TAX COURT OPINION

Case: Abdul M. Muhammad
Docket Number: 23891-15
Judge: Gustafson
Opinion Type: bench
Filed: 10/05/2017
Pages: 12

ALS UNITED STATES TAX COURT WASHINGTON, DC 20217 ABDUL M. MUHAMMAD, Petitioner, v. ) ) ) ) Docket No. 23891-15. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) 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 herewith to petitioner and to respondent a copy of the pages of the transcript of the proceedings in the above case before the undersigned judge at San Francisco, California, on March 28, 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) David Gustafson Judge Dated: Washington, D.C. October 5, 2017 SERVED Oct 05 2017 3 1 2 Bench Opinion by Judge David Gustafson September 29, 2017 3. Abdul M. Muhaminad v. Commissioner; 4 5 6 7 8 9 Docket No. 23891-15 THE COURT: The Court has decided to render the following as its oral Findings of Fact and Opinion in this case. This Bench Opinion .is made pursuant to the authority granted by section 7459 (b) of the Internal Revenue Code (26 U. S. C. ) , and Tax Court Rule 152; and it 10 shall not be relied on as precedent in any other case. 12 13 14 15 16 17 18 19 20 21 22 23 24 25 *(Dn. 2 J), wrcgtion, By a statutory notice of deficiency dated June.12, 2015 (Ex. 2-J) ("SNOD"), the Internal Revenue Servicè (''IRS") determined a deficiency in the Federal income tax of petitioner Abdul M. Mohammad for the years 2012 and 2013, plus an addition to tax for failure to.timely file the.2012 return and accuracy-related penalties for both years. The issues for us to decide are whether Mr. Muhammad (1) ràceived $15 in taxable interest in 2013 that he failed to report, (2) is' entitled to one dependent exemption deduction in 2012 and two in 2013, (3) is entitled to head-of-hdusehold status in 2012 or 2013,, (4) is entitled to American Opportunity and Education Credi o in 2012 and 2013, (5) is entitled to a deduction of $7,743 for charitable contributions in 2013, (6) is 4 1 2 3 4 5 6 7 8 entit·led to deduct various Schedule C business expenses in 2013, (7) is liable for the addition to tax for failure to timely file his tax return for 2012, and (8) is liable for the accuracy related penalty under section 6662 (a) for both 2012 and 2013. Trial of this case was cond.ucted- on. Se.ptember 18 2017, in Detroit. Mr. Muhammad represented himself, and the Commis'sioner .of the. IRS was represented by Samuel 9 Warren. .0 11 1.2 13 14 15 16 17 1-8 19 20 21 22 23 24 FINDINGS OF FAGT .. In view of the burden-of-proof principles discussed below, we find the following facts: Interest Income . Through third-party reporting, the IRS learned that Mr. Muhammad ieceivhd $15 in interest. At trial, Mr. Muhammad presented no documentary or testimonial evidence on this issue, .so we find that he did receive the income. Children In 2012 and 2013, .Mr. Muhammad was the father of three young children. He was not mar-ried to a d did not live with their mother, ánd the children dividéd their time and lived with both parents. Mr. Muhammadi had no records (school records, medical fecords, or aúy other recordsf to substantiate his contention that t ey lived 25 with hird for inore than alf the year; and in view of tihe burden of proof, we find thát they did not live with him 5 for more than half of the year. Education In 2012 and 2013, Mr. Muhammad was enrolled in online courses at the University of Phoenix, and to take those courses, he incu red expenses of $4,178.09 ín 2012 and $3, 977 in 2013. Charitable Contributions Mr. Muhammad did not offer .any docurrentary 1 2 3 4 5 6 7 8 9 10 evidence to substantiate that he made charitable 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 contribuËions to his mosque in 2013, (cid:16)042 and we find that he did not. Business Expenses In his 2013 tax return, Mr. Muhammad included a Schedule C ("Profit or Loss from. Business ') that sËated his principal business as "Roofer",. reported $255 of gros rec.eipts, and reported $10.,299 of expenses. At trial, he did not offer any documentary evidénce to substantia.te that he incurred and paid business expenses related to a roofing business (or any other business) in 2013, and w.e find thát he did not. Tax Returns The IRS determined that Mr. M hammad filed his 2012 tax return two weeks late, but in view of the burden of production principles discussed below, we find triat the 6 1 2 3 4 5 return. was not late. Although Mr. Muhaminad had three children in 2012 and · 2013, he. Élaimed depende-ncy deductions for only one of them irl 2012 and two of them in 2013. He did not explain why. His returns also claimed head-öf-household status in both years, American 6 Opportunity and Education Credit.s in both years, a , 7 8 deduction of .$4,377 for charitable contributions in 2013, and deductions for various - Schedule C business expenses in 9. 2013. 0 Examination . . . . 11 12 The liRS .examined certain items on the returns., made adjustments, and issued the notice of deficiency on 13 June 12, 2015 (Ex. 2-J; Stip. 3) . Mr. Muhaminad timely 14 mailed his petition onc September 10, 2015. At that time, 15 he resided in Michigan (Stip. 1) . 16 17 18 19 I Burden of Proof OPINION As a gerieral rule, the IRS's determination is presumed .correct, and the taxpayer bears the burden to 20 prové any adjustment to the income the IRS determined. 21 22 23 24 25 See Rule 142 (a) . The taxpayeri must satisfy the specific requiremerits for si-ly deduction claimed. See INDOPCO, Inc. v. Comniissioner, 503 U.S. 79, 84 (1992). Furthermore, taxpayers are required to maintain records sufficient to substantlate their claimed deductions. See section 60Ò1; (973) 406-2250 l operationséèic betsmet l www.escrber snet 7 26 C. F. R. section 1. 6001-1 (a) . . . II. Interest Income Section 61(a) of the Code provides that "gross income means all income from whatever source derived, including . . . (4) interest". Mr. Muhammad received $15 in interest and made no showing that it is not taxable. It is taxable. III. Child-Related Tax Benefits . A. Dependency Exemption Deduction One can claim someone as a dependent for purposes of the dépendency exemption dedüction under section .151, if that person is either a "qualifying child", section 152(a) (1), or a "qualifying relative", section 152 (á) (2) . 1. Qualifying Child The term qualifying child is defined in section 152 (c) (1) and that definition has five requirements in subparagraphs (A) through, (E) . Mr. Muhammad apparently 1 2 3 4 5 6 7 8 9 lÒ 11 12 13 14 15 16 17 18 19 met four of those requirements in 2012 and 2013. (A) hèy 20 had. the required "relationship" with him because they are 21 22 23 24 25 his children, (C) they were under age 19, (D) they did flot . support themselves, and (E) they did-not file joint returns. Howeve , Mr. Muhammad did not prove that irï 012 or 2Öl3, he met the requirement of section 152 (c) (1) ( ) 8 i I 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 i.e., that his children had "the same principal place of abode às the taxpayer for more than one-half of such taxable year". His very general testimony that they did was not persuasive. He presented no corroboration of his testimony that they lived with him for more than six months of the year. He did not call as witnesses either the children's mother or any other relative, neighbor, or friend. He offered no documentation. He did not prove that they are "qualifying children". 2. Qualifying Relative Mr. Muhammad could claim the dependency exemption deduction for his children even though they are not "qualifying child[ren]" if he could show that they are his "qualifying relative[s]", under section 152(a) (2) and (d) . However, that definition includes a requirement that he did not prove, i.e., that the child "is not a (cid:16)04217 qualifying child of any other tax taxpayer". Rather, Mr. 18 19 20 21 22 23 24 25 Muhammad's children are the "qualifying child[ren)" of their mother, änd therefore, they cannot be "qualifying relatives'' of Mr. Muhammad. B. Head-of-Household Status Mr. Muhammad's entitlement to head-of-household status is defeated by the conclusion that his children were not his "qualifying child[ren]" in 2012 and 2013. "Head-of-houséhold" filing status depends on having a 73)406 2250|operat í®ercribennet) www.escribersmet 9 1 2 3 4 5 6 7 8 9 10 11 12 "qualifying child". See section 2 (b) (1) (A) (i) . .Because Mr. Muhammad s dependents were not his "qualifying child[ren]", he is not eligible'for this benÃfit. IV. Education-Related Credits Section 25A allows several differeht education credits against .tax for "qualified tuition and related expenses paiçì by the taxp.ayer during the taxable yéar''. Sèe section 25A(b) (1) (A), (c) (1), (i) (1) (A) . Section 25A(f) (1) (A) defines the term "qualified tuition and related .expenses" to include "tuition and fees" for the taxpayer at "an eligible educational institution for course of instruction of such individual at such 13 institution". By Forms 1098-T, Mr. Muhammad substantiated 14 15 16 17 18 19 20 21 22 23 24 25 the payment of such expenses and corroborated his testimony that he was enrolled. He is therefore entitled to the education credits in dispute. V. Charitable Contributions . . Deductions for charitable contributions are allowable only if verified under the regulations prescribed .by the Secretary. Section 170 (a) (1) . To verify a charitable contribution of money, the regulations require the taxpayer to maintain one of the following for each contribution: (1) A canceled check; (2) a receipt from the duñu , or (3) in the absence of check or receipt, other "reliable written records. A receipt or record used (cid:16)042 (973)406-2250loperations@escribets.netlwww.escribers.net for this purpose must show the name of the donee, the date 10 of the contribution, the amount of contribution. 26 C.F.R. section 1..i70A-13(a) (1). There are additional substantiation requirements, depending on the amount of the contribution, but we neeci not explore those requirements. Mr. Muhammad provided no substantiation, and his contribution deduction must be disallowed. However, on his 2013 return, Mr. Muhammad claimed charitàble contribution deductions of only $4, 377 (see Ex. 8-P, line119), whereas the SNOD reflects an apparent .transposition of numbers and disallows $7, 743 (see Ex. 2-J, "Explanation of Items ', "Cash 1 2 3 4 5 6 7 8 9 10 11 12 13 Contributions") . The disallowance was therefore excéssive 14 15 16 17 18 19 20 21 22 23 24 25 by .$3, 366, and that error shöuld be corrected in the recomputation performed pursuant to Rul.e 155. VI. Schedule C Dedùctions in 2013 Seótion 162 allows "as a deduction all the ordinary and necessary expenses paid or incurred ciuring the taxable year 'in carrying on any trade or business". To prove entitlement to deduct an expense, the taxpayer must prove not only the fact of the expenditure, but also the business purpose. Mr. Muhammad proved neither of these things, so he is hot entitled to the disallowed deductions. . VII. Addition to Tax in 2012 (973)406-2250|operationseegribers.tietlwnwescTG>ersnet Section 6651(a) (1) authorizes the imposition of 11 2 3 4 5 6 7 an addition to tax for failure to file a timbly return, and the SNOD ref.lects the Commissioner's determination that the return was filed two weeks late on 04 29/2013. However, the Commissioner has the burden of production to show that petitioners are liable för the addition tö the tax, see section 7491(c), but we find no evidence in the 8 (cid:16)042 record to corroborate the SNOD. The IRS offered a 9 . printout supposedly reflecting · Mr. .Muhammad ' s 10 electronically filed return (Ex. 15-R), but it shows a 11 12 13 14 15 16 17 purported .sígning date of 01/02/2014, a date that is different from the one in the SNOD, (cid:16)042that is a significant eight months later, and that does not seem 'to correspond tò the amo,unt of the determined addition to tax. We hold that the Commissioner had not niet his burden of production and that Mr. Muhammad is therefore not liable for the addition to tax. 18 VIII. Accuracy--Related Penalty in 2012 and 2013 19 (cid:16)042 Section 6662 (a) and (b) (1) impose an 20 21 22 23 "accuracy-related penalty" of 20 percent of the portion of the underpayment of tax that is attributable to the taxpayer's negligence or disregard of rules and regulations. "The term negligence inclúdes any failure to 24 . make a reasonable attempt to comply with the provisions of 25 the Internal Revenue laws or to e>tercise ordinary and (973)406-2250|operatioriséescribersnet lvmw.escribersnet 12 reasonable care in the preparation of tax return. Negligence also includes any failure by the taxpayer to keep adecluate books and records or to substantiate items properly. " 26 C. F. R. sec4tion 1. 6662-3 (b) (1) . The IRS has the burden of production to show liability for the penalty, arid the record in this case Étakes that showing, since Mr. Muhammad failed to keep records to csubstantiate any of the adjustments in the SNOD. Mr. Muhammad did not make any showing of "reasonable cause'' that could excuse him. from penalty liability. CONCLUSION The IRS's adjustments in the SNOD are sustained to the extent explained above. Petitioner is entitled to education credits, and to a cor.rection of his disallowed 2013 charitable contribution deduction, and he is not liable for the late-filing addition to tax for 2012. We leave undisturbed the computational adjustments in the SNOD that the Commissioner identifies as issues 22 through 27 in his pretrial memorandum. Issue 20 ("Itemized deductions" of $7, 949) combines a .computational adjustment ($206 of excess miscellùneous deductions) and the charitable contribution deduction .of $7,743 discussed above) . Decision will be entered under Rule 155, to 1 2 3 4 5 6 7 8 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (973)406-2250|operationseóscdbers.net www.escribers.net t . (cid:16)042 allow recomputition of the deficiency. . This conclu.des the Court's oral Éindings of Fact (cid:16)042 13 and opinion ïn this case. 1 2 3 (W8ereupon, at 1:23 p.m., the above×entitled 5 matter was cóncluded. ) 6 8 9 10 12 13 14 15 16 17 19 20 21 22 23 24 25 ,