Opinion
3467-23
06-21-2024
PATRICK M. HALL & BRANDIS J. HALL, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Kathleen Kerrigan Chief Judge.
Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is
ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Chief Judge Kathleen Kerrigan at Atlanta, Georgia, on May 6, 2024, containing her oral findings of fact and opinion rendered at the trial session at which this case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered for respondent.
RECEIVED 5/29/24
In the Matter of: PATRICK M. HALL & BRANDIS J. HALL, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Docket No. 3467-23
Pages: 1 through 9
Place: Atlanta, Georgia
Date: May 6, 2024
Russell Federal Building & Cthse. 75 Ted Turner Dr., S.W. Room 1136, 11th Floor Atlanta, Georgia 30303
May 6, 2024
The above-entitled matter came on for bench opinion, pursuant to notice at 3:23 p.m.
BEFORE: HONORABLE KATHLEEN KERRIGAN Judge.
PROCEEDINGS
(3:23 p.m.)
THE CLERK: Recalling docket number 3467-23, Patrick M. Hall and Brandis J. Hall.
(Whereupon, a bench opinion was rendered.)
Bench Opinion
Kathleen Kerrigan, Judge.
March 15, 2024
Patrick M. Hall & Brandis J. Hallv. Commissioner of Internal Revenue
Docket No. 3467-23
THE COURT: The Court has decided to render in this case the following as its oral findings of fact and opinion, which shall not be relied up as precedent in any other case. This Bench Opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code, and Rule 152 of the Tax Court Rules of Practice and Procedure.Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C. in effect at all relevant times, regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.) in effect all times, and Rule references are to the Tax Court Rules of Practice and Procedure. All monetary amounts are rounded to the nearest dollar.
By a notice of deficiency dated December 15, 2022, the Internal Revenue Service (IRS or Respondent) determined a deficiency in petitioners' Federal income tax for 2019 of $15,877 and a penalty of $3,175 pursuant to section 6662(a). The deficiency arose from respondent's adjustments to petitioners' Schedule C, Profit or Loss from Business, for Hall & Hall Educational LLC (Schedule C1), and for Home Health (Schedule C2), and disallowed student loan interest deductions. Petitioners conceded all issues except for whether petitioners are liable for the accuracy-related penalty under section 6662(a).
Trial of this case was conducted on May 6, 2024 during the Atlanta, Georgia trial session. Josie J. Harris-Walton represented petitioners. And Danielle P. Costigan and Kaycee B. Hyre represented respondent. The parties' stipulation of facts and exhibits were admitted into evidence. We find the following finding of facts.
FINDINGS OF FACT
Petitioners resided Georgia when they filed their petition. In 2019 petitioners operated Hall & Hall Educational, LLC (Hall & Hall). Petitioners had been operating Hall & Hall since 2011. Through Hall & Hall, petitioners bought and sold rental properties. During 2019, petitioner wife was a nurse and petitioner-husband was a teacher.
Petitioner wife operated a business in which she provided nursing services. This business was no longer operating during 2019.
On Schedule C1 of their 2019 income tax return, petitioners reported expenses totaling $54,766. On Schedule C2, petitioners reported various expenses.
Petitioners used a tax preparer for 2019, who did not sign the return. Petitioners hired him because he was recommended by a family member. The preparer prepared prior years of tax returns for petitioners.
Respondent obtained managing supervisor approval for the section 6662(a) penalty on October 23, 2020, from his immediate supervisor. On October 28, 2020, respondent first issued a written communication asserting penalties in Letter 5153 on October 28, 2020.
OPINION
Respondent bears the burden of production with respect to the penalty imposed by section 6662(a), §7491(c). This burden of production includes producing evidence that respondent has complied with the procedural requirements of section 6751(b). Frost v. Commissioner, 154 T.C. 23, 34 (2020) . This includes satisfying section 6751(b)(1), which provides that "[n]o penalty under this title shall be assessed unless the initial determination X of such assessment is personally approved (in writing) by immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate.". Once respondent meets this burden, the taxpayer must come forward with contrary evidence. Id.
In Kroner v. Commissioner, 48 F.4th 1272 (11th Cir. 2022), rev'g in part T.C. Memo. 2020-73, the U.S. Court of Appeals for the Eleventh Circuit disagreed with the Tax Court regarding the timing of the section 6751(b) approval requirement. The Eleventh Circuit concluded that "the IRS satisfies [s]ection 6751(b) so long as a supervisor approves an initial determination of a penalty assessment before it assesses those penalties." Id. At 1276. We follow the relevant precedent of the Court of Appeals to which an appeal would generally lie. See Golsen v. Commissioner, 54 T.C. 742, 757 (1970), aff'd, 445 F.2d 985 (10th Cir. 1971). In this case the appeal would lie in the Eleventh Circuit.
The immediate supervisor approved the penalty in writing prior to the assessment of the penalty. Therefore, the requirements of section 6751(b) were met.
Section 6662(a) imposes a 20% penalty when there is an underpayment of tax due to a substantial understatement of tax. § 6662(a) & (b)(2). There is a substantial understatement of income tax if the amount of the understatement exceeds the greater of $5000 or 10% of the tax required to be shown on the return. § 6662(d)(1). An understatement means the excess of the amount of tax required to be shown on a return over the amount of tax actually shown on the return. § 6662(d)(2)(A). Here there was a substantial understatement.
The accuracy-related penalty does not apply with respect to any portion of the underpayment for which the taxpayer shows reasonable cause and good faith. § 6664(c)(1); see Higbee v. Commissioner, 116 T.C. 438, 446-47 (2001). The determination of reasonable cause and good faith is made on a case-by-case basis, taking into account all pertinent facts and circumstances. Treas reg § 1.6664-4(b)(1). We also consider the taxpayer's experience, knowledge, and education. See Id.
For purposes of section 6664(c) a taxpayer may be able to establish reasonable cause and good faith by showing reliance on professional advice. See also Treas. Reg. § 1.6664-4(c). To establish good faith and reasonable cause through reliance on professional advice, the taxpayer must prove by a preponderance of the evidence: "(1) [t]he adviser was a competent professional who had sufficient expertise to justify reliance, (2) the taxpayer provided necessary and accurate information to the adviser, and (3) the taxpayer actually relied in good faith on the adviser's judgment." Neonatology assocs., P.A. v. Commissioner, 115 T.C. 43, 99 (2000), aff'd, 299 F.3d 221 (3d Cir. 2002).
The tax preparer did not testify. Petitioners did not meet the burden of showing that the adviser was competent. Not only did the preparer not sign the return, he reported expenses for a business that was no longer operational. In addition, he reported Schedule C expenses instead of Schedule E Supplemental Income and Loss, expenses.
Petitioner wife testified that incorrect expenses were reported on their income tax return. She further testified that she did not fully review their tax return before signing it. Therefore, petitioners are liable for a section 6662(a) penalty for substantial understatement for 2019.
Any contentions we have not addressed are irrelevant, moot, or meritless. A decision will be entered for respondent.
This concludes the Court's oral Findings of Fact and Opinion in this case.
(Whereupon, at 3:30 p.m., the above-entitled matter was concluded.)
CERTIFICATE OF TRANSCRIBER AND PROOFREADER
CASE NAME: Patrick M. Hall & Brandis J. Hall v. Commissioner
DOCKET NO.: 3467-23
We, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 9 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Cassidy B. Holland on May 6, 2024 before the United States Tax Court at its session in Atlanta, GA, in accordance with the applicable provisions of the current verbatim reporting contract of the Court and have verified the accuracy of the transcript by comparing the typewritten transcript against the verbal recording.
TreLinda Wilson, CDLT-148 5/22/24, Transcriber
Lori Rahtes, Proofreader