                             T.C. Summary Opinion 2016-5



                            UNITED STATES TAX COURT



JAMES W. BLACKBOURN, II AND ANGEL M. BLACKBOURN, Petitioners v.
       COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 5964-12S.                             Filed January 28, 2016.



      James W. Blackbourn, II and Angel M. Blackbourn, pro se.

      Courtney S. Bacon, for respondent.



                                 SUMMARY OPINION


      CARLUZZO, 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


      1
          Unless otherwise indicated, section references are to the Internal Revenue
                                                                          (continued...)
                                         -2-

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

for any other case.

      In a notice of deficiency dated December 5, 2011 (notice), respondent

determined a $7,500 deficiency in petitioners’ 2008 Federal income tax and

imposed a $1,500 section 6662(a) accuracy-related penalty. The issues for

decision are whether petitioners: (1) are entitled to the first-time homebuyer credit

(FTHBC) claimed on their 2008 Federal income tax return (2008 return) and (2)

are liable for a section 6662(a) accuracy-related penalty.

                                    Background

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

petition was filed, petitioners resided in Georgia.

      On June 30, 2004, James W. Blackbourn II (petitioner) purchased a house at

1504 Sycamore Drive, Kennesaw, Georgia (Sycamore property). While the

financing arrangements are less than clear, it appears that petitioner obtained a

mortgage to finance the acquisition of the Sycamore property. A “Second Home

Rider”, dated June 13, 2004, incorporated into the mortgage provided that the




      1
       (...continued)
Code of 1986, as amended, in effect for the year in issue. Rule references are to
the Tax Court Rules of Practice and Procedure.
                                        -3-

        Borrower shall occupy, and shall only use, the Property as Borrower’s
        second home. Borrower shall keep the Property available for
        Borrower’s exclusive use and enjoyment at all times, and shall not
        subject the Property to * * * [an] agreement that requires Borrower
        either to rent to the Property or give a management firm or any other
        person any control over the occupancy or use of the Property.

Petitioner moved from Wisconsin to live in the Sycamore Property on or around

June 30, 2004.

        Petitioners met in April 2005. In August 2005 Mrs. Blackbourn leased an

apartment at 605 Belcourt Parkway, Roswell, Georgia (Belcourt property), for a

one-year term. Petitioner would often spend the night at the Belcourt property.

        In August 2006, when Mrs. Blackbourn’s lease ended, she moved into the

Sycamore property; a month later petitioners were married. They lived in the

Sycamore property until May 2007 and then moved into a property at 1349 Shaw

Drive, Marietta, Georgia (Shaw property), that they leased until February 2008.

Petitioners moved into another leased property at 2025 Castlemaine Circle,

Woodstock, Georgia (Castlemaine property), and lived there until September

2008.

        On September 25, 2008, petitioners purchased a house at 182 Fred Bishop

Drive, Canton, Georgia (Canton property).
                                       -4-

      Petitioner used the Sycamore property address on his 2004 and 2005

Federal income tax returns and claimed home mortgage interest deductions for the

Sycamore property on Schedules A, Itemized Deductions, attached to those

returns.

      Petitioners used the Sycamore property address on their 2006 and 2007 joint

Federal income tax returns and claimed home mortgage interest deductions for that

property on Schedules A attached to those returns.

      During 2005 through 2007 petitioners received mail, including various tax

documents such as Forms W-2, Wage and Tax Statement, Forms 1098, Mortgage

Interest Statement, and Forms 1099-MISC, Miscellaneous Income, at the

Sycamore property. Petitioners also received some of their tax documents at the

Shaw property during those years.

      Petitioner claimed a homestead exemption with respect to the Sycamore

property for 2005, 2006, 2007, and 2008.

      Petitioners’ 2008 return was efiled on March 1, 2009. Included with the

2008 return is a Form 5405, First-Time Homebuyer Credit, on which petitioners

claimed the FTHBC here in dispute. The FTHBC is attributable to the Canton

property.
                                         -5-

      In the notice respondent: (1) disallowed the FTHBC for petitioners’ failure

to “meet the requirement of a First Time Homebuyer” and (2) imposed an

accuracy-related penalty under section 6662(a) upon various grounds.

      Petitioners’ 2010 through 2014 Federal income tax returns each include a

Form 5405, Repayment of the First-Time Homebuyer Credit. On those returns

petitioners reported a Federal income tax liability $500 greater than otherwise due

because of the FTHBC claimed on the 2008 return.2

                                      Discussion

I. FTHBC

      Like deductions, credits are a matter of legislative grace, and the taxpayer

bears the burden of proving that he or she is entitled to any credit claimed. See

Rule 142(a); Deputy v. du Pont, 308 U.S. 488, 493 (1940); New Colonial Ice Co.

v. Helvering, 292 U.S. 435, 440 (1934); Segel v. Commissioner, 89 T.C. 816, 842

(1987).3


      2
        Under the circumstances of this case, the FTHBC, as then allowable,
resembled more a non-interest-bearing loan repayable through increases to a
taxpayer’s otherwise due Federal income tax for subsequent periods than it did a
credit. See sec. 36(f)(1).
      3
       Petitioners argue that they are entitled to a shift in the burden of proof
pursuant to sec. 7491(a). However, because our resolution of this case is based on
the preponderance of the evidence rather than the allocation of the burden of
                                                                          (continued...)
                                        -6-

      Section 36(a) allows a credit for a first-time homebuyer of a principal

residence. A first-time homebuyer is defined as any individual (and if married,

such individual’s spouse) who has had no present ownership interest in a principal

residence during the three-year period ending on the date of the purchase of the

principal residence in question. Sec. 36(c)(1); Foster v. Commissioner, 138 T.C.

51, 53 (2012).

      Petitioners are eligible as first-time homebuyers if neither petitioner nor

Mrs. Blackbourn had a present ownership interest in a principal residence during

the relevant period. See sec. 36(c)(1); Goralski v. Commissioner, T.C. Memo.

2014-87. Pursuant to section 36(c)(1) and (3), petitioners are considered to have

“purchased” the Canton property on September 25, 2008. Accordingly, petitioners

are eligible as first-time homebuyers only if they had no present ownership interest

in a principal residence after September 24, 2005, and before September 25, 2008.

      According to respondent, petitioners were not first-time homebuyers within

the meaning of section 36(c)(1) with respect to the Canton property because

petitioner owned and used the Sycamore property as his principal residence during

the three-year period preceding petitioners’ purchase of the Canton property.

      3
       (...continued)
proof, we do not consider petitioners’ claim. See Blodgett v. Commissioner, 394
F.3d 1030, 1039 (8th Cir. 2005), aff’g T.C. Memo. 2003-212.
                                        -7-

Petitioners readily acknowledge that during the relevant period petitioner owned

the Sycamore property, but they contend that the Sycamore property was not his

“qualified principal residence” because his principal residences were instead the

Belcourt, Shaw, and Castlemaine properties during the relevant time.

Furthermore, petitioners assert that when petitioner purchased the Sycamore

property he intended to rent the property as opposed to using it as his principal

residence.

      For purposes of the FTHBC, section 36(c)(2) provides that the term

“principal residence” has the same meaning as in section 121. Whether a taxpayer

uses a property as his principal residence depends upon all the facts and

circumstances. See sec. 1.121-1(b)(2), Income Tax Regs. Ordinarily, the

taxpayer’s principal residence is the property the taxpayer uses during most of the

year. See id. Section 1.121-1(b)(2), Income Tax Regs., provides:

             (2) Principal residence. * * * In addition to the taxpayer’s use
      of the property, relevant factors in determining a taxpayer’s principal
      residence, include, but are not limited to--

             (i) The taxpayer’s place of employment;

          (ii) The principal place of abode of the taxpayer’s family
      members;
                                         -8-

              (iii) The address listed on the taxpayer’s federal and state tax
       returns, driver’s license, automobile registration, and voter
       registration card;

             (iv) The taxpayer’s mailing address for bills and
       correspondence;

             (v) The location of the taxpayer’s banks; and

             (vi) The location of religious organizations and recreational
       clubs with which the taxpayer is affiliated.

       In analyzing whether a taxpayer uses a particular property as his principal

residence, we also have considered whether the taxpayer claimed a homestead

exemption for the property. See Wickersham v. Commissioner, T.C. Memo. 2011-

178.

       Petitioner claimed a homestead exemption with respect to the Sycamore

property for 2005, 2006, 2007, and 2008. Under Georgia law the homestead of

each resident of Georgia “actually occupied by the owner as a residence and

homestead shall be” entitled to the exemption. Ga. Code Ann. sec. 48-5-44 (West

2010). The Georgia statutes also provide that a homestead “means the real

property owned by and in possession of the applicant on January 1 of the taxable

year and upon which the applicant resides”. Id. sec. 48-5-40(3) (West 2015 &

Supp. 2015).
                                         -9-

      Petitioner owned the Sycamore property during 2004 through 2008. In

addition to claiming homestead exemptions, petitioner claimed home mortgage

interest deductions4 with respect to the Sycamore property, and he received mail,

including tax documents and information returns, there. Moreover, he resided at

the Sycamore property during most of 2005, even if he often spent the night at the

Belcourt property that Mrs. Blackbourn leased from August 2005 until August

2006. With respect to petitioners’ contention that petitioner purchased the

Sycamore property as rental property, we find petitioner’s testimony on the point

to be in contradiction to: (1) the clause in the “Second Home Rider” precluding

him from renting the property and (2) his occupancy of the property on or around

the day he purchased it. Taking into account all of the facts and circumstances, we

find on the preponderance of the evidence that the Sycamore property was

petitioner’s principal residence for 2005. Accordingly, petitioner is not a “first-

time homebuyer” within the meaning of section 36(c)(1). Because petitioner is not


      4
        For 2004, 2005, 2006, and 2007 petitioner and/or petitioners claimed home
mortgage interest deductions for the Sycamore property. Petitioner and/or
petitioners could properly claim a home mortgage interest deduction if he and/or
they paid or accrued interest on indebtedness with respect to a qualified residence.
See sec. 163(h)(3)(A). A “qualified residence” is defined as the taxpayer’s
principal residence, within the meaning of sec. 121, and one other residence that
the taxpayer used as a residence during the taxable year. See sec.
163(h)(4)(A)(i)(I) and (II).
                                        - 10 -

a first-time homebuyer, petitioners are not first-time homebuyers within the

meaning of section 36(c)(1) and therefore are not entitled to the FTHBC.

      Separate and apart from the main issue, we note that the deficiency here in

dispute does not take into account the repayments that petitioners made with their

2010 through 2014 Federal income tax returns with respect to the FTHBC claimed

on their 2008 return. Because the definition of a deficiency as found in section

6211 does not take into account the increases in a taxpayer’s Federal income tax

liability for subsequent periods required by section 36(f)(1), we cannot address

this apparent inequity other than to point out that petitioners’ remedy may lie in

filing claims for refund on account of the overpayment of Federal income tax

resulting from the application of section 36(f)(1). We expect that in response to

any such claims, respondent will take the necessary action to ensure that

petitioners’ claims for refund, if made, will be processed consistent with the

disallowance of the FTHBC here in dispute.

II. Section 6662(a) Accuracy-Related Penalty

      Lastly, we consider whether petitioners are liable for a section 6662(a)

accuracy-related penalty for the year in issue. Relying upon various grounds,

including a substantial understatement of income tax, respondent argues that they

are. See sec. 6662(a)-(d).
                                        - 11 -

        Section 6662(a) imposes a penalty of 20% of the portion of an

underpayment of tax attributable to, among other things, a substantial

understatement of income tax. Sec. 6662(b)(2). An understatement of income tax

is substantial within the meaning of section 6662 if, as relevant here, the

understatement exceeds $5,000. See sec. 6662(d); sec. 1.6662-4(b), Income Tax

Regs.

        Respondent bears the burden of production with respect to the imposition of

the penalty imposed in the notice and here in dispute, see sec. 7491(c), and that

burden has been satisfied because the understatement of income tax will exceed

$5,000, see secs. 6211, 6662(d)(2), 6664(a). That being so, it is petitioners’

burden to establish that the imposition of the penalty is not appropriate. See

Higbee v. Commissioner, 116 T.C. 438, 447 (2001); see also Rule 142(a); Welch

v. Helvering, 290 U.S. 111, 115 (1933).

        Section 6664(c)(1) provides that the section 6662(a) accuracy-related

penalty does not apply to any portion of an underpayment if the taxpayer

establishes that there was reasonable cause for, and the taxpayer acted in good

faith with respect to, the underpayment. Sec. 1.6664-4(a), Income Tax Regs. The

determination of whether the taxpayer acted with reasonable cause and in good
                                        - 12 -

faith is made on a case-by-case basis, taking into account the pertinent facts and

circumstances. Id. para. (b)(1).

      The determination of petitioner’s principal residence during the relevant

time is subject to reasonable disagreement. In the light of the circumstances

presented, we find petitioners acted in good faith and had reasonable cause for

believing that they were entitled to the FTHBC on the basis of their belief that

they both qualified as first-time homebuyers because the Sycamore property was

not petitioner’s principal residence at any time during the relevant period.

Accordingly, petitioners are not liable for the section 6662(a) accuracy-related

penalty.

      To reflect the foregoing,


                                                      Decision will be entered

                                                 under Rule 155.
