1 Unless otherwise indicated, subsequent section

references are to the Internal Revenue Code in effect for the

years at issue.

T.C. Summary Opinion 2002-64

UNITED STATES TAX COURT

EUGENE I. AND LEONARDA T. VALDEZ, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 3053-01S. Filed May 31, 2002.

Eugene I. and Leonarda T. Valdez, pro se.

Dennis R. Onnen, 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.
- 2 -

Respondent determined deficiencies of $1,432, $1,372, and

$1,102 in petitioners' Federal income taxes, respectively, for

1997, 1998, and 1999 and corresponding penalties under section

6662(a) in the amounts of $286, $274, and $220.

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, petitioners'

legal residence was Albuquerque, New Mexico.

For each of the years in question, petitioners claimed

itemized deductions on a Schedule A, Itemized Deductions. 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. 

Other itemized deductions claimed by petitioners, although

substantiated, were less than the allowable standard deduction

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

the standard deduction for each of the 3 years at issue.

In the stipulation, petitioners 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 Eugene I. Valdez (petitioner) was employed for

the 3 years at issue as an architectural technician for a
- 3 -

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.

corporation that subcontracted its employees to the Intel Corp.

at Albuquerque, New Mexico. Mrs. Valdez was not employed during

1997 and 1998 and worked briefly for the Santa Fe Star Casino

during 1999.

Prior to the years at issue, petitioners engaged the

services of a certified public accountant, or a nationally

recognized tax preparation service, for the preparation of their

Federal income tax returns. For the years at issue, one of

petitioner's coworkers recommended that petitioners employ a

return preparer, Robin Beltran, because "this man can get you

more money back on your taxes than what you've been getting."2

When petitioners met with Mr. Beltran, for each of the 3

years they presented to him substantiation for itemized

deductions for home mortgage interest and real estate taxes. 

They presented no documentation to substantiate any other

itemized deductions. Nonetheless, the returns for each year

claimed the following itemized deductions (in addition to the two

aforementioned expenses for home mortgage interest and real

estate taxes):
- 4 -

 1997 1998 1999

 Charitable contributions $3,957 $3,030 $3,736

 Unreimbursed employee expenses

 (before the sec. 67(a)

 limitation) 6,577 7,710 4,775

Petitioners agree that they did not incur any unreimbursed

employee expenses during the 3 years at issue and had no

intention of claiming such expenses as deductions on their

returns. Even though petitioners made some charitable

contributions during the years at issue, they maintained no

records of their contributions and, likewise, had no intent to

claim such contributions as deductions. Petitioner's only

explanation for the inclusion of such items on their returns was

that the amounts on the returns simply "came out of his [Mr.

Beltran's] head."

Petitioners never examined the returns prepared by Mr.

Beltran except for the amounts claimed on the returns as refunds

for overpayments. Mr. Beltran advised petitioners to ignore any

correspondence they received from the Internal Revenue Service

questioning their returns, and petitioners followed that advice.

Petitioners contend they should be absolved of liability for

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

representations of their return preparer.
- 5 -

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 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. 
- 6 -

Stubblefield v. Commissioner, T.C. Memo. 1996-537; sec. 1.6664-

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

"Circumstances that may indicate reasonable cause and good faith

include an honest misunderstanding of fact or law that is

reasonable in light of all 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 penalty 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

Cir. 1990), affd. 501 U.S. 868 (1991). However, 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
- 7 -

and knowledge of the relevant facts to provide informed advice on

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

Petitioners made no effort to ascertain the professional

background and qualifications of their return preparer, Mr.

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

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

expect. Petitioners did not look beyond that, as they were

obviously interested more in the recommendation they had received

on Mr. Beltran that "this man can get you more money back on your

taxes than what you've been getting." The Court is satisfied

that petitioners knew they could only claim deductions that could

be substantiated, and, when their returns reflected refunds

considerably higher than what they normally would have received,

their failure to examine the returns or to have someone examine

the returns for them to ascertain the reasons for such

overpayments, constitutes negligence or disregard of rules or

regulations. Petitioners consciously failed to examine the

returns because they knew that the returns must have contained

information that was false. With the obvious reservations

petitioners had or should have had, they, nevertheless, failed to

ascertain from tax professionals whether their returns were

correctly prepared. These facts demonstrate to the Court that

petitioners made no reasonable effort to ascertain their correct

tax liabilities for the years at issue. Stubblefield v.
- 8 -

Commissioner, supra. On this record, the Court sustains

respondent on the section 6662(a) accuracy-related penalties for

the 3 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 petitioners conceded the deficiencies and challenged

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

petitioners' claim that they should not be liable for the

penalties to be frivolous and groundless. Petitioners 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,

petitioners realized that they had no case with respect to the

deficiencies but chose to continue to challenge the imposition of

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 be sustained, and

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

use of this Court as a vehicle for disgruntled litigants to
- 9 -

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

basis for relief from penalties that were determined by

respondent on facts that clearly are not sustainable. Golub v.

Commissioner, T.C. Memo. 1999-288. Petitioners, therefore, have

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

parties having cases with legitimate issues for the Court to

consider. Petitioners have 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 petitioners 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

for respondent.