TAX COURT OPINION

Case: Timothy L. & Tiffany T. Williams
Docket Number: 28603-08S
Judge: Ruwe
Opinion Type: summary
Filed: 06/29/2010
Pages: 14

TIMOTHY L . '~ AND 'TIFFANY T . WILLIAMS , Petitioners-v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket - No . 28603-08S . Filed June 29, 2010 . I Timothy L . Williams, pro se . Angela J . Kennedy, for respondent . RUWE , Judcre : This case . was heard pursuant to the provision s of section 74631 of the Internal Revenue Cod e in effect when the petition was filed . Pursuant to section 7463 ( b)., the decision t o 'Unless otherwise indicated , all-section references are to the Internal Revenue Code as amended , and all Rule references are to the Tax Court Rules of Practice and Procedure . SERVED JUN 2 9 .2010 be entered is not reviewable by any other court, and this opinion, . shall not be treated as precedent for any other case . For 2005,and 2006 respondent determined deficiencies, a n addition to tax for failure to timely file, and . an accuracy- related penalty as follow s Year ., -Deficiency Sec . 6651 (a) (1) a Sec . . 6662 (a ) Addition to Tax Penalty : Accuracy-Related 20.05 $7,092 2006 1,545 $1,014 .75 $1,37 0 After concessions2 the issues to be decided are : Whether petitioners received and failed to .report'$ .1,005 o f wages, salaries, and tips during 2005 ; (2) whether petitioner s received and failed to report $2,010 of unemployment compensation t . during 2005 and 2006 ; ( 3) whether petitioners are entitled t o deduct $6,542 and $1,-000 as charitable contributions for 200 5 2006, respectively ; (4) whether petitioners are entitled t o deduct $65,005 and $14,498 of unreimbursed employee busines s expenses for 2005 and 2006 , respectively ; (5) whether petitioners . entitled to a child tax credit for 2005 ; (6) whether , under, , section 6651(a)(1), for failure to timely file their 2005 . Federal income tax return ; ZPetitioners .°have" conceded the deduction's claimed =fo r medical=and, dental expenses on,,their 2005 and . 2006 Federal(cid:127) tax returns . (cid:127)income , is and(7)whether, under section 6662(a), petitioners areliabl e Some.of'the'facts have been stipulated and are'so found . The stipulation of . facts and the attached exhibit s incorporated herein ' by. referenc e .At the ..time the .. petition was filed , petitioner s resided in Indiana . During 2005 Timothy L . Williams (petitioner) was separatel y employed by Delta-Services, Inc . (Delta ;Services) and Byride r Sales-'of Indiana .(Byrider) Petitioner's last day of work fo r Delta-Services'waseJanuary,7, 2005 . :After terminating employment with,Delta Services petitioner applied for unemployment benefit s with the . Indiana- Department .. of Workforce ' Development (IDWD) Although the date . petitioner began work for Byrider is not' , reflected in therecord,, petitioner=was .lat'er employed by Byride r For 2'005, Delta Services issued ~l to- petitioner a Form W-2 Wage and Tax Statement ; which shows that . petitioner received-, wages, tips, or other compensation of $1,005 . As is reflected o n Form 1099-G, Certain Government Payments, the IDWD-pai d petitioner $2',010 during : 2005-. . .'Byrider paid petitione r $37,644 .48 ofwages during 2005-. The parties also stipulate d that during 2005, while employed by Byrider less than 5,000 .miles for business 'and' while 'he wa s meals were paid for by the company . The IDWD later determined that : petitioner . was not eligibl e for . the . $2 , 010 of unemployment t compensations paid' to him in :% 200 5 and requested that . he repay :it . Petitioner did not repay ;'it . . During 2005petitioner Tiffany T .. Williams was employed by, - M .J . Schuetz Agency Inc ., and received wages of-$29,351 .16 . On_March 4, 2007, petitioners filed their 2005 Federal . . income tax return, on which they reported $66,996 : of . wages, . salaries , .tips, etc . Petitioners' did> note report the $2, 010 ;:of . .. unemployment . compensation or the $1,005 of'wages froin,Delt a Services .. On the 2005 Schedule A ; Itemized . Deductions, attached . to'their 2005 Federal income tax return, :petitioners claimed ' deductions ' for, among otherthings,'$1,500 of cash contribution s to charity, $5, 042 of' noncash ;contributions :to charity, an d $65,005 ofunreimbursed employee business'expenses . Petitioner s concede that the amount deducted as unreimbursed employee~' :f business expenses is overstated on their2005.Schedule A;":-, however, petitioners have not indicated what amount, if any , overstated . During 2006 petitioner's'employment'with'Byrider .-was , terminated . Petitioner applied for unemployment benefit s the IDWD However,, :before petitioner began receiving any, unemployment compensation from the .'IDWD in 2006, the IDWD offset" . ,the amount .of unemployment compensation due to petitioner by the $2,010 . petitioner failed to repay tothe IDWD in 2005 . For 200 .6 the IDWD issued to petitioner two Forms 1099-G. One Form 1099- G indicated that the IDWD paid petitioner $7,087 of unemployment compensation in 2006, and the other Form 1099-G indicated . that petitioner' repaid the IDWD $2,O10' in 2006 . Petitioners filed their 2006 Federal income tax return o n April . 15, 2007 . . On their 2006 Form 1040 petitioners reporte d $46,395 .of wages, salaries, tips, etc ., and the $7,087 of unemployment compensation received from the IDWD . On the Schedule A attached to their 2006 Federal income tax return , petitioners claimed, among other things, $5,533 of medical an d dental expenses , $700 of cash contributions to charity, $30 0 noncash contributions to charity, and $14,498 of unreimburse d Respondent issued to petitioners a notice of deficiency, dated August 20, .2008, which made the following income adjustments : Adi ustment Tax Year 2005 . Tax Year 200 6 Unemployment compensatio Itemized deductions n Wages, salaries and tips, etc . $2,010 11,004 76, 932 $18,592 Standard deductio n State refunds, credits , or offset s Total 69,946 10,30 2 "We note that both the 2005 Form W-2-issued by Delt a Services to petitioner and the .Delta Services,2005 Earnings and Deductions Report show petitioner's gross earnings as $1,005 . Petitioners filed a timely petition generally contesting. the adjustments for 2,005 and 2006 : ., Add'itionally,, ;pe.titioners allege in-their petition that they are eligible for a child tax credi t for 2005 . A . Burden of Proo f In general, the Commissioner's .determinations in a notice o f deficiency are presumed correct, and the taxpayer bears the burden of proving error in the Commissioner's determinations . .. a Rule .142(a)" ; Welch v . Helvering , 290 .U .S . 111, 115 (1933) . section .7491f(a) the burden may shift to the. Commissione r regarding .factual matters if the taxpayer produces credibl e evidence and meets the other requirements of the section' . Petitioners do not argue that they satisfied th e elements for a burden shift, but even if they did advanc e this argument°, . the y did not produce sufficient evidenc e to support a - burden'shift . Accordingly, the burden of'proo f remain s on petitioners . B Unreported Income/Omitted Items Gross income isdefined as "all income from whatever source . derived, including * * * Compensation for services" . Sec . 61(a)(1), . Gross income also includes unemployment compensation . Sec..- 85 .(a) . As a general rule -any- item of . gross income : must b included in the . gross income for,,the taxable year in which .. received : by ,the taxpayer . Sec' . , 451 (a) . - The taxpayer- bears the burden of proving any amount(cid:127)excludable-from,,, ;gross"income .pursuant to' an applicable statutory-exception . or°,general principle of'tax law . Rule 142(a) ; Bachmann v . Commissioner , T .C . Memo ., 2009-51 (citing Welch v . Helvering, supra at. 115) . During .2005 Delta Services issued to petitioner "two payrol l checks"- 'totaling $1,005 . Delta Services. subsequently issued to - ..petitioner a Form W-2 which 'shows that petitioner-received wages, tips,,- .or other compensation of(cid:127)$1 005 during 2005 . 1 . Petitioners . did not report these wages on their 2005 Federal income tax .,, return . Petitioners have not . shown that, the $1, .005 . is excludable from gross income' pursuant, to a statutory, exception : or general principle of tax law . Accordingly, we sustain respondent's determination that , petitioners . must include'the $1,005 received from Delta Services in their 2005 . income . " With respect to the $2,010 of unemployment compensation, .;_petitioner admits . that he received it in 2005 ..A Form 1099-G issued by the .IOWD for" 2005 .corroborates his admission . ,.We, .therefore, sustain respondent's determination' that petitioners . must-include . the $2,01.0 of .unemployment compensation in their 2005 income . For 2006 the parties stipulate that petitioners included i n income .the $7,087 of unemployment compensation received in' .200 6 but did'=not include the additional $2,010 awarded as~unemploymen t compensationbut not paid topetitioners during'2006 becaus e of" petitioners' failure to repay the .same amount 1n 2005 . . °We .disagree with , respondent's determination' that' petitioners must include .., in their-, 2006 income the same(cid:127)$2 ;010 .of unemployment compensation (identified in the notice ; of deficiency as- .a ; Stat e income tax refund) . Although. the $2',°01.0 of unemployment . . compensation' was not properly .awarded-to petitioner unti'l'2006, . as ' has . been. established and as we have . already found, petitioners received the $2,010 of unemployment compensation during 2005 . . ., Therefore, we hold that respondent's determination :'to require . petitioners, to include in their .k2006 .income the, same $2,010 tha t petitioners ._must include in their 20 .05~ .income .,is erroneous . C . Itemized Deductions . The taxpayer' bears the . burden of proving, that he , has . . .complied with the specific .requ rements for any deduction : claimed . M INDOPCO Inc . v ., Commissioner',e, 503 . U . S . 79,-. 84_ (1992) . ; New Colonial Ice Co . 'v : Helverina .,~ 292 U .S .= :,435, , 440, (1934) . :, ' Th e taxpayer must- .'substantiate amounts claimed as deductions . by maintaining-the .records necessary to establish that he . is r entitled 'to the deductions . Sec : . .6001 ;- sec . , l 6001-1 (a) Income Tax Regs . .1 . Charitable Contributions Section 170 (a) generally' allows as a deduction- an y charitable - contribution . the payment of-which is made within the taxable year . Deductions . for charitable contributions'are allowable only if verified underregulations .prescribed by the Secretary . _ Sec 170 (a) -,(.1) " Hewitt ' v . . Commissioner , 109 -T.. C . 258, 261 (1997 .),, affd . without '<published opinion 1668 F .3d 332 . (4th Cir . 1998 ) A . ;cash- contribution to charity-made on or before' August 17 , 2006, in'an .amount less than $250 may be substantiated wit h canceled check,, a . receipt, or other,. reliable, evidence , showing . the name of the donee, the date of - the contribution;, and the amount of the contribution . Alami El Moujahid . v .,Commissioner , T .C'. . Memo ! . 2009-42 ; sec . 1 .170A'-13(a)(1),, Income Tax Regs . For cash- contributions made-to charity after August--17 , 2006, stricter requirements . now provide that no' .deduction shall be allowed for a contribution ofmoney , in any-amount unless the donor maintains- : a bank record or written communication' from the' donee showing the name of'the'donee organization, the date of the contribution, and the amount-of the contribution ."Sec . 170(f)(17) ;' Pension Act of , 2006, P b .--L . 109-280,, sec . 1217 ., 120 .Stat . Petitioners have failed to offer . any' documentary evidence of cash contributions to charity for either 2005 or .2006 . 10 Accordingly , we sustain respondent' .s determ..ination and : hold tha t petitioners , are" not entitled to the deductions claimed for cash contributions to charity on their 2005 and',2006Federal income''' tax returns . For charitable contributions made in property other .thanx, , .cash,' the value of the contribution is°generally the fair market .value,at .the ;.time of contribution . . Hewitt v . Commissioner ,' supra . at 261 ; sec . 1 .170A- l(c)(1), Income Tax Regs . The fair market,,, . the price at which the , value of the property contributed is property would change hands betweenfa = willing buyer and .a willing seller;, :neither . being under any compulsion . to buy or, sell . and both having reasonable knowledge of-relevant facts . Sec . =1 .170A- 1 (c) (2 ) Income Tax ;Reps Generally, =for noncash charitable contributions , a-taxpayer .. must , maintain for each" contribution~ a- receipt from . the donee- showing ., the name of the donee , the date and lbcation ..of the ,. contribution ,, and',a description of the---,,,, property in detail, reasonably sufficient under . the, circumstance . Sec . 1.. 170A-13 (b)'(1), . .Income Tax Regs . : Petitioners have failed to offer any records establishing that they made any noncash contributions,to .charity .for either.§ 2005 . or.'2006 . Accordingly , . we sustain . respondent ' s determination and hold that petitioners are not entitled to the deductions' claimed for 'noncash ""charitable' : contributions . on their 2005 ; and 2006 Federal income ':'tax returns. Unreimbursed Employee Expense s Section 162 (a) generally allows as (cid:127)a deduction all' the ordinary and necessary expenses paid or incurred during th e taxable '. year . inq.carrying on any: trade or business .- A , taxpayer may. be in',the trade'o.r-business of being an . employee and, as such, may deduct business expenses .' O'Malley v . Commissioner , 91 T .C . (cid:127) 352,-,363-364 Lucas v . Commissioner,-79 T .C . ;.. 1, .6 (1.982)' . Section 262(a), however, prohibits deductions for personal, living,-or family expenses . Petitioners have failed to offer any, ;documentary or testimonial evidence establishing what payments were made, to whom-they were made, and any related business purpose ..-, See secs . 162, .274(d) 6001 ; sec . 1 .6001-1(a), Income Tax°Regs . Accordingly, we sustain respondent"s determination and hold that petitioners are not entitled, to a deduction for -unreimba .rsed employee expenses for-either year . Child Tax Credi t Section 24(a) provides_a credit~ :(subject to certain income limitations) against' income tax for each qualifying child . The term "qualifying, child" means-a qualifying child of the taxpayer (as defined in section'152(c) .)'who- .has not attained the age of 17 . Sec,24 .(c) .(1) ; Gessic - v: Commissioner , T C . Memo . 2010-88 . However, petitioners have failed to proffer any evidence of a' qualifying child ., Accordingly, petitioners are ineligible for~a - . 12 - child tax credit for 20.05 . E . Addition to Tax Under Section6651 .( a)(1 ) Section 6651 ( a)(1) imposes an addition to tax for, the ' failure ,to file a return' on the , date prescribed,-.therefor .(determined. with _ regard to anyT extension .of time for. filing)'; unless it' is shown that such .failure ' is due" to reasonable ' cause', and 'not t'due to willful neglect . Section . 7491 (c)' generally : provides that the Commissioner bears the burden of . production,.,,- with respect to-the liability of aan ,individual for .any penalty or addition to tax . The ' Commissioner - may meet his burden o f production . by coming forward with sufficient evidence indicating that it is appropriate ;-to impose . the relevant penalty . Higbeev . Commissioner , 116 T .C' ~ 438, 446 (2001) : . ' Petitioners filed their, 2005 Federal', income . tax return . mor e than 10 months after its due date .. Petitioners have neither offered any explanation for the tardiness of their,' .2005 , Federal- income'tax return nor established that they . had been granted an - extension of time to .flie . . Thus, -not only has respondent ,met , burden of .production with respect . to-the addition to tax',I :under,, ;,: section 66.51 (a)(1 ), but also petitioners have . . failed to establish that the late filing of their ..2005 .Federal . income ',tax return was' due to reasonable ,cause and not due ,to willful neglect . 13 . _ Accordingly, we sustain the imposition o addition to .-tax . F . Accuracy-Related Penalty Under Section 6662 (a ) Section, 6662(a) and (b)(1) and (2)-,provides that"a- . .taxpaye r is liable'for a 20-percent accuracy-related penalty on any portion of an underpayment of tax ' required' to be shown on a return attributable to inter' .alia (1)'negligence or' , 'disregard of~rules or regulations or (2)any substantial! understatement of income tax . °-, The Commissioner generally bears the burden of .~ production for any penalty, but-the tAxpayer' .bears-the ultimate burden' of proof . ' ' Sec 74 91 (c) ; Hicrbee v . Commissioner , ' supra at 446 . Negligence is def-ined'as : "any failure to makea reasonable attempt to comply with-the provisions" of this+ title" ," and disregard includes "any careless, reckless ;- or intentional" disregard :" -Sec 6662(c) . 'The regulat'ions .promulgated'unde r section 6662 provide that negligence'"includes any-failure by th e taxpayer'to-keep adequate books andrecords,or'-to substantiate' items properly ,Sec . 1 .6662=3(b)(1), Income,Tax Regs . . Negligence is strongly indicated where ataxpayer fails'to include on an income tax return, an amount of-income shown on a n information return, as defined in'section 6724(d)(1) . See sec . 1 .6662-3'(b) (1) (i) , Income Tax Regs . The accuracy-related penalty is not imposedwith,res'pect°to . any portion of an underpayment as"to which .the taxpayer, acted, with reasonable cause ,and . in goodfaith See sec 6664 (;c) (1 ) taxpayer acted with reasonabl e on -the-ipertinent facts an d circumstances . Sec . 1 ..6664-4,(b),,,(1) Income .; Tax Regs . We find respondent has,met his burden,,of-productio n record establishes that petitionersr,faileddtoudisclos e reported to, them on a Form, W-.2.-and a ;Form 10,99-G and,had no : . documentation to support the disallowed deductions- ._ See 1 6662-3 (b) '(1) Income Tax .Regs . After considering--the ,totality 1 .6662-3(b)'(1),-Incom e of the facts and circumstances, we are satisfied that petitionersetitioners° were negligent and did,not;have reasonable cause to believ e they . were not required to report the,$1,005oof wages,and,$2 .;010f , of unemployment compensation on their 2005 Federalancom e return and that they failed °,;to . keep~^ adequate records or t o substantiate ..properlyathe,disallowed deductions claimed , : on . their ' 2005 . return . . Accordingly, ., we sustain respondent's determination , and hold that petitioners are,1iable for the accuracy-relate d penalty under,se.ction .6662 :. To reflect,the foregoing, ; under Rule 155 .