TAX COURT OPINION

Case: Hatem Elsayed
Docket Number: 8935-07S
Judge: Goldberg
Opinion Type: summary
Filed: 05/26/2009
Pages: 17

T .C .. .Summary Opinion 009-8 1 UNITED STATES TAX COUR T HATEM ELSAYED, Petitioner v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 8935-07S . F Peter A . Lowy , for petitioner . David B . Mora , for respondent . GOLDBERG, Special Trial Judge : This case was heard pursuant to the provisions of section 7463 of the Internal Revenue Code in effect at the time the petition was filed . Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case . Unless otherwise indicated, subsequent section references are to the Internal Revenue Code in effect fo r SEQW4o MAY 2 6 2009 u'i - 2 the year in issue, and all Rule references are to the Tax Cour t Rules of Practice and Procedure . The issues for decision are : (1) Whether petitioner is entitled to deduct unreimbursed employee . business expenses in excess of the amount that respondent allowed for 2004 ; and (2 ) whether,;petitioner .is entitled to a filing status of married filing'jointly for 2004 .1 Background Some of the facts have been stipulated and are so found . The stipulations of facts and the attached exhibits are incorporated herein by this reference . ; At the time he filed his petition, petitioner resided in .Texas . 'Petitioner was employed as a truck driver in 2003, a job he maintained through the end of 2004 . He did not own or lease a truck ; rather, he drove trucks owned by his employers . In 2004 petitioner worked for two corporation's, Swift Transportation (Swift) and A-Z Transportation (A-Z) . Swift and A-Z were related businesses in that Swift owned A-Z or leased its assets . Consequently, their driver reimbursement policies, discusse d below, Jwere identical . Petitioner transported many types o f lihe notice of deficiency included a sec . 6662 accuracy- related penalty for 2004 . Petitioner, did not dispute the penalty in his petition or at trial . Therefore petitioner is deemed to have conceded the issue . See Rule 34(b)(4) ; Swain v . Commissioner , 118 T .C . 358, 364-365 (2002) . 3 - shipments, including regular freight and hazardous materials, and he drove to destinations throughout . the ontinental Unite d States . Petitioner maintained a home in Texas, but he was an, , active driver during 2004 logging 268 da,s away from home . Swift and A-Z reimbursed their drivers for certain expenses including tolls, scales, showers, truck 3upplies, truck washes, motels, lumpers (people hired to help unload the truck), and truck repairs . Swift and A-Z did not re,'mburse their drivers fo r maps, tools, meals, clothing, bedding, c olers,batteries, office supplies, first aid kits, or air fresheners . Petitioner kept receipts for his purchases in separate envelopes by category . Petitioner used a home computer to help ~ecord his driver log s and account for his expenses . Petitioner brought his two Forms W-, Wage and Tax Statement, and his receipts to a tax pre parer who prepared petitioner's 2004 Federal income tax ret rn . -Petitioner timely . filed his return using single filing status and reporting wages of $45,919 and deductions totaling $2.1,8D8 on Schedule A, Itemized Deductions . Of the $21,808 in itemized deductions, $18,755 are expenses that petitioner claimed on Form 2106, Employee Business Expenses . The Internal Revenue Service (IRS) selected petitioner's . 2004 Federal income tax return for examination . The sole - 4 $5,787) ; of the $18,755 deduction for unreimbursed employe e business expenses . Three categories of expenses made up the $18,755 :x± (1) Vehicle expenses--$469 ;, (2) meals--$619 ($1,237 .times a 50-percent reduction) ; and (3) "other" expenses-- $,17,667 .' The examiner allowed in full"petitioner's deduction fo r vehicle":expenses . The meal expenses that petitioner had listed separately were for restaurant meals while petitioner was home , which"''respondent disallowed . IN Petitioner could not reconcile the $17,667 deduction for other expenses that he had claimed on the return .. However, a significant component was for meals,heihad purchased while awa y from home . The examiner determined that petitioner incurre d K E $8,308 for meals and incidental expenses away from home based o n 268 days times a per diem,rate of $31 .. The examiner then reduced the $8,308 total by 50 percent to allow a deduction of $4,154 because section 274(n) generally permits only 50 percent of meal s and entertainment as a deduction .' Thel,record(cid:127)is unclear, as t o the specific expenses that make up the examiner's remaining . allowance of $1,164 ($5,787 minus $469 and minus $4,154), othe r than an electronic map for $223 .37 . During the audit petitioner raised the issue of his filin g status!!for 2004 . He claimed that he' is entitled to use marrie d filing ~ jointly rather than single status because by the end o f ,I a 2004 ' he,was in a co mm on law marriage with Irma Angelica . Cueto, - 5 - whom he married in separate civil and re ligious ceremonies i n March 2005 . The examiner determined that petitioner's filing status fo r 2004 was single .% Therefore, solely on t he basis of the $12,968 disallowance, respondent determined a de ficiency in petitioner' s 2004 Federal income tax of $2,435 and an accuracy-related penalt y under section 6662(a) of $487 . Petitioner timely petitioned the Co Urt for redeterminatio n of the deficiency, seeking an increased reduction for "other business expenses that he claimed on Form 2106 . Additionally, petitioner asks the Court to recognize his common law marriage to Ms . Cueto during 2004 and permit him to ile-as married filing jointly . At trial petitioner called his wife and a friend, Ms . Brenda Hernandez, as witnesses with respect to the common law marriage: . Petitioner did not call his tax preparer as a witness . Discussio n In general, the Commissioner's determination set forth in a notice of deficiency is presumed correct and the taxpayer bears the burden of showing that the determination is in error . Rule 142(a)(1) ; Welch v . Helvering, 290 U .S . 111, 115 (1933) . Under section 7491(a) the burden may shift to the Commissione r regarding a factual issue if the taxpayer produces credibl e evidence .and meets the other requirements of the section, i 6 - including maintaining records required by the Internal Revenue jib' Code and cooperating fully with the Sedretary's reasonabl e I r equestls'~for witnesses, information, documents, meetings,r an d interviews . Petitioner did not fulfill the requirements o f s'ectionjp7491(a), and therefore the burden of proof regarding the u.nreimbursed employee business expense deductions and his marita l status remains on petitioner . With respect to the accuracy- related°penalty, section 7491(c) places the burden of productio n on respondent TYefirst issue for decision is whether petitioner is entitled to a deduction for unreimbursed employee busines s expenses in excess of the amount resp'bndent .allowed . 01 Deductions are a matter of legislative grace, and taxpayer s bear the burden of .proving their entitlement to a deduction . IIh ~, a INDOPCO, Inc . v . Commissioner , 503 U .S . 79, 84 (1992) ; Ne w Colonial Ice Co . v . Helvering, 292 U .S . 435, 440 (1934) . Section 6001 requires taxpayers to maintain riecords sufficient to establish the amount of each deduction, . See also Ronnen v . Commissioner , 90 T .C . 74, 102 (1988) ; ;;.sec . 1 .6001-1(a), (e), Income'Tax Regs . Section 162(a) allows a deduction for ordinary and necessary expenses that a taxpayer pays in connection with the operation o f a trade or business . Boyd v . Commissi''oner , 122 T .C . 305, 313 1(2004)V. 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 (194'0) . To be "necessary" an expens e must be "appropriate and helpful"'to th e taxpayer's business ., Welch v . Helvering, supra at 113 . Addit onally, the expenditur e must be "directly connected with or pertaining to the taxpayer' s trade or business" . Sec . 1 .162-1(a), Income Tax Regs . Section 262(a) disallows deductions for personal, living, or family expenses . Generally, the performance of services as an employee . constitutes a trade or business . Primu4l v . Commissioner , 5 4 T .C . 374, 377 (1970) .. For such expenses to be deductible, th e taxpayer must not have the right to obta n reimbursement from his employer . See Orvis v . Commissioner , 78 F .2d 1406, 1408 (9t h Cir . 1986), affg . T .C . Memo. 1984-533 . If a taxpayer"establishes that an e is unable to substantiate the precise amount, we may estimate th e amount, bearing heavily against the taxp yer whose inexactitud e is of his'own making . Cohan v . Commissioner , 39 F .2d 540, 543- 544 (2d Cir . 1930) . The taxpayer must present sufficient evidence for the Court to form an .estimate because without such a basis, any allowance would amount to ung ided largesse . Williams v . United States , 245 F .2d 559, 560-561 5th Cir . 1957) ; Vanice k v . Commissioner ; 85 T .C . 731, 742-743 (185) . I - 8 - Section 274 overrides the Cohan rule with regard to-certai n business expenses . Sanford v . Commissioner , 50 T .C .,823, 82 7 (:1968),,,i!affd . per curiam 412 F .2d 201,(2d Cir . 1969) ; Sec . 1 .274- 5,T (a) !Temporary ,Income Tax Regs ., 50 . Fed . Reg . 46014 (Nov . 6, 1985) ,h4Sec .tion 274 requires stricter substantiation for travel, meals,:, .rand listed property such as cellular telephones . Section 274(d) ;requirestaxpayers to provide adequate records or, !sufficient other evidence establishing the amount, time, place , and business purpose of the expense to corroborate the taxpayer's statements . Even if such an expense would otherwise b e deductible, section 274 may still preclude a deduction if the taxpayer does not have sufficient substantiation . Sec . 1 .274 5T(a),-Temporary Income Tax Regs ., supra . li Keep'ing in mind these well-established principles, we now decide, whether petitioner is entitled to additional unreimbursed employee business expenses . With respect to the deduction for meals away from home, ili j respondent has already determined that petitioner is entitled t o use a per diem rate rather than actual expenses, and that 268 is the proper number of days petitioner was away from home durin g 2004 ." Petitioner does not challenge,ithese determinations . Respondent also determined that $,31 per day is the correc t per diem rate that petitioner shouldi;use for meals and incide'ntals expenses (M&IE) while he was on the road in th e li continental United States (CONUS)' during 2004 . We disagree . While $31 is generally the correct standard CONUS rate per Rev . Proc . 2003-80, secs . 3 .02(1)(a) and 4 .01 .2003-2 C .B . 1037, 1039, the same revenue procedure provides a separate $41 CONUS per die m rate .for employees in the transportation industry . Id . sec . , 4 .04(2), 2003-2 C .B . at 1040 . The defin tion of transportatio n industry employee includes in pertinent part an individual whose , work "directly involves moving people or goods by * * * truck " and "regularly requires travel away=from home which, during an y single trip away from .. home, usually involves travel to localitie s with differing Federal M&IE rates ." Id . sec . 4 .04(4), 2003- 2 C .B . at 1040 . Petitioner meets the definition because h e directly moved goods by truck, his 268 d ys away from hom e constitute regular travel, and he made t ips away from hom e involving numerous localities with varying Federal M&IE rates . Additionally, the 50- percent allowance for meals unde r section 274(n) is superseded by a more g nerous 70 percent allowance for 2004 under section 274(n)( )(B) for individual s subject to "the hours of service limitations of the Department o f Transportation" . Sec . 274(n)(3)(A) . Tr ck drivers are subject to Department of Transportation hours of service limitations , e .g .., generally truck drivers may not dr ve more than 60 hours in any period of 7 consecutive days or more than 70 hours in 8 - 10 - consecut'ive days . See United States v . McCord, Inc . ; 143 F .3 d 1095, ..1.096 (8th Cir . 1998) ; 49 C .F .R .,Isec . 395 .3 (2008) . Thus, instead of the-deduction of :$4,154 that respondent allowed," petitioner is entitled to a deduction of $7,691 .60 for , meals and incidental expenses on the basis of 268 days away . fro m h°ome at°$41 per day times an allowance rate of 70 percent . With respect to the "other" expenses that petitioner seeks to dediiet in excess of the $1,174, the Court received into evidence from petitioner'a spreadsheet,jand copies of receipt s totaling $6,212 .25, comprising three subcategories of expenses :, $2,161!''51 for cellular telephone charges ; $1,765 .34 for restaurant meals that petitioner purchased while in his hometown ; .and $2 ;286 .40 for unreimbursed supplies that petitioner bought while on the road . With respect to the cellular telephone bills totaling $2,161 1.51, petitioner's employers suggested that drivers migh t find cellular telephones useful but did not reimburse its drivers for a 'ellular telephone . Petitioner used the cellular telephone to contact other truckers, shippers, and receivers to discuss , among other things, the best routes for his particular destination considering his load type, load weight, and vehicle size, information that is not readily available from typical road maps . !,Petitioner also used the cellular telephone for personal - 11 - calls . Petitioner did not keep a log,of his calls, but he estimated that 80 percent of the calls h ad.a business purpose . Section 274(d)(4) governs the subst ntiation requirements related to listed property , which under section 280F(d) (4) (A) ( includes cellular telephones . Under section 274(d) the taxpayer must maintain adequate records or present corroborative evidence to support : (1) The amount of the expense ; (2) the time an d .place of use of the listed property ; and (3) the business purpose of the use . Sec . 1 .274-5T(b)(6), Temporary Income Tax Regs ., 50 Fed . Reg . 46016 (Nov . 6, 1985) . The Court may not use the Cohan doctrine to estimate expenses governed .b section 274(d) . Boyd v . Commissioner , 122 T .C . at 320 . Thus, while petitioner has substantiated that he paid cellular telephone charges and he has es ablished that he had a business purpose for a cellular telephon , he has provided no contemporaneous log or any other credibl 'evidence of the portion of the cellular telephone use that was business related . The . burden is on petitioner to support the business usage . Because Congress has decided that a cellular telephone is listed property, we may not estimate . Accordingly, petitioner is-not entitled to a deduction for his cellular telephone expenses for 2004 . With respect to the hometown meals, petitioner provide d receipts to show that he paid $1,765 .34 for restaurant meals . in - 12 - between work assignments . Petitioner contends that although hi s employers did not require the meals, the meals had a business pq'urpose,~:'in that they gave him an opportunity to meet with other drivers to gain their wisdom .as .to how .best .to advance hi s ; driving skills, e .g ., learning safety ' tips, the rules for hour s worked,~11,and how to increase his earnings . Petitioner wrote on the badks .of the receipts the first but not last names of the person(s) with whom he ate . He did not record the busines s purpose of the meals . Included in the total were payments o f $225 and $200 to purchase meals for several other drivers as appreciation for their advice . instances where section 162(a)i,trade or business expense s overlap with section 262 ( a) personal expenses , section 262 takes precedence . Heineman v . Comm issioner '; 82 T .C . 538, 542 ( 1984) . Further, a deduction for meals and entertainment expenses, simil'ar'tothe deduction for travel expenses, is subject to strict,-substantiation requirements . Sec . 274(d)(2) . Moreover , the individual must show more than a ktangential connection with the business ; he must show that the expense is "directly conne':cted" with the trade or business :.!E Sec . 1 .162-1(a),'Incom e Tax Regs . Petitioner has not sufficiently connected the meals with a bona fide trade or business purpose . Moreover, the receipts that petitioner submitted, while showing dates and prices, did no t if , - 13 - show last names or document a business purpose . See sec . 274(d ) (flush language) . Thus petitioner did n t establish . a business purpose that transcends the ordinary per onal benefit of eating an enjoyable meal with colleagues . Sec . 1 .274-5T(b), Temporar y Income Tax Regs ., 50 Fed . Reg . 46014 (No 6, 1985) . Accordingly, for the foregoing reasons w find the hometown meal s are a personal expense, and we sustain r See sec . 1 .262-1(b)(5), Income Tax Regs . With respect to the $2,286 .40 in un eimbursed supplies, many of the receipts just showed dollar amoun s with a crypti c description, e .g ., a credit card purchas for $26 .97 for "Luggage Ro EAC" from an unidentified store, and 3 .29 for "G-R-O-C" fro m .the Drivers Travel Mart in Anna, .Texas . Many other receipts had no description at all, such as a $323 .83 credit card receipt fro m Wal Mar-t in Houston, Texas ; $.23 .46 from the Flying J Travel Plaza in Carmel Church, Virginia ; and $13 .65 from Travel Centers of America in Tallulah, Louisiana . . A few receipts had an apparent business purpose : $75 .73 for a CB radio $59 .95 for an atlas map, and $5 .76 for a small map . However most of the other identifiable purchases were for-seeminglypersonal purposes : $115 .26 from a Wal Mart in Humble, Texas, for shampoo and office supplies ; and $99 .86, $188 .84, and $19 .9 from a Sam's Club for, an executive chair, an L-shaped desk, an Nike tennis sneakers . - 14 - Examining these receipts we finda ;that petitioner did not providepadequate'substantiation establishing a business .p,urpose under .,:se,ction 274(d) . In many cases the receipts did not describe and petitioner did not furnish an explanation of what he purchased . Therefore, even if we were to provide an estimat e 1i under the Cohan doctrine, the amount that we would estimate as business, rather than section 262(a) personal expenses would be far less than the nearly one-half, or ;$1,164 that respondent allowed . . Accordingly, we find no ground to increase petitioner's deduction for "other" expenses beyond :the $1,164 that respondent has already allowed . TYe second issue for decision is1whether petitioner .i s entitled to a filing status of married,,, filing jointly for 2004 . State law determines a person's marital status for Federal incomeli,tax purposes . Von Tersch v . Commissioner , 47 T .C . 415, 419 (1967) ; Rev . Rul . 58-66, 1958-1 C.B . 60 . The State of Texa s recognizes common law marriages but requires that three conditions be met : (1) The parties must agree to marry,,~(2), they must live together in Texas as husband and wife, and (3) the y must :represent to others that a marriage exists . Tex . Fam . Code Ann . sec . 2 .401 (Vernon 2006) ; Warren v . Sec . of HHS , 868 F .2d 1444,1446 (5th Cir . 1989) . Petitioner and Ms . Cueto agreed to marry, and in fact the y did marry in 2005 . We find credible their testimony that they I iii' . - 15 - had lived together since 2002 . The crit ical test then is th e third one, whether they represented to others that they were married . Representing to others means " olding each other out to the public ." Estate of Claveria v . .Clav ria , 615 S .W .2d 164, 166 (Tex . 1981) ; see also Russell v . Russell 865 S .W .2d 929, 932 (Tex . 1993) (requiring "public representation") ; Ex parte Threet , 333 S .W .2d 361, 364 (Tex . 1960) (isolate reference to a .person as his husband or wife, and similarly an introduction to two close friends and telling two or . three o her persons does not constitute sufficient evidence of a common law marriage) and Grigsby v . Reib , 153 S .W . 1124,'1130 '(Te . 1913) . ("The cohabitation must be professedly as husb nd and wife, and public, so that by their conduct towards each of er they may be known a s husband and wife .") . _ In Russell v . Russell , supra at 931 932, the Supreme . Cour t of Texas observed that although Texas h recognized . common la w marriages since 1847, the recognition is a"grudging" one in which the State "merely tolerates" but oes not favor" such marriages . In 1970 the Texas legislature enacted a statute to allow a couple to file a declaration of informal marriage with the county clerk . Id . In 1989 the legislature amended th e statute to make the proof of a common law marriage mor e difficult, restricting the ability of co its to simply infer a marriage . Id . Thus, the effect of the 1 989 amendment is to - 16 - tighten the rules for inferring a common law marriage, requiring the evidence to be more convincing than before the 198 9 . aigreement . Id . Accordingly, in a society where nonmarit;al cohabitation for(cid:127)extended periods is far more common than it onc e was, the fact finder will have to weigh the evidence mor e carefully than in the past . Id . Occasional uncontradicted i III,. reference to "my wife" or "my husband" needs corroboration, an d the context of the reference requiresgreater scrutiny . Id . J1 , 11 forthright assertion of marriage with, . the consequence o f liability, such as when an alleged spouse seeks admission of the other to a hospital, is highly probative of a tacit agreement . . rd . Ipf N Though Ms . Cueto-and Ms . Hernandez testified on petitioner's behalf ; their testimony was supportive .butnot decisive . j a Ultimately, four factors weigh against petitioner's claim that he r s was inl,a common law marriage in 2004 .1 First and importantly , petitioner purchased a home in 2004 which became the couple's primary residence . Petitioner could have titled the home an d mortgage note jointly in his and Ms .',Cueto 's names , but he di d not do'so . This omission is highly probative because under Russell''v . Russell , supra , it was anropportunity for a forthrigh t assertion of marriage when there was 1, 1 a significant consequence of liability . Second, petitioner did not add Ms . Cueto to th e utility„bills or his bank account, and she did not change her 17 - driver ' s license to her married name until 2005 . Third, as noted above , . the State of Texas provided resid nts with the opportunity to register their co mm on law marriage wi h the local county clerk , but again , petitioner chose not to do so . Fourth and also significant , petitioner reported his filing status as single on his 2004 Federal income tax return . He ad the opportunity to alert the world , or at least the IRS , that he believed he was married , but ,he chose not to do so . Only later when his return was audited did petitioner raise the issue of a common law marriage . For the foregoing reasons , we sustain respondent's determination of petitioner ' s filing sta us as single for 200 4 To reflect our disposition of the i sues , Conclusion Decision will be entere d under Rule 155 .