T.C. Summary Opinion 2008-45
UNITED STATES TAX COURT
DOROTHY E. WOODARD, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13006-06S. Filed April 29, 2008.
Dorothy E. Woodard, pro se.
Carrie L. Kleinjan, for respondent.
CHABOT, Judge: This case was heard pursuant to section
7463.1 The decision to be entered is not reviewable by any other
court, and this opinion shall not be treated as a precedent for
any other case. Sec. 7463(b).
1
Unless indicated otherwise, all section references are to
sections of the Internal Revenue Code of 1986 as in effect for
the year in issue, except as to sec. 7463, which is as in effect
for proceedings commenced on the date the petition in the instant
case was filed.
- 2 -
Respondent determined a deficiency in Federal individual
income tax and an accuracy-related penalty under section 66622
against petitioner for 2003 in the respective amounts of $12,470
and $2,494.
The issues for decision are:
(1) Whether petitioner is entitled to any
deduction for--
(a) Medical and dental expenses;
(b) employee business expenses; and
(c) charitable contributions;
and, if so, then in what amounts; and
(2) whether petitioner is liable for an accuracy-
related penalty and, if so, then in what amount.
Background
The stipulations and the stipulated exhibits are
incorporated herein by this reference.
When the petition in the instant case was filed, petitioner
resided in Pennsylvania.
During 2003 petitioner worked as a registered nurse for 11
different health care providers--3 in Philadelphia, Pennsylvania,
2 in Sparks, Maryland, and 1 in each of the following
2
At trial respondent’s counsel clarified that the penalty
is for substantial understatement of income tax and not for
negligence or any other category to which sec. 6662 applies.
- 3 -
Pennsylvania cities--Plymouth Meeting, Lafayette Hill, Wyndmoor,
Bensalem, Darby, and Chalfont. In 2003 petitioner resided in
Lansdowne, Pennsylvania.
Petitioner was paid (and reported) an aggregate of $79,089
as wages and salaries for her services as a registered nurse,3
from which Federal income tax of $4,393 was withheld.
Petitioner’s 2003 adjusted gross income was $79,424,
consisting of $79,089 of wages and salary, $15 of interest, and a
$320 State and local income tax refund.
Table 1 shows the amounts petitioner claimed on the Schedule
A, Itemized Deductions, attached to her 2003 Form 1040, U.S.
Individual Income Tax Return.
Table 1
Medical and dental expenses $26,400
Less: 7.5-percent floor 5,957
Deduction $20,443
State and local income taxes 4,152
Charitable contributions
(cash or check) 17,000
Unreimbursed employee expenses $18,500
3
All but $7,500 of this aggregate was reported on Forms W-
2, Wage and Tax Statement. The remaining $7,500 was reported on
a Form 1099-MISC, Miscellaneous Income, and was designated
thereon as “Nonemployee compensation”. Petitioner included this
$7,500 in the amount she reported as “Wages, salaries, tips,
etc.”. She did not report this as business income, she did not
claim “above-the-line” deductions, and she did not show a self-
employment tax liability on her tax return. Respondent neither
determined nor asserted that petitioner had a self-employment tax
liability in addition to her ch. 1 tax liability. Both sides
appear to treat this $7,500 as income from petitioner’s
registered nurse services as an employee; we do so also, without
further exploration.
- 4 -
Less: 2-percent floor 1,588
Deduction 16,912
Total itemized deductions 58,507
Respondent disallowed the entire $58,507 of claimed itemized
deductions, and instead allowed the $4,750 standard deduction.4
Petitioner has not kept receipts relevant to her taxes since she
started working in 1965.
In 2003 petitioner paid medical and dental expenses. Her
2003 medical and dental expenses that were not compensated for by
insurance or otherwise did not exceed $5,957.
In 2003 petitioner paid expenses in connection with her
trade or business as an employee performing services as a
registered nurse. See supra note 3. Her 2003 employee business
expenses did not exceed $1,588.
In 2003 petitioner made charitable contributions. Her 2003
charitable contributions did not exceed $598. See supra note 4.
Petitioner’s 2003 tax return did not adequately disclose the
relevant facts affecting the tax treatment of any of the
disallowed deductions. Petitioner did not have reasonable cause
for the positions she took on her 2003 tax return.
4
Because the standard deduction of $4,750 exceeds
petitioner’s claimed $4,152 deduction for State and local income
taxes, respondent disallowed all of petitioner’s itemized
deductions and allowed the standard deduction. However,
respondent does not dispute the $4,152 deduction, which would be
taken into account if we were to conclude that more than $598 of
the disputed deductions (after any appropriate “floors”) are
allowable.
- 5 -
Discussion
I. Itemized Deductions
A. In General
In general, the Commissioner’s determinations as to matters
of fact in the notice of deficiency are presumed to be correct,
and the taxpayers have the burden of proving otherwise. See Rule
142(a);5 Welch v. Helvering, 290 U.S. 111, 115 (1933).
Petitioner has not contended that section 7491 applies so as to
shift the burden of proof; on the record in the instant case, if
such a contention had been made, then we would have concluded
that the requirements of section 7491(a)(2) have not been met,
and so the burden of proof would not have been shifted.
We will consider first the medical expenses, then the
employee business expenses, and then the charitable
contributions.
B. Medical Expenses
Petitioner is entitled to deduct her medical expenses, but
only “to the extent that such expenses exceed 7.5 percent of
[her] adjusted gross income.” Sec. 213(a).
On her 2003 tax return, petitioner claimed $26,400 of
medical and dental expenses, subtracted $5,957 (7.5 percent of
$79,424 adjusted gross income), and claimed the remaining $20,443
5
Unless indicated otherwise, all Rule references are to the
Tax Court Rules of Practice and Procedure.
- 6 -
as an itemized deduction. Respondent disallowed the entire
$26,400. Because of the 7.5-percent “floor”, petitioner is not
entitled to a deduction for her medical expenses unless (and only
to the extent that) those 2003 expenses exceed $5,957.
Petitioner did not attempt to explain how she arrived at the
$26,400 amount she claimed on her 2003 tax return for medical and
dental expenses. Petitioner testified that she underwent major
surgery in Philadelphia, Pennsylvania, in 2003 and that “the
hospital bill was in excess of a hundred-thousand dollars, which
the State paid.” She also testified that after the
hospitalization she “could not go to work for six months.”
Apparently, some significant part of her medical expenses were
incurred (and paid?) during those 6 months.
Petitioner did not present bills or receipts. Petitioner
testified to some desultory efforts to communicate with certain
of her medical care providers, but she never followed through to
obtain a bill or receipt from any of them. On several occasions
she stated that she probably could have gotten records from
various people but did not do so because “I could probably go to
* * * and get those, but what are we talking about, a couple of
hundred dollars”, and “I can get that, but that is not going to
bring me up to where I need to be.”
- 7 -
Petitioner testified “in 2003 and 2004, I had a lot of
medical expenses”, but she did not attempt to explain how much
related to 2003 and how much to 2004.
As a result of the foregoing, we conclude that in 2003
petitioner paid some expenses for her medical care (within the
meaning of section 213(d)), but it is more likely than not that
the total of her payments not compensated for by insurance or
otherwise did not exceed $5,957, the 7.5-percent “floor”. We
have so found. As a result, she is not entitled to any 2003
medical and expense deduction.
We hold for respondent on this issue.
C. Employee Business Expenses
Petitioner is entitled to deduct her unreimbursed employee
business expenses (see supra note 3), but only to the extent they
exceed 2 percent of her adjusted gross income. See secs. 162(a),
62(a)(1), 67. (None of petitioner’s other claimed itemized
deductions fall within the definition of miscellaneous itemized
deductions that are subject to the 2-percent “floor”, and so the
entire 2 percent reduces petitioner’s otherwise deductible
employee business expenses.)
On her 2003 tax return petitioner claimed $18,500 of
unreimbursed employee expenses, subtracted $1,588 (2 percent of
$79,424 adjusted gross income), and claimed the remaining $16,912
as an itemized deduction.
- 8 -
Petitioner did not attempt to explain how she arrived at the
$18,500 amount she claimed on her 2003 tax return for
unreimbursed employee expenses. On her tax return she wrote
“Nursing shoes, uniforms, small equipment to perform nursing
job”. Petitioner did not present bills or receipts.
Petitioner testified to having bought the following items
that she used in her work as a registered nurse: Computer,
printer, fax, nursing shoes, uniforms, stethoscopes, and an
automated external defibrillator.
Nothing in the record suggests that petitioner has complied
with the strict substantiation requirements of section 274 as to
the property subject to that section. We do not have anything in
the record that would allow us to make an educated estimate as to
depreciation deductions for any of the capital assets that
petitioner referred to. We believe that petitioner had some
nursing uniform expenses and some professional liability
insurance expenses, and that petitioner would not have been
reimbursed for those expenses if she had asked any of her 2003
employers to do so.
As a result of the foregoing we conclude that in 2003
petitioner paid some expenses that qualify as deductible business
expenses, but it is more likely than not that the total of her
payments that would not have been reimbursed by her employers did
not exceed $1,588, the 2-percent “floor”. Compare Lucas v.
- 9 -
Commissioner, 79 T.C. 1, 6-7 (1982) (where the record showed the
taxpayer would have been reimbursed) with Jetty v. Commissioner,
T.C. Memo. 1982-378 (where the record showed the taxpayer would
not have been reimbursed). We have so found. As a result, she
is not entitled to any 2003 employee business expense deductions.
We hold for respondent on this issue.
D. Charitable Contributions
Petitioner is entitled to deduct her charitable
contributions. See sec. 170(a).
On her 2003 tax return petitioner claimed $17,000 of
charitable contributions, all shown on Schedule A line 15, “Gifts
by cash or check.” Next to the $17,000 amount on her Schedule A,
petitioner wrote “Church tithes different Churches--Cash each
Sunday”. Respondent disallowed the entire $17,000. As a result
of our determinations that petitioner is not entitled to deduct
her medical expenses and her employee business expenses,
petitioner’s itemized deductions will exceed the standard
deduction that respondent allowed only if we hold that
petitioner’s deductible charitable contribution deductions exceed
$598. See supra note 4.
Petitioner did not attempt to explain how she arrived at the
$17,000 amount she claimed for charitable contributions on her
2003 tax return.
- 10 -
Petitioner initially testified that she attended “any kind
of [her denomination’s] churches that I could find * * * [and
contributed] 10 percent of what I earned that week.”
Petitioner then testified that she gave “a thousand dollars
up here under the table because of a drug and alcohol place that
was opening up on 17th and Montgomery in Philadelphia.” The
asserted donee organization (“Nextus”) did not give to petitioner
a written acknowledgment of the asserted $1,000 contribution.
See sec. 170(f)(8) (requiring in general that no charitable
contribution deduction is allowable “for any contribution of $250
or more unless the taxpayer substantiates the contribution by a
contemporaneous written acknowledgment of the contribution by the
donee organization”). It does not appear from the record herein
that any exception to this general rule applies in the instant
case. Accordingly, even if we were persuaded that petitioner did
make the $1,000 contribution to Nextus in 2003 and all the other
requirements for a deduction had been met, the statute would
prohibit allowance of a deduction for this asserted $1,000
contribution.
When the Court noted that petitioner had testified to
amounts aggregating far short of the $17,000 she claimed,
petitioner testified: “Maybe I gave more than the 10 percent to
the churches during 2003. I am saying maybe. I am not going to
say, yes, I did.”
- 11 -
When respondent pressed petitioner on the amount of her
weekly contributions, noting that petitioner’s claimed $17,000 in
contributions would require her to have contributed more than
$300 a week in cash on hand, petitioner testified that her “home
church is * * * in * * * South Carolina, which I send $500 a year
to religiously.” Petitioner then testified:
I go to various churches, and when I go home to
visit, that is my home church. And I don’t walk around
with $300 in my pocket, but I know when I am leaving
work on Saturday night from 11:00 to 7:00, I will stop
at whatever church before I go home to sleep, and if it
is $110, yes, I will take that along with me.
The following colloquy then took place:
Q [Ms. Kleinjan] So when you prepared your return
would you agree that was more of a guess or an
estimate?
A [Petitioner] No, it wasn’t a guess or an
estimate. If I go back home and think about things, or
whatever, I will probably be able to come up with why
it is $17,000.
We came away from the foregoing with the impression that
petitioner’s testimony was focused on plausibility and not
reality. We conclude that it is more likely than not that
petitioner’s deductible charitable contributions did not exceed
$598. We have so found. As a result, her total itemized
deductions did not exceed the standard deduction that respondent
allowed in the notice of deficiency.
- 12 -
We hold for respondent on this issue.
II. Penalty
Respondent determined that the entire deficiency is a
substantial understatement of income tax, resulting in a 20-
percent penalty--$2,494. See subsecs. (b)(2) and (d) of sec.
6662. The penalty is imposed if the “understatement” (which in
this case is the same as the deficiency) is more than the greater
of (1) $5,000 or (2) 10 percent of the amount required to be
shown on the tax return.
As a result of our holdings as to the disputed itemized
deductions, petitioner’s understatement is more than $5,000, and
so the penalty applies unless some reduction or exception
applies.6
The substantial understatement penalty is to be reduced by
that portion of the understatement which is attributable to an
item if (1) there was substantial authority for the taxpayer’s
position, (2) there was adequate disclosure on or attached to the
6
As we noted supra, petitioner has not invoked sec. 7491.
We have considered sec. 7491(c), which imposes on the
Commissioner the burden of production with respect to penalties.
Our holdings as to the disputed itemized deductions satisfy the
burden of production requirements, because they show that
petitioner has an understatement of income tax of more than the
greater of (1) $5,000 or (2) 10 percent of the amount petitioner
was required to show on her tax return. Petitioner has the
burden of proving that some reduction or exception applies. See
Montgomery v. Commissioner, 127 T.C. 43, 66-67 (2006); Higbee v.
Commissioner, 116 T.C. 438, 446-447 (2001).
- 13 -
tax return and there was a reasonable basis for the taxpayer’s
position, or (3) there was reasonable cause and the taxpayer
acted in good faith. Secs. 6662(d)(2)(B), 6664(c).
Petitioner did not attempt to explain how she arrived at the
deduction amounts she claimed on her tax return; she did not keep
receipts or, apparently, any records; and she did not present any
evidence about consulting with an appropriate tax adviser as to
how she should proceed.7 It does not appear that any matter
involved in the instant case was an issue of first impression
when petitioner filed her tax return, or involved application of
complex laws to the facts of her tax return.
We conclude that no reduction or exemption applies in the
instant case and so petitioner is liable for the full
understatement penalty. Cf. Montgomery v. Commissioner, 127 T.C.
43, 66-67 (2006).
7
Petitioner testified that “I never kept receipts, because
I was always taught by my dad, who is dead now, that the burden
of proof is on the IRS.” We may admire petitioner’s steadfast
filial devotion, but this advice was generally incorrect when
petitioner received it (Welch v. Helvering, 290 U.S. 111, 115
(1933), is older than petitioner) and was generally incorrect in
2003, the only year before the Court, and was generally incorrect
as applied to the instant case. As we held in a similar context
(negligence penalty under sec. 6662), a taxpayer “cannot rely on
the advice of his father to avoid the negligence penalty, because
* * * [the taxpayer] failed to show that his father had any
expertise in tax matters.” Maguire v. Commissioner, T.C. Memo.
1996-145. On the record in the instant case, petitioner’s
father’s advice is not reasonable cause within the meaning of
sec. 6664(d).
- 14 -
We hold for respondent on this issue.
Decision will be entered
for respondent.