Tilman v. U.S.
| Decision Date | 03 August 2009 |
| Docket Number | No. 08 Civ. 2231 (CM)(DCF).,08 Civ. 2231 (CM)(DCF). |
| Citation | 644 F.Supp.2d 391 |
| Parties | Michael Iosif TILMAN and Emily Israel Olin, Plaintiffs, v. UNITED STATES, Defendant. |
| Court | U.S. District Court — Southern District of New York |
Emily Israel Olin, New York, NY, pro se.
Michael Iosif Tilman, New York, NY, pro se.
Joseph Nicholas Cordaro, U.S. Attorney's Office, New York, NY, for Defendant.
DECISION AND ORDER GRANTING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT
Pro se plaintiffs Michael Iosif Tilman ("Tilman") and Emily Israel Olin ("Olin") (collectively, "plaintiffs") bring this lawsuit against the Commissioner of Internal Revenue ("Defendant" or "Government")1 to recover a tax refund for an alleged overpayment of $5,761 in income tax and $646.14 in interest after an Internal Revenue Service ("IRS") audit of plaintiffs' 2001 tax return. Plaintiffs allege that the IRS improperly adjusted or disallowed several of their reported business expenses and non-monetary charitable deductions.
The Government moves for summary judgment on plaintiffs' claim, except to the extent that plaintiffs' claim pertains to donations to Goodwill Industries of Greater New York and Northern New Jersey, Inc. ("Goodwill") in the amount of $1,306, and $95.66 in self-employment tax assessed against Tilman. The Government contends that, minus the aforementioned exceptions plaintiffs cannot sustain their burden of proving their entitlement to a tax refund because (1) the disputed business expenses are either nondeductible under the tax law or inadequately substantiated, and (2) plaintiffs failed to obtain an appraisal prior to a large donation of furniture, as required by Treasury Regulations.
For the reasons that follow, the Government's motion for partial summary judgment is granted.
Plaintiffs are married and own an 800 square foot, two-bedroom apartment at 333 East 80th Street, New York, New York. (Def. Rule 56.1 ¶ 1.) They have owned the apartment since 1995, and it was their sole residence during the 2001 tax year. (Id. ¶ 4.) At the time, Tilman was an engineer at Halm Industries, Inc., (id. ¶ 5), and Olin was a voice coach and piano accompanist who worked with students and musicians in the apartment. (Id. ¶ 6.) Olin conducted rehearsals or gave lessons in the living room ("Emily's Studio"), where her grand piano was located, and she used one of the two bedrooms ("Emily's Office") to house a computer desk, library, DVDs, and compact discs. (See id. ¶ 7.)
On their Form 1040 for the tax year 2001, plaintiffs reported a business loss of $11,375, and itemized deductions of $39,732. (Id. ¶¶ 12-13.) Plaintiffs claimed a refund of $9,843. (Id. ¶ 14.) On their Schedule C (Profit or Loss from Business), plaintiffs claimed deductions of $1,429 for office expenses (Line 18), $212 for repair and maintenance expenses (Line 21), and $20,064 for other expenses (Line 27). (Id. ¶ 15.) The "other expenses" category was divided into nineteen subcategories, including, inter alia, clothing, meals, computer and travel expenses. (Id. ¶ 16.) Plaintiffs' Schedule A itemized deductions included non-cash contributions in the amount of $15,558. (Id. ¶ 17.) On Form 8283 (Noncash Charitable Contributions), plaintiffs reported that these donations consisted of furniture and clothing. (Id. ¶ 18.)
The IRS audited plaintiffs' 2001 tax return. (Id. ¶ 19.) By Notice of Deficiency dated April 2, 2004, the IRS disallowed or adjusted several of plaintiffs' reported business expenses and itemized deductions. With respect to Schedule C, the IRS allowed $752 of plaintiffs' reported $1,429 in office expenses, the entirety of plaintiffs' reported $212 in repair and maintenance expenses, and $6,543 of plaintiffs' reported $20,064 in other expenses. (Def. Rule 56.1 ¶ 21.) With respect to Schedule A, the IRS allowed $997 of plaintiffs' reported $15,558 non-cash contributions. (Id. ¶ 22.) In addition, the IRS computed self-employment tax for Tilman in the amount of $95.66 and for Olin in the amount of $1,029.20. (Id. ¶¶ 23-24.) The IRS assessed $5,761 in additional tax and $646.14 in interest. (Id. ¶ 25.)
On November 1, 2004, plaintiffs paid the full amount of tax and interest assessed. (Id. ¶ 26.)
On December 20, 2004, plaintiffs filed a Form 12661 (Disputed Issue Verification) (id. ¶ 27) claiming that the IRS's Notice of Deficiency erred in four ways: (1) it incorrectly assessed self-employment tax of $95.66 to Tilman; (2) it did not provide plaintiffs with procedures for filing suit in court; (3) it did not provide information about the IRS's disallowances of certain "other expenses" in Schedule C; and (4) it improperly disallowed deductions for plaintiffs' noncash donations. (Id. ¶ 28.)
On December 21, 2004, plaintiffs filed a Form 1040X and an amended Form 1040. (Id. ¶¶ 29-30.) The Form 1040X that plaintiffs filed contains other documentation (purchase receipts and orders, credit card statements, and word processing tables that the plaintiffs prepared) for their expenses and deductions. (Id. ¶¶ 30-34; Cordaro Decl. Ex. M-Q.) On their amended Form 1040, plaintiffs report a business loss of $18,753 and itemized deductions of $39,026. (Def. Rule 56.1 ¶¶ 36-37.) Plaintiffs also amended their Schedules C and A as follows:
Schedule C
IRS
Line Original Allowance Amended
18. Office Expense $ 1,429 $ 752 $ 5,331
21. Repairs and
Maintenance $ 212 $ 212 $ 8,475
27. Other Expense $20,064 $ 6,543 $20,415
Schedule A
16. Non-cash gifts
to charity $15,558 $ 997 $14,299
(Id ¶¶ 39, 50.)
Plaintiffs' office expense deduction in their Amended Schedule C includes the items they listed in their original 2001 tax return and new items. (Cordaro Decl. Ex. A (hereinafter, "Tilman Dep.") at 107:8-13.) Plaintiffs claim a "home-office" deduction for their purchase of a(1) rug ($161.29), (2) cabinet for glasses and bottles ($215.42), (3) air conditioner ($692.74), (4) blinds ($480.00), (5) coffee table ($248.97), (6) floor lamp for piano ($199.00), (7) carpet ($120.00), (8) curtains ($186.19), (9) bookshelves and CD shelves ($1217.26), (10) computer desk ($172.52), (11) accessories ($77.74), (12) file cabinet ($139.97), (13) delivery service for office ($107.42), (14) pencil sharpener ($21.44), (15) tape ($6.39), (16) office chair ($411.35), (17) candleholder ($7.52) and (18) studio arm chair ($541.00). (Cordaro Decl. Ex. M.) Most of these items were used to furnish Emily's Studio and Emily's Office. (Def. Rule 56.1 ¶ 39.)
Plaintiffs' $8,475 claim for repairs and maintenance, which is an increase of $8,263 over their original return, includes (1) repairs of a lock ($265.21) and camera ($118.27), plumbing expenses ($391.07), and fifty percent of the total costs of renovations for both Emily's Studio ($4,800) and Emily's Office ($2,900). (Id. ¶ 40.)
The rest of plaintiffs' business expense deductions are listed under the label "Other Expense." (Id. ¶ 41.) Under this category, plaintiffs claim a total of nineteen deductions for Olin's business:
(Cordaro Decl. Ex. R at US0080-81.)
Plaintiffs' non-cash gifts to charity on their Amended Schedule A consist of two charitable donations. In September 2001, plaintiffs donated every piece of furniture in their apartment, except for their grand piano, to the Jewish Community Council of Rockaway Peninsula ("JCC"). (Id. ¶ 51-52.) On their amended return, plaintiffs claim a deduction of $11,995 for their JCC donation. Plaintiffs submitted a letter from the JCC dated October 15, 2001, which acknowledges their donation of furniture and attaches a list of the donated furniture that was previously generated by Tilman. (Cordaro Decl. Ex. Q at US0072-0074.) The list of furniture does not contain a valuation of the items donated. (See id.) Tilman testified that he did not have the furniture appraised before donating it. (Tilman Dep. at 157:11-13.) However, after the IRS audit, plaintiffs prepared a spreadsheet that lists the estimated the value of each item of furniture on the JCC list. (Cordaro Decl. Ex. Q at US0075.)
On their Amended Schedule A, plaintiffs also claim a deduction of $1,306 for their donation of clothing and a plastic rack to Goodwill. (Def. Rule 56.1 ¶ 55.)
On March 13, 2006, Tilman met with Samantha Mangiaracina ("Mangiaracina") of the IRS, who had performed the audit. (Id. ¶ 56.) During the meeting, Mangiaracina gave Tilman an opportunity to explain "all [his] writings, what [he] did, what [he] changed, why [he] did this." (Id. ¶ 57.) By letter, dated the same day, the IRS disallowed plaintiffs' additional deductions. (Id. ¶ 58.) The letter states that the reason for the disallowance: "Taxpayer did not submit additional documents." (Cordaro Decl. Ex. T at US0135.) Tilman alleges that he did not receive this letter until 2008. (Tilman Dep. at 167:17-22.)
On March 6, 2008, plaintiffs commenced this lawsuit for a tax refund of $6,407.14, pursuant to 28 U.S.C. § 1346(a)(1) and 26 U.S.C. ("I.R...
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