                         T.C. Memo. 2012-129



                   UNITED STATES TAX COURT



              ROBERTO REYES, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 24522-10.                        Filed May 3, 2012.



       After R determined P had received income in 2007 which he
failed to report, R issued a notice of deficiency determining a
deficiency in income tax as well as additions to tax under I.R.C. secs.
6651(a)(1) and (2) and 6654(a).

      Held: R’s determinations are sustained.



Roberto Reyes, pro se.

Linette B. Angelastro and Jordan S. Musen, for respondent.
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             MEMORANDUM FINDINGS OF FACT AND OPINION


      WHERRY, Judge: This case is before the Court on a petition for

redetermination of an income tax deficiency of $6,670 and additions to tax under

sections 6651(a)(1) and (2) and 6654(a) of $1,473.75, $851.50, and $297.52,

respectively, that respondent determined for petitioner’s 2007 tax year.1 The issues

for decision are (1) whether petitioner had gross income in 2007 consisting of

$48,368.08 of wage income, $900 of nonemployee compensation, $37 of dividends,

and $2 of capital gain and (2) whether petitioner is liable for additions to tax

pursuant to sections 6651(a)(1) and (2) and 6654(a).

                                 FINDINGS OF FACT

      Some of the facts have been stipulated, and the stipulations, with the

accompanying exhibits, are incorporated herein by this reference. At the time his

petition was filed, petitioner resided in California.

       In the 2007 tax year petitioner received: (1) $48,368.08 in wage income

from American Medical Response of Southern California (AMR); (2) $900 of

nonemployee compensation from the City of Santa Paula, California; and (3) $37 of


      1
        Unless otherwise indicated, all section references are to the Internal Revenue
Code of 1986, as amended and in effect for the year at issue, and all Rule references
are to the Tax Court Rules of Practice and Procedure.
                                          -3-

dividends and $2 in capital gain income from A.G. Edwards. AMR withheld

Federal income tax of only $120.72 from petitioner’s wages during 2007, and he did

not make estimated tax payments for 2007.

      Petitioner failed to file a 2007 tax return. Petitioner is an habitual nonfiler

who also failed to file a tax return for 2006. After petitioner failed to respond to

respondent’s request that he file a 2007 tax return, respondent, pursuant to the

direction and authority specified in section 6020(b)(1), prepared a substitute for

return.

      Respondent issued a notice of deficiency dated August 2, 2010, determining a

deficiency in income tax of $6,670, a section 6651(a)(1) addition to tax of

$1,473.75, a section 6651(a)(2) addition to tax of $851.50, and a section 6654(a)

addition to tax of $297.52. Petitioner timely petitioned this Court on November 5,

2010. Trial was held on December 5, 2011, in Los Angeles, California. At trial we

set a due date for opening briefs of February 21, 2012, and for reply briefs of April

3, 2012. Petitioner has failed to file either. However, on February 27, 2012,

petitioner filed a motion for summary judgment. At trial and in his motion for

summary judgment, petitioner never disputed receiving the income that respondent

determined he received in 2007. Rather, his argument appears to be that both the

substitute for return and the notice of deficiency were prepared by people who
                                        -4-

lacked the authority to do so. On April 3, 2012, we denied petitioner’s motion for

summary judgment.

                                     OPINION

I.    Burden of Proof

      As a general rule, the Commissioner’s determination of a taxpayer’s liability

in the notice of deficiency is presumed correct, and the taxpayer bears the burden of

proving that the determination is improper. See Rule 142(a); Welch v. Helvering,

290 U.S. 111, 115 (1933). However, in unreported income cases, the Court of

Appeals for the Ninth Circuit has held that the presumption of correctness does not

attach unless the Commissioner first establishes an evidentiary foundation linking

the taxpayer to the alleged income-producing activity. See Weimerskirch v.

Commissioner, 596 F.2d 358, 360-362 (9th Cir. 1979), rev’g 67 T.C. 672 (1977).

The requisite evidentiary foundation is minimal and need not include direct

evidence. See Banister v. Commissioner, T.C. Memo. 2008-201, aff’d, 418 Fed.

Appx. 637 (9th Cir. 2011); Curtis v. Commissioner, T.C. Memo. 2001-308, aff’d in

part and rev’d on another issue, 73 Fed. Appx. 200 (9th Cir. 2003).

             The Ninth Circuit has made it clear * * * that once the Government has
      carried its initial burden of introducing some substantive evidence linking the
      taxpayer with income-producing activity, the taxpayer has the burden to rebut
                                         -5-

      the presumption of correctness of respondent’s deficiency determination by
      establishing by a preponderance of the evidence that the deficiency
      determination is arbitrary or erroneous. * * *

Petzoldt v. Commissioner, 92 T.C. 661, 689 (1989); see also Hardy v.

Commissioner, 181 F.3d 1002, 1004 (9th Cir. 1999), aff’g T.C. Memo. 1997-97;

Rapp v. Commissioner, 774 F.2d 932, 935 (9th Cir. 1985).

      Respondent has established the necessary evidentiary foundation by

introducing evidence of third-party information reporting forms showing petitioner

received income in 2007 and the amount of such income; therefore, petitioner bears

the burden of proof. See Banister v. Commissioner, T.C. Memo. 2008-201 (holding

that information from third-party payors that they had paid the taxpayer was enough

to meet the minimal evidentiary burden even though direct evidence was not in the

record).

II.   Whether Petitioner Is Liable for an Income Tax Deficiency

      Gross income includes “all income from whatever source derived”. Sec.

61(a). Section 61(a) specifically includes in gross income compensation for

services, dividends, and capital gains. Sec. 61(a)(1), (2), (3), (7). Petitioner does

not dispute receiving wage income, nonemployee compensation, dividends, or

capital gain in 2007. In fact, he carefully avoids denying receipt of income,

responding to this Court’s statement that “Either you got the money or you didn’t
                                         -6-

get it” with the vague statement about respondent’s authority: “Well, it’s a question

of the deficiency, and, you know, the facts in that, what did they rely on, and was he

qualified”.2

       Petitioner’s entire argument appears to be that no authority existed allowing

respondent to prepare a substitute for return or to issue a notice of deficiency.

However, petitioner presented no evidence that respondent lacked authority, and

this Court cannot ascertain any such evidence on our own.3 Petitioner received

income that he failed to report and is liable for income taxes on that income.

Accordingly, we sustain respondent’s determination on this issue.

III.   Additions to Tax

       Respondent bears the burden of production with regard to the additions to

tax. See sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001). To

       2
        By failing to dispute respondent’s argument that he received unreported
income, petitioner has conceded the issue. See Levin v. Commissioner, 87 T.C.
698, 722-723 (1986) (citing Rule 142(a) for the proposition that because
“petitioners have made no argument with respect to * * * deductions claimed * * * [,
they] are deemed to have conceded their nondeductibility”), aff’d, 832 F.2d 403
(7th Cir. 1987).
       3
        As noted previously, the Commissioner is authorized and directed by sec.
6020(b)(1) in situations like the one present to file a substitute for the taxpayer’s
Federal income tax return, and by sec. 6212 to issue a notice of deficiency. See also
Hartman v. Commissioner, 65 T.C. 542, 546 (1975) (“Obviously, the fact that
petitioner failed to file a return will not insulate him from a determination by the
Commissioner that a tax is due and owing and a civil proceeding based thereon.”).
                                          -7-

meet this burden, respondent must produce sufficient evidence establishing that it is

appropriate to impose the additions to tax. See Higbee v. Commissioner, 116 T.C.

at 446. However, respondent does not have to produce evidence of substantial

authority, lack of reasonable cause, or lack of willful neglect. See id. at 447; Davis

v. Commissioner, 81 T.C. 806, 820 (1983), aff’d without published opinion, 767

F.2d 931 (9th Cir. 1985).

      A. Section 6651(a)(1)

      As a general rule, “any person made liable for any tax * * * shall make a

return or statement according to the forms and regulations prescribed by the

Secretary.” Sec. 6011(a). Section 6651(a)(1), in the case of a failure to file a return

on time, imposes an addition to tax of 5% of the tax required to be shown on the

return for each month or fraction thereof for which there is a failure to file, not to

exceed 25% in the aggregate.4 The penalty will not apply if it is shown that such

failure is due to reasonable cause and not due to willful neglect. Sec. 6651(a)(1).

      Petitioner did not timely file his 2007 tax return. Respondent has thus met his

burden of production. See Wheeler v. Commissioner, 127 T.C. 200, 207-208



      4
       The sec. 6651(a)(1) addition to tax is reduced by the amount of the sec.
6651(a)(2) addition to tax for any month (or fraction thereof) to which an addition to
tax applies under both sec. 6651(a)(1) and (2). See sec. 6651(c)(1).
                                         -8-

(2006), aff’d, 521 F.3d 1289 (10th Cir. 2008). Petitioner has not presented any

evidence that his failure to file was due to reasonable cause and not willful neglect.

Accordingly, we sustain the addition to tax under section 6651(a)(1) for petitioner’s

2007 tax year.

      B. Section 6651(a)(2)

      Section 6651(a)(2) provides for an addition to tax of 0.5% per month up to

25% for failure to pay the amount shown on a return unless it is shown that the

failure is due to reasonable cause and not due to willful neglect. The section

6651(a)(2) addition to tax applies only when an amount of tax is shown on a return.

Cabirac v. Commissioner, 120 T.C. 163, 170 (2003). Petitioner did not file a 2007

return. However, respondent prepared a substitute for return under section 6020(b)

for 2007. A proper return made by the Secretary under section 6020(b) is treated as

the return filed by the taxpayer for purposes of determining whether the section

6651(a)(2) addition to tax applies. Sec. 6651(g)(2); Wheeler v. Commissioner, 127

T.C. at 208-209.

      Where the taxpayer did not file a valid return, to satisfy his burden of

production for the section 6651(a)(2) addition to tax the Commissioner must

introduce evidence that he prepared a substitute for return satisfying the

requirements under section 6020(b). Wheeler v. Commissioner, 127 T.C. at 209.
                                         -9-

Respondent satisfied this burden by introducing into evidence Form 13496, IRC

Section 6020(b) Certification, for petitioner’s 2007 tax year. See Oman v.

Commissioner, T.C. Memo. 2010-276; see also Asbury v. Commissioner, T.C.

Memo. 2011-107. Petitioner has not presented any evidence that his failure to pay

was due to reasonable cause and not willful neglect. Accordingly, we sustain the

addition to tax under section 6651(a)(2) for petitioner’s 2007 tax year.

      C.     Section 6654

      Section 6654(a) imposes an addition to tax where prepayments of 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. However, the addition to tax will not apply if one of the several statutory

exemptions applies. See Grosshandler v. Commissioner, 75 T.C. 1, 20-21 (1980).

      The section 6654(a) addition to tax is calculated by applying the section 6621

underpayment interest rate to the amount of each underpayment from the due date of

each installment until April 15 following the close of the taxable year (for calendar

year taxpayers). Sec. 6654(a), (b)(2). The amount of each underpayment is the

amount of “the required installment” less “the amount (if any) of the installment

paid on or before the due date for the installment.” Sec. 6654(b)(1). The “required

installment” is due at four times during the year and is 25% of the “required annual
                                          - 10 -

payment.” Sec. 6654(c)(1), (d)(1)(A). For individual taxpayers whose adjusted

gross income for the taxable year is $150,000 or less, a “required annual payment”

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 such year), or

                     (ii) 100 percent of the tax shown on the return of the individual
              for the preceding taxable year.

      Clause (ii) shall not apply if the preceding taxable year was not a taxable year
      of 12 months or if the individual did not file a return for such preceding
      taxable year.

Sec. 6654(d)(1)(B) and (C). Unless a statutory exception applies, the section

6654(a) addition to tax is mandatory. Sec. 6654(a), (e); Recklitis v. Commissioner,

91 T.C. 874, 913 (1988). Section 6654 does not contain a general exception for

reasonable cause or absence of willful neglect. Grosshandler v. Commissioner, 75

T.C. at 21.

      To meet his burden of production with regard to the section 6654(a) addition

to tax, respondent must at a minimum produce evidence necessary to enable the

Court to conclude that petitioner had a required annual payment for 2007. See

Wheeler v. Commissioner, 127 T.C. at 211. Petitioner did not file his 2006 tax

return, had insufficient Federal income tax withheld by his employer for his 2007 tax
                                        - 11 -

year, made no estimated tax payments for 2007, and does not qualify for any of the

exceptions listed in section 6654(e). Thus, respondent has met his burden of

production establishing that petitioner had a required estimated tax payment for

2007. Because petitioner failed to file a Federal income tax return for 2006, his

required annual payment of estimated tax for 2007 was 90% of his tax for that year.

See id. at 211-212. We sustain the addition to tax under section 6654(a) for

petitioner’s 2007 tax year.

IV.   Section 6673

      Section 6673(a)(1) gives this Court discretion to “require the taxpayer to pay

to the United States a penalty not in excess of $25,000” whenever it appears that:

            (A) proceedings before it have been instituted or maintained by the
      taxpayer primarily for delay,

            (B) the taxpayer’s position in such proceeding is frivolous or
      groundless, or

            (C) the taxpayer unreasonably failed to pursue available
      administrative remedies * * *

      A position “is frivolous if it is contrary to established law and unsupported by

a reasoned, colorable argument for change in the law.” Coleman v. Commissioner,

791 F.2d 68, 71 (7th Cir. 1986). Petitioner is a habitual nonfiler who has failed to
                                          - 12 -

pay the taxes due on his income. His unsupported argument that respondent lacked

authority is frivolous and evidences an intent to delay the inevitable payment of

taxes.

         We will not penalize petitioner today. But we caution him that if, in the

future, he continues to raise frivolous arguments primarily for delay, we will. It is

“inappropriate that taxpayers who promptly pay their taxes should have the cost of

Government and tax collection improperly increased by citizens apparently

unwilling to obey the law or shoulder their assigned share of the Government cost.”

Burke v. Commissioner, 124 T.C. 189, 197 (2005).

         The Court has considered all of petitioner’s contentions, arguments, requests,

and statements. To the extent not discussed herein, we conclude that they are

meritless, moot, or irrelevant.

         To reflect the foregoing,


                                                         Decision will be entered

                                                   for respondent.
