T.C. Memo. 2011-203

UNITED STATES TAX COURT

MARY E. CAHILL, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 24387-07. Filed August 17, 2011.

Larry C. Fedro, for petitioner.

Nancy L. Karsh, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

HAINES, Judge: Respondent determined a deficiency of

$59,839 in petitioner’s Federal income tax and additions to tax

pursuant to sections 6651(a)(1) and (2) and 6654(a) of $13,458,

$7,776, and $1,736, respectively, for 2004.1

1Unless otherwise indicated, all section references are to

(continued...)
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The issues for decision after stipulations and concessions2

are: (1) Whether petitioner received taxable interest income of

$88; (2) whether petitioner received taxable dividend income of

$96; (3) whether petitioner is entitled to a theft loss deduction

of $849; (4) whether petitioner is entitled to education credits;

and (5) whether petitioner is liable for additions to tax

pursuant to sections 6651(a)(1) and (2) and 6654(a).

1(...continued)

the Internal Revenue Code, as amended and in effect for the year

in issue, and all Rule references are to the Tax Court Rules of

Practice and Procedure. Amounts are rounded to the nearest

dollar.

2Before trial the parties stipulated that (1) petitioner had

a long-term capital loss of $62 rather than a long-term capital

gain of $5,394; (2) petitioner is not liable for the 10-percent

additional tax pursuant to sec. 72(t) for early withdrawals from

a qualified retirement plan because she was disabled in 2004; (3)

petitioner is entitled to deduct expenses on Schedule A, Itemized

Deductions, for mortgage interest, real estate taxes, and sales

tax, of $4,807, $32,312, and $2,096, respectively; (4) petitioner

is not entitled to a long-term capital loss carryforward of

$3,000; (5) the amount of petitioner’s exemption pursuant to sec.

151(d)(3) is a mathematical computation based on all the

appropriate adjustments; and (6) petitioner is entitled to two

dependency exemption deductions for her son and daughter. 

On brief petitioner conceded the following issues: (1) The

distributions petitioner received from her qualified retirement

plan were taxable; (2) the alimony payments petitioner received

from her ex-husband were taxable; and (3) petitioner is not

entitled to Schedule A deductions for casualty losses from

hurricane damage, charitable contributions, theft losses from

financial investments, and medical expenses exceeding those

stipulated. 
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FINDINGS OF FACT

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

The stipulation of facts and the supplemental stipulation of

facts, together with the attached exhibits, are incorporated

herein by this reference. At the time petitioner filed her

petition, she lived in Florida.

Petitioner and her ex-husband were divorced in 1997. They

had two children, a son born in 1982 and a daughter born in 1985. 

Pursuant to their divorce decree, petitioner’s ex-husband paid

her alimony in 2004. During 2004 petitioner’s son was living in

China and working as a teacher. Petitioner’s daughter was

attending college and living with petitioner’s ex-husband. 

Petitioner’s ex-husband paid their daughter’s college tuition and

provided additional financial support for both children.

On August 31, 2004, petitioner received a distribution of

$68,000 from her retirement account at UBS Financial Services. 

On November 5, 2004, petitioner received a distribution of

$132,000 from the same UBS Financial Services account. 

Petitioner did not roll over any amounts withdrawn to another

qualified retirement plan.

In September 2004 two hurricanes struck near petitioner’s

apartment in Florida. On September 20, 2004, the company that

managed petitioner’s apartment building informed her that a

restoration team would be inspecting her apartment for damage. 
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Petitioner received two similar notifications on September 27 and

October 8, 2004. Petitioner filed a claim with her apartment

building manager alleging that a computer was stolen from her

apartment during one of the restoration team’s inspections. 

Petitioner did not file a Form 1040, U.S. Individual Income

Tax Return, for 2003 or 2004, nor had she made any estimated tax

or other payments on her tax due for 2004. On June 15, 2007,

respondent filed a Federal income tax return for 2004 on behalf

of petitioner pursuant to section 6020(b). On July 19, 2007,

respondent mailed petitioner a notice of deficiency for 2004. 

Petitioner timely mailed her petition to the Court on October 17,

2007. 

OPINION

I. Burden of Proof

Respondent’s determinations in the notice of deficiency are

presumed correct, and petitioner would ordinarily bear the burden

of proving that respondent’s determinations are incorrect. See

Rule 142(a)(1). Section 7491(a)(1) provides that, subject to

certain limitations, where a taxpayer introduces credible

evidence with respect to a factual issue relevant to ascertaining

the taxpayer’s tax liability, the burden of proof shifts to the

Commissioner with respect to that issue. Credible evidence is

evidence the Court would find sufficient upon which to base a

decision on the issue in favor of the taxpayer if no contrary
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evidence were submitted. Ruckriegel v. Commissioner, T.C. Memo.

2006-78.

Section 7491(a)(1) applies only if the taxpayer complies

with the relevant substantiation requirements in the Internal

Revenue Code, maintains all required records, and cooperates with

the Commissioner with respect to witnesses, information,

documents, meetings, and interviews. Sec. 7491(a)(2)(A) and (B).

The taxpayer bears the burden of proving compliance with the

conditions of section 7491(a)(2)(A) and (B). See, e.g.,

Ruckriegel v. Commissioner, supra. Petitioner neither proposes

facts to support her compliance with the conditions of section

7491(a)(2)(A) and (B) nor persuasively argues that respondent

bears the burden of proof on any issue because of section

7491(a)(1). Accordingly, the burden remains on petitioner to

prove that respondent’s determination of a deficiency in her

income tax is erroneous.

II. Interest and Dividend Income

Section 61 defines gross income to include “all income from

whatever source derived”. Section 61(a)(4) and (7) specifically

includes in income “interest” and “dividends”, respectively. 

Petitioner received $88 of interest from two banks and $96 of

dividends from an investor services company in 2004. Petitioner

has failed to present any evidence to dispute these amounts. 
-6-

Accordingly, we sustain respondent’s determinations with respect

to the interest and dividend income. 

III. Theft Loss Deduction

Section 165(a) permits a deduction against ordinary income

for “any loss sustained during the taxable year and not

compensated for by insurance or otherwise.” For individuals, the

deduction is limited to: (1) Losses incurred in a trade or

business; (2) losses incurred in any transaction entered into for

profit though not connected to a trade or business; or (3) losses

of property not connected with a trade or business or a

transaction entered into for profit, if such losses arise from

“fire, storm, shipwreck, or other casualty, or from theft.” See

sec. 165(c); Lockett v. Commissioner, T.C. Memo. 2008-5, affd.

306 Fed. Appx. 464 (11th Cir. 2009). A taxpayer may deduct a

theft loss in the year the loss is sustained. Sec. 165(a). 

Generally, a theft loss is treated as sustained during the

taxable year in which the taxpayer discovers it. Sec. 165(a),

(e). Petitioner has the burden of proving she sustained a theft

loss. See Rule 142(a); Elliot v. Commissioner, 40 T.C. 304, 311

(1963).

Petitioner testified that her computer was stolen from her

apartment during one of the restoration team’s inspections of her

apartment after the hurricanes. The only evidence to support her

testimony is a letter from a claims company representing her
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apartment building that confirms that she filed a claim alleging

that her apartment was burglarized. Petitioner did not present a

police report or any other evidence to substantiate that a theft

actually occurred. Accordingly, we sustain respondent’s

determination with respect to the theft loss.

IV. Education Credits 

Section 25A allows education credits3 against tax for

“qualified tuition and related expenses” paid by the taxpayer

during the tax year. Section 25A(f)(1)(A)(iii) defines the term

“qualified tuition and related expenses”, in pertinent part, to

include “tuition and fees” for “any dependent of the taxpayer

with respect to whom the taxpayer is allowed a deduction under

section 151”. Petitioner argues she is entitled to education

credits for 2004 for her son, who worked as a schoolteacher in

China. To prevail on this issue, petitioner must show that (i)

she is entitled to the dependency exemption deduction under

section 151 for her son for 2004; and (ii) she paid “qualified

tuition and related expenses” for her son in 2004. See sec.

25A(b), (c), (f).

The parties have stipulated that petitioner is entitled to a

dependency exemption deduction for her son for 2004. Petitioner

3These credits are called the Hope Scholarship Credit and

the Lifetime Learning Credit. Both are subject to multiple

conditions and limitations that need not be discussed in this

opinion.
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has failed, however, to substantiate that she paid “qualified

tuition and related expenses” for her son in 2004. Petitioner

testified that her son attended the University of Beijing in 2004

and that she paid tuition and related expenses for him. 

Petitioner has not presented any evidence outside of her own

self-serving testimony to support this claim. A taxpayer’s selfserving declaration is generally not a sufficient substitute for

records. Weiss v. Commissioner, T.C. Memo. 1999-17. 

Accordingly, we sustain respondent’s determination with respect

to the education credits.

V. Additions to Tax

The Commissioner has the burden of production

with respect to any penalty, addition to tax, or additional

amount. Sec. 7491(c). The Commissioner satisfies this burden of

production by coming forward with sufficient evidence indicating

that it is appropriate to impose the penalty. See Higbee v.

Commissioner, 116 T.C. 438, 446 (2001). Once the Commissioner

satisfies this burden of production, the taxpayer must persuade

the Court that the Commissioner’s determination is in error by

supplying sufficient evidence of an applicable exception. Id.

A. Section 6651(a)(1) Addition to Tax

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

file a return on the date prescribed unless the taxpayer can

establish that the failure is due to reasonable cause and not due
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to willful neglect.4 The parties do not dispute that petitioner

failed to file a Federal income tax return for 2004. 

Accordingly, respondent has satisfied his burden of production

under section 7491(c). 

B. Section 6651(a)(2) Addition to Tax

Section 6651(a)(2) imposes an addition to tax for failure to

pay the amount shown as tax on the taxpayer’s return on or before

the date prescribed unless the taxpayer can establish that the

failure is due to reasonable cause and not due to willful

neglect.5 Respondent submitted Form 4340, Certificate of

Assessments, Payments, and Other Specified Matters, to prove that

petitioner failed to file a Federal income tax return and failed

to make any payments of income tax for 2004. Thus, respondent

has produced sufficient evidence that petitioner is liable for

the section 6651(a)(2) addition to tax for 2004 unless an

exception applies. See Higbee v. Commissioner, supra at 446.

4If the Secretary prepares a return for the taxpayer under

sec. 6020(b), it is disregarded for purposes of determining the

amount of the addition to tax under sec. 6651(a)(1), but it is

treated as a return filed by the taxpayer for purposes of

determining the amount of the addition to tax under sec.

6651(a)(2). Sec. 6651(g).

5The amount of the addition to tax under sec. 6651(a)(2)

reduces the amount of the addition to tax under sec. 6651(a)(1)

for any month to which an addition to tax applies under both

paragraphs. Sec. 6651(c)(1).
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C. Exceptions to the Section 6651(a)(1) and (2) Additions

to Tax 

Reasonable cause is a defense to the section 6651(a)(1) and

(2) additions to tax. To prove reasonable cause for a failure to

timely file, the taxpayer must show that 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 prove reasonable cause for a failure to pay the amount

shown as tax on a return, the taxpayer must show that she

exercised ordinary business care and prudence in providing for

payment of her tax liability and nevertheless either was unable

to pay the tax or would suffer undue hardship if she paid the tax

on the due date. Sec. 301.6651-1(c)(1), Proced. & Admin. Regs. 

The determination of whether reasonable cause exists is based on

all the facts and circumstances. Estate of Hartsell v.

Commissioner, T.C. Memo. 2004-211; Merriam v. Commissioner, T.C.

Memo. 1995-432, affd. without published opinion 107 F.3d 877 (9th

Cir. 1997). 

Petitioner argues she had reasonable cause for failing to

file a return for 2004 because she received opinions that she did

not have to file a return from an attorney and from her

stockbroker. She argues she relied on these opinions to conclude

that the distributions from her qualified retirement plans and

the alimony payments she received were not taxable and that she
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was entitled to deductions in excess of any reportable income. 

Petitioner testified that she was told by an attorney that she

did not have to file a return because given her income and

deductions, such a return would be “frivolous”. 

Petitioner relies solely on her self-serving testimony to

establish reasonable cause. She has not provided any written

opinion of her attorney or her stockbroker or established they

were competent tax advisers. Further, neither petitioner’s

attorney nor her stockbroker testified at trial. Petitioner has

not presented any substantive evidence to establish that she

exercised ordinary business care and prudence but nevertheless

failed to file a return for 2004 and failed to pay the amount

due. Accordingly, we sustain respondent’s determinations with

respect to the section 6651(a)(1) and (2) additions to tax. 

D. Section 6654(a) Addition to Tax

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

underpayment of estimated income tax unless an exception applies.

See sec. 6654(e). The section 6654(a) addition to tax is

determined by applying the underpayment rate established under

section 6621 to the amount of the underpayment6 for the period of 

6“[A]mount of the underpayment” means the excess of the

required installment over the amount, if any, of the installment

paid on or before the due date for the installment. Sec.

6654(b)(1).
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the underpayment.7 The addition to tax is also calculated with

reference to four required installment payments of the taxpayer’s

estimated income tax. Sec. 6654(c)(1); Wheeler v. Commissioner,

127 T.C. 200, 210 (2006), affd. 521 F.3d 1289 (10th Cir. 2008). 

Each required installment of estimated income tax

is equal to 25 percent of the “required annual payment.” Sec.

6654(d)(1)(A). The required annual payment is generally equal to

the lesser of: (1) 90 percent of the tax shown on the taxpayer’s

return for the year (or 90 percent of the taxpayer’s tax for the

year if no return is filed); or (2) 100 percent of the tax shown

on the return for the preceding year. Sec. 6654(d)(1)(B);

Wheeler v. Commissioner, supra at 210-211. If the taxpayer did

not file a return for the preceding year, then clause (2) does

not apply. Sec. 6654(d)(1)(B). 

A taxpayer has an obligation to pay estimated income tax for

a particular year only if she had a “required annual payment” for

that year. Wheeler v. Commissioner, supra at 211. As discussed

above, a determination of petitioner’s “required annual payment”

generally would require a comparison of the tax shown on

petitioner’s 2003 and 2004 returns. Petitioner failed to file a

return for either year. Because petitioner failed to file a

7The period of the underpayment runs from the due date for

the installment to the earlier of the 15th day of the 4th month

following the close of the taxable year or with respect to any

portion of the underpayment, the date on which such portion is

paid. Sec. 6654(b)(2).
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return for 2003, a comparison with her 2004 tax is not required

pursuant to section 6654(d)(1)(B). Accordingly, petitioner’s

“required annual payment” is equal to 90 percent of her tax for

2004. Respondent’s burden of production under section 7491(c)

with respect to the section 6654(a) addition to tax has been

satisfied by proof at trial through Form 4340 that petitioner has

a Federal income tax liability for 2004 and that petitioner made

no estimated payments for the year. Thus, the addition to tax

applies under section 6654(a) unless petitioner established that

an exception applies.

No general reasonable cause exception exists for the

section 6654(a) addition to tax. Sec. 1.6654-1(a)(1), Income Tax

Regs.; see also Bray v. Commissioner, T.C. Memo. 2008-113. But

no addition to tax is imposed under section 6654(a) with respect

to any underpayment if the Secretary determines that the taxpayer

became disabled either in the taxable year for which estimated

income tax payments were required or in the preceding taxable

year and that the underpayment was due to reasonable cause and

not to willful neglect. Sec. 6654(e)(3)(B). Petitioner argues

that she became disabled in 2004. 

Respondent concedes that petitioner was disabled in 2004. 

However, petitioner has not established that she became disabled

in 2003 or 2004. To the contrary, petitioner’s 2001 Federal

income tax return lists her occupation as “disabled”. Further,
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for the same reasons discussed with respect to the section

6651(a)(1) and (2) additions to tax, petitioner has failed to

establish reasonable cause for failing to pay estimated income

tax. Accordingly, we sustain respondent’s determinations with

respect to the section 6654(a) addition to tax. 

In reaching these holdings, the Court has considered all

arguments made and, to the extent not mentioned, concludes that

they are moot, irrelevant, or without merit.

To reflect the foregoing,

Decision will be entered

under Rule 155.