Court Opinion

ID: 4338016
Source: CourtListenerOpinion
Date Created: 2018-11-14 03:40:21.666968+00
Date Added: 2024-06-11T14:48:15.992643
License: Public Domain

T.C. Summary Opinion 2010-27

                        UNITED STATES TAX COURT

                    PATRICIA CONWAY, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent

        Docket No. 20085-08S.            Filed March 8, 2010.

        Patricia Conway, pro se.

        Angela B. Friedman, for respondent.

     DEAN, Special Trial Judge:     This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect when the petition was filed.    Pursuant to section 7463(b),

the decision to be entered is not reviewable by any other court,

and this opinion shall not be treated as precedent for any other

case.     Unless otherwise indicated, subsequent section references

are to the Internal Revenue Code in effect for the year in issue,
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and all Rule references are to the Tax Court Rules of Practice

and Procedure.

     For 2006 respondent determined a deficiency of $5,225 in

petitioner’s Federal income tax and an accuracy-related penalty

of $1,045.   The issues for decision are whether petitioner:    (1)

Is required to report $5,619 of rental income; (2) is entitled to

charitable contribution deductions in excess of those respondent

allowed; (3) is entitled to deduct unreimbursed employee expenses

of $15,863; and (4) is liable for the accuracy-related penalty

under section 6662(a).

                             Background

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the exhibits received into evidence

are incorporated herein by reference.     At the time petitioner

filed her petition, she resided in Illinois.

     For 2006 petitioner reported $76,781 of income on her

Federal income tax return.   On Schedule A, Itemized Deductions,

petitioner claimed:   (1) Job expenses and certain miscellaneous

deductions of $15,863; and (2) charitable contribution deductions

of $7,950.

     On July 3, 2008, respondent issued to petitioner a notice of

deficiency disallowing:   (1) Petitioner’s claimed job expenses

and certain miscellaneous deductions of $15,863 for lack of

substantiation; and (2) $965 of petitioner’s claimed $7,950
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charitable contribution deductions.      Respondent further

determined that petitioner failed to report $5,619 of rental

income.

      During 2006 petitioner worked as a nurse for the Veterans

Affairs Medical Center (VA Hospital).      She also taught as a

licensed practical nurse (LPN) instructor affiliated with the VA

Hospital on a part-time basis.    As part of her employment

contract as an instructor, she was not entitled to receive

benefits normally given to regularly paid employees, such as

leave or retirement.

      In addition to her position at the VA Hospital, petitioner

and her son coowned rental property.      In 2006 the jointly owned

rental property generated rental income, and the Chicago Housing

Authority issued to petitioner Form 1099-MISC, Miscellaneous

Income, reporting rental income of $5,619.

                             Discussion

I.   Burden of Proof

      Generally, the Commissioner’s determinations in a notice of

deficiency are presumed correct, and the taxpayer has the burden

of proving that those determinations are erroneous.      See Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).         In certain

circumstances, however, section 7491(a)(1) places the burden of

proof on the Commissioner.   Petitioner has not alleged that

section 7491 is applicable, nor has she established compliance
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with the requirements of section 7491(a)(2)(A).      Therefore, the

burden of proof does not shift to respondent.

II.   Unreported Rental Income

      Under section 6201(d), the burden of production may shift to

the Commissioner where an information return, such as a Form

1099, serves as the basis for a deficiency determination.      If a

taxpayer asserts a “reasonable dispute” with respect to any item

of income reported on a third-party information return and has

fully cooperated with the Commissioner, the Commissioner will

have the burden of producing reasonable and probative information

concerning the item of income in addition to the information

return. Id.     The taxpayer must provide timely access to

witnesses, information, and documents within the control of the

taxpayer. Id.

      Petitioner admitted that the rental property she coowned

with her son in 2006 generated rental income, and she did not

dispute the Form 1099-MISC, issued in her name, reporting $5,619

of rental income in 2006.      Petitioner has failed to raise a

reasonable dispute as to any item of income reported on the

information return; therefore, the burden of production does not

shift to respondent.

      Petitioner contends that she was not required to report the

rental income shown on the Form 1099-MISC because her son
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received and reported all their rental income.1      Regardless of

whether petitioner’s son received all their rental income, she is

taxed on the rental income because income from property is taxed

to the owner at the time the income is earned.       Helvering v.

Horst, 311 U.S. 112, 116-117 (1940); Lucas v. Earl, 281 U.S. 111,

114 (1930).       The assignment of income doctrine prevents

petitioner from avoiding taxation on her rental income by

assigning that income to her son.       See Lucas v. Earl, supra.

Accordingly, respondent’s determination is sustained.

III.       Business Expenses

       Deductions are strictly a matter of legislative grace, and

taxpayers must satisfy the specific requirements for any

deduction claimed.       See INDOPCO, Inc. v. Commissioner, 503 U.S.
79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435,

440 (1934).       Taxpayers bear the burden of substantiating the

amount and purpose of any claimed deduction.       See Hradesky v.

Commissioner, 65 T.C. 87 (1975), affd. per curiam 540 F.2d 821

(5th Cir. 1976).

       A.     Car Expenses

       With respect to certain business expenses subject to section

274(d), more stringent substantiation requirements apply than

with respect to other ordinary and necessary business expenses.

       1
      It is unclear whether the Form 1099-MISC issued to
petitioner included all of the rental income from the property or
only petitioner’s portion of the income.
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Section 274(d) imposes strict substantiation requirements for

claimed deductions relating to the use of “listed property”,

which is defined under section 280F(d)(4)(A) to include passenger

automobiles.   Under this provision, any deduction claimed with

respect to the use of a passenger automobile will be disallowed

unless the taxpayer substantiates specified elements of the use

by adequate records or by sufficient evidence corroborating the

taxpayer’s own statement.   See sec. 274(d); sec. 1.274-5T(c)(1),

Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).

     To meet the adequate records requirements of section 274(d),

a taxpayer must maintain some form of records and documentary

evidence that in combination are sufficient to establish each

element of an expenditure or use.   See sec. 1.274-5T(c)(2),

Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985).    A

contemporaneous log is not required, but corroborative evidence

to support a taxpayer’s reconstruction of the elements of an

expenditure or use must have “a high degree of probative value to

elevate such statement” to the level of credibility of a

contemporaneous record.   Sec. 1.274-5T(c)(1), Temporary Income

Tax Regs., supra.

     The elements that must be substantiated to deduct expenses

for the business use of an automobile are:   (1) The amount of the

expenditure; (2) the mileage for each business use of the

automobile and the total mileage for all use of the automobile
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during the taxable period; (3) the date of the business use; and

(4) the business purpose of the use of the automobile.   See sec.

1.274-5T(b)(6), Temporary Income Tax Regs., 50 Fed. Reg. 46016

(Nov. 6, 1985).   Transportation expenses for substantiated trips

between two places of business are deductible, but transportation

to and from work is a nondeductible personal commuting expense.

See Curphey v. Commissioner, 73 T.C. 766, 777 (1980);

Commissioner v. Flowers, 326 U.S. 465, 469-470 (1946); Sanders v.

Commissioner, 439 F.2d 296, 297 (9th Cir. 1971), affg. 52 T.C.
964 (1969); Roy v. Commissioner, T.C. Memo. 1997-562, affd.

without published opinion 182 F.3d 927 (9th Cir. 1999); secs.

1.162-2(e), 1.262-1(b)(5), Income Tax Regs.

     Petitioner provided a mileage log for her vehicle for 2006,

containing the destination of each business trip, the month of

the trip, and the mileage for her trip.   Petitioner did not

identify or otherwise explain whether she drove to the other

hospitals directly from the VA Hospital or from her home.

     The Court is unable to determine whether petitioner’s trips

originated from the VA Hospital, which would entitle her to a

business expense deduction, or whether they originated from her

home.   The Court concludes that the evidence petitioner presented

is insufficient to satisfy the strict substantiation requirements

of section 274(d).
                                  - 8 -

        B.   Miscellaneous Expenses

      In addition to car expenses, petitioner claimed additional

job expenses and miscellaneous deductions.     Petitioner provided

receipts for expenditures associated with mailings and the

purchase of stationery products.

      Although petitioner provided receipts for these

expenditures, she did not provide an explanation as to how these

expenses were ordinary and necessary to her position as an LPN

instructor or her work with the hospital.     In addition,

petitioner provided no other evidence of and did not testify

about the remaining expenses she claimed for 2006.     Accordingly,

respondent’s disallowance is sustained.

IV.   Charitable Contributions

      Petitioner claimed $7,950 in charitable contribution

deductions.     Respondent disallowed $965 of the $7,950 petitioner

claimed as a charitable contribution deduction for lack of

substantiation.

      As is relevant here, section 170(f)(8) provides that no

deduction is allowed for all or part of any charitable

contribution of $250 or more unless the contribution is

substantiated by a contemporaneous written acknowledgment from

the organization.     See also sec. 1.170A-13(f)(1), Income Tax

Regs.    A written acknowledgment is contemporaneous if it is

obtained by the taxpayer on or before the earlier of the date the
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taxpayer files the original return for the taxable year of the

contribution or the due date (including extensions) for filing

the original return for the year.   Sec. 170(f)(8)(C); sec.

1.170A-13(f)(3), Income Tax Regs.   The written acknowledgment

must state the amount of cash and a description (but not

necessarily the value) of any property other than cash that the

taxpayer donated and whether the organization provided any

consideration to the taxpayer in exchange for the donation.       Sec.

170(f)(8)(B)(i) and (ii); sec. 1.170A-13(f)(2)(i) and (ii),

Income Tax Regs.

     Petitioner provided a donation receipt from Goodwill

Industries dated September 22, 2006, demonstrating that she

donated a total of seven items.   The receipt lists several of the

items donated, including a bed, clothing, and furniture, and

includes a total value of $1,250 for the donated items.     The

Court is satisfied that petitioner has substantiated her

charitable contribution deductions to the extent of $965.     But

because petitioner has not proven that this amount was not

included in the $6,985 that respondent allowed as a charitable

contribution deduction, she nevertheless is not entitled to

deduct the $965.   Consequently, respondent’s disallowance is

sustained.
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V.   Accuracy-Related Penalty

      Section 6662(a) and (b)(2) imposes a 20-percent

accuracy-related penalty on the portion of an underpayment that

is attributable to a substantial understatement of income tax.2

An understatement of income tax is the excess of the amount of

income tax required to be shown on the return for the taxable

year over the amount of income tax that is shown on the

return, reduced by any rebate.    See sec. 6662(d)(2)(A).   An

understatement is substantial if it exceeds the greater of 10

percent of the tax required to be shown on the return for the

taxable year or, in the case of an individual, $5,000.      See sec.

6662(d)(1)(A).

      The Commissioner bears the burden of production with respect

to the applicability of an accuracy-related penalty determined in

a notice of deficiency.    See sec. 7491(c).   In order to meet the

burden of production under section 7491(c), the Commissioner need

only make a prima facie case that imposition of the penalty or

addition to tax is appropriate.    Higbee v. Commissioner, 116 T.C.
438, 446 (2001).    Once he has met his burden, the burden is upon

the taxpayer to prove that the accuracy-related penalty does not

apply because of reasonable cause, substantial authority, or the

like.     See secs. 6662(d)(2)(B), 6664(c); Higbee v. Commissioner,

      2
      The Court need not determine whether petitioner is liable
for the accuracy–related penalty due to negligence.
                                - 11 -

supra at 449.   Because petitioner’s understatement of income tax

for 2006 exceeded $5,000, respondent has met his burden for the

determination of an accuracy-related penalty based on substantial

understatement of income tax.

     An accuracy-related penalty is not imposed on any portion of

the underpayment as to which the taxpayer acted with reasonable

cause and in good faith.   Sec. 6664(c)(1).   Section 1.6664-

4(b)(1), Income Tax Regs., incorporates a facts and circumstances

test to determine whether the taxpayer acted with reasonable

cause and in good faith.   The most important factor is the extent

of the taxpayer’s effort to assess his proper tax liability. Id.

     Petitioner has failed to demonstrate that she acted with

reasonable cause and in good faith in failing to report rental

income and substantiate the disallowed job expense and charitable

contribution deductions.   Accordingly, the Court finds that

petitioner is liable for the accuracy-related penalty.

     To reflect the foregoing,

                                          Decision will be entered

                                     for respondent.