T.C. Memo. 1996-65
UNITED STATES TAX COURT
DUDLEY JOSEPH AND MYRNA DUPUY CALLAHAN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4863-94. Filed February 20, 1996.
Myrna Dupuy Callahan, pro se.
Linda K. West, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
WOLFE, Special Trial Judge: This case was heard pursuant
to the provisions of section 7443A(b)(3) and Rules 180, 181, and
182.1 In a notice of deficiency, respondent determined
1
All section references are to the Internal Revenue Code in
effect for the years at issue, unless otherwise indicated. All
Rule references are to the Tax Court Rules of Practice and
Procedure.
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deficiencies in petitioners' Federal income tax for the years
1989, 1990, and 1991 in the respective amounts of $4,226, $4,504,
and $5,625, and accuracy-related penalties under section 6662(a)
in the respective amounts of $845, $901, and $1,125.
The issues for decision are: (1) Whether petitioners are
entitled to deduct expenses incurred in connection with Myrna
Dupuy Callahan's writing activity as expenses of an activity
engaged in for profit for taxable years 1989, 1990, and 1991; (2)
whether petitioners have substantiated and are entitled to deduct
casualty losses in the amounts of $13,233 and $13,835 for taxable
years 1989 and 1990, respectively; (3) whether petitioners have
substantiated and are entitled to deduct certain Schedule A
expenses for taxable year 1991; (4) whether petitioners' medical
expense deductions for taxable years 1989, 1990, and 1991 must be
recalculated in accordance with any adjustments to petitioners'
adjusted gross income; (5) whether petitioners are entitled to
deduct State sales taxes in the amount of $1,964 for taxable year
1990; (6) whether petitioners have substantiated and are entitled
to deduct charitable contributions in excess of $4,216 for
taxable year 1990; and (7) whether petitioners are liable for
penalties for negligence or disregard of rules or regulations
under section 6662(a).
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FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulated facts and attached exhibits are incorporated by
this reference. Petitioners resided in Plaquemine, Louisiana,
when their petition was filed.
Myrna Dupuy Callahan (petitioner) graduated from high school
with honors and attended Our Lady of Lake College in Baton Rouge,
Louisiana, where she took classes in general nursing, psychology,
and chemistry. She eventually became a registered cosmetologist
after an illness prevented her from completing her training in
nursing. She operated Vogue Beauty Box for 13 years, and for 1
year during that period--when her daughter was old enough for
kindergarten--she also opened and operated a neighborhood
kindergarten. Subsequent to running Vogue Beauty Box, petitioner
became a salesperson for Home Decorators, Inc., and two insurance
companies, Lincoln National and Prudential.
Petitioner has engaged in two hobbies since the late 1970's:
entering sweepstakes, and refunding and rebating with coupons.
Over time petitioner developed a filing and recordkeeping system,
plus various techniques or strategies designed to maximize the
savings available from product coupons and rebate offers. She
also developed a methodology intended to improve her chances of
winning sweepstakes contests. After a friend suggested she
document her refunding and rebating methodology, in 1982
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petitioner wrote two manuals, Mrs. M.'s Quick & Easy Refund &
Rebate System and Mrs. M.'s Winning Sweepstakes System. Sometime
thereafter she placed a $5 advertisement in a coupon booklet for
persons interested in testing her systems and also made inquiries
with several publishers. Although no one was interested in
publishing her manuals, some people did respond to her
advertisement.
Petitioner copyrighted Mrs. M.'s Quick & Easy Refund &
Rebate System in 1984 and self-published both manuals in 1992
under a name and logo of her own design, $'s Info Books. It is
unclear from the record if and when Mrs. M.'s Winning Sweepstakes
System was copyrighted. Each manual is printed on 8 1/2 inch by
11 inch paper, one-sided, and spiral bound on the left side. The
refund and rebate guide is 15 pages in length, including an
inside cover page, table of contents, 2 pages of comments from
test marketers, and 2 pages of order forms. The sweepstakes
manual is nine total pages, including an inside cover page, two
pages of order forms, and two pages of comments from test
marketers.
In 1992, 1993, and 1994, petitioner generated publicity for
her manuals in the local print and broadcast media, and attended
a number of autograph parties at local bookstores, libraries, and
clubs. During those same years she wrote to published authors
for advice, applied to newspapers and publishers for writing
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assignments, and sought financial assistance for her writing
endeavors. In 1994 she acquired a local occupational license "to
pursue and follow the Occupation of wholesale retail."
Petitioner self-publishes her manuals on a prepaid basis only for
$10.00 each, plus $1.00 for postage and handling. Her manuals
have been listed on two databases compiled by R.R. Bowker Company
(Bowker), Literary Market Place: A Directory of American Book
Publishers and Books in Print.
The gross receipts, gross income, expenses, and losses
attributed to $'s Info Books and as reported by petitioners on
their Forms 1040, Schedules C for taxable years 1987 through 1992
are summarized as follows:
Gross Gross
Year Receipts Income Expenses Losses
1987 $80 $80 $6,061 $(5,981)
1988 -0- 3 6,333 (6,330)
1989 -0- 33 13,059 (13,026)
1990 134 124 23,287 (23,163)
1991 -0- 27 21,641 (21,614)
1992 432 (68) 25,411 (25,343)
Total 646 199 95,792 (95,457)
The principal source of petitioners' receipts reported on
Schedules C for 1987-1992 was prizes and sweepstakes winnings.
Among the sources of petitioners' reported Schedule C losses were
deductions for depreciation of an electric screwdriver and a
weedwacker. Their Schedules C losses contributed to petitioners'
receiving full tax refunds for 1989, 1990, and 1991.
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In June of 1989, petitioners' house sustained damages from
termite infestation as well as a tornado and flood caused by
Tropical Storm Allison. Tropical Storm Allison was declared a
major disaster that year, and petitioners were awarded a grant in
the amount of $5,660 from the Federal Emergency Management Agency
(FEMA) and the Louisiana State Individual and Family Grant (IFG)
Program. Termite damage required repairs in 1990 as well.
OPINION
Respondent determined deficiencies in petitioners' 1989,
1990, and 1991 Federal income taxes in the amounts of $4,226,
$4,504, and $5,625, respectively, and penalties pursuant to
section 6662(a) for negligence in the amounts of $845, $901, and
$1,125, respectively. Respondent's determinations are presumed
correct, and petitioners have the burden of proving otherwise.
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
1. Publishing Activity
Section 183 provides that if an activity engaged in by an
individual is not engaged in for profit, no deduction
attributable to such activity shall be allowed, except as
provided in section 183(b).2 An "activity not engaged in for
2
In the case of an activity not engaged in for profit, sec.
183(b)(1) allows a deduction for expenses that are otherwise
deductible without regard to whether the activity is engaged in
for profit. Sec. 183(b)(2) allows a deduction for expenses that
would be deductible only if the activity were engaged in for
profit, but only to the extent the total gross income derived
from the activity exceeds the deductions allowed by sec.
183(b)(1).
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profit" is any activity for which deductions would not be allowed
under section 162 or under paragraph (1) or (2) of section 212.
Sec. 183(c). Section 162 allows a deduction for all the ordinary
and necessary expenses paid or incurred in carrying on a
business. Section 212 allows a deduction for all the ordinary
and necessary expenses paid or incurred for the production or
collection of income, or for the management, conservation, or
maintenance of property held for the production of income. The
profit standards applicable to section 212 are the same as those
used in section 162. See Antonides v. Commissioner, 893 F.2d
656, 659 (4th Cir. 1990), affg. 91 T.C. 686 (1988).
For a taxpayer to deduct expenses of an activity pursuant to
section 162, he must show that he engaged in the activity with an
actual and honest objective of making a profit. Sec. 183;
Ronnen v. Commissioner, 90 T.C. 74, 91 (1988); Fuchs v.
Commissioner, 83 T.C. 79, 97-98 (1984); Dreicer v. Commissioner,
78 T.C. 642, 645 (1982), affd. without opinion 702 F.2d 1205
(D.C. Cir. 1983); sec. 1.183-2(a), Income Tax Regs. Although a
reasonable expectation of profit is not required, the taxpayer's
profit objective must be bona fide. Hulter v. Commissioner, 91
T.C. 371, 393 (1988); Beck v. Commissioner, 85 T.C. 557, 569
(1985). "Profit" in this context means economic profit,
independent of tax savings. Drobny v. Commissioner, 86 T.C.
1326, 1341 (1986). Whether a taxpayer had an actual and honest
profit objective is a question of fact to be resolved from all
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relevant facts and circumstances. Hulter v. Commissioner, supra
at 393; Golanty v. Commissioner, 72 T.C. 411, 426 (1979), affd.
in an unpublished opinion 647 F.2d 170 (9th Cir. 1981). The
burden of proving such objective is on petitioner. Rule 142(a);
Welch v. Helvering, 290 U.S. 111 (1933). Greater weight is given
to objective facts than to a taxpayer's statement of intent.
Beck v. Commissioner, supra at 570; Thomas v. Commissioner, 84
T.C. 1244, 1269 (1985), affd. 792 F.2d 1256 (4th Cir. 1986); sec.
1.183-2(a), Income Tax Regs.
Section 1.183-2(b), Income Tax Regs., provides a non-
exclusive list of factors which should be considered in
determining whether an activity is engaged in with the requisite
profit objective. The nine factors are: (1) The manner in which
the taxpayer carries on the activity; (2) the expertise of the
taxpayer or his advisors; (3) the time and effort expended by the
taxpayer in carrying on the activity; (4) the expectation that
the assets used by the taxpayer may appreciate in value; (5) the
success of the taxpayer in carrying on other similar or
dissimilar activities; (6) the taxpayer's history of income or
losses with respect to the activity; (7) the amount of occasional
profits, if any, which are earned; (8) the financial status of
the taxpayer; and (9) whether elements of personal pleasure or
recreation are involved. No single factor, nor the existence of
even a majority of the factors, is controlling, but rather it is
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an evaluation of all the facts and circumstances in the case,
taken as a whole, which is determinative.
Petitioner did not carry on her writing activity in a
businesslike manner. Her resume lists bookkeeping and accounting
among her business experiences and skills, yet petitioner did not
maintain any type of records, books, or accounting method
relating to her writing activity. At trial she submitted copies
of hundreds of checks written in 1989, 1990, and 1991 (over 400
checks for 1989 alone). The various payees included Wal-Mart, K-
Mart, Shell, Exxon, Southern Bell, J.C. Penney, Citibank, and
various individuals. A majority of the checks fail to indicate
what was purchased or for what purpose the particular expenditure
was made. We find petitioner's "shoebox method" of recordkeeping
inconsistent with a business or an activity for profit,
particularly in light of her claim to past bookkeeping and
accounting experience.
Petitioner has little expertise or experience as a
professional writer. She testified that she ghostwrote for a
political candidate and has had "many of [her] works from about
[her] junior year of high school published in local and other
newspapers, unedited." However, petitioner did not state whether
she was remunerated for any of her written work or campaign
ghostwriting, and she did not submit into evidence any of her
purportedly published material, except for the items directly in
issue in this case. We are not required to accept petitioner's
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self-serving and uncorroborated testimony, particularly where
other and better evidence to prove the point in question is
available. Wood v. Commissioner, 338 F.2d 602, 605 (9th Cir.
1964), affg. 41 T.C. 593 (1964).
The record does not disclose the time and effort expended by
petitioner on her writing activity for taxable years 1989, 1990,
and 1991. However, the bulk of her efforts detailed in the
record were expended before and after the taxable years in issue.
Each of the manuals that petitioner has introduced as her major
income-producing works was written in 1982. Petitioner made
inquiries with publishers and placed her only advertisement for
test marketers during the 1980's. The manuals were self-
published in 1992. Publicity for the manuals and petitioner's
autograph parties occurred no earlier than 1992, and she did not
write to published authors or seek financial assistance until
after 1991. The record raises a strong inference that petitioner
did little or nothing with respect to her writing activity during
the taxable years at issue, 1989-1991.
On their Federal income tax returns for 1987 through 1992
(the only returns submitted into evidence), petitioners never
reported a net profit from petitioner's writing activity. During
that time her writing activity generated losses in excess of
$95,000, which were used to offset petitioners' other taxable
income, including petitioner Dudley J. Callahan's salary for each
year, which far exceeded the amounts involved in petitioner's
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Schedules C activity. Petitioners received full refunds of all
taxes withheld for the years in issue. A record of substantial
losses over many years and the absence of any likelihood of
achieving a profitable operation are important factors bearing on
the taxpayer's true intention. Hendricks v. Commissioner, 32
F.3d 94, 99 (4th Cir. 1994), affg. T.C. Memo. 1993-396; Golanty
v. Commissioner, 72 T.C. at 426-427; Bessenyey v. Commissioner,
45 T.C. 261, 274 (1965), affd. 379 F.2d 252 (2d Cir. 1967).
The remaining factors suggested by the income tax
regulations warrant only a brief note. Nothing in the record
shows, and petitioners did not argue, that petitioner used any
assets in her writing activity that would appreciate in value.
Petitioners' Federal income tax returns reflect a history of
losses from her writing activity, which is also reflective of the
extent of petitioner's success or lack thereof in carrying on her
writing activity. Petitioners' financial status is such that it
does not influence the analysis in either direction. Finally,
the record indicates that petitioner enjoys her status as a self-
published writer.
Petitioner has failed to prove that she had an actual and
honest profit objective for the taxable years at issue. See
Dreicer v. Commissioner, 78 T.C. at 645; see also Lesher v.
Commissioner, T.C. Memo. 1991-161; Klapper v. Commissioner, T.C.
Memo. 1990-372, affd. without published opinion 935 F.2d 1278 (2d
Cir. 1991); Sherman v. Commissioner, T.C. Memo. 1989-269, each
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holding that the writing and supposedly related activities in
such case were not conducted for profit. Petitioner did not
carry on her activity in a businesslike manner. Refunding and
rebating, and entering sweepstakes, have long been hobbies that
petitioner enjoys. She recorded her methodologies in 1982 at the
suggestion of a friend and with the intention of helping her
friends save money on groceries. Neither manual was published
for 10 years until petitioner "self-published" them at an area
copy shop. It was not until then, after the taxable years in
issue, that petitioner pursued financial assistance, wrote a few
published authors, and sought publicity for herself. The record
does not disclose how much time, if any, petitioner spent on her
writing activity during the taxable years at issue, 1989, 1990,
and 1991. On their 1989 and 1991 Schedules C petitioners
reported gross receipts of zero; for 1990 they reported $134 in
gross receipts, all of which was from prizes and awards.
Moreover, there was no showing that petitioners ever made a net
profit from petitioner's writing activity. Respondent is
sustained on this issue.
2. Casualty Losses
Petitioners claimed casualty losses on their 1989 and 1990
returns in the respective amounts of $13,233 and $13,835. They
attributed these losses to damages sustained from Tropical Storm
Allison and termite infestation. Petitioners were unable to
apportion the total damages between Tropical Storm Allison and
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the termite infestation. Respondent disallowed petitioners'
claimed casualty losses on the grounds that the cost of repairing
termite damage is not a casualty loss and for lack of
substantiation.
Section 165(a) allows a deduction for losses sustained
during the taxable year and not compensated for by insurance or
otherwise. In the case of individuals, deductible losses are
limited to losses incurred in a trade or business or a
transaction entered into for profit, and losses resulting from
"fire, storm, shipwreck, or other casualty, or from theft." Sec.
165(c). An "other casualty" has been defined by the courts to
mean a loss proximately caused by a sudden, unexpected, or
unusual event, excluding progressive deterioration. Maher v.
Commissioner, 680 F.2d 91, 92 (11th Cir. 1982), affg. 76 T.C. 593
(1981); Fay v. Helvering, 120 F.2d 253 (2d Cir. 1941), affg. 42
B.T.A. 206 (1940); White v. Commissioner, 48 T.C. 430, 435
(1967). Casualty losses for individuals are deductible only to
the extent that the loss exceeds $100 per casualty and 10 percent
of adjusted gross income (AGI). Sec. 165(h).
An individual's 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(d)(1),
Income Tax Regs. The amount of a casualty loss is generally
computed as the fair market value of the property immediately
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before the casualty, minus the fair market value of the property
immediately after the casualty, not to exceed, however, the
property's adjusted basis. Helvering v. Owens, 305 U.S. 468, 471
(1939); Millsap v. Commissioner, 46 T.C. 751 (1966), affd. 387
F.2d 420 (8th Cir. 1968); sec. 1.165-7(b)(1), Income Tax Regs.
The determination of these respective values "shall generally be
ascertained by competent appraisal," and any such deduction
"shall be limited to the actual loss resulting from damage to the
property." Sec. 1.165-7(a)(2)(i), Income Tax Regs. The cost of
repairs to the property damaged is also acceptable as evidence of
the loss of value under certain circumstances. Sec. 1.165-
7(a)(2)(ii), Income Tax Regs.
Termite damage generally does not give rise to a deductible
casualty loss because it does not occur suddenly, unexpectedly,
or from an unusual cause. United States v. Rogers, 120 F.2d 244
(9th Cir. 1941); Dodge v. Commissioner, 25 T.C. 1022, 1026
(1956). Only in exceptional situations where damages from
termite infestation occurred in a relatively short period of
time, ranging, for example, from 3 to 14 months, has a casualty
loss been sustained. Rosenberg v. Commissioner, 198 F.2d 46 (8th
Cir. 1952), revg. 16 T.C. 1360 (1951); Kilroe v. Commissioner, 32
T.C. 1304 (1959); Buist v. United States, 164 F.Supp. 218 (E.D.
S.C. 1958); Shopmaker v. United States, 119 F.Supp. 705 (E.D. Mo.
1953); see Dodge v. Commissioner, supra, for a detailed analysis
of the cases.
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In the present case, nothing in the record shows that
petitioners' termite infestation occurred over a short period of
time. Petitioner testified that when petitioners were deciding
whether to paint their house or put up vinyl siding, painters
advised them that the wood was in good condition. However,
petitioner failed to indicate in what year she received this
suggestion, and there is no evidence or indication that the
painter was specifically looking for termite infestation or was
qualified to do so. Moreover, since his painting contract turned
on his analysis of the wood, the painter's opinion could hardly
be considered unbiased. We hold that petitioners are not
entitled to claim as casualty losses their costs of repairing any
termite damage incurred in 1989 and 1990.
Petitioners' casualty losses purportedly incurred as a
result of Tropical Storm Allison present an issue of
substantiation. Generally, taxpayers are required to
substantiate claimed deductions and credits by maintaining the
records needed to establish the amount of such items. Sec. 6001;
sec. 1.6001-1(a), Income Tax Regs. Even though a taxpayer fails
to maintain adequate records, under some circumstances we may
estimate the amount a taxpayer is entitled to deduct if he
provides a means of making a reasonable estimate of the expense.
Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930). However, in
order for us to make an estimate, there must be sufficient
evidence to show that at least the estimated amount actually was
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spent or incurred for the stated purpose. Williams v. United
States, 245 F.2d 559, 560 (5th Cir. 1957); Vanicek v.
Commissioner, 85 T.C. 731, 743 (1985). Furthermore, in making an
estimate, we must bear heavily on petitioner, "whose inexactitude
is of his own making." Cohan v. Commissioner, supra at 544.
Petitioners did not submit any evidence or testify to the
effect that their house was appraised by a competent
professional, either before or after the damages were sustained.
In addition, petitioners were unable to separate the structural
damages caused by Tropical Storm Allison from the structural
damages caused by the termite infestation. To substantiate the
casualty losses claimed on their returns, petitioners submitted a
letter from FEMA, which references their 1989 grant of $5,660,
photocopies of checks and receipts, handwritten lists of
expenditures, and a written statement from one James Robinson,
dated August 25, 1993, stating that he performed repairs to their
house sustained from Tropical Storm Allison.
We consider the letter from FEMA sufficient to substantiate
that petitioners sustained damages from Tropical Storm Allison,
but only for taxable year 1989 and only in the amount of the
grant, $5,660. Cohan v. Commissioner, supra; sec. 1.165-
7(a)(2)(ii), Income Tax Regs. The checks and receipts submitted
by petitioners, however, are insufficient to substantiate the
1989 casualty loss in excess of $5,660. Many of the checks do
not indicate what was purchased or for what purpose the
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particular expenditure was made, and some of the photocopied
receipts and handwritten lists were insufficient on their face.
With respect to taxable year 1990, we find that the events fixing
the loss inflicted by Tropical Storm Allison all occurred in
1989. The storm hit in the middle of 1989, and petitioners were
awarded their FEMA grant that same year.
An outright disbursement or grant made by a public agency
designated to help relieve any financial losses caused by a
natural disaster is in the nature of "insurance or otherwise."
Spak v. Commissioner, 76 T.C. 464, 467 (1981); Shanahan v.
Commissioner, 63 T.C. 21 (1974). Consistent with this rule, on
their 1989 Form 4684, Casualties and Thefts, petitioners reported
their FEMA grant on the line provided for "insurance or other
reimbursement". The record shows that petitioners failed to
substantiate any casualty losses in excess of the amount
compensated for by insurance or otherwise, and that the events
fixing the damages caused by Tropical Storm Allison all occurred
in 1989. Accordingly, we hold that petitioners are not entitled
to claim a casualty loss for either of the taxable years 1989 and
1990.
3. 1991 Schedule A Miscellaneous Deductions
On their 1991 Schedule A, Form 1040, petitioners claimed
miscellaneous deductions in the amount of $22,237. Petitioners
indicated on their return that this amount consisted of the
following: $126 paid to acquire stock, $575 for term insurance,
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$1,166 for insurance on investments, and $20,370 for repairs and
depreciation. Written at the top of Schedule A was "ANDREW", in
reference to Hurricane Andrew. Respondent disallowed
petitioners' claimed miscellaneous deductions for 1991 for lack
of substantiation.
As noted, taxpayers are generally required to substantiate
claimed deductions and credits by maintaining the records needed
to establish the amount of such items. Sec. 6001; sec. 1.6001-
1(a), Income Tax Regs. Petitioners did not elaborate upon which
of the reported Schedule A expense deductions related to
Hurricane Andrew, although petitioner did testify that "labor"
expenses reported on line 21 of Schedule C for that year were for
repairs caused by Hurricane Andrew. Petitioners submitted
photocopies of hundreds of checks, whose payees included Southern
Bell, Reader's Digest, American Family Publishers, J.C. Penney
Insurance, Allstate Insurance, Shell, Exxon, Texaco, and "cash,"
among others. Most of the checks do not indicate what was
purchased or the purpose of the expenditure. When asked to
clarify the stock and insurance expenses, petitioner testified
only that the stock was purchased to create a "perpetual fund for
the maintenance of" their parents' graves. We find both the
photocopies of the checks and petitioner's testimony insufficient
to substantiate the Schedule A miscellaneous deductions claimed
for 1991. Respondent is sustained on this issue.
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4. Medical Expenses
In the notice of deficiency, respondent adjusted
petitioners' gross medical expenses as reported on Schedules A,
lines 1a and 1, of their 1989, 1990, and 1991 returns (decreasing
the amounts reported for 1989 and 1990, and increasing the amount
reported for 1991). At trial, respondent stated that the gross
amounts reported were not in dispute. We consider respondent to
have conceded the gross amounts of medical expenses reported on
the returns. Respondent argues only that the amount of medical
expenses petitioners may deduct must be recalculated in light of
any adjustments to their adjusted gross income by reason of this
opinion.
Section 213 allows a deduction for expenses paid for medical
care of the taxpayer, his spouse, or a dependent, which is not
compensated for by insurance or otherwise, to the extent that
such expenses exceed 7.5 percent of adjusted gross income. The
amount of the deduction for medical expenses obviously depends
upon the taxpayer's adjusted gross income. Accordingly, we hold
that petitioners' allowable medical expense deductions for the
taxable years at issue must be recalculated to reflect any
adjustments to their adjusted gross income by reason of this
opinion.
5. State Sales Taxes
On their 1990 Schedule A, Form 1040, petitioners claimed a
deduction for "other taxes" in the amount of $1,964. Respondent
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determined that this amount was paid for State sales taxes and
disallowed the deduction in full on the grounds that State sales
taxes are not deductible.
Prior to 1986, section 164(a)(4) allowed a deduction for
State and local general sales taxes paid or accrued within the
taxable year. Section 164(a)(4) was repealed by section
134(a)(1) of The Tax Reform Act of 1986, Pub. L. 99-514, 100
Stat. 2116. Petitioners offered no evidence that the $1,964 they
deducted for "other taxes" represented anything other than State
sales taxes. In fact, petitioners state in their posttrial
memorandum that the "other taxes" were State sales taxes on
personal property. Respondent is sustained on this issue.
6. Charitable Contributions
On their 1990 Schedule A, Form 1040, petitioners claimed
charitable contributions in the amount of $4,342. Respondent
disallowed $126 of this amount for lack of substantiation.
Section 170 allows a deduction for charitable contributions
subject to certain limitations. If a taxpayer makes a cash
contribution, the taxpayer in the absence of a canceled check or
receipt from the donee must maintain other reliable written
records showing the name of each charity, and the date and the
amount of each contribution. Sec. 1.170A-13(a)(1)(iii), Income
Tax Regs.
Petitioners offered no evidence to substantiate their
charitable contributions apart from the photocopies of hundreds
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of checks written in 1990. It is unclear which of these, if any,
purportedly substantiate the $126 disallowed by respondent.
Petitioners have not satisfied their burden of proof. Respondent
is sustained on this issue.
7. Negligence
For taxable years 1989, 1990, and 1991, respondent
determined that petitioners are liable for the accuracy-related
penalty under section 6662(a) for negligence in the respective
amounts of $845, $901, and $1,125. Section 6662(a) and (b)(1)
imposes an accuracy-related penalty on any portion of an
underpayment which is attributable to negligence or disregard of
rules or regulations. Negligence is the lack of due care or
failure to do what a reasonable and ordinarily prudent person
would do under the circumstances. Neely v. Commissioner, 85 T.C.
934, 947 (1985). The term "disregard" includes any careless,
reckless, or intentional disregard. Sec. 6662(c). Petitioners
have the burden of proof to show that the penalty should not be
sustained by the Court. Rule 142(a); Tweeddale v. Commissioner,
92 T.C. 501, 505 (1989).
Petitioners submitted one piece of evidence with respect to
the negligence penalty, a one-paragraph statement clipped from a
text, magazine, or pamphlet offering tax tips. This particular
clipping states that business expenses of writers are deductible
in the year incurred and need not be expensed over time.
Petitioners' reliance on this comment, regardless of its
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accuracy, does not excuse their negligence. None of the
adjustments to petitioners' taxes at issue herein, or the
deficiencies resulting therefrom, derive from expenses deducted
in the wrong year. After reviewing the entire record, including
petitioners' persistent claims to substantial deductions for
items that plainly represent their nondeductible living expenses
and also petitioners' failure to substantiate claims, we are
convinced that petitioners' deficiencies for 1989, 1990, and 1991
are the result of negligence. Respondent is sustained on this
issue.
Petitioners raised several other questions in their post-
trial briefs which we address summarily. First, the notice of
deficiency was timely with respect to all 3 years.3 Second, the
deficiency notice was not arbitrary and excessive. Pasternak v.
Commissioner, 990 F.2d 893, 897 (6th Cir. 1993), affg. Donahoe v.
Commissioner, T.C. Memo. 1991-181; Campbell v. Commissioner, 90
T.C. 110, 115 (1988). Third, petitioners failed to provide any
evidence that they were subjected to unnecessary examination or
investigations, or that if they were subjected to multiple
examinations for the same taxable year, that they objected
thereto. Fourth, petitioners are not entitled to a refund for
3
Petitioners formally extended the time to assess their
Federal income tax for taxable year 1989 to anytime on or before
Oct. 18, 1994. The notice of deficiency was issued prior to Oct.
18, 1994, and within the 3-year limitations period with respect
to taxable years 1990-91. Secs. 6501, 6503.
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any of the years at issue because they did not pay any taxes in
1989, 1990, or 1991. Amounts withheld during those years were
fully refunded to petitioners. Finally, there are no grounds to
award petitioners litigation costs under section 7430, since
petitioners are not the prevailing party.
To reflect the foregoing,
Decision will be entered
under Rule 155.