T.C. Summary Opinion 2014-111
UNITED STATES TAX COURT
EDWARD RIPLEY-DUGGAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 30155-12S. Filed December 23, 2014.
Deborah S. Kearns, for petitioner.
William C. Bogardus, for respondent.
SUMMARY OPINION
CARLUZZO, Special Trial Judge: This case was heard pursuant to the
provisions of section 7463 of the Internal Revenue Code in effect when the
petition was filed.1 Pursuant to section 7463(b), the decision to be entered is not
1
Unless otherwise indicated, subsequent section references are to the
Internal Revenue Code of 1986, as amended, in effect for the relevant period.
(continued...)
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reviewable by any other court, and this opinion shall not be treated as precedent
for any other case.
In a notice of deficiency dated September 17, 2012 (notice), respondent
determined a deficiency in, and imposed additions to tax under sections 6651(a)(1)
and (2) and 6654 with respect to, petitioner’s 2008 Federal income tax liability.
Because the parties have now agreed to the deficiency, we consider only
petitioner’s liability for the above-referenced additions to tax.
Background
Some of the facts have been stipulated and are so found. At the time the
petition was filed, petitioner resided in New York.
As of the close of 2008 petitioner and Carol Maltby (Ms. Maltby) had been
married to each other for almost 40 years. For many of those years Ms. Maltby
assumed the responsibility to prepare and submit for filing the couple’s joint or
separate Federal income tax returns. Petitioner agrees that his income during 2008
obligated him to file a Federal income tax return for that year, but his 2008 return
was not filed until well beyond the date it was due. See secs. 6011(a), 6072(a).
Petitioner also agrees that he made no estimated tax payments and had no Federal
1
(...continued)
Rule references are to the Tax Court Rules of Practice and Procedure.
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income tax withheld with respect to the income tax liability shown on that return.
As of the date of trial petitioner’s 2007 Federal income tax return, if he was
obligated to file one, had not been filed.
Petitioner has a keen interest in rare books, which he describes as “the
driving passion of * * * [his] life”. He is a longstanding, dues-paying member of
the Antiquarian Booksellers Association of America, a status that continued at
least through the date of trial. At all times relevant petitioner owned and operated
Wilsey Rare Books (Wilsey), a sole proprietorship engaged in the business of
selling rare books.2
At all times relevant petitioner was also employed as a consultant to Doyle’s
Auction House of New York. As such, he typically worked “nine hours a day,
generally five days a week”, occasionally working six or seven days a week, in
addition to a roughly 5.5-hour daily commute.
Over the years Ms. Maltby has suffered from chronic rheumatoid arthritis.
During 2008 her arthritis caused pain centered in the joints in her hands, making it
difficult for her to handle papers. Her condition extended into 2009 as well.
2
Income and deductions attributable to Wilsey are shown on a Schedule C,
Profit or Loss From Business, included with petitioner’s untimely 2008 Federal
income tax return.
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Discussion
Section 6651(a)(1) provides for an addition to tax in the event a taxpayer
fails to file a timely return (determined with regard to any extension of time for
filing), unless it is shown that such failure is due to reasonable cause and not due
to willful neglect. The amount of the addition is equal to 5% of the amount
required to be shown as tax on the delinquent return for each month or fraction
thereof during which the return remains delinquent, up to a maximum addition of
25% for returns more than four months delinquent.
Section 6651(a)(2) provides for an addition to tax for failure to timely pay
“the amount shown as tax on any return specified in paragraph (1)” unless the
taxpayer establishes that the failure was due to reasonable cause and not willful
neglect. The addition is calculated as 0.5% of the amount shown as tax on the
return but not paid, with an additional 0.5% for each month or fraction thereof
during which the failure to pay continues, up to a maximum of 25%. Id. The
amount of the addition to tax under section 6651(a)(2) reduces the addition to tax
under section 6651(a)(1) for any month for which both additions to tax apply. See
sec. 6651(c)(1).
Section 6654(a) and (b) provides for an addition to tax in the event of an
underpayment of a required installment of individual estimated tax. Each required
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installment of estimated tax is equal to 25% of the “required annual payment”,
which, in turn, is equal to the lesser of (1) “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 (2) if the individual filed a return for the immediately preceding year,
100% of the tax shown on that return. Sec. 6654(d)(1)(A) and (B).
According to respondent, petitioner is liable for the above-referenced
additions to tax as now applied to the Federal income tax liability shown on
petitioner’s untimely 2008 Federal income tax return. The burden of production
with respect to the imposition of the additions to tax here in dispute rests with
respondent. See sec. 7491(c). It is undisputed that petitioner failed to (1) timely
file his 2008 return, (2) discharge his tax liability, or (3) pay any estimated tax for
the year in issue. That being so, respondent’s burden has been satisfied with
respect to each of the additions to tax.
According to petitioner, he should not be held liable for any of the additions
to tax because the failures that gave rise to each of those additions were due to
reasonable cause and not willful neglect. Respondent’s burden does not require
him to refute petitioner’s claim in this regard. See Higbee v. Commissioner, 116
T.C. 438, 446-447 (2001).
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Section 6651(a)(1) Reasonable Cause
According to petitioner, the addition to tax that would otherwise result from
his failure to file a timely return is not applicable because the failure was due to
reasonable cause, namely the poor health of Ms. Maltby, and not due to willful
neglect. More specifically, petitioner points out that Ms. Maltby was responsible
for the financial aspects of their marriage, including the preparation of their joint
Federal income tax returns, and that for 2008 she was unable to prepare his
individual Federal income tax return or their joint Federal income tax return
because of the symptoms related to her rheumatoid arthritis.
We are sympathetic to Ms. Maltby’s health problem during the relevant time
and recognize that serious illness of the taxpayer or a member of the taxpayer’s
family can constitute reasonable cause for failure to file a timely return. See, e.g.,
Tabbi v. Commissioner, T.C. Memo. 1995-463 (finding reasonable cause where
the taxpayers’ son had heart surgery and the taxpayers spent four months
continuously in the hospital with him and filed their return two months after their
son’s death); Harris v. Commissioner, T.C. Memo. 1969-49 (finding reasonable
cause 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). However,
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petitioner was not sick or injured, and nothing in the record suggests that he acted
as Ms. Maltby’s caregiver during the relevant period.
Whether a taxpayer has “reasonable cause” within the meaning of section
6651(a)(1) depends upon whether the taxpayer exercised “ordinary business care
and prudence” but was nevertheless unable to file the return within the prescribed
time. United States v. Boyle, 469 U.S. 241, 246 (1985); sec. 301.6651-1(c)(1),
Proced. & Admin. Regs. Ordinary business care and prudence would suggest that
petitioner, in good health and otherwise able to fulfill his employment obligations
and obviously aware of Ms. Maltby’s infirmities, would have made the appropriate
arrangements to ensure that his 2008 Federal income tax return was timely
prepared and submitted for filing. Under the circumstances, it was not reasonably
prudent for him to rely upon Ms. Maltby to satisfy his Federal tax-related
obligations. Accordingly, respondent’s imposition of the addition to tax under
section 6651(a)(1) is sustained.
Section 6651(a)(2) Reasonable Cause
The section 6651(a)(2) addition to tax for failure to pay is applicable unless
the taxpayer shows that he exercised ordinary business care and prudence in
providing for payment of the liability and was nevertheless either unable to pay
the tax or would suffer an undue hardship. Sec. 301.6651-1(c)(1), Proced. &
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Admin. Regs. There is no evidence that petitioner was unable to pay the tax that
was due or would suffer undue hardship from making payment. Furthermore, we
have already found that Ms. Maltby’s health problem did not provide reasonable
cause for petitioner’s failure to file, and we maintain that position with respect to
the even simpler task of paying. See Taylor v. Commissioner, T.C. Memo. 2009-
27. Accordingly, respondent’s imposition of the addition to tax under section
6651(a)(2) is sustained.
Section 6654 Reasonable Cause
Except in very limited circumstances not applicable in this case, see sec.
6654(e)(3)(B), section 6654 provides no exception for reasonable cause, Mendes
v. Commissioner, 121 T.C. 308, 323 (2003). Instead, the section 6654 addition to
tax is mandatory unless the taxpayer establishes that one of the exceptions in
section 6654(e) applies. Recklitis v. Commissioner, 91 T.C. 874, 913 (1988).
There are two mechanical exceptions to the applicability of the section 6654
addition to tax. First, the addition is not applicable if the tax shown on the
individual’s return for the year in question (or, if no return is filed, the individual’s
tax for that year), reduced for these purposes by any allowable credit for wage
withholding, is less than $1,000. Sec. 6654(e)(1). Second, the addition is not
applicable if the individual’s tax for the preceding taxable year was zero. Sec.
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6654(e)(2). Petitioner has not shown that either of the mechanical exceptions
under section 6654(e) applies. Accordingly, we find that petitioner is liable for the
addition to tax under section 6654.
To reflect the foregoing,
Decision will be entered
under Rule 155.