T.C. Summary Opinion 2010-17
UNITED STATES TAX COURT
RUDOLPH FARQUHAR, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24313-08S. Filed February 23, 2010.
Rudolph Farquhar, pro se.
Marissa J. Savit, for respondent.
CHIECHI, Judge: This case was heard pursuant to the provi-
sions of section 7463 of the Internal Revenue Code in effect when
the petition was filed.1 Pursuant to section 7463(b), the deci-
sion to be entered is not reviewable by any other court, and this
opinion shall not be treated as precedent for any other case.
1
Hereinafter, all section references are to the Internal
Revenue Code (Code) in effect for the year at issue. All Rule
references are to the Tax Court Rules of Practice and Procedure.
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Respondent determined a deficiency in, and an accuracy-
related penalty under section 6662(a) on, petitioner’s Federal
income tax (tax) for his taxable year 2006 of $3,718 and $743.60,
respectively.
The issues for decision for petitioner’s taxable year 2006
are:
(1) Is petitioner entitled to itemized deductions in excess
of those that respondent allowed? We hold that he is not.
(2) Is petitioner entitled to a rental real estate loss? We
hold that he is not.
(3) Is petitioner liable for the accuracy-related penalty
under section 6662(a)? We hold that he is.
Background
Petitioner’s residence was in New York at the time he filed
the petition in this case. Petitioner purchased that residence
in September 2006 and continued to maintain it as his residence
throughout that year until at least the date on which he filed
the petition in this case.
During 2006, the year at issue, the Spillane Parkside Corp.
d.b.a. McDonald’s employed petitioner as a restaurant manager.
Petitioner filed Form 1040, U.S. Individual Income Tax
Return, for his taxable year 2006 (2006 return). In the 2006
return, petitioner reported $49,067 on line 7 as wages and
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claimed from Schedule E, Supplemental Income and Loss (2006
Schedule E), $14,749 as a loss from rental real estate.
In Schedule A, Itemized Deductions (2006 Schedule A),
petitioner claimed State and local income taxes of $1,884, total
cash and noncash gifts to charity of $1,860,2 and total “Job
Expenses and Certain Miscellaneous Deductions” (job and other
expenses) of $16,493 before the application of the two-percent
floor imposed by section 67(a).3
As required by section 67(a), petitioner reduced the total
job and other expenses of $16,493 that he claimed in the 2006
Schedule A by two percent (i.e., by $686) of his claimed adjusted
gross income of $34,318. In determining the taxable income of
$4,867 reported in his 2006 return, petitioner deducted the
claimed job and other expenses after the reduction just de-
scribed, as well as the other itemized deductions claimed in the
2006 Schedule A that are not subject to any floor.
In calculating in the 2006 Schedule E the claimed rental
real estate loss of $14,749, petitioner reported “Rents received”
of $2,250 and the following claimed rental expenses:
2
The total cash and noncash gifts to charity of $1,860 that
petitioner claimed in the 2006 Schedule A included $500 of
claimed noncash gifts to charity.
3
Of the total $16,493 of job and other expenses that peti-
tioner claimed in the 2006 Schedule A, petitioner claimed $12,485
as “Unreimbursed employee expenses - job travel, union dues, job
education, etc.” and $4,008 as “Other expenses - investment, safe
deposit box, etc.”.
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Claimed Rental Expense Amount
Cleaning and maintenance $400
Legal and other professional fees 405
Repairs 5,000
Supplies 300
Taxes 4,794
Other closing fees 2,324
Heating oil/gas 600
Pesticide 250
Second mortgage tax 729
Depreciation 2,197
Total $16,999
Respondent issued to petitioner a notice of deficiency for
his taxable year 2006 (2006 notice). In that notice, respondent
disallowed the total itemized deductions of $19,551 that peti-
tioner claimed in the 2006 Schedule A.4 In the 2006 notice,
respondent also disallowed the rental real estate loss of $14,749
that petitioner claimed in the 2006 Schedule E. In the 2006
notice, respondent also determined to impose on petitioner for
his taxable year 2006 an accuracy-related penalty under section
6662(a).
Discussion
Petitioner bears the burden of proving error in the determi-
nations in the 2006 notice that remain at issue.5 See Rule
4
In the 2006 notice, respondent allowed petitioner a stan-
dard deduction of $7,550.
5
Petitioner does not claim that the burden of proof shifts
to respondent under sec. 7491(a) with respect to the deficiency
that respondent determined for petitioner’s taxable year 2006
that is attributable to the determinations in the 2006 notice
(continued...)
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142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Moreover,
deductions are a matter of legislative grace, and petitioner
bears the burden of proving entitlement to any deductions
claimed.6 See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84
(1992).
In support of his position that he is entitled to the
claimed itemized deductions that remain at issue and the claimed
rental real estate loss,7 petitioner relies principally on his
testimony.8 We found the testimony of petitioner to be in cer-
5
(...continued)
that remain at issue. In any event, petitioner has failed to
carry his burden of establishing that he satisfies the require-
ments of sec. 7491(a)(2). On the record before us, we find that
the burden of proof does not shift to respondent under sec.
7491(a).
6
The Code and the regulations thereunder require petitioner
to maintain records sufficient to establish the amount of any
deduction claimed. See sec. 6001; sec. 1.6001-1(a), Income Tax
Regs.
7
Respondent concedes that, of the total State and local
income taxes of $1,884 that petitioner claimed in the 2006
Schedule A, petitioner is entitled to deduct $1,683.68. Respon-
dent makes that concession on the basis of two Forms W-2, Wage
and Tax Statements, attached to petitioner’s 2006 return. In the
event that the Court were to find that petitioner is not entitled
to the rental real estate loss of $14,749 that he claimed in the
2006 Schedule E, respondent would concede that petitioner is
entitled for his taxable year 2006 to an itemized deduction of
$4,794 for real estate taxes that he paid with respect to his
residence.
8
Petitioner maintained no books, records, receipts, or other
corroborative documentary evidence in support of his position
that he is entitled to the itemized deductions that he is claim-
ing. Nor did petitioner maintain corroborative documentary
(continued...)
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tain material respects general, vague, conclusory, uncorrobo-
rated, and self-serving. We shall not rely on the testimony of
petitioner to establish his position that he is entitled to the
itemized deductions and the rental real estate loss that he is
claiming for the year at issue. See, e.g., Tokarski v. Commis-
sioner, 87 T.C. 74, 77 (1986).
Based upon our examination of the entire record before us,
we find that petitioner has failed to carry his burden of estab-
lishing that he is entitled for his taxable year 2006 to the
claimed itemized deductions that remain at issue and the claimed
rental real estate loss.
We turn now to the accuracy-related penalty under section
6662(a). Section 6662(a) imposes an accuracy-related penalty
equal to 20 percent of the underpayment to which section 6662
applies. Section 6662 applies to the portion of any underpayment
which is attributable to, inter alia, negligence or disregard of
rules or regulations. Sec. 6662(b)(1).
8
(...continued)
evidence in support of his position that he is entitled to the
rental real estate loss that he is claiming. Although petitioner
introduced into the record certain receipts from a retail store
showing that during 2006 he had made certain expenditures at
those stores that he contends were made with respect to his
claimed rental real estate, which was his residence, the record
does not contain any reliable evidence establishing that those
expenditures are deductible under sec. 212 (or any other Code
section) as rental real estate expenses for his taxable year
2006. At trial, petitioner testified that he did not maintain
any corroborative documentary evidence because he did not believe
that respondent would examine his taxable year 2006.
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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.
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
“negligence” also includes any failure by the taxpayer to keep
adequate books and records or to substantiate items properly.
Sec. 1.6662-3(b)(1), Income Tax Regs. The term “disregard”
includes any careless, reckless, or intentional disregard. Sec.
6662(c).
The accuracy-related penalty under section 6662(a) does not
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 the 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
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section 6662(a) that respondent determined for petitioner’s
taxable year 2006. To meet that burden, respondent must come
forward with sufficient evidence showing that it is appropriate
to impose the accuracy-related penalty. See Higbee v. Commis-
sioner, 116 T.C. 438, 446 (2001). Although respondent bears the
burden of production with respect to the accuracy-related penalty
that respondent determined for petitioner’s taxable year 2006,
respondent “need not introduce evidence regarding reasonable
cause, substantial authority, or similar provisions. * * * the
taxpayer bears the burden of proof with regard to those issues.”
Id.
On the record before us, we find that petitioner failed to
maintain adequate books and records and failed to substantiate
properly the itemized deductions and the rental real estate loss
that he is claiming for 2006. See sec. 1.6662-3(b)(1), Income
Tax Regs. Moreover, except for the relatively small amount of
itemized deductions that respondent concedes for petitioner’s
taxable year 2006,9 we have sustained respondent’s determinations
to disallow those claimed deductions and that claimed loss. On
the record before us, we find that respondent has carried respon-
dent’s burden of production with respect to the accuracy-related
penalty under section 6662(a) that respondent determined for
petitioner’s taxable year 2006.
9
See supra note 7.
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On the record before us, we find that petitioner has failed
to carry his burden of showing that he was not negligent and did
not disregard rules or regulations, or otherwise did what a
reasonable person would do, with respect to the underpayment for
his taxable year 2006.
On the record before us, we further find that petitioner has
failed to carry his burden of showing that there was reasonable
cause for, and that he acted in good faith with respect to, the
underpayment for his taxable year 2006.
Based upon our examination of the entire record before us,
we find that petitioner has failed to carry his burden of estab-
lishing that he is not liable for his taxable year 2006 for the
accuracy-related penalty under section 6662(a).
We have considered all of petitioner’s 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,10
Decision will be entered under
Rule 155.
10
It appears that the itemized deductions that respondent
concedes, see supra note 7, do not exceed the standard deduction
that respondent allowed in the 2006 notice, see supra note 4.
Nonetheless, the parties shall determine whether that is the case
in computations under Rule 155.