T.C. Sum m ary Opi ni on 20 14 -5 8 UNITED STAT ES TAX COURT ROUBEN DJOSHABEH AND JENIA DJOS HABEH, Peti ti on ers v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt Doc ke t No . 26 53 3- 12 S. Fi le d J un e 2 3, 2 01 4. Ro ub enDjosh ab eh an d J en iaDjosh ab eh , pro ses e. Ch ris to ph er J . Ric hm on d, fo r res po nd en t.

SUMM ARY OPINION CHIECHI, J ud ge : Th is cas e was he ardpu rs ua ntto th e p ro vi si on s o f se ct io n 74 63 of t he Int ern al Rev enue Co de ineffec t wh enth e p et it io n was fil ed . Pur su 1

Herei na fte r, al l s ect io n re fere nc es are t o the Int ern al Rev enue Co de (Co de ) 1 in effe ctforth e y ear a t i ss ue . All R ul e refe ren ces are t o t he Tax C ou rt Rul es of Prac ti ce an d P ro cedur e.- 2 -

an t t o s ect io n 7 46 3( b) , th e d eci si on to be en te redis no t re vi ewab le by any ot he r co urt, an d t hi s o pi ni on sh al l n otbe tre at edas p rece de ntforan y ot he r cas e. Res po nd en t d et erm in eda de fic ie nc y in , andanaccu racy-rela te d p en al ty un de r se ct io n 6 66 2( a) o n, p et it io ne rs ’ Fed eral in co m e ta x (t ax ) fo r th ei r ta xabl e y ear 2 00 9 o f $8 ,25 6 a nd$1 ,65 1.2 0, re sp ect iv el y . The on ly iss ue rem ai ni ng forde ci si on is whet he r pe ti ti on er Ro ub en Djos habe h i s l iabl e fo r th e y ear a t i ss ue forth e acc ur acy-rela te d p en al ty und er se ct io n 6 66 2( a). W e h ol d t ha t h e is . FINDINGS OF FACT Pet it io ne r Ro ub enDjosh ab eh(Mr. Djos habe h) an d re sp on de ntst ip ul at ed so m e o f th e fac ts inth is cas e, an d t ho se fact s ar e so fou nd . 2 Pet it io ne rs res id edinCal ifo rn iaat t he ti m e th ey fil edth e p et it io n. Dur in g 2 00 9, ce rta inof p et it io ne rs ’ de bt s t o t hr ee d iff eren t cr ed it or s t ot al in g $5 3,4 51 were ca nc el edby tho se cred it or s.

Pet it io ne r Je ni a Djos habe h (M s. Djos habe h) di d n otsi gnth e st ip ul at io n o f 2 fact s b etweenres po nd en t an d M r. Djos habe h (s ti pu la ti on of f act s) . Ms. Djos habe h di d n otap pe ar atth e tr ia l i n t hi s ca se , andres po nd en t fi le d am ot io n t o d is mis s fo r la ckof p ro se cu ti on as t o h er. W e sh al l g ran t tha t m ot io n a ndsh al l en te r a d eci si on with re sp ectto Ms . Djosh ab eh th atis th e sa m e as th e d eci si on th atwe sh al l en te r with re sp ectto Mr. Djos habe h.- 3 -

Pet it io ne rs fil edFo rm

10 40 , U.S. Ind iv idua l In co m e Tax Return (r eturn) , for th ei r ta xabl e y ear 2 00 9 (2 00 9 re tu rn ) th atpe ti ti on ers an d apa idreturn p rep arer si gn ed . On p ag e 1 of the ir 2 00 9 re tu rn , pet it io ne rs rep orte d “ W ag es , sal ari es , ti ps , et c.” o f $3 6,3 43 , “ Tax ab le in te res t” of $ 18 , “ Bu si ne ss in co m e o r (l os s) ” o f ne ga ti ve $1 7,1 45 , tax ab le “ So ci al sec ur it y be ne fit s” of z ero , and“ to ta l i nc om e” o f $1 9,2 16 . Alth ou gh pe ti ti on ers m ad e n o e nt ry onth atpa ge for

“ Oth er i nc om e”, th ey att ach eda st at em en t (o th er i nc om e st at em en t) t o the ir 2 00 9 re tu rnwith re sp ectto “ Oth er i nc om e”. Inth atst at em en t, p et it io ne rs rep orte d n eg at iv e $ 45 ,83 2 as “ 10 99 -C NONTAXABLE IRC SEC 1 08 ” an d $ 37 ,51 1 and$8 ,32 1 a s t wo i te m s of “ CANCELLATION OF DE BT”. Pet it io ne rs reduc edth os e two it em s o f 3

“ CANCELLATION OF DE BT” t ot al in g $ 45 ,83 2 b y th e n eg at iv e $ 45 ,83 2 o f

“ 10 99 -C NONTAXABLE IRC SEC 1 08 ” an d, as a res ul t, s ho weda to ta l o f zer o i n th e o th er i nc om e st at em en t. Onpa ge 2 o f th ei r 20 09 return, p et it io ne rs cla im ed

“ to ta l t ax ” o f zer o. Res po nd en t i ss ue d ano ti ce o f de fic ie nc y to pe ti ti on ers forth ei r ta xabl e y ear 20 09 . In tha t n ot ic e, res po nd en t d et erm in ed , in te r al ia , th atpe ti ti on ers ha ve can Inth e st ip ul at io n o f fac ts , Mr. Djos habe h a dm it te d t ha t p et it io ne rs fai le d t o 3 in cl ud e in th e o th er i nc om e st at em en t at ta ch edto th ei r 20 09 return a n a dd it io na l can cel edde btof $ 7,6 19 .- 4 -

cel la ti on of d eb t i nc om e to ta li ng $5 3,4 51 . In t he no ti ce, res po nd en t al so de te r- 4 m in edth atpe ti ti on ers are l iabl e fo r th e acc ur acy-rela te d p en al ty und er s ect io n 66 62 (a). OPINION The on ly iss ue th atwe m us t d eci de is whethe r Mr. Djos habe h i s l iabl e fo r th e y ear a t i ss ue forth e acc ur acy-rela te d p en al ty und er s ect io n 6 66 2( a). Tha t se ct io n i m

po se s an accu racy-rela te d p en al ty of 20 pe rcen t o f th e und erp aym en t t o whi chsec ti on 66 62 ap pl ie s. Sec ti on 66 62 ap pl ie s t o t he po rti on of a ny un de rpa ym en t wh ic h i s at tri bu tabl e to , in te r al ia , neg li ge nc e o r di sr eg ardof rul es or reg ul at io ns , sec . 66 62 (b )(1 ), ora subs ta nt ia l u nd ers ta te m en t o f ta x, s ec. 66 62 (b )(2 ). The term “ ne gl ig en ce” i n s ect io n 6 66 2( b) (1 ) in cl ud es an y fai lu re t o m ak e a reas on ab le att em

ptto co m pl y with t he Co de . Sec. 6 66 2( c). Neg li ge nc e h as als o be ende fin edas afai lu re t o d o wh ata reas on ab le pe rs on wou lddo un de r th e ci rcu m st an ces . Leuh sl er v . Comm is si on er, 9 63 F.2d90 7, 9 10 (6t h C ir. 1 99 2) , aff’g T.C. Mem o. 1 99 1- 17 9; Ant on id es v. Co m m is si on er, 9 1 T.C. 6 86 , 69 9 (1 98 8) , aff’d, 8 93 F.2d65 6 (4 th Cir . 19 90 ). The t erm “ ne gl ig en ce” a ls o i nc lu de s an y Inth e n ot ic e, res po nd en t m ad e a co m pu ta ti on al ad

jus tm en t re la ti ng to 4 “ So ci al Secu rity

RRB” th atres ul te d fr om res po nd en t’s d et erm in at io n tha t pe ti ti on ers ha ve can cel la ti on of d eb t i nc om e to ta li ng $5 3,4 51 .- 5 -

fai lu re b y th e ta xp ay er t o k eep ad equa te bo ok s an d re co rd s o r to subs ta nt ia te it em s pr op erl y . Sec. 1 .66 62 -3 (b )(1 ), In co m e Tax Reg s. Th e te rm “ di sr eg ard ” in cl ud es an y care le ss , reck le ss , or i nt en ti on al di sr eg ard . Sec. 6 66 2( c). Fo r pu rp os es of s ect io n 6 66 2( b) (2 ) anun de rs ta te m en t i s equa l t o t he ex ces s of th e am ou ntof t ax requi redto be sh own inth e ta x re turnov er the am ou ntof t ax sh own inth e return. Se c. 66 62 (d )(2 )(A). An u nd ers ta te m en t i s s ub st an ti al inth e cas e o f anin di vi du al if t he am ou ntof t he un de rs ta te m en t fo r th e ta xabl e y ear e xceed s t he gre at er o f 10 pe rcen t o f th e ta x re qu ire d t o b e sh own inth e ta x re tu rnfor th aty ear o r $5 ,00 0. Se c. 66 62 (d )(1 )(A). The accu racy-rela te d p en al ty und er s ect io n 6 66 2( a) d oe s n otap pl y to an y po rti onof a n u nd erp aym en t i f itis sh own th atth ere was reas on ab le cau se for , and th atth e ta xp ay er ac te d i n g oo d fa it h wi th res pe ctto , su chpo rti on . Sec. 66 64 (c)( 1) . The d et erm in at io n o f whe th er the tax pa y er ac te d wi th reas on ab le cau se an d i n g oo d fa it h d ep en ds on all th e p ert in en t fa ct s an d c irc um st an ces , in cl ud in g t he tax pa y er’s eff orts to ass es s the tax pay er’s p ro pe r ta x l iabi li ty, th e kn owl ed ge an d e xp eri en ce o f th e ta xp ay er, an d t he tax pa y er’s rel ia nc e o n the advi ce o f a p ro fes si on al , su chas a n a cco un ta nt . Sec. 1 .66 64 -4 (b )(1 ), In co m e Tax Reg s.- 6 -

Rel ia nc e o n t he advi ce o f a p ro fes si on al m ay de m on st rat e rea so nabl e cau se an d g oo d fa it h i f, un de r al l the cir cum st an ces , su chrel ia nc e was reas on ab le an d th e ta xp ay er ac te d i n g oo d fa it h. Id . In thi s co nn ect io n, a t ax pa y er m us t d em on st rat e th atth e ta xp ay er’s rel ia nc e o n t he advi ce o f a p ro fes si on al co nc ern in g s ub st an ti ve tax law was ob

jecti ve ly reaso nabl e. Gol dm anv. Co m m is si on er, 3 9 F .3d 40 2, 4 08 (2dCir . 19 94 ), aff’g T.C. Me m o. 1 99 3- 48 0. A ta xp ay er’s rel ia nc e o n t he advi ce o f a p ro fes si on al wil l b e o bjec ti ve ly reaso nabl e o nl y if the tax pa y er h as pr ov id edne ces sa ry

an d a ccu rat e in fo rm at io n t o the pro fes si on al . Neon at ol og y Ass oc s., P.A. v. C omm is si on er, 1 15 T.C. 43 , 99 (20 00 ), aff’d, 2 99 F.3d22 1 (3 d Ci r. 20 02 ); s ee al so Ma-Tra n C or p. v . Comm is si on er, 7 0 T.C. 1 58 , 17 3 (1 97 8) . The Co m m is si on er o f In te rn al Rev enue (Co m m is si on er) b ears th e b ur de n o f pr oduc ti on with re sp ectto an y pe na lt y or a dd it io n t o t ax . See s ec. 7 49 1( c); Hig be e v. Co m m is si on er, 1 16 T.C. 43 8, 4 46 -4 47 (20 01 ). To s at is fy th e Co m m is si on er’s bu rd enof p ro du ct io n, the Co m m is si on er m

us t co m e fo rwardwith “ su ffi ci en t ev ide nc e in di cat in g t ha t i t i s ap pr op ria te to im po se ” th e p en al ty or ad di ti on to tax . Hig be e v . Comm is si on er, 1 16 T.C. at 4 46 . Alth ou gh th e Co m m is si on er b ears th e bu rd enof p ro du ct io n wi thres pe ctto an y pe na lty or a dd it io n t o t ax , th e Co m m is si on er “ ne edno t i nt ro du ce ev id en ce re ga rd in g re as on ab le cau se * * * o r si m il ar- 7 -

pr ov is io ns . * * * the tax pa y er b ears th e b ur de n o f pr oo f wit h re ga rdto th os e is su es .” Id . At the tri al inth is cas e, Mr. Djos habe h c on ced edth e d efi ci en cy de te rm in ati onth atres po nd en t m ad e inth e n ot ic e. Im pl ic itinth atco nc es si on is th atpe ti ti on ers ha ve can cel la ti on of d eb t i nc om e in th e to ta l am ou ntth atres po nd en t d et erm in edinth e n ot ic e. On the reco rdbe fo re u s, we fi ndth atres po nd en t h as carr ie d res po nd en t’s b ur de n o f pr oduc ti on un de r se ct io n 7 49 1( c). Mr. Djos habe h c on te st s h ere o nl y th e acc ur acy-rela te d p en al ty. Acco rd in g to Mr. Djos habe h, h e sh ou ldno t b e li ab le forth atpe na lt y be cau se he ga ve th e acco un tantwho pre pa redpe ti ti on ers ’ 20 09 return t hr ee Fo rm s 1 09 9 with re sp ectto 5 cert ai n d eb t o f pe ti ti on ers th atwas c an cel eddu rin g 2 00 9, an d i t was hi s ac co un 6 ta ntwho di d n otin cl ud e in pe ti ti on ers ’ in co m e an y am ou ntwith re sp ectto th at can cel edde bt .

Pres um ab ly, Mr. Djos habe h g av e th e acc ou nt an t wh o p rep aredpe ti ti on ers ’ 5 20 09 return F orm s 1 09 9- C, Can cel la ti on of De bt . Mr. Djos habe h d idno t cl ai m at t ria l tha t the acco un ta ntwho pre pa redpe ti 6 ti on ers ’ 20 09 return was res po ns ib le forfai li ng to in cl ud e in th e o th er i nc om e st at em en t at ta ch edto th ei r 20 09 return acan cel edde btof $ 7,6 19 inad di ti on to th e to ta l o f $4 5,8 32 of c an cel edde btsh own inth atst at em en t. See supr a n ot e 3 .- 8 -

Exc ep t fo r Mr. Djos habe h’s u nc orro bo rat edtes ti m on y th atpe ti ti on ers rel ie d on th e acc ou nt an t wh o p rep aredth ei r 20 09 return wh enth ey di d n otin cl ud e in th ei r 20 09 return c ert ai n c an cel la ti on of d eb t i nc om e, th e rec or d i s d ev oi d o f 7 ev id en ce, s uc h a s t he tes ti m on y of t ha t ac co un tant , th atest ab li sh es th atMr. Djos habe h a ct edwith re as on ab le cau se an d i n g oo d fa it h i n fa il in g t o re po rt t ha t in co m e. On the reco rdbe fo re u s, we fi ndth atMr. Djos habe h h as fai le d t o c arry his bu rd enof e st ab li sh in g t ha t the re was reas on ab le cau se for , andth athe act edin go odfai th with re sp ectto , th e und erp aym en t fo r hi s t ax ab le y ear 2 00 9. Bas edup onou r ex am in at io n o f th e en ti re re co rdbe fo re u s, we fi ndth atMr. Djos habe h h as fai le d t o c arry his bu rd enof e st ab li sh in g t ha t h e is no t l iabl e fo r hi s ta xabl e y ear 2 00 9 fo r th e acc ur acy-rela te d p en al ty und er s ect io n 6 66 2( a). See sec . 66 64 (c)( 1) ; s ec. 1 .66 64 -4 (b )(1 ), In co m e Tax Reg s. W e h av e co ns id eredall of M r. Djos habe h’s co nt en ti on s an d a rg um en ts th at are n otdi sc us se d h erei n, an d we f in d t he m to be witho utm eri t, i rrel ev an t, an d/ or m oo t.

See s up ra n ot es 3 an d 6 .

7- 9 -

To re fle ctth e fo reg oi ng an d M r. Djos habe h’s co nc es si on , An o rd er g ran ti ng res po nd en t’s m ot io n t o d is m is s fo r la ckof p ro se cu ti on as to pe ti ti on er J en iaDjosh ab ehan d d eci si on fo r res po nd en t wi ll be en te red .