T.C. Summary Opinion 2004-25
UNITED STATES TAX COURT
ELMER J. HOPSON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5678-03S. Filed March 9, 2004.
Elmer J. Hopson, pro se.
Karen Nicholson Sommers, for respondent.
GOLDBERG, 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. Unless otherwise indicated,
subsequent section references are to the Internal Revenue Code in
- 2 -
effect for the year in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
Respondent determined a deficiency in petitioner’s Federal
income tax of $3,815 for the taxable year 1999.
The issues for decision are (1) whether petitioner is liable
for the alternative minimum tax (AMT) in the amount determined by
respondent, and (2) whether petitioner is (a) entitled to
deductions in addition to those claimed on his return, and/or (b)
entitled to recharacterize as business expense deductions any of
the itemized deductions that he claimed on his return.
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. Petitioner resided in San
Diego, California, on the date the petition was filed in this
case.
Petitioner filed a Federal income tax return for taxable
year 1999 which was dated April 20, 2002. On this return, he
reported wage and salary income of $69,432, and he claimed
itemized deductions totaling $56,531. The itemized deductions he
claimed were for State and local taxes of $4,617, interest of
$441, charitable contributions of $5,924, employee business
expenses of $38,062, tax preparation fees of $100, and vehicle
- 3 -
and boat depreciation of $8,776.1 Petitioner did not report
liability for the AMT in any amount. In the notice of
deficiency, respondent’s sole adjustment was his determination
that petitioner was liable for AMT of $3,815. Respondent did not
adjust any of petitioner’s claimed itemized deductions, nor did
respondent determine that any additions to tax or penalties were
applicable.
The first issue for decision is whether petitioner is liable
for the AMT in the amount determined by respondent. Petitioner
argues that respondent’s calculation of the AMT is in error, but
he does not single out any specific aspect of that calculation.
We have reviewed respondent’s calculation and conclude that it is
in accordance with the provisions of the Internal Revenue Code.
This calculation, and the underlying provisions of the Code, can
be summarized as follows:
Taxable income reported by petitioner $10,151
Miscellaneous itemized deductions claimed by petitioner 36,773
Itemized deduction for taxes paid claimed by petitioner 4,617
Exemption deduction claimed by petitioner 2,750
Alternative minimum taxable income under sec. 55(b)(2)1 54,291
Exemption amount pursuant to sec. 55(d)(1)(B) (33,750)
Taxable excess under sec. 55(b)(1)(A)(ii) 20,541
Tentative minimum tax under sec. 55(b)(1)(A)(i) (in this
case equal to 26% of the taxable excess) 5,341
Regular tax under sec. 55(c)(1) as reported by petitioner (1,526)
AMT liability under sec. 55(a) 3,815
1
The adjustments to taxable income required in this case to
calculate alternative minimum taxable income are found, respectively, in
sec. 56(b)(1)(A)(i) and (ii) and (E).
1
The deductions for the employee business expenses and tax
preparation fees were reduced by $1,389 pursuant to the sec.
67(a) floor on miscellaneous itemized deductions.
- 4 -
We sustain respondent’s determination in the notice of
deficiency.
The second issue for decision is whether petitioner is (a)
entitled to deductions in addition to those claimed on his
return, and/or (b) entitled to recharacterize as business expense
deductions any of the itemized deductions that he claimed on his
return.2 Petitioner argues that he is entitled to the changes
which he made to his filed return on a Form 1040X, Amended U.S.
Individual Tax Return. Petitioner submitted this form to the IRS
in April 2003, following the issuance of the notice of deficiency
underlying this case. On the form, petitioner claimed a variety
of changes to the information on his original return. First, he
added a Schedule C, Profit or Loss From Business, on which he
claimed zero gross income and a loss of $28,379 for a business
named “Maritime Ventures” engaged in the business of “Antique
Dealer”. Petitioner also decreased his claimed itemized
deductions by $11,328 to $45,203, due in whole or part to his
recharacterization of certain expenses--which he claimed on his
original return as itemized deductions--as business expenses on
the Schedule C. Respondent has not accepted any amounts reported
by petitioner on the amended return.
2
The recharacterization of itemized deductions as business
expense deductions would change petitioner’s AMT liability under
sec. 55(a).
- 5 -
Under section 162(a), a taxpayer generally may deduct the
ordinary and necessary expenses paid or incurred during the
taxable year in carrying on his trade or business. A taxpayer is
engaged in a trade or business if the taxpayer is involved in the
activity with continuity and regularity and with the primary
purpose of making a profit. Commissioner v. Groetzinger, 480
U.S. 23, 35 (1987).
A taxpayer must keep records sufficient to establish the
amounts of the items required to be shown on his Federal income
tax return. Sec. 6001; sec. 1.6001-1(a), (e), Income Tax Regs.
In the event that a taxpayer establishes that a deductible
expense has been paid but is unable to substantiate the precise
amount, we generally may estimate the amount of the deductible
expense bearing heavily against the taxpayer whose inexactitude
in substantiating the amount of the expense is of his own making.
Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). We
cannot estimate a deductible expense, however, unless the
taxpayer presents evidence sufficient to provide some basis upon
which an estimate may be made. Vanicek v. Commissioner, 85 T.C.
731, 743 (1985).
In his opening statement at trial, petitioner argued that
the following is the nature of his Schedule C business:
My antique shop association in Redwood City was with
Antiques on Broadway. My association here was with the
Trolley Shop Antiques in Lemon Grove in the mid 90s and at
the present time on the Internet. My future plans of the
- 6 -
business include use of a to-be-restored fire engine for
rent or lease to movies, parties and promotions.
Petitioner’s testimony concerning the business can be summarized
as follows. During the year at issue, petitioner’s business
consisted of a rented space in an antique market. Petitioner
would open his retail space on one day each month in order to
conduct his business, but his merchandise was available at other
times for viewing and possibly sales by another merchant.
Petitioner has had no sales or other income from this business in
any year, aside from sales in 1999 which “wouldn’t have been over
$100”.
Petitioner did not present the Court with any documentary
evidence concerning either the existence of the Schedule C
business or the nature or amount of the claimed expenses. The
amounts reported on the amended return merely represent
petitioner’s assertions and are not evidence that petitioner was
engaged in any business or that he incurred any of the expenses.
The only evidence provided by petitioner concerning the Schedule
C business is his own self-serving, uncorroborated testimony,
which we do not accept as credible evidence that a bona fide
business existed or that he incurred the additional expenses.
Because petitioner has presented no substantiation of the
business or any of the expenses, we conclude that he is not
entitled to any additional deductions and that he is not entitled
- 7 -
to recharacterize any of the original deductions. Sec. 6001;
sec. 1.6001-1(a), (e), Income Tax Regs.3
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.
3
In the absence of substantiation or credible evidence
regarding this issue, the burden of proof remains on petitioner
to show the existence of the business and his entitlement to the
deductions. Sec. 7491(a); Rule 142(a).