TAX COURT OPINION

Case: Raykisha Morrison
Docket Number: 22482-17
Judge: Gustafson
Opinion Type: bench
Filed: 06/08/2018
Pages: 9

CLC UNITED STATES TAX COURT WASHINGTON, DC 20217 RAYKISHA MORRISON, Petitioner, v. ) ) ) ) Docket No. 22482-17. 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 and to respondent a copy of the pages of the transcript of the proceedings in the above case before the undersigned judge at Winston-Salem, North Carolina, 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. June 8, 2018 SERVED Jun 08 2018 3 1 2 3 4 5 6 7 8 9 Bench Opinion by Judge David Gustafson May 22, 2018 Raykisha Morrison v. Commissioner of Internal Revenue Docket No. 22482-17 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 Rule 152 of the Tax Court Rules of 10 Practice and Procedure; and it shall not be relied on as 11 12 precedent in any other case. By notice of deficiency dated July 24, 2017 (Ex. 13 1-J), the Internal Revenue Service ("IRS") determined a 14 deficiency in the Federal income tax of petitioner 15 Raykisha Morrison for the year 2014. The issue for 16 decision is whether Ms. Morrison substantiated her 17 entitlement to deductions for unreimbursed employee 18 business expenses, which the IRS disallowed. We uphold 19 the IRS's disallowances in large part. 20 This case was tried in Winston-Salem, North 21 Carolina, on May 21, 2018. Ms. Morrison represented 22 herself, and Abby Moua represented the Commissioner. On 23 the evidence before us, we find the following facts: 24 FINDINGS OF FACT 25 Ms. Morrison's employment Cribers (973)406-2250|operationseescrazersnet|www.escribersmet In 2014 Ms. Morrison was employed by Resource 4 Management Group, Inc. ("RMG") as an "Occupational Safety and Health Specialist - Remote (Telework)". (Stip. 8; Ex. 6-J.) Her work involved travel to airports. RMG's policy entitled her to be reimbursed for the cost of using a rental car for such travel (see Ex. 7-J) or for the use of her personally owned vehicle (Exs. 9-J, 10-J). We are unable to quantify the miles she drove in her vehicle, and we cannot tell the extent (if any) to which she was not reimbursed for the cost of that travel. Home office Ms. Morrison's principal place of business was an office she maintained in her home. Her home was a 1,648 square-foot apartment, for which the parties stipulated during trial that the total rent and utilities for 2014 was $15,066. That square footage was divided 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 equally between two floors. On the second floor there was 19 a bathroom, a laundry area, and three bedrooms -- one that 20 she used as such, one that she used as her office, and one 21 that she used only for storage of business related files 22 and other materials. In the absence of a floor plan or of 23 measurements of the rooms, we estimate conservatively that 24 25 the area of the apartment used exclusively for business (i.e., the office room and the storage room) took up 20% (973)406-2250loperationseescribersmetlwww.escribers.net 5 1 2 3 4 5 6 7 8 9 of the area of the apartment. 2014 tax return In April 2015 Ms. Morrison filed her 2014 Federal income tax return (Ex. 2-J). Ms. Morrison apparently reported on her return the employment income she had received from RMG. She included with her return a Schedule A ("Itemized Deductions") on which she claimed a deduction for unreimbursed employee business expenses totaling $26,785. To itemize the latter deduction, she 10 included a Form 2106-EZ ("Unreimbursed Employee Business 11 Expenses") on which she reported 5,000 business miles 12 driven, yielding a vehicle mileage expense deduction of 13 $2,800, and other "Business expenses" of $23,985. 14 Notice of deficiency and petition 15 After examining Ms. Morrison's return, the IRS 16 disallowed all of the business deductions she claimed. 17 18 The IRS issued its notice of deficiency on July 24, 2017 (Stip. 4; Ex. 3-J). Ms. Morrison timely mailed her 19 petition to this Court on October 23, 2017. At the time 20 she filed her petition, Ms. Morrison resided in North 21 Carolina. (Stip. 1.) 22 23 24 25 OPINION I. Applicable legal principles A. Burden of proof The IRS's determination is presumed correct, and (973)406-2250loperationseescribers.netjwww.escribers.net taxpayers generally bear the burden to prove their entitlement to any deductions they claim. Rule 142(a). Taxpayers must satisfy the specific requirements for any . 6 deduction claimed. See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Furthermore, taxpayers are required to maintain records sufficient to substantiate their claimed deductions. See sec. 6001; 26 C.F.R. sec. 1.6001- 1(a), Income Tax Regs. B. The Cohan rule and section 274 When a taxpayer establishes that she paid or incurred a deductible expense but fails to establish the amount of a deduction, the Court may estimate the amount 1 2 3 4 5 6 7 8 9 10 11 12 13 allowable as a deduction. The seminal case so holding is 14 Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 15 16 17 18 1930), and we therefore call this principle "the Cohan rule." See also Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985). A taxpayer may substantiate deductions through secondary evidence only where the underlying 19 documents have not been intentionally lost or destroyed, 20 see Boyd v. Commissioner, 122 T.C. 305, 320-321 (2004), 21 and there must be sufficient evidence in the record to 22 permit the Court to conclude that a deductible expense was 23 paid or incurred in at least the amount allowed. Williams 24 25 v. United States, 245 F.2d 559, 560 (5th Cir. 1957). Moreover, section 274(d) establishes higher (973)406-2250|operationseescrbersnet|wwyt.escribersaet 7 substantiation requirements for expenses related to travel, meals and entertainment, and "listed property", defined in section 280F(d)(4) to include passenger automobiles. For these 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 property. Sec. 1.274-5T(b)(6), Temporary Income Tax Regs. (Nov. 6, 1985). The Court may not 1 2 3 4 5 6 7 8 9 10 estimate these expenses. See Sanford v. Commissioner, 50 11 12 13 14 T.C. 823, 827-828 (1968), aff'd per curiam, 412 F.2d 201 (2d Cir. 1969). C. Employee business expense A taxpayer may claim an unreimbursed employee 15 business expense as a miscellaneous deduction on Schedule 16 A, pursuant to the provision in section 162(a) that one 17 may deduct expenses of a business; and an employee is 18 19 20 considered to be in the business of being an employee. D. Home office expense Section 280A(c)(1) (A) allows a taxpayer to 21 deduct expenses for the business use of her residence but 22 only to the extent the expenses are allocable to a portion 23 of the residence which is exclusively used on a regular 24 basis as the principal place of business for a trade or 25 business of the taxpayer. (973)406-2250|operationseescribersnetlwww.escribers.net II. Analysis 8 Most of the employee business deductions that Ms. Morrison claimed must be disallowed, because she did not substantiate them. A. The unexplained return reporting Ms. Morrison was unable to reconstruct at trial the amounts that yielded the total of $26,785 reported on her return. She provided to the IRS and offered into evidence her 2014 bank statements (Exs. 29-J(viii), 29- 1 2 3 4 5 6 7 8 9 10 J(ix)) on which she had highlighted certain entries, but 11 the IRS asserted (and she did not dispute) that the total 12 of the highlighted entries exceeded $76,000, and at trial 13 Ms. Morrison did not attempt to show selected entries that 14 would total the smaller amount reported on her return. 15 She did observe that her total business expenses claimed 16 were approximately equivalent to the combined totals of 17 18 19 20 21 22 23 her rent and utilities (i.e., the gross amount of those expenses, of which her home office expense was a portion) and her vehicle-related expenses shown on her bank statements. She defended the deductibility of only those two categories of business expenses, which we now discuss. B. Vehicle expenses Ms. Morrison did not show an entitlement to 24 vehicle expense deductions, and her claim has several 25 fatal flaws. First, on her return she claimed a mileage crit!ers] (973)406-2250|operationseescribers.net|www.escribers.net expense (at the prescribed 56 cents per mile, multiplied by 5,000 claimed miles), and at trial she also argued for 9 a vehicle expense deduction by proving specific expenses she incurred for her car, such as repairs and gas. Such duplication is not permitted. Second, an employee may deduct only unreimbursed vehicle expenses, but her employer's policy was evidently to reimburse such expenses. Third, she was unable to show the number of 1 2 3 4 5 6 7 8 9 10 miles she actually drove for business in 2014. She did 11 12 not undertake to show, as section 274(d) requires, the specific business purpose and nature of her trips. She 13 did not keep a contemporaneous log of miles driven, and at 14 trial she was unable by any means to reconstruct her miles 15 driven. We cannot sustain any deduction for vehicle 16 expenses. 17 18 C. Home office expense Ms. Morrison deducted 100% of the rent and 19 utilities, totaling $15,066, that she paid for her 20 apartment in 2014, but she made exclusive business use of 21 only 20% of her apartment. She is therefore entitled to a 22 deduction of only 20% of that total -- i.e., a deduction 23 of $3,013. 24 Because we allow a portion of the home office 25 deduction disallowed in the IRS's notice of deficiency, (973)406-2250|operationseescribers.net|www.escribers.net decision will be entered under Rule 155, so that the 10 deficiency can be recomputed. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 1:24 p.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 (973)406-2250|operationseescrbers.net|www.escribers.net