Torres v. Commissioner

T.C. Memo. 1998-230

UNITED STATES TAX COURT

JOSE TORRES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 15735-97. Filed June 29, 1998.

Jose Torres, pro se.

Susan Kuhn, for respondent.

MEMORANDUM OPINION

POWELL, Special Trial Judge: This case was heard pursuant

to the provisions of section 7443A(b)(3) and Rules 180, 181, and

182.1

Respondent determined a deficiency in petitioner's 1994

Federal income tax in the amount of $1,280, an addition to tax

1
Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the year in issue, and all
Rule references are to the Tax Court Rules of Practice and
Procedure.
 - 2 -

under section 6651(a)(1) in the amount of $162, and an accuracy-

related penalty under section 6662(a) in the amount of $256.

Petitioner resided in Hollywood, Florida, at the time he filed

his petition.

After concessions, the remaining issues are: (1) Whether

petitioner is liable for the addition to tax under section

6651(a)(1); and (2) whether petitioner is liable for the

accuracy-related penalty under section 6662(a).

The facts may be summarized as follows. Petitioner is an

insurance agent. Petitioner filed two Schedules C with his 1994

return, only one of which was questioned by respondent in the

notice of deficiency. On the Schedule C in issue, petitioner

classified himself as a statutory employee and reported a net

loss of $8,543.

In the notice of deficiency, respondent disallowed the loss

claimed on the Schedule C for lack of substantiation. The

disallowed expenses related to deductions claimed for office

expenses, "dues and subscriptions", and automobile expenses.2

Petitioner's 1994 return was originally due on April 17,

1995.3 Sec. 6072(a). Petitioner applied for and received an

2
The parties stipulated that petitioner is entitled to $6,007
of the $8,543 in expenses claimed on the Schedule C, thereby
resolving the substantiation issue raised in the notice of
deficiency.
3
Because April 15, 1995, fell on a Saturday, a return filed
on the following Monday is deemed timely under sec. 7503.
 - 3 -

automatic extension of time to file his return which extended the

time to file until August 15, 1995. Sec. 6081; sec. 1.6081-

4(a)(1), Income Tax Regs. Petitioner filed his 1994 return on

October 19, 1995. Included with the return was a copy of Form

2688, Application for Additional Extension of Time to File U.S.

Individual Income Tax Return,4 in which petitioner requested an

additional extension of time until October 16, 1995,5 to file his

return. The application simply states that the reason for the

additional extension was due to the "tax practitioner's

workload". Petitioner's accountant testified that he sent the

Form 2688 to respondent's Atlanta service center, but never

received a response granting the request. There is nothing in

the record to show that a timely Form 2688 was ever received by

respondent.

Section 6651(a)(1)

Section 6651(a)(1) imposes an addition to tax of 5 percent

of the amount of tax due per month for each month that a return

is not timely filed, not to exceed 25 percent. An exception is

made for reasonable cause not due to willful neglect. Sec.

4
Sec. 1.6081-1(a), Income Tax Regs., authorizes district
directors and directors of service centers to grant reasonable
extensions of time for filing returns required by Subtitle A or
the regulations promulgated thereunder. An application made
pursuant to sec. 1.6081-1(a), Income Tax Regs., may be made by an
individual on either a Form 2688 or by a letter. Sec. 1.6081-
1(b)(5), Income Tax Regs.
5
October 15, 1995, fell on a Sunday.
 - 4 -

6651(a)(1). Reasonable cause "calls on the taxpayer to

demonstrate that he exercised 'ordinary business care and

prudence' but nevertheless was 'unable to file the return within

the prescribed time.'" United States v. Boyle, 469 U.S. 241, 246

(1985) (quoting sec. 301.6651-1(c)(1), Proced. & Admin. Regs.).

Willful neglect means "a conscious, intentional failure or

reckless indifference." United States v. Boyle, supra at 246.

Reliance on an agent does not excuse the failure to file a timely

return. Id. at 249-250; Bergersen v. Commissioner, T.C. Memo.

1995-424, affd. 109 F.3d 56 (1st Cir. 1997).

Petitioner argues that the addition to tax is improper

because he applied for an additional extension of time in which

to file his return. Alternatively, petitioner argues that only a

5-percent penalty should apply because the failure to file was

for less than 1 month; viz, the period from October 16 until

receipt of the return on October 19.

Even assuming that petitioner's accountant timely submitted

the Form 2688, an additional extension authorized under section

1.6081-1(a), Income Tax Regs., is not automatic. It should also

be noted that the instructions accompanying Form 2688

specifically advise taxpayers that a request for an additional

extension of time to file a return must show reasonable cause for

the additional delay in filing a return and should be filed early

so that "if denied, you can still file your return on time." See
 - 5 -

Galuska v. Commissioner, 98 T.C. 661, 669-670 (1992), affd. 5

F.3d 195 (7th Cir. 1993).

There is no evidence that petitioner's application for an

additional extension of time to file his return was ever

approved. Furthermore, the phrase "tax practitioner's workload"

standing alone on the application does not show reasonable cause

for the additional delay. Thus, petitioner's return was due to

be filed by August 15, 1995, and the addition to tax is

calculated from that date. We sustain the addition to tax under

section 6651(a)(1).

Section 6662(a)

Section 6662(a) imposes a penalty of 20 percent on any

portion of an underpayment of tax that is attributable to

negligence or disregard of rules or regulations. Sec. 6662(a)

and (b)(1). Negligence in this context includes any failure to

make a reasonable attempt to comply with the provisions of the

Internal Revenue Code, and the term "disregard" includes any

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

The accuracy-related penalty does not apply if petitioner

demonstrates that there was reasonable cause for the underpayment

and that he acted in good faith with respect thereto. Sec.

6664(c). Whether a taxpayer acted with reasonable cause and in

good faith depends upon the pertinent facts and circumstances.

McCallson v. Commissioner, T.C. Memo. 1993-528; sec. 1.6664-

4(b)(1), Income Tax Regs. The most important factor is the
 - 6 -

taxpayer's effort to assess his proper tax liability.

Stubblefield v. Commissioner, T.C. Memo. 1996-537; sec. 1.6664-

4(b)(1), Income Tax Regs.

Taxpayers are required to keep records sufficient to

establish the amount of deductions or other matters required to

be shown on their returns. Sec. 6001; sec. 1.6001-1(a), Income

Tax Regs. Failure to maintain adequate records may constitute

negligence. Schroeder v. Commissioner, 40 T.C. 30, 34 (1963).

Generally the duty of filing an accurate return cannot be

avoided by placing responsibility upon a third party. Metra Chem

Corp. v. Commissioner, 88 T.C. 654, 662 (1987); Fortner v.

Commissioner, T.C. Memo. 1993-195. Reliance on the advice of a

qualified adviser may demonstrate reasonable cause and good

faith; however, the evidence must show that the taxpayer

contacted a competent tax adviser and provided the adviser with

all the necessary and relevant information. See Jackson v.

Commissioner, 86 T.C. 492, 539-540 (1986), affd. 864 F.2d 1521

(10th Cir. 1989); sec. 1.6664-4(b)(1), Income Tax Regs.

Petitioner's reliance on Robinson v. Commissioner, 51 T.C.

520 (1968), affd. in part and vacated in part per curiam 422 F.2d

873 (9th Cir. 1970), and other similar cases is misplaced. In

Robinson, this Court sustained respondent's disallowance of

various expenses for failure to comply with section 274 and the

accompanying regulations but, nonetheless, held that the taxpayer

was not liable for the addition to tax for negligence under
 - 7 -

section 6653(a), the predecessor to section 6662(a). The Court,

however, emphasized the extensive and detailed business records

maintained by the taxpayer. Robinson v. Commissioner, supra at

542. In contrast, petitioner in the instant case produced no

records to support the deductions claimed on his Schedule C for

office expenses and dues and subscriptions. Furthermore, with

regard to the claimed automobile expense, petitioner's concept of

what constitutes adequate record keeping is at odds with the

substantiation requirements of section 274 and the regulations

thereunder.6

We conclude that petitioner failed to keep adequate records,

and in turn was unable to provide his accountant with all the

necessary and relevant information. Therefore, we sustain

respondent's determination of the accuracy-related penalty under

6
The records petitioner provided to his accountant in support
of the automobile expense fall far short of the requirements of
the Code and regulations. A passenger automobile is defined as
"listed property" under sec. 280F(d)(4)(A)(i), and thus is
subject to the substantiation requirements of sec. 274(d). Among
the elements required to be substantiated are the amount of
business use and the amount of total use of the automobile for
the taxable period, based upon mileage. Bradley v. Commissioner,
T.C. Memo. 1998-170; sec. 1.274-5T(b)(6)(i)(B), Temporary Income
Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). The record
reflects that the total mileage figure for 1994 was based upon
odometer readings noted on repair receipts from May and June
1993, a different year from that in issue here; from these
readings, petitioner's accountant extrapolated an estimated
annual mileage figure for the automobile for 1994. Moreover,
petitioner's business use of the automobile was estimated from a
log covering only 1 month in 1994, rather than the full year.
 - 8 -

section 6662(a) with regard to the amounts not substantiated by

petitioner.

To reflect the foregoing,

Decision will be entered

under Rule 155.