TAX COURT OPINION

Case: Chris John Schumacher
Docket Number: 7803-11
Judge: Kroupa
Opinion Type: bench
Filed: 04/12/2012
Pages: 6

RMM UNITED STATES TAX COURT WASHINGTON, DC 20217 CHRIS JOHN SCHUMACHER, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ) Docket No. 7803-11 ) ) ) ) ORD E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit to petitioner and to respondent a copy of the pages of the transcript of the proceedings before Judge Diane L. Kroupa at Las Vegas, Nevada, on March 15, 2012, containing her oral findings of fact and opinion. In accordance with the oral findings of fact and opinion, a decision will be entered for respondent as to the deficiency and addition to tax under Section 6651(a)(1) but for petitioner as to the additions to tax under Sections 6651(a)(2) and 6654. (Signed) Diane L. Kroupa Judge Dated. Washington, D.C. April 12, 2012 SERVEDApr132012 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 BENCH OPINION BY JUDGE DIANE L.- KROUPA CHRIS JOHN SCHUMACHER V. COMMISSIONER DOCKET NO.: 7803-11 MARCH 15, 2012 3 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. 43H+ oral findings of fact and opinion I 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) and Rule 152. All section references are to the Internal Revenue Code in effect for 2007, and all Rule references are to the Tax Court Rules of Practice and Procedure. Petitioner appeared on his own behalf, and Susan Bollman appeared on behalf of Respondent. FINDINGS OF FACT Some of the f,acts have been stipulated and are so found. We incorporate the stipulation of facts and the accompanying exhibits by this reference. Petitioner resided in Nevada when he filed the petition. Petitioner did not file a Federal income tax Heritage Reporting Corporation (202) 628-4888 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 4 return for 2007. Respondent prepared a substitute for return for Petitioner and issued Petitioner a deficiency notice for 2007 based upon the substitute for return, determining a deficiency in income and additions to tax. The substitute for return included income from dividends, interest, sale of securities, and retirement distributions. Petitioner provided a 2007 income tax return to Appeals, which included most of the income reported on the substitute for return, plus wage income not discovered before the deficiency notice was issued. Petitioner claimed on the return a deduction for a purported bad debt. Respondent did not accept the return because he contends Petitioner failed to provide sufficient substantiation with respect to the claimed bad debt deduction. Petitioner timely filed a petition for redetermination. Petitioner and Respondent entered into a comprehensive stipulation of facts that settles all issues except for Petitioner's entitlement to a bad debt deduction, and Petitioner's liability for a failure-to-file addition to tax under Section 6651(a) (1). Heritage Reporting Corporation (202) 628-4888 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 OPINION 5 After concessions, we must decide for 2007 whether Petitioner is entitled to a bad debt deduction and whether Petitioner is liable for a failure-to-file addition to tax under Section 6651(a) (1). We begin with two fundamental principles of tax litigation. First, the Commissioner's determinations are generally presumed correct, and the taxpayer bears the burden of proving that those determinations are erroneous. Rule 142(a). This principle is not affected by Section 7491(a) because Petitioner failed to comply with the substantiation requirements. See Sec. 7491(a) (2) (A) and (B); see also Higbee v. Commissioner, 116 T.C. 438 (2001). Second, deductions are a matter of legislative grace, and the taxpayer must show that he or she is entitled to any deduction claimed. Rule 142(a); Deputy v. DuPont, 308 U.S. 488, 493 (1940). This includes the burden of substantiation. Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976). Substantiation means that a taxpayer shall keep such permanent records or books of account as are sufficient to establish the amount of deductions claimed on the Heritage Reporting Corporation (202) 628-4888 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 6 return. Sec. 6001; Sec. 1.6001-1(a), (e), Income Tax Regs. We turn now to the purported bad debt. A loss resulting from a nonbusiness debt may be considered a short-term capital loss if it becomes worthless within the taxable year. Sec. 166(d) (1) (B). A debt must be bona fide to be deductible under Section 166. A bona fide debt is defined as a debt that arises from a debtor-creditor relationship based upon a valid and enforceable obligation to pay a fixed or determinable sum of money. Sec. 1.166-1(c), Income Tax Regs. Petitioner admits that he has no records or documents to substantiate the bad debt, so he therefore concedes he is not entitled to a bad debt deduction for 2007. We next address the failure-to-file addition to tax. An addition to tax is imposed if a taxpayer fails to file a timely Federal income tax return without reasonable cause. Sec. 6651(a) (1). The record reflects that Petitioner admits he failed to file a Federal income tax return by the prescribed due date for 2007. Petitioner also admits that he lacks any excuse to establish that his failure to file was due to reasonable cause and not due to willful neglect. Heritage Reporting Corporation (202) 628-4888 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 7 We hold therefore that Petitioner is liable for the addition to tax under Section 6651(a) (1). To give effect to the foregoing and the parties' concessions, decision will be entered for Respondent as to the deficiency and late filing addition under Section 6651(a) (1), and for Petitioner as to the late payment addition under Section 6651(a) (2), and the estimated tax addition under Section 6654. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 4:20 p.m., the bench opinion in the above-entitled matter was concluded.) // // // // // / // // // // // // Heritage Reporting Corporation (202) 628-4888