Sita v. Commissioner

NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with Fed. R. App. P. 32.1
United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Argued December 9, 2008
Decided March 6, 2009
Before
JOEL M. FLAUM , Circuit Judge
DIANE P. WOOD, Circuit Judge
ANN CLAIRE WILLIAMS, Circuit Judge
No. 08-1764
JOSEPH M. SITA and MARJORIE SITA, Appeal from the United States Tax
Petitioners-Appellants, Court
v. No. 10068-05
COMMISSIONER OF INTERNAL Harry A. Haines,
REVENUE, Judge.
Respondent-Appellee.
ORDER
In this appeal, Joseph and Marjorie Sita are challenging the Tax Court’s decision
affirming a determination of the Commissioner of Internal Revenue that they underpaid
their 2001 and 2002 taxes. On their 2001 tax return, the Sitas claimed a depreciation
deduction allegedly authorized by 47 U.S.C. § 167, as well as a tax credit allegedly
authorized by 47 U.S.C. § 44. On their 2002 return, the Sitas claimed a business expense
deduction that they later asserted was meant to be a depreciation deduction. The
deductions and the credit arose from the Sitas’ purchase of seven pay telephones from
No. 08-1764 Page 2
Alpha Telecom, Inc., at a price of $5,000 per phone. Under the terms of the agreement,
Alpha Telecom continued to manage the phones and retained the responsibility for
selecting the locations, installing the phones, negotiating site contracts, obtaining insurance,
collecting revenue, and paying all fees. Alpha Telecom also agreed to buy back the phones
for 100% of the original sale price; if the phones were returned within three years, however,
the Sitas would have to deduct a 10% charge from their reimbursement.
The Tax Court agreed with the Commissioner that the Sitas were not eligible for either
the depreciation deduction described in § 167 or for the tax credit authorized by § 44. It
accordingly upheld the deficiency assessed by the Commissioner of $3,121 in 2001 and
$2,100 in 2002. Significantly, both the Fifth Circuit and the Sixth Circuit have already
decided that the purchasers of pay phones from Alpha Telecom are not eligible for either
a § 167 depreciation deduction or a § 44 tax credit. See Arrevalo v. Comm’r, 469 F.3d 436 (5th
Cir. 2006); Crooks v. Comm’r, 453 F.3d 653 (6th Cir. 2006). We agree with our sister circuits
and the Tax Court for the reasons articulated in the Tax Court’s opinion. See Sita v. Comm’r,
94 T.C.M. 548 (2007).
As the Tax Court explained in more detail, the Sitas are not eligible for the § 167
depreciation deduction because the purchase and service arrangement did not give them
a sufficient ownership interest in the pay phones. The transfer of formal legal title is not
enough to qualify for this deduction. Durkin v. Comm’r, 872 F.2d 1271, 1275 (7th Cir. 1989).
One must have the benefits and burdens of ownership, and the Sitas did not. With regard
to the § 44 tax credit, the Sitas are not eligible because they are not subject to the Americans
With Disabilities Act (“ADA”), 42 U.S.C. §§ 12101 et seq. The tax credit applies only to
qualified expenditures made for the purpose of complying with the ADA. Because the Sitas
are not subject to the ADA, the purchase of the pay phones was not a qualified
expenditure.
We therefore AFFIRM the decision of the Tax Court.
So ordered.