Opinion
2172-17
07-09-2021
Peter E. Barker-Homek & Shay Serdy, Petitioners v. Commissioner of Internal Revenue, Respondent
ORDER
Albert G. Lauber, Judge
This case is calendared on the Court's October 4, 2021, Los Angeles, California, trial session, to be conducted remotely via Zoomgov. With respect to petitioners' 2012-2014 tax years, the Internal Revenue Service (IRS or respondent) determined deficiencies of $64, 539, $414, 042, and $258, 139, respectively, and accuracy-related penalties of $12, 907, $82, 808, and $51, 627, respectively. The deficiencies result primarily from the IRS' determination that petitioners had failed to substantiate expense deductions claimed on their Schedules C, Profit or Loss From Business.
On July 7, 2021, petitioners filed, at docket entries ## 81 and 82, a Motion for Summary Judgment and an affidavit of petitioner husband. That same day petitioners filed, at docket entries ## 87 and 88, an identical Motion and affidavit, but with various attachments. Petitioners contend that they have "fully substantiated" all deductions and losses that they claimed. They accordingly request that the notice of deficiency "be dismissed" and that respondent pay costs and damages.
The purpose of summary judgment is to expedite litigation and avoid unnecessary and time-consuming trials. See FPL Grp., Inc. & Subs. v. Commissioner, 116 T.C. 73, 74 (2001). We may grant summary judgment when there is no genuine dispute of material fact and a decision may be rendered as a matter of law. Tax Court Rule 121(b); Elec. Arts, Inc. v. Commissioner, 118 T.C. 226, 238 (2002). When determining whether to grant summary judgment, we must view factual materials and inferences drawn therefrom in the light most favorable to the nonmoving party (here respondent). See FPL Grp., Inc. & Subs. v. Commissioner, 115 T.C. 554, 559 (2000). "If, in this generous light, a material issue is found to exist, summary judgment is improper." Nationwide Life Ins. Co. v. Bankers Leasing Ass'n, Inc., 182 F.3d 157, 160 (2d Cir. 1999).
At issue is whether petitioners are entitled to various deductions and losses for 2012-2014. Deductions are a matter of legislative grace, and taxpayers must prove entitlement to all deductions claimed. See Tax Court Rule 142(a); INDOP-CO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Taxpayers are required to identify each deduction, show that they have met all relevant requirements, and keep books or records to substantiate the amounts claimed. See I.R.C. § 6001; § 1.6001-1(a), Income Tax Regs.
In their Motion for Summary Judgment petitioners argue that they "fully substantiated" all deductions and losses for 2012-2014. They appended to their Motion an affidavit from petitioner husband, to which they attached numerous exhibits. Several of these exhibits are duplicate copies of previous filings, such as the petition and status reports. Others contain receipts and other financial information. They contend that these documents show that their claimed deductions were "ordinary and necessary" within the meaning of I.R.C. § 162(a).
Viewing the facts and the inferences drawn from the facts in the light most favorable to respondent, we conclude that summary judgment must be denied. Whether the documents on which petitioners rely support their claims to deductions and losses presents factual questions that are ill-suited for summary adjudication. And respondent is entitled to dispute petitioners' contention that their expenses were "ordinary and necessary." See Commissioner v. Heininger, 320 U.S. 467, 475 (1943) ("Whether an expenditure is directly related to a business and whether it is ordinary and necessary are doubtless pure questions of fact in most instances."); Pacific Mgmt. Grp. v. Commissioner, T.C. Memo. 2018-131, 116 T.C.M. (CCH) 181, 189 (same).
Petitioners also contend that they are entitled to summary judgment on the accuracy-related penalty issue. The IRS determined penalties under I.R.C. § 6662 and calculated the amount of the penalties on the portion of the underpayments attributable to disallowed deductions. This likewise presents questions of fact--e.g., whether petitioners underpaid their tax (I.R.C. § 6662(a)) and whether any underpayment was attributable to "negligence" or a "substantial understatement of income tax" (I.R.C. § 6662(b)).
Finally, petitioners seek an award of administrative costs and damages under I.R.C. § 7433. But I.R.C. § 7433(a) requires claims of this sort to be brought "against the United States in a district court of the United States." This Court is not a "district court of the United States." See I.R.C. § 7441. We thus "lack[] jurisdiction to award damages pursuant to section 7433." Zapara v. Commissioner, 126 T.C. 215, 226 (2006), aff'd, 652 F.3d 1042 (9th Cir. 2011). To the extent petitioners are seeking an award under I.R.C. § 7430, that request is premature. That provision provides for the award of administrative and/or litigation costs to a taxpayer that "substantially prevailed" with respect to either the amount in controversy or the most significant set of issues presented. I.R.C. § 7430(c)(4)(A)(i). Petitioners have not yet "prevailed" with respect to any issue.
Upon due consideration, it is
ORDERED that petitioners' Motion for Summary Judgment, filed July 7, 2021, at docket entry #87, is denied. It is further
ORDERED that petitioners' Motion for Summary Judgment and Affidavit, filed July 7, 2021, at docket entries ## 81 and 82, are hereby deemed stricken from the record of this case as duplicative. It is further
ORDERED that petitioners' Exhibit(s), filed July 7, 2021, at docket entries ## 84, 85, and 86, are hereby deemed stricken from the record of this case as duplicative.