                        T.C. Memo. 2005-258



                      UNITED STATES TAX COURT



                 JOYCE M. THOMAS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10824-03.               Filed November 1, 2005.



     Joyce M. Thomas, pro se.

     Andrew R. Moore, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     HAINES, Judge:   Respondent determined the following

deficiencies and additions to tax in petitioner’s Federal income

taxes:1


     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended, and all Rule references
are to the Tax Court Rules of Practice and Procedure. All
                                                   (continued...)
                                  - 2 -


                                 Sec. 6651(a)(1)       Sec. 6654(a)
        Year    Deficiency      Additions to tax     Additions to tax

        1998      $14,664             $791                   --
        1999       49,065            7,471                 $1,343
        2000       31,403            5,785                  1,187

        After concessions,2 the issues for decision are:    (1)

Whether petitioner is liable for a 10-percent additional tax

under section 72(t)(1) on distributions made from her individual

retirement accounts (IRAs) in 1999 and 2000; (2) whether

petitioner is liable for additions to tax under section

6651(a)(1) for failure to timely file her Federal income tax

returns for 1998, 1999, and 2000 (years in issue); and (3)

whether petitioner is liable for additions to tax under section

6654(a) for failure to pay estimated income tax for 1999 and

2000.

                             FINDINGS OF FACT

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.       At the time she filed the

petition, petitioner resided in Milpitas, California.

     Petitioner was born in 1958.      At some point during 1992 or



        1
      (...continued)
amounts are rounded to the nearest dollar.
        2
        In the stipulation of facts, the parties agreed to the
amount of income received by petitioner and the deductions
petitioner is entitled to for 1998, 1999, and 2000.
                               - 3 -

1993, petitioner began suffering from bilateral tendinitis and

carpal tunnel syndrome.   Her carpal tunnel symptoms were minimal,

and surgery was not recommended for either condition.   Petitioner

also suffered from periods of depression.

     During the years in issue, petitioner was employed by

Cypress Semiconductor Corporation (Cypress) to lay out computer

chips.   Petitioner also operated her own startup network

marketing business.

     At some point during 2000, Cypress transferred petitioner to

another job because her bilateral tendinitis and carpal tunnel

syndrome were aggravated by her chip-laying duties.    Petitioner

was unable to perform her new duties and was transferred back to

her former job.   During 2000 or 2001, petitioner’s medical

conditions limited her to working only 4 hours a day.

     Petitioner owned several IRAs but became unhappy with the

rate of return from investments held in those accounts.     In 1999

and 2000, petitioner received distributions from her IRAs

totaling $57,138 and reinvested the funds in non-IRA

investments.3

     Petitioner did not file Federal income tax returns for the



     3
        During 1999, petitioner received a distribution of $4,992
from her Aim Family of Funds, Aim Balanced Fund B IRA. During
2000, she received the following distributions: (1) $14,518 from
the Aim Constellation Fund A; (2) $14,871 from the Aim Value Fund
B; (3) $6,348 from the Aim Balanced Fund B; and (4) $16,409 from
the Aim Weingarten Fund A.
                                  - 4 -

years in issue.    Instead, petitioner testified that she filed

“tax statements”, but she could not recall when she filed the

statements or the nature of those statements.    In addition,

petitioner made no estimated tax payments during 1999 or 2000.

     On April 8, 2002, respondent prepared substitutes for

returns for petitioner for the years in issue.    On April 9, 2003,

respondent sent petitioner notices of deficiency for the years in

issue.   Respondent determined that petitioner was liable for

additional taxes of $499 and $5,215 for early distributions from

her IRAs for 1999 and 2000, respectively.    Respondent also

determined that petitioner was liable for additions to tax under

sections 6651(a)(1) and 6654(a), as set out above.

     In response to the notices of deficiency, petitioner filed a

petition with this Court on July 7, 2003.

                                 OPINION

A.   Petitioner Is Liable for a 10-Percent Additional Tax Under

     Section 72(t)(1)

     Respondent determined that, under section 72(t)(1),

petitioner is liable for a 10-percent additional tax on early

distributions from her IRAs in 1999 and 2000.    Petitioner bears

the burden of proving that respondent erred in making this

determination.    Rule 142(a).

     Section 72(t)(1) imposes a 10-percent additional tax on

early distributions from qualified retirement plans.   Qualified
                               - 5 -

retirement plans are defined to include IRAs as defined in

section 408(a) and (b).   Secs. 72(t)(1), 4974(c).   There is no

dispute as to whether petitioner’s IRAs are “qualified retirement

plans” for purposes of section 72(t).

     The 10-percent additional tax does not apply to certain

distributions from qualified retirement plans, including

distributions made after an employee attains age 59½ and

distributions attributable to the employee’s disability.    Sec.

72(t)(2)(A)(i), (iii); see sec. 72(t)(2).    For purposes of

section 72, an employee is disabled if she is “unable to engage

in any substantial gainful activity by reason of any medically

determinable physical condition or mental impairment which can be

expected to result in death or to be of long-continued and

indefinite duration.”   Sec. 72(m)(7).

     Petitioner was born in 1958.    The distributions from her

IRAs were made in 1999 and 2000.    Because petitioner had not

attained the age of 59½ at the time of the distributions, the

exception found in section 72(t)(2)(A)(i) does not apply.

     During 1999 and 2000, petitioner was employed by Cypress and

was running her own startup network marketing business.    Although

petitioner testified that the condition of her health slowed her

down and forced her to switch from full-time to part-time work

during 2000, petitioner was still able to engage in substantially

gainful activity.   See sec. 72(m)(7).   Because petitioner was not
                               - 6 -

disabled within the meaning of section 72(m)(7), we find that the

exception in section 72(t)(2)(A)(iii) does not apply.   See Dwyer

v. Commissioner, 106 T.C. 337 (1996); cf. Brown v. Commissioner,

T.C. Memo. 1996-421.

     Petitioner has not argued, and the record is devoid of any

evidence which would indicate, that petitioner is qualified for

any other exception to section 72(t)(1).   For the foregoing

reasons, we hold that petitioner is liable for a 10-percent

additional tax on the early distributions from her IRAs.

B.   Additions to Tax Under Sections 6651(a)(1) and 6654(a)

     1.   Respondent Bears the Burden of Production

     Respondent determined that petitioner is liable for

additions to tax under section 6651(a)(1) for failure to file

income tax returns for the years in issue.   Respondent also

determined that petitioner is liable for additions to tax under

section 6654(a) for failure to make estimated tax payments on

income realized from the IRA distributions in 1999 and 2000.

Respondent bears the burden of production with respect to

petitioner’s liability for the additions to tax.   Sec. 7491(c);

Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001).   To meet

his burden of production, respondent must come forward with

sufficient evidence indicating that it is appropriate to impose

the additions to tax.   Higbee v. Commissioner, supra at 446-447.

Once respondent meets his burden of production, petitioner must
                                - 7 -

come forward with evidence sufficient to persuade the Court that

respondent’s determination is incorrect.    Id.

     2.    Petitioner Is Liable for Section 6651(a)(1) Additions

           to Tax

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

file a return on the date prescribed (determined with regard to

any extension of time for filing), unless petitioner can

establish that such failure is due to reasonable cause and not

due to willful neglect.    Respondent submitted and the Court

received into evidence Forms 4340, Certificates of Assessments,

Payments, and Other Specified Matters (respondent’s Forms 4340),

applicable to petitioner for the years in issue.    Respondent’s

Forms 4340 indicate that petitioner did not file income tax

returns for the years in issue, which petitioner confirmed in her

testimony at trial.   We find that respondent has met his burden

of production.

     To show reasonable cause, petitioner must show that she

“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.   For

illness or incapacity to constitute reasonable cause, petitioner

must show that she was incapacitated to such a degree that she

could not file her returns.    Williams v. Commissioner, 16 T.C.

893, 905-906 (1951); see, e.g., Joseph v. Commissioner, T.C.
                               - 8 -

Memo. 2003-19 (“Illness or incapacity may constitute reasonable

cause if the taxpayer establishes that he was so ill he was

unable to file.”); Black v. Commissioner, T.C. Memo. 2002-307,

affd. 94 Fed. Appx. 968 (3d Cir. 2004); Watts v. Commissioner,

T.C. Memo. 1999-416 (“taxpayer’s selective inability to perform

his or her tax obligations, while performing * * * regular

business, does not excuse failure to file”).

     Although petitioner suffered from bilateral tendinitis,

carpal tunnel syndrome, and periods of depression, she was

constantly employed by Cypress and was running her own startup

network marketing business during the years in issue.   In

addition, petitioner testified that she was able to file “tax

statements” for the years in issue.    For these reasons, we find

that petitioner was not incapacitated to such a degree that she

could not file her tax returns.

     Petitioner has not raised other arguments that would suggest

her failure to file was due to reasonable cause.   Petitioner has

failed to show that she exercised ordinary business care and

prudence, but she was nevertheless unable to file her returns.

We find that petitioner did not have reasonable cause for her

failure to file.   Therefore, we hold that petitioner is liable

for section 6651(a)(1) additions to tax for the years in issue.
                               - 9 -

     3.   Petitioner Is Liable for Section 6654(a) Additions to

          Tax

     Section 6654(a) imposes an addition to tax on an

underpayment of estimated tax unless one of the statutory

exceptions applies.   Niedringhaus v. Commissioner, 99 T.C. 202,

222 (1992); Grosshandler v. Commissioner, 75 T.C. 1, 20-21

(1980); see sec. 6654(e).   Respondent’s Forms 4340 indicate that

petitioner did not make estimated tax payments in 1999 or 2000,

which petitioner confirmed in her testimony at trial.    We find

that respondent has met his burden of production.

     Under section 6654(e)(3)(B), the addition to tax will not be

imposed where the taxpayer becomes disabled in the taxable year

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

the preceding taxable year, and the underpayment is due to

reasonable cause and not due to willful neglect.

     Petitioner was suffering from bilateral tendinitis, carpal

tunnel syndrome, and depression at the time the estimated

payments were required to be made.     However, during this period,

petitioner was employed by Cypress and was running her own

startup network marketing business.    We find that petitioner was

not disabled for purposes of section 6654.    Therefore, the

exception found in section 6654(e)(3)(B) does not apply.

      We do not find that any other statutory exception applies.

Therefore, we hold that petitioner is liable for additions to tax

under section 6654(a) for 1999 and 2000.
                              - 10 -

Summary

     For the above-stated reasons, we hold that petitioner is

liable for:   (1) A 10-percent additional tax under section

72(t)(1) on her IRA distributions; (2) section 6651(a)(1)

additions to tax for all years in issue; and (3) section 6654(a)

additions to tax for 1999 and 2000.

     In reaching our holdings, we have considered all arguments

made, and, to the extent not mentioned, we conclude that they are

moot, irrelevant, or without merit.

     To reflect the foregoing,

                                           Decision will be entered

                                      under Rule 155.
