Guterman v. Comm'r

T.C. Memo. 2008-283
UNITED STATES TAX COURT
NATALYA GUTERMAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5935-07. Filed December 17, 2008.
P and her husband jointly filed a 2004 Federal income
tax return in July 2007. R had already determined a
deficiency in P’s Federal income tax for 2004 as well as
additions to tax pursuant to secs. 6651(a)(1) and (2) and
6654(a), I.R.C.
Held: P is liable for the deficiency and all of the
additions to tax.
Natalya Guterman, pro se.
Brooke S. Laurie, for respondent.
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MEMORANDUM FINDINGS OF FACT AND OPINION
WHERRY, Judge: This case is before the Court on a petition
for redetermination of a deficiency in Federal income tax and
additions to tax that respondent determined for petitioner’s 2004
tax year. All issues related to the deficiency were stipulated
orally at trial and in a stipulation of settled issues filed at
the start of trial. In her brief, petitioner concedes that she
is liable for an addition to tax under section 6654(a)1 for
failing to make estimated tax payments. The issues remaining for
decision are whether petitioner is liable for additions to tax
under section 6651(a)(1) and (2).
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated
facts and accompanying exhibits are hereby incorporated by
reference into our findings.
Petitioner timely filed a Form 4868, Application for
Automatic Extension of Time To File U.S. Individual Income Tax
Return, for the 2004 tax year. Respondent granted an extension
until August 15, 2005. Thereafter, petitioner timely filed a
Form 2688, Application for Additional Extension of Time To File
1
All section references are to the Internal Revenue Code of
1986, as amended and in effect for the tax year at issue. The
Rule reference is to the Tax Court Rules of Practice and
Procedure.
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U.S. Individual Income Tax Return. Respondent granted an
additional extension until October 15, 2005.
Petitioner made a $25,000 tax payment on October 24, 2005,
but she did not file a return. On December 11, 2006, respondent
issued petitioner a notice of deficiency. Among other things,
respondent indicated that she was liable for a $2,598.52 addition
to tax under section 6651(a)(1) for failing to file a timely
return and a $1,039.41 addition to tax under section 6651(a)(2)
for failing to make timely tax payments.
Petitioner filed the petition in this case on March 12,
2007. She resided in California at that time. On July 31, 2007,
she submitted with her husband, Mikhail Guterman, a joint Form
1040, U.S. Individual Income Tax Return, for 2004. Although
respondent’s notice of deficiency had been based solely on
petitioner’s income and deductions, the joint return included her
husband’s income and deductions as well. Petitioner made
additional tax payments when she filed the return and thereafter.
After considering petitioner and her husband’s joint return,
respondent filed an amendment to answer on February 25, 2008,
asserting an increased total deficiency. Respondent also
indicated that the addition to tax under section 6651(a)(1)
should be increased to $14,606.55 and that the addition to tax
under section 6651(a)(2) should be increased “to an amount to be
computed based on the deficiency and the payments made by
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petitioner and petitioner’s husband.” A trial was held on March
17, 2008, in San Francisco, California.
OPINION
I. Burden of Production
Pursuant to section 7491(c), the Commissioner has the burden
of production with respect to a taxpayer’s liability for
additions to tax. To meet that burden, respondent must come
forward with sufficient evidence indicating that it is
appropriate to impose the relevant addition to tax. See Higbee
v. Commissioner, 116 T.C. 438, 446 (2001).
II. Section 6651(a)(1) Addition to Tax
Section 6651(a)(1) imposes an addition to tax for failure to
file a timely return. The amount of the addition is equal to 5
percent of the amount of tax required to be shown on the return
for every month or fraction thereof during which such failure
continues, up to a maximum of 25 percent. Id. When the
additions to tax under section 6651(a)(1) and (2) are both
applicable in the same month, the amount of the addition to tax
under section 6651(a)(1) is reduced to 4.5 percent, so that the
total addition to tax does not exceed 5 percent. Sec. 6651(c).
The section 6651(a)(1) addition to tax is not imposed if the
taxpayer proves that the failure to file a timely return is due
to reasonable cause and not willful neglect. Reasonable cause is
shown if the taxpayer “exercised ordinary business care and
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prudence and was nevertheless unable to file the return within
the prescribed time”. Sec. 301.6651-1(c)(1), Proced. & Admin.
Regs.
Respondent has met the burden of production with respect to
this addition to tax by providing a Form 4340, Certificate of
Assessments, Payments, and Other Specified Matters, reflecting
that petitioner did not file a return for 2004 until July 31,
2007--well beyond the due date. Petitioner concedes that she did
not file a timely return but argues that her failure to file was
due to reasonable cause, placing most of the blame on Richard Di
Bernardo, petitioner and her husband’s certified public
accountant (C.P.A.), who suffered from an illness and was unable
to complete the 2004 return in a timely manner. Citing United
States v. Boyle, 469 U.S. 241 (1985), petitioner acknowledges
that reliance on an agent does not constitute reasonable cause.
She asserts nevertheless that she did not merely rely on Mr. Di
Bernardo but, together with her husband, took affirmative steps
to ensure that the 2004 return was timely filed. That those
steps ultimately proved ineffective, petitioner states, was a
result of circumstances beyond her control.
The first of petitioner’s affirmative steps was to follow up
with Mr. Di Bernardo--by telephone, e-mail, and in person--about
the status of the anticipated joint return. Mr. Di Bernardo was
unresponsive, though, causing petitioner at one point to file a
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missing persons report with the police in an attempt to locate
him. Her second step was to attempt to work with another C.P.A.,
Robert Kaplan. Petitioner asserts that this proved difficult, if
not impossible, because her and her husband’s records were in Mr.
Di Bernardo’s possession, had been stolen, or were otherwise
unavailable.
Petitioner’s third step was to attempt to recreate the
necessary records by using bank and credit card statements and
hiring a bookkeeper to assist her. It is unclear how successful
these efforts were, but they were ultimately unnecessary because
at some point petitioner reestablished contact with Mr. Di
Bernardo, who completed the 2004 return over a period of months.
Petitioner’s fourth step was to assist Mr. Di Bernardo in
accelerating the completion of the joint return, including
letting him work out of her home so he would not have to commute.
Despite her assistance, Mr. Di Bernardo testified that his
illness caused him to be extremely unproductive. He stated that
he nevertheless encouraged petitioner and her husband not to
transfer their business to another C.P.A. because of the
experience he had preparing their returns.
The measures allegedly taken by petitioner appear at first
blush to have been the types of measures that an ordinarily
prudent person might have taken in those circumstances. But that
is not the end of the matter. Whenever a deadline is involved,
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timing becomes a critical factor. If petitioner did not act soon
enough, she cannot be said to have exercised ordinary business
care and prudence. See, e.g., Robinson’s Dairy, Inc. v.
Commissioner, 302 F.2d 42, 45 (10th Cir. 1962) (sustaining a
penalty under a predecessor to section 6651(a)(1) where the
taxpayer relied on an accountant even though the accountant was
suffering from a medical condition and was not filing the
taxpayer’s returns), affg. 35 T.C. 601 (1961). The time for
action with respect to section 6651(a)(1) is particularly brief
because the maximum addition to tax is imposed if a taxpayer
files a return more than 4 months after its due date. See
Missall v. Commissioner, T.C. Memo. 2008-258; Klein v.
Commissioner, T.C. Memo. 2007-325; see also sec. 6651(c).
There is no indication that petitioner did anything in the
time leading up to the October 15, 2005, filing deadline and in
the 4 months thereafter to ensure that the 2004 return was timely
filed. She appears to have simply waited for Mr. Di Bernardo,
which she acknowledges does not constitute reasonable cause. See
United States v. Boyle, supra at 251-252. Although she argues
that she took affirmative steps to ensure the filing of the 2004
return, her argument is unpersuasive. E-mails from her to Mr. Di
Bernardo in 2006 suggest that her affirmative steps occurred well
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beyond the period during which she could have acted to avoid an
addition to tax under section 6651(a)(1).2
Accordingly, petitioner has failed to show that her failure
to file was due to reasonable cause. We will therefore sustain
respondent’s determination that petitioner is liable for the
addition to tax under section 6651(a)(1).
III. Section 6651(a)(2) Addition to Tax
Section 6651(a)(2) imposes an addition to tax for failure to
timely pay the amount of tax shown on a return. The amount of
the addition is equal to 0.5 percent of the amount of tax shown
on the return for every month or fraction thereof during which
such failure continues, up to a maximum of 25 percent. Sec.
6651(a)(2), (c). “The Commissioner’s burden of production with
respect to the section 6651(a)(2) addition to tax requires that
the Commissioner introduce evidence that a return showing the
taxpayer’s tax liability was filed for the year in question.”
2
In a Mar. 27, 2006, e-mail, petitioner indicated that her
husband wanted to start working on the return with Mr. Di
Bernardo on Apr. 17, 2006. E-mails in September 2006 reminded
Mr. Di Bernardo that petitioner needed him to begin working on
her and her husband’s 2003 return and also informed him that she
had received a letter from the Internal Revenue Service
concerning estimated tax payment penalties related to her 2004
tax year. On Oct. 6, 2006, petitioner suggested that Mr. Di
Bernardo might start working on the 2003 and 2004 returns as
early as Oct. 9, 2006. Finally, in a Nov. 13, 2006, e-mail she
expressed frustration with Mr. Di Bernardo’s unresponsiveness and
threatened to hire another C.P.A. if he did not respond by Nov.
15, 2006.
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Wheeler v. Commissioner, 127 T.C. 200, 210 (2006), affd. 521
F.3d 1289 (10th Cir. 2008).
The section 6651(a)(2) addition to tax is not imposed if the
taxpayer proves that the failure to pay is due to reasonable
cause and not willful neglect. Reasonable cause for failing to
pay is shown if the taxpayer “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.” Sec. 301.6651-
1(c)(1), Proced. & Admin. Regs.
Respondent has met the burden of production with respect to
the section 6651(a)(2) addition to tax by presenting a Form 4340
reflecting that petitioner filed a return showing her tax
liability for 2004 and that petitioner did not timely pay the
amount of tax shown on that return.3 Petitioner does not dispute
this but argues that the failure to pay was due to reasonable
cause. Specifically, she asserts that she did not know how much
tax was owed at the time payment was due and believed that her
$25,000 payment on October 24, 2005, was sufficient to cover the
liability.
3
Although petitioner and her husband filed the 2004 joint
return after respondent issued the notice of deficiency for that
year, we will not disregard the return in this case. See Wolcott
v. Commissioner, T.C. Memo. 2007-315 n.6 (distinguishing Mendes
v. Commissioner, 121 T.C. 308, 324-325 (2003), under similar
circumstances).
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Petitioner’s argument is not persuasive. Petitioner did not
know how much tax was owed because she failed to complete the
return in a timely manner. As noted above, that failure was not
due to reasonable cause but rather to her own lack of diligence.
Petitioner’s lack of diligence in completing the return cannot
constitute reasonable cause for failing to timely pay the tax
due. In addition, petitioner has not alleged that she was unable
to pay the tax ultimately shown on her late-filed joint return or
that she would have suffered undue hardship if she had paid that
amount on the due date. Accordingly, we will sustain
respondent’s determination that petitioner is liable for the
section 6651(a)(2) addition to tax.
The Court has considered all of petitioner’s contentions,
arguments, requests, and statements. To the extent not discussed
herein, we conclude that they are meritless, moot, or irrelevant.
To reflect the foregoing,
Decision will be entered
under Rule 155.