T.C. Memo. 2005-187
UNITED STATES TAX COURT
ANDREW L. PARADISO, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 9361-03. Filed July 26, 2005.
Andrew L. Paradiso, pro se.
Theresa G. McQueeny, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COLVIN, Judge: Respondent determined a deficiency of
$25,490 in petitioner’s Federal income tax for 2000 and that
petitioner is liable for additions to tax of $5,689.80 under
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section 6651(a)(1)1 for failure to file, $2,402.36 under section
6651(a)(2) for failure to pay, and $1,358.88 under section
6654(a) for failure to pay estimated tax. Respondent conceded
that petitioner is not liable for the addition to tax under
section 6651(a)(2) but contends that petitioner is liable for an
increased addition to tax under section 6651(a)(1) of $6,322 for
2000. After concessions by the parties, the issues for decision
are:
1. Whether petitioner’s sale and purchase of mutual fund
shares in 2000 qualifies as a like-kind exchange under section
1031. We hold that it does not.
2. Whether petitioner may carry forward charitable
contribution deductions from 1995 to 2000 in the amount of $977.
We hold that he may not.
3. Whether we have jurisdiction to decide if respondent
erroneously applied a $5,908 overpayment for 1992 to 1979. We
hold that we do not.
4. Whether petitioner is liable for the addition to tax
for failure to file under section 6651(a)(1) of $6,322 for 2000
and the addition to tax for failure to pay estimated tax under
section 6654 for 2000. We hold that he is.
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended, and all Rule References
are to the Tax Court Rules of Practice and Procedure.
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5. Whether affidavits petitioner sought to offer into
evidence after trial are admissible. We hold that they are not.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
A. Petitioner
Petitioner resided in Kingston, New York, when he filed the
petition in this case.
Petitioner worked for IBM for 20 years and retired in July
1992. He began to receive Social Security disability benefits in
December 1994. From 2000 through the date of trial, petitioner
operated a sole proprietorship through which he sold and repaired
personal computers and provided technical assistance related to
personal computers. In 2000, petitioner’s sole proprietorship
had gross receipts of $1,704 and a net loss of $5,728.
B. Purchase and Sale of Shares of Fidelity Magellan and
Fidelity Growth & Income Funds
On August 11, 1992, petitioner bought 223.947 shares of
Fidelity Magellan Fund for $15,002.75 and 695.41 shares of
Fidelity SECS Growth & Income Fund for $15,002.75. Petitioner
reinvested dividends and capital gains distributions he received
from 1992 to 2000 into the Fidelity Magellan Fund and the
Fidelity SECS Growth & Income Fund. On July 19, 2000, petitioner
sold 280.18 shares of Fidelity Magellan Fund for $38,482.72 and
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891.027 shares of Fidelity SECS Growth & Income Fund for
$42,724.74.
Petitioner received a Form 1099-B, Proceeds From Broker and
Barter Exchange Transactions, for 2000 which states that
petitioner sold his shares of the Fidelity Magellan Fund and the
Fidelity SECS Growth & Income Fund on July 19, 2000. On a date
not stated in the record, petitioner discussed with his broker,
William Dunstan (Dunstan), whether the sale of his shares of the
two Fidelity funds was taxable. The record does not indicate
what Dunstan said.
C. Petitioner’s Returns
Petitioner prepared draft Federal income tax returns for
1999 and 2000. He used TurboTax software to prepare a draft 2000
return. Petitioner did not file Federal income tax returns for
1997, 1998, 1999, or 2000.
D. Proceedings in This Court
On April 22, 2004, we sent a notice to petitioner setting
this case for trial. The notice states:
The parties are hereby notified that the above-
entitled case is set for trial at the Trial Session
beginning on September 27, 2004.
The calendar for that Session will be called at
10:00 A.M. on that date and both parties are expected
to be present at that time and be prepared to try the
case. * * *
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On the day of the calendar call and trial, petitioner said
that he expected to receive an affidavit from Dunstan and a
medical affidavit. Petitioner did not offer the affidavits into
evidence at trial.
After respondent’s opening brief was filed, petitioner filed
motions to reopen the record to admit (1) an affidavit from
Dunstan regarding the sale of his mutual funds in 2000, and (2)
an affidavit petitioner said pertains to his medical condition.
Petitioner attached Dunstan’s affidavit to his motion
relating to that affidavit. In it, Dunstan states that he had
recently learned that petitioner erroneously interpreted the 2000
mutual fund sale as a tax-free exchange. Petitioner did not
attach an affidavit to the other motion.
OPINION
A. Whether Petitioner’s Sales of Mutual Fund Shares in 2000
Were Like-Kind Exchanges Under Section 1031
Petitioner contends that his sales of mutual fund shares in
2000 are not subject to income tax in that year because they were
like-kind exchanges under section 1031(a)(1). We disagree.
Section 1031(a)(1) expressly does not apply to the sale of stock
or other securities. Sec. 1031(a)(2)(B) and (C). Thus,
petitioner realized taxable income from his sales of mutual fund
shares in 2000.
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B. Whether Petitioner May Carry Forward Charitable Contribution
Deductions From 1995 to 2000
Petitioner testified and contends that he may carry forward
a charitable contribution deduction of $977 from 1995 to 2000.
Petitioner testified that he had a pattern of charitable giving.
He contends that we may estimate his charitable contributions
under Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930).
A taxpayer may deduct a charitable contribution if
substantiated with a canceled check, receipt, or other reliable
written record. Sec. 1.170A-13(a)(1), Income Tax Regs. Under
Cohan v. Commissioner, supra, we may estimate the amount of a
deductible expense if a taxpayer establishes that he or she paid
the expense but cannot substantiate the precise amount.
Petitioner’s only evidence that he contributed the claimed amount
is his testimony. He did not provide an adequate basis to permit
us to estimate the amount of his contributions under Cohan. We
conclude that petitioner may not carry forward charitable
contribution deductions from 1995 to 2000.
C. Whether Respondent Erroneously Applied an Overpayment From
1992 To Pay Tax Petitioner Owed for 1979
Petitioner contends that respondent erroneously applied a
$5,908 overpayment for 1992 to satisfy what respondent contends
was petitioner’s unpaid tax liability for 1979. Petitioner
contends that he had fully paid his 1979 taxes by 1986.
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We have jurisdiction in this case to redetermine
petitioner’s deficiency for 2000. We may consider facts from
other years if necessary to redetermine the deficiency for 2000.
Sec. 6214(b). We need not review respondent’s application of
petitioner’s overpayment for 1992 to 1979 to redetermine
petitioner’s tax liability for 2000. Thus, we lack jurisdiction
to decide this issue.
D. Whether Petitioner Is Liable for the Addition to Tax Under
Section 6651(a)(1) in an Amount More Than Respondent
Determined
1. Burden of Production
An unmarried individual (who is not a surviving spouse or
head of household) must file an income tax return if his or her
gross income for the year equals or exceeds the exemption amount
plus the basic standard deduction for that individual. Sec.
6012(a)(1)(A)(i).
Section 7491(c) places on the Commissioner the burden of
producing evidence that it is appropriate to impose additions to
tax. To meet that burden, the Commissioner must produce evidence
showing that it is appropriate to impose the particular addition
to tax, but need not produce evidence relating to defenses such
as reasonable cause or substantial authority. Higbee v.
Commissioner, 116 T.C. 438, 446 (2001); H. Conf. Rept. 105-599,
at 241 (1998), 1998-3 C.B. 747, 995. Once the Commissioner meets
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the burden of production, the taxpayer must, in order to not be
found liable for the addition to tax, produce evidence sufficient
to show that the Commissioner’s determination is incorrect.
Higbee v. Commissioner, supra at 447. Respondent has met the
burden of production under section 7491(c) with respect to the
addition to tax for failure to file under section 6651(a)(1).
2. Whether Petitioner Is Liable for the Addition to Tax
Under Section 6651(a)(1) for Failure To File
Section 6651(a)(1) imposes an addition to tax for failure to
file a tax return unless the taxpayer shows that the failure was
due to reasonable cause and not willful neglect. United States
v. Boyle, 469 U.S. 241, 245 (1985). Reasonable cause may exist
if the taxpayer exercised ordinary business care and prudence but
nevertheless could not file the return within the prescribed
time. Id. at 246; Bank of the West v. Commissioner, 93 T.C. 462,
471 (1989).
a. Incapacity or Illness
Petitioner contends that he lacked the mental capacity to
file a 2000 return. Petitioner testified that he could not work
at IBM or cope with IRS problems after he began to show symptoms
of posttraumatic shock syndrome around 1992. He testified that
he had a therapist but offered no other evidence relating to his
mental health.
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A taxpayer's disability or mental incapacity may constitute
reasonable cause for failure to file returns. United States v.
Boyle, supra at 248 n.6; Brown v. United States, 630 F. Supp. 57
(M.D. Tenn. 1985). While general incompetence, mental illness,
alcoholism, or other incapacity may excuse a taxpayer from
filing, a taxpayer's selective inability to perform his tax
obligations in view of his ability to perform normal business
operations does not excuse his failure to file. See Kemmerer v.
Commissioner, T.C. Memo. 1993-394; Bear v. Commissioner, T.C.
Memo. 1992-690, affd. 19 F.3d 26 (9th Cir. 1994); Bloch v.
Commissioner, T.C. Memo. 1992-1; Fambrough v. Commissioner, T.C.
Memo. 1990-104.
Petitioner operated a personal computer business from 2000
through the date of trial. In 2000, that business had gross
receipts of $1,704 and a net loss of $5,728. Petitioner used
TurboTax software to prepare a draft return for 2000. These
facts undermine petitioner’s claim that he lacked capacity to
file a return. We conclude that petitioner lacked reasonable
cause for his failure to file a return for 2000.
b. Reliance on Tax Professionals
Reasonable cause for failure to file may exist when a
taxpayer shows that he or she reasonably relied on the advice of
an accountant or attorney that it was unnecessary to file a
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return, even if such advice was mistaken. United States v.
Boyle, supra at 250. Petitioner contends that he is not liable
for the addition to tax under section 6651(a)(1) because he
relied on Dunstan, TurboTax, and respondent.
There is no evidence that Dunstan is an accountant,
attorney, or tax professional or that Dunstan told petitioner
that he was not required to file a return for 2000. Petitioner
contends that his TurboTax computer software showed that he was
due a refund for 2000. However, petitioner did not show what
information he entered. Petitioner did not offer any evidence
showing that he relied on advice from respondent in deciding not
to file a return for 2000. We conclude that petitioner has not
shown reasonable cause for failure to file his Federal income tax
return for 2000.
c. Increased Amount of the Addition to Tax Under
Section 6651(a)(1)
Respondent conceded that petitioner is not liable for the
addition to tax under section 6651(a)(2) for 2000. Thus, section
6651(c)(1) (reducing the amount imposed by section 6651(a)(1) to
4.5 percent for any month in which both section 6651(a)(1) and
(2) are imposed) does not apply, and the 5-percent rate does.
Petitioner’s taxable income for 2000 was substantially
greater than the $2,800 personal exemption plus the $4,400
standard deduction. Thus, petitioner was required to file a
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return for 2000 and is liable for the addition to tax under
section 6651(a)(1) of $6,322 for 2000.
3. Whether Petitioner Is Liable for the Addition to Tax
Under Section 6654 for Failure To Pay Estimated Tax
Respondent has met the burden of production under section
7491(c) with respect to the addition to tax for failure to pay
estimated tax under section 6654(a) because the record shows that
petitioner did not pay estimated tax with respect to his tax
liability for 2000.
Petitioner contends that he is not liable for the addition
to tax under section 6654 for 2000 because no tax was due. We
disagree because (a) tax was due from petitioner for 2000 as
discussed above at paragraph A of the opinion, and (b) section
6654(a) applies for reasons described next.
Section 6654(a) imposes an addition to tax for failure to
pay estimated income taxes unless one of the exceptions in
section 6654(e) applies. Niedringhaus v. Commissioner, 99 T.C.
202, 222 (1992); Grosshandler v. Commissioner, 75 T.C. 1, 20-21
(1980). Petitioner does not allege, and we do not find, that he
paid estimated tax or that any of the exceptions apply. Thus, we
sustain respondent’s determination that petitioner is liable for
the addition to tax under section 6654(a).
E. Petitioner’s Motions To Reopen the Record
Petitioner requests that we reopen the record to admit into
evidence affidavits from Dunstan and his therapist. He contends
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that he did not have the affidavits at trial because he expected
the trial to be 2 weeks after the calendar call. We deny his
request for reasons stated next.
Reopening the record to submit additional evidence is a
matter within the discretion of the trial court. Zenith Radio
Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 331 (1971);
Butler v. Commissioner, 114 T.C. 276, 286-287 (2000). A court
generally will not grant a motion to reopen the record unless,
among other requirements, the evidence relied on (1) is material
to the issue for decision and (2) probably would change the
outcome of the case. Butler v. Commissioner, supra at 287.
Dunstan’s affidavit states that petitioner misunderstood
that a stock transaction was a nontaxable exchange and not a
sale. Dunstan’s affidavit does not show that the sales of mutual
fund shares were nontaxable exchanges, that Dunstan believed or
told petitioner that they were nontaxable exchanges, that Dunstan
was a tax professional, or that petitioner relied on Dunstan’s
advice. Petitioner has not provided any other affidavits. Thus,
we have no reason to believe that, if admitted, the affidavits
would change the outcome of this case. In addition, affidavits
are generally inadmissible to show the proof of the contents
because they are hearsay. Woodall v. Commissioner, T.C. Memo.
2002-318 n.6; Yang-Wu v. Commissioner, T.C. Memo. 2002-68 n.11;
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Coutsoubelis v. Commissioner, T.C. Memo. 1993-457; Davis v.
Commissioner, T.C. Memo. 1991-603.
To reflect concessions and the foregoing,
An order denying
petitioner’s motions to reopen
the record will be issued, and
decision will be entered under
Rule 155.