T.C. Memo. 1998-56
UNITED STATES TAX COURT
JANET PHILLIPS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 22866-96. Filed February 10, 1998.
Francis J. Sullivan, for petitioner.
Carol E. Moran, for respondent.
MEMORANDUM OPINION
FOLEY, Judge: Respondent determined the following
deficiencies, additions to tax, and accuracy-related penalties
relating to petitioner's Federal income taxes:
Addition to tax Penalty
Year Deficiency Sec. 6651(a)(1) Sec. 6662(a)
1992 $8,866 $2,217 $1,773
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1993 17,755 4,439 3,551
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. After concessions by
petitioner, the issues for decision are as follows:
1. Whether petitioner is entitled to a deduction for
business expenses. We hold that she is not.
2. Whether petitioner is liable for additions to tax for
failing to file her tax returns in a timely manner. We hold that
she is.
3. Whether petitioner is liable for accuracy-related
penalties for negligence. We hold that she is.
Background
The facts have been fully stipulated under Rule 122 and are
so found. Petitioner resided in Bensalem, Pennsylvania, at the
time she filed her petition.
Petitioner's husband, Glenn W. Phillips, was the sole
shareholder of N.H.R. Corp. (NHR). Petitioner, who had no
affiliation with NHR, owned a disability insurance policy which
in 1992 and 1993 paid her $60,000 and $90,000, respectively,
allegedly to cover the cost of NHR's overhead expenses.
On October 14, 1994, petitioner filed Federal income tax
returns for 1992 and 1993. On the returns, petitioner selected
married filing separate status and did not report the benefits
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received under the policy. On May 18, 1995, petitioner filed
amended Federal income tax returns on which she reported income
of $60,000 and $90,000, respectively, for 1992 and 1993. On her
1993 amended return, petitioner deducted $150,000 in business
expenses. This resulted in a $60,000 net operating loss which
petitioner then carried back and applied against her 1992 gross
income. On July 31, 1996, respondent issued a notice of
deficiency to petitioner. Respondent determined that petitioner
was not entitled to deduct the claimed business expenses and was
liable for deficiencies in her Federal income tax, additions to
tax, and accuracy-related penalties.
Discussion
Petitioner contends that she should be allowed to offset the
income she received from the insurance proceeds by deducting
NHR's business expenses. Respondent contends that petitioner has
failed to establish that she is entitled to such a deduction. We
agree with respondent.
Petitioner did not present any evidence to establish that
she paid NHR's expenses. Moreover, even if she had presented
such evidence, petitioner has failed to cite, and we have not
found, any authority that would permit her to deduct NHR's
expenses on her personal return. See Rule 142(a); New Colonial
Ice Co. v. Helvering, 292 U.S. 435, 440 (1934) (stating that "a
taxpayer seeking a deduction must be able to point to an
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applicable statute and show that he comes within its terms"); cf.
sec. 1.162-1(a), Income Tax Regs. (stating that to be deductible,
business expenses must be "directly connected with or pertaining
to the taxpayer's trade or business" (emphasis added)).
Accordingly, we hold that petitioner is not entitled to a
deduction for NHR's business expenses.
Respondent determined that petitioner was liable for
additions to tax for failure to file her Federal income tax
returns in a timely manner as well as accuracy-related penalties
for negligence.
Section 6651(a) imposes an addition to tax for failure to
file a tax return in a timely manner. Petitioner's 1992 and 1993
tax returns were due on April 15, 1993 and 1994, respectively.
Petitioner did not file those returns, however, until October 14,
1994. Petitioner has failed to establish that her tardiness was
due to reasonable cause and not due to willful neglect. Sec.
6651(a); United States v. Boyle, 469 U.S. 241 (1985); Welch v.
Helvering, 290 U.S. 111, 115 (1933). Accordingly, petitioner is
liable for the section 6651(a) additions to tax.
Section 6662 imposes an accuracy-related penalty on the
portion of an underpayment that 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.
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Commissioner, 85 T.C. 934, 947 (1985) (quoting Marcello v
Commissioner, 380 F.2d 499, 506 (5th Cir. 1967), affg. in part
and remanding in part 43 T.C. 168 (1964)). Petitioner has failed
to establish that she exercised due care in reporting her income
and expenses, Bixby v. Commissioner, 58 T.C. 757, 791 (1972), or
that she acted with reasonable cause and in good faith, sec.
6664(c). Accordingly, petitioner is liable for the section 6662
accuracy-related penalties.
All other arguments raised by the parties are either
irrelevant or without merit.
To reflect the foregoing,
Decision will be entered
for respondent.