T.C. Summary Opinion 2006-1

UNITED STATES TAX COURT

HARON M. AND AURORA L. VERAS, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 6027-04S. Filed January 3, 2006.

Haron M. and Aurora L. Veras, pro sese.

Robert F. Saal, 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
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1 Prior to trial petitioners conceded that they are not

entitled to claimed total itemized deductions of $25,593, which

had been disallowed in the notice of deficiency. The notice of

deficiency allowed petitioners a standard deduction. 

The return reflected $912 for medical expense, however,

since the amount did not exceed 7.5 percent of adjusted gross

income, no deduction was claimed. See sec. 213(a). At trial

petitioners asserted that they were entitled to a medical expense

deduction in the approximate amount of $10,000.

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

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

Respondent determined a deficiency in petitioners’ Federal

income tax for the taxable year 2001 of $14,365. The issues for

decision are: (1) Whether petitioners omitted interest income of

$142; (2) whether petitioners are entitled to claimed Schedule C,

Profit or Loss From Business, expense deductions; and (3) whether

petitioners are entitled to a medical expense deduction not

claimed on the return.1

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 the

petition, petitioners resided in Weehawkeen, New Jersey.

In March 1999, petitioner Haron M. Veras (petitioner) began

operating a trucking company as a sole proprietor. Petitioner

owned a Freightliner tractor which was utilized to transport

freight. The tractor was purchased in 1999 at a cost of
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approximately $36,000. The purchase was financed by First Union

National Bank, and petitioner was required to make monthly

payments of $599.39. The loan carried an annual interest rate of

12.5 percent over a term of 5 years. Petitioner also utilized

persons who did the loading and unloading at the pier. 

Petitioner apparently paid the loaders in cash, and no records

were maintained or presented, documenting the amounts paid. 

During 2001 petitioner also leased a Toyota Forerunner. This

vehicle was used in the trucking business during the week and for

personal use on weekends. There were no records presented as to

amounts expended to operate the Forerunner or contemporaneous

records relating to the business use of the vehicle.

Petitioner Aurora Veras gave birth on January 16, 2002. 

Mrs. Veras traveled from the Dominican Republic to the United

States sometime in 2001. Petitioners incurred medical expenses

during 2001 with respect to Mrs. Veras’s pregnancy. Petitioners

presented no records relating to this item. 

Petitioners timely filed a joint Federal income tax return

for the taxable year 2001. No interest income was reported on

the return. Attached to the Form 1040, U.S. Individual Income

Tax Return, was a Schedule C for petitioner’s trucking business. 

The Schedule C reflects gross income of $82,515 and total

expenses of $69,424. The notice of deficiency determined that 
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petitioners received $142 of interest income that was not

reported on the 2001 return. 

The notice further disallowed Schedule C deductions as

follows:

 

Item Claimed Allowed Disallowed

Interest $1,044 -0- $1,044

Repairs & maintance 7,640 $5,084 2,556

Commissions & fees 16,000 -0- 16,000

Travel 1,600 -0- 1,600

Meals & entertainment 2,300 -0- 2,300

Other expenses 9,195 1,995 7,200

Car & truck expenses 17,716 2,267 15,449 

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).

Petitioners have 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 petitioners in this case, we conclude that the burden

of proof remains with petitioners.

Omitted Interest Income

Petitioners did not present any argument or evidence that

they did not receive $142 of interest income during the taxable

year 2001. Respondent’s determination is accordingly sustained.
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Disallowed Schedule C Deductions

1. General

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. Expenses that are personal in

nature are generally not allowed as deductions. Sec. 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 generally

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
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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

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 presented very few documents to support the

claimed business expense deductions. Petitioner asserted that he

provided documents to the examining IRS agent, and that said

individual failed to return the substantiation presented. 

Respondent disputed this assertion, and respondent’s

administrative file reflected that all substantiating documents

were returned to petitioners. We are inclined to agree with

respondent’s version of these events. The remarks in
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respondent’s administrative file appear consistent with the

disallowance of the Schedule C deductions. Petitioner was unable

or unwilling to articulate the specific documents that were

presented to the IRS and which were not available at trial. We

now consider the specific Schedule C deductions claimed by

petitioners.

2. Interest Deduction

Petitioner asserts that he paid interest on a loan relating

to a tractor purchased during 1999. Petitioner presented

credible testimony and some documentation which established that

he paid at least $1,044 in interest on the loan, which was used

to purchase a tractor for his Schedule C activity. As such,

petitioner is entitled to the claimed interest expense deduction

in full.

3. Repairs and Maintenance

Respondent agreed at trial that petitioners are entitled to

a deduction in the amount of $9,595.12 for this item. This

amount exceeds the amount claimed on the 2001 tax return of

$7,640.

4. Commissions and Fees

Petitioners claimed a deduction in the amount of $16,000 for

this item, representing amounts paid to persons who loaded and

unloaded freight. No documentation or specific testimony was

presented as to the amounts paid to such individuals. While it
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is no doubt possible that petitioner paid persons to unload

freight, we have insufficient evidence to make a reasonable

estimate of the amount that was paid. Respondent is sustained on

this item. 

5. Travel, Meals and Entertainment

The deductions claimed for travel expense of $1,600 and

meals and entertainment expense of $2,300 are subject to the

substantiation requirements of section 274(d). Petitioner

presented no documents and no specific testimony in this

connection. Respondent is sustained as to this disallowance.

6. Other Expenses

Petitioners claimed a deduction for $9,195 in other

expenses. Respondent allowed $1,400 of this amount for

communications and $595 for clothes and shoes. Remaining in

dispute is $7,200. Petitioner appeared confused about this item,

and his testimony suggests that the claimed expense deduction may

be a duplication of other items claimed on the Schedule C. 

Petitioner did not present documentation or testimony with

respect to this item. Respondent’s determination is sustained.

7. Car and Truck Expenses

Petitioner deducted $17,716 in car and truck expenses. 

Respondent allowed $2,267 for this item. At trial petitioner

asserted that this item was for fuel expense for his tractor, and

that he paid approximately $18,000 for fuel expenses. Upon a
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2 Even if we were to allow petitioners a deduction for

medical expenses, such amount would not equal or exceed the

amount allowed as a standard deduction.

review of this record we are satisfied that petitioner incurred

some expense for fuel for the tractor. We allow petitioner an

additional $6,000, for this item, over and above the amount

allowed by respondent. Respondent’s determination is otherwise

sustained.

Medical Expense

At trial, petitioners alleged that they incurred medical

expenses of approximately $10,000 during 2001 when Mrs. Veras was

pregnant. While section 213 permits a deduction for medical

expenses of a taxpayer or a dependent, a taxpayer must

substantiate claimed medical expense deductions. Sec. 1.213-

1(h), Income Tax Regs. Petitioners presented no documentary

evidence or testimony as to specific expenses incurred in this

connection. Petitioners are not entitled to any amount for a

medical expense deduction.2

Reviewed and adopted as the report of the Small Tax Case

Division.

To reflect the foregoing,

 

 Decision will be entered

 under Rule 155.