TAX COURT OPINION

Case: Norris D. Smith
Docket Number: 23442-14
Judge: Kerrigan
Opinion Type: bench
Filed: 10/18/2016
Pages: 6

UNITED STATES TAX COURT WASHINGTON, DC 20217 PA NORRIS D. SMITH, Petitioner(s), v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. ) ) ) ) 23442-14. ORD 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 herewith to petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Kathleen Kerrigan at Chicago, Illinois on September 12, 2016, containing her oral findings of fact and opinion rendered at the conclusion of the trial session at which this case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered under Rule 155, Tax Court Practice and Procedure. (Signed) Kathleen Kerrigan Judge Dated: Washington, D.C. October 18, 2016 SERVEDOct192016 Capital Reporting Company 3 1 2 Bench Opinion by Judge Kathleen Kerrigan September 14, 2016 3 Norris D. Smith v. Commissioner 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Docket No. 23442-14 THE COURT: The Court has decided to render in this case the following as its oral Findings of Fact and Opinion, which shall not be relied upon as precedent in any other case. This Bench Opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code (Code) and Rule 152 of the Tax Court Rules and Practice and Procedure. By notice of deficiency dated July 3, 2014, the Internal Revenue Service determined a deficiency in the Federal income tax of petitioner for tax years 2010 and 2011 and penalties pursuant to section 6663(a). The parties filed a Stipulation of Settled Issues, a First Supplement of Settled Issues, and a Second Supplement of Settled Issues. The only remaining issue for consideration is whether petitioner is entitled to interest deductions for tax years 2010 and 2011. Trial of this case was conducted on September 12, 2016, in Chicago, Illinois. The 25 petitioner represented himself, and Briseyda 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 Villalpando represented respondent. The parties' 2 Stipulation of Facts was admitted into evidence along 3 with the attached exhibits. We find the following 4 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 facts: FINDINGS OF FACT Petitioner resided in Illinois when the petition was filed timely. Petitioner is a certified public accountant and has masters of science in taxation. During the years at issue, petitioner had a business that provided tax services. Petitioner used the case basis method of accounting for tax years 2010 and 2011. For tax years 2010 and 2011, petitioner filed joint tax returns with his wife. Petitioner's tax year 2010 Schedule C, Profit and Loss from Buiness, showed $15,711 deducted for interest expenses othe Y than for a mortgage. Petitioner k testified that $13,896 of this interest was for student loans. Citibank records of petitioner's student loans show that no interest was piad in 2010. However, the amount of the balance increased. The statement from Citibank explains that if interest is not paid as it is ac rued, it will be added tob-ehf principal. Petitioner provided no documents 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 supporting the payment of interest for student laons. The parties stipulated that petitioner is allowed a $356 deduction for interest paid towads a car loan. Petitioner's tax year 2011 Schedule C showed a deduction for interest expenses of $17,421 other than mortgage interest. Petitioner testified that $14,864 of this interest was for student loans. 8 Petitioner provided no documents supporting the 9 payment of interest for student loans. The parties 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 stipulated that petitioner is allowed a $85 deduction for a car loan. OPINION Generally, the Commissioner's determinations in a Notice of Deficiency are presumed correct, and the taxpayer bears the burden of proving that those determinations are erroneous. Rule 142(a)(1); ch v. Helvering, 290 U.S. 111, 115(1933). Deductions are a matter of legislative grace and the taxpayer likewise bears the burden of proving his entitlement to deductions allowed by the Code and of substantiating the amounts of items underlying claimed deducitons. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.600 - Ak 1(a), Income Tax Regs. Under section 7491(a), in certain circumstances, the burden of proof may shift 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 from the taxpayer to the Commissioner. Petitioner has not claimed or shown that he meets the requirements of section 7491(a) to shift the burden of proof to respondent as to any relevant factual issue. The burden of proof remains with petitioner. Although limited elsewhere in the statue, in general, section 163(a) permits a taxpayer to deduct "all interest paid or accrued within the taxable year on indebtedness." For cash method taxpayers, like petitioner, amounts representing allowable deductions shall generally be taken into account for the taxable year in which paid. Sec. 1.461-1(a)(1), Income Tax Regs. The interest must be paid in cash or its equivalent. Don E. Williams Co. v. Commissioner, 429 U.S. 569, 578-579 (1977); Eckert v. Burnet, 283 U.S. 140, 141 (1931); Menz v. Commissioner, 80 T.C. 1174, 1185 (1983.) Petitioner did not provide any evidence showing that he paid interest in the amounts claimed during 2010 and 2011. Rather, petitioner contends that he was going to pay off the interest in one large payment. Petitioner further contends that the interest accrued and he could take the deductions as it accrued. Petitioner is a cash basis taxpayer, and 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 therefore he is not able to deduct the remaining 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company interest for tax years 2010 and 2011. Any contentions we have addressed aerose. KI 7 irrelevant, moot, or meritless. So that the liability can be recalculated, decision will be entered under Rule 155. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 9:56 a.m., the above- entitled matter was concluded.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com