                     T.C. Summary Opinion 2010-57



                        UNITED STATES TAX COURT



                 OSMAN AND ELMAS SIRIN, Petitioners v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 23780-08S.           Filed May 3, 2010.



        Arsen Kashkashian, Jr., for petitioners.

     Kathleen K. Raup, for respondent.



     DEAN, Special Trial Judge:     This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect when the petition was filed.    Pursuant to section 7463(b),

the decision to be entered is not reviewable by any other court,

and this opinion shall not be treated as precedent for any other

case.     Unless otherwise indicated, subsequent section references

are to the Internal Revenue Code in effect for the year in issue,
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and all Rule references are to the Tax Court Rules of Practice

and Procedure.

     The issues for decision are whether petitioners overreported

their income for 2005 and whether they are subject to the

accuracy-related penalty under section 6662(a).

                            Background

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

The stipulation of facts and the attached exhibits are

incorporated herein by reference.    When petitioners filed their

petition, they resided in New Jersey.

     On a timely filed return for 2005, petitioners reported on

Schedule C, Profit or Loss From Business, $48,389 of gross

receipts for Osman Sirin’s (petitioner) painting contractor

business.   Petitioners also reported $15,774 of cost of goods

sold (CGS) and business expenses of $26,201.

     Petitioners are natives of Turkey and do not speak, write,

or read, the English language.    They arrived in the United States

around 2002.   Petitioner began looking for work upon his arrival

to the United States when a friend introduced him to Mustafa

Yagli (Mr. Yagli).   Mr. Yagli operated a construction business

and petitioner began working for him as a painter.   In

remuneration for his work, petitioner received eight check

payments from Mr. Yagli in 2005 totaling $20,763.
                                 - 3 -

     Mr. Yagli issued in petitioner’s name a Form 1099-MISC,

Miscellaneous Income, reporting $48,389 of income for 2005.

There is no evidence that petitioner contested the amount as

reported on the Form 1099-MISC.

         Because petitioners had not previously filed a Federal

income tax return in the United States, Mr. Yagli and his wife

(the Yaglis) assisted petitioners with the preparation of their

2005 return.     The Yaglis submitted petitioners’ 2005 Federal

income tax information to a tax return preparer1 and upon its

completion, instructed petitioners to sign the completed return.

Petitioners did not understand their return and trusted that the

Form 1099-MISC issued by the Yaglis correctly reflected

petitioner’s income and that the preparer correctly entered the

information on their return.     Petitioners then signed the

completed return.

     Respondent issued to petitioners a notice of deficiency

disallowing:     (1) Job expenses of $15,777; (2) CGS of $15,774;

and (3) $7,394 for the rental or lease of vehicles.     Respondent

further determined that petitioners were subject to the accuracy-

related penalty under section 6662(a) for 2005.     Petitioner

admits that he did not have job expenses, CGS, or rental expenses



     1
      There was some confusion over who prepared petitioners’
return. At one point the name “Mr. Erdogan” was mentioned, and
petitioner seemed to believe that the Yaglis may have had Mr.
Erdogan prepare their 2005 return.
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for 2005.   Petitioner instead alleges that the amount reported on

the Form 1099-MISC was in excess of his actual income for 2005.

                            Discussion

I.   Burden of Proof

      Generally, the Commissioner’s determinations are presumed

correct, and the taxpayer bears the burden of proving that those

determinations are erroneous.2    Rule 142(a); see INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992); Welch v. Helvering, 290

U.S. 111, 115 (1933).

      Under section 6201(d), the burden of production may shift to

the Commissioner where an information return, such as a Form

1099, serves as the basis for a deficiency determination.    If a

taxpayer asserts a reasonable dispute with respect to any item of

income reported on a third-party information return and he has

fully cooperated3 with the Commissioner, the Commissioner will

have the burden of producing reasonable and probative information

concerning the item of income in addition to the information

return.




      2
      Petitioners have not claimed or shown that they meet the
requirements under sec. 7491(a) to shift the burden of proof to
respondent as to any factual issue relating to their liability
for tax.
      3
      There is no evidence that petitioner has failed to fully
cooperate, and respondent does not allege petitioner failed to
fully cooperate.
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      While respondent did not adjust petitioner’s income as

reported by petitioner and as reported on the Form 1099-MISC,

petitioner has raised a reasonable dispute as to the Form 1099-

MISC information return.   See sec. 6201(d).

      Respondent has satisfied his burden by producing the

testimony of the Yaglis and their receipts, as discussed, infra.

II.   Petitioners’ Reported Income

      The issue is whether petitioners overreported gross receipts

on their 2005 return.   The gross receipts reported on that return

are admissions that must be overcome by cogent evidence.     See

Estate of Hall v. Commissioner, 92 T.C. 312, 337-338 (1989); Lare

v. Commissioner, 62 T.C. 739, 750 (1974), affd. without published

opinion 521 F.2d 1399 (3d Cir. 1975); Kaltreider v. Commissioner,

28 T.C. 121, 126 (1957), affd. 255 F.2d 833 (3d Cir. 1958).

Petitioner disputes that he received cash payments from Mr. Yagli

in addition to the check payments he received in 2005.4

      Mr. Yagli testified that he paid petitioner in cash and by

check in 2005.   He explained that each time he paid petitioner in

cash he would draft a receipt indicating the work that petitioner

performed, the date of payment, and the amount of payment.5    Mr.



      4
      The checks petitioner received were dated 1/31/05, 2/18/05,
3/31/05, 6/2/05, 6/29/05, 8/30/05, 10/28/05, and 12/22/05.
      5
      Mr. Yagli provided 12 copies of cash receipts. The
receipts are numbered 251251, 251255, 251256, 251257, 251260,
251261, 251262, 251263, 251265, 251267, 251269, and 251273.
                               - 6 -

Yagli testified that he drafted these receipts solely for his

business records and that it was not his practice to provide

copies of the receipts to the payee.6

     Mrs. Yagli corroborated her husband’s testimony that he paid

petitioner cash in 2005, but she alleged that she was the one who

drafted the cash receipts.   She further testified, contrary to

the testimony of her husband, that it was her practice to provide

a copy of each receipt to the payee, namely, petitioner.

     Petitioner testified that he never received cash payments in

2005 and that he was never given a receipt indicating that he

received cash payments.   Petitioner only saw these receipts for

the first time after this case had progressed beyond the

examination process.

     The validity of the cash receipts is questionable.    There is

no persuasive evidence that copies of the receipts were given to

petitioner in 2005 or that petitioner received cash payments in

2005.

     One receipt was actually dated 4/15/08, the date that the

Yaglis submitted the receipts to the IRS.   Respondent argues that

the Yaglis made an honest mistake by inputting the date 4/15/08

on one of the receipts because that was the day they faxed the


        6
      When respondent began an examination of petitioners’ 2005
tax year, Mr. Yagli provided copies of these receipts to
respondent. Mrs. Yagli admitted that at this time, respondent
was also conducting an audit of her husband’s business; however,
it is unclear which tax year(s) were being audited.
                               - 7 -

receipts.   Respondent interpolates that because the invoice is

contained between two invoices dated in 2005, that it must be an

invoice from 2005.   Mr. Yagli testified that he kept the receipts

for his records only, but Mrs. Yagli testified that she provided

copies of the receipts to the payees.   The Yaglis’ inconsistent

testimony casts doubt on the validity of these receipts.7

     Petitioner did not sign any of the cash receipts

acknowledging receipt of cash payments, nor was there any other

acknowledgment that the receipts were provided to him.

Petitioner testified that he did not receive any cash payments

from Mr. Yagli in 2005.   Although the Form 1099-MISC showed

compensation of $48,389, the Court cannot determine whether

petitioner saw or understood the document.   The Court finds

petitioner’s testimony credible and the evidence persuasive and

sufficient to support a finding that petitioner received only

$20,763 in the form of check payments for his work for Mr. Yagli

in 2005.



     7
      Respondent attempts to point out inconsistencies in
petitioner’s testimony. Respondent notes that it is unlikely
that petitioner did not receive cash payments from Mr. Yagli
because petitioner’s admission that he worked “continuously” for
Mr. Yagli in 2005 shows that no pay gap should have lasted for 2
months. But Mr. Yagli admitted that it was possible that there
were times when petitioner did not work for 2 weeks at a time.
     Respondent further asserts that petitioner was evasive and
unresponsive during his testimony when asked whether he received
cash payments in 2005. But petitioner unequivocally testified
that he did not receive cash payments in 2005.
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III.    Accuracy-Related Penalty

       Respondent determined that petitioner is liable for an

accuracy-related penalty under section 6662(a).      Section 6662(a)

imposes a 20-percent penalty on the portion of an underpayment

attributable to any one of various factors, including negligence

or disregard of rules or regulations.      See sec. 6662(b)(1).

“Negligence” includes any failure to make a reasonable attempt to

comply with the provisions of the Internal Revenue Code,

including any failure to keep adequate books and records or to

substantiate items properly.    See sec. 6662(c); sec. 1.6662-

3(b)(1), Income Tax Regs.    Under section 7491(c), respondent has

the burden of production with respect to the accuracy-related

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

       Section 6664(c)(1) provides an exception to the section

6662(a) penalty if it is shown that there was reasonable cause

for any portion of an underpayment and the taxpayer acted in good

faith.    The determination of whether a taxpayer acted with

reasonable cause and in good faith is made on a case-by-case

basis, taking into account all the pertinent facts and

circumstances.    Sec. 1.6664-4(b)(1), Income Tax Regs.    The most

important factor is the extent of the taxpayer’s effort to assess

his proper tax liability.    Id.     Circumstances that may indicate

reasonable cause and good faith include an honest
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misunderstanding of fact or law that is reasonable in view of the

taxpayer’s experience, knowledge, and education.    Id.

     Petitioners have demonstrated reasonable cause and an honest

misunderstanding that is reasonable in view of their knowledge of

and experience with their Federal income tax reporting

requirements.   Petitioners did not read, write, or speak English,

and 2005 was the first year for which they filed a U.S. Federal

income tax return.

     In addition, due to petitioners’ inexperience with U.S.

Federal income tax returns and their lack of understanding of the

English language, petitioner’s boss, Mr. Yagli, and his wife

admit that they took part in the preparation of petitioners’ 2005

Federal income tax return.   The Yaglis then instructed

petitioners to sign the completed tax return.

     Petitioner testified that although they did not understand

their return, he and his wife signed it because they were told

that they were required to file their tax return.   When asked

whether he gave any expense information to the tax return

preparer, petitioner testified that he did not know because Mr.

Yagli was “giving the figures.”   Petitioner’s understanding was

that Mr. Yagli gave all the figures to the tax return preparer to

complete their return.

     Given their lack of knowledge and understanding of the tax

laws of the United States and the reporting requirements, the
                             - 10 -

Court finds that petitioners acted in good faith.   Accordingly,

respondent’s determination of a section 6662 accuracy-related

penalty is not sustained.

     To reflect the foregoing,


                                      Decision will be entered

                                 under Rule 155.8




     8
      Whether petitioners are subject to an increase in tax
because of the concession that they did not have job expenses,
CGS, or rental expenses for 2005, as determined by respondent,
will be computed under Rule 155.
