Opinion
7952-18
10-06-2021
Shawn Bennett and Estate of Cari Lynn Bennett, Deceased, Diane Taliani, Executor Petitioners v. Commissioner of Internal Revenue, Respondent
ORDER
Cary Douglas Pugh Judge
This case was set for trial at the Court's May 17, 2021, Des Moines, Iowa remote trial session. In accordance with our standing pretrial order, the parties filed pretrial memoranda. On May 14, 2021, petitioners filed a Motion in Limine to prevent respondent from introducing any evidence or making any argument with respect to the amount of basis petitioners reported on Schedule D, Capital Gains and Losses, on their 2014 Form 1040, U.S. Individual Income Tax Return. Petitioners argue that the notice of deficiency did not adjust their reported basis and therefore respondent's discussion of the proper amount of basis (and consequent capital gain or loss) in his pretrial memorandum constitutes a "new issue" the further consideration of which would "create severe prejudice by unfair surprise to Petitioner." We held a hearing on petitioner's motion on May 18, 2021, and the parties filed further briefs after the hearing.
Unless otherwise indicated, all section references are to the Internal Revenue Code in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. All monetary amounts are rounded to the nearest dollar.
A trial before this Court in a deficiency case is a proceeding de novo; we are not bound by the findings of an IRS audit. Casey v. Commissioner, 38 T.C. 357 (1962). Taxpayers generally bear the burden of proving that the Commissioner's determinations in a notice of deficiency are erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Taxpayers also bear the burden of substantiating claimed deductions. Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). And taxpayers are required to keep books and records "sufficient to establish the amount of gross income, deductions, credits, or other matters required to be shown by such person in any return of such tax or information. Sec. 6001; sec. 1.6001-1(a), Income Tax Regs.
In his notice of deficiency, respondent adjusted the amount of gain petitioners reported on their 2014 Schedule D by subtracting "cost and other basis" from "proceeds". Petitioners assigned error to that adjustment in their petition arguing that they are entitled to a greater amount of basis. They therefore bear the burden of proof on this issue.
Petitioners attempt to avoid their burden by parsing the geography of Schedule D. They argue that Schedule D distinguishes between "original cost basis" on line 8b column (e) of Schedule D and "adjustments to basis" on line 8b column (g) of Schedule D; that respondent did not adjust the "original cost basis"; and therefore respondent has conceded that amount and any basis petitioners can substantiate should be added to it.
Petitioners' argument fails for several reasons. First, and most important, trial in this Court is de novo. See e.g., Casey v. Commissioner, 38 T.C. 357. When respondent determined that petitioners' capital gains should be increased, and petitioners challenged that determination, petitioners took on the initial burden of establishing that the capital gains determined by respondent was not correct. Petitioners thus bear the burden of establishing the total basis not just part. Otherwise, we could not redetermine the amount of capital gains. And their resort to their tax return for such proof would be unavailing. We have held consistently that a taxpayer's return alone is not proof but rather a claim. See e.g., Roberts v. Commissioner, 62 T.C. 834, 837 (1974).
Moreover, even though we are not bound by IRS Publications, see e.g., Casa De La Jolla Park, Inc. v. Commissioner, 94 T.C. 384, 396 (1990), in response to their attempted geography lesson, we direct petitioners to the Form 8949 Instructions, which explain the reporting rules for line 8b columns (e)-(g) of Schedule D. In column (e) a taxpayer must report cost or other basis and adjustments to basis, and in column (g) a taxpayer must report adjustments to capital gain or loss (that is, any adjustments to proceeds and/or basis). Petitioners' argument that adjustments to basis cannot be reported in column (e), therefore, has no merit.
Finally, we reject as irrelevant petitioners' argument that respondent raised a "new issue" in his pretrial memorandum. That respondent conceded an amount of basis does not relieve petitioners' burden to prove the total amount of basis they claim because they claim a greater amount than respondent conceded. They must establish that the proof respondent deemed adequate to support his concession is not the very same proof they would use to support additional basis. Otherwise, we have no way of knowing whether they are double counting the same basis, in effect.
Upon due consideration it is
ORDERED that petitioners' Motion in Limine, filed May 14, 2021, is denied. It is further
ORDERED that, on or before January 4, 2022, the parties shall file further status reports regarding the then-present status of this case.