Goolsby v. Comm'r

T.C. Memo. 2010-64

UNITED STATES TAX COURT

TONY R. AND DENELDA SIMS GOOLSBY, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 1276-07. Filed April 1, 2010.

Tony R. Goolsby and Denelda Sims Goolsby, pro sese.

James H. Brunson III and Peter E. Morgan (specially

recognized), for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

WELLS, Judge: Respondent determined the following

deficiencies in petitioners’ Federal income tax and penalties for

the following tax years:
 - 2 -

Accuracy-related penalty
Year Deficiency sec. 6662(a)

2003 $118,887 $23,777
2004 10,344 2,069

The following issues remain for our decision:1 (1) Whether,

pursuant to section 1031(a), petitioners may defer recognition of

the gain realized upon the sale of certain real property for tax

year 2003; (2) whether losses from petitioners’ rental properties

constitute losses from a passive activity pursuant to section 469

for tax years 2003 and 2004; and (3) whether petitioners are

liable for the accuracy-related penalty pursuant to section 6662

for tax years 2003 and 2004.2

FINDINGS OF FACT

Some of the facts and certain exhibits have been stipulated.

The stipulations of fact are incorporated in this opinion by

reference and are found accordingly.

At the time the petition was filed, petitioners resided in

Fayetteville, Georgia.

1
Respondent concedes that the Wilshire property, described
below, was exchanged in a like-kind exchange pursuant to sec.
1031 for tax year 2003; however, respondent disputes how much
gain should be recognized.
2
Unless otherwise indicated, all Rule references are to the
Tax Court Rules of Practice and Procedure, and all section
references are to the Internal Revenue Code as amended and in
effect for the years in issue. Amounts are rounded to the
nearest dollar.
 - 3 -

Petitioners are husband and wife. Petitioners filed joint

Federal income tax returns for the tax years in issue.

Petitioner Tony R. Goolsby (Mr. Goolsby) works for Oracle

Corp. Petitioner Denelda Sims Goolsby (Mrs. Goolsby) cares for

petitioners’ children and manages petitioners’ rental properties.

Petitioners owned the property in which they lived at 25338 Gold

Hills Drive, Castro Valley, California (Gold Hills property)

before February 2003.

On October 31, 1990, Mr. Goolsby purchased real property at

4177 Wilshire Boulevard, Oakland, California (Wilshire property)

for $270,000 as his sole and separate property. The Wilshire

property is a single-family residence owned by Mr. Goolsby as an

investment property.

On October 21, 2002, Mr. Goolsby signed a purchase agreement

to purchase 200 Pebble Beach Drive, Fayetteville, Georgia (Pebble

Beach property). The purchase agreement was contingent upon the

sale of petitioners’ personal residence, the Gold Hills property.

On February 4, 2003, Mr. Goolsby signed a purchase agreement

of $605,000 for the sale of the Wilshire property to an unrelated

person. On February 18, 2003, Mr. Goolsby was referred to

Investment Property Exchange, Inc. (IPX), a company that arranges

like-kind exchanges, in order to conduct a like-kind exchange of

the Wilshire property pursuant to section 1031. Mr. Goolsby

informed IPX that he had found a purchaser for the Wilshire
 - 4 -

property and wanted to exchange it for the Pebble Beach property

and a four-unit residential building at 185 Meadowbrook Court,

Fayetteville, Georgia (Meadowbrook property). The sale of the

Wilshire property closed on March 5, 2003.

On February 11, 2003, petitioners sold the Gold Hills

property to an unrelated person and began living with their in-

laws at 130 Baywatch Circle, Fayetteville, Georgia.

Mr. Goolsby transferred the deed from the Wilshire property

to the purchaser through an escrow agent, Old Republic Title Co.

After the close of the sale of the Wilshire property, Old

Republic Title Co. placed the net proceeds from the sale of

$188,281 into an account held by IPX on behalf of Mr. Goolsby.3

On March 7, 2003, Mr. Goolsby purchased the Pebble Beach

property from unrelated persons for $460,000. Upon purchase of

the Pebble Beach property, neither party assumed liabilities of

the other. To purchase the Pebble Beach property, Mr. Goolsby

paid cash, applied $136,000 of the sale proceeds of the Wilshire

property, and obtained a loan of $322,700.

On March 7, 2003, Mr. Goolsby signed a purchase agreement

for the Meadowbrook property for the purchase price of $280,000.

Upon purchase of the Meadowbrook property, Mr. Goolsby did not

3
Proceeds from the sale of the Wilshire property were used
to satisfy mortgages, loans, and other liabilities listed on the
settlement statement. The net amount remaining after all of
those liabilities was $188,281.
 - 5 -

assume liabilities of the seller. On April 15, 2003, Mr. Goolsby

closed the purchase and sale of the Meadowbrook property. To

purchase the Meadowbrook property, Mr. Goolsby paid cash, applied

$47,066 of the proceeds of the sale of the Wilshire property, and

obtained a loan of $210,000.4

Petitioners attempted to rent the Pebble Beach property by

placing an advertisement in the Fayetteville Neighbor, a

neighborhood newspaper.5 However, petitioners failed to inquire

whether their neighborhood association would allow them to rent

the property. During May of 2003, petitioners moved into the

Pebble Beach property after failing for 2 months to rent it.

Petitioners owned several rental properties (rental

properties) for which they claimed losses of $109,919 and $31,857

on their Federal income tax returns for tax years 2003 and 2004,

respectively. Mrs. Goolsby served as the primary caretaker of

petitioners’ rental properties. Petitioners failed to keep

contemporaneous logs of Mrs. Goolsby’s time spent managing the

rental properties. Petitioners created “activity” logs after

their Federal income tax returns for 2003 and 2004 were examined

by respondent. For tax year 2003, Mrs. Goolsby initially claimed

to have spent 785 hours managing petitioners’ rental properties.

4
Both parties concede that the Meadowbrook property is a
rental property held for investment purposes by Mr. Goolsby.
5
The advertisement was placed in the Fayetteville Neighbor
on Mar. 10, 2003, and remained in place for a few months.
 - 6 -

However, petitioners created another 2003 activity log before

trial because of errors they perceived in the “original” 2003

activity log. In the newly created and reconstructed 2003

activity log (2003 activity log) Mrs. Goolsby claims to have

spent 799 hours managing petitioners’ rental properties. For tax

year 2004, Mrs. Goolsby claims to have spent 716 hours managing

petitioners’ rental properties.

On January 22, 2007, respondent sent petitioners a notice of

deficiency. Petitioners timely filed a petition in this Court

for redetermination of the deficiencies.

OPINION

Generally, the Commissioner’s determination of a deficiency

is presumed correct, and the taxpayer has the burden of proving

it incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933).6

We first address the issue of whether petitioners may defer

recognition of gain, pursuant to section 1031(a), from the sale

of the Wilshire property. Section 1031(a) provides that no gain

or loss shall be recognized on the exchange of property held for

productive use in a trade or business or for investment if the

property is exchanged solely for property of a like kind that is

to be held either for productive use in a trade or business or

6
Petitioners do not contend that sec. 7491(a) should apply
to shift the burden of proof to respondent, nor did they
establish that it should apply to the instant case.
 - 7 -

for investment.7 Under section 1031(d), the basis of property

acquired in a section 1031 exchange is the same as the basis of

the property exchanged, decreased by any money that the taxpayer

receives and increased by any gain that the taxpayer recognizes.

Section 1031 and the regulations thereunder allow for

deferred exchanges of property. Under section 1031(a)(3) and

section 1.1031(k)-1(b), Income Tax Regs., however, the property a

taxpayer receives in the exchange (replacement property) must be

(1) identified within 45 days of the transfer of the property

relinquished in the exchange (relinquished property) and (2)

received by the earlier of 180 days after the transfer of the

relinquished property or the due date (including extensions) of

the transferor’s tax return for the tax year in which the

relinquished property is transferred.

Section 1.1031(k)-1(g)(4), Income Tax Regs., allows a

taxpayer to use a qualified intermediary to facilitate a like-

kind exchange. The qualified intermediary is not considered the

agent of the taxpayer for purposes of section 1031(a). Sec.

1.1031(k)-1(g)(4)(i), Income Tax Regs. The taxpayer’s transfer

of relinquished property to a qualified intermediary and

subsequent receipt of like-kind replacement property from the

7
In an otherwise qualifying like-kind exchange, a taxpayer’s
realized gain is recognized to the extent the consideration
received includes unqualified property (boot). Sec. 1031(b);
sec. 1.1031(a)-1(a)(2), Income Tax Regs.
 - 8 -

qualified intermediary is treated as an exchange with the

qualified intermediary. Id.

Petitioner exchanged the Wilshire property for the

Meadowbrook property and the Pebble Beach property.8 The parties

do not question whether the transaction in issue qualifies as an

exchange. Furthermore, the parties agree that the properties

were identified and received within the limits prescribed by the

Internal Revenue Code and that petitioner properly entered into

agreements with IPX, a qualified intermediary. The parties also

agree that the Meadowbrook and Wilshire properties were held for

investment. The controversy, therefore, centers on whether the

Pebble Beach property was held for productive use in a trade or

business or was held for investment.9

A taxpayer’s intent to hold a property for productive use in

a trade or business or for investment is a question of fact that

must be determined at the time of the exchange. Bolker v.

8
We note that the amount of gain realized on the exchange of
the Wilshire property is unclear. In the notice of deficiency
respondent contends that gain realized is $382,802. However, in
the stipulation of facts, the cost basis of the Wilshire property
is $270,000, which indicates a gain realized of $335,000. We
need not decide whether the gain realized on the exchange of the
Wilshire property was $335,000 instead of $382,802, because the
amount of gain to be recognized under sec. 1031(b) pursuant to
our holding infra is less than either of those two figures.
9
Sec. 1.1031(a)-1(a)(1), Income Tax Regs., allows for a
crossover exchange of property held for investment for property
held for productive use in a trade or business, or vice-versa, to
qualify as a like-kind exchange under sec. 1031.
 - 9 -

Commissioner, 81 T.C. 782, 804 (1983), affd. 760 F.2d 1039 (9th

Cir. 1985); Click v. Commissioner, 78 T.C. 225, 231 (1982).

Taxpayers bear the burden of proving that they had the requisite

investment intent. Click v. Commissioner, supra at 231; Regals

Realty Co. v. Commissioner, 43 B.T.A. 194, 208 (1940), affd. 127

F.2d 931 (2d Cir. 1942). We have held that investment intent

must be the taxpayer’s primary motivation for holding the

exchanged property in order for the property to qualify as held

for investment purposes of section 1031. Moore v. Commissioner,

T.C. Memo. 2007-134. The use of property solely as a personal

residence is antithetical to its being held for investment.

Starker v. United States, 602 F.2d 1341, 1350-1351 (9th Cir.

1979).10

10
Rental property that is occasionally used for personal
purposes may qualify as property held for productive use in a
trade or business or for investment pursuant to sec. 1031 if
certain safe-harbor conditions are met. Rev. Proc. 2008-16, sec.
4, 2008-10 I.R.B. 547, 548, provides that a dwelling unit may
qualify for like-kind exchange treatment if it is owned by the
taxpayer for at least 24 months immediately before the exchange,
and within that 24-month period, in each year before the exchange
the taxpayer rents the dwelling unit to another person at a fair
market rental value for 14 days or more and the period of
personal use does not exceed the greater of 14 days or 10 percent
of the number of days the dwelling unit is rented at fair market
value. Similarly, a dwelling unit may qualify for like-kind
exchange treatment if it is owned by the taxpayer for at least 24
months immediately following the exchange, and within that 24-
month period, in each year after the exchange, the taxpayer rents
the dwelling unit to another person at a fair market rental value
for 14 days or more and the period of personal use does not
exceed the greater of 14 days or 10 percent of the number of days
the dwelling unit is rented at fair market value. The safe
(continued...)
 - 10 -

We are unpersuaded that petitioners held the Pebble Beach

property for investment or for productive use in a trade or

business at the time of the exchange. Petitioners moved into the

Pebble Beach property within 2 months after they acquired it, but

the move was not merely temporary until renters could be found

while petitioners lived in the Pebble Beach property. Mr.

Goolsby also made the purchase of the Pebble Beach property

contingent upon the sale of the Gold Hills property, petitioners’

former personal residence in California. Additionally, Mr.

Goolsby’s interactions with IPX, the qualified intermediary, are

further evidence of a lack of investment intent at the time of

the exchange. Before purchasing the Pebble Beach property, Mr.

Goolsby sought advice from IPX regarding whether petitioners

could move into the property if renters could not be found.

Thus, before the exchange petitioners were contemplating the use

of the Pebble Beach property as a personal residence. Moreover,

petitioners began preparations to finish the basement of the

Pebble Beach property, having a builder obtain permits for the

construction, within 2 weeks of purchasing the property. The

foregoing evidence persuades us that petitioners lacked the

requisite intent to hold the Pebble Beach property for investment

10
(...continued)
harbor applies only to exchanges that occur after Mar. 10, 2008.
However, the Pebble Beach property was never rented. Therefore,
the safe harbor is inapplicable.
 - 11 -

or for productive use in a trade or business at the time of the

exchange.

Attempts to rent the Pebble Beach property also fail to

persuade us that petitioners held the Pebble Beach property for

investment or for productive use in a trade or business at the

time of the exchange. Mr. Goolsby acknowledged that, before the

exchange, he failed to research rental opportunities in the area

of the Pebble Beach property and failed to research whether the

covenants of the homeowners association would allow for the

rental of the Pebble Beach property. Moreover, the efforts to

rent the Pebble Beach property were minimal. Petitioners merely

placed an advertisement in a neighborhood newspaper for a few

months. No further efforts were made to gain more exposure for

the Pebble Beach property.

Petitioners’ contentions that they held the Pebble Beach

property for investment or for productive use in a trade or

business at the time of the exchange are similarly unpersuasive.

They contend that the purchase of the Pebble Beach property was

not extravagant when compared to the costs of California

properties. Petitioners’ contention lacks merit because the

relative values of the Wilshire property and the Pebble Beach

property are irrelevant to the determination of investment intent

or productive use in a trade or business. Petitioners also

argue, as evidence of their intent not to reside at the Pebble
 - 12 -

Beach property, that they lived with their in-laws upon their

move to Georgia. Petitioners’ argument is not persuasive. On

the basis of the record, we conclude that their efforts to rent

the Pebble Beach property were not substantial.

In sum, we conclude that petitioners have failed to meet

their burden of proving that at the time of the exchange their

primary purpose in holding the Pebble Beach property was for

investment or for productive use in a trade or business.

Consequently, we hold that the Pebble Beach property is other

property received in the exchange pursuant to section 1031(b),

and petitioners must therefore recognize gain to the extent of

the fair market value of the Pebble Beach property received. See

sec. 1031(b). Accordingly, the excess of the proceeds of the

sale of the Wilshire property over the Meadowbrook property

purchase price represents other property received in the exchange

and, therefore, is included in petitioners’ gross income for

their 2003 tax year.

We next address whether losses from petitioners’ rental

properties constitute passive activity losses for their 2003 and

2004 tax years. Petitioners contend that Mrs. Goolsby actively

and materially participated in the rental real estate business

and that they, therefore, are entitled to deduct the losses of

that business from their gross income. Respondent contends that

Mrs. Goolsby’s rental activity is per se a passive activity
 - 13 -

because she failed to meet the 750 hour requirement pursuant to

section 469(c)(7).11

Deductions are a matter of legislative grace, and taxpayers

bear the burden of proving their entitlement to the deductions

claimed. Sec. 6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79,

84 (1992). Taxpayers are allowed deductions for most business

and investment expenses under sections 162 and 212; however,

section 469 generally disallows any passive activity loss for the

tax year. A passive activity loss is defined as the excess of

the aggregate losses from all passive activities for that year

over the aggregate income from all passive activities for such

year. Sec. 469(d)(1). A passive activity is any trade or

business in which the taxpayer does not materially participate.

Sec. 469(c)(1). Rental activity generally is treated as per se

passive regardless of whether the taxpayer materially

participates. Sec. 469(c)(2). Pursuant to section 469(c)(7)(B),

the rental activities of a taxpayer in the real property business

(real estate professional) are not per se passive under section

469(c)(2), but the general definition of passive activity in

section 469(c)(1) is applied to them instead. Sec. 1.469-

9(e)(1), Income Tax Regs.

11
The offset allowed pursuant to sec. 469(i) is not in
issue.
 - 14 -

Under section 469(c)(7)(B), a taxpayer qualifies as a real

estate professional and is not engaged in a passive activity

under section 469(c)(2) if:

(i) more than one-half of the personal services
performed in trades or businesses by the taxpayer during
such taxable year are performed in real property trades or
businesses in which the taxpayer materially participates,
and

(ii) such taxpayer performs more than 750 hours of
services during the taxable year in real property trades or
businesses in which the taxpayer materially participates.

In the case of a joint return, the foregoing requirements for

qualification as a real estate professional are satisfied if, and

only if, either spouse separately satisfies the requirements.

Sec. 469(c)(7)(B). Thus, if either spouse qualifies as a real

estate professional, the rental activities of the real estate

professional are not per se passive under section 469(c)(2).

Instead, the real estate professional’s rental activities would

be governed by the passive activity criteria under section

469(c)(1).

Petitioners filed an election to treat all interests in

rental real estate as a single rental activity pursuant to

section 469(c)(7)(A) and section 1.469-9(g), Income Tax Regs.

Accordingly, their compliance with the requirements of section

469(c)(7) is measured by treating all of their interests in

rental properties as one real estate trade or business.
 - 15 -

Mrs. Goolsby’s only work in connection with a trade or

business for the years in issue was to manage petitioners’ rental

properties. Thus, more than one-half of the personal services

performed by Mrs. Goolsby during the years in issue were

performed for the rental property business. Accordingly, the

only dispute is whether Mrs. Goolsby meets the 750 hour

requirement.

Evidence that may be used to establish hours of

participation is set forth in section 1.469-5T(f)(4), Temporary

Income Tax Regs., 53 Fed. Reg. 5727 (Feb. 25, 1988).12 That

regulation provides:

The extent of an individual’s participation in an
activity may be established by any reasonable means.
Contemporaneous daily time reports, logs, or similar
documents are not required if the extent of such
participation may be established by other reasonable
means. Reasonable means for purposes of this paragraph
may include but are not limited to the identification
of services performed over a period of time and the
approximate number of hours spent performing such
services during such period, based on appointment
books, calendars, or narrative summaries.

We have held that the regulations do not allow a postevent

“ballpark guesstimate”. Bailey v. Commissioner, T.C. Memo. 2001-

296.

12
Material participation pursuant to sec. 469(c)(7) has the
same meaning as under sec. 1.469-5T, Temporary Income Tax Regs.,
53 Fed. Reg. 5725 (Feb. 25, 1988). Sec. 1.469-9(b)(5), Income
Tax Regs.
 - 16 -

Petitioners offered an “activity log” as proof of Mrs.

Goolsby’s performance of services. The 2003 activity log was

created for purposes of the instant case after petitioners’

returns were selected for examination. The 2003 activity log

indicates that Mrs. Goolsby spent 799 hours on petitioners’

rental properties. However, the 2003 activity log fails to

persuade us that Mrs. Goolsby spent more than 750 hours on

petitioners’ rental properties. Petitioners’ 2003 activity log

was created years after Mrs. Goolsby’s participation in rental

activity for the years in issue. Petitioners presented no

evidence of contemporaneous records, such as appointment books,

calendars, or narrative summaries, that would credibly support

the 2003 activity log. Incredibly, the 2003 activity log lists

days during which Mrs. Goolsby allegedly logged more than 24

hours of work. The 2003 activity log also includes hours worked

on the Pebble Beach property at the time petitioners were using

the Pebble Beach property as their principal residence.13

Additionally, the 2003 activity log was the second log

petitioners prepared because they perceived that the first log

they created for 2003 would not meet the 750 hour requirement.

We conclude that the 2003 activity log is not credible or

13
While the actual move-in date is not clear from the
record, Mr. Goolsby testified that petitioners moved into the
Pebble Beach property by April or May of 2003. Petitioners’ 2003
activity log includes hours spent on the Pebble Beach property
during May and June of 2003.
 - 17 -

persuasive. Accordingly, we hold that petitioners have not met

their burden of proving that Mrs. Goolsby was a real estate

professional for the 2003 tax year. Consequently, the losses

from petitioners’ rental properties are passive activity losses

for their 2003 tax year and, in the absence of any income from

passive activities, are not allowable as deductions from the

calculation of taxable income.

For petitioners’ 2004 tax year, the parties’ stipulation and

petitioners’ evidence indicate that Mrs. Goolsby worked 716 hours

with respect to petitioners’ rental properties. Those 716 hours

are less than the 750 hours required pursuant to section

469(c)(7)(B)(ii). Accordingly, we conclude that petitioners have

not met their burden of proving that Mrs. Goolsby was a real

estate professional for their 2004 tax year. Consequently, the

losses from petitioners’ rental properties are passive activity

losses for their 2004 tax year and, in the absence of any income

from passive activities, are not allowable as deductions from the

calculation of taxable income.

Lastly, we turn to the issue of whether petitioners are

liable for accuracy-related penalties for their 2003 and 2004 tax

years pursuant to section 6662. Section 7491(c) provides that

the Commissioner bears the burden of production with respect to

the liability of any individual for additions to tax and

penalties. Once the Commissioner has met his burden of
 - 18 -

production, the taxpayer must come forward with evidence

sufficient to persuade a Court that the Commissioner’s

determination is incorrect. Higbee v. Commissioner, 116 T.C.

438, 446-447 (2001).

Pursuant to section 6662(a) and (b)(1) and (2), 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 income tax.14 A substantial understatement of

income tax is defined as an understatement of tax that exceeds

the greater of 10 percent of the tax required to be shown on the

tax return or $5,000. Sec. 6662(d)(1)(A). The understatement is

reduced to the extent that the taxpayer has (1) adequately

disclosed his or her position and has a reasonable basis for such

position or (2) has substantial authority for the tax treatment

of the item. Sec. 6662(d)(2)(B). In addition, section 6662(c)

defines “negligence” as any failure to make a reasonable attempt

to comply with the provisions of the Internal Revenue Code, and

“disregard” means any careless, reckless, or intentional

disregard.

14
“Understatement” means the excess of the amount of the tax
required to be shown on the return over the amount of the tax
imposed which is shown on the return, reduced by any rebate.
Sec. 6662(d)(2)(A).
 - 19 -

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 of 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. Id. Furthermore, an honest

misunderstanding of fact or law that is reasonable in the light

of the experience, knowledge, and education of the taxpayer may

indicate reasonable cause and good faith. See Remy v.

Commissioner, T.C. Memo. 1997-72.

The record establishes that respondent’s burden of

production regarding the substantial understatement penalty

pursuant to section 6662 has been satisfied. For their 2003 tax

year, petitioners’ understatement exceeds both 10 percent of the

amount required to be shown on the return (10 percent of $120,148

is $12,015) and $5,000.15 For their 2004 tax year, petitioners’

understatement of $10,344 exceeds both 10 percent of the amount

15
The amount of gain that we impute to petitioners for 2003
is smaller than the amount of gain that was imputed to them in
the notice of deficiency. Nonetheless, petitioners’ deficiency
for tax year 2003 exceeds $12,015.
 - 20 -

required to be shown on the return (10 percent of $37,267 is

$3,727) and $5,000. Petitioners failed to present any evidence

or argument on those issues, and therefore, have failed to meet

their burden of proof. Accordingly, we hold that petitioners are

liable for the accuracy-related penalties determined for their

2003 and 2004 tax years.16

Our holdings will require a recalculation of petitioners’

itemized deductions, standard deduction, and exemptions for their

2003 and 2004 tax years.

The Court has considered all other arguments made by the

parties and, to the extent we have not addressed them herein, we

consider them moot, irrelevant, or without merit.

To reflect the foregoing and respondent’s concession,

Decision will be entered

under Rule 155.

16
Because we hold petitioners liable for the accuracy-
related penalties on account of their substantial understatements
of income tax, we do not need to reach respondent’s alternative
argument that petitioners were negligent or disregarded rules or
regulations.