TAX COURT OPINION

Case: Gary Thomas
Docket Number: 10795-22
Judge: Buch
Opinion Type: bench
Filed: 10/23/2024
Pages: 10

GARY THOMAS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent United States Tax Court Washington, DC 20217 Docket No. 10795-22. ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall serve with this Order a copy of the pages of the transcript of the trial in this case 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, a decision will be entered for the Commissioner. (Signed) Ronald L. Buch Judge Served 10/23/24 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 Bench Opinion by Judge Ronald L. Buch 3 September 18, 2024 Gary Thomas v. Commissioner Docket No. 10795-22 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. The oral findings of fact and opinion shall not be relied upon as precedent in any other case. The oral findings of fact and opinion are made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code and Tax Court Rule 152. Rule references in this opinion are to the Tax Court Rules of Practice and Procedure, and section references are to the Internal Revenue Code, in effect at all relevant times. FINDINGS OF FACT In 2016 and 2017, the years in issue, Gary Thomas worked for Ryder Integrated Logistics as a truck driver, principally hauling golf carts. In the course of delivering golf carts, Mr. Thomas incurred a variety of expenses. He would incur expenses for highway tolls, scales, and occasionally, lodging. In addition, he would incur expenses for meals while away from home. Mr. Thomas was compensated by Ryder as a wage- 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 earning employee. In addition to be compensated for miles 4 driven, he was compensated for "delays", which was the time spent unloading the truck, and "layovers", which was the time spent overnight while on the road. As part of his compensation package, Mr. Thomas understood that he would be reimbursed for the expenses he incurred in connection with driving a truck for Ryder. Mr. Thomas's payroll records show that he was, in fact, reimbursed. His payroll records show that he received "Non-Taxable Payments" for a variety of items. He was reimbursed for what is described in his payroll records as "ReimToll", which he understood to be reimbursement for tolls. He was also reimbursed for "ReimScal", which he understood to be reimbursement for scales where his truck would be weighed. He was also reimbursed for "ReimLodg", which the Court understands to be for lodging. And he received an item described in his payroll records as "NT Allow", which the Court understands to be a non-taxable allowance. Mr. Thomas manually maintained a log of his expenses. He maintained this log because the information was reported to him using a mobile application and not in hard copy. His manual log bears a striking similarity to what Ryder ultimately reported in its payroll system. To pick a single example, for the pay period of January 24, 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 2016 through January 30, 2016, the Ryder payroll statement 5 shows 1,822 miles driven compensated at $0.39, 4 delays compensated at $30, and 4 layovers compensated at $50. That same statement shows "ReimScal" of $10.50 and "NT Allow" of $25.00. That payroll statement shows a pay date of February 5, 2016. Mr. Thomas's manual log includes an entry for February 5, 2016. It states a gross and net amount of pay, lists miles of 1,822, "Stop" of "4@30", "Layover" of 4@50, and "Other" of "10.50 - scale." Mr. Thomas did not timely file his returns. After he was initially contacted by the IRS, Mr. Thomas delivered his records to a return preparer who prepared his returns for the years in issue, among others. The return preparer included on the returns unreimbursed business expenses, including meals and entertainment. Mr. Thomas filed those returns with the IRS in 2019. The Commissioner disallowed all of Mr. Thomas's claimed unreimbursed business expenses. He mailed a Notice of Deficiency dated February 24, 2022. In that Notice, the Commissioner disallowed the claimed unreimbursed employee business expenses, and instead allowed the statutory standard deduction. While residing in Thomson, Georgia, Mr. Thomas filed a petition in which he challenged the determinations in the Commissioner's Notice of Deficiency. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 OPINION 6 Both leading up to trial and at trial, Mr. Thomas's positions in this case have varied. He alleged in correspondence with his employer and at trial that Ryder wrongly reported his expense reimbursement as taxable. He alleged in his petition and at trial that he was not reimbursed for expenses. And his counsel alleged at closing argument that Mr. Thomas was entitled to claim a deduction for per diem for meals. The Commissioner has consistently made three alternative arguments. First, the Commissioner argues that Mr. Thomas did not substantiate that he incurred any expenses. Second, the Commissioner argues that Mr. Thomas did not establish the nature of Ryder's reimbursement policy. And lastly, the Commissioner argues that Mr. Thomas did not establish that he was not, in fact, reimbursed. On the basis of the evidence in the record, the Commissioner would prevail under any one of these 19 arguments. 20 I. Burden of Proof 21 22 23 24 25 In general, the Commissioner's determinations in a Notice of Deficiency are presumed correct, and taxpayers bear the burden of proving it to be wrong. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Typically, taxpayers also bear the burden of proving their 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 entitlement to any deductions. See INDOPCO, Inc. v. 7 Commissioner, 503 U.S. 79, 84 (1992). Under section 7491(a)(1), "[i]f, in any court proceeding, a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer for any tax imposed by subtitle A or B, the Secretary shall have the burden of proof with respect to such issue." See Higbee v. Commissioner, 116 T.C. 438, 442 (2001). Mr. Thomas has not introduced credible evidence sufficient to shift the burden of proof to the Commissioner. II. Ordinary and Necessary Business Expense Deductions A. General Rules Section 162(a) allows a taxpayer to deduct all ordinary and necessary expenses paid or incurred in carrying on a trade or business. A trade or business expense is ordinary if it is normal or customary within a particular trade, business, or industry. Welch v. Helvering, 290 U.S. at 114. A trade or business expense is necessary if it is appropriate and helpful for the development of the business. Welch, 290 U.S. at 113. And an employee can deduct ordinary and necessary expenses incurred in the trade or business of being an employee. Simpson v. Commissioner, T.C. Memo. 2020-100, at *14. Taxpayers must generally maintain records 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 sufficient to substantiate the amounts of any deduction or 8 credits claimed. I.R.C. § 6001; Treas. Reg. § 1.6001- 1(a), (e). If, however, a taxpayer can prove that he paid or incurred a deductible business expense but is unable to prove the precise amount of the expense, we may estimate the amount in some circumstances. See Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930). This is sometimes referred to as the Cohan rule. B. Heightened Substantiation Requirements For certain kinds of business expenses, including vehicle expenses and meals and entertainment, section 274(d) overrides the Cohan rule and instead imposes heightened substantiation requirements. See, e.g., Kamal v. Commissioner, T.C. Memo. 2023-80, at *21. Section 274(d)(4) provides, among other things, that no deduction is allowed with respect to certain expenses unless the taxpayer establishes (A) the amount of the expense or other item, (B) the time and place of the travel, (C) the business purpose of the expense or other item, and (D) the business relationship to the taxpayer of the person receiving the benefit. I.R.C. § 274(d) (flush language); I.R.C. § 280F(d)(4); Temp. Treas. Reg. § 1.274- 5T(b)(6); see also Boyd v. Commissioner, 122 T.C. 305, 313, 320 (2004) (discussing the relationship between section 162 and section 274). 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 To meet this requirement the taxpayer must 9 maintain an "account book, diary, log, statement of expense, trip sheets, or similar record" and "documentary evidence, such as receipts, paid bills, or similar evidence." Temp. Treas. Reg. § 1.274-5T(c)(2)(i); Treas. Reg. § 1.274-5(c)(2)(iii). If the Commissioner requests adequate records to substantiate an expense, the taxpayer must produce them. Martin v. Commissioner, T.C. Memo. 2016-189, at *10-11. As an alternative to meeting these stringent documentation standards, a taxpayer may substantiate expenses by providing other corroborating evidence, including the taxpayer's own statements. I.R.C. § 274(d); Temp. Treas. Reg. § 1.274-5T(c)(3). In addition to the substantiation requirements for deductions, a taxpayer must take additional steps to prove entitlement to deductions for unreimbursed employee expenses. Specifically, the taxpayer must produce evidence of the employer's reimbursement policy and that he sought but did not receive reimbursement from his employer. Orvis v. Commissioner, 788 F.2d 1406, 1408 (9th 22 Cir. 1986). 23 24 25 III. Mr. Thomas Failed to Substantiate His Entitlement to Deductions Mr. Thomas understood that he was entitled to 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 reimbursement from Ryder for his business expenses, and he 10 believes he was not reimbursed. As a starting point, Mr. Thomas did not provide the Court with any record of Ryder's employee reimbursement policy. We will accept as fact his understanding that he was entitled to reimbursement. And the evidence shows that Mr. Thomas was, in fact, reimbursed. Further, those same records show that Ryder did not treat the reimbursements as taxable. Mr. Thomas's pay records generally match his handwritten notes for the expenses he incurred. And a review of the payroll record from Ryder shows that it reimbursed Mr. Thomas for expenses related to tolls, weigh station use, lodging, and even a nontaxable allowance. To the extent Mr. Thomas might be arguing that there were additional expenses beyond those that were reimbursed, he did not meet his burden. Beyond his handwritten log, Mr. Thomas did not provide a direct record, such as receipts, for any expenses he may have 20 incurred. 21 22 23 24 25 In sum, Mr. Thomas did not meet his burden of proof to establish that he was entitled to claim unreimbursed business expenses, and the determinations in the Commissioner's Notice of Deficiency will be sustained. And, in fact, the records received in evidence show that Mr. Thomas was reimbursed for his business expenses. 11 Decision will be entered for the Commissioner. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 12:35 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