T.C. Summary Opinion 2006-6
UNITED STATES TAX COURT
CONRAD FITZGERALD LEWIS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2430-04S. Filed January 24, 2006.
Conrad Fitzgerald Lewis, pro se.
Steven M. Webster, 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
effect for the years in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
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Respondent determined deficiencies in petitioner’s Federal
income taxes of $5,926.00, $7,816.65, and $5,336.00 for the
taxable years 2000, 2001, and 2002, respectively.
After concessions,1 the issues for decision are: (1)
Whether petitioner is entitled to claim the dependency exemption
deduction for DD for tax years 2000, 2001, and 2002; (2) whether
petitioner is entitled to a child tax credit with DD as the
qualifying child for tax years 2000, 2001, and 2002; (3) whether
petitioner is entitled to claim Schedule C expenses for the 2000,
2001, and 2002 tax years; (4) whether petitioner is entitled to
miscellaneous itemized deductions for the 2000 tax year;2 and (5)
whether petitioner failed to report interest income for tax years
2000 and 2001.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
1
Petitioner listed KM, BW, and DD (the Court uses only the
minor child’s initials) as dependents on his tax returns for the
taxable years 2000, 2001, and 2002. In the notice of deficiency,
respondent disallowed petitioner’s claimed dependency exemption
deductions and related child tax credits for KM, BW, and DD.
However, at trial, respondent conceded that petitioner was
entitled to the dependency exemption deductions and related child
tax credits for KM and BW for the taxable years 2000, 2001, and
2002.
2
Respondent also adjusted petitioner’s miscellaneous
itemized deductions for 2002. The amount of deductions, with
respect to taxable year 2002, to which petitioner is entitled is
a computational matter, which will be decided based on the
Court’s resolution of the issues in this case.
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incorporated herein by this reference. Petitioner resided in
Hopkins, South Carolina, on the date the petition was filed in
this case.
In March of 1995, petitioner and Paula B. Lewis (Ms. Lewis)
were married. Ms. Lewis had a child, KM, from a previous
relationship. Petitioner and Ms. Lewis had two children during
their marriage, BL and JL. Petitioner and Ms. Lewis also had two
foster children, BW and DD, in their custody during the taxable
years in issue. DD is the only child at issue in the present
case. On June 3, 1999, the South Carolina Department of Social
Services issued to petitioner and Ms. Lewis a license to conduct
a foster family boarding home under the provisions of Act Number
334, Section 3, enacted March 10, 1986. DD was placed with
petitioner and Ms. Lewis by Growing Home, a branch of South
Carolina Social Services, from April 9, 2000, through October 1,
2001.
Petitioner and Ms. Lewis separated in taxable year 2000. At
that time, petitioner moved out of their house. At the time of
trial, petitioner and Ms. Lewis were still trying to reconcile,
but were not formally divorced.
Petitioner and Ms. Lewis purchased their house in 1999 using
their combined funds. The house was titled solely in Ms. Lewis’s
name. Ms. Lewis claimed a deduction for the home mortgage
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interest paid on her and petitioner’s house for taxable year 2002
of $6,458.
During the years in issue, Ms. Lewis was a self-employed
cosmetologist. Also, during the years in issue, petitioner was
employed as a truck driver by Wilson Trucking Corporation.
Petitioner received wage income from Wilson Trucking Corporation
for taxable years 2000, 2001, and 2002, of $40,816, $34,904, and
$41,035, respectively. Further, during the years in issue,
petitioner operated a hair cutting and beauty salon business
known as “Your Future Style”.
Sometime in 1997, Ms. Lewis started a business known as
“Kiddy Cuts and Styles”. During 1998, Ms. Lewis ceased business
operations of “Kiddy Cuts and Styles”. Shortly after Ms. Lewis
discontinued her existing business, in May 1998, petitioner
started his business named “Your Future Style” (the business).
Petitioner leased a commercial unit in Leesburg Plaza (commercial
space), which was located in Columbia, South Carolina.
Petitioner and Ms. Lewis’s names were both on the commercial
lease contract and the phone bills for the business. The utility
bills relating to the business were in the name of and addressed
to “Paula B. Adams[3] Doing Business As Kiddy Cuts & Style”.
3
The Court assumes that Paula B. Adams is Ms. Lewis’s maiden
name.
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Petitioner renovated the commercial space before opening his
salon. Petitioner’s commercial space consisted of three barber
chairs and six salon stations. Petitioner leased out the barber
chairs and salon stations to licensed barbers and cosmetologists.
The average lease rentals for the barber chairs and salon
stations were $60 and $100 per week, respectively. One of the
cosmetologists to whom petitioner leased a salon station was Ms.
Lewis.
Ms. Lewis filed Federal income tax returns for the taxable
years 2000, 2001, and 2002. Ms. Lewis attached a Schedule C,
Profit or Loss From Business, to each of her Forms 1040, U.S.
Individual Income Tax Return, for the taxable years 2000, 2001,
and 2002. On her Schedules C for these years Ms. Lewis reported:
(1) Her principal profession as a cosmetologist, (2) her business
name as “Your Future Style”, and (3) the commercial space as the
address of “Your Future Style”.
Petitioner received interest income during taxable years
2000 and 2001 from Wachovia Bank of $20 and $12, respectively.
Petitioner also received interest income during taxable years
2000 and 2001 from Fort Jackson Federal Credit Union of $93 and
$29, respectively. Petitioner did not report any of this
interest income on his 2000 and 2001 Federal income tax returns.
On his 2000 Federal income tax return, petitioner claimed
dependency exemption deductions for KM, BW, and DD and child tax
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credits for KM, BW, and DD, as the qualifying children. Also,
petitioner attached to his 2000 Federal income tax return a
Schedule C. On his Schedule C, for taxable year 2000, petitioner
reported $9,250 of business income from the business. Petitioner
deducted $20,387 in business expenses, which resulted in a
reported business loss of $11,137. Petitioner’s Schedule C
business expenses were as follows:
Line 15 Insurance (other than health) $600
Line 20a Rent or lease (Vehicles, machinery and equipment) $8,340
Line 21 Repairs and maintenance $1,850
Line 22 Supplies $990
Line 23 Taxes and licenses $415
Line 25 Utilities $4,200
Line 27 Other expenses $3,992
Total $20,387
Furthermore, petitioner attached a Schedule A, Itemized
Deductions, to his 2000 Federal income tax return. On his 2000
Schedule A, petitioner claimed as follows, in pertinent part:
Itemized Deductions Amount
Line 5 State and local income taxes $2,553
Line 6 Real estate taxes 901
Line 7 Personal property taxes 792
Line 9 Total taxes 4,246
Line 10 Home mortgage interest and points 7,134
Line 15 Gifts to charity by cash 3,300
or check (Church)
Line 16 Other than by cash or check 250
Line 18 Total contributions to charity 3,550
Line 20 Unreimbursed employee expenses 2,750
Uniforms and cleaning $2,500
Shoes 250
Line 21 Tax preparation fees 125
Line 23 Total limited misc. expenses 2,875
Line 26 Net limited misc. deduction 2,237
Line 28 Total itemized deductions 17,167
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As previously stated, petitioner did not report any interest
income on his 2000 Federal income tax return.
On his 2001 Federal income tax return petitioner claimed
dependency exemption deductions for KM, BW, and DD and child tax
credits for KM, BW, and DD, as the qualifying children. Also,
petitioner attached to his 2001 Federal income tax return a
Schedule C. On his Schedule C, for taxable year 2001, petitioner
reported $5,000 of business income from the business and deducted
$25,440 in business expenses, which resulted in a reported
business loss of $20,440.4 As previously stated, petitioner did
not report any interest income on his 2001 Federal income tax
return.
On his 2002 Federal income tax return petitioner claimed
dependency exemption deductions for KM, BW, and DD and child tax
credits for KM, BW, and DD, as the qualifying children. Also,
petitioner attached to his 2002 Federal income tax return a
Schedule C. On his Schedule C, for taxable year 2002, petitioner
reported $1,352 of business income from the business and deducted
$8,631 in business expenses, which resulted in a reported
business loss of $7,279.5 Furthermore, petitioner attached a
4
The record in this case did not contain an itemized list of
petitioner’s Schedule C business expenses for taxable years 2001
and 2002.
5
See supra note 4.
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Schedule A to his 2002 Federal income tax return. On his 2002
Schedule A, petitioner claimed as follows, in pertinent part:
Itemized Deductions Amount
Line 1 Medical and dental expenses $6,419
Line 4 Net medical deduction 3,887
Line 5 State and local income taxes 2,578
Line 9 Total taxes 2,578
Line 28 Total itemized deductions 6,465
In the notice of deficiency, with respect to taxable year
2000, respondent denied petitioner: (1) The claimed dependency
exemption deductions; (2) the claimed child tax credits; (3)
$6,904 of his claimed $20,387 business expense deductions; and
(4) $8,961 of his claimed $17,167 Schedule A itemized deductions.
Additionally, respondent determined that petitioner had
unreported interest income of $113 for taxable year 2000.
With respect to taxable year 2001, respondent denied
petitioner: (1) The claimed dependency exemption deductions; (2)
the claimed child tax credits; and (3) the entire amount of his
claimed $25,440 Schedule C business expense deductions.
Additionally, respondent determined that petitioner had
unreported interest income of $41 for taxable year 2001.
With respect to taxable year 2002, respondent denied
petitioner: (1) The claimed dependency exemption deductions; (2)
the claimed child tax credits; (3) the entire amount of
petitioner’s claimed $8,631 Schedule C business expense
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deductions; and (4) $640 of petitioner’s claimed $6,465 Schedule
A itemized deductions.6
Discussion
In general, the Commissioner’s determination set forth in a
notice of deficiency is presumed correct. Welch v. Helvering,
290 U.S. 111, 115 (1933). In pertinent part, Rule 142(a)(1)
provides the general rule that “The burden of proof shall be upon
the petitioner”. In certain circumstances, however, if the
taxpayer introduces credible evidence with respect to any factual
issue relevant to ascertaining the proper tax liability, section
7491 places the burden of proof on the Commissioner. Sec.
7491(a)(1); Rule 142(a)(2). Credible evidence is “‘the quality
of evidence which, after critical analysis, * * * [a] court would
find sufficient * * * to base a decision on the issue if no
contrary evidence were submitted’”.7 Baker v. Commissioner, 122
T.C. 143, 168 (2004) (quoting Higbee v. Commissioner, 116 T.C.
438, 442 (2001)). Section 7491(a)(1) applies only if the
taxpayer complies with substantiation requirements, maintains all
required records, and cooperates with the Commissioner for
witnesses, information, documents, meetings, and interviews.
6
See footnote 2.
7
We interpret the quoted language as requiring the
taxpayer’s evidence pertaining to any factual issue to be
evidence the Court would find sufficient upon which to base a
decision on the issue in favor of the taxpayer. See Bernardo v.
Commissioner, T.C. Memo. 2004-199.
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Sec. 7491(a)(2). Although neither party alleges the
applicability of section 7491(a), we conclude that the burden of
proof has not shifted to respondent with respect to any of the
issues in the present case.
Moreover, deductions are a matter of legislative grace and
are allowed only as specifically provided by statute. INDOPCO,
Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice
Co. v. Helvering, 292 U.S. 435, 440 (1934).
1. Deduction for Dependency Exemption
At issue are the dependency exemption deductions claimed by
petitioner for DD.
Section 151 allows deductions for exemptions for dependents
of the taxpayer. See sec. 151(c). Section 152(a) defines the
term “dependent” to mean a child of the taxpayer over half of
whose support for the year was received from the taxpayer.
Section 152(b)(2) provides that a foster child shall be treated
as a child of the taxpayer, if such child satisfies the
requirements of section 152(a)(9). That section requires that
the child be:
(9) An individual (other than an individual who at any
time during the taxable year was the spouse, determined
without regard to section 7703, of the taxpayer) who, for
the taxable year of the taxpayer, has as his principal place
of abode the home of the taxpayer and is a member of the
taxpayer’s household.
“[S]upport” includes “food, shelter, clothing, medical and
dental care, education, and the like.” Sec. 1.152-1(a)(2)(i),
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Income Tax Regs. In determining whether an individual received
more than one-half of his or her support from the taxpayer, there
shall be taken into account the amount of support received from
the taxpayer as compared to the entire amount of support which
the individual received from all sources. Id. In other words,
the support test requires the taxpayer to establish the total
support costs for the claimed individual and that the taxpayer
provided at least half of that amount. A taxpayer who cannot
establish the total amount of support costs for the claimed
individual generally may not claim that individual as a
dependent. Blanco v. Commissioner, 56 T.C. 512, 514-515 (1971);
Cotton v. Commissioner, T.C. Memo. 2000-333.
DD was placed in petitioner and Ms. Lewis’s home as a foster
child by the Department of Social Services of South Carolina on
April 9, 2000, and DD stayed in their home until October 1, 2001.
Petitioner and Ms. Lewis received approximately $900 per month
from Social Services toward the support of DD. Petitioner and
Ms. Lewis separated in 2000, and thereafter petitioner moved out
of the house.
Petitioner admitted that after he moved out of the house
still occupied by Ms. Lewis, his new residence did not constitute
the principal place of abode for DD for taxable years 2000, 2001,
and 2002. Additionally, petitioner did not testify that he
provided over half of DD’s support for the taxable years 2000,
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2001, and 2002. In fact, petitioner testified that the
Department of Social Services provided funding that completely
paid for all of DD’s support for the taxable years at issue in
the present case.
Upon the basis of the record before us, we find that
petitioner has not established that his home during taxable year
2000, 2001, and 2002 was the principal place of abode of DD.
Further, we find that petitioner has failed to establish the
total support costs for the claimed individual, DD, and that he
provided at least half of that amount. Respondent’s
determination on this issue is sustained.
2. Child Tax Credit
As previously stated, petitioner claimed a child tax credit
for taxable years 2000, 2001, and 2002 with DD as the qualifying
child. In the notice of deficiency, respondent disallowed the
child tax credit.
Section 24(a) authorizes a child tax credit with respect to
each “qualifying child” of the taxpayer. The term “qualifying
child” is defined in section 24(c). As relevant here, a
“qualifying child” means an individual with respect to whom the
taxpayer is allowed a deduction under section 151. Sec.
24(c)(1)(A).
We have already held that petitioner is not entitled to a
dependency exemption deduction under section 151 for DD.
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Accordingly, DD is not considered a “qualifying child” within the
meaning of section 24(c). It follows, therefore, that petitioner
is not entitled to a child tax credit under section 24(a) with
respect to DD.
3. Schedule C Expenses
A taxpayer generally may not deduct personal, living, and
family expenses. Sec. 262(a). However, section 162(a) allows a
taxpayer to deduct all ordinary and necessary business expenses
paid or incurred during the taxable year in carrying on any trade
or business. To be “necessary” an expense must be “appropriate
and helpful” to the taxpayer’s business. Welch v. Helvering, 290
U.S. at 113-114. To be “ordinary” the transaction which gives
rise to the expense must be of a common or frequent occurrence in
the type of business involved. Deputy v. Du Pont, 308 U.S. 488,
495 (1940).
Section 6001 and the regulations promulgated thereunder
require taxpayers to maintain records sufficient to permit
verification of income and expenses. As a general rule, if the
trial record provides sufficient evidence that the taxpayer has
incurred a deductible expense, but the taxpayer is unable to
adequately substantiate the precise amount of the deduction to
which he or she is otherwise entitled, the Court may estimate the
amount of the deductible expense, bearing heavily against the
taxpayer whose inexactitude in substantiating the amount of the
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expense is of his own making, and allow the deduction to that
extent. Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930).
However, in order for the Court to estimate the amount of an
expense, the Court must have some basis upon which an estimate
may be made. Vanicek v. Commissioner, 85 T.C. 731, 742-743
(1985). Without such basis, any allowance would amount to
unguided largesse. Williams v. United States, 245 F.2d 559, 560-
561 (5th Cir. 1957). With these well-established propositions in
mind, we must determine whether petitioner has satisfied his
burden of proving that he is entitled to the claimed Schedule C
expenses.
At trial, petitioner testified that most of his records
substantiating his claimed Schedule C business expenses were
destroyed due to a fire in his house. However, petitioner
offered into evidence documents which were not destroyed by the
alleged fire. These documents consisted of: (1) BellSouth phone
bills which were in the name of and addressed to “Paula & Conrad
Lewis Doing Business As Kiddy Cut & Style”, (2) utility bills
from SCE&G in the name of and addressed to “Paula B. Adams[8]
Doing Business As Kiddy Cuts & Style”, and (3) a letter from R.E.
Hendrix - Apartment Rentals, stating: “This is to confirm the
fact that Paula & Conrad Lewis rented from us unit N at Leesburg
8
See footnote 3.
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Plaza satisfactorily from May 1998 to July 2002. The rent was
$695.00 per month.”
The expenses evidenced by the above-mentioned phone bills
and utility bills appear, from the text of the bills, to be
incurred not for the business, “Your Future Style”, but for
“Kiddy Cuts and Styles”. The record is not entirely clear as to
the transition of business operations from “Kiddy Cuts and
Styles” to “Your Future Style”. However, we surmise the
following facts. It appears that out of convenience and for “bad
credit” reasons, petitioner transferred the utility and phone
accounts from “Kiddy Cuts and Styles” to his business. In doing
so, he did not change the name of the business on the utility and
phone account official records. Petitioner’s testimony and Ms.
Lewis’s Forms 1040 establish that “Kiddy Cuts and Styles” ceased
business operations in 1998 and that the charges shown on the
above-mentioned phone bills and utility bills were, in fact,
incurred in the operation of the business, “Your Future Style”.
At first glance, the business relationship between Ms. Lewis
and petitioner outwardly resembles a joint venture or a
partnership. Whether a valid partnership exists for Federal
income tax purposes is governed by Federal law. See Commissioner
v. Culbertson, 337 U.S. 733 (1949).
As pertinent here, a partnership for Federal income tax
purposes is defined in section 761(a) as “a * * * joint venture
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or other unincorporated organization through or by means of which
any business, * * * or venture is carried on, and which is not,
within the meaning of this * * * [subtitle], a corporation or a
trust or estate.” See also sec. 7701(a)(2).
A partnership is created “when persons join together their
money, goods, labor, or skill for the purpose of carrying on a
trade, profession, or business and when there is community of
interest in the profits and losses.” Commissioner v. Tower, 327
U.S. 280, 286 (1946).
Whether parties have formed a partnership is a question of
fact, and while all circumstances are to be considered, the
essential question is whether the parties intended to, and did in
fact, join together for the present conduct of an undertaking or
enterprise. Luna v. Commissioner, 42 T.C. 1067, 1077 (1964).
Petitioner stated that Ms. Lewis’s name was on the
commercial lease contract, the phone bills, and the utility bills
because he had “bad credit” and needed her creditworthiness to
enter into the lease and obtain phone and utility services.
Petitioner further testified that profits and expenses stemming
from the business were not split between himself and Ms. Lewis.
Ms. Lewis’s Federal income tax returns for taxable years 2000,
2001, and 2002, confirm that she did not report any of the income
generated by the business. Her Federal income tax returns for
the taxable years 2000, 2001, and 2002, report that her income
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was derived from her occupation as a cosmetologist/independent
contractor. We therefore conclude that petitioner was the sole
proprietor of the business, “Your Future Style”. Thus, he is
entitled to deduct all substantiated Schedule C expenses that
were incurred in the operation of the business.
A. Taxable Year 2000
As previously stated, on his Schedule C for taxable year
2000 petitioner reported $9,250 of business income from the
business. Additionally, petitioner deducted $20,387 in business
expenses, which resulted in a reported business loss of $11,137.
Respondent, in the notice of deficiency, disallowed $6,904
of petitioner’s claimed $20,387 business expense deductions for
taxable year 2000.
On the basis of the record in this case, for the taxable
year 2000 petitioner has substantiated, through the phone bills,
the utility bills, and his landlord’s letter, business expenses
in the following amounts:
1. Rent $8,340.00
2. BellSouth phone expenses $1,129.70
3. SCE&G utility expenses $1,728.21
Total $11,197.91
Petitioner has substantiated Schedule C business expenses for
taxable year 2000 of $11,198. As previously stated, respondent,
in the notice of deficiency, allowed petitioner $13,483 in
Schedule C business expenses. Thus, respondent has allowed a
larger amount than petitioner was able to substantiate at trial.
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Therefore, we sustain respondent’s determination as to the
taxable year 2000.
B. Taxable Year 2001
As previously stated, on his Schedule C for taxable year
2001 petitioner reported $5,000 of business income from the
business. Additionally, petitioner deducted $25,440 in business
expenses, which resulted in a reported business loss of $20,440.
Respondent, in the notice of deficiency, disallowed the entire
amount of petitioner’s claimed $25,440 Schedule C business
expense deductions for taxable year 2001.
On the basis of the record in this case, for the taxable
year 2001 petitioner has substantiated through the aforementioned
documents business expenses in the following amounts:
1. Rent $8,340.00
2. BellSouth phone expenses $1,483.96
3. SSE&G utility expenses $1,044.81
Total $10,868.77
Petitioner has substantiated Schedule C business expenses for
taxable year 2001 of $10,869. We conclude that petitioner is
entitled to deduct Schedule C business expenses for taxable year
2001 of $10,869.
C. Taxable Year 2002
As previously stated, on his Schedule C for taxable year
2002 petitioner reported $1,352 of business income from the
business. Additionally, petitioner deducted $8,631 in business
expenses, which resulted in a reported business loss of $7,279.
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Respondent, in the notice of deficiency, disallowed the
entire amount of petitioner’s claimed $8,631 Schedule C business
expense deductions for taxable year 2002.
On the basis of the record in this case, for the taxable
year 2002 petitioner substantiated through the aforementioned
documents the following amounts of business expenses:
1. Rent $4,865.00
2. BellSouth phone expenses $649.86
3. SCE&G utility expenses $502.82
Total $6,017.68
Petitioner has substantiated Schedule C business expenses for
taxable year 2002 of $6,018. We conclude that petitioner is
entitled to deduct Schedule C business expenses for taxable year
2002 of $6,018.
4. Miscellaneous Itemized Deductions
Petitioner attached a Schedule A to his 2000 Federal income
tax return.
In the notice of deficiency, respondent disallowed $8,961 of
petitioner’s claimed $17,167 Schedule A itemized deductions for
taxable year 2000. The amount of $8,961 disallowed by respondent
consists of: (1) Disallowed home mortgage interest expense of
$7,134; (2) disallowed “total contributions to charity” of $250;
and (3) disallowed “net limited miscellaneous itemized
deductions” of $1,577.
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A. Home Mortgage Interest
As stated above, respondent disallowed petitioner’s claimed
deduction of $7,134 for home mortgage interest paid during
taxable year 2000. Respondent contends that petitioner is not
entitled to any of the claimed deduction because the house was
purchased and encumbered by a mortgage in Ms. Lewis’s name and
titled in Ms. Lewis’s name. Petitioner testified that the house
was in Ms. Lewis’s name because of his bad credit history.
As pertinent here, section 163(a) and (h)(1) allows an
individual a deduction for all interest paid within the taxable
year on indebtedness, except for personal interest. Qualified
residence interest is excluded from the definition of personal
interest and thus is deductible under section 163(a). See sec.
163(h)(2)(D). Qualified residence interest is any interest which
is paid or accrued during the taxable year on acquisition
indebtedness or home equity indebtedness. See sec. 163(h)(3)(A).
Acquisition indebtedness is any indebtedness secured by the
qualified residence of the taxpayer or incurred in acquiring,
constructing, or substantially improving the qualified residence.
See sec. 163(h)(3)(B). The indebtedness generally must be an
obligation of the taxpayer and not an obligation of another. See
Golder v. Commissioner, 604 F.2d 34, 35 (9th Cir. 1979), affg.
T.C. Memo. 1976-150.
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As previously stated, at trial, petitioner testified that
the qualified residence was in Ms. Lewis’s name because of his
bad credit history. Petitioner presented no documentary evidence
such as the mortgage itself or canceled checks to prove that the
mortgage was his obligation or that he paid the mortgage interest
during taxable year 2000. Further, Ms. Lewis claimed a deduction
for the home mortgage interest paid on the subject property for
taxable year 2002 in the amount of $6,548. Since petitioner has
failed to provide any proof that the mortgage was his obligation
or that he made mortgage interest payments, we sustain
respondent’s disallowance of petitioner’s claimed deduction of
home mortgage interest.
B. Gifts to Charity
On petitioner’s Schedule A filed with his Federal income tax
return for taxable year 2000, he reported the following gifts to
charity:
Itemized Deductions Amount
Gifts by cash or check $3,300
Gifts other than by cash or check 250
Total gifts $3,550
Respondent determined that petitioner did not adequately
substantiate that “gifts other than by cash or check” were made.
Respondent further determined that, if such gifts were made,
petitioner did not adequately substantiate the fair market value
of the gifts. Accordingly, respondent allowed a deduction for
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charitable contributions for taxable year 2000 in the amount of
$3,300.
Deductions for charitable contributions are allowable only
if verified under regulations prescribed by the Secretary. Sec.
170(a). Section 1.170A-13, Income Tax Regs., in turn, sets forth
the types of substantiation necessary to support deductions for
charitable contributions.
For charitable contributions of property other than money,
taxpayers generally must maintain for each contribution a receipt
from the donee showing the following information: (1) The name
of the donee; (2) the date and location of the contribution; and
(3) a description of the property in detail reasonably sufficient
under the circumstances. Sec. 1.170A-13(b)(1), Income Tax Regs.
The amount of the contribution is the fair market value of the
property at the time of the contribution. Sec. 1.170A-1(c)(1),
Income Tax Regs.
Petitioner provided no documentation that would substantiate
that his claimed “gifts other than by cash or check” were made or
the fair market value of such alleged gifts. Furthermore,
petitioner did not give any testimony as to any specific
charitable gifts. On the basis of the record in this case, we
conclude that petitioner has not substantiated any charitable
gifts for taxable year 2000 other then those already allowed by
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respondent. Accordingly, respondent’s determination on this
issue is sustained.
C. Unreimbursed Employee Expenses
On petitioner’s Schedule A filed with his Federal income tax
return for taxable year 2000, petitioner deducted unreimbursed
employee expenses of $2,750 and tax preparation fees of $125.
Respondent determined that petitioner did not adequately
substantiate unreimbursed employee expenses above the amount of
$1,313. Accordingly, respondent allowed a deduction for “job
expenses and most other miscellaneous deductions” for taxable
year 2000 of $1,438.9
As previously stated, section 162(a) allows a deduction for
ordinary and necessary business expenses paid or incurred during
the taxable year in carrying on any trade or business. For an
expense to be “ordinary” the transaction that gives rise to the
expense must be of a common or frequent occurrence in the type of
business involved. Deputy v. du Pont, 308 U.S. at 495. To be
“necessary” an expense must be “appropriate and helpful” to the
taxpayer’s business. Welch v. Helvering, 290 U.S. at 113-114.
The performance of services as an employee constitutes a
trade or business. See sec. 1.162-17(a), Income Tax Regs. The
employee must show the relationship between the expenditures and
9
Respondent calculated this amount by adding the
substantiated claimed unreimbursed employee expenses of $1,313 to
the tax preparation fees allowed of $125.
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the employment. See Evans v. Commissioner, T.C. Memo. 1974-267,
affd. 557 F.2d 1095 (5th Cir. 1977). The taxpayer bears the
burden of substantiation. Hradesky v. Commissioner, 65 T.C. 87,
90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976).
Petitioner testified that the unreimbursed employee expenses
were paid in furtherance of his occupation as a truck driver.
Once again, petitioner provided no documentation that would
substantiate that he paid the claimed expenses or that the
alleged expenses were related to his employment as a truck
driver.
On the basis of the record in this case, we conclude that
petitioner has not substantiated any unreimbursed employee
expenses for taxable year 2000 in excess of the amount allowed by
respondent. Accordingly, respondent’s determination on this
issue is sustained.
5. Interest Income
Petitioner timely filed his Federal income tax returns for
taxable years 2000 and 2001 without reporting any interest
income. Respondent, in the notice of deficiency, determined that
petitioner received interest income of $113 and $41 for taxable
years 2000 and 2001, respectively.
The law is clear. Gross income includes all income from
whatever source derived. Sec. 61(a). Section 61(a)(4)
specifically includes income derived from interest.
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Respondent has established that petitioner received interest
income from: (1) Wachovia Bank of $20 and $12 for taxable years
2000 and 2001, respectively; and (2) Fort Jackson Federal Credit
Union of $93 and $29 for taxable years 2000 and 2001,
respectively.
Petitioner has failed to provide any documentation that
would contradict respondent’s determination. Furthermore,
petitioner has not specifically testified to not receiving the
above-mentioned interest income.
On the basis of the record in this case, we conclude that
petitioner has received interest income of $113 and $41 for
taxable years 2000 and 2001, respectively. Accordingly,
respondent’s determination on this issue is sustained.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
under Rule 155.