                  T.C. Summary Opinion 2002-73



                     UNITED STATES TAX COURT



           VICTOR AND LORAIN CISNEROS, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 2128-01S.                  Filed June 13, 2002.


     Lorain Cisneros, pro se.

     Douglas S. Polsky, for respondent.



     COUVILLION, Special Trial Judge:     This case was heard

pursuant to section 7463 of the Internal Revenue Code in effect

at the time the petition was filed.1    The decision to be entered

is not reviewable by any other court, and this opinion should not

be cited as authority.



     1
          Unless otherwise indicated, subsequent section
references are to the Internal Revenue Code in effect for the
years at issue. All Rule references are to the Tax Court Rules
of Practice and Procedure.
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     Respondent determined deficiencies of $5,644 and $5,936 in

petitioners' Federal income taxes, respectively, for 1998 and

1999 and corresponding penalties under section 6662(a) in the

amounts of $1,129 and $1,187.

     Some of the facts were stipulated, and those facts, with the

annexed exhibits, are so found and are incorporated herein by

reference.    At the time the petition was filed, petitioners'

legal residence was Albuquerque, New Mexico.

     For each of the years in question, petitioners claimed

itemized deductions on a Schedule A, Itemized Deductions, of

their Federal income tax return.    For 1998, petitioners claimed

itemized deductions totaling $44,192, of which $21,863 was

disallowed by respondent.    For 1999, petitioners deducted

$54,365, of which $21,205 was disallowed by respondent.

Petitioners, nevertheless, were allowed itemized deductions for

both years, since the total of their other claimed and allowed

deductions exceeded the standard deduction under section 63(c).

For the 2 years at issue, the disallowed deductions consisted of

charitable contributions, job expenses, and other miscellaneous

deductions.

     During 1998, Mrs. Cisneros won $1,000 from a lottery.      That

income was not included as income on petitioners' 1998 Federal

income tax return.    Respondent determined that the $1,000

constituted gross income.    The issues for decision are: (1)
                                - 3 -


Whether petitioners are entitled to a deduction for gambling

losses in an amount equal to gambling winnings of $1,000; (2)

whether petitioners are entitled to the disallowed itemized

deductions; and (3) whether petitioners are liable for the

penalties under section 6662(a).   In addition, the Court

considers the applicability of section 6673(a) to the facts of

this case.

     Petitioners were both employed during the 2 years in

question.    Mr. Cisneros was a manufacturing technician, and Mrs.

Cisneros was a transaction specialist for the Intel Corp.    They

reported combined wages of $106,682 and $123,225, respectively,

for 1998 and 1999.

     The record is unclear as to how petitioners prepared and

filed their Federal income tax returns for the years prior to the

years at issue.   For the 2 years in question, however,

petitioners' returns were prepared by Robin Beltran upon a

recommendation of one of Mrs. Cisneros' coworkers at Intel Corp.2

For the initial year, 1998, petitioners presented to Mr. Beltran

the same type documentation petitioners maintained for earlier

years.   However, Mr. Beltran convinced petitioners that such

documentation was not necessary, and the amounts claimed on the



     2
          The Court notes that this case is one of numerous cases
heard by the Court involving tax returns prepared by Mr. Beltran,
which essentially involve the same deductions at issue here.
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returns, as Mrs. Cisneros testified, represented amounts that Mr.

Beltran "came up with on his own".

     The disallowed deductions consisted of the following amounts

claimed on petitioners' returns:


                                            1998          1999

   Charitable contributions               $ 8,365       $ 9,663
   Unreimbursed employee expenses and
    tax preparation fees (before the
    sec. 67(a)limitation)                  15,600        14,032


     Mrs. Cisneros acknowledged at trial that their actual

charitable contributions were considerably less than the amounts

claimed on their returns.   Mrs. Cisneros estimated that

petitioners actually contributed to charity during 1998

approximately $5,000, but she made no estimate for 1999.

Petitioners submitted canceled checks at trial for contributions

totaling $30 for 1998 and $62 for 1999.

     The unreimbursed employee expenses shown above allegedly

represented expenses incurred by Mr. Cisneros for out-of-town

travel in connection with his employment.    No log or other books

and records were offered at trial to substantiate the amounts

claimed.

     With respect to the first issue, Mrs. Cisneros acknowledged

having won $1,000 from a lottery during 1998.      That amount was

not included as income on petitioners' return.      Mrs. Cisneros
                                - 5 -


contended that this income was offset by "thousands" of dollars

in gambling losses sustained that year.      She admitted to other

winnings; however, none of those winnings were included on the

tax returns.    Moreover, no books and records were maintained to

reflect the total amounts spent on gambling and all the winnings

or income as well as losses therefrom.

     The law is clear that income from gambling is includable in

gross income.   Sec. 61.   Section 165(d) provides that "Losses

from wagering transactions shall be allowed only to the extent of

the gains from such transactions."      Sec. 1.165-10, Income Tax

Regs.   This Court, in Rodriguez v. Commissioner, T.C. Memo. 2001-

36, stated:


     In order to establish entitlement to a deduction for
     wagering losses in this Court, the taxpayer must prove that
     he sustained such losses during the taxable year. See Mack
     v. Commissioner, 429 F.2d 182 (6th Cir. 1970), affg. T.C.
     Memo. 1969-26; Stein v. Commissioner, 322 F.2d 78 (5th Cir.
     1963), affg. T.C. Memo. 1962-19. He must also prove that
     the amount of such wagering losses claimed as a deduction
     does not exceed the amount of the taxpayer's gains from
     wagering transactions. See sec. 165(d). Implicitly, this
     requires the taxpayer to prove both the amount of his losses
     and the amount of his winnings. See Schooler v.
     Commissioner, 68 T.C. 867, 869 (1977); Donovan v.
     Commissioner, T.C. Memo. 1965-247, affd. per curiam 359 F.2d
     64 (1st Cir. 1966). Otherwise, there can be no way of
     knowing whether the sum of the losses claimed on the return
     is greater or less than the taxpayer's winnings. * * *


     Petitioners maintained no books and records to reflect their

winnings and losses from wagering and gambling activities.      The
                                - 6 -


only evidence presented at trial was a bank statement for 1 month

of a checking account in the name of Mrs. Cisneros showing

various deposits and withdrawals, with the withdrawals

purportedly reflecting the "losses" sustained.    The Court rejects

such evidence.    Petitioners have not established any losses to

offset the $1,000 winnings.    Respondent is sustained on this

issue.

     With respect to the second issue regarding the disallowed

itemized deductions, as noted above, respondent disallowed all

the charitable contributions claimed by petitioners for 1998 and

1999.    Petitioners presented canceled checks at trial reflecting

charitable contributions totaling $30 for 1998 and $62 for 1999.

On this record, the Court is satisfied that petitioners are

entitled to charitable contribution deductions of $300 for each

year at issue in accordance with this Court's discretionary

authority under Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d

Cir. 1930).

     As to the employee business expenses that were disallowed,

the record shows that the amounts claimed on the returns were

arbitrarily determined by Mr. Beltran, and those amounts cannot

be recognized.    Under section 274(d) and the regulations

thereunder, such expenses are subject to strict substantiation

rules that require "adequate records" through either an account

book, diary, statement of expense, or similar record, as well as
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documentary evidence to establish each element of an expenditure.

Sec. 1.274-5T(c)(2)(i), Temporary Income Tax Regs., 50 Fed. Reg.

46017 (Nov. 6, 1985).   No records were presented at trial to

substantiate these expenses; consequently, respondent is

sustained on the disallowance of the employee business expenses.

All other expenses petitioners incurred that would be deductible

as itemized deductions, such as, for example, tax preparation

fees, while allowable, would not exceed 2 percent of petitioners'

adjusted gross income under section 67(a).   Thus, none of the

itemized deductions on Schedule A, Itemized Deductions, of

petitioners' returns for job expenses and most other

miscellaneous deductions are deductible.   Respondent, therefore,

is sustained on this issue.

     With respect to the third issue, petitioners contend they

should be absolved of liability for the section 6662(a) penalties

because they relied on the representations of their return

preparer.

     Petitioners knew that the amounts claimed on their tax

returns were false.   The Court specifically questioned Mrs.

Cisneros why she and her husband would allow tax returns prepared

for them that were incorrect.   She testified:


          THE WITNESS: Well, Mr. Beltran was very convincing. He
     made us feel comfortable with what he told us. If we gave
     him a reason why we thought maybe this was too high, or
     where he came up with it, he just reassured us that
                               - 8 -


     everything was fine. He told us that everybody should be
     getting money back from the IRS. If you didn't, whoever
     would prepare them didn't prepare them right, your returns.
     He convinced us that everything was fine.

          He told us that there were limits that you could go up
     to, not to get in trouble with, not to do anything wrong
     with. He made sure that we were okay, that we asked him,
     you know, how is this going to come out later on? Are we
     going to get in trouble? What's going to happen?

          This is, you know, we weren't sure either. We didn't
     understand it. We were confused, too. And he made sure
     that everything was right. He made sure of it.


     Section 6662(a) provides for an accuracy-related penalty

equal to 20 percent of any portion of an underpayment of tax

required to be shown on the return that is attributable to the

taxpayer's negligence or disregard of rules or regulations.    Sec.

6662(a) and (b)(1).   Negligence consists of any failure to make a

reasonable attempt to comply with the provisions of the Internal

Revenue Code and disregard consists of any careless, reckless, or

intentional disregard.   Sec. 6662(c).   The courts have refined

the Code definition of negligence as a lack of due care or

failure to do what a reasonable and prudent person would do under

similar circumstances.   Allen v. Commissioner, 925 F.2d 348, 353

(9th Cir. 1991), affg. 92 T.C. 1 (1989).    Section 1.6662-3(b)(1),

Income Tax Regs., provides that "Negligence is strongly indicated

where * * * a taxpayer fails to make a reasonable attempt to

ascertain the correctness of a deduction * * * on a return which
                                - 9 -


would seem to a reasonable and prudent person to be 'too good to

be true' under the circumstances".

     An exception applies when the taxpayer demonstrates (1)

there was reasonable cause for the underpayment, and (2) the

taxpayer acted in good faith with respect to the underpayment.

Sec. 6664(c).    Whether the taxpayer acted with reasonable cause

and in good faith is determined by the relevant facts and

circumstances.   The most important factor is the extent of the

taxpayer's effort to assess the proper tax liability.

Stubblefield v. Commissioner, T.C. Memo. 1996-537; sec. 1.6664-

4(b)(1), Income Tax Regs.    Under section 1.6664-4(b)(1), Income

Tax Regs., "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."    Moreover, a taxpayer is generally charged with

knowledge of the law.    Niedringhaus v. Commissioner, 99 T.C. 202,

222 (1992).   Although a taxpayer is not subject to the addition

to tax for negligence where the taxpayer makes honest mistakes in

complex matters, the taxpayer must take reasonable steps to

determine the law and to comply with it.    Id.

     Under certain circumstances, a taxpayer may avoid the

accuracy-related penalty for negligence where the taxpayer

reasonably relied on the advice of a competent professional.
                                - 10 -


Sec. 1.6664-4(b)(1), Income Tax Regs.; see sec. 6664(c); Freytag

v. Commissioner, 89 T.C. 849, 888 (1987), affd. 904 F.2d 1011

(5th Cir. 1990), affd. 501 U.S. 868 (1991).    However, reliance on

a professional adviser, standing alone, is not an absolute

defense to negligence; it is only one factor to be considered.

In order for reliance on a professional adviser to relieve a

taxpayer from the negligence penalty, the taxpayer must establish

that the professional adviser on whom he or she relied had the

expertise and knowledge of the relevant facts to provide informed

advice on the subject matter.    Freytag v. Commissioner, supra at

888.

       Petitioners made no effort to ascertain the professional

background and qualifications of their return preparer.    They

knew that the items at issue were false and expressed their

reservations to Mr. Beltran.    The answers he gave them should

have raised other questions.    Petitioners clearly did not make a

reasonable effort to determine whether the representations of Mr.

Beltran were correct.    They did not consult other tax

professionals to verify the accuracy of the returns prepared by

Mr. Beltran or the representations he made to them regarding

their deductions.    The Court is satisfied from the record that

Mr. Beltran knew, or had reason to know, all the relevant facts

upon which, had he been a qualified professional, he could have

accurately advised petitioners on the amount of their allowable
                              - 11 -


deductions.   Mr. Beltran disregarded the documentary evidence

petitioners presented to him and, instead, listed unrealistic

amounts as deductions on the returns.    The Court is further

satisfied that petitioners knew they were required under the law

to substantiate deductions claimed on their returns.    The

reservations they expressed to Mr. Beltran and the answers he

gave them should have prompted them to look beyond and ascertain

the accuracy of his representations.    Petitioners, therefore,

made no effort to assess their tax liability correctly.    On this

record, the Court sustains respondent on the section 6662(a)

accuracy-related penalties for the years in question.

     Section 6673(a) authorizes the Court to require a taxpayer

to pay to the United States a penalty not exceeding $25,000 when,

in the Court's judgment, proceedings have been instituted or

maintained by the taxpayer primarily for delay or where the

taxpayer's position in the proceeding is frivolous or groundless.

The Court considers petitioners' claim that they should not be

liable for the deficiencies and penalties to be frivolous and

groundless.   Petitioners knew, or should have known, that a

substantial portion of the itemized deductions at issue was false

and could not be sustained.   Petitioners knew that they could

deduct only amounts that they had actually paid.    They made no

attempt to determine the qualifications of their return preparer

and, moreover, did not seek other professional advice to satisfy
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the concerns they had over the returns prepared by Mr. Beltran.

Petitioners cited no legal authority to the Court that, under

similar facts, would exonerate them from the penalties under

section 6662(a).

     The function of this Court is to provide a forum to decide

issues relating to liability for Federal taxes.    Any reasonable

and prudent person, under the facts presented to the Court,

should have known that petitioners' claimed deductions could not

have been sustained, and petitioners knew that.    This Court does

not and should not countenance the use of this Court as a vehicle

for disgruntled litigants to proclaim the wrongdoing of another,

his return preparer, as a basis for relief from penalties that

were determined by respondent on facts that clearly are not

sustainable.   Golub v. Commissioner, T.C. Memo. 1999-288.

Petitioners, therefore, have interfered with the Court's function

to the detriment of other parties having cases with legitimate

issues for the Court to consider.   Petitioners have caused

needless expense and wasted resources, not only for the Court,

but for its personnel, respondent, and respondent's counsel.

Under these circumstances, the penalty under section 6673 is

warranted, and petitioners will be ordered to pay a penalty of

$500 to the United States under section 6673(a).
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    Reviewed and adopted as the report of the Small Tax Case

Division.



                                  Decision will be entered

                             under Rule 155.
