T.C. Memo. 2006-108

UNITED STATES TAX COURT

MICHAEL FORBES DEHONEY, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 3305-04. Filed May 16, 2006.

Michael Forbes Dehoney, pro se.

Jeanne Gramling, for respondent.

MEMORANDUM OPINION

WELLS, Judge: Respondent determined a $743 deficiency in

income tax for petitioner’s taxable year 2001. After

concessions, the only issue remaining is whether petitioner is

entitled to deduct for taxable year 2001 certain legal expenses

that were paid in taxable year 2002. Unless otherwise indicated,

all section references are to the Internal Revenue Code, as
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amended, and all Rule references are to the Tax Court Rules of

Practice and Procedure. 

Background

At the time of filing the petition in the instant case,

petitioner was incarcerated in Bennettsville, South Carolina. 

During the year in issue, the South Carolina Department of

Corrections (SCDC) had the following restriction on inmate

correspondence: 

Inmates will be prohibited from receiving any financial

statements that show a balance of funds and/or provide 

information on financial assets that may be available

to the inmate (bank deposit books; checking, savings,

or other fund statements, etc...), blank checks,

checkbooks, or other negotiable instruments. 

During October 2002, the restriction was amended to provide an

exception for “year-end statements for the purpose of filing tax

returns.” During 2002, however, the Internal Revenue Service,

Criminal Investigation, Columbia, South Carolina Office

discovered that several inmates at the SCDC had promoted and

prepared false tax returns resulting in more than $1 million in

erroneously issued tax refunds. During January 2003, in response

to that discovery, the SCDC declared blank Internal Revenue

Service forms to be contraband and began reviewing incoming mail

for Forms W-2 and 1099. 

On March 8, 2002, petitioner filed a complaint in the

Richland County, South Carolina, Court of Common Pleas seeking to

permanently enjoin the SCDC from interfering with his receipt of
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1Petitioner did not receive several Forms 1099 because of

the above-mentioned restrictions. Nonetheless, petitioner timely

filed his 2001 tax return based on the limited information he had

received. Respondent determined a $743 deficiency in tax for

petitioner’s taxable year 2001 and issued a notice of deficiency

on Feb. 2, 2004. Respondent conceded that petitioner was allowed

certain deductions for expenses related to rental property

petitioner owned. Respondent did not allow, however, a deduction

for $2,915 in legal fees associated with petitioner’s lawsuits

that were incurred during taxable year 2002. 

At trial, petitioner asked the Court to order respondent to

provide him with appropriate Federal income tax forms to allow

him to file his tax returns. Respondent has agreed to provide

petitioner with the appropriate forms. Accordingly, we do not

address this issue.

financial statements and tax forms. Petitioner filed a similar

action in the U.S. District Court, District of South Carolina,

Columbia Division, on April 4, 2002. Whether petitioner may

deduct in taxable year 2001 the legal fees he incurred in filing

those actions is the only issue remaining in the instant case.1

Discussion

Individuals are allowed a deduction for ordinary and

necessary expenses paid or incurred during the taxable year in

connection with the determination, collection, or refund of any

tax. Sec. 212(3). Cash method taxpayers may deduct expenses

when they are actually paid. Sec. 1.446-1(c)(1)(i), Income Tax

Regs. 

Respondent contends that petitioner’s legal expenses are not

properly deductible for taxable year 2001 because they were not

paid in that year. Petitioner contends the expenses are
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deductible in 2001 because they were associated with his 2001 tax

return. We agree with respondent. Petitioner incurred and paid

the legal expenses in issue during his taxable year 2002.

Accordingly, petitioner must deduct these expenses in the year

paid, not in any prior year. 

To reflect the foregoing,

 Decision will be entered

under Rule 155.