 F.2d 1363 (9th Cir. 1987), and
Couzens v. Commissioner, 11 B.T.A. 1040 (1928), cited by
petitioner, are inapposite.
Accordingly, we hold that petitioner received taxable income
in the amounts determined by respondent for the years 1990
through 1993.
2. Self-employment Taxes
Section 1401 imposes a tax on the "the self-employment
income" of every individual. In general, self-employment income
consists of "the net earnings derived by an individual (other
than a nonresident alien) from a trade or business carried on by
him as sole proprietor", less allowable deductions and certain
exclusions. Sec. 1402(a); sec. 1.1401-1(c), Income Tax Regs.
Petitioner presented no evidence contesting respondent's
determination that he is subject to self-employment tax under
section 1401. Therefore, we hold that petitioner is liable for
self-employment taxes in the amounts determined by respondent for
the years 1990 through 1993.
3. Section 6651(a)(1) Additions to Tax
For each year in issue respondent determined that petitioner
is liable for the addition to tax under section 6651(a)(1) for
his failure to file a Federal income tax return. Section
6651(a)(1) provides for an addition to tax in the amount of 5
percent of the amount of the tax if the failure to file is for
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not more than 1 month, with an additional 5 percent for each
month in which the failure to file continues, to a maximum of 25
percent of the tax in the aggregate. The addition to tax is
applicable unless it is shown that the failure to file is due to
reasonable cause and not due to willful neglect.
There is no evidence in the record that suggests that
petitioner's failure to file a Federal income tax return for any
year in issue was due to reasonable cause and not due to willful
neglect. It was petitioner's burden to produce such evidence,
Rule 142(a), and this he has failed to do. Consequently, we
sustain respondent's determination that petitioner is liable for
the additions to tax under section 6651(a)(1) for the years 1990
through 1993.
4. Section 6654 Additions to Tax
For the years 1991 through 1993 respondent determined that
petitioner is liable for the additions to tax under section 6654
for his failure to make estimated tax payments. Section 6654
provides for an addition to tax if estimated taxes are underpaid.
It contains no provision relating to reasonable cause and lack of
willful neglect. Because petitioner failed to make any estimated
tax payments for each of the years 1991 through 1993,
respondent's determination is sustained. Grosshandler v.
Commissioner, 75 T.C. 1, 20-21 (1980).
To reflect the foregoing,
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Decision will be entered
for respondent.