T.C. Summary Opinion 2013-16
UNITED STATES TAX COURT
PETER C. MOGBO AND CHINEDUM A. MOGBO, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 28466-11S. Filed February 21, 2013.
Peter C. Mogbo and Chinedum A. Mogbo, pro sese.
Kevin W. Coy, for respondent.
SUMMARY OPINION
KERRIGAN, Judge: This case was heard pursuant to the provisions of
section 7463 of the Internal Revenue Code in effect when the petition was filed.
The decision to be entered is not reviewable by any other court, and this opinion
shall not be treated as precedent for any other case. Unless otherwise indicated, all
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section references are to the Internal Revenue Code in effect for the year in issue,
and all Rule references are to the Tax Court Rules of Practice and Procedure.
Respondent determined a Federal income tax deficiency of $5,696 for 2008
and a penalty of $1,104 under section 6662(a). The only remaining issue for our
consideration is whether petitioners are liable for an accuracy-related penalty under
section 6662(a) for 2008.
Background
Petitioners resided in California when the petition was filed.
Petitioner husband worked for Downey Community Hospital in 2008.
Petitioners hired Apex Financial Tax Consultants to prepare their Federal income
tax return for 2008. Petitioners filed Form 1040, U.S. Individual Income Tax
Return, for tax year 2008 and failed to include in income $6,036 of petitioner
husband’s wages.
Petitioner husband received a distribution of $3,138 from a retirement
account in 2008 and failed to include this distribution in income on petitioners’ 2008
tax return.
Petitioner husband claimed to have sold real estate in 2008 and attached a
Schedule C, Profit or Loss From Business, to petitioners’ 2008 tax return, reporting
income and expenses. Petitioner husband claimed to have traveled 28,482 miles in
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connection with his real estate activity in 2008 and claimed a $15,171 deduction for
car and truck expenses related to this travel. Petitioner husband provided
respondent with only an appointment book and Mapquest printouts to substantiate
these expenses, and respondent allowed a $6,982 deduction for car and truck
expenses for 2008.
Discussion
Respondent determined that petitioners are liable for an accuracy-related
penalty under section 6662(a) for tax year 2008. Respondent contends that
petitioners are liable for the accuracy-related penalty on alternative grounds: (1) the
underpayment is attributable to negligence or disregard of rules or regulations within
the meaning of section 6662(b)(1); or (2) there was a substantial understatement of
income tax within the meaning of section 6662(b)(2). Only one accuracy-related
penalty may be applied with respect to any given portion of an underpayment, even
if that portion is subject to the penalty on more than one of the grounds set out in
section 6662(b). Sec. 1.6662-2(c), Income Tax Regs.
Under section 7491(c), the Commissioner bears the burden of production
with regard to the section 6662(a) penalty. This means that the Commissioner must
come forward with sufficient evidence indicating that a penalty is appropriate. The
Commissioner has met this burden by proving that petitioners negligently failed to
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report Form W-2 wages and income received from a retirement distribution and
petitioner husband overstated his car and truck expenses on Schedule C associated
with his real estate activity. Once the Commissioner meets this burden, the taxpayer
must come forward with persuasive evidence that the Commissioner’s determination
is incorrect. See Rule 142(a); Higbee v. Commissioner, 116 T.C. 438, 446-447
(2001).
Negligence includes any failure to make a reasonable attempt to comply with
the provisions of the internal revenue laws and is the failure to exercise due care or
the failure to do what a reasonable and prudent person would do under the
circumstances. Sec. 6662(c); Neely v. Commissioner, 85 T.C. 934 (1985); sec.
1.6662-3(b)(1), Income Tax Regs. Negligence also includes any failure by the
taxpayer to keep adequate books and records to substantiate items properly. Sec.
1.6662-3(b)(1), Income Tax Regs.
Petitioners did not keep sufficient books and records to meet the requirements
of section 274(d) with respect to petitioner husband’s travel expenses. Petitioner
husband kept an appointment book which simply states the date and address of
unknown parties and MapQuest printouts corresponding with the various addresses
in the appointment book. The appointment book does not contain the names of
clients or a description of the purpose for travel. Petitioners showed a disregard of
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rules and regulations by not reporting in income petitioner husband’s taxable
distribution from a retirement account. Petitioners failed to report Form W-2 wage
income and income from a distribution shown on Form 1099-R, Distributions From
Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts,
etc. See sec. 61. Petitioners acted negligently under the circumstances. Because of
section 1.6662-2(c), Income Tax Regs., we need not address the applicability of the
penalty on the ground of substantial understatement of income tax for 2008.
The accuracy-related penalty does not apply with respect to any portion of the
underpayment for which it is shown that the taxpayer had reasonable cause and
acted in good faith. Sec. 6664(c)(1). For purposes of section 6664(c), a taxpayer
may be able to establish reasonable cause and good faith by showing reliance on
professional advice. Sec. 1.6664-4(b)(1), Income Tax Regs. For a taxpayer to rely
reasonably upon advice so as possibly 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 each requirement of the
following three-prong test: (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 Assocs., P.A. v. Commissioner, 115
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T.C. 43, 99 (2000), aff’d, 299 F.3d 221 (3d Cir. 2002); Ellwest Stereo Theatres,
Inc. v. Commissioner, T.C. Memo. 1995-610; see also Rule 142(a); Welch v.
Helvering, 280 U.S. 111, 115 (1933). Petitioners paid an agent to prepare their
return. Petitioners contend that they hired Apex Financial Tax Consultants on the
basis of its reputation in the community; however, petitioner husband did not know
whether his tax preparer was a certified public accountant. Petitioners failed to
provide evidence that their tax preparer was competent and that petitioner husband
provided necessary and accurate information to him. See Neonatology Assocs.,
P.A. v. Commissioner, 115 T.C. at 99.
We hold that petitioners are liable for a section 6662(a) penalty for
negligence for tax year 2008.
To reflect the foregoing,
Decision will be entered
under Rule 155.