                                 T.C. Memo. 2013-137



                            UNITED STATES TAX COURT



                   BENJAMIN J. ASHMORE, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 1146-12.                               Filed May 30, 2013.



      Benjamin J. Ashmore, pro se.

      Robert W. Mopsick, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION


      WELLS, Judge: Respondent determined a deficiency of $8,601 in

petitioner’s Federal income tax and an accuracy-related penalty of $3,387 pursuant

to section 6662(a) for his 2009 tax year.1 Before trial, respondent conceded the


      1
          Unless otherwise indicated, section references are to the Internal Revenue
                                                                          (continued...)
                                        -2-

[*2] issue of whether petitioner failed to report on his 2009 tax return cancellation

of indebtedness income of $4,200. Additionally, during trial, petitioner conceded

the issue of whether he failed to report on his 2009 tax return wage income of

$20,567. Therefore, the only remaining issue that we must decide is whether

petitioner is liable for the accuracy-related penalty pursuant to section 6662(a).

                               FINDINGS OF FACT

      Some of the facts and certain exhibits have been stipulated. The parties’

stipulated facts are incorporated in this opinion by reference and are found

accordingly. At the time of filing the petition, petitioner resided in New Jersey.

      Petitioner has been employed since 2004 as a senior policy analyst for the

U.S. Department of Housing and Urban Development (HUD), for which he

regularly deals with numbers, formulas, and details. Petitioner has earned two

master’s degrees, one in public policy and the other in business administration.

      From 2007 to 2010, petitioner was involved in divorce proceedings. Those

proceedings took place in two different States in two courts, involving 43 motions




      1
       (...continued)
Code of 1986, as amended (Code) and in effect for the year in issue, and Rule
references are to the Tax Court Rules of Practice and Procedure. We round all
monetary amounts to the nearest dollar.
                                        -3-

[*3] and two separate trials lasting at least 24 days. Petitioner represented himself

during those proceedings.

      On August 6, 2008, Accounting Resources, Inc. (Accounting Resources),

contracted with HUD to administer petitioner’s payroll for his employment with

HUD. Accounting Resources is a staffing agency that provided staffing to HUD

under the provisions of section 8(a) of the Small Business Act. Eliot Lugo is the

principal of Accounting Resources. Petitioner never received from Accounting

Resources a Form W-2, Wage and Tax Statement, relating to a portion of the

wages he earned during 2008 through his employment at HUD, and did not report

that portion of his 2008 wages on his 2008 Federal income tax return.

      Sometime after January 1, 2009, but before February 1, 2009, petitioner

changed his residence from Brooklyn, New York, to his current residence in

Ramsey, New Jersey. On February 20, 2009, petitioner sent a message to Mr.

Lugo to determine how to change his residence from New York to New Jersey for

purposes of State withholding taxes. Mr. Lugo replied that he would make the

necessary changes. Petitioner then reconfirmed with Mr. Lugo that it was

petitioner’s belief that his withholdings for State and local tax purposes should

change to reflect his move from New York to New Jersey.
                                       -4-

[*4] For his 2009 tax year, petitioner earned $117,464 in wages from his

employment at HUD. Petitioner earned more during 2009 than during any

previous year of his employment with HUD. Petitioner estimated that he earned

between $57,000 and $81,000 annually in prior years.

      Petitioner was issued three separate Forms W-2 for his wages earned in

2009. Accounting Resources issued two Forms W-2. The first Form W-2 from

Accounting Resources related to wages of $9,319 that petitioner earned from

January 5 to February 9, 2009, and reported income tax withholdings of $391 and

$299 to the State of New York and the City of New York, respectively, and

Federal income tax withholding of $121. The second Form W-2 from Accounting

Resources related to wages of $20,567 that petitioner earned from February 17 to

May 26, 2009, and reported income tax withholding of $570 to the State of New

Jersey and Federal income tax withholding of $170 (second Form W-2). The third

Form W-2, issued by CGI Federal, Inc., related to wages of $87,578 that petitioner

earned from May 28 to December 24, 2009, and reported income tax withholding

of $4,892 to the State of New Jersey and Federal income tax withholding of

$8,684. On his 2009 Federal income tax return, petitioner reported wages of

$96,897 and Federal income tax withholdings of $17,990.
                                         -5-

[*5] On October 18, 2010, respondent sent to petitioner a notice of deficiency for

his 2008 tax year, determining that petitioner had failed to report earnings on his

2008 Federal income tax return and determining an accuracy-related penalty

pursuant to section 6662(a). On January 11, 2011, petitioner filed a petition with

this Court challenging respondent’s contentions. On October 11, 2011,

respondent sent to petitioner a notice of deficiency regarding his 2009 tax year,

determining an income tax deficiency of $8,601 and an accuracy-related penalty

pursuant to section 6662(a) of $3,387. On December 19, 2011, pursuant to an

agreement between the parties, this Court entered an order and decision deciding

that petitioner owed a deficiency of $5,325 for his 2008 tax year, but did not owe

an accuracy-related penalty pursuant to section 6662(a) for that tax year.

                                      OPINION

      Section 6662(a) imposes an accuracy-related penalty of 20% of any

underpayment that is attributable to causes specified in subsection (b). Subsection

(b) applies the penalty to any underpayment attributable to, inter alia, a

“substantial understatement” of income tax. An “understatement” is the excess of

the amount of tax required to be shown on the return over the amount of tax that is

actually shown on the return. Sec. 6662(d)(2)(A). A “substantial understatement”

of income tax exists if the amount of the understatement for the taxable year
                                        -6-

[*6] exceeds the greater of (1) 10% of the tax required to be shown on the return

or (2) $5,000. Sec. 6662(d)(1)(A).

      Generally, the Commissioner bears the burden of production with respect to

any penalty, including the accuracy-related penalty. Sec. 7491(c); Higbee v.

Commissioner, 116 T.C. 438, 446 (2001). To meet that burden, the Commissioner

must come forward with sufficient evidence indicating that it is appropriate to

impose the relevant penalty. Higbee v. Commissioner, 116 T.C. at 446. However,

once the Commissioner has met the burden of production, the burden of proof

remains with the taxpayer, including the burden of proving that the penalties are

inappropriate because of substantial authority or reasonable cause under section

6664. See Rule 142(a); Higbee v. Commissioner, 116 T.C. at 446-447.

      On his tax return, petitioner reported a tax due of $2,616. Before trial,

respondent contended that petitioner was required to report a tax due of $10,900.

However, respondent’s calculation of the amount of tax required to be shown on

the return did not account for respondent’s concession of cancellation of

indebtedness income of $4,200. Consequently, the exact amount of petitioner’s

understatement will depend on Rule 155 computations, which we order below. To

the extent that those computations establish that petitioner has a substantial
                                        -7-

[*7] understatement of income tax, respondent has met his burden of production.2

See Bogue v. Commissioner, T.C. Memo. 2011-164, 2011 WL 2709818, at *17;

Prince v. Commissioner, T.C. Memo. 2003-247, 2003 WL 21957994, at *5.

      The amount of an understatement on which the penalty is imposed will be

reduced by the portion of the understatement that is attributable to the tax

treatment of an item (1) that was supported by “substantial authority” or (2) for

which the relevant facts were “adequately disclosed in the return or in a

statement attached to the return”. Sec. 6662(d)(2)(B). Petitioner does not argue

that the amount of his understatement should be reduced because he had

substantial authority for an item or because his position with respect to an item

was adequately disclosed. Accordingly, we do not reduce petitioner’s

understatement pursuant to section 6662(d)(2)(B).




      2
        For the first time on brief, respondent contends that “petitioner’s omission
of income and his overstatement of withholding demonstrate negligence in the
preparation of his 2009 tax return.” However, theories raised for the first time on
brief are untimely and will not be considered. Rollert Residuary Trust v.
Commissioner, 80 T.C. 619, 636 (1983), aff’d on other issues, 752 F.2d 1128 (6th
Cir. 1985); Markwardt v. Commissioner, 64 T.C. 989, 997 (1975); Estate of
Mandels v. Commissioner, 64 T.C. 61, 73 (1975); Slone v. Commissioner, T.C.
Memo. 2012-57, 2012 WL 691401, at *8 n.7. Accordingly, in the instant case, we
will not address the issue of whether petitioner was negligent in the preparation of
his 2009 tax return.
                                        -8-

[*8] Additionally, section 6664(c)(1) provides that the accuracy-related penalty

shall not apply to any portion of an underpayment if it is shown that there was

reasonable cause for the taxpayer’s position with respect to that portion and that

the taxpayer acted in good faith with respect to that portion. The determination of

whether a taxpayer acted with reasonable cause and in good faith within the

meaning of section 6664(c)(1) is made on a case-by-case basis, taking into account

all of the pertinent facts and circumstances. Sec. 1.6664-4(b)(1), Income Tax

Regs. The most important factor is the extent of the taxpayer’s effort to assess his

proper tax liability for the year. Id. “Circumstances that may indicate reasonable

cause and good faith include an honest misunderstanding of fact or law that is

reasonable in light of all of the facts and circumstances, including the experience,

knowledge, and education of the taxpayer.” Id. Taxpayers demonstrate

reasonable cause when they exercise ordinary business care and prudence.

Richardson v. Commissioner, 125 F.3d 551, 558 (7th Cir. 1997), aff’g T.C. Memo.

1995-554.

      Petitioner contends that he never received the second Form W-2 for his

wages of $20,567 earned from February 17 to May 26, 2009, and, therefore, did

not include these wages on his 2009 Federal income tax return. Petitioner

suggests that the missing Form W-2 for 2008 and the second Form W-2 for 2009
                                        -9-

[*9] are indicative of widespread errors by Accounting Resources that constitute

reasonable cause that prevents the application of the section 6662(a) accuracy-

related penalty. We disagree. A taxpayer’s reliance on erroneous information

reported on a Form W-2 indicates reasonable cause and good faith, provided the

taxpayer did not know or have reason to know that the information was incorrect.

Sec. 1.6664-4(b)(1), Income Tax Regs. However, we have previously held that

the nonreceipt of a tax document, e.g., a Form W-2, does not excuse a taxpayer

from his or her duty to report the income, see, e.g., Scott v. Commissioner, T .C.

Memo. 1997-507 (nonreceipt of Schedule K-1 and Form 1099), aff’d without

published opinion, 182 F.3d 915 (5th Cir. 1999); Dennis v. Commissioner, T.C.

Memo. 1997-275 (nonreceipt of Form 1099); Healey v. Commissioner, T.C.

Memo. 1996-260 (nonreceipt of partnership return and Form 1099); Du Poux v.

Commissioner, T.C. Memo. 1994-448 (nonreceipt of Forms W-2 and 1099-

MISC); Krzepina v. Commissioner, T.C. Memo. 1993-356 (nonreceipt of

Schedule K-1), nor does it constitute reasonable cause to prevent application of a

section 6662(a) accuracy-related penalty, see Deas v. Commissioner, T.C. Memo.

2000-204 (nonreceipt of Schedule K-1 did not constitute reasonable cause where

taxpayer failed to report partnership income). Accordingly, we conclude that

petitioner’s contention that he did not receive the second Form W-2, regardless of
                                        - 10 -

[*10] whether any nonreceipt was due to errors by Accounting Resources, does

not establish reasonable cause.

      Moreover, we disagree with petitioner’s contentions that, because of errors

by Accounting Resources, he could not have known of the existence of the second

Form W-2 at the time he filed his 2009 Federal income tax return and that the

earliest he could have known about the missing second Form W-2 was on

December 19, 2011, at the conclusion of this Court’s proceeding for his 2008 tax

year and after he had already received a notice of deficiency from respondent for

his 2009 tax year. Petitioner notified Accounting Resources on February 20,

2009, to change his State tax withholding from New York to New Jersey. When

petitioner received a 2009 Form W-2 from Accounting Resources that did not

include tax withholding for New Jersey, he should have realized that the Form W-

2 was incorrect or that an additional Form W-2 was forthcoming. Additionally,

petitioner had received a notice of deficiency for his 2008 tax year on October 18,

2010. As of that time, respondent had not sent to petitioner a notice of deficiency

for his 2009 tax year and, therefore, petitioner had sufficient opportunity to file an

amended tax return for his 2009 tax year. Upon receipt of the 2008 notice of

deficiency and subsequent inspection of his 2008 tax return, petitioner should

have realized that he did not receive from Accounting Resources a Form W-2 for
                                        - 11 -

[*11] his 2008 tax year, which should have alerted him to double-check the 2009

Forms W-2 issued by Accounting Resources and wages reported for his 2009 tax

year. Petitioner failed to do so. On the basis of the foregoing, we conclude that

petitioner should have known of the missing second Form W-2 and that

Accounting Resources’ errors do not constitute reasonable cause.

      Petitioner also contends that it was impossible for him to determine his

exact annual wages because his earnings, which were based on congressional

appropriations, fluctuated during 2009. Petitioner testified that there was no

reason for him to question the earnings as reported to him on the Forms W-2

because the amount he thought he earned during 2009 (i.e., $96,897) exceeded the

approximately $57,000 to $81,000 that he had received in prior years. Petitioner’s

argument lacks merit. The fact that petitioner’s earnings were not predictable

from year to year did not entitle petitioner to rely on Forms W-2 sent to him;

instead, the variations in earnings were sufficient reason for him to double-check

earnings reported on the Forms W-2 with paycheck stubs or paycheck histories,

both of which were available to petitioner, to ensure that amounts reported for tax

purposes matched the actual amounts that petitioner received. Accordingly,

petitioner’s inability to project earnings before receipt does not constitute

reasonable cause.
                                        - 12 -

[*12] Additionally, petitioner contends that he was unable to devote the time

necessary to prepare his 2009 tax return because of his divorce proceedings.

Petitioner testified that the proceedings took place in two different States in two

courts, involving 43 motions and two separate trials lasting at least 24 days, and

that petitioner represented himself during those proceedings. We find petitioner’s

contention to be without merit. Despite the proceedings, petitioner had the

presence of mind to direct Accounting Resources to adjust his State tax

withholding on account of his move from New York to New Jersey. Likewise,

petitioner also should have had the presence of mind to confirm the change upon

receipt, or, in this case, nonreceipt, of the Forms W-2. Accordingly, we conclude

that petitioner’s divorce proceedings do not constitute reasonable cause.

      Moreover, petitioner overstated the amount of his Federal income tax

withholdings on his 2009 tax return.3 Upon due consideration of petitioner’s

education, which includes a master’s degree in business administration and

experience as a senior policy analyst for HUD, where he regularly encounters




      3
       The three Forms W-2 issued to petitioner indicated that his 2009 Federal
income tax withholdings were $121, $170, and $8,684. Petitioner reported total
Federal income tax withholdings of $17,990 on his 2009 tax return, overstating the
withholdings by $9,015.
                                         - 13 -

[*13] numbers, formulas, and details, we conclude that petitioner did not make a

good-faith effort to assess his proper tax liability for his 2009 tax year.

      As noted above, the burden is on petitioner to prove that he acted with

reasonable cause and in good faith. We conclude that petitioner failed to carry his

burden. Accordingly, we hold that, if the Rule 155 computations establish that

petitioner has a substantial understatement of income tax, petitioner is liable for

the section 6662(a) accuracy-related penalty for his 2009 tax year.

      In reaching these holdings, we have considered all the parties’ arguments,

and, to the extent not addressed herein, we conclude that they are moot, irrelevant,

or without merit.

      To reflect the foregoing,


                                                   Decision will be entered under

                                             Rule 155.
