                  T.C. Summary Opinion 2002-19



                     UNITED STATES TAX COURT



                HILTON H. HACKLEY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4924-00S.              Filed March 1, 2002.


     Hilton H. Hackley, pro se.

     Angelique M. Neal, for respondent.



     GOLDBERG, 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.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the years in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.
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     Respondent determined deficiencies in petitioner’s Federal

income taxes for the taxable years 1995 and 1996 of $5,163 and

$3,178, respectively, and penalties under section 6663(a) of

$2,765 and $1,219, respectively.

     After concessions by the parties,1 the issues remaining for

decision are:   (1) Whether petitioner is entitled to certain

deductions claimed on Schedule A, Itemized Deductions, namely,

mortgage interest and real estate taxes; (2) whether petitioner

is entitled to dependency exemption deductions; and (3) whether

petitioner is entitled to the filing status of head of household

for the years in issue.

Background

     The stipulation of facts, the supplemental stipulation of

facts, and the attached exhibits are incorporated herein by this

reference.   At the time the petition was filed, petitioner

resided in Los Angeles, California.

     In 1995 and 1996, petitioner was employed by the Los Angeles



     1
          Petitioner concedes that he is not entitled to the
child care credit claimed of $960 for the 1995 and 1996 tax
years. Petitioner further concedes that he is liable for the
penalties under sec. 6663(a) with respect to the portion of the
underpayment of tax, if any, that results from adjustments made
with respect to dependency exemptions, filing status as head of
household, and the child care credit for the years in issue.
Petitioner concedes that he produced false documentation to
support the claimed child care credits for the years in issue.
     Respondent concedes that petitioner is not liable for an
increased deficiency pursuant to the provisions of sec. 6214 for
the 1996 tax year.
                                - 3 -

County Metropolitan Transportation Authority as a full-time bus

operator.    Since 1993 petitioner resided at 4431 West 49th Place,

Los Angeles (LA residence).    The LA residence was purchased in

1993 by Druetta R. Orum (Ms. Orum), petitioner’s sister.

According to petitioner, he did not qualify for the loan to

purchase the LA residence and Ms. Orum “agreed to go in and get

the property in her name” and that “it was never intended for her

to live there.”    During the years in issue, petitioner lived

alone at the LA residence.    Petitioner testified that he did not

pay rent to Ms. Orum but made the mortgage payments directly to

the lender, Countrywide Home Loans (Countrywide), and also paid

for all real estate taxes, homeowner’s insurance, repairs, and

maintenance of the LA residence.    Petitioner and Ms. Orum owned a

joint checking account with Fidelity Federal Bank (joint

account).    All payments for mortgage interest, real estate tax,

and insurance on the LA residence were made from the joint

account.    Petitioner testified that Ms. Orum did not make

deposits into the joint account.

     According to petitioner, his name is not on the deed of the

LA residence, and it is his belief that during the years in issue

he could not sell or transfer the property.    The deed to the LA

property is not a part of the record, and Ms. Orum did not

testify at trial.

     In 1998, petitioner assumed Ms. Orum’s loan to Countrywide.
                                 - 4 -

Based on a letter from Countrywide dated July 13, 1998, Ms. Orum,

as seller, was released of any financial obligation arising with

the loan.

     The LA residence has three bedrooms, a living room, and a

dining room.   During the years in issue, petitioner was in a

relationship with Regina Kenneth (Ms. Kenneth), which he

considered a “common law marriage”.      Ms. Kenneth has a daughter

from a previous relationship named Varela Kenneth who was a minor

during the years in issue.   Samantha Robinson and Alisha Walker,

also minors during the years in issue, are petitioner’s nieces,

whose mothers are petitioner’s sisters.     Samantha Robinson,

Alisha Walker, and Varela Kenneth (collectively the children)

were claimed as dependents on petitioner’s 1995 and 1996 Federal

income tax returns.   Although petitioner testified that the

children stayed with him “off and on” throughout the years in

issue, the signed stipulation of facts reflects that the children

did not reside with petitioner during any part of the years in

issue.

     Petitioner testified that during the years in issue, Ms.

Kenneth lived at a separate residence and was on drugs.

According to petitioner, Ms. Kenneth was not receiving public

assistance during these years.

     Alisha Walker and Samantha Robinson were often dropped off

at the LA residence, for “two weeks this week.     Maybe one week...
                                - 5 -

then three weeks.”    Petitioner, a family member, or petitioner’s

girlfriend (not Ms. Kenneth), watched the children at

petitioner’s home or took them to another relative’s home for

supervision.   None of the children was enrolled in school during

the years in issue.

     Petitioner timely filed his 1995 and 1996 Federal income tax

returns as head of household.   He also claimed dependency

exemption deductions for the children, Schedule A mortgage

interest deductions of $9,602 and $8,044 for 1995 and 1996,

respectively, and deductions for real estate taxes paid of $2,087

and $2,309 for 1995 and 1996, respectively.

     In a notice of deficiency, respondent disallowed

petitioner’s Schedule A deductions for mortgage interest and real

estate taxes on the grounds that petitioner has not shown that

the amounts were incurred, or paid, for taxes which qualify as

deductions, and that petitioner has not shown that he is legally

liable for the mortgage payments.   Respondent further disallowed

the dependency exemption deductions because petitioner failed to

establish that he was entitled to the exemptions.   As a result of

the disallowance, respondent further determined that petitioner’s

filing status was single, not head of household.

Schedule A Deductions

     Petitioner has the burden of showing that the determinations

in the notice of deficiency are erroneous.    Rule 142(a); Welch v.
                               - 6 -

Helvering, 290 U.S. 111, 115 (1933).   Deductions are a matter of

legislative grace, and petitioner must meet the statutory

requirements for the deduction he is claiming.   New Colonial Ice

Co. v. Helvering, 292 U.S. 435, 440 (1934).2

     Section 163(a) provides that there shall be allowed as a

deduction all interest paid or accrued within the taxable year on

indebtedness.   Section 163(h)(1), however, provides that, in the

case of a taxpayer other than a corporation, no deduction shall

be allowed for personal interest paid or accrued during the

taxable year.   Section 163(h)(2) defines “personal interest” to

mean any interest allowable as a deduction other than, inter

alia, “any qualified residence interest”.   Sec. 163(h)(2)(D).

Thus, qualified residence interest is deductible under section

163(a).

     The term “qualified residence interest” is defined, in

pertinent part, in section 163(h)(3)(A)(i), as any interest paid

or accrued during the taxable year on “acquisition indebtedness

with respect to any qualified residence of the taxpayer”.   The

“indebtedness” for purposes of section 163 must, in general, be

an obligation of the taxpayer and not an obligation of another.


     2
          With respect to Court proceedings arising in connection
with examinations commencing after July 22, 1988, under sec.
7491(a) the burden of proof shifts to respondent in specified
circumstances. The record in this case does not establish the
date on which the examination of each of petitioner’s taxable
years at issue began, and neither party contends that sec.
7491(a) applies here.
                              - 7 -

Golder v. Commissioner, 604 F.2d 34, 35 (9th Cir. 1979), affg.

T.C. Memo. 1976-150; Smith v. Commissioner, 84 T.C. 889, 897

(1985), affd. without published opinion 805 F.2d 1073 (D.C. Cir.

1986); Hynes v. Commissioner, 74 T.C. 1266, 1287 (1980).

However, the pertinent part of section 1.163-1(b), Income Tax

Regs., provides:

     Interest paid by the taxpayer on a mortgage upon real
     estate of which he is the legal or equitable owner,
     even though the taxpayer is not directly liable upon
     the bond or note secured by such mortgage, may be
     deducted as interest on his indebtedness. * * *

     In Golder v. Commissioner, supra, the Court of Appeals for

the Ninth Circuit stated that section 1.163-1(b), Income Tax

Regs., does not create an exception to the rule of section 163(a)

that interest is deductible only with respect to the indebtedness

of the taxpayer but, rather, simply recognizes the economic

substance of nonrecourse borrowing.   Additionally, as required by

section 1.163-1(b), Income Tax Regs., the taxpayer must be the

“legal or equitable owner” of the property.   Where the taxpayer

has not established legal, equitable, or beneficial ownership of

mortgaged property, the courts generally have disallowed the

taxpayer a deduction for the mortgage interest.   Song v.

Commissioner, T.C. Memo. 1995-446; Bonkowski v. Commissioner,

T.C. Memo. 1970-340, affd. 458 F.2d 709 (7th Cir. 1972).

     State law determines the nature of property rights, and

Federal law determines the appropriate tax treatment of those
                                - 8 -

rights.    United States v. Natl. Bank of Commerce, 472 U.S. 713,

722 (1985); Blanche v. Commissioner, T.C. Memo. 2001-63.

Therefore, whatever rights or interests, if any, petitioner held

in the LA property during the years in issue must be determined

by applying applicable California law.    It is presumed under

California law that the owner of legal title is the owner of the

full beneficial title.    Cal. Evid. Code sec. 662 (2001). This

presumption may be rebutted only by clear and convincing proof.

Id.

       In Uslu v. Commissioner, T.C. Memo. 1997-551, the taxpayers,

Mr. and Mrs. Uslu, made mortgage payments on a residence for

which legal title was held by Mr. Uslu’s brother and sister-in-

law.    We found in Uslu that the taxpayers “exclusively held the

benefits and burdens of ownership”, and, therefore, were the

equitable and beneficial owners of the residence.    However, in

Song v. Commissioner, supra, where legal title was held by the

taxpayer’s brother, we found that the taxpayer failed to prove

that she had any equitable or beneficial ownership in the

residence.

       An important distinction between Uslu and Song was the

completeness of the record and the credibility of the legal title

holder of the residence: Mr. Uslu’s brother and sister-in-law in

Uslu, and the taxpayer’s brother in Song.

       In the instant case, the record establishes that during the
                               - 9 -

years in issue Ms. Orum, and not petitioner, was (1) the legal

owner of the LA property and (2) indebted to Countrywide on the

mortgage loan it had made on the property.     Although we find that

petitioner may have made mortgage payments, real estate tax

payments, and insurance premium payments for the LA residence,

there is no objective evidence to persuade us that he had

equitable ownership of the LA residence during the years in

issue.   The record lacks sufficient evidence, most notably Ms.

Orum’s testimony, of the purported arrangement with petitioner.

Further, petitioner testified that Ms. Orum made no deposits into

their joint checking account, where all mortgage, insurance, and

real estate tax payments were made.     His testimony, without more,

is insufficient.   See Loria v. Commissioner, T.C. Memo. 1995-420

(taxpayer’s attempt to establish equitable ownership with his

sole testimony is insufficient).

     Based upon our examination of the entire record in this

case, we find that petitioner failed to establish that he was the

equitable owner of the LA property during the years in issue, or

that he is entitled to deduct for those years the mortgage loan

interest he paid on that property.     We therefore sustain

respondent’s determination disallowing the mortgage loan interest

deductions that petitioner claimed on his 1995 and 1996 returns.

     Petitioner claimed Schedule A deductions for real estate

taxes paid of $2,087 and $2,309 on his respective 1995 and 1996
                               - 10 -

returns.   Similar to mortgage interest deductions, real estate

taxes are deductible under section 164(a) only by the person on

whom the liability is imposed.    Magruder v. Supplee, 316 U.S.

394, 398 (1942); Cramer v. Commissioner, 55 T.C. 1125, 1130

(1971); Manning v. Commissioner, T.C. Memo. 1993-127.       Because we

found above that petitioner was not the legal, equitable, or

beneficial owner of the LA property, he is also not entitled to

Schedule A deductions for real estate taxes paid thereon.

Respondent is sustained on this issue.

Dependency Exemption

     Section 151(c) allows a taxpayer to deduct an annual

exemption amount for each dependent of the taxpayer.    As relevant

here, a “dependent” is defined in section 152(a) as an individual

“over half of whose support, for the calendar year in which the

taxable year of the taxpayer begins, was received from the

taxpayer”.   In order to prevail, petitioner must show by

competent evidence:    (1) The total support provided for each

individual claimed, and (2) that he provided more than half of

such total support.    The amount of total support may be

reasonably inferred from competent evidence.    Stafford v.

Commissioner, 46 T.C. 515, 518 (1966).    However, where the amount

of total support of an individual during the taxable year is not

shown, and cannot be reasonably inferred from competent evidence,

then it is not possible to conclude that the taxpayer has
                               - 11 -

contributed more than one-half.   Blanco v. Commissioner, 56 T.C.

512, 515 (1971); Fitzner v. Commissioner, 31 T.C. 1252, 1255

(1959).

     The record based solely on petitioner’s claimed

contributions is incomplete.   Petitioner did not present evidence

to reconstruct the dollar amount of the total support for the

individuals claimed for the years at issue.   Total support

includes, inter alia, the cost of food, clothing, education,

household utilities, or home repair expenses necessary to

maintain the household in 1995 and 1996.   Smith v. Commissioner,

T.C. Memo. 1997-544; sec. 1.152-1(a)(2)(i), Income Tax Regs.    We

find petitioner’s testimony vague, incomplete, and self-serving.

It is well settled that we are not required to accept a

taxpayer’s self-serving testimony in the absence of corroborating

evidence.   Niedringhaus v. Commissioner, 99 T.C. 202, 212 (1992).

     Furthermore, it is reasonable to infer that the children’s

respective mothers and fathers may have contributed a modicum

amount to their child’s total support.   Without the additional

amounts petitioner may have received from the children’s extended

family, we are unable to determine the total support available to

each child by all able parties.

     By failing to establish the total amount of support provided

to the children from all sources, we are unable to conclude that

petitioner provided more than one-half of the children’s total
                             - 12 -

support during the years in issue.    Therefore, we hold that

petitioner is not entitled to section 151 dependency exemption

deductions for the 1995 and 1996 tax years.3   Respondent is

sustained on this issue.

Head of Household Status

     According to the relevant part of section 2(b), an

individual shall be considered a head of household if such

individual (1) is not married at the close of the taxable year

and (2) maintains as his home a household which constitutes for

more than one-half of the taxable year the principal place of

abode of a stepdaughter or of any other person who is a dependent

of the taxpayer, if the taxpayer is entitled to a deduction for

the taxable year for such person under section 151.

     Because the parties stipulated that the children did not

reside with petitioner during any part of the years in issue, and

because we held above that petitioner is not entitled to a

deduction for the children under the provisions of sections 151

and 152, petitioner is not entitled to head of household status.

Therefore, respondent is sustained on this issue.




     3
          It is therefore unnecessary to address whether Varela
Kenneth is petitioner’s stepdaughter.
                            - 13 -

    Reviewed and adopted as the report of the Small Tax Case

Division.

                                       Decision will be entered

                                  for respondent.
