T.C. Summary Opinion 2007-179



                     UNITED STATES TAX COURT



             LAZAR SIMOV KOVACHEVICH, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 4480-06S, 4481-06S.    Filed October 24, 2007.



     Lazar Simov Kovachevich, pro se.

     Patricia A. Rieggar, for respondent.



     DEAN, Special Trial Judge:   These consolidated cases were

heard pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect at the time the petitions were filed.

Pursuant to section 7463(b), the decisions to be entered are not

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

treated as precedent for any other case.    Unless otherwise
                               - 2 -

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.

     Respondent determined deficiencies of $4,123 and $13,379 in

petitioner’s 2002 and 2003 Federal income taxes, respectively.

With respect to petitioner’s 2002 taxable year, the issues for

decision are whether petitioner is entitled to the following:

(1) $6,000 in dependency exemption deductions; (2) a $3,800

deduction for alimony; and (3) a $6,905 casualty and theft loss

deduction.   With respect to petitioner’s 2003 taxable year, the

issues for decision are whether petitioner is:    (1) Entitled to

claim a $71,200 loss; and (2) liable for a $2,675.80 accuracy-

related penalty under section 6662(a).1

                            Background

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

The stipulation of facts and the exhibits received into evidence

are incorporated herein by reference.     At the time the petitions

were filed, petitioner resided in Flushing, New York.

     Petitioner timely filed his 2002 and 2003 Federal income tax

returns.   On his 2002 tax return, petitioner claimed personal

exemption deductions for his two sons who were ages 23 and 25 and

full-time students attending European schools.    Petitioner also


     1
       Respondent conceded that petitioner was entitled to a
$1,900 moving expense deduction for 2002 and that he did not
receive $2,887 as nonemployee compensation in 2003.
                                - 3 -

claimed a $3,800 alimony deduction, for which he listed his sons’

Social Security numbers in the area titled “Recipient’s SSN”.

Lastly, petitioner claimed a $6,905 casualty and theft loss, for

which he attached a Form 4684, Casualties and Thefts, to his 2003

tax return.   Petitioner’s Form 4684 listed the values of various

personal and business properties that he alleges were damaged or

stolen from his storage shed.   Petitioner stored the items from

1998-2002.

     On his 2003 return, petitioner claimed a $71,200 casualty

and theft loss, for which he had handwritten “Pro Se in Court

Proceedings.”   Similarly, on his Schedule C, Profit or Loss From

Business, he claimed the $71,200 as a “legal and professional

services” expense, for which he had handwritten “Pro Se (Court).

(Three) months for extraordinary writ to be filed in S. Co. U.S.

shall appear in 2004 tax return.”

                            Discussion

     The Commissioner’s determinations in a notice of deficiency

are presumed correct, and the taxpayer has the burden to prove

that the determinations are in error.    Rule 142(a); Welch v.

Helvering, 

, 115 (1933).     But the burden of proof on

factual issues that affect a taxpayer’s tax liability may be

shifted to the Commissioner where the “taxpayer introduces

credible evidence with respect to * * * such issue.”    Sec.

7491(a)(1).   The burden will shift only if the taxpayer has
                               - 4 -

complied with the substantiation requirements and has cooperated

with the Commissioner’s reasonable requests for witnesses,

information, documents, meetings, and interviews.    Sec.

7491(a)(2).   Petitioner has not alleged or proven that section

7491(a) applies; accordingly, the burden remains on him to show

that he is entitled to the claimed deductions.

A. 2002 Taxable Year

I. Dependency Exemption Deduction

     Section 151(c), in pertinent part, allows a taxpayer to

claim as a deduction the exemption amount for each individual who

is a “dependent” of the taxpayer as defined in section 152 and

who is the taxpayer’s child and satisfies certain age

requirements.2

     In pertinent part, section 152(a) defines “dependent” to

include the taxpayer’s son who either received or is treated as

receiving over half of his support from the taxpayer for the

calendar year in which the taxpayer’s taxable year begins.

Section 152(b) excepts from the definition of “dependent” any

individual who is not a U.S. citizen or national unless the

individual is a resident of the United States or of a country

contiguous to the United States.    The term “resident of the



     2
       The child has not attained the age of 19 or is a student
who has not attained the age of 24 at the close of the calendar
year in which the taxable year of taxpayer begins. Sec.
151(c)(1)(B).
                               - 5 -

United States” is defined as an individual who:   (1) Is a lawful

permanent resident of the United States at any time during the

calendar year; (2) meets the substantial presence test (i.e.,

present in the United States at least 31 days during the calendar

year and the total of the number of days that the individual was

present during the calendar year and the 2 preceding years equals

or exceeds 183 days when multiplied by the applicable

multiplier); or (3) makes a first-year election as prescribed by

section 7701(b)(4).   Sec. 7701(b)(1).

      The Court concludes that petitioner is not entitled to

either dependency exemption deduction.   The oldest son had

already attained the age of 24 before petitioner’s 2002 taxable

year began, which excludes the son from the definition of a

dependent.   Petitioner merely testified that he thought that his

younger son came to the United States in the middle of the year

or at the end of June after school.    Petitioner did not establish

the residency of his younger son to bring him within the

definition of a dependent.   Given the disposition of this issue

on these elements, we need not discuss the other elements.

Accordingly, respondent’s determination is sustained.

II. Alimony Deduction

     Section 215(a) allows a deduction for alimony paid during

the taxable year.   Generally, alimony is defined to include any

payment in cash if:   (1) The payment is received by or on behalf
                                 - 6 -

of a spouse under a divorce or separation instrument; (2) the

instrument does not designate the payment as a payment that is

not includable in the recipient’s gross income and not allowable

as a deduction to the payor; (3) the payee and payor are not

members of the same household at the time of payment; and (4)

there is no liability to make any payments after the payee’s

death.   Secs. 71(b), 215(b).

     Because petitioner offered no evidence to show that the

payments were made under a divorce or separation instrument, the

payments do not constitute alimony, and he is not entitled to the

deduction.    See Prince v. Commissioner, 

, 1067

(1976); Herring v. Commissioner, 

, 311 (1976); Clark

v. Commissioner, 

, 58 (1963).    Given the disposition of

this issue on this element, we need not discuss the other

elements.    Accordingly, respondent’s determination is sustained.

III. Casualty Loss

     Section 165(a) allows a deduction for any loss sustained

during the taxable year and not compensated for by insurance or

otherwise.    With respect to individuals, deductions for losses

are limited to losses:    (1) Incurred in a trade or business; (2)

incurred in a transaction for profit; or (3) of property not

connected with a trade or business or a transaction entered into

for profit, if the losses arise from fire, storm, shipwreck, or

other casualty, or from theft.    Sec. 165(c).   In order for the
                                - 7 -

loss to be deductible, the loss must be evidenced by closed and

completed transactions, fixed by an identifiable event, and

actually sustained during the taxable period year.    See sec.

1.165-1(b), Income Tax Regs.    Case law has defined the term

“casualty” to include an event that is “due to some sudden,

unexpected, or unusual cause” similar in nature to a fire, storm,

or shipwreck.    Matheson v. Commissioner, 

, 539 (2d

Cir. 1931), affg. 

(1930); see Rosenberg v.

Commissioner, 

, 49 (8th Cir. 1952), revg. 

(1951).

      Petitioner testified that his $6,905 casualty and theft

loss deduction was for damages sustained to his personal and

business properties from raccoons, birds, vandals, and thieves.

On his Form 4684, petitioner represented that the storage shed

was “built of wood material with a 1 foot high opening all along

the wall” below the roof and that he had insisted that the owner

close the opening of the wall, but the owner never did.

Petitioner testified that some of the damage was due to vandals

in either 2000 or 2001.    With respect to the vandalism, the

damages were not sustained in the 2002 taxable year; therefore,

they are not deductible.

     Generally, a loss arising from theft is treated as sustained

“during the taxable year in which the taxpayer discovers such

loss.”    See sec. 165(e); secs. 1.165-1(d)(3), 1.165-8(a)(2),
                                - 8 -

Income Tax Regs.   The amount of the deductible loss is limited to

the lower of:   (1) The fair market value of the property

immediately before the theft reduced by its fair market value

immediately after the theft (i.e., zero); or (2) its adjusted

basis, and if the property was used in a trade or business or for

the production of income and the fair market value of the

property immediately before the theft is less than its adjusted

basis, then its adjusted basis is treated as the amount of the

loss.   See secs. 1.165-7(b)(1), 1.165-8(c), Income Tax Regs.   And

with respect to property that is neither used in a trade or

business nor for the production of income, the amount of the loss

is limited to that portion of the loss that is in excess of $100.

See sec. 1.165-8(c), Income Tax Regs.   Petitioner must establish,

inter alia, both the existence of a theft and the amount of the

claimed theft loss.   See Elliott v. Commissioner, 

,

311 (1963).

     In his Form 4684, petitioner failed to identify specifically

the items of property that he alleges were stolen.   Petitioner

also failed to establish the year that he discovered the theft.

He merely stated, in his Form 4684, that “Probably somethings

were stolen” when his storage shed was vandalized in 2001, and at

trial, he merely testified that “Somebody took” the 5,500 square

feet of marble he had stored.   Finally, petitioner failed to

prove the amount of his loss by establishing the lower of the
                               - 9 -

properties’ adjusted bases (i.e., by receipts) or their fair

market values immediately before the loss.   Therefore, petitioner

is not entitled to a deduction for a theft loss.

     Generally, damages resulting from animals and insects are

not deductible because they occur not from a sudden event but

rather gradually over time, unless it can be shown that the

destruction was occasioned by a sudden invasion that occurred in

a relatively short time (i.e., 1-3 months or 1 year).   Cf.

Rosenberg v. Commissioner, supra at 50; Fay v. Helvering, 

(2d Cir. 1941), affg. 

(1940); United

States v. Rogers, 

, 246 (9th Cir. 1941).

     The destruction of petitioner’s properties that was caused

by animals’ entering the wall’s opening is not a type of “sudden,

unexpected, or unusual cause” within the definition of a

casualty.   Without evidence to the contrary, the Court surmises

that petitioner’s damages were not occasioned by a sudden

invasion of raccoons and birds within a short period of time but

rather occurred gradually over time (i.e., from 1998-2002).

Additionally, the damages resulting from the inadequacy of the

structure are neither unexpected nor unusual.   Therefore, they

are not deductible, and accordingly, respondent’s determination

is sustained.
                             - 10 -

B. 2003 Taxable Year

I. $71,200 Loss

     In general, a taxpayer’s “loss of time” or “value of his

time” is not deductible as a casualty loss or otherwise.   Cf.

Pfalzgraf v. Commissioner, 

(1977) (stating that in

using a valuation method to compute a loss for purposes of

section 165, the value of a person’s “loss of time” cannot be

included in the computation); Wilhelm v. Commissioner, T.C. Memo.

1991-513 (disallowing a taxpayer’s “time spent” handling an

estate from his net operating loss computation); O’Connor v.

Commissioner, T.C. Memo. 1981-151 (disallowing a taxpayer’s

deduction for the uncompensated “value of his time” as a

classroom expense and a job-related expense).   The disallowance

of a claimed deduction arising from the taxpayer’s loss of time

or the value thereof results from the fact that he has not

included any amount in gross income, and therefore, he has no tax

cost basis in the item that he can deduct.   See Hutcheson v.

Commissioner, 

, 19 (1951).

     Petitioner testified that his itemized deductions

represented, in part, a $71,200 casualty or damages for his time

fighting crime and criminals and defending himself and his

business pro se in the courts against the Government.    Petitioner

concluded that since attorneys are paid “when [they] practice in

the court,” he too should be similarly compensated or rewarded
                                - 11 -

for his pro se appearances.    Petitioner is claiming a deduction

for his loss of time or the value thereof, and he is not entitled

to it.    Accordingly, respondent’s determination is sustained.

II. Accuracy-Related Penalty

     Initially, the Commissioner has the burden of production

with respect to any penalty, addition to tax, or additional

amount.    Sec. 7491(c).   The Commissioner satisfies this burden of

production by coming forward with sufficient evidence that

indicates that it is appropriate to impose the penalty.     See

Higbee v. Commissioner, 

, 446 (2001).     Once the

Commissioner satisfies this burden of production, the taxpayer

must persuade the Court that the Commissioner’s determination is

in error by supplying sufficient evidence of reasonable cause,

substantial authority, or a similar provision.

section 6662(a) imposes an

accuracy-related penalty equal to 20 percent of the underpayment

that is attributable to:     (1) Negligence or disregard of the

rules or regulations; or (2) a substantial understatement of

income tax.    Section 6662(c) defines the term “negligence” to

include “any failure to make a reasonable attempt to comply with

the provisions of this title”, and the term “disregard” to

include “any careless, reckless, or intentional disregard.”       In

interpreting section 6662, this Court has defined the term

“negligence” as a “‘lack of due care or the failure to do what a
                                - 12 -

reasonable and ordinarily prudent person would do under the

circumstances’”.     Freytag v. Commissioner, 

, 887

(1987) (quoting Marcello v. Commissioner, 

, 506 (5th

Cir. 1967), affg. on this issue 

(1964) and T.C. Memo.

1964-299), and citing Zmuda v. Commissioner, 

, 1422

(9th Cir. 1984), affg. 

(1982)).     If a “taxpayer fails

to make a reasonable attempt to ascertain the correctness of a

deduction, credit or exclusion on a return which would seem to a

reasonable and prudent person to be ‘too good to be true’ under

the circumstances”, then there is a strong indication of

negligence.   Sec. 1.6662-3(b)(1)(ii), Income Tax Regs.

     Section 6664(c)(1) is an exception to the section 6662(a)

penalty:   no penalty is imposed with respect to any portion of an

underpayment if it is shown that there was reasonable cause

therefor and the taxpayer acted in good faith.       Section

1.6664-4(b)(1), Income Tax Regs., incorporates a facts and

circumstances test to determine whether the taxpayer acted with

reasonable cause and in good faith.      The most important factor is

the extent of the taxpayer’s effort to assess his proper tax

liability.

indicate reasonable

cause and good faith include an honest misunderstanding of fact

or law that is reasonable in light of * * * the experience,

knowledge and education of the taxpayer.”

     The Court concludes that respondent has met his burden of

production and that petitioner failed to persuade us that the

determination was in error.   The Court finds that petitioner was

negligent because he failed to make a reasonable attempt to

ascertain the correctness of his deduction since he merely

testified, without more, that he thought he should be compensated

for his pro se work in the courts:     “somebody has to pay this.

It is damage.   It is a casualty.”   Because petitioner failed to

make a reasonable attempt to ascertain the correctness of his

deduction, he cannot establish a reasonable cause and good faith

defense.   Accordingly, respondent’s determination is sustained.

     To reflect the foregoing,


                                      Decision will be entered for

                                 respondent in docket No. 4480-06S,

                                 and decision will be entered under

                                 Rule 155 in docket No. 4481-06S.