T.C. M em o . 2 0 1 9 -1 4 7

UNITED STATES TAX COURT
FRANCIS STEFFAN HAYES, Pet i t io n er v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 1 2 0 37 -1 7
. Fi l edOct o b er 3 0 , 2 0 1 9
.

Fran ci s St effan Hay es , p ro s e. Eri k W
. Nel s o n an dJ an i ce B. Gei er, fo r res p o n d en t .

M EM ORANDUM FINDINGS OF FACT AND OPINION URDA, J ud g e: Pet i t i o n er Fran ci s St effan Hay es p ub li s hed a n ews pap er,

“ th e Am eri can Vo i ce”, an dran an i n t ern et -b as edrad i o s t at i o n , th e Am eri can Vo i ce Rad i o Net wo rk , fro m 2 0 0 5 th ro u g h 2 0 0 9. Al th o u g h th es e m ed i a v en tu res p u tm o n ey i n M r. Hay es ’ p ock et , h e n ei th er fi l ed Fed eral i n co m e t ax retu rn s n o r p ai dFed eral i n co m e t ax . Th e In t ern al Rev en u e Serv i ce (IRS) t h ereaft er p rep ared-2
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[* 2 ] s ub s t i tu t es fo r retu rn s o n h i s b eh al f an di s s u ed a n o t i ce o f d efi ci en cy d et erm i n i n g t ax d efi ci en ci es an dad d i t i o n s t o t ax u n d er s ect i on s 6 65 1 (a)(2 ) an d(f)
an d 6 6 5 4 1 as fo l l ows : Ad di t io n s t o t ax Year Defi ci en cy Sec. 6 6 5 1(a)(2 ) Sec. 6 6 5 1 (f) Sec. 6 65 4 2 0 0 5 $ 6 ,5 4 1 $ 1 , 6 3 5 $ 4 , 7 4 2 $ 2 62 2 0 0 6 7 ,9 1 9 1 ,9 8 0 5 ,7 4 1 3 7 5 2 0 0 7 1 3 ,8 8 9 3 ,4 7 2 1 0 , 0 7 0 6 3 2 2 0 0 8 1 2 ,5 2 7 3 ,1 3 2 9 ,0 8 2 4 0 3 2 0 0 9 1 1 ,5 9 3 2 ,8 9 8 8 ,4 0 5 2 7 8 Th e IRS d et erm in edas an al t ern at i v e t o th e s ect i o n 6 6 5 1 (f) ad d i t i o ns t o t ax th at M r. Hay es was l iab l e fo r ad d i t i o n s t o t ax u n d er s ect i o n 6 65 1 (a)(1 ). 2 In th i s Co u rtM r. Hay es p l ay s v ari at io n s o n o ft -reject ed t ax -d efi er t h em es . M r. Hay es al s o arg u es thatthe s ub s t i tu t es fo r retu rn s p rep aredo n h i s b eh al f were

1 Un l es s o th erwi s e i nd i cat ed , al l s ect i o n referen ces are t o th e p ro v is io n s o f th e In t ern al Rev en u e Co d e o f 1 9 8 6 , as am en d ed , i n effect fo r th e y ears i n i s s u e, an d al l Ru l e referen ces are t o th e Tax Co u rtRu l es o f Pract i ce an dPro cedure. Al l m o net ary am o un t s are ro un dedt o th e n eares td o ll ar. 2 As we wi l l d i s cu s s , s ee i n fra p p . 7 -8 , res po n den tm ad e a n u m b er o f co n ces si o n s i n M r. Hay es ’ fav o r b efo re an d du ri n g tri al , i n cl u d i n g th e co n ces s i on o f t h e s ec. 6 6 5 1 (f) ad d i t io n s t o t ax .-3
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[* 3 ] i n v al i dan dthatth e ad di t i o n s t o t ax d et erm i n ed ag ai ns th i m were b as el es s . W e wi l l s u s t ai n t h e IRS’ d et erm i n at i o n s s ubjectt o cert ai n co n ces s i o n s res p o n d en t h as m ad e. FINDINGS OF FACT A. Back g ro u n d Fo r t h e l as t2 0 y ears Fran ci s St effan Hay es h as wo rk edi n p ub l is h i n g an d b ro ad cas t i ng i n Eag l e Po i n t, Oreg o n . 3 M r. Hay es fo u n deda n ews p ap er, “ th e Am eri can Vo i ce”, i n 1 9 9 8 an dth en l au n ch edh i s o wni n t ern et -b as edrad i o s t at i o n , th e Am eri can Vo i ce Rad i o Net wo rk , two y ears l at er. He was th e s o le p ers on i n ch arg e o f each , an dn ei th er was o rg an i zedas an en t i ty s ep arat e fro m

h im sel f. M r. Hay es des cri bes h i s m ed i a wo rkas fo l l owi n g i n th e fo o ts t ep s o f Th o m as J effers o n b y ev i n ci n g s k ep t i ci s m

t o w ard s Go vern m en t an do p po s i t i on t o p ercei v ed Go v ern m en tcri m i n al i ty . M r. Hay es ’ m ed i a o p erat i o n s g en erat eds ev eral i n co m e s tream s du ri n g 2 0 0 5 th ro u g h 2 0 0 9 . Fi rs t , th e p eo p l e wh o b ro ad cas t p ro g ram s o n th e Am eri can Vo i ce Rad io Net wo rkp ai d M r. Hay es fo r ai rt i m e an d p ro duct i o n s erv i ces . He al s o s o l d p ub l i cat i on s , p ro g ram

reco rd i n g s , an do th er g o o d s thro u g h th e n et wo rk ’ s web s i te. M r. Hay es recei v edm o n ey fro m rad i o an d p ri n tad v ert i s i n g , as wel l as

3 M r. Hay es al s o l i v edi n Oreg o n wh en h e t i m el y fi l edh i s p et i ti o n.-4
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[* 4 ] s ub s cri pt i o n s t o h i s n ews p ap er. An d h e accep tedd o n at i o n s, wh i ch were
s o l i ci t edb o th i n h i s n ews p ap er an dth ro u g h th e rad io n et wo rk
. B. Fai l u re To Fi l e Return s an dIRS Ex am i n at i o n M r. Hay es d i dn o t fi l e Fed eral i n co m e t ax retu rn s fo r h i s 2 0 0 4 th ro ug h 2 0 0 9 t ax y ears . Th e IRS t h ereaft er co m m en cedan ex am i n at i o n i nt o wh ether M r. Hay es
was req u ired t o fi l e Fed eral i nco m e t ax retu rn s an d th e p ro p er am o u nt s o f h i s l i ab i l i t i es . He refu s edt o co o perat e wi th th e IRS o r p ro vi d e an y reco rd s . Th e as s i g n edIRS rev en u e ag en tacco rd i n g l y p erfo rm eda reco n s tru ct i o n o f M r. Hay es ’ i n co m e u s i n g th e s p eci fi c i t em m et h o d. Sp eci fi cal l y , th e IRS (1 ) s u m m o n ed acco u n t s i n Mr. Hay es ’ n am e atW el l s Farg o , Pay Pal , an de-g o l d (an i n v es t m en tweb s it e), (2 ) co n t act edcu s t o m ers an dv en d o rs t o try t o d et erm i n e g ro s s recei p ts , an d(3 ) at t em p t edt o as cert ai n wh et her M r. Hay es h adrecei v ed i n co m e th ath e h ad d ep o s i t edel s ewh ere. Wh en p erfo rm i n g th e i n co m e reco n s tru ct i on th e rev en u e ag en tfact o redi n
m u lt i p l e ch eck s an dm o n ey o rd ers fo u ndi n th e acco u n t s o f J am es Ll o y dan dAl l an Ai s n er, two o f M r. Hay es ’ fri en d s. M o st o f t h es e ch eck s h adb een ad dres s edt o M r. Hay es (o r s o m e v ers i o n o f “ th e Am eri can Vo i ce” o r t h e Am eri can Vo i ce Rad io Net wo rk ) an dl at er en d o rs edo v er t o M es s rs . Ll o y dan dAi sn er. Th e-5
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[* 5 ] rev en u e ag en ttreat edth es e ch eck s as i n co m e t o M r. Hay es b ecau s e h e h ad
u n fet t eredu se o f th e fu nd s wh eno ri g in al l y recei ved
. Ono th er ch eck s , th e p ay ee l i n e h adb een l eftb l an k , co n si st en twi th i n s tru ct i o n s feat u redo n t h e Am eri can Vo i ce Rad i o Net wo rkweb s i t e. Th e rev en u e ag en t cred i t edth es e ch eck s t o M r. Hay es wh ere t h e p aym en t s h adco m e fro m
en t i t i es wi th wh om

h e reg u l arl y

d i db u s i n es s. Fi n al l y , th e rev en u e ag en ti n cl u d edcert ai n o th erwi s e u n acco u n t ed -fo r i n co m e i t em s fro m

cu s t o m ers o f M r. Hay es . Fo r ex am p l e, reco rd s s ub po en aed fro m a cu s t o m er n am edJ erryGen try i n d i cat ed th atM r. Gen try h ads en ta ch eckt o M r. Hay es . Th e d ep o s ito f t h i s ch eckwas n o trefl ect edi n an y o f t h e acco u n t s o f M r. Hay es t o wh i ch th e rev en u e ag en t h adacces s , s o s h e i n cl u d edth e am ou n to f th atch ecks ep arat e an d ap artfro m th e am ou n t s i n th e b an k acco u n t s . C. Sub s t i tu t es fo r Ret u rn s Onth e b as i s o f t h i s an al y s i s th e rev en u e ag en tm ad e d et erm i n at i o ns as t o M r. Hay es ’ g ro s s i n co m e an dd efi ci en cy am o u n t s . To b ri n g the au d i tt o a cl o s e, h o wev er, s h e h an d edth e b at on t o a s eco n drev en u e ag en t , wh o p rep ared
s ub s t i tu t es fo r retu rn s fo r M r. Hay es ’ 2 0 0 5 t h ro u gh 2 0 0 9 t ax y ears . Each
s ub s t i tu t e fo r retu rn was co m p ri s edo f (i ) a Fo rm

1 3 4 9 6 , IRC Sect i o n 6 0 2 0 (b ) Cert i fi cat i o n , (i i ) a Fo rm

4 5 4 9-A, In co m e Tax Ex am i n at i o n Ch an g es , (i i i) a-6
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[* 6 ] Fo rm 5 27 8, St at em en t --In co m e Tax Ch an g es , (i v ) a Fo rm 8 8 6 -A, Ex p l an at io n
o f It em s , an d(v ) a W o rk

p ap er 4 0 3 , Fi l i n g St atu s LeadSh eet(LeadSh eet s ). As m o s trel ev an th ere, t h e Fo rm s 4 54 9 -A s ho w t ax ab l e i n co m e du ri ng th e y ears i n i s s u e ran g i ng fro m a l ow o f $ 1 8 ,7 4 4 (i n 2 0 0 5) t o a h ig h o f $ 4 0 , 1 4 6 (i n 2 0 0 7 ). Th es e am o u nt s were d eri v edfro m M r. Hay es ’ g ro ss recei p t s , i d en t i fi ab l e b u s i n es s ex p en ses , d edu ct i o n s , an dcred i ts fo r each y ear. Th e LeadSh eet s el ab o rat e o n th e t o p -l i n e co n cl u s i o n s s etfo rt h i n th e Fo rm s 4 5 4 9 -A. Inth e d i scu s s io n o f g ro s s recei p t s th e LeadSh eet s s t at e th atth e
reco n s tru ct i o n h adfai l edt o cap tu re t h e fu ll s co pe o f M r. Hay es ’ i nco m e. Th e LeadSh eet s refl ectth atcert ai n ch eck s fro m o n e o f M r. Hay es ’ cu s t o m ers (recei v edb y

th e IRS i n res p o n s e t o a s ub p o en a) were n o tfo u n dt o h av e b een d ep os i t edi n an y

o f t he acco u n t s th atth e IRS h adex am i n ed , wh i ch l ed i tt o b el i ev e th atM r. Hay es h ado th er acco u n t s i n to wh i ch h e was d ep os i t i n g ad d i t i o nal i n co m e (p art icu larl y

fro m cu s t o m ers wh o p ai d h i m i n cas h ). M r. Hay es ’ l acko f co o p erat i o n h am p eredth e IRS’ ab i li ty

t o reco g n i ze h i s l eg i t i m at e b u s i n es s ex p en ses . Th e LeadSh eet s i n di cat e t h at th e IRS rev iewedM r. Hay es ’ b an kacco u n treco rd s fo r 2 0 0 5 th ro u g h 2 0 09 an d at t em p t edt o i d en t i fy

(an d g i v e h im cred i tfo r) b u s i n es s -rel at edex pen ses . Th e LeadSh eet s s t at e, h o wev er,-7
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[* 7 ] th atth e wi th drawal reco rd s fo r 2 0 0 5 an d 2 0 0 6 co nt ai n ed n o d o cu m en t at i o n th atco u l ds up p o rtb u s in es s ex p en s es fo r t h o s e y ears . D. No t i ce o f Defi ci en cy an dPro ceed i n gs i n Th i s Co u rt Th e IRS t h ereaft er i s s u eda n o t i ce o f d efi ci en cy fo r M r. Hay es ’ 2 0 0 5 th ro u g h 2 0 0 9 t ax y ears , wh i ch as s ert edth e Fed eral i n co m e t ax d efi ci en ci es an d ad d it i o n s t o t ax n o t edab o v e. M r. Hay es fi l eda t i m el y

p et i t i o n fo r red et erm i nat i on i n thi s Co u rt . Befo re tri al res p o n d en tco n ced edthe s ect i o n 6 6 5 1 (f) ad d i t io n s t o t ax . Th i s co n ces s i o n
res u l ted i n th e ap pl i cat i on o f t he ad d i t i o ns t o t ax u nd er s ect i on 6 6 5 1(a)(1 ) t h ath ad b een as s ert edi n th e al t ern at i ve. M o re co n ces s i o n s fo l l o wedattri al . Sp eci fi cal l y , res p o n d en t ack n o wl ed g edth atth e i n co m e reco n s tru ct i o n i n cl u d edcert ai n dup l i cat i ve i n co m e am o un t s , wh i ch the o ri g i n al rev enu e ag en t h add i s co v eredi n th e ru n -up t o tri al . Aft er t h es e co n ces s i o n s , recal cu l at i n g t h e am o u n t s ati s s u e
res u l ted i n th e fo l l o wi n g d efi ci en ci es an dad d it i on s t o t ax :-8
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[* 8 ] Ad d i ti o ns t o t ax Year Defi ci en cy Sec. 6 6 5 1 (a)(1 ) Sec. 6 65 1 (a)(2 ) Sec. 6 6 5 4 2 0 0 5 $ 6 ,5 0 9 $ 1 , 6 2 7 $ 1 , 6 2 7 $ 2 6 1 2 0 0 6 7 ,7 5 3 1 ,9 3 8 1 ,9 3 8 3 6 7 2 0 0 7 7 ,8 3 6 1 ,9 5 9 1 ,9 5 9 3 5 7 2 0 0 8 8 ,4 7 5 2 ,1 1 9 2 ,1 1 9 2 7 2 2 0 0 9 1 7 ,2 9 3 1 ,7 2 3 1 ,7 2 3 1 7 5
1 W e n ot e thati n p rep ari n g i t s cal cu l at i o ns fo r t ri al res p o n d en t fai l edt o i n cl u d e a $ 4 0 0 “ M ak i n g W ork Pay Cred i t ” t h ath e h ad p rev i o u s l y al l o wedfo r 2 0 0 9 . W e ex p ectthatth e co m pu t at i o ns i n th i s cas e wi l l rei n co rp o rat e t hi s cred i t , as res po n d en th as n o to ffered an y ex p l an at io n fo r rem o v i n g i t . OPINION In g en eral , a t ax p ay er b ears th e b urd en o f p ro o f t o s h o w thatth e IRS’ d efi ci en cy

d et erm i n at i on was arb i traryo r erro n eo us , s ee Ru l e 1 4 2 (a); W el ch v . Hel v eri n g , 2 9 0 U.S. 1 1 1 , 1 15 (1 9 33 ), wh i ch h e m u s tcarryb y a p rep o n deran ce o f th e ev i d en ce, s ee, e.g ., M erk el v . Co m m i s s i o n er, 1 92 F.3 d 8 4 4 , 8 5 2 (9 th Ci r. 1 9 99 ), aff’ g 1 0 9 T.C. 4 6 3 (1 99 7 ). In cas es i n v o l v in g fai lu re t o rep orti n co m e, th e Co u rto f Ap p eal s fo r th e Ni n th Ci rcu i t , t o wh i ch an ap p eal i n t h i s cas e wo u l d
o rd i n ari ly l i e, s ee s ec. 7 48 2 (b )(1 )(A), h as h el dth atth e Co m m i ss i o ner m

u s t
es t ab l i s h “ s o m e ev i d en t iaryfo u n d at i o n ” l i n ki n g the t ax p ay er t o an al leg ed-9
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[* 9 ] i n co m e-p ro du ci n g act iv it y b efo re t h e p res u m

p t i on o f co rrect nes s at t ach es t o th e d efi ci en cy

d et erm i n at i o n, W ei m ers k i rch v . Co m m i ss i o n er, 5 9 6 F.2 d3 5 8 , 3 6 1
- 3 6 2 (9 th Ci r. 1 9 79 ), rev ’ g 6 7 T.C. 6 7 2 (1 9 7 7 ). On ce t h e Co m m i ss i o ner h as
es t ab l i s h eds u ch a fo u n d at i o n , th e b u rd en o f p ro o f s h i ft s t o t h e t ax p ay er t o p ro v e b y a p rep o n d eran ce o f t he ev id en ce t h atth e IRS’ d et erm i n at i on s are arb i traryo r
erro neo u s . Hardy

v . Co m m i s s io n er, 1 8 1 F.3 d1 0 02 , 1 00 4 (9 th Ci r. 1 9 9 9 ), aff’ g T.C. M em o . 1 99 7 -9 7
. I. M r. Hay es ’ In co m e Gro s s i n co m e g en eral l y

i n cl ud es al l i n co m e fro m wh at ev er s o u rce d eri v ed
. Sec. 6 1 (a). Tax pay ers m

u s tk eep ad equ at e b o o k s an dreco rd s fro m wh i ch th ei r
co rrect t ax l i ab i l i t i es can b e d et erm i n ed . Sec. 6 0 0 1
. Wh en a t ax p ay er fai ls t o k eep
reco rd s , th e IRS h as d i s cret i o n t o reco n s tru ctth e t ax p ay er’ s i n co m e b y an y
reas on ab l e m ean s . Sec. 4 46 (b ); W eb b v . Co m m i ss i o ner, 3 9 4 F.2 d3 6 6 , 3 7 1 -3 7 2 (5 th Ci r. 1 9 6 8 ), aff’ g T.C. M em o . 1 9 6 6 -8 1 ; Fact o r v . Co m m i s s io n er, 2 8 1 F.2 d 1 0 0 , 1 1 7 (9 th Ci r. 1 9 6 0 ), aff’ g T.C. M em o. 1 9 5 8 -9 4
. In th i s cas e M r. Hay es t es t ifi edth ath e d i dn o t“ k eep reco rd s ” an dth ath e d i dn o t “ h av e an yth i n g t o g o b acko n” reg ard i n g h i s earn in g s du ri n g the y ears i n i s su e. Th e IRS t h u s em

p l o y edth e s peci fi c i t em

m et h o d t o reco n s tru ct M r. Hay es ’ i n co m e, p u rs u an tt o wh i ch a t ax p ay er’ s i nco m e i s reco n st ru ct edo n th e b as i s o f t he-1 0
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[* 1 0 ] ev id en ce s h o wi n g s p eci fi c am o un t s recei v ed b y th e t ax p ay er. See W h i t e v . Co m m i s s i o n er, T.C. M em o . 2 0 1 8 -1 0 2 , at* 1 4 -* 1 5 ; s ee al s o Un i t edSt at es v . M arab el l es , 7 2 4 F.2 d1 3 7 4 , 1 3 7 7 n .1 (9 th Ci r. 1 9 8 4 ). W e fi n dth atres p o n d en th as es t ab l i sh eda s uffi ci en tev id en t i ary fo u n d at i o n t o s at i s fy an y th res ho l db u rd en as rel at es t o h i s d et erm in at io n s o f M r. Hay es ’
u n rep o rt edi n co m e. Th e IRS i n tro du cedream s o f b an kacco u n ts t at em en ts , ch eck s , an dm o n ey

o rd ers s h o w i n g th ati n th e y ears i n i s s u e M r. Hay es recei v ed i n co m e b o th d irect l y

an dth ro u g h th e m ed i a v en tu res h e al o n e co n tro l l ed . W e draw fu rt h er s up p o rtfro m the t es t i m o ny

o f t h e rev en u e ag en twh o l ai d th e g ro u nd wo rkfo r t h e IRS’ reco n s tru ct i o n o f M r. Hay es ’ i n co m e. Th e rev en u e ag en t p ers u as i v el y

t es t i fi edas t o M r. Hay es ’ co n n ect i o n s t o v ari o u s b an k an di n v es t m en t
acco u n t s an dco nv i n ci ng l y ex p l ai n edwh y

th e IRS at tri b u t edth e s p eci fi c i t em s o f i n co m e t o h i m . 4 Th e ev id en ce b efo re u s al so s h ows th atth e IRS g av e M r. Hay es th e b en efi to f i d en t i fi ab l e b u s i nes s ex p en s es (as wel l as v ari o u s d edu ct i o n s an d cred i t s ), l en d i n g cred en ce t o th e IRS’ an al y s i s . Res p o nd en t p l ai n l y m eth i s i n i t i al b u rd eni n th i s cas e.

4 Fo r ex am

p l e, cert ai n ch eck s an dm o n ey o rd ers d ep os i t edi n t o t h e b an k acco u n t s o f M es s rs . Ll o y dan dAi s n er were t reat edas i n co m e t o M r. Hay es o n th e g ro u ndth ath e h adu n fet t eredu s e o f t h es e fu n d s b efo re t ran s ferri n g th em t o h i s fri en ds . W e fi ndth is ex p l an at i o n co n v i n ci n g .-1 1
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[* 1 1 ] Th e b u rd eno f p ro o f acco rd i n g ly s h ift s t o M r. Hay es t o p ro v e (b y a p rep o n d eran ce o f t h e ev i den ce) t h atth e IRS’ d et erm i n at i o n s are arb i traryo r
erro neo u s . M r. Hay es , h o wev er, ex p res s l y ad m i t s t o recei v i n g i n co m e i n each o f th e y ears i n i s s u e. An dal th o u g h h e d i s ag reedattri al wi th s o m e o f t h e IRS’ i n co m e cal cu l at io n s , h e em p has i zedth ath e was “ n o tqu i bb l in g ab o utth e am o u n t s ”
an d i n tro du cedn o ev id en ce s h o wi n g an y erro r b y th e IRS. In s ho rt , M r. Hay es fai l s t o t ak e up , m

u ch l es s carry , h is b u rd eno f p ro o f. M r. Hay es i n s teadres erv es h i s en erg y fo r l ay i ng o u tas s o rt ed t ax -d efi er ch es tn u t s ab o u tth e s co p e o f t h e Si x t een th Am en d m en t , th e p u rp o rt ed ly
u n wo rk ab l e d efi n it i o n o f i n co m e u n d er t h e In t ern al Rev en u e Co d e, an d th e effect
o f reg u l at i o n s rel at in g t o t h e Al co h o l an dTo b acco Tax an dTrad e Bu reau o n th e ad m i n is trat i o n o f t h e i n co m e t ax reg i m e. Th e s h o p wo rnarg u m en t s h e o ffers i n
s up p orto f h i s p o s i t i on are i n co m p l et e, m i s l ead i n g , an dm i s g u i d ed , an d h av e b een reject edm o re t i m es than we care t o co u n t . See, e.g ., Wn u ckv . Co m m i s s i on er, 1 3 6 T.C. 4 9 8 , 5 0 6 -5 10 (2 0 1 1); H at fi el dv . Co m m i s s i o n er, 6 8 T.C. 8 9 5 , 8 97 (1 9 7 7 ); Kl i r v . Co m

m i ss i o n er, T.C. M em o . 1 9 7 9 -2 5 9 , 3 8 T.C.M
. (CCH) 1 02 8 , 1 0 3 0 (1 9 7 9). W e wi l l n o td i g n i fy th em wi th fu rt h er an al y si s . See, e.g ., Crai n v . Co m m i s s i o n er, 7 3 7 F.2 d1 4 1 7 , 1 4 1 7 (5 th Ci r. 1 9 8 4 ) (“ W e p ercei ve n o n eedt o refu te t h es e arg u m en ts wi th s o m b er reas on i n g an dco p i o u s ci t at i o n o f p reced en t ;-1 2
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[* 1 2 ] t o d o s o m i g h t s ug g es tth atth es e arg u m en t s h av e s o m e co lo rab l e m eri t .”);
s ee al so Wn u ckv . Co m

m i s si o ner, 1 36 T.C. at5 1 0 -5 12 (ex p l ai ni n g th at ad dres s i n g fri v ol o u s arg u m en t s was t es t i m e an dres o u rces an d d el ay s th e as s es s m en to f t ax ). In co n cl u s i o n , we fi n d th atres p o n d en tm eth i s i n i ti al b urd en t o s ho w
s u ffi ci en tev i d en ce t h atM r. Hay es recei v edi n co m e du ri n g the y ears i n i s s ue. Rat h er th an at tem

pt i n g t o d em on s trat e t h atres p o nd en t’ s d et erm in at i o n s were arb i trary o r wro n g , M r. Hay es ad v an ces m eri t l es s t ax -d efi er arg u m en t s. W e
acco rd i n g l y

s u s tai n res p o n d en t ’ s d efi ci en cy d et erm i n at i o n s. II. Sub s t i tu t es fo r Ret u rn s M r. Hay es fu rt h er co n t en d s t h atth e s ubs t i tu t es fo r retu rn s the IRS p rep ared
o n h i s b eh al f were i n v al i d . M r. Hay es i s fl atwro n g. Co n gres s g ran t ed th e IRS
au th o ri ty t o p rep are s ub st i tut es fo r retu rn s wh ere t ax p ay ers l i k e M r. Hay es fai l t o
co m p l y wi th th ei r o b l i g at io n t o fi l e t h ei r requ ired retu rn s . Sec. 6 0 2 0 (b ). “ A Fo rm 1 3 4 9 6 , ‘ IRC Sect i o n 6 0 2 0 (b ) Cert i fi cat i o n ,’ o r an y o th er fo rm

thatan
au th o ri zedIn t ern al Rev en u e Offi cer o r em p lo y ee s i gn s an du s es t o i d en t i fy a s eto f d o cu m en t s co n t ai n in g t h e i n fo rm at i o n s etfo rth i n thi s p arag rap h as a
s ect i on 6 0 2 0 (b ) return , an d t h e d o cu m en ts i d en t i fi ed , co n s ti tu t e a retu rn u n d er
s ect i on 6 0 2 0 (b ).” Sec. 3 0 1 .6 0 20 -1 (b )(2 ), Pro ced . & Ad m i n. Reg s .; s ee al s o Rad er
v . Co m m i s s i o n er, 1 4 3 T.C. 3 76 , 3 8 2 (2 0 1 4), aff’ d, 6 1 6 F. Ap p ’ x 3 9 1 (1 0 th-1 3
-

[* 1 3 ] Ci r. 2 0 1 5). Th e co m b i n at i o n o f d ocu m en t s as sem bl edb y th e IRS fo r each y ear, i ncl u d i n g Fo rm

1 3 4 9 6 , Fo rm

4 5 4 9 -A, an dFo rm

8 8 6 -A, i s “ s u ffi ci en tt o
co n st i tu t e a v al i d * * * [s ub s t i tu t e fo r retu rn ] u n d er s ect io n 6 02 0 (b ).” Rad er v . Co m m i s s i o n er, 1 4 3 T.C. at3 8 2; s ee al s o Gl eas o n v . Co m m i s s i o n er, T.C. M em o. 2 0 1 1 -1 5 4 , 1 0 1 T.C.M
. (CCH) 1 7 4 3 , 1 7 5 2 (2 0 1 1 ). 5 III. Ad d it i on s t o Tax A. In tro du ct io n Th e IRS d et erm in edth atM r. Hay es i s l i ab l e fo r ad d i t i o n s t o t ax p u rs u an tt o
s ect i on s 6 6 5 1 (a)(1 ) an d(2 ) an d6 6 5 4 . Res p o n den th as th e b u rd eno f p ro du ct i o n wi th res p ect t o th o s e ad d i t i o ns t o t ax . See s ec. 7 4 9 1 (c). 6 To m eetth atb u rd en , th e

5 M r. Hay es al s o arg u es th atres po n d en tv i ol at edd is co v ery ru les b y fai l i n g t o co m p l y wi th h i s i n fo rm al d i s co v ery req u es t s fo r cert ai n i n t ern al IRS m at eri al s reg ard i n g h i s acco u n t , i n cl u d i n g th e “ In di v i du al M as t er Fi l e”. Res p o nd en trep l i es th ath e co m

p l i edwi th th e req u es t s as fu l l y as p o s s i b le an d t h atM r. Hay es m i s u n d ers t an d s th e n atu re o f th e In d i v idu al M as t er Fi l e. W e s ee n o v i o l at io n o f o u r Ru l es . An dth i s m at eri al i s n o t rel ev an tt o o u r d et erm i n at i o n o f t h e ex is t en ce an d am o u n t s o f M r. Hay es ’ t ax l i ab i l i t ies . See Wn u ckv . Co m m i s s i on er, 1 3 6 T.C. 4 9 8 , 5 0 9 -5 10 (2 0 1 1); D av enp o rtv . Co m m i s s i o ner, T.C. M em o . 2 0 13 -4 1 , at* 4 -* 5
.

6 Th e Co m

m i ss i o n er’ s b u rd en o f p ro du ct i o n u n d er s ec. 7 4 9 1 (c) n o rm al l y req u i res a s h o wi n g o f h i s co m p l i an ce wi th th e p ro cedu ral req u i rem en t s fo u n di n s ec. 6 7 51 (b )(1 ). See Graev v . Co m m i s si o n er, 1 4 9 T.C. 4 8 5 , 4 9 2 -4 9 3 (2 0 1 7 ), s up p lem en t i n g an do v erru l i n g i n p art1 4 7 T.C. 4 6 0 (2 0 1 6 ). Th o s e p ro cedu ral req u i rem en t s , h o wev er, d o n o tap p l y t o th e ad di t i o n s t o t ax u n d er s ecs . 6 6 5 1 an d 6 6 5 4 ati s su e i n th i s cas e. See s ec. 6 75 1 (b )(2 )(A).-1 4
-

[* 1 4 ] Co m

m i s si o n er m

u s t p ro du ce ev i d en ce s h o wi n g th atth e ad d i t i o ns t o t ax are ap p ro p ri at e. See Hi g b ee v . Co m m i s s i o n er, 1 16 T.C. 4 3 8 , 4 4 6 (2 0 0 1 ). On ce t h e Co m m i s s i o n er carri es th e b u rd en o f p ro du ct i on , th e t ax p ay er m u s t co m e fo rward wi th p ers u as i v e ev i den ce t h atth e Co m m is s io n er’ s d et erm i n at i o n i s i n co rrecto r th atth e t ax p ay er h as an affi rm at i v e d efen s e. See i d . at4 4 6 -4 4 7
. B. Res p o nd en t ’ s Sect i o n s 6 65 1 (a)(1 ) an d(2 ) an d 6 65 4 Det erm i n at i o n s Sect io n 6 6 5 1 (a)(1 ) p ro v i d es fo r an ad d i t io n t o t ax i n th e ev en ta t ax p ay er fai l s t o fi l e a t i m el y

retu rn (d et erm i n edwi th reg ardt o an y ex t en s i o n o f t im e fo r fi li n g ), u n l es s i ti s s h o wn t h ats u ch fai l u re i s du e t o reas o n ab l e cau s e an dn o tdu e t o wi l l fu l n eg l ect . Th e ad d i t i o n i s equ al t o 5 % o f t h e am o un treq u ired t o b e s h o wn
as t ax o n th e d el i n quen treturn fo r each m on th o r fract i o n th ereo f duri n g wh i ch th e retu rn rem ai n s d el i n qu en t , up t o a m ax i m u m ad d i t i o n o f 2 5 % fo r retu rn s m o re t h an fo u r m o nt h s d el i n quen t . Sec. 6 6 5 1 (a)(1 ). Sect io n 6 6 5 1 (a)(2 ) p ro v i d es fo r an ad d i t io n t o t ax fo r fai lu re t o t i m el y p ay

“ th e am o u n ts h o wnas t ax o n an y retu rn s p eci fi edi n p arag rap h (1 )” u n l es s th e t ax p ay er es t ab l i s h es th atth e fai l u re was du e t o reas o n ab l e cau se an dn o twi l l fu l
n eg lect . Th e ad d i t i o n i s cal cu l at edas 0 .5 % o f t he am o u nts h o wnas t ax o n th e retu rn b u tn o t p ai d, wi th an ad d i t i o n al 0 .5 % fo r each m o nt h o r fract i o n t h ereo f du ri n g wh i ch th e fai l ure t o p ay co n t i n u es , up t o a m ax i m u m o f 2 5 %.-1 5
-

[* 1 5 ] Sec. 6 6 5 1 (a)(2 ). Th e am o u n to f t h e ad d i t io n t o t ax u n d er s ect i o n 6 6 51 (a)(2 ) redu ces th e ad d i t i o n t o t ax u n d er s ect i o n 6 6 5 1 (a)(1 ) fo r an y m o n th fo r wh i ch b o t h ad d it i o n s t o t ax ap p l y . See s ec. 6 65 1 (c)(1 ). Pu rs u an tt o s ect i o n 6 6 51 (g )(2 ),
s ub s t i tu t es fo r retu rn s p rep aredb y th e IRS u nd er s ect i o n 6 0 2 0(b ) are t reat edas t ax p ay er ret u rn s fo r p u rp o s es o f d et erm in i n g th e ad d i t i o n t o t ax u nd er
s ect i on 6 6 5 1 (a)(2 ). Sect io n 6 6 5 4 (a) an d(b ) p ro v i d es fo r an ad d i t i o n t o t ax i n th e ev en t o f an
u n d erp aym en t o f a req u i redi n st al l m en t o f i n d i v i du al es t i m at edt ax . Each req u i red i n s t al l m en to f es t im at edt ax i s equ al t o 2 5 % o f t h e “ req u i red an nu al p aym en t ”, wh i ch , i n tu rn , i s equ al t o th e l es s er o f (1 ) “ 9 0 p ercen to f t h e t ax s ho wno n th e retu rn fo r t he t ax ab l e y ear (o r, i f n o retu rn i s fi led , 9 0 p ercen t o f t h e t ax fo r s u ch y ear)” o r (2 ) i f t h e i n d i v i du al fi l eda retu rnfo r th e i m m ed iat el y p reced i n g y ear, 1 0 0 % o f t h e t ax s h o wn o n th atretu rn . Sec. 6 6 5 4 (d )(1 )(A) an d (B). Ex cep ti n v ery l i m i ted ci rcu m s t an ces n o tap p l i cab l e h erei n , s ee s ec. 6 6 5 4 (e)(3 ), s ect io n 6 6 5 4 p ro v id es n o ex cep t io n fo r reas o n ab l e cau s e o r l acko f wi l l fu l n eg l ect . It is u n d i s pu t ed th atM r. Hay es fai l edt o (1 ) fi le ret u rn s , (2 ) d i s ch arg e h i s t ax l i ab i l i t i es , an d(3 ) p ay

an y es t i m at edt ax fo r t h e y ears p ert in en t t o th e ad d i t i o n s t o t ax . Thu s res p o n den th as s at is fi edh i s b u rd en o f p ro du ct i on u n d er s ect i o n 7 4 9 1 (c) wi th res p ect t o h i s i m

p o si t io n o f ad d i t i on s t o t ax u n d er s ect i o n s 6 6 5 1 (a)(1 ) an d(2 )-1 6
-

[* 1 6 ] an d 6 6 54 . M r. Hay es o ffers o n l y m eri t l es s arg u m en t s ag ai n stth e IRS’ i m p o s i t i o n o f ad d i t i o n s t o t ax an dfai l s t o s ho w an y h i n to f reas o nab l e cau s e. W e wi l l s u st ai n res po n d en t’ s d et erm in at i o n s o f ad di t i o n s t o t ax u n d er
s ect i on s 6 6 5 1 (a)(1 ) an d(2 ) an d6 6 5 4 fo r t h e ap p ro p ri at e y ears . Gi v en
res p o n d en t’ s co n ces s i o n s attri al reg ard i n g the p ro p er am o u n t s o f M r. Hay es ’ l i ab i l i t i es , h o wev er, Ru l e 1 5 5 co m p u t at io n s are n eces s ary . Las t ly , we draw M r. Hay es ’ at t en t i o n t o s ect i on 6 6 7 3 , wh i ch au th o ri zes u s t o i m p o s e a p en al ty

o f up t o $ 2 5 ,0 0 0 wh ere, am o n g o th er t h in g s, a t ax p ay er’ s p o s i t i on i s fri v o l o u s o r g ro un d l es s . W e h av e ch o s enn o t t o i m p o s e s u ch a p en al t y ag ai n s tM r. Hay es , wh o h as n o p rev i o u s h i s t o ry o f m ak i ng fri v o l o u s arg u m en t s i n th i s Co u rt . He n o w d o es . W e acco rd i n g l y warn h i m

th atthe s ect i o n 6 6 7 3 p en al t y l o o m s s h ou l d h e ad v an ce s im i lar t ax -d efi er arg u m en t s i n t h e fu tu re. To refl ectthe fo reg o i n g , Deci s i o n wi ll b e en t eredu n d er Ru l e 1 5 5
.