                             T.C. Summary Opinion 2012-95



                            UNITED STATES TAX COURT



                     BRIAN HENRY STIRM, Petitioner v.
              COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket Nos. 5294-11S, 23627-11S.              Filed September 24, 2012.



      Brian Henry Stirm, pro se.

      Diane L. Worland, for respondent.



                                 SUMMARY OPINION


      RUWE, Judge: These consolidated cases1 were heard pursuant to the

provisions of section 74632 of the Internal Revenue Code in effect when the


      1
          The cases were consolidated for trial, briefing, and opinion.
      2
          Unless otherwise indicated, all section references are to the Internal Revenue
                                                                            (continued...)
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petitions were filed. Pursuant to section 7463(b), the decisions to be entered are

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

for any other case.

      Respondent determined deficiencies and additions to tax with respect to

petitioner’s 2004, 2007, and 2008 Federal income tax. After concessions by the

parties, respondent now asserts deficiencies and additions to tax with respect to

petitioner as follows:

                                                Additions to Tax

            Year         Deficiency   Sec. 6651(a)(1)     Sec. 6651(a)(2)1

            2004            $452          $101.70              $113.00
            2007           3,463           779.18               813.81
            2008           3,508           789.30               613.90
      1
      The amount of any addition to tax pursuant to sec. 6651(a)(2) shall be
determined pursuant to sec. 6651(a)(2), (b), and (c).


After concessions, the only issues remaining for decision are: (1) whether petitioner

is entitled to the expense deductions claimed on Schedule C, Profit or Loss From

Business, of his delinquently filed returns for the taxable years 2004, 2007, and




      2
       (...continued)
Code as amended and in effect for the years at issue, and all Rule References are to
the Tax Court Rules of Practice and Procedure.
                                         -3-

2008 (years at issue); and (2) whether petitioner is liable for additions to tax under

section 6651(a)(1) and (2) for the years at issue.

                                     Background

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

facts and the supplemental stipulation of facts are incorporated herein by this

reference.

      At the time the petitions were filed, petitioner resided in Indiana.

      During the years at issue petitioner was a full-time employee of Purdue

University and received wages of $60,741, $65,274, and $67,890 for the years

2004, 2007, and 2008, respectively. Petitioner also managed a local airport (airport)

on behalf of the city of Delphi, Indiana. For the 2007 and 2008 tax years petitioner

received $6,500 of nonemployee compensation from the city of Delphi. In 2007 and

2008 petitioner also received income for consulting services.

      Petitioner failed to timely file income tax returns for the years at issue. As a

result, respondent filed a substitute for return (SFR) pursuant to section 6020(b) for

each of the years at issue. Respondent issued petitioner notices of deficiency on

December 20, 2010, for the 2004 and 2007 tax years and on April 15, 2011, for the

2008 tax year.
                                          -4-

      On March 2, 2012, long after the filing of the SFRs and the issuance of the

notices of deficiency and only three days before trial, respondent received

petitioner’s delinquent joint income tax returns executed on February 29, 2012, by

petitioner and his spouse, Judith L. Stirm, for the years at issue. Petitioner’s

delinquent returns reported income and expenses on Schedule C for each year. The

Schedule C for each year showed the business name as Stirm Enterprises and the

nature of the business as aviation services. The notices of deficiency already

included in petitioner’s income for 2007 and 2008 the amounts of gross receipts

reported on Schedules C for 2007 and 2008, which consisted of the income from the

City of Delphi and the consulting services. The Schedule C for 2004 reported gross

receipts of $2,500 which had not been included in petitioner’s income in the notice

of deficiency for 2004. The notices of deficiency had not allowed deductions for

any of the expenses that petitioner claimed on Schedules C for the years at issue.

All of these claimed deductions are in issue. Schedules C showed net losses of

$344, $4,512, and $80 for the taxable years 2004, 2007, and 2008, respectively.
                                        -5-

                                     Discussion

      As a general rule, the Commissioner’s determinations are presumed correct,

and the taxpayer bears the burden of proving that those determinations are

erroneous.3 Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).

      Deductions are a matter of legislative grace, and the taxpayer bears the

burden of proving that he is entitled to any deduction claimed. Rule 142(a);

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v.

Helvering, 292 U.S. 435, 440 (1934). Section 6001 requires taxpayers to maintain

records sufficient to establish the amount of each deduction. See also Ronnen v.

Commissioner, 90 T.C. 74, 102 (1988); sec. 1.6001-1(a), Income Tax Regs.

      Section 162(a) allows a deduction for ordinary and necessary expenses that a

taxpayer pays in connection with the operation of a trade or business. Boyd v.

Commissioner, 122 T.C. 305, 313 (2004). To be “ordinary” the expense must be of

a common or frequent occurrence in the type of business involved. Deputy v. du




      3
        In some cases the burden of proof with respect to relevant factual issues may
shift to the Commissioner under sec. 7491(a). However, petitioner has not argued
that the burden of proof should shift to respondent, nor has he maintained all
required records and cooperated with respondent’s requests as required by sec.
7491(a)(2)(A) and (B). Therefore, we hold that the burden of proof does not shift to
respondent.
                                          -6-

Pont, 308 U.S. 488, 495 (1940). To be “necessary” an expense must be

“appropriate and helpful” to the taxpayer’s business. Welch v. Helvering, 290 U.S.

at 113. Additionally, the expenditure must be “directly connected with or pertaining

to the taxpayer’s trade or business”. Sec. 1.162-1(a), Income Tax Regs. However,

section 262(a) disallows deductions for personal, living, or family expenses.

Issue 1. Expense Deductions Claimed on Schedules C

      Airplane Insurance and Fuel

      Petitioner claimed deductions for insurance expenses of $3,473 and $3,321

on Schedules C of his 2007 and 2008 Federal income tax returns. Petitioner

claimed deductions for fuel expenses of $1,078, $3,504, and $785 on Schedules C

of his 2004, 2007, and 2008 Federal income tax returns, respectively. Respondent

contends that none of these expenses should be allowed for the years at issue.

      First, we note that petitioner did not offer any evidence to demonstrate that he

purchased $1,078 of fuel for the 2004 tax year. Accordingly, we hold that petitioner

is not entitled to a deduction for fuel purchases for the 2004 tax year.

      At trial petitioner testified that he was in the flight training and airplane rental

business. Petitioner contends that he should be permitted to deduct airplane
                                         -7-

insurance and fuel expenses as these are legitimate costs of his flight training and

airplane rental business.

      We note that the only gross receipts reported on Schedules C of petitioner’s

2007 and 2008 tax returns consisted of income from his consulting work and his

airport management job with the city of Delphi. In other words, the Schedules C

indicate that petitioner had zero revenue from a flight training and airplane rental

business for 2007 and 2008. The fact that petitioner reported no revenue from a

flight training and airplane rental business weighs against finding that he was in such

a business.

      Petitioner testified that he and five other people purchased a plane that he

used for flight training and renting. However, petitioner provided no documentation

to substantiate the ownership of an airplane. We also note that petitioner did not

claim any deductions for depreciation of an airplane for the years at issue. The fact

that petitioner failed to demonstrate that he owned an airplane further weighs against

finding that petitioner incurred expenses in conducting a flight training and airplane

rental business.

      Additionally, petitioner failed to demonstrate that the airplane insurance and

fuel expenses were “directly connected with or pertaining to the taxpayer’s trade or

business” of airport management and consulting. See sec. 1.162-1(a), Income Tax
                                         -8-

Regs. Accordingly, we hold that petitioner is not entitled to deduct airplane

insurance and fuel expenses for the 2007 and 2008 tax years.

      Interest Expense

      Petitioner claimed deductions for interest expenses of $7,978 and $5,722 on

Schedules C of his 2007 and 2008 Federal income tax returns. Respondent

contends that no amount of the claimed interest expense should be allowed for 2007

and 2008.

      The interest expenses relate to monthly finance charges incurred on

petitioner’s three credit cards. Petitioner offered into evidence monthly credit card

statements for 2007 and 2008. The credit card statements show transactions at

Pizza Hut, Taco Bell, Cracker Barrel, and Dairy Queen, among other places. The

credit cards were issued in petitioner’s name and not in the name of a business.

Petitioner offered no testimony or other evidence to prove that the balances and

transactions on the credit card statements were business expenses as opposed to

personal expenses. Section 262 expressly disallows deductions for personal, living,

or family expenses. We find that petitioner has not proven that the balances and

transactions on the credit card statements are business expenses as opposed to

nondeductible personal expenses. Accordingly, we hold that petitioner
                                            -9-

is not entitled to deduct the finance charges as interest for the 2007 and 2008 tax

years.

         Vehicle Rent and Maintenance Expenses

         Petitioner claimed deductions for vehicle rent expenses of $675, $1,068, and

$1,246 on Schedules C of his 2004, 2007, and 2008 Federal income tax returns,

respectively. Petitioner claimed deductions for maintenance expenses of $1,091,

$2,305, and $3,148 on Schedules C of his 2004, 2007, and 2008 Federal income tax

returns, respectively. Respondent contends that none of the claimed vehicle rent or

maintenance expense deductions should be allowed for the years at issue.

         At trial petitioner testified that he hired his father to perform lawncare and

maintenance services at the airport. Petitioner testified that the vehicle rent

expenses were for the rental of his father’s tractor to mow the grass at the airport.

Petitioner testified that the maintenance expenses were for payments to his father to

perform lawncare and general maintenance duties at the airport. Petitioner offered

into evidence three bills that he said his father prepared that purport to be annual

charges for vehicle rental and maintenance services. The bills were not addressed to

petitioner or petitioner’s business. The Court is not able to determine if these bills

were paid by petitioner or if the bills were paid at all. Since we are unable to
                                          - 10 -

determine that petitioner paid the bills, we hold that petitioner is not entitled to

deduct these expenses for the years at issue.

Issue 2. Additions to Tax

      Respondent determined that petitioner is liable for additions to tax pursuant to

section 6651(a)(1) and (2) for the years at issue. Respondent has the burden of

production with respect to these additions to tax. See sec. 7491(c). To meet this

burden, respondent must produce evidence showing that the additions to tax are

appropriate. See id.; Higbee v. Commissioner, 116 T.C. 438, 446 (2001). Once

respondent satisfies this burden, petitioner has the burden of proof with respect to

reasonable cause. See Higbee v. Commissioner, 116 T.C. at 446-447.

      Section 6651(a)(1)

      Section 6651(a)(1) imposes an addition to tax when a taxpayer fails to file a

timely return unless the taxpayer establishes that the failure was due to reasonable

cause and not willful neglect. The addition to tax is equal to 5% of the amount

required to be shown as tax on the delinquent return for each month or fraction

thereof during which the return remains delinquent, up to a maximum addition of

25% for returns more than four months delinquent. Id.

      Petitioner did not timely file Federal income tax returns for the years at issue.

Thus, we find that respondent has met his burden of production.
                                         - 11 -

      Section 6651(a)(2)

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

amount of tax shown on a return, unless the taxpayer establishes that the failure was

due to reasonable cause and not willful neglect. The addition is calculated as 0.5%

of the amount shown as tax on the return but not paid, with an additional 0.5% for

each month or fraction thereof during which the failure to pay continues, up to a

maximum of 25%.4 Id.

      Under section 6020(b), when a taxpayer fails to file a return required by law,

the Commissioner (acting for the Secretary of the Treasury) may make a return from

such information as he can obtain. Under section 6651(g)(2), any return so made is

treated as the taxpayer’s return for purposes of determining the amount of the

addition under section 6651(a)(2).

      Petitioner failed to file Federal income tax returns for the years at issue.

Pursuant to section 6651(g)(2) the SFRs respondent made are treated as petitioner’s

tax returns. Petitioner failed to pay the amounts of tax shown on the SFRs for

2004, 2007, and 2008. Therefore, respondent has met his burden of production.



      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 for which an addition to
tax applies under both paragraphs. Sec. 6651(c)(1).
                                         - 12 -

      Reasonable Cause

      We consolidate our discussion of reasonable cause under section 6651(a)(1)

and (2) because the standards have been interpreted to be synonymous. See Russell

v. Commissioner, T.C. Memo. 2011-81, 2011 Tax Ct. Memo LEXIS 80, at *24-

*25. Petitioner must prove that his failure to file timely and to pay timely was due

to reasonable cause and not willful neglect. See Higbee v. Commissioner, 116 T.C.

at 446-447. Petitioner contends that his failure to file timely and to pay timely was

due to the fact that he did not have sufficient time to prepare his tax returns given

his responsibilities to Purdue University, the airport, and his own business.

Reasonable cause may be found where the taxpayer has exercised ordinary business

care and prudence but was nevertheless unable to file the return or pay the tax

within the dates prescribed by law. See United States v. Boyle, 469 U.S. 241, 246

(1985); Ditaranto v. Commissioner, T.C. Memo. 2012-205, 2012 Tax Ct. Memo

LEXIS 206, at *8; sec. 301.6651-1(c), Proced. & Admin. Regs. Reasonable cause

has been found to not exist where a taxpayer continues his business activities but

nevertheless fails to satisfy his tax responsibilities. Ditaranto v. Commissioner,

2012 Tax Ct. Memo LEXIS 206, at *10. Petitioner was able to successfully

perform his employment and business activities. Additionally, petitioner’s pattern

of not filing timely returns weighs against finding reasonable cause. See Hardin v.
                                         - 13 -

Commissioner, T.C. Memo. 2012-162, 2012 Tax Ct. Memo LEXIS 162, at *9. As

a result, we conclude that petitioner lacked reasonable cause for his failure to file

timely returns and to pay the tax timely. Accordingly, we hold that petitioner is

liable for additions to tax under section 6651(a)(1) and (2).

         In reaching our decision, we have considered all arguments made by the

parties, and to the extent not mentioned or addressed, they are irrelevant or without

merit.

         To reflect the foregoing,


                                                        Decisions will be entered under

                                                  Rule 155.
