No, Judge Whelan won’t allow that. Take a look at a small-claimer, Nanette J. Martarano and David Martarano, 2014 T. C. Sum. Op. 101, filed 10./21/14.
It’s the usual non-substantiation, but with a double twist.
The only one to show up for trial is Nanette. Nanette is what she calls “a tax professional.” Judge Whelan elucidates: “She has worked for H&R Block for five years, and she is working to become an enrolled agent of the Internal Revenue Service.” 2014 T. C. Sum. Op. 101, at p. 3.
Leaving aside the fact that an “enrolled agent” is anything but an agent of IRS, Nanette is not off to a great start.
First, Nanette claims that IRS’ transcript of her and Dave’s return introduced by IRS is incorrect, and she said so at audit and at the trial, although she stipulated that the transcript was correct pre-trial. She never puts in at trial what she claims is the true return, but puts her numbers in her pre-trial memo.
And she’s been in Tax Court on similar issues before.
Next, “At the start of trial in this case petitioner admitted that, after filing her petition, she did not contact respondent’s attorney and she failed to respond to the numerous attempts of respondent’s attorney to contact her. In addition, petitioner did not respond to respondent’s so-called Branerton letter, in which respondent offered to begin informal discussions and discovery through a pretrial settlement conference.” 2014 T. C. Sum. Op. 101, at p.9. So she also violated the Standing Pre-Trial Order, the “play nice and make nice”.
But Nanette is not done. “It was not until three days before the calendar call that respondent’s attorney received a packet of documents from petitioner. At trial petitioner also sought to introduce other documents not included in the packet and not provided to respondent’s attorney before trial. In an attempt to assure the fairness of these proceedings, the Court did not accept into evidence any document that was not included in the packet of documents provided to respondent’s attorney before trial. Furthermore, the Court did not accept into evidence copies of petitioners’ personal bank statements that had been substantially altered by redaction. Petitioners had not shown the original statements to respondent’s attorney before trial, and she did not have them available for inspection in Court.” 2014 T. C. Sum. Op. 101, at p. 9.
OK, Nanette’s attempted ambush fails, and she gets nailed for the deficiency asserted. So IRS won it all, right?
Not quite. Maybe IRS’ counsel was a trifle peeved at Nanette’s gameplaying, so counsel tries one on Nanette.
IRS moves to conform the pleadings to the proof. This is the Rule 41 “if you agree to try it, it doesn’t matter that you didn’t plead it” provision.
IRS claims that Nanette’s proof bespeaks negligence, and wants a 20% chop.
Judge Whelan isn’t biting.
“Respondent’s motion does not mention the reasonable cause exception for underpayments provided by section 6664(c)(1). Under that exception, the section 6662 penalty is not imposed with respect to any portion of an underpayment if the taxpayer shows that there was reasonable cause for, and that the taxpayer acted in good faith with respect to, that portion.” 2014 T. C. Sum. Op. 101, at p. 16.
Of course, Nanette billed herself as a “tax professional”, so reliance on experts is a very thin twig on which to hang one’s good faith.
Still, Nanette was ambushed. “Respondent’s motion was made at the end of trial. Indeed, respondent’s attorney made the motion immediately before the case was adjourned. We do not quarrel with the timing of respondent’s motion. A motion under Rule 41(b)(1) may be made ‘at any time.’ Nevertheless, except for respondent’s oral motion, there was no mention of the accuracy-related penalty under section 6662(a) during these proceedings and, thus, nothing to suggest that petitioners had any reason to suspect that respondent planned to assert the penalty.” 2014 T. C. Sum. Op. 101, at p. 17 (Citation omitted).
So no go on the penalty.
But I suggest Nanette put in some extra studying time on penalties and additions to tax, and Tax Court procedure, before she takes the SEE to become “an enrolled agent of the Internal Revenue Service”.