T.C. Memo. 2005-54
UNITED STATES TAX COURT
CASPIAN CONSULTING GROUP, INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 18124-03. Filed March 23, 2005.
William E. Taggart, Jr., for petitioner.
Patricia Montero, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
VASQUEZ, Judge: Respondent determined the following
deficiencies in and accuracy-related penalty on petitioner’s
Federal income taxes:
Penalty
Year Deficiency Sec. 6662(a)
1999 $2,133 --
2000 43,698 $8,740
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After concessions,1 we must decide whether petitioner is liable
for the accuracy-related penalty pursuant to section 6662(a)2 for
2000.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. At the time the petition
was filed, petitioner’s principal place of business was in San
Francisco, California.
Petitioner hired Cameron & Rolling, an accounting firm, to
prepare its 2000 Federal income tax return. Petitioner’s
business grew rapidly in 2000, and Cameron & Rolling required a
substantial amount of time to review petitioner’s financial
records. Cameron & Rolling examined petitioner’s financial
records to “[clean] up the books” and ensure compliance with GAAP
and to prepare the records to file an accurate Federal income tax
return. A Cameron & Rolling accountant spoke with petitioner’s
owners about “the usage of the plane to determine if we could
fully depreciate it and deduct the expenses associated with the
plane.”
1
Petitioner conceded the deficiencies for 1999 and 2000.
2
Unless otherwise indicated, all section references are to
the Internal Revenue Code.
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On its 2000 Federal income tax return, petitioner deducted
the following amounts for the acquisition and operation of an
airplane: Operating expenses of $23,033, interest expenses of
$29,742, and depreciation of $128,289. Respondent disallowed
these deductions and determined that petitioner was liable for an
income tax deficiency of $43,698 and an accuracy-related penalty
of $8,740 for 2000.
OPINION
Pursuant to section 6662(a), a taxpayer may be liable for a
penalty of 20 percent on the portion of an underpayment of tax
(1) due to negligence or disregard of rules or regulations or (2)
attributable to a substantial understatement of tax. Sec.
6662(b). Whether applied because of a substantial understatement
of tax or negligence or disregard of rules or regulations, the
accuracy-related penalty is not imposed with respect to any
portion of the underpayment as to which the taxpayer acted with
reasonable cause and in good faith. Sec. 6664(c)(1). The
decision as to whether the taxpayer acted with reasonable cause
and in good faith depends upon all the pertinent facts and
circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. Relevant
factors include the taxpayer’s efforts to assess his proper tax
liability, including the taxpayer’s reasonable and good faith
reliance on the advice of a professional such as an accountant.
See id.
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It is clear from the record that petitioner provided Cameron
& Rolling all records and information necessary to prepare the
2000 Federal income tax return and claim the deductions set forth
on the return. A Cameron & Rolling accountant conversed with
petitioner’s owners to determine that the depreciation and
expenses related to the airplane could be deducted. Petitioner
relied upon Cameron & Rolling to prepare the return, and Cameron
& Rolling was aware of petitioner’s reliance. It is clear from
the record that petitioner reasonably relied in good faith on
Cameron & Rolling. Consequently, we conclude that for the year
in issue petitioner had reasonable cause and acted in good faith
as to any underpayment resulting from the deductions in issue.
Accordingly, we hold that petitioner is not liable for the
penalty pursuant to section 6662(a).
To reflect the foregoing,
Decision will be entered
for petitioner as to the 2000
penalty and for respondent as
to the deficiencies.