# 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 13 -8 8

UNITED STAT ES TAX COURT

CHRIS TOPHER DEFRANCIS AND JENNIFER GROS S, Pet it io ne rs v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 24 28 2- 11 S. File d No ve m be r 6, 2 01 3.

Ro na ldP. W ei ss , forpe ti ti on ers . Mi ch ael R. Fio re an d C arl to n W. King , forres po nd en t.

SUMM ARY OPINION PANUTHOS, Chi ef Sp eci al Trial Ju dg e: Thi s ca se was h eardpu rs ua ntto th e p ro vi si on s o f se ct io n 7 46 3 o f th e In te rn al Rev enue Co de ineffe ctwhen th e 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 rev ie wab le by any

ot he r co urt, an d thi s o pi ni on sh al l n otbe tre at edas p rece de nt- 2 -

fo r an y ot he r cas e. All sec ti on refe ren ces are t o the Int ern al Rev enue Co de in effe ctforth e y ear i n i ss ue , andall Ru le refe ren ces are t o t he Tax C ou rt Rul es of Prac ti ce an d P ro cedur e, un le ss ot he rwis e in di cat ed . Ina no ti ce o f de fic ie nc y

da te d S ep te m

be r 6, 2 01 1, re sp on de ntde te rm in eda de fic ie nc y

of $ 6,7 30 inpe ti ti on ers ’ 20 09 Fed eral in co m e ta x a nda se ct io n 6 66 2( a) accu racy-rela te d p en al ty of $1 ,34 6. Th e is su es forde ci si onare: (1) whet he r pe ti ti on ers are en ti tl edto a ho m e m ortg ag e in te res t d educ ti on inex ces s o f th e am ou ntres po nd en t al lo wed ; an d (2 ) whe th er p et it io ne rs are l iabl e fo r th e se ct io n 66 62 (a) a ccu racy-rela te d p en al ty. Bac kg ro un d Thi s ca se was s ub m it te d fu ll y st ip ul at ed . The s ti pu la ti on of f act s an d t he ex hi bi ts att ach edth eret o a re i nc or po rat edhe rei n b y

th is refe ren ce. Pet it io ne rs res id edinMas sa chus et ts at t he ti m e th e p et it io n was fil ed . On Oct ob er 3 1, 2 00 1, p et it io ne rs pu rch as edreal pro pe rty at 4 1 M ayna rd Ro adinNort ha m

pt on , Mas sa ch us et ts (MaynardRo adpro pe rty), for $ 36 5,0 00 . On J anua ry

1, 2 00 3, p et it io ne rs si gn eda do cu m en t d es cri be d a s a “ m ortg ag e no te ” (m ortg ag e n ot e), p ro m is in g t o p ay Jo anGros s, p et it io ne r Je nn ife r Gro ss ’ m ot he r, $4 27 ,33 3 p lu s i nt eres t i n re tu rnfora m ortg ag e lo an . The m ortg ag e n ot e pr ov id edth atpe ti ti on ers wou ldpa y m on th ly int eres t atanan nu al rat e o f 4.5 %.- 3 -

Pet it io ne rs ’ fir stm on th ly int eres t p aym en t o f $1 ,60 2.5 0 was du e o n F eb ru ary 1, 20 03 . The fu ll pri nc ip al am ou ntof t he m ortg ag e n ot e was du e an d p ay ab le on Ja nu ary 1, 2 03 3. On J anua ry

1, 2 00 3, p et it io ne rs si gn edan ot he r do cu m en t en ti tl ed

“ Mo rtg ag e” (m ortg ag e). Thi s d oc um en t p ro vi de d t ha t p et it io ne rs are i nd eb te d t o Jo anGros s i n t he pri nc ip al su m of $ 42 7,3 33 . The d oc um en t fu rth er p ro vi de s t ha t pe ti ti on ers “ he reb y

m ortg ag e g ran t, co nv ey

an d a ss ig n t o * * * [Jo anGros s] th e pr op erty with a n a dd res s o f 41 MaynardRo ad ”. Pet it io ne rs an d J oa n Gro ss si gn ed th e m ortg ag e d oc um en t. The do cu m en t i s n otno ta riz edor r eco rd ed . On Se pt em

be r 8, 2 00 8, p et it io ne rs si gn eda do cu m en t en ti tl ed“ Ope n En d Mo rtg ag e” wi th TD Bank , N.A. (TD Ban k m ortg ag e). Whe n t he y ap pl ie d fo r th e TD Ban k m ortg ag e, pe ti ti on ers di d n otdi sc lo se th e ex is te nc e o f th ei r in de bt edne ss to Jo anGros s. Th e $ 20 0,0 00 TD Bankm ortg ag e was sec ur edby the Maynard Ro adpro pe rty, andth e m ortg ag e was reco rd edwith t he Ham ps hi re Co un ty Reg is try of Deed s o n S ep te m be r 22 , 20 08 . Dur in g 2 00 9 p et it io ne rs pa idJo anGros s a t ot al of $ 19 ,23 0. Pe ti ti on ers tre at edth e ex pe nd itur e as a pa y m en t o f ho m e m ortg ag e in te res t. In20 09 pe ti ti on ers als o p ai d i nt eres t o n t he TD Bankm ortg ag e o f $1 ,13 8. Pe ti ti on ers- 4 -

cl ai m eda ho m e m ortg ag e in te res t d educ ti on of $ 20 ,36 8 o n t he ir 2 00 9 S ch edul e A, Ite m iz edDedu ct io ns . Res po nd en t s el ect edpe ti ti on ers ’ 20 09 Fed eral in co m e ta x re tu rnfor ex am in at io n. Re sp on de nt ’s age ntno te d t ha t the ho m e m ortg ag e in te res t d educ ti on pe ti ti on ers cla im ed --$ 20 ,36 8- -ex ceed edth e am ou ntrep orte d t o re sp on de nton th e Fo rm 10 98 , Mo rtg ag e In te res t St at em en t, fro m TD Bank , N.A. In ano ti ce o f de fic ie nc y

res po nd en t d is al lo wed$1 9,2 30 of p et it io ne rs ’ $2 0,3 68 cla im edho m e m ortg ag e in te res t d educ ti on . Res po nd en t as se rts th atpe ti ti on ers are n oten ti tl edto de du ctth e $ 19 ,23 0 und er s ect io n 1 63 (h ). The $ 1,1 38 of h om e m ortg ag e in te res t pa idto TD Bank , N.A. an d re po rte d o n F orm 10 98 is no t i n d is pu te . Res po nd en t al so de te rm in edanaccu racy-rela te d p en al ty und er s ect io n 6 66 2( a) o f $1 ,34 6. Dis cu ss io n I. Bu rd enof P ro of The Co m m is si on er’s d et erm in at io n i n ano ti ce o f de fic ie nc y is pre su m ed co rrec t, an d t he tax pa y er g en eral ly bears th e b ur de n o f pr ov in g t ha t the de te rm in at io n i s i nc orrect . Rul e 1 42 (a); W el ch v. Hel ve rin g, 2 90 U.S. 11 1, 1 15 (1 93 3) . The s ub m is si on of acas e fu ll y st ip ul at eddo es no t al te r th e b ur de n o f pr oo f. See Ru le 12 2( b) ; Bo rch ers v. Co m m is si on er, 9 5 T.C. 8 2, 9 1 (1 99 0) , aff’d, 94 3 F .2d22 (8th C ir. 1 99 1) .- 5 -

Pu rs uantto sec ti on 74 91 (a), the burd enof p ro of as t o fa ctua l m at te rs sh ift s to th e Co m

m is si on er u nd er ce rta in cir cu m st an ces . Peti ti on ers ha ve no t al le ge d th atsec ti on 74 91 (a) app li es , no r do es th e rec or d e st ab li sh th atpe ti ti on ers sat is fy th e se ct io n 7 49 1( a)(2 ) requi rem en ts . Peti ti on ers th eref or e b ear t he burd enof pr oo f. See Ru le 14 2( a). Deduc ti on s ar e al lo wedso le ly as a m at te r of leg is la ti ve gra ce. Dep ut y v. du Po nt , 30 8 U.S. 4 88 , 49 3 (1 94 0) ; New Co lo ni al Ice Co . v. Hel ve rin g, 2 92 U.S. 43 5, 44 0 (1 93 4) . A tax pa y er b ears th e b ur de n o f pr ov in g e nt it le m en t t o a ny deduc ti on cl ai m ed . See Ru le 14 2( a); INDOPCO, In c. v. Co m mis si on er, 5 03 U.S. 79 , 84 (1 99 2) ; Welch v. Hel ve rin g, 2 90 U.S. at 1 15 . A taxpa y er i s re qu ire d t o m ai nt ai n reco rd s s uf

fic ie ntto subs ta nt ia te de du ct io ns cla im edon a Fed eral in co m e ta x return. Se c. 60 01 ; s ec. 1 .60 01 -1 (a), (e ), In co m e Tax Reg s. Inot he r wor ds , th e ta xp ay er b ears th e b ur de n o f pr ov in g e nt it le m en t t o t he de du ct io ns cla im ed , and th is in cl ud es th e b ur de n o f subs ta nt ia ti on . Rul e 1 42 (a); Hrad es ky v. Co m m is si on er, 6 5 T.C. 8 7, 9 0 (1 97 5) , aff’d p er cu ria m , 54 0 F .2d82 1 (5 th Cir . 19 76 ). II. Hom e Mo rtg ag e In te res t Deduc ti on As a g en eral rul e, a ta xp ay er m ay cla im a de du ct io n fo r “ al l i nt eres t p ai d o r accrue d wi th inth e ta xabl e y ear o n i nd eb te dn es s.” Se c. 16 3( a). In de bt edne ss- 6 -

m ean s an un co nd it io na l an d l eg al ly enfo rceabl e o bl ig at io n fo r th e p aym en t o f m on ey . Aut en rei thv. Co m mis si on er, 1 15 F.2d85 6, 8 58 (3dCir . 19 40 ), aff’g 4 1 B.T.A. 31 9 (1 94 0) ; Li nd er v . Comm is si on er, 6 8 T.C. 7 92 , 79 6 (1 97 7) . 1 Sect io n 1 63 (h ) pr oh ib it s an in di vi du al tax pay er fro m cla im in g ade du ct io n fo r pe rs on al in te res t p ai d o r acc ru eddu rin g t he tax ab le y ear. On e o f th e li mit ed ex cep ti on s t o t hi s g en eral rul e p erm it s i nd iv idua ls to de du ctqu al ifi edres id en ce in te res t. Sec . 16 3( h) (2 )(D). Qua li fie d re si de nc e in te res t i s i nt eres t p ai d o r acc ru ed du rin g t he tax ab le y ear o n a cqui si ti onin de bt edne ss or h om e equi ty ind eb te dn es s with re sp ectto an y

qu al ifi edres id en ce o f th e ta xp ay er. See sec . 16 3( h) (3 )(A). A qu al ifi edres id en ce i nc lu de s a t ax pay er’s p rin ci pa l re si de nc e. Sec. 16 3( h) (4 )(A)(i )(I). Th e p art ie s d o n otdi sp ut e th atth e Mayna rdRo adpro pe rty was pe ti ti on ers ’ pr in ci pa l re si de nc e. The d is pu te is whethe r pe ti ti on ers ’ pa y m en ts co ns ti tu te d qua li fie d re si de nc e in te res t. Pet it io ne rs co nt en d t ha t the am ou nt s p ai d to Jo anGros s i n 2 00 9 wer e “ qu al ifi edres id en ce i nt eres t” un de r se ct io n 1 63 (h )(3 ).

Whe re the trans act io n g iv in g ri se to th e cl ai m edin de bt edne ss is be twee n 1 fam il y m em be rs , th e ev id en ce p res en te d t o e st ab li sh su ch a de btm us t b e cl os el y sc ru ti ni zedforeco no m ic subs ta nc e. See Woo dwa rdv. Un it edSta te s, 2 08 F.2d 89 3 (8 thCir . 19 53 ); Wale s v . Comm is si on er, T.C. Mem o. 1 97 8- 12 5, af f’d wit ho ut publ is he d o pi ni on , 62 4 F .2d19 5 (9 th Cir . 19 80 ). Res po nd en t d oe s n otdi sp ut e th e bo nafid e n atur e o f th e in de bt edne ss .- 7 -

Qua li fie d re si de nc e in te res t i s an y in te res t p ai d o r acc ru eddu rin g the ta xabl e y ear o n a cqui si ti on in de bt edne ss or h om e equi ty ind eb te dn es s tha t i s se cu redby the qu al ifi edres id en ce o f th e ta xp ay er. Sec ti on 16 3( h) (3 )(B) pro vi de s:

(i) In g en eral .--Th e te rm

“ acqui si ti on in de bt edne ss ” m ean s an y in de bt edne ss whi ch
--

(I) i s i nc urredinacqui rin g, co ns tru ct in g, o r subs ta nt ia ll y

im pr ov in g a ny qu al ifi edres id en ce o f th e ta xp ay er, an d (II) i s s ecu redby suc h re si de nc e. Secu redde btm ean s: a d eb t tha t i s o n t he sec ur it y of any ins tru m en t (s uc h a s a m ortg ag e, de edof t ru st , or l an d c on tra ct )-- (i) Thatm ak es th e in te res t o f th e d eb to r in th e qua li fie d res id en ce s pe ci fic sec ur it y of t he pay

m en t o f th e d eb t, (ii ) Und er wh ic h, i n t he ev en t o f de fau lt , th e res id en ce co ul d b e subjec te d t o t he sat is fact io n o f th e d eb t wi th th e sa m e p rio rit y as a m ortg ag e o r de edof t ru stinth e juri sd ic ti oninwhi ch th e p ro pe rty is si tu at ed , and (ii i) Th atis reco rd ed , wher e p erm it te d, o r is othe rwis e pe rfec te d i n a cco rd an ce wi th ap pl ic ab le Sta te law. Sec. 1 .16 3- 10 T(o) (1 ), Tem po rary Inco m e Tax Reg s., 5 2 F ed . Reg . 48 41 7 (De c. 22 , 19 87 ) (em

ph as is ad de d) . 2 Whi le th e p art ie s fo cu se d s ol el y on whet he r th e d eb t was sec ur edas 2 (co nt in ue d...)- 8 -

The m ortg ag e ag reem en t i nd ic at es th atpe ti ti on ers ’ in te res t i n t he Maynard Ro adpro pe rty is s pe ci fic sec ur it y forth e p aym en t o f th e d eb t. See sec . 1.1 63 - 10 T(o) (1 )(i ), Tem

po rary Inco m e Tax Reg s., s up ra. The m ortg ag e ag reem en t s ta te s in pa rt: To s ecu re t o Len de r (a) t he rep aym en t o f th e in de bt edne ss ev id en ced by the [m ortg ag e] Note , with i nt eres t, the reo n * * * . Borro wers do he reb y m ortg ag e g ran t, co nv ey

an d a ss ig n t o Len de r th e p ro pe rty with anad dr es s o f 41 MaynardRo ad , Nort ham pt on , Mas sa ch us et ts , and de sc rib edinth e Deedreco rd edinDeedBo ok64 11 , DeedPag e 9 0, o f th e Ham ps hi re Co un ty Regi st ry

of De ed s. On the ba si s o f th es e d oc um en ts we co nc lu de th atpe ti ti on ers ha ve sat is fie d t he fir stele m en t o f a s ecu redde btun de r th e reg ul at io ns . See i d. The m ortg ag e n ot e atis su e was no t re co rd edwith t he Ham ps hi re Co un ty Reg is try of Deed s o r wit h a ny oth er p ub li c o ffi ce. Fai lu re t o re co rdth e m ortg ag e (...co nt inue d) 2 pr ov id edun de r se c. 16 3( h) (3 )(B) (i) (II), t he reco rdpre se nt edinth is ful ly sti pu la te d cas e su gg es ts th atpe ti ti on ers m ay ha ve fai le d t o s at is fy

th e p ro vi si on s o f se c. 16 3( h) (3 )(B) (i) (I), wh ic h re qu ire s t ha t the in de bt edne ss be in curredinacqui rin g, co ns tru ct in g, o r subs tant ia ll y im pr ov in g a ny qu al ifi edres id en ce o f th e ta xp ay er. The requi rem en ts of s ec. 1 63 (h )(3 )(B) are co njunc ti ve an d re qu ire a ta xp ay er t o sa ti sf y bo th ele m en ts inord er t o b e en ti tl edto a de du ct io n. Se e se c. 16 3( h) (3 )(B) . Si nc e res po nd en t d idno t as se rt o r arg ue th atpe ti ti on ers di d n otsat is fy th e pr ov is io ns of s ec. 1 63 (b )(3 )(B) (i) (I), we d o n otop in e o n t he is su e. Inan y ev en t, be cau se of o urco nc lu si onin fra o n t he sec on d c on jun ct iv e te st , th e fai lure t o di sc us s an d a na lyze th e o th er co nju nc ti ve tes t d oe s n otch an ge th e res ul t h erei n. W e ad dr es s t he sec ur edde btele m en t b ecau se th is was t he on ly sect io n o f th e st atut e an al y zedby eith er p arty .- 9 -

ex po se s t he m ortg ag e to po te nt ia l d efea t b y th irdparti es witho utactua l n ot ic e o f th e m ortg ag e, who are p ro te ct edby the Mas sa ch us et ts reco rd in g s ta tu te . See Ma ss . Ann . Laws ch . 18 3, s ec. 4 (Lex is Nex is 20 11 ). In M as sa ch us et ts , an u nr eco rd ed m ortg ag e is in va li d a s ag ai ns t thi rdpa rti es who do no t h av e actua l n ot ic e o f it . Mo or e v . Gerri ty, Co ., Inc ., 81 8 N.E.2d21 3 (M as s. Ap p. Ct . 20 04 ) (fi nd in g t ha t an un reco rd edm ortg ag e h adpri or it y ov er a re co rd edm ortg ag e o nl y to th e ex te ntth at th e le nd er h adactua l n ot ic e o f th e unr eco rd edm ortg ag e); Tram on to zzi v. D’ Am ic is , 18 3 N.E.2d29 5 (M as s. 1 96 2) ; s ee M as s. An n. Laws ch . 18 3, s ec. 4 . In th e ev en t o f a d efau lt , th e unr eco rd edm ortg ag e n ot e wou ldno t b e su ffi ci en t t o subjec t the res id en ce t o t he sat is fact io n o f th e d eb t wi th th e sa m e p rio rit y as a reco rd edm ortg ag e b ecau se th e unr eco rd edm ortg ag e n ot e is va li d o nl y ag ai ns t an y th irdpe rs on ha vi ng actua l n ot ic e o f it . There fo re, p et it io ne rs ha ve no t s at is fie d t he se co ndele m en t o f a s ecu redde btun de r th e reg ul at io ns . See s ec. 1 .16 3- 10 T(o) (1 )(i i), Tem

po rary Inco m e Tax Reg s., s up ra. Si nc e th e m ortg ag e was no t re co rd ed , we con si de r whe th er the m ortg ag e was othe rwis e p erfe ct edun de r Mas sa ch us et ts law. See sec . 1.1 63 -1 0T(o )(1 )(i ii ), Tem po rary Inco m e Tax Reg s., s up ra. The m ortg ag e m ay be va li d a nden fo rceabl e un de r St at e la w as b etweenpe ti ti on ers an d J oan Gro ss . See Ma ss . Ann . Laws ch . 18 3, s ec. 4 . Peti ti on ers ha ve no t, h owe ve r, es tabl is he d t ha t the m ortg ag e was- 10 -

ot he rwis e p erfe ct edun de r Mas sa ch us et ts law. We are no t p ers ua de d t ha t the m ortg ag e qua li fie s as a se cu redde btfortax pu rp os es si m pl y be cau se itm ay

be va li d u nd er St at e la w bet weenJo anGros s an d p et it io ne rs . Thu s, p et it io ne rs ha ve no t s at is fie d t he th irdele m en t o f a s ecu redde btun de r th e reg ul at io ns requi rin g th atth e m ortg ag e b e rec or de d o r ot he rwis e p erfe ct edun de r ap pl ic ab le Sta te law. See s ec. 1 .16 3- 10 T(o) (1 )(i ii ), Tem po rary Inco m e Tax Reg s., s up ra. Insu m m ary, pe ti ti on ers have no t es tabl is he d t ha t the ir i nd eb te dn es s t o J oa n Gro ss was asec ur edde btas d efi ne d u nd er the reg ul at io ns . See s ec. 1 .16 3- 10 T(o) (1 ), Tem

po rary Inco m e Tax Reg s., s up ra. On the ba si s o f th e fo reg oi ng , pet it io ne rs ha ve no t es tabl is he d t ha t m on ey s pa idto Jo anGros s i n 2 00 9 wer e qua li fie d re si de nc e in te res t. We the refo re s us ta in res po nd en t’s d et erm in at io n i n thi s re ga rd . III. Accu racy-Rel at edPen al ty Tax pa y ers m ay

be li ab le fora 20 % pe na lt y on th e p orti on of a n un de rp aym en t o f ta x a tt rib ut ab le to ne gl ig en ce, d is reg ardof rul es or r eg ul at io ns , ora subs ta nt ia l u nd ers ta te m en t o f in co m e ta x. Se c. 66 62 (a) a nd(b) (1 ) an d (2 ).

“Neg li ge nc e” i nc lu de s an y fai lure t o m ak e a rea so nabl e atte m ptto co m pl y with t he 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 ta nt ia te it em s p ro pe rly. See sec . 66 62 (c); sec . 1.6 66 2- 3( b) (1 ), In co m e Tax Reg s. A- 11 -

subs ta nt ia l u nd ers ta te m en t” in cl ud es anun de rs ta te m en t o f in co m e ta x t ha t ex ceed 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. Se e se c. 66 62 (d ); s ec. 1 .66 62 -4 (b ), In co m e Tax Reg s. The Co m m is si on er h as th e b ur de n o f pr oduc ti on un de r se ct io n 7 49 1( c) wi th res pe ctto th e acc ur acy-rela te d p en al ty und er s ect io n 6 66 2. To sat is fy th atbu rd en , th e Co m m is si on er m

us t p ro du ce s uf

fic ie ntev id en ce s ho win g t ha t i t i s ap pr op ria te to im po se th e p en al ty. Hig be e v . Comm is si on er, 1 16 T.C. 43 8, 4 46 (20 01 ). The un de rp aym en t o f ta x re qu ire d t o b e sh own on pe ti ti on ers ’ return i s t he res ul t o f a subs ta nt ia l u nd ers ta te m en t o f in co m e ta x b ecau se th e und ers ta te m en t o f $6 ,73 0, ex ceed s $ 5,0 00 , whi chis gre at er tha n 1 0% o f th e ta x re qu ire d t o b e sh own on th e return. Se e se c. 66 62 (b )(2 ), (d )(1 ); s ec. 1 .66 62 -4 (b )(1 ), In co m e Tax Reg s. Res po nd en t’s b ur de n o f pr oduc ti on ha s b een sat is fie d. The sec ti on66 62 accu racy-rela te d p en al ty doe s n otap pl y wher e th e ta xp ay er s ho ws tha t h e act edingo odfai th an d wi th reas on ab le cau se . Sec. 66 64 (c)( 1) . The d et erm in at io n o f whe th er a t axpa y er ac te d i n g oo d fa it h a ndwith reas on ab le cau se de pe nd s o n t he pe rti ne ntfact s an d c irc um st an ces , in cl ud in g t he ta xp ay er’s eff

orts to ass es s the pro pe r ta x l iabi li ty; th e kno wled ge an d t he ex pe rie nc e o f th e ta xp ay er; an d any reli an ce o n t he advi ce o f a p ro fes si on al , su ch as anacco un ta nt . Sec. 1 .66 64 -4 (b )(1 ), In co m e Tax Reg s.- 12 -

Pet it io ne rs co nt en d t ha t the lo anfro m Jo anGros s was a ho m e m ortg ag e lo anan d t ha t the y

are the refo re en ti tl edto a ho m e m ortg ag e in te res t d educ ti on . Res po nd en t d oe s n otass ertor i m pl y th atpe ti ti on ers ’ lo anfro m a fam il y m em be r was a fi ct io n o r ot he rwis e fraudul en t. The lo anm erel y fai le d t o s at is fy

th e st ric tu re o f th e reg ul at io ns th atth e lo anbe a “ se cu redlo an ”. Pet it io ne rs , who are no t t ax ex pe rts , bo rro wedm on ey fro m a fam il y m em be r in th e fo rm

of aho m e m ortg ag e lo anan d p ai d tha t fam il y m em be r a t ot al of $ 19 ,23 0 i n i nt eres t o n t ha t lo andu rin g 2 00 9. Inth is cir cu m st an ce, the requi rem en t, fo r ta x p ur po se s, was hi gh ly tech ni cal , eve n re qu iri ng anin qu iry int o S ta te law fo r pu rp os es of de te rm in in g t he va li di ty of th e d educ ti on . Thu s, i n t hi s i ns ta nc e itwou ldno t h av e be enap pa ren t t o p et it io ne rs fro m th e m ere f

actth atth is in te res t was pa idto a fam il y m em be r on a bo nafid e m ortg ag e n ot e th atad di ti on al m eas ur es were ne ces sa ry be fo re cl ai min g aho m e m ortg ag e in te res t d educ ti on . W e are sat is fie d t ha t p et it io ne rs act edwith re as on ab le cau se an d m ad e a go od -fai th effo rt t o d et erm in e th ei r pr op er t ax li ab il it y . Accor di ng ly, pe ti ti on ers are n otli ab le forth e acc ur acy-rela te d p en al ty und er s ect io n 6 66 2 fo r ta x year 20 09 . W e h av e co ns id eredth e p art ie s’ arg um en ts an d, t o t he ex te ntno t d is cu ss ed he rei n, we co nc lu de th e arg um en ts to be irr el ev an t, m oo t, o r wit ho utm eri t.- 13 -

To re fle ctth e fo reg oi ng , Deci si on wil l b e en te redfor res po nd en t as to th e d efi ci en cy an d fo r pe ti ti on ers as t o t he ad di ti on to tax un de r se ct io n 6 66 2( a).