Cwiklo v. Comm'r

T.C. Summary Opinion 2008-149

UNITED STATES TAX COURT

DAVID PETER AND PAMELA OGDEN CWIKLO, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 11381-06S. Filed November 24, 2008.

David Peter and Pamela Ogden Cwiklo, pro sese.

Linette B. Angelastro, for respondent.

GOLDBERG, Special Trial Judge: This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed. Pursuant to section

7463(b), the decision to be entered is not reviewable by any

other court, and this opinion shall not be treated as precedent

for any other case. Unless otherwise indicated, subsequent

section references are to the Internal Revenue Code in effect for
 - 2 -

the year in issue, and all Rule references are to the Tax Court

Rules of Practice and Procedure.

Respondent determined a $20,987.79 deficiency in

petitioners’ Federal Alternative Minimum Tax (AMT) for 2002, as

well as a $6,555.91 addition to tax under section 6651(a)(1) for

failure to file timely. At trial petitioners filed a “Motion to

Strike IRS Documentary Evidence for Failure to Produce” (motion

to strike). In the motion petitioners also requested that the

Court award attorney’s fees and other costs of litigation. The

issues for decision are: (1) Whether the Court should sustain

petitioners’ motion to strike; (2) whether petitioners are

subject to the AMT; and (3) whether petitioners are liable for an

addition to tax for late filing.

Background

Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference. Petitioners resided in

California when they filed their petition.1

Petitioners filed a joint 2002 Federal income tax return.

Mr. Cwiklo was a self-employed attorney, and Ms. Cwiklo worked as

a teacher’s aide. They reported adjusted gross income of

$322,559, itemized deductions of $125,798, an income tax

1
Only Mr. Cwiklo appeared at trial; however, for
consistency, we will continue to refer to petitioners in the
plural.
 - 3 -

liability of $46,479, tax withheld of $14, and a balance due of

$46,465.

Petitioners claimed four categories of itemized deductions:

State and local taxes of $25,291, personal property taxes of

$3,200, home mortgage interest of $33,758, and a miscellaneous

itemized expense item entitled “Ref Fees” of $70,000.2

Petitioners failed to phase out (reduce) their itemized

deductions and personal exemptions as sections 68(a)(1) and

151(d)(3), respectively, require for higher income taxpayers.3

Petitioners also failed to report AMT, and they did not attach a

Form 6251, Alternative Minimum Tax--Individuals, to their joint

income tax return. In the notice of deficiency dated April 24,

2006, respondent’s AMT calculation reflected adjustments for the

proper phaseout amounts.

Both parties presented copies of petitioners’ 2002 tax

return, and both copies showed that petitioners dated their

signatures April 15, 2003. However, respondent’s copy also

showed that the Internal Revenue Service (IRS) Small

Business/Self Employed compliance office in Santa Barbara,

California, stamped the return received on July 7, 2005. In

2
Neither party explained what “Ref Fees” means.
Petitioners properly reduced the $70,000 to $63,549 because sec.
67(a) requires taxpayers to trim miscellaneous itemized expenses
by 2 percent of adjusted gross income.
3
For detail on the phaseouts, see table footnotes below in
sec. III, the AMT computation.
 - 4 -

their petition, petitioners alleged that respondent incorrectly

calculated or incorrectly applied the AMT; that respondent

mistakenly did not apply AMT credits; and that respondent did not

support the addition to tax for late filing. Petitioners also

stated that they would raise additional issues at trial.

The trial session of the Court commenced Monday, October 15,

2007, in Los Angeles, and the trial took place on that date.

Petitioners filed their motion to strike. In the motion

petitioners stated that respondent’s computation must have been

wrong because petitioners did not have any tax preference items,

and even if respondent’s computation was correct, then respondent

misapplied the tax because originally, in 1969, Congress targeted

155 high-income taxpayers and did not intend to impose the tax on

petitioners. Petitioners introduced three new grounds for

relief: (1) Respondent made the determination of AMT tax too

late; i.e., respondent issued the notice of deficiency beyond the

3-year limitations period to assess tax; (2) respondent

purportedly conceded that petitioners did not owe AMT; and (3)

respondent did not respond timely to petitioners’ discovery

requests.

To support their contention about discovery, petitioners

attached five letters to their motion. The first letter, dated

August 17, 2007, was from respondent to petitioners, suggesting a

pretrial conference and requesting that petitioners bring all
 - 5 -

documents that they intended to introduce at trial. The second

letter, dated September 13, 2007, was from petitioners to

respondent, stating that respondent already had originals or

copies of all the documents that petitioners intended to

introduce, such as their 2002 tax return. Petitioners requested

that in lieu of a face-to-face conference respondent send to Mr.

Cwiklo’s law office all documents that respondent intended to

introduce at trial.

The third letter, dated September 28, 2007, was from

respondent to petitioners. Respondent stated that it was his

understanding that at trial petitioners intended to introduce

only their tax return to support their contention that they were

not liable for AMT. Petitioners highlighted this statement as

respondent’s purported concession that they did not owe the tax.

Respondent also stated that he was enclosing a copy of

petitioners’ administrative file for 2002 after redacting

irrelevant third party information and certain privileged data,

such as petitioners’ DIF score (discriminant function, which is

an internal IRS statistical measure of the likelihood an audit

will yield additional revenue). Additionally, respondent stated

that except for a transcript of petitioners’ account for 2002 he

did not intend to introduce any documents that he had not already

sent to petitioners.
 - 6 -

Both the fourth and fifth letters, dated October 3 and

October 9, 2007, were from petitioners to respondent.

Petitioners reiterated respondent’s alleged concession on the

AMT. Petitioners also stated that because they had not received

the entire administrative file, they intended to ask the Court

for an order precluding respondent’s introduction of any

documents that respondent had not produced timely. The Court

reserved judgment on petitioners’ motion.

At trial respondent offered the following documents: (1) A

copy of petitioners’ 2002 tax return; (2) a Form 4340,

Certificate of Assessments, Payments, and Other Specific Matters

(referred to below as the Certificate of Assessments or

transcript of account), dated October 3, 2007; and (3) a Form

2866, Certificate of Official Record, also dated October 3, 2007.

The transcript of account indicated that the IRS received the

return on July 7, 2005. The Certificate of Official Record had

an official IRS raised gold seal affixed to it, and the IRS Chief

of Accounting Operations had signed the certificate.

In the stipulation of facts and at trial petitioners

objected to the Court’s admission of the tax return and the

Certificate of Assessments on the grounds of hearsay, lack of

foundation, and the best evidence rule. The Court overruled

petitioners’ objections and received respondent’s evidence.
 - 7 -

Discussion

In general, the Commissioner’s determination set forth in a

notice of deficiency is presumed correct, and the taxpayer bears

the burden of showing that the determination is in error. Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).

Pursuant to section 7491(a), the burden of proof as to

factual matters shifts to the Commissioner under certain

circumstances. Petitioners have neither alleged that section

7491(a) applies nor established their compliance with the

requirements of section 7491(a)(2)(A) and (B) to substantiate

items, maintain records, and cooperate fully with respondent’s

reasonable requests. Petitioners therefore bear the burden of

proof. With respect to the addition to tax, section 7491(c)

places the burden of production on the Commissioner.

Petitioners have constructed three layers of defense against

respondent’s determination. First, they claim that the IRS

issued the notice of deficiency too late. In petitioners’ view,

because the IRS issued the notice more than 3 years after the

date petitioners claim they filed their return, the statute of

limitations renders the IRS’s notice invalid, and therefore, the

IRS has no authority to determine a deficiency and an addition to

tax. Secondly, petitioners propose two reasons for the Court to

exclude respondent’s evidence: respondent’s purported discovery

misconduct, and petitioners’ evidentiary objections to the
 - 8 -

evidence. Third and last, petitioners allege the AMT should not

apply to them, and in the alternative, if it does, then

respondent must have incorrectly computed the amount due and

omitted credits. We now discuss petitioners’ three defenses.

I. Whether the Statute of Limitations Bars Respondent’s
Determination of AMT

Establishing that a deadline has expired under a limitations

period is an affirmative defense that the claiming party must

raise in the pleadings. See Rule 39; Hoffman v. Commissioner,

119 T.C. 140, 146 (2002). Additionally, taxpayers must specify

in their petition each and every error that they allege the

Commissioner has committed. Rule 34(b)(4); Funk v. Commissioner,

123 T.C. 213, 215 (2004). If a taxpayer does not raise an issue

in the pleadings, then the Court will deem that the taxpayer has

conceded, waived, or abandoned the issue. See Rule 34(b)(4);

Tapper v. Commissioner, 766 F.2d 401, 403 (9th Cir. 1985).

Petitioners first raised the statute of limitations argument in

their motion to strike filed at trial. Consequently, Rule

34(b)(4) precludes their argument as untimely, and we deem that

petitioners have waived the defense.

Moreover, if we were to reach the merits, we would find that

petitioners failed to carry their affirmative burden to prove

that the 3-year period for assessment expired before respondent’s

issuance of the notice of deficiency. Petitioners contend that

respondent’s notice of deficiency is invalid because the date of
 - 9 -

issuance, April 24, 2006, is more than 3 years after they

purportedly filed their return on April 15, 2003. Three years is

significant because the Commissioner has 3 years from the date a

taxpayer files a return to assess a tax imposed by title 26.4

Sec. 6501(a); see United States v. Galletti, 541 U.S. 114, 116

(2004).

We note that “A long line of cases has established that the

running of the statute of limitations on assessment requires the

taxpayer to prove the date of the filing of a return.” Espinoza

v. Commissioner, 78 T.C. 412, 421 (1982). Further, a court is

not required to give credence to a taxpayer who does not present

the testimony of a spouse who purportedly cosigned the return and

who does not present any other evidence to corroborate the

taxpayer’s self-serving testimony. Hazel v. Commissioner, T.C.

Memo. 2008-134. Other than the date they wrote on the tax return

and Mr. Cwiklo’s self-serving testimony, petitioners provided no

evidence to support their claim that they filed their return on

April 15, 2003. Petitioners did not call Ms. Cwiklo, and they

did not offer proof of mailing, such as a certified mail receipt

or an executed return receipt request. Thus, petitioners have

failed to meet their affirmative burden.

4
Title 26 of the U.S. Code includes imposition of the AMT at
sec. 55.
 - 10 -

In contrast, respondent produced a copy of petitioners’ tax

return that showed an IRS receipt stamp date of July 7, 2005, and

an authenticated Certificate of Assessments that corroborated the

July 7, 2005, filing date. Accordingly, respondent has provided

credible evidence of the July 7, 2005, filing date.

For the foregoing reasons, we conclude that petitioners

filed their return on July 7, 2005, and that the statute of

limitations did not bar respondent’s issuance of a notice of

deficiency on April 24, 2006.

II. Whether the Court Should Exclude Respondent’s Evidence

We now discuss petitioners’ two grounds for the Court to

exclude respondent’s evidence: Respondent’s alleged wrongdoings

during pretrial discovery, and petitioners’ evidentiary

objections at trial.

A. Whether the Court Should Sustain Petitioners’ Motion To
Strike

At trial petitioners filed a motion to strike. Their motion

hinges on their contention that respondent did not respond

sufficiently and timely to their discovery requests for

documents. Petitioners submitted their first discovery request

to respondent in a letter dated September 13, 2007, which was

about 32 days before the October 15, 2007, calendar call and

trial.

Petitioners’ use of discovery suffers from many problems.

First, as a formal matter, petitioners submitted their initial
 - 11 -

discovery request too late. Our Rules require that a party

requesting information make the request sufficiently early so as

to complete discovery no later than 45 days before the date set

for the calendar call of the case. See Rule 70(a)(2); Gallo v.

Commissioner, T.C. Memo. 1998-100. Further, if petitioners were

having a problem with respondent’s response, then our Rules

require them to follow Rule 72, which controls the “Production of

Documents and Things”. In pertinent part, Rule 72(b) requires

that the requesting party file with the Court a motion to compel

if the responding party fails to respond or produce. When

coupled with Rule 70(a)(2), Rule 72 requires that the requesting

party file the motion to compel early enough for the Court to

weigh the motion and, if necessary, compel the other party to

comply sufficiently early before trial, or to adjourn the trial

for a later date. Petitioners, by filing an untimely motion to

strike and by bypassing the filing of a motion to compel, have

violated our discovery Rules.

Secondly, petitioners’ greater mistake was that they did not

“in good faith [exhaust] all efforts toward informal

communication and discovery within the meaning of Rules 70 and

90, and Branerton Corp. v. Commissioner, 61 T.C. 691 (1974).”

Pleier v. Commissioner, T.C. Memo. 1990-426, affd. without

published opinion 956 F.2d 1167 (9th Cir. 1992). Failure to do

so shows petitioners do “not fully appreciate the importance of
 - 12 -

our Branerton opinion.” Schneider Interests, L.P. v.

Commissioner, 119 T.C. 151, 156 (2002). “In Branerton * * *, we

explained: ‘The [formal] discovery procedures should be used

only after the parties have made reasonable informal efforts to

obtain needed information voluntarily’.” Id. at 154 (quoting

Branerton Corp. v. Commissioner, 61 T.C. 691, 692 (1974)). An

insistence on “compliance with his formal discovery requests in

advance of any conference between the parties does not

effectively present an opportunity for the ‘discussion,

deliberation, and an interchange of ideas, thoughts, and opinions

between the parties’ that our Rules contemplate.” Id. at 156

(quoting Intl. Air Conditioning Corp. v. Commissioner, 67 T.C.

89, 93 (1976)). Thus, petitioners’ violation of the “letter and

spirit of * * * [our] discovery rules * * * sharply conflicts

with the intent and purpose of Rule 70(a)(1) and [therefore]

constitutes an abuse of the Court’s procedures.” Branerton Corp.

v. Commissioner, supra at 692.

Petitioners rejected respondent’s offer to begin informal

discussions and discovery through a pretrial settlement

conference that respondent proposed in his August 17, 2007,

“Branerton” letter. Moreover, petitioners compounded their error

by making discovery demands that seemingly were meant to obstruct

rather than yield meaningful information. See Pleier v.

Commissioner, supra (ruling against a taxpayer, in part because
 - 13 -

the taxpayer’s overbroad discovery requests would not lead to the

discovery of admissible evidence). Ultimately, other than

sending their letters, petitioners did not engage in

“‘discussion, deliberation, and an interchange of ideas,

thoughts, and opinions between the parties’” as Rule 70(a)(1)

contemplates. Schneider Interests, L.P. v. Commissioner, supra

at 154 (quoting Intl. Air Conditioning Corp. v. Commissioner,

supra at 93).

Third and finally, in addition to procedural errors,

petitioners’ motion fails on the merits. The limited information

that respondent redacted, which was some third party information

and petitioners’ DIF score, was within respondent’s rights and

immaterial to petitioners’ trial. See Rule 70(b)(1) (a discovery

request may not secure information that is privileged or that is

not relevant to the pending case); Gillin v. IRS, 980 F.2d 819,

822 (1st Cir. 1992) (holding that among other allowable

exclusions, the Commissioner may redact a taxpayer’s DIF score).

Moreover, the only new evidence respondent presented at trial was

a transcript of petitioners’ account, which, for the reasons we

discuss next in section B, did not surprise or prejudice

petitioners.

For all the foregoing reasons, we will deny petitioners’

motion to strike.
 - 14 -

B. Whether the Court Should Have Sustained Petitioners’
Evidentiary Objections

In general, the Court conducts trials in accordance with the

rules of evidence for trials without a jury in the U.S. District

Court for the District of Columbia, and accordingly, follows the

Federal Rules of Evidence. Sec. 7453; Rule 143(a); Clough v.

Commissioner, 119 T.C. 183, 188 (2002). However, Rule 174(b)

carves out an exception for trials of small tax cases under the

provisions of section 7463(a). Under Rule 174(b), the Court

conducts small tax cases as informally as possible and

consequently may admit any evidence that the Court deems to have

probative value. Schwartz v. Commissioner, 128 T.C. 6, 7 (2007).

The documents that respondent offered are highly probative of

petitioners’ filing date. Therefore, sufficient grounds exist

under Rule 174(b) to overrule petitioners’ evidentiary

objections.

Petitioners’ arguments also fail substantively. Certified

computer records to establish information regarding a taxpayer’s

filing of income tax returns are admissible as self-

authenticating documents under rule 902(1) of the Federal Rules

of Evidence. United States v. Ryan, 969 F.2d 238, 240 (7th Cir.

1992); Hughes v. United States, 953 F.2d 531, 540 (9th Cir.

1992). The significance of self-authentication is that the

document does not require extrinsic evidence of authenticity as a

prior condition to admission. Fed. R. Evid. 902. Computer
 - 15 -

records satisfy rule 902(1) of the Federal Rules of Evidence as

long as the certification is under seal and bears an appropriate

signature. Hughes v. United States, supra at 540.

Further and specifically, the Certificate of Assessments is

neither inadmissible hearsay evidence nor inadmissible for lack

of foundation. Id. at 539-540. Rather, the Certificate of

Assessments is admissible under the public records exception of

rule 803(8) of the Federal Rules of Evidence because it is “‘the

product of systematized data storage and retrieval by a public

agency charged with the responsibility of maintaining accurate

financial and tax information’”. Hughes v. United States, supra

at 540 (quoting United States v. Neff, 615 F.2d 1235, 1241-1242

(9th Cir. 1980)).

In United States v. Ryan, supra at 239, as happened here,

the Commissioner waited until trial to present an IRS computer-

generated transcript, which the District Court allowed over the

taxpayer’s objection. The taxpayer contended that he did not

have sufficient time to decipher the codes on the Commissioner’s

printout. Id. The Court of Appeals for the Seventh Circuit

concluded that the transcript was admissible even though the

Commissioner did not present the transcript until trial because

the Commissioner relied on the transcript solely to establish the

taxpayer’s filing history and therefore the untimely production

did not prejudice the taxpayer. Id. Similarly, respondent’s
 - 16 -

purpose in offering the two documents, the tax return and the

Certificate of Assessments, was to establish that petitioners

filed their return late. Moreover, petitioners may not

justifiably argue that they were surprised by respondent’s

evidence at trial because respondent’s notice of deficiency dated

April 24, 2006, gave petitioners about a year and a half notice

of respondent’s position regarding AMT and late filing.

Rule 1002 of the Federal Rules of Evidence codifies the best

evidence rule by requiring the original of a document. However,

rule 1003 of the Federal Rules of Evidence generally permits

duplicates unless a party raises a genuine question as to the

original’s authenticity, and unless it would be unfair to admit

the duplicate. Major v. Commissioner, T.C. Memo. 2005-141, affd.

224 Fed. Appx. 686 (9th Cir. 2007). Tax Court Rule 143(d)

adopted the unfairness standard. Id. Petitioners, other than

their assertion of rule 1002 of the Federal Rules of Evidence,

offered no reason why respondent’s copy of their tax return was

not satisfactory.

For all of the foregoing reasons, petitioners’ evidentiary

objections fail. One additional point: if the Court were to

sustain petitioners’ objections, then the record would have no

credible evidence that petitioners ever filed a return. The

period of limitations does not commence where a taxpayer has not

filed a return; or in other words, in the case of no return, the
 - 17 -

Commissioner may assess a tax at any time. See sec. 6501(c)(3);

Commissioner v. Lane-Wells Co., 321 U.S. 219, 224 (1944).

III. Whether Respondent Improperly Imposed or Computed the AMT

We now review petitioners’ three arguments why they are not

liable for the AMT.

A. Whether Congress Intended To Impose the AMT on
Petitioners

Petitioners claim that Congress intended to impose the AMT

on only a small number of high-income taxpayers and not on

petitioners. Courts have consistently rejected such challenges.

Badaracco v. Commissioner, 464 U.S. 386, 398 (1984) (a court may

not rewrite a tax statute to its liking); Katz v. Commissioner,

T.C. Memo. 2004-97 (specifically discusses AMT statute).

B. Whether Respondent Conceded That Petitioners Do Not Owe
AMT

Petitioners rely on respondent’s letter dated September 13,

2007, to argue that respondent conceded that they do not owe AMT.

Petitioners have taken respondent’s words out of context. In the

letter, respondent was simply summarizing petitioners’ assertion

that the AMT did not apply. Respondent did not concede the

issue. Petitioners’ contention is groundless.

C. Whether Respondent Improperly Computed the AMT

Petitioners argue further that even if all their procedural

and equitable arguments fail, which they do, then petitioners are

still not liable for AMT because: (1) Petitioners do not have
 - 18 -

preference items, (2) respondent incorrectly computed the tax,

and (3) respondent did not apply credits. Petitioners were

silent, however, on where respondent erred or which credits

respondent omitted. We now therefore review respondent’s AMT

calculation.

The computation of AMT is a two-step process, with step 1

beginning with determining the taxpayer’s Alternative Minimum

Taxable Income (AMTI). AMTI starts with the taxpayer’s regular

taxable income before the deduction for personal exemptions.5

Section 55(b)(2)(A) increases or decreases that income by the

adjustments provided in section 56. For example, relevant

adjustments include disallowances (addbacks) of deductions for

State and local income taxes, personal property taxes, and

miscellaneous itemized deductions. See sec. 56(b)(1)(A). To

arrive at the final AMTI, section 55(b)(2)(B) increases the above

amount with the tax preference items described in section 57.

Petitioners are correct that they had no tax preference items.

However, their income and adjustments were sufficient to subject

them to the AMT, as the computation below shows.

Step 2 starts with determining a “taxable excess”, which is

the amount that the AMTI (determined by the provisions discussed

above) exceeds the AMT exemption amount. Sec. 55(b)(1)(A)(ii).

5
In other words, sec. 56(b)(1)(E) disallows the deduction
for personal exemptions that taxpayers claim under sec. 151 for
their regular income tax.
 - 19 -

For 2002, section 55(d)(1)(A) provided an AMT exemption of

$49,000 for married couples filing a joint return, with a

phaseout if a couple’s income exceeded $150,000. The AMT rate

for married couples was 26 percent of the taxable excess up to

$175,000 and 28 percent thereafter. See sec. 55(b)(1)(A)(i).

Section 55(a) then defines or imposes the AMT as the excess of

the “tentative minimum tax” over the “regular tax”. In other

words, the AMT is the amount in excess of, and is in addition to,

any regular tax owed.

If we apply the above provisions to petitioners’ facts, the

following computation shows the calculation of AMT relevant here:

Step 1 - Alternative Minimum Taxable Income
Regular taxable income before exemptions
1
(Form 1040, line 39) $202,319
Adjustments:
State and local taxes $25,291
Personal property taxes 3,200
Miscellaneous itemized
deductions: (Ref Fees) 63,549
Limitation of itemized
deductions for AGI > $137,300 5,558
Total adjustments 86,482
Subtotal 288,801
Plus: Items of tax preference
(none here) 0
Alternative minimum taxable income 288,801
1
Petitioners on line 39 of Form 1040, U.S. Individual
Income Tax Return, incorrectly reported a lower taxable
income figure of $196,761, which is $5,558 less than the
proper amount. The reason for the shortfall is that on
Schedule A, Itemized Deductions, petitioners in error
checked the box on line 28 as “No” when the form asked
whether their adjusted gross income (AGI) was greater than
$137,300. Petitioners’ AGI was $322,559. The reason for
the query is that sec. 68(a)(1), subject to certain
limitations, phases out (reduces) itemized deductions at the
 - 20 -

rate of 3 percent of AGI above $137,300. The phaseout
amount here is 3 percent x $185,259 (322,559-137,300) =
$5,558.

Step 2 - Alternative Minimum Tax
Alternative minimum taxable income
(from above) 288,801
Less: AMT Exemption
2002 AMT exemption amount $49,000
Less: Phaseout
Petitioners’ AMTI (from above) 288,801
Less: Threshold amount 150,000
Subtotal 138,801
x Phaseout rate x 25%
Phaseout amount 34,700
Net AMT exemption 14,300
Taxable excess 274,501
Apply AMT rates
First 175,000 175,000
x rate x 26%
45,500

Remainder (274,501-175,000) 99,501
x rate x 28%
27,860
Tentative minimum tax 73,360
2
Less: Regular tax 52,373
Alternative minimum tax 20,987
2
Petitioners incorrectly reported a lower total regular
tax of $46,479. The $5,894 shortfall occurred because: (1)
Petitioners did not report the phaseout of $5,558 of their
itemized deductions, as we discussed earlier, and (2)
petitioners also did not report the phaseout of their
personal exemptions that sec. 151(d)(3) requires for married
couples with an adjusted gross income greater than (in 2002)
$206,000. Petitioners claimed $12,000 in personal
exemptions: $3,000 per person times four exemptions, which
included two children. The proper phaseout amount should
have been $11,280, which would leave a correct deduction of
$720. The combination of the two omissions, $17,174 (5,894
+ 11,280), when incorporated into the regular tax
calculation, results in a proper regular tax total of
$52,373.

The Code also provides for AMT credits, such as the section

59(a) AMT foreign tax credit. However, as noted above,
 - 21 -

petitioners have not identified which credits they believe they

may claim or that respondent omitted, and we do not find any

applicable credits. Thus, in summary, we have reviewed

respondent’s computations of the AMT and credits and conclude

that they comport with the Code. In view of the foregoing, we

hold that respondent’s determination of AMT is correct.

IV. Whether Respondent Properly Satisfied His Burden of
Production With Regard to the Addition to Tax

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

file a return on the date prescribed for filing, unless the

taxpayer proves that the failure to file was due to reasonable

cause and not willful neglect. United States v. Boyle, 469 U.S.

241, 245 (1985). The addition equals 5 percent of the tax

required to be shown on the return if the failure to file is not

for more than 1 month. See sec. 6651(a)(1). An additional 5

percent is imposed for each month or fraction thereof in which

the failure to file continues, to a maximum of 25 percent of the

tax. Id. Section 6651(b) imposes the addition to tax on the net

amount due.

As discussed above, respondent has provided credible

evidence that petitioners filed their return on July 7, 2005,

which is beyond the April 15, 2003 (or August 15, 2003, with an

extension), deadline for filing a 2002 return. Thus, respondent

has carried his burden of producing evidence to show the addition

to tax for late filing is appropriate. Although the Commissioner
 - 22 -

has the initial burden, taxpayers bear the burden to show

reasonable cause. Higbee v. Commissioner, 116 T.C. 438, 446

(2001). Petitioners failed to provide credible evidence that

they filed their return timely; and moreover, they failed to show

or even argue that they exercised ordinary care and prudence in

their late filing. We therefore conclude that pursuant to

section 6651(a)(1), petitioners are liable for the addition to

tax for late filing.

V. Conclusion

In reaching our holdings, we have considered all of

petitioners’ remaining arguments and contentions; and to the

extent not mentioned, we conclude that they are irrelevant or

without merit.

To reflect our disposition of the issues,

An appropriate order and

decision will be entered.