Court Opinion

ID: 4337116
Source: CourtListenerOpinion
Date Created: 2018-11-14 03:11:08.731998+00
Date Added: 2024-06-11T14:47:34.570724
License: Public Domain

T.C. Summary Opinion 2008-64

                      UNITED STATES TAX COURT

                ORRIN LEIGH GROVER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

     Docket No. 1239-06S.               Filed June 9, 2008.

     Orrin Leigh Grover, pro se.

     Kelly A. Blaine, for respondent.

     GERBER, Judge:   This case was heard pursuant to the

provisions of section 74631 of the Internal Revenue Code in

effect when the petition was filed.   Pursuant to section 7463(b),

the decision to be entered is not reviewable by any other court,

     1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for 2002, the taxable year in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
                                - 2 -

and this opinion shall not be treated as precedent for any other

case.    Respondent determined a $5,983 income tax deficiency for

petitioner’s 2002 tax year and also determined additions to tax

as follows:    $1,346.17 under section 6651(a)(1), $837.62 under

section 6651(a)(2), and $199.91 under section 6654(a).

     Petitioner failed to file a return for 2002, and the

deficiency was attributed to unreported income.    Following the

deficiency determination, petitioner provided respondent with

income figures and business and personal expenses in excess of

the income.    The issues we consider involve whether petitioner

has shown that respondent’s income tax deficiency determination

is excessive and whether petitioner is liable for the additions

to tax.2

                             Background

     Some of the facts have been stipulated and are incorporated

by this reference.    Petitioner, Orrin Grover, was a resident of

Oregon at the time his petition was filed.    Petitioner, an

attorney, practiced law under the name Orrin L. Grover, P.C., an

Oregon professional corporation formed in 1984 which is an

     2
       Petitioner’s income and deduction information was provided
to respondent after the issuance of the deficiency notice and
late in the administrative process. That information was not
subjected to audit and not agreed to by respondent in the form
presented by petitioner. We are treating petitioner’s
information as an alternative computation approach that has
substance only to the extent proven at trial.
                               - 3 -

S corporation for Federal tax purposes. Petitioner was licensed

to practice law in the States of California and Oregon.

     Petitioner’s legal speciality has been the representation of

healthcare facilities, and his clients were spread over a broad

geographical region, including the States of Washington, Idaho,

Oregon, Nevada, California, Arizona, Texas, and Colorado.    Most

of petitioner’s clients, during 2002, were in Oregon and

California, with the latter State representing approximately 80

percent of his business.

     Petitioner and his wife owned a building in Woodburn,

Oregon, from which he operated his law practice.   During 2002 his

practice was to work 3 or 4 days per week in California, (mainly

in San Francisco) and 1 or 2 days in his Oregon office.    During

2002 petitioner spent 205 days in California, where he maintained

a satellite office in San Francisco.   About 90 percent of his

business records were maintained in his Oregon office, and the

remaining 10 percent were in San Francisco.   Petitioner claimed

travel and meals expenses while he was away from his Oregon

office.   Petitioner did not maintain formal books and records of

his income and deductions and derived his claimed deductions from

underlying source material like invoices, summary records (credit

card bills and receipts), and collateral documentation (frequent

flyer records).
                               - 4 -

     Petitioner and his wife did not file an individual or a

joint Federal income tax return for 2002.   Respondent determined

petitioner’s income and his 2002 deficiency from Forms 1099

received from payors.   In connection with the pretrial

development of this case, petitioner submitted prepared-after-

the-fact 2002 tax returns.   In particular he prepared a Form

1120S, U.S. Income Tax Return for an S Corporation, Orrin L.

Grover, P.C., and a joint Form 1040, U.S. Individual Income Tax

Return, for his and his wife’s 2002 tax year.3   In the Form 1120S

petitioner represented his 2002 income from the practice of law,

along the lines of the following summary (Amounts are rounded for

reporting purposes.):

Income                                                 $125,408
Expenses:
     Rent California office              $18,000.00
     Oregon office payment                 6,300.00
     Dues                                  1,000.00
     Employee benefits:
          Health insurance                  6,883.28
          Employee drug benefit
               Bimart                         599.62
               Fairway                        960.00
          Employee copays                     100.00
          Medical/dental                    2,252.50
     Travel expense:
          Airfare                           8,223.58
          Airport shuttle/parking           1,045.00
          Oakland airport parking           1,120.00
          Additional shuttle                1,550.00
          Car rental                          916.51

     3
       We note that Mr. Grover is the sole petitioner in this
case and that the document submitted to respondent after the
issuance of the notice of deficiency and before the institution
of this case has not been treated by the parties as a filed
return for purposes of this controversy.
                                 - 5 -

     Per diem travel expense:
          Meals                                9,430.00
          California auto expense              4,317.02
          Miscellaneous travel                 3,075.20
     Other office expense                     44,911.02
     Additional expenses                      17,505.95
Total deductions                                          128,189.00
     Net loss from practice of law                         (2,781.00)

     On the draft Form 1040 petitioner reported the pass-through

loss of $2,781 and offset that amount against $8,500 of net

income reported.   The reported income on the Form 1040 consisted

of $10,000 from his wife’s consultant fee from Orrin L. Grover,

P.C., and $6,300 of her income from rentals less $7,800 of rental

expense.    After accounting for exemptions and other miscellaneous

deductions, petitioner reflected no taxable income and a $1,201

employment tax liability for his own and his wife’s joint 2002

tax year.   For convenience, we address each of petitioner’s

claimed deductions under a separate heading.

                               Discussion

Travel, Meals and Miscellaneous Expenses4

     Petitioner claimed the following amounts for 2002:

                     Purpose                  Amount

                 Airfare                    $8,223.58
                 Shuttle and parking         1,045.00
                 Airport limo                1,550.00
                 Car rental                    916.51
                 Airport parking             1,120.00
                 Meals expense               9,430.00
                 Miscellaneous travel        3,075.00
                   Total claimed            25,360.09

     4
       No question was raised concerning the burden with respect
to the claimed deductions.
                                - 6 -

     Respondent agrees that amounts claimed for airfare, shuttle

and parking, airport limo, and car rental were expended but

argues that petitioner is not entitled to a deduction because the

travel was nondeductible commuting or not shown to have been

incurred for business purposes.    With respect to the $1,120

claimed for airport parking respondent contends that it is also

not deductible because petitioner did not provide any supporting

evidence.   The amounts claimed for meals and miscellaneous travel

are on a per diem basis, and respondent contends that the amounts

are nondeductible because petitioner was not away from home on

business.

     To be deductible, travel expenses must be reasonable and

necessary and incurred while away from home in the pursuit of

business.   Commissioner v. Flowers, 326 U.S. 465 (1946).

Respondent argues that petitioner failed to meet only one aspect

of the above-stated requirements for a deduction.    Respondent

contends that petitioner did not incur the expenditure in pursuit

of business.   Respondent does not challenge whether petitioner

was “away from home” when in California; instead, respondent

questions only the business purpose for the expenditures.

Respondent also argues that petitioner failed to meet

substantiation requirements with respect to certain of the

claimed deductions.    Although petitioner spends a great deal of

time in California, his specialized practice causes him to travel

to several States.    In addition, his law offices are in Oregon
                                - 7 -

and California, and as much as 20 percent of his revenue was

earned outside of California.   Petitioner maintains approximately

80 percent of his business records in Oregon.    There is an

obvious and direct business purpose in this case for incurring

the travel expenses–-to earn income.    Accordingly, we find that

petitioner would be entitled to deduct his travel expenses to the

extent he has met substantiation requirements.

     Respondent also argues that petitioner’s choice to remain in

Oregon was a personal one, but we find that argument, in the

setting of this case, does not ring true.   Petitioner has

business activity in several States, and during 2002 there was a

heavy concentration of activity in California.    The principal

place of his legal operation was Oregon where he maintained an

office with most of his records.   In effect, respondent’s

argument is that petitioner has no tax home.    On the record here,

we reject that approach and find that petitioner’s business

travel to and expenses incurred in California were “away from

home” expenses.

     Finally, respondent contends that petitioner did not

maintain adequate records so as to be able to deduct the travel

expenses.   In that regard, section 274(d) provides for a higher

standard of substantiation for certain business expenses.

Generally, a taxpayer must substantiate expenditures “by adequate

records or by sufficient evidence corroborating his own
                               - 8 -

statement.”   Sec. 1.274-5T(c)(1), Temporary Income Tax Regs., 50

Fed. Reg. 46016 (Nov. 6, 1985).

     With respect to the airfare ($8,223.58), shuttle and parking

($1,045), airport limo ($1,550), and car rental ($916.51),

petitioner provided documentary evidence, supplemented by his

testimony, to provide sufficient information to meet the

threshold for the statutory substantiation requirements.    We

accordingly hold that petitioner is entitled to deductions for

airfare ($8,223.58), shuttle and parking ($1,045), airport limo

($1,550), and car rental ($916.51).

     With respect to the airport parking ($1,120), meals expense

($9,430), and miscellaneous travel ($3,075), petitioner employed

a per diem basis using 205 days in California as the multiplier

times daily expenditure amounts for parking, meals, and travel.

The parking is based on daily cost, whereas petitioner explained

that the meals and miscellaneous expenses are based on the

established allowances to Federal Government employees.

Respondent makes the general arguments that petitioner is not

entitled to deduct business expenses while in California and that

he has failed to substantiate the amounts claimed.   Respondent,

however, has not questioned petitioner’s method of computation

and his use of the per diem approach.

     Under section 274, the Commissioner is authorized to

prescribe rules under which optional methods of computing

expenses, including per diem allowances for ordinary and
                               - 9 -

necessary expenses for traveling away from home, may be regarded

as satisfying the substantiation requirements of section 274(d).

Sec. 1.274-5(j), Income Tax Regs.   Under this authority, the

Commissioner issued Rev. Proc. 2001-47, 2001-2 C.B. 332

(applicable to petitioner’s travel January through September

2002), and Rev. Proc. 2002-63, 2002-2 C.B. 691 (applicable to

petitioner’s travel October 2002 through October 2003).

     Under those revenue procedures, taxpayers may elect to use,

in lieu of substantiating actual expenses, certain authorized

methods for deemed substantiation of employee lodging, meal, and

incidental expenses incurred while traveling away from home.    The

procedures include an optional method for use by self-employed

individuals who pay or incur meal costs to compute deductible

costs of business meals and incidental expenses paid or incurred

while traveling away from home.

     Petitioner has not offered any evidence showing that he

incurred the daily $7 parking expense or that the cost is $7.

Therefore, we hold that he is not entitled to the $1,120 claimed

for airport parking.   With respect to the $9,430 claimed as per

diem meal expense, we hold that petitioner is entitled to use the

alternative method and that he is therefore entitled to claim a

$9,430 deduction.5   Concerning the $3,075 of miscellaneous

     5
       Although the meals may be subject to the 50-percent
limitation of sec. 274(n)(1), the outcome of this case is the
same whether the entire $9,430 or one-half of that amount would
                                                   (continued...)
                                 - 10 -

expenses, petitioner has not shown that he is entitled to amounts

in excess of the per diem allowance for meals and, accordingly,

is not entitled to claim that amount.

     Of the $25,360.09 claimed for these business expenses,

petitioner is entitled to $21,165.09.

Other Claimed Expenses

     Petitioner claimed the following expenses and respondent has

made the following concessions:

                      Amount       Amount Conceded   Amount in
   Item               Claimed       by Respondent     Dispute

Health ins.
  premiums        $6,883.28          $6,883.28          -0-

Telephone
  long distance       3,307.90        3,107.90        $200.00

Additional
  telephone           3,435.96        3,216.45         219.51

Office
                  1
  supplies            4,886.31            309.51     4,576.80

Contract
  labor               7,438.81        2,270.81       5,168.00

Wells Fargo
  bank charge         4,510.00            784.00     3,726.00
                  1
Drug expenses         1,559.62        1,559.62          -0-

Medical
  copayment             100.00            100.00         -0-
     1
      These amounts are set forth in petitioner’s brief as
opposed to the proposed return submitted to respondent in
connection with the pretrial activity.

     5
      (...continued)
be allowable. Accordingly, we need not delve into that nuance.
                              - 11 -

     As the above schedule reveals, respondent has fully conceded

the health insurance, drug expense, and medical copayment items.

With respect to the drug expense and medical copayment items,

however, respondent’s concession includes the stipulation that

they would be deductible only on Schedule A, Itemized Deductions,

of petitioner’s 2002 Form 1040 subject to the limitations imposed

on such deductions.   Respondent’s concession that $6,883.28 is

deductible on petitioner’s Form 1120S is premised on a $2,065

increase in petitioner’s income on his Form 1040 under section

162(l).   Therefore, the net effect of this item in the context of

this case is a $4,818.28 deduction.

     We therefore consider the remaining four deduction items.

     1.   Telephone--Petitioner claimed $3,307.90 for telephone

and respondent conceded that petitioner is entitled to $3,107.90

or $200 less than the amount claimed.   The remaining $200 is

represented by a check with a notation that it was for “Sprint

Residential”.   Petitioner has not shown that the $200 was

expended for a business purpose, and we hold that he is entitled

to the amount conceded by respondent, $3,107.90, for business

telephone for 2002.

     2.   Office Supplies--Petitioner originally claimed $5,200.36

as office expenses, and on brief he claimed the reduced amount of

$4,886.31.   Respondent concedes that petitioner is entitled to

$309.51 of office expenses for 2002.    Petitioner provided checks

in support of his reduced claim of $4,886.31.   Most of the checks
                              - 12 -

were made to the order of Staples, Kinkos, Yes Graphics, or

Office Max.   With the exception of a $324.05 check to Yes

Graphics for “Historical Research” on a book that petitioner was

writing, we find the amounts set forth on the checks to the

above-listed payees are deductible.    Petitioner provided five

checks to “Mac Repairs” for repair of his computer and we hold

the amounts are deductible.   Petitioner’s checks written to the

local newspaper (Woodburn Independent) in the amounts of $39.40

and $34.40 were for subrent of petitioner’s office space.     Those

two amounts are not deductible because the office property was

either jointly owned or owned solely by petitioner’s wife and it

has not been shown what portion, if any, is attributable to

petitioner.   Additionally, income from renting the office has not

been shown to be included in respondent’s determination.

Finally, petitioner provided checks written to Fry’s, but he was

unable to specify the items purchased and accordingly is not

entitled to deduct the amounts shown on the Fry’s checks as

business expenses.   Overall, petitioner is entitled to deduct

$4,036.036 for office supplies.

     3.   Contract Labor--Court Reporter’s Fees--Petitioner

claimed $7,438.81 for contract labor, and respondent has conceded

$2,270.81 of the amount claimed.   Of the remaining $5,168,

petitioner provided evidence of the payment by check of $1,100

     6
       This amount includes the amount of respondent’s concession
of $309.51.
                              - 13 -

which he has adequately identified as having been expended for

fees paid to a court reporter in connection with the handling of

a case.   He did not, however, recall which case in particular was

involved and/or whether he was reimbursed by the client.

Petitioner did not provide records which would have identified

whether any reimbursement he may have received had been included

in the income he reported.   Under those circumstances we must

hold that petitioner has not shown that he is entitled to deduct

$1,100 for court reporter’s fees.

     Several of the checks petitioner produced were identified as

payments to an attorney and others who assisted petitioner in his

business activity.   With respect to some of those items

petitioner did not have a record, nor could he recall the

specific case or the assistance provided.   Accordingly,

petitioner has not shown entitlement to a deduction with respect

to those.   Concerning $2,844 paid to Alicia Charapata, petitioner

explained that she worked in his office during the summer of 2002

assisting him as a secretary and file clerk.   As those amounts

were for general overhead and not for a specific case or client,

the Court finds that it is unlikely that those amounts were

reimbursed by clients, and we hold them to be deductible.

Concerning all other claimed expenses, petitioner’s lack of

specificity and the possibility of client reimbursement, and/or

the subject matter of the expense (i.e., building maintenance),

render these items not deductible.
                               - 14 -

     Accordingly, petitioner is entitled to $2,844 in addition to

the $2,270.81 conceded by respondent for a total of $5,114.81 for

contract labor for 2002.

     4.    Wells Fargo Bank Charges--Petitioner incurred $4,510 in

overdraft charges in connection with his Wells Fargo Bank

account.    Respondent has conceded that petitioner is entitled to

deduct $784 of those charges and that the remaining $3,726 is not

deductible because the charges were caused by petitioner’s errors

and such expenditures are not reasonable.   The overdraft charges

for 2002 were caused because petitioner miscalculated his bank

balance on 21 occasions where he wrote multiple checks and the

bank charged him $32 per check because of the overdrafts.

Accordingly, on the occasion of petitioner’s 21 overdrafts, he

was charged $21 for an average of five to six checks that caused

the overdraft.   Petitioner admits that it was his miscalculations

that caused the overdraft.

     Respondent, referencing the statute and several cases,

argues that to be deductible, business expenses must be, among

other things, “reasonable”.   The question here, therefore, is

whether petitioner’s actions were “reasonable”.   Respondent

contends that the overdrafts were caused by petitioner’s errors

and are therefore unreasonable.   It was ordinary and necessary

for petitioner to maintain a bank account and to pay his business

obligations by check.   Clearly petitioner exhibited a lack of

acumen, and the bank charges were a cost of his doing business.
                              - 15 -

     In Bailey v. Commissioner, T.C. Memo. 1991-385, affd.

without published opinion 968 F.2d 25 (11th Cir. 1992), this

Court disallowed bank overdraft charges which in 2 of 3 years

exceeded $30,000.   The Court observed that “[the taxpayers]

continued their practice of incurring and paying overdraft

charges over a 3-year period, and the total amounts paid were

substantial.”   The taxpayers argued that they were having

financial difficulties and that they would intentionally overdraw

their bank account as a substitute or alternative to borrowing

funds.   The Court rejected the taxpayers’ argument.

     Petitioner’s overdraft charges were not the result of

intentional acts but a lack of acumen.   By comparison, the

overdraft charges he incurred for 2002 were substantially less

than (10 percent of) the charges in Bailey.   Each business may

incur some expense due to carelessness or lack of ability, and in

this case we do not find the amount to be unreasonable.

     Furthermore, and although we do not wish to discourage

respondent from negotiating settlements and making concessions,

we have some difficulty understanding why respondent thought that

$784 of bank charges was acceptable and that $3,726 was not.

Accordingly, we hold that petitioner is entitled to deduct $3,726

in bank charges.

Miscellaneous Expenses

     Petitioner claimed the following expenses and respondent has

made the following concessions:
                                   - 16 -
                       Amount           Amount Conceded   Amount in
    Item               Claimed           by Respondent     Dispute

Postage, FedEx
  UPS                  $3,425.54            $3,425.54        -0-

California office
  utility                671.00                 -0-        $671.00

Historical book
  research               824.05                 -0-         824.05

Legal research           204.00               204.00         -0-

Case costs and
  facility rental      7,819.50                 -0-       7,819.50

California business
  expense                416.38                 -0-         416.38

California office
  rent                 18,000.00                -0-       18,000.00

Storage expense          895.00                 -0-         895.00

Fax-n-file             1,289.07                 -0-       1,289.07

Conference call fees     450.36                 -0-         450.36

California auto        4,317.82                 -0-       4,317.82

Costco                   400.00                 -0-         400.00

Interest paid          9,600.00                 -0-       9,600.00

Oregon office
  utility              2,027.43               137.00      1,890.43

Professional dues      1,000.00                 -0-       1,000.00

Oregon auto fuel         605.00               605.00         -0-

Book expense           1,830.00                 -0-       1,830.00

Hardware and
  maintenance            572.66                 -0-         572.66

Angela Grover’s
  services             10,000.00            10,000.00        -0-

Bank of America
  charges              1,800.00             1,800.00         -0-

Misc. business         1,684.00                 -0-       1,684.00

Additional Cali-
  fornia expenses      1,100.00                 -0-       1,100.00

Kinkos                    97.63                 -0-          97.63
                              - 17 -

     With respect to the above-listed expenses that respondent

has not conceded, respondent argues, generally, that petitioner

has failed to carry his ultimate burden of persuasion.

Respondent admits that petitioner may have provided documentation

and testimony with respect to these items, but that he did not

make argument or advocate his position on brief.    We consider

each item to discern and decide whether we agree with

respondent’s arguments.

California Office Rent and Utility

     Petitioner claimed $18,000 and $671 for rent and utilities,

respectively, for his California office.    Although petitioner

provided checks totaling $15,700 for the rent, there is a clear

pattern of $1,500 per month and regular payments.    There is no

question about the reasonable and necessary nature of these

expenditures, and accordingly we hold that petitioner is entitled

to deduct the amounts claimed.

Historical Book Research

     Petitioner claimed $824.05 for research on a book he

intended to write involving World War II.    Respondent argues that

petitioner has not, to date, completed or published the book and

has not shown any connection with the business of his legal

practice.   In addition, these costs may constitute capital

expenditures and/or be personal because petitioner has not shown

his intent in connection with this book.    Accordingly, we hold

that petitioner is not entitled to claim the $824.05 deduction.
                              - 18 -

Case Costs and Facility Rental, Legal Research, Fax-n-file, and
Conference Call Fees

     Petitioner claimed case costs and facility rental, legal

research, Fax-n-file, and conference call fees in the amounts of

$7,819.50, $204.00, $1,289.07, and $450.36, respectively.     With

respect to each claimed deduction petitioner produced checks

evidencing payment of the amounts.     Respondent, among other

arguments, contends that these types of expenses are normally

passed on to clients as reimbursable expenditures made on the

client’s behalf.   Petitioner’s failure to keep adequate records

of such things limits his ability to show whether these items

were reimbursed by clients and/or whether they were included in

the income figure petitioner presented.     Accordingly, we must

hold that petitioner is not entitled to deduct $7,819.50,

$204.00, $1,289.07, and $450.36, respectively.     We note that

petitioner’s failure to keep adequate records was of his own

doing and the sole cause of this seemingly harsh result.

California Business Expense, Storage Expense, Oregon Office
Utilities

     Petitioner claimed California business expense, storage

expense, and Oregon office utilities of $416.38, $895, and

$2,027.43, respectively.   With respect to each claimed deduction

petitioner produced checks evidencing payment of the amounts.

Unlike the items claimed that are reimbursable by clients, these

items are part of petitioner’s business overhead.     Accordingly
                               - 19 -

we hold that petitioner is entitled to deduct $416.38, $895.00,

and $2,027.43, respectively.

Interest Paid

     Petitioner claimed $9,600 as interest paid on his Oregon

office property.   In addition to a mathematical error under which

the $9,600 was overstated by $3,300, petitioner did not provide

substantiation of this amount.   Even if petitioner had provided

substantiation, the real property was owned either by or jointly

with petitioner’s wife.   Because petitioner and his wife did not

file a joint return and without more information, it would be

impossible to allocate the income and expenses even if petitioner

had provided sufficient substantiation of the amounts.   For those

reasons, we hold that petitioner is not entitled to the $9,600

deduction for interest.

California Auto, Costco, Professional Dues, Book Expense,
Hardware and Maintenance, Miscellaneous Business, Additional
California Expenses, and Kinkos

     Petitioner claimed deductions for California Auto, Costco,

professional dues, book expense, hardware and maintenance,

miscellaneous business, additional California expenses, and

Kinkos of $4,317.82, $400, $1,000, $1,830, $572.66, $1684,

$1,100, and $97.63, respectively.   With respect to these claimed

deductions, petitioner failed to provide substantiation and,

essentially, made the claim based on his having reported it on

the return document that he provided to respondent for purposes

of this case.   In other respects, petitioner has failed to
                               - 20 -

provide the business purpose with respect these items.

Accordingly, petitioner is not entitled to deduct amounts of

$4,317.82, $400, $1,000, $1,830, $572.66, $1,684, $1,100, and

$97.63, respectively.

Summary of Adjustments

     The purpose of going through each of petitioner’s claimed

deductions is to determine whether petitioner’s information would

result in an income tax deficiency smaller than the $5,903

determined by respondent.    On the basis of our holdings,

petitioner’s income tax deficiency would not be reduced below the

amount determined by respondent.    In the notice of deficiency,

respondent’s determination of an income tax deficiency was based

on total income of $26,096, which resulted in taxable income of

$17,329 after considering a $3,000 personal exemption and a

$3,925 standard deduction.    It thus appears that petitioner has

not been able to show that his income was less than the amount

determined by respondent, and we accordingly hold that

respondent’s income tax deficiency for 2002 is sustained.7

     7
        At the conclusion of trial, respondent made an oral
motion to conform the pleadings (Rule 41(b)(1)) to the proof. In
effect, respondent sought to have the Court use as its starting
point in calculating any deficiency the income petitioner
reported on the tax return submitted to respondent before trial.
The record in this case does not support a finding that
petitioner’s income was more or less than the amount determined
by respondent in the notice of deficiency. Accordingly,
respondent’s motion will be denied.
                                - 21 -

Additions to Tax for Failure To File, Pay, and Make Estimated
Payments

     Petitioner first argues that no additions to tax are due

because there is no income tax deficiency.     Now that the Court

has decided that the income tax deficiency is to be sustained, we

consider petitioner’s secondary arguments.     Section 7491(c)

places on respondent a burden of production with respect to the

additions to tax.   The evidence in the record shows that no

return was filed or estimates made.      Accordingly, respondent has

carried the burden of production with respect to the addition to

tax under section 6651(a)(1).

     Section 6651(a)(1) provides for an addition to tax for

failure to timely file a return unless it can be shown that such

failure is due to reasonable cause and not due to willful

neglect.   Petitioner bears the burden of proving that his failure

to file was due to reasonable cause and not willful neglect.     See

Fischer v. Commissioner, 50 T.C. 164 (1968).

     Petitioner contends that his failure to file is due to

reasonable cause because his wife became ill during 2002 and the

effects of that illness continued through 2002 and into

subsequent years.   Petitioner also contends that his 2004 illness

presents a basis for reasonable cause.     Petitioner contends that

his wife kept his books and that he relied upon her for the

information necessary to file.
                               - 22 -

     Petitioner has a duty to file his return, and the extent to

which the Court will treat his reliance upon others as reasonable

cause for failing to meet his filing obligation is limited.

United States v. Boyle, 469 U.S. 241 (1985).    Petitioner,

although continuing to travel regularly to California for

business purposes, claims that his wife’s illness impeded his

ability to file a return by April 15, 2003.    Although the Court

sympathizes with petitioner’s circumstances, his failure to file

was not due to reasonable cause.    We also note that several years

later in 2006, when respondent sent petitioner a notice of

deficiency, his tax return and/or underlying records remained

unfiled/unprepared.   In these circumstances we cannot accept

petitioner’s contention that his failure to file was for

reasonable cause, and we so find.   Petitioner is therefore liable

for an addition to tax for failure to file his 2002 return.

Late Payment Addition to Tax

     Section 6651(a)(2) provides for an addition to tax for

failure to pay the amount of tax shown on a return.   The addition

to tax under section 6651(a)(2) applies only when an amount of

tax is shown on a return.   See Cabirac v. Commissioner, 120 T.C.

163, 170 (2003).   Petitioner failed to file a return before the

issuance of the notice of deficiency.   After the issuance of the

notice of deficiency petitioner submitted return documents to

respondent for purposes of pretrial development of the case.    The

return documents were not filed, and no assessments of tax based
                               - 23 -

upon those documents were made.    Those documents were made,

accordingly, not “returns” in the meaning of the statute.       Id. at

170-174.    Respondent has failed to carry his section 7491(c)

burden of production; i.e., showing a “return” with unpaid

balance.8   Accordingly, there can be no addition to tax under

section 6651(a)(2) in this case for lack of an unpaid amount of

tax shown on a return.

Failure To Pay Estimated Taxes

     Section 6654 imposes an addition to tax for failure to pay

estimated taxes.    Respondent’s burden of production with respect

to section 6654 is to show, at a minimum, that petitioner had a

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

Commissioner, 127 T.C. 200, 212 (2006), affd. 521 F.3d 1289 (10th

Cir. 2008).    In order to meet that burden, respondent must

provide information about the filing of a prior year return.

Respondent contended that petitioner did not file a return for

2001, which is sufficient evidence to meet that burden.    Section

6654 does not provide for a reasonable cause exception from the

addition to tax, and petitioner has not shown that he meets any

of the other criteria for an exception from the addition to tax

under section 6654(e).    Accordingly, petitioner is liable for the

addition to tax for failure to pay estimated taxes.

     8
       We note that there was no evidence of substitutes for
returns filed under sec. 6020(b) and that the documents
petitioner submitted to respondent after the issuance of the
notice of deficiency reflected losses and only limited potential
for tax liability.
                        - 24 -

To reflect the foregoing,

                                  Decision will be entered

                             under Rule 155.