                        T.C. Memo. 2005-212



                      UNITED STATES TAX COURT



                 CHAY R. STEWART, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10829-04.             Filed September 12, 2005.


     Chay R. Stewart, pro se.

     Lorraine D. Masano and Francis C. Mucciolo, for respondent.


             MEMORANDUM FINDINGS OF FACT AND OPINION


     COLVIN, Judge:   Respondent determined deficiencies in

petitioner’s income tax of $53,524 for 2000 and $81,458 for 2001

and that petitioner is liable for additions to tax for failure to

file under section 6651(a)(1) of $13,381 for 2000 and $20,364.50

for 2001 and for failure to pay estimated tax under section 6654

of $2,858.96 for 2000 and $3,255.36 for 2001.

     The issues for decision are:
                                - 2 -

       1.   Whether respondent’s determination of petitioner’s

income tax deficiencies for 2000 and 2001 is valid.    We hold that

it is.

       2.   Whether petitioner was denied equal protection and due

process of law because respondent failed to allow business

expense deductions based on statistical information.    We hold

that he was not.

       3.   Whether petitioner is liable for additions to tax for

failure to file under section 6651(a) and for failure to pay

estimated tax under section 6654(a).    We hold that he is.

       4.   Whether petitioner is liable for a penalty under

section 6673 for instituting proceedings primarily for delay and

for maintaining frivolous or groundless positions.    We hold that

he is not.

       Section references are to the Internal Revenue Code.

                          FINDINGS OF FACT

       The parties submitted this case fully stipulated under Rule

122.

A.     Petitioner

       Petitioner lived in Ormond Beach, Florida, when he filed his

petition.    In 2000 and 2001, petitioner sold insurance and

financial products for which he received commissions.    He

received the following payments:
                               - 3 -

                                                      Type of
Payor                       2000          2001        payment
Midland Natl. Life        $129,829      $221,795    commissions
Ins. Co.

Lifeusa Ins. Co.            17,812                  commissions

Financial Brokerage,         8,646         3,008    commissions
Inc.

Fidelity & Guaranty                        1,050    commissions
Life Ins.

American Equity Inv.                       6,017    commissions
Life Ins

Charles Schwab & Co.           541            96    interest

Commercial Bank of
Volusia County                 682           481    interest
                          $157,510      $232,447

     Petitioner filed no Federal income tax returns and made no

estimated tax payments for 2000 and 2001.    No Federal income tax

was withheld from his income for 2000 and 2001.

B.   Respondent’s Determination

     In the notice of deficiency, respondent determined that

petitioner had received but failed to report self-employment

income from commissions in the amounts of $156,287 in 2000 and

$231,870 in 2001 and interest income in the amounts of $1,223 in

2000 and $577 in 2001.   Respondent determined that petitioner’s

filing status was single and that he was entitled to claim the

standard deduction and one exemption.    Respondent determined that

petitioner was liable for additions to tax for failure to file
                                  - 4 -

under section 6651(a)(1) and failure to pay estimated tax under

section 6654.

                              OPINION

A.   Whether Respondent’s Determination of Petitioner’s
     Deficiencies in Income Tax for 2000 and 2001 Is Valid

     Petitioner contends that respondent prepared only “dummy

returns”1 for 2000 and 2001, and that respondent’s determination

of his deficiencies in income tax for 2000 and 2001 is invalid

because respondent did not prepare for each year a substitute

return that qualified under section 6020(b).2   We disagree.

     Petitioner’s contention that the Commissioner must file a

substitute for return under section 6020(b) before determining a



     1
        A “dummy return” is generated to open an account for the
taxpayer on the master file and normally consists of a first page
of a Form 1040, U.S. Individual Income Tax Return, which contains
a taxpayer's name, address, and Social Security number. Internal
Revenue Manual, Chief Counsel Directives Manual-Tax Litigation,
sec. 35.4.27.2 (Nov. 16, 1999); see Spurlock v. Commissioner,
T.C. Memo. 2003-124 n.18.
     2
         Sec. 6020(b) provides:

     SEC. 6020(b). Execution of Return by Secretary.--

          (1) Authority of Secretary to execute return.--If
     any person fails to make any return required by any
     internal revenue law or regulation made thereunder at
     the time prescribed therefor, or makes, willfully or
     otherwise, a false or fraudulent return, the Secretary
     shall make such return from his own knowledge and from
     such information as he can obtain through testimony or
     otherwise.

          (2) Status of returns.--Any return so made and
     subscribed by the Secretary shall be prima facie good
     and sufficient for all legal purposes.
                                 - 5 -

deficiency is frivolous.     Schiff v. United States, 919 F.2d 830,

832-833 (2d Cir. 1990).

      The Commissioner need not prepare a substitute for return

under section 6020(b) in order to determine a deficiency for a

taxpayer who has not filed a return for that year.     Roat v.

Commissioner, 847 F.2d 1379, 1381 (9th Cir. 1988); Hartman v.

Commissioner, 65 T.C. 542, 545 (1975); Burnett v. Commissioner,

T.C. Memo. 2002-181, affd. without published opinion 67 Fed.

Appx. 248 (5th Cir. 2003).    Where a taxpayer files no return,

respondent may determine the deficiency as if a return had been

filed on which the taxpayer reported the amount of tax due was

zero; the deficiency is the amount of tax due.     Laing v. United

States, 423 U.S. 161, 174 (1976); Schiff v. United States, supra;

Roat v. Commissioner, supra.

B.   Whether Petitioner Was Denied Equal Protection and Due
     Process of Law Because Respondent Failed To Allow Business
     Expense Deductions Based on Statistical Information for His
     Industry

     Petitioner contends that he was denied equal protection and

due process of law because respondent failed to allow business

expense deductions based on statistical information for his

insurance and financial products industry.    We disagree.

     A taxpayer may deduct all ordinary and necessary expenses

paid or incurred in carrying on a trade or business.    Sec.

162(a).   Taxpayers are required to maintain records that

sufficiently establish the amount of claimed deductions.     Sec.
                               - 6 -

6001; sec. 1.6001-1(a), Income Tax Regs.     Petitioner bears the

burden of proof.   Rule 142(a).3

     If a taxpayer establishes that he or she paid a deductible

expense but cannot substantiate the precise amount, we may

estimate the amount of the deductible expense.        Cohan v.

Commissioner, 39 F.2d 540, 544 (2d Cir. 1930); Vanicek v.

Commissioner, 85 T.C. 731, 742-743 (1985).     The taxpayer must

present credible evidence that provides a rational basis for our

estimate.   Vanicek v. Commissioner, supra.    We may estimate the

taxpayer’s expenses bearing heavily against the taxpayer whose

“inexactitude is of his own making.”     Cohan v. Commissioner,

supra; Maciel v. Commissioner, T.C. Memo. 2004-28.

     Petitioner asks us to estimate the amount of his business

expense deductions under Cohan and contends that he is entitled

to deductions based on statistical information for the insurance

and financial products industries.     We disagree.     Cohan does not

apply because petitioner did not present evidence (statisticial

or otherwise) that he incurred deductible expenses greater than

the amount of the standard deduction allowed by respondent.

Thus, we have no basis to estimate the amount of his deductible

expenses.




     3
        Petitioner does not contend that the burden of proof
shifts to respondent under sec. 7491(a).
                               - 7 -

     Citing Brenner v. Commissioner, T.C. Memo. 2004-202,

petitioner contends that respondent routinely allows more than 50

percent of a taxpayer’s gross compensation for business expenses

for a taxpayer in petitioner’s business and location.     We

disagree.   Like petitioner, the taxpayer in Brenner v.

Commissioner, supra, was in the insurance business and lived in

Ormond Beach, Florida, when he filed his petition.   The

Commissioner used the bank deposits method to reconstruct his

income.   The Commissioner allowed the taxpayer to deduct

estimated insurance business expenses equal to 54.77 percent of

his commissions based on the Statistics of Labor Bulletin, Sole

Proprietorship Returns, 1994, Table 2.--Nonfarm Sole

Proprietorships: Income Statements, by Selected Groups: Insurance

agents and brokers (statistics for insurance agents).

     The Commissioner’s allowance of business expenses based on

Bureau of Labor Statistics figures in Brenner does not establish

that respondent routinely allows a business deduction based on

statistics or industry averages or that respondent is required to

use them.   Our responsibility as a Court is to apply the law to

the facts of the case before us; how the Commissioner treated

other taxpayers is generally irrelevant in making that

determination, Davis v. Commissioner, 65 T.C. 1014, 1022 (1976);

Teichgraeber v. Commissioner, 64 T.C. 453, 456 (1975), absent

proof that a taxpayer has been singled out for adverse treatment
                                 - 8 -

based on impermissible considerations such as race, religion, or

other arbitrary classification, and absent contractual agreements

to the contrary, Estate of Campion v. Commissioner, 110 T.C. 165,

170 (1998), affd. without published opinion sub nom. Drake Oil

Tech. Partners v. Commissioner, 211 F.3d 1277 (10th Cir. 2000),

and Tucek v. Commissioner, 198 F.3d 259 (10th Cir. 1999); Norfolk

S. Corp. v. Commissioner, 104 T.C. 13, 58-59, supplemented by 104

T.C. 417 (1995), affd. 140 F.3d 240 (4th Cir. 1998); Davis v.

Commissioner, supra.

       We conclude that petitioner is not entitled to business

deductions based on statistical information and that he was not

denied equal protection or due process of law because respondent

did not allow such deductions.

C.     Additions to Tax

       Section 7491(c) places on the Commissioner the burden of

producing evidence that it is appropriate to impose additions to

tax.    To meet that burden, the Commissioner must produce evidence

showing that it is appropriate to impose the particular addition

to tax, but the Commissioner need not produce evidence relating

to defenses such as reasonable cause or substantial authority.

Higbee v. Commissioner, 116 T.C. 438, 446 (2001); H. Conf. Rept.

105-599, at 241 (1998), 1998-3 C.B. at 995.    Respondent has met

the burden of production under section 7491(c) with respect to

the addition to tax for failure (1) to file under section
                                 - 9 -

6651(a)(1) because the record shows that petitioner was required

to file but has not filed a return for 2000 and 2001; and (2) to

make estimated tax payments under section 6654(a) because the

record shows that he did not make estimated tax payments with

respect to his tax liability for 2000 or 2001.

     Petitioner offers no defense to the additions to tax

determined by respondent.   We conclude that he is liable for the

additions to tax for failure to file under section 6651(a)(1) of

$13,381 for 2000 and $20,364.50 for 2001 and for failure to pay

estimated tax under section 6654(a) of $2,858.96 for 2000 and

$3,255.36 for 2001.

D.   Whether Petitioner Is Liable for a Penalty Under Section
     6673

     Respondent alleges for the first time on brief that

petitioner is liable for a penalty under section 6673 because he

made only frivolous arguments.    Petitioner contends that he is

not liable for a penalty under section 6673 because (1) his

arguments are supported by a reasoned argument for a change in

case authority, and (2) the majority of cases hold that the

Commissioner cannot determine a deficiency for a year for which

the taxpayer did not file a return.

     The Court may impose a penalty of up to $25,000 if the

position or positions asserted by the taxpayer in the case are

frivolous or groundless or the proceedings were instituted

primarily for delay.   Sec. 6673(a)(1)(B).   A position maintained
                              - 10 -

by the taxpayer is frivolous if it is contrary to established law

and is not supported by a reasoned, colorable argument for change

in the law.   Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir.

1986); Gilligan v. Commissioner, T.C. Memo. 2004-194.

     Petitioner’s contention that the Commissioner cannot

determine a deficiency for a year for which a taxpayer did not

file a return is frivolous.   Scruggs v. Commissioner, T.C. Memo.

1995-355, affd. without published opinion 117 F.3d 1433 (11th

Cir. 1997); Zyglis v. Commissioner, T.C. Memo. 1993-341, affd.

without published opinion 29 F.3d 620 (2d Cir. 1994).

     However, not all of petitioner’s arguments are frivolous.

For example, petitioner contended in his pretrial memorandum that

respondent is required to reduce petitioner’s gross receipts by

the average business expense for the insurance industry.

Petitioner pointed out that in Brenner v. Commissioner, T.C.

Memo. 2004-202, the Commissioner allowed as a business expense

deduction 54.77 percent of the gross receipts of a nonfiling

taxpayer from Ormond Beach, Florida, who sold insurance and

financial products.

     We do not impose a penalty under section 6673 because not

all of petitioner’s arguments are frivolous.   However, we warn

petitioner that the Court may impose this penalty in the future

if he makes frivolous arguments or institutes proceedings

primarily for delay.

     To reflect the foregoing,
- 11 -


             Decision will be

         entered for respondent.
