1 Unless otherwise indicated, all subsequent section

references are to the Internal Revenue Code in effect for the

year in issue, and all Rule references are to the Tax Court Rules

of Practice and Procedure.

T.C. Summary Opinion 2010-34

UNITED STATES TAX COURT

DONALD R. HILL, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 26487-08S. Filed March 22, 2010.

Donald R. Hill, pro se.

Michael J. Gabor, for respondent.

ARMEN, Special Trial Judge: This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect when the petition was filed.1 Pursuant to section

7463(b), the decision to be entered is not reviewable by any
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other court, and this opinion shall not be treated as precedent

for any other case.

Respondent determined a deficiency in petitioner’s 2006

Federal income tax of $4,488 and an accuracy-related penalty

under section 6662(a) of $910. After concessions by petitioner,

the issues for decision are: (1) Whether Social Security

benefits received by petitioner in 2006 are includable in his

income for that year, and (2) whether petitioner is liable for

the accuracy-related penalty. We hold that the Social Security

benefits are includable in petitioner’s income for 2006 and that

petitioner is not liable for the accuracy-related penalty.

Background

Some of the facts have been stipulated, and they are so

found. We incorporate by reference the parties’ stipulation of

facts and accompanying exhibits. Petitioner resided in the State

of Florida when the petition was filed.

During 2006 petitioner received Social Security benefits of

$19,684. Although petitioner was married at the close of 2006

and did not live apart from his spouse during that year, he and

his spouse filed separate tax returns using the married filing a

separate return filing status. Because he believed the Social

Security benefits had already been taxed when deducted from his

paychecks during his years of employment, petitioner did not
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2 In this case, ignoring adjustments not relevant here,

petitioner’s modified adjusted gross income equals his adjusted

gross income. See sec. 86(b)(2).

include any of the Social Security benefits on his 2006 Federal

income tax return.

In a notice of deficiency, respondent determined, inter

alia, that 85 percent of the Social Security benefits ($16,731)

received by petitioner during 2006 is includable in petitioner’s

income for that year. Respondent also determined that petitioner

is liable for the accuracy-related penalty based on negligence or

disregard of rules or regulations.

Discussion

A. Social Security Benefits

Section 61(a) provides that, except as otherwise provided by

law, gross income includes all income from whatever source

derived. Relevant for our purposes, section 86 provides that if

a taxpayer’s modified adjusted gross income2 plus one-half of the

Social Security benefits received by the taxpayer exceeds the

adjusted base amount, then gross income includes the lesser of: 

(1) The sum of (a) 85 percent of such excess, plus (b) the lesser

of (i) one-half of the Social Security benefits received during

the year or (ii) one-half of the difference between the adjusted

base amount and the base amount of the taxpayer; or (2) 85

percent of the Social Security benefits received during the

taxable year. See sec. 86(a)(2), (b). With respect to a married
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3 For a taxpayer who files a joint return, the base amount

and adjusted base amount are $32,000 and $44,000, respectively. 

See sec. 86(c)(1)(B), (2)(B).

taxpayer who does not file a joint return and who does not live

apart from his spouse at all times during the taxable year, both

the base amount and the adjusted base amount are zero. Sec.

86(c)(1)(C) and (2)(C).

Petitioner filed his 2006 Federal income tax return using

the married filing a separate return filing status. In addition,

petitioner does not claim that he lived apart from his wife

during 2006, and nothing in the record suggests that he did. 

Therefore, petitioner’s base amount and adjusted base amount for

purposes of the section 86 calculation are zero. See sec.

86(c)(1)(C) and (2)(C).3

Taking into account petitioner’s filing status, his modified

adjusted gross income, and the Social Security benefits he

received, 85 percent of those benefits are includable in his 2006

income. See sec. 86(a), (b), and (c). Accordingly, respondent’s

determination in this regard is sustained.

B. Section 6662 Penalty

Section 6662(a) and (b)(1) imposes a penalty equal to 20

percent of the amount of any underpayment attributable to

negligence or disregard of rules or regulations. The term

“negligence” includes any failure to make a reasonable attempt to

comply with tax laws, and “disregard” includes any careless,
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reckless, or intentional disregard of rules or regulations. Sec.

6662(c).

Section 6664 provides an exception to the imposition of the

accuracy-related penalty if the taxpayer establishes that there

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

with respect to, the underpayment. Sec. 6664(c)(1); sec. 1.6664-

4(a), Income Tax Regs. The determination of whether the taxpayer

acted with reasonable cause and in good faith is made on a caseby-case basis, taking into account the pertinent facts and

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

Circumstances that may indicate reasonable cause and good faith

include the extent of the taxpayer’s effort to properly assess

the tax liability and an honest misunderstanding of fact or law

that is reasonable in light of the taxpayers’s experience,

knowledge, and education. Id. The taxpayer bears the burden of

proving that he or she did not act negligently or disregard rules

or regulations. Rule 142(a); Welch v. Helvering, 290 U.S. 111,

115 (1933); Higbee v. Commissioner, 116 T.C. 438, 446 (2001); see

sec. 7491(c) (regarding the Commissioner’s burden of production).

Respondent bases his determination of the section 6662(a)

accuracy-related penalty in large part on petitioner’s failure to

include the Social Security benefits in his 2006 income.

We are satisfied that petitioner made a good faith effort to

properly determine his 2006 Federal income tax liability, and his
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failure to properly account for his Social Security benefits

results from an honest misunderstanding of fact or law that is

reasonable in light of his age, experience, knowledge, and

education. Accordingly, we hold that petitioner is not liable

for the section 6662(a) accuracy-related penalty for 2006.

Conclusion

We have considered all of the arguments made by the parties,

and, to the extent that we have not specifically addressed them,

we conclude that they are unpersuasive.

To reflect the foregoing,

Decision will be entered

for respondent as to the

deficiency in tax and for

petitioner as to the

accuracy-related penalty.