T.C. Memo. 2009-200
UNITED STATES TAX COURT
ANDREW I. WALZER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 30073-07. Filed September 8, 2009.
Andrew I. Walzer, pro se.
Jennifer A. Kassabian, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
VASQUEZ, Judge: Respondent determined deficiencies in
Federal income taxes and additions to tax for petitioner’s 2001
and 2002 tax years as follows:
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Additions to Tax
Year Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2)1 Sec. 6654
2001 $1,263,403 $284,265.68 -- $50,490.24
2002 1,326,288 298,414.80 –- 44,320.74
1
The sec. 6651(a)(2) addition to tax is 0.5 percent of the
amount of income tax required to be shown on the return
commencing on the due date of the return and accruing for each
month or fraction thereof during the failure to pay, not
exceeding 25 percent in the aggregate.
After concessions by both parties, the issues for decision are:
(1) Whether petitioner is liable for the additions to tax
pursuant to section 6651(a)(1)1 for 2001 and 2002; and (2)
whether petitioner is liable for the additions to tax pursuant to
section 6654 for 2001 and 2002.
FINDINGS OF FACT
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 he filed the
petition, petitioner resided in New York.
During 1996 petitioner began actively trading securities.
By 2001 and 2002 petitioner was engaging in day trading,
conducting hundreds of trades. During the years in issue
petitioner ran a marking supplies business called Glo-Mark.2
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
2
Glo-Mark is a company that uses a machine to make a mark
(continued...)
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Glo-Mark was a longtime family business that had recently
struggled but was still profitable. In May 2001 Glo-Mark was
evicted from its factory. After the eviction petitioner moved
the Glo-Mark equipment to a house he owned. Despite advice from
petitioner’s father, who was a retired accountant, to seek an
accountant for help with preparing petitioner’s tax returns,
petitioner did not hire anyone. Petitioner has an MBA degree
from New York University.
Petitioner failed to file Federal income tax returns for
2001 and 2002. Additionally, petitioner did not pay any Federal
income tax for 2001 or 2002. On November 13, 2006, the Internal
Revenue Service prepared substitute returns for petitioner for
tax years 2001 and 2002. Petitioner also failed to file a
Federal income tax return for 2000.
During 2001 petitioner received gross proceeds from the sale
of securities of $3,279,144. The proceeds resulted in a net
short-term capital gain for petitioner of $137,451.36, and a net
long-term capital loss of $97,128.26. The parties agree that
during the years in issue petitioner was not in the trade or
business of selling securities and was not entitled to deduct his
expenses from the sale of securities on a Schedule C, Profit or
Loss From Business. Petitioner also received $15,869 of dividend
2
(...continued)
on fabric that glows under black light lamps to mark where
buttons and button holes are to go.
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income, $220 of interest income, and $62,814.52 of gross proceeds
from the sale of marking supplies from his family’s business.
During 2002 petitioner received dividend income of $18,578,
interest income of $54, and gross proceeds from the sale of
securities of $3,483,750. Petitioner had a net short-term
capital loss from the sale of securities of $194,374.74 and a net
long-term capital loss of $81,606.40.
OPINION
Generally, the Commissioner’s determinations set forth in
the notice of deficiency are presumed correct, and the taxpayer
bears the burden of showing the determinations are in error.
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
Section 7491(a), however, shifts the burden of proof to the
Commissioner with respect to a factual issue affecting the tax
liability of a taxpayer who meets certain conditions.
Petitioner has neither claimed nor shown that he
satisfiedthe requirements of section 7491(a) to shift the burden
of proof to respondent with regard to any factual issue affecting
the deficiencies in his taxes. Accordingly, petitioner bears the
burden of proof. See Rule 142(a).
Section 7491(c) provides that the Commissioner will bear the
burden of production with respect to the liability of any
individual for additions to tax. “The Commissioner’s burden of
production under section 7491(c) is to produce evidence that it
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is appropriate to impose the relevant penalty, addition to tax,
or additional amount”. Swain v. Commissioner, 118 T.C. 358, 363
(2002); see also Higbee v. Commissioner, 116 T.C. 438, 446
(2001). The Commissioner, however, does not have the obligation
to introduce evidence regarding reasonable cause or substantial
authority. Instead, the taxpayer bears the burden of proof with
regard to these issues. Higbee v. Commissioner, supra at 446-
447.
A. Section 6651(a)(1) Addition to Tax
Section 6651(a)(1) imposes an addition to tax for failure to
file a return on the date prescribed (determined with regard to
any extension of time for filing), unless the taxpayer can
establish that such failure is due to reasonable cause and not
due to willful neglect. See United States v. Boyle, 469 U.S.
241, 245 (1985). A Federal income tax return made on the basis
of a calendar year must be filed on or before April 15 following
the close of the calendar year, unless the due date is extended.
Sec. 6072(a). The parties have stipulated that petitioner did
not file his returns by April 15, 2002, for tax year 2001, and
April 15, 2003, for tax year 2002, and that petitioner did not
request an extension to file for either year. On November 13,
2006, respondent prepared substitute returns for petitioner for
both 2001 and 2002. Accordingly, respondent has met his burden
of production on this issue.
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Petitioner claimed his failure to file timely for 2001 and
2002 was due to reasonable cause and not willful neglect because
he did not know that he had to file returns. During the years in
issue petitioner traded securities, trading sometimes two or
three times a day.3 Petitioner testified that in 2001 he had
trading gains of approximately $40,000. In addition, petitioner
ran Glo-Mark, a longtime family business that, despite being
evicted from its factory, still earned a profit. Petitioner
testified that he was overwhelmed with the impending eviction and
with finding a new place to locate the company’s equipment.
Petitioner sought advice from his father, a retired accountant.
Petitioner’s father told petitioner to hire an accountant to aid
him in preparing his tax return. Petitioner did not heed his
father’s advice and made no effort to prepare his tax return for
either year in issue. In addition, petitioner has an MBA degree
from New York University and is not an unsophisticated taxpayer.
Petitioner argues he assumed that he did not have to file tax
returns, despite having profits from both Glo-Mark and his
personal trading activities.
Petitioner’s failure to file was not due to reasonable
cause; it was due to willful neglect. Accordingly, we sustain
respondent’s determination that petitioner is liable for the
3
As previously mentioned, petitioner concedes that he was
not in the trade or business of securities trading.
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additions to tax pursuant to section 6651(a)(1) for 2001 and
2002.
B. Section 6654(a) Addition to Tax
Section 6654(a) imposes an addition to tax “in the case of
any underpayment of estimated tax by an individual”. The amount
of the underpayment is the excess of the “required installment”
over the amount (if any) of the installment paid on or before the
due date of the installment. Sec. 6654(b)(1). The amount of the
required installment is 25 percent of the required annual
payment. Sec. 6654(d)(1)(A). The required payment is equal to
the lesser of: (1) 90 percent of the tax shown on the return for
that year (or if no return is filed, 90 percent of the tax for
that year), or (2) if the individual filed a return for the
preceding year, 100 percent of the tax shown on that return. See
Wheeler v. Commissioner, 127 T.C. 200, 211-212 (2006), affd. 521
F.3d 1289 (10th Cir. 2008). Since petitioner filed no return for
2000 or 2001, the “required annual payment” for each year is 90
percent of the tax for each year in issue. See sec.
6654(d)(1)(B). Petitioner has stipulated that he did not pay any
tax in 2001 or 2002, much less make any estimated tax payments.
Accordingly, respondent has met his burden of production.
Petitioner offered no credible evidence related to this
issue. No section 6654(e) exception applies. Accordingly, we
sustain respondent’s determination that petitioner is liable for
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the addition to tax pursuant to section 6654(a) for 2001 and
2002.
In reaching all of our holdings herein, we have considered
all arguments made by the parties, and, to the extent not
mentioned above, we conclude they are irrelevant or without
merit.
To reflect the foregoing,
Decision will be entered
under Rule 155.