                  T.C. Summary Opinion 2008-156



                      UNITED STATES TAX COURT



                   JUE-YA YANG, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 15861-07S.            Filed December 15, 2008.



     David J. Cartano, for petitioner.

     Valerie L. Markarewicz, for respondent.



     GERBER, Judge:   This case was heard pursuant to the

provisions of section 74631 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,



     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for 2005, the taxable year in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
                                 - 2 -

and this opinion shall not be treated as precedent for any other

case.    Respondent determined a $9,423 deficiency in Federal

income tax and a $1,183 accuracy-related penalty under section

6662(a) for petitioner’s 2005 tax year.      The deficiency

determination was based on unreported income adjustments of

$40,000 and $10,500.    Petitioner conceded that the $40,000 amount

was income, but she contends that the $10,500 amount was a gift

and not taxable as income.    The sole issue for our consideration

is whether the $10,500 petitioner received during 2005 was a gift

or income.

                             Background2

     Petitioner, Jue-Ya Yang, resided in California at the time

her petition was filed.    Petitioner met Howard Shih through a

mutual friend and they began dating.       Mr. Shih earned his living

as an artist and calligrapher.    Eventually, petitioner’s

relationship with Mr. Shih became more intimate.      She moved into

his home, and they cohabited.    Petitioner did some housekeeping

and cooking, but she did not work for Mr. Shih under any form of

written or oral contract for services.      Petitioner did not have

any skill or experience in connection with Mr. Shih’s artistic

endeavors.




     2
      No question was raised concerning the burden of proof or
the effect of sec. 7491 on this proceeding.
                                - 3 -

     During 2005 Mr. Shih gave petitioner checks totaling $10,500

to use for herself.   Mr. Shih reported to respondent by means of

a Form 1099-MISC, Miscellaneous Income, that the $10,500 he paid

to petitioner constituted wage income and, ostensibly, he

deducted the payments for purposes of computing his income for

2005.   Relying on Mr. Shih’s filing of Form 1099-MISC, respondent

determined that petitioner had received income of $10,500.

                             Discussion

     The conclusion that a transfer amounts to a “gift” is one

that must be reached on consideration of all the factors and one

that is left to the trier of facts.       Commissioner v. Duberstein,

363 U.S. 278, 287-289 (1960).   In Duberstein, the Supreme Court

set forth the following principles that underlie the dichotomy

between a gift and income:

     This Court has indicated that a voluntarily executed
     transfer of his property by one to another, without any
     consideration or compensation therefor, though a
     common-law gift, is not necessarily a “gift” within the
     meaning of the statute. For the Court has shown that
     the mere absence of a legal or moral obligation to make
     such a payment does not establish that it is a gift.
     And, importantly, if the payment proceeds primarily
     from “the constraining force of any moral or legal
     duty,” or from “the incentive of anticipated benefit”
     of an economic nature, it is not a gift. And,
     conversely, “[w]here the payment is in return for
     services rendered, it is irrelevant that the donor
     derives no economic benefit from it.” A gift in the
     statutory sense, on the other hand, proceeds from a
     “detached and disinterested generosity,”; “out of
     affection, respect, admiration, charity or like
     impulses.” And in this regard, the most critical
                               - 4 -

     consideration, as the Court was agreed in the leading
     case here, is the transferor’s “intention.” * * *

Id. at 285-286 (citations and fn. refs. omitted).

     Mr. Shih was romantically involved with Ms. Yang, and she

moved into his home.   There were discussions of a formal

engagement, and their relationship was intimate.    Mr. Shih

testified at the trial and his testimony concerning his romantic

relationship with Ms. Yang was evasive.   Mr. Shih was called by

respondent and testified on direct examination that Ms. Yang had

performed services in his business in exchange for the payments

made to her during 2005.   On cross-examination, however, after

admitting that his relationship with Ms. Yang was more than a

professional one, Mr. Shih could not recall taking her out on

dates or any intimacy in their relationship, even though their

relationship existed only a few years ago.

     It is obvious that Mr. Shih and Ms. Yang have conflicting

interests in the outcome of this controversy and that their

positions are diametrically opposed.   Mr. Shih structured the

payments to Ms. Yang so that they appeared to be wages.     He

issued a Form W-2, Wage and Tax Statement, and used the notation

“salary” or “wages” on some of the checks used for payment.

     Ms. Yang, however, was forthright in her testimony and

answered all questions whether or not they favored her position.

On the other hand Mr. Shih professed to remember only those

things that supported his position that the payments were
                               - 5 -

income to Ms. Yang.   We find his testimony to be evasive and

untrue.

     The facts show that Mr. Shih made payments totaling $10,500

to Ms. Yang with “detached and disinterested generosity” out of

his affection for her at the time of payment.     We accordingly

hold that the $10,500 in payments made during 2005 was a gift and

not reportable as income.

     Ms. Yang conceded $40,000 in unreported income for 2005, and

respondent has carried his burden of production to establish that

section 6662(a) applies with respect to that adjustment.

Petitioner offered no evidence of reasonable cause with respect

to her failure to report the $40,000 in income.     Accordingly, we

hold that petitioner is liable for an accuracy-related penalty

under section 6662(a) with respect to the $40,000 adjustment.

Because we have decided that the $10,500 was a gift and not

taxable, we need not address the accuracy-related penalty on that

adjustment.

     To reflect the foregoing and petitioner’s concession,


                                            Decision will be entered

                                       under Rule 155.
