An appropriate order and decision will be entered.
LAUBER, Judge: This case is before the Court on cross-motions for summary judgment under
*159 Addition to tax | Penalty | ||
Year | Deficiency | ||
2011 | $19,634 | $3,927 | $3,927 |
2013 | 16,004 | 1,600 | 3,201 |
The following facts are derived from the parties' pleadings and motion papers, including*157 the affidavits and exhibits attached thereto. See
Petitioner filed delinquent returns for 2011 and 2013 on July 26, 2012, and May 23, 2014, respectively. The IRS selected both returns for examination. On March 13, 2015, the IRS sent petitioner a timely notice of deficiency determining deficiencies in tax, additions to tax for late filing, and accuracy-related penalties in the amounts shown above.
*160 Two of the adjustments involved unreported income. For 2011 the IRS determined that petitioner had cancellation of indebtedness income of $25,287 as reported on a Form 1099-C, Cancellation of Debt, issued by JP Morgan Chase Bank. The IRS determined that the discharged debt did not relate to petitioner's principal residence and that he "ha[d] not verified that [he] met the criteria for insolvency as claimed." For 2013 the IRS determined that petitioner had unreported gambling winnings of $10,000 as reported to the IRS on a Form W2-G, Certain Gambling Winnings. The IRS included this amount in petitioner's gross income because he "did not verify that this income was inadvertently added to the gross receipts amount [for his sole proprietorship*158 business] as claimed."
For each year at issue petitioner included in his return a Schedule C, Profit or Loss from Business, reporting income and expenses of a consulting business called Global Business Financial Investments (GBFI). (Although GBFI was apparently an S corporation, petitioner treated it as a sole proprietorship on both tax returns.) He reported on these Schedules C net profit and loss as follows:
Item | 2011 | 2013 |
Gross receipts | $75,000 | $75,600 |
Business expenses | 69,275 | 75,763 |
Home-office expense | 5,725 | -0- |
Net profit | -0- | (163) |
*161 Petitioner reported no wages or other income on either return. He thus reported zero taxable income for 2011 and a loss of $163 for 2013.
Of the Schedule C deductions petitioner claimed, the notice of deficiency disallowed the following for lack of substantiation:
Expense | 2011 | 2013 |
Advertising | $24,630 | $28,652 |
Travel | 12,000 | |
Car & truck | 12,723 | 9,554 |
Utilities | 15,700 | |
Home office | 5,725 | |
Total disallowed | 55,078 | 53,906 |
As a corollary of these adjustments, the IRS determined that petitioner was liable for self-employment tax of $6,765 and $7,594 for 2011 and 2013, respectively, and that he was entitled to corresponding deductions under
For 2013 petitioner claimed personal exemption deductions under
Petitioner timely petitioned this Court on March 25, 2015. In his petition he did not assign error with respect to either item of unreported income, with respect to any of the disallowed Schedule C deductions, or with respect to the disallowed dependency exemption deductions for the children. He asserted vaguely: "I lost over $500,000 in my business and have my legal rights to write it off." Although he did not claim a net operating loss deduction on either tax return, he asserted: "I have evidence of my losses that by law I can write off as losses and carry over." He did not allege when or how the supposed losses occurred. He asserted that the IRS examining agent "was very arrogant and bossy" and that "this is a complete shake-down by the IRS."
On May 29, 2015, petitioner*160 filed a document captioned "Motion to Strike Respondent Affirmative Answers and Demanding Admissions." He asserted that the examination of his tax returns was an "illegal shake-down by the IRS [and] corrupted and unconstitutional behavior toward petitioner." He again alleged, without any specificity, that he had lost more than $500,000 on real estate and other investments and that he was "legally able to write off and carry the losses over." We denied that motion without prejudice.
*163 One month later, petitioner filed a motion virtually identical to the motion he had filed on May 29, continuing to assert frivolous arguments and maintaining his right to deduct unspecified losses. We denied that motion on July 29. Petitioner filed a motion for reconsideration that same day, asserting that the denial of his motion violated the
In August 2015 petitioner filed amended returns for 2011 and 2013. On the amended 2011 return he admitted receiving cancellation of indebtedness income of $25,287. He offset this income by claiming a loss of $5,564*161 on Schedule F, Profit or Loss from Farming, and a loss of $24,630 on Schedule E, Supplemental Income or Loss. (The $24,630 loss reported on that Schedule E was identical in dollar amount to the advertising expenses claimed on his Schedule C.) The IRS rejected both amended returns.
On March 25, 2016, petitioner filed a document captioned "Initial Brief and Facts," alleging (among other things) that the IRS "was acting illegally and was shaking me down and wanting to tax me on debts that were forgiven." On March 29 we ordered that document stricken from the record because it improperly included evidentiary material. We noted that petitioner's statements resembled those *164 appearing in the four motions he had filed previously and warned him as follows:
The Court regards some of these statements as frivolous, including assertions that the Internal Revenue Service is a "corrupt" agency, that the IRS examining agent was conducting a "shake down," and that the IRS examination violates petitioner's due process rights under the
The parties filed cross-motions for summary judgment on March 30, 2016. Respondent attached as exhibits to his motion copies of petitioner's tax returns and account transcripts for 2011 and 2013. Petitioner attached as exhibits to his motion copies of his amended 2011 and 2013 returns and an IRS request for substantiation of his reported Schedule C expenses.
On April 4, 2016, this Court ordered each party to file a response to the opposing party's motion for summary judgment. Respondent filed his response on April 19, 2016. Petitioner filed his response on April 21, 2016. He there admitted that he had "received gambling winnings in the amount of $10,000 for year 2013." He attached documents from a Florida family court ordering him to pay child support and maintain insurance for his children but no documentation relevant to his *165 eligibility to claim the children as his dependents. He attached no documentation relevant to the disallowed Schedule C deductions.*163 He reiterated his assertions that the IRS was engaged in "extortion and criminal action" against him and that IRS' actions "are illegal and frivolous and are part of the retaliation by certain enemies who are using the IRS to target me." He again alleged, without specificity or supporting documentation, that he "lost in excess of $500,000 due to the unpunished crimes of Banksters and wall street who defrauded me out of my wealth."
DiscussionA. Summary Judgment StandardThe purpose of summary judgment is to expedite litigation and avoid costly, time-consuming, and unnecessary trials.
Although petitioner has filed a great deal of paper, he has set forth no specific facts showing that there is a genuine dispute for trial on any of the issues raised in the notice of deficiency. Nor has he set forth any specific facts showing that he is entitled to a net operating loss carryforward to 2011 or 2013. We accordingly conclude that this case may be adjudicated summarily under
The IRS' determinations in a notice of deficiency are generally presumed correct, and the taxpayer bears the burden of proving those determinations erroneous.
The notice of deficiency determined two adjustments involving unreported income. For 2011 the IRS received a Form 1099-C from JPMorgan Chase Bank reporting that it had canceled petitioner's debt of $25,287; this was sufficient to link petitioner with an income-producing activity. On his 2011 amended return petitioner admitted that he received $25,287 of cancellation of indebtedness income. The IRS determined that he was not insolvent during 2011, see
*168 For 2013 the IRS received a Form W2-G reporting that petitioner had earned $10,000 of gambling winnings. In his response to respondent's motion for summary judgment, petitioner admitted that he had "received gambling winnings in the amount of $10,000 for year 2013." Petitioner has not alleged that he had gambling losses that offset his gambling winnings, and he has failed*166 to prove that the IRS erred by including this $10,000 in gross income. We accordingly sustain the IRS' determinations of unreported income as set forth in the notice of deficiency. See
Deductions are a matter of legislative grace. The taxpayer bears the burden of proving that claimed business expenses were actually incurred and were "ordinary and necessary."
Petitioner has set forth no specific facts concerning, and he has provided no documentation to substantiate, his claimed deductions for home office expenses ($5,725 for 2011), utilities expenses ($15,700 for 2013), or car and truck expenses ($22,277 in the aggregate). As to each of these items, his summary judgment papers do no more than allege that he incurred these costs.
Petitioner has provided no documentation to substantiate his claimed travel expense ($12,000 for 2011). His only factual allegation concerning*167 this item is that "petitioner's business was over 1050 miles round trip and he incurred much expense in caring for his business." Travel expenses are subject to heightened substantiation requirements. See
Petitioner has provided no documentation to substantiate the existence or amount of his claimed advertising expenses ($24,630 for 2011 and $28,652 for 2013). His only allegation concerning these expenses was that they related to "horses purchased for business use and the losses"; he attached documents purporting to establish the horses' pedigree. This unsubstantiated assertion does not *170 suffice to create a triable issue of fact concerning his ability to claim horse-related costs as advertising expenses of a financial consulting business. We conclude that petitioner has failed to prove his entitlement to any of the Schedule C deductions that the IRS disallowed.
D. Net Operating LossesPetitioner has repeatedly claimed that he suffered "losses of more than $500,000" that he is entitled to carry forward for 2011 and 2013. See
*171 We conclude that petitioner has failed to allege specific facts sufficient to create a triable issue concerning his entitlement to NOL deductions.
E. Personal Exemptions and Filing StatusOn his 2011 return, but not on his 2013 return, petitioner claimed dependency exemption deductions totaling $14,800 ($3,700 x 4) for his four children.*169 The IRS disallowed these deductions because petitioner's ex-wife had claimed these four children as dependents on her return.
Petitioner has set forth no specific facts concerning, and he has provided no documentation to substantiate, how many days a year the children resided with him or the percentage of their support that he supplied. He has thus failed to carry his burden of proving that any of the children was a "qualifying child" or a *172 "qualifying relative." See
Petitioner filed his 2011 return claiming head-of-household filing status. To be entitled to this filing status, a taxpayer must maintain a home that "constitutes for more than one-half of such taxable year the principal place of abode" of at least one qualifying child.
A taxpayer who files his return late is liable*171 for this addition to tax unless he shows that his failure was due to reasonable cause and not due to willful neglect.
The notice of deficiency determined understatements of income tax of $19,634 for 2011 and $16,004 for 2013, which we have sustained. These amounts *174 exceeded the greater of $5,000 or 10% of the total tax required to be shown on each return. Respondent has thus carried his burden of production by demonstrating a substantial understatement of income tax for each*172 year. See
Once respondent has carried his burden of production, the taxpayer bears the burden of proving reasonable cause and good faith.
*175 Petitioner has persistently advanced frivolous positions at every stage of this proceeding. Despite our warning on March 29, he continued to make frivolous arguments in his summary judgment papers. Although we would be justified in imposing a
To reflect the foregoing,
An appropriate order and decision
will be entered.
Footnotes
1. All statutory references are to the Internal Revenue Code in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. We round all dollar amounts to the nearest dollar.↩