Court Opinion

ID: 4336265
Source: CourtListenerOpinion
Date Created: 2018-11-14 02:44:05.728176+00
Date Added: 2024-06-11T09:36:54.714292
License: Public Domain

T.C. Summary Opinion 2006-194

                     UNITED STATES TAX COURT

     THOMAS JOSEPH AND JUDITH JANE FORRISTAL, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent

     Docket No. 16249-04S.               Filed December 26, 2006.

     Thomas Joseph and Judith Jane Forristal, pro sese.

     Edward L. Walter, for respondent.

     GOLDBERG, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year in issue.
                               - 2 -

     Respondent determined an accuracy-related penalty under

section 6662(a) against petitioners for the taxable year 2001.

The sole issue for decision is whether petitioners are liable for

the penalty.

                            Background

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   At the time the petition

was filed, petitioners resided in Amelia Island, Florida.

     Thomas J. Forristal (petitioner) was a practicing physician

in the Cincinnati, Ohio, metropolitan area for 35 years before he

retired in 2001.   That year petitioner received a $23,800

distribution from a retirement account with UBS PaineWebber.    UBS

PaineWebber issued petitioner a Form 1099-R, Distributions from

Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs,

Insurance Contracts, etc., which listed the $23,800 as a taxable

amount.   Petitioner received the Form 1099-R in or about February

2002.   Petitioners were in the process of moving to Florida at

that time.

     Petitioners used an accounting firm in Cincinnati to prepare

their joint 2001 Federal income tax return.   Petitioners provided

the accounting firm with information concerning their income for

that year, but they failed to provide the Form 1099-R.   The

return prepared by the accounting firm omitted the $23,800 from
                               - 3 -

petitioners’ income.   Petitioners signed and filed the return in

April 2002.

     Respondent sent petitioners a notice of proposed adjustments

in July 2003, proposing to include the $23,800 in petitioners’

income.   The notice also proposed an accuracy-related penalty.

Petitioners agreed to include the $23,800 in income and promptly

paid the tax attributable thereto.     Petitioners did not agree to

the penalty, however, and respondent issued a notice of

deficiency in June 2004, determining a $1,315 penalty under

section 6662(a).

                            Discussion

     A taxpayer is liable for an accuracy-related penalty of 20

percent of any part of an underpayment attributable to negligence

or disregard of rules or regulations.    Sec. 6662(a) and (b)(1).

The term “negligence” includes any failure to make a reasonable

attempt to comply with the provisions of the internal revenue

laws or to exercise ordinary and reasonable care in the

preparation of a tax return.   Sec. 6662(c); Gowni v.

Commissioner, T.C. Memo. 2004-154.     The term “disregard” includes

any careless, reckless, or intentional disregard.    Sec. 6662(c);

sec. 1.6662-3(b)(2), Income Tax Regs.

     The accuracy-related penalty does not apply to any part of

an underpayment for which there was reasonable cause and with

respect to which the taxpayer acted in good faith.    Sec.
                                - 4 -

6664(c)(1); sec. 1.6664-4(a), Income Tax Regs.     The determination

of whether a taxpayer acted with reasonable cause and in good

faith is made on a case-by-case basis, taking into account all

pertinent facts and circumstances.      Sec. 1.6664-4(b)(1), Income

Tax Regs.    Generally, the most important factor is the extent of

the taxpayer’s effort to assess the taxpayer’s proper tax

liability. Id.

     Section 7491(c) places on the Commissioner the burden of

producing evidence showing that it is appropriate to impose any

penalty or addition to tax.    Once the Commissioner meets that

burden, the taxpayer must produce evidence sufficient to show

that Commissioner’s determination is incorrect.      Higbee v.

Commissioner, 116 T.C. 438, 447 (2001).      The Commissioner need

not produce evidence relating to defenses such as reasonable

cause. Id. at 446.

     Petitioner acknowledges receiving the Form 1099-R but claims

that “It got misplaced.”    Even if this is true, there is no

indication petitioner timely contacted UBS PaineWebber for a

replacement Form 1099-R or otherwise informed the accounting firm

of the retirement income.    Accordingly, we conclude that

respondent has met his burden of production by showing that

petitioners failed to exercise ordinary and reasonable care in

preparing their 2001 tax return.    See sec. 6662(c); Gowni v.

Commissioner, supra.
                               - 5 -

     Petitioners advance four arguments why they meet the

reasonable cause and good faith exception to the penalty.    First,

they contend they relied on the accounting firm to prepare their

return.   Reliance on a return preparer may relieve a taxpayer

from the accuracy-related penalty where the taxpayer’s reliance

is reasonable.   ASAT, Inc. v. Commissioner, 108 T.C. 147, 176

(1997).   Reliance upon expert advice, however, will not exculpate

a taxpayer who supplies the return preparer with incomplete or

inaccurate information.   Id.; InverWorld, Inc. v. Commissioner,

T.C. Memo. 1996-301.   Because petitioners failed to provide the

accounting firm with the Form 1099-R, this exception to the

accuracy-related penalty does not apply.

     Second, petitioners may be arguing that it was reasonable to

misplace the Form 1099-R during the upheaval caused by their move

to Florida in the spring of 2002.   Even if the Form 1099-R was

misplaced, unavailability of information does not constitute

reasonable cause.   Crocker v. Commissioner, 92 T.C. 899, 913

(1989).   This is true even if the taxpayer does not receive an

information document such as a Form 1099-R.   See Goode v.

Commissioner, T.C. Memo. 2006-48; Brunsman v. Commissioner, T.C.

Memo. 2003-291 (taxpayer did not need to receive a Form 1099 to

be alerted that he received income).   Petitioners received the

Form 1099-R and were aware of the need to report the retirement
                               - 6 -

income on their return.   Misplacing the Form 1099-R does not

constitute reasonable cause.

     Third, petitioners argue they have been accurately filing

returns and paying their taxes for 55 years.    While petitioners’

history of compliance is admirable, it does not explain why they

failed to report the retirement income shown on the Form 1099-R.

     Finally, petitioners contend that respondent is estopped

from determining an accuracy-related penalty.   After respondent

issued the notice of proposed adjustments in July 2003,

respondent sent petitioners a letter in December 2003 titled

“Statement of Account”, which indicated petitioners were owed a

$92.77 refund for 2001.   Petitioners argue that the December 2003

letter precluded respondent from later issuing the notice of

deficiency.

     Equitable estoppel is a judicial doctrine that precludes a

party from denying his own acts or representations which induced

another to act to his detriment.   Hofstetter v. Commissioner, 98
T.C. 695, 700 (1992).   It is well settled, however, that the

Commissioner cannot be estopped from correcting a mistake of law,

even where a taxpayer may have relied to his detriment on that

mistake.   Norfolk S. Corp. v. Commissioner, 104 T.C. 13, 59-60

(1995), affd. 140 F.3d 240 (4th Cir. 1998).    An exception exists

only in the rare case where a taxpayer can prove he or she would

suffer an unconscionable injury because of that reliance. Id.
                                 - 7 -

     The following conditions must be satisfied before equitable

estoppel will be applied against the Government:       (1) A false

representation or wrongful, misleading silence by the party

against whom the opposing party seeks to invoke the doctrine; (2)

an error in a statement of fact and not in an opinion or

statement of law; (3) ignorance of the true facts; (4) reasonable

reliance on the acts or statements of the one against whom

estoppel is claimed; and (5) adverse effects of the acts or

statements of the one against whom estoppel is claimed. Id.

     Petitioners have not shown that they relied to their

detriment on the December 2003 letter or that they suffered

unconscionable injury.   Accordingly, respondent is not estopped

from determining the accuracy-related penalty.       Respondent’s

determination is sustained.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,

                                              Decision will be entered

                                         for respondent.