TAX COURT OPINION

Case: Rodolfo Velasquez
Docket Number: 2547-10
Judge: Colvin
Opinion Type: bench
Filed: 03/25/2011
Pages: 7

UNITED STATES TAX COURT WA SHINGTON, DC 20217 RODOLFO VELASQUEZ, Petitioner v. COMMISSIONER OF INTERNAL. REVENUE, Respondent ) ) ) ) ) ) ) ) ) O R D E R Docket No. 2547-10. 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 the transcript Petitioner and to respondent a copy of of the trial in the above case before Judge Joseph Robert Goeke at San Francisco, California, on March 17, 2011, containing his oral findings of the trial. fact and opinion rendered at the conclusion of the pages of In accordance with the oral findings of decision will be entered under Rule 155. fact and opinion, a (Signed) Joseph Robert Goeke Judge Dated: Washington, D.C. March 25, 2011 SERVED MAR 2 9 2011 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 Joseph Robert Goeke March 17, 2011 Rodolfo Velasquez v. Commissioner Docket No. 2547-10 3 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. The oral findings of fact and opinion shall not be relied upon as precedent in any other case. This opinion is rendered pursuant to Internal Revenue Code section 7459(b) and Rule 152 of the Tax Court Rules of Practice & Procedure 152. Hereinafter, section references are to the Internal Revenue Code, and rule references are to the Tax Court Rules of Practice & Procedure. Petitioner has the burden of proof in this case, pursuant to section 7491 and Rule 142(a). However, Court A The burden decides the case based upon the record of trial. of proof is not a factor in the outcome. This case is before the Courtsbased upon Respondent's notice of deficiency determination concerning 2006 federal income taxes. Respondent determined a deficiency of $ 643 in income tax and the addition to tax under section 6662 in the amount of $528.60. The addition to tax was based upon Respondent's determination that the Petitioner was negligent or had substantially understated Heritage Reporting Corporation (202) 628-4888 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 4 his income tax for 2006. The issues for decision concern two rental properties on which Pet-it oner claimed expenses on Schedule E of his 2006 federal income tax return. The first rental property involves Petitioner's own residence. He received $4200 in rent from his mother who rented a room in Petitioner's residence in San Francisco, California. Based upon Petitioner' s reading of the instructions for Schedule E, he claimed deductions based upon,100 percent of the mortgage interest- and other expenses associated with the property in which he and his mother resided. At trial, Respondent' s initial position was based upon section 183 . However, Respondent subsequently altered that position and asserted that the expenses associated with Petitioner's residence should be adjusted in accord with section 280A. 'Section 280A (a) provides the general rule that no deduction is allowable with respect to the use of a dwelling unit which is,used by the ta.xpayer during the taxable year as a residence. Section 280A(c) lists exceptions to this general rule. The exception relevant to this issue in the present case is contained in section 280A(c) (3) . This provision provides for the allowance of certain expenses related to the portion of the dwelling which is attributable Heritage Reporting Corporation (202) 628-4888 5 to rental activity, but requires a taxpayer who uses the dwelling for personal use to limit his deductions to the amount determined after applying the percentage obtained by comparing the number of days the unit or portion is rented at a fair rental to the total number of days. In the present case, the taxpayer lived in the residence throughout the year and only rented a small portion to his mother. Therefore, his deductions relative to the residence are limited further by section 280A(c) (5), which limits deductions of expenses incurred in the rental use of a residence to an amount not to exceed the excess of the gross rental income over the portion of the expense otherwise allowable, such as mortgage interest and real estate taxes. Respondent's notice of deficiency in the present case recomputed the expense associated with Petitioner's residence in accord with this subsection, having allowed expenses that offset the gross revenue received by Petitioner from his mother, in the amount of $4200 and further allowing the mortgage interest and property taxes itemized deductions. We direct 15.5 computation 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Mah will be necessary in this case followgt at procedure 24 25 The remaining issues concerning the deficiency involve certain specific expenses Petitioner claimed Heritage Reporting Corporation (202) 628-4888 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 6 relative to other property which he used totally as rental property in 2006. This property, in Vallejo, California, was several hours -fi!PMF) drive from Petitioner's residence. And he testified credibly that he made numerous trips to visit the property during the year. He did not maintain a log of his claimed automobile expens in accord with section 274, but his testimony is sufficient to corroborate, pursuant to the regulations under section 274, mileage expense associated with his trips to visit the rental property. Based upon his testimony, we allow a deduction for mileage based upon 2/10 miles of travel between Petitioner's residence and the rental property. Other items in dispute include $500 of claimed supply expenses. Based upon Petitioner's testimony, we allow $300 of supply expenses. ' He also claimed $500 for cleaning and maintenance associated with cutting the grass at the rental property. Petitioner called his brother as a witness to testify that he in fact did arrange for the grass cutting and that the grass cutting did cost $500 in the calendar year 2006. We find this testimony credible and we allow the $500 for W||Í cleaning and maintenance expense. The final amount in dispute associated with the rental property in Vallejo involves utility expenses. Heritage Reporting Corporation (202) 628-4888 7 Petitioner claimed $5540 of utility expenses on e 2006 return. Based upon his testimony and the submission of substantiation, which are included as exhibits at trial, of various utility expenses, we determine that the entire $5540 of utility expenses is allowable in 2006 relative to the Vallejo property. The final issue in the case is whether the Petitioner is liable for the negligence penalty under section 6662(a) in the amount of $528.20 for 2006. Negligence is defined as the failure to exercise the due care that a reasonable and ordinary prudent person would exercise under the circumstances. See Anderson v. Commissioner, 62 F.3d 1266, 1271 (10th Cir. 1995). In the present case, based upon his testimony and his production of the orm Schedule E instructions for 2006, we are convinced that Mr. Velasquez, the Petitioner, did in fact exercise due care and reasonable cause and had reasonable cause for claiming the expenses he claimed relative to his p,ersonal residence. Based upon the unique circumstances of this case, Mr. Velasquez's attention to the instructions and his attempts to follow the instructions, we find that the additions to tax under section 6662(a) are not applicable. The Court's analysis of the issues in this case will require a computation under Rule 155. 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 Heritage Reporting Corporation (202) 628-4888 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 This concludes the Court's oral findings of fact 8 and opinion in this case. THE CLERK: All rise. (Whe reupon, at 8 : 41 a . m. , . the bench op inion in the above-entitled matter was concluded.) // // // // // // // // // // // // // // // // // // // // Heritage Reporting Corporation (202) 628-4888