T.C. Summary Opinion 2009-4
UNITED STATES TAX COURT
REGINE C. YANG, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 8061-05S, 4960-07S. Filed January 7, 2009.
Regine C. Yang, pro se.
S. Katy Lin and Jadie T. Woods, for respondent.
PANUTHOS, Chief Special Trial Judge: These consolidated
cases were heard pursuant to the provisions of section 7463 of
the Internal Revenue Code in effect when the petitions were
filed.1 Pursuant to section 7463(b), the decisions to be entered
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
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are not reviewable by any other court, and this opinion shall not
be treated as precedent for any other case.
Respondent determined deficiencies in petitioner’s Federal
income taxes as follows:
Penalty
Year Deficiency Sec. 6662(a
2000 $7,548 -
2001 7,741 -
2002 9,066 -
2003 4,629 $926
The issues for decision are: (1) Whether petitioner is
entitled to dependency exemption deductions for her parents for
taxable years 2000, 2001, 2002, and 2003 (the years in issue);
(2) whether petitioner is entitled to itemized deductions greater
than those respondent allowed; (3) whether petitioner is entitled
to business expense deductions for Total Real Estate/Excel
Property Management or for Asian Business Services greater than
those respondent allowed; (4) whether petitioner is entitled to
deduct losses from her rental real estate activities greater than
those respondent allowed; and (5) whether petitioner is liable
for an accuracy-related penalty for 2003.2
2
Other adjustments to petitioner’s itemized deductions are
purely computational and depend on changes to petitioner’s
adjusted gross income and the automatic application of certain
eligibility phaseouts and deduction limitations.
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Background
Some of the facts have been stipulated, and we incorporate
the stipulations and the accompanying exhibits by this reference.
Petitioner lived in Michigan when she filed the petition in each
docket.
Petitioner’s parents are citizens of Taiwan, and they each
have lawful permanent residency status. Petitioner’s parents
resided with her for part of each year in issue, and petitioner
supported them when they lived with her. Petitioners parents
also lived with petitioner’s siblings for unspecified periods of
time during the years in issue. When her parents did not live
with her, petitioner sent them occasional gifts but did not
support them.
From 1999 through sometime in September 2003 petitioner
worked full time as an information technology director at RDA
Group. For each year in issue petitioner filed two Schedules C,
Profit or Loss From Business: One for “Total Real Estate/Excel
Property Management”, a residential real estate and property
management business; and one for “Asian Business Services”, which
provided business services. For each year, petitioner reported
some gross receipts for each activity but claimed net losses for
each activity.
Petitioner signed a Form 872, Consent to Extend the Time to
Assess Tax, for taxable year 2000. The IRS executed and mailed a
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copy of the Form 872 to petitioner the following day. The form
extended the time to assess tax for 2000 to June 30, 2005.
Respondent issued a notice of deficiency for 2000, 2001, and
2002 on February 3, 2005, and a notice of deficiency for 2003 on
December 5, 2006. During the examination and at trial,
petitioner provided myriad documents to support her claimed
expenses, deductions, and exemptions. These documents were
mostly handwritten summaries, calendar pages, and lists prepared
by petitioner. She provided few actual receipts and invoices,
and several of those were not in her name. She did not provide
copies of canceled checks to support her payment of expenses but
claimed to have made many payments in cash. Petitioner alleged
that the IRS has discriminated against her in that her tax
returns have been regularly examined for the past 10 years. She
claimed that the IRS lost many of her records and much of her
supporting documentation and asked the Court to employ common
sense and allow her deductions for expenses claimed.
Discussion
Taxpayers are required to maintain adequate books and
records to substantiate claimed tax deductions and to produce
those records to the IRS when requested. Sec. 6001; sec. 1.6001-
1(a), (e), Income Tax Regs. Deductions are a matter of
legislative grace, and taxpayers generally have the burden of
proving they are entitled to the deductions claimed. Rule
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142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).
These are largely substantiation cases, and the burden of proof
as to petitioner’s eligibility for the claimed deductions remains
on petitioner. Sec. 7491(a)(1) and (2); Rule 142(a).
Petitioner argues that because of the expiration of the
relevant periods under the statute of limitations, the notices of
deficiency were not timely issued. With exceptions not here
relevant, section 6501 provides a 3-year period from the time a
return is filed for the assessment or collection (without
assessment) of any tax, including income taxes (the period of
limitations). The running of the period of limitations, however,
is suspended by “the mailing of a notice under section 6212(a)”.
Sec. 6503(a)(1).
Although petitioner alleges that the extension date for
taxable year 2000 was not on the Form 872 when she signed it, the
revenue agent who solicited the Form 872 testified that the date
to which the period for assessment had been extended was clearly
listed, both when petitioner signed the form and the following
day when the IRS sent petitioner a copy of the executed form for
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her records.3 We find that the period of limitations for 2000
was extended to June 30, 2005.
The IRS mailed the first notice of deficiency on February 3,
2005, within the extended period for 2000 and within the 3-year
periods for 2001 and 2002. The IRS mailed the second notice of
deficiency on December 5, 2006, within the 3-year period for
2003. Thus, the notices of deficiency were all timely issued.
1. Dependency Exemption Deductions
Petitioner claimed dependency exemption deductions for her
parents for each year in issue. Respondent disallowed those
deductions.
A taxpayer is entitled to a dependency exemption deduction
for each dependent who satisfies the gross income test of section
151(c)(1)(A) and the residency test of section 152(b)(3), but
only if the taxpayer provides more than one-half of the
dependent’s support for the calendar year in issue. Sec. 152(a).
A taxpayer’s parents can be her dependents. Sec. 152(a)(4). It
appears that petitioner’s parents meet the section 152(b)(3)
3
Petitioner introduced her copy of Form 872, Consent to
Extend the Time to Assess Tax, together with the cover letter
from the revenue agent. Petitioner’s Form 872 clearly states
that assessment may be made on or before June 30, 2005.
Petitioner’s assertion that the executed Form 872 is somehow
overridden or invalidated by the revenue agent’s purported
statement in October 2003 (that the IRS needed another 3-6 months
to complete its examination) is without merit.
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residency test because they have lawful permanent resident
status. Sec. 7701(b)(1)(A).
A taxpayer cannot prove that she provided more than half the
support of her parents without establishing the entire amount
expended for their support from all sources. Archer v.
Commissioner, 73 T.C. 963, 967 (1980); Blanco v. Commissioner, 56
T.C. 512, 514-515 (1971). There is little or no evidence in the
record as to the total amount spent for the support of
petitioner’s parents (by petitioner and from other sources).
Thus, petitioner did not prove that she provided more than half
of her parents’ support for any of the years in issue.
Furthermore, section 151(c)(1)(A) provides that a dependent’s
gross income may not exceed the exemption amount, but there is no
evidence of the parents’ gross income for the years in issue.
Accordingly, petitioner is not entitled to the claimed dependency
exemption deductions for her parents for any year in issue.
2. Itemized Deductions
A. Charitable Contributions
Petitioner attached to her 2002 return one facially credible
document to support her charitable contributions: a “Car
Donation Receipt” from a charity, dated December 31, 2002. She
provided no other credible documentary evidence in support of her
contributions.
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The car donation receipt states that petitioner donated a
1995 four-door Toyota Corolla and that the donor-determined fair
market value was $4,825. The receipt does not reflect the
condition of the car at the time of the donation; for example, by
identifying whether it was operable, specifying the number of
miles on the odometer, or providing other descriptive information
beyond make, model, VIN number, etc. This lack of specific
description of the condition of the automobile is particularly
significant given testimony that petitioner informed the IRS that
she had been in a collision and had totaled that car before
donating it. Petitioner did not deny telling the revenue agent
that she totaled the car, nor did she assert that the value
claimed on the receipt was salvage value as opposed to some
measure of fair market value for an undamaged vehicle.
Under these circumstances, we find that petitioner’s receipt
does not describe the car in “detail reasonable under the
circumstances” as required by section 1.170A-13(b)(2)(ii)(C),
Income Tax Regs. Furthermore, petitioner did not produce written
records establishing how she acquired the car or its cost or
other basis, as required by section 1.170A-13(b)(3), Income Tax
Regs. We conclude that petitioner is not entitled to a
charitable contribution deduction for this item.
Petitioner’s other records in support of her charitable
contributions were not convincing in proving either that she made
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the claimed contributions or that they were charitable
expenditures and deductible under section 170 rather than
expenditures for personal, family, or living expenses which are
not deductible pursuant to section 262.
B. Unreimbursed Employee Business Expenses
Petitioner claimed miscellaneous itemized deductions for
each year in issue. She provided numerous handwritten schedules
to explain her deductions but did not provide canceled checks or
credible receipts to substantiate her expenses.4 Petitioner also
deducted certain expenses related to her work at RDA Group but
admitted that she did not request reimbursement for those
expenses, even though the company had a reimbursement policy.
Petitioner’s failure to seek reimbursement for her expenses from
her employer prevents her from deducting those expenses as
unreimbursed employee business expenses. See Orvis v.
Commissioner, 788 F.2d 1406 (9th Cir. 1986), affg. T.C. Memo.
1984-533; Lucas v. Commissioner, 79 T.C. 1, 7 (1982).
For each year in issue, petitioner claimed job search
expenses allegedly paid to look for work in California. The
documents petitioner submitted to substantiate those expenses
4
For example, petitioner listed numerous newspapers and
magazines to which she allegedly subscribed, with prices, but she
offered no credible evidence that she actually paid for the
subscriptions or that the publications were ordinary, necessary,
and related to her work for RDA Group and not reimbursable by her
employer.
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allege suspiciously similar expenses for each of several years
(down to the number of envelopes mailed in each year).
Petitioner has not submitted any credible evidence to
demonstrate her eligibility for itemized deductions in amounts
greater than those respondent allowed.
3. Schedule C Business Expenses
Respondent allowed expenses for petitioner’s two Schedule C
business activities but only to the extent of petitioner’s
reported income from those activities. Petitioner failed to
submit any credible evidence to substantiate ordinary and
necessary business expenses greater than the amounts respondent
allowed. Thus, petitioner may not deduct the losses she claimed
for these activities for the years in issue. See secs. 162(a),
6001; Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S.
435, 440 (1934); Farguson v. Commissioner, T.C. Memo. 1983-615
(rejecting the taxpayer’s poor documentation as inadequate to
substantiate purported expenses).
4. Rental Real Estate Losses
For each year in issue, petitioner claimed losses from her
rental real estate activities. Respondent disallowed the claimed
losses in excess of $25,000 for each year because (1) petitioner
failed to substantiate that her expenses exceeded her rental
income by more than $25,000, or (2) (in the alternative) any
losses in excess of $25,000 are suspended pursuant to section
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469(i) because petitioner’s rental real estate activity was a
passive activity for the years in issue.
Petitioner did not substantiate rental real estate expenses
in amounts greater than those allowed by respondent.
Accordingly, we need not decide whether petitioner satisfied the
exception in section 469(c)(7)(B) which exempts certain real
estate professionals from the $25,000 limitation of section
469(i).
Petitioner has not satisfied her burden of proving that she
is entitled to deduct the expenses she claimed, and respondent’s
determination to disallow claimed losses in excess of $25,000 is
sustained.
5. Accuracy-Related Penalty
Under section 7491(c) the Commissioner has the burden of
production with respect to a section 6662 accuracy-related
penalty. Once the Commissioner shows that imposition of the
penalty is appropriate, the taxpayer continues to have the burden
to prove that the Commissioner’s penalty determination is
incorrect. Rule 142(a); Higbee v. Commissioner, 116 T.C. 438,
446 (2001).
Under section 6662(a) and (b)(1), taxpayers are subject to
an accuracy-related penalty equal to 20 percent of any
underpayment with respect to which they were negligent or
disregarded appropriate rules and regulations. Negligence, in
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the present context, refers to a failure to make reasonable
attempts to comply with the Internal Revenue Code. See sec.
6662(c). Section 6664(c)(1) provides that no section 6662
penalty may be imposed if the taxpayer shows that she had
reasonable cause for and acted in good faith with respect to the
underpayment of tax.
Respondent determined a $926 accuracy-related penalty for
2003 and asserted that petitioner’s underpayment of tax was due
to negligence or disregard of rules and regulations. Respondent
argues that the evidence proves petitioner’s negligence and
disregard.5
We agree that petitioner failed to produce records that
section 6001 required her to keep. We find her hand-written
logs, summaries, and calendars (in the absence of any
substantiation from canceled checks, receipts in her name, paid
invoices in her name, and other reliable written records)
unconvincing and demonstrative of a failure to reasonably attempt
to comply with the Internal Revenue Code. We are satisfied that
petitioner’s underpayment results from negligence unexcused by
5
The evidence respondent relies upon includes: petitioner’s
lack of records, receipts, and substantiating documents; her
apparent claiming of the same expenses in multiple places on her
return; her deducting personal, family, and living expenses; her
submission of unreliable, sometimes internally contradictory
documents; and the implausibility of petitioner’s claims to have
driven many hundreds of miles for her Schedule C and Schedule E,
Supplemental Income and Loss, activities on the same days that
she worked 10 or more hours at RDA Group.
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reasonable cause or good faith. Respondent’s penalty
determination is sustained.
For the foregoing reasons,
Decisions will be entered
for respondent.