Stricklin v. Commissioner

T.C. Memo. 1998-12

UNITED STATES TAX COURT

EDDIE STRICKLIN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 16557-95. Filed January 12, 1998.

Eddie Stricklin, pro se.

David D. Choi, for respondent.

MEMORANDUM OPINION

GALE, Judge: Respondent determined the following

deficiencies in, and additions to, petitioner's Federal income

taxes:1

1
Unless otherwise noted, section references are to the
Internal Revenue Code in effect for the years in issue, and Rule
references are to the Tax Court Rules of Practice and Procedure.
 - 2 -

Additions to Tax
Sec. Sec.
Year Deficiencies 6651(a)(1) 6654

1989 $4,352 $ 893 $235.79
1990 9,972 2,454 307.05

The issues for decision are as follows: (1) Whether

petitioner received unreported income for the years in issue, as

determined by respondent. We hold that he did. (2) Whether

petitioner is liable for self-employment taxes under section 1401

for the years in issue. We hold that he is. (3) Whether

petitioner is liable for additions to tax under section

6651(a)(1) for failure to file timely returns for the years in

issue. We hold that he is. (4) Whether petitioner is liable for

additions to tax under section 6654(a) for failure to make

estimated tax payments for the years in issue. We hold that he

is.

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

incorporate by this reference the stipulation of facts and

attached exhibits. At the time of filing the petition,

petitioner resided in Hammond, Indiana. During the years in

issue, petitioner worked as a truck driver and earned income in

that capacity. In 1989, petitioner was employed by the following

companies and received W-2 income in the following amounts:

Ray Cossette Trucking $2,148
Citywide Constructing 554
Bork Transport 3,131
Weston Corporation 660
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In 1990, petitioner was employed by and received W-2 income from

Dana Transport totaling $753. In addition to the W-2 income

received during 1989 and 1990, petitioner worked for and received

income from Lighthouse Transport (Lighthouse) during both years.

Petitioner had no other source of income during these years.

During the years in issue, petitioner resided in Chicago,

Illinois, with his aunt to whom he paid rent in the amount of

approximately $200 per month. Petitioner gave money to his 17-

year-old daughter who was not living with him and also paid his

own living expenses, which included the cost of food, clothing,

recreation, gasoline, and car insurance. In addition, petitioner

paid lodging expenses for stays in motels between six and eight

times a month. Petitioner had no checking or savings accounts

during the years in issue.

In 1991, petitioner was employed by Dana Transport from

which he received somewhere between $30,000 and $40,000 in W-2

income during the taxable year.

On February 6, 1992, petitioner was involved in a traffic

accident resulting in a fire in his truck in which all of his

then-existing records were destroyed.

Respondent mailed a notice of deficiency to petitioner with

respect to 1989 and 1990 on June 28, 1995. Because petitioner

did not file income tax returns for these years, the notice of

deficiency was based upon substitute returns prepared by

respondent. In the notice of deficiency, respondent determined
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that the income received from Ray Cossette Trucking, Citywide

Constructing, Bork Transport, and Weston Corporation in 1989 and

from Dana Transport in 1990 constituted W-2 income that was not

reported. In addition to the W-2 income, respondent determined

that petitioner had Schedule C gross receipts of $14,790 in 1989

and $34,320 in 1990 that were not reported. The deficiency

notice further determined that petitioner was liable for self-

employment taxes on the Schedule C gross receipts in the amounts

of $1,926 for 1989 and $4,849 for 1990. The notice did not

identify the source of the Schedule C gross receipts, or

otherwise disclose how these income determinations were made.

Petitioner admits receiving all of the W-2 income determined

in the notice of deficiency. However, petitioner disputes the

$14,790 and $34,320 amounts determined by respondent to be

Schedule C gross receipts in 1989 and 1990, respectively.

Petitioner has stipulated that he worked for Lighthouse as a

truck driver during these years and received income as a result,

but contends that he received less than the amounts determined by

respondent to be Schedule C gross receipts. Specifically,

petitioner testified that he received approximately $3,000 by

check from Lighthouse in 1989, but that Lighthouse's checks

thereafter began to bounce, and he insisted on payment in cash

for the rest of 1989 and all of 1990. These payments were made

on a commission basis by which petitioner received a percentage

of the price paid to Lighthouse for each truckload or delivery he
 - 5 -

made on the company's behalf. Petitioner testified that he

"didn't keep track" of the amounts received from Lighthouse and

did not have "any idea" how much cash he received from the

company. Nonetheless, he contends, it was less than the amounts

determined by respondent.

Although respondent made a determination in the deficiency

notice that petitioner had received and not reported Schedule C

gross receipts in the amounts previously noted, neither party

produced a Form 1099 or any other evidence to document the

precise amount of the payments from Lighthouse to petitioner.

Petitioner did not keep any record of the amount of cash he

received from Lighthouse, concedes that he did not file Federal

income tax returns containing estimates of the amounts received,

and was unable to make an estimate of these amounts at trial.

However, petitioner's own testimony and stipulations link him to

an income-generating activity and to the receipt of Schedule C

gross receipts that were not reported. Other than his

unsubstantiated assertion that the specific amounts are too

great, petitioner has produced no evidence that the Schedule C

gross receipts determined in the notice of deficiency were

erroneous. Respondent provided evidence that petitioner incurred

significant expenses during the years in issue and had no other

source of income beyond the W-2 income (totaling $6,493 for 1989,

$753 for 1990) and whatever amounts he received from Lighthouse.

In addition, respondent elicited testimony from petitioner that
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he earned between $30,000 and $40,000 from his truck driving

activities in 1991, the year immediately following the 2 years in

issue. This evidence from 1991 indicates that petitioner was

capable of earning from truck driving the amounts determined by

respondent to be unreported gross receipts in the years in issue.

The Court of Appeals for the Seventh Circuit has made clear

in this context that, in order for a deficiency determination to

be entitled to the presumption of correctness, it need not

pinpoint the exact amount of the deficiency. Rather, the

determination need only be rationally based.

It is significant that we have described the necessary
showing as "arbitrary and erroneous," not just
"erroneous." As the Eighth Circuit has observed in a
related context, the Commissioner's "assessment is
intended to be an estimate. It is expected to be
rational not flawless." [Pittman v. Commissioner, 100
F.3d 1308, 1317 (7th Cir. 1996), affg. T.C. Memo. 1995-
243; citations omitted.]

Because there is sufficient predicate evidence to support the

deficiency determination, we conclude that the unreported

Schedule C gross receipts determinations made by respondent are

not arbitrary and erroneous or without rational foundation.

Section 6001 requires a taxpayer to maintain adequate

records supporting the amount of gross income, deductions,

credits, and other matters required to be shown on his income tax

return. See sec. 1.6001-1(a), Income Tax Regs. We find that

petitioner failed to keep adequate records relating to his cash

receipts from Lighthouse as required by section 6001. Petitioner
 - 7 -

concedes that he did not keep track of the cash he received from

Lighthouse and was unable to provide even an estimate of the

amounts received from, or the number of deliveries made on behalf

of, the company. Even accepting petitioner's contention that he

kept all of his records in his truck and that they were destroyed

when the truck burned in an accident in 1992, we do not believe

this affects the result in this case, in light of petitioner's

concession that he did not keep any record of the cash he

received from Lighthouse in 1989 and 1990. Accordingly, we

conclude that petitioner has failed to meet his burden of proving

that the amounts of unreported Schedule C gross receipts

determined by respondent for the years in issue are erroneous.

Therefore, we sustain respondent's determinations, which were

based upon income-producing activities that petitioner concedes

occurred and which bear a rational relationship to amounts that

petitioner concedes he earned from similar income-producing

activities in the immediately subsequent year.

Respondent also determined that petitioner is liable for

self-employment taxes pursuant to section 1401 of $1,926 for 1989

and $4,849 for 1990. Section 1401 imposes a tax on self-

employment income, which consists of the gross income derived

from any trade or business carried on by the taxpayer less

allowable deductions attributable to such trade or business.

Sec. 1402(a). Respondent's determination that petitioner is

liable for self-employment tax on his Schedule C gross receipts
 - 8 -

is presumed correct, and petitioner bears the burden of proving

that it is erroneous. Rule 142(a); Siebert v. Commissioner, T.C.

Memo. 1997-6. Petitioner has failed to produce any evidence on

the issue of his liability for self-employment taxes. Therefore,

we sustain respondent's determination that petitioner is liable

for self-employment taxes for 1989 and 1990.

The last issues to be addressed concern whether petitioner

is liable for the additions to tax under sections 6651(a)(1) and

6654(a) proposed by respondent. Section 6651(a)(1) provides an

addition to tax for failure to file a Federal income tax return

by its due date (determined with regard to extensions), unless

the taxpayer shows that such failure was due to reasonable cause

and not willful neglect. The taxpayer bears the burden of

proving both. United States v. Boyle, 469 U.S. 241, 245 (1985).

A showing of reasonable cause requires that the taxpayer

demonstrate that he exercised ordinary business care and prudence

but nevertheless was unable to file the return within the

prescribed time. Sec. 301.6651-1(c)(1), Proced. & Admin. Regs.;

see also United States v. Boyle, supra at 246.

Petitioner stipulated that he did not file individual income

tax returns for the years 1989 and 1990 but claims to have

reasonable cause because of the destruction of his records in the

truck accident previously discussed. However, the destruction of

his records in February 1992 does not constitute reasonable cause

for failing to file returns for 1989 and 1990, which were due on
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April 15, 1990, and April 15, 1991, respectively. Therefore, we

find that petitioner has failed to show reasonable cause and is

liable for the addition to tax under section 6651(a)(1) for each

of the years in issue.

As to the addition to tax for failure to pay estimated tax

pursuant to section 6654(a), no relief is available unless

petitioner shows that he falls within an exception provided under

section 6654(e). Petitioner has failed to make such a showing

and therefore is liable for the addition to tax under section

6654(a) for each of the years in issue.

To reflect the foregoing,

Decision will be entered

for respondent.