T .C. Su m m ary Op i n io n 2 01 9 -2 6

UNITED STATES TAX COURT

PASCAL NSAM E AND LAM IAA M SALKA, Pet i t i o ners v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 1 1 4 62 -1 5 S. Fi l edSep t em b er 2 3 , 2 0 1 9
.
Pas cal Ns am e an dLam i aa M s al ka, p ro s es e. Ti m o t h y B. Heav n er an dM ary

An n W at ers , fo r res p o n d en t .
SUM M ARY OPINION COLVIN, J u dg e: Th i s cas e was h eard p u rs u an tt o th e p ro v i s i o n s o f s ect i o n 7 4 6 3 o f t h e In t ern al Rev en u e Co d e i n effect wh en th e p et i t i o n was fi l ed
. 1

1 Sect i o n referen ces are t o t h e In t ern al Rev en u e Co d e i n effect fo r t h e y ear i n i s su e. Ru l e referen ces are t o t h e Tax Co u rt Ru l es o f Pract i ce an dPro cedu re. Do l lar am o u n t s are ro u n d edt o th e n eares td o ll ar an dare i n U.S. d o l l ars u n l es s (co n ti n u ed ...)-2
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Pu rs u an t t o s ect i o n 7 4 6 3(b ), th e d eci s i o n t o b e en t eredi s n o trev i ewab le b y an y o th er co u rt , an dth i s o p i ni o n s h al l n o t b e t reat ed as p reced en tfo r an y o th er cas e. Res p o n d en td et erm i n eda d efi ci en cy o f $ 4 5 ,6 5 4 i n p et i t i o n ers ’ Fed eral i n co m e t ax fo r 2 0 1 2. Aft er co n ces s i o n s , 2 t h e i s s u es fo r d eci s i o n are: 1 . Wh et h er p et i t i on ers b ear t h e b u rd en o f p ro o f. W e h o l dth atthey d o . 2 . Wh et h er p et i t i on ers h ada l os s fro m th e s al e o f t h ei r h o m e i n M o n t real , Can ad a (t h e Can ad i an p ro p ert y ), as th ey cl ai m edattri al , a g ai n o f $ 7 2 ,5 2 5 as
res p o n d en t co nt en d s , o r a g ai n o r l o s s i n s o m e o t h er am o u nt . W e h o l dth at p et i t i o n ers ’ g ai n fro m

th e s al e o f t h e Can ad i an p ro p ert y was $ 7 2 ,5 2 5
. 3 3 . Wh et h er p et i t i on ers are en t i tl edt o a d edu ct i o n fo r a fo rei g n cu rren cy tran s act io n l o s s u n der s ect i o n 98 8 . W e h o l dth at t h ey are n o t.

1 (...co n t in u ed ) o th erwi s e i n di cat ed . Pet i t i o n ers res i d edi n Verm o n t wh en th ey t i m el y fi l edth e p et i t i o n .

2 Th e p art i es ag ree t h atp et i t i o n ers m ay d edu cta p art ial h o m eo wn ers ex cl u s i o n o f $ 8 2 ,1 9 2 ; $ 2 2 ,4 3 4 i n s el l i n g ex pen s es ; an d $ 4 4 ,9 5 5 i n ex p en s es fo r ad d it i o n s / i m

p ro v em en t s o n the h om e. Res p o n d en t ’ s co m p u t at i on s u s e $ 4 4 ,9 5 5 as th e am o un to f t h e ad di t i o n s/ i m p ro v em en t s. Ho w ev er, res p o n d en t ’ s o p en i n g b ri ef s t at es th atth e ad d it i o n s / i m p ro v em en t s t o t h e Can ad i an p ro p ert y t o t al ed$ 4 4 ,9 3 5
. W e wi l l treat $ 4 4,9 5 5 as th e co rrect am o u nt .

3 Du ri n g th e Ru l e 1 5 5 co m p u t at i o n t h e p art i es s hal l ad ju st t h e am o u n to f g ai n t o t ak e i n t o acco u nto u r fi n d i n g th atth e Can ad i an p ro p ert y was n o th el dfo r th e p ro du ct i o n o f i n co m e aft er M arch 3 1 , 2 01 2
.-3
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4 . Wh et h er o r t o wh atex t en tp et i ti o n ers m ay d edu ctb us i n es s ex p en s es . W e h o l dth atth ey

are t o th e ex ten ts t at edb el o w. 5 . Wh et h er p et i t i on ers are l i ab le fo r th e 1 0% ad d i ti o n al t ax u n d er s ect i o n 7 2 (t ) fo r a d i s t ri b ut i o n fro m a ret i rem en t acco u n t . W e h ol dth atth ey are. Back gro u n d Pet i t i o ners , Pas cal Ns am e (p et i t i o n er h u sb an d ) an dLam i aa M s al k a (p et i ti o n er wi fe), were b ot h em p l o y edb y In t ern at i o n al Bu s i n es s M ach i n es Co rp . (IBM ) i n 2 0 1 2
. A. Th e Can ad i an Pro p ert y Pet i t i o ners p u rch as edth e Can ad i an p ro p ert y i n J u l y 2 0 0 3
. Pet i t i o n er wi fe l i vedthere fro m

J u ly 2 0 03 u nt i l Oct o b er 2 0 0 6 wh en s h e m o v ed t o Verm o n tfo r wo rk . Pet i t i on ers h el dthe Can ad i an p ro p erty o u tfo r ren tb eg in n i ng o n Oct o b er 7 , 2 0 0 6 . Pet i t i o n er h u s b an d res u m edl i v i n g atth e Can ad i an p ro pert y i n Au g u s t 2 0 1 2 . Pet i t i o n ers s o l d t h e Can ad i an p ro p ert y o n No v em

b er 2 9 , 2 0 1 2
. B. Di s t ri b u t i o n Fro m

Pet i t i o n er Hu s b an d ’ s Ret i rem en tAcco u nt Pet i t i o ner h u s b an d wi t h drew $ 1 7 ,5 0 0 fro m h i s ret i rem en tacco u n t i n 2 0 1 2 , as rep o rt edt o hi m

o n Fo rm 1 0 9 9 -R, Di s tri b u t i o n s Fro m Pen s io n s , An nu i t i es , Ret i rem en to r Pro fi t -Sh ari n g Pl an s , IRAs , In s u ran ce Co n tract s , et c., p ro v i d edb y Fi d el i ty In v es t m en ts .-4
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C. Tax Retu rn s Pet i t i o ners rep ort edn o ex p en s es o n t h ei r Sch edu le C, Pro fi to r Lo s s Fro m Bu s i nes s, fi l edwi t h th ei r jo i n t Fed eral i n co m e t ax retu rn fo r 2 0 1 2. Aft er recei v i n g th e n o ti ce o f d efi ci en cy

an dfi l i n g th ei r p et i t i on , p et i t i o n ers p ro v i d edres p o n d en t th ree am en d edt ax retu rn s fo r 2 0 1 2 . Pet i t i o ners rep ort edSch edu l e C b u s in es s ex p en s es o f $ 42 , 5 3 2 o n th ei r fi rs tam en d edretu rnan d$ 4 7 ,2 8 3 o n thei r t wo s ub s equ en tam en d edreturn s . Attri al p et i t io n ers s ub m i t t eda s p read s h eet 4 th at
s t at edth ey

h ad$ 4 3 ,2 7 7 i n b u s i n es s ex pen s es . D. Do cu m en tReq u es t s Res p o n d en treq u es t edd o cu m en t s fro m p et i t i o n ers t o ev al u at e t h ei r v ari o u s co n ten t i o n s . Pet i ti o n ers res p o nd edb y s t at i n g t h atthe req u es ts were u n reas o n ab l e, th ats o m e o f t h e d ocu m en t s were co n fi den t i al , an dth atth ey wo u l dp ro v i d e o n l y
n o n co n fi d en t i al b us i n es s i n fo rm at i o n. Pet it io n ers ev en tual l y p ro v i d eda s m al l
am ou n to f d o cu m en t at i o n , b u t ex cep tfo r o n e b u s i nes s ex p en s e i t em n o n e o f t h e d o cu m en t at i o n was s u ffi ci en tt o s ub s t an t i at e t h ei r cl ai m s .

4 Th e reco rdd o es n o t i n d i cat e wh en t h e s pread s h eetwas p rep ared
.-5
- Di s cu ss i o n Ou r d i scu s s i o n i s o rg an i zed as fo l lo ws : (A) b u rd en o f p ro o f, (B) g ai n o r l o s s o n th e s al e o f t h e Can ad i an p ro p ert y , (C) fo rei g n cu rren cy tran s act i o n l o s s , (D) b u s i n es s ex p en ses , (E) th e 1 0 % ad d i t i o n al t ax u n d er s ect io n 7 2(t ) fo r an earl y d i s tri b u t i o n fro m

a ret irem en t acco u n t , an d (F) p et i ti o n ers ’ cl ai m fo r d am ag es . A. Bu rd en o f Pro o f Tax p ay ers g en eral l y b ear t h e b u rd en o f p ro v i n g th atth e Co m m i s s i o n er’ s d et erm i n at i o n i s i n co rrect . Ru l e 1 42 (a); s ee W el ch v . Hel v eri n g, 2 9 0 U.S. 1 1 1 , 1 1 5 (1 93 3 ). Ho wev er, u n d er s ect i o n 7 4 9 1 (a), t h e b u rd en o f p ro o f m ay s hi ftt o th e Co m m i s s i o n er i f th e t ax p ay ers co m p l y wi t h al l s ubs t an ti at i o n req u i rem en t s i n th e In t ern al Rev enu e Co d e, i n t ro du ce cred i b l e ev i den ce wi t h res p ectt o fact ual i s s u es rel ev an t t o as cert ai n i n g t h ei r l i ab i l i t y , an d co op erat e wi t h reas o n ab l e req u es t s b y th e Co m m i s s i o n er fo r i n fo rm at i o n , d o cu m en t s , an dm eet i n g s. Sec. 7 4 9 1 (a)(1 ) an d (2 )(A) an d(B). Pet i t i o ners co n t en dth atth e b u rd eno f p ro o f h as s hi ft edt o res p o n d en tu n d er s ect i on 7 4 9 1 (a). Res p on d en t req u es t edi nfo rm at i on rel at i ng t o p et it i on ers ’ cl ai m s , b u tp et i t i o n ers ’ res po n s es were i n su ffi ci en tt o s ubs t an t i at e t h em . No t h in g i n th e reco rds up p o rt s p et i t i o n ers ’ cl ai m s th atres p o n den t ’ s req u es t s were u n reas o n ab l e o r t h at they

were ju s t i fi edi n n otp ro du ci n g s om e o f t he d o cu m en t s o n t h e g ro u n d s-6
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th atth ey were co n fi d en t i al . Thu s , p et i t i o n ers h av e n o ts at i s fi edth e req u i rem en t s o f s ect i o n 7 4 91 (a). B. Gai n o r Lo ss o n t h e Sal e o f t h e Can ad i an Pro p erty In th ei r p et i t io n , p et i t i on ers co n t en dth ey h adt ax ab l e g ai n o f $ 7 0 ,2 64 o n th e s al e o f t he Can ad i an p ro p erty . Attri al p et i t i o n ers co n t en d edth ey s u s tai n eda l os s wh en th ey s ol dth e p ro p erty . Res p o n d en t co nt en d s p et i t i o n ers h adg ai n o f $ 7 2 ,5 2 5 . Th e p art i es d i s p u t e t h e am o u n t s o f t he Can ad ian p ro p ert y ’ s co s t b as i s, ad ju s t edb as is , an d s al e p ri ce an dth e d at es th atth e p ro p ert y was h el d fo r t he p ro duct i o n o f i n co m e. 1
. Pu rch as e Pri ce Attri al p et it i on er h u sb an dt es t i fi edth atth e co stb as i s o f t h e Can ad i an p ro p erty was $ 1 8 9,9 4 6 i n s t eado f t h e $ 13 7 ,4 9 3 u s edb y res p on d en t . Pet i t io n ers o ffered i nt o ev i d en ce fi v e d o cu m en t s wri t ten i n Fren ch , wh i ch t h ey arg u e s ub s t an t i at e t h ei r cl ai m th atthe co s t b as i s was $ 18 9 , 9 4 6
. Do cu m en t s wri t ten i n a l an g u ag e o t h er th an En g l i s h are g en eral l y n o t ad m i s s i b l e u n l es s t h e o fferi n g p art y p ro v i d es an En g l i s h tran sl at io n . Un i t edSt at es
v . Ri v era-Ro s ari o , 3 00 F.3 d 1 , 6 n . 4 (1 s tCi r. 2 0 0 2 ); s ee al s o Un i t edSt at es v . Di az, 5 1 9 F.3 d5 6 , 6 4 -6 5 (1 s tCi rc. 2 0 0 8 ); Un i t edSt at es v . Co n treras Pal aci o s , 4 9 2 F.3 d 3 9 , 4 3 n .7 (1 s t Ci r. 2 0 0 7). Pet i t i o n er h u sb an dt es t i fi edth atth e Fren ch l an g u ag e-7
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d o cu m en t s , Ex h i b i t1 6 -P, es t ab l i s h edth e co s t b as i s b utl at er s ai dth atth ey p ro v id edi n fo rm at i on ab o utth e refi n an ci n g o f t h e Can ad i an p ro p ert y i n 2 0 0 6 . Th e Fren ch l an g u ag e d o cu m en t s i n cl u d e n o tran s l at i o n 5 an d t h u s are n o t ad m i s s i b l e. W e d eci d e wh eth er a wi t n es s ’ t es t i m o n y i s cred i b l e b y rel y i n g o n o bject i v e fact s, th e reas o n ab l en es s o f t h e t es t i m o n y , th e co n s i st en cy o f s tat em en t s m ad e b y th e wi tn es s , an dth e d em ean o r o f t he wi tn es s . See Qu o ckTi n g v . Un i t ed St at es , 1 4 0 U.S. 4 1 7 , 4 2 0 -4 21 (1 8 9 1); W o odv . Co m m i ss i o ner, 3 38 F.2 d 6 0 2 , 6 0 5 (9 t h Ci r. 1 9 64 ), aff’ g 4 1 T.C. 5 9 3 (1 9 64 ); Pi n d er v . Un i t edSt at es , 3 3 0 F.2 d1 1 9 , 1 2 4
- 1 2 5 (5 th Ci r. 1 9 64 ); Co nco rdCo n s u m ers Ho u s . Co o p . v . Co m m i s s i o n er, 8 9 T.C. 1 0 5 , 1 2 4 n .2 1 (1 9 87 ). W i t nes s t es t i m o ny co u l d al m os tal way s b e s ai d t o b e “ s el fs erv i ng ”, b u t t h at fact o r al o ne i s n o ta reas o n t o au t o m at i cal l y rejectth e ev i d en ce as u n rel i ab l e. Lup y an v . Co ri n t h i an Co l ls . In c., 7 6 1 F.3 d3 1 4 , 3 20 -3 2 1 , 3 2 1 n .2 (3 dCi r. 2 0 1 4). W e m ay

d i s co u n tt es t i m o n y

wh i ch we fi n d t o b e u n wo rt h y o f b el i ef, s ee To k ars k i v . Co m m i s s i o n er, 8 7 T.C. 7 4 , 7 7 (1 98 6 ), b u t we m ay n o t arb i trari ly d i s reg ardt es t i m o n y t h ati s co m p et en t , rel ev an t , an du n co nt rad i ct ed , s ee

5 Pet i t i on ers s ub m it t edo ne t ran sl at ed d ocu m en twi th th ei r an s weri n g b ri ef. W e g en eral l y

d o n o tco n s i d er d o cu m en ts s ub m i t tedb y o n e p arty aft er t ri al b ecau s e th e o th er p arty

h as n o th adan o p p o rtu n i ty t o s eekad d i t i o n al t es t i m on y rel at i n g t o th e d o cu m en t . Inad d i t i o n, acco rd i n g t o th e t ran s l at i o n , th e d o cu m en ti s a cred i t ap p li cat io n an d d o es n o ts h o w th e am ou n to f p et i t i o n ers ’ co s t b as i s i n th e Can ad i an p ro p ert y . Thu s , we d o n o tco ns i d er t h atd o cu m en t i n d eci d i n g thi s cas e.-8
-

Co n t i v . Co m

m i s si o ner, 3 9 F.3 d6 5 8 , 6 64 (6 t h Ci r. 1 99 4 ), aff’ g an d rem an d i n g 9 9 T.C. 3 7 0 (1 9 9 2 ), an dT.C. M em o . 1 9 9 2 -6 1 6
. Pet i t i o ner h u s b an d t es t i fi edth atth ei r co stb as i s was $ 1 8 9,9 4 6 . Ho wev er, i n two l et t ers t o res p o n den tp et i t i o n ers s ai dth e co s tb as i s was CAD1 8 6 ,0 0 0 , wh i ch , acco rd i n g t o th e co n vers i o n rat e (0 .7 3 9 2 1 ) u s edb y b ot h p art i es , equ al ed$ 1 3 7 ,4 9 3 atthe t im e o f p u rch as e. Becau s e o f t h i s i n co ns i s ten cy , p et i ti o n er h u s b an d ’ s t es t i m o ny o n t h i s p oi n twas n o tcred i b l e. W i t h o u td ocu m en t ary ev i d en ce o r cred i b l e t es t i m o ny

s up p ort in g t h ei r cl ai m , p et i t io n ers h av e n o ts h o wnth atth e co s t b as i s o f t h e p ro p ert y

was an am o u n t o t h er t h an $ 1 3 7,4 9 3 as d et erm i nedb y res p o n d en t. Thus , we fi n d t h atp et i t i on ers ’ co st b as i s i n th e Can ad i an p ro p ert y was $ 13 7 ,4 9 3
. 2
. Ad ju s t edBas i s Pet i t i o ners co n t en dth atth ei r ad ju s t ed b as i s i ncl u d es $ 7 3 ,4 5 9 i n “ ot h er”
ex p en s es (co m

p ri s i ng M o n t real b u s i n es s l o ss es fro m 2 0 0 3 t o 2 0 1 2 , u t i l it i es , b u s i n es s trav el i n 2 0 1 2 , an d v eh i cl e ex p en s es ) an d $ 9 5 ,7 3 0 fro m “ lo s s o f i n co m e”. Pet i t io n ers d o n otad equ at el y ex p l ai n h o wth e “ o t h er” ex p en s es rel at e t o th ei r b as i s i n the Can ad i an p ro p erty . Th erefo re, t h e $ 73 ,4 5 9 i s n o ti n cl u dedi n th ei r ad ju s t ed b as i s .-9
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Pet i t i o ner h u s b an d t es t i fi edth atth e $ 9 5 ,7 3 0 “ l o s s o f i n co m e” co m p ri s es a fo rei gn cu rren cy

tran sact i o n l o s s o f $ 5 2 ,4 5 3 an db u s i n es s ex p en s es t o t al i n g $ 4 3 ,2 7 7 . As d i s cu s s edb el o w p et i t i o n ers m ay n o t d edu ctan y

am o u n tfo r a fo rei g n cu rren cy tran s act i o n l o s s . Thu s , p et i t i o n ers ’ b as i s d o es n o ti n cl u de an y o f t h e $ 9 5 ,7 3 0
. 3
. Dep reci at i o n Res p o n d en tco n t en d s th atp et i t i o n ers p l aced th e p ro p erty i n s erv i ce as a ren t al o n Oct o b er 7 , 2 00 6 , i n p artb ecau s e p et i t i o n ers s o s t at edi n t wo l et ters th ey s en tt o res p o n d en t . Inco nt ras tp et i t i o n er h us b an dt es t i fi edthataft er p et i t i o n er wi fe m ov edt o Verm on t , th ey h el dth e Can ad i an p ro pert y fo r s al e fro m Oct o b er 2 0 0 6 t o Oct o b er 2 0 0 7 an dthen h el di t fo r ren t . Pet i t i o ner h u s b an d’ s t es t i m o n y t hatp et i t i o n ers fi rs t h el d t h e Can ad i an p ro p erty fo r ren ti n Oct o b er 2 0 0 7 i s co nt raryt o th e l et t ers h e s en tt o res p o n d en t . Hi s t es t i m o n y

rel at i n g t o th e at t em

p t eds al e o f t he p ro p ert y

was v ag u e, m

u rky , an d
u n acco m p an i edb y an y rel at edd o cu m en t ary

ev i d en ce. Th e co m

p l et e ab sen ce o f rel ev an t d o cu m en t s u n d erm i n es h is cred i b i l i t y . Th erefo re, we fi n dth at t h e-1 0
-

Can ad i an p ro p ert y

was n o th el dfo r s al e fro m Oct o b er 2 0 0 6 t o Oct o b er 2 00 7 an d
was p laced i n t o s erv i ce as a ren t al o n Oct o b er 7 , 2 0 06
. 6 Un d er s ect i o n 1
. 1 6 8 (i )-4 (c), In co m e Tax Reg s ., wh ena p ro pert y h el d fo r t h e p ro duct i o n o f i n co m e i s co nv ert edt o p ers o nal u s e, i ti s d ep reci ab l e o n l y fo r t h e

“ m o n th s * * * t h e p ro p ert y i s d eem edt o b e p l aced i n s erv i ce du ri n g th e y ear”. (Em p h as i s ad d ed .) Pet i t i o n ers co n t en dth atth e p ro p ert y ceas edb ei ng h el dfo r t h e p ro duct i o n o f i n co m e i n M arch 2 0 1 2 . Res p on d en ts t at es th atth e p ro pert y was

“p l acedi n s erv i ce u n t i l Ap ri l 2 0 1 2 .” Res p o n d en t ’ s cal cu l at i o n s treat edth e p ro p erty as d ep reci ab l e u n t i l Au g u s t2 0 1 2 wh en p et i t i o ner h u s b an dres u m edl i v i n g i n the h o m e. Becau s e b ot h p art i es s t at e th at t h e p ro p ert y was h el dfo r ren tth ro u g h b u tn o t aft er M arch 2 0 1 2 , we treat th e ren t al p eri odas en d i n g M arch 3 1 , 2 0 1 2
. Th u s, we fi n dth atth e Can ad i an p ro p ert y was h el dfo r ren tfro m Oct o b er 7 , 2 0 0 6 , t o M arch 3 1 , 2 0 1 2. 4
. Sal e Pri ce Attri al th e p art i es ag reedth atth e s al e p ri ce o f t he h o m e was $ 3 0 1 ,9 9 0
. Aft er t ri al p et i t i o n ers co nt en d edthey are al l oweda 5 0 % redu ct i o n i n th e s al e p ri ce o f t h e h o m e (t o $ 15 0 ,9 9 5 ) b ecau s e o f a “ 5 0 % b u si n es s u s e” ru l e. Pet i t i o n ers d i d

6 Res p o n d en ts t at es , an d p et i t i o n ers d o n o td i s p u t e, t h atthe d at e i s Oct o b er 7 , 2 0 0 6 , an dwe accep tth atd at e.-1 1
-

n o tp ro v i d e an y

au th ori t y fo r t h i s 5 0 % reduct i o n . Inad d i t i o n th ei r co n t en t i o n i s
u n t i m el y . W e fi n d t h atth e s al e p ri ce o f t h e Can ad i an p ro p ert y was $ 3 0 1,9 9 0
. C. Fo rei g n Cu rren cy

Tran s act i o n Lo s s Pet i t i o ners co n t en dth atth ey are en t i t l edt o d edu cta fo rei g n cu rren cy tran s act io n l o s s u n der s ect i o n 98 8 o f $ 5 2 ,4 53 fo r m o rt g ag e p aym en t s th ey m ad e o n th e Can ad i an p ro p ert y . W e d i s ag ree. A fo rei g n cu rren cy

tran s act i o n l o s s can o ccu r wh en there are ch an g es i n th e ex ch an g e rat e b et ween th e t ax p ay er’ s p ri m ary cu rren cy an dth e cu rren cy i n wh i ch th e d eb twas d en o m i n at ed . Sec. 9 8 8 (b )(2 ), (c)(2 ) an d(3 ). Pet i t i o n ers d i dn o t p ro v id e t es t i m o ny

o r ad m i s s i b l e d o cu m en ts 7 t o s ub s t an t iat e t h e am o un t s o f p aym en t s t hey

m ad e o n t h e m o rt g ag e du ri n g t h e ren t al p eri o d . Thu s , p et i t i o n ers h av e n o ts h o wnth ey

m ay d edu cta fo rei g n cu rren cy tran s act i o n l o s s . D. Bu s i n es s Ex p en s es Sect io n 1 6 2 (a) al l o ws d edu ct i o n s fo r o rd i n ary an dn eces s ary

b u s i n es s ex p en s es p ai d o r i n cu rredi n co n du ct i n g a t rad e o r b us i n es s . Tax p ay ers m u s t
m ai n t ai n reco rd s t h ats u ffi ci en t l y s ub s t an ti at e t h e am o u n t s o f th ei r cl ai m ed d educt i o n s . Sec. 6 00 1 ; s ee Hrad es ky v . Co m m i s s i o n er, 6 5 T.C. 8 7 , 8 9-9 0 (1 9 7 5 ),

7 Pet i t i on ers p ro v i d edo n l y th e Fren ch l an g u ag e d o cu m en ts , wh i ch are n o t ad m i s s i b l e. See s up ra p p . 6 -7
.-1 2
-

aff’ dp er cu ri am , 5 4 0 F.2 d8 2 1 (5 th Ci r. 1 97 6 ); s ec. 1 .6 00 1 -1 (a), In co m e Tax Reg s. Pet i t i o ners d edu ct ed$ 50 0 fo r p ro fes s i o n al m em b ers h i p fees p ai dt o th e In s t i tu t e o f El ect ri cal an d El ect ro n i cs En g i n eers . Pet i t io n ers ad equat el y s ub s t an t i at edthatthi s ex p en se i s rel at edt o p et it i on er h u s b an d’ s em p l o y m en tat IBM ; th u s th ey

m ay d edu cti tas an u nrei m

b u rs edem

p l o y ee ex p en s e. Pet i t i o ners al s o co n t en dth ey are el i g i b l e fo r b u s i n es s d edu ct i o n s fo r ex p en s es fo r t rav el , o ffi ce s up p l i es , p ro fes s i o n al cert i fi cat i o n s , b o o kk eep i n g s erv i ces , t el ep h o n es , i nt eres t o n a b u s i n es s l o an , an d a t i m es h are i n Fl o ri d a. Ex cep t as d i s cu s s edab o ve, t h e d o cu m en tat i on th ey p ro vi d edd i dn o ts u ffi ci en t ly
s ub s t an t i at e t h e am o un t s cl ai m edo r s h ow t h atth e ex p en s es were b u s in es s rel at ed
. Pet i t io n er h u s b an d’ s t es t i m o n y co n cern i n g the l eg i t i m acy an dam o u n to f t h e b u s i n es s ex p en s es was ev as i v e an dl ack edcred i b i l i t y . Fo r ex am p l e, wh en as k ed wh et h er h e h adb ro ug h td ocu m en t s t o s ubs t an t i at e h i s b u s i n es s ex p en s es , h e res p o n d ed t h at h i s d o cu m en ts were t o o n um ero u s fo r h i m t o fi n d t h o se res p o n d en t h ad req u es t edan d t h atres p o nd en t h adh adth e ch an ce t o as kfo r t h e d o cu m en t s fo r y ears an dh adn ot . W e n o t e th atres p o n den th ad as k ed p et i t io n ers fo r, b u t p et i t i o n ers d i d n o tp ro vi d e, t h es e d o cu m en t s atl eas t t hree t i m es b efo re tri al . Thu s ,-1 3
-

ex cep tfo r $ 5 0 0 fo r th e p ro fes s i o n al m em b ers h i p , p et i t io n ers m ay

n o td edu ct b u s i n es s ex p en s es fo r 2 0 1 2
. E. 1 0 % Ad d it i o n al Tax Un d er Sect i o n 7 2 (t ) Pet i t i o ners wi t hd rew $ 1 7 ,5 0 0 fro m p et it i o n er-h u s ban d ’ s ret i rem en tacco u n t i n 2 0 1 2. Sect i o n 7 2 (t ) p ro v i d es th at , u n l es s an ex cep t i o n ap p l i es , an y d is t ri b u t i o n s fro m a ret i rem en tacco u n tare s ub jectt o a 1 0 % ad d i t i o n al t ax . On e o f t h e ex cep t i o n s i s p aym en to f a t ax l ev y . Sec. 7 2 (t )(2 )(A)(v ii ). Pet i ti o n ers co n t en dth at th ey u s eda p ort io n o f t h e $ 1 7,5 0 0 t o p ay a t ax l ev y . 8 Ho wev er, t hey p ro v id edn o ev i d en ce d es cri b i n g th e t ax l ev y . Inh i s t es t i m on y p et i t i o n er h u s ban dreferred t o th e t ax l ev y

o n l y v ag uel y . He d i dn o ts p eci fy th e d at e, th e am o u n t, o r th e t ax i n g au th o ri ty th ati m p os edth e l ev y . Pet i t i o n ers h av e n o t s ho wnthatth ey are el i g i b l e fo r t h e ex cep t i o n fo r t ax l ev i es u n d er s ect i o n 7 2 (t ). Pet i t i o ners al s o co n t en dth atthe rem ai n i n g p o rt i o n o f t h e $ 1 7 ,5 0 0 was a l o an wh i ch th ey

u s edt o p urch as e a h o m e i n Verm o n t i n 2 01 3 . Pet i ti o n ers p ro v id edo n l y

Fo rm 1 0 9 9 -R as ev i d en ce o f t h e l oan , b utth atfo rm d o es n ot p ro v id e an y

i n fo rm at i o n ab o uta l o an . Becau s e o f t h e l acko f s u ffi ci en tev i d en ce

8 Aft er t ri al p et i t i o n ers s t at edth atad d i t i o n al ex cl u s i on s u nd er s ec. 7 2 (t )(2 )(A) ap p li edt o th e d i s bu rs em en t . Th ei r cl ai m o f ad d i t i o n al g ro u n ds i s u n t i m el y , an d we wi l l n o tco n s i d er i t .-1 4
-

rel at i n g t o p et i t i on ers ’ u s e o f t he fu n ds d i s t ri b u t edfro m h i s ret i rem en tacco u n t , th e en t i re $ 1 7 ,5 0 0 i s s ub

jectt o t h e 1 0 % ad d i t i o n al t ax u n d er s ect i o n 7 2 (t ). F. Pet i t i o ners ’ Cl ai m

fo r Dam ag es Pet i t i o ners s eekm o n et ary d am ag es fro m res p on d en to n t h e g ro u n d s t h at
res p o n d en t kn owi ng l y

m i s rep res en tedth e fact s , m ad e i n t en t i on al fal s e s tat em en t s,
an d co n ceal ed t h e tru t h . Th ere i s n o cred i b l e ev i d en ce i n th e reco rds up po rt i n g p et i t i o n ers ’ cl ai m s o n th es e p o i n t s . To refl ectthe fo reg o i n g , Deci s i o n wi ll b e en t eredu n d er Ru l e 1 5 5
.