                  T.C. Summary Opinion 2001-20



                     UNITED STATES TAX COURT



                  JASMEEN AKHTER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10910-99S.           Filed February 28, 2001.



     Jasmeen Akhter, pro se.

     Joan Casali, for respondent.



     DINAN, Special Trial Judge:    This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.   Subsequent section references

are to the Internal Revenue Code in effect for the years in
                                - 2 -

issue, and Rule references are to the Tax Court Rules of Practice

and Procedure.

     Respondent determined deficiencies in petitioner’s Federal

income taxes of $1,811, $2,214, and $2,272 and accuracy-related

penalties of $362, $443, and $454 for the taxable years 1995,

1996, and 1997, respectively.

     The issues for decision are, with respect to each year in

issue:   (1) Whether petitioner is entitled to an earned income

credit; (2) whether petitioner is entitled to a dependent

exemption deduction; (3) whether petitioner is entitled to head

of household filing status; and (4) whether petitioner is liable

for an accuracy-related penalty for negligence or disregard of

rules or regulations under section 6662(a).   Because of our

finding with respect to the first issue, the second and third

issues are moot.

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

The stipulations of fact and the attached exhibits are

incorporated herein by this reference.   Petitioner resided in

Brooklyn, New York, on the date the petition was filed in this

case.

     Petitioner was married in Bangladesh in March 1995, and her

son was born on December 3, 1995.   Petitioner subsequently

separated from her husband in 1997 and received a divorce in June
                                - 3 -

1998.   Petitioner’s husband resided in Bangladesh during their

entire marriage.

     During the years in issue, petitioner lived in a second

floor, two bedroom apartment with a monthly rent of $700.        She

resided with her son, father, sister, two or three brothers, and

during 1995, her mother.    Her father and brothers were all

employed outside the home.    All the members of the household

would pool their money together, and petitioner would receive an

allowance from her father.

     Petitioner reported the following tax liability for each of

the following years:

                                 1995        1996      1997

     Income tax                   -0-         -0-       -0-
     Self-employment tax          $809        $958      $991
     Earned income credit        1,811       2,152     2,210
     Refund                      1,002       1,194     1,218

Respondent determined that petitioner was liable for deficiencies

of $1,811, $2,214, and $2,272 for each respective year.        In

making this determination, for each year in issue respondent

changed petitioner’s filing status from head of household to

married filing separately, disallowed the dependent exemption

deduction claimed for petitioner’s son, and disallowed the

claimed earned income credit.    Respondent did not make

significant adjustments to the self-employment income tax

liability reported on the returns.      Finally, respondent

determined that petitioner was liable for accuracy-related
                                   - 4 -

penalties for negligence for an underpayment equal to the entire

amount of the deficiency for each year in issue.

        The first issue for decision is whether petitioner is

entitled to earned income credits.         An earned income credit is

allowed to an eligible taxpayer under section 32(a) in an amount

based upon a percentage of the taxpayer’s earned income.          Earned

income is defined under section 32(c)(2) to include the amount of

the taxpayer’s net earnings from self-employment.

        Respondent argues that petitioner is not entitled to the

earned income credit for a number of reasons.         One reason, the

only one we need discuss, is that petitioner had no earned income

during the years in issue.1      We agree with respondent.

Petitioner testified that during the years in issue, she and her

sister were tailors, performing work in their house.         On

petitioner’s tax returns for the years in issue, she reported

$5,723, $6,783, and $7,016 in income on Schedules C-EZ, Net

Profit From Business.      No business expenses were claimed as

deductions in any year.      No business name or other information

was provided for any of the years, aside from the notation “self

employed” as a description of the principal business.         In 1995

and 1996, the “principal business code” was not provided on the

form.       In 1997, however, petitioner reported the code as “2659”.


        1
      Respondent argues in his memorandum filed at trial that the
only evidence shown to respondent that petitioner earned income
was a picture of petitioner at a sewing machine.
                               - 5 -

We take judicial notice of the 1997 instructions for completing

this form available from respondent.   According to these

instructions, this code falls under the major category “Trade,

Wholesale--Selling Goods to Other Businesses, etc.”, the heading

“Nondurable Goods, Including Food, Fiber, Chemicals, etc.”, and

the listing “Selling for your own account.”   This is not the type

of business in which petitioner testified she was engaged during

each year in issue, that of a tailor operating out of her home.

Furthermore, there is nothing in the record, other than

petitioner’s own scant testimony, to support a finding that

petitioner earned income in any amount.   We therefore agree with

respondent and find that petitioner had no earned income in any

of the years in issue.   It further appears from this record that

petitioner reported income for each of the years in issue in

order to claim the earned income credit, and we so find.

     The second and third issues for decision are whether

petitioner is entitled to dependent exemption deductions and

whether petitioner is entitled to head of household filing

status.   Petitioner did not report any income on her returns

other than the self-employment income we have found that she did

not earn.   Respondent does not argue that petitioner had any

other, unreported sources of income.   Without income, petitioner

cannot be liable for Federal income taxes, and the issues of

deductions and filing status are consequently moot.   Accordingly,
                               - 6 -

the deficiencies determined by respondent must be reduced by the

appropriate amounts in the Rule 155 computations required in this

case.2

     The final issue for decision is whether petitioner is liable

for accuracy-related penalties for negligence under section

6662(a).   Section 6662(a) imposes a 20-percent penalty on the

portion of an underpayment attributable to any one of various

factors, one of which is negligence or disregard of rules or

regulations.   An underpayment is defined as follows:

          SEC. 6664(a) Underpayment.--For purposes of this
     part, the term “underpayment” means the amount by which
     any tax imposed by this title exceeds the excess of--

           (1) the sum of--

                (A) the amount shown as the tax by the
           taxpayer on his return, plus

                (B) amounts not so shown previously assessed
           (or collected without assessment), over

           (2) the amount of rebates made.

     For purposes of paragraph (2), the term “rebate” means
     so much of an abatement, credit, refund, or other
     repayment, as was made on the ground that tax imposed
     was less than the excess of the amount specified in
     paragraph (1) over the rebates previously made.




     2
      The deficiencies must be reduced to reflect our holding
that respondent was in error in (1) his increases to petitioner’s
income tax in 1996 and 1997 due to the change of filing status
and disallowance of deductions, and (2) his failure to subtract
the amounts of self-employment income taxes from the deficiencies
in 1995, 1996, and 1997.
                                 - 7 -

Nothing in the record indicates that any amounts were previously

assessed or collected, or that any rebates were made to

petitioner.   Therefore, there can be no underpayments in this

case because for each year in issue the tax imposed by the

Internal Revenue Code was zero and did not exceed the amount of

tax shown on the return.3   We therefore hold that petitioner is

not liable for the accuracy-related penalties determined by

respondent.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,

                                         Decision will be entered

                                 under Rule 155.




     3
      Compare the definition of an underpayment in sec. 6664(a)
with the definition of a deficiency in sec. 6211(a). While the
definitions are substantially similar, the latter--in contrast to
the former--treats the excess of the earned income credit claimed
(or allowed) over the tax shown (or imposed) as a negative amount
of tax. See sec. 6211(b)(4).
