Carlos Franco, Petitioner
T.C.
T.C.
T .
. .Summary Opinion 2008-136
C RLOS FRANCO, Petitioner v . COMMISSIONER OF INTERNAL-REVENUE , Responden t Docket No . 2646-06S . Filed-October 28, 2008 .
Carlos Franco, ro se .
Kevin W . Coy , f r respondent .
DEAN, Special Trial Judge : This case was heard pursuant to the provisions of section 7463 of the Internal Revenue Code i n effect when'the petiion was filed- . Pursuant to,section(cid:127)7463(b) , the decision to be entered is not reviewable by any other court, and this opinion sha 1 not be treated as precedent for any other case. Unless otherwise indicated, subsequent section references are to`the Internal evenue Code in effect for the years i n
2 - issue :, and all Rule references are to the Tax Court Rules of Practice and Procedure .
Respondent determined deficiencies of $2,307 and $3,855 in petitioner's 2001 and 2002 Federal income taxes, respectively .
Respondent concedes that petitioner has substantiate d additional' nontaxable deposits of $605 for 2001 consisting of :
(1) $213 for a Federal tax refund ; (2) $8 for a vehicle license fee rebate ; (3) $165 for gifts ; and (4) $219 for a Federal tax rebate .
The issues remaining for decision are whether petitioner :
(1) Understated his 2001 and 2002 gross receipts on Schedule C, Profit or .Loss From Business ; .(2) is entitled to claim Schedule C business expense deductions of $1,833 and $10,011 for 2001 and 2002, respectively, and (3) is entitled to greater allowances for itemized deductions than respondent determined for each year .
Background Some of the facts have been stipulated and are so found .
The stipulation of facts and the exhibits received into evidence are incorporated herein by reference . When petitioner filed .his petition, he resided in California .
Petitioner was self-employed during 2001 and 2002, operating a lawn care service . Petitioner filed Forms 1040, U .S .
Individual Income Tax Return, and Schedules C for each year that respondent examined . On his Schedules C petitioner reported Schedule C gross rece ipts of $19,100 and $39,933 for 2001 and 2002, respectively .
Respondent's revenue agent (RA), and his Appeals officer , (AO)` reconstructed petitioner's Schedule ,C gros s receipts for- .each yea rusing the bank deposits method .'
Thei r reconstructions include :
I t em 2001 200 2 Total deposits Taxable deposits Cash expenditur e come from depo nontaxable sou Adjusted Sch . C Understatement i receipt s For 2001 the P deposits of $16, Washington Mutua determined that $440 .into his Ba accounts, respe c did no t funds,or s :tha t site d rces gross receipts n Sch . C gross 1$16,292 215,053 1$39 , 9,41 8 233,57 8 16,72S 431,778 311, 52 0 945,098 .
512, 678 55, 16 5 A determined that petitioner had tota l 172 and $120 into his Bank of. America and l accounts, respectively . For 2002 the RA etitioner had total deposits of $38,978 and nk,of America and Washington Mutua l tively .
For 2001 .the, nontaxable depos for a loan payme $14, 933 and $120 Mutual accounts, total deposits :o and Washington M allowed , petition (1) $50 for 'a re refund ; (3) $1,7 from his total d of $36,247 and $ Mutual accounts, hearing , he prov identified .addit 2002 . . The 'AO a l AA allowed petitioner reductions for ' its of $239for returned checks and $1,000 nt received, determining taxable deposits of into his Bank of America and Washington ,respectively . For 2002 the'-.RA determined f $38,978 and-$440 into his Bank, of America utual accounts,"respectively . The RA er reductions for nontaxable deposits of : turned check ; (2) $981 for a Federal tax 00 for loan payments received ;, and (4) $5 eposits . The RA determined taxable deposit s 435 into his Bank of America and Washington respectively . At pet.itioner's Appeals ided a "register tape" to the AO in which he ional nontaxable deposits of $3,104 for lowed petitioner an additional $3,10 4 'Figures have be n rounded to the'nearest dollar .
'reduction from the $36,247 in taxable deposits with respect to the Bank of America account . The AO determined that petitioner had total taxable deposits of $33,578 for 2002 .
4 $15,053 (2001 taxable deposits) + $16,725 (2001 cash expenditures) = $31,788 . $33,578 (2002 taxable . deposits) + $11,520 (2002 cash expenditures) = 45,098 .
5 . $31,778 (2001 adjusted Schedule C gross receipts) - $19,100 (2002 ScheduleC gross receipts petitioner reported) _ $12,678 . $45,098 (2002 adjusted Schedule C gross receipts) - $39,933 (2002 Schedule C gross receipts petitioner reported) = $5,165 .
Petitioner's reported Schedule C expense deductions and respondent's allowances therefor include :
Item Per return 2001 2002 Responden t allowe d 2001 200 2 Depreciation Special depreciation Sec . 179 expenses Legal & profl . se'tvs . Taxes & licenses Other expenses : Safety boots Fuel "MISCi1 "Telephone" "SCE" Vehicle tags AAA club Deduction for bus .
3,310 .
1,380 1,800 $8,268 10,63.1 6,769 1,409 3,500 3,310 1,186 -0 366' 2-0- $3,72 2 7,97 6 6,30 4 22 5 8 9 34 0 1,40 9 29 1 2-0 - 5 5 7 1 use of. home 2416 2434 Vehicle ins . 654 11,671 'According to the RA, "[Petitioner said "MISC"] was an estimate of expenses he forgot to deduct elsewhere ."
Z'Respondent represents that "SCE" is a "utility" and that the RA allowed 6 perc of-petitioner's d for 2001 and 2002 deduction for the his Schedules C ., , 3The AO . determine vehicle(s) .
nt of the "SCE" expenses in the calculation ductio.ns'for the business use of his hom e even though petitioner did not claim a .
business use,of his home for either year o n 90-percent- busines.s-use of-peti-tioner' s The $31,778 in a Ijusted 2001 Schedule C gross,receipts les s $6,321 in allowed Sch Odule C expense deductions generated a $25,457 . net profit fo r 2001 rather than the $11,362 net profi t that petitioner repor .ed . The $45,098 in adjusted 2002 Schedule C gross receipts less $22,587 in allowed Schedule C expens e deductions generated 4'-$22,511 net profit for 2002 rather tha n the $7,769 net profi t that petitioner reported .
Other pertinent tems reported by petitioner and respondent's adjustme is thereto include :
Ite m Per Return 2001 ., Respondent's 2 .002 Adjustment s 2002 2001 .
.Self-emp . tax ' Deduction for self -emp .
$1,605 $3,597 $1,098 $3,18 1 tax ' -Form 1040 taxable Form 10,40 : "total t Form 1040 interest 803 549 1,59 1 ncome -6, 624 393 8?, 704 14, 093 x 2,518 1,137 4,825 . 4,99 2 income 22 ., 34 6 .1, 799 51,089 'The adjustments t deductions therefo consistent with t h petitioner's self-employment taxes and his are computational and are resolve d Court 's decision .
2Petitioner recei v reported the amoun Interest and Ordin the amount and inc gross -receipts . F d $2,743 from "Santoro Limited" .an d as interest income on his-Schedule B , ry Dividends, for 2001 . Respondent removed uded it in petitioner's 2001 Schedule C r 2002 respondent did not adjust the $1,5-01 that petitioner received from "Santoro Limited" and reported as' interest income . Petitioner originally argued that the bank deposits analysis was incorrect because $2,743 was included twice ; i .e' .,' in interest income and in his 2001 Schedule C gross receipts, but he abandoned this claim .
(Although petitioner did not elect to itemize his'deduction s for either year, respondent allowed petitioner $12,826 in "Schedule A itemized deductions" for 2001 instead of the lesser $4,550 standard deduction . The 2001 "Schedule A itemized deductions" consist of $1,867 for real estate taxes and $10,959 for charitable contributions . No adjustments were made to petitioner's $4,700 standard deduction for 2002 or to his "Self- employed health insurance" deductions, which he reported as $1,574 and $1,991 for 2001 and 2002, respectively .
I .
Burden of .Proo f Discussio n The Commissioner's determinations in a notice of deficienc y are presumed correct, and the taxpayer has the burden to prove that~the determinations are in error . Rule 142(a) ;' Welch v .
Helvering, 290 U .S . 111, 115 (1933) . But the burden of proof on factual issues that affect a taxpayer's tax liability may be shifted to the Commissioner if the taxpayer introduces credible evidence with respect to the, issue . See sec . 7491(a)(1) .
Petitioner has not alleged or proven that section 7491(a) applies ; therefore, the burden remains on him .
II :
. Petitioner's Sch edule C Gross' .Receipt s 7 - A- taxpayer is r e quired .to maintain sufficient records to allow . for the 'determi nation of his or her correct tax liability .
Sec . 6001 ; Petzoldt M . Commissioner , .92 T .C . 661, 686 (1989) . If.
a taxpayer fails to r aintain or does not produce adequate books and records, the 'Comm issioner is authorized to,reconstruct_th e taxpayer" s income, an d the reconstruction need only be reasonable in view of all the su rrounding facts-and circumstances . See sec .
446 ; Petzoldt v . Comnis sT Toner , supra at 686-687 ; Giddio v .
Commissioner , . 54,T C .
1530, 1.533 (2970) .'
Indirect-methods, .;such' as the bank deposits ethod, may be used .,for such purposes .
Holland v . United -States ,, 34,8 U .S . 121 (1954) ., The bank deposit s method of determining .income assumes that all money deposited i to .a taxpayer' .s bank accounts during a specific period const itutes gross income ., Price v . United States , 3 35 F .2d 671, .677 (5th . -Cir 1964) ; see .also Tokarski v .
Commissioner , 87 T'. C .
74, 77 (1986) (bank deposits constitut e prima facie evidenc e of income) . .But the Commissioner must take .
into account any nont axablesource or deductible expense of whic h he has knowledge . Price'v . United States , supra at 677 . Under the bank deposits method-: (1) Bank deposits are totaled ; (2) nonincome deposits, redeposits, or transfers are eliminated ; (3) an excess of dep o sits, as adjusted, over reported income is considered unreported .income ; (4) cash expenditures that did not come from deposited funds or nontaxable sources are added to unreported income ; and (5) deductible expenses not accounted for in the taxpayer's return are allowed .
Bacon v . Commissioner , T .C .-Memo . 2000-257, . . affd . without published opinion 275 F .3d 33 (3d Cir . 2001) .
;Petitioner told the RA tha-t he never deposited cash received in his lawn services business, only checks . Petitioner also told .the RA that he calculated his Schedule C gross receipts by adding his bank deposits to his "1099-misc [income]" . As noted by the RA, however, the $40,9 .14 sum2 does not match petitioner' s reported $39,933 in Schedule C gross receipts for 2002 .
According to the RA, "he states that he forgot to report the cas h -received due to his medical condition [i .e ., hearing and vision problems, and it was] not fraud because he did not intend t o underreport his income . " The evidence shows that petitioner failed to provide adequate books and records to account for his Schedule C gross receipts . In addition, petitioner admitted to the RA that he did not report . all of his income . Therefore, the Court finds that respondent's use of an indirect method to reconstruct petitioner's Schedule C gross receipts was reasonable .
2$39,413 (total deposits)\.+ $1,501 ("1099-misc [income]") _ $40,'914 .- .
At trial petitio ier conceded; Schedule C gross receipts of $31,173 and cash expe ditures of $16, 725 for 2001 . After the parties' concessions, the parties limited their arguments to th e disputed issues with respect to the 2002 bank deposits analysis .
The Court addresses t ese arguments in turn .
Although petitio er also conceded that'he paid expenses of $16,520 in cash durin g 2002, he argues that the 2002 bank deposits analysis is incorrect because his bank deposits totaled $34,739 while he repo rted .$39,933 in Schedule C gross receipts .
.
Thus, the "$5,193 [si c]" difference represents cash he received, and reported . Theref ore, the $16,520 of undeposited-cas h expenditures that the IRS determined "never existed but rather $11,327 [sic] only ."
And after reducing the $11,327 figure by petitioner's $5,000 c ash hoard, then only "$6,137 . [sic]" remains in dispute as undepo s ited-cash expenditures for-2002 .
Respondent "conte ids that petitioner had additional amounts of undeposited-cash e penditures above the "$5,193 [sic]" figure .
"All undeposited cash includes that amount . We're not saying h e didn't report it, " Although petitio er told the RA that he never deposited cash received in his lawn services business, at trial h e inconsistently assert d that he made deposits into his ban k accounts "Through the ks and cash money" .f In addition, neither petitioner's testimon nor his 2002 bank statements establish the source of the $5,1943 in cash that he received and allegedly reported as gross income ; i .e ., whether it consists of deposited amounts, nontaxable sources, or undeposited cash . Therefore, petitioner has not proven that he is entitled to a $5,19 4 reduction from the $11,250 in undeposited-cash expenditures .'- 'Petitioner next argues that the $11,250 in undeposited-cash expenditures for 2002 should be reduced to account for the $12,793 in checks that he cashed between 1984 and 1992 and allegedly placed into a-shoe_box hidden on a shelf above the washing machine in his garage . The funds were his "personal money that [he earned and paid taxes on] at one time" .
Respondent contends that the funds "are current earnings from his lawn care business . " 'Petitioner testified that he was a "survivalist" who had saved $10 to $20 a week since he started working, and since he "hadn't used it in 25 years, [he decided to use it in 2002, and he told his customers that he would not accept cash . during 2002]" . Petitioner also testified that he did not know how much cash he had on hand for 2002 because it was not'relevant to him .
'This figure represents the correct amounted ($39,933 (reported Schedule C gross receipts) - $34,739 (total bank deposits)) .
II 9The $5,194 .for which petitioner asserts that he should get a reduction from his undeposited-cash expenditures has been taken into account in the computation of the understatement . See supra p . 4'table note 5 .
- 1 1 During th'e (cid:127)init i 1 interview on December 10, 2003 , petitioner told th e that he had between $35 and $4.0 .in cash o n hand for 2002 . Acco'r ing to the RA, .petitioner changed his .story later that . day, clai m ng, that he had between $3,0 :00 .and ~$5, 000 i n cash . on hand and . tha t he had $1,500 in cash'on .hand-by the end of 2002 . At their nex t eeting,°on February 19, 2004, petitione r claimed that,he defin tely had .$5,000 on hand at-the, beginning o f 2002 . Petitioner kne he had $5,000 . because he always had that, ' amount and "he , didn' t takeany .money out of his cash-hoard" .
.
during .2001 but "thi time , he stated [that .he. .did not have an y money on hand at th e nd of 2002]" according tot,he RA .
Petitioner also' old the .RA that nobody: knows about his cash hoard because "he [1 i ed] alone and had, no personal life .
'.'
~ .At .
trial,-respondent as k d :petitioner whether he showed his cash- hoard to anybody and, nether anybody else knew about it .
Petitioner . replied :
no, no .
Of course not . . " Petitioner, howe er, called a witness, Mr .
..Walton,, .,t o corroborate his cash board : Mr . Walton . testified that he .knew , that,-petitioner had a shoe . box, that petitioner "might make a withdrawal from'his a count and he' never take . .it and .. turn it back in the bank . He'll p t itin his shoe box ." Mr . Walton, .'
testified .that(cid:127)he kne this because {he- ., had seen petitioner 'put .
money in the shoe box and it contained "Quite a bit of~money .
12 - Just like * * * over $20,000 . Because he bought a truck out of the shoe box . " But when questioned by the Court., Mr . Walton testified that :
(1) He did not go with petitioner to purchase . the truck ; (2) he knew the purchase money came from the shoe box because petitioner did not go to the bank for it, but he did not see petitioner tak e f the purchase money out of the shoe box ; (3) he knew tha t petitioner got the purchase money out of the shoe box "Because [petitioner] told me he did" ; (4) he knew that the shoe box was in the garage "because [petitioner] had told [him about it]" ; and I(5) he had never seen the contents of the shoe box .
The Court accords little probative weight to, and views with suspicion, the testimony of Mr . Walton, petitioner's only corroborating witness . Mr . Walton's testimony was based on hearsay from petitioner . Even if the Court had determined-that Mr .' Walton's testimony was credible, his testimony would not support petitioner's inconsistent statements as to the amounts of his 'cash hoard, nor could his testimony show that the $11,250 .in undeposited-cash expenditures should be reduced by the $12,793 in checks that petitioner cashed .between 1984 and 1 .992 and allegedly did not spend until 2002 .
Petitioner's testimony that he kept a cash hoard well ove r the) $11,250 in undeposited-cash expenditures in a shoe-box ove r his washing machine for 20 some years until he decided to spend 13 - it in 2002 is at . best self-serving . See Parks v . Commissioner ,
.(1) $12,(cid:127)793 (checks cashed between 1984 .
and 1992) ; (2) $35 to $40 ; (3) $1,500 ; 'and '(4)-$3,000 to -$5, 000 .
Simply puti petitione ' .s` .cash hoard assertion is riddled with inconsistencies and implausibilities- and has not been supported by objective evidence in the record . See.
Parks v . Commissioner , supra at 659 ; Boone v . Co mm issioner, T .C :° Memo . 19,97-471, affd . ., without published op ion 208 .F .3d 212 (6th Cir, . 2000) ; Phillips V . Commissioner ; T .C . Memo . 1984-133 ; In re Kelesyan ,-153 .Bankr .!
927, 929-9 .30 (Bankr .
:D . Fla-1993) .
On the basis of he foregoing, respondent's .-determinations of $1 .6,725 and $11,2'5 in undeposited-cash expenditures for .,2001 and 2002, respectivel , are sustained . Respondent' s determinations of $31 173 and $45,098 .;.of Schedule .C gross, receipts for 2001 and 2002, respectively, are sustained . Insofar 5Asid-e from the' Bank of ^America .and Washington ..,Mutual accounts,-. petitioner . also held four certificates of deposit worth $47,320 .79 as of Dec' . 31, 2001 . Petitioner owned six . certificates of''depos't worth $63,148 .56 as of Jan . 3, 2003 .
as understatements to petitioner's, Schedule C gross receipts for 2001 and 2002 are proposed, respondent's determinations are sustained . '
Petitioner's Schedule C Expense Deduction s The 2001 Schedule C . expense deduction in dispute is the $1,833 of the claimed $4,259 in other expenses that respondent disallowed . Although the AO allowed petitioner a $654 expense deduction for vehicle insurance for 2001, respondent argues that the $1,833 figure consists of $194 for fuel, $493 for "SCE", and $1,800 for "MISC" . It is unclear from the record whether respondent allowed the $65 .4 expense deduction as a separate item within the other expenses category or whether it offsets the $1,800 "MISC" expense for 2001 (i .e ., only $1,146 of,the "MISC" expense remains in-dispute) .
The 2002 Schedule C expense deductions in dispute are th e $2,345 of the claimed $6,182 in other expenses and $7,666 of the claimed $25,.668 in section 179 expenses and depreciatio n deductions that respondent disallowed . Although the AO allowed petitioner a $1,671 expense deduction for vehicle insurance for 2 .002, respondent alleges that the $2,345 figure consists of $51 6 6Respondent determined understatements of $12,678 and $5,165 forj2001 and 2002, respectively . After taking into account the parties' concessions and the Court's allowances for Schedule C expense deductions, infra , the understatements in petitioner's- Schedule C gross receipts are $11,906 .40 and $4,980 .50 for 2001 and 2002, respectively .
for "SCE" and $3,500 or "MISC" . It'is unclear from the record whether respondent al owed the $1,671 expense deduction as a , separate item withi n e other expenses category or whether i t offsets the $3,500 " M SC" expense for 2002 (i .e ., only $1,829 of the "MISC" expense re ains in dispute) . The $7,666 figur e consists ofd' (1) $46 of the section 179 expense deduction ; (2) $2,655 of the special depreciation allowance ; and .(3) '$4,546 o f the depreciation ded u tion .
Petitioner asser ed that he had "proved them., and they're in [my exhibits, which I showed . to the IRS]" .
Petitioner tol d he RA that he had paid for the fuel in cash . There is no ev dence in the record substantiating payments of $194 for fuel in 2 01 .` Respondent's disallowance of the .$19 4 fuel expense deductio for 2001 is sustained . See` INDOPCO, Inc .
v . Commissioner , 50 3 S . 79, 84 (1992) .
With- respect to e'$1,800 and $3,500 deductions for "MIS C expenses for 2001 an d 2002, respectively, petitioner has provided receipts substanti,ati g payments of $46 to the franchise ta x board for, 2001, $99 f r a permit for 2002, which bears a n .undecipherable notati $175 .50 for a building permit an d landscaping business icense for 2002, and vehicle expenses of :
(1) $71 for "AAA Ren e al"for .2001 ; (2) $63 for "DMV Renewal" fo r 2001 ; (3) $10 to the City of Moreno Valley" for vehicle tags for 16 - 2002 ; and (4 ) $ 727 .20 and $1,856 . 60 to Nationwide for automobile insurance for 2001 and 2002, respectively . .
The Court finds that petitioner is entitled to deduct the $46 that he paid to the franchise tax board in 2001 and the $175 .50 for the building permit and landscaping business license in 2002 . See secs . 162, 164 ; see also Cunningham v .
Commissioner , T .C . Memo . 1989 - 260 (and cases cited therein) .
Petitioner has not proven that the $99 permit for 2002, whic h bears the undecipherable notation, qualifies as an ordinary an d necessary business expense and that is it not a nondeductibl e personal expense . See secs . 162, 262 . Thus, he is not entitle d to adeduction for that permit . The AO allowed petitione r deductions of $654 and $1,671 for vehicle insurance based upon a 90-percent business use .' Petitioner has not established that he is e'ntit.led to a greater business use percentage or that he is entitled to allowances for insurance greater than $654 and $1,671 for'2001 and 2002, respectively . Because the AO allowed petitioner a business use percentage of 90 percent, the Court will also allow petitioner 90 percent of his vehicle expense s for :
(1) $63 .90 for "AAA Renewal" for 2001 ; (2) $56 .70 for "DM V Renewal" for 2001 ; and (3) $9 for the "City of Moreno Valley " vehicle tags for 2002 . Compare Cohan v . Commissioner , 39 F .2 d 7The RA determined business use percentages of 72 and 90 percent for petitioner's Ford and Toyota trucks, respectively .
-- 1' 7 540, 5 .43-544 (2d Cir' .
193 .0)-, . with Sanford v-. Commissioner, 50 T .C . 823, 827 (1968) (pursuant- to' section-_,'274 (d) , the -Cour t cannot estimate expen es with respect to -certain 'items)', affd .
per .curiam 4,12',F .2 .d 01, (2d Cir .'P1969) .
There is no evid nce in the record substantiating payments of $465 for tools in 2002 .4 Therefore, t h.e .Court finds that petitioner is not ent itled= to an allowance,_great .er than the $6,304 that the RA al 1-owed as' section 179 .expenses `for 200 2 Petitioner also has"n of proven any infirmity ".,with respect to respondent's determin ati .ons disallowing'$2,655,-of petitioner's special. depreciation deduction,and $4,546 of-his depreciation deduction .
. . According ly , respondent's determinations .ar e sustained ."
' Petitioner submi tted canceled checks substantiating telephone payments-of " .$361 .90 'and $71 .65 for 2Q01 and 2002,-° respectively .` It is' unclear from the record-whet.he.r respondent has-already given,.pet itioner allowances--for these items or that i the items qualify as deductible . business expenses . See sec .
262(b) (charges . for asic telephone service for the "1st .- telephone line" at t e taxpayer'_s residence are treated as a nondeductible person l expense ) see_also secs . 274 ;(d), 280F(d) (4) (A)f:(v) (re uiring .strict-substantiation of cell phone .!
expenses) . According ly, petitioner is not entitled to allowances greater than the $366 and $291 for "Telephone" that respondent allowed for 2001 and 2002, respectively .
Petitioner submitted canceled checks substantiating :
(1) $328 and $341 for "Earthquake" insurance for 2001 and 2002 , respectively ; (2) $651 and $808 for "Home" insurance policies for 2001 and 2002, . respectively ; and (3) $696 for his homeowners' association fees for each year . Respondent allowed $29 .58 and $30 .96 of the "SCE" expense for 2001 and 2002, respectively .
r Respondent also allowed a $216 depreciation deduction, for petitioner's home in the computation of the deduction for th e business use of his home for each year . Petitioner has failed to establish that respondent erred in disallowing the claimed "SCE" expense with respect to petitioner's Schedule C and treating it as an expense for the business use of his home or that he i s entitled .to an allowance greater than 6 percent of .the item . ' Petitioner also has not established that he is entitled to deductions for the business use of his home greater than the $416 and $434 allowances that respondent determined for .2001 and 2002 , respectively . Respondent's determinations are sustained .
IV .
Petitioner's Itemized Deduction s 'Respondent allowed petitioner itemized deductions of $12,826 for 2001 consisting of $1,867 for real estate .taxes and $10,95 9 'Petitioner told the RA that he paid "SCE" in cash ; thus ; he has not substantiated any payments to "SCE" for either year .
19 - for charitable, contribution's' .- Respondent allowed petitioner th e $4,700'standard deduction for,2002 .
Petitioner-has-submitted canceled checks or receipts substantiating :- (1) : $1,869 .96 and $1,969 .54 for real estate taxes for 20011 and 2 ;002, respectively ; (2) $291 .and $264-for charitable contributi ns for 2001and .2002,'respectively ; (3) $2,448 and $3,110 for health insurance premiums for 2001 and 2002, respectively ; a d°'(4) medical'/dental expenses of,$56 .69 fo r 2001 .
Self-employed in ividuals may deduct 60 percent and 70- percent of their heal--h insurance premiums for .2001 and 2002, respectively, and may deduct the excess thereof pursuant to< section 213 . . Sec . 16 (1)'(1), (3) . Petitioner claimed,self- employed health'insur nce :deductions of $1, .574'and $1,991 for 2001 and 2002,-respec ively . Respondent has made no adjustment to petitioner's claim d $1,574 self-employed health insuranc e deduction for 2001, a though it should have been limited to' $1,468 .80 (60 percent of $2,448) Petitioner has not proven tha t he is entitled to an4mount greater than the $1,57 .4 tha t respondent allowed as a self-employed .health insur`ance'deduction ' for 2001, but he may . educt the $8 .749 excess in .the amoun t allowed by section 21 . Petitioner's self=employed healt h .92001 subatantiat d health insurance premium payments of .
$2,448 less the $1,57 self-employed health insuranc-e deduction that respondent allow d .
20 - insurance deduction for 2002 is limited to $2,177 (70 percent of $3,110,) . Because petitioner only deducted $1,991, he, is entitled to deduct an additional $186 as a self-employed health insurance deduction for 2002 . . In addition, petitioner may deduct th e $99310 excess in the amount allowed by section 213 . See secs .
63(e)'(1), 162(1)(3) . In the end, however, petitioner is not entitled to deduct his section 213 medical expenses for either year because the amounts do not exceed the 7 .5-percent floor of section 213(a) and he did not elect to itemize his deductions .
See sec . 63 (e) (1) 1 1 The RA allowed $10,718 as noncash contributions for 2001 based upon "cash receipts from grocery stores and .so forth" . The AO, however ; allowed charitable contributions of $10,959 .
Petitioner's exhibit indicates that of the $291 in cancele d checks that he submitted into evidence respondent has alread y 102002 substantiated health insurance premium payments of $3,110 less the allowable $2,177 self-employed health insurance deduction .
"The sum of petitioner's sec . 213 medical expenses for 2001 .is $930 .69 ($874 (excess health insurance premiums) + $56 .69 (substantiated medical/dental expenses)) . Taking into account respondent's adjustments and the Court's findings, petitioner's adjusted gross income (AGI) for 2001 is $23,713 .43 . To exceed the 7 .5-percent floor of sec . 213, petitioner's medical/dental. expenses must exceed $1,778 .51 for 2001 .
.
The sum of petitioner's sec . 213 medical expenses for 2002 is $993 (excess health insurance premiums) . Taking into account respondent's adjustments and the Court's findings, petitioner's AGI for 2002 is $21,496 .18 . To exceed the 7 .5-percent floor of sec . 213, petitioner's medical/dental expenses must excee d $1,612 .21 for 2002 .
2 1 given petitioner an allowance of $241 . The Court will allow petitioner an additional $50 deducti .on .as a charitable contribution for . 2001- See Cohan v . Commissioner , 39-F .2d at 543-544 . The Court will also allow petitioner a $1,869 .96, deduction for real estate taxes for 2001 rather than the $1,867 figure that responden .allowed .
.
Petitioner did not elect to itemize his deductions .for 2002, and the $2 .,233 . :54 sum12 does not exceed the $4,700 standard .deduction for 2002 . See sec . 63 . Respondent's determination i s sustained .
To reflect the f regoin,g, .
I Decision will be entered unde r Rule 155 .
12$1,969 .54 (real estate taxes) + $264 (charitable contributions) = $2,23 .54 .-
The figures in this appendix are for illustrative purposes only . . Computations in accordance with Rule 155 will be necessary . The figures take into account respondent' s determinations, the parties ' allowances .
concessions, and the Court' s Sch . C deductions 2001 .
Safety boots Fuel Telephone Franchise tax bd . Licenses or permits Vehicle ins . AAA Vehicle tags/DMV Deduction for bus .
use of home Legal & profl . servs . Tax & licenses Depreciation & sec .
$220 .00 1,186 .00 366 .00 46 .0 0 654 .00 63 .90 56 .70 416 .00 169 .00 200 2 $340 .00 1,409 .0 0 291 .0 0 175 .5 0 1, 671 .0 0 71 .0 0 64 .0 0 434 .0 0 225 .0 0 89 .0 0 179 expenses Total 3,310 .00 6,4 .87 .60 18,002 . .0 0 22,771 .5 0 Sch . C profit/loss 200 1 2.00 2 Gross receipts Deduction s Net profi t $31,173 .00 -6,487 .60 24,685 .4 0 $45,098 .00 -22,771 .5 0 22,326 .5 0 Self-emp . tax comp .
200 1 200 2 Net profit sch . C Net earnings Self-emp . tax Self-emp . ta x deduction $24,685 .40 x 192 .35 % 22,796 .97 x 215 .300 3,487 .9 4 x 350 .00 % $22,326 .50 x 192 .35 0 20,618 .52 x 215 .300 3,154 .6 4 x 350 .00 % 1,743 .97 1,577 .32 - 2 3 Form 1040 ite ms 2001 200 2 Taxable interest Bus . income Self-emp . Self-emp . ins . d eduction AGI . tax de duction $ 2,346 .00 24,685 .40 -1,743 .97 -1,574 .00 23,713 .43 $2,864 .0 0 22,326 .5 0 -1, 577 .3 2 -2,117 .0 0 21,496 .1 8
a
s See sec . 164'(f) (which allows as a deduction one-half of the self-employm nt taxes) .
Ask CiteLaw's AI Navigator anything about this case, check whether it is still good law, and see every case that cites it. Sign up for CiteLaw free today to get started.