TAX COURT OPINION

Case: Thomas V. Meyers
Docket Number: 15974-16S
Judge: Ashford
Opinion Type: bench
Filed: 01/12/2018
Pages: 19

UNITED STATES TAX COURT WASHINGTON,:DC 20217 THOMAS V. MEYERS, Petitioner, v. ) ) ) ) ) Docket No. 15974-16S COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ORDER Pursu;mt to Rule 152(b) of the Tax Court Rules of Practice and Procedure, it is hereby ORDERED that the Clerk of the Cóurt shall transmit herewith to petitioner and to respo dent a copy of the pages of the transcript of the proceedings in the above base defore Judge Tamara W. Ashford át Wihston-Saleín, Nortlï Càrolina, on December 7, 201.7, containing her oral findings of fact aríd opinio11 rendéred at the trial sess on at which the case was heard. In acc rdance with the oral findings of fact and opinion, decision will be entered under Rule 155. (Signed) Tamara W. Ashford Judge Dated: Washington, D.C. January 12, 2018 SERVED JAN 1 7 2018 1 2 3 4 5 6 7 8 9 Bench Opinion by Judge Tamara W. Ashford December 7, 2017 Thomas V. Meyers v. Commissioner of Internal Revenue Docket No. 15974-16S THE, COURT: THE COURT HAS DECIDED TO RENDER ORAL FINDINGS OF FACT AND OPINION IN THIS CASE, AND THE FOLLOWING REPRESENTS THE COURT ' S ORA.L FINDINGS OF FACT AND OPINION. THE ORAL FINDINGS OF FACT AND OPINION SHALL NOT BE RELIED UPON AS PRECEDENT IN ANY OTHER CASE. 110 This bench opinion is made pursuant to the 11 authority granted by section 7459 (b) of the Internal 12 Revenue Code of 1986, as amended, and Rule 152 of the Tax 13 Court Rules of Practice and Procedure. Unless otherwise 14 15 indicated, subsequent section references made in this bench .opinion are to the Internal Revenue Code of 1986 as 16 amended and .iii éffect for the year at issue, and Rule 17 references are .to the Tax Cou-rt Rules of Practice and 18 Procedure. 19 This. case was heard pursuant to the provisions 20 of section 7463 in effect when the petition was filed. 21 Pursuant to section 7463(b), the decision to be entered in 32 this case is not reviewal;>1e by any other court, and this 23 opinion may not be tréated as precedent for any other 24 case. 25 Petitioner Thomas V. Meyers appeared pro se. (973)406-2250[6periti sÀehlb w w.escribers.na 1 Olivia H. Rembach appeared on behalf of respondent. 2 3 4 5 6 7 8 Petitioner resided in Durham, North Carolina when he filed his petition. On June 6, 2016, respondent mailed petitioner and his wife a notice of deficiency for the 2013 taxable year, determining a deficiency in their Federal income tax of $8,700 and an accuracy-related penalty pursuant ~to section 6662 (a) of $1, 740. Petitianer timely filed a 19 petition contesting respondent's determinations; 10 petitioner's wife did not petition this Court and is not a 11 party to this case. Thus, we note for the record that we do 12 13 14 not have jurisdiction over petitioner's wife. After concessions, the issues for decision, for 2013, are Erhether petitioner: (1) is entitled to 15 Schedule A deductions for unreimbursed employee business 16. expenses and for tax preparation fees; (2) is.entitled to a 17 Schedule A deduction for charitable contributions in an 18 19 20 21 amount greater than respondent allowed; and (3) is liable for the accuracy-related penalty. Facts In 2013 petitioner was self-employed as a real 22 estate broker and petitioner'.s wife, was a. nurse 23 practitioner with the Veterans Administration of the 24 U.S. Department of Veterans Affairs. 25 Petitioner and his wife timely filed a Form (cid:16)042 . (cid:16)042 5 1 2 3 4 1040, U.S. Individual Income Tax Return, for 2013. Petitioner prepared the return without relying on a tax professional, using tax preparation software. On their 2013 Form 1040, petition'er and his 5 wife reported wages of $154., 329 attributable to 6 7 8 9 10 11 12 13 petitioner ' s wife ' s employment with the Veterans Administration. They repofted do income and a loss of. $25,360 for petitioner's. self-employment on Schedule C. They itemized their deductions on Schedule A, claiming in pertinent part, medical and dental expenses of $25, 214 before the application of the two-percent floor imposed by section 67 (a) ; gif-ts to charity totaling $8, 000, consisting of charitable gifts by check or cash 14 of $4, 50.0 and noncash charitable gifts of $3, 500; job 15 expenses and certain miscellaneous deduátions of $19,823 16 before the application of the two¬peicent floor. imposed by 17 18 19 20 21 secti,on 67 (a) , consisting of unreimbursed employee business expenses of $19, 573 and tax preparation fees of $250. The details of petitioner's and his wife's noncash charitable gifts 'were shown on Form 8283. 22 This .form showed a noncash charitable contribution. 3 on May.25, 2013, of clothes, furniture, tools, and 24 equipment to the Salvation Army on Latta Road in Durham, 25 North Carolina. According to petitioner at trial, the . 6 1 2 3 4 5 6 7 8 9 10 11 amount claimed for noncash charitabl-e contributions also included in-kind. contributions to other charitable organizations they did not separately list there. Also according to petitioner at·trial, ,the.cash charitable contributions were contributions·his.wife periodically made to various churches or religious organizations. The details of petitioner's and his wife's unreimbursed employee business expenses were shown on two Forms 2166. One Form 2106 showed unreimbursed employee business expenses of $13,203, consisting of^ $2,.200 for travel expenses, $10,790 for business expenses, and $213 12 for meals and entertainment expenses, relating to 13 petitioner's self-employment. The other Form 2106 .14 showed unreimbursed emplo.yee business expenses.of 15 16 17 18 19 $6,370, consisting of $400 for parking fees, tolls, and transportation, and $5,970 for business expenses, relating to petitioner's wife's Federal government job as a nurse practitioner. Following an examination of petitioner's and 20 his wife's 2013 Form 1040, respondent.determined that 21 22 $36,135 of their Schedul.e A itemizëd deductions should be disallowed, cons.1sting of the following: (.1) $21, 709 23 of their claimed mädícal and dental expenses; (2T $7,350 24 25 of their claimed charitable contributions; (3) all of their claimed unreimbursed employee business expenses 7 and (4) the amount claimed for tax preparation fees. Respondent also determined that. a section 6662 (a) accuracy-related penalty should be imposed. The notice of deficiency mailed to petitioner and his wife on dune 6, 2016, reflects those determinations. In the stipulation of facts and at trial, petitioner conceded that he is not entitled to the disallowed médical and dental expenses. and the disallowed unreimbursed employee business expenses related to his 2 3 5 6 7 8 9 10 self-employment'. 11 12 13 14 15 I. Burd.en of Proof Discussion In general, the Commissioner'.s determinatidns set forth in a notice of deficiency are presumed correct, and the taxpayer bears the burden of proving. otherwise. .16 Rule 142(a) Welch v. Helvering, 290 U.S. 111, 115 (1933). 17 Tax deductions are a matter of legislative grace, and the . . 18 19 taxpaye í)ears the burden of proving entitlement to any deduction claimed. INDOPCO, Inc. v.. Commissioner, 503 20 U.S. 479, 84 (1992); New Colonial Ice Co. v. Helvering, 21 292 U.S. 435, 440 (1934) . This burden requires the 22 23 24 taxpayer tà defnonstráte ,that the gläaimed .deductions are alloWable pursuant to some statutory provision and to substantiate the expenses giving rise to thé. clainted 25 deddelions Íïy inafntÃinÍrig and producing adequat e records (973)40s-2250[öptáti s e rsÁtlwéw.escribersmet 1 2 tha't enable the Commissioner to determine the taxpayér's corre:ct liability. Sec. 6001; Higbee v. . 3 Commissioner, 116 T.C., 438, 440 (2001); Hradesky v. 4 5 6 7 8 9 10 11 . 12 Commissioner, 65 T.C. 87; 89-90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976) . Petitioner does not contend that the burden of proof should shift to respondent under section.7491(a), nor has he established tha't the requirementis for. shifting the burden of -proof have been met. Accordingly, ·the burden of proof remains on petitioner. See sec 7491(a) (2). II. Schedule A Unreimbursed Employee Business Expenses A taxpayer may deduct all ordinary and necessary 13 business expenses paid or incurred during the taxable 14 15 year in carrying on a trade or business. Sec. 162(a); sec. 1.162-1(a), .I·ncome Tax Regs. Generally, the 16 performance of serviceS as an employee constitutes a 17 18 trade or business. Primuth v. Commissioner, 54 T.C. 374, 377 (1970) . A business expense is "ordinary" if it is 19· "normal, usual or customary" in the taxpayer's trade or 20 business. See Deputy v. du .Pont, 308.U.S. 488, 495 21 (1940) . An expense is "necessary" if it is 2 "appropriate and helpful" to the taxpaper's business, 23 but it neëd not be absolutely essential. Co.mmi.ssioner 24 v. Tellier, 383 U.S. 687, 689 (1966) (quoting Wélch v. 85 Helvering, 290 U.S. L 113 1933 ) . Ãn expense for . 9 1 2 3 4 5 6 7 8 9 which the taxpayer is entitled to (but does not claim) reimbursement from his or her employer generally is not considered "necessary" and thus is not deductible under section 162. Orvis v. .Commissïoner, 788 F.2d 1406, 1408 (9th Cir. 1986), aff'g T.d. Memo. 1984-533; Podems v. Commissioner, 24 T.C. 21, 22-23 (1955) . Whether an expénse is deductibl.e under section 162 is a question of fact to be decided on the basis of all the relevant facts and circumstances. Cloud v. 10 Commissioner/ 97 T.C. 613, 618 (1991) (citing 11 Commissî·onér v. Heininger, 320 U.S. 467, 473-475 12 (1943) ) . Under the C.ohan rule, if the taxpayer 13 establishes that an expense is deductible but is unable 14 to substantiate the precise amount, the Court may estimate 15 16 the amount of the deductible expénse, bearing heavily against the taxpayer whose inexactitude is of his or her own 17 making. See Cohan v.. Còmmissioner, 39 F.2d 540, 543-544 18 (2d Cir. 1930) ; see also Vanicek v. Commissioner, 85 T. C. 9 731, 742-743 (1985) . In order for the Court to estimate 20 the amount of a deductible expense, there mu·st be some 1 basis upon which an estimate may be made. Vanicek. v. 22 Conifniss LÃnér, 8$ T C at 742-743. .. Otherwise arí allowance. 23 wóuld amou it to uncjuided larges e Williams v. Unitéd 4 States, 245 F.2d 559, 560 (5th Cir. 1957). 25 The Cohan rule, however, is superseded -- 10 that is, estimates are not permitted -- for certain expenses specified in section 274, such as travel (including meals and lodging), entertainment, and "listed property" (includirig passenger automobile n ompute expenses. Secs. 274 (d), 280F(d) (4) (A) (i); sec. 1.274- ST(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985). (flush lancJuage); see Boyd v. Commissioner, 122 T.C. 305, 320 (2004). Instead, these types of expenses are subject to .strict substantiation 1 2 3 4 5 6 7 8 9 10 rules. Sanford v. Commissioner, 50 T.C. 823, 827 11 12 (1968), aff'd per c.uriam, 412 F.2d 201 (2d Cir. 1969).;. sec. 1.274-5T (a), Temporary Income Tax Regs., supra. 13 These strict substantiation rules g.enerally require the 14 taxpayer to substantiate with adequate records or by 15 sufficient evidencè corroborating the taxpayer's own 16 s.tatement (1) the amount of the expense; (2) the time 17 and place the expen.se was incurred; (3) the. business 18 purpose of the éxpense; and (4) in the case of an 19 entertainment expense, the business relationship between 20 the person entertairïed and the taxpayer. Sec. 1.274- 1 2 5T(b), Tetaporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6 1985) . FoT "listed property". expensès, in 23 addition to thé tittie such expenses were incurred and 24 their business purpose, the taxpayer must establish the 5 amount of business use and the total use of such 11 1 2 3 4 5 6 7 8 9 10 11 property. Id. subpara. (6) (i) (B), 50 Fed. Re.g. 46016. Substantiation by adequate records requires the taxpayer to maintain (1) an account bdok, diary, log, statement of expense, trip sheets, or similar record prepared contemporaneously with the expenditure and (2) documentary evidence, such as receipts or paid bills, which together prove each element of an expenditure. Sec. 1.274-5(c) (2) (iii), Income Tax Regs.; sec. 1.274- 5T(c) (2), Temporary Income. Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985). On their 2013 Schedule A petitioner and his 12 wife claimed an unreimbursed employee busihess expense 13 deduction before application of the. two-pe;rcent floor 14 imposed by section 67(a) for parking fees, tolls, and 15 16 transportation not 'involving overnight travel or commuting to and from work of $400 and business expenses of $5,970 17 of taxpayer's wife in connection with her Federal 18 19 20 21 22 government job as a nurse practitioner. Although these types of eexpenses are not subject to the strict substantiation rules.of section 274(d) and thus may be estimated, petitioner's wife. did not appear or testify.at trial and petitioriet offsfed ño creci ÚÍ.e. tes.timony. to 23. substantiate these expenses. Inde d petitioner 24 merely produced one hand-written receipt for $384 dated 25 September 5, 2013, which he testified was for parking 3)40 -2250 ope Á(cid:16)042ÊÄïaibetsfiet .. .. 12 . 1 2 3 4 5 6 7 8 9 .that his wife incurred at her place of employment. (The receipt states for "annual parking".) However, these type of parking fees are nondeductible commuting expenses. Henderson. v. Commissioner, T-.C. Memo. 1983- 372. Furthermore, petitioner did not produce a copy of his wife's emplöyer's reimbursement policy or otherwise establish that the expenses were not reimbursed by her employer. See Oatman v. Commissioner, T. C. Memo. 2017- 17, at *11. . Petitióner thus has not established that 10 these expenses were paid or incurred. or that they were 11 ordinäry and necessary. We sustain respondent's 12 13 14 15 . disallowance of the Schedule A deduction for these expenses. III. Tax Preparation Fees Although tax preparation fees are an allowable 16 deduction, see sec. 212(3); sed-. 1.212-1(1), Income Tax 17 Regs., .they are allowed only to the extent that they, 18 together with unreimbursed employee business expenses and 9 other expenses such as investme'nt expenses and safe 20 deposit box expenses, ex'ceed two percent of adjusted 21 gross income, sec. 67 (a) . On their 2013· Schedule A petitióne add his wife laimed3a deduction fòr tax 23 preparatión fees of $250 beföre appli.cation of the two- 24 percent floor imposed by section 67 (a) . Although 25 petitioner did not produce any receipts relating to this 13 1 2 3 4 5 6 7 8 9 claimed expense but testified thàt he incurred an expense to purchase tax preparation software, the claimed deduction is not allowed because the amount claimed standing alone does not exceed two percent of his and his wife's adjusted gross income (that being $2,709). We sustain respondent's disallowance of the Schedule A deduction for this expense. IV. Charitable Deductions A taxpayer is .allowed as a deduction any 10 charitable contribution made during the taxable year. 11 12 13 14 15 Sec. 170(a)(1). A charitable contribution is defined as "a contribution or gift to or for the use of" a charitable organization. Sec. 170(c). There are substántiation and recordkeeping -requirements for certain charitable contributions. See sec. 170(f)(8). No 16 charitable contribution deduction is generally allowed 17 for any contribution of a cash, check, or other monetary . 18 gift unless the taxpayer maintains as a record of such 19 contribution (1) a bank record (i.e., canceled check), (2) 20 21 a written communication (i.e., receipt or letter) from the organizat.ion showing the organiza-tion's name and the date 22 and amount of the contribution, or (3)· "oth.er reliable 23 written records" showing the taxpayer's name, and the 24 date and amount of.the contribution. Sec. 170(f) (17); 5 sec. 1.170A=13(a), Income Tax Regs. Similarly, no 73)40 -22$0|óper t c h h ww eséribers et 14 .1 charitable contribution deduction is allowed for any 2 3 4 5 6 7 8 9 noncash contribution unless the taxpayer maintains as a record of such contribution a receipt from the donee showing the name and address of the donee, the date and location of the contribution, and a description of the property in reasonably suffiöient detail. See sec. 1.170A-13(b)(1),.Income Tax Regs. In addition, no charitable contribution deduction is allowed for any contribution of $250 or 10 more unless the taxpayer substantiates the contribution 11 with a "contemporaneous written acknowledgment" from the. 12 charitable organization. Sec. 170(f)(8) (A). The 13 written acknowledgment must include: . (1) the amount of 14 cash contributed or a description (but not value) of the 15 property other than cash contributed, as the case may 16 be; (2) whether the organization pròvided any goods or 17 services in consideration for the contribution; and (3) a 18 description and a good-faith estimate of .the value of 19 any goods or services provided by the organization, or 20 21 if such goods and services consist solely of intangible reli.gious benefits, a statement to that effect. Sec. 22 170df) (8) (B) ; ec. 1.170A-13 (f), .Income Tax Regs. 23 Séctioñ 170 (f) (8).(D) provides an exèeption to the 24 contemporaneous written acknowledgment requirement. 25 Petitioner does not assert that this exception applies. A taxpayer may nQt deduct amounts for services 15 provided to a charitable organization. See sec. 1.170A- 1(g), Income Tax Regs. But a taxpayer may deduct expenses incident to próviding such charitable services, such as travel "expenses, includincj.th use of a passenger automobile. See id.; Smith v. Commissioner, 60 T.C. 988 (1973). However, a taxpayer may only deduct such travel expenses when "there is no signifidant element of personal pleasure, recreation, 1 2 3 4 5 6 7 8 9 10 or vacation in such travel." Sec. 170(j). The.Internal 11 Revenue Code provides a standard mileage rate, 14 cents 12 per mile, as a deduction for use of a passenger 13 14 15 16 17 18 19 20 21 22 23 24 5 automobile incident to providing charitable serv1ces. Sec. 170(i). Petitioner and his wife claimed a charitable contribution deduction totaling $8,000, consisting of cash contributions of $4,500 and noncash contributions of $3,500. Respondent determined (and the parties later stipulated) that petitioner and his wife substantiated . (and thus were entitled to a deduction for) .$650 of charitable contributions. At trial petitioner failed to produce any additional-ctodumentation to substantiate the remaining claimëd charitable 4contributions -- whether cash or noncash charitable contributions. However, petitioner credibly testified that his 7 406-2250|oper ri wn0rsescribeísmet .. . 16 1 2 3 4 5 6 7 8 9 wife performed significant charitable services in connection with a Lay Apostolate within her church and he produced a mileage log documenting her use of a passenger automobile to perform these services. Petitioner credibly testified that he created this mileage log based on records that his wife provided to him. After reviewing this log, we find it sufficient to substantiate some but not all of. the miles petitioner's wife traveled using a passenger automobile to provide 10 those certain charitable services. At the standard 11 mileage rate under the .Internal Revenue Code, we find. 12 petitioner is entitled to a charitable contribution 13 deduction of $1,143 for miles drivengin service to be 'É yú6 toi 98 14 etitioner's wife's church. 15 V. Accuracy-Related Penalty 16 17 18 Finally, we address whether .petitioner is liable for the section 6662 (a) accuracyr-related penalty. Various grounds for the imposition of this 19 penalty are set forth in the notice of deficiency 20 although only one accúracy-related penalty may be 21 applied with respect to any given portion of an 22 underpayment,, even if that .port.i.on is subject to the 23 penalty on more than one ' ground. Sec . 1. 6662-2 (c) , 24 25 Income Tax Regs. We need only address respondent's claim that .petitioner is liable for the section 6662 (a) 1 2 3 4 5 6 7 8 9 10 11 accuracy-related penalty on the ground that petitioner's underpayment of tax for 2013. was attributable to a substantial understatement of income tax under section 6662 (b) (2) . For purposes of section 6662 (b) (2) , an understatement generally is equal to the excess of the amount of tax required to . be reported on the return over the amount shown ori the return. Sec. 6662 (d) (2) (A) . An understatement is substantial in the case of an individual if the understatement for the taxable year exceeds the greater of 10% of the tax required to be shown on the return for that taxable year 12 or $5, 000. Sec. 6662 (d) (1) (A) .. 13 In addition, pursuant . to section 6751 (b) , the. 14 accutacy-related penalty shall not be assessed unless the 15 . initial. determination of such assessment is .personally 16 approved in writing by the immediate supervisor of the 17 ·individual making such determination or such higher 18 19 level official as.the Secretary may designate. Thè Commissioner bears. the burden of prbduction 20 regarding a taxpayer's liability for the acc.uracy-related 21 penalty and thus is required .to come forward with 22 sufficient evideñce indicating that imposition of the 23. penalty is appropriate. See sec. 7491(c); Chai v. 24. Commissiorier,.. 851 F. 3d 190, 215-2.23 (2d Cir. 2017) ; 25 Higbee v. Commissionen, 116 T. C 6 Once 18 1 2 3 4 5 6 7 8 9 10 11 the Commissigner meets his burden. of production, the taxpayer bears the burden of proving, through sufficient evidence, that the Commissioner's penalty determination is incorrect. See Rule 142(a); Welch v. Helvering, 290 U.S. at 115; Hicfbee v. Commissioner, l'16 T.C. at 447. Respondent has discharged his burden of production by providincj sufficient ëvidence that petitioner's ùnderstatement of income tax for 2013 exceeds the greater =of 10% of the tax that was required to be shown on the return and $5,000, and that there was the appropriate written supervisory_ approval for thé .12 penalty. 13 14 15 Application of the accuracy-related penalty may be avoided with respect to any portion of an underpayment if it is shown there was reasonable caùse for such portion 16 and the taxpayer acted in good faith with respect to such 17 portion. See sec. 6664 (c) (1); Higbee v. Commissioner, 116 .18 T.C. at 446-447. The determination of whether thë 19 20 taxpayer had nreasonable cause and: acted in good faith depends upon the pertinent facts and circumstances of a 21 particular case. Sec. 1.6664-4(b) (1), Income Tax Regs. . . . . . . . 22 .. We consider, among .dther liac.tors, .thë. expefience, 23 education, .ahd sóphis icâtion of. the taxpayer; hòwever,. 24 25 the principal consitieration is the extent of the taxpayer's efforts to asses.s the proper tax liability. (cid:16)042 19 1 2 3 4 5 6 7 8 9 Id..; see also Higbee v. Commissioner,'ll6 T.C. at 448. Taking into consideration the taxpayer's experience, education,. and sophistication, an honest misunderstähding of t may indicate reasonable Âause and good faith. Higbee v. Commissioner, 116 T.C. at 449 (citing Remy.v. Commissioner, .T.C. Memo. 1997-72) In addition,. . reliance on .professignal advice may indicate reasonable. cause and good fäith if, in the.light óf all the facts and circumstances, such reliance was reasonable and the 10 taxpaye.r acted in good faith. Id. at 448-449. 11 12 13 Pet~itioner at .trial appeared sincere and acknówledged that he made mistakes in preparing the 2013 Form 1040. To be sure, petitioner may not be a 14 highly sophisticated or educated financial ' 15 professional. But he did not donsult a tax 16 professiona a d as a business owner he should be aware 17 of the need for keeping accurate records . We cannot L8 9 21 2 23 24 25 find. in the record either evidence of a cognizable effort tb assess his proper tax liability or reasonable cause for the error. Because the underpayment was by definition substantial, we sustain the-penalty. . We have considereúl the·.rema:ining arguments made É>y the p rties and, té Èlíe éxtent riot discussed above, we cónclude those arguments to be irrelevañt, móot, or without merit. To.reflect the.foregoing, the Court wïll enter 20 a decision under Rule 155. THIS CONCLUDES THE COURT'S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE. (Whereuport, at 1:Ò0 p.m., the above-entitled matter was concluded. ) . 2 3 4 5 6 7 8 . 10 . . 12 13 L 4 5 L6 17 18 19 20 3 2 4 25 3 40Á-2250 opë swwesd¶ers.fis!i