Raghvendra Singh & Kiran Rawat v. Commissioner , 2018 T.C. Memo. 79 ( 2018 )

T.C. Memo. 2018-79UNITED STATES TAX COURT
RAGHVENDRA SINGH AND KIRAN RAWAT, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5123-17. Filed June 7, 2018.
Raghvendra Singh and Kiran Rawat, pro sese.
Kimberly A. Trujillo, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
CHIECHI, Judge: Respondent determined deficiencies in, and accuracy-
related penalties under section 6662(a)1 on, petitioners’ Federal income tax (tax)
as follows:
1
All section references are to the Internal Revenue Code (Code) in effect for
the years at issue. All Rule references are to the Tax Court Rules of Practice and
Procedure.
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[*2] Accuracy-Related
Penalty Under
Year Deficiency Sec. 6662(a)
2013 $30,753 $6,150.60
2014 26,305 5,261.00
The issues for decision are:
(1) Are petitioners entitled for their taxable years 2013 and 2014 to claimed
itemized deductions totaling $60,249 and $62,943, respectively? We hold that
they are not.
(2) Did petitioner Raghvendra Singh engage during 2013 and 2014 in a
claimed business activity, thereby entitling petitioners for their taxable years 2013
and 2014 to losses from that claimed business activity of $138,034 and $95,155,
respectively? We hold that he did not.
(3) Are petitioners entitled for their taxable years 2013 and 2014 to certain
alleged losses that they did not claim in their tax returns for those years? We hold
that they are not.
(4) Are petitioners liable for their taxable years 2013 and 2014 for accuracy-
related penalties under section 6662(a)? We hold that they are.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
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[*3] Petitioners resided in California at the time they filed the petition.
Petitioners filed Form 1040, U.S. Individual Income Tax Return (return), for
each of their taxable years 2013 (2013 return) and 2014 (2014 return). In each of
those returns, petitioners did not show a home address but instead showed a post
office box in California.
In their 2013 return, petitioners showed total income of $17,007 consisting
of wages of $128,491, taxable interest of $72, a State tax refund of $7,752, a
business loss of $138,034, taxable pensions and annuities of $13,541, income of
$4,741 from Schedule E, Supplemental Income and Loss (Schedule E), and tax-
able Social Security benefits of $444.
Petitioners included Schedule A, Itemized Deductions (Schedule A), as part
of their 2013 return (2013 Schedule A). In that schedule, they claimed total item-
ized deductions of $60,249 consisting of State income taxes of $6,184, real estate
taxes of $33,308, and home mortgage interest and points of $20,757.
Petitioners included Schedule C, Profit or Loss From Business (Schedule
C), as part of their 2013 return (2013 Schedule C) with respect to a claimed busi-
ness of petitioner Raghvendra Singh (Mr. Singh) that was described in that sched-
ule as “Rental and Leasing”. In their 2013 Schedule C, petitioners reported gross
receipts or sales of $562, claimed cost of goods sold of $101,253, reported gross
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[*4] income of -$100,691, and claimed total expenses of $37,343 (claimed 2013
Schedule C expenses) and a loss of $138,034. The claimed 2013 Schedule C
expenses consisted of the following:
Expense Amount
Advertising $465
Commissions & fees 420
Insurance other than health 1,644
Legal & professional 14,682
Office expense 4,122
Vehicles, machinery, &
equipment 612
Other business property 512
Repairs & maintenance 5,232
Supplies 832
Taxes & licenses 602
Travel 3,878
Meals & entertainment 208
Utilities 4,134
In their 2014 return, petitioners showed total income of $45,485 consisting
of wages of $120,398, a State tax refund of $6,184, a business loss of $95,155,
pensions and annuities of $13,811, Schedule E income of $247, and taxable Social
Security benefits of zero.
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[*5] Petitioners included Schedule A as part of their 2014 return (2014 Schedule
A). In that schedule, they claimed total itemized deductions of $62,943 consisting
of State income taxes of $6,184, real estate taxes of $34,682, and home mortgage
interest and points of $22,077.
Petitioners included Schedule C as part of their 2014 return (2014 Schedule
C) with respect to a claimed business of Mr. Singh that was described in that
schedule as “Business Acquisitions”. In their 2014 Schedule C, petitioners report-
ed gross receipts or sales of $412, claimed cost of goods sold of $50,514, reported
gross income of -$50,102, and claimed total expenses of $45,053 (claimed 2014
Schedule C expenses) and a loss of $95,155. The claimed 2014 Schedule C ex-
penses consisted of the following:
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[*6] Expense Amount
Advertising $562
Car & truck 1,272
Commissions & fees 462
Contract labor 2,162
Insurance other than health 1,526
Legal & professional 15,532
Office expense 5,126
Vehicles, machinery, &
equipment 702
Other business property 826
Repairs & maintenance 6,152
Supplies 834
Taxes & licenses 772
Travel 4,162
Meals & entertainment 312
Utilities 4,651
Respondent issued a notice of deficiency (notice) to petitioners for their
taxable years 2013 and 2014, the years at issue. In that notice, respondent deter-
mined to disallow the respective itemized deductions claimed in petitioners’ 2013
Schedule A and their 2014 Schedule A.
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[*7] In the notice, respondent also determined to decrease the total respective
amounts of gross receipts or sales that petitioners reported, and to disallow the
total respective amounts of cost of goods sold, expenses, and losses claimed, in
their 2013 Schedule C and their 2014 Schedule C.
Respondent also determined in the notice that petitioners are liable for their
taxable years 2013 and 2014 for accuracy-related penalties under section 6662(a).
OPINION
Petitioners bear the burden of establishing that the determinations in the
notice are erroneous. They also bear the burden of establishing their entitlement
for the years at issue to certain losses that they did not claim in their 2013 return
and their 2014 return. See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933). Moreover, deductions are a matter of legislative grace, and petitioners
bear the burden of proving entitlement to any deduction claimed. See INDOPCO,
Inc. v. Commissioner, 503 U.S. 79, 84 (1992). The Code and the regulations
thereunder required petitioners to maintain records sufficient to establish the
amount of any deduction claimed. See sec. 6001; sec. 1.6001-1(a), Income Tax
Regs.
We begin by summarizing our evaluation of the evidence proffered at the
trial in this case. We address first the testimony of Mr. Singh, the only witness at
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[*8] that trial. We found his testimony to be not credible, uncorroborated, self-
serving, and/or conclusory in certain material respects. We are unwilling to, and
we shall not, rely on Mr. Singh’s testimony to establish petitioners’ position with
respect to each of the issues presented. See, e.g., Tokarski v. Commissioner, 87
T.C. 74, 77 (1986).
Petitioners proffered certain documentary evidence at trial in support of
petitioners’ respective positions with respect to certain issues.2 We sustained
respondent’s objections to virtually all of those documents because they did not
pertain to the years at issue. We allowed into evidence, inter alia, two Forms
1098, Mortgage Interest Statement (Form 1098), pertaining to 2014 which Bank of
America, N.A., had issued to Mr. Singh and which showed that he had paid to that
2
Mr. Singh claimed during his testimony that he had records that support
petitioners’ respective positions with respect to the issues presented (alleged
records) but that those alleged records were not available to petitioners. He gave
different reasons as to why those alleged records were not available. First, Mr.
Singh claimed that the alleged records were lost because his accountant died in
2014. He then claimed that the alleged records were seized by the local county in
which they lived in California. Finally, Mr. Singh testified that the alleged records
were destroyed in a fire. As we observed previously, we found Mr. Singh’s testi-
mony, inter alia, not to be credible in certain material respects. Moreover, even if
we had believed Mr. Singh’s testimony about the alleged records, we nonetheless
would not have sustained on the record before us petitioners’ position with respect
to any of the issues presented.
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[*9] institution during that year mortgage interest of $6,321.46 and $5,775.47,
respectively (2014 Forms 1098).
We turn now to the issues presented. The first issue that we will consider is
whether petitioners are entitled for the years at issue to the respective itemized
deductions claimed in their 2013 Schedule A and their 2014 Schedule A. Petition-
ers presented no evidence on which we are willing to rely that establishes their
position with respect to that issue. With respect to the 2014 Forms 1098, we gen-
erally will rely on that type of evidence to show that a taxpayer paid the amount of
mortgage interest specified in Form 1098. However, we are not willing to rely on
the 2014 Forms 1098 here. That is because, inter alia, (1) petitioners’ home ad-
dress is not shown in their 2013 return and their 2014 return; (2) the record does
not establish the property or properties to which those forms pertain; (3) the record
does not establish that Mr. Singh (or petitioners) owned the property or properties
to which those forms pertain; (4) the record does not establish whether the prop-
erty or properties to which those forms pertain constituted during 2014 the primary
residence, the secondary residence, or an investment property of Mr. Singh (or
petitioners).
Based upon our examination of the entire record before us, we find that
petitioners have failed to carry their burden of establishing that for the years at
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[*10] issue they are entitled to the respective itemized deductions claimed in their
2013 Schedule A and their 2014 Schedule A.
We consider next whether petitioners are entitled for the years at issue to the
respective losses claimed in their 2013 Schedule C and their 2014 Schedule C.
Petitioners presented no reliable evidence that establishes that Mr. Singh was
engaged during the years at issue in the respective businesses in which they claim
he was involved during those years, as reflected in those respective schedules.3
Based upon our examination of the entire record before us, we find that
petitioners have failed to carry their burden of establishing that for the years at
issue they are entitled to the respective losses claimed in their 2013 Schedule C
and their 2014 Schedule C.
The third issue we address is an affirmative issue that petitioners raised at
trial and on brief. As we understand petitioners’ position, they are claiming that
they are entitled to certain losses for the years at issue that relate to losses that they
contend they incurred in prior years (other losses). Petitioners presented no
3
Even if we had found that Mr. Singh was engaged during the years at issue
in the respective businesses in which petitioners claim he was involved during
those years, as reflected in their 2013 Schedule C and their 2014 Schedule C, we
would find on the record before us that petitioners have failed to carry their burden
of establishing their entitlement to the respective gross receipts reported and the
respective total amounts of cost of goods sold, expenses, and losses claimed in
those schedules.
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[*11] reliable evidence that establishes that they are entitled for the years at issue
to certain other losses.
Based upon our examination of the entire record before us, we find that
petitioners have failed to carry their burden of establishing that for the years at
issue they are entitled to certain other losses.
We turn to the remaining issue presented under section 6662(a). Section
6662(a) imposes an accuracy-related penalty of 20 percent on the underpayment to
which section 6662 applies. Section 6662 applies to the portion of any underpay-
ment which is attributable to, inter alia, (1) negligence or disregard of rules or
regulations, sec. 6662(b)(1), or (2) a substantial understatement of tax, sec.
6662(b)(2).
The term “negligence” in section 6662(b)(1) includes any failure to make a
reasonable attempt to comply with the Code. Sec. 6662(c). Negligence has also
been defined as a failure to do what a reasonable person would do under the cir-
cumstances. See Leuhsler v. Commissioner, 963 F.2d 907, 910 (6th Cir. 1992),
aff’g T.C. Memo. 1991-179; Antonides v. Commissioner, 91 T.C. 686, 699
(1988), aff’d, 893 F.2d 656 (4th Cir. 1990). The term “negligence” also includes
any failure by the taxpayer to keep adequate books and records or to substantiate
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[*12] items properly. Sec. 1.6662-3(b)(1), Income Tax Regs. The term “disre-
gard” includes any careless, reckless, or intentional disregard. Sec. 6662(c).
For purposes of section 6662(b)(2) an understatement is equal to the excess
of the amount of tax required to be shown in the tax return over the amount of tax
shown in the return. Sec. 6662(d)(2)(A). An understatement is substantial in the
case of an individual if the amount of the understatement for the taxable year
exceeds the greater of 10 percent of the tax required to be shown in the tax return
for that year or $5,000. Sec. 6662(d)(1)(A).
The accuracy-related penalty does not apply to any portion of an underpay-
ment if it is shown that there was reasonable cause for, and that the taxpayer acted
in good faith with respect to, such portion. Sec. 6664(c)(1). The determination of
whether the taxpayer acted with reasonable cause and in good faith depends on all
the pertinent facts and circumstances, including the taxpayer’s efforts to assess the
taxpayer’s proper tax liability, the knowledge and experience of the taxpayer, and
the reliance on the advice of a professional, such as an accountant. Sec. 1.6664-
4(b)(1), Income Tax Regs.
Respondent bears the burden of production with respect to the accuracy-
related penalties under section 6662(a) that respondent determined in the notice.
See sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001). To
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[*13] satisfy respondent’s burden of production under section 7491(c), respondent
must produce evidence showing, inter alia, that respondent’s representatives
complied with section 6751(b)(1). See Graev v. Commissioner, 149 T.C. ___
(Dec. 20, 2017), supplementing and overruling in part 147 T.C. 460 (2016).
To satisfy respondent’s burden of production, respondent must come for-
ward with “sufficient evidence indicating that it is appropriate to impose” the
penalty. Higbee v. Commissioner, 116 T.C. at 446. Although respondent bears
the burden of production with respect to the penalty under section 6662(a),
respondent “need not introduce evidence regarding reasonable cause * * * or
similar provisions. * * * the taxpayer bears the burden of proof with regard to
those issues.” Higbee v. Commissioner, 116 T.C. at 446.
On the record before us, we find that respondent has satisfied respondent’s
burden of production under section 7491(c) with respect to the accuracy-related
penalties under section 6662(a).4
4
For example, the record contains a so-called penalty-approval form that we
find shows that respondent’s representatives complied with sec. 6751(b)(1). In
addition, petitioners failed to substantiate properly their entitlement (1) to the
respective total itemized deductions claimed in their 2013 Schedule A and their
2014 Schedule A and the respective losses claimed in their 2013 Schedule C and
their 2014 Schedule C. See sec. 1.6662-3(b)(1), Income Tax Regs. Furthermore,
we have sustained all of respondent’s determinations in the notice. Consequently,
there is a substantial understatement of tax under sec. 6662(d)(1)(A) and (2)(A)
(continued...)
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[*14] On the record before us, we find that petitioners have failed to carry their
burden of establishing that there was reasonable cause for, and that they acted in
good faith with respect to, the underpayment for each of the years at issue.
Based upon our examination of the entire record before us, we find that
petitioners have failed to carry their burden of establishing that they are not liable
for the years at issue for accuracy-related penalties under section 6662(a).
We have considered all of the contentions and arguments of the parties that
are not discussed herein, and we find them to be without merit, irrelevant, and/or
moot.
To reflect the foregoing,
Decision will be entered for
respondent.
4
(...continued)
for each of the years at issue.