U.S. v. CUDA, Cite as 108 AFTR 2d 2011-XXXX, 10/04/2011

UNITED STATES OF AMERICA, Plaintiff, v. ANTHONY D. CUDA and BRIAN DANKIS, Defendants.

Case Information:

Code Sec(s):      

Court Name:      IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA,

Docket No.:        Civil Action No. 10-617,

Date Decided:   10/04/2011.

Disposition:      

HEADNOTE

.

OPINION

IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA,

 amount due to the IRS.” Brounstein v. United States,   979 F.2d 952, 954 [71 AFTR 2d 93-1714] (3d Cir. 1992).

i. The “Responsible Person” Standard

A “responsible person” for the purposes of   § 6672 is any corporate employee or officer with a duty to “collect, truthfully account for, or pay over any tax due the United States.” Greenberg, 46 F.3d at 242–43 (quoting United States v. Carrigan,   31 F.3d 130, 133 [74 AFTR 2d 94-5425] (3d Cir. 1994)). Responsibility arises from an employee's “status, duty, or authority” rather than his or her knowledge. Greenberg, 46 F.3d at 243. To be considered a responsible person under   § 6672, a person does not need to have exclusive control over his or her company's finances, but merely significant control. Vespe, 868 F.2d at 1332.

Significant control is established when a person has the last say or significant input about which bills or creditors are to be paid. Quattrone Accountants, Inc. v. I.R.S.,   895 F.2d 921, 927 [65 AFTR 2d 90-580] (3d Cir. 1989). The Court of Appeals has also held that when determining whether a person has significant control, the following factors should be considered: “(1) the duties of the officer as outlined by the corporate by-laws; (2) the ability of the individual to sign checks of the corporation; (3) the taxpayer's signature on the employer's federal employment or other tax returns; (4) the identity of the officers, directors and shareholders of the corporation; (5) the identity of the individuals who hired and fired employees; and (6) the identity of the individual(s) who were in charge of the financial affairs of the corporation.” Carrigan, 31 F.3d at 133;accord Mitchell , 82 Fed. Appx. at 785. 7

Cuda has admitted that he qualifies as a “responsible person” for purposes of   § 6672. (See Docket No. 37 at 2). Thus, the first element of liability under   § 6672 is not at issue here. The question is whether Cuda's actions were willful, such that he could be exposed to liability.

ii. The Willfulness Standard

Although Cuda does not challenge his status as a “responsible person,” he does argue that he was not willful in SAES's failure to pay its taxes. A willful act for 26 U.S.C. § 6672 purposes occurs when a responsible person makes “a voluntary, conscious and intentional decision to prefer other creditors over the government.” Quattrone, 895 F.2d at 928. This can include paying net wages to employees while there are outstanding payroll taxes. Greenberg, 46 F.3d at 244. Thus, knowledge of unpaid taxes and the conscious decision to pay other creditors before paying the United States constitutes willfulness. See Quattrone, 895 F.2d at 928 (citing Wall v. United States,   592 F.2d 154, 163 [43 AFTR 2d 79-502] (3d Cir. 1979)).

A responsible person can also act willfully when he or she displays “reckless disregard for whether taxes have been paid.” Brounstein, 979 F.2d at 956. The reckless disregard standard is met when the taxpayer: “(1) clearly ought to have known that (2) there was a grave risk that withh[eld] taxes were not being paid and ... (3) he was in a position to find out for certain very easily.”Carrigan , 31 F.3d at 134 (quoting Wright v. United States,   809 F.2d 425, 427 [59 AFTR 2d 87-467] (7th Cir. 1987)). This standard can also be met when a responsible person is given notice that payroll taxes are not being paid, but takes no steps to investigate the situation or correct mismanagement.Greenberg , 46 F.3d at 244 (quoting Morgan v. United States,   937 F.2d 281, 286 [68 AFTR 2d 91-5491] (5th Cir. 1991)).

A responsible person's action or inaction does not need to be performed with bad intent for it to be considered willful.Greenberg , 46 F.3d at 244. It is sufficient that the responsible person acted knowingly or recklessly.Id.

1. Knowledge and Payments to Other Creditors

Cuda claims that “[t]he record establishes that [he] did not have knowledge that taxes were not being paid during 2005.” (Docket No. 37 at 3). A true lack of knowledge would immunize him from liability for the unpaid taxes. However, the Court finds that there is no genuine issue of fact as to whether Cuda was aware of the unpaid taxes. By Cuda's own admission, he was made aware of the IRS demand for payments as early as July 2005. (Docket No. 38 at ¶ 19). 8 With this knowledge, Cuda should have opted to pay SAES's federal taxes. Instead, SAES continued to pay off its other creditors. For example, the United States has submitted checks dated after Cuda admitted to knowledge of the tax obligations. (See, e.g., Docket No. 33-12 at 3–14, 27, 29–34). Cuda testified at his deposition that he signed several checks on dates in September, October, November and December of 2005. (Cuda Dep. at 104:2–111:6). Therefore, checks were signed and issued after Cuda, a “responsible person,” became aware of the unpaid taxes. By Cuda's own admission, some of these checks were signed by him. (Id.). Thus, Cuda was a “responsible person”, (Docket No. 37 at 2), who had knowledge of unpaid taxes, (Docket No. 38 at ¶ 19), and who chose to pay other debtors before paying off SAES's tax liabilities. (See Cuda Dep. at 104:2–111:6; Docket No. 33-12). All of these uncontested facts are derived from Cuda's own deposition or statement of facts. Cuda has, thus, established his liability through his own admissions, and, therefore, there are no disputes over the material facts as to Cuda's liability.

Further, when “an individual has been a responsible person throughout the period when the taxes should have been collected and paid, but did not have knowledge of the tax delinquency until later, he has a duty to pay over all after-acquired funds to the IRS.” In re Branagan,   345 B.R. 144, 168 [97 AFTR 2d 2006-2642] (E.D.Pa. 2006) (citing Vespe, 868 F.2d at 1334). Cuda admits to learning of the unpaid taxes in July 25 – after both the March and June tax periods — and was, therefore, under a duty to pay off these debts with after-acquired funds. As indicated by the copies of checks submitted by the United States, (see Docket No. 33-12; Cuda Dep. at 104:2–111:6), Cuda used the after-acquired funds to pay off other creditors before (or without) paying off the United States. (Id.). Again, the facts are not in dispute and support a finding of liability.

Cuda attempts to protect himself from liability by arguing that he was in some way misled by Dankis or that the Court should not rely on Dankis's testimony. (Docket No. 37 at 3–4). Cuda's arguments are misplaced. First, whether or not Dankis failed to pay taxes, (id. at 4), is not relevant to Cuda's liability. See Hagen, 485 F.Supp.2d at 628 (   Section 6672 “applies to all responsible persons, and not just the most responsible person.”). Assurances of another that taxes will be taken care of is not a defense to liability under   § 6672. Greenberg, 46 F.3d at 244 (citing Denbo v. United States,   988 F.2d 1029, 1033 [71 AFTR 2d 93-1317]–34 (10th Cir. 1993)). Second, the Court's finding of liability is based on Cuda's own admissions, not statements made by Dankis. Assertions, at the summary judgment stage, that are contrary to those made at deposition are not sufficient to create a material dispute of fact. Cf. Martin v. Merrell Dow Pharmaceuticals, Inc., 851 F.2d 703, 705 (3d Cir. 1988) (finding that a party cannot create a dispute of material fact by “flatly contradict[ing]” earlier sworn statements). Once Cuda was made aware of the unpaid taxes, it was his duty to ensure that they were paid — before any other creditors of SAES were paid. He failed in that duty.

c. Recklessness

A responsible party may be found willful for recklessness when the taxpayer “(1) clearly ought to have known that (2) there was a grave risk that withh[eld] taxes were not being paid and ... (3) he was in a position to find out for certain very easily.” Carrigan, 31 F.3d at 134 (quotingWright v. United States ,   809 F.2d 425, 427 [59 AFTR 2d 87-467] (7th Cir. 1987)). In the Court's mind, this is where Dankis's May 2005 e-mail becomes particularly relevant. Cuda admits to receiving an e-mail from Dankis that references Dankis's “irresponsible management with the taxes...” (Docket No. 33-4 at 94:2–14). This e-mail was dated May 18, 2005. (Id. at 94:25–95:2).

Cuda claims that he was confused as to the meaning of this e-mail. (See Cuda Dep. at 94:15–24). It is clear from the record that the responsibilities of office manager were not transferred to Dankis until 2004. (See Dankis Dep. 13:15–22; Benincosa Dep. at 26:14–22). This post-dates Cuda's awareness of SAES's earlier, 2003, tax problems. (Cuda Dep. 39:22–40:8; 67:23–68:12; 68:23–69:13). Thus, Dankis's reference to hisown irresponsible management of taxes in 2005, as distinguished from the 2003 problems that occurred before Dankis took over as office manager, “clearly ought to have” made Cuda aware that “there was a grave risk that withh[eld] taxes were not being paid.”Carrigan , 31 F.3d at 134. Cuda, as Operations Director and Chief, was clearly “in a position to find out for certain very easily.” Id. He did not do so. His failure to do so, regardless of intent, is enough, in this Court's estimation, to establish willful recklessness.Greenberg , 46 F.3d at 244.

www.irstaxattorney.com 888-712-7690

Louis Greenwald v. Commissioner, TC Memo 2011-239 , Code Sec(s) 165; 274; 262; 6651; 6662.

LOUIS GREENWALD, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent .

Case Information:

Code Sec(s):       165; 274; 262; 6651; 6662

Docket:                Docket No. 1577-09.

Date Issued:       10/3/2011

Judge:   Opinion by WHERRY

HEADNOTE

XX.

Reference(s): Code Sec. 165 ; Code Sec. 274 ; Code Sec. 262 ; Code Sec. 6651 ; Code Sec. 6662

Syllabus

Official Tax Court Syllabus

R's disallowance of a short-term capital loss and the capitalization of certain improvements made to P's home before its sale caused deficiencies in Federal income tax for P's 2005 tax year. R also determined that P was liable for an addition to tax pursuant to   sec. 6651(a)(1), I.R.C., and an accuracy-related penalty pursuant to   sec. 6662(a), I.R.C., for his 2005 tax year.

Held: P is liable for a portion of the deficiency consistent with the findings herein.

Held, further: P is liable for the   sec. 6651(a)(1), I.R.C., addition to tax but is not liable for the   sec. 6662(a), I.R.C., penalty.

Counsel

B. Paul Husband, for petitioner.

Linette B. Angelastro, for respondent.

Opinion by WHERRY

MEMORANDUM FINDINGS OF FACT AND OPINION

This case is before the Court on a petition for redetermination of petitioner's liability for income tax, a failure to file addition to tax, and an accuracy-related penalty for the 2005 tax year. After concessions the issues for decision are: 1

(1) Whether petitioner is entitled to a short-term capital loss of $68,000;

(2) whether petitioner had $356,515 of additional capital gain;

(3) whether petitioner is liable for the   section 6651(a) failure to file addition to tax; 2 and

(4) whether petitioner is liable for the   section 6662(a) accuracy-related penalty.

FINDINGS OF FACT

Some of the facts have been stipulated. The stipulated facts and the accompanying exhibits are incorporated by this reference. Petitioner resided in California at the time he filed his petition.

On June 29, 2001, petitioner, along with Daniel Lewis Kupper and George H. Manuras, entered into a “Fixed Rate Installment Note” (installment agreement) in the amount of $90,000, with JAV, Inc. (JAV), to purchase a skateboarding accessories business known as Skaters Paradise. Under the installment agreement, petitioner and the two other individuals were jointly and severally liable and were required to make installment payments (with interest) to JAV.

On or about April 11, 2002, petitioner purchased a residence at 610 Olive Road in Santa Barbara, California (Olive Road property), for $1,155,000. Petitioner also owned a second Santa Barbara residence at 590 Santa Rosa Lane (Santa Rosa property) which he leased out. Petitioner refinanced the Olive Road property on October 31, 2002. Petitioner again refinanced the Olive Road property in July of 2003, and in March or early April of 2004 petitioner used the Olive Road property as collateral for a loan with a private lender.

On December 20, 2002, JAV sued petitioner, Daniel Lewis Kupper, and George H. Manuras for nonpayment of the installment agreement. JAV obtained a judgment for $64,491.71 against petitioner on December 23, 2003, which was recorded on December 24, 2003. Petitioner satisfied the judgment by again refinancing the Olive Road property on April 26, 2004.

After petitioner paid the judgment, he tried to keep the business going and sought repayment from Daniel Lewis Kupper and George H. Manuras. He abandoned the venture in 2005.

Beginning in 2002 petitioner began making improvements on the Olive Road property. His bookkeeper, Neala Robbins, recorded each expense. Petitioner typically used his wholly owned corporation, BLSH, Inc., to pay the expenses for the improvements. However, the contractors and other persons petitioner hired understood that they were doing business with petitioner personally and not his corporation.

By 2003 petitioner's wholly owned corporation was no longer actively in business. Petitioner explained that he used the corporation's credit card and accounts “because it was convenient” and because “There was a credit card attached to it, and I had no income or no job, so I couldn't get a credit card, you know, and this one had [a] Louis Greenwald credit card *** and I just assumed that it was okay to use it, and I did.” Petitioner claimed that the money in the corporation's account represented proceeds from refinancing the Olive Road property and the rental income from the Santa Rosa property.

Petitioner sold the Olive Road property on or about January 7, 2005, for $2,650,000. On his 2005 tax return petitioner reported the adjusted basis of the residence as $1,761,198 (including selling expenses). He then subtracted this amount from the sale price to compute his taxable gain of $888,802. From the $888,802 he took the maximum principal residence exclusion of $250,000 and reported a capital gain from the sale of $638,802.

The accounting firm Fineman West & Co., LLP (Fineman West), prepared petitioner's 2005 tax return. Fineman West had prepared petitioner's personal returns in the past; and when he was in business, they had prepared his business returns as well. Petitioner believed that Fineman West was a well-respected certified public accounting firm and “Trusted them implicitly”. Petitioner believed that he provided all of the required information to Fineman West and that his return was prepared correctly. Petitioner also explained that he was under the impression Fineman West automatically requested extensions of time to file for all of the returns they processed.

Jeffery Dunn, C.P.A., a senior tax manager at Fineman West, explained that it was the custom and practice of the firm for an accountant to prepare the return, a senior manager to review it, and then a tax partner to do a second and final review and sign off on it. He also explained that it was Fineman West's practice to request extensions for its clients even if not requested by the client.

The filing date for petitioner's 2005 tax return was not extended. Petitioner did not know why the firm did not automatically request an extension of time to file his return. Petitioner claims that as soon as he found out, he “got it fixed right away” and immediately had the firm file the return. Petitioner's 2005 and 2004 tax returns were filed on January 12, 2007. Petitioner did not file a tax return for 2002 or 2003.

Respondent issued petitioner a notice of deficiency on October 27, 2008, determining a deficiency in income tax of $151,007, a   section 6651(a) addition to tax of $45,112, and a   section 6662(a) accuracy-related penalty of $30,201 for the 2005 tax year. For that tax year respondent disallowed a claimed net operating loss (NOL) carryforward of $65,993, increased capital gains by $674,515, disallowed itemized deductions of $22,215, and determined alternative minimum tax of $29,906. 3 Petitioner filed a timely petition with this Court on January 21, 2009, denying that he owed the deficiency, addition to tax, and penalty. A trial was held on June 25, 2010, in Los Angeles, California. *** deductions claimed *** [, they] are deemed to have conceded their nondeductibility”), affd.   832 F.2d 403 [60 AFTR 2d 87-5884] (7th Cir. 1987).

OPINION

I. Short-Term Capital Loss of $68,000

Petitioner claimed a $68,000 short-term capital loss on Schedule D, Capital Gains and Losses, for “Investment JAV-KGM” on his 2005 tax return. 4   Section 165(a) generally allows a deduction for losses sustained within the taxable year.   Section 165(c) limits losses that can be deducted by individual taxpayers, permitting a deduction only for losses incurred in a trade or business, in a profit-making activity (though not connected with a trade or business), or from a casualty or theft.

A loss is deductible only for the taxable year in which it is sustained.   Sec. 1.165-1(d)(1), Income Tax Regs. In order to be “sustained”, the loss must be “evidenced by closed and completed transactions and as fixed by identifiable events At trial petitioner occurring in such taxable year.” Id. explained that a judgment was obtained against him because of a business installment agreement for which he was personally liable. Petitioner explained that he claimed the capital loss after he was unable to collect from his business partners their shares of the judgment.

The record contains both the installment agreement and the judgment against petitioner. It also contains the paperwork for the refinancing petitioner used to pay off the judgment in 2004. We find credible petitioner's testimony that he continued to seek repayment from his partners during 2004 and part of 2005, after paying the judgment, and then abandoned the venture in 2005. Respondent has not satisfactorily rebutted this evidence; therefore petitioner is entitled to deduct the $68,000 capital loss.

II. Capital Gain of $356,515

Respondent increased capital gain on the sale of the Olive Road property by $606,515. After respondent's concession that petitioner was entitled to the   section 121 exclusion of $250,000, capital gain of $356,515 remains at issue. Petitioner claimed that he made total capital improvements of $387,734.60 to the Olive Road property. Most of the expenditures were paid through petitioner's defunct wholly owned corporation, and petitioner submitted receipts for improvements totaling only $171,301.79.

A. Petitioner's Corporation Respondent asserts that because petitioner's personal service corporation made the payments, petitioner is not entitled to add the amounts to the basis of the Olive Road property. We find this argument without merit. Petitioner credibly testified that because of credit card problems he merely used the corporation's accounts as his personal piggy bank clearing house agent, depositing his income from the rental and refinancing and then using the accounts to pay for the capital improvements. In reality and in substance petitioner paid for the capital improvements to the Olive Road property, not his corporation.

B. Substantiation Petitioner included receipts for only $171,301.79 of the $387,734.60 of claimed expenses. Petitioner claims that he included only invoices that exceeded $2,000 because of an agreement with the examining agent. 5

Petitioner urges the Court to apply the Cohan doctrine, under which the Court may allow a claimed expense even where the taxpayer is unable to fully substantiate it, provided the Court has an evidentiary basis for doing so. Williams v. United States,   245 F.2d 559, 560 [51 AFTR 594] (5th Cir. 1957); Cohan v. Commissioner,   39 F.2d 540, 543-544 [8 AFTR 10552] (2d Cir. 1930); Vanicek v. Commissioner,   85 T.C. 731, 742-743 (1985). But see   sec. 1.274-5T(a), TemporaryIncome Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985). In these instances, the Court is permitted to approximate the allowable expense, bearing heavily against the taxpayer whose inexactitude Cohan v. Commissioner, supra at is of his or her own making. 544. However, the record must contain sufficient evidence to provide a basis upon which the estimate may be made and to permit us to conclude that those expenses were allowable, rather than Williams v. United States, supra at 560; personal expenses. Vanicek v. Commissioner, supra at 472-473.

Generally, we agree with petitioner that the application of the Cohan doctrine is appropriate in this instance. Although petitioner did not submit receipts for any expense of less than $2,000, he did submit a complete list of the expenses, including the date incurred, the payee, and the number of the check used to pay each expense. This factual background allows the Court to estimate the expenses; before the amounts disallowed by this opinion below, the Court estimates that petitioner had expenses of $387,734.60.

However, certain of the items on the list were checks written to “Cash” with a description of the purpose for which the cash was supposedly used. Petitioner did not discuss why he used checks written to cash without receipts to substantiate the expenses. We are unconvinced that petitioner used the entire amount of cash extracted from the account for those expenses. Therefore, he is not entitled to add to basis unsubstantiated expenses paid with checks made out to cash totaling $7,661.15. 6

C. Expenses Eligible To Increase Basis Respondent argues that not all of the expenses listed in petitioner's exhibit are eligible to be added to the basis of the property as capital improvements and that certain expenses are noncapitalizable personal expenses. Capital expenditures include “Any amount paid out *** for permanent improvements or betterments made to increase the value of any property or estate.”   Sec. 263(a)(1). In contrast personal expenses include those expenses which are “personal, living, or family expenses”.   Sec. 262(a).

While we agree that most of the expenses that petitioner included in the amount he capitalized for the house were properly capitalizable, certain expenses cannot be included. These are on petitioner's list of expenses under “Miscellaneous” beginning on February 10, 2002, and continuing to September 11, 2004, with the exception of two charges for storage and one for a pest report. Petitioner did not attempt to explain these expenses at trial; therefore he is not entitled to include expenses totaling $950.33. 7

III.   Section 6651(a) Failure to File Addition to Tax Respondent bears the burden of production with regard to the   section 6651(a)(1) addition to tax. See   sec. 7491(c); Higbee v. Commissioner,   116 T.C. 438, 446-447 (2001). To meet his burden, respondent must produce sufficient evidence that it is appropriate to impose the determined addition to tax. See Higbee v. Commissioner, supra at 446. However, respondent does not have to produce evidence of lack of reasonable cause, substantial authority, or lack of willful neglect. See id.

  Section 6651(a)(1), in the case of a failure to file on time any return required under   section 6011(a), imposes an addition to tax of 5 percent of the tax required to be shown on the return for each month or fraction thereof for which there is a failure to file, not to exceed 25 percent in the aggregate. Generally, “any person made liable for any tax *** shall make a return or statement according to the forms and regulations prescribed by the Secretary.”   Sec. 6011(a). The addition to tax will not apply if it is shown that such failure is due to reasonable cause and not due to willful neglect.

Petitioner's 2005 return was filed on January 12, 2007. Petitioner argues that “October 16 is an appropriate date from which to calculate the late filing penalty”, because he believed that the accounting firm automatically requested an extension for him. Petitioner's argument is essentially that he had reasonable cause for filing his return late until October 15, 2006, but not anytime thereafter.

The failure to timely file a tax return is considered due to reasonable cause where a taxpayer is unable to file the return within the prescribed time despite exercising “ordinary business Jackson v. Commissioner,   86 T.C. 492, 538 care and prudence.” (1986) (quoting   section 301.6651-1(c)(1), Proced. & Admin. Regs.), affd.   864 F.2d 1521 [63 AFTR 2d 89-539] (10th Cir. 1989).

Generally, circumstances considered to constitute reasonable cause arise as a result of factors beyond a taxpayer's control and include situations such as unavoidable postal delays, timely filing of a return with the wrong office, death or serious illness of the taxpayer or a member of his immediate family, the taxpayer's unavoidable absence from the United States, destruction by casualty of the taxpayer's records or place of business, and reliance on the erroneous advice of an IRS office or employee. McMahan v. Commissioner,   114 F.3d 366, 369 [79 AFTR 2d 97-2808] (2d Cir. 1997), affg.   T.C. Memo. 1995-547 [1995 RIA TC Memo ¶95,547]; see also Gagliardi v. Commissioner,   T.C. Memo. 2008-10 [TC Memo 2008-10].

Good faith reliance on professional advice may also provide a basis for reasonable cause; however, it is not absolute. 8 Freytag v. Commissioner,   89 T.C. 849, 888 (1987), affd.   904 F.2d 1011 [66 AFTR 2d 90-5322] (5th Cir. 1990), affd.   501 U.S. 868 [68 AFTR 2d 91-5025] (1991); LaPlante v. Commissioner,   T.C. Memo. 2009-226 [TC Memo 2009-226].

There is insufficient evidence in the record for the Court to determine that petitioner had reasonable cause for filing his return late. His supposed reliance on the accounting firm to request an extension for him does not constitute reasonable cause since he knew that if he needed extra time, an extension request was due. That duty to file may not be delegated to an attorney United States v. Boyle,   469 U.S. 241, 249-250 [55 AFTR 2d 85-1535] or accountant. (1985). Petitioner did not testify as to when he gave his information to the accounting firm to prepare his return, and the witness from the accounting firm could not recall what was in petitioner's file. Further, petitioner's 2004 return was filed within a matter of days of his 2005 return. It does not appear that petitioner had reasonable cause for late filing, and thus he is liable for the   section 6651(a) addition to tax.

IV.   Section 6662(a) Accuracy-Related Penalty Respondent also determined that petitioner is liable for a   section 6662(a) accuracy-related penalty for his 2005 tax year. Pursuant to   section 7491(c), the Commissioner also has the burden of production with respect to this penalty. Subsection (a) of   section 6662 imposes an accuracy-related penalty of 20 percent of any underpayment attributable to causes specified in subsection (b). Respondent asserts two causes justifying the penalty: A substantial understatement of income tax, subsec. (b)(2), and negligence, subsec. (b)(1).

There is a “substantial understatement” of income tax for an individual in any tax year where the amount of the understatement exceeds the greater of (1) 10 percent of the tax required to be shown on the return for the tax year or (2) $5,000.   Sec. 6662(d)(1)(A). "[N]egligence” is “any failure to make a reasonable attempt to comply with the provisions of this title” (i.e., the Internal Revenue Code).   Sec. 6662(c). Under caselaw, “Negligence is a lack of due care or the failure to do what a reasonable and ordinarily prudent person would do under the Freytag v. Commissioner, supra at 887 (quoting circumstances.” Marcello v. Commissioner,   380 F.2d 499, 506 [19 AFTR 2d 1700] (5th Cir. 1967), affg. on this issue   43 T.C. 168 (1964) and   T.C. Memo. 1964-299 [¶64,299 PH Memo TC]).

There is an exception to the   section 6662(a) penalty when a taxpayer can demonstrate: (1) Reasonable cause for the underpayment and (2) that the taxpayer acted in good faith with respect to the underpayment.  Sec. 6664(c)(1). Regulations promulgated under   section 6664(c) provide that the determination of reasonable cause and good faith “is made on a case-by-case basis, taking into account all pertinent facts and circumstances”.   Sec. 1.6664-4(b)(1), Income Tax Regs.

Reliance on the advice of a tax professional may, but does not necessarily, establish reasonable cause and good faith for the purpose of avoiding a   section 6662(a) penalty. See United States v. Boyle, supra at 251. Such reliance does not serve as an “absolute defense”; it is merely a “factor to be considered.” Freytag v. Commissioner, supra at 888.

The caselaw sets forth three requirements for a taxpayer seeking to use reliance on a tax professional to avoid liability for a   section 6662(a) penalty. See Neonatology Associates, P.A. v. Commissioner,   115 T.C. 43, 99 (2000), affd.   299 F.3d 221 [90 AFTR 2d 2002-5442] (3d Cir. 2002); 9 see also, e.g., Charlotte's Office Boutique, Inc. v. Commissioner,   425 F.3d 1203, 1212 [96 AFTR 2d 2005-6451] & n.8 (9th Cir. 2005) (quoting with approval the above three-prong test), affg.   121 T.C. 89 (2003).

We find that with respect to this penalty petitioner has met the three requirements for a finding of reasonable cause under Therefore petitioner is not liable for Neonatology Associates. the   section 6662(a) accuracy-related penalty.

V. Conclusion Petitioner is entitled to deduct the $68,000 capital loss. Petitioner is entitled to increase his basis with respect to the capital expenditures on the Olive Road property consistent with the findings of this opinion. Finally, petitioner is liable for the   section 6651(a) addition to tax, but on account of reasonable cause he is not liable for the   section 6662(a) accuracy-related penalty.

The Court has considered all of petitioner's and respondent's contentions, arguments, requests, and statements. To the extent not discussed herein, we conclude that they are meritless, moot, or irrelevant.

To reflect the foregoing, Decision will be entered under Rule 155.

1

  Respondent concedes that petitioner is entitled to exclude $250,000 of residential capital gain, and petitioner concedes that he is not entitled to a net operating loss deduction of $65,993.

2

  Unless otherwise indicated, section references are to the Internal Revenue Code of 1986, as amended and in effect for the tax year at issue. All Rule references are to the Tax Court Rules of Practice and Procedure.

3

  Although petitioner contested the disallowed itemized deductions and the alternative minimum tax in his petition, they were not mentioned at trial or on brief. Therefore, to the extent these adjustments are not a mathematical correlative adjustment, we deem them conceded. See Levin v. Commissioner,   87 T.C. 698, 722-723 (1986) (citing Rule 142(a) for the proposition that because “petitioners have made no argument with respect to

4

  We note that the judgment entered against petitioner in relation to JAV was in the amount of $64,491.71. The disparity is not explained by the record.

5

  We note that petitioner (or his counsel) should have been aware that this Court is not constrained by an alleged but unproven agreement made between a taxpayer and the examining agent. Further, the Commissioner as sovereign is generally not bound by unauthorized acts of his revenue agents “even where a taxpayer may have relied to his detriment on that mistake.” Norfolk S. Corp. v. Commissioner,   104 T.C. 13, 60 (1995), affd.  140 F.3d 240 [81 AFTR 2d 98-1198] (4th Cir. 1998); see also Auto. Club of Mich. v. Commissioner,   353 U.S. 180, 183 [50 AFTR 1967] (1957); Hendrick v. Commissioner,   63 T.C. 395, 403 (1974). Nor has petitioner established that respondent should be estopped here. See Wilkins v. Commissioner,   120 T.C. 109, 112 (2003); Lignos v. United States,   439 F.2d 1365, 1368 [27 AFTR 2d 71-1003] (2d Cir. 1971). The consideration of only items larger than $2,000 is also not a statistically valid sample of all expenses since items of less than $2,000 had no chance of being included. See generally   Rev. Proc. 2011-42, 2011-37 I.R.B. 318.

6

  However, only $356,515 is at issue, and petitioner's list includes capital improvements which total $387,734.60. Therefore this finding may not have a practical effect on this case.

7

  Again, only $356,515 is at issue. Therefore this finding may not affect the outcome of this case. Respondent also argued that petitioner was not entitled to add to his basis the $7,879.35 of expenses related to staging the house for resale. Even if we disallow those expenses the amount of capital improvements allowed still exceeds the amount at issue.

8

  We have held that for a taxpayer to rely reasonably upon advice, “the taxpayer must prove *** that the taxpayer meets each requirement of the following three-prong test: (1) The 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 Associates, P.A. v. Commissioner,   115 T.C. 43, 99 (2000), affd.   299 F.3d 221 [90 AFTR 2d 2002-5442] (3d Cir. 2002).

9

  See supra note 8.

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Nov. 1 deadline approaching for individuals to file FBAR reporting signature authority

The Nov. 1, 2011 deadline for persons who have signature authority over, but no financial interest in, foreign financial accounts to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR) is quickly approaching. This deadline was extended by IRS in Notice 2011-54, 2011-29 IRB 53 , in order to give those individuals extra time to gather the necessary information to file complete and accurate FBARs for 2009 and earlier calendar years.

Background. Each U.S. person who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, must report that relationship each calendar year by filing TD F 90-22.1 with the Department of the Treasury on or before June 30th of the succeeding year.

In Notice 2009-62, 2009-35 IRB 260 , IRS extended the deadline to June 30, 2010, to file a FBAR for years 2008 and earlier, for (i) persons with no financial interest in a foreign financial account but with signature or other authority over that account; and (ii) persons with a financial interest in or signature authority over a foreign financial account in which the assets are held in a commingled fund.  

In Notice 2010-23, 2010-11 IRB 441 , which modified and supplemented Notice 2009-62 , IRS deferred the deadline for persons with signature authority over, but no financial interest in, a foreign financial account for which a FBAR would otherwise have been due on June 30, 2010, until June 30, 2011. This deadline applied to FBARs reporting foreign financial accounts for the 2010 and prior calendar years.) Both of these extensions were provided to give Treasury more the time to develop comprehensive FBAR guidance.

On Feb. 24, 2011, the Treasury Department's Financial Crimes Enforcement Network (FinCEN) issued a final rule to amend the Bank Secrecy Act (BSA) regs regarding FBAR reporting requirements. The rule was made effective as of Mar. 28, 2011 and applies to 2010 reports required to be filed by June 30, 2011, and those for subsequent years. It largely adopted the proposed regs issued on Feb. 26, 2010, which provided additional guidance and clarification regarding who must file FBARs.

Deadline further deferred. In response to comments that individuals with signature authority over, but no financial interest in, foreign financial accounts were having difficulty gathering the necessary information to file complete and accurate FBARs for 2009 and earlier calendar years by the June 30, 2011 deadline, IRS pushed the deadline back to Nov. 1, 2011. (See Notice 2011-54, 2011-29 IRB 53 , However, the June 30, 2011, deadline for reporting either signature authority over, or financial interest in, foreign financial accounts for the 2010 year remained unchanged. IRS also stressed that Notice 2011-54 , had no effect on the requirements to provide information or file FBARs in connection with IRS's 2009 or 2011 Offshore Voluntary Disclosure Programs.

Extended deadline quickly approaching. Individuals with signature authority over foreign financial accounts are reminded of the looming Nov. 1, 2011 deadline to file FBARs for 2009 and earlier calendar years.

Notice 2011-54, 2011-29 IRB 53, 06/16/2011, IRC Sec(s). 6011

---

Reporting interests in foreign accounts—extended FBAR filing date.

Headnote:

IRS has provided additional administrative relief to taxpayers who are otherwise required to file FBARs by 6/30/2011. Person with signature authority over, but no financial interest in, foreign financial acct. for which FBAR would have been due by 6/30/2011 will now have until 11/1/2011 to file for 2009 and prior calendar years. IRS and FinCEN had been informed that individuals affected were having difficulty compiling information necessary to timely file on 6/30/2011. This relief doesn't affect or limit relief provided in guidance recently issued by FinCEN. Notice 2010-23, 2010-11 IRB 441 is modified and supplemented.

Reference(s): ¶ 60,115.01(42); Code Sec. 6011;

Full Text:

This Notice provides additional administrative relief to persons whose requirement to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), to report signature authority over foreign financial accounts held during calendar year 2009 or earlier calendar years was properly deferred under  Notice 2009-62, 2009-35 I.R.B. 260, or  Notice 2010-23, 2010-11 I.R.B. 441.

On August 31, 2009, the Department of the Treasury and the Internal Revenue Service published  Notice 2009-62, which, in part, extended the filing deadline for persons with no financial interest in a foreign financial account but with signature or other authority over that account (hereinafter referred to as “ signature authority” ) for the 2008 or earlier calendar years. In  Notice 2010-23, the Department of the Treasury and the IRS further extended relief to persons whose filing deadline was properly deferred by  Notice 2009-62 and provided a new filing deadline to June 30, 2011, to report signature authority over, but no financial interest in, foreign financial accounts for calendar year 2009 or earlier calendar years. The extensions were provided to allow the Treasury Department time to develop comprehensive FBAR guidance.

On February 24, 2011, the Financial Crimes Enforcement Network (FinCEN) published final regulations (76 FR 10234) amending the Bank Secrecy Act implementing regulations regarding FBARs, found at 31 CFR 1010.350 (formerly 31 CFR 103.24). The regulations became effective on March 28, 2011, and apply to FBARs required to be filed by June 30, 2011, with respect to foreign financial accounts maintained in calendar year 2010, as well as to FBARs for subsequent calendar years. The final regulations also provide that individuals who properly deferred their FBAR filing obligations pursuant to  Notice 2010-23 may apply the provisions of the final regulations in determining their FBAR filing requirements for reports due June 30, 2011, with respect to foreign financial accounts maintained in calendar years beginning before 2010. In March 2011, the IRS released a revised FBAR form with accompanying instructions that reflect the amendments made by the final FBAR regulations.

The IRS and FinCEN recently have been informed that individuals with signature authority over, but no financial interest in, foreign financial accounts are having difficulty compiling the information needed to file complete and accurate FBARs with respect to the 2009 or earlier calendar years by the June 30, 2011 deadline, as previously extended by  Notice 2009-62 or  Notice 2010-23. Accordingly, the IRS and FinCEN provide the following additional administrative relief:

Persons having signature authority over, but no financial interest in, a foreign financial account in 2009 or earlier calendar years for which the reporting deadline was extended by  Notice 2009-62 or Notice 2010-23 will now have until November 1, 2011, to file FBARs with respect to those accounts. The deadline for reporting signature authority over, or a financial interest in, foreign financial accounts for the 2010 calendar year remains June 30, 2011.

The administrative relief provided in this Notice does not limit the relief provided in FinCEN's  Notice 2011-1, which was released on May 31, 2011, and revised on June 6, 2011. A copy of revised FinCEN  Notice 2011-1 may be found at www.fincen.gov. Additionally, the administrative relief provided in this Notice does not affect the requirements to provide information or file FBARs in connection with the IRS's 2009 Offshore Voluntary Disclosure Program or the 2011 Offshore Voluntary Disclosure Initiative. Nor does this Notice alter the deadlines for electing to participate in, or fulfilling the submission requirements of, the Offshore Voluntary Disclosure Program or the Offshore Voluntary Disclosure Initiative.

Notice 2010-23 is modified and supplemented.

The principal author of this notice is Emily M. Lesniak of the Office of Associate Chief Counsel (Procedure and Administration). For further information regarding this Notice, contact Emily M. Lesniak at (202) 622-4570 (not a toll-free call).

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Thomas Kleber, et ux. v. Commissioner, TC Memo 2011-233 , Code Sec(s) 61; 6201; 6050P; 6662.

THOMAS AND MONICA L. KLEBER, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent .

Case Information:

Code Sec(s):       61; 6201; 6050P; 6662

Docket:                Docket No. 1545-09.

Date Issued:       09/28/2011

Judge:   Opinion by HAINES

HEADNOTE

XX.

Reference(s): Code Sec. 61 ; Code Sec. 6201 ; Code Sec. 6050P ; Code Sec. 6662

Syllabus

Official Tax Court Syllabus

Counsel

David R. Emerich, for petitioner.

Christina E. Ciu for respondent.

Opinion by HAINES

MEMORANDUM OPINION

Respondent determined a deficiency in petitioners' Federal income tax for 2006 of $86,441 and a penalty under   section 6662(a) of $17,288. 1 The issues for decision are:

(1) Whether petitioners are required to include in income $263,587 of cancellation of indebtedness income (COI income) for taxable year 2006 as reported by the Defense Finance and Accounting Services (DFAS); (2) if so, whether the $263,587 of COI income reported is the correct amount; and (3) whether petitioners are liable for the accuracy-related penalty under   section 6662(a).

Background

The parties submitted this case fully stipulated pursuant to Rule 122. The stipulation of facts and the attached exhibits are incorporated herein by this reference. At the time they filed their petition, petitioners lived in Arizona.

On October 7, 1996, petitioner Monica Kleber (Kleber) executed a lease (lease) for agricultural purposes with the Department of the Navy (Navy). The lease term was from January 1, 1997, to December 31, 2001, and entitled Kleber to 1,140 acres of land at the Naval Air Station in Lemoore, California. The lease required Kleber to pay the Navy annual rent of $191,520, payable in advance at the rate of $47,880 every quarter, and to perform certain farming activities in accordance with prescribed guidelines.

Kleber failed to make any rent payments after August 4, 1998. On December 28, 1998, Kleber sent a letter to the Navy stating that she was no longer able to continue performing the farming activities pursuant to the terms of the lease. On January 11, 1999, the Navy sent Kleber a letter acknowledging receipt of her letter and confirming the Navy's intention to terminate the lease for default. Additionally, this letter demanded that Kleber pay past due rent of $196,020 plus $2,736 of interest accrued. On February 2, 1999, the Navy sent Kleber a modified contract changing the expiration date of the lease term to January 11, 1999. The Navy determined past due rent on the basis of an accounting from the lease start date to its termination on January 11, 1999.

On February 4, 1999, the Navy sent Kleber a letter providing formal notification of her continued violation of the lease and demanding full payment of all past due rent and interest. On February 26, 1999, the Navy sent Kleber another letter, demanding payment on the unpaid rent and interest. Petitioners did not make any payments on the amounts due.

On February 26, 1999, the Navy sent a letter to the Defense Finance and Accounting Service (DFAS), requesting DFAS' assistance in collection of amounts due with respect to the lease. On April 6, 1999, DFAS sent Kleber a letter demanding payment of past due rent of $196,020, interest of $6,798, and a one-time administrative charge of $25.

On September 4, 2001, DFAS referred the collection action to the Treasury Cross-Service Program (Treasury). Treasury referred the debt back to DFAS as uncollectible on September 30, 2004. As a result, on November 4, 2005, DFAS sent a letter to Treasury requesting approval to terminate the debt collection action. On November 22, 2005, DFAS authorized a writeoff of Kleber's debt. In 2006 DFAS issued Kleber a Form 1099-C, Cancellation of Debt, including COI income of $263,587.

Petitioners timely filed a joint income tax return for 2006. Upon examination of petitioners' return, respondent determined that petitioners had failed to include $263,587 of COI income for taxable year 2006 as reported by DFAS on Form 1099-C and issued a notice of deficiency on October 14, 2008. Respondent also determined a penalty under   section 6662(a) of $17,288. On January 7, 2009, petitioners mailed their petition to this Court.

Discussion

I. Burden of Proof As a general rule, the Commissioner's determinations in a notice of deficiency are presumed correct, and the taxpayer bears the burden of proving that those determinations are erroneous. Rule 142(a); Welch v. Helvering,   290 U.S. 111 [12 AFTR 1456] (1933). However, under certain circumstances the burden of proof may shift to the Commissioner if the taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the income tax liability of the taxpayer.   Sec. 7491(a)(1).

If an information return, such as a Form 1099-C, serves as the basis for the determination of a deficiency,   section 6201(d) may apply to shift the burden of production to the Commissioner.   Section 6201(d) provides that in any court proceeding, if a taxpayer asserts a reasonable dispute with respect to the income reported on an information return and the taxpayer has fully cooperated with the Commissioner, then the Commissioner has the burden of producing reasonable and probative information in addition to the information return. See McQuatters v. Commissioner,   T.C. Memo. 1998-88 [1998 RIA TC Memo ¶98,088].

Petitioners dispute the correctness of Form 1099-C, and there is no evidence that they failed to cooperate with respondent. Petitioners claim that the amount of COI income for 2006, if there was any, was incorrect and the debt should have been discharged by DFAS in some earlier year. Therefore, we hold that   section 6201(d) applies and that the burden is shifted to respondent to produce reasonable and probative information concerning the deficiency in addition to the Form 1099-C DFAS filed. 2

To prove that the COI income was properly and accurately reported for 2006, respondent provided the lease agreement, theNavy's accounting of rent due and paid, a letter from Kleber informing the Navy of her inability to pay the rent due pursuant to the lease, and a series of letters from the Navy and DFAS to Kleber concerning the indebtedness. The letters sent to Kleber include the amount of indebtedness and provide a timeline of the Navy's and DFAS' collection procedures, culminating in the issuance of a Form 1099-C in 2006. Thus, we find that respondent produced reasonable and probative information concerning the deficiency, meeting his burden of production under   section 6201(d).

II. Year of the Discharge of Indebtedness In general, the term “income” as used in the Internal Revenue Code means income from any source, including income from the discharge of indebtedness.   Sec. 61(a)(12); Commissioner v. Glenshaw Glass Co.,   348 U.S. 426 [47 AFTR 162] (1955); United States v. Kirby Lumber Co.,   284 U.S. 1 [10 AFTR 458] (1931). For 2006 DFAS issued petitioners a Form 1099-C which reported COI income of $263,587. According to respondent, that amount is includable in petitioners' 2006 income.

The moment it becomes clear that a debt will never be repaid, that debt must be viewed as having been discharged. Cozzi v. Commissioner,   88 T.C. 435, 445 (1987). The determination of whether discharge of indebtedness has occurred is fact specific and often turns on the subjective intent of the creditor as manifested by an objectively identifiable event. Id. The issuance of a Form 1099-C is an identifiable event, but it is not dispositive of an intent to cancel indebtedness. Owens v. Commissioner,   T.C. Memo. 2002-253 [TC Memo 2002-253], affd. in part, revd. in part and remanded   67 Fed. Appx. 253 [91 AFTR 2d 2003-2575] (5th Cir. 2003). Moreover, a mere bookkeeping entry by a creditor does not result in discharge of See Cozzi v. Commissioner, supra at 445. indebtedness income.

Any identifiable event that fixes the loss with certainty may be taken into consideration. Id. (citing United States v. S.S. White Dental Manufacturing Co.,   274 U.S. 398 [6 AFTR 6750] (1927)); cf.   ,   sec. 1.6050P-1(b)(2)(i), (iv), Income Tax Regs. (providing an exclusive list of eight “identifiable events” under which debt is discharged for information reporting purposes, including a discharge pursuant to a foreclosure, the application of a defined policy of the creditor to discontinue collection activity and discharge the debt, or the expiration of a nonpayment testing period). There is a rebuttable presumption that an identifiable event has occurred during a calendar year if a creditor has not received a payment on an indebtedness at any time during a testing period ending at the close of the year.   Sec. 1.6050P- 1(b)(2)(iv), Income Tax Regs. The testing period is a 36-month period increased by the number of calendar months during all or part of which the creditor was precluded from engaging in collection activity by a stay in bankruptcy or similar bar under State or local law. Id.

The presumption that an identifiable event has occurred may be rebutted by the creditor if the creditor (or a third-party collection agency on behalf of the creditor) has engaged in significant, bona fide collection activity at any time during the 12-month period ending at the close of the calendar year, or if facts and circumstances existing as of January 31 of the calendar year following expiration of the 36-month period indicate that Significant, bona the indebtedness has not been discharged. Id. fide collection activity does not include nominal or ministerial collection action, such as automated mailing.   Sec. 1.6050P- 1(b)(2)(iv)(A), Income Tax Regs. Facts and circumstances indicating that indebtedness has not been discharged include the existence of a lien, or the sale or packaging for sale of the indebtedness by the creditor.   Sec. 1.6050P-1(b)(2)(iv)(B), Income Tax Regs.

Kleber failed to make any rent payments after August 4, 1998. On January 11, 1999, the Navy sent Kleber a letter confirming the Navy's intention to terminate the lease for default and demanding that Kleber pay past due rent of $196,020 plus $2,736 of interest accrued. On April 6, 1999, DFAS sent Kleber a letter demanding payment of past due rent of $196,020, interest of $6,798, and a one-time administrative charge of $25. Accordingly, the 36-month testing window described by the regulations began in 1999 when the Navy and DFAS demanded payment of past due rent and interest. Because petitioners have failed to make any payments on the amounts due, a rebuttable presumption exists that an identifiable event occurred in 2002 and the COI income must be recognized for 2002.

As discussed above, in support of respondent's assertion that petitioners had COI income for 2006, respondent provided a series of letters from the Navy and DFAS to Kleber stating the amount of indebtedness, a description of the Navy's and DFAS' alleged collection activity, and DFAS' letter authorizing the termination of the debt collection action. More specifically, respondent relies on the summary of events attached to DFAS' letter to Treasury on November 4, 2005, which indicates that DFAS referred Kleber's case to Treasury on September 4, 2001, and that on September 30, 2004, Treasury referred the debt back to DFAS as uncollectible. Respondent asserts that this evidence proves that DFAS engaged in significant, bona fide collection activity from 1999 to 2006, rebutting the presumption that an identifiable event occurred in 2002.

Despite respondent's summary of events, he has failed to provide any information describing any substantive collection activities that took place. Between April 6, 1999, and the day DFAS issued Kleber Form 1099-C in 2006, petitioners did not receive any correspondence with respect to any indebtedness pursuant to the lease. Respondent has failed to provide any evidence of the existence of a lien, the sale or packaging for sale of Kleber's debt, or any other activity that would be indicative of an active creditor. Although sufficient to meet respondent's burden of production under   section 6201(d), the evidence respondent provided failed to indicate an identifiable event or a Government policy to rebut the presumption that the identifiable event occurred in 2002. Accordingly, we hold that petitioners did not have any COI income from DFAS with respect to the lease for 2006. 3

III.   Section 6662(a) Penalty   Section 6662(a) and   (b)(2) imposes a 20-percent accuracy- related penalty upon any underpayment of tax resulting from a substantial understatement of income tax. An understatement is substantial if it exceeds the greater of 10 percent of the tax required to be shown on the return or $5,000.   Sec. 6662(d)(1)(A). The Commissioner bears the burden of production with respect to penalties.   Sec. 7491(c); Higbee v. Commissioner,   116 T.C. 438, 446-447 (2001). In view of our holding above, respondent has failed to meet his burden of production with respect to the penalty. Accordingly, we hold that petitioners are not liable for the accuracy-related penalty.

The Court, in reaching its holdings, has considered all arguments made, and, to the extent not mentioned, concludes that they are moot, irrelevant, or without merit.

To reflect the foregoing, Decision will be entered for petitioners.

1

  Unless otherwise indicated, all section references are to the Internal Revenue Code, as amended for the year at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. Amounts are rounded to the nearest dollar.

2

  This is generally the rule in unreported income cases in the Ninth Circuit, where this case is appealable, under Weimerskirch v. Commissioner,   596 F.2d 358 [44 AFTR 2d 79-5072] (9th Cir. 1979), revg.   67 T.C. 672 (1977). See Lawson v. Commissioner,   T.C. Memo. 2009- 147 [TC Memo 2009-147] n.3; Rodriguez v. Commissioner,   T.C. Memo. 2009-92 [TC Memo 2009-92] n.2.

3

  Petitioners further dispute the amount of the debt on Form 1099-C. However, because of our holding herein we find it unnecessary to address his claim.

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