In Uncategorized on 10/22/2013 at 08:50

 Dashiell Hammett’s words, spoken by Sam Spade (and the sound is pure Bogart).

“It depends.”

“It depends on–?”

“If I knew what it depends on I could say yes or no.”

That’s the story in two small-claimers from 10/21/13, a day when the floodgates opened at Tax Court, inundating us bloggers, so I’m a day late but hopefully not short.

Two very different stories, though, one from STJ Lew (“Spell It Right”) Carluzzo, the other from STJ Daniel A. (“Yuda”) Guy. Both involve the usual unsubstantiated deductions with paid preparers, so I’ll skip the particulars.

In Kingsley O. Ofoegbu and Anthonia Ofoegbu, 2013 T. C. Sum. Op. 79, filed 10/21/13, STJ Lew lets K.O. and Anthonia off the penalty hook thus: “Petitioners’ 2007 Federal income tax return was prepared by a paid income tax return preparer. Under the circumstances, we find that petitioners reasonably relied upon their return preparer to properly calculate and report their 2007 Federal income tax liability. See sec. 6664(c); United States v. Boyle, 469 U.S. 241, 251 (1985); Higbee v. Commissioner, 116 T.C. 438, 448 (2001); Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 99 (2000), aff’d, 299 F.3d 221 (3d Cir. 2002); sec. 1.6664-4(b)(1), Income Tax Regs. Therefore, we hold that petitioners are not liable for a section 6662(a) accuracy-related penalty for 2007.” 2013 T. C. Sum. Op. 79, at pp. 12-13.

Huh? What circumstances? Was the paid preparer an attorney, CPA, EA, RTRP, or an experienced if unregistered type? Did K. O. and Anthonia meet the three-point test of providing full info, checking out credentials and relying in good faith on expert advice, and if they did, how? STJ Lew doesn’t say. So it depends.

On the other hand, STJ Yuda gives us the whole story in Mark Anthony Rael , 2013 T. C. Sum. Op. 78, filed 10/21/13. STJ Yuda buries Mark Anthony and does not praise him for his unsubstantiated employee business expenses (car and phone, mostly), and then comes to the penalties.

“Petitioner’s tax return for 2007 was prepared by Charlene M., an employee of H&R Block. Petitioner testified that he provided Ms. M. with calculations of the miles that he drove for business purposes. He further testified that, after Ms. M. prepared the return, he did not review the document in any detail before it was electronically filed. Ms. M. is not a certified public accountant.” 2013 T. C. Memo. 78, at pp. 6-7. (Name omitted).

Leaving aside the fact that the CPA qualification is not the only indicium of expertise in income tax, Mark Anthony fails the three-part test despite whatever credentials Ms. M. might have.

But at least STJ Yuda gives a basis for disallowing Mark Anthony’s reliance defense to the Section 6662 accuracy and understatement slams: “Although petitioner relied on a paid tax preparer, there is no evidence in the record regarding the return preparer’s experience or qualifications that would support the conclusion that petitioner’s reliance on the preparer was reasonable. Petitioner admitted that he did not carefully review the return before filing it. Taxpayers have a duty to review their tax returns before signing and filing them, and the duty of filing accurate returns cannot be avoided by placing responsibility on a tax return preparer. Metra Chem Corp. v. Commissioner, 88 T.C. 654, 662 (1987); Magill v. Commissioner, 70 T.C. 465, 479-480 (1978), aff’d, 651 F.2d1233 (6th Cir. 1981). In sum, on the record presented, petitioner failed to show that he acted with reasonable cause and in good faith within the meaning of section 6664(c)(1).” 2013 T. C. Sum. Op. 78, at pp. 15.

String citations are fine when they’re tied into the facts of the case;  but as generalizations they are unhelpful as guidance to the practitioner.

Takeaway- If the taxpayer wants to know what it takes to avoid the Section 6662 slams, your best answer is Sam Spade’s abovecited.

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: