Opinion ID: 566858
Heading Depth: 2
Heading Rank: 1

Heading: Negligent underpayment under Section 6653(a)

Text: 28 Taxpayer argues that deductibility of legal fees under Section 212(2) in a RICO prosecution presents a question of first impression. He also claims to have relied on the advice of his tax preparer in claiming the deduction. Therefore, taxpayer asks this Court to overturn the penalty he must bear for the negligent underpayment of taxes under Section 6653(a) (26 U.S.C.). Section 6653(a) of the Code acts as a check on taxpayers. If the Commissioner finds that a taxpayer has underpaid taxes, then he may recover the deficiency and may also impose an added penalty of five percent plus 50 percent of the interest attributable to the underpayment. Standard principles of negligence apply to the Commissioner's determination of underpayment, so that the penalty may be imposed when the taxpayer shows a lack of due care or failure to do what a reasonable and ordinarily prudent [taxpayer] would do under the circumstances. Marcello v. Commissioner, 380 F.2d 499, 506 (5th Cir.1967). However, taxpayer carries the burden to prove that he was not negligent, because the Commissioner is deemed to be prima facie correct as to a determination of negligence or intentional disregard of the Code. Neely v. Commissioner, 85 T.C. 934, 947 (1985); Luman v. Commissioner, 79 T.C. 846, 860-861 (1982). Furthermore, the Tax Court's determination that taxpayer failed to meet his burden that he acted with due care is a finding of fact, reviewed under the clearly erroneous standard. Skeen v. Commissioner, 864 F.2d 93, 96 (9th Cir.1989). 29 As shown above, RICO Section 1963(a) provides only for forfeiture of assets earned in connection with racketeering activity. Because the certificates of deposit were not forfeitable, taxpayer had no basis upon which to claim his deduction under Section 212(2). Moreover, taxpayer knew the tax law well enough to avoid claiming his deduction as a business expense under Section 162(a), and instead attempted to recharacterize the legal fees in different terms in order to receive favorable treatment under Section 212(2). This provision, as amply demonstrated by the cases discussing RICO forfeiture and the breadth of Section 212(2), does not afford taxpayer a credible argument that the law was unclear. 30 Additionally, taxpayer did not support with sufficient evidence his claim that he relied on the advice of counsel and his tax preparer in claiming his deduction of legal fees under Section 212(2). Even if the record had shown that taxpayer had relied in good faith on the advice of competent counsel, in contrast to taxpayer's assertion at oral argument, the Supreme Court's recent decision in Cheek v. United States, --- U.S. ----, 111 S.Ct. 604, 611, 112 L.Ed.2d 617 (1991), would be of no avail because there the Court only held in a criminal case that the willful failure to pay taxes was not necessarily proven if the defendant truly believed the Internal Revenue Code did not treat wages as income. Whereas Cheek simply creates a jury question out of a defendant's interpretation of the Code, id. 111 S.Ct. at 613, Section 6653 imposes a burden of production on a taxpayer. 31 As the Tax Court noted in its order denying a motion to vacate its decision, Accardo failed to produce the required evidence that he relied upon his tax preparer or that the preparer gave him reasonable advice. Similarly, he has not shown that he received advice from his counsel, that he relied on it in good faith, and that any such reliance was reasonable. See Betson v. Commissioner, 802 F.2d 365, 372 (9th Cir.1986) (reversing imposition of negligence penalty where the record indicates that taxpayer relied in good faith on the substantive advice of his accountant). That the signature of the accountant tax preparer appeared on Accardo's tax return is not enough. Taxpayer must demonstrate that he supplied all relevant information to his tax preparer and subsequently relied on the preparer's advice in erroneously claiming the deduction. Pritchett v. Commissioner, 63 T.C. 149, 174 (1974); Pessin v. Commissioner, 59 T.C. 473, 489 (1972). In the present case, the Tax Court properly upheld the addition to tax on the ground that the underpayment was negligent. 32