The opinion
T.C. Memo. 2016-194
UNITED STATES TAX COURT
W. MORGAN PARKER AND LINDA M. PARKER, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8793-14. Filed October 25, 2016.
W. Morgan Parker and Linda M. Parker, pro sese.
John D. Ellis, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
LAUBER, Judge: The Internal Revenue Service (IRS or respondent) deter-
mined a deficiency in petitioners’ 2010 Federal income tax of $93,942 and an ac-
curacy-related penalty of $18,788. Before trial respondent conceded the following
adjustments set forth in the notice of deficiency: (1) a $44,950 adjustment to
income on account of a thrift savings plan distribution, which was actually a loan;
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[*2] (2) additional tax of $4,495 determined under section 72(t)1 on the foregoing
amount; and (3) a deduction of $34,280 for home mortgage interest. At trial
petitioners conceded that they failed to report a $4,534 taxable refund of State
income tax.
After further concessions at trial and in respondent’s post-trial brief (dis-
cussed further below), the issues for decision are: (1) whether petitioners received
unreported income from their two sole proprietorships; (2) whether petitioners are
entitled to deduct certain expenses reported on their respective Schedules C, Profit
or Loss From Business; and (3) whether petitioners are liable for an accuracy-rela-
ted penalty. With certain exceptions, we will sustain respondent’s determinations.
FINDINGS OF FACT
During 2010 petitioner husband, Mr. Parker, operated as a sole proprietor-
ship a collateral repossession business, Mid-Atlantic Auto Recovery (Mid-Atlan-
tic). He contracted with banks and other financial institutions that had made loans
based on collateral (typically cars, but occasionally appliances or equipment). If
the borrower became delinquent on the loan, Mid-Atlantic would repossess the
1
All statutory references are to the Internal Revenue Code (Code) in effect
for the year in issue, and all Rule references are to the Tax Court Rules of Practice
and Procedure. We round all monetary amounts to the nearest dollar.
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[*3] collateral, hold it for at least 10 days,2 and follow the bank’s instructions
regarding ultimate disposition of the property. The banks paid Mid-Atlantic fees
for these services, and Mr. Parker deposited these fees into one of his bank
accounts.
From January to September 2010 Mid-Atlantic operated out of a trailer on a
leased security lot where the repossessed collateral was kept. This trailer had
telephone, electricity, and Internet service provided by local utilities. Mr. Parker
moved Mid-Atlantic’s operations to another lot in September 2010. Mid-Atlantic
had three full-time employees during 2010: Mr. Parker, his son, and his daughter.
Other family members and their friends occasionally served as drivers or part-time
office staff.
During 2010 petitioner wife, Mrs. Parker, briefly operated a Mary Kay busi-
ness selling cosmetic products. She purchased $5,000 of startup inventory before
2010 and sold a small portion of this inventory during the first few months of that
year. After deciding that she did not like the business, she discontinued it in mid-
2010. She retained all of the unsold inventory.
2
Mr. Parker testified that State law required creditors to hold repossessed
collateral for at least 10 days before disposing of it.
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[*4] Petitioners maintained more than a dozen accounts at Wachovia Bank dur-
ing 2010. Four of these accounts were titled in Mid-Atlantic’s name; Mr. Parker
generally deposited fees received from the financial institutions into one of these
accounts. The other accounts were held in petitioners’ names, either individually
or jointly, and were used for both business and personal purposes.
For 2010 petitioners timely filed Form 1040, U.S. Individual Income Tax
Return. They included in this return a Schedule C for the Mid-Atlantic business
that reported gross receipts of $101,714 and total expenses of $125,209, for a net
loss of $23,495. The reported expenses were as follows:
Expense Amount
Rent $22,876
Utilities 13,862
Insurance 9,507
Contract labor 29,786
Car and truck 37,466
Other 11,712
Petitioners also included in this return a Schedule C for the Mary Kay business
that reported gross receipts of $369, cost of goods sold of $4,626, and car and
truck expenses of $20,000, for a net loss of $24,257.
The IRS selected petitioners’ 2010 return for examination and, on January
15, 2014, issued them a timely notice of deficiency. On the basis of a bank de-
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[*5] posits analysis, the IRS determined that petitioners had omitted $46,130 of
gross receipts from the Mid-Atlantic business and $4,813 of gross receipts from
the Mary Kay business. The IRS disallowed for lack of substantiation all of the
deductions that petitioners claimed on the Schedules C. The IRS also determined
an accuracy-related penalty with respect to these adjustments. While resident in
Virginia, petitioners timely petitioned this Court for redetermination of the
deficiency and the penalty.
At the close of trial the Court ordered one round of seriatim briefs. Respon-
dent timely filed his brief on April 11, 2016; petitioners did not file a post-trial
brief.3 When a party fails to file a brief on issues that have been tried, we may
consider those issues waived or conceded. See, e.g., Nicklaus v. Commissioner,
117 T.C. 117, 120 n.4 (2001); Stringer v. Commissioner, 84 T.C. 693, 704-708
(1985), aff’d without published opinion, 789 F.2d 917 (4th Cir. 1986). We will
exercise our discretion not to do so here.
3
Petitioners submitted to the Court by facsimile on June 10, 2016, a docu-
ment purporting to be a post-trial brief. The Court informed petitioners that a brief
cannot be filed by facsimile but must be filed electronically or in paper form.
Petitioners did not file a brief as instructed by the Court.
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[*6] OPINION
I. Burden of Proof
The IRS’ determinations in a notice of deficiency are generally presumed
correct though the taxpayer can rebut this presumption. Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933). The U.S. Court of Appeals for the Fourth
Circuit, the appellate venue in this case absent stipulation to the contrary, has held
that the usual presumption of correctness applies in omitted income cases where
the IRS employs a “reasonable method of determining income,” such as the bank
deposits method. Williams v. Commissioner, 999 F.2d 760, 763-764 (4th Cir.
1993), aff’g T.C. Memo. 1992-153. Other courts have required the IRS in unre-
ported income cases to establish a “minimal evidentiary showing” connecting the
taxpayer with the income-producing activity. E.g., Blohm v. Commissioner, 994
F.2d 1542, 1548-1549 (11th Cir. 1993), aff’g T.C. Memo. 1991-636.
If the IRS were required to make a “minimal evidentiary showing” here,
respondent has met that burden by introducing bank records establishing that peti-
tioners received unreported income from their sole proprietorships. Petitioners
thus bear the burden of proving by a preponderance of the evidence that respon-
dent’s determination of unreported income is arbitrary or erroneous. See Wil-
liams, 999 F.2d at 763 (citing Helvering v. Taylor, 293 U.S. 507, 515 (1935));
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[*7] Tokarski v. Commissioner, 87 T.C. 74 (1986). Petitioners do not contend,
and they could not plausibly contend, that the burden of proof as to any issue of
fact should shift to respondent under section 7491(a).
II. Unreported Income
Section 61(a) defines gross income as “all income from whatever source de-
rived,” including income derived from business. A taxpayer must maintain books
and records establishing the amount of his or her gross income. See sec. 6001.
When a taxpayer does not keep accurate books and records, the IRS may deter-
mine his or her income “under such method as, in the opinion of the Secretary,
does clearly reflect income.” Sec. 446(b); see Petzoldt v. Commissioner, 92 T.C.
661, 693 (1989). And where the taxpayer has unexplained bank deposits, the IRS
may employ the bank deposits method to estimate his or her income. Estate of
Hague v. Commissioner, 132 F.2d 775 (2d Cir. 1943), aff’g 45 B.T.A. 104 (1941);
Estate of Mason v. Commissioner, 64 T.C. 651, 657 (1975), aff’d, 566 F.2d 2 (6th
Cir. 1977). The IRS has great latitude in reconstructing a taxpayer’s income, and
the reconstruction “need only be reasonable in light of all surrounding facts and
circumstances.” Petzoldt, 92 T.C. at 687.
Bank deposits are prima facie evidence of income. The bank deposits
method starts with the presumption that all money deposited in a taxpayer’s bank
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[*8] account during a given period constitutes taxable income. Price v. United
States, 335 F.2d 671, 677 (5th Cir. 1964). This presumption is rebutted to the
extent the deposits are shown to include nontaxable amounts, and “the
Government must take into account any non-taxable source * * * of which it has
knowledge.” Ibid.; DiLeo v. Commissioner, 96 T.C. 858, 868 (1991), aff’d, 959
F.2d 16 (2d Cir. 1992).
After the IRS reconstructs a taxpayer’s income and determines a deficiency,
the taxpayer bears the burden of proving that the IRS’ implementation of the bank
deposits analysis was unfair or inaccurate. See Clayton v. Commissioner, 102
T.C. 632, 645 (1994); DiLeo, 96 T.C. at 871-872. The taxpayer may do so by
showing (among other things) that certain deposits came from nontaxable sources.
See Clayton, 102 T.C. at 645. Nontaxable sources include funds attributable to
interaccount bank transfers and returned checks, as well as “loans, gifts, inheri-
tances, or assets on hand at the beginning of the taxable period.” Burgo v. Com-
missioner, 69 T.C. 729, 743 n.14 (1978) (quoting Troncelliti v. Commissioner,
T.C. Memo. 1971-72).
The revenue agent (RA) employed the bank deposits method to reconstruct
petitioners’ income. After obtaining copies of petitioners’ bank statements by
issuing summonses to their banks, the RA used the statements (which are part of
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[*9] the record) to prepare schedules listing all deposits. After eliminating
nontaxable receipts of which he was aware, the RA prepared and provided to
petitioners a schedule that determined unreported income of $50,943. Of this sum,
the RA allocated $46,130 to the Mid-Atlantic business and $4,813 to the Mary
Kay business. Petitioners did not respond to the RA’s analysis, nor did they pro-
vide him with any documents establishing that certain deposits represented non-
taxable receipts.
With respect to the Mary Kay business, the evidence at trial established, and
respondent now concedes, that $2,853 of the deposits represented nontaxable re-
imbursement to Mrs. Parker from family and friends for a vacation trip. This
leaves in question the remaining $1,960 of deposits. Petitioners offered no
evidence that these deposits reflected nontaxable items. We accordingly find that
petitioners received during 2010 unreported income of $1,960 from the Mary Kay
business.
With respect to the Mid-Atlantic business, respondent concedes that peti-
tioners received $3,420 of the deposited funds in 2009 and that this income was
not taxable for 2010. This leaves in question the remaining $42,710 of deposits.
Petitioners’ primary argument is that some of these deposits were nontaxable
advances of “bailout” money from Mid-Atlantic’s financial institution clients. Mr.
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[*10] Parker testified that a third party might have a prior claim on collateral that
the client wished him to repossess; for example, a car might have been towed to a
city lot because of unpaid parking tickets, or a piece of machinery might be subject
to a mechanics lien. He testified that the financial institutions would advance him
funds to cover such contingencies, enabling him to “bail out” the collateral and
then repossess it. Because Mid-Atlantic allegedly held these funds in a fiduciary
capacity, petitioners urge that the funds represented nontaxable receipts.
In an effort to quantify these alleged advances of “bailout” money, Mr.
Parker provided a substitute Form 1099-MISC, Miscellaneous Income, issued to
Mid-Atlantic by Ford Motor Credit for 2010. He also provided a summary, which
he prepared, listing bank deposits allegedly corresponding to payments from Ford
Motor Credit in 2010. The Form 1099-MISC reports $27,615 of income whereas
Mr. Parker’s summary shows $33,240 of deposits. Petitioners contend that the dif-
ference between these numbers, or $5,625, corresponds to nontaxable advances of
“bailout” money.
For at least three reasons, we are unpersuaded by petitioners’ argument.
First, they failed to establish that all of the deposits on Mr. Parker’s summary actu-
ally corresponded to payments from Ford Motor Credit. Second, petitioners
claimed on their Schedule C for the Mid-Atlantic business, under the category of
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[*11] “Other” expenses, a deduction of $1,886 for “bailouts paid.” If it was Mr.
Parker’s practice to claim a deduction for bailouts paid, he would first have to
include in gross income any advances of funds used for bailouts. Third, Mid-
Atlantic had at least 12 bank clients during 2010, but petitioners produced no
documentary evidence regarding supposed “bailout” advances from any client
other than Ford Motor Credit.4
In sum, petitioners have failed to prove that they received advances of
“bailout” money from Mid-Atlantic’s clients during 2010 or that, if they received
such advances, the advances constituted nontaxable receipts. And they offered no
evidence suggesting that the bank deposits in question constituted nontaxable
receipts for any other reason. We accordingly find that petitioners received during
2010 unreported income of $42,710 from the Mid-Atlantic business.
III. Schedule C Expenses
Deductions are a matter of legislative grace. The taxpayer bears the burden
of proving that reported business expenses were actually incurred and were “ordi-
4
Mr. Parker testified that he had Forms 1099-MISC from other clients, but
he failed to produce them to respondent before November 25, 2015, the date by
which we ordered petitioners to produce to respondent any documents they wished
to use at trial. In any event, Mr. Parker contradicted himself by first stating that he
had (but did not produce) these additional Forms 1099-MISC and then stating that
these documents had been either lost or destroyed in a storm.
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[*12] nary and necessary.” Sec. 162(a); Rule 142(a). The taxpayer also bears the
burden of substantiating expenses underlying his claimed deductions by keeping
and producing records sufficient to enable the IRS to determine the correct tax
liability. Sec. 6001; INDOPCO v. Commissioner, 503 U.S. 79, 84 (1992); sec.
1.6001-1(a), (e), Income Tax Regs. The failure to keep and present such records
counts heavily against a taxpayer’s attempted proof. Rogers v. Commissioner,
T.C. Memo. 2014-141, at *17.
In the event a taxpayer establishes that he has incurred a deductible expense
but is unable to substantiate the precise amount, the Court may approximate the
amount of the deduction, bearing heavily against the taxpayer whose inexactitude
is of his own making. Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930). The
Court must, however, have evidence sufficient to provide a basis upon which an
estimate can be made. Norgaard v. Commissioner, 939 F.2d 874, 879 (9th Cir.
1991), aff’g in part, rev’g in part T.C. Memo. 1989-390; Vanicek v. Commission-
er, 85 T.C. 731, 742-743 (1985).
Section 274(d) imposes stricter substantiation requirements for deductions
claimed for expenses of travel, meals, and entertainment. No such deduction is
allowed unless the taxpayer substantiates, by adequate records or by sufficient
evidence corroborating his own statements, the amount, time and place, and
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[*13] business purpose for each expenditure. Sec. 274(d); sec. 1.274-5T(a), (b),
and (c), Temporary Income Tax Regs., 50 Fed. Reg. 46014-46017 (Nov. 6, 1985).
A court may not apply the Cohan rule to approximate expenses covered by section
274(d). Sanford v. Commissioner, 50 T.C. 823, 827-828 (1968), aff’d per curiam,
412 F.2d 201 (2d Cir. 1969).
A. Mid-Atlantic Business
1. Rent Expense
Petitioners reported on their Schedule C for the Mid-Atlantic business a rent
expense of $22,876 for the lease of Mid-Atlantic’s security lot. Respondent in his
post-trial brief conceded the rent expense deduction in full. We accordingly
conclude that petitioners are entitled to deduct a rent expense of $22,876 for 2010.
2. Insurance Expense
Petitioners reported on their Schedule C for the Mid-Atlantic business an
insurance expense of $9,507. Respondent in his post-trial brief conceded the
insurance expense deduction in full. We accordingly conclude that petitioners are
entitled to deduct an insurance expense of $9,507 for 2010.
3. Utilities Expense
Petitioners reported on their Schedule C for the Mid-Atlantic business a
utilities expense of $13,862. Respondent in his post-trial brief conceded a
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[*14] deduction for $357 of these expenses, attributable to payments to American
Disposal and Don’s Johns. Mr. Parker testified that Mid-Atlantic during 2010
paid for electricity service from Northern Virginia Electric Cooperative (NOVEC),
and for landline and Internet service from Verizon, all of which was supplied to
the trailer on Mid-Atlantic’s security lot. He testified that he also paid for cell
phone service from Sprint for himself and his employees.
With regard to electricity service, Mr. Parker provided a canceled check for
$298 made out to NOVEC in March 2010. He testified that this check was repre-
sentative of his usual monthly bill. He testified that for the other months in 2010
he paid the electric bill using a debit card; he produced no business records, in-
voices, or bank statements showing other payments to NOVEC. With regard to
landline and internet service, Mr. Parker provided a canceled check for $375 made
out to Verizon in March 2010; he provided no other documentary evidence of
payments to Verizon. With regard to cell phone service, he provided a canceled
check for $248 made out to Sprint in March 2010; he provided no other documen-
tary evidence of payments to Sprint.
We find that Mid-Atlantic maintained electricity, landline, and Internet
service in the trailer on its security lot, and we will estimate its utilities expense
using the Cohan rule. Because Mr. Parker stated that the lease on the security lot
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[*15] was in place from January to September, we will allow him a deduction for
nine months of expenses for these utilities. Since he substantiated expenses of
$673 ($298 + $375) for March 2010 and established that these charges were
typical, we will allow petitioners to deduct $6,057 ($673 × 9 months) on this
account. We will not allow a deduction for any cell phone expenses because
petitioners provided no evidence that the cell phones in question--held by Mr.
Parker and his children--were used for business purposes.5 Taking into account the
$357 conceded by respondent, we will allow a deduction for utilities expense of
$6,414 for 2010.
4. Contract Labor Expenses
Petitioners reported on their Schedule C for the Mid-Atlantic business
contract labor expenses of $29,786. Mr. Parker testified that Mid-Atlantic
employed his son and daughter full time and that he occasionally hired other
family members and their friends as part-time workers to staff the trailer and drive
vehicles. At trial he produced canceled checks totaling $20,678 in an effort to
5
Cell phones were not “listed property” under sec. 280F(d)(4) for 2010 and
petitioners thus were not required to meet the strict substantiation requirements of
sec. 274(d). However, they must still show that the cell phones were used for
business rather than personal purposes and provide some credible evidence as to
the extent of business use. Because they did not satisfy these requirements, we
will disallow a deduction for all of the cell phone expenses.
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[*16] substantiate the latter expenses. Checks totaling $4,846 were made out to
five named payees; respondent has conceded $4,688 of this sum, corresponding to
checks written during 2010.
The rest of the canceled checks were made out to “cash,” typically in round-
dollar amounts such as $500. Mr. Parker testified that his usual practice was to
make out checks to “cash” and personally deposit them into his workers’ bank ac-
counts. But the evidence showed that the opposite often occurred: On 42 occa-
sions, Mr. Parker wrote checks, typically in exact dollar amounts such as $147.73,
directly to the five named workers. He did not explain this inconsistency.
Petitioners offered no evidence, such as a Form 1099-MISC, a check stub,
or another document, to show that the amounts of checks made out to “cash” were
paid to workers as compensation for services rendered. Many of these checks
were apparently given to family members or their acquaintances. The memo lines
on many of these checks have obscure notations such as “Jessie,” “M&A,” and
“BLAM”; Mr. Parker did not explain these references or link them in any way to
contract labor. And the round-dollar amounts of these checks are at odds with the
notion that they represented payment of hourly wages. We will accordingly
disallow a deduction for the $25,098 of contract labor expenses not conceded by
respondent.
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[*17] 5. Car and Truck Expenses
Petitioners reported on their Schedule C for the Mid-Atlantic business car
and truck expenses of $37,466. This deduction was based not on actual expenses
but on a “mileage allowance” of 50 cents a mile, for 74,931 alleged business miles
driven using two tow trucks. Petitioners did not maintain or produce at trial a
mileage log, odometer readings, a trip sheet, an account book, or any form of
documentation to substantiate the 74,931 miles claimed. They thus failed to satis-
fy the substantiation requirements for deducting the mileage allowance. See Rev.
Proc. 2010-51, 2010-51 I.R.B. 883.
At trial petitioners abandoned any claim to a mileage allowance and claimed
a deduction for actual car and truck expenses, such as the cost of new tires, oil
changes, and general maintenance. But they produced no documents to substan-
tiate these expenses, apart from a $45 check payable to “Virginia DMV,” which
they did not establish was business related. The only other canceled checks were
$500 checks made out to “cash” that were drawn on a Mid-Atlantic account and
apparently deposited into Mrs. Parker’s account. These checks do not evidence
the payment of car and truck expenses.
Petitioners clearly incurred some car and truck expenses during 2010 be-
cause Mid-Atlantic was in the towing business. But they produced no substantia-
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[*18] tion for the mileage allowance reported on their return or for the actual car
and truck expenses for which they claimed a deduction at trial. Even if tow-truck
expenses were regarded as exempt from the strict substantiation requirements of
section 274(d), petitioners’ failure to supply any substantiation whatsoever means
that we are not at liberty to estimate these expenses. In order to estimate expenses
under the Cohan rule, we must have some evidence on the basis of which an
estimate can be made. Vanicek, 85 T.C. at 742-743. As it is, we have no
alternative but to deny for lack of substantiation a deduction for the $37,466 of car
and truck expenses.
6. Other Expenses
Petitioners reported on their Schedule C for the Mid-Atlantic business
“other expenses” of $11,712. These expenses were allegedly incurred for: (1)
Quickbooks software; (2) bank service charges; (3) computer and internet
expenses; (4) continuing education classes; (5) dues and subscription fees; (6)
postage and delivery expenses; (7) “taxes on Tarring property;” and (8) “bailouts.”
In an effort to substantiate these expenses petitioners produced at trial a few
canceled checks, but none of these checks had any logical relationship to the
categories of expenses reported. (Several of the checks were made out to “cash”;
one was made out to American Disposal, and respondent conceded the amount
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[*19] deductible as a utilities expense; another was made out to a contract
worker.) We conclude that petitioners have not carried their burden of
substantiating any of the reported “other expenses.”
B. Mary Kay Business
1. Car and Truck Expenses
Petitioners reported on their Schedule C for the Mary Kay business car and
truck expenses of $20,000. At trial they conceded the deduction for these
expenses in full. We accordingly conclude that petitioners are not entitled to
deduct any car and truck expenses for the Mary Kay business.
2. Cost of Goods Sold
Petitioners reported on their Schedule C for the Mary Kay business gross
receipts of $369 and cost of goods sold of $4,626. We have determined that the
actual gross receipts of the Mary Kay business were $2,329 ($369 + $1,960 of
unreported income). Respondent concedes that petitioners are entitled to a
corresponding cost of goods sold of $953.
“Cost of goods sold is the amount that the taxpayer expended to purchase or
construct inventory sold during the year.” Gaitan v. Commissioner, T.C. Memo.
2012-3, 103 T.C.M. (CCH) 1010, 1012. Mrs. Parker testified that she purchased
$5,000 of inventory before 2010 and that most of this inventory remained unsold
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[*20] when she quit the Mary Kay business in mid-2010. Petitioners testified that
they had “boxes and boxes of that stuff still at the house.” The inventory that
remained on hand after 2010 was obviously not sold during that year. We
conclude that petitioners have not borne their burden of proving entitlement to an
adjustment for cost of goods sold in excess of the amount that respondent
conceded.
IV. Penalties
The Code imposes a 20% penalty on the portion of any underpayment of tax
attributable to “[n]egligence or disregard of rules and regulations” or “[a]ny sub-
stantial understatement of income tax.” Sec. 6662(a) and (b)(1) and (2). Negli-
gence includes “any failure to make a reasonable attempt to comply” with the
internal revenue laws. Sec. 6662(c). An understatement of income tax is “sub-
stantial” if it exceeds the greater of $5,000 or 10% of the tax required to be shown
on the return. Sec. 6662(d)(1)(A). Under section 7491(c) respondent bears the
burden of production with respect to the liability of an individual for any penalty.
See Higbee v. Commissioner, 116 T.C. 438, 446 (2001).
No penalty is imposed with respect to any portion of an underpayment if the
taxpayer acted with reasonable cause and in good faith with respect thereto. The
taxpayer bears the burden of proving reasonable cause and good faith. Id. at
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[*21] 446-447. Reasonable cause can be shown by good-faith reliance on the
advice of a qualified tax professional. Sec. 1.6664-4(b)(1), (c), Income Tax Regs.
Respondent has met his burden of production with respect to petitioners’
negligence and disregard of rules and regulations. Petitioners failed to report
$44,670 of income attributable to their Mid-Atlantic and Mary Kay businesses and
claimed more than $100,000 of deductions for which they had no substantiation
whatsoever. Petitioners have not demonstrated that these failures were due to
reasonable cause. For both businesses, petitioners maintained virtually no books
and records to track their income and expenses. The evidence they produced at
trial, consisting mostly of canceled checks, often bore little relationship to the
income and expenses reported on their return. They did not rely on any profes-
sional advice in taking these positions.
We find that the entirety of petitioners’ underpayment for 2010 was attribu-
table to negligence. In the event the Rule 155 computation indicates that petition-
ers’ understatement of income tax for 2010 exceeds the greater of $5,000 or 10%
of the amount required to be shown on their 2010 return, we conclude that the
underpayment is alternatively attributable to a substantial understatement of
income tax for which they have not shown reasonable cause.
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[*22] To reflect the foregoing,
Decision will be entered under
Rule 155.