T.C. Summary Opinion 2001-169
UNITED STATES TAX COURT
RICHARD P. KRINGEN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 264-01S. Filed October 24, 2001.
Richard P. Kringen, pro se.
Dennis R. Onnen, for respondent.
CARLUZZO, Special Trial Judge: This case was heard pursuant
to the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. Unless otherwise
indicated, subsequent section references are to the Internal
Revenue Code in effect for the years in issue. The decision to
be entered is not reviewable by any other court, and this opinion
should not be cited as authority.
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Respondent determined deficiencies in, and additions to
petitioner’s Federal income taxes as follows:
Additions to Tax
Sec. Sec. Sec.
Year Deficiency 6651(a)(1) 6651(a)(2) 6654(a)
1990 $4,439 $1,109.75 --- $290.62
1993 8,361 2,090.25 --- 350.31
1994 3,897 974.25 --- 202.21
1995 4,221 1,055.25 --- 228.86
1996 4,446 1,000.35 $844.74 236.64
1997 4,238 953.55 550.94 226.71
1998 4,161 871.65 271.18 175.84
In respondent’s answer, increased deficiencies are claimed as
follows: (1) $82 and $420, for 1990 and 1993, respectively, to
reflect petitioner’s correct filing status;1 and (2) amounts that
accrued after June 15, 2000, with respect to the additions to tax
under section 6651(a)(2) for 1996, 1997, and 1998.
After concessions, the issues for decision are: (1) Whether
petitioner is entitled to any deductions for trade or business
expenses; and (2) whether petitioner is liable for additions to
tax under sections 6651(a)(1) and 6654 for the years in issue,
and under section 6651(a)(2) for 1996, 1997, and 1998.
Background
Some of the facts have been stipulated and are so found.
1
In the notice of deficiency, respondent determined
deficiencies for 1990 and 1993 based on a filing status of
single; however, the parties stipulated that petitioner’s correct
filing status for those years is married, filing separate.
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At the time that the petition was filed, petitioner resided in
Topeka, Kansas.
At various times from 1990 through 1998, petitioner worked
as a salesperson, sometimes as an independent contractor and
sometimes as an employee, for no fewer than 10 to 15 companies.
He sold various products or services, such as insurance, tax
services, living trusts, precious coins, travel-related products,
and food products. Some of the companies reported compensation
paid to him as follows:
Company Year Amount Form
Sell America, Inc. 1990 $13,500 1099
The Lazarus Group, Inc. 1993 10,690 1099
A.I.A., Inc. 1993 712 1099
Freedom Life Ins. Co. 1995 86 1099
Loyal American Life Ins. 1997 1,367 1099
Direct Entertainment Service 1997 841 1099
Renaissance 1998 6,500 W-2
During the years in issue, petitioner also worked as a farm
laborer. For 1993, the owner of the farm issued a Form 1099 to
petitioner indicating that petitioner was paid $3,000 that year.
On a loan application dated February 24, 1995, petitioner
represented that his gross income was $1,000 per week. On
another loan application dated November 29, 1995, petitioner
represented that his income from farming was $20,000 per year.
Petitioner signed both applications under penalties of perjury.
In a statement filed in a bankruptcy proceeding petitioner
initiated in August 1998, petitioner indicated that he and his
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wife had total projected monthly income of $4,354 and total
projected monthly expenses of $4,200. Petitioner signed the
statement of his projected monthly income and expenses under
penalties of perjury.
Petitioner did not file a Federal income tax return for any
year in issue. Except for $287 of Federal income tax withheld
from the compensation he received as an employee of Renaissance
in 1998, there were no Federal income tax withholdings or
estimated Federal income tax payments made by petitioner during
any of the years in issue.
Relying upon various indirect methods of determining income
that take into account information received from third parties
and the schedule of income and expenses filed in the bankruptcy
proceeding, respondent, in the notice of deficiency, computed
petitioner’s gross income for each year in issue as follows:
Year Income
1990 $18,648
1993 36,168
1994 21,924
1995 22,680
1996 23,688
1997 24,444
1998 18,700
With the exception of the compensation that petitioner received
from Renaissance in 1998, respondent determined that all other
items of gross income for each year in issue constitute net
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earnings from self-employment subject to the tax imposed on such
income pursuant to section 1401.
Petitioner’s 1990 taxable income was computed by allowing a
personal exemption deduction, a deduction attributable to the
imposition of the self-employment tax, and the standard deduction
applicable to a single individual. For all other years in issue,
petitioner’s taxable income was computed by allowing a personal
exemption deduction, a deduction attributable to the imposition
of the self-employment tax, and itemized deductions. Respondent
further imposed additions to tax under sections 6651(a)(1)
(failure to file returns timely) and 6654(a) (underpayment of
estimated tax) for all the years in issue, and under section
6651(a)(2) (failure to pay taxes timely) for the years 1996,
1997, and 1998.
Discussion
In the petition, petitioner alleged that respondent erred in
the determinations made for each year because each determination
was based “on no facts”. At trial, however, petitioner did not
dispute the amount of gross income attributed to him for each
year in the notice of deficiency. He testified that those
amounts “would probably be close to what I earned” and, to the
extent that the income represented “gross salaries”, the amounts
“would probably be correct”. Instead, he claimed that he should
have been allowed deductions for trade or business expenses
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incurred in connection with the income. Consequently, we proceed
as though petitioner conceded the correctness of the adjustments
contained in the notice of deficiency and consider his claim for
additional deductions.
According to petitioner, he “had a huge amount of business
expenses * * * because * * * [he] was a commissioned
salesperson”. Petitioner further testified that these expenses
would offset the income attributed to him in the notice of
deficiency.
Petitioner was engaged in one or more trades or businesses
during each of the years in issue. In general, a taxpayer is
entitled to a deduction for all ordinary and necessary expenses
paid or incurred in carrying on the taxpayer’s trade or business.
Sec. 162(a). Entitlement to a deduction presupposes that the
taxpayer can substantiate by adequate books and records the
amount of the deduction claimed. Sec. 6001; sec. 1.6001-1(a),
Income Tax Regs.
Petitioner’s business records were not made available to the
Court. Petitioner claims that his records for the years 1990
through 1996 were confiscated by a storage company because he
failed to pay the required storage fees; he claims his records
for 1997 and 1998 are in the possession of an accountant who will
not return the records until petitioner pays the accountant for
services rendered.
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Except for expenses subject to section 274(d), if books and
records are not available to substantiate business expense
deductions, the Court may estimate the amount of deductions to
which a taxpayer is entitled, Cohan v. Commissioner, 39 F.2d 540
(2d Cir. 1930), if there is a sufficient factual basis in the
record that allows us to do so, Vanicek v. Commissioner, 85 T.C.
731, 742-743 (1985). Here, there is no factual basis in the
record on which an estimate can be made. Petitioner made no
attempt to reconstruct the business records that he claims are
now unavailable to him. Instead, he makes only a broad assertion
that he is entitled to business expense deductions for each year
in issue. On the basis of the record before us, we are not
satisfied that petitioner has established his entitlement to any
deduction not already allowed by respondent in the notice of
deficiency. Therefore, petitioner is not entitled to any trade
or business expense deductions for any of the years in issue.
The deficiencies for the years in issue, including respondent’s
claim for increased deficiencies for the years 1990 and 1993, are
therefore sustained.
Respondent also determined that petitioner is liable for
additions to tax for: (1) Failure to file tax returns under
section 6651(a)(1); (2) failure to make timely payment of taxes
under section 6651(a)(2); and (3) failure by an individual to pay
estimated income tax in accordance with section 6654.
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Section 6651(a)(1) provides for an addition to tax of 5
percent of the tax required to be shown on the return for each
month or fraction thereof for which there is a failure to file,
not to exceed 25 percent. Section 6651(a)(2) provides for an
addition to tax of .5 percent per month up to 25 percent for
failure to pay the amount shown or required to be shown on a
return. A taxpayer may be subject to both paragraphs (1) and
(2), in which case the amount of the addition to tax under
section 6651(a)(1) is reduced by the amount of the addition to
tax under section 6651(a)(2) for any month to which an addition
to tax applies under both paragraphs (1) and (2). The combined
amounts under paragraph (1) and paragraph (2) cannot exceed 5
percent per month. Sec. 6651(c)(1).
The additions to tax under section 6651(a)(1) and (2) are
applicable unless the taxpayer establishes that: (1) The failure
to file and/or pay did not result from willful neglect, and (2)
the failure to file and/or pay was due to reasonable cause.
United States v. Boyle, 469 U.S. 241, 245 (1985); Heman v.
Commissioner, 32 T.C. 479 (1959), affd. 283 F.2d 227 (8th Cir.
1960).
Although required to do so, petitioner did not file a
Federal income tax return for any of the years in issue. Other
than his generalized assertions that respondent’s determinations
are erroneous, petitioner makes no claim that his failure to
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file and pay for each year in issue was due to reasonable cause
and not due to willful neglect. Accordingly, we sustain the
determinations of respondent with respect to the section
6651(a)(1) and (2) additions to tax. We further sustain
respondent’s assertion of increased deficiencies under section
6651(a)(2) for the years 1996, 1997, and 1998. Lopez v.
Commissioner, T.C. Memo. 2001-93.
Subject to exceptions that do not apply in this case,
section 6654(a) provides for an addition to tax “in the case of
any underpayment of estimated tax by an individual”. Although
required to do so, petitioner made no estimated tax payments
during any year in issue. Therefore, respondent’s imposition of
the addition to tax under section 6654(a) for each year in issue
is sustained.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.