TAX COURT OPINION

Case: Philip William & Valentina Fischer
Docket Number: 22232-08S
Judge: Colvin
Opinion Type: bench
Filed: 11/05/2009
Pages: 7

kro U- -UNITED STATES TAX COURT WASHINGTON, D.C. 20217 PHILIP WILLIAM & VALENTINA FISCHER,) Petitioners , v . ) Docket No . 22232-08S COMMISSIONER OF INTERNAL REVENUE , Respondent . O R D E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it i s . ORDERED that the Clerk of the Court shall transmit to petitioners and to respondent a copy of the pages of the .transcript of the proceedings of the above case before Judge Diane L . Kroupa at Los Angeles, California, on October 21, 2009, containing her oral findings of fact and opinion . In accordance with the oral findings of fact and opinion, decision will be entered for respondent . (Signed ) Diane L. Kroupa Judge Date : Washington, D .C . November 5, 2009 3 1 Bench Opinion by Judge Diane L . Kroupa 2 October 21, 200 9 3 Fischer v . Commissioner Docket No . 22232-08S 4 THE COURT : THE COURT HAS DECIDED TO RENDER 5 ORAL FINDINGS OF FACT AND OPINION IN THIS CASE AND THE 6 FOLLOWING REPRESENTS THE COURT'S ORAL FINDINGS OF FACT 7 AND OPINION . THESE ORAL FINDINGS OF FACT AND OPINION 8 SHALL NOT BE RELIED UPON AS PRECEDENT IN ANY OTHE R 9 CASE . 10 This proceeding was heard as a small'tax 11 case pursuant to the provisions of section 7463 and 12 Rules 170 through 175 . All section references are to 13 the Internal Revenue Code for the year 2006, whic h 14 year shall be referred to as the year at issue, and 15 all Rule references are to the Tax Court Rules of 16 Practice and Procedure . This bench opinion is made 17 pursuant to the authority granted by section 7459(b) 18 and Rule 152 . 19 Petitioners appeared pro se, and Malone Cam p 20 appeared on behalf of respondent . 21 FINDINGS OF FAC T 22 Certain facts have been stipulated . The 23 stipulation of facts, with accompanying exhibits, is 24 incorporated by this reference . The facts are s o 25 found . Heritage Reporting Corporation (202) 628-4888 4 1 Petitioners resided in California at th e 2 time they filed the petition in this case . Petitioner 3 wife is a party because they filed a joint Federal tax 4 return for 2006 . All relevant facts relate t o 5 petitioner husband who shall be referred to as the 6 petitioner individually . 7 Petitioner is a member of the United States 8 Naval Reserves and was called to active service at the 9 naval base in Ventura County, California . 10 Petitioner is a former claims representative 11 of Farmers Insurance . As an employee of Farmers , 12 petitioner was a class member in the Bell v . Farmers 13 Ins . Exchange class action litigation settled in 2004 14 to recover overtime compensation . Petitioner received 15 his settlement award from two different sources . 16 Petitioner received the $15,262 .23 back pay award from 17 Farmers in 2005, which amount was subject to customary 18 wage withholdings . Nothing on the W-2 petitione r 19 received from Farmers in 2005 indicated whether 20 attorneys' fees passed through to petitioner . 21 Petitioner received prejudgment and post 22 judgment interest from the class action settlement 23 administrator, Rosenthal & Company, LLC . Petitioner 24 received approximately $15,000 of interest income from 25 Rosenthal in 2005 and approximately $4,000 of interes t Heritage Reporting Corporation (202) 628-4888 5 1 income from Rosenthal in 2006, all of whic h 2 petitioners properly included in income . Nothing on 3 the 1099-INT for either year indicated that an y 4 amounts for attorneys' fees passed through to 5 petitioner . 6 Petitioners attached a statement to thei r 7 joint return for 2006 that petitioner was entitled to 8 . receive $78,467 of taxable wages and interest but he 9 only received $25,398 so they were seeking to deduct 10 the remaining $53,067 as miscellaneous itemize d 11 deductions on Schedule A . Upon audit, petitioners 12 were unable to prove how the $78,467 taxable amount 13 was-calculated and they also failed to prove tha t 14 petitioner "paid" any amount of the claimed attorneys' 15 fees . Respondent disallowed the entire $53,06 7 16 attorneys' fees claimed and issued a statutor y 17 deficiency notice determining a $4,204 deficiency in 18 petitioners' Federal income tax for 2006 . 19 Petitioners timely filed a petitio n 20 contesting the disallowance of the attorneys' fees and 21 asserting that respondent violated the Service Members 22 Civil Relief Act codified at 50 App . U .S .C .A section 23 510 by issuing the deficiency notice . 24 OPINIO N 25 We are asked to decide whether petitioner s Heritage Reporting Corporation (202) 628-4888 6 1 may deduct $53,067 of attorneys' fees they are unable 2 to prove they paid or were paid on petitioner's behalf 3 when petitioners failed to include any correspondin g 4 amount in income . Thus, this is not a case where 5 petitioners reported $78,000 in income and seek t o 6 deduct $53,000 of that amount as paid to petitioner's 7 attorney . 8 We begin with two fundamental principles of 9 tax litigation . First, the Commissioner' s 10 determinations are generally presumed correct, and the 11 taxpayer bears the burden of proving that thos e 12 determinations are erroneous . Rule 142(a) . Thi s 13 principle is not affected by section 7491(a) because 14 petitioners failed to maintain adequate records . See 15 sec . 7491(a)(2)(A) and (B) ; see also Higbee v . 16 Commissioner , 116 T .C . 438 (2001) . 17 Second, deductions are a matter o f 18 legislative,grace, and the taxpayer must show that he 19 or she is entitled to any deduction claimed . Rule 20 142(a) ; Welch v . Helvering , 290 U .S . 111 (1933) . This 21 includes the burden of substantiation . Hradesky v . 22 Commissioner , 65 T .C . 87, 90 (1975), affd . per curiam 23 540 F .2d 821 (5th Cir . 1976) . Substantiation means 24 that a taxpayer shall keep such permanent records or 25 books of account as are sufficient to establish the Heritage Reporting Corporatio n (202) 628-4888 7 .1 amount of deductions claimed on the return . Sec . 2 6001 ; sec . 1 .6001-1(a), (e), Income Tax Regs . The 3 Court need not accept a taxpayer's' self-serving 4 testimony when the taxpayer fails to present othe r 5 probative evidence . Beam v . Commissioner , T .C . Memo . 6 1990-304 (citing Tokarski v . Commissioner , 87 T .C . 74, 7 77 (1986)) . 8 Moreover, the taxpayer upon whom the burden 9 rests is usually left with an unenforceable claim if a 10 material fact upon which the deduction depends, a s 11 here, is not proven . Burnet v . Houston , 283 U .S . 223 12 (1931) . Petitioners have failed to provide an y 13 documentation substantiating that they incurre d 14 substantial legal fees . We also note that no member 15 of the class action, according to the Amended Plan of 16 Distribution in the Farmers Insurance litigation, paid 17 attorneys' fees individually or that attorneys' fees 18 were passed through to the class members . We also 19 have a problem with allowing petitioner a deduction 20 when no amount of the $53,000 was included in income . 21 We next address whether respondent violated 22 petitioner's rights as a service member by issuing the 23 deficiency notice to petitioners . Simply put, we do 24 not read the Service Members Civil Relief Act t o 25 prohibit the Service from issuing a deficiency notice . Heritage Reporting Corporatio n (202) 628-4888 k1f 8 1 The Act provides additional days for the service 2 member to act in certain situations but does no t 3 prevent the Service from issuing a deficiency notice . 4 To reflect the foregoing , decision will be 5 entered for respondent . 6 THIS CONCLUDES THE COURT ' S ORAL FINDINGS OF 7 FACT AND OPINION IN THIS CASE . 8 (Whereupon , at 9 :15 a .m ., the bench opinion 9 in the above -entitled matter was concluded . ) 10 11 12 13 14 15 / / 16 17 18 19 20 21 22 23 2 4 25 Heritage Reporting Corporation (202) 628-4888