TAX COURT OPINION

Case: Kevin John Houghton
Docket Number: 5008-10S
Judge: Colvin
Opinion Type: bench
Filed: 03/02/2011
Pages: 6

UNITED STATES TAX COURT WASHINGTON, DC 20217 RMM KEVIN JOHN HOUGHTON, Petitioner, v. ) Docket No. 5008-10 S COMMISSIONER OF INTERNAL REVENUE, Respondent. O R D E R Pursuant to Rule 152 (b) , Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall petitioner and to respondent a copy of transcript of February 16, 2011, containing her oral opinion rendered in this case. the above case before Judge Diane L. Kroupa on transmit the to the pages of findings of fact and 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. March 2, 2011 SERVEDMar032011 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 Bench Opinion by Judge Dianes L. Kroupa Kevin J. Houghton v. Commissioner Docket No. 5008-10S February 16, 2011 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 äny other case. This case was heard as a small tax case pursuant to the provisions of section 7463 and Rules 170 through 175. All section references are to the Internal Revenue Code as amended and in effect for 2006 and 2007, the years at issue, and all rule references are to the Tax Court Rules of Practice and Procedure. This bench opinion is made pursuant to the authority granted in section 7459(b) and Rule 152. Petitioner'appeared pro se, and Kim Nguyen appeared on behalf of Respondent. Findings of fact and opinion. Certain facts have been stipulated. The stipulation of facts, with accompanying exhibits, is incorporated by this reference. The facts are so found. Petitioner resided in California at the.time 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 he filed the petition in this case. Petitioner claimed gambling losses in the amounts of $50,000 and $45,000 on his federal income tax returns for 2006 and 2007, respectively. Petitioner did not report any gambling income for either of the years at issue. Respondent disallowed the gambling losses and determined that Petitioner was liable for deficiencies in the amounts of $8,627 and $7,745 for the tax years 2006 and 2007, respectively, as well as accuracy- related penalties in the amounts of $1,725.40 and $1,549 for those years. In this tragic case, we are asked to decide whether Petitioner is entitled to claim gambling losses for the years at issue. We are also asked to decide whether Petitioner is liable for the accuracy- related penalty for the years at issue. A taxpayer is generally allowed to deduct losses from gross income. Section 165(a). The law is clear, however, that losses from wagering transactions are only allowed to the extent of the gains from such transactions. Section 165(d). Petitioner's gambling losses are disallowed for the years at issue because he did not report and has not presented evidence of any gambling gains for those years. Petitioner was only able to provide documentation of his gambling 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 losses . We now consider the accuracy-related penalty. Sèction 6662 (a) imposes a penalty equal to 20 percent of any underpayment of tax that is due to either (1) negligence or disregard of rules or regulations, or (2) a substantial understatement of income tax., unless the taxpayer acts with reasonable cause and not w-i-l+trl neglect . See section 6662 (a) , (b) (1) , and (2) . Respondent has established that there was. a substantial understatement of income tax on the; return for both of the years at issue. Respondent has therefore met his burden of production as to the accuracy-related penalty. An exception to the penalty under section 6662 (a) applies in cases where there was reasonable cause for any portion of the underpayment and the taxpayer acted 'in good faith. Section 6664 (c) (1) . The determination of whether the taxpayer acted with reasonable cause and in good faith depends on the pertinent facts and circumstances, including the taxpayer's efforts to assess such taxpayer's proper tax liability, the knowledge and the experience of the taxpayer, and the reliance on the advice of a professional, such as an accountant. Section 1.6664- 4 (b) (1) , Income Tax Regs . Petitioner has the burden Heritage Reyorting Coi-poration (202) 628 -4888 6 of showing reasonable cause. See Higbee v. Comtùìssioner, 116 TC 438 446-447, 2001. Petitioner contends that he prepared his taxes with the TaxÄCT preparation software available on the Internet . He indicated at trial that he was unaware of any error in his tax returns when he filed his taxes . He d a not indicate that he consulted any Internal Revenue Service publications or professional tax advisers before claiming deductions equaling over 80 percent of his' total income for the years a-t issue. The software instructions are not. in the record, so we cannot determine how the error occurred. Petitioner may have acted in good faith, but made a mistake. In the absence of evidence of a mistake in the instructions or a more thorough ef fort by Petitioner to determine his correct tax liability, we cannot conclude that he has shown reasonable cause for the underpayment of tax on his returns for the years at issue. We note that this case has a sad story. Petitioisert is a young man with a college education - focused on teaching but has never taught. He had lost all on nearly all of his income gambling, and was living with friends at the: time of trial. While the Court sympathi zes with Petit ioner ' s tragic 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 Heritage Reporting Corporation (202) 628-4888 1 2 3 4 s 6 7 8 9 10 11 12 13 14 is 17 18 19 20 21 22 23 24 25 7 circumstances,. we must uphold the law. We therefore find that Petitioner is liable for the accuracy- related penalties. Perhaps Petitioner may have a cause -of action against TaxACT. This is for Petiitioner to pursue. To reflect the foregoing, decision will be entered for the Respondent. This concludes the Court's oral findings of fact and opinion. (Whereupon, at 12i39 p.m., the bench opinion in the above-entitled matter was concluded.) // // / // / // // // // // // // // Heritage Reporting Corporation (202) 628-4888