T.C. Memo. 2013-129
UNITED STATES TAX COURT
JUANITA WRIGHT, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 26646-09. Filed May 20, 2013.
Juanita Wright, pro se.
Brian S. Jones, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COHEN, Judge: Respondent determined a $4,846 deficiency and additions
to tax of $1,020.37, $566.87, and $212.95 pursuant to sections 6651(a)(1) and (2)
and 6654(a), respectively, for 2006. After concessions, the issues for decision are
whether petitioner is entitled to deductions for a casualty loss, noncash charitable
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[*2] contributions, attorney’s fees, and tax preparation fees and whether she is liable
for the additions to tax under section 6651(a)(1) and/or (2). All section references
are to the Internal Revenue Code in effect for 2006, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated facts are
incorporated in our findings by this reference. Petitioner resided in Maryland when
her petition was filed. During 2006, she received taxable income from wages,
Social Security benefits, a Maryland State tax refund, interest, pension payments,
and a pension distribution.
Petitioner filed a Form 1040, U.S. Individual Income Tax Return, for 2006 on
October 9, 2009, and attached a Schedule A, Itemized Deductions. She claimed a
total of $19,851 in itemized deductions, including medical expenses, cash charitable
contributions, State and local taxes withheld, legal fees, safe deposit box rental, and
investment expenses, which have now been stipulated.
The largest item claimed on petitioner’s Schedule A, which is still in dispute,
is a casualty loss of $10,739 ($15,000, reduced to reflect statutory
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[*3] limitations of $100 and 10% of adjusted gross income). Petitioner’s claim is
based on water damage to her rented apartment, clothing, books, and other personal
possessions on August 12, 2006.
Petitioner filed a claim for reimbursement for physical damage to her property
and consequential damages, such as dry cleaning and storage fees, with Nationwide
Insurance. She also claimed additional living expenses. Nationwide Insurance
made payments to petitioner as follows:
Date Amount Designation of Payment
9/19/2006 $634.43 Living expenses
9/20/2006 233.07 Living expenses
10/9/2006 768.46 Living expenses
10/12/2006 750.00 Personal property, papers,
boxes, heater, books
copies
11/21/2006 1,761.23 Living expenses $861.23;
personal property $900
12/12/2006 611.19 Personal property
9/18/2007 1,500.00 Personal property
3/19/2008 2,051.51 Living expenses
The $1,500 payment made on September 18, 2007, was made after an
attorney employed by petitioner provided to the insurance company an itemized list
of clothing damaged in the August 12, 2006, casualty.
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[*4] In 2006, petitioner paid $150 for preparation of her 2005 tax return and paid
$500 to Jo Ann P. Myles for legal services relating to a landlord/tenant dispute.
Petitioner secured an extension of time to October 15, 2007, to file her 2006
Federal income tax return, and she paid $50 with the request for extension and $261
through withholding in 2006. On May 30, 2007, she fell and fractured her leg. She
was in the hospital for about a week and then in a rehabilitation center for about
three weeks. Afterwards her leg was in a cast for several months. She did not file a
Federal income tax return for 2006 before October 9, 2009, after the Internal
Revenue Service (IRS) prepared and executed a substitute for return under section
6020(b) and sent petitioner a notice of deficiency. She did, however, file a timely
return for 2007 on which she claimed a $300 refund.
OPINION
Procedural Matters
The petition in this case was filed November 9, 2009, and amended January
8, 2010. In the amended petition, petitioner disputed the income reported to the IRS
and the additions to tax. The case was first set for trial on January 24, 2011, but
was continued on petitioner’s informal request.
The case was again set for trial on December 5, 2011. Included with the
notice setting case for trial was the Court’s standing pretrial order. The parties
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[*5] were advised, among other things, of the necessity of exchanging documents
that the party expects to offer into evidence at trial no later than November 21,
2011. On August 17, 2011, respondent served a request for production of
documents seeking production of documents that petitioner intended to use in her
case and a request for admissions. Petitioner sought an extension of time to respond
to both requests, which the Court extended to October 31, 2011, in an order that
included the following:
Petitioner is warned that if she fails to timely file the response to
respondent’s request for admissions or if the Court determines that the
response does not comply with the requirements of Rule 90(c), Tax
Court Rules of Practice and Procedure, with regard to any matter in the
requested admissions, the Court may order that the matter is deemed
admitted for purposes of this proceeding.
The case was called and recalled on December 5, 2011. Petitioner again
requested a continuance to obtain additional documents. She had not produced
records from her insurance company despite respondent’s repeated requests for such
records. The Court granted petitioner’s motion for continuance in an order that
included the following:
ORDERED that on or before February 29, 2012, petitioner shall
provide to respondent’s counsel any and all documents or other
materials that petitioner wishes to rely upon in support of her case;
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[*6] unless otherwise ordered by the Court, petitioner shall not be
entitled to rely upon or introduce into evidence documents or other
materials that are not provided to respondent’s counsel by February 29,
2012. It is further
ORDERED that on or before March 30, 2012, the parties shall
file a joint status report reflecting the then-present status of this case.
In a joint status report filed April 5, 2012, respondent conceded medical
expenses, cash contributions, safety deposit box rent, investment expenses, and
legal expenses on the basis of documents that petitioner provided. The case was
then set for trial on June 25, 2012.
On April 10, 2012, petitioner filed another motion for continuance, which was
denied. On June 15, 2012, she filed another motion for continuance, which was set
for hearing on June 25, 2012. At the hearing respondent explained that petitioner
had failed to produce insurance company records, so respondent subpoenaed those
records. The motion for continuance was granted because petitioner represented
that she was suffering from dental problems, and the case was set for trial on
November 5, 2012. The Court’s standing pretrial order again reminded the parties
of the necessity of exchanging documents at least 14 days before trial.
[*6] At the time of trial, the parties filed a stipulation attaching various documents
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received from petitioner and from Nationwide Insurance. Additional documents
were presented by petitioner. Some were received in evidence, and some were
excluded because they were untimely under the outstanding orders and some
because they were unnecessary in view of petitioner’s uncontradicted testimony
about her medical condition in 2007. At the conclusion of trial, the Court ordered
respondent to proceed with a brief summarizing respondent’s position on the
evidence and issues and ordered an answering brief from petitioner. Thereafter,
petitioner filed motions to reopen the record for further documents and to be
relieved of the stipulation. Both motions were denied. After three continuances and
three years between the petition and the trial, there was no excuse for extending the
proceedings. An order dated November 16, 2012, among other things, included the
following:
Petitioner is advised that she should confine any further
communications to the Court to her response to respondent’s opening
brief, when filed, in her reply brief due February 21, 2013. She is
further advised that Rule 143(c), Tax Court Rules of Practice and
Procedure provides in part that “ex parte affidavits, statements in
briefs, and unadmitted allegations in pleadings do not constitute
evidence.” Finally, she is advised that the form and contents of briefs
are set forth in Rule 151(e), Tax Court Rules of Practice and
Procedure. It is further
[*7] ORDERED that copies of Rules 143 and 151 are attached to this
Order to be served on petitioner.
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After another extension of time requested by petitioner, her answering brief
was filed. Attached to it were over 150 pages of copies of materials expressly
excluded from evidence during trial, not previously presented, or duplicative of
documents received in evidence. Although the attachments were not appropriate for
filing and could be stricken, they have been included as part of the record to
demonstrate petitioner’s persistence in disregarding time limitations and the Court’s
orders and Rules. We have not considered the improper attachments in our findings
of fact.
Petitioner has the burden of proving that she is entitled to the deductions that
she claims. See Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435
(1934). The evidence includes some records as to the casualty loss but only
petitioner’s testimony as to other deductions. We need not accept petitioner’s
testimony and may reject it when inconsistencies or improbabilities render it
unreliable. See Fleischer v. Commissioner, 403 F.2d 403, 406 (2d Cir. 1968), aff’g
T.C. Memo. 1967-85; Tokarski v. Commissioner, 87 T.C. 74, 77 (1986). In view of
the many inconsistencies in the evidence and in petitioner’s evolving claims, we
conclude that many of her recollections and reconstructions are not
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[*9] reliable. As indicated below, however, we have accepted her testimony as to
her medical situation in 2007 and a $150 deduction for a tax preparation fee
payment consistent with our statements during the trial that we would do so.
Casualty Loss
There is no dispute that in 2006 petitioner suffered water damage to her
property. Respondent contends, however, that any loss is not deductible until
petitioner’s claim was resolved by Nationwide Insurance, that the claim was still
pending as of the end of 2006, and that, in any event, petitioner has not
substantiated any loss not reimbursed by insurance. See section 1.165-1(d)(2)(i),
Income Tax Regs., which precludes deduction of a casualty loss in a year in which
there exists a claim for reimbursement with respect to which there is a reasonable
prospect of recovery.
Petitioner contends that she was told in 2006 that her claim against
Nationwide Insurance was closed and that the subsequent payments were the result
of “reopening” that claim. The record of ongoing communications between her and
the insurance company, however, contradicts that contention. She testified that the
$1,500 she received in 2007 “wasn’t part of the $15,000” and she was “going to
take it off of my 2008 taxes”. However, all of her claims were identified as
resulting from water damage on August 12, 2006, and were part of the same [*9]
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claim against the insurance company. Her testimony and the Nationwide Insurance
records undermine her claim that the amount of loss from the 2006 casualty was
resolved during 2006.
Petitioner also argues that she was never compensated for the value of her
clothing, textbooks, photographs, x-rays, and other personal property. She denies
receiving any payments in 2006 for damaged items, but again her contention is
contradicted by records of the insurance company. She relies on her estimates of
replacement costs or original costs, but she has not shown the fair market value of
any of the property at the time of the loss. See sec. 1.165-7(a)(2), (b)(1), Income
Tax Regs. She has not shown what items were not compensated by insurance, and
her representations with respect to the insurance claim have been inconsistent and
unreliable. We have no rational basis on which to estimate the correct allowance, if
any. See Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985), distinguishing
Cohan v. Commissioner, 39 F.2d 540, 544 (2d Cir. 1930). We agree with
respondent’s contentions. Petitioner is not entitled to any deduction for the casualty
loss claimed for 2006.
Charitable Contributions
Similarly, petitioner did not provide any substantiation of noncash items
donated to charity by identifying the name and address of the donee organization,
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[*11] the date and location of the contribution, and a description of the items and
the fair market value of the items. See sec. 1.170A-13(b)(1), (2)(ii), Income Tax
Regs. She merely claims she dropped unidentified items in a neighborhood box
designated for charity. Again we have no rational basis on which to estimate the
correct amount, if any, for the noncash contribution. See Vanicek v. Commissioner,
85 T.C. at 742-743. Petitioner is not entitled to any additional charitable
contribution deduction beyond that conceded by respondent for cash contributions.
Tax Preparation Fee
On her 2006 Schedule A, petitioner claimed a $150 tax preparation fee. The
document she initially provided to the IRS to substantiate that claim related to $107
paid for preparation of her 2006 return in 2009, so respondent doubted her
credibility and rejected the claimed deduction. Petitioner testified at trial that she
paid $150 for preparation of her 2005 return, after receiving a senior citizen
discount. She asserts in her posttrial brief that she paid $215. Notwithstanding
these inconsistencies, we accept her testimony that she paid $150 in 2006, and that
amount is allowable as a miscellaneous deduction under section 212(3), subject to
the 2% of adjusted gross income floor of section 67(a).
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[*12] Attorney’s Fee
The $500 attorney’s fee petitioner paid relating to her landlord/tenant dispute
is a nondeductible personal expense. See sec. 262. She is not entitled to any
deduction for attorney’s fees beyond the stipulated amount paid to recover income.
Section 6651(a) Additions to Tax
Section 6651(a)(1) provides for an addition to tax in the event a taxpayer fails
to file a timely return (determined with regard to any extension of time for filing)
unless the taxpayer shows that such failure is due to reasonable cause and not due to
willful neglect. The amount of the addition is equal to 5% of the amount required to
be shown as tax on the delinquent return for each month or fraction of a month
during which the return remains delinquent, up to a maximum addition of 25% for
returns more than four months delinquent.
Section 6651(a)(2) provides for an addition to tax for failure to pay the
amount shown as tax on a return, including a substitute for return prepared by the
IRS. See sec. 6651(g)(2). That addition accrues at the rate of 0.5% of the amount
shown on the return for each month or fraction of a month during which the failure
to pay continues, up to a maximum of 25%. The total additions under section
6651(a) are limited if an addition applies under both section 6651(a)(1) and (2).
[*12] Sec. 6651(c). Each addition is for a separate and distinct infraction, is
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imposed on a different amount, and is imposed for a different period. See Estate of
Rauhoff v. Commissioner, T.C. Memo. 1982-494.
The Commissioner bears the burden of production with respect to the liability
of any individual for any penalty or addition to tax. Sec. 7491(c). That burden is to
show that imposition of the penalty or addition to tax is appropriate. Higbee v.
Commissioner, 116 T.C. 438, 446 (2001). If the Commissioner carries that burden,
the taxpayer must come forward with evidence sufficient to persuade us that
imposition of the penalty or addition to tax is incorrect (e.g., because of the
existence of reasonable cause and the absence of willful neglect). See id. at 446-
447. Respondent’s burden is met here because the 2006 return was not filed until
2009 and the amount shown on the substitute for return has not been paid.
Petitioner contends that the 2007 stay in the hospital and rehabilitation facility
and the cast that remained on her leg are reasonable cause for her failure to timely
file her 2006 return. Petitioner argues that she had continuing medical issues, that
some of the records necessary to the preparation of her 2006 return were damaged
and that she had to obtain copies, and that she was displaced with her personal and
business items in storage at the time the return was due. Respondent argues that the
timely filing of the 2007 return and petitioner’s ability [*13] to carry on negotiations
with Nationwide Insurance and perform other tasks during 2007 negate reasonable
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cause. We are persuaded that the failure to file her 2006 return by the October 2007
due date was due to petitioner’s circumstances and that the minimal activities she
conducted during 2007 do not contradict her position, although we are troubled by
the delay in filing the return that continued through 2008 and most of 2009. On
balance, we conclude that petitioner had reasonable cause for late filing of the return
and is not liable for the section 6651(a)(1) addition to tax.
The addition to tax for failure to pay under section 6651(a)(2), however, is
avoided only if the taxpayer shows that she exercised ordinary business care and
prudence in providing for payment of the liability and was nevertheless either unable
to pay the tax or would suffer an undue hardship. Sec. 301.6651-1(c)(1), Proced. &
Admin. Regs. Petitioner paid only $50 on her 2006 liability with her application for
extension of time and only $311 total, including amounts withheld from her 2006
income. Except for circumstances not present here, an extension of time for filing a
return does not operate to extend the time for payment of the tax. Sec. 1.6081-1(a),
Income Tax Regs. Thus, this addition to tax applies separately, even if reasonable
cause exists for late filing of the return. Petitioner’s explanation of the ongoing
health issue and the unavailability of records necessary [*14] to filing her return
does not apply equally to the simpler task of making a payment. See also Taylor v.
Commissioner, T.C. Memo. 2009-27. There is no evidence that petitioner was
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unable to pay the tax that was due or would suffer undue hardship from making
payment. The addition to tax under section 6651(a)(2) is applicable to petitioner’s
late payment, up to a maximum of 25% of the unpaid tax.
We have considered the other arguments of the parties. Many of petitioner’s
arguments are not based on the evidence and are belated. We do not, for example,
address her arguments about application of subsequent payments of tax to years
other than 2006, except to note that overpayments by a taxpayer may be applied to
other tax liabilities of the taxpayer at the discretion of the IRS. See sec. 6402(a);
Weber v. Commissioner, 138 T.C. 348, 355-356 (2012); sec. 301.6402-3(a)(6)(i),
Proced. & Admin. Regs.
To reflect the stipulation and our conclusions,
Decision will be entered
under Rule 155.