                        T.C. Memo. 2005-140



                      UNITED STATES TAX COURT



                RANDON J. SCHOLET, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4879-03.                Filed June 15, 2005.


     R. Lawrence Heinkel, for petitioner.

     Michael D. Zima, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COLVIN, Judge:   Respondent determined a deficiency of

$463,386 in petitioner’s Federal income tax for 1998 and

additions to tax under section 6651(a)(1) for failure to timely

file of $112,138 and under section 6654(a) for failure to pay

estimated tax of $20,449.58.
                                 - 2 -

     After concessions, the issues for decision are:

     1.     Whether the notice of deficiency was arbitrary.   We

hold that it was not.

     2.     Whether petitioner’s capital gain from the sale of

stock in 1998 was $408,092.98.    We hold that it was.

     3.   Whether petitioner may carry forward to 1998 a capital

loss from 1997.    We hold that he may not.

     4.     Whether petitioner may deduct charitable contributions

of $2,141 for 1998.    We hold that he may not.

     5.     Whether petitioner’s filing status is married filing

separately for 1998.    We hold that it is.

     6.     Whether petitioner is liable for additions to tax for

failure to timely file his 1998 income tax return under section

6651(a)(1)1 and for failure to pay estimated tax under section

6654(a) for 1998.    We hold that he is.

                          FINDINGS OF FACT

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

A.   Petitioner

     Petitioner lived in Clearwater, Florida, when he filed his

petition.    Petitioner was married throughout 1998.   Petitioner

has a bachelor’s degree in computer science and mathematics.       In

1998, petitioner earned wages from IBM of $99,739.     Petitioner



     1
       Section references are to the Internal Revenue Code in
effect for the year in issue. Rule references are to the Tax
Court Rules of Practice and Procedure.
                                - 3 -

took an income tax return preparation course at H & R Block at a

time not specified in the record.

B.   Petitioner’s Stock Sales in 1998

     1.   Petitioner’s IBM Stock Transactions

          a.     Purchases of IBM Stock

     Petitioner participated in the IBM Employees Stock Purchase

Plan (ESPP) from July 13, 1979, through August 31, 1995.    He

typically bought shares of IBM stock each quarter at a price of

10-15 percent below the market price and withdrew the stock

certificates from the plan.   Petitioner’s bases in certain shares

of IBM stock were as follows:

Stock certificate No.           No. of shares       Cost basis

       479321                             4           $214.22
       711752                             1             54.82
       184316                             1             71.09
       331109                             3            291.14
       492586                             3            290.87
       687965                            14          1,577.33
       246717                            11          1,421.24
       674021                            23          2,622.38
        41127                            38          4,605.45
       370058                             7            891.63
       695343                            50          4,939.29
       529572                            57          5,340.54
       895652                            65          5,975.89
       431763                            46          4,220.50
       431764                             1             91.75
         Total                          324         32,608.14

     Petitioner also acquired 335 shares of IBM stock under an

IBM Investor Services Program (the program).    Petitioner made

quarterly purchases of IBM stock under that program.    From March

13, 1980, to January 27, 1992, he bought 46.541 shares of IBM
                                  - 4 -

stock through the program for a total cost of $5,130.94.           On

January 27, 1992, petitioner sold .541 shares of IBM stock held

through the program.

     On May 27, 1997, the IBM stock in the program split, and 46

shares of petitioner’s IBM stock became 325 shares.            Petitioner

bought an additional 10.895 shares through the program for a

total cost of $1,090.43.     After selling .895 shares, petitioner

had 335 shares of IBM stock (represented by stock certificate No.

156716) for which he had a basis of $6,133.78 ($6,221.37 paid

minus $87.59 basis in the .541 and .895 shares sold).

     Petitioner maintained an investment account at Charles

Schwab & Co. (Schwab account).          On August 1, 1997, petitioner

held 110 shares of IBM stock in that account.          Petitioner’s basis

in those shares is not in the record.

     Petitioner bought IBM stock in 1997 and 1998 as follows:

           Date        No. of shares             Total price
                             1
          9/11/97               .2275                $22.00
          10/28/97         100                     8,944.00
                              1
          12/10/97              .2145                 22.05
          1/12/98          100                     9,831.50
          1/12/98          100                     9,844.00
          2/xx/98          100                    10,229.95
                              1
          3/11/98               .6311                 62.09
                            1
          6/11/98             1.1112                 130.70
          6/11/98          500                    58,529.95
          6/16/98          500                    55,967.45
                            1
          9/11/98             1.6355                 204.64
     1
       Petitioner acquired these shares with reinvested
dividends.
                                    - 5 -

     The following shares of IBM stock were transferred to

petitioner’s Schwab account:

                    Date                    No. of shares

                   4/9/98                        324
                  4/17/98                        133
                  4/17/98                         26
                  5/18/98                        335

     Petitioner’s 324 shares of IBM stock transferred to his

Schwab account on April 9, 1998, were purchased through the ESPP.

His basis in those 324 shares was $32,608.14.            The record does

not indicate petitioner’s basis in the 159 shares (133 shares +

26 shares) of IBM stock transferred to his Schwab account on

April 17, 1998.    Petitioner’s 335 shares of IBM stock received by

his Schwab account on May l8, 1998, were those he had acquired

under the IBM investors program and for which he had a basis of

$6,133.78.

             b.   Sales of IBM Stock

     Petitioner sold shares of IBM stock held in his Schwab

account in 1997 and 1998 as follows:

      Date             No. of shares                    Proceeds

     11/4/97                  100                      $10,124.41
     4/21/98                  300                       34,468.90
     7/21/98                1,000                      128,340.77
     9/22/98                  300                       38,781.25
     10/12/98                 600                       78,042.44
                                    - 6 -

     2.     Petitioner’s Merck Stock Transactions

            a.      Purchases of Merck Stock

     On August 1, 1997, petitioner held 1,276.4571 shares of

Merck stock in his Schwab account.          The record contains no

information from which to compute petitioner’s basis in that

stock.    Petitioner bought additional shares of Merck stock in

1997 and 1998 as follows:

             Date             No. of shares           Total price

            8/15/97               50                   $4,701.88
                                1
            10/2/97                5.9803                 596.91
            10/31/97            100                     8,244.00
                                 1
            1/5/98                 6.0173                 644.60
            2/xx/98             100                    12,911.20
            2/26/98             100                    12,679.95
            3/6/98                80                    9,979.75
                                 1
            4/2/98                 5.305                  692.30
            4/16/98             300                    36,329.95
            4/27/98             500                    57,467.45
            6/16/98             500                    62,029.95
                                1
            7/2/98                14.271                1,900.69
            7/22/98             300                    38,279.95
            7/23/98             300                    37,229.95
            8/4/98              400                    48,029.95
                                 1
            10/2/98                5.7624                 711.20
     1
       Petitioner acquired these shares with reinvested
dividends.

     On April 9, 1998, 1,800 shares of Merck stock were

transferred to petitioner’s Schwab account.          Petitioner’s basis

in that stock is not in the record.
                                    - 7 -

             b.   Sales of Merck Stock

     On January 20, 1998, petitioner sold 100 shares of Merck

stock for $110.625 per share.       His net proceeds were $11,032.18.

These shares were part of the 1,276.4571 shares he held on August

1, 1997, for which the record contains no evidence of his basis.

After the sale, petitioner had 1,176.4571 shares of Merck stock

with a basis not established in the record and a total of

1,338.4547 shares of Merck stock.

     Petitioner sold other shares of Merck stock in 1998 as

follows:

      Date             No. of shares               Proceeds

     6/10/98                 800                 $100,766.69
      7/1/98               2,000                  261,931.26
      8/6/98                 175                   21,263.97
      8/7/98                 655                   80,400.48
     8/12/98                 391                   48,080.65
     8/17/98                 400                   51,968.31
     9/15/98                 500                   67,780.28
     10/12/98                600                   79,317.40

     3.      Other Sales of Stock

     Petitioner received the following amounts from the sale of

stocks or bonds in 1998:     $35 from the Vanguard Group, Inc.

(Vanguard); $104 from the First Chicago Trust Co. of New York

(First Chicago); $1,099,313 from Schwab; and $1,074 from Schwab

(separate from the amount described above).

     Petitioner had the following amounts of capital gains on

sales of certain stocks in 1998:
                              - 8 -

               Stock                    Amount realized

     Ascend Communications, Inc.              $2,020.96
     Apple Computer Co.                        1,000.93
     Medical Manager Corp.                       799.16
     Excel Communications                        916.69
     Vitesse Semiconductor                     2,439.70

     Petitioner had capital losses in 1998 of $23,990.08 on the

sale of Ucarb International, Inc. stock, and of $60,577.93 on the

sale of Boston Chicken, Inc. stock.

     Petitioner received cash of $32.15 in lieu of stock in

Cisco, Inc., in 1998.

     Petitioner had net capital losses of $77,358.42 in 1998 from

sales or other disposition of stocks other than IBM and Merck.

He had net capital gain of $408,092.98 in 1998.

C.   Petitioner’s Dividends and Interest in 1998

     Petitioner had dividends of $6,632 and interest of $149 in

1998.

D.   Petitioner’s Failure To File a 1998 Tax Return

     Petitioner filed income tax returns for 1979 through 1997.

He claimed a $15,547 net operating loss carryover on Schedule D,

Capital Gains and Losses, attached to his 1997 return, but he did

not state from which year or years he was carrying the loss.   He

did not file an income tax return for 1998.

     On April 15, 1999, petitioner mailed a letter to the

Internal Revenue Service (IRS), stating that he and his wife were

seeking legal advice as to whether they were required to file a
                                 - 9 -

return for 1998.    On May 25, 1999, petitioner wrote to the IRS,

stating that he and his wife “have chosen to follow the

instructions in your 1040 Booklet and file our annual response in

the form of a statement in accordance with the new Privacy Act

Notice for 1998.”   They stated that they were not filing a tax

return for 1998 because:    “We still sincerely believe that we are

not a person liable or required to file a 1040 U.S. Individual

Income Tax Return for 1998.”

     Federal income tax of $14,833 was withheld from petitioner’s

wages in 1998.   Petitioner paid home mortgage interest of

$9,342.20, real estate taxes of $4,168.74, and investment

interest of $25,582 in 1998.

     In the notice of deficiency, respondent determined that

petitioner had capital gain of $1,100,526, consisting of $35 from

Vanguard, $104 from First Chicago, $1,099,313 from Schwab, and an

additional $1,074 from Schwab.    Respondent determined that

petitioner’s gain on the sale of stocks was equal to the net sale

price of those stocks.

E.   Posttrial Procedures

     At trial, petitioner lacked substantiation of his bases in

some of his IBM and Merck stock.    Respondent agreed to our

holding the record open for 90 days to receive a supplemental

stipulation from the parties relating to petitioner’s bases in

certain IBM and Merck stock, the amount of petitioner’s
                                - 10 -

charitable contributions, and the capital loss carryforward

issue.   The Court later granted both parties’ motions to hold the

record open. The record was held open 4 more weeks, during which

time the parties filed a supplemental stipulation of facts.

                                OPINION

A.   Whether the Notice of Deficiency Was Arbitrary

     Petitioner contends2 that the notice of deficiency was

arbitrary.   We disagree.   Respondent’s determination of the

amount of petitioner’s capital gain was based on the amounts of

petitioner’s proceeds from sales of capital assets in 1998 as

reported to respondent on Forms 1099-B, Proceeds From Broker and

Barter Exchange Transactions.    Petitioner does not dispute those

amounts.   Petitioner failed to file a tax return for 1998 and

thus failed to report the capital transactions at issue.    It was

not arbitrary for respondent to determine a deficiency based on

sale prices under these circumstances.




     2
       At trial, we ordered the parties to file posttrial briefs.
Respondent complied with this order; petitioner did not. Under
these circumstances, we may default petitioner on all issues for
which he bears the burden of proof. See Stringer v.
Commissioner, 84 T.C. 693, 704-708 (1985), affd. without
published opinion 789 F.2d 917 (4th Cir. 1986); Furniss v.
Commissioner, T.C. Memo. 2001-137; McGee v. Commissioner, T.C.
Memo. 2000-308; Pace v. Commissioner, T.C. Memo. 2000-300;
Hartman v. Commissioner, T.C. Memo. 1999-176. However, we decide
this case on the record as it stands. Our understanding of
petitioner’s position is based on his petition, opening
statement, and trial testimony.
                             - 11 -

     Respondent’s determination is presumed to be correct, and

petitioner bears the burden of proof.3   See Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933).

B.   Whether Petitioner’s Capital Gain From the Sale of Stock in
     1998 Was $408,092.98

     Respondent determined that petitioner had capital gain of

$1,100,526 from the sale of stock in 1998, but now contends that

he had capital gain of $408,092.98.    Respondent concedes that

petitioner had capital losses of $77,358.42 in 1998 and that he

had substantial bases in his IBM and Merck stock, instead of zero

as determined in the notice of deficiency.    Petitioner did not

establish his basis in the first 10 shares of IBM stock he sold

in 1998 or in the 159 shares of IBM stock transferred to his

Schwab account on April 17, 1998.   Similarly, petitioner did not

prove his basis in the 1,276.4571 shares of Merck stock held in

his Schwab account on August 1, 1997, or in the 1,800 shares of

Merck stock transferred to his Schwab account on April 9, 1998.

Petitioner does not dispute respondent’s calculation of gain on

his sales of IBM and Merck stock.   Thus, we hold that petitioner

had capital gain of $408,092.98 in 1998.


     3
       Petitioner bears the burden of proof on the basis, capital
loss carryforward, charitable contributions, and filing status
issues. See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933). The burden of proof for a factual issue may shift to the
Commissioner under certain circumstances. Sec. 7491(a).
Petitioner does not contend that sec. 7491(a) applies in this
case.
                                - 12 -

C.   Whether Petitioner May Carry Forward a Capital Loss From
     1997 to 1998

     Petitioner contends that he may carry forward to 1998 a

$15,547 capital loss from 1997.    We disagree.

     Petitioner reported on his 1997 return that he had a $15,547

net operating loss carryover.    He did not identify on the return

or testify about the year or years from which he was carrying

that loss.   To carry forward or carry back net operating losses,

the taxpayer must prove the amount of the net operating loss

carryforward or carryback and that his or her gross income in

other years did not offset that loss.    Sec. 172(c); Jones v.

Commissioner, 25 T.C. 1100, 1104 (1956), revd. and remanded on

other grounds 259 F.2d 300 (5th Cir. 1958).    A tax return is not

evidence of the truth of the facts stated in it.    Lawinger v.

Commissioner, 103 T.C. 428, 438 (1994); Wilkinson v.

Commissioner, 71 T.C. 633, 639 (1979); Roberts v. Commissioner,

62 T.C. 834, 837 (1974).   Petitioner did not establish the amount

of his 1997 net operating loss or that his income in the

carryback years before 1997 did not fully offset any net

operating loss.

     We conclude that petitioner may not carry forward a net

operating loss from 1997 to 1998.
                              - 13 -

D.   Whether Petitioner May Deduct Charitable Contributions for
     1998

     Petitioner contends that he may deduct charitable

contributions of $2,141 for 1998.    More specifically, petitioner

testified that he made weekly donations of $20 to a church, that

his wife made similar weekly contributions, and that his son and

daughter each made weekly contributions of $1.

     Respondent contends that he may not deduct any of those

amounts.   We agree because petitioner has not substantiated the

contributions as required.   See sec. 170(a)(1) (taxpayer must

verify claimed contribution under regulations prescribed by the

Secretary).   The Court gave petitioner every opportunity at trial

to offer evidence of his contributions and held the record open

for 4 months to receive evidence, but he provided no evidence of

them.   Petitioner did not identify the church to which

contributions were made.   See id.   Under Cohan v. Commissioner,

39 F.2d 540, 543-544 (2d Cir. 1930), we may estimate the amount

of a deductible expense if a taxpayer establishes that he or she

paid the expense but cannot substantiate the precise amount.

Petitioner’s uncorroborated testimony is the only evidence

supporting his claim.   He did not give us an adequate basis to

estimate the amount of his contributions under Cohan.     More than

half of the charitable contributions petitioner claims were

attributable to family members and thus are not deductible by
                                - 14 -

petitioner.    We conclude that petitioner may not deduct any of

these claimed contributions for 1998.

E.   Whether Petitioner’s Filing Status Was Married Filing
     Separately for 1998

     Respondent determined petitioner’s filing status to be

married filing separately.     Petitioner was married throughout

1998.     He did not file a return for 1998, joint or otherwise.    To

elect the benefit of the joint return rates, taxpayers must file

a joint return.     Thompson v. Commissioner, 78 T.C. 558, 561

(1982).     Thus, petitioner’s filing status for 1998 is married

filing separately.     Sec. 1(d).

F.   Whether Petitioner Is Liable for Additions to Tax

     1.      Burden of Production

     In court proceedings arising in connection with examinations

beginning after July 22, 1998, section 7491(c) places on the

Commissioner the burden of producing evidence that it is

appropriate to impose the addition to tax under section

6651(a)(1).     Petitioner did not file an income tax return for

1998, even though he had wages from IBM, interest and dividend

income, and capital gains from sales of stock in 1998.     Federal

income tax of $14,833 was withheld from petitioner’s wages in

1998.     However, petitioner made no payments of estimated tax

relating to the interest, dividends, and capital gain income he

received in 1998.     Respondent has met the burden of production

under section 7491(c) as to the additions to tax under section
                               - 15 -

6651(a) for failure to file and under section 6654 for failure to

pay estimated tax for 1998.

     2.   Failure To File Under Section 6651(a)(1)

     A taxpayer is liable for an addition to tax of up to 25

percent for failure to file a Federal income tax return unless

the failure was due to reasonable cause and not willful neglect.

Sec. 6651(a)(1); United States v. Boyle, 469 U.S. 241, 245

(1985).

     Petitioner contends that the statement he and his wife

submitted to the IRS satisfies his obligation to file a return or

other statement under the Code.    We disagree.   Petitioner’s

statement was not made in accordance with the forms and

regulations prescribed by the Secretary as required by section

6011(a) and did not include the dollar amounts or any other

information needed to determine tax liability.     See Beard v.

Commissioner, 82 T.C. 766, 777 (1984), affd. 793 F.2d 139 (6th

Cir. 1986).

     Petitioner was well aware of his responsibility to file

returns as evidenced by his timely filing of returns for 1979

through 1997.    His claim that the filing of an income tax return

is voluntary is frivolous.    Petitioner wrote to the IRS stating

his belief that filing a return is voluntary and purporting to

give the IRS 30 days to refute his conclusion or he would proceed

accordingly.    Petitioner’s claim that the IRS is collaterally
                                - 16 -

estopped, by its failure to respond within 30 days to his letter,

from arguing that he is liable for income tax is also frivolous

and does not excuse his failure to file his 1998 return.    We

conclude that petitioner is liable for the addition to tax under

section 6651(a) for failure to file for 1998.

     3.   Failure To Pay Estimated Tax Under Section 6654(a)

     Respondent determined that petitioner is liable for the

addition to tax under section 6654(a) for failure to pay

estimated tax for 1998.    We have jurisdiction to review this

determination because petitioner did not file a return for 1998.

Sec. 6665(b)(2); Meyer v. Commissioner, 97 T.C. 555, 562 (1991).

     To be liable for the addition to tax under section 6654, a

taxpayer must have underpaid or failed to pay estimated tax for

the year in issue.    Sec. 6654(a).   A taxpayer is liable for the

addition to tax for failure to pay estimated tax unless he or she

meets one of the exceptions provided in section 6654(e), none of

which applies here.

     Petitioner alleged in the petition that all of respondent’s

adjustments were wrong, but he offered no evidence and made no

argument directed specifically to his liability for the section

6654 addition to tax.     We conclude that petitioner is liable for
                             - 17 -

the addition to tax under section 6654 for failure to pay

estimated tax for 1998.

     To reflect concessions and the foregoing,


                                        Decision will be entered

                                   under Rule 155.
