T.C. Memo. 1998-236

UNITED STATES TAX COURT

MICHAEL AND CHRISTA DEE RICHARDSON, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 5122-97. Filed July 2, 1998.

Michael Richardson, pro se.

Richard W. Kennedy, for respondent.

MEMORANDUM OPINION

PAJAK, Special Trial Judge: This case was heard pursuant to

section 7443A(b)(3) of the Code and Rules 180, 181, and 182. All

section references are to the Internal Revenue Code in effect for

the year in issue. All Rule references are to the Tax Court

Rules of Practice and Procedure.
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Respondent determined a deficiency in petitioners' 1993

Federal income tax in the amount of $2,380, an addition to tax

under section 6651(a) in the amount of $187.15, and an accuracyrelated penalty under section 6662 in the amount of $476.

The issues are: (1) Whether petitioners are entitled to

claim a theft loss; (2) whether petitioners are liable for the

addition to tax under section 6651(a)(1); and (3) whether

petitioners are liable for the accuracy-related penalty under

section 6662(a).

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

Petitioners resided in Ogden, Utah, at the time the petition was

filed.

Petitioner Michael Richardson (petitioner) filed a Schedule

C with his 1993 Federal income tax return. On the Schedule C, he

listed his business as mining with a business name of Shoe String

Mining. No income or expenses were listed except for $8,500 of

"other" expenses which resulted in a loss in that amount. On the

Schedule C, petitioner stated that the $8,500 was "stolen

equipment not covered by insurance" and listed:

955 Catapiller [sic] Track Loader 5000

35 KW Diesel Gen. 3000

Water Pump 500

In the notice of deficiency, respondent disallowed the

$8,500 claimed loss.
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At trial, petitioner explained that he bought the equipment

to use in a gold mining venture he carried on in 1989 in Nevada

on property owned by the Bureau of Land Management. Some time in

1989 he ceased to carry on this venture and went back to work for

a railroad. He covered the equipment with canvas and left it on

the mining site. As petitioner put it, this "was way out in the

middle of nowhere." Petitioner testified that the closest

building was probably 30 miles from the site and the closest town

was about 80 to 90 miles away. Petitioner did not insure the

equipment. He testified that he last saw the equipment in

approximately July 1992 and saw that the equipment was missing in

approximately June 1993. Petitioner did not file a police report

at any time.

Section 165 allows as a deduction theft losses sustained

during the year not compensated by insurance or otherwise. In

general, whether or not a theft loss is incurred in a trade or

business, the amount of the loss to be taken into account is the

lesser of either (1) the fair market value of the property

immediately before the theft, or (2) the adjusted basis of the

property. Secs. 1.165-7 and 1.165-8(c), Income Tax Regs.; see

also sec. 165(h). In the case of property used in a trade or

business, if the fair market value of the property immediately

before the theft is less than the adjusted basis, the amount of

the adjusted basis would be treated as the amount of the loss. 
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Id. Section 165(e) provides that "any loss arising from theft

shall be treated as sustained during the taxable year in which

the taxpayer discovers such loss."

Petitioner must prove the adjusted basis of his property. 

Millsap v. Commissioner, 46 T.C. 751, 760 (1966), affd. 387 F.2d

420 (8th Cir. 1968). A loss cannot be computed where the

taxpayer's basis in property is not proven. Id.; Leighton v.

Commissioner, T.C. Memo. 1995-515, affd. without published

opinion 108 F.3d 332 (5th Cir. 1997); Fisher v. Commissioner,

T.C. Memo. 1986-141.

Petitioner presented no records to support even the

existence of the equipment. He presented no bills of sale,

receipts, canceled checks, or business records to establish the

basis of the equipment. Petitioner testified as to dollar

amounts regarding the equipment but his testimony was not

credible. We are not required to accept the self-serving

testimony of petitioner as gospel. Tokarski v. Commissioner, 87

T.C. 74, 77 (1986). We find that petitioners are not entitled to

deduct any loss under section 165 because petitioner failed to

prove his adjusted basis in the property.

Calendar year individual taxpayers must file a Federal

income tax return by April 15 following the close of the calendar

year. Sec. 6072(a). Section 6651(a)(1) imposes an addition to

tax for failure to file a Federal income tax return by its due
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date, determined with regard to any extension of time for filing

previously granted, unless such failure was due to reasonable

cause and not willful neglect. Petitioners must prove both

reasonable cause and a lack of willful neglect. Petitioners

provided no reasonable cause as required by section 6651(a)(1)

for the late filing of their return. Accordingly, respondent's

determination of the addition to tax under section 6651(a) is

sustained.

Finally, we must decide whether petitioners are liable for

an accuracy-related penalty in the amount of $476 for 1993. 

Section 6662(a) imposes an accuracy-related penalty in the amount

of 20 percent of the portion of an underpayment of tax

attributable to negligence or disregard of rules or regulations. 

Sec. 6662(a) and (b)(1). Negligence is any failure to make a

reasonable attempt to comply with the provisions of the Internal

Revenue laws. Sec. 6662(c); sec. 1.6662-3(b)(1), Income Tax

Regs. Moreover, negligence is the failure to exercise due care

or the failure to do what a reasonable and prudent person would

do under the circumstances. Neely v. Commissioner, 85 T.C. 934,

947 (1985). Disregard includes any careless, reckless, or

intentional disregard of rules or regulations. Sec. 6662(c);

sec. 1.6662-3(b)(2), Income Tax Regs. On this record, we uphold

respondent's determination that the penalty under section 6662(a)

should be imposed.
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Decision will be entered

for respondent.