TAX COURT OPINION

Case: Marisa Leontynne Griffin
Docket Number: 8010-16S
Judge: Nega
Opinion Type: bench
Filed: 04/03/2017
Pages: 20

ALS UNITED STATES TAX COURT WASHINGTON, DC 20217 MARISA LEONTYNNE GRIFFIN, Petitioner(s), v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 8010-16S. ) ) ) ) ORDER Pursuant to Rule 152(b) of the 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 in the above case before Judge Joseph W. Nega at Atlanta, Georgia, on March 21, 2017, 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) Joseph W. Nega Judge Dated: Washington, D.C. April 3, 2017 SERVED Apr 05 2017 1 2 3 4 5 6 7 8 10 11 12 13 14 15 16 18 19 20 21 22 23 24 25. . Capital Reporting Company . IN .THE UNITED STATES TAX COURT 1 (cid:16)042 In the Matter of: MARISA LEONTYNNE GRIFFIN, Petitioner, v. ) ) ) ) ) ) ) Docket No: 8010-16S COMMISSIONER OF INTERNAL REVEN.UE, . Respondent. ) ) ) Roóm 1136 Russell Federa·l Bldg & Courthouse 75 Ted Turner Dr., SW . Atlanta, Georgia March 21, 2017 · The above-entitled matter came on for bench opinion, pursuant to notice, at 12:30 p.m. BEFORE: HONORABLE JOSEPH W. NEGA Judge . . APPEARAN.CES: For the etitioner: (No appearance. ) For the Respondent: the Chief Counsel JASON OPPENHEIM,. Esquire Office of Internal Revenue Service 401 West Peachtree St., NW Ste. 1400, Stop 1000-D Atlahta, Georgia. 30308 404-338-6243 fs66.488.DEPO www.CapitalReportingCompany.com 1 2 4 5 6 10 11 12 13 15 16 19 20 21 2,2 23 25 Câÿital ReporÁl Cornpany P R O C E E D F N G S . .(1 2 ;.30 p.m. ) THE. CL RK: Recallirig ffom the calehdar Docket Number 8010216S, Marissa Leontynne Griffin. Wh reuhon, a benc opiniori was rbndered. ) . .. B66.488.DEPO wwMCàpitalReportingCompany.com Capital Reporting Company 3 1 Bench Opinion by Judge Joseph W. Nega 2 March 21, 2017 3 Marisa Leontynne Griffin v. Gommissioner 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Docket No. 8010-16S The Court has decided to render oral Findings of Fact and Opinion in.this case. The follówing represents the.Court's oral Findings of fact and Opinion. This bench opinion is made pursuant to section 7459(b) and Rule 152. This case was a small tax case.subject to the provisions of section 7463 and Rules 170.through 174. Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case. Unless otherwise indi.cated, all section refer.ences are to the Internal Revenue Code (Code) in effect for .the year at issue, and all Rule references are to the Tax 19 Court Rules of Practice and Procedure. 20 21 22 23 24 25 Marisa L.- Griffïn appeared pro se. Jason P. Oppenheim appeared on behalf of respondent. By a notice of deficiency dated January 4, 2016, respondent determined a deficiency in petitioner's Federal income taxes, along with an accuracy-related pena.lty under section 6662(a) for 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company . 4 1 2 3 4 5 6 7 t-he years 2013 and 2014 (years at issue) . The is.sues for decision are whether petitioner:; (1) is entitled to certain Schedule C, Profit or Loss from Busines.s, expenses for both years at issue, as described below; (2) failed to reporte certain items of income for 2013; (3) is entitled to claim three dependency exemptions both.years at issue; (4) is entitled to a . 8 heád of househöld filing statusifor both years at 9 issue; (5) is éntitled t·o the child tax credit for 10 11 12 13 2014; (6) is enti.tled to the earned income tax credit (EITC) for both years at issue; (7) is subject to the restrictions under section 32 (k) (1) (B) (ii) as a ·result of her returns for the years at issue, and (8) . 14 . is liable for the sectfon 6662 (a) accuracy-related . . 15 16 17 18 19 penalty. FINDINGS OF FACT Some .of the facts are stipulated and are so found. e stipulation of facts and the attached exhibits are incorporated herein~ by reference. This A 20 case was tried on March 20, 2017 in Atlanta, Georgia. 21 22 23 24 25 At the time the petition was filed, petitioner resided in Georgia. Petitioner operates an informa.tion technology business as a sole proprietorship. For both years at issue her business reported no gross 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 sales or receipts, but generated significant expenses resulting in Schedule C losses of $32, 550 and $26, 39.9 for 2013 and 2014, respectively. In her returns for both years at issue, petitioner filed as head of household and claimed three dependency exemptions. For both years she claimed as dependents her two disabled, adult nephews. For 2013, petitioner claimed her niece. For 2014, petitioner claimed her daughter, a minor child. I. Burden of Proof OPINION Generally, the Commissioner's determïnations set forth in a notice of deficiency are presumed correct, and the taxpayer bears the burden of proving otherwise. Rule 142(a) (1); Welch v. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 1.5 16 Helvering, 290 U.S. 111., 115 (1933). 17 18 19 20 21 22 23 24 25 Deductións and credits are a matter of legislative grace, and the taxpayer bears the·burden of proving entitlement to any deduction or credit claimed. Rule 142(a);. Deputy v. du Pont, 308 U.S. 488, 493 (1940); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). II. Schedule C Expenses Section 162(a) allows deductions for "all the ordinary and necessary expenses .paid or incurred 866.488.DEPO www.CapitalReportingCompany.com 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 Capital Reporting Company 6 during the taxable year in. carrying on any trade or business". An expehse is "ordinary" if it is customary or usual within a particular trade, business, or industry, and "necessary" if it is appropriate and helpful for the development of the business. Deputy v. du Pont, 3Q8 U.S. 495 Welch v. Helvering, 290 U.S. át 113. Whether an expense is ordinary. or necessary is a question of fact. Commissioner v. Heininger, 320 U.S. 467, 475 (1943) . Taxpayers must satisfy the specific requirements for any .deduction claimed, and are required to maintain records sufficient to substantiate those claims. INDOPCO Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 6001; sec. .. 1.6001-1(a), (e), Income Tax Regs. Generally, records are adequate substantiation if t hey establish the amount and purpose of the claimed deductions. Higbee v. Commissioner, 116 T.C. 438, 440 (2001). No deduction .may be allowed for personal, living, or family expense(cid:0)541unless the code expressly provides otherwise. Sec. 262(a). Ín the notice óf deficiency, respondent disallowed the following Schedule C expenses for 2013: $500 of adirertising expenses; $26,273 of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 vehicle expenses; and $5,777 of expenses for business use of the home. Similarly, for '2014, respondent disallowed the following Schedule C expenses: $1,500 of advertising expenses; $20, 804 of vehicle expenses; and $4,095 for business use of the home. 6 - A. Advertising Expenses 7 8 9 10 11 Petitioner's testimony as to the business purpose and amounts of her disallowed advertising expenses was not credible. Petitioner offéred -no records, .receipts, or other mater.ials which might corroboratè her testimony. Petitioner has failed to 12 meet her burden of proof. Accordingly, we sustain 13 14 15 16 17 respondent' s determination. B. Strict Substantiation Expenses Section 274 (d) prescribes strict substantiation requi.rements for deductions for business expenses related to travel, entertainment, 18 gifts, and.the use of "listed property". Sec. 1.274- 19 20 21 22 23 24 25 ST(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985) . As relevant here, the term "listed property" includes passenger automobiles. Sec. 280F(d) (4) (A) (i) and (ii) . To satisfp the requirements of section 274 (d), a taxpayer.must substantiate "by adequate records or by sufficient evidence corroborating the taxpayer's own statement": 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 (1) the amount of the expense, .(2) the time and place of the travel or use, and (3) the business purposes of the expense. Sec. 274(d); sec. 1.274-ST(b)(6), (c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). To substantiate by·adequate records, the taxpayer must provide (1) an account book, a log, or similar contemporaneous record and (2) documentary evidence that together are sufficient to establish each required element for the deduction. Sec. 1.274- ST(c) (2), Temporary Income Tax Regs., 50 Fed. Reg. 46017. (Nov.. 6, ·1985). Documentary evidence includes receipts, paid bills, or similar evidence. Sec. 1.274-5(c)(2)(iii), Income Tax Regs. The strict substantiation requirements of section 274(d) for vehicle expense deductions must be met whether the taxpayer chooses to deduct either actual expenses, or claim an amount in accordance with the standard 19 mileage rate. Sec. 1.274-5(j)(2), Income Tax Regs. 20 21 22 For both years, respondent disallowed petitioner's claimed vehicle expenses. Petitioner did not produce any books or records, receipts, or 23 mileage logs which would substantiate the amount or 24 business purpose of her vehicle expenses. 25 . Petitioner's only attempt to substantiate these 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 deductions came by way of testimony. However, petitioner's testimony was not credible as to either the purpose and nature of her vehicle expenses, or her inability to produce any records sufficient to substantiate her claimed.expenses. Based on the heightened substantiation requirements, petitioner has not demonstrated that she is entitled to any deductions for car and truck expenses for 2013 or 2014. Respondent's determinations are sustained. C. Section 280A Home Office Dedüctions Section 280A(a) disallows deductions attributable to the use of a dwelling unit used as a residence by the taxpayer during the taxable year. Expenses attributable to a home office are excepted from this general rule,. however, but only when the taxpayer uses that home office exclusively as his or her regular principal place of business. Sec. 280A(c)(1)(A). Taxpayers with qualifying home office expenses may only deduc.t these expenses to the extent the taxpayer's gross income derived from use of.the home office exceeds that expense. Sect A .280A(c) (5).(A). For both.years at issue, respondent disallowed petitioner's claimed Schedule C deductions 25 . for the business use of her home. Petitioner bears 866.488.DEPO www.Capita1ReportingCompanycom Capital Reporting Company 10 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 the burden of prdving entitlement to a home office expens.e deduction,' but has not produced any credible . testimony or do.cumentary evidence that she used a portion of her dwelling unit regularly and exclusively for business'purposes. II. Issues Deemed Conceded - Unreported Income This Court requires a petition for redetermination to set forth each and every error that the petitioner alleges to have been committed by the Cómmissioner in the noticé of deficiency. Rule 34 (b) (4) . Each issue not addressed by a clear and concise assignment of error in the petition is deemed to be conceded, Id. ; Nig Family Trust v. Commissioner, 115 T. C. 5.23, 539 ·5-3-2--539 (2000) In the notice of deficiency respondent determined that, for 2013, petitioneb failed to report as incomé a $1, 699 income tax refund from the State of Georgia, and $1, 300 in non-employee compensation from GMG Corporate Services. At trial, respondent introduced evidence to establish a foundation för these determinations. In her petition, petitioner did not dispute or allege error with respect to those determinations, and declined to do so at trial. Because petitioner did not contest these items we deem them conceded. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 3 III. dredits Exemptions and Filing. Stattis A.. Dependency Exemptiön Section 151(c) permits a taxpayer to claim 4. as a deduction an exempítion for each dependent. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 .Section 152 (a) provides that- a dependent must be either a "qualifying child" or a "qualifying relative" of the taxpáyer. A qualifying child is a child who bears a specified .relationship to the taxpayer (as relevant here, this definition includes offspring, and "descendants" of brothers and sisters, i.e., hiéces and nephews), who lived with.the taxpayer for more than one-half of the taxable year at issue, who did not provide more than one-hal·f of his or her own support during the taxable year at issue, and who did not file a joint return with the individual's spouse under section 6013 for the taxable year beginnin in the .calendar y.ear in which the taxable .year of the .taxpayer ·begihs. Sec. 151 (c) (1)., (2) . A qualifying child must be less than 19 years old, a student lèss..than. 24 years old, or "permanently and totally disabled" (as defined in section 22 (e) (3) ) . Sec. 152 ( c) (3) . A qualif.ying relative is an individual who bears a specified relationship to the taxpayer (here, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 3 if the relative is a niece or nephew of the taxpayer), who earned gross income less than the exemption amount de'fined in.section 151(d), who had 4 more than one-half of his or her support provided for 5 6 7 8 9 10 11 12 13 14 by the.taxpayer during the taxable year, and who is not the qualifying child of any other taxpayer. Sec. 151(d)(1), (2)(B). Petitioner bears a qualifying relationship to her nephews and niece. However, petitioner did not produce·evidence .sufficient to.establish tha't her nephews and.niece.lived with her for more than half of each- year at issue, that she provided more than half their suppört, or that they were not the qualifying children of any other taxpayer. 15 Additionally, petitioner did not offer adequate 16 17 18 19 20 21 22 23 24 documentary materials that might corroborate her claim that her adult.nephews satisfy the standard of permanently and totally disabled. Accordingly, petitioner is not entitled to a dependency exemption deduction for her niece in 2013, and her nephews for both years at issue. Petitioner, however, has satisfied her burden of proof with respect to her daughter's status as a dependent qualifying minor child of petitioner. 25 Petitioner may claim her daughter as a dependent for 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 1 2 3 4 5 6 7 8 2014. B. Head of.Household Filing Status .Section.2(b) defines head of household as an individual taxpayer who: (A) ïs not married at the close of the taxable year and is not a surviving spouse,.and (B) maintains as her home,a household that constitutes for more than one-half of the taxable year the principal place of abode, as a . 9 member of the household, of (1) a qualifying child of 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 the individual (as defined in section 152(c), determined without regard to section 152(e)), or (2) any other person who is.a dependent of the taxpayer, if the taxpayer is entitled to a deduction for the taxable year for such person under section 151. See Rowe v. Commissioner, 128 T.C. 13, 16-17 (2007). Because petitioner failed to establish that her nephews and niece qualified as her dependents (for purposes of sections 151 and 152), petitioner is not entitled to head of household filing status for 2013. Petitioner, .howev.er, is· entitled to head of household filing status for 2014 as'a result of her daughter's status as her qualifying minor child. C. Child Tax Credit for 2014 Section 24(a) provides a credit with 25 respect to each qualifying child of the taxpayer for 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 14 1 2 3 4 5 6 7 8 9 whom the taxpayer is allowed a dependency exemption deduction.. For purposes of subsection (a), section 24(c)(1) defines a "qualifying child" as a "qualifying child of the taxpayer (as defined in section 152(c)) who has not attained age 17." The child tax credit may not exceed the taxpayer's regular tax liability. Sec. 24(b)(3). Where a taxpayer is eligible for the child tax credit but the 10 taxpayer's regular tax liability.is less than the 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 -amount of the child tax credit potentially available under section 24(a), section 24(d) makes a portion of the credit, known as the additional child tax credit, refundable. Because her daughter is petitioner's qualifying child for 2014, petitioner may be entitled to the child tax credit for 2014, subject to all limitations tied to her adjusted gross income (AGI) as redetermined, here. See sec. 24(b). D..Earned Income Tax Credit Section 32(a)(1) provides an eligible individual with an earned income credit against the individual's income tax liability, subject to a phase-out in section 32(a)(2). Section 32(b) prescribes different percentages and amounts to 866.488.DEPO . wwtv.CapitalReportingCompany.com Capital Reporting Company 15 calculate the credit. The limitation amount is based on the táxpayer's earned income and adjusted gross income and whether the taxpayeË has any qualifying childre'n. Sec. 32(b), (f). To be eligible for a higher earned inäome crédit with respect to. a child, the taxpayer- must establish that t e child meets the definition of. qualifying. chil.d under section 152 (c), . as modified by s.ection 32 (c) (3) (A) . Because her nephews and niece are not her qualifying children for tax. year 2013, petitioner is not entitled to the earned income crédit with three qualifying children for 2013. However, because we find her daughter is petitioner's qualifying child, petitioner may be entitled to the earned income (cid:16)042 credit'with one qualifying child for 2014, subject to . 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 all applicable .AGI limitátions and thresholds. See 17 18 19 20 21 22 23 24 25 sec. 32 (b) . E.. Section 32 (k) (1) (B).(ii) Restriction Section 32 (k)~(1') (B) (ii) disallows the EÍTC for "the period of 2 taxable years after the most recent taxable year for which there was a final determination that the taxpayer' s claim of credit under this section was due.. to reckless or intenti'onal disregard of rules and regulations (but not due to fraud) . " 866.488.DEPO www.CapitalReportixigCompany.com Capital Reporting Company 16 1 2 3 4 Respondent's notice of deficiency proposed that the restrictions of section 32(k) (1) (B) (ii) be applied against petitioner in light of her rettirns for the. years at issue. Normally, in a deficiency . 5 case the. Court is reluctant to make findings or 6 7 8 9 rulings that have no tax consequences in the period or periods presently before it. In light of our findings above, we do not believe the application of the section 32(k) 10 restrictions have any remaining tax consequence to 11 petitioner' s tax years before us. On the record 12 13 14 15 16 17 18 19 before us, we cannot tell whether petitioner's returns 2015 and 2016 have been filed, .and if any A earned income credit is claimed on one or both of them. We also question the precedential effect a ruling in this case, subject to the provisions of Section 74 63 (b) , would have on petitioner' s subsequent years. Under these circumstances, we decline to rule on the application of section 32 (k) . 20 . IV. Section 6662 (a) Penálty 21 22 23 24 25 Section 6662 (a). and (b) (2) imposes an accuracy-related penalty on -any portion of an underpayment of Federal income tax that· is attributable to, among other things, the taxpayer's "substantial understatement of income tax." An 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 17 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 understatement of Federal income tax is substantial if the amoünt of. the understatement for the taxable year exceeds the greater of 10% of the tax required to be shown on the return or $5,000. Sec. 6662 (d) (1) (A) . The Cómmissioner bears the burden of production with respect to any accuracy-related penalty under section 6662. See sec. 749 ; Higbee v. Commissioner, 116 T.C. at 446. Once the burden of production is met, the burden of proof shifts to the taxpayer to show that the penalty should not apply.. The section 6662 (a) accuracy-related penalty will not apply with respect to aný portion3 of an underpayment if it is shown that there was geasonable cause and that the taxpayer acted in good faith.. ..Sec. 6664(c)(1); Rule 142(a); Higbee v. Commissioner; 11.6 T.C; at 446-447. Whether a taxpayer.acted in good.faith depends upon the facts and circumstances of each cáse. See sec. 1.6664- 4 (b) (1) , Incoine Tax Regs. At trial, petitioner-'s testimony failed to establi-sh reasonable cause. If the Rule 155 computations confirm a substantial understatement for the taxable year at issue, then respondent has met his burden of production and we hold that petitioner is liable for .the accuracý-related penalty under 866:488.DEPO www.CapitalRepörtingCompany.com f Cäpital Reporting Còmpány . 18 t . 1 2 3 4 5 6 7 8 section 6662(a) for a substantial understatement of ncome ta insNfår as the Rule 155 computations show one. Sec. 7491 ( c) Prince V. . Coiúmispioner, T. C. Memo. 2003-247. . . Conclusion This cònclùdes the Court' s òral findings of fact ,änd opinion in this case. In reaching our holdings herein, Oe have cor side ed, áll arguments 9 made, and, t o the extent not mentioned -above, we 10 conclude .tha they are moòts irrelevañt, or without 11 mdrit. 12 r3 14 15 16 17 18 1.9 20 21 22 23 24 25 (Whereup.on, at 12:55 p.m., the above- entitled 'mattér was concluded. ) . . .. . x 866.488.DEPO wwW.CapitalReportingÕompany.com Capital Reporting Company 19 1 2 3 4 5 6 7 CERTIFICATE OF TRANSCRIBER AND PROOFREADER CASE NAME: MARISA LEONTYNNE GRIFFIN V. COMMISSIONER DOCKET NO. : 8010-16S We the undersigned, do hereby certify that the foregoing pages, numbers 1 through 19, inclusive, are the true, accurate and complete transcript prepared from the verbal recórding made by electronic . 8 recording by Brenda W. Thompson, on March 21, 2017, 9 before the United States Tax Court at its session in 10 Atlantä, Georgia, in accordance with the applicable provisions. of the· current verbatim reporting còntract of the Court, and have verified the accuracy of the transcript by comparing the typewritten transcript against the verbal recording. c Laurel H. Stoddard 3/23/2017 (Transcriber) (Date) 1) Elizabeth Stoddard 3/23/2017 ( Proof reader) ( Date ) 11 12 13 14 15 16 17 18 19 20 21 22 23 2 4 25 866.488.DEPO www.Capita1ReportingCompany.com