TAX COURT OPINION

Case: Raymond L. Johnson & Debra P. Johnson
Docket Number: 8914-12
Judge: Gustafson
Opinion Type: bench
Filed: 06/24/2013
Pages: 12

RMM UNITED STATES TAX COURT WASHINGTON, DC 20217 RAYMOND L. & DEBRA P. JOHNSON, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 8914-12. ) ) ) ) OR D E R Pursuant to the opinion of the Court as set forth in the pages of the transcript of the proceedings before Judge David Gustafson at Columbia, South Carolina, on June 11, 2013, containing his oral findings of fact and opinion, 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 Judge Gustafson at Columbia, South Carolina, 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) David Gustafson Judge Dated: Washington, D.C. June 24, 2013 SERVED Jun 25 2013 Capital Reporting Company 3 1 2 3 4 5 6 Bench Opinion by Judge David Gustafson June it, 2013 Raymond L. & Debra Johnson Docket No. 8914-12 THE COURT: The Court has decided to render the following as its oral Findings of Fact and 7 Opinion in this case. This Bench Opinion is made 8 9 pursuant to the authority granted by section 7459(b) of the Internal Revenue Code, and Rule 152 of the Tax 10 Court Rules of Practice and Procedure; and it shall 11 12 13 14 15 16 17 18 not be relied on as precedent in any other case. By notice of deficiency dated January 5, 2012, the Internal Revenue Service (IRS) determined a deficiency in the Federal income tax of petitioners Raymond L. and Debra P. Johnson for the years 2009 and 2010, along with an accuracy-related penalty under section 6662(a) for 2009, which the IRS now concedes. The principal issues for decision are 19 whether the Johnsons are entitled to dependency 20 21 22 23 24 25 exemption deductions for Mr. Johnson's mother and brother, and whether they are entitled to itemized deductions claimed on Schedule A. For the reasons explained hereafter, we hold that the Johnsons are entitled to the exemption deduction for Mr. Johnson's brother, but we otherwise largely sustain the IRS's 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 determinations. Trial of this case was conducted on June 10, 2013, in Columbia, South Carolina. The Johnsons represented themselves; and David M. McCallum represented respondent. We find the following facts: FINDINGS OF FACT The Johnsons' backgrounds Mr. Johnson graduated from high school, and since then he has been a cross-country tractor- trailer truck driver for 34 years. Ms. Johnson graduated from high school, worked in a clerical position in the U.S. Post Office for 20 years, retired on disability, and then obtained a bachelor's degree and a master's degree at Eastern Bible Institute. Since then she has not worked outside the home. The Johnsons have been married about 20 years. The Johnsons' household Mr. Johnson's mother, Vickie Johnson, resided in South Carolina. She owned a home on which there was a mortgage that she paid. Years ago she was first the foster mother and then the adoptive mother of a disabled boy, who is now 19 years old. We refer to him as "D.J.," to maintain his privacy. See Rule 27(a) (3). D.J. is deaf, has impaired vision, and has 25 multiple other serious disabilities that cause him to 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 need special feeding, special training, and special care. Vickie Johnson was able to obtain some third- party financial help for D.J., but she did not confide in Mr. Johnson about her finances, so the Johnsons do not know the sources or amounts of that help. Sometime before 2009, Vickie Johnson began to have financial and medical problems, so Mr. Johnson 9 moved down from New Jersey to help her. After some 10 time Ms. Johnson also moved to South Carolina. They 11 all resided in Vickie Johnson's home. 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Household finances in 2009 and 2010 The Johnsons' adjusted gross income was $72,248 in 2009 (Ex. 3-J) and $69,003 in 2010 (Ex. 4-J). From that they paid at least $4,123 toward expenses that Vickie Johnson would otherwise have borne (Stip. 26; Ex. 15-J), and an equivalent amount in 2010. It appears that they may have paid additional amounts, but on our trial record these are impossible to quantify. The Johnsons also contributed toward the expenses of D.J.'s care, but on our trial record these are impossible to quantify. Vickie Johnson received Social Security benefits of $13,948 in 2009 and $13,950 in 2010, and she received $10,512 in pension benefits in each of those 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company years. Thus her adjusted gross income was lower than the Johnsons'. From that income Vickie Johnson paid her mortgage payments. D.J. received Social Security payments totaling $43,813 in 2009 (Ex. 10-J) and 6 $6,972 in 2010 (Ex. 11-J). The Johnsons' expenses The expenses that the Johnsons paid on Vickie I Johnson's behalf for 2009 included a $279.59 payment toward property tax (see Ex. 15-J) that may have been for real estate tax; but they did not substantiate the $1,001 real estate tax amount they later deducted for 2009. (They claimed no such deduction for 2010.) In 2009 the Johnsons made charitable contributions of at least $6,117--the amount for 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 which the IRS found substantiation among their 16 17 18 19 20 21 22 23 24 25 records and which the IRS conceded at trial. The Johnsons were unable at trial to substantiate any contributions beyond those conceded amounts. (For 2010 the IRS concedes that the Johnsons are entitled to the amounts claimed.) As a long-distance truck driver, Mr. Johnson incurred meal expenses, laundry expenses, and other expenses while away from home. In his testimony at trial he testified that he worked 50 weeks per year; and he initially estimated that his meal expenses 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 were $50 per week (which would total only $2,500 per year), and then he increased his estimate to $200 per week (i.e., $10,000.per year, but still less than the Johnsons reported on their tax returns as 5 miscellaneous itemized deductions). However, he was 6 7 8 9 10 11 12 13 14 15 unable to point to any substantiation of any amount near $200 for any week in the year 2009, and did not identify any deductible expense not included within the amounts that the IRS conceded. We find that Mr. Johnson substantiated only those amounts that the IRS conceded--i.e., $8,125 for meals in each year (of which the 80 percent deductible portion is $6,500) plus $113 in other expenses, for a total of $6,613 in each year. No longer at issue are 2009 medical expenses and 16 mortgage interest (conceded by the Johnsons), or 2009 17 18 19 20 21 22 23 24 25 qualified mortgage premiums and 2010 charitable contributions (conceded by the IRS). The Johnsons' tax returns The Johnsons hired a return preparer to help them with their tax returns. They followed her advice, believing at the time that it was correct. They timely filed their tax returns for 2009 and 2010. The IRS examined their returns, disallowed some 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 2 of their deductions, and issued the notice of deficiency on January 5, 2012. The Johnsons timely 3 mailed their petition to this Court on April 2, 2012. 8 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 At that time they resided in South Carolina. I. Burden of proof OPINION The IRS's determination is presumed correct, and taxpayers generally bear the burden to prove their entitlement to any deductions they claim. Rule 142(a). Deductions are a matter of legislative grace, and taxpayers must satisfy the specific requirements for any deductions claimed. See INDOPCO, Inc. v. Commissioner, 503 U.S. 79,84(1992). Furthermore, taxpayers are required to maintain records sufficient to substantiate their claimed deductions. See sec. 6001; 26 C.F.R. sec. 1.6001- 1 (a) ; see also id. sec . -1 (e ) ("The books or records***shall be retained so long as the contents thereof may become material in the administration of any internal revenue law") . II. Dependency exemption deductions Section 151(a) of the Internal Revenue Code provides for a deduction for certain exemption amounts. Section 151(c) allows an exemption for "each individual who is a dependent (as defined in 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company section 152)". Section 152(a) provides that "dependent" means either "a qualifying child" (as defined in section 152 (c) or "a qualifying relative" 9 (as defined in section 152(d)). A. D.J. Contrary to the tentative ruling that we stated orally at the conclusion of the trial, we conclude that D.J. is Mr. Johnson's "qualifying child", and that the Johnsons are therefore entitled to the dependency exemption for him. There are five tests in section 152 (c) (1) (A) through (E), and four of them are undisputed. As Mr. Johnson's brother. D.J. passed the relationship test. As a minor D.J. met the age test in the years at issue; and there is no suggestion that he was married or filed a joint return. The IRS originally disputed D.J.'s qualification under the residency test, but at trial it withdrew the dispute because D.J.'s only absences from the Johnsons' household were during weekdays at a residential school. (Furthermore, because Vickie Johnson, who could also have claimed D.J., did not in fact claim him (Stip. 15), her status as his parent does not defeat the Johnsons' claim. See section 152 (c) (4) (C).) The IRS resisted the Johnsons' claim as to D.J. 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 10 on grounds of the support test--but in so doing it evidently employed by mistake the support test from another provision. The IRS's pretrial memorandum states (at 10-11), "The support test of I.R.C. section 152(c) (1) (D) requires a taxpayer to demonstrate that the taxpayer provided more than one- half of the claimed dependent's support." This fairly states the support requirement of section 152(d) (1) (C), but it is not the rule applicable under section 152(c). Instead, the support test for a qualifying child is that the child "has not provided over one-half of such individual's own support". The support test for a qualifying child is thus negative, looking not for the quantum of the taxpayer's support vis-a-vis other supporters but simply assuring that the child is not self-supporting. D.J. clearly meets this non-self-support test. The Johnsons are therefore entitled to the dependency exemption deduction for D.J. B. Vickie Johnson Vickie Johnson was Mr. Johnson's mother, so the Johnsons claimed her as a "qualifying relative". There are four tests for such qualification in section 152(d), and the IRS correctly argues that two of those tests are not met: First, Vickie Johnson 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 11 1 2 3 had gross income in excess of the exemption amount, see sec. 152 (d) (1) (B); and second, the Johnsons did not demonstrate that they provided over one-half of 4 Vickie Johnson's support, see sec. 152(d) (1) (C). 5 6 7 8 9 10 11 12 13 14 15 16 We have no doubt that the Johnsons were generous and devoted in their support of Vickie Johnson. But they were unable to show that they contributed more than half of her financial support. They are therefore not entitled to claim the dependency exemption deduction for Vickie Johnson. III. Other deductions A. Real estate tax The real estate tax due on the house in which the Johnsons lived was a debt of Vickie Johnson, the owner of the house. She was entitled to claim the deduction, not they. If they in fact paid her tax 17 bill, then they did so as a contribution toward 18 19 20 21 22 23 24 25 household expenses; their payment of her expense was in the nature of a rental payment to entitle them to live in her house; and rent is not deductible, even if it is paid in the form of the landlord's real property tax bill. B. Charitable contributions Section 170 (a) allows as a deduction any charitable contribution made within the taxable year. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 3 4 5 6 7 8 9 Deductions for charitable contributions are allowable only if verified under the regulations prescribed by the Secretary. Sec. 170(a) (1). To verify a charitable contribution of money, the regulations require the taxpayer to maintain one of the following for each contribution: (1) a canceled check; (2) a receipt from the donee; or (3) in the absence of a check or receipt, other reliable written records. 26 C.F.R. sec. 1.170A-13(a) (1). The IRS conceded at 10 trial all of the claimed contributions for 2009 for 11 which the Johnsons have such records. The remainder 12 13 14 15 16 17 18 19 20 21 22 23 of the claimed contributions are therefore unsubstantiated, and at trial the Johnsons candidly acknowledged that at least some of that remainder was the result of their mistakenly including in 2009 contributions that had been made in 2008. The unsubstantiated deductions must be disallowed. C. Business expense In an attempt to substantiate Mr. Johnson's unreimbursed employee business expense, the Johnsons presented receipts showing expenditures in great amounts; but many of the expenditures were for obviously non-deductible items, and many of them 24 might have been business expense or might have been 25 personal. And beyond presenting the bundles of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 1 2 3 4 5 6 7 8 receipts, they did not attempt any analysis of them to demonstrate what the receipts proved; they rather made general statements that they had presented all that they had. Even if we believe them, as we are inclined to do, they did not prove with evidence any deductible amounts greater than the IRS conceded. So that the liability can be recalculated to reflect the amounts allowed in this opinion, decision 9 will be entered pursuant to Rule 155. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 11:26 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