T.C. Summary Opinion 2020-7



                  UNITED STATES TAX COURT



     RELIABLE COMPUTER SERVICES, INC., Petitioner v.
    COMMISSIONER OF INTERNAL REVENUE, Respondent

PATRICK LIND AND MARY BETH BLOTNICK LIND, Petitioners v.
   COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket Nos. 24302-15S, 24303-15S.            Filed January 22, 2020.



Patrick Lind (an officer), for petitioner Reliable Computers, Inc.

Patrick Lind, pro se.

Mayah Solh-Cade, for respondent.
                                        -2-

                              SUMMARY OPINION


      CARLUZZO, Chief Special Trial Judge: These cases, consolidated by order

dated September 9, 2016, are subject to the provisions of section 74631 of the

Internal Revenue Code in effect when the petition in each case was filed. Pursuant

to section 7463(b), the decisions to be entered are not reviewable by any other

court, and this opinion shall not be treated as precedent for any other case.

      In a notice of deficiency dated June 22, 2015, respondent determined

deficiencies and section 6662(a) penalties with respect to Reliable Computer

Services, Inc.’s (Reliable) Federal income tax for tax years ended June 30, 2011

(fiscal year 2011), and June 30, 2012 (fiscal year 2012). In a notice of deficiency

also dated June 22, 2015, respondent determined deficiencies and section 6662(a)

penalties with respect to the 2010, 2011, and 2012 Federal income tax of Patrick

Lind and Mary Beth Blotnick Lind.




      1
        Unless otherwise indicated, section references are to the Internal Revenue
Code of 1986, as amended, in effect for the years in issue, and Rule references are
to the Tax Court Rules of Practice and Procedure. Dollar amounts have been
rounded to the nearest dollar.
                                          -3-

      After concessions,2 the issues for decision are whether: (1) the Linds are

entitled to a deduction for other expenses claimed on a Schedule C, Profit or Loss

From Business, included with their 2010 Federal income tax return; (2) the Linds

accurately reported the cost of goods sold (COGS) on a Schedule C included with

their 2010 Federal income tax return; (3) the Linds received but failed to report

dividend income of $20,294, $27,797, and $63,706 from Reliable3 in 2010, 2011,

and 2012, respectively; (4) the Linds properly reported the gains from the sale of

Reliable’s inventory as capital gain on Schedules D, Capital Gains and Losses,

included with their 2011 and 2012 Federal income tax returns; (5) Reliable is

entitled to various business expense deductions for the years in issue; (6) Reliable

properly reported COGS for the years in issue; (7) Reliable had ending inventory

of $8,105 and $30,406 for fiscal years 2011 and 2012, respectively; (8) Reliable

understated gross receipts by $56,048 for fiscal year 2012; and (9) the Linds

and/or Reliable are liable for a section 6662(a) accuracy-related penalty for any

year in issue.



      2
         Reliable concedes that it is not entitled to a net operating loss carryforward
deduction of $2,435 for fiscal year 2011. Respondent now concedes that Reliable
is entitled to the $3,492 deduction for taxes and licenses expenses claimed on its
return for fiscal year 2012.
      3
          At all times relevant, Mr. Lind operated and controlled Reliable.
                                         -4-

                                    Background

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

relevant, the Linds lived in Illinois, which was also the principal place of

Reliable’s business.

      Mr. Lind is the sole shareholder and an officer of Reliable, a C corporation.

Reliable computes its Federal income tax liability on the basis of a fiscal year

ending June 30. Reliable’s business is located in a 5,000-square-foot warehouse

in Lockport, Illinois. In the warehouse Reliable stored the used electronic devices

it purchased from Fermi National Accelerator Laboratory, U.S. Department of

Energy (Fermilab), pursuant to the terms of a sales agreement entered into with

Fermilab. According to those terms, over a 5-year period Reliable was entitled to

purchase used electronic equipment for 13 cents per pound. The sales agreement

obligated Reliable to collect the used electronic equipment at a location and time

Fermilab designated. Mr. Lind routinely used his privately owned pickup trucks

to transport the used electronic equipment from Fermilab to Reliable’s warehouse.

      Reliable resold some of the used electronic equipment it purchased from

Fermilab to buyers through eBay. Reliable received payments through PayPal,

Inc. (PayPal), for most, if not all, items sold. Reliable shipped the merchandise to

its buyers via UPS. Some of the used electronic devices were sold as is, while
                                       -5-

some were dismantled and sold as components. Reliable stored a considerable

amount of unsold used electronic equipment in the warehouse.

      Reliable maintained receipts, invoices, and statements, including UPS and

AT&T statements, which were used to maintain a general ledger.

      The Linds maintained a joint bank account at Harris Bank (joint account)

during the years in issue. Reliable maintained a corporate bank account at Harris

Bank (corporate account) during the years in issue. Mr. Lind received checks

from the corporate account, which he deposited into the Linds’ joint account, of

$38,450, $65,900, and $102,400 in 2010, 2011, and 2012, respectively. Some of

the deposits represent the wages Reliable paid Mr. Lind; however, Reliable also

made payments to petitioner in excess of the wages reported on the Linds’ returns.

Reliable was profitable during the relevant periods, and Mr. Lind often used funds

from the corporate account to pay his personal expenses, including cell phone and

telephone bills, medical expenses, taxes, and “warehouse expenses”.

      Reliable’s timely filed Federal corporate income tax returns for fiscal years

2011 and 2012 were prepared by a paid income tax return preparer. On its Federal

corporate income tax returns for fiscal years 2011 and 2012, Reliable checked the

box for the “Accrual” accounting method and reported its business activity as

“sales”.
                                         -6-

      On its Federal corporate income tax returns for fiscal years 2011 and 2012,

Reliable reported gross sales of $117,025 and $122,628, respectively, and COGS

of $37,468 and $42,153, respectively, consisting of the following:

                      COGS                      2011                2012

             Purchases                           -0-               $22,301
             Advertising sales and
              production costs                 $1,675                7,391
             Equipment rental                   2,400                -0-
             Freight delivery and
              logistics                         5,880                2,515
             Parts and supply                   8,105                1,368
             Process costs                      1,751                 -0-
             Shipping                           9,681                 -0-
             Shop supply                          528                1,366
             Subcontract and commission         1,110                -0-
             Warehouse expense                  6,338                7,212
              Total                            37,468               42,153

Reliable did not report any beginning or ending inventory on its tax returns and

did not use inventory accounting for either tax or financial accounting purposes

for its fiscal years in issue. Since its incorporation, Reliable has reported no

opening or closing inventories on its tax returns; instead it treated purchases as

current expenses each year.

      As relevant, Reliable claimed other deductions of $17,314 and $22,704 on

its Federal corporate income tax returns for fiscal years 2011 and 2012,

respectively, consisting of the following expenses:
                                       -7-

              Other deductions                2011              2012

            Accounting                       $1,485            $2,025
            Dues and subscriptions              279              -0-
            Insurance                         2,974             2,955
            Office expense                      424             2,040
            Telephone                         3,107             3,183
            Truck expense                     5,288             8,593
            Utilities                         3,757             3,908
             Total                           17,314            22,704

      Reliable also claimed a $2,435 net operating loss deduction on its Federal

corporate income tax return for fiscal year 2011.

      The Linds’ joint Federal income tax returns for 2010 and 2012, as well as

their amended joint Federal income tax return for 2011, were prepared by the same

paid income tax return preparer that prepared Reliable’s returns. The Linds and

Reliable employed that income tax return preparer for over 30 years.

      As relevant, the Linds’ 2010 return included a Schedule C showing Mr.

Lind as the proprietor of a “sales” business. On the Schedule C they reported

gross sales of $6,000 and COGS of $1,008. They also reported a $1,950 deduction

for other expenses, consisting entirely of outside services. The income reported

and deductions claimed on the Schedule C are computed under the cash method.
                                       -8-

      The Linds attached a Schedule D to their 2011 and 2012 returns in which

they reported net long-term capital gains of $21,749 and $57,100, respectively,

from the sale of Reliable’s assets.

      In the notice of deficiency related to the Linds, respondent: (1) disallowed

the $1,950 deduction for other expenses claimed on the Schedule C for 2010;

(2) disallowed COGS of $1,008 on the Schedule C for 2010; (3) determined that

they received but failed to report dividend income of $20,294, $27,797, and

$63,706 from Reliable in 2010, 2011, and 2012, respectively, for personal

expenses paid from the corporate account plus cash distributions in excess of

wages; (4) disallowed the capital gains reported on Schedules D of $21,749 and

$57,100 for 2011 and 2012, respectively; and (5) imposed a section 6662(a)

accuracy-related penalty on various grounds for each year. Some of the

adjustments made in the notice are computational and will not be discussed.

      In the notice of deficiency related to Reliable, respondent: (1) disallowed

$14,767 of the $37,468 of COGS for fiscal year 2011;4 (2) disallowed $5,249 of




      4
       The disallowed COGS for fiscal year 2011 consists of “Adv Sales and
Production Costs” of $1,675, “Equipment Rental” of $2,400, “Freight Delivery
and Logistics” of $5,880, “Shop Supply” of $528, “Subcontract and Commission”
of $1,110, and “Warehouse Expense” of $3,174.
                                        -9-

the $42,153 of COGS for fiscal year 2012;5 (3) disallowed $1,405 of the $3,107 of

deductions for telephone expenses for fiscal year 2011; (4) disallowed $6,080 of

$22,704 for other trade or business expense deductions for fiscal year 2012;6

(5) increased Reliable’s gross receipts by $56,048 for fiscal year 2012;

(6) disallowed a net operating loss carryforward deduction of $2,435 for fiscal

year 2011; (7) determined that Reliable had ending inventories of $8,105 and

$30,406 for fiscal years 2011 and 2012, respectively; and (8) imposed a section

6662(a) accuracy-related penalty on various grounds for each year. Some of the

adjustments in the notice have been conceded by one or the other of the parties

and need not be addressed.

                                    Discussion

I. Burden of Proof

      As a general rule, the Commissioner’s determination of a taxpayer’s Federal

income tax liability in a notice of deficiency is presumed correct, and the taxpayer




      5
      The disallowed COGS for fiscal year 2012 consists of “Shop Supply” of
$1,366, “Parts and Supply” of $1,368, and “Freight Delivery and Logistics” of
$2,515.
      6
        The disallowed other trade or business expense deductions for fiscal year
2012 consist of telephone expenses of $3,055, accounting expenses of $985, and
office expenses of $2,040.
                                       - 10 -

bears the burden of proving that the determination is erroneous. Rule 142(a);

Welch v. Helvering, 

, 115 (1933).7

II. COGS, Section 162 Deductions, and Inventory

      A. COGS and Section 162 Deductions

      The Linds reported COGS of $1,008 and a $1,950 deduction for other

expenses, consisting entirely of outside services, on their Schedule C for 2010.

Reliable reported COGS of $37,468 and $42,153 on its Federal corporate income

tax returns for fiscal years 2011 and 2012, respectively. Reliable also reported

other trade or business deductions of $17,314 and $22,704 on its Federal corporate

income tax returns for fiscal years 2011 and 2012, respectively.

      Respondent disallowed the entire amount of COGS and the deduction for

other expenses reported on the Linds’ Schedule C for 2010. Respondent

disallowed portions of the amounts reported as COGS as well as portions of the

deductions for trade or business expenses on Reliable’s Federal corporate income

tax returns for fiscal years 2011 and 2012. According to the Linds and Reliable,

these amounts constitute either COGS or deductible trade or business expenses




      7
      The Linds and Reliable do not claim and the record does not otherwise
demonstrate that the provisions of sec. 7491(a) are applicable here, and we
proceed as though they are not.
                                         - 11 -

under section 162. Respondent contends that the Linds and Reliable have not

substantiated these expenses.

        Section 162 allows a taxpayer to deduct all ordinary and necessary expenses

paid or incurred by the taxpayer in carrying on a trade or business; but personal,

living, or family expenses are not generally deductible. Secs. 162(a), 262; Boyd v.

Commissioner, 

, 313 (2004). Whether an expense is deductible

pursuant to section 162 is a question of fact to be decided on the basis of all

relevant facts and circumstances. Cloud v. Commissioner, 

, 618

(1991) (citing Commissioner v. Heininger, 

, 473-475 (1943)).

        COGS is an adjustment to gross income and is computed with proper

adjustment for opening and closing inventories for the year. See secs. 1.61-3(a),

1.162-1(a), Income Tax Regs. Technically, it is not treated as a deduction from

gross income, and it is not subject to the limitations on deductions in sections 162

and 274. See Metra Chem Corp. v. Commissioner, 

, 661 (1987); B.C.

Cook & Sons, Inc. v. Commissioner, 

, 428 (1975), aff’d per curiam,

(5th Cir. 1978); secs. 1.61-3(a), 1.162-1(a), 1.471-3, Income Tax

Regs.

        A taxpayer is required to maintain records sufficient to substantiate

deductions and COGS claimed on the taxpayer’s return. See sec. 6001; New
                                        - 12 -

Colonial Ice Co. v. Helvering, 

, 440 (1934); sec. 1.6001-1(a), Income

Tax Regs.; see also Higbee v. Commissioner, 

, 440 (2001). As a

general rule, if a taxpayer provides sufficient evidence that the taxpayer has paid

or incurred an expense contemplated by section 162(a) but the taxpayer is unable

to adequately substantiate the amount of the expense, then the Court may estimate

the amount of the expense and allow the section 162(a) deduction to that extent.

Cohan v. Commissioner, 

, 543-544 (2d Cir. 1930). However, in order

for the Court to estimate the amount of an expense, there must be some basis upon

which an estimate may be made. Vanicek v. Commissioner, 

, 742-743

(1985). Otherwise, any allowance would amount to unguided largesse. Williams

v. United States, 

, 560 (5th Cir. 1957). The Cohan rule applies to

COGS. See Goldsmith v. Commissioner, 

, 62 (1958).

      Deductions for expenses attributable to travel (“including meals and lodging

while away from home”), entertainment, gifts, and the use of “listed property” (as

defined in section 280F(d)(4) and including passenger automobiles), if otherwise

allowable, are subject to strict rules of substantiation. See sec. 274(d); Sanford v.

Commissioner, 

, 827 (1968), aff’d per curiam, 

(2d Cir.

1969); sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov.

6, 1985). With respect to deductions for these types of expenses, section 274(d)
                                        - 13 -

requires that the taxpayer substantiate either by adequate records or by sufficient

evidence corroborating the taxpayer’s own statement: (1) the amount of the

expense, (2) the time and place the expense was incurred, (3) the business purpose

of the expense, and (4) in the case of an entertainment or gift expense, the business

relationship to the taxpayer of each expense incurred. For “listed property”

expenses, the taxpayer must establish the amount of business use and the amount

of total use for such property. See sec. 1.274-5T(b)(6)(i)(B), Temporary Income

Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).

      Substantiation by adequate records requires the taxpayer to maintain an

account book, a diary, a log, a statement of expense, trip sheets, or a similar record

prepared contemporaneously with the expenditure and documentary evidence

(e.g., receipts or bills) of certain expenditures. Sec. 1.274-5(c)(2)(iii), Income Tax

Regs.; sec. 1.274-5T(c)(2), Temporary Income Tax Regs., 50 Fed. Reg. 46017

(Nov. 6, 1985). Substantiation by other sufficient evidence requires the

production of corroborative evidence in support of the taxpayer’s statement

specifically detailing the required elements. Sec. 1.274-5T(c)(3), Temporary

Income Tax Regs., 50 Fed. Reg. 46020 (Nov. 6, 1985).

      The Linds offered no explanation for COGS or the deduction for other

expenses reported on their Schedule C for 2010. Accordingly, they are not
                                        - 14 -

entitled to COGS or the deduction for other expenses reported on their Schedule C

for 2010.

      At trial Mr. Lind testified generally about the nature of Reliable’s COGS

and trade or business expenses for fiscal years 2011 and 2012. In support of the

above-referenced COGS and deductions, he also submitted Reliable’s general

ledger along with receipts, invoices, and statements, all of which we have

carefully reviewed. Handwritten notations accompanying the documents attempt

to tie each expenditure to a deduction claimed on Reliable’s Federal corporate

income tax returns. For example, he labeled numerous purchases at White Castle

and Dunkin Donuts “office” expenses.

      As best we can tell from the general ledger and accompanying records,

COGS and deductions in excess of the amounts respondent already allowed were

not substantiated by written evidence, or if so, the written evidence fails to meet

the strict substantiation requirements of section 274(d) that apply to expenses for

car and truck, travel, and meals and entertainment. Otherwise, with respect to

certain expense deductions not subject to the strict substantiation requirements of

section 274(d), Reliable has failed to establish that the expenses are ordinary and

necessary expenses related to its trade or business. The generalized evidence

introduced on the point provides neither proper support for COGS or the
                                         - 15 -

deductions nor any basis for us to estimate the amounts of these expenses that it

might have incurred during its fiscal years in issue. See Cohan v. 

; see also Vanicek v. Commissioner, 

.

Accordingly, Reliable is not entitled to COGS or deductions for the trade or

business expenses in excess of any amounts respondent already allowed for the

years in issue.

         B. Inventory

         During the years in issue Reliable reported its income on the accrual method

but did not account for its inventory in the calculation of COGS, instead choosing

to include the amount of its yearly purchases in its computation of COGS even

though it is clear that not all of the items purchased during the year were sold

during the year. In the notice respondent made adjustments to Reliable’s ending

inventory for fiscal year 2011 and beginning and ending inventories for fiscal year

2012. Respondent’s calculations are based on purchases made in fiscal years 2011

and 2012 as reflected in Reliable’s Federal corporate income tax returns for those

years.

         Taxpayers are required to take “inventories at the beginning and end of each

taxable year” in which “the production, purchase, or sale of merchandise is an

income-producing factor.” Sec. 1.471-1, Income Tax Regs.
                                        - 16 -

       Section 1.446-1(a)(4)(i), Income Tax Regs., provides that a taxpayer who is

involved in the production, purchase, or sale of merchandise must account for

merchandise on hand at the beginning and end of each year, so as to compute

properly taxable income for each year. The regulation further provides that such

merchandise is to be accounted for under the methods of computing inventories

provided in sections 471 and 472, and the regulations thereunder.

       Applying the regulations under section 446, it becomes apparent that it is

necessary for Reliable to use inventories. See sec. 1.471-1, Income Tax Regs.

       Although less than clear, it appears that Reliable contends that the

considerable inventory stored in its 5,000-square-foot warehouse had no value and

therefore its practice of including each year’s purchases in COGS without regard

to an inventory accounting method was appropriate. We find Reliable’s position

unpersuasive and inconsistent with its position that the items remaining at the end

of each year had, at the very least, scrap value. Moreover, Reliable has failed to

introduce any evidence contradicting respondent’s calculations of inventories, and

therefore we find that Reliable has failed to carry its burden of proof with respect

to this issue.
                                         - 17 -

III. Constructive Dividends

      According to respondent, Mr. Lind received dividends of $20,294, $27,797,

and $63,706 from Reliable in 2010, 2011, and 2012, respectively, consisting of the

following:

             Dividend           2010                2011                2012

      Personal cell phone        $702                $702                -0-
      Personal telephone         -0-                 -0-               $3,055
      Warehouse expenses
       deemed personal           1,142              1,645                -0-
      Payments in excess
       of wages                 18,450             25,450              57,400
      Medical expenses of
       shareholder               -0-                  -0-               1,367
      Personal taxes of
       shareholder               -0-                 -0-                1,884
       Total                    20,294             27,797              63,706

      A dividend is a distribution of property made by a corporation to its

shareholders from its earnings and profits. Sec. 316(a). A shareholder may

receive a dividend even though the corporation has not formally declared a

distribution. Truesdell v. Commissioner, 

, 1295 (1987). If a

corporation makes a noncompensatory payment on behalf of a shareholder without

a business purpose or expectation of repayment, then this amount constitutes a

constructive dividend to the shareholder. Benjamin v. Commissioner, 

, 1115 (1976), aff’d, 

(5th Cir. 1979).
                                       - 18 -

      Reliable’s payments of Mr. Lind’s personal expenses are distributions to

him. See 

Mr. Lind acknowledged that he paid personal expenses from

Reliable’s corporate account during the years in issue. Furthermore, the Linds

have failed to meet their burden of proving that there were insufficient earnings

and profits to support respondent’s determinations of constructive dividends. See

Truesdell v. Commissioner, 

. The Linds have shown no

other error in respondent’s determinations of their unreported constructive

dividends from Reliable for the years in issue. Accordingly, we hold that the

Linds have unreported constructive dividends from Reliable as determined in the

notice.

IV. Net Long-Term Capital Gains

      The Linds attached Schedules D to their 2011 and 2012 returns in which

they reported net long-term capital gains of $21,749 and $57,100, respectively.

According to respondent, the items giving rise to the reported net long-term capital

gains were from the sale of Reliable’s assets, a point not disputed by the Linds.

Because the gains derived from the sale of Reliable’s property, the income is

properly reported on Reliable’s Federal corporate income tax returns.

Accordingly, respondent’s disallowance of the capital gains reported on the Linds’

Schedule D of $21,749 and $57,100 for 2011 and 2012, respectively, is sustained.
                                       - 19 -

V. Gross Receipts or Sales

      Reliable reported gross receipts of $122,628 on its Federal corporate income

tax return for fiscal year 2012. In the notice respondent increased Reliable’s gross

receipts by $56,048 for fiscal year 2012 on account of Reliable’s own books and

records as well as the corporate bank account and PayPal statements.

      This adjustment flows from respondent’s disallowance of the $57,100 net

long-term capital gain reported on the Linds’ 2012 return that we have already

determined should properly be reported on Reliable’s Federal corporate income

tax return for fiscal year 2012. Moreover, a review of Reliable’s books and

records and corporate bank account and PayPal statements confirms respondent’s

determination, and Reliable has not provided any evidence to the contrary.

Respondent’s adjustment increasing Reliable’s gross receipts by $56,048 for fiscal

year 2012 is sustained.

VI. Section 6662(a) Accuracy-Related Penalties

      Lastly, we consider whether the Linds and/or Reliable are liable for a

section 6662(a) accuracy-related penalty for any year in issue. The evidence

shows that respondent has met his burden of production with respect to the

imposition of accuracy-related penalties for the Linds and Reliable on the basis of
                                        - 20 -

an underpayment due to negligence and/or a substantial understatement of income

tax for each period involved. See sec. 6662(a) and (b)(1) and (2).

      The accuracy-related penalty does not apply, however, to any part of an

underpayment of tax if it is shown that the taxpayer acted with reasonable cause

and in good faith with respect to that portion. Sec. 6664(c)(1). The determination

of whether a taxpayer acted in good faith is made on a case-by-case basis, taking

into account all the pertinent facts and circumstances. Sec. 1.6664-4(b)(1),

Income Tax Regs. The Linds and Reliable bear the burden of proving that they

had reasonable cause and acted in good faith with respect to the underpayments.

See Higbee v. Commissioner, 

.

      Reliance on professional advice will absolve the taxpayer if “such reliance

was reasonable and the taxpayer acted in good faith.” Sec. 1.6664-4(b)(1), Income

Tax Regs. Under certain circumstances, a taxpayer’s reliance upon professional

advice may establish the taxpayer’s “reasonable cause” and “good faith” with

respect to an underpayment of tax if the taxpayer establishes that: (1) the

professional was provided with complete and accurate information, (2) an

incorrect return was a result of the preparer’s mistakes, and (3) the taxpayer

demonstrates good-faith reliance on a competent professional. See Estate of

Goldman v. Commissioner, 

, 324 (1999), aff’d without published
                                        - 21 -

opinion sub nom. Schutter v. Commissioner, 

(10th Cir. 2000);

see also Neonatology Assocs., P.A. v. Commissioner, 

, 99 (2000),

aff’d, 

(3d Cir. 2002).

      The Linds and Reliable engaged a paid income tax return preparer to

prepare their Federal income tax returns for the years in issue. We are satisfied

that they relied completely upon the preparer not only for advice in the preparation

of the relevant Federal income tax returns but also during the examinations of the

returns and the preparations for trial in these cases. The return preparer testified

on behalf of the Linds and Reliable in response to questions presented by Mr. Lind

but, more likely than not, drafted by the return preparer. We are further satisfied

that the Linds and Reliable presented what financial information each had before

each return was drafted, and it is the return preparer who is responsible for the

positions taken on each of those returns. Although we now reject some of those

positions, we find that the Linds’ and Reliable’s reliance on the return preparer

was made in good faith. The Linds and Reliable employed the same return

preparer for more than 30 years before the years in issue, and nothing in the record

suggests they had any reasons to question the return preparer’s competence.

      As to the return preparer’s competence, we note that he testified on behalf

of the Linds and Reliable at trial and his competence was not attacked during
                                       - 22 -

cross-examination. We can envision circumstances that could support a finding of

a return preparer’s incompetence from nothing other than the improper positions

taken on a Federal income tax return. This, however, is not that case, and we are

reluctant to assume or infer incompetence here. It follows and we find the Linds

and Reliable are not liable for a section 6662(a) accuracy-related penalty for any

year in issue.

      To reflect the foregoing,


                                                Decisions will be entered under

                                       Rule 155.