                                 T.C. Memo. 2014-39



                           UNITED STATES TAX COURT



                      JULIE A. ODERIO, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 11264-12.                            Filed March 10, 2014.



      Julie A. Oderio, pro se.

      Kaelyn J. Romey, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION


      HAINES, Judge: Respondent determined a $9,2671 deficiency in

petitioner’s Federal income tax and a $1,853 accuracy-related penalty under




      1
          All amounts are rounded to the nearest dollar.
                                          -2-

[*2] section 6662(a)2 for 2008. There are two issues for decision. The first issue

is whether petitioner is entitled to a rental loss deduction for 2008. The second

issue is whether petitioner is liable for the accuracy-related penalty.

                                FINDINGS OF FACT

      Some of the facts have been stipulated and are so found. The stipulation of

facts, together with the attached exhibits, is incorporated herein by this reference.

Petitioner resided in California when the petition was filed.

      Petitioner was married to and lived with Jason Oderio at all relevant times.

During 2008 petitioner worked full time as an employee for RREEF, a real estate

investment company, and did not own more than a 5% interest in RREEF. Also in

2008 petitioner had a rental property in San Jose, California (rental property).

      Petitioner filed an income tax return for 2008. On the return she claimed a

filing status of married filing separately and a deduction for a rental loss of

$29,583 (rental loss) with respect to the rental property. John Deboni prepared

petitioner’s 2008 return. Mr. Deboni did not testify, and the record does not

otherwise reflect his credentials.




      2
       Unless otherwise indicated, all section references are to the Internal
Revenue Code, as amended and in effect for the taxable year at issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
                                         -3-

[*3] Respondent issued petitioner a deficiency notice disallowing the claimed

rental loss deduction. Petitioner filed a petition with this Court challenging

respondent’s determination.

                                     OPINION

I. Burden of Proof

      Generally, the Commissioner’s determinations are presumed correct, and the

taxpayer bears the burden of proving otherwise. Rule 142(a); see Welch v.

Helvering, 290 U.S. 111, 115 (1933). The burden of proof may shift to the

Commissioner if the taxpayer proves that he or she has satisfied certain

requirements. Sec. 7491(a); see Baker v. Commissioner, 122 T.C. 143, 168

(2004). Petitioner has neither claimed that the burden shifts to respondent nor

shown that she complied with the requirements of section 7491(a). The burden of

proof, therefore, remains on petitioner. See Rule 142(a).

II. Disallowed Rental Loss Deduction

      Taxpayers are allowed deductions for certain business and investment

expenses under sections 162 and 212. However, section 469 generally disallows

the current deduction of any passive activity loss. A passive activity loss is

defined as the excess of the aggregate losses from all passive activities for that

year over the aggregate income from all passive activities for the year. Sec.
                                          -4-

[*4] 469(d)(1). A passive activity is any trade or business in which the taxpayer

does not materially participate. Sec. 469(c)(1).

      Rental activity is generally treated as per se passive regardless of whether

the taxpayer materially participates. Sec. 469(c)(2). However, the rental activity

of a taxpayer is not treated as per se passive if the taxpayer satisfies the

requirements of section 469(c)(7)(B). Sec. 469(c)(7)(A)(i). A taxpayer meets the

requirements of section 469(c)(7)(B) if he or she establishes the following:

                    (i) more than one-half of the personal services performed
             in trades or businesses by the taxpayer during such taxable year
             are performed in real property trades or businesses in which the
             taxpayer materially participates, and

                   (ii) such taxpayer performs more than 750 hours of
             services during the taxable year in real property trades or
             businesses in which the taxpayer materially participates.

      In the case of a joint return, the requirements of the preceding
      sentence are satisfied if and only if either spouse separately satisfies
      such requirements. For purposes of the preceding sentence, activities
      in which a spouse materially participates shall be determined under
      subsection (h).

Sec. 469(c)(7)(B)(i) and (ii).

      Petitioner concedes that she does not separately satisfy the requirements of

section 469(c)(7)(B). However, she argues that her spouse does and therefore she

satisfies them too. Petitioner relies on section 1.469-9(c)(4), Income Tax Regs.,
                                          -5-

[*5] and section 1.469-5T(f)(3), Temporary Income Tax Regs., 53 Fed. Reg. 5727

(Feb. 25, 1988), as support for her argument. She contends that, under those

regulations, her spouse’s efforts are attributable to her for purposes of satisfying

the requirements of section 469(c)(7)(B), regardless of whether the spouses file a

joint return. We disagree.

      Section 1.469-5T(f)(3), Temporary Income Tax Regs., supra, treats the

participation of a taxpayer’s spouse in an activity as participation by the taxpayer

for purposes of section 469 and its regulations without regard to whether the

spouses file a joint return. Section 1.469-9(c)(4), Income Tax Regs., clarifies the

scope of attribution as it relates to satisfying the requirements of section

469(c)(7)(B). It provides in pertinent part:

      Spouses filing a joint return are qualifying taxpayers[3] only if one
      spouse separately satisfies both requirements of section 469(c)(7)(B).
      In determining the real property trades or businesses in which a
      married taxpayer materially participates (but not for any other
      purpose under this paragraph (c)), work performed by the taxpayer’s
      spouse in a trade or business is treated as work performed by the
      taxpayer under § 1.469-5T(f)(3), regardless of whether the spouses
      file a joint return for the year. [Emphasis added.]




      3
       The rental real estate activity of a “qualifying taxpayer” under sec. 1.469-9,
Income Tax Regs., is exempt from per se passive activity loss treatment. Sec.
1.469-9(e), Income Tax Regs.
                                          -6-

[*6] The parenthetical “(but not for any other purpose under this paragraph(c))”

limits the use of spousal attribution under section 1.469-5T(f)(3), Temporary

Income Tax Regs., supra, for purposes of satisfying the section 469(c)(7)(B)

requirements to the material participation requirements of that section. Thus,

while the sections petitioner cites do allow for spousal attribution with respect to

the material participation requirements of section 469(c)(7)(B), they do not, as she

contends, allow for spousal attribution for purposes of meeting its other

requirements, namely, that a taxpayer perform more than one half of his or her

personal services and more than 750 hours in real estate trades or businesses.

      Respondent argues that because petitioner did not file a joint return with her

spouse, she cannot satisfy the section 469(c)(7)(B) requirements through her

spouse and must separately satisfy them herself. We agree.

      The flush language of section 469(c)(7)(B) generally states that a taxpayer

must separately satisfy its requirements. It provides an exception to this general

rule “[i]n the case of a joint return”. Sec. 469(c)(7)(B). In that special

circumstance, a taxpayer’s rental activity is not treated as a per se passive activity

if either spouse meets its requirements. Id.

      We are mindful of the statutory canon of construction “expressio unius est

exclusio alterius”, meaning that if a statute provides specific exceptions to a
                                          -7-

[*7] general rule, we may infer that Congress intended to exclude any further

exceptions “‘in the absence of contrary legislative intent.’” United States v.

Smith, 499 U.S. 160, 167 (1991) (quoting Andrus v. Glover Constr. Co., 446 U.S.

608, 616-617 (1980)); Catterall v. Commissioner, 68 T.C. 413, 421 (1977), aff’d

sub nom. Vorbleski v. Commissioner, 589 F.2d 123 (3d Cir. 1978). Petitioner

does not cite any contrary legislative intent, nor do we find any. Consequently,

the canon “expressio unius est exclusio alterius” applies and allows us to infer that

Congress did not intend any further exceptions to the requirements under section

469(c)(7)(B). It follows that taxpayers not filing a joint return must separately

satisfy the requirements of section 469(c)(7)(B).

      Our interpretation of section 469(c)(7)(B) is bolstered by another well-

accepted statutory canon of construction, that a statute ought to be construed so

that no clause, sentence, or word is rendered superfluous, void, or insignificant.

Duncan v. Walker, 533 U.S. 167, 174 (2001); see also Weinberger v. Hynson,

Westcott & Dunning, Inc., 412 U.S. 609, 633 (1973) (“[A]ll parts of a statute, if at

all possible, are to be given effect.”). Petitioner’s interpretation of section

469(c)(7) would render meaningless the words “[i]n the case of a joint return”.

That is, if a married taxpayer satisfies the section 469(c)(7)(B) requirements by

virtue of his or her spouse’s satisfying them irrespective of a joint return’s being
                                          -8-

[*8] filed, then the words “[i]n the case of a joint return” would not limit, modify,

or otherwise perform any function in the statute.

      We hold that a married taxpayer filing separately must separately satisfy the

requirements of section 469(c)(7)(B) to avoid per se passive activity loss

treatment. Because petitioner has conceded that she does not separately meet all

the requirements of section 469(c)(7)(B), we sustain respondent’s determination

disallowing the rental loss deduction.4

III. Accuracy-Related Penalty

      We now turn to respondent’s determination that petitioner is liable for an

accuracy-related penalty on her underpayment for substantially understating her

income tax liability.5 Section 6662(a) and (b)(2) imposes a 20% accuracy-related

penalty upon any underpayment of tax resulting from a substantial understatement

of income tax. An understatement of income tax is substantial if it exceeds the




      4
       We note that petitioner is not entitled to deduct her rental losses under sec.
469(i)(1) because she was married and living with her spouse in 2008. See sec.
469(i)(5)(B).
      5
        Respondent also determined that petitioner was liable for the accuracy-
related penalty because her underpayment was attributable to negligence or
disregard of rules or regulations. We need not address this ground for imposing
the penalty because of our holding that petitioner substantially understated her
income tax for 2008.
                                         -9-

[*9] greater of 10% of the tax required to be shown on the return or $5,000. Sec.

6662(d)(1)(A).

      Under section 7491(c), respondent bears the burden of production with

respect to petitioner’s liability for any accuracy-related penalty. To meet this

burden, respondent “must come forward with sufficient evidence indicating that it

is appropriate to impose the relevant penalty.” See Higbee v. Commissioner, 116

T.C. 438, 446 (2001). Once respondent sustains his burden of production,

however, petitioner bears the burden of proving that the penalty is unwarranted by

establishing an affirmative defense such as reasonable cause or substantial

authority. See id. at 446-447.

      Petitioner’s understatement of income tax as reflected in the notice of

deficiency is greater than both $5,000 and 10% of the tax required to be shown on

the return for 2008. Accordingly, respondent has met his burden of production.

      The accuracy-related penalty is not imposed with respect to any portion of

the underpayment of tax if the taxpayer can establish that he acted with reasonable

cause and in good faith with respect to that portion. Sec. 6664(c)(1). The burden

is upon the taxpayer to prove reasonable cause. See Higbee v. Commissioner, 116

T.C. at 447-449. We determine whether a taxpayer acted with reasonable cause

and in good faith by considering the pertinent facts and circumstances, including
                                          -10-

[*10] the taxpayer’s efforts to assess his or her proper tax liability, the taxpayer’s

knowledge and experience, and the reliance on the advice of a professional. Sec.

1.6664-4(b)(1), Income Tax Regs. Generally, the most important factor is the

extent of the taxpayer’s effort to assess the proper tax liability. Id.

      Petitioner seeks to defend against the accuracy-related penalty by asserting

that she relied on a tax professional in filing her 2008 return. Reliance upon the

advice of a professional may demonstrate a taxpayer acted with reasonable cause

and in good faith. Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43,

98-99 (2000), aff’d, 299 F.2d 221 (3d Cir. 2002); Freytag v. Commissioner, 89

T.C. 849, 888 (1987), aff’d, 904 F.2d 1011 (5th Cir. 1990), aff’d, 501 U.S. 868

(1991); see sec. 1.6664-4(c)(1), Income Tax Regs. However, a taxpayer’s reliance

upon the advice of a professional does not automatically constitute reasonable

cause. Neonatology Assocs., P.A. v. Commissioner, 115 T.C. at 98-99; see sec.

1.6664-4(c)(1), Income Tax Regs. For a taxpayer to reasonably rely on the advice

of a professional, the taxpayer must show: (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 Assocs., P.A.

v. Commissioner, 115 T.C. at 98-99.
                                        -11-

[*11] Petitioner contends that she relied on Mr. Deboni to prepare her return

correctly. However, petitioner did not call Mr. Deboni as a witness, nor did she

introduce evidence which would establish that Mr. Deboni possessed the requisite

expertise.

      Even assuming he did, petitioner did not show that she sought or received

specific advice concerning her decision to claim the rental loss deduction on a

separately filed tax return for 2008. The mere fact that because a tax professional

has prepared a tax return does not mean that he or she has opined on any or all of

the items reported on the return. See id. at 100.

      Finally, assuming Mr. Deboni advised petitioner on her decision to claim

the rental loss deduction, petitioner has failed to show, among other things, that:

(1) any such advice was based on all the facts and circumstances, (2) all the

relevant facts were disclosed, and (3) any such advice was based on reasonable

factual or legal assumptions. We find petitioner has not met her burden to show

she reasonably relied in good faith on advice from Mr. Deboni in claiming the

rental loss deduction on her 2008 return. Accordingly, we sustain respondent’s

accuracy-related penalty determination for 2008.
                                       -12-

[*12] In reaching our holdings herein, we have considered all arguments made,

and, to the extent not mentioned above, we conclude they are moot, irrelevant, or

without merit.

      To reflect the foregoing,


                                                    Decision will be entered for

                                              respondent.
