                          T.C. Memo. 2010-143



                      UNITED STATES TAX COURT



                  PHILIP JENSEN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 16800-09.                Filed June 28, 2010.



     Philip Jensen, pro se.

     David M. McCallum, for respondent.



                          MEMORANDUM OPINION


     COHEN, Judge:   Respondent determined a deficiency of $35,074

in petitioner’s Federal income tax for 2005 and additions to tax

of $7,891.65 under section 6651(a)(1) for failure to file a

return, $5,962.58 under section 6651(a)(2) for failure to pay

tax, and $1,406.87 under section 6654 for failure to make

estimated tax payments.    The issues for decision are whether
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petitioner has shown (1) any errors in the notice of deficiency,

or (2) that he is entitled to any deductions related to his body

shop business.   As discussed below, none of the facts have been

stipulated, and the evidence is too sparse for meaningful

findings of fact.    Unless otherwise indicated, all section

references are to the Internal Revenue Code in effect for the

year in issue, and all Rule references are to the Tax Court Rules

of Practice and Procedure.

                             Background

     Petitioner resided in Alabama at the time that he filed his

petition.   During 2005, petitioner operated a body shop.    He

received nonemployee compensation of $109,789 from AWC Carriers,

Inc., during 2005.

     Petitioner started his body shop business in 2005.     He

purchased equipment and supplies and made payments for services.

He did not, however, maintain records of his purchases of

equipment or other expenses, and he did not report to the

Internal Revenue Service (IRS) any commissions or other payments

to persons providing services to the body shop.

     Petitioner failed to file a Federal income tax return for

2005.   The IRS prepared a substitute for return under section

6020(b) based on information reported by the payor of income to

petitioner.
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     The petition in this case had attached a form containing a

hodgepodge of frivolous, irrelevant, and spurious arguments

common to petitions following a program of tax defiance.      See

Sullivan v. Commissioner, T.C. Memo. 2010-138; Cook v.

Commissioner, T.C. Memo. 2010-137.       The form sets out a general

denial of tax liability; a claim of various deductions and

exemptions and filing status other than allowed in the statutory

notice; an assertion that the figures used “stem from illegal

immigrants” using the taxpayer’s Social Security number; an

allegation that penalties should be waived because “the Internal

Revenue Code is so complex and confusing”; a claim for credit

“for the illegal telephone excise tax for each year”; a claim of

deductible expenses of tax preparation and advice on filing (even

though no return was filed); and a claimed lack of records

justifying reconstruction and estimates, with a citation of and

quotation from Cohen v. Commissioner, 266 F.2d 5 (9th Cir. 1959),

remanding T.C. Memo. 1957-172.    Petitioner requested Columbia,

South Carolina, as the place of trial.

     By notice served September 29, 2009, this case was set for

trial in Columbia on March 1, 2010.      Attached to the notice

setting case for trial was the Court’s standing pretrial order,

which advises the parties of the requirements for preparation of

cases for trial in this Court, specifically the exchange of

documents and stipulations in accordance with Rule 91.
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     Petitioner refused to stipulate facts that should not have

been disputed.   Instead, he filed a motion to shift the burden of

proof, reciting the requirements of section 7491(a)(2), although

he had not complied with those requirements.   He also filed a

meritless motion for summary judgment, seeking summary

adjudication based on his “affidavit of expense and deductions”.

He served on respondent’s counsel requests for admissions and

otherwise demanded concessions of his claimed deductions and

agreement with the allegations in the form attached to his

petition, including those that clearly have no applicability to

his factual circumstances.   His claimed deductions, totaling over

$116,000, were based entirely on estimates and were unsupported

by any reliable substantiation.

     At the time of trial, petitioner continued to pursue his

frivolous contentions even though he had been warned that

respondent’s counsel intended to seek a penalty under section

6673.   His pretrial memorandum repeated the allegations of the

petition and identified one witness (other than petitioner), but

that witness was not present.   The proposed witness was

petitioner’s brother; apparently, the brother was not a person

that petitioner paid to perform services during 2005, and he was

offered only as a person who observed petitioner’s body shop

operation and assisted petitioner in compiling materials and

photographs in 2009.   Petitioner sought a continuance, but the
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record made over the 5 months during which the case was set for

trial showed that a continuance was not justified and would not

be productive.   Thus it was denied in accordance with the

standing pretrial order and Rule 133.

     Petitioner testified that he purchased equipment and

supplies and incurred costs for commissions and outside services

when he started his body shop business in 2005, but his testimony

was based solely on estimates and percentages of the income

received.   He did not produce any payment records or receipts or

other reliable evidence of the purchase price paid or the useful

life of any equipment for depreciation purposes or supplies

purchased and consumed during the year.   He tendered some

computer printouts of equipment and supplies available for

purchase in 2009 and photographs of his body shop operations

taken in 2009.   The tendered materials were not admitted in

evidence but were considered as petitioner’s offer of proof.

Petitioner did not testify as to the amount of any personal

itemized deductions that would exceed the standard deduction.

Although he referred to his wife, he did not provide any

testimony sufficient to determine his correct filing status or

personal exemptions for 2005.   (The notice of deficiency applied

rates applicable to single taxpayers.   In the absence of a joint

return, petitioner’s married status would have resulted in a

higher tax liability.)
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     At the conclusion of the trial, petitioner was told that he

might produce more persuasive evidence to respondent’s counsel

and seek to reopen the record, but he has not done so.

                            Discussion

     This case presents another unfortunate situation where a

taxpayer has pursued arguments and programs provided by an

unreliable source rather than obtaining competent tax advice and

substantiating his deductions.    He has thus forgone otherwise

available tax benefits and appropriate deductions.    For example,

if petitioner had filed a return for 2005, he might have elected

under section 179 to deduct, rather than depreciate, the cost of

equipment purchased and placed in service that year.    His failure

to file a timely return or to meet the other applicable

requirements now precludes that opportunity.    See Visin v.

Commissioner, T.C. Memo. 2003-246, affd. 122 Fed. Appx. 363 (9th

Cir. 2005); Verma v. Commissioner, T.C. Memo. 2001-132; Fors v.

Commissioner, T.C. Memo. 1998-158; Starr v. Commissioner, T.C.

Memo. 1995-190, affd. without published opinion 99 F.3d 1146 (9th

Cir. 1996).   His failure to show the cost and useful life of any

equipment purchased and placed in service in 2005 has precluded

an allowance for depreciation.

     Respondent presented evidence of petitioner’s receipt of

nonemployee compensation from AWC Carriers, Inc.    That evidence

was admitted under rules 803(6) and 902(11) of the Federal Rules
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of Evidence.    Petitioner has not raised a reasonable dispute with

respect to the income included in the notice of deficiency for

2005, and he has implicitly admitted receipt of that income by

claiming expenses in a specific amount as a percentage of the

income determined.   See sec. 6201(d); Parker v. Commissioner, 117

F.3d 785, 787 (5th Cir. 1997).    He did not satisfy any of the

criteria under section 7491(a) for shifting the burden of proof

to respondent as to any item of income or deduction.    The burden

of proving error in the notice of deficiency thus remains his.

See Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435,

440 (1934); Rockwell v. Commissioner, 512 F.2d 882, 886 (9th Cir.

1975), affg. T.C. Memo. 1972-133.

     Petitioner claims that he is entitled to deductions based on

his estimates.   He has not provided any explanation or excuse for

his failure to maintain and produce records of actual

expenditures.    His estimates are not permissible reconstructions

and are not based on any other evidence.    The items identified by

petitioner are not uncommon, and he may well have incurred

expenses in the categories that he identifies.    He has not,

however, provided anything more than speculation as to the actual

amounts spent during 2005.

     When a taxpayer establishes that he has incurred a

deductible expense but is unable to substantiate the exact

amount, we are, in some circumstances, permitted to estimate the
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deductible amount.     See Cohan v. Commissioner, 39 F.2d 540, 543-

544 (2d Cir. 1930).    We can estimate the amount of the deductible

expense, however, only when the taxpayer provides evidence

sufficient to establish a rational basis upon which the estimate

can be made.   See Vanicek v. Commissioner, 85 T.C. 731, 743

(1985).   Petitioner’s pursuit of frivolous arguments undermines

his credibility and the reliability of generalized claims.     We

are confident that, if he had cooperated with the IRS, some

deductions would have been conceded on the likelihood that

expenses had been incurred.    Cf., e.g., Sullivan v. Commissioner,

T.C. Memo. 2010-138.    When a case is tried, however, we apply the

rules regarding maintenance of records, substantiation of

deductions, and burden and adequacy of proof.    We also determine

admissibility of proof under the Federal Rules of Evidence.    See

sec. 7453.

     Petitioner’s photographs of items in his shop in 2009 do not

explain equipment purchased and placed in service in 2005, and

his testimony does not cure that defect.    He did not even recall

when in 2005 he commenced his business.    Although, for example,

we do not doubt that petitioner purchased and consumed paint in

operating a body shop, we have no way of determining the number

of gallons purchased and consumed or the prices paid in 2005.

If, as he claims, petitioner incurred office expenses, those

expenses should have been reflected in records of his income and
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expenditures.   He might have secured bank records or copies of

utility bills and other receipts from the providers of services,

but he failed to do so.   He has not suggested any tenable

explanation for the absence of reliable evidence.    We have

considered the entire record and petitioner’s offer of proof, and

we see no rational basis for estimating his deductible expenses.

     Under section 7491(c), respondent has the burden of

production with respect to the additions to tax.    Respondent

produced official records reflecting petitioner’s failure to file

a return for 2005 and the preparation of a substitute for return

under section 6020(b).    These records were received in evidence

pursuant to rules 803(8) and (10) and 902(1) and (4) of the

Federal Rules of Evidence.   Respondent has satisfied the burden

of production with respect to the additions to tax under section

6651(a)(1) and (2).    See, e.g., Higbee v. Commissioner, 116 T.C.

438, 447-448 (2001).   Petitioner has not shown reasonable cause

for his failure to file the return.     When asked for his reason,

he declined to answer, citing the Fifth Amendment.    Those

additions to tax will be sustained.     Respondent did not, however,

present adequate information concerning petitioner’s liability

for 2004 or otherwise satisfy the burden of showing petitioner’s

obligation to make estimated tax payments during 2005.    See

Wheeler v. Commissioner, 127 T.C. 200, 210-212 (2006), affd. 521
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F.3d 1289 (10th Cir. 2008).   The addition to tax under section

6654, therefore, will not be sustained.

      Respondent has moved for a penalty under section 6673 on

the grounds that petitioner instituted these proceedings

primarily for delay and/or because petitioner’s position is

frivolous or groundless.   Petitioner chose an erroneous course of

action rather than competent tax advice, and he ignored the

warnings of respondent and the rulings of the Court.   As a

result, he has been a victim of his own folly.   He asserts that

he has not failed to file returns before or after the single year

in issue.   We have decided not to impose a penalty, but we

caution petitioner that a penalty in an amount not in excess of

$25,000 may be awarded if he pursues such a misguided course in

the future.

     For the reasons explained above,


                                          Decision will be entered

                                    for respondent except for the

                                    addition to tax under section

                                    6654.
