T.C. Memo. 2006-206
UNITED STATES TAX COURT
GARY M. JADRO, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11148-04. Filed September 25, 2006.
P failed to file a Federal income tax return for
2000. R determined a deficiency and additions to tax
pursuant to secs. 6651(a)(1) and (2), and 6654, I.R.C.
The parties settled all issues raised in the notice of
deficiency with the exception of P’s liability for the
sec. 6651(a)(1), I.R.C., addition to tax.
Held: P is liable for an addition to tax pursuant
to sec. 6651(a)(1), I.R.C.
Gary M. Jadro, pro se.
Lauren B. Epstein and Francis Mucciolo, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
WHERRY, Judge: Respondent determined a Federal income tax
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deficiency for petitioner’s 2000 taxable year in the amount of
$50,729, and additions to tax pursuant to section 6651(a)(1) and
(2) of $11,414.02 and $4,819.25, respectively, and pursuant to
section 6654 of $2,728.40.1 Subsequently, the parties reached a
partial settlement under which petitioner is liable for a reduced
tax deficiency of $13,170 and is not liable for additions to tax
pursuant to sections 6651(a)(2) and 6654. The remaining issue
for decision is whether petitioner is liable for the addition to
tax pursuant to section 6651(a)(1) for the 2000 taxable year.
FINDINGS OF FACT
At the time this petition was filed, petitioner resided in
St. Cloud, Florida.
During 2000, petitioner received $45 in dividends, $1,009 of
interest income, and $7,735 of gross rental income. Also in
2000, petitioner sold a piece of commercial property for
$293,000, which generated $91,314.90 in cash proceeds and a gain
for petitioner. In addition, petitioner engaged in numerous
stock sales and received proceeds totaling $176,717.
In 2001 petitioner went to an Internal Revenue Service (IRS)
office in Paramus, New Jersey, for help filling out his tax
return and was instructed to call a toll-free phone number
because in person help was not available for Form 1040 Schedule
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code (Code) in effect for the year in issue.
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D, Capital Gains and Losses. Petitioner contends that he was
unable to follow the instructions he received over the telephone
and needed to be shown in person how to fill out his tax return.
Petitioner did not file a tax return for 2000.
Respondent issued a notice of deficiency on March 22, 2004,
determining the deficiency and additions to tax set forth above.
Petitioner filed a timely petition disputing the deficiency and
additions to tax.
OPINION
I. Contentions of the Parties
Petitioner contends that he believed he was not required to
file a Federal income tax return for 2000 because he did not
generate sufficient income. Petitioner further contends that he
is unable to file a Federal income tax return for 2000 due to his
inability to understand and complete the requisite forms and lack
of help from the IRS in completing the forms. Petitioner also
asserts that his deteriorating financial condition prevented him
from seeking professional assistance.
Respondent contends that petitioner knew that he was
required to file a Federal income tax return for 2000 because of
interest income, rental income, and gain from the sale of stock
and a commercial property. Respondent further contends that
petitioner was capable of completing a Federal income tax return
for 2000. Petitioner knew the amount he paid for the commercial
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property and stock, as well as the amount of the sales proceeds,
and from prior returns could have determined the depreciation
allowed or allowable.
II. Addition to Tax
The Commissioner bears the burden of production in any court
proceeding with respect to an individual’s liability for
penalties or additions to tax. Sec. 7491(c). To meet this
burden, the Commissioner must present “sufficient evidence
indicating that it is appropriate to impose the relevant penalty”
or addition to tax. Higbee v. Commissioner, 116 T.C. 438, 446
(2001). In instances where an exception to the penalty or
addition to tax is afforded upon a showing of reasonable cause,
the taxpayer bears the burden of showing such cause. Id. at 446-
447.
Section 6651(a)(1) imposes a 5-percent addition to tax for
each month or portion thereof a required return is filed after
the prescribed due date, not to exceed 25 percent in the
aggregate, unless such failure to file timely is due to
reasonable cause and not due to willful neglect. Although not
defined in the Code, “reasonable cause” is described by the
applicable regulations as the “exercise of ordinary business care
and prudence”. Sec. 301.6651-1(c)(1), Proced. & Admin. Regs.;
see also United States v. Boyle, 469 U.S. 241, 246 (1985).
“[W]illful neglect” is interpreted as “a conscious, intentional
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failure or reckless indifference.” United States v. Boyle, supra
at 245. “Whether the elements that constitute ‘reasonable cause’
are present in a given situation” to excuse a failure to file
timely is a question of fact. Id. at 249 n.8 (emphasis omitted).
The Court concludes that respondent’s burden of production
has been met. Petitioner admits that he had sufficient gross
income to require the filing of a Federal income tax return and
that he never filed his 2000 tax return. The burden then shifts
to the taxpayer to prove both that the failure to file was not
due to willful neglect and that such failure was due to
reasonable cause. Id. at 245.
Reasonable cause denotes an absence of fault. Id. at 247
n.4. A taxpayer must prove that his failure to file timely was
the “result neither of carelessness, reckless indifference, nor
intentional failure.” Id. “Generally, factors that constitute
‘reasonable cause’ include unavoidable postal delays, death or
serious illness of the taxpayer or a member of his immediate
family, or reliance on the mistaken legal opinion of a competent
tax adviser, lawyer, or accountant that it was not necessary to
file a return.” Marrin v. Commissioner, 147 F.3d 147, 152 (2d
Cir. 1998), affg. T.C. Memo. 1997-24. These factors are
inapplicable here.
The Court is convinced that initially petitioner acted as a
reasonable and prudent business person and put forth reasonable
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efforts to fill out and file his tax return. Petitioner sought
help from the IRS both in person and telephonically and produced
at trial tax forms he attempted to fill out based on the
telephonic advice and the forms’ instructions. However, initial
reasonable cause may not exist indefinitely. At some point
petitioner ceased acting as a reasonable and prudent business
person because he terminated his active efforts to comply with
the law and never filed his 2000 tax return. Notably, the record
does not reflect that petitioner applied to respondent for an
extension of time to file his 2000 tax return.
Petitioner also contends that he did not file his 2000
return because he mistakenly believed he did not generate
sufficient income. Petitioner’s belief, without any confirmation
from a knowledgeable tax adviser, that no tax is due or that
petitioner is entitled to a refund does not constitute reasonable
cause. Ferguson v. Commissioner, T.C. Memo. 1994-114.
Although the Court is sympathetic to petitioner and the
circumstances of his case, the Court concludes that petitioner
has not demonstrated reasonable cause for failing to file his
2000 tax return. Therefore, the Court sustains the imposition of
an addition to tax pursuant to section 6651(a)(1).
The Court has considered all of petitioner’s contentions,
arguments, requests, and statements. To the extent not discussed
herein, we conclude that they are meritless, moot, or irrelevant.
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To reflect the foregoing and concessions made,
Decision will be entered
under Rule 155.