                              T.C. Memo. 2012-341



                        UNITED STATES TAX COURT



                ROBERT PEREZ MORALES, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent

                 RONDA KAY MORALES, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket Nos. 4225-12, 5316-12.                Filed December 6, 2012.



      Robert Perez Morales, pro se in Docket No. 4225-12.

      Ronda Kay Morales, pro se in Docket No. 5316-12.

      Mark Howard, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      KROUPA, Judge: Respondent determined an $8,000 deficiency in and a

$1,600 accuracy-related penalty under section 6662(a) with respect to each
                                          -2-

[*2] petitioner’s Federal income tax for 2008. We are asked to decide two issues.

The first issue is whether petitioners are entitled to the first-time homebuyer credit

provided in section 36.1 We hold that they are not. The second issue is whether

petitioners are liable for an accuracy-related penalty under section 6662(a). We

hold that they are liable.

                                FINDINGS OF FACT

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

facts, with accompanying exhibits, is incorporated by this reference. Petitioners

resided in Nevada when they filed the petitions.

      Petitioners sold their principal residence on April 27, 2006. North American

Title Company provided respondent a Form 1099-S, Proceeds From Real Estate

Transactions, in connection with the sale. Petitioners purchased a property on

March 17, 2009. This property included two different houses on the same lot (new

principal residences). Each petitioner used one of the new principal residences as

his or her separate personal residence.




      1
       All section references are to the Internal Revenue Code (Code) in effect for
2008, and all Rule references are to the Tax Court Rules of Practice and Procedure,
unless otherwise indicated.
                                          -3-

[*3] Petitioners each filed an income tax return for 2008, claiming an $8,000 first-

time homebuyer credit. Petitioners each used TurboTax, a tax preparation software,

to prepare the tax return.

      Respondent issued each petitioner a deficiency notice disallowing the claimed

first-time homebuyer credit. Petitioners each timely filed a petition for

redetermination with this Court.

                                      OPINION

      We are asked to decide whether each petitioner is entitled to the first-time

homebuyer credit. A first-time homebuyer of a principal residence is entitled to a

refundable tax credit subject to certain limitations. Sec. 36(a). Respondent

contends that petitioners are not entitled to the claimed first-time homebuyer credits

because they are not “first time home buyers.” We agree.

      A first-time homebuyer is any individual who has had no present ownership

interest in a principal residence during the 3-year period ending on the date of the

purchase of the principal residence in question. Sec. 36(c)(1); Foster v.

Commissioner, 138 T.C. 51, 53 (2012). Petitioners purchased the new principal

residences on March 17, 2009. Accordingly, petitioners are eligible as first-time

homebuyers only if they had no present ownership interest in a principal residence

between March 16, 2006, and March 17, 2009. Petitioners sold their prior
                                          -4-

[*4] principal residence on April 27, 2006 and therefore had a present ownership

interest in a principal residence during the relevant period. Petitioners are therefore

not entitled to the claimed first-time homebuyer credit.

      Petitioners argue that respondent is estopped from asserting that petitioners

are not entitled to the first-time homebuyer credit for 2008 because an ordinary

examination of the relevant tax documents (e.g., Form 1099-S) would have

indicated that petitioners did not qualify for the credit. We disagree. Such a rule

would place an undue burden on the Commissioner. See Warner v. Commissioner,

526 F.2d 1, 2 (9th Cir. 1975), aff’g T.C. Memo. 1974-243. In addition, it would

undermine the effective administration of the tax laws. Id. It therefore does not

constitute a ground for estoppel.

      We now turn to respondent’s determination that petitioners are liable for an

accuracy-related penalty. We are unaware of any other case where the

Commissioner sought the penalty in a first-time homebuyer credit case--an area that

has been evolving since the recent enactment of section 36. A taxpayer may be

liable for a 20% penalty on any underpayment of tax attributable to negligence or

disregard of rules or regulations. See sec. 6662(a) and (b)(1) and (2); sec.

1.6662-2(a)(1) and (2), Income Tax Regs. Negligence is defined as the failure to

make a reasonable attempt to comply with provisions of the Code, as well as any
                                           -5-

[*5] failure by the taxpayer to keep adequate books and records or to substantiate

deductions and credits claimed on the return. See sec. 6662(c); sec. 1.6662-3(b)(1),

Income Tax Regs. The term “disregard” includes any careless, reckless or

intentional disregard. See sec. 6662(c).

      Respondent has the burden of production regarding penalties and must come

forward with sufficient evidence that it is appropriate to impose the penalty. See sec.

7491(c); Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001). Respondent has

shown that petitioners were negligent in claiming the first-time homebuyer credit by

establishing that they claimed the credit even though they had a present ownership

interest in a principal residence within three years of the purchase of the new

principal residences. We find therefore that respondent has satisfied his burden of

production.

      The accuracy-related penalty does not apply, however, to any portion of an

underpayment for which there was reasonable cause and where the taxpayer acted

in good faith. See sec. 6664(c)(1); sec. 1.6664-4(a), Income Tax Regs. 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 pertinent facts and

circumstances, including the experience, knowledge and education of the taxpayer.

Sec. 1.6664-4(a) and (b), Income Tax Regs. Generally, the most important factor
                                           -6-

[*6] is the extent of the taxpayer’s effort to assess the taxpayer’s proper tax liability.

Id.

      Petitioners contend that they used TurboTax to prepare the return and that

TurboTax is responsible for them improperly claiming the first-time homebuyer

credit. Tax preparation software is only as good as the information the taxpayer

puts into it. See Bunney v. Commissioner, 114 T.C. 259, 266-267 (2000); see also

Anyika v. Commissioner, T.C. Memo. 2011-69. We have held that the misuse of

tax preparation software, even if unintentional or accidental, is no defense to

penalties under section 6662. See Anyika v. Commissioner, T.C. Memo. 2011-69;

Lam v. Commissioner, T.C. Memo. 2010-82.

      The TurboTax instructions and the specific information petitioners entered

into TurboTax is not in the record. Moreover, petitioners failed to introduce other

evidence that demonstrates their improperly claiming the first-time homebuyer

credit was the result of a TurboTax programming flaw or instructional error. We

note we find it unlikely that TurboTax would allow a result inconsistent with the

Code if its instructions were properly followed. Petitioners may have acted in

good faith but likely made a mistake. See Au v. Commissioner, T.C. Memo. 2010-

247, aff’d, ___Fed. Appx.___, 110 A.F.T.R.2d (RIA) 2012-6012 (9th Cir. Sept.
                                           -7-

[*7] 21, 2012). We find that petitioners’ use of TurboTax is not a defense to the

accuracy-related penalty.2

      In addition, petitioners did not otherwise demonstrate that they acted with

reasonable cause. The record does not reflect that they relied on relevant

authorities, competent advisers or otherwise made a reasonable effort to assess their

proper tax liabilities. We find that petitioners failed to establish that they acted with

reasonable cause with respect to the underpayments for 2008. Accordingly, we

sustain respondent’s determination that petitioners are liable for the accuracy-related

penalty.

      We have considered all arguments the parties made in reaching our holding,

and, to the extent not mentioned, we find them irrelevant or without merit.

      To reflect the foregoing,


                                                       Decisions will be entered for

                                                 respondent.




      2
       We leave for another day whether reliance on tax preparation software such
as TurboTax is sufficient to avoid the accuracy-related penalty where the taxpayer
has provided evidence demonstrating a programming flaw or an instructional error.
