TAX COURT OPINION

Case: Ralph P. & Angela Cunningham
Docket Number: 22173-07
Judge: Cohen
Opinion Type: memo
Filed: 08/31/2009
Pages: 6

T .C . Memo . 2009-19 4 UNITED STATES TAX COURT RALPH P . & ANGELA CUNNINGHAM, Petitioners v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 22173- 07 . Filed August 31, 2009 . Ralph P . & Angela Cunningham, pro sese . Michael Medina , for respondent . { MEMORANDUM FINDINGS OF FACT AND OPINION COHEN, Judge : Respondent determined a deficiency of $11,515 and a late-filing addition to tax of $1,056 .25 in relation t o petitioners' 2002 Federal income tax return . The issues for decision are whether petitioners' reported losses from horse activities are limited by . section 469 and whether petitioners have shown reasonable cause for the late filing of their return . - 2 - .Unless otherwise indicated, all section references are t o the Internal Revenue Code in effect for the year in issue . FINDINGS OF FAC T Some of the facts have been stipulated, and the stipulate d facts are incorporated in our findings by this reference . Petitioners were residents of New York when they filed their petition . During 2002, Ralph P . Cunningham (petitioner) was employed on the dental faculty at New York University and maintained a private dental practice in Peekskill, New York . Petitioners' joint 2002 Form 1040, U .S . Individual Income Tax Return, was filed on April 21, 2006 . On Schedule E, Supplemental Income and Loss, petitioners claimed losses from five separate horse activities located in California and described as Roys Race Synd 2B, Roys Race Synd #3C, Bonnies Race Synd 1A, Bonnies Race Synd 2B, and Bonnies Race Synd 3C . Petitioners' return and the partnership returns reporting the losses from the horse activities were prepared by Robert Gruntz (Gruntz) . Petitioners did not actively participate in the horse activities and had no knowledge of whether or not the horse activities occurred as represented in the partnership returns . They relied on representations by Gruntz in deducting the partnership losses against their other income . In the notice'6f deficiency, the partnership- losses reported by petitioners were disallowed as .passive activities unde r section 469 . Petitioners were advised by Gruntz not to cooperate . with respondent ' s requests for informations . When notice was issued on January 14,02009, setting the case for 'trial in New York on June 15 , 2009, petitioners initiall y continued to refuse to cooperate,' following the advice of Gruntz . On May 19, 2009, petitioners filed amotion for-continuance suggested by Gruntz,- alleging that there was confusion about the issues in the case. The Court set the mot r ion for hearing i n order to clarify the issues . When the case was called for trial , petitioners executed a stipulation attaching exhibits but without' any narrative facts, and they withdrew their motion for continuance . OPINION Section 469 generally limits deduction of losses from "passive activities" to income generated by such activities an d prohibits deduction of such losses against the taxpayer's othe r income . To avoid the limitations of section 469, taxpayers mus t establish that they materially participated-in the activities . Sec . 469(h) . Petitioners . have riot shown any participation, muc h less material participation, in the horse'activities .in issue . They simply signed returns claiming substantial losses~wi :thout investigation or knowledge of the accuracy of the partnership returns for the horse activities . Petitioner asserts in a posttrial memorandum that he was "duped by a charlatan and in essence Robert Gruntz tacitly implied that I should fabricate a log that would show 'material participation'" . Petitioners assert that the liability would be a financial burden for their family and-"petition the Court to consider reducing the liability, throwing [themselves] at the mercy, of the court ." They conclude with : "Just Google Robert Gruntz to see more . " This Court cannot reduce a liability without any basis in law and directly contrary to-the law applicable to the facts appearing from the record in this case . We cannot "Google" or otherwise consider information outside of the record . It is hard to understand, however, how that information could help petitioners . We have no way of knowing when they discovered adverse information about the alleged charlatan, and tha t .information would be relevant only if an accuracy-related penalty were asserted . The addition to tax in issue in this case is for late filing of petitioners' return due April 15, 2003 . Petitioners do not deny that the return was filed late . Section 6651(a)(1) provides that, in . the case of failure to file a .tax .return on the date prescribed for filing (including any extension of time for filing), there shall be added to the tax'required to be'shown on the return an amount equal to 5 percent . of that tax for each month or fraction thereof that the failure :to file continues, not exceeding 25 percent in the . aggregate, unless it is shown tha t the failure to file timely is due to reasonable cause and not due to willful neglect . Reasonable cause for delay is established where a taxpayer is unable to file timely despite the exercise of ordinary business care and prudence . United States'v . Boyle , 469 U .S . 241, 246 & n .4 (1985) ; sec . 301 .6651-1(c)(l), Proced . & Admin . Regs . Willful neglect has been defined as :a "conscious, intentional failure or reckless indifference ." United States v . Boyle , supra at 245 . Whether a failure to .file timely is due to reasonable cause and not willful neglect is a question of fact . See id . at 249 n .8 ; Commissioner v . Walker ', 326 F .2d 261, 26 4 (9th Cir . 1964), affg . on this issue 37 T .C . 962 (1962) . Other than their reliance on Gruntz, whose qualifications as a tax adviser .are not in the record, petitioners have offered no explanation of the reasons for the late filing of their return or the steps, if any, they took to secure timely filing . They have not established reasonable cause . See generally United States v . Boyle , supra . For the reasons set forth herein, - 6 - Decision will be entere d for respondent .