                           T.C. Memo. 1999-416



                         UNITED STATES TAX COURT



            ROBERT C. AND DIANA J. WATTS, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



       Docket No. 9289-98.                  Filed December 23, 1999.



       Cheryl Frank and Gerald W. Kelly, Jr., for petitioners.

       Elizabeth A. Owen, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION


       COLVIN, Judge:    Respondent determined deficiencies in

petitioners’ Federal income tax and an addition to tax and a

penalty as follows:

                              Addition to tax and penalty
Year        Deficiency       Sec. 6651(a)(1)     Sec. 6662
1994          $3,624             $7,035            $5,628
1995           5,150              2,431             2,567
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     After concessions, the issues for decision are:

     1.    Whether petitioners are liable for additions to tax for

failure to file timely returns under section 6651 for 1994 and

1995.     We hold that they are.

     2.    Whether petitioners are liable for an accuracy-related

penalty for negligence under section 6662 for 1994 and 1995.       We

hold that they are.

     References to petitioner are to Robert C. Watts.     Section

references are to the Internal Revenue Code in effect for the

years at issue.

                           FINDINGS OF FACT

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

A.   Petitioners

     Petitioners lived in San Antonio, Texas, when they filed

their petition.

     Petitioner was an architect, and Mrs. Watts was a teacher

during the years in issue.     Petitioner worked very long hours

during those years.

     Petitioner’s main client was the Church of the Latter Day

Saints.     He frequently traveled in Texas during the years in

issue to oversee the building and renovation of churches.

     Petitioners’ daughter, Kaye, became seriously ill around May

1994.     Petitioner frequently took her to see doctors in 1994 and

1995.     She was briefly hospitalized three times in 1994 and 1995.
                               - 3 -

     Petitioner’s mother had a long illness in 1994 and 1995.

Petitioner frequently took her to doctor’s appointments and

picked up her medications.   He also met with contractors who

repaired her house, and he sold her car.   She was hospitalized

several times in 1995, and petitioner stayed overnight with her

in the hospital once.   Petitioner’s mother died on March 28,

1996.   Petitioner was the executor of his mother’s estate.

     Petitioner’s sister, Lorna Gail (Gail), moved to San Antonio

in 1994 to help him care for their mother.   However, Gail was

seriously injured in a car accident on September 7, 1994, and

could not help petitioner care for their mother.

B.   Petitioners’ 1994 and 1995 Income Tax Returns

     Petitioner kept detailed records of his business receipts

and deductions for 1994 and 1995, his business activities, and

how he spent his time away from the business in 1994 and 1995.

He had records that showed he had gross receipts from his

business of $134,351.21 in 1994.   However, he did not rely on

these records when he prepared his 1994 return.

     Petitioners received a Form 1099-C which showed that they

had cancellation of indebtedness income of $18,067 for 1994.

They did not report this amount in income on their 1994 return.

Petitioners reported income from petitioner’s architectural

services on a Schedule C that they attached to their 1994 return.

On it, petitioners reported gross receipts of $114,351.21 and a
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bad debt of $3,640.   Petitioners had not included the $3,640

amount in income in any prior year.

     Petitioners’ 1994 return was due April 15, 1995.   They

applied for and got an extension to file their 1995 return on

August 15, 1996.   Petitioners filed their 1994 return 14 months

late, on June 19, 1996.   They filed their 1995 return 4 months

late, on December 12, 1996.

     Respondent determined that petitioners had income of

$145,346 for 1994 and $93,680 for 1995 using the bank deposits

method.    Petitioners agreed to all of the adjustments relating to

unreported income and overstated deductions made by respondent,

except for the addition to tax for late filing and the accuracy-

related penalty for negligence.

                               OPINION

A.   Whether Petitioners Had Reasonable Cause for Their Failure
     To File Timely Returns for 1994 and 1995

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

to file a tax return unless the taxpayer shows that the failure

to file is due to reasonable cause and not due to willful

neglect.   See United States v. Boyle, 469 U.S. 241, 245 (1985);

Baldwin v. Commissioner, 84 T.C. 859, 870 (1985).    To prove

reasonable cause, a taxpayer must show that he or she exercised

ordinary business care and prudence but nevertheless could not

file the return when it was due.   See Crocker v. Commissioner, 92

T.C. 899, 913 (1989); sec. 301.6651-1(c)(1), Proced. & Admin.
                                 - 5 -

Regs.

        Petitioners argue that they had reasonable cause to file

their 1994 and 1995 returns late because petitioner’s mother and

petitioners’ daughter had prolonged illnesses in 1994 and 1995,

petitioner’s sister was in a serious car accident in 1994,

petitioner’s mother died in March 1996, and petitioner traveled

extensively for his architectural business.

        Illness or incapacity of a taxpayer or illness of a member

of his or her immediate family may be reasonable cause for late

filing.     See Williams v. Commissioner, 16 T.C. 893, 906 (1951);

Hayes v. Commissioner, T.C. Memo. 1967-80.     However, a taxpayer's

selective inability to perform his or her tax obligations, while

performing their regular business, does not excuse failure to

file.    See Kemmerer v. Commissioner, T.C. Memo. 1993-394; Bear v.

Commissioner, T.C. Memo. 1992-690, affd. 19 F.3d 26 (9th Cir.

1994); Bloch v. Commissioner, T.C. Memo. 1992-1; Fambrough v.

Commissioner, T.C. Memo. 1990-104.

        Petitioners point out that the District Court in In re

Craddock, 184 Bankr. 974 (D. Colo. 1995), revd. 149 F.3d 1249,

1255 (10th Cir. 1998), held that the taxpayers had reasonable

cause for late filing.     However, the U.S. Court of Appeals for

the Tenth Circuit reversed the District Court’s holding in

Craddock on that issue.     See In re Craddock, 149 F.3d at 1255-

1257.     The U.S. Court of Appeals found that the taxpayer’s
                                   - 6 -

reasons for his failure to timely file, such as inability to

assimilate records or information fast enough, an overworked

accounting staff, and computer inefficiencies were not reasonable

cause for not filing.    See id.     In re Craddock does not support

petitioners’ position in this case.

     Petitioners also rely on Tabbi v. Commissioner, T.C. Memo.

1995-463.   We disagree that it is analogous.     Unlike what

occurred in the instant case, the taxpayers in Tabbi were in the

hospital with their son continuously for 4 months (ending in his

death) around the time that their return was due.      In contrast,

neither petitioner’s mother nor petitioners’ daughter was

hospitalized for a prolonged period in 1994 and 1995.      Despite

the fact that petitioner frequently took his mother and daughter

to see doctors, he also performed an extensive amount of

architectural services during the years in issue.      His mother

died on March 28, 1996, but petitioners’ 1995 return was not due

until August 15, 1996.   The fact that he was actively engaged as

an architect suggests that he would have been able to file timely

returns for 1994 and 1995 and therefore that he lacked reasonable

cause for his failure to do so.      See Merriam v. Commissioner,

T.C. Memo. 1995-432 (taxpayer is not excused from filing timely

returns because he is overworked), affd. 107 F.3d 877 (9th Cir.

1997); Fambrough v. Commissioner, supra (although the taxpayer

cared for his sick wife and brother during the years in issue,
                                  - 7 -

his failure to file was not due to reasonable cause because he

continued to perform his daily business operations).       We conclude

that petitioners' failure to file timely was due to willful

neglect and not reasonable cause, and they are therefore liable

for the addition to tax under section 6651.

B.   Whether Petitioners Are Liable for the Accuracy-Related
     Penalty for Negligence for 1994 and 1995

     Taxpayers are liable for a penalty equal to 20 percent

of the part of the underpayment attributable to negligence or

disregard of rules or regulations.        See sec. 6662(a) and (b)(1).

Negligence includes failure to make a reasonable attempt to

comply with the provisions of the internal revenue laws or to

exercise ordinary and reasonable care in the preparation of a

tax return.   See sec. 6662(c).

     Petitioners contend that they are not liable for the

negligence penalty because two of the adjustments made by

respondent, that is, the cancellation of indebtedness and

Schedule C bad debt issues, were technical in nature.

Petitioners contend that petitioner’s errors on their returns

were due to reasonable cause and not negligence because he was

preoccupied with his mother’s and daughter’s health problems and

his business travel.   Petitioners also contend that respondent’s

use of the bank deposit method to determine petitioner’s business

gross receipts was not an accurate way to determine income.

Finally, petitioners contend that the fact that petitioner did
                                - 8 -

not rely on his business records does not mean that he

negligently prepared petitioners’ 1994 and 1995 returns.      We

disagree.

     Petitioners’ claim that they were not negligent because the

cancellation of indebtedness issue was technical is belied by the

fact that they received a Form 1099-C for 1994 reporting the

cancellation of indebtedness income, yet they did not report the

income or disclose on their 1994 return that they received the

Form 1099-C.    Similarly, petitioners cannot plead ignorance to

the requirements for claiming bad debts since they availed

themselves of its benefits.    They did not consult an accountant.

Petitioners’ claim that they were not negligent because

respondent’s bank deposits method is inaccurate misses the mark

since petitioners agreed to all of respondent’s adjustments to

gross income.

     Petitioners point out that the taxpayers in Tudyman v.

Commissioner, T.C. Memo. 1996-215; Heasley v. Commissioner, 902

F.2d 380 (5th Cir. 1990), revg. T.C. Memo. 1988-408; and Streber

v. Commissioner, 138 F.3d 216 (5th Cir. 1998), revg. T.C. Memo.

1995-601, were found not liable for negligence.    We disagree that

these cases are analogous to the instant case.    In Tudyman, the

taxpayer made a reasonable attempt to estimate her loss from an

earthquake by relying on an appraiser’s estimates.    Here,

petitioners did not rely on the advice of an accountant or other
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tax professional.

     In Heasley, the U.S. Court of Appeals for the Fifth Circuit

held that the unsophisticated taxpayers in that case were not

required independently to investigate investment opportunities.

Heasley v. Commissioner, supra at 383-384.   The court’s holding

does not support petitioners’ claim that they were not negligent

because, in the instant case, respondent’s adjustments were to

petitioners’ unreported income and overstated deductions.

     Finally, Streber does not support petitioners’ claim.     In

that case, the taxpayers relied on the advice of their attorney

in treating joint venture income as a gift from their father.

The U.S. Court of Appeals for the Fifth Circuit held that the

taxpayers acted with reasonable care because of their youth and

inexperience in business matters and the fact that they relied on

their attorney.   See Streber v. Commissioner, supra at 222.    In

contrast, petitioners did not rely on an attorney and did not

show that they were unsophisticated in business matters.

     As stated above, petitioners did not have reasonable cause

for their failure to file timely their 1994 and 1995 returns.       We
                             - 10 -

further conclude that petitioners are liable for the negligence

penalty for 1994 and 1995.

     To reflect the foregoing,


                                        Decision will be entered

                                   for respondent.
