TAX COURT OPINION

Case: John Nairn Thomas
Docket Number: 5353-09
Judge: Colvin
Opinion Type: bench
Filed: 01/04/2010
Pages: 7

UNITED STATES TAX COUR T WASHINGTON , DC 2021 7 JOHN NAIRN THOMAS , Petitioner , Docket No . 5353-0 9 V . COMMISSIONER OF INTERNAL REVENUE , Respondent . ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it i s ORDERED that the Clerk of the Court shall transmit herewith to petitioners and to respondent a copy of the pages of the transcript of the trial of this case before Judge Haines at San Francisco, California on December 4, 2009, containing his oral findings of fact and opinion rendered at the conclusion of the trial . In accordance with the oral findings . of fact and .opinion, decision will be entered for petitioners . (Signed) Harry A. Haines Judge Dated : Washington, D .C . January 4, 2010 SERVED JAN - 7 2010 3 1 Bench Opinion by Judge Harry A . Haines December 4, 2009 2 John Nairn Thomas v . Commissioner Docket No . 5353-0 9 3 4 THE COURT : The Court has decided to render ora l 5 findings of fact and opinion in this case, and the following 6 represents the Court's oral findings of fact and opinion . 7 The oral findings of fact and opinion shall not be relied 8 upon as precedent in any other case . 9 Petitioner filed petitions with this Court in 10 response to notices of deficiency for 2003 and 2004 . 11 Respondent concedes there is no deficiency and no penalties 12 due for 2004, but determined deficiencies for 2003 o f 13 $21,572, Internal Revenue Code section 6651(a)(1) penalties 14 of $5393, and section 6662 penalties of $4314 . 15 Petitioner concedes he improperly excluded $13 of 16 interest income from his 2003 return ; that he received a 17 state tax refund of $295 which is now includable in income ; 18 and that he was not entitled to a claimed deduction for tax 19 and license expenses of $56,893, Schedule C profit and loss 20 from business of his 2003 return . The remaining issues for 21 decision are (I) whether Petitioner is entitled to Schedule 22 C deductions for 2003 consisting of cost of goods sold , 23 repairs,and maintenance expenses ., and . home office . deductions 24 in amounts greater than those allowed in the notice o f 25 deficiency ; (ii) whether Petitioner's liable for the Heritage Reporting Corporatio n (202) 628-4888 4 1 delinquency penalty under section 6651(a)(1) for 2003 ; and 2 (iii) whether Petitioner is liable for the accuracy-related 3 penalty under section 6662 for 2003 . 4 Petitioner is an individual who maintained hi s 5 legal residence in the state of California at the time his 6 petitions were filed in this case . Petitioner filed hi s 7 form 1040 US individual income tax return for 2003 on April 8 15th, 2006 . 9 Deductions are a matter of legislative grace and 10 the taxpayer must prove he is entitled to the deductions . 11 New Colonial Ice Co . v . Helvering , 292 US 435, 440 (1934) . 12 Petitioner has failed to provide any information 13 to substantiate his claimed Schedule C deductions for cost 14 of goods sold, repairs and maintenance expenses, and home 15 office expenses in excess of the amounts allowed b y 16 Respondent for 2003 . Although Petitioner testified as to 17 the rate of $3 per hundredweight of freight as contract 18 labor, no evidence was submitted regarding the weight of 19 freight delivered during 2003 to which the rate could be 20 applied . 21 In the absence of any evidence in the record t o 22 the contrary, we hold that Petitioner has failed to meet his 23 burden of proof to establish any of the Schedule C 24 deductions in dispute for 2003 beyond those allowed b y 25 Respondent . Heritage Reporting Corporation (202) 628-4888 5 1 Respondent determined Petitioner's liable for a 2 delinquency penalty under section 6651(a)(1) and a n 3 accuracy-related penalty under section 6662 for 2003 . Under 4 section 749 the Commissioner bears the burden o f 5 production with respect to penalties . Once the burden of 6 production is met, the taxpayer must come forward wit h 7 evidence sufficient to show that the penalty does not apply . 8 Higbee v . Commissioner , 116 Tax Court 438, 447 (2001) . 9 Section 6651(a)(1) imposes a penalty for failure 10 to file a return on the date prescribed unless taxpayer can 11 establish that the failure is due to reasonable cause and 12 not willful neglect . Respondent bears the burden o f 13 production with respect to Petitioner's liability for the 14 section 6651(a)(1) addition to tax . See section 749 1 15 To meet his burden of production, Respondent must 16 come forward with sufficient evidence indicating that it is 17 appropriate to impose the addition to tax . See Higbee v . 18 Commissioner , supra . 19 Respondent has met his burden of production, 20 because the parties stipulated that Petitioner filed hi s 21 2003 return on April 15th, 2006 . Petitioner failed to show 22 the 2003 was delinquent due to reasonable cause . We fin d 23 that Petitioner did-not have reasonable cause for hi s 24 failure to timely file . Therefore, we hold that Petitioner 25 is liable for the section 6651(a)(1) addition to tax . Heritage Reporting Corporation (202) 628-4888 6 1 Respondent determined Petitioner's liable for an 2 accuracy-related penalty under section 6662(a) for 2003 . 3 Section 6662(a) and -(b)(2) impose an accuracy-related 4 penalty upon any underpayment of tax resulting from a 5 substantial understatement of income tax . The penalty is 6 equal to 20 percent of the portion of any underpaymen t 7 attributable to a substantial understatement of income tax . 8 The term 'substantial understatement' is defined unde r 9 section 6662(d)(1)(A) as exceeding the greater of 10 percent 10 of the tax required to be shown on the return for th e 11 taxable year or $5000 . 12 Section 6662(a) and -(b)(1) also impose a penalty 13 equal to 20 percent of the amount of an underpaymen t 14 attributable to negligence or disregard of rules o r 15 regulations . Under section 6662~ ;'nneg igence includes any 16 failure to make a reasonable attempt to comply with th e 17 provisions of the Internal Revenue Code . 18 Petitioner's understatement of income tax as 19 reflected in the notice of deficiency is greater than 10 20 percent of the tax required to be shown on the return in 21 2003 . Additionally, Petitioner's failure to produce any 22 receipts or other credible evidence to support his Schedule 23 C itemized deductions supports the imposition of th e 24 accuracy-related penalty for negligence for 2003 . Thus 25 Respondent has met his burden of production under section Heritage Reporting Corporatio n (202) 628-4888 7 1 7491© . 2 Under section 6664(c)(1), an accuracy-relate d 3 penalty is not imposed on any portion of the underpayment as 4 to which the taxpayer acted with reasonable cause and i n 5 good faith . The taxpayer bears the burden of proof with 6 regard to those issues . Higbee v . Commissioner , supra at 7 446 . 8 The determination of whether a taxpayer acted with 9 reasonable cause and in good faith is made on a case-by-case 10 basis, taking into account all pertinent facts an d 11 circumstances, including the extent of the taxpayer' s 12 efforts to assess his or her proper tax liability and the 13 taxpayer's education, knowledge and experience . Section 14 1 .6664-4(b)(1), Income Tax Regs . 15 The extent of the taxpayer's efforts to assess the 16 proper tax liability is generally the most important factor . 17 Id . 18 Using electronic means, Petitioner attempted to 19 properly prepare the return and determine the correct tax 20 liability for 2003 . Based on Petitioner's education , 21 knowledge, and limited experience with the tax system, we 22 find that Petitioner's met his burden of proof and shown he 23 acted with reasonable cause and in good faith in th e 24 preparation of his 2003 return . Accordingly, we fin d 25 Petitioner is not liable for the section 6662 penalty for Heritage Reporting Corporatio n (202) 628-4888 r 8 1 2003 . 2 In reaching our holding, we have considered al l 3 arguments made, and to the extent not mentioned, we conclude 4 that they are moot, irrelevant, or without merit . 5 To reflect the foregoing, decision will be entered 6 under Rule 155 . 7 This concludes the Court's oral findings of fact 8 and opinion . 9 (Whereupon, at 9 :12 a .m ., the bench opinion in the 10 above-entitled matter was concluded . ) 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Heritage Reporting Corporation (202) 628-4888