T.C. Summary Opinion 2003-115

UNITED STATES TAX COURT

CYNTHIA MEDINA, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 14760-02S. Filed August 19, 2003.

Cynthia Medina, pro se.

Daniel N. Price, for respondent.

DEAN, Special Trial Judge: This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed. Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code in effect for the year in issue, and all Rule

references are to the Tax Court Rules of Practice and Procedure. 
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1 Amounts are rounded to the nearest dollar.

The decision to be entered is not reviewable by any other court,

and this opinion should not be cited as authority. 

Respondent determined a deficiency of $514 in petitioner's

Federal income tax for 2000. The issue for decision is whether

petitioner was required to report $3,531 of interest income she

received from the redemption of United States savings bonds.

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

The stipulation of facts and the accompanying exhibits are

incorporated herein by reference. At the time the petition was

filed, petitioner resided in San Antonio, Texas.

Background

In 2000, petitioner cashed and deposited proceeds from two

U.S. savings bonds at Security Service Federal Credit Union

(Security Service). The bonds were purchased by petitioner's

father (Mr. Medina) beginning in 1982. Petitioner redeemed the

first bond on August 23, 2000, for proceeds of $8,001, and the

second bond on December 20, 2000, for proceeds of $204.1

Security Service issued petitioner a Form 1099-INT, Interest

Income, for interest of $3,531 earned on the redeemed savings

bonds. 

Respondent issued a notice of deficiency determining that

petitioner failed to report as income the interest earned on the

savings bonds. 
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Discussion

A taxpayer generally bears the burden of proving that the

Commissioner’s determination is incorrect. Rule 142(a); Welch v.

Helvering, 290 U.S. 111 (1933). If the requirements of section

7491(a)(1) are met however, the burden of proof with respect to

factual issues relevant to ascertaining the tax liability of the

taxpayer shifts to the Commissioner. The Court finds that the

burden of proof does not shift to respondent because petitioner

has failed to comply with the requirements of section 7491(a). 

Gross income includes all income from whatever source

derived, unless specifically excluded from income under the

exclusion provisions of the Internal Revenue Code. Sec. 61;

Dickman v. Commissioner, 465 U.S. 330, 334 (1984). Section 61

specifically lists "interest" as a source of gross income. Sec.

61(a)(4); sec. 1.61-4, Income Tax Regs. 

Petitioner argues that she is not required to include the

interest she received from the redemption of the bonds in her

total gross income because she used the funds for higher

education expenses. 

Section 135(a) provides that, in the case of an individual

who pays qualified higher education expenses during the taxable

year, no amount shall be includable in gross income by reason of

the redemption during such year of any qualified U.S. savings

bond. The term "qualified higher education expenses" includes
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tuition and fees required for the enrollment or attendance of the

taxpayer at an eligible educational institution. Section 135(a)

specifically requires qualified education expenses to be paid

during the taxable year in which the bonds were redeemed. 

Petitioner redeemed her bonds in 2000. Respondent does not

dispute that petitioner was enrolled at Palo Alto College (PAC)

in San Antonio, Texas, as a freshman in January 2001, but

respondent has no information on petitioner's academic standing

during 2000, the taxable year at issue. Further, petitioner has

not provided respondent with documentation showing that she paid

qualified education expenses in 2000. The records petitioner

provided show that all of her payments for tuition and fees to

PAC were made during 2001.

Section 135(c) states that in order for a savings bond to be

a "qualified United States savings bond" it must have been issued

after December 31, 1989. Mr. Medina testified that he began

purchasing the bonds in 1982 when his daughter was born. 

Petitioner produced no evidence that either of the bonds was

purchased after December 31, 1989. The Court, therefore, cannot

find that section 135 is applicable to this case. 

Because petitioner has not shown that she redeemed qualified

savings bonds and that she had qualified higher education

expenses in 2000, the Court holds that petitioner was required to

report $3,531 of interest income on her 2000 tax return.
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Reviewed and adopted as the report of the Small Tax Case

Division.

Decision will be entered

for respondent.