T.C. Summary Opinion 2005-80

UNITED STATES TAX COURT

HARALD BERREY, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 18849-03S. Filed June 9, 2005.

Harald Berrey, pro se.

Kathleen C. Schlenzig, for respondent.

GOLDBERG, Special Trial Judge: This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed. The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority. Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

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

Tax Court Rules of Practice and Procedure.
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1Petitioner, in his petition, did not dispute respondent’s

determination as to the inclusion of certain items in gross

income. As a result, the amount of deficiency placed in

controversy is less than $50,000. See Rule 170; Kallich v.

Commissioner, 89 T.C. 676 (1987).

 

2Respondent concedes medical expenses in the amount of

$18,904, leaving at issue expenses in the amount of $28,666

($47,570-$18,904). Respondent also concedes that any medical

expenses allowed as a deduction under sec. 213 shall be deemed

paid for by a portion of petitioner’s withdrawal from his thrift

savings plan and are therefore excepted from the additional tax

under sec. 72(t). Respondent further concedes that petitioner’s

filing status is married filing jointly.

Respondent determined a deficiency in petitioner’s Federal

income tax of $46,076, an addition to tax of $4,874.85 pursuant

to section 6651(a)(1), an addition to tax of $3,791.55 pursuant

to section 6651(a)(2), and an addition to tax of $910.21 pursuant

to section 6654(a) for the taxable year 1999. 

The petition placed in dispute respondent’s determination as

to filing status, allowance of standard deduction, and all

additions to tax.1 After respondent’s concessions,2 the issues

still in contention are: (1) Whether petitioner is entitled to

claim an itemized deduction for medical expenses in excess of

those conceded by respondent; and (2) whether petitioner is

liable for the additions to tax under sections 6651(a)(1),

(a)(2), and 6654(a). The amount of the additional 10-percent tax

pursuant to section 72(t) is a computational matter and will be

resolved by our decision on the medical expenses issue. 
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Background

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference. Petitioner resided in

Hoffman Estates, Illinois, on the date the petition was filed in

this case.

During 1999, petitioner was a project manager for the

Federal Aviation Administration (FAA) branch of the United States

Department of Transportation. As of 1999, petitioner had been a

full-time employee with the FAA for almost 15 years. In August

of 1999, petitioner voluntarily resigned from his employment at

the FAA. 

The U.S. Department of Transportation prepared a 1999 Form

W-2, Wage and Tax Statement, for petitioner showing wage income

of $56,149.15 and Federal income tax withheld of $10,457.36.

Also in 1999, petitioner withdrew all of his contributions

from his thrift savings plan through the National Finance Center. 

As a result of this withdrawal, the National Finance Center sent

to petitioner a Form 1099-R, Distributions From Pensions,

Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance

Contracts, Etc., for the year 1999 reflecting a withdrawal in the

amount of $96,760.69 and Federal income tax withheld of

$11,954.35. Petitioner did not make any payments to the Internal
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Revenue Service for the 1999 taxable year other than the

withholdings.

During the tax year at issue, petitioner was married to

Cynthia K. Berrey (Ms. Berrey). Ms. Berrey was a customer

service supervisor for Warner-Lambert Company during taxable year

1999. As a result of her employment, Warner-Lambert Company

prepared a 1999 Form W-2 for Ms. Berrey showing wage income of

$32,754.70 and Federal income tax withheld of $4,440.50.

Petitioner did not file his 1999 Federal income tax return

by the April 15, 2000, due date. Additionally, petitioner did

not request an extension of time to file the 1999 tax return.

In a notice of deficiency, respondent determined that

petitioner’s filing status was married filing separately and that

petitioner received total income (wages, interest, dividends,

pensions, misc.) of $153,954. Respondent also determined that

petitioner was liable under section 72(t) for the 10-percent

additional tax on that portion of a distribution from a qualified

retirement plan that is includable in petitioner’s gross income,

and additions to tax for failure to file a Federal income tax

return for the 1999 taxable year, failure to pay Federal income

tax for the 1999 taxable year, and an underpayment of estimated

tax.

On April 6, 2004, after the notice of deficiency was issued,

petitioner submitted to respondent’s Appeals officer, a Form
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1040, U.S. Individual Income Tax Return, for the taxable year

1999 with a filing status of married filing jointly. The Federal

income tax return for the taxable year 1999 was signed by

petitioner and petitioner’s wife, Cynthia K. Berrey, on or about

March 31, 2004. On his Form 1040, petitioner reported the

following relevant items:

 Line Amount

 7 Wages $88,904

 8a Taxable interest 71

 9 Ordinary dividends 89

13 Capital gain 966

16a Total pensions and annuities 96,761

16b Taxable amount 96,761

34 Adjusted gross income 187,214

36 Itemized deductions 53,512

53 Tax on IRAs,... 6,323

On Schedule A, Itemized Deductions, petitioner reported the

following relevant deductions and expenses:

Line Amount

 1 Medical and dental expenses $47,570

 2 Adjusted gross income1 187,214

 3 Multiply line 2 above by 7.5%2 14,041

 4 Medical expense deduction $33,529

1Amount from Form 1040, line 34.

27.5-percent limitation under sec. 213(a).

As of the time of trial, petitioner’s Form 1040, which was

submitted to respondent’s Appeals officer, had not been accepted

by respondent. Also, as of the time of trial, respondent had not

assessed the tax due from Ms. Berrey because, as respondent

explained, “[petitioner] and * * * [Ms. Berrey] filed jointly,
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that [sic] * * * [respondent is] waiting until * * * [the issue

as to the medical expense deduction] is resolved before * * *

[respondent will] * * * assess the tax, because otherwise * * *

[Ms. Berrey’s] going to end up with a much larger liability than

* * * [petitioner] would”.

Discussion

As a general rule, the determinations of the Commissioner in

a notice of deficiency are presumed correct, and the taxpayer

bears the burden of proving the Commissioner’s determinations in

the notice of deficiency to be in error. Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933). As one exception to this

rule, section 7491(a) places upon the Commissioner the burden of

proof with respect to any factual issue relating to liability for

tax if the taxpayer maintained adequate records, satisfied the

substantiation requirements, cooperated with the Commissioner,

and introduced during the Court proceeding credible evidence with

respect to the factual issue. Although neither party alleges the

applicability of section 7491(a), we conclude that the burden of

proof has not shifted to respondent with respect to the medical

expenses still in dispute. Respondent has the burden of

production with respect to the additions to tax, however. Sec.

7491(c); Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001).
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1. Medical Expenses

Deductions are a matter of legislative grace, are allowed

only as specifically provided by statute, and the taxpayer bears

the burden of proving that he or she is entitled to the claimed

deductions. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84

(1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440

(1934). With these well-established propositions in mind, we

must determine whether petitioner has satisfied his burden of

proving that he is entitled to deductions for medical expenses

allegedly incurred during taxable year 1999. As previously

noted, respondent concedes medical expenses in the amount of

$18,904. However, respondent argues that petitioner’s claimed

medical expenses in excess of that amount have not been

substantiated; specifically, respondent claims that petitioner

has not shown that payments for such expenses were made in

taxable year 1999.

A taxpayer may deduct expenses incurred for medical care and

dental expenses to the extent that the expenses exceed 7.5

percent of the taxpayer’s adjusted gross income. See sec.

213(a). Medical care expenses include amounts paid for insurance

premiums. See sec. 213(d)(1)(D). To substantiate medical and

dental expenses under section 213, a taxpayer must provide the

name and address of each person to whom payment was made and the
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amount and date of each payment. See sec. 1.213-1(h), Income Tax

Regs.

At trial, respondent and petitioner entered into evidence

stipulated joint exhibits which consisted of various documents

reflecting medical treatment received by petitioner and/or

petitioner’s family members during the taxable year 1999. 

Exhibits 3-J, 4-J, and 5-J consisted of documents reflecting the

medical expenses which respondent conceded, along with the health

insurance premiums in the aggregate amount of $1,390 paid by

petitioner during taxable year 1999. 

Exhibit 6-J consisted of various documents reflecting

medical expenses as follows:

Type of Service Date Amount

For Eyes--Optical 12/12/1999 $44.00

Room, Substance Abuse 05/18/1999 1,212.50

Hosp. Misc, Inpatient

Substance Abuse Doctor 10/28/1999 129.50

Visits, Inpatient

Room, Substance Abuse 9/28/1999 1,090.01

Hosp. Misc, Inpatient

Substance Abuse 11/16/1999 560.00

Behavioral Health

Doctor Visit, Inpatient 10/07/1999 78.00

Room, Substance Abuse 4/13/1999 963.01

Hosp. Misc, Inpatient

Diagnostic X-Ray 9/30/1999 164.00

For all of the above expenses in Exhibit 6-J, except for the For

Eyes--Optical expense, petitioner introduced into evidence copies

of the canceled checks used to pay such expenses and a copy of

his personal bank account summary showing debits for such
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3Monetary amount is rounded to the nearest dollar.

expenses. Therefore, we hold that petitioner has substantiated

payment of the above listed medical expenses, except for the For

Eyes--Optical expense, in taxable year 1999 in the amount of

$4,197,3 which amount is in addition to the amount respondent

conceded of $18,904.

The rest of petitioner’s claimed medical expenses were

reflected by various documents in Exhibit 7-J. However, while

these documents provided the name and address of each person to

whom payment was due and the amount due for such payment, these

documents did not substantiate that petitioner made the required

payment or that such payment was made in the taxable year 1999. 

Petitioner did not introduce into evidence any further

documentation which would substantiate the date of such payment

or if payment of such expenses was actually made. Therefore, we

hold that no further medical expenses have been substantiated by

petitioner.

2. Additions to Tax

a. Section 6651

Respondent determined that petitioner is liable for

additions to tax for: (1) Failure to file a timely return for

taxable year 1999 pursuant to section 6651(a)(1); and (2) failure

to make timely payment of tax pursuant to section 6651(a)(2). 
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Section 6651(a)(1) imposes an addition to tax for failure to

timely file a tax return. The addition to tax is equal to 5

percent of the amount of the tax required to be shown on the

return if the failure to file is not for more than 1 month. See

sec. 6651(a)(1). An additional 5 percent is imposed for each

month or fraction thereof in which the failure to file continues,

to a maximum of 25 percent of the tax. See id. Section

6651(a)(2) provides for an addition to tax of 0.5 percent per

month, up to 25 percent for failure to pay the amount shown or

required to be shown on a return. A taxpayer may be subject to

both paragraphs (1) and (2), in which case the amount of the

addition to tax under section 6651(a)(1) is reduced by the amount

of the addition to tax under section 6651(a)(2) for any month to

which an addition to tax applies under both paragraphs (1) and

(2). The combined amounts under paragraph (1) and paragraph (2)

cannot exceed 5 percent per month. Sec 6651(c)(1).

The additions to tax under section 6651(a)(1) and (2) are

applicable unless the taxpayer establishes: (1) The failure to

file and/or pay did not result from “willful neglect”; and (2)

the failure to file and/or pay was “due to reasonable cause”. 

United States v. Boyle, 469 U.S. 241, 245 (1985); Heman v.

Commissioner, 32 T.C. 479, 489-490 (1959), affd. 283 F.2d 227

(8th Cir. 1960). If petitioner exercised ordinary business care

and prudence and was nonetheless unable to file his return or pay
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the tax due within the date prescribed by law, then reasonable

cause exists. See sec. 301.6651-1(c)(1), Proced. & Admin. Regs. 

“Willful neglect” means a “conscious, intentional failure or

reckless indifference.” United States v. Boyle, supra at 245.

Petitioner’s 1999 Federal income tax return was due on April

15, 2000. As previously stated, on April 6, 2004, after the

notice of deficiency was issued, petitioner submitted a Form 1040

for the taxable year 1999 to respondent’s Appeals officer. 

Petitioner testified that he had no real explanation for not

filing his 1999 return on time. Petitioner did not pay the

balance shown on his return when he submitted it to respondent’s

Appeals officer. Respondent has carried his burden of producing

evidence to show the additions to tax are appropriate. 

Petitioner has failed to show that he exercised ordinary business

care and prudence in this case. Respondent’s determinations are

sustained.

b. Section 6654(a)

Respondent also determined that petitioner is liable for an

addition to tax for the underpayment of estimated tax pursuant to

section 6654(a).

Section 6654(a) provides that in the case of an underpayment

of estimated tax by an individual, there shall be added to the

tax an amount determined by applying the underpayment rate

established under section 6621 to the amount of the underpayment
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for the period of the underpayment. Unless the taxpayer

demonstrates that one of the statutory exceptions applies,

imposition of the section 6654(a) addition to tax is mandatory

where prepayments of tax, either through withholding or by making

estimated quarterly tax payments during the course of the taxable

year, do not equal the percentage of total liability required

under the statute. See sec. 6654(a); Niedringhaus v.

Commissioner, 99 T.C. 202, 222 (1992).

The amount of the addition to tax under section 6654(a)

stated in the notice of deficiency is based on the return

prepared for petitioner by respondent prior to the filing of the

notice of deficiency. Nothing in the record indicates petitioner

made the required amount of estimated tax payment for taxable

year 1999, and petitioner does not argue, and the record does not

indicate, that any of the statutory exceptions apply. 

Accordingly, we conclude petitioner is liable for the addition to

tax.

Reviewed and adopted as the report of the Small Tax Case

Division.

To reflect the parties’ concessions and our resolution of 

the disputed matters,

Decision will be entered

under Rule 155.