TAX COURT OPINION

Case: Vigen Stepanyan & Arpine Tarverdyan
Docket Number: 16652-16S
Judge: Thornton
Opinion Type: bench
Filed: 11/08/2017
Pages: 8

UNITED STATES TAX COURT WASHINGTON, DC 20217 VIGEN STEPANYAN AND ARPINE TARVERDYAN, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 16652-16S. ) ) ) ) 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 petitioners and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Michael B. Thornton at Los Angeles, California, 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. Dated: Washington, D.C. November 8, 2017 (Signed) Michael B. Thornton Judge SERVED NOV 0 9 2017 3 1 2 3 4 5 6 7 8 9 10 11 12 Bench Opinion by Judge Michael B. Thornton October 24, 2017 Vigen Stepanyan & Arpine Tarverdyan v. Commissioner Docket No. 16652-16S THE COURT: The Court has decided to render oral findings of fact and opinion in this case, and the following represents the Court's oral findings of fact and opinion. Except as otherwise provided by Rule 152(c) of the Tax Court Rules of Practice and Procedure, the oral findings of fact and opinion shall not be relied upon as precedent in any other case. This bench opinion is made pursuant to the 13 authority granted by section 7459(b) and Rule 152. 14 Section references are to the Internal Revenue Code in 15 effect for the taxable year at issue. All rule references 16 17 are to the Tax Court Rules of Practice and Procedure. This proceeding for the redetermination of a 18 deficiency is a Small Tax case conducted pursuant to the 19 provisions of section 7463 and Rules 170 through 175. 20 Pursuant to section 7463(b), the decision to be entered in 21 22 this case is not reviewable by any other court. This case was tried on October 23, 2017 in Los 23 Angeles, California. Petitioners appeared pro se. Albert 24 25 B. Brewster appeared on behalf of respondent. By notice of deficiency, respondent determined a shem $73)406-2250|operations@escribersmet|www.escribers.net 4 1 2 3 4 5 6 7 8 9 $6,336 deficiency in petitioners' 2014 Federal income tax and a $1,267.20 accuracy-related penalty under section 6662(a). The deficiency resulted from respondent's disallowance of deductions petitioners claimed on their 2014 Schedule A, Itemized Deductions, for charitable contributions, vehicle expenses, and tax preparation fees. Respondent has conceded that petitioners are entitled to the deduction they claimed for charitable contributions. Petitioners have conceded that they are not entitled to 10 deduct the amounts claimed for tax preparation fees or for 11 Mr. Stepanyan's (petitioner-husband's) vehicle expenses. 12 The issues remaining for decision are: (1) 13 whether petitioners may deduct amounts claimed for Ms. 14 Tarverdyan's (petitioner-wife's) vehicle expenses and (2) 15 whether petitioners are liable for an accuracy-related 16 penalty under section 6662(a) with respect to 2014. 17 18 FINDINGS OF FACT In 2014 petitioner-wife worked for Astro Pak 19 Corp., in Downey, California. She supervised chemists in 20 different labs at different locations. Petitioner-wife 21 often drove her Lexus from her employer's main office to 22 the various labs. She also used her Lexus to commute to 23 work and for personal purposes such as grocery shopping, 24 even though her 2014 Form 2106, Employee Business 25 Expenses, states that all the miles driven in 2014 were cribers (973)406-2250|operations@escribersmet|www.escibersnet 5 1 2 3 4 5 6 7 8 9 for business purposes. Petitioners did not keep a contemporaneous log of miles driven. Both petitioners listed "accountant" on their respective Forms 2106. Petitioner-husband reviewed petitioners' 2014 return before he signed it. OPINION The Commissioner's determinations in a notice of deficiency are generally presumed correct, and the taxpayer bears the burden of proving those determinations 10 erroneous by a preponderance of the evidence. Rule 11 12 13 14 15 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Vehicle expenses are deductible under section 162(a), see, e.g., Solomon v. Commissioner, T.C. Memo. 2011-91, but section 274(d) imposes rigorous substantiation requirements for vehicle expenses. 16 Expenses subject to section 274(d) must be substantiated; 17 18 19 20 21 22 they cannot be estimated. See Sanford v. Commissioner, 50 T.C. 823, 828 (1968), aff'd, 412 F.2d 201 (2d Cir. 1969). To obtain a deduction for vehicle expenses, a taxpayer must substantiate the number of miles driven, the date when the miles were driven, and the business purpose for those miles; section 274(d); section 1.274-5T, Income 23 Tax Regs. 24 Petitioners claim that petitioner-wife drove 25 between Astro Pak Corp.'s various work locations during cribers (973)406-2250|operations@escribersmet|www.escribers.net 6 1 2 3 4 5 6 7 8 9 her work day. Petitioners provided maps to show the distances between Astro Pak's various workplaces, but petitioners acknowledged that they have no contemporaneous log to substantiate vehicle expenses. Petitioners introduced a document prepared well after the miles were allegedly driven that lists dates and number of miles driven, but this document does not list start and end points for business mileage or otherwise show how the number of miles for each date was computed. 10 The log uniformly lists 55 miles for each of 107 days 11 between January 2nd, 2014 and November 6th, 2014 (except 12 13 for two days that list 54 miles and two days that list T 51 miles), and 95 miles for each of 19 days between 14 November llth, 2014 and December 31st, 2014. Petitioner- 15 wife was unable to explain these mileage listings; she 16 17 18 testified that she does not know what trips she made on any day but knows that she made two or three trips each day, and on that basis, she has estimated the daily 19 mileage. 20 21 22 In sum, the documents petitioners provided are inadequate to substantiate that petitioner-wife drove the claimed number of miles on any particular date; at best 23 the documents provided an estimate of the number of miles 24 petitioner-wife may have driven. As noted, the Court may 25 not estimate vehicle expenses. Accordingly, petitioners she 973)406-2250|operations@esaibersmet|www.esaibersaet ( 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 are not entitled to deduct any of the vehicle expenses they claimed for petitioner-wife. Section 6662(b) (2) imposes a 20 percent penalty on any underpayment attributable to any "substantial understatement of income tax." An understatement is "substantial" if it exceeds the greater of $5,000 or 10 percent of the tax required to be shown on the return; section 6662(d) (1) (A). Respondent has the burden of production with respect to the penalties. See section 7491(c). Respondent asserts that his burden of production includes producing evidence of compliance with section 6751(b)(1), which requires written supervisory approval of the initial determination of a penalty. Respondent further asserts that he has satisfied this burden of 16 production by entering into evidence a Civil Penalty 17 Approval Form signed by the examiner's group manager and 18 19 dated March 21st, 2016. Petitioners have not disputed that this Civil Penalty Approval Form satisfies any burden 20 of production the government may have. We, therefore, 21 22 23 24 conclude that respondent has met any burden of production he may bear with respect to section 6751(b)(1). To the extent Rule 155 calculations show that respondent has satisfied his burden of production for the 25 substantial understatement penalty, respondent has met his (973)406-2250|operations@escribersaiet|www.esaibers.net 1 2 3 4 5 6 7 8 9 burden of production. In general the accuracy-related penalty does not apply to any portion of an underpayment of tax if there was reasonable cause for such portion and that the taxpayer acted in good faith; section 6664(c)(1). Petitioners, who are accountants, claim that they relied in good faith on V&K Financial Services, the accounting firm that they claim prepared their return. To determine whether a taxpayer reasonably relied on professional 10 advice for this purpose, we ask whether: (1) the adviser 11 was a competent professional who had sufficient experience 12 13 14 to justify the reliance; (2) the taxpayer provided necessary and accurate information to the adviser; and (3) the taxpayer actually relied in good faith on the 15 adviser's judgment. Neonatology Associates, P.A. v. 16 Commissioner, 115 T.C. 43, 99 (2000), aff'd, 299 F.3d 221 17 18 (3d Cir. 2002). Petitioners did not provide any evidence at 19 trial regarding whether V&K Financial Services was a 20 21 22 competent firm with sufficient experience to justify a reliance. Petitioners also failed to support their claim that they provided necessary and accurate information to 23 V&K Financial Services. Finally petitioner-husband, who 24 is an accountant, testified that he reviewed and signed 25 petitioners' 2014 returns. For these reasons, the Court cribers (973)406-2250|operations@escribersmet|www.escribers.net concludes that petitioners have failed to prove a reasonable cause defense. A decision will be entered under Rule 155. This concludes the Court's findings of fact and 9 opinion in this case. (Whereupon, at 12:42 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|operati ns@escribers,net jwww.escribersnet