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Guinn v. Dep't of Revenue4/19/2005
DECISION and JUDGMENT
Plaintiffs appeal Defendant's Notices of Assessment issued as part of its conference letter dated March 17, 2004. A trial was held Thursday, January 27, 2005, in the courtroom of the Oregon Tax Court, Salem, Oregon. H. Wayne Guinn (Guinn) appeared on behalf of Plaintiffs. Matt Thompson (Thompson), Tax Auditor, appeared on behalf of Defendant.
I. STATEMENT OF FACTS
Over approximately a 12-month period beginning in March 2002, Defendant audited Plaintiffs' Oregon income tax returns for tax years 1999 and 2000. (Def's Brief at 2.) On March 25, 2003, Defendant issued its Notices of Deficiency. (Def's Exs M-1 to M-4.) In response to Defendant's Notices of Deficiency, Plaintiffs exercised their right to a conference. Conferences were held on September 24, 2003, and December 2, 2003. (Def's Ex A-1; conference notes B-1 to B-4.) On March 17, 2004, Defendant's conference officer issued her report and Notices of Tax Assessment. (Def's Exs A-1 to A-8 and M-5 to M-8.)
Plaintiffs appeal Defendant's Notices of Assessment with the four noted exceptions. Plaintiffs agree that the amount ($226.00) deducted as a business expense for life insurance premiums was in error. (Guinn's letter at 2, Jan 16, 2005.) Second, Plaintiffs agree that the amount ($17.25) deducted as a tax for the licensing fee paid to the Department of Motor Vehicles was in error. (Id. at 4.) Third, Plaintiffs agree that they incorrectly prepared Form 8829, Expenses for Business Use of Your Home. (Id. at 4.) On the form, Plaintiffs incorrectly allocated a portion of their total mortgage interest expense as business use of their home. The parties agree that after correcting for the mortgage interest allocation, Plaintiffs do not have an allowable current year deduction for business use of their home. Based on the court's decision, the amount of the carryover of unallowed expenses for each year will be determined by Defendant. Finally, Defendant concluded that Plaintiffs failed to properly report rental income. Guinn asked that he be forgiven because it was his intent "to report all of my income" and "account for all business expenses related to that source of income." (Def's Ex A-6; Guinn's letter at 5, Jan 16, 2005.)
In accordance with IRC § 280A(c)(5) (2000), Defendant limited the allowable expenses to the amount of gross rental income. (Def's Ex A-6.)
II. ANALYSIS
In analyzing the issues before the court, the court is directed to determine "the correct amount of deficiency, even if the amount so determined is greater or less than the amount of the assessment determined by the Department of Revenue, and even if determined upon grounds other or different from those asserted by the department, provided that claim for such additional tax on other or different grounds is asserted by the department before or at the hearing or any rehearing of the case before the tax court." ORS 305.575 (emphasis added).
At a pretrial conference, Plaintiffs were advised by the court that they had the burden of proof to support the income reported and deductions claimed on their filed income tax returns.
See ORS 305.427. Many of the items at issue are deductions claimed by Plaintiffs as ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. See IRC § 162(a). It is a well settled principle that " eductions are strictly a matter of legislative grace, and a taxpayer must meet the specific statutory requirements for any deduction claimed." Gapikia v. Commissioner, 81 TCM (CCH) 1488 (2001) (citations omitted). "Taxpayers are required to maintain records sufficient to substantiate their claimed ded
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