T.C. Memo. 2007-84
UNITED STATES TAX COURT
SUZANNE Z. ATAKY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21337-05. Filed April 9, 2007.
Suzanne Z. Ataky, pro se.
Michelle L. Maniscalco, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
SWIFT, Judge: Respondent determined a $2,629 deficiency in
petitioner’s 2003 Federal income tax.
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
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The issues for decision are whether petitioner is entitled
to ordinary deductions for (1) a $3,050 casualty loss, (2) a
$2,060 business bad debt, (3) a $2,940 business travel expense,
(4) a $3,850 business contract labor expense, and (5) $2,186 more
in depreciation than respondent allowed.1
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
At the time the petition was filed, petitioner resided in
New York, New York.
Petitioner works full time as a respiratory therapist.
In 2002, petitioner’s car was stolen and recovered. As a
result of the theft, petitioner’s car was damaged. The
individual who stole petitioner’s car was not apprehended, and
petitioner’s car insurance policy did not cover the theft damage
to petitioner’s car.
In 2003, petitioner was involved in a minor 2-car accident,
and again petitioner’s car was damaged. Petitioner did not
request from the driver of the other car payment for the damage
to petitioner’s car, and petitioner did not repair the damage to
her car. Petitioner did not obtain an estimate of the fair
market value of her car before and after the accident.
1
The $2,186 in disputed depreciation also includes a sec.
179 expense deduction.
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In 2003 and prior years, petitioner’s friend, Sege
Yassievich (Sege), purchased from an Internet domain registrar
numerous Internet domain names. The trial record does not
explain why Sege purchased the Internet domain names or
petitioner’s involvement in Sege’s purchase thereof.
Sege prepared and petitioner timely filed petitioner’s 2003
individual Federal income tax return on which petitioner
described her business as “Internet Publishing” and on which
petitioner claimed, among other things, ordinary deductions for a
$3,050 casualty loss on the theft of a “notebook” and a “digital
camera”, a $2,060 business bad debt, $2,940 in business travel,
$3,850 in contract labor, and $3,699 in depreciation. Also on
her 2003 Federal income tax return, petitioner claimed to have
placed in service in 2003 a $2,100 “PC” and $5,640 in other
assets.
On audit, with the exception of $1,513 of the $3,699 claimed
depreciation expense, respondent disallowed all of the above
deductions claimed by petitioner on her 2003 Federal income tax
return.
The schedule below summarizes the disputed deductions
claimed by petitioner on her 2003 Federal income tax return and
the deductions allowed by respondent:
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Claimed by Allowed by
Expense Deduction Petitioner Respondent
Casualty Loss $3,050 -0-
Business Bad Debt 2,060 -0-
Business Travel 2,940 -0-
Contract Labor 3,850 -0-
Depreciation 3,699 $1,513
OPINION
Taxpayers are expected to keep adequate books and records
to substantiate tax deductions claimed. Sec. 6001; sec. 1.6001-
1(a), (e), Income Tax Regs. Petitioner, however, has not
maintained appropriate records to substantiate the deductions at
issue, and the burden of proof as to the deductions remains on
petitioner. Rule 142(a); sec. 7491(a)(1) and (2).
A taxpayer may be entitled to a deduction for casualty
losses in an amount equal to the lesser of the decline in the
fair market value of the property caused by the casualty or the
taxpayer’s adjusted basis in the property. Sec. 165(a); sec.
1.165-7(b), Income Tax Regs.
In calculating a casualty loss, a property’s fair market
value generally must be ascertained by competent appraisal. Sec.
1.165-7(a)(2)(i), Income Tax Regs. Alternatively, the amount of
a casualty loss may be established by reasonable repair costs
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paid to restore property to its precasualty condition. Sec.
1.165-7(a)(2)(ii), Income Tax Regs.
Generally, a casualty loss may be deducted in the year in
which the loss occurs. Sec. 1.165-7(a)(1), Income Tax Regs. A
reasonable prospect for reimbursement of a loss (e.g., by
insurance or lawsuit) will prevent a casualty loss from being
deductible until the year in which the reasonable prospect for
reimbursement no longer exists. Sec. 1.165-1(d)(2), Income Tax
Regs.
Petitioner no longer claims that she is entitled to a $3,050
casualty loss deduction for thefts of a notebook and a digital
camera, as claimed on her 2003 Federal income tax return.
Rather, petitioner now argues that the $3,050 claimed casualty
loss deduction is allowable based on theft damage that occurred
to her car in 2002 and accident damage that occurred to her car
in 2003.
Without a showing that petitioner in 2002 had a reasonable
prospect for reimbursement of the costs of repairing the car
theft damage (deferring any casualty loss deduction relating
thereto until at least 2003) and that petitioner in 2003 had no
such prospect, a casualty loss deduction relating to theft damage
to petitioner’s car is not available to petitioner in 2003.
As to the accident damage to petitioner’s car, because
petitioner did not repair her car and did not obtain an estimate
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or appraisal of its preaccident and postaccident fair market
value, we are unable to calculate or even to estimate the amount
of a casualty loss deduction allowable to petitioner. A repair
estimate that was produced by petitioner did not indicate the
expertise of the individual making the estimate, is addressed to
an individual other than petitioner, lists a license plate number
for the car different from the license plate number listed in the
police accident report, and is dated 6 months after the accident.
We disallow as unsubstantiated petitioner’s 2003 claimed
$3,050 casualty loss deduction relating to a 2002 car theft and a
2003 car accident.
Petitioner now argues that the $2,060 claimed bad debt
deduction relates to airline tickets that she purchased in 2003
for a contractor as compensation for the contractor’s future
services. Petitioner argues that the contractor did not perform
the services, that the contractor refused to refund to petitioner
the cost of the airline tickets, and that as a result petitioner
in 2003 realized a $2,060 bad debt.
Because petitioner, among other things, did not produce
credible evidence that she purchased airline tickets for a
contractor, petitioner has failed to substantiate the claimed bad
debt deduction.
We disallow as unsubstantiated petitioner’s $2,060 claimed
bad debt deduction.
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Petitioner asserts that in 2003 petitioner and Sege took a
business trip to Russia and incurred $2,940 in airfare and
lodging expense.
Petitioner did not substantiate the travel expense with
credible evidence. Vague documentation of travel expense
produced at trial did not relate to a business trip to Russia
and/or lacked completeness.
We disallow as unsubstantiated petitioner’s $2,940 claimed
business travel deduction.
To substantiate a $3,850 payment to a contractor, petitioner
produced a canceled check. The check, however, lists a payee
different from the alleged contractor and was written for an
amount different from the claimed deduction. The discrepancies
between the check and the $3,850 claimed deduction have not been
explained.
We disallow as unsubstantiated petitioner’s $3,850 claimed
business expense deduction.
Petitioner argues that in 2003 she purchased and placed in
service $7,740 of business assets on which she is entitled to
$3,699 in depreciation. To substantiate her 2003 purchase of
$7,740 in business assets, petitioner offers a printout of a June
11, 2006, online transaction report which lists Sege, not
petitioner, as the purchaser. Petitioner has not produced
credible evidence that she purchased the assets in question.
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We disallow as unsubstantiated the $2,186 in depreciation
disallowed by respondent.
Primarily for lack of substantiation, among other reasons,
for 2003 petitioner is not entitled to deductions beyond those
allowed by respondent.
To reflect the foregoing,
Decision will be entered
for respondent.