DocketNumber: Tax Ct. Dkt. No. 5405-97
Citation Numbers: 1998 T.C. Memo. 462, 76 T.C.M. 1171, 1998 Tax Ct. Memo LEXIS 458
Judges: PAJAK
Filed Date: 12/30/1998
Status: Non-Precedential
Modified Date: 4/18/2021
1998 Tax Ct. Memo LEXIS 458">*458 Decision will be entered under Rule 155.
MEMORANDUM OPINION
1998 Tax Ct. Memo LEXIS 458">*459 PAJAK, SPECIAL TRIAL JUDGE: This case was heard pursuant to section 7443A(b)(3) and Rules 180, 181, and 182. All section references are to the Internal Revenue Code in effect for the years in issue. All Rule references are to the Tax Court Rules of Practice and Procedure. Respondent determined the following deficiencies, addition to tax, and accuracy-related penalties:
Addition to Tax | Accuracy-related Penalty | ||
Year | Deficiency | Sec. 6651(a)(1) | Sec. 6662(a) |
1993 | $ 6,925 | $ 222 | $ 1,181 |
1994 | 7,953 | --- | 1,591 |
After concessions, the remaining issues for decision are: (1) Whether petitioners are entitled to Schedules C deductions in excess of the amounts allowed by1998 Tax Ct. Memo LEXIS 458">*460 respondent, (2) whether petitioners are liable for an addition to tax under
Some of the facts have been stipulated and are so found. Petitioners resided in District Heights, Maryland, at the time their petition was filed.
During the taxable years at issue, petitioner Preston L. Payton (Preston) was employed as a truck driver by Browning Ferris, Inc., and petitioner Ruby M. Payton (Ruby) was employed in the human resources department of the U.S. Postal Service. During the taxable years at issue, petitioners also were engaged in other businesses. Preston was engaged in a hauling activity, which consisted primarily of trash removal, light hauling, and yard cleaning. Ruby was engaged in the retail sales of beauty and personal care products, principally aloe vera products from the Living Products company. Petitioners reported the hauling activity and the retail sales activity on a single Schedule C for each of the taxable years 1993 and 1994. Ruby also operated a rooming house during the taxable years at issue. Petitioners1998 Tax Ct. Memo LEXIS 458">*461 purchased the rooming house on January 29, 1993.
The signature date of each petitioner on their 1993 return is June 4, 1994. Petitioners' 1993 return was mailed to the Internal Revenue Service (Service) in an envelope bearing the date June 7, 1994. The Service received petitioners' 1993 return on June 13, 1994. Petitioners did not request an extension of the date to file their 1993 return.
Respondent, inter alia, adjusted petitioners' gross receipts, adjusted the costs of goods sold attributable to Ruby's business, and disallowed in whole or in part many Schedules A and C deductions. Respondent disallowed some claimed expenses because it was not established that the expenses were paid or incurred during the taxable year, and that they were ordinary and necessary, or because it was not established that a business benefit could reasonably be expected as the result of incurring entertainment expenses. Respondent also determined that petitioners were subject to self-employment tax.
Deductions are strictly a matter of legislative grace.
When a taxpayer fails to keep records, but a court is convinced that deductible expenditures were incurred, the court may make as close an approximation as it can, "bearing heavily if it chooses upon the taxpayer whose inexactitude is of his own making."
Ruby testified that after the audit, and apparently during settlement negotiations, petitioners raised a new issue of whether they are entitled to deduct $ 8,028 in rental payments for taxable years 1993 and 1994. These amounts were not claimed as deductions on the Schedules C for those years despite the fact that numerous other deductions were claimed on the Schedules C. Ruby contends that she rented an apartment to promote her beauty sales business. Ruby claims that she used the apartment exclusively for product demonstration, sales, storage of beauty products, and to recruit new members to join the business. She also alleged that she held weekly meetings at the apartment. Ruby's main product line consisted of aloe vera juice, gels, and berry nectar.
After a review of the record, we find that petitioners are not entitled to rental deductions for 1993 or 1994. Aside from her self-serving testimony, the only other evidence Ruby introduced in support1998 Tax Ct. Memo LEXIS 458">*464 of her position consisted of copies of three 12-month apartment leases commencing on June 1, 1992, June 1, 1993, and June 1, 1994. Upon a review of the leases, we note that each of the three leases listed only Preston, and not Ruby, as the lessee. Moreover, Preston was the only signatory on the three leases. Two of the leases also provided that Preston would be the sole occupant of the apartment. (This line is blank on the June 1, 1993, lease.) All three leases provide that the apartment "shall be used solely for private residential purposes." There is no evidence that Ruby was a party to any of the three leases or that she received any exception from the lessor to use the apartment for her business purposes.
We also observe that the addresses listed on Preston's and Ruby's 1994 Forms W-2 are different. No Forms W-2 for 1993 for either Preston or Ruby were in the record. Ruby explained that the address Preston used was a post office box and that it was not Preston's residence. However, Ruby admitted that the post office box is located near the apartment that Preston rented. We believe that Preston rented the apartment for his own personal purposes and not for Ruby's beauty sales business. 1998 Tax Ct. Memo LEXIS 458">*465 Any purported use of the apartment by Ruby is not supported by the evidence in the record. Thus, we conclude that petitioners are not entitled to deduct rental payments in the amount of $ 8,028 for each of the years 1993 and 1994.
At trial, Ruby raised for the first time another new issue with respect to whether petitioners should be allowed to deduct the amounts of $ 4,140 and $ 4,460 for 1993 and 1994, respectively, for "other expenses" for casual labor incurred on behalf of Ruby's rooming house. Again, as to this second new issue, petitioners did not claim any such expenses for casual labor as deductions with respect to the rooming house on the Schedules C for either year at issue.
Ruby contends that the casual labor expenses were for general property maintenance and upkeep performed by Terry Hosley (Hosley). Hosley's purported duties included trash removal, cutting grass, shoveling snow, and raking and bagging leaves. Ruby contends that she paid Hosley $ 4,140 and $ 4,460 in cash for his services in 1993 and 1994, respectively. Yet, Ruby did not provide him with a Form 1099 for either year until 1 week before the trial of this case. Hosley confirmed that he1998 Tax Ct. Memo LEXIS 458">*466 did not receive a Form 1099 after the close of 1993 or 1994, respectively. Hosley admitted that he did not file a return for either 1993 or 1994 until sometime in 1998. We did not find Hosley to be a reliable witness.
Aside from Ruby's self-serving testimony and Hosley's unreliable testimony, there is no evidence in the record to support a finding that she paid Hosley $ 4,140 and $ 4,460 for his services in 1993 and 1994, respectively. Ruby failed to provide details regarding these expenses such as how often Hosley performed each of his purported duties or how much he was paid after each time he completed his duties. We have stated on many occasions that this Court is not bound to accept a petitioner's self-serving, unverified, and undocumented testimony.
Ruby stated that "to the best of my knowledge, my tax return was filed on time." No other testimony or evidence was offered to establish that it was timely filed. The parties stipulated that petitioners did not request an extension of the date to file their 1993 return, that petitioners' 1993 return was mailed to the Service in an envelope bearing a postmark date of June 7, 1994, and that respondent received petitioners' 19931998 Tax Ct. Memo LEXIS 458">*468 return on June 13, 1994. A copy of petitioners' 1993 return shows the signatory dates to be June 4, 1994.
On this record, we conclude that petitioners are liable for an addition to tax under
Finally, we must decide whether petitioners are liable for accuracy-related penalties for 1993 and 1994.
On the basis of this record, we conclude that petitioners are liable for accuracy-related penalties under
Decision will be entered under Rule 155.
Cohan v. Commissioner of Internal Revenue , 39 F.2d 540 ( 1930 )
Frank J. Hradesky v. Commissioner of Internal Revenue , 540 F.2d 821 ( 1976 )
New Colonial Ice Co. v. Helvering , 54 S. Ct. 788 ( 1934 )
United States v. Boyle , 105 S. Ct. 687 ( 1985 )
Commissioner v. Heininger , 64 S. Ct. 249 ( 1943 )
Indopco, Inc. v. Commissioner , 112 S. Ct. 1039 ( 1992 )