TAX COURT OPINION

Case: Sandra Holmes
Docket Number: 5699-05
Judge: Swift
Opinion Type: memo
Filed: 04/24/2007
Pages: 4

iwT fu 1 , T .C . Memo . 2007-97 UNITED STATES TAX COURT SANDRA HOLMES, Petitioner v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 5699-05 . Filed April 24, 2007 . James H . Callwood , for petitioner . Matthew J . Avon and Paul Schneiderman , for respondent . MEMORANDUM FINDINGS OF FACT AND OPINIO N SWIFT, Judge : Respondent determined a deficiency in and additions to petitioner's 2001 Federal income tax as follows : Additions to Ta x Deficiency 6651 (a) (1) 6651(a)(2) 6654 (a ) Sec . Sec . Sec . $35, 380 $2 , 037 $1,358 $24 2 SERVED 'APR 2 4 2O - 2 - Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for 2001, and Rule references are to the Tax Court Rules of Practice and Procedure . After settlement of some issues by the parties, the issue for decision is whether petitioner for 2001 is entitled to deduct legal fees . FINDINGS OF FAC T At the time the petition was filed, petitioner resided in New York, New York . In 1994, using an attorney, petitioner filed in Federal District Court a lawsuit against petitioner's employer alleging sexual harassment and discrimination . In 1996, the District Court dismissed petitioner's lawsuit . In 1997 the United States Court of Appeals for the Second Circuit affirmed the dismissal . Holmes v . NBC, GE , 946 F . Supp . 2 (S .D .N .Y . 1996), affd . without published opinion Holmes v . NBC/GE , 133 F .3d 907 (2d Cir . 1997) . The specific terms of the fee agreement between petitioner and her attorney are not established in the record . In 2001, even though petitioner's Federal sexual harassment and discrimination lawsuit had been dismissed against petitioner several years earlier, petitioner's attorney continued attempts to recover for petitioner damages relating to alleged sexua l harassment and discrimination . The record does not indicate that petitioner ever recovered any amount of damages relating to sexual harassment or discrimination . - 3 - On September 13, 2004, because petitioner had not filed her 2001 individual Federal income tax return, respondent prepared for petitioner a substitute tax return using third-party return information and determined against petitioner a tax deficiency of $35,380, plus the additions to tax listed above . On or about September 5, 2006, 2 weeks prior to trial, petitioner signed and submitted to respondent her 2001 individual Federal income tax return and claimed thereon a $47,600 miscellaneous legal expense deduction under section 212, subject to the 2-percent adjusted-gross-income floor of section 67(a) . At trial, after settling all other issues and without objection from respondent, petitioner was allowed to raise the issue as to the claimed $47,600 legal expense deduction . Of the $47,600 in legal expenses petitioner seeks to deduct, petitioner acknowledges that in 2001 she paid her attorney no more than approximately $7,000, representing out-of-pocket legal expenses . Petitioner has not submitted bills, receipts, canceled checks, or other records that would establish that petitioner paid any of the legal expenses that petitioner seeks to deduct . Petitioner admits that she is a cash method taxpayer . OPINION A taxpayer is required to keep records to enable a determination of the taxpayer ' s correct Federal income tax liability to be made . Sec . 6001 ; sec . 1 . 6001-1(a), Income Tax Regs . A taxpayer may deduct from income ordinary and necessary expenses paid or incurred during a year in connection with the production of income . Sec . 212 . Under section 1 .446-1(c)(1)(i), Income Tax Regs ., a taxpayer who uses the cash method of accounting to compute taxable income may only deduct expenses in the year the expenses are paid . See Estate of Gordon v . Commissioner , 47 T .C . 462, 466 (1967) ; Dehoney v . Commissioner , T .C . Memo . 2006-108 ; Sandoval v . Commissioner , T .C . Memo . 1979-430 . Petitioner's argument that the statutory language of section 212 allows her a deduction for legal expenses "incurred" but not paid in 2001 is without merit . Because petitioner has not substantiated that she paid any legal fees in 2001, petitioner is not entitled to a deduction in 2001 for legal fees in any amount . To reflect the foregoing, Decision will be entere d under Rule 155 .