T.C. Memo. 2007-300
UNITED STATES TAX COURT
BENJAMIN O. & LINDA L. AGBANIYAKA, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8340-06. Filed October 2, 2007.
Benjamin O. Agbaniyaka and Linda L. Agbaniyaka, pro sese.
Theresa G. McQueeney, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
CHIECHI, Judge: Respondent determined the following defi-
ciencies in, and accuracy-related penalties under section
6662(a)1 on, petitioners’ Federal income tax (tax):
1
All section references are to the Internal Revenue Code
(Code) in effect for the years at issue. All Rule references are
to the Tax Court Rules of Practice and Procedure.
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Accuracy-Related Penalty
Year Deficiency Under Sec. 6662(a)
2001 $3,301 $660.20
2002 $3,727 $745.40
2003 $2,137 $427.40
2004 $1,600 $320.00
The issues remaining for decision are:
(1) Are petitioners entitled to deduct for each of their
taxable years 2002 through 2004 certain claimed unreimbursed
employee expenses? We hold that they are not.
(2) Are petitioners entitled for each of their taxable years
2001 through 2004 to a net loss shown in Schedule C, Profit or
Loss From Business, with respect to a claimed arts and crafts
business? We hold that they are not.
(3) Are petitioners entitled to deduct for their taxable
year 2003 certain claimed student loan interest? We hold that
they are not.
(4) Are petitioners liable for each of their taxable years
2001 through 2004 for the accuracy-related penalty under section
6662(a)? We hold that they are.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
At the time petitioners filed the petition in this case,
they resided in Valley Stream, New York.
During the years at issue, petitioner Benjamin O. Agbaniyaka
(Mr. Agbaniyaka), who holds a master’s degree in accounting with
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a concentration in taxation from Long Island University, was
employed full time by the Internal Revenue Service as a revenue
agent. At all relevant times, Mr. Agbaniyaka was familiar with
the requirements of section 6001.
During the years 2001 through 2003, the State of New York
correctional system employed petitioner Linda L. Agbaniyaka (Ms.
Agbaniyaka). In 2003, Ms. Agbaniyaka was diagnosed with a tumor
behind her right eye. During that year, Ms. Agbaniyaka stopped
working for the State of New York correctional system.
Petitioners began to report in Schedule C, Profit or Loss
From Business (Schedule C), for their taxable year 1988 income
and/or expenses with respect to certain activities relating to
African arts and crafts (claimed arts and crafts business). As
part of those activities, Mr. Agbaniyaka traveled to various
trade shows across the United States. In 1996, after Mr.
Agbaniyaka suffered a heart attack, his doctor advised him to
limit his traveling. Mr. Agbaniyaka followed his doctor’s advice
and ceased traveling long distances, including traveling to
various trade shows across the United States. In 2002, Mr.
Agbaniyaka was diagnosed with sleep apnea, which made it danger-
ous for him to drive. At all relevant times, Mr. Agbaniyaka also
limited his traveling in order to care for petitioners’ autistic
daughter.
During each of the years 2001 through 2004, Mr. Agbaniyaka
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maintained a checking account for his claimed arts and crafts
business (claimed business checking account), even though that
account had a zero balance. At least during each of the years
2001, 2002, and 2003, Mr. Agbaniyaka paid certain bank service
charges to maintain the claimed business checking account.
Petitioners timely filed Form 1040, U.S. Individual Income
Tax Return (return), for each of their taxable years 2001 (2001
return), 2002 (2002 return), 2003 (2003 return), and 2004 (2004
return). Petitioners included Schedule A-Itemized Deductions
(Schedule A) as part of the 2001 return (2001 Schedule A), the
2002 return (2002 Schedule A), the 2003 return (2003 Schedule A),
and the 2004 return (2004 Schedule A). Petitioners also included
Schedule C as part of the 2001 return (2001 Schedule C), the 2002
return (2002 Schedule C), the 2003 return (2003 Schedule C), and
the 2004 return (2004 Schedule C). In each such Schedule C,
petitioners showed the “Principal business or profession, includ-
ing product or service” as “AFRICAN ARTS & CRAFT”2 and the “Busi-
ness name” as “WAND AFRICA CONTEMPORARY IMPORTS”.
In the 2001 Schedule A, petitioners claimed under the
heading “Job Expenses and Most Other Miscellaneous Deductions”
$4,792 of “Unreimbursed employee expenses” (unreimbursed employee
expenses), which they identified in that schedule as “UNION DUES
2
In the 2002 Schedule C, petitioners showed the “Principal
business or profession, including product or service” as “AFRICAN
ARTS, CRAFTS”.
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JOURNALS DUES”. As required by section 67(a), petitioners
reduced those expenses by two percent of their adjusted gross
income (i.e., by $1,631). In determining the taxable income
reported in their 2001 return, petitioners deducted the balance
(i.e., $3,161), as well as the other itemized deductions claimed
in the 2001 Schedule A that were not subject to the two-percent
floor imposed by section 67(a).
In the 2002 Schedule A, petitioners claimed $2,300 of
unreimbursed employee expenses, which they identified in that
schedule as “EXPENSES”. As required by section 67(a), petition-
ers reduced those expenses by two percent of their adjusted gross
income (i.e., by $1,488). In determining the taxable income
reported in their 2002 return, petitioners deducted the balance
(i.e., $812), as well as the other itemized deductions claimed in
the 2002 Schedule A that were not subject to the two-percent
floor imposed by section 67(a).
In the 2003 Schedule A, petitioners claimed $2,300 of
unreimbursed employee expenses, which they identified in that
schedule as “UNION DUES ACCOUNTING JOU”. As required by section
67(a), petitioners reduced those expenses by two percent of their
adjusted gross income (i.e., by $1,716). In determining the
taxable income reported in their 2002 return, petitioners de-
ducted the balance (i.e., $584), as well as the other itemized
deductions claimed in the 2003 Schedule A that were not subject
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to the two-percent floor imposed by section 67(a).
In the 2004 Schedule A, petitioners claimed $2,300 of
unreimbursed employee expenses, which they identified in that
schedule as “UNION DUES, ACCOUNTING JOU”. As required by section
67(a), petitioners reduced those expenses by two percent of their
adjusted gross income (i.e., by $1,751). In determining the
taxable income reported in their 2002 return, petitioners de-
ducted the balance (i.e., $549), as well as the other itemized
deductions claimed in the 2004 Schedule A that were not subject
to the two-percent floor imposed by section 67(a).
In the 2001 Schedule C, petitioners made no entries in the
section entitled “Income”. In that schedule, petitioners claimed
total expenses of $5,661 consisting of $2,496 for “Depreciation
and section 179 expense deduction” with respect to a “RAM VAN”
(Dodge van), $1,125 for “Insurance”, and $2,040 for “Other
expenses”. Under “Other Expenses”, petitioners claimed $240 for
“BANK CHARGES”, $200 for “GASOLINE EXPENSES”, and $1,600 for
“REPAIR OIL TIRES REGIST”. In the 2001 Schedule C, petitioners
claimed a net loss of $5,661. In determining the taxable income
reported in their 2001 return, petitioners deducted that net
loss.
In the 2002 Schedule C, petitioners claimed gross receipts
or sales of $3,216, cost of goods sold of $15,500, and a negative
gross income of $12,284. In that schedule, petitioners also
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claimed total expenses of $2,948 consisting of $1,498 for “Depre-
ciation and section 179 expense deduction” with respect to the
Dodge van, $1,110 for “Insurance”, and $340 for “Other expenses”.
Under “Other Expenses”, petitioners claimed $240 for “BANK
CHARGES”, $50 for “GASOLINE”, and $50 for “INSPECTION & TUNE UP”.
In the 2002 Schedule C, petitioners claimed a net loss of
$15,232. In determining the taxable income reported in their
2002 return, petitioners deducted that net loss.
In the 2003 Schedule C, petitioners claimed gross receipts
or sales of $1,372, cost of goods sold of $6,686, and a negative
gross income of $5,314. In that schedule, petitioners also
claimed total expenses of $2,310 consisting of $898 for “Depreci-
ation and section 179 expense deduction” with respect to the
Dodge van, $980 for “Insurance”, and $432 for “Other expenses”.
Under “Other Expenses”, petitioners claimed $262 for “BANK
CHARGES”, $50 for “GASOLINE”, $50 for “INSPECTION & TUNE UP”, and
$70 for “REGISTRATION 140 TWO YRS”. In the 2003 Schedule C,
petitioners claimed a net loss of $7,624. In determining the
taxable income reported in their 2003 return, petitioners de-
ducted that net loss.
In the 2004 Schedule C, petitioners claimed gross receipts
or sales of $200, cost of goods sold of $3,570, and a negative
gross income of $3,370. In that schedule, petitioners also
claimed total expenses of $3,013 consisting of $898 for “Depreci-
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ation and section 179 expense deduction” with respect to the
Dodge van, $860 for “Insurance”, $1,100 for “Taxes and licenses”,
and $155 for “Other expenses”. Under “Other Expenses”, petition-
ers claimed $50 for “GASOLINE”, $35 for “INSPECTION”, and $70 for
“REGISTRATION”. In the 2004 Schedule C, petitioners claimed a
net loss of $6,383. In determining the taxable income reported
in their 2004 return, petitioners deducted that net loss.
In determining adjusted gross income for their taxable year
2003, petitioners claimed on page 1, line 26, of the 2003 return
a “Tuition and fees deduction” (tuition and fees deduction) of
$633.
On April 14, 2006, respondent issued to petitioners a notice
of deficiency (notice) with respect to their taxable years 2001
through 2004. In that notice, respondent, inter alia, disal-
lowed: (1) Petitioners’ respective unreimbursed employee ex-
penses of $4,792, $2,300, $2,300, and $2,300 claimed in the 2001
Schedule A, the 2002 Schedule A, the 2003 Schedule A, and the
2004 Schedule A; (2) $12,284 of the cost of goods sold claimed in
the 2002 Schedule C, $5,314 of the cost of goods sold claimed in
the 2003 Schedule C, and $3,370 of the cost of goods sold claimed
in the 2004 Schedule C;3 (3) petitioners’ respective Schedule C
3
Respondent allowed the cost of goods sold claimed in each
of the 2002 Schedule C, the 2003 Schedule C, and the 2004 Sched-
ule C to the extent that the claimed cost of goods sold equaled
the gross receipts or sales reported in each such Schedule C.
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expenses of $5,661, $2,938, $2,310, and $3,013 claimed in the
2001 Schedule C, the 2002 Schedule C,4 the 2003 Schedule C, and
the 2004 Schedule C; and (4) the tuition and fees deduction of
$633 claimed in the 2003 return. In the notice, respondent also
determined that petitioners are liable for each of their taxable
years 2001 through 2004 for the accuracy-related penalty under
section 6662(a).
OPINION
Petitioners bear the burden of proving error in the determi-
nations for each of their taxable years 2001 through 2004 that
remain at issue.5 See Rule 142(a); Welch v. Helvering, 290 U.S.
111, 115 (1933).
Before turning to the issues presented, we shall summarize
certain principles applicable to certain of those issues and
evaluate the evidence on which petitioners rely.
Certain Applicable Principles
Deductions are strictly a matter of legislative grace, and
petitioners bear the burden of proving entitlement to any deduc-
4
In disallowing petitioners’ expenses claimed in the 2002
Schedule C, respondent disallowed all of the expenses claimed in
that schedule except for $10 of petitioners’ claimed “Insurance”
expenses.
5
Petitioners do not claim that the burden of proof shifts to
respondent under sec. 7491(a). In any event, petitioners have
failed to establish that they satisfy the requirements of sec.
7491(a)(1) and (2). On the record before us, we find that the
burden of proof does not shift to respondent under sec. 7491(a).
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tion claimed. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84
(1992). A taxpayer is required to maintain records sufficient to
establish the amount of any deduction claimed. Sec. 6001; sec.
1.6001-1(a), Income Tax Regs.
Section 162(a) generally allows a deduction for ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on any trade or business.6 The determination of whether
an expenditure satisfies the requirements for deductibility under
section 162 is a question of fact. See Commissioner v.
Heininger, 320 U.S. 467, 475 (1943). In general, an expense is
ordinary if it is considered normal, usual, or customary in the
context of the particular business out of which it arose. See
Deputy v. du Pont, 308 U.S. 488, 495 (1940). Ordinarily, an
expense is necessary if it is appropriate and helpful to the
operation of the taxpayer’s trade or business. See Commissioner
v. Tellier, 383 U.S. 687, 689 (1966); Carbine v. Commissioner, 83
T.C. 356, 363 (1984), affd. 777 F.2d 662 (11th Cir. 1985).
For certain kinds of expenses otherwise deductible under
section 162(a), such as business expenses relating to “listed
6
If it is established that a taxpayer paid or incurred
ordinary and necessary expenses in carrying on a trade or busi-
ness and if sec. 274 does not apply to such expenses, we are
generally permitted to estimate the amount of deductible expenses
if we are convinced from the record that such expenses were paid
or incurred by the taxpayer and that we have a basis upon which
to make such an estimate. Cohan v. Commissioner, 39 F.2d 540,
544 (2d Cir. 1930).
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property”, as defined in section 280F(d)(4), a taxpayer must
satisfy substantiation requirements set forth in section 274(d)
before such expenses will be allowed as deductions. See sec.
1.274-5T(b)(6), Temporary Income Tax Regs., 50 Fed. Reg. 46016
(Nov. 6, 1985). “Listed property” is defined in section
280F(d)(4) to include passenger automobiles and other property
used as a means of transportation, unless excepted by section
280F(d)(4)(C) or (5)(B). See sec. 280F(d)(4)(A)(i) and (ii).
Evaluation of Evidence on Which Petitioners Rely
Petitioners rely on their own testimony in order to satisfy
their burden of proof in this case. We found Mr. Agbaniyaka’s
testimony to be general, vague, conclusory, uncorroborated, self-
serving, and/or questionable in certain material respects. We
found Ms. Agbaniyaka’s testimony to be general, conclusory, and
self-serving in all material respects.7 Under these circum-
stances, we are not required to, and we shall not, rely on Mr.
Agbaniyaka’s testimony and Ms. Agbaniyaka’s testimony to estab-
lish petitioners’ position with respect to any of the issues
presented in this case. See Lerch v. Commissioner, 877 F.2d 624,
631-632 (7th Cir. 1989), affg. T.C. Memo. 1987-295; Geiger v.
Commissioner, 440 F.2d 688, 689-690 (9th Cir. 1971), affg. per
curiam T.C. Memo. 1969-159; Shea v. Commissioner, 112 T.C. 183,
7
The only testimony that Ms. Agbaniyaka gave in support of
petitioners’ position on the issues presented was that her
husband’s testimony is correct.
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189 (1999).
Claimed Unreimbursed Employee Expenses
It is petitioners’ position that, prior to the application
of the two-percent floor imposed by section 67(a), they are
entitled for each of their taxable years 2002 through 2004 to
deduct the $2,300 of unreimbursed employee expenses that they
claimed in each of the 2002 Schedule A, the 2003 Schedule A, and
the 2004 Schedule A.8 According to petitioners, they paid that
amount during each of those years for certain unidentified
educational expenses of Mr. Agbaniyaka (claimed educational
expenses)9 and for certain unidentified union dues of Mr.
Agbaniyaka and Ms. Agbaniyaka.
We turn first to petitioners’ claimed educational expenses.
Petitioners contend that during each of the years 2002 through
2004 Mr. Agbaniyaka attended a course on trusts and estates and
certain other unidentified courses and that he paid certain
unidentified expenses relating to those courses. According to
8
Respondent does not dispute Schedule A unreimbursed em-
ployee expenses that petitioners are claiming for their taxable
year 2001.
9
Although petitioners contend that the claimed educational
expenses are for professional books, accounting journals, and
transportation to and from certain schools, on the record before
us, we find that petitioners have failed to carry their burden of
establishing the names of those claimed professional books and
accounting journals, the mode of transportation that petitioners
contend Mr. Agbaniyaka used to travel to and from certain
schools, and the respective amounts of those unidentified ex-
penses.
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petitioners, they are entitled for each of their taxable years
2002 through 2004 to a deduction under section 162(a) for those
claimed expenses as unreimbursed employee expenses.
Expenses that a taxpayer incurs “in obtaining an education
or in furthering his education are not deductible unless they
qualify under section 162 and § 1.162-5.” Sec. 1.262-1(b)(9),
Income Tax Regs. Section 1.162-5(a), Income Tax Regs., provides
that expenses relating to education are deductible as ordinary
and necessary business expenses if that education
(1) Maintains or improves skills required by the
individual in his employment or other trade or busi-
ness, or
(2) Meets the express requirements of the individ-
ual’s employer * * * imposed as a condition to the
retention by the individual of an established employ-
ment relationship, status, or rate of compensation.
The question whether education maintains or improves skills
required by the individual in his employment is one of fact.
Boser v. Commissioner, 77 T.C. 1124, 1131 (1981). The taxpayer
must show that there was a direct and proximate relationship
between the education and the skills required in the taxpayer’s
employment. Kornhauser v. United States, 276 U.S. 145, 153
(1928); Schwartz v. Commissioner, 69 T.C. 877, 889 (1978).
On the record before us, we find that petitioners have
failed to carry their burden of establishing for each of their
taxable years 2002 through 2004 (1) the nature of each of the
claimed educational expenses, (2) the amount of each of those
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expenses, (3) that Mr. Agbaniyaka paid or incurred each of the
claimed educational expenses, and (4) that the courses that
petitioners contend Mr. Agbaniyaka took maintained or improved
the skills required in his employment as a revenue agent or that
the Internal Revenue Service expressly required Mr. Agbaniyaka to
attend any such courses.
On the record before us, we find that petitioners have
failed to carry their burden of establishing that they are
entitled for each of their taxable years 2002 through 2004 to the
deduction under section 162(a) that they claim for Mr.
Agbaniyaka’s educational expenses.10
We next consider petitioners’ claimed union dues. On the
record before us, we find that petitioners have failed to carry
their burden of establishing for each of their taxable years 2002
through 2004 (1) that they were members of a union, (2) that they
paid the claimed union dues, and (3) the amounts of any such
dues.
10
The record does not establish the mode of transportation
that Mr. Agbaniyaka contends he used to travel to and from
certain schools. Assuming arguendo that petitioners had estab-
lished for each of their taxable years 2002 through 2004 the
deductibility under sec. 162(a) of the claimed educational
expenses and that the mode of transportation that Mr. Agbaniyaka
used to attend certain courses was listed property within the
meaning of sec. 280F(d)(4), petitioners would still have to
satisfy the requirements of sec. 274(d) with respect to any
claimed transportation expenses. On the record before us, we
find that they have not done so. See sec. 274(d)(4); sec. 1.274-
5T(b)(6), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6,
1985).
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On the record before us, we find that petitioners have
failed to carry their burden of establishing that they are
entitled for each of their taxable years 2002 through 2004 to the
deduction under section 162(a) that they claim for union dues.
Based upon our examination of the entire record before us,
we find that petitioners have failed to carry their burden of
establishing that they are entitled for each of their taxable
years 2002 through 2004 to the deduction under section 162(a)
that they claim for unreimbursed employee expenses.
Claimed Schedule C Net Loss
It is petitioners’ position that they are entitled for each
of their taxable years 2001 through 2004 to the Schedule C net
loss that they claimed for each such year. In support of that
position, petitioners argue that they are entitled to (1) cost of
goods sold of $12,284, $5,314, and $3,370 in excess of the
amounts of cost of goods sold allowed by respondent for petition-
ers’ respective taxable years 2002 through 2004;11 (2) deprecia-
tion of $2,496, $1,498, $898, and $898 claimed for the Dodge van
for petitioners’ respective taxable years 2001 through 2004;
(3) auto insurance premiums of $942, $942,12 $917, and $860
claimed for petitioners’ respective taxable years 2001 through
11
See supra note 3.
12
In the 2002 Schedule C, petitioners claimed insurance
expenses totaling $1,110. See supra note 4.
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2004; (4) other expenses relating to the Dodge van of $1,800,
$100, $170, and $155 claimed for petitioners’ respective taxable
years 2001 through 2004; (5) bank service charges of $240, $240,
and $262 for petitioners’ respective taxable years 2001 through
2003 and an unidentified amount of bank service charges for their
taxable year 2004; (6) $183, $158,13 and $63 of the total premi-
ums for their homeowner’s insurance policy for petitioners’
respective taxable years 2001 through 2003; and (7) delinquent
New York state sales tax of $1,100 claimed for petitioners’
taxable year 2004.
In order for a taxpayer to be carrying on a trade or busi-
ness within the meaning of section 162(a), the taxpayer must be
involved in the activity with continuity and regularity. Commis-
sioner v. Groetzinger, 480 U.S. 23, 35 (1987). A sporadic
activity will not qualify as carrying on a trade or business for
purposes of section 162(a). Id. In addition, the taxpayer’s
primary purpose for carrying on the activity must be for income
or profit. Id.
On the record before us, we find that petitioners have
failed to carry their burden of establishing that during each of
the years at issue Mr. Agbaniyaka was involved in his claimed
arts and crafts business with continuity and regularity and that
the primary purpose for the activities that he undertook with
13
See supra note 12.
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respect to that claimed business was for profit. On that record,
we find that petitioners have failed to carry their burden of
establishing that during each of the years at issue Mr.
Agbaniyaka was carrying on an arts and crafts business within the
meaning of section 162(a).
Based upon our examination of the entire record before us,
we find that petitioners have failed to carry their burden of
establishing that they are entitled for each of their taxable
years 2001 through 2004 to the Schedule C net loss that they
claim for each such year.14
14
Assuming arguendo that petitioners had carried their
burden of establishing that during each of the years at issue Mr.
Agbaniyaka was carrying on an arts and crafts business, they
would still have to satisfy other applicable requirements in
order to carry their burden of establishing their entitlement to
the Schedule C net loss claimed for each such year. With respect
to the cost of goods sold that petitioners claim for each of
their taxable years 2002 through 2004, on the record before us,
we find that petitioners have failed to carry their burden of
establishing the manner by which they derived the cost of goods
sold claimed, the propriety of that manner, and the propriety of
the amount that they claim. With respect to the depreciation
deduction that petitioners claim for the Dodge van for each of
their taxable years 2001 through 2004, on the record before us,
we find that petitioners have failed to carry their burden of
establishing the propriety of the depreciation deduction claimed
for each such year. See, e.g., sec. 167(c) (Basis for Deprecia-
tion). With respect to the expenses that petitioners claim for
each of their taxable years 2001 through 2004 relating to the
Dodge van (e.g., gasoline, repair, oil), which is listed property
within the meaning of sec. 280F(d)(4)(A)(i), on the record before
us, we find that petitioners have failed to carry their burden,
inter alia, of establishing all of the elements that they must
prove in order to satisfy the requirements under sec. 274(d).
See sec. 274(d)(4); sec. 1.274-5T(b)(6), Temporary Income Tax
Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). With respect to the
(continued...)
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Claimed Student Loan Interest
It is petitioners’ position that they are entitled to deduct
student loan interest of $633 in determining adjusted gross
income for their taxable year 2003. On brief, petitioners argue:
Taxpayers contend that the $633.00 deduction which
they claimed [as a tuition and fees deduction15] in
2003 on line 26 of their 1040 income tax return is in
fact interest paid on student loans. The deduction was
inadvertently entered on the wrong line and should have
been deducted on line 25 of the tax. As interest paid
on student loans, the item is an allowable deduction
and should not be disallowed.
14
(...continued)
portion of the premium for their homeowner’s insurance policy
that they claim as a deduction for each of their taxable years
2001 through 2003, on the record before us, we find that peti-
tioners have failed to carry their burden of establishing that
they paid or incurred such premium, the manner by which they
determined the claimed deductible portion of such premium, and
the propriety of claiming a portion of such premium under sec.
162. With respect to the delinquent New York state sales tax
that petitioners claim as a deduction for their taxable year
2004, on the record before us, we find that petitioners have
failed to carry their burden of establishing the amount of such
tax, that Mr. Agbaniyaka paid such tax, and the propriety of
claiming such tax under sec. 162.
15
Mr. Agbaniyaka incorrectly testified that “he did not take
a tuition deduction” in petitioners’ 2003 return. Petitioners
claimed a tuition and fees deduction in the 2003 return and did
not claim a student loan interest deduction in that return. With
respect to the tuition and fees deduction that petitioners
claimed in the 2003 return, respondent states on brief: “Peti-
tioners paid the tuition and fee deduction amount of $633 for tax
year 2003. Based on the Court’s determination, a recomputation
of the tuition and fees deduction for tax year 2003 will be
required.” It appears that the “Tuition and Fees Deduction
Worksheet” for petitioners’ taxable year 2003 that is included in
the notice contains an error in that it does not list any “quali-
fied tuition and fees * * * paid in 2003.” The Court expects
respondent to correct any such error in the computation under
Rule 155.
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Based upon our examination of the entire record before us,
we find that petitioners have failed to carry their burden of
establishing that they are entitled to deduct student loan
interest of $633 in determining adjusted gross income for their
taxable year 2003.
Accuracy-Related Penalty
It is respondent’s position that petitioners are liable for
each of their taxable years 2001 through 2004 for an accuracy-
related penalty under section 6662(a) because of negligence or
disregard of rules or regulations under section 6662(b)(1).
The term “negligence” in section 6662(b)(1) includes any
failure to make a reasonable attempt to comply with the Code.
Sec. 6662(c). Negligence has also been defined as a failure to
do what a reasonable person would do under the circumstances.
See Leuhsler v. Commissioner, 963 F.2d 907, 910 (6th Cir. 1992),
affg. T.C. Memo. 1991-179; Antonides v. Commissioner, 91 T.C.
686, 699 (1988), affd. 893 F.2d 656 (4th Cir. 1990). The term
“disregard” includes any careless, reckless, or intentional
disregard. Sec. 6662(c).
Failure to keep adequate records is evidence not only of
negligence, but also of intentional disregard of regulations.
See sec. 1.6662-3(b)(1) and (2), Income Tax Regs.; see also
Magnon v. Commissioner, 73 T.C. 980, 1008 (1980).
The accuracy-related penalty under section 6662(a) does not
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apply to any portion of an underpayment if it is shown that there
was reasonable cause for, and that the taxpayer acted in good
faith with respect to, such portion. Sec. 6664(c)(1). The
determination of whether the taxpayer acted with reasonable cause
and in good faith depends on the pertinent facts and circum-
stances, including the taxpayer’s efforts to assess such tax-
payer’s proper tax liability, the knowledge and experience of the
taxpayer, and the reliance on the advice of a professional, such
as an accountant. Sec. 1.6664-4(b)(1), Income Tax Regs.
Respondent has the burden of production under section
7491(c) with respect to the accuracy-related penalty under
section 6662. To meet that burden, respondent must come forward
with sufficient evidence indicating that it is appropriate to
impose that penalty. Higbee v. Commissioner, 116 T.C. 438, 446
(2001). Although respondent bears the burden of production with
respect to the accuracy-related penalty that respondent deter-
mined for each of petitioners’ taxable years 2001 through 2004,
respondent “need not introduce evidence regarding reasonable
cause * * * or similar provisions. * * * the taxpayer bears the
burden of proof with regard to those issues.” Id.
With respect to the accuracy-related penalty under section
6662(a) that respondent determined for each of petitioners’
taxable years 2001 through 2004, Mr. Agbaniyaka testified that
petitioners maintained documents to support the amounts at issue.
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The record in this case does not contain any of the records that
Mr. Agbaniyaka testified he maintained.16 On the instant record,
we find that petitioners did not maintain the records required by
section 6001 and section 1.6001-1(a), Income Tax Regs. On that
record, we further find that the burden of production that
respondent has under section 7491(c) is satisfied. See sec.
1.6662-3(b)(1) and (2), Income Tax Regs.
In support of their position that they are not liable for
each of the years at issue for the accuracy-related penalty,
petitioners make the following argument on brief:
Taxpayers relied upon the knowledge gained by
Benjamin as an IRS Revenue Agent. Respondent charac-
terizes him as an expert when arguing that he acted
negligently in failing to follow the tax code and
regulations. Similarly, he should be accorded the
benefit of this expertise in claiming deductions which
are proper and allowable under the Internal Revenue
Code and based on the IRS policy and procedures and
that Benjamin is familiar with.
On the record before us, we reject petitioners’ argument.
During the years at issue, Mr. Agbaniyaka was a trained revenue
agent and was fully aware of the requirements imposed by section
6001. Nonetheless, petitioners failed to maintain sufficient
records for each of their taxable years 2001 through 2004 to
16
The only documentation that petitioners introduced into
the record are copies of two American Express Business Gold Card
bills that showed a purchase on June 8, 2002, from “IMPORTS OF
AFRICA” of $1,200 and a purchase on June 25, 2002, from “IMPORTS
OF AFRICA” of $750. Respondent concedes that Mr. Agbaniyaka made
those purchases in 2002.
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establish their position with respect to any of the issues
presented.
On the record before us, we find that petitioners have
failed to carry their burden of showing that they were not
negligent and did not disregard rules or regulations, or other-
wise did what a reasonable person would do, with respect to the
underpayment for each of the years at issue.
On that record, we further find that petitioners have
failed to carry their burden of showing that there was reasonable
cause for, and that they acted in good faith with respect to, the
underpayment for each of the years at issue.
Based upon our examination of the entire record before us,
we find that petitioners have failed to carry their burden of
establishing that they are not liable for each of the tax years
at issue for the accuracy-related penalty under section 6662(a).
We have considered all of petitioners’ contentions and
arguments that are not discussed herein, and we find them to be
without merit, irrelevant, and/or moot.
To reflect the foregoing and the concessions of respondent,
Decision will be entered under
Rule 155.