T.C. Memo. 1996-422
UNITED STATES TAX COURT
AHSAN MOHIUDDIN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 14274-94, 23021-94. Filed September 18, 1996.
Ahsan Mohiuddin, pro se.
Charles Pillitteri and Robert W. West, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
SCOTT, Judge: Respondent determined deficiencies in
petitioner's Federal income taxes and accuracy-related penalties
for the calendar years 1990, 1991, and 1992 as follows:
Accuracy-related penalty
Year Deficiency Sec. 6662(a)1
1990 $658 $124
1991 17,246 3,449
1992 1,517 303
Some of the issues raised by the pleadings have been
disposed of by agreement of the parties, leaving for decision:
(1) Whether petitioner is entitled to use the filing status of
"head of household" for the taxable years 1990 and 1991, and
whether petitioner is entitled to use the filing status of
"single" for the taxable year 1992; (2) whether petitioner is
entitled to a dependency exemption for his mother for each of the
taxable years 1990 and 1991; (3) whether petitioner is entitled
to deduct on Schedule A the amounts of $5,539, $37,247.73, and
$7,823, or any part thereof, for the taxable years 1990, 1991,
and 1992, respectively; (4) whether petitioner is entitled to
Schedule C business expense deductions in the amounts of $23,505
and $7,250 for the taxable years 1991 and 1992, respectively; and
(5) whether petitioner is liable for an accuracy-related penalty
pursuant to section 6662(a) for each of the taxable years at
issue.2
1
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, unless otherwise
indicated.
2
In her Answer to Amended Petition, respondent alleged
that petitioner was liable for an addition to tax pursuant to
sec. 6651(a) for failure to timely file petitioner's Federal
income tax return for the taxable year 1990. In her trial
(continued...)
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FINDINGS OF FACT
Some of the facts have been stipulated and are found
accordingly.
At the time of the filing of the petition in this case,
petitioner maintained a legal residence in Huntsville, Alabama.
Petitioner filed his Federal income tax returns for the taxable
years 1990, 1991, and 1992, with the Internal Revenue Service
Center in Memphis, Tennessee.
Petitioner was married at all times during the taxable years
at issue. Although petitioner and his wife had lived apart for
some years, they are not and never have been divorced.
Petitioner did not maintain as his home a household that
constituted the principal place of abode of an individual who was
a son, stepson, daughter, or stepdaughter of petitioner during
any part of any of the year 1990, 1991 or 1992.
In 1986, petitioner's mother and father immigrated from
India to the U.S. At that time, petitioner's mother received a
resident alien card. In the fall of 1989, petitioner's mother
and father applied for Government-assisted housing and were
furnished a subsidized-rent duplex in Huntsville, Alabama, in
which to live.
In October 1990, petitioner's mother began receiving
supplemental income payments from the Social Security
2
(...continued)
memorandum, respondent conceded this issue.
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Administration. For October and November 1990, she received $193
per month in such payments. Beginning in December 1990, she
received $289.50 per month as supplemental income payments from
the Social Security Administration. Petitioner's father began
receiving assistance from the Government in the middle of 1989.
Petitioner's father received supplemental income payments from
the Social Security Administration in October and November 1990
in the amount of $386 per month. Beginning in December 1990, he
received $289.50 per month as such payments.
In November 1989, petitioner's sister and her husband moved
into petitioner's house at 415 Karter Street, Huntsville, Alabama
(the Karter Street house), and lived there throughout 1990 and
1991. Petitioner's mother lived for at least part of each of the
years 1990 and 1991 in the Karter Street house. Petitioner's
sister and her husband took care of petitioner's mother while she
lived in the Karter Street house. In late 1991 or early 1992,
petitioner's sister and her husband moved to Little Rock,
Arkansas, and petitioner's mother moved with them.
Petitioner was unemployed during 1990 until November when he
obtained employment in Melbourne, Florida, with Avionics Research
Corp. of Florida (Avionics). Petitioner moved to Florida in
November 1990 and lived there throughout 1991. Petitioner worked
for Avionics from November 1990 until October 1991, when his
employment was terminated. Petitioner remained in Florida,
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receiving unemployment compensation, until June 1992, when he was
no longer eligible to receive unemployment compensation.
Beginning in November 1989, petitioner rented the Karter
Street house with an option to buy. In 1990, petitioner decided
to exercise his option to buy, and between November 1990 and
February 1991, petitioner paid the owner of the Karter Street
house $10,000, which amount represented the owner's equity in the
house. In February 1991, petitioner assumed the mortgage with
AmSouth Mortgage Co. (AmSouth), which was on the Karter Street
house, and began making mortgage payments to AmSouth.
In June 1992, petitioner moved back to Huntsville. In
August 1992, he obtained employment in Huntsville, but, in
December 1992, his employment was terminated.
Petitioner deducted the following amounts on Schedule A of
his Federal income tax return for the taxable year 1990:
Deduction Amount
Medical and dental expenses $225
Gifts to charity 400
Casualty or theft loss 800
Moving expenses 4,114
Total 5,539
Respondent determined that petitioner was entitled to no
itemized deductions for 1990 since his tax computed using the
standard deduction for 1990 was less than his tax computed using
the proper amount of itemized deductions.
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The casualty loss in the amount of $800 claimed by
petitioner for 1990 was for damage to a 1979 Ford Pinto
automobile (the automobile). Sometime around the end of 1989,
petitioner took the automobile to Mayhall Texaco in Huntsville,
Alabama, for repair of a transmission problem. In March 1990, it
was discovered that the automobile's engine had cracked due to an
insufficient amount of antifreeze in the automobile.
On his Federal income tax return for the taxable year 1991,
petitioner deducted on Schedule A the following items in the
amounts shown:
Deduction Amount
Real estate taxes $178
Other taxes 321
Home mortgage interest 3,600
Points 285
Gifts to charity 400
Moving expenses 2,856
Miscellaneous itemized deductions:
Unreimbursed employee
expenses 11,116
Legal fees to collect
taxable income 5,000
Repayment under claim
of right 14,714
Total 30,830
Less 2 percent floor (1,223)
29,607.73(sic)
Total 37,247.73
Respondent in the notice of deficiency disallowed $33,164.73
of these claimed deductions. The following itemized deductions
for 1991 were not disallowed by respondent:
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Deduction Amount
Real estate taxes $178
Personal property taxes 20
Home mortgage interest 3,600
Points 285
Total 4,083
Included in the deduction claimed by petitioner for other
taxes for the taxable year 1991 was a deduction for personal
property taxes. The $20 allowed by respondent as a deduction for
personal property taxes was for petitioner's car registration.
The $11,116 deduction claimed by petitioner in 1991 as
employee business expenses was in connection with petitioner's
employment by Avionics. Avionics contracted out petitioner's
work to Northrup Grumman in Melbourne, Florida (Northrup
Grumman). Petitioner received reimbursement from Northrup
Grumman for his employee business expenses related to a business
trip to Los Angeles. The policy of Northrup Grumman was to
reimburse persons doing contract labor for any business travel
expenses they incurred. To the extent petitioner was not
reimbursed for his business travel expenses, it was because he
did not follow the procedure required to receive reimbursement.
Had he followed the required procedure, he would have received
reimbursement.
Among the itemized deductions claimed by petitioner on
Schedule A of his Federal income tax return for the taxable year
1991 was a deduction in the amount of $14,714 for "repayment
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under a claim of right". Petitioner's claimed deduction in 1991
of $14,714 for "repayment under a claim of right" related to
litigation, which was resolved in 1991, over child support for
petitioner's daughter. In resolution of the litigation,
petitioner claimed to have paid approximately $12,000 in child
support, and the remaining $2,000 was claimed to have been paid
for attorney's fees and expenses of litigation.
The $5,000 petitioner deducted in 1991 for "expenses/legal
fees to collect taxable income" related to litigation instituted
by petitioner regarding the denial to him of unemployment
compensation by the State of Alabama. Petitioner's claimed
deduction is stated by petitioner to consist of legal fees,
reporters' transcripts, depositions, court fees, Federal Express
mailing, and administrative costs. Petitioner was unsuccessful
at all stages of the unemployment compensation litigation.
On Schedule A of his Federal income tax return for the
taxable year 1992, petitioner claimed itemized deductions as
follows:
Deduction Amount
State and local income taxes $963
Real estate taxes 740
Auto registration tax 20
Home mortgage interest 4,070
Gifts to charity 500
Casualty/theft loss 350
Moving expenses 1,200
Total 7,843
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Respondent in the notice of deficiency disallowed $3,464 of
the itemized deductions claimed by petitioner for 1991. The
itemized deductions claimed by petitioner for 1991 which were not
disallowed were:
Deduction Amount
Real estate taxes $277
Personal property taxes 20
Charitable contributions 12
Home mortgage interest 4,070
Total 4,379
Petitioner filed a Schedule C with his return for the
taxable year 1991, using the business name "A & M Techservices".
Petitioner reported the address of this business as "1431 S. Oak
St. Room 16, Melbourne, FL 32901". On the Schedule C petitioner
claimed business expense deductions as follows:
Expense Amount
Advertising $6,150
Insurance 240
Interest 850
Legal/professional services 3,550
Office expense 7,000
Equipment lease 1,900
Repairs and maintenance 775
Supplies 200
Travel 1,500
Meals and entertainment 80
Utilities 300
Business Start-up 960
Total 23,505
Petitioner stated on the Form 2106 attached to his 1991
return that his business was engineering consulting. Petitioner
was seeking to contract out his services as an independent
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contractor during 1991. Petitioner did not contract out his
services during the taxable year 1991. He reported no income on
the Schedule C filed with his return for 1991.
Respondent in the notice of deficiency to petitioner
disallowed the entire amount of the $23,505 business expense
deduction claimed by petitioner on the Schedule C.
Petitioner filed a Schedule C with his return for the
taxable year 1992, using the same business name as in 1991.
During that year, petitioner listed on his tax return that his
principal business was "personal and financial
services/collection agency". Petitioner reported no income on
the Schedule C for 1992, but he earned between $200 and $400
during the year 1992 from his collection business that he did not
report on his tax return.3
On Schedule C of his Federal income tax return for the
taxable year 1992, petitioner claimed business expense deductions
totaling $7,250. Respondent in the notice of deficiency
disallowed $4,592 of the business expense deductions claimed by
petitioner for 1992. The claimed Schedule C business expense
deductions not disallowed by respondent were:
3
Petitioner testified to these facts but gave no
explanation for his failure to report the income received.
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Expense Amount
Advertising $200
Legal and professional services 26
Office expense 560
Rent 1,650
Repairs and maintenance 126
Supplies 14
Depreciation 82
Total 2,658
On his Federal income tax returns for the taxable years 1990
and 1991, petitioner claimed a filing status of "head of
household". He claimed a dependency exemption for his mother in
the amount of $2,050 for the taxable year 1990, and in the amount
of $2,150 for the taxable year 1991. In the notice of deficiency
for the taxable years 1990 and 1991, respondent changed
petitioner's filing status to "single" and disallowed the
dependency exemption he claimed for his mother.
On his Federal income tax return for the taxable year 1992,
petitioner claimed "single" filing status.
In her Answer to Amended Petition for the years 1990 and
1991, respondent alleged that petitioner's correct filing status
for the taxable years 1990 and 1991 is "married filing separate",
and also alleged that the exemption claimed by petitioner which
was not disallowed should be reduced in accordance with section
151(d)(3), since the threshold amount for reduction of exemptions
for married filing separate is less than for single. In her
Answer for the year 1992, respondent alleged that petitioner's
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correct filing status for the taxable year 1992 is "married
filing separate".
OPINION
Petitioner contends that he was head of a household during
1990 and 1991 when his mother lived in his house, and, therefore,
is entitled to compute his tax on that basis. In the notice of
deficiency, respondent determined that petitioner should have
filed as "single". In her Answer to Amended Petition, respondent
alleged that petitioner was required to file as "married filing
separate".
As a general rule, married individuals must file their
Federal income tax returns using either "married filing separate"
or "married filing joint". Pursuant to section 2(b)(1), an
unmarried individual may file a return as "head of household" if
that individual: (1) Maintains as his home a household which
constitutes for more than one-half of his taxable year the
principal place of abode, as a member of such household of an
unmarried son or daughter or stepson or stepdaughter or of any
person who is a dependent of the taxpayer, if the taxpayer is
entitled to a dependency exemption for that person; or (2)
maintains a household which constitutes for such taxable year the
principal place of abode of the father or mother of the taxpayer,
if the taxpayer is entitled to a dependency exemption for that
parent.
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Under section 7703,4 certain married individuals living
apart are considered to be unmarried for the purpose of
determining their eligibility to file as "head of household"
under section 2(c). Petitioner argues that he is entitled to
"head of household" status due to the support he provided to his
mother during 1990 and 1991. Petitioner testified at trial that
he was married during 1990 and 1991. However, he argues that
since his wife was declared incompetent by a State court during
those years, he was entitled to "head of household" status for
the care of his mother. Even if petitioner had offered
4
SEC. 7703. DETERMINATION OF MARITAL STATUS.
* * * * * * *
(b) Certain Married Individuals Living Apart.--For
purposes of those provisions of this title which refer to
this subsection, if--
(1) an individual who is married (within the
meaning of subsection (a)) and who files a separate
return maintains as his home a household which
constitutes for more than one-half of the taxable year
the principal place of abode of a child * * * with
respect to whom such individual is entitled to a
deduction for the taxable year under section 151 (or
would be so entitled but for paragraph (2) or (4) of
section 152(e)),
(2) such individual furnishes over one-half of the
cost of maintaining such household during the taxable
year, and
(3) during the last 6 months of the taxable year,
such individual's spouse is not a member of such
household,
such individual shall not be considered as married.
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sufficient evidence to establish his claim that his wife was
incompetent in 1990 and 1991, he would not meet the requirements
of section 7703 for persons who are married to file as head of
household. One of the requirements of the statute is that a
married taxpayer support either a son, stepson, daughter, or
stepdaughter to file as head of household. Petitioner makes no
claim that he supported a son or daughter, but claims that he was
head of household because his mother was a member of his
household. Since petitioner testified that he was married in
1990, 1991, and 1992, we hold that petitioner's correct filing
status in each of these years is "married filing separate". It
follows that in computing petitioner's income tax, the threshold
amount of married filing separate should be used to determine the
amount of any exemption to which petitioner is entitled.
Petitioner argues that in any event he is entitled to a
dependency exemption for his mother in 1990 and 1991.
Under section 151, a taxpayer is allowed an exemption for
himself and an exemption for each dependent as defined in section
152: (1) Whose gross income for the calendar year in which the
taxable year of the taxpayer begins is less than the exemption
amount; or (2) who is a child of the taxpayer and who has not
attained the age of 19 at the close of the calendar year in which
the taxable year of the taxpayer begins, or is a student. Sec.
152(b) and (c). Under section 152(a)(4), a "dependent" includes
the father or mother of the taxpayer, if the father or mother
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received from the taxpayer over half of his or her support for
the calendar year in which the taxable year of the taxpayer
begins.
Petitioner submitted checks made payable to AmSouth
representing mortgage payments for the Karter Street house for
the taxable year 1991 totaling $3,199.83, in support of the
claimed dependency exemption for his mother. According to
petitioner's tax returns, his mother lived with him 7 months in
1990 and 8 months in 1991. Petitioner's sister and her husband
also lived in the Karter Street house during those years. The
record further indicates that petitioner's mother received
Government assistance during 1990 and 1991, including
supplemental Social Security income payments in October and
November 1990 in the amount of $193 per month and in the amount
of $289.50 per month thereafter. Petitioner's father was also
receiving supplemental Social Security income payments in October
and November 1990 in the amount of $386 per month, and, beginning
in December 1990, he received $289.50 per month. The record does
not show whether petitioner's sister and her husband provided
support during 1990 and 1991 for petitioner's mother and father.
It does show that both petitioner's mother and petitioner's
sister lived in petitioner's house during part of each of the
years 1990 and 1991. The mortgage documents are the only
documents petitioner has provided to establish any expenditures
relating to the support of his mother. These checks merely
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establish that petitioner made mortgage payments and do not prove
that petitioner provided over half the support for his mother
during the years 1990 and 1991. The mortgage documents fail to
satisfy petitioner's burden of proving that his mother was his
dependent during the years 1990 and 1991. We sustain
respondent's disallowance of petitioner's claimed dependency
exemption for his mother in both 1990 and 1991.
The only documents offered by petitioner for the taxable
year 1990 in support of his claimed Schedule A itemized
deductions relate to his claimed casualty loss and his claimed
moving expense deductions. As evidence of his claimed casualty
loss, petitioner has submitted an affidavit. As evidence of his
claimed moving expenses, petitioner has submitted 2 car rental
agreements and a hotel receipt.5
Section 165(h) provides limits set forth therein for the
deduction of personal casualty losses. Under section 1.165-
7(b)(1), Income Tax Regs., the amount of loss to be taken into
account shall be the lesser of: (1) The amount that is equal to
5
At the conclusion of the trial, the Court requested that
respondent construct a list of each item which petitioner
introduced into evidence in this case and state whether
respondent agreed that the item represented an allowable
deduction and whether that item corresponded to petitioner's
Schedule A or C claimed deductions for that particular year. The
Court also instructed petitioner to list the exhibits in the
record and indicate specifically what each item is alleged to
prove. While respondent followed the Court's instructions in
this regard, petitioner has failed to assist the Court in this
matter.
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the fair market value of the property immediately before the
casualty reduced by the fair market value of the property
immediately after the casualty; or (2) the amount of the adjusted
basis for determining the loss from the sale or other disposition
of the property involved. A "casualty" is an event due to some
sudden, unexpected, or unusual cause, such as a fire, storm, or
shipwreck. Durden v. Commissioner, 3 T.C. 1, 3 (1944).
The only evidence petitioner offered regarding the casualty
loss deduction claimed in 1990 was an affidavit of Tex Mayhall,
in which Mr. Mayhall states that the damage to petitioner's
automobile occurred due to an absence or an insufficient amount
of antifreeze in the automobile. The affidavit further states
that Mr. Mayhall salvaged the automobile for $50 and notified
petitioner about the salvage approximately 3 months later when
petitioner called to ask about the automobile. We have long held
that in order for an event to constitute a casualty, the event
must involve the application of a destructive force which must be
the proximate cause of the loss. See White v. Commissioner, 48
T.C. 430 (1967). Petitioner's loss, if any, did not embody the
requisite element of "chance, accident, or contingency", see
Powers v. Commissioner, 36 T.C. 1191, 1193 (1961) (quoting
Bachofen von Echt v. Commissioner, 21 B.T.A. 702, 709 (1930)),
and is, therefore, no more than a personal expense to petitioner
as a result of petitioner's neglect. Further, even if this were
to be considered as a casualty loss, petitioner has offered no
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evidence whatsoever of the amount of the loss. We, therefore,
sustain respondent's denial of a deduction for petitioner's
claimed casualty loss in 1990.
In general, a taxpayer is allowed to deduct moving expenses
paid or incurred during the taxable year in connection with the
commencement of work by the taxpayer as an employee or self-
employed individual at a new principal place of work. Sec.
217(a). On his tax return for the taxable year 1990, petitioner
deducted $4,114 for moving expenses. To substantiate this
deduction, petitioner placed in evidence a car rental receipt in
the amount of $92.06 and a motel receipt from a motel in
Huntsville, Alabama, in the amount of $30.74. Respondent
concedes that petitioner is entitled to these amounts as a moving
expense deduction for 1990. Respondent further concedes that
petitioner is entitled to include as a moving expense deduction
in 1990 the amount of $64.54 based on another car rental receipt.
Petitioner argues in his brief that he produced to respondent's
agent receipts for all expenses "he would have reasonably [been]
expected to produce". However, petitioner offered only the two
receipts at trial and no other information regarding the moving
expenses. Although the evidence indicates that petitioner did
have some moving expenses in 1990, in addition to those conceded
by respondent, there is no basis for concluding that the amount
of such expenses would cause petitioner's itemized deductions for
1990 to result in his tax computed on the basis of such
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deductions being less than the tax computed on the basis of the
standard deduction.
Petitioner has conceded that he is not entitled to a medical
expense deduction for 1990, but petitioner has not conceded that
he is not entitled to the deduction he claimed for a charitable
contribution in the amount of $400. Petitioner has offered no
evidence of any charitable contribution made in 1990, and,
therefore, we sustain the denial of the deduction of $400 claimed
by petitioner for a charitable contribution in 1990.
Petitioner also deducted various expenses on his Schedule A
for the taxable year 1991 that respondent disallowed.6
Petitioner presented at trial a variety of unorganized checks,
receipts, invoices, and car rental agreements in support of these
claimed deductions.
Petitioner claimed that the unreimbursed employee business
expenses in the amount of $11,116 claimed on Schedule A of his
1991 tax return consisted of vehicle expenses, parking fees,
travel expenses, meals and entertainment expenses, and other
business expenses. Most of these claimed expense deductions are
of the type specified in section 274(d) which provides that no
deduction is allowed unless the taxpayer can substantiate by
adequate records or sufficient evidence the amount of the
6
Among the items that respondent has allowed is the
deduction of $3,600 for home mortgage interest and $285 for
points petitioner deducted on Schedule A of his 1991 tax return.
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expenditure, the time and place of the expenditure, the business
purpose of the expense, and the business relationship involved.
Petitioner introduced in evidence documents that he contends
show unreimbursed employee business expenses. Petitioner
testified that had he applied for reimbursement of these
expenses, his employer would have reimbursed him for the
expenditures. Not only has petitioner failed to meet his burden
of substantiating these claimed expense deductions by proper
evidence, he has failed to show that they would be deductible
even if substantiated. These expenditures, if for business
purposes, would have been reimbursed by his employer had he
claimed reimbursement. See Lucas v. Commissioner, 79 T.C. 1, 6-7
(1982); Fountain v. Commissioner, 59 T.C. 696, 708 (1973).
Petitioner testified that some of these expenses which he claimed
as deductible may have actually been reimbursed by his employer,
and that some were nondeductible personal expenditures. Based on
this record, petitioner has failed to show that he is entitled to
a deduction for unreimbursed employee business expenses in 1991
in any amount. We, therefore, sustain respondent's disallowance
of petitioner's claimed deduction in 1991 of unreimbursed
employee business expenses.
Petitioner claimed a deduction for "repayment under claim of
right" in the amount of $14,714. Petitioner testified that this
amount related to litigation involving child support for his
daughter, and argued in his brief that this amount was "arrearage
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on child support he paid the state of TN and child's mother
Dorine Furuya, neither of which would provide petr. with
accounting of monies rec'd. despite several written requests from
the petr". Petitioner testified that approximately $12,000 of
this claimed deduction was for child support payments, and
approximately $2,000 was for attorney's fees and expenses of the
litigation concerning child support payments. The portion of
this claimed deduction that relates to child support payments is
not deductible. Secs. 71(c), 215(b). The portion of this
claimed deduction that relates to the litigation costs concerning
child support payments is not deductible since it is a personal,
living, or family expense which is not deductible under section
262. United States v. Gilmore, 372 U.S. 39 (1963). Furthermore,
petitioner has failed to prove that the amounts he claimed as
deductions were expenditures he actually made in 1991. We hold
that petitioner is not entitled to deduct the amount he claims to
be deductible as a "repayment under claim of right".
Petitioner deducted $5,000 in legal fees for the year 1991
that he testified related to his unsuccessful attempt to obtain
unemployment compensation through litigation. Section 212
allows, in the case of individual taxpayers, a deduction for all
the ordinary and necessary expenses paid or incurred during the
taxable year for the production or collection of income.
Respondent does not argue that legal fees to collect unemployment
compensation are not deductible if paid. See United States. v.
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Gilmore, supra; Caruso v. United States, 236 F. Supp. 88 (D.N.J.
1964). Respondent, however, argues that petitioner has not
substantiated the entire amount of the claimed deduction.
Petitioner introduced into evidence 24 checks that he
claimed represent legal fees and expenses relating to
unemployment compensation litigation. Respondent concedes that
20 of the checks represent deductible amounts totaling $4,396.75.
One of the remaining checks received in evidence is in the amount
of $300 payable to "Richard Stegman Esq." for "consultation", and
two of such checks are payable to "Neil Paulson" in the total
amount of $830. Petitioner offered no evidence that either Mr.
Stegman or Mr. Paulson worked on the unemployment compensation
litigation, and neither person appeared on any court documents
relating to this litigation. The fourth check received in
evidence is a check in the amount of $15 payable to Accurate
Professional Typists. Petitioner could not remember whether this
check was related to the unemployment compensation litigation.
There were also received in evidence two airline passenger
receipts that petitioner claims relate to the unemployment
compensation litigation. The travel represented by the airline
receipts was to Huntsville, Alabama, and occurred over weekends
and holidays. There is a strong indication from these facts that
the travel was for personal purposes. Petitioner claims that car
rental agreements received in evidence represent expenses related
to the unemployment compensation litigation. Petitioner has not
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explained how the amounts paid under the car rental agreements
relate to the unemployment compensation litigation. We,
therefore, hold that petitioner has failed to establish that he
had any deductible expenses relating to the unemployment
compensation litigation other than the $4,396.75 conceded by
respondent.
In support of a claimed deduction for 1991 for taxes on his
car registration, petitioner submitted a copy of a canceled check
payable to Emmett Sanders in the amount of $32.37. In the notice
of deficiency, respondent did not disallow $20 of the deduction
claimed by petitioner for taxes on his car registration.
Petitioner has failed to show that the entire amount of the check
to Emmett Sanders was for taxes on his car registration. We
therefore uphold respondent's determination with respect to the
disallowance of a portion of the amount claimed by petitioner as
taxes on his car registration in 1991. The other taxes deducted
by petitioner in 1991 are utility taxes and tax on petitioner's
telephone bill. These items are nondeductible, and we sustain
respondent's disallowance of these claimed deductions. Sec. 164;
see Fife v. Commissioner, 73 T.C. 621 (1980).
Petitioner has offered no evidence to substantiate the
charitable contribution deduction claimed on Schedule A of his
1991 tax return. Since petitioner has not substantiated this
claimed deduction, we sustain respondent's disallowance of the
claimed deduction.
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Petitioner deducted $2,856 in moving expenses in 1991 which
respondent disallowed in her notice of deficiency. Petitioner
testified that he moved from Huntsville, Alabama, to Melbourne,
Florida, in November 1990. Petitioner testified that he incurred
expenses in connection with his move from Huntsville to Melbourne
through June 1991. While in Melbourne, he worked for Avionics
until October 1991. Petitioner then remained in Melbourne to
receive unemployment benefits. Petitioner has offered no
evidence that the expenses of his move to Melbourne in 1990
continued through 1991, nor has he offered any substantiation of
this claimed deduction. We therefore sustain respondent's
disallowance of this claimed deduction for moving expenses in
1991.
Respondent disallowed all of the amounts claimed as
deductions by petitioner on Schedule A for 1992 for lack of
substantiation. The following are Schedule A claimed deductions
in dispute for the year 1992:
Deduction Amount
State and local income taxes $963
Real estate taxes 463
Charitable contributions 488
Casualty/theft loss 350
Moving expenses 1,200
Petitioner has failed to provide any substantiation
whatsoever for these claimed deductions, and, accordingly, we
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sustain respondent's disallowance of the claimed deductions for
1992.
For the years 1991 and 1992 petitioner claimed to have
incurred business expenses relating to "A & M Techservices". He
claimed these deductions on Schedule C. Respondent denied all of
these claimed business deductions for 1991 on the basis that
petitioner had not established that he was carrying on a trade or
business to which the expenses related.
Section 162(a) provides that there is allowed as a deduction
all ordinary and necessary business expenses incurred during the
taxable year. Generally, a trade or business is an activity that
is pursued in good faith, with continuity and regularity, and for
the production of income. Commissioner v. Groetzinger, 480 U.S.
23, 35 (1987). Whether a taxpayer is engaged in a trade or
business is a question of fact. Walliser v. Commissioner, 72
T.C. 433, 437 (1979).
Petitioner reported on his tax return for 1991 that the name
of his business was "A & M Techservices". At trial, petitioner
claimed he was an engineering consultant, seeking to contract out
his services as an independent contractor. He reported no gross
income in 1991 from this business, but claimed deductible
expenses totaling $23,505. Petitioner has placed in evidence
numerous canceled checks and other documentation in purported
support of these claimed deductions. These checks relate to rent
payments, utility and phone bills, mailboxes, credit card
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payments, airline tickets, and automobile expenses. Petitioner
has not shown that the expenses for which these checks were given
relate to a business rather than being personal expenses.
Petitioner has offered no evidence other than his vague
testimony that he was engaged in a trade or business other than
his full-time job with Avionics during the year 1991.
Petitioner reported no income in 1991 from any business other
than his employment by Avionics. The nature of the expenses
petitioner claimed as deductible in 1991 strongly suggests that
they were nondeductible personal household expenses. Petitioner
deducted power, phone, and rent for an apartment address, which
he claims was his business address, at 1431 South Oak Street,
Room 16. This same address appeared on the Forms W-2 issued by
Avionics to petitioner for the years 1990 and 1991. This is also
the address that petitioner used on his checking account.
Petitioner also used this address on the automobile repair
invoices and on all of the car rental agreements that are in
evidence. Petitioner further admitted that the South Oak Street
apartment is a residential apartment. At trial, when petitioner
was asked where his residential address was during that year, he
was vague and unspecific, claiming that at the time he lived in
another person's house. He had difficulty remembering the name
of the person, the street address, or the telephone number, but
could immediately recall the address that he claimed was the
address for his claimed business. We conclude that petitioner
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has not met his burden of proving that he was engaged in a bona
fide business during 1991 other than his employment and sustain
respondent's disallowance of petitioner's claimed business
expenses relating to A & M Techservices.
Respondent allowed some of the Schedule C business expense
deductions claimed by petitioner relating to A & M Techservices
for the year 1992. According to petitioner, this business was a
"personal & financial services/collection agency". At trial,
petitioner failed to offer proof of any amount of deductions in
excess of those allowed by respondent. Accordingly, we sustain
respondent's determinations with regard to petitioner's claimed
Schedule C deductible expenses for the year 1992.
Section 6662(a) imposes an accuracy-related penalty of 20
percent on any portion of an underpayment of tax that is
attributable to items set forth in section 6662(b). Respondent
contends that petitioner is liable for this penalty for either
negligence or substantial understatement of tax under section
6662(b)(1) and (2).
Negligence includes any careless, reckless, or intentional
disregard of rules or regulations, any failure to make a
reasonable attempt to comply with the provisions of the law, and
any failure to exercise ordinary and reasonable care in the
preparation of a tax return. See Zmuda v. Commissioner, 731 F.2d
1417, 1422 (9th Cir. 1984), affg. 79 T.C. 714 (1982).
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Section 6664(c)(1) provides that the penalty should not be
imposed on any portion of an underpayment if the taxpayer shows
reasonable cause for such portion of the underpayment and that
the taxpayer acted in good faith with respect to such portion.
Reliance on the advice of a professional such as an accountant
may constitute a showing of reasonable cause if, under all the
circumstances, such reliance was reasonable and the taxpayer
acted in good faith. Sec. 1.6661-6(b), Income Tax Regs.
Petitioner has failed to show that he was not negligent.
There is no evidence that petitioner made a reasonable attempt to
comply with the statutes or regulations in filing his Federal
income tax returns for any of the years at issue. Had petitioner
consulted either the relevant statutes or a competent tax adviser
he would have discovered that many of the deductions he claimed
were not proper. It is clear from the facts in this case, and
from petitioner's brief, that petitioner claimed these deductions
and expenses without regard to the applicable law. Therefore, we
sustain the accuracy-related penalty for each year as determined
by respondent.
Decisions will be
entered under Rule 155.