TAX COURT OPINION

Case: Alan D. & Tina M. Roberts
Docket Number: 4685-12
Judge: Kroupa
Opinion Type: bench
Filed: 11/27/2012
Pages: 13

UNITED STATES TAX COURT WASHINGTON, D.C. 20217 SEC ALAN D. AND TINA M. ROBERTS, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ) ) ) ) ) ORDE R Docket No. 4685-12 Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit to petitioners and to respondent a copy of the pages of the transcript of proceedings of this case before Judge Diane L. Kroupa in Reno, Nevada on October 3, 2012, containing her oral findings of fact and opinion rendered at the trial session at which this case was calendared. In accordance with the oral findings of fact and opinion, an appropriate decision will be entered for respondent. (Signed) Diane L. Kroupa Judge Date: Washington, DC November 27, 2012 SERVED Nov 28 2012 Capital Reporting Company Alan D. Roberts and Tina M. Roberts 10-03-2012 1 THE COURT: The Court has decided to render 2 oral findings of Fact and Opinion in this case and 3 the following represents the Court's oral findings of 4 Fact and Opinion. These oral findings of fact and 5 opinion shall be relied upon as precedent in any 3 6 other case. 7 This bench opinion is made pursuant to the 8 authority granted by section 7459 (b) and Rule 152. 9 All section references are to the Internal Revenue 10 Code for 2009, and all Rule references are to the Tax 11 Court Rules of Practice and Procedure. 12 Petitioners appeared pro se. Mark Howard 13 appeared on behalf of respondent. 14 FINDINGS OF FACT 15 Certain facts have been stipulated. The stipulation 16 of facts and the supplemental stipulation of facts 17 18 19 20 the parties filed, with accompanying exhibits, are incorporated by this reference. The facts are so found. Petitioners resided in Carson City, Nevada 21 at the time they filed the petition. 22 Petitioners are married individuals who 23 filed a timely return for 2009. Ms. Roberts is a 24 member of the Laguna Pueblo Indian tribe and Mr. 25 Roberts is a member of the Paiute Indian tribe. (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alan D. Roberts and Tina M. Roberts 10-03-2012 4 1 During 2009, they had one daughter, Layce, who lived 2 with them. She is a member of the Navajo Indian 3 4 tribe, as is her maternal grandfather. Petitioners claimed numerous charitable and 5 medical expenses they assert were incurred as members 6 of the various Indian tribes through their spiritual 7 8 9 and healing programs. They claim these contributions are protected under the American Indian Religious Freedom Act, Pub. L. No. 95-341, 92'2 Stat. 469 (Aug. 10 11, 1978) (Commonly abbreviated to AIRFA) and codified 11 at 42 U.S.C. 1996. Rights include access to sacred 12 sites, freedom to worship through ceremonial and 13 traditional rights and using and possessing objects 14 15 considered sacred. Daughter Layce suffered from severe acne 16 and scarring as well as poor self-esteem. 17 Petitioners reached out to their Native American 18 cultural traditions. They also took her to Laguna 19 Pueblo Indian tribal ceremonies to help restore her 20 to health and wellness. Mr. Roberts suffered from 21 rheumatoid arthritis. Mr. Roberts was encouraged to 22 play golf to help with his arthritis. 23 Mrs. Roberts is a legal consultant to the 24 State of Nevada and Mr. Roberts is a highway 25 maintainer for the State of Nevada. They reported (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alan D. Roberts and Tina M. Roberts 10-03-2012 5 1 2 3 4 5 6 7 $106,000 of wages and claimed $36,162 of itemized expenses on Schedule A. They claimed they incurred $16,958 of medical expenses, $5,213 of charitable expenses, $19,584 of unreimbursed employee business expenses for Mr. Roberts as a highway maintainer, and $10,218 for Mrs. Roberts as a legal consultant. At trial petitioners conceded that they were not 8 entitled to the T-Mobile cell expenses, gift expenses 9 they gave for fellow employees and continuing 10 education expenses. 11 Respondent disallowed the itemized expenses 12 petitioners claimed and determined that the allowed 13 itemized deductions were less than the standard 14 deduction so respondent allowed the $11,400 standard 15 deduction. Respondent allowed certain Schedule A 16 expenses petitioners were able to substantiate and 17 disallowed the rest of the Schedule A expenses 18 because petitioners failed to substantiate any of 19 20 them. In disallowing the Schedule Ê expenses, respondent determined a $5,255 deficiency in Federal 21 income tax of petitioners for 2009 and determined a 22 23 $1,051 accuracy-related penalty under section 6662. OPINION 24 This is primarily a substantiation case involving 25 whether petitioners are entitled to deduct certain (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alan D. Roberts and Tina M. Roberts 10-03-2012 6 1 Schedule A expenses. We begin with two fundamental 2 principles of tax litigation. First, the 3 Commissioner's determinations are generally presumed 4 5 correct, and taxpayers bear the burden of proving that those determinations are erroneous. Rule 6 142(a). This principle is not affected by section 7 8 9 7491(a) because petitioners failed to comply with the substantiation requirements and failed to maintain adequate records. See sec. 7491(a) (2) (A) and (B); 10 see also Higbee v. Commissioner, 116 T.C. 438 (2001). 11 12 13 Second, deductions are a matter of legislative grace, and taxpayers must show that they are entitled to any deduction claimed. Rule 142(a); 14 Welch v. Helvering, 290 U.S. 111 (1933). This 15 includes the burden of substantiation. Hradesky v. 16 Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 17 18 540 F.2d 821 (5th Cir. 1976). Substantiation means that a taxpayer shall keep such permanent records or 19 books of account as are sufficient to establish the 20 amount of deductions claimed on the return. Sec. 21 60 01; sec . 1. 60 01 1 ( ) , Income Tax Regs . The Court 22 need not accept a taxpayer's self-serving testimony 23 when the taxpayer fails to present other probative 24 evidence. Beam v. Commissioner, T.C. Memo. 1990-304 25 (citing Tokarski v. Commissioner, 87 T.C. 74, 77 (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alan D. Roberts and Tina M. Roberts 10-03-2012 7 (1986) ) . 1 2 We first consider petitioners' 3 miscellaneous expenses they claimed. Mr. Roberts 4 claimed over $19,000 of unreimbursed employee 5 business expenses as a highway maintainer and Mrs. 6 Roberts claimed over $10,000 of unreimbursed employee 7 expenses as a legal consultant to the State of 8 Nevada. 9 Personal expenses are not deductible. Sec. 10 262. There are many expenses that are helpful, even 11 essential, to one's business, but which are not 12 deductible in our tax system. See Carroll v. 13 Commis sioner, 51 T . C. 213, 215 (1968) , af fd . 418 F. 2d 14 91 (7th Cir. 1969). Expenses of driving to and from 15 work, for example, are not deductible. Sec. 1.162- 16 2(e), Income Tax Regs. Expenses for clothing worn in 17 18 a taxpayer's trade or business, and the costs of laundering the clothing, are not deductible if the 19 clothing is adaptable for nonbusiness wear. See, 20 e . g . , Hawbaker v. Commis sioner, T . C. Memo . 1983-665 21 22 23 24 (car salesman not entitled to deduct costs of cleaning suits that were easily soiled with grease and dirt) . Petitioners contend that they should be 25 allowed to deduct the cost to clean Mr. Roberts' (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alan D. Roberts and Tina M. Roberts 10-03-2012 8 1 2 3 4 highway maintainer clothes. He wore a winter coat that became soiled with grease and dirt. There was no special clothing Mr. Roberts was required to wear as a necessary condition of his job. As summarized 5 previously, clothing expenses are generally not 6 deductible as a business expense even when specific 7 8 9 types of clothing are a necessary of the business or D employment. Hynes v. Commissioner, 74 T.C. 1266, 1290 (1980). A recognized exception exists for 10 clothing that is not suitable for general or personal 11 wear and the clothing is not so word. Id. This test 12 13 14 has been held to be an objective standard. Pevsner v. Commissioner, 628 F.2d 467, 470-471 (5th Cir. 1980). Mr. Roberts' steel-toed boots are generally 15 not suitable for general wear, and thus fall within 16 the exception. Petitioners were unable, however, to 17 establish how much they paid for the boots nor did 18 they establish his employer failed to reimburse him 19 for the boots. As to the other clothes, we find that 20 they were suitable for general wear and, in any 21 event, petitioners failed to establish how much they 22 paid to clean the clothes. They had receipts from 23 Target and grocery stores but were unable to show 24 that any of these costs were other than personal 25 expenses . (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alan D. Roberts and Tina M. Roberts 10-03-2012 We now consider petitioners' charitable 9 contributions. Charitable contributions a taxpayer 1 2 3 makes are generally deductible under section 170(a). 4 No deduction is allowed, however, for any 5 contribution of $250 or more unless the taxpayer 6 substantiates the contribution by a contemporaneous 7 written acknowledgment of the contribution by a 8 qualified done£ organization. Sec. 170 (f) (8) (A) . A 9 taxpayer claiming a charitable contribution is 10 generally required^for each contribution a canceled 11 check, a receipt from the donee charitable 12 organization showing the name of the organization and 13 14 15 the date and amount of the contribution, or other reliable written records showing the name of the donee and the date and amount of the contribution. 16 Sec. 1.170A-13(a) (1), Income Tax Regs. 17 We address the charitable expenses 18 petitioners claimed. Most, if not all, of 19 petitioners' claimed charitable expenses were 20 attributable to food they bought at Costco they claim 21 they took to a tribal ceremony, specifically the 22 Navajo Nation Tribal Ceremonies. They also had 23 expenses for "tribal ceremonies" at Fisherman's Wharf 24 in San Francisco, Harrah's Casino in Reno and movies 25 from Galaxy Fandango. We did not find this (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alan D. Roberts and Tina M. Roberts 10-03-2012 10 1 2 3 4 5 6 documentation and testimony credible. In addition, they steadfastly denied that any of these expenses including the amount for food was for personal consumption. Moreover, the records that petitioners had for medical mileage did not correspond to these supposed ceremonial events petitioners claimed as 7 medical expenses. They also claimed a $2,400 8 charitable contribution of Navajo art they purchased. 9 And they deducted the cash they gave to Mr. Roberts' 10 daughter so her children could play sports. 11 12 Petitioners generally had no receipts or documentation (other than the amounts respondent 13 allowed). Petitioners failed to demonstrate they are 14 entitled to any of the claimed charitable 15 contributions, and, therefore, are not entitled to 16 deduct any of these expenses. 17 We now address the medical expenses 18 petitioners claimed. They explained that the Navajo 19 Indian traditions include over the counter items for 20 daughter Layce's acne and scarring. Petitioners 21 provided general amounts they paid to Sephora and 22 other cosmetic stores like Bed, Bath and Beyond to 23 claim these costs as medical expenses. Petitioners 24 also claimed they purchased eyeglasses and claimed 25 medical expenses for eyeglass cleaners and eye drops (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alan D. Roberts and Tina M. Roberts 10-03-2012 11 1 purchased in stores like Wal-Mart and Old Navy. 2 There was for the most part no documentation of any 3 of these expenses except circled portions of credit 4 5 card statements. Petitioners also claimed medical costs 6 associated with Mr. Roberts playing golf and 7 attending golfing events where he would have incurred 8 plan and hotel costs. It is also unclear to the 9 Court if any of the amounts claimed are membership 10 11 12 dues to country clubs. We address whether Mr. Roberts is entitled to deduct any of these golfing expenses. Section 274 13 contains several exceptions to the deductibility of 14 ordinary and necessary expenses incurred in carrying 15 on a trade or business. Expenses paid or incurred 16 for membership in any club organized for business, 17 pleasure, recreation, or other social purpose are not 18 deductible. Sec. 274 (a) (3). More specifically, 19 expenses paid for golf and country club dues are not 20 deductible. Sec. 1.274-2(a) (2) (iii) (a), Income Tax 21 Regs. In addition, the legislative history to 22 section 274 (a) (3) emphasizes that it is a strict 23 nondeductibility rule. See H. Rept. No. 103-111, at 24 646 (1993), 1993-3 C.B. 167, 222. No one, including 25 golf professionals or instructors, may deduct club (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alan D. Roberts and Tina M. Roberts 10-03-2012 12 1 2 dues. Congress explained that the non-deductibility rule eased compliance with former law that required 3 determining whether the primary purpose of belonging 4 to the country club was personal. Id. Accordingly, 5 petitioners are not entitled to deduct any amount 6 7 they may have paid for membership in a country club. There is a limited exception for amounts 8 associated with playing golf. Sec. 274 (a) (2) (C). 9 These amounts may be deductible if directly related 10 to the conduct of a trade or business. Mr. Roberts 11 is a highway maintainer and is not in the trade or 12 business of being a golfer. Moreover, he is claiming 13 these golfing fees, hotel costs and airfare were 14 medical, not business expenses. We find that 15 petitioners failed to establish that they were 16 entitled to deduct these expenses as medical expenses 17 or ordinary and necessary expenses for their 18 respective jobs. Accordingly, we sustain 19 respondent's determination as to the claimed expenses . 20 21 We turn now to whether petitioners are 22 liable for the accuracy-related penalty under section 23 6662 (a). Respondent has the burden of production and 24 must come forward with sufficient evidence that it is 25 appropriate to impose the penalty. See Higbee v. (866) 448 - DEPO www.CapitalReportmgCompany.com 2012 Capital Reporting Company Alan D. Roberts and Tina M. Roberts 10-03-2012 13 1 Commissioner, 116 T.C. 438, 446-447 (2001). 2 3 Respondent determined that petitioners are liable for the accuracy-related penalty for a 4 substantial understatement of income tax under 5 section 6662 (b) (2) . There is a substantial 6 understatement of income tax if the amount of the 7 understatement exceeds the greater of either 10 8 percent of the tax required to be shown on the 9 re turn, or $5, 0 00 . Se c . 6662 (d) (1) (A) . 10 11 12 Petitioners reported gross income of $106,000, taxable income of $58,567 and Federal income tax liability of $7,951. Respondent 13 determined in the statutory deficiency notice that 14 petitioners' taxable income was $83,329 and that 15 petitioners had an income tax deficiency of $5,255. 16 We are satisfied that petitioners substantially 17 understated the income tax required to be shown on 18 their return and that respondent has met his burden 19 of production with respect to the accuracy-related 20 penalty. 21 22 The accuracy-related penalty under section 6662 (a) does not apply to any portion of an 23 underpayment, however, if it is shown that there was 24 reasonable cause for, and that the taxpayer acted in 25 good faith with respect to, that portion. Sec. (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alan D. Roberts and Tina M. Roberts 10-03-2012 14 1 6664 (c) (1) ; sec. 1. 6664-4 (b) , Income Tax Regs . 2 Petitioners provided no arguments or testimony 3 .regarding any defense to the accuracy-related 4 penalty. We therefore shall sustain respondent's 5 determination as to the penalty. 6 7 Even if we were to allow petitioners to deduct some costs more than the amount respondent 8 allowed, it would not be enough to exceed the 9 standard deduction that respondent allowed in the 10 deficiency notice. 11 To reflect the foregoing, decision will be 12 entered for respondent. 13 THIS CONCLUDES THE COURT'S ORAL FINDINGS OF 14 FACT AND OPINION IN THIS CASE. (Whereupon, at 2:57 p.m., the bench opinion in the entitled matter was adjourned.) 15 16 17 18 19 2 0 21 22 2 3 2 4 25 (866) 448 - DEPO www.CapitalReportingCompany.com 2012