T.C. Summary Opinion 2001-20
UNITED STATES TAX COURT
JASMEEN AKHTER, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 10910-99S. Filed February 28, 2001.
Jasmeen Akhter, pro se.
Joan Casali, for respondent.
DINAN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. The decision to be
entered is not reviewable by any other court, and this opinion
should not be cited as authority. Subsequent section references
are to the Internal Revenue Code in effect for the years in
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issue, and Rule references are to the Tax Court Rules of Practice
and Procedure.
Respondent determined deficiencies in petitioner’s Federal
income taxes of $1,811, $2,214, and $2,272 and accuracy-related
penalties of $362, $443, and $454 for the taxable years 1995,
1996, and 1997, respectively.
The issues for decision are, with respect to each year in
issue: (1) Whether petitioner is entitled to an earned income
credit; (2) whether petitioner is entitled to a dependent
exemption deduction; (3) whether petitioner is entitled to head
of household filing status; and (4) whether petitioner is liable
for an accuracy-related penalty for negligence or disregard of
rules or regulations under section 6662(a). Because of our
finding with respect to the first issue, the second and third
issues are moot.
Some of the facts have been stipulated and are so found.
The stipulations of fact and the attached exhibits are
incorporated herein by this reference. Petitioner resided in
Brooklyn, New York, on the date the petition was filed in this
case.
Petitioner was married in Bangladesh in March 1995, and her
son was born on December 3, 1995. Petitioner subsequently
separated from her husband in 1997 and received a divorce in June
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1998. Petitioner’s husband resided in Bangladesh during their
entire marriage.
During the years in issue, petitioner lived in a second
floor, two bedroom apartment with a monthly rent of $700. She
resided with her son, father, sister, two or three brothers, and
during 1995, her mother. Her father and brothers were all
employed outside the home. All the members of the household
would pool their money together, and petitioner would receive an
allowance from her father.
Petitioner reported the following tax liability for each of
the following years:
1995 1996 1997
Income tax -0- -0- -0-
Self-employment tax $809 $958 $991
Earned income credit 1,811 2,152 2,210
Refund 1,002 1,194 1,218
Respondent determined that petitioner was liable for deficiencies
of $1,811, $2,214, and $2,272 for each respective year. In
making this determination, for each year in issue respondent
changed petitioner’s filing status from head of household to
married filing separately, disallowed the dependent exemption
deduction claimed for petitioner’s son, and disallowed the
claimed earned income credit. Respondent did not make
significant adjustments to the self-employment income tax
liability reported on the returns. Finally, respondent
determined that petitioner was liable for accuracy-related
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penalties for negligence for an underpayment equal to the entire
amount of the deficiency for each year in issue.
The first issue for decision is whether petitioner is
entitled to earned income credits. An earned income credit is
allowed to an eligible taxpayer under section 32(a) in an amount
based upon a percentage of the taxpayer’s earned income. Earned
income is defined under section 32(c)(2) to include the amount of
the taxpayer’s net earnings from self-employment.
Respondent argues that petitioner is not entitled to the
earned income credit for a number of reasons. One reason, the
only one we need discuss, is that petitioner had no earned income
during the years in issue.1 We agree with respondent.
Petitioner testified that during the years in issue, she and her
sister were tailors, performing work in their house. On
petitioner’s tax returns for the years in issue, she reported
$5,723, $6,783, and $7,016 in income on Schedules C-EZ, Net
Profit From Business. No business expenses were claimed as
deductions in any year. No business name or other information
was provided for any of the years, aside from the notation “self
employed” as a description of the principal business. In 1995
and 1996, the “principal business code” was not provided on the
form. In 1997, however, petitioner reported the code as “2659”.
1
Respondent argues in his memorandum filed at trial that the
only evidence shown to respondent that petitioner earned income
was a picture of petitioner at a sewing machine.
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We take judicial notice of the 1997 instructions for completing
this form available from respondent. According to these
instructions, this code falls under the major category “Trade,
Wholesale--Selling Goods to Other Businesses, etc.”, the heading
“Nondurable Goods, Including Food, Fiber, Chemicals, etc.”, and
the listing “Selling for your own account.” This is not the type
of business in which petitioner testified she was engaged during
each year in issue, that of a tailor operating out of her home.
Furthermore, there is nothing in the record, other than
petitioner’s own scant testimony, to support a finding that
petitioner earned income in any amount. We therefore agree with
respondent and find that petitioner had no earned income in any
of the years in issue. It further appears from this record that
petitioner reported income for each of the years in issue in
order to claim the earned income credit, and we so find.
The second and third issues for decision are whether
petitioner is entitled to dependent exemption deductions and
whether petitioner is entitled to head of household filing
status. Petitioner did not report any income on her returns
other than the self-employment income we have found that she did
not earn. Respondent does not argue that petitioner had any
other, unreported sources of income. Without income, petitioner
cannot be liable for Federal income taxes, and the issues of
deductions and filing status are consequently moot. Accordingly,
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the deficiencies determined by respondent must be reduced by the
appropriate amounts in the Rule 155 computations required in this
case.2
The final issue for decision is whether petitioner is liable
for accuracy-related penalties for negligence under section
6662(a). Section 6662(a) imposes a 20-percent penalty on the
portion of an underpayment attributable to any one of various
factors, one of which is negligence or disregard of rules or
regulations. An underpayment is defined as follows:
SEC. 6664(a) Underpayment.--For purposes of this
part, the term “underpayment” means the amount by which
any tax imposed by this title exceeds the excess of--
(1) the sum of--
(A) the amount shown as the tax by the
taxpayer on his return, plus
(B) amounts not so shown previously assessed
(or collected without assessment), over
(2) the amount of rebates made.
For purposes of paragraph (2), the term “rebate” means
so much of an abatement, credit, refund, or other
repayment, as was made on the ground that tax imposed
was less than the excess of the amount specified in
paragraph (1) over the rebates previously made.
2
The deficiencies must be reduced to reflect our holding
that respondent was in error in (1) his increases to petitioner’s
income tax in 1996 and 1997 due to the change of filing status
and disallowance of deductions, and (2) his failure to subtract
the amounts of self-employment income taxes from the deficiencies
in 1995, 1996, and 1997.
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Nothing in the record indicates that any amounts were previously
assessed or collected, or that any rebates were made to
petitioner. Therefore, there can be no underpayments in this
case because for each year in issue the tax imposed by the
Internal Revenue Code was zero and did not exceed the amount of
tax shown on the return.3 We therefore hold that petitioner is
not liable for the accuracy-related penalties determined by
respondent.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
under Rule 155.
3
Compare the definition of an underpayment in sec. 6664(a)
with the definition of a deficiency in sec. 6211(a). While the
definitions are substantially similar, the latter--in contrast to
the former--treats the excess of the earned income credit claimed
(or allowed) over the tax shown (or imposed) as a negative amount
of tax. See sec. 6211(b)(4).