                    T.C. Summary Opinion 2009-172



                       UNITED STATES TAX COURT



     WAYNE ROBERT RISLEY AND NANETTE RISLEY, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10857-05S.              Filed November 23, 2009.



     Robert L. Risley, for petitioners.

     Kevin W. Coy and Kelly R. Morrison-Lee, for respondent.



     LARO, Judge:   Petitioners petitioned the Court to

redetermine respondent’s determination of deficiencies in and

accuracy-related penalties related to their joint 2001, 2002, and

2003 Federal income tax returns (2001 return, 2002 return, and

2003 return, respectively; collectively, subject returns).
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Petitioners filed their petition pursuant to the provisions of

section 7463.1

       This case is now before the Court on respondent’s motion for

summary judgment.     We hold that respondent is entitled to summary

judgment and shall enter a decision accordingly.       Pursuant to

section 7463(b), the decision to be entered is not reviewable by

any other court, and this opinion shall not be treated as

precedent for any other case.

                              Background

I.    Preliminaries

       Petitioners are husband and wife.     They resided in

California when their petition was filed.       They filed the subject

returns jointly.

II.    Tax Shelter

       Petitioners participated in a fraudulent tax shelter (tax

shelter) promoted and sold by the National Audit Defense Network

(NADN).    The NADN advertised itself as a conglomerate of former

Internal Revenue Service agents, enrolled agents, certified

public accountants, and tax attorneys who could help U.S.

taxpayers pay no Federal income tax.       The NADN informed

petitioners that they could qualify for significant tax benefits

by forming a Web site and then paying the NADN to modify the Web


       1
      Section references are to the applicable versions of the
Internal Revenue Code. Rule references are to the Tax Court
Rules of Practice and Procedure.
                               - 3 -

site to comply with the Americans with Disabilities Act of 1990

(ADA), Pub. L. 101-336, sec. 302(a), 104 Stat. 355, codified at

42 U.S.C. sec. 12182(a) (2006).   The ADA generally provides that

any person who owns, leases, or operates a place of public

accommodation shall not discriminate against disabled individuals

in the full and equal enjoyment of goods, services, facilities,

privileges, advantages, and accommodations of the place of public

accommodation.

     The NADN informed petitioners that they had to pay the NADN

$2,495 and issue to the NADN a $7,980 promissory note as to each

year in which they wanted to participate in the tax shelter.

Payments on a note were to be made from the revenue generated by

the Web site or, if no revenue was generated, 8 years after the

note’s making.   The NADN informed petitioners that they could

claim a $5,000 tax credit pursuant to section 44 and deduct at

least $5,475 of business expenses pursuant to section 162 for

each year that they participated in the tax shelter.   The NADN

advised petitioners that it was not providing them (nor was it

engaged in the rendering of) any legal, accounting, or other

professional service and that they should retain a “competent

professional” if they wanted any legal advice or other expert

assistance with respect to the tax shelter.

     Petitioners paid the NADN $2,495 in each subject year to

participate in the tax shelter.   Petitioners also signed at least
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one $7,980 promissory note payable to the NADN or to an affiliate

thereof.

III.    Subject Returns

       A.     2001 Return

       Petitioners prepared their 2001 return themselves.

Petitioners attached a 2001 Schedule C, Profit or Loss From

Business (Sole Proprietorship), to their 2001 return reporting

that petitioner Wayne R. Risley (Mr. Risley) operated an

“Electronic Shipping and Information Service” business during

2001.       The only item of income or expense reported on the 2001

Schedule C was a $5,475 expense identified as “Excess

expenditures for modifications made for disabled access to

business”.       Petitioners also attached a 2001 Form 8826, Disabled

Access Credit, to their 2001 return.       The 2001 Form 8826 reported

that petitioners paid $10,475 in total eligible access

expenditures during 2001 and were claiming a $5,000 disabled

access credit for 2001.       Petitioners claimed the $5,000 credit on

their 2001 return.

       B.     2002 Return

       Petitioners prepared their 2002 return themselves.

Petitioners attached a 2002 Schedule C to their 2002 return

reporting that Mr. Risley operated an “Apple Electronic Shopping

& Information” business during 2002.       The only item of income or

expense reported on the 2002 Schedule C was a $5,475 expense
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identified as “Excess expenditures for modifications made for

[sic]”.    Petitioners also attached a 2002 Form 8826 to their 2002

return.    The 2002 Form 8826 reported that petitioners paid

$10,475 in total eligible access expenditures during 2002, that

petitioners had a current year disabled access credit of $5,000,

and that petitioners were claiming $611 of the $5,000 as an

allowable disabled access credit for 2002.     Petitioners claimed

the $611 credit on their 2002 return.

      C.   2003 Return

      Petitioners’ 2003 return was prepared by H&R Block.

Petitioners’ 2003 return did not report any income or deductions

as to the tax shelter.     Petitioners attached a 2003 Form 8826 to

their 2003 return.    The 2003 Form 8826 reported that petitioners

paid $5,000 in total eligible access expenditures during 2003 and

that petitioners were claiming a $2,375 disabled access credit

for 2003.    Petitioners claimed the $2,375 credit on their 2003

return.

IV.   Notice of Deficiency

      Respondent issued petitioners a notice of deficiency as to

the subject returns.     Respondent determined in the notice of

deficiency that petitioners were not entitled to any of the

deductions or credits claimed as to the tax shelter.     For the

respective years, respondent determined deficiencies of $6,513,
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$2,776, and $2,712.2   Respondent also determined accuracy-related

penalties under section 6662(a) and (b) of $1,303, $555, and

$542, respectively, for negligence or disregard of rules and

regulations.

                            Discussion

I.   Standard for Summary Judgment

      Summary judgment may be granted with respect to any part of

the legal issues in controversy if the record before the Court

shows no genuine issue as to any material fact and that a

decision may be rendered as a matter of law.    See Rule 121(a) and

(b); Craig v. Commissioner, 119 T.C. 252, 259-260 (2002).

Respondent bears the burden of proving the absence of any genuine

issue of material fact, and all facts are viewed in the light

most favorable to petitioners.    See Craig v. Commissioner, supra

at 260.   Petitioners, however, must do more than merely allege or

deny facts; they must set forth “specific facts showing that

there is a genuine issue for trial.”     See Rule 121(d); Celotex

Corp. v. Catrett, 477 U.S. 317, 324 (1986).    Petitioners have

failed to raise any genuine issue of material fact under that

standard, and this case is ripe for summary judgment.




      2
      These deficiencies total $11,664, and petitioners’ cash
expenditures as to the tax shelter total $7,485 ($2,495 x 3).
Petitioners reportedly realized an economic gain of $4,179 from
the tax shelter ($11,664 - $7,485 = $4,179).
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II.   Deficiencies

      Petitioners make no claim that sections 44 and 162 actually

allow them to deduct or credit the items that they reported as to

the tax shelter.     Cf. Good v. Commissioner, T.C. Memo. 2008-245

(holding on the merits that the taxpayers were not entitled to

the section 162 expenses and disabled business credits reported

as to the tax shelter).    Petitioners’ primary argument in

challenging respondent’s determination of the deficiencies is

that respondent is equitably estopped from assessing against them

any amount relating to the tax shelter.    We disagree.   Equitable

estoppel is a judicial doctrine that precludes a party from

denying his or her acts or representations which induced another

to act to his or her detriment.    See Hofstetter v. Commissioner,

98 T.C. 695, 700 (1992).    The following requirements must be

satisfied where, as here, equitable estoppel is asserted against

the Commissioner:    (1) A false representation by the Commissioner

or his wrongful, misleading silence; (2) an error in a statement

of fact and not in an opinion or statement of law; (3) ignorance

of the true facts; (4) a taxpayer’s reasonable reliance on the

Commissioner’s acts or statements; and (5) adverse effects of the

Commissioner’s acts or statement.    See Norfolk S. Corp. v.

Commissioner, 104 T.C. 13, 59-60 (1995), affd. 140 F.3d 240 (4th

Cir. 1998).   Petitioners’ failure to establish any one of these
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five requirements means that their claim of equitable estopped

must fail as well.

     Petitioners have failed to establish on the part of

respondent either a false representation or a wrongful,

misleading silence as to the tax shelter.3    To that end, we are

unable to find as to the tax shelter that respondent made any

representation (let alone any misrepresentation) to petitioners

or otherwise wrongfully concealed from petitioners any material

fact.    Instead, the record establishes (and we so find) that

respondent had no contact with petitioners as to the tax shelter

before his audit of the subject returns and that petitioners

invested in the tax shelter separate and apart from any action

taken by respondent.

     Petitioners argue that the statements of the the NADN’s

workforce are imputed to respondent to the extent that those

workers were registered with the Internal Revenue Service as

enrolled agents or tax preparers.    Petitioners also argue that

the tax shelter is imputed to respondent because the NADN

advertised that it employed those workers as well as former

Internal Revenue Service employees.     We disagree on both counts.

The record does not establish, nor do petitioners claim, that any

of the NADN’s workers also were working for the Internal Revenue



     3
      Given this failure, we need not and do not address any of
the other four requirements of equitable estoppel.
                                 - 9 -

Service at the same time.   Moreover, the mere fact that a former

employee of the Internal Revenue Service, or an individual

registered with the Internal Revenue Service as an enrolled agent

or a tax preparer, may have been affiliated with the NADN (and/or

the tax shelter) does not estop respondent from challenging the

legitimacy of the tax shelter.    See Auto. Club of Mich. v.

Commissioner, 353 U.S. 180, 183-184 (1957) (holding that the

Commissioner is usually not estopped from correcting

retroactively a mistake of law); see also Martin’s Auto Trimming,

Inc. v. Riddell, 283 F.2d 503, 506 (9th Cir. 1960); Schwalbach v.

Commissioner, 111 T.C. 215, 228 n.4 (1998); Fortugno v.

Commissioner, 41 T.C. 316, 323-324 (1963), affd. 353 F.2d 429 (3d

Cir. 1965).   Nor do we believe, as petitioners argued, that

respondent was sufficiently aware of the impropriety of the tax

shelter through petitioners’ filing of their 2001 return so that

he is estopped from challenging any of the amounts that

petitioners later claimed as to the tax shelters for 2002 and

2003.

     Petitioners also argue that the Government should bear the

loss of any Federal income taxes owed by them as to the tax

shelter because respondent failed to inform petitioners that the

tax shelter was a “fraud” and is in a better position than they

to recover the $7,485 that they paid to the NADN.   We disagree.

While petitioners consider it inequitable that they have to pay
                               - 10 -

taxes as to the tax shelter when they have paid $7,485 to the

NADN for what they now consider to be a worthless investment, we

know of no reason the Government should act as an insurer of that

investment.    Nor do we agree with petitioners that they are

entitled for the subject years to deduct the $7,485 as a theft

loss under section 165.    While section 165 lets an individual

deduct a theft loss in the year during which the individual

discovers the loss, see sec. 165(a), (c)(3), (e), the record does

not establish that petitioners discovered any such theft loss

during the subject years.

       We hold that respondent is not estopped from disallowing the

claimed amounts.    Accordingly, we sustain respondent’s

determination of the deficiencies.

III.    Accuracy-Related Penalties

       Respondent determined that petitioners are liable for

accuracy-related penalties under section 6662(a) and (b)(1).

Section 6662(a) and (b)(1) imposes a penalty equal to 20 percent

of the portion of an underpayment of tax attributable to a

taxpayer’s negligence or disregard of rules or regulations.

Negligence connotes a lack of due care or failure to do what a

reasonable and prudent person would do under the circumstances.

See Allen v. Commissioner, 92 T.C. 1, 12 (1989), affd. 925 F.2d

348 (9th Cir. 1991).    An accuracy-related penalty is not

applicable to any portion of an underpayment to the extent that
                                   - 11 -

the taxpayer had reasonable cause for that portion and acted in

good faith with respect thereto.       See sec. 6664(c)(1).

     Respondent bears the burden of production with respect to

the applicability of the accuracy-related penalties.            See sec.

7491(c).    That burden requires that respondent produce sufficient

evidence that it is appropriate to impose the accuracy-related

penalties.    See Higbee v. Commissioner, 116 T.C. 438, 446 (2001).

Once respondent meets this burden, the burden of proof falls upon

petitioners.     See id. at 447.    Petitioners may carry their burden

by proving that they were not negligent; i.e., that they made a

reasonable attempt to comply with the provisions of the Internal

Revenue Code and were not careless, reckless, or in intentional

disregard of rules or regulations.          See sec. 6662(c).

Alternatively, petitioners may establish that their underpayment

was attributable to reasonable cause and their acting in good

faith.     See sec. 6664(c)(1).

     We conclude that respondent has met his burden of production

and that petitioners have failed to carry their burden of proof.

The record establishes that petitioners claimed significant

amounts of tax benefits to which they neither were entitled nor

had a reasonable claim.     The record does not establish that

petitioners made a reasonable attempt to comply with the

provisions of the Internal Revenue Code, that petitioners’

underpayment was attributable to reasonable cause, or that
                             - 12 -

petitioners acted in good faith as to the underpayment.

Petitioners claim that the subject returns were prepared and

reviewed by the NADN and that they reasonably relied on the NADN

to prepare those returns correctly.   We reject that claim as

factually and legally incorrect.   As a point of fact, petitioners

prepared their 2001 and 2002 returns themselves; H&R Block

prepared their 2003 return; and the NADN informed petitioners

that it was not providing them with any legal or other

professional service and that they should retain a competent

professional if they wanted any legal advice or other expert

assistance with respect to the tax shelter.   As a point of law,

any such claimed reliance upon the NADN (if it in fact had

occurred) would not be reasonable in the setting of this case

given that the NADN was the tax shelter’s promoter.   See

Neonatology Associates, P.A. v. Commissioner, 115 T.C. 43, 98-99

(2000), affd. 299 F.3d 221 (3d Cir. 2002).

     We hold that petitioners are liable for the accuracy-related

penalties respondent determined.   Accordingly, we sustain

respondent’s determination as to those penalties.
                              - 13 -

IV.   Conclusion

      We have considered all of petitioners’ contentions and have

concluded that those contentions not discussed herein are without

merit.   To reflect the foregoing,


                                          An appropriate order and

                                     decision will be entered for

                                     respondent.
