TAX COURT OPINION

Case: Frederick Dabankah
Docket Number: 7911-15
Judge: Gustafson
Opinion Type: bench
Filed: 05/13/2016
Pages: 8

SEC UNITED STATES TAX COURT WASHINGTON, DC 20217 FREDERICK DABANKAH, Petitioner, v. ) ) ) ) Docket No. 7911-15. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant to the opinion of the Court as set forth in the transcript of the proceeding at Washington, D.C., on May 4, 2016, 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 the undersigned judge 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) David Gustafson Judge Dated: Washington, D.C. May 13, 2016 SERVED May 13 2016 Capital Reporting Company 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Bench Opinion by Judge David Gustafson May 4, 2016 Frederick Dabankah v. Commissioner Docket No. 7911-15 The Court has decided to render the following as its oral Findings of Fact and Opinion in this case. This Beach Opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code, and Tax Court Rule 152; and it shall not be relied on as precedent in any other case. By notice of deficiency dated December 15, 2014 (Ex. 1-J), the Internal Revenue Service ("IRS") determined a deficiency in the Federal income tax of petitioner Frederick Dabankah for the year 2012, along with an accuracy-related. penalty pursuant to section 6662(a). The issues for decision are whether 17 Mr. Dabankah substantiated his entitlement to 18 19 20 deductions he claimed on Schedule C for "car and truck expenses", and whether he is liable for the accuracy-related penalty. The case was tried in 21 Washing:on, D.C., on May 3, 2016. Mr. Dabankah 22 23 24 25 represented himself, and respondent was represented by John D. Ellis. FINDINGS OF FACT Mr Dabankah is originally from Ghana and is now 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company a U.S. Citizen. English is his primary language. He has a bachelor's degree and a master's degree in 4 social sciences. Mr. DaJankah's employment In 2012 Mr. Dabankah was employed by the 1 2 3 4 5 6 University Club and by Louis Caruso, both of which 7 8 9 10 11 12 13 14 15 16 17 18 1.9 20 21 paid him wages totaling $59,970, for which they issued him Forms W-2. Mr. Dabankah was also paid $7,764 by William G. Wood, who issued him a Form 1099 for tha; amount. The work that Mr. Dabankah performed for Mr. Wood was probably (as he testified) delivery of newspapers. Mr. Dabankah also probably performed massage therapist services in 2012 (as he testified). We are unable :o determine whether this work was performed entirely fór the University Club or Mr. Caruso (i.e., in retu.:n for the wages reported on Form W-2) or instead was additional work for which he received additional compensation. If the latter, we do not know the amount of the income he received from it. Mr. Dabankah drove a car in connection with his 22 massage therapist work and his newspaper delivery. 23 24 25 We are unable to determine either the cost (if any) that he incurred for that vehicle use or the amount of the ::eimbursements that he admits he received for 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 miles taat he drove. 2 Mr. Dabankah's tax return 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Mr. Dabankah retained a tax return preparer to prepare his Federal income tax return for 2012. We are una31e to determine exactly what information he gave the preparer about his business activities and expenses. The return that he filed (see Ex. 2-J) reported as wages the W-2 wages he received from Louis Caruso and the University Club. It reported the For:n 1099 compensation of $7,764 that he received for newspaper delivery on Schedule C as from a "Massaga Therapist" business. From that Schedule C income was claimed a deduction for "car and truck expenses" in the amount of $46,509 (mileage expense for 83, 300 miles driven). This produced a claimed loss of $47,800 from the supposed massage therapist business, which loss reduced his claimed overall taxable income and reduced the tax he reported and paid. The IRS examined his return, disallowed the car and truck expense, and on December 15, 2014, issued a notice of deficiency determining a deficiency in tax and an ccuracy related penalty. On March 16, 2015, 24 Mr. Dabankah timely mailed his petition to this 25 Court. At that time he resided in Virginia. (Stip. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 3.) I. Burden of proof OPINION T7e IRS's determination is presumed correct, and tax3ayers generally bear the burden to prove their entitlement to any deductions they claim. Rule 142(a). Furthermore, taxpayers are required to 8 maintai records sufficient to substantiate their 9 claimed deductions. See sec. 6001; 26 C.F.R. sec. 10 11 12 13 14 15 16 17 18 19 20 21 1. 6001-1 ( a) ; see also id. sec. -1 ( e ) ("The books or records * * * shall be retained so long as the contents thereof may become material in the adminis:ration of any internal revenue law") . Taxpayers are allowed a deduction for "ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business." Sec. 162 (a) . Certain expenses are subject to especia Lly strict substantiation rules under section 274(d). These include expenses associated with the use of certain "listed property", which is defined in section 280F(d)(4) to include passenger automobiles. 22 When section 274 (d) applies, a taxpayer must 23 24 25 substan:iate--using adequate records or sufficient evidence corroborating the taxpayer' s own statement-- (1) the amount of the expense; (2) the time and place 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 9 the exp nse was incurred; (3) the business purpose of the expense or business use of the asset; and (4) the business relationship of the taxpayer to other persons benefited by the expense or use, if any. Shea v. Commissioner, 112 T.C. 183, 187 (1999). II. Discussion Mr. Dabankah has not substantiated any amount of the car and truck expense as an ordinary and necessa y business expense. His return claimed 10 mileage expense for 83,800 miles. When this case was 11 called rom the calendar, he estimated that the miles 12 might aptually be only 28,000. When the case was 13 14 15 recalled, he revised his estimate to 18,000, then to 15,000 co 18,000, then to 8,000. In his testimony Mr. Dabankah claimed he had 16 maintained a mileage log in 2012, claimed that he had 17 18 19 20 21 22 23 24 left it with his return preparer, and asked to be granted a continuance to be allowed to call the prepare. as a witness and to obtain the log to enter as evidence. We do not believe his testimony about the log Mozeover, even if he could credibly demonstrate that he drove 8,000 miles for massage therapy appointnents, his account is riddled with 25 difficu ties. Where is the income from this Schedule 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 C massage therapist business? (The reported Schedule C income evidently relates to newspaper delivery.) Is any actual mileage an employee business expense properly reported on Schedule A (and subject to limitations)? Where did he report the reimbursements for mileage that he received from customers (or employers)? He certainly may not deduct expenses that he did not actually bear. Mr. Dabankah failed to substantiate any deductiale expense for miles driven and succeeded only in raising disturbing questions about what he reported and failed to report on his return. III. Penalty Section 6662(a) and (b) (1) imposes an "accuracy-related penalty" of 20 percent of the portion of the underpayment of tax that is attributable to the taxpayer's negligence or disregacd of rules or regulations. "The term neglige nce includes any failure to make a reasonable attempt to comply with the provisions of the internal revenue laws or to exercise ordinary and reasonable care in the preparation of a tax return." 26 C.F.R. sec. 1.5662-3(b)(1). The IRS has the burden of production to show liability for the penalty, and the record in this case certainly makes that showing. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 Mr!. Dabankah did not show reasonable cause and good faith for his erroneous reporting (see sec. 6664(c)(1)). He attempts to invoke this potential defense by testifying that he hired an accountant to prepare his return; but to successfully invoke this defense, he would have to show that he gave correct information to his return preparer and that the errors n the return were the result of the prepare 's actions--but evidence of such facts is lacking. Decision will be entered for respondent. This concludes the Court's oral Findings of Fact and Opi ion in this case. (Whereupon, at 1:15 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 25 866.488.DEPO www.CapitalReportingCompany.com