                        T.C. Memo. 2010-111



                      UNITED STATES TAX COURT



                 WAYNE A. CARTER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 17070-08.              Filed May 18, 2010.



     William R. Leighton and Leonard L. Leighton, for petitioner.

     Jeffrey D. Heiderscheit, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COHEN, Judge:   Respondent determined a deficiency of $72,794

in petitioner’s Federal income tax for 2005 and a penalty of

$14,559 under section 6662(a).   The deficiency resulted from

petitioner’s failure to report capital gains of $512,086 from

stock sales during 2005.    The deficiency is now conceded, and the

issue for decision is whether petitioner is liable for the
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penalty.   All section references are to the Internal Revenue

Code.

                         FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.

Petitioner resided in Texas at the time his petition was filed.

At all material times, petitioner was self-employed in a retail

landscape business.

     In August 2003, petitioner acquired stock in Birch Mountain

through a private placement.   He sold the stock in August and

October 2005, receiving proceeds of $658,447 and realizing a net

long-term capital gain of $512,086.    After he sold the stock, the

price dropped and he repurchased some stock in Birch Mountain.

The amount and price of the repurchased stock and the date of

purchase are not in the record.

     The proceeds of the stock sales were not reported on

petitioner’s Form 1040, U.S. Individual Income Tax Return, for

2005.   The return reported various small items of income not

identifiable as relating to a retail landscape business, gross

income totaling $7,012, and no tax due.     The return was prepared

by Johnnie D. Coley (Coley), who had prepared returns for

petitioner’s parents and for petitioner for many years before

2005.   Coley’s education after high school consisted of business
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accounting courses at the college level and a course given by H&R

Block.

     Petitioner’s bookkeeping was generally performed by his

mother or his wife during 2005.   As was the custom with respect

to tax return preparation, records were delivered by petitioner’s

mother to Coley approximately 30 days before a return was due.

A summary spreadsheet was also delivered to Coley, but she did

not use the spreadsheet in preparing the returns, preferring to

consult the folders provided for details of reportable

transactions.   After a return was prepared, the records were

returned to petitioner.

     Before September 2007, petitioner received an inquiry from

the Internal Revenue Service (IRS) about the income omitted from

the 2005 return.   An amended return reporting the proceeds and

gain from the sales of the Birch Mountain stock was prepared by

Coley and sent to the IRS in September 2007.   In an explanation

of changes included in the amended return, Coley stated that she

had overlooked the sales of stock on the original 2005 return and

“therefore Schedule D was not filed.”   Coley was unaware of the

Birch Mountain stock sales until after the IRS contacted

petitioner in 2007.

                              OPINION

     Section 6662(a) and (b)(2) imposes an accuracy-related

penalty where, among other things, an underpayment of tax is
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attributable to a substantial understatement of income tax.

Petitioner does not dispute the substantial understatement but

claims that he is entitled to relief under section 6664(c)

because of his alleged good faith reliance on Coley.     Petitioner

bears the burden of demonstrating that he is not subject to the

penalty.   See Higbee v. Commissioner, 116 T.C. 438, 446 (2001).

     Our findings of fact do not include findings about whether

information concerning petitioner’s sales of Birch Mountain stock

was among the material delivered to Coley before preparation of

the 2005 return.   Petitioner claims that it was and also that the

accompanying spreadsheet contained information about the stock

sales.   He testified that the information provided to her

included “all the 1099s” (information returns that led to the IRS

inquiry and examination).   Neither the records nor the

spreadsheet was produced at trial.      Coley did not recall seeing

any information or having any conversations about the stock sales

until after the return was filed.

     At the time of trial, petitioner testified that he discussed

the stock sales with Coley as follows:

          Q    On your petition, it did not state that you
     received advice from her that the sale of stock was
     nontaxable?

           A    No.   She didn’t tell me that.

          Q    Ms. Coley did not tell you that the sale of
     stock was nontaxable?

           A    Well, we had the conversation about stock.
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     That’s--I asked her, since I sold the stock and I
     repurchased it, since I never took the money, am I
     going to be required to pay taxes on it? She told me
     she didn’t think so.

He acknowledged that he had never told the IRS during the

examination or respondent’s counsel after the petition was filed

that he had spoken to Coley about the stock sales.   We conclude

that this claim is an afterthought, implausible, and not

credible.   We are not persuaded that petitioner asked Coley about

the taxability of the stock proceeds, and he has not presented

any other evidence that he made an effort to assess his proper

tax liability.   Cf. Stanford v. Commissioner, 152 F.3d 450, 460-

461 (5th Cir. 1998), affg. in part and vacating in part 108 T.C.

344 (1997); Williams v. Commissioner, 123 T.C. 144, 153 (2004);

sec. 1.6664-4(b)(1), Income Tax Regs.   The amount of the gain as

a large multiple of his reported income from other activities

could not be overlooked by him, and his claim that Coley

suggested that he need not report it is inconsistent with any

claim that he was unaware that it was omitted.

     Even assuming there was some indication of the stock sales

in the records delivered to Coley before she prepared

petitioner’s 2005 tax return, petitioner cannot be absolved of

the penalty when he knew that the stock sales were not reported.

Whether or not Coley overlooked information provided to her, we

do not believe that petitioner relied in good faith on Coley,

reasonably or otherwise, in omitting over $500,000 in income from
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his 2005 return, especially if he received the Form 1099

information returns that he referred to during his testimony.

His claimed lack of training in accounting is insignificant in

view of his apparent sophistication and success in dealing with

privately placed securities.

     As petitioner’s brief acknowledges, at the conclusion of the

trial the Court directed the parties to Metra Chem Corp. v.

Commissioner, 88 T.C. 654 (1987), where the Court applied the

predecessor to section 6662(a) as follows:

          As a general rule, the duty of filing accurate
     returns cannot be avoided by placing responsibility on
     a tax return preparer. See, e.g., Pritchett v.
     Commissioner, supra [63 T.C. 149] at 174-175; Enoch v.
     Commissioner, 57 T.C. 781, 802 (1972); Soares v.
     Commissioner, 50 T.C. 909, 914 (1968). As the
     petitioners have noted, this Court has declined to
     sustain the addition to tax under section 6653(a) in
     cases in which the taxpayer relied in good faith on the
     advice of a tax expert. See, e.g., Woodbury v.
     Commissioner, 49 T.C. 180, 199 (1967); Brown v.
     Commissioner, 47 T.C. 399, 410 (1967), affd. per curiam
     398 F.2d 832 (6th Cir. 1968). However, a close
     examination of these cases reveals that they raised
     questions as to the tax treatment of complex
     transactions and that the position taken on the returns
     with respect to such items had a reasonable basis.

             This case presents no such difficult issues.
     * * *     [Metra Chem Corp. v. Commissioner, supra at
     662.]

Here, too, the transactions are not complex or difficult.    There

is no tenable reason for omitting them from the 2005 return, and

petitioner has not shown anything on which he could have based a

good faith belief that repurchasing the stock at a decreased
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price shortly after selling it would negate the sales that

resulted in a gain exceeding $500,000.

     Petitioner contends that an unpublished opinion of the Court

of Appeals for the Fifth Circuit establishes the standard in this

case, citing Prudhomme v. Commissioner, 345 Fed. Appx. 6 (5th

Cir. 2009), affg. T.C. Memo. 2008-83.    Petitioner’s argument is

as follows:

          In Prudhomme, the Fifth Circuit noted that it
     “must consider whether the taxpayer made ‘an honest
     misunderstanding of fact or laws that is reasonable in
     the light of all the facts and circumstances, including
     the experience, knowledge, and education of the
     taxpayer.’” [Prudhomme v. Commissioner, 345 Fed. Appx.
     6 (5th Cir. 2009) (quoting section 1.6664-4(b), Income
     Tax Regs.) (as quoted by petitioner in petitioner’s
     brief).] The court further noted that where the
     taxpayer relies on a return preparer the court must
     consider “‘[a]ll facts and circumstances’ regarding
     whether that reliance was reasonable and in good faith,
     including the ‘taxpayer’s education, sophistication and
     business experience.’” [Id. (quoting section 1.6664-
     4(c)(1), Income Tax Regs.).] And, finally, the court
     “observed that ‘[i]f a taxpayer is able to show that
     there was a reasonable cause for the understatement and
     good faith, which may stem from reasonable reliance on
     the advice of [a] professional, the I.R.S. may waive
     the understatement penalty.’” [Id. (quoting Streber v.
     Commissioner, 138 F.3d 216, 222 (5th Cir. 1998), revg.
     T.C. Memo. 1995-601).]

Without regard to whether an unpublished opinion can establish a

standard when it is not considered a precedent under Fifth

Circuit Rule 47.5.4, we see nothing in that case supporting

petitioner’s position under the facts and circumstances of this

case.   The Court of Appeals for the Fifth Circuit affirmed our

conclusions in Prudhomme that there was no reasonable cause for
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the taxpayers’ error (omitting income from sale of their company

and not recognizing the omission in a complicated return) and

that the taxpayers did not act in good faith.   The Court of

Appeals distinguished cases in which the taxpayers were

unsophisticated in regard to the taxable transactions.     See

Prudhomme v. Commissioner, supra at 12 (distinguishing Streber v.

Commissioner, supra at 223, and Heasley v. Commissioner, 902 F.2d

380, 384-385 (5th Cir. 1990), revg. T.C. Memo. 1988-408).     We

reach the same conclusion here, essentially for the same reasons.

In summary, we do not believe (1) that petitioner discussed

treatment of the sales with his preparer before filing the

return, (2) that there was reasonable cause for the error, or (3)

that he acted in good faith.   To reflect the foregoing,


                                       Decision will be entered

                                 for respondent.
