TAX COURT OPINION

Case: Jerome Spencer Myles
Docket Number: 2554-14S
Judge: Buch
Opinion Type: bench
Filed: 12/15/2014
Pages: 11

UNITED STATES TAX COURT WASHINGTON, DC 20217 JEROME SPENCER MYLES, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, ) ) ) ) ) Docket No. 2554-14S. ) ) 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 Ronald L. Buch at Washington, D.C., 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) Ronald L. Buch Judge Dated: Washington, D.C. December 15, 2014 SERVED DEC 1 7 2014 Capital Reporting Company 3 1 Bench Opinion by Judge Ronald L. Buch 2 October 31, 2014 3 5 6 Jerome Spencer Myles v. Commissioner Docket No. 2554-14S THE CLERK: Docket number 2554-14S, Jerome Spencer Myles. Please state your appearances. THE COURT: The following represents the 8 Court's oral findings of fact and opinion. The oral 9 findings of fact and opinion may not be relied upon 10 11 12 13 14 15 16 17 18 as precedent in any other case. This opinion is in conformity with Internal Revenue Code Section 7459(b), and Rule 152(a) of the Tax Court Rules of Practice and Procedure. Any section references refer to the Internal Revenue Code or the Treasury regulations in effect during the year at issue and rule references are to the Tax Court Rules of Practice and Procedure. This case was heard pursuant to Section 7463 of the Internal Revenue Code in effect when the Petition was filed. Under Section 20 7463(b) the decision to be entered in this case is 21 22 23 24 25 not reviewable by any other court. And this opinion may not be treated as precedent in any other case. Background. Mr. Jerome Spencer Myles filed his form 1040 US Individual Income tax return for 2010 and 2011. Mr. Myles opérated a trucking 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company business during both years at issue. Mr. Myles owns the tractor portion of a tractor trailer and uses the 4 vehicle to deliver material principally to construction sites. During the years at issue Mr. Myles attached a Schedule C, profit or loss from business to his form 1040. On the Schedule C he reported income related to his trucking business and claimed various deductions, including depreciation and Section 179 expenses, car and truck expenses and contract labor. After examining Mr. Myles' 2010 and 2011 tax returns the IRS issued Mr. Myles a Notice of 1 2 3 4 5 6 7 8 9 10 11 12 13 Deficiency on November 13, 2013 disallowing the 14 15 16 17 18 previously mentioned deductions and determining a deficiency of $15,221 for 2010, and $21,470 for 2011. Additionally, the IRS assessed an accuracy related penalty under section 6662(a) in the amount of $3,044.20 for 2010 and $4,294 for 2011. Mr. 19 Myles, while residing in Maryland, timely petitioned. 20 21 Before trial the parties made several concessions. The remaining issues to be decided are whether Mr. 22 Myles is entitled to deductions for expenses incurred 23 24 25 traveling to pick up his tractor, and expenses incurred having that tractor washed. The deductions were not claimed on the original returns, but were 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 affirmatively asserted by Mr. Myles before trial. We also must decide whether Mr. Myles is liable for an accuracy related penalty. At trial Mr. 4 Myles and his sister who assisted him in preparing 5 his returns testified about the manner in which his 6 mileage was calculated with regard to his 7 8 transportation expenses. But they were not able to give the Court a clear picture of how they came up 9 with the final numbers. Mr. Myles provided Empire 10 11 12 fuel statements to demonstrate the diesel and gasoline purchases, but retained no separate receipts. Mr. Myles stated that he also did not 13 maintain a mileage log for his business travels. The 14 15 16 17 18 19 20 21 IRS conceded a portion of the travel expenses. At trial Mr. Myles also testified that his tractor received weekly washes in order to protect his business asset. Additionally, the person who assisted him in preparing his returns testified that the washes were necessary in his business to avoid fines that could result as a result of dirt and mud buildup that might cause harm to others on the road. 22 Mr. Myles testified that he paid various individuals 23 24 25 $50 in cash, the going rate in the industry, to wash the inside and outside of his tractor. He further stated that he had the tractor washed most, if not 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 6 1 all weeks during the year, regardless of the weather. 2 Mr. Myles stated that he did not have receipts and 3 4 5 6 7 did not keep a log of the car washes during 2010 and 2011. Respondent nonetheless conceded $300 of car wash expenses. Analysis, one, burden of proof. The Commissioner' s determinations in a Notice of 8 Deficiency are generally presumed correct and the 9 taxpayers bear the burden of proving those 10 determinations incorrect. Rule 142(a), Welch v. HeNerin3 11 Hclvcrn, 290 US 111 at 115, 1933. Income tax 12 13 14 15 16 17 18 19 20 deductions are a matter of legislative grace, and the burden of proving any deduction rests on the taxpayers . In Dcpcò v. Commissioner/ 503 US ,¼ at 84, 1992, see also Rule 142(a). Further, taxpayers are required to maintain sufficient records to show whether or not such person is liable for tax, Section 6001. The burden may shift to the Commissioner under Section 7491 if the taxpayer has complied with the necessary substantiation requirements and has 21 maintained all records and cooperated with reasonable 22 23 24 25 requests by the Commissioner regarding information and documents. In this case Mr. Myles has not provided documentation or records for the remaining deficiencies at issue and he does not assert that the 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 7 burden should shift to Respondent. As a result the burden remains on Mr. Myles. Two, business expense deductions. Taxpayers are allowed a deduction for ordinary and necessary expenses paid or incurred during the taxable year in the carrying on of a trade or business, Section 162(a). Deductions are a matter of legislative grace and taxpayers must maintain sufficient records to establish their claimed deductions, 262(a), D:pcc v. Commission, 503 US 79 at 84, 1992. These records must be maintained as long as the contents may become material and must be kept available for inspection, Section 6001, Reg. Section 1.6001-1(a). It is a long standing rule in our tax system that expense to and from one's place of employment or business are personal and not c4 deductible business expense, Anderson v. Commissioner, 60 TC 834 at 835, 1973, Reg. 1.162-2 and 1.262-1(b)(5), Income Tax Regs. However, expenses incurred traveling between two places of business may be deductible under Section 162(a), Parfcy v. Commission 73 TC 766 at 177, C::ck v. Commissioner, TC Memo 1998-105. Mr. Myles asserted after the Notice of 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 Deficiency was issued he was entitled to a deduction 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 8 for transportation expenses relating to trips made from his home to the place where he kept his tractor. Such expenses are non-deductible personal commuting expenses. The person who assisted Mr. Myles in preparing his returns testified that Mr. Myles should receive the deduction because he was commuting between his home, which was his primary place of business and the location of his tractor, which was his secondary business. Even if this were the case, Section 274(d) imposes heightened substantiation requirements on expenses related to traveling and expenses related to listed property under 280(f) (D) (4) (A), which includes a passenger automobile or property used as a means of transportation. To comply with the strict substantiation rules, the taxpayer must have adequate records or sufficient evidence corroborating the amount of the expense. The time and place the expense was incurred, the business purpose of the expense, and the business relationship of the taxpayer to any others benefited by the expense, Section 274(d). Mr. Myles testified at trial that he did not have evidence to substantiate the expenses incurred traveling to the tractor. Accordingly, we 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 will sustain Respondent's disallowances of these 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 transportation expenses beyond the previous concession. Mr. Myles also asserted after a Notice of 4 Deficiency was issued that he was entitled to a 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 deduction for expenses relating to washing his tractor. Although these expenses may be deductible under Section 162(a) as ordinary and necessary business expenses, Mr. Myles testified that he failed to maintain any receipts or logs corresponding to the washes. In some instances the Court may approximate the amount if the taxpayer can establish a deductible expense, but cannot substantiate a precise amount, Cohan v. Commissioner, 39 F 2nd 540 at 543 and 544, 2nd Circuit, 1930. However, Mr. Myles has not provided sufficient evidence to-e±ì the Court to make such an estimate. Accordingly, we sustain Respondent's disallowance of the claim deduction for expenses relating to washing the tractor beyond the previous concession. Three, accuracy related penalty. Section 6662(a) imposes a 20 percent accuracy related penalty on any portion of an underpayment of tax required to be shown on a return. If the underpayment is due to, among other reasons, negligence, disregard of rules 25 or regulations, or any substantial understatement of 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 10 income tax.y Respondent bears the burden of production as to the penalty, Section 7491(c). The penalty will not apply to any portion of the underpayment for which a taxpayer establishes that he or she had reasonable cause and acted jærd good faith, Section 6664(c)(1). As defined in the Code negligence includes any failure to make a reasonable attempt to comply with the provisions of Title 26, and the term disregard includes any .carlcoa, reckless or intentional disregard, Section 6662(c). Negligence has further been defined as a lack of due care or failure to do what a reasonable and ordinarily prudent person would do under the circumstances, Neely v. Commissioner, 85 TC 934 at 947, 1985. Quoting Maraclc v. Commissioner, 380 F tv\ety c·c- \\o - -6 2nd 499 at 506, 5th Circuit, 1967, affirming in part and -romainin~ in part 43 TC 168, 1964. Additionally, a taxpayer's negligent if he fails to maintain A sufficient records to substantiate the items in question, see IIigby v. Commission, 116 TC at 449, Wi Sbe<-. Reg. Section 1. 6662-3 (b) (1) . An understatement of income taxes is substantial if the understatement exceeds the greater of 10 percent of the tax required to be shown on the 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 return or $5,000, Section 6662(d)1(A). In accordance 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 11 1 with this opinion, Mr. Myles exact underpayment for 2 3 4 5 6 7 each year depends on the Rule 155 computations. If these computations establish a substantial understatement of income tax, Respondent has met his burden. See, Olanganguvi v. Commissioner, TC Memo 2012-119, Jarman v. Commissioner, TC Memo 2010-285. Even if this is not the case, Respondent has still 8 met his burden, because Mr. Myles acted with 9 negligence. Mr. Myles did not introduce adequate 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 record at trial to substantiate either the deductions disallowed in the notice of deficiency, or the newly claimed deductions. Mr. Myles did not provide any evidence of defenses. Although he used another person to assist him in preparing his returns, he stated multiples times at trial that he was the one responsible for any mistakes. Accordingly, because Respondent met his burden of production and Mr. Myles did not provide evidence of any defenses, we sustain the accuracy related penalty under Section 6662(a). Four, conclusion. Based on the foregoing we find that Mr. Myles is not entitled to the asserted car and truck deductions for 2010 and 2011 for expenses relating traveling to and from the 8- tractor trailer's location and washing the tractor. 25 Additionally, we sustain Respondent's imposition of 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company an accuracy related penalty under Section 6662(a). decision will need to be entered under Rule 155. (Whereupon, at 12:12 p.m. the above- entitled matter was concluded.) 12 A 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 twww.CapitalReportingCompany.com