T.C. M em o . 2 0 2 1 -4 4

UNITED STATES TAX COURT

ROBERT CRAIG COLTON AND ALINA M AZW IN, Pet it i o n ers v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 1 0 7 42 -1 9 . Fi l edAp ri l 2 1 , 2 0 2 1 .
Ro b ertCrai g Co l to n an dAl i n a M azwi n , p ro s es e. As h l ei g h R. W i se an dRach ael J . Zep ed a, fo r res p o n d en t .

M EM ORANDUM OPINION LAUBER, J u d g e: W i th res p ectt o p et i t i o ners ’ Fed eral i n co m e t ax fo r 2 0 1 6 , th e In t ern al Rev en u e Serv i ce (IRS o r res p o n d en t ) d et erm i n eda d efi ci en cy o f $ 3 ,1 1 3 . Res p o n d en th as m ov edfo r p art i al s u m m ary ju d g m en t u n d er Ru l e 1 2 1 , co n ten d in g th atth ere are n o d i s p u t ed i s s u es o f m at eri al factas t o wh ether p et i t i o n Served 04/21/21- 2
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[* 2 ] ers are l i ab l e fo r a t ax d efi ci en cy i nth atam o u n t . 1 W e ag ree an dacco rd i n g l y wi l l g ran tth e m o t i o n . Back gro u n d Th e fo l l o w i n g fact s are b as edo nth e p art i es ’ p l ead i n g s an dm o t i o np ap ers , i n cl u d i n g an at t ach edd ecl arat i o nan dex h i b i t s . See Ru l e 1 2 1 (b ). Pet i t i o n ers res i d
edi n Ari zo n a wh en th ey

p et i ti o n edth i s Co u rt . Pet i t i o ners t i m el y

fi l eda jo i n tretu rn fo r 2 0 1 6 , rep o rt in g wag es o f $ 5 3 ,8 7 5 an d a $ 14 ,0 0 0 l o s s o n Sch edul e E, Sup p l em en t al In co m e an d Lo s s . Pet i t io n ers d i d
n o ti t em i ze d edu ct i o ns an di n s t eadcl ai m edth e s t an d ardd edu ct i on . OnJ u n e 4 , 2 0 1 8 , th e IRS s en tp et i t io n ers a l et t er as s ert i n g th atthey h adrecei v edu n rep o rt ed i n co m e, i n cl u d i n g $ 2 0 o f i n t eres tfro m U.S. Ban k an d$ 1 2 5,0 0 0 fro m J P M o rg an Ch as e Ban k . Pet i t i o ners res p o n d edt o t h e l et t er an dex p lai n edth atth e $ 1 2 5 ,0 0 0 rep res en t eds et t l em en t p ro ceed s fro m a l aws u it , h al f o f wh i ch b el o n gedt o M r. Co l to n ’ s ex -wi fe. Accep t i n g p et i t i o ners ’ ex p l an at i o n , th e IRS o nNo v em b er 1 9 , 2 0 1 8, s en t th em a s eco n dl et t er, as s ert i n g i n t eres ti n co m e o f $ 2 0 an do th er i n co m e o f $ 6 2 ,5 0 0 , refl ect i n g M r. Co lt o n ’ s h al f o f t he s et t l em en tp ro ceed s . On Decem b er 4 ,
1 Al l s t atut o ry

referen ces are t o th e In t ern al Rev en u e Co de o f 1 9 86 as i n effect du ri n g 2 0 16 , an dal l Ru l e referen ces are t o th e Tax Co u rtRu l es o f Pract i ce an d Pro cedu re.- 3
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[* 3 ] 2 0 1 8 , p et i t i o ners res p o n d edt o t h atl et t er wi th an am en d edretu rn fo r 2 0 1 6 , rep o rt i n g $ 2 0 o f i n t eres ti nco m e, $ 6 2 ,5 0 0 o f s et tl em en t p ro ceed s , an d (fo r t h e fi rs t t i m e) $ 8 0 ,0 7 5 o f i t em i zedd edu ct i o n s . Pet i ti o n ers i n cl u dedwi th th e am en d ed retu rn a Sch edul e A, It em i zed Dedu ct i o n s , cl ai m i ng a m i s cel l an eo us i t em i zed d educt i o n o f $ 8 0,0 7 5 fo r at t o rn ey ’ s fees i n cu rredi n co n n ect i on wi th t h e l i ti g at i o n an d s et t l em en t . OnFeb ru ary 2 5 , 2 0 1 9, the IRS s en tp et i t i o n ers a t h i rdl et t er i n d icat i n g th ata m i s cel l an eo u s i tem izedd edu ct io n fo r at t orn ey ’ s fees wo u l db e al l o wed . Bu twh i l e m i s cel l an eo u s i tem izedd edu ct io n s are al l owab l e ag ai n stth e reg u l ar t ax , th ey are n o tal l owedfo r p u rp o s es o f co m p u t i n g th e al t ern at i v e m in i m um t ax (AM T) i m p o s edb y s ect i o n 5 5 . See s ec. 5 6 (b )(1 )(A)(i ). Th e IRS acco rd i n gl y d et erm i n ed th atp et i t i o n ers were l i ab l e fo r AM T o f $ 3 , 0 0 3 . OnJ u ne 1 0 , 2 01 9 , th e IRS i ss u edp et i t io n ers a n o t ice o f d efi ci en cy . Th e n o t i ce i n cl u d edad

ju s t m en t s t o i n co m e o f $ 2 0 fo r i n t eres tan d $ 62 ,5 0 0 fo r s et t l em en tp ro ceed s . Ital s o al l o w eda m i s cel l an eo us i t em i zedd edu ct i o no f $ 7 8 , 0 5 3 , refl ect i n g th e 2 % fl o or k ey edt o ad ju s t edg ro s s i n co m e. See s ec. 6 7 (a). Th es e ad
ju s t m en t s l edt o th ree co m p u t at i o n al ch an g es : a d ecreas e i nt ax ab l e i n co m e an da co rres p o n d i n g $ 2 90 d ecreas e i n reg u l ar t ax , th e d en ial o f a $ 4 0 0 ret i rem en ts av -- 4
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[* 4 ] i n g s cred i t , an dth e i m po s i t i o no f $ 3,0 0 3 i nAM T, p ro du ci n g a t o t al am o u nt du e o f $ 3 ,1 1 3 . OnJ u ne 2 4 , 2 01 9 , p et i t i o n ers t i m el y p et i t i o n edth i s Co u rt . Th e o n l y ad ju s t m en ti n th e n ot i ce o f d efi ci en cy t o wh i ch th ey

o b ject edwas the AM T o f $ 3 ,0 0 3 . Pet i t io n ers s t at edi n th ei r p et i t i o nth at“ [t h ey ] n ev er h eardo f [t h e] al t ern at iv e m i n i m u m t ax .” Res p o n d en tm o v edfo r p art i al s u m m ary ju d g m en to nJ an u ary

1 1 , 2 0 2 1 . Pet i t i o n ers res p o n d edt o t h e m o t i on o nFeb ru ary 8 , 2 0 2 1 . Di s cu ss i o n Th e p u rp os e o f s u m

m ary ju d g m en t i s t o ex p ed it e l i t i g at i o nan d av o i dco st l y , t i m e-co n s u m i n g , an du n n eces s ary tri al s . Fl a. Peach Co rp . v . Co m m i s si on er, 9 0 T.C. 6 7 8 , 6 8 1 (1 9 8 8 ). Th e Co urtm ay g ran t s umm ary

ju d g m en twh en th ere i s n o g en ui n e d i s p u t e as t o an y m at eri al fact an da d eci s i o nm ay b e ren dered as a m at t er o f l aw. Ru l e 1 2 1 (b ); Su n d st ran dCo rp . v . Co m m i ss i o n er, 9 8 T.C. 5 1 8 , 5 2 0 (1 9 9 2 ), aff’ d , 1 7 F.3 d9 65 (7 th Ci r. 1 99 4 ). Th e s o l e qu es t i o n p res en t edb y res p on d en t ’ s m o t i o ni s wh et h er t h e IRS co rrect ly d et erm i nedp et i t i o n ers ’ l i ab i l i ty fo r AM T. 2 Sect i on 5 6 s et s fo rt h a n u m b er

2 Th i s o p i n i o n d o es n o tad dres s th e qu es t i o nwh et h er p et i t i o ner M azwi ni s en t i t l edt o rel i ef fro m

jo i n t an ds ev eral l i ab i l i ty u n der s ec. 6 0 1 5 .- 5 -

[* 5 ] o f ad ju s t m en ts i n co m

p u t i n g al t ern at i ve m i n i m

u m t ax ab l e i n co m e (AM TI), th e t ax b as e fo r t h e AM T. Sect i o n5 6 (b ) p ro vi d es i nrel ev an tp art :

SEC. 5 6 (b ). Ad

ju s t m en t s Ap p l i cab le t o In d i v i dual s .--In d et erm i ni n g th e am o un to f t h e al t ern at iv e m in i m u m t ax ab l e i n co m e o f an y t ax p ay er (o th er th an a co rp o rat i o n ), th e fo ll o wi ng treat m en ts h al l ap p l y (i n l i euo f t h e t reat m en tap p l i cab l e fo r p u rp o s es o f co m pu t i n g th e reg u l ar t ax ):

(1 ) Li m it at i o no nd edu ct i o ns .-- (A) In g en eral .--No d educt i o ns h al l b e al l o wed

– (i ) fo r an y

m is cel l an eo u s i tem i zed d edu ct i o n (as d efi n edi ns ect i on 6 7 (b )) * * * Th e IRS d et erm in edth atp et i t i o n ers h ad AM TI o f $ 1 0 1 ,1 11 --t he s u m o f th ei r reg ul ar t ax ab l e i n co m e o f $ 1 4 ,9 5 8 , p ers o n al ex em p t i o ns o f $ 8 ,1 0 0 , an da m i s cel l an eo u s i tem izedd edu ct io n o f $ 78 ,0 5 3 . See s ecs . 5 5 (b )(2 ), 5 6 (b )(1 )(A)(i ), (E). Th e IRS t h en s ub tract edfro m th ei r AM TI an ex em

p t i o no f $ 83 ,8 0 0 . See s ec. 5 5 (b )(1 )(A)(i i ), (d )(1 )(A), (4 )(A)(i i ). Th e d i fferen ce b etween th o se am o u n t s , o r $ 1 7 ,3 1 1 , was m

u l ti p l i edb y

2 6 %, th e ap p l i cab l e AM T rat e. See s ec. 5 5 (b )(1 )(A)(i ). Th atp ro du ceda t en t at iv e m in i m u m t ax o f $ 4,5 0 1 , fro m wh i ch th e IRS s ub tract edp et i ti o n ers ’ reg u l ar t ax l i ab i l i ty , o r $ 1 ,4 9 8 , t o y i el d an AM T l i ab i l ity o f $ 3 ,0 0 3 . See s ec. 5 5 (a).- 6
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[* 6 ] Pet i t i o ners h av e n o tal l eg ed an y erro r i nres p o nd en t’ s cal cu l at i o n s an dh av e o ffered n o g ro u n d fo r d i s pu t i n g th atth e AM T ap p l i es . 3 Inth ei r res p o n s e t o th e m o ti o n th ey

ex p res s co n fu s i o n ab o u ta l et t er t hatth e IRS s en tt o p et i ti o n er M azwi n o n Decem

b er 1 6 , 2 0 1 9 , s h o wi n g a d ecreas e i n t ax o f $ 3 ,1 1 3 an ds t at i ng “ y o u d o n ’ to we u s an y

m o n ey .” Th e IRS h adas s es s ed$ 3 ,1 13 ag ai n s tM s. M azwi no n Oct o b er 2 1 , 2 0 1 9 , b ecau s e t h e p et i t i o ni n i ti at i n g thi s cas e h ado ri g i n al l y b een s i gn edb y p et i ti o n er Co l to n o n l y . Aft er M s . M azwi nrat i fi edth e p et i t i o n , res p o n d
en tab at edth e as s es s m en t ag ai ns th er, wh i ch au t o m at i cal l y g en erat edth e l et t er s t at i n g s h e h adn o b al an ce du e atth at t im e. 4 Pet i t i o ners al s o ex p res s edco n cern ab o uta l et t er i n d i cat i n g t h ata 2 0 1 6 t ax d eb t h adb een turn ed o v er t o a p ri v at e d eb tco l l ect or d es p i te t h e o n g o i n g p ro ceed
i n g s i n th i s Co u rt . Th is l et t er co n cern eda 2 0 1 6 t ax d eb to wedb y Co l t on Grad in g

3 Pet i t i on ers them s el v es rep ort edth e at t orn ey ’ s fees as a m i s cel l an eo u s i t em i zedd educt i o n . Th ey

d o n o tco n t en dth atthe s et t lem en tp ro ceed s aro s e fro m a l aws u i ti n v o l v in g a cl ai m o f u n l awfu l d is cri m i n at i on o r a wh i s t l eb l ower act i o n , fo r wh i ch an ab o v e-t he-l i n e d edu ct i o nfo r at t o rn ey ’ s fees m i g h t b e av ai l ab l e. See s ec. 6 2 (a)(2 0 ) an d (2 1 ).

4 A s i m i l ar rev ers al o ccu rredwi th res p ect t o M r. Co lt o n . Th e IRS erro n eo u s l y rev ers edth e l i t i gat i o n freeze o nh i s 2 01 6 acco u n t an d p rem atu rel y as s es s ed th e $ 3 , 11 3 d efi ci en cy

ag ai n s t h i m . Th e IRS t hen ap pl i edp et i t i o ners ’ 2 0 1 9 o v erp aym en t t o the as s es s m en tfo r 2 0 1 6 an d n o t ifi edM r. Co l t o n o f t h i s o ffs et . Aft er real izi n g i t s m is t ak e, th e IRS ab at edth e p rem atu re as s es s m en tfo r 2 0 1 6 o nAu g u s t 3 1 , 2 0 2 0 . Th i s erro r an dth e erro r n o t edi nthe t ex th av e b een co rrect ed , an dn ei
th er h as an y

i m p acto n th e p ro per cal cu l at i o no f p et i t io n ers ’ 2 0 16 t ax d efi ci en cy .- 7 -

[* 7 ] & Ex cav at i o n , In c., a C co rp o rat i o no f wh i ch M r. Co l to ni s ev id en t l y a s h areh o ld er. Th atl et t er h as n o rel ev an ce t o th e i n d i v i du al t ax l i ab i l i t i es ati s s u e i n th i s cas e. To i m p lem en tth e fo reg o i n g , Ano rd er wi l l b e i s s u edg ran t i n g res p o nd en t ’ s m o t i o nfo r p art i al s u m m ary ju dg m en t .