TAX COURT OPINION

Case: Clifton D. Gibbs & Judith A. Gibbs
Docket Number: 6413-17
Judge: Gustafson
Opinion Type: bench
Filed: 06/06/2018
Pages: 12

20 UNITED STATES TAX COURT WASHINGTON, DC 20217 CLIFTON D. GIBBS & JUDITH A. GIBBS, Petitioners, v. ) ) ) SR ) Docket No. 6413-17. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant to Rule 152(b) of the 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 proceedings in the above case before the undersigned judge at Winston-Salem, North Carolina, containing his 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, decision will be entered for the Commissioner. (Signed) David Gustafson Judge Dated: Washington, D.C. June 6, 2018 SERVED Jun 06 2018 3 1 2 Bench Opinion by Judge David Gustafson May 22, 2018 3 Clifton C. Gibbs & Judith A. Gibbs v. Commissioner of 4 5 6 7 8 9 Internal Revenue THE COURT: The Court has decided to render the following as its oral Findings of Fact and Opinion in this 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 10 Practice and Procedure; and it shall not be relied on as 11 12 13 14 precedent in any other case. By notice of deficiency dated December 14, 2016 (Ex. 6-J), the Internal Revenue Service ("IRS") determined a deficiency in the Federal income tax of petitioners 15 Clifton D. and Judith A. Gibbs for the years 2013, 2014, 16 and 2015, based on numerous adjustments to the returns. 17 At trial petitioners conceded their receipt of small 18 amounts of qualified dividends in all three years and a 19 20 2015 deduction of $148,014 for depreciation or section 179 expense claimed on the Schedule C. The issues for 21 decision are: whether Mr. and Mrs. Gibbs substantiated 22 23 24 25 their entitlement to an Education Credit in 2013; whether they substantiated their entitlement to deductions for contributions to Individual Retirement Accounts ("IRAs") in 2013 and 2015, and for casualty losses, unreimbursed p73J406-2250|operationsoese,beesmet|wwwascribersmet employee business expenses (including vehicle expenses), and medical expenses in all three years; and whether they 4 are liable for accuracy-related penalties. We sustain the IRS's disallowances and the imposition of the penalties. This case was tried in Winston-Salem, North Carolina, on May 21, 2018. James Yandle represented the petitioners, and Olivia Hyatt Rembach represented the Commissioner. On the evidence before us, we find the following facts: FINDINGS OF EACT 1 2 3 4 5 6 7 8 9 10 11 Petitioners' employment 12 13 14 In the years at issue, Mrs. Gibbs was employed by Camco Manufacturing, Inc. (Stip. 11). In the years at issue, Mr. Gibbs was a project 15 manager for Environmental Air Systems, LLC ("EAS"; Stip. 16 15), and he supervised projects in 14 states. To an 17 extent we cannot quantify, Mr. Gibbs used, for business- 18 19 related travel, a vehicle that he owned. For at least some of his gasoline purchases, Mr. Gibbs used an EAS 20 credit card that EAS paid. EAS had a policy of 21 22 23 24 25 reimbursing employees for their travel expense. (See Ex. 17-J, p. 004.) From the evidence presented, we cannot tell the extent (if any) to which Mr. Gibbs bore the expenses for his travel. EAS provided Mr. Gibbs some office space on an (97334½2250|operationseerrbersmet|www.ascrbesmet 1 2 3 4 apparently limited basis, and he did some of his paperwork from his home. We are unable to conclude that he used any portion of his home exclusively for this purpose, and at trial Mr. Gibbs pointed to no evidence of the expenses of 5 maintaining his home. 6 7 8 9 10 11 Tax returns, notice of deficiency, and petition Mr. and Mrs. Gibbs timely filed tax returns for the years 2013, 2014, and 2015 (Exs. 1-J, 2-J, 3-J). They failed to report small amounts of qualified dividends on their returns for all three years (which they now concede), and on their return for 2015 they claimed on 12 Schedule C a deduction of $148,014 for depreciation or 13 14 section 179 expense (which they also now concede). On their return for 2013 the Gibbs e.S claimed an 15 Education Credit. On their returns for 2013 and 2015 they 16 claimed deductions for contributions to Individual 17 Retirement Accounts ("IRAs"). And on their returns for 18 all three years they claimed deductions for casualty 19 losses, unreimbursed employee business expenses (including 20 vehicle expenses), and medical expenses. 21 22 The IRS examined their returns and made adjustments for the dividend income, the education credit, 23 and the deductions mentioned above. The IRS issued its 24 notice of deficiency on December 14, 2016 (Stip. 7; Ex. 6- 25 J). Mr. and Mrs. Gibbs timely mailed their petition to (973)406-2250|operationsoescrbetsmet|www.ascribetsmet this Court on March 10, 2017. At the time they filed their petition, the Gibbses resided in North Carolina. 6 (Stip. 1.) Pretrial proceedings Five months before trial, we issued our notice of trial (ECF 5) and our standing pretrial order (ECF 6), which required the parties to exchange the documents on which they would rely at trial by no later than May 7, 2018. On May 4, 2018, the Commissioner filed a pretrial 1 2 3 4 5 6 7 8 9 10 memorandum that stated (at 11), "To date, petitioners have 11 not provided any documentation to substantiate any 12 business expenses or deductions." On May 9, 2018, 13 petitioners filed a pretrial memorandum that stated, "The 14 15 documents we have are to (sic) enormous to send with this letter and we do not have the resources to copy them. 16 Therefore we will be bringing all 10 boxes with us to 17 court." Concerned about the obvious unworkability of the 18 19 procedure that petitioners anticipated -- 10 boxes of unorganized original documents to be dumped on the Court 20 and the respondent for the first time at trial -- the 21 Court initiated a telephone conference with the parties, 22 which occurred on May 15, 2018. 23 During that conference, the Court explained how 24 Mr. Gibbs's course of action failed to comply with the 25 Court's standing pretrial order and would not be 1973)406-2250|operationseescrdaerssut|wwwascribetsmet 1 2 3 4 5 6 7 8 9 10 11 acceptable. The Commissioner's counsel offered to receive the 10 boxes from Mr. Gibbs that day (May 15), to immediately assign multiple IRS employees to copy and number the documents, to provide copies to the Court and Mr. Gibbs, and to analyze the documents with a view toward completing a stipulation of facts and conducting the trial on Wednesday, May 23 (the third day of the trial session). Mr. Gibbs (at that time still representing himself) declined the offer, because he said he was not willing to surrender the documents to the IRS. The Court therefore instructed Mr. Gibbs to do the copying and analyzing 12 himself and to be ready to present the documents at the 13 commencement of the trial session on May 21, 2018. 14 Trial proceedings 15 When the case was called from the calendar on 16 May 21, 2018, Mr. Yandle entered an appearance on behalf 17 of the petitioners. He explained that he is a volunteer 18 from a Low Income Taxpayer Clinic and that he had met the 19 petitioners for the first time that morning. Mr. Gibbs 20 21 had not brought with him to the courtroom any of the 10 boxes of documents. The parties submitted a stipulation 22 of facts, to which were attached 20 exhibits, most of 23 which were derived from the IRS. At the trial of this 24 case that afternoon, only Mr. Gibbs testified. 25 Petitioners offered documentary support for only two of (973)406-2250|operationscozrbersnet|www.ascribersmet 1 2 3 4 5 the issues that they did not concede -- i.e., (1) a purported letter from a bank (Ex. 19-P), unsigned, in support of the IRA contribution deduction, which we excluded as hearsay, and (2) purported mileage logs for each of the three years at issue, in support of Mr. 6 Gibbs's vehicle expense deductions. For the other issues 7 8 9 in dispute -- i.e., education credit, casualty losses, unreimbursed employee business expenses (other than vehicle expenses), and medical expenses -- petitioners 10 offered no documentary evidence but relied solely on Mr. 11 Gibbs's very general testimony. 12 13 14 15 OPINION I. Burden of proof A. General Principals The IRS's determination is presumed correct, and 16 taxpayers generally bear the burden to prove their 17 entitlement to any deductions they claim. Rule 142(a). 18 Taxpayers must satisfy the specific requirements for any 19 deduction claimed. See INDOPCO, Inc. v. Commissioner, 503 20 U.S. 79, 84 (1992). Furthermore, taxpayers are required 21 22 23 24 25 to maintain records sufficient to substantiate their claimed deductions. See sec. 6001; 26 C.F.R. sec. 1.6001- 1(a), Income Tax Regs. B. Section 274 Section 274(d) establishes higher substantiation 73)406-2250|operationsgescrbersnet|www.escribersmet 9 requirements for expenses related to travel, meals and entertainment, and "listed property", defined in section 280F(d)(4) to include passenger automobiles. For these expenses, a taxpayer must prove: (1) The amount of each separate expenditure with respect to such property; (2) the amount of each business use; and (3) the business purpose for an expenditure or use with respect to such property. Sec. 1.274-ST(b)(6), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). The Court may not estimate these expenses. See Sanford v. Commissioner, 50 T.C. 823, 827-828 (1968), aff'd per curiam, 412 F.2d 201 (2d Cir. 1969). II. Analysis A. Employee business expense A taxpayer may claim an unreimbursed employee 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 business expense as a miscellaneous deduction on Schedule 17 A, pursuant to the provision in section 162(a) that one 18 may deduct expenses of a business; and an employee is 19 considered to be in the business of being an employee. 20 The employee business deductions that petitioners claimed 21 must be disallowed, because they did not substantiate 22 23 24 25 them. 1. Vehicle expenses. Mr. Gibbs did not show an entitlement to vehicle expense deductions, and his claim has several fatal flaws. First, an employee may Em 73)406-2250|operationsoerrbetsmet|wwwAscrbersmet I deduct only unreimbursed vehicle expenses, but his employer's policy was evidently to reimburse such expenses. It is not clear that Mr. Gibbs actually bore 10 any of these expenses. Second, he did not persuade us of the number of 1 2 3 4 5 6 miles he actually drove for his employer in the years at 7 8 9 issue. His testimony did not convince us that his mileage logs (Ex. 20-P) were actually contemporaneous. On cross- examination, the Commissioner showed that the log was 10 contradicted by EAS's records of Mr. Gibbs's leave-taking. 11 12 2. Home office expense. Section 280A(c)(1)(A) allows a taxpayer to deduct expenses for the business use 13 of his residence, but only to the extent the expenses are 14 allocable to a portion of the residence which is 15 exclusively used on a regular basis as the principal place 16 of business for a trade or business of the taxpayer. Mr. 17 Gibbs gave very general testimony about having a home 18 office, but he provided no floor plan or other information 19 to establish a portion of the house used exclusively for 20 business, and he provided no information about the 21 expenses incurred to maintain his residence. He proved no 22 deductible home office expense. 23 3. Other business expenses. If there were 24 other employee business expenses, Mr. Gibbs did not 25 suggest what they are, nor offer any evidence to cribers $73)406-2250loperationsoerrbersnet|wwwascribennet I (cid:16)042 substantiate them, IRS on audit. 11 in excess of the amounts allowed by the B. Other adjustments. 1. Education Credit. Mr. and Mrs. Gibbs claimed an Education Credit for 2013 pursuant to section 25A. At trial Mr. Gibbs testified that he had enrolled in continuing education courses, but he did not give any testimony about the courses, the schools attended, or the expenses incurred. He did not show an entitlement to the 1 2 3 4 5 6 7 8 9 10 credit. 11 12 2. IRA contributions. Mr. and Mrs. Gibbs claimed deductions for contributions to Individual 13 Retirement Accounts in 2013 and 2015, pursuant to section 14 15 219(a). Their only substantiation of these alleged contributions was inadmissible hearsay. (And that letter 16 did not specify whether the IRAs were regular IRAs or 17 18 instead Roth IRAs. "In general, contributions to a traditional individual retirement account (IRA) are 19 deductible when made, but ... contributions to a Roth IRA 20 21 22 23 are not deductible". Elder v. Commissioner, T.C. Memo. 2007-281, slip op. at 2, n.2.) 3. Casualty losses. Mr. and Mrs. Gibbs claimed deductions for casualty losses under section 165. 24 At trial Mr. Gibbs gave general testimony that the 25 casualties were the destruction of a shed by a tornado, $73)406-2250|operationseescrbers.net|www scribersmet damage to their house from a burst pipe, and loss of a vehicle; but he gave no substantiation for any basis in the property damaged nor any expenses incurred as a result 12 of such events. Petitioners are not entitled to any casualty loss deduction beyond what respondent allowed. 4. Medical expenses. Medical expenses may be deducted under section 213(a), but only to the extent they are not covered by insurance -- and, of course, only to the extent they are substantiated. Mr. Gibbs acknowledged that he and his wife had health insurance. He made no showing of dental or medical expenses in the years at issue, and he made no showing that any such expenses that they did incur were not paid for by insurance. C. Accuracy-related penalty Section 6662(a) and (b)(1) imposes an "accuracy- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 related penalty" of 20 percent of the portion of the 17 18 19 underpayment of tax that is attributable to the taxpayer's negligence or disregard of rules or regulations or that is "substantial". Under section 7491(c), the Commissioner has 20 the burden of production to show liability for the 21 penalty. 22 23 24 Here the deficiency that the Commissioner determined (and that we sustain) is great enough that the resulting underpayment is "substantial" for purposes of 25 section 6662(b)(2) and (d)(1)(A) -- i.e., it exceeds 73)406-2250|operationsoescrbers.netlwww.escribersmet 13 $5,000 and it exceeds by ore than 10% the tax liability that the Gibbses reported. (The arithmetic is set out in the Commissioner's pretrial memorandum at 13.) Mr. and Mrs. Gibbs did not make a y showing of "reasonable cause" that could excuse them from penalty liability. See sec. 6664(c). The Commissioner showed compliance with section 6751(b). (See Ex. 18-J.) The Commissioner has made his showing, and the petitioners are liable. Because we sustain in full the adjustments in the IRS's notice of deficiency, decision will be entered in favor of the Commissioner. This concludes uhe Court's oral Findings of Fact and Opinion in this case. (Whereupon, at .:15 p.m., the above-entitled matter was conc.uded.) 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