2006 Tax Ct. Memo LEXIS 30 | Tax Ct. | 2006
2006 Tax Ct. Memo LEXIS 30">*30 The Telecommunication Relay Service (TRS) enables a hearing-
impaired individual to communicate with a hearing individual
over the telephone through the use of a relay operator. Ps
subscribed to the AdaCom program which provided an alternative
to the TRS through the use of a computer rather than a relay
operator. On their 2000, 2001, and 2002 Federal income tax
returns, Ps claimed a disabled access credit. See
I.R.C. Ps also claimed a
expense deduction. R disallowed the credit and deduction.
Held: Because the AdaCom program was not acquired by Ps
in order for them to comply with the applicable requirements of
the Americans with Disabilities Act of 1990,
104 Stat. 327, the AdaCom program is not an "eligible access
expenditure" for purposes of
Held, further: Ps are not entitled to claim a deduction
under2006 Tax Ct. Memo LEXIS 30">*31
MEMORANDUM FINDINGS OF FACT AND OPINION
VASQUEZ, Judge: Respondent determined deficiencies of $ 3,323, $ 3,556, and $ 3,126 in petitioners' Federal income tax for 2000, 2001, and 2002, respectively.
The issues for decision are:
(1) Whether petitioners are entitled to claim a tax credit pursuant to
(2) whether petitioners are entitled to claim a trade or business expense deduction under
(3) if petitioners are entitled to a credit and/or deduction for their investment in the program, the proper valuation of the program.
2006 Tax Ct. Memo LEXIS 30">*32 FINDINGS OF FACT
Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated herein by this reference. At the time they filed the petition, petitioners resided in Colorado Springs, Colorado.
During the years at issue, petitioners subscribed to the program, which was sold, sponsored, and administered by AdaCon Advantage Co., Inc. (AdaCom 2). AdaCom is a Colorado corporation headquartered in Colorado Springs, Colorado. AdaCom developed a program to enable deaf or hearing-impaired individuals to communicate with hearing individuals and/or businesses.
Current Technology
A text telephone (TTY) is an electronic device that allows a person to type conversations over telephone lines. TTYs do not amplify sound or convert speech to text.
A TTY user can use the Telecommunications Relay Services (TRS) to call a person using a standard telephone and vice versa. TRS is2006 Tax Ct. Memo LEXIS 30">*33 a system by which a hearing person and a deaf person can communicate over the telephone. TRS employs a relay operator who receives the text from the deaf person. The relay operator then reads the text to the hearing party. When a hearing party provides a voice response, the relay operator types the text of the spoken message and transmits the text to the TTY. TRS is available in all States in the United States and, as required by law, is provided free of charge by the local telephone company. Normal charges do apply to long distance telephone calls. TRS is available 7 days per week, 24 hours per day.
AdaCom Technology
During the years at issue, AdaCom maintained a computer with TTY software to allow a hearing-impaired person to use a TTY to call the AdaCom computer. The computer then sent the text to a program subscriber who was required to have a computer with a standard modem.
A program subscriber could also use his computer equipped with a modem to contact the AdaCom computer to initiate calls to a TTY user. The AdaCom computer was available 7 days per week, 24 hours per day.
If a program subscriber was unavailable when an attempt was made by the AdaCom computer to contact him, 2006 Tax Ct. Memo LEXIS 30">*34 a message was transmitted that could be retrieved at a later time. Once a communication was completed, the text of the communication was deleted from the AdaCom computer.
Program subscribers were listed in the AdaCom yellow pages directory. The AdaCom yellow pages directory listed only the subscribers to the program and contained information on how to communicate with the subscriber by listing a number code to access the AdaCom computer.
AdaCom also maintained a Web site directory of its program subscribers. AdaCom listed only program subscribers on the Web site.
In addition to receiving a listing in the AdaCom yellow pages directory and on the Web site, the program entitled each program subscriber to 5 hours of interpretative services of a sign language interpreter. Additionally, the program entitled each program subscriber to 5 hours of audit defense, which consisted of representation before the Internal Revenue Service (IRS) to defend the claiming of the
The Subscription
The subscription price of the program2006 Tax Ct. Memo LEXIS 30">*35 was $ 10,250 annually. The program subscribers were entitled to pay $ 2,500 in cash and provide $ 7,750 in promotional services to be performed by the program subscribers. The promotional service programs, which AdaCom valued at $ 7,750, were as follows: (1) Program A-11 referrals by the program subscribers; (2) program B-7 referrals by the program subscribers and the program subscribers were to display and distribute AdaCom brochures; and (3) program C-4 referrals by the program subscribers, and the program subscribers were to display and distribute AdaCom brochures and display an AdaCom window decal.
AdaCom advised program subscribers to include $ 7,750 in income, deduct $ 5,250 as an ordinary and necessary business expense pursuant to
None of the people referred by the program subscribers were required to subscribe2006 Tax Ct. Memo LEXIS 30">*36 to the program in order for the referring program subscriber to obtain credit towards the purchase price of the program.
Petitioners' Tax Return
During the taxable years 2000, 2001, and 2002, petitioner Mildred E. Galyen was a retired teacher, and petitioner Ralph E. Galyen was employed as an insurance salesman for the Ralph Galyen Agency, Inc. (Galyen Agency), a Colorado subchapter S corporation. Petitioner Ralph E. Galyen was sole shareholder and president of the Galyen Agency during this period. The Galyen Agency provided insurance services to the general public. During the years at issue, the Galyen Agency had less than $ 1 million in annual sales and fewer than 30 employees. The Galyen Agency subscribed to the program for the taxable years 2000, 2001, and 2002. On the subscription for each year, the Galyen Agency chose promotional service program C. The subscription contracts do not include the names of the referrals made by the Galyen Agency. The Galyen Agency paid AdaCom $ 2,500 and was credited with $ 7,750 in promotional services.
The gross income of the Galyen Agency for the taxable years 2000, 2001, and 2002 was $ 272,052, $ 210,847, and $ 21,803, respectively. These2006 Tax Ct. Memo LEXIS 30">*37 amounts included $ 7,750 each year as bartering income for promotional services from AdaCom.
On the basis of the subscriptions to the program, the Galyen Agency claimed a $ 5,250 business expense deduction and a $ 5,000
On their Form 1040, U.S. Individual Income Tax Return, for taxable years 2000, 2001, and 2002, petitioners reported Schedule K- 1, Shareholder's Share of Income, Credits, Deductions, etc., distributive shares of $ 83,324, $ 39,921, and $ 8,935 of nonpassive income from the Galyen Agency, respectively.
Respondent determined deficiencies in petitioners' Federal income tax for 2000, 2001, and 2002 in the amounts of $ 3,323, $ 3,556, and $ 3,126, respectively, after decreasing petitioners' income by the amount of bartering services income reported and disallowing a
OPINION
Burden of Proof
As a general rule, the notice of deficiency is entitled to a presumption of correctness, and the taxpayer bears the burden of proving the Commissioner's deficiency determinations incorrect.
Although petitioners claimed that
ADA Tax Credit
"Eligible small business" is defined as any person that had gross receipts of not more than $ 1 million for the preceding taxable year or not more than 30 employees during the preceding year and elects the application of
"Eligible access expenditure" is defined as an amount paid or incurred by eligible small businesses for the purpose of complying with the
Petitioners contend that they are eligible to claim the disabled access credit under
In order for an expenditure to qualify as an eligible access expenditure within the meaning given that term by
Title IV of the ADA requires "Each common carrier providing telephone voice transmission services" to provide "throughout the area in which it offers service, telecommunications relay services".
telephone transmission services that provide the ability for an
individual who has a hearing impairment or speech impairment to
engage in communication by wire or radio with a hearing
individual in a manner that is functionally equivalent to the
ability of an individual who does not have a hearing impairment
or speech impairment to communicate using voice communication
services by wire or radio. Such term includes services that
enable two-way communication between an individual2006 Tax Ct. Memo LEXIS 30">*42 who uses a
TDD or other nonvoice terminal device and an individual who does
not use such a device. [
TTY supersedes the term "TDD".
(A) Establish functional requirements, guidelines, and operations procedures for TRS;
(B) establish minimum standards that shall be met;
(C) require that TRS operate every day for 24 hours per day;
(D) require that users of TRS pay rates no greater than the rates paid for functionally equivalent voice communication services with respect to such factors as the duration of the call, the time of day, and the distance from point of origin to point of termination;
(E) prohibit relay operators from failing to fulfill the obligations of common carriers by refusing calls or limiting the length of calls that use TRS;
(F) prohibit relay operators from disclosing the content of any relayed conversation and from keeping records of the content of any such conversation beyond the duration of the call; and
(G) prohibit relay operators2006 Tax Ct. Memo LEXIS 30">*43 from intentionally altering a relayed conversation.
As mentioned supra, all States utilize TRS and follow the aforementioned requirements. Since Congress mandated the adoption of TRS by common carriers, any place with a telephone is currently in compliance with the ADA. Petitioners argue that the program is an alternative to TRS and provides improvements to TRS.
However, petitioners' subscription to the program did not enable them to comply with the ADA -- they already were in compliance with the ADA through the use of TRS.
Deductions are a matter of legislative grace, and taxpayers bear the burden of proving that they are entitled to any deductions claimed.
Whether an expenditure is ordinary and necessary is generally a question of fact.
To be "necessary" within the meaning of
Petitioners are not entitled to a
Conclusion
We sustain respondent's determination in the notice of deficiency, decreasing petitioners' income by the amount of bartering services income reported and disallowing a
To reflect the foregoing,
Decision will be entered for respondent.