                 T.C. Summary Opinion 2007-135



                     UNITED STATES TAX COURT



           GARY S. AND JULIE A. BROWN, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 7001-04S.              Filed August 2, 2007.



     Gary S. Brown and Julie A. Brown, pro sese.

     Alan H. Cooper, for respondent.



     CARLUZZO, Special Trial Judge:    This case for the

redetermination of a deficiency was heard pursuant to the

provisions of section 7463.1   Pursuant to section 7463(b), the

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




     1
       Section references are to the Internal Revenue Code of
1986, as amended, in effect for the relevant period, and Rule
references are to the Tax Court Rules of Practice and Procedure.
                                  -2-

this opinion shall not be treated as precedent for any other

case.

     Respondent determined a $6,271 deficiency, a $1,698.15

section 6651(a)(1) addition to tax, and a $1,254.20 section

6662(a) accuracy-related penalty with respect to petitioners’

1997 Federal income tax.

     The issues for decision are:       (1) Whether petitioners are

entitled to a trade or business expense deduction for rent in

excess of the amount allowed by respondent; (2) whether

petitioners failed to file a timely 1997 Federal income tax

return, and if so, whether their failure was due to reasonable

cause; and (3) whether the underpayment of tax required to be

shown on petitioners’ 1997 Federal income tax return is due to

negligence or intentional disregard of rules or regulations.

                             Background

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

all times relevant petitioners were married to each other.2      They

filed a joint Federal income tax return for 1997.       References to

petitioner are to Gary S. Brown.

     Petitioner is an attorney.    During all times relevant, he

conducted the practice of law as sole proprietorship in the Los

Angeles, California, area.   From May 1992 through November 1995,



     2
       Petitioners separated and divorced from each other
following the year in issue.
                                  -3-

his law offices were located in leased space pursuant to a

sublease (the lease)3 petitioner entered into with a Georgia

partnership (the lessor).    As relevant here, the lease obligated

petitioner to make rental payments of $3,700 per month from

January through October 2003, and $6,900 per month thereafter.

Petitioner paid only portions of the rent due under the lease

during 1993 and 1994, and he made none of the rent payments due

under the lease during 1995, as shown on the following table

(amounts are rounded and include incidental charges):

     Year       Rent (Annual) Due Per Lease       Rent Paid

     1993                   $55,395                $43,900
     1994                    84,738                 57,248
     1995                    84,915                 - 0 -

     In connection with his law practice, petitioner also rented

a storage facility where he stored client records.      He paid $500

per month for the storage facility throughout the years 1993

through 1995.

     Towards the end of 1995, petitioner’s rental arrearages

under the lease were substantial.       As it turned out, he was sued

by the lessor in October 1995, and according to petitioner “the

amount in controversy” in that lawsuit “exceed[ed] $100,000”.

Ultimately the law suit was settled by agreement between

petitioner and the lessor.    In accordance with that settlement



     3
       The term of the sublease ran from May 15, 1992 until
Sept. 30, 1996.
                                 -4-

agreement, payments totaling $137,150 were made by petitioner to

the lessor during 1997.   Petitioner vacated the premises covered

by the lease as of November 30, 1995.     As best can be determined

from the record, petitioner relocated his law offices and

continued his law practice sometime towards the end of 1995 or

beginning of 1996.

     Petitioners filed joint Federal income tax returns for the

years 1993, 1994, and 1995.   Each of the those returns includes a

Schedule C, Profit or Loss From Business, on which items of

income and expense deductions relating to petitioner’s practice

of law are claimed.    Each Schedule C shows a deduction for “rent”

“other business property” as follows:

                Year                    Amount

                1993                   $48,493
                1994                    65,852
                1995                    85,092

     Petitioners also filed a joint Federal income tax return for

1997, and that return also includes a Schedule C relating to

petitioner’s law practice.    As relevant here, on that Schedule C

petitioner claims a $23,822 deduction for “rent” “other business

property”.   During the course of the examination of petitioners’

1997 return, an amended Schedule C was submitted to the revenue

agent conducting the examination.      The amended Schedule C shows a

$160,972 deduction for “rent” “other business property”,

consisting of the amount originally claimed, plus the $137,150
                                -5-

payment made by petitioner to settle the lawsuit involving the

lease.

     Petitioners’ 1997 return was prepared by Julie Brown, who

also had some responsibility for bookkeeping and check writing in

connection with petitioner’s law practice, but who has no

specialized training in accounting or bookkeeping.    At trial, she

testified to the many errors and irregularities in connection

with the records of petitioner’s law practice, as well as items

shown on their 1997 return.   Taking into account an extension to

file, that return was due to be filed on or before August 15,

1998,4 but it was not filed until October 16, 1998.

     In the notice of deficiency that forms the basis for this

case, respondent allowed $62,501 of the rent deduction claimed on

the amended Schedule C.   According to respondent, the portion of

the rent deduction not allowed ($98,471) is the amount that

duplicates rent with respect to the lease already deducted and

allowed on petitioners’ 1993, 1994, and 1995 Federal income tax

returns.   Other adjustments made in the notice of deficiency have

been agreed to by the parties and need not be discussed.




     4
       The parties stipulated that the Apr. 15, 1998, normal
filing due date was extended at least until Aug. 15, 1998. No
explanation has been provided regarding the computation in the
notice of deficiency showing the due date as Apr. 15, 1998.
                                 -6-

                             Discussion

     The nature of the issue in this case calls into question the

method of accounting used by petitioner in his law practice

during the year in issue, as well as the years 1993, 1994, and

1995.    The stipulation of facts filed in this case is silent with

respect to the method of accounting used by petitioner in

computing the income and deductions shown on the Schedules C for

his law practice for those years.      Given the nature of the

disputed issue in this case, the failure to stipulate what would

seem to be a fundamental point leads us to conclude that there is

no agreement between the parties with respect to it.      In the

absence of an agreement between the parties regarding

petitioner’s accounting method, and in the absence of any

persuasive evidence as to petitioner’s accounting method,5 we

proceed without making any specific finding regarding the method

of account used by petitioner in computing the income and

deductions of his law practice, or whether that method changed

from year to year.

     According to petitioners, petitioner is entitled to a

deduction for the $137,150 paid to the lessor in 1997 in

settlement of the lawsuit regarding the lease.     Respondent agrees


     5
       According to the Schedules C, petitioner used the “cash”
method of accounting, but the many errors and irregularities on
the Schedule C included with petitioners’ 1997 return invite us
to ignore much of the information reported on the Schedules C.
                                -7-

that the payment might have otherwise given rise to a deduction

for 1997 under section 162, but claims that $98,471 of that

payment duplicates expenses already deducted by petitioner in

prior years.   As respondent views the matter, petitioners are not

entitled twice to deduct the same expense.   Petitioners agree

with that principle, but argue that the rent deductions claimed

in 1993, 1994, and 1995 do not relate entirely to the lease.

According to petitioners, the rent expense deductions claimed in

1993, 1994, and 1995 include, in part, rent expenses connected to

the lease, and, in part, rent expenses not connected to the

lease.

     For example, petitioners claim that they paid $500 per month

in storage fees for client records not stored on the premises

covered by the lease.   They also suggest that a portion of the

rental expense deduction shown in 1993, 1994, and 1995 might have

included some office in the home expenses.

     We reject petitioners’ claim on this latter point.   There is

insufficient evidence in the record to support any finding

regarding the use of petitioners’ residence for business purposes

during any of the relevant periods.   We accept their claim,

however, that a portion of the rent deduction claimed in the

years 1993, 1994, and 1995 related to rent expenses not connected

with the lease.
                                  -8-

     Our finding in this regard has the following consequences.

There is no duplication with respect to the rent expense

deduction claimed on the Schedules C for the years 1993 and 1994.

So much of respondent’s reduction of the $137,150 settlement

payment as is attributable to a duplication for those years is

rejected.   With respect to 1995, we find that all but $6,000 of

the $85,092 rent deduction claimed for that year has been

duplicated in the rent deduction claimed for 1997.    Therefore

$79,000 of the $137,150 settlement payment is not allowable in

1997.

     Respondent imposed an addition to tax under section

6651(a)(1).   Briefly stated, that section provides for an

addition to tax if a return is not filed on or before the date

that the return is due, unless the delay in filing is due to

reasonable cause and not willful neglect.

     Petitioners’ 1997 return was received and filed by

respondent on October 16, 1998.    According to respondent’s

records, that return was due to be filed on or before August 15,

1998.   Petitioners do not dispute the date that respondent claims

to have received their 1997 return; furthermore, they make no

claim that imposition of the addition to tax is inappropriate

because they had reasonable cause for their failure to file a

timely return.    Instead, they claim that their 1997 return was

not filed late.    According to petitioners, they had been granted
                                 -9-

an additional extension until October 15, 1998, to file that

return, and they did so in a timely fashion.     See sec. 7502.

Respondent has no record of the additional extension, and

petitioners’ evidence on the point is less than compelling.

Respondent’s imposition of the section 6651(a)(1) addition to tax

is sustained, but in an amount that takes into account the August

15, 1998, extended due date of petitioners’ 1997 return.

     Respondent also imposed a section 6662(a) penalty on the

underpayment of tax required to be shown on petitioners’ 1997

return.   In addition to other reasons, if any portion of an

underpayment of tax required to be shown on a taxpayer’s return

is due to negligence, then the section 6662(a) penalty is

applicable.   The many errors and irregularities admitted to by

petitioners with respect to their 1997 return make it clear that

the imposition of the section 6662(a) penalty is appropriate with

respect to the entire underpayment of tax, which in this case is

computed in the same manner as the deficiency.     See sec. 6664(a).

     To reflect the foregoing,

                                       Decision will be entered

                                 under Rule 155.
