T.C. Memo. 2006-45
UNITED STATES TAX COURT
ROBERT B. KEENAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 12396-04. Filed March 16, 2006.
Robert B. Keenan, pro se.
Linette B. Angelastro, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HAINES, Judge: Respondent determined a deficiency in
petitioner’s Federal income tax of $17,165 for the 2000 taxable
year. Further, respondent determined that petitioner is liable
for additions to tax of $3,862, $2,661, and $923 under sections
6651(a)(1) and (2) and 6654, respectively, also relating to
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2000.1 After concessions,2 the issues for decision are: (1)
Whether respondent must prepare a substitute for return compliant
with section 6020(b) as a prerequisite to issuing a notice of
deficiency; (2) whether petitioner received Social Security
payments of $14,538; (3) whether petitioner is entitled to
certain deductions; and (4) whether petitioner is liable for
additions to tax under sections 6651(a)(1) and 6654(a).
FINDINGS OF FACT
At the time the petition was filed, petitioner resided in
Camarillo, California. Petitioner is a retired airline pilot.
During 2000, petitioner received pension distributions of
$66,189 from the Northern Trust Co., Social Security payments of
at least $13,876, and interest income of $184 from Camarillo
Community Bank.
Petitioner did not file a Federal income tax return for
2000, nor did he make estimated tax payments during the year.
Respondent reconstructed petitioner’s income for 2000 using
1
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. Amounts are rounded to the nearest
dollar.
2
Respondent concedes that: (1) Petitioner did not receive
interest income of $2,013 from the State Controller’s Office of
the State of California; and (2) petitioner is not liable for an
addition to tax under sec. 6651(a)(2). In his posttrial brief,
respondent also concedes that only $17.80 of $89 in royalties
petitioner received as executor of his father’s estate is taxable
to petitioner. Petitioner does not contest this amount.
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third-party payor statements. The third-party payor statements
reflect the pension distributions and interest income outlined
above. However, the statement from the Social Security
Administration indicates that petitioner received $14,538 instead
of $13,876. On November 3, 2003, respondent prepared a
substitute for return for petitioner.
Respondent sent petitioner a notice of deficiency on April
19, 2004. As reflected in the notice, respondent determined that
petitioner received total income of $80,832 during 2000.3
Allowing petitioner a personal exemption of $2,800 and a standard
deduction of $5,500, respondent determined that petitioner had
taxable income of $72,532 and an outstanding Federal income tax
liability of $17,165. Further, respondent determined that
petitioner was liable for additions to tax of $3,862, $2,661, and
$923 under sections 6651(a)(1) and (2) and 6654, respectively.
Because respondent conceded that petitioner is not liable for the
section 6651(a)(2) addition to tax, respondent increased the
section 6651(a)(1) addition to tax to $4,291.
In response to the notice of deficiency, petitioner filed a
petition with this Court on July 15, 2004.
3
This figure does not take into account respondent’s
concessions See supra note 2.
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OPINION
A. The Substitute for Return and the Notice of Deficiency
Petitioner contends that this Court lacks jurisdiction
because the notice of deficiency is invalid. It appears the
foundation of petitioner’s argument is that respondent’s
substitute for return does not meet requirements of section
6020(b),4 and therefore, the notice of deficiency cannot be based
on that return.
We do not need to consider whether the substitute for return
meets the requirements of section 6020(b). The preparation of a
return on a taxpayer’s behalf is not a prerequisite to the
Commissioner’s determining and issuing a notice of deficiency.
Roat v. Commissioner, 847 F.2d 1379, 1381-1382 (9th Cir. 1988);
Hartman v. Commissioner, 65 T.C. 542, 545-547 (1975); Stewart v.
Commissioner, T.C. Memo. 2005-212; Robinson v. Commissioner, T.C.
Memo. 2002-316, affd. 73 Fed. Appx. 624 (4th Cir. 2003); Burnett
v. Commissioner, T.C. Memo. 2002-181, affd. 67 Fed. Appx. 248
(5th Cir. 2003). Therefore, we find that petitioner’s argument
is without merit.
4
Sec. 6020(b)(1) provides that “If any person fails to
make any return required by an internal revenue law or regulation
made thereunder at the time prescribed therefor * * * the
Secretary shall make such return from his own knowledge and from
such information as he can obtain through testimony or
otherwise.”
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B. Social Security Payments
Respondent determined that petitioner received Social
Security payments totaling $14,538 in 2000. Petitioner contends
that he received only $13,876. Petitioner bears the burden of
proving that respondent’s determination is incorrect. See Rule
142(a).
Respondent’s determination was based on a third-party payor
statement from the Social Security Administration indicating that
petitioner received payments totaling $14,538 in 2000.
Petitioner testified that his Social Security benefits increased
after the first quarter of 2000. He claims that the $14,538 was
arrived at by multiplying the increased monthly benefit by 12,
which did not take into account the lower monthly benefit
received in the first 3 months of the year. Petitioner did not
provide any bank statements, Social Security statements, or other
documentation to support his argument. Accordingly, we find that
petitioner has not met his burden of proving respondent’s
determination is incorrect. We hold that petitioner received
Social Security payments totaling $14,538 in 2000.
C. Certain Deductions Claimed by Petitioner
Next, we must consider whether petitioner is entitled to
certain deductions. Deductions are a matter of legislative
grace, and the taxpayer bears the burden of proving he is
entitled to the deductions. INDOPCO, Inc. v. Commissioner, 503
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U.S. 79, 84 (1992); Deputy v. Du Pont, 308 U.S. 488, 493 (1940);
New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); see
also Rule 142(a). The taxpayer has the burden of substantiating
any deduction. Hradesky v. Commissioner, 65 T.C. 87, 89-90
(1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976); see also
Rule 142(a).
At trial, petitioner introduced into evidence a one-page
handwritten “Check Record for Y2K”, listing a series of purported
deductions for charitable contributions, health care costs, State
and local taxes, and bad debts. At trial, petitioner went
through the list, briefly explaining each item. However,
petitioner did not present underlying checks, bank statements,
receipts, statements from third parties, or other documentation
to support the alleged expenses.
Petitioner has failed to substantiate any of his purported
deductible expenses. Therefore, we find that petitioner has not
met his burden of proving that he is entitled to deductions for
the claimed expenses. However, petitioner argues that under
Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930), the Court
should approximate his allowable deductions.
Under the Cohan rule, if a claimed expense is deductible,
but the taxpayer is unable to fully substantiate the amount, the
Court is permitted to make an approximation of an allowable
amount. Id. at 543-544. However, the taxpayer must provide at
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least some reasonable evidence from which to estimate a
deductible amount. Vanicek v. Commissioner, 85 T.C. 731, 743
(1985).
Other than the handwritten check log and petitioner’s
unsupported testimony, there is nothing in the record to show
that the alleged expenses were actually incurred. The record is
insufficient to provide the Court with a reasonable evidentiary
basis for estimating the deductible amount. Therefore, we find
that we may not use the Cohan rule to estimate petitioner’s
allowable expenses. We hold that petitioner is not entitled to
any deductions beyond the personal exemption and the standard
deduction already allowed by respondent. As a result, except to
the extent conceded, respondent’s determination that petitioner
has a Federal income tax deficiency of $17,165 in 2000 is
sustained.
D. Additions to Tax Under Sections 6651(a)(1) and 6654(a)
Finally, we must determine whether petitioner is liable for
additions to tax under sections 6651(a)(1) and 6654(a).
Respondent bears the burden of production with respect to
petitioner’s liability for the additions to tax. Sec. 7491(c);
Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001). To meet
his burden of production, respondent must come forward with
sufficient evidence indicating that it is appropriate to impose
the additions to tax. Higbee v. Commissioner, supra at 446-447.
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Once respondent meets his burden of production, petitioner must
come forward with evidence sufficient to persuade the Court that
respondent’s determination is incorrect. Id.
Section 6651(a)(1) imposes an addition to tax for failure to
file a return on the date prescribed (determined with regard to
any extension of time for filing), unless petitioner can
establish that his failure is due to reasonable cause and not due
to willful neglect. The parties stipulated and petitioner
testified that he did not file a Federal income tax return for
2000. We find that respondent has met his burden of production.
To show reasonable cause, petitioner must demonstrate that
he “exercised ordinary business care and prudence and was
nevertheless unable to file the return within the prescribed
time”. Sec. 301.6651-1(c)(1), Proced. & Admin. Regs. Petitioner
argues that he had reasonable cause for failing to file because:
(1) The income tax system is “voluntary”; and (2) the self-
incrimination provision of the Fifth Amendment protects him from
being required to file a tax return.
Arguments relating to the “voluntary” nature of the income
tax system have been repeatedly rejected as frivolous or without
merit. See, e.g., Takaba v. Commissioner, 119 T.C. 285, 295-296
(2002); Rinn v. Commissioner, T.C. Memo. 2004-246; Hodge v.
Commissioner, T.C. Memo. 1998-242; Hicks v. Commissioner, T.C.
Memo. 1992-80. Furthermore, petitioner was previously informed
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by this Court that he is required to file Federal income tax
returns and was found liable for additions to tax under section
6651(a)(1) for failure to file. See Keenan v. Commissioner, T.C.
Memo. 1998-388 (“Petitioner was required to file Federal income
tax returns * * * He failed to do so and offered no satisfactory
explanation.”). Therefore, we find petitioner’s argument that
the income tax system is “voluntary” cannot serve as a reasonable
basis for his failure to file.
Petitioner’s belief that the Fifth Amendment’s self-
incrimination provision protected him from filing a tax return is
not a reasonable basis for failure to file under section 6651(a).
See Woods v. Commissioner, 91 T.C. 88, 91-92 (1988); Thompson v.
Commissioner, 78 T.C. 558, 563 (1982). Petitioner testified that
he is not currently under criminal investigation. Nevertheless,
petitioner believes the Fifth Amendment protects him because
there is always the potential that he may be subject to a
criminal investigation at a later date. We find that
petitioner’s belief cannot serve as a reasonable basis for
failure to file. We hold that petitioner is liable for the
addition to tax under section 6651(a)(1).
Section 6654(a) imposes an addition to tax on an
underpayment of estimated tax unless one of the statutory
exceptions applies. Respondent’s Certificate of Official Record
indicates that petitioner did not make estimated tax payments in
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2000. We find that respondent has met his burden of production.
Section 6654(e) provides exceptions whereby no addition to
tax will be imposed under section 6654(a). Petitioner did not
argue and we do not find that any of the exceptions applies.
Therefore, we hold that petitioner is liable for the addition to
tax under section 6654(a).
Section 6673(a)(1) authorizes the Court to require a
taxpayer to pay the United States a penalty in an amount not to
exceed $25,000 whenever it appears to the Court the taxpayer’s
position is frivolous or groundless. Sec. 6673(a)(1)(B).
Respondent has not asked the Court to impose a penalty under
section 6673(a) against petitioner. The Court, however, may sua
sponte impose a penalty. Pierson v. Commissioner, 115 T.C. 576,
580 (2000); Jensen v. Commissioner, T.C. Memo. 2004-120; Frey v.
Commissioner, T.C. Memo. 2004-87.
Petitioner has previously been a litigant in this Court.
See Keenan v. Commissioner, supra. While his previous case dealt
predominantly with issues different from those in the present
case, petitioner similarly failed to file tax returns for 1988
and 1990 through 1994. Id. Petitioner was not warned in the
previous opinion or during the course of the current litigation
that a penalty might be imposed under section 6673(a). For this
reason only, we decline to impose a penalty under section
6673(a). However, we strongly admonish petitioner that if he
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persists in failing to file his tax returns and in pursuing tax
protester arguments, e.g., that the notice of deficiency is
invalid or that he need not file a return because of the Fifth
Amendment or the “voluntary” nature of the income tax system, we
may not be so favorably inclined in the future.
In reaching our holdings, we have considered all arguments
made, and, to the extent not mentioned, we conclude that they are
moot, irrelevant, or without merit.
To reflect the foregoing,
Decision will be entered
under Rule 155.