TAX COURT OPINION

Case: Kyle Griffith Cameron, Petitioner and Timothy L. Austin, Intervenor
Docket Number: 8495-13
Judge: Kerrigan
Opinion Type: bench
Filed: 12/22/2014
Pages: 12

ALS UNITED STATES TAX COURT WASHINGTON, DC 20217 KYLE GRIFFITH CAMERON, PETITIONER AND TIMOTHY L. AUSTIN, INTERVENOR, Petitioner(s), v. ) ) ) Docket No. 8495-13. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ORDER OF SERVICE OF TRANSCRIPT 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, intervenor, and respondent a copy of the pages of the transcript of trial in the above case before Judge Kathleen Kerrigan at Denver, Colorado, on December 8, 2014, containing her oral findings of fact and opinion rendered at the conclusion of the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered for petitioner. (Signed) Kathleen Kerrigan Judge Dated: Washington, D.C. December 22, 2014 SERVED Dec232014 Capital Reporting Company 3 1 2 3 Bench Opinion by Judge Kathleen Kerrigan December 8, 2014 Kyle Griffith Cameron, Petitioner and Timothy L. 4 Austin, Intervenor v. Commissioner 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2 3 24 25 Docket No. 8495-13 The Court has decided to render the following as its oral findings of fact and opinion, which 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) of the Internal Revenue Code, and Rule 152 of the Tax Court Rules of Practice and Procedure. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. By notice of deficiency dated March 1, 2013, respondent determined a deficiency of $4,196 for tax year 2010. Petitioner filed a petition requesting innocent spouse relief. She previously filed a Form 8857, Request for Innocent Spouse Relief prior to receiving the notice of deficiency. Intervenor filed a ~ rrö t-i¯cê ö~f--í~ñ¯tërvérí t1 örr¯ö n Aú¯gü¯(cid:0)541t¯¯T4~, - 2 013 . Respondent concedes that petitioner is eligible for innocent spouse relief pursuant to section 6015(b) or 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 (f). The issues for our consideration are whether car and truck expenses for intervenor's newspaper business should be allowed and whether innocent spouse relief should be granted. Trial of this case was conducted on December 1, 2014, in Denver, Colorado. Petitioner represented herself, and intervenor represented himself. Both petitioner and intervenor signed the stipulation of facts. Michael T. Garrett represented respondent. The parties stipulation of facts and attached exhibits were admitted into evidence. Both petitioner and intervenor testified. We find the following facts: FINDINGS Petitioner resided in Wyoming when she filed the petition. Intervenor resided in Wyoming when he filed his notice of intervention. Petitioner and intérvenor have three minor children. Petitioner and intervenor separated on March 13, 201 , and were divorced in 201 . During tax year 2010, petitioner was employed temporarily for the Denver Regional Census Center and earned $3,130. Pèrî trörïër ¯¯hEd~¯Ti¯ó~¯ d'th-ëf--ëñipTöÿiñéTit-~diirîTiq~~fäY-year 2010. Intervenor was employed as a delivery truck 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2 3 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 driver during tax year 2010. He was also self- employed delivering newspapers during tax year 2010. The paper route was in intervenor's name, but petitioner helped deliver papers less than half the time. Petitioner and intervenor filed a joint federal income tax return for tax year 2010. Their return included a Schedule C, Profit or Loss From Business, 9 which reported income from the delivery of 10 11 12 13 14 15 16 17 18 19 20 21 22 newspapers. They also filed a joint tax return for tax year 2011. Respondent selected petitioner and intervenor's return for examination. On August 27, 2012, respondent sent a request to petitioner and intervenor for documentation to substantiate the car and truck expenses. Only petitioner responded. Her response included a request for innocent spouse relief, but did not include documentation to substantiate car and truck expenses. On March 1, 2013, respondent issued the notice of deficiency. Only petitioner filed a petition with this Court. On August 14, 2013, intervenor filed a 2 3~ ¯¯¯¯iiöt îcë~-ö f ¯¯îITtërvëiit¯iöii.¯¯~¯¯¯¯¯~¯~ 24 25 OPINION Generally, the Commissioner's determinations in 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 a notice of deficiency are presumed correct, and the taxpayer bears the burden of proving that those determinations are erroneous. Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933). The taxpayer likewise bears the burden of proving his or her entitlemeht to deductions allowed by the Code and of substantiating the amounts of claimed deductions. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1-(a), Income Tax Regs. Under section 7491-(a), in certain circumstances, the burden of proof may shift from the taxpayer to the Commissioner. Petitioners have not claimed or shown that they meet the specifications of section 7491(a) to shift the burden of proof to respondent as to any relevant factual issue. Car and Truck Expenses Section 162 permits a taxpayer to deduct ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. Deductions are a matter of legislative grace, and a taxpayer must prove his or her entitlement to a deduction. INDOPCO, Inc. v. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2 3 C onmíí s¯s-i-crier7 30 3- U - S -.--a t --8-4-7 -N eW¯¯ C¯o 1-o n i al- I C e - C o . v 24 Helvering, 292 U.S. 435, 440 (1934). To that end, 25 taxpayers are required to substantiate each claimed 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 2 3 4 5 6 7 8 9 deduction by maintaining records sufficient to establish the amount of the deduction and to enable the Commissioner to determine the correct tax liability. Sec. 6001; Higbee v. Commissioner, 116 T.C. 438, 440 (2001). Certain expenses specified in section 274, such as vehicle expenses, computers, and cell phone expenses, are subject to strict substantiation rules. Secs. 274 (d) (4), 280F(d) (4) (A) (i), (iv) and v). To 10 meet these strict substantiation rules, a taxpayer 11 must substantiate by adequate records or by 12 13 14 15 16 17 18 19 20 21 22 sufficient evidence corroborating the taxpayer's own statement (1) the amount, (2) the time and place of the travel or use, and (3) the business purpose. Sec. 274(d). To substantiate by adequate records, the taxpayer must provide (1) an account book, a log, or a similar record and (2) documentary evidence, which together are sufficient to establish each element of an expenditure. Sec. 1.274-5T(c)(2)(i), Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 195). Documentary evidence includes receipts, paid bills, or similar evidence. Sec. 1.274- 23¯ ¯¯¯5-(c¯)-¯(-2¯) (-2 )~(¯ì1¯î¯)-,--¯Iriöorñè~TäR ~Reys-.¯~¯¯¯¯~ ¯¯¯ 24 25 Petitioner and intervenor provided no information about actual car and truck expenses 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8_ 1 incurred and paid in tax year 2010. They provided no 2 mileage logs or other contemporaneous documents. 3 Petitioner and intervenor do not meet the strict 4 5 6 7 8 9 substantiation requirements of section 274(d). We sustain respondent's disallowance of car and truck expenses for tax year 2010. Innocent Spouse Relief Generally, married taxpayers may elect to file a joint Federal income tax return. Sec. 6013(a). 10 After making this election, each spouse is jointly 11 12 13 14 15 16 17 18 and severally liable for the entire tax due for that taxable year. Sec. 6013(d)(3). A requesting spouse may seek relief from joint and several liability under section 6015(b) or, if eligible, may allocate liability under section 6015(c). Sec. 6015(a). If a requesting spouse is not eligible for relief under section 6015(b) or (c), a requesting spouse may be eligible for equitable relief under section 6015(f). 19 Olson v. Commissioner, T. C. Memo. 2009-294, slip op. 20 21 22 at 10-11. Section 6015(b) Section 6015(b)(1) authorizes the Secretary to ¯2-3--qYäñt ¯fë¯li¯ëf--I¯f¯¯fhë¯¯täXpayer sä¯ti¥fîë¥ ¯thê¯¯¯¯¯¯ ¯¯¯ 24 25 requirements of subparagraphs (a) through (E): SEC. 6015(b). Procedures For Relief From 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company __9 1 Liability Applicable to All Joint Filers.-- 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2 3 24 25 (1) In general.--Under procedures prescribed by the Secretary, if- (A) a joint return has been made for a taxable year; (B) on such return there is an understatement of tax attributable to erroneous items of 1 individual filing the joint return; (C) the other individual filing the joint return establishes that in signing the return he or she did not know, and had no reason to know, that there was such understatement. (D) taking into account all the facts and circumstances, it is inequitable to hold the other individual liable for the deficiency in tax for such taxable year attributable to such understatement; and (E) the other individual elects ~¯¯ --( iñ -Wüb H -fö¯rni-E(cid:0)541¯f lïê¯ S è ö¯r ë¯t a r y m a y prescribe) the benefits of this subsection not later than the date 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 which is 2 years after the date the Secretary has begun collection activities with respect to the individual making the election, then the other individual shall be relieved of liability for tax (including interest, penalties, and other amounts) for such taxable year to the extent such liability is attributable to such understatement. The requirements of section 6015(b)(1) are stated in the conjunctive. Haltom v. Commissioner, T.C. Memo. 2005-209, slip op. at 9. A requesting spouse will not qualify for relief if he or she fails to meet any one requirement. Alt v. Commissioner, 119 T.C. 306, 313 (2002), aff'd, 101 Fed. Appx. 34 (6th Cir. 2004) ; Haltom v. Commissioner, slip op. at 9. Intervenor contends that petitioner is not eligible for relief under section 6015 (b) because she had actual knowledge of intervenor's nonemployee compensation that resulted in the deficiency. A requesting spouse has knowledge or reason to 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23-¯¯¯khóW-ö¯f¯¯äri-11YidëY3¯täteinerit--if hë¯-ör-¯5¯h-e-àc¯t'uäll-y~~kri¯ëw- 24 25 of the understatement, or if a reasonable person in similar circumstances could be expected to know at 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company _11 1 2 3 4 5 6 7 8 9 the time he or she signed the return that the return contained an understatement. Sec. 1.6015-2(c), Income Tax Regs. A requesting spouse has knowledge or reason to know of an understatement if "a reasonably prudent taxpayer under the circumstances of the [requesting] spouse at the time of signing the return could be expected to know that the tax liability stated was erroneous or that further investigation was warranted." Stevens v. 10 Commissioner, 872 F.2d 1499, 1505 (11th Cir. 1989), 11 aff'q T.C. Memo 1988-63. 12 13 14 15 16 17 18 19 20 21 22 24 25 We consider all of the facts and circumstances in determining whether the requesting spouse had reason to know of an understatement. Sec. 1.6015- 2(c), Income Tax Regs. Among the facts and circumstances considered (1) "whether the requesting spouse failed to inquire, at or before the time the return was signed, about items on the return or omitted from the return that a reasonable person would question", and (2) "whether the erroneous item represented a departure from a recurring pattern reflected in prior years' returns (e.g., omitted years' returns)." Id. Section 1.6015-3(c)(2), Income Tax Regs set 866.488.DEPO www.Capita1ReportingCompany.com Capital Reporting Company -12----- 1 2 3 4 5 6 7 8 9 forth the rules pertaining to a requesting spouse's actual knowledge. The Secretary has both the burden of production and the burden of persuasion regarding actual knowledge and must establish, by a preponderance of evidence, that the requesting spouse had actual knowledge of the erroneous item. Sec. 1.6015-3(c)(2), Income Tax Regs. In the case of omitted income, knowledge of the item includes knowledge of receipt of the income. Sec 1.6015- 10 3(c)(2) (i)(A), Income Tax Regs. 11 Party's Positions 12 13 14 15 16 17 18 19 20 21 22 24 25 Respondent concedes that petitioner is entitled to full relief under section 6015(b). We do not address sections 6015(c) and (f) since respondent conceded petitioner was eligible for relief under section 6015(b). However, intervenor contends that petitioner has actual knowledge of the car and truck expenses. He testified that just his name was on the contract for the paper route, but the family delivered the papers and petitioner delivered the papers more than half the time in 2010. Intervenor further testified that the route for tax purposes. Intervenor provided no evidence to support his position. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company ____13 Petitioner testified that she did not prepare the return and did not have knowledge of how intervenor calculated the car and truck expenses associated with the paper route. We find that petitioner did not know or have reason to know of an understatement. We uphold respondent's concession that petitioner is eligible for innocent spouse relief under section 6015(b). This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 9:20 a.m., the above- entitled matter was concluded.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 24 25 866.488.DEPO www.CapitalReportingCompany.com