                                 T.C. Memo. 2013-277



                           UNITED STATES TAX COURT



                     LOURDES PUENTES, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 301-12.                            Filed December 9, 2013.


      Lourdes Puentes, pro se.

      Audra M. Dineen, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION


      HAINES, Judge: Respondent determined a $3,8091 deficiency in

petitioner’s Federal income tax for 2009. The sole issue for decision is whether




      1
          All amounts are rounded to the nearest dollar.
                                         -2-

[*2] petitioner is entitled to an itemized deduction for home mortgage interest.2

We hold she is not.

                                FINDINGS OF FACT

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

facts, together with the attached exhibits, are incorporated herein by this reference.

Petitioner resided in California when she filed the petition.

      Petitioner’s brother, Benjamin Puentes, purchased a home (San Francisco

property) in South San Francisco in 2002. He made a downpayment toward the

purchase price of the San Francisco property and financed the remainder of the

purchase price with a loan (mortgage loan) secured by the San Francisco property.

Mr. Puentes was the sole holder of legal title to the San Francisco property.

      In 2003 petitioner began living at the San Francisco property. In 2009 Mr.

Puentes became unemployed and unable to make the mortgage payments on the

San Francisco property. Petitioner was still residing at the San Francisco property

that same year and paid certain amounts owing under the mortgage loan, including

interest (mortgage interest). Mr. Puentes received a Form 1098, Mortgage Interest

Statement, for 2009 from the mortgage loan lender. The Form 1098 lists Mr.




      2
          The remaining issues are computational and need not be addressed.
                                        -3-

[*3] Puentes as the “borrower” and indicates that $28,942 of interest had been

paid on the mortgage loan for 2009.

      Petitioner filed a Federal income tax return for 2009. On the Schedule A,

Itemized Deductions, attached to the return, petitioner claimed a $28,942

deduction (mortgage interest deduction) for the mortgage interest she paid on the

mortgage loan. Respondent issued petitioner a deficiency notice disallowing the

mortgage interest deduction. Petitioner filed a petition with this Court contesting

the deficiency notice.

                                      OPINION

I. Burden of Proof

      Generally, the Commissioner’s determinations are presumed correct, and the

taxpayer bears the burden of proving otherwise. Rule 142(a);3 see Welch v.

Helvering, 290 U.S. 111, 115 (1933). The burden of proof may shift to the

Commissioner if the taxpayer proves that he or she has satisfied certain

requirements. Sec. 7491(a); see Baker v. Commissioner, 122 T.C. 143, 168

(2004). Petitioner has neither claimed that the burden shifts to respondent nor




      3
       Unless otherwise indicated, Rule references are to the Tax Court Rules of
Practice and Procedure, and all section references are to the Internal Revenue
Code, in effect for the year at issue.
                                        -4-

[*4] shown that she complied with the requirements of section 7491(a). The

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

II. Mortgage Interest Deduction

      Petitioner claims she is entitled to the mortgage interest deduction. Section

163 allows a deduction for interest paid or accrued on certain indebtedness,

including acquisition indebtedness with respect to the taxpayer’s personal

residence. Sec. 163(a), (h)(2)(D), (3)(A)(i), (4)(A)(i). Section 1.163-1(b), Income

Tax Regs., provides in pertinent part: “interest paid by the taxpayer on a mortgage

upon real estate of which he is the legal or equitable owner, even though the

taxpayer is not directly liable upon the bond or note secured by such mortgage,

may be deducted as interest on his indebtedness.” We have disallowed the

deduction for mortgage interest where the taxpayer does not establish legal or

equitable ownership of mortgaged property. See Daya v. Commissioner, T.C.

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

concedes that she was not the legal owner of the San Francisco property but argues

that she is still entitled to the mortgage interest deduction because she was an

equitable owner of it.

      State law determines the nature of property rights, and Federal law

determines the appropriate tax treatment of those rights. United States v. Nat’l
                                         -5-

[*5] Bank of Commerce, 472 U.S. 713, 722 (1985); Blanche v. Commissioner,

T.C. Memo. 2001-63, aff’d, 33 Fed. Appx. 704 (5th Cir. 2002). Under California

law, it is presumed that the owner of legal title is the owner of the full beneficial

title. Cal. Evid. Code sec. 662 (West 1995). This presumption may be rebutted

only by clear and convincing proof. Id. Mr. Puentes solely held legal title to the

San Francisco property and therefore is presumed the full beneficial (or equitable)

owner of it. Accordingly, petitioner must show that she was a beneficial or

equitable owner of the San Francisco property by clear and convincing evidence.

      A taxpayer becomes the equitable owner of property when he or she

assumes the benefits and burdens of ownership. See Baird v. Commissioner, 68

T.C. 115, 124 (1977); Blanche v. Commissioner, T.C. Memo. 2001-63. The Court

considers certain factors to determine whether a taxpayer has assumed the benefits

and burdens of ownership, including: (1) whether the taxpayer had the right to

possess the property and to enjoy the use, rents, and profits thereof; (2) whether

the taxpayer had the duty to maintain the property; (3) whether the taxpayer was

responsible for insuring the property; (4) whether the taxpayer bore the risk of loss

of the property; (5) whether the taxpayer was obligated to pay taxes, assessments,

and charges against the property; (6) whether the taxpayer had the right to improve
                                           -6-

[*6] the property; and (7) whether the taxpayer had the right to obtain legal title at

any time by paying the balance of the purchase price.

       Petitioner offered no evidence that she had any agreement with Mr. Puentes

entitling her to an ownership interest in the San Francisco property or any

beneficial rights, such as the right to rents, the right to profits, the right to

possession, the right to improve, or the right to purchase the San Francisco

property. Moreover, the record is devoid of any evidence showing petitioner was

legally obligated to bear any significant burdens of ownership with respect to the

San Francisco property. In particular, the record does not reflect that petitioner

had any legal obligation to make the mortgage payments on the San Francisco

property or pay any taxes or charges against it. Nor does the record reflect that

petitioner had any duty to maintain or insure the San Francisco property. We find

that petitioner did not offer sufficient evidence to establish that she ever gained a

beneficial or equitable ownership interest in the San Francisco property.

Accordingly, we sustain respondent’s determination disallowing the mortgage

interest deduction.

       In reaching our holdings herein, we have considered all arguments made,

and, to the extent not mentioned above, we conclude they are moot, irrelevant, or

without merit.
                                 -7-

[*7] To reflect the foregoing,

                                             Decision will be entered for

                                       respondent.
