T.C. Summary Opinion 2007-80
UNITED STATES TAX COURT
DUYET MINH NGUYEN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4073-06S. Filed May 23, 2007.
Duyet Minh Nguyen, pro se.
Nhi T. Luu, for respondent.
GERBER, 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. Pursuant to section
7463(b),1 the decision to be entered is not reviewable by any
1
All section references are to the Internal Revenue Code in
effect during the period at issue, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
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other court, and this opinion shall not be treated as precedent
for any other case.
On November 28, 2005, respondent mailed a notice of
deficiency to petitioner determining a $10,086 deficiency in
petitioner’s 2002 Federal income tax. Respondent also determined
additions to tax under section 6651(a)(1) and (2) and under
section 6654(a) in the amounts of $2,203.20, $1,468.80, and
$326.11, respectively. The deficiency determined by respondent
was attributable to the determination that petitioner failed to
file a return and/or report income from the categories of wages,
interest, dividends, pension, miscellaneous income in the amount
of $11,015 and self-employment income in the amount of $30,811.
Petitioner has agreed to the $30,811.00 of self-employment income
and $3,371.38 of wages determined by respondent but contends that
he is entitled to deductions and exemptions that were not allowed
or determined by respondent.
The parties’ stipulated facts and exhibits are found and
incorporated by this reference. Petitioner, Duyet Minh Nguyen,
resided in Portland, Oregon, at the time his petition was filed
in this case. During 2002 petitioner was married, and he engaged
in real estate sales as an independent contractor for Oregon
First, Inc. (Oregon First), a mortgage lender in Beaverton,
Oregon. Petitioner was licensed to sell real estate in Oregon.
During 2002, petitioner earned self-employment income in the
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amount of $30,811.50, comprising real estate sales commissions in
connection with his association with Oregon First. Under an
expense reimbursement agreement with Oregon First, $17.51 of
office expenses was deducted from the real estate commissions
that petitioner received from Oregon First during 2002 so that he
received net commissions of $30,793.99.
During 2002, petitioner was also employed as a loan officer
by Columbia Resources, Inc. (Columbia), of Warrenton, Oregon.
Petitioner received $3,371.382 in wages from Columbia for the
2002 taxable year, from which $294.00 of income tax was withheld.
Petitioner did not make estimated tax payments for the 2002
tax year, and he failed to file a Federal income tax return for
that year. Respondent prepared a substitute return for
petitioner’s 2002 tax year under section 6020(b).
Respondent concedes that petitioner incurred ordinary and
necessary business expenses for the taxable year 2002 for member
fees and real estate listing fees in the amounts of $300 and
$420, respectively. In reaching his determination of
petitioner’s 2002 income tax deficiency, respondent allowed a
personal exemption and a standard deduction in the amounts of
$3,000 and $3,925, respectively. During 2002, petitioner resided
with his wife and two children. There remains for our
2
Petitioner also had real estate rental income and
deductions, but this adjustment was not pursued and is considered
conceded by respondent.
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consideration additional Schedule C, Profit or Loss From
Business, expenses claimed by petitioner in connection with his
self-employment income involving the sale of real estate.
We are convinced from the record of this case that
petitioner incurred expenses in the conduct of his real estate
business in excess of the amount allowed by respondent. In such
circumstances, even though petitioner has not fully satisfied the
substantiation requirements, there is a basis on which to
estimate the expenses incurred. See Cohan v. Commissioner, 39
F.2d 540 (2d Cir. 1930).
During the year 2002, petitioner incurred expenses operating
an automobile in the conduct of his real estate business.
Petitioner had sufficient records for us to find that he operated
his automobile at least 100 miles per week, or 5,200 miles for
the year, in the pursuit of his real estate business. For the
taxable year 2002, taxpayers, who were entitled to claim use of
an automobile for business purposes, could use the standard
allowance of 36 cents per mile in lieu of claiming depreciation
and operating expenses. Accordingly, petitioner is entitled to
deduct $1,872 as a Schedule C business expense for 2002.
During the year 2002 petitioner maintained a room in his
home as his office, which represented one-seventh of his
residence. Petitioner’s brother also slept in that same room,
which contained a bed, computer, and related office equipment.
Petitioner seeks to deduct one-seventh of the cost of maintaining
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his home as a home office expense. Such deductions are governed
by section 280A which generally disallows such deductions, unless
petitioner’s situation falls within one of the following three
exceptions: (1) A portion of the dwelling unit is used
exclusively on a regular basis as the taxpayer’s principal place
of business; (2) a portion of the dwelling unit is used
exclusively on a regular basis as a place of business which is
used by patients, clients, or customers in meeting or dealing
with the taxpayer in the normal course of his trade or business;
or (3) the office is a separate structure not attached to the
dwelling unit and that structure is used in connection with the
taxpayer’s trade or business. The record is clear that
petitioner’s home office was not in a structure separate from his
residence. Accordingly, petitioner must establish either that
his home office was used exclusively as his principal place of
business or as a location for petitioner to meet with clients in
the normal course of his business.
Petitioner admitted that his brother used the “office room”
for purposes of sleeping. Even though such use is tangential and
does not, as a practical matter, detract from the use of the room
as an office, the statutory language requires that the usage be
exclusive. Petitioner also stated that he used the offices of
Oregon First to meet real estate clients. Under these
circumstances we are compelled by the statute to deny
petitioner’s claim for a home office expense deduction. See
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generally Frankel v. Commissioner, 82 T.C. 318 (1984)
Petitioner used his cell phone in the conduct of his real
estate business during the taxable year 2002. During 2002,
petitioner paid $53 per month for his cell phone service. He is,
therefore, entitled to a $636 deduction as a Schedule C business
expense for 2002. Petitioner also sought to deduct 70 percent of
the cost of his home telephone as being for business use.
Petitioner’s home phone is not deductible. See sec. 262(b).
During 2002 petitioner paid $199 for education and/or
educational materials in connection with his real estate business
activity. We find and hold that petitioner is entitled to a $199
educational deduction as a Schedule C business expense for 2002.
During 2002 petitioner incurred expenses for advertising in
newspapers and periodicals in order to attract customers for his
real estate business. He incurred $230 quarterly to place his
advertisement in a local periodical and he ran eight
advertisements in a local newspaper at a cost of $25.00 each, and
he had one additional advertisement that cost $8.09. We,
accordingly, hold that petitioner is entitled to a Schedule C
business deduction in the amount of $1,128.09 for advertising
during 2002.
Petitioner owned a computer that cost $1,048, and he used it
in his real estate business during 2002. Petitioner is entitled
to a $209 depreciation business deduction for his 2002 tax year.
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Petitioner also claimed dependency deductions for his two
children, but he was unable to show that he paid over one-half of
their support for the 2002 year or that he was otherwise entitled
to claim them as his dependents. Finally, petitioner claimed
meals and entertainment expenses, but he was unable to identify
the names of the clients and other essential information required
for the allowance of a deduction under section 274(d).
Although petitioner may have incurred additional expenses in
the conduct of his real estate business, the record is
insufficient to enable the Court to allow any deductions beyond
those we have decided.
Respondent determined that petitioner was liable for
additions to tax under section 6651(a)(1) and (2), and section
6654(a). Section 6651(a) provides for an addition to tax of 5
percent per month, up to 25 percent, for failure to file that is
not due to reasonable cause. Petitioner has not shown reasonable
cause for failing to file a return. See Bebb v. Commissioner, 36
T.C. 170, 173 (1961). Petitioner’s reason for not filing or
paying the tax was that he could not afford to pay. Section
6654(a) imposes an addition to tax for failure to pay estimated
tax. That addition to tax is mandatory, unless a taxpayer falls
within one of the exceptions in section 6654(e). Petitioner has
not shown that his situation falls within those exceptions.
With respect to the additions to tax, respondent bears a
burden of production. See sec. 7491(c). The record in this
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case, including petitioner’s admission that he did not file,
satisfies respondent’s burden as to the additions to tax under
the statute. Upon petitioner’s failure to file a return,
respondent caused a “Substitute for a Return” to be prepared
under section 6020(b). Accordingly, petitioner is liable for
additions to tax under section 6651(a)(1) and (2), and section
6654(a).
To reflect the foregoing,
Decision will be entered
under Rule 155.