TAX COURT OPINION

Case: Erendira Rangel-Palacios
Docket Number: 20885-16
Judge: Goeke
Opinion Type: bench
Filed: 10/15/2018
Pages: 7

UNITED STATES TAX COURT WASHINGTON, DC 20217 DRC ERENDIRA RANGEL-PALACIOS, Petitioner(s), v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 20885-16. ) ) ) ) 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 Judge Joseph Robert Goeke at San Diego, California containing his oral findings of fact and opinion rendered at the trial session at which this case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered under Rule 155. (Signed) Joseph Robert Goeke Judge Dated: Washington, D.C. October 15, 2018 SERVED Oct 15 2018 Bench Opinion by Judge Joseph Robert Goeke September 26, 2018 Erendira Rangel-Palacios v. Commissioner of Internal 3 Revenue Docket No. 20885-16 THE COURT: 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. The oral findings of fact and opinion shall not 1 2 3 4 5 6 7 8 9 10 be relied upon as precedent in any other case. This 11 opinion is rendered pursuant to Rule 152 of the Tax Court 12 Rules of Practice and Procedure, and rule references in 13 the remainder of this bench opinion are to the Tax Court 14 Rules of Practice and Procedure. Section 7459(b) provides 15 further support for the rendering of this bench opinion. 16 This section is in the Internal Revenue Code, and all 17 18 19 section references in this bench opinion are to the Internal Revenue Code relevant to the case before us. In the present case the petitioner was issued a 20 Notice of Deficiency by the respondent for the taxable 21 year 2013. This Notice of Deficiency asserted a 22 deficiency in Income Tax in the amount of $12,173, and an 23 addition to tax under Section 6662(a) in the amount of 24 25 $2,434. We have jurisdiction because petitioner timely filed a petition for the review of this Notice of cnoers pn)4½2250 t operadormeemreerunt! wwwe×remane 4 1 2 3 4 5 6 7 8 9 Deficiency. At the time she filed this petition the petitioner was a resident of California. This case came to trial in San Diego, California on September 26th, 2018 and this bench opinion is rendered on the same day. In addition to stipulated exhibits and two other exhibits submitted at trial, the petitioner testified. The issues before the Court all relate to the disallowance of expenses claimed by the petitioner on Schedule A of her 2013 Income Tax Return in the form of 10 deductions for various items listed on Schedule A. 11 Respondent's Notice of Deficiency disallowed these 12 13 14 15 expenses completely. However, petitioner did provide information to the respondent and there is documentation that was stipulated which would support some of the expenses to the extent that respondent conceded 16 petitioner's claimed mortgage expenses in he amount 17 18 $14,710 for mortgage interest, and state local taxes in the amount of $4100, and respondent will concede a portion 19 of the real estate taxes claimed by the petitioner in the 20 21 22 23 24 amount of $4603, and a portion of the personal property taxes claimed on line 7 of Schedule A in the amount of $320. Respondent continues to maintain that the deductions claimed for job expenses and certain 25 miscellaneous items on lines 21 through 27 of the Schedule Criber$ øn>406-22solopermaneexréennetlwwwesenbersmet 1 A should be disallowed in full. Respondent disallowed 2 medical and dental expenses in the Notice of Deficiency, 5 3 4 5 6 7 8 9 and at trial the petitioner conceded that she was not entitled to these expenses. We address the issues that remain in dispute, beginning with the portion of the real estate taxes which respondent contends should still be disallowed. Respondent maintains that a portion of the real estate taxes reflected in the amount of $4603 was not paid in 2013 by the petitioner, but rather was paid by the 10 bank which held a mortgage on the property. Petitioner 11 12 13 credibly testified that this amount was paid out of her escrow account, and that she did reimburse the bank for the escrow payment. In any event, we find that the 14 petitioner would be liable for this real estate tax, and 15 would have owed the bank for the escrow payment. Given a 16 normal operation of real estate loans, we believe 17 petitioner is entitled to the full amount claimed as 18 19 stated in the amount of $4,603. Next, we turn to the personal property tax, 20 which respondent has disallowed. Petitioner testified 21 22 credibly that this was a payment related to her vehicle to the State of California. Respondent believes that a 23 portion of the $320 was for fees charged and not for 24 25 personal property tax. Petitioner provided some documentation to reflect that she did pay the State of an><s22solapsmaneex,tenmalwwwasaamsw California relative to the vehicle. 6 This documentation is ambiguous as to what amount actually was paid for personal property tax, but the Court feels that it is appropriate in this situation to provide the petitioner with a portion of the expense, and therefore the Court would determine that, of the $320 deduction, the amount of $250 is deductible based upon petitioner's testimony and the exhibit entered into the record. With respect to the job expense and certain 1 2 3 4 5 6 7 8 9 10 miscellaneous deductions, petitioner testified as to each 11 12 13 14 line item which has been disallowed, and explained that these expenses were incurred in the course of her employment as a chemistry teacher. We found petitioner's testimony in this regard to be credible, and we would 15 allow the line items on Schedule A reflected on her 2013 16 Federal Income Tax Returns on line 21, line 23, with the 17 18 19 20 21 22 23 24 25 exception that these amounts have to be reduced pursuant to the statutory limitation computed on line 26. With respect to the tax preparation fees, reflected on line 22 we found petitioner's testimony to be credible regarding her payment of $190 for these fees and we would determine that the $190 is, in fact, deductible. As we noted earlier, petitioner has conceded the amount of medical and dental expense claimed totaling $52,743. Given our determination about these expenses and tribeff øn>4m-usotoperenome.wreenmeelww.mcremnas the parties concessions, a Rule 155 computation will be 7 necessary to determine petitioner's tax liability. The final issue in the case is respondent's determination of an addition to tax under Section 6662(a). Respondent determined this addition to tax is a computational matter based upon the fact that petitioner understated over $5,000 in the tax which should have been properly shown on her return, and therefore respondent determined that there was a substantial understatement. There will be a significant understatement because of petitioner's concession of the medical expense. In order to avoid the application of the addition to tax, 1 2 3 4 5 6 7 8 9 10 11 12 13 petitioner must establish that she had reasonable cause 14 15 16 17 18 for claiming the medical expense deduction in 2013. She testified credibly that this deduction reflects expenses that were incurred because of a major accident, which injured her brother and that she believed she was entitled to claim the expenses she had paid for support in 19 providing medical assistance to her brother. Petitioner 20 now concedes that her analysis in this regard was 21 22 23 24 incorrect. Given petitioner's lack of sophistication and her general credibility in this matter, we believe that the fact that she incorrectly claimed the medical expense was not in bad faith and rather that there is reasonable 25 cause for her incorrect assumption that she was entitled onbers pn)4®2250loperettermeescr6eamtiwaneserteum to claim expenses she had incurred on behalf of her brother. Therefore we do not sustain the addition to tax under Section 6662(a), a decision will be entered for the petitioner reflecting that there is no addition to tax. 8 As stated previously with respect to the deficiency in Income Tax, a Rule 155 computation will be necessary. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 5:00 p.m., the above-entitled matter was concluded.) 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 734406-2250;operationiseerrêaersnetivinneehmet