TAX COURT OPINION

Case: John Anthony Werner
Docket Number: 14070-10S
Judge: Goeke
Opinion Type: bench
Filed: 12/02/2011
Pages: 12

UNITED STATES TAX COURT WASHINGTON, DC 20217 JOHN ANTHONY WERNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, . Respondent ) ) ) ) ) ) ) ) O R D E R Docket No. 14070-10S. 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 Joseph Robert Goeke at Philadelphia, Pennsylvania, on November 15, 2011, containing his oral findings of fact and opinion rendered at the conclusion of the trial. In accordance with the oral findings of fact and opinion, a decision will be entered for respondent. (Signed) Joseph Robert Goeke Judge Dated: Washington, D.C. December 2, 2011 SERVED DEC - 5 201) 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 3 Bench Opinion by Judge Joseph Robert Goeke November 15, 2011 Werner v. Commissioner Docket No.: 14070-10S THE COURT: 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 opinion shall not be relied upon as precedent in any other case. Section references in this oral finding of fact and opinion are to the Internal Revenue Code in effect in 2002. Rule references are to the Tax Court Rules of Practice and Procedure. This case was heard pursuant to the provisions of Section 7463. Pursuant to Section 7463 (b), the decision to be entered is not reviewable by any other Court. This opinion is authorized by Section 7459(b) and Rule 152. Pursuant to Rule 142(a) (1), the burden of proof in this case is on the Petitioner, and the Petitioner has not established that the burden should shift to Respondent under Section 7491. The Court has jurisdiction in the present case to review the deficiency in tax and addition to tax asserted for 2002 by Respondent in the notice of Heritage Reporting Corporation (202) 628-4888 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 deficiency issued to the Petitioner, from which Petitioner timely filed a petition to this Court. Some of the facts have been stipulated, and Petitioner also testified at trial. Petitioner resided in New Jersey at the time the petition was filed in this case. In January 2009, the Petitioner delinquently filed a Federal income tax return for the year 2002. On the Federal income tax return Petitioner filed for 2002, he claimed itemized deductions for casualty and theft losses in the amount of $12,558. Respondent issued a notice of deficiency to the Petitioner for 2002 in April of 2010. The deficiency determined by Respondent is for individual income tax in the amount of $2,619. The deficiency also includes an addition to tax pursuant to Section 6651(a) (1) in the amount of $654.75, which was asserted based upon the delinquent filing of Petitioner's Federal income tax return for 2002. The deficiency results from the complete disallowance of Petitioner's claimed itemized deductions for State and local income taxes and casualty and theft losses. The notice of deficiency proposed to allow the standard deduction of $4, 700 in lieu of the disallowed itemized deductions. Heritage Reporting Corporation (202) 628-4888 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 Respondent does not contest Petitioner's claimed State and local income taxes, but the amount of those income taxes is not sufficient to exceed the standard deduction. Petitioner's position, as explained to Respondent in the administrative process, is that he was ordered from the premises he had previously shared with his ex-wife in December of 2002, and he was allowed a certain period of time to remove his personal property from that residence. He testified that he drove by the residence and saw that his personal property had been removed from the residence and placed in front of the residence. This personal property, based upon the Petitioner's testimony, included certain furniture, golf clubs, golf shoes, fishing poles, fishing tackle, and certain tools. He stated that he did not return immediately to pick up the property and that when he did return, the property was already gone. The issues presented by this case are whether the Petitioner is entitled to the casualty or theft loss in the amount of $12,558 associated with the property which was removed from the residence which he had shared with his ex-spouse and whether the Petitioner is liable for the delinquency addition to Heritage Reporting Corporation (202) 628-4888 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 tax in the amount of $654.75 under Section 6651(a) (1). Petitioner's counsel addresses the ·question I 6 of whether Petitioner is entitled to the casualty loss on two levels. First, Petitioner's counsel argues that a theft, pursuant to New Jersey Statutes, did in fact occur. There is no dispute that the New Jersey Statutes would be controlling in determining the applicability of a theft loss in the present case. Petitioner's counsel, as an alternative, asserts that a casualty should be deemed to have occurred because of the fact that the property had been removed from in front of the premises which Petitioner had previously shared with his former spouse and that this should be deemed a casualty loss because of the sudden and unexpected nature of the removal of the property from in front of the premises. Respondent maintains that Petitioner must satisfy various statutory requirements in order to obtain the deductions Petitioner claimed on Schedule A for casualty loss. Respondent cites the requirements that Petitioner maintained contemporaneous records, contained in Section 6001 and Treasury Reg. Section 1.6001-1. Petitioner obviously did not maintain such records. Deductions are a matter of legislative Heritage Reporting Corporation (202) 628-4888 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 7 grace, and Petitioner, as we stated previously, has the burden of establishing his entitlement to the casualty loss in question. New Colonial Ice Co., Inc. v. Helvering, 292 U.S. 435, 440 (1934). Pursuant to Section 165(c), a casualty or a theft suffered by an individual is deductible subject to certain limitations. · A casualty or theft loss is only deductible in the year in which the taxpayer discovers the loss. Respondent does not argue in the present case that the year before the Court, 2002, is not the appropriate year for the Petitioner to claim the loss in question. Rather, Respondent argues that no theft occurred pursuant to New Jersey law. New Jersey law is controlling. Frankel v. Commissioner, T.C. Memo. 1988-1. Petitioner's counsel points to two sections of the New Jersey Annotated Statutes and asserts that either of these Sections would provide a basis to allow a theft loss in accord with New Jersey Criminal Provisions. The first Section cited is N.J. Stat. Section 2C:20-3. This Section is captioned as "Theft By Unlawful Taking Or Disposition." The Section provides as follows: "A person is guilty of theft if he unlawfully takes, or exercises unlawful control Heritage Reporting Corporation (202) 628-4888 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 over, movable property of another, with purpose to deprive him thereof." While it is possible to construe the events described by Petitioner in his testimony as constituting the exercise of control by his former spouse over his property, we believe that based upon that testimony, the actions of Petitioner's former spouse would not rise to the level of a violation of Section 2C:20-3(a) because there has been no demonstration of the purpose on the part of Petitioner's former spouse to deprive him of his property or to actually take the property from the Petitioner. Rather, it appears that Petitioner's former spouse simply wished to remove the property from the premises that Petitioner had been removed from pursuant to his divorce in December 2002. Therefore, we do not believe that New Jersey Criminal Section 2C:20-3 provides any support for a theft loss in the present case. The next statutory provision cited by Petitioner's counsel is N.J. Stat. Section 2C:20-9, which is captioned as "Theft By Failure to Make Required Disposition of Property Received." This Section provides as follows: "A person who purposely Heritage Reporting Corporation (202) 628-4888 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 obtains or retains property upon agreement or subject to a known legal obligation to make specified payment or other disposition, whether from such property or as proceeds or from his own property to be reserved in equivalent amount, is guilty of theft if he deals with the property obtained as his own and fails to make the required payment or disposition." This provision does not appear to be designed to address the behavior of Petitioner's former spouse based upon his testimony. There is no legal obligation to make payment or other disposition of the property in question. Rather than attempting to obtain the property or utilize the property without making a required payment to the Petitioner, Petitioner's , former spouse merely removed the property from the premises from which Petitioner had been ordered to leave pursuant to the divorce decree. We do not believe New Jersey Section 2C:20-9 has been violated based upon the facts as testified to by the Petitioner. Petitioner's counsel also argues in the alternative that based upon the analysis of theft loss and casualty loss in Kielts v. Commissioner, T.C. Memo. 1981-329, a sudden event has occurred at the Heritage Reporting Corporation (202) 628-4888 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 10 present case which would establish that a casualty a loss has been incurred pursuant to Section 165(Ø). The case in question involved the loss of a diamond from the setting of a diamond ring after the ring had been jarred suddenly. Obviously, the facts of the Kielts case are very far afield from the present situation. In any event, we believe that the authorities cited by Respondent are more directly on point. Respondent cites Hill v. Commissioner, T.C. Memo. 1978-98. In that case, the petitioners claimed a casualty or theft loss with a value of home furnishings which had been removed from rental property. The petitioner in that case was hospitalized and upon being released from the hospital entertained a belief that his life was in danger. He subsequently moved immediately to Florida and left the rental property he had maintained in Maine with the personal property he owned still remaining in the rental property. He did not make any arrangements to pick up or remove that personal property from the rental property but subsequently claimed the value of that property as a casualty or theft loss. In Hill v. Commissioner, the Court determined that there was no entitlement to a casualty Heritage Reporting Corporation (202) 628-4888 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 11 or theft loss because there was no sudden event, similar to a fire, a storm or a shipwreck. Basically, the facts in Hill v. Commissioner are somewhat similar in that property was abandoned and then subsequently the subject of a claim for a casualty or theft loss for tax purposes. Petitioner by his own testimony indicated that he did abandon the property that had been removed from the residence which he had shared with his former spouse because he failed to go pick up the property in a timely fashion, having seen that the property had been removed from the residence. Given the fact that Petitioner has the burden of proof and that the facts that he himself testified to'do not constitute the basis for either a theft loss or a casualty loss, we find that Petitioner is not entitled to the claimed casualty loss and that, therefore, Respondent's determination that Petitioner's deductions do not exceed the standard deduction of $4,700 is correct. We now turn to the addition to tax. Petitioner, through counsel, maintains that he had reasonable cause for his delinquent filing of his 2002 Federal income tax return because of the tumultuous circumstances of his life at the end of 2002 when he Heritage Reporting Corporation (202) 628-4888 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 12 was divorced and had lost his job. While we are sympathetic to what obviously were difficult times for the Petitioner in 2002, he has failed to establish that he took any action at all to ensure that a Federal income tax return would be filed even after his life had settled down subsequent to 2002. Petitioner maintains that he should have been advised by the Internal Revenue Service of his failure to file, but such a requirement does not exist in the Code as an element for the Respondent to establish the applicability of addition to tax under Section 6651(a) (1). Respondent does have the burden of proof to establish, as a preliminary matter, the elements of the addition to tax, and Respondent has carried that burden, because there is no dispute in this case that the Petitioner was delinquent, by roughly seven years, in filing his 2002 Federal income tax return. And as we previously determined, there was in fact a deficiency in tax owed for 2002 based upon the analysis previously discussed. Therefore, to avoid the application of the addition to tax, Petitioner must establish reasonable cause for .his failure to file. And as we stated, Heritage Reporting Corporation (202) 628-4888 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 13 although Petitioner's life was in disarray at the end of 2002, he has not presented evidence sufficient to establish reasonable cause for his longstanding delinquency in filing this Federal income tax return for 2002. Therefore, we find that Section 6651(a) (1) is applicable to the tax which Petitioner owes for 2002. Given our determinations, a decision will be entered for Respondent in this case. This concludes the Court ' s oral f indings of fact and opinion in this case. (Whereupon, at 2:14 p.m., the bench opinion in the above-entitled matter was concluded. ) // // // // // // // // // // // // Heritage Reporting Corporation (202) 628-4888