TAX COURT OPINION

Case: Patricia A. Kelly
Docket Number: 26385-08S
Judge: Dean
Opinion Type: summary
Filed: 01/13/2010
Pages: 6

T .C . ISummary Opinion 2010-4 UNITED STATES TAX COURT PATIRICIA A . KELLY, Petitioner v . COMMISSIONER OF INTERNAL REVENUE ; Responden t Docket No . 26385-08S . Filed January 13, 2010 . Patricia A . Kelly, pro se . Carrie L . Kleiman , for respondent . DEAN,, 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 . Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court , and this opinion shall not be treated as precedent for any other case . Unless otherwise indicated, subsequent section references are to the Internal Revenue Code in effect for the year in issue . SERVED JAN 1 2010 - 2 - For 2006 respondent determined a deficiency of $6,300 i n petitioner's Federal income tax and an accuracy-related penalty of $1,260 under section 6662(a) . After petitioner's concession,' the sole issue for decision is whether petitioner is liable for the accuracy-related penalty . Background Some of the facts have been stipulated and are so found . The stipulation of facts and the attached exhibits are incorporated herein by reference . When petitioner filed . her petition, she resided in Pennsylvania . In 2006 petitioner was going through a divorce . On January 22, 2007, as part of the divorce settlement agreement, she and her former husband signed a property settlement agreement . The agreement provided that neither party would seek alimony and that both parties waived any future rights to alimony payments . The agreement further provided that the husband agreed to waive any and all rights to petitioner's residence and petitioner agreed t o pay her husband a total of $45,000 in two separate payments . The first payment was due upon a refinancing of the home, and the second payment was due April 1, 2007 . In November 2006, prior to the execution of the property settlement agreement, petitioner wrote a $22,500 check payable to "cash" with the notatio n 'Petitioner concedes that she is not entitled to deduct $22,500 as an alimony payment . - 3 - "Michael Kelly" (petitioner's former husband) . Petitioner endorsed and negotiated the check . j In a timely filed Federal individual, income tax return for 2006 petitioner deducted $22,500 as alimony . In a notice of deficiency respondent determined that this amount was not deductible and that petitioner was liable for an accuracy-related penalty of $1,260 due to a substantial understatement of income tax . Section 6662(a) and (b)-(2) imposes a 20-percen t Discussio n accuracy-related penalty for any portion of an underpayment that is attributable to a substantial understatement of income tax .2 An understatement of income tax is the excess of the amount o f income tax required to be shown on the return for the taxabl e year over the amount of income tax imposed that is'shown on the return, reduced by any rebate . See sec . 6662(d)(2)(A) . An understatement is substantial if it exceeds the greater of 10 _ percent of the tax required to be shown on the return for the taxable year or, in the case of an individual, $ 5,000 . See sec . 6662(d) (1) (A) . The Commissioner bears the burden of production with respect I to the applicability{of an accuracy-related penalty determined i n 2The Court need not determine whether petitioner is liable for the accuracy-related penalty due to negligence . F - 4 a notice of deficiency . See sec . 7491(c) . In order to meet the burden of production under section 7491(c), the ;. Commissioner nee d only make a prima facie case that imposition of''the penalty o r addition to tax is appropriate . Higbee v . Commissioner , 116 T .C . 438, 446 (2001) . Once he has met his burden, the burden of proof is upon the taxpayer to prove that the accuracy-related penalty does not apply because of reasonable cause, substantial authority, or the like . See secs . 6662(d)(2)(B), 6664(c) ; Higbee v . Commissioner , supra at 449 . Petitioner hadi;a substantial understatement of income tax for 2006, since the understatement amount exceeded $5,000 . The Court finds that respondent has met his burden for the determination of an accuracy-related penalt y based on substantial understatement of income ''tax . An accuracy-related penalty is not imposed on any portion of the underpayment as to which the taxpayer acted with reasonable cause and in good faith . Sec . 6664(c)(1) . Section 1 .6664- . 4(b)(1), Income Tax Regs ., incorporates a facts and circumstance s 1 test to determine whether the taxpayer acted with reasonable cause and in good faith . The most important factor is the extent of the taxpayer's effort to assess his proper tax liability . Id . Reliance on the advice of a tax professional may als o constitute reasonable cause and good faith if under all the facts and circumstances the reliance is reasonable and in good faith . - 5 - Neonatology Associates, P .A . v . Commissioner , 115 T .C . 43, 98 (2000), affd . 299 F .3d 221 (3d Cir . 2002) ; sec . 1 .6664-4(c)(1) , Income Tax Regs . To qualify for this exception a taxpayer must I prove by a preponderance of the evidence that : ( 1) The adviser was a competent professional who had sufficient expertise t o justify reliance ; (12) the taxpayer provided necessary and accurate informatioln to the adviser ; and (3) the taxpayer actually relied in !,good faith on the adviser's judgment . Neonatology Associates, P .A . v . Commissioner , supra at 98-99 . Petitioner testified .that she did not prepare her own return but that for 2006 she paid a tax preparer to prepare her return . Petitioner testified that she provided the tax preparer with a copy .of her divorce decree and she told him that she had pai d $22,500 of alimony in 2006 . Beyond petitioner's testimony, there is no credible evidenc e that she provided her tax preparer with the necessary documents to allow him to accurately assess whether the $22,500 was a deductible alimony payment . Instead, petitioner told her tax preparer that she paid alimony in 2006 . In addition, she did not make the payment under a written agreement indicating that the $22,500 was an alimony payment . The law in this area is wel l settled . Absent a written agreement, payments made pursuant to an oral agreement are not deductible as alimony payments . See Jachym v . Commissioner , T .C . Memo . 1984-181 . The Court is unable to conclude on the record before us that it was reasonable for . petitioner to rely on the advice of her ta x preparer .' There is no credible evidence that she provided the tax preparer with the documents necessary to make a professiona l conclusion as to whether the payment was deductible . I n addition, petitioner testified that she told her tax prepare r that her payment was an alimony payment and was therefore deductible . The Court finds that petitioner's :,reliance was unreasonable under the circumstances, and respondent's determination is sustained. i! ! ,To reflect the foregoing, Decision will be entere d for respondent