                         T.C. Memo. 2010-125



                       UNITED STATES TAX COURT



              BRANDON R. BALLANTYNE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 27078-08.               Filed June 10, 2010.



     Robert B. Perry, for petitioner.

     Brook R. Barrow, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     VASQUEZ, Judge:    Respondent determined a $4,256 deficiency

in petitioner’s 2007 Federal income tax.   After concessions, the

issue for decision is whether Lennon Madzima (Mr. Madzima) had

authority to electronically file petitioner’s return for 2007.

We hold that he did.
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                         FINDINGS OF FACT

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   Petitioner resided in

Texas when the petition was filed.

     Until 2004 petitioner used tax preparation services, e.g.,

H&R Block and Liberty Tax Services, to prepare his tax returns.

Petitioner always reviewed his returns and signed them before

filing them with the Internal Revenue Service (IRS).   In those

years petitioner either received a refund check from the IRS or

had the refund deposited directly into his bank account.

     Petitioner met Mr. Madzima in 2003.    They worked together at

Capital One Auto Finance where they shared an office for 40 hours

per week.   As a result, petitioner and Mr. Madzima grew very

close.   Mr. Madzima left Capital One Auto Finance in 2004, but he

and petitioner remained friends.

     Mr. Madzima attended an IRS seminar on tax return

preparation, purchased the requisite software, and, in 2004,

started a business called Sameday Tax Services.

     Petitioner wanted to help Mr. Madzima with his business.     In

2005 he stopped using H&R Block to file his returns and began

using Mr. Madzima.   Mr. Madzima filed petitioner’s tax returns

for 2004, 2005, and 2006.   Petitioner gave Mr. Madzima his
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Form(s)1 W-2, Wage and Tax Statement, each year for this purpose.

Each return claimed deductions and credits that petitioner was

not entitled to2 and requested that a refund be directly

deposited into a Santa Barbara, California, bank account that did

not belong to petitioner.   Petitioner did not review the returns

prepared by Mr. Madzima as he had done in the past with H&R

Block.   Petitioner never received a refund directly from the IRS.

Mr. Madzima gave petitioner up to $900 dollars in cash each year

and told petitioner that was his refund amount.3   Petitioner

never questioned Mr. Madzima about the refund amount.

     In February 2008 Mr. Madzima asked petitioner whether he

wanted him to file his 2007 tax return.   Petitioner said yes and

told Mr. Madzima to come by his home to pick up his 2007 Forms W-

2.   Petitioner gave his 2007 Forms W-2 to Mr. Madzima because he

was certain Mr. Madzima would file his return as he had done the



     1
        Petitioner received a Form W-2 from multiple employers in
2006 and 2007.
     2
        Petitioner’s 2004 tax return claimed: Dependency
exemption; head of household filing status; education credit;
earned income credit; and additional child tax credit.
Petitioner’s 2005 tax return claimed: Two dependency exemptions;
head of household filing status; earned income credit; credit for
Federal tax paid on fuels; and additional child tax credit.
Petitioner’s 2006 tax return claimed: Dependency exemption; head
of household filing status; and credit for Federal telephone
excise tax paid.
     3
        Petitioner testified that he believed Mr. Madzima was
withholding an unknown amount from petitioner’s refund as
compensation for preparing and filing petitioner’s tax returns.
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previous 3 years.   Petitioner testified that he called Mr.

Madzima several times to find out whether the return had been

filed because it was taking a long time.4

     On April 3, 2008, Mr. Madzima electronically filed

petitioner’s 2007 Federal income tax return.     Petitioner did not

sign or review the return.   Petitioner also did not file any

other return for 2007.

     The return filed by Mr. Madzima claimed deductions, filing

status, and credits that petitioner concedes he is not entitled

to and requested a $4,774 refund.5     The IRS deposited a $2,207

refund into the Santa Barbara bank account and froze the

remaining $2,567.   Petitioner never received any cash from Mr.

Madzima for this year.   On the basis of its adjustments to the

return, the IRS determined petitioner owes a $4,256 deficiency.

     The IRS began investigating Mr. Madzima’s activities as

early as July 2007.   Petitioner was unaware of the investigation

at the time he agreed to have Mr. Madzima file his 2007 tax

return.   On June 23, 2008, the Department of Justice (DOJ) filed

a complaint and a motion for preliminary injunction against Mr.

Madzima in the U.S. District Court for the Northern District of


     4
        It is unclear from the record whether petitioner was able
to reach Mr. Madzima and speak to him.
     5
        Petitioner’s 2007 tax return claims the following:
Dependency exemption for a fictitious niece; head of household
filing status; the earned income credit; an additional child tax
credit; and the education credit.
                               - 5 -

Texas to enjoin Mr. Madzima from, inter alia, preparing and

filing Federal tax returns for anyone other than himself.

     In June 2008 petitioner was alerted by a DOJ press release

to the fact that Mr. Madzima was being sued for filing fraudulent

tax returns.   Petitioner tried but was unable to contact Mr.

Madzima to discuss his tax return after reading the press

release.   As a result, petitioner filed Form 3949A, Information

Referral, letting the IRS know that Mr. Madzima might have

violated Federal income tax laws by filing petitioner’s tax

returns.

                              OPINION

     As a general rule, the Commissioner’s determinations are

entitled to a presumption of correctness, and the taxpayer bears

the burden of proving the Commissioner’s deficiency

determinations incorrect.   Rule 142(a); Welch v. Helvering, 290

U.S. 111, 115 (1933).   Section 7491(a), however, provides that

if, in any court proceeding, a taxpayer introduces credible

evidence with respect to any factual issue relevant to

ascertaining the liability of the taxpayer for any tax imposed by

subtitle A or B, the Secretary shall have the burden of proof

with respect to such issue.

     Although petitioner contends that section 7491(a) applies,

the burden of proof is inconsequential to the outcome of this

case.   Petitioner does not dispute respondent’s determinations
                               - 6 -

with respect to the credits, filing status, and deductions

claimed on petitioner’s 2007 Federal income tax return.

Petitioner argues only that he did not authorize Mr. Madzima to

electronically file his 2007 Federal income tax return and

therefore petitioner should not be held responsible for the

resultant deficiency.   The facts prove otherwise.

     A taxpayer has a duty to file timely a complete and accurate

return and to pay the amount shown as due on that return.    See

generally secs. 6001, 6011(a), 6012(a)(1), 6072(a), 6151(a).

     Generally, any return required to be made under any

provision of the internal revenue laws or regulations shall be

signed in accordance with forms or regulations prescribed by the

Secretary.   Sec. 6061(a); see Selgas v. Commissioner, 475 F.3d

697, 700-701 (5th Cir. 2007) (a taxpayer’s unsigned paper returns

were deprived of legal effect).   Section 1.6012-1(a)(5), Income

Tax Regs., permits returns to be made by an agent under certain

narrow circumstances with the Commissioner’s permission.

Whenever a return is made by an agent, it must be accompanied by

a power of attorney authorizing him to represent his principal in

making, executing, or filing the return.   Id.

     In 1998 Congress adopted the Internal Revenue Service

Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. 105-206,

sec. 2001, 112 Stat. 723, which provides, inter alia, that it is

the policy of Congress that the IRS should implement guidelines
                                - 7 -

for electronic filing and that the IRS should achieve 80 percent

electronic filing by 2007.   See H. Conf. Rept. 105-599, at 234-

235 (1998), 1998-3 C.B. 747, 988-989; S. Rept. 105-174, at 39-42

(1998), 1998-3 C.B. 537, 575-578.   RRA 1998 sec. 2003(a)(2), 112

Stat. 724, amended section 6061 by adding subsection (b).

Section 6061(b)(1) provides that, in general, the Secretary shall

develop procedures for the acceptance of signatures in digital or

other electronic form.   Until such time as such procedures are in

place, the Secretary may waive the requirement of a signature or

provide for alternative methods of signing or subscribing a

return.   Id.   Thus the strict requirements for the filing of a

paper return by an agent do not apply with full force to

electronically filed returns.

     Accordingly, where it is clear that a preparer had actual

authority to electronically file a return for a taxpayer, the

Secretary acts within his discretion in waiving the signature

requirement.

     The general rule used in determining an agent’s authority is

set forth in 1 Restatement, Agency 2d, sec. 26 (1958), which

states that “authority to do an act can be created by written or

spoken words or other conduct of the principal which, reasonably
                                - 8 -

interpreted, causes the agent to believe that the principal

desires him so to act on the principal’s account.”6

     Petitioner purposefully gave his Forms W-2 to Mr. Madzima

for 4 consecutive years, including the year in issue.    He

acknowledges that Mr. Madzima filed his returns for 2003 through

2006 and that he wanted Mr. Madzima to file his return again for

2007.    Petitioner gave his 2007 Forms W-2 to Mr. Madzima because

he “knew * * * [Mr. Madzima] would take care of it” as he had

done in previous years.    Petitioner did not file a different

return for 2007, further demonstrating his reliance on Mr.

Madzima to file.    In fact, petitioner does not dispute that he

wanted Mr. Madzima to file his 2007 return.    He argues only that

he did not authorize Mr. Madzima to make fraudulent claims on the

return.

     The foregoing circumstances demonstrate that Mr. Madzima had

actual authority to electronically file petitioner’s 2007 Federal

income tax return.    Petitioner cannot now, in hindsight, assert

that he did not authorize Mr. Madzima to file his return.

Petitioner had the duty to file a complete and accurate return

and is therefore liable for the $4,256 deficiency arising from


     6
        This rule typically applies in cases where the agent
files a petition to the Tax Court on the principal’s behalf;
however, the rule may apply equally to the filing of tax returns,
including paper returns. See Lombardo v. Commissioner, 99 T.C.
342, 356 (1992), affd. sub nom. Davies v. Commissioner, 68 F.3d
1129 (9th Cir. 1995).
                                 - 9 -

the return that was filed.   Petitioner makes much of the fact

that he is a victim in this case, and we sympathize with the

unfortunate position in which he finds himself.       However,

petitioner not only knew who Mr. Madzima and Sameday Tax Services

were but also engaged them to prepare and file his tax returns,

including the return for 2007.    Petitioner is not excused from

liability for the deficiency in his tax arising from the latter

return.7

     In reaching all of our holdings herein, we have considered

all arguments made by the parties, and to the extent not

mentioned above, we find them to be irrelevant or without merit.

     To reflect the foregoing,


                                         Decision will be entered for

                                 respondent.




     7
        Of course, a taxpayer may assert that he or she
reasonably relied on a tax return preparer as a defense to
certain additions to tax and/or penalties. But respondent did
not determine that petitioner is liable for any addition to tax
or penalty in this case.
