TAX COURT OPINION

Case: Udodiri Clement Eze, Petitioner and Oruchi Opara, Intervenor
Docket Number: 17486-19S
Judge: Leyden
Opinion Type: bench
Filed: 01/21/2022
Pages: 17

United States Tax Court Washington, DC 20217 Udodiri Clement Eze, Petitioner and Oruchi Opara, Intervenor, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 17486-19S O R D E R 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 Special Trial Judge Diana L. Leyden at Atlanta, Georgia, on September 29, 2021, 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 as to the deficiency and for petitioners as to the accuracyrelated penalty under section 6662(a). (Signed) Diana L. Leyden Special Trial Judge Served 01/21/22 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 1 IN THE UNITED STATES TAX COURT Docket No. 17486-19S ) ) ) ) ) ) ) ) ) ) ) ) ) In the Matter of: UDODIRI CLEMENT EZE, Petitioner, And AND ORUCHI OPARA, Intervenor, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Russell Federal Building & Cthse. 75 Ted Turner Dr., S.W. Room 1136, 11th Floor Atlanta, Georgia 30303 (Remote Proceeding) September 29, 2021 The above-entitled matter came on for bench opinion, pursuant to notice at 10:40 a.m. HONORABLE DIANA L. LEYDEN Special Trial Judge BEFORE: APPEARANCES: For the Petitioner: No Appearance For the Respondent: No Appearance 2 P R O C E E D I N G S (10:40 a.m.) THE CLERK: Recalling from the calendar docket number 17486-19S, Udodiri Clement Eze, Petitioner and Oruchi Opara, Intervenor. (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 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 Bench Opinion by Judge Diana L. Leyden September 29, 2021 Udodiri Clement Eze, Petitioner and Oruchi Opara, Intervenor v. Commissioner of Internal Revenue Docket No. 17486-19S 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 Tax Court Rule 152; it shall not be relied upon as precedent in any other case. Rule references in this opinion are to the Tax Court Rules of Practice and Procedure, and section references are to the Internal Revenue Code, as amended and in effect at all relevant times. The Court uses the term "IRS" to refer to administrative actions taken outside of these proceedings. The Court uses the term "respondent" to refer to the Commissioner of Internal Revenue, who is the head of the IRS and is respondent in this case, and to refer to actions taken in connection with this case. The trial of this case was conducted on September 27, 2021, at the Atlanta, Georgia, remote trial session of the Court. Petitioner appeared on his own behalf. Intervenor appeared on her own behalf. Ms. Bal appeared on behalf of respondent. 1 2 3 4 5 6 7 8 9 In issue are the: (1) deductions with respect to 4 petitioner's ridesharing business consisting of: (a) other expenses of $4,985; (b) utilities of $2,230; (c) supplies of $300; (d) car and truck expenses of $30,451; and (e) depreciation and sec. 179 expense of $210; and (2) itemized deductions for medical and dental expenses of $110,366 and miscellaneous itemized deductions of $13,300. Respondent has conceded petitioner is not subject to the section 6662(a) accuracy-related penalty 10 for 2017. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Background Some of the facts have been stipulated, and they are so found. Petitioner resided in Georgia at the time he filed his petition in this case. Intervenor resided in Georgia at the time the petition was filed and when she filed her notice of intervention. Petitioner and intervenor divorced on August 20, 2019. During part of 2017 petitioner conducted a ridesharing business. Sometime in January 2017 petitioner was hit by another driver while operating his ridesharing car. Petitioner kept his receipts in the car he drove for that business. But that car was owned by the intervenor. The intervenor sold the car after it was repaired at the dealer. Petitioner had not retrieved the receipts he kept in the car before it was sold. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 For 2017, petitioner and intervenor timely filed 5 a joint Federal income tax return. That joint Federal income tax return included a Schedule C, Profit or Loss From Business, related to petitioner's ridesharing business. Intervenor did not participate in petitioner's ridesharing business in 2017. The 2017 joint Federal income tax return also included Schedule A, Itemized Deductions, on which petitioner and intervenor claimed medical and dental expenses of $121,136 and miscellaneous expenses of $13,300 consisting of attorney and accounting fees of $9,700 and "misc. expenses including lottery tickets bought no winning" of $3,600. The 2017 joint Federal income tax return as filed reported a refund of $13,853. The IRS applied $1,163.91 of the reported refund to an outstanding liability of intervenor. The IRS issued the remaining refund of $12,757 to petitioner and 17 intervenor. 18 19 20 21 22 23 24 25 After the 2017 joint Federal income tax return was filed and the refund issued, the IRS examined the return. On June 21, 2019, respondent issued a notice of deficiency to petitioner and intervenor regarding 2017. For 2017 the notice of deficiency proposed to disallow the following deductions claimed on the Schedule C with respect to petitioner's ridesharing business: (1) other expenses of $4,985, (2) utilities of $2,230, (3) supplies 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 of $300, (4) car and truck expenses of $30,451, and (5) 6 depreciation and sec. 179 expense of $210. The notice of deficiency also proposed to disallow the following reported on Schedule A: (1) medical and dental expenses of $110,366, and (2) miscellaneous deductions of $13,300. The proposed disallowed expenses are expenses attributable to petitioner. Petitioner timely filed a petition with the Court on September 23, 2019. After that, petitioner filed a Form 8857 Request for Innocent Spouse Relief with the IRS to request relief from the proposed deficiency with respect to the 2017 joint Federal income tax return. On the Form 8857, petitioner wrote that he wanted he and intervenor "to file our 2017 tax separately and pay our share of what we individually owe." The IRS Cincinnati Centralized Innocent Spouse Operation (CCISO), the IRS's centralized innocent spouse unit, considered petitioner's request for innocent spouse relief and determined he was not entitled to innocent spouse relief for the 2017 deficiency. Subsequently, the IRS Office of Appeals reviewed the claim and conducted an appeals conference with petitioner and intervenor. The Office of Appeals concluded upon review of the claim that the CCISO determination should be sustained, explaining that both the Schedule A and Schedule C expenses disallowed were 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 clearly attributable to petitioner and there were no 7 mitigating factors present to support innocent spouse relief for petitioner. On November 15, 2019, intervenor filed a notice of intervention with the Court in this case objecting to petitioner's claim for innocent spouse relief. Discussion Generally, the Commissioner's determination of a deficiency is presumed correct, and the taxpayer bears the burden of proving it incorrect. See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Moreover, deductions are a matter of legislative grace, and the taxpayer bears the burden of proving entitlement to any deduction claimed. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 16 440 (1934). 17 18 19 20 21 22 Under section 7491(a), the burden of proof may shift to the Commissioner if the taxpayer produces credible evidence with respect to any relevant factual issue and meets other requirements. Petitioner has not argued that section 7491(a) applies nor established that its requirements are met. The burden of proof remains 23 with petitioner. 24 25 Taxpayers must produce records sufficient to enable the IRS to determine their correct liabilities. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Sec. 6001; sec. 1.6001-1(a), Income Tax Regs. The failure 8 to keep and present such records weighs heavily against a taxpayer's attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-141, 108 T.C.M. (CCH) 39, 43. I. Schedule C Expenses Section 162(a) allows as a deduction "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business". Petitioner bears the burden of proving that reported business expenses were actually paid and were ordinary and necessary. See sec. 162(a); Rule 142(a). An expense is ordinary if it is normal, usual, or customary in the taxpayer's trade or business, and it is necessary if appropriate or helpful for such a business. See Deputy v. du Pont, 308 U.S. 488, 495 (1940); see also Lingren v. Commissioner, T.C. Memo. 2016- 17 213. 18 19 20 21 22 23 24 25 Section 274(d) imposes strict substantiation requirements for deductions claimed for travel, meals, entertainment, and vehicle expenses. Section 274(d) also imposes strict substantiation requirements for deductions claimed for (among other things) "listed property." Listed property includes "any passenger automobile." Sec. 280F(d)(4)(A)(i). No deduction is allowed unless the taxpayer substantiates, by adequate records or by 1 2 3 4 5 6 7 8 9 10 11 12 sufficient evidence corroborating his own statements, the 9 amount, time and place, and business purpose for each expenditure. Sec. 274(d); sec. 1.274-5T(a), (b), and (c), Temporary Income Tax Regs., 50 Fed. Reg. 46014-46016 (Nov. 6, 1985). Adequate records for this purpose require the taxpayer to maintain an account book, log, or similar record and documentary evidence that together are sufficient to establish each element of the expenditure. Id. para. (c)(2)(i), 50 Fed. Reg. 46017. In order to be adequate, records must be prepared or maintained in such a manner that each recording of an element or expenditure is made at or near the time of the expenditure or use. Id. 13 subdiv. (ii). 14 15 16 17 18 19 20 21 22 23 24 25 While a contemporaneous log is not required to substantiate the deduction, a taxpayer's subsequent reconstruction of his or her expenses does require corroborative evidence with a high degree of probative value to support such a reconstruction, in order to elevate that reconstruction to the same level of credibility as a contemporaneous record. Id. subpara. (1), 50 Fed. Reg. 46016. A. Car and Truck Expenses In support of petitioner's claimed deductions, the parties stipulated to a printout of a spreadsheet of the dates and miles that petitioner testified he drove for 1 2 3 4 5 6 7 8 9 10 11 12 his rideshare business. The printout does not contain any 10 information about the business purpose of the purported trips, including whether the trips were related to ridesharing passengers, as well as where each purported trip originated and where it ended. Petitioner testified that he lost all other records when the car he was driving was sold after the accident, and he did not furnish the Court with any other receipts that could substantiate his claims. Petitioner has failed to meet the strict substantiation requirements with respect to his claimed car and truck expenses and, thus, the Court sustains respondent's disallowance of $30,451 of the other Schedule 13 C expenses. 14 15 16 17 18 19 20 21 22 23 24 B. Other Schedule C Expenses When a taxpayer establishes that he or she paid or incurred a deductible expense but fails to establish the amount of the deduction, the Court normally may apply the Cohan rule to estimate the amount allowable as a deduction. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742- 743 (1985). There must be sufficient evidence in the record, however, to permit the Court to conclude that a deductible expense was paid or incurred in at least the amount allowed. Williams v. United States, 245 F.2d 559, 25 560 (5th Cir. 1957). 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 Petitioner, however, has not provided any 11 evidence by which the Court could apply Cohan. Therefore, the Court sustains respondent's disallowance of the claimed other expenses of $4,985, utilities of $2,230, supplies of $300, and depreciation and section 179 expense of $210. II. Schedule A Itemized Deductions A. Medical and Dental Expenses Section 213(a) allows for a deduction for expenses paid during the taxable year for medical care of the taxpayer, the taxpayer's spouse, or a dependent of the taxpayer, not compensated for by insurance or otherwise, to the extent that such expenses exceed 10% of the taxpayer's adjusted gross income. An expense is for medical care if it is paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body. Sec. 213(d)(1)(A). A taxpayer who claims a deduction under section 213 must "furnish the name and address of each person to whom payment for medical expenses was made and the amount and date of the payment thereof in each case." Sec. 1.213-1(h), Income Tax Regs. Further, the taxpayer must maintain adequate records to substantiate all claimed deductions. Section 6001; section 1.6001-1(a), Income Tax Regs. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Petitioner contends that he is entitled to an 12 itemized deduction for medical and dental expenses in the amount of $121,136. After examination, the IRS disallowed all but $10,770 of petitioner's claimed medical and dental expenses. Petitioner did not furnish the Court with evidence of the name and address of each person to whom he made a payment for the reported medical expenses above those that were allowed by respondent nor the amount and date of any such payment. Petitioner provided the Court with a receipt from his emergency room visit for $10,706.20, which the IRS appears to have allowed as a medical expense deduction. The parties stipulated to letters and a copy of a check sent from petitioner's attorney to a company that was apparently hired by petitioner's healthcare insurance company to recover some of the expenses paid by the healthcare insurer. However, petitioner did not provide evidence that he reimbursed his attorney and, therefore, has failed to prove that he paid the expense. Accordingly, because petitioner did not meet the substantiation requirements for claiming a section 213 deduction, the Court will sustain respondent's determination that his medical and dental expenses are not deductible to the extent set forth in the notice of 25 deficiency. 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 B. Miscellaneous Other Expenses 13 To be entitled to a deduction for miscellaneous other expenses the taxpayer must maintain adequate records to substantiate all claimed deductions. Section 6001; section 1.6001-1(a), Income Tax Regs. Petitioner did not furnish the Court with any documentation to substantiate his miscellaneous other expenses. Therefore, the Court sustains respondent's determination to disallow $13,300 of the reported miscellaneous expenses. III. Innocent Spouse Relief - Section 6015(b), (c), (f) In general, married taxpayers may elect to file a joint Federal income tax return. See sec. 6013(a). After making the election, each spouse is jointly and severally liable for the entire amount of tax reported on the return, as well as for the liability of any deficiency subsequently determined, even if all the items giving rise to the tax liability are allocable to only one of them. See sec. 6013(d)(3); Cheshire v. Commissioner, 115 T.C. 183, 188 (2000), aff'd, 282 F.3d 326 (5th Cir. 2002); Butler v. Commissioner, 114 T.C. 276, 282 (2000); see sec. 1.6013-4(b), Income Tax Regs. Section 6015(a) allows a spouse to seek relief from joint and several liability under subsection (b), or, if eligible, to allocate the liability according to 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 provisions set forth in subsection (c). If a taxpayer 14 does not qualify for relief under either subsection (b) or (c), the taxpayer may be eligible for equitable relief under subsection (f). Except as otherwise provided in section 6015, the taxpayer bears the burden of proving that he is entitled to section 6015 relief. Rule 142(a); Alt v. Commissioner, 119 T.C. 306, 311 (2002), aff'd 101 Fed. Appx. 34 (6th Cir. 2004). In redetermination of deficiency cases in which a petitioner raises as an affirmative defense relief under section 6015 both the scope and standard of review in cases requesting relief from joint and several liability with respect to a redetermination of a deficiency are de novo. Porter v. Commissioner, 132 T.C. 203, 210 (2009). Relief from joint and several liability under both section 6015(b) and (c) apply to tax attributable to an erroneous item of the nonrequesting spouse. Here the erroneous items are those of petitioner. Because both the proposed disallowed Schedule C and Schedule A deductions are erroneous items of petitioner, the Court agrees with respondent that petitioner is not entitled to relief under either section 6015(b) or (c). With respect to equitable relief under section 6015(f) it is not clear that petitioner is in fact requesting such relief. Petitioner testified that he wanted his former spouse, intervenor, to pay her fair 15 share of the taxes owed. He did not provide the Court with any documents or other evidence to prove he met the factors for qualifying for equitable relief under section 6015(f). See Rev. Proc. 2013-34, sec. 4.01, 2013-43 I.R.B. 397, 399-400. Therefore, petitioner has not met his burden of proof that he qualified for relief from joint and several liability under section 6015(f) and the Court sustains respondent's denial of relief to petitioner under section 6015(b), (c), and (f). In order to give effect to our disposition of the disputed issues, decision will be entered for respondent with respect to the deficiency related to the disallowed Schedule C and Schedule A deductions and decision will be entered for petitioner with respect to the accuracy-related penalty under section 6662(a). This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 11:01 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 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 CERTIFICATE OF TRANSCRIBER AND PROOFREADER 16 CASE NAME: Udodiri Clement Eze, Petitioner and Oruchi Opara, Intervenor v. Commissioner DOCKET NO.: 17486-19S We, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 16 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Christopher Kauffmann on September 29, 2021 before the United States Tax Court at its remote session in Atlanta, GA, in accordance with the applicable provisions of the current verbatim reporting contract of the Court and have verified the accuracy of the transcript by comparing the typewritten transcript against the verbal recording. _______________________________________________ Meribeth Ashley, CET-507 10/15/21 Transcriber Date _______________________________________________ Lori Rahtes, CDLT-108 10/15/21 Proofreader Date