James L. Wright, Petitioner

BSJ I T .C . Summary Opinion 2010-5 0

UNITED STATES TAX COURT

JAMES L . WRIGHT, Petitioner v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 7440-09S .

Filed April 20, 2010 .- James L . Wright, pro se .

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John Spencer Hitt , for,respondent .- DEAN, Special Trial Judge : This case was heard pursuant to the provisions of section 7463 . of the Internal Revenue Code in effect when the petition was filed . Pursuant to section 7463(b), 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, subsequent section references are to the Internal Revenue Code in effect for the year a t

SERVED APR 2 0 2010

issue, and Rule references are to the Tax Court Rules of Practice and Procedure .

Respondent determined for 2005 a deficiency in petitioner's Federal income tax of $19,318 and an accuracy-related penalty under section 6662(a) of $3,863 .60 .

The parties agree that petitioner is not entitled to itemized deductions in excess of the standard deduction for a single taxpayer . The parties also agree that petitioner is entitled to deduct on Schedule C, Profit or Loss From Business, only the following expenses : (a) "Other" of $2,376 , (b) $949 for utilities, (c) $1,660 for supplies, (d) $2,997 for rent, (e) $7,000 for legal fees, and (f) $1,188 for office expenses . The parties agree that petitioner failed to report on Schedule C of his Federal income tax return an additional $22,641 of gross-receipts and sales . The issues remaining for decision are whether petitioner : (1) Failed to report $7 .,003 .07 in excess of the gross receipts and sales that he now admits he failed to report, and (2) is liable for the accuracy-related penalty unde r section 6662(a) .

Background Some of the facts have been stipulated and are so found .

The stipulation of facts and the exhibits received in evidence are incorporated herein by .reference . Petitioner resided in Illinois when the petition was filed .

Petitioner during the year 2005 was a sole proprietor doing business as James Wright Tax and Accounting . The parties stipulated that-petitioner maintained a business checking account with Harris Bank in the name of the proprietorship . Aside from the deposits on which the parties agree, respondent's examination revealed two additional bank'j"teller deposits", $3,500 on.

December 5-and $3,503 .07 on December 21,, 2005 . Respondent determined them to be income !

Petitioner did not maintain adequate books and records tha t recorded his income for 2005, and he did not produce any evidenc e from the bank or otherwise that would indicate the nature of th e disputed deposits .

Disputed Deposits - Discussion Generally, the Commissioner's determinations in a . notice of deficiency are presumed correct, and the taxpayer has the burden of proving that those determinations are erroneous . See Rul e 142(a) ; Welch v . Helvering , 290 U .S . 111, 115 (1933) . In some cases the burden of proof with respect to . relevant factual issues } may shift to the` Commissioner under section 7491(a) . Petitioner did not argue or present evidence that he satisfied'th e requirements of section 749L(a) . Therefore, the burden of proof does not shift .to respondent .

- 4 i Petitioner and respondent agree that petitioner did not report all of his gross receipts for 2005 . Petitioner argues that the disputed deposits are loan proceeds from his life insurance policy .or amounts "from cash savings", or that(cid:127)he may have "borrowed * * * [them] from someone" . Petitioner also testified that "every now and then" he sold life insurance during .the year for which he would receive commissions .

Petitioner failed to offer any documentary evidence about the nature of the disputed deposits . Even his testimony was vague and indefinite . This Court is not bound to accept a taxpayer's self-serving, unverified, and undocumented testimony .

Shea,v . Commissioner , 112 T .C . 183, 189 (1999) ; Tokarski v .

Commissioner , 87 T .C . 74, 77 (1986) .

The Court sustains respondent's determination that the two deposits totaling $7,003 .07 represent unreported income for 2005 .

Accuracy-Related Penalt y ,Section 7491(c) imposes on the Commissioner the burden of production in any court proceeding 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 . In order to meet the burden of production under section 7491(c), the Commissioner need only make`a prima facie case that imposition of the penalty or addition to tax is appropriate .

Higbee v . Commissioner , supra at 446 .

Respondent determined that petitioner is liable for an accuracy-related penalty under section 6662(a) . Section 6662(a) imposes a 20-percent penalty ;on the portion of an underpayment attributable to any one of various factors, including negligence or disregard of'rules or regulations and a substantial - understatement of income taxk., See' sec . 6662(b)(1) and (2) .

"Negligence"-includes any failure to make a reasonable attempt to comply with the provisions of the Internal Revenue Code, including any failure-to keep adequate books and records or to substantiate-items properly ., See sec . 6662(c) ; sec .

1 .6662-3(b)(1),' Income Tax Regs . A "substantial understatement " is .an understatement of tax that exceeds the greater of 1 0 percent of the tax`required~to be shown on the return or $5,000 .

See sec . 6662(d) (1) (A) ; sec . 1 .6662-4 (b) , Income Tax Regs .

Section 6664(c)(1) provides that the penalty under section 6662(a) shall not apply to any portion of an underpayment if it } .is shown that there was reasonable cause for the taxpayer's position and that the taxpayer acted in good faith with respect to that portion . The determination of whether a taxpayer acted with reasonable cause and in good faith is made on a case-by-case basis, taking into account all the pertinent facts and . .

circumstances . Sec . 1 .6664-4 .(b)(1), Income Tax Regs . The most 6 - important factor is the extent of the taxpayer's effort to assess his proper tax liability for the year .

Id .

Petitioner had a substantial understatement of tax for 2005 since the understatement amount exceeded the greater of 10 percent of the tax required to be shown on the return or $5,000 .

Petitioner claimed itemized deductions and business expenses to which he was not entitled and underreported his business income .

The Court concludes that respondent has produced sufficient evidence to show that the imposition of the accuracy-related penalty under section 6662 is appropriate .

;Petitioner, a tax return preparer, did not-show that his underreporting of income and overreporting of .deductions were actions taken with reasonable cause and in good faith .

Respondent's determination of the accuracy-related penalty unde r section 6662(a) for 2005 is sustained .

To reflect the foregoing, Decision will be entere d under Rule 155 .