# 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 14 -6 0

UNITED STAT ES TAX COURT MIC HAEL I. A GUGO AND CHIOMA AGUGO, Peti ti on ers v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 16 49 -1 3S . Fi le d J un e 2 4, 2 01 4.

Mi ch ael I. Agu go an d C hi om a Agu go , pro ses e. Eli zab eth M ou rg es , forres po nd en t.

SUMM ARY OPINION GERBER, Jud 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 . 1
Unl es s o th erwi se in di cat ed , all sec ti on refe ren ces are t o t he Int ern al 1 Rev enue Co de ineffe ctforth e y ears at i ss ue , andall Ru le refe ren ces are t o t he Tax Co urt Ru le s o f Prac ti ce an d P ro cedur e. All am ou nt s ar e ro un de d t o t he ne ares t d ol la r.- 2 -

Purs ua ntto sec ti on 74 63 (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 edde fic ie nc ie s i n a ndaccu racy-rela te d p en al ti es with res pe ctto pe ti ti on ers ’ Fed eral in co m e ta x fo r 20 09 , 20 10 , and20 11 (y ears at i ss ue ) as fol lo ws: Pen al ty

Year Defi ci en cy se c. 66 62 (a) 20 09 $2 1,6 79 $4 ,33 6 20 10 24 ,81 4 4,9 61 20 11 15 ,37 8 3,0 76 Afte r co nc es si on s, the re ar e two is su es forde ci si on . The fi rs t i ss ue is whet he r pe ti ti on ers are en ti tl edto va rio us bu si ne ss expe ns e d educ ti on s fo r th e y ears at is su e. W e h ol d the y

are n ot . The s eco ndis su e is whethe r pe ti ti on ers are l iabl e fo r accu racy-rela te d p en al ti es un de r se ct io n 6 66 2( a) fo r th e y ears at i ss ue . W e h ol d th ey are. Bac kg ro un d Pet it io ne rs res id edinMarylan d wh enth ey fil edth e p et it io n. Mr . Agu go worke d a t two d iff

eren t h os pi ta ls as areg is te rednurs e 6 0- 80 ho ur s a we ek du rin g th e y ears at i ss ue . He has sev eral ba ch el or ’s deg rees an d i s cu rren tl y en ro ll edina- 3 -

pr og ram to be co m e a m ed ic al do ct or . Mrs . Agu go is a m ed ic al do ct or alt ho ug h du rin g t he y ears at i ss ue sh e d idno t p ract ic e m ed ic in e an d was , in st ead , a st ay -at ho m e p aren t ca rin g fo r pe ti ti on ers ’ ch il dr en . Dur in g 2 00 8 p et it io ne rs be cam e in vo lv edinanin su ran ce s al es pro gr am kn own as “ W or ldFin an ci al Serv ic es ” (WFS). WFS was de si gn edto pro m ot e th e sa le of i ns ur an ce thr ou gh ne two rk in g wi th fri en ds an d fa mil y an d b y recrui ti ng ot he rs to sel l i ns ur an ce. Pet it io ne rs att en de d v ari ou s WFS se m in ars an d b ecame li cen se d t o s el l WFS in su ran ce p ro du ct s (i ns ur an ce ac ti vi ty) in 2 00 8 b utceas ed th e in su ran ce ac ti vi ty in 2 01 0 a fte r fai li ng to m ak e an y sal es . In20 11 pe ti ti on ers be ga n o ffer in g aho m e nur si ng care servi ce fo r Med ic ai d pa ti en ts (ho m e car e act iv ity ). Pet it io ne rs di d n otob ta in th e li cen se ne ces sa ry to be a Me di cai d h eath c are p ro vi de r an d a s o f th e st artof t he tri al ha d n ev er h ada ho m e care act iv ity

cli en t. Pet it io ne rs fil edtax returns forth e y ears at i ss ue . Peti ti on ers ’ rep orte d wag es ex ceed ed$1 78 ,00 0 fo r 20 09 an d 2 01 0 a ndex ceed ed$1 58 ,00 0 fo r 20 11 . Fo r eac h re tu rnpe ti ti on ers att ach eda Sch edul e A, Ite m iz edDedu ct io ns , anda Sch edul e C, Pro fitor Lo ss Fro m Bu si ne ss . The Sc he du le s C for20 09 -1 0 co nc ern edth e in su ran ce ac ti vi ty, an d t he on e fo r 20 11 co nc ern edth e h om e car e act iv ity . On b ot h t he Sch edul es A andth e Sch edul es C, pe ti ti on ers cla im ed- 4 -

de du ct io ns forten s o f th ou sa nd s o f do ll ars of p ur po rte d e xp en se s. Onth e Sch edul es C pe ti ti on ers di d n otrep ort tha t the y earn edan y

in co m e fro m

th e in su ran ce ac ti vi ty or th e h om e car e act iv ity . The cl ai m edit em iz edde du ct io ns an d bu si ne ss ex pe ns e d educ ti on s re du cedpe ti ti on ers ’ rep orte d F ed eral in co m e ta x t o zero for20 09 , to ap pr ox im at el y $1 ,10 0 fo r 20 10 , andto ap pr ox im at el y $1 ,60 0 fo r 20 11 . Mr. Ag ug o’s ac qu ai nt an ce M athi as Bam a p rep aredpe ti ti on ers ’ returns for th e y ears at i ss ue . Mr. Bam a d idno t t es ti fy , andth e rec or d d oe s n otest ab li sh hi s cred en ti al s o r ex pe rie nc e. Res po nd en t i ss ue d p et it io ne rs a no ti ce o f de fic ie nc y di sa ll owi ng th e de du ct io ns forall of t he Sch edul e C ex pe ns es an d s ub st an ti al ly all o f th e Sch edul e A exp en se s fo r eac h year atis su e. Pet it io ne rs fil eda pe ti ti on with t hi s C ou rt f or red et erm in at io n. Pe ti ti on ers have co nc ed edth atth ey are n oten ti tl edto th e di sa ll owe d S ch edul e A ex pe ns e d educ ti on s. Dis cu ss io n I. Burd enof P ro of Gen eral ly, th e Co m

m is si on er’s d et erm in at io ns are p res um edco rrec t, an d t he ta xp ay er b ears th e b ur de n o f pr ov in g o th erwi se . Rul e 1 42 (a); see W el chv. Helv eri ng , 29 0 U.S. 1 11 , 11 5 (1 93 3) . The b ur de n o f pr oo f m ay sh iftto th e- 5 -

Co m m is si on er i f th e ta xp ay er p ro ve s tha t h e o r sh e h as sat is fie d c ert ai n requi rem en ts . Sec. 7 49 1( a); see Bak er v . Comm is si on er, 1 22 T.C. 14 3, 1 68 (2 00 4) . Peti ti on ers ha ve ne ithe r cl ai m edth atth e b ur de n s hi fts to res po nd en t n or sh own th atth ey

co m pl ie d wi th th e requi rem en ts of s ect io n 7 49 1( a). The burd enof pr oo f, th eref

or e, rem ai ns onpe ti ti on ers . II. Carry in g Ona Trad e o r Bu si ne ss Sect io n 1 62 (a) p ro vi de s tha t “ [t]he re s ha ll be all owe d a s a d educ ti on all th e or di na ry an d n eces sa ry

ex pe ns es pa idor i nc urreddu rin g t he tax ab le y ear i n carry in g o n a ny trad e o r bu si ne ss ”. Res po nd en t co nt en ds th atpe ti ti on ers ha ve no t sh own th atth ei r in su ran ce ac ti vi ty andho m e car e act iv ity ris e to th e le ve l o f carry in g o n atra de or b us in es s wi th in th e m ean in g o f se ct io n 1 62 an d t he refo re ar e no t en ti tl edto de du ctan y ex pe ns es forth os e act iv it ie s. We agre e. A tax pa y er g en eral ly m ay de du ctord in ary an d n eces sa ry bu si ne ss ex pe ns es pa idor i nc urredincarry in g o n a ny trad e o r bu si ne ss . Sec. 1 62 (a). Th e ta xp ay er m us t s at is fy

two cri te riato be en ga ge d i n atra de or b us in es s; nam el y , th e ta xp ay er m us t b e in vo lv edinth e act iv ity with c on ti nu ity

an d re gu la rit y , andth e ta xp ay er’s pr im ary pu rp os e fo r en ga gi ng inth e act iv ity m us t b e fo r in co m e o r pr of it . Co m m is si on er v . Groe tz in ge r, 48 0 U.S. 2 3, 3 5 (1 98 7) .- 6 -

Pet it io ne r worke d 6 0 t o 8 0 h ou rs a weekas anu rs e dur in g t he y ears at i ss ue an d n ev er ea rn edany

in co m e fro m

eit he r th e in suran ce ac ti vi ty or th e h om e car e act iv ity . Bes id es anin su ran ce l ic en se , pet it io ne rs off eredno do cu m en ta ti on to sh ow tha t ei th er the in su ran ce ac ti vi ty or th e h om e car e act iv ity was abo nafid e tra de or b us in es s. In st ead , pet it io ne rs rel ie d o n M r. Agu go ’s tes ti m on y . Pet it io ne r’s te st im on y

was v ag ue , in co m

pl et e, in co ns is te nt , andwho ll y in su ffi ci en t t o e st ab li sh th atpe ti ti on ers co nduc te d t he in su ran ce ac ti vi ty or th e ho m e car e act iv ity

co nt in ua ll y , reg ul arl y , andwith t he pri m ary pu rp os e o f earni ng a p ro fit . W e th eref

or e h ol d t ha t p et it io ne rs are n oten ti tl edto de du ctan y ex pe ns es with re sp ectto th e in su ran ce ac ti vi ty or th e h om e car e act iv ity . It i s the refo re 2
un ne ces sary

to de ci de whet he r pe ti ti on ers ha ve subs ta nt iate d t he ex pe ns es rep orte d o n t he Sch edul es C. In a ny even t, m os t o f th e am ou nt s wo ul d n otm eet th e m or e st rin ge ntsubs ta nt ia ti onrequi rem en ts of s ect io n 2 74 . III. Accu racy-Rel at edPen al ti es Res po nd en t al so de te rm in ed20 % accu racy-rela te d p en al ti es un de r se ct io n 66 62 (a) o n t he un de rp aym en ts of t ax for th e y ears at i ss ue . Res po nd en t de te rm in edth atpe ti ti on ers are l iabl e fo r th e p en al ti es be cau se th ey subs tant ia ll y Bec au se pe ti ti on ers di d n otha ve gro ss in co m e fro m th e in su ran ce ac ti vi ty 2 orth e h om e car e act iv ity , th ey are n oten ti tl edun de r se c. 18 3( b) to an y de du ct io ns with re sp ectto th os e act iv it ie s.- 7 -

un de rs ta te d the ir i nc om e ta x fo r eac h year withi n t he m ean in g o f se ct io n 66 62 (b )(2 ) an d (d )(1 ). An “ un de rs ta te m en t” m ean s the ex ces s o f th e am ou ntof th e ta x re qu ire d t o b e sh ownon th e return o ve r th e am ou ntof t he tax im po se d whi chis sh own on th e return, re du cedby any reb at e. Sec. 6 66 2( d) (2 )(A). Inth e cas e o f anin di vi du al , an u nd ers ta te m en t i s s ub st an ti al if i t ex ceed s the gre at er o f 10 % of t he tax requi redto be sh own on th e in co m e ta x re turnor $ 5,0 00 . Sec. 66 62 (d )(1 )(A). Res po nd en t b ears th e b ur de n o f pr oduc ti on with re sp ectto pe ti ti on ers ’ li ab il ity for th e acc ur acy-rela te d p en al ti es de te rm in edinth e n ot ic e o f de fic ie nc y an d m us t the refo re p ro du ce ev id en ce tha t i t i s ap pr op ria te to im po se th es e pe na lt ie s. See sec . 74 91 (c); see als o Hi gb ee v . Comm is si on er, 1 16 T.C. 43 8, 4 46 (2 00 1) . For e ach y ear at i ss ue , pet it io ne rs ’ un de rs ta te m en t o f in co m e ta x e xc eed s th e g reat er o f 10 % of t he tax requi redto be sh own on th e return o r $5 ,00 0. Acco rd in gl y , res po nd en t h as m ethi s b ur de n o f pr oduc ti on . An ac cu racy-rela te d p en al ty is n otim po se d o n a ny po rti onof t he un de rs ta te m en t as to whi chth e ta xp ay er ac te d wi th reas on ab le cau se an d i n g oo d fai th . Sec. 6 66 4( c)(1 ). Rel ianc e o n t he advi ce o f a t ax pro fes si on al m ay co ns ti tu te reas on ab le cau se an d g oo d fa ith i f un de r al l the fact s an d c irc um st an ces th e rel ia nc e is reas on ab le an d i n g oo d fa ith. Neo na to lo gy Asso cs ., P.A. v.- 8 -

Co m m is si on er, 1 15 T.C. 43 , 98 (20 00 ), aff’d, 2 99 F.3d22 1 (3 d C ir. 2 00 2) ; s ec. 1.6 66 4- 4( c)(1 ), In co m e Tax Reg s. To qu al ify for thi s ex cep ti on , a tax pa y er m us t pr ov e b y a pr ep on de ran ce o f th e ev id en ce tha t: (1) th e advi se r was a co m pe te nt pr of es si on al who ha d s uf

fic ie ntex pe rti se to jus ti fy rel ia nc e, (2 ) th e ta xp ay er pr ov id edne ces sa ry

an d a ccu rat e in fo rm at io n t o the advi se r, an d (3 ) th e ta xp ay er actua ll y rel ie d i n g oo d fa ith o n t he 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. at 9 8- 99 . Pet it io ne rs co nt en d t ha t the y rel ie d o n M r. Bam a to pre pa re the ir r eturns for th e y ears at i ss ue co rrec tl y . Mr. Bam a d idno t t es ti fy , andpe ti ti on ers fai le d t o es tabl is h wi thcred ib le ev id en ce M r. Bam a’s cred en ti al s an d e xp eri en ce wi th res pe ctto pre pa rin g F ed eral in co m e ta x re tu rn s. Ad di ti on al ly, pe ti ti on ers di d n ot es tabl is h wi than y

sp eci fic ity

th e in fo rm at io n p ro vi de d t o M r. Bam a reg ard in g t he in su ran ce ac ti vi ty or th e h om e car e act iv ity . W e fi ndth atpe ti ti on ers ha ve fai le d t o sh ow M r. Bam a was a co m pe te ntpro fes si on al with s uf fic ie ntex pe rti se to jus ti fy rel ia nc e an d t ha t the y

pro vi de d h im

with n eces sa ry

an d a ccu rat e in fo rm at io n. Pet it io ne rs fai le d t o o th erwi se sh ow tha t the y act edwith re as on ab le cau se an d i n go odfai th with re sp ectto th e rel ev an t u nd erp aym en ts . Accor di ng ly, we ho ldth at pe ti ti on ers are l iabl e fo r acc ur acy-rela te d p en al ti es for th e y ears at i ss ue .- 9 -

To re fle ctth e fo reg oi ng , Deci si on wil l b e en te redfor res po nd en t.