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United States Tax Court
T.C. Memo. 2024-14
PAULETTE THOMPSON AND JOHNNIE L. THOMPSON, 1
Petitioners
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
PAULETTE THOMPSON,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
—————
Docket Nos. 9336-18, 12968-18.
Filed February 5, 2024.
—————
Paulette Thompson and Johnnie L. Thompson, pro se in Docket No.
9336-18.
Paulette Thompson, pro se in Docket No. 12968-18.
G. Chad Barton, Jamie M. Powers, and Vassiliki Economides Farrior,
for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
WEILER, Judge: These cases arise from two notices of deficiency
dated January 10 and April 4, 2018, respectively, in which the Internal
Revenue Service (IRS or respondent) determined a deficiency in
1 We consolidated the cases at Docket Nos. 9336-18 and 12968-18 for trial,
briefing, and opinion.
Served 02/05/24
2
[*2] Paulette Thompson and Johnnie L. Thompson’s joint federal
income tax for tax year 2011 and a deficiency in Mrs. Thompson’s
individual federal income tax for tax years 2014, 2015, and 2016.
Respondent’s determinations of deficiencies, additions to tax, and
penalties are as follows:
Year
Deficiency
Penalty/Additions to Tax 2
I.R.C.
§ 6662(a)
I.R.C.
§ 6651(a)(1)
I.R.C.
§ 6651(a)(2)
I.R.C.
§ 6654
2011
$32,577
$6,515
$7,955
–
–
2014
259,858
–
58,468
To be
determined
–
2015
213,404
–
48,016
To be
determined
$3,843
2016
167,453
–
22,606
To be
determined
4,003
2 The section 6651(a)(2) amounts due from Mrs. Thompson will be calculated
according to Rule 155 computations. Unless otherwise indicated, statutory references
are to the Internal Revenue Code, Title 26 U.S.C. (I.R.C.), in effect at all relevant times,
regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in
effect at all relevant times, and Rule references are to the Tax Court Rules of Practice
and Procedure. All monetary amounts are rounded to the nearest dollar.
3
[*3] After concessions, 3 the issues for decision are as follows:
1.
Whether petitioners had unreported cancellation of debt
income of $2,064 for tax year 2011.
2.
Whether Mrs. Thompson had unreported gross receipts
from Schedules C, Profit or Loss From Business, of
$60,950, $58,739, and $57,667 relating to her tax
preparation business during tax years 2014, 2015, and
2016, respectively.
3.
Whether Mrs. Thompson had unreported income from
farming activities during tax years 2014, 2015, and 2016.
4.
Whether Mrs. Thompson had unreported cooperative
distribution income from Schedules F of $11,739, $9,348,
and $7,439 during tax years 2014, 2015, and 2016,
respectively.
5.
Whether Mrs. Thompson had unreported taxable interest
income of $1,241, $2,570, and $1,196 during tax years
2014, 2015, and 2016, respectively.
6.
Whether Mrs. Thompson had unreported Schedule F
agricultural program payments of $58,287 during tax year
2014.
7.
Whether petitioners’ Schedule F expense deductions
related to insurance (other than health), chicken feed, and
contract labor for tax year 2011 should be disallowed.
8.
Whether Mrs. Thompson is entitled to deduct Schedule F
expenses related to contract labor, in excess of the amounts
respondent conceded, for tax years 2014, 2015, and 2016.
3 In the case at Docket No. 9336-18 respondent concedes that petitioners did
not underreport their income from Schedule F, Profit or Loss From Farming, of $36,646
and that they are not liable for an accuracy-related penalty under section 6662 for tax
year 2011. In the case at Docket No. 12968-18 respondent concedes that except for
contract labor, Mrs. Thompson is entitled to deduct certain Schedule F expenses
reported on the tax returns submitted for tax years 2014, 2015, and 2016. Moreover,
respondent concedes that Mrs. Thompson had a loss carryover from Schedule D,
Capital Gains and Losses, available to apply for tax year 2014, with the remaining
carryover available to be applied for tax years 2015 and 2016. Lastly, respondent
concedes that Mrs. Thompson did not have unreported Schedule F agricultural
program payment income of $101,566 for tax year 2016.
4
[*4]
9.
Whether petitioners are liable for an addition to tax under
section 6651(a)(1) for tax year 2011.
10.
Whether Mrs. Thompson is liable for additions to tax under
section 6651(a)(1) for tax years 2014, 2015, and 2016.
11.
Whether Mrs. Thompson is liable for additions to tax under
section 6651(a)(2) for tax years 2014, 2015, and 2016.
12.
Whether Mrs. Thompson is liable for additions to tax under
section 6654 for tax years 2015 and 2016. 4
FINDINGS OF FACT
These cases were tried during the Court’s Little Rock, Arkansas,
trial session. The parties filed a First Stipulation of Facts with
accompanying Exhibits, which is incorporated herein by this reference.
Some facts have been stipulated and are so found. When the Petitions
in these consolidated cases were timely filed, Mr. and Mrs. Thompson,
collectively petitioners, resided in Arkansas.
Petitioners are married and have three adult children. During
2011 petitioners earned income from farming operations consisting of
raising and selling cattle, chickens, eggs, and turkeys. During 2014,
2015, and 2016 Mrs. Thompson earned income from these same farming
operations, excluding the raising and selling of turkeys, as well as
income from her tax preparation business. Mrs. Thompson provided tax
preparation services under the name Thompson Accounting & Tax
Services.
Petitioners’ joint income tax return for tax year 2011 was due on
April 15, 2012. They filed a delinquent return on April 13, 2015.
Petitioners included Schedule F and Form 4797, Sales of Business
Property. On Form 4797 petitioners reported gain of $27,433 from the
sale of cattle. Petitioners received cancellation of indebtedness income
of $2,064 from a Capital One credit card debt, as reported on Form 1099–
C, Cancellation of Debt.
Petitioners originally reported Schedule F expenses for insurance
(other than health) of $12,290, feed expenses of $14,672, and contract
labor of $180,154 for tax year 2011. Respondent determined that
4 The notice of deficiency for years 2014, 2015, and 2016 also included
adjustments to self-employment tax, Social Security tax, and Medicare tax, which are
computational.
5
[*5] petitioners were entitled to deduct Schedule F expenses for
insurance (other than health) of $10,289, feed expenses of $6,789, and
contract labor expenses of $105,880. Accordingly, respondent adjusted
petitioners’ 2011 joint return, including adjustments to their
Schedule F, as follows:
2011 Schedule F Expenses
Amount Disallowed
Insurance (other than health)
$2,001
Feed Expenses
7,883
Other Expenses – Contract Labor
74,274
On Schedule F petitioners reported the following income from the
sale of livestock:
2011 Schedule F Income
Amount
Cattle Sales
$146,736
Simmons – Chicken/Egg Income
242,374
Cargill – Turkey Income
105,000
Less: Cattle Sales Allocated to Form 4797
(27,433)
Total Sales – Raised Livestock Reported on Schedule F,
line 2(b)
$466,677
Mrs. Thompson failed to timely file income tax returns for tax
years 2014, 2015, and 2016. 5 On January 5, 2018, respondent prepared
substitutes for returns (SFRs) for Mrs. Thompson, pursuant to section
6020(b), for tax years 2014, 2015, and 2016.
On April 16, 2018, following respondent’s preparation of the
SFRs, Mrs. Thompson mailed a delinquent joint tax return to IRS
Examination for tax year 2014. Respondent did not process this return.
The delinquent 2014 tax return claimed joint filing status with her
husband and included Schedule F and Form 4797. On Form 4797 Mrs.
Thompson reported a gain from cattle sales of $47,330 on Part I and an
ordinary gain from cattle sales of $9,898 on Part II. On Schedule F Mrs.
Thompson claimed a deduction of $218,400 for Contract Labor and
income of $55,163 from her tax preparation business as “Custom Hire
5 Mrs. Thompson’s income tax return for tax year 2014 was due April 15, 2015.
Mrs. Thompson’s income tax return for tax year 2015 was due April 15, 2016. Mrs.
Thompson’s income tax return for tax year 2016 was due October 15, 2017, following
an extension.
6
[*6] (Machine Work) Income.” On Schedule F Mrs. Thompson also
reported the following income from sales of livestock:
2014 Schedule F Income
Amount
Cattle Sales
$251,145
Simmons – Chicken/Egg Income
251,532
Less: Cattle Sales on Schedule F, Line 1(a)
(1,000)
Less: Gross Cattle Sales Allocated to Form 4797
(84,268)
Total Sales – Raised Livestock Reported on Schedule F,
line 2
$417,409
During 2014 Mrs. Thompson received cooperative distribution
income of $11,739, taxable interest income of $1,241, and agricultural
program payment income of $58,287. Mrs. Thompson did not make any
income tax payments for tax year 2014.
Although Mrs. Thompson operated a tax preparation business
during the same year, the 2014 delinquent return did not include a
Schedule C. Mrs. Thompson reported “Custom Hire (Machine Work)
Income” of $55,163 on the Schedule F attached to the 2014 delinquent
return. This Schedule F custom hire income is income from her tax
preparation business. Mrs. Thompson deposited the following tax
preparation income into Arvest account ending 2112 in tax year 2014:
7
[*7] Date of Deposit
Description
Amount
2/6/2014
EPS Deposit
$804
2/10/2014
EPS Deposit
1,695
2/11/2014
EPS Deposit
528
2/12/2014
EPS Deposit
1,069
2/18/2014
EPS Deposit
220
2/18/2014
EPS Deposit
205
2/20/2014
EPS Deposit
1,011
2/25/2014
EPS Deposit
269
2/26/2014
EPS Deposit
589
2/27/2014
EPS Deposit
275
2/28/2014
EPS Deposit
529
4/23/2014
EPS Deposit
276
4/30/2014
EPS Deposit
504
2/7/2014
Checks Deposited
1,418
2/14/2014
Checks Deposited
3,753
2/24/2014
Checks Deposited
1,726
2/27/2014
Checks Deposited
4,103
3/10/2014
Checks Deposited
4,320
3/14/2014
EPS Deposit
3/14/2014
Checks Deposited
3/18/2014
EPS Deposit
3/24/2014
Checks Deposited
3/25/2014
EPS Deposit
4/2/2014
Checks Deposited
3,701
4/11/2014
Checks Deposited
13,168
4/21/2014
Checks Deposited
8,172
5/1/2014
Checks Deposited
1,137
5/5/2014
Checks Deposited
509
5/23/2014
Checks Deposited
414
Total
215
3,682
210
6,144
304
$60,950
Mrs. Thompson acknowledged that these EPS and check deposits
are income from her tax preparation service earned in tax year 2014.
8
[*8] On February 21, 2019, Mrs. Thompson provided a delinquent tax
return for tax year 2015 to the IRS Office of Appeals (Appeals). 6
Respondent did not process this delinquent return. The 2015 tax return
claimed joint filing status with her husband and included Schedule F
and Form 4797. On Part I of Form 4797 Mrs. Thompson reported a gain
of $33,624 from cattle sales. On Schedule F Mrs. Thompson claimed a
deduction of $205,414 for contract labor and reported income of $58,170
from her tax preparation business as “Custom Hire (Machine Work)
Income.” On Schedule F, Mrs. Thompson also reported income from the
sales of livestock as follows:
2015 Schedule F Income
Amount
Cattle Sales
$224,983
Simmons – Chicken/Egg Income
239,670
Less: Cattle Sales on Schedule F, Line 1(a)
(1,000)
Less: Gross Cattle Sales Allocated to Form 4797
(33,624)
Total Sales – Raised Livestock Reported on Schedule F,
Line 2
$430,029
During 2015 Mrs. Thompson received cooperative distribution
income of $9,348 and taxable interest income of $2,571. Mrs. Thompson
did not make any income tax payments for tax year 2015.
On February 21, 2019, Mrs. Thompson provided a delinquent tax
return for tax year 2016 to Appeals. Respondent did not process this
delinquent return. The delinquent 2016 return claimed joint filing
status with her husband and included Schedule F and Form 4797. On
Schedule F, Mrs. Thompson claimed a deduction of $153,123 for
Contract Labor and reported income of $58,479 from her tax preparation
business, as “Custom Hire (Machine Work) Income.” On Schedule F,
Mrs. Thompson also reported income from the sales of livestock as
follows:
6 On July 1, 2019, the IRS Office of Appeals was renamed the IRS Independent
Office of Appeals. See Taxpayer First Act, Pub. L. No. 116-25, § 1001, 133 Stat. 981,
983 (2019). As the events in these cases predate this change, we will use the name in
effect at all times relevant to these cases, i.e., the Office of Appeals.
9
[*9]
2016 Schedule F Income
Amount
Cattle Sales
$216,739
Simmons – Chicken/Egg Income
140,645
Less: Cattle Sales on Schedule F, Line 1(a)
(1,000)
Less: Gross Cattle Sales Allocated to Form 4797
(98,360)
Total Sales – Raised Livestock Reported on Schedule F,
Line 2
258,024
During 2016 Mrs. Thompson received cooperative distribution
income of $7,439 and taxable interest income of $1,196. A U.S.
Department of Agriculture payment of $101,566 was deposited into Mrs.
Thompson’s bank account on June 24, 2016. Mrs. Thompson did not
make any income tax payments for tax year 2016.
OPINION
I.
Burden of Proof
In general, the Commissioner’s determinations set forth in the
notice of deficiency are presumed correct, and the taxpayer bears the
burden of proving otherwise. Rule 142(a); Welch v. Helvering, 290 U.S.
111, 115 (1933). In cases of unreported income, the Commissioner must
establish an evidentiary foundation connecting the taxpayer with an
income-producing activity or otherwise demonstrate that the taxpayer
actually received unreported income. Walquist v. Commissioner, 152
T.C. 61, 67 (2019). After the Commissioner makes a requisite threshold
showing, the burden of proof is with the taxpayer to prove by a
preponderance of the evidence that the Commissioner’s determination
was arbitrary or otherwise erroneous. Helvering v. Taylor, 293 U.S. 507,
515 (1935); Tokarski v. Commissioner, 87 T.C. 74 (1986); see also Page
v. Commissioner, 58 F.3d 1342, 1347 (8th Cir. 1995), aff’g T.C. Memo.
1993-398. 7
7 Section 7491(a) provides that the burden of proof may shift to the
Commissioner if the taxpayer “introduces credible evidence with respect to any
[relevant] factual issue” and satisfies three additional conditions. Petitioners do not
contend, and the record does not establish, that the burden of proof shifts to respondent
under section 7491(a)(1). Therefore, the burden remains with petitioners.
10
[*10] II.
Unreported Income
Gross income includes “all income from whatever source derived.”
I.R.C. § 61(a). Taxpayers must maintain and keep records
substantiating their income and expenses. I.R.C. § 6001. If a taxpayer
fails to do so, the Commissioner may determine the taxpayer’s income
through any method that clearly reflects income. I.R.C. § 446(b);
Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989). The Commissioner’s
reconstruction of income “need only be reasonable in light of all
surrounding facts and circumstances.” Petzoldt, 92 T.C. at 687.
The Commissioner can prove an underpayment of tax by proving
a likely source of unreported income. Estate of Beck v. Commissioner, 56
T.C. 297, 363–64 (1971). Bank deposits are considered prima facie
evidence of a taxpayer’s receipt of income. Parks v. Commissioner, 94
T.C. 654, 658 (1990). Unidentified bank deposits are permitted to be
treated as proof of unreported income where the deposits are regular or
periodic, and there is evidence of an income-producing activity.
Gleckman v. United States, 80 F.2d 394, 399 (8th Cir. 1935).
A.
Unreported Income for 2011
In 2011 petitioners realized cancellation of debt income of $2,064
when Capital One Bank forgave, or otherwise discharged for less than
the full amount, a balance due. At trial petitioners did not address this
adjustment; nor did they dispute the information reported on Form
1099‒C from Capital One. Therefore, we determine respondent has met
his burden. 8 Accordingly, this adjustment to petitioners’ income is
sustained.
B.
Schedule C Gross Receipts, Farming Activity Income,
Schedule F Cooperative Distribution Income, Taxable
Interest Income for 2014, 2015, and 2016, and Schedule F
Agricultural Program Payments in 2014
At trial Mrs. Thompson confirmed that the EPS and check
deposits into Arvest account ending 2112 totaling $60,950 for tax year
8 If an information return, such as a Form 1099–C, serves as the basis for the
determination of a deficiency, section 6201(d) may apply to shift the burden of
production to the Commissioner. However, here, petitioners did not dispute the
accuracy of this information return at trial, and therefore section 6201(d) has no
application. See McQuatters v. Commissioner, T.C. Memo. 1998-88, 1998 WL 88180, at
*3–4.
11
[*11] 2014 is the Schedule C income from her tax preparation business,
“Custom Hire (Machine Work) Income” for that tax year. The parties
also agreed at trial that the income of $58,170 and $58,479 for tax years
2015 and 2016, respectively, which was originally reported on Mrs.
Thompson’s Schedule F delinquent returns, was her Schedule C income
from her tax preparation business for those same years.
By stipulation and at trial Mrs. Thompson testified that she
agreed with respondent’s determination of unreported income from
farming activities stemming from the sale of cattle 9 and other livestock
in tax years 2014, 2015, and 2016. Similarly, respondent established at
trial that Mrs. Thompson had received cooperative distribution income
of $11,739, $9,348, and $7,439 for tax years 2014, 2015, and 2016,
respectively. Next, it was established that Mrs. Thompson had received
taxable interest income of $1,241, $2,571, and $1,196 for tax years 2014,
2015, and 2016, respectively. Finally, it was established that Mrs.
Thompson had received agricultural program payment income of
$58,287 for tax year 2014.
Mrs. Thompson presented no evidence disputing these several
sources of income, and in fact at trial she confirmed the accuracy of some
of these income amounts, as reported on her delinquent returns. See
Rule 142(a). Consequently, opposition to these adjustments to income (if
any) is deemed conceded by Mrs. Thompson, see Rule 149(b), and the
adjustments to her Schedule C income, farming activity income,
Schedule F cooperative distribution income, and taxable interest income
for tax years 2014, 2015, and 2016, and Schedule F agricultural program
payments for tax year 2014 are sustained.
III.
Schedule F Deductions
Deductions are a matter of legislative grace, and the taxpayer
bears the burden of proving entitlement to any deductions claimed. Rule
142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New
Colonial Ice Co. v. Helvering, 292 U.S 435, 440 (1934).
A taxpayer claiming a deduction on a federal income tax return
must demonstrate that the deduction is allowable pursuant to a
statutory provision and must further substantiate that the expense to
which the deduction relates has been paid or incurred. I.R.C. § 6001;
9 The sale of cattle yields capital gain income, while the sale of livestock yields
ordinary income.
12
[*12] Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per
curiam, 540 F.2d 821 (5th Cir. 1976). A taxpayer must substantiate
deductions claimed by keeping and producing adequate records that
enable the Commissioner to determine the taxpayer’s correct tax
liability. I.R.C. § 6001; Treas. Reg. § 1.6001-1(a), (e).
When a taxpayer establishes that he or she paid or incurred a
deductible expense but fails to establish the amount of the deduction,
the Court may sometimes estimate the amount allowable as a deduction.
Cohan v. Commissioner, 39 F.2d 540, 543–44 (2d Cir. 1930). There must
be sufficient evidence in the record to permit the Court to conclude that
a deductible expense was paid or incurred in at least the amount
allowed. Williams v. United States, 245 F.2d 559, 560 (5th Cir. 1957);
Vanicek v. Commissioner, 85 T.C. 731, 742–43 (1985).
Section 162(a) allows a taxpayer to deduct all ordinary and
necessary expenses paid or incurred during the tax year in carrying on
a trade or business. A business expense is “ordinary” if it is “normal,
usual, or customary” in the taxpayer’s trade or business or arises from
a transaction “of common or frequent occurrence in the type of business
involved.” Deputy v. du Pont, 308 U.S. 488, 495 (1940). An expense is
“necessary” if it is “appropriate and helpful” to the taxpayer’s business,
but it need not be absolutely essential. Commissioner v. Tellier, 383 U.S.
687, 689 (1966) (quoting Welch v. Helvering, 290 U.S. at 113). The
determination of whether an expense satisfies the requirements of
section 162 is a question of fact. Cloud v. Commissioner, 97 T.C. 613,
618 (1991) (citing Commissioner v. Heininger, 320 U.S. 467, 473‒75
(1943)).
A.
Insurance (Other than Health) Expense 10
Generally, premiums paid on insurance policies are deductible if
the insurance coverage is ordinary and necessary for a taxpayer’s trade
or business, but no deduction is allowed for insurance with respect to
property that is not used in a trade or business. Rogers v. Commissioner,
T.C. Memo. 2014-141, at *30; Treas. Reg. § 1.162-1(a).
For 2011 petitioners claimed a deduction of $12,290 on Schedule
F for insurance (other than health). Respondent disallowed $2,001.
Petitioners failed to produce any evidence to substantiate their
10 Mrs. Thompson also claimed deductions on Schedule F for insurance
expenses for tax years 2014, 2015, and 2016, but on brief respondent conceded that
Mrs. Thompson is entitled to deduct these expenses. See supra note 3.
13
[*13] entitlement to a deduction greater than the amount respondent
allowed; therefore, the issue is deemed conceded and the adjustment of
$2,001 to this claimed deduction is sustained. See Rule 149(b).
B.
Feed Expense 11
For 2011 petitioners claimed a deduction of $14,672 on Schedule
F for feed expenses. Respondent disallowed $7,883. Petitioners failed to
produce any evidence to substantiate their entitlement to a deduction
greater than the amount respondent allowed; therefore, the issue is
deemed conceded and the adjustment of $7,883 to this claimed deduction
is sustained. See Rule 149(b).
C.
Other Expenses – Contract Labor
Respondent disallowed claimed Schedule F deductions for
contract labor expenses for tax years 2011, 2014, 2015, and 2016. More
specifically, respondent disallowed any deduction for $74,274 of the
$105,880 contract labor expenses petitioners reported for 2011. On her
delinquent returns Mrs. Thompson claimed deductions for contract
labor expenses of $218,400, $205,414, and $153,123 for tax years 2014,
2015, and 2016, respectively. Respondent determined Mrs. Thompson is
entitled to deduct $126,639 in contract labor expenses for tax year 2014;
therefore, he disallowed the difference. For tax years 2015 and 2016
respondent determined Mrs. Thompson was not entitled to deduct any
contract labor expenses.
At trial Mrs. Thompson testified to the nature of the payments
made, and she included bank statements reflecting payments made to
her daughter, Kristie Pillow, to substantiate her contract labor
expenses. However, these payments were commingled with others in her
bank account. Mrs. Thompson’s testimony was unhelpful in
distinguishing the payments made to her daughter specifically for
contract labor. The evidence Mrs. Thompson presented in support of the
business purpose of these claimed deductions consists only of her selfserving testimony and uncorroborated documents. We are under no
obligation to accept uncorroborated and self-serving testimony. See
Higbee v. Commissioner, 116 T.C. 438, 445 (2001); Tokarski, 87 T.C.
at 77.
11 Mrs. Thompson also claimed a deduction for Schedule F feed expenses for
tax years 2014, 2015, and 2016, but on brief respondent conceded that Mrs. Thompson
is entitled to deduct these expenses. See supra note 3.
14
[*14] Considering all the facts and circumstances before us, we
conclude that Mrs. Thompson has not provided evidence adequately
substantiating her contract labor expenses beyond the amounts
respondent determined for tax years 2011 and 2014. Therefore,
respondent’s partial disallowance of the claimed contract labor expenses
for tax years 2011 and 2014, and full disallowance of these claimed
expenses for tax years 2015 and 2016, are sustained.
IV.
Additions to Tax
Section 6651(a)(1) and (2) imposes additions to tax for failure to
file a return and failure to pay the amount shown as tax on a return,
respectively, on or before the date prescribed unless the taxpayer proves
that such failures are due to reasonable cause and not due to willful
neglect. See Treas. Reg. § 301.6651-1(c). Willful neglect is defined as a
“conscious, intentional failure or reckless indifference.” United States v.
Boyle, 469 U.S. 241, 245 (1985). Reasonable cause for failure to file exists
where the taxpayer exercised ordinary care and prudence but was
nevertheless unable to file the return by the due date. Id. at 246.
Reasonable cause for failure to pay exists where the taxpayer exercised
ordinary business care and prudence in providing for payment but was
nevertheless either unable to pay the tax or would have suffered undue
hardship if the tax was paid. See Treas. Reg. § 301.6551-1(c)(1).
A.
Section 6651(a)(1) Failure to Timely File Additions to Tax
Section 6651(a)(1) provides for an addition to tax of 5% of the tax
required to be shown on a return for each month (or fraction thereof) for
which there is a failure to file a return, not to exceed 25% in the
aggregate. Respondent determined petitioners were liable for an
addition to tax under section 6651(a)(1) for the 2011 tax year since the
IRS did not receive the 2011 joint return until April 13, 2015.
Respondent determined that Mrs. Thompson was liable for additions to
tax under section 6651(a)(1) for tax years 2014, 2015, and 2016 since
Mrs. Thompson failed to file returns for these tax years. On January 5,
2018, respondent prepared SFRs for Mrs. Thompson for tax years 2014,
2015, and 2016. The SFRs are treated as tax returns filed by Mrs.
Thompson. See I.R.C. § 6651(g)(2).
Except for Mrs. Thompson’s own self-serving testimony, which we
are not required to, and will not, rely on, she provided no evidence that
her failure to file tax returns for tax years 2014 through 2016 was due
to reasonable cause and not due to willful neglect. See Neonatology
15
[*15] Assocs., P.A. v. Commissioner, 115 T.C. 43, 84 (2000), aff’d, 299
F.3d 221 (3d Cir. 2002). In fact, Mrs. Thompson confirmed that she had
acted as a paid return preparer and that she had prepared dozens of tax
returns during the tax years at issue—just not her own. Accordingly, we
will sustain the section 6651(a)(1) additions to tax as determined by
respondent.
B.
Section 6651(a)(2) Failure to Timely Pay Additions to Tax
Under section 6651(a)(2), an addition to tax is also imposed for
failure to timely pay the amount shown as tax on a return, unless the
failure is due to reasonable cause and not willful neglect. The amount of
the addition to tax is 0.5% of the amount of tax required to be shown on
the return, with an additional 0.5% for each month the return is
delinquent, not to exceed 25% in the aggregate. I.R.C. § 6651(a)(2).
By stipulation respondent introduced account transcripts for Mrs.
Thompson reflecting that no tax payments were made for tax years 2014
through 2016. At trial Mrs. Thompson provided no explanation or other
evidence supporting a reasonable cause defense for her failure to pay the
amounts shown on the SFRs filed under section 6020. Accordingly, we
find that Mrs. Thompson has failed to establish reasonable cause, and
we will sustain the section 6651(a)(2) additions to tax as determined by
respondent.
C.
Section 6654 Failure by Individual to Pay Estimated
Income Tax
Section 6654(a) provides for an addition to tax for an individual’s
underpayment of estimated tax. Estimated income tax must be paid
quarterly in an amount equal to 25% of the lesser of (1) 90% of the tax
required to be shown on the current year’s tax return or (2) if the
taxpayer filed for the previous year, 100% of the tax shown on the prior
year’s tax return. See I.R.C. § 6654(c) and (d)(1). To meet his burden of
production, respondent must show that Mrs. Thompson had an
obligation to make estimated tax payments. See Wheeler v.
Commissioner, 127 T.C. 200, 211–12 (2006), aff’d, 521 F.3d 1289 (10th
Cir. 2008). That is, respondent must introduce evidence of whether Mrs.
Thompson filed a tax return for the prior year and whether she had a
tax liability for each of the years at issue. See id. The due dates of the
required estimated payments for a calendar year taxpayer are April 15,
June 15, and September 15 of the calendar year in question and January
15 of the following year. I.R.C. § 6654(c)(2).
16
[*16] As explained above respondent has met his burden with respect
to this addition to tax for years 2015 and 2016, since the Stipulation
reflects account transcripts for years 2014 through 2016 for Mrs.
Thompson with no tax deposits, and SFRs under section 6020 reflect
unpaid tax. See Wheeler, 127 T.C. at 210–11. Mrs. Thompson has not
shown that any of the statutory exceptions under section 6654(e)
applies. Accordingly, we will sustain the section 6654(a) additions to tax
as determined by respondent.
V.
Conclusion
We have considered all of the arguments that the parties made,
and to the extent they are not addressed herein, we find the arguments
to be moot, irrelevant, or without merit.
To reflect the foregoing,
Decisions will be entered under Rule 155.
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