                        T.C. Memo. 2004-162



                      UNITED STATES TAX COURT



                 KAROL Z. WIDEMON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1532-02.              Filed July 13, 2004.


     Karol Z. Widemon, pro se.

     Kathryn K. Vetter and Daniel J. Parent, for respondent.



                        MEMORANDUM OPINION


     DAWSON, Judge:   This case was assigned to Special Trial

Judge Dean pursuant to Rules 180, 181, and 183.1   The




     1
      Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the year in issue, and all
Rule references are to the Tax Court Rules of Practice and
Procedure.
                                     - 2 -

Court agrees with and adopts the opinion of the Special Trial

Judge, which is set forth below.

                      OPINION OF THE SPECIAL TRIAL JUDGE

       DEAN, Special Trial Judge:       Respondent determined a

deficiency in and additions to petitioner's Federal income tax

for calendar year 1999 as follows:

                                    Additions to Tax1
Year       Deficiency   Sec. 6651(a)(1) Sec. 6651(a)(2)    Sec. 6654(a)

1999        $42,717         $7,534           $2,679          $1,559
       1
           The following figures are rounded to the nearest dollar.

       After concessions,2 the issues for decision are:      (1)

Whether respondent raised new matters and bears the burden of

proof under Rule 142(a) regarding petitioner’s entitlement to

certain deductions; (2) whether petitioner is entitled to a

deduction for capital loss carryforwards; (3) whether petitioner

is entitled to deduct rental expenses in excess of those allowed

by respondent; (4) whether petitioner is required to include in

income a distribution from a Roth IRA; and (5) whether petitioner

is liable for the addition to tax for failure to file a tax

return under section 6651(a)(1).




       2
      Respondent concedes that petitioner is not liable for the
addition to tax for failure to pay tax under sec. 6651(a)(2) and
the addition to tax for failure to make estimated tax payments
under sec. 6654.
                                 - 3 -

                              Background

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

The stipulation of facts and the exhibits received into evidence

are incorporated herein by reference.      At the time the petition

in this case was filed, petitioner resided in Elk Grove,

California.

     Petitioner failed to timely file a Federal income tax return

for tax year 1999.    Respondent determined petitioner’s income on

the basis of information returns submitted to respondent by third

party payors.   Respondent also determined that petitioner is

liable for additions to tax.

1.   Procedural History

     After respondent issued petitioner a statutory notice of

deficiency, petitioner submitted a tax return for 1999 reflecting

most, but not all, of the unreported income determined in the

notice of deficiency.     Petitioner also claimed deductions for

capital loss carryforwards and rental expenses.     Respondent has

not processed this tax return, and no tax has been assessed as a

result of petitioner’s submitting the tax return.

     Petitioner submitted to the Court a letter challenging the

notice of deficiency, and the Court filed it as petitioner’s

imperfect petition.   Because the letter did not comply fully with

the requirements of Rule 34, by order the Court directed

petitioner to file a proper amended petition.
                              - 4 -

     Petitioner filed an amended petition in which she alleged

that she had filed a tax return for 1999, that all of

respondent’s determinations were in error, and that she was due a

refund of $1,609.

     By letter, an Appeals officer requested additional

information about petitioner’s dependency exemptions, sales of

stocks and bonds, and receipt of distributions.   Petitioner

provided additional documents to respondent, but the case

remained unresolved.

     This case was subsequently set for trial at a San Francisco

trial session but was continued upon petitioner’s oral motion.

     Respondent asked petitioner to provide information with

respect to certain income items that did not appear to be

reported on petitioner’s return, information verifying

petitioner’s basis in securities, and information verifying

certain rental expenses she had deducted.   Respondent also sent

petitioner a letter summarizing the information that had been

verified as of that time and requesting additional information.

Petitioner failed to provide the information.

     Respondent’s counsel informed petitioner by letter that,

pursuant to Rule 91, the parties are required to submit a

stipulation of facts to the Court.    Respondent’s counsel proposed

a meeting to complete the stipulation of facts and advised

petitioner to provide documentation if she intended to claim
                                - 5 -

rental expenses or capital loss carryovers.    Petitioner did not

call respondent’s counsel to reschedule, nor did she appear for

the conference.

     At calendar call, respondent’s counsel informed the Court

that he had been unsuccessful in obtaining a response from

petitioner regarding a proposed stipulation of facts.     Petitioner

contended that she had signed a stipulation of facts at the prior

trial session and that the document had been filed with the

Court.   The records of the Court, including the file in this

case, show no record of any stipulation of facts having been

filed, and the Court so informed petitioner.

     Petitioner also contended that respondent had improperly

attempted to raise new matters in the proposed stipulation of

facts by requesting substantiation for the capital loss

carryovers and the rental expenses petitioner claimed on the

return submitted after she received the notice of deficiency.

     At trial, petitioner reiterated her contention that a

stipulation of facts had been filed with the Court at the initial

trial session and that respondent was attempting to raise new

matters.   Petitioner did not have a signed copy of the

stipulation of facts that she alleged had been submitted to the

Court.

     At the conclusion of trial, petitioner requested 1 week to

submit a brief on the issues.   The Court advised petitioner that
                               - 6 -

it would take 30 days to obtain a transcript but that she was

free to submit her brief without the transcript if she so chose.

Respondent’s counsel opted to wait for the transcript before

submitting a brief.

     The Court ordered the filing of seriatim briefs with

petitioner’s opening brief due 2 weeks from the date of trial and

respondent’s answering brief due 30 days from the due date of

petitioner’s opening brief.   The Court also gave petitioner an

opportunity to file a reply brief within 15 days from the due

date of respondent’s answering brief.

     After trial but before the due date of his brief, respondent

filed a motion to extend time within which to file brief,

requesting an additional 30 days.   Petitioner did not object to

the motion, and the Court granted it.   Respondent subsequently

filed an answering brief.   Petitioner failed to file a reply

brief.

2.   Issues Raised in the Return

     A.   Capital Loss Carryforwards

     On her 1997 Form 1040, U.S. Individual Income Tax Return,

petitioner claimed a $3,000 capital loss deduction.   On her

attached Schedule D, Capital Gains and Losses, petitioner claimed

long-term capital losses of $125,339.   She also prepared a

Schedule D Worksheet and a “Schedule of Carryforward Amounts to
                                - 7 -

1998" which identified a long-term capital loss carryforward to

1998 of $122,339.

     Petitioner also took a $3,000 capital loss deduction on her

1998 Form 1040.    On Schedule D, petitioner claimed short-term

capital losses of $20,917 and long-term capital losses of $25,053

for 1998.   She did not attach to the return any worksheets

showing calculations of capital loss carryforwards.    Line 14 of

Schedule D reports long-term capital loss carryforwards and also

requires an entry of any carryforward amounts from the previous

year.   Petitioner left this entry blank.

     In 1999, petitioner took a $3,000 capital loss deduction on

her Form 1040.    Respondent reviewed the documents petitioner

provided, and the parties stipulated that in 1999, petitioner had

short-term capital gains of $1,081 and long-term capital gains of

$1,527.   On her Schedule D, however, petitioner reported short-

term capital gains of $206 and long-term capital gains and

distributions of $617.    Petitioner carried forward a short-term

capital loss of $17,917 from 1998, resulting in a reported short-

term capital loss of $17,711.    Petitioner also carried forward a

long-term capital loss of $25,053 from 1998 resulting in a

reported long-term capital loss of $24,436.    Petitioner did not

carry forward to 1998 or to 1999 the $125,339 long-term capital

loss carryforward she claimed on her 1997 tax return.
                                - 8 -

     B.   Rental Expenses

     On her 1999 Schedule E, Supplemental Income and Loss,

petitioner claimed deductions pertaining to two rental properties

she owned at 9219 Primera Court (Primera) and 8138 Otium Way

(Otium) in the amounts of $28,170, and $29,728, respectively.

The expenses consisted of depreciation, advertising, auto and

travel expenses, cleaning and maintenance, commissions,

insurance, management fees, mortgage interest, repairs, taxes,

and utilities.

     Respondent agrees that $20,650 of the expenses claimed for

Primera and $21,984 of the expenses claimed for Otium are

allowable.   Remaining at issue are the following expenses:

                                 Primera                 Otium

     Cleaning & maintenance       $5,200                $5,700
     Commissions                     560                   440
     Management fees                 560                   440
     Utilities                     1,200                 1,164
                                   7,520                 7,744

3.   Roth IRA Distribution

     On February 17, 1998, petitioner opened a Roth IRA with a

$2,000 contribution at Golden One Credit Union.      On July 14,

1999, she withdrew $1,600 from the account and on September 21,

1999, withdrew the remaining $608.58.      After early withdrawal

penalties, petitioner received a $2,171 distribution from the

Roth IRA account in 1999.    Petitioner did not report this
                                - 9 -

distribution on her 1999 return.    Respondent contends that the

$171 petitioner received in excess of her $2,000 contribution is

includable in her income.

4.   Addition to Tax for Failure To File a Tax Return

     Respondent also determined that petitioner is liable for an

addition to tax of $7,534 for failure to timely file a tax

return.

                             Discussion

1.   Burden of Proof

     The Commissioner’s determinations are presumed correct, and

generally, taxpayers bear the burden of proving otherwise.     Welch

v. Helvering, 290 U.S. 111, 115 (1933).    Moreover, deductions are

a matter of legislative grace, and taxpayers bear the burden of

proving that they are entitled to any deduction claimed.     New

Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); Welch v.

Helvering, supra at 115.    This includes the burden of

substantiation.   Hradesky v. Commissioner, 65 T.C. 87, 90 (1975),

affd. per curiam 540 F.2d 821 (5th Cir. 1976).

     A.   New Matters

     Although generally the burden of proof is on the taxpayer,

the Commissioner bears the burden of proof in “respect of any new

matter, increases in deficiency, and affirmative defenses,

pleaded in his answer”.    Rule 142(a).
                                - 10 -

     Petitioner argues that respondent raised new matters by

challenging petitioner's claimed deductions for capital loss

carryforwards and rental expenses.       The Court interprets

petitioner's argument to be that respondent bears the burden of

proof with regard to these issues.       Respondent asserts that the

notice of deficiency resulted from petitioner's failure to file

timely a tax return for 1999.    Respondent contends that no new

matters were raised, and that respondent simply requested

substantiation for the deductions petitioner claimed on the

return submitted after she received the notice of deficiency.

     A new theory that is presented to sustain a deficiency is

treated as a new matter when it either alters the original

deficiency or requires the presentation of different evidence.

Hutchinson v. Commissioner, 116 T.C. 172, 182 (2001) (citing

Wayne Bolt & Nut Co. v. Commissioner, 93 T.C. 500, 507 (1989));

Shea v. Commissioner, 112 T.C. 183, 197 (1999); Colonnade

Condominium, Inc. v. Commissioner, 91 T.C. 793, 795 n.3 (1988);

Va. Educ. Fund v. Commissioner, 85 T.C. 743, 751 (1985), affd.

per curiam 799 F.2d 903 (4th Cir. 1986); Achiro v. Commissioner,

77 T.C. 881, 890 (1981).   A new theory which merely clarifies or

develops the original determination made in the notice of

deficiency without being inconsistent or increasing the amount of

the deficiency is not new matter in respect of which the

Commissioner bears the burden of proof.       Hutchinson v.
                               - 11 -

Commissioner, supra at 182; Virginia Educ. Fund v. Commissioner,

supra at 751; Achiro v. Commissioner, supra at 890; Estate of

Emerson v. Commissioner, 67 T.C. 612, 620 (1977).

     When a taxpayer fails to file a return, as did petitioner,

it is as if she filed a return “showing a zero amount” for

purposes of determining a deficiency.      Schiff v. United States,

919 F.2d 830, 832 (2d Cir. 1990); Roat v. Commissioner, 847 F.2d

1379, 1381 (9th Cir. 1988); sec. 301.6211-1(a), Proced. & Admin.

Regs.

     In determining the deficiency, respondent allowed petitioner

only the standard deduction because, in the absence of a return

filed by petitioner, respondent had no evidence that there were

any other deductions allowable to her.     Implicit in the

determination is the disallowance of any deductions other than

the standard deduction.    When petitioner subsequently submitted

her 1999 return, she claimed deductions for capital loss

carryforwards and rental expenses.      Petitioner made allegations

in her petition seeking the benefit of these deductions and

claiming an overpayment.

     Respondent simply requested substantiation of the deductions

and did so as early as January 16, 2003--8 months before trial.

The request for substantiation of items petitioner claimed on the

return after the notice of deficiency was issued is not

inconsistent with respondent’s original determination and does
                                - 12 -

not increase the amount of the deficiency.     Indeed, as will be

discussed, the items for which respondent requested

substantiation are items for which petitioner bears the burden of

proof at trial.   The Court concludes that respondent did not

raise new matters that would shift the burden of proof regarding

the capital loss carryovers and the rental expenses to

respondent.

     B.   Section 7491

     Alternatively, the burden of proof may shift to the

Commissioner under section 7491(a).      However, because petitioner

failed to comply with the substantiation and record-keeping

requirements of section 7491(a)(2) and to introduce credible

evidence within the meaning of section 7491(a)(1), section 7491

does not place the burden of proof on respondent with respect to

the claimed deductions.   Under section 7491(c), respondent

retains the burden of production only with respect to

petitioner’s liability for any penalties or additions to tax.

2.   Capital Loss Carryforwards

     Petitioner claimed a $3,000 capital loss deduction in 1999.

This deduction results primarily from her application of capital

loss carryforwards from 1998.

     Section 165(a) generally permits deductions for losses

sustained during the taxable year and not compensated for by

insurance or otherwise.   However, capital losses on the sale or
                                - 13 -

exchange of capital assets are limited to the extent allowed

under sections 1211 and 1212.    Sec. 165(f).   Subject to the

limitations of section 1211, taxpayers can carry forward their

capital losses to succeeding taxable years.     Sec. 1212(b).    Under

section 1211, deductions for losses on the sale or exchange of

capital assets are permitted only to the extent of the gain from

such sales or exchanges, plus the lower of:     (1) Three thousand

dollars ($1,500 in the case of a married individual filing

separately); or (2) the excess of such losses over such gains.

Sec. 1211(b).   Section 1212(b)(1)(B) provides that the excess of

the net long-term capital loss over the net short-term capital

gain is to be treated as a long-term capital loss in the

succeeding taxable year.

     To be entitled to a deduction under section 165(a), a

taxpayer is required to keep records to establish the deductions

to which he or she is entitled.    Sec. 6001.   If a deduction is

carried forward from one year to another, the taxpayer must keep

records to substantiate the amount that is carried forward.      Sec.

1.6001-1(e), Income Tax Regs.    To substantiate a capital loss

carryforward, the taxpayer must show:    That a loss was incurred;

when the loss was incurred; that the taxpayer is entitled to

deduct the loss; whether the loss is capital or noncapital, or

business or personal; and the amount of capital gain during the

intervening years, in order to compute any allowable
                                - 14 -

carryforward.    Meissner v. Commissioner, T.C. Memo. 1995-191;

Aazami v. Commissioner, T.C. Memo. 1993-436.

       Petitioner refused to testify about the capital loss

carryforwards.    Aside from her 1997 and 1998 tax returns,

petitioner offered little evidence to substantiate these losses.

An entry on a tax return does not establish the existence of a

loss.    Halle v. Commissioner, 7 T.C. 245, 250 (1946), affd. 175

F.2d 500 (2d Cir. 1949); Foust v. Commissioner, T.C. Memo. 1995-

481.    Respondent’s determination that petitioner is not entitled

to a deduction for capital loss carryforwards is sustained.

3.     Rental Expenses

       Section 212 provides a deduction for all ordinary and

necessary expenses paid or incurred with respect to management,

conservation, and maintenance of property held for production of

income, including real property.    Sec. 1.212-1(h), Income Tax

Regs.    Generally, a taxpayer must establish that deductions taken

pursuant to section 212 are ordinary and necessary expenses and

must maintain records sufficient to substantiate the amounts of

the deductions claimed.    Sec. 6001; Meneguzzo v. Commissioner, 43

T.C. 824, 831-832 (1965); sec. 1.6001-1(a), (e), Income Tax Regs.

       Respondent disallowed $7,520 of the expenses pertaining to

Primera and $7,744 of the expenses pertaining to Otium.    At

trial, petitioner refused to provide any information at all

pertaining to these expenses.    The Court sustains respondent's
                              - 15 -

determination that petitioner is not entitled to rental expense

deductions in excess of those respondent allowed.

4.   Roth IRA Distribution

     A distribution from a Roth IRA is not includable in the

owner's gross income if it is a qualified distribution or to the

extent that it is a return of the owner's contributions to the

Roth IRA.   Sec. 408A(d)(1); sec. 1.408A-6, Q&A-1(b), Income Tax

Regs.   Distributions from a Roth IRA that are made within 5 years

after an individual made the first contribution to that Roth IRA

are not qualified distributions.    Sec. 408A(d)(2)(B).

     Petitioner had withdrawn all funds from her Roth IRA by

September 21, 1999.   Because this distribution occurred less than

5 years after she opened the account, it is not a qualified

distribution.   Thus, the $171 that exceeds petitioner’s $2,000

contribution is includable in her income.   See sec. 1.408A-6,

Q&A-4, Income Tax Regs.   Respondent is sustained on this issue.

5.   Addition to Tax for Failure To File a Tax Return

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

production in any court proceeding with respect to the liability

of any individual for any penalty or addition to tax.     Higbee v.

Commissioner, 116 T.C. 438, 446-447 (2001).   In order to meet his

burden of production, the Commissioner must come forward with

sufficient evidence indicating that it is appropriate to impose

the addition to tax for failure to file in the particular case.
                                  - 16 -

Id. at 446.   Once the Commissioner meets his burden of

production, the taxpayer must come forward with evidence

sufficient to persuade a court that the Commissioner’s

determination is incorrect.       Id. at 447.

     Respondent contends that petitioner is liable for an

addition to tax pursuant to section 6651(a)(1).       Section

6651(a)(1) imposes an addition to tax for failure to file a

Federal income tax return by its due date, determined with regard

to any extension of time for filing previously granted.         For each

month that the return is late the addition equals 5 percent of

the tax required to be shown on the return, not to exceed 25

percent.   Sec. 6651(a)(1).      Additions to tax under section

6651(a)(1) are imposed unless the taxpayer establishes that the

failure was due to reasonable cause and not willful neglect.

Sec. 6651(a)(1).    Id.; Crocker v. Commissioner, 92 T.C. 899, 912

(1989).    “Reasonable cause” requires the taxpayer to demonstrate

that she exercised ordinary business care and prudence.         United

States v. Boyle, 469 U.S. 241, 246 (1985).       “Willful neglect” is

defined as a “conscious, intentional failure or reckless

indifference.”     Id. at 245.

     Petitioner admits that she filed her 1999 Federal income tax

return on November 28, 2001, after respondent issued a notice of

deficiency.   Petitioner did not address this issue on brief or at

trial, nor is there any evidence in the record that would lead
                              - 17 -

the Court to conclude that petitioner had reasonable cause or was

not willfully neglectful in not timely filing her 1999 return.

See sec. 6651(a)(1).   Respondent’s determination as to the

section 6651(a)(1) addition to tax is sustained.

     To the extent the Court has not addressed other arguments

and contentions petitioner raised, the Court finds them to be

without merit.

     To reflect the foregoing,

                                         Decision will be entered

                                    under Rule 155.
