T.C. Memo. 1997-523
UNITED STATES TAX COURT
CAROL ANDERSON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 15248-96. Filed November 19, 1997.
Carol Anderson, pro se.
Reginald R. Corlew, for respondent.
MEMORANDUM OPINION
DINAN, Special Trial Judge: This case was heard pursuant
to the provisions of section 7443A(b)(3) and Rules 180, 181, and
182.1
1
Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect for the taxable years in
issue. All Rule references are to the Tax Court Rules of
Practice and Procedure.
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Respondent determined deficiencies in petitioner's Federal
income taxes for 1992 and 1993 in the amounts of $4,650 and
$2,148, respectively, and accuracy-related penalties pursuant to
section 6662(a) in the amounts of $927 and $430, respectively.
After concessions by petitioner,2 the issues remaining for
decision are: (1) Whether petitioner is entitled to dependency
exemption deductions for her two nieces and two nephews for 1992;
(2) whether petitioner is entitled to claim head of household
filing status for 1992; (3) whether petitioner is entitled to
child care credits for 1992 and 1993; (4) whether petitioner is
entitled to business expense deductions for 1992 in excess of the
amount allowed by respondent; (5) whether petitioner is liable
for self-employment tax for 1992; (6) whether petitioner is
entitled to a medical expense deduction for 1993; and (7) whether
petitioner is liable for the section 6662(a) accuracy-related
penalties for 1992 and 1993.
Some of the facts have been stipulated and are so found.
The stipulations of fact and attached exhibits are incorporated
herein by this reference. Petitioner resided in Miami, Florida,
on the date the petition was filed in this case.
Petitioner works as a claims processor for Ryder Truck
Rental in its warranty department. During January and February
2
Petitioner concedes that she received and failed to
report interest income in the amount of $47 and dividend income
in the amount of $45 for the 1992 taxable year.
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1992, petitioner also had a second, part-time job promoting
credit cards at shopping malls and college campuses.
Petitioner and her husband, Morris Richard Anderson (Mr.
Anderson), were married on October 18, 1990. Marital
difficulties arose, and Mr. Anderson vacated the marital
residence in 1991 and never returned. They are not legally
separated or divorced. Petitioner has a daughter, Morcie
Anderson, who was born in October 1993.
Petitioner's sister-in-law was a drug addict who was in and
out of drug rehabilitation programs during 1992. From March 1992
until December 1992, petitioner's two nieces, Shannon Givens and
Timpest Givens, and two nephews, Benjamin Givens and Daniel
Wilcher, stayed at petitioner's home.
The first issue for decision is whether petitioner is
entitled to dependency exemption deductions for her two nieces
and two nephews for 1992. Petitioner claimed dependency
exemption deductions for Shannon, Timpest, Benjamin, and Daniel
on her 1992 return. Respondent disallowed the claimed deductions
in the statutory notice of deficiency.
Respondent's determinations in the statutory notice of
deficiency are presumed to be correct, and petitioner bears the
burden of proving otherwise. Rule 142(a); Welch v. Helvering,
290 U.S. 111, 115 (1933). In deciding whether this burden is
satisfied, the Court is not bound to accept petitioner's self-
serving, unverified, and undocumented testimony. Wood v.
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Commissioner, 338 F.2d 602, 605 (9th Cir. 1964), affg. 41 T.C.
593 (1964); Niedringhaus v. Commissioner, 99 T.C. 202, 219-220
(1992); Tokarski v. Commissioner, 87 T.C. 74, 77 (1986); Hradesky
v. Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d
821 (5th Cir. 1976). Taxpayers are required to substantiate
amounts claimed as deductions, credits, etc., by maintaining the
records needed to establish such entitlement. Sec. 6001; sec.
1.6001-1(a), Income Tax Regs.
An individual taxpayer is allowed as a deduction in
computing taxable income an additional exemption for each
dependent as defined in section 152. Sec. 151(c)(1). A
dependent is generally defined as an individual who receives over
half of his support from the taxpayer in the calendar year in
which the taxpayer's taxable year begins. Sec. 152(a).
Individuals listed under this general definition include, among
others, an individual who is a son or daughter of a brother or
sister of the taxpayer. Sec. 152(a)(6).
Respondent argues that petitioner failed to meet the support
requirements of section 152(a). We agree. Petitioner presented
no records to establish that she provided more than half of her
nieces' and nephews' support during 1992. She has not convinced
us that the children were not supported by public assistance
payments received by their mother or amounts received from their
father (petitioner's brother). In the absence of any
corroborating evidence, we find that petitioner has not proved
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that she provided more than half of the support for her nieces
and nephews during 1992. Accordingly, we hold that petitioner is
not entitled to dependency exemption deductions for 1992 for her
two nieces and two nephews.
The second issue for decision is whether petitioner is
entitled to claim head of household filing status for 1992. In
the statutory notice of deficiency, respondent determined that
petitioner's proper filing status for 1992 is married filing
separate.
"Head of household" is defined, in pertinent part, as an
unmarried taxpayer who maintains a household which constitutes
for more than one half of the taxable year the principal place of
abode of a son, daughter, or other qualifying individual, if the
taxpayer is entitled to a dependency exemption deduction for such
individual under section 151. Sec. 2(b)(1)(A)(ii). We hold that
petitioner may not claim head of household status because, as we
have held above, she is not entitled to deductions for her nieces
and nephews under section 151 and thus does not meet the
definition of head of household. Respondent's determination on
this issue is sustained.
The third issue for decision is whether petitioner is
entitled to child care credits for 1992 and 1993. Petitioner
claimed credits on her 1992 and 1993 returns in the amounts of
$900 and $1,428, respectively. Respondent disallowed the claimed
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credits on the ground that petitioner did not establish that the
amounts claimed were paid for child care expenses.
Section 21(a) generally allows a credit to any individual
who: (1) Maintains a household that includes as a member one or
more qualifying individuals, and (2) pays employment-related
expenses. The allowable credit is generally based upon
employment-related expenses that are paid to enable the taxpayer
to be gainfully employed, including expenses paid for the care of
a qualifying individual. Sec. 21(b)(2).
On her 1992 and 1993 returns, petitioner claimed that she
paid $4,500 each year to a care provider by the name of Mary
Jones. However, petitioner testified at trial that the care
provider's name was Ella Kennedy, and she paid her $50 per week
to care for her nephew, Daniel, during 1992 and her daughter,
Morcie, during 1993. We are entirely unpersuaded by petitioner's
testimony which is not supported by any credible evidence. The
alleged payments would account for only $2,600 of expenses per
year if made over an entire year, and neither Daniel nor Morcie
was under petitioner's care for an entire year. We find that
petitioner has failed to prove that the amounts claimed were paid
for child care expenses. We hold that petitioner is not entitled
to child care credits for 1992 and 1993.
The fourth issue for decision is whether petitioner is
entitled to business expense deductions for 1992 in excess of the
amount allowed by respondent. Petitioner claimed Schedule C
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business expenses on her 1992 return in the total amount of
$6,392. In the statutory notice of deficiency, respondent
disallowed $6,172 of the claimed expenses.
Section 162(a) allows a deduction for the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on a trade or business. In the event that a taxpayer
establishes that she has paid a deductible expense, but is unable
to substantiate the precise amount of the expense, we may
estimate the amount of the deductible expense. Cohan v.
Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). In order to
make such an estimate, the taxpayer must present evidence
sufficient to provide some rational basis upon which an estimate
may be made. Vanicek v. Commissioner, 85 T.C. 731, 743 (1985).
Based on the record, we find that petitioner has failed to
substantiate the business expense deductions claimed on her 1992
return in connection with her promotion activities. Further, she
has not provided the Court with any evidence that would allow us
to make an estimate of her deductible business expenses under the
Cohan rule. Therefore, we hold that she is not entitled to
business expense deductions for 1992 in excess of the amount
allowed by respondent.
The fifth issue for decision is whether petitioner is liable
for self-employment tax for 1992. After accounting for her
allowed deductions, petitioner realized net income in the amount
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of $2,199 from her promotion activities. Respondent determined
that such amount is subject to self-employment tax.
Section 1401(a) imposes a tax on self-employment income for
old-age, survivors, and disability insurance. An additional tax
for hospital insurance is imposed on self-employment income
pursuant to section 1401(b). Self-employment income is defined
as the net earnings from self-employment derived by an individual
during any taxable year. Sec. 1402(b). The phrase "net earnings
from self-employment" is in turn defined as gross income derived
by an individual from any trade or business carried on by such
individual, less any attributable deductions. Sec. 1402(a).
Based on the record, we find that petitioner has not
established that her promotion activities do not constitute a
trade or business carried on by her in her individual capacity.
She presented no reliable evidence that she is properly treated
as an employee of another person with respect to her promotion
activities. Accordingly, we hold that petitioner is liable for
self-employment tax as determined by respondent.
The sixth issue for decision is whether petitioner is
entitled to a medical expense deduction for 1993. Petitioner
claimed a medical expense deduction in the amount of $10,082 on
her 1993 return. In the statutory notice of deficiency,
respondent disallowed the claimed deduction.
Section 213(a) allows as a deduction the expenses paid
during the taxable year, not compensated for by insurance or
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otherwise, for medical care of the taxpayer. The deduction is
limited to expenses paid during the taxable year which exceed 7.5
percent of the taxpayer's adjusted gross income. Petitioner's
adjusted gross income limitation on her deduction for medical
expenses is $2,801.
Petitioner admitted at trial that the amount of her medical
expenses was overstated by $10,000 due to a clerical error. She
maintains, however, that she paid out-of-pocket medical expenses
of between $2,000 and $3,000 during 1992 for her prenatal and
postnatal care which were not covered by her medical insurance
through her job at Ryder Truck Rental. However, she did not
obtain any records which show what portions of her medical
expenses were paid by her insurance and herself. We find that
petitioner has failed to meet her burden of proof with regard to
her medical expenses. Rule 142(a). Respondent's determination
is sustained on this issue.
The seventh issue for decision is whether petitioner is
liable for the section 6662(a) accuracy-related penalties for
1992 and 1993. Respondent's determinations of negligence are
presumed to be correct, and petitioner bears the burden of
proving that the penalties do not apply. Rule 142(a); Welch v.
Helvering, 290 U.S. at 115; Bixby v. Commissioner, 58 T.C. 757,
791-792 (1972).
Section 6662(a) imposes a 20-percent penalty on the portion
of the underpayment attributable to any one of various factors,
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one of which is negligence or disregard of rules or regulations.
Sec. 6662(b)(1). Respondent determined that petitioner is liable
for the accuracy-related penalty imposed by section 6662(a) for
her underpayments of taxes in 1992 and 1993, and that such
underpayments were due to negligence or disregard of rules or
regulations. "Negligence" includes a failure to make a
reasonable attempt to comply with the provisions of the Internal
Revenue laws or to exercise ordinary and reasonable care in the
preparation of a tax return. Sec. 6662(c); sec. 1.6662-3(b)(1),
Income Tax Regs. "Disregard" includes any careless, reckless, or
intentional disregard of rules or regulations. Sec. 6662(c);
sec. 1.6662-3(b)(2), Income Tax Regs.
Section 6664(c)(1), however, provides that the penalty under
section 6662(a) shall not apply to any portion of an
underpayment, if it is shown that there was reasonable cause for
the taxpayer's position with respect to that portion and that the
taxpayer acted in good faith with respect to that portion. The
determination of whether a taxpayer acted with reasonable cause
and in good faith is made on a case-by-case basis, taking into
account all the pertinent facts and circumstances. Sec.
1.6664-4(b)(1), Income Tax Regs. The most important factor is
the extent of the taxpayer's effort to assess her proper tax
liability for the year. Id.
Based on the record, we find that petitioner has not proved
that her underpayments were due to reasonable cause or that she
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acted in good faith. Accordingly, we hold that petitioner is
liable for the section 6662(a) accuracy-related penalties as
determined by respondent.
To reflect the foregoing,
Decision will be entered
for respondent.