TAX COURT OPINION

Case: Michael G. & Sharon A. Haire
Docket Number: 24107-07S
Judge: Colvin
Opinion Type: bench
Filed: 01/29/2009
Pages: 6

UNITED STATES TAX COURT Washington, D .C . 2021 7 MICHAEL G . AND SHARON A .HAIRE, Petitioners, v . Docket No . 24107-07 S COMMISSIONER OF INTERNAL REVENUE, Respondent . O R D E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it i s 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 of the above case before Special Trial Judge Lewis R . Carluzzo at Tallahassee, Florida, on January 13, 2009, containing his oral findings of fact and opinion rendered at the conclusion of trial . In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155 . (Signed) Lewis R. Carluzzo Special Trial Judg e Dated : Washington, D .C . January 29, 2009 SERVED Jan 30 2009 3 1 Bench Opinion by Special Trial Judge Lewis R . Carluzzo 2 Haire v . Commissioner Docket No . 24107-07 S 3 January 13, 200 9 4 THE COURT : The Court has decided to render 5 oral findings of fact and opinion in this case, an d 6 the following represents the Court's oral findings of 7 fact and opinion . The oral findings of fact an d 8 opinion shall not be relied upon as precedent in any 9 other case . 10 This proceeding for the redetermination of a 11 deficiency is a Small Tax Case conducted pursuant to 12 the provisions of section 7463 of the Internal Revenue 13 Code of 1986, as amended, and Rules 170 through 175 of 14 the Tax Court Rules of Practice and Procedure . 15 This bench opinion is made pursuant to the 16 authority granted by section 7459(b) of the Internal 17 Revenue Code of 1986, as amended, and Rule 152 of the 18 Tax Court Rules of Practice and Procedure . 19 Hereinafter in this bench opinion, unless 20 otherwise specified, section references are to the 21 Internal Revenue Code of 1986, as amended, in effect 22 for 2005 . Rule references are to the Tax Court Rules 23 of Practice and Procedure . 24 Michael G . Haire, Sr . and Sharon A . Haire 25 appeared pro se . James L . May, Jr . appeared on behalf Heritage Reporting Corporatio n (202) 628-4888 4 1 of Respondent . 2 In a notice of deficiency dated July 31 , 3 2007, Respondent determined a $5,266 .00 deficiency in 4 Petitioners' 2005 Federal income tax and imposed a 5 $737 .40 section 6662(a) penalty . The issues fo r 6 decision are : (1) Whether Petitioners are entitled to 7 an itemized deduction for certain legal and othe r 8 fees ; and (2) whether Petitioners are liable for the 9 section 6662(a) penalty . 10 Some of the facts have been stipulated and 11 are so found . Petitioners are, and were at all times 12 relevant, married to each other . At the time th e 13 petition was filed they resided in Florida . 14 References to Petitioner are to Michael G . Haire, Sr . 15 Petitioner began his employment with Florida 16 Gas Transportation Company (FGT) in 1989 and he was so 17 employed during the year in issue . Although at al l 18 times an employee of FGT, from time to time after th e 19 collapse of Enron, he was paid by and receive d 20 resultant Forms W-2 from a company or companies other 21 than FGT . An example of this occurred in 2005 whe n 22 Petitioner was paid $13,291 .00 by Cross Country Energy 23 Services, LLC (Cross Country), a company about which 24 Petitioner knows little . 25 Petitioners purchased a residence in 1988 in Heritage Reporting Corporation (202) 628-4888 5 1 which they have resided ever since (the residence) . 2 They fell behind on their mortgage payments in 2002 3 and in due course the mortgage was foreclosed . 4 Through procedures not fully explained in the record, 5 Petitioners reacquired or redeemed their residenc e 6 upon the payment of legal and other related, if not 7 fully described, fees in 2005 . 8 As a result of a disability, Sharon A . Haire 9 received Social Security benefits totaling $14,115 .00 10 during 2005 . From this amount, legal fees o f 11 $3,628 .75 incurred by her in connection with the 12 receipt of those benefits were withheld and paid 13 directly to her attorneys . 14 Petitioners' joint 2005 Federal income tax 15 return was timely filed . Petitioner prepared that 16 return using a popular computer based income tax 17 return preparation program . The income earned and 18 received by Petitioner from Cross Country is not 19 included in the income reported on that return . 20 Computed in accordance with section 86, the Social 21 Security benefits received by Sharon A . Haire are . 22 Petitioners' 2005 joint Federal income tax 23 return includes a Schedule A, Itemized Deductions . As 24 relevant here, on that Schedule A Petitioners claimed 25 a $24,016 .00 miscellaneous itemized deduction fo r Heritage Reporting Corporation (202) 628-4888 6 1 legal fees (and related expenses) incurred in the 2 reacquisition or redemption of their residence, an d 3 legal fees incurred in connection with the receipt of 4 Sharon G . Haire's Social Security benefits . 5 In the notice of deficiency Responden t 6 disallowed the above-referenced miscellaneous itemized 7 deduction . Respondent also imposed a section 6662(a) 8 penalty . Other adjustments made in the notice o f 9 deficiency are no longer in dispute . 10 Although less than precise in thei r 11 explanation, according to Petitioners, $3,628 .75 of 12 the disallowed miscellaneous itemized deductio n 13 relates to the legal fees incurred by Sharon G . Haire 14 in connection with the receipt of the Social Security 15 benefits, and the balance relates to expenses incurred 16 in connection with the reacquisition or redemption of 17 their residence . 18 After careful consideration of the record in 19 this case we find as follows : (1) Of the amount 20 disallowed, in accordance with section 212(1 ) 21 Petitioners are entitled to a miscellaneous itemized 22 deduction of $3,628 .75 for the legal fees incurred in 23 connection with the receipt of the Social Securit y 24 benefits ; (2) Respondent's disallowance of the balance 25 of the deduction here in dispute is sustained because Heritage Reporting Corporation (202) 628-4888 F is s 7 1 the fees , if paid, represent non-deductible personal 2 expenses , see section 262, non-deductible losses, see 3 section 165, or capital expenditures , see section 263 4 and section 1 .263 ( a)-2(a),(c ), Income Tax Regs . ; and 5 (3) Petitioners are not liable for the section 6662(a) 6 penalty because the underpayment of tax required to be 7 shown on their 2005 return is due to reasonable cause . 8 See section 6664(c) . 9 To reflect the foregoing , as well a s 10 Petitioners ' concessions , decision will be entered 11 under Rule 155 . 12 This concludes the Court ' s oral findings of 13 fact and opinion . 14 (Whereupon , at 12 :40 p .m ., the bench opinion 15 in the above-entitled matter was concluded . ) 16 17 18 19 20 21 22 23 24 25 // Heritage Reporting Corporation (202) 628-4888