                  T.C. Summary Opinion 2009-159



                     UNITED STATES TAX COURT



              GREGORY PAUL GRUNSTED, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 15654-08S.            Filed October 14, 2009.



     Gregory Paul Grunsted, pro se.

     Melissa J. Hedtke, for respondent.



     PANUTHOS, Chief Special Trial Judge:   This case was heard

pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect when the petition was filed.   Pursuant to

section 7463(b), the decision to be entered is not reviewable by

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

precedent for any other case.   Unless otherwise indicated,
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subsequent section references are to the Internal Revenue Code in

effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.

     Respondent determined a deficiency of $20,347 in

petitioner’s 2004 Federal income tax and additions to tax under

sections 6651(a)(1) and (2) and 6654(a).    The parties agree that

the deficiency in petitioner’s 2004 Federal income tax is

$12,638.   Therefore, the issue remaining for decision is whether

petitioner is liable for the additions to tax.

                             Background

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

The stipulation of facts and the exhibits received into evidence

are incorporated herein by reference.     For convenience, the Court

includes some of the facts in the discussion portion of the

opinion.   When the petition was filed, petitioner resided in

Minnesota.

     Petitioner failed to file a Federal income tax return,

failed to pay his Federal income tax, and failed to pay his

estimated tax for 2004.    Respondent, from third-party payor

reports, determined that petitioner received and failed to report

various income items.     Respondent prepared a substitute for

return (SFR) for petitioner in December 2007.    The SFR reflects

that respondent determined total income of $72,120 and that

respondent allowed petitioner an adjustment to income of
                                - 3 -

$4,324.50, a personal exemption of $3,100, and a standard

deduction of $4,850 for net taxable income of $59,845.50.

Respondent computed an income tax of $11,698 and a self-

employment tax of $8,649 for a net tax of $20,347.      Respondent

further determined additions to tax for failure to file, failure

to pay, and failure to pay estimated tax.

     In March 2008 respondent sent petitioner a notice of

deficiency reflecting the aforementioned adjustments.

Thereafter, petitioner submitted a 2004 Form 1040, U.S.

Individual Income Tax Return, to respondent on December 2, 2008.1

On the Form 1040 petitioner reported some income items, claimed

certain deductions, and reported an income tax liability of

$6,281 but no self-employment tax.      As indicated, the parties

agree as to the amount of the deficiency, and the only dispute is

whether petitioner is liable for the additions to tax.

                             Discussion

     Initially, the Commissioner has the burden of production

with respect to any penalty, addition to tax, or additional

amount.   Sec. 7491(c).   The Commissioner satisfies this burden of

production by coming forward with sufficient evidence that

indicates that it is appropriate to impose the penalty.      See

Higbee v. Commissioner, 116 T.C. 438, 446 (2001).      Once the

Commissioner satisfies this burden of production, the taxpayer


     1
      Respondent has not accepted the 2004 Form 1040 as filed.
                               - 4 -

must persuade the Court that the Commissioner’s determination is

in error by supplying sufficient evidence of an applicable

exception.   Id.

I.   Section 6651(a)(1) Addition to Tax

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

file a return on the date prescribed (determined with regard to

any extension of time for filing) unless the taxpayer can

establish that the failure is due to reasonable cause and not due

to willful neglect.2   The section 6651(a)(1) addition to tax is

equal to 5 percent of the amount of tax required to be shown on

the return if the failure is not for more than 1 month, with an

additional 5 percent to be added for each month or partial month

during which the failure to file continues, not to exceed 25

percent in the aggregate.

      Petitioner was required to file his 2004 Form 1040 by April

15, 2005, because his gross income for 2004 exceeded his filing

threshold and respondent had not granted him an extension of time

to file.   See secs. 6012(a)(1)(A)(i), 6072(a), 6081(a); Rev.

Proc. 2003-85, sec. 3.10(1), 3.16(1), 2003-2 C.B. 1184, 1188.

Petitioner did not do so.   Respondent has produced sufficient



      2
      If the Secretary makes a return for the taxpayer under sec.
6020(b), it is disregarded for purposes of determining the amount
of the addition to tax under sec. 6651(a)(1), but it is treated
as a return filed by the taxpayer for purposes of determining the
amount of the addition to tax under sec. 6651(a)(2). Sec.
6651(g).
                                - 5 -

evidence that petitioner is liable for the section 6651(a)(1)

addition to tax unless an exception applies.   See Higbee v.

Commissioner, supra at 446; Ruggeri v. Commissioner, T.C. Memo.

2008-300.

II.   Section 6651(a)(2) Addition to Tax

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

pay the amount shown as tax on the taxpayer’s return on or before

the date prescribed (determined with regard to any extension of

time for payment) unless the taxpayer can establish that the

failure is due to reasonable cause and not due to willful

neglect.    The section 6651(a)(2) addition to tax is equal to 0.5

percent of the amount of tax required to be shown on the return

if the failure is not for more than 1 month, with an additional

0.5 percent to be added for each month or partial month during

which the failure to pay continues, not to exceed 25 percent in

the aggregate.3

      Respondent submitted a copy of the SFR that he prepared for

petitioner, and petitioner did not pay his 2004 Federal income

tax as shown on the SFR by April 15, 2005.   See Wheeler v.

Commissioner, 127 T.C. 200, 208-209 (2006), affd. 521 F.3d 1289

(10th Cir. 2008); Hawkins v. Commissioner, T.C. Memo. 2008-168.



      3
      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 to which an addition to tax applies under both
paragraphs. Sec. 6651(c)(1).
                                - 6 -

Respondent has produced sufficient evidence that petitioner is

liable for the section 6651(a)(2) addition to tax through

December 2007 unless an exception applies.    See Higbee v.

Commissioner, supra at 446; Ruggeri v. Commissioner, supra.

III.    Exceptions to the Section 6651(a)(1) and (2) Additions to
        Tax

       Reasonable cause is a defense to the section 6651(a)(1) and

(2) additions to tax.    To prove reasonable cause for a failure to

file timely, the taxpayer must show that he/she exercised

ordinary business care and prudence and was nevertheless unable

to file the return within the prescribed time.    Crocker v.

Commissioner, 92 T.C. 899, 913 (1989); sec. 301.6651-1(c)(1),

Proced. & Admin. Regs.    To prove reasonable cause for a failure

to pay the amount shown as tax on a return, the taxpayer must

show that he/she exercised ordinary business care and prudence in

providing for payment of his/her tax liability and nevertheless

was either unable to pay the tax or would suffer undue hardship

if he/she paid the tax on the due date.    Sec. 301.6651-1(c)(1),

Proced. & Admin. Regs.    In determining whether the taxpayer was

unable to pay the tax in spite of the exercise of ordinary

business care and prudence, consideration will be given to all of

the facts and circumstances of the taxpayer’s financial

situation, including the amount and nature of the taxpayer’s

expenditures in view of the income (or other amounts) he/she

could at the time of the expenditures reasonably expect to
                                 - 7 -

receive before the date prescribed for the payment of the tax.

See id.

     From 1990 through 2004 petitioner was working to build his

business at an investment banking firm (firm).     He testified

about strife at the firm because of “internal politicking”, “a

dysfunctional board of directors”, the “shenanigans” of

management, “negative repercussions” from its mergers, and the

effects of its weak capital structure and its releasing of stock

before payment that caused it to “implode”.     Also, the September

2001 terrorist attacks occurred, which had a negative impact on

the financial services industry.    Petitioner also indicated that

his father had a heart attack in 2003 and subsequently died.

According to petitioner, he was just “bumping” along, but he

decided to “grind” it out because he believed things would

improve.   Petitioner found new employment late in 2002, but his

income was reduced by 40 percent.    He did not realize that he was

depressed.   While petitioner attempted to get back into his

routine in 2004, he did not make estimated tax payments.

     The Court recognizes that petitioner had some difficult work

and personal circumstances during the year in issue.     The Court

concludes, however, that these circumstances do not give rise to

a reasonable cause defense.   When asked by the Court whether

petitioner was on medication or getting medical treatment for

depression, he merely replied:    “Coffee”.   Petitioner remained
                               - 8 -

gainfully employed during 2004, and there is no evidence that he

was not employed through April 2005.    The Court has consistently

held that if a taxpayer is able to continue his/her business

affairs despite an illness or incapacity, then the illness or

incapacity does not establish reasonable cause.    Ruggeri v.

Commissioner, T.C. Memo. 2008-300 (and cases cited therein);

Hazel v. Commissioner, T.C. Memo. 2008-134; Jordan v.

Commissioner, T.C. Memo. 2005-266 (and cases cited therein).

Similarly, the Court has also held that a taxpayer’s selective

incapacity or inability to meet his/her tax obligations when

he/she can conduct normal business activities does not establish

reasonable cause.   Jordan v. Commissioner, supra; Wright v.

Commissioner, T.C. Memo. 1998-224, affd. without published

opinion 173 F.3d 848 (2d Cir. 1999); Tabbi v. Commissioner, T.C.

Memo. 1995-463.   Consequently, respondent’s determinations are

sustained.

IV.   Section 6654(a) Addition to Tax

      Section 6654(a) imposes an addition to tax on an

underpayment of estimated income tax unless an exception applies.

The section 6654(a) addition to tax is determined by applying the

underpayment rate established under section 6621 to the amount of

the underpayment4 for the period of the underpayment.5   The


      4
      “[A]mount of the underpayment” means the excess of the
required installment over the amount, if any, of the installment
                                                   (continued...)
                                 - 9 -

addition to tax is also calculated with reference to four

required installment payments.    Sec. 6654(c)(1); Wheeler v.

Commissioner, 127 T.C. at 210.    Each required installment of

estimated income tax is equal to 25 percent of the required

annual payment.   Sec. 6654(d)(1)(A).    The required annual payment

is generally equal to the lesser of:     (1) 90 percent of the tax

shown on the taxpayer’s return for the year (or 90 percent of the

taxpayer’s tax for the year if no return is filed); or (2) 100

percent of the tax shown on the return if the taxpayer filed a

return for the immediately preceding taxable year.    Sec.

6654(d)(1)(B); Wheeler v. Commissioner, supra at 210-211.

     Petitioner was required to file his 2004 Form 1040 by April

15, 2005, but he did not do so.    In addition, the parties

submitted a copy of petitioner’s 2003 Form 1040, and they agree

that petitioner did not make any estimated income tax payments

for 2004.   Respondent has produced sufficient evidence that




     4
      (...continued)
paid on or before the due date for the installment.    Sec.
6654(b)(1).
     5
      The period of the underpayment runs from the due date for
the installment to the earlier of the 15th day of the 4th month
following the close of the taxable year or with respect to any
portion of the underpayment, the date on which such portion is
paid. Sec. 6654(b)(2).
                               - 10 -

petitioner is liable for the section 6654(a) addition to tax

unless an exception applies.

V.   Exceptions to the Section 6654(a) Addition to Tax

      Generally, no reasonable cause exception exists for the

section 6654(a) addition to tax.    Sec. 1.6654-1(a)(1), Income Tax

Regs.; see also Bray v. Commissioner, T.C. Memo. 2008-113.      But

no addition to tax is imposed under section 6654(a) with respect

to any underpayment if the Secretary determines that the taxpayer

became disabled6 in either the taxable year for which estimated

income tax payments were required or in the preceding taxable

year and the underpayment was due to reasonable cause and not

willful neglect.   Sec. 6654(e)(3)(B).   Additionally, no addition

to tax is imposed under section 6654(a) with respect to any

underpayment to the extent the Secretary determines that by

reason of casualty, disaster, or other unusual circumstances the

imposition of the addition to tax would be against equity or good

conscience.   Sec. 6654(e)(3)(A).




      6
      The term “disabled” includes a significant psychiatric
disorder and mental incapacitation during the period under
consideration, Shaffer v. Commissioner, T.C. Memo. 1994-618, or
confinement to various hospitals for “severe mental illness”,
Carnahan v. Commissioner, T.C. Memo. 1994-163, affd. without
published opinion 70 F.3d 637 (D.C. Cir. 1995); see also Jones v.
Commissioner, T.C. Memo. 2006-176; Meyer v. Commissioner, T.C.
Memo. 2003-12 (taxpayer’s severe health problems and mental
condition incapacitated him; thus, a sec. 6654(e) exception was
applicable). In addition, the disability may constitute
reasonable cause. Jones v. Commissioner, supra.
                               - 11 -

     Petitioner has not established a disability within the

meaning of section 6654(e)(3)(B).    He also has not established a

casualty, a disaster, or other unusual circumstances for which

the imposition of the section 6654(a) addition to tax would be

against equity or good conscience.      Consequently, respondent’s

determination is sustained.7

     To reflect the foregoing,


                                            Decision will be entered

                                     under Rule 155.




     7
      As indicated, the parties have agreed that the deficiency
for 2004 is $12,638. The Court leaves it to the parties to
compute the additions to tax based upon this deficiency.
