TAX COURT OPINION

Case: Tontra Martin Lowe
Docket Number: 6161-11
Judge: Thornton
Opinion Type: bench
Filed: 03/07/2012
Pages: 11

UNITED STATES TAX COURT ''WASHINGTON, DC 20217 TONTRA MARTIN LOWE, ) Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) Docket No. 6161-11. ) ) ) - ORDE R 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 the pages of the transcript of the trial in the above case before Judge Michael B. Thornton at Washington, D.C., on February 17, 2012, containing his oral findings of fact and opinion rendered at the conclusion of the trial. In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155. Dated: Washington, D.C. March 5, 2012 (Signed) Michael B. Thornton Judge SggyED MAR - 7 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 3 Bench Opinion by Judge Michael B. Thornton Tontra Martin Lowe v. Commissioner Docket No. 6161-11 February 17, 2012 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. 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. 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. Rule references are to the Tax Court Rules of Practice and Procedure. All dollar amounts are rounded to the nearest dollar. . This case as tried on February 17, 2012, in Washington, D.C. Corey Martin represented petitioner. Matthew Reddington represented respondent. After conc ssions, the issues remaining for decision in this case are: (1) Whether petitioner is entitled to Schedule C deductions for various expenses; (2) whethe petitioner is entitled to Schedule A deductions for various expenses; and (3) Heritage Reporting Corporation (202) 628-4888 4 whether petitioner is liable for a section 6662(a) penalty. . Findings oE Fact. When she filed her petition, petitioner resided in Gainesville, Virginia. During the years at issue she lived in Charleston, West Virginia, and worked as a dentist. She was employed as a W-2 emþloyee with a dental office in Charleston, West Vi inia, where she worked each day of the week. On ce ain days, primarily weekends, she worked as an indepeddent contractor, in 2007 for Correctional Medica Services, Inc., and in 2008 for the West Virginia D ision of Corrections in Hillsboro, West Vir inia. In this capacity she performed dental se vices on prison inmates. Petitioner performed at home certain administrative and business planni g functions related to her work and sometimes would consult with patients in her home for free, though sh lacked there a dental chair and other dental equipm nt as necessary to perform certain dental procedures. Petitioner timely filed her 2007 and 2008 individual income tax returns. By notice of deficiency responde t determined that she had a deficiency of $13,7 6 for 2007 and of $6,891 for 2008, and that she was lidble for a section 6662 accuracy- Heritage Reporting Corporation (202) 628-4888 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 . 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 related penalty of $2,759 for 2007 and $1,378 for 2008. The deficiencies resulted from respondent's disallowance of various deductions that petitioner claimed on Schedules A and C of her income tax returns for the years at issµe. Opinion. Deductions are a matter of legislative grace, and the taxpayer bears the burden of proving her entitlement to a deduction. Rule 142 (a) ; INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992) . Because, as discussed below, petitioner has not complied with requir ments under the Code to substantiate items a d has not maintained all required records, the burden of proof does not shift to respondent under section 7491 (a) . Schedule C Expenses. Under section 162, a taxpayer may deduct ordinary and necessary expenses paid or incurred in connection with the operation of a trade or business. 1. Car and Truck Expenses. Petitioner claims car and truck: expenses of $14,960 for 2007 and $5,533 for 2008. Under the strict substantiation rules of section 274 (d) , to be entitled to these deductions petitioner must provide adequate records or sufficient evidence to corroborate her own testimony Heritage [Reporting Corporation (l202) 628-4888 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 6 as to: (1) The amount of the expenditure or use; (2) the time and place of travel or entertainment, or date and description of a gift; (3) the business purpose of the expenditure; and (4) the business relationship to the taxpayer of each person entertained, using an entertainment facility, or receiving a gift. Sec. 1.274-5A(a) and (b), Income Tax Regs. The taxpayër may determine the ordinary and necessary expenses of the business use of a vehicle by using a standard mileage rate prescribed by the Commissioner. Sec. 1.274-5(j) (2), Income Tax Regs. For 2007 and 2008, the standard mileage rates were 48.5 cents and 50.5 cents, respectively. Rev. Proc. 2006-49, 2006-2 C.B.: 936; Rev. Proc. 2007-70, 2007-2 C.B. 1162.. A taxpayer who uses the standard mileage rate to determine the ordinary and necessary expenses of using a vehicle m st still substantiate the amount of each business use (i.e., the business mileage) and the time and business purpose of each use. Sec. 1.274-5(j) (2), Income Tax Regs. Normally, transportation expenses incurred between one's residence and one's principal place of business are commuting expenses and are nondeductible under section 262. See Fausner v. Commissioner, 41 U.S. 838 (1973). A taxpayer's cost of transportation Heritage Reporting Corporation (202) 628-4888 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 between her residence and local job sites may be deductible, however, if the residence serves as her "principal place of business" and the travel is in the nature of normal and deductible business travel. See Wisconsin Psychiatric Serv., Ltd. v. Commissioner, 76 T.C. 839, 849 (1981). Where a taxpayer's business is conducted in part at the taxpayer's residence and in part at another location, there are two primary considerations in determining whether the home office qualifies as the taxpayer's principal place of business: (1) The relative importance of the functions or activities performed at each business location; and (2) the time spent..at each location. See Strohmaier v. Commissioner, 113 T.C. 106, 111-112 15 . .(1999). 16 Petitioner has failed to show that in 2007 17 . and 2008 her home was her principal place of business. 18 19 20 21 22 23 24 25 Although she performed some administrative functions and did some business planning at her home, she performed most of her professional dental services at her employer's office or at the prison. Moreover, petitioner has failed to meet the requirements of section 274 (d) to substantiate her car and truck expenses. Although she has offered evidence of the distance between her home and the prison, and Heritage Reporting Corporation (202) 628-4888 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 8 has offered evidence of the number of trips she purportedly made to the prison in 2007, she has failed to show that the total miles she claims to have driven correlate to the car expenses claimed for 2007 or 2008. Moreover, the reliability of petitioner's evidence as to the dates on which she purportedly traveled to the prispn is seriously undermined by her testimony that she attended a conference in Washington, D.C., on certain of the same dates she was purportedly working at the prison. The evidentiary shortcomings are even more pronounced for 2008, for which petitioner has offered no documentary evidence of numbers of trips she made to the prison. We sustain respondent's disallowance of petitioner's claimed Schedule C expenses for car and truck expenses for 2007 and 2008. 2. Legal and Professional Services. Petitioner.claimed Schedule C expenses for legal and professional services of $2,733 for 2007 and $399 for 2008. Petitioner claims to have paid these amounts to her lawyer, who is also her brother, in cash, secretly leaving the cash in his car or other places where he would find it because otherwise he would be reluctant to accept it. The only documentary evidence of these payments are two sequentially Heritage Reporting Corporation (202) 628-4888 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 9 numbered receipts fr m her brother. One receipt is dated January 15,·2007; the other is dated March 15, 2008. We do not find it plausible that petitioner would have secretly left large sums of cash, such as $2,733, in a place such as her brother's car. Nor do we see any reason he would be more likely to accept such cash, knowing it was from her -- as evidenced by the receipts --, than he would have been to accept a check. Nor do we find that the documentary evidence reliably corroborates the alleged payments for legal and professional services. Petitioner has failed to carry her burden to show that she is entitled to the claimed deductions for legal and professional services. 3. Schedule C Other Expenses. For 2008 petitioner claimed Schedule C other expenses of $17,651, including $6,500 for dental continuing education and $1,399 for seminars and conferences. Respon ent has conceded $10,482 of these expenses, including $2,562 for petitioner's expenses of continuing dental education. Petitioner has conceded that she is not entitled to $2,101 of these expenses. The deductions that remain in dispute apparently relate to those that petitioner claimed for dental continuing education and seminars and Heritage Reporting Corporation (202) 628-4888 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 10 conferences. Petitiloner has failed to substantiate expenses for these items in an amount greater than respondent has allowed. Schedule A Miscellaneous Expenses Petitioner claimed Schedule A miscellaneous expenses of $14,789 or 2007 and $2,826 for 2008, for purported travel exp nses associated with military service during these years. Although petitioner's testimony indicated that she traveled for military service during the years at issue, there is no evidence of the dates of. this travel or of the destinations. Petitioner has failed to substantiate these claimed expenses. Plus, there is no evidence that petitioner was not reimbursed for this travel. Petitioner has failed to show that she is entitled to the claimed Schedule A miscellaneous deductions. Accuracy-Related Penalty Respondent determined that for each year at issue petitioner is liable for an accuracy-related penalty pursuant to section 6662(a) and (b) (1) and (2) for negligence or substantial understatement of income tax. Respondent bears the burden of production with respect to this penalty. ·See sec. 7491(c). To meet this burden, respondent must produce evidence establishing that it is appropriate to impose this Heritage Reporting Corporation (202) 628-4888 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 .11 penalty. Once respondent has done so, the burden of proof is on petitioner to show that the penalty does not apply. See Higbee v. Commissioner, 116 T.C. 438, 449 (2001). Section 6662(a) and (b) (2) imposes a 20- percent accuracy-related penalty on any portion of a tax underpayment that is attributable to any substantial understahement of income tax, defined in section 6662(d) (1) (A) as an understatement that exceeds the greater of 10 percent of the tax required to be shown on the return or $5,000. The exact amounts of petitioner's underpayments will depend upon the Rule 155 computations, in accordance with our findings and conclusions. To the extent that those computations establish that petitioner has substantial understatements of income tax, respondent has also met his burden of produchion in this regard. See Prince v. Commissioner, T.C. Memo. 2003-247. The accuracy-related penalty does not apply with respect to any portion of the underpayment for which it is shown thät the taxpayer had reasonable cause and acted in good faith. Sec. 6664(c) (1). Petitioner has made no attempt to explain her failure to keep adequate books and records, and to substantiate items pþoperly. We hold that for each Heritage.Reporting Corporation (202) 628-4888 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 12 year at issue petitioner is liable for a section 6662 (a) penalty for substantial understatements of income tax insofar as the Rule 155 computations show substantial understatements. To give effect to the foregoing and the parties' concessions[, decision will be entered under Rule 155. ·This concludes the Court's findings of fact and opinion in this base. (Whereupon, at 4:32 p.m., the bench opinion in the above-entitled matter was concluded.) // // // // // // // // // // // // // // Heritage Reporting Corporation (202) 628,4888