TAX COURT OPINION

Case: Conrad Topacio & Carrie Field
Docket Number: 28219-08
Judge: Colvin
Opinion Type: bench
Filed: 10/06/2009
Pages: 8

UNITED STATES TAX COURT WASHINGTON , D .C . 2021 7 CONRAD TOPACIO & CARRIE FIELD Petitioners, , v . ) Docket No . 28219-0 8 COMMISSIONER OF INTERNAL REVENUE, Respondent . O R D E R 'Pursuant to Rule 152 ( b), Tax Court Rules of Practice and Procedure, it i s 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 of the above case before Judge Diane L . Kroupa at Seattle, Washington, on September 17, 2009, containing her oral findings of fact and opinion . In accordance with the oral findings of fact and opinion, decision will be entered pursuant to Rule 155 . (Signed) Diane L. Kroupa Judg e Date : Washington, D .C . October 6, 2009 SERVED OCT - ~Op 3 1 Bench Opinion by Judge Diane L . Kroup a 2 Docket No . 28219-08 September 17, 200 9 3 Conrad Topacio & Carrie Field v . Commissione r 4 THE COURT : The Court has decided to render 5 oral findings of fact and opinion in this case and the 6 following represents the Court's oral findings of fact 7 and opinion . These oral findings of fact and opinion 8 shall not be relied upon as precedent in any othe r 9 case . 10 This bench opinion is made pursuant to the 11 authority granted by section 7459(b) of the Internal 12 Revenue Code of 1986 as amended , and Ruled 152 of the 13 Tax Court Rules of Practice and Procedure . Al l 14 section references are to the Internal Revenue Code in 15 effect for 2005, the year at issue, and all Rul e 16 references are to the Tax Court Rules of Practice and 17 Procedure . 18 Andrew J . Wyman appeared on petitioners' 19 behalf, and Catherine Campbell appeared on behalf of 20 respondent . 21 FINDINGS OF FACT AND OPINION 22 Certain facts are stipulated . The 23 stipulation of facts the parties filed, wit h 24 accompanying exhibits, awe incorporated by thi s I S 25 reference . The facts are so found . Heritage Reporting Corporation (202) 628-4888 4 1 Petitioners resided in Washington at the 2 time they filed the petition . 3 Petitioners failed to file a return for 2005 4 until October 27, 2007 . Respondent determined tha t 5 there was a $26,289 deficiency in petitioners' income 6 tax for 2005 and that petitioners were liable for a 7 $14,569 .25 late filing addition under sectio n 8 6651(a)(1) and a $5,257 .80 accuracy-related penalty 9 under section 6662 . At trial, the parties filed a 10 Stipulation of Settled Issues that resolves all issues 11 other than the late filing addition and the accuracy- 12 related penalty . 13 We therefore focus on the late filing 14 addition and accuracy-related penalty . 15 First, section 6651(a)(1) imposes a late 16 filing addition if a taxpayer fails to file a timely 17 Federal income tax return . Respondent has the burden 18 of production under section 7491(c) and must com e 19 forward with sufficient evidence that it i s 20 appropriate to impose the addition . See Higbee v . 21 Commissioner , 116 T .C . 438, 446-447 (2001) . 22 Petitioners admit that their tax return for 2005 was 23 late and was not filed until October 27, 2007 . The 24 record also reflects that petitioners . substantially 25 understated their income in the year at issue . Heritage Reporting Corporation (202) 628-4888 5 1 Respondent has therefore met his burden of production . 2 The late filing addition under section 3 6651(a)(1) and the accuracy-related penalty unde r 4 section 6662 do not apply, however, if the failure to 5 file was due to reasonable cause and no willfu l 6 neglect . Sec . 6651(c)(1) . The taxpayer bears the 7 burden of proof as to reasonable cause and willful 8 neglect . Higbee v . Commissioner , supra at 447 . In 9 addition, the taxpayer bears the burden of provin g 10 there was reasonable cause for an understatement o f 11 income tax and that he or she acted in good faith with 12 respect to the understatement . Higbee v . 13 Commissioner , supra ; sec . 1 .6664-4(a), Income Tax 14 Regs . 15 A taxpayer's failure to file timely is due 16 to "reasonable cause" if the taxpayer exercise d 17 ordinary business care and prudence and wa s 18 nevertheless unable to file the return within th e 19 prescribed time . See United States v . Boyle , 469 U .S . 20 241, 246 (1985) ; sec . 301 .6651-1(c)(1), Proced . & 21 Admin . Regs . The determination of whether th e 22 taxpayer acted with reasonable cause and in good faith 23 depends on the pertinent facts and circumstances , 24 including the taxpayer's efforts to assess his or her 25 proper tax liability, the knowledge and experience of Heritage Reporting Corporatio n (202) 628-4888 6 1 the taxpayer, and the reliance on the advice of a 2 professional . Sec . 1 .6664-4(b)(1), Income Tax Regs . 3 - Reasonable cause has been found when the 4 taxpayer selects a competent tax adviser, supplies the 5 adviser with all relevant information, and consistent 6 with ordinary business care and prudence, relies o n 7 the adviser's professional judgment as to th e 8 taxpayer's tax obligations . Sec . 6664(c) ; United 9 10 States v . Boyle , supra at 250-251 ; Am . Props ., Inc . v . Commissioner , 28 T .C . 1100 (1957), 11 affd . 262 F .2d 150 (9th Cir . 1958) . To establis h 12 reasonable cause the taxpayer must prove by a 13 preponderance of the evidence that : (1) The adviser 14 was a competent professional who had sufficien t 15 expertise to justify the taxpayer's reliance on him or 16 her, (2) the taxpayer provided necessary and accurate 17 information to the adviser, and (3) the taxpaye r 18 relied in good faith on the adviser's judgment . 19 Neonatology Associates, P .A . v . Commissioner , 115 T .C . 20 43, 99 (2000), affd . 299 F .3d 221 (3d Cir . 2002) . 21 Petitioners claim that their accountant, Ms . 22 Teresa Ha, recommended that they not file the return 23 for 2005 until the pending Tax Court matter for 2003 24 and 2004 was resolved . They also assert that she had 25 all the business records for 2005 and they wer e Heritage Reporting Corporation (202) 628-4888 1 therefore unable to file an accurate return timely for 2 the year at issue . The record reflects, however, that 3 petitioners had boxes of information that they woul d 4 carry back and forth to Ms . Ha's office regarding the 5 restaurant business and that whatever information she 6 had regarding petitioner husband's real estat e 7 business was limited to summary information he 8 provided to her . 9 Moreover, petitioners hired Ms . Ha after a 10 business associate of petitioner husband recommended 11 her to petitioners . Petitioners introduced n o 12 evidence regarding Ms . Ha's credentials or he r 13 experience in preparing tax returns . Ms . Ha was not 14 called as a witness at trial and it was only at the 15 Court's insistence did petitioners' counsel issue a 16 subpoena for her testimony . In short, petitioner s 17 failed to introduce any credible evidence that Ms . Ha 18 was a competent tax adviser with sufficient expertise 19 to justify their reliance . 20 We also question whether petitioner s 21 provided necessary and accurate information to Ms . Ha . 22 Petitioners were unable to satisfy the Court that they 23 had provided all the necessary and relevant documents 24 to her, especially with respect to petitione r 25 husband's real estate business so she could prepare Heritage Reporting Corporatio n (202) 628-4888 8 1 their income tax return . 2 Finally, we address whether petitioner s 3 relied in good faith on Ms . Ha's advice . Petitioner 4 husband stated he wanted a return preparer who would 5 be "better" than TaxServices yet he failed to explain 6 exactly what that meant . He thought Ms . Ha had 7 experience in the restaurant business but he did not 8 verify this information nor could he explain wha t 9 problems, if any, he had with his payroll service 10 provider when he stated that he wanted Ms . Ha to 11 provide full services and was therefore the reason 12 they retained her . We find that petitioners failed to 13 perform the due diligence that a reasonably pruden t 14 person would perform before hiring an income tax 15 return preparer . Petitioners did little t o 16 investigate Ms . Ha's qualifications before hiring her . 17 The Court is not satisfied that petitioners determined 18 whether Ms . Ha was a CPA or had relevant education and 19 experience . 20 Petitioner wife has a college education and 21 petitioner husband has represented that he ha s 22 multiple degrees . Petitioners had multiple businesses 23 and generated hundreds of thousands of dollars o f 24 income . Petitioner husband was involved in th e 25 purchase and sale of business entities and his wife Heritage Reporting Corporatio n (202) 628-4888 9 1 operated and managed the restaurant that employed 14 2 full and part time employees . We cannot excus e 3 taxpayers who make little or no effort to discer n 4 whether the person the taxpayers have chosen to 5 prepare a return is competent to give tax advice . 6 find that petitioners did not act in good faith in 7 relying on Ms . Ha's advice . 8 Accordingly ; we find that petitioners did 9 not have reasonable cause for, nor did they act in 10 good faith with respect to, the late filing addition 11 or understatement of income tax . We therefore sustain 12 respondent's determination that petitioners are liable 13 for the section 6651(a)(1) late filing addition an d 14 the section 6662(a) accuracy-related penalty for 2005 . 15 To give effect to the parties' concessions, 16 as reflected in the Stipulation of Settled Issues and 17 the record in this case, decision will be entere d 18 pursuant to Rule 155 . 19 This concludes the Court's oral findings of 20 fact and opinion in this case . 21 (Whereupon, at 9 :16 a .m ., the bench opinion 22 in the above-entitled matter was concluded . ) 23 24 25 Heritage Reporting Corporation (202) 628-4888