                                  T.C. Memo. 2013-230



                            UNITED STATES TAX COURT



                   SAMUEL KORNHAUSER, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 2120-12.                            Filed September 30, 2013.


      Samuel Kornhauser, pro se.

      Timothy A. Froehle, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION


      HAINES, Judge: Respondent determined a $110,1841 deficiency in

petitioner’s Federal income tax for 2008. Respondent also determined additions to

tax for 2008 of $24,509, $15,250, and $3,531 under sections 6651(a)(1) and (2)2

      1
          All amounts are rounded to the nearest dollar.
      2
          Unless otherwise indicated, all section references are to the Internal
                                                                           (continued...)
                                         -2-

[*2] and 6654, respectively. After concessions,3 there are four issues for decision.

The first issue is whether petitioner had certain unreported income. We hold he

did. The second issue is whether petitioner is entitled to any deduction or credit

beyond those allowed in the deficiency notice. We hold he is not. The third issue

is whether petitioner is liable under section 6651(a)(1) for the addition to tax for

failure to timely file a tax return. We hold he is. The final issue is whether

petitioner is liable for the addition to tax for failure to pay estimated tax under

section 6654. We hold he is.

                                FINDINGS OF FACT

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

attached to the stipulations which were found admissible are incorporated by this

reference. Petitioner resided in California when the petition was filed.

      Petitioner is a practicing attorney and is admitted to practice before this

Court. Petitioner did not file a Federal income tax return for 2007. Petitioner

failed to timely file a Federal income tax return for 2008. Petitioner made one


      2
       (...continued)
Revenue Code (Code), as amended and in effect for the years in issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
      3
        Respondent concedes that petitioner is not liable for the $15,250 addition
to tax under sec. 6651(a)(2) for failing to pay income tax for 2008. The remaining
issues are computational and need not be addressed.
                                         -3-

[*3] estimated tax payment of $1,000 and had total tax withholding of $254 for

2008. Respondent prepared a substitute for return (2008 substitute return) on

petitioner’s behalf for 2008. Thereafter respondent sent petitioner a deficiency

notice for 2008, determining petitioner received and failed to report several items

of income.

      After the deficiency notice was issued, petitioner sent respondent a signed

Form 1040, U.S. Individual Income Tax Return, for 2008 (2008 submitted return).

Respondent received but did not process the 2008 submitted return. On the 2008

submitted return petitioner reported receiving all of the unreported income items

in the deficiency notice in amounts equal to or greater than the amounts

respondent determined. Petitioner also claimed various deductions and credits on

the 2008 submitted return.

      In April 2012 respondent received petitioner’s income tax return for 2010.

Petitioner reported a loss on the Schedule C, Profit or Loss From Business,

attached to the return. Petitioner did not attach to his 2010 tax return a separate

statement with a calculation of any claimed net operating loss (NOL). Similarly,

petitioner did not attach a separate statement regarding any claimed NOL to the

2008 submitted return.
                                         -4-

[*4] Petitioner filed a petition with this Court challenging respondent’s

determinations in the deficiency notice. The Court issued the parties a standing

pretrial order under Rule 131(b). That order in pertinent part states:

      It is ordered that any documents or material which a party expects to
      use except solely for impeachment, if the case is tried, but which are
      not stipulated, shall be identified in writing and exchanged by the
      parties at least 14 days before the first day of the trial session. The
      Court may refuse to receive in evidence any document or material
      that is not so stipulated or exchanged, unless the parties have agreed
      otherwise or the Court so allows for good cause shown.

      At trial petitioner proffered exhibits marked Exhibit 7-P and Exhibit 8-P

(collectively, proffered exhibits) for admission into evidence. The proffered

exhibits purportedly contained documents and records substantiating certain

deductions and credits, including an NOL carryback, petitioner claimed he was

entitled to for 2008. Respondent objected to the proffered exhibits on the ground

that petitioner had failed to provide him with the documents and records included

in the proffered exhibits at least 14 days before trial as required by the standing

pretrial order. The Court sustained respondent’s objection to the proffered

exhibits. Thereafter the Court allowed petitioner to make offers of proof with

respect to the proffered exhibits. The Court rejected petitioner’s offers of proof

and again sustained respondent’s objection to the proffered exhibits.
                                       -5-

[*5]                                OPINION

I. Unreported Income

       Respondent determined petitioner failed to report various items of income

for 2008. A taxpayer generally bears the burden of proving the Commissioner’s

determinations incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933). The U.S. Court of Appeals for the Ninth Circuit, to which this case is

appealable absent a stipulation to the contrary, has held that the Commissioner

must establish “some evidentiary foundation” connecting the taxpayer with the

income-producing activity, or otherwise demonstrate that the taxpayer received

unreported income, for the presumption of correctness to attach to the deficiency

determination in unreported income cases. Weimerskirch v. Commissioner, 596

F.2d 358, 361-362 (9th Cir. 1979), rev’g 67 T.C. 672 (1977). If the Commissioner

introduces such evidence demonstrating that the taxpayer received unreported

income, the burden shifts to the taxpayer to show by a preponderance of the

evidence that the deficiency determination was arbitrary or erroneous. See Hardy

v. Commissioner, 181 F.3d 1002, 1004 (9th Cir. 1999), aff’g T.C. Memo. 1997-97.

       Statements made on a tax return signed by the taxpayer are considered

binding admissions unless there is “cogent evidence” that indicates such

statements are wrong. Pratt v. Commissioner, T.C. Memo. 2002-279, slip op. at
                                        -6-

[*6] 13 (citing Waring v. Commissioner, 412 F.2d 800, 801 (3d Cir. 1969), aff’g

T.C. Memo. 1968-126); Rankin v. Commissioner, T.C. Memo. 1996-350, slip op.

at 21, aff’d, 138 F.3d 1286 (9th Cir. 1998).

      Petitioner signed the 2008 submitted return under the penalties of perjury.

On the 2008 submitted return petitioner admitted receiving all of the items of

income on the deficiency notice in amounts equal to or greater than those

respondent determined. We find that respondent has established a “minimal

evidentiary foundation” through petitioner’s binding admissions to receiving the

unreported income on the 2008 submitted return. Respondent having met his

initial burden of production, the burden shifts to petitioner to prove the deficiency

determination incorrect. See Rule 142(a); Welch v. Helvering, 290 U.S. 111.

      Petitioner has never argued or asserted that the income he reported on the

2008 submitted return is incorrect. Rather, he disputes the overall tax liability

because it fails to take into account certain deductions and credits to which he

contends he is entitled for 2008. Accordingly, we sustain respondent’s

determinations with respect to all the unreported income items in the deficiency

notice for 2008.
                                         -7-

[*7] II. Entitlement to Deductions or Credits for 2008

      Petitioner claims he is entitled to certain deductions and credits claimed on

the 2008 submitted return and an NOL carryback (from 2010) for 2008.

Deductions and credits are strictly a matter of legislative grace, and taxpayers must

satisfy the specific requirements for any deduction or credit claimed. See

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co.

v. Helvering, 292 U.S. 435, 440 (1934); Segel v. Commissioner, 89 T.C. 816, 842

(1987). Taxpayers bear the burden of substantiating the amount and purpose of

any claimed deduction or credit by maintaining the records needed to establish

such entitlement. See sec. 6001; Hradesky v. Commissioner, 65 T.C. 87 (1975),

aff’d, 540 F.2d 821 (5th Cir. 1976). A taxpayer’s self-serving declaration is

generally not a sufficient substitute for records. Weiss v. Commissioner, T.C.

Memo. 1999-17.

      Section 7491(a)(1) provides that, subject to certain limitations, where a

taxpayer introduces credible evidence with respect to a factual issue relevant to

ascertaining the taxpayer’s tax liability, the burden of proof shifts to the

Commissioner with respect to that issue. Credible evidence is evidence the Court

would find sufficient upon which to base a decision on the issue in favor of the

taxpayer if no contrary evidence were submitted. Ruckriegel v. Commissioner,
                                       -8-

[*8] T.C. Memo. 2006-78. We have previously found unsupported assertions or

testimony insufficient to constitute credible evidence under section 7491. See

Bauer v. Commissioner, T.C. Memo. 2012-156; Doudney v. Commissioner, T.C.

Memo. 2005-267; Kolbeck v. Commissioner, T.C. Memo. 2005-253; Davis v.

Commissioner, T.C. Memo. 2005-160; Evan v. Commissioner, T.C. Memo. 2004-

180; see also Blodgett v. Commissioner, 394 F.3d 1030, 1036 (8th Cir. 2008),

aff’g T.C. Memo. 2003-212; Heger v. United States, 103 Fed. Cl. 261, 266-267

(2012).

      Section 7491(a)(1) applies only if the taxpayer complies with the relevant

substantiation requirements in the Internal Revenue Code, maintains all required

records, and cooperates with the Commissioner with respect to witnesses,

information, documents, meetings, and interviews. Sec. 7491(a)(2)(A) and (B).

The taxpayer bears the burden of proving compliance with the conditions of

section 7491(a)(2)(A) and (B). See, e.g., Ruckriegel v. Commissioner, T.C.

Memo. 2006-78.

      Petitioner argues the burden of proof shifted to respondent under section

7491 because he provided credible evidence as to his entitlement to the deductions

and credits claimed on the 2008 submitted return and as to his entitlement to an

NOL carryback deduction for 2008. The credible evidence petitioner contends he
                                         -9-

[*9] offered is his testimony as well as the documents and records contained in the

proffered exhibits. Contrary to petitioner’s assertion, the proffered exhibits and

his testimony did not constitute credible evidence. The proffered exhibits did not

constitute credible evidence as the Court excluded them from evidence for

petitioner’s failure to provide them to respondent at least 14 days before trial as

required under the standing pretrial order.4

      Petitioner’s testimony concerning his entitlement to the relevant deductions

and credits did not constitute credible evidence either. It is well established that

this Court is not bound to accept a taxpayer’s self-serving and unverified

      4
       Materials not provided in compliance with the Court’s standing pretrial
order may be excluded from evidence. Moretti v. Commissioner, 77 F.3d 637, 644
(2d Cir. 1996) (affirming a Tax Court ruling excluding from evidence documents
from a pro se taxpayer not produced in compliance with the standing pretrial order
and stating: “[T]he Tax Court acted within its discretion in excluding the
documents.”); Gaitor v. Commissioner, T.C. Memo. 2012-297; Griffin v.
Commissioner, T.C. Memo. 2010- 252, slip op. at 24-25; Kanofsky v.
Commissioner, T.C. Memo. 2006-79, slip op. at 8-9, aff’d, 271 Fed. Appx. 146
(3d Cir. 2008); Schaefer v. Commissioner, T.C. Memo. 1998-163, slip op. at
14-15, aff’d without published opinion, 188 F.3d 514 (9th Cir. 1999); see also
Rules 104(c)(2), 123(b), 131(b).

       The rationale behind this 14-day exchange rule is to allow the opposing
party to develop any challenge to the evidence or otherwise rebut or deal with it.
Dunn v. Commissioner, T.C. Memo. 1988-45. Additionally, the rule prevents an
“ambush” with last-minute evidence that could have been presented to the
opposing party during preparation for trial. Id. Moreover, timely exchanging of
documents allows the parties to consider resolving some or even all of the issues
in a case without the need for trial.
                                        - 10 -

[*10] testimony. See Tokarski v. Commissioner, 87 T.C. 74, 77 (1986); Hradesky

v. Commissioner, 65 T.C. 87. We found petitioner’s testimony to be self-serving

and uncorroborated and do not accept it. Even if we did accept petitioner’s

testimony, it would not constitute credible evidence that would shift the burden to

respondent under section 7491. This is because we find petitioner’s testimony

lacked specificity and was wholly insufficient to base a decision in his favor as to

any deduction or credit he contends he is entitled to for 2008. Further, we find

petitioner failed to show that he complied with the relevant substantiation

requirements for any deductions or credits for 2008, maintained all required

records, and sufficiently cooperated with respondent as required under section

7491(a)(2)(A) and (B). Accordingly, the burden of proof with respect to the

deductions and credits claimed on the 2008 submitted return and the NOL

carryback deduction to which claims he is entitled remains with petitioner.

      Petitioner failed to offer sufficient evidence to demonstrate his entitlement

to any deduction (including an NOL carryback deduction from 2010) or credit for

2008 in any amount. We thus sustain respondent’s deficiency determination in the

deficiency notice.
                                        - 11 -

[*11] III. Additions to Tax

      Respondent determined petitioner was liable for an addition to tax under

section 6651(a)(1). That section imposes an addition to tax for failure to file a

return on the date prescribed unless the taxpayer can establish the failure is due to

reasonable cause and not due to willful neglect. To prove reasonable cause for a

failure to timely file, the taxpayer must show he 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. The determination of whether reasonable cause exists is

based on all the facts and circumstances. Estate of Hartsell v. Commissioner, T.C.

Memo. 2004-211; Merriam v. Commissioner, T.C. Memo. 1995-432, aff’d without

published opinion, 107 F.3d 877 (9th Cir. 1997).

      Petitioner failed to timely file his Form 1040 for 2008. Therefore,

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

section 6651(a)(1) addition to tax has been satisfied. Petitioner has never argued

nor has he demonstrated that he exercised the ordinary business care and prudence

that would qualify him for relief from the section 6651(a)(1) addition to tax.

Consequently, petitioner has not met his burden of persuasion, and respondent’s

determination is sustained.
                                          - 12 -

[*12] The final issue we consider is respondent’s determination that petitioner is

liable for addition to tax under section 6654. That section imposes an addition to

tax “in the case of any underpayment of estimated tax by an individual.” A

taxpayer has an obligation to pay estimated tax for a particular year only if he has

a “required annual payment” for that year. Sec. 6654(d). A required annual

payment generally is equal to the lesser of: (i) 90% of the tax shown on the return

for the taxable year (or, if no return is filed, 90% of the tax for the year); or (ii)

100% of the tax shown on the return of the individual for the preceding taxable

year. Sec. 6654(d)(1)(B); Wheeler v. Commissioner, 127 T.C. 200, 210-211

(2006), aff’d, 521 F.3d 1289 (10th Cir. 2008); Heers v. Commissioner, T.C.

Memo. 2007-10. If the taxpayer did not file a return for the preceding year, then

clause (ii) does not apply. Sec. 6654(d)(1)(B). Unless a statutory exception

applies, the section 6654(a) addition to tax is mandatory. Sec. 6654(a), (e);

Recklitis v. Commissioner, 91 T.C. 874, 913 (1988). Section 6654 does not

provide a general exception for reasonable cause or absence of willful neglect.

Grosshandler v. Commissioner, 75 T.C. 1, 21 (1980).

      Respondent’s burden of production under section 7491(c) requires him to

produce evidence that petitioner had a required annual payment for 2008. Because

petitioner did not file a Federal income tax return for 2007, his annual required
                                      - 13 -

[*13] payment for 2008 is equal to 90% of the tax for 2008. Respondent has

satisfied his burden of production by introducing evidence that petitioner made

only one estimated tax payment of $1,000, which is insufficient to cover 90% of

petitioner’s income tax liability for 2008. See Higbee v. Commissioner, 116 T.C.

438, 446 (2001).

      Petitioner neither argued nor established any of the defenses enumerated in

section 6654(e). Consequently, petitioner has not met his burden of persuasion,

and respondent’s determinations are sustained. See United States v. Rylander, 460

U.S. 752, 758 (1983); Traficant v. Commissioner, 89 T.C. 501, 504 (1987), aff’d,

884 F.2d 258 (6th Cir. 1989).

      In reaching our holdings herein, we have considered all arguments made,

and, to the extent not mentioned above, we conclude they are moot, irrelevant, or

without merit.
                            - 14 -

To reflect the foregoing,

                                           Decision as to the addition to

                                     tax under section 6651(a)(2)will be

                                     entered for petitioner to reflect

                                     respondent’s concession; in all other

                                     respects, decision will be entered for

                                     respondent.
