TAX COURT OPINION

Case: Randall E. Thompson
Docket Number: 23524-07S
Judge: Colvin
Opinion Type: bench
Filed: 07/11/2008
Pages: 8

UNITED STATES TAX COURT WASHINGTON , D .C . 2021 7 I ADM . RECORDE D SERVICE LAURA LEIGH THOMPSON , Petitioner, ) Docket No . 18926-07S FILE S GC/ v . COMMISSIONER OF INTERNAL REVENUE , Respondent , RANDALL E . THOMPSON , Petitioner , ) Docket No . 23524-07S v . 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 consolidated cases before Judge Diane L . Kroupa at Memphis, Tennessee on June 11, 2008, containing her oral findings of fact and opinion rendered at the conclusion of trial . In accordance with the oral findings of fact and opinion, decisions will be entered for respondent . (Signed ) Diane L. Kroupa Judg e Dated : Washinqton, D .C . July 11, 2008 SERVED JUL 1 1 2008 it 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 Judge Diane L . Kroupa June 11, 200 8 2 Thompson v . Commissione r Docket Nos . 18926-07S, 23524-077 S THE COURT : The Court has decided to rende r oral findings of fact and opinion in thes e consolidated cases, and the following represents th e Court's oral findings of fact and opinion . These ora l findings of fact and opinion shall not be relied upo n as precedent in any other case! . These proceedings were conducted as a Smal l Tax Case under section 7463 and Rules 170 through 175 . This bench opinion is made pursuant to the authorit y granted by section 7459(b) and Rule 152 . All section references are to the Internal Revenue Code in effec t for 2003, and all rule references are to the Tax Cour t Rules of Practice and Procedure . Charles D . Harrison appeared for petitioners, and Caroline R . (rivacka appeared fo r respondent . FINDINGS OF FACT Certain facts have been stipulated . Th e stipulation of facts the parties filed, wit h accompanying exhibits, is incorporated by thi s reference, and the facts are so found . Heritage Reporting Corporation (202) 628-4888 3 1 Petitioner - husband resided in Arkansas at 2 the time he filed the petition ., and petitioner-wife 3 resided in Tennessee at the time she filed the 4 petition . 5 Petitioners timely filed a return for 2003 . 6 Petitioners self-prepared the joint return . 7 Petitioner-husband was employed preparing income tax 8 returns for his mother, Susan Boyer of Susanstax , 9 Inc ., in Kingston Springs, Tennessee . Ms . Boyer, also 10 known as Susan Sperl , petitioner- husband, an d 11 Susanstax, Inc ., are being charged in the United 12 States District Court for the Middle District of 13 Tennessee for injunctive relief for violations o f 14 sections 6700 and 6701 regarding promotion of abusive 15 tax shelters and penalties for aiding and abetting the 16 understatement of tax liabilities (Docket 3 :06-0175) . 17 The lawsuit alleges that the three defendants prepared 18 grossly inaccurate income tax returns in 2002, 200 3 19 and 2004 . The lawsuit is currently pending . 20 Petitioner-husband was during 2003 stil l 21 employed by the United States Navy, although preparing 22 for retirement in January 2004 . 23 Petitioners reported $ 58,996 of wages and 24 $7,326 of unemployment income on the original return, 25 yet claimed a $35,529 loss on Schedule C, entitle d Heritage Reporting Corporation (202) 628-4888 4 1 Profit or Loss From Business, for petitioner-husband's 2 two businesses labeled "salvage and repair" an d 3 "marketing and sales ." The Schedule C-i for th e 4 salvage and repair business reflects only $1,750 o f 5 income ; yet $37,116 of expenses consisting of $36,486 6 of section 179 depreciation expenses . The C-2 for the 7 marketing and sales business reflects only $637 o f 8 income but $800 of commission and fee expense . 9 Petitioner-husband explained that the depreciation 10 expense relates to some construction/repair tools his 11 mother sold to him on October 1, 2003 . The record is 12 unclear how or from where the funds arose fo r 13 petitioner-husband to "buy" the tools from his mother . 14 The only payment for the tools is $4,000 . Thi s 15 "payment" appears to originate from the alleged seller 16 rather than petitioner-husband'as the "buyer . " 17 Petitioner-husband presented a list of tools totaling 18 $32,486, which does not match the amount claimed but 19 another more compact list does match the amoun t 20 claimed on the return . 21 Petitioner explained that the one-time 22 "payment" represented the first 32 monthl y 23 installments of $100 . The purpose of the remaining 24 $800 is unknown . Petitioner-husband never made any 25 additional payments to his mother for the tools, nor Heritage Reporting Corporatio n (202) 628-4888 5 1 was it ever explained how the tools were valued or how 2 Ms . Boyer, a full-time income tax preparer with a 3 large client base, owned such a volume of "commercial 4 grade" tools . Moreover, there is no promissory note 5 reflecting the balance owed or the interest rat e 6 payable . 7 Petitioner claimed six months of storag e 8 expense for the tools, even though the tools were not 9 acquired by petitioner-husband until October of the 10 year . 11 Petitioners moved from Hawaii to Nevada 12 during 2003 . The Navy reimbursed petitioners for 13 their moving expenses ; yet petitioners claime d 14 additional moving expenses on the return . Petitioner- 15 husband provided some "examples" of moving expenses, 16 such as printouts from travel web sites and shipping 17 documents relating to other tax years . One document 18 shows an airline reservation to fly from Hawaii t o 19 Seattle, Washington, not Nevada . Most of th e 20 documents are non-responsive and do not substantiate 21 reasonable moving expenses . 22 In addition, petitioner-husband provided 23 minimal responses to Exams, and his testimony was 24 contradictory and implausible . 25 Respondent determined a $6,967 deficiency Heritage Reporting Corporatio n (202) 628-4888 6 1 against petitioners for 2003 and determined that 2 petitioners were liable for a,$1,393 .40 accuracy- 3 related penalty under section 6662 . Respondent made 4 these determinations in a statutory notice o f 5 deficiency dated July 12, 2007 . , 6 Petitioners timely filed a petition, yet 7 failed to make any specific allegation of error s 8 regarding respondent's determinations in th e 9 deficiency notice . The petition, despite involving 10 two taxpayers, merely asserts that, "IRS has refused 11 to work with taxpayer even though taxpayer ha s 12 provided receipts and information requested of them ." 13 OPINION 14 These are primarily substantiation cases on 15 whether petitioners are entitled the claimed expenses 16 and whether petitioners are liable for .the accuracy- 17 related penalty for 2003 . 18 We begin with three fundamental principles 19 of tax litigation . First, the Commissioner' s 20 determinations are generally presumed correct, and the 21 taxpayer bears the burden of proving that thos e 22 determinations are erroneous . Rule 142(a) . Thi s 23 principle is not affected by section 7491( a) because 24 petitioners failed to comply with the substantiation 25 requirements and failed to maintain adequate records . Heritage Reporting Corporatio n (202) 628-4888 8 1 Expenses of driving to and from work, for example, are 2 not deductible as personal expenses . Strohmaier v . 3 Commissioner , 113 T .C . 106, 113 (1999) ; sec . 1 .162(e), 4 Income Tax Regs . 5 We now apply these rules to the facts here . 6 First and foremost, we find the record and testimony 7 of petitioner-husband to be incredible . Petitioner- 8 husband would have us believe that he acquired th e 9 tools in a legitimate, arm's-length transaction rather 10 than what it was, a gift from his mother . The Court 11 agrees with respondent that it appears as i f 12 petitioner-husband and his mother were attempting to 13 create a paper trail for the $4,000 "down payment" to 14 allow for a large deduction for petitioners . No 15 lender would allow a debtor to fail to make payment on 16 a legitimate debt . The Court is also suspicious by 17 the lack of any promissory note to establish that the 18 tools were "purchased" for anything more than $4,000 . 19 As previously stated, the Court is also uncomfortable 20 with the $4,000 "down payment . " 21 The Court also finds incredible tha t 22 petitioner-husband claims to have paid rent for six 23 months to store the tools ; yet by his own admission, 24 he did not acquire the tools until October of 2003 . 25 Moreover, petitioner-husband slid not satisfy th e Heritage Reporting Corporation (202) 628-4888 9 1 substantiation requirements by providing examples of 2 typical moving expenses . 3 Accordingly , we sustain respondent' s 4 determination in the deficiency notice regarding the 5 deficiency . 6 We now turn to respondent ' s determination 7 that petitioners are liable for an accuracy - related 8 penalty . Petitioners did not challenge the imposition 9 of the accuracy - related penalty in the petition . 10 Accordingly , petitioners have conceded this issue .~~j SFe Sw4 +r V, Coy"I" ,- ,ssloner , I II T . C, 35 S (aoa ..) . 4 11 To reflect the foregoing , decisions will be 12 entered for respondent in each of these consolidate d 13 cases . 14 This concludes the Court' s oral findings of 15 fact and opinion in these consolidated cases . 16 (Whereupon, at 10 :29 a .m ., the bench opinion 17 in the above - entitled matter was concluded . ) 18 19 20 21 22 23 24 25 Heritage Reporting Corporation (202) 628-4888