Wayne A. Carter, Petitioner

SU.@YY11T "tGA C.A la w .`C .` Memo . 2010-11 1

UNITED STATES TAX . COURT

WAYNE A . CARTER, Petitioner v . COMMISSIONER OF INTERNAL"REVENUE ; Responden t Docket No . 170 7 0-08 .'

Filed~May 18, 201 .0 .

William R . Leighton and Leonard - L .' Leighton; ' for petitioner .

Jeffrey D . Heiderscheit , for resporident`°

MEMORANDUMFINDINGS OF FACT"AND OPINIO N

COHEN ., Judge : Respondent determined a deficiency of $72,79 4 in petitioner's Federal incom e tax for 20 :05 and a penalty of $14,559 under section 6662(a) .

The deficiency resulted fro m petitioner's failure to report capital gains of $512,086 from stock sales during 2005 . The deficiency is now conceded, and the issue for decision is whether petitioner is liable for th e M SERVED May 18 201 0 .penalty . All section references are to the Internal Revenu e Code .

FINDINGS OF FACT

Some of the facts have been stipulated, and the stipulated facts are incorporated in our findings by this reference .

Petitioner resided in Texas at the time his petition was filed .

At all material times, petitioner was self-employed in a retail landscape business .

In August 2003, petitioner acquired stock in Birch Mountain .,through a private placement . He sold the stock in August and October 2005, receiving proceeds of $658,447 and realizing a net long-term capital gain of $512,086 . After he sold the stock, the ,price dropped and he repurchased some stock in .Birch Mountain .

The amount and price of the repurchased stock and the date of purchase are not in the record . :1 The proceeds of the stock sales were not reported o n tpetitioner's Form 1040, U .S . Individual Income Tax Return, for 2005 . The return reported various small items of income not identifiable as relating to a retail landscape business, gross ,income totaling $7,012, and no tax due . The return was prepare d ,,by Johnnie D . Coley (Coley), who had prepared returns for .petitioner's parents and for petitioner for many years before `,2005 . Coley's education after high school consisted of business accounting . courses at, the college , level and .a course given by H& R Block .

Petitioner's bookkeeping .> was, generally performed by : his mother or his wife during 20 .05 . As was-the .custom with respect to tax return preparation, records-were delivered?by petitioner's mother .to Coley approximately 30,days before,a return was due .

A summary spreadsheet was,also ;delivered to Coley,'but she .did not use the spreadsheet in .preparing ..the returns, . preferring to consult the folders provided for details of reportabl e transactions After a-return was " prepared,,, the records wer e returned to petitioner-.- Before September 2007, petitioner, received an inquiry from- the .Internal . Revenue : Service ~ (IRS) about' the income' omitted from the 2005 return-. . .'An amended return reporting the proceeds and gain .from the, sales of . the- Birch Mountain : stock was- prepared by :

,- Coley , and , sent to the MRS in September '2007- .- In an` explanation of changes included in the amended return, Coley stated that she had=overlooked ahe .sales'=of stock on the original2005 return an d "therefore Schedule D was not filed ." Coley,was unaware of the Birch mountain stock sales-until after the IRS contacte d petitioner in 2007 .

OPINIO N

Section 6662(a) and ( .b)(2) imposes an accuracy-relate d penalty where, among other things, an underpayment of tax is } 4 - I}attributable to a substantial understatement of income 'tax .

,Petitioner does not dispute the substantial understatement but claims that he is entitled to relief under section 6664(c ) ,because of his alleged . good faith reliance=on Coley . Petitioner ,lbears the burden of demonstrating that he is not subject to the penalty . See Higbee v . Commissioner , 116 T .C . 438,' 446 (2001) .

Our findings of fact do not include findings about whether, ^1information concerning petitioner's sales of Birch Mountain stoc k was among the material delivered to Coley before preparation of the 2005 return . -Petitioner claims that it was and also that the accompanying spreadsheet contained information about the stock sales . He testified that the information provided to her included "all the 1099s" (information returns that led to the IRS inquiry and examination), . Neither the records nor th e spreadsheet was produced at trial . Coley did not recall seeing ,any information or having any conversations about the stock sales until after the return was filed .

At the time-of trial, petitioner . testified that he discussed the stock sales with Coley as follows :

Q On your petition, it did,not state that you received advice from her that the sale of stock was nontaxable ?

A No . She didn't tell me that .

Q Ms . Coley did not tell you that the sale of stock was nontaxable ?

A Well, we had the conversation about .stock .

-'e 5 - That',:s--I asked her,, since I -sold the stock and,I repurchased it, since I never took the money, am I -going -to Abe required, .to pay, taxes on it? She told me she didn't think so .

He acknowledged that he had never told the IRS during the examination or respondent ' s counsel after the petition was filed that he had spoken , to Coley about the stock sales . We conclud e that this claim is an afterthought, implausible, and not We are not persuaded that petitioner asked Coley abou t stock proceeds, and he has not presente d any other evidence that he made an effort to assess his prope r liability . . Cf . Stanford v ..(cid:127)Commissioner , 152 F 3d` 450, 460- 461 (5th,Cir:. 1998) affg . ; in' part 'and vacating, in part '108 T .C .

344 (1997) ; Williams v . . Commissioner , 123 T .C : .

.144, 15 3 sec . 1 .6664-4(b) (1) - Income~'Tax Regs The -amount- of the gain as .

a . large multiples of ,his reported -income from . other- activities could not be overlookedby him, and his, claim that Cole y suggested that he' need .not report it-is inconsistent with any claim-that . he was,; unaware that 'it was omitted .

a ,.

Even assuming there was some indication of the stock sales n a .

in the records . delivered "to- Coley .,,before she prepared petitioner's 2005 tax return, petitioner cannot be absolved of the penalty when he knew that the stock sales were not reported .

Whether or not Coley overlooked information provided to her, w e s !

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do not believe that petitioner relied in good faith on Coley, reasonably or otherwise, in omitting . over $500,000 in income from 6 - This 2005 return, especially-if he received the Form 1099 information . returns that he referred to during his testimony .

,His claimed lack of training in accounting is insignificant in ;view of his apparent sophistication and success in dealing with privately placed securities .

I As petitioner's brief acknowledges, at the conclusion of th e !trial the Court directed the parties to Metra Chem Corp . v .

Commissioner , 88 T .C . 6 54 (1987), where the Court applied the 'predecessor to section 6662(a) as follows :

As a general rule, the duty of filing accurate returns cannot be ;avoided by placing responsibility on a tax return preparer . See,_ e .g ., Pritchett v . Commissioner , supra [63 T .C . 149] . at 174-175 ; Enoch v . Commissioner , 57 T .C . 781, 802 (1972) ; Soares v . Commissioner , 50 T .C . 909 ; 914 (1968) . As the petitioners have .noted, this Court has declined to sustain the-addition to tax under section 6653(a) in cases in which the taxpayer relied in good faith on the advice of a tax expert . See, e .g ., Woodbury v . Commissioner , 49 T .C . 180, 199 (1967) ; Brown v . Commissioner , 47 T .C . 399, 410 (1967), affd . per curiam 398 F .2d 832 (6th Cir . 1968) . examination of these cases reveals that .they raised questions as to the tax treatment of complex transactions and that the position taken on the returns .with respect to such items had a reasonable basis .

However, a clos e This case presents no such difficult issues .

* * * [ Metra Chem Corp . v . Commissioner-, supra at . 6G² . 1 Here, too, the transactions are not complex or difficult . Ther e is no tenable reason for omitting them from the 2005 return, and petitioner has not shown anything on which he could have based a good faith belief that repurchasing the stock at a decreased price--shortly after, .sellingit would negate the sales that resulted inaa gain exceeding $500, ."000 .

Petitioner- contends that an unpublished opinion°-of the Cour t of Appeals fortthe Fifth-Circuit establishes the'standard in'this case, citing,' Prudhomme v.,.-Commissioner;=,.345 Fed' . Appx .,-6 (5t h Cir . 2009) , . .affg, . .rT ;C. .'' Memo . 2008=83 . Petitioner,'s argument= is , as follows :

In Prudhomme ,,the Fifth Circuit noted' that it .Incom e "must consider whether the taxpayer made `an honest misunderstanding o.f . .fact .or laws that is reasonable in, the light of all the facts and circumstances, including the experience,, knowledge, and,education, .of the taxpayer .", [ Prudhomme v . Commissioner , 345 Fed . . Appx . 6 ;,(5th Cir . .2009) (quoting, section :1 .6664-4a(b) Tax Regs .) (as quoted by petitioner in petitioner's brief),,' .] = The court, further noted that where : the ' taxpayer relies on a .return preparer the court must consider '111'[a] ll . facts and circumstances' regardin g whether that'reliance was reasonable and in good faith,- including the `taxpayer's education, sophistication and business experience .,'" [ Id . (quoting .section 1 .6664- 4(c)(1), Income Tax Regs .) .] And, finally, the court "observed that [i],f :..a taxpayer is able to show that there was a reasonable cause for the understatement and good faith, which may stem from reasonable reliance on the advice of [a] professional, the I .R .S . may waive the understatement penalty . [ Id . (quoting Streber v . Commissioner , 138 F .3d 216, 222 (5th Cir . 1998), . revg . T .C . Memo . 1995-601) .]

r .

Without regard to whether an unpublished opinion can establish a standard when it is-not considered a precedent under Fifth Circuit Rule 47 .5 .4, we see nothing in that case supporting petitioner's position under the facts and circumstances of this case . The Court of Appeals for the Fifth Circuit affirmed our conclusions in Prudhomme that there was no reasonable cause for the taxpayers' error (omitting income from sale of their company ,and not recognizing the omission in a :complicated return) and !'that the taxpayers did .not act in good faith . The Court of !Appeals distinguished cases inwhich the taxpayers wer e unsophisticated .in regard to . the taxable transactions . See „ Prudhomme v . Commissioner , supra at 12 (distinguishing Streber v .

, Commissioner , supra at 223, and Heasley v . Commissioner , 902 F .2d 380, 384-385 (5th Cir . 1990), revg . T .C . Memo . 1988-408) . W e reach the same conclusion here,-essentially for the same reasons .

In summary, we do not believe (1) that petitioner discussed treatment of the sales with his preparer before filing the return, (2) that there was reasonable cause for the error, or (3) that he acted in good faith . To reflect the foregoing , Decision will be entere d for respondent .

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