T.C. Memo. 2005-259
UNITED STATES TAX COURT
STEVE J. WORK, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 11458-02, 17265-02. Filed November 2, 2005.
Steve J. Work, pro se.
Robert A. Varra, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
VASQUEZ, Judge: Respondent determined deficiencies of
$3,737, $4,162, and $13,994 for 1998, 1999, and 2000,
respectively. The issues for decision are whether (1) petitioner
failed to report $9,031 of wages from Plastec Products, Inc.
(Plastec), in 2000, (2) petitioner substantiated deductions in
excess of amounts respondent allowed or conceded for 1998, 1999,
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and 2000, and (3) petitioner is liable for additional self-
employment tax in 1999 and 2000.
Unless otherwise indicated, 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.
Confronted with petitioner’s refusal to work toward a
stipulation of facts, on September 3, 2004, respondent filed a
motion to show cause why proposed facts and evidence should not
be accepted as established pursuant to Rule 91(f). Respondent
attached to his motion a proposed stipulation of facts and
exhibits. On September 7, 2004, the Court issued an order to
show cause under Rule 91(f), requiring petitioner to file a
response on or before September 27, 2004, as to why matters set
forth in respondent’s motion should not be deemed admitted. On
October 12, 2004, petitioner filed a response to the Court’s
order to show cause. On October 20, 2004, the Court made
absolute its order to show cause under Rule 91(f), finding that
petitioner’s response was evasive and not fairly directed to
respondent’s proposed stipulation of facts and ordering that the
facts and evidence set forth in respondent’s proposed stipulation
of facts were deemed established, and the exhibits in the
proposed stipulation of facts were received into evidence and
made a part of the record of the cases. More than 2 months after
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the trial of these cases, petitioner filed a motion to vacate the
October 20, 2004, order, which we denied.
FINDINGS OF FACT
Accordingly, pursuant to Rule 91(f), the facts set forth in
the Rule 91(f) motion are deemed stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. At the time he filed the
petitions, petitioner resided in Monument, Colorado.
I. Additional Income for 2000
On his 2000 Federal income tax return, petitioner reported
wages totaling $87,254. Petitioner attached to his 2000 return a
Form W-2, Wage and Tax Statement, from Synthes USA reflecting
wages of $69,404.38 and an earnings statement from Plastec for
the pay period ending May 27, 2000, and a pay date of June 1,
2000, reflecting year-to-date wages of $17,850. Petitioner also
attached a statement to his 2000 return reflecting that he had
not yet received a Form W-2 from Plastec and that he planned to
file an amended return when he received the Form W-2 from Plastec
reflecting the correct amount of the total wages he earned from
Plastec during 2000. Plastec paid petitioner $26,881 in wages in
2000.1
1
The record does not contain an amended income tax return
for 2000 for petitioner.
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II. Disallowed Deductions Claimed by Petitioner
A. 1998
On his 1998 Federal income tax return, petitioner claimed a
$14,000 deduction for moving expenses.
During 1998, Teledyne Water Pik (Teledyne) reimbursed
petitioner for “1998 Relocation and Moving Expenses”. An
attachment to a November 20, 1998, memorandum from an employee of
Teledyne regarding petitioner’s “1998 Relocation and Moving
Expenses” lists the expenses as follows:
Type of Payment Payee Date Amount of Expense
Temp housing Carousel Properties 3/2/98 $960.00
Temp housing Carousel Properties 3/2/98 731.91
Storage Golden Transfer Co 6/4/98 1,997.00
Storage Golden Transfer Co 7/1/98 483.19
Storage Golden Transfer Co 7/31/98 483.19
Realty close Work 2/20/98 8,569.00
Relocation allow Work 2/20/98 4,154.00
Respondent disallowed petitioner’s moving expenses in full.
B. 1999
On his 1999 Federal income tax return, petitioner claimed a
$2,528 deduction for gifts to charity by cash or check, a $960
deduction for gifts to charity other than by cash or check, and
“job expenses and most other miscellaneous deductions” totaling
$8,157. On his Schedule C, Profit or Loss From Business,
petitioner claimed $9,273 in total expenses and listed $23 for
cost of goods sold.
In the notice of deficiency, respondent disallowed all of
these amounts in full.
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C. 2000
On his 2000 Federal income tax return, petitioner claimed an
$11,792 deduction for home mortgage interest, a $1,520 deduction
for gifts to charity by cash or check, and “other miscellaneous
deductions” totaling $9,184. On his Schedule C, petitioner
claimed $19,690 in total expenses.
In the notice of deficiency, respondent disallowed $6,862 of
petitioner’s home mortgage interest deduction and disallowed
petitioner’s charitable contribution deduction, other
miscellaneous deductions, and Schedule C expenses in full.2
OPINION
Generally, respondent’s deficiency determinations set forth
in the notices of deficiency are presumed correct, and petitioner
bears the burden of showing the determinations are in error.
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
Section 7491(a), however, shifts the burden of proof to the
Commissioner with respect to a factual issue affecting the tax
liability of a taxpayer who meets certain preliminary conditions.
Petitioner failed to cooperate with respondent, and he did not
claim that section 7491(a) applies. Accordingly, section 7491(a)
2
Respondent disallowed $20,279 in Schedule C expenses.
Petitioner, however, claimed only $19,690 in Schedule C expenses.
This discrepancy can be accounted for in the Rule 155
computation.
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does not apply in these cases, and petitioner bears the burden of
proof.
I. Additional Income for 2000
Petitioner claimed he reported the additional $9,031
($26,881 earned minus $17,850 reported as wages) of wages from
Plastec on his Schedule C attached to his 2000 return. The
Schedule C lists petitioner’s business as “Quality Consulting”
and reports gross receipts of $3,604. Petitioner also claimed
that the $9,031 of additional income reported by Plastec was an
error by Plastec.
Petitioner’s claims are not credible and are contradicted by
the record. Petitioner is deemed to have admitted that Plastec
paid him $26,881, and not $17,850, in 2000. The amount of gross
receipts listed on the 2000 Schedule C ($3,604) bears no relation
to the additional $9,031 of income petitioner earned from Plastec
in 2000. Furthermore, petitioner attached a statement to his
2000 return admitting that the amount of income he reported from
Plastec was incorrect and that he would need to amend his 2000
return because he had not yet received from Plastec a Form W-2
for 2000.
Accordingly, we conclude that petitioner failed to report
$9,031 of wages from Plastec in 2000.
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II. Substantiation of Deductions
Taxpayers are required to maintain records that are
sufficient to enable the Commissioner to determine their correct
tax liability. See sec. 6001; sec. 1.6001-1(a), Income Tax Regs.
In addition, the taxpayer bears the burden of substantiating the
amount and purpose of the item for the claimed deduction. See
Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam
540 F.2d 821 (5th Cir. 1976).
A. 1998 (Moving Expenses)
Section 217(a) allows a deduction for moving expenses paid
or incurred during the taxable year in connection with the
commencement of work by the taxpayer as an employee or as a self-
employed individual at a new principal place of work. Respondent
concedes that petitioner satisfied the conditions for allowance
imposed by section 217(c). Section 217(b)(1) provides, in
relevant part:
the term “moving expenses” means only the reasonable
expenses--
(A) of moving household goods and personal
effects from the former residence to the new
residence, and
(B) of traveling (including lodging) from the
former residence to the new place of residence.
Section 217(b) was amended to read as above by the Omnibus Budget
Reconciliation Act of 1993 (OBRA), Pub. L. 103-66, sec.
13213(a)(1), 107 Stat. 473. The amendments made by OBRA section
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13213 apply to expenses incurred after December 31, 1993. OBRA
sec. 13213(e), 107 Stat. 475. Before its amendment by OBRA,
former subparagraphs (D) and (E) of section 217(b)(1) allowed
deductions for expenses of meals and lodging while occupying
temporary quarters and qualified residence sale or purchase
expenses.
Petitioner incurred his moving expenses after December 31,
1993. Accordingly, any expenses for temporary housing, for the
sale of his former residence, and for the purchase of a new
residence are not deductible pursuant to section 217.
Furthermore, section 217 does not allow a deduction for
relocation allowances.
Section 1.217-2(b)(3), Income Tax Regs., provides:
Expenses of moving household goods and personal effects
include expenses of transporting such goods and effects
from the taxpayer’s former residence to his new
residence, and expenses of packing, crating, and in-
transit storage and insurance for such goods and
effects. * * * Expenses of storing and insuring
household goods and personal effects constitute in-
transit expenses if incurred within any consecutive 30-
day period after the day such goods and effects are
moved from the taxpayer’s former residence and prior to
delivery at the taxpayer’s new residence. * * *
Expenses of moving household goods and personal effects
do not include, for example, storage charges (other
than in-transit) * * * .
On May 22, 1998, petitioner sold his house in Northglenn,
Colorado. On May 27, 1998 petitioner purchased a house in Fort
Collins, Colorado. Petitioner, however, presented no evidence
regarding whether the items in storage were moved from his former
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residence or when the stored items were delivered to his new
residence. Some of the dates associated with the storage--July 1
and 31, 1998--raise further questions regarding whether the
storage was associated with in-transit expenses. Petitioner’s
testimony regarding moving expenses related solely to 2000.
After reviewing the evidence, we would have sustained
respondent’s determination disallowing petitioner’s moving
expenses for 1998. On brief, however, respondent concedes that
petitioner is entitled to a $483.19 deduction for moving expenses
(related to storage costs) for 1998. We accept this concession
and conclude that petitioner is not allowed a deduction for
moving expenses for 1998 in excess of the amount respondent
conceded.
B. 1999 and 2000
1. Charitable Contributions
Respondent concedes that donations petitioner made to the
Denver Museum of Natural History (DMNH) may qualify as deductions
pursuant to section 170. Respondent concedes that petitioner is
entitled to deduct cash contributions to the DMNH of $687.50 and
$675.81 for 1999 and 2000, respectively. These concessions
reflect petitioner’s membership fee of $100 each year and mileage
(based on noncontemporaneous summaries) for petitioner’s trips to
the DMNH. Respondent’s concession for 1999 also appears to
reflect a $50 donation petitioner testified that he made in 1999
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($100 membership fee plus $537.50 mileage deduction equals
$637.50 plus $50 donation, per petitioner’s testimony, equals
$687.50 concession).
Petitioner testified that in 1999 he donated an antique
medicine bag (bag) to the DMNH. Petitioner valued the bag at
$960 and claimed a deduction for a gift to charity of $960 other
than by cash or check on his 1999 return. On his 1999 return,
petitioner stated that he inherited the bag in 1987 and that the
donor’s cost or adjusted basis in the bag was zero dollars.
Petitioner attached to his 1999 return an “inspection
request” he had submitted on November 29, 1998, to the DMNH.
Petitioner stated the item to be valued was a “Medicine Bag”.
Petitioner estimated the value of the bag to be “$101-$500”.
Petitioner wrote: “Requester may donate bag to DMNH if can be
displayed.” (Emphasis added.)
On May 24, 1999, Joyce Herold, Curator of Ethnology,
Department of Anthropology, noted on the inspection request that
the bag was “probably of Jicarilla Apache origin” and dated the
bag circa 1890. In a separate memorandum dated May 24, 1999, Ms.
Herold advised petitioner: “If you want to donate the pouch, we
would be delighted. * * * You can take as an IRS charitable
deduction the full appraised value of the piece. However, the
promise of exhibition is not possible, * * * . Thanks for leaving
the piece for my inspection”. (Emphasis added.)
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Petitioner testified that Joe Stevens appraised the bag at
$1,900. Petitioner testified that he donated the bag to the
DMNH, and Ms. Herold could confirm this. Petitioner did not call
Mr. Stevens or Ms. Herold as a witness. We infer that their
testimony would not have been favorable to petitioner. See
Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. 1158, 1165
(1946), affd. 162 F.2d 513 (10th Cir. 1947).
To the extent that petitioner relies on his own testimony to
establish that he donated the bag, we found petitioner’s
testimony to be conclusory and contradictory of the documentary
evidence. Petitioner stated the value of the bag to be $101-
$500--far less than the $960 he claimed. Petitioner wrote that
he might donate the bag if it would be displayed (suggesting he
would not donate the bag if it was not displayed), and petitioner
was informed that the bag would not be displayed. Furthermore,
Ms. Herold’s memorandum dated May 24, 1999, makes clear that
petitioner had not yet donated the bag.
The Court is not required to accept petitioner’s
unsubstantiated testimony. See Wood v. Commissioner, 338 F.2d
602, 605 (9th Cir. 1964), affg. 41 T.C. 593 (1964). Under the
circumstances presented here, we are not required to, and
generally do not, rely on petitioner’s testimony to sustain his
burden of establishing error in respondent’s determinations. See
Lerch v. Commissioner, 877 F.2d 624, 631-632 (7th Cir. 1989),
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affg. T.C. Memo. 1987-295; Geiger v. Commissioner, 440 F.2d 688,
689-690 (9th Cir. 1971), affg. per curiam T.C. Memo. 1969-159;
Tokarski v. Commissioner, 87 T.C. 74, 77 (1986). Accordingly, we
conclude that petitioner has failed to establish that he donated
the bag in 1999, and we sustain respondent’s determination to
disallow this deduction. See also sec. 1.170A-13, Income Tax
Regs. (regarding record-keeping requirements for deductions for
charitable contributions).
Petitioner also deducted as charitable contributions the
amounts he spent purchasing lunches while volunteering at the
DMNH during 1999 and 2000. Reasonable expenditures for meals
incurred while away from home in the course of performing donated
services are deductible. Sec. 1.170A-1(g), Income Tax Regs.
“While away from home” has the same meaning in section 1.170A-
1(g), Income Tax Regs., as in section 162 and the regulations
thereunder. Id. Under section 162, a taxpayer can deduct the
cost of meals when “away from home” only when the travel in
question involves an overnight stay. United States v. Correll,
389 U.S. 299, 302, 304 (1967).
Petitioner presented no evidence of lodging or overnight
stays associated with the lunch expenses he deducted. Petitioner
also submitted no documents to substantiate the costs of his
meals. See sec. 1.170A-13, Income Tax Regs. (regarding
recordkeeping requirements for deductions for charitable
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contributions). Accordingly, we sustain respondent’s
determination to disallow the costs of petitioner’s lunches at
the DMNH as deductions for 1999 and 2000.
Petitioner also claimed that he made charitable
contributions to the Northern Colorado Woodcarvers Association
(NCWA) and the Buffalo Creek Gun Club (BCGC). Petitioner
presented no evidence of the amounts he gave to NCWA or BCGC.
See id. Additionally, there is no evidence that contributions to
NCWA or BCGC qualify as “charitable contributions” under section
170(c). Accordingly, we sustain respondent’s determinations to
disallow the remainder of petitioner’s charitable contribution
deductions for 1999 and 2000 that respondent did not concede.
2. Home Mortgage Interest
Respondent allowed petitioner $4,930 of home mortgage
interest as a deduction for 2000. At trial, petitioner submitted
a settlement statement concerning a house he purchased in 2000 in
Monument, Colorado. The settlement statement listed: (1)
$370.65 of interest paid from October 17 to November 1, 2000; (2)
$611.50 for a loan origination fee; and (3) $2,446 for a broker
discount. Assuming arguendo that the $370.65 in interest equals
a daily interest rate of $24.71 ($370.65 divided by 15 days),
petitioner paid $24.71 in interest per day on the mortgage from
October 17 through December 31, 2000 (76 days), and the “total
interest” would be $1,877.96 ($24.71 times 76). This “total
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interest” ($1,877.96) plus the a loan origination fee ($611.50)
plus the broker discount ($2,446) equals $4,935.46. The $5.46
difference is probably attributable to the declining amount of
interest charged as the principal of the mortgage was paid down.
Accordingly, we conclude that the settlement statement is
insufficient evidence to allow petitioner a deduction greater
than the $4,930 respondent allowed.
Petitioner testified that he paid mortgage interest on a
house other than the house he purchased in Monument, Colorado.
Petitioner presented no documentary evidence to support this
assertion.
When a taxpayer establishes that he has incurred deductible
expenses but is unable to substantiate the exact amounts, we can
estimate the deductible amounts, but only if the taxpayer
presents sufficient evidence to establish a rational basis for
making the estimates. See Cohan v. Commissioner, 39 F.2d 540,
543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731,
742-743 (1985). In estimating the amounts allowable, we bear
heavily upon the taxpayer whose inexactitude is of his own
making. See Cohan v. Commissioner, supra at 544.
Petitioner relies on his own testimony. The Court is not
required to accept petitioner’s unsubstantiated testimony. See
Wood v. Commissioner, supra at 605. We found petitioner’s
testimony to be general, vague, and conclusory. Under the
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circumstances presented here, we are not required to, and
generally do not, rely on petitioner’s testimony to sustain his
burden of establishing error in respondent’s determinations. See
Lerch v. Commissioner, supra at 631-632; Geiger v. Commissioner,
supra at 689-690; Tokarski v. Commissioner, supra at 77.
We shall not rely on the Cohan rule as petitioner has not
presented sufficient evidence to establish a rational basis for
making an estimate. Accordingly, we conclude that petitioner has
failed to establish that he paid any mortgage interest on a house
other than his house in Monument, Colorado.
Petitioner testified that he borrowed against a life
insurance policy to pay “home mortgage interest” during 2000.
Petitioner further testified that he borrowed this money for a
downpayment on a house and the company that lent him this money
did not place a mortgage on the house.
Section 163(h)(1) generally disallows a deduction for
personal interest. An exception to this rule is “qualified
residence interest”. Sec. 163(h)(2)(D). Qualified residence
interest includes “acquisition indebtedness” and “home equity
indebtedness”. Sec. 163(h)(3)(A). Acquisition indebtedness and
home equity indebtedness must be secured by a residence. Sec.
163(h)(3)(B)(i)(II) and (C)(i).
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The amount petitioner borrowed against his insurance policy
was not secured by his house. We conclude that any interest paid
on this loan is not deductible. Sec. 163(h).
Accordingly, we sustain respondent’s determination to
disallow $6,862 of petitioner’s home mortgage interest deduction
for 2000.
3. Miscellaneous Deductions and Schedule C Items
Petitioner presented no evidence regarding his “job expenses
and most other miscellaneous deductions” for 1999, his “other
miscellaneous deductions” for 2000, and his Schedule C expenses
and cost of goods sold for 1999 and 2000. Accordingly, we
sustain respondent’s determinations regarding these amounts. See
Rule 142(a); Welch v. Helvering, 290 U.S. at 115.
III. Self-Employment Tax
At trial, petitioner briefly disputed respondent’s
determination of self-employment tax. Respondent determined, on
the basis of the disallowed Schedule C deductions and cost of
goods sold, that petitioner had additional self-employment income
during 1999 and 2000.
Section 1401 imposes self-employment tax on self-employment
income. Section 1402 defines net earnings from self-employment
as the gross income derived by an individual from the carrying on
of any trade or business by such individual less allowable
deductions attributable to such trade or business.
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We conclude in accordance with section 1401 that petitioner
is liable for additional self-employment tax in 1999 and 2000 on
his additional self-employment income from the disallowed
Schedule C deductions and cost of goods sold.
IV. Conclusion
To reflect respondent’s concessions at trial and on brief,
Rule 155 computations will be necessary.
To reflect the foregoing,
Decisions will be entered
under Rule 155.