                        T.C. Memo. 2003-39



                      UNITED STATES TAX COURT



                 CLAUDIA J. MINER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8472-01.               Filed February 24, 2003.



     Claudia J. Miner, pro se.

     Scott J. Welch, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COLVIN, Judge:   Respondent determined deficiencies in

petitioner’s income tax and additions to tax as follows:
                                  - 2 -

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

  1996      $30,520       $6,867.00         50% of the       $1,624.46
                                            interest on
                                            $7,019.60

  1997       27,011        6,077.47         50% of the        1,455.14
                                            interest on
                                            $4,591.87

  1998       35,140        7,906.50         50% of the        1,594.90
                                            interest on
                                            $3,865.40
     1
        Respondent concedes that petitioner is not liable for
additions to tax under sec. 6651(a)(2) for 1996-98.

     After concessions, the issues for decision are:1

     1.    Whether petitioner may deduct margin interest of

$1,738.04 in 1996, $1,844.25 in 1997, and $3,764.40 in 1998.        We

hold that she may to the extent discussed below.

     2.    Whether petitioner is liable for the addition to tax for

failure to file under section 6651(a)(1) for the years in issue.

We hold that she is.

     3.    Whether petitioner is liable for the addition to tax for

failure to pay estimated tax under section 6654(a) for the years

in issue.    We hold that she is not.

     Section references are to the Internal Revenue Code as

amended.    Rule references are to the Tax Court Rules of Practice

and Procedure.




     1
        The parties settled all issues related to unreported
income for the years in issue.
                                - 3 -

                         FINDINGS OF FACT

A.   Petitioner

     Petitioner resided in Holden, Louisiana, when she filed the

petition.

B.   Petitioner’s Brokerage Account

     Petitioner had a brokerage account at Dain Rauscher, Inc.

(Dain Rauscher), in 1996, 1997, and 1998 (1996-98).    Predecessor

entities of Dain Rauscher include Everen Clearing Corp., Regional

Operations Group, Interra Clearing Services, and Personal

Retirement Planning Group.    We refer to these predecessor

entities as Dain Rauscher.

     Petitioner held stocks, bonds, and mutual fund shares in her

account in 1996-98.   Her brokers at Dain Rauscher sold stocks,

bonds, and mutual fund shares on her behalf during those years

and reported those sales to respondent on Forms 1099.    Petitioner

paid margin interest to Dain Rauscher totaling $1,738.04 in 1996,

$1,844.25 in 1997, and $3,764.40 in 1998.    Petitioner received

monthly statements from Dain Rauscher during those years that

showed purchases and sales of stocks, bonds, and mutual fund

shares on her behalf, and the proceeds she received from those

sales, as well as interest, dividends, and capital gain

distributions she received.
                                  - 4 -

C.     Respondent’s Examination

       Petitioner did not file Federal income tax returns for 1996-

98.    Respondent began the examination of petitioner’s 1996-98 tax

years after July 22, 1998.    On April 6, 2001, respondent mailed

notices of deficiency to petitioner in which respondent

determined deficiencies and additions to tax for petitioner’s

1996-98 tax years.    Respondent’s determination was based on

information returns received from third-parties reporting that

the following payments had been made to petitioner during the

years in issue:

                                  1996


      Amount              Payor                  Description
      $39,000      Zelesky, Cornelius,        Real estate sales
                   Hallmark, Roper
           26      Zelesky, Cornelius,        Buyer real estate
                   Hallmark, Roper            tax
            1      Everen Clearing Corp.      Stocks/bonds sales
            4      Everen Clearing Corp.      Stocks/bonds sales
       22,769      Regional Operations        Stocks/bonds sales
                   Group
       24,803      Regional Operations        Stocks/bonds sales
                   Group
            8      Income Fund of             Dividends
                   America
        8,214      Regional Operations        Capital gains
                   Group
       10,097      Regional Operations        Dividends
                   Group
                           - 5 -

     2      Washington Mutual          Dividends
            Investors Fund
14,252      Regional Operations        Interest
            Group
    71      Hibernia National          Interest
            Bank
    12      NationsBank of Texas       Interest
 1,361      NationsBank of Texas       Interest


                           1997


Amount             Payor                 Description
$25,000   Interra Clearing Services     Stocks/bonds sales
  8,000   Interra Clearing Services     Stocks/bonds sales
 35,000   Interra Clearing Services     Stocks/bonds sales
 17,106   Interra Clearing Services     Capital gains
 12,265   Interra Clearing Services     Dividends
 12,497   Interra Clearing Services     Interest
    147   Hibernia National Bank        Interest
     40   Hancock Bank                  Interest

                           1998


Amount             Payor                  Description
 $3,500        Dain Rauscher          Stocks/bonds sales
  7,000        Dain Rauscher          Stocks/bonds sales
  2,000        Dain Rauscher          Stocks/bonds sales
  2,000        Dain Rauscher          Stocks/bonds sales
  3,500        Dain Rauscher          Stocks/bonds sales
 10,000        Dain Rauscher          Stocks/bonds sales
                                 - 6 -

     15,000            Dain Rauscher          Stocks/bonds sales
     29,380            Dain Rauscher          Stocks/bonds sales
         5,000         Dain Rauscher          Stocks/bonds sales
     10,000            Dain Rauscher          Stocks/bonds sales
     15,310            Dain Rauscher          Stocks/bonds sales
     25,000            Dain Rauscher          Stocks/bonds sales
           887         Dain Rauscher          Interest
         7,770         Dain Rauscher          Savings bond interest
             4         Hancock Bank           Interest

                                OPINION

A.   Whether Petitioner or Respondent Bears the Burden of Proof

     Petitioner contends that respondent bears the burden of

proof relating to the deficiency because section 7491(a) applies

and because the notices of deficiency were arbitrary and

erroneous for each year in issue.      We disagree for reasons stated

next.

     1.      Whether Respondent Bears the Burden of Proof Under
             Section 7491

     Petitioner contends that respondent bears the burden of

proof under section 7491(a).2    We disagree.


     2
          Sec. 7491 provides in pertinent part:

     SEC. 7491. BURDEN OF PROOF.

          (a) Burden Shifts Where Taxpayer Produces Credible
     Evidence.--

          (1) General Rule.--If, in any court proceeding, a
     taxpayer introduces credible evidence with respect to
                                                   (continued...)
                               - 7 -

     The Commissioner bears the burden of proof under section

7491(a) if, inter alia, the taxpayer has:   (1) Complied with

substantiation requirements under the Internal Revenue Code, sec.

7491(a)(2)(A); (2) maintained all records required by the

Internal Revenue Code, sec. 7491(a)(2)(B); and (3) cooperated

with reasonable requests by the Secretary for information,

documents, and meetings, id.

     Taxpayers bear the burden of proving that these requirements

are met.   H. Conf. Rept. 105-599, at 239 (1998), 1998-3 C.B. 747,

993; S. Rept. 105-174, at 45 (1998), 1998-3 C.B. 537, 581.

Petitioner did not show that she substantiated her deductions,

kept records of her income and expenses, or cooperated with




     2
      (...continued)
     any factual issue relevant to ascertaining the
     liability of the taxpayer for any tax imposed by
     subtitle A or B, the Secretary shall have the burden of
     proof with respect to such issue.

          (2) Limitations.--Paragraph (1) shall apply with
     respect to an issue only if--

                 (A) the taxpayer has complied with the
           requirements under this title to substantiate any
           item;

                (B) the taxpayer has maintained all records
           required under this title and has cooperated with
           reasonable requests by the Secretary for
           witnesses, information, documents, meetings, and
           interviews; * * *.
                                - 8 -

respondent’s agents.    Thus, section 7491(a) does not apply.3

Sec. 7491(a); Rule 142(a)(2).

     2.     Whether the Notices of Deficiency Were Arbitrary

     Petitioner contends that the notices of deficiency are not

entitled to the presumption of correctness, and that respondent

bears the burden of going forward to establish the existence and

amounts of the deficiencies because respondent’s determinations

were arbitrary.    Helvering v. Taylor, 293 U.S. 507 (1935).     We

disagree.

     Petitioner contends that the notices of deficiency were

arbitrary because respondent made several concessions and because

respondent did not establish petitioner’s cost bases in the

securities she sold during the years in issue before sending the

notices of deficiency.    We disagree.   Petitioner did not file

returns for the years in issue.    Respondent reasonably determined

petitioner’s income based on information returns received from

third-parties reporting payments made to petitioner during the

years in issue.    Respondent’s concessions were based on

substantiation provided by petitioner after respondent sent the

notices of deficiency.    Respondent issued the notices of

deficiency without knowing petitioner’s bases in various assets



     3
        For similar reasons, sec. 6201(d) does not place on
respondent the burden of producing evidence to supplement the
information returns. See McQuatters v. Commissioner, T.C. Memo.
1998-88.
                                - 9 -

because she did not file returns for 1996-98.     Respondent’s

determination is not made arbitrary or unreasonable because of

respondent’s failure to have all the facts if the failure is

caused by petitioner.    Roberts v. Commissioner, 62 T.C. 834, 836-

837 (1974).

     Petitioner relies on Portillo v. Commissioner, 932 F.2d 1128

(5th Cir. 1991), affg. and revg. in part and remanding T.C. Memo.

1990-68, and Senter v. Commissioner, T.C. Memo. 1995-311, for the

proposition that respondent’s determination is not presumed to be

correct unless respondent provides some evidence showing that

petitioner received unreported income.    Petitioner’s reliance on

Portillo and Senter is misplaced.    In those cases, the

Commissioner’s determination was held to be arbitrary because the

Commissioner produced no reliable evidence that the taxpayer

received unreported income for the years at issue.     In contrast,

respondent’s determination in the instant case was based on

third-party reports, the accuracy of which petitioner does not

dispute.

     Petitioner contends that respondent’s determination is not

supported by any evidence.    We disagree.   Respondent’s

determination was based on information reports from third-party

payors.    The Commissioner may properly determine a deficiency

based on Forms 1099.    Parker v. Commissioner, 117 F.3d 785, 787

(5th Cir. 1997).    In Parker, the U.S. Court of Appeals for the
                                 - 10 -

Fifth Circuit held that the Commissioner has no duty to

investigate reports by third-party payors that are not disputed

by the taxpayer.   The Parkers did not dispute their receipt of

the payments in question.      Like the taxpayers in Parker,

petitioner failed to file income tax returns and does not deny

that she received unreported income in the years in issue.

     3.     Conclusion as to Burden of Proof

     We conclude that respondent’s determination is presumed to

be correct, and petitioner bears the burden of proof.     Rule

142(a)(1); Parker v. Commissioner, supra.

B.   Whether Petitioner May Deduct Margin Interest

     The parties dispute whether petitioner may deduct margin

interest that she paid to Dain Rauscher totaling $1,738.04 in

1996, $1,844.25 in 1997, and $3,764.40 in 1998.     Respondent

contends that petitioner may not deduct margin interest in the

years in issue because she was an investor and not a trader.

     1.     Whether Petitioner’s Status as an Investor or Trader
            Controls Whether She May Deduct Margin Interest

     Respondent contends that petitioner may not deduct margin

interest in 1996-98 because she is an investor and not a trader,

and thus the margin interest is not properly allocable to a trade

or business.    We disagree that petitioner’s status as an investor

or trader determines whether she may deduct margin interest.

     Generally, an individual taxpayer may not deduct personal

interest.    Sec. 163(h)(1).   However, investment interest is not
                                   - 11 -

personal interest, sec. 163(h)(2)(B), and may be deducted to the

extent of the taxpayer’s net investment income.4      Sec. 163(d).

Investment interest includes interest which is paid or accrued on

indebtedness properly allocable to property held for investment.

Sec. 163(d)(3)(A).

     2.   Whether Margin Interest Is Investment Interest

     Margin interest is interest charged to customers on margin

debt incurred in connection with purchases of stock or

securities.   In re Olympia Brewing Co. Sec. Litig., 612 F. Supp.

1370, 1374 (N.D. Ill. 1985).       Margin interest generally is

investment interest.       See, e.g., Estate of Yeager v.

Commissioner, 889 F.2d 29 (2d Cir. 1989), revg. on another issue,



     4
        Neither party discussed whether petitioner’s margin
interest is deductible under sec. 163(d). Sec. 163(d) provides
in pertinent part:

     SEC. 163(d). Limitations on Investment Interest.–-

          (1) In General.--In the case of a taxpayer other
     than a corporation, the amount allowed as a deduction
     under this chapter for investment interest for any
     taxable year shall not exceed the net investment income
     of the taxpayer for the taxable year.

               *       *       *     *      *    *     *

          (3) Investment Interest.--For purposes of this
     subsection--

          (A) In general.--The term “investment interest”
     means any interest allowable as a deduction under this
     chapter (determined without regard to paragraph (1))
     which is paid or accrued on indebtedness properly
     allocable to property held for investment.
                              - 12 -

affg. in part, and remanding T.C. Memo. 1988-264; Gundotra v.

Commissioner, T.C. Memo. 1995-303, affd. 149 F.3d 1168 (4th Cir.

1998).

     3.   Conclusion

     Petitioner invested in securities in 1996-98.   The margin

interest she paid to Dain Rauscher is investment interest which

she may deduct under section 163(h)(2)(B) for 1996-98 to the

extent of her net investment income for those years.   Sec.

163(d).

C.   Whether Petitioner Is Liable for Additions to Tax for
     1996-98

     1.   Failure To File Returns

     A taxpayer is liable for an addition to tax of up to 25

percent for failure to file a Federal income tax return unless

the failure was due to reasonable cause and not willful neglect.

Sec. 6651(a)(1); United States v. Boyle, 469 U.S. 241, 245

(1985).

     In court proceedings arising in connection with examinations

beginning after July 22, 1998, section 7491(c) places on the

Commissioner the burden of producing evidence showing that it is

appropriate to impose the addition to tax under section

6651(a)(1).   Petitioner did not file returns for 1996-98.    Thus,

respondent has shown that the section 6651(a)(1) addition to tax

applies, unless petitioner proves that her failure to file was
                               - 13 -

due to reasonable cause.    Higbee v. Commissioner, 116 T.C. 438,

446-447 (2001); see Joye v. Commissioner, T.C. Memo. 2002-14.

     Petitioner bears the burden of proving that her failure is

due to reasonable cause and not willful neglect.    See United

States v. Boyle, supra; Higbee v. Commissioner, supra at 447.

Petitioner did not offer evidence showing that she had reasonable

cause for not filing returns for 1996-98 or address this issue on

brief.    A taxpayer may be deemed to concede an issue that was

raised in the petition if he or she makes no argument at trial or

on brief relating to that issue.    Levin v. Commissioner, 87 T.C.

698, 722-723 (1986), affd. 832 F.2d 403 (7th Cir. 1987);

Zimmerman v. Commissioner, 67 T.C. 94, 104 n.7 (1976).      We

conclude that petitioner is liable for the addition to tax under

section 6651(a)(1) for failure to file her 1996-98 income tax

returns.

     2.     Failure To Pay Estimated Tax

     We have jurisdiction to decide whether petitioner is liable

for the addition to tax under section 6654(a) because she did not

file an income tax return for the years in issue.    Sec.

6665(b)(2); see Meyer v. Commissioner, 97 T.C. 555, 562 (1991).

     Respondent determined that petitioner is liable for the

addition to tax under section 6654 for failure to pay estimated

tax for 1996-98.   Petitioner alleged in the petition that she is

not liable for the addition to tax under section 6654(a).
                               - 14 -

     To meet the burden of production under section 7491(c),

respondent must produce evidence showing that it is appropriate

to impose the addition to tax under section 6654 in this case;

i.e., that petitioner underpaid or did not pay estimated tax for

1996-98.   To be liable for the addition to tax under section 6654

for a year in issue, petitioner must have underpaid or failed to

pay estimated tax for that year.    Sec. 6654(a).   To satisfy the

burden of production, respondent must produce evidence showing

that petitioner underpaid or failed to pay estimated tax for each

year in issue.

     Forms 1099 show that Dain Rauscher did not withhold any tax

for petitioner for 1996-98.    This suggests petitioner may have

been required to make estimated tax payments, but it does not

speak to whether she did so.

     Respondent relies on the notices of deficiency as support

for the proposition that petitioner made no estimated tax

payments for 1996-98.   The workpapers attached to the notices of

deficiency for 1996-98 show no tax credits, withholdings, or

estimated tax payments for petitioner for those years.

Calculations attached to a notice of deficiency are not evidence

of the truth of the matters alleged therein.    Blanco v.

Commissioner, 56 T.C. 512, 515 (1971); Fitzner v. Commissioner,

31 T.C. 1252, 1255 (1959); Blundon v. Commissioner, 32 B.T.A.

285, 288-289 (1935).    It is especially appropriate in the context
                              - 15 -

of section 7491(c), which requires respondent to meet the burden

of production, not to treat notices of deficiency as self-

proving.   Respondent produced no other evidence of petitioner’s

tax payment history for 1996-98.5

     We conclude that respondent did not meet the burden of

production under section 7491(c) and therefore hold that

petitioner is not liable for, as to, the addition to tax under

section 6654.   To reflect the foregoing and concessions of the

parties,

                                              Decision will be

                                         entered under Rule 155.




     5
        In contrast, in Patton v. Commissioner, T.C. Memo. 2001-
256, the Commissioner submitted the taxpayer’s Forms W-2, the
taxpayer’s transcript of account listing Forms 1099B, 1099S,
1099DIV, and 1099INT received by the IRS for the years in issue
(which indicated that no Federal income tax was withheld), and
the declaration of the revenue agent made under penalties of
perjury in which he swore that the taxpayer did not pay tax
during the years in issue. We held that the Commissioner met the
burden of production as to the addition to tax under sec. 6654
for failure to pay estimated tax. See also Motley v.
Commissioner, T.C. Memo. 2001-257 (Commissioner produced
transcripts of account and the Appeals officer’s testimony that
the IRS had no record of the taxpayer’s making estimated tax
payments). In accord, Dimon v. Commissioner, T.C. Memo. 2002-105
(the record established that the taxpayers made no estimated tax
payments, except for a nominal amount withheld from wages, for
the year in issue); Howard v. Commissioner, T.C. Memo. 2002-85
(the record established that the taxpayer underpaid the estimated
tax due for the year in issue).
