Colvin v. Commissioner ( 2005 )

United States Court of Appeals
Fifth Circuit
F I L E D
In the February 16, 2005
United States Court of Appeals Charles R. Fulbruge III
for the Fifth Circuit Clerk
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m 04-60507
Summary Calendar
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GARY LEE COLVIN,
Petitioner-Appellant,
VERSUS
COMMISSIONER OF INTERNAL REVENUE,
Respondent Appellee.
_________________________
Appeal from the United States Tax Court
m 11412-01
_________________________
Before DAVIS, SMITH and Petitioner Gary Lee Colvin appeals a decis-
DENNIS, Circuit Judges. ion of the United States Tax Court, which
upheld the Internal Revenue Service’s findings
JERRY E. SMITH, Circuit Judge:* of deficiencies in the tax reported on certain of
his returns. Finding no error, we affirm.
I.
*
Pursuant to 5TH CIR. R. 47.5, the court has Colvin lived in a condominium development
determined that this opinion should not be pub- during the tax years in question. It had 128
lished and is not precedent except under the limited units were grouped into two “phases.” Colvin
circumstances set forth in 5TH CIR. R. 47.5.4.
resided in Phase I. litigation described above.
Colvin perceived irregularities in the home- Some of the legal expenses Colvin deducted
owners association’s adoption of a new gov- related to the litigation against the association,
erning document that he believed favored and others related to a suit in which he sought
Phase II owners over Phase I owners. He to recover wages from a former employer.
claimed that when he approached the associa- Colvin’s mother, in preparing his returns, tried
tion’s board of directors to address his griev- to allocate the various legal expenses to the
ances, he was refused an opportunity to speak suit against the employer and the litigation
and was harassed and threatened, and the against the association. But, because the
board refused to hand over any financial infor- billing records from the attorney did not ade-
mation related to the maintenance of Phase II. quately describe the services performed, she
Consequently, he filed several lawsuits against was unable to allocate the expenses.
the association, for which he incurred legal ex-
penses in 1997 and 1998. On June 21, 2001, the Commissioner sent
Colvin a notice of deficiency stating that he
Colvin’s first lawsuit alleged fraud, sup- owed $1,918 for the 1997 tax year and $1,072
pression of facts, negligent misrepresentation, for the 1998 tax year. According to the no-
libel, slander, abuse of process, and civil rights tice, Colvin was not entitled to deduct any
abuses. He ultimately voluntarily dismissed legal expenses in 1997 or $6,435 of the claim-
that suit and filed another against the associa- ed legal expenses in 1998, because he had fail-
tion seeking specific performance regarding ed to establish that he had incurred those ex-
maintenance and repairs, declaratory relief as penses for ordinary and necessary business
to the validity of the covenants, conditions and purposes.
restrictions, and an injunction to restrain the
association from making certain water and In July 2001, Colvin mailed amended re-
sewage charges. The trial court denied his turns for the tax years in question and a check
claim for specific performance but ruled in his for $64. The Commissioner considered the
favor with regard to finding certain of the submission to be an offer in compromise and
association’s covenants, conditions, and re- refused to accept it. Colvin filed a petition in
strictions invalid. the Tax Court seeking redetermination of the
deficiencies and challenging the Commis-
Colvin is employed as a network engineer sioner’s refusal to accept his amended returns.
and reported wages on his tax returns from his The court rejected all of Colvin’s claims and
employment with Daou Systems in 1997 and affirmed the deficiencies.
Network Computing Device Inc. in 1997 and
1998. He also attached to his tax returns for II.
those years Schedules C, Profit or Loss from Colvin argues that the Commissioner
Business, for “Colvin Business Services II.” abused his discretion in not accepting the
The Schedules C reported losses for both amended return. We disagree, because al-
years (with zero gross receipts for 1998) and though the Commissioner has administratively
deductions for legal and professional service permitted their use, the filing of amended
expenses, including expenses related to the returns is not a matter of right; there is no
2
statutory provision expressly authorizing them III.
to be filed.1 The acceptance of amended Colvin challenges the Tax Court’s finding
returns is a matter of the Commissioner’s that the legal expenses he incurred in his litiga-
discretion. 2 Moreover, even if the Commis- tion against the homeowners association were
sioner had a legal duty to accept the amended not deductible under Internal Revenue Code §
return, it would have no impact on the defi- 212, which provides:
ciencies upheld by the Tax Court, because they
were issued before Colvin attempted to submit In the case of an individual, there shall be
his amended return, and amended returns do allowed as a deduction all the ordinary and
not vitiate deficiencies that have already been necessary expenses paid or incurred during
issued.3 the taxable yearSS
(1) for the production or collection of
1
Baradacco v. Commissioner, 464 U.S. 386, income;
393 (1984) (“[T]he Internal Revenue Code does
not explicitly provide either for a taxpayer’s filing, (2) for the management, conservation or
or for the Commissioner’s acceptance, of an maintenance of property held for the
amended return; instead, an amended return is a production of income; or
creature of administrative origin and grace.”);
Evans Cooperage Co. v. United States, 712 F.2d (3) in connection with the determina-
199, 204 (5th Cir. 1983) (“Neither the Internal tion, collection or refund of any tax.
Revenue Code nor the Treasury Regulations make
any provision for the acceptance of an amended A taxpayer may not, under § 212, deduct legal
return in place of the original return previously fees that are personal expenses. I.R.C.
filed.”).
§ 262(a).4 Under United States v. Gilmore,
2
Hillsboro Nat’l Bank v. Commissioner, 460 372 U.S. 39, 49 (1963), we look to the origin
U.S. 370, 380 n.10 (1983) (stating that acceptance of the claim to determine whether the purpose
of amended returns is “within the discretion of the
Commissioner”); Jones v. Commissioner, 338 F.3d
3
463, 466 (5th Cir. 2003) (“The IRS has discretion (...continued)
to accept or reject an amended return.”); Dover an assessment that has been made or vitiate a no-
Corp. & Subsidiaries v. Commissioner, 148 F.3d tice of deficiency on which the jurisdiction of [the
70, 72-73 (2d Cir. 1998) (“There is simply no Tax] Court is based.”); Miskovsky v. United
statutory provision authorizing the filing of States, 414 F.2d 954, 956 (3d Cir. 1969) (“[I]t
amended tax returns, and while the IRS has, as a would be utterly disruptive of the administration of
matter of internal administration, recognized and the tax laws if a taxpayer could disregard his re-
accepted such returns for limited purposes, their turn and automatically change an assessment based
treatment has not been elevated beyond a matter of thereon by making an amended return in his favor
internal discretion.”) (internal citations omitted). long after the expiration of the time for filing the
original return.”)
3
See Koch v. Alexander, 561 F.2d 1115, 1117
4
(4th Cir. 1977); McCabe v. Commissioner, 46 According to § 262(a), “[e]xcept as otherwise
T.C.M. (CCH) 390, 391 (1983) (stating that the expressly provided in this chapter, no deduction
filing of “[a]n amended return does not . . . change shall be allowed for personal, living or family
(continued...) expenses.”
3
of litigation expenses was personal or for pro- residence, expenses that the regulations relat-
fit.5 We review the Tax Court’s determination ing to § 212 explicitly reference as being non-
of the question of profit motive for clear deductible.
error.6
IV.
As noted by the Tax Court, Colvin is plain- Colvin asserts that the Commissioner im-
ly incorrect in asserting that his legal expenses properly denied him deductions for legal costs
in suing the association are deductible under § that he assumed in lawsuits against Daou
212 based on the fact that the consequence of Systems for unpaid wages. As noted below,
a successful suit would be the production of however, Colvin did not adequately address
taxable income or would assist in determining the nature or amount of these expenses to the
his tax liabilitySSsuch a proposition was Tax Court; although the Commissioner’s
outrightly rejected in Gilmore.7 The Tax written submissions contended that these
Court did not commit clear error in determin- deductions were in fact allowedSSalbeit con-
ing that the origin of the lawsuit against the verted from Schedule C to Schedule A de-
association was personal in nature, given that ductionsSSColvin’s submissions before the
it was Colvin’s primary residence and that his Tax Court only addressed the issue of his
stated purpose behind the first lawsuit was “to lawsuits against the homeowners association.8
stop the harassment.” Moreover, there was It may be that Colvin was entitled to deduct
substantial evidence in the record indicating the legal expenses he incurred in his lawsuit
that the motivation for the suit was his anger against Daou Systems, but we decline to eval-
over the failure of the association properly to uate the veracity of this claim, because the
manage, conserve, and maintain the condo- issue was not adequately raised and presented
minium property that he used for his personal in the Tax Court.9
5 8
“[T]he origin and character of the claim with As stated by the Tax Court, “Although peti-
respect to which an expense was incurred, rather tioner might be entitled to deduct legal expenses in-
than its potential consequences upon the fortunes of curred in connection with his former employment,
the taxpayer, is the controlling basic test . . . .” he has identified neither the amount nor the nature
Gilmore, 372 U.S. at 49. See also Srivastava v. of those expenditures.” Colvin claims that he did
Commissioner, 220 F.3d 353, 357 (5th Cir. 2000). raise the issue in a brief that is not available in the
record on appeal, but the language he quotes
6
Ogden v. Commissioner, 244 F.3d 970, 971 merely states that such legal expenses were in-
(5th Cir. 2001) (“We review for clear error the tax curred and summarily concludes that they should
court’s profit motive inquiry.”) (internal citations be deductible, without indicating their nature or
omitted). amount. By contrast, the Commissioner’s submis-
sions, included in the record, specifically indicate
7
See Gilmore, 372 U.S. at 48 (“The principle that $1,217 and $1,787 were allowed as deductions
we derive . . . is that the characterization, as ‘busi- for legal expenses in the lawsuit against Daou Sys-
ness’ or ‘personal,’ of the litigation costs of resist- tems in tax years 1997 and 1998, respectively.
ing a claim depends on whether or not the claim
9
arises in connection with the taxpayer’s profit- See, e.g., Nissho-Iwai Am. Corp v. Kline, 845
seeking activities. It does not depend on the conse- F.2d 1300, 1307 (5th Cir. 1998); Little v. Liquid
quences that might result . . . .”) (emphasis added). (continued...)
4
AFFIRMED.
9
(...continued)
Air Corp., 37 F.3d 1069, 1071 n. 1 (5th Cir. 1994)
(en banc).
5