TAX COURT OPINION

Case: Miguel Nieves
Docket Number: 25938-08
Judge: Colvin
Opinion Type: bench
Filed: 03/29/2011
Pages: 5

UNITED STATES TAX COURT WASHINGTON, DC 20217 CLC MARSHA D. GAUSE & WARDELL P. WILLIAMS, Petitioners, v. Docket No. 8224-10 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 transmit to petitioners and to respondent a copy of transcript of February 11, 2011, containing her oral opinion rendered in this case. the above case before Judge Diane L. Kroupa on the pages of the findings of fact and In accordance with the oral fact and opinion, decision will be entered for respondent as to the deficiencies and for petitioners as to the § 6662 penalties. findings of (Signed) Diane L. Kroupa Judge Dated: Washington, D.C. March 29, 2011 SERVEDMar302011 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 Diane L. Kroupa March 1, 2011 Gause & Williams v. Commissioner Docket No. 8224-10 THE COURT:: , THE COURT HAS DECIDED TO RENDER ORAL FINDINGS OF FACT AND OPINION IN THIS CASE AND THE FOLLOWING REPRESENTS sTHE COURT' S ORAL FINDINGS OF FACT AND OPINION. THESE CRAL 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 for 2006 and 2007, the years at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure . Petitioners appeared pro se and Michael Shelton appeared on behalf of respondent. FINDINGS OF FACT AND OPINION Petitioners resided in Chicago, Illinois, at the time they filed the petition. Petitioners timely filed their Federal income tax returns for the years at issue. Respondent audited petitioners and determined deficiencies in Federal income tax of $15,389 for 2006 andt$21,454 for 2007. Petitioners now admit that several deductions were overstated and that they were not entitled to claim certain other Heritage Reporting Corporation (202) 628-4888 i 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 expenses, including educator expenses, and to claim any trade or business expenses as set forth on their returns as filed. Petitioners assert, however, that they should not be held liable for the $3,075.20 accuracy-related penalty for 2006 or the $4,287.60 penalty for 2007. They argue that they reasonably relied upon their tax return preparer, having given her all the information for each year to file the return. Specifically they argued they should not be liable for the accuracy-related penalties because they relied on the advice of their tax return preparer. We therefore need only consider the penalty. Section 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 good faith. See sec. 6662(a), (b) (1), and (2). Respondent has established that there was a substantial understatement of income tax on the return for each of the years at issue. Respondent has therefore met his burden of production as to the accuracy-related penalties. An accuracy-related penalty will not be 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 imposed with respect to any portion of the underpayment if it is shown, with regard to such portion, that there was reasonable cause and that the taxpayer acted in good faith. Sec. 6664(c) (1). Good faith reliance on the advice of an independent, competent professional as to the tax treatment of an item may constitute reasonable cause. Neonatology Associates, P.A. v. Commissioner, 115 T.C. 43, 98-99 (2000). Such determination is made on a case-by-case basis, considering all the pertinent facts and circumstances. Sec. 1.6664-4-1(b) (1), Income Tax Regs. Here, petitioners used.a tax return preparer for preparing their Federal income tax returns for the years at issue. Petitioners provided their preparer with all relevant documents and information and relied on their preparer's advice in preparing their returns for the years at issue. We do not want to condone their behavior. Taxpayers are charged with the obligation to file accurate and timely returns. We find, however, that petitioners were the victims here. We are further persuaded that petitioners were not active participants in this fraud upon our tax system. Petitioners ceased using their preparer once respondent informed petitioners that the deductions Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 is 19 20 21 22 23 24 25 6 claimed on the returns for the years at issue were improper. We find, after considering all the facts and circumstances, petitioners had reasonable cause in relying on their preparer's advice and petitioners acted in good faith. Accordingly, we find that petitioners are not liable for an accuracy-related penalty for 2006 or 2007. To give effect to the foregoing, decision 1 shall be entered for respondent as to the deficiencies and for petitioners as to the accuracy-related penalties. THIS CONCLUDES THE COURT' S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE. (Whereupon, at 4 : 0 9 p . m. , the bench op inion in the above-entitled matter was concluded.) // // // // // // // // // // Heritage Reporting Corporation (202) 628-4888