T.C. Memo. 2008-200

UNITED STATES TAX COURT

JINGYUN QI, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 17593-06. Filed August 27, 2008.

R determined a deficiency in P’s Federal income

tax for 2004. R also determined an accuracy-related

penalty pursuant to sec. 6662, I.R.C. After

concessions, P and R dispute only whether P is liable

for the penalty.

Held: P is liable for the sec. 6662, I.R.C.,

penalty.

Harold Jung, for petitioner.

Steven M. Roth, for respondent.
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1Unless otherwise indicated, section references are to the

Internal Revenue Code of 1986, as amended and in effect for the

tax year at issue. All Rule references are to the Tax Court

Rules of Practice and Procedure.

2Respondent asserts on brief that “Petitioner intends to

argue on brief that she is entitled to have the deficiency in tax

for 2004 computed based on head of household rates.” Respondent

then argues that petitioner is not entitled to such treatment. 

In any event, petitioner did not raise that issue in her petition

or at any other time. Thus, even if her deficiency could now be

computed at the head of household tax rate, petitioner is deemed

to have conceded that she does not qualify for head of household

filing status for 2004. See Rule 34(b)(4). There is no evidence

that suggests otherwise, were the matter preserved for

consideration on the merits. 

MEMORANDUM OPINION

WHERRY, Judge: This case is before the Court on a petition

for redetermination of a Federal income tax deficiency and

penalty under section 6662 that respondent determined with

respect to petitioner’s 2004 tax year.1 

The parties have resolved a number of issues and have filed

a stipulation of facts and two stipulations of settled issues,

all of which are hereby incorporated by reference into our

findings. After concessions, the sole issue remaining for

decision is whether petitioner is liable for the accuracy-related

penalty pursuant to section 6662.2

Background

Petitioner and Yincang Wei (Mr. Wei), who was then her

husband, filed a joint Federal income tax return for 2004. That

return appears to have been prepared by a certified public
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3Records of the California Board of Accountancy, which this

Court will take judicial notice of, indicate that Mr. John TzungHsun Tsai has been a licensed certified public accountant since

Sept. 27, 1991. 

4Petitioner listed herself and Mr. Wei as the taxpayers in

her petition. On Mar. 15, 2007, the Court dismissed the case for

lack of jurisdiction as to Mr. Wei.

5Petitioner testified at trial through a translator.

accountant (C.P.A.) named John T. Tsai (Mr. Tsai).3 On June 26,

2006, respondent issued petitioner and Mr. Wei a notice of

deficiency with respect to their 2004 tax year. The deficiency

was attributable to issues including (1) unreported gambling

income, (2) dividends, and (3) interest income. Respondent also

determined an accuracy-related penalty pursuant to section 6662. 

Petitioner filed a timely petition with this Court.4 At the time

she filed her petition, petitioner resided in California. 

Before trial, respondent granted petitioner partial relief

pursuant to section 6015(c). A trial was held on May 2, 2008,

in Los Angeles, California.5 After trial, the parties filed a

stipulation agreeing to the amount of gambling income, dividends,

and interest income allocable to petitioner for 2004.

Discussion

Respondent bears the burden of production with respect to

petitioner’s liability for the section 6662(a) penalty. See sec.

7491(c). This means that respondent “must come forward with

sufficient evidence indicating that it is appropriate to impose
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the relevant penalty.” Higbee v. Commissioner, 116 T.C. 438, 446

(2001).

Subsection (a) of section 6662 imposes an accuracy-related

penalty on an underpayment of tax that is equal to 20 percent of

any underpayment that is attributable to one of the causes listed

in subsection (b). Among those causes is negligence or disregard

of rules or regulations. Sec. 6662(b)(1). Respondent contends

that petitioner is liable for the section 6662 penalty “on the

grounds of negligence.” 

Section 6662(c) defines negligence as “any failure to make a

reasonable attempt to comply with the provisions of this title”. 

“[D]isregard” is defined to include “any careless, reckless, or

intentional disregard.” Id. Under caselaw, “‘Negligence is a

lack of due care or the failure to do what a reasonable and

ordinarily prudent person would do under the circumstances.’” 

Freytag v. Commissioner, 89 T.C. 849, 887 (1987) (quoting

Marcello v. Commissioner, 380 F.2d 499, 506 (5th Cir. 1967),

affg. on this issue 43 T.C. 168 (1964) and T.C. Memo. 1964-299),

affd. 904 F.2d 1011 (5th Cir. 1990), affd. 501 U.S. 868 (1991). 

 There is an exception to the section 6662(a) penalty when a

taxpayer can demonstrate (1) reasonable cause for the

underpayment and (2) that the taxpayer acted in good faith with

respect to the underpayment. Sec. 6664(c)(1). Regulations

promulgated under section 6664(c) further provide that the
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determination of reasonable cause and good faith “is made on a

case-by-case basis, taking into account all pertinent facts and

circumstances.” Sec. 1.6664-4(b)(1), Income Tax Regs. 

Reliance upon the advice of a tax professional may establish

reasonable cause and good faith for the purpose of avoiding a

section 6662(a) penalty. See United States v. Boyle, 469 U.S.

241, 250 (1985) (“Courts have frequently held that ‘reasonable

cause’ is established when a taxpayer shows that he reasonably

relied on the advice of an accountant or attorney”.). Such

reliance does not serve as an “absolute defense”; it is merely “a

factor to be considered.” Freytag v. Commissioner, supra at 888. 

The caselaw sets forth the following three requirements in order

for a taxpayer to use reliance on a tax professional to avoid

liability for a section 6662(a) penalty: “(1) The adviser was a

competent professional who had sufficient expertise to justify

reliance, (2) the taxpayer provided necessary and accurate

information to the adviser, and (3) the taxpayer actually relied

in good faith on the adviser's judgment.” See Neonatology

Associates, P.A. v. Commissioner, 115 T.C. 43, 99 (2000), affd.

299 F.3d 221 (3d Cir. 2002).

Petitioner argues in summary fashion that she is not liable

for the penalty because she “was allowed to offset in excess of

90% of the gambling winnings with the losses.” We are

unpersuaded. To begin with, whether she has been allowed to
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offset most of her gambling income with gambling losses, although

relevant to the amount of the section 6662 penalty, is irrelevant

to the issue of whether she negligently underpaid tax because she

failed to report gambling income.

As for her reliance on Mr. Tsai, petitioner has failed to

demonstrate that she has satisfied the latter two prongs of the

Neonatology test. As to the first Neonatology prong, we accept

that Mr. Tsai, as a C.P.A., was a competent professional who had

sufficient expertise to justify reliance. See supra note 3. As

to the second Neonatology prong, petitioner has provided no

evidence that she supplied Mr. Tsai with necessary and accurate

information. Indeed, the only information of record as to what

Mr. Tsai had in his possession when he prepared the return is

petitioner’s testimony that “my former husband got all this

paperwork and presented it to the tax preparer.” 

As to the final Neonatology prong, petitioner has not

demonstrated that her reliance on Mr. Tsai was in good faith. In

that regard, petitioner had a duty to examine her return to

ensure that all income items were included. Magill v.

Commissioner, 70 T.C. 465, 479-480 (1978), affd. 651 F.2d 1233

(6th Cir. 1981). She has conceded that she failed to do so. 

Specifically, at trial petitioner acknowledged that she reads

arabic numerals and that she understood that she was signing the

2004 joint return under penalty of perjury. However, when asked
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by respondent’s counsel “Did you take the time to look at the

numbers on the return before you signed it?”, she answered: 

“Well, I didn’t look at the detail on that. Just signed it.” 

When asked by the Court whether she had an opportunity to ask Mr.

Tsai, who petitioner acknowledged spoke Chinese, questions about

the return, petitioner answered: “Well, I didn’t ask. I had

[the] opportunity, but I didn’t ask.” 

The Court has considered all of petitioner’s contentions,

arguments, requests, and statements. To the extent not discussed

herein, we conclude that they are meritless, moot, or irrelevant.

To reflect the foregoing,

 Decision will be entered

under Rule 155.