TAX COURT OPINION

Case: Terry Lewis Liend
Docket Number: 21929-10S
Judge: Armen
Opinion Type: bench
Filed: 05/23/2011
Pages: 9

UNITED STATES TAX COURT WASHINGTON, DC 20217 TERRY LEWIS LIEND, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) ) ) ) ). O R D E R Docket Nos. 21490-095, 21929-10S. Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith the to petitioner and to respondent a copy of transcript of the above case before Special Trial Judge Robert N. Armen, Jr. at St. Paul, Minnesota on April 20, 2011, containing his oral at fact and opinion rendered the pages of the trial of the conclusion of the trial. findings of In accordance with the oral findings of fact and opinion, a Decision will be entered under Rule 155. (Signed) Robert N. Armen Special Trial Judge Dated: Washington, D.C. May 23, 2011 SERVED MAY 2 4 2011 1 Bench Opinion by Special Trial Judge Robert N. Armen, Jr. 3 2 April 20, 2011 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Terry Lewis Liend v. Commissioner Docket Nos. 21490-09S and 21929-10S I. THE COURT: THE COURT HAS DECIDED TO RENDER ORAL FINDINGS OF FACT AND . OPINION IN THESE CONSOLIDATED CASES, 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. II. These proceedings were heard as Small Tax Cases pursuant to the provisions of section 7463 of the Internal Revenue Code of 1986, as amended, and Rules 170 through 175 of the Tax Court Rules of Practice and Procedure. III. 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 20 Practice and Procedure. a ,, 21 22 23 24 25 Hereinafter in this bench opinion, and unless otherwise indicated, all section numbers refer to the Internal Revenue Code, as amended and in effect for the taxable years in issue, and all Rule numbers refer to the Tax Court Rules of Practice and Procedure. Heritage Reporting Corporation (202) 628-4888 IV. 4 Terry Lewis Liend (petitioner) appeared on his own behalf . Kristin M. Timmons appeared on behalf of respondent . 1... For 2007, respondent determined a deficiency in, and an accuracy-related penalty on, petitioner's Federal income tax in the amounts of $5,213 and $1,043, respectively. 1 2 3 4 5 6 7 8 9 10 For 2008, respondent determined a deficiency in 11 petitioner' s Federal income tax in the amount of $2, 550 . 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VI. At trial, respondent made various concessions. For 2007, respondent conceded the accuracy-related penalty in its entirety and all but $1, 563 of the deficiency in tax. For 2008, respondent conceded all but $1,688 of the deficiency in tax. After respondent's concessions, the issue for decision by the Court is whether petitioner is entitled to itemized deductions for union dues and charitable contributions. VII. Some of the facts have been stipulated, and they are so found. Petitioner resided in the State of Minnesota at the Heritage Reporting Corporation (202) 628-4888 time that the petition was filed with the Court. 5 The taxable years that are at issue in this case are the calendar years 2007 and 2008. For 2007, petitioner received income from gambling in the amount of $18,421. None of this amount was reported on petitioner's income tax return for that year. But 1 2 3 4 5 6 7 petitioner also incurred losses from gambling in the 8 9 10 11 12 amount of $40,228 in 2007. None of this amount was deducted on petitioner's income tax return for that year. For 2008, petitioner received income from gambling in the amount of $25,135. None of this amount was reported on petitioner's income tax return for that year. But 13 petitioner also incurred losses from gambling in the 14 15 16 17 18 19 20 21 22 23 24 25 amount of $27,979 in 2008. None of this amount was deducted on petitioner's income tax return for that year. Petitioner filed a so-called short form, Form 1040A, Individual Income Tax Return, for each of the two years at issue. On each of his returns, petitioner reported his wages from the United States Postal Service, as well as taxable interest in 2008. For 2007, petitioner reported adjusted gross income of $67,599; for 2008, he reported adjusted gross income of $59,890. Because petitioner filed short forms, he did not claim itemized deductions on a Schedule A but rather claimed the standard deduction. In separate notices of deficiency, respondent Heritage Reporting Corporation (202) 628-4888 1 6 increased petitioner's income by the amount of gambling income received in each of the years in issue and determined deficiencies in tax accordingly. Subsequently, however, respondent reduced the deficiency for each year by allowing petitioner to claim both an itemized deduction for a gambling loss eqúal to the amount of gambling income and an itemized deduction for Minnesota State income tax. At trial, petitioner contended only that he is entitled to additional itemized deductions for union dues and charitable contributions. Insofar as union dues is concerned, petitioner is, and was at all relevant times, a member of the Mail 1 2 3 4 5 6 7 8 9 10 11 12 13 Handlers Union. In 2007, petitioner paid $444 in dues 14 15 16 through payroll deductions; in 20Ø8, he paid $456. At trial, petitioner introduced no documentary evidence regarding charitable contributions. Rather, 17 petitioner testified generally about his charitable 18 19 20 21 22 23 24 giving. Burden of Proof VIII. In general, the Commissioner's determination set forth in a notice of deficiency is presumed correct, and the taxpayer bears the burden of showing that the determination is in error. Rule 142(a); Welch v. 25 Helvering, 290 U.S. 111, 115 (1933). Pursuant to section Heritage Reporting Corporation (202) 628-4888 7491(a), the burden of proof as to factual matters shifts 7 to the Commissioner under certain circumstances. 1 2 3 Petitioner has neither alleged that section 7491(a) 4 5 6 7 8 9 applies, nor has he established his compliance with its requirements. Accordingly, petitioner bears the burden of proof. See Rule 142(a). Deductions are a matter of legislative grace, and the taxpayer bears the burden of proof to establish entitlement to any claimed deduction. Rule 142(a); 10 INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New 11 Colonial Ice Co. v. Commissioner, 292 U.S. 435, 440 12 13 14 15 16 17 (1934). This burden requires the taxpayer to substantiate claimed deductions by keeping and producing adequate records that enable the Commissioner to determine the taxpayer's correct tax liability. Sec. 6001; sec. 1.6001- 1(a) and (e), Income Tax Regs.; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th 18 Cir. 1976). Additionally, section 170 and the regulations 19 20 21 22 23 24 25 thereunder establish specific requirements governing the substantiation of charitable contributions. E.g., sec 170(f) (8), (17); sec. 1.170A-13, Income Tax Regs. Under certain circumstances, if the taxpayer establishes that he has incurred a deductible expense yet is unable to substantiate the exact amount, the Court may estimate a deductible amount. But in so doing, the Court Heritage Reporting Corporation (202) 628-4888 may bear heavily against the taxpayer whose inexactitude 8 is of his own making. Cohan v. Commissioner, 39 F.2d 540, 544 (2d Cir. 1930). Cf. Williams v. United States, 245 F.2d 559, 560-561 (5th Cir. 1957); Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985), proscribing any allowance based on unguided largesse. Union Dues Petitioner paid dues to his union through wage 1 2 3 4 5 6 7 8 9 withholding of $444 in 2007 and $456 in 2008. However, a 10 11 12 13 14 15 16 deduction for such amounts (in combination with other employee business expenses) is allowable subject to a threshold equal to 2 percent of petitioner's adjusted gross income. See sec. 67(a). Because these amounts fall far short of that threshold, and because the record contains no evidence of any other employee business expenses, no deduction is allowable. 17 Charitable Contributions 18 19 20 21 22 We accept petitioner's testimony that he made cash contributions to various churches and to other charitable organizations. However, the record contains no documentary evidence, and petitioner's testimony, although sufficient to convince us that he did make donations, was 23 more general than specific. Accordingly, exercising our 24 25 best judgment, we hold that petitioner made charitable contributions approximately equal to 1 percent of his Heritage Reporting Corporation (202) 628-4888 adjusted gross income for each year; thus, he is entitled to a deduction of $675 for 2007 and $600 for 2008. Cohan 9 v. Commissioner, supra. IX. Finally, a postscript. Section 63 (e) provides that taxpayers must elect to itemize deductions, and this election is to be made on the taxpayer' s income tax return. Petitioner never elected on his returns to itemize deductions because he filed the short form and claimed the standard deduction. Nevertheless, respondent allowed petitioner the benefit of itemized deductions for both of the years in issue and decreased the deficiencies in 1 2 3 4 5 6 7 8 9 10 11 12 13 14 petitioner's favor. To the extent that petitioner may 15 16 17 18 19 20 21 22 23 24 25 feel that he has not gotten a fair shake in this matter, he should recognize that respondent made generous allowances that the law does not require. See Jahn v. Commissioner, T.C. Memo. 2008-141, affd. per curiam 392 Fed.Appx. 949 (3rd Cir. È010) . X. In order to give effect to our disposition of the disputed issue, as well as respondent's concessions, decisions will be entered pursuant to Rule 155. XI. THIS CONCLUDES THE COURT'S ORAL FINDINGS OF FACT AND Heritage Reporting Corporation (202) 628-4888 1 2 3 4 s 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 OPINION IN THIS CASE. (Whereupon, at 8:44 a.m., the bench opinion in the above-entitled matter was concluded.) 10 // // // // // // // // // // // // // // // // // // // // // // Heritage Reporting Corporation (202) 628-4888