TAX COURT OPINION

Case: Miguel Angel Molina
Docket Number: 16398-17
Judge: Kerrigan
Opinion Type: bench
Filed: 10/12/2018
Pages: 8

RS UNITED STATES TAX COURT WASHINGTON, DC 20217 MIGUEL ANGEL MOLINA, Petitioner(s), v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 16398-17. ) ) ) ) ) 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 in the above case before Judge Kathleen Kerrigan at Los Angeles, California on September 26, 2018, containing her 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, a decision will be entered under Rule 155, Tax Court Rules of Practice and Procedure. Dated: Washington, D.C. October 12, 2018 (Signed) Kathleen Kerrigan Judge SERVED Oct 16 2018 Bench Opinion by Judge Kathleen Kerrigan September 26, 2018 3 Miguel Angel Molina v. Commissioner of Internal Revenue Docket No. 16398-17 THE COURT: The Court has decided to render in this case the following as its oral findings of fact and opinion, which shall not be relied upon as precedent in any other case. This Bench Opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code and Rule 152 of the Tax Court Rules of Practice and Procedure. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. By notice of deficiency dated May 5, 2017, the Internal Revenue Service (IRS or respondent) determined a deficiency in petitioner's Federal income tax for tax year 2015. Respondent determined a deficiency of $4,258. The issues for consideration are whether petitioner was: (1) engaged in an income-generating activity and is entitled to expenses as reported on his Schedules C, Profit or Loss from Business, (2) entitled to file as head of household, and (3) entitled to dependency exemptions, the earned income tax credit (EITC), and the additional child tax 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 (973)406-2250|operationscestribers.net|www.escribers.net 4 credit (CTC). Trial of this case was conducted on September 24, 2018, in Los Angeles, California. Petitioner represented himself, and Jeremy J. Eggerth represented respondent. The parties' stipulation of facts and accompanying exhibits were admitted into evidence. Petitioner was the only witness. We find the following facts: FINDINGS OF FACT Petitioner resided in California when he timely filed his petition. Petitioner resided with his wife for the entire year during 2015. During 2015 petitioner's wife earned more income than he did. They later divorced in 2017. Petitioner has three children. For 2015 petitioner filed two Schedules Cs with his Federal income tax return. These Schedules Cs included gross receipts and expenses. Petitioner's filing status on his 2015 tax return was head of household. Respondent has conceded that his status should be married-filing-separately. Petitioner claimed his younger two children, B.M. and M.M., as dependents. He also claimed an additional CTC and an EITC. B.M. was born in 1998 and reached age 17 during 2015. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 OPINION Generally, the Commissioner's determinations in a notice of deficiency are presumed correct, and a taxpayer bears the burden of proving those determinations are incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Petitioner does not contend that the burden of proof should be shifted to respondent under section 7491(a), and the record does not suggest any basis for a shift. Deductions are a matter of legislative grace, and a taxpayer must prove his or her entitlement to a deduction. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). To that end, taxpayers are required to substantiate each claimed deduction by maintaining records sufficient to establish the amount of the deduction and to enable the Commissioner to determine the correct tax liability. Sec. 6001; see Higbee v. Commissioner, 116 T.C. 438, 440 (2001). Likewise, the taxpayer is obliged to demonstrate entitlement to an advantageous filing status, such as head of household. See, e.g., Smith v. Commissioner, T.C. Memo. 2008-229. Schedules C Normally, the Court may estimate the amount of a deductible expense if a taxpayer establishes that an 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (973)406-2250loperationseescrbers.net|www.escribers.net 6 expense is deductible but is unable to substantiate the precise amount. See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985). This principle is often referred to as the Cohan rule. See, e.g., Estate of Reinke v. Commissioner, 46 F.3d 760, 764 (8th Cir. 1995), aff'g T.C. Memo. 1993-197. Section 162(a) allows a taxpayer to deduct all ordinary and necessary expenses paid or incurred in carrying on a trade or business. An ordinary expense is one that commonly or frequently occurs in the taxpayer's business, Deputy v. du Pont, 308 U.S. 488, 495 (1940), and a necessary expense is one that is appropriate and helpful in carrying on the taxpayer's business, Welch v. Helvering, 290 U.S. at 113. The expense must directly connect with or pertain to the taxpayer's business. Sec. 1.162-1(a), Income Tax Regs. Certain expenses specified in section 274 are subject to strict substantiation rules such as travel expenses, including meals and lodging. Sec. 274(d)(1). Whether an expenditure is ordinary or necessary is a question of fact. Commissioner v. Heininger, 320 U.S. 467, 475 (1943). Petitioner has provided no evidence that he was engaged in a trade or business during 2015. He testified that he had fuel expenses. However, he 1 2 3 4 5 6 7 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (973)406-2250|operationseescribers.net|www.escribers.net provided no evidence of these expenses or testimony of how these expenses were related to a business. We conclude that petitioner was not engaged in a trade or business in 2015 and is not entitled to expenses that he reported on his Schedules C. Head of Household Petitioner testified at trial that he and his wife were still married and living together during 2015. Section 2(b)(1) defines a head of household as an individual taxpayer who, among other things, is "not married at the close of the taxable year and is not a surviving spouse". Petitioner was married during 2015 and therefore, he cannot qualify for head of household filing status. See sec. 2(b)(1). Petitioner's correct filing status for 2015 is married-filing-separately. See sec. 1(d). Dependency Exemption Deduction Section 151 provides that an individual is entitled to a deduction for his or her dependents. Section 151(c) provides an exemption for each dependent of the taxpayer as defined in section 152. Section 152(a) defines the term "dependent" to mean either a "qualifying child", or a "qualifying relative." A child of a taxpayer generally qualifies as a dependent if the child shares the same principal place or abode as the taxpayer for more 1 2 3 4 5 6 9 10 11 12 14 15 16 17 18 20 21 22 23 24 25 (973)406-2250|operationspestrbersnet|www.esalbetsmet than one-half of the tax year in issue. See sec. 152(a), 8 (c) (B). Section 152(c)(4) (B) provides a rule for when there is more than one parent claiming a qualifying child. The child is treated as the qualifying child of the parent with more income. See sec. 152(c)(4) (B)(ii). Petitioner's wife's tax return is not part of the record before us. Petitioner testified that his wife earned more income than he did in 2015. Petitioner is not eligible to claim dependents for 2015. EITC Section 32(a)(1) provides an eligible individual with an earned income credit against the individual's income tax liability, subject to a phaseout explained in section 32(a)(2). Under section 32(d), in the case of an individual who is married (within the meaning of section 7703), the individual may be entitled to an EITC only if a joint return is filed for the taxable year. Petitioner was married in 2015 pursuant to section 7703 because he lived with his wife the entire year. Accordingly, petitioner is not eligible for the EITC because his return status is married-filing-separately. CTC and Additional CTC Section 24(a) allows a taxpayer a $1,000 credit against income tax with respect to each qualifying child. 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 ) cdbers 973)406-2250|operationseescribers.net|www.escribers.net 9 Section 24(d) makes a portion of that credit--commonly referred to as the additional child tax credit-- refundable. For purposes of section 24, a "qualifying child" is a qualifying child of the taxpayer, as defined in section 152(c), who has not yet reached the age of 17. Sec. 24(c)(1). Petitioner is not entitled to the child tax credit since he does not have qualifying children. See sec. 152(c)(4)(B)(ii). Furthermore, B.M. was too old to be eligible for the credit. See 24(c)(1). Conclusion Any contentions we have not addressed are irrelevant, moot, or meritless. This concludes the Court's oral Findings of Fact and Opinion in this case. A decision will be entered under Rule 155. (Whereupon, at 8:39 a.m., the above-entitled matter was concluded.) 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 (973)406-2250|operationspescrbetsmet|www.escribersaet