Court Opinion

ID: 4337412
Source: CourtListenerOpinion
Date Created: 2018-11-14 03:21:05.638356+00
Date Added: 2024-06-11T14:20:25.402632
License: Public Domain

T.C. Summary Opinion 2009-4

                      UNITED STATES TAX COURT

                   REGINE C. YANG, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent

     Docket Nos. 8061-05S, 4960-07S.    Filed January 7, 2009.

     Regine C. Yang, pro se.

     S. Katy Lin and Jadie T. Woods, for respondent.

     PANUTHOS, Chief Special Trial Judge:   These consolidated

cases were heard pursuant to the provisions of section 7463 of

the Internal Revenue Code in effect when the petitions were

filed.1   Pursuant to section 7463(b), the decisions to be entered

     1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
                                - 2 -

are not reviewable by any other court, and this opinion shall not

be treated as precedent for any other case.

     Respondent determined deficiencies in petitioner’s Federal

income taxes as follows:

                                            Penalty
         Year        Deficiency           Sec. 6662(a

         2000          $7,548                   -
         2001           7,741                   -
         2002           9,066                   -
         2003           4,629                 $926

     The issues for decision are:   (1) Whether petitioner is

entitled to dependency exemption deductions for her parents for

taxable years 2000, 2001, 2002, and 2003 (the years in issue);

(2) whether petitioner is entitled to itemized deductions greater

than those respondent allowed; (3) whether petitioner is entitled

to business expense deductions for Total Real Estate/Excel

Property Management or for Asian Business Services greater than

those respondent allowed; (4) whether petitioner is entitled to

deduct losses from her rental real estate activities greater than

those respondent allowed; and (5) whether petitioner is liable

for an accuracy-related penalty for 2003.2

     2
       Other adjustments to petitioner’s itemized deductions are
purely computational and depend on changes to petitioner’s
adjusted gross income and the automatic application of certain
eligibility phaseouts and deduction limitations.
                                - 3 -

                              Background

     Some of the facts have been stipulated, and we incorporate

the stipulations and the accompanying exhibits by this reference.

Petitioner lived in Michigan when she filed the petition in each

docket.

     Petitioner’s parents are citizens of Taiwan, and they each

have lawful permanent residency status.     Petitioner’s parents

resided with her for part of each year in issue, and petitioner

supported them when they lived with her.     Petitioners parents

also lived with petitioner’s siblings for unspecified periods of

time during the years in issue.    When her parents did not live

with her, petitioner sent them occasional gifts but did not

support them.

     From 1999 through sometime in September 2003 petitioner

worked full time as an information technology director at RDA

Group.    For each year in issue petitioner filed two Schedules C,

Profit or Loss From Business:    One for “Total Real Estate/Excel

Property Management”, a residential real estate and property

management business; and one for “Asian Business Services”, which

provided business services.    For each year, petitioner reported

some gross receipts for each activity but claimed net losses for

each activity.

     Petitioner signed a Form 872, Consent to Extend the Time to

Assess Tax, for taxable year 2000.      The IRS executed and mailed a
                                - 4 -

copy of the Form 872 to petitioner the following day.      The form

extended the time to assess tax for 2000 to June 30, 2005.

     Respondent issued a notice of deficiency for 2000, 2001, and

2002 on February 3, 2005, and a notice of deficiency for 2003 on

December 5, 2006.   During the examination and at trial,

petitioner provided myriad documents to support her claimed

expenses, deductions, and exemptions.      These documents were

mostly handwritten summaries, calendar pages, and lists prepared

by petitioner.   She provided few actual receipts and invoices,

and several of those were not in her name.      She did not provide

copies of canceled checks to support her payment of expenses but

claimed to have made many payments in cash.      Petitioner alleged

that the IRS has discriminated against her in that her tax

returns have been regularly examined for the past 10 years.       She

claimed that the IRS lost many of her records and much of her

supporting documentation and asked the Court to employ common

sense and allow her deductions for expenses claimed.

                              Discussion

     Taxpayers are required to maintain adequate books and

records to substantiate claimed tax deductions and to produce

those records to the IRS when requested.      Sec. 6001; sec. 1.6001-

1(a), (e), Income Tax Regs.    Deductions are a matter of

legislative grace, and taxpayers generally have the burden of

proving they are entitled to the deductions claimed.      Rule
                                - 5 -

142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).

These are largely substantiation cases, and the burden of proof

as to petitioner’s eligibility for the claimed deductions remains

on petitioner.   Sec. 7491(a)(1) and (2); Rule 142(a).

     Petitioner argues that because of the expiration of the

relevant periods under the statute of limitations, the notices of

deficiency were not timely issued.      With exceptions not here

relevant, section 6501 provides a 3-year period from the time a

return is filed for the assessment or collection (without

assessment) of any tax, including income taxes (the period of

limitations).    The running of the period of limitations, however,

is suspended by “the mailing of a notice under section 6212(a)”.

Sec. 6503(a)(1).

     Although petitioner alleges that the extension date for

taxable year 2000 was not on the Form 872 when she signed it, the

revenue agent who solicited the Form 872 testified that the date

to which the period for assessment had been extended was clearly

listed, both when petitioner signed the form and the following

day when the IRS sent petitioner a copy of the executed form for
                                 - 6 -

her records.3   We find that the period of limitations for 2000

was extended to June 30, 2005.

     The IRS mailed the first notice of deficiency on February 3,

2005, within the extended period for 2000 and within the 3-year

periods for 2001 and 2002.    The IRS mailed the second notice of

deficiency on December 5, 2006, within the 3-year period for

2003.    Thus, the notices of deficiency were all timely issued.

1.   Dependency Exemption Deductions

     Petitioner claimed dependency exemption deductions for her

parents for each year in issue.    Respondent disallowed those

deductions.

     A taxpayer is entitled to a dependency exemption deduction

for each dependent who satisfies the gross income test of section

151(c)(1)(A) and the residency test of section 152(b)(3), but

only if the taxpayer provides more than one-half of the

dependent’s support for the calendar year in issue.    Sec. 152(a).

A taxpayer’s parents can be her dependents.    Sec. 152(a)(4).    It

appears that petitioner’s parents meet the section 152(b)(3)

     3
       Petitioner introduced her copy of Form 872, Consent to
Extend the Time to Assess Tax, together with the cover letter
from the revenue agent. Petitioner’s Form 872 clearly states
that assessment may be made on or before June 30, 2005.
Petitioner’s assertion that the executed Form 872 is somehow
overridden or invalidated by the revenue agent’s purported
statement in October 2003 (that the IRS needed another 3-6 months
to complete its examination) is without merit.
                                - 7 -

residency test because they have lawful permanent resident

status.   Sec. 7701(b)(1)(A).

     A taxpayer cannot prove that she provided more than half the

support of her parents without establishing the entire amount

expended for their support from all sources.   Archer v.

Commissioner, 73 T.C. 963, 967 (1980); Blanco v. Commissioner, 56
T.C. 512, 514-515 (1971).   There is little or no evidence in the

record as to the total amount spent for the support of

petitioner’s parents (by petitioner and from other sources).

Thus, petitioner did not prove that she provided more than half

of her parents’ support for any of the years in issue.

Furthermore, section 151(c)(1)(A) provides that a dependent’s

gross income may not exceed the exemption amount, but there is no

evidence of the parents’ gross income for the years in issue.

Accordingly, petitioner is not entitled to the claimed dependency

exemption deductions for her parents for any year in issue.

2.   Itemized Deductions

     A.   Charitable Contributions

     Petitioner attached to her 2002 return one facially credible

document to support her charitable contributions:   a “Car

Donation Receipt” from a charity, dated December 31, 2002.    She

provided no other credible documentary evidence in support of her

contributions.
                               - 8 -

     The car donation receipt states that petitioner donated a

1995 four-door Toyota Corolla and that the donor-determined fair

market value was $4,825.   The receipt does not reflect the

condition of the car at the time of the donation; for example, by

identifying whether it was operable, specifying the number of

miles on the odometer, or providing other descriptive information

beyond make, model, VIN number, etc.   This lack of specific

description of the condition of the automobile is particularly

significant given testimony that petitioner informed the IRS that

she had been in a collision and had totaled that car before

donating it.   Petitioner did not deny telling the revenue agent

that she totaled the car, nor did she assert that the value

claimed on the receipt was salvage value as opposed to some

measure of fair market value for an undamaged vehicle.

     Under these circumstances, we find that petitioner’s receipt

does not describe the car in “detail reasonable under the

circumstances” as required by section 1.170A-13(b)(2)(ii)(C),

Income Tax Regs.   Furthermore, petitioner did not produce written

records establishing how she acquired the car or its cost or

other basis, as required by section 1.170A-13(b)(3), Income Tax

Regs.   We conclude that petitioner is not entitled to a

charitable contribution deduction for this item.

     Petitioner’s other records in support of her charitable

contributions were not convincing in proving either that she made
                               - 9 -

the claimed contributions or that they were charitable

expenditures and deductible under section 170 rather than

expenditures for personal, family, or living expenses which are

not deductible pursuant to section 262.

     B.   Unreimbursed Employee Business Expenses

     Petitioner claimed miscellaneous itemized deductions for

each year in issue.   She provided numerous handwritten schedules

to explain her deductions but did not provide canceled checks or

credible receipts to substantiate her expenses.4    Petitioner also

deducted certain expenses related to her work at RDA Group but

admitted that she did not request reimbursement for those

expenses, even though the company had a reimbursement policy.

Petitioner’s failure to seek reimbursement for her expenses from

her employer prevents her from deducting those expenses as

unreimbursed employee business expenses.   See Orvis v.

Commissioner, 788 F.2d 1406 (9th Cir. 1986), affg. T.C. Memo.

1984-533; Lucas v. Commissioner, 79 T.C. 1, 7 (1982).

     For each year in issue, petitioner claimed job search

expenses allegedly paid to look for work in California.    The

documents petitioner submitted to substantiate those expenses

     4
       For example, petitioner listed numerous newspapers and
magazines to which she allegedly subscribed, with prices, but she
offered no credible evidence that she actually paid for the
subscriptions or that the publications were ordinary, necessary,
and related to her work for RDA Group and not reimbursable by her
employer.
                              - 10 -

allege suspiciously similar expenses for each of several years

(down to the number of envelopes mailed in each year).

     Petitioner has not submitted any credible evidence to

demonstrate her eligibility for itemized deductions in amounts

greater than those respondent allowed.

3.   Schedule C Business Expenses

     Respondent allowed expenses for petitioner’s two Schedule C

business activities but only to the extent of petitioner’s

reported income from those activities.   Petitioner failed to

submit any credible evidence to substantiate ordinary and

necessary business expenses greater than the amounts respondent

allowed.   Thus, petitioner may not deduct the losses she claimed

for these activities for the years in issue.   See secs. 162(a),

6001; Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S.
435, 440 (1934); Farguson v. Commissioner, T.C. Memo. 1983-615

(rejecting the taxpayer’s poor documentation as inadequate to

substantiate purported expenses).

4.   Rental Real Estate Losses

     For each year in issue, petitioner claimed losses from her

rental real estate activities.   Respondent disallowed the claimed

losses in excess of $25,000 for each year because (1) petitioner

failed to substantiate that her expenses exceeded her rental

income by more than $25,000, or (2) (in the alternative) any

losses in excess of $25,000 are suspended pursuant to section
                                - 11 -

469(i) because petitioner’s rental real estate activity was a

passive activity for the years in issue.

     Petitioner did not substantiate rental real estate expenses

in amounts greater than those allowed by respondent.

Accordingly, we need not decide whether petitioner satisfied the

exception in section 469(c)(7)(B) which exempts certain real

estate professionals from the $25,000 limitation of section

469(i).

     Petitioner has not satisfied her burden of proving that she

is entitled to deduct the expenses she claimed, and respondent’s

determination to disallow claimed losses in excess of $25,000 is

sustained.

5.   Accuracy-Related Penalty

     Under section 7491(c) the Commissioner has the burden of

production with respect to a section 6662 accuracy-related

penalty.     Once the Commissioner shows that imposition of the

penalty is appropriate, the taxpayer continues to have the burden

to prove that the Commissioner’s penalty determination is

incorrect.     Rule 142(a); Higbee v. Commissioner, 116 T.C. 438,

446 (2001).

     Under section 6662(a) and (b)(1), taxpayers are subject to

an accuracy-related penalty equal to 20 percent of any

underpayment with respect to which they were negligent or

disregarded appropriate rules and regulations.     Negligence, in
                              - 12 -

the present context, refers to a failure to make reasonable

attempts to comply with the Internal Revenue Code.     See sec.

6662(c).   Section 6664(c)(1) provides that no section 6662

penalty may be imposed if the taxpayer shows that she had

reasonable cause for and acted in good faith with respect to the

underpayment of tax.

     Respondent determined a $926 accuracy-related penalty for

2003 and asserted that petitioner’s underpayment of tax was due

to negligence or disregard of rules and regulations.     Respondent

argues that the evidence proves petitioner’s negligence and

disregard.5

     We agree that petitioner failed to produce records that

section 6001 required her to keep.     We find her hand-written

logs, summaries, and calendars (in the absence of any

substantiation from canceled checks, receipts in her name, paid

invoices in her name, and other reliable written records)

unconvincing and demonstrative of a failure to reasonably attempt

to comply with the Internal Revenue Code.     We are satisfied that

petitioner’s underpayment results from negligence unexcused by

     5
       The evidence respondent relies upon includes: petitioner’s
lack of records, receipts, and substantiating documents; her
apparent claiming of the same expenses in multiple places on her
return; her deducting personal, family, and living expenses; her
submission of unreliable, sometimes internally contradictory
documents; and the implausibility of petitioner’s claims to have
driven many hundreds of miles for her Schedule C and Schedule E,
Supplemental Income and Loss, activities on the same days that
she worked 10 or more hours at RDA Group.
                              - 13 -

reasonable cause or good faith.   Respondent’s penalty

determination is sustained.

     For the foregoing reasons,

                                         Decisions will be entered

                                    for respondent.