121 T.C. No. 19 UNITED STATES TAX COURT FORTUNATO J. MENDES, Petitioner v .
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 16032-95. Filed December 11, 2003.
P has been continuously incarcerated since June 17, 1988. For P’s 1988 taxable year, R (1) determined a tax deficiency based upon amounts reported on information returns as having been paid to P during that year, (2) imposed the 10-percent additional tax under sec. 72(t)(1), I.R.C., and (3) determined that P was subject to additions to tax under secs. 6651(a)(1), 6653(a)(1), and 6654, I.R.C. More than 2 years after R issued the notice of deficiency, P filed a 1988 return in which he reported the income from the 1988 information returns and listed deductions and dependency exemptions, which, in total, exceeded the reported income, thereby resulting in a zero tax liability for 1988. P now denies (1) receipt of a portion of the income reported on his 1988 return and (2) liability for the 10-percent additional tax under sec. 72(t)(1), I.R.C. R denies that P is entitled to any of the claimed deductions and dependency exemptions.
1. Held
: R’s adjustments to income and disallowance of deductions and dependency exemptions claimed by P are sustained.
2. Held
, further , R’s imposition of the 10-percent additional tax under sec. 72(t)(1), I.R.C., is sustained. 3. Held , further , R’s imposition of additions to tax under secs. 6651(a)(1), 6653(a)(1), and 6654, I.R.C., are sustained. P’s 1988 return, filed more than 2 years after R’s issuance of the notice of deficiency, is disregarded for purposes of computing the “required annual payment” under sec. 6654(d)(1)(B)(i), I.R.C.
Fortunato J. Mendes, pro se.
Wilton A. Baker
, for respondent.
HALPERN, Judge
: By notice of deficiency dated May 3, 1995 (the notice), respondent determined a deficiency in and additions to petitioner’s Federal income tax for calendar year 1988 (sometimes, the audit year) as follows:
Additions to Tax
Deficiency
$8,487 $2,122 $424 $484 The adjustments giving rise to the deficiency are respondent’s inclusion in income of amounts reported on information returns as having been paid to petitioner during 1988 (sometimes, the income items), and his imposition of the 10-percent additional tax on early distributions from qualified retirement plans, offset by his allowance of the standard deduction and one personal exemption. In addition, respondent denies petitioner’s claim, raised at trial, to deductions, losses, and additional personal exemptions on a 1988 Form 1040, U.S. Individual Income Tax Return (the 1988 return), that petitioner filed on or about May 14, 1997, more than 2 years after the notice was issued.
The issues for decision are whether, for the audit year, petitioner: (1) must include in gross income $40,347, consisting of dividends, interest, capital gains, and a distribution from a retirement account; (2) is entitled to itemized deductions of $11,850; (3) sustained a deductible loss of $6,724 in connection with his law practice; (4) sustained deductible losses totaling $29,455 in connection with the management of certain rental real property; (5) is entitled to dependency exemptions for three children (the dependency exemptions); (6) is liable for the 10-percent additional tax on early distributions from qualified retirement plans under section 72(t); and (7) is liable for additions to tax under (A) section 6651(a)(1) for failure to timely file the 1988 return, (B) section 6653(a)(1) for negligence, and (C) section 6654 for failure to pay estimated income tax.
Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year at issue, and all Rule references are to the Tax Court Rules of Practice and Petitioner was a lawyer for 20 years. He was disbarred on October 23, 1991, as a result of his convictions.
Petitioner paid no taxes and filed no return for the audit year before the issuance of the notice. The additions to gross income set forth in the notice were reported on information returns (Forms 1099 or, in the case of Merrill Lynch Pierce Fenner & Smith, Inc. (Merrill Lynch), an equivalent tax reporting statement) as follows:
Payor
Classification
Amount
Merrill Lynch Short-term capital gain
1 $27,573 Bank of New York Short-term capital gain1 2,802 First Investors Tax Interest Total 40,3471 The $27,573 was reported by Merrill Lynch as “gross proceeds from dispositions of securities”. Although the information return from Bank of New York is not in evidence, we assume it does the same with respect to the $2,802. On the 1988 return, petitioner reported both amounts as short-term capital gain; i.e., he failed to report other than a zero basis for either the IBM stock sold by Merrill Lynch or the security sold by Bank of New York.
On or about May 14, 1997, more than 2 years after the notice was issued, petitioner filed the 1988 return. On Schedules B, for his filing status, married filing separately. In addition, respondent treated the $9,022 distribution from the National Bank of Washington as a premature distribution from a qualified retirement plan and imposed the 10-percent additional tax ($902) applicable to such distributions under section 72(t). Respondent also imposed additions to tax under sections 6651(a), 6653(a)(1), and 6654.
OPINION
I. Amounts Included in Gross Income
A. Identical Amounts Reported as Income by Petitioner
On the 1988 return, petitioner included in income all of the items that are contained in the notice’s adjustment for additional income. During the trial, however, petitioner stated that he was contesting all but one of the income items: the $138 of interest from Sovran Bank.
It has been held repeatedly that positions taken in a tax return signed by a taxpayer may be treated as admissions. See Waring v. Commissioner , 412 F.2d 800, 801 (3d Cir. 1969), affg.
, 62 T.C. 739, 750 (1974), affd. without published opinion 521 F.2d 1399 (3d Cir. 1975); Kaltreider v. Commissioner , 28 T.C. 121, 125-126 (1957), affd. 255 F.2d 833 (3d Cir. 1958). As we recently stated in Crigler v. Commissioner , T.C. Memo. 2003-93 (citing the foregoing authorities): “petitioner * * * cannot * * * disavow * * * 1988, together with the monthly statements for 1988 (all of which were placed in evidence during the trial) (the Merrill Lynch statements) constitute a copy of his 1988 account activity with Merrill Lynch. The monthly statement for June 1988 shows that, on June 17, 1988 (the date of petitioner’s arrest and incarceration), petitioner’s account was credited with $27,573 representing the proceeds from the sale of the IBM stock (the IBM sale proceeds). It further shows that, after the sale, on June 21, 1988, a check for $22,960 was written on the account and identified as a “withdrawal” from the account.
Whether or not Merrill Lynch sold the IBM stock at petitioner’s request, there is no dispute that the stock was in fact sold and that the IBM sale proceeds were credited to petitioner’s Merrill Lynch account.
Pursuant to section 61(a)(3), gross income includes “[g]ains derived from dealings in property”. Section 1.446-1(c)(1)(i), Income Tax Regs., requires that, “under the cash receipts and disbursements method in the computation of taxable income, all items which constitute gross income * * * are to be included for the taxable year in which actually or constructively received.” Section 1.451-2(a), Income Tax Regs., provides that income is constructively received by a taxpayer “in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time”. Pursuant to that regulation, the IBM sale proceeds were constructively received by petitioner on June 17, 1988, when they were credited to his Merrill Lynch account. Moreover, because petitioner has failed to offer any evidence as to his holding period for or basis in the IBM stock, the entire $27,573 is includable in petitioner’s 1988 income as short-term capital gain.
Petitioner’s primary argument for omitting the IBM sale proceeds from his 1988 gross income is that he never received the money. In essence, he alleges that the IBM sale proceeds were taken from his account by a Merrill Lynch employee. By alleging nonreceipt of the IBM sale proceeds, including the portion that may have been represented by the $22,960 “withdrawal” from his Merrill Lynch account, petitioner is, in effect, claiming a 1988 theft loss of the IBM sale proceeds rather than their noninclusion in income.
Thomas P. McDonnell, a Merrill Lynch employee for 22 years, who (at the time of the trial) was a Merrill Lynch vice president and administrative manager responsible for certain “back office” operations that occur in an office, testified that, pursuant to Merrill Lynch’s normal practice, the IBM stock would have been sold upon the placement of an order to sell (either by telephone or in writing) by the legal or beneficial owner of the stock; i.e., petitioner. Thereafter, the sale of the stock would have taxpayer must present evidence that reasonably leads the trier of fact to conclude that the property was stolen). In this case, petitioner has failed to establish even the reasonable likelihood that the IBM sale proceeds were stolen by a Merrill Lynch employee or, indeed, by anyone. His argument is premised solely on respondent’s inability to prove that the IBM sale proceeds were mailed to him or that someone at Merrill Lynch did not steal those proceeds. Respondent bears no such burden. Petitioner offers only his own testimony that he never received the IBM sale proceeds coupled with his sheer speculation that, because of what he perceives as Merrill Lynch’s inadequate internal procedures for verifying the transmission to and receipt of money by its customers, those sale proceeds must have been stolen. Such speculation does not convince us that the IBM sale proceeds were, in fact, stolen. Petitioner has offered no evidence that the Merrill Lynch procedures described by Mr. McDonnell for handling stock trades and the proceeds from those trades were not followed in connection with the 1988 sale of petitioner’s IBM stock. As a result, we conclude that petitioner has failed to carry his burden of proving that he sustained a 1988 theft loss within the meaning of section 165. Nor has he shown that any portion of the IBM sale proceeds is otherwise deductible for that year as a loss under that section.
D. Conclusion
We sustain respondent’s determination to include $40,347 in petitioner’s gross income for the audit year, and we hold that petitioner is not entitled to a deduction for loss of the IBM sale proceeds of $27,573 as an offset to that income inclusion. II. Schedule A Itemized Deductions We must decide whether petitioner is entitled to Schedule A itemized deductions for the audit year consisting of real estate taxes of $1,420 and “deductible points” (mortgage interest) of $10,430. The 1988 return indicates that those amounts relate to what was, before his incarceration, petitioner’s personal residence in Fairfax, Virginia.
Petitioner has failed to substantiate his payment, during
1988, of any real property taxes with respect to his personal residence; and, except for an undated, handwritten listing of mortgage payments due with respect to various properties, including his personal residence, and a computer printout which appears to list mortgage payments due on that residence for March, April, and May 1992, petitioner has failed to produce any receipts or other evidence to corroborate his return position that he made a 1988 payment of “deductible points”. Petitioner did not claim a deduction for mortgage interest on what he claims Commissioner , 339 F.2d 377, 380 (2d Cir. 1964), affg. T.C. Memo. 1964-2; Dreicer v. Commissioner , 78 T.C. 642, 645 (1982), affd.
without opinion 702 F.2d 1205 (D.C. Cir. 1983); Jasionowski v. Commissioner , 66 T.C. 312, 319 (1976); sec. 1.183-2(a), Income Tax Regs. Although a taxpayer’s expectation of profit need not be reasonable, there must be a good faith objective of making a profit. See Dreicer v. Commissioner , supra .
There is no evidence in the record that any of the properties listed in the 1988 return has ever generated a profit, or that petitioner expected that they would ever become profitable, either individually or as a group. To the contrary, petitioner, on brief, indicates that he never believed that his rental properties would become profitable. For example, in defense of his nonpayment of estimated taxes for the audit year, petitioner states in his opening brief:
Petitioner cannot be held liable for failing to file an estimated tax return because the Petitioner did not owe any taxes and has never owed any taxes to the Internal Revenue Service in the more than 50 years he has been filing income taxes. The deductions Petitioner has used for this tax year and all other tax years have always [been] in excess of the income he has earned and therefore Petitioner * * * had not [sic] duty to file any estimated income tax. [Emphasis added.]
Similarly, in his reply brief, petitioner states:
There was not [sic] need to pay estimated tax since I have never owed the IRS an estimated tax in 20 years of practicing law and renting properties.
The foregoing statements are tantamount to an admission that, regardless of the amount of (1) dividends, interest and/or capital gains attributable to his Merrill Lynch account and/or other sources and (2) profits from his law practice (for which petitioner did report a small profit for 1987), petitioner always anticipated that losses generated by his rental activities would be sufficient to offset such income, thereby resulting in no tax liability to petitioner. Moreover, for the audit year, the reported expenses attributable to petitioner’s rental properties were almost 250 percent greater than the reported rental income. That disparity between expense and income further supports the conclusion that petitioner operated his rental properties without a good faith objective of generating a profit. Therefore, we reject petitioner’s claim, raised at trial, to Schedule E losses. V. The Dependency Exemptions Section 151(a) and (c)(1) allows deductions for exemptions for dependents. In order to be entitled to dependency exemptions for three of his children, petitioner must show that each child meets the statutory definition of “dependent”, which, under section 152(a)(1), includes a son or daughter over half of whose support, for the taxable year, is provided by the taxpayer. Under section 151(c)(1)(B), each child must be either under 19 years of age or a student under 24 years of age, at yearend. Petitioner offered no evidence that the foregoing statutory requirements were satisfied for the audit year. Therefore, we reject petitioner’s claim, raised at trial, to deductions for three dependency exemptions.
VI. Respondent’s Section 72(t) Determination
Section 72(t) provides, in pertinent part, as follows: SEC. 72(t). 10-Percent Additional Tax on Early Distributions From Qualified Retirement Plans.--(1) Imposition of additional tax.--If any taxpayer receives any amount from a qualified retirement plan * * *, the taxpayer’s tax * * * for the taxable year in which such amount is received shall be increased by an amount equal to 10-percent of the portion of such amount which is includable in gross income.
Petitioner admits receipt of $9,022 from the National Bank of Washington during the audit year, and he further admits that the money was distributed from “a 401 or some type of retirement account”, indicating his acknowledgment that the distribution is subject to section 72(t)(1). Petitioner argues, however, that the $9,022 constituted a net distribution and that the bank withheld the 10-percent tax from the gross amount of the withdrawal. Petitioner further alleges that it is common practice for banks to collect the 10-percent additional tax on early distributions from qualified retirement plans. Once again, other than his self-serving testimony, petitioner has offered no evidence in support of his position, no bank statements or other evidence that would corroborate his assertion that the tax was withheld or that it is common practice cause. Petitioner points to a letter from his attorney dated June 14, 1990, in which she states that she is in the process of preparing returns for 1984, 1985, and 1987, and that, upon completion of those returns, she “will go back and finish 1983 * * *, 1986, 1988 and 1989.” Both petitioner’s attorney and the Internal Revenue Service (IRS) Philadelphia Service Center later confirmed that she never filed a 1988 return for petitioner. There is no record as to when petitioner might have given his attorney the records needed to prepare his 1988 return. The fact that, as of June 14, 1990, she had not even begun to prepare the return indicates that petitioner could not have believed in good faith that it would be timely filed by April 17, 1989. Moreover, even if we were able to find such good faith reliance by petitioner, it would not constitute “reasonable cause” for purposes of section 6651(a). “The failure to make a timely filing of a tax return is not excused by the taxpayer’s reliance on an agent, and such reliance is not ‘reasonable cause’ for a late filing under § 6651(a)(1).” United States v. Boyle , 469 U.S. 241, 252 (1985). Nor did the mere fact of petitioner’s incarceration at the time his 1988 return was due constitute reasonable cause for his failure to file the return. See Llorente v. Commissioner , 74 T.C. 260, 268-269 (1980), affd. in part and revd. in part on another issue 649 F.2d 152 (2d Cir. 1981). Therefore, we sustain respondent’s imposition of a 25-percent addition to tax under section 6651(a).
Section 6653(a)(1) imposes an addition to tax equal to 5 percent of the entire underpayment if any portion of such underpayment is due to negligence or intentional disregard of rules or regulations (without distinction, negligence). An underpayment, for purposes of section 6653(a), is the amount by which the tax liability exceeds the tax shown on a timely filed return. Secs. 6653(c)(1), 6211(a). Inasmuch as the 1988 return was not timely filed, the amount shown on a timely filed return is zero, and the underpayment equals the entire tax liability. Emmons v. Commissioner , 92 T.C. 342, 348-349 (1989), affd. on another issue 898 F.2d 50 (5th Cir. 1990). When an underpayment is caused by the taxpayer’s failure to timely file an income tax return, the underpayment is due to negligence if the taxpayer lacks reasonable cause for the failure. See id.
at 349-350.
Because we find that petitioner lacked reasonable cause for his failure to timely file the 1988 return, it follows, and we find, that his underpayment was due to negligence. Id.
Moreover, we reach the same result even if we view the issue to be whether petitioner had a reasonable basis for the underpayment itself. Section 6653(g) provides that any portion of an underpayment that is attributable to a taxpayer’s failure to report income shown on an information return shall be treated audit year (in this case, zero) was equal to 25 percent of the lesser of (1) 90 percent of the tax shown on his return for that year or, alternatively, (2) 100 percent of the tax shown on his return for the prior year, 1987.
The 1988 return, filed on or about May 14, 1997, shows a zero tax liability for that year. If the 1988 return constitutes a valid return for purposes of section 6654(d)(1)(B)(i), there can be no underpayment of a required installment of estimated tax since there are no required installments due when there is no tax liability shown on the return as filed; i.e., 25 percent of zero equals zero.
We have repeatedly held that a taxpayer’s estimated tax liability is based upon the taxpayer’s tax liability as stated on the original tax return as filed, and not upon the notice of deficiency amount or the ultimate tax liability (here, one and the same and referred to, for convenience, as the ultimate tax liability). See Gleason v. Commissioner , T.C. Memo. 1990-110;
Warda v. Commissioner
, T.C. Memo. 1988-572; Sampson v.
Commissioner
, T.C. Memo. 1986-231; see also Weir v. Commissioner , T.C. Memo. 2001-184. Moreover, the sufficiency of estimated tax payments has been determined with respect to the tax liability shown on the taxpayer’s return for the preceding taxable year pursuant to section 6654(d)(1)(B)(ii), rather than with respect preceding-year-return safe harbor as follows:
This objective of the safe harbor provision -- to provide a predictable escape from any possible penalty liability -- would be defeated if penalties for underpayment of estimated taxes during the year were based, not on the easily determinable amount reflected on the preceding year’s return, but instead upon the ultimate tax liability, possibly determined by adverse tax audit, a year or so after the tax year for * * * which the estimated tax installments were paid. * * * [ Id.
at 204.]
“Safe harbor” also is an apt description of the identical preceding-year-return rule applicable to individuals, sec. 6654(d)(1)(B)(ii), and it is an apt description of the rule, applicable to both corporations and individuals, limiting the required annual payment of estimated tax to the tax shown on the return (if one is filed) for the taxable year in question, secs. 6654(d)(1)(B)(i) and 6655(d)(1)(B)(i).
Our decision is consistent with the “objective of the safe harbor provision” referred to by the Court of Appeals in Evans Cooperage . Petitioner’s failure to file a return prior to respondent’s issuance of the notice presents us with a situation that is the exact opposite of that referred to in Evans Cooperage , where the filing of returns preceded the audit. Here, upon issuance of the notice, it is the tax liability determined by respondent that is the “easily determinable amount” and it is the return amount that is “possibly determined” in some later year. In effect, petitioner, by not filing the 1988 return prior to issuance of the notice, has waived his right to the Obviously, the “return” referred to in that definition must be a 4. Conclusion We sustain respondent’s determination under section 6654. Decision will be entered for respondent .
Reviewed by the Court.
WELLS, COHEN, GERBER, CHIECHI, GALE, THORNTON, HAINES, GOEKE, WHERRY, KROUPA, and HOLMES, JJ ., agree with this majority opinion.
SWIFT, J
., concurs.
The document filed by petitioner contains sufficient data to calculate a tax liability, purports to be a return, and is signed under the penalty of perjury. The issue is whether it is an honest and reasonable attempt to satisfy the requirements of the tax law.
In deciding whether the document filed is an “honest and reasonable attempt to satisfy the requirements of the tax law”, courts have analyzed whether the return filed can still serve a Petitioner made no estimated tax payments for 1988. There is no record that petitioner filed a return for 1987. Petitioner has not shown that he falls within any of the exceptions to the 6654(a) addition to tax. See sec. 6654(e); Grosshandler v. Commissioner , 75 T.C. 1, 20-21 (1980). For these aforementioned reasons, respondent’s additions to tax under section 6654(a) should be sustained.
We have even relied on Beard in determining whether a return was filed and the taxpayers were liable for the addition to tax under section 6654 where the document purporting to be a return was filed before the notice of deficiency was issued. See, e.g., Turco v. Commissioner , T.C. Memo. 1997-564; Morgan v.
Commissioner
, T.C. Memo. 1987-184, affd. without published opinion 869 F.2d 1495 (7th Cir. 1989). However, the Beard test has not been applied in some circumstances where the statutory scheme directs a different inquiry. Cabirac v. Commissioner , 120 T.C. 163, 170 (2003) (a return prepared by the Secretary under section 6020(b) treated as a return filed by the taxpayer for purposes of determining the addition to tax under section 6651(a)(2)); Spurlock v. Commissioner , T.C. Memo. 2003-124 (same); Janpol v. Commissioner , 102 T.C. 499, 501-502 (1994)
( Beard does not apply in determining period of limitations for purposes of the tax imposed by section 4975 because section 6501(l)(1) specifically references a return that does not require all the information mandated under Beard ), supplementing 101 T.C.
518 (1993); see also sec. 6103(b) (definition of return for purposes of confidentiality and disclosure of returns and return information).
As explained by the majority, the statutory scheme mandates that a document filed after a notice of deficiency has been issued is not a return for purposes of section 6654. In future cases where the statutory scheme does not provide the appropriate inquiry to be used to determine whether a return was filed, we should continue to adhere to our well-established practice of applying the Beard test to answer the question.
WHERRY and KROUPA, JJ
., agree with this concurring opinion.
FOLEY, J
., dissenting: Petitioner’s valid return, which should be the basis for calculating the section 6654 penalty, is disregarded by the majority and “not [considered] * * * to be a ‘return’ for purposes of section 6654(d)(1)(B)(i).” Majority op. p. 27. There is no authority for the majority’s holding, and it is contrary to the unambiguous terms of the statute. Section 6654 provides for an addition to tax if the taxpayer fails to make the “required annual payment”. Sec. 6654(a) and (b). The “required annual payment” is:
the lesser of (i) 90 percent of the tax shown on the return for the taxable year (or, if no return is filed, 90 percent of the tax for such year), or (ii) 100 percent of the tax shown on the return of the individual for the preceding taxable year. [Sec.
6654(d)(1)(B)(i) and (ii); emphasis added.]
The majority recognizes that these are “mechanical rules”, yet, presumably acknowledging that the terms of the statute are satisfied, states that “the issue [is] * * * whether petitioner may rely on having satisfied the requirement of section 6654(d)(1)(A) and (B)”. Majority op. p. 25. The statute is unambiguous, and the taxpayer may certainly “rely” on having met its terms. The statute does not refer to a return filed prior to an Internal Revenue Service audit or a return filed prior to the issuance of a notice of deficiency. A valid return will suffice-–without regard to when it is filed.
We need not, however, adhere to a literal application of a statute if such adherence produces an outcome that is “demonstrably at odds” with clearly expressed congressional intent to the contrary, Griffin v. Oceanic Contractors, Inc. , 458 U.S. 564, 571 (1982), Peaden v. Commissioner , 113 T.C. 116, 122 (1999), or results in an outcome so absurd “as to shock the general moral or common sense”, Tele-Communications, Inc. v. Commissioner , 95 T.C. 495, 507 (1990). The majority does not set forth a convincing case that either of these exceptions to the plain language doctrine are applicable. Instead, the majority disregards petitioner’s valid return “to avoid a conflict and interpret sections 6213, 6654 and 6665 in a way that makes sense.” Majority op. pp. 33-34. The purported conflict (i.e., regarding respondent’s ability to assess the penalty while we have jurisdiction) has already been addressed and resolved by Powerstein v. Commissioner , 99 T.C. 466, 472-473 (1992). In Powerstein , the taxpayers filed amended returns subsequent to filing their petition, and we held that after we obtain jurisdiction respondent may be enjoined, pursuant to section 6213(a), from making an assessment. See Naftel v. Commissioner , 85 T.C. 527, 529-530 (1985) (stating that after we obtain jurisdiction we do not lose it).
The majority provides that Schwarzkopf v. Commissioner
, 246 F.2d 731 (3d Cir. 1957), and Rev. Rul. 2003-23, 2003-8 I.R.B. 511, do not “address circumstances in which the taxpayer’s original return was filed after a notice of deficiency had been issued.” Majority op. p. 27. I agree. These authorities, however, support the proposition that we should follow the statute and let the chips fall where they may. Schwarzkopf v. Commissioner , supra at 734-735 (stating that a taxpayer may rely on the tax shown on a return from the preceding year even when the return is held to have fraudulently understated income); Rev. Rul. 2003-23, 2003-8 I.R.B. 511 (stating that a taxpayer may rely on the tax shown on an untimely return for purposes of determining estimated tax payments).
In a further attempt to justify its holding, the majority expresses concern that taxpayers “would be able to negate the addition to tax simply by filing a return for that year that showed a tax liability less than the quarterly estimated payments actually made or, if none had been made, that showed a zero tax liability.” Majority op. p. 28. As Judge Vasquez’s concurring opinion emphasizes, long-standing precedent authorizes us to find that a return is invalid if the taxpayer does not make an honest and reasonable attempt to satisfy the requirements of the tax law. Zellerbach Paper Co. v. Helvering , 293 U.S. 172, 180 (1934); Florsheim Bros. Drygoods Co. v. United States , 280 U.S.
453, 462 (1930); Beard v. Commissioner , 82 T.C. 766, 777 (1984), affd. 793 F.2d 139 (6th Cir. 1986). Thus, if the majority found that petitioner’s return was filed with the intent to avoid the estimated tax penalty, it could conclude that the return is invalid. Yet, the majority does not make such a finding. Undeterred by an unambiguous statute and a valid return, and citing Evans Cooperage Co. v. United States , 712 F.2d 199, 204 (5th Cir. 1983), a readily distinguishable case, the majority summarily reasons that its “decision is consistent with the ‘objective of the safe harbor provision’”. Majority op. p. 29. In Evans Cooperage , the taxpayer contended that the calculation of the estimated tax penalty should be based on its amended return, rather than its timely filed original return. The court held that the phrase “return of the corporation for the preceding taxable year”, in section 6655(d)(1), refers to the timely filed return for that year and not any subsequently filed amended return. Id.
at 204. We are not faced, however, with a question of which return should be taken into account because petitioner did not file an amended return. We simply must determine whether to accept or disregard petitioner’s valid return.
The majority acknowledges that petitioner’s case is the
“ exact opposite of that referred to in Evans Cooperage ”.
Majority op. p. 29 (emphasis added). I agree. In Evans
Cooperage
, the court required the taxpayer to use its original return to calculate the penalty. The majority, on the other hand, states that petitioner “waived his right” relating to the only return he filed and is prohibited from using such return to calculate the penalty. Majority op. p. 29.
If Evans Cooperage is to be cited for anything, it should be cited for the proposition that the Court is obligated to follow the statute. Indeed, in response to one of petitioner’s contentions, the court stated:
It may be inequitable * * * to assess a penalty for underpayment of estimated tax, that is based upon the originally mistaken figure of income for the year, rather than upon the actual income for the year as ultimately determined. However, Congress unambiguously has provided otherwise, and the provision, if indeed inequitable, is for Congress to amend, not the courts .
[ Evans Cooperage Co. v. United States , supra at 205;
fn. ref. omitted and emphasis added.]
Similarly, we are required to follow statutory mandates and address, rather, than “disregard”, salient facts. If there is a perceived problem with the statute, Congress must address the matter.
LARO and MARVEL, JJ
., agree with this dissenting opinion.