T.C. Summary Opinion 2007-143
UNITED STATES TAX COURT
SHARON T. MYRICK, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8611-06S. Filed August 15, 2007.
Sharon T. Myrick, pro se.
Ronald S. Collins, Jr., for respondent.
RUWE, Judge: This case was heard pursuant to the provisions
of section 74631 of the Internal Revenue Code in effect when 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.
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code 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 tax of $4,246 and $135 and accuracy-related penalties
under section 6662(a) of $849.20 and $27 for 2002 and 2004,
respectively. Respondent concedes both the deficiency and the
section 6662 accuracy-related penalty for 2004.
After concessions by petitioner,2 the issues for decision
are: (1) Whether petitioner is entitled to deduct $15,686 for
business expenses claimed on her Schedule C, Profit or Loss From
Business, for 2002; and (2) whether petitioner is liable for an
accuracy-related penalty pursuant to section 6662 for 2002.3
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated by this reference. When the petition was filed,
petitioner resided in Philadelphia, Pennsylvania.
Petitioner was an IRS employee in 2002 and had received
training in tax law in the early 1990s. Petitioner claims that
she also operated an event-planning business in 2002. Petitioner
reported $400 of gross receipts attributable to the alleged
2
Petitioner concedes she is not entitled to deduct $4,746
for medical expenses before the 7.5-percent adjusted gross income
limitation or $2,216 for charitable contributions claimed on her
Schedule A, Itemized Deductions, for 2002.
3
Respondent adjusted petitioner’s retirement savings
credit, education credit, and earned income credit in 2002 as a
result of the change in petitioner’s adjusted gross income.
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event-planning business on her 2002 Schedule C. Respondent
disallowed the deductions that petitioner claimed on her 2002
Schedule C, as follows:
Expense Amount
Utilities $1,242
Supplies 1,321
Repairs and maintenance 1,838
Rent or lease of 847
vehicles, machinery, or
equipment
Office expenses 130
Legal and professional 1,250
services
Depreciation and sec. 179 2,950
expense
Car and truck expenses 5,679
Advertising 429
Total 15,686
Discussion
A. Schedule C Business Expenses
Deductions are a matter of legislative grace, and taxpayers
bear the burden of proving that they are entitled to any
deductions claimed. Rule 142(a); INDOPCO, Inc. v. Commissioner,
503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292
U.S. 435, 440 (1934). Taxpayers are required to maintain
sufficient records to enable the Commissioner to determine their
correct tax liability. Sec. 6001.
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Section 162 generally allows a deduction for all ordinary
and necessary expenses paid or incurred during the taxable year
in carrying on a trade or business. Such expenses must be
directly connected with or pertain to the taxpayer’s trade or
business. Sec. 1.162-1(a), Income Tax Regs. Whether a
taxpayer’s activities constitute the carrying on of a trade or
business is a question of fact requiring an examination of the
particular facts and circumstances of each case. Commissioner v.
Groetzinger, 480 U.S. 23, 36 (1987). We decide whether
petitioner has established that she engaged in a trade or
business in 2002 on a preponderance of the evidence.
In order to establish that he or she was engaged in a trade
or business, the taxpayer must be continuously and regularly
involved in the activity for the primary purpose of making a
profit. Id. at 35. “While the focus of the test for whether a
taxpayer engaged in an activity with the intention of making a
profit is on the subjective intention of the taxpayer, greater
weight is given to the objective facts than is given to the
taxpayer’s mere statement of his intent.” Wesley v.
Commissioner, T.C. Memo. 2007-78; see also sec. 1.183-2(a),
Income Tax Regs.
Petitioner claims that she was engaged in an event-planning
business in 2002. Petitioner provided some documents in an
attempt to demonstrate that she operated a business and to
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substantiate some of the expenses claimed on her 2002 Schedule C.
These documents included an alleged customer list, a receipt for
a purchased laptop computer, a canceled check for prepaid legal
services, receipts for supplies totaling $21.38, a canceled check
for postage, invoices for the alleged rental of a postage
machine, and phone bills.4
Altogether, petitioner’s documentation fell woefully short
of demonstrating that she was involved in a trade or business and
represented only a fraction of the expenses petitioner attempted
to deduct on her return. Petitioner testified that she had more
records when she prepared her 2002 return than the records she
provided to respondent or the Court, but that they had been lost
or removed from her computer files. Petitioner also stated that
the only business she did in 2002 relating to event planning was
a Crab Feast Safety Tour, for which she provided documentation
indicating that the tour had been canceled, and that she could
not get any more bookings that year.
Evidence of one canceled event, along with a sampling of
receipts, canceled checks, and invoices, is insufficient to show
that petitioner was continuously and regularly involved in the
trade or business of event planning for the primary purpose of
4
Petitioner testified that she kept receipts, but that her
son had thrown away many of her receipts by mistake when she
replaced some flooring in her house where the records were kept.
Petitioner also testified that she kept a notebook in which she
recorded expenses, but that she had thrown it away by mistake.
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making a profit. Considering the foregoing, we find that
petitioner was not involved in an event-planning trade or
business in 2002. Petitioner’s evidence also failed to show that
any of her expenditures were related to income-producing
activity. Accordingly, respondent’s disallowance of petitioner’s
2002 Schedule C deductions is sustained.
B. Section 6662 Accuracy-Related Penalty
With respect to the accuracy-related penalty under section
6662(a), the Commissioner has the burden of production. Sec.
7491(c). To prevail, the Commissioner must produce sufficient
evidence that it is appropriate to apply the penalty to the
taxpayer. Higbee v. Commissioner, 116 T.C. 438, 446 (2001).
Once the Commissioner meets his burden of production, the
taxpayer bears the burden of supplying sufficient evidence to
persuade the Court that the Commissioner’s determination is
incorrect. Id. at 447.
Section 6662(a) provides an accuracy-related penalty equal
to 20 percent of the underpayment required to be shown on a
return due to negligence or disregard of rules or regulations.
Sec. 6662(b)(1). For purposes of section 6662, the term
“negligence” includes “any failure to make a reasonable attempt
to comply with the provisions of * * * [the Code], and the term
‘disregard’ includes any careless, reckless, or intentional
disregard.” Sec. 6662(c). “Negligence” also includes any
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failure by a taxpayer to keep adequate books and records or to
substantiate items properly. Sec. 1.6662-3(b), Income Tax Regs.
An accuracy-related penalty is not imposed with respect to
any portion of the underpayment as to which the taxpayer acted
with reasonable cause and in good faith. Sec. 6664(c)(1); see
Higbee v. Commissioner, supra at 448. This determination is
based on all the relevant facts and circumstances. Higbee v.
Commissioner, supra at 448; sec. 1.6664-4(b)(1), Income Tax Regs.
“Relevant factors include the taxpayer’s efforts to assess his
proper tax liability, including the taxpayer’s reasonable and
good faith reliance on the advice of a professional such as an
accountant.” Higbee v. Commissioner, supra at 448-449.
Petitioner has failed to keep or produce adequate records.
Respondent has provided sufficient evidence to meet his burden of
production. Although petitioner had a background in tax law, she
failed to show that she kept proper records to establish her
entitlement to her claimed deductions. Petitioner has failed to
show she acted with reasonable care or in good faith and has not
produced reliable evidence to prove that respondent’s
determination of negligence is incorrect. We hold that
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petitioner is liable for the accuracy-related penalty under
section 6662 for 2002.
To reflect the foregoing,
Decision will be entered
under Rule 155.