TAX COURT OPINION

Case: Srinivas Yelisetty
Docket Number: 10533-12S
Judge: Goeke
Opinion Type: bench
Filed: 03/05/2013
Pages: 8

UNITED STATES TAX COURT WASHINGTON, DC 20217 SRINIVAS YELISETTY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) ) ) ) ) ocket No. 10533-12S. ORDE R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk ofthe Court shall transmit herewith to petitioner and to respondent a copy ofthe pages ofthe transcrip ofthe trial in the above case before Judge Joseph Robert Goeke at San Francisco, California, containing his oral findings of fact and opinion rendered at the trial session t which the case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered under Rule 155, Tax Court Rules of Practice and Procedure. (Signed) Joseph Robert Goeke Judge Dated: Washington, D.C. March 5, 2013 SERVED f 1 2013 Capital Reporting Company 3 1 2 Bench Opinion by Judge Joseph Robert Goeke February 6, 2013 3 Srinivas Yelisetty v. Commissioner 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Docket No. 10533-12S 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 pursuant to the provisions of section 7463 of the Internal Revenue Code in effect when the petition was filed. Pursuant to section 7463 (b) the decision to be entered is not reviewable by any other court. This Opinion is rendered. pursuant to Rule 152 of the Tax Court Rules of Practice and Procedure. 18 Hereinafter, rule references are to the Tax Court 19 20 21 22 23 24 25 Rules of Practice and Procedure and section references are to the Internal Revenue Code. FINDINGS At the time the petition was filed in this case the Petitioner resided in Fremont, California. This case is before the Court based upon the Court's jurisdiction to review deficiencies determin·ed by 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 Respondent following the timely filing of a petition in the Court contesting the determinations in the Notice of Deficiency. In the present case, Respondent issued a Notice of Deficiency to the Petitioner regarding the taxable year 2009. Respondent determined a deficiency of $5,606 and an addition to tax under section 6662(a) in the amount of $1,121.20. The issues unde lying these determinations relate to expenses Petiti ner claimed on his income tax returns for 2009 and rior years, associated. with a real estate business. On his 2009 Federal Income Tax Return Petitioner included several Schedule Cs. The Schedule C in question in this case is characterized "real estate salesperson" as the basis for the 17 Petitioner's income. 18 19 20 21 22 23 24 25 The Schedule C reflects no receipts of any kind, but various expenses. The expenses disputed by Respondent relate to $21,000 characterized n the Schedule C as "legal and professional -services and three other items, $460 for internet, $364 for Vonage phone, and $109 for newspaper subscriptio s. There are other expenses claimed on the 866.488.DEPO www.CapitalReportingCompany.com Capital Repo ting Company 5 return and these are not disputed by Respondent . We deem Respondent's position in the Notice of Deficiency to be such that Respondent agrees that the Petitioner is in a trade or business in 2009 relative to these real estate activities, despite the fact that Petitioner had no income in 2009 with respect to the income acti ities. Because Respondent has conceded that Petitioner is in. a trade or business, we focused solely on whether the expenses in question are ordinary and necessary expenses of Petitioner's business activity. Simply asserting that expenses relate to a business does not support the deduction of those expenses . Section 162 allows a deduction for ordinary and necessary expenses pai or incurred in connection I 1 2 3 5 6 7 8 9 10 11 12 13 14 15 16 17 18 with a trade or business. 19 20 21 22 However, personal, or living, or family expenses cannot be deducted under section 162, section 262 (a) . In the present case the Petitioner 23 maintained sufficient records to support the fact 24 that he paid his father $21,000 for alleged 25 activities in connection with the real estate 866.488.DEPO www.CapitalReportingCompany.com Capital Repo ting Company 6 business in 2009. This being the largest amount in dispute, we'll focus on th $21,000. Petitioner's father testified at trial and testified that he spent roughly 20 hours a week in driving the metropolitan a ea pursuing potential real estate businesses or possibilities that Petitioner could be engaged to sell or buy real estate on behalf of clients. Petitioner testified that he determined that. 20 hours a week times[a fee of $20 per hour would yield roughly $21, 000 and this is the basis on which he paid his father $21,000 in 2009. It is not disputed that Petitioner in fact did pay his father $21,000. We note that Petitioner and his father resided in the same residence in 2009. Because of the personal relationship between the Petitioner and his father, we must carefully scrutinize the amount paid and the basis for the deduction. Because Respondedt has already determined that Petitioner was in a trade or a business, there is some credibility to Petitioner' s petition that he engaged his father to assist him in helping to establish a real estate activity. 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.CapitalRepo tingCompany.com Capital Repo ting Company 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 We also note that the Petitioner had wage income that significantly exceeded the expenses claimed from his real estate activity and that his primary activities in the year 2009 related to his work as an employee. Nevertheless, Petitioner testified that he had a real estate license, and that is uncontested, and that he intended to pursue that business in addition to his activities as an employee. He also testified, credibly, that his father was previously engaged in the real estate business and that he valuec his father' s expertise and experience in this regard. · OPIÑION Given this testiniony and balancing the testimony against the perscEnal relationship and the - circumstances in general relative to Petitioner' s pursuit of a real estate business,.we determined that a portion of the $21, 000 Petitioner paid ·his father was not an ordinary necessary business expense but, rather, was a payment to help support his parents 22 which, however commendable, is not deductible as a 23 24 25 business expense. In analyzing the testimony of Petitioner and his father, we believe that 20 hours a week is an 866.488 DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 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 excessive estimate of the time his father devoted to assisting the Petitioner. While we acknowledge $20 an hour is a reasonable fee to his fathbr, we believe a more appropriate number of hours per week would have been eight hours per week. And based upon our. computations, we determined that the amount of ordinary necessary expense generated by the P titioner's payments to his father in 2009 is limited to $8,000. Therefore, we sustain Respondent' s disallowance to the extent of $13,000 and rule for the Petitioner to the extent of $8,000. We now turn to the other items in dispute. Based upon Petitioner's testimony, we believe that the Vonage fee, in the amoûnt of $364, was a hundred percent related to Petitioner's business and should be deductible. However, we determined that the other amounts in dispute are not deductible as they are primarily of a personal nature. Our.determinations will result in the necessity to have a computåtion under Rule 155. This concludes the Court' s oral Findings of Fact and Opinion in this case. 866.488.DEPO www.CapitalRepo¼tingCompany.com 1 2 3 4 5 6 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 2 4 25 Capital Repo ting Company THE CLERK: All rise. (Whereupon, at 12:20 p.m., the above-entitled matter was .concluded . ) 9 . 866.488.DEPO www.CapitalReportingCompany.com