TAX COURT OPINION

Case: Robert Scott Olsen & Lauren D. Olsen
Docket Number: 16459-15
Judge: Thornton
Opinion Type: bench
Filed: 03/31/2017
Pages: 10

UNITED STATES TAX COURT WASHINGTON, DC 20217 ROBERT SCOTT OLSEN AND LAUREN ) ) D. OLSEN, ) ) ) ) ) ) ) COMMISSIONER OF INTERNAL REVENUE, Petitioners, v. Docket No. 16459-15. Respondent ) ) ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED thät the Clerk of the Court shall transmit herewith to petitioners and to respondent a opy of the pages of the transefipt of the trial in the above case before Judge Micliael B. Thornton at Denver, Colorado, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) Michael B. Thornton Judge Dated: Washington, D.C. March 31,c2017 SERVED APR " 8 2017 Capital Reporting Company 3 1 2 Bench Opinion by Judge Michael B. Thornton February 28, 2017 3 Robert Scott Olsen and Lauren D. Olsen, Petitioners 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 v. Commissioner Docket No. 16459-15 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. Except as otherwise provided by Rule 152(c) of the Tax Court Rules of Practice and Procedure, the oral findings of fact and opinion shall not be relied upon as precedent in any other case. This Bench Opinion is made pursuant to the authority granted by Section 7459(b) and Rule 152. Section references are to the Internal Revenue Code in effect for the taxable years at issue. All rule references are to the Tax Court Rules of Practice and Procedure. All monetary amounts are rounded to the nearest dollar. This case was tried on February 27, 2016, in Denver, Colorado. Petitioners appeared pro se. Ms. Ruba Nasrallah appeared on behalf of respondent. By notice of deficiency, respondent determined a deficiency in petitioners' 2013 federal income tax of $4,790. The deficiency resulted from respondent's 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 positive adjustment to income of $23,561 due to disallowance of unreimbursed employee business expense deductions claimed on petitioners' 2013 Schedule A, Itemized Deductions, in the following amounts: (1) $17,266 for vehicle expenses using the standard mileage rate; (2) $5,321 for travel expenses; (3) $2,343 for other business expenses; and (4) $490 for union dues. While living in Colorado, petitioners timely filed a petition contesting these disallowances. The issue for decision is whether respondent properly disallowed the deductions petitioners claimed for expenses for vehicle, travel, other business, and union dues. We hold for respondent on all issues. Findings of Fact Petitioner husband is a unionized pipefitter and 17 welder who lives in Canon City, Colorado. In 2013, 18 19 20 21 22 23 24 25 he earned income from four different employers and traveled to various locations to complete his employment responsibilities. He worked for Inspection Specialties, Inc., in Pueblo, Colorado; for Quality Mechanical Contractors, Inc., in San Bernardino, California; for Aeroteck, Inc., in Utah and North Dakota; and for Cherne Contracting Corp. in Commerce, Colorado. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 At trial petitioner husband presented a reconstructed mileage log. Petitioners alleged that the original records had been destroyed. The reconstructed mileage log provides for the recordation of the following information: date, odometer start, odometer finish, total business miles and business purpose. For each of the entries on the 8 mileage log, petitioner husband entered the date and 9 purported miles driven. A few of the entries list a 10 11 12 business purpose limited to such descriptions as "Home", "Work" and "N.D.". The remaining information was blank. 13 Opinion 14 15 16 17 18 19 20 The Commissioner's determinations in a notice of deficiency are generally presumed correct, and the taxpayer bears the burden of proving those determinations erroneous by a preponderance of the evidence. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Section 162(a) generally allowedfa deduction for 16 21 all ordinary and necessary expenses paid or incurred 22 23 24 25 during the taxable year in carrying on any trade or business. Unreimbursed employee business expenses are deductible under Section 162(a). See, e.g., Solomon v. Commissioner, T.C. Memo. 2011-91. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 Deductions are a matter of legislative grace, the taxpayer bears the burden of substantiating claimed deductions by keeping and producing records sufficient to enable the Commissioner to determine the correct tax liability. Sec. 6001; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001- 1(a), (e), Income Tax Regs. Petitioners -offered no evidence to substantiate travel expenses or other business expenses. They have therefore failed to meet their burden with respect to the deductions they claimed for those expenses. Section 274(d) 1mposes more rigorous substantiation requirements for certain expenses, including those pertaining to vehicles. Expenses subject to Section 274(d) must be substantiated; they cannot be estimated. See Sanford v. Commissioner, 50 T.C. 823, 828 (1968), aff'd, 412 F.2d 201 (2d Cir. 1969). To obtain a deduction for vehicle expenses, i.e., expenses related to the use of a passenger automobile, a taxpayer must substantiate with adequate records or by sufficient evidence corroborating his own statement: (1) the "amount of each separate expenditure" with respect to the passenger automobile; (2) the "amount of each 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 business/investment use *** based on the appropriate 2 measure (i.e., mileage for automobiles ***), and the 3 4 5 6 total use of the [passenger automobile] for the taxable period"; (3) the "[d]ate of the expenditure of use" with respect to the passenger automobile; and (4) the "business purpose for an expenditure or use" 7 with respect to the passenger automobile. Secs. 8 9 10 11 274(d) and 280F(d)(4); sec. 1.274-5T(b)(6) and (c)(1), Temporary Income Tax Regs. Alternatively, a taxpayer may calculate his deductible passenger automobile expenses by 12 multiplying his business miles by the standard 13 mileage rate for the year and then adding allowable 14 15 16 17 18 19 20 21 22 23 tolls and parking fees. Under this alternate method, however, the taxpayer is not relieved of the requirement to substantiate the amount of each business use (i.e., the business mileage), or the time and business purpose of each use. Sec. 1.274- 5(j)(2), Income Tax Regs. Consequently, substantiation of miles and business purpose is a prerequisite to claiming a deduction whether petitioners meant to claim automobile expenses for 2013, or meant to use the alternative standard- 24 mileage-rate method. 25 Although we do not doubt that Mr. Olsen used his 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 vehicle for business in 2013, we have no choice but to deny in full petitioners' deduction for mileage expenses. Petitioners computed vehicle expenses using the standard mileage rate method. As substantiation, petitioners offered a mileage log that was reconstructed in September of 2015, well after the year at issue. Mr. Olsen testified that the original records had been destroyed in a car accident that took place in October of 2013, but did 10 not offer proof that the car accident had occurred. 11 Petitioners did not adequately explain why they do 12 13 14 15 16 17 18 not have original records for November and December of 2013, for the period after the alleged accident. Given the lack of a reason for not having the original records for November and December and the lack of any supporting documentation for the reconstructed mileage log for the months of November and December, petitioners have not substantiated the 19 miles for those two months with adequate records, as 20 21 22 23 24 25 required by Section 1.274-5T(c)(2), Temporary Income Tax Regs. "Where the taxpayer establishes that the failure to produce adequate records is due to the loss of such records through circumstances beyond the taxpayer's control, such as destruction by fire, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 6 7 8 flood, earthquake, or other casualty, the taxpayer shall have a right to substantiate a deduction by reasonable reconstruction of his expenditures or use." Sec. 1.274-5T(c)(5), Temporary Income Tax Regs. Assuming for the sake of argument that the original records for January through October of 2013 were destroyed due to circumstances beyond petitioners' control, the reconstructed log is still 9 insufficient. Many of the entries in the log appear to 10 11 12 13 14 15 have been for commuting -- it is well established that the expenses associated with commuting are not deductible. E.g., Randolph v. Commissioner, 74 T.C. 284, 292 (1980); Solomon v. Commissioner, T.C. Memo. 2011-91. Mr. Olsen did not present at trial any evidence, such as appointment books, calendars, or 16 maps, to corroborate the scant information contained 17 18 19 in the mileage log, nor did he testify with any specificity regarding the miles he drove in 2013. There seems to be little correlation between the 20 miles claimed on petitioners' 2013 tax return and the 21 miles listed on the mileage log. At trial Mr. Olsen 22 23 24 25 conceded that the mileage log does not "hold water". In any event, the mileage log does not indicate the starting and ending points of trips. And most entries in petitioners' log do not list a business 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 6 7 8 9 purpose. Several entries that do list a business purpose simply list "Home", "Work", or "N.D.", none of which is a sufficient description of business purpose. As to these entries, petitioners have failed to meet the strict substantiation requirements of Section 274(d). The few entries that are left after discarding entries from November and December and those with insufficient indication of ending address or business 10 purpose add up to less than 2000 miles. The standard 11 mileage rate for 2013 was 56.5 cents per mile. 12 Notice 2012-72, sec. 2, 2012-50 I.R.B. 673. Even if 13 14 15 16 17 18 19 20 21 22 23 24 we were to assume that these entries had been properly substantiated, they would represent less than $1,130 in expenses. As explained below, even if we were to treat these $1,130 of expenses as adequately substantiated, they would not result in any tax benefit for petitioners. Unreimbursed employee business expense deductions are "miscellaneous itemized deductions", see Secs. 62(a)(1), 67(b), and are deductible only to the extent such deductions, in the aggregate, exceed 2% of the taxpayer's adjusted gross income. Sec. 67(a), Alexander v. Commissioner, T.C. Memo. 1995-51, 25 aff'd, 72 F.3d 938 (1st Cir. 1995). Tax preparation 866.488.DEPO www.CapitalReportingCompany.com . Capital Reporting Company 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 fees are deductible under Section 212(3) but also are subject to the 2% floor for miscellaneous itemized deductions. Sec. 67(a); see, e.g., Crouch v. Commissioner, T.C. Memo. 1995-289. Respondent has conceded that petitioners paid $490 for union dues, and the parties agree that petitioners paid $380 for tax preparation fees. Adding these two amounts to the $1,130 just mentioned yields $2,000 of miscellaneous itemized deductions in total. Petitioners do not contest that 2% of their adjusted gross income is $2,239. Because 2 percent of their adjusted gross income exceeds their substantiated miscellaneous itemized deductions, petitioners are not entitled to deduct any 15 miscellaneous itemized deductions. 16 17 18 19 20 21 22 23 24 25 Consequently, on the basis of the foregoing, petitioners are not entitled to deduct any unreimbursed employee business expenses, and respondent's adjustments, as listed in the notice of deficiency, are sustained. Decision will be entered for respondent. This concludes the Court's findings of fact and opinion in this case. (Whereupon, at 9:48 a.m., the above- entitled matter was concluded.) 866.488.DEPO www.CapitalReportingCompany.com