TAX COURT OPINION

Case: Joseph Romain & Marie R. Romain
Docket Number: 24072-14
Judge: Thornton
Opinion Type: bench
Filed: 12/21/2015
Pages: 9

UNITED STATES TAX COUR WASHINGTON, DC 20217 JOSEPH ROMAIN & MARIE R. ROMAIN, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 24072-14. ) ) ) ) ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit to petitioner and to respondent a copy of the pages of the transcript of proceedings of this case before Chief Judge Michael B. Thornton in Westbury, New York on November 17, 2015, containing his oral findings of fact and opinion rendered at the trial session at which the case was calendared. In accordance with the oral findings of fact and opinion, a decision will be entered under Rule 155. (Signed) Michael B. Thornton Chief Judge Dated: Washington, D.C. December 21, 2015 SERVED DEC 2 2 2015 Capital Reporting Compainy Bench Opinion by Chief Judge Michael B. Thornton 3 November 17, 2015 Joseph Romain & Marie R. Romain Docket No. 24072-14 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. Except as otherwise provided by Rule 152(c) of the Tax Court Rules of Practice and Procedure, the oral findings of fact and opinion shall not be relied upon as precedent. This Bench Opinion is made pursuant to the authority granted by section 7459(b) and Rule 152. All statutory references are to the Internal Revenue Code as in effect for the taxable years at issue. Rule references are to the Tax Court Rules of Practice and Procedure. All monetary amounts are rounded to the nearest dollar. This case was tried on November 16, 2015, in New York, New York. Petitioners Joseph and Marie R. Romain tried their case pro sese. Theresa G. McQueeny represented respondent. Respondent determined deficiencies in petitioners' Federal income tax of $6,382 and $3,458 for the years 2009 and 2011, respectively. These 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 4 1 2 3 4 5 6 7 8 9 10 11 12 deficiencies are based upon respondent's disallowance of various claimed Schedule C expenses and tuition and fees deductions for both years, the addition of an unreported state refund, and computational adjustments. Respondent made several concessions at trial and in the stipulation of facts. First, with respect to petitioners' claimed mortgage interest deductions for 2009 and 2011 in the amounts of $3,566 and $4,465, respectively, the parties stipulated that if petitioners itemize their deductions, such amounts are properly included on petitioners' Schedule A. 13 Similarly, the parties stipulated that if petitioners 14 15 16 17 18 19 20 21 22 23 24 25 itemize their deductions, for taxable year 2009, they are entitled to claim property taxes of $7,069. In addition, with respect to the category "Other expenses," respondent conceded that petitioners are allowed to deduct $586 and $1,640 for taxable years 2009 and 2011, respectively. Finally, respondent conceded that petitioners are entitled to additional tuition and fees deductions of $900 for each taxable year at issue. Petitioners stipulated that Mr. Romain did not use his residence as a Schedule C business during either of the taxable years at issue. After these concessions, three issues remain: 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 9 10 11 12 (1) whether petitioners are entitled to claim Schedule C expenses in excess of those allowed or conceded by respondent for taxable years 2009 and 2011; (2) whether petitioners are entitled to deduct tuition and fees expenses in excess of the amounts allowed or conceded by respondent for taxable years 2009 and 2011; and (3) whether petitioners failed to report a state refund of $40. FINDINGS OF FACT Some of the facts have been stipulated and are so found. The stipulation of facts and accompanying exhibits are incorporated by this reference. 13 Petitioners resided in New York when they filed their 14 15 16 petition. Mr. Romain began working as a real estate agent in 2007; he earned no income from his real estate 17 activity in 2007 or 2008. For taxable years 2009 18 19 20 21 22 23 24 25 and 2011, petitioners filed Forms 1040, U.S. Individual Income Tax Return. They reported Schedule C losses allegedly stemming from Mr. Romain's real estate activity. Petitioners' 2009 Schedule C reported gross receipts of $1,380 and total expenses of $35,868; their 2011 Schedule C reported zero gross receipts and total expenses of $28,274. Petitioners claimed tuition and fees expenses in the amounts of 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 $8,250 and $4,000 for 2009 and 2011, respectively. The IRS selected petitioners' 2009 and 2011 returns for examination. After the examination commenced, petitioners submitted amended returns for both years; neither was processed. Petitioners participated in the IRS' Fast Track Mediation program. The subsequently issued report, dated 8 October 30, 2013, described, among other things, the 9 concessions made by respondent during the mediation. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 And the notices of deficiency, upon which this case is based, take into account these concessions and agreed-upon determinations. In the notices of deficiency, respondent disallowed $27,037 of petitioners' claimed Schedule C deductions for tax year 2009 and $26,823 of their claimed Schedule C deductions for tax year 2011, but allowed petitioners $900 more meals and entertainment expenses than petitioners had claimed on their return for 2011. In addition, respondent disallowed $4,000 of claimed tuition and fees expenses for each year and determined that for 2011 petitioners had a $783 taxable state tax refund, rather than $743 as reported on their original 2011 tax return. (On their amended 2011 tax return, petitioners admitted that the correct number was $783.) 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company 7 1 In response to the notices of deficiency, on 2 October 10, 2014, petitioners timely petitioned this 3 Court. Several months later, petitioners received 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 two Notices CP22E indicating assessments for taxable years 2009 and 2011. The assessments resulted solely from the disallowance of earned income credits and child tax credits claimed by petitioners. These premature assessments were made in error. In a letter dated January 29, 2015, respondent indicated that the assessments had been reversed. As a result, petitioners' account transcripts for 2009 and 2011 then indicated a zero balance. This did not mean, however, that petitioners had no tax deficiencies--it simply meant that it was premature for the IRS to assess the deficiencies while petitioners' case was pending in this Court. See sec. 6213(a). Understandably confused and apparently believing that all outstanding issues relating to their 2009 and 2011 Federal income tax returns had been settled, petitioners filed a status report and a subsequent 21 motion for summary judgment. In each document, 22 23 24 25 petitioners argued that respondent's correspondence indicated that they owed no tax for the years at issue. Although the Court issued an order denying petitioners' motion on November 10, 2015, petitioners 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company nonetheless continued to insist upon this argument at 8 trial. OPINION Petitioners bear the burden of proving that respondent's determinations are incorrect. Rule 142(a). In particular, they bear the burden of proving their entitlement to deductions allowed by the Code and of substantiating the amounts of claimed deductions. Indopco, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Petitioners have not alleged or shown that the burden of proof should shift to respondent under section 7491(a). Taxpayers may deduct "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business," but they must maintain sufficient records to substantiate such expenses. Secs. 162(a), 6001; sec. 1.6001-1(a), Income Tax Regs. If taxpayers establish that deductible expenses were incurred but fail to establish the precise amounts, we may estimate allowable amounts in appropriate circumstances. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). However, there must be evidence in the record that provides a rational basis for such an estimate. Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985). 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 9 1 2 3 4 5 6 As was explained to petitioners at trial, the correspondence and other materials from respondent's administrative file-indicating the administrative reversal of a premature assessment-do not suffice to satisfy petitioners' burden of proof in this proceeding. In any event, despite petitioners' 7 misunderstanding, these materials do not indicate 8 9 that petitioners have no deficiency for the years at issue or that respondent ever determined that they 10 have no deficiency. Petitioners provided the Court 11 with no documentary evidence such as invoices, 12 13 14 15 receipts, bank records, or credit card statements to support their claimed deductions or to provide a basis on which the Court could make an estimate. They have failed to show that they are entitled to 16 more Schedule C deductions than respondent has 17 18 19 allowed. With respect to the claimed tuition and fees expenses, petitioners similarly failed to submit any evidence showing that they are entitled to deduct 20 more than the amounts respondent has conceded. On 21 22 23 24 25 their 2011 amended return, petitioners conceded that their state tax refund of $783 was taxable, as respondent determined in the notice of deficiency. In their 2009 amended return, petitioners sought to claim a net operating loss carryover of $26,950, but 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 they have presented no evidence to show that they are entitled to this or any other amount of net operating loss carryover. Consequently, we sustain respondent's determinations in the notices of deficiency, except for the concessions described above. To reflect those concessions, decision will be entered pursuant to Rule 155. This concludes the Court's findings of fact and opinion in this case. (Whereupon, at 10:17 a.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 25 866.488.DEPO www.CapitalReportingCompany.com