                  T.C. Summary Opinion 2010-139



                      UNITED STATES TAX COURT



                 GLORIA G. JONES, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4274-09S.          Filed September 20, 2010.




     Gloria G. Jones, pro se.

     Kimberly L. Clark, for respondent.



     HAINES, Judge:   This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect

when the petition was filed.1   Pursuant to section 7463(b), the

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


     1
      Unless otherwise indicated, section references are to the
Internal Revenue Code as amended. Rule references are to the Tax
Court Rules of Practice and Procedure. Amounts are rounded to
the nearest dollar.
                                      -2-

this opinion shall not be treated as precedent for any other

case.

       Respondent determined deficiencies and additions to tax with

respect to petitioner’s Federal income taxes as follows:

                                        Additions to Tax
Year       Deficiency   Sec. 6651(a)(1) Sec. 6651(a)(2)    Sec. 6654

2005        $20,633          $4,642            $3,095           $828
2006         17,804           3,975             1,590            835

       After concessions,2 the remaining issues for decision are

whether petitioner is liable for additions to tax under sections

6651(a)(1) and (2) and 6654(a) for each year.

                               Background

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

The stipulation of facts and the exhibits attached thereto are

incorporated herein by this reference.       At the time she filed her

petition, petitioner resided in Oregon.

Procedural Background

       Petitioner failed to timely file returns or to timely pay

the taxes owed for 2003 through 2008.       For 2003 and 2004

petitioner worked with respondent’s Appeals officer to settle the

disputes regarding nonpayment and nonfiling.       On September 29,

2008, respondent prepared substitutes for returns pursuant to

section 6020(b) for 2005 and 2006, the years at issue.       On



       2
      Petitioner conceded the underlying tax liabilities for the
years at issue.
                                 -3-

January 5, 2009, respondent issued notices of deficiency to

petitioner for the years at issue.     On February 23, 2009,

petitioner timely filed a petition with this Court.     On January

14, 2010, petitioner provided Federal income tax returns for 2005

and 2006 to respondent.

Personal Background

     From 1997 until 2008 petitioner worked as a self-employed

financial representative, selling life insurance and annuities

for 8 to 10 different financial companies and providing services

to her clients.    At the end of each year the financial companies

paid petitioner and reported her nonemployee compensation on

Forms 1099.   During the years at issue petitioner continued to

manage her clients’ needs and market her company.

     In 2003 there was an onset of events involving petitioner’s

former husband, Mr. Jones, that caused petitioner to suffer

severe emotional distress and physical affliction.     The events

culminated in allegations of criminal activity against Mr. Jones

in January 2007.   Mr. Jones denied the allegations before

confessing on June 14, 2007.   In August 2007 a grand jury

indicted Mr. Jones, and he was later sentenced to prison.      After

Mr. Jones’ sentencing petitioner underwent two surgeries.      In

2009 petitioner finalized a no-contest divorce with Mr. Jones.
                                 -4-

                             Discussion

I.    Burdens of Proof

      Initially, the Commissioner has the burden of production

with respect to any penalty, addition to tax, or additional

amount.   Sec. 7491(c).   The Commissioner satisfies this burden of

production by coming forward with sufficient evidence indicating

that it is appropriate to impose the penalty.   See Higbee v.

Commissioner, 116 T.C. 438, 446 (2001).    Once the Commissioner

satisfies this burden of production, the taxpayer must persuade

the Court that the Commissioner’s determination is in error by

supplying sufficient evidence of an applicable exception.     Id.

II.   Section 6651(a)(1) Addition to Tax

      Section 6651(a)(1) imposes an addition to tax for failure to

file a return on the date prescribed unless the taxpayer can

establish that the failure is due to reasonable cause and not due

to willful neglect.3

      Respondent has satisfied his burden of production under

section 7491(c) by establishing, as petitioner acknowledges, that

petitioner did not file her 2005 and 2006 Federal income tax

returns by their due dates of April 15, 2006 and 2007,



      3
      If the Secretary makes a return for the taxpayer under sec.
6020(b), it is disregarded for purposes of determining the amount
of the addition to tax under sec. 6651(a)(1), but it is treated
as a return filed by the taxpayer for purposes of determining the
amount of the addition to tax under sec. 6651(a)(2). Sec.
6651(g).
                                -5-

respectively.   Therefore, petitioner bears the burden of proving

that her failure to file a return was due to reasonable cause and

not due to willful neglect.   See Higbee v. Commissioner, supra at

446; Ruggeri v. Commissioner, T.C. Memo. 2008-300.

III. Section 6651(a)(2) Addition to Tax

     Section 6651(a)(2) imposes an addition to tax for failure to

pay the amount shown as tax on the taxpayer’s return on or before

the date prescribed unless the taxpayer can establish that the

failure is due to reasonable cause and not due to willful

neglect.4

     Respondent submitted copies of the substitutes for returns

that he prepared for petitioner, and petitioner concedes she did

not pay her 2005 and 2006 income taxes as shown on the

substitutes for returns by the due dates.   See Wheeler v.

Commissioner, 127 T.C. 200, 208-209 (2006), affd. 521 F.3d 1289

(10th Cir. 2008); Hawkins v. Commissioner, T.C. Memo. 2008-168.

Thus, respondent has produced sufficient evidence that petitioner

is liable for the section 6651(a)(2) additions to tax for 2005

and 2006 unless an exception applies.   See Higbee v.

Commissioner, supra at 446; Ruggeri v. Commissioner, supra.




     4
      The amount of the addition to tax under sec. 6651(a)(2)
reduces the amount of the addition to tax under sec. 6651(a)(1)
for any month to which an addition to tax applies under both
paragraphs. Sec. 6651(c)(1).
                                -6-

IV.   Exceptions to the Section 6651(a)(1) and (2) Additions to
      Tax

      Reasonable cause is a defense to the section 6651(a)(1) and

(2) additions to tax.   To prove reasonable cause for a failure to

timely file, the taxpayer must show that she exercised ordinary

business care and prudence and was nevertheless unable to file

the return within the prescribed time.      Crocker v. Commissioner,

92 T.C. 899, 913 (1989); sec. 301.6651-1(c)(1), Proced. & Admin.

Regs.   To prove reasonable cause for a failure to pay the amount

shown as tax on a return, the taxpayer must show that she

exercised ordinary business care and prudence in providing for

payment of her tax liability and nevertheless was either unable

to pay the tax or would suffer undue hardship if she paid the tax

on the due date.   Sec. 301.6651-1(c)(1), Proced. & Admin. Regs.

The determination of whether reasonable cause exists is based on

all the facts and circumstances.      Estate of Hartsell v.

Commissioner, T.C. Memo. 2004-211; Merriam v. Commissioner, T.C.

Memo. 1995-432, affd. without published opinion 107 F.3d 877 (9th

Cir. 1997).

      Petitioner contends that the difficult circumstances she

experienced constituted reasonable cause for her failure to

timely file returns and pay taxes.     Petitioner testified about

the legal, emotional, and physical trouble she experienced in

2007.   Despite petitioner’s unfortunate circumstances, she

produced no evidence indicating the circumstances caused her to
                                  -7-

be incapacitated and unable to prepare her returns on the dates

they were due.   While sympathetic to petitioner’s ongoing

situation, the Court concludes that the circumstances as

described do not give rise to a reasonable cause defense for the

particular years at issue.

     Petitioner testified that the allegations against Mr. Jones

arose in January 2007 and did not fully come to light until Mr.

Jones’ admission of guilt on June 14, 2007.   Nevertheless,

petitioner’s tax returns and payments for 2005 and 2006 were due

on April 15, 2006 and 2007, respectively.   According to

petitioner’s testimony, her unfiled 2005 return was long overdue

and her 2006 return was due before Mr. Jones’ confessed, legal

proceedings began, or her physical problems arose.

     Petitioner undoubtedly experienced some financial distress

upon the loss of her husband’s income, yet she provided no

evidence or testimony regarding her inability to pay the taxes

due or that she would have suffered undue hardship if she had

paid the taxes on the due dates for the years at issue.    In fact,

petitioner testified that during the years at issue she remained

gainfully employed, was selling products for 8 to 10 different

financial companies, and continued to manage the needs of her

clients and market her company.    The Court has consistently held

that if a taxpayer is able to continue her business affairs

despite an incapacity, then the incapacity does not establish
                                -8-

reasonable cause.   Ruggeri v. Commissioner, supra (and cases

cited therein); Hazel v. Commissioner, T.C. Memo. 2008-134;

Jordan v. Commissioner, T.C. Memo. 2005-266 (and cases cited

therein).   Similarly, the Court has also held that a taxpayer’s

inability to meet her tax obligations when she can conduct normal

business activities does not establish reasonable cause.     Jordan

v. Commissioner, supra; Wright v. Commissioner, T.C. Memo. 1998-

224, affd. without published opinion 173 F.3d 848 (2d Cir. 1999);

Tabbi v. Commissioner, T.C. Memo. 1995-463.

     Petitioner has a history of nonfiling and nonpayment, having

failed to timely file returns and to pay the tax due for each of

the years 2003 to 2008.   In the light of the sequence of events

as explained by petitioner, her testimony regarding her financial

situation, and her history of nonfiling and nonpayment,

respondent’s determinations are sustained.

V.   Section 6654(a) Addition to Tax

     Section 6654(a) imposes an addition to tax on an

underpayment of estimated income tax unless an exception applies.

See sec. 6654(e).   The section 6654(a) addition to tax is

determined by applying the underpayment rate established under

section 6621 to the amount of the underpayment5 for the period of



     5
      “[A]mount of the underpayment” means the excess of the
required installment over the amount, if any, of the installment
paid on or before the due date for the installment. Sec.
6654(b)(1).
                                  -9-

the underpayment.6    The addition to tax is also calculated with

reference to four required installment payments of the taxpayer’s

estimated income tax.    Sec. 6654(c)(1); Wheeler v. Commissioner,

supra at 210.    Each required installment of estimated income tax

is equal to 25 percent of the “required annual payment.”     Sec.

6654(d)(1)(A).    The required annual payment is generally equal to

the lesser of:    (1) 90 percent of the tax shown on the taxpayer’s

return for the year (or 90 percent of the taxpayer’s tax for the

year if not return is filed); or (2) 100 percent of the tax shown

on the return if the taxpayer filed a return for the immediately

preceding taxable year.    Sec. 6654(d)(1)(B); Wheeler v.

Commissioner, supra at 210-211.    But if the taxpayer did not file

a return for the preceding year, then clause (2) does not apply.

Sec. 6654(d)(1)(B).    A taxpayer has an obligation to pay

estimated income tax for a particular year only if she had a

“required annual payment” for that year.    Wheeler v.

Commissioner, supra at 211.

     Petitioner was required to file her 2005 and 2006 Forms

1040, U.S. Individual Income Tax Return, by April 15, 2006 and

2007, respectively, but did not do so. Respondent’s burden of

production under section 7491(c) with respect to the section


     6
      The period of the underpayment runs from the due date for
the installment to the earlier of the 15th day of the 4th month
following the close of the taxable year or with respect to any
portion of the underpayment, the date on which such portion is
paid. Sec. 6654(b)(2).
                                 -10-

6654(a) additions to tax has been satisfied by proof at trial

that petitioner has Federal income tax liabilities for 2005 and

2006 and that petitioner made no estimated payments for either

year.     Thus, the additions to tax apply under section 6654(a)

unless petitioner established that an exception applies.

VI.   Exceptions to the Section 6654(a) Addition to Tax

      Generally, no reasonable cause exception exists for the

section 6654(a) addition to tax.    Sec. 1.6654-1(a)(1), Income Tax

Regs.; see also Bray v. Commissioner, T.C. Memo. 2008-113.      But

no addition to tax is imposed under section 6654(a) with respect

to any underpayment if the Secretary determines that the taxpayer

became disabled7 in either the taxable year for which estimated

income tax payments were required or in the preceding taxable

year and the underpayment was due to reasonable cause and not

willful neglect.    Sec. 6654(e)(3)(B).   Additionally, no addition

to tax is imposed under section 6654(a) with respect to any

underpayment to the extent the Secretary determines that by

reason of casualty, disaster, or other unusual circumstances the


      7
      The term “disabled” includes a significant psychiatric
disorder and mental incapacitation during the period under
consideration, Shaffer v. Commissioner, T.C. Memo. 1994-618, or
confinement to various hospitals for “severe mental illness”,
Carnahan v. Commissioner, T.C. Memo. 1994-163, affd. without
published opinion 70 F.3d 637 (D.C. Cir. 1995); see also Jones v.
Commissioner, T.C. Memo. 2006-176; Meyer v. Commissioner, T.C.
Memo. 2003-12 (taxpayer’s severe health problems and mental
condition incapacitated him; thus, a sec. 6654(e) exception was
applicable). In addition, the disability may constitute
reasonable cause. Jones v. Commissioner, supra.
                                 -11-

imposition of the addition to tax would be against equity or good

conscience.   Sec. 6654(e)(3)(A).

     Petitioner has not established a disability within the

meaning of section 6654(e)(3)(B).       She also has not established a

casualty, a disaster, or other unusual circumstances for which

the imposition of the section 6654(a) additions to tax would be

against equity or good conscience.      Consequently, respondent’s

determination is sustained.8

     In reaching our holdings, we have considered all arguments

made, and, to the extent not mentioned, we conclude that they are

moot, irrelevant, or without merit.

     To reflect the foregoing,


                                            Decision will be entered

                                        under Rule 155.




     8
      As indicated, the parties have agreed that the deficiencies
for 2005 and 2006 are $20,633 and $17,804, respectively. The
Court leaves it to the parties to compute the additions to tax
using these deficiencies.
