                  T.C. Summary Opinion 2006-166



                     UNITED STATES TAX COURT



               STEVEN BRUCE HUNTLEY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 16676-03S.                Filed October 16, 2006.


     Steven Bruce Huntley, pro se.

     Kathleen Raup, 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.    The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.    Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year at issue.
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     Respondent determined a deficiency of $5,259 in petitioner’s

2000 Federal income tax, and additions to tax of $232.87 and

$119.02 pursuant to section 6651(a)(1) and (2), respectively.

     After concessions1, there are three issues for decision: (1)

Whether petitioner is entitled to a deduction stemming from a

brokerage account he held with Kristian Capital Management, Inc.;

(2) whether petitioner is entitled to a deduction stemming from

his employment with Howard Systems, Inc.; and (3) whether

petitioner is liable for an addition to tax pursuant to section

6651(a)(1).

                             Background

     The evidence in this case consists of oral stipulations

agreed upon at trial and documented evidence received at trial.2

The stipulation of facts and the attached exhibits are

incorporated herein by reference.

     At the time the petition was filed, petitioner resided in

Upper Darby, Pennsylvania.




     1
       Respondent has conceded the issue as to addition to tax
pursuant to sec. 6651(a)(2).
     2
       Respondent contacted petitioner no less than nine times
between March 1, 2004, and November 1, 2005, each time requesting
that petitioner stipulate the facts of the case. When no
stipulation of facts was agreed upon by the date of the trial,
the Court took oral stipulations from the parties and received
into evidence documentation that detailed the parties’
agreements.
                               - 3 -

     During the taxable year 2000, petitioner received wages,

unemployment compensation, and a distribution from an individual

retirement account (IRA) totaling $34,025.   Petitioner does not

contest that he received these amounts or that they are

includable in his gross income.   However, at trial, petitioner

raised the issue of his entitlement to two loss deductions.

     On October 8, 2000, petitioner filed articles of

incorporation with the secretary of the Commonwealth of

Pennsylvania for Huntley Quality Assurance, Inc. (HQA).   In

September 2000, HQA entered into a general Contractor agreement

with Howard Systems International, Inc. (Howard Systems, Inc.),

for petitioner to provide software support services at Wyeth-

Aryst Pharmaceutical from September 25, 2000, through March 25,

2001.   Petitioner worked at Wyeth-Aryst Pharmaceutical from

September 24 through October 8, 2001, for a total of 59.5 hours

at $80 an hour.

     Petitioner did not timely file his 2000 Federal income tax

return.   Respondent prepared a substitute return calculating

petitioner’s tax liability for 2000.   Respondent issued a notice

of deficiency based upon amounts reported as paid to him by

payors, using the filing status of married filing separately.     In

his calculation, respondent allowed the standard deduction of

$3,675 and a personal exemption allowance of $2,800.
                                - 4 -

        As of the date of trial, petitioner had not filed his 2000

Federal income tax return.    A trial occurred on November 5, 2005.

                              Discussion

       The Commissioner’s determinations are presumed correct, and

taxpayers generally bear the burden of proving otherwise.       Welch

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

however, places the burden of proof on the Commissioner with

respect to certain factual issues.      Specifically, section

7491(a)(1) provides that if, in any court proceeding, the

taxpayer introduces credible evidence with respect to factual

issues relevant to ascertaining the taxpayer’s liability, the

burden of proof with respect to such factual issues will be

placed on the Commissioner.    However, the taxpayer must comply

with the substantiation and record-keeping requirements of the

Internal Revenue Code.    See sec. 7491(a)(2)(A) and (B).    For

reasons discussed herein, we hold that petitioner did not meet

the requirements of section 7491(a)(2).

       With respect to the addition to tax under section

6651(a)(1), the Commissioner bears the burden of production;

i.e., evidence that it is appropriate to apply the addition to

tax.    Sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446-447

(2001).    If the Commissioner meets the burden of production, the

taxpayer bears the burden of establishing that his failure to
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file and pay is due to reasonable cause and not willful neglect.

Higbee v. Commissioner, supra at 447.    For reasons discussed

herein, we hold that respondent has met his burden of production

with respect to the section 6651(a)(1) addition to tax.

Characterization of Purported Losses

     Petitioner argues that he is entitled to itemized deductions

for a loss sustained as a result of embezzlement of a brokerage

account he held with Kristian Capital Management and a loss

stemming from the termination of his employment at Wyeth-Aryst

Pharmaceutical.

Kristian Capital Management Brokerage Account

     Section 165(g)(1) provides that a loss resulting from a

capital asset that becomes worthless during the taxable year

shall be treated as a loss from the sale or exchange of that

asset as of the last day of the taxable year.   Petitioner claimed

that he sustained such a loss from the “embezzlement” of a

brokerage account he held with Kristian Capital Management.

     To substantiate his claim, petitioner offered three

documents into evidence:   A partial copy of a letter sent to him

from First American Discount Corporation, and two copies of Web

pages.   The first letter showed that petitioner held a brokerage

account with Kristian Capital Management through the First

American Discount Corporation.    The second document, a copy of a
                              - 6 -

Web page, revealed that the First American Discount Corporation

had withdrawn as a member of the Chicago Board of Trade.    The

third document, also a copy of a Web page, indicated that

Kristian Capital Management either withdrew or had rescinded its

membership in the National Futures Association, an independent,

regulatory organization for the futures industry.   Petitioner

provided no evidence, however, of his basis in the Kristian

Capital Management account, that embezzlement of his funds

occurred, or of the amount of his purported loss.   Therefore, we

cannot conclude that a loss occurred.   Accordingly, we hold that

petitioner is not entitled to a loss deduction attributable to

his brokerage account with Kristian Capital Management.

Employment With Wyeth-Aryst Pharmaceutical

     Petitioner testified that he was dismissed from his

consulting job at Wyeth-Aryst Pharmaceutical because he was

“ethically opposed” to the work assigned to him, and that company

officials barred him from reentering his office to retrieve his

personal effects.

     Section 165(a) provides a theft loss deduction in the

taxable year in which the taxpayer discovers the loss.    The basis

for determining the amount of the deduction for any loss is the

lesser of the fair market value or the adjusted basis of the

property prescribed by section 1011.    Secs. 1.165-7(b)(1), 1.165-
                                - 7 -

8(c), Income Tax Regs.    The amount of the loss deduction is

limited to the extent the loss exceeds $100 and the net casualty

loss exceeds 10 percent of the taxpayer’s adjusted gross income.

See sec. 165(h).

     In calculating petitioner’s tax liability for 2000,

respondent did not allow petitioner a loss deduction for personal

effects he claimed that he was prohibited from retrieving.

Respondent argues that petitioner is not entitled to a theft loss

deduction under section 165(a) because he did not substantiate

either his basis in the property or that the property was

involuntarily converted.

     Petitioner testified that the items at issue included a used

laptop computer, some antique fountain pens, and a framed

photograph of his wife.    Petitioner further testified that to

compensate him for the loss of these items, Howard Systems, Inc.

drew up a “consultant invoice” for 16.5 hours of work at the rate

of $80/hour.   Howard Systems, Inc. then issued a check to

petitioner for $1,320.    Petitioner argues that he is entitled to

deduct this amount because it was actually a theft reimbursement.

     First, petitioner provided no credible evidence that he was

barred from the Wyeth-Pharmaceutical premises, nor did he

substantiate his basis in the property allegedly taken from him

as a result of his termination.    Petitioner did not provide any
                               - 8 -

receipt for his laptop computer, although he testified that it

was a recent purchase.   He did not produce any receipts or

documentation regarding the value of the antique pens, although

he testified he was very familiar with these types of pens from

having restored them.

     Second, Howard Systems, Inc., prepared an invoice for 16.5

hours of work and attached to the invoice a timesheet reporting 8

hours worked on Monday, October 1, 2000, and 8.5 hours worked on

Tuesday, October 2, 2000.   While we believe petitioner’s

testimony that the signature on the timesheet is likely not his,

it does not change our finding that this invoice is not proof of

either the fair market value of or his basis in the articles

purportedly taken from him.

     Finally, the record contains a copy of a canceled check for

$1,320 that cleared the Howard Systems, Inc., account on October

20, 2000.   We find it highly unlikely that Howard Systems, Inc.,

would pay petitioner for items that were allegedly converted from

him less than 1 month earlier and that could have easily been

retrieved from Wyeth-Pharmaceutical and sent to him.   We are even

more incredulous that Howard Systems, Inc. would reimburse

petitioner without his having proved to them the value of or his

basis in the items.   Certainly if petitioner had provided such

evidence to Howard Systems, Inc., he could have provided the same
                                - 9 -

information to the Court.    He did not.   For all of the foregoing

reasons, we conclude that petitioner is not entitled to a

deduction in the amount of $1,320 for a theft loss.3

Section 6651(a)(1) Addition to Tax

     As of the time of trial, petitioner had not filed his 2000

Federal income tax return.    Petitioner testified that he gave his

2000 return to a U.S. Postal Service employee at the 30th Street

Post Office Station in Philadelphia, Pennsylvania, on the evening

of April 15, 2001.   Respondent’s records, however, indicate that

petitioner requested an extension to file until August 15, 2001,

and to date, petitioner has not filed his return.

     On the instant record, we find that petitioner has failed to

satisfy his burden of proving that his failure to file timely his

return for 2000 was due to reasonable cause and not willful

neglect.   Sec. 6651(a).   Accordingly, we sustain respondent's

determination imposing the addition to tax under section

6651(a)(1) for taxable year 2000.




     3
        Even if we did allow the petitioner a theft loss
deduction of $1,320, petitioner’s standard deduction for 2000
would be greater than the loss allowed. Accordingly, it is of no
tax consequence to petitioner that we sustain respondent on this
issue.
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    Reviewed and adopted as the report of the Small Tax Case

Division.


                                       Decision will be entered

                                  for respondent as to the

                                  amount of the deficiency

                                  and the section 6651(a)(1)

                                  addition to tax.
