# PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b),THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE.T.C. Sum m ary Opi ni on 20 15 -5 3

UNITED STAT ES TAX COURT

NICHOLAS S. FARRI S AND KIRSTIN B. FARRI S, Pet it io ne rs v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 19 10 0- 12 S. Fi le d S ep te m be r 8, 2 01 5.

Ch ris Econ om ou , forpe ti ti on ers . Ja m ie M. St ip ek , forres po nd en t.

SUMM ARY OPINION CARLUZZO, Spec ia l Tri al Ju dg e: Thi s ca se was h eardpu rs ua ntto th e pr ov is io ns of s ect io n 7 46 3 of t he Int ern al Rev enue Co de ineffe ctwhen th e 1 pe ti ti on was fi le d. Purs ua ntto sec ti on 74 63 (b ), th e d eci si on to be en te redis no t Unl es s o th erwi se in di cat ed , sec ti on refe ren ces are t o the Int ern al Rev enue 1 Co de of 1 98 6, as am en de d a ndineffe ctfor 20 10 . Rul e ref

eren ces are t o the Tax Co urt Ru le s o f Prac ti ce an d P ro cedur e.- 2 -

rev ie wab le by any

othe r co urt, an d thi s o pi ni on sh al l n otbe tre at edas p rece de nt fo r an y othe r cas e. Ina no ti ce o f de fic ie nc y

date d Ap ril 26 , 20 12 (no ti ce), re sp on de nt de te rm in eda $4 ,62 8 d efi ci en cy inpe ti ti on ers ’ 20 10 Fed eral in co m e ta x a nd im po se d a$9 25 .60 accu racy-rela te d p en al ty. 2 The is su es forde ci si on are: (1) whet he r pe ti ti on ers are en ti tl edto a de du ct io n fo r a l os s fr om th ei r ren ta l re al est at e act iv ity , th e res ol ut io n o f whi ch de pe nd s upo n wh ethe r se ct io n 4 69 (c)( 7) ap pl ie s t o M rs . Farri s (p et it io ne r); an d 3 (2 ) whe th er p et it io ne rs are l iabl e fo r th e se ct io n 6 66 2( a) ac cu racy-rela te d p en al ty. Bac kg ro un d So m e o f th e fac ts ha ve be enst ip ul at edan d a re s o fo un d. Atth e ti m e th e pe ti ti on was fi le d, p et it io ne rs res id edinOkl ah om a. Pet it io ne r was hi redas the m ark et in g d ire ct or for Exce l Th erap y

Sp eci al is ts , LLC (Exc el ), on Aug us t 8 , 20 05 , andwas s o e m pl oyed dur in g 2 01 0. Acco rd in g t o a le tt er d at edJu ne 13 , 20 05 (of fer l et te r), Exc el off

eredpe ti ti on er an annu al sal ary of $3 4,0 00 ba se d o n am in im um of 2 4 h ours a week ; i n the y ear i n i ss ue pe ti ti on er
A def ic ie nc y an d a ccu racy-rela te d p en al ty for 2 00 9, n ow co nc ed edby 2 pe ti ti on ers , are al so de te rm in edinth e n ot ic e o f de fic ie nc y . Mr. Farri s d oe s n otcla im to be a ta xp ay er s o d es cri be d. 3- 3 -

earn ed$8 8,0 05 fro m

he r em pl oym en t wi th Exce l. At a ll ti m es rel ev an t, p et it io ne r was co ns id ereda pa rt- ti m e em pl oyee of Exce l. Pet it io ne r di d n otm ai nt ai n ati m e lo g o r ot he r writ te n re co rdof t he ti m e sh e sp en t p erfo rm in g p ers on al servi ces forExce l dur in g 2 01 0. Tak in g i nt o a cco un t va cat io n t im e, pe ti ti on er es ti m at es th atsh e worke d app ro xi m at el y 1,0 40 ho ur s fo r Exc el forth aty ear. Inad di ti on to he r pa rt- ti m e job with Ex cel , pet it io ne r pe rfo rm edpe rs on al se rv ic es inco nn ect io n wi th two ren ta l re al est at e p ro pe rti es (ren ta l p ro pe rti es ) th at pe ti ti on ers own edin20 10 . The ren ta l p ro pe rti es are i n Tu ls a, Okl ah om a: on e at 38 16 So ut h J am es to wn (J am es to wn p ro pe rty) andth e o th er at74 63 E. 3dStr eet (3 d S tre etpro pe rty). Mr. Farri s h adpu rch as edth e Jam es to wn p ro pe rty befo re 20 10 an d app aren tl y

be fo re p et it io ne rs were m arri ed . The J am es to wn p ro pe rty was m an ag edby a pro pe rty m an ag em en t co m pany in 2 01 0. Pe ti ti on ers purch as ed th e 3 d S tre etpro pe rty onSep te m be r 21 , 20 10 . As b etweenpe ti ti on ers , pet it io ne r was pri m ari ly resp on si bl e fo r m an ag in g an d m ai nt ai ni ng th e ren ta l p ro pe rti es altho ug h M r. Farr is co nt rib ut edas we ll . Am on g o th er thi ng s, p et it io ne r m etwith p ro sp ect iv e te na nt s, co rres po nd edwith te na nt s, n eg ot ia te d a ndpre pa redlea se s, an d c ol le ct edren t due fro m ten an ts of t he- 4 -

3dStr eetpro pe rty. T he m an ag em en t co m pa ny col le ct edren t an d o ve rs aw m ai nt en an ce re qu es ts forth e Ja m es to wn p ro pe rty. Pet it io ne r pe rs on al ly m ad e rep ai rs an d re no va ti on s t o the ren ta l p ro pe rti es , in cl ud in g re pa iri ng da m ag e cau se d b y dry rot , pat ch in g h ol es inwall s, s an di ng an d pa in ti ng do or s an d wal ls , pu ll in g wal lp ap er, l ay in g andcutt in g k it ch enti le s, an d sa nd in g a ndpa in ti ng cab in etdo or s. On o r aro un d J anua ry

26 , 20 12 , du rin g re sp on de nt ’s exa m in at io n o f pe ti ti on ers ’ 20 10 Fed eral in co m e ta x re tu rn , pet it io ne r pr ep areda lo g (i ni ti al lo g) of th e h ou rs all eg ed ly dev ot edto th e ren ta l p ro pe rti es durin g 2 01 0. Acco rd in g t o th e in it ia l l og pe ti ti on ers sp en t 8 52 ho ur s p erfo rm in g s erv ic es forth ei r ren ta l re al es ta te act iv ity . Peti ti on er cr eat edth e in it ia l l og us in g n ot es sh e h adjot te d d own at oraro un d the ti m e sh e p erfo rm edservi ces forth e ren ta l p ro pe rti es . Mos t o f th e ho ur s re po rte d o n the ori gi na l l og are at tri bu tabl e to pe ti ti on er. On o r aro un d M arch 23 , 20 12 , pet it io ne r pr ep areda se co ndlo g (r ev is edlo g) th atin cl ud es ad di ti on al ho ur s n otrep orte d i n the in it ia l l og . Accor di ng to pe ti ti on ers th e ad di ti on al ho ur s i nc lu de d i n the rev is edlo g a re b as edon no te s tha t Mr. Farri s t oo k a t o r aro un d the ti m e th atpe ti ti on ers pe rfo rm edservi ces for th e ren ta l p ro pe rti es . Accor di ng to th e rev is edlo g p et it io ne rs sp en t 1 ,25 4 h ours- 5 -

pe rfo rm in g p ers on al servi ces forth ei r ren ta l re al est at e act iv ity . As with the in it ia l lo g, m os t o f th e h ou rs rep orte d o n the rev is edlo g a re at tri bu tabl e to pe ti ti on er. The en tri es inth e lo gs pro vi de ge ne ral iz edde sc rip ti on s o f th e work tha t pe ti ti on ers pe rfo rm edon a sp eci fic da y or o ve r a s pe ci fie d p eri odan d the am ou nt of ti m e th atpe ti ti on ers , or o ne of t he m , sp en t o n the act iv ity de sc rib ed . The l og s do no t i de nt ify the sp eci fic ren ta l p ro pe rty to wh ic h the servi ces rel at e, no r do th e lo gs id en ti fy

whi chof t he m

pe rfo rm edth e se rv ic es . Man y if n otm os t o f th e en tri es inth e lo gs rel at e to res earc h p et it io ne rs co nduc te d o n the ho us in g m ark et . Accor di ng to th e lo gs , th atres earc h was pe rfo rm edby searc hi ng th e In te rn etan d/ orby wha t was de sc rib edinth e lo gs as

“pr os pe ctby car”. Pet it io ne rs ’ ti m el y

fil edjoi nt20 10 Fed eral in co m e ta x re tu rnwas p rep ared by a pai d i nc om e ta x re tu rnpre pa rer. Onth atreturn p et it io ne rs rep orte d i nc om e an d e xp en se s at tri bu tabl e to th e ren ta l p ro pe rti es on a Sch edul e E, Sup pl em en ta l In co m e an d Lo ss . Taki ng in to acco un t the in co m e an d e xp en se s, the Sch edul e E sh ows a ne t l os s o f $2 0,9 65 . Thatlo ss is tak enin to acco un t i n the $1 68 ,77 2 o f ad jus te d g ro ss in co m e rep orte d o n p et it io ne rs ’ 20 10 return. The 20 10 ren ta l p ro pe rty los s i s d is al lo wedinth e n ot ic e. Acco rd in g t o res po nd en t’s ex pl an at io n: “ [T]he ta xp ay er fa il s the ha lf p ers on al servi ces tes t;- 6 -

th us ren ta l re al est at e lo ss es are l im it edby sect io n 4 69 ”. Res po nd en t al so im po se d a se ct io n 6 66 2( a) ac cu racy-rela te d p en al ty on v ari ou s g ro un ds forth e y ear i n is su e. So m e o f th e ad

jus tm en ts m ad e in th e n ot ic e h av e b eenag reedto be twee n th e p art ie s o r co nc ed edby one or t he othe r of th em , andothe r ad

jus tm en ts are co m pu ta ti on al . Tho se ad

jus tm en ts wil l n otbe di sc us se d.

Dis cu ss io n As a g en eral rul e, th e Co m m is si on er’s d et erm in at io n i n the no ti ce o f de fic ie nc y

is pre su m edco rrec t, an d the tax pa y er b ears th e b ur de n o f pr ov in g b y a pr ep on de ran ce o f th e ev id en ce tha t the de te rm in at io n i s i m pr op er. See Ru le 14 2( a); W el chv. Hel ve rin g, 2 90 U.S. 11 1, 1 15 (19 33 ). Dedu ct io ns are a m at te r 4 of leg is la ti ve gra ce, an d t ax pa y ers be ar the bu rd enof p ro vi ng th atth ey are en ti tl ed to an y cla im edde du ct io ns . Rul e 1 42 (a); see INDOPCO, In c. v. Co m mis si on er, 50 3 U.S. 7 9, 8 4 (1 99 2) . I. Ren ta l Re al Est at e Act iv ity A tax pa y er i s g en eral ly allo wedde du ct io ns for cert ai n b us in es s an d i nc om epr oduc in g e xp en se s. See sec s. 1 62 , 21 2. Se ct io n 4 69 (a) g en eral ly dis al lo ws fo r th e ta xabl e y ear a ny pas si ve act iv ity lo ss . A pas si ve act iv ity

lo ss is th e ex ces s o f
Pet it io ne rs do no t cl ai m

th atth e p ro vi si on s o f se c. 74 91 (a) are ap pl ic ab le , 4 an d we p ro ceedas t ho ug h the y are n ot .- 7 -

th e ag gr eg at e lo ss es fro m all pa ss iv e act iv it ie s fo r th e ta xabl e y ear o ve r th e ag gr eg at e in co m e fro m

all pa ss iv e act iv it ie s fo r th aty ear. Se c. 46 9( d) (1 ). A pa ss iv e act iv ity

is an y tra de or b us in es s o r act iv ity forth e p ro du ct io n o f in co m e in whi chth e ta xp ay er d oe s n otm at eri al ly part ic ip at e. Sec. 4 69 (c)( 1) , (6) . Ren ta l ac ti vi ty is g en eral ly treat edas p er s e p as si ve reg ard le ss of wh ethe r th e ta xp ay er m at eri al ly part ic ip at es . Sec. 4 69 (c)( 2) . Howev er, the ren ta l ac ti vi ty of a ta xp ay er i s n ottre at edas p er s e p as si ve if the tax pay er s at is fie s the requi rem en ts of s ect io n 4 69 (c)( 7) (B). Sec. 4 69 (c)( 7) (A)(i ). If a t axpa y er i s 5 de sc rib edinth atsec ti on (so m et im es th attax pa y er i s re ferr edto as a“ real est at e pr of es si on al ”), the n s ect io n 4 69 (c)( 2) do es no t ap pl y an d the tax pa y er’s ren ta l re al es ta te act iv ity , if co nduc te d a s a t rad e o r bu si ne ss or f orth e p ro du ct io n o f in co m e, is no t treat edas apa ss iv e act iv ity if the tax pa y er m at eri al ly part ic ip at es inth e act iv ity . Sec. 4 69 (c)( 1) ; Fo wlerv. Co m m is si on er, T.C. Mem o. 2 00 2- 22 3; sec . 1.4 69 -9 (e), In co m e Tax Reg s. Pet it io ne rs ’ ren ta l re al est at e act iv ity co ns ti tu te s a

The re i s an ad di ti on al ex cep ti on forren ta l re al est at e act iv ity lo ss es of a 5 na tu ral pe rs on (s ). See s ec. 4 69 (i) . The d educ ti on is ph as edou t as ad jus te d g ro ss in co m e, m od ifi edby sec. 4 69 (i) (3 )(F) , exc eed s $ 10 0,0 00 , with aful l p ha se ou t oc cu rri ng when m od ifi edad jus te d g ro ss in co m e equa ls $1 50 ,00 0. Se c. 46 9( i)( 3) (A). Res po nd en t d et erm in edinth e n ot ic e o f de fic ie nc y th atth e p ha se ou t ru le s o f se c. 46 9( i)( 3) pre cl ud e p et it io ne rs fro m curren tl y de du ct in g a ny of th ei r ren ta l re al est at e lo ss , a po in t p et it io ne rs do no t d is pu te .- 8 -

“ real pro pe rty” trad e o r bu si ne ss withi n the m ean in g o f se ct io n 4 69 . See s ec. 6 46 9( c)(7 )(C) . W e p ro ceedwitho utfin di ng th atpe ti ti on er m at eri al ly part ic ip at ed in th e ren ta l re al est at e act iv ity du rin g 2 01 0. Se e se c. 46 9( h) . Altho ug h the ap pl ic at io n o f se ct io n 4 69 canbe co m pl ic at ed , th e di sa gr eem en t b etweenth e p art ie s i s re la ti ve ly sim pl e--the pa rti es di sa gr ee as to th e nu m be r of ho ur s p et it io ne r sp en t p ro vi di ng pe rs on al servi ces du rin g 2 01 0 a s an Exc el em pl oyee an d the nu m

be r of ho ur s s he sp en t p erfo rm in g p ers on al servi ces in co nn ect io n wi th pe ti ti on ers ’ ren ta l re al est at e act iv ity . To be co ns id ereda real es ta te pro fes si on al (i.e ., a tax pa y er t o wh om sec ti on 46 9( c)(7 )(A) ap pl ie s) an d en ti tl edto th e d educ ti on he re i n d is pu te pe ti ti on ers m us t es tabl is h tha t the ho ur s pe ti ti on er s pe ntinco nn ect io n wi thth ei r ren ta l re al est at e act iv ity ex ceedth e h ou rs sh e sp en t p erfo rm in g p ers on al servi ces forExce l. See sec . 46 9( c)(7 )(B) (i) . 7

The re i s n ot hi ng inth e rec or d tha t s ug ge st s tha t p et it io ne r, orpe ti ti on ers , 6 el ect edto tre atall of t he ir i nt eres ts inren ta l re al est at e as on e act iv ity . See s ec. 46 9( c)(7 )(A). Tech ni cal ly, th ey ha ve two sep arat e ren ta l re al est at e act iv it ie s. Bec au se itm ak es no di ffer en ce t o the ou tc om e o f th is cas e, an d fo r co nv en ie nc e, we refe r to pe ti ti on ers ’ ren ta l re al est at e act iv ity as tho ug h i t was a si ng le act iv ity . Giv enth e ex pl an at io n i n the no ti ce o f de fic ie nc y forth e d is al lo wan ce o f 7 th e lo ss de du ct io n h ere i n d is pu te , we pro ceedas t ho ug h re sp on de ntag rees th at pe ti ti on er s pe ntm or e th an75 0 h ou rs pro vi di ng pe rs on al servi ces inpe ti ti on ers ’ ren ta l re al est at e act iv ity

du rin g 2 01 0. Se e se c. 46 9( c)(7 )(B) (ii ).- 9 -

Rel y in g upo n the rev is edlo g, p et it io ne rs arg ue th atpe ti ti on er d id . Res po nd en t di sa gr ees , andforth e fo ll owi ng reas on s, s o d o we. Acco rd in g t o p et it io ne rs , pet it io ne r sp en t 1 ,04 0 h ou rs work in g fo r Exc el in 20 10 . Accor di ng to res po nd en t, p et it io ne r’s co m pe ns at io n fr om

Exce l s ug ge st s th atpe ti ti on ers ha ve un de rs ta te d the am ou ntof t im e p et it io ne r sp en t p ro vi di ng pe rs on al servi ces to th atco m pa ny durin g 2 01 0. Th e o nl y di rectev id en ce o n the po in t i s p et it io ne r’s te st im on y , whi chfin ds so m e supp ort i n the off er l et te r. Ass um in g, wi th ou t fi nd in g, tha t p et it io ne r’s es ti m at e is accu rat e, we pr oc eedas th ou gh sh e sp en t 1 ,04 0 h ou rs pe rfo rm in g s erv ic es as an e m pl oyee of Exce l dur in g 20 10 . Nex t we co ns id er the ti m e p et it io ne r sp en t p erfo rm in g p ers on al servi ces in pe ti ti on ers ’ real est at e tr ad e o r bu si ne ss . Peti ti on er’s i ni ti al lo g, p rep areddu rin g th e ex am in at io n o f pe ti ti on ers ’ 20 10 return s ho ws tha t p et it io ne rs co ll ect iv el y sp en t 8 52 ho ur s p erfo rm in g s erv ic es forth ei r ren ta l re al est at e act iv ity . Evenif we were t o a ttrib ut e ev ery ho urreco rd edon th atlo g t o p et it io ne r, sh e wou ldno t sa ti sf y th e te stsetforth insec ti on 46 9( c)(7 )(B) (i) . The rev is edlo g s ho ws tha t p et it io ne rs co ll ect iv el y sp en t 1 ,25 4 h ou rs pe rfo rm in g s erv ic es forth ei r ren ta l re al est at e act iv ity . The rev is edlo gs , ho wev er, la ckpro pe r subs tant ia ti on by con te m po ran eo us ve rif

ic at io n o r othe r rea so nabl e- 10 -

m ean s. Th e te m

po rary regu la ti on s p ro vi de th atho ur s o f pa rti ci pa ti on m ay be es tabl is he d b y

“ [c]on te m

po ran eo us da il y

ti m e rep orts , lo gs , or s im il ar d oc um en ts ”. Sec. 1 .46 9- 5T(f

)(4 ), Tem po rary Inco m e Tax Reg s., 5 3 F ed . Reg . 57 27 (Feb . 25 , 19 88 ). Bu t p art ic ip at io n c anals o b e es tabl is he d b y othe r rea so nabl e m ean s, s uc h as “ ap po in tm en t b oo ks , cal en da rs , or n arra ti ve su m m ari es ” th atid en ti fy

th e se rv ic es pe rfo rm edan d “ th e ap pr ox im at e num be r of ho ur s s pe ntpe rfo rm in g s uc h se rv ic es ”. Id . For p ur

po se s o f th atreg ul at io n, we ar e n otrequi redto acce pt po st ev en t “ba ll pa rk

gu es st im at es ”, no r are we bo un d t o a ccep t the un ve rif ie d te st im on y of t ax pa y ers inth e ab se nc e o f ad equa te do cu m en ta ti on . See, e.g ., Lum v. Co m m is si on er, T.C. Mem o. 2 01 2- 10 3; Est at e o f St an ge landv. Co m m is si on er, T.C. Mem o. 2 01 0- 18 5. Pet it io ne r di d n otke ep a co nt em po ran eo us lo g o f th e h ou rs th atsh e d ev ot ed to pe ti ti on ers ’ ren ta l re al est at e act iv ity . Peti ti on er d idrefe r to co nt em po ran eo us

“ no te s” sh e u se d t o c reat e th e lo gs , bu t tho se no te s wer e n otpro vi de d t o the Co urt. The lo gs were cr eat edin20 12 , app aren tl y inco nn ect io n wi th th e ex am in at io n o f pe ti ti on ers ’ 20 10 return. Fu rth erm or e, we are u nabl e to id en ti fy with a ny deg ree of cert ai nt y whi chen tri es onth e lo gs are at tri bu tabl e to pe ti ti on er an d wh ic h en tri es are at tri bu tabl e to Mr. Farris . The d is ti nc ti on is im po rta ntbe cau se on ly the ho ur s at tri bu tabl e to pe ti ti on er co un t. See sec . 46 9( c)(7 )(B) . On co ns id erat io n o f- 11 -

th e en ti re re co rd , we rejectpe ti ti on ers ’ cl ai m as t o the ho ur s p et it io ne r sp en t pr ov id in g p ers on al servi ces inth ei r ren ta l re al est at e act iv ity . Bec au se we are n otpe rs ua de d tha t p et it io ne r sp en t m or e ti m e o n p et it io ne rs ’ ren ta l re al est at e act iv ity

du rin g 2 01 0 tha n s he di d wo rk in g fo r Exc el , pet it io ne rs ha ve no t es tabl is he d tha t s he is a ta xp ay er t o wh om sec ti on46 9( c)(7 )(A) ap pl ie s. It f ol lo ws tha t re sp on de nt ’s di sa ll owa nc e o f th e lo ss de du ct io n h ere i n d is pu te is su st ai ne d. II. Accu racy-Rel at edPen al ty Sect io n 6 66 2( a) an d (b )(1 ) an d (2 ) im po se s a p en al ty of 20 % of t he po rti on of anun de rp aym en t o f ta x attrib ut ab le to th e ta xp ay er’s n eg li ge nc e, di sr eg ardof ru le s o r reg ul at io ns , or s ub st an ti al un de rs tate m en t o f in co m e ta x. “ Neg li ge nc e” 8 in cl ud es an y

fai lu re t o m ak e a rea so nabl e at te m ptto co m pl y with the Co de , in cl ud in g a ny fail ur e to ke ep ad equa te bo ok s an d re co rd s o r to subs tant ia te it em s pr op erl y . See s ec. 6 66 2( c); sec . 1.6 66 2- 3( b) (1 ), In co m e Tax Reg s. Res po nd en t b ears th e b ur de n o f pr oduc ti on with re sp ectto th e im po si ti on of th e se ct io n 6 66 2( a) ac cu racy-rela te d p en al ty. 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 ). Res po nd en t h as de m on strat edth at Inth is cas e, th e d efi ci en cy , un de rs tate m en t o f ta x, an d u nd erp aym en t o f 8 in co m e ta x a re al l co m

pu te d i n the same m an ne r. See s ecs . 62 11 , 66 62 (d )(2 ), 66 64 (a).- 12 -

pe ti ti on ers fai le d t o k eep accu rat e rec or ds with re sp ectto pe ti ti on er’s p art ic ip at io n in pe ti ti on ers ’ ren ta l re al est at e act iv ity . Res po nd en t h as sat is fie d h is burd enof pr oduc ti on . See s ec. 7 49 1( c). The accu racy-rela te d p en al ty doe s n otap pl y with re sp ectto an y

po rti on of anun de rp aym en t fo r whi chitis sh own th atth e ta xp ay er h adreas on ab le cau se an d act edingo odfai th . Sec. 6 66 4( c)(1 ). Forpu rp os es of s ect io n 6 66 4( c) a t ax pa y er m ay be ab le to est ab li sh reas on ab le cau se an d g oo d fa ith b y sh owi ng rel ianc e o n pr of es si on al advi ce. Sec . 1.6 66 4- 4( b) (1 ), In co m e Tax Reg s. To est ab li sh go od fai th an d re as on ab le cau se th ro ug h re li an ce o n p ro fes si on al advi ce, the tax pa y er m us t s ho w th at(1) th e advi se r was a co m pe te ntpro fes si on al who ha d s uf fic ie nt ex pe rti se to jus ti fy

rel ianc e; (2) th e ta xp ay er p ro vi de d n eces sa ry an d a ccu rat e in fo rm at io n t o the advi se r; a nd(3) th e ta xp ay er ac tu al ly reli edingo odfai thon th e advi se r’s jud gm en t. Neo na to lo gy Asso cs ., P.A. v. Co m m is si on er, 1 15 T.C. 43 , 99 (2 00 0) , aff’d, 2 99 F.3d22 1 (3 d C ir. 2 00 2) . Pet it io ne rs ’ 20 10 return was pre pa redby a pai d i nc om e ta x re tu rnpre pa rer. The factth atpe ti ti on ers ha d areturn p rep arerpre pa re the ir r eturn d oe s n ot , inan d of it se lf, p ro ve th atth ey

act edwith re as on ab le cau se an d i n g oo d fa ith. Se e id . at 99 -1 00 . Im

po rta nt ly, pe ti ti on ers off

eredno ev id en ce es tabl is hi ng th atth ey ga ve th e return p rep arerall ne ces sa ry an d a ccu rat e in fo rm at io n, s uc h a s re co rd s t o- 13 -

subs tant ia te th e ti m e sp en t b y pe ti ti on er i n p et it io ne rs ’ ren ta l re al est at e act iv ity . In st ead , pet it io ne r te st ifi edth atsh e d idno t kno w whatwas g iv ento th e return pr ep arerbe cau se Mr. Farris “pr et ty m uc h h an dl es all of t ha t” . Alth ou gh bo th Mr. Farr is an d p et it io ne rs ’ return p rep arerwere p res en t dur in g the tri al , nei th er was cal le d a s a wi tn es s. See W ic hi taTerm in al Elev at or Co . v. Co m

mis si on er, 6 T.C. 11 58 , 11 65 (19 46 ), aff’d, 1 62 F.2d51 3 (1 0t h C ir. 1 94 7) . Peti ti on ers ha ve no t sh own th atth ey

act edingo odfai th an d h adreas on ab le cau se forth e un de rp aym en t o f ta x re qu ire d t o b e sh own on th ei r 20 10 return. Acco rd in gl y , th ey are l iabl e fo r a s ect io n 6 66 2( a) ac cu racy-rela te d p en al ty. To re fle ctth e fo reg oi ng , Deci si on wil l b e en te red un de r Ru le 15 5.