TAX COURT OPINION

Case: Muhammad R. Siddiqui & Sadaf Rashid
Docket Number: 27469-14
Judge: Gustafson
Opinion Type: bench
Filed: 01/14/2016
Pages: 15

UNITED STATES TAX COURT WASHINGTON, DC 20217 MUHAMMAD R. SIDDIQUI & SADAF RASHID, Petitioners, v. ) ) ) ) SYM ) Docket No. 27469-14. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant to the opinion of the Court as set forth in the transcript of the proceeding at Philadelphia, Pennsylvania, on January 5, 2016, it is 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 in the above case before the undersigned judge at Philadelphia, Pennsylvania, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) David Gustafson Judge Dated: Washington, D.C. January 14, 2016 SERVED Jan 14 2016 Capital Reporting Company 3 1 2 Bench Opinion by Judge David Gustafson January 5, 2016 3 Siddiqui v. Commissioner 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Docket No. 27469-14 The Court has decided to render the following as its oral Findings of Fact and Opinion in this case. This Bench Opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code (26 U.S.C.), and Tax Court Rule 152; and it shall not be relied on as precedent in any other case. By a notice of deficiency dated August 13, 2014 (Stip. 7, Ex. 2-J), the Internal Revenue Service ("IRS") determined a deficiency in the Federal income tax of petitioners Muhammad R. Siddiqui and Sadaf Rashid for the year 2011, plus an accuracy-related penalty. The issues for us to decide are: (1) whether petitioners are entitled to certain deductions claimed on Schedule A (we hold that they are not), and (2) whether petitioners are liable for penalty (we hold that they are liable). Trial of this case was conducted on January 4, 2016, in Philadelphia. Mr. Siddiqui represented himself; Ms. Rashid signed the stipulation of facts but elected not to appear (with no objection from the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 8 9 other parties); and respondent, the Commissioner of the IRS, was represented by Kirsten E. Brimer. FINDINGS OF FACT Mr. Siddiqui emigrated to the U.S. from Pakistan in 1998, obtained his green card in 2007, and became a citizen in 2008. He first worked in the U.S. in 1999, and has filed U.S. income tax returns every year since then. In Pakistan he had completed a bachelor's degree in physics, chemistry, and 10 mathematics; a second bachelor's degree in electrical 11 12 13 14 15 16 17 18 19 20 21 22 engineering; and a master's degree in applied physics. In the U.S. he earned a master's degree in computer science at Roosevelt University in Chicago, Illinois. Mr. Siddiqui's career has been in the Information Technology field. In 2011 he worked for Comcast. Previously (including 2007) he had worked for Sprint-Nextel. He is the sole breadwinner in his family. In 2011 he and his wife had four children, ages 9 and younger. In that year (as in prior and subsequent years) he also supported his elderly parents. 23 Medical expenses 24 25 Mr. Siddiqui testified that in a year prior to 2011, his parents needed surgery, had no health 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 insurance in the U.S., and traveled to Pakistan for the surgery. Our record includes no medical bills for those pre-suit-year expenses and no evidence of the payment of any such bills; but Mr. Siddiqui testified that in a prior year his parents incurred 6 medical expenses for which he sent them three wire 7 8 9 10 11 12 13 14 15 transfers totaling $25,000. We assume these allegations are true (but we make no finding of fact to this effect, since these allegations, even if true, would not support a deduction claimed for 2011). In 2011 Mr. Siddiqui sent his parents money in a total amount we cannot now determine. Bank records (Ex. 3-J) show transmissions to his parents and his father-in-law in that year totaling $8,444 (Stip. 8). 16 Mr. Siddiqui testified that he sent these amounts and 17 18 19 20 21 others to pay for medical expenses that his father told him his parents incurred in that year. Our record includes no medical bills and no documents showing how the money that Mr. Siddiqui sent was actually spent. 22 Charitable expenses 23 In. 2011 (and in prior and succeeding years), Mr. 24 Siddiqui served as a chaperone for Masjid Shuhada 25 (hereinafter, "MS"). He alleges, and the IRS did not 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 dispute, that MS is an Islamic educational organization described in section 501(c)(3) that conducts religious classes for children every Sunday for 9 months of the year and that sponsors recreational and educational outings for the children on many (but not all) Saturdays. In 2011 Mr. 7 Siddiqui owned a van that seats the driver and seven 8 9 10 11 12 13 14 15 16 17 18 19 additional passengers, which he used for transportation in connection with MS. On Sundays in 2011 he drove himself, his wife, their four children, and two additional children from their community to MS. He estimates that the drive was a round trip of 80 miles, which when multiplied by 30 Sundays yields an alleged total of 2,400 miles. On Saturdays in 2011 Mr. Siddiqui drove himself, his three older children, and four additional children from the community on trips, of which he recalls five: three ski trips to Montage Mountain and Camelback Mountain (with an estimated round-trip 20 mileage of 240 miles each), and two trips to Niagara 21 Falls (with an estimated round-trip mileage of 1,000 22 miles each time),- for a total of 2,720 miles. He 23 24 25 believes there were additional Saturday outings in 2011, but he cannot recall the specifics. His mileage estimates for the Saturday and 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company Sunday trips that he can recall total 5,120 miles. He testified that he maintained a log of his MS miles on a computer whose hard drive thereafter failed, so that he is unable now to present a detailed record of 7 his miles driven for MS. Employee expenses Mr. Siddiqui alleges, and we assume, that in 2007 he incurred more than $15,000 in training- related expenses which his then-employer was obliged to reimburse but did not reimburse. Mr. Siddiqui's unsuccessful efforts to obtain reimbursement ended in 2009. 2011 tax return Petitioners timely filed their 2011 tax return in April 2012 (Stip. 2). The return (Ex. 1-J) reported adjusted gross income of $119,125 (an amount that is not in dispute here) and reported total tax of $3,824. On that return they claimed as dependents their four children and Mr. Siddiqui's parents. The IRS does not dispute that his parents are their dependents. On Schedule A (Ex. 1-J, at 5-6) petitioners claimed the following deductions (Stip. 3-6): Petitioners claimed a medical expense deduction of $21,327 for 2011. Mr. Siddiqui alleges that this 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.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 includes both 2011 expenditures for which he transmitted money to his parents in 2011 and amounts transmitted in a prior year for which he did not claim deductions. Petitioners claimed a charitable contribution deduction of $9,014. Mr. Siddiqui alleges that this consists of mileage and other expenses he incurred 8 making the Saturday and Sunday trips for MS. He 9 states that he deducted mileage at a rate of 27 cents 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 per mile, but he does not remember where he got this figure. He also alleges that some of the $9,014 consisted of meal and hotel expenses that he incurred for himself and his children when the Saturday trips included an overnight stay, but he did not offer any documentation for such expenses, did not specify what those expenses were, and previously stated he could not prove and would not clai,m deductions for such "food" and "stay" expenses (see 9/16/2015 transcript at 15-16). Petitioners claimed a deduction for unreimbursed employee business expense of $12,100. Mr. Siddiqui alleges that this consists of a portion of the expenses he incurred in 2007 that his then-employer failed to reimburse (and which he did not previously deduct). 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 Examination The IRS examined petitioners' 2011 tax return, disallowed the three deductions at issue here, and issued the notice of deficiency on August 13, 2014. (Ex. 2-J; Stip. 2.) Petitioners timely mailed their 6 petition to this Court on November 11, 2014. At that 7 time, they resided in New Jersey. (Stip. 1.) 8 Prior proceedings 9 10 11 12 13 14 15 16 17 18 19 This case was originally scheduled to be tried at a trial session beginning September 14, 2015. However, when the case was called on that date and recalled several days later, Mr. Siddiqui requested that he be given more time, in order to obtain documentation of his $25,000 of 2007 transfers for his parents' medical expenses. The Court continued the case, and it was next ordered for trial before a different judge at the session beginning January 4, 2016. In anticipation of the rescheduled trial, the 20 Court held a telephone conference' with the parties, 21 22 23 24 25 during which the Court reminded Mr. Siddiqui that he has the burden of proof, for which documentation is often necessary, and reminded him that he is obliged to provide that documentation to his opponent in advance; but he assured the Court that he had already 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 10 exchanged all his documents. Trial was held, as scheduled, on January 4, 2016. I. Burden of proof OPINION As a general rule, the IRS's determination is presumed correct, and the taxpayer bears the burden to prove any adjustment to the income the IRS. determined. See Rule 142(a). The taxpayer must satisfy the specific requirements for any deduction claimed. See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Furthermore, taxpayers are required to maintain records sufficient to substantiate their claimed deductions. See sec. 6001; 26 C.F.R. sec. 1.6001-1(a); see also 26 C.F.R. sec. 1.170A-13(b) (requirements for charitable contributions of property other than money). In addition, section 274(d) (cross-referencing section 280F(d)(4)) imposes a heightened substantiation requirement for expenses related to passenger automobiles. Mr. Siddiqui was given a continuance of his original trial date, and we conclude that he had a reasonable opportunity to assemble the documentation to carry his burden of proof. II. Medical expense 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.CapitalReportingCompany.com Capital Reporting Company 11 1 2 3 4 5 6 As in effect for 2011, section 213 allowed a deduction for "the expenses paid during the taxable year ... for medical care of the taxpayer, his spouse, or a dependent ..., to the extent that such expenses exceed 7.5 percent of adjusted gross income"--i.e., in this case, to the extent that 7 medical expenses exceed $8,934. We hold against 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 petitioners on this issue for several reasons: First, no medical expenses for any year have been documented, and no payment of such expenses has been documented. Mr. Siddiqui believes that amounts he has transferred to his parents have been used to pay medical bills, but that belief is founded entirely on hearsay from his father, who did not testify. Second, transfers in 2011 exceeding $8,934 have not been documented or even alleged with specificity. Third, the alleged transfers in 2007 have not been documented and, in any event, could not constitute "expenses paid during the taxable year"-- i.e., during 2011. III. Charitable contributions Section 170 allows a deduction for contributions to a charitable organization, potentially including vehicle expenses incurred on behalf of a charity--but 25 only to the extent of "14 cents per mile", sec. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 3 4 5 6 7 8 170(i), not the 27 cents that Mr. Siddiqui claimed. However, Mr. Siddiqui did not present any documentation to substantiate miles driven in connection with MS. Short of having a contemporaneous log from 2011, section 274(d) might have been satisfied by some combination of contemporaneous 2011 documents (such as a day planner or calendar, and promotional flyers from MS) from 9 which trips and mileage could be substantiated. But 10 Mr. Siddiqui presented nothing to substantiate his 11 12 13 14 15 16 17 18 19 20 21 22 23 24 own testimony; and that testimony, even if fully credited, proved only 5,120 miles, which even at his excessive 27-cent rate, would yield a deduction of $1,382, not the $9,014 he claimed. Part of the excess is apparently explained by the now-disclaimed expenses for "food" and "stay" allegedly incurred for himself and his children when the MS events extended overnight. But the discrepancy between the amount claimed on the return and the amount that he justified at trial undermines the credibility of his claim. Moreover, Mr. Siddiqui drove the Sunday miles not only to benefit others but also and predominantly to take himself and his family to MS's religious 25 activities, and he drove the Saturday miles not only 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 13 to behefit others but also to take himself and his older children to recreational events. As we observed in Seed v. Commissioner, "Expenses incurred in the rendition of services to a qualified charitable organization may, and often do, have a dual character. They may benefit both the charity and the taxpayer.... [T]he presence of substantial direct personal benefit inuring to and anticipated by the taxpayer is fatal to any characterization of the payments or expenses as 'charitable contributions.'" 57 T.C. 265, 276 (1971); see also Churukian v. Commissioner, T.C. Memo. 1980-205. Mr. Siddiqui's inclusion of other children in his trips to MS and its activities was a good and generous thing, but we hold that it did not transform the expense for those trips into a charitable contribution to MS. Rather, even if we were to fully credit his testimony as to the 5,120 miles he says he drove, the purpose of those miles was predominantly personal, and we could not allow a charitable contribution deduction for those miles. IV. Employee business expense An employee's unreimbursed expenses "paid or incurred during the taxable year" in connection with his business as an employee may be deductible under 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.Capita1ReportingCompany.com Capital Reporting Company 14 section 162 (but, as "miscellaneous deductions", see sec. 67(b), only to the extent they exceed 2 percent of adjusted gross income). The claimed expenses at issue here are not deductible because they were not "paid or incurred during the taxable year" at issue, i.e., 2011. The deduction at issue here is for $12,100, an unepplained portion of $15,254 allegedly spent in 2007, for which Mr. Siddiqui evidently gave up in 2009 his attempts to obtain reimbursement from his former employer. These amounts were not paid or incurred in the year at issue, which has no evident relation at all to these amounts. V. Accuracy-related penalty Section 6662 1mposes an "accuracy-related penalty" of 20 percent of the portion of the underpayment of tax that is attributable to the taxpayer's negligence or disregard of rules or regulations or that is attributable to any "substantial understatement" of income tax. The understatement that we sustain is "substantial" under section 6662(d)--i.e., it exceeds both $5,000 and 10 percent of the tax that should have been reported. We therefore need not reach the issue of negligence. The Commissioner has carried his burden of production (see sec. 7491(c)) to show that petitioners are 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.CapitalReportingCompany.com Capital Reporting Company 15 liable for the penalty. However, under section 6664(c)(1), a taxpayer who is otherwise liable for the accuracy-related penalty may avoid the liability if he can show, first, "that there was a reasonable cause" for the underpayment and, second, that he "acted in good faith with respect to" the underpayment, then no accuracy-related penalty "shall be imposed". Whether the taxpayer acted with reasonable cause and in good faith depends on the pertinent facts and circumstances, including "the experience, knowledge, and eduction of the taxpayer", 26 C.F.R. sec. 1.6664-4(b) (1); but "the most important factor is the extent of the taxpayer's effort to assess the taxpayer's proper tax liability", id. Admittedly, Mr. Siddiqui is not a tax expert, but he is an intelligent and educated man. Even apart from his inability or failure to substantiate his deductions at the time of trial in 2016, the errors on his 2011 tax return as filed in April 2012--claiming deductions for medical expenses incurred in a prior year, claiming charitable contribution deductions for the cost of driving himself and his family to religious and recreational 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 activities, and claiming deductions for employee 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 16 1 2 3 4 expenses incurred four years earlier in 2007--were errors that should not have been committed by a person of above-average intelligence, with twelve years' prior experience in filing tax returns. If by 5 April 2012 Mr. Siddiqui did not know the basic rule that one deducts in a given year the expenses that he paid or incurred in that year, then one cannot say that he exerted appropriate "effort to assess [his] proper tax liability". CONCLUSION The IRS's disallowance of the disputed deductions is sustained, and petitioners are liable for the penalty. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 10:16 a.m., the above-. entitled matter was concluded.) 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com