Chapman v. Comm'r of Internal Revenue
| Citation | 14 T.C. 943 |
| Decision Date | 26 May 1950 |
| Docket Number | Docket No. 19426. |
| Parties | GUSSIE P. CHAPMAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
The tax as shown opposite a taxpayer's ‘adjusted gross income‘ in the tax table contained in section 400 of Supplement T of the Internal Revenue Code is a tax computed on the taxpayer's ‘net income,‘ arrived at by allowing deductions substantially equal to 10 per cent of the taxpayer's gross income, his personal exemption, and credits for dependents. Gussie P. Chapman, pro se.
Douglas L. Barnes, Esq., for the respondent.
In this proceeding petitioner challenges respondent's determination of a deficiency in income tax for 1946 in the amount of $114.50 on the ground that her tax as computed under the tax table set out in section 400 of the Internal Revenue Code is not imposed on her ‘net income,‘ as required by the statute.
Petitioner is an individual, residing in Helena, Montana, who filed her 1946 individual income tax return with the collector of internal revenue for the district of Montana.
During the taxable year, petitioner was employed as a file clerk by the Bureau of Internal Revenue. In her 1946 return she reported as her only income a salary of $1,606.27 and claimed the following deductions:
+---------------------------------+
¦Contributions ¦ ¦$11.00¦
+-------------------+------+------¦
¦Taxes: ¦ ¦ ¦
+-------------------+------+------¦
¦Real estate ¦$13.42¦ ¦
+-------------------+------+------¦
¦Telephone and tolls¦10.09 ¦ ¦
+-------------------+------+------¦
¦ ¦ ¦23.51 ¦
+-------------------+------+------¦
¦Loss from theft ¦ ¦65.00 ¦
+-------------------+------+------¦
¦Medical expense ¦ ¦32.90 ¦
+-------------------+------+------¦
¦ ¦ ¦ ¦
+-------------------+------+------¦
¦Total deductions ¦ ¦132.41¦
+---------------------------------+
Petitioner filed in as follows the tax computation section on page 3 of her return which is headed ‘TAX COMPUTATION— FOR PERSONS NOT USING TAX TABLE ON PAGE 4‘:
+------------------------------------------------+
¦Line 1, adjusted gross income ¦$1,606.27¦
+--------------------------------------+---------¦
¦Line 2, deductions ¦132.41 ¦
+--------------------------------------+---------¦
¦ ¦ ¦
+--------------------------------------+---------¦
¦Line 3, net income ¦1,473.86 ¦
+--------------------------------------+---------¦
¦Line 4, exemption ¦500.00 ¦
+--------------------------------------+---------¦
¦ ¦ ¦
+--------------------------------------+---------¦
¦Line 5, difference ¦973.86 ¦
+--------------------------------------+---------¦
¦Line 6, tentative tax ¦70.00 ¦
+--------------------------------------+---------¦
¦Line 7, 5% of amount entered on line 6¦3.50 ¦
+--------------------------------------+---------¦
¦ ¦ ¦
+--------------------------------------+---------¦
¦Line 8, combined normal tax and surtax¦66.50 ¦
+------------------------------------------------+
The tentative tax in the amount of $70, entered on line 6 on page 3 of petitioner's return, was not computed at the rates prescribed by sections 11 and 12 of the Internal Revenue Code, but was taken from the tax table on page 4 of Form 1040 with section 400, and represents the amount of tax for an individual with one exemption having an income of at least $950 but not more than $975.
Petitioner claimed a refund of the difference between the amount withheld from her salary and the tax liability shown on her return, computed as follows:
+--------------------------------+
¦Amount of tax withheld ¦$193.90¦
+------------------------+-------¦
¦Tax liability per return¦66.50 ¦
+------------------------+-------¦
¦ ¦ ¦
+------------------------+-------¦
¦Overpayment claimed ¦127.40 ¦
+--------------------------------+
The amount of $127.40 was refunded to petitioner to the audit of her return.
After examination, a 30-day letter was issued to petitioner by the collector under date of December 29, 1947, explaining that the deductions she had claimed in the amounts of $10.09 for Federal excise taxes and $32.90 for medical expenses were not deductible for income tax purposes, for the reason that excise taxes may only be deducted as business expense or expense incurred in the production of income, and that her medical expenses failed to exceed 5 per cent of her adjusted gross income. The collector further held that petitioner had used parts of both methods in determining her tax and, since she had failed to indicate a clear election to use either sections 11 and 12 or section 400, the liability was computed under the method which produced the smaller tax. Her liability under sections 11 and 12, based upon the allowable deductions and one personal exemption, was determined to be $193.20. Her liability under section 400, using the tax table provided therein, was determined in the amount of $181. The 30-day letter and the subsequent statutory notice of deficiency determined a deficiency in the amount of $114.50, representing the difference between a liability of $181 and the tax in the amount of $66.50 shown to be due on petitioner's return.
The law governing the manner in which the income tax liability of an individual taxpayer shall be computed is clear and unambiguous. Sections 11 and 12 of the Internal Revenue Code impose a normal tax and a surtax upon the net income of every individual taxpayer. However, both sections provide that a taxpayer may elect to pay an alternative tax under section 400 of Supplement T in lieu of the normal tax and surtax if his adjusted gross income for the taxable year is less than $5,000. The Internal Revenue Code as applicable to the year 1946, by Supplement T— Individuals With Adjusted Gross Income of...
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