                  T.C. Summary Opinion 2008-142



                     UNITED STATES TAX COURT



                   BERNIE RILEY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 12531-07S.              Filed November 12, 2008.


     Bernie Riley, pro se.

     Kimberly W. Chowning, for respondent.



     ARMEN, 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.1   Pursuant to section

7463(b), the decision to be entered is not reviewable by any




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

other court, and this opinion shall not be treated as precedent

for any other case.

     Respondent determined a deficiency of $1,268 in petitioner’s

Federal income tax for the taxable year 2004.   The 2004

deficiency stemmed from the disallowance of rental expenses in

excess of rental income for a vacation property owned by

petitioner.

     Respondent also determined a deficiency of $6,678 in

petitioner’s Federal income tax for the taxable year 2005.   The

2005 deficiency stemmed from a disallowance of rental expenses in

excess of rental income from the same vacation property, as well

as the disallowance of rental expenses in excess of rental income

for the property that petitioner uses as her primary residence.

Additionally, respondent determined that for 2005 petitioner was

liable for both an accuracy-related penalty of $1,335.60 under

section 6662(a) and an addition to tax of $973.65 for failure to

timely file under section 6651(a)(1).

     After concessions by respondent,2 the three issues remaining

for decision are:




     2
        Respondent conceded prior to trial that certain
calculations in the 2005 notice of deficiency were erroneous, and
that the deficiency in petitioner’s Federal income tax for 2005
should be $4,450. See sec. 469. Accordingly, respondent
conceded the sec. 6662(a) penalty and revised the sec. 6651(a)
addition to tax to $639.45. See secs. 6662(d)(1)(A)(ii),
6651(a)(1), (b)(1).
                                 - 3 -

     (1)    Whether petitioner is entitled to deduct rental

expenses claimed in excess of her rental income from the vacation

property for either taxable year.    We hold that she is not;

     (2)    whether petitioner is entitled to deduct rental

expenses claimed in excess of rental income she received from

renting a portion of her personal residence in 2005.    We hold

that she is not;

     (3)    whether petitioner is liable for an addition to tax for

failure to timely file her 2005 Federal income tax return.      We

hold that she is not.

                              Background

     Some of the facts have been stipulated, and they are so

found.     We incorporate by reference the parties’ stipulations of

facts.

     At the time the petition was filed, petitioner was a

resident of Illinois.

     During the taxable years at issue, petitioner owned

undeveloped property in Lee County, Illinois (the Woodhaven Lakes

property).    The Woodhaven Lakes property had been in petitioner’s

family for a long time.    Located in Sublette, Illinois (about 2

hours outside Chicago), the property is part of an area which

Wikipedia describes as being a “privately owned camping resort”.

See http://en.wikipedia.org/wiki/Woodhaven_Lakes.    Petitioner’s

testimony supports this description.
                               - 4 -

     Petitioner and her family would drive to the Woodhaven Lakes

property to fish and get away from the city in the summer.    When

petitioner took her grandchildren, they would stay the whole

summer.   Petitioner went to the Woodhaven Lakes property with her

grandchildren in 2004 and 2005.

     The Woodhaven Lakes property actually comprised two

contiguous lots.   However, the two lots were treated as a single

piece of property, and, when petitioner’s family sold the

Woodhaven Lakes property in 2007, the two lots were sold

together.   On one side of the property stood a converted camper

trailer; the other side was completely unimproved.

     When petitioner and her grandchildren went for the summer,

they stayed on the unimproved side of the land in a “pop-up

trailer”.   A handyman lived in the camper trailer.   He acted as a

caretaker for the property and the camper trailer itself;3 he

also performed maintenance work for petitioner and other

residents of the area.   In exchange for these services,

petitioner charged the handyman below-market rent.

     Petitioner properly reported the rent she received ($500 in

2004 and $1,500 in 2005) on her tax returns.   Because of the

expense of owning and maintaining the property, petitioner




     3
        Raccoons caused a considerable amount of damage when the
camper trailer was left uninhabited.
                                - 5 -

claimed losses in both 2004 and 2005 stemming from the Woodhaven

Lakes property.

     In addition to the Woodhaven Lakes property, petitioner owns

a home in Chicago (the Chicago property).      The Chicago property

was her primary residence, and she lived there with some of her

grandchildren.    Petitioner rents the finished basement of her

home to her son and daughter-in-law.      The basement apartment has

a full bath, a family room, a dining room, a kitchen, and a

bedroom.    It also has its own entrance to the outside.

     Petitioner reported the $5,896 of rental income she received

from her son and daughter-in-law on her 2005 Federal income tax

return.    She filed her 2005 return on June 26, 2006.    Petitioner

did not request an extension of time to file her return for 2005.

     On April 19, 2007, respondent mailed to petitioner a notice

of deficiency for the 2004 and 2005 tax years.      In the notice of

deficiency, respondent adjusted petitioner’s deductions related

to rental expenses for the Woodhaven Lakes property for both

years because petitioner used the property as a “residence”.      For

2004, respondent allowed $500 of the $692 claimed real estate tax

deduction; the remaining $192 was allowable as an itemized

deduction.    For 2005, respondent allowed the $138 claimed real

estate tax deduction and the $934 claimed mortgage interest

deduction.    Respondent also allowed $428 of the $555 claimed for

rental insurance premiums in 2005.      Respondent disallowed
                               - 6 -

petitioner’s deductions for all other expenses related to the

Woodhaven Lakes property for 2004 and 2005 as they exceeded the

amounts of rental income received in those years.

      Respondent also adjusted petitioner’s rental expense

deductions for the basement apartment in her home for 2005

because she used the Chicago property in its entirety for

“personal use”.   Respondent allowed deductions for one-half of

the mortgage interest expense and one-half of the real estate

taxes as rental expenses; the other half of each of those

expenses was allowed as an itemized deduction, and the remainder

of the claimed expenses were disallowed to the extent that they

exceeded the rental income received for that property in 2005.

Respondent also determined an addition to tax under section

6651(a) for the late filing of petitioner’s 2005 Federal income

tax return.

                            Discussion

I.   Burden of Proof

      Generally, the Commissioner’s determinations are presumed

correct, and the taxpayer bears the burden of proving those

determinations wrong.   Rule 142(a); INDOPCO, Inc. v Commissioner,

503 U.S. 79, 84 (1992); Welch v. Helvering, 290 U.S. 111, 115

(1933).   Under section 7491(a)(1), the burden of proof may shift

from the taxpayer to the Commissioner if the taxpayer produces

credible evidence with respect to any factual issue relevant to
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ascertaining the taxpayer’s tax liability.   In this case there is

no such shift because petitioner neither alleged that section

7491 was applicable nor established that she fully complied with

the requirements of section 7491(a)(2).   The burden of proof

remains on petitioner.

II.   The Woodhaven Lakes Property

      The issue here is whether petitioner is entitled to

additional deductions for expenses she incurred maintaining the

Woodhaven Lakes property.

      Section 212(2) allows a deduction for all the ordinary and

necessary expenses paid or incurred during the taxable year for

the management, conservation, or maintenance of property held for

the production of income.   No deduction is permitted for

personal, living, or family expenses.   Sec. 262(a).

      Section 280A limits otherwise allowable deductions by

individuals with respect to a “dwelling unit” that is used by the

taxpayer during the year as a “residence”.   Sec. 280A(a).

Deductions related to the rental of a dwelling unit are exempt

from the section 280A(a) limitation, provided that the property

is not used as a residence.   Sec. 280A(c); see also sec. 280A(e).

A taxpayer uses a dwelling unit as a “residence” if his or her

personal use exceeds the greater of 14 days or 10 percent of the

days it is rented at fair rental value during the year.     Sec.

280A(d)(1).   Section 280A(c)(5) then limits the deduction of
                                - 8 -

expenses related to the property to the excess of gross income

from the property over deductions allocable to the rental use

that are deductible regardless of the rental use, such as

interest and taxes.   See sec. 280A(b).

     Although petitioner did not charge the handyman market-rate

cash rent, we are unable to ascertain from the facts of this case

whether the rent she did charge was fair rental value given the

services he provided to petitioner in maintaining and caring for

her property and the camper trailer.    What we can decide,

however, is that petitioner used the Woodhaven Lakes property

itself for more than 14 days in each of the years at issue.

     Petitioner and her grandchildren spent the bulk of the

summer in both years at the Woodhaven Lakes property, and

although they did not use the mobile home, their extended stays

in a pop-up camper on the property in 2004 and 2005 were

sufficient to turn petitioner’s use of the property into

residence-like treatment.

     Accordingly, petitioner’s deductions relating to the

Woodhaven Lakes property for each of the years in issue are

limited by section 280A.    As respondent has already allowed

petitioner the maximum deduction for each year, we hold for

respondent on this issue.
                                - 9 -

III.    The Chicago Property

       Much like with the Woodhaven Lakes property, the issue here

is whether petitioner is entitled to deductions for rental

expenses beyond those already permitted by respondent with regard

to her home in Chicago.    In other words, did petitioner rent out

a designated portion of her home for fair rental value or was the

entire property–-including the basement apartment in which her

son and daughter-in-law lived-–her residence for tax purposes

such that section 280A would limit petitioner’s expense

deductions with regard to that property?

       According to the Internal Revenue Code, each day that a

dwelling unit is rented at less than fair rental value is deemed

used by the taxpayer for “personal purposes”.    Sec.

280A(d)(2)(C); see sec. 280A(d)(2)(A).    Further, if a member of

the taxpayer’s family uses the dwelling unit as a principal

residence, a personal purpose is attributed to the taxpayer

unless the property is leased for a fair rental.    See secs.

280A(d)(2)(A), (3)(A), 267(c)(4).    As noted earlier, no deduction

is permitted for personal, living, or family expenses.    Sec.

262(a).

       Unfortunately, petitioner did not introduce any evidence

regarding fair market rents for 2005 in her neighborhood to

permit a comparison with the amount of rent she received from her

son and daughter-in-law.    In the absence of such evidence, we
                                - 10 -

have no way to find that the amount petitioner’s son and his wife

paid for use of the apartment was at a fair value rate, and we

are unable to hold for petitioner on this issue.

      In the absence of further information and given petitioner’s

testimony, it appears that the rent paid to petitioner reflected

the incremental costs and expenses attributable to additional

people living in the house; it was not reflective of a fair

rental value paid with an eye toward either profit or housing

cost recoupment.

      Because respondent has already permitted petitioner a

deduction for those expenses that would be deductible without

regard to rental activity, we hold for respondent on this issue.

IV.   The Addition to Tax

      Section 6651(a)(1) imposes an addition to tax for failure to

file a return by its due date.    The addition equals 5 percent for

each month or fraction thereof that the return is late, not to

exceed 25 percent.   Id.    Respondent bears the burden of

production with respect to the addition to tax.    See sec.

7491(c); see also, e.g., Swain v. Commissioner, 118 T.C. 358, 363

(2002); Higbee v. Commissioner, 116 T.C. 438, 446 (2001).

Respondent has met his burden.

      If the taxpayer is able to prove that the failure to timely

file was not the result of “willful neglect” and was “due to

reasonable cause”, the addition to tax will not be imposed.
                               - 11 -

United States v. Boyle, 469 U.S. 241, 245 (1985); see sec.

301.6651-1(c), Proced. & Admin. Regs.; sec. 1.6161-1(b), Income

Tax Regs.

      Petitioner, a senior citizen, has had severe health

problems, including suffering the lingering effects of a stroke.

She is also a caregiver to her five grandchildren as one son is

deployed in Iraq and the other suffers from spina bifida.

Petitioner’s failure to timely file was not the result of willful

neglect and was due to reasonable cause.    Accordingly, we hold

that petitioner is not liable for the addition to tax under

section 6651(a)(1) for 2005.

V.   Conclusion

      To reflect our disposition of the disputed issues, as well

as respondent’s concessions,

                                           Decision will be entered

                                    for petitioner as to the

                                    addition to tax under section

                                    6651(a)(1) for 2005 and as to

                                    the accuracy-related penalty

                                    under section 6662(a) for

                                    2005, and decision will be

                                    entered for respondent as to

                                    the deficiency for 2004 and as

                                    to the reduced deficiency for

                                    2005.
