TAX COURT OPINION

Case: Florence Emerho
Docket Number: 15809-14
Judge: Thornton
Opinion Type: bench
Filed: 12/08/2016
Pages: 10

UNITED STATES TAX COURT WASHINGTON, DC 20217 FLORENCE EMERHO, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 15809-14. ) ) ) ) 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 Michael B. Thornton at New York, New York, containing his oral findings of fact and opinion rendered at the trial session at which this case was heard. In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155. (Signed) Michael B. Thornton Judge Dated: Washington, D.C. December 8, 2016 SERVED Dec 13 2016 Capital Reporting Company 3 1 2 3 4 5 6 7 8 9 Bench Opinion by Judge Michael B. Thornton November 28, 2016 Florence Emerho v. Commissioner Docket No. 15809-14 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. Except as otherwise provided by Rule 152(c) of the Tax Court Rules of Practice and 10 Procedure, the oral findings of fact and opinion 11. shall not be relied upon as precedent in any other 12 13 14 15 16 17 18 19 20 21 22 23 24 25 case. This bench opinion is made pursuant to the authority granted by section 7459(b) and Rule 152. Section references are to the Internal Revenue Code in effect for the taxable years at issue. All rule references are to the Tax Court Rules of Practice and Procedure. All monetary amounts are rounded to the nearest dollar. This case was tried on November 28, 2016, in New York, New York. Petitioner appeared pro se. Diana P. Hinton appeared on behalf of respondent. By notice of deficiency, respondent determined deficiencies in petitioner's 2011 and 2012 Federal income tax and penalties under section 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 6662(a) for both years. The 2011 deficiency and penalty resulted from net positive adjustments of $34,836 to petitioner's 2011 taxable income. The 2012 deficiency and penalty resulted from net positive adjustments of $24,366 to petitioner's 2012 taxable income. While living in the state of New York, petitioner filed a timely petition contesting these determinations. The issues for decision are: (1) whether petitioner received rental income in 2011 and 2012; (2) whether petitioner received taxable refunds of state taxes of $3,384 in 2011 and $4,396 in 2012; (3) (cid:16)042 whether petitioner is entitled to deductions for tax preparation fees and unreimbursed employee expenses in 2011 and 2012; (4) whether petitioner is entitled to deductions related to petitioner's rental propert'y for utilities, supplies, cleaning and maintenance', repairs, and depreciations in 2011 and 2012; and (5) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 whether petitioner is liable for penalties under section 6662(a) for negligence or substantial understatement of income tax. For the reasons explained, we hold in favor or respondent on all issues. 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 9 Deemed Admissions Under Rule 90, a party may serve upon any other party a written request for the admission of the truth of any matters which are not privileged and are relevant to the subject matter involved in the pending action, but only if such matters are set forth in the request and relate to statements or opinions of fact or of the application of law to fact. 10 Each matter is deemed admitted unless, 11 within 30 days after service of the request or within 12 13 such shorter or longer time as the Court may allow, the party to whom the request is directed provides a 14 written answer or an objection responding to the 15 16 17 18 19 20 21 22 23 24 25 request. Rule 90(c). Respondent requested various admissions from petitioner in compliance with all the requirements of Rule 90,.and petitioner has failed to respond to respondent's request. We therefore find that all the matters described in respondent's request for admissions are deemed admitted under Rule 90(c). Burdens of Proof The Commissioner's determinations in a 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 notice of deficiency are generally presumed correct, and the taxpayer bears the burden of proving those determinations erroneous by a preponderance of the evidence. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). The burden of proof is on the - Commissioner with regard to any new matter or increase in deficiency asserted at trial and not' included in the notice of deficiency. Rule 142(a). Respondent also has the burden of production with respect to penalties. Sec. 7491(c). Petitioner therefore has the burden of proof with respect to all issues raised in the notice of deficiency, and respondent has the burden of production with respect to penalties and the burden of proof with respect to the increases in deficiencies and penalties he has asserted in these proceedings. Petitioner does not contend that any burden of production or proof she- bears for any issue should shift to respondent under sections 6201(d) or 7491(a); nor has she introduced any evidence to support such a burden shift. Burdens are Irrelevant in this Case While we are mindful of the parties' respective evidentiary burdens, in a case such as this one where the standard of proof is preponderance 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 7 of the evidence and the preponderance of the evidence favors one party, the Court may decide the case on the weight of the evidence and not on an allocation of the burden of proof. Knudsen v. Commissioner, 131 T.C. 185 (2008). As we shall discuss, the deemed admissions completely dispose of the issues in this case, and so the preponderance standard is met by respondent on all issues. There is therefore no need to consider the parties' respective burdens, unless we specifically note otherwise. 1 2 3 4 5 6 7 8 9 10 11 12 Rental-Income Under section 61, gross income means all income from whatever source derived, including rents. As described in the deemed admissions, petitioner reported rental income of $12,000 per year on her 2011 and 2012 returns. The deemed admissions indicate that petitioner received rental income of $21,542 in 2011 and $21,900 in 2012. Pursuant to respondent's concessions at trial, petitioner actually received rental income of only $10,771 in 2011 and $10,950 in 2012 which is less than the amounts petitioner reported on her 2011 and 2012 returns. 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 10 11 Refunds of State Taxes Refunds of state taxes are included in gross income in the year received to the extent tha.t. the payment of state taxes reduced the taxpayer's Federal income tax liability for a prior taxable year. Secs. 61 and 111; sec. 1.111-1(a), Income Tax Regs.; see Rev. Rul. 93-75, 1993-2 C.B. 63. As described in the deemed admissions, petitioner reported no refunds of state taxes on her 2011 and 2012 returns, but she received taxable refunds of state taxes of $3,384 lin 2011 and $4,396 in 2012. 12 Petitioner's gross income must therefore be increased 13 14 15 16 17 18 19 20 21 22 23 24 25 by $3,384 in 2011 and $4,396 in 2012. Deductions Deductions are a matter of legislative grace; the taxpayer bears the burden of substantiating his claimed deductions by keeping and producing records sufficient to enable the Commissioner to determine the correct tax liability. Sec. 6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (-1992); sec. 1.'6001-1(a), (e) Income Tax Regs. Section 162(a) allows the deduction of "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 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 business". Petitioner claimed deductions for tax preparation fees and unreimbursed employee expenses totaling $16,779 in 2011 and $3,645 in 2012. Respondent conceded at trial that petitioner is entitled to deduct $180 per year in 2011- and 2012 for parking fees. As described in the deemed admissions, petitioner cannot substantiate that she paid the remaining expenses or that such expenses are deductible. In any event, at trial petitioner failed to offer any evidence to substantiate such expenses greater than respondent has conceded. Petitioner also claimed deductions related to petitioner's rental property for utilities, supplies, cleaning and maintenance, repairs, and depreciations totaling $28,736 in 2011 and $30,267 in 2012. As described in the deemed admissions, she cannot substantiate that she paid such expenses or that such expenses were ordinary and necessary business expenses, except that respondent has allowed and conceded that petitioner is entitled to deductions for depreciation of $2,509 per year for 2011 and 2012. In any event, at trial petitioner failed to offer any evidence to substantiate such expenses greater than respondent has conceded. 866.488.DEPO www.CapitalReportingCompany.com 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 Capital Reporting Company 10 Section 6662(a) Penalty Section 6662 imposes a penalty for an underpayment of a tax attributable to, among other things, negligence or substantial understatement of income tax; the amount of the penalty is 20 percent of the portion of the underpayment so attributable. Under section 6664(c)(1), no section 6662 penalty may be imposed if there was a reasonable cause for the underpayment and the taxpayer acted in good faith. The taxpayer bears the burden of proving reasonable cause and good faith. See Higbee v. Commissioner, 116 T.C. 438, JéMr (2001). Respondent asserts petitioner is liable for section 6662 penalties for 2011 and 2012, as applied to the increased deficiency asserted in these proceedings. Because we find that petitioner substantially understated her income tax, there is no need to consider whether petitioner was negligent. Under section 6662(d)(1) (A), ·a substantial understatement of tax is defined as an understatement of tax that exceeds the greater of 10 percent of the tax required to be shown on the tax return of $5,000. According to respondent's calculations -- which petitioner has not disputed -- the understatement of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 3 4 5 6 7 8 9 tax was substantial even before the additional positive adjustment to petitioner's gross income asserted in these proceedings, which we have sustained. Petitioner must therefore necessarily be liable for increased penalties under 6662(a) for 2011 and 2012. Petitioner has not challenged the imposition of section 6662 penalties nor has she offered any evidence to show that such penalties 10 should not be imposed due to reasonable cause and good faith, or for any other reason. We therefore hold that petitioner failed to meet her burden of proof on these defenses and is liable for section 6662 penalties for 2011 and for 2012,,as applied to the increased deficiency asserted in th%se proceedings, and as determined under Rule 155. Decision will be entered for rcopondcnt under Rule 155. This concludes the Court's findings of fact and opinion in this case. (Whereupon, at 5:28 p.m., the above- entitled matter was concluded. ) 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com