Bermingham v. Commissioner
| Decision Date | 23 February 1994 |
| Docket Number | Docket No. 24897-90. |
| Citation | 67 T.C.M. 2200 |
| Parties | Raymond J. Bermingham and Felicia A. Bermingham v. Commissioner. |
| Court | U.S. Tax Court |
Raymond J. Bermingham, pro se.1 Monica E. Koch, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined a deficiency in Federal individual income tax against petitioners for 1987 in the amount of $11,421.22,2 and additions to tax under section 6653(a)(1)(A)(negligence, etc.) in the amount of $244.55, section 6653(a)(1)(B)(negligence, etc.) in the amount of 50 percent of the interest on $4,891.02, and section 6661(a) () in the amount of $2,855.31.
In the answer, respondent describes the section 6653(a)(1)(B) determination as "50% of the interest due on $11,421.22." We treat this as a claim under section 6214(a) for an increased amount of section 6653(a)(1)(B) addition. This matter is discussed further infra in Part II.A.
Petitioners claim an overpayment of $667.58.
After concessions by both sides,3 the issues for decision are as follows:
(1) Whether petitioners had income from dividend and capital gain distributions in 1987 from Putnam International Equities (hereinafter sometimes referred to as Putnam), a mutual fund;
(2) whether petitioners may deduct Raymond's lodging expenses as a business expense;
(3) whether petitioners may deduct amounts for tools and professional dues as a business expense of Raymond;
(4) whether petitioners may deduct amounts for clothes and grooming as a business expense of Felicia;
(5) whether petitioners may deduct Raymond's contribution to an individual retirement account (hereinafter sometimes referred to as an IRA);
(6) whether petitioners are liable for additions to tax under subparagraphs (A) and (B) of section 6653(a)(1) (), and, if so, then what the amount is of the underpayment to which the subparagraph (B) addition applies;
(7) whether petitioners are liable for an addition to tax under section 6661 ().
Some of the facts have been stipulated; the stipulations and the stipulated exhibits are incorporated herein by this reference.
When the petition was filed in the instant case, in November 1990, Felicia resided in New York, New York, and Raymond resided in Melville, New York. Petitioners filed a joint Federal income tax return for 1987.
During 1987 Felicia was employed by Parfums Stern, Inc. (hereinafter sometimes referred to as Stern), to sell perfume at the Stern perfume counter at the B. Altman & Co. department store in Manhattan, New York City. Stern's Employee Information Manual applicable to 1987 states as follows:
Personal A neat and clean appearance is important
Appearance when working with others
You represent Parfums Stern Inc. so
your personal taste and style of
clothing should be appropriate for
your position
Personal appearance was an area of periodic review for Felicia, but she was not required to wear a uniform or special dress while at work. Stern has never maintained a dress code.
During 1987 Felicia was an active participant in Stern's tax-qualified employees pension plan. Felicia is 22 years younger than Raymond. By the time of the trial petitioners were divorced and Stern's tax-qualified employees pension plan had been terminated. Raymond contributed $2,000 to his IRA for 1987.
During 1987 Felicia lived in Manhattan, while Raymond lived in Melville, at the western end of Suffolk County, on Long Island. Raymond had lived at the same address in Melville (hereinafter sometimes referred to as the Melville residence) since September 1981. From March 1976 to August 1981, he had lived in Dix Hills, which is about 5 miles northeast of Melville.
Raymond worked at Grumman Aerospace Corp. (hereinafter sometimes referred to as Grumman) from September 1978 through February 1987 in Grumman's stress analysis department. Grumman was located in Bethpage, at the eastern end of Nassau County, about 5 miles southwest of Melville. Before that, he had worked for Fairchild Republic, in Farmingdale, about 4 miles south of Melville and about 5 miles east of Grumman, from July 1977 to August 1978. Before that, he had worked for Grumman from February 1976 to June 1977.
Raymond's pre-1976 employment history is as shown in table 1.
Table 1
Time Period Location Employer1
2/75 - 11/75 .......................... New Orleans, La. Martin Marietta
3/74 - 1/75 ........................... Bethpage, N.Y. Grumman
3/73 - 2/74 ........................... Farmingdale, N.Y. Fairchild Republic
9/71 - 2/73 ........................... Miscellaneous
3/71 - 9/71 ........................... Farmingdale, N.Y
5/70 - 2/71 ........................... Unemployed
3/69 - 5/70 ........................... Bethpage, N.Y. Grumman
9/68 - 2/69 ........................... Burbank, Calif. Lockheed
9/67 - 8/68 ........................... Nashville, Tenn. Avco
1/67 - 8/67 ........................... Newport Beach, Calif. Philco-Ford
12/65 - 12/66 ......................... Downey, Calif. North American Aviation
6/59 - 11/65 .......................... Columbus, Ohio North American Aviation
Before 1959 ........................... Various positions in Denver, Colo
Teterboro, N.J., and Farmingdale, N.Y
1 Petitioner was employed by Volt Information Sciences, Inc., which assigned him to the indicated jobs. What we
show as "Employer" is referred to in the employment agreements as "Customer" or "Client". No party contends
that our analysis should be affected by whether Volt or Grumman was technically Raymond's employer
Raymond was laid off from Grumman's stress analysis department in February 1987. On April 27, 1987, Raymond was rehired by Grumman to work in the material review division. Before he was rehired, Raymond submitted a resume and a security questionnaire to the material review division. Raymond worked in the material review division until he was laid off on January 13, 1989.
Raymond was registered to vote in Melville. Raymond's automobile was registered to his Melville address. Raymond did not pay any New York City income taxes for 1987.
Raymond has degenerative arthritis of the spine, and prolonged driving may injure his health. In 1987 Raymond did not incur any medical expenses for his degenerative arthritis condition.
Since 1979 petitioners had taken deductions on their Federal income tax returns for expenses relating to Raymond's separate home in the vicinity of his Grumman employment. Petitioners' deduction for 1979 was challenged by respondent, but respondent then conceded the issue for 1979. Respondent did not question the corresponding deductions for 1980 through 1986.
On their 1987 tax return, petitioners claimed itemized miscellaneous deductions as follows:
Felicia's clothes and grooming expenses: ... $ 5,000
Tools and professional dues: ................. 1,000
Cost of maintaining second home due to
chronic back condition (doctor's affidavit
enclosed) 300 × 52 = ....................... 15,600
_______
Total ................................. 21,600
This total was then reduced by 2 percent of adjusted gross income (calculated as $2,182 on petitioners' tax return) and the remainder ($19,418) added to petitioners' other itemized deductions.
On December 18, 1986, Raymond and Felicia invested $50,000 in Putnam. Their investment, at a cost of $31.43 per share, gave them 1,590.837 shares. On March 10, 1987, distributions by Putnam were reinvested at a cost of $29.09 per share, giving petitioners an additional 237.341 shares, for a total Putnam holding of 1,828.178 shares. On December 10, 1987, distributions by Putnam were reinvested at a cost of $22.61 per share, giving petitioners an additional 294.481 shares, for a total Putnam holding of 2,122.659 shares. These distributions4 were automatically reinvested in Putnam in 1987. Petitioners did not report the distributions from Putnam on their tax return. In 1989 petitioners sold all 2,173.071 shares (additional reinvestments of distributions were made in 1988) of their Putnam stock for $57,542.92, or $26.48 per share.
On petitioners' 1987 tax return, they list 30 securities sales involving three brokerage firms. The securities in these transactions cost petitioners an aggregate of $60,865.35 and produced aggregate receipts of $65,442.96.
On their tax return, petitioners took a $2,000 IRA contribution deduction, and they reported adjusted gross income of $109,103.82, taxable income of $72,068.06, a tax liability of $18,313.82, and withholding of $18,773.19. They claimed a refund of $459.37.
On May 9, 1988, respondent sent to petitioners a correction notice, see infra note 11, which stated that respondent had made three corrections to petitioners' 1987 tax return, as follows: (1) The deduction for a contribution to Raymond's IRA was disallowed, discussed infra, at Part I.E., (2) the deduction for personal exemptions was reduced,5 and (3) a lower tax rate was applied to certain capital gains. These changes resulted in petitioners having a tax liability for 1987 of $19,337.35, and an amount due (after application of petitioners' withholding amounts) of $564.16. Respondent withheld $564.16 (plus interest) from petitioners' income tax refund for 1988.
By 1987 Raymond's employment in the general vicinity of the Melville residence was indeterminate; it may have been indeterminate in its inception.
Petitioners are not unsophisticated investors. Petitioners were negligent in not reporting the dividend and capital gain distributions from Putnam and...
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