TAX COURT OPINION

Case: Ziyodulla Abdullayev
Docket Number: 9126-18S
Judge: Panuthos
Opinion Type: bench
Filed: 04/16/2019
Pages: 11

CLC UNITED STATES TAX COURT WASHINGTON, DC 20217 ZIYODULLA ABDULLAYEV, Petitioner(s), v. COMMISSIONER OF INTERNAL REVENUE, Respondent 9126-18S. ) ) ) ) ) Docket No. ) ) ) ) ) ) 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 herewith to petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Special Trial Judge Peter J. Panuthos at San Francisco, California, on March 19, 2019, containing 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, a decision will be entered for respondent. (Signed) Peter J. Panuthos Special Trial Judge Dated: Washington, D.C. April 16, 2019 SERVEDApr162019 Received 3/29/2019 IN THE UNITED STATES TAX COURT PA In the Matter of: ZIYODULLA ABDULLAYEV, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) Docket No. 9126-18S ) ) ) ) ) ) ) ) Pages: 1 through 9 Place: San Francisco, California Date: March 19, 2019 IN THE UNITED STATES TAX COURT 1 In the Matter of: ZIYODULLA ABDULLAYEV, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) Docket No. 9126-18S ) ) ) ) ) ) ) ) Burton Federal Bldg. 450 Golden Gate Avenue Room 2-1408, 2nd Floor San Francisco, California 94102 & U.S. Cthse. March 19, 2019 The above-entitled matter came on for bench opinion, pursuant to notice at 5:09 p.m. BEFORE: HONORABLE PETER J. PANUTHOS Special Trial Judge APPEARANCES: For the Petitioner: No Appearance For the Respondent: No Appearance 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 P R O C E E D I N G S 2 THE CLERK: Recalling docket number 9126-18S, Ziyodulla Abdullayev. (Whereupon, a bench opinion was rendered.) 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 Peter J. Panuthos March 19, 2019 3 Ziyodulla Abdullayev v. Commissioner of Internal Revenue Docket No. 9126-18S 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. The oral findings of fact and opinion shall not be relied upon as precedent in any other case. This case was heard as a Small Tax Case pursuant to the provisions of Section 7463 of the Internal Revenue Code in effect when the petition was filed. This bench 1 2 3 4 5 6 7 8 9 10 11 12 13 OPinion is made pursuant to the authority granted by 14 15 section 7459(b) of the Internal Revenue Code of 1986, as amended, and Rule 152 of the Tax Court Rules of Practice 16 and Procedure. Section references contained in this bench 17 OPinion are to sections of the Internal Revenue Code of 18 19 1986, as amended, in effect for 2011, and all Rule references are to the Tax Court Rules of Practice and 20 Procedure. 21 22 23 24 By notice of deficiency dated February 5, 2018, respondent determined a deficiency in petitioner's Federal income tax in the amount of $4,113 as well as an addition to tax under section 6662(a) in the amount of $822.60 for 25 the taxable year 2015. The issue for decision is whether Petitioner is 4 entitled to certain claimed schedule C travel expenses. The Court finds the following facts based on the stipulated facts and exhibits and testimony of petitioner. Prior to 2015 Petitioner was a software engineer and employed by a start up company. In 2015 petitioner commenced new employment for another company and worked full time as an employee. During 2015 petitioner took a 21 day trip to Uzbekistan. Petitioner's family is from that country. Petitioner did not receive any self- employment income in 2015 nor did he engage in any self- employed activities in 2015. On his 2015 return petitioner filed claimed schedule C expenses of $30,871 for "Z Computing" but reported zero gross receipts. Respondent disallowed some 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 of the claimed expenses. Respondent disallowed 17 Petitioner's claimed schedule C meals and entertainment 18 expenses in the amount of $7,992, schedule C travel 19 expenses in the amount of $2,750, and schedule C car and 20 21 22 truck expenses in the amount of $5,750. Petitioner conceded all the adjustments except for the travel expense amount of $2,750 representing the trip to Uzbekistan. 23 Petitioner asserts that he spent approximately 2 weeks 24 Providing services for a company "Jurabek Laboratories" 25 evaluating energy solutions and optimization. Petitioner Cr oers asserts that he was not paid for the services since the company could only compensate in currency of Uzbekistan 5 which could not be converted into US currency. Petitioner did not produce a contract of employment or any other evidence indicating an agreement to perform services for compensation. Petitioner implied that he hoped the work performed would result in other work from the company. Section 162(a) generally allows for a deduction for ordinary and necessary expenses paid or incurred in carrying on any trade or business. The determination of 1 2 3 4 5 6 7 8 9 10 11 12 whether an expenditure satisfies the requirements for 13 deductibility under section 162 is a question of fact. 14 15 See Commissioner v. neininger, 320 U.S. 467, 475 (1943). In general, an expense is ordinary if it is considered 16 normal, usual, or customary in the context of the 17 Particular business out of which it arose. See Deputy v. 18 du Pont, 308 U.S. 488, 495 (1940). Ordinarily, an expense 19 is necessary if it is appropriate and helpful to the 20 OPeration of the taxpayer's trade or business. See 21 Commissioner v. Tellier, 383 U.S. 687 (1966); Carbine v. 22 Commissioner, 83 T.C. 356, 363 (1984), aff'd. 777 F.2d 662 23 (11th Cir. 1985). Section 262(a) generally disallows a 24 deduction for personal, living, or family expenses. 25 Petitioner has not established that he was 6 carrying on a trade or business in 2015. In fact it appears clear that he was not carrying on a trade or business based on his testimony and documents. The trip to Uzbekistan appears mostly personal in nature. While Petitioner may have hoped to get a business contract and ultimately receive some funds, he did not in fact have a contract nor did he do any other self-employed activity in 2015. The Commissioner determined a section 6662 1 2 3 4 5 6 7 8 9 10 Penalty against petitioner for tax year 2015. That 11 12 13 section imposes a 20% penalty on understatements that are due to negligence or disregard of rules and regulations. see sec. 6662(b)(1),(c). Under section 7491(c) the 14 Commissioner bears the burden of production with respect 15 to the liability of an individual for any penalty. See 16 Higbee v. Commissioner, 116 T.C. 438, 446 (2001). 17 18 19 Respondent has produced evidence that petitioner claimed unsubstantiated schedule C expenses totaling $16,492 for "Z Computing". Respondent adjusted 20 Petitioner's return to disallow these expenses and 21 22 calculated a penalty equal to 20% of the adjustment ($4,113.00 x 20% = $822.60). As discussed supra, 23 Petitioner has conceded the adjustments related to certain 24 of the claimed schedule C expenses. Petitioner has 25 Presented no evidence, documentary or otherwise, to . Cunes establish that any of the remaining schedule C expenses were not personal in nature or were instead related to 7 carrying on any trade or business. Petitioner has therefore not shown reasonable cause for his return Position. See sec. 6664(c)(1); sec. 1.6664-4(b) (1), Income Tax Regs. Respondent has met his burden under section 7491(c) regarding the imposition and amount of the section 6662(a) penalty. For penalties under section 6662, respondent's 1 2 3 4 5 6 7 8 9 10 burden of production includes the burden of producing 11 evidence establishing that initial determination of the 12 Penalty assessment was "personally approved (in writing) 13 by the immediate supervisor of the individual making such 14 determination * * *" as required by section 6751(b), 15 16 17 18 unless an exception applies. See Chai v. Commissioner, 851 F.3d 190, 217, 221-222 (2d Cir. 2017), aff'g in part, rev'g in part T.C. Memo. 2015-42; Graev v. Commissioner (Graev III), 149 T.C. (Dec. 20, 2017), supplementing and 19 overruling in part Graev v. Commissioner (Graev 11), 147 20 T.C. 460 (2016). Petitioner did not allege, in his 21 Petition or at trial, that the penalty at issue did not 22 23 comply with the supervisory approval requirement. Sec. 6751(b)(1). That issue is therefore deemed conceded. See 24 Rule 34(b)(4) ("Any issue not raised in the assignments of 25 error shall be deemed to be conceded."); cf. Lloyd v. Commissioner, T.C. Memo. 2017-60, at *7n.3 (deeming similarly conceded any sec. 6751(b)(1) challenge to assessable penalties in a sec. 6330 levy case). For these reasons, we sustain the section 6662 8 Penalty for petitioner's 2015 tax year. To reflect the foregoing, Decision will be entered for respondent. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 5:18 p.m., the above-entitled matter was concluded.) 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 CERTIFICATE OF TRANSCRIBER AND PROOFREADER 9 CASE NAME: Ziyodulla Abdullayev v. Commissioner DOCKET NO.: 9126-18S We, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 9 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Deborah Gonzalez on March 19,2019, before the United States Tax Court at its session in San Francisco, CA, in accordance 1 2 3 4 5 6 7 8 9 10 with the applicable provisions of the current verbatim 11 12 reporting contract of the Court and have verified the accuracy of the transcript by comparing the typewritten 13 transcript against the verbal recording. 14 16 17 18 19 20 21 23 24 25 Lori Rahtes, CDLT-108 Transcriber Jessica Hernandez Proofreader 3/27/19 Date 3/27/19 Date