1Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the year at issue. All

Rule references are to the Tax Court Rules of Practice and

Procedure.

T.C. Memo. 2003-236

UNITED STATES TAX COURT

ANDRAS HAUTZINGER, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 9501-02. Filed August 8, 2003.

Andras Hautzinger, pro se.

Sean R. Gannon, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

CHIECHI, Judge: Respondent determined a $15,098 deficiency

in, and a $3,019.60 accuracy-related penalty under section

6662(a)1 on, petitioner’s Federal income tax (tax) for 1998.
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2Raytheon issued to petitioner Form W-2, Wage and Tax Statement (Form W-2), for 1998 showing wages of $18,498.18 and a

separate Form W-2 for that year showing additional wages of

$48,983.38. 

The issues for decision are:

(1) Are the wages that petitioner received during 1998 while

he was residing and working in Johnston Island excludable from

petitioner’s gross income for that year under section 931 or

section 911? We hold that they are not.

(2) Is petitioner liable for the year at issue for the

accuracy-related penalty under section 6662(a)? We hold that he

is.

FINDINGS OF FACT

Most of the facts have been stipulated by the parties and

are so found.

At the time petitioner filed the petition in this case, he

resided in Aurora, Illinois. 

During the year at issue, petitioner was a resident of

Johnston Island, a possession of the United States located

southwest of Hawaii. 

During the year at issue, while petitioner was a resident of

Johnston Island, Raytheon Demilitarization Company (Raytheon)

employed him as a utility worker, for which he received total

wages of $67,482.2 
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During the year at issue, Raytheon required petitioner to

take a two-week leave following each two-month period that he

spent working in Johnston Island. Petitioner usually spent each

two-week leave in Hawaii. 

When petitioner arrived for each two-week leave at the

airport in Honolulu, Hawaii, he (1) usually passed through the

section of that airport designated for foreign travelers and 

was required to show his passport to U.S. Customs officials and

(2) occasionally was required to complete U.S. Customs forms. In

the event that petitioner or other Raytheon employees did not

have their passports with them, U.S. Customs officials allowed

them to enter Hawaii but directed them to carry their passports

with them upon their next visit to Hawaii. 

On April 15, 1999, petitioner filed Form 1040, U.S. Individual Income Tax Return (return), for his taxable year 1998. In

that return, petitioner reported wage income of $67,482 and

claimed an exclusion from gross income of $67,482. In support of

that claimed exclusion, petitioner attached Form 4563, Exclusion

of Income for Bona Fide Residents of American Samoa (Form 4563),

to his 1998 return. In that form, petitioner claimed that: He

began residing in American Samoa on June 4, 1997; he was residing

there throughout 1998; he did not maintain any home outside

American Samoa during that year; and he was entitled to exclude

from his gross income for 1998 the entire amount (i.e., $67,482)
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of the wages that he received during that year while residing and

working in American Samoa. Petitioner did not disclose anywhere

in Form 4563 that he attached to his return for 1998 that he was

residing and working in Johnston Island during that year. 

Respondent issued to petitioner a notice of deficiency

(notice) with respect to his taxable year 1998. In that notice,

respondent determined to disallow petitioner’s claimed exclusion

from gross income of his wages of $67,482 on the ground that

petitioner was not a resident of American Samoa during 1998. 

Respondent further determined in the notice that petitioner is

liable for that year for the accuracy-related penalty under

section 6662(a). 

OPINION

Petitioner filed his 1998 return on April 15, 1999. We

presume that respondent’s examination of that return began after

July 22, 1998, and that section 7491(a) is applicable in the

instant case. However, there are no factual issues remaining in

dispute relevant to ascertaining the liability of petitioner for

the deficiency that respondent determined for the year at issue. 

We find that the burden of proof does not shift to respondent

under section 7491(a) and that petitioner has the burden of

proving that respondent’s deficiency determination is wrong. 

Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).

It is petitioner’s position that he is entitled for the year
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3Respondent also argues that petitioner’s wage income for

1998 is not excludable under sec. 911.

4The Treasury Department promulgated the last amendment to

section 1.931-1, Income Tax Regs., in 1975. T.D. 7385, 1975-2

C.B. 298. 

at issue to exclude from his gross income under section 931 the

wages that he received from Raytheon during that year. In

support of that position, petitioner relies on section 1.931-1,

Income Tax Regs. Although not altogether clear, it appears that

petitioner is arguing that, because section 1.931-1(a)(1), Income

Tax Regs., provides that the term “possession of the United

States” includes Johnston Island, he is entitled for 1998 to

exclude the wages that he received while residing and working

there during that year. Respondent counters that petitioner’s

wages for the year at issue are not excludable under section

931.3 We agree with respondent.

The Treasury Department promulgated section 1.931-1, Income

Tax Regs., under section 931 prior to its amendment (old section

931) by section 1272(a) of the Tax Reform Act of 1986 (TRA 1986),

Pub. L. 99-514, 100 Stat. 2593.4 Old section 931 permitted

citizens of the United States to exclude income derived from

sources within possessions of the United States, except Puerto

Rico, the U.S. Virgin Islands, and Guam, if certain conditions

were satisfied. Although old section 931 did not define the term

“possession of the United States”, regulations promulgated under
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5Sec. 1.931-1, Income Tax Regs., provided in pertinent part:

§ 1.931-1. Citizens of the United States and domestic

corporations deriving income from sources within a

possession of the United States.--(a) Definitions.--

(1) As used in section 931 and this section, the term

“possession of the United States” includes American

Samoa, Guam, Johnston Island, Midway Islands, the

Panama Canal Zone, Puerto Rico, and Wake Island. * * *

[Emphasis added.]

old section 931 on which petitioner is relying provided that the

term “possession of the United States” included Johnston Island.5

Section 1272(a) of the TRA 1986 amended old section 931 to

exclude from income, in the case of an individual who is a bona

fide resident of a “specified possession” during the entire

taxable year, gross income derived from sources within any such

“specified possession”. Section 931, as amended by section

1272(a) of the TRA 1986 and as in effect for the year at issue

here, defines the term “specified possession” to mean only Guam,

American Samoa, and the Northern Mariana Islands. Sec. 931(c).

In Specking v. Commissioner, 117 T.C. 95 (2001), affd. sub

nom. Haessly v. Commissioner, __ Fed. Appx. __ (9th Cir., June

16, 2003), we addressed the precise argument under section 1.931-

1, Income Tax Regs., that petitioner advances in the instant

case. We concluded in Specking: 

Petitioners’ reliance on section 1.931-1, Income

Tax Regs., is misplaced. The regulatory language on

which petitioners rely defines the term “possession”

for purposes of old section 931. As we have concluded

above, that provision no longer applies to petitioners. 

Consequently, the regulatory provision also has no
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6Petitioner does not rely on sec. 911 in support of his

position that his wage income for 1998 is excludable from his

gross income. For the sake of completeness, respondent nonetheless argues on brief that sec. 911 does not entitle petitioner to

exclude his wages for 1998 from his gross income for that year. 

We agree with respondent. In Specking v. Commissioner, 117 T.C.

95, 111-116 (2001), affd. sub nom. Haessly v. Commissioner, __

Fed. Appx. __ (9th Cir., June 16, 2003), we rejected the

taxpayers’ alternative argument that, in the event the Court were

to hold that their compensation was not excludable from gross

income under sec. 931, such compensation was excludable under

sec. 911. For the reasons set forth in Specking, we conclude

that sec. 911 does not entitle petitioner to exclude from his

gross income for 1998 the wages that he received during that year

while he was residing and working in Johnston Island. Id.

application to them and is obsolete as to petitioners.

Id. at 110-111.

We reject petitioner’s reliance on section 1.931-1, Income

Tax Regs., in the instant case for the same reasons we rejected

the taxpayers’ reliance on that regulation in Specking v. Commissioner, supra. 

On the record before us, we find that for the year at issue

petitioner may not exclude under section 931 any of the wages

that he received from Raytheon during that year while he was

residing and working in Johnston Island.6 Specking v. Commissioner, supra; see also Farrell v. United States, 313 F.3d 1214

(9th Cir. 2002). 

We turn now to the determination in the notice that petitioner is liable for the year at issue for the accuracy-related

penalty under section 6662(a). According to respondent, petitioner is liable for that penalty because of negligence or
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disregard of rules or regulations under section 6662(b)(1) or a

substantial understatement of income tax under section

6662(b)(2). Respondent has the burden of production under

section 7491(c) with respect to that penalty. To meet that

burden, respondent must come forward with sufficient evidence

indicating that it is appropriate to impose the relevant penalty. 

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

For purposes of section 6662(a), the term "negligence"

includes any failure to make a reasonable attempt to comply with

the Code, and the term "disregard" includes any careless, reckless, or intentional disregard. Sec. 6662(c). Negligence has

also been defined as a lack of care or failure to do what a

reasonable person would do under the circumstances. Leuhsler v.

Commissioner, 963 F.2d 907, 910 (6th Cir. 1992), affg. T.C. Memo.

1991-179; Antonides v. Commissioner, 91 T.C. 686, 699 (1988),

affd. 893 F.2d 656 (4th Cir. 1990).

The record establishes that petitioner attached Form 4563 to

his 1998 return, in which he claimed that he resided in American

Samoa throughout 1998. The record further establishes petitioner

resided and worked in Johnston Island throughout that year. On

the record before us, we find that respondent has satisfied

respondent’s burden of production under section 7491(c) with

respect to the accuracy-related penalty under section 6662(a)

determined in the notice.
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The accuracy-related penalty under section 6662(a) does not

apply to any portion of an underpayment if it is shown that there

was reasonable cause for, and that the taxpayer acted in good

faith with respect to, such portion. Sec. 6664(c)(1). The

determination of whether the taxpayer acted with reasonable cause

and in good faith depends on the pertinent facts and circumstances, including the taxpayer's efforts to assess his or her

proper tax liability, the knowledge and experience of the taxpayer, and the reliance on the advice of a professional, such as

an accountant. Sec. 1.6664-4(b)(1), Income Tax Regs.

Petitioner argues that he was not negligent and did not

disregard rules or regulations. That is because, according to

petitioner, he relied upon the advice of Dina Caleda (Ms.

Caleda), a certified public accountant who prepared his return

for 1998, when he excluded from the gross income that he reported

in that return the wages that he received during that year while

he was residing and working in Johnston Island. A taxpayer

claiming reliance on an accountant (or other professional) must

show that the taxpayer supplied such accountant with all the

correct and necessary information and that the error in the

return was the result of the accountant’s error. Westbrook v.

Commissioner, 68 F.3d 868, 881 (5th Cir. 1995), affg. T.C. Memo.

1993-634; Weis v. Commissioner, 94 T.C. 473, 487 (1990); Ma-Tran

Corp. v. Commissioner, 70 T.C. 158, 173 (1978).
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7In this connection, petitioner attached Form 4563 to his

1998 return in which he claimed, inter alia, that he resided in

American Samoa throughout 1998. Nowhere in that form did petitioner indicate that he resided and worked in Johnston Island

throughout that year. Information about where petitioner resided

during 1998 is information that petitioner would have provided to

Ms. Caleda, and he evidently misinformed her about the location

of his residence during that year. 

The only evidence that petitioner presented to establish his

reliance on Ms. Caleda’s purported advice was his uncorroborated

and questionable testimony, on which we are unwilling to rely. 

Assuming arguendo that we were to accept petitioner’s claim that

he relied on Ms. Caleda’s advice, petitioner has failed to

establish that he supplied correct information to Ms. Caleda and

that the error in his 1998 return in excluding his wage income

from his gross income was the result of Ms. Caleda’s error. In

fact, the record strongly suggests that petitioner provided Ms.

Caleda with incorrect information as to where he resided during

19987 and that the error in petitioner’s return was the result of

that incorrect information and not Ms. Caleda’s error.

On the instant record, we find that petitioner has failed to

show that he was not negligent and did not disregard rules or

regulations within the meaning of section 6662(b)(1), or otherwise did what a reasonable person would do, with respect to the

underpayment for the year at issue. On that record, we further

find that petitioner has failed to show that he acted with

reasonable cause and in good faith with respect to the underpay-
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8We have found that petitioner is liable for the year at

issue for the accuracy-related penalty under sec. 6662(a) because

of negligence or disregard of rules or regulations under sec.

6662(b)(1). In light of that finding, we shall not address

respondent’s alternative argument that petitioner is liable for

the year at issue for the accuracy-related penalty under sec.

6662(a) because of a substantial understatement of income tax

under sec. 6662(b)(2).

ment for the year at issue. See sec. 6664(c)(1). On the record

before us, we find that petitioner has failed to establish that

he is not liable for the year at issue for the accuracy-related

penalty under section 6662(a).8

To reflect the foregoing,

Decision will be entered for

respondent.