T.C. Summary Opinion 2008-91
UNITED STATES TAX COURT
RICHARD W. AND SHIRLEY A. WILSON, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24500-06S. Filed July 29, 2008.
Michael O’Hare, for petitioners.
Michael W. Bitner, for respondent.
THORNTON, Judge: This case was heard pursuant to the
provisions of section 7463 of the Internal Revenue Code in effect
when the petition was filed.1 Pursuant to section 7463(b), the
1
Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986, in effect for the year in issue.
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decision to be entered is not reviewable by any other court, and
this opinion shall not be treated as precedent for any other case.
The sole issue is whether pursuant to section 6662(a)
petitioners are liable for an accuracy-related penalty for
failing to report their Social Security benefits on their 2004
Federal income tax return.
Background
The parties have stipulated some facts, which we incorporate
herein. When they petitioned this Court, petitioners resided in
Nebraska.
In 2004, petitioners received $24,504 in Social Security
benefits. On their 2004 joint Form 1040, U.S. Individual Income
Tax Return, petitioners did not report any Social Security
benefits as income. Their 2004 tax return was prepared by Tax
Help, Inc., which had prepared their returns for many years.
On May 22, 2006, respondent sent petitioners a notice that
proposed increasing petitioners’ 2004 Federal income tax by
$5,193 because petitioners had failed to report their Social
Security benefits; respondent also proposed a $1,039 accuracy-
related penalty pursuant to section 6662(a). Petitioners
promptly filed an amended 2004 return which listed their Social
Security benefits and reported an additional $5,193 of tax
liability. By notice of deficiency, respondent determined a
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$1,039 accuracy-related penalty under section 6662(a).
Petitioners filed a timely petition for redetermination.
Discussion
Section 6662(a) imposes a 20-percent penalty on any portion
of an underpayment that is attributable to, among other things,
negligence or disregard of rules or regulations. For this
purpose, negligence includes any failure to make a reasonable
attempt to comply with the tax code; the term “disregard”
includes “careless, reckless, or intentional disregard.” Sec.
6662(c).
No penalty shall be imposed under section 6662(a) with
respect to any portion of an underpayment if it is shown that
there was reasonable cause and that the taxpayer acted in good
faith. See sec. 6664(c). Whether a taxpayer acted in good faith
depends upon the facts and circumstances of each case. See sec.
1.6664-4(b)(1), Income Tax Regs. Reliance on a professional
return preparer may be reasonable and in good faith if the
taxpayer establishes: (1) The return preparer had sufficient
expertise to justify reliance; (2) the taxpayer provided
necessary and accurate information to the return preparer; and
(3) the taxpayer actually relied in good faith on the return
preparer’s judgment. Neonatology Associates, P.A. v.
Commissioner, 115 T.C. 43, 99 (2000), affd. 299 F.3d 221 (3d Cir.
2002).
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There is no dispute that petitioners failed to report their
Social Security income on their 2004 return, resulting in an
underpayment. Respondent has met his burden of production under
section 7491(c).
Petitioners failed to demonstrate reasonable and good faith
reliance on their tax return preparer. In fact, at the trial
petitioners’ attorney, who is also an accountant and employed at
Tax Help, Inc., did not pursue this defense in any meaningful way
but instead rested his case on the baseless contention that the
Commissioner’s alleged failure to impose the section 6662(a)
penalty in allegedly analogous situations involving other
unidentified taxpayers means that the section 6662(a) penalty
cannot be sustained in this case.2
At trial, petitioner husband conceded that petitioners
signed their Form 1040 without looking at the first page, wherein
the line calling for the reporting of Social Security benefits
was left blank. We are unable to conclude on this record that
petitioners’ reliance on their return preparer was reasonable,
that they provided their return preparer all necessary
information, or that they exercised the due care of ordinarily
prudent persons in failing even to look at the first page of
2
Insofar as they might be indicative of the nature or
quality of advice dispensed at Tax Help, Inc., petitioners’
attorney’s contentions tend to call into question whether the
return preparer had sufficient expertise to justify petitioners’
reliance.
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their return before signing it. The understatement is due to
negligence and careless disregard of rules and regulations within
the meaning of section 6662(c), and petitioners are liable for
the accuracy-related penalty under section 6662(a).
To reflect the foregoing,
Decision will be entered
for respondent.