United States Tax Court

T.C. Summary Opinion 2023-25

ROBERT R. DOGGART,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

—————

Docket No. 6928-21S. Filed July 27, 2023.

—————

Robert R. Doggart, pro se.

Phillip A. Lipscomb and John S. Hitt, for respondent.

SUMMARY OPINION

MARSHALL, Judge: This case was heard pursuant to the 

provisions of section 7463 of the Internal Revenue Code in effect when 

the Petition was filed.1 Pursuant to section 7463(b), the decision to be 

entered is not reviewable by any other court, and this Opinion shall not 

be treated as precedent for any other case.

Respondent determined a deficiency of $9,910 and additions to 

tax pursuant to sections 6651(a)(1) and (2) and 6654 of $1,434, $1,147, 

and $143, respectively, for petitioner’s 2017 tax year.2 After 

concessions, the issues remaining for decision are (1) whether petitioner 

received constructive distributions of income from two life insurance 

policies; (2) whether petitioner is entitled to deduct rental property 

1 Unless otherwise indicated, statutory references are to the Internal Revenue 

Code, Title 26 U.S.C. (Code), in effect at all relevant times, and Rule references are to 

the Tax Court Rules of Practice and Procedure.

2 All monetary amounts have been rounded to the nearest dollar.

Served 07/27/23
2

expenses reported on Schedule E, Supplemental Income and Loss; and 

(3) whether petitioner is liable for the additions to tax under sections 

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

Background

On February 16, 2017, petitioner was incarcerated. He remained 

incarcerated through the time of trial. Petitioner resided at his home in 

Signal Mountain, Tennessee (Signal Mountain Property), for some years 

before 2017 and through February 16, 2017. The Signal Mountain 

Property was then left vacant until September 15, 2017. As of that date 

through the end of 2017, petitioner rented the Signal Mountain Property 

to his daughter for $500 per month. Petitioner concedes that $500 per 

month was significantly below the fair market rental value of the 

property.

Before 2017 petitioner took out a series of loans against two life 

insurance policies that he held with Prudential Insurance Co. of 

America (Prudential). The cash value of his policies served as collateral 

for the loans. While incarcerated, petitioner stopped paying premiums 

on the two policies. As a result, each policy lapsed and Prudential used 

the cash values of the policies to repay the loans plus interest due. 

Prudential subsequently issued petitioner Form 1099–R, Distributions 

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

Insurance Contracts, etc., for 2017 with respect to each policy and 

reported taxable distributions from life insurance to the Internal 

Revenue Service (IRS).3 The amounts reported as taxable on the Forms 

1099–R were $13,214 and $5,366, calculated with respect to each policy 

as the outstanding loan amount repaid by the cash value of the policy 

less the total premiums petitioner paid with respect to the policy. Upon 

inquiry by petitioner, Prudential issued to petitioner a letter dated 

September 1, 2021, with respect to each policy explaining these 

calculations.

Petitioner failed to file an income tax return for the 2017 tax year 

and to make estimated tax payments or otherwise fully pay his tax due. 

Petitioner also failed to file an income tax return for the 2016 tax year.4 

3 The Forms 1099–R were cited in the notice of deficiency issued to petitioner 

and addressed by the parties at trial. There is no dispute that the Forms 1099–R were 

issued. We note, however, that the parties did not submit the forms into evidence.

4 Petitioner concedes that in years before 2016 he was aware that there were 

due dates for filing returns and paying tax.
3

On or around March 9, 2020, the IRS prepared a substitute for return 

(SFR) pursuant to section 6020(b) for petitioner’s 2017 tax year.5 On 

November 30, 2020, respondent issued petitioner a notice of deficiency 

for the 2017 tax year, which, inter alia, included in petitioner’s gross 

income the taxable distribution amounts reported by Prudential. On 

February 25, 2021, while residing in Kentucky, petitioner timely filed a 

Petition with this Court.

On or about September 2, 2021, petitioner prepared a proposed 

income tax return for the 2017 tax year, which he provided to 

respondent. The proposed return claimed a rental real estate loss

deduction of $77,675 in connection with the Signal Mountain Property. 

In calculating the loss on Schedule E, petitioner claimed deductions for 

the following alleged expenses: $1,762 for insurance for the entire 2017 

tax year; $650 for repairs paid for by his daughter in exchange for an 

offset in rent; $3,670 for utilities for January 1 through September 15, 

2017; and $73,593 for depreciation that petitioner calculated using the 

appraised value of the property and a seven-year cost-recovery table, 

which he selected because it corresponded to the length of his remaining 

prison sentence. At trial petitioner conceded that the amount of his 

claimed loss was limited to $25,000. See § 469(i). Petitioner did not 

provide any documentation to substantiate the alleged expenses.

Discussion

I. Burden of Proof, In General

Generally speaking, the Commissioner’s determinations in a 

notice of deficiency are presumed correct, and the taxpayer bears the 

burden of proving by a preponderance of the evidence that the 

determinations are in error. Rule 142(a); Welch v. Helvering, 290 U.S. 

111, 115 (1933). Section 7491(a) provides that if, in any court 

proceeding, a taxpayer introduces credible evidence with respect to any 

factual issues relevant to ascertaining the liability of the taxpayer for 

any tax imposed by subtitle A or B of the Code and meets other 

prerequisites, the burden of proof shall shift to the Commissioner with 

respect to that issue. Higbee v. Commissioner, 116 T.C. 438, 440–41 

(2001). Petitioner has neither argued nor shown that he has satisfied 

5 With respect to the SFR, respondent introduced into evidence a signed IRC 

Section 6020(b) ASFR Certification and corresponding Letter 2566–ASFR-30-Day 

Proposed Assessment, along with petitioner’s transcript of account for 2017.
4

the requirements of section 7491(a) to shift the burden of proof to 

respondent and thus bears the burden of proof in this case.

II. Income from Life Insurance

We first decide whether petitioner received constructive 

distributions of $13,214 and $5,366 as reported on Forms 1099–R with 

respect to two life insurance policies. When a case involves unreported 

income and is appealable to the U.S. Court of Appeals for the Sixth 

Circuit, as is this case, the presumption of correctness does not attach 

to the Commissioner’s determination of such income unless the 

Commissioner can provide at least a “minimal” factual predicate or 

foundation of substantive evidence linking the taxpayer to the incomeproducing activity or to the receipt of funds. See United States v. Walton, 

909 F.2d 915, 918–19 (6th Cir. 1990); Garavaglia v. Commissioner, T.C. 

Memo. 2011-228, slip op. at 47–48, aff’d, 521 F. App’x 476 (6th Cir. 

2013). Once the Commissioner makes the required threshold showing, 

the burden shifts to the taxpayer to prove by a preponderance of the 

evidence that the Commissioner’s determination is erroneous or 

arbitrary. Walquist v. Commissioner, 152 T.C. 61, 67–68 (2019) (citing 

Helvering v. Taylor, 293 U.S. 507, 515 (1935)).

The $13,214 and $5,366 taxable distribution amounts reported on 

the Forms 1099–R are linked to life insurance policies petitioner held 

with Prudential and are supported by Prudential’s letters explaining 

their calculations. Petitioner admits to holding the policies and to 

having outstanding loans against them. Petitioner also admits that the 

policies lapsed in 2017 and raises no dispute with respect to the 

derivation or computation of the amounts reported on the Forms 1099–R 

upon the policies’ termination. Cf. § 6201(d). Respondent’s 

determination of unreported income is therefore entitled to the 

presumption of correctness, and petitioner must come forward with 

proof that the determination is in error. See Martinez v. Commissioner, 

T.C. Memo. 2016-182, at *4–5; Feder v. Commissioner, T.C. Memo. 2012 

10, slip op. at 7; see also Banister v. Commissioner, T.C. Memo. 2008 201, 

slip op. at 5 (holding that a notice of deficiency indicating third-party 

payers paid the taxpayer the specific amounts in question satisfied the 

minimal evidentiary burden even though direct evidence was not in the 

record), aff’d, 418 F. App’x 637 (9th Cir. 2011).

Gross income includes income derived from life insurance 

contracts. § 61(a)(9); Commissioner v. Glenshaw Glass Co., 348 U.S. 

426, 429 (1955). Amounts received from life insurance contracts other 
5

than as a death benefit or annuity are included in gross income to the 

extent that they exceed the investment in the contract. §§ 72(b), 

(e)(1)(A), (5)(A), (C), 101(a). The “investment in the contract” is the 

aggregate amount of the premiums paid less amounts previously 

received as income from the contract but excluded from gross income 

calculations. § 72(e)(6).

A taxpayer can receive a constructive distribution from the 

termination of his life insurance policy, which must be included in gross 

income, even if the taxpayer does not physically receive cash or other 

property from the policy during the tax year. Black v. Commissioner, 

T.C. Memo. 2014-27, at *8–9; Brown v. Commissioner, T.C. Memo. 2011 

83, slip op. at 10–12, aff’d, 693 F.3d 765 (7th Cir. 2012); Sanders v. 

Commissioner, T.C. Memo. 2010-279, slip op. at 2–6; McGowen v. 

Commissioner, T.C. Memo. 2009-285, slip op. at 7–12, aff’d, 438 F. App’x 

686 (10th Cir. 2011); Barr v. Commissioner, T.C. Memo. 2009-250, slip 

op. at 3; Atwood v. Commissioner, T.C. Memo. 1999-61, slip op. at 4–6. 

The termination of both a life insurance policy and indebtedness against 

the policy functions as the application of the cash value of the insurance 

policy against the debt owed. McGowen, T.C. Memo. 2009 285, slip op. 

at 8–12. The application of the cash value of a life insurance policy 

against an outstanding loan is no different from distributing the 

proceeds of the policy to the taxpayer to permit the taxpayer to use those 

proceeds to pay off the loan. Feder, T.C. Memo. 2012-10, slip op. at 11. 

A constructive distribution is included in gross income insofar as it 

exceeds the taxpayer’s investment in the life insurance contract. 

Sanders, T.C. Memo. 2010-279, slip op. at 5.

When petitioner stopped paying the premiums on his two life 

insurance policies, Prudential notified him that the lack of payments 

resulted in the termination of his loans and underlying policies. The 

terminations effectively applied the cash values of his policies against 

the loans in extinction of both. Petitioner’s investment in the two 

contracts is equal to the sum of his premiums paid. When the policies 

were terminated and the cash values of the policies were taken to repay 

the loans, petitioner constructively received the cash values of the 

policies. The amounts constructively received in excess of his 

investments in the contracts are therefore includible in gross income. 

Accordingly, we conclude that petitioner, who disputes neither the 

amounts of the loans extinguished by the policies’ cash values nor the 

amounts of his investments in those policies, received and failed to 

report life insurance income from the two lapsed policies as Prudential 

calculated.
6

Petitioner contends that termination of his life insurance policies 

should not result in income for the 2017 tax year because he did not 

actually receive any money at the time the policies were terminated. 

Petitioner argues that distributions were instead taxable, if at all, when 

he initiated the loans with Prudential and received cash. Petitioner has 

not, however, argued or otherwise shown that his policy loans were not 

true loans. And it is well established that the receipt of cash in the form 

of a bona fide loan does not constitute income so long as an obligation to 

repay the borrowing remains. Commissioner v. Indianapolis Power & 

Light Co., 493 U.S. 203, 207–08 (1990); Commissioner v. Tufts, 461 U.S. 

300, 307 (1983). Loans taken out against life insurance policies can 

constitute bona fide loans. Black, T.C. Memo. 2014-27, at *8. Because 

petitioner’s borrowings had an obligation of repayment at the time they 

were taken, they did not constitute income when initially received. 

While petitioner did not physically receive money upon the lapse of his 

policies, he no longer had to repay the loans, so it is “irrelevant that no 

money changed hands.” Brown v. Commissioner, 693 F.3d at 768. As 

physical receipt of cash does not dictate taxability, the initial 

disbursement of the loans was not taxable. Likewise, the lack of 

distribution of cash to petitioner does not render untaxable the 

termination of his life insurance policies.

III. Rental Property Deductions

We next decide whether petitioner is entitled to deduct rental real 

estate expenses reported on his proposed Schedule E with respect to the 

Signal Mountain Property. Petitioner bears the burden of proving 

entitlement to any deductions claimed. See Rule 142(a); INDOPCO, Inc.

v. Commissioner, 503 U.S. 79, 84 (1992); Deputy v. du Pont, 308 U.S. 

488, 493 (1940).

Respondent disputes petitioner’s entitlement to the Schedule E 

deductions for the reported expenses on multiple grounds. He primarily 

contends that the expenses are nondeductible because of petitioner’s use 

of the Signal Mountain Property as a residence during 2017.6 Because 

we agree, we do not address respondent’s other arguments on this point.

6 Respondent also contends that petitioner failed to substantiate the expenses 

and that the expenses were personal. As to the depreciation expense, respondent 

further argues that petitioner used the incorrect cost basis and the incorrect recovery 

period for calculating the expense. Finally, he argues that any rental real estate loss 

petitioner did incur would be nondeductible pursuant to the general passive activity 
7

Taxpayers must comply with the specific requirements for any 

deductions claimed. See INDOPCO, Inc. v. Commissioner, 503 U.S. 

at 84; New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). 

Personal expenses may not be deducted unless there is an explicitly 

provided exception. § 262(a). Under section 212, ordinary and necessary 

expenses paid or incurred for the managing or maintaining of property 

held to produce income shall be deductible. Where a taxpayer uses a 

dwelling as a personal residence during the taxable year, however, 

deductions under section 212 are not allowed. §§ 262(a), 280A(a), (d); 

Hunter v. Commissioner, T.C. Memo. 2014-164, at *6 (citing Osborne v. 

Commissioner, T.C. Memo. 1987-553). A dwelling is considered the 

personal residence of the taxpayer for this purpose if the taxpayer used 

the dwelling for personal purposes for a period exceeding the greater of 

14 days or 10% of the days the dwelling was rented at fair market value 

during the tax year. § 280A(d).

Petitioner resided at the property from January 1 until February 

16, 2017, exceeding the 14-day maximum for this reason alone. 

Petitioner is also considered to have used the Signal Mountain Property 

for personal purposes on the days it was rented to his daughter for less 

than fair market value. See § 280A(d)(2)(A), (C), (3)(A). The Signal 

Mountain Property is thus classified as petitioner’s personal residence 

for the 2017 tax year. Accordingly, petitioner may not deduct any of the 

alleged expenses he reported with respect to the Signal Mountain 

Property.

IV. Additions to Tax

Also at issue are additions to tax for failure to file under section 

6651(a)(1), failure to pay the amount shown under section 6651(a)(2), 

and failure to pay estimated tax under section 6654. Pursuant to section 

7491(c), respondent bears the burden of production with respect to 

petitioner’s liability for these additions to tax. In order to satisfy his 

burden, respondent must produce sufficient evidence indicating that it 

is appropriate to impose the relevant addition to tax. Higbee, 116 T.C. 

at 446.

A. Section 6651(a)(1)

Section 6651(a)(1) provides for an addition to tax if a taxpayer 

fails to file timely a required income tax return, unless the taxpayer 

loss limitation of section 469(a) and that petitioner failed to show that the $25,000 

offset of section 469(i) applies.
8

proves that such failure is due to reasonable cause and is not due to 

willful neglect. United States v. Boyle, 469 U.S. 241, 245 (1985). 

Respondent introduced evidence demonstrating that petitioner was 

obligated to file a tax return for the 2017 tax year but that he did not do 

so. See § 6012. This is sufficient to satisfy respondent’s burden of 

production. See Wheeler v. Commissioner, 127 T.C. 200, 207–08 (2006), 

aff’d, 521 F.3d 1289 (10th Cir. 2008).

Petitioner testified that he had “no valid excuse” for not having 

filed except for ignorance of the requirement to file while incarcerated. 

Petitioner had knowledge of a general duty to file as he testified he had 

done so in previous years. Incarceration is not a reasonable cause for 

failure to file. See Llorente v. Commissioner, 74 T.C. 260, 268–69 (1980), 

aff’d in part, rev’d in part on other grounds and remanded, 649 F.2d 152 

(2d Cir. 1981); George v. Commissioner, T.C. Memo. 2019-128, at *9–12, 

aff’d, 821 F. App’x 76 (3d Cir. 2020). In the absence of evidence of 

reasonable cause, we conclude that petitioner is liable for the addition 

to tax for failure to file under section 6651(a)(1).

B. Section 6651(a)(2)

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

timely the amount shown as tax due on a return. In a case such as this, 

where the taxpayer did not file a return, the Commissioner must 

introduce evidence that an SFR satisfying the requirements of section 

6020(b) was made. Wheeler, 127 T.C. at 210. A return made under 

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

purposes of determining the amount of the addition” under section 

6651(a)(2). § 6651(g)(2).

Respondent produced evidence that the IRS prepared an SFR 

satisfying the requirements of section 6020(b) for petitioner’s 2017 tax 

year and that petitioner failed to pay the amount shown on the SFR. 

Respondent has therefore met his burden of production for the addition 

to tax under section 6651(a)(2). See Burnett v. Commissioner, T.C. 

Memo. 2023-46, at *6 n.7; Rivera v. Commissioner, T.C. Memo. 2009 215, 

slip op. at 7. Petitioner’s only argument with respect to the addition is 

that he was ignorant of the law requiring him to continue paying tax 

while incarcerated. As with the failure to file a return, incarceration is 

not a reasonable cause for the failure to pay tax. See George, T.C. Memo. 

2019-128, at *9–12; Kohn v. Commissioner, T.C. Memo. 2009-117, 

slip op. at 11–14, aff’d, 377 F. App’x 578 (8th Cir. 2010). Accordingly, 
9

petitioner is liable for the addition to tax for failure to pay under section 

6651(a)(2).

C. Section 6654

Section 6654 imposes an addition to tax on an individual taxpayer 

who underpays his estimated tax. The addition to tax is calculated with 

reference to four required installment payments of the taxpayer’s 

estimated tax liability. § 6654(c)(1). Each required installment of 

estimated tax is equal to 25% of the required annual payment. 

§ 6654(d)(1)(A). The required annual payment is equal to the lesser of 

(1) 90% of the tax shown on the individual’s return for that year (or, if 

no return is filed, 90% of his tax for such year), or (2) if the individual 

filed a return for the immediately preceding taxable year, 100% of the 

tax shown on that return. § 6654(d)(1)(B). In order to satisfy the burden 

of production under section 7491(c) regarding an individual’s liability for 

the section 6654 addition to tax, the Commissioner, at a minimum, must 

produce evidence necessary to enable the Court to conclude that the 

individual had a required annual payment under section 6654(d)(1)(B). 

Wheeler, 127 T.C. at 210–11.

Respondent has met his burden by introducing evidence 

demonstrating that petitioner had a tax liability for the 2017 tax year, 

that petitioner did not file a return for the 2017 or 2016 tax year, and 

that petitioner did not make any estimated tax payments for the 2017 

tax year. Cf. id. at 211–12. Petitioner did not contest this evidence but 

rather reiterated his claim that he had reasonable cause for his failure 

to pay: his ignorance of the requirement to pay tax while incarcerated. 

Even if we were to find this argument persuasive, section 6654 provides 

no general exception for reasonable cause or lack of willful neglect. See 

Mendes v. Commissioner, 121 T.C. 308, 323 (2003). Accordingly, 

petitioner is liable for the addition to tax for failure to pay estimated tax 

under section 6654.

In reaching the holdings herein, we have considered all 

arguments put forth by the parties, and to the extent they are not 

discussed above, we consider them moot, irrelevant, or without merit.

To reflect the foregoing,

Decision will be entered under Rule 155.