                         T.C. Memo. 2000-204



                       UNITED STATES TAX COURT



          JAMES E. AND SHIRLEY S. DEAS, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No.     11847-99.           Filed June 30, 2000.


     James E. Deas, pro se.

     Francis C. Mucciolo, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     PARR, Judge:    Respondent determined a $27,629 deficiency in,

and an $5,526 accuracy-related penalty on, petitioners' Federal

income tax for the 1992 taxable year.

     After concessions,1 the sole issue for decision is whether


     1
      Petitioners concede that they failed to report $165,000 of
capital gain in either their return or in an amended return for
                                                   (continued...)
                                  - 2 -

petitioners are liable for the section 6662 accuracy-related

penalty for negligence or disregard of rules or regulations or

substantial understatement of income tax.      We find they are

liable for the accuracy-related penalty for negligence.2

         Section references are to the Internal Revenue Code in

effect for the taxable year in issue, unless otherwise indicated.

Rule references are to the Tax Court Rules of Practice and

Procedure.      All dollar amounts are rounded to the nearest whole

dollar, unless otherwise indicated.       References to petitioner are

to James E. Deas.

                            FINDINGS OF FACT

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

The stipulated facts and the accompanying exhibits are

incorporated herein by this reference.      At the time the petition

in this case was filed, petitioners resided in Heathrow, Florida.

     In 1985, petitioner and William W. Segrest (Segrest) formed

a partnership named Dasco (Dasco or the partnership).      Petitioner

and Segrest were general partners, and each owned a 50-percent

interest in the partnership.     The partnership's main activity was


     1
     (...continued)
1992.
         2
      Because we have found that petitioners are liable for the
accuracy-related penalty for negligence, we do not consider
whether petitioners are liable for the penalty for the
substantial understatement of income tax. See sec. 1.6662-2(c),
Income Tax Regs.
                                - 3 -

purchasing and rezoning unimproved land, which it then sold in

subdivided tracts.

     The partners agreed to share profits and losses equally,

except for gain or loss from the sale of property contributed to

the partnership by a partner.   The partnership agreement provided

that gain or loss from the sale of property contributed to the

partnership by either of the partners was to be allocated to the

contributing partner to take account of the variation between the

basis of the property to the partnership and its fair market

value at the time of contribution.      Because of this provision,

the partners often recognized disparate amounts of gain upon

disposition of the contributed properties.

     Because both of the partners had other business interests,

they agreed that neither partner would work at the partnership

activities on a full-time basis; rather, they agreed that the

partnership would be an investment type of arrangement.

Accordingly, the partners would spend a week to a month working

on partnership business activities, and then be inactive for 2 or

3 months.

     Due to unfavorable business conditions in the early 1990's,

the partnership curtailed its business activities by purchasing

fewer properties.    In 1993, in an effort to further downsize its

operation, the partnership discontinued the services of its full-

time bookkeeper, and by agreement, Segrest assumed those
                                - 4 -

responsibilities.    The partnership continued to employ the

services of a public accounting firm.

     In September 1986, Dasco purchased approximately 6 acres of

undeveloped real property (the property) in Orange County,

Florida, for $537,500.   The property was purchased with proceeds

from the sale of other property contributed to the partnership by

Segrest.   In October 1992, Dasco received $857,413 from the State

of Florida as a result of a condemnation sale of the property to

the State.   Dasco elected to defer recognition of the gain from

the condemnation sale according to the provisions of section 1033

and, therefore, did not report the gain on its U.S. Partnership

Return of Income (Form 1065) for 1992.

     The partnership used the proceeds from the condemnation sale

to pay partnership debt.   In 1995, Segrest, in his role as in-

house bookkeeper, informed the partnership's public accountant

that the partnership had never purchased replacement property and

would therefore have to file an amended return for 1992.    The

amended return was prepared by the public accountant and was

signed by Segrest.   In a Schedule K-1, Partner's Share of Income,

Credits, Deductions, Etc., which was attached to the 1992 amended

return, the partnership reported that petitioner's share of the

gain was $165,000.

     Petitioner knew that the property was sold as a result of

the condemnation, and that if the partnership did not purchase
                               - 5 -

replacement property, the deferred gain would have to be

recognized and the partnership would have to file an amended

return for 1992.

     In the normal course of their business activities,

petitioner and Segrest met for lunch, during which time they

discussed business, golf, and their specific projects.    During

one of these meetings in late 1995 or early 1996, Segrest told

petitioner that the partnership had prepared an amended return

for the 1992 taxable year, in which it reported the gain from the

sale of the property, and that Segrest owed tax on his portion of

the gain.

     Petitioners did not report petitioner's portion of the gain

in either their return or in an amended return for 1992.

                              OPINION

     Respondent determined that petitioners are liable for the

accuracy-related penalty for negligence or intentional disregard

of rules or regulations pursuant to section 6662.   The burden is

on the taxpayer to prove the Commissioner's imposition of the

penalty is in error.   See Rule 142(a); Luman v. Commissioner, 79

T.C. 846, 860-861 (1982); Bixby v. Commissioner, 58 T.C. 757, 791

(1972).

     Section 6662 provides for the imposition of a penalty equal

to 20 percent of the portion of the underpayment which is

attributable to negligence or disregard of rules or regulations.
                               - 6 -

See sec. 6662(a) and (b)(1).   For purposes of section 6662, the

term "negligence" includes any failure to make a reasonable

attempt to comply with the provisions of the internal revenue

laws, a failure to exercise ordinary and reasonable care in the

preparation of a tax return, or a failure to keep adequate books

and records or to substantiate items properly.   Sec. 1.6662-

3(b)(1), Income Tax Regs.   The term "disregard" includes any

careless, reckless, or intentional disregard of rules or

regulations.   Sec. 6662(c).

     Negligence is defined as a lack of due care or failure to do

what a reasonable and ordinarily prudent person would do under

the circumstances.   See Neely v. Commissioner, 85 T.C. 934, 947

(1985) (quoting Marcello v. Commissioner, 380 F.2d 499, 506 (5th

Cir. 1967), affg. in part and remanding in part 43 T.C. 168

(1964)).3   In determining whether petitioners were negligent in

failing to report the gain from the sale of the property, we take

into account petitioner's years of business experience.    See

Sutor v. Commissioner, 17 T.C. 64, 69 (1951); Glenn v.

Commissioner, T.C. Memo. 1995-399, affd. without published

opinion 103 F.3d 129 (6th Cir. 1996).



     3
      In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th
Cir. 1981) (en banc), the Court of Appeals for the Eleventh
Circuit, the court to which an appeal in this case would lie,
adopted as binding precedent all the decisions of the former
Court of Appeals for the Fifth Circuit handed down prior to the
close of business on Sept. 30, 1981.
                                    - 7 -

     The accuracy-related penalty does not apply with respect to

any portion of an underpayment as to which the taxpayer acted

with reasonable cause and in good faith.       See sec. 6664(c)(1).

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.       See sec.

1.6664-4(b)(1), Income Tax Regs.       The most important factor is

the extent of the taxpayer's efforts to assess the taxpayer's

proper tax liability.     See id.

     Petitioner testified that one of the reasons he did not

report his portion of the gain from the condemnation sale was

because the partnership purchased the property with the proceeds

from the sale of other property contributed to the partnership by

Segrest.    Petitioner, therefore, assumed that Segrest was

allocated all the gain.    This excuse, however, does not withstand

scrutiny.

     The property was purchased by the partnership at a cost of

$537,500, and sold for $857,413.       Thus, the partnership realized

$319,913 of postacquisition gain; one-half of which was allocable

to petitioner according to the partnership agreement.      Therefore,

without consideration of the amount of any precontribution gain

allocable to Segrest, petitioner was required to recognize at

least $159,957 of postacquisition gain realized in the

condemnation sale.    Petitioner's disregard of the gain
                                - 8 -

attributable to the difference between the property's cost basis

and the amount received on its disposition is evidence of

negligence.   See Montoya v. Commissioner, T.C. Memo. 1999-269.

     Petitioner testified that another reason he did not file an

amended return for 1992 is that he never received a Schedule K-1

informing him of his portion of the gain.    Petitioner testified

that he received Schedules K-1 for all the years that he was a

partner in Dasco (including the 1995 year), except the Schedule

K-1 for the amended return year.    Furthermore, petitioner

testified that if he had received a Schedule K-1 informing him of

his share of the gain, he would have reported the income on an

amended return.

     The nonreceipt of tax documents does not excuse taxpayers

from their duty to report income.    See, e.g., Scott v.

Commissioner, T.C. Memo. 1997-507 (nonreceipt of Schedule K-1 and

Form 1099); Dennis v. Commissioner, T.C. Memo. 1997-275

(nonreceipt of Form 1099); Healy v. Commissioner, T.C. Memo.

1996-260 (nonreceipt of partnership return and Form 1099); Du

Poux v. Commissioner, T.C. Memo. 1994-448 (nonreceipt of Forms W-

2 and 1099-MISC.); Krzepina v. Commissioner, T.C. Memo. 1993-356

(nonreceipt of Schedule K-1).

     Moreover, in this case, petitioner was negligent; he did not

do what a reasonable and ordinarily prudent person would do under

the circumstances.   Petitioner was a general partner in a two-
                                - 9 -

person partnership at the time the partnership purchased the

property, at the time it was condemned and sold to the State of

Florida, and at the time the statutory replacement period

expired.    Petitioner knew that if replacement property were not

purchased, the deferred gain would have to be recognized and

reported.   Furthermore, petitioner knew the partnership had not

purchased replacement property, that the time to do so had

expired, and that the partnership had prepared an amended return

for 1992 reporting the gain from the sale of the property.

Finally, petitioner knew that Segrest had received a Schedule K-1

informing Segrest of his portion of the deferred gain from the

sale of the property.

     Although petitioner was aware of all the facts regarding the

property, he never inquired whether he had any gain from its

sale, nor did he inquire as to why he did not receive a Schedule

K-1 for the amended return year.    As a general partner,

petitioner had access to the partnership's books and records, its

amended return, and the public accounting firm that prepared the

amended return, any of which would have informed petitioner of

his portion of the gain from the sale of the property.      Although

the information necessary for petitioners to report their proper

tax liability was available, petitioner made no effort to obtain

such information.

     It is evident from the record that petitioners did not make
                             - 10 -

a reasonable attempt to comply with the provisions of the

internal revenue laws or to exercise ordinary and reasonable care

in the preparation of their tax return.   Finally, upon

consideration of all the facts and circumstances of this case, we

do not find that there was reasonable cause for petitioners'

reporting position.

     To reflect the foregoing,

                                   Decision will be entered for

                         respondent.
