                  T.C. Summary Opinion 2006-84



                     UNITED STATES TAX COURT



                JON DAVID COOKSEY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 7184-03S.              Filed May 22, 2006.


     Jon David Cooksey, pro se.

     Steven W. LaBounty, for respondent.


     GALE, Judge: This case was heard pursuant to the provisions

of section 74631 providing for small tax case proceedings.   The

decision to be entered is not reviewable by any other court, and

this opinion should not be cited as authority.

     The petition in this case was filed in response to a Notice

of Determination Concerning Collection Action(s) Under Section


     1
       Unless otherwise noted, all section references are to the
Internal Revenue Code of 1986, as amended, and as applicable to
the year in issue.
                                 - 2 -

6320 and/or 6330.    Following concessions, we must decide whether

respondent is entitled to proceed by levy to collect additions to

tax under sections 6651(a)(2) and 6654 with respect to

petitioner's 2000 taxable year.

                             Background

     Some of the facts have been stipulated and are incorporated

by this reference.

     Petitioner was a resident of Scarbourgh, Tobago, British

West Indies, at the time the petition was filed.    The address on

petitioner's Federal income tax return for 2000 was P.O. Box 542,

Scarbourgh, Tobago, British West Indies, which was petitioner's

residence in 2000 and continued to be so through the time of

trial.

     For taxable year 2000, petitioner made two estimated tax

payments of $32,157 each on April 21, 2000, and September 23,

2000.    An estimated tax remittance of $32,157 for June 2000,

however, was mistakenly placed in an envelope addressed to the

State of Missouri Department of Revenue and mailed by

petitioner's daughter, who was assisting him at his office.      The

State of Missouri Department of Revenue received the check on

June 15, 2000, successfully negotiated it, and applied $32,157

against petitioner's State income tax liability for 2000.

Petitioner had no amounts withheld with respect to his Federal

income tax liability for 2000.
                               - 3 -

     Petitioner's 2000 return was filed on July 18, 2001.

Petitioner did not obtain any extension for filing the return.

On the return, petitioner reported tax due of $119,849 plus an

estimated tax penalty of $253 and claimed estimated tax payments

of $96,471.   (In fact, due to the misdirected June payment,

petitioner's estimated tax payments totaled $64,314.)

Accompanying the return was a payment of $23,631, of which amount

$23,378 was for income tax and $253 was for the self-assessed

estimated tax penalty.

     On August 20, 2001, respondent assessed additions to tax for

2000 under sections 6651(a)(1)2 and (2), and 6654.

     Sometime in 2001,3 the State of Missouri refunded to

petitioner the $32,157 it had received from him, plus interest of

$1,127.70.

     On April 2, 2002, respondent issued to petitioner a Letter

1058, Final Notice of Intent to Levy and Notice of Your Right to


     2
       Respondent has since conceded the sec. 6651(a)(1)
addition. Pursuant to his accountant's instructions, petitioner
mailed his 2000 return in April 2001 to respondent's office in
St. Louis, Mo. However, in light of petitioner's foreign
residence, the return was required to be sent to respondent's
Philadelphia, Pa. Service Center. The return did not reach the
Philadelphia Service Center until July 2001. Given these
circumstances, respondent concluded that petitioner had
reasonable cause for the late filing and has treated the filing,
as well as the accompanying $23,631 payment, as timely. See sec.
6651(a)(1).
     3
       The parties have stipulated that the State of Missouri
made this refund to petitioner "in 2001", but the record does not
otherwise pinpoint the date.
                               - 4 -

a Hearing, regarding outstanding tax liabilities for 2000.    In

response, petitioner timely filed a request for a hearing.

     Respondent recorded a payment by petitioner of $32,157

(i.e., the amount of the misdirected estimated tax remittance)

with respect to his 2000 Federal income tax liability on November

5, 2002.

     Sometime in April or May 2003 respondent issued a notice of

determination to petitioner concluding that the levy was

appropriate.   Petitioner timely filed a petition for review of

the determination under section 6330(d)(1).

                            Discussion

     Section 6331(a) authorizes the Secretary to levy upon

property and property rights of a taxpayer liable for taxes 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 with respect to any

unpaid tax only if the Secretary has given written notice to the

taxpayer 30 days before the levy.   Section 6330(a) requires the

Secretary to send a written notice to the taxpayer of the amount

of the unpaid tax and of the taxpayer's right to a section 6330

hearing at least 30 days before any levy is begun.

     If a section 6330 hearing is requested, the hearing is to be

conducted by the Commissioner's Office of Appeals, and, at the

hearing, the Appeals officer conducting it must verify that the
                                - 5 -

requirements of any applicable law or administrative procedure

have been met.    Sec. 6330(b)(1), (c)(1).    The taxpayer may raise

at the hearing any relevant issue relating to the unpaid tax or

the proposed levy.    Sec. 6330(c)(2)(A).    The taxpayer may also

raise challenges to the existence or amount of the underlying tax

liability at the hearing if the taxpayer did not receive a

statutory notice of deficiency with respect to the underlying tax

liability or did not otherwise have an opportunity to dispute

that liability.    Sec. 6330(c)(2)(B).

     At the conclusion of the hearing, the Appeals officer must

determine whether and how to proceed with collection and shall

take into account (i) the verification that the requirements of

any applicable law or administrative procedure have been met,

(ii) the relevant issues raised by the taxpayer, (iii) challenges

to the underlying tax liability by the taxpayer, where permitted,

and (iv) whether any proposed collection action balances the need

for the efficient collection of taxes with the legitimate concern

of the taxpayer that the collection action be no more intrusive

than necessary.    Sec. 6330(c)(3).

     We have jurisdiction to review the Appeals officer's

determination where we have jurisdiction over the type of tax

involved in the case.    Sec. 6330(d)(1)(A); see Iannone v.

Commissioner, 122 T.C. 287, 290 (2004).      Where the underlying tax

liability is properly at issue, we review the determination de
                                - 6 -

novo.   E.g., Goza v. Commissioner, 114 T.C. 176, 181-182 (2000).

Where the underlying tax liability is not at issue, we review the

determination for abuse of discretion.     Id. at 182.

     Respondent concedes that petitioner has not had an

opportunity to dispute his liability for the section 6651(a)(2)

and section 6654 additions to tax and is therefore entitled to do

so in this proceeding.    Consequently, we shall review de novo

respondent's determination that petitioner is liable for the

additions.   See id.

Section 6651(a)(2) Addition to Tax

     A taxpayer who fails to pay the tax shown on a return on or

before the date prescribed for payment of such tax is subject to

an addition to tax.    Sec. 6651(a)(2).   The date prescribed for

payment of income tax is the due date for filing the return

determined without regard to any extension of time for filing.

Sec. 6151(a).   The addition to tax will not apply if it is shown

that the failure to pay was due to reasonable cause and was not

due to willful neglect.    Sec. 6651(a)(2); see also United States

v. Boyle, 469 U.S. 241, 245 (1985).     A failure to pay is due to

reasonable cause if the taxpayer exercised "ordinary business

care and prudence in providing for payment of his tax liability".

Sec. 301.6651-1(c)(1), Proced. & Admin. Regs.; see also Merriam

v. Commissioner, T.C. Memo. 1995-432.     The determination of

whether reasonable cause exists is based on all the facts and
                                - 7 -

circumstances.    Estate of Hartsell v. Commissioner, T.C. Memo.

2004-211; Merriam v. Commissioner, supra.

     The regulations and other administrative guidance provided

by respondent concerning reasonable cause for a failure to pay

under section 6651(a)(2) are generally directed at the

circumstances surrounding a taxpayer's inability to pay when due,

and not defalcations in remitting payment, as occurred in the

instant case.    Reasonable cause in the case of failures in

mailing or delivery are addressed in connection with failures to

file under section 6651(a)(1), however, and present persuasive

analogues, in our view.    Respondent has advised his employees

that reasonable cause for a failure to file timely generally

exists where a return has been timely mailed but returned for

insufficient postage, or sent to the wrong district.    2 Audit,

Internal Revenue Manual (CCH), sec. 4562.2 at 14,356 (Feb. 25,

1987); see also United States v. Boyle, supra at 243 n.1; McMahan

v. Commissioner, 114 F.3d 366, 369 (2d Cir. 1997), affg. T.C.

Memo. 1995-547.    However, an important factor bearing upon

reasonable cause is the expeditiousness with which a taxpayer

rectifies a mistake, once discovered.    See Internal Revenue

Manual (IRM) sec. 20.1.1.3.1.2 (2) (Aug. 20, 1998) (assessment of

ordinary business care and prudence requires consideration of

length of time between the event cited as a reason for

noncompliance and subsequent compliance); IRM sec. 20.1.1.3.1.2.3
                                - 8 -

(2) (Aug. 20, 1998) (whether mistake gives rise to reasonable

cause depends in part upon taxpayer's timely steps to correct the

failure after its discovery); cf. Elec. & Neon, Inc. v.

Commissioner, 56 T.C. 1324, 1342-1343 (1971) (lack of necessary

information not reasonable cause for 8-month delay in filing

where return preparers obtained information to complete, and did

complete, return 12 days after due date).

     Under section 7491(c), the Commissioner bears the burden of

production with respect to a taxpayer's liability for any

addition to tax.   To meet that burden, the Commissioner must

adduce "sufficient evidence indicating that it is appropriate to

impose the relevant penalty."    Higbee v. Commissioner, 116 T.C.

438, 446 (2001).   Once the Commissioner meets the initial burden

of production, the taxpayer bears the burden of proving that the

Commissioner's determination was incorrect; e.g., that the

taxpayer's failure to pay was due to reasonable cause and was not

due to willful neglect.   Id. at 447.

     Here, it is undisputed that the tax shown as due on

petitioner's return was $119,849, whereas the amount paid by the

April 16, 2001, due date of the return was $87,945.4   We

accordingly find that respondent has met his burden of production

under section 7491(c).


     4
       This figure consists of petitioner's two timely estimated
tax payments of $32,157 each, and the $23,631 payment
accompanying the return. See supra note 2.
                               - 9 -

     Petitioner contends that his failure to pay was due to

reasonable cause and not due to willful neglect because he "did

nothing wrong"; envelopes merely got switched when he attempted

to mail his June 2000 estimated payment to respondent, petitioner

contends.   If petitioner and/or his daughter had merely

misdirected the June estimated tax payment to the Missouri

Department of Revenue and then promptly made a remittance to

respondent when the State of Missouri made the refund, we might

be more sympathetic, given respondent's published guidance on

reasonable cause in the case of mailing errors such as

insufficient postage and incorrect addressing.   However, that is

not what happened here.

     The parties have stipulated that the State of Missouri

refunded the $32,157 misdirected payment (plus interest) to

petitioner "in 2001".   Respondent's Form 4340, Certificate of

Assessments, Payments and Other Specified Matters, covering

petitioner's 2000 income tax liability, records a payment by

petitioner of $32,157 on November 5, 2002.5   Thus, there was a


     5
       Petitioner claims that he received the refund from
Missouri in May 2002 and sent a check to the IRS approximately 2
weeks thereafter. In conflict with this version of events is the
Form 4340 for 2000, which records the payment as received on Nov.
5, 2002. Petitioner's claim is not corroborated, such as by a
canceled check evidencing payment to the IRS at the time he
claims. The Form 4340, by contrast, is presumptive evidence of
its contents, barring a showing of its irregularity, which
petitioner has not made. See Hansen v. United States, 7 F.3d
137, 138 (9th Cir. 1993); Craig v. Commissioner, 119 T.C. 252,
                                                   (continued...)
                              - 10 -

delay of at least 10 months, and probably more, between the time

petitioner received reasonable notice of the mistake (and a

refund) and the time that he made payment to respondent.    In his

testimony, the closest petitioner came to addressing this

discrepancy was as follows:

     When I picked up the error that had happened, I came
     back [to the United States]; I brought the check back
     from Tobago, deposited it in the bank, and in less than
     two weeks I paid the Internal Revenue Service. But I
     didn't know it was in my post office box in Tobago.
     I'd never -- I didn't receive anything in that time
     from the Missouri Department of Revenue saying what had
     happened. [Emphasis added.]

     As it is undisputed that the State of Missouri refunded the

misdirected payment to petitioner in 2001, we conclude from

petitioner's testimony that the refund check from the State of

Missouri sat undiscovered in his post office box in Tobago for

most of 2002.   Petitioner established a Tobago post office box as

his address for tax purposes and apparently did not check that

box for extended periods, resulting in his failure to learn of

the misdirected estimated tax payment until several months after

reasonable notice thereof was sent to him.   In considering the


     5
      (...continued)
262 (2002). We accordingly conclude that petitioner did not
remit the misdirected $32,157 to respondent until early November
2002.
     Even if it were assumed that petitioner made the payment
sometime in May 2002, our conclusion regarding his failure to
exercise ordinary business care and prudence would not change, as
it would still be the case that the State of Missouri's refund,
made "in 2001", languished in petitioner's Tobago post office box
for several months.
                                - 11 -

facts and circumstances surrounding his failure to pay respondent

until November 2002, we do not believe the foregoing arrangements

constitute the exercise of ordinary business care and prudence.

Thus, petitioner has not shown that his failure to make timely

payment of $32,157 of his 2000 income tax liability is due to

reasonable cause.     We accordingly hold that petitioner is liable

for an addition to tax under section 6651(a)(2).6

Section 6654 Addition to Tax

     Section 6654(a) imposes an addition to tax for failure to

pay estimated income tax where prepayments of such tax, either

through withholding or by making estimated quarterly tax payments

during the course of the year, do not equal the percentage of

total liability required under the statute, unless the taxpayer

shows that one of the statutory exceptions applies.    Sec.

6654(a); Niedringhaus v. Commissioner, 99 T.C. 202, 222 (1992).

The amount required to be paid through each such estimated

quarterly payment is 25 percent of the "required annual payment".

Sec. 6654(d)(1)(A).    The "required annual payment" is, in turn,

the lesser of 90 percent of the tax shown on the return for that



     6
       We suggested above that there might have been reasonable
cause for the failure to pay during some period before petitioner
was sent reasonable notice, by virtue of the State of Missouri's
refund check, that his estimated tax payment had been
misdirected. However, petitioner, who has the burden to show
reasonable cause, has not established when in 2001 the refund
check was sent. We therefore have no basis on which to demarcate
the period for which there may have been reasonable cause.
                              - 12 -

taxable year or 100 percent of the tax shown on the return of the

individual for the preceding taxable year (110 percent for

individuals with adjusted gross income exceeding $150,000).      Sec.

6654(d)(1)(B) and (C).

     Section 6654 is essentially an interest charge on the amount

by which a taxpayer underpays his or her estimated tax, until the

earlier of the estimated tax's being paid or the due date of the

return.   S. Rept. 1622, 83d Cong., 2d Sess. 592 (1954); see also

Bittker & Lokken, Federal Taxation of Income, Estates & Gifts,

par. 111.5.6., at 111-135 (2d ed. 1992) (noting that section 6654

causes underpayments of estimated tax to effectively bear

interest).   There is no broadly applicable reasonable cause

exception to the section 6654 addition to tax; in general, it is

mandatory, and extenuating circumstances are irrelevant.     Estate

of Ruben v. Commissioner, 33 T.C. 1071, 1072 (1960); see also

Grosshandler v. Commissioner, 75 T.C. 1, 20-21 (1980) (imposition

of section 6654 addition to tax is mandatory where estimated

payments do not equal statutorily required percentage).

     Respondent likewise bears the burden of production regarding

the section 6654 addition to tax.    Sec. 7491(c);   Higbee v.

Commissioner, 116 T.C. 438 (2001).     It is undisputed that the tax

shown on petitioner's 2000 return was $119,849, that petitioner's

estimated tax payments for 2000 totaled $64,314, and that

petitioner's June 2000 estimated tax payment of $32,157 was not
                              - 13 -

received by respondent until November 5, 2002.   Accordingly, we

conclude that respondent has met his burden of production under

section 7491(c) regarding petitioner's liability for the addition

to tax under section 6654.

     Respondent having met his burden of production, it is

incumbent upon petitioner to show that he is eligible for one of

the statutorily provided exceptions to the section 6654 addition

to tax.   See sec. 6654(e); Higbee v. Commissioner, supra at 446.

Petitioner testified that he became disabled because of a

detached retina in 1998 and continued to be disabled through the

time of trial.   While section 6654(e)(3)(B) provides for a waiver

of the addition where the Secretary determines that a taxpayer

became disabled in the year for which the estimated taxes were

required or the preceding year, such a waiver also requires that

the underpayment of estimated tax be due to reasonable cause.

Sec. 6654(e)(3)(B)(ii).   Thus, even had petitioner become

disabled during 1999 or 2000, section 6654(e)(3)(B) would provide

him no relief, since we have previously concluded that the

circumstances surrounding petitioner's failure to remit the June

2000 estimated tax payment do not constitute reasonable cause.

     As petitioner has neither claimed nor shown entitlement to

any other exception, we hold that he is liable for an addition to

tax under section 6654 for 2000.
                              - 14 -

Conclusion

     Except for his claim that he is not liable for the additions

to tax under sections 6651(a)(2) and 6654 for 2000, petitioner

has raised no other issue with respect to respondent's proposed

levy for 2000.   We therefore hold that respondent may proceed

with the levy at issue herein.

     To reflect the foregoing,


                                         Decision will be entered

                                    for respondent.
