TAX COURT OPINION

Case: Robin Elaine Fuller
Docket Number: 14627-17S
Judge: Carluzzo
Opinion Type: bench
Filed: 05/21/2018
Pages: 10

UNITED STATES TAX COURT WASHINGTON, DC 20217 ROBIN ELAINE FULLER, Petitioner, v. ) ) ) CT ) Docket No. 14627-17S COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ORDER 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 petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Chief Special Trial Judge Lewis R. Carluzzo at Washington, D.C., 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) Lewis R. Carluzzo Special Trial Judge Dated: Washington, D.C. May 21, 2018 SERVED May 21 2018 Bench Opinion by Special Trial Judge Lewis R. Carluzzo 3 May 4, 2018 Robin Elaine Fuller v. Commissioner of Internal Revenue Docket No. 14627-17S 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 (bench opinion). Unless otherwise noted, section references made in this bench opinion are to the Internal Revenue Code of 1 2 3 4 5 6 7 8 9 10 1986, as amended, in effect for the relevant period, and 11 Rule references are to the Tax Court Rules of Practice and 12 Procedure. This bench opinion is made pursuant to the 13 authority granted by section 7459(b) and Rule 152. 14 This proceeding for the redetermination of a 15 deficiency is a small tax case subject to the provisions 16 of section 7463 and Rules 170 through 174. Except as 17 provided in Rule 152(c), this bench opinion shall not be 18 cited as authority, and pursuant to section 7463(b) the 19 decision entered in this case shall not be treated as 20 precedent for any other case. 21 Robin Elaine Fuller appeared on her own behalf. 22 Stephen C. Welker appeared on behalf of respondent. 23 24 In a notice of deficiency dated June 12, 2017 (notice), respondent determined an $11,503 deficiency in 25 petitioner's 2014 Federal income tax and imposed a (973)406-2250|operationseescribersnet|wwwesaibers et 1 2 3 4 5 6 7 8 9 $2,300.60 section 6662(a) penalty. The issues for decision are whether petitioner is: (1) entitled to certain deductions claimed on the Schedule A, Itemized Deductions, included with her 2014 Federal income tax return; and (2) liable for a section 6662(a) accuracy- related penalty. Some of the facts have been stipulated and are so found. At the time the petition was filed, petitioner resided in Maryland. 10 During 2014 petitioner was employed as a grant 11 specialist for the U.S. Department of Health and Human 12 Services (HHS) where she has been employed since 1984. In 13 accordance with a voluntary HHS policy, petitioner was 14 entitled to, and did, work from home a couple days a week. 15 She performed her work-related functions using a computer 16 17 18 setup on her dining room table. Petitioner prepared her 2014 income tax return using a commercially available return preparation software 19 program. She claimed various deductions on the Schedule A 20 included with that return, including, as relevant here, 21 22 $41,628 for medical and dental expenses, $24,237 for charitable contributions, $850 for tax preparation fees, 23 and $12,567 for unreimbursed employee business expenses, 24 attributable to "Work from home" expenses. These four 25 deductions are disallowed in the notice and are in dispute 973)406-2250loperationscescribertnetlwww.esaibers.net 5 1 2 3 4 5 6 7 8 9 here (disputed deductions). According to the notice, petitioner is not entitled to the disputed deductions because, among other reasons, she failed to establish that the expenses were "paid". Furthermore, according to the notice, petitioner is not entitled to the unreimbursed employee business expenses and the tax preparation fees because she failed to establish that the expenses were "ordinary and necessary" to her "business". Other adjustments made in 10 the notice are computational and need not be addressed in 11 12 13 14 this bench opinion. As we have observed in opinions too numerous to count, deductions are a matter of legislative grace, and the taxpayer bears the burden of proof to establish 15 entitlement to any claimed deduction. Rule 142(a); 16 INDOPCO Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New 17 Colonial Ice Co. v. Commissioner, 292 U.S. 435, 440 18 (1934). (Nothing in the record suggests that the 19 provisions of section 7491(a) are applicable, and we 20 proceed as though they are not.) This burden requires the 21 taxpayer to substantiate deductions claimed by keeping and 22 producing adequate records that enable the Commissioner to 23 determine the taxpayer's correct tax liability. Section 24 6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), 25 aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo (973)406-2250|operationseestrbetssiet|www.escrbers.net 6 v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that the expense to which the deduction relates has been paid or incurred. See section 6001; Hradesky v. Commissioner, 65 T.C. at 90; section 1.6001-1(a), Income Tax Regs. In general, section 213(a) allows a deduction for expenses paid during the taxable year for medical care that are not compensated for by insurance or otherwise and to the extent that such expenses exceed 7.5% of adjusted gross income. Generally, section 170(a) allows a deduction for any charitable contribution made by the taxpayer. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Charitable contribution deductions are subject to the 16 17 18 record keeping requirements of section 1.170A-13(a), Income Tax Regs., for contributions of money, or section 1.170A-13(b), Income Tax Regs., for contributions of 19 property other than money. Any contribution of $250 or 20 more must also satisfy the requirement of section 1.170A- 21 13(f)(1), Income Tax Regs., which provides that to be 22 allowed a charitable contribution deduction of $250 or 23 more, the taxpayer must substantiate the contribution with 24 a contemporaneous written acknowledgment from the donee 25 organization. If a taxpayer makes a charitable (973}406-2250|operationseescrbertnetlwww.escribersmet 1 2 3 4 5 6 7 8 9 contribution of property other than money in excess of $500, the taxpayer must maintain written records showing the manner of acquisition of the item and the approximate date of the acquisition. See sec. 1.170A-13(b)(3), Income Tax Regs. Petitioner has submitted no such documentation. Section 212(3) allows a deduction for costs incurred in the preparation of a tax return. See Hughes v. Commissioner, T.C. Memo. 2008-249. Petitioner claims to have spent $850 for a computer-based tax return 10 preparation system, but submitted nothing showing that the 11 12 13 expenditure was paid or incurred. At trial petitioner failed to provide any substantiating documents with respect to any of the 14 disputed deductions. According to petitioner, any records 15 16 17 that she might have kept to document her expenses have been lost in one or the other household floods she claims to have occurred in October 2014 and October 2016. The 18 exact nature of the records petitioner claims to have been 19 destroyed cannot be determined from her testimony. 20 Although petitioner testified that she made attempts to 21 22 reconstruct her records, it remains unclear why she could not have reconstructed her records by obtaining bank and 23 credit card statements, or records maintained by third- 24 party payees. We are particularly concerned about the 25 absence of certain third-party records as it would seem Cribers 73)406-2250|operatioriseescribersmet|wevw.esaibersmet 8 1 2 3 4 5 6 7 8 9 that records from medical service providers and the charitable organizations would be readily available. Accordingly, respondent's disallowances of the deductions for medical and dental expenses, charitable contributions, and tax preparation fees are sustained. We now turn to petitioner's claimed unreimbursed employee business expenses of $12,567, which relate to "working from home" at her dining room table. It is generally well-known that a taxpayer may 10 deduct ordinary and necessary expenses paid in connection 11 with operating a trade or business. See section 162(a); 12 Boyd v. Commissioner, 122 T.C. 305, 313 (2004). 13 Generally, for purposes of section 162, the phrase "trade 14 15 16 17 18 or business" includes performance of services as an employee. Primuth v. Commissioner, 54 T.C. 374, 377 (1970). In general a taxpayer is not entitled to deduct any expenses related to the use of a dwelling unit used by 19 the taxpayer as a residence during the taxable year. See 20 21 sec. 280A. Expenses attributable to a home office are excepted from this general rule, however, if the expenses 22 are allocable to a portion of the dwelling unit which is 23 exclusively used on a regular basis as the principal place 24 of business for the taxpayer's trade or business. See 25 sec. 280A(c)(1); Lofstrom v. Commissioner, 125 T.C. 271, 73)406-2250loperationsgescrbers.net|www.escribers.net 9 1 2 3 4 5 6 7 8 9 278 (2005). If the taxpayer is an employee, the exception under section 280A(c)(1) applies only if the home office is maintained for the convenience of the employer. See Hamacher v. Commissioner, 94 T.C. 348, 353-354 (1990). At trial, petitioner acknowledged that her dining room table was not used exclusively for her HHS work. Moreover, petitioner has not established that the dining room was used on a regular basis as the principal place of business for her employment with HHS or that the 10 dining room was maintained for the convenience of HHS. 11 The fact that petitioner used the dining room for business 12 purposes as she claims is insufficient to allow any 13 deduction attributable to that use. See Lofstrom v. 14 Commissioner, 94 T.C. at 278. To the extent that the 15 unreimbursed employee business expenses relate to supplies 16 petitioner claims to have purchased, including printing 17 paper, she failed to provide any substantiating documents 18 with respect to those expenses nor has she established 19 that they are ordinary and necessary business expenses. 20 Accordingly, petitioner is not entitled to a deduction for 21 unreimbursed employee business expenses, and respondent's 22 determination in this regard is sustained. 23 Lastly, we consider whether petitioner should be 24 held liable for a section 6662(a) penalty. Section 25 6662(a) imposes a 20% accuracy-related penalty on the cribers (973)406-2250|operationseerrbers.net|www.escribers.net portion of "an underpayment of tax required to be shown on a return" if, among other reasons, the underpayment is due to a substantial understatement of income tax. See sec. 10 6662(b)(2), (d). With respect to a taxpayer's liability for a section 6652(a) penalty, section 7491(c) places the burden of production on the Commissioner, requiring the Commissioner to produce sufficient evidence indicating that it is appropriate to impose the penalty. Higbee v. 1 2 3 4 5 6 7 8 9 10 Commissioner, 116 T.C. 438, 446-447 (2001). If the 11 Commissioner satisfies the burden of production, then the 12 taxpayer must produce persuasive evidence that the 13 Commissioner's determination is incorrect. See Rule 14 142(a), Welch v. Helvering, 290 U.S. 111, 115 (1933); 15 Higbee v. Commissioner, 116 T.C. at 447. 16 17 18 In this case, respondent has satisfied his burden of production because: (1) the underpayment of tax, as defined in section 6664(a) is equal to and 19 computed in the same manner as the deficiency, see sec. 20 6211, and is a substantial understatement of income tax 21 because it exceeds the greater of $5,000 or 10% of the 22 amount of tax required to have been shown on petitioner's 23 24 2014 return, see sec. 6662(d)(1) (A); and (2) the parties stipulated that the accuracy-related penalty was approved 25 by the examining officer's manager on April 27, 2017. See ) (973)406-2250loperatiomeerrbers.net|www.escribers.net sec. 6751(b)(1); Chai v. Commissioner, 851 F.3d 190, 221 (2d Cir. 2017), aff'g in part and rev'g in part T.C. Memo. 2015-42; Graev v. Commissioner, 149 T.C. , (slip op. at 14) (Dec. 20, 2017), supplementing 147 T.C.__(Nov. 30, 11 2016). The accuracy-related penalty does not apply to any part of an underpayment of tax if it is shown that the taxpayer acted with reasonable cause and in good faith with respect to that portion. Sec. 6664(c)(1). 1 2 3 4 5 6 7 8 9 10 Petitioner has failed to produce sufficient evidence to 11 substantiate the deductions here in dispute or otherwise 12 establish that she had reasonable cause and acted in good 13 faith. Accordingly, petitioner is liable for the section 14 15 6662(a) accuracy-related penalty. To reflect the foregoing, decision will be 16 entered for respondent. This concludes the Court's bench 17 opinion in this case. (Whereupon, at 2:17 p.m., the above-entitled matter was concluded.) 18 19 20 21 22 23 24 25 9733406-2250|operationseescrbers.net|www.escribers.net