TAX COURT OPINION

Case: Bradley M. Besaw & Maria J. Besaw
Docket Number: 15070-12
Judge: Kroupa
Opinion Type: bench
Filed: 06/25/2013
Pages: 9

UNITED STATES TAX COURT WASHINGTON, D.C. 20217 BRADLEY M. & MARIA J. BESAW, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ) ) ) ) ) ORDER Docket No. 15070-12 Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit to petitioners and to respondent a copy of the pages of the transcript of this case before Judge Diane L. Kroupa in San Francisco, California on June 5, 2013, containing her 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, an appropriate decision will be entered pursuant to Rule 155. (Signed) Diane L. Kroupa Judge Date: Washington, D.C. June 25, 2013 SERVED JUN 252013 Capital Reporting Company 3 1 2 3 4 5 6 7 8 9 10 11 12 13 Bench Opinion by Judge Diane L. Kroupa June 5, 2013 Bradley M. & Maria J. Besaw v. Commissioner Docket No. 15070-12 BENCH OPINION 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. THESE ORAL FINDINGS OF FACT AND OPINION 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) and Rule 152. 14 All section references are to the Internal Revenue 15 Code for 2008 and all Rule references are to the Tax 16 Court Rules of Practice and Procedure. 17 18 19 20 21 22 23 24 25 Petitioner Maria Besaw appeared on behalf of petitioners, and Matt Carlson appeared on behalf of respondent. FINDINGS OF FACT Certain facts have been stipulated. The stipulation of facts filed by the parties, with accompanying exhibits, is incorporated by this reference. Petitioners resided in Danville, California 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 8 9 10 11 12 13 at the time they filed the petition. Petitioners are very industrious individuals. They each were nurses, were involved in Amway distribution and petitioner wife was also involved in real estate during 2008. They each operated from their home and did not have a separate place of business. Petitioners claimed they drove almost 60,000 miles in 2008 in pursuit of their various business activities. The parties have resolved all the issues other than the claimed unreimbursed employee business expenses for 2008. These expenses relate to petitioners' time as nurse employees of ResCare (formerly known as Nightingale 14 Nursing.) Petitioner husband claimed he drove almost 15 16 21, 000 miles as an employee and petitioner wife claimed she drove almost 23,000 miles as an employee. 17 Petitioner husband also claimed he paid $982 of other 18 19 20 21 22 23 24 25 unreimbursed employee business expenses and petitioner wife claimed she paid $789 of other unreimbursed employee business expenses during 2008. Petitioners submitted a personal planner that allegedly showed the business use of their vehicles and the patients serviced. Petitioners assert that the planner was for 2008 yet it was for the tax year 2005. Petitioners also admit that the 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 19 20 21 22 23 24 25 planner included more than business information. In addition, petitioners failed to establish what information they provided to their tax preparer regarding the employee expenses and, if the information was the personal planner, then what other information or documentation did Petitioners provide to the preparer to decipher the planner and determine the business use of the vehicles. Petitioner wife asserted that she had logs for each of three cars they had in 2008 yet failed to bring them to court or provide them to the revenue agent. Petitioners also failed to provide a copy of their employment agreement with their employer or provide a copy of their employer's personnel manual dealing with expense reimbursement. Petitioners did provide, however, a 1-sentence letter from the HR department that the employer has not reimbursed petitioners for mileage. Petitioners late filed the return for 2008 and respondent also determined in the deficiency notice that petitioners were liable for an accuracy- related penalty. OPINION This is primarily a substantiation case where we must decide whether petitioners are entitled 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 to claimed unreimbursed employee business expenses. We begin with two fundamental principles of tax litigation. First, the Commissioner's determinations are generally presumed correct, and the taxpayer bears the burden of proving that those determinastions are erroneous. Rule 142(a). 7 Petitioners did not assert that the burden shifts to 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 respondent. See sec. 7491(a) (2) (A) and (B). The burden therefore remains with petitioners. Second, deductions are a matter of legislative grace, and the taxpayer must show that he or she is entitled to any deduction claimed. Rule 142 (a); Welch v. Helvering, 290 U.S. 111 (1933). This includes the burden of substantiation. Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976). Substantiation means that a taxpayer shall keep such permanent records or books of account as are sufficient to establish the amount of deductions claimed on the return. Sec. 6001; sec. 1.6001-1(a), (e), Income Tax Regs. The Court need not accept a taxpayer's self- serving testimony when the taxpayer fails to present other probative evidence. Beam v. Commissioner, T.C. Memo. 1990-304 (citing Tokarski v. Commissioner, 87 T.C. 74, 77 (1986)). 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company Taxpayers are allowed a deduction for all 7 ordinary and necessary expenses of a trade or business including the trade or business of an employee. Lucas v. Commissioner, 79 T.C. 1, 6 (1982). No expense is allowable to an employee, however, to the extent that the employee is entitled to reimbursement from his or her employer. Lucas v. Commissioner, at 7. The theory goes that the employee could have avoided the cost simply by asking to be reimbursed. Id. In addition, daily mileage automobile expenses otherwise deductible as a business expense 1 2 3 4 5 6 7 8 9 10 11 12 13 will be disallowed in full unless the taxpayer 14 15 16 17 18 19 20 21 22 23 24 25 satisfies the strict substantiation requirements as passenger automobiles are "listed property." Secs. 274 (d) (4), 280F(d) (4) (A) (i). Strict substantiation requires the taxpayer to maintain an account book, diary, statement of expense or similar record that is sufficient to show the amount, the time and place of travel, the business purpose and the business relationship to the taxpayer. Sec. 1.274-5T, Temporary Income Tax Regs. No deduction is allowable based on an approximation or a taxpayer's unsupported testimony. Sanford v. Commissioner, 50 T.C. 823, 827 (1968), affd. per curiam 412 F.2d 201 (2nd Cir. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 10 11 1969); sec. 1.274-5T(a), Temporary Income Tax Regs.; sec. 1.280F-6T(b) (2), Temporary Income Tax Regs. In certain other situations, if a taxpayer establishes that he or she paid or incurred a deductible business expense but does not establish the amount of the deduction, this Court may approximate the amount of allowable business deductions, bearing heavily against the taxpayer whose inexactitude is of his or her own making. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2nd Cir. 1930). For the Cohan rule to apply, however, a basis 12 must exist on which this Court can make an 13 14 15 16 17 18 19 20 approximation. Vanicek v. Commissionber, 85 T.C. 731, 743 (1985). Without such a basis, any allowance would amount to unguided largesse. Williams v. Commissioner, 245 F.2d 559, 560 (5th Cir. 1957). We now apply these rules to the present facts. We found petitioner wife credible. No matter how credible we found her, however, we nonetheless cannot allow her or her husband any allowance for 21 mileage. The documentation petitioners provided 22 23 24 25 simply was not decipherable. Petitioner wife suggested that she had mileage logs. She failed, however, to provide them. We consistently have found that the failure of a party to introduce evidence, 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 which, if true, would be favorable to that party, 2 will create a presumption that the evidence would be 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 unfavorable if produced. Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162 F.2d 513 (10th Cir. 1947). We therefore find that petitioners are not entitled to any mileage deductions because they failed the strict substantiation requirements. Moreover, petitioners are also not entitled to any unreimbursed employee business expenses because they failed to establish that their employer had a policy of not reimbursing any employee expenses. We also cannot allow any amount under the Cohan rule for the other unreimbursed employee business expenses of $982 for petitioner husband and $789 for petitioner wife. We have to have some basis to approximate the amount of allowable deductions. Here, we have none. Finally, petitioners raised no defense to their late filed return or for the accuracy-related penalty under section 6662. Any defenses they may have had are therefore waived. To give effect to the foregoing and respondent's concess1ons, decision will be entered under Rule 155. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company THIS CONCLUDES THE COURT'S ORAL FINDINGS OF 10 FACT AND OPINION IN THIS CASE. (Whereupon, at 3:37 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