Opinion
13547-20S
07-10-2023
KENNETH G. KOZIMER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
James S. Halpern, Judge
Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is
ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Judge James S. Halpern at Helena, Montana, on May 19, 2023, containing his oral findings of fact and opinion rendered at the trial session at which this case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered for respondent.
Bench Opinion
James S. Halpern, Judge
May 19, 2023
THE COURT: The Court has decided to render oral findings of fact and opinion in this case and the following represents the Court's oral findings of fact and opinion. The oral findings of fact and opinion shall not be relied upon as precedent in any other case. The oral findings of fact and opinion are made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code and Tax Court Rule 152. Rule references in this opinion are to the Tax Court Rules of Practice and Procedure, and section references are to the Internal Revenue Code, in effect at all relevant times.
Respondent determined deficiencies of $5,273 and $3,171 in petitioner's 2017 and 2018 Federal income tax, respectively. Respondent has also determined an accuracy-related penalty for 2017 of $1,054. Respondent's adjustments leading to the deficiencies in tax include an adjustment increasing petitioner's 2017 gross income by $808.07, which petitioner concedes. The remaining adjustments for decision are as follows:
1. Whether petitioner is entitled to claim Schedule A deductions for investment expenses for taxable year 2017?
2. Whether petitioner is entitled to claim Schedule C other expenses in taxable year 2018?
3. Whether petitioner is entitled to claim Schedule E rental expenses in taxable years 2017 and 2018?
4. Whether petitioner is liable for a penalty under section 6662 in taxable year 2017? Petitioner bears the burden of proof. See Rule 142 (a) .
Petitioner timely filed federal income tax returns for taxable years 2017 and 2018. Petitioner attached a Schedule A to the 2017 return claiming $22,485 in IRA custodial fees paid with funds from the IRA. Petitioner attached a Schedule C to both returns for a gourmet food sales business. On the 2018 Schedule C, petitioner claimed a "de minimus safe harbor election" of $6,126 in other expenses. Petitioner attached a Schedule E to the returns for each year. The property is located in the ski resort town of Big Sky, Montana. It is shown on the Schedule E as a single-family residence that is available for rent 365 days a year with no personal use days. Each Schedule E claimed $600 in rental income and over $11,000 of rental real estate loss.
Respondent disallowed the deduction for the IRA custodial fees on the grounds that the fees were paid from monies in the IRA account. Section 212(2) allows an individual a deduction for the ordinary and necessary expenses incurred for the management of property held for the production of income. Petitioner has failed to show that he paid the fees rather than the custodian of the account paying the fees from the balance in the account. We sustain the disallowance.
Section 162(a) allows a deduction for the ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. Taxpayers are required to maintain books and records sufficient to substantiate claimed deductions. § 6001; Treas. Reg. § 1.6001-1(a). Petitioner claimed on his 2018 return Schedule C-l "Other Expenses" of $6,126 for construction that respondent disallowed because petitioner had failed to show that the expenses were incurred during 2018 and that the expenses were ordinary and necessary to his business. We need not reach the ordinary and necessary question because petitioner failed to substantiate that he incurred any expenses for construction during the taxable year. We sustain respondent's disallowance.
We likewise sustain respondent's disallowance of petitioner's Schedule E expenses for failure to substantiate.
Section 6662(a) imposes a 20 percent accuracy-related penalty to any portion of an underpayment which is attributable to, inter alia, negligence or disregard of rules or regulations, or any substantial understatement of tax. Respondent has the burden of production with respect to the liability for penalties imposed under section 6662. See § 7491(c). That burden of production includes demonstrating that written managerial approval was obtained when initially determining a taxpayer's liability for the penalty. See Graev v. Commissioner, 149 T.C. 485 (2017). Respondent has shown that approval. See the Notice of Deficiency, page 5. J
There is a "substantial understatement" of income tax for any taxable year if the amount of the understatement for the taxable year exceeds the greater of ten percent of the tax required to be shown on the return for the taxable year, or $5,000.00. I.R.C. § 6662(d). That requirement is satisfied here. If, however, it is shown that there was reasonable cause and that the taxpayer acted in good faith with respect to any portion of an underpayment, then no penalty under I.R.C. § 6662 shall be imposed. See § 6664(c)(1). Petitioner has not shown reasonable cause and that he acted in good faith. We sustain the penalty.
We sustain the deficiencies in tax and the penalty.
This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 11:33 a.m., the above-entitled matter was concluded.)
CERTIFICATE OF TRANSCRIBER AND PROOFREADER
CASE NAME: Kenneth G. Kozimer v. Commissioner
DOCKET NO.: 13547-20S
We, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 8 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Bruce Carlson on May 19, 2023 before the United States Tax Court at its session in Helena, MT, in accordance with the applicable provisions of the current verbatim reporting contract of the Court and have verified the accuracy of the transcript by comparing the typewritten transcript against the verbal recording.
Susan Patterson, CDLT-174 5/30/23, Transcriber
Lori Rahtes, CDLT-108 5/30/23 Proofreader
Date: 5/30/23