Alisobhani v. Commissioner

MEMORANDUM OPINION

NAMEROFF, Special Trial Judge: This case was heard pursuant to the provisions of section 7443A(b)(3) and Rules 180, 181, and 182. ¹ Respondent determined a deficiency in petitioner's 1990 Federal income tax in the amount of $ 6,338, plus a penalty under section 6662(a) in the amount of $ 1,268.

The issues for decision are: (1) Whether petitioner is entitled to claim dependency exemptions for his mother and father; (2) whether petitioner is entitled to claim head of household status; (3) whether petitioner is entitled to a deduction in the amount of $ 3,000 for a contribution made to a mosque located in Iran; (4) whether petitioner is entitled to claimed Schedule C deductions; and (5) whether petitioner is liable*648 for the penalty under section 6662(a).

Some of the facts have been stipulated and are so found. The stipulation of facts, supplemental stipulation of facts, and attached exhibits are incorporated herein by this reference. At the time of the filing of the petition herein, petitioner resided in Woodland Hills, California. Petitioner bears the burden of proving respondent's determinations are erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111 (1933). We must note initially that we found petitioner to be a forthright and credible witness, which has weighed heavily in our decision-making process.

Dependency Exemptions and Head of Household Status

Petitioner claimed two dependency exemptions, for his mother and father, on his 1990 return. Petitioner testified that his parents, Iranian emigres, have resided with him since arriving in the United States in the early 1980's. Petitioner further testified that, other than the monthly $ 501.34 Supplemental Security Income payments which his father began receiving on July 1, 1990, his parents had no other source of income. Thus, during 1990, petitioner testified that he provided his parents with*649 shelter, clothing, food, and medical care.

Section 151(a) and (c)(1) allows a taxpayer a deduction for exemptions for dependents as defined in section 152(a), provided certain requirements are met. Section 152(a)(4) provides that a taxpayer's mother or father may qualify as a dependent and that a dependent must receive over half of his or her support for the taxable year from the taxpayer in order for the taxpayer to be entitled to claim an exemption for that dependent. Based on petitioner's testimony, we believe that petitioner provided more than half of his mother's support for 1990. However, petitioner's father received Supplemental Security Income payments in the amount of $ 3,108.31, ² which funds are considered as being contributed by the father for his own support. E.g., Black v. Commissioner, T.C. Memo. 1972-135. When the Supplemental Security Income payments are taken into consideration, petitioner has not shown that he contributed more than one-half of his father's support. Accordingly, based on this record, we cannot conclude that petitioner provided more than half of his father's support for 1990, and, therefore, petitioner is only*650 entitled to the claimed dependency exemption for his mother.

Petitioner also claimed a filing status as "head of household" on his 1990 return. Section 2(b)(1) defines the term "head of household", as relevant herein, as an unmarried taxpayer who maintains a household which constitutes for the taxable year the principal place of abode of his father or mother, if the taxpayer is entitled to a deduction for such taxable year for his father or mother under section 151. Accordingly, based on our determination that petitioner's mother was a dependent of petitioner, that she lived with petitioner for all of 1990, and that petitioner maintained the requisite household, petitioner is entitled to claim head of household status.

Charitable Contribution

Petitioner claimed a charitable contribution deduction in the amount of $ 3,000 on his 1990 return. *651 Petitioner testified that pursuant to his Islamic religion, he was required to tithe. Thus, petitioner testified that he made contributions to a mosque located in Iran in the neighborhood in which his family had lived. Although petitioner substantiated the claimed contributions, respondent disallowed the deduction because the mosque does not qualify as a charitable donee under section 170(c).

To be entitled to a deduction for the contributions, petitioner is required to show that the mosque is an organization of the type listed in section 170(c). ³ Petitioner does not dispute that the mosque to which he made his contributions is neither organized in the United States or in any possession thereof, nor under the law of the United States, any State, the District of Columbia, or any possession of the United States. See ErSelcuk v. Commissioner, 30 T.C. 962 (1958); Tobjy v. Commissioner, T.C. Memo. 1986-62; Herter v. Commissioner, T.C. Memo. 1961-19. Therefore, the mosque is not a qualified donee under section 170(c)(2), and we sustain respondent on this issue. Schedule C Deductions*652

During 1990, petitioner was employed full time as an engineer for Rockwell International Corp. In addition, he owned and*653 operated an import/export business known as "Unitrade". Generally, petitioner would visit local foreign trade offices to learn of new products which he thought he could successfully market within the United States. If petitioner found a product in which he was interested, he would purchase samples from the manufacturer which he could then distribute to potential buyers. During 1990, petitioner's efforts were primarily directed to marketing a multipurpose survival tool, consisting of a combination pick, hammer, knife, sickle, bar, shovel, axe, and saw.

On a Schedule C for this activity on his original income tax return for 1990, petitioner reported gross receipts in the amount of $ 816 and claimed expenses in the amount of $ 11,940. ⁴ In the notice of deficiency, respondent disallowed all the expenses claimed on the Schedule C based on lack of substantiation. On or about September 23, 1992, petitioner filed a Form 1040X for 1990, claiming a refund of $ 1,036, which claim was disallowed in the notice of deficiency. The claim was based upon an amended Schedule C which reports gross receipts in the amount of $ 816, cost of goods sold in the amount of $ 960, and expenses in the *654 amount of $ 14,712. ⁵ Petitioner asserts that the amended Schedule C accurately characterizes the expenses incurred. Thus, with one exception, the following discussion pertains to the items claimed on the amended Schedule C.

We must determine whether petitioner properly claimed cost of goods sold and business expense deductions for his import/export business. Deductions are strictly a matter of legislative grace, and petitioner bears the burden of proving that he is entitled*655 to any deductions claimed. Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435 (1934). If certain claimed deductions are not adequately substantiated, we may be permitted to estimate them when we are convinced from the record that the taxpayer has incurred such expenses and we have a basis upon which to make an estimate. Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 743 (1985).

1. Cost of Goods Sold

Petitioner claimed $ 960 for cost of goods sold on his amended Schedule C. At trial, petitioner testified that he often purchased sample products to examine and send to prospective buyers. Additionally, petitioner presented a copy of his 1990 daily diary which contains daily entries of his alleged business expenses. The daily diary indicates that petitioner incurred $ 960 for sample products. Moreover, petitioner also presented copies of money orders which corroborate the entries contained in the daily diary. Accordingly, petitioner is entitled to a cost of goods sold in the amount of $ 960.

2. Advertising

On petitioner's*656 amended Schedule C, petitioner claimed $ 509 for advertising. Petitioner's daily journal indicates that he incurred $ 80.44 for business cards and $ 429 for printed flyers during 1990. Based on this record, we allow petitioner $ 509 for advertising expense.

3. Computer Cost

On petitioner's original Schedule C, petitioner claimed $ 604 for depreciation on a computer. Thereafter, on the amended return filed on or about September 23, 1992, petitioner elected to expense the cost of the computer pursuant to section 179. Alternatively, petitioner contends that if he cannot expense the cost of the computer, he is entitled to depreciation on the computer. Respondent disallowed the amount claimed on the original return based on lack of substantiation.

Petitioner stated that he purchased a computer from Maya Computer Co., Inc., during 1990. At trial, petitioner offered a copy of his American Express card statement dated August 4, 1990, which indicates that he purchased a computer for $ 4,226. Petitioner further testified credibly that he only used the computer for his import/export activity. Based on this record, we find that in 1990 petitioner purchased a computer for $ 4,226*657 which was used solely in his import/export business. ⁶

However, section 179(a) provides that a taxpayer may elect to treat the cost of any section 179 property, defined in section 179(d)(1) as "any tangible property (to which section 168 applies) which is section 38 property and which is acquired by purchase for use in the active conduct of a trade or business," as an expense which is not chargeable to a capital account. The maximum amount that may be deducted as an expense under this section during the taxable year 1990 is $ 10,000. Sec. 179(b)(1).

Section 179(c)(1) provides:

(1) In General. -- An election under this section for any taxable year shall --