                  T.C. Memo. 2010-47



                UNITED STATES TAX COURT



            GARY ALAN ADLER, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket Nos. 28454-07, 28455-07,    Filed March 16, 2010.
            28456-07, 28457-07.



     From 1989 to 2006 P grew flowers and vegetables
for sale in greenhouses on the same property as his
personal residence. From 1999 to the present, P’s wife
sold rubber stamps and related products to stamping
hobbyists on commission. P failed to timely file his
tax returns for the 2001 through 2004 tax years. In
response, the IRS prepared substitutes for returns and
issued notices of deficiency to P for each of those
years. In the notices of deficiency, the IRS
determined deficiencies and additions to tax under
I.R.C. sec. 6651(a)(1) and (2) and sec. 6654. In 2008
P submitted to the IRS what he claimed were copies or
reconstructions of his timely filed joint tax returns
for the 2001 through 2004 tax years. On those Forms
1040, which the IRS accepted as late-filed returns, P
claimed substantial losses from his greenhouse activity
and his wife’s stamping activity. P also claimed a
dependency exemption deduction under I.R.C. secs.
151(c) and 152(a) and education credits under I.R.C.
                                 - 2 -

     sec. 25A for his daughter for the 2001 through 2004 tax
     years and for his son-in-law for the 2002 through 2004
     tax years.

          Held: P is not entitled to deductions under
     I.R.C. sec. 162 for his greenhouse activity or his
     wife’s stamping activity for the 2001 through 2004 tax
     years, because he failed to substantiate those
     deductions by adequate records or other evidence.

          Held, further, P is not entitled to dependency
     exemption deductions and education credits for his
     daughter for the 2003 and 2004 tax years, or for his
     son-in-law for the 2002 through 2004 tax years, because
     he failed to substantiate those deductions and credits.

          Held, further, P is entitled to calculate his tax
     at the rate provided in I.R.C. sec. 1(a)(1) for
     “Married Individuals Filing Joint Returns”.

          Held, further, for the 2001 through 2004 tax
     years, P is liable for additions to tax under I.R.C.
     secs. 6651(a)(1) and 6654, but not under sec.
     6651(a)(2).

     Gary Alan Adler, pro se.1

     Kelly Anne Hicks, Gary J. Merken, and John A. Guarnieri, for

respondent.




              MEMORANDUM FINDINGS OF FACT AND OPINION


     GUSTAFSON, Judge:   The Internal Revenue Service (IRS) issued

to petitioner Gary Alan Adler four statutory notices of




     1
      Harry J. Newman represented petitioner Gary Alan Adler at
the trial of these cases. Mr. Newman withdrew as Mr. Adler’s
counsel on July 21, 2009. Thereafter, Mr. Adler has acted
pro se.
                                - 3 -

deficiency in 2007,2 pursuant to section 6212,3 showing the IRS’s

determination of the following deficiencies in income tax and

accompanying additions to tax for failure to file under section

6651(a)(1), failure to pay under section 6651(a)(2), and failure

to pay estimated taxes under section 6654 for tax years 2001

through 2004:

 Tax                                Additions to Tax
 Year    Deficiency   Sec. 6651(a)(1) Sec. 6651(a)(2)   Sec. 6654

 2001     $14,500       $3,257.78        $3,619.75       $578.56
 2002      14,533        3,268.58         3,631.75        485.42
 2003      93,268       20,971.13        18,641.00      2,438.99
 2004      14,838        2,551.22         1,700.81        430.27




     2
      The IRS issued the notices of deficiency for 2001, 2002,
and 2003 on September 10, 2007, and the notice of deficiency for
2004 on October 18, 2007.
     3
      Unless otherwise indicated, all citations of sections refer
to the Internal Revenue Code of 1986 (26 U.S.C.), as amended, and
all citations of Rules refer to the Tax Court Rules of Practice
and Procedure.
                              - 4 -

     After concessions,4 the issues for decision5 are:

(i) whether Mr. Adler is entitled to deductions under section 162

for his greenhouse activity for the 2001 through 2004 tax years;

(ii) whether Mr. Adler is entitled to deductions under section

162 for the stamping activity conducted by his wife Amelia N.

Adler for the 2001 through 2004 tax years; (iii) whether Mr.

Adler is entitled to dependency exemption deductions under

sections 151(c) and 152(a) and education credits under section

25A for his daughter Justyn Adler Carbajal for the 2003 and 2004

tax years; (iv) whether Mr. Adler is entitled to dependency

exemption deductions under sections 151(c) and 152(a) and


     4
      Mr. Adler concedes the amounts of unreported income
determined in the notices of deficiency. Respondent concedes Mr.
Adler’s claimed dependency exemption deductions under sections
151(c) and 152(a), education credits under section 25A, and child
tax credits under section 24(a) for his daughter Justyn Adler
Carbajal and his two minor children D.A. and W.A., for the 2001
and 2002 tax years. (It is the policy of this Court not to
identify minors. We refer to Mr. Adler’s two minor children by
their initials. See Rule 27(a)(3).) Respondent concedes Mr.
Adler’s claimed dependency exemption deductions and child tax
credits for his two minor children, DA and WA, for the 2003 and
2004 tax years. Respondent also concedes Mr. Adler’s claimed
loss of $923 from rental real estate for 2001 and short-term
capital losses of $1,677.35 for 2003 and $3,000 for 2004. By
conceding a short-term loss of $1,677.35 for 2003, respondent
concedes an adjustment of $228,834 for “Stock and Bond
Transaction Proceeds” that accounts for the bulk of the 2003 tax
deficiency of $93,268.
     5
      Respondent also contends that Mr. Adler’s greenhouse
activity and Mrs. Adler’s stamping activity were not engaged in
for profit, for purposes of section 183, so that the expenses are
not deductible even if they were substantiated. Since we find
that the expenses were not substantiated, we do not reach the
section 183 issue.
                                - 5 -

education credits under section 25A for his son-in-law Cesar

Carbajal for the 2002 through 2004 tax years; and (v) whether Mr.

Adler is liable for additions to tax under section 6651(a)(1) or

(2) or 6654 for the 2001 through 2004 tax years.     On the facts

proved at trial, Mr. Adler is not entitled to deductions,

exemptions, or credits greater than respondent has conceded, and

he is liable for the additions to tax under sections 6651(a)(1)

and 6654.

                          FINDINGS OF FACT

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

The stipulation of facts filed June 3, 2009, and the attached

exhibits are incorporated herein by this reference.6    Trial of

these cases was held in Philadelphia, Pennsylvania, on June 3,

2009.    Mr. Adler and Mrs. Adler both testified.   Donna M.

Gallagher, a paralegal at the IRS Office of Chief Counsel,

testified as a witness for respondent with respect to Mr. Adler’s

filing history with the IRS.


     6
      In his reply brief Mr. Adler makes a general assertion that
the stipulation is incorrect. A party is bound by his
stipulations unless he makes a showing that evidence contrary to
the stipulation is substantial, or that the stipulation is
clearly contrary to facts disclosed by the record, and that
justice requires that the stipulation be qualified, changed, or
contradicted in whole or in part. Rule 91(e); Niedringhaus v.
Commissioner, 99 T.C. 202, 212 (1992). No such showing has been
made here. To his briefs Mr. Adler attaches additional
documents, but we disregard them because they were not offered at
trial, because he has not shown how they relate to any stipulated
fact that he now disputes, and because they do not appear to be
admissible in any event.
                                - 6 -

Mr. Adler’s Livelihood

     Mr. Adler was employed by the Federal Government as a

systems engineer at the Picitinny Federal Arsenal in Picitinny,

New Jersey for 37 years--including all of the tax years at

issue--before he retired in 2006.   As a systems engineer,

Mr. Adler earned taxable wages in the following amounts during

the years in issue:

                         Year           Amount
                         2001           $68,132
                         2002            71,239
                         2003            76,913
                         2004            78,630

Mr. Adler’s Residence

     In December 1987 Mr. Adler moved from Branchville, New

Jersey, to Stroudsburg, Pennsylvania, where he purchased a five-

bedroom colonial Moravian stone house on 8.414 acres of land for

$290,000.   When Mr. Adler purchased the property, there were also

a two-bedroom ranch house, a one-bedroom cottage, a garage, a

barn, and a small greenhouse on the same tract.   Mr. Adler lived

in the five-bedroom house from 1987 to the present.   He rented

the ranch house, the cottage, and the garage in Stroudsburg as

well as a third house in Deltona, Florida.
                                - 7 -

Mr. Adler’s Greenhouse Activity

     In 1988 the Adlers began to use the small greenhouse on

their property to grow flowers and vegetables for themselves.

The Adlers were so successful in this endeavor that they grew a

surplus.   At first the Adlers gave away that surplus to their

neighbors, but they eventually sold the extra flowers and

vegetables.   In 1989 the Adlers began to take advance orders for

flowers and vegetables from local businesses and organizations,

and those orders quickly exceeded the capacity of their small

greenhouse.   In response, Mr. Adler added a 10-foot extension to

the greenhouse.    In 1990, Mr. Adler purchased and erected a

second greenhouse.    By the tax years at issue, Mr. Adler had

purchased and erected two more greenhouses, his third and fourth.

     The small greenhouse originally had an oil-fired boiler.

Mr. Adler used that boiler to heat both the small greenhouse

itself and the water that flowed through the network of copper

pipes that ran underneath the benches in that greenhouse and

watered his crop of flowers and vegetables.    In 1998 the oil-

fired boiler started to leak and Mr. Adler replaced it with an

electric boiler.    By 2001 Mr. Adler used the electric boiler to

heat the water that flowed through all four of his greenhouses.

     In the spring of 2001, a storm hit Stroudsburg,

Pennsylvania, and caused a power outage on Mr. Adler’s property.

This power outage shut down the electric boiler, which in turn,
                                 - 8 -

froze and cracked.   Without the boiler, Mr. Adler was unable to

water the flowers and vegetables in any of his greenhouses.

Since Mr. Adler never repaired or replaced the boiler, he lost

the bulk of his crop in 2001.

     Initially, Mr. and Mrs. Adler conducted the greenhouse

activity with their daughter Justyn.       However, in 2000 Justyn

graduated from high school, began college, and ceased to

participate in the greenhouse activity.          After the loss of their

electric boiler and their third worker, the Adlers decided to

scale back their operation.     With the exception of caring for a

few perennials,7 the Adlers stopped growing plants in 2001.         From

2001 to 2006, the Adlers sold “minimal amounts” of plants, which

they viewed as a “going out of business sale.”         Mr. Adler

alleges, and we find, that the greenhouse activity generated

gross receipts in the following amounts for the years in suit:

                         Year            Amount
                         2001            ($431)
                         2002            1,000
                         2003              500
                         2004              500




     7
      Perennials are “herbaceous plants that produce flowers and
seed from the same root structure year after year”. Webster’s
New World College Dictionary 1069 (4th ed. 2008).
                               - 9 -

Non-Substantiation of Greenhouse Expenses

     On late-filed returns (discussed below), Mr. Adler claimed

deductions for the following expenses of the greenhouse activity,

which total about $40,000 for the four years in issue:

   Expense          2001         2002        2003         2004
Car & truck
                   $1,926        ---         ---          ---
  expenses
Depreciation        5,774      $664.54      $428.40      $428.40
Gas, fuel,
                       15        ---         ---          ---
  and oil
Insurance            ---        486.84       ---          ---
Mortgage
                    3,071     3,792.45        ---         ---
  interest
Taxes               4,371     3,721.80      4,073.62     4,135.76
Utilities           2,804        ---          ---          ---
Postage                16        ---          ---          ---
Office
                    1,088        ---          ---         ---
  supplies
Misc.                 492        ---          ---         ---
Casualty loss
                    2,995        ---          ---         ---
  (boiler)
  Total
                   22,552     8,665.63      4,502.02     4,564.16
    expenses


However, at trial Mr. Adler did not offer evidence to

substantiate deductible expenses of his greenhouse activity in

any amount.8   See infra part II.A.



     8
      It should be noted that the IRS gave Mr. Adler the
equivalent of a deduction to the extent of his income from his
greenhouse activity, because the notices of deficiency did not
include in his gross income the gross receipts from that
activity. This treatment is equivalent to the treatment for
substantiated deductions in activities not engaged in for profit
pursuant to section 183(b)(2).
                                - 10 -

Mrs. Adler’s Stamping Activity

     In September 1999 Mrs. Adler began to sell rubber stamps and

related products to stamping9 hobbyists.      Mrs. Adler sold the

stamps for a 20-percent commission as an agent--with the title of

“demonstrator”--for a multi-level marketing agency named

“Stampin’ Up!”.   In addition, Mrs. Adler received a percentage of

the sales of any demonstrators that she recruited to work for the

agency.

     During the tax years at issue, Mrs. Adler generated sales in

two ways.   First, Mrs. Adler hosted stamping parties at her

customers’ homes, where she would demonstrate how to make

greeting cards and scrapbooks with the stamping products.

Second, Mrs. Adler formed stamping clubs for her customers, in

which members committed to meet and purchase more stamping

products each month.   Mr. Adler alleges, and we find, that his

wife’s stamping activity generated gross receipts in the

following amounts for the years in issue:

                         Year            Amount
                         2001            $1,326
                         2002             2,239
                         2003             3,301
                         2004             3,298




     9
      The term “stamping” refers to the use of rubber stamps to
craft greeting cards and scrapbooks.
                                  - 11 -

Non-Substantiation of Stamping Expenses

     On his late-filed returns Mr. Adler claimed deductions for

the following expenses of Mrs. Adler’s stamping activity, which

total about $29,000 for the four years in issue:


   Expense         2001            2002     2003           2004
Car & truck
                    $609           ---      $945.78        ---
  expenses
Depreciation       1,217     $7,558.60     7,558.60      $7,558.60
Supplies            ---          ---         679.70         ---
Travel             1,745         ---         762.88         ---
  Total
                   3,571      7,558.60     9,947.02       7,558.60
    expenses


However, at trial Mr. Adler did not offer evidence to

substantiate deductible expenses of this activity in any

amount.10   See infra part III.

Sources of Support for Daughter and Son-in-Law

     In 2000 Mr. and Mrs. Adler’s daughter Justyn graduated from

high school and left her parents’ home in Stroudsburg,

Pennsylvania, to attend Murray State University in Murray,

Kentucky.   During the tax years at issue, Justyn lived with her

parents only during the summers of 2001, 2002, and 2004.    While

at college, Justyn participated in a work study program and



     10
      It should be noted that, as with the greenhouse activity,
see supra note 8, the IRS gave Mr. Adler the equivalent of a
deduction to the extent of his income from his wife’s stamping
activity, because the notices of deficiency did not include the
gross receipts from that activity in his gross income.
                              - 12 -

received various grants and scholarships.   However, the record

does not show the amounts of support that she received from her

work study, grants, and scholarships, the nature of her

scholarships, or whether she had other sources of support.    We

therefore find that Mr. Adler failed to establish the total

amount of support for Justyn during the tax years at issue or his

portion of that support.

     On February 5, 2002, Justyn married Cesar Carbajal, who was

a student at the Rose-Hulman Institute of Technology in Terre

Haute, Indiana.   While at college, Cesar participated in a work

study program, received various grants and scholarships, took out

student loans, and received money from his father.   In addition,

Mr. Adler paid for Cesar’s car insurance after he married Justyn.

However, the record does not show the amount of support that

Cesar received from each of these sources, the nature of his

scholarships, or whether he had other sources of support.    In his

post-trial briefs Mr. Adler suggests amounts of support, but

there is no evidence in the record to substantiate his

assertions.   We therefore find that Mr. Adler failed to establish

the total amount of support for Cesar during the tax years at

issue or his portion of that support.

Substitutes for Returns and Notices of Deficiency

     In July 2007, in response to Mr. Adler’s failure to timely

file his Forms 1040, U.S. Individual Income Tax Return, for the
                              - 13 -

tax years at issue, the IRS prepared for Mr. Adler a substitute

for return for each of those years, pursuant to section 6020(b).

On those substitutes for returns, the IRS used the status of

married filing separately, included the income reported by

Mr. Adler’s employer, applied the standard deduction, and did not

allow any other deductions.   In addition, the IRS did not include

(because it was not aware of) the gross receipts from Mr. Adler’s

greenhouse activity or from his wife’s stamping activity in his

gross income.   The record does not show that any substitutes for

returns were prepared for Mrs. Adler.   Each of the four

substitutes for returns for Mr. Adler consisted of a Form 4549,

Income Tax Examination Changes, Form 886-A, Explanation of Items,

and Form 13496, IRC Section 6020(b) Certification.   Neither the

Forms 13496 nor the other forms were signed by an officer or

employee of the IRS.

     On the basis of those substitutes for returns, the IRS

mailed to Mr. Adler (not to Mrs. Adler) four notices of

deficiency in the fall of 2007.   Like the substitutes for

returns, the notices of deficiency used a filing status of

married filing separately, did not allow any deductions for

Mr. Adler’s greenhouse activity or for his wife’s stamping

activity, and did not include the gross receipts from those

activities in his gross income.   In response to the notices of

deficiency, Mr. Adler petitioned this Court, pursuant to section
                             - 14 -

6213(a), to redetermine his deficiencies.    At the time that he

filed his petition, Mr. Adler resided in Pennsylvania.

The Late Filing of Mr. Adler’s Forms 1040

     On March 17, 2008, Mr. Adler submitted to the IRS Office of

Appeals what he claims was a copy of his and Mrs. Adler’s timely

filed joint Form 1040 for the 2001 tax year.    On March 31, 2008,

Mr. Adler submitted to the Office of Appeals what he claims were

reconstructions of his and Mrs. Adler’s timely filed joint Forms

1040 for the 2002 through 2004 tax years.    The IRS treated these

purported copies and reconstructions as late-filed Forms 1040 for

the tax years at issue.

     On his late-filed Forms 1040, Mr. Adler reported the items

of income and expense for his greenhouse activity that are set

out above, yielding reported net losses as follows:

     Item          2001        2002            2003         2004
Gross
                  ($431)    $1,000.00         $500.00     $500.00
  receipts
Total
                 22,552      8,665.63        4,502.02    4,564.16
  expenses
  Net loss      (22,983)    (7,665.63)      (4,002.02)   (4,064.16)


     On those late-filed returns Mr. Adler also reported the

following items of income and expense for Mrs. Adler’s stamping
                                - 15 -

activity that are set out above, yielding reported net losses as

follows:

    Item         2001            2002        2003         2004
Gross
                $1,326     $2,239.31       $3,301.38    $3,297.93
  receipts
Total
                 3,571         7,558.60     9,947.02     7,558.60
  expenses
  Net loss      (2,245)    (5,319.29)      (6,645.64)   (4,260.67)

     Mr. Adler claimed a dependency exemption deduction and an

education credit for his daughter Justyn and for two minor

children, D.A. and W.A., on each of his late-filed returns for

the 2001 through 2004 tax years.    Mr. Adler also claimed a

dependency exemption deduction and an education credit for his

daughter’s husband, Cesar Carbajal, on each of his late-filed

returns for the 2002 through 2004 tax years.

     At trial Mr. Adler continued to insist that he had timely

filed his Forms 1040 for the tax years at issue and that the IRS

must have lost all four of them.

     We find, however, for the reasons explained below in part

IV.A, that Mr. Adler failed to timely file his Forms 1040 for the

2001 through 2004 tax years.

                               OPINION

I.   Burden of Proof

     At issue is Mr. Adler’s entitlement to (i) deductions for

business expenses and (ii) deductions and credits for dependents.

Deductions and credits are a matter of legislative grace, and the
                               - 16 -

taxpayer bears the burden of proving that he is entitled to any

deduction or credit claimed.   Rule 142(a); see also Deputy v.

du Pont, 308 U.S. 488, 493 (1940); New Colonial Ice Co. v.

Helvering, 292 U.S. 435, 440 (1934).    The Court had occasion to

emphasize to Mr. Adler that he bore that burden.   These cases

were originally scheduled to be tried in February 2009, but

Mr. Adler requested a continuance and the Court granted it, over

respondent’s objection.   Both in a telephone conference with the

parties and in its order of February 20, 2009--

     The Court reminded petitioner that he bears the burden
     of proof in this case, that the Court will require him
     to bear that burden on June 1, and that he should
     actively cooperate with the IRS in exchanging
     documents, finalizing a stipulation, and otherwise
     preparing the case for trial.

     However, Mr. Adler makes two unsuccessful attempts to shift

this burden.   First, Mr. Adler invokes the principle embodied in

Rule 142(a)(1) that “in respect of any * * *   increases in

deficiency, * * * [the burden] shall be upon the respondent.”

Since the deficiency amounts stated in the statutory notice of

deficiency are greater than amounts that IRS personnel allegedly

communicated to him on a later occasion,11 Mr. Adler argues that

the greater amounts constitute “increases in deficiency” for


     11
      Mr. Adler alleges that lesser amounts were stated “in
August 2008 on IRS Form 5278 in accordance with Internal Revenue
Manual Section 8.7.10.16(5).” The cited provision of the
Internal Revenue Manual concerns “Individual Retirement Account
Adjustments”. No Forms 5278, Statement--Income Tax Changes, are
in evidence.
                                - 17 -

purposes of the burden of proof.     However, in so arguing he

misunderstands the Rule and the nature of a notice of deficiency.

Generally, the Commissioner’s determination in the notice of

deficiency is presumed to be correct, and the taxpayer bears the

burden of proving that the Commissioner’s determination is

erroneous.    Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933).   Increases in deficiency shift the burden of proof to the

Commissioner only if and to the extent that those increases cause

the deficiency to exceed the amounts stated in the notice of

deficiency.    Rule 142(a).   Respondent does not allege a

deficiency for any year greater than the amounts stated in the

notice of deficiency for that year, and the exception stated in

Rule 142(a)(1) does not apply.

     Second, even where the burden of proof is otherwise on the

taxpayer, it may shift to the Commissioner under section

7491(a)(1) if the taxpayer produces credible evidence with

respect to any factual issue relevant to ascertaining the

taxpayer’s tax liability; and Mr. Adler contends that he has

satisfied the requirements of section 7491(a) to shift the burden

of proof to respondent with respect to his greenhouse activity

and his wife’s stamping activity.     In fact, Mr. Adler has not

produced credible evidence with respect to any factual issue, as

we show below.
                               - 18 -

     Moreover, section 7491(a)(2)(A) provides that the burden of

proof will shift with respect to an issue only if “the taxpayer

has complied with the requirements under this title to

substantiate any item”.   Section 6001 requires that--

          Every person liable for any tax imposed by this
     title, or for the collection thereof, shall keep such
     records, render such statements, make such returns, and
     comply with such rules and regulations as the Secretary
     may from time to time prescribe. * * *

Taxpayers are thus required to keep records.   Mr. Adler insists,

however, that a taxpayer is required to keep records for only

four years; and since the latest year at issue is 2004, and his

trial took place in 2009--more than four years later--his non-

retention of records should not be held against him.     For this

four-year rule Mr. Adler cites a provision in part 31 of the

regulations--i.e., 26 C.F.R. section 31.6001-1(e)(2), Employment

Tax Regs.--and berates respondent’s counsel for not yielding the

point.12   It would be odd if a taxpayer could fail to file

returns but escape the burden of proof if his trial did not take

place within four years; but in fact the tax law does not reflect


     12
      See Petr.’s Reply Brief 40-41 (“Treasury Reg. 26 CFR
31.6001-1(e)(2) specifies four years. Why can’t she read. This
was cited in Petitioner’s brief on page 21 but Respondent’s
Counsel states in note 6 that Petitioner cited no authority for
his position. Here yet again is a Rule 406 lie”).
Section 31.6001-1(e)(2), Employment Tax Regs., provides, for
employment taxes, that “every person required by the regulations
in this part to keep records in respect of a tax * * * shall
maintain such records for at least four years after the due date
of such tax for the return period to which the records relate, or
the date such tax is paid, whichever is the later.”
                               - 19 -

such an oddity.    Rather, part 31 of the regulations relates to

employment taxes, whereas this case concerns income tax.     The

income tax rule that actually applies here is from part 1 of the

regulations--i.e., 26 C.F.R. section 1.6001-1(e), Income Tax

Regs.--and it provides:

          (e) Retention of records.--The books or records
     required by this section shall be kept at all times
     available for inspection by authorized internal revenue
     officers or employees, and shall be retained so long as
     the contents thereof may become material in the
     administration of any internal revenue law. [Emphasis
     added.]

A taxpayer’s books and records for a given tax year “may become

material” for purposes of section 6001 so long as the period of

limitations on assessment for that year remains open under

section 6501.   Since the period of limitations is still open with

respect to the tax years at issue,13 Mr. Adler was required to

retain his books and records with respect to those years.    In

this case Mr. Adler bears the burden of proof, and that burden

has not shifted.    As is discussed below, Mr. Adler has failed to

maintain sufficient records to substantiate his expenses with

respect to his greenhouse activity and his wife’s stamping

activity.


     13
      The period of limitations for assessment was open with
respect to all four of the tax years at issue in 2007 when the
IRS issued the notices of deficiency to Mr. Adler, because he
filed no returns with respect to those years until 2008. See
sec. 6501(c)(3). The period of limitations will remain open for
a minimum of 60 days after the decision of this Court becomes
final. See secs. 6213(a), 6503(a).
                              - 20 -

II.   Mr. Adler’s Greenhouse Activity

      Section 162(a) allows a deduction for all the ordinary and

necessary expenses paid or incurred during the taxable year in

carrying on a trade or business.    However, respondent contends

that Mr. Adler’s claimed deductions under section 162 for net

losses from his greenhouse activity must be disallowed because he

failed to carry his burden of proof by substantiating those

deductions.

      A.   Lack of Substantiation

      Respondent is correct that Mr. Adler did not corroborate his

testimony with sufficient records or other evidence to

substantiate his claimed deductions from the greenhouse activity,

which total about $39,000 over the four years in issue.

Mr. Adler did not submit into evidence a general journal, cash

receipts and disbursements journal, or any ledger accounts for

his greenhouse activity.   Instead, Mr. Adler submitted into

evidence (i) detailed drawings of his greenhouses, (ii) seed

catalogs that he allegedly used to order seeds for his greenhouse

activity, (iii) executed contracts between his farm and licensors

to grow and sell particular brands of flowers, (iv) seeding

schedules for 1995 and 1996, (v) undated seedling and

transplanting schedules, (vi) an undated yellow page ad for his

farm, (vii) commercial automobile insurance bills for some of the

periods during the tax years at issue for an Econoline truck that
                             - 21 -

was allegedly used to make deliveries in the greenhouse activity,

and (viii) one page of an unsigned receipt, dated August 20,

1998, that lists various boiler parts with accompanying prices.

These documents did not prove deductible expenditures in the

years in issue.

     With respect to the alleged utilities expense, Mr. Adler

failed to submit into evidence any utility bills or other

documentation to substantiate that he paid for utilities.    In

addition, Mr. Adler failed to provide this Court with any basis

in fact to determine the ratio of business to personal use of

electricity, water, or other utilities on his property.

Accordingly, we find that Mr. Adler failed to substantiate his

utilities expense.

     With respect to the casualty loss for the destruction of his

electric boiler, Mr. Adler submitted one page of an unsigned

receipt that lists various boiler parts with accompanying prices.

The page is clearly incomplete, because the phrase “Continued on

Next Page” is printed at the bottom.   Although Mr. Adler alleges

that the page constitutes a portion of the receipt for the

electric boiler he purchased in 1998, it is impossible to discern

the truth of that allegation from the page alone.   An unsigned

and incomplete list of boiler parts with accompanying prices is

insufficient evidence to prove that an entire boiler was

purchased or the price of that boiler.   Accordingly, we find that
                                - 22 -

Mr. Adler failed to substantiate the amount, if any, of his

casualty loss.

     With respect to the alleged depreciation expenses, Mr. Adler

failed to submit into evidence any depreciation schedules or

other documentation to substantiate his deductions.    While

Mr. Adler substantiated the total amount he paid in December 1987

for his property, which included the small greenhouse, he failed

to provide this Court with any basis in fact to allocate that

price and his resultant basis among the small greenhouse and the

rest of his property.   In addition, Mr. Adler failed to

substantiate the cost of purchasing and erecting the second,

third, and fourth greenhouses.    Accordingly, we find that Mr.

Adler failed to substantiate his depreciation expenses.

     With respect to the alleged car and truck expenses,

Mr. Adler failed to submit into evidence any documentation to

substantiate the business use of any vehicle in his greenhouse

activity.   Moreover, the only plausible business use in the

instant cases is transporting plants and related items to and

from suppliers and customers.    Since Mr. Adler ceased growing

plants in the spring of 2001 and reports revenues totaling only

$2,000 for the four years 2001 through 2004, it is unlikely that

he incurred significant transportation expenses during 2001 or

later years.   Mr. Adler’s contention that his car and truck

expenses in 2001 exceeded his gross receipts for all four of the
                               - 23 -

tax years at issue is not credible.     Accordingly, we find that

Mr. Adler failed to substantiate his car and truck expenses.

     With respect to the alleged insurance expense, Mr. Adler

failed to submit into evidence sufficient documentation to

substantiate his deductions.    Mr. Adler provided commercial

automobile insurance bills for an Econoline truck for some of the

periods during the tax years at issue.     However, Mr. Adler failed

to provided a complete set of bills or any proof that he paid the

bills.    Moreover, as noted above, Mr. Adler failed to

substantiate the business use of any vehicle in his greenhouse

activity.   As a result, he failed to substantiate the business

purpose of the insurance expense.    Accordingly, we find that

Mr. Adler failed to substantiate his insurance expense.

     Mr. Adler similarly failed to submit into evidence any

documentation to substantiate that he used any gas, fuel, or oil,

that he paid for any postage, that he paid any mortgage interest

or property taxes, or that he paid for any office supplies, or

that he incurred any miscellaneous expenses for his greenhouse

activity.

     B.     Records Lost or Destroyed

     Having failed to produce sufficient records, Mr. Adler

alleges that he should be excused from producing his greenhouse

activity records because some of those records were destroyed in

2006 by a flood in his basement.    “It is well established that
                              - 24 -

the Tax Court may permit a taxpayer to substantiate deductions

through secondary evidence where the underlying documents have

been unintentionally lost or destroyed.”    Davis v. Commissioner,

T.C. Memo. 2006-272.   However, Mr. Adler bears the burden of

proving both that a flood occurred and that his records were

destroyed by that flood.   See Rule 142(a)(1).

     Mr. Adler’s evidence fails to make that showing.   He

testified that he kept paper records of his greenhouse activity

in his basement and also in his home office, which was in one of

the five bedrooms in his home.   More specifically, Mr. Adler

testified that his home office “wouldn’t hold everything,” so he

stored the records that he used less frequently in cardboard

boxes on the floor of his basement.    However, Mr. Adler testified

that those records were destroyed in August 2006 by a flood in

his basement.   He testified that the flood resulted from a heavy

rain that caused water to seep through the gravel floor of his

basement.   Mr. Adler submitted into evidence, as proof of the

flood in 2006, nine recent photographs of his basement that

showed several items therein, including a water heater, that are

heavily rusted.   However, in 2006 he did not make any claims to

insurance companies or third parties with respect to the damage

caused by the flood.   We find that he did not prove that a flood

occurred.   His nine recent photographs of rusty items in his

basement do not show that a flood occurred, or when it occurred.
                              - 25 -

     Even assuming arguendo that a flood did occur in the

basement in 2006, Mr. Adler did not credibly testify that he kept

the relevant records in his basement at that time.   Instead,

Mr. Adler testified expressly that he was unsure which greenhouse

activity records were destroyed in his basement, because he

stored some of his records in his home office, which he has yet

to review and catalog:

     I should have taken a picture of the office. You’d
     understand. My wife refers to it as the black hole.
     Things go in, and they never come out, and I still have
     boxes in there that I have not looked through. There’s
     boxes under tables. I haven’t had a chance to go
     through them yet, so I still might come up with another
     receipt or something that for some reason never got
     filed away, and it’s just stuck there in a pile. I
     don’t even have a filing system.

     Moreover, even assuming arguendo that a flood did occur and

that the flood destroyed the relevant records, Mr. Adler has not

provided us with sufficient “secondary evidence” to substantiate

his claimed deductions.   See Davis v. Commissioner, supra.

Neither Mr. Adler’s testimony nor the drawings, catalogs,

contracts, crop schedules, ads, and insurance bills he submitted

into evidence provide us with a basis to estimate the allowable

expenses of his greenhouse activity for the tax years at issue.14

We find that Mr. Adler’s testimony and other evidence is



     14
      Mr. Adler’s testimony and other evidence do not establish
either the amounts of his expenses with respect to the greenhouse
activity or the ratio of business to personal use of his property
and equipment.
                              - 26 -

insufficient to meet the substantiation requirements of section

6001.15

     Somewhat at odds with his contention that he lost his

records in a flood, Mr. Adler also argues in his reply brief that

he did substantiate his expenses by providing to the IRS, at some

time before the trial of this case, “nine boxes of information”,

amounting to an estimated “22000 pages of records”.   However, he

did not offer these records into evidence at trial, nor did he

offer any proof about the contents of any documents he had

provided to the IRS.   These cases must be decided on the basis of

evidence offered at the trial, and Mr. Adler cannot now cure the

gaps in his proof by allegations of evidence not offered.

     Accordingly, we hold that Mr. Adler is not entitled to any

deduction under section 162 (beyond what the IRS has allowed, see

supra note 8) for his greenhouse activity for the 2001 through

2004 tax years.

III. Mrs. Adler’s Stamping Activity

     Respondent contends that Mr. Adler’s claimed deductions for

alleged expenditures totaling $28,000 from his wife’s stamping

activity--90 percent of which are attributable to the alleged use



     15
      The Court may estimate allowable expenses under Cohan v.
Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930), but only if
there is sufficient evidence in the record to provide a basis for
the estimate, Vanicek v. Commissioner, 85 T.C. 731, 742-743
(1985), and the substantiation requirements under section 274(d)
do not apply.
                              - 27 -

of her sport utility vehicle (for which Mr. Adler claimed

deductions for “Car & truck expenses” and depreciation)--must be

disallowed because he failed to substantiate those deductions.

Respondent is correct.   As we stated above, section 162(a) allows

a deduction for all the ordinary and necessary expenses paid or

incurred during the taxable year in carrying on a trade or

business, but section 6001 requires the taxpayer to maintain

records sufficient to substantiate his claimed deductions.     In

addition, section 274(d) imposes stringent substantiation

requirements for claimed deductions relating to the use of

“listed property”, which is defined under section

280F(d)(4)(A)(i) to include passenger automobiles.     Under this

provision any deduction claimed with respect to the use of a

passenger automobile, such as Mrs. Adler’s 2001 GMC Yukon XL

sport utility vehicle, will be disallowed unless the taxpayer

substantiates specified elements of the use by adequate records

or by sufficient evidence corroborating the taxpayer’s own

statement.   See sec. 274(d); sec. 1.274-5T(c)(1), Temporary

Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).

     The elements that must be substantiated to deduct the

business use of an automobile are:     (i) the amount of the

expenditure; (ii) the mileage for each business use of the

automobile and the total mileage for all uses of the automobile

during the taxable period; (iii) the date of the business use;
                               - 28 -

and (iv) the business purpose of the use of the automobile.      See

sec. 1.274-5T(b)(6), Temporary Income Tax Regs., 50 Fed. Reg.

46016 (Nov. 6, 1985).

     Mrs. Adler testified that she drove to her stamping events

and delivered products in her 2001 GMC Yukon XL sport utility

vehicle.    However, Mrs. Adler failed to maintain records and

documentation for the business use of the sport utility vehicle

in her stamping activity.

     Mrs. Adler testified that she incurred supplies expenses,

because she needed to purchase and use some products as free

samples during her stamping parties.    In addition, Mrs. Adler

testified that she incurred travel expenses in July 2001, July

2002, July 2003, and July 2004 to attend the agency’s annual

training convention for its demonstrators, during which she took

business classes and was introduced to the agency’s new products.

Mrs. Adler also testified that she incurred travel expenses to

attend other trade shows and seminars in furtherance of her

stamping activity.    However, Mr. Adler did not offer into

evidence receipts, canceled checks, invoices, bank statements, or

credit card statements showing these expenditures, and Mrs. Adler

did not keep or maintain a general journal, cash receipts and

disbursements journal, or any ledger accounts for her stamping

activity.    The only records that Mr. Adler submitted into

evidence with respect to his wife’s stamping activity were (i)
                              - 29 -

two registration confirmation printouts for a stamping tradeshow

called “Memories Expo” in 2001 and 2002, and (ii) a handful of

hotel bills which Mrs. Adler testified were incurred to attend

various stamping events--the names, dates, locations, and

purposes of which she did not describe in any detail.

     Thus, not only did Mr. Adler fail to meet the more stringent

substantiation requirements under section 274(d) for the

deductions relating to the alleged business use of Mrs. Adler’s

sport utility vehicle,16 but he also failed even to provide

sufficient records or other evidence under the less demanding

standard of section 6001 to substantiate any of his claimed

deductions for his wife’s stamping activity.   In fact, with the

exception of a handful of registration confirmation printouts for

stamping trade shows and hotel bills purportedly incurred for

business travel, Mr. Adler submitted no records whatsoever to

substantiate the expenses incurred in his wife’s stamping

activity.   Instead, Mr. Adler stipulated (i) that his “wife

failed to maintain records and documentation for the claimed

business use of the 2001 GMC Yukon XL sport utility vehicle in




     16
      It should also be noted that Mr. Adler claimed deductions
relating to the alleged business use of Mrs. Adler’s sport
utility vehicle as if the business use (versus personal use)
percentage for that vehicle was 100 percent. At trial Mrs. Adler
contradicted the claim that her sport utility vehicle was solely
used in her stamping activity and testified that the business use
percentage for that vehicle was “45 to 50” percent.
                              - 30 -

her Schedule C stamps activity”,17 and (ii) that his “wife did

not keep or maintain a general journal, cash receipts and

disbursements journal, or any ledger accounts for her Schedule C

stamps activity.”

      We find that Mr. and Mrs. Adler’s uncorroborated testimony

is insufficient to meet the substantiation requirements of

sections 274(d) and 6001.   Accordingly, we hold that Mr. Adler is

not entitled to any deduction under section 162 (beyond what the

IRS has allowed, see supra note 10) for Mrs. Adler’s stamping

activity for the 2001 through 2004 tax years.

IV.   Deductions and Credits for Dependents

      A.   Dependency Exemption Deduction

      Section 151(c) allows a taxpayer to deduct an annual

exemption amount for each dependent of the taxpayer.   Section

152(a) defines the term “dependent”, in pertinent part, to

include a “daughter” or “son-in-law”.   Sec. 152(a)(1), (8).   Mr.

Adler claimed a dependency exemption deduction for his daughter

Justyn for tax years 2001 through 2004, and for his son-in-law


      17
      It should be noted that Mr. Adler does not contend that
Mrs. Adler lost any records from her stamping activity in the
alleged basement flood. At trial, when Mr. Adler was asked,
“[w]ere there any documents of your wife’s that were destroyed in
the basement”, he responded, “None of her stuff was stored in the
basement.” Consequently, the exception to the stringent
substantiation requirements under section 274(d) for records lost
through circumstances beyond the taxpayer’s control in section
1.274-5T(b)(6), Temporary Income Tax Regs., 50 Fed. Reg. 46016
(Nov. 6, 1985), is not applicable to Mrs. Adler’s stamping
activity.
                              - 31 -

Cesar for tax years 2002 through 2004.    Respondent contends that

the dependency exemption deduction must be disallowed for Justyn

for tax years 2003 and 2004 and for Cesar for tax years 2002

through 2004.   To prevail on this issue, Mr. Adler must show:

(i) that each of the claimed individuals satisfies the

definitional requirements provided in section 152(a) (the

relationship requirement); (ii) the amount of total support

provided for each of the claimed individuals; and (iii) that he

provided more than half of such support (taken together, the

support requirement).   See secs. 151(c)(1)(A), 152(a).

     Justyn and Cesar both satisfy the relationship requirement.

Specifically, Justyn is Mr. Adler’s daughter, and Cesar was

Mr. Adler’s son-in-law during the tax years at issue.

Accordingly, the only issues are the amounts of the total support

for Justyn in the 2003 and 2004 tax years and for Cesar in the

2002 through 2004 tax years, and whether Mr. Adler provided more

than one-half of that support.

     For this purpose, “support” is defined as including food,

shelter, clothing, medical and dental care, education, etc.    See

sec. 1.152-1(a)(2)(i), Income Tax Regs.   However, “support” is

defined to exclude certain “scholarships”.   See sec. 1.152-1(c),

Income Tax Regs.   Section 152(d) sets forth a “Special Support

Test in Case of Students,” which provides, that in the case of

any individual who is “a son, stepson, daughter, or stepdaughter
                              - 32 -

of the taxpayer” and who is a “student”, “amounts received as

scholarships for study at an educational organization described

in section 170(b)(1)(A)(ii) shall not be taken into account” in

determining the total amount of support for the individual.

Since section 152(d)(1) applies the special support test to a

daughter, but not a son-in-law, section 152(d) potentially

applies to Justyn, but not Cesar.   It appears that Justyn is a

“student” within the meaning of section 1.151-3(b), Income Tax

Regs.,18 and that Murray State University is an educational

organization within the meaning of section 170(b)(1)(A)(ii).19

However, Mr. Adler has not alleged, nor does the record show,

that the scholarships Justyn received constitute “scholarships”

for purposes of section 152(d).   Section 1.152-1(c), Income Tax

Regs., cross-references section 1.117-4, Income Tax Regs., which

excludes from the definition of “scholarships” “[a]mounts paid as

compensation for services or primarily for the benefit of the

grantor.”   Since the record does not show whether the

scholarships Justyn received were outright grants or were


     18
      Under section 1.151-3(b), Income Tax Regs., “the term
‘student’ means an individual who during each of 5 calendar
months during the calendar year in which the taxable year of the
taxpayer begins is a full-time student at an educational
institution”.
     19
      Section 170(b)(1)(A)(ii) refers to “an educational
organization which maintains a regular faculty and curriculum and
normally has a regularly enrolled body of pupils or students in
attendance at the place where its educational activities are
regularly carried on”.
                               - 33 -

compensatory, section 152(f)(5) is inapplicable to Justyn, and

her scholarships must be included in her “support”.

     The support test requires the taxpayer to establish the

total support costs for the claimed individual and that the

taxpayer provided at least half of that amount:

     For purposes of determining whether or not an
     individual received, for a given calendar year, over
     half of his support from the taxpayer, there shall be
     taken into account the amount of support received from
     the taxpayer as compared to the entire amount of
     support which the individual received from all sources,
     including support which the individual himself
     supplied. * * *

Sec. 1.152-1(a)(2)(i), Income Tax Regs.; see also Archer v.

Commissioner, 73 T.C. 963, 967 (1980).   Thus, a taxpayer who

cannot establish the total amount of support costs for the

claimed individual generally may not claim that individual as a

dependent.    Blanco v. Commissioner, 56 T.C. 512, 514-515 (1971);

Cotton v. Commissioner, T.C. Memo. 2000-333.    The amount of total

support provided by the taxpayer may be reasonably inferred from

competent evidence.   See Stafford v. Commissioner, 46 T.C. 515,

518 (1966).

     In 2000 Justyn left home to attend college at Murray State

University, and during the tax years at issue she lived with the

Adlers only in the summers of 2001, 2002, and 2004.   While at

college, Justyn participated in a work study program and received

various grants and scholarships.   However, the Adlers alleged

that they paid for Justyn’s college tuition, textbooks, room and
                               - 34 -

board, and clothes.    The Adlers also alleged that they bought

Justyn a car at some point during the tax years at issue and paid

for her car insurance and gas.

     On February 5, 2002 (i.e., near the beginning of the second

of the four years at issue), Justyn married Cesar, who was a

student at the Rose-Hulman Institute of Technology in Terre

Haute, Indiana.    While at college, Cesar participated in a work

study program, received various grants and scholarships, took out

student loans, and received money from his father.    In addition,

the Adlers paid for Cesar’s car insurance after he married

Justyn.    However, the Adlers alleged that they also bought Cesar

a car in 2002, paid some of his bills at Rose-Hulman, and bought

him groceries.

     The Adlers contend that some of the above expenses were paid

via their credit card, which they lent to Justyn to support both

her and Cesar.    In support of their contention, the Adlers

submitted several credit card bills (some of which are addressed

to Mr. Adler, and some to Justyn) for the tax years at issue,

which show charges in both Murray, Kentucky, and Terre Haute,

Indiana--the locations in which Justyn and Cesar attended

college.   However, the Adlers did not submit into evidence copies

of checks or other evidence to show that they--not Justyn or

Cesar--paid those credit card bills.    In addition, neither Justyn

nor Cesar testified with respect to any issue, including the
                                 - 35 -

credit card bills.    In the absence of such testimony, we infer

that it would have been unfavorable to Mr. Adler.    See Wichita

Terminal Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946),

affd. 162 F.2d 513 (10th Cir. 1947).

     We find it plausible that the Adlers would lend their

daughter a credit card and otherwise support her through college.

In addition, it is conceivable that they would support their

daughter’s husband.     However, the record is vague and incomplete

with respect to the actual amounts provided by the Adlers for the

support of Justyn and Cesar.20

     The Adlers did not keep records of how much they spent on

Justyn or Cesar.     In fact, the Adlers never even alleged the

dollar amounts of support that Justyn received from them or in

total.    With respect to Cesar, Mr. Adler alleged that he provided

14.2 percent and 51.1 percent of Cesar’s support in 2002 and

2004, respectively.21    However, Mr. Adler did not support these

figures with credible testimony or other evidence.     In addition,


     20
      It should be noted that Mr. Adler does not contend that
any records relating to the support of his daughter and
son-in-law were destroyed in the alleged flood.
     21
      Mr. Adler alleges that he may claim Cesar as a dependent
in 2002--despite the fact that he provided less than half of
Cesar’s total support--under the so-called multiple support
agreement rule under section 152(c). However, Mr. Adler has not
alleged, nor does the record show, that he satisfied section
152(c)(4), which requires the other potential claimants to file
written declarations with the IRS that they will not claim Cesar
as a dependent. Mr. Adler does not allege the percentage of
Cesar’s support that he provided in 2003.
                               - 36 -

both Justyn and Cesar had other sources of support, such as work

study programs and scholarships, that Mr. Adler failed to

quantify.    Thus, we cannot find that Mr. Adler has established

the total amounts of support for Justyn or Cesar in the tax years

at issue.

     We are convinced that the Adlers paid some expenses on

behalf of Justyn, and it is plausible that they paid some

expenses on behalf of Cesar.    However, Mr. Adler failed to

provide the Court with any significant corroborative evidence

establishing the total amount of support or his portion of such

support for either Justyn or Cesar during any of the tax years at

issue.    Accordingly, we hold that Mr. Adler is not entitled to

dependency exemption deductions under sections 151(c) and 152(a)

for Justyn for the 2003 and 2004 tax years or for Cesar for the

2002 through 2004 tax years.

     B.     Education Credit

     Section 25A allows education credits22 against tax for

“qualified tuition and related expenses” paid by the taxpayer

during the tax year.   Section 25A(f)(1)(A)(iii) defines the term

“qualified tuition and related expenses”, in pertinent part, to

include “tuition and fees” for “any dependent of the taxpayer



     22
      These credits are called the Hope Scholarship Credit and
the Lifetime Learning Credit. Both are subject to multiple
conditions and limitations that need not be discussed in this
opinion.
                                - 37 -

with respect to whom the taxpayer is allowed a deduction under

section 151”.    Mr. Adler claimed education credits for Justyn for

the 2001 through 2004 tax years and for Cesar for the 2002

through 2004 tax years.   Respondent contends the education

credits must be disallowed for Justyn for the 2003 and 2004 tax

years, and for Cesar for the 2002 through 2004 tax years.     To

prevail on this issue, Mr. Adler must show that:    (i) he is

entitled to dependency exemption deductions under section 151 for

Justyn for the 2003 and 2004 tax years and for Cesar for the 2002

through 2004 tax years; and (ii) he paid “qualified tuition and

related expenses” for Justyn and Cesar for those years.      See sec.

25A(b), (c), (f).

     We concluded above that Mr. Adler is not entitled to a

dependency exemption deduction under section 151 for Justyn or

Cesar for any of the tax years at issue.    Accordingly, Mr. Adler

is not entitled to an education credit for Justyn and Cesar for

those years.    In addition, Mr. Adler has failed to substantiate

that he paid any “qualified tuition and related expenses” for

Justyn or Cesar during the tax years at issue.    For that reason,

as well, Mr. Adler is not entitled to education credits greater

than respondent has conceded.    Accordingly, we hold that

Mr. Adler is not entitled to education credits under section 25A

for Justyn for the 2003 and 2004 tax years or for Cesar for the

2002 through 2004 tax years.
                                - 38 -

V.    Joint Filing Status

      In order to qualify to calculate tax under rates applicable

to “Married Individuals Filing Joint Returns”, an individual must

make a joint return with his or her spouse pursuant to

section 6013.   Sec. 1(a)(1).   At the time the IRS prepared the

substitutes for returns and the notices of deficiency, Mr. Adler

had not yet elected “married filing jointly” status by filing a

joint return.   However, in his petitions he alleged that the IRS

“used the incorrect filing status”; and he subsequently did

submit to the IRS copies of joint Forms 1040, which the IRS

accepted as late returns and which are in the record.     Cf.

Phillips v. Commissioner, 86 T.C. 433, 441 n.7 (1986) (“where the

taxpayer has filed no return as of the date the case is submitted

for decision * * * no returns would be in the record, and,

therefore, no joint filing status could be claimed”), affd. in

relevant part 851 F.2d 1492 (D.C. Cir. 1988).    Mr. Adler is

therefore entitled to calculate his tax under section 1(a)(1).

VI.   Additions to Tax

      A.   Section 6651(a)(1)

      Section 6651(a)(1) authorizes the imposition of an addition

to tax for failure to file a timely return unless the taxpayer

proves that such failure is due to reasonable cause and is not

due to willful neglect.     See also United States v. Boyle, 469

U.S. 241, 245 (1985); Harris v. Commissioner, T.C. Memo.
                               - 39 -

1998-332.    Respondent introduced evidence showing that Mr. Adler

failed to timely file his Forms 1040 for the 2001 through 2004

tax years.   The Forms 4340, Certificate of Assessments, Payments,

and Other Specified Matters, submitted into evidence by both

parties--in tandem with the credible testimony of respondent’s

expert witness--indicate that Mr. Adler failed to timely file his

Forms 1040 for the tax years at issue.   This evidence is

sufficient to satisfy respondent’s burden of production under

section 7491(c), and we so find.   See Cobaugh v. Commissioner,

T.C. Memo. 2008-199.

     However, to support his contrary contention,23 Mr. Adler

relies on the return he submitted to the IRS Office of Appeals on

March 17, 2008, which he claims was a copy of his timely filed

joint Form 1040 for 2001, and returns he submitted on March 31,

2008, that he claims were reconstructions of timely filed joint

Forms 1040 for the 2002 through 2004 tax years.   Mr. Adler also

produced at trial yet another purported copy of his timely filed

2001 Form 1040.   However, the 2001 Form 1040 he submitted at

trial differed significantly from the 2001 Form 1040 he submitted

to the Office of Appeals.   The handwritten signatures and dates


     23
       Mr. Adler could avoid liability for the addition to tax if
he could show that he had reasonable cause for his failure to
file his Forms 1040 for the 2001 through 2004 tax years. See
sec. 6651(a)(1); Rule 142(a)(1). However, Mr. Adler contended
only that he did file the returns and offered no testimony or
other evidence that his failure to file was due to reasonable
cause.
                                - 40 -

on the purportedly identical copies are materially different.      In

addition, the fonts in which the numerals are typed on the second

pages of the Forms 1040 are visibly different.

     Mr. Adler posits that the IRS’s records fail to show the

timely filing of his returns because the IRS lost his returns.

The IRS, staffed as it is by fallible human beings, is certainly

capable of losing a tax return.    However, there is no reason to

suppose that in this instance the IRS lost the return of the same

taxpayer four years in a row.    Mr. Adler’s story as to 2001 is

self-contradictory, since he has two different copies of the

return he allegedly filed for 2001.      It appears as likely as not

that the purported copies are backdated forgeries--a conclusion

that undercuts not only Mr. Adler’s specific contention about the

filing of the returns but also his overall credibility.     In

addition, Mr. Adler fails to paint a convincing self-portrait of

reliable compliance with the tax laws.     At trial Mr. Adler

admitted that he had not yet filed an income tax return for 2006,

2007, or 2008, and respondent offered records showing that, in

the 20 years from 1988 to 2007, only twice did Mr. Adler timely

file his Form 1040.   In 18 of the years, he filed late or not at

all.24


     24
      Mr. Adler interprets the IRS records    offered into evidence
to show that he received eight tax refunds    in the 20 years from
1988 to 2007, and he argues that this fact    shows that he was not
a chronically delinquent filer during that    period. It appears
                                                      (continued...)
                               - 41 -

     Accordingly, we find that Mr. Adler did not timely file his

tax returns for 2001 to 2004, and we hold that Mr. Adler is

liable for the addition to tax under section 6651(a)(1) for those

years.

     B.   Section 6651(a)(2)

     Section 6651(a)(2) imposes an addition to tax for failure to

pay the amount of tax shown on a return.   The addition to tax

under section 6651(a)(2) applies only when an amount of tax is

shown on a return.   Cabirac v. Commissioner, 120 T.C. 163, 170

(2003).   The Commissioner’s burden of production with respect to

the section 6651(a)(2) addition to tax requires him to introduce

evidence that a return showing the taxpayer’s tax liability was

filed for the year in question.   Wheeler v. Commissioner, 127

T.C. 200, 210 (2006), affd. 521 F.3d 1289 (10th Cir. 2008).

     In a case such as these where the taxpayer did not timely

file returns for the tax years at issue,25 the Commissioner must


     24
      (...continued)
that Mr. Adler misinterprets the IRS records in several
instances, but it is true that for some years he received
overpayments. While Mr. Adler is right that the IRS is unlikely
to approve a refund to someone who altogether fails to file a tax
return, the IRS certainly may allow a refund claimed in a tax
return that is filed late. In fact, the Forms 4340 which
Mr. Adler cites to demonstrate that he received tax refunds show
that he repeatedly failed to timely file his tax returns,
including most of those that yielded overpayments of tax.
     25
      Mr. Adler’s late-filed returns for 2001, 2003, and 2004 do
not provide a basis for respondent to assert the addition to tax
under section 6651(a)(2), because each of those returns shows an
                                                   (continued...)
                               - 42 -

introduce evidence that a valid substitute for return was made

pursuant to section 6020(b).   Sec. 6651(g)(2).   To constitute a

valid substitute for return under section 6020(b), “the return

must be subscribed, it must contain sufficient information from

which to compute the taxpayer’s tax liability, and the return

form and any attachments must purport to be a ‘return’.”

Spurlock v. Commissioner, T.C. Memo. 2003-124.

     The substitutes for returns that the parties jointly

submitted into evidence were not subscribed as required by

section 6020(b)(2).   As a result, the substitutes for returns do

not satisfy section 6020(b), and respondent has failed to satisfy

his burden of production under section 7491(c) with respect to

the section 6651(a)(2) addition to tax.   Accordingly, we hold

that Mr. Adler is not liable for the addition to tax under

section 6651(a)(2) for the 2001 through 2004 tax years.




     25
      (...continued)
overpayment rather than a liability. Mr. Adler’s late-filed
return for 2002 does show a small liability (i.e., $132.25),
which might provide the basis for a small addition to tax. See
Wolcott v. Commissioner, T.C. Memo. 2007-315 n.6 (distinguishing
Mendes v. Commissioner, 121 T.C. 308, 324-325 (2003)), affd.
without published opinion 2009-1 USTC par. 50,300 (6th Cir.
2008). However, neither at trial nor on brief did respondent
argue that Mr. Adler’s 2002 late-filed return provides a basis
for the addition to tax, so we do not sustain the addition on
that basis.
                             - 43 -

     C.   Section 6654

     Section 6654 imposes an addition to tax on an individual

taxpayer who underpays his estimated tax.    A taxpayer has an

obligation to pay estimated tax for a particular year if he has a

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

“required annual payment” is defined in section 6654(d)(1)(B) as:

     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 individual did
     not file a return for such preceding taxable year.

Thus, respondent’s burden of production under section 7491(c)

requires him to produce, for each year for which the addition is

asserted, evidence that the taxpayer had a required annual

payment under section 6654(d); and in order to do so he must

demonstrate the tax shown on the taxpayer’s return for the

preceding year, unless he can show that the taxpayer did not file

a return for that preceding year.   Wheeler v. Commissioner, supra

at 210-212.

     With respect to the 2001 tax year, respondent submitted a

Form 4340 into evidence to demonstrate the tax shown on
                               - 44 -

Mr. Adler’s return for the 2000 tax year.26    With respect to the

2002 through 2004 tax years, we have already found that Mr. Adler

did not file returns for the preceding years (2001 through 2003).

Respondent has thus carried his burden of production under

section 7491(c) with respect to the section 6654 addition for the

2001 through 2004 tax years.

     The section 6654 addition to tax is mandatory unless the

taxpayer can place himself within one of the computational

exceptions provided for in subsection (e) thereof.     Grosshandler

v. Commissioner, 75 T.C. 1, 20-21 (1980).     Mr. Adler has not

shown that any of the computational exceptions to section 6654

applies.   Accordingly, we hold that Mr. Adler is liable for the

addition to tax under section 6654 for the 2001 through 2004 tax

years.

     To reflect the foregoing,


                                      Decisions will be entered

                                 under Rule 155.


     26
      The 2000 tax year is the “preceding taxable year” with
respect to the 2001 tax year for purposes of section
6654(d)(1)(B)(ii). The Form 4340 for 2000 shows that Mr. Adler
reported a tax liability of $24 on his 2000 Form 1040, which the
IRS assessed on June 4, 2001. Since Mr. Adler reported a
positive tax liability on his 2000 Form 1040, the exception under
section 6654(e)(2) to the requirement to pay estimated taxes is
inapplicable. Jones v. Commissioner, T.C. Memo. 2006-176 (for
purposes of section 6654(e)(2), we look to the tax liability
shown on the return for the previous year, rather than the tax
liability ultimately assessed by the Commissioner); see also
Mendes v. Commissioner, 121 T.C. 308, 324 (2003).
