TAX COURT OPINION

Case: Wendell C. Sleet
Docket Number: 28495-10S
Judge: Whalen
Opinion Type: bench
Filed: 01/05/2012
Pages: 14

UNITED STÄTES TAX CQURT WASHINGTON, DC 20217 WENDELL C. SLEET, Petitioner, . v. . COMMISSIONER OF INTERNAL REVEl ÜE, Respondent . . ) ) ) ) ) Docket No. 28495-10S ) ) ) ) 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 petitioner and to responder t a copy of transcript öf Laurence J. Whalen at St. Louis, Missouri, containing his óral findings of fact and opinion endered ón December 8, 2011. the. proceedings in the above case before Judge the pages of the In accordance with the oral findings of fact and opinion, decision will be entered for espondent. (Signed) Laurence J. Whalen Judge Dated Washington, D. C. January 5, 2012 SERVED JAN 9 2012 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 Bench Opinion by Senior Judge Laureñce J. Whalen Wendell C. Sleet December 8, 2011 I. 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. II. This proceeding was·heard as a Small Tax Case conducted pursu nt to the provisions of section 7463 (f) (1) of the Int ernal Revenue Code of 1986, as amended,. and Rules liO through 179 of the Tax Court Rules of Practice and Procedure. Hereinafter, all section references tå the Internal Revenue Code , as . amended and in effecti for the years in issue, and all rule references are t o the Tax Court Rules of Practice and Procedure. III. This bench opinion is made pursuant to the authority granted by section 7459 (b) of the Internal Revenue Code, as ame ded, and Rule 152 . . . IV. Mr. Wendel C. Sleet appeared in these proceedings on his o n behalf, and Ms. Susan K. Bollinan, attorney at law, appeared on behalf of Heritage Réporting Corporation (202) 628-4888 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 Respondent . V Respondent determined deficiencies in Petitioner's Federal income tax for taxable years 2007 and 2008 in the amou t o $1,987 anc'l's$2,510, respectively. Petitioner concedes all of the adjustments determin d in the notice of deficiency, other than the amount of car and truck expenses to which is allowed as á deduction on Schedule C, Profit or Loss from Business, for his activity as a "professional courie " . VI· The sole i sue for decision by the Court is whether Petit1oner 1 entitled to Schedule C deductions for car- and truck expenses in 2007 and 2008 which exceed the amoànts allowed by Respondent in the notice of deficiency issued to Petitioner. This issue turns on whether Petitioner substantiated a greater amount for either year at trial. VII. Background During the years in issue, Petitioner was self- mployed as a courier. He delivered packages f r two companies, JS Express and JS Trucking, and he as paid by those companies for hié delivery service . The record does not explain Heritage Peporting Corporation (202) 628-4888 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 5 how the payments to Petitioner were computed. Petitioner used two vehicles to make deliveries; a van and a passenger car. For 2007 Petitioner received Form 1099-MISC from JS Trucking showing non-employee compensation in the amount of $38,560.01 for the d liveries. that he made using the van. For the same year Petitioner received a Form 1099-MISC from JS Ext ress showing non-employee compensation in the ámount of $4,942.34 for the deliveries that he màde using the car. For 2008 Petitioner received Form 1099-MISC from JS Trucking showing non-employee compensation in the amount of $46,284.06 for the d liveries that he made using the van. For the same y ar Petitioner received a Form 1099-MISC from JS Ex ress showing non-employee compensatlon ln the mount of $2,346.31 for the deliveries t·hat he mÀde using the car. The record does not explain the relationship between JS Trucking Änd JS Express . For convenience, we shall use the tern "JSX" to refer to either, or both of , the compani s . Petitioner reported the total non-employee compensation from JSYy for 2007, $43, 502, on Schedule C as the gross receipts or sales for his business as a "professional courier". On the Schedule C, he Heritage R porting Corporation (2p2) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 1$ 16 17 18 19 20 21 22 23 24 25 deducted car and truék expense for that business of $19,749. . Petitioner reported the total non-employee compensation from JSX for 2008, $48,630, on Schedule C as the gross receipts or sales for his business as a "professional courie , consultant". On Schedule C he deducted car and truc k expense for that business of $33,017. The car andl truck expenses deducted on the Schedule c's for bot]h years are the -deductions at issue in this case. Petitioner s 2007 return also included Form 4562, Depreciation a d Amortization, which reported, in Part V of the for , that two vehicles had been used in Petitioner's busil ess. The form reported that vehicle one was drivên 31,982 total miles during the year. The form repo ted that vehicle two was driven 9 749 total miles during the year. The aggregate miles for both vehicles is 1, 731. This includes both business and personal miles . Petitioner s 2008 return also included Form 4562, Depreciation a d Amortization which reported, in Part V of that form, that three vehicles had been used in Petitioner's busimess. The form reported that vehicle one was drivèn 47, 964 total miles during the year. The form repoèted that vehicle two was driven Heritage Reporting Corporation (202) 628-4888 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 5, 051 total miles du ing the year. The form reported that vehible three w driven 6,140 total miles during the. year. The aggre ate miles for all three vehicles is 59,155. This inc Ludes both business and personal miles. During both of the years in issue, Petitioner performed on-employee services, other than his courier services for JSX. He described those services as hauling, grass cutting, repair work, miscellaneous delive y, consulting, TV tuning, et cetera. The record Noes not describe those services or provide detailed inancial information regarding them. Petitioner cl ims to have driven his vehicles in connection with p oviding those services. The notice of deficiency at issue in this case determined that Petitioner was allowed a deduction for car an truck expense for 2007 of $18,625, or $1,124 less than the amount claimed by Petitioner on his. re urn. In computing that adjustment, the reveñue agent started with the total miles for all of Petitioner'.s vehicles of 2,848. This total mileage a ount is the aggregate number of miles shown on three summaries that Petitioner had given to the revenue agent . It exceeds the mileage that Petitioner clai ed on the Form 4562 attached to Heritage Iteporting Corporation (202) 628-4888 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 his return for 2007, 41, 731. The agent hen multiplied the total miles by approximately 73 per ent (the exact amount i 72 . 67 percent) to account for personal and unsubstantiated business miles driven during the year. The agent then multiplied the produ t of that multiplication by the standard milage rate for 2007, $ 485, to arrive at . the amount allowed for the year, $18,624.73- For. 2008, he notice of deficiency determined that Petitioner was allowed a deduction for car and truck e:¿pensÅ of $22,404 96 or $10,612.04 less than the amount claithed by Petitioner on his return. In compùting that . ad ustment, the revenue agent started with the tot 1 miles for all of Petitioner' s vehicles. of. 59,155. This mileage. amount is the aggregate number of miles shown on three summaries that Petitioner gave to the revenue agent and it is the same amount claitned on the Form 4562 attached to Petitioner's return. The agent then multiplied the total miles .by 75 percent to account for the amount of personal and unsubsta.ntiated business miles driven during the year. The agent then multiplied the product of that mult plication by the standard mileage rates for 2008, whicl was $0.505 for the first six months of the year and $0.585 for the remainder of the Heritage eporting Corporation (2p2) 628-4888 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 year to arrive at the amount allowed for the year, $22,404.96. VIII. . We begin with several fundamerïtal principles of tax litigation. First, as a general rule, the Commíssioner' s detehninations are presumed correct, and the taxpayer bears the burden of proving that those .determinations are erroneous . Rule 142 (a) . This principle was f irmly established by the United States Supreme Court- as early as 1933 and has been reaffirmed by the Suareme Court as recently as 1992. See Indopco n Inc . v. ! Commis sioner , 503 U. S . 79, 84 (1992) . Although séction 7491(a) may serve to shift the burden of proof bo the Commissioner under certain circumstances, it doès not do so here for at least three independent reasons: Petitioner failed to raise the matte Petitioner failed to comply with record keeping and substant Lation requirements, see sec. . 7491(a) (2) (A) and (B) and Petitioner failed to introduce the requis Lte quality of evidence, see sec. 1 7491 (a) (1) . Accord Lngly, Petitioner bears the burden of proof. Second, deductions are a matter of (cid:16)042 legislative grace, and the taxpayer bears the burden . .Heritage Reporting Corporation (202) 628-4888 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 10 of proving that he or she is entitled t·o any deduction claimed. Rule 142 (a) ; Deputy v. duPont, 308 U. S. 488, 493 (1940) ; New Colonial Ice Co. v. Helvering, 292 U.S. 435,. 440 (1934) This includes the burden of substantiation. Hra esky v. Commissioner, 65 T.C. 87,90 (1975), affd. er curiam. 540 F.2d 821 (5th Cir. 1976) . Third, the Court is not bound. to accept as true, the unverif ied and undocumented testimony of a taxpayer. . Hradesky . Commissioner, supra; Tokarski v. Commissioner, 87 T. C. 74, 77 (1986) . Even when the taxpayer's testimony is uncontroverted, we are not required to accept i iÈ it is improbabl , unreasonable, or que tionable. Lovell & Hart, Inc. v. Commissioner, 456 F. d 145,.148 (6th Cir. 1972), affg. T.C. Memo. 1970-335 McGuire .v. Commissioner, 450 F.2d 1239, 1244. (5th Cir. 1971), affg, T.C. Memo. 1970-89; Niedringhans v. Comm:..ssioner, 99 T. C. 202, 212 (1992) . Fourth, a party's failure to introduce documentary evidence which is within his possession or control and which he implies would be favorable to him, gives rise to tl e presumption that, if produced, such evidence would e unfavorable. Recklitis v. Commissioner, 91 T . C 874, 890 (1988) ; Pollack v. Commissioner, 7 T.C 92, 108 (1966), affd. 392 F.2d Heritage Reporting Corporation (202) 628-4888 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 11 409 (5th Cir. 1968) ; Wichita Terminal Elevator Co.. v_._ Commissioner, 6 T.C. 1158, 1165 (1946), .affd. 162 F.2d 513 (10th Cir: 1947) . We note thát section 6001 requires taxpayers to maintain books an re cords suf f ic ient to substantiate the amounts -of the deductions claimed. Sec . 1. 6001-2 (a) , (e , Income Tax Regs . lf a taxpayer is unable to fully substantiate the expenses incurred, but there is evidence that deductible expenses were incurred, . the Court may under certain circumstances allow a deduction based upon an approximation of expenses. Cohan v. ommissioner, 39 F.2d 540, 544 (2d Cir. 1930) . But see Williams v. United States, 245 F.2d 559; 560-561 (5th Cir. 1957); Vanicek v. Commissioher, 85 T. C 731, 742-743 (1985) . However, in the case of expenses relating to the use of listed property, specifically including any passenger automobile or other property used as a means of. transportation, section 274 (d) imposes stringent substantïa ion requirements . to document the nature and amount of such expense s . Sec . 280F (d) (4) (A) (i) . and (ii) , (5) ; Sanf ord v. Commissioner, 50 T . C 823, 82'7 (1968) ,. af fd. per curiam 412 F . 2d 201 2d Cir . 1969) ; Larson v . Commissioner, T.C. Memo. 2008-187; sec. 1.274-5T(a), Heritage R porting Corporation (202) 628-4888 1 2 3 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 25 24 25 12 Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985) (express y uperseding the so-called Cohan rule and making it inapplicable) . Thus, in order to satisfy these strict substantiation requirements the taxpayer must maintain adequate records or ufficient corroborating evidence to establish each el ment of an expenditure . Sec . 274 (d) ; sec . ..1. 274 -5T (b (6) , (c) (2). (i) , Temporary Income Tax Regs., 50 Fed. Reg. 46016, 46017 (Nov. 6, 1985) . For this . purpose, the elements of an expenditure include: (1) The use of each vehicle based .on mileage; (2) the time and place of the expense; and (3) the business purpose of the expense. Sec. 274 (d) . IX. . Discussion It is eviden that one of the mileage summaries o "mileage logs or other documents inizroduced into the record of this case by Petitioñer, taken individuallý or in combination, is sufficient to substantiate the car and truck expense claimed by Petitione for 200'7 or 2008, as required by section 274 The s maries f Petitioner' s miles allegedly driven on eha f of JSX consist of weekly mileage totals without any other information, such as job or invoice numbe s, locations, the names of the Heritage R o ting Corporation (2 2) 628 4888 1 2 3 4 5 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 13 persons to whom delïyeries were made, or the like .. Each entry could be he mileage from one job or one hundred jobs. In fa t, Petitioner testified that the weekly mileage totals were "estimates" of his .mileage, and that thé "logs" rom which the summaries were made were "at hoñie". Significantly, Petitioner testified that couriers are require to bm t "signature logs" to JSX which ihàd a transaction number for each delivery and is a verificatlon that the delivery is complete. Petitioner stated th t he had those documents "at hóme . " In the case of the summaries purporting to show monthly . totals of . Petitiioner' s mileage, f or òther thari JSX deliveries each summary consists of 12 monthly mileage t-ótals without any other information. The "logs" from whìòh these summaries were allegedly . made consist of cale dars with daily mileage amounts. The daily mileages are sup osed to add up to the monthly amount . Onc again, the no other informatiorr in the "lögs", such as job locations, the. names of the persons for whom the mileage was incurred, o even the type of activity f.or which the vehicle was driven to substantiate the mileage, as required by sect-ion 274: See Regs. sec. .1.274- Fierita e porting Corporation ( 02) 628 4888 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 14 ST (b) (6) . What is renarkable about the audit of Petitioner's car and truck expense is the fact that Respondent allowed Petitioner any mileage at all. In . the case of lïsted property, the'substantiation rules of section 274 were intended to supersede the doctrine founded in Coheñ. v. Commissiòner, supra, under which a close approximation öf the amount of the deduction could be made in certäin cases when the exact amount of the deductìon could not bei determined,· rather than disallowing the entire deduction. See Regs. 1.274- ST (a) (4) In this case, Petitioner' s documentation of his mileage fails to meet the requirements of section 274 . Nevertheless , Respondent allowed a . reasonable approximation of the amount of the deduction, rather than disallowing the entire amount . Based upon. the record .of this .case, we conclude that Respondent was generous in allowing aný car and truck expenses at all. X. We conclude that Petitioner has failed to establish that he is entitled to a deduction for car and truck expenses in excess of the amount allowed by Respondent in the notice of deficiency. Accordingly, we sustain Respondent's determination in the notice of Heritage Reporting Corporation (202) 628-4888 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 deficïency disallowing the .deduction for car and truck expenses claimed b Petitioner on his 2007 and 2008 15 tax returns . . XI. . In order to giVe effect to the foregoing, decision will be entered for Respondent. XII. . . THIS .CONCLUDES THE COURT'S ORAL FINDINGS OF FACT AND OPINION IN HIS CASE . (whereupon at 12:12 p.m. , the bench opinion in the above-entitled matter was. concluded.) // // // // // // // // // // // // // Heritage Reporting Corporation (202) 628-4888