TAX COURT OPINION

Case: Damian Peter Daly & Jeanne K. Daly
Docket Number: 7787-20S
Judge: Morrison
Opinion Type: bench
Filed: 07/11/2022
Pages: 12

Damian Peter Daly & Jeanne Daly, ET AL., Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent United States Tax Court Washington, DC 20217 Docket Nos. 23070-19S, 7787-20S. ORDER OF SERVICE OF TRANSCRIPT 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 respondent a copy of the pages of the transcript in the above case before Judge Richard T. Morrison, at Los Angeles, California, on May 19, 2022, containing his oral findings of fact and opinion rendered at the conclusion of trial. In accordance with the oral findings of fact and opinion, a decision will be entered for each case. (Signed) Richard T. Morrison Judge Served 07/11/22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Bench Opinion by Judge Richard T. Morrison 3 May 19, 2022 Damian Peter Daly & Jeanne Daly Et al v. Commissioner Docket No. 23070-19S, 7787-20S 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 on as precedent in any other case. Unless otherwise indicated, all references to sections are to the Internal Revenue Code of 1986, as amended and in effect at all relevant times. All Rule references are to the Tax Court Rules of Practice and Procedure. This bench opinion is made pursuant to the authority granted by section 7459(b) and Rule 152. The respondent, or the IRS, mailed the petitioners, Damian Peter Daly and Jeanne Daly, notices of deficiency for both 2016 and 2017. The notices determined a $6,768 deficiency for 2016, a section 6662 penalty of $1,306 for 2016, a $9,707 deficiency for 2017, and a section 6662 penalty of $1,921 for 2017. The Dalys filed timely petitions for redetermination of the deficiencies. When the petitions were filed, the Dalys resided in South 24 Carolina. 25 We have jurisdiction under section 6214(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 exceeded the taxpayer's tax liability are to be refunded 6 to the taxpayer under section 24(d). The refundable amount under section 24(d) is referred to as an additional child tax credit. For 2016, the Dalys reported that they owed tax of $226. They claimed a $226 child tax credit and an additional child tax credit of $2,774. The adjustments in the notice of deficiency resulted in an increase in the tax liability of the Dalys above $3,000. As a result, the notice of deficiency disallowed the $2,774 additional child tax credit and increased the child tax credit by the same amount, $2,774. In summary, the notice of deficiency allowed $3,000 for the total of both the child tax credit and the additional child tax credit, which is the total amount the Dalys claimed for both credits. For 2017, the Dalys reported they owed tax of $236. They claimed a child tax credit of $236 and an additional child tax credit of $2,764. The 2017 notice of deficiency, because of adjustments resulting in an increase in the 2017 tax liability, disallowed the additional child tax credit and increased the child tax credit by the amount of the disallowance. Thus, for 2017 as for 2016, the disallowance of the additional child tax credit was required by the Internal Revenue Code and did 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 During 2016 and 2017, Mr. Daly worked as an 9 adjunct professor of political science at Florence- Darlington Tech. To teach there, Mr. Daly made various trips from the Dalys' home in the Charleston area. The Dalys seek to compute the deduction by multiplying the miles Mr. Daly traveled to Florence each year by a mileage allowance. However, Mr. Daly's testimony gives us only a vague idea of how many days in each year he taught at Florence-Darlington Tech. Section 162(a) allows a deduction for the expenses of carrying on a business, including travel away from home. Even if Mr. Daly were entitled to deduct his mileage for his trips to Florence under section 162(a), section 274(d) imposes an additional limitation. Section 274(d) imposes what are called strict substantiation requirements for deductions claimed for expenses of travel away from home and for listed property. Under section 274(d), no such deduction is allowed unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating the taxpayer's own statements as to the amount, time and place, and business purpose for each expenditure. For travel away from home, Temporary Treasury Regulation § 1.274-5T(b)(2) subdivision (ii) defines the term "time" as "[d]ates of departure and return for each trip away from home, and number of days 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 away from home spent on business," and subdivision (iii) 10 defines the term "place" as "[d]estinations or locality of travel, described by name of city or town or other similar designation." The Dalys must therefore substantiate through records, or through evidence other than Mr. Daly's testimony, the dates of Mr. Daly's travel to Florence. There is no evidence about these trips other than Mr. Daly's testimony. Therefore, no deduction is allowable. Alternatively, the Dalys argue that because the trips to Florence were taken in a rental car, and because they paid $800 per month to rent the car, they should be allowed a deduction of the rental cost of the car, or some fraction of that rental cost. But, as we have explained, the cost of travel must be strictly substantiated, and the Dalys have failed to meet these requirements. Furthermore, for listed property, such as an automobile, the strict-substantiation requirements require the taxpayer to establish the amount of business use "based on the appropriate measure (i.e., mileage for automobiles . . .), and the total use of the listed property for the taxable period." Id. subpara. (6)(i)(B). Thus, to deduct the cost of renting the car, the Dalys are required to substantiate through records, or through evidence other than Mr. Daly's testimony, the number of miles the car was used for business (i.e., for Mr. Daly's 1 2 3 4 5 6 7 8 9 10 11 12 trips to Florence-Darlington Tech), as well as the total 11 use of the rental car (i.e., for these trips and for personal use). Again, there is no evidence about these trips other than Mr. Daly's testimony. Thus, the Dalys have failed to strictly substantiate the business and personal use of the car. Furthermore, no evidence other than Mr. Daly's testimony was adduced about the cost of the rental vehicle, which in this situation is the "amount" of the expense to be claimed as a deduction, and therefore, which also must be strictly substantiated. For these reasons, no deduction is allowable corresponding to any fraction of the alleged $800 per month cost of the 13 rental vehicle. 14 15 16 17 18 19 20 21 We conclude that no deduction is allowed for the cost of Mr. Daly's travel to Florence-Darlington Tech. Fifth, the Dalys contend that they are entitled to a federal income tax deduction for state income taxes withheld from Mrs. Daly's wages. Section 164(a) allows a deduction for state income taxes. However, the Dalys provided no proof of the amounts of state income taxes withheld from Mrs. Daly's 22 salary. 23 24 25 Therefore, they have not proven they are entitled to a deduction for state income taxes. Even had they proven an entitlement to a 1 2 3 4 5 6 7 8 9 10 11 12 13 deduction for state income taxes, such a deduction would 12 have no computational effect on their income because it would be their only itemized deduction. Itemized deductions are of no use to a taxpayer unless they exceed the standard deduction. The Dalys claimed a standard deduction of $12,600 in 2016 and a standard deduction of $12,700 in 2017. No deduction is allowable for the amounts of state income taxes withheld from Mrs. Daly's wages. A decision will be entered sustaining the deficiencies determined by respondent and determining the petitioners are not liable for the section 6662 penalties. This concludes the Court's oral findings of fact and 14 opinion. 15 16 17 18 19 20 21 22 23 24 25 (Whereupon, at 1:15 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 CERTIFICATE OF TRANSCRIBER AND PROOFREADER 13 CASE NAME: Damian Peter Daly & Jeanne Daly Et al v. Commissioner DOCKET NO.: 23070-19S, 7787-20S We, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 13 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Meribeth Ashley on May 19, 2022 before the United States Tax Court at its remote session in Los Angeles, CA, in accordance with the applicable provisions of the current verbatim reporting contract of the Court and have verified the accuracy of the transcript by comparing the typewritten transcript against the verbal recording. _______________________________________________ Meribeth Ashley, CET-507 Transcriber 6/6/22 Date _______________________________________________ Lori Rahtes, CDLT-108 Proofreader 6/6/22 Date