Spurlock v. Comm'r

T.C. Memo. 2003-124

UNITED STATES TAX COURT

GLORIA J. SPURLOCK, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 6438-01. Filed April 29, 2003.

P did not file Federal income tax returns for

1995, 1996, and 1997. R issued a notice of deficiency

in which he determined that P received wages,

nonemployee compensation, and distributions from

individual retirement plans for each of the years. R

based his determinations on third-party information

returns.

Held: Various third-party records that R offered

in support of his determinations are admissible

evidence under rules 803(6) and 902(11) of the Federal

Rules of Evidence, which allow the introduction of

records of a regularly conducted activity if, inter

alia, the records are accompanied by a written

declaration of their custodian or other qualified

person.

Held, further, R’s determinations of unreported

income are sustained.

- 2 -

Held, further, the additions to tax under secs.

6651(a)(1) and 6654, I.R.C., are sustained.

Held, further, sec. 6651(a)(2), I.R.C., provides

for an addition to tax where a taxpayer fails to pay

the amount shown as tax on any return. P did not file

returns; however, under sec. 6651(g), I.R.C., a return

R prepares pursuant to sec. 6020(b), I.R.C., is

considered a return for purposes of the addition to tax

under sec. 6651(a)(2), I.R.C. Under sec. 7491(c),

I.R.C., R has the burden to initially come forward with

evidence that it is appropriate to apply a penalty. R

failed to introduce evidence that returns showing an

amount of tax were prepared and subscribed in

accordance with sec. 6020(b), I.R.C. See Millsap v.

Commissioner, 91 T.C. 926 (1988); Phillips v.

Commissioner, 86 T.C. 433 (1986), affd. in part and

revd. in part on other grounds 851 F.2d 1492 (D.C. Cir.

1988). Accordingly, the additions to tax under sec.

6651(a)(2), I.R.C., do not apply.

Gloria J. Spurlock, pro se.

Frederick W. Krieg, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

RUWE, Judge: Respondent issued a notice of deficiency to

petitioner in which he determined the following Federal income

tax deficiencies and additions to tax:

Additions to tax

Year Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654

1995 $2,747 $533.75 N/A $112.10

1996 5,082 1,125.68 To be determined. 265.81

1997 3,149 539.55 To be determined. 123.81

We previously denied petitioner’s motions for partial summary

judgment in Spurlock v. Commissioner, 118 T.C. 155 (2002). In

- 3 -

that opinion, we decided that tax liabilities shown on what

petitioner claimed were section 6020(b)1 returns did not affect

whether there was a “deficiency” under section 6211(a) and that

any amounts shown thereon were subject to the deficiency

procedures. The issues for decision are: (1) Whether petitioner

received unreported income in the form of wages, nonemployee

compensation, and distributions from individual retirement plans;

(2) whether petitioner is liable for additions to tax under

sections 6651(a)(1) and (2) and 6654.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibit are

incorporated herein by this reference. At the time of filing the

petition, petitioner resided in Louisville, Kentucky.

Petitioner did not file Federal income tax returns for her

1995, 1996, and 1997 tax years. Respondent commenced an

examination of petitioner’s 1995, 1996, and 1997 tax years at

some point after July 22, 1998. On February 20, 2001, respondent

issued a notice of deficiency to petitioner in which he

determined: (1) Petitioner received nonemployee compensation of

$7,515 in 1995 and $20,542 in 1996 from Ursuline Campus Schools,

Inc. (Ursuline); (2) she received wages of $7,347 in 1995 and

1

Unless otherwise indicated, all section references are to

the Internal Revenue Code, as amended. All Rule references are

to the Tax Court Rules of Practice and Procedure.

- 4 -

$9,180 in 1997 from Ursuline and wages of $801 in 1995 and $1,335

in 1996 from The Louisville Orchestra (Orchestra); (3) she

received taxable IRA distributions of $1,140 from Bank One

Kentucky (Bank One) in 1995 and $10,750 from The Pioneer Group,

Inc. (Pioneer) in 1997. Those determinations were made on the

basis of Forms W-2, Wage and Tax Statement, Forms 1099-MISC,

Miscellaneous Income, and Forms 1099-R, Distributions from

Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs,

Insurance Contracts, etc., that the various entities submitted.2

Ursuline prepared Forms W-2 stating it paid to petitioner

wages of $7,347.50 in 1995 and $9,180 in 1997. Orchestra

prepared Forms W-2 stating it paid to petitioner wages of $801 in

1995 and $1,335 in 1996. Ursuline prepared Forms 1099 stating it

paid to petitioner nonemployee compensation of $7,515 in 1995 and

$20,542 in 1996. Bank One prepared a Form 1099 stating it paid a

taxable IRA distribution of $1,140 to petitioner in 1995.

Pioneer prepared a Form 1099 stating it paid a taxable IRA

distribution of $10,750.40 to petitioner in 1997. All the

aforementioned amounts shown on the Forms W-2 were paid to

petitioner as reported thereon.

2

We point out that some of our findings of fact are made on

the basis of petitioner’s requested findings of fact to which

respondent did not object. We note that she also objects to the

admission of certain records which support some of her requested

findings. We have admitted those documents. See infra pp. 8 to

16.

- 5 -

For each of the years at issue, entities were required to

file a Form W-3, Transmittal of Wage and Tax Statements, in order

to transmit any Form(s) W-2 to the Social Security Administration

for processing. Entities were required to file a Form 1096,

Annual Summary and Transmittal of U.S. Information Returns, to

transmit any Form(s) 1099 to the Internal Revenue Service (IRS).

The Forms W-3 and 1096 contain a “jurat” clause, which states:

“Under penalties of perjury, I declare that I have examined this

return and accompanying documents, and, to the best of my

knowledge and belief, they are true, correct, and complete.” The

record does not contain any of the Forms W-3 or 1096 that the

various entities submitted, and respondent cannot locate those

forms in any of his files.

On February 7, 2002, respondent sent his trial memorandum to

the Court and served a copy on petitioner. Respondent stated

that “Some or all of the following witnesses may testify in this

case” and listed Betty Harrison of Ursuline, Tonya N. McSorley of

the Orchestra, Teresa LaChapelle of Pioneer, Dixie Wall or Teresa

Brown of Bank One, and Revenue Agent Chris English. Respondent

stated that his purpose for calling those witnesses was to

establish the amounts paid to petitioner in 1995, 1996, and 1997,

the sources, the reasons for payments, and the amounts withheld.

Respondent also indicated that in lieu of testimony from those

witnesses, he might introduce, under rules 803(6) and 902(11) of

- 6 -

the Federal Rules of Evidence, sworn affidavits for some or all

of them with accompanying copies of custodial business records

including copies of checks (front and back), Forms W-2 and 1099,

accounting entries, and possibly other documentary evidence

showing the amounts paid to petitioner in 1995, 1996, and 1997.

Before trial, respondent subpoenaed and received the

affidavits and the records from Ms. Harrison, Ms. McSorley, and

George Patenode. Ms. Harrison is the custodian of the personnel

records of Ursuline. The statements in Ms. Harrison’s affidavit

are made in her capacity as the custodian of those personnel

records and are made upon her knowledge and belief. Ms. McSorley

is the custodian of the payroll records of the Orchestra. The

statements in Ms. McSorley’s affidavit are made in her capacity

as the custodian of those payroll records and are made upon her

knowledge and belief. Mr. Patenode is the custodian of the

records of a transfer agent of Pioneer Investments, Pioneer

Investments Management Shareholder Services (PIMSS). The

statements in Mr. Patenode’s affidavit are made in his capacity

as the custodian of those records and are made upon his knowledge

and belief.3

3

In respondent’s trial memorandum, he identified Teresa

LaChapelle as the custodian of records for Pioneer. Ms.

LaChapelle did not testify at trial and did not submit an

affidavit or records. Mr. Patenode was not named in respondent’s

trial memorandum, and the record does not reflect how or when he

succeeded to Ms. LaChapelle’s position as custodian of records

(continued...)

- 7 -

The records, which were submitted with the affidavits,

consist of: (1) Forms W-2, Forms 1099-MISC, and Forms 1099-R

which relate to petitioner; (2) biweekly or semimonthly time

reports from Ursuline which petitioner signed; (3) checks from

Ursuline, the Orchestra, and Pioneer made out to the order of

petitioner;4 (4) various intraoffice memoranda, statements, and

letters addressed to petitioner from Ursuline regarding

petitioner’s hourly rate of pay, terms of employment, and

employment status; (5) a letter of resignation from a position as

violin instructor addressed to Ursuline and signed by petitioner;

(6) wage and tax registers, as well as autopay payroll registers,

for the Orchestra; and (7) an IRA statement from Pioneer.

On February 19, 2002, petitioner filed a motion in limine in

which she moved to exclude from evidence any affidavits and

records respondent sought to introduce at trial. Respondent sent

to petitioner the affidavits of Ms. Harrison and Ms. McSorley on

Friday, February 22, 2002. Petitioner received those documents

on February 23, 2002. Respondent sent to petitioner the

affidavit of George Patenode on February 21, 2002, which she

received on February 22, 2002. This case was called for trial on

3

(...continued)

relating to petitioner’s alleged receipt of a taxable IRA

distribution from Pioneer in 1997.

4

Petitioner endorsed some of the checks, and some were

apparently deposited without endorsement.

- 8 -

February 25, 2002. At trial, respondent sought to introduce the

affidavits of Ms. Harrison, Ms. McSorley, and Mr. Patenode and

the records accompanying those affidavits under Fed. R. Evid.

803(6) and 902(11).5 We withheld ruling on the admissibility of

the affidavits and the records at trial and instead allowed the

parties an opportunity to brief the evidentiary issues presented.

Petitioner did not testify, did not have witnesses, and did

not introduce documentary evidence regarding her income or lack

thereof at trial.6

OPINION

A. Evidentiary Issues

Respondent sought to introduce sworn affidavits and various

business records relating to petitioner under Fed. R. Evid.

803(6) and 902(11). Rule 902(11) of the Federal Rules of

Evidence (Fed. R. Evid.) provides in relevant part:

5

No representative or agent of Bank One testified at trial

or submitted any affidavits or records. Revenue Agent Chris

English did not testify at trial and did not submit an affidavit

or other records.

6

The Court engaged in an extended colloquy with petitioner

regarding whether she wished to testify under oath. After we

permitted petitioner a recess to make her decision, petitioner

decided not to testify.

- 9 -

RULE 902. Self-Authentication

Extrinsic evidence of authenticity as a condition

precedent to admissibility is not required with respect

to the following:

* * * * * * *

(11) Certified domestic records of regularly

conducted activity.--The original or a duplicate

of a domestic record of regularly conducted

activity that would be admissible under Rule

803(6) if accompanied by a written declaration of

its custodian or other qualified person, in a

manner complying with any Act of Congress or rule

prescribed by the Supreme Court pursuant to

statutory authority, certifying that the record--

(A) was made at or near the time of the

occurrence of the matters set forth by, or

from information transmitted by, a person

with knowledge of those matters;

(B) was kept in the course of the

regularly conducted activity; and

(C) was made by the regularly conducted

activity as a regular practice.

* * * * * * *

Fed. R. Evid. Rule 803(6) provides:

RULE 803. Hearsay Exceptions; Availability of

Declarant Immaterial

The following are not excluded by the hearsay

rule, even though the declarant is available as a

witness:

* * * * * * *

(6) Records of regularly conducted

activity.--A memorandum, report, record, or data

compilation, in any form, of acts, events,

conditions, opinions, or diagnoses, made at or

near the time by, or from information transmitted

by, a person with knowledge, if kept in the course

- 10 -

of a regularly conducted business activity, and if

it was the regular practice of that business

activity to make the memorandum, report, record or

data compilation, all as shown by the testimony of

the custodian or other qualified witness, or by

certification that complies with Rule 902(11),

Rule 902(12), or a statute permitting

certification, unless the source of information or

the method or circumstances of preparation

indicate lack of trustworthiness. The term

“business” as used in this paragraph includes

business, institution, association, profession,

occupation, and calling of every kind, whether or

not conducted for profit.

Petitioner objects to the introduction of the affidavits and

the accompanying records on the ground that those affidavits fail

to satisfy the substantive requirements of Fed. R. Evid. 803(6)

and 902(11).7 She claims that the affidavits fail to state that

the affiants had personal knowledge of the facts recorded in the

records or otherwise identify the employee who had personal

knowledge of the facts; that they fail to state what is the

“regularly conducted business activity” of the payors; and that

they fail to state in what manner the records are kept.

Our examination of the affidavits and the attached records

reveals that those records were kept in the course of regularly

conducted business activities. We are satisfied that the various

payors are each a “business” for purposes of Fed. R. Evid. 803(6)

and 902(11). Moreover, those rules do not require that the

7

We recently applied Fed. R. Evid. 803(6) and 902(11) in the

case of records kept by an agency of the United States. Clough

v. Commissioner, 119 T.C. 183 (2002). The instant case involves

records kept by private third-party recordkeepers.

- 11 -

custodian of the records have personal knowledge of the facts

recorded. The rules require only that the custodian certify the

records were made by a person with knowledge of the matters

recorded. The custodians here certify under penalties of perjury

that the records were made and kept in the course of business by

an employee or representative of the business who had personal

knowledge of the facts recorded. This is sufficient, and the

affidavits need not identify by name that employee or

representative.8

In addition, many of the records that the affiants produced

are admissible and can be authenticated under other parts of Fed.

R. Evid. 901 and 902. Under Fed. R. Evid. 901(a), the

requirement of authentication or identification as a condition

precedent to admissibility is satisfied by evidence sufficient to

support a finding that the matter in question is what its

proponent claims. Fed. R. Evid. 901(b) provides examples of

authentication or identification conforming with the requirements

of this rule including nonexpert opinions as to the genuineness

of handwriting; comparison by the trier of fact with specimens

which have been authenticated; and appearance, contents,

substance, internal patterns, or other distinctive

characteristics, taken in conjunction with circumstances.

8

We note that the affidavit from Ms. McSorley identifies

Mona Griffin as the bookkeeper who had knowledge of the facts

recorded in the records.

- 12 -

We have compared what purports to be petitioner’s signatures

on many of the checks, the time reports, and the letter of

resignation to petitioner’s signatures on her petition and other

documents submitted to this Court. We find that those signatures

are identical in all respects, and those items are authenticated

pursuant to the general provisions of Fed. R. Evid. 901.

Checks are self-authenticating documents under Fed. R. Evid.

902(9).9 United States v. Hawkins, 905 F.2d 1489, 1494 (11th

Cir. 1990); United States v. Little, 567 F.2d 346 n.1 (8th Cir.

1977). The copies of checks respondent introduced are not

hearsay or, alternatively, are covered by exceptions to the

hearsay rule. A check is a negotiable instrument, a legally

operative document, and falls within the category of “verbal

acts” which are excludable from the hearsay rule. See Advisory

Committee’s Note to Fed. R. Evid. 801(c). The checks or any

notations thereon may also qualify as a statement in documents

affecting an interest in property under Fed. R. Evid. 803(15).

With respect to the other documents that contain petitioner’s

signature, those documents are not hearsay. See Fed. R. Evid.

9

Under Fed. R. Evid. 902(9), extrinsic evidence of

authenticity as a condition precedent to admissibility is not

required with respect to commercial paper, signatures thereon,

and documents relating thereto to the extent provided by general

commercial law.

- 13 -

801(d)(2)(B).10 We find that the records submitted with the

affidavits meet the substantive requirements of Fed. R. Evid.

803(6) and 902(11), and, with respect to some of those records,

are admissible and authenticated under other Rules of the Federal

Rules of Evidence.11

Petitioner also argues that the affidavits and the

underlying records should be excluded because those items were

not furnished to her in a time sufficient for her to challenge

fairly the adequacy of their foundation, and she was unduly

prejudiced as a result. Petitioner relies on the notice

requirement of Fed. R. Evid. 902(11) as a basis for the exclusion

of the affidavits and the records.

The notice requirement of Fed. R. Evid. 902(11) provides:

A party intending to offer a record into evidence under

this paragraph must provide written notice of that

intention to all adverse parties, and must make the

record and declaration available for inspection

10

Under Fed. R. Evid. 801(d)(2)(B), a statement is not

hearsay if the party-opponent has manifested an adoption or

belief in its truth.

11

Petitioner claims that the affidavits are “inherently

untrustworthy and unreliable.” She cites to Ursuline’s change in

reporting her employment status from employee to independent

contractor and back to employee, the failure of the affiants to

produce all the checks purportedly issued to petitioner, the fact

that some of the checks are unendorsed, and the failure of the

affiants to produce copies of the Forms W-3 and 1096 used to

transmit the Forms W-2, 1099-MISC, and 1099-R. We cannot agree

that those circumstances indicate an inherent lack of

trustworthiness or reliability. This is especially true where,

as here, petitioner’s signature appears on many of the records

produced.

- 14 -

sufficiently in advance of their offer into evidence to

provide an adverse party with a fair opportunity to

challenge them.

The notice requirement contemplates that a proponent of evidence

provide not only the records which he seeks to introduce but also

the declaration of the custodian “sufficiently in advance of

their offer into evidence”.12

We find that respondent has met the notice requirement. He

provided written notice to petitioner of the possibility of his

introducing evidence under Fed. R. Evid. 803(6) and 902(11) on

February 7, 2002, more than 2 weeks before trial. He identified

the declarants, the payors involved, and the underlying records

that might be introduced through the affidavits. Petitioner was

adequately apprised of this information in advance of trial.

Petitioner had sufficient time to contact the witnesses named in

respondent’s trial memorandum, and she could have called those

witnesses to testify at trial.

Respondent provided the affidavits and the records to

petitioner 2 and 3 days before trial. Given the nature of the

affidavits and the records involved, petitioner had sufficient

time in which to review those documents and to formulate

challenges to their veracity. The affidavits and the records

12

The Advisory Committee’s Note to Fed. R. Evid. 902(11)

states that “The notice requirement * * * is intended to give the

opponent of the evidence a full opportunity to test the adequacy

of the foundation set forth in the declaration.”

- 15 -

themselves are not lengthy, and each involves matters which

should be familiar to petitioner: (1) Her association with the

payors; (2) the hours she recorded and the time reports that she

submitted; (3) checks made out to the order of petitioner; (4) a

statement regarding a substantial IRA distribution; and (5)

copies of Forms W-2, 1099-MISC, and 1099-R. We hold that the

affidavits and the records were provided to petitioner

sufficiently in advance of their offer into evidence and that

petitioner had a fair opportunity to challenge those documents.

Petitioner also argues that we should exclude the records,

because respondent failed to comply with our standing pretrial

order requiring the exchange of documents 15 days prior to trial.

We do not find exclusion of respondent’s evidence to be a proper

remedy for his delay, especially considering the nature of the

documents involved.13 Petitioner was given ample notice, well in

advance of trial, of the specific amounts and sources of her

income as respondent determined. When she was requested to admit

these facts, she responded: “Denies, with the qualification that

Petitioner neither possesses sufficient documentary evidence nor

has sufficient recollection that would cause her to truthfully

13

Petitioner also contends that respondent failed to

supplement his answers to her interrogatories with respect to the

evidence submitted with the affidavits. We disagree.

Respondent’s answers to those interrogatories contemplate that he

would seek to obtain the underlying records of the various

entities, and his answers inform petitioner of the general nature

of those records.

- 16 -

admit the alleged fact.” She has offered no testimony or

documents that bear on her income for the years in issue. In our

discretion, we shall not exclude the affidavits and the

underlying records that respondent introduced for any

noncompliance with respect to the notice requirement or our

standing order.14

B. Whether Petitioner Received Unreported Income as Determined

Gross income includes “all income from whatever source

derived” including compensation for services. Sec. 61(a); Grimes

v. Commissioner, 82 T.C. 235, 237 (1984). Gross income also

includes any amount paid or distributed out of an individual

retirement plan. Sec. 408(d)(1). Respondent determined that

petitioner received wages, nonemployee compensation, and taxable

distributions from an individual retirement plan. Petitioner

disputes that she had taxable income for the tax years in issue

and that she was required to file a Federal income tax return for

those years. Petitioner argues that the determinations

respondent made are arbitrary and erroneous, since they are based

14

Petitioner also seeks to exclude the affidavit of George

Patenode on the grounds that respondent failed to name Mr.

Patenode as a witness in his trial memorandum. We cannot agree

that this failure is a basis for exclusion. The choice of

affiants and the identity of the custodian of records are matters

peculiar to the particular business. It is sufficient that

respondent stated his intention to subpoena the affidavit and

records from the custodian of records for Pioneer.

- 17 -

solely on information returns that third-party payors

fraudulently or erroneously filed.

Under section 7491(a), the burden of proof with respect to

any factual issue shifts to the Commissioner if the taxpayer

introduces credible evidence with respect to that issue.

However, section 7491(a) does not apply unless the taxpayer has

maintained all records required under the Code and has cooperated

with reasonable requests by the Secretary for witnesses,

information, documents, meetings, and interviews. Sec.

7491(a)(2)(B). Petitioner did not testify, she called no

witness, and she presented no credible evidence relevant to any

factual issue in this case. Further, the record reflects that

petitioner failed to cooperate with respondent in providing

information relating to her 1995, 1996, and 1997 tax years. For

example, petitioner answered 23 of respondent’s 26 requests for

admissions: “Denies, with the qualification that Petitioner

neither possesses sufficient documentary evidence nor has

sufficient recollection that would cause her to truthfully admit

the alleged fact.” Those requests for admissions concerned

petitioner’s relationship with the payors, whether she received

income from those entities in the amounts determined, and whether

she received Forms W-2, 1099-MISC, and 1099-R from those payors.

We find that section 7491(a) is not applicable to this case.

- 18 -

Under section 6201(d), if the taxpayer asserts a “reasonable

dispute” with respect to any item of income reported on a third-

party information return and the taxpayer has “fully cooperated”

with the Secretary, the Secretary shall have the burden of

producing reasonable and probative information concerning a

deficiency in addition to the information return. See Gussie v.

Commissioner, T.C. Memo. 2001-302. Petitioner makes general and

unsubstantiated assertions that the information returns involved

in this case are fraudulent. However, she does not claim to have

made known her dispute to the third parties who prepared them.

She has not “fully cooperated” with the Secretary in providing

information relating to her 1995, 1996, and 1997 tax years. We

conclude that section 6201(d) is not applicable.

Absent application of those special statutory provisions,

the Commissioner’s determinations in a notice of deficiency

generally are presumptively correct, and the taxpayer has the

burden of proving that those determinations are erroneous or

arbitrary. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933); Kearns v. Commissioner, 979 F.2d 1176, 1178 (6th Cir.

1992), affg. T.C. Memo. 1991-320. However, the Commissioner

cannot rest on the presumption of correctness alone where the

taxpayer challenges the determinations of unreported income made

in the notice of deficiency. United States v. Walton, 909 F.2d

915, 919 (6th Cir. 1990); Dellacroce v. Commissioner, 83 T.C.

- 19 -

269, 280 (1984). In certain circumstances, courts have required

a minimal factual foundation for the Commissioner’s

determinations before the presumption of correctness attaches to

the notice of deficiency. See Portillo v. Commissioner, 932 F.2d

1128 (5th Cir. 1991), affg. in part, revg. in part, and remanding

T.C. Memo. 1990-68; United States v. Walton, supra; Anastasato v.

Commissioner, 794 F.2d 884 (3d Cir. 1986), vacating and remanding

T.C. Memo. 1985-101; Weimerskirch v. Commissioner, 596 F.2d 358

(9th Cir. 1979), revg. 67 T.C. 672 (1977). Even if we were to

assume that those decisions apply to this case, we find that

respondent has provided an evidentiary foundation for his

determinations.

Petitioner admits in her requested findings of fact that

each of the various entities submitted Forms W-2 and/or 1099

which reported wages, nonemployee compensation, and taxable IRA

distributions paid to petitioner and that respondent relied on

those forms in making his determinations. Respondent’s reliance

on those information returns provides an evidentiary basis for

respondent’s determinations.15 Further, the records and

15

Petitioner claims that unsubstantiated statements that

petitioner received income, which statements the alleged payors

made on Forms W-2 and 1099, are not sufficient alone to support

respondent’s determinations, relying on Portillo v. Commissioner,

988 F.2d 27 (5th Cir. 1993), revg. T.C. Memo. 1992-99. However,

the result reached in Portillo does not apply where, as here, the

taxpayer fails to file tax returns stating he or she did not

receive the income in question. Parker v. Commissioner, 117 F.3d

(continued...)

- 20 -

documents that respondent introduced through the affidavits

provide ample evidentiary support for his determinations.

Respondent has satisfied any burden of production which he may

initially bear under the cases cited above.

Petitioner also contends that respondent, in making his

determinations, arbitrarily relied on the Forms W-2 and 1099 that

the payors submitted without ascertaining whether those entities

submitted Forms W-3 and 1096, signed under penalties of perjury.

Petitioner also suggests that respondent’s determinations are

arbitrary in that he failed to ascertain whether the payors were

on his “Bad Payor List”.16 We disagree and hold that

respondent’s determinations are not per se arbitrary where he

fails to ascertain whether the third-party payors submitted Forms

W-3 and 1096 with the information returns or whether those payors

are on his “Bad Payor List”. In the instant case, there is no

evidence that any of the payors were on respondent’s “Bad Payor

15

(...continued)

785, 787 (5th Cir. 1997), affg. an unpublished order of this

Court. Congress, in enacting sec. 6201(d), has also recognized

that in the absence of that Code section’s application, the

burden of proving that determinations of unreported income are

arbitrary or incorrect generally remains on the taxpayer where

the Commissioner relies solely on information returns that third

parties submitted.

16

The Commissioner maintains a “Bad Payor List”, which

includes those persons and entities that have previously

submitted false, fraudulent, inaccurate, or mistaken information

to the Social Security Administration or the IRS on Forms W-2 or

1099.

- 21 -

List”, and petitioner has presented no evidence, and she alleges

no specific instances, wherein those entities that paid income to

her submitted false, fraudulent, inaccurate, or mistaken

information to the Social Security Administration or the IRS.

Respondent’s determinations are not arbitrary on this basis.

Petitioner has failed to persuade us that respondent’s

determinations are arbitrary or erroneous. Petitioner did not

testify at trial, produced no evidence, called no witnesses, and

has hedged her responses to respondent’s requests for admissions

with her purported failed recollection of employment and receipt

of income, as well as her inadequate recordkeeping. Accordingly,

we sustain respondent’s determinations, and we hold that

petitioner received nonemployee compensation of $7,515 in 1995

and $20,542 in 1996 from Ursuline; that she received wages of

$7,347 in 1995 and $9,180 in 1997 from Ursuline and wages of $801

in 1995 and $1,335 in 1996 from the Orchestra; and that she

received taxable IRA distributions of $1,140 from Bank One in

1995 and $10,750 from Pioneer in 1997.

C. Additions to Tax and Penalty

Section 7491(c) applies with respect to the additions to tax

and the penalty in this case, since the examination commenced

after July 22, 1998, the effective date of that provision.

Internal Revenue Restructuring and Reform Act of 1998, Pub. L.

105-206, sec. 3001(c), 112 Stat. 727. Accordingly, respondent

- 22 -

bears the burden of production and must come forward with

sufficient evidence to show that the additions to tax and the

penalty are appropriate. Higbee v. Commissioner, 116 T.C. 438,

446 (2001). However, respondent does not bear the burden of

proof as to the additions to tax and the penalty, and once he

meets his initial burden of production, petitioner must come

forward with evidence sufficient to persuade us that those

additions to tax and the penalty do not apply. Id. at 447.

Section 6651(a)(1) provides for an addition to tax in the

case of a failure to file a required return on the prescribed due

date. Once the Commissioner meets his initial burden of

production with respect to this addition to tax, the taxpayer

bears the “heavy burden” of proving that the failure to file the

required return did not result from willful neglect and that the

failure was due to reasonable cause. United States v. Boyle, 469

U.S. 241, 245 (1985); Higbee v. Commissioner, supra at 447.

Petitioner did not file Federal income tax returns for her

1995, 1996, and 1997 tax years, and respondent has presented

evidence that petitioner received taxable income in amounts

sufficient to require her to file returns for those years. Thus,

we find that respondent has met his burden of production as to

the section 6651(a)(1) additions to tax. Petitioner presented no

evidence at trial, and she did not testify regarding her failure

to file returns. She asserts only that she did not have taxable

- 23 -

income in amounts sufficient to require her to file returns for

the years at issue. Petitioner has not established that her

failure to file a return was due to reasonable cause and not

willful neglect, and we sustain the section 6651(a)(1) additions

to tax as determined.

Section 6651(a)(2) provides for an addition to tax in the

case of a failure to pay an amount of tax shown on any return.

Respondent claims that he has met his burden of production under

section 7491(c) with respect to the section 6651(a)(2) additions

to tax. In his opening brief at 11, his complete argument was as

follows:

Respondent has met his burden of production with

respect to asserted I.R.C. §§ 6651(a)(1), (a)(2), and

6654 additions to taxes.

By I.R.C. § 7491(c) Respondent has the burden of

production with respect to any penalty, addition to

tax, or additional amounts. The “burden of production”

is not the same as the “burden of proof.” The burden

of production is less strenuous than the burden of

proof, requiring only that Respondent come forward with

sufficient evidence indicating that it is appropriate

to impose the relevant penalty or addition to tax.

Higbee v. Commissioner, 116 T.C. at 446-47. Respondent

has shown that Petitioner did not file any income tax

returns during these years and that she earned

sufficient income to require her to file returns.

(Exhibit 5-R, Certified Certificate of No Record; Prof.

Exs. 7-R, 8-R, 9-R; Presumption of Correctness, see

Argument I.) Thus, Respondent’s burden of production

has been met. See Higbee v. Commissioner, 116 T.C. at

446-47; Lutz v. Commissioner, T.C. Memo. 2002-89.

- 24 -

Also, in respondent’s answering brief at 40, his only argument

regarding the section 6651(a)(1) and (2) additions to tax was as

follows:

Under I.R.C. § 7491(c), Respondent has the burden

of production with respect to any penalty, addition to

tax, or additional amounts. The burden of production

is not the same as the burden of proof. The burden of

production is less strenuous than the burden of proof,

requiring only that Respondent come forward with

sufficient evidence indicating that it is appropriate

to impose the relevant penalty or addition to tax.

Higbee v. Commissioner, 116 T.C. 438 (2001).

Respondent has shown that Petitioner did not file any

income tax returns during these years and that she

earned sufficient income to require her to file

returns. (Stip. Para. 2; Ex. 5-R, Certified

Certificate of No Record; Prop. Exs. 7-R, 8-R, and 9-R;

Transcript). See Presumption of Correctness, Argument

I, Brief for Respondent. Thus, Respondent’s burden of

production has been met. See Higbee v. Commissioner,

116 T.C. at 446-47; Lutz v. Commissioner, T.C. Memo.

2002-89.

Respondent misunderstands the requirements of section

6651(a)(2), and he fails to respond to petitioner’s arguments on

brief which do in fact recognize those requirements. Respondent

fails to recognize that section 6651(a)(2) applies only in the

case of an amount of tax shown on a return. Burr v.

Commissioner, T.C. Memo. 2002-69, affd. 56 Fed. Appx. 150 (4th

Cir. 2003); Heisey v. Commissioner, T.C. Memo. 2002-41, affd. ___

Fed. Appx. ___ (9th Cir. 2003); Watt v. Commissioner, T.C. Memo.

1986-22. Indeed, respondent’s arguments on brief are the same

arguments that the Commissioner made, and which we rejected, in

Heisey v. Commissioner, supra. Suffice it to say, a failure to

- 25 -

file Federal income tax returns and a failure to pay the correct

amount of tax are insufficient alone to justify the imposition of

additions to tax under section 6651(a)(2).

Under section 6651(g)(2), a return the Secretary prepared

under section 6020(b) is treated as “the return filed by the

taxpayer for purposes of determining the amount of the addition”

under section 6651(a)(2).17 Respondent claims that he prepared

substitutes for return (SFR) for 1996 and 1997 that meet the

requirements of section 6020(b). However, respondent did not

introduce those alleged SFRs into evidence, and he did not

request any findings that he made section 6020(b) returns.

Instead, his only reference to section 6020(b) returns appears

only in his answering brief at 24, wherein his response to

petitioner’s requested finding that respondent did not make

section 6020(b) returns for 1996 and 1997 was as follows:

Respondent made I.R.C. § 6020(b) returns for 1995,

1996, and 1997. See Pet. Para. 5(b) and Ans. Para.

17

Sec. 6651(g) provides:

SEC. 6651(g). Treatment of Returns Prepared by

Secretary Under Section 6020(b).--In the case of any

return made by the Secretary under section 6020(b)--

(1) such return shall be disregarded for

purposes of determining the amount of the addition

under paragraph (1) of subsection (a), but

(2) such return shall be treated as the

return filed by the taxpayer for purposes of

determining the amount of the addition under

paragraphs (2) and (3) of subsection (a).

- 26 -

5(b)). Although not evidence, see also Spurlock v.

Commissioner, 118 T.C. No. 9 (Feb. 15, 2002), wherein

the Court found that Respondent had made I.R.C. §

6020(b) returns for 1995, 1996, and 1997.

In petitioner’s motions for partial summary judgment, her

litigating position was that the SFRs that respondent prepared

were section 6020(b) returns. Spurlock v. Commissioner, 118 T.C.

155 (2002). We addressed and denied petitioner’s motions on the

assumption that there were SFRs that qualified as section 6020(b)

returns. However, contrary to respondent’s reading of our

opinion, we expressly declined to decide whether those SFRs met

the requirements of section 6020(b). In Spurlock v.

Commissioner, supra at 157 n.3, we stated that “Both parties

agree that respondent filed sec. 6020(b) returns for the years in

issue; however, we do not decide whether those ‘returns’ meet the

requirements of sec. 6020(b).” Since respondent has failed to

produce any evidence that a “return” was filed, we hold that the

section 6651(a)(2) additions to tax for failure to pay tax shown

on a return is inapplicable.

The documents that respondent alleges that he prepared as

SFRs are attached to his response to petitioner’s motion for

partial summary judgment for 1996 and 1997. Even if those

documents were considered, we cannot agree that they meet the

requirements of section 6020(b). We previously addressed what

constitutes a section 6020(b) return in Millsap v. Commissioner,

91 T.C. 926 (1988), and Phillips v. Commissioner, 86 T.C. 433

- 27 -

(1986). In Phillips v. Commissioner, supra at 437-438, we held

that a “dummy return”, i.e., page 1 of a Form 1040 showing only

the taxpayer’s name, address, and Social Security number, was not

a section 6020(b) return.18 In Millsap v. Commissioner, supra,

the Commissioner prepared a Form 1040 and attached a revenue

agent’s report which contained sufficient information from which

to compute the taxpayer’s tax liability. The attached report was

subscribed, and we held that the Form 1040 together with the

attached revenue agent’s report containing information from which

the tax could be computed met the requirements for a section

6020(b) return. The same elements we found necessary to

constitute a section 6020(b) return in Millsap v. Commissioner,

supra, and Phillips v. Commissioner, supra, are generally

required for purposes of a section 6020(b) return in the context

of section 6651(a)(2) and (g)(2). Namely, the return must be

subscribed, it must contain sufficient information from which to

compute the taxpayer’s tax liability, and the return form and any

attachments must purport to be a “return”. The mere fact that

respondent’s files contain information upon which a tax might be

18

A “dummy return” is “generated to open up an account for

the taxpayer on the master file, and normally consists of a first

page of a Form 1040 which contains a taxpayer’s name, address and

social security number.” Internal Revenue Manual, Chief Counsel

Directives Manual-Tax Litigation, sec. 35.4.27.2 (Nov. 16, 1999).

- 28 -

determined does not transform his files into a section 6020(b)

return. See Cabirac v. Commissioner, 120 T.C. ___ (2003).

The documents attached to respondent’s response to

petitioner’s motion for partial summary judgment for 1996 and

1997 consist of: (1) Half-page printouts of numerous codes and

information which the Court is unable to translate; (2) portions

of pages 1 of Forms 1040, each of which contains petitioner’s

name, address, Social Security number, and filing status; (3)

computer-generated Forms 5344(CG), Examination Closing Record,

each of which contains numerous codes and listings including

petitioner’s tax liability, penalty, and interest adjustments,

credit and tax computation adjustments; (4) manually completed

Forms 5344 signed by a tax examiner containing codes and

information which the Court is also unable to translate; (5) a

Form 4549-CG, Income Tax Examination Changes; and (6) a Letter

915(DO)(CG) (the “30-day letter”)19 for petitioner’s 1995, 1996,

and 1997 tax years. Only the Form 5344 document and the 30-day

letter were signed.20

The dates which appear on the numerous documents that

respondent alleged to be section 6020(b) returns do not match;

19

Letter 915(DO)(CG) provides notice to the taxpayer of

proposed adjustments to his or her tax liability. The letter is

commonly referred to as a “30-day letter”, because the taxpayer

has 30 days to agree or disagree with the proposed adjustments.

20

Respondent’s revenue agent, Chris English, signed the 30-

day letter.

- 29 -

indeed, the date entries span several years. The half-page

printouts are dated November 22, 2000. Those printouts contain

the notation “Received-Date: 10071999”. Each of the Forms 1040

is dated September 23, 1999. The computer-generated Forms

5344(CG) contain no date. The manually completed Forms 5344 are

dated May 31, 2001. The Form 4549-CG contains income tax

examination changes for 1995, 1996, and 1997. Page 1 of that

form contains no date. Page 2 of that form is dated October 18,

1999. The pages attached to that form, which contain

computations relating to the income tax examination changes, are

also dated October 18, 1999. The 30-day letter is dated October

18, 1999. We cannot agree that this conglomeration of documents,

which appears to be respondent’s administrative file, would

satisfy the requirements of section 6020(b) even if it were in

evidence. See Cabirac v. Commissioner, supra.

Section 6654(a) provides for an addition to tax in the case

of an underpayment of estimated tax. We find that respondent has

satisfied his burden of production with respect to the addition

to tax under section 6654(a) for each of the tax years at issue.

Petitioner did not file Federal income tax returns for 1995,

1996, and 1997, and she did not pay taxes on income other than

those amounts the various payors withheld.21 Further, respondent

21

The Forms W-2 that Ursuline prepared show Federal income

tax withheld of $582.78 for 1995 and $751.29 for 1997. The Forms

(continued...)

- 30 -

has presented evidence that petitioner’s tax liability exceeded

the amounts the various payors withheld. Petitioner failed to

pay any estimated tax with respect to the nonemployee

compensation Ursuline reported or with respect to the IRA

distributions Bank One and Pioneer reported. Petitioner did not

file any estimated income tax returns for those years.

Petitioner has neither argued nor has she presented any evidence

to substantiate that she falls within any of the exceptions to

section 6654 discussed in Grosshandler v. Commissioner, 75 T.C.

1, 20-21 (1980). See sec. 6654(e); sec. 301.6654-2, Proced. &

Admin. Regs. We sustain the additions to tax under section

6654(a) as determined.

Respondent requests that we impose a penalty under section

6673(a)(1) upon petitioner. Section 6673 provides that the Court

may impose a penalty of up to $25,000 whenever it appears that--

(A) proceedings have been instituted or maintained by the

taxpayer primarily for delay, or (B) the taxpayer’s position is

frivolous or groundless. Considering the particular facts and

arguments in this case, we find that petitioner had no good faith

ground for her argument that she did not receive the income

respondent determined. That income is clearly established by the

evidence, and petitioner did not attempt to offer any

21

(...continued)

W-2 that the Orchestra prepared show Federal income tax withheld

of $30.17 for 1995 and $79.85 for 1996.

- 31 -

evidence to the contrary. We therefore impose a section

6673(a)(1) penalty in the amount of $1,000.

An appropriate order will be

issued denying petitioner’s motion

in limine, and a decision will be

entered for respondent except for

the additions to tax under section

6651(a)(2), which do not apply.