1 Unless otherwise indicated, subsequent section

references are to the Internal Revenue Code in effect for the

years at issue. All Rule references are to the Tax Court Rules

of Practice and Procedure.

T.C. Summary Opinion 2002-70

UNITED STATES TAX COURT

MICHAEL WHITE, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 10060-01S. Filed June 11, 2002.

Michael White, pro se.

Douglas S. Polsky, for respondent.

COUVILLION, Special Trial Judge: This case was heard

pursuant to section 7463 of the Internal Revenue Code in effect

at the time the petition was filed.1 The decision to be entered

is not reviewable by any other court, and this opinion should not

be cited as authority.
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Respondent determined deficiencies of $2,942 and $3,654 in

petitioner's Federal income taxes, respectively, for 1998 and

1999 and corresponding penalties under section 6662(a) in the

amounts of $588 and $731.

Some of the facts were stipulated, and those facts, with the

annexed exhibits, are so found and are incorporated herein by

reference. At the time the petition was filed, petitioner's

legal residence was Edgewood, New Mexico.

For each of the years in question, petitioner claimed

itemized deductions on a Schedule A, Itemized Deductions, of his

Federal income tax return. In the notice of deficiency,

respondent disallowed all the amounts claimed as deductions for

each of the years at issue for charitable contributions and

miscellaneous itemized deductions, the latter consisting of

unreimbursed employee business expenses. For the year 1998,

other itemized deductions claimed by petitioner, although

substantiated, were less than the allowable standard deduction

under section 63(c); consequently, respondent allowed petitioner

the standard deduction for that year. At trial, respondent

conceded that petitioner substantiated an itemized deduction for

home mortgage interest for 1999, and, as a result of that

concession, petitioner is entitled to itemized deductions for

1999 in lieu of the standard deduction determined in the notice

of deficiency.
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At trial, petitioner conceded the deficiencies, challenging

only the penalties under section 6662(a). In addition to

considering that issue, the Court also considers the

applicability of section 6673(a) to the facts of this case.

Petitioner was gainfully employed for the 2 years at issue

as a paramedic firefighter for one of the counties in New Mexico.

Prior to the years at issue, petitioner prepared his own

Federal income tax returns. For the 2 years in question, someone

recommended that petitioner employ a return preparer, Robin

Beltran. The individual who recommended Mr. Beltran represented

that Mr. Beltran was a "great guy", who was a "CPA", and "really

knows his stuff, is willing to show you the stuff in the tax laws

that show you all the loopholes, and he can certainly save you a

lot of money." Petitioner arranged to engage the services of Mr.

Beltran for his 1998 Federal income tax returns and for 2 years

thereafter. For the initial year, 1998, petitioner presented to

Mr. Beltran the same type documentation petitioner maintained for

the years in which petitioner prepared his own returns. That

documentation appeared to be for charitable contributions and

employee expenses. Mr. Beltran advised petitioner that such

records were not necessary because, irrespective of records, a

taxpayer, under the law, was "allowed" certain amounts as

deductions for such expenses.
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The 1998 return prepared by Mr. Beltran reflected an

overpayment of $3,983, an amount which surprised petitioner. He

questioned Mr. Beltran about the size of the refund, as he

testified at trial:

How do you get that much money back? I haven't been getting

that type of return back myself. I don't know that much

about taxes. That's why I'm hiring you, but how does that

work? How do you do that? Well, Mr. White, that's why

you're hiring a tax professional. That's why you come to a

CPA. Because I study this for a living.

There are loopholes that you can't find on your own

that I can find for you. Therefore, you have a larger

return, and because I'm able to find those loopholes for

you, you'll keep coming back to me. And by the way, if you

can refer people to me and tell them what a good job I've

done for you, I'll give you a break on next year's taxes.

Mr. Beltran, you're a wonderful guy. Thank you for

your assistance. How can I spread your name around? Well,

let me give you a stack of cards. And of course, he gives

me a stack of cards, Robin the tax man.

So I start telling other people about him and talking

to other people that have used him before. Yes. He did the

same thing for me. He did a great job. So that was '98, I

believe. I used him for 1999. I used him for the year

2000. Did not realize that there was a problem until 2001,

when I got the first notice of audit, and then all alarms

went off.

In spite of his reservations about the refunds for the 2

years in question, petitioner did not review the returns or

ascertain what deductions claimed on the returns accounted for
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2 This case is one of numerous cases heard by the Court

involving tax returns prepared by Mr. Beltran, which essentially

involve the same deductions. At some point in the audit process,

Mr. Beltran ceased all communications with his former clients.

such overpayments. Petitioner did not consult with any tax

professionals to review the returns prepared by Mr. Beltran.2

The following itemized deductions (as well as others not in

question) were claimed on the 1998 and 1999 tax returns prepared

by Mr. Beltran:

 1998 1999

 Charitable contributions $3,704 $4,543

 Unreimbursed employee expenses

 (before the sec. 67(a)

 limitation) 9,878 5,517

Petitioner acknowledged that his actual charitable

contributions were considerably less than the amounts claimed on

his returns, and, although he maintained logs for his employeerelated expenses, Mr. Beltran advised him, as noted above, that

such records were not necessary. Petitioner did not, at trial,

make any claim for a deduction for employee business expenses or

charitable contributions.

When petitioner began receiving correspondence from the

Internal Revenue Service questioning his 1998 and 1999 returns,

he referred everything to Mr. Beltran, who promised to "take

care" of the problem. However, petitioner never executed a power
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of attorney designating Mr. Beltran as his representative, nor

did Mr. Beltran undertake to represent petitioner with the

Internal Revenue Service or otherwise assist petitioner in

addressing respondent's inquiries.

Petitioner contends he should be absolved of liability for

the section 6662(a) penalties because he relied on the

representations of his return preparer.

Section 6662(a) provides for an accuracy-related penalty

equal to 20 percent of any portion of an underpayment of tax

required to be shown on the return that is attributable to the

taxpayer's negligence or disregard of rules or regulations. Sec.

6662(a) and (b)(1). Negligence consists of any failure to make a

reasonable attempt to comply with the provisions of the Internal

Revenue Code and disregard consists of any careless, reckless, or

intentional disregard. Sec. 6662(c). The courts have refined

the Code definition of negligence as a lack of due care or

failure to do what a reasonable and prudent person would do under

similar circumstances. Allen v. Commissioner, 925 F.2d 348, 353

(9th Cir. 1991), affg. 92 T.C. 1 (1989). Section 1.6662-3(b)(1),

Income Tax Regs., provides that "Negligence is strongly indicated

where * * * a taxpayer fails to make a reasonable attempt to

ascertain the correctness of a deduction * * * on a return which

would seem to a reasonable and prudent person to be 'too good to

be true' under the circumstances". An exception applies when the
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taxpayer demonstrates (1) there was reasonable cause for the

underpayment, and (2) the taxpayer acted in good faith with

respect to the underpayment. Sec. 6664(c). Whether the taxpayer

acted with reasonable cause and in good faith is determined by

the relevant facts and circumstances. The most important factor

is the extent of the taxpayer's effort to assess the proper tax

liability. Stubblefield v. Commissioner, T.C. Memo. 1996-537;

sec. 1.6664-4(b)(1), Income Tax Regs. Under section 1.6664-

4(b)(1), Income Tax Regs., "Circumstances that may indicate

reasonable cause and good faith include an honest

misunderstanding of fact or law that is reasonable in light of

all of the facts and circumstances, including the experience,

knowledge, and education of the taxpayer." Moreover, a taxpayer

is generally charged with knowledge of the law. Niedringhaus v.

Commissioner, 99 T.C. 202, 222 (1992). Although a taxpayer is

not subject to the addition to tax for negligence where the

taxpayer makes honest mistakes in complex matters, the taxpayer

must take reasonable steps to determine the law and to comply

with it. Id.

Under certain circumstances, a taxpayer may avoid the

accuracy-related penalty for negligence where the taxpayer

reasonably relied on the advice of a competent professional. 

Sec. 1.6664-4(b)(1), Income Tax Regs.; sec. 6664(c); Freytag v.

Commissioner, 89 T.C. 849, 888 (1987), affd. 904 F.2d 1011 (5th
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Cir. 1990), affd. 501 U.S. 868 (1991). Reliance on a

professional adviser, standing alone, is not an absolute defense

to negligence; it is only one factor to be considered. In order

for reliance on a professional adviser to relieve a taxpayer from

the negligence penalty, the taxpayer must establish that the

professional adviser on whom he or she relied had the expertise

and knowledge of the relevant facts to provide informed advice on

the subject matter. Freytag v. Commissioner, supra at 888.

Petitioner made no effort to ascertain the professional

background and qualifications of his return preparer, Mr.

Beltran. He failed to examine the returns prepared by Mr.

Beltran, except to ascertain the amount of the refunds he could

expect. Petitioner did not look beyond that, as he was obviously

interested more in the recommendation he had received on Mr.

Beltran that he was a "good guy" and "can certainly save you a

lot of money." The Court is satisfied that petitioner knew that

he could only claim deductions that could be substantiated, and,

when his returns reflected refunds considerably higher than what

he normally would have received, his failure to examine the

returns or to have someone examine the returns for him to

ascertain the reasons for such overpayments, constitutes

negligence or disregard of rules or regulations. Petitioner

consciously failed to examine the returns because he knew that

the returns must have contained information that was false. With
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the obvious reservations petitioner had at the time the returns

were prepared, he, nevertheless, failed to ascertain from tax

professionals whether his returns were correctly prepared. These

facts demonstrate to the Court that petitioner made no reasonable

effort to ascertain his correct tax liability for the years at

issue. Stubblefield v. Commissioner, supra. On this record, the

Court sustains respondent on the section 6662(a) accuracy-related

penalties for the 2 years at issue.

Section 6673(a) authorizes the Court to require a taxpayer

to pay to the United States a penalty not exceeding $25,000 when,

in the Court's judgment, proceedings have been instituted or

maintained by the taxpayer primarily for delay or where the

taxpayer's position in the proceeding is frivolous or groundless. 

Although petitioner conceded the deficiencies and challenged only

the penalties under section 6662(a), the Court considers

petitioner's claim that he should not be liable for the penalties

to be frivolous and groundless. Petitioner knew that a

substantial portion of the itemized deductions at issue was false

and could not be sustained. Other circumstances noted above need

not be repeated here.

The function of this Court is to provide a forum to decide

issues relating to liability for Federal taxes. At trial,

petitioner realized that he had no case with respect to the

deficiencies but chose to continue to challenge the imposition of
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the penalties under section 6662(a). Any reasonable and prudent

person, under the facts presented to the Court, should have known

that the claimed deductions could not have been sustained, and

petitioner knew that. We do not and should not countenance the

use of this Court as a vehicle for a disgruntled litigant to

proclaim the wrongdoing of another, his return preparer, as a

basis for relief from a penalty that was determined by respondent

on facts that clearly are not sustainable. Golub v.

Commissioner, T.C. Memo. 1999-288. Petitioner, therefore, has

interfered with the Court's function to the detriment of other

parties having cases with legitimate issues for the Court to

consider. Petitioner has caused needless expense and wasted

resources, not only for the Court, but for its personnel,

respondent, and respondent's counsel. Under these circumstances,

the penalty under section 6673 is warranted, and petitioner will

be ordered to pay a penalty of $500 to the United States under

section 6673(a).

Reviewed and adopted as the report of the Small Tax Case

Division.

Decision will be entered

under Rule 155.