TAX COURT OPINION

Case: Isaac Guerrero & Rachel E. Guerrero
Docket Number: 14274-15S
Judge: Holmes
Opinion Type: bench
Filed: 11/10/2016
Pages: 9

UNITED STATES TAX COURT WASHINGTON, DC 20217 Isaac Guerrero & Rachel E. Guerrero, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) ) ) ) ) O R D E R . Docket No. 14274-15S. 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 transcript of the trial in the above case before Judge Mark V. Holmes at El Paso, Texas, on November 1, 2016, containing his oral at which the case was heard. fact and opinion rendered at the pages of the findings of the trial session In accordance with the oral findings of fact and opinion, a decision under Rule 155 will be entered. (Signed) Mark V. Holmes Judge Dated: Washington, D.C. November 10, 2016 senvED NOV 1 5 2016 Capital Reporting Company 3 1 2 3 4 5 Bench Opinion by Judge Mark V. Holmes November 1, 2016 Isaac Guerrero & Rachel E. Guerrero v. Commissioner Docket No. 14274-15S In the case of Isaac Guerrero and Rachel E. 6 Guerrero v. Commissioner, Docket Number 14274-15S, 7 8 9 10 11 12 13 14 15 16 the Court has decided to render oral findings of fact and opinion, and the following is the Court's oral findings of fact and opinion. This bench opinion is made pursuant to the authority granted by Section 7459(b) of the Internal Revenue Code of 1986, as amended, and Rule 152 of the Tax Court's Rules of Practice and Procedure. The Guerreros were Texas residents when they filed their petition and remain so to this day. They too were able to reach a stipulation. Together 17 with their testimony it constitutes the record of 18 19 20 21 22 23 24 25 this case. After concessions and some settlements, two issues remained for the year at issue, which was their 2011 tax year. The first were charitable contributions of $6,950. The Guerreros claimed to be members of a local church here in El Paso who used envelopes containing between 10 and $60 when they attended mass 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 8 on Sundays. Even at 52 weeks and including holy days of obligation, one can do the multiplication and come up with nothing near $6,950. Moreover, the written acknowledgment that they produced was extremely odd looking, particularly for the denomination involved. There was no date, there was no statement that no goods or services were provided in connection with the contributions. The 9 whole thing just looked very odd. And, again, the 10 math not adding up at all, the certificate looking 11 12 13 14 15 16 17 extremely unusual, I do not find that credible, and so on this one the Respondent wins. The second issue were unreimbursed employee business expenses of $14,871. As with Ms. Pearce, the Guerreros claimed that the scope of the audit letter, Letter 566 that was sent to them at the beginning of the process, somehow limited the IRS's 18 ability and indeed Tax Court's ability to redetermine 19 20 21 22 23 24 their tax bill for 2011. It doesn't. There's no evidence or case law or regulation that supports such an unusual reading of a form letter from the IRS. So with that general objection overruled, I go on to, first, Mrs. Guerrero's and then Mr. 25 Guerrero's unreimbursed employee business expense 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 claims. First, for Mrs. Guerrero, she claimed $4,217 in such expenses. A couple of these categories were for shoes and for presentation clothing. She dresses for presentations in her role as a neonatal intensive care unit nurse, where she has served as a preceptor, which is medical speak for 8 mentor or trainer, for younger, less experienced 9 nurses. Her shoes are also extremely comfortable to 10 11 12 13 14 15 16 17 18 wear, as needed by somebody who is on her feet tending for little babies during her entire shift. The problem, however, is that clothing that is bought for business use cannot be deducted if it is capable of being worn in general public. I believe one excellent case in this regard is Nella v. Commissioner, TC Memo 1986-594, 52 TCM 1216. In that case the taxpayer was a tennis professional, who, of course, had.to wear tennis shoes,Jtennis clothes a..oL 19 while doing his job of teaching and playing tennis. 20 21 22 23 24 25 He tried to deduct these costs, saying that he didn't go around looking like a tennis professional when he was on his personal time, but these were denied. The discussion is somewhat lengthy, but it summarizes this area of tax law extremely well. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 "Although a business wardrobe is a necessary condition of employment, the cost of such wardrobe has generally been considered a nondeductible personal expense within the meaning of Section 262 (citations omitted). Such costs are not deductible even when it has been shown that the particular clothes would not have been purchased but for the employment (citations omitted). "There is a recognized exception to the general rule, and this Court has allowed a deduction for the cost of clothes which were useful only in the business environment. For example, a deduction was allowed in Harsaghy v. Commissioner, 2 TC 483 (1943), because custom and usage forbade off-duty wearing of the clothing; in Meier v. Commissioner, 2 TC 458 (1943), because sanitary conditions made the clothes unsuitable for general wear; in Denny v. Commissioner, 33 BTA 738 (1935), because the clothes were a theatrical costume. See also Pevsner v. Commissioner, TC Memo 1979-311, reversed, 628 F 2d 467 (Fifth Circuit, 1980), in which the Tax Court allowed a manager of a designer boutique to deduct the cost of purchasing and maintaining designer clothes as a business expense. In Pevsner, the Commissioner conceded that 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 Capital Reporting Company 7 1 2 3 the taxpayer's employer required her to wear such designer clothing and that she did not wear such clothing for general or personal purposes. 4 Nevertheless, the Fifth Circuit reversed the Tax 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Court and held that the cost of such clothes were not deductible because they were adaptable to general usage as ordinary clothing." That, of course, is exactly the situation here, where Mrs. Guerrero could wear the clothing that she used for presentation and the shoes that she wore in the operating room for general everyday on- the-street use. However, she also deducted the cost of scrubs. These qualify, I believe, as deductible clothing because of the sanitary conditions which one sees in an ICU and wouldn't really want to have people walking around in scrubs on the street. These were fairly small deductions, but I'll allow them. On page 15 of Exhibit 4-J there's $46.74 from a uniform store; page 27 of 4-J, 43.29; page 32 of 4-J, 17.31; and page 39 has an expense of 24.83. With the exception of those, the clothing expenses are denied. She also asserted a deduction for presentation materials -- think pasteboard, Sharpies, fostE0 866.488.DEPO www.CapitalReportingCompany.com . Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 10 11 12 that kind of thing -- which she testified credibly, I think, that she bought at Office Depot and Hobby Lobby and places like that. So I will allow her a few of these deductions as well as detailed on her list of expenses in Exhibit 4-J. These are 41.09 on page 21 of that exhibit; 25.97 on page 26; $4.06 and $6.48 on page 27; $22.72 on page 29; and $31.35 on page 38. So she wins some, loses some. As to her husband, he claimed $10,654 in unreimbursed business expenses for 2011. The first category was $4,640 in mileage expenses for his car. 13 Mr. Guerrero works in the fire-alarm industry and 14 15 16 17 18 19 20 21 22 23 24 25 needs to travel from job site to job site. However, again, Section 274(d) of the Code prescribes stringent substantiation requirements for certain categories of expense. These include automobiles. See Section 280F(d) (4) (A)(I). To satisfy the requirements of Section 274(d), a taxpayer generally must maintain adequate record records or produce sufficient evidence corroborating his or her own statement, which, in combination, are sufficient to establish the amount, date and time, and business purpose for such expenditure or business use property. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 Taxpayers who lack a contemporaneous 2 mileage log are expected to maintain a record created 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 as near in time as possible to the particular expenditure or business use. Mr. Guerrero did not do this for his personal vehicles, so he fails the substantiation test of Section 274. Next up are $6,014 in other unreimbursed business expenses. These constituted mostly assertions that he had spent money at Lowe's and Home Depot for tools for work. These are not credible for all the expenses at Lowe's and Home Depot, which of course are well known sources of hardware and other home supplies that people use in their personal capacity. The prices on these, when I looked at them last night, varied too widely to constitute all tool expenses. A lot of them are for extremely small amounts of money. So I will do an estimate that some of these expenses were okay. Particularly on page 42 of Exhibit 4-J there are four amounts there which are sufficiently large that I believe they corroborate 22 Mr. Guerrero's testimony that he spent money there on 23 24 25 tools that were not for his personal use. So he, too, wins a few but loses most. A decision will have to be entered under Rule 155. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company This concludes the Court's oral findings of fact and opinion in this case. 10 (Whereupon, at 9:24 a.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