T.C. Summary Opinion 2007-113
UNITED STATES TAX COURT
MICHAEL J. ROVELL, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 18728-05S. Filed July 2, 2007.
Michael J. Rovell, pro se.
Julie A. Jebe, 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. Pursuant to section
7463(b), the decision to be entered is not reviewable by any
other court, and this opinion shall not be treated as precedent
for any other case. Unless otherwise indicated, subsequent
section references are to the Internal Revenue Code in effect for
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the year in issue, and all Rule references are to the Tax Court
Rules of Practice and Procedure.
Respondent determined a deficiency in petitioner’s Federal
income tax for the year 2001 in the amount of $22,502.42. The
issues for decision are whether petitioner is entitled to a
deduction for State and local taxes paid in the year in issue,
and whether petitioner is entitled to deductions for other
miscellaneous business expenses and tax preparation fees in 2001.
Background
The stipulation of facts and the attached exhibits are
incorporated herein by reference. At the time the petition was
filed, petitioner resided in Chicago, Illinois.
Petitioner is a criminal defense attorney based out of
Chicago, Illinois, with clients in several States. Petitioner
filed his Federal income tax return for 2001 listing the
following deductions on Schedule A, Itemized Deductions:
State and local income taxes $19,400
Gifts by cash or check 250
Tax preparation fees 12,721
Other miscellaneous deductions
(books, seminar expenses, dues) 5,750
Other business expenses
(entertainment & promotion) 4,600
On July 7, 2005, respondent mailed petitioner a notice of
deficiency, disallowing all of the deductions listed on
petitioner’s Schedule A, with the exception of the deduction
claimed of $250 in Gifts by Cash or Check.
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Part of the exhibits received into evidence is photocopies
of four canceled checks, each in the amount of $2,000, all
drafted on an account labeled, “The Law Offices of Michael J.
Rovell, Chtd. - Office Account #1”, and all made payable to the
Illinois Department of Revenue. The Court also received at trial
two letters sent to petitioner by his attorney, Michael Moss (Mr.
Moss), for legal services rendered between May 10 and December
31, 2001.
At the conclusion of the trial, the Court ordered that the
record in this case be held open so that petitioner could submit
additional documents substantiating the other miscellaneous and
business expense deductions listed on the Schedule A. In
response to this order, petitioner submitted photocopies of three
canceled checks in the amounts of $7,000, $4,000, and $1,600, all
drafted on an account labeled, The Law Offices of Michael J.
Rovell, Chtd. - Office Account #1, and all made payable to
Michael Moss. These checks were dated 2/20/01, 6/26/01, and
7/13/01. These three checks were the only documents petitioner
submitted to the Court before the record was closed on August 23,
2006.
Discussion
The determinations of the Commissioner in a notice of
deficiency are presumed correct, and the burden is on the
taxpayer to prove that the determinations are in error. Rule
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142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Section
7491 shifts the burden of proof to the Commissioner if the
taxpayer introduces credible evidence with respect to any factual
issue relevant to ascertaining a tax liability, provided the
taxpayer has maintained books and records, and has cooperated
with reasonable requests by the Commissioner for witnesses,
information, documents, meetings, and interviews. Based on our
review of the entire record in this case, we are convinced that
the burden has not shifted to respondent on any issue before the
Court.
Taxpayers are permitted deductions only as a matter of
legislative grace, and 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). In
addition, section 6001 places upon the taxpayer the requirement
to maintain records sufficient to sustain the veracity of
taxpayer’s income and expenses.
After taking into account petitioner’s concession,1 our
decision rests on whether petitioner has presented the Court with
evidence sufficient to support the deductions disallowed by
respondent for the year in issue.
1
At trial, petitioner conceded that of the $19,400
deduction for State and local taxes at issue in this case, $7,400
of that amount was actually for Federal taxes, leaving only
$12,000 of the original amount in dispute at issue.
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First, as to the issue of State and local taxes paid, we are
persuaded from our review of the entire record before us that the
$8,000 in canceled checks submitted at trial was paid to the
State of Illinois for personal taxes owed by petitioner and not
for those owed by his business. We find petitioner’s testimony
credible that these checks were for State and local income taxes
personally owed to the State of Illinois. We are further
convinced by the check registry submitted at trial that the
checks at issue were, in fact, paid for personal State income
taxes owed. We believe petitioner’s testimony that his law
practice was not operating as a corporation during the year in
issue and that these checks were not paid for any State or local
taxes on its behalf. Finally, we note that the State and local
tax deduction at issue was claimed only on petitioner’s Schedule
A and not his Schedule C, Profit or Loss From Business, where
taxes paid for his business would be deducted. Accordingly, we
hold that petitioner is entitled to an itemized deduction in the
amount of $8,000 for State and local taxes paid in 2001.
With respect to petitioner’s deduction for tax preparation
fees, at trial, petitioner explained that these expenses were
primarily for legal services. Although petitioner did submit two
letters from Mr. Moss listing the nature of the services provided
to petitioner, it is unclear, both from the letters and from
petitioner’s testimony what portion of these services was
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rendered with respect to petitioner’s income tax issues and
petitioner’s personal life (i.e., divorce proceeding). Moreover,
Mr. Moss’s letters are likewise ambiguous as to what portion of
the legal services at issue was rendered strictly for
petitioner’s income tax problems. Therefore, because it is
impossible to determine the nature of these legal services, and
due to petitioner’s failure to provide additional information
with respect to the nature of these services after the Court
ordered the record to be held open for that purpose, we sustain
respondent with respect to the disallowance of petitioner’s
deduction for tax preparation fees.
Third, and with respect to the deduction taken for
petitioner’s other miscellaneous business expenses for
entertaining clients and promoting his legal practice, petitioner
failed to provide the Court with any documentation or, for that
matter, credible testimony as to the nature and type of these
expenses. Section 274(a) provides that no deduction will be
allowed for items considered entertainment unless the taxpayer
establishes that the item was related to the active conduct of
the taxpayer’s trade or business. Sec. 274(a)(1). Moreover,
section 274(d)(2) requires that the taxpayer substantiate
entertainment expenses by showing adequate records or providing
sufficient evidence corroborating the taxpayer’s own statement.
In this case, petitioner’s testimony that he maintains a national
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law practice courting high-profile clients who need to be “wined
and dined” is insufficient evidence to substantiate the amount he
claims. Accordingly, we sustain respondent’s disallowance of
petitioner’s other miscellaneous deductions.
Finally, with regard to the disallowance of other expenses
for books, fees, seminars, and dues in the amount of $5,700,
petitioner has failed to offer any evidence with regard to these
expenses; therefore, we sustain respondent’s total disallowance.
Based on the foregoing,
Decision will be entered
under Rule 155.