Shuman v. Comm'r

• Decision Date: 23 August 2018
• Docket Number: Docket No. 15847-14L.,Docket No. 27857-13,T.C. Memo. 2018-135
• Parties: LOUIS S. SHUMAN AND SANDRA SHUMAN, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

LOUIS S. SHUMAN AND SANDRA SHUMAN, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

T.C. Memo. 2018-135

Docket No. 27857-13

Docket No. 15847-14L.

UNITED STATES TAX COURT

August 23, 2018

Louis S. Shuman, pro se.

Alex Shlivko, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

GALE, Judge: This proceeding involves two cases that have been consolidated for trial, briefing, and opinion. In the first, at docket No. 27857-13, petitioners¹ seek redetermination of respondent's determination of a deficiency of $88,613 and a section 6662(a) accuracy-related penalty of $17,723 with respect to petitioners' Federal income tax for 2011.² In the second, at docket No. 15847-14L, petitioners seek review of a determination by the Office of Appeals (Appeals) of the Internal Revenue Service (IRS) to proceed with a levy to collect $40,277 in Federal income tax that petitioners reported as due on their joint Federal income tax return for 2011.³ After concessions,⁴ the following issuesremain for decision: (1) whether respondent properly disallowed a $197,337 casualty loss deduction claimed on the 2011 return; (2) whether respondent properly disallowed a $566,889 credit, for 2011 estimated tax payments and amounts applied from the 2010 return, claimed on the 2011 return; (3) whether petitioners are liable for a section 6662(a) accuracy-related penalty with respect to the underpayment arising from the disallowance of the casualty loss deduction claimed on the 2011 return; and (4) whether the determination by Appeals to proceed with the proposed levy to collect the 2011 income tax liability as reported by petitioners was an abuse of discretion.

FINDINGS OF FACT

Some of the facts have been stipulated and, together with the exhibits attached thereto, are incorporated herein by this reference. At the time the petitions were filed in these cases, petitioners resided in Maryland.

I. 2010 return

A. Original 2010 return

Petitioners (who were spouses) timely filed a 2010 joint Federal income tax return (original 2010 return), reporting taxable income of $226,830 and total tax due of $69,662. The original 2010 return reported withholding tax payments of $17,856 and no 2010 estimated payments or amounts applied from 2009, resulting in total tax payments of $17,856. Petitioners reported a balance due of $52,875, consisting of $51,806 in tax and an estimated tax penalty of $1,069. Petitioners did not refer to or claim a deduction for a casualty loss on the original 2010 return.

B. Amended 2010 returns

Petitioners submitted two amended returns for the 2010 taxable year (first and second 2010 amended return, respectively).

1. First 2010 amended return

The first 2010 amended return reported an approximately $30,000 decrease in taxable income, stating that it reflected a correction "for professional/consultant fees (2010 Schedule C adjustment: $30,000)." The return also reported reductions of $20,087 and $803 in income and employment tax, respectively, without apparent explanation. The return also reported a previously undisclosed estimated tax payment of $618,403, explaining the newly claimed payment as follows: "Correction of returns for 2005-2009, to correct payments properly applied to 2005-2009 resulted in payments reflected on this amended return. * * * These corrections arise from taxpayer(s) [sic] stock option income being taxed without deduction for stock option basis." Petitioners added their previously reported withholding of $17,856 to the newly claimed estimated tax payments of $618,403, applied that sum ($636,259) against the reported total tax due of $48,772, and claimed the difference of $587,487 as an overpayment. The return elected that the claimed $587,487 overpayment be applied toward petitioners' 2011 estimated tax.

Petitioners attached to the first 2010 amended return a 12-page letter asserting that as a result of amended returns completed for the 2005 to 2009 taxable years, they were entitled to the amount claimed as an overpayment. In the attached letter, petitioners also asserted that they were entitled to a "business loss" deduction under section 165 for 2010 because that was the year in which the "taxpayer became aware, for the first time, of the substantial losses incurred because tax professionals, that prepared taxpayer's returns, did not reduce stock option income by stock option basis." The letter included the following, which it characterized as a calculation of the claimed loss:

1. $641,345, as set out in Atch 06, and Atch 001-2005;⁵

2. Increased overpayments of state-local taxes approximated at: $60,750;

3. Forced sale of taxpayers [sic] Potomac, Md home, with resulting closing costs approximating: $20,000; and loss of equity in home approximating: $400,000.

4. Subsequent purchase of home, with closing costs approximating: $20,000.

5. Purchase of home, approximately 1/2 the value of the Potomac MD home, with no equity, and increased mortgage; difference in cost of Potomac mortgage payments and Chevy Chase payments (2006-2010), approximating: $225,000.

6. Total loss: $967,095.

The attached letter stated the following with respect to the claimed loss:

Taxpayer has no coverage for this loss, by compensation, or otherwise. If taxpayer were to make a claim, it would be in the nature of professional malpractice, and/or negligence. Taxpayer has abandoned any such claims, because, in addition to the time and expense of suing, taxpayer would be required to sue several attorney, and accountant, firms including persons with very close relationships to immediate family members. The destructive effect of such actions would only further damage, if not irreparably damage, already damaged family relationships.

The sale of the Potomac, Maryland, residence, for which petitioners claimed a loss for 2010, occurred in 2005.

2. Second 2010 amended return

The second 2010 amended return reported a decrease in taxable income from $226,830 to -$202,461, with the following explanation:

2. Line 1 adjustments: (a) professional consult fees/employment: $30,000;

(b) IRC 165 business casualty loss arising from prior returns not deducting cost basis of stock options from income derived from stock options. Loss amount: $399,873 ([$]344,215.41 lost equity from sale of Potomac, MD home; $40,073 apportioned closing costs from sale of Potomac, MD home; [$]15,585 apportioned closing costs-purchase-Chevy Chase, MD home).

The return reported that the $69,662 of tax reported as due on the original 2010 return was reduced by $63,555. But instead of reporting the remaining difference of $6,107 as the correct amount of total tax due, petitioners reported -$197,337 as the correct amount.

The return also reported a new and previously undisclosed estimated tax payment of $549,033, without explanation, and added it to the $17,856 of withholding reported on the original 2010 return, for a total of $566,889, which was claimed as an overpayment. The return elected that the claimed $566,889 overpayment be applied to petitioners' 2011 estimated tax.

3. Denial of refund

The parties have stipulated that to the extent petitioners submitted claims for refunds or overpayments for 2010, respondent denied them. As of September 15, 2014, petitioners' Federal income tax account transcript for 2010 showed a balance due, including accrued interest and penalties, of $72,220.

II. 2011 return

Petitioners prepared and filed the 2011 Form 1040, U.S. Individual Income Tax Return, reporting total tax due of $40,543. On line 63 ("2011 estimated tax payments and amount applied from 2010 return") petitioners reported tax payments of $566,889, that is, the amount of the overpayment claimed on the second 2010 amended return. Petitioners claimed the difference between these two figures, $526,346, as a refund.

For 2011 petitioner Louis S. Shuman (Dr. Shuman), a dentist, had no Federal income tax withheld from his wages,⁶ and petitioners made no Federal income tax payments of any kind. Petitioners' Federal income tax transcript for 2011 reflects no credits from prior years.

Petitioners filed a Schedule C with the 2011 return covering Dr. Shuman's business, identified on the Schedule C as "Orthodontist/Lecturer/Researcher". Petitioners reported gross income on the Schedule C of $386,200. Under "Other Expenses", petitioners claimed a $197,337 deduction for "IRC 165-business casualty loss carryover from: 2010". Petitioners filed a Schedule A, Itemized Deductions, with the 2011 return but did not report a casualty loss on line 20 ("Casualty or theft loss(es)") or attach Form 4684, Casualties and Thefts, as Schedule A instructs. Aside from the aforementioned deduction claimed on Schedule C, the 2011 return provided no information concerning the purported casualty loss.

III. Notice of deficiency

On August 27, 2013, respondent issued a notice of deficiency, determining a deficiency of $88,613 and a section 6662(a) accuracy-related penalty of $17,723 with respect to petitioners' 2011 Federal income tax. The notice disallowed the $197,337 casualty loss deduction claimed on the 2011 return. The notice also stated that "based on the exam there is no evidence to support the prior year over-assessment in the amount of $566,889.00. As a result there are no payments applied to the total tax owed for tax year 2011." Petitioners timely petitioned for a redetermination of the deficiency.

IV. Collection of self-reported tax for 2011

On October 1, 2013, after issuing to petitioners a notice and demand for payment of the tax reported as due on the 2011 return, respondent issued a Letter 1058, Final Notice of Intent to Levy and Notice of Your Right to a Hearing. In response, petitioners filed Form 12153, Request for a Collection Due Process or Equivalent Hearing. Petitioners' case was assigned to a settlement officer to conduct the collection due process (CDP) hearing.

The settlement officer held a conference with petitioners' representative. During the conference petitioners' representative raised no collection...