TAX COURT OPINION

Case: Melvin Allen Tukes
Docket Number: 9946-18
Judge: Gustafson
Opinion Type: bench
Filed: 05/10/2019
Pages: 14

SEC UNITED STATES TAX COURT WASHINGTON, DC 20217 MELVIN ALLEN TUKES, Petitioner, v. ) ) ) ) Docket No. 9946-18. 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 Melvin Allen Tukes and to the Commissioner a copy of the pages of the transcript of the proceedings in the above case before the undersigned judge at Atlanta, Georgia, 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 under Rule 155. (Signed) David Gustafson Judge Dated: Washington, D.C. May 10, 2019 SERVED May 10 2019 3 1 2 Bench Opinion by Judge David Gustafson APril 30, 2019 3 Melvin Allen Tukes v. Commissioner of Internal Revenue 4 5 6 7 8 o Docket No. 9946-18 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 Revenne Code. and Rule 152 of the Tax Court Rules of 10 Practice and Procedure; and it shall not be relied on as 11 Preceaent in any otner case. 12 13 14 By a statutory notice of deficiency ("SNOD") dated May 11, 2018 (Ex. 2-J), the Internal Revenue Service ("IRS") determined a deficiency in the Federal income tax 15 of Petitioner Melvin Allen Tukes for the year 2015. The 16 17 1R issues for decision are: (1) whether Mr. Tukes substantiated his entitlement to deduct business expenses claimed on Schedule C, which the IRS disallowed, and (2) 19 whether Mr. Tukes is liable for a 20% accuracy-related 21 of the claimed expenses, but we hold that the Commissioner 22 has not carried his burden of production as to the 23 penalty. 24 Mr. Tukes represented himself, and Audrey Xi and 25 DeVon Dunn represented the Commissioner. On the evidence (973) 406-2250| operations@escobersmet j www.escréersmet before us, we find the following facts: FINDINGS OF FACT Mr. Tukes's background 4 For most of his adult life, Mr. Tukes has been in Christian ministry, while simultaneously engaging in secular employment. After serving his country in the armed forces, Mr. Tukes worked for the IRS for more than 20 years as a revenue officer. He retired from the IRS in 2012. 1 2 3 4 5 6 7 8 a 10 Ministry at Fairview Church 11 12 Arter ne retirea rrom tne 1xö, Mr. Tuxes cecame the pastor of Fairview Christian Methodist Episcopal 13 Church ("Fairview Church") in Fort Valley, Georgia, where 14 he served during the year at issue (2015). (Stip. 8-9.) 15 Mr. Tukes's work for Fairview Church consists of preaching 16 17 1R 19 and teaching on Sundays (Stip. 19) and leading a Bible study on Wednesdays (Stip. 23-24). Fort Valley is about 102 miles from Mr. Tukes's residence in Decatur, Georcia. Mr. Tukes alleges no other employment in 2015 21 Office 22 The church building contains an office for the 23 pastor (Stip. 25), but Mr. Tukes did not maintain office 24 hours at the church and was not required by the church to 25 use the office or be present there. He did his studying cnærs (973)406-2250|operations@escribers.net!wwweScribers.net and sermon preparation not in the office at Fairview Church but instead at his own house in Decatur. (Stip. 17.) He did not use any particular area of his home for his preparation--sometimes his study, sometimes his living 5 room, and sometimes elsewhere. (Stip. 15-17.) Compensation and contributions In 2015 the Fairview Church paid Mr. Tukes $500 each week, totaling $26,000. As we state below, he renorted onlv $15.000 on his return. He alleces that he anonymously contributed the difference back to the ralrview Unurcn (in acoltlon to plo,buu or cnarltacle contributions that he deducted on his return). The Commissioner has not challenged his non- reporting of $11,000 of his income, nor the substantiation 1 2 3 4 5 6 7 8 o 10 11 12 13 14 15 of his claimed charitable contributions of $15,600, nor 16 17 la the application of the charitable contribution deduction limit of section 170(b)(1) (A) to 50% of adjusted gross income (which Mr. Tukes reported as $19,756), so we do not 19 Pursue those issues further. 21 22 In most weeks Mr. Tukes drove a round trip (of 204 miles) to Fort Valley and back home again twice--once 23 on Sunday and again on Wednesday. He did not keep a 24 contemporaneous log or other record of his trips but 25 reconstructed a calendar after the fact showing such trips cnoPrs 73) 406-2 250| operations@esce ibers.net ! www.escribers.net 6 every week, which would total 21,216 miles (i.e., 52 weeks x 2 days x 204 miles). We find that he did not make those trips every week of 2015 but did make them the great 1 2 3 4 majority of the weeks, so that in 2015 he probably drove 5 6 7 8 o at least 20,000 miles in his regular trips from home to Fairview Church. On most Sundays and Wednesdays that he drove to Fort Valley for his pastoral ministry, he purchased a meal for himself at a restanrant. 10 Expenses 11 mr. ruxes incurrea expenses in zulo relatea to 12 his pastoral ministry, but he kept virtually no records 13 14 and relied on his memory when he later prepared his tax return. We find that twice that year he incurred $133 for 15 Printer ink--i.e., 2 x $133 = $266 (see Ex. 3-P). But for 16 17 lack of evidence (see, e.g., Stip. 32) we are unable to find expenses incurred for calling cards, pens, robes, or 1R other expenses. 19 2015 tax return 21 22 tax return (Ex. 1-J). His return included a Schedule C that reported $15,000 of his compensation from the 23 Fairview Church, as well as advertising expense of $100 24 (which he explains as the cost of calling cards and pens), 25 car and truck expense of $14,720, supplies of $400 oners (973)406-2250loperationseesaiben.net|www.escribersmet (including printer ink), deductible meals of $1,300, and 7 "other expenses" (itemized as "robes") of El,bUU. SNOD and petition The IRS examined Mr. Tukes's 2015 return by a "Correspondence Examination". On May 11, 2018, the Correspondence Examination Automation Support (CEAS) program sent Mr. Tukes an SNOD for 2015. The SNOD included the determination of a 20% accuracy-related nenaltv nursuant to section 6662(a). The trial record does not enable us to discern the identity of the inalvlaual wno maae tne in1tlai aetermination or tnat 1 2 3 4 5 6 7 8 a 10 11 12 penalty nor to conclude that his or her immediate 13 supervisor approved the penalty in writing before the SNOD 14 was issued. 15 16 Tax Court proceedings Mr. Tukes timely filed his petition with this 17 Court on May 21, 2018. At the time he filed his petition, 1R Mr. Tukes resided in Georgia. (Stip. 1.) This case was 19 tried in Atlanta, Georgia, on April 29, 2019. ZU 21 22 23 24 ni et av u per led udu 1ed eu, mi. luxed requested permission to give additional testimony, which we permitted him to do. He seemed to intimate that he had documentary evidence that he had not brought with him to the trial that might show an entitlement to charitable 25 contribution deductions above those that he had claimed on his return (and that the IRS has not disallowed). We indicated that we would not delay the conclusion of the case to allow him to obtain and present that information. 8 During closing argument, as the issue of supervisory approval under section 6751(b)(1) was being discussed, the Commissioner's counsel asked whether the Court would give the Commissioner time to find additional evidence of such approval and reopen the record to receive it. but we did not crant that reanest. OPINION 1· APP11caole legal principles A. Burden of proof The IRS's determination is presumed correct, and 1 2 3 4 5 6 7 8 o 10 11 12 13 14 taxpayers generally bear the burden to prove their 15 entitlement to any deductions they claim. Rule 142(a)(1). 16 17 Taxpayers must satisfy the specific requirements for any deduction claimed. See INDOPCO, Inc. v. Commissioner, 503 1R U.S. 79, 84 (1992). Furthermore, taxpayers are reauired 19 to maintain records sufficient to substantiate their zu U1d1meu ueuuu 1uus. aee eeu. ovu1; zo .r.n. seu. 1.ovu1- 21 1(a). 22 23 B. Business expense deductions Pursuant to section 162(a), a taxpayer may 24 deduct "all the ordinary and necessary expenses paid or 25 incurred during the taxable year in carrying on any trade . Crg)pr5 73)406-2250!operation5@ercribersmet!wwwescrbetsmet or business". In contrast, except where specifically enumerated in the Code, no deductions are allowed for Personal, living, or family expenses. Sec. 262(a). 9 C. The Cohan rule and section 274 When a taxpayer establishes that he paid or incurred a deductible expense but fails to establish the amount of a deduction, the Court may estimate the amount allowable as a deduction. The seminal case so holding is Cohan v. Commissioner. 39 F.2d 540. 543-544 (2d Cir. 1930), and we therefore call this principle "the Cohan rule." bee also van1cer v. Commissioner, ön 1.U. /31, 742-743 (1985). A taxpayer may substantiate deductions through secondary evidence only where the underlying documents have not been intentionally lost or destroyed, see soyd v. Commissioner, 122 T.C. 305, 320-321 (2004), 1 2 3 4 5 6 7 8 o 10 11 12 13 14 15 16 and there must be sufficient evidence in the record to 17 permit the Court to conclude that a deductible expense was 1R paid or incurred in at least the amount allowed. Williams 19 v. United States, 245 F.2d 559, 560 (5th Cir. 1957). 21 22 23 24 25 The Cohan rule has been limited by Section 274(d), which establishes higher substantiation requirements for expenses related to (among other things) "listed property", defined in section 280F(d) (4) and (d)(5) to include passenger automobiles. For these (973)406-2250|operations@escribetsmetlwww.escribers et 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 10 Property. Sec. 1.274-5T(b)(6), Temporary Income Tax Regs. (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). The nost of one's meals is aenerallv a non- 1 2 3 4 5 6 7 8 o 10 deductible personal expense. However, taxpayers may deduct 11 12 13 "trave11ng expenses (incluaing amounts expenaea ror meals and lodging * * *) while away from home in the pursuit of a trade or business". Sec. 162(a) (2); Commissioner v. 14 Flowers, 326 U.S. 465 (1946). Mr. Tukes claims an 15 entitlement to deduct the meals he incurred away from his 16 17 1R 19 21 22 residence. Expenses for meals away from home are, like the vehicle expenses discussed above, subject to the strict substantiation rules of section 274(d). The substantiation requirements imposed by estimate the amounts of deductions subject to that section. Sanford v. Commissioner, 50 T.C. at 827, 23 Section 274(n) further limits deductions for most meal and 24 entertainment expenses to "50 percent of the amount of 25 such expense or item which would * * * be allowable as a (- rine s (973)406-2250{operations@escribersmetlwww.esaibers et 1 2 3 4 5 deduction under this chapter." II. Analysis A. Car and truck expenses Mr. Tukes failed to keep vehicle mileage records of the sort that would satisfy section 274(d), and we 11 6 might be able to decide the issue simply on that basis. 7 8 a 10 11 12 However, the proposition that Mr. Tukes drove 20,000 miles for his pastoral ministry is very believable because of the recularitv of his drives to Fort Vallev and bank. Tt is that very regularity, however, that undermines his cialm tnat tne trip rrom uecatur to rort valley ano cacK to Decatur was business travel: Rather, it was Mr. 13 Tukes's regular commute. 14 15 16 Commuting expense is not deductible because it is a personal expense, an expense one chooses to incur for nonbusiness reasons. See Commissioner v. Flowers, 326 17 U.S. at 473-474. The decision to live in Decatur is Mr. 1R Tukes's personal decision. If he were to have chosen a 19 residential location to accommodate his pastoral ministry, ZU ue wuulu udve unuden rut vd11ey, ut duntewnere nedt 1 . 21 Instead, he lives in Decatur--not to pursue the business 22 of his pastoral ministry but for non-business reasons. He 23 24 could do his sermon preparation in the office that the church has made for its pastor but he has chosen-- for 25 Personal reasons unrelated to his pastoral business--not enners 73)406-2250|operationsøescribeanet|www.esenbers.net to use that office. As a result, 12 the driving that he must do trom Decatur in order to preach and teach in Fort Valley is best characterized as personal, nondeductible commuting. We hold that Mr. Tukes's "tax home" was in Fort Valley at the Fairview Church. "A taxpayer's 'home', for purposes of section 162(a)(2), generally means the vicinity of his principal place of employment rather than his nersonal residenne_. Annordinalv. exnenses incurred in commuting from a taxpayer's personal residence to a taxpayer's ousiness or place or employment are generally nondeductible personal expenses." Brown v. Commissioner, T.C. Memo. 2019-30, at *8; 26 C.F.R. sec. 1.262-1(b) (5). "When a taxpayer accepts employment either permanently or for an indefinite time away from the place of his usual abode, the taxpayer's tax home will shift to the location 1 2 3 4 5 6 7 8 a 10 11 12 13 14 15 16 17 of the taxpayer's new principal place of business. 1R Determinino the principal place of business includes 19 review of the location where the taxpayer spends more of ZU uid ime enydyed lu yted et uusiness dutivity, duu 21 derives a greater proportion of his income." Barrett v. 22 Commissioner, T.C. Memo. 2017-195, at *10. 23 24 B. Meals The meals that Mr. Tukes paid for on Sundays and 25 Wednesdays (estimated by him to be a reasonable $10 on 13 each Sunday and Wednesday) were not incurred on travel away trom home, but rather in the vicinity of his tax home. We therefore sustain the disallowance of the deduction for meals--not because they were lavish (they were not) but because they were not meals during travel away from home. (If the meals were at all deductible, then they would be deductible only up to 50%, but this is beside the noint sinne we hold that thev are not deductible to anv 1 2 3 4 5 6 7 8 o 10 extent.) 11 12 13 14 15 16 U. utner expenses Mr. Tukes provided no testimonial detail nor documentation to substantiate the claimed advertising expense of $100 or the robes of $1,500. The dignified vestments he wore to the trial make it seem likely that he does indeed incur expense to dress appropriately for his 17 ministry, but we have no evidence as to what the vestments 1R 19 cost nor whether he incurred the expense for such carments in 2015. Of the "supplies" of $400, he makes a specific 21 which we allow, but otherwise the deduction is unexplained 22 23 24 and unsubstantiated. III. Penalty The IRS determined a 20% accuracy-related 25 Penalty under section 6662(a), and at trial the ( rg)pg 73)406-2250!operations@escribers.netlwww.esaibers.net Commissioner acknowledged his burden of production under 14 section /491(c) and argued that the tacts show no reasonable cause for the understatement of tax. However, we need not address any penalty-related issue other than the requirement of section 6751(b)(1) that the immediate supervisor of the individual making the initial determination to assess the penalty must give written approval. See Graev v. Commissioner, 149 T.C. 485 (2017). Tt was nart of the Commissioner's hurden of nroduction to 1 2 3 4 5 6 7 8 o 10 make a showing of that approval, and he did not do so. 11 Ine eviaence aoes not name tne 1nalvlaual wno 12 made the "initial determination", and it does not identify 13 his or her "immediate supervisor". The only evidence of 14 15 such approval that the Commissioner proffered in this case is a copy of an entry made in the notes of the CEAS 16 Process (Exhibit 5-R). The entry is dated "03/15/2018", a 17 1R date that preceded the SNOD and would have been timely for such approval; but the entry cives the name "Lunda A 19 Mullin" (about whose role and identity the trial record is ZU utuerwise d11ent/ ; duu tue en ty redus diutply, adudyer 21 approval of the substantial Understatement of income Tax 22 Penalty." 23 We assume that such an entry, if presented along 24 with evidence to identify the relevant personnel, might 25 suffice as a manager's written approval. But here that CIOPrs 973)406-2250|operations@escribertnetlwww.escribers.net 15 1 2 3 4 5 6 7 8 a 10 11 identifying evidence is wholly lacking. We do not know who made the initial determination. We do not know whether "Lunda A. Mullin" is that individual, or is that individual's immediate supervisor (or instead a higher- level "Manager"), or is just a person who made an entry reporting an approval made by someone else who was a manager. Accordingly, we hold that the Commissioner did not sustain his burden of production to show compliance with section 6751(b)(1). Because we allow a portion of the supplies expense tnat was assa110wea 1n tne 1xs·s swuu, aec1sson 12 will be entered under Rule 155, so that the deficiency can 13 be recomputed. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 4:24 p.m., the above-entitled matter was concluded.) 14 15 16 17 1 R 19 ZU 21 22 23 24 25 e c rir)prs 73)406-2250|operationseescribers.net|wwaescribersnet