                          T.C. Summary Opinion 2012-87



                         UNITED STATES TAX COURT



               DORA MARGARET BENSON, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 14010-11S.                        Filed September 5, 2012.



      Dora Margaret Benson, pro se.

      Sara Jo Barkley and Robert A. Vara, for respondent.



                              SUMMARY OPINION


      SWIFT, 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



      1
       Unless otherwise indicated, all section references are to the Internal Revenue
Code in effect for the year in issue, and all Rule references are to the Tax Court
Rules of Practice and Procedure.
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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 of $2,699 in petitioner’s 2009 Federal

income tax and a $539 accuracy-related penalty under section 6662(a). The issues

for determination are (1) whether petitioner’s activities were engaged in with a

profit objective under section 183; (2) whether petitioner adequately substantiated

her claimed business expense deductions; and (3) whether imposition of the

accuracy-related penalty under section 6662(a) is appropriate.

                                      Background

      Some of the facts have been stipulated and are so found. At the time the

petition was filed, petitioner resided in Colorado.

      Before 2000 petitioner, who is a mother, worked as a nurse. In April 2000

petitioner won a $10 million lottery jackpot. Instead of receiving $10 million in

installments over 30 years, petitioner opted to receive a lump-sum payment of $4

million. After taxes, petitioner received $2.7 million. A month after winning the

lottery petitioner retired from her job as a nurse.

      Later in 2000 petitioner purchased a building for $165,000 at 2801

Columbine Street in Denver, Colorado (memorial building). One purpose for
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petitioner’s purchase of the memorial building was to use it in a manner that would

honor her deceased mother.

      The memorial building had eight rooms plus a kitchen, a reception room, and

a bathroom. Petitioner converted one of the rooms into a Christian reading and

prayer room. Petitioner allowed her brother to use one room to play computer

games. Petitioner converted another room into an office for use by others.

Petitioner used another room to provide reflexology treatments to members of the

local community. The last four rooms were used as a small conference room, a

powder room, a laundry, and petitioner’s office.

      In 2001 petitioner took a class to become a mortgage loan broker and began

offering mortgage loan services and reflexology treatments in two of the rooms in

the memorial building. Petitioner, however, never brokered a single mortgage, and

only on occasion did she charge individuals for reflexology treatments she provided.

      From 2001 through 2009 petitioner allowed individuals from the community

to use several of the offices in the memorial building without charge.

      From 2001 through 2009 petitioner’s receipts from reflexology services she

provided did not exceed $800 annually.
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       In 2002 petitioner incorporated Benson Exposition, Inc., as a Colorado

subchapter S corporation (Benson Exposition) in an apparent attempt to bring some

organization and management to her activities. Petitioner, however, had no

meaningful business experience and was completely naive about business practices

and taxes.

       Petitioner and Benson Exposition did not maintain books and records, did not

have a business plan, and failed to use a business adviser.

       No Federal income tax return (information or otherwise) has ever been filed

on behalf of Benson Exposition. For 2002 through 2009 any income and expenses

of Benson Exposition were reported on Schedules C, Profit or Loss From Business,

filed with petitioner’s individual Federal income tax returns.

       On Schedule C of her 2009 Federal income tax return, petitioner reported

zero income but expenses of $26,441 relating to her activities in the memorial

building and to Benson Exposition, including her reflexology and mortgage loan

activities.

       In 2008 this Court issued an opinion regarding Federal income tax issues

relating to petitioner for 2002 and 2003 similar to those involved herein. We

determined that petitioner did not conduct her activities in the memorial building

with a profit objective, and we disallowed deductions for all of the business-
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related expenses petitioner claimed. See Benson v. Commissioner, T.C. Summary

Opinion 2008-29. Respondent did not determine a penalty against petitioner with

regard to her liabilities for 2002 and 2003.

      In late 2009 petitioner ceased all of her activities relating to reflexology and

mortgage loans.

      In March 2010 petitioner sold the memorial building for approximately

$150,000 and dissolved Benson Exposition.

      On audit for 2009 respondent disallowed deductions for all of the business

expenses petitioner claimed relating to her activities in the memorial building and to

Benson Exposition for lack of a profit objective and for lack of substantiation.

                                      Discussion

      In general, the Commissioner’s determination in a notice of deficiency is

presumed correct. Rule 142(a); Welch v. Helvering, 219 U.S. 111 (1933).

Petitioner does not contend that the burden of proof should shift to respondent. See

sec. 7491(a)(1).

      Section 162(a) allows a deduction for all ordinary and necessary expenses

paid or incurred during a taxable year in carrying on a trade or business. In the case

of an activity not engaged in for profit, section 183 generally limits allowable
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deductions attributable to an activity to the extent of gross income generated by the

activity. Sec. 183(b).

      To be treated as engaged in a trade or business under section 162 a taxpayer

must have had an actual and honest profit objective. Hildebrand v. Commisioner,

28 F.3d 1024, 1026-1027 (10th Cir. 1994), aff’g Krause v. Commissioner, 99 T.C.

132 (1992); Helmick v. Commissioner, T.C. Memo. 2009-220. The expectation of

profit need not be reasonable; however, the taxpayer must have entered into the

activity, or continued it, with the objective of making a profit. Helmick v.

Commisioner, T.C. Memo. 2009-220.

      Section 1.183-2(b), Income Tax Regs., provides a nonexhaustive list of

factors to be considered in determining whether an activity is engaged in for profit.

No single factor is dispositive; rather, the facts and circumstances of the case

control. See Keanini v. Commissioner, 94 T.C. 41, 47 (1990); see also Keating v.

Commissioner, 544 F.3d 900, 904 (8th Cir. 2008), aff’g T.C. Memo. 2007-309.

The factors include, but are not limited to: (1) the manner in which the taxpayer

carried on the activity; (2) the expertise of the taxpayer or his advisers; (3) the

taxpayer’s history of income or losses with respect to the activity; and (4) the

amount of occasional profits earned.
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       Aside from incorporation of Benson Exposition in 2002, petitioner failed to

do anything that indicates a profit objective with regard to the memorial building

and Benson Exposition. Petitioner and Benson Exposition failed to maintain books

and records and had no business plan. Petitioner sought no advice for the conduct

of her activities.

       The record is devoid of evidence that would suggest petitioner intended to

make a profit from her activities in the memorial building and from Benson

Exposition. In 2009 petitioner received zero income and apparently provided no

services but claimed significant business-related expenses.

       We sustain respondent’s determination that petitioner did not conduct her

activities in the memorial building or operate Benson Exposition with a profit

objective in 2009. Petitioner is not allowed the claimed business expense

deductions.

       On the basis of the above holding, we need not address the substantiation

issue regarding petitioner’s claimed business expense deductions.

Section 6662(a) Accuracy-Related Penalty

       Section 6662(a) and (b)(1) and (2) imposes a penalty equal to 20% of the

part of an underpayment attributable to (i) negligence or disregard of rules or

regulations or (ii) a substantial understatement of income tax. For purposes of
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section 6662(a), negligence constitutes a failure to make a reasonable attempt to

comply with the Internal Revenue Code. Sec. 6662(c).

      Section 6664(c) provides a defense to an accuracy-related penalty where a

taxpayer acts with reasonable cause and in good faith. Reasonable cause and good

faith are ascertained on a case-by-case basis, taking into account all of the facts and

circumstances. See sec. 1.6664-4(b)(1), Income Tax Regs.

      Circumstances that may establish reasonable cause and good faith include an

honest misunderstanding of fact or law that is reasonable in the light of the

experience, knowledge, and education of the taxpayer. Id.

      Petitioner was well intentioned and was trying to serve her community. In

spite of the disallowance in her prior case and our disallowance herein of her

claimed business expense deductions, on the basis of petitioner’s testimony at trial

we do not believe she had any intent to underpay her 2009 Federal income tax

liability. Petitioner’s lack of business acumen and her obvious good faith provide a
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reasonable cause and good faith defense to the determined accuracy-related penalty.

Petitioner is not liable for the accuracy-related penalty.

      To reflect the foregoing,


                                                Decision will be entered for

                                         respondent as to the deficiency in tax

                                         and for petitioner as to the accuracy-

                                         related penalty under section 6662(a).
