Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not *

be published and is not precedent except under the limited circumstances set forth in 5TH CIR.

R. 47.5.4.

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 08-60449

RICHARD A PRUDHOMME; CATHY G PRUDHOMME

Petitioners-Appellants

v.

COMMISSIONER OF INTERNAL REVENUE

Repondent-Appellee

Appeal from the United States Tax Court

Before HIGGINBOTHAM, GARZA, and PRADO, Circuit Judges.

PER CURIAM:*

Sometimes, the resolution of a case on appeal turns largely on the

standard of review. This is one of those cases.

Petitioners-Appellants Richard and Cathy Prudhomme (the

“Prudhommes”) appeal the United States Tax Court’s decision that they are

liable for an accuracy-related penalty for underpaying their taxes. We must

determine whether the Prudhommes can avoid the penalty because they acted

in “good faith” and with “reasonable cause,” per I.R.C. § 6664(c)(1), when relying

on their accountants to prepare their tax return. The Tax Court held that the

United States Court of Appeals

Fifth Circuit

F I L E D

July 16, 2009

Charles R. Fulbruge III

Clerk
No. 08-60449

2

Prudhommes did not meet this standard because they provided their

accountants with insufficient information to prepare the tax return accurately

and did not make a reasonable effort to assess their proper tax liability. Given

that there is evidence that cuts both ways, we cannot say that the Tax Court

clearly erred in its factual findings. Therefore, we affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

In 1981, the Prudhommes, who both have high school educations, formed

Bronco Oilfield Services, Inc. (“Bronco”), a family business. Richard Prudhomme

worked in the field and Cathy Prudhomme maintained the office. The business

was quite successful, and in 2003 they sold the company to RPC, Inc. for almost

$11 million. They received $5,490,579 in cash at the closing, a promissory note

of $3,500,000, and $2,000,000 in RPC’s stock. The proceeds from the sale of

Bronco form the basis of the Prudhommes’ individual tax liability at issue in this

case.

For the past fourteen or fifteen years, the Prudhommes have used the

services of CPA Jon Hurt (“Hurt”) and his firm to prepare both Bronco’s and

their individual tax returns. Alice Vaughan (“Vaughan”), an accountant with

Hurt’s firm, handled both accounts. Vaughan prepared Bronco’s 2003 tax

return, which reflected the sale of the company to RPC. Hurt reviewed and

signed the tax return as the “preparer,” and Cathy Prudhomme signed and filed

it on March 15, 2004. However, subsequent to completing the Bronco return,

Vaughan took a leave of absence from Hurt’s firm to care for her ailing husband.

Hurt then assigned the Prudhommes’ personal tax return to another CPA in his

office, Dwayne Whitley (“Whitley”), and notified Cathy Prudhomme of this

switch. The tax return Whitley prepared reflected an adjusted gross income for

2003 of $2,194,666, which was a significant increase over the Prudhommes’

adjusted gross income in 2002 of $216,534. Most of this increase stemmed from

the sale of Bronco. Cathy Prudhomme picked up the Prudhommes’ personal tax
No. 08-60449

3

return from Hurt on October 15, 2003—the day it was due after the

Prudhommes had received extensions—but did not review it before signing it on

behalf of herself and her husband and mailing it in.

After determining that the Prudhommes may have underpaid their 2003

taxes, the Internal Revenue Service (“IRS”) began an audit. In preparing for a

meeting with the revenue agent, Hurt noticed that the Prudhommes’ individual

return failed to include some of the proceeds they received from the sale of

Bronco. Specifically, when comparing the Bronco return with the individual

return, Hurt observed that the Bronco return correctly reflected an expense of

$3.2 million but that this income was missing from the Prudhommes’ individual

return. Hurt testified, “And in the transfer [of the Prudhomme account to

Whitley] some of the information did not get, you know, transferred properly.

And I’m embarrassed to say this, I mean it’s, you know, it’s our fault. We

basically just screwed up is what happened and didn’t get the income

transferred.” The Prudhommes then paid $576,728 in additional taxes on

November 28, 2005. As Hurt explained,

In fact, you know, when they got picked for an audit, that Saturday

before the guy was coming on Monday I looked over and I saw it

bigger than Dallas, it was just like, oh man, this is just—you know,

this is going to be embarrassing. And I went right to the agent and

told him. I mean it wasn’t like anything was hidden, anybody tried

to pull a fast one or anything like that. And, you know, and I

brought it to his attention right off the bat and, you know, and told

him we need to pick this up, we need to pay income on it. I mean

the Prudhommes as soon as they got the report they paid within a

week or so. I mean, you know, it’s just an error.

In justifying her reliance on the Hurt firm to prepare the Prudhommes’

taxes, Cathy Prudhomme stated that the tax return would not have made sense

to her. She testified, “I wouldn’t have known where the $[3.2] million went in

this tax return, if it was back in the back or where. I don’t know where the

income is on this tax return. I don’t know where that would have showed up.”
No. 08-60449

4

Further, the Prudhommes observe that the return itself was complicated,

spanning thirty-three pages and including nine schedules. 

The Prudhommes also assert that they notified the Hurt firm of the sale

of Bronco, thereby deflecting the blame for their mistake in failing to declare

some of the proceeds they received from the sale. In particular, the Prudhommes

provided Vaughan with a document titled “Payouts at Closing,” which describes

the income from the sale of Bronco. That document reflects a cash payment from

the buyer, RPC, of $5,490,579. The document then designates the allocation of

that amount: $4,059,735 to Bronco, $406,579 to the Prudhommes, and

$1,024,265 to loans. Thus, the document reflects the total proceeds from the

sale, meaning that an accountant preparing both Bronco’s and the Prudhommes’

taxes would have to account for the full amount, but it does not state explicitly

that the Prudhommes received additional payments from Bronco stemming from

the sale.

Five weeks after the audit, the IRS issued a Notice of Deficiency, declaring

that the Prudhommes owed $576,728—the additional taxes they had already

paid—as well as $143,976.28 in “additions to tax.” Specifically, the IRS

determined that the Prudhommes owed $28,565.70 for failing to file their income

tax on time under I.R.C. § 6651(a)(1), $64.98 for underpaying their estimated tax

under I.R.C. § 6654, and $115,345.60 for negligence or a substantial

understatement of tax under I.R.C. § 6662.

The main basis for the IRS’s imposition of the addition to tax under I.R.C.

§ 6662 was its determination that the Prudhommes received proceeds from the

sale of Bronco but did not notify their accountants or declare the extra income

on their tax return. The IRS notes that the Prudhommes made three deposits

to their bank account, which reflected payments from Bronco to the

Prudhommes stemming from the sale, but that their tax return did not account
No. 08-60449

 The IRS clarifies that the deposit was actually for $3.9 million but that the 1

Prudhommes returned $700,000 to Bronco, for a net deposit of $3.2 million.

5

for the last deposit of $3.2 million. The IRS claims that if the Prudhommes had 1

furnished their accountants with their bank statements, the accountants would

have noticed the additional $3.2 million proceeds from the sale of Bronco and

would have adjusted the Prudhommes’ individual tax return accordingly.

Moreover, the IRS observes that the Prudhommes did not have Bronco issue

them a Form 1099-DIV to reflect the $3.2 million dividend they received from

the sale. 

The Prudhommes petitioned the Tax Court for a redetermination of their

tax liability, challenging the imposition of some of these penalties. As noted

above, they conceded and paid the underlying tax deficiency before trial. They

also conceded the $64.98 addition to tax for failure to pay their estimated tax.

Therefore, the Tax Court considered only two issues: (1) whether the

Prudhommes were liable for an addition to tax for failure to timely file their

return and (2) whether they were liable for a penalty for the substantial

understatement of tax. After a bench trial, the Tax Court ruled for the IRS on

both issues. 

The Prudhommes do not challenge the Tax Court’s ruling on their failure

to timely file. As to the second issue, the Tax Court found that the Prudhommes

substantially understated their tax liability under I.R.C. § 6662(b)(2). The court

also determined that the Prudhommes did not have reasonable cause for, or act

in good faith with respect to, the underpayment. The Tax Court therefore

sustained the addition to tax. The Prudhommes appeal.

II. JURISDICTION AND STANDARD OF REVIEW

The Tax Court had jurisdiction under I.R.C. §§ 6213(a) and 7442. This

court has jurisdiction under I.R.C. § 7482(a)(1).

This court reviews the Tax Court’s findings of fact for clear error and legal
No. 08-60449

6

conclusions de novo. Green v. Comm’r, 507 F.3d 857, 866 (5th Cir. 2007).

Whether a taxpayer acted with reasonable cause and in good faith is a question

of fact. Id. at 871; see also Treas. Reg. § 1.6664-4(b)(1). “Clear error exists when

this court is left with the definite and firm conviction that a mistake has been

made.” Green, 507 F.3d at 866.

III. DISCUSSION

Section 6662 of the Internal Revenue Code provides that a taxpayer is

liable for a penalty of 20% of any underpayment of tax due to, inter alia, a

substantial understatement of tax. I.R.C. § 6662(a), (b)(2). The Prudhommes

concede that their 2003 return included a substantial understatement of income

tax. See id. § 6662(d)(1) (providing that “there is a substantial understatement

of income tax for any taxable year if the amount of the understatement for the

taxable year exceeds the greater of—(i) 10 percent of the tax required to be

shown on the return for the taxable year, or (ii) $ 5,000”). There is, however, an

exception to this penalty. Section 6664(c)(1) states that “[n]o penalty shall be

imposed under section 6662 . . . with respect to any portion of an underpayment

if it is shown that there was a reasonable cause for such portion and that the

taxpayer acted in good faith with respect to such portion.” Id. § 6664(c)(1).

The Treasury regulations provide that “[t]he determination of whether a

taxpayer acted with reasonable cause and in good faith is made on a case-by-case

basis, taking into account all pertinent facts and circumstances.” Treas. Reg.

§ 1.6664-4(b). “Generally, the most important factor is the extent of the

taxpayer’s effort to assess the taxpayer’s proper tax liability.” Id. The

regulations also state that a court must consider whether the taxpayer made “an

honest misunderstanding of fact or law that is reasonable in light of all of the

facts and circumstances, including the experience, knowledge, and education of

the taxpayer.” Id. That is, even if a taxpayer relies on an expert, the court still

must take into account “[a]ll facts and circumstances” regarding whether that
No. 08-60449

7

reliance was reasonable and in good faith, including the “taxpayer’s education,

sophistication and business experience.” Id. § 1.6664-4(c)(1).

This court has repeatedly confirmed that “‘the extent of the taxpayer’s

effort to assess [his] proper tax liability’ is ‘[g]enerally[] the most important

factor’ in determining reasonable cause and good faith.” Stanford v. Comm’r, 152

F.3d 450, 460-61 (5th Cir. 1998) (quoting Treas. Reg. § 1.6664-4(b)) (alterations

in original); accord Streber v. Comm’r, 138 F.3d 216, 223 (5th Cir. 1998). We

have also observed that “[i]f a taxpayer is able to show that there was a

reasonable cause for the understatement and good faith, which may stem from

reasonable reliance on the advice of [a] professional, the I.R.S. may waive the

understatement penalty.” Streber, 138 F.3d at 222. Reliance on a tax

professional, however, must be reasonable, and simply relying on a professional

is not dispositive; for instance, the court in Green upheld the imposition of an

addition to tax even though the taxpayer consulted a professional because “there

was no evidence as to what Green told the preparer, what the preparer told

Green, and whether or not Green’s reliance on any advice from the preparer was

reasonable.” Green, 507 F.3d at 872; see also Treas. Reg. § 1.6664-4(b)(1)

(“Reliance on an information return or on the advice of a professional tax advisor

or an appraiser does not necessarily demonstrate reasonable cause and good

faith.”). 

Thus, we must balance several considerations in determining whether a

taxpayer can avoid an addition to tax based upon the taxpayer’s reliance on a tax

professional. On the one hand, as we have explained, “‘[t]o require the taxpayer

to challenge the [expert], to seek a “second opinion,” or to try to monitor [the

expert] on the provisions of the Code himself would nullify the very purpose of

seeking the advice of a presumed expert in the first place.’” Chamberlain v.

Comm’r, 66 F.3d 729, 733 (5th Cir. 1995) (quoting United States v. Boyle, 469

U.S. 241, 251 (1985)) (second and third alterations in original)); see also Heasley
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8

v. Comm’r, 902 F.2d 380, 384-85 (5th Cir. 1990) (explaining that “due care does

not require moderate-income investors such as the Heasleys to independently

investigate their investments[, because] [t]hey may rely on the expertise of their

financial advisors and accountants”). On the other hand, reliance on a

professional is not reasonable “if the taxpayer fails to disclose a fact that it

knows, or reasonably should know, to be relevant to the proper tax treatment of

an item.” Treas. Reg. § 1.6664-4(c)(i); see Srivastava v. Comm’r, 220 F.3d 353,

367 (5th Cir. 2000) (rejecting argument that the taxpayers reasonably relied

upon a professional because, inter alia, they never gave their accountant a copy

of the settlement agreement subject to the tax), overruled on other grounds by

Comm’r v. Banks, 543 U.S. 426 (2005). 

When we have reversed the imposition of an addition to tax for a

substantial underpayment, we have often looked to the taxpayer’s lack of

experience, knowledge, or education. For example, in Heasley, we noted that the

taxpayers were blue collar workers who had done little investing and had not

graduated from high school, although one of the taxpayers had earned a G.E.D.

and some college credits. 902 F.2d at 381, 385. We found that, given their

circumstances, it was reasonable for them to rely on a CPA to complete their

taxes after undertaking a new, complicated investment. Id. at 385. We stated,

“If neither [their financial consultant for the investment] nor their C.P.A. found

anything wrong with the investment, how could the [taxpayers]?” Id. Similarly,

this court in Streber reversed the imposition of the substantial understatement

penalty, highlighting the fact that the taxpayers in question, two sisters in their

twenties, were young and inexperienced in business. 138 F.3d at 223.

In weighing these factors in this case, the Tax Court concluded that there

was no reasonable cause for the error and that the Prudhommes did not act in

good faith. First, the court determined that the Prudhommes’ reliance on the

Hurt firm was not reasonable, because they did not fully inform Whitley, the
No. 08-60449

9

accountant who ultimately prepared their 2003 personal tax return, of all facets

of their finances. The court noted that Whitley testified that he had only a

“vague” notion of the sale of Bronco. The court stated that the Prudhommes

should have furnished Whitley with bank records, a Form 1099-DIV from

Bronco, or other documentation of the sale. Second, the court concluded that the

Prudhommes did not make a good faith effort to assess their correct tax liability.

The court noted that Richard Prudhomme did not even read or sign the return,

that Cathy Prudhomme did not verify that all income from the sale of Bronco

was on the return, and that both Prudhommes were not unsophisticated

taxpayers but were successful business people.

On appeal, we must make a similar factual determination regarding

whether there was reasonable cause and good faith, but we must do so under the

guise of the clear error standard of review. Indeed, were we reviewing the Tax

Court’s decision de novo, we might question some of the Tax Court’s factual

findings, particularly given Cathy Prudhomme’s testimony about her confusion

surrounding the tax return, Hurt’s testimony in which he took full responsibility

for the mistake, and the unique situation of a different accountant preparing the

Prudhommes’ individual return. But “[w]here there are two permissible views

of the evidence, the factfinder’s choice between them cannot be clearly

erroneous.” Anderson v. Bessemer City, 470 U.S. 564, 574 (1985). We cannot say

that we are “left with the definite and firm conviction that a mistake has been

made,” Green, 507 F.3d at 866, as there is certainly evidence to support the Tax

Court’s decision. In particular, the Prudhommes did not explicitly notify Whitley

of the sale of Bronco or ask how that sale would affect their personal taxes. They

also did not check themselves, or ask Hurt or Whitley to verify, that the tax

return included all of the proceeds from the sale of Bronco. Nor did they give the

Hurt firm any specific documents detailing the $3.2 million deposit. Although

an accountant completing both Bronco’s and the Prudhomme’s taxes likely would
No. 08-60449

 The Prudhommes also assert that the Tax Court erred as a matter of law by failing 2

to cite cases from this circuit. This argument lacks merit. The Tax Court identified the

correct legal standard, even if it cited other Tax Court cases and the Treasury regulations

instead of Fifth Circuit cases for support. For example, the Prudhommes take issue with the

Tax Court’s statement that “the taxpayer remains responsible for reading and reviewing the

return to verify that all income items are included” and that “[t]he taxpayer may have to bear

the consequences of any negligent errors committed by his or her agent.” This is merely an

extrapolation of this court’s rule that a taxpayer must make an effort to assess his or her tax

liability and can rely upon the advice of a professional only if that reliance is reasonable. See

Green, 507 F.3d at 872. It is not a stretch to suggest that one aspect of reasonable reliance is

reading and reviewing the return and remaining responsible for any errors. Additionally, the

Prudhommes misread the Tax Court’s language by suggesting that the court required them

to double check every item on their tax return, when the court instead simply mentioned that

they had a responsibility to review the return (as opposed to verifying every entry), especially

when the return should reflect a large and unique transaction. Accordingly, we find no basis

for holding that the Tax Court made any legal errors in determining whether the Prudhommes

are liable for an addition to tax. Indeed, although they couch their argument as a challenge

to the legal standard the Tax Court applied, the Prudhommes in reality take issue with the

Tax Court’s application of that standard to the facts at hand. This appeal therefore turns on

10

have allocated all proceeds listed in the “Payouts at Closing” document, that

document did not reflect Bronco’s $3.2 million payment to the Prudhommes. The

Prudhommes therefore should have ensured that Whitley, who had just taken

over their account, knew about the $3.2 million payment. Finally, the

Prudhommes are not young, unsophisticated taxpayers, as in Heasley, 902 F.2d

at 385, and Streber, 138 F.3d at 223, but are successful business people.

Although the fact that they were not tax experts and always used a professional

to complete their taxes cuts the other way, the Tax Court’s conclusion is not

without support.

In sum, given that we must review the Tax Court’s factual findings only

for clear error, we must affirm. The standard of review constrains us from

substituting our own judgment for that of the Tax Court, which heard all of the

testimony and is better suited to determine the credibility of witnesses and make

factual findings. Because there is support in the record for the Tax Court’s

findings, those findings cannot, by definition, be clearly erroneous. See

Anderson, 470 U.S. at 574.2
No. 08-60449

the Tax Court’s factual findings. As discussed in detail above, the Tax Court did not clearly

err.

11

IV. CONCLUSION

There is support in the record for the Tax Court’s conclusion that the

Prudhommes did not act in “good faith” and with “reasonable cause” in relying

on their accountants to prepare their taxes. Accordingly, the Tax Court did not

clearly err. We AFFIRM the Tax Court’s decision.

AFFIRMED.