1 All section references are to the Internal Revenue Code in

effect for the year at issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure, unless otherwise

indicated.

T.C. Memo. 1996-162

UNITED STATES TAX COURT

MARK MASSINGILL AND INDRA MASSINGILL, Petitioners v.

 COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 19193-94. Filed March 28, 1996.

Mark and Indra Massingill, pro sese.

David W. Sorenson, for respondent. 

MEMORANDUM FINDINGS OF FACT AND OPINION

GERBER, Judge: Respondent determined a $11,006 deficiency

in petitioners’ 1990 Federal income tax. Respondent also

determined an addition to tax under section 6651(a)(1)1 of $1,917

and an accuracy-related penalty under section 6662(a) of $1,390. 
2

2 Respondent has conceded that the sec. 6662(a) penalty is

not applicable in this case.

After concessions, the issues remaining for our consideration

are: (1) Whether, in 1990, petitioners were engaged in an

activity for profit pursuant to section 183(a); and (2) whether

petitioners are liable for the addition to tax under 6651(a)(1)

for 1990.2

FINDINGS OF FACT

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

Petitioners resided in Modesto, California, at the time the

petition in this case was filed. Mark Massingill (petitioner) is

an individual proprietor who, at various times, has engaged in

engineering and metal mining and refining activities. These

activities included, but were not limited to: The engineering

and fabrication of industrial controls and laboratory

instruments; recovering, refining, and selling mercury; testing

and examining mineral properties; and miscellaneous researching

and developing. The activity in question (metal mining and

refining) does not involve the employment of individuals other

than petitioner.

Petitioner developed his knowledge of the metal mining and

refining field from an interest that began in his childhood. He

possessed a rock collection upon which he performed chemical

analyses of minerals and ore specimens. Petitioner fabricated

his own chemicals such as nitric and hydrochloric acids in order
3

to perform these experiments. In high school, petitioner studied

chemistry. In college, petitioner majored in chemistry,

mathematics, and physics. Petitioner also had performed some

electrical engineering course work. Subsequently, petitioner

terminated his college education in order to work full time as an

electrical technician. Later, petitioner independently started a

part-time business entailing the purchase of laboratory

instruments at U.S. Government surplus sales. Then, he

reconditioned and resold these items to laboratories.

In March 1977, petitioner began working full time on his own

behalf. His desire at that time was to be "self-employed" in

order to do technical research and development. Petitioner would

engineer, fabricate and service controls for industrial fine

equipment. These operations were petitioner’s primary income

during 1977 and 1978.

In 1979, petitioner began to experiment with recovering

mercury from scrap batteries obtained from the U.S. General

Services Administration and U.S. Department of Defense (DOD)

surplus sales. Petitioner was spurred by the fact that in 1978

the price of mercury increased in the New York commodities market

from slightly more than $1 a pound to close to $3 a pound. In

past years, the price of mercury had been close to $1 dollar a

pound. The surplus scrap batteries purchased ranged from watch

batteries to 20-pound batteries. Petitioner developed a

technique to extract and refine mercury from scrap batteries and
4

put the resulting solution in bottles. Petitioner sold the

reclaimed mercury to individuals and entities in the gold mining

industry for use in extracting the metal from ores. Sometime in

1980, petitioner began experiencing competition from an

individual who was also recovering mercury from batteries. The

competitor obtained batteries from the same sources as

petitioner. By 1981, petitioner’s primary source of income was

the recovery and sale of purified mercury directly to users.

Sometime in 1982, the State of California imposed hazardous

waste regulations that rendered scrap battery processing

impractical for petitioner. In 1983, the California Department

of Health Services Toxic Substances Control Program (DHS) began

requiring the DOD to deliver mercury only to a California

hazardous waste permitted facility. Petitioner was not able to

obtain a hazardous waste facility permit which would have

required extensive engineering documentation, and prohibitively

high hazardous and environmental insurance. Hence, it was

impractical for petitioner to proceed with mercury reclamation

from scrap batteries because of the costs associated with a

hazardous waste facility permit. Nevertheless, petitioner

attempted to continue in the mercury business, with sources other

than batteries, until he ultimately ceased selling mercury on May

31, 1988.

In 1983, in response to petitioner’s cessation of the

activity of extracting mercury from batteries, petitioner’s wife
5

began outside employment. Petitioner’s wife was employed full

time as an assistant controller in a local television station

from 1983 to 1990. Subsequently, she became the controller for

that station. Before 1983, petitioner and his wife relied upon

income from petitioner’s mercury extraction activity as their

sole source of income. After 1983, Mrs. Massingill’s income

became the source of petitioners’ daily living expenses. 

Furthermore, from 1984 to 1988, the reclamation of mercury

was not petitioner’s sole activity. Petitioner continued to

perform industrial instrumentation and control, as well as a

variety of research and development projects. Petitioner began

doing test extractions of metals from ores and minerals, as well

as the examination of properties, and performing amalgamation

assays. However, during those years, the recovery of mercury

from sources other than scrap batteries continued to be the

primary activity for petitioner.

Petitioner advertised mercury for sale in a periodical

called the "California Mining Journal". Sometime in 1982,

petitioner prepared a prospectus and attended a trade show for

the gold mining industry, involving both hobby and commercial

interests. The prospectus explained petitioner’s sale policies

to prospective clients. It was distributed by "Massingill

Metals" and includes petitioner’s phone number, address and

business hours. It states that any quantity of mercury may be

ordered, although clients are cautioned that some large orders
6

may require additional time. The material also incorporates

information on suggested uses for mercury in refining processes

such as amalgamating gold or recovering gold from ores. The

amount and the grade of mercury to be supplied determined the

prices quoted by petitioner. The document states that base

prices for mercury on the west coast were related to, but not

necessarily governed by, the New York and German markets' spot

price. In 1985, petitioner incorporated within his sales

material procedures for dealing with a mercury spill, along with

other general health and safety hazard information.

On January 16, 1985, in response to a complaint alleging the

illegal storage, disposal and transportation of hazardous waste,

DHS conducted an inspection of petitioner’s shop and work

premises. After several inspections, DHS alleged that petitioner

violated environmental regulations. DHS alleged that paints,

thinners, solvents, oils, mercury batteries, acids, and caustics

were haphazardly stored in and around a large barn which

comprised petitioner’s work area. Large amounts of toxic ash

generated by petitioner’s reclamation of mercury were allegedly

also found on site. DHS alleged that these quantities of "army

surplus salvage" were a threat to public health and the

environment. On December 30, 1987, DHS served petitioner with a

remedial action order (RAO). The RAO provided that petitioner

was to perform certain enumerated remedial actions, and failure

to comply would result in DHS commencing proceedings to clean up
7

the site. Petitioner would be liable for all direct and indirect

costs associated with DHS cleaning up the site itself. 

In 1988, petitioner and DHS engaged in an exchange of

letters in which petitioner sought administrative relief which,

ultimately, was denied. DHS subsequently found petitioner’s

efforts at compliance to be unsatisfactory. On June 28, 1988,

DHS informed petitioner that he was not in compliance with the

RAO, and that DHS would be instituting cleanup procedures of the

property. On December 26, 1989, DHS informed petitioner that a

contractor would be commencing inventory activities of "hazardous

substances" at the work site on January 15, 1990. Actual

inventory was performed sometime in the summer of 1990.

Petitioner was informed in a letter dated July 11, 1990, that the

inventory was complete. Petitioner was further informed that

hazardous substances in allegedly deteriorated containers would

be packaged and disposed of. On August 15, 1990, DHS obtained a

court order to enter the property and commence cleanup

operations. Sometime after that date, DHS’s contractor seized

the allegedly hazardous materials located in petitioner’s work

area. 

In 1990, petitioner spent approximately 6 months addressing

issues raised by DHS. He intended to mitigate damage to his

activities, preserve his assets, and ultimately resume work

without interference from DHS. Petitioner spent the first 2

months of the year filling out an inventory of the materials
8

stored in his work area. Petitioner corresponded with DHS in

order to secure information and obtain administrative relief.

Petitioner also consulted with attorneys in the matter. After

the seizure of the materials by DHS, petitioner expended money to

erect a fence on the property pursuant to DHS’s specifications.

This measure was intended to restrict public access to the

allegedly hazardous materials still present at the property.

Petitioner spent several hundred dollars in efforts to comply

with DHS’s requirements by over packing materials. Petitioner

also spent approximately 1 month in 1990 fabricating equipment

for customers. He worked on a prototype device that was a waste

water cleaning machine. With a pressure washer, the device was

intended to remove oils from contaminated water. Petitioner also

had other projects for which he had orders. The remainder of the

time was spent on general maintenance and shop housekeeping. For

example, on August 17, 1990, petitioner placed zinc bearing

residue on the ground for weed control. Other such maintenance

activities included the cleaning, painting, and lubrication of

machinery, disassembly of apparatus for recovery of components,

and storage organization of parts and supplies.

Petitioner maintained a contemporaneous daily record of his

activities during 1987 and 1988, until August 1988. At that

time, for personal reasons, petitioner ceased recording the

information in the logs. Petitioner partially resumed

maintenance of the journal in 1989, and with more detail in 1990. 
9

This journal is simply a bound collection of notebook lined

paper. The days, month, and year are individually handwritten.

The record itself indicates the month on top of the paper, and

shows the days per line on the sheet of paper. The last two

digits of the year are inscribed in the upper left-hand corner of

the paper. Many of the entries consist of unexplained

abbreviations. The handwriting is consistent, with no deviation

in writing style, throughout all of the daily record. The record

is not overly detailed, and it appears that petitioner generally

was involved in one activity per working day. In 1987 through

mid-1988, petitioner was busy every day. From mid-1988, large

gaps in the days shown on the daily record appear. In 1990, the

daily record shows that petitioner was involved in the first 2

months of the year with inventory preparation on behalf of DHS.

Petitioner notes the seizure of materials in August 1990. The

daily record also reflects that petitioner visited law libraries

5 out of the last 6 months of the calendar year 1990.

Petitioner also maintained records of sales of mercury to

clients from 1983 to 1988. This sales record lists order

numbers, the name of the clients, whether there was a "Small

Order Labor Charge", how many pounds the order was, and the total

charged with differing prices for in or outside of California. 

Petitioner had more customers inside the State of California than

outside. 
10

From 1978 to 1989, petitioner observed the proprietor of

Valley Smelting, a successful business which was also involved in

metal mining and refining activities. This person performed a

variety of activities such as: Recovering and refining lead and

mercury from scrap batteries, recovering metals from ores and ore

samples, manufacturing irrigation valves, and, operating a

mercury mine. Petitioner consulted with the proprietor in order

to determine the best means of business operation. 

Petitioner chose work that was "interesting" and not

immediately profitable "whenever I had the cash to indulge * * *

[I did] so." When petitioner needed income in his business, he

would "do things that * * * [were] more mundane, less

interesting, but immediately profitable, such as industrial

controls, fabricating equipment." Petitioner has been able to

find work whenever he needed it. "I’ve always been able to make

sales * * * of that sort whenever I have needed to do so."

Petitioner, however, attempted to make the business

profitable by trying to obtain a large margin between the sales

price and the cost of goods sold. In time, petitioner was not

able to obtain metallic mercury from scrap batteries, hence, he

was unable to maintain a large margin between the sales price and

the cost of goods. 

The metal refining activities performed by petitioner took

place on a 50-acre parcel that was mostly farm land. 

Petitioner’s father farmed the land, and petitioner had a shop in
11

a barn on that property. The land around the barn and a nearby

house were also utilized by petitioner in his work. Petitioner

and his wife resided in a home, also owned by petitioner’s

parents, which was one-quarter of a mile away from the property

in question. 

 Petitioners’ Schedule C gross income, cost of goods sold

(COGS), expenses, and net gain or loss from 1977 through 1990 are

as follows:
12

Year Gross Income COGS Expenses Gain/Loss

1977 $52,324 $29,673 $16,313 $6,338

1978 31,223 19,086 11,627 

1510

1979 50,132 36,255 13,340 537

1980 19,864 7,304 13,399 (839)

1981 22,132 No record No record No record

1982 24,924 5,208 19,566 150

1983 38,281 17,013 26,095 

1(4,827)

1984 19,912 9,955 19,531 (9,574)

1985 19,926 10,015 24,371 (14,460)

1986 15,731 8,618 25,265 (18,152)

1987 20,541 12,876 25,545 (17,880)

1988 10,375 6,190 21,015 (16,830)

1989 8,093 5,098 19,748 (16,753)

1990 3,867 2,502 19,253 (17,888)

 

1The parties stipulated to a $560 gain for 1978 and a $4,867

loss for 1983; however, the correct amounts appear to be a $510

gain for 1978 and a $4,827 loss for 1983.

The Schedule C cost of goods sold for 1990 in the amount of

$2,502 consisted of 4 large batteries. These batteries were

seized by the State of California.

OPINION

Respondent has conceded that petitioner has substantiated

the amounts in controversy. The primary issue to be decided is

whether petitioner's metal mining and refining activities for

1990 constituted an activity engaged in for profit within the
13

3 In the case of an activity not engaged in for profit, sec.

183(b)(1) allows a deduction for expenses that are otherwise

deductible without regard to whether the activity is engaged in

for profit. Sec. 183(b)(2) allows a deduction for expenses that

would be deductible only if the activity were engaged in for

profit, but only to the extent the total gross income derived

from the activity exceeds the deductions allowed by sec.

183(b)(1).

meaning of section 183. Petitioner contends that his metal

mining and refining activity was entered into with a profit

objective. Respondent contends that petitioner’s metal mining

and refining activity was an activity "not engaged in for profit"

within the meaning of section 183. Sec. 183(c). 

Section 183(a) provides that, if an activity engaged in by

an individual is not engaged in for profit, no deduction

attributable to such activity shall be allowed, except as

provided in section 183(b).3 An "activity not engaged in for

profit" means any activity other than one for which deductions

are allowable under section 162 or under paragraphs (1) or (2) of

section 212. Sec. 183(c). Section 162 allows a deduction for

all the ordinary and necessary expenses paid or incurred in

carrying on a business. Section 212 allows a deduction for all

the ordinary and necessary expenses paid or incurred for the

production or collection of income, or for the management,

conservation, or maintenance of property held for the production

of income. 

Whether deductions are allowable under sections 162 or 212

depends on whether the taxpayer engaged in the activity with the
14

objective of making a profit. Ronnen v. Commissioner, 90 T.C.

74, 91 (1988); Dreicer v. Commissioner, 78 T.C. 642, 645 (1982),

affd. without opinion 702 F.2d 1205 (D.C. Cir. 1983). The

taxpayer's expectation of profit need not be a reasonable one;

however, the taxpayer must have a bona fide objective to make a

profit. Hulter v. Commissioner, 91 T.C. 371, 393 (1988); Beck v.

Commissioner, 85 T.C. 557, 569 (1985); Allen v. Commissioner, 72

T.C. 28, 33 (1979); Dunn v. Commissioner, 70 T.C. 715, 720

(1978), affd. without published opinion 607 F.2d 995 (2d Cir.

1979), affd. on another issue 615 F.2d 578 (2d Cir. 1980).

Whether a taxpayer has the requisite profit objective is a

question of fact to be resolved on the basis of all of the facts

and circumstances of the particular case. Golanty v.

Commissioner, 72 T.C. 411, 426 (1979), affd. without published

opinion 647 F.2d 170 (9th Cir. 1981); Dunn v. Commissioner, supra

at 720. The taxpayer bears the burden of proof on this issue. 

Rule 142(a); Welch v. Helvering, 290 U.S. 111 (1933). Greater

weight is given to objective facts than a taxpayer's statement of

intent. Beck v. Commissioner, supra at 570; Thomas v.

Commissioner, 84 T.C. 1244, 1269 (1985), affd. 792 F.2d 1256 (4th

Cir. 1986).

Section 1.183-2(b), Income Tax Regs., provides a 

nonexclusive list of factors relevant to the issue as to whether

the taxpayer has the requisite profit objective. These factors

are: (1) The manner in which the taxpayer carries on the
15

activity; (2) the expertise of the taxpayer or his advisers; (3)

the time and effort expended by the taxpayer in carrying on the

activity; (4) the expectation that the assets used by the

taxpayer may appreciate in value; (5) the success of the taxpayer

in carrying on other similar or dissimilar activities; (6) the

taxpayer's history of income or losses with respect to the

activity; (7) the amount of occasional profits, if any, which are

earned; (8) the financial status of the taxpayer; and (9) whether

elements of personal pleasure or recreation are involved. Not

all of these factors are applicable in every case, and no one

factor is controlling. Taube v. Commissioner, 88 T.C. 464, 479-

480 (1987); Abramson v. Commissioner, 86 T.C. 360, 371 (1986);

Allen v. Commissioner, 72 T.C. at 34. No one factor nor a

majority of the factors is determinative, and we do not reach our

conclusion by merely counting the factors that support each

party's position. Taube v. Commissioner, supra at 480; Dunn v.

Commissioner, supra at 720. 

1. The Manner in Which the Taxpayer Carries On the Activity

Petitioner contends that he conducted his activity in a

businesslike manner. However, petitioner did not maintain

adequate and accurate books of accounts and records of income and

expenses of the metal mining and refining activities. Petitioner

testified that he maintained timely contemporaneous records of

his activities. However, the extensive and businesslike records

of sales of mercury which only go up to 1988 is not duplicated
16

for any other aspect of the metal mining and refining activity in

1990. Petitioner also submitted a daily log of his activities

which incorporates 1990. However, much of what is written down

in that journal contains unexplained abbreviations. There are

blank spaces for a large number of days each month for 1990. 

Moreover, petitioner’s compendium is not an adequate substitute

for books or records of income and expenses. For example, unlike

the records of sales of mercury, this does not list customers,

the kind of work performed, and the amounts charged, if any. 

Thus, we cannot say that petitioner maintained adequate and

accurate books of accounts. 

Petitioner’s marketing activities were, at best, minimal. 

He advertised in the "California Mining Journal". Petitioner

distributed a prospectus on his sales policies to possible

clients. He also attended trade shows where he could meet

prospective customers. The records of sales of mercury show that

most of petitioner’s clients came from within California. There

were very few clients who were from out of State. Other than the

above factors, petitioner presented no evidence that he actively

sought business. Petitioner has not specifically shown any other

marketing activities in 1990. 

In addition, petitioner had no business plan. At trial,

petitioner testified that he did not expect to earn a profit

immediately during 1986, before the dispute with DHS. He

expected to do so in 1987 but did not do so. The record reflects
17

that petitioner suffered 7 years of losses up to and including

the taxable year 1990. Petitioner had no business plan to

address the accumulating and expected losses. 

While it is likely that petitioner entered into the metal

mining and refining activity with a profit objective, the

extended record of losses without abatement devalued the activity

into one that provided an offset to petitioners’ other income.

2. The Expertise of the Taxpayer and His Advisers

Petitioner developed, since childhood, the technical

knowledge, skill, and interest in the metal mining and refining

field. Petitioner also observed the proprietor of Valley

Smelting, a similar concern allegedly also involved in a similar

activity. Finally, by 1980, petitioner had a competitor who was

also recovering mercury from scrap batteries. Petitioner did not

demonstrate how he utilized the information gathered to address

any business decisions confronting his activity such as the rates

of continuing losses. 

Although petitioner’s wife was a controller possessing

financial skills to develop and operate a business plan, the

record does not demonstrate that her skills were utilized. 

3. The Time and Effort Expended by the Taxpayer in Carrying

On the Activity

Petitioner spent a minimal amount of time carrying out the

activity in 1990. He spent approximately 1 month on the

production of income in 1990. He contends, however, that the
18

State of California prevented him from earning money in his

pursuit. We recognize that the fact that the taxpayer devoted

less than full time to the activity does not necessarily indicate

the lack of a profit objective, where the taxpayer employs

competent and qualified persons to carry on the activity. Sec.

1.183-2(b)(3), Income Tax Regs. However, this is not the

situation here. This activity was maintained alone by

petitioner. 

Although petitioner chose to engage in a personal pursuit

for relief from the environmental regulations, he did nothing to

remedy his lack of income or to reduce his expenses. By his

testimony, petitioner spent several months in 1990 addressing

compliance issues with DHS. We find that petitioner was

genuinely motivated by the desire to preserve his assets. On the

other hand, we think that the minimal amount of time petitioner

spent in this activity does not support his contention that he

was engaged in this activity with a profit objective in 1990. 

4. The Expectation That Assets Used in the Activity

May Appreciate in Value

Petitioner did not present any evidence that any of the

assets used in his metal mining and refining activity would

appreciate in value. 

5. The Success of the Taxpayer in Carrying On Other

Similar or Dissimilar Activities
19

Petitioner did not present any evidence that he had been

involved or demonstrated any success in any similar or dissimilar

type of activity. 

6. The Taxpayer’s History of Income or Losses 

With Respect to the Activity

Although no one factor is determinative of the taxpayer’s

objective to make a profit, a record of substantial losses, and

the unlikelihood of achieving a profitable operation is highly

probative of the taxpayer’s true objective. Golanty v.

Commissioner, 72 T.C. at 411; sec. 1.183-2(b)(6), Income Tax

Regs. 

Petitioner’s main argument in this case is that the

activities of a State agency prevented him from operating a

profitable activity during 1990. Petitioner’s difficulties with

DHS resulted in prolonged delay, and, ultimately, in the seizure

of significant portions of petitioner’s inventory that was

allegedly hazardous waste.

Petitioner knew or should have known he was engaged in a

business that involved dangerous or hazardous chemicals. 

Performing metal mining and refining operations required

adherence, at least to a degree, to minimal environmental

regulations, which represented a cost of doing business in this

particular field. Petitioner did not comply, and when confronted

with the environmental regulations, he chose to engage in lengthy

litigation. The dispute with DHS was not an unforeseen
20

circumstance that prevented petitioner from obtaining a profit in

this activity. Sec. 1.183-2(b)(6), Income Tax Regs. 

The fact remains that petitioner had zero net income from

his metal mining and refining activity in 1990, and this was a 

7-year trend. The cost of goods sold has diverged over the years

but, in general, there is a decrease. Finally, petitioner’s

gross income steadily declined leading up to 1990 while expenses

remained relatively stable. Furthermore, we notice that

petitioner’s expenses were not demonstrably affected by the

cessation of the activity of selling mercury in 1988. Hence, we

believe that the shortfall was not due to the dispute with DHS,

but, rather, that the activity itself could not reasonably be

expected to result in a profit, and because petitioner took no

measures to reduce his expenditures for unprofitable activities. 

7. The Amount of Occasional Profits Earned, if Any

The record demonstrates profitability only in 4 of the

earliest of 14 years. The 7 years up to and including 1990

demonstrate consistent losses similar in magnitude. 

8. The Financial Status of the Taxpayer

The metal mining and refining activity was profitable only

in the first few years. All subsequent years show losses of a

considerable scope. Also, there existed no financial pressure or

incentive on petitioner to pursue work that was consistently

profitable. In fact, the support of petitioner’s parents and

wife allowed petitioner to sustain the losses incurred in the
21

activity year after year. Petitioner’s parents provided the use

of a residence and a barn where the activity was conducted. 

Petitioner’s wife’s wages earned met living expenses, which

allowed petitioner to maintain the activity in question.

9. The Elements of Personal Pleasure or Recreation 

Involved in the Activity

The record clearly demonstrates that petitioner has been

strongly interested in the field of metal mining and refining

since he was a youth. It was this interest that motivated

petitioner to get involved in the metal mining and refining

activity. Petitioner testified that the aspects of that

particular activity were "interesting" to him. He noted that

this activity was not immediately profitable. We believe that

engaging in this activity provided significant pleasure to

petitioner.

Hard work alone is not enough to establish a profit-seeking

objective. Feldman v. Commissioner, T.C. Memo. 1986-287. While

the metal mining and refining activity is hard physical work and

may not seem pleasurable to some, petitioner enjoyed this

activity and lifestyle. In addition, petitioner had a propensity

to pursue these activities, which he found pleasurable such as

research. He would pursue less desirable income-producing

activities only to the extent that it would serve to finance his

enjoyable non-income-producing pursuits. 
22

After considering the entire record, we hold that petitioner

did not engage in the activity of metal mining and refining

during 1990 with the bona fide objective of making a profit. 

Other than his self-serving testimony, we find that petitioner

did not present any evidence that supported his position that he

had an actual and honest objective of making a profit from his

metal mining and refining activity. Petitioner, based on his

losses, should have been aware that the activity was either

incapable of generating a profit or that his performance and

assumptions were seriously flawed. However, the record does not

show that petitioner had a business plan to stem or assuage the

losses. Hence, we find that petitioner has failed to carry his

burden of proving that he engaged in that activity with a profit

objective. 

We hold that petitioner was not engaged in an activity for

profit under section 183. Accordingly, we sustain respondent on

this issue.

Failure to File

Finally, we decide whether petitioner is liable for the

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

timely return. Section 6651(a)(1) provides for an addition to

tax of 5 percent of the amount of income tax required to be shown

on the return if such failure to file is for not more than 1

month, with an additional 5 percent for each month such failure

continues, not to exceed 25 percent. The addition to tax under
23

section 6651(a)(1) applies unless the taxpayer establishes that

the failure to file did not result from "willful neglect" and

that the failure to file was "due to reasonable cause." "Willful

neglect" has been construed to mean a conscious, intentional

failure, or reckless indifference. United States v. Boyle, 469

U.S. 241, 245-246 (1985). "Reasonable cause" requires a taxpayer

to demonstrate that he or she exercised ordinary business care or

prudence. 

Petitioner’s 1990 tax return was signed by the petitioners

on October 22, 1991, and received by respondent on October 24,

1991. Petitioner has failed to present any evidence of

reasonable cause for filing his return late. Therefore,

petitioner is liable for the addition to tax under section

6651(a)(1).
24

To reflect the foregoing,

Decision will be entered

under Rule 155.