                  T.C. Summary Opinion 2008-36



                     UNITED STATES TAX COURT



                  RODOLFO C. UY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 24177-05S.             Filed April 8, 2008.



     Paul Iannone, for petitioner.

     Michelle Maniscalco, for respondent.



     GOLDBERG, Special Trial Judge:    This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect when the petition was filed.1   Pursuant to section

7463(b), the decision to be entered is not reviewable by any



     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for the
taxable years in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                                 - 2 -

other court, and this opinion shall not be treated as precedent

for any other case.

     On his income tax returns for 2003 and 2004, petitioner

claimed the following rental real estate and pass-through loss

deductions which respondent disallowed:

                                  2003         2004

     Rental real estate       $49,896         $5,400
     Pass-through loss
       from S corporation      63,176         54,393
         Total                113,072         59,793

     As a result of these disallowances, respondent determined

deficiencies in petitioner’s income taxes of $36,091 for 2003,

and $24,098 for 2004.   In computing the deficiencies respondent

increased the amounts of alternative minimum tax shown on the

returns and recomputed the amount of itemized deductions

allowable, taking into account the limitations due to adjusted

gross income under section 67.
                               - 3 -

     After concessions,2 the remaining issues for decision are:

(1) Whether we may consider petitioner’s argument that he is

entitled to deduct a current net passive activity loss and prior

years’ losses for 2003, and if so, whether petitioner has met his

burden of proof with respect to these claims; and (2) whether

petitioner is entitled to deduct certain other suspended passive

activity losses for 2003.

                            Background

     Some of the facts have been stipulated, and they are so

found.   We incorporate by reference the parties’ stipulation of

facts and the accompanying exhibits.

     At the time the petition was filed, petitioner resided in

New York, New York.

     During the taxable year in issue, petitioner worked for

Wakefield Medical Professionals, P.C., as a physician


     2
       Respondent concedes that petitioner is entitled to a
$113,072 passive activity loss deduction for 2003. This amount
represents the aggregate of petitioner’s rental real estate loss
of $49,896 and a pass-through loss of $63,176 stemming from his
ownership of an S corporation. Respondent acknowledges that
petitioner is entitled to deduct the aforementioned amounts as a
passive activity loss on the basis of the $136,509 of passive
activity gain that petitioner reported for 2003. Petitioner
concedes that he is not entitled to a deduction for either rental
real estate losses or a pass-through loss for the taxable year
2004. On brief petitioner concedes that for 2003 his S
corporation activity was a passive activity. Inasmuch as
petitioner failed to appear at trial and present credible
evidence to support his contention that he was an active
participant in his real estate activity for 2003, we deem this
issue conceded.
                                 - 4 -

specializing in pediatric medicine.      In this capacity petitioner

managed five medical offices and a staff comprising five

pediatricians and two interns.

     In 2003 and 2004, in addition to working as a physician,

petitioner was the sole owner of R & D Super Laundromat, an S

corporation, located in Bronx, New York.

     On his returns and in his petition, petitioner maintained

that he actively participated in rental real estate and S

corporation activities in 2003 and 2004.

Rental Real Estate Activities

     Petitioner attached to his 2003 return a Schedule E,

Supplemental Income and Loss, which listed six rental income

properties.   Petitioner reported deductible losses for five of

these properties on line 23, Deductible rental real estate loss,

as follows:   (1) Residential co-op, 67-105 Burns Street,

Apartment 105-3B--$5,845; (2) residential co-op, 67-109 Burns

Street, Apartment 109-1B--$6,081; (3) residential building, 4409

Byron Avenue, Bronx, New York--$1,862; (4) residential condo, 301

W. 57th Street, Apartment #18B, New York--$15,346; and (5) condo,

201 Ohua Avenue, #1813, Honolulu, Hawaii--$20,762.     Petitioner

reported the $49,896 total of deductible rental real estate

losses for the five properties on line 17, Rental real estate,

royalties, partnerships, S corporations, trusts, etc., of his

2003 Form 1040, U.S. Individual Income Tax Return.     Petitioner
                                - 5 -

did not report as deductible a $3,150 loss for the sixth

property, a residential condo located at 5401 Collins Avenue,

Miami, Florida (the Collins Avenue property), which he listed on

line 22, Income or (loss) from rental real estate or royalty

properties of his Schedule E.   Petitioner sold the Collins Avenue

property on March 20, 2003, and the residential co-op located at

67-105 Burns Street, Apartment 105-3B (the Burns Street property)

on June 23, 2003.   Petitioner reported the sales on Form 4797,

Sales of Business Property, as follows:

                                Burns Street      Collins Avenue
                                  Property           Property

     Gross sale price             $100,000           $220,711
     Cost or other basis            77,820            157,755
     Depreciation                   20,474             30,899
     Adjusted basis                 57,346            126,856
       Total gain                   42,654             93,855

     Petitioner’s total gain from the sale of business property

for 2003 was $136,509.

Current and Prior Years’ Losses

     On Form 8582, Passive Activity Loss Limitations, which he

attached to his 2003 return, petitioner reported a $3,150 net

loss for rental real estate activities with active participation

(line 1b) and a $74,218 loss for unallowed losses for prior years

(line 1c).   Petitioner computed these figures using Worksheet 1-

-For Form 8582, Lines 1a, 1b, and 1c (Worksheet 1), which he
                                           - 6 -



attached to his 2003 return and on which he reported the

following:
                            Current year                  Prior years     Overall gain
or loss
Name of activity         Net income   Net loss     Unallowed loss       Gain     Loss

Residential   co-op         ---         ---           $26,018           ---    $26,018
Residential   co-op         ---         ---             6,862           ---      6,862
Residential   building      ---         ---            28,267           ---     28,267
Residential   condo         ---       $3,150           13,071           ---     16,221
  Total                     ---        3,150           74,218           ---     77,368

      Petitioner entered $77,368, the total of current and prior

years’ losses, on line 4 of Form 8582.                  On the basis of this

entry, the form instructed petitioner to complete Part II,

Special Allowance for Rental Real Estate With Active

Participation.           Because petitioner’s modified adjusted gross

income for 2003--as reported on Part II--was $299,805, petitioner

could not deduct any portion of the $77,368 from his nonpassive

income for that year.3

Petitioner’s Failure To Appear

      This case was set for trial on February 5, 2007, at the

Court’s trial session in New York, New York.                    Petitioner did not

appear at the calendar call.               Petitioner’s counsel, Mr. Iannone,

appeared and asked for a continuance on the grounds that

petitioner was out of town and that Mr. Iannone had been retained


      3
       A taxpayer who “actively participated” in a rental real
estate activity may deduct a maximum loss of $25,000 per year
related to the activity. Sec. 469(i)(1) and (2). This exception
is fully phased out, however, when adjusted gross income (AGI)
equals or exceeds $150,000. Sec. 469(i)(3)(A), (F). Petitioner
reported AGI of $299,805. Under sec. 469(i)(3)(F)(iv), AGI is
determined without regard to any passive activity or any loss
allowable by reason of sec. 469(c)(7).
                               - 7 -

as counsel 2 days before the calendar call.    The Court denied

this motion, set the case for recall, and firmly instructed Mr.

Iannone to meet with his client before trial.

     When this case was recalled for trial, Mr. Iannone and

respondent’s counsel appeared and were heard.    The parties filed

a stipulation of facts with attached exhibits.    Petitioner did

not appear in court, and Mr. Iannone was unable to present any

meaningful evidence as to the issues.    The Court closed the

proceedings and provided the parties with the opportunity to file

posttrial briefs.

                            Discussion

     The Commissioner’s determination as set forth in a notice of

deficiency is generally presumed correct, and the taxpayer bears

the burden of showing that the determination is in error.    Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).    Pursuant

to section 7491(a) the burden of proof as to factual matters

shifts to the Commissioner where the taxpayer complies with

substantiation requirements, maintains records, and cooperates

fully with reasonable requests for witnesses, documents, and

other information.   On the basis of our review of the record, and

for the reasons discussed infra, we conclude that petitioner did

not comply with these requirements, and thus, the burden of proof

remains with petitioner.
                               - 8 -

     On brief petitioner argues that respondent carries the

burden of proof as a result of his concession for 2003.    We do

not agree.   Rule 142(a)(1) would place the burden of proof on

respondent only if respondent pleaded a new matter in his answer.

For the reasons discussed infra, we conclude that respondent did

not plead or raise on brief any new matter, and therefore,

respondent bears no additional burden of proof.

     Deductions are a matter of legislative grace, and a taxpayer

generally bears the burden of proving that he is entitled to the

deductions claimed.   See Rule 142(a); INDOPCO, Inc. v.

Commissioner, 503 U.S. 79 (1992); New Colonial Ice Co. v.

Helvering, 292 U.S. 435 (1934).   A taxpayer bears the burden of

proof with respect to his entitlement to claimed loss deductions.

Lee v. Commissioner, T.C. Memo. 2006-70.   A taxpayer is required

to maintain records that are sufficient to enable the

Commissioner to determine his correct tax liability.    See sec.

6001; sec. 1.6001-1(a), Income Tax Regs.

Petitioner’s Contentions

     Petitioner’s argument is based on a two-pronged approach.

First, petitioner argues that he is entitled--at a minimum--to a

$23,437 passive activity loss deduction for 2003.   This amount--

$23,437--if coupled with the amount respondent conceded as

petitioner’s passive activity loss for 2003, $113,072, equals
                                - 9 -

$136,509 of petitioner’s total gain from passive activities,

namely real estate, for 2003.

     The $23,437 figure represents the $3,150 loss associated

with the Collins Avenue property, which petitioner reported on

line 22 of his Schedule E (but did not actually report as a

deductible loss on line 23) and included on line 1b of his Form

8582, and $20,287 of the $74,218 of prior years’ losses, which

petitioner included on line 1c of his Form 8582.

     Petitioner argues that the Forms 1040, for taxable years

1997 through 2002 which were attached as exhibits to his reply

brief, substantiate adequately the $74,218 of prior years’

losses.

     Second, petitioner argues in the alternative that he is

entitled to a $42,239 suspended loss deduction for 2003.

Specifically, petitioner argues his claim to current and

cumulative suspended losses of $26,018 and $16,221 ($42,239

total) for the Collins Avenue property and the Burns Street

property, respectively, on the basis that he disposed of his

entire interest in each activity in 2003.4   Petitioner claims

that because he sold both of the properties in 2003, the unused

or suspended passive activity losses associated with those

properties should first be used to offset his passive income gain


     4
       Although not contained in the petition, this argument was
raised by petitioner’s counsel during opening statements.
Respondent’s reply brief is responsive to this issue.
                                - 10 -

and, to the extent that gain is exceeded (in this case by

$17,802, or $42,239 - $24,437), his nonpassive income for that

year.

Respondent’s Contentions

        With respect to the deductible losses raised for the first

time in petitioner’s posttrial briefs, respondent contends that

petitioner is barred from raising as a new issue for decision

either his entitlement to deduct the current year loss associated

with the Collins Avenue property or the prior years’ losses for

the taxable years 1997 through 2002 because:     (1) The petition

seeks relief specifically and only under section 469(c)(7) and;

(2) even if petitioner were entitled to raise as an issue the

aforementioned losses, he has not met his burden of proof.

        Furthermore, respondent contends that petitioner is not

entitled to suspended loss deductions of $26,018 and $16,221 for

2003 from his sale of the properties in that year because

Worksheet 1 does not identify sufficiently the properties listed

on Schedule E, and petitioner has failed to substantiate the

suspended passive activity losses reported on Worksheet 1.

Current and Prior Years’ Losses

        With respect to petitioner’s argument that he is entitled to

claim current and prior years’ losses for 2003, we agree with

respondent that this issue was raised for the first time in

petitioner’s opening brief.     The Court has consistently held that
                              - 11 -

it will not consider issues raised for the first time on brief.

Estate of Kleemeier v. Commissioner, 58 T.C. 241, 248-249 (1972).

Contrary to petitioner’s belief, this issue was not raised by

respondent directly or by respondent’s concession but was raised

for the first time on brief by petitioner.

     Assuming arguendo that we may consider this issue,

petitioner cannot prevail.   Petitioner argues on brief his

entitlement to these losses on the basis that:   (1) Respondent

conceded that his rental real estate and S corporation activities

were passive activities for 2003; (2) had he characterized these

activities as passive activities when he filed his 2003 return,

he would have claimed the $3,150 net passive loss deduction for

the Collins Avenue property at that time; and (3) respondent had

sufficient information in petitioner’s return to adequately

compute any allowable passive activity loss for 2003.

     Respondent’s concession that petitioner’s rental real estate

and S corporation activities were passive activities for 2003

does not entitle petitioner to claim additional passive loss

deductions for that year; and even if it were to have this

effect, petitioner would still be required to provide adequate

substantiation for the claimed deductions.   Petitioner has

provided no proof establishing any amount of the current net

passive activity loss deduction of $3,150 to which he now claims

that he is entitled.   Second, as petitioner admits, he did not
                              - 12 -

claim this net passive loss deduction for 2003.   Respondent’s

concession, in itself, does not permit petitioner to

recharacterize the items of income and loss reported on his 2003

return.   It is not respondent’s duty, as petitioner argues, to

recompute the losses a taxpayer may be entitled to claim

following a concession by respondent.   On the basis of the

foregoing, we conclude that petitioner is not entitled to any

additional amount of current net passive loss deduction for 2003

above the amount respondent conceded.

     Regarding the prior years’ losses, we note that the petition

very clearly--and very narrowly--limited petitioner’s claim to

entitlement for relief to that provided for under sections 465,

469(c)(7), and 1016, thereby excluding from our consideration

section 469(d), which governs prior years’ passive activity

losses.   Moreover, the petition requests no overpayment but

merely states that petitioner is “entitled to all of the

deductions claimed on his 2003 and 2004 1040 tax returns”.

     In general, no deduction is allowed in a year for an

individual taxpayer’s passive activity losses in excess of

passive activity income.   However, excess losses may be carried

forward to subsequent years to offset subsequent passive activity

income.   Sec. 469(a), (b), (d).

     The prior years’ passive losses at issue were not claimed on

petitioner’s 2003 return and therefore do not fall among those
                                - 13 -

deductions that petitioner seeks entitlement to in his petition.

We again correct petitioner’s misguided argument that the losses

in issue should be allowed on the basis of the figures listed on

petitioner’s 2003 return and the returns for taxable years 1997

through 2002.     Not only did petitioner fail to substantiate any

of the loss figures reported on his 2003 return; the returns for

taxable years 1997 through 2002, which were attached to

petitioner’s reply brief, are not part of the evidence in this

case.     See Rule 143(b); Logsdon v. Commissioner, T.C. Memo. 1997-

8.

        Even if the Court had admitted these returns into evidence,

they, by themselves, cannot substantiate the loss figures

reported on petitioner’s 2003 return.     See Widemon v.

Commissioner, T.C. Memo. 2004-162 (applying principle to capital

losses).     Accordingly, we conclude that petitioner is not

entitled to raise these purported prior years’ losses as an issue

and that even if he were so entitled, he has failed to provide

any substantiation to support the losses to which he claims he is

entitled.

Suspended Passive Activity Losses

        With regard to the treatment of a suspended passive activity

loss, section 469(g)(1)(A) provides for such a loss when a

taxpayer disposes of his entire interest in a passive activity in

a transaction where all of the gain or loss realized on the
                                - 14 -

disposition of the interest is recognized.    Section 469(g)(1)(A)

provides that the excess of--

               (i) any loss from such activity for the
          taxable year (determined after the
          application of subsection (b)), over

               (ii) any net income or gain for such
          taxable year from all other passive
          activities (determined after the application
          of subsection (b)),

     shall be treated as a loss which is not from a passive
     activity.

     Accordingly, the usual result upon a taxable disposition of

a passive activity is that the taxpayer may use any remaining

suspended passive activity loss allocated to that activity first

against passive income from the same activity, then against net

passive income from other passive activities, and then as a

nonpassive loss.

     On Worksheet 1, petitioner reported overall losses of

$26,018 for a “residential co-op” and $16,221 for a “residential

condo”.   No further description of these properties was included

on Worksheet 1.    Since petitioner’s Schedule E characterizes

three of the six total listed properties as “condo” and two of

the six total listed properties as “co-op”, it is impossible for

the Court to ascertain definitively which of the Schedule E

properties correspond to the figures reported on Worksheet 1.    As

previously stated, petitioner raised these suspended losses as a
                                - 15 -

new issue, and therefore bears the burden of proof as to the

amounts claimed.

     Petitioner has not met his burden with respect to the

standard for record keeping under section 6001.     Petitioner

provided no proof as to the amounts of the suspended losses to

which he now claims that he is entitled.     The only exhibits

pertinent to this issue are petitioner’s tax returns for 2003 and

2004.     Contrary to petitioner’s belief, a tax return alone is not

proof of a taxpayer’s entitlement to a deduction claimed therein;

a tax return merely sets forth the taxpayer’s claim.       See Roberts

v. Commissioner, 62 T.C. 834, 837 (1974); Seabord Commercial

Corp. v. Commissioner, 28 T.C. 1034, 1051 (1957).        Without

substantive evidence, we simply cannot determine whether

petitioner is entitled to deduct losses for 2003 from the

properties that he sold in that year.

        After concessions, it is agreed that petitioner’s rental

real estate activities were passive activities during the years

in issue.     While we agree that under section 469(g)(1)(A)

petitioner would be entitled to claim a suspended loss deduction

for 2003 on the basis of his disposition of his entire interest

in the aforementioned passive activities, he did not do so on his

2003 return.     This issue was first raised on brief.    Moreover, we

lack the necessary proof that he did, in fact, incur these

losses.     Accordingly, and on the basis of the foregoing, we hold
                             - 16 -

that petitioner has not met his burden with respect to this

issue, and is therefore not entitled to claim a suspended loss

deduction for the dispositions of his interests in the

aforementioned passive activities for 2003.

     To reflect the foregoing, including all concessions,


                                        Decision will be entered

                                   under Rule 155.
