MEMORANDUM FINDINGS OF FACT AND OPINION

WHERRY, Judge: These consolidated cases are before the Court on petitions for redetermination of statutory notices of deficiency for petitioners' 2002 tax years. Some of the facts have been deemed stipulated pursuant to Rule 91(f). ^{12008 Tax Ct. Memo LEXIS 291">*293} In addition, before trial, the parties resolved a number of 2008 Tax Ct. Memo LEXIS 291">*292 issues and filed stipulations of settled issues, which are hereby incorporated by reference into our findings. The sole issue remaining for decision is whether RVP Corporation (RVP) is entitled to a deduction for payroll taxes in 2002. The parties agree that the Bascoses received $ 19,976 in constructive dividends if RVP is not entitled to a deduction for payroll taxes in 2002.

FINDINGS OF FACT

The Basocses incorporated RVP in the late 1990s. RVP was wholly owned by the Bascoses during 2002. Throughout that year RVP did business as Laguna Lake Cottage, an eldercare business operated out of a house owned by the Bascoses in San Luis Obispo, California.

As of the date of trial, RVP had not filed a Form 1120, U.S. Corporation Income Tax Return, for 1999, 2000, 2001, or 2002. A Form 10492, Notice of Federal Taxes Due, dated April 24, 2007, reflects that RVP had a payroll tax liability (plus interest) of $ 25,930.54 for 2002. ^{22008 Tax Ct. Memo LEXIS 291">*294} On May 10, 2007, that liability (among others) was paid out of an escrow account by Fidelity National Title Co. in connection with the sale of real property owned by the Bascoses.

On November 29, 2005, respondent issued the Bascoses and RVP notices of deficiency for their 2002 tax years. At the time the Bascoses filed their petition, they resided in California. When it filed its petition, RVP's principal place of business was in California. The cases were consolidated for trial, briefing, and opinion on February 14, 2008. A trial was held on that same day in Los Angeles, California.

OPINION

The Commissioner's determination of a taxpayer's liability is generally presumed correct, and the taxpayer bears the burden of proving that the determination is improper. See Rule 142(a); Welch v. Helvering, 290 U.S. 111">290 U.S. 111, 290 U.S. 111">115, 54 S. Ct. 8">54 S. Ct. 8, 78 L. Ed. 212">78 L. Ed. 212, 1933-2 C.B. 112 (1933). But see sec. 7491(a). Where deductions are at issue, the taxpayer bears the burden of proving entitlement to the claimed deductions. See Hradesky v. Commissioner, 65 T.C. 87">65 T.C. 87, 65 T.C. 87">89-90 (1975), 2008 Tax Ct. Memo LEXIS 291">*295 affd. 540 F.2d 821">540 F.2d 821 (5th Cir. 1976).

Section 164(a) permits taxpayers to deduct specified taxes. Excise taxes -- like Federal Unemployment Tax Act (FUTA) taxes and the employer's share of Federal Insurance Contributions Act (FICA) taxes -- are not enumerated on the list of specified taxes and are deductible only if they constitute ordinary and necessary business expenses. See secs. 162, 212; see also sec. 1.164-2(f), Income Tax Regs.³

A taxpayer is required to compute taxable income "under the method of accounting on the basis of which the taxpayer regularly computes his income in keeping his books." Sec. 446(a).⁴ Similarly, a taxpayer must claim deductions in the proper tax year under that taxpayer's method of accounting. Sec. 461(a). "The accounting methods most commonly used for income tax purposes are the cash receipts and disbursements method, and the accrual method." Irby v. Commissioner, 30 T.C. 1166">30 T.C. 1166, 30 T.C. 1166">1174 (1958), affd. 274 F.2d 208">274 F.2d 208 (5th Cir. 1960). The cash receipts and 2008 Tax Ct. Memo LEXIS 291">*296 disbursements method is commonly referred to as the "cash method".

A cash method taxpayer must deduct expenditures for the tax year in which they are actually made. See sec. 1.446-1(c)(1)(i), Income Tax Regs. The standard is more complex for an accrual method taxpayer -- "a liability is incurred, and generally is taken into account for Federal income tax purposes, in the taxable year in which all the events have occurred that establish the fact of the liability, the amount of the liability can be determined with reasonable accuracy, and economic performance has occurred with respect to the liability." Sec. 1.446-1(c)(1)(ii), Income Tax Regs.

Because RVP never filed Federal income tax returns, it never designated an accounting method. Respondent asserts on brief that respondent used the cash method "when it was compelled to reconstruct [RVP's] income and expenses indirectly, and issue a notice of deficiency 2008 Tax Ct. Memo LEXIS 291">*297 for 2002." Respondent was permitted to do so. See Schouten v. Commissioner, T.C. Memo. 1991-155 ("Since there is no evidence in this case that Mine-Rite 'regularly' computed its income using the completed contract method of accounting or any other method of accounting, our decision must be governed by the exception to the general rule contained in section 446(b)".). There is no evidence suggesting that RVP ever used the accrual method or that respondent's use of the cash method was otherwise improper.^{52008 Tax Ct. Memo LEXIS 291">*298} As it is a cash method taxpayer, RVP could deduct the payroll taxes only in the tax year in which they were actually paid -- in this case, 2007. ⁶ See sec. 1.446-1(c)(1)(i), Income Tax Regs. Therefore, RVP is not entitled to a deduction for payroll taxes in 2002. As a result, and as agreed by the parties, the Bascoses received a constructive dividend of $ 19,976 in that year.

The Court has considered all of petitioners' contentions, arguments, requests, and statements. To the extent not discussed herein, we conclude that they are meritless, moot, or irrelevant.

To reflect the foregoing,

Decisions will be entered under Rule 155.