TAX COURT OPINION

Case: John D. & Diane M. Zakos
Docket Number: 22449-09
Judge: Colvin
Opinion Type: bench
Filed: 11/17/2010
Pages: 7

UNITED STATES TAX COURT WASHINGTON, DC 20217 CZ JOHN D. & DIANE M. ZAKOS, Petitioners, v. ) Docket No. 22449-09 COMMISSIONER OF INTERNAL REVENUE, Respondent. O R D E R Pursuant to Rules 152 (b) , Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit to petitioners and to respondent a copy of transcript of proceedings of L. Kroupa at Salt Lake City, Utah on October 19, 2010, containing her oral fact and opinion. findings of the above case before Judge Diane the pages of the In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) Diane L. Kroupa Judge Dated: Washington, D.C. November 17, 2010 SERVED Nov 23 2010 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2 Bench Opinion by Judge Diane L. Kroupa Zakos v. Commissioner Docket No. 22449-09 October 19, 2010 THE COURT: The Court has decided to render oral findings of fact and opinion in this case, and the following represents the Court's oral findings of fact and opinion. These oral findings of fact and opinion shall not be relied upon as precedent in any other case. This bench opinion is made pursuant to the authority granted by Section 7459(b) and Rule 152. All section references are to the Internal Revenue Code in effect for 2006 and 2007, the years at issue, and all rule references are to the Tax Court Rules of Practice and Procedure. Paul Jones appeared on Petitioners' behalf, and Mark Barnes appeared on behalf of Respondent. FINDINGS OF FACT AND OPINION Certain facts are stipulated. The stipulation of facts the parties filed, with accompanying exhibits, is incorporated by this reference. The facts are so found. Petitioners resided in Utah at the time they filed the petition. Petitioners hired Mr. Ozzy Shamaly to prepare Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 their tax returns for the years at issue. Petitioners provided Mr. Shamaly with a summary of certain expenses, as well as other pertinent documentation, including copies of W-2 forms, brokerage account records, and mortgage interest statements. Petitioners also provided Mr. Shamaly with their children's names and Social Security numbers to take a dependency deduction for their college-aged children, though failed to provide their children's age or birth date. Mr. Shamaly made numerous errors on Petitioners' returns for the years at issue. For example, Petitioners claimed $2,875 in expenses for protective wear, though neither Petitioner works in areas requiring protective wear. They also claimed $1,200 in fax machine costs, but admit the fax at home is personal, and claimed unreimbursed employee business expenses of almost $10,000, even though Petitioner husband testified that his employer reimbursed him for business travel and expenses. Moreover, one year, Mr. Shamaly used one child's Social Security number for another child. Petitioners signed and filed the returns prepared by Mr. Shamaly without questioning Mr. Shamaly about the various mistakes. Petitioners Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 4 signed the return for 2006 in February 2007, and the return for 2007 on March 1, 2008. Respondent determined that Petitioners had a $22,515 deficiency in income tax, and a $4,503 accuracy-related penalty under Section 6662 for 2006, and a $7,333.50 deficiency in income7 and a $1,466.70 accuracy-related penalty under Section 6662 for 2007. Petitioners concede the deficiencies asserted, but contest the accuracy-related penalties. We therefore focus on the accuracy-related penalties. Taxpayers are liable for an accuracy-related penalty for any portion of an underpayment attributable to negligence or disregard of rules and regulations. Secs. 6662(a) and (b) (1). Petitioners concede the deductions were improperly taken, and that they made no attempt to determine the accuracy of their returns before filing. We find that Respondent has met his burden of production. See Higbee v. Commissioner, 116 T.C. 438 (2001). Petitioners claim that they relied on their tax preparer, Mr. Shamaly, to prepare an accurate return. The accuracy-related penalty under Section 6662 does not apply if Petitioners can establish, based on all the facts and circumstances, that there was a Heritage Reporting Corporation (202) 628-4888 ! 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 5 reasonable cause for the underpayment, and that they acted in good faith. See Sec. 6664-4(a); Sec. 1.6664-4(b) (1), Income Tax Regs. Taxpayers bear the burden of proof as to reasonable cause and willful neglect. Higbee v. Commissioner, supra at 447. Petitioners have failed to show reasonable cause for the underpayments on their returns, and have not shown that they acted in good faith with respect to any portion of the underpayments. They simply seek relief from the penalties by casting all responsibility on their tax return preparer. Generally, the duty of filing returns cannot be avoided by placing the responsibility on a return preparer. Loftus v. Commissioner, T.C. Memo 1992-266. In limited situations, however, reasonable cause for negligence due to return preparer mistakes may be established if the taxpayers show that they provided the return preparer with complete and accurate information, that an incorrect return was the result of the preparer's mistake, and the taxpayers in good faith relied on the advice of a competent return preparer. Id. Even if taxpayers meet these requirements, taxpayers still have a duty to read and review the return to make sure that all income items are included. Id. Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 6 Petitioners have not established the elements for relief from penalties on account of the return preparer's errors. Moreover, it is clear to the Court that Petitioners did not review their returns. Petitioners are intelligent, gainfully employed individuals. They earned income in excess of $100,000 during each of the years at issue. Petitioners have the basic acumen needed to review the returns before they signed them. This is true especially given that they had plenty of time to review the returns before the respective due dates. Petitioners did not even exercise the care required to identify the names of their children, whom they claimed as dependents on their returns. Petitioners' failure to review their own return reflects that Petitioners completely abdicated their duty to file a correct return by closing their eyes to facts that they could have discerned. See id. We cannot excuse taxpayers who make little or no effort to discern whether their tax return is accurate. Accordingly, we find that Petitioners did not have reasonable cause for, nor did they act in good faith with respect to, the understatement of income tax. We therefore sustain Respondent's determination that Petitioners are liable for the Section 6662(a) Heritage Reporting Corporation (202) 628-4888 i 2 3 4 5 6 7 8 9 10 11 12 13 14 is 16 17 18 19 20 21 22 23 24 25 7 accuracy-related penalty for 2006 and 2007. To reflect the foregoing, we^enter a decision f or Respondent . This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 2:41 p.m., the bench opinion in the above-entitled case was concluded.) // // // // // // // // // // // // // // // // // // Heritage Reporting Corporat ion (202) 628-4888