                        T.C. Memo. 2011-299



                      UNITED STATES TAX COURT



 ESTATE OF RUDOLPH MORAGNE, A DISABLED PERSON, DONNA MORAGNE AND
         ELAINE MORAGNE, LIMITED GUARDIANS, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 22013-07, 3772-08L.   Filed December 27, 2011.



     Rufus Lynwood Cook, for petitioner.

     Brett A. Saltzman, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     KROUPA, Judge:   Respondent determined a $152,8761 deficiency

in the Federal income tax of petitioner for 2004 and a $33,305.63


     1
      Respondent amended his answer to seek the increased amounts
reflected in this opinion as respondent was unaware, at the time
he issued the deficiency notice, that Dr. Moragne had sold his
principal residence during 2004 and had received net taxable
proceeds exceeding the exclusion amount under sec. 121.
                               - 2 -

addition to tax under section 6651(a)(1)2 for filing a delinquent

return (late filing additions), a $37,006.25 addition to tax

under section 6651(a)(2) for failing to pay the tax timely (late

payment additions) and a $1,829 section 6654 addition to tax for

failing to pay estimated taxes (estimated tax additions)

regarding 2004.   As to 2002, respondent issued a determination

notice on January 7, 2008, sustaining the filing of a notice of

Federal tax lien regarding the approximate $50,0003 unpaid tax

liability for 2002 that included a late filing addition, a late

payment addition and an estimated tax addition.4

     After concessions, there are four issues for decision.    The

first issue is whether petitioner may deduct a theft loss under

section 165 for amounts or property held mostly in joint tenancy

that Dr. Rudolph Moragne’s (Dr. Moragne, a former doctor) then

wife used or transferred.   We hold that petitioner is not



     2
      All section references are to the Internal Revenue Code for
2004 (regarding the deficiency case) and 2002 (regarding the
collection action), and all Rule references are to the Tax Court
Rules of Practice and Procedure, unless otherwise indicated.
     3
      Amounts are rounded to the nearest dollar.
     4
      The parties agree that the underlying liability for 2002 is
properly at issue. Petitioner failed, however, to present any
evidence or raise any argument in briefs regarding whether
respondent abused his discretion in sustaining the collection
action at docket no. 3772-08L. Petitioner also failed to raise
this issue in the petition. This issue is therefore deemed
conceded. See Rules 34(b)(4), 149(b). We review the underlying
tax liability for 2002 de novo. See Sego v. Commissioner, 114
T.C. 604, 610 (2000).
                                 - 3 -

entitled to a theft loss deduction for either 2002 or 2004.       We

must also decide whether petitioner is liable for the late filing

additions, the late payment additions and the estimated tax

additions for 2002 and 2004.     We hold petitioner liable.

                            FINDINGS OF FACT

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

The stipulation of facts, with accompanying exhibits, is

incorporated by this reference.     Dr. Moragne resided in Illinois

at the time the petitions were filed.

     Dr. Moragne was married and had three daughters5 early in

his medical practice as a public health physician.      Dr. Moragne

divorced his first wife.     In his late 60’s, he had two surgeries

(a neck surgery and a back surgery) that curtailed his ability to

practice medicine.   In 1997 he enlisted the help of a former

nurse and friend Mary Branch (Ms. Branch) to assist him in

tending to his personal needs.     Dr. Moragne’s daughters were

unable to assist him.     One daughter lived in Washington, D.C.,

one lived in Tennessee and another was unable to assist her

father even though she lived in Chicago.6      Ms. Branch visited Dr.

Moragne about once a week.     Dr. Moragne was depressed and



     5
      The record is unclear as to the number of daughters Dr.
Moragne had. No daughter testified nor did the ex-wife. The
parties sometimes referred to the ex-wife as a daughter and vice
versa. This discrepancy does not affect our holdings.
     6
      See supra note 5.
                                - 4 -

disinterested in his financial affairs.   Ms. Branch assisted Dr.

Moragne in his financial affairs, and he allowed her to write

checks from his checkbook to pay his bills and mortgages.

     Dr. Moragne married Loretta Hill (Loretta) on October 7,

2000.   Shortly thereafter, Dr. Moragne asked Ms. Branch to turn

over his checkbook to his new wife, Loretta, who would have check

writing responsibilities and general responsibility over his

financial affairs going forward.   Dr. Moragne arranged with his

bank for Loretta to have check writing authority and authorized

her to make various payments on his behalf as Ms. Branch had been

authorized previously.   The bills that Ms. Branch had paid on Dr.

Moragne’s behalf still needed to be paid after Dr. Moragne

married Loretta.

     Ms. Branch did not know Loretta, she never met Loretta, and

she had no personal knowledge of anything that occurred during

Dr. Moragne’s marriage to Loretta from October 2000 through

January 2005.   She did not have any contact with Dr. Moragne from

the time he married Loretta until after the years at issue.

     Dr. Moragne and Loretta remained married throughout the

years at issue.    In fact, they remained married until 2007 after

a 7-year marriage.

     Dr. Moragne solely owned a residence at 5036 S. Ellis Street

in Chicago, Illinois (the Ellis property) before he married

Loretta.   In late 2004 the Ellis property was sold and $450,000
                                - 5 -

of net proceeds received.    Some of the proceeds from the sale of

the Ellis property were used to purchase a residence at 15

Graymoor Lane in Olympia Fields, Illinois for $425,000 (the

Graymoor property).    Title to the Graymoor property was placed in

Loretta’s name only.    Loretta took out a home equity line of

credit of $250,000 on the Graymoor property.

     Dr. Moragne maintained a joint checking account with Loretta

at Shorebank.   The bank statements reflect that $12,500 was paid

for a Jaguar in 2004.    Loretta wrote a check on the joint account

to herself for $26,000 on June 9, 2004.    She also wrote a check

on the joint account made payable to cash for $50,015 on October

29, 2004 and wrote a check for $15,000 to Dr. Moragne and herself

on December 13, 2004, that both Dr. Moragne and Loretta

endorsed.7   In addition, Loretta wrote a check for $413,000 made

payable to Dr. Moragne and herself on December 9, 2004.    Again,

Dr. Moragne and Loretta each endorsed the check.

     After the years at issue, on October 5, 2005, the Circuit

Court of Cook County, Probate Division, Case No. 05 P 6274,

entered an order appointing Dr. Moragne’s daughter and his ex-

wife as limited co-guardians of his estate.    Per the order, Dr.

Moragne specifically retained the authority to manage his own

ordinary affairs and was able to handle his financial affairs



     7
      The record contains bank statements for 2005 and checks
drawn in 2005, yet that year is not before us.
                                - 6 -

including expending his own retirement income and paying utility

bills, condominium assessments and the like up to $5,000.

     The probate court did not adjudicate Dr. Moragne an

incompetent.   Instead, the probate court specifically declined to

appoint the daughters as plenary co-guardians after reviewing all

the evidence produced in the probate proceedings.

     Dr. Moragne, through his counsel, filed a verified petition

for dissolution of marriage on December 2, 2005.    Sometime

thereafter, Dr. Moragne’s counsel and his limited co-guardians

concluded that Loretta’s activities constituted theft.

     The Circuit Court of Cook County, Domestic Relations

Division, Case No. 05 D 12787, entered a stipulated Judgment of

Dissolution dissolving Dr. Moragne and Loretta’s marriage in

December 2007.   Dr. Moragne was competent to testify during the

course of his divorce proceedings during 2007.

     The stipulated Judgment of Dissolution ordered the return to

Dr. Moragne of all real property owned by him and Loretta during

their marriage, whether jointly or individually, including the

proceeds therefrom.   The stipulated Judgment of Dissolution also

ordered that Loretta retain all real and personal property then

presently titled in her name.

     Proceeds of $92,800 from the sale of the Graymoor property

and proceeds of approximately $160,000 from the sale of a

condominium at 1640 E. 50th Street held in joint tenancy by Dr.
                               - 7 -

Moragne and Loretta were placed in escrow pending resolution of

the divorce proceeding and subsequently distributed to Dr.

Moragne’s estate upon dissolution of the marriage.

     Sometime in early 2010 Dr. Moragne’s limited co-guardians,

through their counsel, provided respondent’s counsel with

completed Federal income tax returns for Dr. Moragne for 2002 and

2004, signed by petitioner’s limited co-guardians.     Respondent

has accepted the returns filed except for the claimed theft loss

in each year.   The returns reflect a claimed $319,5698 theft loss

for 2002 and a claimed $384,540 theft loss for 2004.

                              OPINION

     Petitioner contends it is entitled to deduct theft losses

for 2002 and 2004 because Loretta stole from Dr. Moragne property

that they held in joint tenancy.   We are asked to decide whether

the claimed theft losses are allowable.   We are also asked to

decide whether petitioner is liable for the late filing

additions, the late payment additions and the estimated tax

additions.

Burden of Proof

     We begin with the burden of proof.   Generally, the

Commissioner’s determinations in a deficiency notice are presumed

correct, and the taxpayer has the burden of proving the



     8
      No credible evidence was presented as to 2002.
Petitioner’s arguments do not constitute facts.
                                 - 8 -

Commissioner’s determinations to be in error.    Rule 142(a)(1);

Welch v. Helvering, 290 U.S. 111 (1933).     The burden of proof may

shift to the Commissioner in certain circumstances, however, if

the taxpayer introduces credible evidence and establishes that he

or she substantiated items, maintained required records and fully

cooperated with the Commissioner’s reasonable requests.      Sec.

7491(a)(1) and (2)(A) and (B).    We find that petitioner failed to

provide credible evidence and failed to substantiate the claimed

theft losses for 2004.    The burden of proof therefore remains on

petitioner.   In addition, the Court reviews any determination

regarding the underlying liability de novo if a taxpayer’s

underlying liability is properly at issue.     Sego v. Commissioner,

114 T.C. 604, 610 (2000); Goza v. Commissioner, 114 T.C. 176,

181-182 (2000).   Petitioner’s 2002 tax liability is properly at

issue.   We therefore review it de novo.

Theft Loss

     We turn next to whether petitioner is entitled to deduct

under section 165 for either taxable year 2002 or 2004 the

alleged theft loss.    A deduction is allowed for any loss

sustained during a taxable year and not compensated for by

insurance or otherwise.    Sec. 165(a).   The deduction is limited

in the case of an individual to, among other things, a loss that

arises from theft.    Sec. 165(c)(3).
                                - 9 -

     A theft loss is sustained during the taxable year in which a

taxpayer discovers it.   Sec. 165(e); Marine v. Commissioner, 92

T.C. 958, 976 (1989), affd. without published opinion 921 F.2d

280 (9th Cir. 1991).   Moreover, if there is a reasonable prospect

of recovery at the end of the taxable year, then there is no

closed and completed transaction for which a theft loss deduction

is allowable.    Viehweg v. Commissioner, 90 T.C. 1248, 1255-1256

(1988).   A reasonable prospect of recovery exists when the

taxpayer has a bona fide claim for recoupment and there is a

substantial possibility that the claim will be decided favorably

for the taxpayer.    Ramsay Scarlett & Co. v. Commissioner, 61 T.C.

795, 811 (1974), affd. 521 F.2d 786 (4th Cir. 1975).    Whether a

reasonable prospect of recovery exists is determined as of the

end of the taxable year for which the deduction is claimed.    Id.

     Petitioner bears the burden of proving that the alleged

theft losses occurred and that the requirements of section 165

have been met.   Allen v. Commissioner, 16 T.C. 163, 166-167

(1951).   Petitioner must establish to carry this burden both the

occurrence of the thefts within the meaning of section 165 and

the amounts of the claimed theft losses.   See Rule 142(a);

Elliott v. Commissioner, 40 T.C. 304, 311 (1963).   Whether

certain actions constitute theft for purposes of section 165

depends on the law defining the crime of theft in the

jurisdiction where the alleged theft occurred.    Edwards v.
                               - 10 -

Bromberg, 232 F.2d 107, 111 (5th Cir. 1956); Monteleone v.

Commissioner, 34 T.C. 688, 692 (1960).

     Petitioner argues that Loretta stole money from Dr. Moragne

and therefore petitioner is entitled to theft losses for both

2002 and 2004.    Respondent counters that no theft occurred under

Illinois law and petitioner has failed to establish the amount of

the loss for either 2002 or 2004.     Alternatively, respondent

argues that, even if a theft occurred, no deduction may be

claimed until the year of discovery (2005, at the earliest), and

then only if petitioner can show that there was no reasonable

prospect of recovering the stolen property or being compensated

for it.   We agree with respondent.

     The parties agree that the law of Illinois applies.      Under

Illinois law, a theft loss requires an illegal taking done with

criminal intent.    720 Ill. Comp. Stat. Ann. sec. 5/16-1 (West

2002).    The parties disagree, however, on whether a theft

occurred under Illinois law.    We need not decide this dispute.

We find on the record before us that petitioner failed to

establish the amount of any loss for either 2002 or 2004, let

alone whether Loretta’s activities constituted a theft.

     Petitioner offered only one witness, Ms. Branch, who

admitted that she had never met Loretta.     In addition, Ms. Branch

admitted that she never saw or spoke to Dr. Moragne during the

years at issue.    We did not find her to be a credible or reliable
                              - 11 -

witness as to whether a theft occurred during the years at issue.

We are left to speculate how Loretta used most of the funds.      We

refuse to speculate.   Moreover, the parties stipulated to bank

statements of the joint Shorebank account and certain checks

drawn on that account by Loretta.     Petitioner failed to provide

any explanation, however, how Loretta used the funds or more

importantly whether Dr. Moragne approved or authorized the

expenditures.   In addition, several of the checks were endorsed

by Dr. Moragne9 along with Loretta.    We are compelled to find

that Dr. Moragne authorized Loretta to control his checkbook and

expend his funds in the same way he had authorized Ms. Branch to

do before his 7-year marriage to Loretta.    Petitioner also failed

to present any evidence demonstrating that every dollar deposited

into the account was Dr. Moragne’s and that every dollar

withdrawn was spent for Loretta’s benefit, not Dr. Moragne’s.      We

hold that petitioner failed to establish the amount of any loss

and is therefore not entitled to any deduction.10


     9
      We place no weight upon Ms. Branch’s testimony that she
thought Dr. Moragne’s signature was forged on certain checks.
Even she admitted that Dr. Moragne’s surgeries may have caused
his handwriting to change.
     10
      In addition, no theft occurred because Loretta had an
ownership interest in most or all of the allegedly stolen funds.
The withdrawal of funds from a joint bank account under Illinois
law by only one of the account holders is not illegal. Poziombka
v. Winkle (In re Estate of Vogel), 684 N.E.2d 1035, 1040 (Ill.
App. Ct. 1997); Paskas v. Illini Fed. Sav. & Loan Association,
440 N.E.2d 194, 199 (Ill. App. Ct. 1982); In re Estate of
                                                   (continued...)
                                 - 12 -

Additions to Tax

       We now focus on the additions to tax.   Respondent determined

petitioner liable for late filing additions, late payment

additions and estimated tax additions for both 2002 and 2004.

Respondent bears the burden of production to establish that the

additions apply.     See sec. 7941(c); Higbee v. Commissioner, 116

T.C. 438, 446-447 (2001).     The late filing additions, late

payment additions and estimated tax additions apply unless it is

shown that the taxpayer’s failure to comply was due to reasonable

cause and not due to willful neglect.11     See sec. 6651(a)(1) and

(2).    The taxpayer bears the burden of establishing reasonable

cause.      Higbee v. Commissioner, supra at 446.   Reasonable cause

may exist if a taxpayer exercised ordinary business care and

prudence and was nonetheless unable to file the return or pay the

tax within the date prescribed by law.     Sec. 301.6651-1(c)(1),

Proced. & Admin. Regs.     Willful neglect means a “conscious,

intentional failure or reckless indifference.”       United States v.

Boyle, 469 U.S. 241, 245 (1985).



       10
      (...continued)
Taggart, 305 N.E.2d 301, 305 (Ill. App. Ct. 1973). In fact the
ownership rights of the nonwithdrawing account owner in the
withdrawn funds are terminated and the withdrawing party becomes
the sole owner of the withdrawn money to dispense in any manner
he or she deems fit.
       11
      No general reasonable cause exception exists with regard
to estimated tax additions. Relief is available, however, under
the narrow exception of sec. 6654(e)(3)(B).
                                 - 13 -

       The Court’s standard of review on what elements must be

present to constitute “reasonable cause” is de novo.      Id. at 249

n.8.    Whether those elements are present in a given case is a

question of fact.    Id.    The burden of proving reasonable cause

and lack of willful neglect rests on the taxpayer.      Id. at 244.

       We turn now to the late filing additions under section

6651(a)(1).    An addition to tax is imposed if a taxpayer fails to

file a timely Federal income tax return.     Sec. 6651(a)(1).    The

record reflects that no return for either 2002 or 2004 was filed

until sometime in January 2010, which was after the prescribed

due date for either year.     Respondent has therefore met his

burden of production.      Petitioner makes no argument at trial or

in briefs that petitioner’s failure to file the returns timely

was due to reasonable cause.     This issue is therefore deemed

conceded.    See Rule 149(b).   The sole argument in petitioner’s

briefs is that Dr. Moragne was incompetent.12     The record does

not, however, support petitioner’s insinuation.     There has been



       12
      A disability may be reasonable cause for avoiding
additions to tax. United States v. Boyle, 469 U.S. 241, 249 n.6
(1985). When raised, the Court has considered significant a
psychiatric disorder, mental incapacity or confinement to
hospitals for mental illness during the relevant periods to
determine whether a disability may constitute reasonable cause.
Kowsh v. Commissioner, T.C. Memo. 2008-204; Jordan v.
Commissioner, T.C. Memo. 2005-266 (and cases cited therein).
Evidence that a taxpayer experienced periods of lucidity,
however, throughout periods of disability has convinced this
Court to deny a reasonable cause defense. Estate of Long v.
Commissioner, T.C. Memo. 1978-172.
                              - 14 -

no determination that Dr. Moragne was incompetent.   Dr. Moragne’s

two daughters were appointed limited, not plenary, co-guardians

of Dr. Moragne’s estate in late 2005, which is after the due

dates of the returns at issue.   The probate court was the

appropriate court to have made a determination that Dr. Moragne

was incompetent.   The probate court did not make any such

determination.   Accordingly, petitioner is liable for the late

filing additions under section 6651(a)(1) for 2002 and 2004.

     Next, we address the late payment additions under section

6651(a)(2) for the late payment of taxes shown as due on the

substitutes for return that respondent prepared for petitioner

for 2002 and 2004.   Petitioner has failed to pay the amounts

shown on the substitutes for return for 2002 and 2004 and failed

to establish reasonable cause for the failures to pay.

Petitioner is therefore liable for the late payment additions for

2002 and 2004.

     Finally, we address the estimated tax additions under

section 6654(a).   A taxpayer generally has an obligation to pay

estimated income tax for a particular year only if he or she has

a required annual payment for that year.   Sec. 6654(d).   The

required annual payment is equal to the lesser of (1) 90 percent

of the tax shown on the individual’s return for that year (or if

no return is filed, 90 percent of the tax for such year) or (2)

100 percent of the tax shown on the return if the taxpayer filed
                              - 15 -

a return for the immediately preceding tax year.   Sec.

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

(2006), affd. 521 F.3d 1289 (10th Cir. 2008).

     Petitioner had a required annual payment for 2002 and 2004

but did not make any estimated tax payments.    Petitioner failed

to present any evidence to contradict respondent’s determination,

and none of the statutory exceptions under section 6654(e)

applies.   Consequently, petitioner is liable for the estimated

tax additions under section 6654(a) for 2002 and 2004.

     We have considered all arguments made in reaching our

decisions, and, to the extent not mentioned, we conclude that

they are moot, irrelevant, or without merit.

     To reflect the foregoing,


                                         Decisions will be entered

                                    for respondent.
