                         T.C. Summary Opinion 2017-24



                         UNITED STATES TAX COURT



                GREGORY ALAN BROWN, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 7972-15S.                          Filed April 25, 2017.



      Gregory Alan Brown, pro se.

      Bartholomew Cirenza, for respondent.



                              SUMMARY OPINION


      COLVIN, Judge: This case was heard pursuant to the provisions of section

7463 of the Internal Revenue Code in effect when the petition was filed.1


      1
       Other section references are to the Internal Revenue Code in effect for the
year in issue. Rule references are to the Tax Court Rules of Practice and
                                                                       (continued...)
                                          -2-

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.

         Respondent determined a deficiency in petitioner’s Federal income tax for

the taxable year 2012 of $1,491. In an amendment to answer respondent asserted

an increased deficiency in petitioner’s Federal income tax for the taxable year

2012, contending that petitioner used an incorrect filing status and failed to report

dividend income. The issues for decision are:

         1. Whether as respondent contends, petitioner received but failed to report

dividend income of $5,103 from a corporation he controlled in the amount during

the taxable year 2012. We hold that he did.

         2. Whether as petitioner contends, petitioner is entitled to deduct home

mortgage interest in excess of the amount that respondent conceded. We hold that

he is.

         3. Whether petitioner’s correct filing status for the 2012 tax year was head

of household as reported on his return. We hold that petitioner’s filing status was,

as respondent contends, married filing separately.




         1
      (...continued)
Procedure. Dollar amounts are rounded to the nearest dollar.
                                        -3-

                                    Background

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

in Maryland when the petition was timely filed.

A.    Home Mortgage Interest

      In 2009 petitioner copurchased a house with Maria Payne. Petitioner and

Ms. Payne continued to coown that house during 2012. Petitioner and Ms. Payne

purchased the house with the expectation that petitioner would eventually become

the sole owner. However, until petitioner became the sole owner, petitioner and

Ms. Payne were each liable for the mortgage payments on the house.

      During 2012 the house was secured by a mortgage held by GMAC

Mortgage, LLC (GMAC). GMAC identified Ms. Payne as the primary account

holder on the mortgage and petitioner as the secondary account holder. The

monthly mortgage payment was $3,396. During 2012 petitioner and Ms. Payne

collectively paid $22,530 of mortgage interest with respect to the house. GMAC

reported the interest received to respondent on Form 1098, Mortgage Interest

Statement. Because Ms. Payne was the primary account holder, the Form 1098

filed with respondent identifies her, not petitioner, as the sole payer of the home

mortgage interest.
                                         -4-

      Ms. Payne moved out of the house in 2011. However, she remained a

coowner of the house until April 2013. Petitioner married Sherrie Brown in

December 2011, and they remained married throughout 2012. Mrs. Brown lived

in a separate residence for most of 2012 so her children could finish the year

without changing schools. Mrs. Brown moved into petitioner and Ms. Payne’s

coowned house late in 2012. Petitioner became the sole owner of that house in

April 2013.

B.    Greycom, Inc.

      Petitioner is the sole owner of Greycom, Inc., a Maryland C corporation.

Greycom is an electrical contracting company. Petitioner was also employed by

Greycom, which paid him wages of approximately $35,200 during 2012.

Petitioner’s personal expenses during 2012 exceeded this amount. Greycom was

profitable, and petitioner occasionally used funds from Greycom’s business

accounts to pay his personal expenses.

      During 2012 petitioner made six mortgage payments totaling $20,376 on the

house he coowned from his personal bank account. Petitioner also made two

payments to GMAC totaling $5,103 on the house from Greycom’s bank account.

      Petitioner filed his Federal income tax return for 2012 as a head of

household. Petitioner deducted on his return the entire $22,530 of mortgage
                                        -5-

interest paid with respect to the house he coowned with Ms. Payne during 2012.

Respondent examined petitioner’s return and issued a notice of deficiency

disallowing petitioner’s mortgage interest deduction in its entirety.

      Respondent concedes that petitioner is entitled to a deduction of $11,265 for

mortgage interest relating to payments made from his personal bank account.

After trial the Court allowed respondent to amend the answer in this case to assert

that petitioner had received unreported dividend income from Greycom during

2012 and that petitioner’s correct filing status for 2012 was married filing

separately.

                                     Discussion

A.    Burden of Proof

      In the notice of deficiency respondent determined that petitioner was not

entitled to the home mortgage interest deduction he had claimed for the taxable

year 2012. The taxpayer generally bears the burden of proving that the

Commissioner’s deficiency determination is in error. Rule 142(a)(1). The burden

of proving a factual issue relating to tax liability shifts to the Commissioner under

certain circumstances. Sec. 7491(a). Petitioner has not shown and does not

contend that section 7491 applies. Thus, petitioner bears the burden of proving

that respondent’s determinations in the notice of deficiency are in error. See Rule
                                        -6-

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Respondent bears the

burden of proof with respect to the items raised in his amended answer. See Rule

142(a)(1); Foster v. Commissioner, T.C. Memo. 2012-207.

B.    Dividend Income

      At trial petitioner testified that he had made mortgage payments on the

house he coowned during 2012 from Greycom’s business accounts. The parties

stipulated that these payments totaled $5,103. Respondent contends that this

amount constitutes a taxable dividend to petitioner.

      A dividend is a distribution of property made by a corporation to its

shareholders from its earnings and profits. Sec. 316(a). A shareholder may

receive a dividend even though the corporation has not formally declared a

distribution. Truesdell v. Commissioner, 89 T.C. 1280, 1295 (1987). If a

corporation makes a noncompensatory payment on behalf of a shareholder without

a business purpose or expectation of repayment, then this amount constitutes a

constructive dividend to the shareholder. Benjamin v. Commissioner, 66 T.C.

1084, 1115 (1976), aff’d, 592 F.2d 1259 (5th Cir. 1979).

      Greycom’s payments of petitioner’s personal mortgage expenses are

distributions to him. See id. Petitioner’s testimony indicated that his personal

expenses during 2012 far exceeded the $35,200 salary he received from Greycom.
                                        -7-

Petitioner also indicated that Greycom was profitable during the taxable years

2010 and 2011. We hold that respondent has proven by a preponderance of the

evidence that Greycom had sufficient earnings and profits that these distributions

were dividends to petitioner. See sec. 301(c)(1).

C.    Home Mortgage Interest

      Section 163(h)(2)(D) generally allows a deduction for “any qualified

residence interest” paid during the taxable year. In the case of a mortgage loan for

which the taxpayer is jointly liable with another person, a deduction for mortgage

interest is allowable to the persons or person who pays the interest out of his or her

own funds in proportion to the payment. See Higgins v. Commissioner, 16 T.C.

140, 142-144 (1951); Jolson v. Commissioner, 3 T.C. 1184, 1186-1187 (1944).

      The parties stipulated that during the taxable year 2012 petitioner made six

mortgage payments totaling $20,376 on the house from his personal bank account.

We find that petitioner also constructively made payments totaling $5,103 from

Greycom’s bank account, which were constructive dividends to him. See Peters,

Gamm, West & Vincent, Inc. v. Commissioner, T.C. Memo. 1996-186, 71 T.C.M.

(CCH) 2789, 2795; see also Broad v. Commissioner, T.C. Memo. 1990-317, 59

T.C.M. (CCH) 997, 1000 (holding that a shareholder was allowed a deduction

after receiving a constructive dividend from the C corporation’s payment of his
                                        -8-

personal obligations); Berlin v. Commissioner, T.C. Memo. 1961-194, 20 T.C.M.

(CCH) 969, 975 (holding that a shareholder was allowed to deduct the accrued

interest following the C corporation’s payment of his loans). Petitioner did not

present any credible evidence showing that he made mortgage payments in excess

of the amounts described above. See Whitehead v. Commissioner, T.C. Memo.

2001-317, 82 T.C.M. (CCH) 976, 992-993 (declining to rely on taxpayer’s

testimony to determine portion of mortgage interest paid).

      The monthly mortgage payment on the house was $3,396 for an annual total

of $40,752. The interest portion of the mortgage payments totaled $22,530. We

find that petitioner is entitled to deduct $14,086 (i.e., $20,376 + $5,103 ÷ $40,752

= 0.62522; 0.62522 × $22,530 = $14,086) for mortgage interest paid during 2012.

D.    Filing Status

      Petitioner filed his 2012 Federal income tax return as a head of household.

In the amendment to answer respondent asserted that petitioner’s correct filing

status was married filing separately.

      Generally, to qualify as a head of household, a taxpayer, among other

requirements, may not be married at the close of the taxable year. Sec. 2(b).

Petitioner agrees that he was married throughout 2012. However, an individual is

not considered married for the purpose of determining head of household filing
                                          -9-

status if he or she is legally separated from his or her spouse under a decree of

divorce, if his or her spouse is a nonresident alien, or if (inter alia) he or she lives

apart from his or her spouse for the last six months of the taxable year. Secs.

2(b)(3), (c), 7703(b). As relevant here, petitioner testified that Mrs. Brown lived

with him for at least part of the second half of 2012. Thus, petitioner’s correct

filing status is married filing separately, not head of household.

      To reflect the foregoing,



                                                   Decision will be entered under

                                             Rule 155.
