Cole v. Comm'r
| Decision Date | 29 April 2013 |
| Docket Number | Docket No. 14402-11S,T.C. Summary Opinion 2013-34 |
| Parties | HARRY E. COLE AND DEBORAH L. COLE, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
PURSUANT TO INTERNAL REVENUE CODE
SECTION 7463(b),THIS OPINION MAY NOT
BE TREATED AS PRECEDENT FOR ANY
OTHER CASE.
Harry E. Cole and Deborah L. Cole, pro sese.
Nancy M. Gilmore, for respondent.
GUY, Special Trial Judge: This case was heard pursuant to the provisions of section 7463 of the Internal Revenue Code in effect when the petition wasfiled.1 Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case.
Respondent determined deficiencies in petitioners' Federal income tax, additions to tax, and accuracy-related penalties for the years and in the amounts as follows:
+----------------------------------------------------+
¦ ¦ ¦Addition to tax ¦Penalty ¦
¦Year ¦Deficiency ¦ ¦ ¦
¦ ¦ ¦sec. 6651(a)(1) ¦sec. 6662(a) ¦
+------+------------+-----------------+--------------¦
¦2006 ¦$9,640 ¦$1,408 ¦$1,928 ¦
+------+------------+-----------------+--------------¦
¦2007 ¦8,604 ¦--- ¦1,721 ¦
+------+------------+-----------------+--------------¦
¦2008 ¦7,405 ¦664 ¦1,481 ¦
+----------------------------------------------------+
Petitioners filed a timely petition for redetermination with the Court pursuant to section 6213(a). At the time the petition was filed, petitioners resided in Maryland.
After concessions,2 the issues remaining for decision are whether: (1) petitioners are entitled to deductions for casualty losses of $2,284 and $18,668 for 2006 and 2008, respectively, related to flooding in their basement; (2) petitioners are entitled to a deduction for a casualty loss of $18,818 for 2007 related to damage to their car; (3) petitioners are liable for accuracy-related penalties under section 6662(a) for the years in issue; and (4) Mrs. Cole is entitled to relief from joint and several liability under section 6015 for the years in issue.
Some of the facts have been stipulated and are so found. The stipulation of facts and the accompanying exhibits are incorporated herein by reference.
Petitioners were married in 1985 and have two adult children. Although petitioners testified at trial that they consider themselves to be separated, they have never been divorced or legally separated, and they continued to reside in the same household at all times relevant to this case.
During the years in issue neither petitioner was self-employed, and petitioners did not own any business or income-producing property.
Petitioners maintained separate bank accounts and shared household expenses. Mr. Cole made monthly mortgage payments while Mrs. Cole paid grocery, utility, and other expenses. Petitioners also maintained a joint credit union account which they used as a repository for tax refund checks. The funds in the credit union account were used for household expenses.
Mrs. Cole graduated from high school and is working toward a bachelor's degree. From 1986 to 2006 she worked in the finance department at Bally Total Fitness, serving as a supervisor of telemarketers. She began to work in the customer service department for the Baltimore Orioles in 2007.
During the years in issue Mr. Cole worked as a railroad conductor and engineer for Norfolk Southern Corp. The parties stipulated that Mr. Cole qualified for "the special employee business expense rules for transportation workers" during the years in issue, and they agree that he is entitled to deductions for unreimbursed employee business expenses as follows:
The basement in petitioners' home was damaged because of flooding in 2006 and 2008. Petitioners did not file a claim for reimbursement under their homeowner's insurance policy for the damage incurred in either 2006 or 2008. Petitioners instead filed suit against the City of Baltimore, asserting that the flooding was attributable to malfunctions in the City's main water line and seeking reimbursement of some or all of the damages. At the time of the trial in this case, petitioners' suit was still pending, and petitioners testified that they were actively prosecuting the case.
In 2001 petitioners purchased a preowned 1999 Mercedes-Benz (Mercedes). In February 2007 the Mercedes was damaged and petitioners received a payment of $15,376 from their insurance company for the "total loss" of the vehicle. At the time petitioners submitted their insurance claim, the Mercedes had been driven 82,685 miles. Petitioners failed to offer any evidence of their adjusted basis in or the fair market value of the Mercedes as of the date it was damaged in 2007.
On August 14, 2008, petitioners filed joint Federal income tax returns for 2006 and 2007. The parties agree that petitioners have additional wage income of $10,603 and additional income tax withholding of $851 for 2006. The record does not reflect whether the additional wage income is attributable to Mr. or Mrs. Cole or both of them. Petitioners filed a joint Federal income tax return for 2008 on January 22, 2010. Petitioners concede that they are liable for additions to tax under section 6651(a)(1) for late filing for 2006 and 2008.
Petitioners claimed deductions on Schedules A for casualty losses of $2,284 and $18,668 for 2006 and 2008, respectively, attributable to flood damage to their basement. Petitioners claimed a deduction for a casualty loss of $18,818 on line 14 ("Other gains or (losses)") of their 2007 return. Petitioners computed the loss,which related to the damaged Mercedes, on section B of Form 4684, Casualties and Thefts, reserved for casualty gains or losses for business and income-producing property. Specifically, petitioners computed the $18,818 loss by subtracting $16,000 (approximate insurance reimbursement) from $34,818 (estimated adjusted basis).
Petitioners claimed refunds of $4,008, $4,721, and $4,751 on their returns for the taxable years 2006, 2007, and 2008, respectively.
Petitioners' tax returns for 2006 and 2007 were prepared by MBA Financial Services, and their return for 2008 was prepared by Okojie Associates, Inc. It was Mr. Cole's practice to deliver the couple's tax records to the return preparer and, after the returns were prepared, present them to Mrs. Cole for her signature. After the returns were prepared, petitioners routinely signed them without reviewing them in any detail. Although Mrs. Cole had never been introduced to the return preparer, she trusted that the returns were accurate.
After filing the petition in this case, Mrs. Cole requested spousal relief under section 6015 for the years in issue. Respondent concedes that Mrs. Cole is entitled to relief from joint and several liability only in respect of so much of thedeficiencies, additions to tax, and accuracy-related penalties as is attributable to Mr. Cole's disallowed employee business expenses.
As a general rule, the Commissioner's determination of a taxpayer's liability in a notice of deficiency is presumed correct, and the taxpayer bears the burden of proving that the determination is incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
Petitioners have not complied with the Code's substantiation requirements. Therefore, the burden of proof as to any relevant factual issue does not shift to respondent under section 7491(a). See sec. 7491(a)(1) and (2); Higbee v. Commissioner, 116 T.C. 438, 442-443 (2001).
Deductions are a matter of legislative grace, and the taxpayer generally bears the burden of proving entitlement to any deduction claimed. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). A taxpayer must substantiate deductions by keeping and producing adequate records that enable the Commissioner to determine the taxpayer's correct tax liability. Sec. 6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on aFederal income tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate that the expense to which the deduction relates has been paid or incurred. Sec. 6001;...
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