Court Opinion

ID: 6499701
Source: CourtListenerOpinion
Date Created: 2022-07-13 19:01:20.136418+00
Date Added: 2024-06-11T09:16:39.332240
License: Public Domain

United States Tax Court

                               T.C. Memo. 2022-74

  GREGORY BERNARD COLBERT, II AND SIMONE P. COLBERT,
                     Petitioners

                                          v.

              COMMISSIONER OF INTERNAL REVENUE,
                          Respondent

                                    —————

Docket No. 8395-16.                                           Filed July 13, 2022.

                                    —————

Gregory Bernard Colbert II and Simone P. Colbert, pro sese.

Lawrence D. Sledz and Rubinder K. Bal, for respondent.

           MEMORANDUM FINDINGS OF FACT AND OPINION

       WELLS, Judge: Respondent determined federal income tax
deficiencies of $13,886 and $10,079 and section 6662 1 accuracy-related
penalties of $2,656 and $2,016 for taxable years 2013 and 2014 (years in
issue), respectively. After concessions, 2 the sole issue remaining to be

       1  Unless otherwise indicated, all statutory references are to the Internal
Revenue Code, Title 26 U.S.C., in effect at all relevant times, and all Rule references
are to the Tax Court Rules of Practice and Procedure. Monetary amounts are rounded
to the nearest dollar.
        2 Petitioners concede that they received (1) a 2012 state income tax refund of

$1,510 in taxable year 2013, (2) a 2013 state income tax refund of $2,397 in taxable
year 2014, and (3) $897 in unreported nonemployee compensation attributable to
petitioner wife in taxable year 2013. Respondent agrees to abate the portion of the
assessment made on December 28, 2015, which is attributable to the adjustment made
for the unreported state income tax refund petitioners received in 2013.

                                 Served 07/13/22
                                        2

[*2] decided is whether petitioners are liable for accuracy-related
penalties pursuant to section 6662 for the years in issue. 3

                            FINDINGS OF FACT

       The parties have filed a stipulation of facts and two stipulations
of settled issues, all of which are hereby incorporated by reference into
our findings. Petitioners resided in Georgia when they timely filed a
Petition for redetermination with this Court.

       Petitioners Gregory Colbert (petitioner husband) and Simone
Colbert (petitioner wife), who were married at all relevant times but
have since divorced, filed joint federal income tax returns for the years
in issue. On January 6, 2016, respondent issued to petitioners a notice
of deficiency with respect to the years in issue. The deficiencies were
attributable to (1) unreported income, (2) deductions claimed on
Schedules A, Itemized Deductions, (3) deductions claimed on Schedules
C, Profit or Loss From Business, and (4) unreported state tax refunds. 4
Respondent also determined accuracy-related penalties for the years in
issue pursuant to section 6662.

       In their Petition, petitioners admit that deficiencies exist and
otherwise assign no clear error to respondent’s determinations; their
only contention is that they should be entitled to waive “accrued interest
and fees” because they were unaware that an individual who assisted
them in preparing their taxes “[was] submitting and declaring certain
‘write-offs.’” We note here that there was no tax return preparer
signature on either the 2013 or the 2014 income tax return.

       On December 14, 2016, petitioner wife filed Form 8857, Request
for Innocent Spouse Relief, for the years in issue. Before trial,
respondent granted petitioner wife proportionate innocent spouse relief
pursuant to section 6015(c). Petitioner husband did not exercise his
right to dispute this determination.

       3 Petitioners did not challenge, in their Petition or at trial, other
determinations respondent made and are therefore deemed to have conceded these
determinations. See Rule 34(b)(4) (concession by failing to assign error); Leahy v.
Commissioner, 87 T.C. 56, 73–74 (1986) (concession by failing to argue).
       4 Other adjustments made in the notice of deficiency are computational and

need not be addressed.
                                    3

[*3]                            OPINION

       Petitioners’ sole contention is that they should be entitled to
waive “accrued interest and fees” because they were unaware that an
individual who helped them prepare their tax returns submitted and
declared certain deductions on their tax returns. We understand this
contention as a challenge to the accuracy-related penalties under section
6662 and statutory interest imposed under section 6601 with respect to
their outstanding deficiencies.        Respondent agrees with this
interpretation but denies that interest is at issue. Respondent contends
that petitioners are liable for section 6662 accuracy-related penalties
because they substantially understated income tax on their 2013 and
2014 tax returns.

       Section 6662(a) and (b)(2) imposes an accuracy-related penalty of
20% upon the portion of any underpayment of tax that is attributable to
a substantial understatement of income tax. An understatement of
federal income tax is substantial if the amount of the understatement
for the taxable year exceeds the greater of 10% of the tax required to be
shown on the return or $5,000. I.R.C. § 6662(d)(1)(A).

        Respondent bears the initial burden of production with respect to
petitioners’ liability for section 6662(a) penalties. See I.R.C. § 7491(c).
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). Once
respondent meets his burden of production, petitioners must come
forward with evidence sufficient to show the Court that the
determination is incorrect. Id. at 446–47. Respondent has satisfied his
initial burden of production by showing that the amounts of petitioners’
understatements for the years in issue were “substantial,” in that the
deficiencies of $13,886 and $10,079 for taxable years 2013 and 2014,
respectively, each exceed $5,000. See I.R.C. § 6662(d)(1)(A).

       Respondent must also show compliance with the procedural
requirements of section 6751(b)(1). See I.R.C. § 7491(c); Chai v.
Commissioner, 851 F.3d 190, 221 (2d Cir. 2017), aff’g in part, rev’g in
part T.C. Memo. 2015-42; Graev v. Commissioner, 149 T.C. 485, 493
(2017), supplementing and overruling in part 147 T.C. 460 (2016).
Section 6751(b)(1) provides that no penalty shall be assessed unless “the
initial determination” of the assessment was “personally approved (in
writing) by the immediate supervisor of the individual making such
determination.” Written supervisory approval of the initial penalty
                                    4

[*4] determination must be obtained no later than the date the
Commissioner issues the notice of deficiency (or files an answer or
amended answer) asserting such a penalty. See Chai v. Commissioner,
851 F.3d at 221; see also Graev, 149 T.C. at 495; Endeavor Partners
Fund, LLC v. Commissioner, T.C. Memo. 2018-96, at *63 (“When a
penalty is asserted in a notice of deficiency . . . the Commissioner must
secure supervisory approval for the penalty before issuing that notice to
the taxpayer.”), aff’d, 943 F.3d 464 (D.C. Cir. 2019).

       The record in this case includes copies of Civil Penalty Approval
Forms, signed by the immediate supervisor of the examiner who
examined petitioners’ returns, approving imposition of section 6662(a)
penalties against petitioners for 2013 and 2014. However, the date
provided on each Civil Penalty Approval Form is illegible, and we are
unable to discern whether the initial determination of the assessment
was made before the mailing of the notice of deficiency upon which this
case is based. Thus, we cannot reliably conclude on the basis of the
penalty approval forms that respondent satisfied the requirements of
section 6751(b)(1) before issuing the notice of deficiency determining the
penalties at issue. Consequently, we find that respondent has not
satisfied his burden of production to show compliance with section
6751(b)(1), and we therefore hold that petitioners are not liable for
accuracy-related penalties for underpayments due to substantial
understatements of income tax for 2013 and 2014.

       Finally, we agree with respondent that interest is not at issue in
this case, and we otherwise conclude that we lack jurisdiction to consider
the issue. The Tax Court is a court of limited jurisdiction, and we may
exercise our jurisdiction only to the extent authorized by Congress. See
I.R.C. § 7442; Naftel v. Commissioner, 85 T.C. 527, 529 (1985); Breman
v. Commissioner, 66 T.C. 61, 66 (1976). In deficiency proceedings such
as this case, our jurisdiction does not extend to interest imposed by
section 6601. Lincir v. Commissioner, 115 T.C. 293, 298 (2000), aff’d, 32
F. App’x 278 (9th Cir. 2002). In limited circumstances that are not
present here, this Court does have jurisdiction to redetermine interest.
Pursuant to section 7481(c)(1) and (2) we have jurisdiction to
redetermine an overpayment of interest when certain requirements are
met, including an assessment made by the Commissioner under section
6215 which includes interest. Interest has not yet been assessed in this
case. Consequently, we do not have jurisdiction to redetermine interest
pursuant to section 7481(c).
                                  5

[*5] We have considered all other arguments made and facts
presented in reaching our decision, and to the extent not discussed
above, we conclude that they are moot, irrelevant, or without merit.

      To reflect the foregoing,

      Decision will be entered under Rule 155.