T.C. Memo. 2011-47
UNITED STATES TAX COURT
TIMOTHY B. DICKEY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 14196-07. Filed February 28, 2011.
Timothy B. Dickey, pro se.
G. Chad Barton, for respondent.
MEMORANDUM OPINION
RUWE, Judge: Respondent determined deficiencies in
petitioner’s Federal income taxes and additions to tax as
follows:
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Additions to Tax
Year Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654
1
2002 $62,683 $14,056.43 --
1
2003 20,746 4,667.85 $542.93
1
2004 1,452 326.70 42.18
1
2005 1,181 265.73 47.38
1
The amount of any addition to tax under sec. 6651(a)(2) shall
be determined pursuant to sec. 6651(a)(2), (b), and (c).
Petitioner does not dispute the deficiency or additions to
tax for 2005 in the petition, and respondent has conceded the
deficiency and additions to tax for 2004. Respondent concedes
that the pension income petitioner received from the Los Angeles
County Employees Retirement Association in 2002 and 2003 is not
taxable.
Background
The parties submitted this case fully stipulated pursuant to
Rule 122.1 The stipulation of facts, the supplemental
stipulation of facts, and the attached exhibits are incorporated
herein by this reference. At the time the petition was filed,
petitioner resided in Oklahoma.
Petitioner did not file timely Federal income tax returns
for taxable years 2002 and 2003. On March 22, 2007, respondent
prepared returns under section 6020(b) for petitioner’s 2002 and
1
Unless otherwise indicated, all Rule references are to the
Tax Court Rules of Practice and Procedure, and all section
references are to the Internal Revenue Code in effect for the
years in issue.
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2003 taxable years.2 On March 23, 2007, respondent mailed to
petitioner a notice of deficiency. On November 3, 2008,
petitioner provided respondent’s counsel with Federal income tax
returns for taxable years 2002 and 2003.
The notice of deficiency determined that petitioner received
income in 2002 and 2003. The parties stipulated that petitioner
received nonemployee compensation, interest income, proceeds from
the sale of stock, cancellation of debt income, and dividend
income for taxable years 2002 and 2003 as follows:
Nonemployee Compensation
Source 2002 2003
American Medical Security,
Inc. $615 --
Allianz Life Insurance Co. 3,910 --
FFP Advisory Services,
Inc. 33,388 $1,944
FFP Securities, Inc. 59,758 --
Clarica Life Insurance Co. 1,500 --
Total 99,171 1,944
Interest Income
Source 2002 2003
First Trust Corp. $308 --
WNC Housing Tax Credit
Fund VLP 44 --
Boston Financial Qualified 48 $14
Boston Capital Tax Credit
Fund IV 38 --
2
Under sec. 6020(b), when any taxpayer fails to make any
return required by law, the Internal Revenue Service (acting for
the Secretary of the Treasury) may make a return from such
information as it can obtain.
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American Tax Credit Fund
VLP 98 --
WNC Housing Tax Credit
Fund VLP 20 --
WNC Housing Credit Fund
VILP 13 --
Total 569 14
Stock Sale Proceeds
Source 2002 2003
Ultraotc Investor Shares
Acct. xxxx1063 $19,904 --
Ameritrade Inc.
Acct. xxxx9378 3,246 --
First Trust Corp.
Acct. ETC2 40,016 --
Pershing LLC
Acct. xxxx3942 -- $72,190
Total 63,166 72,190
Cancellation of Debt Income
Source 2003
Citibank South Dakota NA $2,628
Bank One Delaware NA 4,372
Total 7,000
Dividend Income
Source 2002 2003
General Electric Co. $186 $202
Total 186 202
In addition, petitioner received and failed to report wages
of $4,200 from Nova Financial Group, Inc., and a State tax refund
of $496 from the Oklahoma Tax Commission for 2002.
Before the mailing of the notice of deficiency, petitioner’s
only payment of income tax for 2002 and 2003 was income tax
withholding of $210 in 2002. Petitioner is entitled to one
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personal exemption for each of the 2002 and 2003 taxable years.
Petitioner’s filing status was married filing separate for
taxable year 2002 and single for taxable year 2003.
Discussion
Petitioner received and failed to timely report total income
of $157,531 and $73,446 for the taxable years 2002 and 2003,
respectively.3 Petitioner acknowledged receipt of this income in
the stipulation of facts and in the returns provided to
respondent’s counsel in 2008. Those returns claim certain
deductions and bases in stock that were not allowed in the notice
of deficiency. Petitioner has failed to provide any evidence to
substantiate these deductions or bases in stock for 2002 and
2003; therefore, we hold that they are not allowable.
Additions to Tax
(a) Section 6651(a)(1)
Section 6651(a)(1) provides for an addition to tax when a
taxpayer fails to file a timely return, unless the taxpayer
establishes that the failure was due to reasonable cause and not
willful neglect. The addition to tax is equal to 5 percent of
the amount required to be shown as tax on the delinquent return
for each month or fraction thereof during which the return
3
The $157,531 and $73,446 amounts include adjustments
respondent made to petitioner’s self-employment adjusted gross
income, standard deduction, and exemptions, in calculating
petitioner’s income for 2002 and 2003.
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remains delinquent, up to a maximum addition of 25 percent for
returns more than 4 months delinquent. Sec. 6651(a)(1).
Petitioner failed to file timely Federal income tax returns for
taxable years 2002 and 2003. Accordingly, we hold that
petitioner is liable for the addition to tax under section
6651(a)(1) and sustain respondent’s determination as set forth in
the notice of deficiency.
(b) Section 6651(a)(2)
Section 6651(a)(2) provides for an addition to tax for
failure to timely pay the amount of tax shown on a return, unless
the taxpayer establishes that the failure was due to reasonable
cause and not willful neglect. The addition is calculated as 0.5
percent of the amount shown as tax on the return but not paid,
with an additional 0.5 percent for each month or fraction thereof
during which the failure to pay continues, up to a maximum of 25
percent.4 Sec. 6651(a)(2); see Verduzco v. Commissioner, T.C.
Memo. 2010-278.
Under section 6020(b), when any taxpayer fails to make any
return required by law, the Internal Revenue Service (acting for
the Secretary of the Treasury) may make a return from such
4
The amount of the addition to tax under sec. 6651(a)(2)
reduces the amount of the addition to tax under sec. 6651(a)(1)
for any month for which an addition to tax applies under both
paragraphs. Sec. 6651(c)(1); Verduzco v. Commissioner, T.C.
Memo. 2010-278.
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information as it can obtain. Under section 6651(g)(2), any
return so made is treated as the taxpayer’s return for purposes
of section 6651(a)(2). See Missall v. Commissioner, T.C. Memo.
2008-258. Therefore, we find that petitioner is liable for the
addition to tax under section 6651(a)(2) for taxable years 2002
and 2003.
(c) Section 6654
Section 6654 provides for an addition to tax when a taxpayer
fails to pay a required installment of estimated income tax.
Each required installment is equal to 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 on the
return for the taxable year (or, if the taxpayer filed no return,
90 percent of the tax for that year), or (2) 100 percent of the
tax shown on the return, if any, for the preceding taxable year.
Sec. 6654(d)(1)(B). Petitioner failed to file Federal income tax
returns for the taxable years 2002 and 2003. Therefore,
petitioner’s required annual payment for 2003 was 90 percent of
the tax for that year. See Missall v. Commissioner, supra.
Because he failed to pay any Federal income tax for 2003, we find
that petitioner is liable for the addition to tax under section
6654 for that year. See id.
On brief petitioner raised for the first time the issue that
respondent erred in calculating the deficiencies by not
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considering income reported and “tax paid” on the returns which
petitioner submitted after the notice of deficiency was issued.
Where the taxpayer has made no return by the time the
Commissioner mails a notice of deficiency, then, for purposes of
determining the tax shown on the return, the taxpayer is deemed
to have made a return showing zero tax. Mendes v. Commissioner,
121 T.C. 308, 327 (2003). Respondent issued the notice of
deficiency on March 23, 2007, and petitioner did not submit his
returns to respondent’s counsel until November 3, 2008.
Therefore, in calculating petitioner’s deficiencies, respondent
correctly determined the tax shown on petitioner’s returns to be
zero. See Mendes v. Commissioner, supra. To the extent that any
assessments or payments were made after the notice of deficiency
was mailed, they can be reflected in the Rule 155 computations.
To reflect the foregoing,
Decision will be entered
under Rule 155.