                        T.C. Summary Opinion 2015-31



                        UNITED STATES TAX COURT



                  DARREL W. WYATT, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 13215-12S L.                     Filed April 20, 2015.



      Darrel W. Wyatt, pro se.

      Sean P. Deneault, for respondent.



                             SUMMARY OPINION


      ARMEN, Special Trial Judge: This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect when the
                                           -2-

petition was filed.1 Pursuant to section 7463(b), the decision to be entered is not

reviewable by any other court, and this opinion shall not be treated as precedent

for any other case.

       Pursuant to section 6330(d)(1), petitioner seeks review of respondent’s

determination sustaining a proposed levy to collect his self-reported but unpaid

Federal income tax liability for 2009. Petitioner challenges the existence of such

liability to the extent that it arose from income from cancellation of indebtedness.

Petitioner also challenges the existence or amount of his self-reported addition to

tax for failure to pay estimated tax. Finally, petitioner challenges the existence or

amount of an addition to tax for failure to timely pay that respondent assessed after

petitioner failed to satisfy his self-reported tax liability.

       The principal issue for decision is whether the forgiveness of a loan gave

rise to income from cancellation of indebtedness. The Court must also decide

whether petitioner is liable for an addition to tax for failure to pay estimated tax

and an addition to tax for failure to timely pay tax reported on a return.




       1
        Unless otherwise indicated, all subsequent section references are to the
Internal Revenue Code as amended and in effect at all relevant times. All Rule
references are to the Tax Court Rules of Practice and Procedure.
                                           -3-

                                       Background

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

incorporate by reference the stipulated facts and the related exhibits.

         Petitioner resided in the State of Florida at the time that the petition was

filed.

Petitioner’s Profession

         Petitioner is a physician. He graduated from the University of Arkansas

College of Medicine at Little Rock in 1978 and is board certified in obstetrics and

gynecology.

Recruitment of Petitioner by Putnam Community Medical Center

         In 2006 petitioner moved to Putnam County, Florida. Putnam County,

which is in the interior of the State, is rural and among Florida’s poorer counties.

It is also medically underserved.

         When petitioner moved to Putnam County, he became affiliated with the

Putnam Community Medical Center (hospital) in Palatka, the county seat.

Petitioner’s affiliation with the hospital continued uninterrupted through the date

of trial.

         Petitioner was recruited to practice in Putnam County by the hospital as part

of its effort to better serve the community’s health needs. In furtherance of that
                                        -4-

effort, petitioner and the hospital entered into a Recruiting Agreement, pertinent

provisions of which provided as follows:

             THIS RECRUITING AGREEMENT is made and entered into
            st
      this 1 day of July 2006, by and between Darrel Wyatt, M.D.
      (hereinafter “Physician”) and Putnam Community Medical Center
      (hereinafter “Hospital”).

                                  WITNESSETH:

            WHEREAS, Physician has agreed to relocate to, and
      commence the private practice of medicine in, the geographic area
      served by the Hospital [in] Palatka, FL (the “Community”), and

            WHEREAS, there is a need in the Community for the medical
      services provided by Physician, and

             WHEREAS, Hospital desires to assist Physician in establishing
      his practice;

            NOW, THEREFORE, Physician and Hospital hereby agree as
      follows:

             1. Physician shall, on or before July 1, 2006, engage in the
      full-time private practice of medicine as a Gynecologist in the
      Community.

             2. In order to assist in the establishment of Physician’s
      practice as described herein, Hospital agrees to provide the assistance
      described in the following addenda which are executed
      simultaneously herewith and shall be deemed to be a part of this
      Agreement: * * *

                  x Net Collectable Revenue Guarantee With
      Repayment Forgiveness
                                      -5-

                  *      *      *       *      *       *      *

             4. Physician shall maintain active Medical Staff membership
      and privileges in good standing and comply fully with Hospital’s
      rules, regulations and Medical Staff Bylaws, and Physician agrees to
      engage in the private practice of medicine as a gynecologist in the
      Community on a full-time permanent basis for at least 48 months
      after Physician commences said private practice.

             5. At all times during the term of this Agreement, Physician
      shall be available for emergency room coverage for patients at
      Hospital’s emergency room * * * .

            6. At all times during the term of this Agreement, Physician is
      and shall be an independent contractor and not a servant, agent, or
      employee of Hospital * * * .

      As one of the simultaneously executed addenda to the Recruiting

Agreement between petitioner and the hospital, an addendum denominated Net

Collectable Revenue Guarantee With Repayment Forgiveness (hereinafter,

Revenue Guarantee/Repayment Forgiveness addendum) provided in part as

follows:

            This Addendum is attached to, made a part of, and executed
      simultaneously with that certain Recruiting Agreement between * * *
      [Physician and hospital] dated the 1st day of July 2006.

            1. Hospital hereby agrees to loan Physician certain amounts
      of money which Hospital shall advance as a guarantee of Gross Cash
      Receipts (as defined in Paragraph 2 hereinafter) for Physician of
      Thirty-Two Thousand Nine Hundred Fifty Three Dollars
      ($32,953.00) (hereinafter the “Guarantee Amount”) per month for a
      period of twelve (12) months (hereinafter the “Guarantee Period”)
                                 -6-

beginning on the first date Physician actively commences the private
practice of medicine in the Community. * * * Gross Cash Receipts
and any Guarantee Amount Payments are to be used to cover the
expenses of Physician’s medical practice and provide income to
Physician.

       2. At the end of each calendar month during the Guarantee
Period, Hospital shall pay to Physician the amount by which
Physician’s Gross Cash Receipts are less than the Guarantee Amount.
The amount so paid shall be the “Guarantee Payment.” * * * As used
herein, the term “Gross Cash Receipts” shall mean all cash collected
by Physician from all phases from the practice of medicine from any
and all sources whatsoever, regardless of location, including, but not
limited to, office calls, hospital practice, nursing homes and
emergency room treatments.

       3. * * * Further, if during any month Physician’s Gross Cash
Receipts exceed the monthly Guarantee Amount, Physician shall
immediately forward payment to Hospital along with Physician’s
statement of Gross Cash Receipts in an amount equal to one hundred
percent (100%) of such excess amount (“Excess”) for the month, up
to the amount of total Guarantee Payments made by Hospital to
Physician pursuant to this Agreement. * * * If at any time during the
term of this Agreement, Physician’s Gross Cash Receipts total
$395,436, the Hospital shall have no further obligation to pay
Physician any amounts hereunder.

            *      *       *       *      *       *      *

      5. At the end of the Guarantee Period, an audit of Physician’s
financial records shall be performed by a representative of Hospital to
determine Physician’s total Guarantee Payments for the Guarantee
Period not otherwise recouped pursuant to any other provision of this
Addendum, as well as other amounts due from Physician to Hospital
in accordance with the terms of other Addenda attached to the
Recruiting Agreement. This total amount shall be the “Loan
Repayment Amount.”
                                       -7-

      Physician’s repayment of the Loan Repayment Amount shall be due
      and payable immediately unless Physician requests a deferred
      payment plan. If the payment plan is to extend longer than six (6)
      months, Physician’s obligations shall be evidenced by a promissory
      note from Physician to Hospital. Such note shall bear interest at the
      fixed rate of prime plus one percent (1%), with interest accruing from
      the end of the Guarantee Period. Physician shall also grant Hospital a
      perfected security interest in Physician’s accounts receivable and/or
      other assets to be determined at Hospital’s sole discretion. Physician
      shall cooperate fully with Hospital’s efforts to obtain repayment.

             6. Notwithstanding the provisions of Paragraph 5 of this
      Addendum, in recognition of the fact that Physician is initiating a
      start-up, initial practice and to induce Physician to remain in the
      Community beyond the Guarantee Period, Hospital agrees that it will
      forgive and cancel one thirty-sixth (1/36th) of the Loan Repayment
      Amount for each full calendar month Physician: (i) remains in the
      full-time practice of medicine in the Community after the end of the
      Guarantee Period; (ii) maintains active Medical Staff membership and
      privileges in good standing at the Hospital; and (iii) remains available
      for emergency room coverage for patients of Hospital’s emergency
      room, including without limitation unassigned call coverage.

      On July 5, 2006, petitioner and the hospital entered into an additional

addendum to the July 1, 2006, Recruiting Agreement. This additional addendum

was denominated Advance On Net Collectable Revenue Guarantee (hereinafter,

Advance On Revenue Guarantee addendum), and it provided in pertinent part as

follows:

            WHEREAS, Hospital and Physician executed that certain Net
      Collectible Revenue Guarantee With Repayment Forgiveness
      Addendum (the “Guarantee Addendum”) simultaneously with the
      [Recruiting] Agreement for the purpose of loaning certain amounts of
                                        -8-

      money to Physician to cover Physician’s medical practice expenses
      and provide income to Physician; and

             WHEREAS, Hospital desires to advance to Physician a portion
      of the Guarantee Amount,

            NOW THEREFORE, Hospital and Physician hereby agree as
      follows:

            1. Upon request of Physician, Hospital shall advance to
      Physician the Guarantee Amount of Thirty-two thousand nine
      hundred fifty-three and 00/100 Dollars ($32,953.00) in up to one (1)
      monthly installment prior to Physician’s start date (the “Advancement
      Period”).

            2. Physician’s Guarantee Amount in month Twelve (12) will
      be reduced by the amount advanced to Physician during the
      Advancement Period. * * *

      During the Guarantee Period petitioner received net Guarantee Payments of

$260,627 from the hospital pursuant to the July 1, 2006, Recruiting Agreement

and its two relevant addenda, i.e., the Revenue Guarantee/Repayment Forgiveness

addendum and the Advance On Revenue Guarantee addendum.

      Since signing the July 1, 2006, Recruiting Agreement and its addenda,

petitioner has, consistent with the terms of paragraph 6 of the Revenue

Guarantee/Repayment Forgiveness addendum, (1) continuously remained in the

full-time practice of medicine in the geographic area served by the hospital,

(2) maintained an active medical staff membership and privileges in good standing
                                        -9-

at the hospital, and (3) been available for emergency room coverage for patients at

the hospital’s emergency room. Accordingly, because petitioner complied with all

of the terms of paragraph 6 of such addendum, the hospital ratably forgave and

canceled the following amounts of the net Guarantee Payments of $260,627 that

petitioner had received from the hospital during the Guarantee Period:

                       Payment Amount              Proportion of Total
      Year           Forgiven & Canceled          Forgiven & Canceled

      2007                $43,437.84                        6/36
      2008                 86,875.68                       12/36
      2009                 86,875.68                       12/36
      2010                 43,437.84                        6/36
                          260,627.04                       36/36

      As previously stated, upon the completion of the Guarantee Period

petitioner remained in the full-time practice of medicine in Putnam County,

maintained his affiliation with the hospital, and otherwise complied with all terms

and requirements of the July 1, 2006, Recruiting Agreement and its relevant

addenda. Accordingly, at the end of the Guarantee Period petitioner had no reason

to (and did not) formally request a deferred payment plan, nor did he execute a

promissory note or grant the hospital a perfected security interest in his accounts
                                        - 10 -

receivable or other assets pursuant to paragraph 5 of the Revenue

Guarantee/Repayment Forgiveness addendum.2

Petitioner’s Income Tax Returns for 2007-10

      Petitioner filed Federal income tax returns for 2007 through 2010 and

attached to each return a Schedule C, Profit or Loss From Business, reporting net

profit from his practice as a physician in Palatka, Florida. Petitioner included as

“Other income” in Part I (Income) of each Schedule C the amount forgiven and

canceled by the hospital pursuant to paragraph 6 of the Revenue

Guarantee/Repayment Forgiveness addendum. Petitioner’s reporting of such

amounts was consistent with Forms 1099-MISC, Miscellaneous Income, that he

received from the hospital for each of the years 2007 through 2010, which forms




      2
       In this regard the record includes a letter dated September 26, 2013, from
the hospital’s chief executive officer that states in part as follows:

             Dr. Wyatt remained in the Community and complied with all of
      the terms of the Recruiting Agreement, thereby his personal
      obligations were met, and no promissory note for loan repayment was
      * * * [sought] by the Hospital.

            Based upon Dr. Wyatt’s satisfactory completion of all terms
      pursuant to the Recruiting Agreement with * * * [the Hospital], the
      loan amounts were cancelled and forgiven, and thereby no promissory
      note was required, and no collection efforts were made for Dr.
      Wyatt[’s loan].
                                        - 11 -

reported the payment of nonemployee compensation in the amounts forgiven and

canceled by the hospital pursuant to paragraph 6 of the foregoing addendum.

      For 2008, the taxable year preceding the one in issue, petitioner reported

total tax of $37,995 on his income tax return.

Additional Facts Regarding Petitioner’s 2009 Return

       Petitioner’s income tax return for 2009 was prepared by a certified public

accountant and timely filed pursuant to an extension.

      On his return petitioner listed his filing status as single, and he reported

total tax of $32,625, which included self-employment tax from his medical

practice. Petitioner claimed no payments or credits against total tax. Specifically,

petitioner made no estimated tax payments, and he reported an estimated tax

penalty of $781, thereby resulting in a total reported amount due of $33,406 (i.e.,

$32,625 + $781). Petitioner did not remit with his return payment for any part of

the reported amount due.

      Respondent assessed the tax and estimated tax penalty reported by

petitioner on his return. Respondent also assessed an addition to tax under section

6651(a)(2) for failure to timely pay the tax reported on the return as well as

statutory interest.
                                         - 12 -

Collection Activity

      After petitioner failed to pay any part of his tax liability for 2009,

respondent issued a Final Notice of Intent to Levy for that year. In response,

petitioner timely filed a Form 12153, Request for a Collection Due Process or

Equivalent Hearing.3

      In his Form 12153 petitioner expressed interest in an offer-in-compromise,

and during the course of the administrative hearing petitioner submitted a Form

656-L, Offer in Compromise (Doubt as to Liability), seeking to compromise his

tax liabilities for 2007 through 2010, the four years for which the hospital forgave

and canceled amounts pursuant to paragraph 6 of the Revenue

Guarantee/Repayment Forgiveness addendum.4 In contrast, petitioner never



      3
         In his Form 12153 petitioner referenced three taxable years: 2007, 2008,
and 2009. The record in the instant case does not include a copy of the final
notice that prompted petitioner to file the Form 12153, nor does the record include
a transcript of account for any year other than 2009. As discussed infra in the text,
the offer-in-compromise based on doubt as to liability that petitioner subsequently
submitted referenced 2007 through 2010, i.e., the four taxable years for which
amounts were forgiven and canceled by the hospital. However, as will be shown
infra in the text, the notice of determination upon which the instant case is based
was issued solely in respect of petitioner’s outstanding liability for 2009. In short,
the status of petitioner’s accounts for 2007, 2008, and 2010 is not definitively
disclosed in the record; in any event, those years are not before the Court in the
instant case. See sec. 6330(d)(1).
      4
          Petitioner did not make any other offer during the administrative hearing.
                                        - 13 -

proposed a collection alternative based on doubt as to collectibility, nor did he

ever propose an installment agreement or submit a Form 433-A, Collection

Information Statement for Wage Earners and Self-Employed Individuals, or other

financial information regarding his ability to pay.

      In his aforementioned offer-in-compromise based on doubt as to liability,

petitioner proposed to satisfy outstanding tax liabilities for 2007 through 2010 for

$20,055, an amount roughly equaling the sum of the taxes for those four years

calculated by him without regard to the amounts forgiven and canceled by the

hospital.5 Respondent’s settlement personnel considered petitioner’s offer-in-

compromise, but ultimately rejected it because “doubt as to liability was not

established.”

      During the course of the administrative process petitioner never submitted a

Form 843, Claim for Refund and Request for Abatement, nor did he otherwise

request that interest be abated.

      After respondent issued a notice of determination, petitioner commenced the

instant case. As acknowledged in the petition, the notice of determination (as well

as the attachment thereto) addressed only the taxable year 2009. See supra note 3.

      5
       The calculations were expressed on amended returns--Forms 1040X,
Amended U.S. Individual Income Tax Return--submitted by petitioner in
conjunction with his offer.
                                         - 14 -

                                      Discussion

I. Administrative Hearings Under Section 6330

      Section 6331(a) authorizes the Commissioner to levy upon property and

rights to property of a taxpayer who is liable for taxes and who fails to pay those

taxes within 10 days after notice and demand for payment is made. Section

6331(d) provides that the levy authorized in section 6331(a) may be made only if

the Commissioner has given notice to the taxpayer no less than 30 days before the

day of the levy.

      Section 6330(a) also provides for notice and, in addition, confers on the

taxpayer the right to request a pre-levy administrative hearing. Sec.

6330(a)(3)(B), (b); see Davis v. Commissioner, 115 T.C. 35, 37 (2000); Goza v.

Commissioner, 114 T.C. 176, 179 (2000). If such a hearing is requested, the

hearing is conducted by the IRS Office of Appeals. Sec. 6330(b)(1).

      At an administrative hearing the taxpayer may raise any relevant issue and

may make an offer of a collection alternative, such as an offer-in-compromise or

an installment agreement. Sec. 6330(c)(2)(A)(iii). A taxpayer may also challenge

the existence or amount of the underlying tax liability but only if the taxpayer did

not receive a statutory notice of deficiency with respect to the liability or did not

otherwise have an opportunity to dispute it. Sec. 6330(c)(2)(B).
                                        - 15 -

II. Judicial Review

      A. In General

      A determination made by the IRS Office of Appeals under section 6330 to

sustain a proposed levy may be reviewed by this Court. Sec. 6330(d)(1); see

Rules 330-334. In general, upon review of a notice of determination sustaining a

collection action the Court will limit its review to those issues properly raised

during the administrative hearing. Giamelli v. Commissioner, 129 T.C. 107, 114-

115 (2007); Magana v. Commissioner, 118 T.C. 488, 493 (2002). Where the

underlying tax liability is properly at issue, the Court reviews the determination de

novo. Goza v. Commissioner, 114 T.C. at 181-182. Where the underlying tax

liability is not at issue, the Court reviews the determination for abuse of discretion.

Id. at 182; see also Sego v. Commissioner, 114 T.C. 604, 610 (2000).

      B. Right To Challenge the Underlying Liability

      Respondent concedes that petitioner properly raised the issue of his

underlying liability for 2009 during the administrative hearing because petitioner

never received a statutory notice of deficiency nor otherwise had a prior

opportunity to challenge either his self-reported liability or the addition to tax

under section 6651(a)(2) for failure to timely pay. As a consequence, respondent

concedes, and the Court agrees, that petitioner may challenge his underlying
                                        - 16 -

liability for 2009. See sec. 6330(c)(2)(B); Montgomery v. Commissioner, 122

T.C. 1 (2004) (holding that a taxpayer may challenge self-assessed tax liability in

an administrative hearing if the taxpayer did not have a prior opportunity to

challenge such liability). Accordingly, the Court proceeds to review petitioner’s

underlying tax liability for 2009 de novo. See Goza v. Commissioner, 114 T.C. at

181-182.

III. Petitioner’s Underlying Liability for 2009

      A. Loan Amounts Received From the Hospital

      The parties agree that the amounts received by petitioner from the hospital

pursuant to the Revenue Guarantee/Repayment Forgiveness addendum

represented a bona fide loan. See Rosario v. Commissioner, T.C. Memo. 2002-70

(holding that a hospital’s income guaranty with repayment forgiveness, strikingly

similar to the one in the instant case, that was offered in exchange for the

taxpayer’s agreement to practice medicine in a rural area for at least three years

was a bona fide loan). But see Vancouver Clinic, Inc. v. United States, No. 3:12-

CV-05016-RBL, 2013 WL 1431656 (W.D. Wash. Apr. 9, 2013). The Court

proceeds consistent with the parties’ agreed view.

       Money received pursuant to a loan is not includable in gross income at the

time that it is lent because there is an obligation to repay it. See Commissioner v.
                                        - 17 -

Tufts, 461 U.S. 300, 307 (1983). However, if the obligation to repay is forgiven

or canceled by the lender, gross income may arise. See 61(a)(12); United States v.

Kirby Lumber Co., 284 U.S. 1, 3 (1931); see also sec. 108.

      In general, cancellation of indebtedness produces income in an amount

equal to the difference between the amount due on the obligation and the amount

paid for the discharge. See Babin v. Commissioner, 23 F.3d 1032, 1034 (6th Cir.

1994), aff’g T.C. Memo. 1992-673. The rationale for this principle is that

cancellation of indebtedness provides the debtor with an economic benefit that is

equivalent to income. Kirby Lumber Co., 284 U.S. 1; see Friedman v.

Commissioner, 216 F.3d 537 (6th Cir. 2000), aff’g T.C. Memo. 1998-196.

      B. Whether Petitioner Received Cancellation of Indebtedness Income

      Although the amount that petitioner received from the hospital pursuant to

the Revenue Guarantee/Repayment Forgiveness addendum represented a bona fide

loan, petitioner contends that the loan was a nonrecourse loan, i.e., that he was not

personally liable for its repayment, and that, as a consequence, he did not receive

income when the loan was forgiven and canceled by the hospital. The Court

disagrees with the premise of petitioner’s argument.

      Contrary to what petitioner appears to assume, the fact that he never

executed a promissory note is not determinative of personal liability. Thus, if
                                         - 18 -

petitioner had failed to honor his part of the parties’ bargain, there is nothing in the

Recruiting Agreement that would have barred the hospital from suing him to

recover the unrepaid loan amount. Indeed, paragraph 5 of the Revenue

Guarantee/Repayment Forgiveness addendum stated that petitioner’s repayment of

the Loan Repayment Amount was due and payable immediately upon completion

of the Guarantee Period unless he requested a deferred payment plan. Petitioner

did not formally request a deferred payment plan, and the hospital did not choose

to demand immediate payment because, consistent with the parties’ expectations,

he remained in the community, continued his medical practice, and maintained his

affiliation with the hospital.

      The possibility that petitioner might have been asked to “grant hospital a

perfected security interest” if he had not remained in practice in Putnam County or

had otherwise breached his obligations under the Recruiting Agreement or had

been granted a deferred payment plan is not incompatible with personal liability,

as personal liability is often a feature of a secured loan. In any event, there is

nothing in the record to suggest that petitioner and the hospital ever entered into a

security agreement. Indeed, as the hospital’s chief executive officer stated,

because petitioner complied with all of the terms of the Recruiting Agreement, the

hospital found it unnecessary to pursue any collection remedy against him, such as
                                         - 19 -

demanding a perfected security interest in his accounts receivables or other assets.

In other words, the hospital assumed the risk of being (and remaining) an

unsecured creditor, presumably because it had faith that petitioner would fulfill his

side of the bargain. But the assumption of that risk by the hospital did not negate

the fact that a loan existed in respect of which petitioner was personally liable.

      Further, although the Court does not accept the premise of petitioner’s

contention regarding the nature of the loan, it bears mention that just because a

taxpayer is not personally liable for a debt does not mean that cancellation of

indebtedness cannot give rise to income. E.g., Gershkowitz v. Commissioner, 88

T.C. 984, 1010 (1987) (holding that the discharge from a portion of the liability

for an undersecured nonrecourse obligation through a cash settlement gave rise to

cancellation of indebtedness income).6

      In sum, petitioner paid nothing to the hospital on his loan after the one-year

Guarantee Period. Thereafter, the hospital, consistent with paragraph 6 of the

Revenue Guarantee/Repayment Forgiveness addendum, forgave the balance of the

loan ratably over the course of the next 36 months. Under these circumstances,

      6
        Although informal IRS publications are not authoritative sources of
Federal tax law, see Green v. Commissioner, 59 T.C. 456, 458 (1972), the Court
notes that IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions,
and Abandonments (for Individuals), upon which petitioner relies, states that
forgiveness or cancellation of nonrecourse debt can give rise to income.
                                       - 20 -

forgiveness and cancellation of the loan gave rise to income. See Cox v.

Commissioner, T.C. Memo. 1996-241 (stating that taxpayer “was not taxed on the

advances when received, but he is taxable on the discharge of the obligation to

repay them”). Accordingly, petitioner received income from cancellation of

indebtedness as reported on his 2009 return.

      C. Additions to Tax

             1. Failure To Pay Tax Reported on Return

      Section 6651(a)(2) provides for an addition to tax in the case of a failure to

timely pay the amount shown as tax on a return. The addition to tax does not

apply if the taxpayer’s failure to do so was due to reasonable cause and not due to

willful neglect.

      In the instant case, the record demonstrates that petitioner filed a return and

reported total tax of $32,625 for 2009; however, he did not make any prepayments

of tax, nor did he remit any payment with his return. Thus, respondent has

satisfied his burden of production under section 7491(c), and it is incumbent on

petitioner to demonstrate that his failure to pay was due to reasonable cause and

not due to willful neglect. See Rule 142(a)(1); Higbee v. Commissioner, 116 T.C.

438, 447 (2001).
                                        - 21 -

      At trial petitioner testified that he lacked sufficient income to pay his

reported liability at the time that he filed his 2009 return. However, petitioner did

not describe his overall financial situation, and he did suggest that he had

resources other than current income upon which he could draw to satisfy his

liability. In short, petitioner did not persuasively demonstrate that paying his

reported liability on time would have required “the risk of a substantial financial

loss” such that the addition to tax might be excused. See Merriam v.

Commissioner, T.C. Memo. 1995-432, 1995 WL 522813, at *13, aff’d per order,

107 F.3d 877 (9th Cir. 1997). Accordingly, the Court holds that petitioner is liable

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

             2. Failure To Pay Estimated Tax

      With certain exceptions, 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 income tax for a particular taxable year if the taxpayer

has a “required annual payment” for such year. Wheeler v. Commissioner, 127

T.C. 200, 210-212 (2006), aff’d, 521 F.3d 1289 (10th Cir. 2008).

      In the instant case, the record demonstrates that petitioner filed a return and

reported total tax of $32,625 for 2009, the taxable year in issue. For the preceding

year, petitioner filed a return and reported total tax in an even greater amount.
                                        - 22 -

Under these circumstances, petitioner had a “required annual payment” for 2009.7

See sec. 6654(d)(1)(B).

      Section 6654(e) sets forth several narrowly defined exceptions to this

addition to tax. However, no exception has been shown to apply. Accordingly,

petitioner remains liable for the addition to tax for failure to pay estimated tax as

self-reported on his return.

      D. Interest Abatement

      At trial petitioner requested for the first time that interest be abated.

However, the general rule in this Court is that on appeal of a collection

determination, judicial review is limited to those issues properly raised during the

administrative hearing. Giamelli v. Commissioner, 129 T.C. at 114-115; Magana

v. Commissioner, 118 T.C. at 493. In this regard, petitioner failed to properly

raise the issue of interest abatement at any time during the administrative hearing

by either submitting a Form 843 or otherwise making a request for interest

abatement. Accordingly, such issue may not now be considered in the judicial

proceeding. See Day v. Commissioner, T.C. Memo. 2014-215, at *11; see also




      7
        In addition, it should be recalled that respondent never determined or
asserted the addition to tax; rather, petitioner reported it on his return.
                                          - 23 -

sec. 301.6330-1(f)(2), Q&A-F3, Proced. & Admin. Regs.; cf. sec. 6404(e), (h);

Rules 280-284.

                                     Conclusion

      All of the arguments advanced by petitioner have been considered.8 To the

extent not expressly addressed above, the Court concludes that those arguments

are without merit, moot, or irrelevant.

      To give effect to our disposition of the disputed issues,



                                                         Decision will be entered for

                                                   respondent.




      8
        For example, petitioner argues that when debt is canceled, the creditor
should issue a Form 1099-C, Cancellation of Debt, and not a Form 1099-MISC.
Although this may be so, the fact of the matter is that a bookkeeping error does not
serve to negate income arising from the forgiveness or cancellation of debt. See
McAllister v. Commissioner, T.C. Memo. 2013-96, at *6.
