United States Tax Court

T.C. Summary Opinion 2023-31

ANDREW L. HARRELL AND KATHERINE L. HARRELL,

Petitioners

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

—————

Docket No. 10182-21S. Filed October 30, 2023.

—————

Andrew L. Harrell and Katherine L. Harrell, pro se.

Hans Famularo, Kim-Khanh Nguyen, and Sarah C. Nadel, for 

respondent.

SUMMARY OPINION

CARLUZZO, Chief Special Trial Judge: This case was heard 

pursuant to the provisions of section 74631 of the Internal Revenue Code in 

effect when the Petition was filed. Pursuant to section 7463(b), the decision 

to be entered is not reviewable by any other court, and this Opinion shall 

not be treated as precedent for any other case.

In a notice of deficiency dated March 1, 2021 (notice), respondent 

determined a deficiency in petitioners’ 2017 federal income tax and a 

section 6662(a) accuracy-related penalty.

1 Unless otherwise indicated, statutory references are to the Internal Revenue 

Code, Title 26 U.S.C., in effect at all relevant times, regulation references are to the 

Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and 

Rule references are to the Tax Court Rules of Practice and Procedure. Monetary 

amounts are rounded to the nearest whole number.

Served 10/30/23
2

Respondent now concedes the section 6662(a) penalty; the issue 

for decision is whether petitioners are entitled to a miscellaneous 

itemized deduction for unreimbursed employee business expenses.2 

When the Petition was filed, petitioners lived in California. 

Background

At different times during the year in issue Andrew L. Harrell

(petitioner) was employed by the following: (1) Goodwill, (2) GPR 

Logistics, LLC (GPR), and (3) Village Management Services, Inc. 

(Village). Each employer treated petitioner as an employee and reported 

his wages on Form W–2, Wage and Tax Statement.

Petitioner was the transportation manager for both Goodwill and 

GPR. Services he performed for Goodwill and GPR were similar; he 

managed the distribution of inventory among their stores in California. 

For Village, petitioner managed the fleet of buses that served a senior 

citizen residential complex. He was also responsible for managing the 

maintenance and condition of the roads, clubhouses, and assisted-living 

facilities in the complex. At various points throughout the year he 

attended transportation industry expos to investigate vehicle options for 

each of his employers.

Petitioner’s employment responsibilities, particularly for 

Goodwill and GPR, required frequent travel throughout southern 

California. He sometimes used petitioners’ vehicles for employmentrelated travel. Petitioner did not keep a logbook or other 

contemporaneous record of the expenses he incurred while traveling for 

business. Neither did he keep any record of how much of his use of 

petitioners’ vehicles was employment related and how much was 

personal.

Petitioners did not provide the employee expense reimbursement 

policies, if any, of petitioner’s employers. It appears, however, that 

Village sometimes reimbursed petitioner for expenses he incurred on 

behalf of that company.

2 This issue is considered before the application of the 2% of adjusted gross 

income limitation imposed by section 67(a). The Tax Cuts and Jobs Act of 2017, Pub. 

L. No. 115-97, § 11045, 131 Stat. 2054, 2088, amended section 67 by adding 

subsection (g) suspending miscellaneous itemized deductions for any taxable year 

beginning after December 31, 2017, and before January 1, 2026.
3

Petitioners’ joint 2017 federal income tax return was prepared by 

a paid income tax return preparer. As relevant, on the return 

petitioners (1) reported the amounts reported on Forms W–2 issued to 

petitioner by his employers and (2) claimed a miscellaneous itemized 

deduction for unreimbursed employee business expenses related to 

petitioner’s employment. The deduction totals approximately 50% of the 

income shown on the Forms W–2 and includes amounts for vehicle 

expenses, travel expenses, meals and entertainment expenses, and 

other business expenses that petitioners claim petitioner paid or 

incurred in connection with his employment with one or another of his 

employers.

In the notice respondent disallowed the entire deduction 

petitioners claimed for unreimbursed employee business expenses 

because, according to the notice, petitioners “did not establish that the 

business expense shown on [their] tax return was paid or incurred 

during the taxable year and that the expense was ordinary and 

necessary to [petitioner’s] business.”

Discussion

As a general rule, the Commissioner’s determination of a 

taxpayer’s federal income tax liability in a notice of deficiency is 

presumed correct, and the taxpayer bears the burden of proving that the 

determination is erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 

111, 115 (1933). Petitioners do not claim and the record does not 

otherwise demonstrate that respondent should bear the burden of proof 

on the issue here in dispute. See § 7491(a).

As we have observed in countless opinions, deductions are a 

matter of legislative grace, and the taxpayer bears the burden of proving 

entitlement to any claimed deduction. Rule 142(a); INDOPCO, Inc. v. 

Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 

292 U.S. 435, 440 (1934). This burden requires the taxpayer to 

substantiate expenses underlying deductions claimed by keeping and 

producing adequate records that enable the Commissioner to determine 

the taxpayer’s correct tax liability. § 6001; Hradesky v. Commissioner, 

65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); 

Meneguzzo v. Commissioner, 43 T.C. 824, 831–32 (1965). A taxpayer 

claiming a deduction on a federal income tax return must demonstrate 

that the deduction is allowable pursuant to some statutory provision and 

must further substantiate that the expense to which the deduction 
4

relates has been paid or incurred. See § 6001; Hradesky, 65 T.C. 

at 89–90; Treas. Reg. § 1.6001-1(a).

Taxpayers may deduct ordinary and necessary expenses paid in 

connection with operating a trade or business. § 162(a); Boyd v. 

Commissioner, 122 T.C. 305, 313 (2004). An ordinary expense is one 

that commonly or frequently occurs in the taxpayer’s business, Deputy 

v. du Pont, 308 U.S. 488, 495 (1940), and a necessary expense is one that 

is appropriate and helpful in carrying on the taxpayer’s business, 

Commissioner v. Heininger, 320 U.S. 467, 471 (1943); Treas. Reg. 

§ 1.162-1(a).

Generally, the performance of services as an employee constitutes 

a trade or business. Primuth v. Commissioner, 54 T.C. 374, 377 (1970).

If, as a condition of employment, an employee is required to incur certain 

expenses, then the employee is entitled to deduct those expenses unless 

entitled to reimbursement from his or her employer. See Fountain v. 

Commissioner, 59 T.C. 696, 708 (1973); Spielbauer v. Commissioner, 

T.C. Memo. 1998-80.

As a general rule, if a taxpayer provides sufficient evidence that 

the taxpayer has incurred a trade or business expense contemplated by 

section 162(a) but is unable to adequately substantiate the amount, the 

Court may estimate the amount and allow a deduction to that extent. 

Cohan v. Commissioner, 39 F.2d 540, 543–44 (2d Cir. 1930). In order for 

the Court to estimate the amount of an expense, there must be some 

basis upon which an estimate may be made. Vanicek v. Commissioner, 

85 T.C. 731, 742–43 (1985). The record in this case does not allow us to 

estimate the amount of any expense included in the deduction here in 

dispute.

Expenses subject to section 274

Deductions for certain otherwise deductible expenses, such as 

travel, meals, entertainment, and vehicle expenses, are subject to strict 

substantiation requirements. See § 274(d); Sanford v. Commissioner, 50 

T.C. 823, 827 (1968), aff’d per curiam, 412 F.2d 201 (2d Cir. 1969); Temp. 

Treas. Reg. § 1.274-5T(a). With respect to deductions for these types of 

expenses, section 274(d) requires that the taxpayer substantiate either 

by adequate records or by sufficient evidence corroborating the 

taxpayer’s own statement (1) the amount of the expense, (2) the time 

and place the expense was incurred, (3) the business purpose of the 
5

expense, and (4) in the case of an entertainment or gift expense, the 

business relationship to the taxpayer of each expense incurred.

Substantiation by adequate records requires the taxpayer to 

maintain an account book, a diary, a log, a statement of expense, trip 

sheets, or a similar record prepared contemporaneously with the 

expenditure and documentary evidence (e.g., receipts or bills) of certain 

expenditures. Treas. Reg. § 1.274-5(c)(2)(iii); Temp. Treas. Reg. § 1.274-

5T(c)(2). Substantiation by other sufficient evidence requires the 

production of corroborative evidence in support of the taxpayer’s 

statement specifically detailing the required elements. Temp. Treas. 

Reg. § 1.274-5T(c)(3).

A portion of the unreimbursed employee business expense 

deduction here in dispute includes amounts for vehicle expenses, travel 

expenses, and meals and entertainment expenses that petitioner claims 

to have incurred or paid in connection with his employment with one or 

more of his employers. To support inclusion of the amounts expended 

for such purposes petitioners offered (1) bank statements with 

particular entries highlighted and (2) a contract for the purchase of a 

pickup truck. As noted, petitioner did not keep a logbook or other record 

that reflects the use of this truck or other of petitioners’ privately owned 

vehicles for employment related purposes. Petitioners’ bank statements 

show amounts spent at restaurants and for public transportation, but 

petitioner’s generalized testimony with respect to these expenses is not 

sufficient to satisfy the requirements necessary to allow for deductions 

for those expenses.

Furthermore, it is unclear whether petitioner’s employers 

reimbursed petitioner for any expenses he incurred on behalf of any of 

them. Petitioner testified that one of his employers would occasionally

reimburse him for purchases he made on behalf of the employer, but he

did not provide the reimbursement policies of this employer or any other 

of his employers. 

Because petitioners failed to present sufficient evidence 

substantiating the deductions claimed for vehicle usage, travel

expenses, and meals and entertainment expenses, they are not entitled 

to deduct any of those expenses.

Expenses not subject to section 274(d)

The disallowed deduction also includes amounts for other

expenses that petitioners report relate to petitioner’s employment for 
6

one or the other of his employers. At trial petitioner pointed to some 

charges shown in petitioners’ bank statements and claimed that these 

purchases related to his employment. According to petitioner, he was 

not reimbursed for any of these purchases by any of his employers. 

Reimbursement aside, petitioners failed to explain how the items 

purchased related to petitioner’s employment. For example, according 

to petitioner he purchased clothing for individuals being honored at an 

event sponsored by Goodwill. Although a generous gesture, petitioners 

failed to establish how the purchase was an ordinary and necessary 

expense related to petitioner’s employment with Goodwill.

With respect to deductions claimed for various other expenses, as 

respondent explained in the notice, petitioners have failed to establish 

that the expenses were paid or incurred, or if so, how the expenses

related to petitioner’s employment with any of his employers. It follows 

that petitioners are not entitled to deduct these expenses.

To reflect the foregoing,

Decision will be entered for respondent with respect to the 

deficiency and for petitioners with respect to the section 6662(a) penalty.