T.C. Memo. 2008-201

UNITED STATES TAX COURT

JOSEPH R. BANISTER, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 1356-06. Filed August 27, 2008.

P failed to report certain interest and distribution

income that he received in 2002. R determined a deficiency

and additions to tax pursuant to secs. 6651(a)(1) and (2)

and 6654(a), I.R.C.

Held: P is liable for the deficiency and the addition

to tax pursuant to sec. 6651(a)(1), I.R.C. P is not liable

for the additions to tax pursuant to secs. 6651(a)(2) and

6654(a), I.R.C.

Joseph R. Banister, pro se.

David Sorensen and Wesley J. Wong, for respondent.
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1All section references are to the Internal Revenue Code of

1986, as amended and in effect for the tax year at issue. The

Rule references are to the Tax Court Rules of Practice and

Procedure.

MEMORANDUM FINDINGS OF FACT AND OPINION

WHERRY, Judge: This case is before the Court on a petition

for redetermination of an alleged $4,551 deficiency in Federal

income tax and additions to tax that respondent determined for

petitioner’s 2002 tax year. Respondent conceded before trial

that petitioner is not liable for an addition to tax under

section 6651(a)(2).1 The issues remaining for decision are:

(1) Whether petitioner was required to include in his 2002

taxable income a $23,325 distribution from a qualified retirement

plan and $387 of interest income;

(2) whether petitioner is liable for the 10-percent

additional tax under section 72(t) on an early distribution from

a qualified retirement plan;

(3) whether petitioner is liable under section 6651(a)(1)

for a $1,023.97 addition to tax; and 

(4) whether petitioner is liable under section 6654(a) for a

$152.05 addition to tax.

FINDINGS OF FACT

Some of the facts have been stipulated, and the stipulated

facts and accompanying exhibits are hereby incorporated by

reference into our findings. Using third-party payer
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information, respondent concluded that petitioner had received a

$23,325 distribution from an individual retirement account (IRA)

and $387 of interest income. Respondent issued the notice of

deficiency on October 17, 2005. Petitioner filed a timely

petition with this Court on January 17, 2006, and filed an

amended petition on March 9, 2006. Petitioner resided in Nevada

when he filed the petition and the amended petition. A trial was

held on November 6, 2007, in Reno, Nevada.

OPINION

I. Whether Petitioner Had Unreported Income

Generally, the Commissioner’s determination of a deficiency

is presumed correct, and the taxpayer has the burden of proving

it wrong. See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933). In unreported income cases, however, the presumption of

correctness does not attach unless the Commissioner first

establishes a minimal evidentiary foundation for the deficiency. 

See Weimerskirch v. Commissioner, 596 F.2d 358, 360-362 (9th Cir.

1979), revg. 67 T.C. 672 (1977). 

In Weimerskirch, the Court of Appeals for the Ninth Circuit

imposed the evidentiary foundation requirement in light of the

Commissioner’s unsupported assertion that the taxpayer had earned

$30,000 selling illegal drugs. Id. at 362. The Commissioner

sought to include that amount in the taxpayer’s income but did

not present any evidence linking the taxpayer to the illegal
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sales or reflecting the amount of proceeds the taxpayer actually

received. Id. at 361-362. The Court of Appeals refused to allow

the presumption of correctness to attach, emphasizing the

unfairness that would result if the Commissioner were allowed to

affix the prejudicial label of drug dealer on the taxpayer

without any evidence to support it. Id. at 362.

This is not to say that the requirement in Weimerskirch is

difficult to satisfy. The requisite evidentiary foundation is

indeed minimal and need not include direct evidence linking the

taxpayer to an income-producing activity. See Rapp v.

Commissioner, 774 F.2d 932, 935 (9th Cir. 1985); Curtis v.

Commissioner, T.C. Memo. 2001-308, affd. in part and revd. on

another issue 73 Fed. Appx. 200 (9th Cir. 2003).

In Rapp, the Court of Appeals held that the Commissioner had

satisfactorily linked the taxpayers to income-producing

activities--including employment, the sale of their home, and

involvement with a business--where the record contained only the

notices of deficiency, summonses to banks and other third

parties, and other documents prepared by the Commissioner. Rapp

v. Commissioner, supra at 935. That evidence suggested that the

Commissioner possessed direct evidence linking the taxpayer to

the income-producing activities even if that direct evidence was

not itself in the record. Id.
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2It appears that the Court of Appeals has extended its

holding in Weimerskirch v. Commissioner, 596 F.2d 358, 360-362

(9th Cir. 1979), revg. 67 T.C. 672 (1977), to cases involving

income derived from legal activities. See Palmer v. IRS, 116

F.3d 1309, 1313 (9th Cir. 1997); Rapp v. Commissioner, 774 F.2d

932, 935 (9th Cir. 1985). But see Hardy v. Commissioner, 181

F.3d 1002, 1005 (9th Cir. 1999) (“But even if we were to extend

Weimerskirch to all unreported income cases as the Third and

Fifth Circuits have done, the exception only applies when the

Commissioner has failed to provide any evidentiary foundation for

the deficiency notice.”), affg. T.C. Memo 1997-97.

Further, the taxpayers did not dispute their alleged

connection to the income-producing activities and argued only

that the Commissioner did not consider “legitimate and proper

deductions.” Id. The Court of Appeals concluded that the link

between the taxpayers and the income-producing activity had been

“sufficiently acknowledged to permit the presumption of

correctness to attach to the Commissioner’s determination.” Id.

Assuming Weimerskirch applies in this case despite the fact

that petitioner’s alleged income was not derived from an illegal

activity,2 we conclude that respondent has established a minimal

evidentiary foundation linking petitioner with the IRA

distribution and interest income at issue. Specifically, the

notice of deficiency indicates that the third-party payers paid

petitioner the amounts in question and reported those payments to

respondent. Although direct evidence of the payments is not in

the record, the notice of deficiency alone suggests, as in Rapp

and Curtis, that respondent possessed such evidence. 
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In addition, petitioner does not deny receiving the income

and instead argues that respondent “failed to recognize,

determine and/or make allowance for Petitioner expenses, losses

and deductions, and exclusions (both business and non-business).” 

We view that position as an implicit acknowledgment that he

received at least some income during his 2002 tax year. See Rapp

v. Commissioner, supra at 935; Curtis v. Commissioner, supra

(“Also, as in Rapp, petitioner challenged the amount of related

deductions respondent had allowed her, which we view as an

implicit acknowledgment of the existence of the income-producing

property.”). Accordingly, we conclude that respondent has

established a minimal evidentiary foundation and that the

presumption of correctness may therefore attach to respondent’s

deficiency determination. See Rapp v. Commissioner, supra at

935; Weimerskirch v. Commissioner, supra at 361-362.

Petitioner argues that the presumption should not attach

because respondent’s concession as to the section 6651(a)(2)

addition to tax was an admission of error that casts doubt over

the entire notice of deficiency. We disagree. See Avery v.

Commissioner, T.C. Memo. 2007-60 n.9 (stating that Commissioner’s

concession of section 6651(a)(2) addition to tax did not

invalidate notice of deficiency).

Petitioner thus has the burden to prove that the deficiency

was arbitrary or erroneous. See Hardy v. Commissioner, 181 F.3d
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3Although sec. 7491(a) may shift the burden of proof to the

Commissioner in specified circumstances, petitioner did not

satisfy the prerequisites under sec. 7491(a)(1) and (2) for such

a shift.

1002, 1004 (9th Cir. 1999), affg. T.C. Memo. 1997-97. He

advances three arguments in an attempt to meet that burden.3 He

argues that respondent (1) denied him proper due process--

including an Appeals conference--before issuing the notice of

deficiency; (2) denied him a proper notice of deficiency “based

upon a true ‘Deficiency’”; and (3) determined the deficiency

incorrectly by failing to consider his “expenses, losses and

deductions, and exclusions (both business and non-business).”

These arguments are unavailing. First, we note that “The

providing of a conference before the Appellate Division of the

Internal Revenue Service is not essential to the validity of a

notice of deficiency.” Cupp v. Commissioner, 65 T.C. 68, 83

(1975), affd. without published opinion 559 F.2d 1207 (3d Cir.

1977). More generally and with respect to petitioner’s second

argument, the Court will not look behind a notice of deficiency

to question the Commissioner’s procedures leading to the

determination of a deficiency. See Kantor v. Commissioner, 998

F.2d 1514, 1521 (9th Cir. 1993), affg. in part and revg. in part

on another ground T.C. Memo. 1990-380. Here, respondent

determined a deficiency and issued notice of that deficiency to

petitioner in accordance with applicable law. See secs. 6212,
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7522. Petitioner has not provided any evidence to the contrary. 

With respect to his final argument, petitioner has provided no

evidence of any losses, deductions, or other items that might

affect respondent’s deficiency determination. See Rapp v.

Commissioner, 774 F.2d at 935 (“The taxpayer has the burden of

proof to substantiate claimed deductions.”). Accordingly, we

conclude that petitioner has failed to prove that respondent’s

determination of unreported taxable income was arbitrary or

erroneous. 

In addition, we conclude that petitioner is liable for the

10-percent additional tax imposed by section 72(t) on early

distributions from qualified retirement plans, including IRAs. 

See secs. 408(a), 4974(c). Although section 72(t) provides

exceptions to the additional tax, petitioner has the burden to

show that an exception applies, and he has not done so. See

Bunney v. Commissioner, 114 T.C. 259, 265-266 (2000). 

Accordingly, we sustain respondent’s deficiency determination.

II. Additions to Tax

 Respondent determined that petitioner was liable for

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

to section 7491(c), respondent has the burden of production with

respect to these additions to tax and is therefore required to

“come forward with sufficient evidence indicating that it is

appropriate to impose the relevant penalty.” See Higbee v.
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Commissioner, 116 T.C. 438, 446 (2001). Although respondent

would have been relieved of that burden if petitioner had failed

to assign error to the additions to tax, we cannot conclude that

petitioner failed to do so. See Wheeler v. Commissioner, 127

T.C. 200, 206-207 (2006), affd. 521 F.3d 1289 (10th Cir. 2008).

Section 6651(a)(1) imposes an addition to tax for failure to

file a timely return unless the taxpayer proves that such failure

is due to reasonable cause and not willful neglect. See United

States v. Boyle, 469 U.S. 241, 245 (1985). Petitioner appears to

concede that he did not file a return. In his petition, he

asserts that he sent the Internal Revenue Service a December 27,

2004, letter “stating why he believed he was not required to file

a return” for his 2002 tax year. Moreover, petitioner has not

presented any evidence to suggest that his failure to file was

due to reasonable cause. Accordingly, we shall sustain

respondent’s imposition of the addition to tax under section

6651(a)(1).

Section 6654(a) imposes an addition to tax on individual

taxpayers who underpay their estimated income tax. The

Commissioner’s burden of production under section 7491(c) with

respect to that addition to tax requires the Commissioner, at a

minimum, to produce evidence that a taxpayer was required to make

an annual payment under section 6654(d)(1)(B). See Wheeler v.

Commissioner, supra at 211. The amount of any required annual
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payment is the lesser of (1) 90 percent of the tax shown on the

individual’s return for the year or, if no return is filed, 90

percent of his or her tax for such year, or (2) if the individual

filed a return for the immediately preceding tax year, a fixed

percentage of the tax shown on that return. Sec. 6654(d)(1)(B). 

When, as here, the Commissioner fails to introduce evidence

showing whether a taxpayer filed a return for the preceding tax

year and, if so, the amount of tax shown on that return, the

Commissioner has not satisfied the burden of production because

it is impossible to determine whether the taxpayer had a required

annual payment under section 6654(d)(1)(B). See Wheeler v.

Commissioner, supra at 211-212. As a result, petitioner is not

liable for the addition to tax pursuant to section 6654(a) for

his 2002 tax year. See id. at 212.

The Court has considered all of petitioner’s contentions,

arguments, requests, and statements. To the extent not discussed

herein, we conclude that they are meritless, moot, or irrelevant.

To reflect the foregoing and concessions made by the

parties,

Decision will be entered

under Rule 155.