T.C. Memo. 2008-92
UNITED STATES TAX COURT
CHUKWUMA I. ODELUGO, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13408-04. Filed April 10, 2008.
G. Emeka Obinna Onwezi, for petitioner.
Paul T. Butler, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
CHIECHI, Judge:1 Respondent determined the following defi-
ciencies in, and additions to, petitioner’s Federal income tax
1
Special Trial Judge Carleton D. Powell conducted the trial
in this case. He died after the case was submitted. The parties
have declined the opportunity for a new trial or for supplementa-
tion of the record and have expressly consented to the reassign-
ment of this case for opinion and decision based on the record of
the trial held in this case.
- 2 -
(tax):
Additions to Tax
Year Deficiency Sec. 6651(a)(1)2 Sec. 6651(a)(2) Sec. 6654(a)
1998 $30,228.40 $6,173.19 * $1,371.98
1999 20,760.00 4,671.00 * 996.98
*Amount to be determined at a later date pursuant to sec.
6651(a)(2) and (c).
In the answer, respondent alleged certain increases in the
deficiencies and the additions to tax under sections 6651(a)(1)
and (2) and 6654(a) for petitioner’s respective taxable years
1998 and 1999 that respondent had determined in the notices of
deficiency with respect to those respective years (notices).
The issues remaining for decision are:
(1) Does petitioner have unreported income for each of his
taxable years 1998 and 1999 in excess of the amount determined in
the notice of deficiency with respect to each of those years? We
hold that he does not.
(2) Is petitioner entitled for each of his taxable years
1998 and 1999 to deduct certain expenses that petitioner claims
with respect to his law practice? We hold that he is not.
(3) Is petitioner liable for each of his taxable years 1998
and 1999 for the addition to tax under section 6651(a)(1)? We
hold that he is to the extent stated herein.
2
All section references are to the Internal Revenue Code
(Code) in effect for the years at issue. All Rule references are
to the Tax Court Rules of Practice and Procedure.
- 3 -
(4) Is petitioner liable for each of his taxable years 1998
and 1999 for the addition to tax under section 6651(a)(2)? We
hold that he is to the extent stated herein.
(5) Is petitioner liable for each of his taxable years 1998
and 1999 for the addition to tax under section 6654? We hold
that he is to the extent stated herein.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
Petitioner’s address shown in the petition in this case was
in Baltimore, Maryland.
At an undisclosed time before 1998, the Internal Revenue
Service employed petitioner in an undisclosed capacity. At all
relevant times, including during 1998 and 1999, the years at
issue, petitioner was licensed to practice law in Maryland and in
the District of Columbia. On an undisclosed date, petitioner was
admitted to practice before the United States Tax Court.
During 1998 and 1999, petitioner resided at 1516 U Street,
NW, Washington, D.C. The property located at that address (U
Street property) consisted of three floors.
During 1998 and 1999, petitioner, who practiced law as a
sole practitioner, represented various clients, at least some of
whom were assigned to him under the Criminal Justice Act (CJA).3
3
The Court takes judicial notice that Congress codified the
CJA in 18 U.S.C. sec. 3006A (1994).
- 4 -
Starting on an undisclosed date in August 1999 through at
least the end of that year, petitioner employed Anitha Johnson
(Ms. Johnson) as a paralegal and office manager. Ms. Johnson
continued to work for petitioner in an undisclosed capacity at
least through 2004. By Ms. Johnson’s own admission, she did not
perform well the administrative tasks that she was expected to
undertake as part of her employment by petitioner. Throughout
her employment, neither petitioner nor Ms. Johnson maintained
adequate records (e.g., receipts, invoices, billing statements)
with respect to petitioner’s law practice.
During 1998, petitioner received (1) nonemployee compensa-
tion of $44,424 from the General Services Administration KC
Federal Building Fund (GSA) and $29,415 from the District of
Columbia and (2) an early distribution of $13,964 from the
National Finance Center Thrift Savings Plan. During that year,
petitioner also earned interest of $265 with respect to the
checking and savings accounts (petitioner’s IRFCU checking and
savings accounts) that he maintained at the Internal Revenue
Federal Credit Union (IRFCU).
During 1998, petitioner made deposits totaling $42,145 into
a checking account (petitioner’s Chevy Chase checking account)
that he maintained at Chevy Chase Bank.4 During that year,
4
We shall sometimes refer collectively to petitioner’s Chevy
Chase checking account and petitioner’s IRFCU checking and
(continued...)
- 5 -
petitioner also made deposits totaling $124,513 into petitioner’s
IRFCU checking and savings accounts, of which at least
$10,463.685 was made by direct deposit from GSA.
During 1999, petitioner received nonemployee compensation of
$64,944 from GSA. During that year, petitioner earned interest
of $39 with respect to petitioner’s IRFCU checking and savings
accounts.
During 1999, petitioner made deposits totaling $35,195 into
petitioner’s Chevy Chase checking account. During that year,
petitioner also made deposits totaling $71,556 into petitioner’s
IRFCU checking and savings accounts, of which at least
$64,944.236 was made by direct deposit from GSA.
Around August 21, 1998, petitioner filed a tax return
(return) for his taxable year 1997 that showed tax due of $20,084
4
(...continued)
savings accounts as petitioner’s bank accounts.
5
For convenience, we shall round up to the nearest dollar
the $10,463.68 of direct deposits that GSA made into petitioner’s
IRFCU checking account during 1998.
6
The total amount of direct deposits that GSA made into
petitioner’s IRFCU checking account during 1999 rounded down to
the nearest dollar equals the amount of nonemployee compensation
from GSA that, as discussed below, was shown in the substitute
for return that respondent prepared for petitioner’s taxable year
1999 and the notice of deficiency that respondent issued to
petitioner with respect to that year. We presume that respondent
rounded down to the nearest dollar the $64,944.23 of nonemployee
compensation that petitioner received from GSA during 1999. For
convenience, we shall round down to the nearest dollar that total
amount of direct deposits.
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and that the Internal Revenue Service accepted as filed. Peti-
tioner did not file a return for his taxable year 1998 or his
taxable year 1999. Nor did he make any estimated tax payments
with respect to either of those two years.
Respondent prepared substitutes for return for petitioner’s
respective taxable years 1998 (substitute for return for 1998)
and 1999 (substitute for return for 1999). Each of those substi-
tutes for return consisted of the following documents: (1) IRC
Section 6020(b) Certification (section 6020(b) certification),
(2) Form 1040, U.S. Individual Income Tax Return, for the taxable
year for which respondent prepared that substitute, (3) a tran-
script of petitioner’s account for that year, (4) Form 4549,
Income Tax Examination Changes, and (5) Form 886-A, Explanation
of Items. Each section 6020(b) certification certified that the
pages attached thereto constituted a valid substitute for return
under section 6020(b). The substitute for return for 1998
showed, inter alia, (1) nonemployee compensation of $73,839
consisting of $44,424 from GSA and $29,415 from the District of
Columbia, (2) interest of $265, (3) a taxable distribution from
the National Finance Center Thrift Savings Plan of $13,964, and
(4) total tax of $30,228.40. The substitute for return for 1999
showed, inter alia, (1) nonemployee compensation of $64,944 from
GSA, (2) interest of $39, and (3) total tax of $20,760.
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Respondent issued to petitioner separate notices with
respect to his taxable years 1998 (notice for 1998) and 1999
(notice for 1999). In the notice for 1998, respondent deter-
mined, inter alia, that petitioner has (1) nonemployee compensa-
tion of $73,839,7 (2) interest of $265, and (3) a taxable distri-
bution from the National Finance Center Thrift Savings Plan of
$13,964. In that notice, respondent also determined that peti-
tioner is liable for additions to tax under sections 6651(a)(1)
and (2) and 6654(a) of $6,173.19, an amount to be computed at a
later date, and $1,371.98, respectively.
In the notice for 1999, respondent determined, inter alia,
that petitioner has nonemployee compensation of $64,9448 and
interest of $39. In that notice, respondent also determined that
petitioner is liable for additions to tax under sections
6651(a)(1) and (2) and 6654(a) of $4,671, an amount to be com-
puted at a later date, and $996.98, respectively.
7
The $73,839 of nonemployee compensation that respondent
determined in the notice for 1998 was based upon the nonemployee
compensation shown in the substitute for return for 1998. As
discussed above, of that total amount of nonemployee compensation
for 1998, $44,424 was from GSA and $29,415 was from the District
of Columbia.
8
The $64,944 of nonemployee compensation that respondent
determined in the notice for 1999 was based upon the nonemployee
compensation shown in the substitute for return for 1999. As
discussed above, the entire amount of that nonemployee compensa-
tion for 1999 was from GSA.
- 8 -
In the answer, respondent alleged that respondent conducted
a deposit analysis and reconciliation of petitioner’s bank
accounts for each of petitioner’s taxable years 1998 (1998 bank
deposits analysis) and 1999 (1999 bank deposits analysis). In
the answer, respondent further alleged (1) that the 1998 bank
deposits analysis showed that during 1998 petitioner made total
deposits of at least $166,658 into petitioner’s bank accounts, of
which $136,362 is taxable income,9 and (2) that the 1999 bank
deposits analysis showed that during 1999 petitioner made total
deposits of at least $106,751 into those accounts, of which
$101,179 is taxable income.10 Respondent did not allege in the
answer that respondent reduced the total deposits that respondent
alleged for petitioner’s respective taxable years 1998 and 1999
by the amounts of total unreported income that respondent had
determined in the respective notices and that respondent should
have reasonably known had been deposited into petitioner’s bank
accounts during those respective years. Nor did respondent
allege in the answer that respondent reduced the amounts of total
unreported income that respondent alleged in the answer for
petitioner’s respective taxable years 1998 and 1999 by any
9
In effect, respondent alleged in the answer that for 1998
$30,296 of petitioner’s total deposits during that year are not
taxable.
10
In effect, respondent alleged in the answer that for 1999
$5,572 of petitioner’s total deposits during that year are not
taxable.
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portion of the amounts of unreported income that respondent had
determined in the respective notices. In the answer, respondent
also alleged that petitioner’s total tax for petitioner’s taxable
year 1998 is $46,762 and that the increase in the deficiency that
respondent had determined in the notice for 1998 is $16,534. In
the answer, respondent further alleged that petitioner’s total
tax for petitioner’s taxable year 1999 is $33,856 and that the
increase in the deficiency that respondent had determined in the
notice for 1999 is $13,096. In the answer, respondent further
alleged certain increases in the additions to tax under sections
6651(a)(1) and (2) and 6654(a) that respondent had determined in
the respective notices.11
At an undisclosed time after petitioner commenced the
instant case, Ms. Johnson signed petitioner’s name on, and
submitted to respondent on petitioner’s behalf, returns for
petitioner’s respective taxable years 1998 (purported 1998
return) and 1999 (purported 1999 return). In the purported 1998
return, petitioner showed on page 1, inter alia, “Taxable inter-
est” of $266, “Business income” from Schedule C, Profit or Loss
From Business (Schedule C), of $16,051, and “Total pensions and
11
In the answer, respondent alleged that the amounts of the
increases in the additions to tax under secs. 6651(a)(1) and (2)
and 6654(a) for petitioner’s respective taxable years 1998 and
1999 that respondent had determined in the notices are to be
determined based upon the “increases in the underlying deficien-
cies” for those respective years.
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annuities” of $13,965. In the purported 1999 return, petitioner
showed on page 1, inter alia, “Business income” from Schedule C
of $10,251.
Petitioner included Schedule C as part of the purported 1998
return (purported 1998 Schedule C) and the purported 1999 return
(purported 1999 Schedule C). In those purported Schedules C,
petitioner showed the “Principal business or profession” as
“Lawyer” and “Attorney”, respectively.
In the purported 1998 Schedule C, petitioner showed “Gross
income” of $73,840.12 In that purported schedule, petitioner
claimed “Total expenses before expenses for business use of home”
of $55,135 consisting of $1,856 for “Advertising”, $6,150 for
“Car and truck expenses” (vehicle expenses), $3,601 for “Depreci-
ation”, $2,394 for “Insurance (other than health)” (insurance
premiums), $11,538 for “Mortgage” interest, $1,835 for “Other”
interest, $8,300 for “Office expense”, $3,374 for “Repairs and
maintenance”, $3,125 for “Supplies”, $10,716 for “Taxes and
licenses”, $586 for “Meals and entertainment”, $1,100 for “Utili-
ties” (utility expenses), and $560 for “Other expenses”. In the
purported 1998 Schedule C, petitioner also claimed “Expenses for
business use of your home” of $2,654. In that purported sched-
12
The amount of “Gross income” shown in the purported 1998
Schedule C is $1 more than the total nonemployee compensation
that respondent showed in the substitute for return for 1998 and
that respondent determined in the notice for 1998.
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ule, petitioner showed “Net profit” of $16,051, which, as stated
above, petitioner reported in petitioner’s purported 1998 return
on page 1 as “Business income” from Schedule C.
In the purported 1999 Schedule C, petitioner showed “Gross
income” of $19,03313 and total expenses of $8,782 for “Deprecia-
tion”. In that purported schedule, petitioner showed “Net
profit” of $10,251, which, as stated above, petitioner reported
in petitioner’s purported 1999 return on page 1 as “Business
income” from Schedule C.
OPINION
Petitioner bears the burden of proving error in the determi-
nations in the notices for petitioner’s respective taxable years
1998 and 1999 that remain at issue, see Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933), unless that burden shifts to
respondent under section 7491(a). The parties disagree over
whether the burden of proof with respect to the deficiency
determinations in the respective notices shifts to respondent
under that section.14 On the record before us, we find that
13
Respondent showed in the substitute for return for 1999
and determined in the notice for 1999 that petitioner has total
nonemployee compensation of $64,944 for that year.
14
Respondent submitted to the Court a pretrial memorandum;
petitioner did not. In respondent’s pretrial memorandum, respon-
dent argues that the burden of proof with respect to the defi-
ciency determinations in the respective notices does not shift to
respondent under sec. 7491(a). At the end of the trial in this
case, Special Trial Judge Powell ordered the parties to file
(continued...)
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petitioner has failed to carry his burden of establishing that he
complied with the requirements of section 7491(a)(2)(A) and (B).
On that record, we hold that the burden of proof with respect to
the deficiency determinations in the respective notices does not
shift to respondent under section 7491(a). Respondent, however,
bears the burden of proof with respect to the allegations in the
answer to increase the deficiencies and the additions to tax
under sections 6651(a)(1) and (2) and 6654(a) that respondent had
determined in the respective notices. See Rule 142(a).
Before turning to the issues presented, we shall summarize
certain principles applicable to the Schedule C deductions that
petitioner is claiming and evaluate certain evidence on which
petitioner relies.
Certain Applicable Principles
Deductions are strictly a matter of legislative grace, and
the taxpayer bears the burden of proving entitlement to any
deduction claimed. INDOPCO, Inc. v. Commissioner, 503 U.S. 79,
84 (1992). A taxpayer is required to maintain records sufficient
to establish the amount of any deduction claimed. Sec. 6001;
14
(...continued)
posttrial memoranda. He specifically ordered the parties to
limit the content of their memoranda to proposed findings of
fact. Respondent complied with that order; petitioner did not.
In violation of Special Trial Judge Powell’s order, petitioner
advances in petitioner’s posttrial memorandum various arguments
with respect to the burden of proof in this case and the issues
presented.
- 13 -
sec. 1.6001-1(a), Income Tax Regs.
Section 162(a) generally allows a deduction for ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on any trade or business. The determination of whether
an expenditure satisfies the requirements for deductibility under
section 162 is a question of fact. See Commissioner v.
Heininger, 320 U.S. 467, 475 (1943). In general, an expense is
ordinary if it is considered normal, usual, or customary in the
context of the particular business out of which it arose. See
Deputy v. du Pont, 308 U.S. 488, 495 (1940). Ordinarily, an
expense is necessary if it is appropriate and helpful to the
operation of the taxpayer’s trade or business. See Commissioner
v. Tellier, 383 U.S. 687 (1966); Carbine v. Commissioner, 83 T.C.
356, 363 (1984), affd. 777 F.2d 662 (11th Cir. 1985). Section
262(a) generally disallows a deduction for personal, living, or
family expenses.
For certain kinds of expenses otherwise deductible under
section 162(a), such as business expenses relating to “listed
property”, as defined in section 280F(d)(4), a taxpayer must
satisfy substantiation requirements set forth in section 274(d)
before such expenses will be allowed as deductions. See sec.
1.274-5T(b)(6), Temporary Income Tax Regs., 50 Fed. Reg. 46016
(Nov. 6, 1985). As pertinent here, “listed property” is defined
in section 280F(d)(4) to include passenger automobiles and other
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property used as a means of transportation, unless excepted by
section 280F(d)(4)(C) or (5)(B), and cellular telephones.15 See
sec. 280F(d)(4)(A)(i), (ii), (v).
Section 167(a) allows a deduction for a reasonable allowance
for the exhaustion, wear and tear, and obsolescence of property
used in a trade or business or held for the production of income.
In general, the basis on which a depreciation deduction is
allowable with respect to any property under section 167(a) is
the adjusted basis of the property, determined under section 1011
for the purpose of determining gain on the sale or other disposi-
tion of such property. See sec. 167(c)(1).
Section 280A(a) generally disallows a deduction, otherwise
allowable under the Code, with respect to the use of a dwelling
unit. That general rule, however, does not apply with respect to
any item to the extent such item is allocable to a
portion of the dwelling unit which is exclusively used
on a regular basis–-
(A) as the principal place of business for
any trade or business of the taxpayer, [or]
(B) as a place of business which is used by
patients, clients, or customers in meeting or
15
The elements that a taxpayer must prove with respect to
any listed property are: (1)(a) The amount of each separate
expenditure with respect to such property and (b) the amount of
each business use based on the appropriate measure, e.g., mileage
for automobiles, of such property; (2) the time, i.e., the date
of the expenditure or use with respect to any such property; and
(3) the business purpose for an expenditure or use with respect
to such property. Sec. 1.274-5T(b)(6), Temporary Income Tax
Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).
- 15 -
dealing with the taxpayer in the normal course of
his trade or business * * *
Sec. 280A(c)(1)(A) and (B).
Evaluation of Certain Evidence on Which Petitioner Relies
In order to satisfy his burden of proof, petitioner relies
on, inter alia, Ms. Johnson’s testimony,16 certain stipulated
documents, and certain other documents that petitioner introduced
into the record at trial.17 (We shall refer collectively to
those stipulated documents and those documents that petitioner
introduced into the record at trial as petitioner’s documents.)
With respect to Ms. Johnson’s testimony, Ms. Johnson started
working for petitioner’s law practice on an undisclosed date in
August 1999. She had no personal knowledge regarding peti-
tioner’s law practice or any other activities of petitioner
during 1998 to the date in August 1999 on which petitioner first
employed her. As a result, at the trial in this case, Special
Trial Judge Powell ordered Ms. Johnson to restrict her testimony
to matters with respect to which she had personal knowledge. See
Fed. R. Evid. 602. During her testimony, Ms. Johnson failed in
certain material respects to comply with Special Trial Judge
Powell’s order. Under the circumstances, we shall not rely on
16
Petitioner was not at the trial in this case.
17
As discussed below, in order to satisfy his burden of
proof, petitioner also relies on certain other documents (peti-
tioner’s proffered documents).
- 16 -
Ms. Johnson’s testimony to the extent that it pertained to
matters with respect to which she did not have personal knowl-
edge. See id.
In addition, we found Ms. Johnson’s testimony to be in
certain material respects general, vague, conclusory, internally
inconsistent, and/or contradicted by the record. Under the
circumstances, we are not required to, and we shall not, rely on
that testimony to establish petitioner’s position with respect to
any of the issues presented in this case. See Lerch v. Commis-
sioner, 877 F.2d 624, 631-632 (7th Cir. 1989), affg. T.C. Memo.
1987-295; Geiger v. Commissioner, 440 F.2d 688, 689-690 (9th Cir.
1971), affg. per curiam T.C. Memo. 1969-159; Shea v. Commis-
sioner, 112 T.C. 183, 189 (1999).
With respect to petitioner’s documents, those documents
include the purported 1998 return and the purported 1999 return.
Petitioner apparently is relying on those purported returns to
support his position with respect to the Schedule C deductions
that he is claiming here.18 The respective expenses and the
18
Although not altogether clear, it appears that petitioner
is claiming for his respective taxable years 1998 and 1999 all of
the expense and depreciation deductions that are shown in the
purported 1998 Schedule C and the purported 1999 Schedule C,
except the respective expense deductions claimed in the 1998
purported Schedule C for “Other expenses”, “Meals and entertain-
ment”, and “Expenses for business use of your home”. If our
understanding were incorrect and if petitioner were also claiming
that he is entitled for his taxable year 1998 to deduct “Other
expenses”, “Meals and entertainment”, and “Expenses for business
(continued...)
- 17 -
respective amounts of depreciation that are shown in the pur-
ported 1998 Schedule C and the purported 1999 Schedule C are
nothing more than statements of petitioner’s position and do not
establish that petitioner is entitled to deduct those claimed
expenses and depreciation.
Petitioner’s documents also include virtually all of peti-
tioner’s bank statements for 1998 and 1999, respectively, for
(1) petitioner’s Chevy Chase checking account (Chevy Chase bank
statements) and (2) petitioner’s IRFCU checking and savings
accounts (IRFCU bank statements). Those bank statements show
withdrawals from, checks drawn on, and deposits into those
respective accounts during the years at issue. The Chevy Chase
bank statements and the IRFCU bank statements do not show the
purpose of any of those withdrawals, the payee or the purpose of
any of those checks,19 or the source of any of those deposits,
except certain deposits into the checking account (petitioner’s
18
(...continued)
use of your home”, on the record before us, we find that peti-
tioner has failed to carry his burden of establishing that he is
entitled to those deductions.
19
Although the Chevy Chase bank statements and the IRFCU
bank statements do not show the payee of the checks drawn on
petitioner’s Chevy Chase checking account and petitioner’s IRFCU
checking account, petitioner included as part of petitioner’s
proffered documents copies of more than one-third of the checks
drawn on petitioner’s Chevy Chase checking account and one check
drawn on petitioner’s IRFCU checking account. Those checks show
the payees thereof.
- 18 -
IRFCU checking account) that petitioner maintained at IRFCU.20
We shall not rely on those statements to establish the purpose of
any of the withdrawals from, the payee21 or the purpose of any of
the checks drawn on, or the source of certain of the deposits22
into petitioner’s bank accounts.
Unreported Income
In the notice for 1998, respondent determined that peti-
tioner has the following unreported income: (1) Nonemployee
compensation of $73,839 consisting of $44,424 from GSA and
$29,415 from the District of Columbia,23 (2) interest of $265,
and (3) a taxable distribution of $13,964 from the National
Finance Center Thrift Savings Plan. In the notice for 1999,
respondent determined that petitioner has the following unre-
ported income: (1) Nonemployee compensation of $64,944 from
GSA24 and (2) interest of $39. Petitioner concedes the income
determinations in the notices.
20
We found above that the IRFCU bank statements show that
GSA was the source of certain of the deposits made into peti-
tioner’s IRFCU checking account during each of the years 1998 and
1999.
21
See supra note 19.
22
See supra note 20.
23
See supra note 7.
24
See supra note 8.
- 19 -
In the answer, respondent alleged (1) that the 1998 bank
deposits analysis showed that during 1998 petitioner made total
deposits of at least $166,658 into petitioner’s bank accounts, of
which $136,362 is taxable (and therefore $30,296 is not taxable),
and (2) that the 1999 bank deposits analysis showed that during
1999 petitioner made total deposits of at least $106,751 into
those accounts, of which $101,179 is taxable (and therefore
$5,572 is not taxable).25 Respondent did not allege in the
answer that respondent reduced the total deposits that respondent
25
In the stipulation of facts, the parties stipulated:
Of the $42,145 petitioner deposited into the Chevy
Chase checking account in 1998, $3,587 was from non-
taxable sources.
* * * * * * *
* * * Of the $35,195 petitioner deposited into the
Chevy Chase checking account in 1999, $5,572 was from
non-taxable sources.
* * * * * * *
* * * Of the $124,513 petitioner deposited into
the IRFCU accounts in 1998, $26,709 was from non-tax-
able sources.
We construe the foregoing stipulations to mean that at least
$30,296 of the total deposits that petitioner made during 1998
into petitioner’s bank accounts and at least $5,572 of the total
deposits that petitioner made during 1999 into those accounts are
not taxable. To construe those stipulations otherwise would mean
that petitioner conceded in the parties’ stipulation of facts
that for each of his taxable years 1998 and 1999 he has the total
amount of unreported income that respondent alleged in the answer
for each of those years. On the record before us, we find that
petitioner did not intend to make that concession. Cf. Rule
91(e).
- 20 -
alleged for petitioner’s respective taxable years 1998 and 1999
by the amounts of total unreported income that respondent had
determined in the respective notices and that respondent should
have reasonably known had been deposited into petitioner’s bank
accounts during those respective years. Nor did respondent
allege in the answer that respondent reduced the amounts of total
unreported income that respondent alleged in the answer for
petitioner’s respective taxable years 1998 and 1999 by any
portion of the amounts of unreported income that respondent had
determined in the respective notices.
Where a taxpayer has failed to maintain sufficient records
under section 6001, as is the case here, the Commissioner of
Internal Revenue (Commissioner) may rely on the bank deposits
method in order to determine the taxpayer’s income. Nicholas v.
Commissioner, 70 T.C. 1057, 1064 (1978). Respondent has the
burden of proof with respect to the allegations of unreported
income that respondent advanced in the answer on the basis of the
bank deposits method, see Rule 142(a), and the obligation to
check all reasonable leads in order to verify the essential
accuracy of the income approximation produced by that method.26
On the record before us, we find that respondent has failed
to carry respondent’s burden of showing that respondent checked
all reasonable leads in order to verify the essential accuracy of
26
See Cruz v. Commissioner, T.C. Memo. 1990-594.
- 21 -
the amount of total unreported income for each of petitioner’s
taxable years 1998 and 1999 that respondent alleged in the
answer. In fact, respondent appears to have ignored actual facts
of which respondent was aware that affect the essential accuracy
of each of those amounts of alleged total unreported income.
With respect to the total deposits that respondent alleged
in the answer for petitioner’s taxable year 1998, respondent knew
that at least certain ($10,464) of the nonemployee compensation
that petitioner received from GSA during that year, which respon-
dent included as part of the total unreported income determined
in the notice for 1998,27 had been deposited by direct deposit
into petitioner’s IRFCU checking account.28 Respondent has not
proffered any evidence as to whether the $30,296 that respondent
excluded from petitioner’s total deposits under the 1998 bank
deposits analysis included any of the $10,464 that GSA had
deposited into petitioner’s IRFCU checking account during 1998.
Nor has respondent proffered any evidence as to whether respon-
dent checked all reasonable leads in order to verify whether any
of the remaining unreported income that respondent determined in
27
In the notice for 1998, respondent determined that peti-
tioner has additional nonemployee compensation of $33,960 from
GSA. See supra note 7.
28
The IRFCU bank statements show that GSA started making
direct deposits into petitioner’s IRFCU checking account in
November 1998 and that during November through December 1998 GSA
made direct deposits totaling $10,464 into that account.
- 22 -
the notice for 1998 (i.e., the balance of the nonemployee compen-
sation from GSA ($33,960), the nonemployee compensation from the
District of Columbia ($29,415), and the distribution from the
National Finance Center Thrift Savings Plan ($13,964)), had been
deposited into petitioner’s bank accounts during that year.
With respect to the total deposits that respondent alleged
in the answer for petitioner’s taxable year 1999, respondent knew
that all ($64,944) of the nonemployee compensation that peti-
tioner received from GSA during that year, which respondent
included as part of the total unreported income determined in the
notice for 1999, had been deposited by direct deposit into
petitioner’s IRFCU checking account. Respondent has not prof-
fered any evidence as to whether the $5,572 that respondent
excluded from petitioner’s total deposits under the 1999 bank
deposits analysis included any of the $64,944 that GSA had
deposited into petitioner’s IRFCU checking account during 1999.
Moreover, even if respondent had excluded $5,572 of the total
amount that GSA had deposited, respondent did not exclude from
petitioner’s total deposits during 1999 the balance ($59,372)
that GSA had deposited into petitioner’s IRFCU checking account
during that year. Nor did respondent reduce the amount of total
unreported income that respondent alleged in the answer for
petitioner’s taxable year 1999 by any portion of the amount of
unreported income that respondent determined in the notice for
- 23 -
1999.
On the record before us, we find that respondent has failed
to carry respondent’s burden of establishing that petitioner has
unreported income for his respective taxable years 1998 and 1999
in excess of the amounts determined in the notices. On that
record, we further find that respondent has failed to carry
respondent’s burden of establishing that petitioner has the
increases in the deficiencies for his respective taxable years
1998 and 1999 that respondent alleged in the answer.
Claimed Deductions
It is petitioner’s position that he is entitled to deduct for
his taxable year 1998 the following: (1) Advertising expenses of
$1,856, (2) vehicle expenses of $6,150, (3) insurance premiums of
$2,394, (4) mortgage interest of $11,538, (5) other interest of
$1,835, (6) office expenses of $8,300, (7) repair and maintenance
expenses of $3,374, (8) expenses for supplies of $3,125,
(9) taxes and licenses of $10,716, (10) utility expenses of
$1,100, and (11) depreciation of $3,601 with respect to (a) the U
Street property and (b) certain unidentified vehicles. It is
petitioner’s position that he is entitled to deduct for his
taxable year 1999 depreciation of $8,782 with respect to (1) the
U Street property and (2) an unidentified vehicle.29
29
In his posttrial memorandum, petitioner states: “The
Petitioner includes all his 1999 business expenses under Depreci-
(continued...)
- 24 -
In support of his position that he is entitled to the
Schedule C deductions that he is claiming, petitioner relies on
Ms. Johnson’s testimony and petitioner’s documents. We set forth
above our evaluation of that evidence. Petitioner also relies on
petitioner’s proffered documents, virtually all of which pertain
to petitioner’s taxable year 1998 (petitioner’s 1998 proffered
documents).30 At the trial in this case, respondent objected to
the admission of petitioner’s proffered documents on the ground
that no proper foundation had been laid for the admission of
those documents as business records. It is not clear from the
record whether Special Trial Judge Powell ruled on that objec-
tion. The following discussion assumes arguendo that Special
Trial Judge Powell admitted petitioner’s proffered documents into
evidence and made them part of the record.
29
(...continued)
ation and section 179 expense deduction.” Although not alto-
gether clear, we construe petitioner’s statement to mean that the
only Schedule C deduction that he is claiming for 1999 is a
depreciation deduction. Our understanding of petitioner’s
statement in petitioner’s posttrial memorandum is consistent with
the purported 1999 return. The only deduction that petitioner
claimed in the purported 1999 Schedule C is a depreciation
deduction of $8,782.
30
Only two of petitioner’s proffered documents pertain to
petitioner’s taxable year 1999, i.e., a check drawn on peti-
tioner’s IRFCU checking account, dated Nov. 12, 1999, and payable
to “Ana & Jose Reyes” and a check drawn on petitioner’s Chevy
Chase checking account, dated June 12, 1999, and payable to “U
Street Cleaners”. The record does not disclose the issue(s)
presented in this case, if any, to which those checks pertain.
- 25 -
We first evaluate petitioner’s 1998 proffered documents.
Those proffered documents consist of (1) certain checks (peti-
tioner’s checks) that petitioner issued to various individuals
and establishments, including certain checks that petitioner
issued to a pediatrician; (2) certain credit card statements
consisting of (a) two statements for a Chase card that show
closing dates of June 18 and July 20, 1998, respectively, and
(b) two statements for a Visa Gold card that show closing dates
of June 19, 1998, and September 11, 1998, respectively;
(3) a purported mileage log of petitioner (petitioner’s 1998
purported mileage log); (4) duplicates of certain of the IRFCU
bank statements and the Chevy Chase bank statements that are
included in petitioner’s documents that the parties stipulated;
(5) certain invoices and billing statements from various estab-
lishments (petitioner’s invoices and billing statements), includ-
ing certain statements from a pediatrician; (6) certain receipts
consisting of (a) two receipts from Sears dated September 12 and
October 21, 1998, respectively, (b) a receipt from Hechinger
dated October 17, 1998, and (c) a receipt from the University of
the District of Columbia dated May 29, 1998; (7) certain docu-
ments relating to certain student loans; (8) certain deposit
slips; and (9) a notice dated September 25, 1998, with respect to
an unsatisfied parking ticket.
- 26 -
We find that petitioner’s 1998 proffered documents are
inadequate to establish petitioner’s entitlement to any of the
Schedule C deductions that he is claiming for his taxable year
1998. By way of illustration of the inadequacies of petitioner’s
1998 proffered documents, we do not know the claimed expense(s)
to which approximately three-quarters of petitioner’s checks
pertain.31 As for the remainder of petitioner’s checks, although
we have been able to determine the claimed expense(s) to which
those checks pertain, we find that those checks do not establish,
inter alia, that petitioner paid those expenses in conducting his
law practice.
By way of further illustration of the inadequacies of
petitioner’s 1998 proffered documents, petitioner’s credit card
statements do not establish the claimed expense(s) to which those
statements pertain or whether petitioner is claiming all of the
expenses shown in those statements. Moreover, we find that
petitioner’s credit card statements do not establish, inter alia,
that petitioner paid the expenses shown in petitioner’s credit
card statements in conducting his law practice.
31
Included in petitioner’s checks are a substantial number
of checks with handwritten notations, most of which are illegible
or unclear as to their meaning. We note that even if the hand-
written notations on petitioner’s checks were legible and clear
as to their meaning, those notations do not establish that the
expenditures paid by those checks were paid in conducting peti-
tioner’s law practice.
- 27 -
As a further illustration of the inadequacies of peti-
tioner’s 1998 proffered documents, petitioner’s 1998 purported
mileage log32 consists of four columns with the headings “Date”,
“From”, “To”, and “Miles”. The entries shown in the columns
headed “From” and “To” for the period January 5 through May 10,
1998, consist of various addresses with no further explanation.
Virtually all of the entries shown in the columns headed “From”
and “To” for the period May 11 through December 29, 1998, consist
of terms such as “Home”, “Court”, “Jail”, “Witness”, “Client’s
Home”, and “Crime Scene”.33 Because petitioner was not at the
trial in this case, he was not available to explain the entries
in petitioner’s 1998 purported mileage log. Nor is there reli-
able evidence in the record to explain (1) any of the entries in
petitioner’s 1998 purported mileage log and (2) how petitioner
used that purported log to calculate the deduction that he claims
for vehicle expenses. We find that petitioner’s 1998 purported
mileage log does not establish, inter alia, that petitioner made
the purported trips reflected in that purported log in conducting
32
Ms. Johnson, who did not start working for petitioner
until sometime in August 1999, testified that petitioner prepared
petitioner’s 1998 purported mileage log. Ms. Johnson did not
testify (1) how she knew that petitioner prepared that purported
log, which purports to cover trips during 1998 only, or (2) when
he prepared it.
33
Certain of the entries in the respective columns headed
“From” and “To” for the period May 11 through July 19, 1998, are
addresses.
- 28 -
his law practice.
By way of further illustration of the inadequacies of
petitioner’s 1998 proffered documents, we find that petitioner’s
invoices and billing statements do not establish, inter alia,
that petitioner paid the amounts shown therein and/or that
petitioner paid the amounts shown in those invoices and billing
statements in conducting his law practice.
As a final illustration of the inadequacies of petitioner’s
1998 proffered documents, neither the receipt from the University
of the District of Columbia nor the receipts from Sears indicate
the reason petitioner expended the amounts shown in those respec-
tive receipts. Although the receipt from Hechinger shows the
items34 that were purchased for the total amount shown in that
receipt, we find that it does not establish, inter alia, that
petitioner purchased those items in conducting his law practice.
We now address petitioner’s argument that he is entitled to
the Schedule C deductions that he is claiming for his respective
taxable years 1998 and 1999. With respect to the claimed Sched-
ule C deductions for 1998 for advertising expenses, vehicle
expenses, insurance premiums,35 mortgage interest, other inter-
34
The items shown in the receipt from Hechinger are “DRUM
LINER TRASH BAG”, “GROUND FAULT KIT”, “STAPLE DISPENSER”, “ROMEX
CONNECTOR”, and “NMB CABLE”.
35
The record does not establish the type of insurance policy
to which petitioner’s claimed insurance premiums pertain.
- 29 -
est,36 office expenses, repair and maintenance expenses, expenses
for supplies, taxes and licenses, and utility expenses, we find
nothing in the record that satisfies petitioner’s burden of
showing (1) that during 1998 petitioner paid or incurred those
expenses, (2) that he paid or incurred those expenses in conduct-
ing his law practice, and/or (3) that those expenses constitute
ordinary and necessary business expenses in conducting his law
practice under section 162(a). On the record before us, we find
that petitioner has failed to carry his burden of establishing
that he is entitled for his taxable year 1998 to the respective
deductions under section 162(a) that he claims for advertising
expenses, vehicle expenses, insurance premiums, mortgage inter-
est, other interest, office expenses, repair and maintenance
expenses, expenses for supplies, taxes and licenses, and utility
expenses.
With respect to the depreciation deductions that petitioner
claims with respect to the U Street property for his respective
taxable years 1998 and 1999, the only evidence that petitioner
introduced to support those claimed deductions is Ms. Johnson’s
general and vague testimony that “the depreciation on the home is
based on a calculation of a formula based on * * * the amount you
purchase the home over a period of time” and that a “good guess”
36
The record does not establish the nature of petitioner’s
claimed interest.
- 30 -
of the purchase price for that property is $260,000. On the
record before us, we find that petitioner has failed to carry his
burden of establishing that he is entitled for his respective
taxable years 1998 and 1999 to the depreciation deductions under
section 167(a) that he claims with respect to the U Street
property.
With respect to the respective depreciation deductions that
petitioner claims for his taxable year 1998 with respect to
certain unidentified vehicles and the depreciation deduction that
he claims for his taxable year 1999 with respect to an unidenti-
fied vehicle, on the record before us, we find that petitioner
has failed to carry his burden of establishing, inter alia, that
he used any vehicle as part of his law practice. See sec.
167(a). On that record, we further find that petitioner has
failed to carry his burden of establishing that he is entitled
(1) for his taxable year 1998 to the depreciation deduction under
section 167(a) that he claims with respect to certain unidenti-
fied vehicles and (2) for his taxable year 1999 to the deprecia-
tion deduction under that section that he claims with respect to
an unidentified vehicle.
Assuming arguendo that we had found that petitioner carried
his burden of establishing (1) for his taxable year 1998 the
deductibility under section 162(a) of petitioner’s claimed
expenses pertaining to the U Street property (i.e., petitioner’s
- 31 -
claimed mortgage interest, petitioner’s claimed utility expenses,
and petitioner’s claimed repair and maintenance expenses) and
(2) for his respective taxable years 1998 and 1999 the deduct-
ibility under section 167(a) of petitioner’s claimed depreciation
with respect to that property, he would still have to satisfy the
requirements of section 280A(c) with respect to those expense and
depreciation deductions. In order to satisfy the requirements of
that section, petitioner would have to establish that those
expense and depreciation deductions are allocable to a portion of
the U Street property that was exclusively used on a regular
basis as the principal place of business for his law practice or
as a place of business to meet or deal with clients in the normal
course of his law practice. See sec. 280A(c).
The parties do not dispute that petitioner resided at the U
Street property and that that property consisted of three floors.
Petitioner contends that during each of the years at issue he
exclusively used on a regular basis the lower two floors of the U
Street property as his principal place of business for his law
practice or as a place of business to meet or deal with clients
in the normal course of his practice. To support petitioner’s
contention, petitioner relies on Ms. Johnson’s testimony. As
discussed above, we are unwilling to rely on Ms. Johnson’s
testimony to the extent that it pertained to matters surrounding
petitioner’s law practice or any other activities of petitioner
- 32 -
during 1998 to the date in August 1999 on which petitioner first
employed her.
Assuming arguendo that we were willing to rely on Ms.
Johnson’s testimony with respect to whether during each of the
years at issue petitioner exclusively used on a regular basis the
U Street property as his principal place of business for his law
practice or as a place of business to meet or deal with clients
in the normal course of his practice, we found her testimony to
be internally inconsistent. Ms. Johnson testified on direct
examination that the top two floors of the U Street property were
“completely business”. On cross-examination, Ms. Johnson contra-
dicted that testimony and testified that the top floor of the U
Street property was “just his residence” and that the lower two
floors of that property were used for business purposes.
On the record before us, we find that petitioner has failed
to carry his burden of establishing that during each of the years
at issue he exclusively used on a regular basis any portion of
the U Street property as the principal place of business for his
law practice or as a place of business to meet or deal with
clients in the normal course of his law practice. See sec.
280A(c).
Assuming arguendo that we had found that petitioner carried
his burden of establishing for his taxable year 1998 the deduct-
ibility under section 162(a) of petitioner’s claimed vehicle
- 33 -
expenses, petitioner would still have to satisfy the requirements
of section 274(d) with respect to those expenses. On the record
before us, we find that he has not done so. See sec. 274(d)(4);
sec. 1.274-5T(b)(6), Temporary Income Tax Regs., 50 Fed. Reg.
46016 (Nov. 6, 1985).
Assuming arguendo that we had found that petitioner carried
his burden of establishing for his taxable year 1998 the deduct-
ibility under section 162(a) of petitioner’s claimed office
expenses, it appears from Ms. Johnson’s testimony that those
claimed expenses include certain expenses that pertained to the
use of a cellular telephone.37 To the extent that petitioner is
claiming expenses that pertained to the use of a cellular tele-
phone, petitioner would still have to satisfy the requirements of
section 274(d). On the record before us, we find that he has not
done so. See sec. 274(d)(4); sec. 1.274-5T(b)(6), Temporary
Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).
Additions to Tax
It is respondent’s position that petitioner is liable for
the respective additions to tax under sections 6651(a)(1) and (2)
and 6654(a) that respondent determined in the notices and the
37
Because Ms. Johnson testified that she “itemized the
expenses” shown in the purported 1998 return, we believe that she
had personal knowledge of the nature of the expenses that peti-
tioner is claiming for his taxable year 1998. As discussed
above, that is not to say that Ms. Johnson had personal knowledge
of the expenses that petitioner paid during that year in conduct-
ing his law practice.
- 34 -
increases in those respective additions to tax that respondent
alleged in the answer.
Section 6651(a)(1) imposes an addition to tax for failure to
file timely a return. Section 6651(a)(2) imposes an addition to
tax for failure to pay timely the amount shown as tax in a
return. The respective additions to tax under section 6651(a)(1)
and (2) do not apply if the respective failures to file timely
and to pay timely are due to reasonable cause, and not willful
neglect. Sec. 6651(a)(1) and (2). Section 6654(a) imposes an
addition to tax in the case of an underpayment of estimated tax
by an individual.38 The addition to tax under that section is
mandatory unless petitioner qualifies under one of the exceptions
in section 6654(e).39
38
For purposes of sec. 6654(a), it is necessary to determine
whether there is an underpayment of a required installment of
estimated tax. See sec. 6654(a) and (b). In this connection,
the amount of any required installment is 25 percent of the
required annual payment. Sec. 6654(d)(1)(A). The required
annual payment is equal to the lesser of (1) 90 percent of the
tax shown in the return for the taxable year or, if no return was
filed, 90 percent of the tax for such year, or (2) if the indi-
vidual filed a return for the preceding taxable year, 100 percent
of the tax shown in such return. Sec. 6654(d)(1)(B).
39
Sec. 6654(e) provides that no addition to tax shall be
imposed under sec. 6654(a) for any taxable year if (1) the tax
shown in the return for such taxable year (or, if no return is
filed, the tax), reduced by the credit allowable under sec. 31,
is less than $1,000, sec. 6654(e)(1); (2) the preceding taxable
year was a taxable year of 12 months, the individual did not have
any liability for such preceding taxable year, and the individual
was a citizen or resident of the United States throughout such
preceding taxable year, sec. 6654(e)(2); (3) the Secretary
(continued...)
- 35 -
Respondent must carry the burden of production with respect
to the respective additions to tax under sections 6651(a)(1) and
(2) and 6654(a) that respondent determined in the notices and the
increases in those respective additions to tax that respondent
alleged in the answer. Sec. 7491(c); Higbee v. Commissioner, 116
T.C. 438, 446-447 (2001). To satisfy respondent’s burden of
production, respondent must come forward with “sufficient evi-
dence indicating that it is appropriate to impose” the additions
to tax. Higbee v. Commissioner, supra at 446. Although respon-
dent bears the burden of production with respect to the respec-
tive additions to tax under sections 6651(a)(1) and (2) and
6654(a) that respondent determined in the notices, respondent
“need not introduce evidence regarding reasonable cause * * * or
similar provisions. * * * the taxpayer bears the burden of proof
with regard to those issues.” Higbee v. Commissioner, supra.
Respondent bears the burden of proof with respect to the in-
creases in the respective additions to tax under sections
6651(a)(1) and (2) and 6654(a) for petitioner’s taxable years
39
(...continued)
determines that by reason of casualty, disaster, or other unusual
circumstances the imposition of such addition to tax would be
against equity and good conscience, sec. 6654(e)(3)(A); or
(4) the Secretary determines that during the taxable year for
which the estimated payments are required or in the taxable year
preceding such taxable year, the taxpayer retired after having
attained the age of 62 or became disabled and the underpayment of
any estimated tax was due to reasonable cause and not willful
neglect, sec. 6654(e)(3)(B).
- 36 -
1998 and 1999 that respondent alleged in the answer. See Rule
142(a).
With respect to the respective additions to tax under
sections 6651(a)(1) and (2) and 6654(a) that respondent deter-
mined in the notices, we turn first to the addition to tax under
section 6651(a)(1). We have found that petitioner did not file a
return for each of his taxable years 1998 and 1999. On the
record before us, we find that respondent has carried respon-
dent’s burden of production under section 7491(c) with respect to
the additions to tax under section 6651(a)(1) that respondent
determined in the respective notices.
Petitioner relies on Ms. Johnson’s testimony to support his
position that his failure to file timely was due to reasonable
cause, and not willful neglect. Section 1.6081-4, Income Tax
Regs., provides that “An individual who is required to file an
individual income tax return will be allowed an automatic 4-month
extension of time to file the return after the date prescribed
for filing the return”. After taking the automatic four-month
extension into account, the due date for petitioner’s return for
1998 would have been August 15, 1999, and the due date for
petitioner’s return for 1999 would have been August 15, 2000.
Ms. Johnson began working for petitioner sometime in August 1999
and continued to work for him until at least through 2004. We
believe that Ms. Johnson had personal knowledge about why peti-
- 37 -
tioner failed to file a return for each of his taxable years 1998
and 1999.
Ms. Johnson testified that petitioner did not file a return
for each of his taxable years 1998 and 1999 because he (1) did
not have all of the information that he needed to file a return
for each of those years and (2) was too busy in his law practice.
The unavailability of information or records does not necessarily
establish reasonable cause for failure to file timely a return.
See Elec. & Neon, Inc. v. Commissioner, 56 T.C. 1324, 1342-1343
(1971), affd. without published opinion 496 F.2d 876 (5th Cir.
1974). A taxpayer is required to file timely based upon the best
information available and to file thereafter an amended return if
necessary. Estate of Vriniotis v. Commissioner, 79 T.C. 298, 311
(1982). Moreover, a taxpayer’s preoccupation with employment or
other activities does not necessarily establish reasonable cause
for failure to timely file a return. Dustin v. Commissioner, 53
T.C. 491, 507 (1969), affd. 467 F.2d 47 (9th Cir. 1972).
On the record before us, we find that petitioner has failed
to carry his burden of showing that his failure to file a return
for each of his taxable years 1998 and 1999 was due to reasonable
cause, and not willful neglect. On that record, we further find
that petitioner has failed to carry his burden of establishing
that he is not liable for the additions to tax under section
6651(a)(1) that respondent determined in the respective notices.
- 38 -
We turn now to the additions to tax under section 6651(a)(2)
that respondent determined in the respective notices. That
section applies only in the case of an amount of tax shown in a
return. Cabirac v. Commissioner, 120 T.C. 163, 170 (2003). For
purposes of section 6651(a)(2), a return prepared by the Commis-
sioner under section 6020(b) is treated as the return filed by
the taxpayer. Sec. 6651(g)(2); Cabirac v. Commissioner, supra.
Because petitioner did not file a return for each of his taxable
years 1998 and 1999, respondent prepared a substitute for return
under section 6020(b) for each of those years. The substitute
for return for 1998 showed total tax of $30,228.40. The substi-
tute for return for 1999 showed total tax of $20,760. The record
establishes that petitioner failed to pay timely the tax shown in
each of those substitutes for return. On the record before us,
we find that respondent has carried respondent’s burden of
production under section 7491(c) with respect to the additions to
tax under section 6651(a)(2) that respondent determined in the
respective notices.
It appears that petitioner is claiming that he failed to pay
timely the tax shown in the substitute for return for 1998 and
the tax shown in the substitute for return for 1999 for the same
reasons that petitioner failed to file timely a return for each
of those years, that is to say, he (1) did not have all of the
requisite information and (2) was too busy in his law practice.
- 39 -
On the record before us, we find that petitioner has failed to
carry his burden of showing that his failure to pay timely the
tax shown in the substitute for return for 1998 and the tax shown
in the substitute for return for 1999 was due to reasonable
cause, and not willful neglect.40 On that record, we further
find that petitioner has failed to carry his burden of establish-
ing that he is not liable for the additions to tax under section
6651(a)(2) that respondent determined in the respective notices.
We turn finally to the additions to tax under section
6654(a) that respondent determined in the respective notices. We
have found (1) that petitioner filed a return for his taxable
year 1997 that showed tax due of $20,084 and that the IRS ac-
cepted as filed, (2) that petitioner did not file a return for
each of his taxable years 1998 and 1999, and (3) that petitioner
did not make any estimated tax payments for either of his taxable
years 1998 or 1999. On the record before us, we find that
respondent has carried respondent’s burden of production under
section 7491(c) with respect to the additions to tax under
section 6654(a) that respondent determined in the respective
notices.
With respect to the additions to tax under section 6654(a)
that respondent determined in the respective notices, petitioner
40
Cf. Klein v. Commissioner, T.C. Memo. 2007-325; Joubert v.
Commissioner, T.C. Memo. 2007-292.
- 40 -
does not argue, and the record does not establish, that he
qualifies under any of the exceptions listed in section 6654(e).
On the record before us, we find that petitioner is liable for
the additions to tax under section 6654(a) that respondent
determined in the respective notices.
With respect to the increases in the additions to tax under
sections 6651(a)(1) and (2) and 6654(a) for petitioner’s respec-
tive taxable years 1998 and 1999 that respondent alleged in the
answer, we have found that respondent has failed to carry respon-
dent’s burden of establishing that petitioner has the increases
in the deficiencies for his respective taxable years 1998 and
1999 that respondent alleged in the answer. On the record before
us, we find that respondent has failed to carry respondent’s
burden of establishing that petitioner is liable for his respec-
tive taxable years 1998 and 1999 for the increases in the addi-
tions to tax under sections 6651(a)(1) and (2) and 6654(a) that
respondent alleged in the answer.
We have considered all of the contentions and arguments of
petitioner that are not discussed herein, and we find them to be
without merit, irrelevant, and/or moot.
- 41 -
To reflect the foregoing,
Decision will be entered for
respondent with respect to the
deficiencies and additions to tax
determined in the notices and for
petitioner with respect to the
increases in those deficiencies and
those additions to tax alleged in
the answer.