T.C. Memo. 2013-259
UNITED STATES TAX COURT
SHARON NELSON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24182-09. Filed November 13, 2013.
Joyce Anne Rebhun, for petitioner.
Nathan C. Johnston and Linette B. Angelastro, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
CHIECHI, Judge: Respondent determined deficiencies of $355,403 and
$307,911 in, and accuracy-related penalties under section 6662(a)1 of $71,080.60
1
All section references are to the Internal Revenue Code (Code) in effect for
the years at issue. All Rule references are to the Tax Court Rules of Practice and
Procedure.
-2-
[*2] and $61,582.20 on, petitioner’s Federal income tax (tax) for her taxable years
2005 and 2006, respectively.
The issues remaining for decision for each of the years at issue are:
(1) Did petitioner engage in the trade or business within the meaning of sec-
tion 162(a) of buying and selling securities for her own account? We hold that she
did not.
(2) In the light of our holding with respect to issue (1) above, is petitioner
entitled to deduct under section 162(a) certain expenses that remain in dispute
and that petitioner claims she paid in buying and selling securities for her own
account? We hold that she is not.
(3) Is petitioner liable for the accuracy-related penalty under section
6662(a)? We hold that she is.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
Petitioner resided in California at the time she filed the petition.
During 2005 and 2006 until at least the time of the trial in this case, peti-
tioner and John Zabasky (Mr. Zabasky), who were not married, lived together.
During 2005 and 2006, petitioner was the sole stockholder of Clear Con-
cepts, Inc. (Clear Concepts), a C corporation, that was engaged in the mortgage
-3-
[*3] broker business and that had its place of business in Westlake Village,
California. During those years, Clear Concepts employed petitioner as a mortgage
broker. In return for her services as a mortgage broker, Clear Concepts paid
petitioner wages of $266,458 and $49,065 during 2005 and 2006, respectively.
During 2005 and 2006, Mr. Zabasky was the chief executive officer and
sole stockholder of SoftEx, Inc. (Mr. Zabasky’s SoftEx), a Delaware corporation,
that had its place of business on De Soto Avenue in Los Angeles (De Soto Avenue
address). At the time of the trial in this case, Mr. Zabasky had been involved in
the trading of stocks, bonds, and currencies for approximately 25 years.
During 2005 and 2006, petitioner executed certain trades of certain securi-
ties on an investment account that she maintained at TD Ameritrade (petitioner’s
investment account).2 During those years, Mr. Zabasky, who had access to peti-
tioner’s investment account, also executed certain trades of certain securities on
that account. Petitioner had no clients for any of the trades executed on petition-
er’s investment account during 2005 and 2006.
2
Our use of terms like “trades”, “trading”, and “trading activity” is not in-
tended to mean or suggest that petitioner was in the trade or business within the
meaning of sec. 162(a) of buying and selling securities for her own account.
-4-
[*4] During 2005, there were a total of 250 available trading days. During that
year, 535 trades were executed on petitioner’s investment account on a total of 121
days, i.e., on 48.4 percent of the total available trading days in 2005. Of the 535
trades made on petitioner’s investment account during 2005, the purchases for 95
of those trades occurred in the one-week period September 27 to October 3. The
holding period for the securities traded on petitioner’s investment account during
2005 ranged from one day to 48 days. During 2005, there were the following
eight periods of at least seven days where no purchases or sales occurred on peti-
tioner’s investment account: (1) January 7 to January 19; (2) February 10 to
February 16; (3) May 19 to May 25; (4) June 3 to June 9; (5) June 17 to June 28;
(6) July 16 to July 25; (7) July 27 to August 8; and (8) November 29 to December
6. The trades executed on petitioner’s investment account during 2005 generated
$470,472.90 of net short-term capital gain for that taxable year.
During 2006, there were a total of 250 available trading days. During that
year, 235 trades were executed on petitioner’s investment account on a total of 66
days, i.e., on 26.4 percent of the total available trading days in 2006. The holding
period for the securities traded on petitioner’s investment account during 2006
ranged from one day to 101 days. During 2006, there were only two trading days
-5-
[*5] on which trades were executed on petitioner’s investment account during the
period January 27 to May 4. Moreover, there were the following seven periods of
at least seven days where no purchases or sales occurred on petitioner’s invest-
ment account during 2006: (1) January 4 to January 25; (2) July 15 to July 25;
(3) July 29 to August 15; (4) August 19 to September 4; (5) September 16 to
October 4; (6) October 13 to October 23; and (7) December 20 to December 31.
The trades executed on petitioner’s investment account during 2006 generated
$36,852.28 of net short-term capital gain for that taxable year.
Petitioner filed Form 1040, U.S. Individual Income Tax Return, for each
of her taxable years 2005 (2005 return) and 2006 (2006 return). Petitioner in-
cluded Schedule C, Profit or Loss From Business (Schedule C), with each of her
2005 return (2005 Schedule C) and her 2006 return (2006 Schedule C). She
described the “Principal business or profession” in her 2005 Schedule C as “Stock
Trading/Trader Status” and in her 2006 Schedule C as “Securities Trader/Trader
Status”. The address that petitioner showed in both of those schedules was the
De Soto Avenue address of Mr. Zabasky’s SoftEx.
After petitioner filed her 2005 return and shortly before she filed her 2006
return, she submitted to respondent Form 1040X, Amended U.S. Individual
-6-
[*6] Income Tax Return, for her taxable year 2005 that respondent did not accept
or process (unfiled 2005 amended return). Petitioner included Schedule C (unfiled
2005 Schedule C) with her unfiled 2005 amended return. She described the
“Principal business or profession” in that schedule as “Securities Trader/Trader
Status/R.E. Professional”. The address that petitioner showed in her unfiled 2005
Schedule C was the De Soto Avenue address of Mr. Zabasky’s SoftEx.
Petitioner claimed in her 2005 Schedule C, her 2005 unfiled Schedule C,
and at trial the following expenses:
-7-
[*7] Amount Claimed Amount Claimed
in 2005 in Unfiled 2005 Amount Claimed
Expense Schedule C Schedule C At Trial
Advertising $475 -0- -0-
Car and truck 12,620 -0- -0-
Depreciation and
sec. 179 5,262 -0- $26,698
Interest--other -0- $13,338 20,759
Legal and professional 352,000 143,536 -0-
1
Office 10,150 25,861 5,000
Rent or lease--vehicle 560 27,500 -0-
Rent or lease--other 59,000 38,872 32,572
Repairs 2,500 5,518 -0-
Supplies 24,200 -0- -0-
Taxes and licenses 500 500 -0-
Travel 9,700 5,505 -0-
Meals and entertainment 3,850 2,052 -0-
2
Utilities 23,300 7,760 2,500
1
The parties agree that if we were to find that during 2005 petitioner engaged in the trade
or business within the meaning of sec. 162(a) of buying and selling securities for her own ac-
count, she would be entitled to $5,000 of “Office” expense.
2
The parties agree that if we were to find that during 2005 petitioner engaged in the trade
or business within the meaning of sec. 162(a) of buying and selling securities for her own ac-
count and if we were to sustain her claim that she paid “Rent or lease--other” expenses that are
ordinary and necessary expenses within the meaning of that section, she would be entitled to
$2,500 of “Utilities” expense.
Petitioner claimed in her 2006 Schedule C and at trial the following ex-
penses:
-8-
[*8] Amount Claimed
in 2006 Amount Claimed
Expense Schedule C At Trial
Advertising $570 -0-
Car and truck 12,179 -0-
Insurance -0- $5,976
Interest--other -0- 15,832
Legal and professional 120,000 -0-
1
Office 10,200 5,000
Rent or lease--vehicle 600 5,164
Rent or lease--other 66,000 60,500
Repairs 5,000 -0-
Supplies 27,700 -0-
2
Taxes and licenses 750 740
Travel 9,550 -0-
Meals and entertainment 4,150 -0-
3
Utilities 46,500 2,500
Business use of home 711 -0-
1
The parties agree that if we were to find that during 2006 petitioner engaged in the trade
or business within the meaning of sec. 162(a) of buying and selling securities for her own ac-
count, she would be entitled to $5,000 of “Office” expense.
2
The parties agree that if we were to find that during 2006 petitioner engaged in the trade
or business within the meaning of sec. 162(a) of buying and selling securities for her own ac-
count, she would be entitled to $740 of “Taxes and licenses” expense.
3
The parties agree that if we were to find that during 2006 petitioner engaged in the trade
or business within the meaning of sec. 162(a) of buying and selling securities for her own ac-
count and if we were to sustain her claim that she paid “Rent or lease--other” expenses that are
ordinary and necessary expenses within the meaning of that section, she would be entitled to
$2,500 of “Utilities” expense.
-9-
[*9] Respondent issued a notice of deficiency (notice) to petitioner for her tax-
able years 2005 and 2006. In that notice, respondent determined, inter alia, to
disallow all of the expenses totaling $504,217 and $303,910 that petitioner
claimed in her 2005 Schedule C and her 2006 Schedule C, respectively. In the
notice, respondent also determined, inter alia, that petitioner is liable for the
accuracy-related penalty under section 6662(a) for each of her taxable years 2005
and 2006.
OPINION
Petitioner has the burden of establishing that respondent’s determinations in
the notice that remain at issue are in error. See Rule 142(a); Welch v. Helvering,
290 U.S. 111, 115 (1933). Moreover, deductions are a matter of legislative grace,
and petitioner bears the burden of proving entitlement to any deduction claimed.
See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). The Code and the
regulations thereunder required petitioner to maintain records sufficient to estab-
lish the amount of any deduction claimed. See sec. 6001; sec. 1.6001-1(a), Income
Tax Regs.
Before turning to the issues that remain for decision, we shall evaluate the
evidence that petitioner adduced at trial in support of her position on each of those
- 10 -
[*10] issues. In support of those positions, petitioner relies on her own testimony,
the testimony of Mr. Zabasky, and certain documentary evidence.
We found petitioner’s testimony to be in certain material respects general,
conclusory, vague, self-serving, uncorroborated, and/or not credible. We shall not
rely on the testimony of petitioner to establish her position with respect to each of
the issues that remain for decision. See, e.g., Tokarski v. Commissioner, 87 T.C.
74, 77 (1986).
We found the brief testimony of Mr. Zabasky to be generally credible.
However, that testimony did not enable us to sustain petitioner’s position on the
issue to which that testimony pertained.
We did not find that the documentary evidence on which petitioner relies
establishes her position with respect to each of the issues that remain for decision.
We turn now to the issue of whether for each of the years at issue petitioner
was engaged in the trade or business within the meaning of section 162(a) of buy-
ing and selling securities for her own account. A person who purchases and sells
securities may be a trader, a dealer, or an investor. See King v. Commissioner, 89
T.C. 445, 458-459 (1987). Neither party maintains that petitioner is a dealer. The
parties’ dispute is over whether petitioner was a trader, as petitioner maintains, or
an investor, as respondent maintains.
- 11 -
[*11] A trader engages in the trade or business for purposes of section 162(a) of
selling securities for his or her own account.3 See King v. Commissioner, 89 T.C.
at 458-459. The profits of a trader are generated through the acts of trading them-
selves. See Estate of Yaeger v. Commissioner, 889 F.2d 29, 33 (2d Cir. 1989),
aff’g T.C. Memo. 1988-264. Although an investor purchases and sells securities
for his or her own account, an investor, unlike a trader, is not considered to be in
the trade or business within the meaning of section 162(a) of selling securities.
See Endicott v. Commissioner, T.C. Memo. 2013-199, at *11; Kay v. Commis-
sioner, T.C. Memo. 2011-159, 2011 Tax Ct. Memo LEXIS 156, at *6.
The expenses of a trader that otherwise satisfy the requirements of section
162(a) are deductible under that section. See Endicott v. Commissioner, at *12;
Kay v. Commissioner, 2011 Tax Ct. Memo LEXIS 156, at *6. The expenses of an
investor that otherwise satisfy the requirements of section 212 are deductible
under that section as itemized deductions that are subject to the two-percent floor
imposed by section 67(a). Moreover, section 163(d) limits the deductibility of
investment interest. See Endicott v. Commissioner, at *12; Arberg v. Commis-
sioner, T.C. Memo. 2007-244, 2007 Tax Ct. Memo LEXIS 253, at *33.
3
Our use hereinafter of the term “trader” refers to a trader who, as discussed
below, engages in the trade or business within the meaning of sec. 162(a) of sell-
ing securities for his or her own account.
- 12 -
[*12] In the brief that petitioner’s counsel of record signed and filed on peti-
tioner’s behalf, petitioner and that counsel rely on the Web site of the Internal
Revenue Service (IRS), i.e., www.irs.gov, to support petitioner’s position that she
was a trader for each of her taxable years 2005 and 2006. That Web site, like IRS
publications, is not an authoritative source of tax law. See Zimmerman v. Com-
missioner, 71 T.C. 367, 371 (1978), aff’d without published opinion, 614 F.2d
1294 (2d Cir. 1979). We found petitioner’s brief, like her testimony, to be un-
reliable.
The Code does not define the term “trade or business” for purposes of
section 162(a). See Commissioner v. Groetzinger, 480 U.S. 23, 27 (1987). The
determination of whether a taxpayer’s activities qualify as a trade or business is a
question of fact. See Higgins v. Commissioner, 312 U.S. 212, 217 (1941). In
determining whether a taxpayer is a trader, we shall consider, inter alia, the fol-
lowing factors: (1) the taxpayer’s intent, (2) the nature of the income to be derived
from the activity, and (3) the frequency, extent, and regularity of the taxpayer’s
transactions. See Moller v. United States, 721 F.2d 810, 813 (Fed. Cir. 1983);
Endicott v. Commissioner, at *13.
For a taxpayer to be a trader, the trading activity must be substantial. In
other words, the trading activity must be frequent, regular, and continuous enough
- 13 -
[*13] to qualify as a trade or business within the meaning of section 162(a). See
Endicott v. Commissioner, at *13; Ball v. Commissioner, T.C. Memo. 2000-245,
2000 Tax Ct. Memo LEXIS 289, at *4.
A taxpayer’s trading activities constitute a trade or business within the
meaning of section 162(a) where both of the following requirements are satisfied:
(1) the taxpayer’s trading is substantial, and (2) the taxpayer seeks to catch the
swings in the daily market movements and to profit from those short-term changes
rather than to profit from the long-term holding of investments. See Endicott v.
Commissioner, at *13-*14; Holsinger v. Commissioner, T.C. Memo. 2008-191,
2008 Tax Ct. Memo LEXIS 187, at *7.
We have found that during each of the years 2005 and 2006 both petitioner
and Mr. Zabasky executed trades on petitioner’s investment account. On the
record before us, we find that petitioner has failed to carry her burden of estab-
lishing, and the record does not otherwise establish, how many of the (1) 535
trades executed on petitioner’s investment account during 2005 and (2) 235 trades
executed on that account during 2006 were executed by petitioner and how many
of those respective trades were executed by Mr. Zabasky. As a result, we do not
know which of the total trades executed on petitioner’s investment account during
each of the years 2005 and 2006 we should use as petitioner’s trades in analyzing
- 14 -
[*14] whether (1) the trading activity of petitioner during each of those years was
substantial and (2) whether petitioner sought in her trading activity during each of
the years 2005 and 2006 to catch the swings in the daily market movements and to
profit from those short-term changes.
Assuming arguendo that petitioner had established that she executed all of
the trades executed on petitioner’s investment account during each of the years
2005 and 2006, we nonetheless would find on the record before us that she has
failed to carry her burden of establishing that she was a trader for each of her tax-
able years 2005 and 2006. That is because, inter alia, petitioner has failed to carry
her burden of establishing that her trading activity during each of those years was
substantial.
In determining whether a taxpayer’s trading activity is substantial, we con-
sider the number of trades executed in a year, the amount of money involved in
those trades, and the number of days on which trades were executed.4 See
Endicott v. Commissioner, at *14; Kay v. Commissioner, 2011 Tax Ct. Memo
LEXIS 156, at *7-*9.
4
The following discussion assumes arguendo that during each of the years
2005 and 2006 petitioner executed all of the trades on petitioner’s investment ac-
count.
- 15 -
[*15] With respect to the number of trades executed in a year, (1) 535 trades
were executed during 2005 on petitioner’s investment account and (2) 235 trades
were executed during 2006 on that account. We have held in Endicott v. Commis-
sioner, at *14-*15, that 204 trades and 303 trades were not substantial and that
1,543 trades were substantial. See also Kay v. Commissioner, 2011 Tax Ct. Memo
LEXIS 156, at *9-*10 (313 executed trades were not substantial); Holsinger v.
Commissioner, 2008 Tax Ct. Memo LEXIS 187, at *8 (372 executed trades were
not substantial); cf. Mayer v. Commissioner, T.C. Memo. 1994-209, 1994 Tax Ct.
Memo LEXIS 216, at *11, *17 (1,136 executed trades were substantial).
On the record before us, we find that the total number of trades on peti-
tioner’s investment account during each of the years 2005 and 2006 was not
substantial for each of petitioner’s taxable years 2005 and 2006.
With respect to the amount of money involved in the trades during a year,
there were on petitioner’s investment account (1) during 2005 purchases of
approximately $32.5 million and sales of approximately $32.9 million, and
(2) during 2006 purchases of approximately $24.2 million and sales of approx-
imately $24.3 million. We acknowledge that the respective amounts of purchases
and sales during each of those years are considerable. However, those amounts
- 16 -
[*16] are not determinative of whether petitioner’s securities trading activity was
substantial for each of her taxable years 2005 and 2006. See Moller, 721 F.2d at
814; Kay v. Commissioner, 2011 Tax Ct. Memo LEXIS 156, at *10.
With respect to the number of days in a year on which trades were executed,
trades were executed on petitioner’s investment account on (1) 121 days during
2005 (i.e., on 48.4 percent of the 250 available trading days in 2005) and (2) 66
days during 2006 (i.e., on 26.4 percent of the 250 available trading days in 2006).
In cases in which taxpayers have been found to have been traders, the number of a
taxpayer’s transactions evidenced that the taxpayer was engaged in market trans-
actions on an almost daily basis. See Moller, 721 F.2d at 813-814; see also Chen
v. Commissioner, T.C. Memo. 2004-132, 2004 Tax Ct. Memo LEXIS 131, at *11-
*12.5 With respect to the 535 trades executed on petitioner’s investment account
on 121 days during 2005, the purchases for 95 of those trades occurred in the one-
week period September 27 to October 3. Moreover, there were the following eight
periods during 2005 of at least seven days where no purchases or sales occurred
on petitioner’s investment account: (1) January 7 to January 19; (2) February 10
5
Moreover, we have held that executing trades on (1) 110 days, see
Holsinger v. Commissioner, T.C. Memo. 2008-191, 2008 Tax Ct. Memo LEXIS
187, at *8, and (2) 73 days, see Kay v. Commissioner, T.C. Memo. 2011-159,
2011 Tax Ct. Memo LEXIS 156, at *2, *8-*10, was not frequent, continuous, or
regular enough to qualify as a trade or business within the meaning of sec. 162(a).
- 17 -
[*17] to February 16; (3) May 19 to May 25; (4) June 3 to June 9; (5) June 17 to
June 28; (6) July 16 to July 25; (7) July 27 to August 8; and (8) November 29 to
December 6. With respect to the 235 trades executed on petitioner’s investment
account on 66 days during 2006, the purchases for only two of those trades oc-
curred during the period January 27 to May 4. Moreover, there were the following
seven periods during 2006 of at least seven days where no purchases or sales oc-
curred on petitioner’s investment account: (1) January 4 to January 25; (2) July 15
to July 25; (3) July 29 to August 15; (4) August 19 to September 4; (5) September
16 to October 4; (6) October 13 to October 23; and (7) December 20 to December
31.
On the record before us, we find that the total number of days on which
trades were executed on petitioner’s investment account during each of the years
2005 and 2006 was not substantial for each of petitioner’s taxable years 2005 and
2006.
Based upon our examination of the entire record before us, we find that
petitioner has failed to carry her burden of establishing that for each of her taxable
years 2005 and 2006 she engaged in the trade or business within the meaning of
section 162(a) of buying and selling securities for her own account. As a result,
- 18 -
[*18] we further find that petitioner is not entitled to deduct under section 162(a)
any of the expenses that petitioner is claiming here as Schedule C expenses.6
We turn finally to whether petitioner is liable for each of her taxable years
2005 and 2006 for the accuracy-related penalty under section 6662(a). That sec-
tion imposes an accuracy-related penalty of 20 percent of the underpayment to
which section 6662 applies. Section 6662 applies to the portion of any under-
payment which is attributable to, inter alia, (1) negligence or disregard of rules or
regulations, sec. 6662(b)(1), or (2) a substantial understatement of tax, sec.
6662(b)(2).
The term “negligence” in section 6662(b)(1) includes any failure to make a
reasonable attempt to comply with the Code. Sec. 6662(c). Negligence has also
6
Assuming arguendo that petitioner had carried her burden of establishing
that for each of her taxable years 2005 and 2006 she engaged in the trade or
business within the meaning of sec. 162(a) of buying and selling securities for her
own account, we would nonetheless find that, except for $5,000 of “Office”
expenses and $2,500 of “Utilities” expenses that respondent concedes for each of
those years and $740 of “Taxes and licenses” expenses that respondent concedes
for her taxable year 2006, petitioner is not entitled to deduct under that section any
of the expenses that she is claiming here as Schedule C expenses. That is because
we find on the record before us that petitioner has failed to carry her burden of
establishing (1) that the respective payments that she made during the years 2005
and 2006 were made for the expenses remaining at issue for which she claims
those payments were made and (2) that any such expenses are ordinary and neces-
sary expenses within the meaning of sec. 162(a) in carrying on a securities trading
business.
- 19 -
[*19] been defined as a failure to do what a reasonable person would do under the
circumstances. Leuhsler v. Commissioner, 963 F.2d 907, 910 (6th Cir. 1992), affg
T.C. Memo. 1991-179; Antonides v. Commissioner, 91 T.C. 686, 699 (1988),
aff’d, 893 F.2d 656 (4th Cir. 1990). The term “negligence” also includes any
failure by the taxpayer to keep adequate books and records or to substantiate items
properly. Sec. 1.6662-3(b)(1), Income Tax Regs. The term “disregard” includes
any careless, reckless, or intentional disregard. Sec. 6662(c).
For purposes of section 6662(b)(2), an understatement is equal to the excess
of the amount of tax required to be shown in the tax return over the amount of tax
shown in the return. Sec. 6662(d)(2)(A). An understatement is substantial in the
case of an individual if the amount of the understatement for the taxable year ex-
ceeds the greater of 10 percent of the tax required to be shown in the tax return for
that year or $5,000. Sec. 6662(d)(1)(A).
The accuracy-related penalty under section 6662(a) does not apply to any
portion of an underpayment if it is shown that there was reasonable cause for, and
that the taxpayer acted in good faith with respect to, such portion. Sec.
6664(c)(1). The determination of whether the taxpayer acted with reasonable
cause and in good faith depends on all the pertinent facts and circumstances,
including the taxpayer’s efforts to assess the taxpayer’s proper tax liability, the
- 20 -
[*20] knowledge and experience of the taxpayer, and the reliance on the advice of
a professional, such as an accountant. Sec. 1.6664-4(b)(1), Income Tax Regs.
Reliance on the advice of a professional may demonstrate reasonable cause and
good faith if, under all the circumstances, such reliance was reasonable and the
taxpayer acted in good faith. Id. In this connection, a taxpayer must demonstrate
that the taxpayer’s reliance on the advice of a professional concerning substantive
tax law was objectively reasonable. Goldman v. Commissioner, 39 F.3d 402, 408
(2d Cir. 1994), aff’g T.C. Memo. 1993-480. A taxpayer’s reliance on the advice
of a professional will be objectively reasonable only if the taxpayer has provided
necessary and accurate information to the professional. Neonatology Assocs.,
P.A. v. Commissioner, 115 T.C. 43, 99 (2000), aff’d, 299 F.3d 221 (3d Cir. 2002);
see also Ma-Tran Corp. v. Commissioner, 70 T.C. 158, 173 (1978).
Respondent argues that petitioner is liable for each of her taxable years
2005 and 2006 for the accuracy-related penalty under section 6662(a) because of
her negligence or disregard of rules or regulations under section 6662(b)(1).7 On
7
Respondent also argues: “In the event that petitioner is found not to have
been negligent, the Court should still consider whether petitioner has shown
reasonable cause or good faith on the likelihood that there will still be a substan-
tial understatement in [sic] both the 2005 and 2006 tax years.” According to re-
spondent, “[g]iven the substantial dollar amounts of the adjustments settled prior
to trial, a Tax Court Rule 155 computation will be necessary before a determina-
tion of a substantial understatement can be made.”
- 21 -
[*21] the record before us, we find that respondent has satisfied respondent’s
burden of production under section 7491(c) with respect to the accuracy-related
penalty under section 6662(a).8
It is petitioners’ position on brief that she “made a reasonable attempt to
comply with the provision of the Internal Revenue Code to report her sources of
income.[9] She acted in good faith and with reasonable cause. Therefore, the
Section 6662 penalty imposed on her has been asserted against her in error.” Like
petitioner’s testimony, her above-quoted position on brief is general, conclusory,
vague, self-serving, uncorroborated, and/or not credible. Except for claiming
8
For example, petitioner did not keep adequate books and records or sub-
stantiate properly the respective expenses that she claimed in her 2005 Schedule
C and her 2006 Schedule C. Indeed, she conceded before the trial in this case
(1) $416,688 of the $504,217 of expenses that she claimed in her 2005 Schedule
C and (2) $208,198 of the $303,910 of expenses that she claimed in her 2006
Schedule C. Moreover, assuming arguendo that petitioner had carried her burden
of establishing that for each of her taxable years 2005 and 2006 she engaged in the
trade or business within the meaning of sec. 162(a) of buying and selling securities
for her own account, we would nonetheless find that, except for $5,000 of “Of-
fice” expenses and $2,500 of “Utilities” expenses that respondent concedes for
each of those years and $740 of “Taxes and licenses” expenses that respondent
concedes for her taxable year 2006, petitioner is not entitled to deduct under that
section any of the expenses that she is claiming here as Schedule C expenses for
each of the years at issue. See supra note 6.
9
We do not understand what petitioner means when she claims to have
“made a reasonable attempt to comply with the provision of the Internal Revenue
Code to report her sources of income.” (Emphasis added.)
- 22 -
[*22] during her testimony that she “talked to a friend of mine who is an
accountant”, and who allegedly told her that she “need[ed] to file a Schedule C,
sole proprietor, as a trader”, petitioner offered no evidence that she made any
attempts to ascertain whether she should take the position in each of her 2005
return and her 2006 return that she was a trader for each of her taxable years 2005
and 2006.
As for petitioner’s claim that she “talked to a friend of mine who is an ac-
countant”, the record is devoid of evidence regarding what, if any, information she
gave her so-called friend/accountant when she allegedly talked to him.10 As dis-
cussed above, a taxpayer must demonstrate that the taxpayer’s reliance on the ad-
vice of a professional concerning substantive tax law was objectively reasonable.
Goldman v. Commissioner, 39 F.3d at 408. A taxpayer’s reliance on the advice of
a professional will be objectively reasonable only if the taxpayer has provided
necessary and accurate information to the professional. NeonatologyAssocs.,
10
Petitioner did not call as a witness at the trial in this case her “friend” who
she claims is an “accountant”. Nor did petitioner explain why she failed to call
that person to testify. We presume that the testimony of petitioner’s so-called
friend/accountant would not have been favorable to her position that she was a
trader for each of her taxable years 2005 and 2006. See Wichita Terminal Ele-
vator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946), aff’d, 162 F.2d 513 (10th
Cir. 1947).
- 23 -
[*23] P.A. v. Commissioner, 115 T.C. at 99; see also Ma-Tran Corp. v. Commis-
sioner, 70 T.C. at 173.
On the record before us, we find that petitioner has failed to carry her bur-
den of establishing that there was reasonable cause for, and that she acted in good
faith with respect to, the respective underpayments for her taxable years 2005 and
2006.
Based upon our examination of the entire record before us, we find that
petitioner has failed to carry her burden of establishing that she is not liable for
each of her taxable years 2005 and 2006 for the accuracy-related penalty under
section 6662(a).
We have considered all of the contentions and arguments of the parties that
are not discussed herein, and we find them to be without merit, irrelevant, and/or
moot.
To reflect the foregoing and respondent’s concession,
Decision will be entered under Rule
155.