T.C. Summary Opinion 2003-57
UNITED STATES TAX COURT
KEITH T. AND GERALDINE A. BOWERS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 8191-00S, Filed May 19, 2003.
10437-01S.
Kevin G. Vanginderen, for petitioners.
Karen Nicholson Sommers, for respondent.
POWELL, Special Trial Judge: These consolidated cases were
heard pursuant to the provisions of section 7463 of the Internal
Revenue Code in effect at the time the petitions were filed.1
1
Unless otherwise indicated, subsequent 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.
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The decisions to be entered are not reviewable by any other
court, and this opinion should not be cited as authority.
By separate notices of deficiency respondent determined
deficiencies of $21,096 and $2,898 in petitioners’ 1997 and 1998
Federal income taxes, respectively. The issues are: (1) The
value of a condominium sold by petitioners in the taxable year
1997 to the U.S. Army Corps of Engineers (the Corps) under the
so-called Housing Assistance Program and (2) whether petitioners
are entitled to various deductions claimed on their 1997 and 1998
Federal income tax returns. Petitioners resided in Paso Robles,
California, at the time they filed the petitions in these cases.
We note initially that most of the disputed issues concern
petitioner Geraldine A. Bowers (hereinafter petitioner). Neither
she nor petitioner Keith T. Bowers appeared at the trial. This
is particularly troublesome here because petitioners have the
burden of establishing that respondent’s determinations are
erroneous. Rule 142(a); Helvering v. Taylor, 293 U.S. 507
(1935).2 Accordingly, while the parties executed a stipulation
of facts, there are, unfortunately, gaps in the record that are
sometimes crucial.
2
Petitioners have not satisfied the requirement to shift the
burden of proof to respondent under sec. 7491(a).
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Background
1. 1997 Income
Petitioner owned a condominium in Garden Grove, California.
On October 30, 1997, she sold the condominium to the Corps under
the Homeowners Assistance Program (HAP). Petitioner’s mortgage
debt at that time was $147,150.3 HAP is a Federal program,
administered by the Corps, that aids military personnel who own
residences at or near military posts or bases that are being
closed or significantly reduced in size which results in a
significant decline in property values and who are consequently
unable to sell their residences. See 42 U.S.C. sec. 3374 (2000).
Petitioner’s condominium had a current fair market value of
$85,000, and the Corps paid off the amount of the mortgage debt
of $147,150. In short, petitioner compromised the debt by
surrendering property that had a fair market value of $85,000.
The fair market value was based on two appraisals.
For 1997, in addition to her regular Form W-2, Wage and Tax
Statement, the Corps issued petitioner another Form W-2 showing
that petitioner had received income of $62,595 reflecting the
difference between the mortgage debt compromised and the fair
market value of the property surrendered.4 Petitioners disclosed
3
All figures are rounded to the nearest dollar.
4
The record does not explain the difference between the
amount shown on the Form W-2 and the amount of the compromised
(continued...)
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that amount on their 1997 income tax return, but did not include
it in income. In the notice of deficiency for 1997, respondent
included the $62,595 in petitioners’ gross income.
2. 1997 and 1998 Miscellaneous Deductions
During 1997 and 1998, petitioner was employed as a Chief
Warrant Officer with the California Army National Guard and was
on active duty. On October 17, 1997, she was ordered to attend
flight school at Fort Rucker, Alabama, from November 11, 1997 to
March 6, 1998. She was then ordered to proceed to Clarksburg,
West Virginia, for further training.
The amounts claimed by petitioners as miscellaneous
deductions pertaining to petitioner’s employment during 1997 and
1998 and the amounts allowed by respondent are as follows:
1997
Claimed Allowed
Rent $300 -0-
Uniforms, etc. 2,542 $2,246
Books and publications 76 -0-
Flight exams 282 -0-
Telephone 479 -0-
Educational expenses 3,022 -0-
Vehicle expenses 1,548 -0-
1998
Books and publications 295 -0-
Uniforms, etc. 2,929 661
Telephone 293 -0-
4
(...continued)
debt. The notice of deficiency for 1997 uses the Form W-2 amount
and petitioners have not disputed that amount.
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Educational expenses 1,010 -0-
Office supplies 90 -0-
Depreciation 1,948 -0-
Vehicle expenses 1,399 -0-
Travel expenses 270 -0-
During 1998, petitioner Keith T. Bowers was a construction
superintendent. The amounts claimed by petitioners as
miscellaneous deductions pertaining to petitioner Keith T.
Bowers’s employment during 1998 and the amounts allowed by
respondent are as follows:
Claimed Allowed
Uniforms $236 -0-
Union dues 200 -0-
Tools 183 $2,100
With respect to the vehicle expenses pertaining to
petitioner’s employment, it appears that these expenses were
incurred for transportation to and from petitioner’s National
Guard drills. In this regard, petitioner presented a letter from
the adjutant of her guard unit stating that petitioner was not
entitled to reimbursement from the National Guard for “drill
mileage”. Petitioner’s orders to go to Fort Rucker, Alabama, and
to proceed then to Clarksburg, West Virginia, provided that she
was entitled to reimbursement for her travel expenses, and there
is no evidence of other expenses pertaining to travel.
Regarding the educational expenses, it appears that these
expenses were incurred by petitioner in 1997 and 1998 obtaining a
Bachelor of Arts Degree in History from the California State
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University at Long Beach. In a letter to petitioner’s counsel,
petitioner’s former unit commander stated that “Continued
civilian education in the military is necessary for an officer to
retain their current position, improve their skills, and maintain
longevity in the military.”
The record is devoid of evidence concerning the adjustments
made to the miscellaneous deductions claimed with regard to
petitioner Keith T. Bowers.
3. 1997 Rental Expense
In 1997, petitioner owned a trailer pad in Stapleton,
Alabama. On their 1997 income tax return, petitioners deducted
$908 for auto and travel expenses. Respondent disallowed the
deduction. Petitioners introduced into evidence a copy of an
airline ticket receipt for $582.72 reflecting travel from
California to Dothan, Alabama. The record, otherwise, is devoid
of evidence concerning this deduction.
4. 1998 Interest Income
Respondent determined that petitioners received interest
income of $340 that was not reported on petitioners’ 1998 income
tax return. The parties stipulated that Forms 1099-INT, Interest
Income, were issued by various financial institutions in this
amount, and petitioners offered no evidence as to the reason the
$340 should not be included in income.
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5. 1998 Charitable Contribution Deduction
Petitioners claimed a charitable contribution deduction of
$3,664. Respondent disallowed $3,144 of the claimed deduction.
Respondent concedes that petitioners are entitled to an
additional deduction in the amount of $250. There is no
evidence that supports any additional deduction.
6. 1998 Tax Return Preparation and Legal Fees
Petitioners claimed a miscellaneous deduction of $864 for a
tax return preparation expense. Respondent disallowed $150 of
the amount claimed. There is no evidence that supports any
additional deduction.
Petitioners claimed a deduction of $500 for legal fees.
Respondent disallowed the deduction. There is correspondence in
the record between John R. McCabe, an attorney representing
petitioner, and the Corps concerning the value of the property
purchased by the Corps discussed above.
Discussion
1. 1997 Income
Petitioners do not dispute that there was income resulting
from the exchange of the house and property for the discharge of
the mortgage indebtedness. See sec. 61(a)(12). They question,
however, the determination by the Corps that the fair market
value of the property was $85,000 at the time of the transfer.
Respondent adopted the determination of the Corps. The
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determination of value is based on two appraisals by qualified
real estate appraisers--one for $85,000 and the other for
$84,000. Petitioners have offered no evidence that these
appraisals do not reflect the fair market value of the property,
and we sustain respondent’s determination.
2. 1997 and 1988 Miscellaneous Deductions
Petitioners contest the disallowance of only two of the
purported deductions--vehicle and educational expenses. With
regard to the vehicle expenses, these expenses, as we understand,
arise from transportation to and from petitioner’s National Guard
drills, and, as such, are expenses incurred for commuting to and
from work. Such expenses are not deductible. See Commissioner
v. Flowers, 326 U.S. 465 (1946).
With regard to the deductions for educational expenses,
generally, expenses of obtaining an undergraduate degree are
considered personal expenses and, as such, are not deductible.
Sec. 262; see Baker v. Commissioner, 51 T.C. 243, 248 (1968).
The regulations, however, provide that the expenses are
deductible if the education “Meets the express requirements of
the individual’s employer, or the requirements of applicable law
or regulations, imposed as a condition to the retention by the
individual of an established employment relationship, status, or
rate of compensation.” Sec. 1.162-5(a)(2), Income Tax Regs.
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Petitioner contends that she meets these requirements based
on the statement of her former unit commander in a letter that
stated “Continued civilian education in the military is necessary
for an officer to retain their current position, improve their
skills, and maintain longevity in the military.” Putting aside
the hearsay problems, we do not find that statement persuasive.
Petitioner does not refer to any “applicable law or regulations”
that required her to obtain a college degree as required by the
regulations, and we know of no such requirement. Rather, it
appears that the National Guard, as do all military
organizations, strongly support and encourage education for its
soldiers. This, however, does not comply with the requirements
of the Department of Treasury regulations. See Baker v.
Commissioner, T.C. Memo. 1971-278; Kinch v. Commissioner, T.C.
Memo. 1971-117. We sustain respondent’s determinations.
With respect to the remaining miscellaneous deductions
claimed for both taxable years, there simply is no evidence to
indicate that respondent’s determinations are erroneous, and we
sustain those determinations as well.
3. 1997 Rental Expense, 1998 Interest Income, 1998 Charitable
Contribution Deduction, and 1998 Tax Return Preparation and Legal
Fees
As noted in our statement of facts, with one exception,
petitioners either have not addressed or have offered no evidence
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contravening respondent’s determinations as to the other
adjustments in the notices of deficiency. We see no reason to
reiterate each adjustment nor the reason that we sustain each
adjustment.
The one exception to this concerns the legal fees deducted
in 1998. It is clear that petitioner retained John R. McCabe, an
attorney, to represent her with respect to the determination of
the value of the property purchased by the Corps. That value had
a direct impact on the amount of income that she recognized
during 1997. Furthermore, from the correspondence in the record
it would appear that the amount of fees deducted ($500) was
reasonable for the services performed. We find, therefore, that
petitioners are entitled to a deduction of $500 for legal fees
under section 212(3).
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered for
respondent for the taxable year
1997 at docket No. 8191-00S, and
decision will be entered under Rule
155 for the taxable year 1998 at
docket No. 10437-01S.