T.C. Summary Opinion 2009-151

UNITED STATES TAX COURT

JACK A. & LETTIE G. WHEELER, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 25087-08S. Filed September 28, 2009.

Alan C. Housholder, for petitioners.

Lynette Mayfield, for respondent.

COHEN, Judge: This case was heard pursuant to the

provisions of section 7463 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. Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the year in issue, and
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all Rule references are to the Tax Court Rules of Practice and

Procedure.

Respondent determined a deficiency of $5,070 in 

petitioners’ Federal income tax for 2005. The issue for decision

is whether Jack A. Wheeler (petitioner) has substantiated

deductible vehicle expenses as required under sections 274(d) and

280F(d)(4). 

Background

Petitioners resided in Tennessee at the time that they filed

their petition. During 2005 petitioner represented a laboratory

that provided testing for clinics performing renal services,

including dialysis, to patients. Petitioner’s employment

required him to make sales and service calls on customers. 

Petitioner used his personal vehicle in calling on customers. 

Petitioner did not maintain any logs reflecting his business use

of a vehicle or any other contemporaneous records of his vehicle

expenses.

On Schedule C, Profit or Loss From Business, attached to

petitioners’ Form 1040, U.S. Individual Income Tax Return, for

2005, petitioners reported no income but deducted $19,420 as car

and truck expenses. Petitioner prepared the return for 2005. 

Respondent disallowed the claimed deduction and made

corresponding adjustments increasing the taxable portion of
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petitioners’ Social Security benefits and reducing deductible

medical expenses.

In their petition and at trial, petitioners reduced the

amount claimed for car and truck expenses to $4,841, based on a

proposed amended Form 1040 and an amended Schedule C prepared by

petitioners’ counsel. Attached to the proposed amended Form 1040

were a Schedule A, Itemized Deductions, which included a

deduction for employee business expenses, and a Form 2106-EZ,

Unreimbursed Employee Business Expenses, but neither form

separately identified any vehicle expenses. The reduced claim

was based on reconstructed mileage for weekly visits to two labs

and monthly and less frequent but regular visits to other

customers or potential customers of petitioner’s employer. 

Discussion

Petitioner and a representative of one of his customers

testified at trial. Their testimony was to the effect that

petitioner made business calls on certain customers at various

intervals, and they estimated the mileage to the customer’s

places of business from some unspecified locale. Petitioner

offered a reconstructed schedule of “examples” of business calls

he made on behalf of his employer during 2005, including

estimates that he visited certain customers 1-1/2 times per week. 

Petitioners’ counsel acknowledged that the reconstructed mileage

was employee business expense, rather than Schedule C expense,
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and relied on the proposed amended return as stating petitioners’

position. 

Respondent objected to the testimony, to any discussion of

the amended return, and to the reconstruction that did not relate

to the amounts claimed on the original Schedule C. Respondent

asserts that the proposed amended return was not filed and was

“simply a settlement negotiation offer [and] inadmissible.”

From the time the petition was filed, it was apparent that

petitioners were not relying on the Schedule C filed with their

original return for 2005. If they adequately substantiated

deductible vehicle expenses that should have been claimed as

employee business expenses, the expenses might be allowable as

itemized deductions subject to the limitations on that category

of expenses. See secs. 67 and 68. Petitioners elected the small

tax case procedure under Rule 171 when they filed their petition,

and evidence having probative value is admissible under Rule

174(b). The testimony of petitioner and his witness had

probative value in explaining petitioner’s business use of his

vehicle. Respondent’s objections based on the difference between

the original Schedule C and the reduced claim are not well

founded, and they are overruled.

On the other hand, we cannot accept petitioners’ counsel’s

argument that Rule 174(b) relaxes the standards of evidence of
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deductible business expenses subject to the section 274(d)

requirement of substantiation by adequate records. A passenger

vehicle is listed property under section 280F(d)(4). Thus

deductions are disallowed unless the taxpayer adequately

substantiates the amount of the expense; the time and place of

business use of the vehicle; and the business purpose of the

travel. These rules were adopted to preclude estimates based

solely on a finding that some deductible business expenses were

incurred, as allowed in other contexts. See Sanford v.

Commissioner, 50 T.C. 823, 827 (1968), affd. per curiam 412 F.2d

201 (2d Cir. 1969). The statutory standard of adequacy of

evidence is not modifiable by a rule regarding admissibility of

evidence, such as Rule 174(b).

Petitioner admitted during trial that he did not keep a log

of the mileage for business or other use of his vehicle, and he

did not have any contemporaneous records that would corroborate

his reconstruction. He testified only that some motel or gas

receipts had been misplaced. We are not persuaded that

petitioner ever had adequate records to substantiate either the

$19,420 claimed on his filed return or the lesser amount of

$4,841 claimed at trial. The disparity in these claims casts

doubt on the reliability of petitioner’s recollections in

reconstructing the events of 2005.
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Petitioner has adequately explained and corroborated the

business purpose of his calls on customers during 2005. He has

not, however, adequately substantiated the time or date and

number of trips taken. His reconstruction is based on estimates

and averages; obviously he did not make 1-1/2 trips in a week. 

His reconstruction based on weekly trips in each of 52 weeks or

monthly trips in each of 12 months in 2005, without any

indication of the day of the week or month on which he made those

trips, is unreliable. 

We give no weight to the proposed amended return prepared by

petitioners’ counsel, beyond the concession of reduced business

mileage. The proposed amended return contains inconsistencies

and obvious errors; it also sets forth other unexplained

deductions that are not in issue here. Thus we need not resolve

the dispute between the parties about whether the amended return

was filed.

The other adjustments made in the statutory notice are

automatic, and petitioners have given us no reason to believe

that they are erroneous. For the foregoing reasons,

Decision will be entered

for respondent.