T.C. Memo. 1997-462

UNITED STATES TAX COURT

MICHAEL S. PALMER, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 14177-95. Filed October 9, 1997.

Michael S. Palmer, pro se.

Roslyn D. Grand, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

COLVIN, Judge: Respondent determined deficiencies and

additions to tax in petitioner's income tax as follows:

 Additions to tax 

Year Deficiency Sec. 6651(a)(1) Sec. 6654

1992 $34,553 $8,638 $1,509

1993 31,360 7,840 1,314
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The issues for decision are:

1. Whether petitioner may deduct business expenses in the

amount of $70,170.68 for 1992 and $58,369.81 for 1993, as

petitioner contends; $17,924 for 1992 and $16,004 for 1993, as

respondent contends; or some other amounts. We hold that

petitioner may deduct business expenses of $17,924 for 1992 and

$16,004 for 1993.

2. Whether petitioner is liable for the self-employment

tax imposed by section 1401 for 1992 and 1993. We hold that he

is.

3. Whether petitioner is liable for the addition to tax

for failure to file under section 6651(a)(1) for 1992 and 1993. 

We hold that he is.

4. Whether petitioner is liable for the addition to tax

for underpaying his estimated taxes under section 6654 for 1992

and 1993. We hold that he is.

Unless otherwise indicated, section references are to the

Internal Revenue Code. Rule references are to the Tax Court

Rules of Practice and Procedure.

FINDINGS OF FACT

A. Petitioner

Petitioner lived in Marietta, Georgia, when he filed the

petition in this case. He was married during the years in issue.
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During 1992 and 1993, petitioner did construction work as a

subcontractor for Mark A. Palmer, Inc. (MAP). MAP paid

petitioner $119,492 in 1992 and $106,695 in 1993. MAP issued

Forms 1099-Misc to petitioner showing that it had paid him

nonemployee compensation in these amounts. MAP withheld no

Federal income tax from its payments to petitioner for 1992 or

1993.

Petitioner did not file individual income tax returns for

1992 and 1993.

B. Notice of Deficiency

On April 25, 1995, respondent mailed petitioner a notice of

deficiency. In it, respondent determined that MAP's payments to

petitioner were income to him and that petitioner had business

expenses of $17,924 for 1992 and $16,004 for 1993 (15 percent of

his compensation).

Petitioner did not issue Forms W-2 (wage statements) or

Forms 1099 (income statements) to any subcontractors. Petitioner

offered into evidence no canceled checks or receipts showing that

he paid subcontractors.

OPINION

A. Petitioner's Tax Protester Contentions

Petitioner makes several tax protester arguments and

submitted related documents and other materials which purportedly

support his contention that he is not subject to Federal income
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tax. For example, petitioner contends that he is not liable for

income tax because he is a citizen of Georgia and not of the

United States. He claims that respondent lacks delegated

authority to collect tax and that the Internal Revenue Code lacks

"positive law" as its foundation. He also contends that he is

exempt from income tax because taxable gross income does not

include compensation for services. Petitioner's contentions are

merely a rehash of frivolous tax protester arguments which have

been uniformly rejected by this and other courts. Abrams v.

Commissioner, 82 T.C. 403, 406-407 (1984); Rowlee v.

Commissioner, 80 T.C. 1111 (1983); McCoy v. Commissioner, 76 T.C.

1027 (1981), affd. 696 F.2d 1234 (9th Cir. 1983). We see no need

to catalog petitioner's contentions and painstakingly address

them. See, e.g., Crain v. Commissioner, 737 F.2d 1417 (5th Cir.

1984); Solomon v. Commissioner, T.C. Memo. 1993-509, affd.

without published opinion 42 F.3d 1391 (7th Cir. 1994). 

B. Unreported Income

Respondent determined that petitioner failed to report

nonemployee compensation income paid to him by MAP of $119,492 in

1992 and $106,695 in 1993. Respondent's determination is

presumed to be correct, and petitioner bears the burden of

proving otherwise. Rule 142(a); Welch v. Helvering, 290 U.S.

111, 115 (1933).
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The record includes copies of canceled checks written on a

MAP account in 1992 and 1993 payable to petitioner. The only

items on the checks that were not preprinted are the date,

amount, petitioner's name, and Mark A. Palmer's signature. There

are no references to invoices on the checks. The checks total

$119,492 for 1992 and $106,695 for 1993. The record includes

Forms 1099-Misc issued by MAP to petitioner that show that MAP

paid nonemployee compensation of $119,492.25 to petitioner for

1992 and $106,695.21 for 1993. Petitioner admits that MAP paid

him $119,492 in 1992 and $106,695 in 1993 as compensation for

labor. However, petitioner contends that he kept $49,321.57 of

the money MAP paid him in 1992 and $48,325.40 in 1993 and paid

the rest ($70,170.68 in 1992 and $58,369.81 in 1993) to other

people. Petitioner contends that the money he claims to have

paid to others was not income to him. Petitioner had no canceled

checks, receipts, or other documentary evidence showing that he

paid others. He did not issue any Forms W-2 or Forms 1099. He

did not call any witnesses to testify that he paid them. 

Petitioner has not shown that respondent's determination of

income for the years in issue is incorrect. Even if petitioner

paid some workers for their services, his testimony is not a

sufficient basis for deciding how much he paid to them. A

taxpayer must keep adequate records from which to calculate his

or her correct tax liability. Sec. 6001; sec. 1.6001-1(a),
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Income Tax Regs. We sustain respondent's determination of

petitioner's income for 1992 and 1993.

C. Deductions

1. Background

A taxpayer may deduct ordinary and necessary business

expenses. Sec. 162. To qualify for a business deduction, a

taxpayer must show that he or she paid or incurred the expense in

carrying on a trade or business in the taxable year and that the

expense was ordinary and necessary. Commissioner v. Lincoln Sav.

& Loan Association, 403 U.S. 345, 352 (1971). 

Respondent determined that petitioner had deductible

business expenses under section 162 equal to 15 percent of his

compensation; i.e., $17,924 for 1992 and $16,004 for 1993. To be

entitled to deduct more than respondent concedes, petitioner must

show that he had more business expenses than those amounts.

Petitioner contends that he may deduct amounts he paid to

others. As discussed at paragraph B, above, petitioner did not

convince us that he paid any amounts to others in the years in

issue.

2. Worker's Compensation Expense

Petitioner contends that he may deduct 12 percent of the

total amount that he claimed in the invoices he submitted to MAP

for worker's compensation insurance premiums. We disagree. 
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Petitioner testified that he usually had to pay 12 percent

of his compensation to MAP because his worker's compensation

insurance policy had expired and MAP allowed him to be covered

under MAP's policy. He testified that he received 12 percent

less than the check amount because of the worker's compensation

arrangement that he had with MAP. The checks in evidence show

that petitioner cashed them and that they were paid in full. 

There is no documentary evidence that petitioner gave MAP any

money for worker's compensation. 

A comparison of the canceled checks that MAP paid to

petitioner with copies of invoices that petitioner submitted to

MAP shows: (a) Some checks are 12 percent less than the total of

the invoices that immediately preceded issuance of the checks,

(b) some checks were for the total amount of the invoices that

immediately preceded issuance of the checks, and (c) some checks

were for more than the total of the invoices that immediately

preceded issuance of the checks. Some of the checks do not

appear to be related to any invoices. The comparison shows that

the differences between the amounts in the invoices and checks

were $550.01 for 1992 and $6,197.49 for 1993, much less than 12

percent of the invoice amounts. The differences are considerably

less than the amounts respondent allowed. We conclude that

petitioner has failed to show that he is entitled to deduct 12
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percent of the total amounts of his invoices for worker's

compensation insurance for the years in issue.

3. Truck Expenses

Petitioner contends that he may deduct truck expenses for a

Ford truck that he bought in 1989 and used in his business. 

Petitioner testified that he drove the truck about 100 miles a

day, 6 days a week, and that his use was purely for business. 

However, petitioner offered into evidence no receipts or

documentation for any truck expenses. A taxpayer may not deduct

these expenses unless he or she substantiates by adequate records

or sufficient evidence corroborating the taxpayer's own statement

the amount, time and place, and business purpose of the expense. 

Sec. 274(d)(4). Petitioner did not show that his truck was a

qualified nonpersonal use vehicle under section 274(d)(4),

274(i), and section 1.274-5T(k), Temporary Income Tax Regs., 50

Fed. Reg. 46033 (Nov. 6, 1985), which is exempt from the

substantiation requirements of section 274(d). We conclude that

petitioner may not deduct truck expenses for the years in issue.

4. Conclusion

Petitioner failed to carry his burden of proving that he is

entitled to deduct more than respondent allowed for the years in

issue.
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D. Self-Employment Tax

Respondent determined that petitioner is liable for

self-employment taxes under section 1401 for 1992 and 1993. 

Section 1401 imposes a tax on a taxpayer's self-employment

income. Self-employment income includes the net earnings from

self-employment derived by an individual during the taxable year. 

Sec. 1402(b). Net earnings from self-employment income means

gross income, less certain deductions, derived by an individual

from any trade or business carried on by the individual. Sec.

1402(a). Petitioner bears the burden of proving that he is not

liable for the taxes imposed by section 1401. Rule 142(a). 

Petitioner offered no evidence or argument on this issue

other than tax protester contentions. Petitioner is liable for

the self-employment tax for 1992 and 1993. 

E. Failure To File Tax Returns

Respondent determined that petitioner is liable for the

addition to tax for failure to file a return for 1992 and 1993. 

Sec. 6651(a). 

Section 6651(a)(1) imposes an addition to tax of up to 25

percent of the tax required to be shown on the return for failure

to timely file Federal income tax returns unless the taxpayer

shows that the failure was due to reasonable cause and not
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willful neglect. United States v. Boyle, 469 U.S. 241, 245

(1985); Baldwin v. Commissioner, 84 T.C. 859, 870 (1985); Davis

v. Commissioner, 81 T.C. 806, 820 (1983), affd. without published

opinion 767 F.2d 931 (9th Cir. 1985). To prove reasonable cause,

a taxpayer must show that he or 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 disprove that the late filing was due to willful neglect, a

taxpayer must prove that the late filing did not result from a

"conscious, intentional failure or reckless indifference." 

United States v. Boyle, supra at 245; Estate of Newton v.

Commissioner, T.C. Memo. 1990-208.

Petitioner offered no evidence to justify his failure to

file returns for 1992 and 1993. Petitioner argues that "IRS's

claim of Failure to File Penalty can only apply to a legitimate

tax. There is no tax on compensation, therefore there is no

penalty." This argument is frivolous.

We sustain respondent's determination that petitioner is

liable for the addition to tax for failure to file a return under

section 6651(a) for 1992 and 1993.
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F. Failure To Pay Estimated Tax

Respondent determined that petitioner is liable for the

addition to tax for failure to pay estimated tax under section

6654. 

The addition to tax for failure to pay estimated tax under

section 6654 is mandatory unless the taxpayer can show that he

meets one of the computational exceptions provided in section

6654(e), none of which apply here. Baldwin v. Commissioner,

supra at 871; Grosshandler v. Commissioner, 75 T.C. 1, 20-21

(1980). Petitioner offered no evidence about why he did not pay

estimated tax other than his protester arguments. We sustain

respondent's determination that petitioner is liable for the

addition to tax for failure to pay estimated tax under section

6654 for 1992 and 1993.

To reflect the foregoing,

Decision will be

entered for respondent.