                                T.C. Memo. 2012-233



                          UNITED STATES TAX COURT



             ATLANTIC COAST MASONRY, INC., Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 22515-10.                             Filed August 13, 2012.



      James P. Dempsey (an officer), for petitioner.

      Jeremy H. Fetter and Shelley Turner Van Doran, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


      JACOBS, Judge: Respondent determined that for purposes of Federal

employment taxes, the individuals (corporate officers, masons, and laborers) listed

in a table attached to a notice of determination of worker classification (notice of

determination) should be legally classified as petitioner’s employees and thus
                                            -2-

[*2] determined deficiencies in, additions to, and penalties with respect to

petitioner’s Federal employment and unemployment taxes as follows:

                                                     Additions to tax            Penalty
      Period        Type                            Sec.              Sec.         Sec.
      ended        of tax1      Amount            6651(a)(1)        6651(a)(2)     6656

      3/31/04    FICA, ITW     $36,356.79         $8,180.28         $9,089.20     $917.92

      6/30/04    FICA, ITW      38,521.34          8,667.30          9,630.34      972.57

      9/30/04    FICA, ITW      46,714.36         10,510.73         11,678.59    1,179.42

      12/31/04   FICA, ITW      30,239.19          6,803.82          7,559.80     738.58

      12/31/04   FUTA            9,550.36          2,148.83          2,387.59      955.04

      3/31/05    FICA, ITW      37,987.05          8,547.09          9,496.76      959.08

      6/30/05    FICA, ITW      18,358.09          4,130.57          4,589.52      463.50

      9/30/05    FICA, ITW      46,040.36         10,359.08         11,510.09    1,162.41

      12/31/05   FICA, ITW      46,421.56         10,444.85         11,605.39    1,172.03

      12/31/05   FUTA           16,628.90          3,741.50          4,157.23    1,662.89
                                                                        2
      3/31/06    FICA, ITW      48,532.96         10,919.92                      1,225.34
                                                                        2
      6/30/06    FICA, ITW      33,137.05          7,455.84                       836.63

                                                                        2
      9/30/06    FICA, ITW      20,284.23          4,563.95                       512.13

                                                                        2
      12/31/06   FICA, ITW      65,565.95         14,752.34                      1,509.71
                                                                        2
      12/31/06   FUTA           12,455.43          2,802.47                      1,245.54

      1
         FICA refers to the Federal Insurance Contributions Act, secs. 3101-3128.
ITW refers to the statutory income tax withholding required pursuant to sec.
3402(a). FUTA refers to the Federal Unemployment Tax Act, secs. 3301-3311.
       2
         The amount of the sec. 6651(a)(2) addition to tax could not be computed at
the time the notice was issued.
                                           -3-

[*3] In its posttrial brief petitioner concedes that for purposes of Federal

employment taxes its two corporate officers should be legally classified as

employees. Thus, the issues remaining for decision are: (1) whether the masons

and laborers listed as workers on the notice of determination should be legally

classified as employees as respondent maintains or as independent contractors as

petitioner maintains; and (2) if the masons and laborers listed as workers on the

notice of determination should be legally classified as employees, then (a) whether

petitioner is entitled to relief from employment taxes pursuant to the Revenue Act of

1978, Pub. L. No. 95-600, sec. 530, 92 Stat at 2885 (section 530); (b) whether

petitioner is liable for an addition to tax for failure to timely file returns pursuant to

section 6651(a)(1) for the tax periods involved; (c) whether petitioner is liable for

the addition to tax for failure to timely pay pursuant to section 6651(a)(2) for the tax

periods involved; and (d) whether petitioner is liable for the penalty for failure to

timely deposit tax pursuant to section 6656 for the tax periods involved.

       All Rule references are to the Tax Court Rules of Practice and Procedure, and

unless otherwise indicated, all section references are to the Internal Revenue Code

in effect at all relevant times.
                                           -4-

[*4]                             FINDINGS OF FACT

         Some of the facts are stipulated and are so found. We incorporate by

reference the stipulation of facts and the attached exhibits.

         Petitioner was incorporated in 2001. It elected to be treated as a subchapter

S corporation for Federal income tax purposes. At the time petitioner filed its

petition, its principal place of business was in Florida. During all relevant times

petitioner acted as a subcontractor providing masonry services. Petitioner had gross

revenues in excess of $1 million for each of the 2004, 2005, and 2006 calendar

years.

         Petitioner had two shareholders/corporate officers, Blanche Dempsey and

James Dempsey (Ms. Dempsey and Mr. Dempsey, or collectively Dempseys). The

Dempseys each held a 50% interest in petitioner. Ms. Dempsey served as its

president. She performed bookkeeping and clerical services for petitioner. She

possessed signature authority on petitioner’s checking accounts.

         Mr. Dempsey is a licensed mason and has worked in the masonry industry

since 1978. He served as petitioner’s vice president, procuring all masonry work it

performed and overseeing its day-to-day operations.

         Mr. Dempsey submitted proposals for masonry jobs on behalf of petitioner to

general contractors for construction projects. The proposals included in the
                                         -5-

[*5] record provide that petitioner would furnish all labor, materials, equipment, and

supervision necessary to complete the job. Mr. Dempsey negotiated and executed

the subcontract agreements (contracts) governing the work to be performed by

petitioner. He issued invoices to the general contractors. The general contractors

paid these invoices via checks made out to petitioner. The checks were then either

deposited into petitioner’s bank account or, more often, cashed at either petitioner’s

bank or at a local check cashing company. During the years involved all checks that

were cashed on behalf of petitioner were cashed by either Mr. Dempsey or Ms.

Dempsey.

      After commencing a project, Mr. Dempsey made purchasing decisions on

behalf of petitioner with respect to the materials needed for the job, including the

concrete and blocks to be used as well as a fastening gun and quantities of sand. If

required, Mr. Dempsey rented cranes and forklifts on behalf of petitioner. The

contracts with the general contractors provided that the materials so paid for

belonged to the general contractor. Petitioner was reimbursed for the cost of the

materials and lease expenses.

      Mr. Dempsey did not personally manage petitioner’s construction projects.

Rather, he contracted with others to supervise or be the foreman of the job. One
                                        -6-

[*6] such supervisor was William McNally.1 Mr. McNally generally worked

exclusively for petitioner, although in 2004 he worked for others as well. At the

start of each job Mr. Dempsey would tell Mr. McNally: “this is how much money

that we have in this job, and do you think you can do it with your manpower?” If

the answer was yes, they would shake hands (there were no written contracts) and

Mr. McNally would begin to organize the project. Mr. McNally’s compensation,

consisting of a base amount and a percentage of profits, was paid in cash. Mr.

Dempsey testified that Mr. McNally and the other supervisors “would make money

based on their productivity, and we would split this job throughout the whole job. If

the production was good, we made money, and if the production was bad we

didn’t.” Mr. McNally received no fringe benefits from petitioner, and petitioner did

not pay workers’ compensation insurance premiums on his behalf.

      Because petitioner had no full-time workers other than the Dempseys, Mr.

McNally’s first responsibility was to find masons and laborers. These individuals

were hired on a per-job basis. The record reveals that 30 masons and laborers




      1
        Mr. McNally was not classified as petitioner’s employee by respondent in
the notice of determination. Mr. McNally testified that he “worked with Mr.
Dempsey as an independent contractor” and was “paid on a 1099 and filed * * *
[his] taxes like that.”
                                        -7-

[*7] worked for petitioner in 2004, 66 worked for it in 2005, and 46 worked for it in

2006.

        Mr. McNally kept a telephone list of the masons and laborers with whom he

had worked and would contact those individuals whenever he needed help. Often

the masons and laborers Mr. McNally contacted would bring friends or relatives to

the jobsite.

        Mr. McNally supervised the masons and laborers. He oversaw the number of

bricks each mason laid per day and was responsible for the completion of the

project on schedule. Mr. McNally had the authority to hire and fire masons

and laborers at will. Mr. Dempsey could also fire anyone, including Mr. McNally,

working on the project.

        Mr. Dempsey gave Mr. McNally the plans of the building project and

instructed him that “the building had to go up in a certain way, and I [Mr. McNally]

made sure that was done on a daily basis”. Mr. McNally liaised with the general

contractor and was authorized by Mr. Dempsey to change, if necessary,

specifications that had been agreed upon by petitioner and the general contractor.
                                        -8-

[*8] Mr. McNally brought in only experienced individuals. The masons and

laborers brought their own tools with them, including trowels, levels, additional

wheelbarrows, and tape measures.2

      At the commencement of the project Mr. Dempsey would visit the worksite

to confirm that everything was in place, including the blocks, the cement, and the

equipment. He would meet the masons and laborers and tell them what was to be

done and how they would be paid and provide to them instructions relating to the

masonry work.

      The masons and laborers worked an eight-hour day, but they were paid on a

piecework basis. In other words, they were paid according to the number of blocks,

bricks, or cubic yards of cement laid. Mr. Dempsey established the amount to be

paid per block, brick, or cubic yard. The masons and laborers were paid weekly by

Mr. Dempsey, who handed each of them envelopes with the appropriate amount of

compensation in cash or delivered the envelopes to Mr. McNally for distribution to

the workers. Petitioner maintained cash logs that recorded how much money each

mason or laborer received as well as how much money Mr. McNally and the other

supervisors earned.


      2
     Masons are skilled workmen and require little or no supervision insofar as
workmanship is concerned.
                                           -9-

[*9] Petitioner stopped maintaining cash logs regarding masonry worker payments

in the last quarter of 2006, which was approximately the time respondent began

petitioner’s tax examination. See infra p. 10. Although petitioner stopped recording

cash outlays to the masons and laborers, its general ledger indicated that the amount

of its gross receipts remained constant.

      Most of the masons and laborers worked exclusively for petitioner.

When a particular job was completed, the masons and laborers were let go. If

another job was in progress, Mr. McNally often invited them to join the new project

if workers were needed.

      Petitioner’s operations were conducted in a manner that, at best, could be

described as informal. Transactions were conducted in cash and often not recorded

adequately. Petitioner had few written contracts or agreements and the

documentation that did exist was incomplete and contradictory. And it appears that

regulatory filings were misleading, if made at all.

      Petitioner did not pay wages as such to the Dempseys. Instead, petitioner

made multiple distributions to them and paid many of the Dempseys’ personal

expenses. These distributions and expenses totaled hundreds of thousands of

dollars over 2004, 2005, and 2006.
                                         - 10 -

[*10] Petitioner did not issue Forms 1099-MISC, Miscellaneous Income, or Forms

W-2, Wage and Tax Statement, to the Dempseys for 2004, 2005, or 2006. Nor did

petitioner file any information returns for those years. And the Dempseys did not

timely file their Forms 1040, U.S. Individual Income Tax Return, for 2004, 2005, or

2006.

        Respondent has no record of petitioner’s filing any Form 1120S, U.S. Income

Tax Return for an S Corporation, during the years involved. Nor does respondent

have any record of any Form 1096, Annual Summary and Transmittal of U.S.

Information Returns,3 or Form 940, Employer’s Annual Federal Unemployment

(FUTA) Tax Return, filed by petitioner for any of the years or periods involved.

Petitioner filed one Form 941, Employer’s Quarterly Federal Tax Return, for the

fourth quarter of 2006, but respondent has no record of any others. Respondent

prepared substitutes for returns with respect to all of petitioner’s unfiled information

returns.

        On September 26, 2006, respondent notified petitioner that it had been

selected for employment tax examination. Two weeks later (i.e., October 14,

2006), the Dempseys filed their respective Forms 1040 for 2004. On January 19,


        3
      This form is used to transmit paper Forms 1099, 1098, 5498, and W-2G to
the Commissioner.
                                         - 11 -

[*11] 2007, they filed their respective Forms 1040 for 2005. On January 4, 2007,

approximately three months after respondent commenced his examination, petitioner

submitted to the examining agent Form 1120S for petitioner’s 2004 tax year,4 as

well as copies of a 2004 Form 1096, a Form 941 for the fourth quarter of 2006, and

a Form UCT-6, Florida Department of Revenue Employer’s Quarterly Report.

Petitioner also provided Forms 1099-MISC for the years involved for some of the

masons and laborers. For 2004 petitioner provided Forms 1099-MISC for 11 of the

30 masons and laborers whom petitioner paid $600 or more during that year; for

2005, petitioner provided Forms 1099-MISC for 9 of the 66 masons and laborers

whom petitioner paid $600 or more; and for 2006, petitioner provided Forms 1099-

MISC for 18 of the 46 masons and laborers whom it paid $600 or more. At trial

Mr. Dempsey admitted that the information returns filed were prepared after they

were due.

      Respondent determined that the Dempseys failed to report the following

amounts of wages from petitioner:

          Employee             2004                 2005              2006

      Ms. Dempsey           $86,202.50            $47,191.19      $74,388.44
      Mr. Dempsey            96,008.50             75,741.19      141,658.44


      4
          Petitioner also submitted Forms 1120S for its 2002 and 2003 tax years.
                                       - 12 -

[*12] Petitioner maintained a workers’ compensation insurance policy which did not

cover any of the masons or laborers. Petitioner never inquired as to whether any of

the masons or laborers had their own insurance. It appears they did not.

      Petitioner’s workers’ compensation insurance carrier conducted a policy audit

of petitioner for the period of April 1, 2004 through 2005. The audit report named

Ms. Dempsey as an employee of petitioner, Mr. Dempsey as a subcontractor, and

two unrelated businesses, Forte Crane and John A. Walker & Sons, as

subcontractors. It did not mention Mr. McNally, the masons, or the laborers.

                                     OPINION

I.    The Workers’ Legal Classification

      Employers and employees are subject to “employment taxes”, i.e., FICA and

FUTA. FICA provides a Social Security tax payable by both employers and

employees. See secs. 3101, 3111. FUTA provides for unemployment taxes payable

by employers. See secs. 3301-3311. Employers are required to withhold FICA tax

as well as Federal income tax on wage payments they make to their employees. See

secs. 3102, 3402. These employment taxes do not apply to payments to

independent contractors.
                                          - 13 -

[*13] The Commissioner’s determinations are presumed correct, and taxpayers

bear the burden of proving that those determinations are erroneous. Rule 142(a);

Welch v. Helvering, 290 U.S. 111, 115 (1933). This principle applies to the

Commissioner’s determination that a taxpayer’s workers are employees. Boles

Trucking, Inc. v. United States, 77 F.3d 236, 239-240 (8th Cir. 1996); Ewens &

Miller, Inc. v. Commissioner, 117 T.C. 263, 268 (2001). If an employer-employee

relationship exists, its characterization by the parties as some other relationship is

immaterial. Sec. 31.3121(d)-1(a)(3), Employment Tax Regs.

      As stated supra p. 3, petitioner now concedes that its corporate officers (i.e.,

the Dempseys) were its employees. We thus are left to decide the legal

employment classification of the masons and laborers.

      Whether an individual is an employee or an independent contractor is a

factual question to which common law principles apply. See secs. 3121(d)(2),

3306(i); Weber v. Commissioner, 103 T.C. 378, 386 (1994), aff’d per curiam, 60

F.3d 1104 (4th Cir. 1995).5 Guidelines for determining the existence of an

employment relationship are found in three substantially similar sections of the


       5
      The common law of employer-employee relations refers to “‘the general
common law of agency, rather than * * * the law of any particular state.’”
Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323 n.3 (1992) (quoting
Community for Creative Non-Violence v. Reid, 490 U.S. 730, 740 (1989)).
                                          - 14 -

[*14] regulations--sections 31.3121(d)-1, 31.3306(i)-1, and 31.3401(c)-1,

Employment Tax Regs., relating to FICA, FUTA, and income tax withholding,

respectively. The regulations adopt the common law definition of an employee.

Under the common law, an employer-employee relationship exists when the

principal has the right to control and direct the service provider, not only as to the

result to be accomplished but also as to the details and means by which that result

is accomplished. Secs. 31.3121(d)-1(c)(2), 31.3306(i)-1(b), Employment Tax

Regs; see also sec. 31.3401(c)-1(b), Employment Tax Regs. The principal need not

actually direct or control the matter in which the services are performed; it is

sufficient that the principal has the right to do so. Weber v. Commissioner, 103

T.C. at 388; Twin Rivers Farm, Inc. v. Commissioner, T.C. Memo. 2012-184.

Relevant factors in determining whether a worker is an employee or an independent

contractor include: (1) the degree of control exercised by the principal over the

details of the work; (2) which party invests in the facilities used by the worker; (3)

the opportunity of the worker for profit or loss; (4) whether the principal can

discharge the individual; (5) whether the work is part of the principal’s regular

business; (6) the permanency of the relationship; and (7) the relationship the

parties believe they were creating. Ewens & Miller, Inc. v. Commissioner, 117

T.C. at 270; Weber v. Commissioner, 103 T.C. at 387. All of the facts and
                                          - 15 -

[*15] circumstances are considered, and no one factor dictates the outcome. Ewens

& Miller, Inc. v. Commissioner, 117 T.C. at 270.

      1.     Degree of Control

      The right of the principal to exercise control over the agent, whether or not

the principal in fact does so, is the “crucial test” for the existence of an employer-

employee relationship. Weber v. Commissioner, 103 T.C. at 387; John Keller,

Action Auto Body v. Commissioner, T.C. Memo. 2012-62. An employer-employee

relationship exists when the principal retains the right to direct the manner in which

the work is to be done, controls the methods to be used in doing the work, and

controls the details and means by which the desired result is to be accomplished.

Ellison v. Commissioner, 55 T.C. 142, 152-153 (1970).

      Petitioner failed to prove that Mr. Dempsey did not control the masons’ or

the laborers’ work.6 The evidence reveals that petitioner, acting through Mr.

Dempsey, possessed the right and requisite degree of control to establish an

employer-employee relationship. Mr. Dempsey (1) had the ultimate authority in

instructing the masons and laborers with respect to what they were to do, (2) had


       6
        The examining revenue agent testified without objection by petitioner that in
interviews some of the masons and laborers stated they would receive instructions
relating to the masonry jobs from Mr. Dempsey. None of the masons, laborers, or
supervisors other than Mr. McNally testified at trial.
                                         - 16 -

[*16] the right of approval as to the quality of their work, (3) set the masons’ and

laborers’ working hours at eight hours per day, and (4) paid them for their work on a

weekly basis, as opposed to at the end of the project. We are mindful that the day-

to-day operations were turned over to supervisors, such as Mr. McNally.

Nonetheless we are satisfied that the masons and laborers were aware that Mr.

McNally was working for petitioner and that their pay came from petitioner.

      Masons are skilled laborers, and the masons supervised the laborers who

helped them. It was not necessary for Mr. Dempsey, or anyone else, to exercise

close supervision over them. An employer need not “stand over” the employee to

control an employee. Ewens & Miller, Inc. v. Commissioner, 117 T.C. at 270;

Ellison v. Commissioner, 55 T.C. at 153. Nevertheless, Mr. Dempsey had the right

to control the results to be accomplished and the manner in which the masons’ work

was to be performed. This factor weighs in favor of classifying the masons and

laborers as employees.

      2.     Investment in Facilities

      None of the parties (petitioner, masons, or laborers) had any significant

investment in the facilities. Petitioner purchased all of the building materials (i.e.,

the concrete and the cement) and leased all of the heavy equipment (e.g., cranes

and forklifts) used to construct the buildings, but it was reimbursed for the building
                                           - 17 -

[*17] materials and lease expenses.7 The masons used their own tools (e.g., trowels,

levels, and tape measures) to perform their task. The record is silent as to any

investment in the facilities by the laborers. This factor carries no weight in

determining the legal employment classification of the masons and laborers.

      3.     Opportunity for Profit and Risk of Loss

      The masons and laborers could not share in the profit if the project came in

under budget, unlike Mr. McNally and the other supervisors. Nor could they suffer a

loss if the project came in over budget.

       We are mindful that piecework compensation has been considered to be an

indicator of independent contractor status, see Tristate Developers, Inc. v. United

States, 212 Ct. Cl. 486, 549 F.2d 190 (1977), but there is also judicial authority for

classifying piecework workers as employees, see e.g., Rutherford Food Corp. v.

McComb, 331 U.S. 722, 729-730 (1947) (slaughterhouse boning workers more

properly considered employees in part because they were an integrated unit of

production for the taxpayer). This factor weighs in favor of classifying the masons

and laborers as employees.




       7
        The contracts between the petitioner and the general contractors provided
that the materials so purchased belonged to the general contractors. See supra p. 5.
                                        - 18 -

[*18] 4.     Right To Discharge the Workers

      Employers typically have the right to terminate employees at will.8 Ellison v.

Commissioner, 55 T.C. at 155; Twin Rivers Farm, Inc. v. Commissioner, supra.

Mr. Dempsey, on behalf of petitioner, could fire any worker who did not perform to

his satisfaction. This factor weighs in favor of classifying the masons and laborers

as employees.

      5.     Integral Part of the Business

      When workers are an essential part of the taxpayer’s normal operations, we

weigh this factor in favor of an employer-employee relationship. See John Keller,

Action Auto Body v. Commissioner, T.C. Memo. 2012-62; Day v. Commissioner,

T.C. Memo. 2000-375. The masons and laborers were an essential part of

petitioner’s business; without them, the jobs procured on petitioner’s behalf could

not have been completed. This factor weighs in favor of classifying the masons and

laborers as employees.




      8
       Independent contractors also may be terminated at will. Thus, we give
some, but not great, weight to this indicia of an employer-employee relationship.
See John Keller, Action Auto Body v. Commissioner, T.C. Memo. 2012-62; Lewis
v. Commissioner, T.C. Memo. 1993-635 (citing Neely v. Commissioner, T.C.
Memo. 1978-18).
                                        - 19 -

[*19] 6.       Permanency of the Relationship

      A transitory work relationship may weigh in favor of independent contractor

status. Ewens & Miller, Inc. v. Commissioner, 117 T.C. at 273 (citing Herman v.

Express Sixty-Minutes Delivery Serv., Inc., 161 F.3d 305 (5th Cir. 1998)). In this

case, the masons and laborers were engaged by petitioner for only one job at a time.

Once it was completed, the masons and laborers were free to work elsewhere. This

factor weighs in favor of classifying the masons and laborers as independent

contractors.

      7.       The Relationship the Parties Believed They Created

      There was no meaningful testimony with respect to this factor. Therefore,

this factor carries no weight in determining the legal employment classification of

the masons and laborers.

      In sum, there are four factors weighing in favor of classifying the masons and

laborers as employees, one factor weighing in favor of classifying the masons and

laborers as independent contractors, and two factors which carry no weight.

Giving due consideration to the totality of the facts presented, and bearing in mind

that petitioner bears the burden of proving respondent’s classification erroneous,

we conclude that the masons and laborers should be legally classified as
                                        - 20 -

[*20] petitioner’s employees. Accordingly, we hold petitioner is liable for Federal

employment taxes, additions to tax, and penalties as determined by respondent.

      Despite our conclusion that the masons and laborers were petitioner’s

employees, section 530 allows petitioner relief if three requirements are satisfied:

(1) petitioner must not have treated the individuals as employees for any period; (2)

petitioner must have consistently treated the individuals as nonemployees on all tax

returns for periods after December 31, 1978; and (3) petitioner must have had a

reasonable basis for not treating the individuals as employees. See sec. 530(a)(1);

Joseph M. Grey Pub. Accountant, P.C. v. Commissioner, 119 T.C. 121, 130 (2002),

aff’d, 93 Fed. Appx. 473 (3d Cir. 2004); John Keller, Action Auto Body v.

Commissioner, T.C. Memo. 2012-62.

      Petitioner did not file the required information returns, including Forms 1099-

MISC, with respondent for any of the workers in question as required by sections

6041(a) and 6041A(a). Therefore, not all requirements for section 530 relief have

been satisfied. Because petitioner failed to meet all of the section 530 requirements,

it does not qualify for relief. See Joseph M. Grey Pub. Accountant, P.C. v.

Commissioner, 119 T.C. at 130. In sum, we hold that petitioner is liable for the

employment taxes as determined by respondent.
                                        - 21 -

[*21] II. Section 6651 Additions to Tax and Section 6656 Penalty

      Section 6651(a)(1) imposes an addition to tax of up to 25% for failure to

timely file a tax return unless the taxpayer shows such failure is due to reasonable

cause and not due to willful neglect. Section 6651(a)(2) imposes an addition to tax

of up to 25% for failure to timely pay the amount of tax shown on any return unless

the failure is shown to be due to reasonable cause and not due to willful neglect.

      If a taxpayer fails to make a required deposit on the date prescribed for that

deposit, section 6656(a) imposes a penalty equal to the applicable percentage of the

amount of the underpayment, determined pursuant to section 6656(b). This

penalty is not imposed if the failure to pay was due to reasonable cause and not

willful neglect.

      To establish reasonable cause, the taxpayer must show that he exercised

“ordinary business care and prudence in providing payment of his tax liability” but

nonetheless was unable to meet his obligations. See United States v. Boyle, 469

U.S. 241, 245-246 (1985); Van Camp & Bennion v. United States, 251 F.3d 862

(9th Cir. 2001); Charlotte’s Office Boutique v. Commissioner, 121 T.C. 89, 109

(2003), aff’d, 425 F.3d 1203 (9th Cir. 2005); Bruner v. Commissioner, T.C. Memo.

1998-246.
                                          - 22 -

[*22] Petitioner has not shown reasonable cause for (1) failing to timely make the

proper return filings, (2) failing to timely pay the amounts of tax shown on the

returns, or (3) failing to timely make the required deposits. Petitioner made no

argument with respect to these failures except to state that it never filed its returns or

paid its taxes on time. Consequently, petitioner is liable for the section 6651(a)(1)

addition to tax, the section 6651(a)(2) addition to tax, and the section 6656(a)

penalty.

      We have considered all of the parties’ contentions, and to the extent not

discussed herein, we conclude that they are meritless, moot, or irrelevant.

      To reflect the foregoing and petitioner’s concession,



                                                       Decision will be entered

                                                   for respondent.
