T.C. Memo. 2009-304
UNITED STATES TAX COURT
KHADIJA DUMA, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11042-07. Filed December 23, 2009.
Khadija Duma, petitioner.
Anne W. Bryson, Douglas Dahl, and Scott Hovey, for
respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
GUSTAFSON, Judge: This case is before the Court on
petitioner Khadija Duma’s petition, pursuant to section 6213(a),1
1
Except as otherwise noted, all section references are to
the Internal Revenue Code (26 U.S.C.), and all Rule references
are to the Tax Court Rules of Practice and Procedure.
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for redetermination of her Federal income tax deficiencies for
2003 and 2004, which the Internal Revenue Service (IRS)
determined to be as follows:
Additions to Tax
Year Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654(a)
2003 $18,548 $2,852 $1,965 $310
2004 11,953 2,507 1,059 317
Respondent has conceded certain issues that contributed to
those deficiencies,2 and Ms. Duma has conceded others,3 so that
the remaining issues we must decide are:
1. Whether in 2003 Ms. Duma received wages from her
employer in the amount of $92,798 (rather than $66,000, as she
alleges). We find that she received wages in the larger amount.
2
Respondent concedes that Ms. Duma is entitled to mortgage
interest deductions of $23,491 in 2003 and $18,043 in 2004; that
she is not liable for the section 6654 estimated tax addition to
tax for 2003; that she paid $450 in student loan interest for
2004; and that in 2004 she received Social Security benefits of
$16,288 (not the $27,020 determined in the notice of deficiency,
nor a larger amount of $50,564 which respondent’s records
allegedly stated).
3
Ms. Duma does not dispute: that in 2003 she received $12
in interest income from her credit union; that in 2004 she
received dividends of $45; that in 2004 she received
pension/annuity payments of $1,163 from Fidelity Investments;
that in 2004 she received wages of $9,693 from her employer; and
that in 2004 she received disability income of $16,288 from the
Social Security Administration. At one point during the pendency
of this case, Ms. Duma expressed an intention to prove medical
expenses (related to her disability) for which she would be
entitled to claim itemized deductions, but at trial she stated
that she would not attempt such proof.
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2. Whether in 2004 Ms. Duma received $30,432 in proceeds
from sales of stock (rather than $11,000, as she alleges). We
find that she received proceeds in the larger amount.
3. Whether Ms. Duma filed tax returns for 2003 and 2004,
as she alleges. We find that she did not file returns and that
she is therefore liable for the failure-to-file addition to tax
under section 6651(a)(1) for both years.
4. Whether Ms. Duma is liable for the addition to tax for
failure to pay under section 6651(a)(2). We find that she is
liable for both years.
5. Whether Ms. Duma is liable for the addition to tax for
failure to pay estimated tax under section 6654(a) for 2004. We
find that she is.
FINDINGS OF FACT
The parties have stipulated some of the facts, and we
incorporate by this reference the stipulation of facts filed
October 16, 2009, and the attached exhibits. At the time
Ms. Duma filed her petition, she resided in Washington, D.C.
Ms. Duma’s Employment
Before and during the years in issue (2003 and 2004),
Ms. Duma was employed by Federal National Mortgage Association
(FNMA, commonly called “Fannie Mae”). At some point in the years
in issue she became disabled and stopped working. She testified
about a particular date in 2003 being her last day, but she
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presented no corroborating evidence, and FNMA reported paying
wages to her in 2004.4 We are therefore unable to find precisely
when she stopped working.
Compensation Paid by FNMA
FNMA paid Ms. Duma wages and other benefits for her work.
FNMA direct-deposited her wages into her account at the FNMA
employees’ credit union.
Pursuant to her employment arrangement with FNMA, Ms. Duma
was entitled to, and eventually received, first short-term
disability (STD) and then long-term disability (LTD) benefits.
The record does not show the dates that she received such
payments. Ms. Duma did not offer plan documents for either of
these benefits, but she testified that FNMA itself paid the STD
benefits and that a third party (UNUM) paid the long-term. The
record does not include reliable information about the nature or
source of the payments.
FNMA also had a program by which it lent money to employees
for home purchases and then forgave the loans. Ms. Duma did not
present any documentation to describe the terms of this program.
She testified that FNMA made such a loan to her, that she had not
reported the loan proceeds as income, that FNMA had later
4
Ms. Duma testified that she received short-term disability
benefits from her last day at FNMA in 2003 through some time in
2004 and implied that the FNMA payments reported as wages in 2004
may have been disability payments, but she did not introduce any
further evidence to clarify this question.
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forgiven the loan pursuant to the program, and that she did not
report the forgiven amount as income. She initially testified
that the forgiveness occurred in the years in issue, but then
testified that it must have been in a later year. The record
does not show whether in 2003 or 2004 FNMA forgave loans it had
made to Ms. Duma.
FNMA paid compensation to Ms. Duma in the amounts of $92,798
for 2003 and $9,693 for 2004. Ms. Duma did not prove her FNMA
wage amount to be lower than $92,798 in 2003, and she did not
dispute the $9,693 amount in 2004. FNMA reported those amounts
to the IRS, and the IRS used those figures in determining
Ms. Duma’s income tax liability.
Stock Benefit Payments From Equiserve
Ms. Duma received an FNMA stock benefit through what was
apparently an employee stock option plan. She presented no plan
documents or other written explanation of this benefit. She
testified that shares awarded through this plan could be taken
either as stock or as cash. At some point or points during 2003
and 2004, she received a stock benefit and elected the cash
option. When an employee elected the cash option, payments were
made by Equiserve, Inc., which FNMA had retained to manage the
benefit.
In 2004 Equiserve made four payments to Ms. Duma, in the
amounts of $1,619, $7,706, $9,507, and $11,600, which totaled
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$30,432. Ms. Duma did not prove that her income in 2004 from
this stock benefit was lower than $30,432. Equiserve reported
those payments to the IRS, and the IRS included that total in
income when determining Ms. Duma’s income tax liability.
Ms. Duma’s Filings With The IRS
The record does not show whether Ms. Duma filed a return for
2002, the year immediately preceding the years in issue, and
there is some evidence that she did not do so: The IRS’s
substitute for return for each of the years 2003 and 2004
contains an entry that reads: “PRIOR YEAR RETURN: 1996”.
On the due dates for the 2003 and 2004 returns at issue in
this case--i.e., on April 15, 2004 and 2005--Ms. Duma left her
home, boarded a bus, and rode to the local IRS office, where she
completed and filed a form to receive an automatic four-month
extension to file her tax return. The IRS’s records show timely
filings of requests for extensions and thus corroborate
Ms. Duma’s testimony to this effect.
However, Ms. Duma did not prove by a preponderance of the
evidence that she filed her tax return for 2003 or 2004. The
IRS’s records reflect no such filings, and Ms. Duma has no copy
of the returns and no mailing receipt. We find that she did not
file a tax return for 2003 or 2004.
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IRS Action
When the IRS did not receive returns for Ms. Duma, the IRS
prepared, pursuant to section 6020(b), a substitute for return
(SFR) for each of the years 2003 and 2004, using the information
provided to it by third-party payors. The IRS then issued to
Ms. Duma, on February 20, 2007, two statutory notices of
deficiency--one each for the years 2003 and 2004--determining
deficiencies in her income tax for both those years and
determining additions to tax for failure to file (under
section 6651(a)(1)), for failure to pay tax (under
section 6651(a)(2)), and for failure to make estimated tax
payments (under section 6654(a)).
Pretrial Proceedings
On May 18, 2007, Ms. Duma timely filed her petition
commencing this case. The case was set for trial at the calendar
commencing eleven months later on April 21, 2008, in Washington,
D.C.; but when Ms. Duma appeared at that calendar call, she
requested a continuance so she could have more time to assemble
additional information. The Court granted a continuance.
On June 3, 2008, Ms. Duma filed a bankruptcy petition in the
U.S. Bankruptcy Court for the District of Columbia, and shortly
thereafter proceedings in this case were stayed pursuant to
11 U.S.C. section 362(a)(8). On November 7, 2008, the bankruptcy
court granted Ms. Duma a discharge, and proceedings here resumed
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on January 2, 2009. On May 12, 2009, the Court issued its notice
that this case was set for trial at a calendar commencing five
months later on October 13, 2009--i.e., two years and five months
after Ms. Duma first filed her petition--and issued its standing
pretrial order, directing both parties to (among other things)
exchange exhibits and submit pretrial memoranda no later than
14 days before the calendar call.
By October 1, 2009, the Court had received respondent’s
pretrial memorandum but none from Ms. Duma. Respondent’s report
stated that Ms. Duma was not cooperating in providing to
respondent the information that she would rely on at trial. On
that day the Court initiated a telephone conference with the
parties to discuss the case. The Court told Ms. Duma that she
was overdue for exchanging exhibits and should do so immediately.
She responded that her disability made it difficult to do so, and
the Court ordered her to be sure to bring her exhibits to the
calendar call. Ms. Duma spoke of the unavailability of some
documents that she might want to present, and the Court suggested
that she consider what alternative documents might serve,
mentioning in particular bank statements, credit card statements,
calendars, log books, or day books.
Ms. Duma appeared at the calendar call on October 13, 2009,
apparently carrying with her some documents (which she showed to
respondent’s counsel), and she asked for more time to obtain
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information. At her request, the Court scheduled her trial for
the afternoon of the last day of the calendar--Friday,
October 16, 2009. When Ms. Duma appeared at that time, however,
she had no documents with her, neither the documents she had
brought to the calendar call nor the additional documents she had
hoped to obtain. The only documents offered into evidence at the
trial were:
Exhibit No. Year Description
1-J 2003 Notice of deficiency
2-J 2004 Notice of deficiency
3-R 2003 Form 4340, Certificate of Assessments,
Payments, and Other Specified Matters
4-R 2004 Form 4340, Certificate of Assessments,
Payments, and Other Specified Matters
5-R 2004 Proposed individual income tax assessment
(30-day letter) with attached sec. 6020(b)
certification and return
6-R 2003 Proposed individual income tax assessment
(30-day letter) with attached sec. 6020(b)
certification and return
OPINION
I. Income Issues
A. Burden of Proof
The IRS’s deficiency determinations are generally presumed
correct; and Ms. Duma, as the petitioner in this case, has the
burden of establishing that the determinations in the notices of
deficiency are erroneous. See Rule 142(a); Welch v. Helvering,
290 U.S. 111, 115 (1933). Ms. Duma had two and a half years
(between petition and trial) to assemble her evidence. In a
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pretrial telephone conference the Court reminded her of her
burden and suggested to her the types of information she might
consider bringing as proof of her contentions. When, at the
calendar call, she requested additional time to find information,
the Court allowed her the latest trial time in the week-long
calendar. Despite all that, she produced no documents whatsoever
to corroborate any aspect of her testimony on the disputed
issues. She thus failed to carry her burden of proof.
B. Ms. Duma’s Liability
1. FNMA Compensation
The IRS received information from FNMA showing wages of
$92,798. Ms. Duma gave oral testimony that she received less
than that total, but she did not corroborate her recollection
with any statements from FNMA, any records from her credit union
account into which the amounts would have been deposited, or any
other records of any sort. At a calendar call in this Court held
April 21, 2008, Ms. Duma stated: “For 2003, my annual income was
over $92,000.” By the time of the trial in October 2009,
however, Ms. Duma was disputing the figure for 2003 and said it
was not $92,798 but only approximately $66,000. At some point
before trial she showed to respondent’s counsel several pay stubs
and a printout of some sort that showed the smaller figure, but
respondent’s counsel stated that he had not been able to identify
or authenticate the printout, and Ms. Duma did not offer the
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printout or the pay stubs at trial. She testified that she
probably had, somewhere amid voluminous records, her employee
copy of her Form W-2, Wage and Tax Statement, issued by FNMA for
2003, but she did not find it before trial.
Ms. Duma’s testimony indicated two possible reasons that the
correct amount might be larger than she supposed: It is possible
that the disputed income figure for 2003 includes STD payments
that she received but that were not on her printout that she
showed to respondent’s counsel, and it is also possible that some
of the income amounts reported by FNMA for 2003 or 2004 were for
loan forgiveness. In any event, she did not prove that her
compensation was less than FNMA reported.
2. Stock Benefit
The IRS received information from Equiserve showing stock
proceeds of $30,432. Ms. Duma disputes the figure and says it
was instead approximately $11,000. She presented no
documentation--neither statements from FNMA or Equiserve, nor
records from her account at the credit union--to corroborate the
lower amount.
Ms. Duma speculates, and it is possible, that some of the
difference between Equiserve’s total and her lower figure is
accounted for by the stock’s being attributed to her on a date
when the value of the stock was higher, but then being sold (and
cash paid to her) on a later date when the value had fallen.
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Even if her uncorroborated explanation were correct and accounted
for the entire difference, it appears on the record before us
that the stock itself would have been income to her when it was
initially awarded (and in the amount of its then value), and she
neither argued for nor established any entitlement to a deduction
for any loss on the sales. However, it seems more likely that
her impression of having received approximately $11,000 is the
result of her recalling the fourth Equiserve payment of $11,600
and forgetting the other three. In any event, she did not prove
that she received less than $30,432 in stock proceeds from
Equiserve.
II. Addition-to-Tax Issues
A. Burden of Production
Section 7491(c) provides that the Commissioner “shall have
the burden of production * * * with respect to the liability of
any individual for any * * * addition to tax”. “The
Commissioner’s burden of production under section 7491(c) is to
produce evidence that it is appropriate to impose the relevant
* * * addition to tax”. Swain v. Commissioner, 118 T.C. 358, 363
(2002); see also Higbee v. Commissioner, 116 T.C. 438, 446
(2001). If a taxpayer files a petition alleging some error in
the determination of an addition to tax, the taxpayer’s challenge
will succeed unless the Commissioner produces evidence that the
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addition to tax is appropriate. Swain v. Commissioner, supra at
363-365.
B. Ms. Duma’s Liability
1. Additions to Tax for Failure To File
Section 6651(a)(1) imposes an addition to tax “[i]n case of
failure * * * to file any return”. We have found that Ms. Duma
failed to file her returns for 2003 and 2004. She did file
requests for extensions, but her uncorroborated testimony that
she filed returns was not persuasive.
Ms. Duma claims that late in the day on April 15, 2005,
after having made her first trip to the IRS to file the 2004
extension form, she finished filling out her tax returns for 2003
and 2004 (but made no copy of the returns for herself because she
had no spare blank forms). She says that the returns she
prepared showed that she was entitled to small refunds. She says
that she stapled together the two returns for 2003 and 2004 and
put them into a single envelope for mailing. She testified that,
on April 15, 2005, she made a second bus trip to the same
neighborhood, where the IRS office is near the post office. At
the post office there, last-minute filers of tax returns walk and
drive by and mail their returns by dropping them in a bucket that
a postal worker holds out for that purpose. She testified that
she mailed her 2003 and 2004 returns in that fashion.
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Ms. Duma’s testimony is problematic. Her disability (she
seems to say) made it difficult for her to run the errand of
photocopying the return or to obtain a second blank return she
could complete and keep as her copy; and yet she went to the
substantial trouble of making two separate bus trips to the same
neighborhood on the same day--the first in order to file the
request for an extension just in case she did not finish the 2004
return on time, and the second in order to file her returns for
both 2003 and 2004. Given Ms. Duma’s condition, this elaborate
effort is unlikely. And if she did make a first trip to file her
extension request, with an expectation of filing the returns that
day, then it would seem she could have obtained the spare blank
forms that she now claims she did not have.
The IRS’s transcripts of Ms. Duma’s accounts for 2003 and
2004 do not show the filing of any returns. She claims that when
she later made inquiries with the IRS, personnel told her that
her returns had been rejected because they had been stapled and
because she had used “white-out” fluid to make corrections on
them. She says that those personnel told her to submit duplicate
originals, but that she did not do so. It is difficult to
account for her refusal to file a duplicate original after that
alleged conversation.
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It is not impossible that Ms. Duma’s account is true, but
she did not prove it by a preponderance of the evidence. We
therefore find that she did not file her returns.
Section 6651(a)(1) provides that the addition will not be
due if the failure to file “is due to reasonable cause and not
due to willful neglect”. (The Commissioner does not have the
obligation to introduce evidence regarding reasonable cause or
substantial authority. Higbee v. Commissioner, supra at 446-
447.) Ms. Duma does not allege any “reasonable cause” excuse,
and we find here no circumstances that would constitute
reasonable cause.
The amount of the failure-to-file addition is 5 percent of
“the amount required to be shown as tax” for each month of the
delinquency, “not exceeding 25 percent in the aggregate”.5 Sec.
6651(a)(1). The specific amount of Ms. Duma’s failure-to-file
addition for each year will be calculated after the amount of her
tax liability has been redetermined, taking into account the
parties’ concessions, see supra notes 2 and 3, and our findings.
5
Section 6651(c)(1) limits the section 6651(a)(1) failure-
to-file addition to tax by subtracting the section 6651(a)(2)
failure-to-pay addition (0.5 percent), which is discussed below
in part II.B.2, from the section 6651(a)(1) failure-to-file
addition (5.0 percent) for any month that additions to tax apply
under both section 6651(a)(1) and (a)(2).
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2. Additions to Tax for Failure To Pay
Section 6651(a)(2) imposes an addition to tax “[i]n case of
failure * * * to pay the amount shown as tax on any return”,
including an income tax return. This addition does not accrue
unless a tax amount is “shown on” a return, so the Commissioner
must introduce evidence that the tax was shown on a Federal
income tax return to satisfy his burden of production under
section 7491(c). Cabirac v. Commissioner, 120 T.C. 163 (2003).
When a taxpayer has not filed a return, the section 6651(a)(2)
addition to tax may be imposed if the IRS prepared an SFR that
meets the requirements of section 6020(b). Wheeler v.
Commissioner, 127 T.C. 200, 208-209 (2006), affd. 521 F.3d 1289
(10th Cir. 2008). In this case the IRS satisfied its burden by
offering the SFR for each year (along with a signed “IRC
Section 6020(b) ASFR Certification”), and Ms. Duma suggests no
defect in the agency’s procedure.
As with the failure-to-file addition, the statute provides
that the addition for failure to pay will not be due if the
failure “is due to reasonable cause and not due to willful
neglect”. Sec. 6651(a)(2). However, Ms. Duma has not alleged
any “reasonable cause” for her failure to pay, and we find none.
The amount of the failure-to-pay addition is one-half of
1 percent of “the amount shown as tax” for each month of the
delinquency, “not exceeding 25 percent in the aggregate”. The
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specific amount of Ms. Duma’s failure-to-pay addition for each
year will be calculated, according to this formula, after the
amount of her tax liability has been redetermined, taking into
account the parties’ concessions, see supra notes 2 and 3, and
our findings.
3. Addition to Tax for Failure To Pay Estimated Tax
Section 6654(a) imposes an addition to tax “in the case of
any underpayment of estimated tax by an individual”. A taxpayer
has an obligation to pay estimated tax for a particular year if
she has a “required annual payment” for that year. Sec. 6654(d).
A “required annual payment” is defined in section 6654(d)(1)(B)
as--
the lesser of--
(i) 90 percent of the tax shown on the
return for the taxable year (or, if no return is
filed, 90 percent of the tax for such year), or
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(ii) 100 percent of the tax shown on the
return of the individual[6] for the preceding
taxable year.
Clause (ii) shall not apply if * * * the individual did
not file a return for such preceding taxable year.
[Emphasis added.]
Thus, respondent’s burden of production under section 7491(c)
requires him to produce, for each year for which the addition is
asserted, evidence that the taxpayer had a required annual
payment under section 6654(d), and in order to do so he must
demonstrate the tax shown on the taxpayer’s return for the
preceding year, unless he can show that the taxpayer did not file
a return for that preceding year. Wheeler v. Commissioner, supra
at 212. For 2004 the record establishes that Ms. Duma “did not
file a return for such preceding taxable year”--i.e., 2003--so
respondent has shown a “required annual payment” for 2004 equal
to 90 percent of the liability for that year.
6
Notwithstanding section 6020(b)(2), which provides that an
SFR prepared and executed by the IRS pursuant to section 6020(b)
“shall be prima facie good and sufficient for all legal
purposes”, an SFR is not a “return of the individual” (emphasis
added) for purposes of section 6654(d)(1)(B)(ii). Cf. Swanson v.
Commissioner, 121 T.C. 111, 123-124 (2003) (“An SFR prepared
under section 6020(b) does not constitute a return of the
taxpayer for purposes of 11 U.S.C. sec. 523(a)(1)(B)” (citing
Bergstrom v. United States, 949 F.2d 341, 343 (10th Cir. 1991)));
Spurlock v. Commissioner, 118 T.C. 155 (2002) (a “return * * *
made by the taxpayer” under sec. 6211(a)(1)(A) does not include
an SFR executed under sec. 6020(b)); Millsap v. Commissioner,
91 T.C. 926, 937 (1988) (to give “a rational meaning for the word
‘individual’ in section 6013(b)”, an SFR prepared under
section 6020(b) is not a “separate return” under
sec. 6013(b)(1)).
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At trial Ms. Duma indicated that she did not know about an
obligation to pay estimated tax. However, the section 6654(a)
addition to tax is mandatory and must be imposed unless a
statutory exception applies, and there is no exception provided
for ignorance. See Recklitis v. Commissioner, 91 T.C. 874, 913
(1988). Reasonable cause is not an excuse for underpayment of
estimated tax. Sec. 1.6654-1(a)(1), Income Tax Regs. Section
6654(e)(3)(A) does provide that a taxpayer may avoid this
addition if she can show that “by reason of casualty, disaster,
or other unusual circumstances the imposition of such addition to
tax would be against equity and good conscience”, but Ms. Duma
made no such showing.
Consequently, the addition to tax for failure to pay
estimated tax is sustained for 2004, in an amount yet to be
determined.
To reflect the foregoing,
Decision will be entered
under Rule 155.