T.C. Summary Opinion 2017-55

UNITED STATES TAX COURT

ATEF FAHMEY ISAAC, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 16826-16S. Filed July 20, 2017.

Atef Fahmey Isaac, pro se.

Sandeep Singh, for respondent.

SUMMARY OPINION

PANUTHOS, Chief Special Trial Judge: This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in effect when the

petition was filed.

1

 Pursuant to section 7463(b), the decision to be entered is not

1Unless otherwise indicated, subsequent section references are to the

(continued...)
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reviewable by any other court, and this opinion shall not be treated as precedent

for any other case.

In a notice of deficiency dated May 13, 2016, respondent determined a

deficiency of $18,332 in petitioner’s 2013 Federal income tax and a section

6662(a) accuracy-related penalty of $3,667.

After concessions,

2

the issue for decision is whether petitioner is liable for

the accuracy-related penalty under section 6662(a) for the year in issue.

Background

Petitioner resided in California when his petition was timely filed.

Petitioner is an electrical engineer and has filed Federal income tax returns

since 2001.

Petitioner timely filed his 2013 Form 1040, U.S. Individual Income Tax

Return, reporting wages of $132,962, investment income of $123,598, and tax due

of $25,675. When preparing his 2013 Form 1040, petitioner did not properly

1

(...continued)

Internal Revenue Code in effect for the year in issue. We round monetary

amounts to the nearest dollar.

2Petitioner conceded the adjustments set forth in the notice of deficiency as

follows: (1) inclusion of a taxable State income tax refund of $2,969;

(2) adjustment to itemized deductions of $59; (3) alternative minimum tax (AMT)

of $15,308; and (4) net investment income tax of $2,262 pursuant to sec. 1411. 

Petitioner disputes the accuracy-related penalty.
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account for and compute the AMT or the net investment income tax, nor did he

report his taxable State income tax refund.

Petitioner prepared his 2013 Form 1040 without the use of tax preparation

software. Petitioner did not consult a certified public accountant (C.P.A.), a tax

return preparer, or another professional in the preparation of his return. As

indicated, petitioner does not dispute the adjustments determined in the notice of

deficiency except for the accuracy-related penalty.

Discussion

Section 6662(a) and (b)(2) imposes an accuracy-related penalty on any

portion of an underpayment of Federal income tax that is attributable to the

taxpayer’s “substantial understatement of income tax.” An understatement of

Federal income tax is substantial if the amount of the understatement for the

taxable year exceeds the greater of 10% of the tax required to be shown on the

return for the taxable year or $5,000. Sec. 6662(d)(1)(A).

The Commissioner bears the burden of production with respect to a section

6662 penalty. Sec. 7491(c). In order to meet this burden the Commissioner need

only make a prima facie case that imposition of the penalty or addition to tax is

appropriate. Higbee v. Commissioner, 116 T.C. 438, 446 (2001). If the

understatement of income tax for the year in issue is substantial, the Commissioner
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has satisfied the burden of producing evidence that the penalty is justified. 

Respondent met this burden because the amount of petitioner’s understatement for

2013 is substantial.

3

Once the Commissioner has met his burden, the taxpayer may avoid a

section 6662(a) accuracy-related penalty if he can demonstrate (1) reasonable

cause for the underpayment and (2) that he acted in good faith with respect to the

amount paid. Sec. 6664(c)(1). A determination of reasonable cause and good

faith “is made on a case-by-case basis, taking into account all pertinent facts and

circumstances”, including: (1) the taxpayer’s efforts to assess the proper tax

liability; (2) the knowledge and the experience of the taxpayer; and (3) any

reliance on the advice of a professional such as an accountant. Sec. 1.6664-

4(b)(1), Income Tax Regs. Circumstances that indicate reasonable cause and good

faith include an honest misunderstanding of law that is reasonable in light of all

the surrounding facts. Id. Generally, the most important factor is the extent of the

taxpayer’s effort to assess his or her proper tax liability. Id. Statutory complexity

3The amount of tax required to be shown on petitioner’s 2013 return is

$44,007 ($25,675 reported on return % $18,332 increase in tax ' $44,007). This

$18,332 increase in tax is greater than $5,000, which is greater than $4,401, which

is 10% of $44,007. See sec. 6662(d)(1)(A).
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alone does not constitute reasonable cause. Barnes v. Commissioner, T.C. Memo.

2012-80, 2012 WL 952760, at *15, aff’d, 712 F.3d 581 (D.C. Cir. 2013).

Petitioner offered little argument or evidence to meet his burden of proof

that there was reasonable cause for the underpayment. Petitioner’s only argument

was that he did not understand that he owed the additional tax; for example, he

testified that he was not aware of the AMT or the net investment income tax until

he received the notice of deficiency. Petitioner’s assertions that he did not

understand that he owed the AMT or the net investment income tax are

insufficient to demonstrate reasonable cause and good faith. See id. Petitioner is

not an unsophisticated taxpayer; he is a professional, an electrical engineer, who

has filed Federal income tax returns for a number of years. Petitioner cannot rely

on the advice of a professional because he did not consult a professional such as a

C.P.A. or a tax return preparer. See sec. 1.6664-4(b)(1), Income Tax Regs.

Petitioner did not demonstrate that he made a sufficient effort to assess the

proper tax liability. Petitioner testified that he read the instructions for the forms

when preparing his 2013 Form 1040, but it is unclear which of these instructions

he read. Petitioner was aware of tax preparation software and other resources
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available to him to assist with preparing his Federal income tax returns.

4

Petitioner did not consult any resources outside of the instructions, such as an

Internal Revenue Service publication or any online resources. See sec. 6664(c)(1);

sec. 1.6664-4(b)(1), Income Tax Regs. Therefore, we conclude that petitioner did

not prove that he acted with reasonable cause and in good faith.

Accordingly, we sustain the accuracy-related penalty.

We have considered all of the parties’ arguments, and, to the extent not

addressed herein, we conclude that they are moot, irrelevant, or without merit.

To reflect the foregoing,

Decision will be entered for

respondent.

4Petitioner testified that he used tax preparation software to assist with

preparing his Federal income tax returns for other tax years, and it appears that he

used tax preparation software for his 2012 Form 1040, which was electronically

prepared and timely filed. It does not appear that respondent made any

adjustments to petitioner’s 2012 return.