                                            JACK TRUGMAN AND JOAN E. TRUGMAN, PETITIONERS v.
                                             COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
                                                        Docket No. 7466–11.                            Filed May 21, 2012.

                                                  Ps were the only shareholders in an S corporation (S). S
                                                purchased a residential property, which Ps used as their prin-
                                                cipal residence. Ps claimed the first-time homebuyer credit
                                                under I.R.C. sec. 36. R disallowed the credit because Ps did
                                                not purchase the property and S did not qualify as an indi-
                                                vidual under I.R.C. sec. 36. Held: S is not an ‘‘individual’’ for
                                                the purpose of I.R.C. sec. 36.

                                      390




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                                      (390)                        TRUGMAN v. COMMISSIONER                                            391


                                           Jack Trugman and Joan E. Trugman, pro se.
                                           Michael W. Bitner and Susan K. Bollman, for respondent.
                                        KROUPA, Judge: Respondent disallowed an $8,000 first-
                                      time homebuyer credit (tax credit) petitioners claimed for
                                      2009. The sole issue for decision is whether petitioners are
                                      entitled to the tax credit for a principal residence purchased
                                      through an S corporation. We hold that they are not.
                                                                          FINDINGS OF FACT

                                        Some of the facts have been stipulated and are so found.
                                      The stipulation of facts, with accompanying exhibits, is incor-
                                      porated by this reference. Petitioners resided in Nevada
                                      when they filed the petition.
                                        Petitioners are a married couple and the only shareholders
                                      of Sanstu Corp. (Sanstu), which owned and rented various
                                      real properties in Missouri, Texas and California. Petitioners
                                      chose to incorporate Sanstu in Wyoming in 1990 because
                                      Wyoming did not have a State income tax. Sanstu also
                                      elected to be an S corporation for Federal income tax pur-
                                      poses. Mr. Trugman is a certified business consultant and a
                                      registered professional engineer.
                                        Petitioners resided in a California home they had rented
                                      for 19 years when they decided to move to Nevada, another
                                      State without a State income tax. Sanstu purchased a single-
                                      family home in Henderson, Nevada (property) in 2009.
                                      Sanstu contributed $319,200 towards the purchase of the
                                      property, and petitioners contributed $7,500. Sanstu was the
                                      legal owner of the property. The property was petitioners’
                                      principal residence. Petitioners had not owned another prin-
                                      cipal residence during the prior three years.
                                        Petitioners claimed the $8,000 tax credit on their Form
                                      1040, U.S. Individual Income Tax Return, for 2009. Sanstu
                                      did not claim the tax credit on its Form 1120S, U.S. Income
                                      Tax Return for an S Corporation, for 2009. Respondent
                                      issued a deficiency notice to petitioners, disallowing the tax
                                      credit. Petitioners timely filed a petition for redetermination
                                      with this Court.
                                                                                  OPINION

                                        This case presents an issue of first impression in this
                                      Court. We are asked to decide whether an individual may




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                                      392                 138 UNITED STATES TAX COURT REPORTS                                     (390)


                                      claim the tax credit for a principal residence purchased
                                      through an S corporation. Respondent argues that petitioners
                                      did not purchase the property and that an S corporation is
                                      not an ‘‘individual’’ under section 36. Therefore, neither may
                                      claim the tax credit. We agree.
                                         We begin with the burden of proof. The taxpayer generally
                                      bears the burden of proving the Commissioner’s determina-
                                      tions are erroneous. Rule 142(a). 1 The burden of proof may
                                      shift to the Commissioner if the taxpayer satisfies certain
                                      conditions. Sec. 7491(a). Our resolution is based on a prepon-
                                      derance of the evidence, not on an allocation of the burden
                                      of proof. Therefore, we need not consider whether section
                                      7491(a) would apply. See Estate of Bongard v. Commissioner,
                                      124 T.C. 95, 111 (2005).
                                         We now consider the relevant provision. Generally, a
                                      refundable tax credit is allowed to a first-time homebuyer of
                                      a principal residence in the United States. Sec. 36(a). A first-
                                      time homebuyer is defined as ‘‘any individual if such indi-
                                      vidual (and if married, such individual’s spouse) had no
                                      present ownership interest in a principal residence during
                                      the 3-year period ending on the date of the purchase of the
                                      principal residence.’’ Sec. 36(c)(1). Our determination rests on
                                      the appropriate interpretation of the term ‘‘individual’’ in sec-
                                      tion 36. See Glass v. Commissioner, 124 T.C. 258, 281 (2005),
                                      aff ’d, 471 F.3d 698 (6th Cir. 2006). The Court applies the
                                      ordinary meaning to undefined terms. See Perrin v. United
                                      States, 444 U.S. 37, 42 (1979); Gates v. Commissioner, 135
                                      T.C. 1, 6 (2010); Keene v. Commissioner, 121 T.C. 8, 14
                                      (2003). Thus, we are asked to decide whether an S corpora-
                                      tion qualifies as an ‘‘individual’’ under section 36.
                                         We hold that S corporations are not individuals for pur-
                                      poses of section 36. A corporation, at its core, is a business
                                      entity organized under State or Federal law, whether an
                                      association, a company or another recognized form. See sec.
                                      301.7701–2(b), Proced. & Admin. Regs. A corporation that
                                      satisfies certain criteria may elect small business status for
                                      Federal income tax purposes. Sec. 1361. An S election does
                                      not alter the corporation’s corporate status; it merely alters
                                      the corporation’s Federal tax implications. See generally secs.
                                        1 All section references are to the Internal Revenue Code in effect for the year at issue, and

                                      all Rule references are to the Tax Court Rules of Practice and Procedure, unless otherwise indi-
                                      cated.




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                                      (390)                        TRUGMAN v. COMMISSIONER                                              393


                                      1361, 1363(a); sec. 1.1363–1(a), Income Tax Regs. Items of
                                      income, deduction, loss and credit generally pass through to
                                      the shareholders. Sec. 1366; cf. Knott v. Commissioner, T.C.
                                      Memo. 1991–352. S corporations remain freestanding entities
                                      ‘‘independently recognizable’’ from their shareholders.
                                      Carlson v. Commissioner, 112 T.C. 240, 244 (1999) (citing
                                      United States v. Basye, 410 U.S. 441, 448 (1973)).
                                         Individual taxpayers, on the other hand, are subject to tax
                                      under section 1, which sets rates for married and unmarried
                                      individuals, heads of households, and estates and trusts. Sec.
                                      1(a)–(e); sec. 1.1–1, Income Tax Regs. A corporation’s income
                                      is not subject to tax under section 1. 2 Rather, tax is imposed
                                      on corporate income under section 11. Accordingly, corpora-
                                      tions are not individuals within the meaning of section 1.
                                         We now interpret the term ‘‘individual’’ within section 36.
                                      We must look to the entire statute as a whole. See Fla.
                                      Country Clubs, Inc. v. Commissioner, 122 T.C. 73, 79 (2004),
                                      aff ’d, 404 F.3d 1291 (11th Cir. 2005); see also Huffman v.
                                      Commissioner, 978 F.2d 1139, 1145 (9th Cir. 1992), aff ’g in
                                      part, rev’g in part T.C. Memo. 1991–144. The tax credit
                                      under section 36 references individuals only. It does not men-
                                      tion corporations. Section 36 contemplates various statuses of
                                      individuals (e.g., married) that do not apply to corporations. 3
                                         Further, the tax credit applies only to the purchase of a
                                      principal residence. 4 Sec. 36(c). We have previously held that
                                      ‘‘principal residence,’’ which is undefined in section 36 or sec-
                                      tion 121, means the chief or primary place where a person
                                      lives or the dwelling in which a person resides. Gates v.
                                      Commissioner, 135 T.C. at 7. Either definition is incompat-
                                      ible with the notion that a business entity has a principal
                                      residence. Rather, a corporation has a principal place of busi-
                                      ness. See Talmage v. Commissioner, T.C. Memo. 2008–34
                                      (contrasting the ‘‘vocational’’ nature of a principal place of
                                      business with the ‘‘domestic’’ quality of an abode (citing Bujol
                                      v. Commissioner, T.C. Memo. 1987–230, aff ’d without pub-
                                        2 In application, individuals are often segregated from corporations. Pt. I of subch. A, ch. 1,

                                      subtit. A of the Code is dedicated to individual income, whereas pt. II applies to corporate in-
                                      come. Compare secs. 1–5 with secs. 11–12. Similarly, individuals are entitled to different credits
                                      and deductions. Compare secs. 211–223 with secs. 241–249.
                                        3 Sec. 36 contemplates the effect of an individual’s marital status, age, citizenship, mortality

                                      and enlistment in the military. See sec. 36(b)(1)(B), (4), (d)(1), (f)(4)(A), (E). Each is inapplicable
                                      to corporations.
                                        4 The term ‘‘principal residence’’ has the same meaning for purposes of sec. 36 as it does for

                                      sec. 121. Sec. 36(c)(2).




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                                      394                 138 UNITED STATES TAX COURT REPORTS                                     (390)


                                      lished opinion, 842 F.2d 328 (5th Cir. 1988))), aff ’d, 391 Fed.
                                      Appx. 660 (9th Cir. 2010). We read the term ‘‘individual’’ in
                                      section 36 to exclude S corporations.
                                         Petitioners are individuals, they are the shareholders of
                                      Sanstu, and they reside in the property. They are the only
                                      persons who may claim the tax credit. They are not entitled
                                      to the tax credit, however, because they did not purchase the
                                      property. Sanstu purchased the property. Sanstu is not enti-
                                      tled to the tax credit because it is not an individual under
                                      section 36.
                                         Petitioners seek leniency by arguing that IRS representa-
                                      tives indicated that they could claim the tax credit if the
                                      property was purchased through the S corporation. It is
                                      unfortunate when a taxpayer receives inaccurate informa-
                                      tion. We have recognized, however, that incorrect legal
                                      advice from an IRS employee does not have the force of law
                                      and cannot bind the Commissioner or this Court. See
                                      Schwalbach v. Commissioner, 111 T.C. 215, 228 n.4 (1998);
                                      Richmond v. Commissioner, T.C. Memo. 2009–207; Atkin v.
                                      Commissioner, T.C. Memo. 2008–93. Ultimately, statutes,
                                      regulations and judicial decisions govern a taxpayer’s tax
                                      liability. Richmond v. Commissioner, T.C. Memo. 2009–207
                                      (citing Zimmerman v. Commissioner, 71 T.C. 367, 371 (1978),
                                      aff ’d without published opinion, 614 F.2d 1294 (2d Cir.
                                      1979)). Representations by IRS employees do not affect the
                                      outcome here.
                                         As the only shareholders, petitioners arranged for Sanstu
                                      to purchase the property. This was of their making. They
                                      caused Sanstu to acquire rental and investment properties.
                                      They also caused Sanstu to acquire the property, which has
                                      markedly different tax consequences. Causing Sanstu to
                                      acquire the property as petitioners’ principal residence is
                                      inconsistent with acquiring real estate for the production of
                                      income. Unfortunately for petitioners, the purchase did not
                                      satisfy the requirements of section 36. Accordingly, we con-
                                      clude that petitioners cannot claim the tax credit because the
                                      property was purchased through an S corporation.
                                         We have considered all arguments the parties made in
                                      reaching our holding, and, to the extent not mentioned, we
                                      find them irrelevant or without merit.




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                                      (390)                        TRUGMAN v. COMMISSIONER                                            395


                                           To reflect the foregoing,
                                                                           Decision will be entered for respondent.
                                                                               f




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