T.C. Summary Opinion 2006-64
UNITED STATES TAX COURT
ELAINE HANG, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4950-05S. Filed April 25, 2006.
Elaine Hang, pro se.
Michael Berwind, for respondent.
DEAN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. Unless otherwise
indicated, subsequent section references are to the Internal
Revenue Code as in effect for the year at issue. The decision to
be entered is not reviewable by any other court, and this opinion
should not be cited as authority.
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Respondent determined for 2001 a deficiency in petitioner’s
Federal income tax of $12,406 and a section 6662(a) accuracy-
related penalty of $2,481.20. Petitioner has conceded that she
is liable for the deficiency. The only issue remaining for
decision is whether petitioner is liable for a section 6662(a)
accuracy-related penalty.
Background
At the time the petition in this case was filed, petitioner
resided in Las Vegas, Nevada.
Petitioner filed a Form 1040, U.S. Individual Income Tax
Return, for 2001, which was prepared by a certified public
accountant (C.P.A.). On February 2, 2005, respondent issued to
petitioner a statutory notice of deficiency for 2001. Respondent
determined that petitioner was liable for an accuracy-related
penalty under section 6662(a), because there was a substantial
understatement of income tax.
Discussion
Section 7491(c) imposes the burden of production in any
court proceeding on the Commissioner with respect to the
liability of any individual for penalties and additions to tax.
Higbee v. Commissioner, 116 T.C. 438, 446 (2001); Trowbridge v.
Commissioner, T.C. Memo. 2003-164, affd. 378 F.3d 432 (5th Cir.
2004). In order to meet the burden of production under section
7941(c), the Commissioner must come forward with sufficient
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evidence indicating that it is appropriate to impose the relevant
penalty. Higbee v. Commissioner, supra.
Pursuant to section 6662(a), a taxpayer may be liable for a
penalty of 20 percent of 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 income tax. See
sec. 6662(b)(1) and (2); see also DeCleene v. Commissioner, 115
T.C. 457, 476 (2000). A substantial understatement of tax exists
if the amount of the understatement of tax exceeds the greater of
10 percent of the tax required to be shown on the tax return, or
$5,000. See sec. 6662(d)(1)(A).
Respondent has met his burden of production, because he has
shown that petitioner has mathematically understated her income
tax liability within the meaning of section 6662(d)(1)(A).
Once the Commissioner meets his burden of production, the
taxpayer must come forward with evidence sufficient to persuade
the Court that the Commissioner’s determination is incorrect.
Higbee v. Commissioner, supra at 446-447.
The accuracy-related penalty is not imposed with respect to
any portion of the understatement as to which the taxpayer acted
with reasonable cause and in good faith. See 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. See sec. 1.6664-4(b)(1), Income Tax Regs.
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Generally, the most important factor is the extent of the
taxpayer’s efforts to evaluate his proper tax liability. Id.
Reliance on the advice of a professional tax adviser does not
necessarily demonstrate reasonable cause and good faith. Id.
The responsibility to file returns and pay tax when due
rests upon the taxpayer and cannot be delegated, and the
taxpayer, generally, must bear the consequences of any negligent
errors committed by his or her agent. Pritchett v. Commissioner,
63 T.C. 149, 173-175 (1974); Ellwest Stereo Theatres, Inc. v.
Commissioner, T.C. Memo. 1995-610.
For a taxpayer to rely reasonably upon advice so as to
negate a section 6662(a) accuracy-related penalty determined by
the Commissioner, the taxpayer must prove by a preponderance of
the evidence that the taxpayer meets all of the following
requirements: (1) The adviser was a competent professional who
had sufficient expertise to justify reliance, (2) the taxpayer
provided necessary and accurate information to the adviser, and
(3) the taxpayer actually relied in good faith on the adviser’s
judgment. See Neonatology Associates, P.A. v. Commissioner, 115
T.C. 43, 99 (2000), affd. 299 F.3d 221 (3d Cir. 2002); Ellwest
Stereo Theatres v. Commissioner, supra.
Petitioner testified that, in the preparation of her tax
return, she submitted “everything” to her C.P.A. Once the return
had been prepared, petitioner signed it without reviewing the
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return or any of the attached schedules. Petitioner contends
that she is not liable for the penalty, because she relied on her
C.P.A. to prepare her tax return and to ensure tax compliance.
Petitioner relies solely on her oral testimony and has not shown,
by a preponderance of the evidence, that her C.P.A. possessed
sufficient relevant information or expertise to warrant her
reliance on the C.P.A.’s judgment.
Respondent’s determination that petitioner is liable for an
accuracy-related penalty under section 6662(a) is accordingly
sustained.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.