TAX COURT OPINION

Case: Daniel Patrick Werling & Kathy Jean Werling
Docket Number: 29001-13
Judge: Foley
Opinion Type: bench
Filed: 10/17/2014
Pages: 6

CMS UNITED STATES TAX COURT WASHINGTON, DC 20217 DANIEL PATRICK WERLING & KATHY JEAN WERLING, Petitioner(s), v. ) ) ) ) ) ) Docket No. 29001-13. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) ) ) 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 petitioners and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Maurice B. Foley at Cincinnati, Ohio, 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) Maurice B. Foley Judge Dated: Washington, D.C. October 17, 2014 SERVED Oct 17 2014 Capital Reporting Company 3 1 2 Bench Opinion by Judge Maurice B. Foley September 25, 2014 3 Daniel Patrick Werling & Kathy Jean Werling v. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Commissioner Docket No. 29001-13 THE COURT: The Court has decided to render oral findings of fact and opinion 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 bench opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code of 1986, as amended, and Rule 152 of the Tax Court Rules of Practice and Procedure. All section references are to the Internal Revenue Code in effect relating to the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. The facts are as follows: During 2010 (year in issue), Mr. Werling operated "I Love 21 Cincinnati Shop", a retail store, which sold various 22 Cincinnati-themed gifts and souvenirs. Petitioners "04 23 24 25 timely filed a joint Form 1040, U.S. Individual Income Tax Return¿relating to 2010. On their Form 1040, which included a Schedule C, Profit or Loss 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 from Business, etitioners deducted cost of goods sold (COGS) and other expenses relating to the store. On September 4, 2013, Respondent sent fetitioners a notice of deficiency relating to 2010 $ÇL in which Nespondent disallowed $32,810 of COGS and F $13,814 of other expenses. In addition, respondent determined that petitioners were liable for a $12,893 income tax deficiency and a $2,579 section 6662(a) accuracy-related penalty. On December 11, 2013, petitioners, while residing in Ohio, filed a petition with the Court. Discussion of Legal Authorities Generallyy a taxpayer may deduct all ordinary and necessary expenses paid or incurred in carrying on a trade or business, See sec. 162(a). A taxpayer must, however, maintain accurate books and records sufficient to establish the amount of any deduction claimed, See sec. 6001; sec. 1.6001-1(a), Income Tax Regs . Petitioners contend t ey are entitled to the deductions disallowed by the Commissioner, however, petitioners failed to 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 maintain sufficient records and did not present 23 24 25 sufficient evidence at trial to substantiate such deductions. Pursuant S to /ection 7491(a) the burden of 7d8 proof may shift to the Commissioner if the taxpayer 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 introduces credible evidence with respect to any factual issue. See Rule 142(a). Section 7491(a) is inapplicable because petitioners did not maintain -nq89 adequate records and substantiate deductions. See sec. 7491(a)(1) and (2). On their 2010 Federal income tax return petitioners understated their tax liability by over $10,000. An accuracy related penalty may be imposed 9 with respect to an underpayment of tax that is the 10 result of a substantial understatement of income tax. 11 Sg sec. 6662 (a) , (b) (2) . Pursuant to ection 6 12 13 14 15 16 17 18 19 20 21 22 23 24 25 6662(d)(1)(A), petitioners understatement was substantial because it exceeded 10% of the tax required to be shown on petitioners) 2010Areturn."W16Ff' Respondent bears, and has met, his burden of production relating to the penalty. See sec. 7491(c) Higbee v Commissioner, 116 T.C. 438, 446 1Y169 (2001). Petitioners have not established reasonable cause for the underpayment or that the return was prepared in good faith. Seg sec. 6664(c) * Higbee v "h Commissioner, 116 T.C. at 447-449. Accordingly, petitioners are liable for a pection 6662(a) penalty. Subject to adjustment to reflect respondent's concess1ons, we sustain respondent's determinations. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company Contentions we have not addressed are irrelevant, moot or meritless. This concludes the Court's oral findings of fact and opinion in this case. 6 THE COURT: And this session is adjourned. (Whereupon, at 1:10 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 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 9 CERTIFICATE OF TRANSCRIBER AND PROOFREADER CASE NAME: Daniel Patrick Werling & Kathy Jean Werling v. Commissioner DOCKET NO.: 29001-13 We the undersigned, do hereby certify that the foregoing pages, numbers 1 through 7, inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Gary L. Baldwin, on September 25, 2014, 10 before the United States Tax Court at its session in 11 Cincinnati, Ohio, in accordance with the applicable 12 13 14 15 16 17 18 20 21 22 23 24 25 provisions of the current verbatim reporting contract of the Court, and have verified the accuracy of the transcript by comparing the typewritten transcript against the verbal recording. Gary L. Baldwin 10/1/14 'O Rachel Metzler 10/1/14 (Proofreader) (Date) 866.488.DEPO www.CapitalReportingCompany.com