1995 Tax Ct. Memo LEXIS 21 | Tax Ct. | 1995
1995 Tax Ct. Memo LEXIS 21">*21 Decision will be entered under Rule 155.
MEMORANDUM OPINION
COUVILLION,
Respondent determined a deficiency of $ 5,470 in petitioners' Federal income tax for 1991. At trial, respondent conceded one adjustment in the notice of deficiency, unreported interest income of $ 2,396. The issues for decision are: (1) Whether, under
Some of the facts were stipulated, and those facts, with the annexed exhibits, are so found and are incorporated herein by reference. Petitioners, husband and wife, were legal residents of Greenville, Mississippi, at the time they filed their petition.
With respect to all issues, the determinations of respondent in a notice of deficiency are presumed correct, and the burden of proof is on the taxpayer to prove that respondent's determinations are incorrect.
1995 Tax Ct. Memo LEXIS 21">*23 During 1991, petitioner George D. Prewitt, Jr., received a backpay award in the amount of $ 12,028 as a result of his improper termination or suspension as an employee of the U.S. Postal Service. The purported infractions that led to this award occurred several years prior to the year at issue. During 1991, petitioner Bettye A. Prewitt received a backpay award, in the amount of $ 4,185, also for improper or unlawful infractions by her employer, the Mississippi Department of Public Welfare, which likewise had occurred prior to the year at issue. Even though petitioners received their respective awards during 1991, the decisions entitling petitioners to their awards were made during 1990.
On their Federal income tax return for 1991, petitioners did not include as income the $ 16,213 combined backpay awards they received that year. Instead, petitioners prepared and filed an amended income tax return for 1990 and reported the backpay awards as income for 1990. In the notice of deficiency, respondent determined that the $ 16,213 income is 1991 income and not 1990 income.
Petitioners do not dispute the fact that backpay is taxable income. However, petitioners contend that, because1995 Tax Ct. Memo LEXIS 21">*24 the awards were attributable to services they performed prior to 1991, and since, as to both awards, it was determined or decided during 1990 that they were entitled to these amounts, the appropriate year for inclusion of these awards into income should be 1990. Petitioners further argue that, during 1990, petitioners sustained a substantial casualty loss deduction that reduced their taxable income such that inclusion of the backpay as 1990 income would result in a lower tax than if this income were taxed as 1991 income.
The second issue is whether petitioners are entitled to exclude from income a $ 906 State income tax refund they received from the State of Mississippi during 1991. On their 1990 Federal income tax return, petitioners claimed Schedule A, Itemized Deductions, which totaled $ 26,986.28. Of this amount, $ 1,322.28 represented State and local income and property taxes. Included in the $ 1,322.28 was $ 906.75 Mississippi State income taxes. Petitioners did not report the $ 906 State income tax refund as income1995 Tax Ct. Memo LEXIS 21">*27 on their 1991 return. Petitioners contend the 1991 refund is excludable from income because they derived no tax benefit from the deduction of State income taxes on their 1990 return.
Applying these provisions to the facts of this case, tracking the example set out in
Petitioners' 1990 Return | ||
With deduction of | Without deduction of | |
sec. 111 items | sec. 111 items | |
Gross income | $ 31,279.58 | $ 31,279.58 |
Less deductions: | ||
Itemized deductions | ||
other | ||
than sec. 111 items | 25,664.00 | 25,664.00 |
Taxes (sec. 111 items) | 1,322.28 | -- |
Personal exemptions | 8,200.00 | 8,200.00 |
Taxable income or (loss) | ($ 3,906.70) | ($ 2,584.42) |
As shown above, petitioners had negative income for 1990 with deduction of the
1995 Tax Ct. Memo LEXIS 21">*31 The final issue involves $ 30 interest income that was paid to petitioners during 1991 by a savings bank in Mississippi. Petitioners admit they received the $ 30 but did not include the interest as income on their 1991 income tax return. Respondent determined this item was taxable income.
Petitioners contend that, for 1990, they realized a net operating loss. See
Footnotes
1. Unless otherwise indicated, section references are to the Internal Revenue code in effect for the year at issue. All Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. Petitioners contended that, because respondent conceded at trial an error in the notice of deficiency with respect to an interest income adjustment of $ 2,396, the burden of proof shifted to respondent. The Court rejects that argument. An error in a notice of deficiency, which otherwise fulfills its purpose, will be ignored where the taxpayer is not misled thereby and is provided by the notice with information sufficient for the preparation of his case for trial.
.Myers v. Commissioner , T.C. Memo. 1981-84↩3. Petitioners' 1990 itemized deductions included a $ 21,722 casualty loss. This casualty loss could have resulted in petitioners' realizing a net operating loss for 1990. See
sec. 1.172-3(a)(3)(iii), Income Tax Regs. Petitioners did not make a computation of a net operating loss for 1990, nor did they elect to carry back or carry forward a net operating deduction to prior or succeeding tax years. Because petitioners' taxes in preceding or succeeding taxable years were not reduced by a net operating loss carryback or carryforward attributable to their 1990 casualty loss, the recovery exclusion for 1990 is not further reduced by the effects of a net operating loss.Sec. 1.111-1(b)(2)(ii), Income Tax Regs.↩