TAX COURT OPINION

Case: Tara Ann Masia
Docket Number: 20684-12S
Judge: Carluzzo
Opinion Type: bench
Filed: 10/24/2014
Pages: 11

UNITED STATES TAX COURT WASHINGTON, DC 20217 TARA ANN MASIA, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) ) ) ) ) O R D E R Docket No. 20684-12S. Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of transcript of Judge Lewis R. Carluzzo at Philadelphia, Pennsylvania, containing his oral session at which the case was heard. the trial in the above case before Special Trial the pages of the findings of fact and opinion rendered at the trial In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155. (Signed) Lewis R. Carluzzo Special Trial Judge Dated: Washington, D.C. October 24, 2014 SERVED OCT 2 7 2014 Capital Reporting Company 3 Bench Opinion by Judge Lewis R. Carluzzo September 18, 2014 Tara Ann Masia v. Commissioner Docket No. 20684-12S THE COURT: The Court has decided to render oral findings of fact and opinion in this case, and the following represents the Court's oral findings of fact and opinion (bench opinion). Unless otherwise noted, section references made in this bench opinion are to the Internal Revenue Code of 1986, as amended, in effect for 2009, and rule references are to the Tax Court Rules of Practice and Procedure. This bench opinion is made pursuant to the authority granted by section 7459(b) and Rule 152. This proceeding for the redetermination of a deficiency is a small tax case subject to the provisions of section 7463 and Rules 170 through 175. Pursuant to section 7463(b), the decision entered in this case shall not be treated as precedent for any other case. Matt Setzer, specially recognized, Joshua Peles, specially recognized, and Keith Fogg appeared on behalf of petitioner. Kristina L. Rico appeared on behalf of respondent. In a notice of deficiency dated May 14, 2012 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 8 9 10 11 12 (notice), respondent determined a $2,613 deficiency in petitioner's 2009 Federal income tax. The issue for decision is whether petitioner is entitled to a deduction for unreimbursed employee business expenses and, if so, in what amount. Some of the facts have been stipulated and are so found. At the time the petitioner was filed, petitioner resided in Kentucky. At all times relevant, petitioner was employed as a salesperson for Isaac Development Group, Inc. (Isaac). Her employment responsibilities required that she travel extensively throughout the 13 Midwestern portion of the United States. In order to 14 15 16 do so, she used a car owned by a friend of hers. She apparently paid for the gasoline consumed in her business related travel and, from time to time, she 17 might have paid for oil changes as well. The 18 19 20 21 22 23 24 25 expenses petitioner paid or incurred to use her friend's car for business related travel were not reimbursed or reimbursable by Isaac. Any records that petitioner might have kept to document her business related travel have, as stipulated by the parties, been "destroyed." During her testimony, petitioner made brief references to a "travel log." Otherwise, the exact nature of the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 destroyed records cannot be determined, and the record does not allow for precision with respect to the specific dates or locations of such travel beyond the generalized testimony of petitioner as to those 5 matters. 6 7 8 9 10 11 12 13 14 15 16 17 Petitioner's timely filed 2009 Federal income tax return (return), which was prepared by a paid income tax return preparer, includes a Schedule A, Itemized Deductions. As relevant here, the return shows adjusted gross income of $33,207, consisting almost entirely of the wage income petitioner earned from Isaac. Before the application of section 67(a), the Schedule A shows a $22,917 miscellaneous itemized deduction that consists of $22,717 for unreimbursed employee business expenses and $200 for tax preparation fees. According to the Form 2106 EZ, Unreimbursed Employee Business Expenses, included 18 with the return, the unreimbursed employee business 19 20 21 22 23 24 25 expenses are computed by the application of the $.55 standard mileage rate then in effect to 41,304 miles he Form 2106 EZ suggests that petitioner drove for business related purposes during 2009. In the notice, respondent disallowed the portion of the miscellaneous itemized deduction attributable to unreimbursed employee business 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 expenses because, according to the notice, petitioner "did not establish that the business expense shown on * * * [the return) was paid or incurred during the taxable year and that the expense was ordinary and necessary" to petitioner's business. That adjustment, in effect, caused the disallowance of the otherwise allowable itemized deductions claimed on the Schedule A. The adjustments relating to the disallowance of the otherwise allowable itemized deductions and the allowance of the standard deduction, see section 63, in lieu of itemized deductions, will not be discussed, because those adjustments are computational. As we have observed in opinions too numerous to count, deductions are a matter of legislative grace, and the taxpayer bears the burden of proof to establish entitlement to any claimed deduction. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Commissioner, 292 U.S. 435, 440 (1934) . (Petitioner does not claim that the provisions of sec. 7491(a) are applicable, and we proceed as though they are not.) This burden requires the taxpayer to substantiate deductions claimed by keeping and producing adequate records that enable the 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 Commissioner to determine the taxpayer's correct tax liability. See section 6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (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 9 must further substantiate that the expense to which 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the deduction relates has been paid or incurred. See section 6001; Hradesky v. Commissioner, 65 T.C. at 90; section 1.6001-1(a), Income Tax Regs. It is generally well known that a taxpayer may deduct ordinary and necessary expenses paid in connection with operating a trade or business. See sec. 162(a); Boyd v. Commissioner, 122 T.C. 305, 313 (2004). Generally, for purposes of section 162, the phrase "trade or business" includes the performance of services as an employee. See Primuth v. Commissioner, 54 T.C. 374, 377 (1970). In general, transportation expenses paid or incurred by an employee and traveling in pursuit of the employee's trade or business are deductible by virtue of section 162(a) if the expenses are not reimbursed or reimbursable by the employee's employer. See Heuer 866.488.DEPO www.CapitalReportingCompany.com . Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 v. Commissioner, 32 T.C. 947, 953 (1959), aff'd 283 F.2d 865 (5th Cir. 1960); see also Podems v. Commissioner, 24 T.C. 21, 23 (1955). Expenses incurred for the use of a passenger automobile (among other items) in a taxpayer's trade or business are not allowed as deductions unless the taxpayer satisfies the strict substantiation requirements of section 274(d). See secs. 274(d), 280F(d)(4)(A). With respect to the deductions for those types of expenses, the taxpayer must substantiate each expense by either "adequate records" or "sufficient evidence corroborating the taxpayer's own statement." Sec. 274(d); sec. 1.274-5T(c) (1), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). "To meet the 'adequate records' requirements of section 274(d), a taxpayer shall 18 maintain an account book, diary, log, statement of 19 expense, trip sheets or similar record * * *, and 20 21 22 23 24 25 documentary evidence." Sec. 1.274-5T(c) (2) (I), Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 1985). If such records have been lost or destroyed through no fault of the taxpayer, then the taxpayer may substantiate a deduction otherwise subject to 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 section 274 by reasonable construction of the expenditure or use. See sec. 1.274-5T(c)(5), Temporary Income Tax Regs, 50 Fed. Reg. 46022 (Nov. 6, 1985). Taking into account these fundamental principles of Federal income taxation, we return our attention to the deduction here in dispute, and begin by focusing on the obvious. Petitioner has presented no contemporaneously kept records, much less the type of records required by section 274, to substantiate: (1) the mileage driven for business purposes during 2009; or (2) the expenses paid or incurred for so doing. Furthermore, her generalized testimony on the nature of her business related travel does little 16 more than emphasize the importance of such records in 17 18 19 20 21 22 23 24 25 resolving disputes such as the one presently before us. To make matters worse for petitioner, she computed the disallowed mileage expense deduction by use of the standard mileage rate then in effect in lieu of actual expenditures. See Rev. Proc. 2008-72, sec. 5, 2008-2 C.B. (Vol. 2) 1288. This she was and is not entitled to do because she did not own or lease the car that she used for business purposes. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 See Kozlowski v. Commissioner, T.C. Memo. 1977-81. Nevertheless, we are satisfied that petitioner was required to travel and travelÓbs an Isaac employee during the year in issue. We are further satisfied that the expenses she paid or incurred to do so were not reimbursable or reimbursed by Isaac. The absence of contemporaneously prepared records showing the nature and expenses paid or incurred in connection with her business related travel, however, is not without adverse consequences to petitioner. In an attempt to mitigate against those consequences, petitioner relies upon "reconstructed" travel records, namely MapQuest printouts that have been admitted into evidence in this case. Based upon her generalized testimony, we make a generalized finding that she traveled to the destinations reflected on those printouts during the year in issue, although we cannot tell with any degree of precision how many trips she might have made to any one of those destinations. Because petitioner's testimony was credible, even if not precise, we are willing to give her the benefit of the doubt that the MapQuest printouts, along with her 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 3 4 5 6 7 8 9 testimony, provide sufficient substantiation for purposes of section 274, so as to allow for some deduction for vehicle expenses. We are not willing, however, to stretch that benefit to an unreasonable length. Relying on the MapQuest printouts, we find that during the year in issue, petitioner made the following business related trips using her friend's car: Twenty round trips to Menomonie, Wisconsin - 10 total estimate fuel costs $468.80; ten roundtrips to 11 Cloquet, Minnesota - total estimated fuel cost 12 13 $465.40; one round trip to Des Moines Iowa - total estimated fuel cost $79.80; one round trip to Sioux 14 City, Iowa - total estimated fuel cost $97.02; one 15 16 17 18 19 20 21 22 23 24 25 round trip to Waterloo, Iowa - total estimated fuel cost $70.92; five round trips to Chicago - total fuel costs $642.50; one round trip to Bismarck, North Dakota - total fuel cost $137.12; three round trips to Fargo, North Dakota - total fuel cost $499.80; one round trip to Grand Forks, North Dakota - total fuel cost $101.20; two round trips to Sioux Falls, South Dakota - total fuel cost $176.24; and one round trip to Fond du Lac, Wisconsin - total fuel cost $91.90. All told, we find that petitioner paid or incurred vehicle expenses totaling $2,830.70, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 2 consisting of estimated fuel costs determined with reference to the MapQuest printouts that reflect 3 petitioner's attempt to reconstruct for destroyed 4 5 6 7 8 9 10 11 12 records. It follows that she is entitled to take that amount into account in the computation of her otherwise allowable miscellaneous itemized deduction. To reflect the foregoing and to allow the parties to determine whether it is to petitioner's advantage to use the standard deduction or the now- allowable itemized deductions in the computation of the deficiency to be redetermined here, decision will be entered under Rule 155. This concludes the 13 Court's bench opinion in this case. 14 15 16 17 18 19 20 21 22 23 24 25 (Whereupon, at 9:58 a.m., the above- entitled matter was concluded.) 866.488.DEPO www.CapitalReportingCompany.com