T.C. Summary Opinion 2010-27
UNITED STATES TAX COURT
PATRICIA CONWAY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20085-08S. Filed March 8, 2010.
Patricia Conway, pro se.
Angela B. Friedman, for respondent.
DEAN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 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. Unless otherwise indicated, subsequent section references
are to the Internal Revenue Code in effect for the year in issue,
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and all Rule references are to the Tax Court Rules of Practice
and Procedure.
For 2006 respondent determined a deficiency of $5,225 in
petitioner’s Federal income tax and an accuracy-related penalty
of $1,045. The issues for decision are whether petitioner: (1)
Is required to report $5,619 of rental income; (2) is entitled to
charitable contribution deductions in excess of those respondent
allowed; (3) is entitled to deduct unreimbursed employee expenses
of $15,863; and (4) is liable for the accuracy-related penalty
under section 6662(a).
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the exhibits received into evidence
are incorporated herein by reference. At the time petitioner
filed her petition, she resided in Illinois.
For 2006 petitioner reported $76,781 of income on her
Federal income tax return. On Schedule A, Itemized Deductions,
petitioner claimed: (1) Job expenses and certain miscellaneous
deductions of $15,863; and (2) charitable contribution deductions
of $7,950.
On July 3, 2008, respondent issued to petitioner a notice of
deficiency disallowing: (1) Petitioner’s claimed job expenses
and certain miscellaneous deductions of $15,863 for lack of
substantiation; and (2) $965 of petitioner’s claimed $7,950
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charitable contribution deductions. Respondent further
determined that petitioner failed to report $5,619 of rental
income.
During 2006 petitioner worked as a nurse for the Veterans
Affairs Medical Center (VA Hospital). She also taught as a
licensed practical nurse (LPN) instructor affiliated with the VA
Hospital on a part-time basis. As part of her employment
contract as an instructor, she was not entitled to receive
benefits normally given to regularly paid employees, such as
leave or retirement.
In addition to her position at the VA Hospital, petitioner
and her son coowned rental property. In 2006 the jointly owned
rental property generated rental income, and the Chicago Housing
Authority issued to petitioner Form 1099-MISC, Miscellaneous
Income, reporting rental income of $5,619.
Discussion
I. Burden of Proof
Generally, the Commissioner’s determinations in a notice of
deficiency are presumed correct, and the taxpayer has the burden
of proving that those determinations are erroneous. See Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). In certain
circumstances, however, section 7491(a)(1) places the burden of
proof on the Commissioner. Petitioner has not alleged that
section 7491 is applicable, nor has she established compliance
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with the requirements of section 7491(a)(2)(A). Therefore, the
burden of proof does not shift to respondent.
II. Unreported Rental Income
Under section 6201(d), the burden of production may shift to
the Commissioner where an information return, such as a Form
1099, serves as the basis for a deficiency determination. If a
taxpayer asserts a “reasonable dispute” with respect to any item
of income reported on a third-party information return and has
fully cooperated with the Commissioner, the Commissioner will
have the burden of producing reasonable and probative information
concerning the item of income in addition to the information
return. Id. The taxpayer must provide timely access to
witnesses, information, and documents within the control of the
taxpayer. Id.
Petitioner admitted that the rental property she coowned
with her son in 2006 generated rental income, and she did not
dispute the Form 1099-MISC, issued in her name, reporting $5,619
of rental income in 2006. Petitioner has failed to raise a
reasonable dispute as to any item of income reported on the
information return; therefore, the burden of production does not
shift to respondent.
Petitioner contends that she was not required to report the
rental income shown on the Form 1099-MISC because her son
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received and reported all their rental income.1 Regardless of
whether petitioner’s son received all their rental income, she is
taxed on the rental income because income from property is taxed
to the owner at the time the income is earned. Helvering v.
Horst, 311 U.S. 112, 116-117 (1940); Lucas v. Earl, 281 U.S. 111,
114 (1930). The assignment of income doctrine prevents
petitioner from avoiding taxation on her rental income by
assigning that income to her son. See Lucas v. Earl, supra.
Accordingly, respondent’s determination is sustained.
III. Business Expenses
Deductions are strictly a matter of legislative grace, and
taxpayers must satisfy the specific requirements for any
deduction claimed. See INDOPCO, Inc. v. Commissioner, 503 U.S.
79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435,
440 (1934). Taxpayers bear the burden of substantiating the
amount and purpose of any claimed deduction. See Hradesky v.
Commissioner, 65 T.C. 87 (1975), affd. per curiam 540 F.2d 821
(5th Cir. 1976).
A. Car Expenses
With respect to certain business expenses subject to section
274(d), more stringent substantiation requirements apply than
with respect to other ordinary and necessary business expenses.
1
It is unclear whether the Form 1099-MISC issued to
petitioner included all of the rental income from the property or
only petitioner’s portion of the income.
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Section 274(d) imposes strict substantiation requirements for
claimed deductions relating to the use of “listed property”,
which is defined under section 280F(d)(4)(A) to include passenger
automobiles. Under this provision, any deduction claimed with
respect to the use of a passenger automobile will be disallowed
unless the taxpayer substantiates specified elements of the use
by adequate records or by sufficient evidence corroborating the
taxpayer’s own statement. See sec. 274(d); sec. 1.274-5T(c)(1),
Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).
To meet the adequate records requirements of section 274(d),
a taxpayer must maintain some form of records and documentary
evidence that in combination are sufficient to establish each
element of an expenditure or use. See sec. 1.274-5T(c)(2),
Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985). A
contemporaneous log is not required, but corroborative evidence
to support a taxpayer’s reconstruction of the elements of an
expenditure or use must have “a high degree of probative value to
elevate such statement” to the level of credibility of a
contemporaneous record. Sec. 1.274-5T(c)(1), Temporary Income
Tax Regs., supra.
The elements that must be substantiated to deduct expenses
for the business use of an automobile are: (1) The amount of the
expenditure; (2) the mileage for each business use of the
automobile and the total mileage for all use of the automobile
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during the taxable period; (3) the date of the business use; and
(4) the business purpose of the use of the automobile. See sec.
1.274-5T(b)(6), Temporary Income Tax Regs., 50 Fed. Reg. 46016
(Nov. 6, 1985). Transportation expenses for substantiated trips
between two places of business are deductible, but transportation
to and from work is a nondeductible personal commuting expense.
See Curphey v. Commissioner, 73 T.C. 766, 777 (1980);
Commissioner v. Flowers, 326 U.S. 465, 469-470 (1946); Sanders v.
Commissioner, 439 F.2d 296, 297 (9th Cir. 1971), affg. 52 T.C.
964 (1969); Roy v. Commissioner, T.C. Memo. 1997-562, affd.
without published opinion 182 F.3d 927 (9th Cir. 1999); secs.
1.162-2(e), 1.262-1(b)(5), Income Tax Regs.
Petitioner provided a mileage log for her vehicle for 2006,
containing the destination of each business trip, the month of
the trip, and the mileage for her trip. Petitioner did not
identify or otherwise explain whether she drove to the other
hospitals directly from the VA Hospital or from her home.
The Court is unable to determine whether petitioner’s trips
originated from the VA Hospital, which would entitle her to a
business expense deduction, or whether they originated from her
home. The Court concludes that the evidence petitioner presented
is insufficient to satisfy the strict substantiation requirements
of section 274(d).
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B. Miscellaneous Expenses
In addition to car expenses, petitioner claimed additional
job expenses and miscellaneous deductions. Petitioner provided
receipts for expenditures associated with mailings and the
purchase of stationery products.
Although petitioner provided receipts for these
expenditures, she did not provide an explanation as to how these
expenses were ordinary and necessary to her position as an LPN
instructor or her work with the hospital. In addition,
petitioner provided no other evidence of and did not testify
about the remaining expenses she claimed for 2006. Accordingly,
respondent’s disallowance is sustained.
IV. Charitable Contributions
Petitioner claimed $7,950 in charitable contribution
deductions. Respondent disallowed $965 of the $7,950 petitioner
claimed as a charitable contribution deduction for lack of
substantiation.
As is relevant here, section 170(f)(8) provides that no
deduction is allowed for all or part of any charitable
contribution of $250 or more unless the contribution is
substantiated by a contemporaneous written acknowledgment from
the organization. See also sec. 1.170A-13(f)(1), Income Tax
Regs. A written acknowledgment is contemporaneous if it is
obtained by the taxpayer on or before the earlier of the date the
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taxpayer files the original return for the taxable year of the
contribution or the due date (including extensions) for filing
the original return for the year. Sec. 170(f)(8)(C); sec.
1.170A-13(f)(3), Income Tax Regs. The written acknowledgment
must state the amount of cash and a description (but not
necessarily the value) of any property other than cash that the
taxpayer donated and whether the organization provided any
consideration to the taxpayer in exchange for the donation. Sec.
170(f)(8)(B)(i) and (ii); sec. 1.170A-13(f)(2)(i) and (ii),
Income Tax Regs.
Petitioner provided a donation receipt from Goodwill
Industries dated September 22, 2006, demonstrating that she
donated a total of seven items. The receipt lists several of the
items donated, including a bed, clothing, and furniture, and
includes a total value of $1,250 for the donated items. The
Court is satisfied that petitioner has substantiated her
charitable contribution deductions to the extent of $965. But
because petitioner has not proven that this amount was not
included in the $6,985 that respondent allowed as a charitable
contribution deduction, she nevertheless is not entitled to
deduct the $965. Consequently, respondent’s disallowance is
sustained.
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V. Accuracy-Related Penalty
Section 6662(a) and (b)(2) imposes a 20-percent
accuracy-related penalty on the portion of an underpayment that
is attributable to a substantial understatement of income tax.2
An understatement of income tax is the excess of the amount of
income tax required to be shown on the return for the taxable
year over the amount of income tax that is shown on the
return, reduced by any rebate. See sec. 6662(d)(2)(A). An
understatement is substantial if it exceeds the greater of 10
percent of the tax required to be shown on the return for the
taxable year or, in the case of an individual, $5,000. See sec.
6662(d)(1)(A).
The Commissioner bears the burden of production with respect
to the applicability of an accuracy-related penalty determined in
a notice of deficiency. See sec. 7491(c). In order to meet the
burden of production under section 7491(c), the Commissioner need
only make a prima facie case that imposition of the penalty or
addition to tax is appropriate. Higbee v. Commissioner, 116 T.C.
438, 446 (2001). Once he has met his burden, the burden is upon
the taxpayer to prove that the accuracy-related penalty does not
apply because of reasonable cause, substantial authority, or the
like. See secs. 6662(d)(2)(B), 6664(c); Higbee v. Commissioner,
2
The Court need not determine whether petitioner is liable
for the accuracy–related penalty due to negligence.
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supra at 449. Because petitioner’s understatement of income tax
for 2006 exceeded $5,000, respondent has met his burden for the
determination of an accuracy-related penalty based on substantial
understatement of income tax.
An accuracy-related penalty is not imposed on any portion of
the underpayment as to which the taxpayer acted with reasonable
cause and in good faith. Sec. 6664(c)(1). Section 1.6664-
4(b)(1), Income Tax Regs., incorporates a facts and circumstances
test to determine whether the taxpayer acted with reasonable
cause and in good faith. The most important factor is the extent
of the taxpayer’s effort to assess his proper tax liability. Id.
Petitioner has failed to demonstrate that she acted with
reasonable cause and in good faith in failing to report rental
income and substantiate the disallowed job expense and charitable
contribution deductions. Accordingly, the Court finds that
petitioner is liable for the accuracy-related penalty.
To reflect the foregoing,
Decision will be entered
for respondent.