TAX COURT OPINION

Case: Viorica & Ovidiu Diaconu
Docket Number: 7221-10S
Judge: Colvin
Opinion Type: bench
Filed: 10/21/2010
Pages: 11

UNITED STATES TAX COURT WASHINGTON, DC 20217 VIORICA & OVIDIU DIAÇONU, Petitioners, ) ) v. ) Docket No. 7221-10S COMMISSIONER OF INTERNAL REVENUE, Respondent. O R D E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioners and to respondent a copy of transcript of Laurence J. Whalen at Peoria, findings of Illinois, containing his oral fact and opinion rendered on September 15, 2010. the proceedings in the above case before Judge the pages of the In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) Laurence J. Whalen Judge Dated: Washington, D.C. October' 21, 2010 SERVED OCT 25 2010 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 Bench Opinion by Senior Judge Laurence J. Whalen Viorica & Ovidiu Diaconu v. Commissioner Docket No. 7221-10S September 15, 2010 3 .I-.. 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. II. This case was heard as a small tax case 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. Hereinafter, all section numbers refer to the Internal Revenue Code, as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure. Pursuant to Section 7463(b), the decision to be entered in this case is not reviewable by any other court, and this bench opinion shall not be treated as precedent for any other case. III. This bench opinion is made pursuant to the authority granted by section 7459 (b) and Rule 152. Heritage Reporting Corporation (202) 628-4888 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 IV. 4 Mr. Ovidiu Diaconu, petitioner, represented himself and Ms. Viorica Diaconu in these proceedings. Mr. Robert~M. Romashko, Esquire, represented respondent. In this bench opinion, references to petitioner are references to Mr. Diaconu. E. Respondent determined a deficiency in the amount of $5,484 in petitioners' 2006 income tax. The sole adjustment in the notice of deficiency is the disallowance of $19,584 of the $20,798 that petitioners claimed as moving expenses on their return. The issue for decision is whether petitioners are entitled to deduct moving expenses in the amount claimed. VI. Some of the facts have been stipulated by the parties. The Stipulation of Facts filed by the parties and the exhibits attached thereto are hereby taken into evidence. Petitioners resided in Springfield, Illinois, at the time they filed their petition in this case. They had moved to Illinois from oklahoma City, Oklahoma, during 2006. The expenses from that move are the moving expenses at issue in this case. Heritage Reporting Corporation (202) 628-4888 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 5 At the end of 2005, both petitioners were living in oklahoma City, Oklahoma, where they were employed by the Oklahoma Heart Hospital in jobs relating to information technology. On or about December 26, 2005, the Memorial Health System in Springfield, Illinois, made petitioners an attractive offer for new and more challenging jobs. The offer was to hire petitioners for a 90-day probationary L period to complete a project, and, if their work was satisfactory, to hire them on a permanent basis. The company offered to pay petitioners an average increase in wages of approximately $40,000. It also offered to provide temporary living quarters during the probationary period and to pay them temporary living expenses of approximately $4,400. The Memorial Health System required petitioners to start by January 27, 2006. After petitioners told Oklahoma Heart Hospital of their intention to accept the new jobs, that hospital offered to pay petitioners approximately $23,000 if they would continue working until January 20th to train their replacements. More importantly, Oklahoma Heart Hospital told petitioners that, if they left on good terms, the hospital would rehire them if the new job was not successful. The new job opportunity gave petitioners the possibility of increasing their income by approximately $80,000. In fact, they reported wages of $191,667 for 2006, Heritage Reporting Corporation (202) 628-4888 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 6 a substantial increase over the wages reported for 2005. As a consequence of this opportunity, petitioners knew that they had to move to Illinois, and they felt that they needed help with the packing of their household goods. Their two sons were full-time college students at the time, and so petitioners asked for their help. After the sons had packed some or all of petitioners' household goods, petitioners rented a truck and drove to Springfield, Illinois. Petitioner's sons did not accompany petitioners to Illinois. When petitioners arrived in Illinois, they hired a company, Labor Ready, to help unload the heavy objects from the truck. The record of this case does not include any information regarding the cost of the truck rental or Labor Ready. Petitioners completed their employment with Oklahoma Heart Hospital on Friday, January 20, 2006, and they started work for the Memorial Health System on Monday, January 22, 2006. II. As mentioned above, petitioners deducted $20,798 in moving expenses on their 2006 return. Respondent allowed $1,214 of that amount and disallowed the remainder, $19,584, in the notice of deficiency. The record does not describe the nature of the expenses that were allowed. The amount of disal-lowed expenses is comprised of the payments made to Heritage Reporting Corporation (202) 628-4888 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 7 each son, in the aggregate amount of $9,999, for his services in packing petitioners household goods. The record does not explain the difference between $19,584, the amount disallowed, and $19,998, the aggregate amount that petitioners claim to have paid to their sons. At trial, petitioner testified that he gave each son a check in the amount of $9,999. In deciding on the amount, petitioner stated that he did not consider the size of the truck or how long it took his sons to do the work. Rather, he said that he considered the timing of the labor. Petitioner testified that he considered the payment to each son to be a payment for the opportunity to earn $80,000. Several months after giving his sons the checks, petitioner realized that neither son had cashed his check. Petitioner told his sons that he wanted to close the bank account on which the checks had been written, and that they should cash the checks. According to his testimony, each son responded by saying that he would not cash the check, and he wanted petitioners to spend the money for him. Petitioner testified that he and his wife made expenditures for their sons, and they kept track of the expenditures in a computer program. He further testified that by october 2006 the full amount had been spent on behalf of each son. The record does not contain a report about the expenditures from petitioners' computer program. Heritage Reporting Corporation (202) 628-4888 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 Each son reported $9,999 as other income on his 2006 8 return. VIII. Respondent's position is twofold. First, respondent contends that petitioners have not shown that any payments they made to, or on behalf of, their sons during 2006 were moving expenses, as opposed to the normal support expenditures that they, as parents, would make on behalf of their sons. Second, respondent contends that petitioners have not shown that any such moving expenses were reasonable. Respondent argues that petitioners simply wanted to shift taxable income in the amount of $19,998 to their sons, who had no other income, and who would pay tax on the income at lower rates. IX. We begin with several fundamental principles of tax litigation. First, as a general rule, the Commissioner's determinations are presumed correct, and the taxpayer bears the burden of proving that those determinations are erroneous. Rule 142(a). This principle was firmly established by the United States Supreme Court as early as 1933 and has been reaffirmed by the Supreme Court as recently as 1992. See INDOPCO Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Heritage Reporting Corporation (202) 628-4888 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 9 Second, deductions are a matter of legislative grace, and the taxpayer bears the burden of proving that he or she is entitled to any deduction claimed. Rule 142(a); Deputy v. duPont, 308 U.S. 488, 493 (1940); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). This includes the burden of substantiation. Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976). Third, the Court is not bound to accept the unverified and undocumented testimony of a taxpayer. Hradesky v. Commissioner, supra; Tokarski v. Commissioner, 87 T.C. 74, 77 (1986). See also Lovell & Hart, Inc. v. Commissioner, 456 F.2d 145, 148 (6th Cir. 1972), affg. T.C. Memo. 1970- 335; MacGuire v. Commissioner, 450 F.2d 1239, 1244 (5th Cir. 1971), affg. T.C. Memo. 1970-89; Niedringhaus v. Commissioner, 99 T.C. 202, 212 (1992). Fourth, a party's failure to introduce documentary evidence which is within his possession or control, and which, if true, would be favorable to him, gives rise to the presumption that, if produced, such evidence would be unfavorable. Recklitis v. Commissioner, 91 T.C. 874, 890 (1988); Pollack v. Commissioner, 47 T.C. 92, 108 (1966), affd. 392 F.2d 409 (5th Cir. 1968); Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162 F.2d 513 (10th Cir. 1947). Heritage Reporting Corporation (202) 628-4888 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 10 Subject to certain requirements neither relevant nor in dispute in this case, Section 217 permits a deduction for all reasonable moving expenses paid or incurred during the taxable year in connection with the commencement of work as an employee at a new principal place of work. Whether a claimed moving expense was paid, or whether the amount paid as moving expenses is reasonable, are questions of fact to be determined under the circumstances of the particular move. Sec. 1.217-2(b) (2), Income Tax Regs. If a claimed deduction is not adequately substantiated, we may estimate the amount of the deduction, provided we are convinced that the taxpayer incurred such expense, and we have a basis upon which to make an estimate. See Cohan v. Commissioner, 39 F.2d 540 (2d Cir.1930); Vanicek v. Commissioner, 85 T.C. 731, 743 (1985). Without such a basis, any allowance would amount to unguided largesse. Williams v. United States, 245 F.2d 559, 560 (5th Cir.1957). In this case, respondent does not deny, and we have no reason to doubt, petitioner's testimony that he and his wife gave each of their son's $9,999 during 2006. The issue in this case is whether petitioners gave that money, or some part of it, to their sons for packing services in connection with their move to Illinois to take new jobs with the Memorial Health System, and whether any such amount is Heritage Reporting Corporation (202) 628-4888 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 11 reasonable. Petitioners' proof of the disputed moving expense deduction consists of petitioner's testimony that he paid $9,999 to each of his sons during 2006 for packing services, and the fact that each son reported $9,999 as other income on his return for the year. After considering the record, we are not satisfied that petitioners are entitled to a moving expense deduction in the amount claimed, and we find no basis to redetermine a deduction in a lesser amount. First, the amount that petitioners allegedly paid to his sons, $19,998, seems excessive for two boys to pack the household goods that would fit into a truck that can be rented.by a rental company. In this connection, we note the fact that petitioners apparently paid only $1,214, the portion of the moving expense deduction that was not disallowed, to rent a truck, transport the household goods to Illinois, and offload the goods into petitioners' new residence. Second, petitioner's testimony was that he paid his sons without taking into account what they did, or the time that it took them. In this connection, we note that there is nothing in the record from which an estimate of the work necessary to pack petitioners' household goods can be made. Third, there is nothing in the record to itemize the payments allegedly made by petitioners on behalf of each of their sons and, thus, nothing to gauge whether the Heritage Reporting Corporation (202) 628-4888 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 12 petitioners' payments to their sons were normal support . Finally, we note the suggestion of respondent's attorney that petitioners had an incentive to overpay their sons and, thereby to shift income to lower-bracket taxpayers. To reflect the foregoing, decision will be entered for XI. respondent. XII. THIS CONCLUDES THE COURT' S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE. (Whereupon at 9:32 the bench opinion in the above- entitled matter was concluded.) // // // // // // // // // // // // // Heritage Reporting Corporation (202) 628-4888