Court Opinion

ID: 3170130
Source: CourtListenerOpinion
Date Created: 2016-01-15 22:00:47.063043+00
Date Added: 2024-06-11T12:03:19.484004
License: Public Domain

FILED
                           NOT FOR PUBLICATION                              JAN 15 2016

                                                                        MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                       U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

WILEY M. ELICK DDS, INC.,                        No. 13-73071

              Petitioner - Appellant,            Tax Ct. No. 23768-10

 v.
                                                 MEMORANDUM*
COMMISSIONER OF INTERNAL
REVENUE,

              Respondent - Appellee.

WILEY M. ELICK and SHARON ELICK,                 No. 13-73837

              Petitioners - Appellants,          Tax Ct. No. 23767-10

 v.

COMMISSIONER OF INTERNAL
REVENUE,

              Respondent - Appellee.

                           Appeal from a Decision of the
                                    Tax Court

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
                            Submitted January 6, 2016**
                               Pasadena, California

Before: M. SMITH, WATFORD, and FRIEDLAND, Circuit Judges.

      In these consolidated appeals, taxpayers Wiley Elick and Sharon Elick (the

Elicks) and their jointly-owned dental practice Wiley M. Elick, DDS, Inc. (DDS),

appeal from a Tax Court decision affirming the Commissioner of Internal

Revenue’s determination of tax filing deficiencies. We have jurisdiction under 26

U.S.C. § 7482, and we affirm.

       As the facts and procedural history are familiar to the parties, we do not

recite them here except as necessary to explain our disposition. We review the Tax

Court’s denial of a motion to amend a petition for abuse of discretion. See Kelley v.

Comm’r, 877 F.2d 756, 761 (9th Cir. 1989), abrogated on other grounds, Bufferd

v. Comm’r, 506 U.S. 523 (1993). The Tax Court’s conclusions of law are reviewed

de novo, and its findings of fact are reviewed for clear error. See DJB Holding

Corp. v. Comm’r, 803 F.3d 1014, 1022 (9th Cir. 2015). Whether an expense is

“ordinary and necessary” is a finding of fact. See Maciel v. Comm’r, 489 F.3d
1018, 1028 (9th Cir. 2007). “Whether a taxpayer acted with reasonable cause and

in good faith” is also a finding of fact. DJB Holding Corp., 803 F.3d at 1022.

        **
             The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).

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1.    The Tax Court acted within its discretion by denying the Elicks’ motion to

amend their petition. See Tax Ct. R. 41(a). The Elicks’ untimely motion to amend

was filed 41 days prior to trial, after the discovery deadline, and after nearly two

years of litigation. See Tax Ct. R. 70(a)(2). Under these circumstances, the Tax

Court properly concluded that the filing of an amended petition would have

prejudiced the Commissioner. See Solomon v. N. Am. Life & Cas. Ins., 151 F.3d
1132, 1139 (9th Cir. 1998).

2.    Next, the Tax Court determined that management fees paid by DDS failed to

qualify as deductible business expenses because the fees were not “ordinary and

necessary.” See 26 U.S.C. § 162(a). The record amply supports the Tax Court’s

conclusion that the management fees were not necessary to DDS’ ongoing

business. DDS’ argument that the Tax Court mistakenly applied the burden of

proof under 26 U.S.C. § 7491(a) is unavailing. Even assuming that DDS met the

requirements for § 7491(a), the burden of proof is not determinative unless the

evidence is in equipoise. See United States v. Seschillie, 310 F.3d 1208, 1216 (9th

Cir. 2002). Such is not the case here, where the evidence corroborates the Tax

Court’s finding that the management fees paid by DDS did not correspond to

services actually received.

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3.    In addition, the Tax Court properly assessed accuracy-related penalties

pursuant to 26 U.S.C. § 6662. It found that the Elicks and DDS failed to make

reasonable attempts to ascertain the accuracy of the claimed deductions. See 26

C.F.R. § 1.6662–3(b)(1); see also 26 U.S.C. § 6664(c) (safe harbor provision for

taxpayers acting with “good faith” and “reasonable cause”). The management fees

that DDS claimed fluctuated significantly from year to year, and were not

corroborated by records of work performed. DDS not only failed to establish that it

received any services in exchange for those fees, but also disregarded the terms of

the management agreement. In addition, the Elicks’ and DDS’ reliance on outside

advisors for tax advice and return preparation did not extend to the factual

accuracy of the particular amounts claimed. The record supports the Tax Court’s

finding that Dr. Elick determined those amounts. See DJB Holding Corp., 803 F.3d

at 1030 (reliance on accountant unreasonable where taxpayer failed to provide

accountant with “all the necessary and accurate information”); 26 C.F.R. §

1.6664–4(b)(1).

4.    Finally, the Tax Court assessed a late-filing addition to tax against the

Elicks. An addition to tax applies to late filings “unless it is shown that such failure

is due to reasonable cause and not due to willful neglect.” 26 U.S.C. § 6651(a)(1).

The Elicks’ argument that they relied on a tax professional’s advice to delay the

                                           4
filing does not constitute reasonable cause. In United States v. Boyle, 469 U.S. 241

(1985), the Supreme Court held that failure to timely file a tax return was not

excused by reliance on an agent, since such reliance “cannot function as a

substitute for compliance with an unambiguous statute.” Id. at 251.

AFFIRMED.

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