Later in his writeup of the NQO exercise issue, the Appeals officer made the following additional comments:

Dan Robinson has filed his 1998 and 1999 returns reporting the income as something other than wages. John McClaine [sic] has filed his 1998 and 1999 returns but has an unpaid balance for 1999. Jerry Hamrick has filed his 1998 return reporting the income as something other than wages.

All three earned wages in each of the years in excess of the FICA limits and two paid the income taxes corresponding to the option income. The taxpayer proposed that the option wages be applied to the Hospital Insurance2012 U.S. Tax Ct. LEXIS 11">*25 portion of the employment taxes[.]

The taxes as proposed by Compliance with respect to McClaine [sic] will be left unchanged.

Previously, on May 12, 2005, the chief financial officer of Excel Management Service executed, on behalf of that corporation, a Form 2504, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment (Excise or Employment Tax), in which the corporation agreed to the immediate assessment and collection of only the 1999 Medicare taxes, totaling $282,024 ($70,506 per quarter), attributable to the option proceeds received by the three executives.

On September 23, 2005, respondent made four assessments of $70,506, one for each quarter of calendar year 1999. No other tax assessments appear on the 1999 employment tax transcripts (Forms 4340) for Excel Management Service. Those transcripts also indicate that the four assessments, plus the assessed interest thereon, remained unpaid as of May 12, 2009.

In April 2002 Teleglobe sold Excel and certain other subsidiaries to VarTec Telecom, Inc. (VarTec).

In December 2003, VarTec filed claims against Teleglobe (which had previously filed for bankruptcy) 2012 U.S. Tax Ct. LEXIS 11">*26 for obligations of the Excel group (allegedly arising before VarTec's acquisition of the Excel group), including a claim for the Excel group's potential liability for employment taxes occasioned by the 1999 exercise. At the time of the trial in this case, VarTec's legal representatives did not know whether anyone had paid those taxes to the Commissioner.

In December 2002 VarTec had sued BCE (Teleglobe's parent) concerning claims against Teleglobe, which included VarTec's potential liability for Excel's failure to withhold taxes occasioned by the 1999 exercise. That suit ultimately resulted in either an arbitration award or a mediation award to VarTec. The arbitrator rendered his decision in October 2004. Subsequently, the parties settled their dispute (although the terms of the settlement are not clear from the record).

In November 2004 VarTec and its subsidiaries, including the Excel group, filed for bankruptcy protection in the U.S. Bankruptcy Court for the Northern District of Texas (the VarTec bankruptcy).

In the Teleglobe bankruptcy the Commissioner filed a proof of claim in June 2004 in the amount of $17,374,212 against one of the Teleglobe entities. 2012 U.S. Tax Ct. LEXIS 11">*27 The Commissioner's proof of claim included two "WT-FICA" claims for 1999 of $1,742,070 and $7,030,569, both listed as "pending assessment".

In the VarTec bankruptcy, the Commissioner also filed three proofs of claim against Excel Management Service, in November 2004 and in August and October 2005, respectively. The first, in the amount of $14,187,441, included a "WT-FICA" claim for 1999 of $7,030,569, listed as an "unassessed liability". The second, in the amount of $622,448, amended the first claim and included "WT-FICA" claims of $70,506 for each quarter of 1999 ($282,024, in total, for 1999). Those amounts were agreed upon at the conclusion of Excel's appeal of its employment tax audit; they were 138 T.C. 228">*238 assessed on September 23, 2005, but were listed in the second proof of claim as "unassessed" liabilities. The third proof of claim, stating a claim of $622,449, included "WT-FICA" claims of $35,253 for each quarter of 1999, which were also listed as "unassessed" liabilities.

The $17,374,212 proof of claim filed in the Teleglobe bankruptcy was "disallowed and expunged" by the Delaware Bankruptcy Court in June 2005.

Petitioner contends 2012 U.S. Tax Ct. LEXIS 11">*28 that VarTec paid the taxes associated with the 1999 exercise in 2004 or 2005. He offers as proof that the Commissioner voluntarily reduced his proof of claim in the VarTec bankruptcy. He points out that, by way of the August 2005 amended proof of claim against Excel Management Service, the Commissioner reduced the claim in his original November 2004 proof of claim from $14,187,441, including a "WT-FICA" claim for 1999 of $7,030,569, to a claim of $622,448, including only $282,024 of "WT-FICA" claims for 1999. Petitioner argues: "The IRS' voluntary reductions in its proofs of claim against Excel is corroborative of Petitioner's assertion that his 1999 income tax liability was ultimately paid, subsequent to the VarTec/Teleglobe arbitration, but also pursuant to the IRS audit of Excel."

Petitioner supports that argument by arguing that the Appeals officer who handled Excel's appeal in connection with the NQO exercise issue sustained the agent's audit adjustment with respect to petitioner. He bases that argument on the Appeals officer's statement that the agent's proposed adjustment "with respect to * * * [petitioner] will be left unchanged." Presumably, the thrust of that argument is to 2012 U.S. Tax Ct. LEXIS 11">*29 demonstrate that respondent never intended to waive his claim against Excel and its successor corporations for the taxes associated with the option proceeds.

Necessarily conceding that any payment by VarTec of an amount that should have been (but admittedly was not) withheld from the option proceeds could not constitute an actual withholding from those proceeds, petitioner argues that, 138 T.C. 228">*239 nonetheless, he is entitled to a section 31 credit "for income tax constructively withheld." He further argues that, as a result, "no penalties or additions to tax are applicable to * * * [him]." Petitioner bases his theory of constructive withholding on our report in Whalen v. Commissioner, T.C. Memo 2009-37.

As to whether VarTec did, in fact, pay the taxes associated with the 1999 exercise, respondent argues:

Rather than evidencing payment of an employer income tax withholding liability attributable to petitioner's stock options exercise, * * * [the VarTec] proofs of claim and amended proofs of claim corroborate the Appeals Office settlement of the proposed adjustments to Excel's 1999-year employment tax liability, which settlement included a concession of the income tax withholding liability previously 2012 U.S. Tax Ct. LEXIS 11">*30 proposed by the Service's examination function. The settlement was for an additional employment tax liability in the amount of $70,506.00 for each calendar quarter of 1999, or $282,024.00 total, for the year. The executed agreement to assessment of additional employment tax reflects precisely this, as do the assessments shown on the Form 941 transcripts for Excel Management.

The parties dispute the scope and standard of review applicable in this case.^{22012 U.S. Tax Ct. LEXIS 11">*31} However, we decline to resolve the scope and standard of review issues they raise because we find that no payment was made by Excel or a successor corporation, in 2004 or 2005, of the nonwithheld taxes related to the 1999 exercise. In addition, we find that there is insufficient evidence to establish that any such payment occurred, whether or not we apply the de novo standard adopted by this Court in Robinette v. Commissioner, 123 T.C. 85">123 T.C. 85 (2004), rev'd, 439 F.3d 455">439 F.3d 455 (8th Cir. 2006). Under these circumstances, we need not resolve the parties' dispute as to the scope and standard of review. See Kohn v. Commissioner, T.C. Memo 2009-117, aff'd, 377 Fed. Appx. 578">377 Fed. Appx. 578 (8th Cir. 2010).

Even though petitioner has argued for de novo review of the factual issue of whether a third party, in effect, paid his underlying 1999 tax liability (payment issue), he has not invoked section 7491(a) to argue that respondent bears the burden of proof with respect to that issue. We will assume, without deciding, that de novo review is proper and base our resolution of the payment issue upon a preponderance of all of the evidence in the record. Therefore, assignment of the burden of proof is unnecessary. See, e.g., Estate of Bongard v. Commissioner, 124 T.C. 95">124 T.C. 95, 124 T.C. 95">111 (2005).

As noted supra, petitioner's argument that VarTec paid the withholding taxes associated with the 1999 exercise is essentially premised on the fact that the $7,030,569 "WT-FICA" claim for 1999 against Excel Management Service that was included in the Commissioner's November 2004 proof of claim filed 2012 U.S. Tax Ct. LEXIS 11">*32 in the VarTec bankruptcy was reduced to a $282,024 claim in his August 2005 amended proof of claim filed in that bankruptcy. We agree, however, with respondent that the reduction in the proof of claim amount is more likely corroborative of a decision by the Commissioner to adopt the Appeals officer's settlement of the Excel audit as reflected on the Form 2504 (wherein the Commissioner sought only the Medicare taxes associated with all of the 1999 option exercises) than it is of VarTec's payment of the taxes that Excel should have withheld from petitioner in connection with the 1999 exercise.

We also dispute petitioner's characterization of the Appeals officer's statement in his recommended settlement of the Excel audit that the taxes proposed by the agent with respect to petitioner "will be left unchanged". As noted above, petitioner apparently reads into that statement an intent to continue to pursue Excel (and its successor corporations) for the taxes associated with the 1999 exercise. Whatever the Appeals officer's intent when he included that statement in 138 T.C. 228">*241 his recommendations for resolving the NQO exercise issue for 1998 and 1999, the Form 2504 executed by the parties and later reflected 2012 U.S. Tax Ct. LEXIS 11">*33 in the actual assessments against the Excel group reflect the Commissioner's decision not to pursue Excel (or any successor corporation) for failure to withhold income taxes on the 1999 exercise.

We find no merit in (1) petitioner's reliance on respondent's Form 4340 for petitioner and his former wife jointly, which shows a March 10, 2008, reversal of the existing $2,084,961 debit balance, as proof that "[p]etitioner has no outstanding tax liability for * * * 1999" and (2) his rejection, as improper, of respondent's transfer of that debit balance to petitioner, individually. As noted supra, respondent made that reversal and transfer incident to granting petitioner's former wife relief from the outstanding 1999 joint tax liability arising from the 1999 exercise. We agree with respondent that the reversal and transfer of the outstanding assessed balance from petitioner and his former wife jointly to petitioner individually was in accordance with IRS procedures, seeInternal Revenue Manual pts. 3.17.243.13.2 (Jan. 1, 2008), and 8.20.2.5 (Oct. 16, 2007), and did not indicate that petitioner has no outstanding liability for 1999.

The Forms 4340 for both petitioner's and the Excel group's 2012 U.S. Tax Ct. LEXIS 11">*34 1999 taxable year reflect no assessment or payment of withholding taxes attributable to petitioner's income from the 1999 exercise. Petitioner cites a 2007 Treasury Inspector General for Tax Administration report, which, he states, "describes the IRS's difficulty in 'cross posting' tax payments to all affected 'payee' accounts". Notwithstanding the existence of that report, it is well established that a Form 4340 or a computer printout of a taxpayer's transcript of account, absent a showing of irregularity, provides sufficient verification of the taxpayer's outstanding liability to satisfy the requirements of section 6330(c)(1) (requirement that the Appeals officer conducting a collection due process (CDP) hearing obtain verification "that the requirements of any applicable law or administrative procedure had been met"). See, e.g., Davis v. Commissioner, 115 T.C. 35">115 T.C. 35, 115 T.C. 35">40-41 (2000); Roberts v. Commissioner, T.C. Memo 2004-100; Tornichio v. Commissioner, T.C. Memo 2002-291. Petitioner has not demonstrated any irregularity in the preparation of the foregoing transcripts, and we see no reason to depart from that 138 T.C. 228">*242 principle in this case. See Davis v. Commissioner, 115 T.C. 35">115 T.C. 41; Tornichio v. Commissioner, T.C. Memo 2002-291.

No third-party payment of the nonwithheld taxes was made related to the 1999 exercise.

On the assumption that VarTec paid the nonwithheld taxes in 2004 or 2005, petitioner contends (and respondent disagrees) that he is entitled to a credit under section 31 and section 1.31-1(a), Income Tax Regs. The parties also dispute the effect of Whalen v. Commissioner, T.C. Memo 2009-37, where, in dicta, we suggested that an employer's actual payment to the IRS of the tax that the employer should have withheld "could plausibly be characterized as withholding tax under chapter 24 with a corresponding section 31 credit being allowed to a proper recipient for an appropriate year." (Emphasis added.) Whalen was a deficiency case, not a collection case. Ms. Whalen contended that she was entitled to a credit against a deficiency for 2004 of taxes that should have been withheld in 2001 but were not paid until 2004. She lost that argument.

Petitioner is not entitled to a credit under section 31 because, as we have found above, no third-party payment was made. We may one day be presented with a case in which the IRS proposes to collect a party's liability that has been 2012 U.S. Tax Ct. LEXIS 11">*36 paid by another person. For now, however, the better course is "to observe the wise limitations on our function and to confine ourselves to deciding only what is necessary to the disposition of the immediate case." Whitehouse v. Ill. Cent. R.R., 349 U.S. 366">349 U.S. 366, 349 U.S. 366">372-373, 75 S. Ct. 845">75 S. Ct. 845, 99 L. Ed. 1155">99 L. Ed. 1155 (1955); accord Ashwander v. TVA, 297 U.S. 288">297 U.S. 288, 297 U.S. 288">345-346, 56 S. Ct. 466">56 S. Ct. 466, 80 L. Ed. 688">80 L. Ed. 688 (1936) (Brandeis, J., concurring); Liverpool, N.Y. & Phila. S.S. Co. v. Emigration Commissioners, 113 U.S. 33">113 U.S. 33, 113 U.S. 33">39, 5 S. Ct. 352">5 S. Ct. 352, 28 L. Ed. 899">28 L. Ed. 899 (1885). Our silence on the issue should not be construed as our agreement with either party's argument.

In the cover letter to his Form 12153 requesting a CDP hearing, petitioner asked respondent to consider collection 138 T.C. 228">*243 alternatives, including an offer-in-compromise based upon doubt as to collectibility and an installment agreement. Moreover, he and Mr. Jeka addressed those matters during and after the CDP hearing. Petitioner failed, however, to submit the financial information that Mr. Jeka requested; nor did he submit an offer-in-compromise before the expiration of repeated deadlines that Mr. Jeka extended to him for doing both. As a result, petitioner and Mr. Jeka agreed to neither an offer-in-compromise 2012 U.S. Tax Ct. LEXIS 11">*37 nor an installment agreement.

In his petition, petitioner claims that Mr. Jeka's failure to provide collection alternatives was an abuse of discretion. He does not, however, raise the issue in his briefs. Therefore, we consider petitioner to have abandoned that claim. E.g., Money v. Commissioner, 89 T.C. 46">89 T.C. 46, 89 T.C. 46">48 (1987); seeRule 151(e)(4) and (5) (requiring that a party's brief state the points and arguments on which he relies). Moreover, even if petitioner had raised the collection alternatives issue in his briefs, his failure to submit an offer-in-compromise or requested financial information to Mr. Jeka would cause us to sustain Mr. Jeka's determination not to offer collection alternatives. Under the circumstances, Mr. Jeka's action did not represent an abuse of discretion. See Kendricks v. Commissioner, 124 T.C. 69">124 T.C. 69, 124 T.C. 69">79 (2005); Orum v. Commissioner, 123 T.C. 1">123 T.C. 1, 123 T.C. 1">13 (2004), aff'd, 412 F.3d 819">412 F.3d 819 (7th Cir. 2005).

Mr. Jeka properly sustained collection with respect to petitioner's 1999 unpaid tax liability.

Petitioner asks for the abatement of interest both on account of Mr. Jeka's conduct and because 2012 U.S. Tax Ct. LEXIS 11">*38 the IRS did not timely credit his $1,600,000 payment.

Petitioner argues for the first time in his opening brief that assessed interest from June 13, 2007 (the date on which the 138 T.C. 228">*244 Appeals Office issued the notice of determination),³ must be abated pursuant to section 6404(e)(1)(B) (abatement of interest attributable to an "erroneous or dilatory" performance of "a ministerial or managerial act" by an IRS officer or employee).

We conclude that petitioner is precluded from raising an issue under section 6404(e)(1)(B) because he did not raise it in his petition, at his hearing before Mr. Jeka, in his pretrial memorandum, or at trial. SeeRule 331(b)(4); Behling v. Commissioner, 118 T.C. 572">118 T.C. 572, 118 T.C. 572">579 (2002); Brecht v. Commissioner, T.C. Memo 2008-213. Further, the evidence does not support petitioner's allegations that Mr. Jeka was erroneous or dilatory in his actions or that Mr. Jeka "showed institutional bias at every turn". Therefore, petitioner is not entitled to an abatement of interest pursuant to section 6404(e)(1)(B).

Petitioner argues that he paid $1,600,000 in discharge of his 1999 income tax liability on April 15, 2000, with the filing of his request for an extension of time to file the 1999 return. Respondent's Form 4340 for petitioner for 1999 reflects a $1,500,000 payment on July 17, 2001, and a $100,000 payment on October 22, 2001. Petitioner seeks an abatement of the interest on (1) $1,500,000, attributable to the period from April 15, 2000, to July 17, 2001, and (2) $100,000, attributable to the period from April 15, 2000, to October 22, 2001.

It is a longstanding position of this Court that a Form 4340 or a computer printout of a taxpayer's transcript of account, absent a showing of irregularity, provides sufficient verification of the taxpayer's outstanding liability to satisfy the requirement of section 6330(c)(1) that the Appeals officer conducting a CDP hearing obtain verification "that the requirements of any applicable law or administrative procedure had been met." See, e.g., Davis v. Commissioner, 115 T.C. 35">115 T.C. 35-36; Roberts v. Commissioner, T.C. Memo 2004-100; 138 T.C. 228">*245 Tornichio v. Commissioner, T.C. Memo 2002-291. In the light of 2012 U.S. Tax Ct. LEXIS 11">*40 petitioner's failure to demonstrate any irregularity in the preparation of the foregoing transcripts, we see no reason to depart from that principle in this case. See Davis v. Commissioner, 115 T.C. 35">115 T.C. 41; Tornichio v. Commissioner, T.C. Memo 2002-291. Petitioner offers only the 1999 return as evidence of his April 15, 2000, payment of $1,600,000. That is insufficient to overcome the contrary evidence provided by the Form 4340 for 1999. A tax return signed under penalty of perjury does not establish the truth of the facts stated therein. E.g., Wilkinson v. Commissioner, 71 T.C. 633">71 T.C. 633, 71 T.C. 633">639 (1979).

Petitioner is not entitled to any interest abatement based upon payment of $1,600,000 of his 1999 tax liability on April 15, 2000.

Petitioner is not entitled to any interest abatement for 1999.

Respondent assessed $147,435 and $442,648, on December 18, 2000, and November 21, 2005, respectively, as additions to tax under section 6651(a)(2) for petitioner's failure to timely pay his 1999 income tax liability. Respondent bears the burden of production 2012 U.S. Tax Ct. LEXIS 11">*41 with respect to those additions. Seesec. 7491(c). In order to carry that burden, respondent must produce sufficient evidence to establish that it is appropriate to impose the additions. See Higbee v. Commissioner, 116 T.C. 438">116 T.C. 438, 116 T.C. 438">446-447 (2001). Once respondent has done so, the burden of proof is on petitioner to show that the additions are improper. See 116 T.C. 438">id. at 447. As discussed supra in section III.C.1. of this report, the Form 4340 for petitioner's 1999 taxable year supports a finding that petitioner made no payments of income tax owed for 1999 until July 17 and October 138 T.C. 228">*246 22, 2001, and that those payments, totaling $1,600,000, were his only payments in discharge of his total, reported, 1999 income tax liability of $3,276,333. Therefore, respondent has satisfied his burden of production under section 7491(c).

Section 6651(a)(2) imposes an addition to tax of up to 25% of the tax shown on a return for failure to make timely payment thereof, unless it is shown that such failure is due to reasonable cause and not due to willful neglect. Petitioner argues that there was reasonable cause for his failure to timely pay his 1999 tax liability: (1) undue financial hardship, (2) his alcoholism, 2012 U.S. Tax Ct. LEXIS 11">*42 and (3) retroactive application of section 31(a) credits. We have already decided that petitioner is not entitled to any section 31(a) credits as an offset to his income tax underpayment for 1999. Therefore, we will consider only the first two grounds for petitioner's claim of reasonable cause.

Petitioner alleges undue hardship on the ground that he (1) "lacked the ability to ascertain the amount, or existence of his outstanding 1999 income tax liability, despite his good faith attempts to do so", and (2) "paid as much of the 1999 income tax liability as he could, attempting to satisfy his obligations, despite the fact that this payment placed him in a very difficult financial situation." Neither of those alleged circumstances supports petitioner's claim of reasonable cause for the late payment, in part, and nonpayment, in part, of his 1999 income tax liability.

Before the April 15, 2000, due date of his return, petitioner knew that he had received the option proceeds unreduced by any tax payments, either withheld by Excel or remitted by him. The plan required Excel to notify the optionee of the "amount due" on exercise, including "amounts necessary to satisfy applicable 2012 U.S. Tax Ct. LEXIS 11">*43 * * * tax withholding requirements." Excel's alleged failure to fulfill that requirement does not excuse petitioner's failure to pay all of the income tax that he knew was due with respect to his 1999 taxable income, which included the spread amount that petitioner reported as short-term capital gain. See McWhorter v. Commissioner, T.C. Memo 2008-263 (employer's failure to withhold taxes that should have been withheld does not excuse an 138 T.C. 228">*247 employee's failure to file a return or pay taxes nor relieve him of the additions to tax under section 6651(a)). Nor does petitioner's "very difficult financial situation" constitute reasonable cause for his failure to timely pay his 1999 income tax liability. Petitioner argues that he feared the necessity of twice paying that liability, once to respondent and once, as reimbursement, to Excel. But, as discussed supra, by obtaining proof of payment from petitioner, Excel, pursuant to section 3402(d), either could have avoided liability for the same tax or, if it had in fact paid it, obtained a refund thereof. Moreover, petitioner's illiquidity as of April 15, 2000, was a problem of his own making. After his exercise of the 1999 NQOs, petitioner had 2012 U.S. Tax Ct. LEXIS 11">*44 the funds necessary to pay the taxes associated with his income from the 1999 exercise. The fact that he lost most of those funds by investing them in high technology stocks and ventures that ultimately failed (and did not retain sufficient funds to pay his 1999 tax) does not provide a basis for his claim of reasonable cause for his nonpayment or late payment of tax. Seesec. 301.6651-1(c)(1), Proced. & Admin. Regs., which, in relevant part, provides as follows:

A failure to pay will be considered to be due to reasonable cause to the extent that the taxpayer has made a satisfactory showing that he exercised ordinary business care and prudence in providing for payment of his tax liability and was nevertheless either unable to pay the tax or would suffer an undue hardship * * * if he paid on the due date. * * * [A] taxpayer who invests funds in speculative or illiquid assets has not exercised ordinary business care and prudence in providing for the payment of his tax liability unless, at the time of the investment, the remainder of the taxpayer's assets and estimated income will be sufficient to pay his tax or it can be reasonably foreseen that the speculative or illiquid investment * 2012 U.S. Tax Ct. LEXIS 11">*45 * * can be utilized (by sale or as security for a loan) to realize sufficient funds to satisfy the tax liability. * * *

In defense of his position that his alcoholism constituted reasonable cause for his failure to timely pay his 1999 tax liability, petitioner argues that he was essentially incapacitated by his drinking problem on the April 15, 2000, due date of the 1999 return. That argument is seriously undercut, however, by his argument of undue financial hardship. In connection with the latter argument, petitioner testified that, between the April 15, 2000, due date and the October 20, 138 T.C. 228">*248 2000, filing date of the 1999 joint return, he was well aware of his outstanding tax liability for 1999 and that he took a number of steps (attempting to borrow against and, then, to sell his two homes) to raise the funds necessary to discharge that liability. Those actions are hardly the actions of a man incapacitated by alcoholism.

Moreover, although petitioner testified that in 2000 he recognized that his drinking was "getting problematic", it was not until 2001 that he began drinking throughout the day and, sometimes, night. Even during the 2001-02 period, however, he 2012 U.S. Tax Ct. LEXIS 11">*46 was able to continue his consulting business, and upon admittance to the Center on September 5, 2002, Center personnel noted that he was a "bright and alert male in no distress" and that his "affect", "orientation", and "memory" were all normal.⁴

Because petitioner was not incapacitated by alcoholism on the due date of the 1999 joint return or thereafter, that condition does not constitute reasonable cause for his failure to timely pay the income taxes shown on that return. See, e.g., Hazel v. Commissioner, T.C. Memo 2008-134; Jones v. Commissioner, T.C. Memo 2006-176; Harbour v. Commissioner, T.C. Memo 1991-532; Gardner v. Commissioner, T.C. Memo. 1982-542.

Petitioner has not shown that his failure to timely pay the tax liability shown on the 1999 return was due to reasonable cause and not due to willful neglect. Therefore, Mr. Jeka properly sustained collection with respect to the additions to tax under section 6651(a)(2).^{52012 U.S. Tax Ct. LEXIS 11">*47}

Respondent assessed an addition to tax of $101,872 under section 6654 for petitioner's failure to timely pay estimated tax. Petitioner argues that imposition of the section 6654(a) addition to tax for underpayment (or, in this case, nonpayment) of estimated tax for 1999 "would be against equity and good conscience" within the meaning of section 6654(e)(3)(A).^{62012 U.S. Tax Ct. LEXIS 11">*48}

Because (1) respondent's Form 4340 for petitioner for 1999 shows no payments of tax for 1999 until July 17 and October 22, 2001, and (2) petitioner showed a substantial tax liability on his prior year (1998) return (facts establishing that petitioner had a "required annual payment" for 1999 within the meaning of section 6654(d)(1)(B)), we find that respondent has satisfied his burden of production under section 7491(c). The burden of proof is on petitioner to show that he is covered by one of the relief provisions of section 6654, which, in this case, means section 6654(e)(3)(A) (section 6654 contains no provision relating to reasonable cause and lack of willful neglect).

Petitioner makes the same arguments (undue hardship, alcoholism) that he made in alleging reasonable cause under section 6651(a)(2). For the reasons given for rejecting those arguments as they related to respondent's additions to tax under that provision, we reject them as justification for reversing respondent's imposition 2012 U.S. Tax Ct. LEXIS 11">*49 of the addition to tax under section 6654(a). The evidence of undue hardship and alcoholism does not support a finding that imposition of the section 6654(a) addition to tax herein "would be against equity and good conscience" within the meaning of section 6654(e)(3)(A).

Mr. Jeka properly sustained collection with respect to the addition to tax under section 6654(a).

Decision will be entered for respondent.

Reviewed by the Court.

COHEN, FOLEY, VASQUEZ, GALE, THORNTON, MARVEL, GOEKE, WHERRY, KROUPA, GUSTAFSON, PARIS, and MORRISON, JJ., agree with this opinion of the Court.

The fact that an employer may make "proper adjustments, with respect to both the tax and the amount to be deducted [from employee wages]" on an interest-free basis incentivizes employers to make voluntary corrections of employment tax returns reflecting underwithholdings.

The regulations under section 6205(a)(1) permit an employer to correct an underwithholding of income tax (on an interest-free basis) on a supplemental return filed as late as "the last day on which the return is required to be filed for the return period in which the error was acertained." Sec. 31.6205-1(c)(2)(i), Employment Tax Regs.⁷ Moreover, audit adjustments resulting from employment tax audits alleging income tax underwithholding may be paid, interest free, by the employer after the conclusion of the audit and appeals process, provided the payment is accompanied by a signed Form 2504, Agreement to Assessment and Collection of Additional 138 T.C. 228">*255 Tax and Acceptance of Overassessment, and is made before the employer receives a notice and demand for payment. Sec. 31.6205-1(a)(6)(i), Employment Tax Regs. (as amended in 2001); Rev. Rul. 2009-39, Situation 9, 2009-52 I.R.B. 951, 9562012 U.S. Tax Ct. LEXIS 11">*60 (obsoleting Rev. Rul. 75-464, Situation 2, 1975-2 C.B. 474, 475, to the same effect).

When the employer corrects an underwithholding of income tax and pays amounts pursuant to section 3403, the section 6205 regulations restrict the situations in which the employer is entitled to employee reimbursements. In general, an employer is permitted to collect income tax withholding shortfalls from its employees if it collects the underwithheld amount within the same calendar year as the underwithholding "by deducting such amount from remuneration of the employee, if any, under * * * [the employer's] control [whether or not the remuneration constitutes wages]." Sec. 31.6205-1(c)(4), Employment Tax Regs. Undercollections 2012 U.S. Tax Ct. LEXIS 11">*61 in a calendar year not so corrected are "a matter for settlement between the employee and the employer within such calendar year." Id. I interpret that last provision to cover situations in which the employer is unable to deduct the requisite amount from employee remuneration before yearend; e.g., because the employee is entitled to too little or to no additional remuneration from the employer before then. It is not clear whether "settlement" before yearend means actual payment before yearend by the employee or execution before yearend of a binding obligation to pay after yearend; e.g., where the employee has insufficient funds to pay by yearend. Moreover, it is not clear whether such a binding obligation must be in the form of a debt instrument either bearing arm's-length interest, or, if no (or too little) interest is provided for, governed by the interest imputation rules of section 7872. There is no need to opine on those issues because none of the circumstances described in section 31.6205-1(c)(4), Employment Tax Regs., is present in this case.^{82012 U.S. Tax Ct. LEXIS 11">*62}

Section 31(a)(1) provides to every employee a credit against the employee's income tax obligation with respect to his or her wages for "[t]he amount withheld as tax under chapter 24 [sections 3401-3406]". Section 1.31-1(a), Income Tax Regs., limits the credit to "[t]he tax deducted and withheld at the source upon wages under chapter 24 of the Internal Revenue Code". That regulation further 2012 U.S. Tax Ct. LEXIS 11">*63 provides: "If the tax has actually been withheld at the source, credit or refund shall be made to the recipient of the income even though such tax has not been paid over to the Government by the employer."

It is clear from that language that an employee's right to a section 31(a) credit for employer income tax withholding is dependent on a finding that the tax has "actually been withheld" by the employer. The requisite actual withholding would occur only if the employer (1) withholds the required amounts from its wage payments to the employee pursuant to section 3402 or (2) corrects its failure to withhold the required amount, pursuant to section 6205 and the regulations thereunder, and recoups (or "settles") from the employee its payment of the underwithholding during the calendar year in which the underwithholding occurred as permitted by section 31.6205-1(c)(4), Employment Tax Regs. Only under those circumstances, not present herein, is it reasonable to conclude that there has been actual withholding by the employer (i.e., "at the source"). Therefore, any assumed 2004 or 2005 payment of taxes that should have been withheld from the proceeds of petitioner's 1999 option exercises does 2012 U.S. Tax Ct. LEXIS 11">*64 not constitute an "amount withheld as tax under chapter 24" under section 31(a); likewise, it does not constitute "tax deducted and withheld at the source" as required by section 1.31-1(a), Income Tax Regs.⁹

Permitting an employee to automatically claim a section 31(a) credit for any employer payment of tax pursuant to 138 T.C. 228">*257 section 3403 would benefit equally employees who paid taxes on their wage income (whether or not withheld and reported on a Form W-2, Wage and Tax Statement) and employees, such as petitioner, who never paid taxes on that income, thereby unjustly enriching the latter. Moreover, such a result would open the door to unwarranted tax planning arrangements designed to frustrate the Commissioner's right to collect interest and additions to tax or 2012 U.S. Tax Ct. LEXIS 11">*65 penalties on late payments or underpayments of tax pursuant to sections 6601, 6651(a)(2), and 6654. For example, employees who have purposely underpaid their taxes on wage income and had their returns audited and been assessed significant deficiencies and interest (not unlike petitioner) would have the procedural ability to persuade their employers (or former employers) to voluntarily and retroactively pay those payroll taxes under the interest-free adjustment procedures of section 31.6205-1(c), Employment Tax Regs., by agreeing to reimburse the employer (or former employer) in full, thus enabling the employees to use the section 31(a) credit to effectively erase their liability for interest and, perhaps, additions to tax and penalties with respect to the deficiencies.^{102012 U.S. Tax Ct. LEXIS 11">*66} Where the employer has made a payment under section 3403 in a year after the year of underwithholding, the Commissioner should be permitted to collect the appropriate interest and additions to tax from the employee even though the Commissioner may be required to refund the tax amount to the employer pursuant to section 3402(d).

Petitioner's arguments to the contrary are not persuasive. His basic argument, that so-called constructive withholding satisfies the requirements of section 31(a) and that, under Whalen v. Commissioner, T.C. Memo 2009-37, VarTec's 2004 or 2005 payment of nonwithheld taxes in bankruptcy constituted a constructive withholding of those taxes flies in the face of the specific requirement in section 1.31-1(a), Income Tax Regs., that availability of the credit be limited to tax that "has actually been withheld at the source". It is also inconsistent with the U.S. Supreme Court's description of 138 T.C. 228">*258 withholding in Begier v. IRS, 496 U.S. 53">496 U.S. 53, 110 S. Ct. 2258">110 S. Ct. 2258, 110 L. Ed. 2d 46">110 L. Ed. 2d 46 (1990), which petitioner cites as supportive of his position. In Begier, a case in which a trustee in bankruptcy unsuccessfully disputed the defendant's right to retain the debtor's prepetition payments to it of 2012 U.S. Tax Ct. LEXIS 11">*67 withheld taxes, the Court stated, in pertinent part:

Section 3402(a)(1) requires that "every employer making payment of wages shall deduct and withhold upon such wages [the employee's federal income tax]." (Emphasis added.) Withholding thus occurs at the time of payment to the employee of his net wages. * * * The common meaning of "withholding" supports our interpretation. See Webster's Third New International Dictionary 2627 (1981) (defining "withholding" to mean "the act or procedure of deducting a tax payment from income at the source") (emphasis added). [Id. at 60-61.]

Assuming that Excel or VarTec paid all or a portion of petitioner's outstanding, self-assessed liability with respect to his income from the 1999 exercise, he would not be entitled to a credit under section 31(a)(1) for that payment, and we should say so.^{112012 U.S. Tax Ct. LEXIS 11">*68}

HOLMES, J., agrees with this concurring opinion.