TAX COURT OPINION

Case: Syed Raziuddin & Safia Raziuddin
Docket Number: 8888-15S
Judge: Whalen
Opinion Type: bench
Filed: 03/17/2016
Pages: 11

UNITED STATES TAX COURT WASHINGTON, DC 20217 SYED RAZIUDDIN & SAFIA RAZIUDDIN, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ) ) ) ) ) ) ) ORDER Docket No. 8888-15S Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is 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 proceedings in the above-case before the undersigned at Chicago, Illinois, containing the oral findings of fact and opinion rendered on February 10, 2016. In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155. (Signed) Laurence J. Whalen Judge Dated: Washington, D.C. March 17, 2016 SERVED MAR 2 1 2016 Capital Reporting Company 3 Bench Opinion by Judge Laurence J. Whalen February 10, 2016 Syed Raziuddin & Safia Raziuddin v. Commissioner Docket No.: 8888-15S I. 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. II. This proceeding was heard as a Small Tax Case pursuant to the provisions of section 7463 of the Internal Revenue Code of 1986, as amended, and Rules 170 through 175 of the Tax Court Rules of Practice and Procedure. Hereinafter all section numbers refer to the Internal Revenue Code, as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure. Pursuant to section 7463(b), the decision to be entered in this case cannot be reviewed. in any other court, and this bench opinion shall not be treated as precedent for any other case. III. This bench opinion is made pursuant to the authority granted by section 7459(b) and Rule 152. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company IV. Mr. Syed Raziuddin appeared in these 4 proceedings on behalf of himself and Ms. Raziuddin, and Ms. Elizabeth S. McBrearty, attorney at law, appeared on behalf of respondent. In this bench opinion, references to "petitioner" are references to 1 2 3 4 5 6 7 Mr. Raziuddin. 8 9 10 11 12 13 14 15 16 V. Some of the facts have been stipulated by the parties. The Stipulation of Facts filed by the parties and the exhibits attached thereto were taken into evidence at trial. Petitioners resided in the State of Illinois at the time they filed their petition in this case. During 2011, 2012, and 2013, Mr. Raziuddin was a higher education teacher. He taught 17 microbiology and biology subjects. He was employed 18 19 20 21 22 23 24 25 by the City Colleges of Chicago and various other colleges during the years in issue. Ms. Raziuddin operated a daycare business during 2011, 2012, 2013, and petitioners reported gross income and expenses from that daycare business on Schedule C. Petitioner prepared his own income tax returns for each of the years in issue. He did not seek the advice of a tax return preparer or other 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 person knowledgeable about the tax law. Respondent issued a Notice of Deficiency to petitioners on February 20, 2015, in which he determined deficiencies of $8,158, $9,935, and $46,495 in petitioners' Federal income tax for the taxable years 2011, 2012, and 2013, respectively. Respondent also determined accuracy-related penalties in the Notice of Deficiency of $1,631.60, $1,987, and $9,299, respectively. On April 9, 2015, respondent issued a supplement to the Notice of Deficiency for the taxable years 2011, 2012, and 2013 in which he reduced the deficiency and penalty for 2013 based upon information provided by petitioners. According to the supplement, the deficiencies in petitioners' return were $8,158, $9,935, and $6,466, respectively, and the accuracy-related penalties were $1,631.60, $1,987, and $1,293.20, respectively. Respondent's Pretrial Memorandum filed on January 26, 2016 concedes that the deficiency and penalty for taxable year 2012, set forth in the 22 Notice of Deficiency and the supplement thereto, 23 24 25 contains a computational error. According to respondent's Pretrial Memorandum, the correct deficiencies in petitioners' returns are $8,158, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company $9,253, and $6,466, respectively, and the correct accuracy-related penalties are $1,631.60, $1,851, and 6 $1,293.20, respectively. VI. At the start of the trial, the parties submitted to the Court a Stipulation of Settled Issues. The only issue remaining for decision by the 1 2 3 4 5 6 7 8 Court is whether petitioners are liable for the 9 accuracy-related penalty under section 6662(a) for 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 each of the years in issue. VII. Section 6662(a) provides for an accuracy- related penalty in the amount of 20 percent of the portion of any underpayment to which the section applies. The penalty applies to underpayments that are attributable to, among other things, negligence or disregard of rules or regulations, any substantial understatement of income tax, or any substantial valuation misstatement. See sec. 6662(b)(1)-(3). In this case, respondent's Notice of Deficiency based the imposition of the penalty on negligence or disregard of rules or regulations, substantial understatement of income tax, and/or substantial valuation overstatement. See sec. 6662(b). An "understatement" of income tax is the 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 excess of the amount of tax required to be shown on the return over the amount of tax shown on the return. Sec. 6662(d) (2)(A). An understatement of income tax is substantial for an individual if the amount of the understatement exceeds the greater of 10 percent of the tax required to be shown on the return or $5,000. See sec. 6662(d) (1)(A). In this case, petitioners' return for each of the years in issue reported zero tax. Thus, it is evident that the understatement for each of the subject years, to be computed under the Stipulation of Settled Issues, will exceed the greater of 10 percent of the tax required to be shown on the return and will be a substantial understatement., within the 15 meaning of section 6662(d) (1) (A). As a result, we 16 need not consider whether petitioner was negligent 17 within the meaning of section 6662(b)(1), or whether 18 the underpayment was due to a substantial valuation 19 misstatement, within the meaning of section 20 21 22 23 24 25 6662(b)(3). Section 6664(c)(1) provides that the accuracy-related penalty shall not be imposed with respect to any portion of an underpayment if a taxpayer shows that there was a reasonable case for, and that the taxpayer acted in good faith with 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company respect to, that portion. The regulations describe the facts and circumstances to be taken into account in making the determination, including the following: 8 The determination of whether a taxpayer acted with reasonable cause and in good faith is made on a case- by-case basis, taking into account all pertinent facts and circumstances. *** Generally, the most important factor is the extent of the taxpayer's effort to assess the taxpayer's proper tax liability. Circumstances that may indicate reasonable cause and good faith include an honest mis- understanding of *** law that is reasonable in light of all of the facts and circumstances, including the experience, knowledge, and education of the taxpayer. *** Sec. 1.6664-4(b)(1), Income Tax Regs. Section 7491(c) places on the Commissioner the burden of production with respect to a taxpayer's liability for any penalty. To satisfy respondent's burden of production, respondent must come forward 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 with "sufficient evidence indicating that it is 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 appropriate to impose" the accuracy-related penalty. Higbee v. Commissioner, 116 T.C. 438, 446 (2001). Although respondent bears the burden of production 4 with respect to the accuracy-related penalty under 5 6 7 8 9 10 11 12 13 14 15 section 6662(a), respondent "need not introduce evidence regarding reasonable cause *** or similar provisions. *** [T]he taxpayer bears the burden of proof with regard to those issues." Id. Petitioners bear the burden of proving that they had reasonable cause for, and acted in good faith, with respect to any portion of the underpayment, such that they should not be liable for the accuracy-related penalty. See section 6664(c)(1). VIII. Discussion: We find that respondent has 16 met his burden of production with respect to the 17 18 19 20 21 22 23 24 25 accuracy-related penalty. Respondent has established that, as mentioned above, the underpayment for each of the subject years is a substantial understatement of income tax within the meaning of section 6662(d) (1) (A), and that "it is appropriate to impose" the accuracy-related penalty. See Higbee v. Commissioner, 116 T.C. 438, 446 (2001). Petitioners bear the burden of proving that they are not liable for the accuracy-related penalty 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 with respect to any portion of the underpayment for 2 3 4 5 6 7 8 9 each of the. years in issue. We find that petitioners had failed to show that there was a reasonable cause for any portion of the underpayment, or that they acted in good faith with respect to that portion. Sec. 6664(c) (1); sec. 1.6664-4(b), Income Tax Regs. Petitioners did not show that they had made a reasonable attempt to comply with the Internal Revenue Code for any of the three years in issue. 10 Petitioners ask the Court to find that they are not 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 liable for the accuracy-related penalty based upon various hardships that petitioner and his family have gone through, or are going through. First, petitioner testified that he had had a number of illnesses, including a thyroid condition, cataracts, hemorrhoids, and depression. Petitioner's testimony was vague, and he failed to explain how the illnesses he suffered affected the preparation of his returns for 2011, 2012, and 2013 or his efforts to assess the proper tax liability for those years. See sec. 1.6664-4(b)(1), Income Tax Regs. Furthermore, the documents regarding the petitioners' health problems that are included in the Stipulation of Facts relate to illnesses that took place before or after the period in issue, but not during the subject period. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company For example, petitioner's cataract surgery took place 11 in 2015. Second, petitioner testified that his wife had also suffered from illnesses and medical problems, and, he explained she is currently bed- ridden with vertigo. Again, petitioner's testimony was vague about when his wife's illnesses began or how they affected the filing of petitioners' returns for 2011, 2012, or 2013. On the other hand, we note that she is listed on the Schedules C, filed for the taxable years in issue, as the proprietor of their daycare business, a business which earned gross income of $41,200, $51,800, and $53,100, respectively, due to her work. Third, petitioner testified that his parents who live in India are old and in poor health, and it was necessary for petitioner to travel to India to take care of them. Notwithstanding 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 petitioner's many travels to India, he testified that 20 21 22 23 24 25 he is employed by the City Colleges of Chicago and by other colleges "doing evening/night time extra jobs to earn money for my family." As mentioned, we are unable to conclude that petitioner acted with reasonable cause and in good faith as to the underpayment for any of the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 3 years in issue. Accordingly, there being a substantial understatement of income tax, we find petitioners liable for an accuracy-related penalty 4 with respect to taxable years 2011, 2012, And 2013, in the amounts to be computed. Respondent's determination is therefore sustained. IX. In order to give effect to our disposition of the disputed issue, as well as the parties' concessions, decision will be entered under Rule 155. X. THIS CONCLUDES THE COURT'S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE. (Whereupon, at 8:28 a.m., the above- entitled matter was concluded.) 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.Capita1ReportingCompany.com