                        T.C. Memo. 2011-250



                      UNITED STATES TAX COURT



                  DENISE KILKER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6699-07.               Filed October 27, 2011.



     Denise Kilker, pro se.

     Annie Lee, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     HAINES, Judge:   Respondent determined a deficiency of

$59,412 in petitioner’s Federal income tax and additions to tax

pursuant to sections 6651(a)(1)1 and (2) and 6654(a) of $13,368,


     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code (Code), as amended and in effect for
the taxable year at issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure. Amounts are rounded to
                                                   (continued...)
                              - 2 -

$5,644, and $1,725, respectively, for 2004.   The issues for

decision after concessions2 are:   (1) Whether petitioner received

taxable capital gain income of $90,290;3 (2) whether petitioner

received taxable compensation for services income of $100,000;

and (3) whether petitioner is liable for the additions to tax

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

                         FINDINGS OF FACT

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

The stipulation of facts is incorporated herein by this

reference.   At the time petitioner filed her petition, she lived

in California.

     Petitioner is the owner and operator of Kilker Enterprises,

a printing shop doing business as Allegra Print and Imaging

(Allegra).   Petitioner was Allegra’s chief operating officer

during 2003 and 2004.   In 2003, in exchange for providing Zap


     1
      (...continued)
the nearest dollar.
     2
      In a stipulation of settled issues petitioner concedes
that: (1) She received $750 of gross income in 2004 from
Household Finance Corp., (2) she received $1 in taxable interest
income in 2004 from Bank of the West, (3) she did not timely file
a Form 1040, U.S. Individual Income Tax Return, for taxable year
2004, (4) she did not pay any income tax for 2004, and (5) she
did not make any estimated tax payments for income tax due for
2004.
     3
      According to the notice of deficiency, petitioner had
$90,290 of capital gain income in 2004. However, according to
Form 1099-B, Proceeds From Broker and Barter Exchange
Transactions, petitioner earned $90,292 of capital gain income in
2004.
                              - 3 -

Corp. (Zap) with printing services, petitioner received 73,529

shares of Zap stock.   The stock was restricted stock pursuant to

Securities and Exchange Commission rule 144 under the Securities

Act of 1933, meaning petitioner could not sell or transfer the

stock for at least 1 year.   In 2004, at the end of the 1-year

holding period, petitioner transferred the 73,529 shares of stock

to her Edward Jones personal brokerage account.   Shortly

thereafter petitioner sold 30,000 shares for a total of $90,290.

     On September 20, 2004, petitioner entered into an agreement

with Zap to provide ZAP with printing services for 12 months.    In

exchange ZAP agreed to pay petitioner $100,000 in Zap common

stock (53,763 shares valued at $1.86 per share as of the closing

date of the agreement).   Petitioner received the stock in 2004.

She directed ZAP to issue her three stock certificates, each for

17,921 shares.   She requested that the stock certificates be

issued in the names of:   Denise Kilker, Custodian, for M.K.;

Denise Kilker, Custodian, for R.G.; and James Kilker.   ZAP issued

petitioner a Form 1099-MISC, Miscellaneous Income, for 2004,

stating petitioner had received $100,000 in nonemployee

compensation.

     Petitioner did not file a Form 1040, nor did she make any

estimated tax or other payments on her tax due, for 2004.

Respondent filed a Federal income tax return for 2004 on behalf

of petitioner pursuant to section 6020(b).   On December 18, 2006,
                                - 4 -

respondent mailed petitioner a notice of deficiency for 2004.

Petitioner timely mailed her petition to the Court on March 20,

2007.

                               OPINION

I.   Burden of Proof

        As a general rule, the Commissioner’s determinations as set

forth in a notice of deficiency are presumed correct, and the

taxpayer bears the burden of proving that those determinations

are erroneous.     Rule 142(a); Welch v. Helvering, 290 U.S. 111

(1933).     However, under certain circumstances the burden of proof

may shift to the Commissioner if the taxpayer introduces credible

evidence with respect to any factual issue relevant to

ascertaining the income tax liability of the taxpayer.      Sec.

7491(a)(1).

        Section 7491(a)(1) applies only if the taxpayer complies

with the relevant substantiation requirements in the Code,

maintains all required records, and cooperates with the

Commissioner with respect to witnesses, information, documents,

meetings, and interviews.     Sec. 7491(a)(2)(A) and (B).   The

taxpayer bears the burden of proving compliance with the

conditions of section 7491(a)(2)(A) and (B).     See, e.g.,

Ruckriegel v. Commissioner, T.C. Memo. 2006-78.     Petitioner

neither proposes facts to support her compliance with the

conditions of section 7491(a)(2)(A) and (B) nor argues that
                              - 5 -

respondent bears the burden of proof on any issue because of

section 7491(a)(1).   Accordingly, the burden remains on

petitioner to prove that respondent’s determination of a

deficiency in her income tax is erroneous.

     However, the Court of Appeals for the Ninth Circuit, to

which an appeal in this case would lie, has determined that in

order for the presumption of correctness to attach to a

deficiency determination in unreported income cases, the

Commissioner must establish “some evidentiary foundation”

connecting the taxpayer to the income-producing activity,

Weimerskirch v. Commissioner, 596 F.2d 358, 361-362 (9th Cir.

1979), revg. 67 T.C. 672 (1977), or demonstrate the taxpayer

received unreported income, Edwards v. Commissioner, 680 F.2d

1268, 1270 (9th Cir. 1982).   Once there is evidence of actual

receipt of income by the taxpayer, the taxpayer has the burden of

proving that all or part of the income is not taxable.      Tokarski

v. Commissioner, 87 T.C. 74, 76-77 (1986).   A deficiency

determination that is not supported by some evidentiary

foundation is arbitrary and erroneous.   Weimerskirch v.

Commissioner, supra at 362.   In these circumstances, the

Commissioner has the burden of coming forward with evidence

establishing the existence and amount of a deficiency.      Jackson

v. Commissioner, 73 T.C. 394, 401 (1979).
                              - 6 -

     To satisfy his initial burden of production with respect to

petitioner’s compensation for services of $100,000, respondent

provided the Court with:   (1) A contract signed by petitioner to

perform services in exchange for compensation, (2) a Form 1099-

MISC4 prepared by Zap reporting nonemployee compensation paid to

petitioner, (3) Zap’s transfer agent transaction register

confirming the Zap stock was transferred to petitioner, and (4)

the testimony of Renay Cude, Zap’s corporate secretary, who

confirmed that the Zap stock was issued directly to petitioner.

     To satisfy his initial burden of production with respect to

petitioner’s capital gain income of $90,290, respondent provided

the Court with a Form 1099-B, Proceeds From Broker and Barter

Exchange Transactions, and trade confirmations from Edward Jones

confirming the information reported on the Form 1099-B.

     Respondent having met his initial burden of production, the

burden shifts to petitioner to prove the deficiency determination

incorrect.   See Rule 142(a); Welch v. Helvering, supra.


     4
      If an information return, such as a Form 1099-MISC, serves
as the basis for the determination of a deficiency, sec. 6201(d)
may apply to shift the burden of production to the Commissioner.
Sec. 6201(d) provides that in any court proceeding, if a taxpayer
asserts a reasonable dispute with respect to the income reported
on an information return and the taxpayer has fully cooperated
with the Commissioner, then the Commissioner has the burden of
producing reasonable and probative information in addition to the
information return. See McQuatters v. Commissioner, T.C. Memo.
1998-88. Petitioner has not disputed the accuracy of the
information returns and has not fully cooperated with respondent.
Therefore, the Court concludes respondent does not have the
burden of production under sec. 6201(d).
                               - 7 -

II.   Capital Gain Income

      Section 61(a) defines gross income as all income from

whatever source derived.    Section 61(a)(3) specifically

includes in income gains derived from dealings in property.

Respondent argues that petitioner received $90,290 from the sale

of 30,000 shares of Zap stock in 2004.    Petitioner has failed to

present any evidence to dispute she received this amount or any

evidence of her basis in the shares of stock.    Accordingly, we

sustain respondent’s determination with respect to the capital

gain income.5

III. Compensation for Services Income

      Section 61(a) defines gross income as all income from

whatever source derived.    Section 61(a)(1) specifically

includes in income compensation for services.    Respondent argues

that petitioner received $100,000 of Zap stock in exchange for

providing Zap with 12 months of printing services.    Petitioner

claims that she was the owner and sole officer of Allegra at the

time she signed the agreement to perform printing services and

was therefore acting on Allegra’s behalf.    As a result, she

claims the $100,000 of Zap stock was compensation to Allegra.

Petitioner further claims she used the proceeds from the sale of

the Zap stock to pay Allegra’s expenses, thus arguing that the


      5
      Respondent concedes that petitioner held the stock for more
than 1 year. Therefore the capital gain income is treated as
long-term capital gain.
                              - 8 -

income is Allegra’s.   We do not agree.   Petitioner has failed to

provide any evidence to support her arguments.   She did not

provide corporate tax returns in which Allegra reported the stock

as income, she did not attempt to have Zap reissue the stock

certificates in Allegra’s name, and she did not provide support

for her contention that she used proceeds from the sale of the

stock to pay Allegra’s expenses.   Accordingly, we sustain

respondent’s determination with respect to the compensation for

services income.

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

      Respondent determined that petitioner is liable for

an addition to tax under section 6651(a)(1) for failure to timely

file her income tax return for 2004.   In general, the

Commissioner bears the burden of production with respect to a

taxpayer’s liability for additions to tax.   Sec. 7491(c); Higbee

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

burden of production with respect to section 6651, respondent

must come forward with sufficient evidence indicating that it is

appropriate to impose the addition to tax.    Higbee v.

Commissioner, supra at 446.   The parties stipulated that

petitioner’s 2004 Federal income tax return was never filed.6


      6
      Respondent filed a Federal income tax return for 2004 on
behalf of petitioner pursuant to sec. 6020(b). However, a
substitute for return under sec. 6020(b) is disregarded for
purposes of determining the amount of the addition to tax under
                                                   (continued...)
                              - 9 -

Petitioner’s return was due on April 15, 2005.   Thus, respondent

has carried the burden of production with respect to the addition

to tax under section 6651(a)(1).

     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 the failure was due to reasonable cause and not

due to willful neglect.   A showing of reasonable cause requires

petitioner to demonstrate she exercised ordinary business care

and prudence and nevertheless was unable to file the return by

the due date.   See sec. 301.6651-1(c)(1), Proced. & Admin. Regs.

In order to avoid an addition to tax under section 6651(a),

petitioner must carry the burden of establishing reasonable

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

     At the time of trial, petitioner had not filed her 2004

Federal income tax return.   Therefore she cannot argue reasonable

cause, nor has she argued reasonable cause.   Accordingly, we

conclude that petitioner is liable for an addition to tax under

section 6651(a)(1) in the amount respondent determined.

     Respondent also determined that petitioner is liable for the

addition to tax imposed by section 6651(a)(2) for failure to pay


     6
      (...continued)
sec. 6651(a)(1). Sec. 6651(g)(1). That said, a substitute for
return is treated as a return filed by the taxpayer for purposes
of determining the amount of the addition to tax under sec.
6651(a)(2). Sec. 6651(g)(2).
                                - 10 -

the amounts of tax shown on her 2004 Federal income tax return.

Respondent did not introduce the 2004 substitute for return filed

on behalf of petitioner pursuant to section 6020(b), nor did

respondent introduce a Form 4340, Certificate of Assessments,

Payments, and Other Specified Matters, for 2004.    See Cabirac v.

Commissioner, 120 T.C. 163, 172-173 (2003).     Thus, respondent has

not produced sufficient evidence that petitioner is liable for

the section 6651(a)(2) addition to tax for 2004.

V.   Section 6654(a)

     Respondent determined that petitioner is liable for an

addition to tax under section 6654(a) for failure to pay

estimated income tax for 2004.    Section 6654(a) imposes an

addition to tax “in the case of any underpayment of estimated tax

by an individual”.     A taxpayer has an obligation to pay estimated

tax for a particular year only if she has a “required annual

payment” for that year.    Sec. 6654(d).   A required annual payment

generally is equal to the lesser of:     (i) 90 percent of the tax

shown on the return for the taxable year (or, if no return is

filed, 90 percent of the tax for the year); or (ii) 100 percent

of the tax shown on the return of the individual for the

preceding taxable year.    Sec. 6654(d)(1)(B); Wheeler v.

Commissioner, 127 T.C. 200, 210-211 (2006), affd. 521 F.3d 1289

(10th Cir. 2008); Heers v. Commissioner, T.C. Memo. 2007-10.     If

the taxpayer did not file a return for the preceding year, then
                                - 11 -

clause (ii) does not apply.   Sec. 6654(d)(1)(B).      Respondent’s

burden of production under section 7491(c) requires him to

produce evidence that petitioner had a required annual payment

for 2004.

     Respondent has satisfied his burden of production by

introducing evidence that (1) 90 percent of petitioner’s $59,412

income tax liability for 2004 is $53,471, (2) that petitioner

filed a Federal income tax return for 2003 showing a Federal

income tax liability of $4,525, and (3) that petitioner made no

estimated tax payments for 2004.7    See Higbee v. Commissioner,

supra at 446.   Petitioner neither argued nor established any of

the defenses enumerated in section 6654(e).       Consequently,

petitioner has not met her burden of persuasion, and respondent’s

determinations are sustained.    See United States v. Rylander, 460

U.S. 752, 758 (1983).

     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.




     7
      Petitioner concedes that she did not make estimated tax
payments in 2004.
