TAX COURT OPINION

Case: Lowell William Fryman, Jr. & Elizabeth A. Fryman
Docket Number: 15085-10S
Judge: Carluzzo
Opinion Type: bench
Filed: 05/04/2015
Pages: 6

UNITED STATES TAX COURT WASHINGTON, DC 20217 LOWELL WILLIAM FRYMAN, JR. & ELIZABETH A. FRYMAN, Petitioner(s), v. SD ) ) ) ) ) ) Docket No. 15085-10S COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ORDER Pursuant to the determination of the Court as set forth in its bench opinion rendered on April 17, 2015, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioners and to respondent a copy of the pages of the transcript of the trial in the above case before Special Trial Judge Lewis R. Carluzzo at Denver, Colorado, containing his 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, decision will be entered under Rule 155. (Signed) Lewis R. Carluzzo Special Trial Judge Dated: Washington, D.C. May 4, 2015 SERVED May 05 2015 Capital Reporting Company 3 1 Bench Opinion by Special Trial Judge Lewis R. 2 Carluzzo 3 April 17, 2015 4 5 6 7 8 9 10 11 12 Lowell William Fryman, Jr. & Elizabeth A. Fryman Docket No. 15085-10S 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 (bench opinion). Section references made in this bench opinion are to the Internal Revenue Code of 1986, as amended, in effect for the relevant periods, and Rule references are to the Tax 13 Court Rules of Practice and Procedure. This bench 14 15 16 17 18 19 20 21 22 23 24 25 opinion is made pursuant to the authority granted by Section 7459(b) and Rule 152. This proceeding for the redeterminations of deficiencies is a small tax case subject to the provisions of Section 7463 and Rules 170 through 175. Pursuant to Section 7463(b), the decision entered in this case shall not be treated as precedent for any other case. Except as provided in Rule 152(c), this bench opinion shall not be cited as authority. Lowell W. Fryman appeared, unrepresented, as did Elizabeth A. Fryman. Michael W. Lloyd appeared on behalf of respondent. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 In a notice of deficiency dated April 2, 2010 (notice), respondent determined an $11,906 deficiency in petitioners' 2007 federal income tax and a $26,254 deficiency in petitioners' 2008 federal income tax. Each deficiency determined in the notice is challenged in its entirety in the timely petition that commenced this proceeding. At the time the petition was filed, petitioners resided in Colorado. Respondent now concedes an adjustment entitled "other income" made in the notice to petitioners' 2008 income. Otherwise, we are called upon to decide whether petitioners are entitled to various deductions (disputed deductions) that are claimed on petitioners' joint federal income tax return for each year in issue (returns) and disallowed in the notice. The notice and the returns have been stipulated into evidence. Those documents, however, tell us little about petitioners' entitlement to some, or any of the disputed deductions. Before discussing petitioners' entitlement to those deductions, however, we address petitioners' argument that their federal income tax liabilities for the years in issue have been discharged in a bankruptcy proceeding, a point that respondent 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 disputes. 1 2 According to petitioners, little point 3 would be served by resolving the parties' dispute 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 regarding their entitlement to the disputed deductions disallowed in the notice because the tax liabilities that might arise from those disallowances have been discharged in a bankruptcy proceeding commenced after the petition in this case was filed. According to petitioners, they did not provide substantiation for the disputed deductions to respondent's counsel during the pretrial phase of this proceeding because of their belief, based upon legal advice, that there was no need to do so. We find that petitioners maintained their bankruptcy argument in good faith, but they are mistaken with respect to their expectation that this Court in this proceeding would decide whether any tax liabilities assessed as a result of the decision to be entered in this case are subject to the relevant bankruptcy discharge order. See Neilson v. Commissioner, 94 T.C. 1 (1990). Our role in this proceeding is to redetermine the deficiencies determined in the notice. See Section 6213(a). We cannot in this case consider what effect, if any, the relevant bankruptcy discharge order has on those deficiencies or 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 subsequent tax liabilities. Turning our attention to the disputed deductions, we begin by noting that the Commissioner's determinations in a notice of deficiency are presumed correct, and the taxpayer bears the burden of proving that those determinations are erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Moreover, deductions are a 9 matter of legislative grace, and the taxpayer bears 10 11 12 the burden of proving that he or she is entitled to any deduction claimed. Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); Welch v. 13 Helvering, supra. This includes the burden of 14 15 substantiation. Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd. per curiam 540 F.2d 821 (5th 16 Cir. 1976). Petitioners do not suggest that Section 17 18 19 20 21 22 23 24 25 7491(a) is applicable here, and we are satisfied that it is not. Lastly, we point out that Section 6001 requires the taxpayer to keep records sufficient to show whether or not the person is liable for tax. Keeping in mind the foregoing fundamental principles of federal income taxation, in cases such as this one we expect the taxpayer to present substantiating documents, along with other relevant evidence, demonstrating the taxpayer's entitlement to 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 the deduction or deductions in dispute. That did not happen in this case. Instead, confident that their 2007 and 2008 federal income tax liabilities were, or would be discharged as a result of the bankruptcy proceeding, petitioners "put all of their eggs in one basket", so to speak. They elected not to present any evidence in support of the disputed deductions during the trial. Their decision to proceed in that 9 manner, albeit in good faith, leaves little for us to do. Petitioners bear the burden of proof to establish that they are entitled to the disputed deductions. The evidence in this case hardly satisfies that burden. Respondent's disallowances of those deductions are sustained. To reflect the foregoing and respondent's concession, decision will be entered under Rule 155. This concludes this bench opinion in this case. (Whereupon, at 9:24 a.m., the above- entitled matter was concluded.) 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com