T.C. Summary Opinion 2010-86
UNITED STATES TAX COURT
TIMOTHY L. AND TIFFANY T. WILLIAMS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 28603-08S. Filed June 29, 2010.
Timothy L. Williams, pro se.
Angela J. Kennedy, for respondent.
RUWE, Judge: This case was heard pursuant to the provisions
of section 74631 of the Internal Revenue Code in effect when the
petition was filed. Pursuant to section 7463(b), the decision to
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code as amended, and all Rule references are
to the Tax Court Rules of Practice and Procedure.
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be entered is not reviewable by any other court, and this opinion
shall not be treated as precedent for any other case.
For 2005 and 2006 respondent determined deficiencies, an
addition to tax for failure to timely file, and an accuracy-
related penalty as follows:
Accuracy-Related
Addition to Tax Penalty
Year Deficiency Sec. 6651(a)(1) Sec. 6662(a)
2005 $7,092 $1,014.75 $1,370
2006 1,545 -- --
After concessions2 the issues to be decided are: (1)
Whether petitioners received and failed to report $1,005 of
wages, salaries, and tips during 2005; (2) whether petitioners
received and failed to report $2,010 of unemployment compensation
during 2005 and 2006; (3) whether petitioners are entitled to
deduct $6,542 and $1,000 as charitable contributions for 2005 and
2006, respectively; (4) whether petitioners are entitled to
deduct $65,005 and $14,498 of unreimbursed employee business
expenses for 2005 and 2006, respectively; (5) whether petitioners
are entitled to a child tax credit for 2005; (6) whether, under
section 6651(a)(1), petitioners are liable for an addition to tax
for failure to timely file their 2005 Federal income tax return;
2
Petitioners have conceded the deductions claimed for
medical and dental expenses on their 2005 and 2006 Federal income
tax returns.
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and (7) whether, under section 6662(a), petitioners are liable
for an accuracy-related penalty for 2005.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by reference.
At the time the petition was filed, petitioners resided in
Indiana.
During 2005 Timothy L. Williams (petitioner) was separately
employed by Delta Services, Inc. (Delta Services), and Byrider
Sales of Indiana (Byrider). Petitioner’s last day of work for
Delta Services was January 7, 2005. After terminating employment
with Delta Services petitioner applied for unemployment benefits
with the Indiana Department of Workforce Development (IDWD).
Although the date petitioner began work for Byrider is not
reflected in the record, petitioner was later employed by Byrider
in 2005.
For 2005, Delta Services issued to petitioner a Form W-2,
Wage and Tax Statement, which shows that petitioner received
wages, tips, or other compensation of $1,005. As is reflected on
a Form 1099-G, Certain Government Payments, the IDWD paid
petitioner $2,010 during 2005. Byrider paid petitioner
$37,644.48 of wages during 2005. The parties also stipulated
that during 2005, while employed by Byrider, petitioner drove
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less than 5,000 miles for business and while he was traveling his
meals were paid for by the company.
The IDWD later determined that petitioner was not eligible
for the $2,010 of unemployment compensation paid to him in 2005
and requested that he repay it. Petitioner did not repay it.
During 2005 petitioner Tiffany T. Williams was employed by
M.J. Schuetz Agency, Inc., and received wages of $29,351.16.
On March 4, 2007, petitioners filed their 2005 Federal
income tax return, on which they reported $66,996 of wages,
salaries, tips, etc. Petitioners did not report the $2,010 of
unemployment compensation or the $1,005 of wages from Delta
Services. On the 2005 Schedule A, Itemized Deductions, attached
to their 2005 Federal income tax return, petitioners claimed
deductions for, among other things, $1,500 of cash contributions
to charity, $5,042 of noncash contributions to charity, and
$65,005 of unreimbursed employee business expenses. Petitioners
concede that the amount deducted as unreimbursed employee
business expenses is overstated on their 2005 Schedule A;
however, petitioners have not indicated what amount, if any, was
overstated.
During 2006 petitioner’s employment with Byrider was
terminated. Petitioner applied for unemployment benefits with
the IDWD. However, before petitioner began receiving any
unemployment compensation from the IDWD in 2006, the IDWD offset
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the amount of unemployment compensation due to petitioner by the
$2,010 petitioner failed to repay to the IDWD in 2005. For 2006
the IDWD issued to petitioner two Forms 1099-G. One Form 1099-G
indicated that the IDWD paid petitioner $7,087 of unemployment
compensation in 2006, and the other Form 1099-G indicated that
petitioner repaid the IDWD $2,010 in 2006.
Petitioners filed their 2006 Federal income tax return on
April 15, 2007. On their 2006 Form 1040 petitioners reported
$46,395 of wages, salaries, tips, etc., and the $7,087 of
unemployment compensation received from the IDWD. On the
Schedule A attached to their 2006 Federal income tax return,
petitioners claimed, among other things, $5,533 of medical and
dental expenses, $700 of cash contributions to charity, $300 of
noncash contributions to charity, and $14,498 of unreimbursed
employee business expenses.
Respondent issued to petitioners a notice of deficiency,
dated August 20, 2008, which made the following income
adjustments:
Adjustment Tax Year 2005 Tax Year 2006
Unemployment compensation $2,010 --
1
Wages, salaries and tips, etc. 1,004 --
Itemized deductions 76,932 $18,592
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Standard deduction (10,000) (10,300)
State refunds, credits, -- 2,010
or offsets
Total 69,946 10,302
1
We note that both the 2005 Form W-2 issued by Delta
Services to petitioner and the Delta Services 2005
Earnings and Deductions Report show petitioner’s gross
earnings as $1,005.
Petitioners filed a timely petition generally contesting the
adjustments for 2005 and 2006. Additionally, petitioners allege
in their petition that they are eligible for a child tax credit
for 2005.
Discussion
A. Burden of Proof
In general, the Commissioner’s determinations in a notice of
deficiency are presumed correct, and the taxpayer bears the
burden of proving error in the Commissioner’s determinations.
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Under
section 7491(a) the burden may shift to the Commissioner
regarding factual matters if the taxpayer produces credible
evidence and meets the other requirements of the section.
Petitioners do not argue that they satisfied the elements for a
burden shift, but even if they did advance this argument, they
did not produce sufficient evidence to support a burden shift.
Accordingly, the burden of proof remains on petitioners.
B. Unreported Income/Omitted Items
Gross income is defined as “all income from whatever source
derived, including * * * Compensation for services”. Sec.
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61(a)(1). Gross income also includes unemployment compensation.
Sec. 85(a). As a general rule any item of gross income must be
included in the gross income for the taxable year in which
received by the taxpayer. Sec. 451(a). The taxpayer bears the
burden of proving any amount excludable from gross income
pursuant to an applicable statutory exception or general
principle of tax law. Rule 142(a); Bachmann v. Commissioner,
T.C. Memo. 2009-51 (citing Welch v. Helvering, supra at 115).
During 2005 Delta Services issued to petitioner “two payroll
checks” totaling $1,005. Delta Services subsequently issued to
petitioner a Form W-2 which shows that petitioner received wages,
tips, or other compensation of $1,005 during 2005. Petitioners
did not report these wages on their 2005 Federal income tax
return. Petitioners have not shown that the $1,005 is excludable
from gross income pursuant to a statutory exception or general
principle of tax law. Accordingly, we sustain respondent’s
determination that petitioners must include the $1,005 received
from Delta Services in their 2005 income.
With respect to the $2,010 of unemployment compensation,
petitioner admits that he received it in 2005. A Form 1099-G
issued by the IDWD for 2005 corroborates his admission. We,
therefore, sustain respondent’s determination that petitioners
must include the $2,010 of unemployment compensation in their
2005 income.
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For 2006 the parties stipulate that petitioners included in
income the $7,087 of unemployment compensation received in 2006
but did not include the additional $2,010 awarded as unemployment
compensation but not paid to petitioners during 2006 because of
petitioners’ failure to repay the same amount in 2005. We
disagree with respondent’s determination that petitioners must
include in their 2006 income the same $2,010 of unemployment
compensation (identified in the notice of deficiency as a State
income tax refund). Although the $2,010 of unemployment
compensation was not properly awarded to petitioner until 2006,
as has been established and as we have already found, petitioners
received the $2,010 of unemployment compensation during 2005.
Therefore, we hold that respondent’s determination to require
petitioners to include in their 2006 income the same $2,010 that
petitioners must include in their 2005 income is erroneous.
C. Itemized Deductions
The taxpayer bears the burden of proving that he has
complied with the specific requirements for any deduction
claimed. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992);
New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). The
taxpayer must substantiate amounts claimed as deductions by
maintaining the records necessary to establish that he is
entitled to the deductions. Sec. 6001; sec. 1.6001-1(a), Income
Tax Regs.
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1. Charitable Contributions
Section 170(a) generally allows as a deduction any
charitable contribution the payment of which is made within the
taxable year. Deductions for charitable contributions are
allowable only if verified under regulations prescribed by the
Secretary. Sec. 170(a)(1); Hewitt v. Commissioner, 109 T.C. 258,
261 (1997), affd. without published opinion 166 F.3d 332 (4th
Cir. 1998).
A cash contribution to charity made on or before August 17,
2006, in an amount less than $250 may be substantiated with a
canceled check, a receipt, or other reliable evidence showing the
name of the donee, the date of the contribution, and the amount
of the contribution. Alami El Moujahid v. Commissioner, T.C.
Memo. 2009-42; sec. 1.170A-13(a)(1), Income Tax Regs. For cash
contributions made to charity after August 17, 2006, stricter
requirements now provide that no deduction shall be allowed for a
contribution of money in any amount unless the donor maintains a
bank record or written communication from the donee showing the
name of the donee organization, the date of the contribution, and
the amount of the contribution. Sec. 170(f)(17); Pension
Protection Act of 2006, Pub. L. 109-280, sec. 1217, 120 Stat.
1080.
Petitioners have failed to offer any documentary evidence of
cash contributions to charity for either 2005 or 2006.
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Accordingly, we sustain respondent’s determination and hold that
petitioners are not entitled to the deductions claimed for cash
contributions to charity on their 2005 and 2006 Federal income
tax returns.
For charitable contributions made in property other than
cash, the value of the contribution is generally the fair market
value at the time of contribution. Hewitt v. Commissioner, supra
at 261; sec. 1.170A-1(c)(1), Income Tax Regs. The fair market
value of the property contributed is the price at which the
property would change hands between a willing buyer and a willing
seller, neither being under any compulsion to buy or sell and
both having reasonable knowledge of relevant facts. Sec. 1.170A-
1(c)(2), Income Tax Regs. Generally, for noncash charitable
contributions, a taxpayer must maintain for each contribution a
receipt from the donee showing the name of the donee, the date
and location of the contribution, and a description of the
property in detail reasonably sufficient under the circumstance.
Sec. 1.170A-13(b)(1), Income Tax Regs.
Petitioners have failed to offer any records establishing
that they made any noncash contributions to charity for either
2005 or 2006. Accordingly, we sustain respondent’s determination
and hold that petitioners are not entitled to the deductions
claimed for noncash charitable contributions on their 2005 and
2006 Federal income tax returns.
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2. Unreimbursed Employee Expenses
Section 162(a) generally allows as a deduction all the
ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business. A taxpayer
may be in the trade or business of being an employee and, as
such, may deduct business expenses. O’Malley v. Commissioner, 91
T.C. 352, 363-364 (1988); Lucas v. Commissioner, 79 T.C. 1, 6
(1982). Section 262(a), however, prohibits deductions for
personal, living, or family expenses.
Petitioners have failed to offer any documentary or
testimonial evidence establishing what payments were made, to
whom they were made, and any related business purpose. See secs.
162, 274(d), 6001; sec. 1.6001-1(a), Income Tax Regs.
Accordingly, we sustain respondent’s determination and hold that
petitioners are not entitled to a deduction for unreimbursed
employee expenses for either year.
D. Child Tax Credit
Section 24(a) provides a credit (subject to certain income
limitations) against income tax for each qualifying child. The
term “qualifying child” means a qualifying child of the taxpayer
(as defined in section 152(c)) who has not attained the age of
17. Sec. 24(c)(1); Gessic v. Commissioner, T.C. Memo. 2010-88.
However, petitioners have failed to proffer any evidence of a
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qualifying child. Accordingly, petitioners are ineligible for a
child tax credit for 2005.
E. Addition to Tax Under Section 6651(a)(1)
Section 6651(a)(1) imposes an addition to tax for the
failure to file a return on the date prescribed therefor
(determined with regard to any extension of time for filing),
unless it is shown that such failure is due to reasonable cause
and not due to willful neglect. Section 7491(c) generally
provides that the Commissioner bears the burden of production
with respect to the liability of an individual for any penalty or
addition to tax. The Commissioner may meet his burden of
production by coming forward with sufficient evidence indicating
that it is appropriate to impose the relevant penalty. Higbee v.
Commissioner, 116 T.C. 438, 446 (2001).
Petitioners filed their 2005 Federal income tax return more
than 10 months after its due date. Petitioners have neither
offered any explanation for the tardiness of their 2005 Federal
income tax return nor established that they had been granted an
extension of time to file. Thus, not only has respondent met his
burden of production with respect to the addition to tax under
section 6651(a)(1), but also petitioners have failed to establish
that the late filing of their 2005 Federal income tax return was
due to reasonable cause and not due to willful neglect.
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Accordingly, we sustain the imposition of the section 6651(a)(1)
addition to tax.
F. Accuracy-Related Penalty Under Section 6662(a)
Section 6662(a) and (b)(1) and (2) provides that a taxpayer
is liable for a 20-percent accuracy-related penalty on any
portion of an underpayment of tax required to be shown on a
return attributable to, inter alia, (1) negligence or disregard
of rules or regulations or (2) any substantial understatement of
income tax. The Commissioner generally bears the burden of
production for any penalty, but the taxpayer bears the ultimate
burden of proof. Sec. 7491(c); Higbee v. Commissioner, supra at
446.
Negligence is defined as “any failure to make a reasonable
attempt to comply with the provisions of this title”, and
disregard includes “any careless, reckless, or intentional
disregard.” Sec. 6662(c). The regulations promulgated under
section 6662 provide that negligence “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.
Negligence is strongly indicated where a taxpayer fails to
include on an income tax return an amount of income shown on an
information return, as defined in section 6724(d)(1). See sec.
1.6662-3(b)(1)(i), Income Tax Regs.
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The accuracy-related penalty is not imposed with respect to
any portion of an underpayment as to which the taxpayer acted
with reasonable cause and in good faith. See sec. 6664(c)(1).
The determination of whether a taxpayer acted with reasonable
cause and in good faith depends on the pertinent facts and
circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs.
We find respondent has met his burden of production in that
the record establishes that petitioners failed to disclose income
reported to them on a Form W-2 and a Form 1099-G and had no
documentation to support the disallowed deductions. See sec.
1.6662-3(b)(1), Income Tax Regs. After considering the totality
of the facts and circumstances, we are satisfied that petitioners
were negligent and did not have reasonable cause to believe that
they were not required to report the $1,005 of wages and $2,010
of unemployment compensation on their 2005 Federal income tax
return and that they failed to keep adequate records or to
substantiate properly the disallowed deductions claimed on their
2005 return. Accordingly, we sustain respondent’s determination
and hold that petitioners are liable for the accuracy-related
penalty under section 6662.
To reflect the foregoing,
Decision will be entered
under Rule 155.