tcmemo_2013_141 united_states tax_court pamela lynn brooks petitioner v commissioner of internal revenue respondent docket no filed date pamela lynn brooks pro_se donald d priver for respondent memorandum findings_of_fact and opinion marvel judge in a notice_of_deficiency dated date respondent determined deficiencies in petitioner’s federal_income_tax fraud penalties under sec_6663 and accuracy-related_penalties under section - - a as follows year deficiency dollar_figure big_number big_number penalties sec_6663 sec_6662 dollar_figure big_number dollar_figure after concessions the issues for decision are whether petitioner is entitled to a capital_loss_carryover deduction for each of the years in issue whether petitioner is entitled to charitable_contribution deductions she claimed on her unless otherwise indicated all section references are to the internal_revenue_code code as amended and in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure some monetary amounts have been rounded to the nearest dollar for respondent concedes that petitioner is entitled to the entire amount of her claimed deduction for state and local sales_taxes and a dependency_exemption deduction for michael bias for petitioner concedes that she is not entitled to a dependency_exemption deduction for michael bias see infra note for petitioner concedes that she is not entitled to any itemized_deductions the parties have stipulated that she is entitled to the standard_deduction for that year see infra note respondent concedes that petitioner is not liable for the fraud_penalty under sec_6663 for any of the years in issue the amounts shown in the table above reflect respondent’s determinations in the notice_of_deficiency on the basis of respondent’s concession respondent has asserted increased sec_6662 accuracy- related penalties of dollar_figure dollar_figure and dollar_figure for and respectively schedules a itemized_deductions for and whether petitioner is entitled to a casualty_loss deduction she claimed on her schedule a for whether petitioner is entitled to dependency_exemption deductions for her grandson n j for and for her son michael bias for whether petitioner claimed a charitable_contribution_deduction on a schedule a attached to her return in her opening brief petitioner contends that she is entitled to a charitable_contribution_deduction of dollar_figure for she advances this contention again in her reply brief petitioner stipulated however that she was not entitled to any itemized_deductions for at trial this court reviewed the stipulations of fact and petitioner specifically indicated that the stipulation regarding the itemized_deductions was correct as the trial proceeded petitioner again represented that for she would take the standard_deduction rather than itemize her deductions petitioner an internal_revenue_service irs tax compliance officer was familiar with schedule a she was aware that by conceding her right to itemize her deductions she also was conceding her claimed charitable_contribution_deduction for respondent relied on petitioner’s concession in arguing this case accordingly we find that petitioner has conceded that she is not entitled to a charitable_contribution_deduction for furthermore although we find that petitioner has conceded this issue we note that the record is devoid of any credible_evidence that would substantiate her claimed charitable_contribution_deduction for in her reply brief petitioner contends that she has not conceded her eligibility for the dependency_exemption deduction for michael bias for petitioner testified however that she had conceded the deduction and in her opening brief she asserts that she conceded the deduction in her reply brief petitioner asserts that she agreed to respondent’s disallowance of the deduction because she could not establish the amount of income michael bias received continued petitioner is entitled to a federal telephone_excise_tax credit for in excess of the amount respondent allowed and whether petitioner is liable for accuracy-related_penalties under sec_6662 for and findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts is incorporated herein by this reference petitioner resided in california when she filed her petition continued during and that she claimed the dependency_exemption deduction in good_faith at trial and in her opening brief petitioner conceded that she is not entitled to the dependency_exemption deduction for michael bias for respondent relied on petitioner’s concession in arguing this case petitioner is bound by her concession furthermore although we conclude that petitioner has conceded this issue we note that respondent introduced credible_evidence that michael bias received wages in excess of the exemption_amount during additionally petitioner testified that in addition to the income michael bias earned in exchange for caring for his aunt he also received unemployment_compensation during accordingly even if we had relieved petitioner of her concession the record shows that petitioner was not entitled to a dependency_exemption deduction for michael bias for we construe petitioner’s argument in her reply brief to be that she is not liable for the sec_6662 penalty with respect to the portion of the underpayment for attributable to the disallowance of the dependency_exemption deduction for michael bias because she claimed the deduction in good_faith we address petitioner’s argument infra part iv b of this opinion i background in petitioner began working for the irs as a secretary in she began working as an irs tax compliance officer as part of her duties petitioner examined individual tax returns schedules a and schedules c profit or loss from business and also reviewed taxpayers’ eligibility for capital_loss and dependency_exemption deductions on a date not apparent from the record petitioner married fred bias she separated from fred bias in a decree of divorce was entered at a later date petitioner has four children michael bias monique bias marquise bias and clayesha mcelwee petitioner’s son michael bias was born in michael bias resided with petitioner during the years in issue during michael bias was a full-time high school student who worked part time at stater bros he graduated in and subsequently began providing in-home supportive care for his disabled aunt janet henry who also resided with petitioner during and michael bias received compensation from a local_government agency for providing in-home supportive care to ms henry petitioner has a grandson n j who was born in n j is the son of monique bias monique bias and n j resided with petitioner during we infer from the record that marquise bias is petitioner’s son ii petitioner’s property transactions a los angeles property petitioner’s claimed capital_loss deductions are attributable to her investment with respect to a property in los angeles california los angeles property in petitioner’s mother-in-law beulah bias inherited the los angeles property fred bias subsequently began residing at the los angeles property and petitioner moved to the los angeles property in in date petitioner received a gift of dollar_figure she initially deposited the dollar_figure in her account at bank of america however petitioner and beulah bias agreed that petitioner would use the dollar_figure to make improvements to the los angeles property and in exchange petitioner would be entitled to a portion of the proceeds from the sale of the los angeles property during petitioner used the dollar_figure to make improvements to the los angeles property she did so with the intent to make a profit from her investment in the property when the property was sold on date beulah bias died petitioner continued to reside at the los angeles property until fred bias resided at the los angeles property until in petitioner learned that the bias family was attempting to sell the los angeles property she subsequently sued the estate of beulah bias in the superior court of the state of california county of los angeles in case no bc in she settled with the estate of beulah bias for dollar_figure she incurred legal expenses of dollar_figure with respect to her lawsuit b riverside property on a date not apparent from the record petitioner purchased a house in riverside california riverside property for dollar_figure in a fire caused significant smoke damage to the riverside property after the fire petitioner applied to the federal emergency management agency fema for disaster assistance with respect to the riverside property she also filed a claim with her insurance_company balboa insurance while it was investigating petitioner’s claims balboa insurance discovered the presence of asbestos at the riverside property balboa insurance concluded that in order to remedy the smoke damage petitioner would need to have the asbestos removed and it proceeded to have estimates prepared regarding the costs of removing the asbestos and repairing the smoke damage petitioner subsequently received payments from balboa insurance and fema but the record does not permit us to determine the total amount of continued petitioner did not make any repairs to or remove the asbestos from the riverside property instead she attempted to sell the riverside property her initial asking price for the riverside property was dollar_figure after she received an offer and while the property was in escrow petitioner’s real_estate agent discovered that petitioner had failed to disclose the asbestos problem to the buyer petitioner consequently agreed with the buyer to reduce the price to dollar_figure an amount equal to the asking price reduced by the cost of repairing the property including the costs of repairing the smoke damage and removing the asbestos in date she sold the riverside property for dollar_figure iii petitioner’s tax reporting and the notice_of_deficiency petitioner prepared her own returns for the years in issue on her form_1040 u s individual_income_tax_return petitioner reported a capital_loss of dollar_figure she claimed dependency_exemption deductions for michael bias marquise bias and ms henry on an attached schedule a she claimed total continued payments petitioner received however because we find that petitioner is not entitled to a casualty_loss deduction under sec_165 we need not determine the amount of the payments she received see infra note on schedules d capital_gains_and_losses attached to her and returns petitioner reported the capital_loss as a short-term_capital_loss she did not provide any description of the property the date acquired the date sold the sale price or the cost or basis under part i of the schedules d itemized_deductions of dollar_figure including deductions for state and local sales_taxes of dollar_figure charitable_contributions of dollar_figure and a casualty_loss of dollar_figure on an attached form_4684 casualties and thefts petitioner reported that the casualty_loss was attributable to damage to the riverside property she reported a cost_basis in the property of dollar_figure and an insurance reimbursement of dollar_figure she also reported that the fair_market_value fmv of the riverside property before the casualty was dollar_figure and that the fmv after the casualty was dollar_figure she calculated the amount of the casualty_loss claimed by subtracting the insurance reimbursement amount from the dollar_figure decrease in the property’s fmv and then making various adjustments as required by the form_4684 on her form_1040 petitioner reported a capital_loss of dollar_figure and claimed a telephone_excise_tax credit of dollar_figure which she calculated on the basis of the actual amount of federal excise_tax she paid she claimed dependency_exemption deductions for michael bias marquise bias ms henry and n j on an attached schedule a she claimed total itemized_deductions of dollar_figure including a deduction for charitable_contributions of dollar_figure petitioner attached to her return a form_8913 credit for federal telephone_excise_tax paid on which she calculated the amount of her claimed telephone tax_credit on her form_1040 petitioner reported a capital_loss of dollar_figure she claimed dependency_exemption deductions for michael bias marquise bias and ms henry on an attached schedule a she claimed total itemized_deductions of dollar_figure including deductions for state and local sales_taxes of dollar_figure charitable_contributions of dollar_figure and a casualty_loss of dollar_figure respondent subsequently mailed to petitioner the notice_of_deficiency with respect to respondent disallowed petitioner’s claimed capital_loss deduction her claimed casualty_loss deduction the dependency_exemption deduction for michael bias dollar_figure of her claimed state and local sales_tax deduction and the entire amount of her claimed charitable_contribution_deduction with respect to respondent disallowed her claimed capital_loss deduction the dependency_exemption deductions for michael bias and for n j her charitable_contribution_deduction of dollar_figure and her claimed telephone_excise_tax credit of dollar_figure with respect to respondent disallowed her claimed capital_loss deduction her claimed casualty_loss deduction the dependency_exemption deduction for michael bias her claimed state and local sales_tax deduction of dollar_figure and the entire amount of her charitable_contribution_deduction respondent also determined that petitioner was liable for fraud penalties under sec_6663 with respect to portions of the underpayments and for accuracy- related penalties with respect to other portions of the underpayments respondent alternatively determined that she was liable for accuracy-related_penalties under sec_6662 with respect to the underpayments iv petitioner’s tax_court proceedings petitioner timely filed a petition with this court requesting redetermination of respondent’s determinations in the notice_of_deficiency by notice dated date we set this case for trial at this court’s san diego california trial session beginning date attached to the notice was this court’s standing_pretrial_order requiring the parties to exchange documents and other data that the parties intended to use at trial no later than date and to prepare a stipulation of facts to be signed and submitted at the calendar call on date with respect to the trial exhibits the standing_pretrial_order required the parties to exchange any exhibits at least days before the first day of the trial session and stated that t he court may refuse to receive in evidence any document or material that is not so stipulated or exchanged unless the parties have agreed otherwise or the court so allows for good cause shown opinion i burden_of_proof in general the commissioner’s determination_of_a_deficiency is presumed correct and the taxpayer bears the burden of proving otherwise rule a 290_us_111 the burden_of_proof however may shift to the commissioner under sec_7491 if certain requirements are met see sec_7491 and see also 116_tc_438 petitioner does not contend that sec_7491 should shift the burden here and the record does not establish that she satisfied the sec_7491 requirements accordingly petitioner bears the burden of proving that the commissioner’s determinations are erroneous ii capital_loss deductions a parties’ arguments petitioner claimed capital_loss_carryover deductions of dollar_figure on her and returns respondent disallowed her claimed capital_loss deductions in full petitioner contends that she is entitled to the claimed capital_loss deductions because she incurred a dollar_figure loss with respect to her investment in the los angeles property during respondent contends that petitioner is not entitled to the claimed deductions under either sec_165 or sec_166 first respondent contends that petitioner is not entitled to deduct the purported loss as a loss on a sale_or_exchange of property under sec_165 because she failed to show either that she owned or had an enforceable property interest in the los angeles property or she made the improvements to the property with the intent to make a profit second respondent contends that in her opening brief petitioner contends that because she recovered dollar_figure as a result of her litigation against the estate of beulah bias she is entitled to a capital_loss deduction equal to the sum of the amount recovered plus the dollar_figure she paid in attorney’s fees related to the litigation petitioner appears to contend that there was a conclusive finding regarding her ownership_interest in the los angeles property because the litigation resulted in her recovery we construe petitioner’s argument to be that she is claiming a capital_loss deduction under sec_165 on the basis of her investment in the los angeles property which petitioner appears to contend gave her an ownership_interest in the property under california law however no court made any findings or entered a decision regarding petitioner’s ownership_interest if any in the los angeles property the mere fact that petitioner received a sum pursuant to a settlement is not dispositive of the issue of whether she had such an ownership_interest in her reply brief petitioner addresses respondent’s arguments regarding her right to a capital_loss deduction under sec_165 and sec_166 keeping in mind that petitioner is representing herself without the benefit of counsel we have reviewed relevant statutory law and we are unable to identify any code provisions beyond the two cited above that would support petitioner’s contention that she is entitled to the claimed deductions accordingly we will address whether petitioner is entitled to the deduction claimed under either sec_165 or sec_166 petitioner is not entitled to deduct the purported loss under sec_166 because she has failed to show that she had a bona_fide loan agreement regarding her investment in the los angeles property because we find that petitioner is entitled to deduct the loss under sec_165 we need not decide whether she is entitled to deduct the loss under sec_166 b sec_165 sec_165 allows a taxpayer to deduct any loss sustained during the taxable_year that is not_compensated_for_by_insurance_or_otherwise sec_165 limits the deduction in the case of an individual to losses_incurred in a trade_or_business or any transaction entered into for profit casualty losses and theft losses losses from sales or exchanges of capital assets are allowable only to the extent authorized in sec_1211 and sec_1212 sec_165 a taxpayer must have an economic_interest in the relevant property to be allowed a loss deduction see sec_165 sec_1011 sec_1012 sec_1016 see also 152_f2d_930 2d cir affirming the tax court’s finding that the taxpayer did not the term capital_asset is defined in sec_1221 as property held by the taxpayer whether or not connected with his trade_or_business with four exceptions none of which is relevant here if an individual’s capital losses exceed capital_gains sec_1211 restricts deductions for capital losses to the lower_of dollar_figure or the excess of such losses over gains have an economic_interest in stock shares when the taxpayer did not purchase the shares have possession of the shares or receive the shares via transfer 75_f2d_255 2d cir aff’g 29_bta_1109 no deduction is allowed for personal living or family_expenses sec_262 for purposes of sec_165 a taxpayer is considered as entering a transaction for profit if the transaction has economic_substance and the taxpayer was motivated by profit to participate in the transaction 982_f2d_163 6th cir aff’g tcmemo_1991_449 see also 50_tc_963 a transaction with economic_substance has a realistic potential for profit 89_tc_986 farmer v commissioner tcmemo_1994_342 a taxpayer may expect to earn a profit either from income generated by the investment or from a sale of the investment 109_f2d_996 3d cir aff’g in part rev’g in part 39_bta_400 to be allowed a deduction the taxpayer must show that her predominant primary or principal objective was to realize an economic profit 4_f3d_709 9th cir aff’g tcmemo_1991_212 in analyzing whether the taxpayer has adequately shown that she intended to realize an economic profit from the transaction we look primarily to the taxpayer’s subjective intent id the parties stipulated that petitioner used dollar_figure of her own funds to make improvements to the los angeles property petitioner testified that she invested the dollar_figure in the los angeles property with the expectation that beulah bias eventually would sell the house and petitioner would receive a portion of the proceeds she further testified that she had an agreement with beulah bias that petitioner would receive of the proceeds respondent first contends that sec_165 requires that the taxpayer have an enforceable property interest to be allowed a loss deduction with respect to real_property and petitioner did not have such an interest however respondent has offered no legal support for that contention sec_165 requires only that the taxpayer have an economic_interest in the property although petitioner did not introduce a copy of a written_agreement signed by both petitioner and beulah bias or her successor_in_interest we find petitioner’s testimony regarding her oral agreement with beulah bias to be credible under the agreement petitioner acquired an equitable interest in the los angeles property in that she was promised a share of the proceeds if and when the los angeles property was sold accordingly we find that petitioner’s investment of dollar_figure in the los angeles property resulted in her acquiring an economic_interest in and claim against the property in exchange for her dollar_figure investment petitioner filed a lawsuit against the estate of beulah bias to protect her interest and enforce her claim because petitioner felt she had a cognizable legal claim to a portion of the proceeds from the los angeles property under the circumstances we find that petitioner had an economic_interest in the property and that interest is sufficient for purposes of section dollar_figure respondent contends that under cal civ code sec a west an agreement for the lease or sale of real_property must be in writing and signed by the party to be charged respondent contends therefore that even if this court finds that petitioner and beulah bias had an oral agreement the oral agreement was not an enforceable contract under california law however as discussed below the oral agreement between petitioner and beulah bias was not an agreement for the lease or sale of real_property but instead more closely resembled a joint_venture agreement for the development and sale of real_estate under california law ‘ a joint adventure in the purchase and sale of real_estate may be formed by parol agreement ’ fitzgerald v provines p 2d cal dist ct app quoting sly v abbott p cal app petitioner and beulah bias agreed that if petitioner invested dollar_figure to improve the los angeles property petitioner would be entitled to a portion of the sale proceeds although petitioner did not have the right to control the use or disposition of the property she exercised significant control_over the selection and implementation of the improvements see bank of cal v connolly cal rptr cal ct app accordingly the oral agreement between petitioner and beulah bias was enforceable under california law see id pincite agreements by landowners to share profits from the sale of their land in consideration of capital_contribution or for services to be rendered have been held to be valid and enforceable according to their terms respondent also contends that petitioner is not entitled to a loss deduction because she did not invest the dollar_figure which paid for improvements to the property with the intent to make a profit we disagree petitioner invested sec_1_165-9 income_tax regs provides that a loss sustained on the sale of residential property purchased or constructed by the taxpayer for use as his personal_residence and so used by him up to the time of sale is not deductible under sec_165 however a loss is deductible if the taxpayer appropriates the property to income-producing purposes and uses the property for those purposes up to the time of sale sec_1_165-9 income_tax regs in evaluating whether a taxpayer has converted a personal_residence to an income-producing property we have considered the following factors the length of time the taxpayer occupied the property as her personal_residence whether the property was available for the taxpayer’s personal_use during the purported conversion period the recreational character of the property whether the taxpayer offered to rent the property and whether the taxpayer previously offered to sell the property 54_tc_1298 see also 776_f2d_1428 9th cir aff’g in part rev’g in part 81_tc_840 when petitioner invested dollar_figure in the los angeles property she had a reasonable expectation that she would benefit either by acquiring an ownership_interest in the property when beulah bias decided to dispose_of the property or by receiving a share of the proceeds when the property was sold petitioner did not own the los angeles property accordingly petitioner could not control the use or disposition of the los angeles property by contrast the taxpayers in newcombe held an ownership_interest in the relevant property and could control its use or disposition they could have offered the property for rent or for sale or used it if it remained unoccupied the factors considered by the court in ascertaining the taxpayers’ intent with respect to the property assumed that the taxpayers controlled the use or disposition of the property in a case such as this however where petitioner did not hold an ownership_interest in the property and could not control its use and disposition the newcombe factors are meaningless therefore newcombe is distinguishable dollar_figure in the property with the understanding that she was acquiring an economic_interest in the property and that she would receive a share of the proceeds when the property was sold although petitioner temporarily resided at the los angeles property until this fact alone does not compel a conclusion that she made the improvements primarily for personal purposes see 20_tc_305 allowing taxpayers a loss deduction under sec_165 with respect to the sale of a residence when the taxpayers invested in the residence for profit and lived in the residence only temporarily in fact petitioner vacated the house shortly after the renovations were completed furthermore we find it unlikely that petitioner would have expended such a large sum of money to renovate a house that she did not own purely for her own personal comfort we find that petitioner invested dollar_figure in the property with the predominant primary or principal objective of realizing an economic profit see wolf v commissioner f 3d pincite and that in when the bias family attempted to sell the property she had an economic_interest in and claim against the property which was a capital_asset this conclusion is supported by the following facts petitioner made the investment with the expectation that the los angeles property would be sold and she would receive a portion of the proceeds she made general improvements that would increase the value of the property rather than any improvements specific to the needs of her family and she moved out of the property within a relatively short time following the completion of the construction work accordingly petitioner is entitled to a loss deduction under sec_165 c amount of capital_loss petitioner’s settlement with the estate of beulah bias was a sale_or_exchange of the claim that resulted from her investment in the los angeles property petitioner had a cost_basis in that claim of dollar_figure see sec_1012 her basis is increased by the dollar_figure of legal expenses she incurred in defending her claim with respect to the los angeles property see eg estate of franco v commissioner tcmemo_1980_340 cowden v commissioner tcmemo_1965_278 aff’d per curiam 365_f2d_832 1st cir petitioner exchanged her claim for dollar_figure paid pursuant to her settlement agreement with the estate of beulah bias therefore the amount of the loss petitioner sustained must be adjusted for the consideration she received under the settlement agreement see sec_1_165-1 income_tax regs we find that petitioner incurred a loss of dollar_figure in with respect to her investment in the los angeles property accordingly petitioner was entitled to a capital_loss carryover deduction of dollar_figure for each of and see sec_1211 iii schedule a deductions deductions are a matter of legislative grace and a taxpayer ordinarily must prove that she is entitled to the claimed deduction 503_us_79 a taxpayer is required to maintain records to substantiate claimed deductions and to establish her correct_tax liability higbee v commissioner t c pincite see also sec_6001 the taxpayer must produce such records upon the request of the secretary sec_7602 see also sec_1_6001-1 income_tax regs substantiation is adequate if it establishes the amount and purpose of the claimed deduction higbee v commissioner t c pincite see also 65_tc_87 aff’d per curiam 540_f2d_821 5th cir the term secretary means the secretary_of_the_treasury or_his_delegate sec_7701 and the term or_his_delegate means any officer employee or agency of the treasury_department duly authorized by the secretary_of_the_treasury directly or indirectly by one or more redelegations of authority to perform the function mentioned or described in the context sec_7701 a charitable_contribution deductions for and on her return petitioner claimed a charitable_contribution_deduction of dollar_figure respondent disallowed her claimed deduction in full on her return petitioner claimed a charitable_contribution_deduction of dollar_figure respondent disallowed dollar_figure of her claimed deduction petitioner contends that she is entitled to charitable_contribution deductions in the amounts claimed on her returns ordinarily a taxpayer may deduct charitable_contributions made during the taxable_year sec_170 charitable_contributions however may be deducted only to the extent that the aggregate of such contributions does not exceed percent of the taxpayer’s contribution_base for the taxable_year sec_170 flush language a charitable_contribution_deduction is allowed only if verified under regulations promulgated by the secretary sec_170 a taxpayer who deducts charitable_contributions must maintain adequate documentation to substantiate them see sec_1_170a-13 income_tax regs sec_1_170a-13 income_tax regs requires the taxpayer to maintain a canceled check or a receipt from the donee organization to substantiate a cash contribution in the absence of a canceled check or a receipt from the donee organization the taxpayer must maintain other reliable written records showing the name of the donee and the date and the amount of the contribution id for any charitable_contribution of dollar_figure or more the taxpayer must obtain a contemporaneous written acknowledgment from the donee sec_170 sec_170 provides that the contemporaneous written acknowledgment must include the following b content of acknowledgment --an acknowledgment meets the requirements of this subparagraph if it includes the following information i the amount of cash and a description but not value of any property other than cash contributed ii whether the donee organization provided any goods or services in consideration in whole or in part for any property described in clause i iii a description and good_faith estimate of the value of any goods or services referred to in clause ii or if such goods or services consist solely of intangible religious benefits a statement to that effect sec_170 provides that a written acknowledgment is contemporaneous when the taxpayer obtains it on or before the earlier of the date the taxpayer separate contributions of less than dollar_figure are not subject_to the requirements of sec_170 regardless of whether a taxpayer’s contributions to a donee organization during a taxable_year total dollar_figure or more sec_1 170a- f income_tax regs files a return for the year of contribution or the due_date including extensions for filing that return petitioner testified that she is a jehovah’s witness she attends religious services at the kingdom hall and she made cash contributions to the jehovah’s witnesses during the years in issue she also testified that she contributed dollar_figure to a tsunami relief fund through the jehovah’s witnesses during she further testified that although she supplied the funds for the dollar_figure contribution her mother physically made the contribution to substantiate her dollar_figure contribution petitioner referred the court to exhibit 41-j a photocopy of two receipts the first receipt shows that on date daimlerchrysler corp made a payment to petitioner of dollar_figure the second receipt is a customer receipt from bank of america showing a deposit of dollar_figure into petitioner’s account on date exhibit 41-j contains no reference to a charitable_contribution exhibit 41-j shows only that petitioner received payment from daimlerchrysler corp and that she did not deposit into her account the entire amount of that payment petitioner offered only her testimony to substantiate her claim that she made a charitable_contribution using dollar_figure of the payment she received from daimlerchrysler corp not only did petitioner fail to provide corroborating evidence for her self- serving testimony which we are not required to accept see 112_tc_183 she also failed to provide a contemporaneous written acknowledgment documenting the contribution petitioner did not adequately substantiate her other reported charitable_contributions for or accordingly we sustain respondent’s determinations with respect to petitioner’s claimed charitable_contribution deductions for and b casualty_loss deduction for on her return petitioner claimed a casualty_loss deduction of dollar_figure in the notice_of_deficiency respondent disallowed the claimed casualty_loss deduction in full respondent contends that petitioner is not entitled to the claimed casualty_loss deduction because petitioner failed to show that she was entitled to claim the casualty_loss deduction on her return and petitioner failed to substantiate the loss of value with respect to the riverside property before addressing respondent’s contentions we must decide whether to admit petitioner’s exhibit 45-p we then consider whether petitioner has at trial petitioner attempted to introduce exhibit 42-p a document entitled kingdom hall cash disbursement register log respondent objected to petitioner’s introduction of the document and petitioner admitted that she did not prepare the document until the irs had begun an examination of her returns on the basis of petitioner’s admission we did not admit exhibit 42-p into evidence substantiated the amount of the loss of value caused by the casualty because we find that petitioner failed to substantiate the loss of value we need not decide whether she properly claimed the deduction for evidentiary matters respondent objected to the admission of exhibit 45-p respondent contends that this court should exclude exhibit 45-p because petitioner violated this court’s standing_pretrial_order by failing to present exhibit 45-p to respondent until date the date of the calendar call alternatively respondent contends that this court should exclude exhibit 45-p because the documents therein constitute inadmissible hearsay petitioner contends that she provided exhibit 45-p to respondent’s counsel on date she further contends that exhibit 45-p is admissible either under the business records exception to the hearsay rule or as a trustworthy statement of material fact exhibit 45-p is a 75-page exhibit consisting of copies of documents related to petitioner’s claimed casualty_loss deduction for exhibit 45-p consists primarily of cost repair estimates by various contractors relating to the repair of the riverside property following the fire in exhibit 45-p also includes a letter sent by petitioner to fema regarding her appeal requests and asbestos testing reports related to the riverside property respondent’s counsel asserted at trial that petitioner did not give him exhibit 45-p until date respondent’s counsel further asserted that he stipulated all the documents petitioner had provided to him and which he had in his possession before date the date of the calendar call although petitioner testified that she gave respondent’s counsel exhibit p on date we find credible respondent’s counsel’s assertion that he did not receive exhibit 45-p until date respondent’s counsel included in the stipulation of facts all of the documents petitioner had previously provided to him respondent’s counsel also reserved objections to many of those documents in the stipulation of facts we can find no reason respondent’s counsel would have included in the stipulation of facts all of the documents petitioner provided except for exhibit 45-p particularly when respondent’s counsel included in the stipulation of facts a number of documents with respect to which he had evidentiary objections because petitioner did not exchange exhibit 45-p with respondent’s counsel as required by our standing_pretrial_order we will exclude exhibit 45-p substantiation of loss of value sec_165 and c allows a deduction for losses arising from fire or other qualifying casualty sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise casualty_loss see also sec_1_165-7 income_tax regs a casualty_loss is treated as sustained during the taxable_year in which the loss occurs as evidenced by closed and completed transactions and as fixed by identifiable events occurring in such taxable_year sec_1_165-1 income_tax regs see also sec_1_165-1 income_tax regs sec_1_165-7 income_tax regs provides that the amount of loss to be taken into account for purposes of sec_165 is the lesser_of either i the amount that is equal to the fmv of the property immediately before the casualty reduced by the fmv of the property immediately after the casualty or ii the amount of the taxpayer’s adjusted_basis prescribed in sec_1_1011-1 income_tax regs for determining the loss from the sale or disposition of the property involved the fmv of the property immediately before and immediately after the casualty shall generally be ascertained by competent appraisal sec_1 a i income_tax regs the amount determined is then reduced by any insurance or other compensation received to arrive at the deduction allowable sec_165 sec_1_165-1 income_tax regs see also 305_us_468 67_tc_784 46_tc_751 aff’d 387_f2d_420 8th cir sec_1_165-7 income_tax regs sec_1_165-7 income_tax regs provides that a taxpayer may use the cost of repairing the property to show the loss of value but only if the taxpayer shows that a the repairs are necessary to restore the property to its condition immediately before the casualty b the amount spent for such repairs is not excessive c the repairs do not care for more than the damage suffered and d the value of the property after the repairs does not as a result of the repairs exceed the value of the property immediately before the casualty this court has applied the cost of repairs method only where the repairs and expenditures were actually made and has rejected the use of estimates for cost of repairs method purposes see 70_tc_391 see also higbee v commissioner t c pincite ashley v commissioner tcmemo_2000_376 johnston v commissioner tcmemo_1980_477 aff’d without published opinion 696_f2d_1003 9th cir although petitioner testified that she had the riverside property appraised after the fire she did not introduce any appraisal into evidence she explained that the pre- and post-casualty fmvs set forth on her form_4684 represented her initial asking price for the riverside property and the initial asking price reduced by the estimated cost of repairing the property while petitioner attempted to show the fmv of the riverside property by reference to the initial asking price she did not offer the riverside property for sale until after the fire we infer that the fire damage was visible and would have been factored into the initial asking price of the riverside property petitioner thus failed to show that any part of the reduction in the asking price was attributable solely to the fire damage accordingly petitioner failed to introduce any credible_evidence of the fmv of the property immediately before the fire and an appraisal of the property immediately after the fire petitioner did not repair any of the damage to the riverside property caused by the fire although she testified as to the cost of repairing the riverside property and she attempted to introduce into evidence documents purportedly showing cost repair estimates the estimated costs of repairing the riverside property are insufficient to show petitioner’s loss in value under the cost of repairs method while we are sympathetic to petitioner’s position we find that she has in her opening brief petitioner asserts that fema and balboa insurance refused to cover the cost of removing the asbestos however petitioner testified that fema and balboa insurance would have paid for all of the repairs if she had wanted to perform the repairs petitioner’s testimony contradicts her assertion that continued failed to substantiate the loss of value with respect to the riverside property caused by the fire in and consequently she is not entitled to a casualty_loss deduction with respect to that incident accordingly we sustain respondent’s determination disallowing petitioner’s claimed casualty_loss deduction iv dependency_exemption deductions sec_151 permits a taxpayer to claim as a deduction an exemption for each dependent as that term is defined under sec_152 sec_152 provides that a dependent must be either a qualifying_child or a qualifying_relative sec_152 defines a qualifying_child as a child who bears a specified relationship to the taxpayer who lived with the taxpayer for more than one-half of the tax_year at issue and who did not provide more than one-half of his or her own support during the tax_year a child satisfies the specified relationship requirement if the child is a child of the taxpayer or a brother sister stepbrother or stepsister of the taxpayer or a descendant of any such relative sec_151 continued neither fema nor balboa insurance was willing to cover the cost of asbestos removal in addition the record is replete with contradictory evidence regarding the amounts of the payments she received from fema and balboa insurance we need not decide the amounts of the payments petitioner received because we find that she did not complete the actual repairs and consequently is not entitled to the claimed casualty_loss deduction a qualifying_child must be less than years old a student less than years old or permanently_and_totally_disabled sec_152 if two or more taxpayers can claim an individual as a qualifying_child the individual is treated as the qualifying_child of the taxpayer who is the parent of the individual or if neither taxpayer is the individual’s parent the taxpayer with the highest adjusted_gross_income sec_152 however if neither parent claims the individual as a qualifying_child for the taxable_year another taxpayer may claim the individual as a qualifying_child but only if the taxpayer’s adjusted_gross_income is higher than the adjusted_gross_income of the parent having the higher adjusted_gross_income sec_152 sec_152 defines a qualifying_relative as an individual who bears a specified relationship to the taxpayer who earned gross_income less than the exemption_amount defined in sec_151 who had more than one-half of his or her support provided for by the taxpayer during the tax_year and who is not the qualifying_child of any other taxpayer an individual satisfies the specified relationship requirement if the individual is a child or descendant of a child of the taxpayer sec_151 for the gross_income exemption_amount was dollar_figure see sec_1 d d see also irs publication exemptions standard_deduction and filing information for use in preparing returns under rule a petitioner has the burden of presenting credible_evidence that n j and michael bias were dependents within the meaning of sec_152 and that she was entitled to the claimed dependency_exemption deductions see 79_tc_995 aff’d 748_f2d_331 6th cir in evaluating petitioner’s evidence we are not bound to accept self-serving unverified and undocumented testimony shea v commissioner t c pincite see also 87_tc_74 a dependency_exemption deduction for n j for respondent concedes that n j was a qualifying_child of petitioner during respondent contends however that petitioner was not entitled to a dependency_exemption deduction for n j because his mother monique bias claimed n j as a qualifying_child for and as his parent she is entitled to the dependency_exemption deduction for n j under the tiebreaker rule_of sec_152 furthermore the record shows that n j was a qualifying_child of petitioner for because n j was a qualifying_child of petitioner n j cannot be her qualifying_relative see sec_152 monique bias claimed a dependency_exemption deduction for n j on her form_1040 for she did so even though she told petitioner that petitioner could claim the dependency_exemption deduction for n j for petitioner did not know that monique bias had claimed the dependency_exemption deduction for n j until the irs audit of petitioner’s returns petitioner contends that despite the fact that monique bias claimed a dependency_exemption deduction for n j on her return petitioner still is entitled to a dependency_exemption deduction for n j to support her contention petitioner introduced a copy of a purported form 1040x amended u s individual_income_tax_return for monique bias the form 1040x bears the signature of monique bias and is dated date on the form 1040x monique bias decreases by one the number of dependency_exemption deductions she claimed in the explanation of changes she explains that she is requesting the change because petitioner provided more than half of n j ’s support during the form 1040x petitioner produced is not credible_evidence that monique bias released her claim to the dependency_exemption deduction for n j the form 1040x was not prepared until the irs had begun auditing petitioner’s return although monique bias signed the form 1040x she had not filed the form 1040x with the irs as of the time of trial although both petitioner and monique bias testified that they had agreed that petitioner would claim the dependency_exemption deduction for n j monique bias still claimed the dependency_exemption deduction on her form_1040 on this record we cannot conclude that monique bias has released her claim to the dependency_exemption deduction for n j for accordingly as n j ’s mother monique bias is entitled to the dependency_exemption deduction for n j pursuant to the tiebreaker rule_of sec_152 we therefore sustain respondent’s determination disallowing petitioner’s claimed dependency_exemption deduction for n j for b dependency_exemption deduction for michael bias for during michael bias earned_income by providing in-home supportive services for ms henry respondent introduced irs transcripts showing that a form_w-2 wage and tax statement was filed with respect to michael bias on the form_w-2 ihss recipients reported that it paid michael bias wages of dollar_figure during michael bias turned in during he was not a full-time_student petitioner failed to introduce any evidence that michael bias was permanently_and_totally_disabled accordingly michael bias was not a qualifying_child of petitioner during see sec_152 we also conclude that michael bias was not a qualifying_relative of petitioner during respondent introduced credible_evidence that michael bias received wages of dollar_figure during see sec_152 we sustain respondent’s determination disallowing petitioner’s claimed dependency_exemption deduction for michael bias for v federal telephone_excise_tax credit on a form_8913 attached to her return petitioner claimed a federal telephone_excise_tax credit of dollar_figure in the notice_of_deficiency respondent determined that petitioner was entitled to a telephone_excise_tax credit of dollar_figure sec_4251 imposes an excise_tax on communication services after certain federal courts held that the excise_tax was invalid with respect to certain communication services see 431_f3d_374 d c cir 428_f3d_583 6th cir am bankers ins grp v united_states 408_f3d_1328 11th cir petitioner contends that although the irs transcripts show that michael bias earned more than the exemption_amount he did not receive the entire amount reported because he occasionally paid his sisters to care for ms henry however petitioner did not call michael bias to testify regarding the income he earned in or the amounts he purportedly paid to his sisters petitioner offered no evidence of the amounts if any that michael bias paid to his sisters and ms mcelwee did not offer an estimate of how much she received from michael bias in exchange for caring for ms henry the irs issued notice_2006_50 2006_1_cb_1141 conceding the nontaxability of most long-distance telephone service the irs undertook to refund to taxpayers the federal telephone excise_taxes billed after date and before date see notice_2007_11 2007_1_cb_405 notice_2006_50 supra see also 853_fsupp2d_138 d d c the irs consequently added line credit for federal telephone_excise_tax paid to the form_1040 enabling taxpayers to claim the excise_tax refund as if it were a payment of income_tax although neither party contends that we lack jurisdiction to decide whether petitioner claimed an excessive telephone_excise_tax credit we may question our jurisdiction sua sponte see 116_tc_263 the tax_court is a court of limited jurisdiction and we may exercise our jurisdiction only to the extent authorized by congress see sec_7442 sec_6213 of subchapter_b authorizes the tax_court to redetermine a deficiency provided a timely petition is filed sec_6211 defines a deficiency as notice_2006_50 2006_1_cb_1141 has been prospectively vacated by the u s district_court for the district of columbia see 853_fsupp2d_138 d d c because notice_2006_50 supra was in effect at the time petitioner filed her form_1040 we apply the provisions of that notice in this instance the amount by which the tax imposed by subtitle a or b or chapter or of the code exceeds the amount of such tax shown on the taxpayer’s return and the amount of such tax previously assessed sec_4251 imposes the telephone_excise_tax and sec_6415 allows a taxpayer to claim a telephone_excise_tax credit see also notice_2006_50 supra thus the excise_tax and credit are not properly part of an income_tax deficiency determination see sec_6211 accordingly we do not have jurisdiction to determine the proper amount of petitioner’s telephone_excise_tax credit see sec_6211 villafane v commissioner tcmemo_2010_118 certain rebates may affect the commissioner’s determination_of_a_deficiency see eg sec_6211 the telephone_excise_tax credit however is a non-rebate refund internal_revenue_manual pt date the commissioner may not seek recovery_of such a non-rebate refund from a taxpayer through the deficiency procedures 112_tc_103 petitioner properly characterized her telephone_excise_tax credit as a payment on her form_1040 for see sec_301_6211-1 proced admin regs payments on account of estimated income_tax like other_payments of tax by the taxpayer shall likewise be disregarded in the determination of a deficiency see also villafane v commissioner tcmemo_2010_118 petitioner claimed a refund arising partially from this payment on her form_1040 respondent’s determinations in the notice_of_deficiency indicate that petitioner received a refund because respondent increased the amount of petitioner’s tax due for by the amount of her purportedly excessive telephone_excise_tax credit respondent is attempting to recapture petitioner’s purportedly excessive telephone_excise_tax credit using the deficiency procedures respondent cannot seek recovery_of the excise_tax refund from petitioner through the income_tax deficiency procedures accordingly we do not sustain respondent’s determination with respect to petitioner’s telephone_excise_tax credit vi accuracy-related_penalties respondent contends that petitioner is liable for accuracy-related_penalties under sec_6662 and b because her underpayments of tax were attributable to negligence and disregard of rules and regulations sec_6662 authorizes the commissioner to impose a penalty on an underpayment_of_tax that is attributable to negligence or disregard of rules or regulations sec_6662 and b the commissioner bears the initial burden of production with respect to the taxpayer’s liability for the sec_6662 penalty sec_7491 at trial the commissioner must introduce sufficient evidence indicating that it is appropriate to impose the relevant penalty higbee v commissioner t c pincite if the commissioner satisfies his initial burden of production the burden of producing evidence to refute the commissioner’s evidence shifts to the taxpayer and the taxpayer must prove that the penalty does not apply id pincite for purposes of sec_6662 negligence is any failure to make a reasonable attempt to comply with the provisions of the code and disregard includes any careless reckless or intentional disregard sec_6662 see also 85_tc_934 negligence is lack of due care or failure to do what a reasonably prudent person would do under the circumstances sec_1_6662-3 income_tax regs negligence also includes any failure to exercise ordinary and reasonable care in the preparation of a tax_return or any failure to keep adequate books_and_records and to properly substantiate items sec_1 b income_tax regs a return position that has a reasonable basis is not attributable to negligence id sec_6664 sets forth an exception to the imposition of a sec_6662 penalty it provides that generally n o penalty shall be imposed under sec_6662 with respect to any portion of an underpayment if it is shown that there was a reasonable_cause for such portion and that the taxpayer acted in good_faith with respect to such portion whether a taxpayer had reasonable_cause for and acted in good_faith with respect to part or all of an underpayment is determined on a case-by-case basis taking into account all pertinent facts and circumstances sec_1_6664-4 income_tax regs the most important factor is the extent of the taxpayer’s effort to assess his or her proper tax_liability id respondent introduced evidence showing that petitioner failed to make a reasonable attempt to ascertain the correctness of her reporting positions with respect to her claimed schedule a deductions dependency_exemption deductions and state and local sales_tax deductions petitioner has stipulated that she is not entitled to any schedule a deductions for and has conceded that she is not entitled to all of her claimed dependency_exemption deductions or the entire amount of her claimed state and local sales_tax deductions respondent also met the burden of production by establishing that petitioner did not maintain required records or substantiate the aforementioned deductions as required by the code because respondent has met the burden of production petitioner must come forward with sufficient evidence to persuade the court that respondent’s determination is incorrect see higbee v commissioner t c pincite petitioner contends that sec_6664 relieves her from the sec_6662 penalties because she had reasonable_cause for the underpayments of tax and acted in good_faith with respect to the underpayments in particular petitioner contends that she acted with good_faith with respect to her claimed state and local sales_tax deduction for and her claimed dependency_exemption deductions with respect to her state and local sales_tax deduction for petitioner testified that she erroneously added an extra zero to the amount of her claimed deduction while we find petitioner’s testimony credible petitioner’s mistake in entering the amount into the tax preparation software albeit accidental is not a defense to the imposition of the sec_6662 penalty see eg langley v commissioner tcmemo_2013_22 at furthermore petitioner’s review of her return should have alerted her to the fact that she claimed a dollar_figure deduction instead of a dollar_figure deduction accordingly petitioner has not established that she acted with reasonable_cause and in good_faith with respect to her claimed state and local sales_tax deduction for with respect to her claimed dependency_exemption deductions petitioner testified that she was unaware that michael bias earned_income greater than the exemption_amount she further testified that with respect to n j she and monique bias had agreed that petitioner would claim n j as a dependent although petitioner testified that she was unaware that michael bias earned_income in excess of the exemption_amount petitioner admitted that she knew michael bias earned_income despite this knowledge petitioner did not inquire as to the amount of income michael bias earned furthermore although petitioner testified that she had an agreement with monique bias regarding n j petitioner knew at the time she attempted to submit her return electronically that another individual already had claimed a dependency_exemption deduction for n j rather than make further inquiries petitioner decided to submit her return with the claimed dependency_exemption deduction anyhow accordingly petitioner has not established that she acted with reasonable_cause and in good_faith with respect to her claimed dependency_exemption deductions with respect to the portions of the underpayments attributable to the remaining adjustments petitioner has not established that she acted with reasonable_cause and in good_faith with respect to the underpayments petitioner is an irs employee with many years_of_service her occupation involves the examination of federal_income_tax returns despite petitioner’s expertise she claimed excessive deductions and dependency_exemptions and failed to maintain adequate_records to substantiate her itemized_deductions consequently we sustain respondent’s determination of accuracy-related_penalties under sec_6662 with regard to petitioner’s underpayments attributable to respondent’s denial of her claimed schedule a deductions dependency_exemptions and state and local sales_tax deductions we have considered all the other arguments made by the parties and to the extent not discussed above find those arguments to be irrelevant moot or without merit to reflect the foregoing decision will be entered under rule


t c memo united_states tax_court joseph m and sybil g kawal petitioners v commissioner of internal revenue respondent docket no filed date joseph m kawal pro_se rosemarie d camacho for respondent memorandum findings_of_fact and opinion chiechi judge respondent determined the following defi- ciency in addition to and accuracy-related_penalty on petition- ers' income_tax year deficiency dollar_figure addition_to_tax sec_6651 dollar_figure accuracy-related_penalty sec_6662 dollar_figure the issues for decision are do petitioners have unreported income for we hold that they do to the extent stated herein are petitioners liable for self-employment_tax under sec_1401 we hold that they are to the extent stated herein are petitioners liable for the addition_to_tax under sec_6651 we hold that they are to the extent stated herein are petitioners liable for the accuracy-related_penalty under sec_6662 we hold that they are to the extent stated herein findings_of_fact some of the facts have been stipulated and are so found petitioners resided in hollis new york at the time the petition was filed although petitioners did not request an extension of time within which to file their federal_income_tax return for they filed a joint u s individual_income_tax_return for that year return on date petitioners reported dollar_figure all section references are to the internal_revenue_code in effect for the year at issue all rule references are to the tax_court rules_of_practice and procedure of income in their return reported income the reported income consisted of dollar_figure of income from petitioner joseph m kawal's part-time work for linden lumber and home center linden lumber dollar_figure of income from petitioner sybil g kawal's work for best care agency best care and dollar_figure of interest_income during linden lumber paid petitioner joseph m kawal in cash and best care paid petitioner sybil g kawal by check during petitioner joseph m kawal2 also worked part- time for jimmy messenger service inc jms a delivery service owned and operated at all relevant times by mr jimmy mahabir a k a malcolm mahabir mr mahabir for which petitioner had begun working in at a time when he was an unemployed illegal alien during petitioner worked for jm sec_2 to hours during the evenings evenings a week took no vacations and no holidays and earned dollar_figure a week from jms jms compensa- tion during petitioners maintained a checking account at manufacturers hanover bank checking account which was in the name of petitioner and to which petitioners had sole access during that year petitioners made deposits into the checking account that totaled dollar_figure bank_deposits during petitioners did not usually deposit into the checking account any hereinafter references to petitioner in the singular are to petitioner joseph m kawal of the income that petitioner received from linden lumber during that year generally the amounts of the deposits into the checking account varied and the timing of those deposits was neither consistent nor regular to illustrate the bank state- ments for the checking account bank statements for september and date showed the following deposits date of deposit amount of deposit date date date date date date date date dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure dollar_figure when petitioner began working for jms in pursuant to an arrangement that mr mahabir had with him mr mahabir's arrangement petitioner received checks from jms jms checks in amounts that exceeded the amount of compensation to which he was entitled for his part-time work there under that arrangement in and throughout the period during which petitioner did not have a bank account petitioner cashed the jms checks at linden lumber retained an amount equal to his jms compensation and used the balance ie the excess of each jms check over the amount of petitioner's jms compensation which excess is herein- after referred to as mr mahabir's money for the benefit of mr mahabir his family and or certain of mr mahabir's acquain- tances by inter alia returning it to mr mahabir and or his family in the form of checks or cash paying grocery bills for which mr mahabir and or his family were or agreed to be responsible and paying other people to whom mr mahabir owed money sometime after when petitioner opened the checking account he began depositing the jms checks into that account instead of cashing them at linden lumber however in all other respects mr mahabir's arrangement with petitioner continued through when petitioner obtained a social_security_number social_security_number in either or he asked mr mahabir to use it but mr mahabir would not do so around or petitioner who was concerned that he was depositing mr mahabir's money into petitioners' checking account and using it on behalf of mr mahabir his family and or certain of mr mahabir's acquaintances and who believed that mr mahabir would fire him if he refused to continue complying with mr mahabir's arrangement raised his concerns with mr mahabir and informed him that he wanted to discontinue mr mahabir's arrangement at that point mr mahabir fired him jms prepared a form 1099-misc form_1099 that showed that joseph kawal received dollar_figure in nonemployee compensation from jms during the social_security_number shown on the form_1099 is not the social_security_number of petitioner opinion petitioners bear the burden of proving that respondent's determinations in the notice_of_deficiency are erroneous rule a 290_us_111 unreported income the parties agree that during petitioner received compensation from jms which he did not report in petitioners' return in an amount equal to at least dollar_figure a week or dollar_figure for that year their dispute is whether during petitioner received more than dollar_figure in compensation from jms while acknowledging that during he received more than dollar_figure from jms petitioner contends that the amount that he received in excess of dollar_figure belonged to mr mahabir and that pursuant to mr mahabir's arrangement petitioner was required to use such excess for the benefit of mr mahabir his family and or certain of mr mahabir's acquaintances respondent contends that the form_1099 as well as petitioners’ bank statements shows that petitioner was permitted to retain for his benefit all money received from jms during our resolution of this case depends upon our assessment of the credibility of the following witnesses who testified pincite petitioners reported in their return all income received from linden lumber and best care trial petitioner kenny jaimungal mr jaimungal mr mahabir his wife germaine mahabir mrs mahabir and his son jason mahabir jason mahabir we do not question the general credibility of either petitioner or mr jaimungal however we have serious questions about the general credibility of mr mahabir mrs mahabir and jason mahabir we believed petitioner's testimony and have found as facts that during petitioner worked at jm sec_2 to hours during the evenings evenings a week for which he was paid dollar_figure a week mr jaimungal's testimony corroborated petitioner's testimony with respect to the number of hours during that petitioner worked each evening for jms we did not believe the testimony of mr mahabir or his son5 that during petitioner was required to be available to make deliveries for jms from approximately p m to a m each day ie he was required to be on call nor did we believe the testimony of mr mahabir that petitioner was compensated in the amount of dollar_figure during for being on call during those times in this connection mr mahabir testified that as the owner of jms he typically had income of about dollar_figure a year we are incredulous that jms paid petitioner dollar_figure in compensa- petitioner sybil g kawal was present during the trial but she did not testify the testimony of mrs mahabir was completely evasive vague and unreliable tion during when mr mahabir the owner of jms had annual income from that business of only about dollar_figure if as mr mahabir and his son jason mahabir testified petitioner was required during to be on call on a regular basis for hours a day days a week we presume that he would have been paid at regular intervals in equal amounts for those services however petitioners' bank statements for showed that generally the amounts of the deposits into the checking account varied and the timing of those deposits was neither consistent nor regular we also note that there is documentary_evidence in the record that petitioner used mr mahabir's money for the benefit of mr mahabir and his family for example the record contains a check written by petitioner and endorsed by mrs mahabir the record also contains two checks each in an amount in excess of dollar_figure that were payable to s b west indian grocery store and that petitioner testified and we have found as facts were used to pay grocery bills for which mr mahabir and or his family were or agreed to be responsible based on the entire record before us we find that during petitioner received compensation_for his part-time work at jms in the amount of dollar_figure a week that petitioners did not report as compensation in their return accordingly petitioners have unreported income from jms for of dollar_figure self-employment_tax respondent determined that the income that petitioner received from jms during is self-employment_income and that petitioners are liable for self-employment_tax on that income under sec_1401 and sec_1402 except for the amount of compensa- tion that petitioner received from jms during petitioners do not contest respondent's determination under sec_1401 and sec_1402 on the record before us we find that petitioners are liable for for self-employment_tax on dollar_figure of income from jms that they did not report in their return sec_6651 respondent determined that petitioners are liable for for the addition_to_tax under sec_6651 for failing to file timely their return except for the amount of compen- sation that petitioner received from jms during petitioners do not contest respondent's determination under sec_6651 on the record before us we find that petitioners are liable for under sec_6651 for the addition to the tax attributable to dollar_figure of income from jms that they did not report in their return sec_6662 respondent determined that petitioners are liable for for the accuracy-related_penalty under sec_6662 because petitioners were negligent in failing to report petitioner's income from jms except for the amount of the compensation that petitioner received from jms during petitioners do not contest respondent's determination under sec_6662 on the record before us we find that petitioners are liable for under sec_6662 for the accuracy-related_penalty on the underpayment_of_tax attributable to dollar_figure of income from jms that petitioners did not report in their return to reflect the foregoing decision will be entered under rule


department of the treasury internal_revenue_service washington d c mar tep ratr tax_exempt_and_government_entities_division uic pp eoannocen xxxxkkxxkxxkxx legend taxpayer a taxpayer b accountant c ira u ira v ira w ira x company m company n sum o sum p dear kk kk ek kk wee kkk ake kee wiek ek kk this is in response to the letter submitted by your authorized representative as supplemented by correspondence dated and in which you request relief under sec_301_9100-3 of the procedure and administration regulations the regulations the following facts and representations support your ruling_request taxpayer a maintained ira u an individual_retirement_account described in sec_408 of the internal_revenue_code code with company m taxpayer b maintained ira w an individual_retirement_account described in sec_408 of the code with company m taxpayers a and b converted iras u and w to roth iras v and x respectively with company n in april on the advice of an investment_advisor taxpayer a and taxpayer b filed a joint federal_income_tax return for calendar_year in when their federal_income_tax return for was being prepared the accountant realized that taxpayers a and b were not eligible to convert their traditional iras u and w to roth iras v and x because their adjusted_gross_income for exceeded the limit found at sec_408a of the code in an effort was made by the accountant to recharacterize the roth iras to traditional iras but xxxxxxxxxxxxkk page - - taxpayer a taxpayer b and their financial advisor were not properly advised or notified of this effort to recharacterize accountant c became the accountant for taxpayers a and b in accountant c realized that taxpayers a and b were not eligible to convert their traditional iras u and w to roth iras and promptly notified taxpayers a and b and their financial advisor their financial advisor did not notify company n of the recharacterization company n still shows the accounts as roth iras prior to the end of the calendar_year taxpayers a and b were unaware that they were ineligible to convert their traditional iras u and w to roth iras v and x asa result prior to the end of the calendar_year they were also unaware of the time limits found in announcements and for recharacterizing an amount that had been converted from a traditional_ira to a roth_ira taxpayers a and b timely filed their calendar_year federal_income_tax return based on the above you through your authorized representative request the following letter_ruling that pursuant to sec_301_9100-3 of the regulations taxpayers a and b are granted a period not to exceed six months from the date of this ruling letter to recharacterize their roth iras ira v and ira x respectfully to traditional ras with respect to your request for relief under sec_301 -9100-3 of the regulations sec_408a of the code and sec_1_408a-5 of the income_tax regulations i t regulations provide that except as otherwise provided by the secretary a taxpayer may elect to recharacterize an ira contribution made to one type of ira as having been made to another type of ira by making a trustee-to-trustee transfer of the ira contribution plus earnings to the other type of ira in a recharacterization the ira contribution is treated as having been made to the transferee ira and not the transferor ira under sec_408a and sec_1_408a-5 this recharacterization election generally must occur on or before the date prescribed by law including extensions for filing the taxpayer's federal_income_tax returns for the year of contributions sec_1_408a-5 question and answer-6 of the i t regulations describes how a taxpayer makes the election to recharacterize the ira contribution to recharacterize an amount that has been converted from a traditional_ira to a roth_ira the taxpayer must notify the roth_ira trustee of the taxpayer's intent to recharacterize the amount the taxpayer must provide the trustee and the transferee trustee if different from the transferor trustee with specified information that is sufficient to effect the recharacterization and the trustee must make the transfer by xxxxxxxxxxkxkx page - - code sec_408a provides in relevant part that an individual with adjusted_gross_income agi in excess of dollar_figure for a taxable_year is not permitted to make a qualified roilover contribution to a roth_ira from an individual_retirement_plan other than a roth_ira during that taxable_year sec_1_408a-4 q a-2 of the i t regulations provides in summary that an individual with modified_adjusted_gross_income in excess of dollar_figure for a taxable_year is not permitted to convert an amount to a roth_ira during that taxable_year sec_1_408a-4 q a-2 further provides in summary that an individual and his spouse must file a joint federal tax_return to convert a traditional_ira to a roth_ira and that the modified_adjusted_gross_income subject_to the dollar_figure limit for a taxable_year is the modified agi derived from the joint_return using the couple’s combined income sec_301_9100-1 sec_301_9100-2 and sec_301_9100-3 of the regulations in general provide guidance concerning requests for relief submitted to the service on or after date sec_301 c of the regulations provides that the commissioner of the internal_revenue_service in his discretion may grant a reasonable extension of the time fixed by a regulation a revenue_ruling a revenue_procedure a notice or an announcement published in the internal_revenue_bulletin for the making of an election or application_for relief in respect of tax under among others subtitle a of the code sec_301_9100-2 of the regulations lists certain elections for which automatic extensions of time to file are granted sec_301_9100-3 of the regulations generally provides guidance with respect to the granting of relief with respect to those elections not referenced in sec_301_9100-2 the relief requested in this case is not referenced in sec_301_9100-2 sec_301_9100-3 of the regulations provides that applications for relief that fall within sec_301_9100-3 will be granted when the taxpayer provides sufficient evidence including affidavits described in sec_301 e to establish that the taxpayer acted reasonably and in good_faith and granting relief would not prejudice the interests of the government sec_301_9100-3 of the regulations provides that a taxpayer will be deemed to have acted reasonably and in good_faith i if its request for sec_301_9100-1 relief is filed before the failure to make a timely election is discovered by the service ii if the taxpayer inadvertently failed to make the election because of intervening events beyond the taxpayer's control iii if the taxpayer failed to make the election because after exercising reasonable diligence the taxpayer was unaware of the necessity for the election iv the taxpayer reasonably relied upon the written advice of the service or v the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election xxxxkkxxkxkxxkxkkx page - sec_301_9100-3 of the regulations provides that ordinarily the interésts of the government will be treated as prejudiced and that ordinarily the service will not grant relief when tax years that would have been affected by the election had it been timely made are closed by the statue of limitations before the taxpayer's receipt of a ruling granting relief under this section announcement r b date provided that a taxpayer who timely filed his her federal_income_tax return would have until date to recharacterize an amount that had been converted from a traditional_ira to a roth_ira announcement r b date provided that a taxpayer who timely filed his her federal_income_tax return would have until date to recharacterize an amount that had been converted from a traditional_ira to a roth_ira taxpayers a and b timely filed their federal_income_tax return as a result they were eligibie for relief under announcement or announcement however they missed the deadlines found in said announcements therefore it is necessary to determine if they are eligible for relief under the provisions of sec_301_9100-3 of the regulations in this case taxpayers a and b were ineligible to convert iras u and w to roth iras v and x respectively since their modified_adjusted_gross_income exceeded dollar_figure however until they discovered otherwise taxpayers a and b believed they were eligible to convert their traditional ras u and w to roth iras accountant c discovered that taxpayer a and b's former accountant attempted to recharacterize the roth iras v and x as traditional iras but failed to properly notify and advise the taxpayers and their financial advisor taxpayers a and b filed this request for relief under sec_301 shortly after discovering that company n had not recharacterized iras v and x as traditional iras and before the service discovered their ineligibility to convert their traditional iras u and w to roth iras or their failure to recharacterize their roth iras v and x as traditional iras pursuant to announcements or the taxable_year is not a closed tax_year under the statute_of_limitations with respect to your request for relief we believe that based on the information submitted and the representations contained herein the requirements of sec_301_9100-1 and sec_301_9100-3 of the regulations have been met and that you have acted reasonably and in good_faith with respect to making the election to recharacterize your roth iras v and x as traditional iras specifically the service has concluded that you have met the requirements of clauses i and v of sec_301 -9100-3 b of the regulations therefore taxpayers a and b are granted a period not to exceed six months from the date of this ruling letter to recharacterize roth iras v and x back to traditional iras by xxxxxxxkxxxxkxk page -5 - no opinion is expressed as to the tax treatment of the transaction described hérein under the provisions of any other section of either the code or regulations which may be applicable thereto this letter is directed only to the taxpayer who requested it sec_6114 o k of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this ruling letter is being sent to your authorized representative if you have any questions concerning this ruling please contact t ep ra t at sincerely yours signed jotor b l01d joyce e floyd manager employee_plans technical group tax exempt and governmental entities division enclosures deleted copy of ruling letter notice of intention to disclose py