                        T.C. Memo. 2009-194



                      UNITED STATES TAX COURT



          RALPH P. & ANGELA CUNNINGHAM, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 22173-07.              Filed August 31, 2009.



     Ralph P. & Angela Cunningham, pro sese.

     Michael Medina, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COHEN, Judge:   Respondent determined a deficiency of $11,515

and a late-filing addition to tax of $1,056.25 in relation to

petitioners’ 2002 Federal income tax return.    The issues for

decision are whether petitioners’ reported losses from horse

activities are limited by section 469 and whether petitioners

have shown reasonable cause for the late filing of their return.
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     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the year in issue.

                         FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.

Petitioners were residents of New York when they filed their

petition.   During 2002, Ralph P. Cunningham (petitioner) was

employed on the dental faculty at New York University and

maintained a private dental practice in Peekskill, New York.

     Petitioners’ joint 2002 Form 1040, U.S. Individual Income

Tax Return, was filed on April 21, 2006.    On Schedule E,

Supplemental Income and Loss, petitioners claimed losses from

five separate horse activities located in California and

described as Roys Race Synd 2B, Roys Race Synd #3C, Bonnies Race

Synd 1A, Bonnies Race Synd 2B, and Bonnies Race Synd 3C.

Petitioners’ return and the partnership returns reporting the

losses from the horse activities were prepared by Robert Gruntz

(Gruntz).

     Petitioners did not actively participate in the horse

activities and had no knowledge of whether or not the horse

activities occurred as represented in the partnership returns.

They relied on representations by Gruntz in deducting the

partnership losses against their other income.
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     In the notice of deficiency, the partnership losses reported

by petitioners were disallowed as passive activities under

section 469.   Petitioners were advised by Gruntz not to cooperate

with respondent’s requests for information.

     When notice was issued on January 14, 2009, setting the case

for trial in New York on June 15, 2009, petitioners initially

continued to refuse to cooperate, following the advice of Gruntz.

On May 19, 2009, petitioners filed a motion for continuance

suggested by Gruntz, alleging that there was confusion about the

issues in the case.   The Court set the motion for hearing in

order to clarify the issues.   When the case was called for trial,

petitioners executed a stipulation attaching exhibits but without

any narrative facts, and they withdrew their motion for

continuance.

                               OPINION

     Section 469 generally limits deduction of losses from

“passive activities” to income generated by such activities and

prohibits deduction of such losses against the taxpayer’s other

income.   To avoid the limitations of section 469, taxpayers must

establish that they materially participated in the activities.

Sec. 469(h).   Petitioners have not shown any participation, much

less material participation, in the horse activities in issue.

They simply signed returns claiming substantial losses without
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investigation or knowledge of the accuracy of the partnership

returns for the horse activities.

     Petitioner asserts in a posttrial memorandum that he was

“duped by a charlatan and in essence Robert Gruntz tacitly

implied that I should fabricate a log that would show ‘material

participation’”.   Petitioners assert that the liability would be

a financial burden for their family and “petition the Court to

consider reducing the liability, throwing [themselves] at the

mercy of the court.”   They conclude with:   “Just Google Robert

Gruntz to see more.”

     This Court cannot reduce a liability without any basis in

law and directly contrary to the law applicable to the facts

appearing from the record in this case.   We cannot “Google” or

otherwise consider information outside of the record.    It is hard

to understand, however, how that information could help

petitioners.   We have no way of knowing when they discovered

adverse information about the alleged charlatan, and that

information would be relevant only if an accuracy-related penalty

were asserted.

     The addition to tax in issue in this case is for late filing

of petitioners’ return due April 15, 2003.    Petitioners do not

deny that the return was filed late.   Section 6651(a)(1) provides

that, in the case of failure to file a tax return on the date

prescribed for filing (including any extension of time for
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filing), there shall be added to the tax required to be shown on

the return an amount equal to 5 percent of that tax for each

month or fraction thereof that the failure to file continues, not

exceeding 25 percent in the aggregate, unless it is shown that

the failure to file timely is due to reasonable cause and not due

to willful neglect.

     Reasonable cause for delay is established where a taxpayer

is unable to file timely despite the exercise of ordinary

business care and prudence.   United States v. Boyle, 469 U.S.

241, 246 & n.4 (1985); sec. 301.6651-1(c)(1), Proced. & Admin.

Regs.   Willful neglect has been defined as a “conscious,

intentional failure or reckless indifference.”   United States v.

Boyle, supra at 245.   Whether a failure to file timely is due to

reasonable cause and not willful neglect is a question of fact.

See id. at 249 n.8; Commissioner v. Walker, 326 F.2d 261, 264

(9th Cir. 1964), affg. on this issue 37 T.C. 962 (1962).

     Other than their reliance on Gruntz, whose qualifications as

a tax adviser are not in the record, petitioners have offered no

explanation of the reasons for the late filing of their return or

the steps, if any, they took to secure timely filing.   They have

not established reasonable cause.   See generally United States v.

Boyle, supra.
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For the reasons set forth herein,


                                 Decision will be entered

                           for respondent.
