                                 T.C. Memo. 2012-178



                        UNITED STATES TAX COURT



                   JACYNTHIA QUINN, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 9140-10.                         Filed June 27, 2012.



      Jacynthia Quinn, pro se.

      Blake W. Ferguson and Heather K. McCluskey, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      KROUPA, Judge: Respondent determined deficiencies in petitioner’s

Federal income tax of $9,940 and $8,040 for 2006 and 2007, respectively (years at
                                           -2-

issue). After concessions from both parties,1 we are asked to decide two issues.

The primary issue is whether petitioner, a tax compliance officer for the Internal

Revenue Service (IRS), is entitled to claimed charitable contribution deductions,

medical and dental expense deductions, and dependency exemption deductions. We

hold that she is not entitled to the claimed deductions. We must also decide whether

petitioner is liable for the civil fraud penalty under section 6663 for the years at

issue.2 We hold that she is liable for the civil fraud penalty.

                                FINDINGS OF FACT

      The parties have stipulated some facts. We incorporate the stipulation of

facts and accompanying exhibits by this reference. Petitioner resided in California

when she filed the petition.




      1
       Respondent concedes that petitioner’s husband Michael Quinn made
charitable contributions of $175 for 2006 and $10 for 2007. Respondent also
concedes that petitioner paid $30 of medical expenses for 2007. Petitioner
conceded at trial that the couple could not claim their two daughters, Dayrell and
Wilonda, as dependents for 2006.
      2
        All section references are to the Internal Revenue Code for the years at
issue, and all Rule references are to the Tax Court Rules of Practice and Procedure,
unless otherwise indicated.
                                            -3-

         Petitioner is married to Michael Quinn (collectively, the couple).3 Petitioner

earned a bachelor of arts degree in education from Prairie View A&M University.

Petitioner also attended accounting courses after completing college.

         Petitioner began a career with the IRS in the 1980s. Petitioner has served as

a tax compliance officer since the 1990s. She remains in that position at the IRS

office in El Monte, California.

         Tax compliance officers, among other things, audit returns and examine

deductions claimed on Schedule A, Itemized Deductions. The process requires the

tax compliance officer to meet with a taxpayer, review the taxpayer’s records and

determine whether the taxpayer substantiated the claimed deductions. The IRS

formally trained petitioner to conduct such audits. Petitioner regularly audited

individual returns where charitable contributions and medical expenses were at

issue.

         The deficiencies arise from the couple’s joint Federal income tax returns for

the years at issue. Petitioner prepared and electronically filed each return. The

couple claimed charitable contributions of $23,549 for 2006 and $24,567 for 2007.


         3
       The couple filed joint Federal income tax returns for the years at issue. Mr.
Quinn did not sign or ratify the petition. A spouse that does not sign a petition
requesting review of a joint deficiency notice must ratify the petition and intend to
become a party to that case. Otherwise, the Court lacks jurisdiction over the
nonsigning spouse. See Levitt v. Commissioner, 97 T.C. 437, 441 (1991).
                                         -4-

The couple also claimed medical and dental expenses of $22,217 for 2006 and

$25,325 for 2007. Additionally, the couple claimed petitioner’s mother, Bettie

Mitchell, and their sons, Michael D. Quinn (Michael) and Marlon L. Quinn

(Marlon) as dependents for 2006. Petitioner claimed Ms. Mitchell and Marlon as

dependents for 2007. Michael and Marlon were both older than 19 during the years

at issue. Ms. Mitchell resided in Alabama and had $13,950 of Social Security

income for 2006 and $14,418 for 2007. Petitioner provided Ms. Mitchell support of

$650 in 2006 and $400 in 2007.

      Respondent reviewed the joint income tax returns for the years at issue.

Petitioner provided a binder of photocopied documents purportedly substantiating

the charitable contributions and medical and dental expenses. Petitioner canceled

three hearings with the Appeals officer shortly before they were scheduled to occur.

Petitioner failed to provide originals of the documents that the Appeals officer

requested.

      Respondent issued the couple the deficiency notice disallowing the

deductions for claimed charitable contributions and medical and dental expenses.

Petitioner timely filed a petition. Before trial respondent filed an amendment to his

answer asserting petitioner was not entitled to any claimed dependency
                                          -5-

exemptions for the years at issue. Petitioner now concedes two of the children were

not eligible dependents.

                                      OPINION

      This is primarily a substantiation case in which we must decide whether

petitioner, a tax compliance officer for the IRS, is entitled to the claimed deductions

and dependency exemptions. We also need to decide whether petitioner is liable for

the civil fraud penalty. We address each issue in turn.

I. Claimed Deductions and Exemptions

      We begin with the burden of proof.

      A. Allocation of the Burden of Proof

      Determinations of the Commissioner in a deficiency notice are presumed

correct, and the taxpayer bears the burden of proving otherwise. Rule 142(a);

Welch v. Helvering, 290 U.S. 111, 115 (1933). Deductions are generally a matter

of legislative grace, and the taxpayer bears the burden of proving he or she is

entitled to claimed deductions. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84

(1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). This

includes the burden of substantiation. Hradesky v. Commissioner, 65 T.C. 87, 90

(1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). A taxpayer must

substantiate amounts claimed as deductions by maintaining the records necessary to
                                         -6-

establish he or she is entitled to the deductions. Sec. 6001; Hradesky v.

Commissioner, 65 T.C. at 90. The Court need not accept a taxpayer’s self-serving

testimony when the taxpayer fails to present corroborative evidence. Beam v.

Commissioner, T.C. Memo. 1990-304 (citing Tokarski v. Commissioner, 87 T.C.

74, 77 (1986)), aff’d without published opinion, 956 F.2d 1166 (9th Cir. 1992).

      The burden may shift to the Commissioner if the taxpayer proves that he or

she has satisfied certain conditions. Sec. 7491(a); Snyder v. Commissioner, T.C.

Memo. 2001-255 (citing H. R. Conf. Rept. No. 105-599, at 240-241 (1998), 1998-3

C.B. 747, 994-995). Respondent challenged the claimed charitable contributions

and medical and dental expenses in the deficiency notice. Petitioner has not

complied with the substantiation requirements of section 7491(a) with respect to

those items. See Higbee v. Commissioner, 116 T.C. 438 (2001). The burden of

proof therefore remains on petitioner. See Rule 142(a).

      The Commissioner bears the burden of proof, however, on any new matters,

increases in deficiencies or affirmative defenses pleaded in his answer. Rule

142(a)(1); Welch v. Helvering, 290 U.S. at 115; see also Shea v. Commissioner,

112 T.C. 183, 190-191 (1999); Parker v. Commissioner, T.C. Memo. 2012-66;

Bobo v. Commissioner, T.C. Memo. 2010-121. Respondent first raised in his
                                         -7-

amended answer the dependency exemptions the couple claimed. Thus, the burden

of proof rests with respondent with respect to the dependency exemptions.

      B. Charitable Contributions

      We now consider the claimed charitable contributions. A taxpayer’s

charitable contributions are generally deductible under section 170(a). No

deduction is allowed, however, for any contribution of $250 or more unless the

taxpayer substantiates the contribution by a contemporaneous written

acknowledgment of the contribution by a qualified donee organization. Sec.

170(f)(8)(A). The amount of the deduction for a contribution of property

generally equals the fair market value of the property on the date contributed. Sec.

1.170A-1(c)(1), Income Tax Regs.

      A taxpayer claiming a charitable contribution is generally required to

maintain for each contribution a canceled check, a receipt from the donee

charitable organization showing the name of the organization and the date and

amount of the contribution, or other reliable written records showing the name of

the donee and the date and amount of the contribution. Sec. 1.170A-13(a)(1),

Income Tax Regs. No deduction for a contribution of money in any amount is

allowed unless the donor maintains a bank record or written communication from

the donee showing the name of the donee organization, the date of the contribution
                                          -8-

and the amount of the contribution. Sec. 170(f)(17). The taxpayer has the burden

of demonstrating that the records are reliable. Sec. 1.170A-13(a)(2)(i), Income Tax

Regs.

        Petitioner proffered “receipts” purportedly confirming charitable

contributions. They were inconsistent and unreliable. Representatives from seven

different charitable organizations credibly testified that the receipts were altered or

fabricated. For example, petitioner offered a receipt purportedly substantiating

$12,500 of charitable contributions to a religious organization. The purported

receipt, however, identified individuals other than the couple as the donors. The

organization’s records did not reflect any contributions made by the couple and

confirmed that the other identified individuals had contributed $12,500. Other

purported receipts also appeared to have been tampered with and were suspect.

None of the organizations’ records verified any charitable contributions the couple

claimed for the years at issue. Nor did the couple’s bank statements corroborate the

amounts the couple claimed they contributed. Further, Mr. Quinn did not recall

making any of the purported contributions. In each instance, petitioner failed to

offer reliable substantiation. We therefore conclude that petitioner is not entitled to

any deduction for claimed charitable contributions of $48,116 for the years at
                                         -9-

issue except the nominal amounts respondent conceded, which consisted of $175 for

2006 and $10 for 2007.

      C. Medical and Dental Expenses

      Next, we turn to the medical expense deductions petitioner claimed. An

individual taxpayer is permitted a deduction for expenses paid during the tax year

for medical care of the taxpayer, the taxpayer’s spouse or the taxpayer’s dependent

to the extent that such expenses exceed 7.5% of adjusted gross income. Sec.

213(a).

      Petitioner similarly failed to substantiate the claimed medical and dental

expenses. Some of her documentation also suffered from authenticity problems and

appeared to have been “doctored.” Petitioner offered three documents purportedly

issued by Dr. Christopher Ajigbotafe or his staff confirming more than $9,000 in

medical expenses for Mr. Quinn. Each document, however, spelled the doctor’s last

name differently (“Ajigohotafe,” “Ajibotafe” and “Ajigbotafe”). One “statement”

was dated in January 2006 and estimated expenses for the upcoming year. The

amount of expenses for 2007 contained in another “statement” was contradicted by

a letter purportedly from the doctor’s staff. None of the documents appeared

authentic or showed that the couple paid any of the purported medical costs.
                                        -10-

Nor was Mr. Quinn able to corroborate that Dr. Ajigbotafe treated him during the

years at issue. We find these documents to be fabricated.

      Petitioner presented other hospital, doctor and pharmacy statements in an

attempt to substantiate the claimed medical and dental expenses. The statements set

forth the providers’ charges. They did not reflect, however, that the couple paid the

charges. Petitioner’s banking records also did not verify that the couple paid the

expenses.4 Thus, petitioner failed to meet her burden to substantiate the claimed

medical and dental expenses of $47,542 other than $30 for 2007 that respondent

conceded.

      D. Dependency Exemptions

      We now turn to the claimed dependency exemptions for the years at issue.

As previously mentioned, respondent bears the burden of proof on this issue.

             1. Qualifying Children

      A taxpayer is allowed an annual exemption deduction for each “dependent.”

Dependent for this purpose is defined in section 152. Sec. 151(c). The term

“dependent” includes a qualifying child and a qualifying relative. Sec. 152(a). As


      4
        Respondent reconstructed petitioner’s financial history by comparing
claimed expenses with bank statements for the years at issue. Check numbers
identified on receipts did not correspond with the check numbers honored by the
couple’s bank during the years at issue. Petitioner did not demonstrate that she or
her husband paid any of these medical or dental expenses.
                                          -11-

relevant here, a “qualifying child” of the taxpayer is an individual that is a child of

the taxpayer, had the same principal place of abode as the taxpayer for more than

one-half of the tax year, met certain age requirements, and has not provided over

one-half of such individual’s own support for the tax year. Sec. 152(c)(1). An

individual that has not attained the age of 19 at the close of the calendar year

satisfies the age requirement. Sec. 152(c)(3)(A)(i). A full-time student that has not

attained the age of 24 by the close of the calendar year also meets the age

requirement. Sec. 152(c)(3)(A)(ii).

      Respondent contends that petitioner’s sons did not meet the age requirements

of section 152.5 We agree. Respondent demonstrated that the sons were older than

19 during the years at issue. Petitioner argues that each was a full-time student yet

has provided no substantiation. There is no basis in the record to conclude that

petitioner’s sons met the age requirement. We note that the couple claimed their

two adult daughters even though, as petitioner conceded, neither met the age

requirement. Petitioner has repeatedly attempted to obstruct the resolution




      5
        Respondent does not dispute that petitioner’s sons met the relationship and
abode requirements. Respondent alleges that the support requirement has not been
met. We need not consider these requirements because the record does not support
that either son met the age requirement.
                                         -12-

of this matter, including shielding information relevant to this issue.6 Consequently,

we also accept the assertions in the amendment to the answer that the couple’s sons

did not meet the age requirement. Accordingly, petitioner is not entitled to

dependency exemption deductions for Michael for 2006 and Marlon for the years at

issue.

               2. Qualifying Relative

         We now focus on whether petitioner may claim her mother as a dependent for

the years at issue. A taxpayer may also claim a qualifying relative as a dependent.

Sec. 151. The taxpayer must provide more than one-half of the individual’s support

to claim a dependency exemption for a qualified relative.7 Sec. 152(d)(1)(C).

Social Security benefits, although excludable from gross income in certain



         6
        We require that parties resolve as many issues as possible before trial. See
Rules 91, 123(a). Parties that violate the Rules are subject to sanctions. See Rules
104(c), 123(a). Petitioner failed to respond to requests for production of documents
that sought documentation related to the sons’ support and status as full-time
students. We granted respondent’s motion to compel and ordered petitioner to
respond. We warned petitioner that we would impose sanctions under Rule 104 if
she did not comply. She has not provided any substantiation, despite claims in her
post-trial brief otherwise. As a result of petitioner’s failure to provide information
related to this issue, the matters that respondent asserted in his amendment to the
answer will be deemed established. See Rule 104(c); cf. Cochrane v.
Commissioner, 107 T.C. 18, 26 (1996).
         7
      Respondent concedes that the other requirements of section 152(d) have
been met.
                                        -13-

circumstances, are considered when calculating the total amount of an individual’s

support. Sec 1.152-1(a)(2)(ii), Income Tax Regs.

      Ms. Mitchell’s Social Security benefits exceeded the support petitioner

provided. Petitioner did not provide Ms. Mitchell with more than half of her

financial support. In fact, petitioner provided less than 5% of her mother’s income

for each year at issue. Accordingly, petitioner was not entitled to a dependency

exemption deduction for her mother for the years at issue.

II. Fraud Penalty

      We now consider whether petitioner is liable for the fraud penalty under

section 6663. The Commissioner must prove by clear and convincing evidence that

the taxpayer underpaid his or her income tax and that some part of the

underpayment was due to fraud. Secs. 7454(a), 6663(a); Rule 142(b); Clayton v.

Commissioner, 102 T.C. 632, 646 (1994). Fraud is a factual question to be decided

on the entire record and is never presumed. Rowlee v. Commissioner, 80 T.C.

1111, 1123 (1983); Beaver v. Commissioner, 55 T.C. 85, 92 (1970). For each tax

year, it must be established by independent evidence. See Daoud v. Commissioner,

T.C. Memo. 2010-282 (citing Niedringhaus v. Commissioner, 99 T.C. 202, 210

(1992) and Petzoldt v. Commissioner, 92 T.C. 661, 699 (1989)). Once the

Commissioner has established by clear and convincing evidence that any portion of
                                          -14-

an underpayment is attributable to fraud, the entire underpayment shall be treated

as attributable to fraud, except with respect to any portion of the underpayment

that the taxpayer establishes (by a preponderance of the evidence) is not attributable

to fraud. Sec. 6663(b); see Foxworthy, Inc. v. Commissioner, T.C. Memo. 2009-

203.

       The Commissioner must show that the taxpayer acted with specific intent to

evade tax that the taxpayer knew or believed he or she owed by conduct intended to

conceal, mislead or otherwise prevent the collection of the tax. Sec. 7454; Recklitis

v. Commissioner, 91 T.C. 874, 909 (1988); Stephenson v. Commissioner, 79 T.C.

995, 1005 (1982), aff’d, 748 F.2d 331 (6th Cir. 1984). Direct evidence of fraud is

seldom available, and its existence may therefore be determined from the taxpayer’s

conduct and the surrounding circumstances. Stone v. Commissioner, 56 T.C. 213,

223-224 (1971).

       Courts have developed several indicia or badges of fraud. These badges of

fraud include understatement of income, inadequate records, failure to file tax

returns, concealment of assets, failure to cooperate with tax authorities, filing false

documents, failure to make estimated tax payments, engaging in illegal activity,

attempting to conceal illegal activity, dealing in cash, implausible or inconsistent

explanations of behavior, an intent to mislead that may be inferred from a pattern of
                                          -15-

conduct, and lack of credibility of the taxpayer’s testimony. Spies v. United States,

317 U.S. 492, 499 (1943); Bradford v. Commissioner, 796 F.2d 303, 307-308 (9th

Cir. 1986), aff’g T.C. Memo. 1984-601. A taxpayer’s intelligence, education and

sophistication are relevant in determining fraudulent intent. Scott v. Commissioner,

T.C. Memo. 2012-65; Wright v. Commissioner; T.C. Memo. 2000-336. The

understatement of income can be shown by an overstatement of deductions. See

Daoud v. Commissioner, T.C. Memo. 2010-282 (citing Hicks Co. v. Commissioner,

56 T.C. 982, 1019 (1971), aff’d, 470 F.2d 87 (1st Cir. 1972)). Although no single

factor is necessarily sufficient to establish fraud, a combination of several of these

factors may be persuasive evidence of fraud. Solomon v. Commissioner, 732 F.2d

1459, 1461 (6th Cir. 1984), aff’g per curiam T.C. Memo. 1982-603.

      Our analysis starts with a fact that permeates the entire record. Namely,

petitioner is an experienced tax compliance officer that remains employed by the

IRS. Petitioner should have a complete understanding of substantiation

requirements. Despite her background, petitioner has presented altered or

fabricated documentation in an attempt to deceive respondent and the Court.

      She understated her income by claiming deductions she was not entitled to

claim for each year at issue. Even if we accepted her purported records (which we
                                         -16-

do not), she still claimed significantly more contributions and expenses than her

questionable records supported. It is incredible that a tax compliance officer would

be able to substantiate only $185 of charitable contributions yet claim charitable

contributions of $48,116 for the years at issue. The charitable organizations

confirmed that petitioner claimed contributions that she had not made. It is equally

troubling that she was able to substantiate only $30 of the $47,542 of medical and

dental expenses claimed.

      Petitioner’s records were also incomplete or inauthentic and consistently

unreliable. Her employment with the IRS made available other taxpayer records

substantiating claimed Schedule A deductions of the types at issue here. While we

cannot be certain of the source, we find that some (if not most) of petitioner’s

records for each year at issue were altered. Unexplained inaccuracies in other

documents imply that petitioner fabricated receipts for both years at issue. Even

documents that appeared genuine did not substantiate that the couple actually

incurred those costs or expenses.

      Her testimony and assertions in the post-trial brief were also inconsistent and

implausible. Petitioner maintained she was unaware of the requirements for

accurately stating and substantiating income. We find this incredible. In contrast,

the credible testimony of her supervisor, her husband and representatives of the
                                          -17-

charitable organizations contradicted petitioner’s records, testimony and

assertions.

      Finally, petitioner did not cooperate with respondent as she canceled several

hearings, ignored discovery requests and obstructed her husband’s deposition. She

failed to provide originals when respondent doubted the authenticity of photocopied

documents. Petitioner systematically attempted to obstruct respondent’s inquiries.

She has not acted in accordance with her experience as a tax compliance officer and

she has grossly misrepresented her tax liabilities for the years at issue.

      In toto, several of the badges of fraud apply to petitioner. We conclude that

respondent has proven by clear and convincing evidence that petitioner fraudulently

underpaid her tax liabilities for each of the years at issue. Accordingly, we find that

petitioner is liable for the fraud penalty under section 6663.8




      8
       Respondent alternatively requested we impose an accuracy-related penalty
under section 6662. In light of our finding of fraud, we need not consider the
accuracy-related penalty.
                                        -18-

      In reaching these holdings, we have considered all of the parties’ arguments,

and, to the extent not addressed here, we conclude that they are moot, irrelevant or

without merit.

      To reflect the foregoing,


                                                     Decision will be entered under

                                               Rule 155.
