TAX COURT OPINION

Case: DeWayne Eugene Batten
Docket Number: 10311-10
Judge: Marvel
Opinion Type: bench
Filed: 06/05/2013
Pages: 8

UNITED STATES TAX COURT WASHINGTON, DC 20217 DEWAYNE EUGENE BATTEN, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. KVC ) ) ) ) ) Docket No. 10311-10 ) ) ) ) ) OR D E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit to petitioner and to respondent a copy of the pages of the transcript of the proceedings of the above case before Judge L. Paige Marvel at Jacksonville, Florida, on May 24, 2013, containing her oral findings of fact and opinion. In accordance with the oral findings and fact and opinion, a decision will be entered under Rule 155. (Signed) L. Paige Marvel Judge Dated: Washington, D.C. June 5, 2013 SERVED Jun 06 2013 Capital Reporting Company 3 Bench Opinion by Judge L. Paige :Marvel May 24, 2013 DeWayne Eugene Batten v. Commissioner Docket No.: 10311-10 THE COURT HAS DECIDED TO RENDER ORAL FINDINGS OF FACT AND OPINION IN THIS CASE AND THE FOLLOWING REPRESENTS THE COURT'S ORAL FINDINGS OF FACT AND OPINION. THE ORAL FINDINGS OF FACT AND 1 2 3 4 5 6 7 8 9 10 OPINION SHALL NOT BE RELIED UPON AS PRECEDENT IN ANY 11 12 13 14 15 16 17 18 19 20 21 OTHER CASE. This bench opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code of 1986 as amended, ·and Rule 152 of the Tax Court Rules of Practice and Procedure. Hereinafter in this bench opinion, unless otherwise indicated, section references are to the Internal Revenue Code of 1986 as amended and in effect for the year at issue. Rule references are to the Tax Court Rules of Practice and Procedure. DeWayne Eugene Batten appeared pro se. 22 Randall B. Childs appeared on behalf of respondent. 23 Mr. Batten resided in Florida when he petitioned this 24 Court. 25 In a notice of deficiency issued March 8, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 2010, respondent determined a deficiency in Mr. 2 Batten's 2007 Federal income tax of $2,751. The 3 4 5 6 7 deficiency arises from respondent's disallowance of professional and legal expenses of $3,240 and other expenses of $5,697 claimed on Mr. Batten's Schedule C, Profit or Loss From Business, relating to Summer Time Investments, a purported real estate activity. 8 Mr. Batten did not report any income from the 9 activity on his Schedule C, and he claimed a loss of 10 11 12 $10,931. Respondent concedes that Mr. Batten is not liable for self-employment tax for 2007. 13 Accordingly, the issues for decision are: (1) 14 whether this Court has jurisdiction to decide whether 15 Mr. Batten's 2007 tax liability was discharged in his 16 17 18 19 20 21 22 23 24 bankruptcy proceedings; and (2) whether Mr. Batten is entitled to claim on his 2007 Schedule C professional and legal expenses of $3,240 and other expenses of $5,697. The parties have stipulated some of the relevant facts and we find facts in accordance with those stipulations, which we incorporate in this opinion by this reference. We also find facts on the basis of the stipulated exhibits and, to the extent 25 we find it credible, sworn testimony. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Facts During 2007 Mr. Batten was employed by the U.S. Department of Justice. Mr. Batten filed a Form 1040, U.S. Individual Income Tax Return, for 2007, and attached a Schedule C for Summer Time Investments. On the Schedule C he claimed various expenses, including professional and legal expenses of $3,240 and other expenses of $5,697, and he claimed an overall loss of $10,931. Respondent subsequently issued to Mr. Batten the notice of deficiency disallowing the professional and legal expenses of $3,240 and other expenses of $5,697 claimed on the Schedule C. On May 4, 2010, Mr. Batten filed his 15 petition in this case. On September 26, 2011, Mr. 16 17 18 19 20 21 22 23 24 25 Batten filed a bankruptcy petition under chapter 7 of the Bankruptcy Code with the U.S. Bankruptcy Court for the Northern District of Florida (bankruptcy court). Respondent notified this Court that Mr. Batten had filed a bankruptcy petition and requested that these proceedings be stayed. By order dated December 16, 2011, we ordered that all proceedings as to Mr. Batten were stayed pursuant to 11 U.S.C. section 362(a) (8). On December 29, 2011, the bankruptcy court issued an order discharging Mr. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company Batten from all dischargeable debts under 11 U.S.C. section 727. By order dated May 16, 2012, this Court lifted the stay of proceedings and restored this case 6 to the general docket. Jurisdictional Issue Although neither party contends that we lack jurisdiction to decide whether Mr. Batten's tax liability was discharged in bankruptcy, we may question our jurisdiction sua sponte. See Moorhous v. Commissioner, 116 T.C. 263, 272 (2001). The Tax Court is a court of limited jurisdiction, and we may exercise our jurisdiction only to the extent authorized by Congress. See sec. 7442. In the context of a deficiency case, we lack jurisdiction to decide whether a taxpayer's tax liability was discharged in bankruptcy. Neilson v. Commissioner, 94 T.C. 1, 9 (1990). However, we do have jurisdiction to redetermine the deficiency upon which the taxpayer's liability is based. See id.; see also Fairchild v. Commissioner, T.C. Memo. 2001-237. Accordingly, we shall not decide whether 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Mr. Batten's 2007 tax liability was discharged in 23 bankruptcy. However, we will consider the merits of 24 Mr. Batten's claims with respect to the deficiency 25 respondent determined in this instance. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Schedule C Deductions Deductions are a matter of legislative grace, and a taxpayer ordinarily must prove that he is entitled to the claimed deduction. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Generally, a taxpayer is entitled to deduct ordinary and necessary expenses paid or incurred in carrying on a trade or business. See sec. 162(a); Am. Stores Co. v. Commissioner, 114 T.C. 458, 468 (2000). An expense is ordinary if it is customary or usual within the particular trade, business, or industry or if it relates to a transaction "of common or frequent occurrence in the type of business involved." Deputy v. du Pont, 308 U.S. 488, 495 (1940). An expense is necessary if it is appropriate and helpful for the development of the business. See Commissioner v. Heininger, 320 U.S. 467, 471 (1943). Personal, living, or family expenses generally are not deductible. See sec. 262(a). A taxpayer is required to maintain records to substantiate claimed deductions and to establish his correct tax liability. Higbee v. Commissioner, 116 T.C. 438, 440 (2001); see also sec. 6001. The taxpayer must produce such records upon the request 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 of the Secretary. Sec. 7-602(a); see also sec. 1.6001-1(e), Income Tax Regs. Substantiation is adequate if it establishes the amount and purpose of the claimed deduction. Higbee v. Commissioner, 116 T.C. at 440. When a taxpayer establishes that he paid or incurred a deductible expense but does not establish the amount of the expense, we may estimate the amount of the deductible expense. Cohan v. Commissioner, 39 F.2d 540, 542-544 (2d Cir. 1930). There must be sufficient evidence in the record, however, to permit us to conclude that the taxpayer incurred a deductible expense in at least the amount allowed. See Williams v. United States, 245 F.2d 559, 560 (5th 15 Cir. 1957). In estimating the amount we bear heavily 16 17 18 19 20 21 22 23 24 25 upon the taxpayer who failed to maintain and produce the required records. See Cohan v. Commissioner, 39 F.2d at 544. Mr. Batten failed to introduce any business records related to Summer Time Investments or any testimony that he maintained such records. He did not introduce any documentation, such as receipts, invoices, bills, canceled checks, to prove he paid the expenses he deducted. He did not introduce any other credible evidence, such as third-party 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 testimony, to substantiate his claimed Schedule C expenses. Mr. Batten made no attempt to testify about the Summer Time Investment activity or the expenses the activity generated, leaving this Court 5 with no basis for determining that Mr. Batten's claimed Schedule C expense deductions were allowable. The record is devoid of any credible evidence proving that the claimed expenditures were ordinary and necessary expenses Mr. Batten paid in connection with carrying on a trade or business. Accordingly, we sustain respondent's disallowance of Mr. Batten's claimed Schedule C expenses. To reflect the foregoing, decision will be entered under Rule 155. , THIS CONCLUDES THE COURT'S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE. (Whereupon, at 10:00 a.m., the above- entitled matter was concluded.) 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com