                  T.C. Summary Opinion 2010-30



                      UNITED STATES TAX COURT



               DENNIS E. KALINOSKI, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1090-05S.              Filed March 15, 2010.



     Dennis E. Kalinoski, pro se.

     Deborah K. Mackay, for respondent.



     GOLDBERG, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   Pursuant to section

7463(b), the decision to be entered is not reviewable by any

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

for any other case.   Unless otherwise indicated, subsequent

section references are to the Internal Revenue Code (Code) in
                             - 2 -

effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.

     Respondent determined a Federal income tax deficiency of

$18,412 for 2002 and additions to tax under sections 6651(a)(1)

(failure to file), 6651(a)(2) (failure to pay the amount due),

and 6654(a) (failure to pay estimated tax) of $3,089.25,

$1,098.40, and $441.40, respectively.    The parties entered into

a stipulation of settled issues, which resulted in a reduced

deficiency of $7,961, interest on the deficiency of $3,579.08,

and a section 6654(a) addition to tax of $122.   Petitioner paid

the total of these three amounts, $11,662.08, by a check dated

November 5, 2008.

     In respondent’s pretrial memorandum, in his opening

statement at trial, and in the stipulation of settled issues,

respondent agreed that the sole issue for decision is the

applicability of the addition to tax for failure to file

pursuant to section 6651(a)(1) in a revised amount of $1,990.

                           Background

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   Petitioner resided in

Illinois when he filed his petition.

     Petitioner served honorably during his career as a police

officer for a village in Illinois and then for the State of
                               - 3 -

Illinois, retiring as a sergeant in 1992 at age 50 with a

pension.1   For 10 years of his career he served as a narcotics

officer.    Before retiring from the police force petitioner

started an unincorporated business as a gunsmith and a federally

licensed firearms dealer, doing business as Dekalin, Ltd.      He

sold firearms and ammunition primarily through gun shows and

stored and refurbished firearms in his home.

     Life started going awry for petitioner in 2000.

Petitioner’s wife moved out in the summer of 2000 with their 13-

year-old daughter, though petitioner remains married and

financially supports his daughter.     In years before 2000

petitioner filed his Federal income tax returns timely.

Beginning with tax year 2000 he did not file timely or did not

file at all.

     On June 28, 2001, petitioner was arrested for not

conducting mandated buyer identification procedures.     Later,

State law enforcement agents searched petitioner’s home,

charging him with knowingly possessing stolen firearms.       In May

2002 a State court judge dismissed the charge for lack of

sufficient evidence.    Petitioner did not renew his Federal




     1
       The Court takes judicial notice of certain facts from
public records related to petitioner’s criminal proceeding in the
Northern District of Illinois. United States v. Kalinoski, No.
1:03-CR-00460 (N.D. Ill. judgment entered Jan. 28, 2005).
                               - 4 -

firearms dealer’s license that expired in June 2002.    Sometime

in 2002 petitioner became addicted to crack cocaine.

     In early March 2003, in anticipation of preparing his 2002

Federal income tax return that was due by April 15, 2003,

petitioner started gathering his records and purchased tax

preparation software.    About this time, petitioner began feeling

intense pain in his back, which kept him bedridden upstairs for

2 weeks.    He went to a physician, who diagnosed a hernia and

referred petitioner to a back surgeon.    Petitioner returned home

to bed anticipating the surgery but felt that he should not

leave the house again because he had women living with him who

had opened the home to their friends.    Some of these friends

would take drugs and/or steal petitioner’s property while he

remained immobile upstairs.    Petitioner felt he could not call

the police because of the illegal drugs in his home.

     Relying on an informant, on May 3, 2003, law enforcement

agents executed a search warrant at petitioner’s home, seizing

firearms, ammunition, petitioner’s records, and other personal

property.    They arrested petitioner, found a crack pipe on his

person, and charged petitioner with three firearms-related

felonies and requested the forfeiture of petitioner’s seized

property.    Petitioner remained in custody during the pendency of

his trial.
                               - 5 -

     After the arrest, petitioner’s family went into

petitioner’s home to clean it up.      They gathered petitioner’s

papers that were strewn throughout the house.      They did not pay

close attention to the content of the papers and simply boxed

the documents in no particular order.

     On May 6, 2003, the Federal District Court appointed a

Federal public defender as petitioner’s counsel.     Petitioner

quickly replaced him with a private criminal defense attorney.

Petitioner’s new attorney made a request in June 2003 for

petitioner’s pretrial release, which the Federal District Court

denied.

     On January 23, 2004, petitioner pled guilty to one of the

three felony charges:    “knowingly possessing firearms and

ammunition that had traveled in interstate commerce while being

an unlawful user of and addicted to a controlled substance,

namely crack cocaine.”   Petitioner agreed that he was making the

plea voluntarily and that he understood “the nature and the

elements of the crimes with which he has been charged.”

     Petitioner’s back pain worsened, resulting in emergency

corrective surgery on April 8, 2004, to repair an “incarcerated

left inguinal hernia”.   On June 30, 2004, petitioner replaced

his criminal defense attorney.

     Because the Internal Revenue Service had no record of

petitioner filing a Federal income tax return for 2002,
                             - 6 -

respondent prepared a substitute for return using information

from third-party payers and issued a notice of deficiency dated

October 11, 2004.

     On October 25, 2004, petitioner’s new attorney asked the

Federal District Court for return of three of the seized

firearms that belonged to other people.   The attorney amended

the request slightly 3 days later.   These two requests did not

mention or request return of petitioner’s records.

     On December 21, 2004, petitioner posted a $250,000 bond for

his temporary release while awaiting sentencing.   While free on

bond petitioner timely petitioned this Court, contesting

respondent’s proposed income tax deficiency and additions to tax

for 2002 on the ground that the “deficiency assessment

overstates taxable income and tax due by reason of failure to

include all allowable deductions.”

     On January 25, 2005, petitioner’s attorney filed a “Second

Amended Motion for Return of Property”, requesting for the first

time the release of “documents, both personal and business”.

     Before acting on petitioner’s requests, the Federal

District Court on January 28, 2005, sentenced petitioner to

imprisonment for 64 months, granting him credit for time served.

Petitioner remained free on bond pending his surrender to the

Bureau of Prisons scheduled for March 2, 2005.   However, because

of an alcohol and/or drug relapse, the Federal District Court
                               - 7 -

revoked petitioner’s bond and law enforcement authorities

rearrested petitioner on February 4, 2005.

     On August 23, 2006, petitioner signed a broad power of

attorney giving his brother,2 Robert R. Verchota, who is an

attorney, authority to act for petitioner as “attorney and agent

in fact as to all civil matters” and specifically authorizing

delivery of “all of my financial records” to Mr. Verchota.

During petitioner’s incarceration, petitioner’s wife

periodically collected mail from petitioner’s home, which she

forwarded to Mr. Verchota for review with petitioner.

     Mr. Verchota finally received a box containing petitioner’s

records from the police in early May 2007.   The records were in

disarray, and some were missing.   Petitioner arranged for

delivery of the records to Richard F. Mejia, a “Tax Specialist &

Accountant”, for the purpose of preparing petitioner’s 2002

Federal income tax return.   Mr. Mejia, by letter dated July 5,

2007, informed petitioner that the paperwork was insufficient to

properly prepare a return.

     On September 17, 2007, Federal authorities transferred

petitioner to a halfway house, where he lived until his full

release on February 8, 2008.




     2
       The record repeatedly refers to Mr. Verchota as
petitioner’s brother; however, because of the different surnames,
we are not sure whether he is petitioner’s brother, stepbrother,
or brother-in-law.
                                - 8 -

      Later in February 2008, petitioner picked up his records

from Mr. Mejia and contacted respondent to discuss his tax case.

Before long the parties were able to agree to a reduction in the

amount of the income tax deficiency.       Petitioner could not

convince respondent to concede the section 6651(a)(1) addition

to tax for failure to file a return, which had been

mathematically reduced to $1,990 because of the decreased

deficiency.   Petitioner was satisfied with the other adjustments

and eager to start his life anew; accordingly, on November 7,

2008, he paid respondent the $11,662 previously mentioned.

                              Discussion

I.   Burden of Proof

      The Commissioner bears the burden of production with

respect to penalties and additions to tax.      Sec. 7491(c); Rule

142(a); Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001).

To satisfy this burden, the Commissioner must present

“sufficient evidence indicating that it is appropriate to impose

the relevant penalty” or addition to tax.       Higbee v.

Commissioner, supra at 446.    However, once the Commissioner

meets the burden of production, the taxpayer has the burden of

proving that the Commissioner’s determination is incorrect.       Id.

In situations where the Code provides an exception to the

penalty or addition to tax, the Commissioner “need not introduce

evidence regarding reasonable cause * * * or similar provisions.
                               - 9 -

* * * the taxpayer bears the burden of proof with regard to

those issues.”     Id.

     A taxpayer is liable for an addition to tax if the taxpayer

fails to file a timely tax return.     Sec. 6651(a).   If the

duration of the failure to file is 1 month or less, then the

addition to tax is equal to 5 percent of the net amount of tax

due that the taxpayer should have shown on the return.      Sec.

6651(a)(1), (b).    The taxpayer must pay an additional 5 percent

for each month or fraction of a month in which the taxpayer

continues to fail to file, reaching the maximum addition in 5

months at 25 percent of the tax due.     Sec. 6651(a)(1).

     A taxpayer may nevertheless avoid the addition to tax for

failure to file a return if the taxpayer establishes that the

failure was “due to reasonable cause and not due to willful

neglect”.   Id.   The Code does not define reasonable cause;

however, the regulations explain reasonable cause as the

exercise of “ordinary business care and prudence”.      Sec.

301.6651-1(c)(1), Proced. & Admin. Regs.; see also United States

v. Boyle, 469 U.S. 241, 245-246 (1985) (defining willful neglect

as a “conscious, intentional failure or reckless indifference”).

Whether reasonable cause exists to avoid imposition of the

addition to tax involves a question of fact.     United States v.

Boyle, supra at 249 n.8.

     Respondent has satisfied his burden of production under

section 7491(c) by establishing, as petitioner acknowledges,
                                - 10 -

that petitioner was required to file a Federal income tax return

for 2002 and that petitioner did not file a return for 2002.

Therefore, petitioner bears the burden of proving that his

failure to file a return was due to reasonable cause and not

willful neglect.

II.   Reasonable Cause

      Petitioner accepts that he was “remiss” in not filing his

return solely from the April 15, 2003, due date until the date

of his arrest on May 3, 2003.    Beyond that date petitioner

claims that he had reasonable cause for not filing “because of

government misconduct” that continued for more than 4 years,

preventing his access to financial records despite “petitioner’s

reasonable efforts to gather pertinent records and make a filing

of said 2002 Federal tax return”.      For the reasons stated below,

petitioner’s contention is not valid.

      The caselaw is well settled that lack of access to records

does not constitute reasonable cause for failing to timely file

a tax return.   Estate of Vriniotis v. Commissioner, 79 T.C. 298,

311 (1982) (taxpayers who do not have access to their records

must nevertheless file their tax returns timely using the most

accurate estimates available).    If necessary, the taxpayer can

file an amended return when the records or more accurate

information become available.    Id.

      Specifically, lack of access to records due to

incarceration does not give rise to reasonable cause.      Llorente
                              - 11 -

v. Commissioner, 74 T.C. 260, 268-269 (1980) (the mere fact of a

taxpayer’s incarceration at the time the return was due is not

reasonable cause within the meaning of section 6651(a)(1) for

failure to timely file a return), affd. in part, revd. in part

on other grounds and remanded 649 F.2d 152 (2d Cir. 1981);

Labato v. Commissioner, T.C. Memo. 2001-243.

     The reason for these holdings arises from concerns that the

Supreme Court of the United States expressed in United States v.

Boyle, supra at 249:

     The Government has millions of taxpayers to monitor,
     and our system of self-assessment in the initial
     calculation of a tax simply cannot work on any basis
     other than one of strict filing standards. Any less
     rigid standard would risk encouraging a lax attitude
     toward filing dates. Prompt payment of taxes is
     imperative to the Government, which should not have to
     assume the burden of unnecessary ad hoc
     determinations. [Fn. refs. omitted.]

     Petitioner was in an even more advantageous position than

the unsuccessful incarcerated taxpayers in Llorente v.

Commissioner, supra, and Labato v. Commissioner, supra, because

petitioner was not incarcerated at the time his tax return

became due and he had access to his records.   Therefore, he

could have filed a timely return or requested an extension.

     Petitioner contends that both he and his attorneys made

“reasonable efforts” to secure his records during his

incarceration.   Petitioner filed two written requests in October

2004 with the Federal District Court asking for release of
                               - 12 -

certain property without mentioning the release of his records.

It was not until January 25, 2005, almost 2 years after the due

date of the return that petitioner first asked the Federal

District Court in writing for a return of his records.

     The Court has held that “the lack of precise data with

respect to a relatively insignificant item which the taxpayer

should be able to estimate with a reasonable degree of accuracy

is not reasonable cause for a substantial delay in filing.”

Elec. & Neon, Inc. v. Commissioner, 56 T.C. 1324, 1342-1343

(1971), affd. without published opinion 496 F.2d 876 (5th Cir.

1974).

     Petitioner convinced respondent to make three adjustments

to the notice of deficiency:    allowing itemized deductions of

$10,880 for home mortgage interest and $2,814 in real estate

taxes, and allowing $6,000 in expenses on Schedule C, Profit or

Loss From Business, related to petitioner’s firearms and

gunsmith business.    A brief telephone call or letter from

petitioner to the mortgage holder and town tax collector would

have garnered the precise amount of the itemized deductions for

mortgage interest and property taxes that petitioner paid in

2002.    As a result, petitioner’s argument boils down to the

missing records for $6,000 in business expenses as the sole

possible reasonable cause for his nonfiling.
                              - 13 -

     The round number of $6,000 agreed to by the parties in 2008

suggests that in the end this figure was itself an estimate.

Petitioner had been in the firearms and gunsmith business for

more than a decade before 2002, giving him a long history by

which to estimate his expenses.   We see no reason petitioner

could not have estimated his 2002 business expenses 5 years

earlier when his tax return was due.

     Moreover, petitioner remained in contact with his wife and

brother during his incarceration.   Petitioner’s family cleaned

his house after his arrest, they pledged their real estate for

his bond, his wife collected his mail, and his brother held his

power of attorney and served as his civil attorney in fact.

Even if petitioner had difficulty communicating with respondent

because of petitioner’s incarceration, he could have asked his

wife, his brother, or any of his attorneys to alert respondent

about his predicament by trying to arrange a belated extension

or other solution.   See, e.g., Labato v. Commissioner, supra

(noting that the taxpayer’s wife who was not incarcerated could

have filed the return on time).

     Finally, we note that while petitioner has implied that his

medical conditions prevented him from filing, neither his hernia

nor his crack cocaine addiction constitutes reasonable cause.

Courts have long accepted that continual physical and mental

incapacity are sufficient reasons for late filing; however, the
                               - 14 -

standard is an exacting one.   Meyer v. Commissioner, T.C. Memo.

2003-12 (finding reasonable cause where the taxpayer contracted

HIV, leading to AIDS, requiring strong antiviral medication,

resulting in the taxpayer’s nervous breakdown).   But see

Williams v. Commissioner, 16 T.C. 893, 906 (1951) (the taxpayer

suffered several strokes in the years before, during, and after

his tax returns were due, leading to his death; however, the

Court held that his executors did not establish that the

taxpayer’s incapacitation lasted longer than certain intervals

recurring with each stroke).

     The record contains no suggestion that petitioner was

continuously incapacitated before or after his arrest on May 3,

2003.   Indeed, the facts support the opposite conclusion.

Petitioner’s emergency hernia surgery did not occur until April

8, 2004, almost 1 year after the due date of the return.     In the

interim, petitioner actively participated in his own criminal

case:   Hiring counsel, agreeing to a plea rather than facing a

trial, and swearing under oath that he fully understood the

nature and the elements of the charges against him.   Thus,

petitioner’s impediments simply did not rise to the level of

preventing petitioner from filing a return.   See Kantor v.

Commissioner, T.C. Memo. 2008-297 (sympathizing with a

taxpayer’s drug problems but finding that the time the taxpayer
                             - 15 -

spent undergoing drug rehabilitation did not adequately explain

the 21-month delay in filing his return).

     In conclusion, reviewing the entire record before us, we

hold that petitioner’s nonfiling was not due to reasonable cause

but was due to willful neglect.   We sustain respondent’s

determination with regard to the section 6651(a)(1) addition to

tax of $1,990 for petitioner’s failure to file a 2002 Federal

income tax return.

     To reflect the foregoing,


                                         Decision will be entered

                                    for respondent as to the

                                    deficiency and the additions

                                    to tax under sections

                                    6651(a)(1) and 6654(a) in the

                                    reduced amounts stipulated by

                                    the parties and for

                                    petitioner as to the addition

                                    to tax under section

                                    6651(a)(2).
