Section 6662(a)
imposes an accuracy-related penalty equal to 20 percent of the underpayment to
which section 6662 applies. Section 6662 applies to the portion of any
underpayment which is attributable to, inter alia, (1) negligence or disregard
of rules or regulations, sec.
6662(b)(1), or (2) a substantial understatement of tax, sec. 6662(b)(2).
The term “negligence” in section 6662(b)(1) includes any
failure to make a reasonable attempt to comply with the Code. Sec. 6662(c).
Negligence has also been defined as a failure to do what a reasonable person
would do under the circum- stances. Leuhsler v. Commissioner 963 F.2d 907, 910
[69 AFTR 2d 92-1289] (6th Cir. 1992), aff'g T.C. , Memo. 1991-179; Antonides v.
Commissioner, 91 T.C. 686, 699 (1988), aff'd, 893 F.2d 656 [65 AFTR 2d 90-521]
(4th Cir. 1990). The term “negligence” also includes any failure by the taxpayer
to keep adequate books and records or to substantiate items properly. Sec. 1.6662-3(b)(1), Income Tax Regs. The
term “disregard” includes any careless, reckless, or intentional disregard.
Sec. 6662(c). Failure to keep adequate records is evidence not only of
negligence, but also of intentional disregard of regulations.See sec. 1.6662-3(b)(1) and (2), Income Tax
Regs.; see also Magnon v. Commissioner,
73 T.C. 980, 1008 (1980).
For purposes of section 6662(b)(2), an understatement is
equal to the excess of the amount of tax required to be shown in the tax return
over the amount of tax shown in the return. Sec. 6662(d)(2)(A). An
understatement is substantial in the case of an individual if the amount of the
understatement for the taxable year exceeds the greater of ten percent of the
tax required to be shown in the tax return for that year or $5,000. Sec.
6662(d)(1)(A).
The accuracy-related penalty under section 6662(a) does not
apply to any portion of an underpayment if it is shown that there was
reasonable cause for, and that the taxpayer acted in good faith with respect
to, such portion. Sec. 6664(c)(1). The
determination of whether the taxpayer acted with reasonable cause and in good
faith depends on the pertinent facts and circumstances, including the
taxpayer's efforts to assess the taxpayer's proper tax liability, the knowledge
and experience of the taxpayer, and the reliance on the advice of a
professional, such as an accountant.
Sec. 1.6664-4(b)(1), Income Tax Regs.
Carl J. Mistlebauer v. Commissioner, TC Memo 2012-186 , Code
Sec(s) 61; 6662; 7491.
CARL J. MISTLEBAUER, Petitioner v. COMMISSIONER OF INTERNAL
REVENUE, Respondent .
Case Information:
Code Sec(s): 61;
6662; 7491
Docket: Docket
No. 27110-10.
Date Issued:
07/5/2012
HEADNOTE
XX.
Reference(s): Code Sec. 61; Code Sec. 6662; Code Sec. 7491
Syllabus
Official Tax Court Syllabus
Counsel
Carl J. Mistlebauer, pro se.
Kristin M. Bourland, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
CHIECHI, Judge: Respondent determined deficiencies in, and
accuracy- related penalties under section 6662(a) 1 on, petitioner's Federal
income tax (tax) as follows:
Accuracy-Related Year Deficiency Penalty 2007 $20,049
$4,009.80 2008 54,345 10,869.00
The issues remaining for decision are:
(1) Does petitioner have unreported gross receipts from his
business MPR
Sales & Marketing, LLC, in the amounts of $37,734.18 and
$72,634.54 for his taxable years 2007 and 2008, respectively? 2 We hold that he
does.
(2) Is petitioner liable for each of his taxable years 2007
and 2008 for the accuracy-related penalty under section 6662(a)? We hold that
he is.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
Certain other facts have been deemed established pursuant to Rule 91(f).
Petitioner resided in Kentucky at the time he filed the
petition. During the years at issue, petitioner was the sole owner of a men's
clothing sales business known as MPR Sales & Marketing, LLC (MPR). During
those years, MPR made sales to retailers and over the Internet.
For his taxable years 2007 and 2008 petitioner did not
maintain adequate internal controls for MPR and did not maintain adequate books
and records pertain- ing to MPR showing, for example, its gross receipts and
sales.
During each of the years 2007 and 2008, petitioner
maintained the following types of bank accounts (collectively, petitioner's
bank accounts) at the financial institutions indicated:
(1) American Bank & Trust business checking account number
ending 6001;
(2) National City Bank personal checking account number
ending 7205;
(3) BB&T investors deposit account number ending 4770;
(4) BB&T money market account number ending 5225; and
(5) BB&T business checking account number ending 6569.
Petitioner filed Form 1040, U.S. Individual Income Tax
Return, for each of his taxable years 2007 (2007 return) and 2008 (2008
return). Petitioner attached to each of the 2007 return and the 2008 return
Schedule C, Profit or Loss From Business (Schedule C), for his business MPR.
In his 2007 return, petitioner reported total tax of $2,498
and an overpayment of tax of $4,343. In Schedule C that petitioner attached to
his 2007 return, he reported “Gross receipts or sales” of MPR of $36,468 and a
loss of $26,097.
In his 2008 return, petitioner reported total tax of $6,910
and tax due of $6,514. In Schedule C that petitioner attached to his 2008
return, he reported “Gross receipts or sales” of MPR of $162,627 and a loss of
$191.
Sometime in 2008, respondent assigned a revenue agent to
examine the respective returns that petitioner had filed for his taxable years
2007 and 2008 (respondent's examination). As part of that examination, the
revenue agent asked petitioner to provide him with business records (e.g.,
sales invoices) that petitioner maintained for MPR for each of those years. The
only documents that petitioner provided to the revenue agent were petitioner's
bank statements for 2007 (2007 bank statements).
During respondent's examination, petitioner informed the
revenue agent that he determined the total amount of gross receipts of MPR for
each of the years at issue that he reported in his 2007 return and 2008 return,
respectively, by reviewing the deposits that he had made to petitioner's bank
accounts that he used for that business, as shown in the bank statements for
those accounts.
Because petitioner did not provide the revenue agent with
petitioner's bank statements for 2008, the revenue agent issued summonses on
behalf of respondent (respondent's summonses) to the banks at which petitioner
had maintained peti- tioner's bank accounts during that year. Pursuant to
respondent's summonses, those banks provided the revenue agent with the
respective bank statements for 2008 for petitioner's bank accounts (2008 bank
statements).
The revenue agent examined petitioner's 2007 bank statements
and 2008 bank statements and prepared a bank deposits analysis for each of
petitioner's taxable years 2007 and 2008 on the basis of that examination
(respondent's bank deposits analysis). That bank deposits analysis showed for
each of those years, inter alia, the total amount of deposits into each of
petitioner's bank accounts during each month of each such year. In preparing
respondent's bank deposits analysis, the revenue agent attempted to ascertain
whether any of the deposits into petitioner's bank accounts during each of the
years at issue is nontaxable because, for example, a deposit had been made as a
result of a transfer of funds from one of petitioner's bank accounts to another
of those accounts. The revenue agent reduced the total deposits during each
taxable year at issue by (1) all deposits during each such year that the
revenue agent determined to be nontaxable, 3 (2) the total “Gross receipts or
sales” that petitioner reported in each of his 2007 Schedule C and 2008
Schedule C, as the case may be, and (3) the (a) net wages, (b) interest income,
(c) dividend income, (d) total sale price reported in Schedule D, Capital Gains
and Losses, and (e) State tax refund that petitioner reported in each of his
2007 return and 2008 return, as the case may be. In addition, the revenue agent
reduced the total deposits during 2008 by the IRA distributions that petitioner
reported in his 2008 return. The revenue agent deter- mined that the balance of
the total deposits during each of the years at issue consti- tutes unreported
Schedule C gross receipts of MPR for each such year.
Respondent issued the notice to petitioner in which
respondent determined, inter alia, that petitioner has unreported Schedule C
gross receipts of MPR for his taxable years 2007 and 2008 of $55,822 and
$150,861, respectively. In making those determinations, respondent relied on
respondent's bank deposits analysis that the revenue agent had prepared. In the
notice, respondent also determined that petitioner is liable for each of the
years at issue for the accuracy-related penalty under section 6662(a).
OPINION
Petitioner bears the burden of proving that the
determinations in the notice that remain at issue are erroneous. 4 See Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 [12 AFTR 1456] (1933).
We turn first to the unreported gross receipts of MPR that
respondent deter- mined on the basis of respondent's bank deposits analysis and
that remain at issue for each of petitioner's taxable years 2007 and 2008. 5
Petitioner did not maintain adequate internal controls for his business MPR,
did not maintain adequate books or records pertaining to that business, and did
not provide the revenue agent with any business records that he maintained for
MPR during each of those years except petitioner's 2007 bank statements.
Consequently, the revenue agent properly relied on the bank deposits method in
order to determine petitioner's income. See Nicholas v. Commissioner, 70 T.C.
1057, 1064 (1978). In performing respondent's bank deposits analysis, the
revenue agent was required to, and did, take into account any nontaxable source
of a deposit of which he had knowledge. See Clayton v. Commis- sioner, 102 T.C.
632, 645-646 (1994). “A bank deposit is prima facie evidence of income and
respondent need not prove a likely source of that income.” Tokarski v.
Commissioner, 87 T.C. 74, 77 (1986).
Petitioner bears the burden of proving that respondent's determinations of
income based on the bank deposits method are erroneous. See Clayton v. Commis-
sioner, 102 T.C. at 645. Petitioner may satisfy that burden by establishing
that the deposits that remain at issue are derived from a nontaxable source.
See Nicholas v. Commissioner, 70 T.C. at 1064.
It is petitioner's position that he has no unreported gross
receipts from his business MPR for each of his taxable years 2007 and 2008.
According to petitioner, none of the deposits to petitioner's bank accounts
that remain at issue for each of those years is taxable because the respective
sources of those remaining deposits were loans, lines of credit, proceeds from
the sale of all his investments, and IRA distributions.
In support of his position that he has no unreported gross
receipts of MPR for the taxable years at issue, petitioner relies solely on his
testimony. We found his testimony about the deposits into petitioner's bank
accounts that remain at issue to be general, conclusory, uncorroborated, and
self-serving. We are not required to, and we shall not, rely on that testimony
to establish petitioner's position that none of the deposits that remain at
issue for each of his taxable years 2007 and 2008 is taxable. See, e.g.,
Tokarski v. Commissioner, 87 T.C. 74.
Based upon our examination of the entire record before us,
we find that petitioner has failed to carry his burden of establishing that the
deposits totaling $37,734.18 and $72,634.54 that remain at issue for his
taxable years 2007 and 2008, respectively, are not taxable gross receipts from
his business MPR for those respec- tive years.
Respondent has the burden of production with respect to the
accuracy-related penalty under section 6662(a) that respondent determined in
the notice. See sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001). To satisfy
respondent's burden of production, respondent must come forward with
“sufficient evidence indicating that it is appropriate to impose”,Higbee v.
Commissioner, 116 T.C. at 446, the accuracy-related penalty. Although
respondent bears the burden of production with respect to the accuracy-related
penalty under section 6662(a) that
respondent determined, respondent “need not introduce evidence regarding
reason- able cause *** or similar provisions. *** the taxpayer bears the burden
of proof with regard to those issues.” Id.
We have found that petitioner did not maintain adequate
books and records pertaining to his business MPR showing, inter alia, gross
receipts and sales. Fail- ure to keep adequate records is evidence not only of
negligence, but also of inten- tional disregard of regulations. See sec.
1.6662-3(b)(1) and (2), Income Tax Regs.; see also Magnon v. Commissioner, 73
T.C. at 1008.
On the record before us, we find that respondent has
satisfied respondent's burden of production under section 7491(c) with respect
to the accuracy-related penalty under section 6662(a).
Petitioner advances no argument about why he is not liable
for the accuracy- related penalty with respect to the underpayment for each of
the years at issue that is attributable to the determinations in the notice
that he concedes. He argues only that there are no underpayments for his
taxable years 2007 and 2008 that are attributable to unreported gross receipts
of MPR because he reported all of MPR's respective gross receipts for his
respective taxable years 2007 and 2008. We have found that petitioner has
failed to carry his burden of establishing that he does not have taxable
unreported gross receipts of MPR for his respective taxable years 2007 and 2008
in the amounts of $37,734.18 and $72,634.54, respectively.
Based upon our examination of the entire record before us,
we find that petitioner has failed to carry his burden of establishing that he
is not liable for each of the years at issue for the accuracy-related penalty
under section 6662(a).
We have considered all of the contentions and arguments of
petitioner that are not discussed herein, and we find them to be without merit,
irrelevant, and/or moot.
To reflect the foregoing and the concessions of the parties,
Decision will be entered under Rule 155.
1
All section
references are to the Internal Revenue Code (Code) in effect for the years at
issue. All Rule references are to the Tax Court Rules of Practice and
Procedure.
2
Respondent concedes
a portion of the unreported gross receipts of MPR Sales & Marketing, LLC,
for each of petitioner's taxable years 2007 and 2008 that respondent determined
in the notice of deficiency (notice) that respondent issued to petitioner with
respect to those years.
3
The nontaxable
deposits that the revenue agent identified included transfers between
petitioner's bank accounts and from his credit lines into those accounts.
4
Petitioner does not
claim that the burden of proof shifts to respondent under sec. 7491(a). On the record before us, we
find that that burden does not shift to respondent under that section.
5
See supra note 2.
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