T.C. Summary Opinion 2011-13

UNITED STATES TAX COURT 

KATHRYN G. ECKARDT, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 23830-09S, 26727-09S. Filed February 10, 2011.

Kathryn G. Eckardt, pro se.

Jeremy L. McPherson, for respondent. 

HAINES, Judge: These consolidated cases were heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect when the petitions were filed.1 Pursuant to section

7463(b), the decisions to be entered are not reviewable by any

1Unless otherwise indicated, section references are to the

Internal Revenue Code as amended and in effect for the years in

issue. Rule references are to the Tax Court Rules of Practice

and Procedure. Amounts are rounded down to the nearest dollar.
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other court, and this opinion shall not be treated as precedent

for any other case.

Respondent determined a deficiency in petitioner’s Federal

income tax for 2006 of $16,908 and an accuracy-related penalty

under section 6662(a) of $3,381. For 2007 petitioner failed to

file a return, and respondent determined a deficiency of $38,176

and additions to tax under section 6651(a)(1) of $8,589, section

6651(a)(2),2 and section 6654 of $179. 

At trial respondent conceded petitioner’s deficiency for

2006 is $5,698 and the accuracy-related penalty under section

6662(a) is $1,139. The parties likewise conceded and stipulated

petitioner’s taxable income and deductions for 2007. Therefore,

the remaining issues for decision are: (1) Whether petitioner is

entitled to deductions claimed on Schedule C, Profit or Loss From

Business, for 2006; and (2) whether petitioner is liable for an

accuracy-related penalty under section 6662(a) for 2006 and

additions to tax under sections 6651(a)(1) and (2) and 6654 for

2007. 

Background

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

The stipulation of facts and the exhibits attached thereto are

2The notice of deficiency for 2007 states that this amount

will be computed at a later date. 
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incorporated herein by this reference. At the time she filed her

petitions, petitioner resided in California. 

Notices of Deficiency and Procedural Background

Petitioner filed a return for 2006, and respondent issued a

notice of deficiency on July 7, 2009, disallowing some deductions

claimed on Schedule C for auto expenses, meals and entertainment,

and other expenses and determining an accuracy-related penalty

under section 6662. Petitioner filed a petition with this Court

for 2006 on October 6, 2009. Petitioner failed to file a 2007

Form 1040, U.S. Individual Income Tax Return, and respondent

prepared a substitute for return (SFR) pursuant to section

6020(b) for 2007. In the SFR respondent determined petitioner

received in 2007 a tax refund of $315, dividend income of $89,

and nonemployee compensation of $118,816. On October 27, 2009,

respondent issued the notice of deficiency for the taxable year

2007 to petitioner, and on November 10, 2009, petitioner filed a

petition for 2007 disputing the additions to tax.

Personal Background

During the years at issue petitioner was self-employed in

the real estate sales business. During 2006 petitioner

experienced difficulties in her personal life and in her

business. In October 2006 petitioner’s mother had medical

problems that necessitated her admittance to a hospital. In

attempting to make decisions regarding her mother’s medical care
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and subsequent living situation, petitioner encountered

significant family problems with her sisters. These problems

escalated, resulting in the issuance of a restraining order

against petitioner in January 2007 prohibiting her from visiting

her mother. Petitioner ceased working in the real estate sales

business and attempted to find work as a medical assistant but

claims she was hampered by her age and the outstanding

restraining order. 

Discussion

I. Burdens of Proof

A. Petitioner’s Claimed Deductions for 2006

Petitioner bears the burden of proving that respondent’s

determination is incorrect. See Rule 142(a); Welch v. Helvering,

290 U.S. 111 (1933). Deductions are strictly a matter of

legislative grace, and taxpayers must satisfy the specific

requirements for any deduction claimed. See INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v.

Helvering, 292 U.S. 435, 440 (1934). Taxpayers bear the burden

of substantiating the amount and purpose of any claimed deduction

by maintaining the records needed to establish such entitlement. 

See sec. 6001; Hradesky v. Commissioner, 65 T.C. 87 (1975), affd.

540 F.2d 821 (5th Cir. 1976). A taxpayer’s self-serving

declaration is generally not a sufficient substitute for records. 

Weiss v. Commissioner, T.C. Memo. 1999-17. 
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 In the notice of deficiency issued for 2006 respondent

determined a deficiency in petitioner’s Federal income tax for

2006 of $16,908. At trial respondent conceded a portion of

petitioner’s claimed deductions and agreed that petitioner’s

deficiency for 2006 is $5,698. Despite bearing the burden of

proof, petitioner neither presented credible evidence at trial

nor provided the Court with useful documents necessary to

substantiate her remaining claimed deductions for 2006. Thus,

petitioner failed to meet her burden of proof regarding the

claimed deductions for 2006, and we accept respondent’s

concessions regarding the 2006 deficiency. 

B. Penalties and Additions to Tax

Initially, the Commissioner bears the burden of production

with respect to any penalty, addition to tax, or additional

amount. Sec. 7491(c). The Commissioner satisfies this burden of

production by coming forward with sufficient evidence indicating

that it is appropriate to impose the penalty. See Higbee v.

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

satisfies this burden of production, the taxpayer must persuade

the Court that the Commissioner’s determination is in error by

supplying sufficient evidence of an applicable exception. Id.

II. Section 6662(a) Penalty

Section 6662(a) and (b)(2) imposes a 20-percent accuracyrelated penalty upon any underpayment of tax resulting from a
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substantial understatement of income tax. An understatement is

substantial if it exceeds the greater of 10 percent of the tax

required to be shown on the return or $5,000. Sec.

6662(d)(1)(A). The Commissioner bears the burden of production

with respect to penalties. Sec. 7491(c); Higbee v. Commissioner,

supra at 446-447. 

At trial respondent conceded that petitioner’s deficiency

for 2006 is $5,698 and claimed she is liable for a penalty under

section 6662(a) of $1,139. The amount of the understatement of

income tax was substantial because it exceeded the greater of: 

(1) 10 percent of the tax required to be shown on the return for

the taxable year, and (2) $5,000. Consequently, respondent has

met the burden of production with regard to the penalty for 2006.

Section 6664(c) provides that no penalty shall be imposed

under section 6662 with respect to any portion of an underpayment

if it is shown that there was a reasonable cause for such portion

and that the taxpayer acted in good faith with respect to such

portion. Petitioner failed to argue or offer evidence sufficient

to show reasonable cause, substantial authority, or other basis

for reducing the underpayment. Thus, we find petitioner is

liable for the accuracy-related penalty under section 6662 for

2006. 
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III. Section 6651(a)(1) Addition to Tax

Section 6651(a)(1) imposes an addition to tax for failure to

file a return on the date prescribed unless the taxpayer can

establish that the failure is due to reasonable cause and not due

to willful neglect.3 The addition equals 5 percent of the net

amount due for each month that the return is late, not to exceed

25 percent. Sec. 6651(a)(1), (b)(1). 

The parties stipulated that petitioner did not file her 2007

Federal income tax return; thus respondent has carried the burden

of production under section 7491(c) with respect to the addition

to tax under section 6651(a)(1). Therefore, petitioner bears the

burden of proving that her failure to file a return was due to

reasonable cause and not due to willful neglect. See Higbee v.

Commissioner, supra at 446; Ruggeri v. Commissioner, T.C. Memo.

2008-300. 

IV. Section 6651(a)(2) Addition to Tax

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

pay the amount shown as tax on the taxpayer’s return on or before

the date prescribed unless the taxpayer can establish that the

3If the Secretary makes a return for the taxpayer under sec.

6020(b), it is disregarded for purposes of determining the amount

of the addition to tax under sec. 6651(a)(1), but it is treated

as a return filed by the taxpayer for purposes of determining the

amount of the addition to tax under sec. 6651(a)(2). Sec.

6651(g). 
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failure is due to reasonable cause and not due to willful

neglect. 

The addition is calculated as 0.5 percent of the amount

shown as tax on the tax return but not paid, with an additional

0.5 percent for each month or fraction thereof during which the

failure to pay continues, up to a maximum of 25 percent.4 If the

amount required to be shown as tax on the return is less than the

amount actually shown on the return, the addition to tax is

calculated by reference to the lesser amount. Sec. 6651(c)(2). 

For purposes of computing the section 6651(a)(2) addition for any

month, the amount of tax shown on the return is reduced by the

amount of any part of the tax paid before the beginning of the

month and by the amount of any credit against the tax which may

be claimed on the return. Sec. 6651(b)(2). 

The addition under section 6651(a)(2) applies only if an

amount of tax is shown on a return. Wheeler v. Commissioner, 127

T.C. 200, 208 (2006), affd. 521 F.3d 1289 (10th Cir. 2008). 

Respondent submitted copies of an SFR prepared for petitioner

that shows petitioner had no withholdings and failed to make any

payment against her tax liability for 2007. This SFR meets the

requirements of section 6020(b). See id. at 209. Although

4The amount of the addition to tax under sec. 6651(a)(2)

reduces the amount of the addition to tax under sec. 6651(a)(1)

for any month for which an addition to tax applies under both

paragraphs. Sec. 6651(c)(1). 
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respondent conceded and stipulated that petitioner’s deficiency

for 2007 is smaller than originally determined on the basis of

the SFR, petitioner made no payments against her tax liability

that would offset the decreased addition to tax resulting from

this decreased deficiency. Thus, respondent has produced

sufficient evidence that petitioner is liable for the section

6651(a)(2) addition to tax for 2007 unless an exception applies. 

See Higbee v. Commissioner, supra at 446; Ruggeri v.

Commissioner, supra.

V. Exceptions to the Section 6651(a)(1) and (2) Additions to 

Tax

Reasonable cause is a defense to the section 6651(a)(1) and

(2) additions to tax. To prove reasonable cause for a failure to

timely file, the taxpayer must show that she exercised ordinary

business care and prudence and was nevertheless unable to file

the return within the prescribed time. Crocker v. Commissioner,

92 T.C. 899, 913 (1989); sec. 301.6651-1(c)(1), Proced. & Admin.

Regs. To prove reasonable cause for a failure to pay the amount

shown as tax on a return, the taxpayer must show that she

exercised ordinary business care and prudence in providing for

payment of her tax liability and nevertheless was either unable

to pay the tax or would suffer undue hardship if she paid the tax

on the due date. Sec. 301.6651-1(c)(1), Proced. & Admin. Regs. 

The determination of whether reasonable cause exists is based on

all the facts and circumstances. Estate of Hartsell v.
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Commissioner, T.C. Memo. 2004-211; Merriam v. Commissioner, T.C.

Memo. 1995-432, affd. without published opinion 107 F.3d 877 (9th

Cir. 1997). 

Petitioner contends that the difficult circumstances she

experienced constituted reasonable cause for her failure to

timely file a return and pay tax. Petitioner testified at length

regarding her mother’s medical situation and the impact on her

family in 2006 and 2007. Despite petitioner’s unfortunate

circumstances, she produced no credible evidence indicating that

the circumstances made her unable to prepare her 2007 return and

pay her tax on the date it was due. While sympathetic to

petitioner’s situation, the Court concludes that the

circumstances as described do not give rise to a reasonable cause

defense for the particular year at issue. 

Petitioner provided no evidence or testimony regarding her

inability to pay the tax due or that she would have suffered

undue hardship if she had paid the tax on the due date for the

year at issue. Although petitioner testified regarding her

mother’s health and the conflicts with her sisters in 2006 and

2007, she earned income and conducted business during each year,

as evidenced by her 2006 return and stipulations regarding 2007. 

The Court has consistently held that if a taxpayer is able to

continue her business affairs despite an incapacity, then the

incapacity does not establish reasonable cause. Ruggeri v.
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Commissioner, T.C. Memo. 2008-300 (and cases cited therein);

Hazel v. Commissioner, T.C. Memo. 2008-134; Jordan v.

Commissioner, T.C. Memo. 2005-266 (and cases cited therein). 

Similarly, the Court has also held that a taxpayer’s inability to

meet her tax obligations when she can conduct normal business

activities does not establish reasonable cause. Jordan v.

Commissioner, supra; Wright v. Commissioner, T.C. Memo. 1998-224,

affd. without published opinion 173 F.3d 848 (2d Cir. 1999);

Tabbi v. Commissioner, T.C. Memo. 1995-463. 

We conclude and hold that petitioner did not have reasonable

cause for her failure to file a return and pay the tax for 2007. 

Accordingly, petitioner is liable for the section 6651(a)(1)

addition to tax, insofar as the computations show that for any

month petitioner had net amounts due with respect to 2007. 

Moreover, petitioner is liable for the addition to tax under

section 6651(a)(2) for 2007, insofar as the computations show

unpaid amounts of tax required to be shown on petitioner’s

return. 

VI. Section 6654 Addition to Tax

Section 6654(a) imposes an addition to tax on an

underpayment of estimated income tax unless an exception applies. 

See sec. 6654(e). The section 6654(a) addition to tax is

determined by applying the underpayment rate established under
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section 6621 to the amount of the underpayment5 for the period of

the underpayment.6 The addition to tax is also calculated with

reference to four required installment payments of the taxpayer’s

estimated income tax. Sec. 6654(c)(1); Wheeler v. Commissioner,

127 T.C. at 210. Each required installment of estimated income

tax is equal to 25 percent of the “required annual payment.” 

Sec. 6654(d)(1)(A). The required annual payment is generally

equal to the lesser of: (1) 90 percent of the tax shown on the

taxpayer’s return for the year (or 90 percent of the taxpayer’s

tax for the year if no return is filed); or (2) if the taxpayer

filed a return for the immediately preceding taxable year, 100

percent of the tax shown on that return. Sec. 6654(d)(1)(B);

Wheeler v. Commissioner, supra at 210-211. But if the taxpayer

did not file a return for the preceding year, then clause (2)

does not apply. Sec. 6654(d)(1)(B). A taxpayer has an

obligation to pay estimated income tax for a particular year only

if she had a “required annual payment” for that year. Wheeler v.

Commissioner, supra at 211. 

5“[A]mount of the underpayment” means the excess of the

required installment over the amount, if any, of the installment

paid on or before the due date for the installment. Sec.

6654(b)(1).

6The period of the underpayment runs from the due date for

the installment to the earlier of the 15th day of the 4th month

following the close of the taxable year or with respect to any

portion of the underpayment, the date on which such portion is

paid. Sec. 6654(b)(2). 
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Petitioner was required to file her 2007 Form 1040 by April

15, 2008, but failed to do so. Respondent’s burden of production

under section 7491(c) with respect to the section 6654(a)

addition to tax has been satisfied by proof at trial that

petitioner has a Federal income tax liability for 2007 and

petitioner made no estimated payments for the year. Thus, the

addition to tax applies under section 6654(a) unless petitioner

establishes that an exception applies. 

Generally, no reasonable cause exception exists for the

section 6654(a) addition to tax. Sec. 1.6654-1(a)(1), Income Tax

Regs.; see also Bray v. Commissioner, T.C. Memo. 2008-113. But

no addition to tax is imposed under section 6654(a) with respect

to any underpayment if the Secretary determines that the taxpayer

became disabled7 either in the taxable year for which estimated

income tax payments were required or in the preceding taxable

year and the underpayment was due to reasonable cause and not

willful neglect. Sec. 6654(e)(3)(B). Additionally, no addition

to tax is imposed under section 6654(a) with respect to any

7The term “disabled” includes a significant psychiatric

disorder and mental incapacitation during the period under

consideration, Shaffer v. Commissioner, T.C. Memo. 1994-618, or

confinement to various hospitals for “severe mental illness”,

Carnahan v. Commissioner, T.C. Memo. 1994-163, affd. without

published opinion 70 F.3d 637 (D.C. Cir. 1995); see also Jones v.

Commissioner, T.C. Memo. 2006-176; Meyer v. Commissioner, T.C.

Memo. 2003-12 (taxpayer’s severe health problems and mental

condition incapacitated him; thus, a sec. 6654(e) exception was

applicable). In addition, the disability may constitute

reasonable cause. Jones v. Commissioner, supra.
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underpayment to the extent the Secretary determines that by

reason of casualty, disaster, or other unusual circumstances the

imposition of the addition to tax would be against equity or good

conscience. Sec. 6654(e)(3)(A). 

Petitioner has not established a disability within the

meaning of section 6654(e)(3)(B). She also has not established a

casualty, disaster, or other unusual circumstances for which the

imposition of the section 6654(a) addition to tax would be

against equity or good conscience. Consequently, respondent’s

determination is sustained. 

In reaching our holdings, we have considered all arguments

made, and, to the extent not mentioned, we conclude that they are

moot, irrelevant, or without merit.

To reflect the foregoing and the concessions of the parties

in docket No. 26727-09S,

Decision will be entered

for respondent in docket No.

23830-09S, and decision will

be entered under Rule 155 in

docket No. 26727-09S.