                      T.C. Summary Opinion 2010-68



                        UNITED STATES TAX COURT



                   SUNG HUEY MEI HSU, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 29132-08S.            Filed June 7, 2010.



        Sung Huey Mei Hsu, pro se.

        Robert V. Boeshaar, for respondent.



     DEAN, Special Trial 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, subsequent section references

are to the Internal Revenue Code in effect for the year in issue,
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and all Rule references are to the Tax Court Rules of Practice

and Procedure.

     For 2005 respondent determined a deficiency of $23,293.55 in

petitioner’s Federal income tax and an accuracy-related penalty

of $4,658.71 pursuant to section 6662.

     The issues for decision1 are whether petitioner:    (1) Is

required to recognize additional income attributable to the sale

of her principal residence; (2) is entitled to additional expense

deductions on Schedule A, Itemized Deductions; and (3) is subject

to the accuracy-related penalty under section 6662(a).

                            Background

     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.   When petitioner filed her

petition, she resided in the State of Washington.

     Petitioner timely filed her 2005 Form 1040, U.S. Individual

Income Tax Return.   On Schedule D, Capital Gains and Losses,

petitioner reported a gain of $288,699 from the sale of property.




     1
      Petitioner sustained a long-term loss of $11,988 and
realized a short-term gain of $3,636 resulting from sales of
stocks and bonds which she failed to report for 2005. These
amounts shall be computed pursuant to Rule 155 consistent with
this opinion.
     Petitioner conceded that she received and failed to report
dividend income of $1,320. Her entitlement to itemized
deductions is determined by computational adjustments consistent
with this opinion.
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Pursuant to section 121, petitioner excluded from income $250,000

of the gain associated with the sale.

     In 2005 petitioner sold her home and realized a gain on the

sale of the property.   Although the home was her principal

residence,2 she owned only a 50-percent interest in the home;

therefore, only 50 percent of the gain is attributable to her.

The gain realized from the sale of the property was $529,289.

Her 50-percent share of the gain was $264,644.50.

     Respondent issued to petitioner a notice of deficiency

disallowing in part3 petitioner’s exclusion of gain from income

under section 121.   Respondent alleges that petitioner is

entitled to only 50 percent of the $250,000 exclusion of gain

from income; i.e., $125,000.

                            Discussion

     Generally, the Commissioner’s determinations are presumed

correct, and the taxpayer bears the burden of proving that those

determinations are erroneous.4    Rule 142(a); see INDOPCO, Inc. v.




     2
      Petitioner had owned and used the home as her principal
residence since February 1997.
     3
      In the notice of deficiency respondent determined that
petitioner owned a 75-percent interest in the home. At trial
respondent acknowledged that petitioner owned only a 50-percent
interest in the home.
     4
      Petitioner has not claimed or shown that she meets the
requirements under sec. 7491(a) to shift the burden of proof to
respondent as to any factual issue relating to her liability for
tax.
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Commissioner, 503 U.S. 79, 84 (1992); Welch v. Helvering, 290

U.S. 111, 115 (1933).

I.    Section 121 Exclusion

       Section 121 provides for the exclusion from gross income of

up to $250,000 of gain from the sale or exchange of property if

the property was owned and used by the taxpayer as the taxpayer’s

principal residence for periods aggregating 2 years or more

during the 5-year period preceding the sale or exchange.

       While petitioner satisfies the requirements of section 121,

respondent alleges that because petitioner held only a 50-percent

interest in the home, she is entitled to only 50 percent of the

$250,000 ($125,000) allowable exclusion under section 121.

Section 121, however, contains no such limitation for partial

owners of a principal residence.    In fact, the regulations

provide that unmarried joint owners each owning a 50-percent

interest in a principal residence are each entitled, upon sale,

to the full limitation amount of $250,000 on their portions of

the gain.    See sec. 1.121-2(a)(2), (4), Example (1), Income Tax

Regs.    Therefore, petitioner is entitled to exclude from income

up to $250,000 on her portion of the gain realized from the sale

of her principal residence for 2005.

II.    Schedule A Itemized Deductions

       Deductions are strictly a matter of legislative grace, and

taxpayers must satisfy the specific requirements for any
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deduction claimed.   See INDOPCO, Inc. v. Commissioner, supra at

84; New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).

Taxpayers bear the burden of substantiating the amount and

purpose of any claimed deduction.    See Hradesky v. Commissioner,

65 T.C. 87 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976).

     Petitioner sought an increase in her Schedule A deductions

because of unclaimed:     (1) Casualty losses sustained on a home in

Taiwan; (2) losses on an investment; and (3) mortgage interest

payments.

     A.   Casualty Loss

     Petitioner credibly testified that she owned a home in

Taiwan during 2005 that sustained substantial typhoon damage.

But she presented no evidence as to the expenses associated with

the sustained loss or whether she was reimbursed by insurance or

otherwise.   Accordingly, petitioner’s request for additional

expense deductions due to a sustained casualty loss during 2005

is denied.

     B.   Investment Losses

     Petitioner testified that she incurred losses as a result of

an investment with Vitality Investment Group, and at trial she

proffered a document to substantiate her claim.    The document,

however, actually showed that petitioner realized a gain.

Accordingly, the Court is unable to conclude that petitioner

sustained investment losses.
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      C.   Additional Mortgage Interest

      Petitioner testified that she paid additional mortgage

interest in 2005 that she did not deduct on her 2005 return.      For

2005 petitioner claimed a mortgage interest deduction of $16,097,

but the Court is unable to conclude that this amount did not

include the interest she paid on her principal residence.

Accordingly, the Court must disallow petitioner’s request for an

additional mortgage interest deduction.

II.   Accuracy-Related Penalty

      Respondent determined that petitioner is liable for an

accuracy-related penalty under section 6662(a).     Section 6662(a)

and (b)(1) imposes a 20-percent penalty on the portion of an

underpayment attributable to any one of various factors,

including negligence or disregard of rules or regulations.

“Negligence” includes any failure to make a reasonable attempt to

comply with the provisions of the Internal Revenue Code,

including any failure to keep adequate books and records or to

substantiate items properly.     See sec. 6662(c); sec. 1.6662-

3(b)(1), Income Tax Regs.   Under section 7491(c), respondent has

the burden of production with respect to the accuracy-related

penalty.   See Higbee v. Commissioner, 116 T.C. 438, 446 (2001).
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     Section 6664(c)(1) provides an exception to the section

6662(a) penalty if it is shown that there was reasonable cause

for any portion of the underpayment and the taxpayer acted in

good faith.   The determination of whether a taxpayer acted with

reasonable cause and in good faith is made on a case-by-case

basis, taking into account all the pertinent facts and

circumstances.   Sec. 1.6664-4(b)(1), Income Tax Regs.     The most

important factor is the extent of the taxpayer’s effort to assess

his or her proper tax liability.   Id.   Circumstances that may

indicate reasonable cause and good faith include an honest

misunderstanding of fact or law that is reasonable in view of the

taxpayer’s experience, knowledge, and education.     Id.

     In view of the concessions, the additional allowances, the

computational adjustments, and the Court’s holdings herein, it is

unclear whether there is an underpayment of income tax for 2005.

The Court leaves for the parties to determine as part of the Rule

155 computations whether there is an underpayment.    If an

underpayment exists because of petitioner’s concession for her

failure to report dividend income of $1,320, petitioner will be

liable for the accuracy-related penalty because respondent will

have met his burden of production and petitioner has not

established a reasonable cause or good faith defense.
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To reflect the foregoing,


                                    Decision will be entered

                             under Rule 155.
