T.C. Mem o. 2 01 4- 12 3

UNITED STAT ES TAX COURT

BLESSING U. ANYANW U, Peti ti on er v . COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No s. 2 43 77 -1 0, 2 43 78 -1 0. Fi le d J un e 1 9, 2 01 4.

Bl es si ng U. Any an wu, p ro se. Bl ai ne Ch arl es Hol id ay , forres po nd en t.

MEMORANDUM FINDINGS OF FACT AND OPINION BUCH, Ju dg e: In the se co ns ol id at edcas es res po nd en t i ss ue d t wo n ot ic es of de fic ie nc y , on e fo r 20 06 an d a no th er fo r 20 07 . Res po nd en t d et erm in edth e- 2 -

[* 2] fo ll owi ng de fic ie nc ie s, ad di ti on to tax , andpe na lt ie s wi th res pe ctto Ble ss in g Anyanwu ’s Fed eral in co m e ta x fo r y ears 20 06 an d 2 00 7: 1
Year Defi ci en cy Add it io n t o t ax se c. 66 51 (a)( 1) Pen al ty

se c. 66 62 (a) 20 06 $1 62 ,21 2
--- $3 2,4 42 20 07 17 2,6 23 $4 1,2 99 34 ,52 5 Afte r res po nd en t i ss ue d the no ti ces of d efi ci en cy , he c on ced ed$9 9,8 00 of th e ad jus tm en t fo r 20 07 be cau se he erro ne ou sl y di sa ll owe d agre at er d ep reci at io n de du ct io n t ha n M s. An y an wu h adactua ll y cla im ed . The i ss ue s re m ai ni ng for co ns id erat io n a re wh ethe r Ms . Any an wu h as un rep orte d i nc om e; whet he r sh e is en ti tl edto va rio us de du ct io ns , so m e p ers on al an d o th ers pri nc ip al ly relat in g t o h er ren ta l p ro pe rti es ; an d wh ethe r sh e is li ab le foranad di ti on to tax an d p en al ti es . W e h ol d t ha t M s. Any an wu p ro ve d t ha t a p orti on of h er i nc om e cam e fro m no nt ax ab le so ur ces an d tha t s he is en ti tl edto de du ct io ns be y on d t ho se res po nd en t al lo wed . Furthe r, res po nd en t m ethi s b ur de n o f pr oduc ti onas t o t he ad di ti on to ta x a ndpe na lt ie s, an d M s. An y an wu d idno t es tabl is h any gro un ds onwhi chth e ad di ti on to tax an d p en al ti es sh ou ldno t ap pl y inth es e cas es . Unl es s o th erwi se in di cat ed , all sec ti on refe ren ces are t o t he Int ern al 1 Rev enue Co de ineffe ctforth e y ears inis su e, an d a ll Ru le refe ren ces are t o t he Tax Co urt Ru le s o f Prac ti ce an d P ro cedur e. All m on et ary am ou nt s ar e ro un de d t o th e n eare stdo ll ar.- 3 -

[* 3] FINDINGS OF FACT Ms . Any an wu re si de d i n M in ne so taat t he ti m e th e p et it io ns were fi le d. Ms . Any an wu an d h er h us ba nd , Ernes t An y an wu, d iv or cedin20 05 . Altho ug h t he y

were d iv or ceddu rin g t he y ears inis su e, th ei r bu si ne ss an d fi na nc ia l in te res ts rem ai ne d i nt ertwin ed . For e xa m pl e, th ey co nt in ue d t o wo rkto ge th er ata ho m e h eal th care bu si ne ss . Furt he r, al th ou gh th e Anyanwu s ag ree t ha t M s. Anyanwuwas award edth ei r rea l es ta te ho ld in gs inth e d iv or ce, i n h er t es ti m on y Ms . Any an wu re fers to act iv it ie s d on e b y he r an d h er the n e x- hu sb an d 2
co ll ect iv el y

du rin g the y ears inis su e with re sp ectto th e p ro pe rti es . Accor di ng ly, we ha ve di st in gu is he d t he Anyanwu s’ tax att rib ut es to th e ex te ntest ab li sh edby th e rec or d. I. Adv an ta ge Hom e Car e In19 94 th e Anyanwu s s tarte d Ho m e Adv an ta ge Heal th Serv ic es (Hom e Adv an ta ge ), a h om e h eal th care bu si ne ss . The An y an wus tra ns ferr edHom e Adv an ta ge to Mr. Si m eo n, a p ers on th ey kn ew fro m

th ei r ch ur ch , in20 06 . Hom e Adv an ta ge was tran sf

erre d i n n am e o nl y . Mr. Si m eo n d idno t p ay th e Anyanwu s fo r th ei r in te res t i n e ithe r cas h o r pr op erty , andMs . Any an wu d idno t re po rt t he sa le on he r ta x re turn . The b us in es s was ren am edAdv an ta ge Hom e Car e. Afte r th e y ears inis su e, Mr. an d M s. An y an wu re m arri ed
. 2- 4 -

[* 4] As i t turne d o ut , Mr. Si m eo n c ou ldno t o pe rat e th e b us in es s b ecau se he di d
no t h av e a b ack gr ou ndinhe al th care . Becau se Ms . Any an wu i s a r eg is te rednu rs e, sh e ru ns Adv an ta ge Hom e Car e; sh e si gn s al l o f th e ch eck s fo r Adv an ta ge Hom e Care an d v eri fie s tha t the pro pe r se rv ic es were p ro vi de d t o t he pa ti en ts . Mr. Anyanwuals o wo rk s fo r Adv an ta ge Hom e Car e, an d h e is res po ns ib le forbi ll in g an d fo r subm it ti ng cla im s fo r rei m bu rs em en t thr ou gh Med ic are a ndMed ic ai d. II. Rea l Es ta te The Anyanwu s o wne d v ari ou s re al est at e p ro pe rti es joi nt ly dur in g t he ir
m arri ag e, an d the pro pe rti es were awar de d t o M s. Any anwu i n t he di vo rce. Ms . Anyanwudi d n otrece iv e ren t p aym en ts fro m all of t he pro pe rti es be cau se so m e were u no ccupi ed . The ren t o n t he oc cupi edpro pe rti es ran ge d b etween$8 00 an d $1 ,50 0 p er m on than d ave rag edap pr ox im at el y $1 ,00 0 p er m on th
. At l eas t s om e o f th e p ro pe rti es were l is te d a s Se ct io n 8 ho us in g. Becaus e 3 Mr. An y anwu fi ll edou t the Sect io n 8 ho us in g app li cat io ns inhi s n am e o nl y , th e ren ta l as si st an ce p aym en ts were m ad e o utto hi m . The An y an wus att em pt edto li st The Sect io n 8 ho us in g p ro gr am un de r th e Uni te d S ta te s Ho us in g Actof 3 19 37 au th or iz es a pr iv at e la nd lo rdwho ren ts to a lo w-in co m e te na ntto rece iv e as si st an ce p aym en ts fro m th e U.S. Depa rtment o f Hou si ng an d Urb an Dev el op m en t (HUD) i n a n a m ountcal cu la te d t o m ak e up the di ffer en ce b etween th e te na nt ’s ren t p aym en ts an d t he co nt ractren t ag reedup on by the lan dl or d a nd HUD. See Ci sn ero s v . Alp in e Ri dg e Grp ., 50 8 U.S. 1 0, 1 2 (1 99 3) ; s ee al so 42 U.S.C. se c. 14 37 f (2 00 6)
.- 5 -

[* 5] th e p ro pe rti es inMs . Any an wu’s n am e wit h t he va rio us ho us in g aut ho rit ie s bu t wer e uns uc ces sf

ul . As a res ul t, the ch eck s wer e st il l m ad e p ay ab le to Mr. Anyanwu , andhe en do rs edth em to Ms . Any an wu. Dur in g 2 00 6 t he Anyanwu s s ol d t wo p ro pe rti es : the Aly ss a Ro adpro pe rty an d t he Flo rid a Ci rcl e p ro pe rty. T he sal e o f th e AlyssaRo adpro pe rty resu lt edin pr oc eed s o f $1 40 ,83 7, an d t he sal e o f th e Fl or id a Ci rcl e p ro pe rty resu lt edin pr oc eed s o f ap pr ox im at el y $5 2,9 46 . Alth ou gh Ms . Any anwu l iv edinth e Alyssa Ro adpro pe rty at th e ti m e itwas s ol d, the Anyanwu s al so bo ug htan d re pa ire d di st res se d h ou se s. Be cau se th ey were re pa iri ng th es e h om es , th ey pu rch as edit em s su chas e qu ip m en t, m at eri al s, ca rp et , andap pl ianc es . III. Un de rlyin g Li ab il it ie s Ms . Any an wu t im el y

fil edhe r 20 06 Fo rm

10 40 , U.S. Ind iv idua l In co m e Tax Return. Th e return i nc lu de d S ch edul e A, Ite m iz edDedu ct io ns , cla im in g de du ct io ns forSta te an d l oc al in co m e ta xe s, re al est at e ta xe s, h om e m ortg ag e in te res t, an d g ift s t o c ha rit y . The return a ls o i nc lu de d S ch edul e E, Sup pl em en ta l In co m e an d Lo ss , li st in g e ig htren ta l p ro pe rti es . The return s ho ws a fi li ng st atus of “ Marrie d F il in g S ep arat el y ” an d re po rts Mr. An y an wu as he r sp ou se . Ms . Any an wu d idno t fi le he r 20 07 in co m e ta x re tu rnbe fo re the Apri l 1 5, 20 08 , dea dl in e, an d t he re i s n o e vi de nc e th atsh e p ro pe rly fil eda reque stforan- 6 -

[* 6] ex te ns io n. Ag ai n, M s. An y an wu i nc lu de d aSch edul e A cla im in g i te m iz ed de du ct io ns forSta te an d l oc al in co m e ta xe s, h om e m ortg ag e in te res t, an d g ift s t o ch ari ty. In a dd it io n, s he att ach eda Sch edul e E to th e return l is ti ng ni ne ren ta l pr op ert ie s. As with t he 20 06 return, s he sel ect ed“ Marrie d F il in g S ep arat el y ” fil in g s ta tu s an d re po rts Mr. Any an wu as he r sp ou se . Ms . Any an wu’s 2 00 6 and20 07 returns were s el ect edforex am in at io n. Dur in g t he ex am in at io n re sp on de ntpe rfo rm eda bankde po si ts an al y si s o n M s. Anyanwu ’s acco un ts forth e y ears inis su e an d d et erm in edth atsh e h adad di ti on al un rep orte d i nc om e. Res po nd en t i ss ue d ano ti ce o f de fic ie nc y forth e 2 00 6 t ax ab le y ear o n Aug us t 5 , 20 10 , m ak in g t he fol lo win g a dju st m en ts : i nc reas edMs . Any an wu’s in co m e u si ng res ul ts fro m res po nd en t’s b an k d ep os it s an al y si s; di sa ll owe d t he cl ai m edch ari tabl e co nt rib ut io n, h om e m ortg ag e in te res t, re al est at e ta xe s, de pr eci at io n, an d S ch edul e E m ortg ag e in te res t d educ ti on s fo r la ckof subs tant ia ti on ; an d m ad e o th er co m pu ta ti on al ad

jus tm en ts . In ad di ti on , res po nd en t d et erm in eda se ct io n 6 66 2( a) ac cu racy-rela te d p en al ty. Res po nd en t al so is su eda no ti ce o f de fic ie nc y forth e 2 00 7 t ax ab le y ear o n Aug us t 5 , 20 10 , m ak in g a dju st m en ts si m il ar t o t ho se for20 06 , in cl ud in g t he fo ll owi ng : i nc reas edMs . Any an wu’s i nc om e u si ng res ul ts fro m res po nd en t’s- 7 -

[* 7] ba nkde po si ts an al y si s; di sa ll owe d t he cla im edch ari tabl e co nt rib ut io n, h om e m ortg ag e in te res t, d ep reci at io n, an d S ch edul e E m ortg ag e in te res t d educ ti on s fo r la ckof s ub st an ti at io n; an d m ad e o th er co m pu tati on al ad

jus tm en ts . Res po nd en t al so de te rm in eda se ct io n 6 66 2( a) ac curacy-rela te d p en al ty anda se ct io n 66 51 (a)( 1) fai lu re t o t im el y fil e ad di ti on to tax . Ms . Any an wu t im el y

pe ti ti on edth e Co urt wi threg ardto bo th no ti ces , and th e Co urt co ns ol id at edth e cas es . IV. Pro ceed in gs Befo re the Tax C ou rt Inlat e 2 01 1 re sp on de ntfil eda m ot io n t o s ho w cau se why pr op os edfact s an d e vi de nc e sh ou ldno t b e acc ep te d a s es tabl is he d. Th e m ot io n e xp la in edth at Ms . Any an wu h adno t p ro vi de d a ny do cu m en ts to subs tant ia te he r in co m e o r de du ct io ns aft er b ei ng gi ve n m ul ti pl e o pp ortu ni ti es to do so . The m ot io n a ls o in cl ud eda pr op os edst ip ul at io n o f fac ts . The s ti pu la ti on li st edso m e b as ic fact s su chas wh ere M s. An y an wu l iv edan d wh enhe r returns were fi le d. Th e st ip ul at io n fu rth er s ta te d t ha t M s. An y an wu h adno t p ro vi de d a ny exp lana ti on of no nt ax ab le so ur ces of i nc om e to acco un t fo r he r ex ces s d ep os it s an d c ou ldno t subs tant ia te it em s u nd erl y in g a ny of th e d educ ti on s d is al lo wedinth e n ot ic e o f de fic ie nc y . The Co urt g ran te d re sp on de nt ’s m ot io n andord eredMs . Any an wu t o res po ndto res po nd en t’s m ot io n. Aft er rec ei vi ng no res po ns e fro m Ms . Any an wu,- 8 -

[* 8] th e Co urt d eem edall of t he fact s an d e vi de nc e se t fo rth inres po nd en t’s pr op os edst ip ul at io n o f fac ts to be est ab li sh ed
. InFeb ru ary 20 12 th e Co urt h el d apre tri al co nf eren ce wi th th e p art ie s i n S t. Pau l, Mi nn es ot a. The C ourt c on ti nu edth e cas es to all ow M s. Any an wu t im e to ga th er the rel ev an t d oc um en ts . The se cas es were ca le nd aredfortri al du rin g t he Co urt’s Ap ril 22 , 20 13 , St. Pau l, Mi nn es ot a, tr ia l s es si on . At th e ti m e fo r tr ia l the pa rti es ap pe aredan d pr ov id edjoi ntex hi bi ts co ns is ti ng of d oc um en ts th atMs . Any an wu ar gu edsh owe d he r no nt ax ab le so ur ces of i nc om e an d s ub st an ti at edit em s u nd erl y in g h er de du ct io ns . Notwiths tand in g t he pre vi ou s s ti pu la ti on , res po nd en t ag reedth atan ad di ti on al fou r ex hi bi ts co ul d b e adm it te d. Res po nd en t al so di d n otob ject t o 4 ad di ti on al do cu m en ts th atMs . Any an wu i nt ro du ced , bu t the writ te n n ot at io ns on th e d oc um en ts were ad m it te d o nl y as ast at em en t o f he r po si ti on .

See Rul e 9 1( e) (“ The Co urt wi ll no t p erm ita party to ast ip ul at io n t o 4 qu al ify, chan ge , or c on tra di cta st ip ul at io n i n wh ol e o r in pa rt, e xc ep t tha t i t m ay do so wher e jus ti ce re qu ire s.”)
.- 9 -

[* 9] OPINION I. Burd enof P ro of The Co m m is si on er’s d et erm in at io ns inth e n ot ic e o f de fic ie nc y are g en eral ly pr es um edco rrec t, an d t ax pa y ers be ar the bu rd enof p ro vi ng ot he rwis e. Altho ug h 5 th e b ur de n m ay

sh iftto th e Co m

m is si on er und er s ect io n 7 49 1( a), Ms . Any an wu do es no t cl ai m

th atth e b ur de n h as sh ift edto res po nd en t, an d l ik ewis e we d o n ot fin d i t ap pr op ria te to sh iftth e b ur de n t o re sp on de nt . In co m e ta x d educ ti on s ar e a m at te r of leg is la ti ve gra ce, an d t he burd enof pr ov in g e nt it le m en t t o a ny clai m edde du ct io n re st s o n t he tax pa y er. Furth er, the 6 ta xp ay er i s re qu ire d t o m ai nt ai n s uf fic ie ntreco rd s t o “ sh ow wh ethe r orno t s uc h pe rs on is li ab le fortax ”. 7 II. Om itte d In co m e Whe re a t ax pay er fa il s t o k eep su ffi ci en t re co rd s u nd er s ect io n 6 00 1, the Co m m is si on er m ay

co m pu te tax ab le in co m e th ro ug h am etho d t ha t “ do es cle arl y

Ru le 14 2( a); W el chv. Hel ve rin g, 2 90 U.S. 11 1, 1 15 (19 33 ). 5 INDOPCO, In c. v. Co m

m is si on er, 5 03 U.S. 79 , 84 (19 92 ); s ee al so Ru le 6 14 2( a). Sec. 6 00 1.

7- 10 -

[* 10 ] refl ectin co m e”. The Co m mis si on er’s u se of t he ba nkde po si ts an al y si s 8
m etho d h as lo ng be enap pr ov edinsu chanin st an ce. Thi s m etho d “ as su m es th at 9 al l m on ey de po si te d i n atax pa y er’s b an k a cco un t dur in g agi ve n p eri odco ns ti tu te s ta xabl e in co m e, bu t the Gov ern m en t m us t t ak e in to acco un t an y no nt ax ab le so ur ce orde du ct ib le ex pe ns e o f whi chitha s kno wled ge .” Non ta xabl e so ur ces in cl ud e 1 0 fund s at tri bu tabl e to “ ‘loans , gi fts , in he rit an ces , or a ss et s o n h an d at the be gi nn in g of th e ta xabl e p eri od .’ ” 1 1 A ban k d ep os it s an al y si s m ay pro vi de pri m a fac ie ev id en ce o f in co m e, an d th e Co m m is si on er i s n otrequi redto pro ve th e li ke ly sou rce o f th e in co m e. The 1 2 ta xp ay er s ho ul de rs th e b ur de n o f es tabl is hi ng th atit em s “ sh ou ldbe ex cl ud edfro m in co m e o r al lo wedas d educ ti on s.” One s uc h way of p ro vi ng th atanit em sh ou ld 1 3

Sec. 4 46 (b ). 8 Nich ol as v. Co m

m is si on er, 7 0 T.C. 1 05 7, 1 06 4 (1 97 8)
. 9 Cl ayto n v . Comm is si on er, 1 02 T.C. 63 2, 6 45 -6 46 (19 94 ) (ci ti ng DiLeo v. 1 0 Co m m is si on er, 9 6 T.C. 8 58 , 86 8 (1 99 1) , aff’d, 9 59 F.2d16 (2dCir . 19 92 )). Bu rg o v . Comm is si on er, 6 9 T.C. 7 29 , 74 3 n .14 (19 78 ) (quo ti ng Tron cel li ti 1 1 v. Co m m is si on er, T.C. Mem o. 1 97 1- 72 ). Tok ars ki v. Co m

m is si on er, 8 7 T.C. 7 4, 7 7 (1 98 6)
. 1 2 Gem m a v . Comm is si on er, 4 6 T.C. 8 21 , 83 3 (1 96 6)
. 1 3- 11 -

[* 11 ] ha ve be enex cl ud edwou ldbe to sh ow tha t the de po si t i s d eri ve d fr om a no nt ax ab le so ur ce. 1 4 Ms . Any an wu p ro vi de d c op ie s o f can cel edch eck s t o p ro ve th atsh e d idno t ha ve th e unr ep orte d i nc om e th atres po nd en t cl ai m s. Sh e cl ai m s tha t m os t o f th e un rep orte d i nc om e cam e fro m no nt ax ab le so ur ces . A. Loan s Ms . Any an wu t es ti fie d t ha t s he len t m on ey to va rio us pe op le , in cl ud in g fam il y m em be rs an d m em

be rs of h er ch ur ch . Alth ou ghMs . Any an wu p ro vi de d co pi es of c an cel edch eck s s he rece iv edan d s ta te d t ha t the y were re pa ym en ts of lo an s, s he di d n otpro vi de an y ev id en ce o f an y

lo an s. Ms . Any anwu h as no t pr ov enth atan y

of t he pa ym en ts fro m

fam il y m em be rs or f rie nd s ar e n on ta xabl e. Ms . Any an wu al so m ad e lo an s t o Adva nt ag e Hom e Car e dur in g 2 00 6 a nd 20 07 . She pro vi de d c op ie s o f wire tra ns fers an d c an cel edch eck s m ad e p ay ab le to Adv an ta ge Hom e Car e an d c op ie s o f ch eck s m ad e p ay ab le to he r fro m Adv an ta ge Hom e Car e. W e fi ndth atMs . Any an wu h as pro ve n t ha t the rep aym en ts are no nt ax ab le . The rec or d re fle ct s $ 12 2,0 00 ineit he r can cel edch eck s o r wire tra ns fer re cei pt s tha t M s. An y an wu p ai d t o Ad va nt ag e Hom e Car e dur in g t he y ears in is su e. Co ns is te ntwith tha t, the reco rdsh ows $1 23 ,02 6 i n p aym en ts fro m See Ni ch ol as v. Co m

mis si on er, 7 0 T.C. at10 64 . 1 4- 12 -

[* 12 ] Adv an ta ge Hom e Car e to Ms . Any anwu dur in g t he y ears inis su e. So m e o f th e ch eck s s ay

“ Rei m bu rs em en t” inth e m em o l in e, an d o ne says “ Ren t” . 1 5 Howev er, o n t he ba si s o f Ms . Any an wu’s t es ti m on y reg ard in g the lo an s an d t he si mil ari ty in the pa y

m en ts be twee n M s. An y an wu an d Ad va nt ag e Hom e Car e, we fin d t ha t $ 12 2,0 00 of t he pa ym en ts is forlo anrep aym en ts an d i s n on ta xabl e. Add it io na ll y , Ms . Any an wu s ta te d i n h er b rie f th atsh e rec ei ve d alo anfro m W el ls Farg o B an k fo r ap pr ox im at el y $3 5,0 00 . Ms. An y anwu d idno t p ro vi de an y lo ando cu m en ts or aco py of a ca nc el edch eckto subs tant iate th e lo anam ou ntor whe n i t was m ad e. Thu s, s he di d n otpro ve th atth e al le ge d l oa n fr om W el ls Farg o Ban k i s n on ta xabl e. B. Tax R efu nd s Gen eral ly, St at e ta x re fund s ar e ta xabl e to a reci pi en t wh o d educ te d t he tax fo r a p rio r y ear u nl es s the de du ct io n d idno t p ro vi de a Fed eral tax be ne fit
. Ms . 1 6 Anyanwusubm it te d c op ie s o f refu ndch eck s fr om th e U.S. Treas ury

an d t he Sta te of Mi nn es ot a. The c he ckfro m th e U.S. Treas ury

was m ad e p ay ab le to Mr. Anyanwubu t was en do rs edto Ms . Any an wu. The ch eckfro m th e St at e o f It i s u nc le ar wh y

“ Ren t” wou ldbe writ te n i n t he m em o l in e b ecau se 1 5 ne ithe r pa rty argu edth atAdv an ta ge Hom e Car e ren te d p ro pe rty from Ms . Anyanwu . Sec. 1 11 (a); sec . 1.1 11 -1 (a), In co m e Tax Reg s. 1 6- 13 -

[* 13 ] Mi nn es ot a was m ad e p ay ab le on ly to M s. An y an wu. Bo th ch eck s rep res en te d re fund s fo r th e 2 00 5 t ax ab le y ear. Ms . Any an wu d idno t p ro vi de an y ev id en ce t o s ho w th atth e St at e ref un d sh ou ldbe no nt ax ab le . Howev er, the Fed eral refu ndis no t t ax ab le be cau se Fed eral ta xe s ar e n otall owe d a s a d educ ti on . Accor di ng ly, th e St at e ta x re fundis in cl ud ib le inhe r in co m e, an d t he Fed eral tax refu ndis no t. C. Real Est at e Pro ceed s Befo re we p ro ceedto th e sp eci fic s o f th e ta xabl e n atur e o f th e p ro ceed s, we ne edto ad dr es s the ass ig nm en t o f in co m e d oc tri ne . Man y of the ch eck s re la ti ng to th e p ro pe rti es are wri tt ento Mr. An y an wu an d t he n e nd or se d t o M s. An y an wu. The ass ig nm en t o f in co m e d oc tri ne pre ve nt s an in di vi du al fro m av oi di ng tax at io n on in co m e b y

ass ig ni ng th atin co m e to an ot he r. Thu s, i nc om e is tax ab le to th e 1 7
own er o f th e p ro pe rty, in o th er wo rd s, the on e who own s the tre e o n wh ic h t he fru itgro ws. Mr. an d M s. An y an wu o wne d t he ir p ro pe rti es joi nt ly unt il Ms .

1 8 Anyanwuwas award edall of t he pro pe rti es inth e d iv or ce. Many of th e ch eck s rel at in g t o t he ren ta l p ro pe rti es were wri tt ento Mr. An y an wu b ecau se hi s n am e
Luc as v. Earl , 28 1 U.S. 1 11 (19 30 ). 1 7 Helv eri ng v. Ho rs t, 3 11 U.S. 11 2, 1 16 -1 17 (19 40 ); Lu cas v. Earl , 28 1 U.S. 1 8 at11 4- 11 5.- 14 -

[* 14 ] was st il l as so ci at edwith the pro pe rti es . The An y an wus do no t d is pu te th at Ms . Any an wu o wne d t he pro pe rti es , andas ares ul t s he is th e o ne res po ns ib le for th e ta x. Sect io n 1 00 1( c) g en eral ly requ ire s t ax pa y ers to reco gn iz e th e en ti re am ou nt of ga in or l os s o n the sal e o r ex ch an ge of p ro pe rty. G ai n fr om th e sa le or o th er di sp os it io n o f pr op erty

is th e ex ces s o f th e am ou ntreal iz edov er the ad jus te d b as is of th e p ro pe rty. Gros s i nc om e d oe s “ no t i nc lu de ga in fro m th e sa le or e xc ha ng e 1 9 of pro pe rty if, du rin g t he 5-year p eri oden di ng on th e d at e o f th e sa le or e xc ha ng e, su chpro pe rty has be enown edan d u se d b y th e ta xp ay er as th e ta xp ay er’s p rin ci pa l res id en ce fo r pe rio ds ag gr eg at in g 2 y ears or m or e.” 2 0 Ms . Any an wu s ub m it te d t wo ca nc el edch eck s re pr es en ti ng th e p ro ceed s fro m th e sa le s o f th e AlyssaRo adan d F lo rid a Ci rcl e p ro pe rti es . The ch eckforth e AlyssaRo adpro pe rty was m ad e o utto Mr. An y an wu an d e nd or se d t o M s. Anyanwu . The ch eckforth e Fl or id a Ci rcl e p ro pe rty was m ad e o utto Ms . Anyanwu . Ms . Any an wu p ro vi de d aset tl em en t s ta te m en t fo r th e AlyssaRo adpro pe rty. It r ep orte d o nl y

Mr. An y an wu’s n am e as th e so le own er o f th e p ro pe rty. T he Sec. 1 00 1( a). 1 9 Sec. 1 21 (a). 2 0- 15 -

[* 15 ] st at em en t s ai d M r. Anyanwuwas u nm arri ed , andon ly his si gn atur e ap pe ars on th e warra nt y

de edco nv ey in g t he pro pe rty to t he ne w own ers . Non ethe le ss , be cau se th e p ro pe rty hadbe enaward edto Ms . Any anwu i n t he di vo rce, the pr oc eed s ar e p ro pe rly attrib ut edto he r. Ms . Any an wu d idno t p ro vi de a si m il ar do cu m en t fo r th e Fl or id a Ci rcl e p ro pe rty. At tria l M s. An y an wu s tate d t ha t s he di d n otbe li ev e an y am ou nt s re cei ve d fro m th e sa le s n eed edto be in cl ud edinhe r in co m e b ecau se sh e an d M r. Anyanwu ha d p rev io us ly pai d t ax es on th e rea l es ta te . At tri al Ms . Any anwu t es ti fie d t ha t sh e li ve d i n the Aly ss a Ro adpro pe rty at th e ti m e itwas s ol d. Ho wev er, s he di d no t t es ti fy

or p ro vi de ot he r ev id en ce t o s ho w th atsh e m etth e requi rem en ts un de r se ct io n 1 21 to ex cl ud e th e g ai n fr om th e sa le of t ha t p ro pe rty from he r in co m e. As fo r th e Fl or id a Ci rcl e p ro pe rty, Ms. Anyanwutes ti fie d tha t i t was a pr op erty th at sh e b ou gh t, re pa ire d, an d s ol d wi th Mr. An y an wu. The re i s n o e vi de nc e to su gg es t th atsh e li ve d i n F lo rid a Ci rcl e p ro pe rty. A cco rd in gl y , onth e rec or d b efo re u s, the ga in fro m th e sa le of t he Aly ss a Ro adpro pe rty andth e Fl or id a Ci rcl e p ro pe rty sh ou ldbe in cl ud edinin co m e. D. Trans fers BetweenAcco un ts an d C he ck s Pay ab le to Hers el f Ms . Any an wu p ro vi de d wi re tran sf er re cei pt s t ot al in g $ 54 ,00 0. Ms . Anyanwuals o p ro vi de d c op ie s o f can cel edch eck s m ad e p ay ab le to he rs el f- 16 -

[* 16 ] to ta li ng $1 5,0 00 . Thes e tr an sa ct io ns are n on ta xabl e, an d any suc h tra ns act io ns du rin g t he y ears inis su e sh ou ldno t b e in cl ud edinin co m e. E. Escro w Over

pa ym en ts Ms . Any an wu s ub m it te d c op ie s o f can cel edch eck s fr om vario us in suran ce, es cro w, andm ortg ag e co m pa ni es . Ms. An y an wu ar gu edinhe r br ie f th atth e ch eck s re pr es en t o ve rp aym en ts of e sc ro w acco un ts . One o f th e ch eck s was m ad e pa y ab le to Mr. An y anwu b uten do rs edto Ms . Any an wu, o ne of t he ch eck s was m ad e p ay ab le to Mr. An y anwu an d e nd or se d b y Mr. An y anwu, an d t he ot he rs were m ad e p ay ab le to Ms . Any an wu. All of t he ch eck s ar e d at eddu rin g 2 00 6. W e h av e p rev io us ly hel d t ha t am ou nt s h el d i n e sc ro w acco un ts an d re tu rn ed as refu nd s ar e n on ta xabl e. Acco rd in gl y , th e th ree c he ck s t ot al in g $ 2,8 94 th at 2 1 were ei th er wri tt ento or e nd or se d b y Ms . Any an wu ar e n on ta xabl e. The c he ck ad dr es se d t o M r. Anyanwush ou ldno t h av e b eenin cl ud edinhe r in co m e reg ard le ss be cau se itbe lo ng edto Mr. An y an wu an d was no t en do rs edto he r. F. Depo si ts Fro m

Tena nt s If anam ou ntis rece iv edun de r a “pr es en t cl ai m of f ul l o wne rs hi p, s ub

ject t o th e le ss or ’s un fet te redco nt ro l,” a ndis to be ap pl ie d t o t he ren t ata subs eque nt ti m e dur in g t he term , itis tre at edas t ax ab le in co m e to th e le ss orup on See C ol em anv. Co m

m is si on er, T.C. Mem o. 1 97 9- 13 9. 2 1- 17 -

[* 17 ] rece ip t. If, ho wev er, the su m was d ep os it edby the les so r to sec ur e th e 2 2 le ss ee’s p erfo rm an ce u nd er the lea se an d i s t o b e returne d a t the ex pi rat io n o f th e le as e, itis no t i nc om e to th e le ss orev enth ou gh th e le ss orm ay have tem po rary use of th e m on ey . To res ol ve th e que st io n o f whi chrul e ap pl ie s, we m us t l oo k t o the 2 3 te rm s o f th e le as e an d t he fact s o f th e p art ic ul ar ca se . 2 4 Ms . Any an wu p ro vi de d thr ee ch eck s t ot al in g $ 3,2 13 fro m th e St at e o f Mi nn es ot a th atsh e st at es inhe r br ie f are s ecu rit y de po si ts th atare re turn edto th e te na nt s wh enth ey

m ov e o utof h er re nt al pro pe rti es . Thes e ch eck s wer e wri tt enin 20 06 an d a re m ad e o utto an d e nd or se d b y Mr. an d M s. An y an wu. Ms . Any an wu di d n otpro vi de an y

lea se do cu m en ts th atil lu st rat e th e ch arac te r of th e d ep os it s. In he r br ie f sh e st at edth atth e am ount s wer e returne d t o t he ten an ts whenth ey m ov ed ou t, b utinon e p la ce s he lab el edth em “ se cu rit y de po si ts ” an d i n a no th er p la ce s he cal le d the m

“ba ck gr ou ndch eck s” . Reg ard le ss of t he ch arac te riz at io n, M s. Man te ll v. Co m

m is si on er, 1 7 T.C. 1 14 3, 1 14 7- 11 48 (19 52 ); s ee al so Ast or 2 2 Hol di ng Co . v. Co m

m is si on er, 1 35 F.2d47 , 48 (5t h C ir. 1 94 3) , aff’g a Mem or an du m

Opi ni on of t he Bo ardof Tax App eal s. W arre n S erv . Cor

p. v . Comm is si on er, 1 10 F.2d72 3, 7 24 (2dCir . 19 40 ), 2 3 aff’g o n t hi s p oi nt , rev ’g onan ot he r 39 B.T.A. 85 6 (1 93 9) ; M an te ll v. Co m m is si on er, 1 7 T.C. at11 48 . Hirs chIm

pr ov em en t Co . v. Co m

m is si on er, 1 43 F.2d91 2, 9 15 (19 44 ), 2 4 aff’g a M em or an du m

Opi ni on of t hi s C ou rt; Ast orHol di ng Co . v. Co m m is si on er, 13 5 F .2dat 4 8.- 18 -

[* 18 ] Anyanwudi d n otsu ffi ci en tl y ex pl ai n the de po si ts , andth eref or e we h ol d th atth ey are t ax ab le
. G. Paym en t Fr om

Est at e Ms . Any an wu s ub m it te d aco py of a ca nc el edch eckfor$1 0,0 00 th atst at es in th e m em o l in e th atis pa ym en t fr om a pe rs on ’s est at e. Becaus e in he rit an ces are no nt ax ab le , th e $ 10 ,00 0 s ho ul d n otbe in cl ud edinMs . Any an wu’s t ax ab le in co m e. Furth er, the ch eckwas m ad e p ay ab le to Mr. An y an wu, an d t he re i s n o e vi de nc e to sh ow tha t i t was en do rs edto Ms . Any an wu. Thu s, fo r m ul ti pl e rea so ns , itsh ou ld no t b e in cl ud edinhe r ta xabl e in co m e. H. Chec ks to Oth ers Ms . Any an wu p ro vi de d c op ie s o f de po si t s li ps an d c he ck s tha t s he arg ue s were n otm ad e p ay ab le to he r, no t en do rs edby her, o r no t fo r th e y ears inis su e. W e ad dr es s ea chinturn . Fi rs t, Ms . Any an wu p ro vi de d ade po si t s li p a ndco pi es of c he ck s m ad e pa y ab le to Hom e Adv an ta ge , th e p red eces so r to Adv an ta ge Hom e Car e. Thes e ch eck s t ot al $5 5,6 87 . The ch eck s wer e m ad e p ay ab le to Hom e Adv an ta ge an d were d ep os it edinanacco un t b el on gi ng to Hom e Adv an ta ge . Accor di ng ly, th ey sh ou ldno t b e in cl ud edinMs . Any an wu’s i nc om e.- 19 -

[* 19 ] Seco nd , Ms . Any an wu p ro vi de d p ayro ll ch eck s fr om Adv an ta ge Hom e Car e an d o th er ch eck s m ad e p ay ab le to Mr. An y an wu t ot al in g $ 67 ,98 9. Mr . Any an wu te st ifi edth atalt ho ug h the ch eck s wer e d ep os it edinth e Anyanwu s’ join t ac co un t, th os e am ou nt s wer e in cl ud edinhi s i nc om e fo r 20 06 an d 2 00 7. Th e ch eck s wer e m ad e p ay ab le to an d e nd or se d b y Mr. An y an wu an d s ho ul d n otbe in cl ud edinMs . Anyanwu ’s in co m e. Thi rd , Ms . Any anwu p ro vi de d c he ck s m ad e p ay ab le to un rel at edth ird pa rti es . At tri al res po nd en t ca ll edJo hn Kno ll , a pe rs on al ba nk er atU.S. Ban k, o ne of Ms . Any an wu’s b an ks , to expl ai n wh y ch eck s wo ul d h av e b eenpro vi de d t o M s. Anyanwuth atwere wri tt ento un rel at edpe rs on s. Mr . Kno ll ex pl ai ne d t ha t wh ena ch eckis de po si te d i t g oe s t o ade pa rtment t ha t co pi es th e ch eckan d e le ctro ni cal ly fil es it . If durin g t hi s p ro ces s a c he ck is m is pl acedor g et s o utof o rd er, i t wi ll be im ag edin co rrec tl y . Howev er, al th ou gh th e im ag e is in co rrec t, the ch eckwou ld no t b e d ep os it edin to Ms . Any an wu’s ac co un t. Insh ort, al th ou gh th e im ag es of th es e ch eck s erro ne ou sl y ap pe ar i n M s. An y an wus ’s ban k re co rd s, the se ch eck s were n otde po si te d i nt o h er ac co un t. Bec au se th ey were n otde po si te d i nt o h er acco un t, the y

were n otin cl ud edinres po nd en t’s b an k d ep os it s an al y si s i n t he fir st in st an ce.- 20 -

[* 20 ] Last ly, we ad dr es s ch eck s fo r y ears ot he r th anth e y ears inis su e. The ch eck s t ot al ed$1 9,7 85 an d wer e al l wri tt enin20 05 . Che ck s d at edfory ears othe r th anth e y ears inis su e al so sh ou ldno t b e in cl ud edinMs . Any anwu’s i nc om e fo r th e y ears be fo re u s. 2 5 III. Deduc ti on s A. Sche du le A Dedu ct io ns In co m e ta x d educ ti on s ar e a m at te r of leg is la ti ve gra ce, an d t he burd enof pr ov in g e nt it le m en t t o a ny clai m edde du ct io n re st s o n t he tax pa y er. The 2 6 ta xp ay er i s re qu ire d t o m ai nt ai n s uf fic ie ntreco rd s t o “ sh ow wh ethe r orno t s uc h pe rs on is li ab le fortax ”. 2 7

1. Re al Pro pe rty Taxes Sect io n 1 64 (a)( 1) all ows tax pa y ers to de du ct“ St at e an d l oc al , andfor ei gn , real pro pe rty tax es .” On h er 2 00 6 re tu rnMs . Any an wu d educ te d n earl y $5 ,00 0 fo r real est at e ta xe s. Ms . Any an wu d idno t p ro vi de any do cu m en ts at t ria l an d s im pl y m en ti on edpa y in g re al pro pe rty tax es on va rio us pro pe rti es . In h er b rie f sh e st at ed th atth e in fo rm at io n was subm itte d t o t he Int ern al Rev enue Serv ic e whe n t he tax See Es ta te of S pi eg el v. Co m m is si on er, 1 2 T.C. 5 24 , 52 7 (1 94 9)
. 2 5 INDOPCO, In c. v. Co m m is si on er, 5 03 U.S. at 8 4; see als o R ul e 1 42 (a). 2 6 Sec. 6 00 1. 2 7- 21 -

[* 21 ] returns were fi le d. Ms . Any an wu h as no t p res en te d s uf fic ie ntev id en ce t o pr ov e th atth e d educ ti on sh ou ldbe all owe d. Acco rd in gl y , res po nd en t’s di sa ll owa nc e o f th e rea l p ro pe rty tax de du ct io n i s s us ta in ed
.

2. Ch ari tabl e Co ntrib ut io ns Sect io n 1 70 (a)( 1) all ows a de du ct io n fo r an y ch ari tabl e co nt rib ut io n, as de fin edinsec ti on 17 0( c), as lo ng as the co nt rib ut io n c anbe ve rif ie d und er reg ul at io ns pre sc rib edby the Secr et ary. In o rd er t o s ub st an ti at e m on et ary ch ari tabl e co nt rib ut io ns , th e ta xp ay er m us t m ai nt ai n o ne of t he fol lo win g: (1) a can cel edch eck ; (2 ) a rec ei ptfro m th e d on ee ch ari tabl e o rg an iz at io n s ho win g the
na m e o f th e d on or , th e d at e o f th e co nt rib ut io n, an d t he am ou ntof t he co nt rib ut io n; or ( 3) othe r rel iabl e wri tt enreco rd s s ho win g t he na m e o f th e d on ee, th e d at e o f th e co ntrib ut io n, an d t he am ou ntof t he co nt rib ut io n. Howev er, a 2 8 de du ct io n fo r a co nt rib ut io n o ve r $2 50 m us t b e subs tant ia te d b y

a co nt em po ran eo us writte n a ckno wled gm en t o f th e co nt rib ut io n b y th e d on ee or ga ni zat io n. The ac kn owl ed gm en t m us t co nt ai n: (1) th e am ou ntof c as h o r a 2 9 de sc rip ti on of a ny pro pe rty con tri bu te d, (2 ) whe th er the do ne e o rg an iz at io n
VanDus env. Co m

m is si on er, 1 36 T.C. 51 5, 5 33 (20 11 ); s ec. 1 .17 0A- 2 8 13 (a)( 1) , Inc om e Tax Reg s. Sec. 1 70 (f)(8 )(A). 2 9- 22 -

[* 22 ] pr ov id edan y

go od s o r se rv ic es inco ns id erat io n fo r an y pro pe rty co nt rib ut ed , and(3) a de sc rip ti on an d g oo d- fai th est im at e o f th e v al ue of a ny pr ov id edgo od s o r se rv ic es or i f su chgo od s o r se rv ic es co ns is t o f in tang ib le rel ig io us be ne fit s, a s ta te m en t t o t ha t ef fect
. In o rd er fo r th e ackno wled gm en t t o 3 0 be co nt em

po ran eo us , itm

us t b e o bt ai ne d o n o r be fo re the earl ie r of th e d at e o n whi chth e ta xp ay er fi le s a r eturn fo r th e ta xabl e y ear i n wh ic h t he co nt rib ut io n was m ad e o r th e due date (in cl ud in g e xt en si on s) forfil in g s uc h re tu rn . 3 1 Ms . Any an wu cl ai m edsubs tant ia l ch ari tabl e co ntrib ut io n d educ ti on s fo r th e y ears inis su e, an d t he en ti rety of t he se de du ct io ns was d is al lo wedby resp on de nt . At tria l M s. An y an wu p ro vi de d c op ie s o f can cel edch eck s p ay ab le to he r ch ur ch
. Fo r 20 06 th e ch eck s t ot al ed$2 1,5 00 , andfor20 07 th e ch eck s t ot al ed$2 6,6 00 . Ms . Any an wu al so subm it te d a n “ In di vi du al Tithe s an d Off eri ng s Su m

m ary” for th e y ears inis su e sh owi ng co nt rib ut io ns of $ 24 ,73 0 fo r 20 06 an d $ 26 ,60 0 fo r 20 07 . Howev er, the su m m ari es were ad dr es se d t o M r. an d M s. An y an wu, an d M s. Anyanwupre vi ou sl y

admitte d t o a lt eri ng th e su m m ari es to sh ow o nl y

he r na m e. The su m m ari es st at edth atth e ch ur chdi d n otpro vi de an y go od s o r se rv ic es in co ns id erat io n fo r th e co ntrib ut io ns . The s umm ari es do no t l is t the da te th atth ey Sec. 1 70 (f)(8 )(B)
. 3 0 Sec. 1 70 (f)(8 )(c)
. 3 1- 23 -

[* 23 ] were p rep aredbu t b ot h s ta te : “ Youm ay ret ai n t hi s re cei ptforin co m e ta x pu rp os es .” Acco rd in gl y , we fin d t ha t the su m m ari es were co nt em

po ran eo us . Altho ug h M s. An y anwu ad m it te d t o h av in g a lt eredth e su m m ari es to rem ov e Mr. An y an wu’s n am e, th e ch eck s p ro vi de d m at chth e su m m ari es an d be ar o nl y Ms . Any an wu’s n am e. Fo r 20 06 th ere a re fi ve am ount s l is te d o n t he su m m ary th atdo no t h av e a co rres po nd in g c he ck ; an d b ecau se Ms . Any an wu d id no t p ro ve th atsh e m ad e th os e co nt rib ut io ns , we wil l n otall ow the m . Furthe r, th e co nt rib ut io n m ad e o n Dec em be r 31 , 20 06 , is li st edon th e su m m ary as $1 ,00 0 e ve n th ou gh Ms . Any anwu s ub m it te d acan cel edch eckpa y ab le to th e ch ur chon 12 /3 1/ 06 for

$2 ,80 0. Be cau se of t he requi rem en ts of s ect io n 1 70 , we canall ow on ly $1,0 00 as ade du ct io n. Al l o f th e co nt rib ut io ns on th e 2 00 7 s umm ary m at ch th e ch eck s tha t M s. An y an wu p ro vi de d. On the ba si s o f th e fo reg oi ng , we wil l al lo w charit ab le co nt rib ut io n de du ct io ns of $ 19 ,70 0 fo r 20 06 an d $ 26 ,60 0 fo r 20 07 , subjec t t o t he li m it at io ns un de r se ct io n 1 70 (b )(1 )(A).- 24 -

[* 24 ] 3. Ho m e Mo rtg ag e In te res t Gen eral ly, a ta xp ay er m ay cla im a de du ct io n fo r “ al l i nt eres t p ai d o r acc ru ed withi n t he tax ab le y ear o n i nd eb te dn es s.” Ind eb te dn es s h as be enhe ldto m eanan 3 2
un co nd it io na l an d l eg al ly enfo rceabl e o bl ig at io n fo r pa ym en t o f m on ey . 3 3 Howev er, t ax pa y ers ge ne ral ly are no t al lo weda de du ct io n fo r pe rs on al in te res t pa idor a ccru eddu rin g t he tax ab le y ear. There is anex cep ti onto th is rul e und er 3 4
se ct io n 1 63 (h )(2 )(D) wh ic h a ll ows a de du ct io n fo r qu al ifi edres id en ce i nt eres t. A qu al ifi edres id en ce i s the tax pay er’s p ers on al res id en ce an d o ne othe r res id en ce o f th e ta xp ay er wh ic h i s s el ect edby the tax pa y er an d u se d b y th e ta xp ay er as a res id en ce. 3 5 Fo r 20 06 Ms . Any anwu p ro vi de d c op ie s o f ch eck s s en t t o v ari ou s m ortg ag e co m pa ni es . The ch eck s b ear o nl y acco un t num

be rs inth e m em o l in es , andMs . Anyanwudi d n otexpl ai n o r pr oduc e an y in fo rm at io n abo utwhi chacco un t co rres po nd s t o e ach pro pe rty. Furthe r, Ms . Any an wu d idno t ex pl ai n wh atpo rti on of each ch eckco rres po nd s t o p rin ci pa l an d wh atpo rti on to in te res t. As ares ul t,

Sec. 1 63 (a). 3 2 Lin de r v. C omm is si on er, 6 8 T.C. 7 92 , 79 6 (1 97 7)
. 3 3 Sec. 1 63 (h ). 3 4 Sec. 1 63 (h )(4 )(A). 3 5- 25 -

[* 25 ] sh e fai le d t o e st ab li shth e am ou nt s o f an y de du ct ib le in te res t p aym en ts with
res pe ctto an y

qu al ifi edres id en ce. Fo r 20 07 Ms . Any anwu p ro vi de d m ul ti pl e Fo rm s 1 09 8, M ortg ag e In te res t St at em en t. So m e o f th e Fo rm s 1 09 8 wer e ad dr es se d t o M s. An y an wu, s om e were ad dr es se d t o M r. Anyanwu , andso m e were a dd res se d t o M r. an d M s. An y anwu. All of t he Fo rm s 1 09 8 a dd res se d t o M s. An y an wu, ex cep t o ne , were l ab el edwith th e sa m e AlyssaRo adad dr es s tha t ap pe ars on th e returns for 20 06 an d 2 00 7. 3 6 Howev er, as pre vi ou sl y

di sc us se d abo ve , Ms . Any an wu s ta te d at tria l an d pr ov id edth e se tt le m en t d oc um en t t o s ho w th atth e AlyssaRo adpro pe rty was s ol d in 20 06 . The Fo rm

10 98 th atdo es no t l is t the Aly ss a Ro adad dr es s co rres po nd s t o on e o f th e ren ta l p ro pe rti es li st edon th e 2 00 7 S ch edul e E. Ms . Any an wu p ro vi de d n o e vi de nc e li nk in g a ny of th e Fo rm s 1 09 8 t o a qu al ifi edres id en ce, an d i t i s i m po ss ib le to de te rm in e fro m th ei r fac e whi ch , if an y , of th e Fo rm s 1 09 8 re late s t o aqu al ifi edres id en ce. Acco rd in gl y , res po nd en t’s de te rm in at io n t o d is al lo w th e h om e m ortg ag e in te res t d educ ti on s fo r bo th y ears is su st ai ne d.

One Fo rm

10 98 li st s a d iff

eren t num

be r fo r Ms . Any an wu’s ad dr es s o n 3 6 AlyssaRo ad , bu t thi s ap pe ars to be a typo gr ap hi cal erro r.- 26 -

[* 26 ] B. Sch edul e E Dedu ct io ns Tax pa y ers are al lo weda de du ct io n fo r “ or di na ry an d n eces sa ry

ex pe ns es pa idor i nc urreddurin g t he tax ab le y ear i n c arrying on an y tra de or b us in es s” . 3 7 Tax pay ers are n otall owe d ade du ct io n fo r pe rs on al , li vi ng , or fam il y expe ns es ex cep t wh ere s pe ci fic al ly allo wedby the Co de
. Agai n, d educ ti on s ar e a m at te r 3 8 of leg is la ti ve gra ce, an d t ax pa y ers m us t m ai nt ai n s uf

fic ie ntreco rd s t o e st ab li sh 3 9 th e am ou nt s o f cl ai m edde du ct io ns . Thes e rec or ds m us t b e ret ai ne d fo r as lo ng 4 0
as th e co nt en ts m ay

be co m e m at eri al an d m

us t b e k ep t av ai labl e fo r in sp ect io n. 4 1 Inso m e in st an ces , th e Co urt m ay ap pr ox im at e th e am ountif the tax pa y er canest ab li sh a de du ct ib le ex pe ns e b utcan no t s ub st an ti at e th e p reci se am ount . 4 2 Howev er, the tax pa y er m us t p ro vi de so m e b as is forth e es ti m at e. 4 3

Sec. 1 62 (a). 3 7 Sec. 2 62 (a). 3 8 INDOPCO, In c. v. Co m m is si on er, 5 03 U.S. at 8 4. 3 9 Sec. 6 00 1; sec . 1.6 00 1- 1( a), In co m e Tax Reg s. 4 0 Sec. 1 .60 01 -1 (e), In co m e Tax Reg s. 4 1 Co ha n v . Comm is si on er, 3 9 F .2d54 0, 5 43 -5 44 (2dCir . 19 30 ). 4 2 Van ic ekv. Co m

mis si on er, 8 5 T.C. 7 31 , 74 2- 74 3 (1 98 5)
. 4 3- 27 -

[* 27 ] 1. Dep reci at io n Ex pe ns e o r Dep le ti on Und er s ect io n 1 67 (a), t ax pa y ers are al lo wedas ade du ct io n areas on ab le al lo wan ce fo r th e ex haus ti on , wear, an d t ear o f pr op erty us edina tr ad e o r bu si ne ss orpro pe rty hel d fo r th e p ro du ct io n o f in co m e. The d educ ti onforan y tan gi bl e pr op erty is ge ne ral ly det erm in edby usi ng th e ap pl ic ab le de pr eci at io n m etho d, an ap pl ic ab le reco ve ry

pe rio d, an d the ap pl ic ab le co nv en ti on . The p eri odof 4 4 de pr eci at in g a n a ss etbe gi ns when th e as se t i s fi rs t p la cedinservi ce. 4 5 Dep reci at io n i s g en eral ly pro ve n b y us in g t he co stof t he pro pe rty as i ts ba si s. If 4 6 a ta xp ay er p ay s a l um

p s um forde pr eci ab le pro pe rty andno nd ep reci ab le pro pe rty, as inth e cas e o f rea l p ro pe rty withim pr ov em en ts , th e co stm

us t b e ap po rti on ed be twee n the lan d a ndth e im pr ov em en ts . 4 7 To s ub st an ti at e th e d educ ti on for20 06 , Ms . Any anwu p ro vi de d c on tra ct s an d i nv oi ces forworkth atco nt ract or s co m pl et edonth e ren ta l p ro pe rti es . Howev er, al l o f th e in vo ic es were ad dr es se d t o M r. Anyanwu . Ms. An y an wu

Sec. 1 68 (a). 4 4 Sec. 1 .16 7( a)-1 0( b) , Inc om e Tax Reg s. 4 5 Secs . 16 7( c), 1 01 1, 1 01 2; sec . 1.1 67 (g )-1 , Inc om e Tax Reg s. 4 6 Bro z v . Comm is si on er, 1 37 T.C. 46 , 58 (20 11 ), aff’d, 7 27 F.3d62 1 (6 th 4 7 Ci r. 20 13 ); s ec. 1 .16 7( a)-5 , Inc om e Tax Reg s.- 28 -

[* 28 ] subm it te d c an cel edch eck s t o s ho w th atsh e p ai d $ 10 ,30 0 t owa rd s o ne co nt ractbu t o th erwi se di d n otpro vi de an y ev id en ce t o s ho w th atsh e p ai d fo r th e ex pe ns es . Furt he r, Ms . Any an wu p ro vi de d p aym en t re cei pt s t o s ho w th at in su ran ce p rem iu m s wer e p ai d o n t he pro pe rti es bu t i t i s n otcle ar t o wh ic h pr op ert ie s the rece ip ts rel at ed , andth e rec ei pt s wer e ad dr es se d t o b oth M r. an d Ms . Any an wu. Ms . Any an wu al so pro vi de d acan cel edch eckda te d i n 2 00 6 t o wha t ap pe ars to be a ho m eo wne rs ass oc ia ti on . Howev er, the m em o l in e st at es on ly “ 92 6 a nd89 2” . Last ly, Ms . Any an wu s ub m it te d acan cel edch eckto 4 8

“ Cu st om Gran it e” fo r $1 ,50 0, b utth ere i s n o e xp lana ti onof wh y th atex pe ns e was in cu rred . Ms. An y an wu d idatt ach a Fed eral Depr eci at io n S ch edul e to he r 20 06 return, b utsh e d idno t p ro vi de an y tes ti m on y

or o th er ev id en ce attri al to ex pl ai n th e num be rs ap pe ari ng on th e sc he du le
. Res po nd en t co nc ed ed$9 9,8 00 of t he ad jus tm en t fo r 20 07 , whi chequa ls th e di ffer en ce b etweenres po nd en t’s d is al lo wan ce an d t he am ou ntMs . Any an wu actua ll y cla im edon he r return. Inord er t o p ro ve th e rem ai ni ng am ou ntof the 20 07 di sa ll owa nc e, Ms . Any an wu p ro vi de d o nl y in vo ic es of wo rk

pe rfo rm edto subs tant ia te th e d ep reci at io n e xp en se or d ep le ti on de du ct io n. Al l o f th e in vo ic es
Ms . Any an wu l is te d p ro pe rti es with a dd res s n um be rs of 8 92 an d 9 26 on 4 8 he r 20 07 Sch edul e E bu t n othe r 20 06 Sch edul e E.- 29 -

[* 29 ] were ad dr es se d t o M r. Anyanwu , andth ere wer e n o c orres po nd in g do cu m en ts to sh ow tha t M s. An y an wu i nc urredth e ex pe ns es . Furth er, Ms . Any an wu p ro vi de d n ot hi ng to sh ow h er b as is inan y of t he pr op ert ie s. Onth e b as is of t hi s l ackof e vi de nc e, res po nd en t’s d et erm in at io ns , reduc edby his pre vi ou s co nc es si on of $ 99 ,80 0 fo r 20 07 , are s us ta in edforth e y ears inis su e.

2. Mo rtg ag e In te res t Sect io n 2 12 all ows a de du ct io n fo r al l o rd in ary an d n eces sa ry ex pe ns es pa id orin cu rreddu rin g t he tax ab le y ear f orth e m an ag em en t, co ns erv at io n, o r m ai nt en an ce o f pr op erty

he ldforth e p ro du ct io n o f in co m e. As s ta te d p rev io us ly, Ms . Any an wu p ro vi de d c op ie s o f can cel edch eck s t o pr ov e th e m ortg ag e in te res t, an d t he se ch eck s, wh ic h d o n otdi ffer en ti at e b etween pr in ci pa l an d i nt eres t, ar e n oten ou gh to subs tant ia te th e d educ ti on for20 06 . Aga in , Ms . Any anwu p ro vi de d m ul ti pl e Fo rm s 1 09 8 fo r 20 07 an d a ll bu t o ne ad dr es se d t o h er l is te d the same addres s. So m e o f th e Fo rm s 1 09 8 wer e al so ad dr es se d t o M r. Anyanwu , andso m e were a dd res se d t o M r. an d M s. An y anwu. Bec au se we can no t d et erm in e whi chFo rm s 1 09 8 c orres po ndto whi chpro pe rti es , we wil l al lo w Ms . Any an wu t o d educ t the to ta l am ou ntli st edon th os e Fo rm s 1 09 8 th atwere ad dr es se d s ol el y to he r on Sch edul e E. Howev er, thi s i s o nl y th e cas e- 30 -

[* 30 ] reg ard in g the Fo rm s 1 09 8 a dd res se d s ol el y to Ms . Any an wu, b ecau se we are un ab le to de te rm in e wha t p orti on Ms . Any an wu p ai d o f th e in te res t l is te d o n t he Fo rm s 1 09 8 n otad dr es se d s ol el y to he r. Any ad di ti on al am ou ntbe y on d t he to ta l rep orte d o n t he Fo rm s 1 09 8 a dd res se d t o M s. An y anwu i s d is al lo wed
. All ot he r Sch edul e E ad

jus tm en ts for20 06 an d 2 00 7 are co m pu ta ti on al
. IV. Fil in g S ta tu s Fi na ll y , we add res s M s. An y an wu’s fi li ng st atus . For 2 00 6 a nd20 07 sh e fil edhe r returns as “ Marrie d F il in g S ep arat el y ”. Sh e st at edat t ria l tha t thi s was an erro r m ad e b y

th e return p rep areran d s he sh ou ldha ve fil edas “ Si ng le ”. W e ag ree th at“ Si ng le ” is th e ap pr op ria te fil in g s ta tu s, an d i t s ho ul d b e ad jus te d a s p artof th e Ru le 15 5 c om

pu ta ti on s. V. Sect io n 6 65 1( a)(1 ) Add it io n t o Tax Sect io n 6 65 1( a)(1 ) im

po se s an ad di ti on to tax forfai li ng to ti m el y fil e a Fed eral in co m e ta x re tu rn , un le ss itis sh own th atth e fai lu re i s due to reas on ab le cau se an d n otdu e to wil lfu l n eg le ct . Res po nd en t b ears th e b ur de n o f pr oduc ti on- 31 -

[* 31 ] with re sp ectto any

pe na lty or a dd it io n t o t ax . Ms . Any an wu the n b ears th e 4 9 bu rd enof p ro vi ng an y

de fen se s. 5 0 Res po nd en t i m

po se d a n a dd it io n t o t ax un de r se ct io n 6 65 1( a)(1 ) fo r th e 20 07 tax ab le y ear. Attri al Ms . Any an wu t es ti fie d t ha t s he fil edhe r return a fte r th e Apr il 15 , 20 08 , dea dl in e. Howev er, Ms . Any an wu al so tes ti fie d t ha t s he be li ev ed th athe r return p rep arerfil edanex te ns io n re qu es t b efo re the de ad li ne . Alth ou gh sh e p ro vi de d t he Fo rm

48 68 , App li cat io n fo r Aut om at ic Ext en si on of Ti m e To Fi le U.S. Ind iv idua l In co m e Tax Return, s he di d n otest ab li sh th atsh e ti m el y fil edth e ex te ns io n re qu es t. Mo reo ve r, res po nd en t’s re co rd s s ho w th atth e ex te ns io n reque stwas i nc lu de d wi th th e unt im el y return. Acco rd in gl y , we fin d tha t re sp on de ntha s m ethi s b ur de n o f pr oduc ti on , and be cau se Ms . Any anwu was no t ab le to pro ve an y de fen se s, the ad di ti on to tax un de r se ct io n 6 65 1( a)(1 ) is su st ai ne d. VI. Sect io n 6 66 2( a) Accu racy-Rel at edPen al ty Sect io n 6 66 2( a) an d (b )(1 ) an d (2 ) im po se s a 2 0% a ccu racy-rela te d p en al ty on “ an y po rti on of a n u nd erp aym en t o f ta x re qu ire d t o b e sh own on a return” if the un de rp aym en t i s due to , am on g o th er rea so ns , neg li ge nc e, di sr eg ardof rul es or Sec. 7 49 1( c). 4 9 See Hi gb ee v . Comm is si on er, 1 16 T.C. 43 8, 4 47 (20 01 ) 5 0- 32 -

[* 32 ] reg ul at io ns , or any sub st an ti al un de rs ta te m en t o f in co m e ta x. As with
se ct io n 6 65 1( a), res po nd en t b ears th e b ur de n o f pr oduc ti on as t o t he pe na lty . 5 1 The pe na lty

wil l n otap pl y

to any po rti on of t he un de rp aym en t fo r whi cha ta xp ay er es tabl is he s tha t h e o r sh e h adreas on ab le cau se an d a ct edingo odfai th
. 5 2 As d efi ne d i n t he Co de , “ ‘neg li ge nc e’ inc lu de s an y fai lu re t o m ak e a reas on ab le att em

ptto co m pl y with t he pro vi si on s o f th is ti tl e, an d t he term ‘dis reg ard ’ in cl ud es an y

care le ss , reck le ss , or i nt en ti on al di sr eg ard .” Negl ig en ce 5 3 ha s b eenfurth er d efi ne d a s a “ ‘lack of due care or f

ai lu re t o d o wh ata reas on ab le
an d o rd in ari ly pru de ntpe rs onwou lddo un de r th e ci rcu m st an ces .’ ” Add it io na ll y , 5 4 a ta xp ay er i s n eg li ge ntif h e fai ls to m ai nt ai n s uf fic ie ntreco rd s t o s ub st an ti at e th e it em s i n que st io n. 5 5

Sec. 7 49 1( c). 5 1 Sec. 6 66 4( c)(1 ). 5 2 Sec. 6 66 2( c). 5 3 Neel y v. Co m m is si on er, 8 5 T.C. 9 34 , 94 7 (1 98 5) (qu ot in g M arce ll o v . 5 4 Co m m is si on er, 3 80 F.2d49 9, 5 06 (5t h C ir. 1 96 7) , aff’g i n p art , rem an di ng inpa rt 43 T.C. 16 8 (1 96 4) , andT.C. Mem o. 1 96 4- 29 9)
. See Hi gb ee v . Comm is si on er, 1 16 T.C. at 4 49 ; s ec. 1 .66 62 -3 (b )(1 ), In co m e 5 5 Tax Reg s.- 33 -

[* 33 ] An u nd ers ta te m en t o f in co m e ta x i s “ subs tant ia l” if the un de rs ta te m en t ex ceed s the gre at er o f 10 % of t he tax requi redto be sh own on th e return o r $5 ,00 0. 5 6 Inacco rd an ce wi th th is op in io n, M s. An y an wu’s ex actun de rp aym en t fo r each y ear d ep en ds on th e Ru le 15 5 c om pu ta ti on s. If the se co m

pu tati on s es tabl is h a subs tant ia l u nd ers ta te m en t o f in co m e ta x fo r an y y ear, re sp on de ntha s m ethi s bu rd enof p ro du ct io n wi thres pe ctto th aty ear. Res po nd en t h as als o p ro ve n tha t 5 7 Ms . Any an wu ac te d wi th ne gl ig en ce. Sh e k ep t s om e rec or ds bu t d idno t k eep ot he rs ne ed edto subs tant ia te he r cl ai m s. Sh e al so di d n otex erci se du e car e in fil in g h er re tu rn s. Alt ho ug h M s. An y an wu h adreturn p rep arer s p rep are h er returns forbo thy ears , th e returns ha d re ad il y ap pa ren t erro rs th atMs . Any an wu sh ou ldha ve di sc ov eredbe fo re the returns were fi le d. Rel ianc e o n t he advi ce o f a t ax pro fes si on al m ay est ab li shth atth e ta xp ay er act edwith re as on ab le cau se an d g oo d fa ith. Howev er, a t ax pa y er’s rel ianc e o n a 5 8 return p rep areris no t re as on ab le wher e “ ev ena cu rs ory rev ie w” wou ldun ve il Sec. 6 66 2( d) (1 )(A). 5 6 See Ol ag un

ju v . Comm is si on er, T.C. Mem o. 2 01 2- 11 9; Jarm anv. 5 7 Co m m is si on er, T.C. Mem o. 2 01 0- 28 5. Neo na to lo gy Asso cs ., P.A. v. Co m m is si on er, 1 15 T.C. 43 , 98 (20 00 ), 5 8 aff’d, 2 29 F.3d22 1 (3 d C ir. 2 00 2) ; s ec. 1 .66 64 -4 (b ), In co m e Tax Reg s.- 34 -

[* 34 ] erro rs . Ms . Any an wu d idno t t es ti fy or p ro vi de an y

ot he r ev id en ce 5 9 reg ard in g t he qu al ifi cat io ns of t he return p rep arer s s he us eddu rin g the y ears in is su e. Furth er, b ot h re tu rn s wer e fi le d u si ng “ Marrie d F il in g S ep arat el y ” fi li ng st atus . Bot h re tu rn s al so id en ti fy Mr. An y an wu as he r sp ou se an d p ro vi de hi s So ci al Secu rit y

nu m be r. Thi s i nf

orm at io n i s atth e v ery to p o f th e returns , andwe fin d i t u nl ik el y

th atitwou ldha ve go ne un no ti cedif M s. An y an wu h adgi ve n h er returns ev ena curs ory

rev ie w bef

or e th ey were fi le d. As a res ul t, Ms . Any an wu di d n otactreas on ab ly. Acco rd in gl y , th e p en al ti es un de r se ct io n 6 66 2( a) fo r 20 06 an d 2 00 7 a re su st ai ne d. VII. Co nc lu si on On the ba si s o f ou r ex am in at io n o f th e rec or d b efo re u s an d t he pa rti es ’ arg um en ts at t ria l, we fi ndth atMs . Any anwu fa il edto sh ow tha t m os t o f res po nd en t’s ad

jus tm en ts are i nc orrect . Howev er, Ms . Any anwu d idpro ve th ata po rti onof t he m on ey

inhe r acc ou nt s cam e fro m no nt ax ab le so ur ces , su chas l oa ns , a Fed eral tax refu nd , trans fers be twee n a cco un ts , che ck s wri tt ento he rs el f, es cro w ov erp aym en ts , anda paym en t fr om anest at e. Ms . Any an wu al so pro ve d t ha t s he is en ti tl edto a ch ari tabl e co nt rib ut io n d educ ti onforeach of t he y ears inis su e an d Met ra Ch em

Co rp . v. Co m

m is si on er, 8 8 T.C. 6 54 , 66 2 (1 98 7)
. 5 9- 35 -

[* 35 ] a Sch edul e E m ortg ag e in te res t d educ ti on for20 07 . Furthe r, res po nd en t m et hi s b ur de n o f pr oduc ti on with re sp ectto th e ad di ti on to tax an d p en al ti es , andMs . Anyanwufai le d t o m eethe r bu rd enof p ro vi ng th atth ey sh ou ldno t ap pl y . To re fle ctth e fo reg oi ng an d t he co nc es si on s o f th e p art ie s, Deci si on s wi ll be en te red un de r Ru le 15 5.