Judges: "Couvillion, D. Irvin"
Attorneys: Charles H. Little III, pro se. Ilesa McAuliffe , for respondent.
Filed: Sep. 14, 2006
Latest Update: Nov. 21, 2020
Summary: T.C. Summary Opinion 2006-149 UNITED STATES TAX COURT CHARLES H. LITTLE III, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 14304-04S. Filed September 14, 2006. Charles H. Little III, pro se. Ilesa McAuliffe, for respondent. COUVILLION, Special Trial Judge: This case was heard pursuant to section 7463 in effect when the petition was filed.1 The decision to be entered is not reviewable by any other court, and this opinion should not be cited as authority. 1 Unless otherwise
Summary: T.C. Summary Opinion 2006-149 UNITED STATES TAX COURT CHARLES H. LITTLE III, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 14304-04S. Filed September 14, 2006. Charles H. Little III, pro se. Ilesa McAuliffe, for respondent. COUVILLION, Special Trial Judge: This case was heard pursuant to section 7463 in effect when the petition was filed.1 The decision to be entered is not reviewable by any other court, and this opinion should not be cited as authority. 1 Unless otherwise ..
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T.C. Summary Opinion 2006-149
UNITED STATES TAX COURT
CHARLES H. LITTLE III, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 14304-04S. Filed September 14, 2006.
Charles H. Little III, pro se.
Ilesa McAuliffe, for respondent.
COUVILLION, Special Trial Judge: This case was heard
pursuant to section 7463 in effect when the petition was filed.1
The decision to be entered is not reviewable by any other court,
and this opinion should not be cited as authority.
1
Unless otherwise indicated, subsequent section references
are to the Internal Revenue Code in effect for the year at issue.
All Rule references are to the Tax Court Rules of Practice and
Procedure.
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Respondent determined a deficiency of $34,496 in
petitioner’s Federal income tax for the year 2002 and the
additions to tax under sections 6651(a)(1) and 6654(a) in the
amounts of $10,003 and $1,152.75, respectively.
Prior to trial, the parties agreed to a deficiency in the
amount of $12,642.2 The remaining issues for decision are
whether petitioner is liable for the additions to tax under
sections 6651(a)(1) and 6654(a).
Some of the facts were stipulated. Those facts, with the
exhibits annexed thereto, are so found and made part hereof.
Petitioner’s legal residence at the time the petition was filed
was Mountlake Terrace, Washington.
Petitioner is a real estate agent who specialized in what he
described as “manufactured home parks and RV parks”. More
specifically, this is a phase or aspect of commercial real estate
in which the agent specializes in real estate transactions
representing either buyers or sellers of parks or tracts of land
that are adapted as a location for manufactured homes and/or
recreational vehicles (RVs). The customary practice is that the
entire park is owned by a landlord and lots or spaces in the park
are designated and leased for manufactured homes or RVs. Each
lot is provided with the necessary utilities. The individual
2
The settlement is based upon petitioner’s concession that
he earned $103,827 in nonemployee compensation during the year
and $104 in taxable interest income.
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lots are not sold. The entire park constitutes an economic unit.
Thus, if an investor is interested in purchasing a park, or if
the owner of an existing park desires to sell, real estate agents
such as petitioner typically would be used because of their
experience in this segment of real estate. Petitioner did not
own, develop, or manage such parks. He was simply an agent in
what appears to be a niche in the field of real estate.
A notice of deficiency was issued to petitioner for the year
2002. At the time the notice of deficiency was issued, on June
8, 2004, petitioner had not filed a Federal income tax return for
the year 2002 (the year at issue). Petitioner acknowledged that,
for several years during the 1990s, he had filed protester
Federal income tax returns. During these years, he was following
the advice of a lady who apparently specialized in filing
protester returns and in handling correspondence received by her
clients (including petitioner) from the IRS regarding such
returns. Some of the returns filed by petitioner were “zero”
returns, on which each line on the return was filled in with a
zero.
Petitioner and his wife were also “devastated”, as he
explained, over the loss of their daughter, who died unexpectedly
and for no known reason in 1994. The daughter was not married
and had two young girls. Prior to her death, she had placed one
of the girls for adoption, and, at her death, petitioner and his
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wife assumed custody of the other girl, whom they later adopted.
That child was born in 1992 and for several years had serious
medical problems, all of which were costly to petitioner and his
wife. Petitioner contends that these events had a severe impact
on him and his wife. The Court understands that to mean that
petitioner and his wife essentially lost focus on their lives.
At some point, petitioner heeded the advice of a lady who
encouraged people not to pay Federal income taxes, and he filed
protester income tax returns based on that advice. As an
example, for the 1997 tax year, petitioner and his wife filed a
joint Federal income tax return on which they reported their
income, expenses, and a tax liability of $6,395. Based on the
advice of the return preparer, petitioner thereafter filed three
amended returns claiming an overpayment on each amended return.
The claimed overpayment on the third return constituted the
balance of tax reported on the original return. During all this
time, petitioner continued in his regular employment. Petitioner
was also courted during this time by other professional tax
protesters who charged for their advice on how to beat the tax
system. At some point, some of petitioner’s peers in the real
estate business counseled him that professional protesters were
“crooks” who would take his money, and, ultimately, he
(petitioner) would be held liable for his taxes. Petitioner
accepted this advice and decided to thereafter file Federal
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income tax returns, utilizing the services of a responsible
certified public accountant. It appears that, for 1 or more
years prior to the year at issue, petitioner had to file returns
or amended returns to correctly report his income for those
years. Petitioner contends that, for these prior years, he was
not required by the IRS to pay any penalties. At trial, counsel
for respondent agreed that, for these prior years, additions to
tax against petitioner were abated. On this history, petitioner
contends he should not be held liable for the sections 6651(a)(1)
and 6654(a) additions to tax that are before the Court for the
2002 tax year.3
Section 7491(c) imposes upon the Commissioner the “burden of
production” with respect to the liability of any person “for any
penalty, addition to tax, or additional amount imposed by this
title”. In Higbee v. Commissioner,
116 T.C. 438, 446 (2001),
this Court held that the phrase “burden of production” does not
mean that the burden of proof is on the Commissioner with respect
to penalties and additions to tax. The burden of production
under Higbee is satisfied where respondent shows, in the case of
the section 6651(a)(1) addition to tax, that no income tax return
has been filed or, if filed, was not filed timely and, with
respect to section 6654, that estimated taxes have not been paid.
3
For the year at issue, 2002, the income tax return was
filed in August 2004 and was accepted and processed by the IRS.
A copy of that return was not offered into evidence at trial.
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As noted earlier, petitioner had not filed a Federal income
tax return at the time the notice of deficiency was issued.
Therefore, respondent’s burden of production was met as to the
section 6651(a)(1) addition to tax.
Section 6651(a)(1) provides for an addition to tax for
failure to file a Federal income tax return. This addition to
tax is not imposed if the failure to file is not due to “willful
neglect” and is “due to reasonable cause”. The term “willful
neglect” has been interpreted to mean a conscious, intentional
failure or reckless indifference. United States v. Boyle,
469
U.S. 241, 245 (1985). “Reasonable cause” requires the taxpayer
to demonstrate that he exercised ordinary business care and
prudence and was nonetheless unable to file the return timely.
Fambrough v. Commissioner, T.C. Memo. 1990-104. Petitioner’s
situation here, at best, can be considered reckless indifference.
Even though petitioner and his wife were experiencing a stressful
situation lingering from the untimely death of their daughter and
the illness of their granddaughter, petitioner nonetheless
pursued gainful employment during the tax year at issue. These
personal problems, although serious, did not prevent petitioner
from engaging in his business activity and in earning substantial
income. Since these personal problems did not impair
petitioner’s ability to pursue gainful employment, they likewise
should not have impaired petitioner’s duty to file a timely
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return for the year at issue. Although additions to tax were
abated for petitioner’s prior years, the Court sees no basis for
an abatement for the year at issue. The Court, moreover, has no
obligation to abate the additions to tax simply because they were
abated for prior years. Respondent is sustained on this issue.
The final issue is respondent’s determination that
petitioner is liable for the addition to tax under section
6654(a) for failure to pay estimated tax. This addition to tax
is applicable where there is an underpayment of estimated tax,
subject to exceptions or waivers that are not applicable here.
Sec. 6654(e). The provisions of this section are mandatory where
there is an underpayment of tax as determined under section 6654.
This section contains no exonerating provisions, such as
reasonable cause or lack of willful neglect. Estate of Ruben v.
Commissioner,
33 T.C. 1071, 1072 (1960). In general, estimated
income tax payments are used to provide for payment of income
taxes not collected through withholding. Section 6654(c)
provides for quarterly installments. Income taxes withheld from
salaries or wages apply toward the amount of each required
quarterly installment; however, to the extent withholdings do not
satisfy the required quarterly installments, the taxpayer is
required to make supplemental quarterly payments of estimated
taxes. Sec. 6654(f). Since petitioner was self-employed, he was
required to make estimated payments. He did not make estimated
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payments of his taxes for the year at issue. Under section
6654(d), the amount of the four quarterly installments (including
taxes withheld) generally must equal 90 percent of the tax for
the year, or 100 percent of the tax for the preceding taxable
year, whichever is less. The Court, therefore, sustains
respondent on this issue.
Reviewed and adopted as the report of the Small Tax Case
Division. Due to the agreed reduced deficiency, the additions to
tax must be recalculated. Accordingly,
Decision will be entered
under Rule 155.