BUSINESS, DEPENDENCY EXEMPTION DEDUCTIONS, AND CREDITS DENIED; ADDITIONS TO TAX UPHELD.

Christian A. Speck, for respondent.

                                          Additions to Tax

In 2004 Wolfgram and her husband (the Wolfgrams) decided to pursue their dream of building a bed-and-breakfast inn. At some point in the year the Wolfgrams sold their old house for $422,000 and used the money to buy a picturesque piece of land in Michigan Bluff, California. They rented a mobile home to serve as both their office and living quarters, placing the mobile home on the Michigan Bluff site. They completed construction of the new house in 2007 and now live in it. As we recount later in this opinion, after the petitions in these cases were filed the Wolfgrams jointly submitted late tax returns for tax years 2004 and 2005 in which they claimed business expense deductions related to the construction of the new house.

During 2004 and 2005 Wolfgram commuted daily from the mobile home in Michigan Bluff to her day job in Rancho Cordova, California, where she worked for an entity called Alpha Fund Joint Powers Agency. It is unclear how much time she spent building the new house. Most of the work related to the house was done by Wolfgram's husband.

It is also unclear whether the Wolfgrams had originally intended to sell the house or to operate it as a bed-and breakfast inn. On cross-examination, Wolfgram equivocated:

Although the structure could be used as a single-occupancy family residence, as is evidenced by the fact that the Wolfgrams live alone in the house, Wolfgram's husband testified credibly that the layout and design of the structure were those of an inn, rather than those of a residence. All doorways were built 36 inches wide to make the premises wheelchair accessible. There was a separate unit with a kitchenette.

The Wolfgrams claimed deductions on their returns for "car and truck expenses" related to the house. The returns stated that these expenses related to only one vehicle. Wolfgram's husband initially testified that the expenses were related to Wolfgram's 104-mile round-trip commute in her car from the mobile home in Michigan Bluff to her job as a workman's compensation administrator in Rancho Cordova. But on cross-examination he said that some of the expenses were related to a truck he used "almost entirely for business in terms of running around to get licenses, * * * to get a lot of permits, visit the county whole lot of times. [sic]" We find that Wolfgram's husband owned a truck and used it in the construction of the new house. We have no way of determining how much the truck was used in the construction of the new house as opposed to other uses. We find that Wolfgram owned a car and used it to commute from the mobile home to her place of employment. We are unable to estimate whether the mileage figures listed on the joint returns were allocable to the car versus the truck.

The Wolfgrams claimed deductions on their returns for "contract labor" expenses related to the house. Wolfgram's husband testified credibly that the contract labor expense of $2,600 that the couple deducted for 2004 was a payment to an architect to design the new house. He could not recall the name of the company but claimed to have an invoice for its services and the original design plans on his computer in his car near the courthouse. Wolfgram's husband did not produce these items. He did not explain the $2,500 contract labor expense claimed as a deduction in 2005. We find that the Wolfgrams spent $2,600 in 2004 to pay an architect to design the new house. We have no basis to find any other fact regarding the claimed expenses for contract labor.

The Wolfgrams claimed deductions for the rent expense related to the house. Wolfgram's husband testified that the rent expense which the Wolfgrams claimed ($3,420 for each year) was for "storage for things we brought up from the old house". But at another point, he stated that the rent expense was in part (or entirely) allocable to the cost of renting the mobile home: "Well, the rent for the motor -- there was a rent for the motor home that I forget the exact amount, but that's what is reflected here as a 3420 is the rent or leasing of the motor home." We find that some of the $3,420 claimed on the return for each year corresponded to rent for the mobile home that the Wolfgrams lived in during construction.

The Wolfgrams claimed a deduction for $300 in "repairs and maintenance" expenses related to the house. Wolfgram's husband testified that the $300 repairs-and-maintenance expense was for "wind damage to the motor home that winter." We find that this is true.

The Wolfgrams deducted utility expenses related to the house. The $600 utility expense deducted for 2004 was for "the price that the electric and power company charged for the temporary hookup in order to provide with water and with tool power necessary to do the building." The $1,000 utility expense deducted for 2005 was for electricity used for:

Wolfgram's husband testified that he forbade his wife to file a timely tax return:

Wolfgram received the following payments in 2004:

• $52,265 of wages from her employer, Alpha Fund Joint Powers Agency

• $489 of interest "income", and

• An $812 refund of a prior year's State income tax payment, a payment that she had deducted on the prior year's Federal income-tax return.

• $47,907 of wages from the same employer, Alpha Fund Joint Powers Agency, and

• $742 of interest "income".

Wolfgram timely petitioned the Court on December 3, 2007, for the 2005 tax year (docket No. 27688-07) and December 14, 2007, for the 2004 tax year (docket No. 28919-07).³ Wolfgram's husband also signed both petitions, but on February 22, 2008, the Court dismissed him from both cases for lack of jurisdiction. Only after Wolfgram received the deficiency notices did Wolfgram and her husband file joint returns for 2004 and 2005.⁴ The 2004 return was received by the IRS on April 8, 2008; the 2005 return was received on some day in February 2008. Both returns bore the date February 17, 2008. In the returns, Wolfgram and her husband included all of the previously unreported items of income mentioned above. Attached to each return was a Schedule C, Profit or Loss From Business, for a legal writing and research business operated by Wolfgram's husband. For this business the schedules reported net business income of $336.25 for 2004 and $42.75 for 2005. The IRS does not challenge the amounts on these schedules. Also attached to each return was a Schedule C for "Developing Real Estate for Bed + Breakfast." The schedules, which reported no income, listed the expenses as follows:

 Schedule C Expense Category                       2004       2005

A trial was held in San Francisco on November 17, 2008.

The IRS's answering brief begins with several concessions of determinations made in the notices of deficiency. It concedes that

• the amount of the capital gain received from the sale of the Wolfgrams' home in 2004 was excludable from income under section 121.

• Wolfgram should be permitted to elect joint filing status, and

• the estimated-tax penalty for the 2004 tax year and the failure-to-pay penalties for both the 2004 and 2005 tax years should not be imposed.

The IRS notes that Wolfgram stipulated that she received payments in the amounts stated supra pp. 8-9, including (1) wages for both years at issue, (2) interest for both tax years at issue, and (3) the 2004 State income tax refund. It contends that Wolfgram failed to prove that the Schedule C expenses she allegedly incurred were not personal expenses under section 262 and that she failed to provide any records to substantiate that she incurred the expenses. It notes in particular that Wolfgram failed to document her car and truck expenses as required under section 274(d). In addition, the IRS asserts that any expenses incurred in connection with a bed-and-breakfast activity were capital expenses under section 263(a)(1) or startup expenses under section 195(a) and thus are not currently deductible. The IRS argues that Wolfgram is not entitled to her claimed dependent exemptions for her children and Hope Scholarship and Lifetime Learning Credits for each year because she failed to provide evidence to support her entitlement to them.

The IRS maintains that it has met its burden of producing evidence that Wolfgram is liable for the late-filing penalty for both 2004 and 2005 and the estimated tax penalty for 2005. It denies that her husband's threat to leave her was a reasonable cause for her failure to file the tax returns on time. The IRS observes that Wolfgram was not "trapped" in her house, that she commuted over 100 miles to work every day, and that she paid her other bills on time. It claims that she could have driven to the post office to deposit a separate return in the mail.

In her reply brief, Wolfgram discusses the purpose of constructing the new house, but she equivocates. She states that the house "was not intended to be a 'personal residence' but after completed, a business structure which the law requires that Petitioners also live in * * * An operating bed and breakfast." But later she states that "while it is true that Petitioner did not bring the bed and breakfast into operation in 2004 or 2005, that fact is irrelevant because the Schedule Cs did not purport to be generated or supported by that business but rather by the land development business."

She argues that it does not matter that she has no documents to substantiate her expenses because the IRS failed to adequately discuss the business expense deductions with her before trial. Furthermore, she claims that section 162 does not require that she demonstrate how much of the mobile home rent was allocable to a bed-and-breakfast business as opposed to the couple's personal expenses. She suggests that the entire rental expense is deductible because it was necessary to live on site for the business venture to be successful.

Addressing the late-filing penalty, Wolfgram acknowledged that she

A. Deductions Claimed for the Cost of Constructing the House

As noted above, the Wolfgrams deducted expenses on their 2004 and 2005 Schedule Cs that they claim were related to the building of a bed-and-breakfast inn. Because some of these expenses were indeed related to building a house that was designed, in part, to be operated as a bed-and-breakfast inn, a threshold issue is whether the Wolfgrams' involvement in building the house constitutes the carrying on of a business. As we explain below in part II.A.1, we hold that it does not. Then, in part II.A.2.a through i, we discuss each line item of the 2004 and 2005 Schedule Cs and explain additional reasons why Wolfgram is not entitled to her Schedule C deductions.

In considering whether the Wolfgrams' involvement with the alleged bed-and-breakfast inn was sufficiently continuous and regular, it does not matter whether the Wolfgrams intended to sell the house or operate it as a bed-and-breakfast inn. If they intended to operate it as a bed-and-breakfast inn, no such operation ever began because the Wolfgrams never had a customer. Nor is there any evidence of any sales efforts that could have led to customers. See Charlton v. Commissioner, 114 T.C. 333, 338 (2000) (expenses incurred before cabin rental activity became an active trade or business were not deductible); Goodwin v. Commissioner, 75 T.C. 424, 433 (1980) (expenses incurred before the commencement of business operations are not deductible under section 162(a)), affd. without published opinion 691 F.2d 490 (3d Cir. 1982); Frank v. Commissioner, 20 T.C. 511, 513 (1953) ("The petitioners were not engaged in any trade or business at the time the expenses were incurred. * * * [The expenses] were not related to the conduct of the business that they were then engaged in but were preparatory".). If the Wolfgrams intended to sell the house, the construction and sale of a single bed-and-breakfast inn did not constitute continuous and regular activity; it was a "one-time job". Batok v. Commissioner, T.C. Memo. 1992-727; see also Kling v. Commissioner, T.C. Memo. 2001-78 (no trade or business found when taxpayer sold sports memorabilia only sporadically). The Wolfgrams have not started building any other structures in the substantial time that has elapsed since the completion of the one at issue here, although they claimed at trial that they were "in the process of * * * examining other lands that can be built on or rebuilt." They did not provide evidence that they ever attempted to sell the new house to a bed-and-breakfast operator. Thus, they were not carrying on a trade or business during the years at issue because they did not show they were engaged in an activity with regularity and continuity. See Sloan v. Commissioner, T.C. Memo. 1988-294, affd. without published opinion 896 F.2d 547 (4th Cir. 1990).

Under Commissioner v. Groetzinger, supra at 35, "the taxpayer's primary purpose for engaging in the activity must be for income or profit." The taxpayer must have "entered into the activity, or continued the activity, with the actual and honest objective of making a profit." Dreicer v. Commissioner, 78 T.C. 642, 644-645 (1982), affd. without published opinion 702 F.2d 1205 (D.C. Cir. 1983); sec. 1.183-2(a), Income Tax Regs. And the taxpayer must prove that profit was the dominant or primary objective of his or her venture. Mattfeld v. Commissioner, 73 15 73 AFTR 2d 94-1167 (9th Cir. 1994) (citing Polakof v. Commissioner, 820 F.2d 321, 323 n.2 (9th Cir. 1987), affg. T.C. Memo. 1985-197), affg. T.C. Memo. 1992-273. Wolfgram did not prove that earning a profit was the primary purpose of building the house. The testimony is equivocal as to the exact purpose of the venture -- operating a bed-and-breakfast inn or selling a bed-and-breakfast inn. As Wolfgram has the burden of proof, we conclude that she intended to operate the inn, not to sell it. We do not know how much of the inn was to be allocated to rent-paying tenants. Therefore, we cannot say that Wolfgram's primary motive in operating the inn was to turn a profit, as opposed to providing an abode for herself and her husband. See Rule 142(a); Welch v. Helvering, 290 U.S. at 115.

Even if the Wolfgrams were carrying on a trade or business, the amounts incurred to construct the house would not be fully deductible in the year they were incurred. Section 263 requires capitalization of "Any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate." Sec. 263(a)(1). The regulations list examples of capital expenditures, one of which is the "cost of acquisition, construction, or erection of buildings". Sec. 1.263(a)-2(a), Income Tax Regs. The statute thus prohibits full deductions of construction costs for the same tax year as the year in which they were incurred.⁶

The Code and the regulations do not expressly say what the remedy is if the taxpayer has no records proving the exact amount of an expense. The caselaw provides guidance. If a taxpayer establishes that he or she paid or incurred a deductible expense but does not establish the amount of the expense, under Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930), a court may approximate the amount of the allowable deduction, "bearing heavily if * * * [the court] chooses against the taxpayer whose inexactitude is of his [or her] own making." For the rule in Cohan to apply, there must be sufficient evidence in the trial record to provide a rational basis for the estimate; otherwise, the claimed deduction must be disallowed. Polyak v. Commissioner, 94 T.C. 337, 345 (1990); Vanicek v. Commissioner, 85 T.C. 731, 743 (1985); Profl. Servs. v. Commissioner, 79 T.C. 888, 919-920 (1982); Luman v. Commissioner, 79 T.C. 846, 859 (1982); Epp v. Commissioner, 78 T.C. 801, 807 (1982). We discuss whether Wolfgram has met her burden of proving that the couple incurred each expense deducted on the bed-and-breakfast Schedule Cs for 2004 and 2005 in parts a through i below.

To the extent that Wolfgram seeks to deduct the expense of operating her car, the expense is not deductible. The regulations under section 262 state that "The taxpayer's costs of commuting to his place of business or employment are personal expenses and do not qualify as deductible expenses."⁸ Sec. 1.262-1(b)(5), Income Tax Regs. Thus, the cost of Wolfgram's commute to and from her full-time job is not deductible.

But even if the deducted miles were for Wolfgram's husband's truck, the mileage expense would not be allowable. Section 274(d) disallows any deduction with respect to "listed property" unless the taxpayer adequately substantiates: (1) The amount of the expense, (2) the time and place of the travel or the use of the property, (3) the business purpose of the expense, and (4) the business relationship of the persons using the property. A passenger vehicle and "any other property used as a means of transportation" are "listed property". Sec. 280F(d)(4)(A)(i) and (ii). Testimony alone, without corroborative evidence, does not satisfy the requirements of section 274(d), and thus the Cohan rule is inapplicable. Sec. 274(d); United Title Ins. Co. v. Commissioner, T.C. Memo. 1988-38. Wolfgram's husband's testimony that he used the truck in the construction effort is not sufficient on its own to satisfy the strict substantiation requirement without a travel log. Furthermore, even if some of the miles driven in the truck were related to the house, we have found that the construction of the house does not constitute a business under section 162(a) and that a profit motive was not the dominant purpose of the venture.

The deduction for contract labor is not allowable for at least two reasons. First, we find that the Wolfgrams did not expend any money for "contract labor" in 2005, on account of the void in the trial record regarding the expense for this year. Second, even to the extent that the Wolfgrams spent the money to construct the new house, this activity does not qualify as the "carrying on" of a business under section 162(a).

The utility expenses are not deductible. First, we have no way of estimating the amounts of the expenses attributable to the mobile home because the Wolfgrams did not maintain separate accounts and because they provided us with no documents. The testimony of Wolfgram's husband was too vague for us to believe that the entire amount for each year was attributable to the mobile home. Even if we could make an estimate, the amounts attributable to the mobile home are not deductible for the same reasons that the rental expense of the mobile home is not deductible; i.e., no conduct of a business and no exclusive use. See sec. 280A(c)(1). Second, any amounts attributable to construction are not deductible because the Wolfgrams were not carrying on a business during the tax years at issue.

B. Various Exemptions and Credits

Wolfgram claimed dependency exemptions for two sons on the 2004 joint return and for one son on the 2005 joint return. Section 151(c) (as in effect during the tax years at issue) permits an exemption for each of a taxpayer's children who is younger than 19, or younger than 24 if a student. The Wolfgrams did not testify how old their children were, where they lived, who supported them, or even if they had children at all. Under these circumstances, Wolfgram is not entitled to any dependency exemptions.¹¹

Wolfgram also claimed a $680 Lifetime Learning Credit for 2004 and a $828 Hope Scholarship Credit for 2005 on behalf of one of her sons. See sec. 25A. Wolfgram did not submit any documents to this Court that substantiate the claims for these educational credits, nor did either of the Wolfgrams provide any testimony on the issue.¹² Although Cohan allows us to estimate the amounts of deductions if the taxpayer proves that some deductible expenses were incurred and if there is a reasonable basis for estimating the amounts, these two conditions are not satisfied here.

A. Section 6651(a)(1) Failure-To-File Addition to Tax

The IRS determined that Wolfgram was liable for the section 6651(a)(1) late-filing addition to tax for the tax years 2004 and 2005. Section 6651(a)(1) imposes an addition to tax for failing to file a return by the filing deadline (determined by taking into account any extensions), unless such failure is due to reasonable cause and not due to willful neglect. The late-filing addition to tax is 5 percent of the net amount of tax due on the date prescribed for payment for each month such failure continues, for up to 5 months. Sec. 6651(a)(1, (b)(1).

Wolfgram stipulated that she and her husband submitted joint returns for 2004 and 2005 that the IRS received in early 2008, several years after the returns were due. The stipulation satisfies the IRS's burden of producing evidence that the late-filing addition to tax should be imposed for each of the tax years at issue.

Section 6651(a)(1) provides that the late-filing addition to tax shall not be imposed if "it is shown that such failure [to file] is due to reasonable cause and not due to willful neglect". Reasonable cause is demonstrated if the taxpayer "exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time". Sec. 301.66511(c)(1), Proced. & Admin. Regs. Willful neglect involves a "conscious, intentional failure or reckless indifference." United States v. Boyle, 469 U.S. 241, 245 (1985). Wolfgram claims in her brief that she had reasonable cause for her failure to file timely returns because her husband threatened to leave her and this would cause her financial injury. She also claimed that her husband promised to file a return but told her they did not need to do so because "there was no tax due and no penalty for failure to file where no tax was due."

Wolfgram has not cited any case that has considered whether spousal threats can constitute reasonable cause for failing to file a return. Even if we were to accept that Wolfgram's husband threatened to leave her, she did not prove her contention that the threat was financially significant. As far as we know, Wolfgram's husband did not earn any money during the years at issue. Wolfgram submitted no evidence that he owned any substantial assets. Therefore, we do not know why her husband's threat was significant enough to bend Wolfgram's will to her husband's directive that she not file a return. And without her testimony about the effect of his threat, we are unconvinced that she was unable to resist his demands.¹³

Wolfgram also claimed that she relied on her husband's assurances (1) that he would file a return, and (2) that the couple owed no tax anyway and would not be penalized. His first assurance does not constitute reasonable cause. Wolfgram had an obligation to monitor her husband's compliance with the filing deadline and ensure he followed through. See United States v. Boyle, supra at 252 ("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").

Wolfgram was not reasonable in relying on her husband's second assurance that the couple would not be penalized for failing to file. Section 6012(a)(1)(A) generally requires a taxpayer to file a return if his or her gross income exceeds the applicable exemption amount. Neither the Code nor the caselaw excepts from this filing requirement a taxpayer who has deductions or credits sufficient to eliminate the tax liability that would otherwise be due. Thus, Wolfgram's husband's advice that the couple need not file a return was incorrect. The regulations state that "Reliance on * * * professional advice * * * constitutes reasonable cause and good faith if, under all the circumstances, such reliance was reasonable and the taxpayer acted in good faith." Sec. 1.6664-4(b)(1), Income Tax Regs. Wolfgram did not consult a tax professional; thus, she cannot claim reliance on professional advice. See Huang v. Commissioner, T.C. Memo. 1997-257 (taxpayers had no reasonable cause for avoiding negligence penalty when taxpayers failed to consult a tax professional to verify the disallowed claims made on their return). We find that Wolfgram had no reasonable cause for failing to file her tax returns on time for the tax years 2004 and 2005.

B. Section 6654(a) Failure-To-Pay-Estimated-Tax Addition to Tax

The IRS determined in its notices of deficiency that Wolfgram was liable for the section 6654(a) addition to tax for failing to pay estimated income tax for the tax years 2004 and 2005. It later conceded that she was not liable for the addition for 2004. Wolfgram contends that no penalty should be imposed because she estimated that she owed no tax for 2005. But the penalty calculations do not depend on what a taxpayer estimates the tax will be. According to the Code, Wolfgram's "required annual payment" is 90 percent of her actual tax liability for 2005 if she did not file a return for either 2004 or 2005. See sec. 6654(d)(1)(B).¹⁴ Wolfgram admits in her reply brief that she "filed no return" for 2005; she also did not file a return for 2004.¹⁵ Therefore, her "required annual payment" is equal to 90 percent of her actual tax liability for 2005.¹⁶ Wolfgram did not make any part of the required annual payment on the dates required by the statute. Consequently, the IRS has satisfied its burden of production under section 7491(c) for the section 6654(a) addition to tax. See Wheeler v. Commissioner, 127 T.C. 200, 210-211 (2006), affd. 521 F.3d 1289 (10th Cir. 2008).

Wolfgram's claim that she should not be subject to the estimated-tax penalty because she estimated that she owed no tax for 2005 amounts to a reasonable cause defense -- but there is no reasonable cause defense available for the penalty. Only the exceptions set forth in section 6654(e) exonerate a taxpayer from the penalty. Grosshandler v. Commissioner, 75 T.C. 1, 20-21 (1980); Estate of Ruben v. Commissioner, 33 T.C. 1071, 1072 (1960); sec. 1.6654-1(a)(1), Income Tax Regs. None of the exceptions is applicable here. Therefore, Wolfgram is liable for the section 6654(a) addition to tax for 2005.

In reaching our holdings, we have considered all arguments made, and, to the extent not mentioned above, we conclude they are moot, irrelevant, or without merit.

To reflect the foregoing,

Decision will be entered under Rule 155.

² As discussed below, the IRS has conceded that Wolfgram is not liable for the sec. 6651(a)(2) late-payment addition to tax for 2004 and 2005 and the sec. 6654 failure-to-pay-estimated-tax addition to tax for 2004.

³ At trial on Nov. 17, 2008, the IRS made an oral motion to consolidate the two cases, which the Court subsequently granted.

⁴ Even though the Wolfgrams submitted their returns after the filing deadline, the claims of joint filing status on the returns entitle Wolfgram to joint filing status because the returns were made part of the record before these cases were submitted to this Court for decision. See Phillips v. Commissioner, 86 T.C. 433, 441 n.7 (1986), affd. in part and revd. in part 851 F.2d 1492 (D.C. Cir. 1988). Thus she qualifies for the tax rates applicable to "Married Individuals Filing Joint Returns". See secs. 1(a)(1), 6013.

⁵ The reasoning contained in the order of Feb. 22, 2008, was sufficient to address Wolfgram's argument. The order explained that we do not have jurisdiction over Wolfgram's husband because the IRS did not mail him a notice of deficiency. The Tax Court cannot join a person in a case under its Rules or the Federal Rules of Civil Procedure if it has no jurisdiction over that person. Guarino v. Commissioner, 67 T.C. 329, 332-333 (1976).

⁶ Although an amount that is required to be capitalized under sec. 263 can be partially deducted under sec. 167 as depreciation, Wolfgram has not demonstrated that she is entitled to a depreciation deduction.

⁷ Sec. 1.6001-1(a), Income Tax Regs., provides:

⁹ Sec. 280A provides, in relevant part:

¹¹ Wolfgram did not discuss the exemptions in her opening or reply briefs; the IRS noted Wolfgram's lack of proof in its answering brief.

¹² They also failed to discuss it in both their opening and reply briefs; the IRS mentioned the issue in its answering brief.

¹³ Indeed, because Wolfgram failed to testify that she could not resist her husband's demands, we infer that she was able to resist his demands. See Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162 F.2d 513 (10th Cir. 1947).

¹⁴ The "required annual payment" is equal to

¹⁵ Wolfgram did not file a return for either 2004 or 2005 until after the notices of deficiency for those years were issued. A return filed after a notice of deficiency is issued is not a filed return for purposes of the test contained in sec. 6654(d)(1)(B)(i). Mendes v. Commissioner, 121 T.C. 308, 325 (2003) ("the taxpayer 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. Such a result is inconsistent with both the purpose and function of section 6654(d)(1)(B)(i)"). The same reasoning applies to the test contained in sec. 6654(d)(1)(B)(ii).

¹⁶ We need not compare the sec. 6654(d)(1)(B)(i) amount to the sec. 6654(d)(1)(B)(ii) amount because Wolfgram did not file a return for 2004. See sec. 6654(d)(1)(B); Wheeler v. Commissioner, 127 T.C. 200, 210-212 (2006), affd. 521 F.3d 1289 (10th Cir. 2008). She did not file a return for 2005; thus, her required annual payment is 90 percent of her actual tax liability for 2005.