T.C. Mem o. 2 01 6- 15 2

UNITED STAT ES TAX COURT
CAROLYN ROGERS, Pet it io ne r v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 11 90 3- 14
. Fi le d Au gu st15 , 20 16
.
Fran k Ag os ti no , Bri anD. Burt on , Cathe rin e Eng el l, an d Kat hry n Ken eal ly, fo r pe ti ti on er. Mi m i Won g, Ly le B. Pres s, an d R eb ek ahA. My ers forres po nd en t.

MEMORANDUM FINDINGS OF FACT AND OPINION COLVIN, Ju dg e: Res po nd en t d et erm in eda de fic ie nc y inin co m e ta x a nd ad di ti on s t o t ax as f

ol lo ws:- 2 -

[* 2] Add it io ns to tax Year Defi ci en cy Sec. 6 65 1( a)(1 ) Sec. 6 65 1( a)(2 ) Sec. 6 65 4( a) 20 09 $1 3,6 58 $3,0 73 $2,9 36 $3 27 Afte r co nc es si on s, the is su es forde ci si on are: 1. Whethe r pe ti ti on er’s fai lu re t o t im el y fil e a 2 00 9 i nc om e ta x re tu rnwas du e to reas on ab le cau se an d n otwil lfu l n eg le ctpurs ua ntto sec ti on66 51 (a)( 1)
. 1 W e h ol d tha t p et it io ne r’s fai lu re t o t im el y fil e was du e to reas on ab le cau se an d n ot wil lfu l n eg le ct . 2. Whethe r pe ti ti on er’s fai lu re t o t im el y pa y in co m e ta x fo r 20 09 was due to reas on ab le cau se an d n otwil lfu l n eg le ctpu rs ua ntto sec ti on 66 51 (a)( 2) . W e ho ldth atpe ti ti on er’s fai lu re t o t im el y pa y in co m e ta x fo r 20 09 was due to
reas on ab le cau se an d n otwil lfu l n eg le ct . FINDINGS OF FACT Pet it io ne r res id edinNew Yorkwhen sh e fi le d t he pe ti ti on . Peti ti on er was ag e 6 4 i n 2 00 9.

Sect io n re fere nc es are t o the Int ern al Rev enue Co de as am en de d a ndin 1 effe ctforth e y ear i n i ss ue . Rul e ref eren ces are t o t he Tax C ou rt Rul es of P ract ic e an d P ro cedur e. Mo ne tary am ou nt s ar e ro un de d t o t he ne ares t d ol lar.- 3 -

[* 3] A. Fi res inPet it io ne r’s Apartment i n 2 00 6 a nd20 07 Dur in g 2 00 6 p et it io ne r res id edinanap art m en t i n aco op erat iv e. Sh e op erat eda bu si ne ss fro m he r ap art m en t, ca ll edTalkof the TownSin gl es , th at
as si st edsi ng le pe op le who wis he d t o m eetot he r si ng le s. A fire inpe ti ti on er’s ap artm en t o n No ve m be r 25 , 20 06 (20 06 fir e), d am ag ed th e li vi ng roo m , th e k it ch en , anda walk -in clo se t. Aft er tha t fi re p et it io ne r m ov ed
ou t o f he r ap art m en t, wh ic h the fir e h adm ad e uni nh ab it ab le . Peti ti on er d idno t
co nduc t h er h om e b us in es s af te r th e 2 00 6 fi re b ecau se sh e n o l on ge r ha d aho m e of fic e o r th e n eces sa ry

st or ag e sp ace. A sec on d fi re d am ag edpe ti ti on er’s en ti re ap art m en t o n M arch 27 , 20 07 (2 00 7 fi re). At t he ti m e o f th e 2 00 7 fi re p et it io ne r was inth e ap artm en t wo rk in g by cand le li gh t p ack in g i te m s t o b e p utin to st or ag e. Sh ortl y aft er the 20 07 fir e, th e New YorkCity

Depa rtment o f Bu il di ng s b arre d h er fro m reo ccupyin g h er ap art m en t u nt il itwas d ecl aredsaf e b y th e d ep art m en t. The lo cal ne wsp ap er pr in te d ane ga ti ve art ic le ab ou t p et it io ne r de sc rib in g h er i nv ol ve m en t i n t he fir es . Subs eque nt ly she was h aras se d b y pe op le inhe r ne ig hb orho od
. B. Pet it io ne r’s In suran ce Co ve rag e an d C la im Pet it io ne r was in suredby L ib erty Mu tu al at t he ti m es of t he 20 06 fir e an d th e 2 00 7 fi re. Sh e rec ei ve d $ 21 ,46 9 i n p aym en t o f he r cl ai m forda m ag es for

th e- 4 -

[* 4] 20 06 fir e. Pet it io ne r no ti fie d t he in su ran ce co m pa ny a day or two aft er the 20 07 fir e th atda m ag e h adoc curred . In J ul y 20 07 sh e g av e th e in su ran ce co m pa ny a li stof d es tro y edor d am ag edpe rs on al pro pe rty. Peti ti on er es ti m at es th athe r lo ss es fro m

th e 2 00 7 fi re ex ceed ed$1 50 ,00 0. In20 09 pe ti ti on er re cei ve d $ 43 ,96 4 in pa ym en t o f he r cl ai m

forda m ag es forth e 2 00 7 fi re. C. Pet it io ne r’s Ci rcu m st an ces Fro m Nov em be r 20 06 Thro ug h Ap ril 20 10 Pet it io ne r li ve d wi th anacqua in tanc e fro m Nov em be r 20 06 to Nov em

be r 20 07 . From Nov em

be r 20 07 to Apri l 2 01 0 s he ren te d ave ry sm al l ro om

(with sh aredki tc he n a ndbath faci li ti es ) ata You ng W om en ’s Chr is ti anAss oc ia ti on (YW CA). Whi le li vi ng at t he YW CA pe ti ti on er h adco ns id erab le di ffi cu lty de al in g wi th th e YW CA bo ardan d wi th sev eral othe r res id en ts . On o ccas io n the po li ce were cal le d t o re so lv e co nf li ct s. Pet it io ne r fo un d l iv in g u nd er tho se co nd it io ns to be de hu m an iz in g. Afte r th e fi res pe ti ti on er ex pe rie nc edbo ut s o f de pr es si on . Arou ndFeb ru ary 20 09 pe ti ti on er fe ll off

a subwa y

pl at fo rm an d h ithe r he adon th e subwa y rai ls , frac turin g h er s ku ll . After h er fa ll pe ti ti on er s pe ntfiv e d ay s i n aho sp it al inth e in te ns iv e car e uni t. Me di cal pe rs on ne l wer e wit h h er co nt in uo us ly whi le sh e was in th e h os pi ta l. Whil e th ere, p et it io ne r was in te rv ie wedby a psychi atris t re ga rd in g th e ci rcu m st an ces of h er fa ll on to th e subwa y tra ck s. Oth erwi se , sh e h as no t s een- 5 -

[* 5] a do ct or

forem ot io na l co nd it io ns . Peti ti on er s uf fere d fr om

di zzy spe ll s af

te r he r fal l. D. Tax Returns Pet it io ne r pr ep aredan d t im el y fil edFo rm s 1 04 0, U.S. In di vi du al Inc om e Tax Return, fo r ta x years 2 00 6, 2 00 7, an d 2 00 8. Pe ti ti on er kne w at re le va ntti m es th attax returns are due on Apri l 1 5 o f th e fo ll owi ng y ear i n t he ab se nc e o f an
ex te ns io n; th atif the re i s an ex te ns io n, the n t he tax return i s due on Octo be r 15 of th e fo ll owi ng y ear u nl es s tha t d at e fal ls on a week en d o r ho li da y ; an d t ha t n o return i s re qu ire d i f th e ta xp ay er’s i nc om e fo r th e y ear i s b el ow m in im al am ou nt s. Gen eral ly, pe ti ti on er m ad e si gn ifi can t ef fo rts to co rrec tl y

pre pa re h er in co m e ta x re tu rn s. Sh e co ns ul te d b oo ks an d e le ctro ni c so ur ces de sc rib in g t ax ru le s s he th ou gh t ap pl ie d t o h er, an d s he so m et im es co nt act edth e In te rn al Rev enue Serv ic e fo r in fo rm at io n. Pe ti ti on er d idno t h av e anacco un tantor u se th e se rv ic es of t ax pre pa rers to pre pa re h er t ax returns . 20 07 an d 2 00 8 re tu rn s. Pet it io ne r di d n otcla im a cas ua lty

lo ss de du ct io n rel at in g t o the 20 07 fir e o n h er 2 00 7 o r 20 08 Fed eral in co m e ta x re tu rn . Whe n s he fil edth os e returns sh e err on eo us ly bel ie ve d t ha t h er ca su al ty los s was no t de du ct ib le un ti l h er i ns ur an ce cl ai m was s et tl ed . For t ax ab le y ear 2 00 8 p et it io ne r pa id$1 58 of t ax du e as rep orte d o n h er Fe de ral in co m e ta x re tu rn .- 6 -

[* 6] 20 09 return. Pe ti ti on er d idno t fi le a Fo rm 10 40 for20 09 . Peti ti on er be li ev edth at , aft er t ak in g i nt o a cco un t h er d educ ti bl e cas ua lty lo ss , sh e was no t requi redto fil e anin co m e ta x re tu rnfor20 09
. On No ve m

be r 12 , 20 13 , res po nd en t p rep areda subs ti tu te forreturn fo r pe ti ti on er’s 2 00 9 t ax y ear p ur su an t t o s ect io n 6 02 0( b) . For 2 00 9 re sp on de nt pr ep areda Fo rm

13 49 6, IR C Sec ti on 60 20 (b ) Certi fic at io n, an d att ach edth e do cu m en ts refe ren cedby that fo rm . E. Set tl em en t o f th e Cas ua lty Los s Is su e Afte r fi li ng th e p et it io n, p et it io ne r m etwith re sp on de ntinaneffo rt t o s et tl e th e cas e. Pet it io ne r rea li zedth atsh e h aderre d re ga rd in g the y ear o f de du ct io n o f he r cas ua lty

lo ss , andsh e se tt le d t ha t i ss ue ex cep t fo r th e ad di ti on s t o t ax at i ss ue he re. OPINION The is su es forde ci si on are wh ethe r pe ti ti on er i s l iabl e fo r anad di ti on to tax fo r fai lu re t o t im el y

fil e und er s ect io n 6 65 1( a)(1 ) an d a n a dd it io n t o t ax forfai lu re to ti m el y pa y un de r se ct io n 6 65 1( a)(2 ). A. Fai lu re To Fil e Sect io n 6 65 1( a)(1 ) im

po se s an ad di ti on to tax forfai lure t o t im el y fil e a requi redtax return. Se ct io n 7 49 1( c) p la ces on th e Co m m is si on er the bu rd enof- 7 -

[* 7] pro du ci ng ev id en ce o f li ab il ity forad di ti on s t o t ax . To m eetth atbu rd en , th e Co m m is si on er m

us t p ro du ce ev id en ce s ho win g t ha t i t i s ap pr op ria te to im po se th at pa rti cu lar ad di ti on to tax , bu t the Co m m is si on er n eedno t p ro du ce ev id en ce rel at in g t o d efen se s s uc h a s re as on ab le cau se or s ub st an ti al au th or ity . Hig be e v . Co m m is si on er, 1 16 T.C. 43 8, 4 46 (20 01 ); H.R. Co nf . Rep t. No . 10 5- 59 9, at24 1 (1 99 8) , 19 98 -3 C.B. 7 47 , 99 5. Re sp on de ntha s m etth e b ur de n o f pr oduc ti on with
res pe ctto th is ad di ti onto tax be cau se pe ti ti on er was requi redto ti m el y fil e b utdi d
no t fi le a return fo r 20 09
. 2 Onc e th e Co m

m is si on er m eet s the burd enof p ro du ct io n, the tax pa y er m us t, in ord er t o a vo idli ab il ity forad di ti on s t o t ax , pro du ce ev id en ce tha t the Co m m is si on er’s d et erm in at io n i s i nc orrect ; e.g ., th atth e fai lu re was du e to
reas on ab le cau se an d n otwil lfu l n eg le ct . Sec. 6 65 1( a)(1 ); Un it edSta te s v . Boyle, 46 9 U.S. 2 41 , 24 5 (1 98 5) ; Hi gb ee v . Comm is si on er, 1 16 T.C. at 4 46 ; H.R. Co nf
. Rep t. No . 10 5- 59 9, s up ra at24 1, 1 99 8- 3 C .B. at 9 95 . Reas on ab le cau se ex is ts if th e ta xp ay er ex erci se d o rd in ary bu si ne ss care an d p ru de nc e b utne ve rth el es s co ul d
no t fi le or p ay

th e ta x wh endu e. Bo y le , 46 9 U.S. at24 6; Ban k o f th e West v
. Co m m is si on er, 9 3 T.C. 4 62 , 47 1 (1 98 9) . “ [W] il lfu ll ne gl ect ” m ean s a “ co ns ci ou s,
The reco rdest ab li sh es th atpe ti ti on er’s i nc om e ex ceed edth e in co m e 2 th res ho ldforno nf

il ers for 20 09 . See s ec. 6 01 2( a)(1 ).- 8 -

[* 8] in te nt io na l fa il ur e o r rec kl es s i nd iff eren ce.” Bo y le , 46 9 U.S. at24 5. Th e de lay is du e to reas on ab le cau se if the tax pa y er ex erci se d o rd in ary bu si ne ss care
an d p ru de nc e an d was ne ve rth el es s u nabl e to fil e th e return wi th in th e p res cri be d ti m e. See s ec. 1 .66 51 -1 (c)( 1) , Inc om e Tax Reg s. Pet it io ne r co rrec tl y ha nd le d h er ta x fi li ng s an d p aym en ts be fo re 2 00 9. Pe ti ti on er t es ti fie d t ha t h er l os se s fr om th e 20 07 fir e ex ceed ed$1 50 ,00 0. Sh e al so tes ti fie d t ha t s he be li ev edhe r lo ss was de du ct ib le forth e y ear s he set tl edth e in su ran ce cl ai m an d t ha t h er ca su al ty los s (t o th e ex te ntno t co m

pe ns at edby ins ur an ce) m or e th anoff se t h er 2 00 9 i nc om e, ob vi at in g the requi rem en t tha t s he fil e a 2 00 9 re tu rn . W e h av e fo un d t ax pay ers li ab le forth e fai lu re t o t im el y fil e ad di ti onto tax whe re the tax pa y er was fun ct io ni ng at ave ry hi gh lev el ina bu si ne ss en de av or , Ju dg e v . Comm is si on er, 8 8 T.C. 1 17 5 (1 98 7) ; Hen ni ng se n v . Comm is si on er, 2 6 T.C. 52 8 (1 95 6) , aff’d, 2 43 F.2d95 4 (4 th Cir . 19 57 ); J oyce v. Co m m is si on er, 2 5 T.C. 13 (19 55 ); Watt s v . Comm is si on er, T.C. Mem o. 1 99 9- 41 6; Wrig htv. Co m m is si on er, T.C. Mem o. 1 99 8- 22 4, af f’d 17 3 F .3d84 8 (2 d C ir. 1 99 9) , and whe re the tax pa y er’s fai lure t o fi le , lat e fi li ng , or l at e p aym en t o f ta x was ch ro ni c, Ju dg e v . Comm is si on er, 8 8 T.C. 1 17 5; Ru gg eri v. Co m mis si on er, T.C. Mem o. 20 08 -3 00 ; J oye v. Co m

m is si on er, T.C. Mem o. 2 00 2- 14 . W e h av e al so fou nd ta xp ay ers no t l iabl e fo r th e ad di ti on to tax forfai lu re t o t im el y fil e whe re i ll ne ss or- 9 -

[* 9] fam il y

ha rd sh ip effe ct iv el y

pre ve nt edti m el y

fil in g o f a t ax return. Tab bi v. Co m m is si on er, T.C. Mem o. 1 99 5- 46 3; Harri s v . Comm is si on er, T.C. Mem o. 19 69 -4 9. Th os e cas es are i ns tru ct iv e b utno t co nt ro ll in g b ecau se th e res ul t i n e ach
cas e d ep en ds on all of t he fact s an d c irc um st an ces . One of t he fact s an d c irc um st an ces m eri ti ng co ns id erat io n h ere i s p reci se ly wha t the erro r was th atpe ti ti on er m ad e whi chledhe r to be li ev e sh e was no t requi redto fil e a 2 00 9 re turn . Thaterro r rel at edto th e que st io n o f th e p ro pe r ti min g o f he r cas ua lty

lo ss de du ct io n re su lt in g fr om th e 2 00 7 fi re. At the ti m e h er 20 09 return was du e, pe ti ti on er b el ie ve d t he lo ss was d educ ti bl e fo r 20 09 be cau se th atwas the y ear h er cl ai m was re so lv ed . If anin su ran ce cl ai m is no t p ai d i n the y ear o f th e lo ss an d the tax pa y er h as a reas on ab le pro sp ectof r eco ve ry , th e de du ct io n fo r th e lo ss is de ferr edun ti l i t can b e as cert ai ne d wh ethe r su ch rei m bu rs em en t wi ll be rece iv ed . Sec. 1 .16 5- 1( d) (2 )(i ), In co m e Tax Reg s. Howev er, i f orto th e ex te ntth ere i s n o re as on ab le pro sp ectforco m pe ns at io n fo r th e lo ss th ro ug h i ns ur an ce, the lo ss is de du ct ib le forth e y ear i nc urred . Sec. 16 5( a); sec . 1.1 65 -1 (d )(2 )(i i) a nd(ii i), In co m e Tax Reg s. Th e p art ie s’ set tl em en t of th is is su e su gg es ts th atth ere was no reas on ab le pro sp ectof r eco ve ry of a po rti onof t he lo ss un de r pe ti ti on er’s i ns ur an ce p ol ic y .- 10 -

[* 10 ] Pet it io ne r’s erro r (reg ard in g t he pro pe r y ear o f de du ct io n o f th e p orti on of a
cas ua lty lo ss forwhi chth ere i s n o p ro sp ectof r eco ve ry fro m in su ran ce) i s co ns id erab ly diff

eren t fr om

th e err or s m ad e b y

a ta xp ay er wh os e fai lu re t o fi le , la te fil in g, o r la te pa ym en t i s ch ro ni c. Erro ne ou sl y de du ct in g alo ss ina y ear l at er th anth e co rrec t year is no t u su al ly con si de redto be a bl at an t t ax av oi da nc e te ch ni qu e, es pe ci al ly com pa redwith c hr on ic fai lu re t o fi le tax returns . Pet it io ne r’s li fe was ina st at e o f up he av al aft er the sec on d fi re an d t hr ou gh th e p eri odwhen th e return was du e. Sh e was ba rredfro m reo ccupyin g h er ap art m en t an d, dur in g the ti m es rel ev an t t o t he 20 09 return, s he was l iv in g u nd er co nd it io ns sh e fo un d t o b e d eh um an iz in g a t a YWCA; la te r, sh e ex pe rie nc edbo ut s of de pr es si on , a fal l fr om

a subwa y

pl at fo rm in20 09 , anda skul l fr actur e. Sh e was subjec t t o c on ti nu ou s m on it or in g a ndps y ch ia tri c ex am in at io n wh il e ho sp it al iz ed . She di d n otres um e co nduc t o f th e b us in es s s he ha d o pe rat edfro m he r ap art m en t (Tal k o f th e TownSin gl es ). Her li vi ng co nd it io ns an d t he res ul ti ng bo ut s o f de pr es si on m ak e rea so nabl e h er n otun de rs tand in g t he co rrec t year of de du ct io n. Tak in g i nt o a cco un t al l o f th e fac ts an d c irc um st an ces , we con cl ud e th at pe ti ti on er ex erci se d o rd in ary bu si ne ss care an d p ru de nc e und er the di ffi cu lt ci rcu m st an ces inwhi chsh e was li vi ng at t he ti m e le ad in g up t o t he du e d at e o f he r- 11 -

[* 11 ] 20 09 return a ndth athe r erro r (cl ai m in g ade du ct io n fo r a y ear l at er tha n the
cu rren t year) di d n otco ns ti tu te a co ns ci ou s, i nt en ti on al fai lu re o r rec kl es s in di ffer en ce t o h er t ax fil in g o bl ig at io ns for 20 09
. B. Fai lu re To Pay Sect io n 6 65 1( a)(2 ) pr ov id es foranad di ti on to tax wher e th ere i s a f ai lu re t o ti m el y pay th e am ou ntof t ax sh own on a return. A subs ti tu te forreturn p ro pe rly pr ep aredby the Secr et ary un de r se ct io n 6 02 0( b) is tre at edas t he return fi le d b y th e ta xp ay er fo r pu rp os es of d et erm in in g an a dd it io n t o t ax un de r se ct io n 6 65 1( a)(2 ). Sec. 6 65 1( g) (2 ). The 2 00 9 s ub st itut e fo r return m eet s the requi rem en ts of s ect io n 60 20 (b ). Res po nd en t h as m etth e b ur de n o f pr oduc ti on un de r se ct io n 7 49 1( c) b y pr oduc in g e vi de nc e sh owi ng th atpe ti ti on er was requi redto bu t d idno t t im el y pa y ta x fo r 20 09 . Thu s, t o p rev ai l, p et it io ne r m us t s ho w th athe r fai lu re t o t im el y pa y was du e to reas on ab le cau se an d n otwil lfu l n eg le ct . The rea so nabl e cau se st an da rdun de r se ct io n 6 65 1( a)(2 ) is gi ve n a n a na lysis si m il ar t o t ha t u nd er s ect io n 66 51 (a)( 1) . See Ru ss el l v . Comm is si on er, T.C. Mem o. 2 01 1- 81 , sl ip op . at 2 2 (“ The Co urt’s an al y si s i n B oyle ad dr es se d p en al ti es for fai lu re t o fi le tax returns un de r se ct io n 6 65 1( a)(1 ). The l an gu ag e co nc ern in g t he st an da rdfor fai lu re t o fi le a return i s i de nt ic al to th e la ng ua ge insec ti on s 6 65 1( a)(2 ) an d 6 65 6 fo r fai lu re t o- 12 -

[* 12 ] pa y an d t o d ep os it . W e se e n o re as on why th e Co urt’s an al y si s u nd er
se ct io n 6 65 1( a)(1 ) sh ou ldno t g ui de our an al y si s o f se ct io ns 66 51 (a)( 2) an d 6 65 6.” (quo ti ng E. W in d In du s., In c. v. Un it edSta te s, 1 93 F.3d49 9, 5 04 n.5 (3dCir
. 19 99 ))); see als o F ranCo rp . v. Un it edSta te s, 1 64 F.3d81 4, 8 16 n.2 (2dCir . 19 99 ) (“ Whi le th e an al y si s i n B oyle ad dr es se d p en al ti es forfai lu re t o fi le a return und er se ct io n 6 65 1( a)(1 ) an d n otfora fai lu re t o p ay or d ep os ittax es un de r se ct io n 66 51 (a)( 2) or s ect io n 6 65 6, the lan gu ag e co nc ern in g t he st an da rdis id en ti cal inall th ree p ro vi si on s. Un le ss othe rwis e n ot ed , th eref or e, we sh al l i nf

orm ou r an al y si s of sec ti on s 6 65 1( a)(2 ) an d 6 65 6 wi th th os e p rece de nt s tha t ad dr es s s ect io n 66 51 (a)( 1) .”); Vale n M fg . Co. v . Uni te d S tate s, 9 0 F .3d11 90 , 11 93 n.1 (6t h C ir. 19 96 ) (s am e). The refo re, fo r th e rea so ns st at edab ov e in ou r di sc us si on of the ad di ti on to ta x u nd er s ect io n 6 65 1( a)(1 ), we ho ldth atpe ti ti on er i s n otli ab le forth e ad di ti on to tax un de r se ct io n 6 65 1( a)(2 ) fo r fai lu re t o p ay ti m el y th e ta x due for20 09
. To re fle ctth e fo reg oi ng , Deci si on wil l b e en te redun de r Ru le 15 5.