TAX COURT OPINION

Case: Thomas V. Meyers & JoAnne T. Meyers
Docket Number: 8453-19
Judge: Gustafson
Opinion Type: bench
Filed: 01/15/2020
Pages: 30

SR UNITED STATES TAX COURT WASHINGTON, DC 20217 THOMAS V. MEYERS & JOANNE T. MEYERS, Petitioners, v. ) ) ) ) ) Docket No. 8453-19. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant to Rule 152(b) of the Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioners and to respondent a copy of the pages of the transcript of the proceedings in the above case before the undersigned judge at Winston-Salem, 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 entered under Rule 155. (Signed) David Gustafson Judge Dated: Washington, D.C. January 15, 2020 SERVED Jan 16 2020 Bench Opinion by Judge David Gustafson January 8, 2020 Thomas V. Meyers & JoAnne T. Meyers v. Commissioner of 3 Internal Revenue Docket No. 8453-19 THE COURT: The Court has decided to render the following as its oral Findings of Fact and Opinion in this case. This Bench Opinion is made pursuant to the anthorirv aranrod hv sorrinn 7459(h) of the Tnternal 1 2 3 4 5 6 7 8 o 10 Revenue Code (26 U.S.C.), and Tax Court Rule 152; and it 11 12 13 14 snail not ce rellea on as preceaent in any otner case. By a statutory notice of deficiency dated May 2, 2019 (Ex. 3-J) ("SNOD"), the Internal Revenue Service ("IRS") determined deficiencies in the Federal income tax 15 of Petitioners Thomas V. and Joanne T. Meyers for the 16 17 years 2016 and 2017. (The SNOD also determined accuracy- related penalties for both years, but the Commissioner has la conceded those penalties (Stip. 44) and we will not 19 discuss them further.) The issues for us to decide are 21 Prosecute and, if so, whether decision should be entered 22 23 24 in deficiency amounts smaller than those in the SNOD, to reflect the IRS's concessions and any other deductions claimed by petitioners on Schedules A and C of their 25 income tax returns that the IRS disallowed but that we are 4973)406-2250|operations@escribers.net[www.escribetsmet able to determine are proper. We will dismiss the complaint for failure to prosecute, largely upholding the IRS's disallowances but directing a recomputation under Rule 155 so that we can enter decision in smaller amounts 4 than are determined in the SNOD. The trial of this case was conducted on January 6 and 7, 2020, in Winston-Salem, North Carolina. The petitioners represented themselves, and the Commissioner was rønrpspntpd hv Olivia Hvart Rpmhanh and Amv Dupr 1 2 3 4 5 6 7 8 a 10 Seals. 11 12 13 14 riauiaus ur rAUT In view of the burden-of-proof principles discussed below, and taking account of Mr. Meyers' failure (discussed below) to appear at the second day of trial to 15 be cross-examined, we find the following facts: 16 Employment 17 la 19 21 In 2016 and 2017, Ms. Meyers was employed full- time at the Veterans Administration. From the VA she received income reported on Forms W-2 in the amounts of In those years Mr. Meyers was employed part-time 22 at Autozone. From Autozone he received income reported on 23 24 25 Forms W-2 in the amounts of about $16,000 in 2016 and $18,000 in 2017. (Stip. 7-9.) Each petitioner apparently commuted to work in a coners (973)406-2250foperationseescribers.netlwww.escribersnet car. We cannot tell whether they incurred any other unreimbursed expenses in connection with their employment. Petitioners did not provide (Stip. 38) and we cannot tell 5 whether their employers had policies concerning reimbursement of expenses. Ms. Meyers' other activities In addition to her VA employment, Ms. Meyers was very active in her church in 2016 and 2017. She regularly attended church services as a worshiner. Tn addition shp 1 2 3 4 5 6 7 8 a 10 was active, both in her parish and in her diocese, as a 11 memoer ano orricer or tne Legion or Mary. In tnat 12 13 14 capacity she served others and supervised other members in their service. She traveled to attend religious functions. We are unable to quantify the miles she drove 15 and the expenses she incurred in her volunteer work. 16 Mr. Meyers' other activities 17 In addition to his Autozone employment, Mr. 19 Meyers enaaaed in two other activities in 2016 and 2017-- 19 real estate and model aviation. 21 $2,100 in 2016 and $1,850 in 2017. (Stip. 11, 13.) He 22 did not establish, and we cannot tell, the nature or 23 quantum of this real estate-related activity, nor can we 24 identify expenses he incurred in connection with this 25 activity. cooers 73) 406-2250 l operations@esentersmet l wwwascribersnet For model-aviation-related activities, he 6 received S3,750 in 2016 (Stip. 16) and an amount we cannot determine for 2017. Before the years at issue, model aviation was Mr. Meyers' hobby, and in one such year (2013) he spent almost $12,000 on model airplanes. (Stip. 25.) For the years at issue here, he did not establish, and we cannot tell, the nature or quantum of this model aviation activity, nor can we identify expenses he incurred in nnnnenrinn with this activirv. 1 2 3 4 5 6 7 8 o 10 Mr. Meyers used a car to drive himself for real- 11 estate ana moae1 ay1at1on act1v1tres, cut we cannot te11 12 the miles he drove or the purposes of his trips. 13 Business use of home 14 Petitioners had two mortgages on their home and 15 Paid interest totaling $11,712 in 2016 (Ex. 8-J) and 16 17 $11,405 in 2017 (Ex. 9-J). We cannot tell the extent to which Mr. Meyers la used any portion of his home exclusively for the real 19 estate activity or for the model aviation activity. 21 22 23 24 The Commissioner concedes that petitioners made deductible charitable contributions of $10 in 2016 and $335 in 2017. (Stip. 35.) We also find that they made a $187 contribution in 2017 to St. Vincent Ferrer Foundation 25 of Texas. (Ex. 20-P at 21.) Beyond that, we cannot tell (973) 406-2 250 ) operations@escribersnet ! www.escribetsmet whether and in what amounts petitioners made cash or in- 7 kind contributions to charitable organizations. Tax returns Petitioners filed timely tax returns for 2016 and 2017. (Exs. 1-J, 2-J; Stip. 2-3.) To each return petitioners attached two Schedules C-one for Mr. Meyers' real estate activity and one for his model aviation activity. Each Schedule C rpnnrepd on line ln a substantial homp offico dpdurrion 1 2 3 4 5 6 7 8 o 10 (in 2016 one claiming $7,159 and the other claiming 11 Þb,3zu, ana in zull one claiming 4 /,uas ana tne otner 12 13 14 15 claiming $6,212). Each Schedule C was supported by a Form 8829, one claiming a house of 2,500 square feet and the other claiming 2,600 square feet. In each year, one Form 8829 claimed that 50% of the house was used for the real 16 estate activity and the other claimed that 44% of the 17 house was used for the aviation activity-meaning that they la claimed 94% of the house was used exclusively for these 19 activities, leaving only 6% of the house for personal use. 21 22 23 line 20, so that 94% of those total utilities were deducted as part of the home office expense-but the real estate Schedules C also claimed on line 25 an additional 24 utilities expense ($3,100 in 2016 and $3,060 in 2017). 25 The Schedules C for the real estate activity claimed (973)406-2250|operations@escribers.net!wwwascribersnet 8 business expenses totaling $19,677 in 2016 and $22,890 in 2017, and a net loss of S17,577 in 2016 and S21,040 in 2017. (Stip. 11-14.) The Schedules C for the model aviation activity claimed business expenses totaling $21,178 in 2016 (plus $7,250 in cost of goods sold) and $18,594 in 2017 (plus $42,250 in cost of goods sold), and a net loss of $24,678 in 2016 and $57,044 in 2017. (Stip. 16-23.) To panh return npritinnprs attached two Forms 2106-EZ reporting unreimbursed employee business expenses- one rorm ror Mr. Meyers (41z,1uö in zult ana 413,zlo in 2017) and one for Ms. Meyers ($8,360 in 2016 and $6,805 in 2017). Mr. Meyers' forms included entries for "travel expense while away from home", but for both petitioners 1 2 3 4 5 6 7 8 o 10 11 12 13 14 15 the largest item was unspecified "Business expenses". Mr. 16 Meyers' forms specified that his "Occupation in which you 17 1R 19 21 22 23 24 incurred expenses" was "Real Estate Broker", but he characterizes his real estate activity as a Schedule C sole proprietorship, he does not claim that he was an for his real estate activity claims business expenses totaling $19,677 in 2016 and $22,890 in 2017. (Stip. 12, 14 -) Each return claimed charitable contributions on 25 Schedule A, both cash gifts ($15,070 in 2016 and $4,000 in 2017) and gifts "Other than by cash or check" ($4,500 in 9 2016 and S4,800 in 2017). (Stip. 33-34.) The in-kind gifts were supported by Forms 8283, with the 2016 form claiming a gift to St. Matthews Church Legion of Mary and the 2017 form claiming a gift to Goodwill Community Foundation Inc. SNOD and Tax Court proceedings The IRS examined the returns, made adjustments, and issupd the notico of dpficiennv nn Mav 2. 2019. (Fa. 1 2 3 4 5 6 7 8 o 10 3-J; Stip. 4.) Petitioners timely filed their petition on 11 May ze, zu19. At tnat time, tney reslaea in Nortn 12 Carolina. (Stip. 1.) 13 14 15 16 17 la This case was called at 10:00 a.m. in Winston- Salem on January 6, 2020. This was the only case for trial at this trial session, but the Court allowed the parties time to finish their incomplete stipulation of facts. The trial commenced at 1:00 p.m., and by 5:00 it had not finished. 19 The Court discussed the schedule with the parties, learned zu 21 22 ne ms. meyers uuu1u nu enu 1 1 ne nex uey, änu ordered that the testimony of Mr. Meyers should be interrupted so that the Commissioner could examine Ms. 23 Meyers before conducting his cross-examination of Mr. 24 Meyers. After her testimony, the Court asked the parties 25 about the schedule for the next day. Mr. Meyers stated e Cnœn (9733406-2250|operations@escribers.netlwwwescreers.net that he could appear at 9:00 a.m., but respondent's counsel requested a start-time of 9:30, and the Court stated that the trial would resume at 9:30 on Tuesday, 10 January 7, 2020. At about 9:15 a.m. on January 7, respondent's counsel advised the Court that Mr. Meyers had sent an email (Ex. 30-R) stating that he would not appear. The email stated that business conflicts had arisen so Phar hp nonld not nnmp. A sønnnd email stated that the judge has "already made up his mind - it's going to De a waste or time. We were tnere all aay toaay, ano he's got all the information he needs. He'll have to make a decision with what he's got, and we'll accept his 1 2 3 4 5 6 7 8 o 10 11 12 13 14 decision." We placed a telephone call to Mr. Meyers with 15 respondent's counsel standing by, in the hope that we 16 could have a conference call, but the call went straight 17 1R to voicemail. We stated in voicemail that his failure to appear is improper, that he should come to trial, and that 19 we would start at 9:30 as scheduled. He did not appear, 21 22 23 respondent's attorney from the evidence on the record. The Commissioner moved orally for dismissal of the case for failure to prosecute and for the imposition of a 24 Penalty under section 6673(a). 25 OPINION c rinrèrs 73)406-2250|operations®escribersnetIwwwesaíbersnet 11 1 2 3 4 5 6 7 8 a I. Burden of proof A. General principles As a general rule, the IRS's determination is presumed correct, and the taxpayer bears the burden to prove any adjustment to the income the IRS determined. See Rule 142(a). The taxpayers must satisfy the specific requirements for any deduction claimed. See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Furthermore, taxnavers are renuired en maintain records sufficione en 10 substantiate their claimed deductions. See sec. 6001; 26 11 u.r.x. sec. 1.euu1-1(a;. 12 13 14 B. Section 274 Section 274(d) establishes higher substantiation requirements for expenses related to travel, meals and 15 entertainment, and "listed property", defined in section 16 17 1R 19 280F(d)(4) to include passenger automobiles. For these expenses, a taxpayer must prove: (1) the amount of each separate expenditure with respect to such property; (2) the amount of each business use; and (3) the business ZU Purpude lui du expenulture ut use witu respect tu suun 21 Property. 26 C.F.R. sec. 1.274-5T(b)(6), Temporary Income 22 Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). The Tax 23 Court may not estimate these expenses. See Sanford v. 24 Commissioner, 50 T.C. 823, 827-828 (1968), aff'd per 25 curiam, 412 F.2d 201 (2d Cir. 1969). GDprq (973)406-2250lopentions@escribef5Jtet WWW,65Criber$.net C. Failure to appear A party's failure to appear at trial - and 12 especially his failure to appear for cross-examination after he has been permitted to put on his own testimony in "direct examination" --is a most serious offense against the process. Ours is an adversary system, and it presumes that the truth can best be discerned by allowing competing Parties to challenge and probe each other's claims. Where a narru ovados cross-examinarinn. he frustrates this 1 2 3 4 5 6 7 8 o 10 process fundamentally. He unfairly disables the opposing 11 Party rrom ceing aole to prone n1s eviaence, ano ne 12 13 14 invites the inference that his claims could not bear up under examination. So serious is this violation that it justifies 15 wholesale dismissal of the case for "failure to 16 Prosecute", with the consequence that the deficiency 17 la 19 determination of the Commissioner is upheld. See Rule 123(b) ("For failure of a petitioner properly to prosecute or to comply with these Rules or any order of the Court 21 decision against the petitioner"); sec. 7459(d) ("a 22 decision of the Tax Court dismissing the proceeding shall 23 be considered as its decision that the deficiency is the 24 amount determined by the Secretary"). 25 However, it is the frequent practice of this Cr![prs (973) 406-2250 l operations@escrbrsmet l wwwascribersaet Court-often at 13 the instance of the Commissioner to dismiss a case for failure to prosecute but to enter decision in a deficiency amount smaller than what appears in the SNOD. Typically this occurs when respondent's counsel has determined to concede an issue and affirmatively proposes the smaller deficiency amount. In the same way, we prefer if possible, even in such a circumstance, to enter a decision based on the facts demonstrated by the evidence rather than as a nunishment. Ent rn do so withnnt rewarding the petitioner for his non-appearance, we must scrutinize n1s evloence closely ana resolve all counts against him. We will attempt to do so in this instance, 1 2 3 4 5 6 7 8 o 10 11 12 13 but this requires us, in effect, to impose a heightened 14 15 16 17 burden of proof on the non-complying petitioners. D. Credibility A Party's ability to sustain his burden of proof depends on the credibility of his testimony and his la documentary evidence. Here petitioners' credibility has 19 been seriously undermined. When respondent's counsel 21 22 23 24 supposed 2017 receipt from Habitat for Humanity (Ex. 21-P, P. 27) was identical, except for its date, to a post-suit year receipt (Ex. 25-R, p. 4), he acknowledged that he had used the later receipt to prepare for himself a receipt 25 for 2017 substantiating gifts that he did make (though he (973)406-2250loperations@escribers.net!www.escribersaet 14 resisted the characterization that he had altered evidence). The chance seems remote-and Mr. Meyers did not explicitly testify-that in both years he contributed "1 credenza 1 kitchen table with glass top 4 dining chairs 2 wicker patio chairs 1 wicker rocker 1 wicker end table". We conclude that he deliberately concocted a non-authentic receipt and tried to make the Commissioner and the Court assume that it was authentic. nonrived of the nnnorrunirv en cross-examing Mr 1 2 3 4 5 6 7 8 a 10 Meyers, respondent's counsel set out in closing argument 11 12 13 14 tne suoJects acout wnicn sne woula nave examinea nim-ana she pointed out anomalies in petitioners' evidence that truly require explanation. For example, credit card statements from the two years in suit with identical pages 15 of charges, but with a different year - one of them 16 evidently doctored to support duplicate deductions in both 17 years. Compare Ex. 11-P at 39-42 ("2016") with Ex. 19-P 1R at 19-22 ("2017"); Ex. 12-P at 12 ("2016") with Ex. 19-P 19 at 30 ("2017"). 21 22 on nearly all of petitioners' documents and on Mr. Meyers' testimony-and on his emailed excuse for not appearing for 23 his cross-examination. It is not impossible that he 24 developed the scheduling conflicts he alleged; but it 25 seems just as likely that, having been through voir dire on the Habitat for Humanity receipts, he did not wish to undergo a cross-examination on his exhibits. We lack confidence in his veracity, and this all but renders him unable to prove disputed items without independent proof, 15 which he lacks. II. Employee business expense A taxpayer may claim an unreimbursed employee business expense ("UEBE") as a miscellaneous deduction on schedulp A. nursuant en the nrnvision in section 162(;n that one may deduct expenses of a business; and an emp1oyee 1s cons1aerea to ce 1n tne aus1ness or ce1ng an employee. The employee business deductions that 1 2 3 4 5 6 7 8 a 10 11 12 13 petitioners claimed must be disallowed, because 14 petitioners did not show their employers' reimbursement 15 Policies (Stip. 38) and because, as we now show, they did 16 not substantiate them. 17 1R 19 21 22 23 A. Ms. Meyers' UEBE deduction Petitioners' returns cave very little detail about the nature of the supposed UEBEs. One specified fees, tools, and transportation" in both years. However, the cost of daily commuting to and from work is a nondeductible personal expense. See Commissioner v. 24 Flowers, 326 U.S. 465, 473-474 (1946); 26 C.F.R. sec. 25 1.162-2(e). Moreover, she made no showing of a log or criners (9733406-2250loperations@escribersnet|www.escribersaet tally of miles driven for her employment. As we noted above, section 274 requires heightened proof of vehicle 16 expense, and she presented no proof. The bulk of her claim-unspecified "Business expenses" in both years-is unelaborated, unexplained, and unsubstantiated. B. Mr. Meyers' UEBE deduction Mr. Meyer's alleged real estate work was his own sole nrnnriptorshin for which hp claimed business deductions on Schedule C, and his only employment per se was witn Autozone. ret n1s Form zlue-Er states tnat it claims UEBE for his occupation as "Real Estate Broker". We therefore conclude that these claimed UEBE expenses are 1 2 3 4 5 6 7 8 a 10 11 12 13 14 duplicates of expenses claimed on Schedule C and must be 15 disallowed for that reason. 16 17 1R 19 However, even if we were to construe the Form 2106-EZ as pertaining to his Autozone employment, his claim fails. The return claims expense for travel away from home, meals, and unexplained "Business expense"; but ZU Mi- Meyeld Pulu eu Lu nu suas entidtion tur duy ut tuede 21 22 23 24 expenses 1n connection with his Autozone employment. III. Charitable contributions A. Substantiation requirements Section 170(a) allows as a deduction any 25 charitable contribution made within the taxable year. (9733406-2250| operations@escribetsmet j www.escribersaet 17 Deductions for charitable contributions are allowable only if verified under the regulations prescribed by the secretary. sec. 170(a)(1). To verify a charitable contribution of money, the regulations require the taxpayer to maintain one of the following for each contribution: (1) a canceled check; (2) a receipt from the donee; or (3) in the absence of a check or receipt, other reliable written records. A renpint or rpenrd used for this nurnose must show the namp 1 2 3 4 5 6 7 8 o 10 of the donee, the date of the contribution, and the amount 11 12 13 or tne contricution. ze U.r.x. sec. 1.1/uA-13(a)(1). To verify a charitable contribution of property other than money, the regulations require the taxpayer to 14 maintain a receipt from the donee for each contribution 15 16 showing: (1) the name of the donee; (2) the date and location of the contribution; and (3) a description of the 17 property. A letter or other written communication from 1R 19 21 22 23 24 the donee acknowledaina receipt of the contribution, showing the date thereof, and containing the required receipt. Those are the general rules. Additional rules require even more substantiation for contributions of cash or property of $250 or more. They must be substantiated 25 by a contemporaneous written acknowledgment ("CWA") from . coners 973)406-2250}operations@eSaibers.net|www.escribersmet the donee. See sec. 170(f)(8); 26 C.F.R. sec. 1.170A- 13(f)(1). A written acknowledgment is contemporaneous if it is obtained by the taxpayer on or before the earlier of the date the taxpayer files the original return for the 18 taxable year of the contribution or the due date (including extensions) for filing the original return for the year. Sec. 170(f)(8)(C); 26 C.F.R. sec. 1.170A- 13(f)(3). That acknowledgment, which must be furnished by the donop. must (1) srarp the amnunt of nash and describs other property contributed, (2) indicate whether the donee organ1zation provloea any gooas or services in consideration for the contribution, and (3) provide a 1 2 3 4 5 6 7 8 a 10 11 12 13 description and good faith estimate of the value of any 14 goods or services provided by the donee. Sec. 15 170(f)(8) (B); 26 C.F.R. sec. 1.170A-13(f)(2). 16 17 B. Cash contributions The Commissioner conceded that petitioners are la entitled to deduct cash contributions of $10 in 2016 and 19 $335 in 2017. Beyond that, we find only one additional ZU uddu contiluutlun tuisuuddeu veluw/ Lu udve ueen 21 22 23 24 substantiated. Given Mr. Meyers' apparent willingness to concoct his own document to substantiate a deduction, we have little confidence in the documents he presents. There are photocopies of facsimiles of checks (though not 25 nearly in the amounts claimed on the two Schedules A) of criners 973)406-2250|operations@escribersnet|wwwescribersmet the sort that often accompany bank statements-but petitioners produced no corresponding bank statements that would perhaps have verified that the checks had been 19 negotiated in the purported amounts. A photocopy of a purported receipt for $435 from their parish church (Ex. 29-P) was produced to the Commissioner late in the week before trial (i.e., not in compliance with our standing pretrial order, Doc. 6) so that hp nonld not do mnnh rn attemnt to verifv it. and it seems to lack an entry for one of the checks in the record (cnecx zett ror nza, Ex. zu-F at 39)-wnicn m1gnt mean tnat the check is not authentic or that the receipt is not 1 2 3 4 5 6 7 8 o 10 11 12 13 authentic. We cannot say it is more likely than not an 14 authentic receipt. Petitioners present a receipt (Ex. 15 11-P at 1) for a contribution of $1,350 from "Canons 16 Regular of St. Martin of Tours". We take judicial notice 17 that such an organization appears on the IRS's list of la cualified donee oraanizations, but petitioners' receipt 19 does not bear the required statement that no goods or 21 contribution. See sec. 170(f) (8) (B) (ii); 26 C.F.R. sec. 22 1.170A-13(f)(2)(ii). 23 24 A receipt that we think probably genuine (but that respondent did not concede) is for a $187 25 contribution in 2017 to St. Vincent Ferrer Foundation of 733406-2250|operations@escribersaet!wwwasaibersaet Texas. (Ex. 20-P at 21.) The organization is on the IRS's list of qualified donees, and the receipt complies with the regulation. We allow this additional deduction. 20 C. Non-cash contributions of household goods Petitioners claimed a 2016 deduction for alleged non-cash gifts of household goods to St. Matthews Church Legion of Mary and a 2017 deduction for alleged non-cash gifts to Goodwill Community Foundation Inc. For the 2016 T,pnion of Marv nifts there is no substantiation 1 2 3 4 5 6 7 8 o 10 whatsoever. For the 2017 Goodwill gifts there are four 11 12 13 14 15 receipts witn assoc1atea pnotograpns or items or cags or items (Ex. 21-P), but neither petitioner gave any testimony to corroborate these. The Habitat for Humanity receipts that we discussed above purport to substantiate contributions not even claimed on the returns, and Mr. 16 Meyers' admitted alteration of at least some of these 17 receipts taints not only their credibility but also the la credibility of the Goodwill receipts. We hold that 19 Petitioners did not substantiate any non-cash 21 22 23 24 D. Expenses incurred for the Legion of Mary The Commissioner acknowledges that the regulations under Section 170 allow a deduction for expenses incurred on behalf of a charitable organization, 25 Potentially including vehicle expenses incurred on behalf 21 1 2 3 4 5 6 7 8 a of a charity, to the extent of "14 cents per mile", sec. 170(i). Ms. Meyer alleges that in service of the Legion of Mary she drove more than 15,000 miles in 2016 and more than 12,000 miles in 2017. She proffered a calendar that showed all the events of the Legion in her diocese (many of which she admits that she did not participate in), and on that calendar, in the month before trial, she wrote in on many of the days the number of miles she claims she droup for the T,pnion on Phar dav. and then rotaled the 10 miles monthly. When asked how she was able to recall the 11 events sne naa part1c1patea 1n ana tne m11es sne naa 12 driven, she stated that she has another log at home that 13 14 15 she had consulted but that she did not bring with her to trial. The calendar with its entries made in December 2019 does not qualify as a contemporaneous log from 2016 16 and 2017 and does not satisfy the high standard of section 274(d). 17 1R Ms. Meyers also evidently claims travel and 19 lodging expense incurred more remotely in connection with 21 22 23 24 She has no contemporaneous (or other) written acknowledgment from anyone in her church or diocese that she incurred this expense for the Legion. Even if the CWA requirement does not apply to a contribution made 25 indirectly by an expenditure on behalf of an organization, . crlærs (973)406-2250|operationseescribers.net!www.escribers.net the absence of any acknowledgment 22 from the organization is problematic. One may attend a religious event or conference not only to serve others but also as an exercise of one's own spiritual life. As we observed in Seed v. Commissioner, "Expenses incurred in the rendition of services to a qualified charitable organization may, and often do, have a dual character. They may benefit both the charity and the taxpayer. [T]he presence of substantial dirper norsonal benefit innrina en and 1 2 3 4 5 6 7 8 a 10 anticipated by the taxpayer is fatal to any 11 12 13 cnaracterization or tne payments or expenses as 'charitable contributions.'" 57 T.C. 265, 276 (1971); see also Churukian v. Commissioner, T.C. Memo. 1980-205. 14 Petitioners did not give any evidence - not even express 15 16 testimony on the point from Ms. Meyers - that anyone in the Legion, the parish, or the diocese had authorized Ms. 17 Meyers to incur any particular expenses on behalf of the la Leaion. We do not find any deductible expense by Ms. 19 Meyers' on behalf of the Legion of Mary to have been ZU suudLd11Lidteu. 21 22 IV. Schedule C deductions Section 162 allows "as a deduction all the 23 ordinary and necessary expenses paid or incurred during 24 the taxable year in carrying on any trade or business." 25 To prove entitlement to deduct an expense, the taxpayer cm ner must prove not only the fact of the expenditure but also the business purpose. Especially because of his failure to submit to cross-examination, Mr. Meyers proved neither of these things, so he is not entitled to the disallowed 23 deductions. A. Real estate activity 1. Business character We cannot say that Mr. Meyers proved he engaged in the allpapd real psrare activirv as a business. The information he gave about the activity was vague. He namea no c11ents ano oescricea no transactions. We cannot see why he would have incurred (as he claimed) more than $42,000 in real-estate-related expenses during 2016 and 2017 only to generate less than $4,000 in revenue. 2. Advertising expense we are not persuaded by his unexamined direct testimony that he incurred the expenses he alleged, and we comment in particular on several remarkable cateaories of claimed expense. He explained that the "advertising 1 2 3 4 5 6 7 8 a 10 11 12 13 14 15 16 17 1R 19 21 Schedule C for 2016 and the $6,400 for 2017 were for the 22 purchase of two model planes that (he says) he used to 23 promote the real estate business. He did not substantiate 24 these purchases. He did not claim depreciation of the 25 Planes but deducted their alleged cost entirely. He did not point to any real estate payment or transaction that 24 resulted from this "advertising", and we conclude that he simply used an advertising deduction to attempt to write off purchases for his model plane hobby. 3. Mileage log Mr. Meyers presented a purported log of his real estate activity to show miles he drove for it in 2016. (He presented no log for 2017.) We do not believe that the 201F lna was nrpared contemnnransonsiv hur that. more likely, it was created after the fact. One reason for our sKepticism 1s tne ract tnat, as tne commissioner pointea out during closing argument, the 2016 real estate log contradicts the equivalent 2016 log he presented for the 1 2 3 4 5 6 7 8 a 10 11 12 13 14 aviation activity. Where one log shows him in one 15 16 17 la 19 21 22 23 location, the other log shows him in another. In Exhibit 10-P, compare: page 35 (entries for 2/28 through 3/7 yielding 2,019 real estate miles) with page 27 (entries for 2/28 and 3/5 showina 166 aviation miles); eace 36 (entries for 6/1 through 6/6 showing 746 real estate miles 6/5 showing 388 aviation miles); page 37 (entries for 10/5 through 10/10 showing 628 real estate miles) with page 32 (entries for 10/5, 10/8, and 10/9 showing 324 aviation 24 miles). His log for 2016 does not satisfy the 25 requirements of section 274(d). 4. Home office 25 We must completely reject Mr. Meyers' claim of a home office deduction for the real estate activity. In his testimony, he suggested that the "office" (a room on the second floor) is 450 square feet. If that is true, then it constitutes 18% of his 2,500-square-foot house, yet he attributed 44% of the house's utilities and other expenses to the "office". He did not testify about what funnrinns or rasks he nerformed in the "offine" nor that 1 2 3 4 5 6 7 8 a 10 it was used exclusively as an office for the real estate 11 activity. 12 13 14 Of course, we cannot say what further discrepancies and enormities might have been revealed in the cross-examination that Mr. Myers evaded, and we hold 15 he is entitled to no Schedule C deductions for the real 16 estate activity. 17 la B. Model aviation activity Likewise, we cannot say that Mr. Meyers proved 19 he engaged in the alleged model aviation activity as a 21 Planes for customers and training people how to use them, 22 but he named no clients, described no transactions, and 23 gave little detail to distinguish this activity from a 24 hobby (which he admits it was for him through 2013, Stip. 25 25). . Cf|nPK (973)406-2250|operations@escribersnet[www.esaibersnet His Schedules C claims a home office deduction 26 for this activity as well. In his testimony, he said that the entire basement level of the house is devoted to the model aviation activity. If that is true, then it constitutes about a third of his house, yet he attributed 50% of the house's utilities and other expenses to the "office". He did not testify that it was used exclusively as an office for the model aviation activity. His Schedulps C claimed advertisina exnsnsps of $8,200 in 2016 and $9,500 in 2017, but he did not give testimony tnat purportea to explain or account ror sucn amounts. He also claimed vehicle expenses of $3,258 in 2016 and $2,882 in 2017, but his supposed logs for the 1 2 3 4 5 6 7 8 o 10 11 12 13 14 aviation activity fail in the same way as his logs for the 15 real estate activity. We cannot credit his testimony or 16 his documents. We hold he is entitled to no Schedule C 17 deductions for the model aviation activity. 1R V. Mortaaae interest 19 There is no dispute that petitioners incurred 21 Schedule A. The payment of that interest is substantiated 22 23 not by petitioners' dubious testimony but by contemporaneous third-party reporting on Forms 1098. (See 24 Exs. 8-J, 9-J.) 25 However, because of petitioners' outlandish (~ nOprq (973)406-2250iopentions@escríbers.net|wwnescribers.net 27 claim that 50% and 44% of their house was used exclusively for the real estate and model aviation activities, they claimed 94% of that interest on Schedule C, from which it was properly disallowed. They claimed only 6% of the interest on Schedule A, and that portion was not disallowed. Thus, petitioners were deprived of 94% of the mortgage interest deduction to which they were entitled. In closing argument the Commissioner resisted anv norrection of this shorrano honanse neritinnprs did not explicitly request it and because they failed to appear ror tne secono aay or trial. However, we aeem tnat 1 2 3 4 5 6 7 8 o 10 11 12 Petitioners' dispute of the disallowance of the mortgage 13 14 15 16 17 1R 19 interest should be construed to claim that interest deduction where it would be proper-i.e., on Schedule A-and in each year we will allow a deduction for that additional amount. v1. Section 6673 A. The Commissioner's motion At the conclusion of trial, respondent's counsel 21 Penalty pursuant to section 6673. When the Court inquired 22 about compliance with the supervisory approval requirement 23 of section 6751(b)(1), the Commissioner responded with two 24 contentions: 25 First, he contended that section 6751(b)(1) does cr ners (973)406-2250|operations@escribetsmetlwww.escibetsmet not apply to the section 6673 penalty. We doubt this is correct. As far as we know, this Court has not yet ruled on that question, but has held that several other of the 28 assessable penalties are subject to section 6751(b) (1). See, e.g., Belair Woods, LLC, v. Commissioner, 154 T.C. No. 1 (Jan. 6, 2020). Second, the Commissioner contended that the supervisor had approved in writing the trial attorney's initial dorprmination of the nonaltv hv an email--Exhibir 31-R. We agree that a penalty approval could be made by an ema11, out in tnis case, tne email seems not to approve the penalty. The email addressed the email thread in 1 2 3 4 5 6 7 8 o 10 11 12 13 which (among other things) Mr. Meyers had said he would 14 not come to the second day of trial and the attorney had 15 Pointed out the possibility of a section 6673 penalty. 16 The supervisor's email simply says, "Print these for the 17 la court, please". We do not see in that instruction an approval of a penalty determination. We will therefore 19 not consider the Commissioner's motion for a penalty under 21 22 23 B. Sua sponte consideration However, the Court has its own interest in regulating the conduct of the parties before it, and the 24 Court can impose a penalty on its own motion. When it 25 does so, it is not subject to the supervisory approval requirement of section 6751(b)(1). Williams v. 29 Commissioner, 151 T.C. No. 1 (July 3, 2018). We therefore now consider sua sponte the question whether a penalty should be imposed under section 6673(a) (1). Under section 6673(a)(1), the Court may impose a Penalty of up to $25,000 when a taxpayer pursues an action in the Tax Court and the Court determines that either: (1) the taxpayer instituted or maintained litigation in the Conrr nrimarilv for dplav: (2) the taxnaver's lirination 1 2 3 4 5 6 7 8 o 10 Position is frivolous or groundless; or (3) the taxpayer 11 unreasonaoly rallea to pursue aaministrative remeales 12 13 before pursuing judicial relief in court. Of these bases for a penalty, the one most 14 pertinent here is the term "groundless", which has been 15 applied to cases in which the taxpayer's position is 16 unfounded in fact. The word "groundless" literally means 17 1R 19 "'having no ground or foundation: lacking cause or reason for support.'" Keatina v. Commissioner, T.C. Memo. 1985- 312 (quoting Webster's Third New International Dictionary 21 merit or has no valid ground or basis. 22 When one of these three grounds is established, 23 penalties under section 6673 are not automatic but are 24 imposed at the Court's discretion. Consequently, the Tax 25 Court is given considerable latitude in determining , crine (973)406-2250joperations@escribersnetlwwwascribennet whether to impose a penalty and in what amount, in order to punish and deter the abuse of judicial resources. This 30 involves an exercise of judgment that cannot be 1 2 3 4 mathematically demonstrated. To judge the appropriateness 5 6 7 8 a 10 of imposing a section 6673(a)(1) penalty and the appropriate amount of any penalty, this Court has considered any relevant facts and circumstances. See Leyshon v. Commissioner, T.C. Memo. 2015-104 (listing varinns nonsidprations). Mr. Meyers has conducted two other largely 11 unsuccessrul Tax Court cases, Nos. leözi-ulö ano 139 /4- 12 13 14 15 16S, but that in itself does not warrant a penalty. We cannot say that he engaged in those cases in the conduct that we find especially culpable here. Rather, the facts that most strongly commend a 16 Penalty in this case are Mr. Meyer's admitted creation of 17 a false receipt to substantiate his deduction, his la profferina of other apparently boaus exhibits, and his 19 failure to appear for cross-examination. This is 21 22 23 groundless contention or an attempt to delay the inevitable. However, as far as we know, Mr. Meyers has not 24 Previously had a section 6673 penalty asserted against 25 him, nor has he been warned about the penalty. We cnoers 973)406-2250! operations@escribersaet j www.escribers.net 31 therefore exercise our discretion in his favor and do not impose a penalty against him in this case. However, we do warn him that if he should take frivolous or groundless positions in the future, or if he should engage in conduct calculated to delay the resolution of his tax liabilities, then he should expect the Court to consider imposing such a penalty against him, in an amount of up to $25,000. CONCLUSION Wp crant the Commissinnpr's mnrinn to dismiss for lack of prosecution to the extent of undertaking to enter aec1slon in amounts or tax aericiencies smaller tnan those determined in the SNOD (and including no accuracy- related penalty, pursuant to the Commissioner's concession). For purposes of redetermining the 1 2 3 4 5 6 7 8 o 10 11 12 13 14 15 deficiencies, the IRS's adjustments in the SNOD are 16 sustained to the extent explained above, and the 17 deductions that the Commissioner has conceded and the la additional deductions we determined herein will be 19 allowed. 21 allow recomputation of the deficiencies. 22 23 24 25 This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 10:03 a.m., the above-entitled matter was concluded.) cmoers (9733406-2250loperationseescribers.netlwww.esaíbers.net