T.C. Memo. 1997-222
UNITED STATES TAX COURT
THOMAS E. AND IRIS M. TILLEY, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2594-96. Filed May 12, 1997.
Thomas E. Tilley and Iris M. Tilley, pro sese.
James R. Rich, for respondent.
MEMORANDUM OPINION
FOLEY, Judge: By notice of deficiency dated November 14,
1995, respondent determined deficiencies in petitioners' Federal
income taxes and accuracy-related penalties as follows:
Penalty
Year Deficiency Sec. 6662(a)
1991 $7,739 $1,548
- 2 -
1992 62,976 12,595
Unless otherwise indicated, all section references are to the
Internal Revenue Code in effect for the years in issue, and all
Rule references are to the Tax Court Rules of Practice and
Procedure.
The issues for decision are as follows:
1. Whether petitioners are liable for the deficiencies
determined by respondent. We hold that petitioners are liable.
2. Whether petitioners, pursuant to section 6662(a), are
liable for accuracy-related penalties. We hold that petitioners
are liable.
3. Whether a penalty, pursuant to section 6673, should be
imposed upon petitioners. We do not impose a penalty.
At the time the petition was filed, petitioners resided in
Chapel Hill, North Carolina.
Petitioners filed, in a timely manner, joint Federal income
tax returns for 1991 and 1992. On the returns, petitioners
reported, among other items, the following: (1) A depreciation
deduction of $2,200 for 1991; (2) a capital loss of $5,056 for
1991; and (3) bad debt deductions of $36,000 for 1991 and
$224,963 for 1992. Respondent disallowed these items and
increased petitioners' taxable income by $41,056 for 1991 and
$224,963 for 1992. Respondent further determined that
petitioners were subject to accuracy-related penalties for
negligence. Petitioners filed their petition on February 12,
- 3 -
1996. On December 6, 1996, the Court filed respondent's Motion
for Claim for Damages Under I.R.C. § 6673, contending that
petitioners' position in the case was frivolous or groundless.
Taxpayers bear the burden of proving that respondent's
determinations of deficiencies and penalties are erroneous. Rule
142(a). Petitioners have introduced no evidence to support their
entitlement to the deductions they claimed. While Mr. Tilley
testified that he had relied on an accountant to ensure that the
returns were correct, petitioners introduced no evidence to
establish that such reliance was reasonable. See sec. 6664(c);
sec. 1.6664-4(b), Income Tax Regs. As a result, we conclude that
petitioners have failed to meet their burden of proof, and they
are liable for the deficiencies and accuracy-related penalties as
determined by respondent.
Respondent filed a motion for the imposition of a penalty
under section 6673(a)(1). We conclude that such a penalty is
inappropriate in the present case and deny respondent's motion.
To reflect the foregoing,
An appropriate order and
decision will be entered.