I well understand sympathetic petitioners getting a bye in an off-the-bencher, when IRS’ counsel doesn’t offer to drop the Section 6662 five-and-ten chops. Judge Ronald L. (“Ingenuity”) Buch does stretch matters a wee bit in Lucell Trammer, III & Sharonda M. Trammer, Docket No. 6615-22, filed 4/18/23.

Their tax situation is complicated. Lu is an IT consultant, who is employed but also freelances and works through a referral service. So he has W-2, 1099, and direct payment from his own customers. Sharonda is a traveling social worker for the State.

“The Trammers filed tax returns for 2019 and 2020, reporting their income and myriad personal and business expenses. To prepare those returns, they took their receipts to a return preparer who decided how and where to report items on the Trammers’ returns. Some of the personal expenses, such as home mortgage interest were reported in multiple places and double or triple counted. Many personal expenses, such as home maintenance and improvement, were reported as business expenses. Indirect business expenses were reported as direct business expenses.” Transcript, at pp. 4-5.

IRS disallowed the whole shebang. “At trial, the Trammers offered testimony and documents to support many of their expenses, but their evidence generally failed to establish either the amount of a particular expense or its deductibility. But they clearly established that the errors were those of their return preparer on whom they relied.” Transcript, at p. 5.

OK, the disallowance sticks. But Lu & Sharonda are clearly in five-and-ten trouble (Section 6662(d)(1) says substantial understatement is greater of 10% of understated tax or $5K), as they deducted $50K and only get the standard.

Judge Buch: “The Trammers relied on a return preparer to whom they had been referred. They supplied the return preparer with necessary and accurate information each year, and the return preparer decided what to do with that information.  The Trammers reasonably relied in good faith on their return preparer’s judgment. Accordingly, the section 6662 accuracy-related penalty does not apply for the years in issue.” Transcript, at p. 15.

We’re not told what qualifications this bespoke preparer had, if any. We don’t know Lu’s or Sharonda’s level of tax sophistication, if any. But what level of sophistication is required to question the same item deducted two or three times?

Lest I be misunderstood, I’m not beating up on Lu & Sharonda, much less on Judge Buch. The petitioners may well deserve a bye, and Judge Buch saw them and heard the whole story. I did not.

But preparers of the kind herein described are another story.

It might be interesting to know if IRS paid a visit to said bespoke preparer and went through some of the other returns they prepared.