TAX COURT OPINION

Case: Nicky Lynn Henson
Docket Number: 19292-12S
Judge: Carluzzo
Opinion Type: bench
Filed: 07/18/2013
Pages: 9

UNITED STATES TAX COURT WASHINGTON, D.C. 20217 NICKY LYNN HENSON, ) Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) Docket No. 19292-12S ) ) ) ) OR DER Pursuant to the determination of the Court as set forth in its bench opinion rendered on June 20, 2013, 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 Special Trial Judge Lewis R. Carluzzo at Oklahoma City, Oklahoma, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155. (Signed) Lewis R. Carluzzo Special Trial Judge Dated: Washington, D.C. July 18, 2013 SStVED JUL 1 9 2013 Capital Reporting Company 3 1 Bench Opinion by Special Trial Judge Lewis R. 2 Carluzzo 3 June 20, 2013 4 Nicky Lynn Henson v. Commissioner 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Docket No. 19292-12S 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 (bench opinion). Unless otherwise noted, section references made in this bench opinion are to the Internal Revenue Code of 1986, as amended, in effect for the relevant period, and Rule references are to the Tax Court Rules of Practice and Procedure. This bench opidion is made pursuant to the authority granted by section 7459(b) and Rule 152. This proceeding for the redetermination of a deficiency is a small tax case subject to the provisions of section 7463 and Rules 170 through 175. Except as provided in Rule 152(c), this bench opinion shall not be cited as authority, and pursuant to section 7463(b), the decision entered in this case shall not be treated as precedent for any other case. Nicky Lynn Henson appeared on his own behalf. Jamie M. Stipek appeared on behalf of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 respondent. In a notice of deficiency dated April 26, 2012, (notice), respondent determined a $3,511 deficiency in petitioner's 2008 Federal income tax and imposed a $702.20 section 6662(a) penalty upon the ground of negligence (negligence penalty). As it turns out, with the exception of petitioner's liability for the negligence penalties, the parties have resolved, or petitioner has conceded, all of the issues that could arise from any of the adjustments made in the notice, although we note that many of those adjustments are in petitioner's favor. The issues for decision are: (1) whether petitioner is entitled to a casualty loss deduction not claimed on his 2008 Federal income tax return (return); and (2) 16 whether the underpayment of tax required to be shown 17 18 19 20 21 22 23 24 25 on petitioner's return is due to negligence. Some of the facts have been stipulated and are so found. At the time the petition was filed, petitioner resided in Oklahoma. The issues listed above are resolved with only a brief recitation of the relevant facts. Petitioner's residence was substantially damaged by fire in October 2007. The fire damaged or destroyed a large portion of the structure and its 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 2 3 4 5 6 7 8 contents. Petitioner was insured for the loss, subject to a $5,000 deductible. A dispute with his insurance carrier over the extent of his loss/coverage was resolved, not without controversy, in 2008. Petitioner recovered substantial amounts from his insurance carrier for repairs to the structure of the house and for replacement of personal property damaged or destroyed in the fire. 9 Nevertheless, his loss exceeded the reimbursements by 10 11 12 13 14 his deductible, that is, $5,000, and that is the amount of the casualty loss deduction he is seeking. During the course of the examination of the return, petitioner provided various records to the revenue agent conducting the examination. Some, 15 many, or all of those records have been lost. 16 17 18 19 20 21 22 23 24 25 As relevant here, and subject to limitations set forth in the controlling statute, an individual is entitled to a deduction for "losses of property not connected with a trade or business or a transaction entered into for profit, if such losses arises from fire." Section 165(c) (3), (h). There is no question that petitioner suffered the type of loss contemplated by section 165(c) (3), and the amount of the loss, computed with reference to insurance reimbursements for repairs and replacements, is 866.488.DEPO . www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 9 10 11 computed with as much certainty as can reasonably be expected in situations such as this. See section 1.165-7(a) (2), Income Tax Regs. These points do not seem to be in dispute; instead, the dispute between the parties to petitioner's entitlement to the loss he now claims centers over the proper year for the deduction. According to respondent, the loss is properly deductible in 2007, the year the fire occurred. According to petitioner, the loss is deductible in 2008, the year he reached a settlement 12 with his insurance carrier. For the following 13 14 15 16 17 18 19 20 reasons, we agree with petitioner. If, as in this case, there exists a claim for reimbursement having a reasonable prospect of recovery, the loss is sustained (and therefore deductible) when it can be ascertained with reasonable certainty whether or not such reimbursement will be received. See Ramsey Scarlet & Co. v. Commissioner, 61 T.C. 795, 807-811 (1974), 21 aff'd, 521 F.2d 786 (4th Cir. 1975); see also section 22 23 24 25 1.165-1(d) (2) (I), Income Tax Regs. As of the close of 2007, the amount of insurance reimbursements that petitioner would ultimately receive could not have been ascertained with reasonable certainty as he was 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 involved in a formal dispute resolution procedure 2 with respect to that amount. That being so, we find 3 4 5 6 7 8 9 10 11 12 13 14 15 16 that petitioner is entitled to a casualty loss deduction in 2008 computed with reference to: (1) $5,000 of the loss not subject to insurance reimbursement because of his deductible; and (2) the limitations set forth in section 165(h). Section 6662(a) imposes a penalty upon any underpayment of tax required to be shown on a taxpayer's return, if among other things, the underpayment is due to the taxpayer's negligence or disregard of rules or regulations. According to the notice, the underpayment of tax required to be shown on petitioner's return is due to negligence. The term "negligence" as used in section 6662 (a) includes "any failure to make a reasonable attempt to comply 17 with the provisions" of the Internal Revenue Code. 18 19 20 21 22 23 24 25 Section 6662(c). The imposition of the penalty depends upon the taxpayer's intent at the time the return is filed. Respondent bears the burden of production with respect to the imposition of the negligence penalty here in dispute. See section 7491(c). According to respondent, petitioner's failure to maintain records sufficient to 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 substantiate deductions claimed on his return renders him liable for the negligence penalty. In effect, respondent's argument applies only to one of the deductions out of many shown on the Schedule C, 5 Profit or Loss From Business, included with 6 petitioner's return. While the failure to maintain 7 8 9 10 11 12 13 14 records can support the imposition of a negligence penalty, see section 1.6662-3(b), Income Tax Regs., in this case the parties dispute whether such records were in fact maintained. Whatever records petitioner did maintain have been lost, according to petitioner, by respondent; according to respondent, by petitioner. According to respondent's pretrial 15 memorandum, whatever records petitioner supplied to 16 17 18 19 20 21 22 23 24 25 the revenue agent were returned to petitioner during or following the examination. Statements made in a party's pretrial memorandum, of course, do not constitute evidence, Rule 143(b), and argument and innuendo are a poor substitute for evidence. See, e.g., Estate of Runnels v. Commissioner, 54 T.C. 762 (1970). The only evidence in the record on the point is petitioner's testimony that he turned the records over to respondent's revenue agent during the examination and the records were never returned. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 While we are not bound to accept petitioner's self- 2 3 4 5 6 7 8 9 10 11 12 serving testimony, see, e.g., Tokarski v. Commissioner, 87 T.C. 74, 77 (1986), aff'd without published opinion 956 F.2d 1166 (9th Cir. 1992), neither are we bound to reject it, especially in the absence of any conflicting evidence. Given respondent's burden of production, we are reluctant to penalize petitioner for the lack of records when the party responsible for the loss of the records is less than clear. Respondent argues that the loss of the records, even if at the hands of the revenue agent, 13 would not relieve petitioner of his burden of 14 15 16 17 18 substantiation, and we agree. That argument, however, only applies to peti.tioner's entitlement to the deductions now conceded by him. In effect, the argument is moot. The argument does not support the imposition of a negligence penalty. Furthermore, 19 petitioner's failure to reconstruct the lost records 20 21 22 23 24 25 and his concession of the deductions, say nothing about his intent at the time the return was filed. Under the circumstances, we find that respondent has not met his burden of production with respect to the imposition of the negligence penalty. See sections 7491(c). Petitioner, therefore, is not 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 liable for a section 6662(a) penalty for 2008. To reflect the foregoing and the concessions or other resolution, decision will be entered under Rule 155. This concludes the Court's bench opinion in this case. (Whereupon, at 10:35 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