                  T.C. Summary Opinion 2004-10



                     UNITED STATES TAX COURT



                 RICHARD G. TUCK, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14728-02S.            Filed February 4, 2004.


     Richard G. Tuck, pro se.

     Carina J. Campobasso, for respondent.



     GOLDBERG, Special Trial Judge:   This case was heard pursuant

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

effect at the time the petition was filed.   The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.
                                - 2 -

     Respondent determined a deficiency in petitioner’s Federal

income tax of $17,632 for the taxable year 1998.

     The issues for decision are (1) whether petitioner is

entitled to deduct as a business expense the cost of a double-

wide manufactured home which he purchased for a former

girlfriend/employee and for his two children, and (2) whether

petitioner is entitled to deduct certain legal expenses as

business expenses.1

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   Petitioner resided in

Campton, New Hampshire, on the date the petition was filed in

this case.

     Petitioner operates a general contracting business as a sole

proprietor under the business name of R.G. Tuck Builders.    In

late 1992, petitioner and Lisa Brownell (Ms. Brownell) began both

a business relationship and a personal relationship.   Ms.

Brownell worked in petitioner’s office handling matters related

to petitioner’s general contracting business, as well as certain

rental apartments.    Ms. Brownell earned wages of $105 per week,

and petitioner reported her wages on Forms W-2, Wage and Tax

Statement.   Petitioner and Ms. Brownell resided together during



     1
      Petitioner does not dispute any other adjustments in the
notice of deficiency.
                              - 3 -

this time with their two children.    Petitioner moved out of the

shared residence in approximately April 1997.

     On April 9, 1998, petitioner and Ms. Brownell entered into a

permanent stipulation with respect to a proceeding brought in the

State of New Hampshire Judicial Branch, Family Division.   In the

permanent stipulation, petitioner and Ms. Brownell entered into

an agreement concerning a number of issues, including paternity,

custody, visitation, and payment of expenses for their children.

Section 16 of the permanent stipulation provided that petitioner

was to receive all interest in his general contracting business:

          Business Interests Of The Parties. Respondent
     [petitioner] is awarded all interest in rental real estate
     standing in his sole name and all interest in Tuck Builders.

Section 19 of the permanent stipulation allocated real property

between petitioner and Ms. Brownell:

          A. The parties jointly own real estate in Campton, New
     Hampshire known as the “John Saunders house.” Petitioner
     [Ms. Brownell] shall quitclaim her interest in the property
     to Respondent at the same time that Respondent deeds the
     property identified in either paragraph B or C below to
     Petitioner. Respondent shall pay Petitioner $33,000 for her
     interest in said property. Respondent will pay Petitioner
     $11,000 between April 1 and June 30 of each year for three
     consecutive years with the first payment due on or before
     June 30, 1999. Respondent shall sign a note and mortgage in
     favor of Petitioner to secure his obligations hereunder.
          B. Respondent owns certain real estate at Lot #7 in
     Blair Intervale in Campton, New Hampshire. Respondent shall
     purchase and have set up on said lot a 28' x 60' 1998
     Patriot Homes Victorian double wide ranch style manufactured
     home * * * Respondent shall transfer the property to
     Petitioner free and clear of any liens and encumbrances,
     except as follows:
                               - 4 -

           (i) Respondent shall have a lien against the proceeds
     from any sale of said real estate for a period of time not
     to exceed eight years from the date of the transfer.
           (ii) The lien shall be for the value of the net
     proceeds reduced each year by an amount equal to one eighth
     of the net proceeds. After eight years, Petitioner would
     receive the full net proceeds from any sale of the real
     estate. * * *
           (v) During the term of the lien on the real estate,
     Petitioner agrees to maintain the real estate as the primary
     residence for the children. * * *
           (ix) Respondent agrees to substitute his lien for a
     similar lien on real estate to be occupied by Petitioner and
     the children within a twenty mile radius of Respondent’s
     home.

Paragraph C of section 19 of the permanent stipulation provided

for the transfer of an alternate property if petitioner was

unable to convey the property described in paragraph B.

Petitioner was to take the alternate property and “remodel said

real estate as a home for” Ms. Brownell.   The alternate property

would have been subject to a lien with provisions identical to

those detailed above.   Finally, section 19 of the permanent

stipulation provided:

          D. The home in which the parties resided located in
     Campton, New Hampshire and standing in Respondent’s name is
     awarded to Respondent free and clear of all interest of
     Petitioner. Petitioner may continue to reside at the
     property until the manufactured home is set up and ready to
     be occupied * * * at which time Petitioner will move to the
     manufactured home * * * and Respondent may resume occupancy
     of the Campton house. * * *
          E. Respondent is awarded all other real estate
     standing in Respondent’s name, free and clear of all
     interest of Petitioner.

Pursuant to the permanent stipulation, petitioner purchased a

manufactured home for Ms. Brownell in 1998 for $43,003.
                               - 5 -

Petitioner did not issue Ms. Brownell a Form W-2 in connection

with the manufactured home.

     Petitioner filed a Federal income tax return for taxable

year 1998.   With this return, he filed a Schedule C, Profit or

Loss From Business, for his general contracting business.

Petitioner reported cost of goods sold of $470,394.   As part of

this amount, petitioner included $43,003 for the double-wide

manufactured home.   Separately, petitioner claimed deductions on

the Schedule C for wage expenses of $33,576 and for legal and

professional services expenses of $16,149.   In the notice of

deficiency, respondent determined that the purchase of the

manufactured home was a nondeductible personal expense and not

properly characterized as a cost of goods sold.2   Respondent also

disallowed $6,610 of the claimed deduction for legal expenses

because they likewise were determined to be nondeductible

personal expenses.

     The issues in this case are decided on the basis of the

record without regard to the burden of proof.   See sec. 7491;

Rule 142(a).

     The first issue for decision is whether petitioner is

entitled to deduct as a business expense the cost of the


     2
      Petitioner no longer argues that the cost of the
manufactured home should be included in the Schedule C cost of
goods sold. Rather, in his brief he argues that he is entitled
to deduct the cost of the home as a business expense.
                                - 6 -

manufactured home he purchased for Ms. Brownell and his two

children.   Petitioner’s sole argument in his brief is that the

cost of the home represents compensation for past services

rendered by Ms. Brownell in connection with petitioner’s

business.

     Personal, living, and family expenses generally are not

deductible.   Sec. 262(a).   Expenses which are ordinary and

necessary in carrying on a trade or business, on the other hand,

are generally deductible.    Sec. 162(a).    Compensation for

services may be deductible as an ordinary and necessary business

expense, but only if payment is made with the intent to

compensate.   Paula Constr. Co. v. Commissioner, 58 T.C. 1055,

1058 (1972), affd. without published opinion 474 F.2d 1345 (5th

Cir. 1973).   The existence of such an intent is a factual

question to be decided on the basis of the particular facts and

circumstances of the case.    Id. at 1059.

     Petitioner’s argument concerning his intent in purchasing

and transferring the manufactured home is not persuasive.       In

reaching this conclusion, we find the permanent stipulation--

which was entered into just before the manufactured home was

purchased and given to Ms. Brownell--to be more reliable as

evidence of petitioner’s intent than petitioner’s testimony at
                               - 7 -

trial.3   It is clear from the permanent stipulation that the

manufactured home was given to Ms. Brownell in a division of

property following the termination of their personal

relationship.   It is also clear that the intent behind the

agreement to transfer the home was to provide Ms. Brownell and

petitioner’s own children with a residence after they were

required to leave petitioner’s residence.   Furthermore, the terms

of the permanent stipulation established a lien on the property

in favor of petitioner for a number of years after the transfer

to Ms. Brownell.   Because the lien caused Ms. Brownell to have

only a limited interest in the manufactured home, the existence

of such a lien is inconsistent with an intent by petitioner to

provide Ms. Brownell with compensation for past services.

Finally, petitioner in prior years had issued Ms. Brownell Forms

W-2 for the compensation which he paid to her, and on his 1998

Federal income tax return he reported wage expenses of $33,576.

However, petitioner did not issue a Form W-2 for the manufactured

home, and on his 1998 return he characterized the cost of the

manufactured home as a cost of goods sold rather than as wages.

This is further evidence that petitioner did not intend at that


     3
      Petitioner also provided a written statement from Ms.
Brownell--signed on the day before this case was tried and
apparently prepared by petitioner’s accountant--which in essence
recites the events as petitioner portrayed them at trial. We do
not accept this statement as reliable evidence of petitioner’s
intent at the time the manufactured home was purchased and given
to Ms. Brownell.
                               - 8 -

time for the purchase and transfer of the manufactured home to be

compensation.

     At trial, petitioner asserted that Ms. Brownell “signed off

her right to sue” him in section 16 of the permanent stipulation.

He argues that this provision is evidence that there was an

agreement that Ms. Brownell would accept the manufactured home in

exchange for any past claim for compensation for her services.

We find nothing in this provision to support petitioner’s

argument.   This provision was one of numerous provisions in the

permanent stipulation covering issues ranging from paternity and

custody of the children to the property interests of petitioner

and Ms. Brownell.   There is no indication that this provision was

in any way connected with the provision granting Ms. Brownell the

right to the manufactured home, nor is there any indication that

it was intended in any manner to waive a claim by Ms. Brownell to

sue for compensation for past services.

     We conclude that petitioner purchased the manufactured home

in order to fulfill the terms of the permanent stipulation he

entered into with Ms. Brownell, and that the purchase was a

personal expense incurred in connection with his relationship

with Ms. Brownell, as well as petitioner’s own children.

Consequently, the purchase is a nondeductible expense pursuant to

section 262(a) and not an ordinary and necessary business

expense.
                               - 9 -

     The second issue for decision is whether petitioner is

entitled to deduct the legal expenses of $6,610 as a trade or

business expense.   Petitioner did not raise this issue in his

petition, nor did he address it in his posttrial brief.     However,

we briefly discuss the issue because the parties addressed it at

trial.

     Petitioner testified that all or a portion of the legal

expenses of $6,610 were incurred in connection with the permanent

stipulation he entered into with Ms. Brownell, as discussed

above.   Other than this cursory testimony, petitioner provided no

substantiation concerning the nature or the amount of the legal

expenses which he incurred.

     Because the permanent stipulation was entered into by

petitioner and Ms. Brownell as a result of their personal

relationship, we conclude that the legal expenses incurred in

connection with the permanent stipulation were nondeductible

personal expenses under section 262(a), rather than trade or

business expenses deductible under section 162(a).

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                       Decision will be entered

                               for respondent.
