                  T.C. Summary Opinion 2008-89



                      UNITED STATES TAX COURT



                 MUHAMMAD MCNEILL, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8402-06S.              Filed July 23, 2008.



     Muhammad McNeill, pro se.

     Michael T. Sargent, for respondent.



     GOLDBERG, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   Pursuant to section

7463(b), the decision to be entered is not reviewable by any

other court, and this opinion shall not be treated as precedent

for any other case.   Unless otherwise indicated, subsequent

section references are to the Internal Revenue Code in effect for
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the year in issue, and all Rule references are to the Tax Court

Rules of Practice and Procedure.

     Respondent determined a $7,115 deficiency in petitioner’s

Federal income tax for 2002.    After concessions,1 the issues for

decision are:    (1) Whether petitioner is entitled to deduct

business-related expenses for the year in issue, and (2) whether

petitioner is liable for additions to tax under sections

6651(a)(1) and (2) and 6654.

                             Background

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.    Petitioner resided in

Maryland when the petition was filed.

     Petitioner did not file a Federal income tax return for

2002.    Under section 6020(b), and on the basis of information

provided to respondent by third parties relating to compensation

paid to petitioner, respondent prepared a substitute for return

(SFR).    In 2002 petitioner received $11,416 of nonemployee

compensation from Bal Com, Inc., and $19,117 of nonemployee

compensation from Virtek Cable Contractors, Inc.    Bal Com, Inc.,


     1
       The parties agree on the following: (1) Petitioner
received a total of $30,533 in nonemployee compensation during
2003; (2) petitioner had no withholdings for 2002; (3) petitioner
made no estimated tax payments during 2002; (4) petitioner failed
to file his 2002 Federal income tax return; and (5) petitioner
worked as a self-employed cable television installer in 2002.
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and Virtek Cable Contractors, Inc., were subcontractors for

Comcast Cable, Inc., in 2002.

     The income tax deficiency respondent determined includes

self-employment tax liability based on the income that petitioner

conceded he had received from third parties.

     On February 6, 2006, respondent mailed a notice of

deficiency to petitioner for 2002.      On February 26, 2007,

petitioner provided respondent’s counsel with an unfiled Form

1040, U.S. Individual Income Tax Return, for 2002.      Petitioner

attached to this unfiled Form 1040 a Schedule C, Profit or Loss

From Business, on which he characterized the $30,533 of total

nonemployee compensation reported by the aforementioned third

parties as “gross receipts or sales”.      On that same Schedule C

petitioner claimed deductions for the following business

expenses:

            Advertising                   $289
            Car and truck expenses       6,926
            Insurance                    2,600
            Office expense                 330
            Vehicles, machinery,
              and equipment              1,690
            Other business property      3,600
            Repairs and maintenance      1,289
            Supplies                       850
            Other expenses               9,075
              Total                     26,649

     The $9,075 of other expenses included the following:       (1)

$1,386 for communications; (2) $189 for bank charges; and (3)

$7,500 for day workers.
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                              Discussion

     Taxpayers generally bear the burden of proving that the

Commissioner’s determinations are incorrect.    Rule 142(a); Welch

v. Helvering, 290 U.S. 111, 115 (1933).    However, section 7491(a)

may in specific circumstances place the burden on the

Commissioner with regard to any factual issue relating to the

taxpayer’s liability for tax if the taxpayer produces credible

evidence with respect to that issue and meets the requirements of

section 7491(a)(2).   The taxpayer bears the burden of proving

that he has met the requirements of section 7491(a)(2)(A) and (B)

by substantiating items, maintaining required records, and fully

cooperating with the Secretary’s reasonable requests.     Miner v.

Commissioner, T.C. Memo. 2003-39; Nichols v. Commissioner, T.C.

Memo. 2003-24, affd. 79 Fed. Appx. 282 (9th Cir. 2003).

     Respondent raised section 7491 as an issue.    For the reasons

discussed infra we agree with respondent that petitioner did not

satisfy the requirements of section 7491(a)(2)(A) and (B) as he

failed to:   (1) Maintain records; (2) make a return; and (3)

comply with the rules and regulations as prescribed by the

Secretary.   See sec. 6001.   Since petitioner has not met the

requirements of section 7491(a)(2), we find that the burden of

proof remains with petitioner.

     Respondent determined that petitioner is liable for

additions to tax under:   (1) Section 6651(a)(1) for failure to
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file an income tax return; (2) section 6651(a)(2) for failure to

pay income tax; and (3) section 6654(a) for failure to make

estimated tax payments.   Respondent bears the burden of

production with respect to petitioner’s liability for the

additions to tax.    See sec. 7491(c); Higbee v. Commissioner, 116

T.C. 438, 446-447 (2001).   To meet his burden of production

respondent must come forward with sufficient evidence indicating

that it is appropriate to impose the additions to tax.     See

Higbee v. Commissioner, supra at 446-447.   The burden of proof

with regard to the reasonable cause exception of section 6651(a)

remains on petitioner.

Schedule C Expenses

     Deductions are strictly a matter of legislative grace, and

the taxpayer bears the burden of proving entitlement to any

deduction claimed.    INDOPCO, Inc. v. Commissioner, 503 U.S. 79,

84 (1992).   The taxpayer is required to maintain records

sufficient to establish any deduction claimed.    Sec. 6001; sec.

1.6001-1(a), Income Tax Regs.

     As previously stated, petitioner prepared but did not file a

Form 1040 for 2002 which included a Schedule C.   Respondent’s

position is that petitioner is not entitled to deduct any of the

expenses listed on this Schedule C for lack of substantiation.

     In support of his position that he is entitled to the

Schedule C deductions at issue, petitioner relies primarily on
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his testimony and three paycheck stubs that were received into

evidence.    We found petitioner’s testimony to be mainly self-

serving and vague with respect to the deductions claimed on the

Schedule C.    We will not rely on that testimony to establish that

petitioner is entitled to any of the Schedule C deductions at

issue.   See Lerch v. Commissioner, 877 F.2d 624, 631-632 (7th

Cir. 1989), affg. T.C. Memo. 1987-295.

     With respect to the expenses shown on petitioner’s Schedule

C, section 162(a) generally allows a deduction for ordinary and

necessary expenses paid or incurred during the taxable year in

carrying on a trade or business.    The only records that

petitioner kept with respect to these expenses were the three

paycheck stubs that were received into evidence.    These stubs

were for petitioner’s pay from Virtek Cable Contractors, Inc.,

and show that the company deducted amounts for accident

insurance, liability insurance, and ladder rental from each

paycheck.    The amounts deducted for accident insurance and ladder

rental were $25 and $15, respectively, for each of the pay

periods reflected on the paycheck stubs.    The amounts shown as

deducted for liability insurance were $14.38, $17.15, and $13.94,

respectively.    Petitioner presented no further evidence with

respect to these expenses (liability insurance and ladder

rental).    Petitioner also did not keep any work records, logs,

advertisements, employee information, or receipts showing the
                                - 7 -

types and amounts of all of the expenses that he claimed on the

Schedule C.

     On the record before us, we find that petitioner has failed

to carry his burden of proving he is entitled for taxable year

2002 to deduct under section 162(a) any expenses that he claimed

on Schedule C with the exception of $165.47 (the total amounts

shown for insurance and ladder rental on the three paycheck stubs

received into evidence).   Although petitioner did estimate his

total cost for insurance for 2002 as $1,800, he provided no

evidence to substantiate this amount; and because the record is

unclear as to exactly what expenses were incurred with respect to

the two companies for which petitioner worked (Virtek Cable

Contractors, Inc., and Bal Com, Inc.), we lack the requisite

information to estimate any of the claimed Schedule C expenses,

including insurance expenses.   See Cohan v. Commissioner, 39 F.2d

540 (2d Cir. 1930).   But see sec. 274(d); sec. 1.274-5T(a),

Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).

Additions to Tax

     Respondent determined that petitioner is liable for

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

income tax return for 2002 and under section 6651(a)(2) for

failure to pay the tax due.

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

file a return on the date prescribed (determined with regard to
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any extension of time for filing) unless petitioner can establish

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

not due to willful neglect.   Petitioner admitted that he did not

file a Federal income tax return for 2002.    Respondent has

therefore met his burden of production.    Further, we find that

petitioner’s failure to file a Federal income tax return for 2002

was not due to reasonable cause but was due to willful neglect.

Therefore, we conclude that petitioner is liable for the section

6651(a)(1) addition to tax for 2002.

     The section 6651(a)(2) addition to tax for failure to pay is

applicable only when an amount of tax is shown on a return.

Cabirac v. Commissioner, 120 T.C. 163, 170 (2003).    On the 2002

SFR, which was prepared in accordance with the requirements of

section 6020(b), respondent calculated a tax liability of $7,115.

Pursuant to section 7491(c), respondent bears and has met the

burden of production relating to section 6651(a)(2) for 2002.

With respect to 2002 petitioner is liable for the section

6651(a)(2) addition to tax on the basis of the amount of tax

shown on the 2002 SFR.   See sec. 6651(g) (the SFR is disregarded

for purposes of determining the addition to tax under section

6651(a)(1) but is treated as the return for purposes of the

addition to tax under section 6651(a)(2)).    Section 6654(a)

provides for an addition to tax “in the case of any underpayment

of estimated tax by an individual”.    This addition to tax is
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mandatory unless one of the statutorily provided exceptions

applies.   See sec. 6654(e); Grosshandler v. Commissioner, 75 T.C.

1, 20-21 (1980).    There is no exception for reasonable cause or

lack of willful neglect.    Estate of Ruben v. Commissioner, 33

T.C. 1071, 1072 (1960).

     Under section 6654 the addition to tax is calculated with

reference to four required installment payments of the taxpayer’s

estimated tax liability.   Sec. 6654(c)(1); Wheeler v.

Commissioner, 127 T.C. 200, 210 (2006), affd. 521 F.3d 1289 (10th

Cir. 2008).   Each required installment of estimated 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 return

or; (2) if the individual filed a return for the immediately

preceding taxable year, 100 percent of the tax shown on that

return.    Sec. 6654(d)(1)(B); Wheeler v. Commissioner, supra at

210-211; Heers v. Commissioner, T.C. Memo. 2007-10.     A taxpayer

has an obligation to pay estimated tax for a particular year only

if he had a “required annual payment” for that year.     Wheeler v.

Commissioner, supra at 211.

     The parties agree that petitioner was required to file a

Federal income tax return for 2002, that petitioner did not file

a 2002 return, that petitioner failed to make any estimated tax

payments, and that petitioner did not have any withholdings for
                                - 10 -

2002.     In order for the Court to analyze the application of the

section 6654(a) addition to tax (as required by section

6654(d)(1)(B)), we must conclude that respondent has met his

burden of production of evidence that petitioner had a required

annual payment for 2002 payable in installments under section

6654.     To this end, respondent must introduce evidence showing

whether petitioner filed a return for the preceding taxable year

and, if so, the amount of tax shown on that return.        See Wheeler

v. Commissioner, supra at 211.      Respondent did not do so.

Without that evidence, this Court cannot identify the number

equal to 100 percent of the tax shown on petitioner’s 2001

return, complete the comparison required by section

6654(d)(1)(B), and conclude petitioner had a required annual

payment for 2002 that was payable in installments under section

6654.     Consequently, respondent’s determination regarding the

section 6654 addition to tax is not sustained.

        To reflect the foregoing,


                                             Decision will be entered

                                         under Rule 155.
