                   T.C. Summary Opinion 2011-101



                      UNITED STATES TAX COURT



         WILLIAM B. AND CHERYL B. O’BRYANT, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 15472-07S.              Filed August 15, 2011.



     William B. and Cheryl B. O’Bryant, pro sese.

     Heather K. McCluskey, for respondent.



     GERBER, 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, all section references are to
the Internal Revenue Code in effect for 2001 and 2002, the
taxable years in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                               - 2 -

this opinion shall not be treated as precedent for any other

case.

     The controversy in this case is the residual of extensive

settlement negotiations and the resolution of most of the

determinations set forth in the notice of deficiency.   The

remaining issues concern:   (1) Whether petitioners are liable for

section 6651(a)(1) additions to tax for the 2001 and 2002 tax

years; and (2) whether the Court has jurisdiction to consider

certain aspects of the parties’ disagreement concerning a prior

tax year (1999) from which various credits were carried over for

the 2001 and 2002 tax years.

                            Background

     This case was calendared for trial during fall 2008, and at

that time the parties presented to the Court a settlement

agreement that resolved all of the determinations set forth in

the notice of deficiency other than the section 6651(a)(1) late-

filing additions to tax and their disagreement about the

application of certain overpayment credits from prior-year

returns.2   The background information in this case is complex and

was further complicated by petitioners’ late filing and errors


     2
      There were numerous differences concerning the credits from
prior years. The Court worked with the parties beginning in
fall 2008, and after numerous telephone conferences most of the
parties’ differences have been resolved. The resolution of the
complex computational issues required exceptional patience,
cooperation, and efforts by the parties, and the Court
compliments those efforts.
                               - 3 -

respondent made in the processing of petitioners’ tax returns.

We address only those facts that bear on the remaining issues.

     Petitioners resided in California at the time their petition

was filed.   Following his completion of medical school in 1979,

William B. O’Bryant (petitioner) began his residency in internal

medicine in California.   He was successful in the practice of

medicine in Orange County, California.    After approximately

18 years, however, petitioner found that he had a proclivity and

the ability to be a day trader.   Late in 1998 he abandoned the

practice of medicine and became a full-time day trader.    Four or

five months later, petitioner wife suffered a severe head injury

that resulted in a cerebral hemorrhage and coma.    Following brain

surgery, petitioner wife became paralyzed on the left side of her

body, and she had a limited memory.

     At that time petitioners had two minor children and two

children in college, and petitioner ceased day trading to care

for his wife and children full time.     It took more than 2 years

for petitioner wife to be able to get around and manage her own

care independently.   Initially, petitioner’s wife was unable to

perform most of the basic functions of human existence, and

petitioner taught her to walk, eat, dress, etc.

     During 2001 petitioner began working as an appeals medical

director for a health insurance company.    Shortly after that, his

wife developed a new condition known as “normal pressure
                                - 4 -

hydrocephalus”.    This condition caused additional problems for

petitioner and his wife, including her lack of balance, worsening

short-term memory, and incontinence, among other things.    She

required additional brain surgery during July 2001 to implant a

shunt in her cranial ventricle to allow drainage.    During the

following 2 years petitioner’s income was insufficient to cover

his family’s living expenses, and he amassed approximately

$150,000 in debt.

     Petitioners had prepayment credits from prior years and

various estimated payments, and when their 2001 and 2002 tax

returns were filed, albeit late, any amounts of tax owed were

small.3    As of May 24, 2004, petitioners had not filed their 2001

and 2002 joint Federal income tax returns, and respondent

prepared substitutes for returns for those years using available

information from respondent’s records.    On or about February 24,

2006, petitioners filed 2001 and 2002 joint Federal income tax

returns.

                             Discussion

     Section 6651(a)(1) imposes an addition to tax in the case of

any failure to timely file a Federal income tax return unless it

is shown that such failure is due to reasonable cause and not due

to willful neglect.    A showing of reasonable cause requires



     3
      Petitioners, after considering credits, had a refund due
them for 1 of the tax years.
                                 - 5 -

taxpayers to demonstrate they exercised ordinary business care

and prudence and nevertheless were unable to file the tax return

by the due date.    The addition will not apply if it is shown that

the failure to file a timely tax return was due to reasonable

cause and not due to willful neglect.    See sec. 6651(a)(1); see

also United States v. Boyle, 469 U.S. 241, 245 (1985); sec.

301.6651-1(c)(1), Proced. & Admin. Regs.    Willful neglect is

interpreted as a “conscious, intentional failure or reckless

indifference.”     United States v. Boyle, supra at 245.

     The fact that petitioners’ income tax returns for 2001 and

2002 were filed late satisfies respondent’s burden of production

under section 7491(c) and establishes the potential for

petitioners’ liability for the section 6651(a)(1) addition to tax

unless they can establish reasonable cause for the failure to

file timely.     See Higbee v. Commissioner, 116 T.C. 438, 446

(2001).

     Petitioner claims that his late filing was due to reasonable

cause because of his good-faith belief that prior year’s credits

or overpayments would result in no tax or addition to tax due4

for 2001 and 2002.    When the 2001 and 2002 returns were due,

petitioner was unable to accomplish much more than caring for his




     4
      Ultimately, the credits from earlier years resulted in an
overpayment in 1 year. We note, however, those circumstances do
not obviate the sec. 6651(a)(1) late-filing addition to tax.
                              - 6 -

wife, children, and household while continuing to earn money to

support his family.

     In Ruggeri v. Commissioner, T.C. Memo. 2008-300, the

following contrasting opinions were set forth to show some

parameters of reasonable cause cases with circumstances similar

to those we consider here:

     The Court has found reasonable cause where the taxpayer
     or a member of the taxpayer’s family experiences an
     illness or incapacity that prevents the taxpayer from
     filing his or her tax return. See, e.g., Tabbi v.
     Commissioner, T.C. Memo. 1995-463 (reasonable cause
     found where the taxpayers’ son had heart surgery and
     the taxpayers spent 4 months continuously in the
     hospital with him, and the taxpayers filed their return
     2 months after their son’s death); Harris v.
     Commissioner, T.C. Memo. 1969-49 (reasonable cause
     found where the taxpayer’s activities were severely
     restricted, and the taxpayer was in and out of
     hospitals because of various severe medical ailments
     including stroke, paralysis, heart attack, bladder
     trouble, and breast cancer).
          On the other hand, the Court has not found
     reasonable cause where the taxpayer does not timely
     file but is able to continue his or her business
     affairs despite the illness or incapacity. See, e.g.,
     Judge v. Commissioner, 88 T.C. 1175, 1189-1191 (1987)
     (no reasonable cause found where the taxpayer had a
     long history of delinquent filing of returns and the
     taxpayer was actively involved in preparing and
     executing business-related documents despite illness
     during years at issue); Watts v. Commissioner, T.C.
     Memo. 1999-416 (reasonable cause not found where,
     although the taxpayer’s mother and daughter were both
     ill and the taxpayer frequently took them to see
     doctors, the taxpayer also performed extensive
     architectural services in the taxpayer’s business);
     Wright v. Commissioner, T.C. Memo. 1998-224 (reasonable
     cause not found where the taxpayer had capacity to
     attend to matters other than filing tax returns despite
     the trauma of his mother’s disappearance and death),
     affd. without published opinion 173 F.3d 848 (2d Cir.
     1999).
                              - 7 -

     Petitioner’s circumstances are most like those in Tabbi v.

Commissioner, supra, and Harris v. Commissioner, supra, in which

the Court found reasonable cause for the late filing.    The record

reflects that after petitioner wife’s accident he was consumed by

his constant attention to her needs during the period under

consideration; by his unsuccessful5 attempt to earn enough money

to pay the bills; by his obligation to care for his family; and

by the maintaining of his household.    When the returns were due

petitioner slept little and had no time for any other activity.

Under these circumstances, petitioner attempted to maintain

sufficient records but was nevertheless unable to file the tax

returns within the prescribed time.    Additionally, during that

time petitioners’ returns were being audited, and there were

substantial differences between the parties concerning the

application of credits and overpayments from prior years.    The

failure to file was not due to petitioners’ intentional failure

or reckless indifference.

     We accordingly hold that petitioners are not liable for the

late-filing addition to tax under section 6651(a)(1) for the 2001

and 2002 tax years.

     Finally, we turn to the computational issue.    By way of

background, the genesis of the problem was the filing of



     5
      During the period 2001 to 2003 petitioner went
approximately $150,000 into debt.
                                - 8 -

petitioners’ 1998 tax return, wherein they reported a $21,991

overpayment and directed that the overpayment be applied to

estimated tax payments for 1999.   Respondent, instead of applying

the overpayment to 1999, sent petitioners a refund check for

$21,991.   Petitioners did not cash the refund check; shortly

thereafter their 1998 tax return came under audit; no amount of

the claimed overpayment was credited to the 1999 tax year; and

respondent placed a “freeze” on the $21,991 refund for 1998.

Ultimately, in connection with petitioners’ earlier case before

this Court, respondent released some portion of the 1998 refund.

Through a combination of respondent’s computational and related

errors, petitioners’ late filing of returns, and litigation with

respect to 1998, 1999, 2001, and 2002 the computational and other

differences in the amount of credits to be applied or penalties

for any year were compounded.   These complexities caused further

delay in the filing of petitioners’ 2001 and 2002 tax returns.

The parties worked diligently and resolved all but one of those

differences.6

     Ultimately, the computational differences were agreed to,

but petitioners contend that they should not be responsible for




     6
      The parties resolved most of the prior years’ computational
differences irrespective of their views as to whether the Court
would have jurisdiction to decide the correct amounts if the
parties had disagreed.
                               - 9 -

the additions to tax7 and interest for the 1999 tax year.    In

addition, petitioners contend that sanctions should be imposed

against respondent.   Finally, petitioners have countered

respondent’s argument that the period of limitations for the 1999

tax year has expired by arguing that either the mitigation

provisions or the doctrine of equitable recoupment should be

applied.   The global basis for petitioners’ contentions is that

respondent’s errors have caused delays resulting in an increase

in interest.

     In order to address any of the issues petitioners raise,

other than whether respondent should be sanctioned, we must have

jurisdiction over the 1999 tax year.8    Respondent contends that

the Court does not have jurisdiction over the 1999 tax year and,

alternatively, if we did have jurisdiction, the period of

limitations has expired with respect to a refund claim for

petitioners’ 1999 tax year.

     Before considering the jurisdictional question, we outline

the 1999 tax return filing history.     A $4,798.54 overpayment

credit from petitioners’ 1998 tax year was credited to the 1999

tax year on April 23, 2001.   The 1999 joint Federal income tax



     7
      We have already decided that petitioners are not liable for
the sec. 6651(a)(1) late-filing additions to tax for 2001 and
2002.
     8
      We note that petitioners’ 1998 tax year was the subject of
a case at docket No. 4542-04S, settled in July 2005.
                               - 10 -

return was filed on August 22, 2003, reflecting a $3,502 balance

due.    Respondent, however, assessed late-filing and late-payment

additions to tax and statutory interest.     On September 12, 2005,

respondent reduced the amounts of the late-payment additions to

tax.    No tax remains due for the 1999 tax year.   For the 1999 tax

year there were late-filing and late-payment additions to tax of

$767.25 and $221.65, respectively, and accrued interest of

$361.69.    Petitioners have asked the Court to abate or eliminate

these amounts.

       Before we can consider the merits of petitioners’ arguments,

we must decide whether we have jurisdiction over the 1999 tax

year.    Under certain circumstances the Court may consider the

merits of an earlier year and its effect on the year(s) before

the Court.    One such example is where carryover losses are in

issue.    However, petitioners were not entitled to petition the

underlying merits of their 1998 tax year, which was the subject

of prior litigation that has become final.    The notice of

deficiency upon which this case is based contained determinations

for petitioners’ 2001 and 2002 tax years.    To the extent that

prepayment credits and/or overpayments from 1998 to 1999 could

have any effect on the years before the Court, the parties have

resolved those differences and amounts.    Accordingly, we lack

jurisdiction over the merits of the 1998 or 1999 tax year.    See,

e.g., Normac, Inc. v. Commissioner, 90 T.C. 142, 146 (1988).
                               - 11 -

     Having decided that we lack jurisdiction over the 1999 tax

year, we need not address whether the period of limitations

expired or whether mitigation or estoppel applies.

     Lastly, petitioners contend that respondent should be

sanctioned because of errors resulting in delays that occurred

during the processing of all of the tax years 1998, 1999, 2001,

and 2002.   Although there were processing errors, petitioners’

late filing and holding of refund checks compounded and/or

contributed to the problems and complexity in the administrative

process.    Ultimately, respondent’s counsel and petitioners have

worked together and resolved the liabilities, credits, and

overpayments from one year to another.    Under these

circumstances, we hold that sanctions are not warranted.

     To reflect the foregoing,


                                          Decision will be entered

                                     under Rule 155.
