T.C. Memo. 1996-557

UNITED STATES TAX COURT

DON H. WISDEN, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 9193-94. Filed December 26, 1996.

Don H. Wisden, pro se.

James B. Ausenbaugh, for respondent.

MEMORANDUM OPINION

CARLUZZO, Special Trial Judge: This case was heard pursuant

to the provisions of section 7443A(b)(3) and Rules 180, 181, and

182. Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the years in issue. All

Rule references are to the Tax Court Rules of Practice and

Procedure. 
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Respondent determined deficiencies and additions to tax in

petitioner's Federal income taxes as follows:

 Additions to Tax 

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

1987 $3,276 $737 $178

1988 3,649 821 234

1989 3,948 888 267

1990 4,014 874 254

1991 4,099 923 235

1992 4,196 944 181

After trial respondent conceded that there are no

deficiencies or additions to tax for the years 1987 and 1988. 

The issues remaining in dispute are: (1) Whether petitioner

earned income in the amounts attributed to him in the notice of

deficiency for the years 1989 through 1992; (2) if so, whether

certain of that income is subject to the self-employment tax

imposed by section 1401; (3) whether petitioner is liable for the

addition to tax under section 6651(a) for each year due to his

failure to file a Federal income tax return; and (4) whether

petitioner is liable for the addition to tax under section 6654

for each year due to his failure to make estimated tax payments.

Background

Some of the facts have been stipulated, and they are so

found. At the time that the petition was filed in this case,

petitioner resided in St. George, Utah. Petitioner did not file

a Federal income tax return or make any estimated Federal income
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tax payments for any of the years in issue. He did not maintain

any records from which the amount of his income or Federal income

tax liability for any of the years in issue could be computed.

Towards the end of 1992, petitioner received a letter from

respondent's collection division as a result of his failure to

file Federal income tax returns for 1989 and 1990. Respondent's

letter, which was signed by Thomas Moore, Chief, Automated

Collection Branch, indicated that petitioner had failed to

respond to prior "notices" and requested that petitioner contact

respondent by telephone at a number listed in the letter, or

provide respondent with a telephone number where respondent could

contact petitioner. Petitioner responded by letter dated January

22, 1993, that included 32 "interrogatories" requesting

impertinent information, such as "who owns the IRS", and seeking

Thomas Moore's address and a copy of his paycheck. Petitioner

concluded his letter with a statement that unless he "received

full and satisfactory answers and documents pursuant to the afore

stated interrogatories * * * within 3 days from the date of 

this letter", he would "consider the matter closed". More

correspondence between respondent and petitioner followed. 

Respondent repeatedly requested information related to years for

which petitioner had failed to file Federal income tax returns,

and petitioner repeatedly responded with letters that included

"interrogatories" similar to those in his January 22, 1993,

letter. The correspondence between the parties did nothing more
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1The words "employment", "employer", etc. are used for

convenience throughout this opinion. The use of such words is

not meant to imply the existence of an employer-employee

relationship.

than result in respondent's considering the matter, in the words

of respondent's examining revenue agent, as "basically a

protestor case".

Set against the background of this correspondence, the years

here in dispute were assigned to a revenue agent for examination

sometime in the fall of 1993. The revenue agent attempted

unsuccessfully to contact petitioner at petitioner's place of

employment1 on December 2, 1993. The examination was closed on

January 10, 1994, and the notice of deficiency upon which this

case is based was issued on March 23, 1994.

Because petitioner did not file Federal income tax returns

for the years in issue, or keep any records reflecting the amount

of income he earned and expenses he incurred during those years,

and because there was little meaningful communication between

petitioner and respondent during the examination stage,

respondent reconstructed petitioner's income for each year

relying in part upon information received from third-parties, and

in part upon information published by the United States Bureau of

Labor Statistics (BLS). The reconstruction of petitioner's

income for each year as set forth in the notice of deficiency is

summarized in the following table:

1989 1990 1991 1992
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Nonemployee Compensation $8,677 $6,792 -0- -0-

Wages -0- 5,729 $ 5,963 $9,328

BLS Statistics 8,137 4,605 11,606 8,768

The sources of the nonemployee compensation and wages are not

identified in the notice of deficiency.

In 1989 and 1990, petitioner was single and living in a

house owned by his sister-in-law in Tucson, Arizona. He

contributed undisclosed amounts to the support and maintenance of

the house. During these years he worked for Tucson Newspapers,

Inc., as a newspaper delivery person. He also worked for

Delivery Services, Inc., delivering packages to various locations

around Tucson. Petitioner earned income from both of these

companies but does not remember the amounts.

In late 1990, petitioner moved from Tucson to St. George,

Utah. In 1991, while living in St. George, petitioner held

several jobs. He was employed by Everex as an automated routing

machine operator for 3 months. He worked for 3 months as a hotel

desk clerk for the Heritage Inn Motel (Heritage) in St. George. 

He also worked as a desk clerk and a night auditor for the

Peppermill Hotel Resort and Casino (Peppermill) in Mesquite,

Nevada, for a period of 3 months. In each of these jobs

petitioner worked 40 hours per week. He was paid $5.50 per hour

at the Peppermill, $4.75 per hour at Everex, and $4.50 per hour

at the Heritage. Some of these jobs might have started in 1990

and a portion of the income might have been earned in that year. 

However, there is insufficient evidence in the record to support
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2On cross-examination, in response to questions specifically

addressing the dates when petitioner began working for certain

employers, petitioner testified:

I may have been off a year or so because I didn't

keep records of the amounts of compensation that I

received. I also didn't -- obviously didn't keep

records of the dates and times that I worked for the

various entities. So, if I said I worked for somebody

in * * * [one year] and I actually worked for them in *

* * [a different year], it's not because I'm trying to

mislead anybody or anything. It's because my memory is

faulty on those years in question.

such a finding, and we base our conclusion that all of the income

earned from these jobs was earned during 1991 on petitioner's

testimony, even though such testimony was admittedly imprecise.2

In addition, during 1991 petitioner worked for Motel 6 and

received $5,963 in wages from that employer. It is unknown to

what extent, if any, these periods of employment overlapped.

During 1992 petitioner worked for Motel 6. His wages ranged

from $4 to $4.25 per hour and his total compensation from that

employer amounted to $9,328 for the year. Petitioner was married

as of the close of 1992.

In the notice of deficiency respondent reconstructed

petitioner's gross income for each year in issue in accordance

with the above table. She also determined that the nonemployee

compensation and BLS income constitutes earnings from selfemployment subject to the tax imposed by section 1401. In

computing petitioner's taxable income for each year respondent

allowed deductions that are not in dispute, or that will be
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resolved in accordance with the disputed issues. Petitioner's

Federal income tax liability was computed for each year using the

tax rates applicable to single individuals. As previously

indicated, for each year respondent also determined that the

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

applicable.

Discussion

The relevant law involved in this case could not be more

firmly established. Compensation for services constitutes income

within the meaning of section 61 regardless of whether the income

was earned as an employee or from self-employment, section

61(a)(1) and (2), and such income is subject to the tax imposed

by section 1. To the extent that any of petitioner's arguments

suggest the contrary, they are summarily rejected, and we see no

reason for further discussion on this point. See Charczuk v.

Commissioner, 771 F.2d 471 (10th Cir. 1985), affg. T.C. Memo.

1983-433.

In addition to other taxes, section 1401 imposes a tax upon

an individual's self-employment income. This tax is commonly

referred to as the self-employment tax. In general, section

1402(b) defines self-employment income as net earnings from selfemployment, which generally consist of the gross income derived

by an individual from any trade or business carried on by such

individual, less the allowable deductions which are attributable

to such trade or business. Sec. 1402(a). The self-employment
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tax generally does not apply to compensation paid to an employee

by an employer. Sec. 1402(c)(2) and (3).

If a taxpayer fails to maintain adequate books and records

from which the taxpayer's income can be determined, respondent is

entitled to reconstruct the taxpayer's income through the use of

any reasonable method. Holland v. United States, 348 U.S. 121

(1954). Reliance upon BLS statistics in the reconstruction of a

taxpayer's income has been held to be reasonable. Pollard v.

Commissioner, 786 F.2d 1063 (11th Cir. 1986), affg. T.C. Memo.

1984-536; Giddio v. Commissioner, 54 T.C. 1530, 1533 (1970).

In this case it is undisputed that petitioner was engaged in

an income-producing activity during each of the years 1989

through 1992, and we find that respondent's method of

reconstructing petitioner's income for each year was reasonable

under the circumstances. That being the case, the determinations

made in the notice of deficiency are presumed correct, and

petitioner bears the burden of proving otherwise. Rule 142(a);

Welch v. Helvering, 290 U.S. 111, 115 (1933); see Jackson v.

Commissioner, 73 T.C. 394 (1979).

In support of his burden of proof petitioner offered little

more than his testimony, candidly admitting that he kept no

record of his earnings during the years in issue and that his

recollection as to the specifics of each year has faded. 

Although admitting to certain employment during the years in

issue, petitioner maintains that he never earned as much as
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3In a chambers conference that took place following the

trial, the Court warned petitioner against presenting frivolous

arguments in his brief and called his attention to sec. 6673. 

Petitioner complained in his brief that he was "intimidated" by

the Court during this conference. Due either to this perceived

intimidation, or the exercise of sound judgment, to his credit,

for the most part, he heeded the warning.

respondent attributed to him in the notice of deficiency. 

Initially, petitioner took the position that he was not a

"taxpayer" for the years in issue, and attempted at trial to

present support for that proposition; however, it appears that

petitioner has abandoned that position3 and essentially only

disputes respondent's determinations based upon the use of the

BLS statistics and her determinations that certain of his income

was subject to the self-employment tax.

As we view the case, we need only determine the amount and

characterization of the compensation that petitioner received

during each year. Our analysis, which follows on a year-by-year

basis, takes into account the presumption of correctness

applicable to respondent's determinations, and our impression

that petitioner was a credible witness at trial.

1989

During 1989, petitioner worked as a newspaper carrier for

Tucson Newspapers, Inc., and as a delivery person for Delivery

Services, Inc. Petitioner could not remember, and did not

estimate at trial, how much he earned from either of these jobs,
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although it appears that he was compensated on other than an

hourly basis.

In the notice of deficiency respondent determined that

petitioner received nonemployee compensation in the amount of

$8,677 from a source not identified in the record. We assume

that the source of such income was one of the above-mentioned

employers and that the BLS adjustment reasonably approximates the

amount of income earned from the other. At trial petitioner

admitted that he received compensation from both employers,

although he testified that with respect to each year, as far as

he knew, he has never been self-employed.

Given petitioner's poor recollection, his generalized

testimony that he was never self-employed is insufficient to

overcome the contrary presumption on the point, and in the

absence of any evidence to rebut the reconstruction of his

unreported income, including the use of BLS statistics, we find

that all of the income attributable to petitioner for the year

1989 constitutes earnings from self-employment within the meaning

of section 1402, subject to the tax imposed by section 1401. 

Accordingly, the deficiency determined by respondent for the year

1989 is sustained.

1990

Although not entirely free from doubt, it appears that

petitioner's employment situation for 1990 was the same as 1989. 
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Petitioner was no more specific about the income he earned in

1990 than he was with respect to 1989.

In the notice of deficiency, in addition to an adjustment

based upon BLS statistics, respondent determined that petitioner

earned $6,792 in nonemployee compensation and had wage income in

the amount of $5,729. The sources of the nonemployee

compensation and wage income were not specifically identified,

but petitioner did not specifically deny the receipt of such

income. We assume that the sources of income were Tucson

Newspapers, Inc., and Delivery Services, Inc. Having found

petitioner to be a credible witness, we accept his contention

that he had no other sources of income for the year 1990. We

further find that the nonemployee compensation is subject to the

self-employment tax imposed by section 1401. We reject the

portion of respondent's adjustment that is based upon BLS

statistics.

1991

Although the exact date is unknown, petitioner moved to St.

George, Utah, in late 1990. After he moved to St. George,

petitioner worked for Everex, Heritage, and Peppermill. Based

upon his testimony we find that he earned the following income in

connection with these jobs:

Employer Amount Computation 

Everex $2,280 12 weeks x 40 hrs. per week x $4.75 per hr.

Heritage 2,160 12 weeks x 40 hrs. per week x 4.50 per hr.

Peppermill 2,640 12 weeks x 40 hrs. per week x 5.50 per hr.
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In addition petitioner also worked for Motel 6 during 1991 and

received wage income in the amount of $5,963. 

In the notice of deficiency respondent determined that

petitioner received wage income from Motel 6 in the above amount

and that petitioner received additional income based upon BLS

statistics in the amount of $11,606. Respondent further

determined that this additional income was subject to the selfemployment tax. We find that petitioner received wage income

from Motel 6 as determined in the notice of deficiency, that he

had income from Everex, Heritage, and Peppermill in the amounts

listed above, and that none of the income is subject to the selfemployment tax. In doing so, we reject the portion of

respondent's adjustment that is based upon BLS statistics.

1992

In 1992 petitioner was employed by Motel 6. He earned

$9,328, and respondent appropriately made such an adjustment in

the notice of deficiency. We accept petitioner's assertion that

he had no other income for the year 1992. Consequently, we

reject the portion of respondent's adjustment based upon BLS

statistics. Because petitioner was married as of the close of

1992, his Federal income tax liability for 1992 must be computed

accordingly.

Section 6651(a)(1) Addition to Tax

For each year in issue respondent determined that petitioner

is liable for the addition to tax under section 6651(a)(1) for
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his failure to file a Federal income tax return. Section

6651(a)(1) provides for an addition to tax in the amount of 5

percent of the amount of the tax if the failure to file is for

not more than 1 month, with an additional 5 percent for each

month in which the failure to file continues, to a maximum of 25

percent of the tax in the aggregate. The addition to tax is

applicable unless it is shown that the failure to file is due to

reasonable cause and not due to willful neglect. 

There is no evidence in the record that suggests that

petitioner's failure to file a Federal income tax return for any

year in issue was due to reasonable cause and not due to willful

neglect. It was petitioner's burden to produce such evidence,

Rule 142(a), and this he has failed to do. Consequently,

respondent's determination that petitioner is liable for the

addition to tax under section 6651(a)(1) for each year in issue

is sustained.

Section 6654 Addition to Tax

For each year in issue respondent determined that petitioner

is liable for the addition to tax under section 6654(a) for his

failure to make estimated tax payments. Subject to exceptions

provided in the statute, the imposition of the addition to tax is

otherwise automatic if the amount of the withholdings and

estimated payments does not equal statutorily designated amounts. 

Niedringhaus v. Commissioner, 99 T.C. 202, 222 (1992);

Grosshandler v. Commissioner, 75 T.C. 1, 20-21 (1980). 
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Because respondent conceded that petitioner had no tax

liability for the year 1988, it follows that petitioner is not

liable for the addition to tax under section 6654 for the year

1989. Sec. 6654(e)(2). Although petitioner did not make any

estimated tax payments during any of the years in issue, it

appears that some of petitioner's employers withheld Federal

income taxes from the wages paid to him. Whether the conditions

necessary for the imposition of the addition to tax exist with

respect to the other years, and if so whether any exception

applies, can only be determined after the Rule 155 computations

have been submitted.

To reflect the foregoing,

Decision will be entered

under Rule 155.