# PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b),THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE.T.C. Sum m ary Opi ni on 20 14 -5 1

UNITED STAT ES TAX COURT

MIC HAEL J. RUBLOW SKY, Pet it io ne r v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 16 49 8- 11 S. Fi le d J un e 9 , 20 14 .
Mi ch ael J. Rubl ows ky, pro se. Eli ezerKlei n, fo r res po nd en t.

SUMM ARY OPINION GALE, Ju dg e: Thi s ca se was h eardpu rs ua ntto th e p ro vi si on s o f se ct io n 74 63 of t he Int ern al Rev enue Co de ineffec t wh enth e p et it io n was fil ed . 1

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 of 1 98 6, as ineffe ctforth e y ear i n i ss ue , andall Ru le refe ren ces are t o t he Tax C ou rt Rul es of P ract ic e an d P ro cedur e.- 2 -

Pu rs ua ntto sec ti on 74 63 (b ), th e d eci si on to be en te redis no t re vi ewab le by any ot he r co urt, an d t hi s o pi ni on sh al l n otbe tre at edas p rece de nt . Res po nd en t d et erm in eda de fic ie nc y of $ 9,7 38 an d ape na lt y un de r se ct io n 2 66 62 (a) o f $1 ,94 8 wi th res pe ctto pe ti ti on er’s 2 00 9 F ed eral in co m e ta x. Aft er co nc es si on s, th e is su es forde ci si on are wh ethe r pe ti ti on er:

3

All do ll ar am ou nt s ar e ro un de d t o t he ne ares t d ol la r. 2 Pet it io ne r co nc ed es th athe fai le d t o re po rt $ 20 of t ax ab le in te res t fo r 20 09 . 3 The s ti pu la ti on of f

act s s ta te s: “ Pet it io ne r co nc ed es th athe rece iv ed $5 7,8 87 of t ax ab le IRA d is tri bu ti on s i n 2 00 9.” In t he no ti ce o f de fic ie nc y , ho wev er, res po nd en t d et erm in edth atpe ti ti on er h adgro ss ret ire m en t i nc om e o f $5 8,8 13 , con si st in g o f th e $ 57 ,88 7 i n i nd iv idua l re ti rem en t ac co un t (I RA) di st rib ut io ns pe ti ti on er re po rte d a nda $9 26 di st rib ut io n fr om a Ro thIRA (as in di cat edby the “ J” di st rib ut io n c od e o n aFo rm 10 99 -R, Dis tri bu ti on s Fr om Pen si on s, Annu it ie s, Re ti rem en t o r Pro fit -Sh ari ng Pla ns , IRAs, In su ran ce Co nt ract s, et c., fo r 20 09 rece iv edby resp on de nt ) th atpe ti ti on er d idno t re po rt. The no ti ce o f de fic ie nc y

furth er d et erm in edth atth e ta xabl e p orti on of the gro ss ret ire m en t d is tri bu ti on is $5 5,0 38 . W e are un ab le to read il y reco nc il e th e n ot ic e o f de fic ie nc y ’s det erm in at io n o f th e ta xabl e p orti on of p et it io ne r’s IRA d is tri bu ti on with t he pa rti es ’ ap paren t p os it io n i n t he st ip ul at io n t ha t the tax ab le po rti on is $5 7,8 87 . W e ex pe ctth e p art ie s t o a dd res s t hi s p os si bl e d is crep an cy inth ei r Ru le 15 5 c om pu ta ti on s. Als o, i n h is pre tri al m em or an du m pe ti ti on er cl ai m eden ti tl em en t t o de du ct io ns fora ta x re turnpre pa rat io n fe e an d o th er t ax es , bu t attri al he di d n ot ad dr es s t he se it em s o r of

fer a ny evi de nc e wit h re sp ectto th em . W e th eref or e tr eat th es e cl ai m s as ab an do ne d.- 3 -

(1 ) is en ti tl edto de du cta cas ua lt y lo ss of $ 35 ,00 0. We ho ldth athe is no t; (2 ) is en ti tl edto de du ctcert ai n m ortg ag e in te res t an d re al pro pe rty tax es as ex pe nd itur es ari si ng fro m a pe rs on al res id en ce o r as tra de or b us in es s ex pe ns es ari si ng fro m

ren ta l re al est at e. W e h ol d t ha t p et it io ne r is en ti tl edto de du ctth e ex pe nd itur es on ly as tr ad e o r bu si ne ss ex pe ns es fro m ren ta l re al est at e; (3 ) is en ti tl edto de du ctcert ai n m ortg ag e in su ran ce p aym en ts . W e h ol d t ha t he is no t; an d (4 ) is li ab le foranaccu racy-rela te d p en al ty und er s ect io n 6 66 2( a). W e h ol d th athe is no t. Bac kg ro un d So m e fac ts ha ve be enst ip ul at edan d a re i nc or po rat edhe rei n b y

th is refe ren ce. At the ti m e th e p et it io n was fil ed , pet it io ne r res id edinNew York . Pet it io ne r gr adua te d fr om law s ch oo l i n 2 00 6 andth erea fte r pa ss edth e New York ba r ex am in at io n a ndhe lda le ga l s erv ic es job for a ti m e. On J anua ry

28 , 20 10 , th e So ci al Secu rit y

Adm in is tra ti on (SSA) d et erm in edth athe was d is ab le d a nden ti tl ed to di sabi li ty ben efi ts as o f Ju ne 1, 2 00 8. Th e SSA fo un d t ha t p et it io ne r ha d, as of th atda te , sev ere p hysic al an d m en ta l i m pa irments th atli m it edhi s fu nc ti on al cap aci ty.- 4 -

On Fe brua ry

28 , 20 07 , a fir e cau se d d am ag e to a dwe ll in g o n apa rcel of r eal pr op erty th atpe ti ti on er o wne d i n F ar Ro ck away, New York(Far R oc ka way pr op erty ). The New Yo rk Cit y Fir e Dep art m en t p rep aredanin ci de ntrep ort reg ard in g t he fir e. The i nc id en t re po rt s ta te s t ha t the dwel li ng was “ oc cupi ed ”, th atth e fi re was co nf

in edto th e b edro om

wher e itori gi na te d, an d t ha t the he at so ur ce was a ci ga ret te . The rep ort fu rth er s ta te s: “ Occupa ntSafra z Ru st am rece iv edm in or

bu rn s t o h is lef

t h an d a sn [si c] was tr eat edat t he sce ne by E MS” . Sh ortl y aft er the fir e o ccu rred , pet it io ne r fi le d a n i ns ur an ce cl ai m un de r a ho m eo wne rs pro pe rty casu al ty ins ur an ce p ol ic y (po li cy ) th athe ha d p ur ch as ed fro m Sta te Farm

Fir e & Ca su al ty Co. (St at e Farm). The p art ie s d o n otdi sp ut e th at th e p ol ic y pro vi de d c as ua lt y

co ve rag e o nl y

for a dwe ll in g u se d b y

pe ti ti on er as hi s res id en ce. The reco rddo es no t d is cl os e th e p reci se ti m e atwhi chSta te Farm rai se d c on cern s ab ou t the va li di ty of pe ti ti on er’s cl ai m ; b utov er an ap pr ox im at el y 22 -m on th pe rio d a fte r he subm it te d t he cla im , Sta te Farm so ug htto ob ta in fro m pe ti ti on er d oc um en ts an d aswo rnst at em en t t o s ub st an ti at e th athe was u si ng th e Far R oc ka way

pro pe rty as h is res id en ce atth e ti m e o f th e lo ss . Stat e Farm ul ti m at el y

co nc lu de d t ha t p et it io ne r ha d fa il edto pro vi de th e requi reddo cu m en ts an d s worn s ta te m en t an d h adm at eri al ly mis rep res en te d t he fact s co nc ern in g t he lo ss . Reci ti ng th e fo reg oi ng , ina Decem be r 11 , 20 08 , let te r to pe ti ti on er St at e- 5 -

Farm de cl in edto pro vi de co ve rag e fo r th e lo ss . W it h re sp ectto th e swo rn st at em en t, the let te r st at ed : “ [Y]ou h av e n otreturne d the si gn edco py of th e ex am in at io n u nd er o ath t ran sc rip t” . Pet it io ne r wro te Sta te Farm inJan ua ry , Feb ru ary, Marc h, Ap ril , andJu ne 20 09 , di sp ut in g t he de ni al of c ov erag e. Altho ug h h e in si st edinon e o f th es e le tt ers th athe ha d s ub m it te d t o aswo rnex am in at io n, h e ig no redSta te Farm ’s co nt en ti on th athe ha d fa il edto return asi gn edco py of th e ex am in at io n t ran sc rip t. The re i s n o e vi de nc e th atSta te Farm res po nd edto an y

of p et it io ne r’s fo ll owup le tt ers or m ad e an y

pa ym en t wi th res pe ctto th e fi re d am ag e. On h is Fed eral in co m e ta x re tu rnfor20 08 (whi chha s n o e nt ry in di cat in g a return p rep arer ) pe ti ti on er d educ te d $ 17 ,50 0 i n m ortg ag e in te res t at tri bu tabl e to th e FarRo ck away pr op erty inpa rt I of S ch edul e E, Sup pl em en ta l In co m e an d Los s, wh ic h c ov ers “ In co m e o r Los s Fr om Ren ta l Re al Est at e an d R oyalt ie s” . Als o i n t ha t p art , he r ep orte d re nt s re cei ve d o f $2 4,5 00 . 4 On h is 20 09 return p et it io ne r rep orte d IRA di st rib ut io ns of $ 57 ,88 7 b ut cl as si fie d t he m

as n on ta xabl e. He di d n otcla im a cas ua lt y

lo ss de du ct io n o r an y ot he r de du ct io ns with re sp ectto th e FarRo ck away pr op erty . Pet it io ne r’s Fed eral in co m e ta x re tu rnfor20 07 is no t i n t he reco rd . 4- 6 -

InApri l 2 01 1 re sp on de ntm ai le d p et it io ne r a s ta tu to ry no ti ce o f de fic ie nc y fo r hi s 2 00 9 t ax ab le y ear. Th e n ot ic e d et erm in edth atpe ti ti on er i nc orrect ly ex cl ud edfro m

hi s t ax ab le in co m e $ 55 ,03 8 o f ret ire m en t i nc om e (at tri bu tabl e to va rio us IRA d is tri bu ti on s) . In re sp on se , pet it io ne r subm it te d a n a m en de d re tu rn 5 fo r 20 09 on whi chhe rep orte d $ 57 ,88 7 i n IRA di st rib ut io ns as t ax ab le an d fo r th e fir stti m e cl ai m eda cas ua lty lo ss de du ct io n o f $3 5,0 00 ari si ng fro m a “ fir e in 20 07 ”, as well as d educ ti on s fo r ho m e m ortg ag e in te res t o f $1 6,1 38 , real est at e ta xe s o f $7 51 , andm ortg ag e in su ran ce p rem iu m s o f $1 ,60 0. The ca su al ty los s 6
was cla im edinpa rt B of F orm 46 84 , Cas ua lt ie s an d Th eft s, o f th e am en de d return- -th atis , as a tt rib ut ab le to bu si ne ss or i nc om e-p ro du ci ng pro pe rty--an d de du ct edinarri vi ng at a dju st edgro ss in co m e. The m ortg ag e in te res t, re al est at e ta xe s, an d m ortg ag e in su ran ce p rem iu m am ou nt s wer e d educ te d o n S ch edul e A, Ite m iz edDedu ct io ns , of t he am en de d re tu rn , with t he m ortg ag e in te res t am ou nt s ch arac te riz edas “ ho m e” m ortg ag e in te res t. The no ti ce al so di sa ll owe d a$3 3 e arn edin co m e cre di t as a co m pu ta ti on al 5 ad jus tm en t. The pa rti es ha ve st ip ul at edth atth e m ortg ag e in te res t an d re al est at e ta xe s 6 no te d abo ve were p ai d b y pe ti ti on er i n 2 00 9 wi thres pe ctto th e FarRo ck away pr op erty . There is als o n o d is pu te th atth e cas ua lt y lo ss pe ti ti on er cl ai m edon hi s 20 09 am en de d re turnwas p rem is edon th e 2 00 7 fi re d am ag e to th e Far Ro ck away pr op erty .- 7 -

Pet it io ne r ti m el y

fil eda pe ti ti on with the Co urt s eek in g ared et erm in at io n o f th e d efi ci en cy . Dis cu ss io n Gen eral ly, th e Co m

m is si on er’s d et erm in at io ns ina no ti ce o f de fic ie nc y are pr es um edco rrec t, an d t he tax pa y er b ears th e b ur de n o f pr ov in g tha t the de te rm in at io ns are erro ne ou s. Ru le 14 2( a)(1 ); Welc h v . Helv eri ng , 29 0 U.S. 1 11 , 11 5 (1 93 3) . Dedu ct io ns are a m at te r of leg is la ti ve gra ce, an d t he bu rd enof sh owi ng en ti tl em en t t o acla im edde du ct io n i s o n t he tax pa y er. Rul e 1 42 (a); 7 INDOPCO, In c. v. Co m

m is si on er, 5 03 U.S. 79 , 84 (19 92 ). Cas ua lt y Los s Res po nd en t ar gu es th atpe ti ti on er i s n oten ti tl edto a cas ua lt y lo ss de du ct io n fo r 20 09 for

da m ag es to th e Far

Ro ck away pr op erty

cau se d b y

th e fi re in 20 07 . W e ag ree. Sect io n 1 65 (a) a ll ows tax pa y ers to de du ctan y lo ss es su st ai ne d dur in g t he ta xabl e y ear t ha t ar e n otco m pe ns at edfor

by ins ur an ce o r ot he rwis e. Fo r in di vi du al s, d educ ti bl e lo ss es are l im it edto lo ss es in cu rredina tr ad e o r bu si ne ss orinan y tra ns act io n e nt eredin to forpro fit , or, i n t he cas e o f lo ss es of p ro pe rty no t
Pet it io ne r ha s n otcla im edor s ho wn en ti tl em en t t o a ny shi ft i n t he bu rd en 7 of pro of pu rs ua ntto sec . 74 91 (a).- 8 -

co nn ect edwith atra de or b us in es s o r a tran sa ct io n e nt eredin to forpro fit , lo ss es th ataro se fro m

cas ua lt y or t he ft. Se c. 16 5( c). Inge ne ral , a lo ss is all owe d a s a d educ ti on on ly for the tax ab le y ear i n whi chth e lo ss is su st ai ne d. Se c. 16 5( a); sec . 1.1 65 -1 (d )(1 ), In co m e Tax Reg s. Fo r th is pu rp os e, a lo ss is tre at edas s us ta in edwhen itis ev id en cedby clo se d a nd co m pl et edtra ns act io ns an d fi xe d b y id en ti fiabl e ev en ts . Sec. 1 .16 5- 1( d) (1 ), In co m e Tax Reg s. Ho wev er i f, in th e y ear o f a cas ua lt y whi chm ay

res ul t i n alo ss , th ere i s a c la im

forrei m bu rs em en t wi thres pe ctto whi chth ere i s a r eas on ab le pr os pe ctof r eco ve ry , no po rti on of t he lo ss with re sp ectto whi chrei m bu rs em en t m ay be rece iv edis tre at edas s us ta in edun ti l i t ca n b e as cert ai ne d wi th reas on ab le cert ai nt y whet he r su chrei m

bu rs em en t wi ll be rece iv ed . Sec. 1 .16 5- 1( d) (2 )(i ), In co m e Tax Reg s. The cas ua lt y

gi vi ng ris e to th e lo ss at i ss ue oc cu rredin20 07 . Thu s, the lo ss is tre at edas s us ta in edinth aty ear u nl es s p et it io ne r ha d acla im forrei m bu rs em en t with re sp ectto whi chth ere was a reas on ab le pro sp ectof r eco ve ry as o f th e cl os e of 20 07 . Peti ti on er h adtak enou t the po li cy with re sp ectto th e FarRo ck away pr op erty , so th e que st io n b eco m es whet he r he ha d areas on ab le pro sp ectof reco ve ry on a cl ai m

forrei m bu rs em en t u nd er tha t p ol ic y .- 9 -

Whe th er a t ax pay er h as a reas on ab le pro sp ectof r eco ve ry on anin su ran ce cl ai m is a qu es ti on of f

act , det erm in edby exam in in g a ll th e fac ts an d ci rcu m st an ces of the cas e. Id . The t es t i s anob jecti ve on e; th e ta xp ay er’s subjec ti ve be li ef co nc ern in g re co ve ry is no t co nt ro ll in g. In st ead , th e ex pe ct at io n of reco ve ry m us t b e rea so nabl e in th e li gh t o f ob jecti ve fact s an d c irc um st an ces be ari ng on itat t he clo se of t he tax ab le y ear. Se e Bo eh m v. Co m m is si on er, 3 26 U.S. 28 7, 2 92 -2 93 (19 45 ); Es ta te of F uc hs v. Co m m is si on er, 4 13 F.2d50 3, 5 07
- 50 8 (2 d C ir. 1 96 9) , aff’g T.C. Mem o. 1 96 8- 18 8; Ram sa y Scar le tt& Co . v. Co m m is si on er, 6 1 T.C. 7 95 , 81 2- 81 3 (1 97 4) , aff’d, 5 21 F.2d78 6 (4 th Cir . 19 75 ). A reas on ab le pro sp ectof r eco ve ry ex is ts when th e in su ran ce cl ai m is bo nafid e an d h as a subs tant ia l l ik el ih oo d o f be in g d eci de d i n the tax pa y er’s fav or . See Ram sa y Scar le tt& Co . v. Co m

m is si on er, 6 1 T.C. at81 1 (c it in g S co fie ld ’s Est at e v. Co m m is si on er, 2 66 F.2d15 4, 1 59 (6t h C ir. 1 95 9) , aff’g i n p art , rev ’g inpa rt 2 5 T.C. 77 4 (1 95 6) ). Cla im s fo r rec ov ery with arem ot e o r ne bu lo us po te nt ia l fo r su cces s ar e in su ffi ci en t g ro un ds forpo stpo ni ng a de du ct io n fr om th e y ear i n wh ic h th e lo ss oc cu rs . See i d. (c it in g Un it edSta te s v . S.S. Whi te Dent al Mfg . Co., 2 74 U.S. 39 8, 4 03 (19 27 )). Whe re the cir cum st an ces sh ow tha t the cla im is ba se d o n anin su ran ce p ol ic y

th atdo es no t co ve r th e cas ua lt y , th ere i s n o re as on ab le pr os pe ctof r eco ve ry

su ffi ci en t t o p os tp on e rec og ni ti on of the lo ss to a y ear a fte r- 10 -

th e y ear i n wh ic h i t o ccu rs . Coa st al Term in al s, In c. v. Co m m is si on er, 2 5 T.C. 10 53 , 10 57 (19 56 ). Pet it io ne r do es no t d is pu te th atth e p ol ic y requi redth athe us e th e dwell in g as hi s re si de nc e. In st ead , pet it io ne r co nt en ds th athe was u si ng th e p ro pe rty as h is res id en ce atth e ti m e o f th e fi re, n ot withs ta nd in g S ta te Farm ’s po si ti on to th e co nt rary. As d is cu ss edbe lo w, we con cl ud e o n t he ba si s o f th e p rep on de ran ce o f th e ev id en ce tha t p et it io ne r was no t u si ng th e FarRo ck away pr op erty as h is res id en ce wh enth e fi re o ccu rred . The fir e d ep art m en t’s i nc id en t re po rt s ta te s t ha t an “ oc cupa nt ” o f th e Far Ro ck away pr op erty , Safra z Ru st am , su ffer edburn s an d was tre at edonth e sc en e. Co nf ro nt edwith thi s p ot en ti al in co ns is te nc y with h is cla im

of r es id in g the re, pe ti ti on er t es ti fie d v ag ue ly to the effe ctth athe was i n F lo rid a atth e ti m e o f th e fir e an d t ha t h e al lo wedhi s s is te r, an d a ny oth er p ers on s s he ch os e, to li ve th ere. Bu t h e was at b es t v ag ue with re sp ectto hi s fa m il iarit y with S afra z Ru st am . Pet it io ne r co ul d h av e cal le d h is si st er as a witne ss to co rro bo rat e th e fo reg oi ng (or ex pl ai ne d h er u na va il ab il it y ), bu t h e d idno t. Inth es e ci rcu m st an ces , res po nd en t i s en ti tl edto anin fere nc e th athe r te st im on y wou ldhave be enun fav or ab le to pe ti ti on er’s co nt en ti on s. See W ic hi taTerm in al Elev at orCo . v. Co m m is si on er, 6 T.C. 11 58 , 11 65 (19 46 ), aff’d, 1 62 F.2d51 3 (1 0t h C ir. 1 94 7) . This co nc lu si on is- 11 -

rei nf or cedby the factth atth e in ci de ntrep ort was a st ip ul at edex hi bi t i n t he cas e, on e wit h wh ic h p et it io ne r was fam il ia r. His ap paren t d is se m bl in g re ga rd in g t he id en ti ty of Safr az Ru st am si gn ifi can tl y

un de rm in es hi s cr ed ib il it y . Init s l ette r de nyin g c ov erag e, St at e Farm cit edpe ti ti on er’s fai lure t o pr ov id e a s ig ne d c op y

of h is ex am in at io n t ran sc rip t as a reas on for de nyin g co ve rag e. Pet it io ne r di d n ottak e sp eci fic is su e wit h S ta te Farm ’s ass ert io n a t the ti m e. At tria l h e te st ifi edth athe di d n otreca ll whet he r he ha d p ro vi de d asi gn ed co py. Pet it io ne r’s ev as iv en es s re ga rd in g s ig ni ng a swo rnst at em en t co nc ern in g h is us e o f th e FarRo ck away pr op erty as h is res id en ce i s atod ds with h is co nt en ti on in th is pro ceed in g tha t h e was do in g s o a t the ti m e o f th e fi re. Fi na ll y , pet it io ne r to oka po si ti onon hi s 2 00 9 am en de d re tu rnth atis in co ns is te ntwith h is co nt en ti on th athe was u si ng th e FarRo ck away pr op erty as hi s re si de nc e in20 07 . The am en de d re tu rncla im edth e cas ua lty lo ss ari si ng fro m th e 2 00 7 fi re atth e FarRo ck away pr op erty as alo ss att rib ut ab le to bu si ne ss or in co m e-p ro du ci ng pro pe rty. In a dd it io n, o n h is 20 08 return, p et it io ne r tr eat edth e 8 Far R oc ka way

pro pe rty as a re nt al pro pe rty, deduc ti ng th e m ortg ag e in te res t p ai d
The Fo rm 46 84 on whi chpe ti ti on er cl ai m edth e lo ss ha d asep arat e p artfor 8 cas ua lt y lo ss es fro m

pe rs on al us e p ro pe rty (des cri be d t he reo n a s “pr op erty no t us edina tr ad e o r bu si ne ss or f or in co m e-p ro du ci ng pu rp os es ”).- 12 -

with re sp ectto iton a Sch edul e E as a n e xp en se of aren ta l p ro pe rty andrep orti ng ren ta l i nc om e o f $2 4,5 00 inth aty ear. Whi le itis po ss ib le th atpe ti ti on er i n fa ct 9
us edth e FarRo ck away pr op erty as h is res id en ce i n e arl y

20 07 an d the n co m m en cedren ti ng itso m et im e th erea fte r, he m ad e n o a tt em ptto reco nc il e h is cl ai m edpe rs on al us e in 20 07 with h is ackno wled ge d re nt al us e in 20 08 . Giv enth e o bjec ti ve ev id en ce tha t the Far Ro ck away pr op erty was b ei ng us edas aren ta l p ro pe rty at th e ti m e o f th e fi re i n 2 00 7, an d p et it io ne r’s va gu e, in co ns is te nt , andim

pl au si bl e te st im on y

to th e co ntrary, w e fi ndon th is reco rdth at pe ti ti on er was no t u si ng th e FarRo ck away pr op erty as h is res id en ce atth e ti m e o f th e fi re i n 2 00 7. Co ns eque nt ly, th e p ol ic y di d n otco ve r th e lo ss att rib ut ab le to th e fir e. Thu s, as a m atte r of ob jecti ve fact , no twi th st an di ng an y subjec ti ve be li ef pe ti ti on er h el d, the re was no reas on ab le pro sp ectof r eco ve ry on an y cla im for rei m bu rs em en t fr om

Sta te Farm

as o f th e cl os e o f th e 2 00 7 t ax ab le y ear. An y cas ua lt y lo ss ari si ng fro m

th e fi re i s t reat edas s us ta in edan d d educ ti bl e in 20 07 , no t 2 00 9. Se e Co as ta l Term in al s, In c. v. Co m m is si on er, 2 5 T.C. at10 57 (no reas on ab le pro sp ectof r eco ve ry po stpo ni ng cas ua lt y

lo ss de du ct io n wh ere
Co nf ro nt edwith atra ns cri ptof h is 20 08 return a t tria l, p et it io ne r te st ifi ed 9 th atth e rep orti ng of t he $2 4,5 00 as r en ta l i nc om e was a “ m is ta ke ” b ecau se th e Far Ro ck away pr op erty

was fi re-d am ag edat t he ti m e, bu t h e o ffer edno furth er ex pl an at io n a s t o the po ss ib le so ur ce o f $2 4,5 00 inren ta l i nc om e fo r th aty ear.- 13 -

ta xp ay er’s en gi ne ers co nc lu de d, b efo re cl os e o f th e y ear o f lo ss , th atpro pe rty da m ag e was att rib ut ab le to cau se no t co ve redby ins ur an ce p ol ic y ). Mo rtg ag e In te res t an d R eal Est at e Tax es Pet it io ne r cl ai m s en ti tl em en t t o d educ t $ 16 ,13 8 i n m ortg ag e in te res t an d $7 53 inreal est at e ta xe s p ai d wi th res pe ctto th e Far Ro ck away pr op erty

in20 09 an d n otcla im edon hi s o rig in al 20 09 return a s fi le d. Re sp on de ntco nc ed es th at pe ti ti on er p ai d t he se am ou nt s i n 2 00 9 wi th res pe ctto th e FarRo ck away pr op erty bu t t ak es is su e wit h p et it io ne r’s co nt en ti on th athe is en ti tl edto de du ctth es e am ou nt s o n S ch edul e A as it em iz edde du ct io ns , arg ui ng in st eadth atpe ti ti on er i s en ti tl edto th e d educ ti on s o nl y as t rad e o r bu si ne ss ex pe ns es . W e ag ree wi th 1 0
res po nd en t. Pet it io ne r rep orte d t he Far Ro ck away pr op erty as r en ta l p ro pe rty onhi s 20 08 return a ndha s o ffer edno tes ti m on y or o th er ev id en ce t o s up po rt afin di ng th atth e u se of t he pro pe rty chan ge d b etween20 08 an d 2 00 9. Mo reo ve r, pe ti ti on er, anin di vi du al , has no t s ho wn tha t the m ortg ag e in te res t h e p ai d i s n ot

“pe rs on al in te res t” di sa ll owe d p ur su an t t o s ect io n 1 63 (h )--e xc ep t t o t he ex te nt

Res po nd en t d oe s n otco nt en d t ha t the se de du ct io ns are s ub ject t o 1 0 di sa ll owa nc e und er s ec. 4 69 be cau se th e ex pe nd itur es were i nc urredinco nn ect io n with re nt al real est at e act iv it ie s.- 14 -

res po nd en t h as co nc ed edth atth e in te res t was pa idon in de bt edne ss pro pe rly al lo cab le to th e tr ad e o r bu si ne ss of p ro pe rty rent al . Bec au se we fin d o n t hi s re co rdth atth e Far Ro ck away pr op erty

was aren ta l pr op erty in20 09 , we ho ldth atpe ti ti on er i s en ti tl edto de du ct$1 6,1 38 inm ortg ag e in te res t an d $ 75 3 i n re al est at e ta xe s as tra de or b us in es s ex pe ns es un de r se ct io n 16 2. Mo rtg ag e In su ran ce Pet it io ne r al so cla im s en ti tl em en t t o d educ t $ 1,6 00 inm ortg ag e in su ran ce pr em iu m s p ai d wi th res pe ctto th e FarRo ck away pr op erty in20 09 th atwas n ot cl ai m edon hi s o rig in al 20 09 return. As pe ti ti on er o ffer edno do cu m en t o r ot he r co nv in ci ng ev id en ce tha t wo ul d s ub st an ti at e h is pa ym en t o f an y am ou ntfor m ortg ag e in su ran ce i n 2 00 9, we h ol d t ha t h e is no t en ti tl edto th e d educ ti on cl ai m ed . Accu racy-Rel at edPen al ty Res po nd en t d et erm in edth atpe ti ti on er i s l iabl e fo r anaccu racy-rela te d pe na lty with re sp ectto th e und erp aym en t re fle ct edon hi s 2 00 9 re tu rn . After t he pa rti es ’ va rio us co nc es si on s, the re re m ai ns anun de rp aym en t at tri bu tabl e to- 15 -

pe ti ti on er’s fai lu re t o re po rt $ 57 ,88 7 inIRA d is tri bu ti on s as tax ab le an d h is 1 1 fai lu re t o re po rt $ 20 of t ax ab le in te res t. (Pe ti ti on er h as co nc ed edth athe rece iv ed th e la tt er.) Pet it io ne r co nt en ds th athe ha d re as on ab le cau se for hi s re po rti ng of th e IRA d is tri bu ti on s as no nt ax ab le , gi ve n the co gn it iv e im pa irments he was su ffer in g a t the ti m e h e p rep aredhi s 2 00 9 re tu rn , as e vi de nc edby the SSA de te rm in at io n t ha t h e was di sabl ed . W e ag ree. Sect io n 6 66 2( a) an d (b )(1 ) an d (2 ) im po se s a p en al ty equ al to 20 % of a n un de rp aym en t o f ta x re qu ire d t o b e sh own on a return t ha t i s at tri bu tabl e to a subs ta nt ia l u nd ers ta te m en t o f in co m e ta x o r ne gl ig en ce. Howe ve r, no pe na lt y is im po se d wi th res pe ctto an y po rti on of a n u nd erp aym en t i f th e ta xp ay er ac te d wi th reas on ab le cau se an d i n g oo d fa it h wi th res pe ctto th atpo rti on . Sec. 6 66 4( c)(1 ); se c. 1.6 66 4- 4( a), In co m e Tax Reg s. The de te rm in at io n o f whe th er a t ax pa y er act edwith re as on ab le cau se an d i n g oo d fa ith i s m ad e o n acas e-b y -cas e b as is , ta ki ng in to acco un t al l p ert in en t fa ct s an d c irc um st an ces . Sec. 1 .66 64 -4 (b )(1 ), In co m e Tax Reg s. Gen eral ly, th e m os t i m po rta ntfact oris th e ta xp ay er’s eff ort t o as se ss hi s o r he r pr op er t ax li ab il it y . Id. The tax pa y er’s co gn it iv e im pa irment o r em ot io na l d is tre ss m ay

co ns ti tu te reas on ab le cau se forun de rp aym en ts ari si ng fro m m is ta ke s o r omiss io ns on a ta x re tu rn . See Ru ckm anv. Co m m is si on er, T.C. The fig ur e m ay

in st eadbe $5 5,0 38 . See s up ra n ot e 3 . 1 1- 16 -

Mem o. 1 99 8- 83 ; Ca rn ah anv. Co m m is si on er, T.C. Mem o. 1 99 4- 16 3, af f’d witho ut publ is he d o pi ni on , 70 F.3d63 7 (D.C . Cir . 19 95 ). Pet it io ne r te st ifi edth at , when pre pa rin g h is 20 09 return, h e was co nf us ed reg ard in g wh ethe r hi s d is ab le d s ta tu s ex em pt edhi m fro m in co m e ta x o n h is IRA di st rib ut io ns or m erel y

fro m th e p en al ty on e arl y

di st rib ut io ns . In thi s co nf us io n, he rep orte d t he di strib ut io ns on hi s re tu rnbu t ca te go riz edth em as n on ta xabl e. On J anua ry

28 , 20 10 , les s t ha n t hr ee m on th s b efo re p et it io ne r fi le d h is 20 09 return, the SSA h adis su eda de te rm in at io n tha t p et it io ne r was en ti tl edto di sabi li ty be ne fit s. Th e d et erm in at io n was ba se d o n fi nd in gs , in te r al ia , th atpe ti ti on er h ad th e fo ll owi ng “ se ve re” i m pa irments : “ dysth ym ic di so rd er [d ep res si on ]; anx ie ty rel at eddi so rd er; an d ADHD [atte nt io n d efi ci t h y pe ract iv it y

di so rd er].” The de te rm in at io n fo un d t ha t the “ cl ai m an t [p et it io ne r] has th e res idua l capa ci ty to pe rfo rm li gh t wo rk* * * ex cep t fo r th e li m it edab il it y to us e jud gm en t an d p ub li c tra ns po rta ti on un acco m

pa ni ed ” an d c on cl ud edth atpe ti ti on er was li m it edto

“ si m pl e, no np ub li c, un sk il le d wo rk ”. (Em ph as is ad de d.) Th e d et erm in at io n fu rth er fo un d tha t p et it io ne r’s co nd it io n wo ul d p rev en t h im fro m pe rfo rm in g l eg al se rv ic es work , whi chhe ha d p erfo rm edbe fo re the on se t o f hi s d is ab il it y . The SSA d is ab il it y

de te rm in at io n i s t he m os t re li ab le ev id en ce i n t he reco rd of pe ti ti on er’s co nd it io n a t the ti m e h e fi le d h is 20 09 return. Invi ew of- 17 -

pe ti ti on er’s d em on st rat edco gn it iv e im pa irment a t the ti m e, we are s at is fie d t ha t 1 2 hi s erro r in rep orti ng th e IRA d is tri bu ti on s as no nt ax ab le is du e to reas on ab le cau se an d h is di sc lo su re o f th e d is tri bu ti on s o n t he return i s ev id en ce o f go od fai th . W e th eref

or e h ol d t ha t p et it io ne r ha d re as on ab le cau se forth e p orti onof t he un de rp aym en t at tri bu tabl e to hi s fa il ur e to rep ort the IRA d is tri bu ti on s as tax ab le . Tha t l eav es on ly a de m in im is po rti on of t he un de rp aym en t at tri bu tabl e to pe ti ti on er’s fai lu re t o re po rt $ 20 of t ax ab le in te res t. Tha t am ou ntis to o s m al l t o gi ve ris e to a subs ta nt ia l u nd ers ta te m en t, n ordo es th e o m is si onest ab li sh ne gl ig en ce, g iv enit s i so la te d n atur e an d p et it io ne r’s co gn it iv e im pa irment a t the ti m e. W e th eref

or e h ol d t ha t p et it io ne r is no t l iabl e fo r an y pe na lt y un de r se ct io n 66 62 . To re fle ctth e fo reg oi ng , Deci si on wil l b e en te redun de r Ru le 15 5.

Whi le th e SSA d et erm in at io n d em on st rat es pe ti ti on er’s co gn it iv e 1 2 im pa irment a t the ti m e h e fi le d h is return, we ar e sa ti sf ie d o n t he ba si s o f ou r ob se rv at io n o f hi m

at t ria l tha t h e was co m

pe te ntto li ti ga te th is cas e.