                         T.C. Memo. 2001-58



                       UNITED STATES TAX COURT



                 RONALD A. MASON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3632-00.                         Filed March 9, 2001.


     Dennis C. Becker, for petitioner.

     Timothy S. Sinnott, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     CHIECHI, Judge:    Respondent determined the following defi-

ciency in, and additions under sections 6651(a)(1) and

(2) and 6654(a)1 to, petitioner’s Federal income tax (tax):




     1
      All section references are to the Internal Revenue Code in
effect for the year at issue. All Rule references are to the Tax
Court Rules of Practice and Procedure.
                                  - 2 -

                                         Additions to Tax
 Year     Deficiency   Sec. 6651(a)(1)      Sec. 6651(a)(2)   Sec. 6654(a)
 1996     $2,175,165     $356,574.15          $396,193.50      $21,719.58

        The only issue remaining for decision is whether petitioner

is liable for the additions to tax under section 6651(a)(1) and

(2) for 1996.     We hold that he is.

                            FINDINGS OF FACT

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

        Petitioner resided in Hartford City, Indiana (Hartford), at

the time the petition was filed.

        Petitioner attended Purdue University from which he received

a B.S. degree in agricultural economics in 1967.          While enrolled

at Purdue University, petitioner took courses in economics,

business management, and accounting.

        After graduating from college, petitioner worked for approx-

imately 7-½ years as a salesperson for College Life Insurance

Company (College Life) in Indianapolis, Indiana.

        While working for College Life, petitioner acquired and

operated an A&W drive-in restaurant.         Around 1975, petitioner

resigned from College Life and worked in the restaurant business

on a full-time basis.     He has remained in the restaurant business

to at least the date of the trial in this case.

        In 1981, petitioner opened a restaurant in Hartford, known

as Richard’s restaurant, which was part of a chain of restaurants

known by the same name.     Shortly thereafter, in 1983, petitioner
                               - 3 -

sold his A&W drive-in restaurant.

     Since 1981, when petitioner opened Richard’s restaurant in

Hartford, he has operated it through an S corporation known as

Kedd, Inc. (Kedd).   At all relevant times, petitioner was presi-

dent and owned 50 percent, and his spouse Melanie Mason (Ms.

Mason) was the secretary and the treasurer and owned 50 percent,

of the stock of Kedd.

     In 1987, petitioner opened a second Richard’s restaurant in

New Castle, Indiana (New Castle).    Petitioner operated the

Richard’s restaurant in New Castle through another S corporation

known as TRM, Inc. (TRM).   During the year at issue, petitioner

and Ms. Mason each owned 50 percent of the stock of TRM.    Some-

time thereafter, TRM ceased doing business because the Richard’s

restaurant located in New Castle was not profitable, and TRM was

generating losses.

     From 1993 through at least the year at issue, petitioner

owned 100 percent of the stock of another S corporation, Prints

Unlimited, Inc. (Prints Unlimited), which operated an art gal-

lery.   Sometime thereafter, Prints Unlimited, which was generat-

ing losses, ceased doing business.

     At least during 1995 and 1996, petitioner was heavily

involved in investing in the stock market, which took a lot of

his time.   During those years, petitioner purchased varying

numbers of shares of stock in at least 48 companies, which he
                                - 4 -

disposed of during 1996.

     Throughout the period during which Kedd was operating

Richard’s restaurant in Hartford, petitioner maintained the books

and records for that corporation and prepared its payroll using

an Apple computer.   At all relevant times, he also maintained the

books and records and prepared the payroll for TRM and Prints

Unlimited.

     At all relevant times, petitioner’s activities relating to

the operations of two Richard’s restaurants, an art gallery, and

stock investments took a great deal of his time.

     Since Kedd began operating Richard’s restaurant in Hartford

in 1981, TRM began operating Richard’s restaurant in New Castle

in 1987, and Prints Unlimited began operating an art gallery in

1993, petitioner retained an accountant to prepare the S corpora-

tion tax returns, Forms 1120-S, for those S corporations.    That

accountant relied on petitioner, who kept the books and records

of those S corporations, to provide him with the information that

he needed to prepare those returns.

     Prior to 1985, petitioner prepared tax returns (returns) for

Ms. Mason and himself without using a computer tax software

program (tax software program).   Starting in 1985 and at all

relevant times thereafter, petitioner prepared those returns by

using a tax software program.   In 1992, a tax software program

that petitioner had been utilizing was no longer usable on his
                               - 5 -

Apple computer.   Nonetheless, petitioner timely filed his return

for 1992.   Sometime shortly thereafter, petitioner began to use a

new tax software program, which was much more complicated than

the tax software program he had previously used.

     Petitioner did not file his returns for 1993 and 1994 until

sometime in February or early March 2000.

     During 1995, petitioner made estimated tax payments for his

taxable year 1995 totaling $125,000.   On April 15, 1996, peti-

tioner requested respondent to grant him an automatic extension

of time to file his 1995 return on or before August 15, 1996.

That request was granted by respondent.   Petitioner did not

timely file his return for 1995.   That was because he was too

busy with his activities relating to the operations of two

Richard’s restaurants, an art gallery, and stock investments.     On

November 27, 1996, respondent prepared a substitute for return

for petitioner for 1995.   On March 13, 2000, petitioner filed his

1995 return with respondent.   In that return, petitioner claimed

an overpayment in the amount of $61,151, which he elected to

apply as a credit to his taxable year 1996.   Petitioner is barred

by the statute of limitations from applying that overpayment as a

credit to his tax liability for taxable year 1996.

     Petitioner did not timely file his return for 1996.   That

was because he was too busy with his activities relating to the

operations of two Richard’s restaurants, an art gallery, and
                               - 6 -

stock investments.   On November 28, 1999, respondent prepared a

substitute for return for petitioner for that year.   On March 27,

2000, petitioner mailed Form 1040, U.S. Individual Income Tax

Return, for taxable year 1996 to the Internal Revenue Service

Center in Cincinnati, Ohio.   Respondent received that return on

March 31, 2000.   In the return that petitioner filed for 1996,

petitioner reported total income on page 1, line 22, in the

amount of $2,295,370 and adjusted gross income on page 1, line

31, in the amount of $2,290,890.   Prior to the application of

$4,376 of prepayment withholding credits and $587,491.31 of

estimated tax payment credits, petitioner has a deficiency in tax

for taxable year 1996 in the amount of $632,750.   After applica-

tion of those prepayment credits, petitioner underpaid his tax

for taxable year 1996 in the amount of $40,882.69.

     Petitioner filed a return for 1997 around mid-April 2000.

As of October 23, 2000, the date of the trial in this case,

petitioner had not filed his returns for 1998 and 1999.

     Petitioner, without any assistance from anyone, prepared the

returns for his taxable years 1993 through 1997 that he filed

with respondent in 2000.   Petitioner fully understands that he is

required to file timely a return and to pay timely the tax that

is due with respect to any such return.

     Throughout the period 1983 to the time of the trial in this

case, petitioner timely made estimated tax payments that he
                               - 7 -

believed he owed for each taxable year during that period.    By

making those estimated tax payments, petitioner intended to, and

believed he did, overpay his tax liability for each of those

years, although he did not know the exact amount of any such

overpayment.

     In the notice of deficiency for 1996 that respondent issued

to petitioner (notice), respondent determined, inter alia, that

petitioner is liable for the additions to tax under section

6651(a)(1) and (2).

                              OPINION

     Petitioner bears the burden of showing error in the determi-

nations in the notice that remain at issue.   See Rule 142(a);

Welch v. Helvering, 290 U.S. 111, 115 (1933).

     It is petitioner’s position that he is not liable for the

additions to tax under section 6651(a)(1) and (2).    In support of

that position, petitioner advances three arguments.    Petitioner

first argues that the Excessive Fines Clause of the Eighth

Amendment to the U.S. Constitution (Eighth Amendment) precludes

imposition on him of the additions to tax under section

6651(a)(1) and (2).   The Eighth Amendment states:   “Excessive

bail shall not be required, nor excessive fines imposed, nor

cruel and unusual punishments inflicted.”   According to peti-

tioner,

     The excessive fines clause is intended to limit fines
     directly imposed by and payable to the government.
                               - 8 -

     Browning-Ferris Industries of Vt., Inc. v. Kelco Dis-
     posal, Inc., 429 [sic] U.S. 257 * * * (1989), at 268
     * * *. The Eighth Amendment is not limited to criminal
     cases. Austin v. United States, 509 U.S. 602 * * *
     (1993), and, thus is applicable to civil tax penalty
     cases such as Petitioners [sic]. See, e.g., Henry v.
     United States, 73 F.Supp.2d 1303 (N.D. Fla. 1999).
     (The Court at fn2 states, “I recognize that the [§
     6651] penalties and interest may be possibly subject to
     a constitutional challenge,. . . .”

          It is stipulated that Petitioner has forfeited a
     prior timely tax payment of $61,151 because he failed
     to file timely his 1995 Form 1040. Stip. ¶8. As a
     result of this forfeiture he was not able to apply this
     1995 overpayment to his 1996 Form 1040 tax liability,
     and thus, is obligated to pay an additional $40,882.69.
     Stip. ¶9.

          Thus, prior to imposing any §6651 penalty, the
     Petitioner has already been penalized $102,033.69. An
     additional penalty under §6651 in addition to the
     $102,033.69 Petitioner has already been penalized is
     excessive under the Excessive Fines Clause.

     Additions to tax, like those imposed for fraud under former

section 6653(b) and section 6663 and for failure to file timely

and to pay timely under section 6651(a)(1) and (2), are remedial,

and not punitive.   See Helvering v. Mitchell, 303 U.S. 391, 401

(1938); Ianniello v. Commissioner, 98 T.C. 165, 187 (1992).2

Such additions to tax are provided primarily as a safeguard for

the protection of the revenue and to reimburse the Government for

the significant expense of investigation and the loss resulting

from a taxpayer’s actions or omissions.   See Helvering v. Mitch-

ell, supra.



     2
      See also Healey v. Commissioner, T.C. Memo. 1996-260.
                                - 9 -

     In Browning-Ferris Indus. of Vt., Inc. v. Kelco Disposal,

Inc., 492 U.S. 257 (1989), the Supreme Court of the United States

held that the Excessive Fines Clause of the Eighth Amendment does

not extend to cases between private parties.     See id.   However,

it left open the question whether that clause might extend to

civil proceedings in which a private party instituted an action

in the name of the United States and expects to share in any

award of damages.    See id. at 260, 276 n.22.

     Regardless of whether Eighth Amendment protection might

apply after Browning-Ferris Indus. of Vt., Inc. v. Kelco Dis-

posal, Inc., supra, to certain civil proceedings, that protection

does not extend to the instant case.     Petitioner’s inability to

obtain a refund or a credit of the overpayment that he made for

his taxable year 1995 is the result of the operation of law

applied to the facts in this case.      Petitioner made a deliberate

decision not to file his 1995 return until March 13, 2000.     He

thus knowingly failed to comply with his annual obligation to

file his 1995 return, and he now seeks relief because he has lost

a refund or a credit for 1995 to which he otherwise would have

been entitled.

     All taxpayers, including petitioner, are bound by the strict

terms of the statutory provisions limiting refunds or credits for

overpayments.    In the instant case, petitioner decided not to

file his 1995 return until March 13, 2000.     In that return, he
                              - 10 -

claimed the overpayment of $61,151 that he had made for 1995 as a

credit to his tax liability for taxable year 1996.     Section

6511(b)(2)(A) limits such a credit (or a refund) for 1995 to the

tax paid for that year within the period, immediately preceding

the filing of the claim for a credit in petitioner’s 1995 return,

equal to three years plus the period of any extension of time for

filing that return.   See United States v. Brockamp, 519 U.S. 347,

351-354 (1997); Landry v. Commissioner, 116 T.C. ___ (2001) (slip

op. at 6).   The due date for petitioner’s 1995 return, including

extensions, was August 15, 1996.   The $61,151 overpayment that

petitioner made for his taxable year 1995 was made on April 15,

1996,3 and not within the period prescribed by section

6511(b)(2)(A).   Consequently, petitioner is not entitled to a

credit (or a refund) of that overpayment.   See sec.

6511(b)(2)(A); see also Landry v. Commissioner, supra.

     Petitioner’s inability to obtain a credit or a refund of his

1995 overpayment is self-imposed and is the result of the appli-

cation of section 6511(b)(2)(A) to petitioner’s conduct in

choosing not to file his 1995 return until March 13, 2000.       For



     3
      Any tax withheld from a taxpayer’s wages is deemed paid by
the taxpayer on the 15th day of the fourth month following the
close of the taxable year with respect to which such tax is
allowable as a credit under sec. 31. See sec. 6513(b)(1). Any
amount paid as estimated income tax for any taxable year is
deemed to have been paid on the last day for filing the return
for such taxable year (determined without regard to any exten-
sions of time for filing such return). See sec. 6513(b)(2).
                             - 11 -

purposes of determining his entitlement to the protection of the

Excessive Fines Clause of the Eighth Amendment, petitioner may

not couple his inability to obtain a credit or a refund of his

1995 overpayment with any liability that he may have for 1996 for

the additions to tax under section 6651(a)(1) and (2).   See

generally Ianniello v. Commissioner, 98 T.C. 165, 187 (1992).

     We hold that the Eighth Amendment does not preclude imposi-

tion on petitioner of the additions to tax under section

6651(a)(1) and (2).

     In further support of his position that he should not be

liable for the additions to tax under section 6651(a)(1) and

(2), petitioner argues in his opening brief that:

          Petitioner made the payments in question ($61,151)
     in 1995 over a year prior to the due date of the 1996
     Form 1040. Thus, the $61,151 must be considered in
     calculating the §6651 penalty even though tax payer
     [sic] later forfeited his right to apply the payment
     due to his late filing of his 1996 [sic] Form 1040.

Petitioner elaborates in his answering brief on the foregoing

argument, as follows:

          I.R.C. §6651(b) is the subsection which actually
     imposes the I.R.C. §§6651(a)(1) and (a)(2) penalties.
     It states that for purposes of calculating the penal-
     ties imposed by I.R.C. §6651(a)(1) and I.R.C.
     §6651(a)(2), “...the amount of tax required to be shown
     on the return shall be reduced by the amount of any tax
     which is paid on or before the date prescribed for
     payment of the tax....” Applying the plain and literal
     meaning of this statutory language requires the Inter-
     nal Revenue Service in calculating any penalty under
     I.R.C. §6651 to reduce the 1996 tax by the taxes Ron
     Mason [petitioner] paid before April 15, 1997 which is
     the date prescribed for payment of the tax of the 1996
                                - 12 -

    return. I.R.C. §6651(b) does not state the tax shall
    be reduced by any payment of tax eventually claimed on
    the return as it does when I.R.C. §6651(b) addresses
    immediately after the above-quoted section the amount
    of any credit claimed on the return.

          Accordingly, neither the Internal Revenue Service
     nor this Court may ignore the statutory language which
     states such tax payments by Ron Mason “shall” reduce
     the tax upon which the penalty is calculated. Thus,
     Ron Mason’s tax liability for 1996 must be reduced by
     the 1995 tax liability for 1996. If there is no tax
     liability for 1996 then there is [sic] no additions to
     tax under I.R.C. §§6651(a)(1) and (a)(2). * * *

     The short answer to the above-quoted argument of petitioner

is that although petitioner overpaid his tax liability for 1995,

he is barred by the statute of limitations from applying that

overpayment as a credit to his tax liability for taxable year

1996, see sec. 6511(b)(2)(A), and the parties so stipulated.      The

parties also stipulated that petitioner underpaid his tax for his

taxable year 1996 in the amount of $40,882.69.

     The long answer to petitioner’s argument is that petitioner

misconstrues section 6651(b).    Contrary to the contentions of

petitioner, section 6651(b) is not “the subsection which actually

imposes the I.R.C. §§6651(a)(1) and (a)(2) penalties.”    As

pertinent here, section 6651(b) states:

     SEC. 6651.   FAILURE TO FILE TAX RETURN OR TO PAY TAX.

          (b) Penalty Imposed on Net Amount Due.–-For pur-
     poses of--

          (1) subsection (a)(1), the amount of tax required
     to be shown on the return shall be reduced by the
     amount of any part of the tax which is paid on or
     before the date prescribed for payment of the tax and
                             - 13 -

     by the amount of any credit against the tax which may
     be claimed on the return,

           (2) subsection (a)(2), the amount of tax shown on
     the return shall, for purposes of computing the addi-
     tion for any month, be reduced by the amount of any
     part of the tax which is paid on or before the begin-
     ning of such month and by the amount of any credit
     against the tax which may be claimed on the return,
     * * *

     As applied here, for purposes of section 6651(a)(1), the

amount of petitioner’s tax for 1996 required to be shown in his

1996 return is to be reduced by the amount of any part of his tax

for 1996 which is paid on or before the date prescribed for the

payment of such tax (i.e., on or before April 15, 1997) and by

the amount of any credit against his 1996 tax to which he is

entitled and which may be claimed in his return for that year.

In the instant case, petitioner has conceded in the parties’

stipulation of facts (stipulations) that none of the $61,151

overpayment for 1995 may constitute a payment or a credit against

petitioner’s underpayment of $40,882.69 for 1996.4     The only tax



     4
      The pertinent stipulations of the parties are:

          8. The petitioner did not file his 1995 Form 1040
     until March 13, 2000. In that return, petitioner
     claimed an overpayment in the amount of $61,151.00,
     which he elected to apply as a credit to his 1996 tax
     year. The parties stipulate that petitioner is barred
     by the statute of limitations from applying that over-
     payment to the taxable year 1996.

          9. The parties stipulate that the petitioner has
     underpaid his Federal income tax for the taxable year
     1996 in the amount of $40,882.69.
                               - 14 -

of petitioner for 1996 paid on or before April 15, 1997 (the date

prescribed for payment of his tax for that year) and the only

credit against the 1996 tax which may be claimed by petitioner in

his 1996 return are the prepayment withholding credits of $4,376

and the estimated tax payment credits in the amount of

$587,491.31.   Pursuant to section 6651(b)(1), only those amounts

may reduce the amount of tax required to be shown in petitioner’s

1996 return for purposes of section 6651(a)(1).

     Similarly, as applied here, for purposes of section

6651(a)(2), the amount of petitioner’s tax shown in petitioner’s

1996 return is to be reduced, for purposes of computing the

addition to tax under that section for any month, by the amount

of any part of the tax for 1996 which is paid on or before the

beginning of such month and by the total amount ($591,867.31) of

the prepayment credits against petitioner’s 1996 tax to which he

is entitled and which may be claimed in his return for that year.

     We hold that, for purposes of calculating the additions to

tax under section 6651(a)(1) and (2), section 6651(b) does not

permit petitioner to apply his 1995 overpayment of $61,151 as a

credit against the tax required to be shown or shown, as the case

may be, in his 1996 return.5

     As a third ground in support of his position that he should


     5
      However, in computing the additions to tax under sec.
6651(a)(1) and (2), the limitations and special rule of sec.
6651(c) apply.
                              - 15 -

not be liable for the additions to tax under section 6651(a)(1)

and (2), petitioner contends that he had reasonable cause for

failing to file timely his return for 1996 and failing to pay

timely his tax liability for that year and that those failures

were not due to willful neglect.    According to petitioner,

reasonable cause existed because:

               a. Petitioner personally prepared his
          federal income tax returns. He has no spe-
          cial education or training which would have
          reasonably led him to be aware of the tax law
          which disallowed the use of his 1995 tax
          overpayment.

               b. Petitioner had been severely penal-
          ized already by the loss of $102,033.00 [1995
          overpayment of $61,151 for which he may not
          receive a refund or credit and 1996 underpay-
          ment of $40,882 which he must pay] which the
          Government has gained.

               c. The level of complexity of the issue
          resulting in the loss of Petitioner’s 1995
          tax overpayment is quite high as evidenced
          by, among other things, the split decision of
          the Supreme Court in Commissioner v. Lundy,
          516 U.S. 235 (1996).

               d. Importantly, Petitioner should be
          given credit and awarded because he did pay
          his taxes timely albeit the application of
          certain tax laws prevent the use of
          $61,151.00 in 1996 of his 1995 tax overpay-
          ment. The Government did receive this money.


     On the record before us, we find that petitioner has failed

to satisfy his burden of showing that he had reasonable cause for

failing to file timely his 1996 return and failing to pay timely

his 1996 tax liability.   Petitioner is well educated and an
                                - 16 -

experienced and successful businessman who was aware of his

duties to file timely his returns and to pay timely any tax

liability reflected in those returns.      Petitioner’s inability to

receive a refund or a credit of his 1995 overpayment resulted

solely from his choice to file his 1995 return late on March 13,

2000.     See sec. 6511(b)(2)(A).   Contrary to the contention of

petitioner, that late filing and the barring of a refund or a

credit of his 1995 overpayment are not controlled by the holding

in Commissioner v. Lundy, 516 U.S. 235 (1996).        Petitioner was

granted an extension of time until August 15, 1996, within which

to file his 1995 return.     He chose not to file that return until

March 13, 2000.     Petitioner was barred from receiving a credit or

a refund of his 1995 overpayment because he filed his return for

1995 on March 13, 2000.     See sec. 6511(b)(2)(A).

        Moreover, the record establishes that petitioner made no

effort to determine timely his tax obligations for the year 1996

and for the years 1993 through 1995 and 1997 through 1999.

Although he was well aware of his duty to file timely his returns

for those years and to pay timely any liability reflected in such

returns, he did not file his returns for 1993 through 1997 until

February and March 2000, and as of the date of the trial in this

case he still had not filed his returns for 1998 and 1999.

Petitioner’s only explanation for these failures was that he was

“too busy” and that he believed that he had paid any tax liabil-
                              - 17 -

ity that he owed for those years.

     In support of his position under section 6651(a)(1) and (2),

petitioner attempts to distinguish Ferguson v. Commissioner, T.C.

Memo. 1994-114, and Knight v. Commissioner, T.C. Memo. 1984-376,

from the instant case.   We find the facts in those cases relating

to the addition to tax under section 6651(a)(1) to be similar to

the facts in the case before us.    In Ferguson, the taxpayer

contended that he failed to file timely his returns for the three

years involved in that case “because he was busy working two

jobs, because he believed the amount of his withholdings exceeded

the amount he believed he owed, and because he believed that,

under such circumstances, he would not be penalized for failure

to timely file.”   Ferguson v. Commissioner, supra.    We rejected

those reasons as inadequate in Ferguson, and we reject them here.

As we stated in Ferguson:   “These excuses are not adequate to

show reasonable cause for petitioner’s failure to file timely

returns for the years in issue.”6   Id.

     In Knight v. Commissioner, T.C. Memo. 1984-376, the taxpayer

did not file returns for three years.     In explaining that fail-


     6
      According to petitioner, an important distinction between
Ferguson v. Commissioner, T.C. Memo. 1994-114, and the instant
case is that in Ferguson the taxpayer “never paid the necessary
taxes to the Government.” We reject that distinction as factu-
ally inaccurate. Petitioner has not paid all of the tax that he
owes for 1996, and he so conceded in the stipulations that he
entered into with respondent when he stipulated that he has an
underpayment for 1996 of $40,882.69.
                               - 18 -

ure, the taxpayer contended at trial that “his reasons for

failing to file involved an unconfirmed belief that he did not

owe any tax, the ‘trauma’ of all his problems and the fact that,

unless someone was pressuring him to do something, he did not do

it.”   Id.   We held that those reasons did not constitute reason-

able cause for failure to file the returns in question within the

meaning of section 6651(a)(1).    See id.   We find the explanations

offered by petitioner here for his failure to file timely his

1996 return and his failure to pay timely his 1996 tax liability

to be similar to the excuses offered by the taxpayer in Knight.

We rejected those excuses in Knight, and we reject those explana-

tions here.

       On the record before us, we find that petitioner’s failure

to file timely his return for 1996 and his failure to pay timely

his tax liability for that year were not due to reasonable cause

but were due to willful neglect.

       On the record before us, we find that petitioner is liable

for the additions to tax under section 6651(a)(1) and (2).

       We have considered all of the contentions and arguments of

petitioner that are not discussed herein, and we find them to be

without merit and/or irrelevant.

       To reflect the foregoing and the concessions of the parties,

                                      Decision will be entered

                                 under Rule 155.
