                                 T.C. Memo. 2015-205



                            UNITED STATES TAX COURT



                     WILLIAM F. POPPE, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 23124-12.                             Filed October 19, 2015.



      Kamelia K. Poppe, for petitioner.

      Jane J. Kim, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION


      LARO, Judge: Petitioner petitioned the Court to redetermine respondent’s

determination of a deficiency in his Federal income tax for the 2007 tax year and

additions thereto under sections 6651(a)(1)1 and (2) and 6654.


      1
          Unless otherwise indicated, section references are to the Internal Revenue
                                                                          (continued...)
                                        -2-

[*2] On March 23, 2015, the parties filed a stipulation of settled issues which

resolved most issues raised in the notice of deficiency issued on June 21, 2012.2

Respondent conceded that there is no issue of previously unreported dividend or

interest income before the Court. The remaining issues before the Court are as

follows:

      1. whether petitioner is entitled to use the mark-to-market accounting

method under section 475(f) for the 2007 tax year to report his securities and

trading activity on the basis of an election petitioner purportedly made on April

15, 2003. We hold he is not;

      2. whether petitioner is liable for additions to tax under sections 6651(a)(1)

and (2) and 6654 where he claims he failed to file his Federal income tax returns



      1
        (...continued)
Code (Code) applicable to the relevant years, and Rule references are to the Tax
Court Rules of Practice and Procedure. Dollar amounts are rounded to the nearest
dollar.
      2
        Specifically, the parties stipulated that for tax year 2007: (1) petitioner’s
adjusted gross income should not be increased by $450,000 in IRA distributions
and petitioner’s tax is not increased by 10% of a premature distribution; (2)
petitioner is entitled to a capital loss deduction of $3,000; (3) petitioner received
$1,792 of taxable interest and $474 of tax-exempt interest; (4) petitioner received
$45 of ordinary dividends and $244 of qualified dividends; (5) petitioner received
$3,000 in nonemployee compensation from Z Seven Fund, c/o Gemini Fund
Services, LLC; (6) petitioner is entitled to a withholding credit of $578; and (7)
petitioner is entitled to a standard deduction for one individual of $5,350.
                                        -3-

[*3] timely because he suffered from an autistic spectrum disorder (ASD)

previously known as Asperger’s Syndrome. We hold he is.

                              FINDINGS OF FACT

      The facts set forth below are based on the pleadings and other pertinent

materials of the record. Some of the facts have been stipulated. The stipulations

of fact and the facts drawn from stipulated exhibits are incorporated herein, and

we find those facts accordingly. Petitioner resided in New York when the petition

was timely filed on September 17, 2012. Absent a stipulation to the contrary, an

appeal of this case would lie in the Court of Appeals for the Second Circuit.

      Petitioner graduated from the U.S. Merchant Marine Academy in 1980 with

a double major in marine engineering and nautical science and received a third

assistant engineer’s license and a third mate’s license from the U.S. Coast Guard.

Petitioner worked as a stock broker from 1983 to 1991 and was a registered and

licensed securities representative. In 1996 petitioner received a master’s degree in

computer science from Hofstra University.

      From 2001 to 2006 petitioner worked as a high school mathematics teacher

in New York City. To help support himself and his family, from 2002 through

2006 petitioner conducted trades through a personal trading account with Fidelity
                                         -4-

[*4] Investments (Fidelity). Petitioner used his personal funds for trading.3

During the school year, petitioner traded every day during the two free school

periods and devoted substantial time--four to five hours a day--to researching his

trades. Petitioner testified that some of his trades were short-term trades for

options with monthly expiration and some of the trades were stocks. Although

petitioner occasionally received dividends on stocks he traded, those dividends

were incidental. Petitioner claims his intent was to make short-term trading

profits. Petitioner testified he executed about 60 trades per month.

      In 2003 on the advice of his accountant, petitioner intended to file a section

475(f) mark-to-market election. Petitioner, however, did not retain a signed copy

of any election or any evidence of mailing it. Petitioner filed his Federal income

tax return for the tax year 2003 on July 25, 2005. The 2003 tax return contained a

statement that petitioner had made an election pursuant to section 475(f), but did

not have a copy of Form 3115, Application for Change in Accounting Method,

attached to it. Out of the $370,235 gross income reported on the 2003 tax return,

$38,462 came from wages, $162,530 from interest, $11,207 from dividends

received, $15,758 from capital gains, and $142,278 from business income from

      3
        The Fidelity account had approximately $1.2 million in personal funds, but
petitioner confirmed he rarely used all of that money for trading. A portion of the
account was just earning interest.
                                        -5-

[*5] securities trading reported on Schedule C, Profit or Loss From Business.

Petitioner indicated on the tax return that his occupation for 2003 was teacher.

      Beginning in October 2006 petitioner became a full-time trader associated

with Madison Proprietary Trading Group, LLC (MPTG).4 MPTG provided

petitioner with access to a Goldman Sachs Execution and Clearing (GSEC)

account and an office space to conduct his trades. During 2007 petitioner traded

daily on business days, excluding two business days in May 2007. Petitioner had

over 400 trades per month, excluding May 2007, for which he had a total of 373.

The year 2007 GSEC statements show that petitioner’s totals for 2007 were

$95,743,282.27 in securities purchased and $85,979,146.40 in securities sold, with

P&L bookings by Cusip5 as of December 31, 2007, showing a loss of $1,086,790.

The parties stipulated that all transactions and capital in the GSEC account

belonged to petitioner.




      4
         Petitioner was deemed a “Class B Member” of MPTG according to the side
letter issued to petitioner sometime in September 2006.
      5
       The parties stipulated that P&L bookings by Cusip is the yearend
calculation showing realized and unrealized gains and losses. It is standard for
Goldman Sachs account statements and is used to clear or reset the account for the
new year.
                                         -6-

[*6] In 2012 respondent prepared and filed a substitute for petitioner’s 2007

Federal income tax return and on June 21, 2012, issued a notice of deficiency

which forms the basis of this case.

      On April 15, 2013, petitioner filed a 2007 tax return. Petitioner also

subsequently submitted an amended 2007 tax return with a signature date of April

15, 2014. On the 2007 tax return, petitioner reported a loss of $1,182,487 on a

Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc., allegedly filed

on his behalf by MPTG. The Schedule K-1 was attached to the 2007 tax return.

Respondent cross-checked MPTG’s tax year 2007 Form 1065, U.S. Return of

Partnership Income, which included Schedules K-1 for its partners. MPTG’s 2007

return did not include a Schedule K-1 for petitioner. Respondent also checked the

tax year 2007 Form 1065 for MT Trading, LLC, a second-tier partnership of

MPTG, and it also had no Schedule K-1 for petitioner. In the amended 2007 tax

return, petitioner corrected amounts of short-term and long-term capital gains and

losses and included a statement to the effect that under section 475(f) he is entitled

to the mark-to-market accounting method and plans to carry forward the losses

incurred in 2007.

      At all relevant times, petitioner suffered from an ASD previously known as

Asperger’s Syndrome. Until 2003 petitioner filed his tax returns timely with the
                                        -7-

[*7] assistance of his wife. In 2002 and 2003 petitioner retained a certified public

accountant to assist him with tax matters. Petitioner understood he had a duty to

file tax returns but claims that in 2007 he was “despondent” because of the losses

he suffered and could not organize himself to file a tax return timely.

                                     OPINION

I.    Eligibility for the Mark-to-Market Treatment of the 2007 Loss

      A.     Background

      Petitioner claims that in 2003 he made an election under section 475(f)

allowing him to use the mark-to-market method of accounting, and so a loss he

sustained in 2007 should be treated as a net operating loss. This treatment would

allow petitioner to shield from taxation some prior and future trading gains.

Respondent argues that the 2007 trading loss is not entitled to the mark-to-market

treatment because petitioner failed to meet the requirements for a valid election

under section 475(f).

      In general, section 475(f)(1) provides that a taxpayer engaged in a trade or

business as a trader in securities may elect to apply the mark-to-market method of

accounting to securities held in connection with such trade or business. The mark-

to-market method allows a trader in securities to recognize gain or loss on any

security held in connection with the trade or business at the close of the taxable
                                         -8-

[*8] year as if the security were sold for its fair market value at the end of the year.

Sec. 475(f)(1)(A)(i); Knish v. Commissioner, T.C. Memo. 2006-268; Chen v.

Commissioner, T.C. Memo. 2004-132.

      The gains or losses attributable to the securities covered by the mark-to-

market provisions are treated as ordinary income or loss. See sec. 475(f)(1)(D),

(d)(3). If a taxpayer is entitled to make and timely makes an election under section

475(f), any net loss from the business of trading in securities will be an ordinary

loss deductible in full under section 165(c)(1). If the election is not made, any net

loss is deductible only to the extent of any capital gains plus $3,000. See secs.

165(a), (c), (f), 1211(b)(1). Rev. Proc. 99-17, 1999-1 C.B. 503, provides a

procedure for making an election under section 475(f). Once the election is made,

use of the mark-to-market method continues for all subsequent taxable years

unless the election is revoked with the consent of the Commissioner. Rev. Proc.

99-17, sec. 4, 1999-1 C.B. at 504.

      B.     Burden of Proof

      Petitioner argues that the burden of proof should be shifted to respondent

under section 7491(a) because petitioner produced credible evidence and satisfied

the requirements of section 7491(a)(2) with respect to the issue of whether
                                         -9-

[*9] petitioner is entitled to use the mark-to-market accounting method for his

2007 trading loss.

      Generally, the Commissioner’s determinations are presumed correct, and the

taxpayer bears the burden of proving that those determinations are erroneous.

Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933). Under section

7491(a)(1), the burden of proof shifts to the Commissioner, subject to certain

limitations, where a taxpayer introduces credible evidence with respect to a factual

issue relevant to ascertaining the taxpayer’s tax liability if the taxpayer introduces

credible evidence regarding the issue. See Ashley v. Commissioner, T.C. Memo.

2000-376.

      Section 7491(a)(1) applies with respect to a factual issue only if the

requirements of section 7491(a)(2) are satisfied. Section 7491(a)(2) requires that a

taxpayer maintain all records required by the Code and cooperate with reasonable

requests by the Secretary for witnesses, information, documents, meetings, and

interviews.

      Petitioner raised the issue of eligibility of the 2007 loss for the mark-to-

market treatment in his amended petition filed after the trial. Petitioner cooperated

with respondent to resolve the issues raised in the notice of deficiency. However,

he filed his 2007 tax return many years after it was due and did not retain the
                                         - 10 -

[*10] records relating to the alleged mark-to-market election. Respondent argues

that when the only evidence available to the Court is petitioner’s self-serving

testimony, that evidence does not meet the credibility standard set out in section

7491(a)(1). We agree with respondent. Because petitioner failed to keep adequate

records and did not file a tax return until after the notice of deficiency was issued

to him, the burden of proof is on petitioner with respect to eligibility, the

effectiveness of the mark-to-market election, and the 2007 loss treatment.

      C.     Petitioner’s Entitlement To Make a Mark-to-Market Election in 2003

      The first issue we consider to determine whether petitioner is entitled to use

the mark-to-market accounting method in 2007 is whether petitioner was entitled

to make a mark-to-market election in 2003. Section 475 identifies being a trader

in securities as a prerequisite to filing the mark-to-market election.

      The Code does not define the term “trade or business”. Commissioner v.

Groetzinger, 480 U.S. 23, 27 (1987); Estate of Yaeger v. Commissioner, 889 F.2d

29, 33 (2d Cir. 1989), aff’g in part, rev’g and remanding in part T.C. Memo. 1988-

264. Whether a taxpayer’s securities activities during the years in issue

constituted a trade or business is a question of fact. Higgins v. Commissioner, 312

U.S. 212, 217 (1941); Estate of Yaeger v. Commissioner, 889 F.2d at 33; Paoli v.

Commissioner, T.C. Memo. 1991-351.
                                        - 11 -

[*11] In determining whether a taxpayer in a securities activity is engaged in a

trade or business, courts have distinguished between “traders”, who are in a trade

or business, and “investors”, who are not. Mayer v. Commissioner, T.C. Memo.

1994-209 (citing Moller v. United States, 721 F.2d 810, 813 (Fed. Cir. 1983)).

Management of securities investments, whatever the extent and scope of such

activity, is seen as the work of a mere investor, “not the trade or business of a

trader.” Id. (quoting Estate of Yaeger v. Commissioner, 889 F.2d at 34); see also

Whipple v. Commissioner, 373 U.S. 193, 202 (1963); Higgins v. Commissioner,

312 U.S. at 217; Paoli v. Commissioner, T.C. Memo. 1991-351. This result is the

same notwithstanding the amount of time the individual devotes to the activity.

Mayer v. Commissioner, T.C. Memo. 1994-209. Even “full-time market activity

in managing and preserving one’s own estate is not embraced within the phrase

‘carrying on a business,’ and * * * salaries and other expenses incident to the

operation are not deductible as having been paid or incurred in a trade or

business.” Commissioner v. Groetzinger, 480 U.S. at 30; Mayer v. Commissioner,

T.C. Memo. 1994-209. Instead, an investor’s expenses are deductible under

section 212 as incurred in the production of income.

      In determining whether a taxpayer who manages his own investments is a

trader, nonexclusive factors to consider are (1) the taxpayer’s investment intent,
                                        - 12 -

[*12] (2) the nature of the income to be derived from the activity, and (3) the

frequency, extent, and regularity of the taxpayer’s securities transactions. Moller,

721 F.2d at 813. Thus, a taxpayer’s activities constitute the trade or business of

trading only where both of the following are true: (1) the taxpayer’s trading is

substantial and (2) the taxpayer seeks to catch the swings in the daily market

movements and to profit from these short-term changes, rather than to profit from

the long-term holding of investments. Mayer v. Commissioner, T.C. Memo. 1994-

209.

       As to the first requirement, “substantial” means frequent, regular, and

continuous enough to constitute a trade or business. Holsinger v. Commissioner,

T.C. Memo. 2008-191. Sporadic trading does not constitute a trade or business.

Commissioner v. Groetzinger, 480 U.S. at 35; Mayer v. Commissioner, T.C.

Memo. 1994-209. The number of trades executed in a year and the amount of

money traded are helpful in determining whether a taxpayer’s trading activity was

“substantial”. Holsinger v. Commissioner, T.C. Memo. 2008-191.

       As to the second requirement, a trader’s activities must seek profit from

short-term market swings, unlike those of an investor who seeks capital

appreciation and income and who is usually not concerned with short-term market

developments that would influence prices on the daily market. Paoli v.
                                        - 13 -

[*13] Commissioner, T.C. Memo. 1991-351. Courts also look at whether the

taxpayer’s securities income is principally derived from frequent sales of

securities, rather than from dividends, interest, or long-term appreciation. Moller,

721 F.2d at 813; King v. Commissioner, 89 T.C. 445, 458-489 (1987); Liang v.

Commissioner, 23 T.C. 1040, 1043 (1955); Mayer v. Commissioner, T.C. Memo.

1994-209.

      Petitioner meets the first prong of the two-part test outlined above. In 2003

petitioner executed about 60 trades each month, for a total of approximately 720

trades per year. Petitioner’s trading was not sporadic. Petitioner testified that he

devoted a significant amount of time to the trading activities during the school

year--four to five hours every trading day--and always traded on the last hour of

the day, when there is a lot of activity on the market. During the summer,

petitioner spent 10 to 12 hours a day on his trading activities. Petitioner had prior

experience as a stock broker. Petitioner also had a substantial amount of trading

activity in 2002, which prompted him to think of making a mark-to-market

election under section 475(f) for 2003. We find petitioner’s trading was

sufficiently frequent, regular, and continuous to constitute a trade or business.

      As to the second prong of the test, petitioner testified that his intent with

respect to trading in 2003 was to profit from short-term market swings.
                                        - 14 -

[*14] Petitioner’s testimony during the trial was organized and coherent, providing

sufficient details on petitioner’s trading strategy. We find persuasive petitioner’s

testimony on the issue of intent.

      In addition to petitioner’s intent, we look to the two fundamental criteria

that distinguish traders from investors: the length of the holding period of the

securities and the source of the profit. Estate of Yaeger v. Commissioner, 889

F.2d at 33; Mayer v. Commissioner, T.C. Memo. 1994-209. Petitioner testified

that his trading consisted largely of short-term stocks and monthly options, with a

holding period of less than one month in a margin account funded with his own

money. Petitioner’s 2003 tax return shows that only 10.4% of his gross income

came from his teaching wages while 38.4% came from trading in securities.

Another 43.8% of petitioner’s income in 2003 came from interest income, and

approximately 8% came from dividends and long-term capital gains. We note,

however, that the high percentage of interest income is unusual for petitioner, as in

the prior and following years petitioner reported significantly lower interest

income numbers.6 Thus, it is not indicative of whether petitioner was a trader or


      6
        The large amount of interest income reported in 2003 is only partially
attributable to the money petitioner held in the Fidelity trading account. Over 50%
of the interest income is attributable to payments from Jonathan C. Poppe, likely
petitioner’s relative.
                                        - 15 -

[*15] an investor in 2003. When petitioner’s income from trading activities was

almost four times more than his wages from teaching--his primary occupation in

2003--there is very little doubt that petitioner met the second prong of the test.

Thus, we conclude that petitioner was a trader in securities in 2003 and was

entitled to make an election under section 475(f) for a mark-to-market accounting

method.

      D.     Election Under Section 475(f)

      The second issue we consider is whether petitioner made a proper election

under section 475(f) in 2003.

      A securities trader electing under section 475(f) to use the mark-to-market

method of accounting for securities held in the business is generally required to

file with the Commissioner a statement making the mark-to-market election,

identifying the first taxable year for which the election is effective and describing

the business to which the election relates. See Kantor v. Commissioner, T.C.

Memo. 2008-297; Knish v. Commissioner, T.C. Memo. 2006-268; Lehrer v.

Commissioner, T.C. Memo. 2005-167, aff’d, 279 F. App’x 549 (9th Cir. 2008);

Rev. Proc. 99-17, sec. 5.03(1), 1999-1 C.B. at 504. The statement must be filed no

later than the due date of the trader’s original Federal income tax return (without

regard to extension) for the taxable year immediately preceding the election year,
                                       - 16 -

[*16] and if the election entails a change in accounting method, the trader must

also attach a Form 3115, Application for Change in Accounting Method, to the

trader’s timely filed original Federal income tax return for the election year. Rev.

Proc. 99-17, sec. 5.03(1), 5.04, 1999-1 C.B. 504, 505. This Court has on several

occasions held that a securities trader failed to make an election under section

475(f) where the trader did not follow the election requirements of Rev. Proc. 99-

17, supra. Kohli v. Commissioner, T.C. Memo. 2009-287; Kantor v.

Commissioner, T.C. Memo. 2008-297; Knish v. Commissioner, T.C. Memo. 2006-

268.

       We find that petitioner failed to comply with the requirements for the mark-

to-market election set out in Rev. Proc. 99-17, supra. The evidence does not show

conclusively whether petitioner signed or mailed a Form 3115 in 2003. Petitioner

did not submit a copy of any executed version of Form 3115 or any evidence of

mailing it. Respondent did not find any record of petitioner’s Form 3115 in his

electronic database, but also admitted that in some years not all Forms 3115

received were actually entered in the database. Next, petitioner filed his Federal

income tax return for 2003 on July 25, 2005, failing to comply with the filing

deadlines. The 2003 tax return contained a statement that petitioner made an
                                         - 17 -

[*17] election pursuant to section 475(f), but did not have a Form 3115 attached to

it. Thus, petitioner did not comply with the requirements of Rev. Proc. 99-17,

supra.

         Petitioner argues we should find that he made a valid section 475(f) election

under the substantial compliance doctrine.7 The substantial compliance doctrine

has no place in determining whether a timely section 475 (f) election has been

made. Kohli v. Commissioner, T.C. Memo. 2009-287. Rev. Proc. 99-17, supra,

fixes a deadline by which the election must be made and the requirements for the

election. Because petitioner failed to comply with the requirements of Rev. Proc.

99-17, he did not make an effective mark-to-market election in 2003.8


         7
       The substantial compliance doctrine is a narrow equitable doctrine that
courts use to avoid taxpayer hardship if the taxpayer establishes that he or she
intended to comply with a provision, did everything reasonably possible to comply
with the provision, but did not comply with the provision because of a failure to
meet the provision’s specific requirements. Kohli v. Commissioner, T.C. Memo.
2009-287, slip op. at 7 n.4; see also Sawyer v. Cty. of Sonoma, 719 F.2d 1001,
1007-1008 (9th Cir. 1983); Fisher Indus., Inc. v. Commissioner, 87 T.C. 116, 122
(1986), aff’d, 843 F.2d 224 (6th Cir. 1988).
         8
        The Commissioner may grant administrative relief to a securities trader
with regard to an improper mark-to-market election if the trader, among other
things, requests sec. 9100 relief and demonstrates that he acted reasonably and in
good faith in failing to make a timely election under sec. 475(f). See Vines v.
Commissioner, 126 T.C. 279, 290-291 (2006); sec. 301.9100-3, Proced. & Admin.
Regs. A taxpayer must request relief through a private letter ruling, in a petition,
or in a refund claim. See Knish v. Commissioner, T.C. Memo. 2006-268 (relief
                                                                       (continued...)
                                       - 18 -

[*18] Assuming for the sake of argument that the substantial compliance doctrine

did apply in this case, it would not change the outcome. Petitioner failed to meet

all of the requirements set out in Rev. Proc. 99-17, supra, except one. Petitioner

failed to show that he attached and timely mailed a Form 3115 with his 2003 tax

return and that he timely filed the 2003 tax return. The only indication that

petitioner made an election in 2003 is a statement attached to the 2003 tax return;

but this statement alone is insufficient to meet the requirements. Petitioner was

aware of the election requirements and did not challenge the validity of Rev. Proc.

99-17, supra. Under these circumstances, the substantial compliance argument

would not save the day.

      E.     Amount of Loss and Petitioner’s Status at MPTG

      The parties disagree as to the amount of petitioner’s loss that would be

eligible for mark-to-market treatment in 2007. Because petitioner is not entitled to

use the mark-to-market accounting method in 2007, this dispute is moot.

Petitioner’s gains or losses arising out of his trading through MPTG should be




      8
       (...continued)
denied where request not made in petition); Marandola v. United States, 76 Fed.
Cl. 237 (2007). Petitioner, however, did not request such relief. Therefore, we do
not consider this issue.
                                         - 19 -

[*19] calculated under the rules for capital gain/loss calculation, not the mark-to-

market approach.

      Further, petitioner maintains he was a partner at MPTG in 2007, but he

never argued in the briefs or introduced any evidence as to whether MPTG itself

made the mark-to-market election so its partners could avail themselves of the

election benefits. This argument is thus deemed waived. In addition, the record is

inconclusive on whether MPTG treated petitioner as a partner. The side letter says

the petitioner was a class B member and a party to the MPTG operating

agreement. Petitioner, however, did not introduce into evidence the MPTG

operating agreement itself. According to the side letter, the mutual obligations of

MPTG and petitioner were very limited. MPTG created a trading account for

petitioner and provided him with an office space to trade and access to the trading

platform. Petitioner, in turn, fully funded his trading account and was obligated to

split the trading profits 90%/10% with MPTG. The side letter does not discuss

capital contributions by petitioner to MPTG itself, only to petitioner’s trading

account. The side letter is also silent as to the extent of petitioner’s partnership

interest in MPTG and share of MPTG’s gains and losses. The preliminary

Schedule K-1 that petitioner obtained from one of MPTG’s employees does not

match the MPTG 2007 tax return, which does not list petitioner as a partner and
                                        - 20 -

[*20] does not include a Schedule K-1 for him. On the basis of the limited facts

available to the Court, we conclude that petitioner did not meet his burden of proof

on the issue of whether he was a partner in MPTG.

      F.     Conclusion

      For the reasons stated above, petitioner is not entitled to treat the 2007

trading loss as a net operating loss. Petitioner failed to meet the requirements for a

valid election. Thus, the securities trading loss petitioner suffered in 2007 is a

capital loss, not an ordinary one.

II.   Additions to Tax Under Section 6651(a)(1) and (2)

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

when due. The addition equals 5% for each month that the tax return is late, not to

exceed 25% in total. Section 6651(a)(2) imposes a corresponding addition to tax

for failing to pay timely the tax shown to be due on a Federal income tax return.

The amount of the addition to tax for failure to pay timely equals 0.5% for each

complete or partial month a taxpayer fails to pay the tax, not to exceed 25% in the

aggregate. Id. The additions to tax for failure to both file and pay timely do not

apply where the failures were due to reasonable cause and not to willful neglect.

Sec. 6651(a)(1) and (2).
                                        - 21 -

[*21] The Commissioner has the burden of production with respect to the liability

of an individual for additions to tax under section 6651(a)(1) and (2). See sec.

7491(c); see also Rule 142(a)(1). The burden of showing reasonable cause under

section 6651(a) remains on the taxpayer. See Higbee v. Commissioner, 116 T.C.

438, 446-447 (2001). Respondent has met his burden of production by

demonstrating that petitioner filed his return late and failed to pay on time.

      “Reasonable cause” requires the taxpayer to demonstrate that he exercised

ordinary business care and prudence and nevertheless was unable to file his or her

Federal income tax return by the due date. See United States v. Boyle, 469 U.S.

241, 246 (1985); sec. 301.6651-1(c), Proced. & Admin. Regs. Willful neglect is

defined as a “conscious, intentional failure or reckless indifference.” Boyle, 469

U.S. at 245-246. The existence of willful neglect or reasonable cause is a factual

determination to be made in the light of well-established legal principles. Id. at

249 n.8. We synthesize our discussion of reasonable cause under section

6651(a)(1) and (2) because the standard has been interpreted to be the same. See

E. Wind Indus., Inc. v. United States, 196 F.3d 499, 504 n.5 (3d Cir. 1999);

Russell v. Commissioner, T.C. Memo. 2011-81.

      Reasonable cause may exist if the taxpayer’s or a family member’s illness or

incapacity prevents the taxpayer from filing his or her tax return, but not if the
                                        - 22 -

[*22] taxpayer is able to continue his or her business affairs despite the illness or

incapacity. See Timbarella v. Commissioner, 139 F. App’x 319 (2d Cir. 2005),

aff’g T.C. Memo. 2004-47; McLaine v. Commissioner, 138 T.C. 228 (2012);

Hardin v. Commissioner, T.C. Memo. 2012-162; Ruggeri v. Commissioner, T.C.

Memo. 2008-30. In Hardin v. Commissioner, slip op. at 5, the taxpayer suffered

from a mild to moderate form of attention deficit hyperactivity disorder (ADHD),

as well as posttraumatic stress syndrome and bipolar disorder. Because of these

conditions, the taxpayer had difficulty concentrating, being organized, and

completing tasks. Id. at 5. The Court held that these conditions did not rise to the

level of reasonable cause when the taxpayer was able to manage his business

affairs, including managing two rental properties, selling one of them, and being

employed full time as an engineer. Id. at 7-8. In McLaine v. Commissioner, 138

T.C. at 247-248, the Court held that the taxpayer’s alcoholism did not constitute

reasonable cause for failing to file a tax return on time when the taxpayer

understood he had a tax liability and tried to take steps to pay the tax, such as

borrowing against or selling some of his assets.

      Petitioner alleges that his mental impairment--an ASD previously known as

Asperger’s Syndrome--constitutes reasonable cause for purposes of section

6651(a)(1) and (2). Petitioner offered testimony of a fact witness, Lynda Geller,
                                        - 23 -

[*23] Ph.D., to confirm his diagnosis. Mrs. Geller is a licensed psychologist in the

State of New York but is not a medical doctor. Mrs. Geller has been petitioner’s

psychologist since June 2013 and has been seeing petitioner approximately once a

month. Mrs. Geller testified that the condition petitioner suffered from was a

chronic, pervasive, lifelong neurological disorder that manifests itself in

impairment of some executive functions, poor social cognition, and high

dependence on routines. Mrs. Geller also opined that petitioner did not fully

appreciate the seriousness of his failure to file his tax returns. We note that Mrs.

Geller was not petitioner’s treating healthcare provider in 2003 or 2007, the years

at issue, and is not a medical doctor. For these reasons, we give her testimony

minimal weight.

      Petitioner’s situation is similar to that of the taxpayer in Hardin who had

difficulty with concentrating, organizing, and completing tasks because of

ADHD, posttraumatic stress syndrome, and bipolar disorder. Petitioner argues

that because of his mental condition he was not able to organize his affairs and file

the tax return timely in 2007. However, as in Hardin, that mental condition did

not prevent petitioner from engaging in activities that required a high degree of

concentration and ability to analyze and organize information.
                                        - 24 -

[*24] For a number of years, including 2002 and 2003, petitioner worked as a

high school teacher. There is no evidence in the record that at any time from 2001

through 2006 petitioner filed for a disability accommodation while he was

employed as a school teacher. In 2007 petitioner was trading in securities.

Petitioner’s work station was equipped with six monitors showing the status of his

trades. Petitioner was able to collect, analyze, and organize information to base

his trades on. Petitioner understood he had a duty to file tax returns but claims

that in 2007 he was “despondent” because of the losses he suffered and could not

organize himself to file a tax return timely.

       We are sympathetic to petitioner’s plight. We cannot find, however, under

these circumstances that petitioner’s mental condition prevented him from

managing his business affairs. Thus, petitioner’s failure to file the 2007 tax return

timely and pay any taxes due on said return was not due to reasonable cause.

Petitioner is liable for additions to tax under section 6651(a)(1) and (2).

III.   Addition to Tax Under Section 6654(a)

       Section 6654 imposes an addition to tax for failure to pay estimated tax

where prepayments of tax, either through withholding or by making estimated

quarterly payments during the year, do not equal the lesser of 90% of the tax

shown for the current taxable year or 100% of the tax shown for the previous
                                       - 25 -

[*25] taxable year. Section 6654(e) provides some exceptions to the general rule

where the tax is a small amount (less than $1,000), where there was no liability for

the preceding taxable year, or a waiver applies. Sec. 6654(e)(1)-(3). A taxpayer

may qualify for a waiver in two sets of circumstances: (1) the Commissioner

determines that by reason of casualty, disaster, or other unusual circumstances the

imposition of an addition to tax would be against equity and good conscience, and

(2) a taxpayer retires after having attained the age of 62 or becomes disabled in the

taxable year for which estimated payments were required to be made, or in the

taxable year preceding that taxable year when an underpayment was due to

reasonable cause and not to willful neglect. Sec. 6654(e)(3).

      The Commissioner bears the burden of production to show that the taxpayer

had an estimated tax payment obligation. The burden includes showing whether a

return was filed for the preceding year. Sec. 7491(c); Wheeler v. Commissioner,

127 T.C. 200, 211-212 (2006), aff’d, 521 F.3d 1289 (10th Cir. 2008). Petitioner

bears the burden of persuasion with respect to any defenses or exceptions. See

Higbee v. Commissioner, 116 T.C. at 446.

      Because petitioner did not file his tax return for the tax year 2006 until

November 5, 2012, he was required to make estimated payments equal to 90% of

his tax for the 2007 tax year. See sec. 6654(d)(1)(B); Hardin v. Commissioner,
                                        - 26 -

[*26] T.C. Memo. 2012-162; Evans v. Commissioner, T.C. Memo. 2010-62. The

record shows that the amount of petitioner’s estimated payments in 2007 was less

than the determined tax liability for the year. Accordingly, respondent’s burden of

production is satisfied. See Hardin v. Commissioner, T.C. Memo. 2012-162.

      Petitioner asserts the same reasonable cause defenses for the section 6654(a)

addition to tax as for the section 6651(a)(1) and (2) additions to tax. Petitioner did

not retire in 2006 or 2007. Petitioner’s mental condition, an ASD, was already

present at that time. Thus, he does not fall into the reasonable cause exception

under section 6654(e)(3)(B). The record does not show that petitioner’s failure to

make estimated tax payments was due to casualty, disaster, or other unusual

circumstances. Petitioner understood he had a duty to pay tax on his income in

2007 and did not argue that there were unusual circumstances in 2007 such that

imposing a section 6654 addition to tax would be against equity and good

conscience. Accordingly, we conclude that petitioner is liable for the section 6654

addition to tax for 2007.

IV.   Financial Disability and Relief Under Section 6511(h)

      Petitioner argues that he is entitled to relief from all additions to tax because

his mental disorder qualifies him as a “financially disabled” taxpayer. Section

6511(h) provides for statutory tolling of the period of limitations on filing a claim
                                       - 27 -

[*27] for a refund or credit for overpayment of taxes when taxpayers are unable to

manage their financial affairs. Financial disability under section 6511(h),

however, has nothing to do with deadlines to file tax returns, pay tax, or pay

estimated tax. Thus, petitioner’s argument under section 6511(h) is irrelevant.

V.    Conclusion

      We have considered all of the arguments made by petitioner, and to the

extent not discussed above, conclude that those arguments not discussed herein are

irrelevant, moot, or without merit. We have considered respondent’s arguments

only to the extent stated herein.

      To reflect the foregoing and concessions by the parties,


                                                     Decision will be entered

                                                under Rule 155.
