T.C. Memo. 2009-189



                       UNITED STATES TAX COURT



               JOSHUA A. VAN RYSWYK, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5607-08.                Filed August 19, 2009.



     James R. Monroe, for petitioner.

     Michael W. Bitner, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     CHIECHI, Judge:    Respondent determined the following defi-

ciency in, and additions to, petitioner’s Federal income tax

(tax) for his taxable year 2004:
                                - 2 -

                                 Additions to Tax
                               1
 Deficiency      Sec. 6651(a)(1)   Sec. 6651(a)(2)    Sec. 6654(a)
   $16,776          $3,774.60         $2,768.04           $486.97

       The issues remaining for decision for petitioner’s taxable

year 2004 are:

       (1) Are certain commissions that petitioner received during

2004 includible as nonemployee compensation in his gross income?

We hold that they are.

       (2) Is petitioner entitled to deduct under section 162(a)

certain amounts that he claims he paid to Baccam & Associates

(B&A) during 2004?    We hold that he is not.

       (3) Is petitioner entitled to deduct under section 162(a)

certain claimed expenses that B&A showed as deductions in the tax

return that it filed for taxable year 2004?     We hold that he is

not.

       (4) Is petitioner liable for the addition to tax under

section 6651(a)(1)?    We hold that he is.

       (5) Is petitioner liable for the addition to tax under

section 6654(a)?    We hold that he is.

                          FINDINGS OF FACT

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

       At the time petitioner filed the petition in this case, he

resided in Iowa.


       1
      All 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.
                               - 3 -

     Mr. and Mrs. Van Ryswyk, petitioner’s parents, adopted

petitioner as an infant.   They also were the foster parents of

Oai Baccam (Mr. Baccam) and certain of Mr. Baccam’s biological

siblings, all of whom had emigrated around 1976 to the United

States from Vietnam.   Petitioner and his foster brother Mr.

Baccam grew up together in Mr. and Mrs. Van Ryswyk’s home.

     Around 2000, petitioner graduated from college and moved to

California.   While in California, petitioner lived with Mr.

Baccam and certain of Mr. Baccam’s biological siblings.

     In 2000, petitioner and Mr. Baccam incorporated B&A.     During

2004, the year at issue, Mr. Baccam owned 90 percent, and peti-

tioner owned 10 percent, of B&A, an S corporation.   At all

relevant times, B&A used certain computer software to maintain

its books and records, which were under Mr. Baccam’s control.

     During 2004, petitioner and Mr. Baccam were licensed to sell

financial products, including certain security, annuity, and

insurance products (financial products), but B&A was not.     The

companies that offered those financial products (financial

products companies) entered into agreements with petitioner, and

not with B&A, pursuant to which he agreed to sell on their behalf

their respective financial products.   In return for his services,

the financial products companies agreed to pay petitioner certain

commissions based on the sales that he generated.
                               - 4 -

     During 2003, petitioner received the following payments

totaling $213,894 from the companies indicated:

                         Company                  Amount
          Premium Escrow, Inc.                    $94,500
          Ameritrade, Inc.                            341
          Allianz Life Insurance Co.                7,919
          Midland National Life Insurance Co.      61,409
          American Investors Life Insurance Co.    14,378
          Intersecurities, Inc.                     3,647
          LPL Financial Services Corp.             31,700

     The companies that made the payments listed above did not

withhold tax therefrom.   Moreover, petitioner did not make any

estimated tax payments, or file a tax return (return), for his

taxable year 2003.

     During 2004, petitioner received the following payments

totaling $58,529 as commissions (2004 commissions or commission

payments) from the companies indicated:

                    Company                       Amount
          Allianz Life Insurance Co.              $26,790
          Intersecurities, Inc.                    30,739
          TTT East Coast, Inc.                      1,000

During 2004, petitioner deposited the 2004 commissions into his

personal bank account.

     Each of the three companies that made commission payments to

petitioner during 2004 issued to him Form 1099-MISC, Miscella-

neous Income, for that year.   Each of those companies showed in

that form the amount of commissions that it paid to petitioner

during 2004.
                               - 5 -

     During 2004, Ameritrade, Inc. (Ameritrade), paid to peti-

tioner $634 as proceeds (securities proceeds) from the sale of

certain securities that he held through that company.   Ameritrade

issued to petitioner Form 1099-B, Proceeds From Broker and Barter

Exchange Transactions (Form 1099-B), for that year.   In that

form, Ameritrade showed $634 as proceeds from “Stocks, bonds,

etc.”2

     Neither the companies that made commission payments nor

Ameritrade that paid securities proceeds to petitioner during

2004 withheld tax therefrom.   Moreover, petitioner did not make

any estimated tax payments, or file a return, for his taxable

year 2004.

     Respondent issued to petitioner a notice of deficiency for

his taxable year 2004 (2004 notice).   In that notice, respondent

determined, inter alia, that the 2004 commissions are includible

as nonemployee compensation in petitioner’s gross income for his

taxable year 2004.   In the 2004 notice, respondent also deter-

mined that petitioner is liable for his taxable year 2004 for

additions to tax under, inter alia, sections 6651(a)(1) and

6654(a).


     2
      The record in this case does not contain Form 1099-B that
Ameritrade issued to petitioner for his taxable year 2004. As a
result, we do not know whether Ameritrade showed in that form the
$634 in question as “Gross proceeds” or “Gross proceeds less
commissions and option premiums”.
                                 - 6 -

     Around November 28, 2008, approximately two months before

the trial in this case, B&A filed Form 1120S, U.S. Income Tax

Return for an S Corporation, for its taxable year 2004 (2004 S

corporation return), which Mr. Baccam, B&A’s president, had

signed.   In the 2004 S corporation return, B&A (1) showed gross

receipts and total income of $59,723, (2) claimed deductions

totaling $55,764, and (3) showed ordinary income from trade or

business activities of $3,959.    B&A included with the 2004 S

corporation return Schedule K-1, Shareholder’s Share of Income,

Deductions, Credits, etc., for taxable year 2004 (2004 Schedule

K-1) with respect to each of its two stockholders.    In the 2004

Schedule K-1 that B&A completed with respect to petitioner, B&A

showed $396 as ordinary business income, which equaled peti-

tioner’s proportionate share of B&A’s ordinary income from trade

or business activities.3

                              OPINION

     Petitioner bears the burden of establishing that the deter-

minations in the 2004 notice that remain at issue are wrong.4

See Rule 142(a); Welch v. Helvering, 

, 115 (1933).



     3
      The treatment shown in the 2004 Schedule K-1 that B&A
completed with respect to petitioner is consistent with the
required tax treatment of an S corporation and its stockholders.
     4
      Petitioner does not claim that the burden of proof shifts
to respondent under sec. 7491(a).
                               - 7 -

Evaluation of Evidence on Which Petitioner Relies

     In support of his position with respect to each of the

issues in this case, petitioner relies primarily on his own

testimony and the testimony of his foster brother, Mr. Baccam.

We found petitioner’s testimony to be in certain material re-

spects questionable, conclusory, uncorroborated, and/or self-

serving.   We also found Mr. Baccam’s testimony to be in certain

material respects questionable, conclusory, uncorroborated,

and/or serving the interests of his foster brother, petitioner.

We are not required to, and we shall not, rely on the respective

testimonies of petitioner and Mr. Baccam in order to establish

petitioner’s respective positions with respect to the issues

presented.   See, e.g., Tokarski v. Commissioner, 

, 77

(1986).

Commission Income

     It is petitioner’s position that the 2004 commissions are

not includible as nonemployee compensation in his gross income

for his taxable year 2004 because they constitute the gross

receipts of B&A for that year.5

     A taxpayer is not required to treat as income amounts that

the taxpayer “did not receive under a claim of right, which were


     5
      In the alternative, it is petitioner’s position that he is
entitled to certain deductions under sec. 162(a) that would
offset the 2004 commissions. We address below petitioner’s
alternative position.
                                - 8 -

not his to keep, and which * * * [the taxpayer] was required to

transmit to someone else as a mere conduit.”    Diamond v. Commis-

sioner, 

, 541 (1971), affd. 

(7th Cir.

1974).    A person’s prompt payment to another person of all the

amounts that the person receives is indicative that the person

receiving those amounts has no claim to them.    See Goodwin v.

Commissioner, 

, 230 (1979).

       In support of his position that the 2004 commissions are not

includible as nonemployee compensation in his gross income for

his taxable year 2004, petitioner argues (1) that during 2004,

pursuant to an agreement between himself and B&A, he (a) received

those commissions on behalf of B&A and (b) paid them to B&A and

(2) that B&A reported those commissions as gross receipts in the

2004 S corporation return.

       The principal evidence to support petitioner’s arguments is

his own testimony and the testimony of Mr. Baccam, on which we

are unwilling to rely.    Petitioner has not introduced reliable

evidence that during 2004 he had an agreement with B&A under

which he was required to, and did, pay the 2004 commissions to

B&A.    Nor has petitioner introduced reliable evidence (1) that

B&A showed gross receipts of $59,723 in the 2004 S corporation

return because during 2004 it received that amount of gross

receipts from him or (2) that that amount consisted of the 2004
                               - 9 -

commissions of $58,529 that he received during that year and

unidentified gross receipts of $1,194.6

     On the record before us, we find that petitioner has failed

to carry his burden of establishing that during 2004 he had an

agreement with B&A under which he was required to, and did, pay

the 2004 commissions to B&A.   On that record, we find that

petitioner has failed to carry his burden of establishing that

the 2004 commissions are not includible as nonemployee compensa-

tion in his gross income for his taxable year 2004.

Claimed Deductions

     In the alternative, it is petitioner’s position that if we

were to find, as we have, that the 2004 commissions are

includible as nonemployee compensation in his gross income for

his taxable year 2004, he would be entitled to certain deductions

under section 162(a) that would offset those commissions.

     Deductions are strictly a matter of legislative grace, and

the taxpayer bears the burden of proving entitlement to any

deduction claimed.   INDOPCO, Inc. v. Commissioner, 

,

84 (1992).   A taxpayer is required to maintain records sufficient


     6
      Mr. Baccam, petitioner’s foster brother and B&A’s presi-
dent, filed B&A’s 2004 S corporation return approximately two
months before the trial in this case. The record does not
establish that respondent had examined that return before the
trial took place. We believe that Mr. Baccam filed B&A’s 2004 S
corporation return when he did in an effort to bolster peti-
tioner’s position in this case that the 2004 commissions are
includible in B&A’s gross receipts, and not in his gross income,
for taxable year 2004.
                               - 10 -

to establish the amount of any deduction claimed.      Sec. 6001;

sec. 1.6001-1(a), Income Tax Regs.      A taxpayer is entitled to

deduct all the ordinary and necessary expenses paid or incurred

during the taxable year in carrying on a trade or business.      Sec.

162(a).

       In support of his alternative position, petitioner advances

two arguments.    First, petitioner argues that he is entitled to

deduct under section 162(a) $58,529, the amount of the 2004

commissions, because during 2004 he was required to, and did, pay

that amount to B&A pursuant to an agreement between himself and

B&A.    We have found that petitioner has failed to carry his

burden of establishing that during 2004 he had an agreement with

B&A under which he was required to, and did, pay the 2004 commis-

sions to B&A.    On the record before us, we find that petitioner

has failed to carry his burden of establishing that for his

taxable year 2004 he is entitled to deduct under section 162(a)

the amount of the 2004 commissions.

       Second, petitioner argues that he is entitled to deduct

under section 162(a) the claimed expenses that B&A showed as

deductions in the 2004 S corporation return.      Petitioner does not

contend that during 2004 he paid or incurred any of those claimed

expenses, let alone that he paid or incurred them in carrying on

his own trade or business.    On the record before us, we find that

petitioner has failed to carry his burden of establishing that
                              - 11 -

for his taxable year 2004 the claimed expenses that B&A showed as

deductions in the 2004 S corporation return were ordinary and

necessary expenses that he paid or incurred in carrying on his

own trade or business.   On that record, we find that petitioner

has failed to carry his burden of establishing that for his

taxable year 2004 he is entitled to deduct under section 162(a)

any of those claimed expenses.

Additions to Tax

     It is respondent’s position that petitioner is liable for

the respective additions to tax under sections 6651(a)(1) and

6654(a) that respondent determined in the 2004 notice.

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

file timely a return unless the failure to file timely is due to

reasonable cause, and not to willful neglect.   Section 6654(a)

imposes an addition to tax in the case of an underpayment of

estimated tax by an individual.7   The addition to tax under that



     7
      For purposes of sec. 6654(a), it is necessary to determine
whether there is an underpayment of a required installment of
estimated tax. See sec. 6654(a) and (b). In this connection,
the amount of any required installment is 25 percent of the
required annual payment. Sec. 6654(d)(1)(A). The required
annual payment is equal to the lesser of (1) 90 percent of the
tax shown in the return for the taxable year or if no return was
filed, 90 percent of the tax for such year, or (2) if the indi-
vidual filed a return for the preceding taxable year, (a) 110
percent of the tax shown in such return if the taxpayer’s ad-
justed gross income shown in such return exceeds $150,000 or
(b) 100 percent of the tax shown in such return if the taxpayer’s
adjusted gross income shown in such return does not exceed
$150,000. Sec. 6654(d)(1)(B) and (C)(i).
                                - 12 -

section is mandatory unless petitioner qualifies under one of the

exceptions in section 6654(e).8

     Respondent must carry the burden of production with respect

to the respective additions to tax under sections 6651(a)(1) and

6654(a) at issue here.   See sec. 7491(c); Higbee v. Commissioner,

, 446-447 (2001).     To satisfy that burden, respondent

must come forward with sufficient evidence indicating that it is

appropriate to impose each of those additions to tax.    See Higbee

v. Commissioner, supra at 446.     Although respondent bears the

burden of production with respect to the respective additions to

tax under sections 6651(a)(1) and 6654(a) at issue here, respon-

dent “need not introduce evidence regarding reasonable cause

* * * or similar provisions.    * * * the taxpayer bears the burden

of proof with regard to those issues.”

      Sec. 6654(e) provides that no addition to tax is to be
imposed under sec. 6654(a) for any taxable year if (1) the tax
shown in the return for such taxable year (or if no return is
filed, the tax), reduced by the credit allowable under sec. 31,
is less than $1,000, sec. 6654(e)(1); (2) the preceding taxable
year was a taxable year of 12 months, the individual did not have
any liability for such preceding taxable year, and the individual
was a citizen or resident of the United States throughout such
preceding taxable year, sec. 6654(e)(2); (3) the Secretary of the
Treasury (Secretary) determines that by reason of casualty,
disaster, or other unusual circumstances the imposition of such
addition to tax would be against equity and good conscience, sec.
6654(e)(3)(A); or (4) the Secretary determines that during the
taxable year for which the estimated payments are required or the
taxable year preceding such taxable year the taxpayer retired
after having attained the age of 62 or became disabled, and the
underpayment of any estimated tax was due to reasonable cause and
not to willful neglect, sec. 6654(e)(3)(B).
                                - 13 -

     We turn first to the addition to tax under section

6651(a)(1).     We have found that petitioner did not file a return

for his taxable year 2004.     On the record before us, we find that

respondent has carried respondent’s burden of production under

section 7491(c) with respect to the addition to tax under section

6651(a)(1) that respondent determined in the 2004 notice.

     As we understand it, it is petitioner’s position that he had

reasonable cause for his failure to file a return for his taxable

year 2004 and that therefore he is not liable for the addition to

tax under section 6651(a)(1).     In support of that position,

petitioner advances two arguments.       First, petitioner argues that

he did not receive from B&A Schedule K-1 for his taxable year

2004.     Consequently, he claims that he did not have the informa-

tion that he needed in order to file his return for that year.

     The unavailability of information or records does not

necessarily establish reasonable cause for failure to file timely

a return.     Elec. & Neon, Inc. v. Commissioner, 

,

1342-1343 (1971), affd. without published opinion 

(5th Cir. 1974).     A taxpayer is required to file timely based

upon the best information available and to file thereafter an

amended return if necessary.     Estate of Vriniotis v. Commis-

sioner, 

, 311 (1982).

        Assuming arguendo that petitioner did in fact fail to file

his return for his taxable year 2004 because B&A did not send to
                               - 14 -

him Schedule K-1 for his taxable year 2004, on the record before

us, we nonetheless would find that petitioner has failed to carry

his burden of establishing that that reason constitutes reason-

able cause for his failure to file.

     Second, petitioner argues that he had reasonable cause for

his failure to file a return for his taxable year 2004 because he

was not required to file such a return since his gross income for

that year did not exceed the required threshold amount under

section 6012(a)(1)(A)(i) for filing a return.9   Petitioner’s

argument is based on his position that the 2004 commissions are

not includible as nonemployee compensation in his gross income

for his taxable year 2004.   We have found that petitioner has

failed to carry his burden of establishing that position.   On the

record before us, we find that petitioner has gross income for

his taxable year 2004 in excess of the threshold amount set forth

in section 6012(a)(1)(A)(i).




     9
      Sec. 6012(a)(1)(A)(i) provides in pertinent part that a
taxpayer who is single is not required to file a return for a
taxable year if the taxpayer’s gross income for that year is less
than “the sum of the exemption amount plus the basic standard
deduction applicable to such an individual”. For purposes of
sec. 6012(a)(1)(A)(i), the “exemption amount” for taxable year
2004 is $3,100. See secs. 6012(a)(1)(D)(ii), 151(d)(1), (4)(A);
Rev. Proc. 2003-85, sec. 3.16(1), 2003-2 C.B. 1184, 1188. For
purposes of sec. 6012(a)(1)(A)(i), the “basic standard deduction
applicable” to petitioner for his taxable year 2004 is $4,850.
See secs. 6012(a)(1)(D)(i), 63(c)(2), (4); Rev. Proc. 2003-85,
sec. 3.10(1), 2003-2 C.B. at 1188.
                              - 15 -

     Petitioner does not claim that he sought any professional

advice with respect to whether the 2004 commissions are

includible in his gross income for his taxable year 2004.   Nor

does he claim that he sought any such advice with respect to

whether he was exempt under section 6012(a)(1)(A)(i) from filing

a return for that year.   Where a taxpayer does not obtain compe-

tent advice, the taxpayer’s erroneous belief that he or she was

not required to file a return does not establish reasonable cause

for failure to file timely.   See Stevens Bros. Found., Inc. v.

Commissioner, 

(1962), affd. on this issue, revd. in

part, and remanded in part 

(8th Cir. 1963); Shomaker

v. Commissioner, 

, 202 (1962).   On the record before

us, we find that petitioner has failed to carry his burden of

establishing that his belief that he was not required to file a

return under section 6012(a)(1)(A)(i) constituted reasonable

cause for his failure to file.

     On the record before us, we find that petitioner has failed

to carry his burden of establishing that his failure to file a

return for his taxable year 2004 was due to reasonable cause, and

not to willful neglect.   On that record, we find that petitioner

has failed to carry his burden of establishing that he is not

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

respondent determined in the 2004 notice.
                               - 16 -

     We turn next to the addition to tax under section 6654(a).

We have found that petitioner (1) did not file a return for his

taxable year 2003, (2) did not file a return for his taxable year

2004, and (3) did not make any estimated tax payments with

respect to his taxable year 2004.   On the record before us, we

find that respondent has carried respondent’s burden of produc-

tion under section 7491(c) with respect to the addition to tax

under section 6654(a).

     As we understand it, it is petitioner’s position that he

qualifies for the exception under section 6654(e)(1) (small tax

exception) and that therefore he is not liable for the addition

to tax under section 6654(a).10   As pertinent here, that excep-

tion provides that no addition to tax will be imposed under

section 6654(a) for any taxable year if the tax for that year,

reduced by the credit allowable under section 31 for tax with-

held, is less than $1,000.11   Sec. 6654(e)(1).   According to

petitioner, he qualifies for the small tax exception because he

has no tax for his taxable year 2004.

     We have found that petitioner has failed to carry his burden

of establishing that the 2004 commissions are not includible as

nonemployee compensation in his gross income for his taxable year


     10
      Petitioner does not claim that he qualifies for any other
exception to the addition to tax under sec. 6654(a) that is set
forth in sec. 6654(e).
     11
          See supra note 8.
                               - 17 -

2004.   In addition, we have found that the financial products

companies that paid him those commissions did not withhold tax

therefrom.    We have also found that petitioner has failed to

carry his burden of establishing that he is entitled to deduct

under section 162(a) for his taxable year 2004 (1) $58,529, the

amount of the 2004 commissions, or (2) any of the claimed ex-

penses that B&A showed as deductions in the 2004 S corporation

return.

     On the record before us, we find that petitioner has failed

to carry his burden of establishing that for his taxable year

2004 he qualifies for the small tax exception to the addition to

tax under section 6654(a) that is set forth in section

6654(e)(1).    On that record, we find that petitioner has failed

to carry his burden of establishing that he is not liable for the

addition to tax under section 6654(a).

     We have considered all of the contentions and arguments of

petitioner that are not discussed herein, and we find them to be

without merit, irrelevant, and/or moot.

     To reflect the foregoing and the concessions by respondent,


                                        Decision will be entered

                                  under Rule 155.