T.C. Memo. 1997-98
UNITED STATES TAX COURT
SHERIEL L. SEXCIUS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4087-95. Filed February 25, 1997.
Sheriel L. Sexcius, pro se.
Aretha Jones, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COHEN, Chief Judge: Respondent determined a deficiency of
$8,671 in petitioner's Federal income taxes for 1990 and an
addition to tax of $1,746 under section 6651(a)(1). In the
answer, respondent asserted that petitioner is liable for a
penalty under section 6662(a), either for negligence under
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section 6662(c) or for substantial understatement under section
6662(d). Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
At the beginning of trial, petitioner, by her then counsel,
conceded that petitioner was not entitled to any deductions from
her tutoring activity in excess of the income reported. In her
opening brief, petitioner conceded that her return was filed late
and offered no explanation; she thus conceded liability for the
addition to tax under section 6651(a). Although petitioner
attempted to repudiate these concessions in her reply brief, she
has shown no reason why we should allow them to be withdrawn.
The remaining issues are whether petitioner is entitled to a
dependency exemption for her mother, to deductions claimed in
relation to her tutoring activity, or to miscellaneous deductions
claimed on Schedule A of her Federal income tax return; whether
petitioner is liable for a penalty under section 6662(a); and
whether we should impose a penalty under section 6673.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference. At the
time that she filed her petition, petitioner resided in
Washington, D.C.
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Petitioner resided with her mother, Dorothy Carter, in a
home titled in her mother's name. Petitioner's mother received
Social Security payments during 1990 and paid the real property
taxes on the residence. Petitioner paid some of the expenses of
the home for herself and her mother.
Petitioner has a bachelor of science degree and a master's
degree and is certified to teach biology at the senior high
school level. During 1990, she worked full time as a teacher in
the District of Columbia public schools. Since 1979, petitioner
has operated a tutoring and counseling activity in the evenings
and weekends during the school year and full time during the
summer. Petitioner reported a loss from her tutoring and
counseling activity on Schedule C for each of her tax returns for
1979 through 1991.
Petitioner failed to maintain adequate records of her
expenses relating to her tutoring and counseling activity. For
1990, she claimed total expenses of $18,289, resulting in a loss
of $13,527. The claimed expenses included car and truck expenses
of $5,938, but petitioner did not keep a record of her business
mileage or other records from which business use of her
automobile could be determined. She incurred some expense for
supplies, photocopying, and typing, but she failed to keep
records to establish the amount of her deductions for those
items. When petitioner was asked to produce substantiation for
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her business expenses, she produced copies of canceled checks
that included payments for personal expenses, such as a check
payable to Victoria's Secret, and payments relating to
maintenance of the home she shared with her mother.
This case is the seventh case commenced in this Court by
petitioner in which she claimed deductions relating to her
tutoring and counseling activity. The prior cases for the years
indicated were resolved as follows:
Year Disposition
1979 Issue decided in favor of
petitioner in a summary opinion
filed Oct. 25, 1983
1984 Stipulated decision entered
(no deficiency) Apr. 25, 1988
1986 & 1987 Deductions denied and additions
to tax sustained, T.C. Memo.
1991-162, filed Apr. 9, 1991
1988 Deductions denied, T.C. Memo.
1993-310, filed July 15, 1993
1989 Deductions denied and additions
to tax sustained, T.C. Memo.
1996-175, filed Apr. 10, 1996
1991 Deductions denied and penalties
imposed, including award under
sec. 6673, in bench opinion
rendered June 28, 1995
Petitioner's return for 1990 was filed May 21, 1993. Attached to
her return was a letter dated May 10, 1993, which stated, among
other things:
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Note that the referenced form [Form 1040,
December 31, 1990], which sets forth my circumstances
and facts, does not take into account the sum of $1,932
reported by the District of Columbia Government on
Form 1099-G. The omission is deliberate. The sum in
question constitutes court-awarded damages for
defamation of character, not self-employment income.
The rule is that damages so awarded are not includible
in gross income.
The petition in this case was filed March 15, 1995. Although
petitioner was advised by earlier opinions of the Court of the
lack of merit in her positions with respect to losses from her
tutoring activity and of the necessity of producing records to
substantiate deductions, she made no attempt to comply with the
applicable rules. These proceedings have been instituted or
maintained by petitioner primarily for delay.
OPINION
By the time of trial in this case, petitioner had lost four
consecutive cases in this Court with respect to her tutoring and
counseling activity. In those cases, deductions were denied
because she had failed to establish that the activity was
conducted with an actual and honest profit objective and because
she failed to maintain adequate records of her deductible
expenses. In one of those cases, the Court had imposed an award
under section 6673 against petitioner because of her persistence
in litigating the same issue previously decided against her
without any change in facts or applicable law.
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At the beginning of trial in this case, faced with
respondent's request for another penalty under section 6673,
petitioner's then counsel conceded that petitioner was not
entitled to deductions in excess of the income received from the
tutoring and counseling activity and indicated that petitioner's
intention was to substantiate deductions up to the amount of that
income. Notwithstanding the experience of six prior cases in the
Court, petitioner failed to present adequate records. The
documents that were presented established that petitioner was
claiming deductions for some personal expenses and failed to
establish the business purpose of other expenditures.
Similarly, with respect to her claim that she is entitled to
a dependency exemption for her mother, petitioner's proof is
totally inadequate. She could not provide the amount of her
mother's earnings for 1990 and did not know whether her mother
had filed a Federal income tax return for that year claiming an
exemption for herself. Petitioner's only evidence with respect
to this issue consisted of receipts for expenditures for the
house that she shared with her mother. There was some indication
that some of these expenses were paid by her mother. Thus,
petitioner has not satisfied the requirements of section
151(c)(1), relating to earnings of a dependent, or section
151(d)(2), relating to dependents for whom exemptions are claimed
on returns filed by another taxpayer. We cannot conclude on this
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record that petitioner provided over one-half of her mother's
support, as required by section 152(a). She is not entitled to a
dependency exemption in 1990.
Petitioner claimed on Schedule A of her return for 1990
certain allegedly job-related expenses. The largest of those
expenses was for legal fees incurred in a lawsuit brought by
petitioner. Petitioner acknowledged that she was subsequently
reimbursed for these fees. Although petitioner presented copies
of checks that she claims represented the attorney's fees that
she incurred, she presented neither bills nor corroborating
testimony explaining the nature of the litigation, the nature of
the services provided, or the status of her right to
reimbursement during 1990. If, as suggested by the attachment to
her 1990 Form 1040, the litigation related to "damages for
defamation of character" that "are not includible in gross
income", attorney's fees in securing such damages would not be
deductible. Sec. 265(a)(1); Bent v. Commissioner, 87 T.C. 236,
251 (1986), affd. 835 F.2d 67 (3d Cir. 1987). Petitioner has
provided neither a factual nor a legal predicate for deduction of
the attorney's fees, and no deduction may be allowed.
Petitioner admits that she claimed deductions for personal
expenses relating to her home, asserting:
Petitioner, as head of household with a dependent
mother, is allowed to deduct household expenses such as
insurance on petitioner's mother's home, repairs on the
shed and roof of the house due to decay and leakage as
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well as security service on the home * * * and the
installation of five new doors for increased security.
* * *
Petitioner's assertion is contrary to well-established law.
Section 262 specifically precludes deductions for personal,
living, or family expenses. Section 1.262-1(b), Income Tax
Regs., lists examples of disallowed expenses, including the types
claimed by petitioner. To the extent that petitioner also claims
that the home is "an alternative office", she has not satisfied
any of the requirements of section 280A(c).
Petitioner's demonstrated penchant for claiming
nondeductible personal expenses as business expenses undermines
the reliability of her assertions with respect to supplies and
other expenses that normally would be deductible. She asks that
the Court estimate such expenses under the doctrine of Cohan v.
Commissioner, 39 F.2d 540 (2d Cir. 1930). That case suggests
that we make an allowance "bearing heavily * * * upon the
taxpayer whose inexactitude is of * * * [her] own making." Id.
at 544. We conclude that petitioner is entitled to deduct $500
on Schedule C for supplies and services relating to her tutoring
and counseling activity. There is no basis for making any
estimate of deductions on Schedule A not allowed by respondent.
Our discussion of the lack of evidence substantiating
petitioner's right to the deductions that she claimed on her
return leads also to the conclusion that petitioner underpaid her
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taxes for 1990 due to negligence. Respondent has the burden of
proof on this issue because negligence was first asserted in the
answer. Rule 142(a). Nonetheless, the evidence compels the
conclusion that petitioner failed to maintain books and records
to substantiate deductions to which she might have been entitled
and that she claimed deductions to which she clearly was not
entitled. The penalty under section 6662(a) will be sustained.
Section 6673(a)(1) provides:
SEC. 6673(a). Tax Court Proceedings.--
(1) Procedures instituted primarily for
delay, etc.--Whenever it appears to the Tax Court
that--
(A) proceedings before it have been
instituted or maintained by the taxpayer
primarily for delay,
(B) the taxpayer's position in such
proceeding is frivolous or groundless, or
(C) the taxpayer unreasonably failed to
pursue available administrative remedies,
the Tax Court, in its decision, may require the
taxpayer to pay to the United States a penalty not
in excess of $25,000.
Respondent seeks a penalty under section 6673 against petitioner
on the ground that petitioner has litigated and lost the same
issue, to wit, the deductibility of losses allegedly sustained in
her tutoring and counseling activity, repeatedly without a
showing of changed facts justifying a different result. Although
petitioner, through her counsel, conceded that she was not
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entitled to deduct expenses in excess of income, thereby
conceding the section 183 issue originally involved in this case,
she continued to claim expenses that either were not
substantiated or clearly were personal nondeductible expenses.
She contends that this case is different than her prior cases
because of her concession and because respondent disallowed all
of her deductions in this case and thus made substantiation an
issue for the first time. In T.C. Memo. 1993-310, however, the
Court explained the difference between the first year that
petitioner litigated here, which she won, and the later years, in
which her manner of conducting the activity demonstrated lack of
profit objective. In T.C. Memo. 1996-175, moreover, petitioner's
deductions were disallowed for lack of substantiation. In that
opinion, we stated:
Petitioner failed to produce at trial any
substantiating evidence with respect to the deductions
she claimed on her Schedules A and C. Given her prior
experiences in this Court, she was no doubt aware that
the production of such evidence was expected and
necessary to support her claimed entitlement to the
deductions in dispute. We can only conclude that her
failure to produce such substantiating evidence results
from her failure to have maintained adequate books and
records as required by section 6001 and the
corresponding regulation. * * *
To the extent that petitioner is claiming deductions for personal
expenses, her claims are groundless. Although we found that she
is entitled to some deductions, on the entire record we infer
that petitioner has instituted or maintained this proceeding
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primarily for delay. See Sloan v. Commissioner, 102 T.C. 137,
148-149 (1994), affd. 53 F.3d 799 (7th Cir. 1995). We award a
penalty to the United States in the amount of $3,500.
Decision will be entered
under Rule 155.