                        T.C. Memo. 2005-144



                      UNITED STATES TAX COURT



                 RANDAL W. HOWARD, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 11442-04.               Filed June 20, 2005.


     Randal W. Howard, pro se.

     Ric D. Hulshoff, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COLVIN, Judge:   Respondent determined deficiencies in

petitioner’s Federal income tax of $5,219 for 2000 and $9,164 for

2002, and additions to tax for failure to file under section

6651(a)(1) of $814 for 2000 and $1,746.23 for 2002, for failure

to pay tax under section 6651(a)(2) of $465.66 for 2002, and for

failure to pay estimated tax under section 6654 of $162.28 for
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2000 and $288.17 for 2002.      Respondent now contends that, for

2000, petitioner’s income tax deficiency is $5,457 and that he is

liable for additions to tax under section 6651(a)(1) of $874 and

under section 6654 of $175.      Respondent concedes that petitioner

is not liable for the addition to tax under section 6651(a)(2)

for 2002 and now contends that he is liable for an increased

addition to tax under section 6651(a)(1) of $1,940.25 for 2002.

     The issues for decision are:

     1.    Whether petitioner had unreported income of $38,858 for

2000 and $55,197 for 2002.      We hold that he did.

     2.    Whether petitioner is liable for the addition to tax for

failure to file under section 6651(a)(1) of $874 for 2000 and

$1,940.25 for 2002.     We hold that he is.

     3.    Whether petitioner is liable for the addition to tax for

failure to pay estimated tax of $175 for 2000 and $288.17 for

2002.     We hold that he is.

     4.    Whether petitioner is liable for a penalty under section

6673 for instituting proceedings primarily for delay and for

maintaining frivolous or groundless positions.      We hold that he

is in the amount stated below.

     Unless otherwise indicated, section references are to the

Internal Revenue Code in effect for the taxable years in issue.

Rule references are to the Tax Court Rules of Practice and

Procedure.
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                         FINDINGS OF FACT

     Petitioner resided in Arizona when he filed his petition.

He previously petitioned this Court in cases decided at Howard v.

Commissioner, T.C. Memo. 1998-57 (Howard I); Howard v.

Commissioner, T.C. Memo. 1998-300 (Howard II); Howard v.

Commissioner, T.C. Memo. 2000-222 (Howard III); Howard v.

Commissioner, T.C. Memo. 2002-85 (Howard IV); and Howard v.

Commissioner, T.C. Memo. 2005-100 (Howard V).   Petitioner’s

positions in the previous cases were frivolous and groundless.

In Howard III, Howard IV, and Howard V, we awarded penalties to

the United States under section 6673.

     Family Life Broadcasting System employed petitioner in 2000

and 2002, paid wages to him by check, and issued to him Forms W-

2, Wage and Tax Statement.   He received wage income of $36,899 in

2000 and $39,460 in 2002 and Social Security benefits of $14,840

in 2002.   He had $1,357 withheld for Federal income tax in 2000,

and $1,176 withheld in 2002.   Petitioner received from his

investments with a fund managed by the Phoenix Investment

Partners, Ltd., dividends in 2000 of $830.31 and in 2002 of

$701.45, of which $210 was withheld for Federal income tax, and

capital gain income in 2000 of $1,054.69, of which $584 was

withheld for Federal income tax.   Petitioner also received

interest in 2000 of $74, of which $22 tax was withheld, and in

2002 of $196, of which $17 tax was withheld.
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     Petitioner did not file a Federal income tax return for 2000

or 2002.   He did not make estimated tax payments for 2000 or

2002.

     Respondent issued a notice of deficiency to petitioner.

Respondent determined on the basis of documents provided by

third-party payors that petitioner received taxable income.

However, respondent did not include in the determination for 2000

dividends of $830.31 that petitioner had received in 2000.

Respondent determined that petitioner’s filing status was single

and allowed one exemption to petitioner.

     Before trial, petitioner asserted that he had a right not to

testify because to do so would have required him to waive his

Fifth Amendment privilege against self-incrimination.    Petitioner

did not identify or exchange any documents, identify witnesses,

or file a pretrial memorandum as required by the standing

pretrial order.    Respondent complied with these requirements.

                                OPINION

A.   Burdens of Production and Proof

     1.    Burden of Production

           a.     Section 6201(d)

     If a taxpayer asserts a reasonable dispute with respect to

any item of income reported on a third-party information return

and the taxpayer has fully cooperated with the Secretary, the

Secretary has the burden of producing reasonable and probative
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information concerning that deficiency in addition to such

information return.   Sec. 6201(d).

     Petitioner did not introduce any evidence to refute

respondent’s evidence or show that respondent’s determination of

petitioner’s income is in error.   We conclude that respondent

does not have the burden of production under section 6201(d)

because petitioner did not assert a reasonable dispute with

respect to any item of income reported on an information return

and petitioner has not fully cooperated with respondent.   Even if

respondent had the burden of proceeding under section 6201(d),

respondent met that burden by producing information returns with

certified transcripts from respondent’s administrative files and

from Social Security Administration files and declarations and

supporting records from Douglas Goodall and Donna Bolio.   The

declarations were made under penalties of perjury pursuant to and

are in the form required by 28 U.S.C. section 1746 (2000).

     The declarations are admissible under rules 803(6) and

902(11) of the Federal Rules of Evidence.   Rule 803(6) of the

Federal Rules of Evidence provides an exception to the hearsay

rule for records that are kept in the course of a regularly

conducted activity and made at or near the time of the event by a

person with knowledge.   Rule 902(11) of the Federal Rules of

Evidence states the requirements for self-authentication of a

business record.   To qualify under rule 902(11), a domestic
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record of a regularly conducted business activity must be

accompanied by a declaration certifying that the record (1) was

made at or near the time of the occurrence of the matters set

forth by, or from information transmitted by, a person with

knowledge of those matters; (2) was kept in the course of the

regularly conducted activity; and (3) was made by the regularly

conducted activity as a regular practice.   All of the underlying

documents were kept in the regular course of business, and the

declarations of the validity of these documents were made by

people familiar with them.

     We conclude that section 6201(d) does not apply in this

case.

          b.   Determination in Unreported Income Cases

     The U.S. Court of Appeals for the Ninth Circuit (to which an

appeal of this case would lie) has held that in order for the

presumption of correctness to attach to the notice of deficiency

in unreported income cases, the Commissioner must establish “some

evidentiary foundation” linking the taxpayer to the

income-producing activity, Weimerskirch v. Commissioner, 596 F.2d

358, 361-362 (9th Cir. 1979), revg. 67 T.C. 672 (1977), or some

substantive evidence “demonstrating that the taxpayer received

unreported income”, Edwards v. Commissioner, 680 F.2d 1268, 1270

(9th Cir. 1982); see also Rapp v. Commissioner, 774 F.2d 932, 935

(9th Cir. 1985).   Once there is evidence of actual receipt of
                                 - 7 -

funds by the taxpayer, the taxpayer has the burden of proving

that all or part of those funds is not taxable.     Tokarski v.

Commissioner, 87 T.C. 74, 76-77 (1986).

     There is ample evidence linking petitioner to

income-producing activities.   He received wages from Family Life,

capital gain and dividends from Phoenix Investment Partners,

Social Security benefits, and interest from the Arizona Central

Credit Union during the years in issue.    At trial, respondent

submitted Forms W-2, Wage and Tax Statement, Forms 1099-MISC,

Miscellaneous Income, transcripts from the Social Security

Administration, employer records, and declarations under

penalties of perjury of petitioner’s employer and of a

representative for Phoenix Investment Partners as to the validity

of these underlying documents.    The transcripts, declarations,

and supporting documents show that petitioner received income

during the years in issue.   Thus, petitioner bears the burden of

proving respondent’s determinations are in error.    See Edwards v.

Commissioner, supra; Weimerskirch v. Commissioner, supra.

     2.   Burden of Proof

     At trial, respondent moved to amend the pleadings to conform

to the proof, asserting an increased deficiency and additions to

tax for 2000 as a result of respondent’s inadvertent failure to

include in petitioner’s income $830.31 of dividends from Phoenix

Investments in 2000.   The parties may amend their pleadings only
                                  - 8 -

by leave of the Court, and leave shall be given freely when

justice so requires.   Rule 41(a).    A party may move to amend the

pleadings to conform to the proof presented at trial.    Rule

41(b)(2).   Prejudice to the other party is a key factor in

deciding whether to allow an amendment to the pleadings.       Kroh v.

Commissioner, 98 T.C. 383, 389 (1992).

     We granted respondent’s motion because (1) the third-party

Form 1099, Miscellaneous Income, from Phoenix Investment shows

that petitioner received $830.31 in dividends in 2000, (2)

respondent did not include this amount when determining

petitioner’s income for 2000, and (3) there is no prejudice to

petitioner.

     Respondent bears the burden of proving the increased

deficiency for 2000 and additions to tax raised in the pleadings.

See Rule 142(a).

     Petitioner contends that respondent generally bears the

burden of proof.   We disagree.    The burden of proof for a factual

issue relating to liability for tax may shift to the Commissioner

under certain circumstances.   Sec. 7491(a).   Under section

7491(a), the burden of proof with respect to a factual issue

relevant to a taxpayer’s liability for tax shifts from the

taxpayer to the Commissioner if, inter alia, the taxpayer has:

(a) Complied with substantiation requirements under the Internal

Revenue Code, sec. 7491(a)(2)(A); (b) maintained all records
                                - 9 -

required by the Internal Revenue Code, sec. 7491(a)(2)(B); and

(c) cooperated with reasonable requests by the Secretary for

information, documents, and meetings, id.     A taxpayer bears the

burden of proving that he or she has met the requirements of

section 7491(a).   See H. Conf. Rept. 105-599, at 239 (1998),

1998-3 C.B. 747, 993; S. Rept. 105-174, at 45 (1998), 1998-3 C.B.

537, 581.   Petitioner does not contend that he meets the

requirements of section 7491(a), and the record shows that he did

not meet those requirements because he did not cooperate with

respondent.   Thus, petitioner bears the burden of proof except as

to the increased deficiency and increased additions to tax.     See

Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).

     3.     Whether Petitioner’s Fifth Amendment Claims Affect the
            Burden of Proof

     Before trial, petitioner asserted Fifth Amendment rights

against self-incrimination.   However, even if petitioner’s claim

was bona fide (which we need not decide), it would have no effect

on petitioner’s burden of proof.   See United States v. Rylander,

460 U.S. 752, 758 (1983); Petzoldt v. Commissioner, 92 T.C. 661,

684-685 (1989); Traficant v. Commissioner, 89 T.C. 501, 504

(1987), affd. 884 F.2d 258 (6th Cir. 1989).
                                - 10 -

B.   Petitioner’s Income in 2000 and 2002

     1.   Respondent’s Determination

     Petitioner has not shown that respondent’s determination

relating to the amount of his income for 2000 and 2002 is

incorrect.   We conclude that petitioner received taxable income

in 2000 and 2002 as determined by respondent.

     2.   Increased Deficiency for 2000

     As discussed above, the Commissioner has the burden of

proving increased deficiencies and additions to tax asserted in

the pleadings.   Rule 142(a).   Petitioner received dividends of

$830.31 in 2000 that respondent did not determine to be included

in petitioner’s income for 2000.    Thus, respondent has proven the

increased deficiency for 2000.    We conclude that petitioner

received income as described above in the findings of fact.

C.   Petitioner’s Deductions

     A taxpayer must keep records that are sufficient to enable

the Commissioner to determine his or her tax liability.    Sec.

6001; sec. 1.6001-1(a), Income Tax Regs.    Deductions are a matter

of legislative grace.   INDOPCO, Inc. v. Commissioner, 503 U.S.

79, 84 (1992).   A taxpayer must substantiate the payments which

give rise to claimed deductions.    Hradesky v. Commissioner, 65

T.C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th Cir.

1976); see sec. 6001.
                                - 11 -

       Petitioner alleged in the petition that he is entitled to

claim deductions.    However, petitioner has not identified the

items that he contends are deductible or offered any evidence

supporting his claim.     Thus, he may not deduct any amount for

2000 or 2002.

       We conclude that petitioner’s deficiencies in income tax

were $5,457 for 2000 and $9,164 for 2002.

D.     Additions to Tax

       Section 7491(c) places on the Commissioner the burden of

producing evidence that it is appropriate to impose additions to

tax.    To meet the burden of production under section 7491(c), the

Commissioner must produce evidence showing that it is appropriate

to impose the particular addition to tax but need not produce

evidence relating to defenses such as reasonable cause or

substantial authority.     Higbee v. Commissioner, 116 T.C. 438, 446

(2001); H. Conf. Rept. 105-599, supra at 241, 1998-3 C.B. at 995.

       Respondent has met the burden of production under section

7491(c) with respect to the addition to tax for failure (a) to

file under section 6651(a)(1) because the record shows that

petitioner is required to but has not filed a return for 2000 and

2002; and (b) to make estimated tax payments under section

6654(a) because the record shows that petitioner did not make

estimated tax payments, except for nominal amounts withheld from
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his wages and investments, with respect to his tax liability for

2000 or 2002.

     The addition to tax under section 6651(a)(1) for failure to

file is based on the amount of tax due.    Thus, respondent met the

burden of proving that petitioner is liable for the increased

addition to tax under section 6651(a)(1) by showing that

petitioner had an increased deficiency for 2000 as described

above.

     Respondent conceded that petitioner is not liable for the

addition to tax under section 6651(a)(2) for 2002.    Thus, section

6651(c)(1) (reducing the amount imposed by section 6651(a)(1) to

4.5 percent for any month in which both section 6651(a)(1) and

(2) are imposed) does not apply and the 5-percent rate does.

Respondent has established that petitioner is liable for the

addition to tax under section 6651(a)(1) for 2002 in an amount

greater than respondent determined in the notice of deficiency.

     We conclude that petitioner is liable for additions to tax

for failure to file under section 6651(a)(1) of $874 for 2000 and

$1,940.25 for 2002, and failure to pay estimated tax under

section 6654 of $175 for 2000 and $288.17 for 2002.

E.   Penalty for Frivolous Positions or Instituting Proceedings
     Primarily for Delay Under Section 6673

     Respondent moved at trial to impose a penalty under section

6673.    The Court may impose a penalty of up to $25,000 if the

position or positions asserted by the taxpayer in the case are
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frivolous or groundless or the proceedings were instituted

primarily for delay.   Sec. 6673(a)(1)(B).   A position maintained

by the taxpayer is frivolous if it is “contrary to established

law and unsupported by a reasoned, colorable argument for change

in the law.”   Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir.

1986); Gilligan v. Commissioner, T.C. Memo. 2004-194.

     Petitioner’s positions at trial that being paid is not a

taxable event and that respondent has refused to identify the

statutes that makes him liable to pay the taxes at issue are

frivolous.   Petitioner had five previous cases in this Court and

has previously been found liable for the penalty under section

6673.   He has had ample warning of the penalty under section

6673.   We conclude that petitioner instituted these proceedings

primarily for delay and that he is liable for a penalty under

section 6673 of $12,500.

     To reflect the foregoing and concessions by respondent,


                                               Decision will be

                                         entered under Rule 155.
