MEMORANDUM FINDINGS OF FACT AND OPINION
BRUCE, Judge: Respondent determined deficiencies of $1,022.61 and $869.02 in petitioner's Federal income taxes for taxable years 1972 and 1973, 1 respectively, as set forth in his statutory notice of deficiency dated June 26, 1978. Due to the absence of concessions by the parties in this matter and due to the broad sweep of petitioner's request for deficiency redetermination set forth in her petition 2 in this case, many issues are presented for our decision: (1) whether petitioner is entitled to a net operating loss carryback from 1975 to 1972 in an amount greater than $64.26 which entails (a) whether respondent's method of income reconstruction which found petitioner's gross income understated by $3,532.69 was proper, (b) whether petitioner was entitled to a depreciation deduction on a piano, and (c) whether petitioner properly applied the carryback of the net operating loss; (2) whether petitioner is entitled to a net operating loss carryback from 1976 to 1973; (3) whether petitioner was entitiled to a trial by jury in this case; and (4) whether petitioner is entitled to payment of witness costs or other costs of pursuing this court action.
FINDINGS OF FACT
Petitioner was a resident of Ossian, Indiana at all times relevant to this case. She timely filed her joint Federal income tax returns, with her husband, for the taxable years 1972, 1973, 1975 and 1976 with the Internal Revenue Service Center in Memphis, Tennessee. During those years, petitioner operated as a sole proprietorship a florist shop in Ossian known as Echo Gardens Florist.
Petitioner's Federal income tax returns for 1975 and 1976 contained the following figures:
| 1975 |
| 1976 |
| Form 1040 - line 11 - Interest Income | $ 142.47 |
| $ 218.89 |
| line 32(b) - Fully |
| taxable pensions and |
| annuities | |
| 8,631.00 |
| Schedule A - Itemized deductions | 520.61 |
| Schedule C - Profit or (Loss) From |
| Business or Profession | 7,106.99 |
| (4,000.92) |
| Schedule E - Supplemental Income |
| Part I - Pensions and Annuities | 2,955.60 |
| Part III - Income or (Loss) from |
| Estates, etc. | |
| (1,209.33) |
| Schedule F - Farm Income and Expenses | 154.44 |
|
Three personal exemptions, including one for petitioner's blindness, were claimed correctly in calculating taxable incomes for 1975 and 1976 on each of the returns. Petitioner also included these three personal exemptions in calculating the net operating loss carryback from 1975 to 1972. Included in the business loss shown on Schedule C of petitioner's 1975 return was a $400.00 depreciation deduction claimed on a piano acquired in 1973 for $1,245.00 on which prior years' depreciation deductions of $800.00 had been taken.
On January 26, 1976, petitioner filed Form 1045, Application for Tentative Refund, requesting a net operating loss carryback deduction to 1972 from 1975 in the amount of $6,625.09. This amount was a direct application of the final negative figure for taxable income on petitioner's 1975 return. Petitioner received a payment of $1,034.63 plus $88.74 interest on March 1, 1976, as a result of filing the Form 1045. Another Form 1045 was filed on August 8, 1977, requesting a net operating loss carryback deduction to 1973 from 1976 in the amount of $5,210.25. This figure was the sum of petitioner's business loss for 1976 and a loss distributed to petitioner from an estate in 1976. On September 26, 1977, as a result of filing the second Form 1045, petitioner received a payment of $869.02 plus $42.72 interest.
In 1977, the Internal Revenue Service (IRS) began an audit of petitioner's Federal income tax returns for the years 1972, 1973, 1975 and 1976. Examination of the 1976 return showed that petitioner did have a business loss of $4,000.92 and a loss from an estate of $1,209.33 which totaled $5,210.25, the amount of net operating loss carried back to 1973 by petitioner. However, review of the entire return showed that petitioner's income exceeded her deductions for 1976. Therefore, although no deficiency resulted for 1976, respondent did determine that petitioner was not entitled to the carryback to 1973 claimed, resulting in the contested deficiency for 1973.
The examination of petitioner's 1975 return was not as simple. In that examination, the IRS employed the sources and applications of funds method of reconstructing income, finding that petitioner had understated income for 1975 in the amount of $3,532.69.3
Further, respondent disallowed the $400.00 depreciation deduction for the piano, mentioned above. The respondent also excluded from the calculation of the claimed net operating loss carryback from 1975 to 1972 the three personal exemptions for 1975 ($2,250.00) and excess nonbusiness deductions for 1975 ($378.14). These adjustments, as determined by respondent, reduced the applied net operating loss carryback from 1975 to 1972 from $6,625.09 to $64.26, resulting in determinations of no deficiency for 1975 and the contested deficiency for 1972.
ULTIMATE FINDING OF FACT
Petitioner and her husband had unreported income in the amount of $3,532.69 during the 1975 taxable year.
OPINION
Before we deal with the proper issues in this case, we find it necessary to comment upon petitioner's conduct throughout the entire history of the matter before us. From the start of the examination of the returns in question to the present, petitioner has badgered Senators, Congressmen, the employees of the IRS and the employees of this Court with her repeated demands for attention and service, often in matters irrelevant or immaterial to the determination of her tax liability for the years under examination. Because of her demands and her handicap of blindness, petitioner has received more attention and deference than the average taxpayer should expect. Indeed, most, if not all, of respondent's doubts confronted during his examination were resolved in petitioner's favor. Meanwhile, petitioner has refused to reciprocate with the same courtesy which she so obstinately demands for herself. She has failed to meet with respondent in a cooperative atmosphere, with the result that this Court is faced with a number of issues which could have been settled. Further, without cooperation between the parties, no stipulation of facts was reached as required by Rule 91, Tax Court Rules of Practice and Procedure.
We are convinced that, due to petitioner's unwillingness to listen to and to work with respondent's employees, petitioner has totally failed to grasp the legal mechanics of the situation with which she is faced. Petitioner decided to represent herself, without benefit of legal counsel. This decision cannot be used against her, but neither can it be used for her. Petitioner's decision to appear prose does not relieve her of any of the burdens or responsibilities of the law or of the rules of this Court. Coussement v. Commissioner,391 F. 2d 227 (C.A. 6, 1968), affirming a Memorandum Opinion of this Court; Wallis v. Commissioner,357 F. 2d 313 (C.A. 10, 1966), affirming a Memorandum Opinion of this Court; Rushing v. Commissioner,214 F. 2d 383 (C.A. 5, 1954), affirming a Memorandum Opinion of this Court. She must suffer, without relief, the consequences of her choice.
Petitioner's refusal to cooperate led to her misunderstanding of the task before her. Her incessant ramblings at trial prevented this Court from extending any guidance or assistance to her. Time and time again, petitioner ignored the Court's request at trial for factual evidence and insisted upon presenting a repetitious litany of derogatory personal comments and criminal accusations directed at various employees of the IRS. This repetitious tirade was continued throughout her post-trial documents, which were received and filed as her Brief and Reply Brief, even though they contained little or no substance relative to the issues of this case. This Court is not the proper forum for any criminal accusations which petitioner may have against respondent 4 and no court should be used for the staging of such malicious attacks against the reputations of individuals, whatever their positions in life. Perhaps, if petitioner had used her energies and abilities constructively in the presentation of her case, she would have fared better. She did not. We have no choice but to deal with her case as she has presented it to us.
The first issue for our decision is the size of petitioner's net operating carryback loss deduction in 1972 from 1975. Petitioner claimed a deduction of $6,625.09. Respondent, in three adjustments, determined that the deduction should be no more than $64.26. We agree with respondent.
Respondent's first adjustment, in lowering petitioner's net operating loss carryback deduction for 1972, was a determination that petitioner had understated income for 1975 by $3,532.69. To make this determination, respondent used the sources and applications of funds method of reconstructing income. This method is just what its name implies. First, the revenue agent calculates the difference, if any, between total reported funds sources, such as gross receipts, interest income, new or increased loans and decreases in cash and back accounts, and total reported funds applications or uses, such as expenses paid for in cash or increased liabilities, decreased loans and increased cash and back accounts. Operating under the assumption that sources of funds should at least equal uses of funds, the agent determines that any excess of uses which is unexplained by a showing of counterbalancing additional tax exempt income, new loans, or fewer expenses requiring funds outlays, is the amount of an understatement of income.
Although petitioner does note that the figures used by respondent in the income reconstruction are only estimates, she does not refute the accuracy of those figures and did not introduce at trial evidence contrary to the figures. However, petitioner vigorously contests the way in which those figures were used. She contends that the reconstruction violates various sections of the13 Internal Revenue Code by misapplying amounts such as personal living expenses, nontaxable pension income, and depreciation expense and by omitting entirely consideration of petitioner's inventories. Further, petitioner contends that the entire income reconstruction was prepared without her knowledge and consent.
Petitioner's protests are severely misguided. The sources and applications of funds method of reconstructing income has been approved many times in the past. 5 See, United States v. Johnson, 319 U.S. 503, 517, rehearing denied 320 U.S. 808 (1943); Viles v. Commissioner, 233 F. 2d 376 (C.A. 6, 1956); Vassallo v. Commissioner, 23 T.C. 656 (1955). Where, as here, petitioner's records of income and expense appear inaccurate or inadequate, respondent is authorized under section 446 6 to determine petitioner's income in accordance with any method which in his opinion will clearly reflect the entire income amount. Schroeder v. Commissioner,40 T.C. 30, 33 (1963); Sutherland v. Commissioner,32 T.C. 862, 867 (1959); Vassallo v. Commissioner, supra, at 662; Lipsitz v. Commissioner, 21 T.C. 917, 931 (1954).
The sources and applications of funds method of reconstructing income is not an accounting method, nor is it a substitute for one. Holland v. United States, 348 U.S.121, 131 (1954); Vassallo v. Commissioner,supra, at 661, Lipsitz v. Commissioner, supra. Instead, it is merely a tool by which respondent establishes evidence in support of an approximation of taxpayer's gross income from all sources. Funds from these sources, including nontaxable items, loans and depleted savings, are, in total, compared with a similar total of those expenditures, deductible or not, requiring funds. This total excludes depreciation. Both the inclusion of nontaxable sources and the exclusion of expenditures, such as depreciation, which do not require funds are advantageous to the taxpayer, for any excess of known expenses over known funds leads to respondent's determination that additional funds must have been unreported by the taxpayer. Unless a reduction of expenses is explained or the excess is shown to have been satisfied by some nontaxable source of funds, respondent determines that the taxpayer's gross income subject to tax was understated at least in the amount of the unexplained excess.
The final figure of respondent's reconstruction serves as evidence of the taxpayer's gross income. It is this figure to which the provisions of the Internal Revenue Code are applied to determine the taxpayer's tax liability. During this determination process the various provisions cited by petitioner are used. Nontaxable income is omitted and all applicable deductions and exemptions are used to the extent the taxpayer is entitled. Respondent must follow these specific statutory provisions during this portion of the determination process, and in the instant situation we find that he did. However, respondent is not under any restriction, save reasonableness, in reconstructing income from which tax liability is eventually derived. Campbell v. Guetersloh, 287 F. 2d 878 (C.A. 5, 1961); Harbin v. Commissioner, 40 T.C. 373 (1963). Petitioner's vehement arguments demanding the application of various Internal Revenue Code provisions in respondent's reconstruction of income are totally inapposite.Lacking any evidence of the accuracy, or even the existence, of petitioner's accounting records, we find that respondent's decision to reconstruct income, his choice of methods for this task and his implementation of those methods were properly suited to the situation presented.
Petitioner's arguments that respondent failed to use her inventories in his computations and that respondent conducted the reconstruction without her knowledge and consent are equally groundless.We disposed of the same inventory argument 25 years ago in Vassallo v. Commissioner, supra, at 662, where we said:
While we agree with petitioners that the respondent's reconstruction of Vassallo's income by such methods would have been more exact had its actual inventories been included, the respondent, under the authority granted him in section 41 [now 446] of the Code, determined such income on the cash basis -- the method which, in his opinion, most clearly reflected it. It was incumbent on the petitioners to show the amount of the inventories which they argue, if used, would more correctly reflect income. They made no such showing and we, therefore, approve the respondent's determination.
Petitioner's "knowledge and consent" argument must also fail. Respondent is authorized to perform certain necessary tasks to ascertain the correctness of returns and to determine any outstanding tax liabilities. While there are restrictions on respondent's performance of these tasks, the requirement of the taxpayer's consent is not one of them. See generally, sections 7601-7655. Petitioner knew of the examination in question and supplied some of the figures used by respondent. The possibility that petitioner was unaware of respondent's use of these figures, such as in the income reconstruction, is of no consequence. We have already found respondent's methods reasonable and not arbitrary or capricious.A greater understanding by petitioner, or even by this Court, of respondent's specific methods of operation is not necessary for establishing the validity of respondent's determination and, therefore, is not within our jurisdiction. Flynn v. Commissioner, 40 T.C. 770 (1963); Crowther v. Commissioner, 28 T.C. 1293 (1957), affirmed on this point, 269 F. 2d 292 (C.A. 9, 1959).
Respondent is not reqauired to show the probable source for the unreported income in a civil case not involving fraud, such as the instant one. United States v. Massei, 355 U.S. 595 (1958); Ehlers v. Vinal, 382 F. 2d 58 (C.A. 8, 1967); Gatling v. Commissioner, 286 F. 2d 139 (C.A. 4, 1961), affirming a Memorandum Opinion of this Court. On the contrary, the burden is upon petitioner to either prove that there was no unreported income or that such income was nontaxable. Thomas v. Commissioner, 223 F. 2d 83 (C.A. 6, 1955); Durkee v. Commissioner, 162 F. 2d 184 (C.A. 6, 1947); Sager Glove Corp. v. Commissioner, 36 T.C. 1173 (1961), affirmed 311 F. 2d 210 (C.A. 7, 1962), certiorari denied 373 U.S. 910 (1963). Petitioner having failed to meet this burden, respondent's determination that petitioner had unreported income of $3,532.69 is sustained.
Petitioner claimed a depreciation deduction in 1975 of $400.00 on a piano. Depreciation deductions are allowed under section 167 as a "reasonable allowance for the exhaustion, wear and tear, or obsolescence of property used in a trade or business." However, "[an] asset shall not be depreciated below a reasonable salvage value. " Section 1.167(a)-1(a), Income Tax Regs.See also, section 1.167(a)-1(c), Income Tax Regs.; United California Bank v. Commissioner, 41 T.C. 437, 451 (1964), affirmed 340 F. 2d 320 (C.A. 9, 1965). Petitioner's original basis in the piano was $1,245.00 and petitioner had claimed $800.00 in depreciation prior to 1975, leaving an adjusted basis of $445.00. It is petitioner's burden to prove the claimed depreciation deduction. Lockhart v. Commissioner, 43 T.C. 776 (1965); Brown v. Commissioner, 40 T.C. 861 (1963); Brandtjen & Kluge, Inc. v. Commissioner,34 T.C. 416 (1960). Petitioner offered no proof of the piano's salvage value. Without such proof, salvage value will not be estimated at zero. Lockhart v. Commissioner, supra.We make no other finding as to the piano's salvage value, except to say that we are certain the salvage value is at least $445.00. Petitioner is not entitled to depreciation deduction for the piano for 1975.
The proper computation and application of a net operating loss carryback can be a complicated matter. A net operating loss for an individual is defined by section 172(c) as the amount, as modified under section 172(d), by which deductions taken to determine taxable incme exceed gross income. 7Two of the section 172(d) modifications exclude from the calculation of a net operating loss the deduction for personal exemptions and nonbusiness deductions in excess of nonbusiness income. Section 172(d)(3) and (4). Respondent determined that petitioner failed to exclude these amounts from her figures when calculating her net operating loss for 1975. Thus, respondent contends, petitioner overstated her net operating loss for 1975 by a total of $2,628.14, $2,250.00 for personal exemptions and $378.14 in excess nonbusiness deductions. Since petitioner, who bears the burden of proving that she is entitled to the deduction, has failed to introduce any evidence or other justification for her calculations, we have no choice but to uphold respondent's determination that petitioner's net operating loss deduction for 1975 applicable to 1972 was only $64.26. 8Kasey v. Commissioner, 54 T.C. 1642, 1650 (1970), affirmed per curiam 457 F. 2d 369 (C.A. 9, 1972); Sutherland v. Commissioner, 21 B.T.A. 167 (1930); Rule 142(a), Tax Court Rules of Practice and Procedure. No deficiency for 1975 is created by these adjustments, but the resultant deficiency in the carryback year, 1972, is sustained.
Similarly, we agree with respondent's disallowance of petitioner's net operating loss carryback deduction for 1973 from 1976. In calculating her claimed net operating loss for 1976, petitioner merely summed two losses suffered in 1976, one from her business and one from an estate, without regard to the fact that she had sufficient gross income for 1976 from other sources to offset those losses. Section 172(c); Mendelson v. Commissioner, 21 B.T.A. 958 (1930); Haskell v. Commissioner, 7 B.T.A. 697 (1927). Petitioner again failed to offer any explanation for her claims. She had no net operating loss for 1976 and, therefore, no net operating loss deduction applicable to 1973. The resultant deficiency determination for 1973 is sustained.
Finally, petitioner has repeatedly requested her "rights" to a trial by jury and to reimbursement of her court costs. First, it is well settled that petitioner is not entitled to a trial by jury in the Tax Court. When a petitioner files a petition instituting a Tax Court proceeding, she has chosen to forego a jury trial. While a jury trial may have been requested in another court in a refund that after payment of the contested tax amount, such is not the case in the Tax Court. Swanson v. Commissioner, 65 T.C. 1180 (1976). Petitioner will not be heard to complain of the consequences of her own choices.
Petitioner's request for reimbursement of court costs must also be denied. This Court is not authorized to award attorney's fees or any other costs to a petitioner, even if she is successful in her case. Key Buick Co. v. Commissioner, 68 T.C. 178 (1977), affirmed 613 F 2d 1306 (C.A. 5, 1980); Sharon v. Commissioner, 66 T.C. 515, 533-534 (1976), affirmed per curiam 591 F. 2d 1273 (C.A. 9, 1978), certiorari denied 442 U.S. 941 (1979). 9
To reflect the foregoing,
Decision will be entered for the respondent.