T.C. Summary Opinion 2005-155

UNITED STATES TAX COURT

MATTHEW P. BROWN, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 8242-04S. Filed October 20, 2005.

Matthew P. Brown, pro se.

Michael R. Fiore, for respondent.

PANUTHOS, Chief Special Trial Judge: This case was heard

pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect at the time the petition was filed. The

decision to be entered is not reviewable by any other court, and

this opinion should not be cited as authority. Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code in effect for the years in issue, and all Rule

references are to the Tax Court Rules of Practice and Procedure.
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Respondent determined deficiencies in petitioner’s Federal

income taxes for the taxable years 2001 and 2002 of $4,290 and

$1,188, respectively. Respondent also determined accuracyrelated penalties under section 6662(a) for the taxable years

2001 and 2002 of $858 and $237.60, respectively. The issues for

decision are: (1) Whether petitioner is entitled to deductions

for employee business expenses, and (2) whether petitioner is

liable for accuracy-related penalties under section 6662(a).

Background

Some of the facts have been stipulated, and they are so

found. The stipulation of facts and the attached exhibits are

incorporated herein by this reference. At the time of filing his

petition, petitioner resided in Medford, Massachusetts.

During the years in issue petitioner was employed by

Paychex, Inc. (Paychex), as an outside sales representative. 

Paychex provided payroll services to businesses. Petitioner

sought to bring in new customers to utilize the payroll services

provided by Paychex. Petitioner’s sales territory consisted of

southeastern New Hampshire and northeastern Massachusetts. 

Petitioner was responsible for 27 separate towns in this

geographic area. Paychex’s offices were located in Woburn,

Massachusetts, and petitioner resided in Sandown, New Hampshire,

during the years in issue. Petitioner’s round trip commute

between his home and office was 68.8 miles.
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Petitioner drove his automobile to visit existing and

potential customers. From the beginning of 2001 until November

16, 2001, petitioner utilized his Honda Accord (Honda) for both

his business and personal transportation. On or after November

16, 2001, petitioner utilized a Nissan Maxima (Nissan) for all of

his transportation. Petitioner estimated use of his automobile

as approximately 20 percent personal and the remainder business. 

Petitioner calculated his mileage expense for each of the years

in issue by reviewing the odometer of his automobile and

designating a percentage of the miles driven as business miles.

Petitioner submitted weekly activity reports to his

employer. Petitioner submitted to the Court copies of weekly

activity reports for approximately 15 weeks for 2001 and for the

entire year 2002. The weekly activity reports do not reflect the

number of miles driven, nor do they contain other details as to

specific business activity. Petitioner maintained a day planner;

however he lost the planner for 2001 sometime in early 2002. 

Petitioner did not retain his day planner for 2002.

On his 2001 Federal income tax return, petitioner reported

wages of $59,358 and claimed itemized deductions on Schedule A,

Itemized Deductions, of $20,157. The claimed itemized deductions

consisted of $19,807 of employee business expenses and $350 of

gifts to charities. On his 2002 Federal income tax return

petitioner claimed itemized deductions of $9,091, consisting of
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1 The 2002 Federal income tax return was not made part of

the record; however, other evidence, including copies of Forms W2, Wage and Tax Statement, reflect that petitioner received

salary in the amount of $61,868.83.

2 The notice of deficiency allowed a standard deduction in

lieu of the claimed itemized deductions for 2001 and 2002. It is

not clear whether the allowance of the itemized deductions for

gifts to charity and for taxes will result in any tax benefit to

petitioner. The Court will enter a decision under Rule 155 and

permit the parties to compute the tax liability that is most

advantageous to petitioner.

taxes paid of $1,471, employee business expenses of $7,520, and

gifts to charities of $100.1 Petitioner also received

reimbursement of employee business expenses of $6,099 for each of

the years 2001 and 2002. The $6,099 that petitioner received in

each of the years in issue was not dependent on the actual

expenses incurred or miles driven. Petitioner was not required

to report the number of miles driven to his employer. The

payment was described by petitioner as an “expense allowance”. 

Petitioner did not report the $6,099 as income on his respective

returns.

In a notice of deficiency respondent disallowed all the

itemized deductions claimed on the 2001 and 2002 returns. Before

trial the parties agreed that petitioner is entitled to

deductions for gifts to charities as claimed on the 2001 and 2002

returns. The parties further agreed that petitioner is entitled

to the claimed deduction for taxes for 2002.2 Respondent did not

adjust petitioner’s income to include the $6,099 in reimbursed
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employee business expenses which petitioner did not report on his

returns for each of the years 2001 and 2002. 

The issues remaining for decision are the claimed employee

business expenses, which is composed of mileage expenses relating

to the business use of petitioner’s automobile for each of the

years in issue and the accuracy-related penalties.

Burden of Proof

Generally, the burden of proof is on the taxpayer. Rule

142(a)(1). Under section 7491, the burden of proof shifts from

the taxpayer to the Commissioner if the taxpayer produces

credible evidence with respect to any factual issue relevant to

ascertaining the taxpayer’s liability. Sec. 7491(a)(1). 

Petitioner has neither argued that the burden of proof should

shift nor satisfied the criteria that would cause the burden of

proof to shift. Given the lack of documentation and information

provided by petitioner in this case, we conclude that the burden

of proof remains with petitioner.

Mileage Expense

Section 162(a) permits a deduction for the ordinary and

necessary expenses paid or incurred during the taxable year in

carrying on a trade or business. A trade or business includes

the trade or business of being an employee. O’Malley v.

Commissioner, 91 T.C. 352, 363-364 (1988). Expenses that are

personal in nature are generally not allowed as deductions. Sec.
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262(a). A taxpayer is required to maintain records sufficient to

establish the amount of his income and deductions. Sec. 6001;

sec. 1.6001-1(a), (e), Income Tax Regs. A taxpayer must

substantiate his deductions by maintaining sufficient books and

records to be entitled to a deduction under section 162(a). 

When a taxpayer establishes that he has incurred a

deductible expense but is unable to substantiate the exact

amount, we are permitted to estimate the deductible amount. 

Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). We

can estimate the amount of the deductible expense only when the

taxpayer provides evidence sufficient to establish a rational

basis upon which the estimate can be made. Vanicek v.

Commissioner, 85 T.C. 731, 743 (1985).

Section 274(d) supersedes the general rule of Cohan v.

Commissioner, supra, and prohibits the Court from estimating the

taxpayer’s expenses with respect to certain items. Sanford v.

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

201 (2d Cir. 1969). Section 274(d) imposes strict substantiation

requirements for listed property as defined in section

280F(d)(4), gifts, travel, entertainment, and meal expenses. 

Sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014

(Nov. 6, 1985). To obtain a deduction for a listed property,

travel, meal, or entertainment expense, a taxpayer must

substantiate by adequate records or sufficient evidence to
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corroborate the taxpayer’s own testimony the amount of the

expense, the time and place of the use, the business purpose of

the use and, in the case of entertainment, the business

relationship to the taxpayer of each person entertained. Sec.

274(d); sec. 1.274-5T(b), Temporary Income Tax Regs., 50 Fed.

Reg. 46014 (Nov. 6, 1985). Section 274 requires that expenses 

be recorded at or near the time when the expense is incurred. 

Sec. 1.274-5T(c)(1), Temporary Income Tax Regs., 50 Fed. Reg.

46016 (Nov. 6, 1985). Listed property includes passenger

automobiles. Sec. 280F(d)(4)(A)(i). Petitioner therefore must

meet the strict requirements of section 274 to be entitled to a

deduction related to car expenses. If a taxpayer is unable to

fulfill the requirements of section 274(d), he is not entitled to

the deduction.

Petitioner’s records with respect to his car expenses fail

to satisfy the requirements of section 274(d). The weekly

activity sheets prepared by petitioner and provided to his

employer do not contain sufficient information to satisfy the

requirements of section 274(d). Petitioner’s day planners, which

may have contained additional detailed information, were not

available. Petitioner testified that he lost the planner for

2001 and disposed of the planner for 2002. Petitioner did not

provide a reconstruction of his mileage expenses in an attempt to

satisfy the substantiation requirements. Petitioner failed to
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establish the amount of the expense, the time and place of each

use, and the business purpose of the use of the Honda and Nissan. 

Respondent is sustained on this issue. 

Accuracy-Related Penalty

Respondent determined that petitioner is liable for the

accuracy-related penalties under section 6662(a) for 2001 and

2002. The accuracy-related penalty is equal to 20 percent of any

portion of an underpayment of tax required to be shown on the

return that is attributable to the taxpayer’s negligence or

disregard of rules or regulations. Sec. 6662(a) and (b)(1). 

“Negligence” consists of any failure to make a reasonable attempt

to comply with the provisions of the Internal Revenue Code and

also includes any failure to keep adequate books and records or

to substantiate items properly. Sec. 6662(c); sec. 1.6662-

3(b)(1), Income Tax Regs. “Disregard” consists of any careless,

reckless, or intentional disregard. Sec. 6662(c).

An exception applies to the accuracy-related penalty when

the taxpayer demonstrates (1) there was reasonable cause for the

underpayment, and (2) he acted in good faith with respect to such

underpayment. Sec. 6664(c). Whether the taxpayer acted with

reasonable cause and in good faith is determined by the relevant

facts and circumstances. The most important factor is the extent

of the taxpayer’s effort to assess his proper tax liability. 

Stubblefield v. Commissioner, T.C. Memo. 1996-537; sec. 1.6664-
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4(b)(1), Income Tax Regs. Section 1.6664-4(b)(1), Income Tax

Regs., specifically states: “Circumstances that may indicate

reasonable cause and good faith include an honest

misunderstanding of fact or law that is reasonable in light of 

* * * the experience, knowledge, and education of the taxpayer.” 

Pursuant to section 7491(c), the Commissioner has the burden

of production with respect to a section 6662 accuracy-related

penalty. To meet this burden, the Commissioner must produce

sufficient evidence indicating that it is appropriate to impose

the relevant penalty. Higbee v. Commissioner, 116 T.C. 438, 446

(2001). Once the Commissioner meets this burden of production,

the taxpayer continues to have the burden of proof with regard to

whether the Commissioner’s determination of the penalty is

correct. Rule 142(a); Higbee v. Commissioner, supra. Further,

the taxpayer bears the burden of proving that he or she acted

with reasonable cause and in good faith. See sec. 6664(c)(1).

Respondent’s burden of production is satisfied in this case

since petitioner failed to maintain records to substantiate

expenses as required. Petitioner did not present any argument or

evidence that the reporting of the claimed mileage deductions was

based on reasonable cause or good faith. Petitioner did not

attempt to satisfy the record-keeping requirements for his

mileage expense deductions, nor did he attempt to reconstruct the

expense deductions at trial. We conclude that petitioner has
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failed to show that he acted with reasonable cause or in good

faith. Accordingly, we hold petitioner is liable for the

accuracy-related penalties.

Reviewed and adopted as the report of the Small Tax Case

Division.

To reflect the foregoing,

Decision will be entered

under Rule 155.