TAX COURT OPINION

Case: Lawrence A. Scott
Docket Number: 673-09S
Judge: Colvin
Opinion Type: bench
Filed: 07/13/2009
Pages: 10

~ - 6ce,Ke.. UNITED STATES TAX COUR T WASHINGTON , DC 2021 7 LAWRENCE A . SCOTT, Petitione r v . Docket No . 673-09S . COMMISSIONER OF INTERNAL REVENUE , Respondent O R D E R Pursuant to Rule 152 (b), Tax Court Rules of Practice and Procedure, it i s 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 Honolulu, Hawaii, on J1ine 18, 2009, 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, decision will be entered for responden t (Signed) Joseph Robert Goeke Judg e Dated : Washington, D .C . July 13, 2009 SERVED JUL 17 2009 3 1 Bench Opinion by Judge Joseph Goeke June 18, 2009 2 Scott v . Commissioner Docket No . 673-09S 3 THE COURT : The Court, has decided to render 4 oral findings of fact and opinion in this case, an d 5 the following represents the Court's oral findings of 6 fact and opinion . The oral findings of fact an d 7 opinion shall not be relied upon as precedent in any 8 other case . 9 This bench opinion is rendered pursuant t o 10 Tax Court Rule of Practice an d Procedure 152 . 11 Hereinafter, Rule references a e to the Tax Cour t 12 Rules of Practice and Procedure . 13 This case was heard ursuant to th e 14 provisions of § 7463 of the .In ernal Revenue Code in 15 effect when the petition was filed . Pursuant to § 16 7463(b), the decision to be entered is not reviewable 17 by any other court . Hereinafter, Section references 18 are to the Internal Revenue Code . 19 This case arises from a petition filed i n 20 response to a notice of defici ncy for the years 200 4 21 and 2005 . The case involves Respondent's disallowance 22 of Schedule C and itemized dedictions, claimed capital 23 losses, claimed child tax credits, earned income tax 24 credits and Respondent's assertions of additions t o 25 tax for late filing in 2005 and the accuracy related Heritage Reporting Corporatio n (202) 628-,888 6ff 4 1 addition to tax under § 6662(a for 2005 and 2004 . 2 In the years 2004 an 2005, the Petitione r 3 filed joint federal income tax returns with his the n 4 spouse . On those returns, he And his former spous e 5 claimed significant Schedule C deductions associate d 6 with a business of Petitioner's spouse, characterized 7 as financial coaching . The gross receipts show n 8 relative to that business for he years 2004 and 2005 9 were $3,600 and $4,000 respectively . Afte r 10 deductions, Petitioners claimed losses relative to th e 11 financial coaching business of $70,217 in 2004 and 12 $27,022 in 2005 . 13 Respondent disallowe the following Schedul e 14 C expenses claimed by the Petitioner with his ex- 15 spouse on their 2004 and 2005 Joint Federal income tax 16 returns in the following amounts : car and truck , 17 $4,943 for 2004, for 2005 $4,91 . Hereinafter the 18 first amount listed will be for the year 2004 and the 19 second amount for the year 2005) . Depreciation , 20 $35,930, no adjustment ; insurance, $968, $1,072 ; 21 interest, other, $3,633, $3,303 ; rent/lease, other 22 business property, $4,525, $4,950 ; travel, n o 23 adjustment, $4,928 ; other expe ses, electricity, 24 $1,825, $2,000 . 25 Petitioner and his ex-wife did not file a Heritage Reporting (202) 628- Corporation 888 5 1 Schedule D with their Federal ncome tax returns for 2 2004 and 2005 . Respondent allowed the net capita l 3 losses from options, which Petitioner and his ex-wife 4 reported on their Schedule C as capital losses o n 5 Schedule D for the taxable yeas 2004 and 2005 in the 6 amounts of $466 and $ 2,743 respectively . 7 Respondent disallowed the following Schedul e 8 A unreimbursed employee business expenses claimed b y 9 the Petitioner on his 2004 an d 2005 joint Federa l 10 income tax returns with his former wife . The first 11 amount listed will be for 200 4 and the second amoun t 12 for 2005 . The first item is vehicle expense, no 13 adjustment , no adjustment . Th second item is parking 14 fees, $470 , no adjustment . The next item is trave l 15 expense , $ 856, no adjustment . The next item is other 16 business expenses , $ 7,734, $82 . The next item i s 17 meal and entertainment expense , no adjustment, $145 . 18 On the joint Federal income tax return 19 Petitioner filed with his ex-w fe for 2004 and th e 20 return for 2005, Petitioner an his ex-wife listed two 21 children as dependents . On th 2004 return , 22 Petitioner and his ex-wife cla med two children a s 23 qualifying children for the ch ld tax credit . On the 24 2005 return, Petitioner and hi ex-wife claimed one 25 child as qualifying for the c h ld tax credit . Heritage Reporting Corporation (202) 628-,888 6 1 On their 2004 Federal income tax return , 2 Petitioner and his ex-wife claimed the child ta x 3 credit in the amount of $573 . In the notice o f 4 deficiency, Respondent increased the tax due fro m 5 Petitioner and concurrently allowed Petitioner a child 6 tax credit for 2004 in the amount of $1,600 . 7 On the 2005 return, Petitioner and his ex- 8 wife did not claim the child tax credit because they 9 claimed they owed no tax for 205 . In the notice o f 10 deficiency, Respondent increa s d the tax due from 11 Petitioner and his ex-wife and also allowed Petitione r 12 and his ex-wife a child tax credit for 2005 in the 13 amount of $1,000 . 14 On the 2004 and 2005 returns, additional 15 child tax credits were claimed in the amounts o f 16 $1,427 and $1,000 . These amou is were disallowed by 17 Respondent in the notice of de iciency . 18 On the 2005 return, an earned income credit 19 in the amount of $2,514 was claimed, and this entire 20 amount was disallowed in the notice of deficiency . 21 The depreciation deduction on the Schedule C 22 for 2004 was based upon an Esc .lade automobile which 23 Petitioner testified was purchased for his wife . He 24 also testified that they had a Ford Mustang an d 25 another vehicle which they disposed of early in 2004 . Heritage Reporting Corporation (202) 628-4888 7 1 Petitioner provided some substantiation supporting the 2 . purchase price of the Escalade However, he did no t 3 provide any substantiation to document the busines s 4 use of the Escalade . 5 Generally taxpayers ear the burden of 6 proving the Commissioner's determinations ar e 7 erroneous . Rule 142(a), Welch v . Helvering, 290 U .S . 8 111, 115 (1933) . Section 162(a.) allows deductions for 9 ordinary and necessary business expenses . Section 10 7491 regarding the . burden of p oof is not applicable 11 in this case because the Petitioner has failed to meet 12 the requirements of that section requirin g 13 substantiation of expenses in he course of . 14 Petitioner's audit . 15 The deductions in qu stion in this case ar e 16 a matter of legislative grace nd taxpayers bear the 17 burden of proving they are entitled to the deductions . 18 New Colony Ice Company v . Helvoring , 292 U .S . 435, 44 0 19 (1934) . 20 Section 6001 require a taxpayer to maintain 21 adequate books and records of xpenses claimed on 22 Federal income tax returns . I auditing the 23 Petitioner in this case, Respo dent did allow certain 24 of the claimed itemized deductions related t o 25 Petitioner's employee business expense . However , Heritage Reporting Corporation (202) 628- 888 8 1 other of those deductions were disallowed, and a s 2 previously stated, the Schedul C deductions wer e 3 disallowed . 4 Section 274(d) requi es a taxpayer to 5 substantiate any claimed deduc ions for listed 6 property by adequate records o sufficient evidenc e 7 and bars any deduction for an xpenditure governed by 8 section 274 on the basis of unsupported testimony o f 9 the taxpayer or on the basis o~ the taxpayer' s 10 approximation . 1 .274-5T(c)(1) Temporary Income Tax 11 Regs, 50 Fed . Register 46016 (November 6, 1985) . 12 This Court has held nd been affirmed by the 13 Ninth Circuit Court of Appeals in determining that 14 were a taxpayer's testimony is general and 15 uncorroborated, the testimony oes not carry th e 16 taxpayer's burden of proof . Geiger v . Commissioner , 17 T .C . Memo 1969-189, aff'd 440 ' .2d 688 (Ninth Cir . 18 1971) . 19 Under section 280F(d (4)(A), listed propert y 20 includes a passenger automobile . Apart from the 21 evidence related to the cost of the Escalade, deducted 22 as depreciation in 2004, Petitioner provided no other 23 documentation to support the S hedule C deductions and 24 the remaining itemized deductions in dispute in this 25 case . Heritage ReportinglCorporation (202) 628-4888 9 1 Although the Court found the Petitioner t o 2 be credible relative to his assertions that he was 3 attempting to comply with the ~nternal Revenue laws, 4 the Court is faced with a situ .tion where th e 5 Petitioner claims significant xpenses associated with 6 relatively small amounts of income and completel y 7 failed to meet the substantiation requirement s 8 required by the Internal Revenue Code . The Court is 9 left with no room based upon the law and th e 10 regulations to allow Petitioner any of the expenses 11 claimed . 12 Regarding the other issues, including th e 13 child tax credit and the earne income credit, because 14 of the determinations relative to the disallowance of 15 the expenses and the resulting increases in income , 16 Respondent's determinations relative to the chil d 17 credit and the earned income credit follow . The same 18 is true of miscellaneous medical expenses claimed as 19 itemized deductions and the adjustments associated 20 with them . 21 This leaves us with the remaining issue s 22 involving the additions to tax . The addition to ta x 23 under § 6651(a)(1) was asserted in the amount of $11 24 because of the delinquent filiig of Petitioner' s 25 return with his ex-spouse for the year 2005 . Heritage Reporting Corporation (202) 628-4888 1 0 1 Petitioner claimed that the return was mailed on time 2 but offered no evidence to support that assertion . 3 And we find that Respondent has sustained Respondent's 4 burden with respect to that addition to tax o f 5 demonstrating that the return was filed late, however 6 short the duration of the delinquency in filing th e 7 return . Therefore, we sustain Respondent's addition 8 to tax for the year 2005 in th amount of $11 under § 9 6651(a)(1) . 10 Relative to the accuracy related penalty 11 under § 6662(a), we have weighed Petitioner' s 12 earnestness and his straightforward testimony against 13 the fact that very significant adjustments were made 14 to the income tax return based upon a total lack of 15 substantiation . 16 While we do not fault the Petitioner fo r 17 supporting his wife's efforts to make income, we find 18 the large deductions claimed relative to the small and 19 modest amounts of income in question to cause us t o 20 find that Respondent has carried Respondent's burden 21 with respect to establishing t]e applicability of the 22 addition to tax associated wit1 the accuracy of the 23 returns for 2004 and 2005 under § 6662(a), and w e 24 sustain those additions to ta x 25 In accord with this o pinion, a decision will Heritage Reporting Corporatio n (202) 628-4888 1 1 1 be entered for Respondent . 2 This concludes the C urt's oral findings o f 3 fact and opinion in this case . 4 (Whereupon, at 1 :25 p .m ., the bench opinion 5 in the above-entitled matter w .s concluded . ) 6 7 9 10 11 12 13 14 15 16 17 18 19 20 2 1 22 23 2 4 25 Heritage Reporting Corporation (202) 628-,888