TAX COURT OPINION

Case: Shenae A. Outerbridge
Docket Number: 7907-08
Judge: Cohen
Opinion Type: memo
Filed: 07/21/2009
Pages: 8

S'v~. -1, C47.- T .C . Memo . 2009-17 3 UNITED STATES TAX COURT. SHENAE A . OUTERBRIDGE, Petitioner Y . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 7907-08 . Filed July 21, 2009 . Shenae-A . Outerbridge, pro se . Michele A . Yates,-for respondent . MEMORANDUM FINDINGS OF FACT AND OPINION COHEN, Judge : Respondent determined a deficiency of $8,389 in petitioner ' s Federal income tax for 2006 . After concessions, the issue for decision is whether petitioner is entitled t o deduct $46 , 173 .49 in relation to a travel services activity . Unless otherwise indicated , all section references are to the Internal Revenue Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice an d - 2 - Procedure . L FINDINGS OF FACT . . Some of the facts have been stipulated, and the stipulated facts are incorporated in our findings by this reference . Petitioner resided in Virginia at the time she filed he r petition . . Petitioner achieved a college degree in accounting . During 2006, petitioner worked as an auditor for the firm of McGladrey & Pullen, L .L . P .,reviewing financial statements and reconciling balance sheets . Petitioner also attended evening classes at Keller Graduate School of Management for the purpose of obtaining a master's degree in business . In December 2005, petitioner attended a marketing session for YTB Travel Network ( YTB) . YTB 'operated as an online multilevel marketing company and hosted a Web portal for " referring travel agents " to complete travel sales to clients . YTB paid a commission for any such, completed sales . YTB charged fees of $49 . 95 per month for use of its Web site . Petitioner , on behalf of "Firefly Xpress Travel , . a Sole Proprietorship " ( Firefly ), entered into a sublease "dated as of January 1 , 2006" for a 1-year term commencing January 1 , 2006, at $4,000 per month . The premises were described as the ground floor . of a property in Stafford , Virginia . Rosary Edwards 3 - .(Edwards) signed the lease for United States Collection Bureau, as "sublandlord", and Jauquine Tantillo (Tantillo) signed the lease as "landlord" . Tantillo was a friend of petitioner through his cousin . Rosary Edwards is the mother of Jauquine Tantillo and was a friend of petitioner, whom she had known for about 9 years . Tantillo occupied a separate part of the property as his residence . Petitioner did not begin any activity for Firefly before February 2006 .. On March .23, 2006, she booked a travel package for herself and a companion on the travel portal . On March 28, 2006, she received a package from YTB that included a business card, online order form, and rules regarding the YTB structure and compensation plan . Simply stated, commissions of $50 would be paid on direct sales, and additional commissions depended on being part of a team that secured or sponsored additional "referring travel agents " Petitioner never received a commission from YTB . She paid Web site access fees .of $49 .95 for 2 months, April and May 2006 . By July 2006, petitioner canceled .her arrangement with YTB and terminated the travel services activity . On petitioner's Form 1040, U .S . Individual Income Tax Return, for 2006, signed March 1, 2007, she reported wage income of $74,766 .29 and claimed $72,061 .64 on Schedule A, Itemized Deductions . She reported no payments by withholding or otherwise - 4 - v and no tax liability . On the Schedule A "Other expenses" line she deducted $4.6,173 .49, described . as office expenses of $173 .49 and office rent expense of $46,000 . _ On Form 1040X, Amended U .S . Individual Income Tax Return, for 2006 signed April 16, 2007, petitioner reduced the itemized deductions claimed on Schedule A and claimed $46,099 .90 on Schedule C, Profit or Loss From Business . The business claimed was a travel services business known as Firefly Xpress Travel with a Stafford, Virginia, address . No gross receipts were reported ; and the claimed expense deductions were office expenses of $99 .90 and an office rent expense of $46,000 . The notice of deficiency determined that . petitioner was liable for the alternative minimum tax because of the "excess itemized deductions", pursuant to sections 55 and 56(b)(1) . Acknowledging the amended return that petitioner had submitted, the Form 886-A, Explanation of Items, attached to the notice of deficiency stated : "Since it does not appear that we have received any supporting documentation to verify your Schedule C and expenses , we have continued to disallow, your request for changes ." The notice did not disallow the expense deductions claimed on Schedule A of the original Form 1040 . Respondent has now conceded that the alternative minimum tax is not applicable and challenges the deductibility of the amounts claimed on Schedule C of the Form 1040X . - 5 - Petitioner did not make regular rent payments by check or money order . To substantiate her claimed rental expenses, petitioner produced a series of "receipts" reflecting th e following dates and amounts : Date ' 1/06. 2/06 3/06 4/06 5/06 6/06 7/06 8/06 9/06 10/06 11/06 12/06 Amount $1,50 0 2,00 0 1,20 0 7,30 0 1,60 0 5,10 0 5,50 0 2,00 0 5,50 0 3,50 0 6,63 4 4,16 6 OPINION Petitioner, Edwards, and,Tantillo testified that they agree d on a lease of property in a residential area of Stafford, Virginia . According to petitioner, the leased space was furnished "like an entertainment sort of setting" with a "bar area", a separate entrance, a kitchenette with refrigerator, and space for a borrowed computer . According to Tantillo, the lease also provided for utilities, cable and satellite, and a monthly allowance of about-$100 for food . Tantillo testified that the lease started March 1, 2006 (notwithstanding the January 1, 2006, date on the lease) . He testified that he declined to terminate the lease in July 2006 when petitioner's travel services activit y I - 6 - ceased, but that he agreed to terminate the lease 5 months later in December 2006 because :- Well, that ' s because it came into a little controversy with my fiancee . disagreement about a woman renting out the apartment where she got kind of jealous . In June she moved in and pretty much there was a lot of issues, so in December that's when the mutual agreement was made . Basically she had a . Petitioner did not pay the rent by check or money order or in regular amounts . According to Tantillb ,. the rent was paid by bank transfers . During his testimony he explained the receipts as follows : Q And what are those documents? A Rent receipts . Q And do those documents correspond with the exact timing of your receipt of Firefly Xpress Travel's bank remittance of the lease payments ? A Not exactly . Some of them are . Some . of them might not be . .Q And why not ? A Because - depending on when I checked the bank account and depending on ..when I received the funds it 'could fluctuate from month to month . , So if I received . if I-checked on like the 2nd and the payment was on the 30th , I might have applied it to the next month's receipt ; so it depends on when I actually checked it . Generally , the taxpayer has the burden of proving that the claimed expenses were ordinary and necessary business expenses rather than nondeductible personal expenses . New Colonial Ice - 7 - Co . v . Helvering , 292 U .S . ' 435, 440 ( 1934 ) ; Welch v . Helvering , 290 U .S . 111 , 113-114 '( 1933 ) In a'case involving deductions, such as this one , concessions and variations from th e determination in the notice of deficiency do not relieve the taxpayer of the burden of establishing the deductible nature and amount of the items in dispute . Gatlin v . Commissioner , 754 F .2d 921, 923-924 ( 11th Cir . 1985 ), affg . T .C . Memo . 1982-489 . Petitioner does not dispute respondent ' s reliance on the general rule . She argues . that the burden of proof has shifted under section . 7491 ( a) . The burden of proof shifts only if a taxpayer produces credible evidence with respect to a factual issue . Petitioner has .not satisfied that standard . See Higbee v . Commissioner, 116 T .C . 438 , 442 (2001) . We are not required to accept testimony that is improbable or implausible . See Geiger v . Commissioner , 440 F .2d 688, 689- 690 (9th Cir . 1971 ), affg . T .C . Memo . 1969-159 ; Shea v . Commissioner , 112 T .C . 183 , 189 (1999)' . Petitioner ' s claimed deductions against her reported income were so large as to be improbable . It is not plausible that petitioner , a trained accountant and auditor earning less than $75,000 per year, would incur and pay $46,000 in rent for property to be used in a business that had little potential , never produced any income, and was abandoned after 2 months with no more than minimal activity . So far as the record discloses , the activity included 8 - personal . travel and vaguely described entertainment . There are simply too many gaps in the scenario presented by petitioner and her friends for us,-to accept her claims . The reliable evidence strongly suggests that the amounts in dispute were personal in nature . See sec . 262 . We have considered the other arguments of the parties . The y are either unnecessary to our conclusion or .,lacking in merit . reflect concessions by respondent, Decision will be entered under Rule 1 8 5 .