T.C. Memo. 2009-125
UNITED STATES TAX COURT
JAMES H. KELSO, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 19367-07L. Filed June 1, 2009.
Stan D. Blyth, for petitioner.
Christian A. Speck, for respondent.
MEMORANDUM OPINION
HAINES, Judge: The parties submitted this case to the Court
without trial. See Rule 122.1 Respondent made the determination
to proceed to collect by levy petitioner’s 2000, 2001, 2002,
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code (Code), as amended, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
Amounts are rounded to the nearest dollar.
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2003, and 2004 (the years at issue) outstanding income tax
liabilities of $24,980, $79,303, $66,761, $47,791, and $38,598,
respectively. Petitioner seeks review of respondent’s
determination under section 6330.
The parties’ controversy poses the following issues for our
consideration: (1) Whether respondent abused his discretion by
rejecting petitioner’s offer to enter into an installment
agreement; and (2) whether respondent erred by failing to abate
petitioner’s addition to tax for 2002 under section 6651(a)(1).
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. At the time petitioner
filed his petition, he resided in California.
During the years at issue petitioner was self-employed as a
periodontist. Petitioner did not fully pay the tax liabilities
reflected on the returns he filed for the years at issue. On
November 1, 2004, petitioner filed his 2002 return late.
On May 11, 2005, respondent mailed to petitioner a Final
Notice, Notice of Intent to Levy and Notice of Your Right
to a Hearing for the unpaid liabilities for 2000, 2001, 2002, and
2003 (2000-03 notice). Petitioner made a timely request for a
section 6330 hearing concerning the 2000-03 notice.
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On April 19, 2006, respondent mailed to petitioner a Final
Notice, Notice of Intent to Levy and Notice of Your Right
to a Hearing for unpaid liability for 2004 (2004 notice).
Petitioner made a timely request for a section 6330 hearing
concerning the 2004 notice.
On February 12, 2007, respondent’s Appeals officer spoke by
telephone with petitioner concerning the years at issue. During
the call petitioner proposed a partial payment installment
agreement of $750 per month, to be reviewed every 3 years.
Petitioner provided respondent with a variety of documents
concerning petitioner’s medical condition and financial status to
support his proposal for an installment agreement. Petitioner’s
Form 433-A, Collection Information Statement for Wage Earners and
Self-Employed Individuals, indicated that petitioner had net
income of $10,205 per month over an 11-month period ending
November 30, 2006. Petitioner’s Forms 1040, U.S. Individual
Income Tax Return, for 2006 and 2007 indicated that petitioner’s
net income from Schedule C, Profit or Loss From Business,
averaged $12,262 per month for 2006 and $11,373 per month for
2007, respectively.
On July 23, 2007, respondent issued a Notice of
Determination Concerning Collection Action(s) Under Section 6320
and/or 6330 that sustained the collection actions for the years
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at issue. In response, petitioner filed a timely petition with
this Court.
Discussion
I. Installment Agreement
When a levy is proposed to be made on any property or right
to property, a taxpayer is entitled to a notice of intent to levy
and notice of the right to a fair hearing before an impartial
officer of the Appeals Office. Secs. 6330(a) and (b), 6331(d).
If the taxpayer requests a hearing, he may raise in that hearing
any relevant issue relating to the unpaid tax or the proposed
levy, including challenges to the appropriateness of the
collection action and “offers of collection alternatives, which
may include the posting of a bond, the substitution of other
assets, an installment agreement, or an offer-in-compromise.”
Sec. 6330(c)(2)(A). A determination is then made which takes
into consideration those issues, the verification that the
requirements of applicable law and administrative procedures have
been met, and “whether any proposed collection action balances
the need for the efficient collection of taxes with the
legitimate concern of the person that any collection action be no
more intrusive than necessary.” Sec. 6330(c)(3).
Petitioner disputes respondent’s rejection of his proposed
installment agreement. We review the rejection of the proposed
installment agreement for abuse of discretion. See Lunsford v.
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Commissioner, 117 T.C. 183, 185 (2001); Nicklaus v. Commissioner,
117 T.C. 117, 120 (2001).
Respondent’s Appeals officer reviewed petitioners’ submitted
financial information and determined that an installment
agreement was not appropriate. We received as exhibits the
financial information presented to respondent and find that the
Appeals officer could have reasonably concluded that petitioner
receives sufficient income to satisfy the tax liabilities without
resorting to a partial payment installment agreement of $750 per
month. Petitioner’s statement of income for his dental business
for 2006 indicates that he had an average net profit of $10,205
per month. Petitioner’s 2007 return indicates that he had an
average net profit of $11,373 per month. The medical information
petitioner submitted does not indicate that petitioner’s future
earning potential would be drastically reduced as a result of his
health problems.2 Accordingly, we conclude that respondent’s
refusal to enter into an installment agreement was not an abuse
of discretion.
2
Petitioner submitted a document to the court entitled
“Health Plan” in which petitioner notes that in 2006 his doctors
recommended that he reduce his work week from 6 to 4 days to
allow him time to exercise or attend personal training.
Nevertheless, petitioner earned income in 2007 comparable to what
he earned in prior years.
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II. Section 6651(a)(1) Addition to Tax
We apply the de novo standard of review to respondent’s
determination to not abate the section 6651(a)(1) addition to
tax. See Downing v. Commissioner, 118 T.C. 22, 28-29 (2002).
Section 6651(a)(1) imposes an addition to tax for any failure to
file a return by its due date. The addition is equal to 5
percent of the amount required to be shown as tax on the return
for each month or portion thereof that the return is late, up to
a maximum of 25 percent. See id. The addition is imposed on the
net amount due, calculated by reducing the amount required to be
shown as tax on the return by any part of the tax which is paid
on or before its due date. See sec. 6651(b)(1).
The addition will not apply if it is shown that the failure
to file a timely return was due to reasonable cause and not due
to willful neglect. See sec. 6651(a)(1); see also United States
v. Boyle, 469 U.S. 241, 245 (1985). A failure to file is due to
reasonable cause “If the taxpayer exercised ordinary business
care and prudence and was nevertheless unable to file the return
within the prescribed time”. Sec. 301.6651-1(c)(1), Proced. &
Admin. Regs.; see United States v. Boyle, supra at 246. Willful
neglect is interpreted as a “conscious, intentional failure or
reckless indifference.” United States v. Boyle, supra at 245.
Petitioner admits that he did not file his 2002 return until
November 1, 2004. This fact satisfies respondent’s burden of
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production under section 7491(c) and establishes petitioner’s
liability for the section 6651(a)(1) addition to tax unless
petitioner can establish reasonable cause for his failure to file
a timely return. See Higbee v. Commissioner, 116 T.C. 438, 446
(2001).
Petitioner argues that the late filing of his 2002 return
was due to reasonable cause because he was suffering from back
injuries and chronic dizziness caused by two automobile accidents
in 1997 and 2003.
The Court has found reasonable cause where the taxpayer
experiences an illness or incapacity that prevents the
taxpayer from filing his or her tax return. See, e.g., Harris v.
Commissioner, T.C. Memo. 1969-49 (reasonable cause found where
the taxpayer’s activities were severely restricted, and the
taxpayer was in and out of hospitals because of various severe
medical ailments including stroke, paralysis, heart attack,
bladder trouble, and breast cancer).
On the other hand, the Court has not found reasonable cause
where the taxpayer does not timely file but is able to continue
his or her business affairs despite the illness or incapacity.
See, e.g., Judge v. Commissioner, 88 T.C. 1175, 1189-1191 (1987)
(no reasonable cause found where the taxpayer had a long history
of delinquent filing of returns and the taxpayer was actively
involved in preparing and executing business-related documents
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despite illness during years at issue); Watts v. Commissioner,
T.C. Memo. 1999-416 (reasonable cause not found where, although
the taxpayer’s mother and daughter were both ill and the taxpayer
frequently took them to see doctors, the taxpayer also performed
extensive architectural services in the taxpayer’s business).
While we do not trivialize the medical problems facing
petitioner, the record indicates he was able to continue his
business and carry on his affairs throughout the years at issue.
Petitioner’s medical problems do not rise to the level necessary
to find reasonable cause for failure to timely file.
Petitioner also contends that he failed to timely file
because he lost financial information as a result of the
robberies. Petitioner has submitted evidence of only one
robbery, in the form of a police report. The report indicates
that on January 22, 2003, petitioner’s car was broken into and
two tennis rackets and a watch were stolen. The record does not
indicate that petitioner’s financial information for 2002 was
lost in this incident.3
On the basis of the foregoing, we hold that petitioner did
not have reasonable cause for his failure to timely file his 2002
3
The fact that petitioner had reason to store tennis rackets
in his car also seems to indicate that his physical condition was
not so dire as to preclude him from timely filing his 2002
return.
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return. Accordingly, we hold that respondent may proceed with
the collection action.
In reaching our holding herein, we have considered all
arguments made, and, to the extent not mentioned above, we
conclude that they are moot, irrelevant, or without merit.
To reflect the foregoing,
Decision will be entered
for respondent.