Accuracy-Related Penalty And No Reasonable-Cause Excuse

Mulu v. Comm’r, T.C. Summary Opinion 2023-2| January 25, 2023 | Leyden, J. | Dkt. No. 12975-21S

Summary: In this non-precedential opinion (see section 7463(b)), the Tax Court addresses whether or not to uphold an accuracy-related penalty assessed to taxpayer, Ashenafi Getachew Mulu (Mulu). Mulu hired David Clerie—self-coined, “Dave, Tax Doctor”—to prepare Mulu’s federal income tax return as Clerie had done for at least four years. Mr. Clerie did not have a preparer tax identification number (PTIN), and the federal income tax return in issue (2018) was electronically submitted as though it had been self-prepared by Mulu. In 2017 Mulu purchased a house. Clerie advised Mulu to renovate the house for the purpose of renting certain floors. Mulu began renting out those floors during 2018. Clerie visited Mulu’s workplace in February 2019 to gather information to prepare the 2018 tax return. Mulu’s return prepared by Clerie claimed deductions and reported expenses related to the purchase of the house and costs incurred with respect to the rental. Mulu claimed passive activity losses on Form 8582, Passive Activity Loss Limitations, and deductions on Schedule E, Supplemental Income and Loss, related to the purchase of the house. Mulu substantiated only a portion of the repairs expense. Mulu claimed deductions for car and truck expenses on Schedule C, Profit or Loss From Business, and reported his principal business or profession as a “driver.” Mulu actually worked as a pharmacist, but the return listed Mulu’s occupation as “Laborer.” Soon before April 15, 2019, Mulu learned, from Clerie’s brother, that Clerie died on March 8, 2019. The brother told Mulu that the brother was handling Clerie’s tax return preparation business. No qualifications were given. Mulu did not review the tax return before it was e-filed by the brother. The IRS examined the 2018 tax return. The IRS later sent a Form 4549, Report of Income Tax Examination Changes, and a Civil Penalty Lead Sheet and Civil Penalty Approval Form was signed by a review agent supervisor, personally approving of an accuracy-related penalty. Mulu petitioned the Tax Court. After concessions, the sole issue related to the accuracy-related penalty assessed by the IRS.

Key Issues: Whether for 2018 Mulu is liable for a section 6662(a) accuracy-related penalty of $1,212.20?
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