TAX COURT OPINION

Case: Edgar Rene & Maria Julia Leyva
Docket Number: 14738-08S
Judge: Colvin
Opinion Type: bench
Filed: 07/09/2009
Pages: 8

Lb jv'rf UNITED STATES TAX COURT Washington , D .C . 2021 7 EDGAR RENE AND MARIA JULIA LEYVA, Petitioners, v . Docket No . 14738-08 S COMMISSIONER OF INTERNAL REVENUE, Respondent . O R D E 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 petitioners and to respondent a copy of the pages of the transcript of the trial of the above case befor e Special Trial Judge Lewis R . Carluzzo at Los Angeles, California, on May 28, 2009, containing his oral findings of fact and opinion rendered at the conclusion of trial . In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155 . (Signed ) Lewis R. Carluzzo Special Trial Judg e Dated : Washington, D .C . July 9, 2009 2 SERVED JUL 10 2 3 1 Bench opinion by Special Trial Judge Lewis R . Carluzzo 2 Edgar Rene & Maria Julia Leyva Docket No . 14738-08S 3 May 28, 200 9 4 The Court has decided to render ora l 5 findings of fact and opinion in this case and th e 6 following represents the Court's oral findings of fact 7 and opinion . The oral findings of fact and opinio n 8 shall not be relied upon as precedent in any other 9 case . 10 This proceeding for the redetermination of a 11 deficiency is a small tax case conducted pursuant to 12 the provisions of Section 7463 of the Internal Revenue 13 Code of 1986, as amended, and Rules 170 through 175 of 14 the Tax Court Rules of Practice and Procedure . This 15 bench opinion is made pursuant to the authorit y 16 granted by Section 7459(b) ofsthe Internal Revenue 17 Code of 1986, as amended, and Rule 152 of the Ta x 18 Court Rules of Practice and Procedure . 19 Hereinafter in this bench opinion section 20 references are to the Internal Revenue Code of 1986, 21 as amended, in effect for 200:5 . Rule references are 22 to the Tax Court Rules of Practice and Procedure . 23 Edgar Rene Leyva and Maria Julia Leyva appeared pro 24 se . Cindy Park appeared on behalf of Respondent . 25 In a notice of deficiency dated March 25 , Heritage Reporting Corporation (202) 628-4888 4 1 2008, Respondent determined a $17,485 deficiency in 2 Petitioners' 2005 federal income tax and imposed a 3 $3,497 Section 6662(a) penalty . The issues fo r 4 decision are : 1) whether Petitioners are entitled to 5 certain trade or business expense deductions in excess 6 of the amounts allowed by Respondent ; and 2) whethe r 7 Petitioners are liable for the Section 6662(a) 8 penalty . 9 Some of the facts have been stipulated and 10 are so found . Petitioners are, and were, at all times 11 relevant married to each other . At the time th e 12 petition was filed they resided in California . 13 References to Petitioner are to Edgar Rene Leyva . 14 During 2005 Petitioner was self-employed as 15 a dump truck driver (the trucking business) . As best 16 as can be determined from the record, he provide d 17 services as such exclusively for Brutto Trucking, Inc . 18 (Brutto) using a truck that he owned . He wa s 19 compensated on an hourly basis at rates varying from 20 $75 to $88 per hour . His timesheets demonstrate that 21 he was compensated for driving some 1,750 hours in 22 connection with more than 1,000 trips betwee n 23 locations in the Los Angeles area . 24 Brutto charged Petitioner fees fo r 25 brokerage, trailer lease and dispatcher services and Heritage Reporting Corporatio n (202) 628-.4888 5 1 the amounts so charged were withheld from th e 2 compensation paid to Petitioner . As far as hi s 3 trucking business went, Petitioner's recordkeepin g 4 practices were less than exemplary . What records of 5 expenses he did keep, or might have kept, are no t 6 available . On the other hand, it would appear that 7 Brutto kept much better business records . 8 Exhibit 7-P contains detailed statements on 9 a month-by-month, day-by-day basis showing wher e 10 Petitioner drove on any particular day and how long it 11 took him to do so . The many city pairs shown in the 12 statements and the time allocated to each trip suggest 13 that no reasonable correlation between time spent and 14 mileage driven can be made . 15 The income and expenses attributed to 16 Petitioner's trucking business are reported on a 17 Schedule C, Profit or Less from Business, including 18 with Petitioners' timely filed 2005 joint federa l 19 income tax return, which return was prepared by a paid 20 income tax return preparer . As relevant here, on the 21 Schedule C Petitioners claimed a $95,019 deduction for 22 car and truck expenses and a $37,832 deduction fo r 23 rent or lease expenses . 24 The latter amount is the exact amount shown 25 to have been withheld from Petitioner's compensation Heritage Reporting Corporatio n (202) 628-4888 6 1 from Brutto for brokerage, trailer lease an d 2 dispatcher fees . In the above-referenced notice of 3 deficiency, Respondent disallowed the $37,83 2 4 deduction upon the ground that the expenses to which 5 it relates are also included in the deduction for car 6 and truck expenses . 7 Respondent disallowed $28,735 of the car and 8 truck expenses deduction for lack of substantiation . 9 Respondent also imposed a Section 6662(a) accuracy- 10 related penalty on several alternative grounds . Other 11 adjustments made in the notice of deficiency ar e 12 computational and need not be discussed . 13 As we have observed in countless opinions, 14 deductions are a matter of legislative grace an d 15 generally the taxpayer bears the burden of proof to 16 establish entitlement to any claimed deduction . Sec . 17 7491(a) ; Rule 142(a) ; INDOPCO, Inc . v . Commissioner , 18 503 U .S . 79, 84 (1992) ; New Colonial Ice Co . v . 19 Helvering , 292 U .S . 435, 440 (1934) . 20 The taxpayer's burden requires the taxpayer : 21 1) to identify a specific statute that allows for the 22 deduction claimed ; and 2) to substantiate any suc h 23 deduction by keeping and producing for the 24 Commissioner's inspection adequate records that show 25 the expense has been paid or incurred . Sec . 6001 ; Heritage Reporting Corporatio n (202) 628-4888 7 1 Hradesky v . Commissioner , 65 T .C . 87, 90 (1975), affd . 2 per curiam 540 F .2d 821 (5th Cir . 1976) ; Meneguzzo v . 3 Commissioner , 43 T .C . 824, 831-832 (1965) . 4 In this case, the types of expenses that 5 underlie the disallowed deductions are with the 6 category of expenses contemplated by Section 162(a ) 7 which in general provides that a taxpayer is entitled 8 to a deduction for all ordinary and necessary expenses 9 paid or incurred during the taxable year in carryin g 10 on a trade or business . Obviously, expenses cannot be 11 twice deducted . 12 Separate and apart from the duplication of 13 certain expenses in both deductions here unde r 14 consideration, Petitioners' problem in this case is 15 the lack of records establishing the extent to which 16 certain expenses were paid or incurred . Petitioner 17 explains that his trucking business records wer e 18 destroyed or stolen and, in particular, complains that 19 Respondent has not allowed a sufficient amount fo r 20 diesel fuel expenses . 21 Working backwards from the specific expense 22 deductions that have been allowed, it would appea r 23 that Petitioner's complaint is well taken ; however , 24 Respondent can only work with the information provided 25 by Petitioner and that information is less than Heritage Reporting Corporation (202) 628-4888 8 1 informative . For example, when asked how many miles 2 Petitioner drove his dump truck during 2005 , 3 Petitioner responded that he could not remember . 4 Furthermore, although Brutto's record s 5 suggest that a.mileage log could be estimated wit h 6 some reasonable degree of precision, Petitioners have 7 made no attempt to make such an estimate . 8 Working with what evidence has bee n 9 presented and after careful review of that evidence we 10 find as follows : 1) Respondent's disallowance of the 11 $37,832 deduction for rent and lease expenses i s 12 sustained as that amount is duplicated in th e 13 deduction for car and truck expenses ; 2) Respondent's 14 disallowance of a portion of the car and truck expense 15 deduction is overstated by $520, which is th e 16 difference between the amount disallowed as a 17 deduction for rent and lease expenses , but allowed as 18 a portion of the deduction for car and truck expenses ; 19 3) otherwise, Respondent's disallowance of a portion 20 of the deduction for car and truck expenses i s 21 sustained, subject to the possibility of further 22 review by the parties as discussed below ; and 4) 23 taking into account all of the facts an d 24 circumstances, including the fact that Petitioners' 25 return was prepared by a paid income tax return Heritage Reporting Corporatio n (202) 628-4888 9 1 preparer, Petitioners are not liable for the Section 2 6662(a) accuracy-related penalty . See Sectio n 3 6664(c) . 4 In closing, we offer the following 5 observation . Exhibit 7-P, which was admitted into 6 evidence over Respondent's objection, contain s 7 statements produced by Brutto from which a reasonable 8 estimate of the mileage driven by Petitioner could be 9 constructed . The burden of preparing such a n 10 estimate, however, rests with Petitioners and not with 11 Respondent . 12 To the extent that Petitioners construc t 13 such an estimate and demonstrate the reasonableness of 14 the estimate to the satisfaction of Respondent' s 15 counsel, an additional allowance for fuel expens e 16 might be agreed upon between the parties . If so, the 17 amount can be reflected in a Rule 155 computation . 18 To reflect the foregoing, decision will be 19 entered under Rule 155 . This concludes the Court's 20 oral findings of fact and opinion in this case . 21 (Whereupon, the bench opinion in the above- 22 entitled matter was concluded . ) 23 24 25 Heritage Reporting Corporation (202) 628-4888