T.C. Memo. 2001-36
UNITED STATES TAX COURT
JUAN RODRIGUEZ, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4624-97. Filed February 14, 2001.
Juan Rodriguez, pro se.
George D. Curran, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
WHALEN, Judge: Respondent determined the following
deficiencies in, additions to, and penalty with respect to
petitioner's Federal income tax for 1990, 1991, and 1993:
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Penalty and Addition to Tax
Year Deficiency Sec. 6651(a) Sec. 6554 Sec. 6662(a)
1990 $2,284 $571 $150 -0-
1991 2,374 -0- –0- $475
1993 24,654 6,164 1,035 –0-
After concessions, the issues for decision are: (1)
Whether petitioner is entitled to deduct wagering losses
in the amount of $19,690 for the taxable year 1991; (2)
whether petitioner must include in gross income a payment
in the amount of $100,000 that he received during 1993
from the Federal Bureau of Investigation (FBI) and, if so,
whether he is entitled to deduct a portion of such amount
as relocation expenses; (3) whether petitioner is liable
for the accuracy-related penalty under section 6662(a) for
the taxable year 1991; (4) whether petitioner is liable
for the addition to tax under section 6651(a)(1) for
failure to file a timely return for 1993; and (5) whether
petitioner is liable for the addition to tax under section
6654 for failure to pay estimated income tax for the
taxable year 1993. Unless stated otherwise, all section
references in this opinion are to the Internal Revenue
Code as in effect during the years in issue.
FINDINGS OF FACT
Some of the facts have been stipulated and are so
found. The stipulation of facts and the attached exhibits
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are incorporated herein by this reference. Petitioner
resided in Philadelphia, Pennsylvania, when he filed his
petition in this case.
At one time, petitioner operated an illegal bookmaking
business that was frequented by a number of drug dealers.
In 1987, he was arrested by the FBI while acting as a
middleman in a transaction involving the purchase and sale
of two kilograms of cocaine. The criminal drug charges
stemming from his arrest carried a maximum prison sentence
of 80 years and fines of $2 million. In order to avoid
incarceration on such charges, petitioner pleaded guilty
to a narcotics charge and agreed to work as an undercover
informant for the Philadelphia office of the FBI. In
return, the FBI agreed to bring petitioner's cooperation
to the attention of the judge at the time of sentencing.
In March 1988, petitioner and the FBI initiated an
undercover investigation of money laundering and drug
trafficking in the Philadelphia area. The investigation
was assigned the code name Metroliner. The investigation
took place at petitioner's off-track betting parlor where
petitioner also conducted his illegal bookmaking operation.
Petitioner played a central role in the investigation.
He introduced five undercover FBI agents to drug
traffickers, money launderers, and gamblers. He made over
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150 tape recordings, both audio and video, documenting 72
transactions consisting of 23 drug purchases and 49 money
laundering transactions. While under surveillance,
subjects of the investigation purchased 31 kilograms of
cocaine and laundered $5 million in drug proceeds from
seven different drug organizations operating in and around
Philadelphia. As a result of the Metroliner investigation,
91 persons were indicted and $2.5 million was seized.
Petitioner testified in five trials, the last of which
ended in July 1993. Ultimately, because of his coopera-
tion, petitioner was sentenced to 5 years' probation on
the drug charges mentioned above.
During 1991 or 1992, operation Metroliner was
terminated upon short notice. Due to the circumstances
surrounding the termination of the undercover investiga-
tion, petitioner lost certain personal property, including
a safe containing some of his personal records. After the
investigation was terminated, petitioner declined to enter
the witness protection program.
The FBI paid petitioner subsistence and other expenses
while the FBI's investigation continued. Generally, this
consisted of monthly payments, that began at $1,500 in
1991, and increased to $2,000 in 1992, and further
increased to $3,000 in the middle part of 1992 when the
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indictments were unsealed and petitioner became a witness
for the Government. These payments ended in the summer
of 1993 at the conclusion of the last trial.
Mr. Paul D. Allen, Jr., Supervisory Special Agent of
the FBI, wrote a letter to the United States Attorney's
Office, dated July 7, 1993, stating that between October
1987 and the present "Mr. Rodriguez has been paid by the
FBI a total of $84,424.77 all of which has been for
expenses." Mr. Allen's letter further states:
These expenses were for items such as rent,
utilities, food/subsistence, transportation
(automobile, gas, oil, tolls, maintenance,
insurance), clothing, child support,
medical/dental and other miscellaneous
living expenses.
In a letter to the Internal Revenue Service, dated
March 27, 1995, Mr. Allen stated: "Mr. Rodriguez was
paid a total of $75,400.00, all of which was considered
to be reimbursement for expenses he incurred during the
investigation."
Petitioner executed receipts for expense reimburse-
ments in the aggregate amount of $81,732.30. Three of the
receipts, totaling $4,500, are dated after July 7, 1993,
the date of Mr. Allen's letter to the United States
Attorney's Office mentioned above.
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Based upon petitioner's cooperation in the Metroliner
investigation and his testimony during the criminal trials,
the FBI made a lump-sum payment to petitioner of $100,000.
A telex from the Philadelphia office of the FBI requesting
the Director of the FBI to authorize the payment states as
follows:
REQUEST OF THE BUREAU: BUREAU AUTHORITY
IS REQUESTED TO EFFECT A LUMP SUM PAYMENT OF
$100,000 TO CAPTIONED COOPERATING WITNESS (CW)
FOR HIS COOPERATION IN PHFILE 245B-PH-224
ENTITLED "METROLINER". THIS LUMP SUM PAYMENT
REPRESENTS A SHARE OF THE VALUE OF UNITED STATES
CURRENCY, CERTIFICATES OF DEPOSIT, VEHICLES,
RESIDENCES, FARMS, AND BUSINESS LOCATIONS SEIZED
AS A DIRECT RESULT OF THE COOPERATION FURNISHED
BY THE [COOPERATING WITNESS].
Mr. Allen's letter of March 27, 1995, to the Internal
Revenue Service describes this payment as follows:
At the conclusion of the case, Mr. Rodriguez
was paid a lump sum of $100,000. These funds
were to offset relocation expenses and compensate
Mr. Rodriguez for his efforts during the
investigation.
Mr. John R. Thomas, Special Agent of the FBI, stated
in a letter dated May 16, 1995, to a revenue agent of the
Internal Revenue Service, that the lump-sum payment given
to petitioner at the conclusion of the case was "for any
and all claims he may have had, to include: services
rendered, relocation, reimbursement for reasonable and
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necessary authorized expenditures, and the like. Our
files do not disclose an allocation of these funds."
Petitioner executed a receipt on or about
September 30, 1993, which states as follows: "On this
date I, Tony Rodriguez, received $100,000 from the FBI
as witnessed by the two Special Agents of the FBI whose
signatures appear below mine." At that time, petitioner
actually received a cash payment of $90,000 and the
cancellation of an advance of $10,000 that had previously
been made on August 6, 1993, in anticipation of the lump-
sum payment. The receipt for the advance payment that
was executed by petitioner states that it was paid "for
services".
Petitioner expected to receive more than the $100,000
from the FBI. His understanding was that the FBI could
pay him a maximum of $250,000. He expected the FBI to pay
him the maximum amount because the operation had been so
successful. He later sued the FBI and six agents of the
FBI in the United States District Court for the Eastern
District of Pennsylvania attempting to obtain more money.
His suit was transferred by the District Court to the
United States Court of Federal Claims. See Rodriguez
v. FBI, 876 F. Supp. 706 (E.D. Pa. 1995). His suit was
unsuccessful.
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While the undercover investigation was ongoing,
petitioner was permitted to continue his illegal bookmaking
business and to retain the net proceeds from that business.
Petitioner also continued his gambling activities, includ-
ing betting at various racetracks and casinos. During that
time, petitioner received sizeable winnings and incurred
sizeable losses from his gambling activities. Special
Agents of the FBI were aware of petitioner's gambling at
racetracks and casinos.
Petitioner attached to his 1991 Federal income tax
return 10 Statements for Certain Gambling Winnings on Form
W-2G that report the following gross winnings, Federal and
State tax withholding, and net winnings from three race-
tracks:
Gross Fed. Tax St. Tax Net
Date Winnings Wheld. Wheld. Winnings
N.J. State Sports & Exposition Auth. 01/08/91 $8,140.00 $1,626 $244 $6,270.00
N.J. State Sports & Exposition Auth. 01/12/91 5,527.50 1,105 166 4,256.50
N.J. State Sports & Exposition Auth. 03/09/91 626.20 -0- -0- 626.20
N.J. State Sports & Exposition Auth. 03/09/91 626.20 -0- -0- 626.20
Garden State Race Track, Inc. 05/16/91 652.80 -0- -0- 652.80
N.J. State Sports & Exposition Auth. 05/30/91 685.00 -0- -0- 685.00
Philadelphia Park - GRI 06/28/91 2,241.50 447 -0- 1,794.50
Philadelphia Park - GRI 07/30/91 1,801.20 359 -0- 1,442.20
N.J. State Sports & Exposition Auth. 08/01/91 918.60 -0- -0- 918.60
Philadelphia Park - GRI 11/11/91 812.60 -0- -0- 812.60
22,031.60 3,537 410 18,084.60
Petitioner also attached a handwritten schedule to his 1991
return that lists 9 of the 10 payments reported on the
Forms W-2G. The handwritten schedule does not list the
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payment from Garden State Race Track, Inc., shown above,
in the amount of $652.80.
On line 22 of his 1991 return, petitioner reported
other income from "Race Track" in the amount of $21,379.
This amount is $652.60 less than the aggregate winnings
reported on the Forms W-2G attached to his return. The
record does not explain why petitioner reported only
$21,379 of the $22,031.60 shown on the Forms W-2G that
are attached to petitioner's return. Petitioner reported
no income from his gambling at casinos or from his other
gambling activities.
For taxable year 1991, petitioner claimed a deduction
for "gambling losses" in the amount of $19,690.
Petitioner's return does not give any details concerning
this deduction, such as the identity of the payees, the
dates, or the amounts paid. This amount is claimed as
miscellaneous itemized deduction. Thus, petitioner's 1991
return does not claim that petitioner is in the trade or
business of gambling. Petitioner also claimed a credit of
$3,537, the aggregate amount of Federal tax withheld from
the winnings reported on the Forms W-2G attached to his
return.
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Petitioner never filed a Federal income tax return for
1993. Respondent prepared a return for that year, which
determined that petitioner owed tax on the $100,000 lump-
sum payment.
In the subject notice of deficiency, respondent made
adjustments to petitioner's income for 1990, 1991, and
1993. The adjustments for 1990 were resolved by the
parties and are no longer at issue in this proceeding.
Respondent made the following adjustments to petitioner's
taxable income for 1991 and 1993:
1991 1993
Exemptions -0- ($2,350)
Compensation (FBI) -0- 100,000
Itemized deduction/
standard deduction $16,290 (3,700)
Total adjustments 16,290 93,950
The notice describes the adjustment disallowing the
gambling losses claimed in 1991 as follows:
For the taxable year ending December 31, 1991,
you have failed to substantiate the claimed
gambling losses of $19,690. Since this was the
only claimed itemized deduction, you are now
entitled to the standard deduction of $3,400.
Accordingly, your taxable income is increased
$16,290.
The notice describes the adjustment increasing petitioner's
compensation from the FBI in 1993, as follows:
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Compensation you received from the Federal
Bureau of Investigation for services rendered
in [sic] includible in income. Accordingly,
your taxable income for 1993 is increased
$100,000.
OPINION
Petitioner asks the Court to redetermine two of the
adjustments made in the subject notice of deficiency, the
disallowance of gambling losses in 1991 in the amount of
$19,690, and the inclusion in gross income of the lump-sum
payment of $100,000 from the FBI in 1993. Petitioner also
seeks redetermination of the accuracy-related penalty under
section 6662(a) for tax year 1991 in the amount of $475,
and of the addition to tax under section 6651(a)(1) in the
amount of $6,164 for failure to timely file his return for
tax year 1993.
At trial, petitioner presented no evidence regarding
the addition to tax under section 6654 for failure to pay
estimated tax with respect to his 1993 tax, and he made no
reference to it in his posttrial brief. Therefore, we
consider this issue waived or abandoned. See Bradley v.
Commissioner, 100 T.C. 367, 370 (1993) ("Petitioner has not
pursued this line of objection on brief, and we consider it
abandoned."). We hereby sustain respondent's determination
with respect to the addition to tax under section 6654 for
1993.
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Wagering Loss Deduction
The first issue for decision is whether petitioner is
entitled to deduct wagering losses in the amount of $19,690
for the taxable year 1991. As noted above, respondent
disallowed all of the wagering losses claimed by petitioner
because petitioner had failed to substantiate the
deduction. In his posttrial brief, petitioner acknowledges
that he did not substantiate this deduction, but he argues
that some amount should be allowed as a deduction. His
brief states as follows: "Although it is true the
petitioner did not produce complete and accurate records
of gambling losses after seven years time, some allowance
should have been made for the losses sustained".
Respondent argues that petitioner did not prove the amount
of his gambling losses or that his gambling losses exceeded
the amount of his unreported gambling winnings.
Section 165(d) allows taxpayers to deduct losses from
wagering transactions to the extent of the gains from such
transactions. In order to establish entitlement to a
deduction for wagering losses in this Court, the taxpayer
must prove that he sustained such losses during the taxable
year. See Mack v. Commissioner, 429 F.2d 182 (6th Cir.
1970), affg. T.C. Memo. 1969-26; Stein v. Commissioner, 322
F.2d 78 (5th Cir. 1963), affg. T.C. Memo. 1962-19. He must
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also prove that the amount of such wagering losses claimed
as a deduction does not exceed the amount of the taxpayer's
gains from wagering transactions. See sec. 165(d).
Implicitly, this requires the taxpayer to prove both the
amount of his losses and the amount of his winnings. See
Schooler v. Commissioner, 68 T.C. 867, 869 (1977); Donovan
v. Commissioner, T.C. Memo. 1965-247, affd. per curiam 359
F.2d 64 (1st Cir. 1966). Otherwise, there can be no way of
knowing whether the sum of the losses claimed on the return
is greater or less than the taxpayer's winnings. See
Schooler v. Commissioner, supra at 869. For example, if
the taxpayer, in addition to the winnings reported on his
or her return, received other winnings that were not
reported, then the taxpayer must prove that the losses
claimed in his or her return exceeded the unreported
winnings in order to be entitled to deduct any such losses.
See id.; Donovan v. Commissioner, supra. The amount
deductible in this situation is the amount of the claimed
losses which exceeds the unreported winnings, as long as
such excess is less than the winnings reported on the
taxpayer's return. See sec. 165(d); Schooler v. Commis-
sioner; supra; Donovan v. Commissioner, supra.
In this case, the "racetrack" winnings reported on
petitioner's 1991 return, $21,379, exceed the "gambling"
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losses deducted on that return, $19,690. Petitioner
testified at trial that at one time he had records
consisting of a shoe box full of losing tickets from the
racetrack that would have substantiated the loss deduction
but that those records were lost when the undercover
investigation was terminated. Petitioner testified as
follows:
THE WITNESS: *** Now, as one of the letters
indicates from the FBI, that things were left
behind. One of the things that was left behind
in the safe was a shoebox of losing [racetrack]
tickets that would have served [sic] the $19,000.
Even if we were to accept petitioner's explanation for
his failure to verify the gambling losses claimed on his
1991 return, we could not agree that he has met his burden
of proof regarding the gambling losses. Petitioner did not
prove the amount of his gambling winnings, both reported
and unreported, and, thus, he failed to prove that the
amount of the wagering losses claimed on his 1991 return,
$19,690, is greater than his unreported gains from wagering
transactions.
Petitioner acknowledged during his testimony at trial
that he had additional winnings that were not reported on
his return. On cross-examination, petitioner testified as
follows:
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Q Now, these winnings are only based upon on [sic]
the forms you received from the Government?
A Right.
Q You received other gambling winnings in that
year, correct?
A Yes. I also had a lot of losses.
Q But with respect to the gambling winnings, you
won other money at the racetrack, correct?
A Oh, yes.
Thus, petitioner admitted that he had earned gambling
winnings at the racetrack in addition to the winnings he
reported on his return for 1991.
There is also evidence that petitioner had winnings
other than from betting at racetracks. For example, the
FBI agents with whom petitioner cooperated during the
undercover investigation were aware that he had "sizeable
losses and sizeable winnings at racetracks and casinos."
Furthermore, petitioner testified that in 1991 he engaged
in other gambling activities. He testified as follows:
Q Did you bet any other activities during 1991?
A I bet summer baseball and I play casinos,
the dice, poker, everything.
Q At the casinos?
A I'm a gambler.
Q And you bet--
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A I'll bet anything.
Q -–anything and lose, correct?
A Anything you could bet.
When asked whether he reported "income" from those
activities, he gave the following vague testimony:
Q Okay. But you don't have any of that income
listed on your 1991 tax return; is that
correct?
A Well, there wasn't any at that time. I was
with the FBI at all times. Being with the
FBI, they were with me. I didn't list
anything because we would be at the casinos.
We would take drug dealers to the casinos.
And I was always with two agents and I was
always risking my life every time I went
out because the FBI was a mile away from me.
Q Thank you. But you had other gambling wins
that you did not report?
A I don't think so. I lost that year, because
I was winning, too.
There is no evidence in the record that gives us a
basis for determining or even guessing the amount of
unreported gambling winnings earned by petitioner during
1991. Accordingly, we find that petitioner has failed to
prove that the losses from wagering transactions claimed as
a deduction on his 1991 return do not exceed the gains from
such transactions, as required by section 165(d), and we
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sustain respondent's disallowance of the wagering losses
claimed on petitioner's 1991 return.
Lump-Sum Payment From FBI
The next issue is whether petitioner is entitled to
exclude from gross income or deduct any or all of the lump-
sum payment received from the FBI in the amount of
$100,000. Petitioner acknowledges that he received the
lump-sum payment, and he testified candidly: "I know I owe
taxes on it." He testified that the lump-sum payment was
paid in part as his share of the property seized by the
Government during the investigation, in part as considera-
tion for refusing to join the witness protection program,
and in part as reimbursement for the expenses of relocating
his family. In his posttrial brief, petitioner focuses on
the last of the above three reasons for the lump-sum
payment, relocation expenses. He argues that he "incurred
substantial expenses and cost associated with moving his
family" and that "an allowance for relocation expenses"
should be taken into account in computing the taxable
amount of this lump-sum payment. Petitioner's brief
states:
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While acknowledging that the burden of proof
rests upon the petitioner for this issue, common
sense would dictate the consideration of some
costs associated with moving the petitioner and
his family.
Petitioner claims that the Internal Revenue Service had
previously agreed "to allocate twenty percent (20%) of
this payment toward relocation expenses."
Respondent argues that petitioner is required to
include in gross income the entire lump-sum payment of
$100,000 received from the FBI. Respondent argues that,
except for his self-serving testimony: "Petitioner has
not offered any evidence to prove he incurred the expenses
claimed or that the alleged expenses were deductible."
We agree with respondent. There is no basis in the
record of this case upon which we can find that some or
all of the lump-sum payment should be excluded from
petitioner's gross income. According to the record, the
FBI intended the payment to award petitioner a share of
the seized property, to compensate petitioner for his
cooperation, and to defray any relocation expenses he had
incurred. The original telex requesting authorization to
make the payment states that it "represents a share of the
value of United States currency, certificates of deposit,
vehicles, residences, farms, and business locations seized
as a direct result of the cooperation furnished". Rewards
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of this kind are includable in gross income. See sec.
1.61-2(a)(1), Income Tax Regs. Similarly, Mr. Allen's
letter of March 27, 1995, states that the payment was to
offset relocation expenses and to compensate petitioner.
The receipt for the advance on the lump-sum payment
allocates the entire amount to "services". Compensation
payments are includable in the recipient's gross income.
See sec. 1.61-2(a), Income Tax Regs.
Petitioner cites no authority under which the lump-sum
payment would be excluded from gross income. We understand
that payments to a Government witness are sometimes
considered by the Commissioner as welfare payments to the
recipient that are not includable in the recipient's
income. See G.C.M. 37,028 (Mar. 3, 1977) and G.C.M. 37,564
(June 9, 1978). For example, assistance payments made by
the Department of Justice under the witness protective
program of the Organized Crime Control Act of 1970, Pub. L.
91-452, tit. V, 84 Stat. 922, 933-934, are treated
as welfare payments and are excluded from gross income.
See G.C.M. 37,028 (Mar. 3, 1977).
The lump-sum payment made to petitioner in this case
was not made under the witness protection program, nor was
it made in consideration of petitioner's declining to enter
the witness protection program. Petitioner has shown no
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basis for excluding all or any part of the lump-sum payment
in this case.
Petitioner argues that the lump-sum payment was made
to reimburse him for "relocation expenses", and petitioner
claims to have incurred relocation expenses "greatly
exceeding" the lump-sum payment. However, petitioner
presented no proof that he incurred any such relocation
expenses. Indeed, in his posttrial brief, petitioner never
identifies the payees of such expenses, nor does he give
the amounts, dates, and purposes of any such payments.
At trial, he suggested, at one point, that his relocation
expenses consisted of cash payments made to his sons and
his former wife ("I gave each son $5,000, I gave her 10,
and $18,000 to move–-"). At another point, petitioner made
reference to "receipts from the moving company" that were
left in the abandoned safe when the undercover investiga-
tion terminated. Petitioner never substantiated any such
payments, such as by obtaining duplicate "receipts" from
the moving company. Thus, even if the lump-sum payment
were excludable from gross income to the extent used to
defray relocation expenses, petitioner has not
substantiated that he paid any such relocation expenses.
To the extent that petitioner claims to be entitled
to deduct some part of the payment as relocation expenses,
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we also agree with respondent that petitioner has not met
his burden of proving entitlement to the deduction. See
Rule 142(a), Tax Court Rules of Practice and Procedure.
Petitioner does not cite the section of the Internal
Revenue Code under which he claims to be entitled to the
deduction. See generally secs. 217, 132(a)(6), (g), 82.
Moreover, as described above, he refers to relocation
expenses, but he never explains the nature of the expenses
that he incurred, or identifies the payees, amounts, or
dates of any such payments, nor has he introduced proof
that he paid any such expenses.
Accuracy-Related Penalty for 1991
The next issue for decision is whether petitioner is
liable for the accuracy-related penalty under section
6662(a), as determined by respondent in the amount of $475.
According to the schedules attached to the notice of
deficiency, respondent determined that the entire amount
of the underpayment was due to negligence. Under section
6662, a penalty is added to a taxpayer's tax liability if
any portion of an underpayment is attributable to
negligence or disregard of rules or regulations. See sec.
6662(b)(1). For this purpose, the term "negligence"
includes any failure to make a reasonable attempt to comply
with the provisions of the Internal Revenue Code. Sec.
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6662(c). The amount of the penalty is 20 percent of the
portion of the underpayment to which section 6662 applies.
See sec. 6662(a).
An exception to imposition of the negligence penalty
is provided by section 6664(c). Under that exception, "No
penalty shall be imposed * * * with respect to any portion
of an underpayment if it is shown there was a reasonable
cause" for that portion of the underpayment and "the
taxpayer acted in good faith". Petitioner bears the burden
of proving that he is not liable for the penalty under
section 6662(a). See Vaira v. Commissioner, 444 F.2d 770
(3d Cir. 1971), revg. on another issue 52 T.C. 986 (1969);
Bixby v. Commissioner, 58 T.C. 757, 791 (1972).
Petitioner argues as follows:
Accurate records of gambling losses and winnings
are difficult to maintain. The very nature of
the business makes this task daunting, if not
impossible. The very fact that petitioner
reported his gambling winnings and losses in his
1991 income tax return, produced records of this
fact seven years later, attests to the degree of
effort taken by the petitioner to accurately
report his gambling winnings and losses. Before
the accuracy-related penalty is imposed, I.R.C.
§6662(b)(1) requires taxpayer negligence or
disregard for the rules. In the instant case,
the respondent has shown neither exists.
Respondent argues that petitioner has not met his burden
of proof under section 6662(a). According to respondent,
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petitioner has not shown that there was a reasonable cause
for the underpayment or that he acted in good faith
regarding the underpayment.
We agree with respondent. Petitioner's contention,
that maintaining accurate records of gambling losses and
winnings is difficult, is legally insufficient to overcome
respondent's determination. The fact is that all taxpayers
are required to substantiate deductions under section
165(d), and petitioner is being held to the same standard
that is imposed on all taxpayers seeking a deduction under
section 165(d). See, e.g., Wolkomir v. Commissioner, T.C.
Memo. 1980-344; Salem v. Commissioner, T.C. Memo. 1978-142;
Myers v. Commissioner, T.C. Memo. 1976-191; Taormina v.
Commissioner, T.C. Memo. 1976-94.
We find that petitioner did not prove that the under-
payment with respect to his 1991 return was due to reason-
able cause or that he acted in good faith. Accordingly, we
sustain respondent's imposition of an accuracy-related
penalty under section 6662(a).
Additions to Tax for 1993
The final issue is whether petitioner is liable for
the addition to tax under section 6651(a)(1) for failure to
file a timely return for 1993, as determined by respondent
in the amount of $6,164. An addition to tax is imposed
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under section 6651(a)(1) for failure to file a return
unless such failure is due to a reasonable cause and not
willful neglect. See sec. 6651(a)(1). The amount of the
addition to tax is 5 percent of the tax required to be
shown on the return, if the return is filed within a month
of the due date, with an additional 5 percent for each
additional month or fraction thereof during which the
failure continues, not exceeding 25 percent in the
aggregate. See id. Petitioner bears the burden of proving
that he is not liable for the addition. See Rule 142(a).
Petitioner argues as follows:
* * * Of the $100,000.00 the petitioner
received from the FBI, ninety percent (90%), or
$90,000.00 was received after petitioner had
worked undercover for the FBI. It was agreed
that this payment of $100,000.00 would be used
to pay for the enormous cost of relocating the
petitioner and his family to Puerto Rico.
Although it is true the FBI did not have the
authority to determine the taxability of this
payment, it is certainly reasonable for
petitioner to rely on the FBI's position and
statements regarding this payment. Respondent
correctly states that is the burden of the
petitioner to establish this fact. However,
due to the highly sensitive nature of the
undercover operation (which is ongoing), it can
hardly be expected for the petitioner to produce
as witnesses the FBI agents responsible for
leading the petitioner to believe this payment
would not be considered taxable income. It is
the position of the petitioner that this
$100,000.00 payment is not fully taxable. If
plausible disagreement as to the taxability of
this income exists to this day, it can surely be
said the petitioner had a reasonable expectation
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this payment would not be taxable income; hence
reasonable cause and not willful neglect. For
these reasons, the respondent's determination
should not be sustained.
Thus, petitioner argues that his failure to file his
1993 return is due to "reasonable cause and not willful
neglect". Sec. 6651(a)(1). Respondent argues that
"petitioner failed to timely file an income tax return for
the taxable year 1993 and presented no evidence disputing
the assertion of the addition to tax." We find that
petitioner's argument lacks merit.
Petitioner admitted at trial that he received the
lump-sum payment of $100,000 from the FBI and he owed tax
on the payment. He testified as follows:
THE COURT: * * * Do you admit that $100,000 is
income? * * *
THE WITNESS: I admit that was income. * * *
* * * * * * *
THE WITNESS: I know I owe taxes on it. But I figure
a reasonable amount should be used for
relocation of me.
Thus, petitioner admittedly earned substantial taxable
income during 1993, and he was required to file a return
for that year. See sec. 6012(a).
Petitioner's posttrial brief implies that he relied on
the statements of unnamed FBI agents that the subject lump-
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sum payment "would not be considered taxable income".
There is no factual basis for such argument in the record
of this case. Neither petitioner nor the FBI agent who was
called as a witness testified that an FBI agent gave
petitioner any such advice. Indeed, petitioner did not
even ask the FBI agent about any such statements.
Petitioner does not identify the agent or employee of the
FBI who allegedly gave him such advice, nor did he subpoena
such person to testify. We do not accept petitioner's
attempt to explain his failure to call the agent to testify
on the ground that the undercover operation was ongoing at
the time of trial or that it would have been compromised by
the agent's testimony. There is nothing in the record to
suggest that the operation was ongoing at the time of
trial, but, even if it were, there is no reason to believe
that the agent's testimony concerning statements about the
taxability of petitioner's lump-sum payment would have
compromised the operation. Indeed, petitioner exhibited
no such reluctance in 1994 when he filed suit against the
FBI and six of its special agents seeking a greater share
of the money and property that had been seized during the
undercover operation. We find that petitioner failed to
show that his failure to file a return for 1993 was due to
reasonable cause and not willful neglect, and we sustain
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respondent's determination of the addition to tax under
section 6651(a)(1) in the amount of $6,164.
To reflect the foregoing and concessions by the
parties,
Decision will be entered
under Rule 155.