Pursuant to 5 T H C IR . R. 47.5, the court has determined that thi s opinio n should not * be publishe d an d is not precede nt except under the limited circu mstance s set forth in 5 T H C IR . R. 47.5 .4. 

### INTHE UNI TED S TATESCOU RT OFAPPEALS

FORTHE FIFTH CIRCU IT

N o. 08- 60449

RI CHARD A P RUDH OM M E; CAT HY G PR UDH OM M E P et i t i on ers- A pp el l an t s v. COM M I S S I ONER OF I NTERNAL REV ENUE R epon den t
- A pp el l ee

A p p ea lf

rom the U n i ted S tates T a x C ou rt

B ef ore H IG G IN B O T H A M , G A R Z A , an d P R A D O , C i rcui tJu dg es . P E R C U R I A M: * So m e t i m e s , t he r e s o l ut i o n o f a c as e o n a ppe alt ur n s l arge l y o n t he st an da rd of

revi ew . Th i s i s one of t h ose c ases. Pet i t i o ne r s - Appe l l ant s Ri c har d an d C athy P rud h om m e (t he “P ru d h om m es” ) app ealt h e U n i t ed S t ates T ax C ou rt ’ s deci si on t h at t h ey are l i able f or an accuracy-r el ated pen al t y f or un derpa yi n g t h e ir t axes. W e m u st determ i n e w h et h er t h e P rud h om m es can avoid t h e pen al t y becau se t h ey act ed i n “ go o d fai t h” a nd wi t h “ r e as o nab l e c aus e , ” pe rI
. R. C. § 6 66 4(c ) ( 1) , w he n r e l yi ng o n t he i ra c c o unt ant s t o pr e pa r e t he i rt axr e t ur n. The TaxCour the l d t hatt he United States Court of App eals

Fifth Circuit 

### F I L E D Jul y 16, 2009 Cha rl es R. F ulb ru g e II I ClerkN o. 08- 60449

2 P r u d h o m m e s d id n o t m e e t t h is s ta n d a r d b e c a u s e th e yp r o v id e d th e ir
a c c o u n ta n ts w ith in s u ffic ie n t in fo r m a tio n to p r e p a r e th e ta x r e tu r n a c c u r a te ly
an d d i d n otm ak e a reasona bl e ef f ortt o assess t h ei r proper t ax l i abil i t y. G iven t h at th e re is e vi den ce t h at c u t s bot h w ays, w e cann otsay t h at t h e T ax C ou rt
c l e a r l ye r r e d i n i t s fa c t u a lf i n d i n g s . T h e r e f

o r e , w e a f

f i r m. I . F A CT UA L A ND P ROC E DUR A L B A CK GRO UND In 198 1, t h e P rud h om m es, w h o b ot h h ave h i gh sc h ooledu cat i on s, f orm ed B ronco O i l f

i el d S ervi ces, I n c. ( “ B ronco” ) , af am ily bus i n ess. R i cha rd P rud h om m e
w orked i n t h e f

i el d an d C athy Pru dh om m e m ai n t ai n ed t h e of f i ce. Th e bu si n ess w as qu i t e successf

u l , an d i n 200 3 they sol d the com pa n y t o R P C , I n c. f or al m ost $ 1 1 m i l l i on . T h eyrece ive d $ 5 , 4 9 0 , 5 7 9 in ca sh a t th e cl osin g, a p rom i sso ryn ote of $3, 500 , 000 , an d $2 , 000 , 000 i n R P C ’ s sto ck. Th e proceeds f rom t h e sal e of B r o n c o fo r m th e b a s is o f th e P r u d h o m m e s ’in d iv id u a l ta x lia b ility a t iss u e in th is
case. Fort he pa s tf o ur t e e n or f

i f t ee n y e ar s , t he Pr udho m m e s ha ve us e d t he
s e r vi c e s o f

CPAJ o n H ur t( “ H u rt ” ) a n d hi s f i r m t o pr e pa r e b o t h Br o nc o ’ s a nd th eir i n d ivid u a l t a x re tu rn s. A l i ce V a u gh a n ( “V a u gh a n ”) , an acco u n tan t w i th H u rt ’ s f

i r m , handl ed bo t h ac c ount s. Vau ghan pre par ed Bronc o’ s 2003 t ax
r e t u r n , wh i c h r e f

l e c t e d t h e s a l e o f

t h e c o m p a n yt o RP C. Hu r tr e v i e we d a nd si gn ed the t ax ret u rn as the “ prepa rer, ” a n d C athy P rud h om m e si gn ed an d f i l ed i to n M ar c h 1 5, 2 00 4. H o w e ve r , s ubs e que ntt o c o m pl e t i ng t he Br o nc o r e t ur n, Vaugha n t o o k a l e av e of abs e nc e f

r o m H ur t ’ s f

i r m t o ca r e fo rhera i l i ng hus ba nd. H u r t t h e n a s s ig n e d th e P r u d h o m m e s ’ p e r s o n a l ta x r e tu r n to a n o th e r C P Ain h is
o ffic e , D w a y n e W h i t l e y ( “W h itle y”), a n d n o tifie d C a th yP r u d h o m m e o f th is
sw i t ch. Th e t ax ret u rn W h i t l ey prepa red ref l ect ed an adj u st ed gross i n com e f or 200 3 of $2, 194 , 666 , w h i ch w as a s ignif i can ti n crease over t h e P rud h om m es’ adj u st ed gross i n com e i n 200 2 of $21 6, 534
. M ostof thi s i n crease st em m ed f rom t he s al e o f

B r onc o. Cathy Prudhom m e pi c ked u p the Prudhom m es ’per so nalt axN o. 08- 60449

3 r e t ur n f

r o m H ur to n Oct o ber1 5, 2 00 3— t he da y i tw as due a f t e rt he P rud h om m es h ad received extensi on s— bu t di d not revi ew i tbef ore s i gn i n g i ton be hal f o f he r s e l f a nd h e rhus ba nd a nd m ai l i ng i ti n. A f t erdet er m i ni ng t hatt he Prudhom m es m ay have und er pai d t hei r2003 t axes, t h e I n t erna lR even u e Servi ce (“ IR S ” ) began an au di t
. In prepa ri n g f or a
m ee t i ng w i t h t he r eve nue agent , H urt not i c ed t hat t he Prudhom m es ’i ndi vi dual ret u rn fai l ed to i n cl u de som e of t h e proceeds t h ey receiv e d fr o m t h e sal e of B r onc o. Spec i f

i c al l y, w hen c om par i ng t he B r onc o r et urn w i t h t he i ndi vi dual ret u rn, H u rtobserved t h at the B ronco return correc t l y ref l ect ed an expen se of $3. 2 m i l l i on butt hatt hi s i nco m e w as m i ss i ng f r om t he Prudhom m es ’i ndi vi dual retu r n . H u rt t estif i ed , “A n d i n the tran sfer [ of t h e P ru d h om m e a ccou n t t o W hi t l ey] s om e o f

t he i nf or m at i on di d notge t , yo u know , t r ansf er r ed pr ope r l y. A n d I’m e m b a r r a s s e d to s a yth is , I m e a n it’s, y o u k n o w , i t ’ s o u rfa u lt. W e basi cal l y j u stsc rew ed u p i s w h at h a p p e n ed an d d i dn ’ tgett h e i n com e t ran sferred. ” Th e P rud h om m es t h en paid $576 , 728 i n add i t i o n a l tax es on N o ve m be r2 8, 2 00 5. As H ur te xp l ai ne d, I n fac t , yo u know , w hen t hey got pi c ked f oran audi t , t hatSat urday b e fo r e th e g u yw a s co m in go n M o n d a yI lo o k e d o v e ra n d I s a w it b i g g e rt h a n Da l l a s , i twa s j u s tl i k e , o h m a n , t h i s i s j u s t

— y o u k n o w, t hi s i s g o i ng t o be em ba r r as s i ng. And I w e ntri ghtt o t he a ge nta nd t ol d h i m . I m ean i tw asn ’ tl i ke an ythi n g w as hidden , an ybod y t ri ed t o pul la fast one o ra nyt hi ng l i ke t hat

. And, y o u kno w , a nd I b r o u g h t itto h is a tt e n tio n rig h t o ff th e b a t a n d , y o u k n o w , a n d to ld hi m w e ne ed t o pi c k t hi s up, w e ne ed t o payi nco m e o n i t
. I m ean t he Pr udho m m e s a s s o o n a s t he y go tt he r e po r tt he y pa i d wi t hi n a w eek or so. I m ean , you kn ow , i t ’ s j u stan err or. In j u st i f

yi n g h er r el i an ce on t h e H u rtf i rm t o prepa re t h e P rud h om m es’ t axes, C athy P rud h om m e st ated t h at t h e t ax ret u rn w ou l d n otha ve m ad e sense t o h e r . S h e te s tifie d , “I w o u ld n ’ t h a v e k n o w n w h e r e th e $ [3 .2 ] m illio n w e n t in t hi s t axr e t ur n, i f

i tw as b ac k i n t he b ac k orw he r e . I do n’ tkno w w he r e t he in c o m e is o n th is ta x r e tu r n . I d o n ’ t k n o w w h e r e th a t w o u ld h a v e s h o w e d u p .”N o. 08- 60449

4 Fur t he r , t he Pr udho m m e s o bs e r ve t hatt he r e t ur n i t s e l f w as c o m pl i c at e d,
s p a n n in gth ir ty -th r e e p a g e s a n d in c lu d in gn in e s c h e d u le s . T h e P r u d h o m m e s a ls o a s s e r t t h a t t h e yn o tifie d th e H u r t firm o f th e s a le of B ronco, th ereby defl ect i n g t h e bl am e f or t h ei r m i st ak e i n fai l i n g t o decl are som e of t h e p roceeds they received fr om t h e sal e. I n parti cul ar, t h e P rud h om m es provi ded V au gh an w i t h a docu m en tt i t l ed “Pa you t s atC l osi n g, ” w h i ch describes t h e incom e fr om the sal e of B ronco. T h at docum en tref l ect s a c ash pay m en tf rom t h e bu yer, R P C , of $5, 490 , 579
. T h e docu m en t t h en desi gn ates t h e al l ocat i on of t hata m o unt : $ 4, 05 9, 73 5 t o Br o nc o , $40 6, 579 t o t he Pr udho m m e s , a nd $1 , 02 4, 26 5 t o l o ans . Thus , t he do c um e ntr e f l e c t s t he t o t alpr o ceeds f r o m t he sal e, m ean i n g t h at an accoun t an tprepa ri n g both B ronco’ s and t h e P rud h om m es’ ta x e s w o u ld h a v e to a c c o u n t fo rth e fu ll a m o u n t, b u t it d o e s n o t st a te e x p lic itly t h at t h e P rud h om m es r e c e ive d a ddit i o nalpaym en t s f rom B ronco st em m i n g f rom t h e sal e. Fi ve w e e ks a f

t e r t he aud i t , t he I RS i s s ue d a N o t i c e o f D e f i c i e nc y, de c l ar i ng t hatt he Pr udho m m e s o w e d $ 57 6, 72 8— t he addi t i o nalt ax e s t he y hada l r e ad y p a i d

— a s we l la s $ 1 4 3 , 9 7 6
. 2 8 i n “ a d d i t i o n s t o t a x . ” S p e c i f i c a l l y , t h e I RS d e t e r mi n e d t h a tt h e P r u d h o mme s o w e d$ 2 8 , 5 6 5
. 7 0 f o rfa i l i n gt o f

i l e t h e i ri n c o me t ax o n t i m e underI
. R
. C

. § 6651( a) ( 1) , $64. 98 f orunderpay i ng t hei res t i m at ed t ax und erI
. R
. C

. § 6654, and $115, 345. 60 f or neg l i genc e o ra s ubst ant i al und er st at em entof

t ax underI
. R
. C

. § 6662. Th e mai n b a s i s f

o rt h e I RS ’ s i m p o s i t i o n o f t h e a d d i t i o n t o t a xu n d e rI
. R. C. § 6 66 2 w as i t s de t e r m i nat i o n t hatt he Pr udho m m e s r e c e ive d p r o c e e ds f r o m t he
s a l e o f B r o n c o b u td i d n o tn o t i f yt h e i ra c c o u n t a n t s o rd e c l a r e t h e e x t r a i n c o me on the i r taxre tu rn . T h e IR S n otes th a t t h e P ru d h om m es m a d e th ree de p osits t o t he i rb anka c c o unt , w h i ch ref l e c t e d p ay m e nt s f

r o m Br o nc o t o t he Pr udho m m e s s t e m m i ng f r o m t he sa l e , butt hatt he i rt axr e t ur n di d no ta c c o untN o. 08- 60449

The IR S cl arifies th at the depositwas actuallyfor $3.9millio n butth at the 1 Pru dhommes returned $70 0,00 0 to Bronco, for anet deposit of $ 3.2 million. 5 f ort he l as tdepo si tof

$3. 2 m i l l i on. Th e I R S c l ai m s t hati f t he Prudhom m es had 1 fu r n is h e d th e ira c c o u n ta n ts w ith t h e irb a n k s ta te m e n ts , th e a c c o u n ta n ts w o u ld hav e no t i c e d t he a dd i t i on al $3. 2 m i l l i o n pr o c e e ds f r o m t he s al e o f

Br o nc o a nd
w oul d have adj usted t he Prudhom m es ’i ndi vi dualt ax r et urn ac c or di ngl y. M o r e o ve r , t h e IRS ob s e r ve s t hatt he Pr udho m m e s di d no tha ve Br o nc o i s s ue t h em a F orm 109 9- D IVt o ref l ectt h e $3. 2 m i l l i on di vi den d they received f rom th e s a le

. T h e P r u d h o m m e s p e tit io n e d th e T a xC o u r t fo ra r e d e te r m in a tio n o f th e ir t ax l i abil i t y, chal l en gi n g t h e im p o si t i on of som e of

t h ese pen al t i es. A s noted abov e, t h ey conceded an d p ai d the u n derl yi n g t ax def i ci en cy bef

ore t ri al

. Th ey al so c onc ede d t he $64. 98 addi t i on t o t ax f orfai l ure t o paythei res t i m at ed t ax. Ther e f o r e , t he TaxCour tc o ns i de r e d o nl y t w o i s s ue s : ( 1) w h et he rt he P r u d h o m m e s w e r e lia b le fo ra n a d d itio n to ta xfo rfa ilu r e to t i m e lyfile th e ir
r et urn and ( 2) w het hert hey w er e l i abl e f ora p en a l ty f

ort he s ubst ant i al
u n derst atem en tof

t ax. A f t er a ben ch t ri al , the T ax C ou rtru l ed f or the IR S on b o th is s u e s . T h e P rud h om m es do not c h al l en ge t h e T ax C ou rt ’ s ru l i n g on theirfai l u re t o t i m el y f

i l e. A s t o the second i ssue, the T ax C ou rtf ou n d that t h e P rud h om m es sub st an t i al l y u n derst ated t h ei r t ax l i abil i t y u n der I. R
. C

. § 6662 (b) ( 2)

. Th e court al so det erm i n ed that t h e P rud h om m es di d n otha ve reasona bl e cause f or, or act i n good fai t h w ith r espectt o, t h e un derpa ym en t
. Th e T ax C ou rtt h eref ore s u s ta in e d th e a d d itio n to ta x . T h e P r u d h o m m e s a p p e a l.

I I . J URI S DI CT I ON AND S TA NDARD OF RE VI EW T h e T a xC o u r t h a d ju r is d ic tio n u n d e r I .R .C . § § 6 2 1 3 (a ) a n d 7 4 4 2
. T h is
co u rt h a s ju risd iction u n d e r I.R .C

. § 7 4 8 2 (a )(1). Th i s c our t r evi ew s t he Tax C our t ’ s f i ndi ngs of

fac tf orc l earer r orand l egalN o. 08- 60449

6 c o n c lu s io n s d e n o v o . G r e e n v . Co m m ’r , 5 0 7 F .3d 8 5 7 , 8 6 6 (5t h C ir. 2 0 0 7 ). W h et h er a t axp ayer act ed w i t h reasonab l e cause an d i n good fai t h is a qu est i on o f fa c t. I

d. a t 8 7 1 ; seealso T reas. R eg. § 1. 666 4- 4(b) ( 1)

. “ C l ear err or exi st s w h en t h i s court i s l ef

t w i t h t h e defi n i t e an d f i rm convic t i on t h at a m i st a k e h a s b e en
m a d e.” G ree n , 507 F. 3d at866. I I I . DI S CU S S I ON S e c tio n 6 6 6 2 o f th e In te r n a l R e v e n u e C o d e p r o v id e s th a t a ta x p a y e ris lia b le fo ra p e n a ltyo f 2 0 % o f a n yu n d e r p a y m e n t o f ta xd u e to , in te ra lia , a sub st an t i alun derst atem en tof ta x . I
. R
. C

. § 6662 ( a) , (b) ( 2)

. Th e P rud h om m es c o n c e d e t h a t t h e i r 2 0 0 3 r e t u r n i n c l u d e d a s u b s t a n t i a l u n d e r s t a t e me n t o f i n c o me ta x . Se ei d. § 6 66 2( d) ( 1) (pr o vi di ng t hat“ t he r e i s a s ubs t ant i alund e r s t at e m e nt
o f i nc o m e t ax f

o ra ny t ax ab l e y e ari f t he a m o unto f

t he und e r s t at e m e ntf o rt he t axabl e y earex c ee ds t he gr eat erof

— (i) 10 pe r c entof

t he t ax r equi r ed t o b e sho w n on t he r et urn f ort he t axabl e year , or (i i) $ 5, 000” )

. Th er e i s, how eve r , an exc ept i on t o t hi s penal t y. Sec t i on 6664(c ) ( 1) s t at es t hat“ [ n] o pe nal t y sh al lbe i m po s e d un de rse c t i o n 666 2 .
. . w i t h r e s pe c tt o a ny po r t i o n o f a n und e r pa ym e nt i f i ti s s ho w n t hatt he r e w as a r e as o nab l e c aus e f o rs uc h por t i on a nd t hatt he tax p a ye r acte d i n go od fa i th w i th resp ect to su ch po rti on . ” I d. § 6 6 6 4 (c)(1 ). T h e T reasury regu l ati on s provi de that “ [ t ] h e deter m i n ati on of w h et h er a t axp ayer act ed w i t h reasonab l e cause an d i n good fai t h i s m ad e on a case- by-c ase bas i s, t aki ng i nt o a c c ountal lper t i nentfac t s and ci r c um st ance s. ” T r eas . R eg. § 1
. 66 64

- 4(b)

. “ G e ne r al l y, t he m o s ti m po r t antfac t o ri s t he e xt e nto f t he tax p a ye r’ s eff

ort to ass ess the tax p a ye r’s p rop er tax l i a b i l i ty. ” I d. The
r egul at i ons al so st at e t hat a c our t m ust c ons i der w het hert he t axpaye rm ade “ an ho ne s tm i s unde r s t and i ng o f fac to rl aw t hati s r e as o nab l e i n li gh t of al lo f t he fact s and ci rcum st an ces, incl u di n g t h e ex peri en ce, k n ow l edg e, an d ed u cat i on of th e tax p a ye r. ” I

d. T h a t is , e v e n if

a ta x p a y e rre lie s o n a n e x p e r t, th e co u r t s till
m ustt ake i nt o accou n t“ [ a] l lfac t s and ci r c um st ance s” r egar di ng w het hert hatN o. 08- 60449

7 r e l i anc e w as r e as o nab l e a nd i n go o d fai t h, i nc l udi ng t he “ t ax pa ye r ’ s e duc at i o n, sop h i sti ca ti on an d bu sine ss ex p erien ce.” I d. § 1 .66 6 4 -4 (c)(1 ). T h is c o u r th a s r e p e a t e d lyc o n fi r m e d th a t“‘t h e e x t e n to f t h e ta x p a y e r ’s
e f f o r tt o a s s e s s [hi s ] pr o pe rt axl i ab i l i t y’i s ‘ [ g] e ne r al l y[] t he m o s ti m po r t ant factor’i n de term i n i n g re a son a b l e ca u se a n d go od fa i th

. ” S ta nfo r d v . Co m m ’r , 152 F. 3d450 , 460

- 61 ( 5t h C i r . 199 8) ( quo t i ng Tr e as . Reg
. § 1
. 66 64

- 4(b) ) ( al t e r at i o ns in o r ig in a l); a c c o r dS tr e b e rv . Co m m ’r , 1 3 8 F
. 3 d 2 1 6 , 2 2 3 (5th C i r. 1 9 9 8 ). W e h ave als o observed t h at “ [ i] f a t axp ayer i s abl e t o show th at t h ere w as a reasona bl e cause f

or t h e un derst atem en tan d good fai t h , w h i ch m ay stem f rom
r e as o nab l e r e l i anc e o n t he a dv i c e o f [ a] pr o fe s s i o nal , t he I
. R. S. m ayw ai ve t he
u n d ersta tem en t pe n a l ty. ” S t reber , 138 F. 3d at 22 2
. Rel i ance on a t ax professi on al , how ever, m u stbe re a so n a b le , and si m pl y r el yi ng on a pro fes si onal i s no tdi s po s i t ive ; f

o ri ns t anc e , t he c o ur ti n G r e e n uph eld th e i m pos i t i on o f an ad di t i on t o t ax even thou gh the t axp ayer consu l t ed a professi on alb ecau se “ t h ere
w a s n o e v id e n c e a s to w h a t G r e e n to ld th e p r e p a r e r , w h a t t h e p r e p a r e rto ld G r ee n, and w het herornotG r ee n’ s r el i ance on any advi c e f r om the pre par erw as rea son a b l e.” G ree n , 5 0 7 F .3 d a t 8 7 2 ; seealso Treas
. R eg. § 1. 6664- 4(b) ( 1) ( “ R el i an ce on an inf

orm ati on return or on the ad vi ce of a professi on alt ax ad vi sor or an ap p ra iserdoes not necessari l y dem on st rat e reasonab l e cause an d good fa ith .”). T h u s, w e m u stbal an ce severalcon si derati on s i n d et erm i n i n g w h et h er a t axpaye rc an avoi d an add i t i on to taxbased upon t he t axpaye r ’ s r el i ance on a t ax professi on al

. O n t h e one h an d, as w e ha ve exp l ai n ed, “ ‘ [ t ] o requi re t h e t axp ayer t o c hal l e nge t he [ e xp e r t ] , t o s e e k a“ s e c o nd o pi ni o n, ” o rt o t r y t o m o ni t o r[t he exp ert] on the provi si on s of t h e C ode h i m sel f

w ou l d n u l l i f

y t h e very pu rpose of
see k i n g th e a d v ic e o f a p resu m ed ex p ert i n the f i rst place

. ’” Cham be r lai n v. Co m m ’r , 66 F. 3d 729, 733 ( 5t h C i r . 1995) ( quot i ng Un itedS ta tes v. B oy le , 469 U .S

. 2 4 1 , 2 5 1 (1 9 8 5 )) (s e c o n d a n d th ir d a lte r a tio n s in o r ig in a l)); seealso HeasleyN o. 08- 60449

8 v . Co m m ’r , 902 F
. 2d 380 , 384

- 85 ( 5th C i r. 199 0) ( exp l ai n i n g t h at “ du e care does
n o t r e q u ir e m o d e r a te
- in c o m e in v e s to r s s u c h a s th e H e a s le y s to in d e p e n d e n tly in v e s tig a te th e irin v e s tm e n ts [, b e c a u s e ] [t] h e ym a yr e lyo n t h e e x p e r tis e o f th e ir f i nanc i ala dv i s o r s a nd a c c o unt ant s ” )

. On t he o t he rha nd, r e l i an ce on a p r o fe s s io n a l is n o t r e a s o n a b l e “if th e ta x p a y e rfa ils to d is c lo s e a fa c t t h a t it kn ow s, or reasona bl y shou l d k n ow , t o be rel evan t t o t h e proper t ax tr eatm en tof
a n ite m .” T r e a s . R e g . § 1 .6 6 6 4 -4 (c )(i); see S r iv a s ta v av . Co m m ’r , 220 F. 3d 353, 367 ( 5th C i r. 200 0) (reje cti n g argu m en tt h at t h e t axp ayers reasonab l y rel i ed upo n a pr o fe s s i o nalb e c aus e , i nt e ra l i a, t he y ne ve rg av e t he i r ac c o unt anta c o py o f th e s e tt le m e n t a g r e e m e n t s u b j e c t t o th e ta x ), ov e r r ul e d on ot hergr ounds by Com m ’ rv. B anks , 5 4 3 U .S . 4 2 6 (2 0 0 5 ). W h en w e ha ve reversed t h e i m posi t i on of an add i t i on t o t ax f or a sub st an t i alun derpa ym en t , w e ha ve of t en l ooked t o t h e ta x pa yer’ s l ack of
e xp e r i e nc e , kno w l e dg e , o re duc at i o n. Fo re xa m pl e , i n Heasley , w e no t e d t hatt he t axp ayers w ere b lu e c o ll ar w orkers w h o ha d d on e l i t t l e i n vest i n g an d h ad not g r a d u a t e d f

r o m h i g h s c h o o l , a l t h o u g h o n e o f t h e t a x p a y e r s h a d e a r n e d a G. E. D.
a n d s o m e co lle g e cr e d its

. 9 0 2 F .2 d a t 3 8 1 , 3 8 5
. W e fo u n d th a t, g iv e n th e ir
c ir c u m s ta n c e s , it w a s re a s o n a b le fo rth e m to re lyo n a C P Ato c o m p le te th e ir ta x e s a fte ru n d e r ta k in ga n e w , c o m p lic a te d in v e s tm e n t. I d. a t3 85
. W e s t at e d,

“ I f ne i t he r[t he i rf

i nanc i alco ns ul t antfo rt he i nve s t m e nt ] no rt he i rC. P. A. f o und
a n yth i n g w ron g w i th the i n ve stm en t, h ow cou l d the [tax p a ye rs]?” I d. Si m i l ar l y, t hi s c o ur ti n S t reber r e ve r s e d t he i m po s i t i o n o f t he s ubs t ant i alund e r s t at e m e nt p e n a lty , h ig h lig h tin gth e fa c t th a t th e ta x p a y e r s in q u e s tio n , tw o s is te r s in th e ir t w ent i es , w er e y oung and i nexper i enc ed i n busi nes s. 138 F. 3d at223. In w ei gh i n g t h ese fact ors i n this case, t h e T ax C ou rtconcl u ded t h at t h ere w a s n o r e a s o n a b le ca u s e fo rth e e r r o ra n d th a t t h e P r u d h o m m e s d id n o t a c t in go o d fai t h. Fi r s t , t he c o ur tde t e r m i ne d t hatt he Pr udhom m e s ’r e l i anc e o n t he H ur tf i r m w as no tr e as o nabl e , b e c aus e t he y di d no tf ul l y i nf o r m W hi t l e y, t heN o. 08- 60449

9 a ccou n tan t w h o u l ti m a tel y p rep a red the i r 20 0 3 p erso n a l tax retu rn , of a l lfa cets of t hei rf i nances . The c our tnot ed t hatW hi t l ey t es t i f i ed thathe had o nl y a

“vag u e” n ot i on of t h e sal e of B ronco. T h e court st ated t h at t h e P ru d h o m m es shou l d h ave f

u rni shed W h i t l ey w i t h ban k reco rd s, a F orm 109 9- D IVf rom Bro nc o , o ro t he rdoc um e nt at i o n of t he sa l e . Se c o nd, t he c o ur tc o nc l ude d t hatt he Prudhom m es di d notm ake a goo d fai t h ef f or tt o a ss es s t hei rc or r ec tt ax l i abi l i t y. The c o ur tno t e d t hat Ri c har d Pr udho m m e di d no te ve n r e ado rs i gn t he r e t ur n, t h at C athy P rud h om m e di d n otveri f y t h at al li n com e f

rom t h e sal e of

B ronco
w as on the ret u rn, a n d that bot h P rud h om m es w ere not u n soph i st i cat ed t axp ayers bu tw ere s u cces sf u lbu si n ess peop l e. O n a ppe al , w e m us tm ak e a s i m i l arfac t ualde t e r m i nat i o n r e ga r di ng
w he t he rt he r e w as re as o nab l e ca us e and go o d fai t h, butw e m us tdo s o und e rt he gui se of t he c l earerr orst andard of rev i ew . I ndeed, w er e w e r evi ew i ng t he Tax C our t ’ s dec i si on d e n ovo , w e m i ghtques t i on s om e o f t he Tax C our t ’ s fac t ual f i n di n gs, parti cul arl y gi ven C athy Pru dh om m e’ s t est i m on y abou ther conf u si on su rrou n d i n g th e tax re tu rn , H u rt’ s testi m on y in w h i ch h e took f u l lresp on sibi l i ty f o rt he m i s t ak e , a nd t he uni que s i t uat i o n o f a di f fe r e nta c c o unt antpr e pa r i ng t he P r u d h o mm e s ’i n d iv i d u a lr e t u r n . Bu t“ [ w] h e r e t h e r e a r e t wo p e r mi s s ib l e v i e ws o f th e e v id e n c e , th e fa c tfin d e r ’ s ch o ic e b e tw e e n th e m c a n n o t b e cle a r ly
erro n eo u s. ” A n d er so n v . B es se m erC ity , 470 U
. S. 564, 574 ( 1985)

. W e c annots ay t h at w e are “l ef

tw i t h the defi n i t e a n d f i rm convi ct i on t h at a m i st ak e ha s been
m a d e,” G ree n , 507 F. 3d at 866, as t her e i s c er t ai nl y evi denc e t o suppor t t he Tax C ou rt ’ s de c i s i o n. I n pa r t i c ul ar , t h e P rud h om m es di d n otexpl i ci t l y n ot i f y W h i t l ey of t h e sal e of B ronco or ask h ow t h at s al e w ou l d aff ectt h ei r personalt axes. Th ey al so di d notc hec k t hem se lves , oras k H urtor W hi t l ey t o v er i f y, t hatt he t ax
r e t ur n i nc l ude d a l lo f t he pr o c e e ds f

r o m t he s al e o f Bro nc o . N o r di d t he y give t he H urtf i r m an y spec i f

i c doc um ent s det ai l i ng t he $3. 2 m i l l i on depo si t
. Al t hough
a n a c c o u n tan t com p l eti n g b oth B ron co’s a n d th e P r u d h o m m e ’ s ta x e s lik e lyw o u ldN o. 08- 60449

The Pru dhommes also assert that the TaxCourterred as a matter of l aw b y failing 2 to cite cases from this circuit. This argu me ntlacks merit. The Tax Court i dentified the correct legal s t an d ar d , even if it cited otherT axC ourtca ses an d the Treasury regulation s inste ad of Fifth Circuit ca ses for support. For exa mple, the Pru dhommes take issue with the Tax Court’s statement th at “thetaxpayer remains respon sibl e for reading and reviewin g the return to verify that all income items are included” and that “[t]he taxpayer mayh ave tobe ar thecon sequ ence s of anynegligent error s committed b y his or her a gent.” This is merelyan extrapolation of this court’s rul e that a taxpayer must make an effort to assess his or her t ax li ab ilityan d canrelyupo nth e a dvic e of ap rofe ssion al o nlyif th at reli ancei s rea so n ab le

. See Green , 50 7 F .3d at 8 72. It i s not a stretch to sugge st that one aspect of re ason able reliance is readingan d reviewing th e returnan d remainin g respon sibl e for any error s. Additio nally , th e Pru dhommes misread the Tax Court’s l anguage b y sugge sting th at the court re quired them to double check everyit em onth eir tax return, when the court inste ad si mply mentione d th at theyh ad arespo nsib ility to review the return (as opposed to verifying everyentry), especially when the return should reflect a large and uni que tran sactio n. Accordin gly, we fin d no b asis for holdingth at the Tax Court ma de anylegal errors in determinin g wheth er the Pru dhommes are liab le foran addition to tax. Indeed , altho ugh they couch their argum ent as a challenge to the legal standard the Tax Court applied, the Prudhommes inrealitytake issu e withth e Tax Court’s applic atio n of that standard toth e facts at h and. This appeal therefore turn s on 10 have al l oc at ed al lp roce eds l i st ed i n t he “ Payout s atC l os i ng” doc um ent , t hat do c um e ntdi d no tr e f

l e c tBr o nc o ’ s $ 3. 2 mi l l i o n pa ym e ntt o t he Pr udho m m e s . The P rud h om m es t h eref

ore shou l d h ave en sured tha tW h i t l ey, w h o ha d j u stt ak en o ve rt he i ra c c o u n t , k n ew abo utt he $ 3. 2 m i l l i o n pa ym e nt
. Fi nal l y, t he Pr udho m m e s ar e no ty o ung , uns o phi s t i c at e d t ax pa ye r s , a s i n Heasley , 902 F. 2d at3 85 , a nd S t reber , 138 F
. 3d at 2 2 3 , b u tare s u cces sf u lbu si n ess peop l e. A l t hough t he fac tt hatt hey w er e nott ax e xper t s and al w ays use d a pr of es si onal t o com pl et e t h ei r t axes cuts t h e ot h er w ay, t h e T ax C ou rt ’ s c on cl u sion i s not
w i th ou t su p p ort. In s u m , g iv e n th a t w e m u s t re v ie w th e T a x C o u r t’s fa c tu a l fin d in g s o n ly f or c l ear err or, w e m u staf f i rm . Th e st an da rd of revi ew const rai n s us f rom s ubs t i t ut i ng o uro w n j udg m e ntf o rt hato f

t he TaxCour t , w hi c h hea r d al lo f t he t e s t i m o n ya nd i s b e t t e rs ui t e d t o de t e r m i ne t he c r e dibi l i t y o f w i t ne s s e s a nd m ak e fa c t u a l f

in d in g s . B e c a u s e th e r e is s u p p o r tin th e r e c o r d fo rth e T a xC o u r t ’s fin d in g s , th o s e fin d in g s ca n n o t, b yd e fin it i o n , b e cle a r lye r r o n e o u s . S ee A n d ers on , 470 U
. S. at574. 2N o. 08- 60449

the Tax Court’s factual findin gs. As discussed in detail above , the Tax Court di d not clearly err. 11 I V . C ONC L US I ON Ther e i s s upp o r ti n t he r e c o r d f o rt he TaxCour t ’ s co nc l us i o n t hatt he Pr udho m m e s di d no ta c ti n “ go o d fai t h” a nd wi t h “ r e as o nab l e c aus e ” i n r e l yi ng on t h ei r acc ou n t an t s t o prepa re t h ei r t axes. A ccor di n gl y, t h e T ax C ou rtdi d n ot
c l e ar l y e r r . W e AFF I RM t he TaxCour t ’ s de c i s i o n. AF F I RMED.