Lenihan v. Comm'r

T.C. Memo. 2006-259

UNITED STATES TAX COURT

WILLIAM LENIHAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 13764-03. Filed December 5, 2006.

William Lenihan, pro se.

Frank J. Jackson and Michelle L. Maniscalco, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

HALPERN, Judge: By notice of deficiency dated May 20, 2003

(the notice), respondent determined a deficiency in petitioner’s

2000 Federal income tax of $26,436 and additions to tax of

$4,817, $2,248, and $1,121 under sections 6651(a)(1) and (2) and

6654(a), respectively. Petitioner assigned error to each of

those determinations. Respondent conceded the addition to tax
 - 2 -

determined under section 6651(a)(2) and asserted an increase in

the addition to tax determined under section 6651(a)(1) of $535

(for a total addition under that section of $5,352). At the

close of the trial, respondent made a motion to conform the

pleadings to the proof for the purpose of asserting an increased

deficiency based on an item of gross income of petitioner’s wife

(should we determine that petitioner and his wife made a joint

return) and certain items of gross income reported on a return

respondent received on November 10, 2003 (the Nov. 10 return).

The Nov. 10 return reported items of income of which respondent

had been unaware when he determined the deficiency shown in the

notice. We granted that motion. In his reply brief, respondent

concedes that there is no increased deficiency on account of any

item of income of petitioner’s wife. We accept that concession.

Taking into account various other concessions, the principal

issues remaining for decision are the amount of petitioner’s

gross income, whether petitioner is entitled to any deductions in

excess of the standard deduction and a deduction for a personal

exemption (and, if so, in what amounts), and the additions to tax

under sections 6651(a)(1) and 6654(a).1

1
By the amended petition, petitioner claims that the
notice does not credit him with an overpayment of taxes from 1999
nor does it reflect the appropriation of petitioner’s funds from
his account at the Federal Credit Union in 2002. Petitioner
filed a brief but failed to propose any facts or make any
argument with respect to an overpayment of taxes for 1999 or an
(continued...)
 - 3 -

Unless otherwise indicated, all section references are to

the Internal Revenue Code of 1986, as amended, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

For convenience, monetary amounts have been rounded to the

nearest dollar. Respondent bears the burden of proof with

respect to (1) the items of income shown on the Nov. 10 return

that respondent did not take into account in determining the

deficiency shown in the notice and (2) the increased section

6651(a)(1) addition to tax, and petitioner bears the burden of

proof otherwise, except as provided by section 7491(c). See Rule

142(a).2

1
(...continued)
appropriation during 2002. If an argument is not pursued on
brief, we may conclude that it has been abandoned. E.g., Mendes
v. Commissioner, 121 T.C. 308, 312-313 (2003). Therefore, we
will treat petitioner as having abandoned those two claims and
will not further discuss them.
2
Sec. 7491(a) shifts the burden of proof to the Secretary
with respect to any factual issue relevant to ascertaining the
tax liability of the taxpayer if the taxpayer introduces credible
evidence with respect to the issue and has (1) complied with the
requirements of the Internal Revenue Code to substantiate any
item, and (2) maintained all records required by the Internal
Revenue Code and cooperated with reasonable requests by the
Secretary for information. See sec. 7491(a)(2) (imposing
preconditions to the application of the burden-shifting rule
found in sec. 7491(a)(1)). On brief, respondent argues that
petitioner has failed to satisfy those preconditions. Petitioner
has neither responded to respondent’s argument nor proposed that
we find facts consistent with the conclusion that he has
satisfied the stated preconditions. It is petitioner’s burden to
prove that he has satisfied the preconditions found in sec.
7491(a)(2). See, e.g., Krohn v. Commissioner, T.C. Memo.
2005-145. He has failed to carry that burden, and, therefore,
(continued...)
 - 4 -

FINDINGS OF FACT3

Some facts are stipulated and are so found. The stipulation

of facts, with accompanying exhibits, is incorporated herein by

this reference.

2
(...continued)
sec. 7491(a) is of no application in this case.
3
At the outset, we note that, at the conclusion of the
trial in this case, the Court set a schedule for opening and
answering briefs. Petitioner filed an opening brief but no
answering brief. Moreover, petitioner’s brief fails in certain
respects to comply with Rule 151(e), which addresses the form and
content of briefs. Rule 151(e)(3) requires that an opening brief
contain proposed findings of fact supported by references to the
pages of the transcript or the exhibits or other sources relied
on in support of the proposed findings. Petitioner’s brief
contains proposed findings of fact but no supporting references
of any kind. In the argument portion of his brief, petitioner
makes reference to Petitioner’s Exhibits 1, 2, and 3, which the
Court is unable to identify and which appear not to be part of
the record. Respondent objects to petitioner’s proposed findings
of fact in their entirety, except for petitioner’s proposed
finding No. 1, which relates to a concession made by respondent.
Because petitioner has failed to comply with Rule 151(e)(3), the
Court will disregard all but petitioner’s proposed finding of
fact No. 1. Finally, Rule 153(e)(3) also requires that, in an
answering or reply brief, the party set forth any objections,
together with the reasons therefor, to any proposed findings of
any other party. Since petitioner failed to file an answering
brief, and we have disregarded all but one of petitioner’s
proposed findings of fact, we must conclude that petitioner has
conceded respondent’s proposed findings of fact, except to the
extent that respondent has failed to direct us to any evidence in
the record supporting those proposed findings or those findings
are clearly inconsistent with evidence in the record or are
inconsistent with petitioner’s one proposed finding to which
respondent does not object. See, e.g., Jonson v. Commissioner,
118 T.C. 106, 108 n.4 (2002), affd. 353 F.3d 1181 (10th Cir.
2003).
 - 5 -

Background

At the time he filed the petition, petitioner resided in

Delray, Florida.

Petitioner, an attorney, received his law degree from

Georgetown University Law School in 1958 and was admitted to

practice law in the State of New York in 1959. He is admitted to

practice before the United States Tax Court.

Throughout 2000, petitioner was married.

The Nov. 10 Return

The Nov. 10 return, which, as previously stated, was

received by respondent on November 10, 2003, purports to be a

joint income tax return for petitioner and his wife for the 2000

taxable (calendar) year (2000). Respondent had not previously

received a return from petitioner for 2000, and, on December 4,

2002, respondent had prepared a substitute 2000 return for

petitioner pursuant to section 6020(b). On November 10, 2003,

respondent filed the Nov. 10 return as an amended return.

Petitioner did not mail the Nov. 10 return to respondent earlier

than November 2003.

Gross Income and Schedule D Proceeds

The parties have stipulated that, in 2000, petitioner

received taxable wages, Social Security payments, pension

payments, interest, and dividends of $29,327, $14,099, $15,884,

$4,482, and $6,238, respectively.
 - 6 -

Petitioner reported those items on the Nov. 10 return, and,

in addition, (1) on the attached Schedule C, Profit or Loss From

Business, he reported $7,848 of gross income from a business

described as “consulting”, (2) on the attached Schedule D,

Capital Gains and Losses, he reported $4,939 of proceeds from

sales of capital assets, and (3) on the attached Schedule E,

Supplemental Income and Loss, he reported rents and royalties

totaling $43,653.

The Hudson Withdrawal

On March 1, 2000, petitioner withdrew $29,996 from Hudson

United Bank (the Hudson withdrawal). The statement evidencing

the Hudson withdrawal is entitled “IRA WITHDRAWAL STATEMENT”,

identifies an IRA account in petitioner’s name, and describes the

account as a “Traditional IRA”. During March and April 2000,

petitioner deposited $29,996 into a Dreyfus Trust Co. account in

his name, described on a transcript of that account as an account

“UNDER IRA PLAN”.

Schedule A Items

Petitioner did not claim a standard deduction on the Nov. 10

return, but, rather, he deducted the sum of the amounts that he

had itemized on a Schedule A, Itemized Deductions, thereto. On

the Schedule A, petitioner itemized amounts for medical and

dental expenses, State and local income taxes, real estate taxes,

personal property taxes, investment interest, cash charitable
 - 7 -

contributions, noncash charitable contributions, a casualty loss,

unreimbursed employee expenses, and other expenses, of $12,337,

$1,708, $9,079, $283, $922, $1,220, $4,341, $256, $1,051, and

$330, respectively.

Schedule C Items

On the Schedule C, petitioner described his business

activity as “consulting”, and he reported business expenses for

advertising, car and truck expenses, insurance, legal and

professional services, office expenses, supplies, taxes and

licenses, travel, meals and entertainment, and other expenses

totaling $21,530.

Schedule D Gains

The $4,939 of proceeds from sales of capital assets

petitioner reported on the Schedule D is the proceeds from his

sales of his interests in Oxford Health Plans (Oxford), Kemper

Growth Fund of Spain (Kemper), Ford Motor Co. (Ford), and

Citigroup, Inc. (Citigroup), for $3,406, $1,507, $19, and $7,

respectively. On the Schedule D, costs or other bases of $2,962

and $1,288 are ascribed to the sales of petitioner’s interests in

Oxford and Kemper, respectively, giving rise to reported gains on

those sales of $444 and $219, respectively. No bases are

ascribed to the sales of petitioner’s interests in Ford and

Citigroup, which were reported as giving rise to gains of $19 and

$7, respectively. All four sales were reported as sales of
 - 8 -

assets held for more than 1 year. Petitioner reported on the

Schedule D a long-term capital loss carryover from 1999 of

$18,742.

Schedule E Items

On the Schedule E, petitioner reported income and expenses

from three rental properties and three other investments as

follows:

10 Park Ave., Apt. 8-B, New York, NY

Rents received $8,400
Less expenses:
Auto and travel 148
Cleaning and maintenance 5,547
Insurance 182
Depreciation expense or depletion 2,363
Income (Loss) 160

Delray Racquet Club Condo #4303

Rents received 7,350
Royalties received 25
Subtotal 7,375
Less expenses:
Auto and travel 692
Cleaning and maintenance 2,831
Commissions 735
Insurance 248
Management fees 221
Repairs 246
Supplies 164
Taxes 2,591
Utilities 624
Depreciation expense or depletion 2,125
Income (Loss) (3,102)

Delray Racquet Club Condo #9404

Rents received 9,150
Royalties received 25
Subtotal 9,175
Less expenses:
 - 9 -

Auto and travel 692
Cleaning and maintenance 2,862
Commissions 915
Insurance 248
Management fees 221
Repairs 368
Supplies 492
Taxes 2,448
Utilities 624
Depreciation expense or depletion 2,125
Income (Loss) (1,820)

IIC Mortgages
Royalty income received 14,397

Equity Investments
Royalty income received 1,705

Inwood Investment Club
Royalty income received 2,601

Personal Exemptions

In computing taxable income on the Nov. 10 return,

petitioner claimed a deduction for two personal exemptions.

Taxable Income and Tax

The Nov. 10 return shows taxable income of $33,470 and tax

of $5,021.

1999 Tax Return

Petitioner filed no Federal income tax return for 1999.

OPINION

I. Deficiency in Tax

A. Arguments of the Parties

Petitioner relies on the accuracy of the Nov. 10 return.

Except with respect to petitioner’s report of capital gain

income, respondent agrees with the items of gross income
 - 10 -

petitioner reported on the Nov. 10 return. Respondent argues,

however, that petitioner realized additional gross income of

$29,996 not reported on the Nov. 10 return on account of

petitioner’s March 1, 2000, withdrawal of that amount from Hudson

United Bank. Moreover, respondent disagrees with many of the

deductions claimed and calculations made on the Nov. 10 return.

Initially, respondent argued that petitioner is not entitled to

compute his 2000 income tax liability using the rate schedule for

a married couple making a joint return. Respondent argued that

petitioner could not elect joint return status since, to do so,

he (and his wife) had to file a return on which they made a joint

return election. Since respondent does not permit a taxpayer to

“file” a tax return for a year after respondent has issued the

taxpayer a notice of deficiency for the year, respondent argued

that petitioner had filed no return for 2000. Having filed no

return for 2000, respondent continued, petitioner could not elect

joint return status. Respondent additionally argued that

petitioner was disqualified from making a joint return for 2000

because he failed to include his wife’s income on the Nov. 10

return. In a supplement to brief, respondent conceded those two

arguments. Respondent now accepts that petitioner is entitled to

use joint return rates for 2000. We assume that respondent also

accepts petitioner’s claim of a deduction for two personal

exemptions. Our analyses of the remaining issues follow.
 - 11 -

B. Discussion

1. Stipulated and Reported Items

Section 61(a) provides that gross income means income from

whatever source derived. Among the items of gross income

specifically enumerated in section 61(a) are compensation for

services, interest, dividends, pensions, and gains derived from

business and from dealings in property. The wages, social

security payments, pension payments, interest, dividends,

reported gross income from consulting, and rents and royalties

set forth in our findings of fact supra, which either have been

stipulated by the parties to be taxable or were set forth on the

Nov. 10 return, are all items of gross income for 2000 in the

amounts specified.

2. Schedule D Items

a. Agreements and Disagreements

The parties agree that, on account of the sales of his

interests in Ford and Citigroup reported on the Schedule D,

petitioner realized gains of $19 and $7, respectively. While the

parties agree that petitioner made the sales of his interests in

Oxford and Kemper reported on the Schedule D, and that he

realized gains on account of those sales, they disagree on the

amounts of those gains. As we have found, with respect to

Oxford, petitioner reported on the Schedule D proceeds of $3,406,

cost or other basis of $2,962, and a resulting gain of $444; with
 - 12 -

respect to Kemper, he reported proceeds of $1,507, cost or other

basis of $1,288, and a resulting gain of $219. The parties’

disagreements over the amounts of petitioner’s gains result from

their disagreements over his costs of acquiring his interests in

Oxford and Kemper. The parties also disagree with respect to the

character of the gains and the availability of a loss carryover.

b. Petitioner’s Costs of Acquiring His Interests in
Oxford and Kemper

To determine gain realized on the sale of property, we must

subtract from the proceeds the taxpayer’s cost or other basis in

the property. See sec. 1001(a). Respondent proposes that we

find that petitioner had cost bases of zero in his interests in

both Oxford and Kemper, so that the gains he realized on the

sales of both equaled the proceeds received; viz, $3,406 and

$1,507, respectively. Respondent supports his proposed findings

of zero bases by directing us to a one-page joint exhibit, an

Internal Revenue Service (IRS) Form 1099-B, Proceeds from Broker

and Barter Exchange Transactions, which, among other things,

shows gross proceeds of $3,407 and $1,507 from sales of his

interests in Oxford and Kemper, respectively, but does not show

any cost or other basis for either asset. While petitioner has

made no objection to respondent’s proposed findings, he does

claim that brokerage statements showing costs and selling prices

for those assets were forwarded to respondent, and, in support of

that claim, he refers us to the Form 1099-B (which shows nothing
 - 13 -

about bases). At trial, petitioner proffered other documents

that he claimed show his costs of acquiring those assets.

Respondent objected to the receipt of those documents on the

ground that petitioner had violated the Court’s standing pretrial

order by not providing copies of those documents to respondent.

We sustained respondent’s objection, and the documents were not

received into evidence. Petitioner did not testify as to his

costs of acquiring those assets. In short, there is no evidence

in the record to support petitioner’s report on the Schedule D of

costs or other bases of $2,962 and $1,288 for his interests in

Oxford and Kemper, respectively. The Nov. 10 return is merely a

statement of petitioner’s position and is not evidence of the

correctness of the figures and information contained therein.

See Wilkinson v. Commissioner, 71 T.C. 633, 639 (1979).

Respondent bears the burden of proving that petitioner

realized gains of $3,406 and $1,507 on the sales of his interest

in Oxford and Kemper, respectively. The amounts petitioner

reported on the Schedule D as the proceeds from the sales of

those assets were accepted by petitioner at trial and are

confirmed by entries on the Form 1099-B. Respondent has met his

burden of proving receipt of those amounts, and we find

accordingly. There is no evidence, however, supporting

respondent’s claims of zero bases for those assets or from which

we would be justified in making any findings with respect to
 - 14 -

petitioner’s cost bases in those assets. In Waterman v.

Commissioner, T.C. Memo. 1990-497, the Commissioner had issued

separate notices of deficiency to a husband and a wife (both

nonfilers) making adjustments for, among other things, their

failures to report gains on their disposition of a jointly owned

inventory of paintings held primarily for sale to customers in

the ordinary course of the husband’s trade or business as an art

dealer. We found that their disposition amounted to a sale for

$250,000, but we concluded that the record lacked any credible

evidence of their joint basis in the paintings. The

Commissioner’s adjustment was predicated on his claim that their

joint gain was $250,000, because their joint basis was zero.

While denying that they realized any gain, the taxpayers asserted

that their joint basis was $100,000. We stated: “In the absence

of evidence upon which to make a finding of fact or a reasonable

estimate of petitioners’ basis, we must hold against the parties

bearing the burden of proof on that issue.” Inasmuch as the wife

bore the burden of proof in her case, we sustained the

Commissioner’s claims that the couple’s joint basis in the

paintings was zero and their joint gain was $250,000. We further

held that she had to include in gross income her share of that

gain. In the husband’s case, however, the Commissioner bore the

burden of proof because, in the amended answer, he had changed

the year in which he argued the disposition of the paintings had
 - 15 -

occurred, which increased the deficiency for that year. See Rule

142(a). While we recognized that the Commissioner had failed to

carry his burden of proving that the couple had realized any gain

on the sale of the paintings, we treated the taxpayers’ assertion

that their joint basis was $100,000 as an admission that their

joint basis was no greater than that, and we found that the

husband had realized a gain to the extent that his share of the

$250,000 of proceeds exceeded his share of the admitted $100,000

basis.

We shall likewise accept petitioner’s Schedule D entries as

admissions that his bases in his interests in Oxford and Kemper

did not exceed $2,962 and $1,288, respectively, and that he

realized gains on the sales of those two assets of at least $444

and $219, respectively. Moreover, because of petitioner’s

superior position with respect to access to information as to his

bases in those assets, we place on him the burden of coming

forward with evidence showing a basis greater than zero in either

asset. We are free to do so because we have not invariably held

that, when the burden is on the Commissioner to prove that the

taxpayer underreported his income from sales, the Commissioner

must come forward with evidence showing both unreported receipts

and the absence of offsetting costs or deductions above those

allowed by the Commissioner. For example, in Franklin v.

Commissioner, T.C. Memo. 1993-184, we sustained an addition to
 - 16 -

tax for fraud under section 6653(b)(1) on account of the

taxpayer’s failure to report income from sales of heroin

notwithstanding that the Commissioner, who bore the burden of

proof because of the claim of fraud, had failed to show that the

taxpayer’s costs of goods sold and deductible expenses did not

exceed his receipts from those sales. We pointed out that, in a

merchandising business, gross receipts from sales must be reduced

by cost of goods sold to determine gross income from sales. Sec.

1.61-3(a), Income Tax Regs. Indeed, we stated that an

underpayment of tax resulting from unreported gross receipts is

only possible if those unreported gross receipts are not exceeded

by the cost of the goods sold and deductible expenses. We

continued:

Nevertheless, even in criminal tax evasion cases,
where the Government bears the greater burden of proof
beyond a reasonable doubt, it is well settled--“that
evidence of unexplained receipts shifts to the taxpayer
the burden of coming forward with evidence as to the
amount of offsetting expenses, if any.” Siravo v.
United States, 377 F.2d 469, 473 (1st Cir. 1967).
Accord, e.g., United States v. Garguilo, 554 F.2d 59,
62 (2d Cir. 1977); Elwert v. United States, 231 F.2d
928, 933 (9th Cir. 1956); United States v. Link, 202
F.2d 592, 593 (3d Cir. 1953); United States v. Bender,
218 F.2d 869, 871 (7th Cir. 1955); Bourque v.
Commissioner, T.C. Memo. 1980-286 (applying the general
rule to cost of goods sold). * * *

We explained that the settled rule was based on the rationale

that, in the case of a taxpayer who has not entirely omitted

receipts from an activity from his return, it can be presumed

that the taxpayer, desiring to minimize his tax, has reported all
 - 17 -

his deductions and other offsetting amounts, see, e.g., United

States v. Bender, 218 F.2d 869, 871 (7th Cir. 1955), and, in the

case of a taxpayer who has failed to file a return or has shown

on his return no receipts from the activity, the assumption that

he, more readily than the Commissioner, has access to evidence of

deductions or other offsetting amounts makes the nonexistence of

those amounts a fair presumption, at least as an initial matter

and absent a satisfactory explanation of such nonexistence or the

production of some exculpatory evidence, Siravo v. United States,

377 F.2d 469, 474 (1st Cir. 1967).

We believe that rationale holds true here. The

considerations necessary to determine whether the sale of

merchandise (inventory) results in gross income from sales are

for present purposes similar to the considerations necessary to

determine whether the sale of investment property (which is in

question here) results in a gain. In the case of the sale of

inventory, there is no gross income unless the proceeds from the

sale exceed the cost of the goods sold, sec. 1.61-3(a), Income

Tax Regs., and, in the case of the sale of investment property,

there is no gain unless the amount realized on the sale exceeds

the adjusted basis of the property, sec. 1001(a). The terms

“cost of goods sold” and “adjusted basis” are terms of art that

denote the same thing; i.e., the measure of the taxpayer’s

unredeemed investment in an item of property (often the cost of
 - 18 -

the property), which, when the item is sold, must be subtracted

from the proceeds of the sale in order to determine whether the

taxpayer realized any gain from the sale. Compare, e.g., sec.

1.471-3, Income Tax Regs. (“Inventories at cost.”) with secs.

1011(a), 1012.

Clearly, petitioner had documents that might have shown his

costs of acquiring his interests in Oxford and Kemper.

Petitioner, a lawyer admitted to practice before this Court,

offered those documents into evidence, but they were not received

because he had failed to comply with our standing pretrial order.

It is appropriate that petitioner bear the burden of producing

evidence to show that his bases in those assets were greater than

zero. Petitioner having failed to carry that burden, and the

Court having no way to reasonably estimate his bases, we conclude

that his bases were no greater than zero, and that he realized

gains of $3,407 and $1,507 from sales of his interests in Oxford

and Kemper, respectively.

c. Character of Gains

Respondent further argues that the gains on petitioner’s

interests in Oxford and Kemper, and the gains on petitioner’s

interests in Ford and Citicorp (totaling $4,939), are all short-

term capital gains, since petitioner has failed to prove that any

of those gains is attributable to an asset held for more than 1

year. See sec. 1222(1). Respondent is correct that there is
 - 19 -

nothing in the record showing that petitioner held any of those

assets for more than 1 year. As with petitioner’s bases in his

interests in Oxford and Kemper, we think it appropriate that

petitioner bear the burden of producing evidence showing a

holding period greater than 1 year. Petitioner has failed to

carry that burden, and we conclude that he had no holding period

greater than 1 year in his interests in Oxford, Kemper, Ford, or

Citicorp.

d. Loss Carryover

Petitioner reported on the Schedule D a long-term capital

loss carryover (from 1999) of $18,742. Respondent argues that

petitioner is entitled to no capital loss carryover since he has

failed to prove that he actually suffered any loss entitling him

to a capital loss carryover to 2000. Respondent is again correct

that there is nothing in the record other than the Nov. 10 return

and petitioner’s otherwise unsubstantiated testimony showing that

he suffered a capital loss that could be carried to 2000. We

need not accept a taxpayer’s unsubstantiated testimony. See

Wood v. Commissioner, 338 F.2d 602, 605 (9th Cir. 1964), affg. 41

T.C. 593 (1964). Indeed, respondent’s records show that,

contrary to petitioner’s claim that he filed a return for 1999 on

which the claimed loss can be found, he filed no return for 1999.

Because of the lack of evidence corroborating his testimony, and

the evidence that petitioner filed no return for 1999, we
 - 20 -

disbelieve petitioner’s testimony that he suffered any loss that

could be carried to 2000. We allow no such loss in the

computation of the deficiency resulting from this proceeding.

3. The Hudson Withdrawal

The parties appear to agree that the Hudson withdrawal, from

a qualified retirement account, would be includable in

petitioner’s gross income unless it was rolled over (i.e., a

matching deposit was made) into another qualified retirement

account within 60 days. See sec. 408(d)(1), (3) (addressing

rollovers of distributions from individual retirement accounts

(IRAs)). The principal dispute between the parties appears to be

over the date the Hudson withdrawal was made. We have found that

it was made on March 1, 2000. We have done so on the basis of

the IRA WITHDRAWAL STATEMENT, which, faintly, in the blocks

marked “Commencement Date” and “Signatures” carries the notation

“3-1-00”, which we take to be the date of withdrawal, March 1,

2000. Because the Hudson withdrawal was redeposited in another

qualified retirement account within 60 days of that date,

petitioner has satisfied the requirements specified in section

408(d)(3) for a tax-free rollover contribution. The Hudson

withdrawal is not includable in gross income.

4. Schedule C Deductions

On the Schedule C, petitioner described his business as

consulting, and he reported expenses for advertising, car and
 - 21 -

truck expenses, insurance, legal and professional services,

office expenses, supplies, taxes and licenses, travel, meals and

entertainment, and other expenses totaling $21,530. The parties

have jointly stipulated four exhibits, totaling 55 pages,

containing documents that petitioner produced with respect to his

claimed Schedule C expenses. Respectively, the four exhibits

contain documents that petitioner produced with respect to his

claimed Schedule C advertising, car and truck, insurance, travel,

and meals and entertainment expenses. Respondent does not

stipulate that the documents substantiate the claimed expenses.

The documents consist of photocopies of receipts from the U.S.

Postal Service, bills with respect to automobile repairs, the

faces of personal checks, insurance company bills, airline

itineraries, hotel confirmations and bills, a railroad ticket,

account statements from an athletic club and a country club, a

statement from a financial institution, and other miscellaneous

documents. We have examined the documents and, although they

indicate that petitioner spent, or at least was billed for, the

amounts shown, we cannot conclude that any or all of those

amounts were expended in connection with a consulting or any

other business activity of petitioner’s. Indeed, petitioner has

provided no evidence describing any consulting work that he

engaged in during 2000.4 Moreover, in type and amount, the

4
On brief, without reference to anything in the record to
(continued...)
 - 22 -

expended or billed amounts are equally consistent with a business

purpose and with a personal, living, or family purpose. While

trade- or business-connected expenses are deductible, personal,

living, and family expenses are not. Compare sec. 162(a)

(allowing as a deduction “all the ordinary and necessary expenses

paid or incurred during the taxable year in carrying on any trade

or business”) with sec. 262 (disallowing, generally, a deduction

for “personal, living, or family expenses”). While some of the

documents are annotated, e.g., dollar amounts circled or a name

appearing next to a country club charge for a restaurant lunch,

there is insufficient information on the documents or in

petitioner’s testimony to show any business connection for any of

the expenses. There is, for instance, no evidence to show the

business connection of a VISA credit card charge of $209 for an

airline ticket. The charge shows no travel date or itinerary and

is annotated only “T/E”, which we assume stands for “travel and

entertainment”. Indeed, petitioner has made no attempt to show

that he has met the stringent substantiation requirements imposed

by section 274 and applicable generally to business-related

travel and entertainment expenses. Petitioner has failed to

convince us that any of the Schedule C expenses were incurred in

4
(...continued)
support the claims, petitioner claims that he has been a
financial consultant for over 20 years and, during 2000, was also
“in the business of second mortgage placing” and “individual
retirement account investments.”
 - 23 -

connection with a consulting business or any other trade or

business carried on by petitioner. Absent the stringent

substantiation requirements imposed by section 274, it is within

the purview of this Court to estimate the amount of allowable

deductions where there is evidence that deductible expenses were

incurred. See Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930).

Nevertheless, we must have some basis on which an estimate may be

made. Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985); see

also Norgaard v. Commissioner, 939 F.2d 874, 879 (9th Cir. 1991),

affg. in part and revg. in part T.C. Memo. 1989-390. Because the

record contains no evidence upon which we could base such an

estimate, we conclude that petitioner has failed to prove that he

is entitled to deduct any of the expenses reported on the

Schedule C. We allow no deduction for Schedule C expenses in the

computation of the deficiency resulting from this proceeding.

5. Schedule E Deductions

At issue is whether petitioner is entitled to any deduction

for the expenses set forth in our findings of fact, under the

heading “Schedule E Items”, in connection with the three rental

properties: 10 Park Ave., Apt. 8-B; Delray Racquet Club Condo

4303, and Delray Racquet Club Condo 9404 (together, the three

rental properties). The parties have jointly stipulated an

exhibit of 22 pages containing photocopies of bank checks and

other items that petitioner produced with respect to his claimed
 - 24 -

Schedule E expenses. Respondent does not stipulate that the

documents making up the exhibit substantiate the claimed

expenses. The documents suffer from defects similar to those

affecting the documents petitioner produced to substantiate his

Schedule C deductions. Some of the documents seem to have no

connection with the claimed expenses at all; others are ambiguous

or confusing. There are, for example, nine pages of copies of

checks payable to the order of “200 East 36th St., Owners [or

‘Tenants’ or something similar]”, some of which refer to

apartments “8-B” and “4-H”, and some of which refer to monthly

maintenance. There is also an IRS Form 1098, Mortgage Interest

Statement, for 2000, showing a mortgage interest payment by

petitioner of $2,313 to 200 East 36th Owners Corp. We fail to

see the relationship of those checks and that interest payment to

the expenses claimed for the three rental properties, none of

which seem to involve the address 200 East 36th Street. There is

a receipt for $128 paid for a magazine described as “Financial

Planning[,] Elderly Finances”, but containing no indication of

who made the payment. There is a receipt from the bookseller

Barnes & Noble for something called “Say It In Spanish”, which is

annotated “Pace U”. There is another partially illegible receipt

which is annotated “YMCA”. We fail to see the relevance of those

receipts to the claimed expenses. There are three checks drawn

to the order of “Delray Racquet Club” and annotated “4303”, but
 - 25 -

they appear to be drawn on an account of “Equity Investments”,

for which no expenses are reported on the Schedule E. There are

other checks to Home Depot and Service America, but they also

appear to be drawn on an account of Equity Investments. There is

an IRS Form 1098, showing a mortgage interest payment by

petitioner of $739 to 10 Park Ave. Tenants Corp. Petitioner did

not claim any interest expense on the Schedule E with respect to

the 10 Park Ave. property. Nevertheless, on brief, respondent

appears to concede the deductibility of that payment. We accept

that concession. Other than that, we agree with respondent that

petitioner has failed to substantiate the expenses he reported in

connection with the three rental properties. We are unable to

estimate any such expenses, and, therefore, except with respect

to $739 of interest, we shall allow no deduction for Schedule E

expenses in the computation of the deficiency resulting from this

proceeding.

6. Schedule A Deductions

In computing taxable income, an individual may elect to

itemize certain generally personal deductions or claim a standard

deduction. See sec. 63(a) and (b). The election to itemize is

made on the taxpayer’s return. Sec. 63(e). Similar to his

initial argument with respect to joint return status, respondent

argues that petitioner filed no return for 2000 and, thus, did

not elect to itemize his deductions (and must claim the standard
 - 26 -

deduction in lieu of the claimed personal deductions). In

support of that argument, respondent refers us to that portion of

his opening brief that, by the supplement to brief, he asked us

to disregard. We have done so and assume that, at least in this

case, respondent has disregarded his argument that petitioner has

failed to file a return on which he itemized his deductions. We

treat petitioner as having on the Nov. 10 return elected to

itemize his deductions.

The parties have jointly stipulated four exhibits containing

photocopies of bank checks and other items that petitioner

produced with respect to his claimed Schedule A deductions.

Respondent does not stipulate that the documents making up the

exhibits substantiate the claimed expenses. Those documents,

like the ones previously discussed, are, in many respects

inadequate to substantiate the expenses claimed. For instance,

to substantiate a portion of the amount that petitioner claims he

paid as property tax on his Connecticut residence, petitioner

offers a check drawn on an account of II Mortgages. In support

of his charitable deductions, he offers a check apparently drawn

on an account of Equity Investments. Another check, drawn to the

order of “Senior Center”, is accompanied by no further

information. A letter apparently justifying a charitable

deduction of $30 states that the $30 is the cost of lunch

“[including] an open bar”. In support of his claim of a casualty
 - 27 -

loss, petitioner offers only a check and a contractor’s

description of work to be done to install a new driveway. In

support of his medical and dental expenses, petitioner offers a

pay stub showing deductions that are annotated: “PORTION OF GROSS

PAY NOT SUBJECT TO INCOME TAX”.

Respondent concedes that petitioner has substantiated

payments of State and local taxes, real property taxes, personal

property taxes, investment interest expense, and charitable

contributions of $220, $6,799, $166, $922, and $300,

respectively. Our examination of the documents petitioner

provided to substantiate the Schedule A deductions does not allow

us to find that he is entitled to deductions in any greater

amounts. We accept respondent’s concessions and find that

petitioner expended the amounts stated for the purposes stated.

We shall allow the resulting deductions.

II. Additions to Tax

A. Section 6651(a)(1)

Section 6651(a)(1) imposes an addition to tax for failing to

file a return on or before the specified filing date (in this

case, April 16, 2001), unless it is shown that this failure is

due to reasonable cause and not due to willful neglect.

Reasonable cause may exist if a taxpayer exercised ordinary

business care and prudence and was nonetheless unable to file the

return by the date prescribed by law. Sec. 301.6651-1(c)(1),
 - 28 -

Proced. & Admin. Regs. Willful neglect means a “conscious,

intentional failure or reckless indifference.” United States v.

Boyle, 469 U.S. 241, 245 (1985).

Respondent bears the burden of production with respect to

the section 6651(a)(1) addition to tax. See sec. 7491(c). In

order to meet that burden of production, respondent must produce

sufficient evidence establishing that it is appropriate to impose

the addition to tax. Once respondent has done so, the burden of

proof is upon petitioner, see Higbee v. Commissioner, 116 T.C.

438, 449 (2001), except for the increased portion of the addition

to tax asserted by respondent in the answer since, in the answer,

respondent concedes that he bears the burden of proof as to that

portion of the addition to tax. Once respondent has met his

burden of production and the burden of proof is on petitioner,

his burden is to prove that his failure to file a timely 2000 tax

return was due to reasonable cause and was not due to willful

neglect. Sec. 6651(a)(1); United States v. Boyle, supra at 245.

Where respondent has met his burden of production and the burden

of proof does not fall on petitioner, respondent must prove that

petitioner’s failure to file timely was not due to reasonable

cause or was due to willful neglect. Sec. 6651(a)(1); United

States v. Boyle, supra at 245.

Respondent has satisfied his burden of production in that

the record establishes that petitioner did not file a 2000 return
 - 29 -

before November 2003. Although he testified that he timely filed

his return for 2000 in March of 2001, petitioner offered no

certified mail receipt or other evidence to corroborate his

testimony. The parties have stipulated to “a true and complete

copy of the tax return submitted by petitioner to respondent for

* * * 2000.” The joint exhibit containing that return, which we

have referred to as the Nov. 10 return, includes a copy of the

front of the wrapper in which the return was mailed to the IRS.

The wrapper bears what appears to be a postmark date of November

6, 2003. The return itself bears a stamp indicating that the IRS

received the return on November 10, 2003. Moreover, respondent’s

records indicate that no return for 2000 was filed for petitioner

until November 10, 2003, when the Nov. 10 return was filed as an

amended return. We have found that petitioner did not mail the

Nov. 10 return before November 2003.

Petitioner must establish reasonable cause in order to

prevail as to the portion of the addition to tax for which he

bears the burden of proof. Petitioner has failed to present any

persuasive evidence establishing that his failure to file that

return timely was due to reasonable cause and was not due to

willful neglect. Respondent, in turn, also has failed to

introduce any evidence establishing the contrary; i.e., that

petitioner’s failure to file timely was not due to reasonable

cause or was due to willful neglect. We sustain respondent’s
 - 30 -

determination as to the addition to tax under section 6651(a)(1)

included in the notice, but we hold for petitioner as to the

portion of that addition to tax asserted in the answer.

B. Section 6654(a)

Section 6654 provides for an addition to tax in the event of

an underpayment of a required installment of individual estimated

tax. Sec. 6654(a) and (b). Petitioner has assigned error to

respondent’s determination of a section 6654(a) addition to tax,

but he did not in the petition set forth any facts in support of

that assignment. The Nov. 10 return does show $7,940 as the sum

of (1) 2000 estimated tax payments and (2) the amount applied

from petitioner’s 1999 return. Petitioner has offered nothing to

corroborate that he made any estimated tax payment for 2000 or

that any amount was applied from his 1999 return. Indeed,

respondent introduced into evidence a transcript of petitioner’s

accounts for both 1999 and 2000 that, among other things, shows

no return filed for 1999 and no payments or credits made during

2000. Without corroboration, we need not accept that petitioner

paid any estimated tax. See Wilkinson v. Commissioner, 71 T.C.

at 639. Moreover, on brief, petitioner fails to address the

section 6654 addition (although he does address the section

6651(a)(1) addition to tax). Because of that failure, we assume

that petitioner has abandoned any claim that a section 6654(a)

addition to tax is unwarranted. See Greene-Thapedi v.
 - 31 -

Commissioner, 126 T.C. 1, 7 n.11 (2006). We therefore sustain

respondent’s determination of a section 6654(a) addition to tax,

adjusted only to take account of petitioner’s tax for 2000, as

finally determined.5

III. Conclusion

To reflect the foregoing,

Decision will be entered

under Rule 155.

5
We note that, in connection with computing the “required
annual payment” defined by sec. 6654(d)(1)(B), we have held that
a return filed after the Commissioner has issued a deficiency
notice is not considered to be a “return” for purposes of sec.
6654(d)(1)(B). See Mendes v. Commissioner, 121 T.C. at 324-325.