TAX COURT OPINION

Case: Joseph T. Williams
Docket Number: 18783-19
Judge: Kerrigan
Opinion Type: bench
Filed: 11/20/2020
Pages: 12

SR UNITED STATES TAX COURT WASHINGTON, DC 20217 JOSEPH T. WILLIAMS, Petitioner(s), v. ) ) ) ) ) Docket No. 18783-19. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER 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 respondent a copy of the pages of the transcript of the trial in the above case before Judge Kathleen Kerrigan at San Francisco, California (Remote), 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, a decision will be entered for respondent with respect to the deficiency and for petitioner with respect to the I.R.C. sec. 6662(a) penalty. (Signed) Kathleen Kerrigan Judge Dated: Washington, D.C. November 20, 2020 SERVED Nov 20 2020 RECEIVED 11/19/20 In the Matter of: JOSEPH T. WILLIAMS, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) Docket No. 18783-19 ) ) ) ) ) ) ) ) Pages: 1 through 10 Place: San Francisco, California (Remote Proceeding) Date: November 13, 2020 73)406-2250 operations@escribers.net www.escribers.net IN THE UNITED STATES TAX COURT In the Matter of: JOSEPH T. WILLIAMS, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) Docket No. 18783-19 ) ) ) ) ) ) ) ) & U.S. Cthse. Burton Federal Bldg. 450 Golden Gate Avenue Room 2-1408, 2nd Floor San Francisco, California 94102 (Remote Proceeding) November 13, 2020 The above-entitled matter came on for bench opinion, pursuant to notice at 1:15 p.m. BEFORE: HONORABLE KATHLEEN KERRIGAN Judge APPEARANCES: For the Petitioner: No Appearance For the Respondent: No Appearance 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 P R O C E E D I N G S 2 (1:15 p.m.) THE CLERK: Calling docket number 18783-19, Joseph T. Williams. (Whereupon, a bench opinion was rendered.) 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 3 1 2 3 4 5 6 7 8 9 Bench Opinion by Judge Kathleen Kerrigan November 13, 2020 Joseph T. Williams v. Commissioner of Internal Revenue Docket No. 18783-19 THE COURT: The Court has decided to render in this case 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 10 Revenue Code and Rule 152 of the Tax Court Rules of 11 Practice and Procedure. 12 All section references are to the Internal 13 Revenue Code (Code) in effect for the year in issue, and all 14 Rule references are to the Tax Court Rules of Practice and 15 Procedure. 16 By notice of deficiency dated July 22, 2019, the 17 Internal Revenue Service determined a deficiency in the 18 Federal income tax of petitioner for tax year 2014 and an 19 accuracy-related penalty pursuant to section 6662(a). The 20 issues for consideration are whether petitioner is 21 entitled to claim unreimbursed employee expenses for 2016 22 and whether he is liable for the section 6662(a) penalty. 23 24 25 Trial of this case was conducted on November 9, 2020, during a remote San Francisco, California trial session. Christopher P. Housh represented petitioner, and cnners Sharon M. Ortega represented respondent. The parties' stipulation of facts and attached exhibits were admitted into evidence. Petitioner was the only witness. We find 4 the following facts: FINDINGS OF FACT Petitioner resided in California when his petition was timely filed. In 2016 petitioner worked as an electrician for Helix Electric, Inc. (Helix) and lived in Rio Linda, California. Petitioner received 1 2 3 4 5 6 7 8 9 10 instructions each morning as to which job site he would be 11 working at that day, and he would transport himself and 12 sometimes the necessary tools and equipment to the job 13 site. During 2016 he worked at job sites in San Francisco 14 and Mountain View, California, approximately 100 and 130 15 miles, respectively, from petitioner's residence. 16 Helix's travel and business expense policy 17 provided: "In general the company will pay for reasonable 18 business-related activities and travel expenses that 19 employees may incur during the course of employment. Air 20 and hotel accommodations must be booked by the authorized 21 22 person in each office in order to be covered." Helix did not reimburse petitioner for his daily expenses commuting 23 to job sites. 24 On his income tax return for 2016, petitioner 25 claimed deductions for mileage, meals and entertainment, 5 and parking fees and tolls, pertaining to his travel to job sites while working for Helix. Respondent disallowed Petitioner's deductions for unreimbursed employee expenses and asserted a penalty pursuant to section 6662(a) in a notice of deficiency dated July 22, 2019. On February 22, 2019, the examination agent's direct supervisor approved the section 6662 penalty for 2016 by entering into respondent's Correspondence Exam Automation Support ("CEAS") record the penalty approval with her name. OPINION Generally, the Commissioner's determinations in a notice of deficiency are presumed correct, and a 1 2 3 4 5 6 7 8 9 10 11 12 13 taxpayer bears the burden of proving those determinations 14 15 are incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Section 6001 and the regulations 16 Promulgated thereunder require taxpayers to maintain 17 18 records sufficient to permit verification of income and expenses. see sec. 1.6001-1(a) and (e), 1ncome Tax 19 Regs. 20 Unreimbursed Employee Expenses 21 section 162(a) allows a taxpayer to deduct all 22 ordinary and necessary expenses paid or incurred in 23 carrying on a trade or business. An ordinary expense is 24 one that commonly or frequently occurs in the taxpayer's 25 business. Deputy v. du Pont, 308 U.S. 488, 485 (1940), cnners and a necessary expense is one that is appropriate and helpful in carrying on the taxpayer's business, Welch v. Helvering, 290 U.S. at 113. A taxpayer may not deduct a 6 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). Whether an expenditure is ordinary or necessary is a question of fact. Commissioner v. 1 2 3 4 5 6 7 8 9 10 11 12 Heininger, 320 U.S. 467, 475 (1943). Generally, the 13 performance of services as an employee constitutes a trade 14 15 or business. O'Malley v. Commissioner, 91 T.C. 352, 363- 364 (1988); sec. 1.162-17(a), Income Tax Regs. The 16 employee must show the relationship between the 17 expenditures and his or her employment. See Joseph v. 18 Commissioner, T.C. Memo. 2005-169. 19 Normally, the Court may estimate the amount of a 20 deductible expense if a taxpayer establishes that an 21 expense is deductible but is unable to substantiate the 22 Precise amount. See Cohan v. Commissioner, 39 F.2d 540, 23 24 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985). This principle is often referred to 25 as the Cohan rule. See, e.g., Estate of Reinke v. (973)406-2250 operations@escribersmet www.esenbersaet 7 Commissioner, 46 F.3d 760, 764 (8th Cir. 1995), aff'g T.C. Memo. 1993-197. Certain expenses, such as meals, specified in section 274 are subject 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 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). Notably, section 274(d) overrides the Cohan rule. Boyd v. Commissioner, 122 T.C. 305, 320 (2004); sec. 1.274-5T(a), Temporary 1ncome Tax aegs., 50 Fed. Reg. 46014 (Nov. 6, 1985). Therefore, the Court is precluded 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 from estimating any expenses that are covered by section 274(d). 17 18 For expenses to be deducted as unreimbursed 19 employee expenses, the taxpayer must not have the right to 20 reimbursement from his or her employer. See Orvis v. 21 Commissioner, 788 F.2d 1406, 1408 (9th Cir. 1986), aff'g 22 T.C. Memo. 1984-533. Except for taxpayers on temporary 23 work assignments, costs of traveling to and from a place 24 of business are considered personal expenses and are not 25 deductible. Commissioner v. Flowers, 326 U.S. 465, 473- (973)406-2250|operations@escribers.net|www.escribetsnet 8 1 2 3 4 5 6 7 8 9 474 (1946). Petitioner contends that he is entitled to deductions for unreimbursed employee business expenses because he used his personal vehicle to transport tools to and from work sites. Petitioner was not on a temporary work assignment, nor has he established that he has incurred any additional expenses beyond that of traveling to and from a place of business. He did not submit his expenses to Helix for reimbursement and did not keep 10 detailed records of his mileage. Accordingly, we find 11 that the petitioner's expenses are personal expenses and 12 not unreimbursed employee expenses. 13 Accuracy-Related Penalty 14 The Commissioner bears the burden of production 15 with respect to a section 6662(a) penalty. Sec. 16 7491(c). Once the Commissioner meets this burden, the 17 taxpayer must come forward with persuasive evidence that 18 the Commissioner's determination is incorrect. See Rule 19 142(a); Higbee v. Commissioner, 116 T.C. 438, 446-447 20 21 22 (2001). Respondent must show compliance with section 6751(b)(1), which requires that certain penalties be 23 Personally approved in writing by the immediate supervisor 24 of the individual making the determination. See Graev v. 25 Commissioner, 149 T.C. 485, 493 (2017), supplementing and overruling in part 147 T.c. 460 (2016). aespondent has satisfied his burden of production with regard to the supervisory approval requirements of section 6751(b) (and 9 Petitioner does not contend otherwise). Respondent met the burden of production with respect to the section 6662(a) penalty. The deficiency in this case is both greater than $5,000 and in excess of 10 Percent of the tax required to be reported and is thus substantial pursuant to section 6662(d)(1) (A). However, the accuracy-related penalty will not apply with respect to any portion of an underpayment for 1 2 3 4 5 6 7 8 9 10 11 12 which it is shown that the taxpayer had reasonable cause 13 14 and acted in good faith. Sec. 6664(c)(1). Petitioner does not have a background in tax. He provided credible 15 testimony as to his reliance on the advice of his 16 accountant. We find that petitioner acted in good 17 faith. Petitioner is not liable for the section 6662(a) 18 Penalty. 19 20 A decision will be entered for respondent with respect to the deficiency and for petitioner with respect 21 to the section 6662(a) penalty. This concludes the 22 Court's oral Finding of Fact and Opinion in this case. 23 24 25 (Whereupon, at 1:24 p.m., the above-entitled matter was concluded.) CERTIFICATE OF TRANSCRIBER AND PROOFREADER 10 CASE NAME: Joseph T. Williams v. Commissioner DOCKET NO.: 18783-19 We, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 10 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Troy Ray on November 13, 2020 before the United States Tax Court at its remote session in San Francisco, CA, in accordance 1 2 3 4 5 6 7 8 9 10 with the applicable provisions of the current verbatim 11 12 reporting contract of the Court and have verified the accuracy of the transcript by comparing the typewritten 13 transcript against the verbal recording. 14 18 19 20 21 22 23 24 25 Amy Parnell, CDLT-179 Transcriber 11/17/20 Date Traci Fine, CDLT-169 Proofreader 11/17/20 Date