T.C. Summary Opinion 2006-166
UNITED STATES TAX COURT
STEVEN BRUCE HUNTLEY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 16676-03S. Filed October 16, 2006.
Steven Bruce Huntley, pro se.
Kathleen Raup, 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 year at issue.
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Respondent determined a deficiency of $5,259 in petitioner’s
2000 Federal income tax, and additions to tax of $232.87 and
$119.02 pursuant to section 6651(a)(1) and (2), respectively.
After concessions1, there are three issues for decision: (1)
Whether petitioner is entitled to a deduction stemming from a
brokerage account he held with Kristian Capital Management, Inc.;
(2) whether petitioner is entitled to a deduction stemming from
his employment with Howard Systems, Inc.; and (3) whether
petitioner is liable for an addition to tax pursuant to section
6651(a)(1).
Background
The evidence in this case consists of oral stipulations
agreed upon at trial and documented evidence received at trial.2
The stipulation of facts and the attached exhibits are
incorporated herein by reference.
At the time the petition was filed, petitioner resided in
Upper Darby, Pennsylvania.
1
Respondent has conceded the issue as to addition to tax
pursuant to sec. 6651(a)(2).
2
Respondent contacted petitioner no less than nine times
between March 1, 2004, and November 1, 2005, each time requesting
that petitioner stipulate the facts of the case. When no
stipulation of facts was agreed upon by the date of the trial,
the Court took oral stipulations from the parties and received
into evidence documentation that detailed the parties’
agreements.
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During the taxable year 2000, petitioner received wages,
unemployment compensation, and a distribution from an individual
retirement account (IRA) totaling $34,025. Petitioner does not
contest that he received these amounts or that they are
includable in his gross income. However, at trial, petitioner
raised the issue of his entitlement to two loss deductions.
On October 8, 2000, petitioner filed articles of
incorporation with the secretary of the Commonwealth of
Pennsylvania for Huntley Quality Assurance, Inc. (HQA). In
September 2000, HQA entered into a general Contractor agreement
with Howard Systems International, Inc. (Howard Systems, Inc.),
for petitioner to provide software support services at Wyeth-
Aryst Pharmaceutical from September 25, 2000, through March 25,
2001. Petitioner worked at Wyeth-Aryst Pharmaceutical from
September 24 through October 8, 2001, for a total of 59.5 hours
at $80 an hour.
Petitioner did not timely file his 2000 Federal income tax
return. Respondent prepared a substitute return calculating
petitioner’s tax liability for 2000. Respondent issued a notice
of deficiency based upon amounts reported as paid to him by
payors, using the filing status of married filing separately. In
his calculation, respondent allowed the standard deduction of
$3,675 and a personal exemption allowance of $2,800.
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As of the date of trial, petitioner had not filed his 2000
Federal income tax return. A trial occurred on November 5, 2005.
Discussion
The Commissioner’s determinations are presumed correct, and
taxpayers generally bear the burden of proving otherwise. Welch
v. Helvering, 290 U.S. 111, 115 (1933). Section 7491(a),
however, places the burden of proof on the Commissioner with
respect to certain factual issues. Specifically, section
7491(a)(1) provides that if, in any court proceeding, the
taxpayer introduces credible evidence with respect to factual
issues relevant to ascertaining the taxpayer’s liability, the
burden of proof with respect to such factual issues will be
placed on the Commissioner. However, the taxpayer must comply
with the substantiation and record-keeping requirements of the
Internal Revenue Code. See sec. 7491(a)(2)(A) and (B). For
reasons discussed herein, we hold that petitioner did not meet
the requirements of section 7491(a)(2).
With respect to the addition to tax under section
6651(a)(1), the Commissioner bears the burden of production;
i.e., evidence that it is appropriate to apply the addition to
tax. Sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446-447
(2001). If the Commissioner meets the burden of production, the
taxpayer bears the burden of establishing that his failure to
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file and pay is due to reasonable cause and not willful neglect.
Higbee v. Commissioner, supra at 447. For reasons discussed
herein, we hold that respondent has met his burden of production
with respect to the section 6651(a)(1) addition to tax.
Characterization of Purported Losses
Petitioner argues that he is entitled to itemized deductions
for a loss sustained as a result of embezzlement of a brokerage
account he held with Kristian Capital Management and a loss
stemming from the termination of his employment at Wyeth-Aryst
Pharmaceutical.
Kristian Capital Management Brokerage Account
Section 165(g)(1) provides that a loss resulting from a
capital asset that becomes worthless during the taxable year
shall be treated as a loss from the sale or exchange of that
asset as of the last day of the taxable year. Petitioner claimed
that he sustained such a loss from the “embezzlement” of a
brokerage account he held with Kristian Capital Management.
To substantiate his claim, petitioner offered three
documents into evidence: A partial copy of a letter sent to him
from First American Discount Corporation, and two copies of Web
pages. The first letter showed that petitioner held a brokerage
account with Kristian Capital Management through the First
American Discount Corporation. The second document, a copy of a
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Web page, revealed that the First American Discount Corporation
had withdrawn as a member of the Chicago Board of Trade. The
third document, also a copy of a Web page, indicated that
Kristian Capital Management either withdrew or had rescinded its
membership in the National Futures Association, an independent,
regulatory organization for the futures industry. Petitioner
provided no evidence, however, of his basis in the Kristian
Capital Management account, that embezzlement of his funds
occurred, or of the amount of his purported loss. Therefore, we
cannot conclude that a loss occurred. Accordingly, we hold that
petitioner is not entitled to a loss deduction attributable to
his brokerage account with Kristian Capital Management.
Employment With Wyeth-Aryst Pharmaceutical
Petitioner testified that he was dismissed from his
consulting job at Wyeth-Aryst Pharmaceutical because he was
“ethically opposed” to the work assigned to him, and that company
officials barred him from reentering his office to retrieve his
personal effects.
Section 165(a) provides a theft loss deduction in the
taxable year in which the taxpayer discovers the loss. The basis
for determining the amount of the deduction for any loss is the
lesser of the fair market value or the adjusted basis of the
property prescribed by section 1011. Secs. 1.165-7(b)(1), 1.165-
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8(c), Income Tax Regs. The amount of the loss deduction is
limited to the extent the loss exceeds $100 and the net casualty
loss exceeds 10 percent of the taxpayer’s adjusted gross income.
See sec. 165(h).
In calculating petitioner’s tax liability for 2000,
respondent did not allow petitioner a loss deduction for personal
effects he claimed that he was prohibited from retrieving.
Respondent argues that petitioner is not entitled to a theft loss
deduction under section 165(a) because he did not substantiate
either his basis in the property or that the property was
involuntarily converted.
Petitioner testified that the items at issue included a used
laptop computer, some antique fountain pens, and a framed
photograph of his wife. Petitioner further testified that to
compensate him for the loss of these items, Howard Systems, Inc.
drew up a “consultant invoice” for 16.5 hours of work at the rate
of $80/hour. Howard Systems, Inc. then issued a check to
petitioner for $1,320. Petitioner argues that he is entitled to
deduct this amount because it was actually a theft reimbursement.
First, petitioner provided no credible evidence that he was
barred from the Wyeth-Pharmaceutical premises, nor did he
substantiate his basis in the property allegedly taken from him
as a result of his termination. Petitioner did not provide any
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receipt for his laptop computer, although he testified that it
was a recent purchase. He did not produce any receipts or
documentation regarding the value of the antique pens, although
he testified he was very familiar with these types of pens from
having restored them.
Second, Howard Systems, Inc., prepared an invoice for 16.5
hours of work and attached to the invoice a timesheet reporting 8
hours worked on Monday, October 1, 2000, and 8.5 hours worked on
Tuesday, October 2, 2000. While we believe petitioner’s
testimony that the signature on the timesheet is likely not his,
it does not change our finding that this invoice is not proof of
either the fair market value of or his basis in the articles
purportedly taken from him.
Finally, the record contains a copy of a canceled check for
$1,320 that cleared the Howard Systems, Inc., account on October
20, 2000. We find it highly unlikely that Howard Systems, Inc.,
would pay petitioner for items that were allegedly converted from
him less than 1 month earlier and that could have easily been
retrieved from Wyeth-Pharmaceutical and sent to him. We are even
more incredulous that Howard Systems, Inc. would reimburse
petitioner without his having proved to them the value of or his
basis in the items. Certainly if petitioner had provided such
evidence to Howard Systems, Inc., he could have provided the same
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information to the Court. He did not. For all of the foregoing
reasons, we conclude that petitioner is not entitled to a
deduction in the amount of $1,320 for a theft loss.3
Section 6651(a)(1) Addition to Tax
As of the time of trial, petitioner had not filed his 2000
Federal income tax return. Petitioner testified that he gave his
2000 return to a U.S. Postal Service employee at the 30th Street
Post Office Station in Philadelphia, Pennsylvania, on the evening
of April 15, 2001. Respondent’s records, however, indicate that
petitioner requested an extension to file until August 15, 2001,
and to date, petitioner has not filed his return.
On the instant record, we find that petitioner has failed to
satisfy his burden of proving that his failure to file timely his
return for 2000 was due to reasonable cause and not willful
neglect. Sec. 6651(a). Accordingly, we sustain respondent's
determination imposing the addition to tax under section
6651(a)(1) for taxable year 2000.
3
Even if we did allow the petitioner a theft loss
deduction of $1,320, petitioner’s standard deduction for 2000
would be greater than the loss allowed. Accordingly, it is of no
tax consequence to petitioner that we sustain respondent on this
issue.
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Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent as to the
amount of the deficiency
and the section 6651(a)(1)
addition to tax.