TAX COURT OPINION

Case: Kimberly N. Petty
Docket Number: 1417-14
Judge: Holmes
Opinion Type: bench
Filed: 06/22/2015
Pages: 12

UNITED STATES TAX COURT WASHINGTON, DC 20217 KIMBERLY N. PETTY, . . Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ) ) ) ) Docket No. 1417-14. ORDER 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 of the above case before Judge Mark V. Holmes at Birmingham, Alabama, on June 10, 2015 containing his oral findings of fact and opinion rendered after the conclusion of trial. In accordance with the oral findings of fact and opinion, a decision under Rule 155 will be entered. (Signed) Mark V. Holmes Judge Dated: Washington, D.C. June 22, 2015 SERVED JUN 2 3 2015 Capital Reporting Company 3 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 Bench Opinion by Judge Mark V. Holmes June 10, 2015 Kimberly N. Petty v. Commissioner Docket Number 1417-14 In the case of Kimberly N. Petty v. Commissioner, Docket Number 1417-14, the Court has decided to render oral findings of fact and opinion, and the following is the Court's oral findings of fact and opinion. This bench opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code of 1986, as amended, and Rule 152 of the Tax Court's Rules of Practice and Procedure. The case was brought by Ms. Petty, who was a resident of Alabama when she filed her petition. She and the Government reached a stipulation, and that, together with her testimony and that of her husband, constitutes the record in the case. The case involves her 2010, 2011, and 2012 tax years. Ms. Petty has many different roles during those years and into the present day. She's a student at a local community college, she is also a mom, and she is a wife to a Mr. Lucky Azunda, who's also her tax return preparer/insurance broker and has several other roles in her life. She is perhaps 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 categorized as a member of the working poor. She earns a living cleaning other people's homes and has to travel some distance to do so. The issues are several. By far the largest, though, is the qualification that she asserts for head-of-household filing status, rather than one of the married filing statuses. She was concededly married to Mr. Azunda for all three of the tax years in question, but filing as head of household would entitle her to numerous refundable tax credits for her education and having children and dependents that depend for their size and in some cases their existence on her qualifying as head of household. There were also relatively more minor expenses in her housecleaning business that she claimed for the 2012 tax year in the form of contract labor, insurance, and car and truck expenses; specifically mileage. My general impression, however, is that Ms. Petty was not a very credible witness. This was buttressed by my observation that Mr. Azunda, who arrived late in court, thus self-sequestering himself, told a different story on many of the key factual items in the case, and in some ways he was 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 Capital Reporting Company 5 1 more believable then she was. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 And when a married couple contradicts each other like that after being held apart, in this case presumably by traffic or some other delay, it's telling as to the credibility of the witness. Let me start, however, with the head-of- household qualification requirements. These are, in classic b fashion, rather detailed and somewhat hard to understand. The gist is that there are four requirements. In order to qualify as head of household, an individual must not be married at the close of the tax year and maintain as her home a household which constitutes for more than one-half of such tax year the principal place of abode of a child. That is a key phrase: "principal place of abode," and it's found in section 2 03)(1) of the Code. However, an individual who is married can 20 still qualify as head of household if she files 21 separately, maintains as her home a household for 22 more than one-half of the tax year which is the 23 24 25 principal place of abode of a dependent child, furnishes over one-half of the cost of maintaining that household during the tax year and, during the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 last six months of the tax year, such individual's spouse was not a member of the household. See Internal Revenue Code sections 2(c) and 7703(b). The biggest problem for Ms. Petty in this regard is this last requirement, that though she was legally married to Mr. Azunda for all three tax years in questiön, she had to show that for the last six 8 months of each of those three years, she was living 9 in a separate household. 10 11 12 13 14 15 16 17 18 We have said in numerous cases -- I'm quoting here from one of them, Chiosie v. Commissioner, T.C. Memo 2000-117 -- that the concept of living apart has been considered by this and other courts. "Generally living apart connotes living in separate residences....living apart requires a geographical separate; it means living in separate residences; i.e., living under separates roofs...." "When the parties live under one roof, we 19 have specifically refused to explore the quality of a 20 marriage and adopt some sort of constructive absence 21 22 23 24 25 under the circumstances." (Citations omitted.) Now, in this regard, Ms. Petty said that she moved out of the house that she shared with Mr. Azunda in May of 2010 and that he didn't visit her in her new place of abode. She did not visit him in 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company I I 1 2 3 4 5 6 7 their old place of abode. If this were credible testimony, that would work, because, of course, May is before the end of June, and so for the last six months of 2010, all of 2011, and 2012, she would have been eligible for head of household under this fourth criterion, even though 7 married living apart from her husband for the last 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 six months of each tax year. However the Government introduced both divorce petitions and counter-petitions, and both of those petitions state that the couple was living together at least until 2015. .Moreover, attached to them were contests about who would get which child, and they had had a new baby in 2013, which somewhat reduces the suggestion that she was estranged from her husband and was not living under the same roof for even one night during those years. .Moreover, not even one piece of mail was addressed to the house which she allegedly rented starting in May of 2010 in Huntsville, Alabama. She did have numerous documents that continued to go to her old marital home, as well as her mom's address. And, weirdly, she did file the petition in this Court at the very end of 2013 with the address 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 that she claimed to be in Huntsville, Alabama, but she had testified before Mr. Azunda arrived that she had moved out of that Huntsville address to live with her mom in Hazel Green, Alabama. So filing a petition prepared by your estranged husband -- indeed, signed by him initially -- that says you're living in Huntsville but testifying that BY you had already moved to Hazel Green when that petition was filed just leads the 10 Court to conclude that you're not being entirely 11 12 13 14 15 16 credible. Moreover, she had no rent checks or other proof that she had moved to Huntsville, Alabama, in May of 2010 or indeed at any other time in any of three tax years at issue. The receipts look like they were 17 manufactured for the occasion. They were all to 18 cash. And the Court does understand that for the 19 working poor in particular much of their life is 20 21 22 23 24 25 based on cash, but these receipts were not consecutively numbered; they were taken out of order; they had different dates. And I have to conclude that it was also relevant that the landlord was present here, coming in with Mr. Azunda -- or the purported landlord was 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 here, coming in with Mr. Azunda, and when I specifically invited Ms. Petty if she wanted him to testify, she buried her head in her hands and said, No. Mr. Azunda gestured that she really needed to call him, and she continued to say no. of course, the Court won't call a witness that the party doesn't want called. That also suggests that his testimony might not have been favorable to her under the pressure of cross- examination. So I have to conclude on this score that she does not qualify under this branch of the head- of-household test. And indeed, for one of her children she probably wouldn't qualify as sharing the principal place of abode, because she did testify that even if I were to believe that she had moved Out, the child that she had had with Mr. Azunda before the one who was born in 2013 was spending at least half his time with his father, and so he 20 wouldn't qualify for a couple of the tax credits that 21 22 23 24 you get for having a child who is considered a qualifying child sharing your same principal place of abode for more than one-half the year. Moreover, although Ms. Petty said that she 25 did not receive any support of any kind from Mr. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 Azunda except for her cell phone bill. Mr. Azunda, after he came in late and took the witness stand, said that he had been giving her between 600 and $1,000 a month in cash after the separation, for the children and for her support. Given her low levels of reported income and the rent that she was purported paying in Huntsville, even if I were to believe she was in Huntsville during this time, which, again, I stress I don't, she would have had to have some outside source of support like Mr. Azunda's cash payments to keep body and soul together. So I won't go on any further about this. My conclusion is that she does not qualify for head- of-household filing status. The credibility problems that I've already outlined infect as well the remaining three relatively more minor items that were in dispute, For contract labor, Ms. Petty claims $1,022 in disallowed expenses of housecleaning contract labor in 2012. Her story here was that some jobs were sufficiently large that she would pay other women to help her and then give them cash. This seems a little bit implausible, but the proof that she provided were receipts that she claimed to have 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 Capital Reporting Company 11 1 written all by herself from a form of receipt books 2 3 4 5 6 7 8 9 10 11 that she had. But Mr. Azunda again testified that those receipt books were his own and, in any event, they were, again, taken out of order and appeared to have been manufactured for the purpose of these. I have to find it more likely than not that she did not have these contract labor expenses. The second category of contested Schedule C expense was an insurance bill of $726, again for 2012. The proof here that she presented was a policy 12 written by Mr. Azunda in his capacity as an insurance 13 14 15 16 17 18 19 20 21 22 23 24 25 broker and giving her, oddly enough, a commercial liability policy with a $2 million coverage for what appears to be products liability and $100,000 coverage for rented property for her business, which of course she didn't have, since her business was the hard work of going and cleaning other people's homes around the Birmingham area. The receipts, again, that she had for the insurance were all cash receipts, prepared, it seems, by Mr. Azunda or somebody acting at his direction and control from the same receipt book for all the other receipts that I saw. So my conclusion here is that she did not in fact have $726 insurance expenses for 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 3 4 5 6 7 2012. Finally, the last contested item are car and truck expenses of $6,213, again for 2012. Here of course the enhanced substantiation requirements of section 274 apply, and those require that, in the case of cars and trucks, the amount of each use, based on the appropriate measure -- for instance, 8 mileage for automobiles -- and the total has to be 9 listed for each taxable period. This usually 10 requires a more or less contemporaneous log of 11 mileage and any receipts for gas, tolls, et cetera, 12 13 14 15 16 17 18 19 20 21 22 23 24 that a person has. In the case of Ms. Petty, what she produced was several pages out of a spiral-bound notebook in which there were three columns; one the date, and nearly all dates of the year were listed. The second was the name of a city or town here in Alabama, and the third was the amount of mileage between somewhere and that town. Given that she was moving around at this time, allegedly, it's not surprising that the mileage somewhat varied, but the regularity of the mileage always makes one somewhat suspicious when it appears to be all very neat columns in a way that indicates 25 it was all done at the same time, with the same ink. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 1 2 3 4 Moreover, again and more persuasively here, although Ms. Petty said that she kept this log on a day-by-day basis or maybe a day or two later, which would meet the contemporaneous logbook requirement, 5 Mr. Azunda again said that he had told her that the 6 7 8 9 IRS would require proof and said she needed to create this log based on her best memories, which undermines entirely the idea of a contemporaneous log. Again, on this one I cannot rule in her 10 favor in the least. The only reason I'm not entering decision entirely in favor of the Respondent is that I was a little bit unsure, from the language of the stipulation, whether every item in the notice of deficiency was being contested. I think it was, but I'm not sure. So I will enter a decision under Rule 155. Because there were manufactured records here and an absence of credible testimony and a complete failure of recordkeeping, I am sustaining the Government's penalty in this case. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 2:22 p.m., the above- entitled matter was concluded.) 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com