El v. Commissioner

RALIM S. EL, PETITIONER v. COMMISSIONER OF

INTERNAL REVENUE, RESPONDENT

Docket No. 19012–12. Filed March 12, 2015.

R determined a deficiency in P’s Federal income tax and

additions to tax under I.R.C. sec. 6651(a)(1) and (2). Included

in R’s deficiency determination is additional tax under I.R.C.

sec. 72(t). We have not previously decided whether, under

I.R.C. sec. 7491(c), the Commissioner bears the burden of

production with respect to the additional tax under I.R.C. sec.

72(t). See Milner v. Commissioner, T.C. Memo. 2004–111, 87

T.C.M. (CCH) 1287, 1288 n.2 (2004). Held: P was required to

file a return for 2009. Held, further, P failed to report wage

income. Held, further, P failed to report a deemed taxable dis-

tribution from his retirement account. Held, further, I.R.C.

sec. 7491(c) does not shift the burden of production to R with

respect to the additional tax under I.R.C. sec. 72(t) because

the additional tax is a tax and not a penalty, addition to tax,

or additional amount. Held, further, P is liable for the I.R.C.

sec. 72(t) additional tax on the deemed taxable distribution.

140

(140) EL v. COMMISSIONER 141

Held, further, P is liable for the I.R.C. sec. 6651(a)(1) addition

to tax for failing to timely file a return. Held, further, P is not

liable for the I.R.C. sec. 6651(a)(2) addition to tax for failing

to timely pay tax shown on a return. Held, further, P is not

liable for an I.R.C. sec. 6673(a)(1) penalty for asserting frivo-

lous or groundless positions but is warned.

Ralim S. El, pro se.

Rose E. Gole and Rebekah A. Myers, for respondent.

OPINION

MARVEL, Judge: Respondent determined a deficiency in

petitioner’s Federal income tax of $6,436 and additions to tax

under section 6651(a)(1) and (2) of $950 and $485, respec-

tively, for 2009. 1 The issues for decision are: (1) whether

petitioner had an obligation to file a 2009 return; (2)

whether petitioner failed to report $48,001 of wage

income; (3) whether petitioner failed to report a deemed tax-

able distribution of $2,802 from his retirement account; (4) if

so, whether petitioner is liable for the additional tax under

section 72(t) on the deemed taxable distribution; (5) whether

petitioner is liable for the addition to tax under section

6651(a)(1) for failing to timely file a return; (6) whether peti-

tioner is liable for the addition to tax under section

6651(a)(2) for failing to timely pay tax shown on a return;

and (7) whether petitioner is liable for a penalty under sec-

tion 6673(a)(1) for asserting frivolous or groundless positions

before this Court.

Background

The parties submitted this case fully stipulated under Rule

122. The stipulated facts and facts drawn from the stipulated

exhibits are incorporated herein by this reference. Petitioner

resided in New York when he petitioned this Court.

In 2009 petitioner was an assistant with the Manhattan

Psychiatric Center. The Manhattan Psychiatric Center is run

by the New York State Office of Mental Health. In 2009 the

State of New York (New York) paid petitioner wages of

1 Unless otherwise indicated, all section references are to the Internal

Revenue Code (Code) as amended and in effect for the year in issue, and

all Rule references are to the Tax Court Rules of Practice and Procedure.

Some monetary amounts have been rounded to the nearest dollar.

142 144 UNITED STATES TAX COURT REPORTS (140)

$48,001 for services that he provided to the Manhattan Psy-

chiatric Center. New York issued to petitioner a Form W–2,

Wage and Tax Statement, for 2009. The Form W–2 reported

that petitioner had received wages of $48,001 and that New

York had withheld Federal income tax of $2,217.

Petitioner is a member of the Employees’ Retirement

System (ERS) through the Manhattan Psychiatric Center.

ERS is a member of the New York State and Local Retire-

ment System (NYSLRS). The ERS retirement plan in which

petitioner participates permits participants to take loans

against their accounts, and loans from the ERS retirement

plan are governed by rules established for the NYSLRS. The

parties do not dispute that ERS administers a qualified plan

for purposes of section 72 and that petitioner participated in

the qualified plan.

In years before 2009 petitioner had requested and received

loans from his ERS retirement account. On April 14, 2009,

petitioner again requested a loan in the maximum allowable

amount from ERS. ERS issued a loan of $5,993 to petitioner

on April 29, 2009. After ERS distributed the loan proceeds to

petitioner, petitioner’s retirement account showed that he

had total contributions to his ERS retirement plan of $17,071

and that he had an outstanding loan balance of $12,802.

ERS determined for 2009 that $2,802 of petitioner’s loan

proceeds was taxable. The NYSLRS issued to petitioner a

Form 1099–R, Distributions From Pensions, Annuities,

Retirement or Profit-Sharing Plans, IRAs, Insurance Con-

tracts, etc., for 2009, which reported that petitioner had

received a taxable distribution of $2,802.

Petitioner did not file a Federal income tax return for

2009.

Discussion

I. Preliminary Matters

Generally, the Commissioner’s determination of a defi-

ciency is presumed correct, and the taxpayer bears the bur-

den of proving that the determination is improper. Rules

122(b), 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115

(1933). However, the U.S. Court of Appeals for the Second

Circuit, to which an appeal in this case appears to lie absent

a stipulation to the contrary, see sec. 7482(b)(1)(A), (2), has

(140) EL v. COMMISSIONER 143

held that for the presumption of correctness to attach to the

notice of deficiency in unreported income cases, the Commis-

sioner must establish some evidentiary foundation con-

necting the taxpayer with the income-producing activity, see

Llorente v. Commissioner, 649 F.2d 152, 156 (2d Cir. 1981),

aff ’g in part, rev’g in part and remanding 74 T.C. 260 (1980).

The parties stipulated that petitioner received unreported

wages and unreported loan proceeds from his ERS retire-

ment account in 2009. Respondent has therefore established

the necessary evidentiary foundation for the presumption of

correctness to attach. Respondent’s determinations that peti-

tioner had unreported income and is liable for a deficiency

for 2009 are presumed correct, and petitioner bears the bur-

den of proving that respondent’s determinations are erro-

neous. See Rules 122(b), 142(a)(1); Welch v. Helvering, 290

U.S. at 115. 2

II. Requirement To File a Return for 2009

Section 6012 requires every individual who has gross

income over a certain amount to file an income tax return.

An unmarried individual taxpayer must make a return if he

or she has gross income equal to or in excess of the sum of

the exemption amount and the basic standard deduction

applicable to that individual. See sec. 6012(a)(1)(A)(i). Under

section 151(a), an individual is allowed an income exemption

as a deduction when computing his or her taxable income.

The exemption amount is adjusted each year for inflation

and was $3,650 for 2009. 3 See sec. 151(d)(4); Rev. Proc.

2008–66, sec. 3.19(1), 2008–2 C.B. (Vol. 2) 1107, 1112. Under

section 63 an individual taxpayer who does not elect to

itemize deductions is allowed to deduct a standard amount—

known as a standard deduction—from his or her income. See

sec. 63(b) and (c). The standard deduction for petitioner was

2 Petitioner does not contend, nor has he demonstrated, that he is enti-

tled to a shift in the burden of proof as to any disputed factual issue under

sec. 7491(a).

3 The exemption amount begins to phase out when a taxpayer’s adjusted

gross income exceeds a threshold amount, which was $166,800 for peti-

tioner for 2009. See sec. 151(d)(3); Rev. Proc. 2008–66, sec. 3.19(2), 2008–

2 C.B. (Vol. 2) 1107, 1112–1113. Petitioner’s adjusted gross income was

below $166,800. Accordingly, his personal exemption is not reduced for

2009.

144 144 UNITED STATES TAX COURT REPORTS (140)

$5,700 for 2009. 4 See sec. 63(c)(1)(A); Rev. Proc. 2008–66,

sec. 3.10(1), 2008–2 C.B. (Vol. 2) at 1111–1112.

Petitioner does not contend that he was entitled to any

additional deductions under section 63(c)(1) or that he was

married in 2009. Consequently, petitioner is entitled only to

a personal exemption of $3,650 under section 151(a) and a

basic standard deduction of $5,700 under section 63(c)(1)(A)

for 2009. The sum of these amounts is $9,350. Because peti-

tioner’s income for 2009 was greater than $9,350, see infra

parts III and IV, he was required to file a return for that

year.

III. Unreported Wage Income

Gross income includes ‘‘all income from whatever source

derived’’, including wages. See sec. 61(a)(1). In 2009 New

York paid petitioner wages of $48,001 for services that he

provided to the Manhattan Psychiatric Center, but petitioner

did not report the wage income on a filed tax return. Con-

sequently, we sustain respondent’s determination that peti-

tioner had unreported wage income of $48,001 for 2009. 5

IV. Unreported Deemed Taxable Distribution

Section 402(a) provides that distributions from a trust

described in section 401(a) are generally taxable to the dis-

tributee, in the year in which the distribution occurs, under

section 72. Ordinarily, a loan from a qualified employer plan

to a participant is a taxable distribution in the year received.

4 An additional standard deduction is allowed a single taxpayer who is

not a surviving spouse and has attained age 65 before the end of the tax-

able year. See secs. 63(f)(1)(A), 6012(a)(1)(B). Petitioner has not shown that

he qualifies for this additional standard deduction.

5 Following the submission of this case under Rule 122, we asked peti-

tioner to explain his legal position regarding his obligation to file a return

and report his income. Petitioner stated that he did not report his wage

income because it was subject to withholding and his employer had with-

held Federal income tax from that wage income as reflected on his 2009

Form W–2. Petitioner argued that he is not required to report wage income

that is subject to withholding and from which income tax is withheld be-

cause the income has already been taxed. We explained to petitioner that

income subject to withholding must still be reported on a timely filed Fed-

eral income tax return if a taxpayer is required to file one. Because peti-

tioner had sufficient gross income in 2009 to require the filing of a return,

petitioner was required to report his wage income on that return.

(140) EL v. COMMISSIONER 145

See sec. 72(p)(1)(A). However, a loan is not a taxable dis-

tribution if it meets three requirements: (1) the principal

amount of the loan does not exceed the statutorily specified

amount; (2) the loan is repayable within five years; and (3)

the loan requires substantially level amortization over the

loan term. See sec. 72(p)(2). Under section 72(p)(2)(A), the

exemption applies only when a loan (when added to the out-

standing balance of all other loans from the plan) does not

exceed the lesser of:

(i) $50,000, reduced by the excess (if any) of—

(I) the highest outstanding balance of loans from the plan during the

1-year period ending on the day before the date on which such loan

was made, over

(II) the outstanding balance of loans from the plan on the date on

which such loan was made, or

(ii) the greater of (I) one-half of the present value of the nonforfeitable

accrued benefit of the employee under the plan, or (II) $10,000.

Respondent contends that ERS is a qualified employer plan

and that distributions from petitioner’s ERS retirement plan

account are taxable under section 72. Because petitioner does

not dispute these contentions, we deem them conceded and

will analyze the tax treatment of the April 29, 2009, loan

proceeds under the provisions of section 72(p).

After petitioner received the April 29, 2009, loan proceeds,

petitioner’s loan balance in his ERS retirement plan account

was $12,802. This is $2,802 greater than the greater of one-

half of his ‘‘nonforfeitable accrued benefit’’ (i.e., one-half of

$17,071) or $10,000. 6 See sec. 72(p)(2)(A)(ii). We therefore

conclude that respondent correctly determined that petitioner

had a deemed taxable distribution of $2,802 from his ERS

retirement plan account in 2009.

V. Additional Tax Under Section 72(t)

Subsection (t) of section 72 bears the descriptive title ‘‘10

Percent Additional Tax on Early Distributions From Quali-

fied Retirement Plans’’. Paragraph (1) of subsection (t)

imposes a 10% ‘‘additional tax’’ on any distribution from a

6 The $10,000 amount is also less than $50,000 less the excess of the

highest outstanding balance of loans from petitioner’s ERS account during

the one-year period ending on April 28, 2009, over the outstanding balance

of loans from petitioner’s ERS account on April 29, 2009. See sec.

72(p)(2)(A)(i).

146 144 UNITED STATES TAX COURT REPORTS (140)

qualified retirement plan (as defined in section 4974(c)).

Paragraph (2) provides, however, that, with certain excep-

tions not applicable here, the general rule of section 72(t)(1)

will not apply to distributions described in section

72(t)(2)(A)–(G). Among the distributions described in section

72(t)(2)(A), which are not subject to the section 72(t)(1) addi-

tional tax, are distributions that are made on or after the

date on which the employee attains age 591⁄2, sec.

72(t)(2)(A)(i), and distributions made to an employee after

separation from service if the employee has attained age 55,

sec. 72(t)(2)(A)(v). 7

After reviewing the record, we observed that the parties

did not stipulate or provide any evidence with respect to peti-

tioner’s age on the date on which he received the deemed dis-

tribution or that any other exception in section 72(t)(2)

applied. Because we have not yet decided whether, under

section 7491(c), the Commissioner bears the initial burden of

production with respect to the additional tax under section

72(t), see Milner v. Commissioner, T.C. Memo. 2004–111, 87

T.C.M. (CCH) 1287, 1288 n.2 (2004), we ordered the parties

to file supplemental briefs on this issue.

Respondent contends that (1) section 7491(c) does not place

the initial burden of production with respect to the additional

tax under section 72(t) on him because it is an ‘‘additional

tax’’, sec. 72(t)(1), and not a ‘‘penalty, addition to tax, or addi-

tional amount’’, sec. 7491(c), and (2) even if the additional

tax under section 72(t) is an ‘‘additional amount’’ under sec-

tion 7491(c), the burden of production with respect to statu-

tory exceptions should be on petitioner. We agree with

respondent’s first contention and need not address the

second. 8

7 Petitioner does not dispute respondent’s contention that his ERS retire-

ment account is a qualified retirement plan within the meaning of sec.

4974(c). In the light of our holding that the ‘‘additional tax’’

under sec. 72(t) is not a ‘‘penalty, addition to tax, or additional

amount’’ under sec. 7491(c), we deem this issue conceded.

8 Several recent cases cite Bunney v. Commissioner, 114 T.C. 259, 265

(2000) (citing Matthews v. Commissioner, 92 T.C. 351, 361–362 (1989),

aff ’d, 907 F.2d 1173 (D.C. Cir. 1990)), where we held that the taxpayer

‘‘has the burden of proving his entitlement to any of * * * [the sec.

72(t)(2)(A)] exceptions.’’ See, e.g., Hyde v. Commissioner, T.C. Memo. 2011–

104, 101 T.C.M. (CCH) 1502, 1505 (2011), aff ’d, 471 Fed. Appx. 537 (8th

Cir. 2012); Wagenknecht v. Commissioner, T.C. Memo. 2008–288, 96

(140) EL v. COMMISSIONER 147

Section 7491(c) provides as follows: ‘‘Penalties.—Notwith-

standing any other provision of this title, the Secretary[9]

shall have the burden of production in any court proceeding

with respect to the liability of any individual for any penalty,

addition to tax, or additional amount imposed by this title.’’

The terms ‘‘penalty, addition to tax, or additional amount’’

mirror, in part, the title of chapter 68 of the Code: ‘‘Additions

to the Tax, Additional Amounts, and Assessable Penalties’’. 10

What these terms have in common is that they refer to

amounts that are assessed and collected as taxes but are not

themselves taxes or surtaxes. 11 See Pen Coal Corp. v.

Commissioner, 107 T.C. 249, 258 (1996) (‘‘As our detailed

analysis of section 6214(a) and its legislative history in

Bregin amply demonstrates, Congress used the phrase ‘any

additional amount, or any addition to the tax’ in section

6214(a) to ensure an understanding that this Court’s jurisdic-

tion encompasses items that are to be assessed, collected,

and paid in the same manner as taxes, including the addi-

tions to tax and other additional amounts (not labeled ‘addi-

tions to tax’) described in chapter 68.’’ (citing Bregin v.

T.C.M. (CCH) 472, 474 (2008); Banister v. Commissioner, T.C. Memo.

2008–201, 96 T.C.M. (CCH) 114, 115 (2008), aff ’d, 418 Fed. Appx. 637 (9th

Cir. 2011). However, Bunney involved an additional tax imposed in connec-

tion with an examination that began before July 23, 1998, see Internal

Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105–

206, sec. 3001(c), 112 Stat. at 727, and the taxpayer in that case anyway

bore the burden of proof under Rule 142(a), see Matthews v. Commissioner,

92 T.C. at 361–362 (citing Rule 142(a) and Welch v. Helvering, 290 U.S.

111, 115 (1933)). Moreover, none of the recent cases that relied on Bunney

cited or discussed the applicability of sec. 7491(c) to the sec. 72(t)(2)(A) ex-

ceptions. In any event our holding in this case is consistent with Bunney

and the more recent cases that relied on it.

9 The term ‘‘Secretary’’ means ‘‘the Secretary of the Treasury or his dele-

gate.’’ Sec. 7701(a)(11)(B).

10 Although sec. 7806(b) provides that ‘‘[n]o inference, implication, or pre-

sumption of legislative construction shall be drawn or made by reason of

the location or grouping of any particular section or provision or portion

of ’’ the Code and that ‘‘descriptive matter relating to the contents of * * *

[the Code cannot] be given any legal effect’’, we may consider the similarity

of terms and provisions within the Code, as well as any descriptive matter,

as an aid to interpretation. See Corbalis v. Commissioner, 142 T.C. 46, 55

(2014) (citing Pen Coal Corp. v. Commissioner, 107 T.C. 249, 256, 258

(1996)).

11 By its terms sec. 7491(c) applies to penalties, additions to tax, and ad-

ditional amounts provided for in tit. 26, Internal Revenue Code.

148 144 UNITED STATES TAX COURT REPORTS (140)

Commissioner, 74 T.C. 1097, 1102–1103 (1980))). By contrast,

the burden of production with respect to taxes and surtaxes

is normally on the taxpayer. 12 See Rule 142(a); Welch v.

Helvering, 290 U.S. at 115.

For the following reasons we are persuaded that the sec-

tion 72(t) additional tax is a ‘‘tax’’ and not a ‘‘penalty, addi-

tion to tax, or additional amount’’ within the meaning of sec-

tion 7491(c). First, section 72(t) calls the exaction that it

imposes a ‘‘tax’’ and not a ‘‘penalty’’, ‘‘addition to tax’’, or

‘‘additional amount’’. Second, several provisions in the Code

expressly refer to the additional tax under section 72(t) using

the unmodified term ‘‘tax’’. See secs. 26(b)(2), 401(k)(8)(D),

(m)(7)(A), 414(w)(1)(B), 877A(g)(6). Third, section 72(t) is in

subtitle A, chapter 1 of the Code. Subtitle A bears the

descriptive title ‘‘Income Taxes’’, and chapter 1 bears the

descriptive title ‘‘Normal Taxes and Surtaxes’’. Chapter 1

provides for several income taxes, and additional income

taxes are provided for elsewhere in subtitle A. By contrast,

most penalties and additions to tax are in subtitle F, chapter

68 of the Code. In Ross v. Commissioner, T.C. Memo. 1995–

599, 70 T.C.M. (CCH) 1596, 1600–1601 (1999), we relied on

some of the same reasons in holding that the additional tax

under section 72(t) is a tax and not a penalty for purposes

of section 6013(d)(3) (relating to joint and several liability). 13

Because the section 72(t) additional tax is a ‘‘tax’’ and not

a ‘‘penalty, addition to tax, or additional amount’’ within the

meaning of section 7491(c), the burden of production with

respect to the additional tax remains on petitioner. Petitioner

12 Sec. 7491(a)(1) provides that ‘‘[i]f, in any court proceeding, a taxpayer

introduces credible evidence with respect to any factual issue relevant to

ascertaining the liability of the taxpayer for any tax imposed by subtitle

A or B, the Secretary shall have the burden of proof with respect to such

issue.’’ A taxpayer who wants to shift the burden of proof on any factual

issue under sec. 7491(a)(1) must first prove that he meets the require-

ments of sec. 7491(a)(2).

13 Our construction of sec. 72(t) is consistent with its legislative history.

The legislative history indicates that sec. 72(t) was enacted to ‘‘impose an

additional income tax on early withdrawals’’ to discourage early with-

drawals from retirement accounts for nonretirement purposes and, in the

event of such early withdrawals, to recapture a measure of the tax benefits

provided. H.R. Rept. No. 99–426, at 729 (1985), 1986–3 C.B. (Vol. 2) 1, 729;

S. Rept. No. 99–313, at 613 (1986), 1986–3 C.B. (Vol. 3) 1, 613; see Pulliam

v. Commissioner, T.C. Memo. 1996–354.

(140) EL v. COMMISSIONER 149

failed to introduce any credible evidence showing that he is

not liable for the additional tax under section 72(t) on the

deemed taxable distribution. We therefore sustain respond-

ent’s determination.

VI. Additions to Tax

A. Burden of Proof

The Commissioner bears the burden of production with

respect to a taxpayer’s liability for additions to tax and must

produce sufficient evidence indicating that it is appropriate

to impose the additions to tax. See sec. 7491(c); Higbee v.

Commissioner, 116 T.C. 438, 446 (2001). Once the Commis-

sioner carries the burden of production, the taxpayer must

come forward with persuasive evidence that the Commis-

sioner’s determination is incorrect or that the taxpayer had

reasonable cause or substantial authority for the position.

See Higbee v. Commissioner, 116 T.C. at 446–447.

Relying on Swain v. Commissioner, 118 T.C. 358, 364–365

(2002), respondent contends that petitioner conceded the

additions to tax under section 6651(a)(1) and (2) by failing to

assign error to the additions to tax in the petition. See also

Rule 34(b)(4). We disagree.

In Swain, the parties did not try or submit the case by

implied consent. By contrast, respondent first asserted that

petitioner failed to properly plead his case after this case was

submitted. Respondent’s answer and pretrial memorandum

both stated that the additions to tax were at issue, and—

presumably on that basis—the case was submitted for deci-

sion under Rule 122. We therefore conclude that the parties

submitted the issue of petitioner’s liability for the additions

to tax for decision by this Court by implied consent. See

Rules 41(b), 122. The burden of production with respect to

the additions to tax under section 6651(a)(1) and (2) is on

respondent. See sec. 7491(c).

B. Addition to Tax Under Section 6651(a)(1)

Section 6651(a)(1) authorizes the imposition of an addition

to tax for failure to timely file a return unless it is shown

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 failure to timely file a Federal income tax return

150 144 UNITED STATES TAX COURT REPORTS (140)

is due to reasonable cause if the taxpayer exercised ordinary

business care and prudence but nevertheless was unable to

file the return within the prescribed time. See sec. 301.6651–

1(c)(1), Proced. & Admin. Regs. Circumstances that are

considered to constitute reasonable cause for failure to timely

file a return are typically those outside of the taxpayer’s con-

trol, including, for example: (1) unavoidable postal delays; (2)

the timely filing of a return with the wrong office; (3) the

death or serious illness of the taxpayer or a member of the

taxpayer’s immediate family; (4) a taxpayer’s unavoidable

absence from the United States; (5) destruction by casualty

of a taxpayer’s records or place of business; and (6) reliance

on the erroneous advice of an IRS officer or employee. See

McMahan v. Commissioner, 114 F.3d 366, 369 (2d Cir. 1997),

aff ’g T.C. Memo. 1995–547.

Petitioner was required to file a return for 2009, see supra

part II, and failed to do so. Accordingly, respondent has car-

ried his burden of producing evidence showing that the addi-

tion to tax under section 6651(a)(1) is appropriate.

Petitioner has failed to introduce any credible evidence

showing that he had reasonable cause for failing to file his

2009 return. Accordingly, he is liable for the addition to tax

under section 6651(a)(1).

C. Addition to Tax Under Section 6651(a)(2)

Section 6651(a)(2) imposes an addition to tax for failure to

pay the amount of tax shown on a taxpayer’s Federal income

tax return on or before the payment due date, unless such

failure is due to reasonable cause and not due to willful

neglect. 14 The section 6651(a)(2) addition to tax applies only

when an amount of tax is shown on a return filed by the tax-

payer or a section 6020 substitute for return prepared by the

Secretary. See sec. 6651(a)(2), (g)(2); Cabirac v. Commis-

sioner, 120 T.C. 163, 170 (2003). Where the taxpayer did not

file a return, the Commissioner must introduce evidence that

a substitute for return satisfying the requirements of section

6020(b) was made. See Wheeler v. Commissioner, 127 T.C.

200, 210 (2006), aff ’d, 521 F.3d 1289 (10th Cir. 2008). A

14 The amount of the addition to tax under sec. 6651(a)(2) reduces the

amount of the addition to tax under para. (1) for any month for which an

addition to tax applies under both paragraphs. See sec. 6651(c)(1).

(140) EL v. COMMISSIONER 151

failure to timely pay the amount due on a Federal income tax

return is due to reasonable cause if the taxpayer exercised

ordinary business care and prudence in providing for the

timely payment of his or her tax liability but nevertheless

was either unable to pay the tax or would suffer undue hard-

ship if he or she paid on the due date. See sec. 301.6651–

1(c)(1), Proced. & Admin. Regs.

Respondent concedes that he has not met his burden of

production on this issue because he failed to introduce into

evidence the substitute for return that he purportedly filed

for petitioner. See Wheeler v. Commissioner, 127 T.C. at 210.

Accordingly, petitioner is not liable for the addition to tax

under section 6651(a)(2).

D. Penalty Under Section 6673(a)(1)

Under section 6673(a)(1), this Court may require a tax-

payer to pay a penalty not in excess of $25,000 whenever it

appears that: (1) the taxpayer has instituted or maintained

proceedings primarily for delay; (2) the taxpayer’s position is

frivolous or groundless; or (3) the taxpayer unreasonably

failed to pursue available administrative remedies. A tax-

payer’s position is frivolous or groundless if it is ‘‘ ‘contrary

to established law and unsupported by a reasoned, colorable

argument for change in the law.’ ’’ Williams v. Commissioner,

114 T.C. 136, 144 (2000) (quoting Coleman v. Commissioner,

791 F.2d 68, 71 (7th Cir. 1986)).

Although petitioner asserted several frivolous positions in

his answering brief, respondent did not request that we

impose on petitioner a penalty pursuant to section 6673(a)(1).

In the exercise of our discretion we will not impose a section

6673(a)(1) penalty on petitioner at this time. However, we

warn petitioner that if, in the future, he maintains ground-

less positions in this Court, he runs the risk that we will

sanction him under section 6673(a)(1).

We have considered the parties’ remaining arguments, and

to the extent not discussed above, conclude those arguments

are irrelevant, moot, or without merit.

152 144 UNITED STATES TAX COURT REPORTS (140)

To reflect the foregoing,

Decision will be entered for respondent as

to the deficiency and the section 6651(a)(1)

addition to tax and for petitioner as to the

section 6651(a)(2) addition to tax.

f