TAX COURT OPINION

Case: El Alaoui Ahmed Ould El Hadrami
Docket Number: 11377-17S
Judge: Carluzzo
Opinion Type: bench
Filed: 05/21/2018
Pages: 12

UNITED STATES TAX COURT WASHINGTON, DC 20217 EL ALAOUI AHMED OULD EL HADRAMI, Petitioner, v. ) ) ) CT ) Docket No. 11377-17S COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ORDER 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 Chief Special Trial Judge Lewis R. Carluzzo at Washington, D.C., 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) Lewis R. Carluzzo Special Trial Judge Dated: Washington, D.C. May 21, 2018 SERVED May 21 2018 Bench Opinion by Special Trial Judge Lewis R. Carluzzo May 4, 2018 El Alaoui Ahmed Ould El Hadrami v. Commissioner of 3 Internal Revenue Docket No. 11377-17S 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 (bench opinion). Unless otherwise noted, section references made in this bench opinion are to the Internal Revenue Code of 1986, as amended, in effect for the relevant period, and 1 2 3 4 5 6 7 8 9 10 11 12 Rule references are to the Tax Court Rules of Practice and 13 Procedure. This bench opinion is made pursuant to the 14 authority granted by section 7459(b) and Rule 152. 15 This proceeding for the redetermination of a 16 deficiency is a small tax case subject to the provisions 17 of section 7463 and Rules 170 through 174. Except as 18 provided in Rule 152(c), this bench opinion shall not be 19 cited as authority, and pursuant to section 7463(b) the 20 decision entered in this case shall not be treated as 21 precedent for any other case. 22 El Alaoui Ahmed Ould El Hadrami appeared on his 23 own behalf. Stephen C. Welker appeared on behalf of 24 25 respondent. In a notice of deficiency dated February 17, cribers (973)406-2.250|operations@escribers.net|wwwescribers.net 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 2017 (notice), respondent determined a $3,962 deficiency in petitioner's 2013 Federal income tax. The issue for decision is whether petitioner is entitled to certain deductions claimed on a Schedule C, Profit or Loss From Business, included with his 2013 Federal income tax return. Some of the facts have been stipulated and are so found. At the time the petition was filed, petitioner resided in Virginia. In addition to petitioner's full-time job as a restaurant manager, in or around February of 2013, he started working as a limousine driver for Rim Limo, Inc. (Rim), as an independent contractor rather than an employee. That being so, petitioner reported the income and expenses attributable to that activity on the above- referenced Schedule C. There is no business name shown for the activity on the Schedule C, but the document shows its "principal business" as "Limo driver". For convenience we'll refer to that activity as petitioner's limo driver business. The car that petitioner drove in connection with 22 his limo driver business was a 2003 Lincoln Town Car 23 (Lincoln). The parties dispute who owned that car during 24 2013. The certificate of title for that vehicle, issued 25 by the Virginia Department of Motor Vehicles, on April 19, (973)406-2250|operationseescrbers.net|www.esailwrs.net 5 1 2 3 4 5 6 7 8 9 2012 (Virginia title), shows Rim as the owner. At that time its odometer showed 291,380 miles. Handwritten notes on the portion of the Virginia title designated "Assignment of Title by Owner" suggest that petitioner bought the car from Rim on March 12, 2013, and at that time its odometer showed 320,673 miles. A transcript of vehicle record dated February 21, 2018, also issued by the Virginia Department of Motor Vehicles (DMV transcript), however, shows that petitioner purchased the Lincoln 10 exactly one year later on March 12, 2014. As of that - 11 12 13 date, the odometer read 320,673 miles, which, according to the handwritten notations on the Virginia title, is the same odometer reading shown for the Lincoln a year 14 earlier. Something is obviously amiss, and we are more 15 persuaded by the official records of the Virginia 16 Department of Motor Vehicles than we are by the 17 handwritten notations on the Virginia title. We are not 18 convinced that petitioner owned the Lincoln during 2013 19 and proceed accordingly. 20 Rim maintained a daily mileage log for 21 petitioner's driving assignments during 2013. The entries 22 on the mileage log show dates, beginning and ending 23 odometer readings, addresses of the starting point, 24 assignment destinations, and addresses where the car was 25 parked at the conclusion of the assignment. (973)406-2250|operationseescribersmetlwwwescribersmet 6 1 2 3 4 5 6 7 8 9 According to Rim, petitioner was required to park the car at the end of the assignment and "return home" in his own car. This, of course, implies that petitioner owned a car other than the Lincoln during 2013. The log raises more questions than it answers. For example, the mileage shown on the log is entirely inconsistent with the mileage shown on the Virginia title or the DMV transcript, which makes us wonder whether it relates to a car other than the Lincoln. Furthermore, the 10 various addresses shown on the log hardly support the 11 12 implication of Rim's statement that petitioner was required to pick up, and drop the Lincoln off at Rim's 13 location and drive home in his own car. 14 15 Petitioner did not otherwise maintain any books or records with respect to the receipts or expenses 16 relating to his limo driver business. He did maintain a 17 personal checking account with Wells Fargo in 2013. 18 Petitioner prepared his timely filed 2013 19 Federal income tax return with help from a professional 20 return preparer. As noted, the return includes a Schedule 21 C, on which income and expenses attributable to his limo 22 driver business are shown. Taking into account $8,019 of 23 gross receipts and $29,017 of expenses, the Schedule C 24 shows a $22,253 net loss, which is taken into account in 25 the computation of the adjusted gross income reported on (973)406-2250loperationsøescribers.net|www.escribers.net 1 2 3 petitioner's return. In addition to other deductions not in dispute, that loss includes car and truck expenses of $19,369, computed by applying the applicable standard 4 mileage rate to 34,281 miles petitioner reported as 5 6 7 8 9 business miles on his Schedule C, meals and entertainment expenses of $1,004, and "Other expenses" of $2,115, attributable to car washing expenses. In the notice, the deductions for car and truck expenses, meals and entertainment expenses, and "Other 10 expenses" are disallowed. According to the notice, 11 petitioner is not entitled to the deductions because he 12 13 failed to establish that the expenses were "paid or incurred" and were ·"ordinary and necessary" to the limo 14 driver business. Other adjustments made in the notice are 15 computational and need not be addressed in this bench 16 opinion. 17 18 As we have observed in opinions too numerous to count, deductions are a matter of legislative grace, and 19 the taxpayer bears the burden of proof to establish 20 entitlement to any claimed deduction. Rule 142(a); 21 INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New 22 Colonial Ice Co. v. Commissioner, 292 U.S. 435, 440 23 (1934). (Nothing in the record suggests that the 24 provisions of section 7491(a) are applicable, and we 25 proceed as though they are not.) This burden requires the (973}406-2250|operations®escrbersnet|wurw.escrbers.net . . 8 1 2 3 4 5 6 7 8 9 taxpayer to substantiate deductions claimed by keeping and producing adequate records that enable the Commissioner to determine the taxpayer's correct tax liability. Section 6001; Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate 10 that the expense to which the deduction relates has been 11 paid or incurred. See section 6001; Hradesky v. 12 Commissioner, 65 T.C. at 90; section 1.6001-1(a), Income 13 Tax Regs. 14 It is generally well-known that a taxpayer may 15 deduct ordinary and necessary expenses paid in connection 16 with operating a trade or business. See section 162(a); 17 Boyd v. Commissioner, 122 T.C. 305, 313 (2004). 18 19 If a taxpayer establishes that he or she paid or incurred a deductible business expense but does not 20 establish the amount of the expense, we may approximate 21 22 23 24 the amount of the allowable deduction, bearing heavily against the taxpayer whose inexactitude is of his or her own making. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). We sometimes refer to this as the Cohan 25 rule. However, for the Cohan rule to apply, there must be MEI (973)406-2250|operatkmsøescribers.net|www.esalbers.net 9 sufficient evidence in the record to provide a basis for the estimate. Vanicek v. Commissioner, 85 T.C. 731, 743 (1985). Certain expenses may not be estimated because of the strict substantiation requirements of section 274(d). See sec. 280F(d)(4) (A); Sanford v. Commissioner, 50 T.C. 823, 827 (1968), aff'd per curiam, 412 F.2d 201 (2d Cir. 1969). With these fundamental principles of Federal income taxation in mind, we consider petitioner's claims 1 2 3 4 5 6 7 8 9 10 to the various deductions here in dispute. 11 Meals and Entertainment 12 13 14 15 Petitioner claimed a $1,004 deduction for meals and entertainment on his Schedule C attached to his 2013 return. According to petitioner, the deduction relates to expenses for providing food and beverages to his limo 16 driver business clients. Although he provided bank 17 account statements from his Wells Fargo personal checking 18 19 account, those statements do not identify which transactions, if any, relate to business as opposed to 20 nondeductible personal expenses. See secs. 162; 262(a). 21 22 He did not otherwise provide documents, such as receipts, substantiating the meals and entertainment expenses. 23 Because petitioner has failed properly to substantiate the 24 25 deduction for meals and entertainment, and because strict substantiation is required, respondent's disallowance of 73}406-2250|operationsøescrbers.net|www.escribers.net 10 1 2 3 4 5 6 7 8 9 10 11 12 that deduction is sustained. Other Expenses Petitioner claimed a $2,115 deduction for "Other expenses", on the Schedule C attached to his 2013 return. According to petitioner, that is the amount he spent to have the Lincoln washed during 2013. A passenger vehicle such as the Lincoln normally is treated as listed property under section 280F(d)(4) subject to strict substantiation under section 274(d). The rule in Cohan does not apply to expenses relating to listed property, which generally includes any passenger automobile. Secs. 274(d)(4), 280F(d)(4) (A)(i); Sanford v. 13 Commissioner, 50 T.C. 823, 827 (1968), aff'd per curiam, 14 412 F.2d 201 (2d Cir. 1969); Seidel v. Commissioner, T.C. 15 Memo. 2005-67. However, the term "passenger automobile" 16 does not include any vehicle used by the taxpayer directly 17 18 in the trade or business of transporting persons for compensation or hire. Sec. 280F(d)(5) (B) (ii); sec. 19 1.280F-6(c)(3)(ii), Income Tax Regs. Therefore the 20 Lincoln that petitioner used in his limo driver business 21 22 23 24 is not listed property, and the expenses related thereto could be estimated as allowed by the Cohan rule. Be that as it may, neither petitioner's testimony nor other evidence in the record provides any 25 basis for us to estimate how much he might have spent on (973)406-2250|operationseescrbersnet|www.escribersmet 11 car washes in connection with his limo driver business. Our review of his Wells Fargo bank accounts shows no expenditures for car washes, and petitioner has not pointed to any specific entry on those records that support his deduction. Similarly, Rim's letter confirming that petitioner was not reimbursed for any expenses he incurred in his limo driver business does not describe what expenses he might have incurred, much less give us any idea how much petitioner might have spent on such expenses. Respondent's disallowance of the deduction for car washes is sustained. 1 2 3 4 5 6 7 8 9 10 11 12 Car and Truck 13 14 15 Petitioner claimed a $19,369 deduction for car and truck expenses on his Schedule C attached to his 2013 return, computed by applying the applicable standard 16 mileage rate to 34,281 miles petitioner reported as 17 18 business miles on his Schedule C. According to petitioner, he purchased the 19 Lincoln on March 12, 2013 and the mileage claimed is shown 20 on the mileage log prepared by Rim. As noted above, the 21 evidence he offers in support of his claim is not 22 persuasive. Because he did not establish that he owned or 23 leased the vehicle that he used for business purposes in 24 2013, he is not entitled to a deduction for car and truck 25 expenses computed using the standard mileage rate then in (973)406-2250|operationseescrbers.net|wwwascribers.net 1 2 3 4 effect in lieu of actual expenditures. See Rev. Proc. 2010-51, sec. 3.01(1), 2010-51 I.R.B. 883; see also Kozlowski v. Commissioner, T.C. Memo. 1977-81. Moreover, the discrepancy between the starting 5 mileage reported on the mileage log on the date petitioner 6 7 8 9 claims to have purchased the Lincoln and the two documents issued by the Virginia Department of Motor Vehicles, calls into question the credibility of the mileage log. According to petitioner, that discrepancy is explained by 10 a mistake in the initial starting mileage recorded on the 11 mileage log, which he claims should have been increased by 12 100,000 miles. Assuming without finding that the initial 13 starting mileage was incorrectly recorded, as petitioner 14 15 16 suggests, on the date petitioner claimed to have purchased the Lincoln, that is March 12, 2013, there still would remaining a more than 21,684 mile discrepancy. 17 Furthermore, it would seem that the mistake would have 18 been notice and corrected at some point during the year. 19 No such correction is found on the log. Petitioner's 20 explanation does not eliminate our concerns as to the 21 22 accuracy of the log. Otherwise, we find nothing in the petitioner's 23 Wells Fargo bank records that would allow us to estimate 24 his actual expenses for the operation the Lincoln in his 25 limo driver business. Accordingly, petitioner is not (973)406-2250|operations@err&wts.net|wwwascribers et . 13 entitled to a deduction for car and truck expenses. To reflect the foregoing, decision will be entered for respondent. This concludes the Court's bench opinion in this case. (Whereupon, at 1:58 p.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 23 24 25 a ICribers (9733406-2250loperationseestrbersmet|www.escribers.net