TAX COURT OPINION

Case: Gregory Melvin & Cheryl Melvin
Docket Number: 12540-15
Judge: Kerrigan
Opinion Type: bench
Filed: 11/08/2016
Pages: 7

JRN UNITED STATES TAX COURT WASHINGTON, DC 20217 GREGORY MELVIN & CHERYL MELVIN, Petitioner(s), v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. ) ) ) ) 12540-15. ORD 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 in the above case before Judge Kathleen Kerrigan at Oklahoma City, Oklahoma on October 25, 2016, containing her oral Findings of Fact and Opinion rendered at the conclusion of the trial session at which this case was heard. In accordance with the oral Findings of Fact and Opinion, a decision will be entered for respondent. (Signed) Kathleen Kerrigan Judge Dated: Washington, D.C. November 8, 2016 SERVED Nov 09 2016 Capital Reporting Company 3 1 Bench Opinion by Judge Kathleen Kerrigan 2 October 25, 2016 3 Gregory Melvin & Cheryl Melvin v. Commissioner 1 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Docket No. 12540-15 The Court has decided to render the following as its oral Findings of Fact and Opinion, which shall not be relied upon as precedent in any other case. This Bench Opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code and Rule 152 of the Tax Court Rules of Practice and Procedure. Unless otherwise indicated, all section references are to the Internal Revenue Code (Code) in effect for the year in issue. By notice of deficiency dated February 9, 2015, the Internal Revenue Service determined a deficiency of $2,592 in petitioners' Federal income tax for tax year 2012. The issue for our consideration is whether petitioners are entitled to a deduction for unreimbursed employee expenses.. Trial of this case was conducted on October 24, 2016, in Oklahoma City, Oklahoma. Joseph A. Flores represented petitioners, and G. Chad Barton represented respondent. The parties did not stipulate to any facts or offer any evidence. We find the following facts: 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 2 3 4 5 FINDINGS OF FACT Petitioners resided in Oklahoma when they timely filed their petition. Petitioners were teachers in the Oklahoma public school system. Petitioner- husband retired from teaching in 2010. Petitioner- 6 wife was a special needs teacher in 2012, and she 7 8 9 10 11 12 continues to teach. Both petitioners testified that they purchased items for their classrooms and drove to different locations in Oklahoma to purchase these items. Petitioners filed a joint income tax return for tax year 2012. On their Schedule A, Itemized 13 Deductions, petitioners reported total miscellaneous 14 15 16 17 18 19 expenses of $17,611. A professional tax preparer prepared their return. I. Burden of Proof Generally, a taxpayer bears the burden of proving the Commissioner's determination in a notice of A deficiency are erroneous. Rule 142(a)(1); Welch v. 20 Helvering, 290 U.S. 111, 115 (1933). Petitioners have 21 22 23 24 25 neither claimed nor shown that they meet the specifications of section 7491(a) to shift the burden of proof to respondent as to any relevant factual issue. II. Employee Expenses Section 162(a) allows a taxpayer to deduct all 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 ordinary and necessary expenses paid or incurred in carrying on a trade or business. An ordinary expense is one that commonly or frequently occurs in the taxpayer's business, Deputy v. du Pont, 308 U.S. 488, 495 (1940), and a necessary expense is one that is appropriate and helpful in carrying on the taxpayer's business, Welch v. Helvering, 290 U.S. 111, 113 (1933). The expense must directly connect with or pertain to the taxpayer's business. L Se$. 1.162-1(a), Income Tax Regs. A taxpayer may not deduct a personal, living, or family expense unless the Code expressly provides otherwise. Sec. 262(a). Deductions are a matter of legislative grace, and a taxpayer must prove his or her entitlement to a deduction. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). To that end, taxpayers are required to substantiate each claimed deduction by 19 maintaining records sufficient to establish the 20 amount of the deduction and to enable the 21 22 23 24 25 Commissioner to determine the correct tax liability. . Sec. 6001; see also Higbee v. Commissioner, 116 T.C. 438, 440 (2001). Whether an expenditure is ordinary or necessary is a question of fact. Commissioner v. Heininger, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 9 320 U.S. 467, 475 (1943). Generally, the performance of services as an employee constitutes a trade or business. O'Malley v. Commissioner, 91 T.C. 352, 363-364 (1988); sec. 1.162-17(a), Income Tax Regs. The employee must show the relationship between the expenditures and his or her employment. See Joseph v. Commissioner, T.C. Memo 2005-169. For such expenses to be deductible, the taxpayer must not have the right to reimbursement from his or her employer. 10 See Orvis v. Commissioner, 788 F.2d 1406, 1408 (9th 11 Cir. 1986), aff'g T.C. Memo. 1984-533. 12 13 14 15 16 17 18 19 20 Normally, the Court may estimate the amount of a deductible expense if a taxpayer establishes that an expense is deductible but is unable to substantiate the precise amount. See Cohan v. Commissioner, 39 F.2d 540, 543-433 (2d Cir. 1930); Vanicek v. Commissioner, 85 T. C. 731, 742-743 (1985) . This principle is often referred to as the Cohan rule. See, e. g. , Estate of Reinke v. Commissioner, 4 6 F. 3d 760, 764 (8th Cir. 1995), aff'g T.C. Memo. 1993-197. 21 Certain expenses specified in section 274 are subject 22 23 24 25 to strict substantiation rules. No deductions under section 162 shall be allowed for "listed property", as defined in section 280F(d) (4), "unless the taxpayer substantiates by adequate records or by sufficient 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 evidence corroborating the taxpayer's own statement". Sec. 274(d)(4). Listed property includes passenger automobiles and other property used for transportation. Sec. 280F(d)(4) (A) (i) and (ii). To meet the heightened substantiation requirements, a taxpayer must substantiate the amount, time of use, and business purpose of the expense. Sec. 274(d); see also sec. 1.274-5T(b)(6), Temporary Income Tax Regs., 50 Fed. Reg 46016 (Nov. 6, 1985). To substantiate by adequate records, the taxpayer must provide both an account book, a log, or a similar record, as well as documentary evidence, which are together sufficient to establish each element of an expenditure. Id. at sec. 1.274- 5T(c)(2)(i), 50 Fed. Reg. 46017 (Nov. 6, 1985). 16 Notably, section 274(d) overrides the Cohan rule. 17 18 19 20 21 22 23 24 25 Boyd v. Commissioner, 122 T.C. 305, 320 (2004); sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985) (flush language) (noting that section 274 supersedes the Cohan rule). Therefore, this Court is precluded from estimating any expenses that are covered by section 274(d). A. Petitioner-Husband's Expenses Petitioner-husband testified that he retired from teaching in 2010. Therefore, we conclude that 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 petitioner-husband is not entitled to deduct unreimbursed employee expenses in tax year 2012. B. Petitioner-Wife's Expenses Petitioner-wife testified that she purchased items for her classroom and was not reimbursed for these expenses. She testified that she drove her car to purchase many of these items. She did not explain what portion of the miscellaneous expenses were associated with her and not her husband. She did not provide any information regarding a reimbursement policy for her school. She did not explain her purchases or submit any receipts. Petitioner-wife did not provide any records that would meet the requirements of section 274(d). Petitioner-wife is not entitled to deduct unreimbursed employee expenses for tax year 2012. III. Conclusion Any contentions we have not addressed are irrelevant, moot, or meritless. We sustain the deficiency determined by respondent, and a decision 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 will be entered for respondent. This concludes the 22 Court's oral Findings of Fact and Opinion in this case. 23 24 25 (Whereupon, at 11:17 a.m., the above- entitled matter was concluded.) 866.488.DEPO www.CapitalReportingCompany.com