T.C. Summary Opinion 2006-172
UNITED STATES TAX COURT
GARY DON ERWIN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 23500-04S. Filed October 24, 2006.
Gary Don Erwin, pro se.
Elke Esbjornson, for respondent.
GOLDBERG, 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. The decision to be
entered is not reviewable by any other court, and this opinion
should not be cited as authority. Unless otherwise indicated,
subsequent section references are to the Internal Revenue Code in
effect for the year at issue.
2
Respondent issued petitioner a notice of deficiency in the
amount of $4,167 for taxable year 2001. In the same notice,
respondent determined the following additions to tax:
Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654(a)(2)
$937 $562 $164
After concessions,1 the sole issues for decision are whether
petitioner is liable for additions to tax under sections
6651(a)(1) and 6654(a). We hold that he is.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by reference.
At the time the underlying petition was filed, petitioner
resided in Clifton, Texas.
During the taxable year at issue, 2001, and the previous
taxable year, 2000, petitioner worked as a corporate trainer for
Compliance Systems, Inc. (Compliance). Under the terms of his
employment, Compliance provided petitioner with materials
necessary for him to lead hazardous materials training courses
for its employees.
A dispute arose between petitioner and Compliance sometime
in late 2001 regarding petitioner’s employment status. Although
1
Respondent has conceded the addition to tax under sec.
6651(a)(2) for failure to pay. Petitioner conceded that he
received wages of $17,588 and interest income of $11.
3
petitioner filed his 2000 Federal income tax return, paying self-
employment tax on the income he received that year from
Compliance, petitioner believed that he was actually an employee
rather than an independent contractor. Thus, in 2001, petitioner
contacted the Austin Customer Service Center and submitted Form
SS-8, Determination of Worker Status for Purposes of Federal
Employment Taxes and Income Tax Withholding, which requested a
determination of his employment status at Compliance for Federal
employment tax purposes.
Petitioner received taxable wages of $17,5882 from
Compliance for work performed in 2001. Compliance believed that
petitioner was an independent contractor, and accordingly,
withheld no Federal income tax from his paycheck. Although
petitioner was aware that Compliance considered him an
independent contractor, he did not pay any estimated tax payments
in 2001. In summary, Compliance withheld no Federal income tax
from petitioner’s 2001 wages, and petitioner did not make any
estimated tax payments in 2001 with respect to his income from
Compliance.
On May 10, 2002, respondent issued a determination letter
that stated petitioner was an employee, and not an independent
2
Petitioner received total wages of $18,423 from Compliance
in 2001; however, he claimed that a portion of that amount was
received for business expense reimbursement. Respondent concedes
that $835 should be subtracted from the income reported to
respondent by Compliance.
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contractor. Respondent requested that Compliance amend its
payroll taxes for 2001 and issue petitioner a Form W-2, Wage and
Tax Statement.
Petitioner did not file a Federal income tax return for
taxable year 2001. Accordingly, respondent prepared a substitute
return.
Discussion
Although petitioner does not contest his 2001 Federal income
tax liability stemming from the wages he received from Compliance
and unreported interest income, he challenges the section
6651(a)(1) and 6654(a) additions to tax imposed by respondent.
Petitioner claims that he could not file his 2001 return because
he was awaiting respondent’s determination of his employment
status, and thereafter, because Compliance failed to issue him a
Form W-2 for that year.
Section 6651(a)(1) Addition to Tax
Section 6651(a)(1) imposes an addition to tax for failure to
file a return by its due date. The addition to tax equals 5
percent for each month or fraction thereof that the return is
late, not to exceed 25 percent. Sec. 6651(a)(1). Respondent
bears the burden of production with respect to the section
6651(a)(1) addition to tax. See sec. 7491(c); see also, e.g.,
Swain v. Commissioner, 118 T.C. 358, 363 (2002); Higbee v.
5
Commissioner, 116 T.C. 438 (2001). For the reasons stated
forthwith, we hold that respondent has met this burden.
In the absence of an extension, the last date for petitioner
to file his Federal income tax return for taxable year 2001 was
April 15, 2002. Petitioner testified that he filed an extension
request, but he has been unable to produce any evidence that this
request was sent to the IRS.
Assuming, arguendo, that petitioner had timely submitted an
extension request, an extension would have provided petitioner
until October 15, 2002, to file his 2001 Federal income tax
return. Sec. 6081(a). However, the only bearing a timely
submitted extension request would have had on the instant case
would be in the calculation of the addition to tax. Because we
are unpersuaded that a request for extension of time to file the
return was properly sought, we need not consider a recalculation
of the addition to tax under section 6651(a).
“A failure to file a tax return on the date prescribed leads
to a mandatory penalty unless the taxpayer shows that such
failure was due to reasonable cause and not due to willful
neglect.” McMahan v. Commissioner, 114 F.3d 366, 368 (2d Cir.
1997), affg. T.C. Memo. 1995-547; see sec. 6651(a). A showing of
reasonable cause requires taxpayers to demonstrate that they
exercised “ordinary business care and prudence”, but were
nevertheless unable to file the return within the prescribed
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time. United States v. Boyle, 469 U.S. 241 (1985); sec.
301.6651-1(c)(1), Proced. & Admin. Regs.
Petitioner testified that he did not file his Federal income
tax return on its original due date because he was awaiting
respondent’s determination of his employment status and
thereafter, because Compliance did not provide him with a Form W-
2, nor did it report his wages to respondent.
Petitioner’s reasoning as to why he did not file his 2001
return is misguided and without merit. Petitioner did not
contest that he received gross income for 2001 of $17,588, nor
did he dispute his obligation to pay tax on this income and file
a return. Further, he did not challenge that his employer
withheld no Federal income tax from his compensation for 2001.
Secs. 63(a), 6001. Therefore, petitioner’s employment status had
no bearing on his obligation under law to file a Federal income
tax return. Moreover, if we were to believe petitioner’s claim
that he timely filed a request for an extension to file, his
return would have been due on October 15, 2002. Since
respondent’s determination letter was received on May 10, 2002,
petitioner would have had sufficient time to file a return for
2001.
Petitioner next claimed that he did not file his return
after receiving respondent’s determination letter because
Compliance did not file a Form W-2 as requested by respondent.
7
On this point, petitioner’s reasoning is without merit.
Compliance treated petitioner as an independent contractor
throughout 2001. It withheld no Federal income tax from
petitioner’s wages. Accordingly, respondent’s determination
matters little against the fact that petitioner’s 2001 wages and
interest income were subject to tax. Since Compliance withheld
no Federal income tax from petitioner’s wages during the year, it
was petitioner’s obligation to pay the tax when due.
Section 6654(a) Addition to Tax
Section 6654(a) imposes an addition to tax for failure to
pay estimated income tax where prepayments of such tax, either
through withholding or by making estimated quarterly tax payments
during the course of the year, do not equal the percentage of
total liability required under the statute, unless the taxpayer
shows that one of the statutory exceptions applies. Sec.
6654(a); Niedringhaus v. Commissioner, 99 T.C. 202, 222 (1992).
The amount required to be paid through each such estimated
quarterly payment is 25 percent of the “required annual payment”.
Sec. 6654(d)(1)(A). The “required annual payment” is, in turn,
the lesser of 90 percent of the tax shown on the return for that
taxable year or 100 percent of the tax shown on the return of the
individual for the preceding taxable year. Sec. 6654(d)(1)(B).
Unlike section 6651(a), there is no broadly applicable
reasonable cause exception to the section 6654 addition to tax;
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generally, it is mandatory, and extenuating circumstances are
irrelevant. Estate of Ruben v. Commissioner, 33 T.C. 1071, 1072
(1960); see also Grosshandler v. Commissioner, 75 T.C. 1, 20-21
(1980) (imposition of section 6654 addition to tax is mandatory
where estimated payments do not equal statutorily required
percentage).
However, as with section 6651(a)(1), the Commissioner bears
the burden of production regarding the section 6654 addition to
tax. For the reasons stated herewith, we hold that respondent
has met this burden.
Petitioner conceded that he did not pay any estimated tax on
the wages he received from Compliance in 2001. Petitioner did
not offer any explanation for his failure to pay beyond his
reasoning that he had to wait for respondent’s determination
letter and thereafter, had to wait for Compliance to file a Form
W-2 with respondent and send one to him. Both lines of
petitioner’s reasoning are wrong. During 2001, petitioner was
treated by Compliance as an independent contractor. No Federal
income tax was withheld from his wages. Accordingly, petitioner
was under an obligation to remit estimated payments pursuant to
section 6654(c) and (d). The fact that respondent ultimately
determined petitioner was a Compliance employee does not negate
petitioner’s failure to make these payments when they were due in
2001.
9
In view of the foregoing, we sustain respondent’s additions
to tax under sections 6651(a)(1) and 6654(a)(2), respectively.
Reviewed and adopted as the report of the Small
Tax Case Division.
Decision will be entered
for respondent as to the
deficiency, and additions to
tax under sections 6651(a)(1)
and 6654(a)(2), and for
petitioner as to the addition
to tax under section
6651(a)(2).