                  T.C. Summary Opinion 2005-157



                     UNITED STATES TAX COURT



   WILLIAM H. MANSEL, JR. AND ANGELA W. MANSEL, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 286-04S.                 Filed October 31, 2005.



     William H. Mansel, Jr., pro se.

     Horace Crump, 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




     1
      Unless otherwise indicated, subsequent section references
are to the Internal Revenue Code in effect for the year at issue,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
                                   - 2 -

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

be cited as authority.

       Respondent determined a deficiency of $5,051 in petitioners’

Federal income tax and the accuracy-related penalty under section

6662(a) in the amount of $1,010 for 2001.

       After concessions by respondent, the issues for decision

are:       (1) Whether William H. Mansel, Jr. (petitioner) realized

income in the receipt of $13,500 in commission payments from an

automobile dealership during 2001, and (2) whether petitioners

are liable for the accuracy-related penalty under section

6662(a).2

       Some of the facts were stipulated.     Those facts, with the

annexed exhibits, are so found and are made a part hereof.

Petitioners’ legal residence at the time the petition was filed

was Pelham, Alabama.

       Petitioner was an office finance manager for a car

dealership located at Prattville, Alabama.       His income from that

activity consisted of commissions from sales of motor vehicles

based on a percentage of what he referred to as “front-end

profits” and a percentage of what he also referred to as “back-


       2
      At trial, respondent conceded two adjustments in the notice
of deficiency: A $1,028 income determination for the refund of
State income taxes and a $704 interest income adjustment from
Arcadia, a financial institution. Another concession was made by
respondent during the trial relating to the commissions, and that
concession is addressed in the consideration of that issue.
                               - 3 -

end profits”.   He described the “back-end profits” as relating to

purchases by car owners of extended warranties, credit life

insurance, and “gap” insurance (the nature of which was not

described).   Petitioner also advertised in newspapers for his

services in obtaining approvals for car loans.

     The principal issue in this case is with regard to $13,500

in commissions paid to petitioner by the car dealer, Victory

Motors, during 2001.   Petitioner’s engagement with that

dealership was for about 2 months that year.   In that time

period, petitioner received $13,500 in commission payments from

Victory Motors.   For some time, petitioner had encountered

difficulties in having his earned commissions paid to him, and,

after approximately 2 months in 2001, petitioner terminated his

relationship with Victory Motors and went to work for another

automobile dealer.   At the time he left, petitioner had received

a total of $13,500 in commissions from Victory Motors.     No

further commissions were paid by Victory Motors to petitioner.

     On their joint Federal income tax return for 2001,

petitioners did not include or report as income the $13,500 in

commissions petitioner received that year.   In the notice of

deficiency, respondent determined that the commissions

constituted gross income.   Respondent also determined that these

commissions represented self-employment income, and the

deficiency included $362 as self-employment taxes under section
                                - 4 -

1401.    Victory Motors also considered the $13,500 in commissions

as self-employment income and issued to petitioner Form 1099-

MISC, Miscellaneous Income.    No Federal income taxes or self-

employment taxes were withheld by Victory Motors.

     At trial, respondent conceded that petitioner was not self-

employed but rather was an employee of Victory Motors, a position

contrary to the determination in the notice of deficiency and

also contrary to how petitioner and Victory Motors viewed their

relationship.    Respondent’s position at trial was that petitioner

was an employee of Victory Motors, and, as such, the payments

constituted wage or salary income.      Respondent did not move to

assert an increased deficiency to account for FICA taxes on the

payments petitioner received and conceded that the limitations

period barred respondent from making an assessment for such

taxes.

     Petitioner contends that the payments of $13,500 he received

did not constitute income and were merely advances he received

from Victory Motors, subject to adjustment at some point when he

and the management at Victory Motors would meet and finally

settle or close the arrangement.    Thus, petitioner contends the

$13,500 he received in 2001 was merely an advance and was not

income.    However, no evidence was offered to establish that

petitioner and Victory Motors were contemplating any meeting to

settle petitioner’s arrangement.    At the time of trial, more than
                               - 5 -

4 years had passed since petitioner left Victory Motors.    The

Court has not been persuaded that the relationship between

petitioner and Victory Motors continued to exist beyond 2001.

The Court, accordingly, concludes that, at the time petitioner

left Victory Motors in approximately March 2001, both he and

Victory Motors considered the arrangement concluded, and,

accordingly, both parties considered the $13,500 as compensation

for petitioner’s services that year.    The $13,500, therefore,

constitutes gross income and was includable in petitioner’s

income for 2001.

     Petitioner also contends that Victory Motors withheld income

taxes on his commissions, and those withholdings were never

remitted to the IRS.   The Court rejects that argument.   The Form

1099-MISC offered into evidence does not show any income taxes

withheld.   Moreover, copies of the checks for the payments to

petitioner were offered in evidence, and those checks total

precisely $13,500.   There are no notational references on the

checks of income tax withholdings.     This Court noted in Anderson

v. Commissioner, T.C. Memo. 2003-112, that, whether the taxpayer

was self-employed or an employee, “the fact remains that nothing

was withheld from what they paid him”, and held that the gross

amounts received by the taxpayer were subject to tax in their

entirety, with no credit for withholdings.    Section 3509(d)(1)

specifically provides that the employee’s liability for income
                                  - 6 -

tax shall not be affected by the assessment or collection of any

tax determined against the employer under section 3509.     To quote

Lucas v. Commissioner, T.C. Memo. 2000-14:     “In other words, the

employee remains fully liable for income tax arising from the

receipt of gross wages.   * * *    Therefore, even though N&M

misclassified petitioner as an independent contractor, petitioner

is liable for income tax for the year in issue.”     The Court,

therefore, rejects petitioner’s argument.     The Court further

notes that, even if Federal income taxes were withheld but never

remitted, petitioner would not be relieved of the obligation to

pay Federal income taxes on the payments to him.

     The final issue is whether petitioner is liable for the

accuracy-related penalty under section 6662(a) for negligence or

disregard of rules or regulations for the year 2001.     Section

6662(a) provides that, if it is applicable to any portion of an

underpayment in taxes, there shall be added to the tax an amount

equal to 20 percent of the portion of the underpayment to which

section 6662 applies.   Section 6662(b)(1) provides that section

6662 shall apply to any underpayment attributable to negligence

or disregard of rules or regulations.

     Section 6662(c) provides that the term “negligence” includes

any failure to make a reasonable attempt to comply with the

provisions of the Internal Revenue laws, and the term “disregard”

includes any careless, reckless, or intentional disregard of
                               - 7 -

rules or regulations.   Negligence is the lack of due care or

failure to do what a reasonable and ordinarily prudent person

would do under the circumstances.    See Neely v. Commissioner, 85

T.C. 934, 947 (1985).   Under section 6664(c), no penalty shall be

imposed under section 6662(a) with respect to any portion of an

underpayment if it is shown that there was a reasonable cause for

such portion and that the taxpayer acted in good faith with

respect to such portion.   The determination of whether a taxpayer

acted with reasonable cause and in good faith depends upon the

facts and circumstances of each particular case.    See sec.

1.6664-4(b)(1), Income Tax Regs.    Relevant factors include the

taxpayer’s efforts to assess his or her proper tax liability, the

knowledge and experience of the taxpayer, and reliance on the

advice of a professional, such as an accountant.    See Drummond v.

Commissioner, T.C. Memo. 1997-71, affd. in part and revd. in part

without published opinion 155 F.3d 558 (4th Cir. 1998).    However,

the most important factor is the extent of the taxpayer’s effort

to determine the taxpayer’s proper tax liability.    See sec.

1.6664-4(b)(1), Income Tax Regs.    An honest misunderstanding of

fact or law that is reasonable in light of the experience,

knowledge, and education of the taxpayer may indicate reasonable

cause and good faith.   See Remy v. Commissioner, T.C. Memo. 1997-

72.
                                 - 8 -

     Petitioner contends that he continuously experienced

difficulties in getting paid for his services for Victory Motors.

He argued that the Form 1099-MISC was “bogus”.    These and other

factors undoubtedly prompted petitioner to terminate his

relationship with that dealer.    The Court is satisfied from

petitioner’s testimony that, when he left Victory Motors, he

considered the $13,500 in payments as final, and that no other

payments would be forthcoming.    It is only reasonable to conclude

that, at the close of 2001, petitioner would receive no

additional payments from Victory Motors, and no attempts, legal

or otherwise, were pursued by him to resume his employment with

that dealer or to collect what he considered to be owing to him.

For all practical purposes, petitioner did not consider the

relationship with Victory Motors as continuing, nor did he have

any reasonable expectation that further payments would be

forthcoming.   Moreover, petitioner knew these payments

constituted income and also knew that no income taxes had been

withheld on these payments.   Therefore, imposition of the section

6662(a) penalty in this case is justified, and, therefore,

respondent is sustained.

     Reviewed and adopted as the report of the Small Tax Case

Division.



                                          Decision will be entered
- 9 -

        under Rule 155.
