                       T.C. Memo. 2004-67



                     UNITED STATES TAX COURT



                 GARY LEE COLVIN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 11412-01.              Filed March 17, 2004.



     Gary Lee Colvin, pro se.

     Daniel N. Price and T. Richard Sealy III, for respondent.



           MEMORANDUM FINDINGS OF FACT AND OPINION


     DEAN, Special Trial Judge:   Respondent determined

deficiencies in petitioner's Federal income tax of $1,918 for

1997 and $1,072 for 1998.   The issues for decision are:   (1)

Whether respondent's failure to accept petitioner's amended

Federal tax returns was an abuse of discretion; and (2) whether

any of petitioner’s legal expenses and costs are deductible.     The
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Court considers petitioner to have conceded respondent's

determinations disallowing amounts of itemized deductions in both

years and "other expenses" in 1997 because petitioner did not

address these issues at trial or on brief.    See Bradley v.

Commissioner, 100 T.C. 367, 370 (1993); Sundstrand Corp. v.

Commissioner, 96 T.C. 226, 344 (1991); Rybak v. Commissioner, 91

T.C. 524, 566 n.19 (1988).

     In his opening statement, petitioner alleged that

respondent's statutory notice is so vague as to deprive

petitioner of proper notice or the Court of jurisdiction.      Upon

questioning by the Court, petitioner cited no basis for his

position but represented that he would brief the issue.    He did

not, and the Court finds that petitioner has abandoned this

issue.   See Bradley v. Commissioner, supra; Sundstrand Corp. v.

Commissioner, supra; Rybak v. Commissioner, supra.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the years at issue.

     The stipulated facts and exhibits received into evidence are

incorporated herein by reference.    At the time the petition in

this case was filed, petitioner resided in Cedar Park, Texas.

                         FINDINGS OF FACT

     For 20 years petitioner's mother, Rhoda Colvin, resided in a

unit of a condominium development known as Pennant Village (PV),

in San Diego, California.    Her address at the condominium was
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6404 Erlanger Street.   There are a total of 128 units of

townhouses, duplexes, and single-family detached residences in

two "Phases" of PV.   Phase I is made up of 76 single-family,

single-level, freestanding or duplex units.      Phase II has 52

units, 13 groups of fourplex townhouses.      The subject residence

was a single-family detached residence in Phase I.

     By quitclaim deed dated November 27, 1995, Arnal Colvin and

Rhoda Colvin, as trustees of the Colvin Family Trust, sold the

subject condominium to petitioner.       The deed conveyed, according

to its terms, three "parcels":    (1) An undivided one seventy-

sixth interest in each of lots 748, 750, and 751 of University

City Unit No. 8 with nonexclusive easements for use and enjoyment

of certain common areas; (2) unit 67 of the condominium

development; and (3) exclusive right to possession and occupancy

of the portions of lots 748, 750, and 751 designated 67-B and

67-C.

     Rhoda Colvin is an accountant, bookkeeper, and return

preparer who has a college degree in accounting.      She prepared

petitioner's tax returns for 1997 and 1998.      She also set up and

maintained the books of account for the PV homeowners association

(association) for 8 years beginning in 1976.      During the period

when she was maintaining the books of the association, the

finances of Phase I and Phase II were accounted for separately.
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The separate accounting practice became a controversial issue,

however, around 1993.

     The balconies of the Phase II units began to deteriorate to

the point that they became a safety hazard.   They had to be

repaired or replaced.   The governing document of the condominium

development, the Declaration of Covenants, Conditions, and

Restrictions and Power of Attorney of Pennant Village (CC&Rs)

dating from 1976, assessed charges and assessments to unit owners

in Phase I and Phase II in equal one one-hundred-twenty-eighth

shares.   In 1995 the association proposed a change to the CC&Rs

that would reduce the Phase II assessment to 90 percent of the

Phase I assessment.   Some of the owners of Phase I units came to

believe that the association was improperly using cash reserves

from Phase I to make repairs to condominiums in Phase II.

     For a period before petitioner's November 1995 purchase of

the condominium, he had rented it from the family trust.

Petitioner had attended meetings of the association and felt that

there were "irregularities" in the adoption of the "new" CC&Rs as

well as the election of certain members of the association's

board of directors.   Petitioner approached the board at

association meetings to address the problems he perceived.     In

his view, members of the board refused to allow him to formally

address the board, refused to allow him to vote at meetings,

alleged that he did not actually purchase his property, called
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him a liar, harassed him in other ways, belittled him, derided

him, and threatened him.

     When asked, the board refused to turn over to petitioner any

financial information related to the maintenance of the balconies

in Phase II.   According to petitioner, "the harassment became so

bad that in September of 1996, I filed an action pro se against

the homeowners association."   According to petitioner, the suit,

filed in the Federal District Court for the Southern District of

California, was "in direct response to the extensive harassment

and retaliation that I and my family had incurred as a result of

my inquiries."

     Information petitioner obtained in the Federal District

Court action convinced him that the association had mishandled

the finances of PV homeowners.    To follow up on his suspicions,

petitioner obtained to assist him a lawyer who specializes in

real estate law.   Petitioner wanted the lawyer to go "after the

homeowners association for a full accounting of their finances,

and also related to the CC&Rs."

     Petitioner's real estate attorney caused the Federal suit to

be dismissed without prejudice.    In late 1997 petitioner pursued

alternative dispute resolution under California law.   Petitioner

filed suit for declaratory relief in State court when the

association refused to participate in mediation.   The suit in

State court asked for nullification of the "new" CC&Rs, a stop to
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overcharges for water and sewer services, and a direction that

the association maintain the common area around petitioner's

condo.

     As a result of his litigation in State court, petitioner

became convinced that the association had been "selling licences

and easements to the common areas in the tens of thousands of

dollars."    He was also convinced that the association had a

profitable operation of the on-site laundry facilities.

     Petitioner is a "network engineer".    He reported on his

Federal income tax returns wages from his employment with Daou

Systems in 1997 and Network Computing Device, Inc., in 1997 and

1998.    He also attached to his tax returns for those years

Schedules C, Profit or Loss from Business, for "Colvin Business

Services II".    The Schedules C reported cost of goods sold in

excess of gross receipts for both years (gross receipts for 1998

were zero) and amounts for legal and professional service

expenses.

     Some of the legal expenses petitioner deducted relate to

the State court litigation against the association.    Other of the

legal expense deductions relate to a suit by petitioner to

recover wages from a former employer.    Petitioner's mother, in

preparing his return, tried to allocate the various legal

expenses to the suit against the employer and to the suit
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against the association.   Because the billing records from the

attorney did not adequately describe the services performed,

however, she was unable to allocate the expenses.

     During the audit process, petitioner's mother prepared for

him amended returns in which the deduction for legal expenses was

reduced by two thirds.   The Appeals Office handling petitioner's

case refused to accept the amended returns.

                               OPINION

     Because the Court decides the issues in this case without

regard to the burden of proof, section 7491(a) is inapplicable.

Petitioner's Amended Returns

     Petitioner complains that he offered amended returns for the

years at issue to an Appeals officer who refused to accept them.

Such a refusal, he implies, somehow affects respondent's

determination here.   The Court disagrees.   Even though the

Commissioner has administratively permitted their use, the filing

of amended returns is not a matter of right as there is no

statutory provision expressly authorizing them to be filed.

Badaracco v. Commissioner, 464 U.S. 386, 393 (1984); Koch v.

Alexander, 561 F.2d 1115, 1117 (4th Cir. 1977).    Acceptance of

amended returns has repeatedly been held to be a matter which is

within the discretion of the Commissioner.    Koch v. Alexander,

supra at 1117; Miskovsky v. United States, 414 F.2d 954, 955 (3d

Cir. 1969); Terrell v. Commissioner, T.C. Memo. 1986-507; see
                                - 8 -

also Hillsboro Natl. Bank v. Commissioner, 460 U.S. 370, 380,

n.10 (1983) (citing Koch v. Alexander, supra).   Petitioner has

not shown that respondent abused his discretion here.

Deductions for Legal Expenses

     In the notice of deficiency respondent determined that

petitioner has not shown that the legal expense deductions on

Schedules C of his 1997 and 1998 tax returns were deductible as

ordinary and necessary business expenses.

     Petitioner contends that the law suit against the

association, for which funds were expended, was intended to

retrieve "taxable income" and tax losses and credits and

therefore the expenses are deductible under section 212 or 216.

He argues in his brief:

     Petitioner's litigation with the PVHA was motivated by
     the desire to force the PVHA to provide a complete
     disclosure of its finances and accounting records so
     that Petitioner could not only accurately determine his
     losses and thus his income tax liabilities, but to
     obtain his share of over $500,000 in misappropriated
     funds, tax credits, and non-exempt income.

Petitioner further admonishes the Court to focus on "what that

effort would have ultimately produced if Petitioner had been

successful."

     Deduction Under Section 212

     The Court must decide whether the legal fees petitioner

incurred are deductible under section 212, which provides:
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          In the case of an individual, there shall be
     allowed as a deduction all the ordinary and necessary
     expenses paid or incurred during the taxable year--

               (1) for the production or collection of
          income;

               (2) for the management, conservation or
          maintenance of property held for the
          production of income; or

               (3) in connection with the
          determination, collection, or refund of any
          tax.


     It is petitioner's contention that his expenditure of legal

fees in the State court litigation was the first step in a quest

for the production or collection of income and in connection with

the determination, collection, or refund of a tax.      The focus of

the Court will therefore be on the first and third paragraphs of

section 212.

     A taxpayer may not, under section 212, deduct legal fees

that are personal expenses.    Sec. 262(a).    Legal fees incurred in

connection with the management, conservation, or maintenance of

property held for use as a residence by the taxpayer are not

deductible.    Sec. 1.212-1(h), Income Tax Regs.

     The Supreme Court, in United States v. Gilmore, 372 U.S. 39

(1963), held that the characterization of legal expenses depends

on the activities from which the claim arises for which the

expenses were incurred.    The Court said:    "The origin and

character of the claim with respect to which an expense was
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incurred, rather than its potential consequences upon the

fortunes of the taxpayer, is the controlling basic test".      Id. at

49.

      The "origin-of-the-claim" rule is not "a mechanical search

for the first in the chain of events which led to the litigation

but, rather, requires an examination of all the facts."     Boagni

v. Commissioner, 59 T.C. 708, 713 (1973) (fn. ref. omitted).     The

question to be answered is, out of what kind of transaction the

claim arose.   See id.

      When determining the origin of the claim, the Court must

consider the issues, the nature and objectives of the potential

action, the defenses asserted, the purpose for the legal fees,

the background of the claim out of which the dispute arose, and

"all facts pertaining to the controversy."   Id. (citing Morgan's

Estate v. Commissioner, 332 F.2d 144, 151 (5th Cir. 1964)); Barr

v. Commissioner, T.C. Memo. 1989-420.   The line demarcating

deductible, and nondeductible expenditures is "often shadowy",

and "It would be idle to suggest that all the authorities in this

field can be reconciled."   Ruoff v. Commissioner, 30 T.C. 204,

208 (1958), revd. on other grounds 277 F.2d 222 (3d Cir. 1960).

      Petitioner argues that if he had obtained certain financial

documents through his lawsuit against the association, he would

then have been in a position to pursue items of income and tax

losses and credits.   The relevant question, however, is in
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connection with what the legal expense arose, not what

consequences might have resulted from the taxpayer's claim.     See

United States v. Gilmore, supra at 48; Patch v. Commissioner,

T.C. Memo. 1980-11.

     It is the determination of the Court that the expense here

arose in connection with the management, conservation, or

maintenance of property held for use by petitioner as a personal

residence.   Assuming without deciding that an ultimate

consequence of petitioner's litigation might have been the

recovery of taxable income, or the determination, collection, or

refund of a tax, the claim for which the expense arose was not in

connection with those activities.   Petitioner was upset by what

he perceived to be the failure of the association to properly

manage, conserve, or maintain the condominium property where he

resided.   The suit in State court asked for nullification of

governing documents of the condominium and the CC&Rs, a stop to

perceived overcharges for maintenance assessments and water and

sewer services, and a direction that the association properly

maintain the common area around petitioner's condominium unit.

     For the reasons stated above, the Court concludes that none

of the legal expenses for the State litigation were incurred in

connection with an activity described in section 212.

     Although petitioner might be entitled to deduct legal

expenses incurred in connection with his former employment, he
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has identified neither the amount nor the nature of those

expenditures.

     Deduction Under Section 216

     Petitioner has failed to explain how section 216, Deduction

of Taxes, Interest, and Business Depreciation by Cooperative

Housing Corporation Tenant-Stockholder, has any application here.

The Court can find no legal or factual relevance of section 216

to this case.

     The Court has considered the other arguments raised by

petitioner and has found them to be without merit.

Conclusion

     Respondent's determination that petitioner is not entitled

to deduct legal expenses for 1997 and 1998 is sustained.

     To reflect the foregoing,

                                        Decision will be entered

                                   for respondent.
