Wednesday, September 2, 2009
Cunningham v. Commissioner, T.C. Memo. 2009-194 (Aug. 31, 2009):
The issues for decision are whether petitioners' reported losses from horse activities are limited by § 469 and whether petitioners have shown reasonable cause for the late filing of their return....
During 2002, Ralph P. Cunningham (petitioner) was employed on the dental faculty at New York University and maintained a private dental practice in Peekskill, New York. ... On Schedule E, Supplemental Income and Loss, petitioners claimed losses from five separate horse activities located in California. ... Petitioners' return and the partnership returns reporting the losses from the horse activities were prepared by Robert Gruntz (Gruntz).
Petitioners did not actively participate in the horse activities and had no knowledge of whether or not the horse activities occurred as represented in the partnership returns. They relied on representations by Gruntz in deducting the partnership losses against their other income.
In the notice of deficiency, the partnership losses reported by petitioners were disallowed as passive activities under § 469. Petitioners were advised by Gruntz not to cooperate with respondent’s requests for information. ...
Petitioners have not shown any participation, much less material participation, in the horse activities in issue. They simply signed returns claiming substantial losses without investigation or knowledge of the accuracy of the partnership returns for the horse activities.
Petitioner asserts in a posttrial memorandum that he was "duped by a charlatan and in essence Robert Gruntz tacitly implied that I should fabricate a log that would show 'material participation'". Petitioners assert that the liability would be a financial burden for their family and "petition the Court to consider reducing the liability, throwing [themselves] at the mercy of the court." They conclude with: "Just Google Robert Gruntz to see more."
This Court cannot reduce a liability without any basis in law and directly contrary to the law applicable to the facts appearing from the record in this case. We cannot "Google" or otherwise consider information outside of the record.
It is hard to understand, however, how that information could help petitioners. We have no way of knowing when they discovered adverse information about the alleged charlatan, and that information would be relevant only if an accuracy-related penalty were asserted. ...
Other than their reliance on Gruntz, whose qualifications as a tax adviser are not in the record, petitioners have offered no explanation of the reasons for the late filing of their return or the steps, if any, they took to secure timely filing. They have not established reasonable cause.
Had the court Googled Mr. Gruntz, it would have discovered much support for the taxpayer's "charlatan" claim.
Update: Joe Kristan has more.