                    T.C. Summary Opinion 2007-116



                        UNITED STATES TAX COURT



                UNNI KRISHNAN NAIR, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20772-05S.                Filed July 9, 2007.



     Unni Krishnan Nair, pro se.

     Steven N. Balahtsis, for respondent.



     NIMS, Judge:     This case was heard pursuant to the provisions

of section 7463 of the Internal Revenue Code in effect when the

petition was filed.    Pursuant to section 7463(b), the decision to

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

shall not be treated as precedent for any other case.    Unless

otherwise indicated, all section references are to the Internal
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Revenue Code in effect for the year in issue, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

       This case arises from a petition for judicial review filed

in response to a notice of deficiency.    The issues for decision

are:    (1) Whether petitioner is entitled to a deduction for

mortgage interest; (2) whether petitioner is entitled to a

deduction for real estate taxes; and (3) whether petitioner is

entitled to a casualty loss deduction.

                             Background

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

The stipulation of facts and related exhibits are incorporated

herein by this reference.

       At the time he filed the petition on November 4, 2005,

petitioner resided in the Bronx, New York.

       During 2003, the year in issue, petitioner worked as a

computer network engineer for Columbia University.    Petitioner

filed a 2003 Form 1040, U.S. Individual Income Tax Return, which

was prepared by a paid tax return preparer.    On the return,

petitioner claimed dependency exemption deductions for both of

his parents.

       Petitioner attached to the return a Schedule A, Itemized

Deductions, claiming $39,412 in deductions.    These deductions

included, among other things, $2,459 of real estate taxes, $4,418

of home mortgage interest, and a casualty loss deduction in the
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amount of $27,927.   These three deductions all related to a house

located at 4026 Bronx Boulevard, Bronx, New York.     The owners

listed on the title to this house were Madhu Nair, petitioner’s

father, and P.J. Sabastin, an unrelated individual.     A mortgage

loan on the house had been acquired through Greenpoint Mortgage

Funding, Inc. (Greenpoint) in the names of petitioner’s parents,

Madhu Nair and Saroja Nair.   Greenpoint sent to petitioner’s

parents a 2003 Mortgage Interest Statement reflecting $4,418.32

of mortgage interest received during 2003 and real estate taxes

in the amount of $2,458.89 paid in 2003.

     Petitioner started making payments related to the house in

2002, when he started working, and he continued to do so beyond

2003.   Petitioner provided some, but not all, of his bank account

statements for 2002, 2003, and 2004, which clearly show that

petitioner did make payments to Greenpoint.     These payments were

in the following amounts:   $930.16 in May 2003, $965.62 in July

2003, $965.62 in August 2003, $965.62 in September 2003, $965.62

in October 2003, $965.62 in November 2003, $965.62 in December

2003, and $965.62 in January 2004.     In total, petitioner paid

$6,723.88 to Greenpoint in 2003.   The mortgage interest statement

indicates that Greenpoint received $11,474.27 in payments in

2003.   The record is silent as to who paid the $4,750.39

difference.
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     The casualty losses that petitioner deducted were due to a

fire which severely damaged the Bronx Boulevard house on February

25, 2003.   The $27,927 deduction amount reflected a $26,000 loss

for destruction of the house ($26,000 cost basis with a $112,350

fair market value before the fire) and $6,500 for petitioner’s

personal property within the house ($7,500 cost basis with a

$6,500 fair market value before the fire), after the applicable

limitations.   The insurance policy covering the house was

canceled effective February 6, 2003, for nonpayment of premium.

The named insureds on this policy were petitioner’s father and

Mr. Sabastin, the record owners of the house.   Petitioner

submitted some bank statements with an attached letter explaining

that he believed some of the checks were for insurance premium

payments in 2002, but the statements did not specify to whom the

checks were paid, and petitioner did not submit any canceled

checks to support his contention.

     On August 8, 2005, respondent sent petitioner a statutory

notice of deficiency to his last known address.    Respondent

determined a deficiency in the amount of $3,636.    The deficiency

adjustments reflected $15 of unreported interest income, which

petitioner stipulated that he received, and disallowance of

petitioner’s claimed deductions for mortgage interest, real

estate taxes, and casualty loss for lack of verification.
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                            Discussion

     The Commissioner’s determination in a notice of deficiency

is generally presumed correct, and the taxpayer has the burden of

proving that the determination is erroneous.     See Rule 142(a);

Welch v. Helvering, 290 U.S. 111, 115 (1933).     Tax deductions are

a matter of legislative grace, and the taxpayer bears the burden

of proving entitlement to the deductions claimed on a return.

Rule 142(a)(1); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84

(1992).

     Under certain circumstances, the burden of proof with

respect to relevant factual issues may shift to the Commissioner

under section 7491(a).   Petitioner has neither alleged that

section 7491(a) applies nor established his compliance with the

requirements of section 7491(a)(2)(A) and (B) to substantiate

items, maintain records, and cooperate fully with respondent’s

reasonable requests.   Therefore, the burden of proof does not

shift to respondent.

     Respondent’s position is that petitioner cannot claim any of

the deductions related to the Bronx Boulevard house because he

was not the owner of the property.     As we understand his

position, petitioner contends that he is entitled to claim these

deductions because he paid the mortgage payments and all of the

bills associated with the house.
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Deduction for Mortgage Interest

     In general, section 163 allows a deduction for interest paid

or accrued on indebtedness.   For taxpayers who are not

corporations, section 163(h)(1) disallows a deduction for

personal interest.   Interest paid on a mortgage secured by a

qualified residence, however, is excluded from the definition of

personal interest and is therefore deductible.   See sec.

163(h)(2) and (3).

     To meet the requirements of section 163, the mortgage must

be the obligation of the taxpayer claiming the deduction, not the

obligation of another.   Golder v. Commissioner, 604 F.2d 34, 35

(9th Cir. 1979), affg. T.C. Memo. 1976-150.   However, section

1.163-1(b), Income Tax Regs., provides that even if a taxpayer is

not directly liable on a mortgage, the taxpayer may nevertheless

deduct the mortgage interest paid if he or she is the legal or

equitable owner of the property subject to the mortgage.     Where

the taxpayer does not establish legal, equitable, or beneficial

ownership of mortgaged property, we have disallowed the deduction

for mortgage interest.   See Daya v. Commissioner, T.C. Memo.

2000-360; Song v. Commissioner, T.C. Memo. 1995-446.

     Petitioner is not directly liable on the mortgage, as the

mortgage interest statement was directed to his parents alone.

Petitioner acknowledged that he did not have legal title to the

Bronx Boulevard house.   Title was in his father’s and Mr.
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Sabastin’s names.   Therefore, petitioner must establish

beneficial or equitable ownership in the Bronx Boulevard house in

order to be entitled to deduct any mortgage interest payments.

See Daya v. Commissioner, supra; Trans v. Commissioner, T.C.

Memo. 1999-233; Uslu v. Commissioner, T.C. Memo. 1997-551.

     State law determines the nature of property rights, and

Federal law determines the tax consequences of those rights.

United States v. Natl. Bank of Commerce, 472 U.S. 713, 722

(1985); Blanche v. Commissioner, T.C. Memo. 2001-63, affd. 33

Fed. Appx. 704 (5th Cir. 2002).   Under New York law, a purchaser

of property becomes the equitable owner upon entering into a

contract for sale of the property.     Dubbs v. Stribling &

Associates, 712 N.Y.S.2d 19 (App. Div. 2000), affd. 752 N.E.2d

850 (2001); Edwards v. Van Skiver, 681 N.Y.S.2d 893 (App. Div.

1998).   Petitioner has not alleged, and we find no evidence in

the record, that petitioner ever gained an equitable ownership

interest in the Bronx Boulevard house.    Petitioner offered no

evidence that his father or Mr. Sabastin ever entered into an

agreement that would entitle petitioner to an ownership interest

in the house.   Therefore, we find that petitioner was not an

equitable owner of the Bronx Boulevard house during 2003.

     Furthermore, petitioner’s situation is not similar to cases

where we have held that even though the taxpayer’s family member

secured the mortgage as an accommodation, the deduction was
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appropriate because the taxpayer exclusively had, and was

intended to have, the benefits and burdens of ownership.    See

Trans v. Commissioner, supra; Uslu v. Commissioner, supra.      In

Trans and Uslu, the taxpayers lived in the houses, made all of

the mortgage payments, and paid all other expenses for

maintenance and improvements.   In addition, the taxpayers in

Trans made the downpayment on the purchase.

     In the present case, petitioner has not offered evidence

that the benefits and burdens he had from the Bronx Boulevard

house rose to the level accepted by this Court in Uslu and Trans.

Petitioner stated that he made payments related to the house on

behalf of his parents, whom he testified were his dependents and

had no bank accounts.   Petitioner’s bank statements show that he

made only eight mortgage payments, none before May 2003.

Petitioner did not claim he contributed to the downpayment on the

house.   We have no evidence to support petitioner’s claim that he

paid the premiums on the insurance policy covering the house.

The record is also unclear as to what extent petitioner even

lived in the house.   Overall, we cannot say that petitioner’s

actions with respect to the house indicate that he treated the

house as his own or that he was intended to have the full

benefits and burdens of ownership.

     We conclude based on the record that petitioner made

payments on his parents’ mortgage merely as a way to provide
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support for them.    While admirable, this moral obligation to

support his parents does not entitle him to deduct the mortgage

interest.    See Daya v. Commissioner, supra; Tuer v. Commissioner,

T.C. Memo. 1983-441.

     Because he was not liable on the Greenpoint mortgage and

because he was not the legal or equitable owner of the Bronx

Boulevard house, we hold that petitioner was not entitled to a

deduction for mortgage interest on his 2003 income tax return.

Deduction for Real Property Taxes

     Section 164 permits a deduction for certain types of taxes,

including real property taxes.    Sec. 164(a)(1).   In general,

taxes are deductible only by the person upon whom they are

imposed.    Sec. 1.164-1(a), Income Tax Regs.   As with mortgage

interest, we have held that taxpayers who do not have legal title

to property may nevertheless deduct property taxes paid with

respect to the property if they establish equitable ownership of

the property.    See Trans v. Commissioner, supra; Uslu v.

Commissioner, supra.

     As previously discussed, petitioner was not a legal or

equitable owner of the Bronx Boulevard house in 2003.     Therefore,

petitioner is not entitled to deduct property taxes paid on the

property.
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Casualty Loss Deduction

     On his 2003 tax return, petitioner claimed a casualty loss

deduction in the amount of $27,927.     This claimed loss deduction

resulted from a fire that severely damaged the Bronx Boulevard

house on February 25, 2003.    Petitioner also deducted the loss of

his personal property that was inside the house at the time of

the fire.

     Section 165(a) allows a deduction for any loss sustained

during the taxable year and not compensated for by insurance or

otherwise.   For individuals, section 165(c)(3) allows a taxpayer

to deduct a loss from fire, storm, shipwreck, or other casualty,

or from theft.    The deduction is only allowed to the extent the

loss exceeds $100 and the net casualty loss exceeds 10 percent of

the taxpayer’s adjusted gross income.    Sec. 165(h).   The amount

allowed as a deduction is the lesser of: (1) The difference

between the fair market value of the property immediately before

and immediately after the casualty; and (2) the adjusted basis in

the property.    Helvering v. Owens, 305 U.S. 468 (1939); sec.

1.165-7(b), Income Tax Regs.

     Inherent in section 165 is the requirement that to claim a

deduction for the loss of property, the taxpayer must have been

the owner of the property at the time of the loss.      Draper v.

Commissioner, 15 T.C. 135 (1950); Miller v. Commissioner, T.C.

Memo. 1975-110.    If the taxpayer is not the owner of the
                              - 11 -

property, the taxpayer generally cannot claim a deduction for a

casualty loss relating to that property.   Blanche v.

Commissioner, T.C. Memo. 2001-63; see Wayno v. Commissioner, T.C.

Memo. 1992-53, affd. without published opinion 12 F.3d 1111 (9th

Cir. 1993).   In our discussion regarding the mortgage interest

deduction, we held that petitioner had no legal or equitable

ownership interest in the Bronx Boulevard house during 2003 when

the fire loss occurred.

     In addition, in order to determine entitlement to a casualty

loss deduction, a taxpayer’s basis in the damaged or destroyed

property must be known.   Where a taxpayer fails to prove his

basis, we are unable to determine the amount of loss that is

deductible.   Zmuda v. Commissioner, 79 T.C. 714, 727 (1982),

affd. 731 F.2d 1417 (9th Cir. 1984); Millsap v. Commissioner, 46

T.C. 751, 760 (1966), affd. on other issues 387 F.2d 420 (8th

Cir. 1968); see, e.g., sec. 1.165-1(c), Income Tax Regs.

Petitioner has not proven any tax basis in the Bronx Boulevard

house.

     Because petitioner did not own the Bronx Boulevard house or

establish a tax basis in the house, we hold that petitioner is

not entitled to a casualty loss deduction for the fire damage to

the house.

     Turning to petitioner’s personal property allegedly

destroyed in the Bronx Boulevard house fire, petitioner has not
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adequately proven entitlement to this deduction.   The only

documentation he provided for this loss was a list of property

allegedly destroyed along with dollar amounts representing the

value petitioner assigned to each item.   This list neither

substantiates the loss of the personal property, nor establishes

petitioner’s tax basis in the property.   We therefore hold that

petitioner may not deduct any amount for the loss of personal

property in the Bronx Boulevard house fire.

     Since we have held that petitioner is not entitled to the

deductions claimed for mortgage interest, real property taxes, or

casualty losses, and since petitioner stipulated that he received

the unreported interest income, we uphold respondent’s

determination in the notice of deficiency.




                                          Decision will be entered

                                   for respondent.
