Opinion ID: 276638
Heading Depth: 1
Heading Rank: 6

Heading: Penalties Assessed Pursuant to Section 6653(a).

Text: 22 Various members of the Marcello family were assessed with a 5% penalty pursuant to Section 6653(a) of the 1954 Internal Revenue Code. 18 With regard to Salvador Marcello, the Tax Court found that his failure in 1958 and 1959 to properly report his proportionate share of partnership income was due to negligence and, further, that he was partly responsible for the partnership's failure to keep adequate records. The Tax Court found that Joseph Marcello, Jr. failed to keep adequate records of his business expenditures and that the overstatement of corresponding deductions on his 1958 tax return was due to negligence. Finally, the Tax Court held that, as to Vincent Marcello, the presumption of correctness attributed to the Commissioner's determination had not been overcome and, therefore, the penalty must be sustained. 23 The taxpayers advanced a three-pronged attack on the Tax Court findings. In capsule form, their arguments are that (a) the facts do not support a holding that the taxpayers intended to disregard rules and regulations; (b) the Commissioner has the burden to show an intent to disregard rules and regulations; and (c) since Section 6653(a) is worded in the disjunctive, the Commissioner must indicate on the statutory deficiency notice which violation allegedly occurred. 24 The Commissioner parries with the claim that the taxpayers bear the burden to show that no negligence or intentional disregard of rules and regulations occurred. The Commissioner suggests that intent can be exhibited either by circumstantial evidence or by presuming the correctness of the Commissioner's determination. 25 Sweeping aside the various overlapping arguments offered by the taxpayers, we observe that their real complaint is that in the deficiency notice the Commissioner merely cited Section 6653(a) without denoting what elements of the section were violated. The taxpayer's argument, as we understand it, proposes that a taxpayer cannot adequately and properly defend against the assessment of a Section 6653(a) penalty unless he knows upon what part or parts of the section the Commissioner relies. This argument assumes that the Commissioner has the burden if he asserts a violation of the latter part, while the taxpayer has the burden only if the Commissioner asserts a violation of the first part. 26 There is no dispute that the taxpayer has the burden if he is accused of being negligent in regard to the making out of his tax return. 19 The authorities indicate that the taxpayer also has the burden to show that he did not intentionally disregard rules and regulations. 20 The latter segment of the disjunctive clause is usually brought into play when a taxpayer who is aware or should be aware of a rule or regulation chooses to ignore its requirements. 21 The taxpayer can avoid the penalty by showing no intent to disregard the rule or regulations involved. 22 The penalty may possibly be avoided if the taxpayer because of a mistaken conception of his legal rights failed to follow the rules or regulations. 23 Negligence is lack of due care or failure to do what a reasonable and ordinarily prudent person would do under the circumstances. 24 Thus, a taxpayer may not be negligent but still intentionally disregard rules and regulations, thereby violating Section 6653(a). 27 We now reach the crux of the problem. If the taxpayer has the burden regardless of which element of Section 6653(a) is the basis of the assessment, need the Commissioner do more than merely cite that section in his deficiency notice? In this case, the Commissioner relied on both segments of the section. 25 He need not have quoted the section verbatim. Citing the appropriate section number was sufficient to notify the taxpayers that the 5% addition to their taxes was for violating both segments of Section 6653(a). 26 The taxpayers had the burden to show that their underpayment was due neither to negligence nor intent to disregard rules and regulations. 27 28 As for the Tax Court's specific findings that the taxpayers negligently understated their taxable income, we find no error. On the contrary, the record shows a failure to keep books and documents necessary to form a rational basis for the income reported and the expenses deducted. 28 29 The Commissioner's determination shifts the burden of going forward to the taxpayer. 29 After the taxpayer produces his evidence, the Commissioner may elect to produce no rebuttal evidence, being content that the taxpayer has not shown the Commissioner's determination to be erroneous. The Tax Court is then free to reach its decision on the basis of whether the entire record indicates that the Commissioner's determination was in error. 30 The Tax Court will consider two factors in making its decision: (1) that the Commissioner's determination at the beginning of the proceedings was presumed to be correct, and (2) that the burden of proof at the close of the proceedings still remains with the taxpayer to establish the Commissioner's errors by a preponderance of the evidence. We find that the Tax Court ably and correctly performed its task. 31