                              T.C. Memo. 2013-181



                        UNITED STATES TAX COURT



            MARRIANNE ELIZABETH RAYHILL, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 11455-11.                     Filed August 8, 2013.



      Marrianne Elizabeth Rayhill, pro se.

      Kimberly A. Santos and Kathryn A. Meyer, for respondent.



                          MEMORANDUM OPINION


      HALPERN, Judge: Respondent determined a deficiency in petitioner's

2007 Federal income tax of $16,686 and additions to tax of $3,754, $2,753, and

$759 under sections 6651(a)(1) and (2) and 6654(a), respectively.
                                         -2-

[*2] Unless otherwise stated, all section references are to the Internal Revenue

Code in effect for 2007, and all Rule references are to the Tax Court Rules of

Practice and Procedure. We round all dollar amounts to the nearest dollar.

      Petitioner bears the burden of proof. See Rule 142(a).1

                                     Background

      Some facts are stipulated and are so found. Respondent concedes that

petitioner is not liable for the section 6654(a) addition to tax, and we will therefore

not discuss it further. Petitioner filed no return for 2007, and, for that reason,

respondent prepared for her a substitute for return. See sec. 6020(b). The

principal adjustments giving rise to respondent's determination of a deficiency in

tax are omissions from gross income of the following items: interest income--$14;

wages, tips, and other compensation--$65,226; and Social Security benefits--

$24,132.

      The parties have made numerous concessions regarding those adjustments.

Petitioner concedes that she omitted from gross income interest of $14.

Respondent concedes that the taxable amount of the Social Security benefit

petitioner received is only $7,579, which petitioner concedes is includible in gross

      1
        Petitioner makes no argument that, pursuant to sec. 7491(a), the burden
shifts to respondent. In any event, the record establishes that petitioner does not
satisfy the preconditions found in sec. 7491(a)(2).
                                         -3-

[*3] income. Respondent also concedes that petitioner is allowed on Schedule A,

Itemized Deductions, a miscellaneous expense deduction of $1,772 for attorney's

fees connected with securing the Social Security benefits. Petitioner concedes

that, pursuant to an employer provided and funded, group long-term disability

policy, she received $64,732 (disability payment) from the Hartford Life Insurance

Co. Respondent concedes that she received no more than that amount. Petitioner

concedes that some, but not all, of the disability payment is includible in her gross

income. Respondent concedes that petitioner is entitled to a Schedule A cash

charitable contribution deduction of $349 and a Schedule A noncash charitable

contribution deduction of $250. Respondent concedes that petitioner is entitled to

a deduction on Schedule C, Profit or Loss From Business, for business expenses of

$402. Petitioner concedes that she neither filed a Federal income tax return nor

paid any tax for 2007. We accept all concessions and find accordingly.

      Trial was held in this case on December 11, 2012, in Los Angeles,

California. At the conclusion of the trial, the Court reviewed with the parties the

issues still in dispute. Although petitioner concedes that some portion of the

disability payment is includible in her 2007 gross income, she believes that,

because, in part, the disability payment represented amounts that she should have

received in prior years, only that portion allocable to 2007 is includible in her
                                         -4-

[*4] 2007 gross income. Petitioner also believes that she should be allowed

deductions for amounts that the parties have stipulated that she spent in 2007 and

that she claims were for business expenses, but which respondent would not allow

as deductions because petitioner failed to show that they were ordinary and

necessary business expenses properly substantiated. See secs. 162(a), 274.

Finally, notwithstanding petitioner's concession that she neither filed a 2007

income tax return nor paid the tax due, she believes that, because she was sick

during 2008 she should not have to pay the section 6651(a)(1) and (2) additions

for delinquent filing and failure to pay timely.

       Also at the conclusion of the trial, we set a briefing schedule, ordering

seriatim briefs, with petitioner to go first. We allowed her 75 days to file her brief.

She failed to do so, and we allowed her an additional 25 days. She again failed to

file a brief.

       Petitioner resided in California when she filed the petition.

                                     Discussion

       We are left with few issues to decide, and, although we could declare

petitioner in default with respect to the remaining issues, with respect to all of

which she bears the burden of proof, see Rules 123, 151; Stringer v.

Commissioner, 84 T.C. 693 (1985), aff'd without published opinion, 789 F.2d 917
                                           -5-

[*5] (4th Cir. 1986); Horn v. Commissioner, T.C. Memo. 2002-207, we will

address those issues.

I.    Disability Payment

      Section 451(a) provides that the amount of any item of gross income shall

be included in the gross income for the taxable year in which received by the

taxpayer unless, under the method of accounting used in computing taxable

income, such amount is to be properly accounted for as of a different period. The

law is clear that gains, profits, and income are to be included in the gross income

of a cash method taxpayer for the taxable year in which they are received. See

secs. 1.451-1(a), 1.446-1(c)(1)(i), Income Tax Regs. Since petitioner has failed to

show that for 2007 she was other than a cash method taxpayer, the entire amount

of the disability payment must be included in her 2007 gross income because she

received the entire amount in that year.

II.   Deductions

      Petitioner has failed to carry her burden of showing that the disputed

deductions were ordinary and necessary expenses paid or incurred during 2007 in

carrying on any trade or business, see sec. 162(a), or that she has met the

substantiation requirements of section 274. We will allow no deductions other

than those respondent allowed.
                                         -6-

[*6] III.    Additions to Tax

      Section 6651(a)(1) provides for an addition to tax in the event a taxpayer

fails to timely file a return (determined with regard to any extension of time for

filing) unless the taxpayer shows that such failure is due to reasonable cause and

not due to willful neglect. The addition equals 5% of the amount required to be

shown as tax on the delinquent return for each month or fraction thereof during

which the return remains delinquent, up to a maximum addition of 25% for returns

more than four months delinquent. Id.

      Section 6651(a)(2) imposes an addition to tax when a taxpayer fails to pay

the amount of tax shown on a return by the prescribed date unless the taxpayer

shows that such failure is due to reasonable cause and not due to willful neglect.

The addition equals 0.5% of the tax for each month or fraction thereof during

which the tax remains unpaid, up to a maximum addition of 25%. Under section

6651(g)(2), a substitute for return prepared pursuant to section 6020(b) is treated

as the taxpayer's return for purposes of section 6651(a)(2).2

      2
        We note in passing that, while a properly made substitute for return is
necessary before a sec. 6651(a)(2) addition to tax for failure to pay the tax shown
on return can be imposed on a nonfiler, a substitute for return is not a prerequisite
to the Commissioner's determining a deficiency in tax. E.g., Roat v.
Commissioner, 847 F.2d 1379, 1381-1382 (9th Cir. 1988) ("Deficiency procedures
set out in the Internal Revenue Code * * * do not require the Commissioner to
                                                                         (continued...)
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[*7] With respect to both the section 6651(a)(1) and (2) additions to tax,

respondent bears the burden of coming forth with evidence that imposition of the

addition is appropriate. See Higbee v. Commissioner, 116 T.C. 438, 446-447

(2001); see also sec. 7491(c). Petitioner concedes that she neither filed a return

nor paid any tax for 2007. Accordingly, we conclude that respondent has

produced sufficient evidence to show that the section 6651(a)(1) and (2) additions

to tax are appropriate, unless petitioner proves that either or both of her failure to

file and failure to pay were due to reasonable cause and not due to willful neglect.

      A failure to file is due to reasonable cause if a taxpayer "exercised ordinary

business care and prudence and was nevertheless unable to file the return within

the prescribed time". Sec. 301.6651-1(c)(1), Proced. & Admin. Regs.; see also

United States v. Boyle, 469 U.S. 241, 246 (1985). A failure to pay tax will be

considered to be due to reasonable cause if the taxpayer exercised ordinary care

and prudence in providing for her tax liability but was unable to pay. Sec.

301.6651-1(c)(1), Proced. & Admin. Regs. Willful neglect is interpreted as a

"conscious, intentional failure or reckless indifference." Boyle, 469 U.S. at 245.


      2
       (...continued)
prepare a return on a taxpayer's behalf before determining and issuing a notice of
deficiency."); accord Watson v. Commissioner, T.C. Memo. 2007-146, aff'd, 277
Fed. Appx. 450 (5th Cir. 2008).
                                        -8-

[*8] Petitioner claims that she was unaware that any of her income was taxable.

Petitioner's mistake as to or ignorance of the law, however, does not amount to

reasonable cause and thus will not relieve her from the imposition of the addition

to tax pursuant to section 6651(a)(1). See Joyce v. Commissioner, 25 T.C. 13, 15

(1955); West v. Commissioner, T.C. Memo. 2011-272, 2011 WL 5572604, at *4.

      Petitioner also argues that she was not able to file her returns because of her

health problems. To substantiate her argument, petitioner testified that she is a

disabled taxpayer and that she had additional serious medical problems in both

2007 and 2008. A taxpayer's disability may constitute reasonable cause for failure

to file returns. Boyle, 469 U.S. at 248 n.6; see, e.g., Rappaport v. Commissioner,

T.C. Memo. 2006-87, 2006 WL 1083434, at *5. However, a taxpayer does not

have reasonable cause for failing to file tax returns if he or she was performing

normal business operations. E.g., Rappaport v. Commissioner, 2006 WL

1083434, at *5. While we do not trivialize the medical problems facing petitioner,

the record indicates she carried on her real estate brokerage business and her other

business affairs throughout 2007. Petitioner was not specific in her testimony as

to the periods of her medical problems or how, during those periods, her medical

problems interfered with her filing a return. Indeed, she testified that she did not

file because she did not think that she had to. Petitioner has not convinced us that
                                         -9-

[*9] her medical problems provided reasonable cause for her failure to timely file.

See Kelso v. Commissioner, T.C. Memo. 2009-125, 2009 WL 1530158, at *3.

Consequently, we find that petitioner did not have reasonable cause for her failure

to timely file her 2007 return and that she is liable for the addition to tax under

section 6651(a)(1).

      For the reasons stated in connection with our sustaining respondent's

imposition of the section 6651(a)(1) addition to tax, we also find that petitioner

has not produced evidence that her failure to pay was due to reasonable cause and

not due to willful neglect. Consequently, we find that petitioner is liable for the

addition to tax under section 6651(a)(2).


                                                     Decision will be entered under

                                               Rule 155.
