TAX COURT OPINION

Case: Forrest Wade Gillespie
Docket Number: 6174-18S
Judge: Leyden
Opinion Type: bench
Filed: 06/28/2019
Pages: 19

SD UNITED STATES TAX COURT WASHINGTON, DC 20217 FORREST WADE GILLESPIE, Petitioner, v. ) ) ) ) Docket No. 6174-18S. 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 Special Trial Judge Diana L. Leyden at Salt Lake City, Utah, on June 12, 2019, containing her oral finding 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. June 28, 2019 (Signed) Diana L. Leyden Special Trial Judge SERVED Jun 28 2019 Bench Opinion by Judge Diana L. Leyden June 12, 2019 3 Forrest Wade Gillespie v. Commissioner of Internal Revenue Docket No. 6174-18S 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 (BENCH OPINION). THE ORAL FINDINGS OF FACT AND OPINION SHALL NOT BE RELIED UPON AS PRECEDENT IN ANY OTHER CASE. See Rule 152(c), Tax Court Rules of Practice and Procedure. Hereinafter in this bench opinion, all Rule references are to the Tax Court Rules of Practice and 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Procedure, and all section references are to the Internal 15 Revenue Code, as amended, in effect at all relevant times. 16 This proceeding was heard as a Small Tax Case 17 Pursuant to the provisions of section 7463 and Rules 170 18 through 174. This bench opinion is made pursuant to the 19 authority granted by section 7459(b) and Rule 152. 20 The Court uses the term "Internal Revenue 21 Service" or "IRS" to refer to administrative actions taken 22 outside of these proceedings. The Court uses the term 23 "respondent" to refer to the Commissioner of Internal 24 Revenue, who is the head of the IRS and is respondent in 25 this case, and to refer to actions taken in connection (Þ73)d66-22501òperations@e cribetsne t [www.escribersaet with this case. 4 The trial of this case was conducted on June 10, 2019, in Salt Lake City, Utah. Petitioner appeared on his own behalf. Gretchen W. Altenburger appeared on behalf of respondent. In a notice of deficiency dated February 5, 2018, the IRS determined a deficiency in petitioner's 2015 Federal income tax of $7,139 and an accuracy-related Penalty under section 6662(a) of $1,427.80. At trial, respondent conceded that petitioner was entitled to claim a deduction of $140 for tax preparation fees, before the 2% limitation under section 67(a). After the concession by respondent, the issues 1 2 3 4 5 6 7 8 9 10 11 12 13 14 for decision by the Court are as follows: (1) whether 15 petitioner is entitled to deduct $40,897 for unreimbursed 16 employee expenses reported on Schedule A, Itemized 17 Deductions, for 2015 and (2) whether petitioner is liable 18 19 20 21 22 23 24 25 for an accuracy-related penalty under section 6662(a). Background Some of the facts are stipulated and are so found. The stipulation of facts and the attached exhibits and three additional exhibits accepted into the record are incorporated herein by this reference. Petitioner resided in the State of Utah at the time that the petition was filed with the Court. cribers (973)406-2250lopeationseescribers.net|we,w.esertbers.net During 2015 petitioner was employed as a truck 5 driver for Wanship Transportation. He was a long-distance truck driver and was on the·road 339 days out of the year. Petitioner was not required to return to Wanship Transportation's principal location and receive his driving assignments at the end point of a previous assignment. Petitioner drove a truck owned by Wanship Transportation to transport goods between California and 1 2 3 4 5 6 7 8 9 10 Utah. The truck contained a compartment for sleeping. 11 Petitioner rented a room month to month in Sandy, Utah, 12 13 aPProximately 20 minutes from Salt Lake City.. He had access to a shared kitchen and bathroom facilities. The 14 most amount of days he lived there was 26 days in 2015, 15 16 17 18 19 Wanship Transportation did not reimburse its truck drivers, including petitioner, for hotel stays. If a driver wanted to take a break from sleeping in the truck the driver had to pay for a hotel and was not reimbursed. Petitioner testified that regulations required 20 that truck drivers not drive for more than 11 hours 21 without resting and then had to rest, without driving, for 22 23 10 hours. Further, once a truck driver drove for 70 hours, he had to rest for 34 hours. Wanship 24 Transportation accounted for its truck driver's driving 25 and off duty time in a daily log. The parties stipulated 6 the Wanship Transportation driver's log for petitioner for 2015. If the truck petitioner was driving needed a 1 2 3 4 major repair, he would bring it to be repaired and wait 5 6 7 8 9 10 11 for the repair to be finished. If the repair required the repair. shop to keep it overnight or for more than a day and it was not near the room he rented in Sandy he would pay for a hotel because he could not sleep in the truck. He would choose a hotel from available ones in the area of the repair. If the repair was minor, he would pay for the repair and not report the repair to Wanship 12 Transportation. Petitioner testified that he did this 13 14 15 16 17 18 because Wanship Transportation would award a small bonus to truck drivers who did not have to make such minor repairs. He did not want Wanship Transportation to know so that it would not impact his bonus. Sometimes petitioner would not drive the truck for several days because Wanship Transportation did not 19 have a cargo load for him to drive. He would be told how 20 21 22 23 long the truck would be idle. During those times he would rent a car at a rental car company. The rental car company he used allowed him to park his truck at the rental car company lot in exchange for renting the car. 24 During these periods petitioner would drive and "see the 25 sites". $B)406-2250joperations®escribers.net[www.escribersaet Petitioner paid for a cellular telephone during 7 2015. He used that phone to communicate by phone or text with Wanship Transportation or its customers and to manage other drivers. The record does not indicate whether 1 2 3 4 5 Wanship Transportation had a reimbursement policy for 6 7 cellular telephones. Petitioner also used the cellular telephone to make personal calls. Petitioner did not 8 maintain a log of the minutes he used to telephone or text 9 10 11 12 for his truck driving work or for his personal matters. Petitioner hired a certified public accountant (CPA) to prepare his 2015 tax return. He had used that same CPA since 2002. The CPA provided petitioner with a 13 page that listed various categories of expenses and 14 petitioner would write in amounts under such categories. 15 Petitioner testified that he provided the accountant "with 16 a shoe box of receipts" and relied upon the accountant to 17 18 claim the correct deductions. Petitioner remembered that he would provide the CPA with his medical and dental bills 19 but that the CPA told him he could not claim them because 20 21 22 they did not meet a threshold. The CPA prepared petitioner's 2015 tax return and included a Form 2106-EZ, Unreimbursed Employee 23 Business Expenses. Line 3 of that form is titled, "Travel 24 25 expenses while away from home overnight, including lodging, airplane, car rental, etc. Do not include meals g973 4062250!bpera cribe s s@escrNrsmeÈ|wwwisctfbersaet 8 and entertainment". Petitioner did not report any amount on that line. Line 4 of that form is titled, "Business expenses not included on lines 1 through 3. Do not include meals and entertainment". On that line petitioner reported $24,896. Line 5 is titled, "Meals and entertainment expenses", and petitioner reported $20,001 and multiplied that amount by 80% to report "meal expenses incurred while away from home on business". Petitioner's CPA advised him that he could claim on line 5 an amount equal to a per diem of $59 times the number of days he drove in 2015, or $20,001. The CPA applied 80% to that figure because 1 2 3 4 5 6 7 8 9 10 11 12 13 Petitioner was an employee subject to Department of 14 Transportation hours of service limits as an interstate 15 16 17 18 truck operator. After applying 80% to $20,001, petitioner reported $16,001 on line 5. The total expenses reported on the Form 2106-EZ were $40,897 and petitioner reported that amount on Schedule A as unreimbursed employee 19 expenses. 20 Discussion 21 22 A. Burden of Proof Generally, the Commissioner's determination of a 23 deficiency is presumed correct, and the taxpayer bears the 24 burden of proving it incorrect. See Rule 142(a); Welch v. 25 Helvering, 290 U.S. 111, 115 (1933). Under section (973j406-2250|operationstrescribersact www.escribet act 7491(a), 9 the burden of proof may shift to the Commissioner if the taxpayer produces credible evidence with respect to any relevant factual issue and meets other requirements. Petitioner has not argued that section 7491(a) applies nor established that its requirements are met. The burden of proof remains with petitioner. B. Schedule A - Unreimbursed Employee Expenses As the Court has observed in countless opinions, deductions are a matter of legislative grace, and the taxpayer bears the burden of proving entitlement to any claimed deduction. See Rule 142(a); INDOPCO, Inc.. v. 1 2 3 4 5 6 7 8 9 10 11 12 Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. 13 14 15 v. Helvering, 292 U.S. 435, 440 (1934). A taxpayer may deduct ordinary and necessary exPenses paid in connection with operating a trade or 16 business. Sec. 162(a); Boyd v. Commissioner, 122 T.C. 17 18 19 20 21 305, 313 (2004). To be ordinary the expense must be of a common or frequent occurrence in the type of business involved. Deputy v. Du Pont, 308 U.S. 488, 495 (1940). To be necessary an expense must be appropriate and helpful to the taxpayer's business. Welch v. Helvering, 290 U.S. 22 at 113. The expenditure must be "directly connected with 23 or pertaining to the taxpayer's trade or business". Sec. 24 25 1.162-1(a), Income Tax Regs. The term "trade or business" as used in section 162(a) includes the trade or business (93)406-2250lbpentionsees:ribetsmet{www.escribersnet of being an employee. Primuth v. Commissioner, 54 T.C. 10 374, 377-378 (1970); Christensen v. Commissioner, 17 T.C. 1456, 1457 (1952). If an expense is connected to personal, living, or family expenses, however, it is not allowed as a deduction. Sec. 262(a). Section 6001 and the regulations promulgated thereunder require taxpayers to maintain records sufficient to permit verification of income and expenses. See sec. 1.6001-1(a) and (e), Income Tax Regs. As a general rule, if, in the absence of such records, a taxpayer provides sufficient evidence that the taxpayer has incurred a deductible expense, but the taxpayer is unable to adequately substantiate the amount of the deduction to which he is otherwise entitled, the Court may 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 estimate the amount of such expense and allow the 16 deduction to that extent. Cohan v. Commissioner, 39 F.2d 17 540, 543-544 (2d Cir. 1930). However, for the Court to 18 estimate the amount of an expense it must have some basis 19 upon which an estimate may be made. Vanicek v. 20 Commissioner, 85 T.C. 731, 743 (1985). Without such a 21 basis, any allowance would amount to unguided largesse. 22 Williams v. United States, 245 F.2d 559, 560 (5th Cir. 23 1957). In estimating the amount allowable, the Court 24 bears heavily upon the taxpayer who failed to maintain 25 required records and to substantiate deductions as the 1973)406-2250|opetitionseexrlbertnetlwww.escribers.net Code requires. 11 See Cohan v. Commissioner, 39 F.2d at 544. For certain kinds of business expenses, section 274(d) overrides the Cohan rule. See Sanford v. Commissioner, 50 T.C. 823, 827 (1968), aff'd per curiam, 412 F.2d 201 (2d Cir. 1969). Section 274(d) provides that no deduction is allowed with respect to travel, entertainment, or listed property as defined in section 280F(d) (4) unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating the taxpayer's own statement (1) the amount of the expenses or item; (2) the time and place of the travel, entertainment, or expense; (3) the business purpose of the entertainment or expense; and (4) the taxpayer's relationship to the 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Person or persons entertained. 15 16 To meet the adequate records requirements of section 274(d), a taxpayer must maintain an account book, 17 diary, log, statement of expenses, trip sheets, or similar 18 record, and documentary evidence. See sec. 1.274- 19 ST(c)(2)(i), Temporary Income Tax Regs., 50 Fed. Reg. 20 21 22 46017 (Nov. 6, 1985). In the absence of adequate records to substantiate the expenses, the regulations provide that a taxpayer may establish an element by "his own statement, 23 whether written or oral, containing specific information 24 in detail as to such element", and by "other corroborative 25 evidence sufficient to establish such element." Sec, cribers 97 40s-22sol ope,,tronseescréers.net t www.esaibers.net. 1.274-5T(c)(3) (i), Temporary Income Tax Regs., 50 Fed. 12 Reg. 46020 (Nov. 6, 1985). 1. Hotel and Per Diem Expenses Although petitioner claimed that his reported 1 2 3 4 5 . unreimbursed employee expenses were for hotel stays while 6 7 8 9 10 11 12 he was traveling, petitioner did not report them as such on the Form 2106-EZ. There is a specific line, line 3, for reporting travel expenses while away from home including lodging. Petitioner did not report any expenses on that line. However, even if petitioner included the hotel expenses on line 4 as business expenses the Court finds 13 that they do not qualify as business expenses because 14 Petitioner did not incur the hotel expenses while 15 16 17 traveling away from home. Petitioner asserts that the reported unreimbursed employee expenses (per diem expenses and 18 hotel expenses) are deductible because they were incurred 19 while he was traveling away from his home as required by 20 his employment as a truck driver. An employee or self- 21 22 23 24 25 employed individual can deduct meal and incidental exPenses computed at the Federal rate established for the locality in which meal expenses were incurred while away from home. See Rev. Proc. 2011-47, sec. 1, 2011-43 I.R.B. 520. The Federal published rate is deemed substantiated ||$cribers 73)4064250!operationseescribersnet|www.esctbersnet for purposes of section 1.274-5T(b) (2)(i) and (c), 13 Temporary Income Tax Regs., 50 Fed. Reg. 46014-46015 (Nov. 6, 1985). An employee or self-employed individual may not use this method to substantiate lodging expenses. See Rev. Proc. 2011-47, sec. 1. Generally, under section 262 a taxpayer cannot deduct personal, living, or family expenses. However, section 162(a)(2) provides for the deduction of ordinary and necessary business expenses, including travel expenses 1 2 3 4 5 6 7 8 9 10 while away from home in the pursuit of a trade or 11 12 13 14 business. Traveling expenses include lodging, meals, and other expenses incident to travel. Sec. 162(a)(2); sec. 1.162- 2(a), Income Tax Regs. The expenses must be incurred while "away from home" overnight. Barone v. 15 Commissioner, 85 T.C. 462, 465 (1985), aff'd without 16 published opinion, 807 F.2d 177 (9th Cir. 1986); 17 Commissioner v. Flowers, 326 U.S. 465, 470-472 (1946). 18 Rev. Rul. 93-86, 1993-2 C.B. 71, sets forth the 19 Commissioner's guidance with respect to this aspect of 20 21 22 23 24 section 162(a)(2). The purpose of the deduction for expenses incurred away from home is to alleviate the burden on the taxpayer whose business requires him to maintain two homes and therefore incur duplicate living expenses. Kroll v. 25 Commissioner, 49 T.C. 557, 562 (1968). $cribers 1973)406-225Ò|oßerations@escribers.net|sirwwese,ibets.net To claim a deduction for traveling expenses a 14 taxpayer must show: (1) that his expenses were ordinary and necessary; (2) that he was away from home when he incurred the expenses; and (3) that the expenses were incurred in pursuit of a trade or business (which includes an employee). Commissioner v. Flowers, 326 U.S. at 470. Petitioner has failed to prove that his reported per diem and hotel expenses were incurred while he was away from home. 1 2 3 4 5 6 7 8 9 10 During 2015 petitioner did not have a principal 11 Place of business. He was a long-distance truck driver 12 13 and was on the road 339 days out of the year. Petitioner was not required to return to Wanship Transportation's 14 Principal location and receive his driving assignments at 15 16 the end point of a previous assignment. Thus, because of the nature of his employment petitioner did not have a 17 principal place of business in 2015. See Howard v. 18 Commissioner, T.C. Memo. 2015-38. 19 In instances where a taxpayer does not have a 20 Principal place of business, a permanent place of 21 residence may be considered a tax home. Barone v. 22 Commissioner, 85 T.C. 16ey 465 (1985), aff'd without 23 published opinion, 807 F.2d 177 (9th Cir. 1986). An 24 25 employee without a principal place of business may treat as his tax home a permanent place of residence at which he cribers (9/3)40s-22$0|operitions@escriters.net]www:escriberiaet incurs substantial continuing living expenses. Sapson v. Commissioner, 49 T.C. 636, 640 (1968). A taxpayer has a 15 home for this purpose only when he has incurred substantial continuing living expenses at the permanent Place of residence. James v. United States, 308 F.2d 204, 207-208 (9th Cir. 1962); Barone v. Commissioner, 85 T.C. at 466. When a taxpayer has neither a principal place of business nor a permanent residence, he has no tax home from which he can be away. Barone v. Commissioner, 85 T.C. at 465. His home is wherever he happens to be. Id. 1 2 3 4 5 6 7 g 9 10 11 12 Additionally, if a taxpayer is "'constantly on the move 13 due to his work, he never is "away" from home.'" Deamer v. 14 Commissioner, 752 F.2d 337, 339 (quoting Hantzis v. 15 Commissioner, 638 F.2d 248, 253 (1st Cir. 1981), rev'g 16 T.C. Memo. 1979-299). Thus, the taxpayer will not be 17 entitled to a business deduction for traveling expenses 18 19 20 21 22 23 under section 162 as he does not have a tax home. Barone v. Commissioner, 85 T.C. at 466. Petitioner has not proven that the room he rented was his permanent residence for 2015. He did not testify or provide evidence as to whether he incurred substantial living expenses with respect to that room. 24 Further, he did not occupy that room for the 339 days he 25 drove for Wanship Transportation. Based on the testimony Cdbers (973}406-2250lope ti nséesálbers.nethwww scnbersaat at trial and the evidence, petitioner has failed to 16 demonstrate that he was away from home within the meaning of section 162 and thus, is unable to claim a deduction under section 162 for traveling expenses paid or incurred while away from home. 2. Cellular Telephone Expenses In order to deduct unreimbursed employee expenses, a taxpayer must not have received reimbursement but also must not have the right to obtain reimbursement from his employer. Orvis v. Commissioner, 788 F.2d 1406, 1408 (9th Cir. 1986), aff'g T.C. Memo. 1984-533. 1 2 3 4 5 6 7 8 9 10 11 12 Petitioner did not provide any evidence that Wanship 13 Transportation did not reimburse him for his cellular 14 15 telephone or that he did not have the right to obtain reimbursement. Even assuming that petitioner could not 16 obtain reimbursement for his cellular telephone expenses, 17 Petitioner has failed to prove the business use of his 18 cellular telephone. 19 As a general rule, if a taxpayer provides 20 sufficient evidence that he incurred a trade or business 21 22 expense contemplated by section 162(a) but is unable to adequately substantiate the amount, the Court may estimate 23 the amount and allow a deduction to that extent. Cohan v. 24 Commissioner, 39 F.2d at 543-544. However, in order for 25 the Court to estimate the amount of an expense, there must 973)406-2250foreráionseescribers.nedww escribersnet 17 be some basis upon which an estimate may be made. Vanicek v. Commissioner, 85 T.C. at 742-743. Otherwise, an allowance would amount to unguided largesse. Williams v. United States, 245 F.2d at 560. Petitioner testified that he used his cellular telephone for both his employment and for personal reasons. Petitioner has not provided any evidentiary basis for applying the C2hgg rule to his cellular telephone expenses for 2015. See Vanicek v. Commissioner, 85 T.C. at 742-743 (citing Williams v. United States, 245 F.2d 559 (5th Cir. 1957)). Petitioner did not present any testimony or other evidence delineating how many cell. phone minutes he used for his business calls or personal 1 2 3 4 5 6 7 9 10 11 12 13 14 calls. Therefore, petitioner is not entitled to deduct as 15 16 17 18 unreimbursed employee expenses the cost for his cellular telephone he paid in 2015. 3. Truck Repair Expenses Petitioner paid for minor repairs to a truck he 19 did not own. He did not provide any evidence that the 20 repairs he made would not have been reimbursed by Wanship 21 Transportation. Petitioner chose not to report the 22 23 24 repairs to Wanship Transportation so as not to impact his bonus. However, he has not proven that he did not have the right to obtain reimbursement. Accordingly, 25 Petitioner is not entitled to deduct as unreimbursed shes $73)406-2250|operat ns@escribertnet|wwwesálber net employee expenses the repair costs he paid in 2015. 18 4. Rental Car Expenses Under section 262 a taxpayer cannot deduct personal, living, or family expenses. Based on the record the Court finds that petitioner rented cars for his personal use. Accordingly, he is not entitled to deduct unreimbursed employee expenses for the costs of the rental cars. C. Section 6662(a) Penalty - Substantial 1 2 3 4 5 6 7 8 9 10 Understatement 11 Respondent determined an accuracy-related 12 penalty for 2015 because petitioner's underpayment was due 13 14 15 to a substantial understatement of income tax. Sec. 6662(a) and (b)(2). Section 6662(a) authorizes the imposition of a 20% penalty on the portion of an 16 underpayment of tax that is attributable to, among other 17 18 19 20 21 22 things, (1) negligence or disregard of rules or regulations; or (2) any substantial understatement of income tax. Sec. 6662(a), (b)(1), (b) (2). Only one section 6662 accuracy-related penalty may be imposed with respect to any given portion of an underpayment, even if that portion is attributable to more than one type of 23 conduct listed in section 6662(b). See New Phoenix 24 Sunrise Corp. v. Commissioner, 132 T.C. 161, 187 (2009), 25 aff'd, 408 F. App'x 908 (6th Cir. 2010); sec. 1.6662-2(c), 73)406-(cid:0)575250operationseescribersmet www.escribersnet 19 Income Tax Regs. Under section 7491(c), the Commissioner bears the burden of production with regard to the liability of individuals for penalties. See Higbee v. Commissioner, 116 T.C. 438, 446 (2001). To meet that burden respondent must come forward with evidence indicating that it is appropriate to impose the penalty. See id. Once the Commissioner meets his burden of production, a taxpayer must come forward with persuasive evidence that the Commissioner's determination is incorrect. Rule 142(a); see Higbee v. Commissioner, 116 T.C. at 447. Petitioner may meet this burden by proving that he acted with reasonable cause and in good faith with respect to the underpayment. See sec. 6664(c)(1); Higbee v. Commissioner, 116 T.C. at 447; sec. 1.6664-1(b)(1), Income Tax Regs. Respondent has presented evidence that the section 6662(a) penalty was "personally approved (in 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 writing) by the immediate supervisor of the individual 20 making such determination" on November 6, 2017. 21 Respondent also provided evidence that the 30-day letter, 22 the first time the IRS proposed the accuracy-related 23 penalty, was dated october 2, 2017, before the date of the 24 managerial approval. Respondent has failed to meet his 25 burden of production. See Clay v. Commissioner, 152 T.C. cribers _i_ (Slip OP. at 44) (Apr. 24, 2019). In order to give effect to our disposition of the disputed issues, decision will be entered under Rule 20 155. THIS CONCLUDES THE COURT'S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE. (Whereupon, at 12:41 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 (Ó7(cid:0)540)406-2 (cid:0)575501operatonsøescHbers.net | www.esciibers.n