TAX COURT OPINION

Case: Vincent J. Incopero
Docket Number: 27213-12S
Judge: Kerrigan
Opinion Type: bench
Filed: 01/23/2014
Pages: 7

RMM UNITED STATES TAX COURT WASHINGTON, DC 20217 VINCENT J. INCOPERO, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. ) ) ) ) ) ) Order of Service of Transcript 27213-12S. 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 petitioner and respondent a copy of the pages of the transcript of trial in the above case before Judge Kathleen Kerrigan at Chicago, Illinois, on December 2, 2013, containing her oral findings of fact and opinion rendered at the conclusion of the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered for respondent. (Signed) Kathleen Kerrigan Judge Dated: Washington, D.C. January 23, 2014 SERVEDJan 232014 Capital Reporting Company 3 Bench Opinion by Judge Kathleen Kerrigan December 2, 2013 Vincent J. Incopero v. Commissioner Docket No. 27213-12S THE COURT: The Court has decided to render in this case the following as its oral Findings of Fact and Opinion, which shall not be relied on as precedent in any other case. This Bench Opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code, and Rule 152 of the Tax Court Rules of Practice and Procedure. All section references are to the Internal Revenue Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. This proceeding was heard as a Small Tax Case pursuant to the provisions of section 7364, as amended, and Rules 170 and 175. By notice of deficiency dated October 1, 2012, respondent determined a deficiency of $184,843 for tax year 2010 and a section 6662(a) penalty of $36,969. Petitioner has conceded liability for the deficiency in his petition. The issue for consideration is whether petitioner is liable for the accuracy-related penalty under section 6662(a). 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 4 Trial of this case was conducted on December 2, 2013, in Chicago, Illinois. Mr. Incopero represented himself, and K. Elizabeth Kelly represented respondent. The parties' stipulation of facts and exhibits 1-J and 2-J were admitted into evidence. Findings of Fact Petitioner was a resident of Nevada when he filed the petition. He filed timely his Federal income tax return for 2010 and reported income of $1,300,491. Petitioner did not include income from five different sources totaling $528,137. Respondent issued a notice of deficiency on October 1, 2012, for a deficiency of $184,843 and accuracy-related penalty of $36,969. Petitioner conceded that he is liable for the deficiency. During tax year 2010 petitioner bought and sold stocks and bonds as his profession. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Petitioner reported approximately $1.3 million in 20 21 taxable interest on his 2010 Federal income tax return. A certified public accountant prepared 22 petitioner's tax return. 23 24 25 Opinion Under section 7491(c), respondent bears the burden of production with respect to petitioners' 866.488.DEPO www.Capita]ReportingCompany.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 22 23 24 25 liability for the section 6662(a) accuracy-related penalty. This means that respondent "must come forward with sufficient evidence indicating that it is appropriate to impose the relevant penalty." Higbee v. Commissioner, 116 T.C. 438, 446 (2001). Section 6662(a) imposes an accuracy-related penalty of 20 percent of any underpayment that is attributable to, among other things, a substantial understatement of income tax. Section 662(d)(1)(A) defines a "substantial understatement" as an understatement that exceeds the great of (1) 10 percent of the tax required to be shown on the return for the taxable year or (2) $5,000. Petitioner concedes that he had a liability of $184,843, which exceeds 10 percent of the income tax he should have reported on his 2010 Federal income tax return. However, petitioner contends that he is not liable for the penalty because he did not receive information returns for the income that resulted in the deficiency. The amount of the understatement is reduced to the extent attributable to an item (1) for which there is or was substantial authority for the taxpayer's treatment thereof, or (2) with respect to which the relevant facts were adequately disclosed on 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 the taxpayer's return or an attached statement and there is a reasonable basis for the taxpayer's treatment of the item. Sec. 6662(d)(2)(B). 4 Petitioner has no substantial authority for his 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 position, and he did not show reasonable cause for his erroneous reporting. Petitioner was an experienced seller of bonds and stocks. He is familiar with reporting requirements and tax laws relating to taxable income. Petitioner failed to report a large amount of his income. A reasonable person would maintain records of income received and not rely only on information returns. The section 6662(a) penalty is not imposed if a taxpayer can demonstrate (1) reasonable cause for the underpayment and (2) that the taxpayer acted in good faith with respect to the underpayment. Sec. 6664(c)(1). Section 1.6664-4(b)(1), Income Tax Regs., further provides that the determination of reasonable cause and 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 efforts to assess his or her proper tax liability. Sec. 1.6664-4 (b) (1), Income Tax Regs. Reliance on the advice of a tax 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 professional may, but does not necessarily, establish reasonable cause and good faith for the purpose of avoiding a section 6662(a) penalty. See United States v. Boyle, 469 U.S. 241, 251 (1985) ("Reliance by a lay person or a lawyer is of course common; but that reliance cannot function as a substitute for compliance with an unambiguous statute.") . Such reliance does not serve as an "absolute defense"; it is merely a "factor to be considered." Freytag v. Commissioner, 89 T.C. 849, 888 (1987), aff'd, 904 F.2d 1011 (5th Cir. 1990), aff'd, 501 U.S. 868 (1991). In order for a taxpayer to use reliance on a tax professional to avoid liability for a section 6662(a) penalty, the taxpayer must provide necessary and accurate information to the tax professional. See Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 99 (2000), aff'd, 299 F.3d 221 (3" Cir. 2002). Petitioner did not show that he provided the information to his tax return preparer; rather, petitioner testified that he did not receive the information returns. Therefore, we hold the petitioner is liable for the accuracy-related penalty for 2010. Consequently, we will sustain the penalty as determined by respondent. 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 This concludes the Court's oral Findings of 8 Fact and Opinion in this case. (Whereupon, at 2:49 p.m., the above- entitled matter was concluded.) 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