T.C. Summary Opinion 2008-129

UNITED STATES TAX COURT

HASSAN S. NIYITEGYEKA, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 3916-07S. Filed September 24, 2008.

Hassan S. Niyitegyeka, pro se.

William C. Bogardus, for respondent.

GOLDBERG, 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. 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, subsequent

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

Rules of Practice and Procedure.

Respondent determined a $2,413 deficiency in petitioner’s

Federal income tax for 2004. After petitioner’s concession the

sole issue for decision is whether petitioner is entitled to

deduct the unreimbursed employee business expenses that he

claimed.

Background

Some of the facts have been stipulated and are so found. 

The stipulation of facts and the attached exhibits are

incorporated herein by this reference. Petitioner resided in New

York when the petition was filed.

During 2004 petitioner worked for five or six different

employers, and he reported total income of $26,396. His

principal employer was the New York Life Insurance Co. (New York

Life), where he worked for 6 or 7 months from January through

June or July. New York Life employed petitioner as a

“salesperson in training”. He did not receive a salary; rather,

he earned his income entirely through commissions. During 2004

petitioner earned $18,706 from New York Life.

Petitioner lived in Brooklyn and commuted via subway to an

office in Manhattan that New York Life designated. His sales

territory included Manhattan and the surrounding areas. 

Petitioner generated about 80 percent of his business by calling
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1 Petitioner’s actual deduction was less because he properly

reduced his miscellaneous itemized expenses by 2 percent of his

adjusted gross income as sec. 67(a) requires. However,

petitioner did not first reduce his meal and entertainment

expenses by 50 percent as sec. 274(n) requires.

on prospective clients. He worked days, nights, and weekends. 

Petitioner traveled as far as the outlying parts of Queens, New

Jersey, and Connecticut to meet with clients, and he often drove

his own car, stayed in hotels, and paid for meals. New York Life

did not reimburse petitioner for his expenses because the

company’s policy was not to reimburse its sales trainees. Those

unreimbursed expenses are the ones at issue.

Petitioner hired a tax preparation firm to prepare his 2004

tax return, and he provided some receipts to the preparer. 

However, because petitioner did not maintain a log book, did not

have other receipts, and did not have totals for the business

expenses he paid, the preparer and petitioner estimated the

amount of the expenses. Petitioner claimed a total of $15,500 in

unreimbursed employee business expenses as a miscellaneous

deduction on Schedule A, Itemized Deductions.1 The $15,500

consisted of: (1) $4,500 in automobile expenses using the

standard mileage rate, (2) $7,500 for travel expenses on

overnight trips, and (3) $3,500 for other expenses such as meals

near home. Respondent disallowed the entire amount of the

deduction.
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Petitioner stored his receipts in a binder in his car. In

November 2005 the car was stolen. Petitioner notified the

police, and 2 or 3 weeks later the police recovered the vehicle;

however, the business receipts were gone. Consequently,

petitioner was not able to provide receipts to respondent or the

Court.

At trial petitioner provided for the first time a computer

listing, purportedly from New York Life, that detailed dates,

client names, and amounts for his draw and commission activities. 

The listing did not, however, provide client addresses,

locations, or distances. The listing was printed on plain white

paper with no indication of the source. Petitioner did not have

a representative from New York Life corroborate the listing, and

he did not call his tax preparer, clients, or anyone else to

testify on his behalf.

Discussion

In general, the Commissioner’s determination set forth in a

notice of deficiency is presumed correct, and the taxpayer bears

the burden of showing that the determination is in error. Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).

Deductions are a matter of legislative grace, and taxpayers

bear the burden of proving their entitlement to a deduction. 

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New

Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Section
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6001 requires taxpayers to maintain records sufficient to

establish the amount of each deduction. See sec. 1.6001-1(a),

(e), Income Tax Regs. Thus, taxpayers may deduct only the

business expenses that they can substantiate. Ronnen v.

Commissioner, 90 T.C. 74, 102 (1988).

Under section 7491(a) a taxpayer may shift the burden to the

Commissioner regarding a factual issue if the taxpayer produces

credible evidence and meets the other requirements of the

section. Under section 7491(a), a taxpayer must substantiate

items, maintain records, and cooperate fully with the Secretary’s

reasonable requests for documents, information, and similar

corroboration. Connors v. Commissioner, 277 Fed. Appx. 122 (2d

Cir. 2008), affg. T.C. Memo. 2006-239. Neither party raised

section 7491(a) as an issue. Because Petitioner did not

substantiate his expenses, we find that the burden of proof

remains with him.

A taxpayer may deduct ordinary and necessary expenses that

he or she pays in connection with the operation of a trade or

business. Sec. 162(a); Boyd v. Commissioner, 122 T.C. 305, 313

(2004). To be “ordinary” the expense must be of a common or

frequent occurrence in the type of business involved. Deputy v.

du Pont, 308 U.S. 488, 495 (1940). To be “necessary” an expense

must be “appropriate and helpful” to the taxpayer’s business. 

Welch v. Helvering, supra at 113. Additionally, the expenditure
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must be “directly connected with or pertaining to the taxpayer’s

trade or business”. Sec. 1.162-1(a), Income Tax Regs. Section

262(a) excludes deductions for personal, living, or family

expenses. A trade or business includes the trade or business of

being an employee. O’Malley v. Commissioner, 91 T.C. 352, 363-

364 (1988). However, a full-time life insurance salesperson

might qualify as a statutory employee under section

3121(d)(3)(B), so that the employee may deduct business expenses

on Schedule C, Profit or Loss From Business, “above the line” on

Form 1040, U.S. Individual Income Tax Return, instead of claiming

the expenses “below the line” on Schedule A, Itemized Deductions,

as miscellaneous itemized deductions, which section 67(a) reduces

by 2 percent of adjusted gross income. Rev. Rul. 90-93, 1990-2

C.B. 33. Petitioner has neither argued nor established that he

is a statutory employee as opposed to being a common law

employee.

To qualify for a deduction, the taxpayer must not have the

right to obtain reimbursement from his employer. See Orvis v.

Commissioner, 788 F.2d 1406, 1408 (9th Cir. 1986), affg. T.C.

Memo. 1984-533. Likewise a taxpayer may not deduct unreimbursed

employee expenses if the employer maintains a reimbursement plan

and the employee fails to seek reimbursement for work-related

expenses. See Orvis v. Commissioner, supra at 1408; Leamy v.

Commissioner, 85 T.C. 798, 810 (1985). The record indicates that
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New York Life had a policy to not reimburse its sales trainees

and that petitioner did not receive reimbursement.

If a taxpayer establishes that he or she paid a deductible

expense but is unable to substantiate the precise amount, we may

estimate the amount of the deductible expense bearing heavily

against the taxpayer whose inexactitude is of his own making. 

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

However, we can estimate only when the taxpayer presents

sufficient evidence. Vanicek v. Commissioner, 85 T.C. 731, 742-

743 (1985). Without such a basis, any allowance would amount to

unguided largesse. Williams v. United States, 245 F.2d 559, 560-

561 (5th Cir. 1957).

Section 274 overrides the Cohan rule for certain business

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

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

substantiation for travel, meals, entertainment, and listed

property such as a passenger automobile. Thus, all three of the

unreimbursed business expenses that petitioner deducted are

subject to section 274 substantiation requirements. Section

274(d) requires taxpayers to provide adequate records or

sufficient other evidence establishing the amount, time, place,

and business purpose of the expense to corroborate the taxpayers’

statements. Even if such an expense would otherwise be

deductible, section 274 may still disallow a deduction if the
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taxpayer does not have sufficient substantiation. See sec.

1.274-5T(a), Temporary Income Tax Regs., supra. Keeping in mind

these well-established principles, we must now determine for each

of the three unreimbursed expenses whether petitioner satisfied

his burden of proving that he may deduct the expense.

Regarding the automobile deduction of $4,500, petitioner

used the standard mileage rate, but he did not maintain a log. 

We recognize that a contemporaneous log is not a requirement,

however, the alternate evidence must nonetheless reach a similar

level of credibility as a contemporaneous log. See sec. 1.274-

5T(c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46016-17 (Nov.

6, 1985). The only evidence in the record is the computer

listing that petitioner entered at trial. However, the listing

did not indicate distance, address, or which clients required

mileage. As a result, petitioner did not substantiate his

business mileage and, consequently, he is not entitled to an

automobile deduction for 2004.

Similarly, regarding petitioner’s travel and meal expenses,

he may deduct those expenses only if he met the stringent

substantiation requirements of section 274(d). See Sanford v.

Commissioner, 50 T.C. 823, 827-828 (1968), affd. 412 F.2d 201 (2d

Cir. 1969); sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed.

Reg. 46014 (Nov. 6, 1985). Further, even when a taxpayer has

lost records through circumstances beyond his control, such as
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the auto theft here, the taxpayer must substantiate the

deductions through other evidence such as a credible

reconstruction of the records. Boyd v. Commissioner, 122 T.C. at

320-321; sec. 1.274-5T(c)(5), Temporary Income Tax Regs., 50 Fed.

Reg. 46022 (Nov. 6, 1985). The only documentary evidence in the

record for the travel and meals is the computer listing of draws

and commissions that did not indicate locations or which clients

required an overnight trip or a meal. Thus, petitioner failed to

provide corroborating evidence sufficient to satisfy section

274(d), and therefore he may not deduct his travel or meal

expenses.

In summary, we have taken into consideration petitioner’s

testimony and the other evidence. The record lacks a journal,

receipts, or other documentary evidence to provide a rational

basis on which we may determine even a partial deduction. Thus,

we have no foundation on which to provide an estimate even if

section 274 allowed such an estimate.

In conclusion, we sustain respondent’s determination in

full. Petitioner may not deduct the unreimbursed employee

business expenses for 2004.

Decision will be entered

 for respondent.