T.C. Memo. 2000-100
UNITED STATES TAX COURT
RONNA JOAN ROBERTSON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3183-98. Filed March 24, 2000.
Ronna Joan Robertson, pro se.
Guy H. Glaser, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
GERBER, Judge: In a notice of deficiency addressed to
petitioner, respondent determined deficiencies and additions to
tax as follows:
Additions to Tax
Year Deficiency Sec. 6651(a) Sec. 6654(a)
1993 $8,740 $2,185 $366.16
1994 2,143 450 -–-
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After concessions,1 the issues for our consideration are:
(1) Whether petitioner is entitled to any Schedule A itemized
deductions for the taxable years 1993 and 1994; (2) whether
petitioner is liable for additional tax under section 722 in 1993
and 1994 for premature distributions of $35,000 and $8,717.32,
respectively, from individual retirement accounts; and (3)
whether petitioner is liable for additions to tax under section
6651(a) for 1993 and 1994 or under section 6654(a) for 1993.
FINDINGS OF FACT3
Petitioner resided at 318 Georgia Circle, Placentia,
California, during the tax years at issue and at the time her
petition was filed. Petitioner was born on January 18, 1941.
Petitioner was employed as a flight attendant for Trans World
Airlines (TWA) from September 1963 until she voluntarily left in
March 1991. During the 1993 and 1994 taxable years, petitioner
maintained a joint checking account at First Interstate Bank with
her sister, Alexandra Robertson, and her mother, Joanne
Robertson.
1
During trial, petitioner conceded all of the unreported
income issues set forth in the two notices of deficiency.
2
Unless otherwise indicated, 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.
3
The stipulation of facts and exhibits attached thereto are
incorporated herein by this reference.
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Petitioner filed Federal income tax returns for the taxable
years prior to 1993, but she did not file Federal income tax
returns for the taxable years ended December 31, 1993 or 1994.
Petitioner did, however, file an extension with the Internal
Revenue Service (IRS) for the 1993 taxable year. Petitioner
chose not to file 1993 or 1994 Federal income tax returns because
she ran out of money and was employed only part-time during those
years. Petitioner also decided not to file tax returns for those
years in protest over a dispute she was having with the IRS
concerning some FICA overwithholding by her former employer, TWA,
for the 1988 taxable year. In November of either 1992 or 1993,
petitioner consulted Mr. Henschel, a tax attorney, about filing a
Federal income tax return for the 1993 year.
During the 1993 taxable year, petitioner received $35,000 in
taxable distributions from two qualified individual retirement
accounts (IRA’s), and, during the 1994 taxable year, petitioner
received another taxable distribution in the amount of $8,717.32
from one of her qualified IRA’s. No portion of the 1993 or 1994
distributions was rolled over into another plan or account, was
made on or after the date on which petitioner attained the age of
59-1/2, was made to petitioner after attaining the age of 55
years, or was made pursuant to a qualified domestic relations
order. Petitioner did not incur any qualified higher education
expenses in 1993 or 1994 and was not a first-time home buyer in
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either 1993 or 1994. Petitioner was aware that the withdrawals
from her qualified IRA’s would be taxable to her, but she
withdrew the money in order to subsist and to help her family.
For the 1993 taxable year, Transworld Mortgage Corp. issued
petitioner and her sister, Adrianna, a Form 1098 Mortgage
Interest Statement reporting the payment of $8,189.68 in
deductible mortgage interest. For the 1994 taxable year,
Transworld Mortgage Corp. issued petitioner and Adrianna a Form
1098 Mortgage Interest Statement reporting the payment of
$7,386.58 in deductible mortgage interest.
After the trial, the record remained open to give petitioner
an opportunity to submit additional evidence in order to
substantiate certain additional Schedule A itemized deductions.
Petitioner submitted documentation regarding medical expenses,
real property taxes, automobile fees, corporate organizational
expenses, and interest expenses. Specifically, in 1993 and 1994,
various doctors were paid $1,501.74 and $631.14, respectively,
from a joint checking account that petitioner maintained with her
mother and her sister. Petitioner paid $1,866.81 and $1,910.13
in 1993 and 1994, respectively, in real property taxes. In 1993
and 1994, respectively, payments of $379.95 and $236.95 were made
to the California Department of Motor Vehicles (DMV) for
registration fees and smog certification fees. Petitioner also
paid the California DMV $93 in 1994 for an automobile sales
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license. Petitioner paid $403.95 in 1994 for expenses relating
to a Delaware corporation of which she was a shareholder.
Finally, petitioner paid interest of $481.65 and $118.19 in 1993
and 1994, respectively, on a personal loan for an automobile.
OPINION
We must decide whether petitioner (1) is entitled to any
Schedule A itemized deductions for the 1993 and 1994 taxable
years; (2) is liable for additional tax under section 72; and (3)
is liable for any additions to tax under section 6651(a) or
6654(a).
I. Schedule A Itemized Deductions
Deductions are a matter of legislative grace, and petitioner
bears the burden of proving that she is entitled to the
deductions she is claiming. See Rule 142(a); INDOPCO, Inc. v.
Commissioner, 503 U.S. 79 (1992); New Colonial Ice Co. v.
Helvering, 292 U.S. 435 (1934). Taxpayers are required to
maintain records that are sufficient to enable the Commissioner
to determine their correct tax liability. See sec. 6001;
Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec.
1.6001-1(a), Income Tax Regs. Moreover, a taxpayer who is
claiming a deduction bears the burden of substantiating the
amount and purpose of the item claimed. See Hradesky v.
Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d
821 (5th Cir. 1976); sec. 1.6001-1(a), Income Tax Regs.
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A. Medical and Dental Expenses
Section 213(a) permits a deduction for expenses paid during
the taxable year for medical care of the taxpayer, his or her
spouse, or a dependent (as defined in section 152), to the extent
such expenses exceed 7.5 percent of adjusted gross income and to
the extent such expenses are not compensated for by insurance or
otherwise.
Petitioner claims that she is entitled to medical expense
deductions of $1,501.74 and $631.14 for the 1993 and 1994 taxable
years, respectively. During 1993 and 1994, petitioner maintained
a joint bank account at First Interstate Bank with her mother,
Joanne Robertson, and her sister, Alexandra Robertson.
Petitioner submitted into evidence numerous canceled checks from
this joint bank account payable for medical and dental expenses
in 1993 and 1994. For the years in issue, only one check--check
number 8390, dated October 14, 1993, in the amount of $42--bears
petitioner’s signature. The remainder of the checks submitted by
petitioner bear the signature of either petitioner’s mother or
petitioner’s sister, a strong indicator that these payments were
not made for expenses incurred by petitioner.4
4
While deductions are permitted for medical expenses paid
for a dependent, petitioner has not produced any evidence that
her mother or her sister was her dependent during the taxable
years at issue.
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More important, however, is the fact that all of the checks
submitted by petitioner were issued from a joint bank account.
Petitioner has failed to produce any evidence describing the
contributions or deposits made by petitioner, petitioner’s
mother, and petitioner’s sister to the joint bank account. Thus,
it is unclear which of the joint account holders actually paid
for these medical expenses. Accordingly, petitioner has not
shown entitlement to medical and dental deductions for 1993 or
1994.
B. Real Property Taxes
Section 164(a)(1) provides that taxpayers are entitled to a
deduction for real property taxes paid during the taxable year.
During 1993 and 1994, petitioner resided in and owned a home at
318 Georgia Circle, Placentia, California,5 and paid real
property taxes of $1,866.81 and $1,910.13 in 1993 and 1994,
respectively. Accordingly, petitioner is entitled to deduct
these amounts as real property taxes on her 1993 and 1994 Federal
income tax returns.
C. Personal Property Taxes
Section 164(a)(2) permits deductions for State and local
property taxes. Under section 164(b)(1), property taxes are
5
Respondent states in his brief that this house was jointly
owned by petitioner and other members of petitioner’s immediate
family, including her sisters and mother. There is no evidence
of this in the record, however.
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defined as an ad valorem tax that is imposed on an annual basis
in respect of personal property. Thus, an ad valorem auto
license fee is deductible as a personal property tax, whereas an
annual flat registration fee is not deductible. See sec.
164(a)(2); Mann v. Commissioner, T.C. Memo. 1975-74; sec. 1.164-
3(c), Income Tax Regs. In 1993 and 1994, respectively,
petitioner and/or her family members paid $268 and $207 in fees
to the California DMV for the registration and licensing of four
different vehicles. The record does not indicate what portion of
these fees was an annual flat registration fee. Respondent,
however, conceded that all of these DMV registration fees are ad
valorem taxes.6
After respondent’s concession, the only remaining issue
regarding these DMV registration fees is whether they were
imposed on petitioner. Generally, personal property taxes are
only deductible by the taxpayer upon whom they are imposed. See
sec. 1.164-1(a), Income Tax Regs. Thus, in order to be entitled
to these deductions, petitioner bears the burden of establishing
ownership of the vehicles in question. See Rule 142(a). During
1993 and 1994, only two of the cars for which petitioner is
attempting to deduct DMV registration fees were actually
6
Petitioner also contends that she is entitled to deduct
smog certification expenses and driver’s license renewal fees.
These expenses, however, are not ad valorem fees and are
therefore not deductible by petitioner.
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registered in petitioner’s name (the 1986 Pontiac and the 1974
Pontiac). Thus, only the fees paid for the 1986 Pontiac ($131 in
1993 and $112 in 1994) and the 1974 Pontiac ($50 in 1993 and $50
in 1994) may be allowed as deductions by petitioner.
Accordingly, petitioner is entitled to deductions of $181 and
$162 for the 1993 and 1994 tax years, respectively, for personal
property taxes.
D. Automobile Sales License
Section 162(a) generally allows a taxpayer to deduct all
ordinary and necessary expenses incurred during the taxable year
in carrying on a trade or business. An expense is ordinary if it
is considered to be “normal, usual, or customary” in the context
of the particular business out of which it arose. See Deputy v.
du Pont, 308 U.S. 488, 495-496 (1940). A taxpayer’s general
statement that his or her expenses were incurred in pursuit of a
trade or business normally is not sufficient to establish that
the expenses had a reasonably direct relationship to that trade
or business. See Ferrer v. Commissioner, 50 T.C. 177, 185
(1968), affd. per curiam 409 F.2d 1359 (2d Cir. 1969).
During the trial, petitioner alluded to the fact that she
worked part-time for a used car dealer. Petitioner contends that
she is therefore entitled to deduct the $93 that she paid to the
California DMV for an automobile sales license. Petitioner,
however, has failed to present any evidence establishing that a
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license was required under California law. In short, petitioner
has failed to substantiate her claim for a deduction, and
accordingly, no deduction is allowed for her automobile sales
license.
E. Interest Expense
Section 163(a) provides a deduction for interest paid or
incurred on indebtedness within the taxable year. Not all
interest incurred, however, is deductible.
In October 1989, petitioner borrowed $12,070.46 to purchase
a 1986 Pontiac Grand Prix at a 12.5-percent interest rate. In
1993 and 1994, petitioner paid $481.65 and $118.19, respectively,
of interest on this loan. Petitioner also paid $8,189.68 and
$7,386.58 of mortgage interest during the 1993 and 1994 taxable
years, respectively. Section 163(h) denies taxpayers a deduction
for personal interest paid or accrued during the taxable year
unless it fits within certain narrowly prescribed categories.
The interest paid by petitioner on her personal car loan during
1993 and 1994 is personal in nature and does not fall into one of
the excepted categories. Accordingly, petitioner is not entitled
to deduct the interest paid on her personal car loan. Section
163(h)(2)(D), however, allows a deduction for interest on a
qualified residence. Respondent concedes that petitioner is
entitled to deductions for the interest paid on the mortgage for
petitioner’s home during the 1993 and 1994 taxable years.
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Accordingly, petitioner is entitled to deduct the mortgage
interest paid in 1993 and 1994.
F. Delaware Corporation Startup Expenses
Petitioner contends that she is allowed to deduct Delaware
corporation startup expenses and submitted documentation
concerning a corporation known as Worldly Connections, Inc. The
documentation submitted indicates that in January 1994 petitioner
paid $248.95 for Delaware State filing fees, registered agent
fees, a corporate kit, and basic mail forwarding service.
Petitioner also remitted an additional $155 in November 1994 for
advanced payment of agent fees and renewal filing fees.
Section 248 permits a corporation to elect to amortize on
its corporation income tax return its organizational expenditures
over a period of 60 months or more from the month in which the
corporation began business. The term “organizational
expenditures” is defined to mean any expenditure that is (1)
incident to the creation of the corporation; (2) chargeable to a
capital account; and (3) of a character that, if expended
incident to the creation of a corporation having a limited life,
would be amortizable over such life. Sec. 248(b).
Organizational costs that are paid by the shareholder of a
corporation do not normally qualify for amortization under
section 248 but, instead, must be capitalized as part of the
shareholder’s stock basis. Cf., e.g., Deputy v. du Pont, supra;
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Woodward v. Commissioner, 397 U.S. 572 (1970); United States v.
Hilton Hotels Corp., 397 U.S. 580 (1970). Accordingly, the
organizational expenses of Worldly Connections, Inc., paid by
petitioner are not deductible on petitioner’s 1994 Federal income
tax return.
Similarly, to the extent that petitioner paid any additional
expenses for Worldly Connections, Inc., during the 1994 taxable
year out of her own pocket (e.g., $155), these expenses should
also be considered contributions of capital and are nondeductible
to petitioner on her individual Federal income tax return. See
Deputy v. du Pont, supra.
II. Section 72(t) Tax
Section 72(t) imposes an additional 10-percent tax on the
amount of an early distribution from a qualified retirement
account (as defined in section 4974(c)). See sec. 72(t).
Section 72(t)(2) provides for certain exceptions to the
imposition of this 10-percent tax.
Petitioner received a $35,000 distribution in 1993 and a
$8,717.32 distribution in 1994 from her IRA’s, which are
qualified retirement plans under section 4974(c)(4). Petitioner
testified that she withdrew the money from her IRA’s to provide
for her own subsistence and that of her family. This is not one
of the exceptions set forth in section 72(t)(2), and petitioner
has failed to present evidence that would trigger any of the
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statutory exceptions to the imposition of the 10-percent tax.
Accordingly, petitioner is liable for the 10-percent additional
tax on the $35,000 and $8,717.32 early distributions under
section 72(t).
III. Additions to Tax Under Sections 6651(a) and 6654(a)
We now address whether petitioner is liable for additions to
tax under section 6651(a) for the 1993 and 1994 taxable years and
under section 6654(a) for the 1993 taxable year. Petitioner
bears the burden of proving respondent’s determination is in
error. See Rule 142(a).
Section 6012(a) requires the filing of income tax returns,
section 6072(a) sets forth the due date, and section 6651(a)(1)
imposes an addition to tax for failure to file a return timely.
Pursuant to section 6651(a)(1), the addition to tax for failure
to timely file a required income tax return is imposed “unless it
is shown that such failure is due to reasonable cause and not due
to willful neglect”.
Petitioner regularly filed Federal income tax returns up to
and through the 1992 taxable year. Sometime in 1992 or 1993,
petitioner consulted with a tax attorney regarding the filing of
her tax return for the 1993 taxable year. Subsequently,
petitioner timely filed a request with the IRS seeking an
extension of time to file her 1993 Federal income tax return.
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Thus, it is clear that petitioner knew of her obligation to file
tax returns.
Petitioner stated that the reason she did not file Federal
income tax returns for the 1993 and 1994 taxable years was
because she “ran out of money.” Inability to pay, however, does
not relieve a taxpayer of his or her obligation to properly and
timely file an income tax return. See Bowden v. Commissioner,
T.C. Memo. 1996-318 (taxpayer’s alleged inability to pay tax was
not reasonable cause for late filing). Petitioner also stated
that she did not file her Federal income tax returns in protest
over a dispute with the IRS concerning FICA overwithholding by
her former employer, TWA, for the 1988 taxable year. The
existence of a dispute or protest with the IRS does not
constitute reasonable cause for not timely filing one’s returns
for subsequent years. See Glowinski v. Commissioner, 25 T.C. 934
(1956), affd. per curiam 243 F.2d 635 (D.C. Cir. 1957)
(taxpayer’s dispute with IRS concerning liability for prior tax
years was not reasonable cause for not filing for year in
question).
The fact that petitioner lacked the ability to pay the tax
liability and the fact that petitioner was in disagreement with
the Commissioner concerning a prior taxable year do not
constitute reasonable cause for failing to file Federal income
tax returns for the 1993 and 1994 tax years. Accordingly,
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petitioner is liable for additions to tax under section
6651(a)(1).
Section 6654(a) requires the imposition of an addition to
tax in the case of any underpayment of estimated tax by an
individual. See Estate of Ruben v. Commissioner, 33 T.C. 1071,
1072 (1960). Section 6654(e) provides exceptions to the
imposition of additions to tax under section 6654(a). Petitioner
bears the burden of proving that one of these exceptions is
applicable. Petitioner introduced no evidence as to the
applicability of the exceptions provided under section 6654(e).
Accordingly, petitioner is liable for the addition to tax under
section 6654(a).
To reflect the foregoing,
Decision will be entered under
Rule 155.