TAX COURT OPINION

Case: A. Wayne & Linda D. Doudney
Docket Number: 3548-04
Judge: Marvel
Opinion Type: memo
Filed: 11/17/2005
Pages: 7

ORDED ERVICE T.C. Memo. 2005-267 UNITED STATES TAX COURT A. WAYNE AND LINDA D. DOUDNEY, Petitioners y. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 3548-04, 3549-04. Filed November 17, 2005. A. Wayne Doudney and Linda D. Doudney, pro sese. Ronald S. Chun, for respondent. MEMORANDUM OPINION MARVEL, Judge: By separate notices of deficiency, respondent determined the following income tax deficiencies and additions to tax with respect to petitioners' Federal income taxes:¹ ¹All section references are to the Internal Revenue Code in effect for the taxable years in issue, and all Rule references (continued. . . ) SERVED NOV 1 7 2005 - 3 - (6) whether petitioners properly deducted charitable contributions and State and local taxes on Schedule A for 2Ò00; (H whether petitioners properly claimed a dependency exemption for a child for 2000; and (8) whether petitioners are liable for additions to tax under section 6651(a) for 1999 and 2000.3 Background Petitioners were married during 1999 and 2000. Petitioners resided in Detroit, Texas, when their petitions in these cases were filed. Unless otherwise indicated, petitioner refers to A. Wayne Doudney.4 On July 27, 2002, petitioners mailed Forms 1040X, Amended U.S. Individual Income Tax Returns, for 1999 and 2000 to respondent, who received them on July 29, 2002.5 After petitioners mailed the amended returns, respondent requested 3Respondent also determined self-employment adjustments of $306 and $4,137 for 1999 and 2000, respectively. are computational and turn on our resolution of deductibility of the Schedules C, Profit or Loss From Business, and F, Profit or Loss From Farming, expenses. Petitioners did not separately challenge the adjustments, and we do not further discuss them. the issue of The adjustments 4Mr. Doudney attended the trial alone, but he stated on the record that Mrs. Doudney authorized him to speak on her behalf during the trial in these cases. SThere is no evidence in the record to show whether petitioners filed original Forms 1040, U.S. Returns, for the years in issue and, if so, when. Individual Income Tax - 5 - On December 9, 2004, respondent scheduled a Branerton conference with petitioner regarding respondent's adjustments to petitioners' 1999 and 2000 amended returns. See Branerton Corp. v. Commissioner, 61 T.C. 691 (1974). Petitioner was unable to attend the meeting, but his attorney-in-fact, Mr. Mattatall, attended in his place.' At the meeting, Mr. Mattatall produced four "Affidavits of Fact" that summarily declared, among other things, that all of the claimed losses, deductions, and 7At the time of this trial, Mr. Mattatall had been enjoined by the United States from directly or indirectly "acting as a return preparer or assisting in or directing the preparation of federal tax returns for any person or entity other than himself, or further appearing as a representative on behalf of any person or organization whose tax liabilities [are] under examination by the IRS." United States v. Mattatall, No. CV 03-07016 DDP (PJWx), at 6 plaintiff's motion for contempt and second amended injunction of which we take judicial notice pursuant a footnote to the order, District of California provided the following pertinent explanation: the U.S. District Court for the Central (C.D. Cal., Aug. 17, 2004) to Fed. R. Evid. 2,01). (order granting In its position, the Government attaches the return." 26 the interview, insisted that the taxpayer could choose to In support of transcript of an interview between the IRS and a taxpayer who brought Mattatall along as his return preparer and representative. At [Mattatall] submit an affidavit that his tax return was correct, and that regardless of or other information, taxpayer need provide. Mattatall's position is frivolous, and the Court agrees. Section 7602 .of authorizes the IRS to examine "any books, papers, records, or other data" which "may be relevant" to an inquiry into "the correctness of any [tax] U.S.C. § 7602(a)(1). affidavit is sufficient is unfounded. the affidavit is all that the [Mattatall's] assertion that an The Government argues that the Internal Revenue Code the IRS's request for documents - 7 - taxpayer has produced credible evidence relating to the tax liability at issue and has met his substantiation requirements, maintained required records, and cooperated with the Secretary's reasonable requests for documents, witnesses, and meetings. Petitioners have produced no credible evidence supporting their disputed capital transactions or their disallowed deductions and exemption. Petitioners produced only summary "Affidavits of Fact" that declared the accuracy of each line of petitioners' amended returns. Petitioners made no effort to provide respondent with any receipts, canceled checks, copies of invoices, or other records to substantiate the items claimed on their amended returns that respondent disallowed. Because petitioners failed both to cooperate with respondent and to substantiate their losses and deductions, we conclude that petitioners did not satisfy the requirements of section 7491(a) and that the burden of proof remains with petitioners on all issues. Capital Transactions Section 1001(c) requires all gains or losses on the sale of capital assets to be reported on the taxpayer's return, unless a separate Code section provides otherwise. Although petitioners provided some documentation during the examination to substantiate a small capital loss for 1999, petitioners did not substantiate the remaining losses claimed. At trial, petitioners helpful in carrying on a trade or business. Heineman v. Commissioner, 82 T.C. 538, 543 (1984). Under section 164, a taxpayer may deduct State and local real property and income taxes paid or accrued during the taxable year. A real property tax is one that is imposed upon real property to benefit the general public welfare. Sec. 1.164-3(b), Income Tax Regs. A State or local tax is one that is imposed by a State, by a possession of the United States, by a political subdivision of either, or by the District of Columbia. Sec. 1.164-3(a), Income Tax Regs. Section 170 allows a deduction for charitable contributions made to qualifying organizations. A taxpayer claiming a charitable deduction of money must maintain a copy of the donation check, a receipt of the donation by the donee organization, or some other reliable written evidence of donation. Sec. 1.170A-13(a)(1), Income Tax Regs. Contributions of property require, at a minimum, a receipt by the donee including the name of the donee, the date and location of the donation, and a reasonable description of the property donated. Sec. 1.170A-13(b). Where it is unrealistic to obtain a receipt, the taxpayer must maintain reliable written records of his contributions. See id. All deductions, however, are a matter of legislative grace, and the taxpayer must clearly demonstrate entitlement to the - 11 - Because we do not disturb respondent's determination when the only evidence offered to refute it consists of petitioner's self-serving testimony and affidavits that the expenses claimed are correct and accurate, we sustain respondent's determination disallowing petitioners' claimed Schedules A, C, and F expenses for 1999 and 2000. Geiger v. Commissioner, T.C. Memo. 1969-159 (citing Halle v. Commissioner, 7 T.C. 245, 247 (1946), affd. 175 F.2d 500 (2d Cir. 1949)), affd. 440 F.2d 688 (9th Cir. 1971). Dependency Exemption Section 151(a) and (c)(1) allows a taxpayer to claim a personal exemption for each dependent. In order to.be entitled to the deduction, the taxpayer must show that the person for whom a dependency exemption is claimed meets the statutory definition of "dependent". See sec. 152(a)(1). Although petitioners claimed that they were entitled to a dependency deduction for a child on their 2000 amended return, petitioners did not introduce any credible evidence to establish that the child satisfied the definition of dependent under section 152. Consequently, we sustain respondent's determination disallowing the dependency exemption petitioners claimed for a child for 2000. Section 6651(a) Addition to Tax Section 6651(a) imposes an addition to tax for failure to file a return in the amount of 5 percent of the tax liability required to be shown on the return for each month during which - 13 - 2000, we do not sustain respondent's determination that petitioners are liable for the section 6651(a)(1) addition to tax for 1999 and 2000. Due Process Petitioners' principal argument in this case is that they were denied due process during the December 9, 2004, meeting with respondent. Although petitioners' argument is not entirely clear, we understand the argument to be that petitioners were entitled to document their return positions by affidavits and that respondent denied them due process by refusing to accept the affidavits. Due process requires that an "adequate opportunity * * * [be] afforded for a later judicial determination of the legal rights" of the taxpayer. Phillips v. Commissioner, 283 U.S. 589, 595 (1931). An adequate opportunity requires that the taxpayer be heard "'at a meaningful time and in a meaningful manner.'" Mathews v. Eldridge, 424 U.S. 319, 333 (1976) (quoting Armstrong v. Manzo, 380 U.S. 545, 552 (1965)); see also Harper v. Commissioner, 99 T.C. 533, 542 (1992) (Petitioner not denied due process where he was "afforded ample opportunity to be heard and explain"). Petitioner.'s right to a trial in this Court satisfies that requirement. See Catania v. Commissioner, T.C. Memo. 1986- 437.