TAX COURT OPINION

Case: David K. Grubaugh
Docket Number: 6481-23S
Judge: Buch
Opinion Type: bench
Filed: 01/14/2025
Pages: 10

DAVID K. GRUBAUGH, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent United States Tax Court Washington, DC 20217 Docket No. 6481-23S. 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 01/14/25 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 December 10, 2024 David K. Grubaugh v. Commissioner of Internal Revenue Docket No. 6481-23S 3 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 may 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 2020, David Grubaugh was a wage-earning employee working for Parker Hannifin. In addition, he operated a sole proprietorship under the name Dynamic PC Solutions. Through Dynamic PC Solutions, Mr. Grubaugh provided IT services as a contractor or subcontractor. He did both hardware repair and worked on web applications. Mr. Grubaugh reported income and expenses relating to Dynamic PC Solutions on his Schedule C, (Form 1040), Profit or Loss From Business (Sole Proprietorship). 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 4 On that Schedule C, he reported gross receipts of $7,175, which he reduced by car and truck expenses of $7,465, travel of $6,444, and meals and entertainment of $1,961, along with various other expenses. The result was a net loss of $14,802. On January 10, 2023, the Commissioner mailed a Notice of Deficiency to Mr. Grubaugh, determining a deficiency of $3,058. The deficiency resulted from the Commissioner's disallowance of the Schedule C travel expenses and the car and truck expenses. The Commissioner did not adjust the deductions claimed for meals. While residing in Euclid, Ohio, Mr. Grubaugh filed a petition in which he asserted that the Commissioner erred in disallowing the Schedule C expenses. The sole issue presented at trial was whether Mr. Grubaugh substantiated his travel and car and truck expenses. At trial, Mr. Grubaugh provided to the Court roughly 100 pages of photocopied receipts as substantiation. Most of these receipts were for meals, which the Commissioner did not disallow. The vast majority of those meals were at local dining establishments, and most of those were in the late evening; i.e., not during the traditional work day. Mr. Grubaugh was unclear in his testimony whether he had reported those meals as travel expenses or as meals on his 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 Schedule C. 5 The documents also included receipts for Omaha Steaks and tickets to a Rolling Stones concert. Mr. Grubaugh characterized those as gifts for Laurie Patrick, his girlfriend who, according to his testimony, helps him with his business. Mr. Grubaugh did not testify how or if he reported these expenses on his return. The receipts also included other items about which Mr. Grubaugh did not testify or otherwise identify how or if they were reported as expenses. These receipts included admission fees to and apparel purchases at an aquarium and admission fees to an aquatic center. They also included receipts for apparel purchases from a beachwear store. And they included movie tickets along with popcorn and ICEE purchases to go with the movies. As for substantiation of travel, Mr. Grubaugh provided receipts for two trips that he testified were for trade shows. Although he testified that he regularly attended these trade shows, he was not able to name any of them, neither those he may have attended in 2020 nor any he claims to have attended regularly. Turning to the travel receipts, Mr. Grubaugh provided a receipt for a week-long stay in September 2020 at Opal Sands, a resort in Clearwater Beach. The receipt is in the name of Ms. Patrick, although Mr. Grubaugh 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 6 testified that he paid for the accommodations. Mr. Grubaugh also provided a receipt, again in Ms. Patrick's name, for airfare for two that coincides with the trip to Clearwater. The receipts also included a rental car, again in Ms. Patrick's name. He testified that these expenses were for a trade show the name of which he could not recall. Mr. Grubaugh also provided documents relating to a May 2020 trip to Daytona. These included a receipt for an oceanfront room for two at the Hampton Inn and airline travel for two. He again testified that this was for a trade show the name of which he could not recall. Mr. Grubaugh provided a receipt for a stay at Timberline Cabins, although he testified that this travel was not for work purposes. Mr. Grubaugh provided several receipts for hotel stays in Canton, Ohio. Canton is located approximately 70 miles from where Mr. Grubaugh lived in 2020. As for the hotel stays in Canton, three of them coincide with holidays: one over New Year's Eve, one over Independence Day weekend, and one over Thanksgiving weekend. All of the Canton hotel receipts are in Ms. Patrick's name. Mr. Grubaugh did not testify as to a business reason for any of these hotel stays. The receipts also included two additional hotel 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 7 stays in Ms. Patrick's name. One of those was for a hotel room in Independence, Ohio, roughly 25 miles from where Mr. Grubaugh lived. Mr. Grubaugh did not testify as to a business reason for these hotel stays. In addition to taking judicial notice of the distances and dates of holidays, above, we take judicial notice that throughout 2020, the COVID-19 pandemic was occurring in the United States. I. Burden of Proof OPINION In general, the Commissioner's determinations in a Notice of Deficiency are presumed correct, and taxpayers bear the burden of proving that they are incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Typically, taxpayers also bear the burden of proving their entitlement to any deductions. See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Except when the burden shifts, a taxpayer must prove that he incurred an expense and establish that a deduction is allowable under the Code. I.R.C. § 6001; Treas. Reg. § 1.6001-1(a), (e); see also Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff'd, 540 F.2d 821 (5th Cir. 1976). Here, because the burden did not shift, Mr. Grubaugh bears the burden of establishing entitlement to deductions for expenses he claimed. 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 A. Substantiation Requirements Section 162(a) permits a taxpayer to deduct "all 8 the ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business." Proof of an ordinary and necessary expense requires more than "[a] taxpayer's general statement that expenses were paid in pursuit of a trade or business." Sham v. Commissioner, T.C. Memo. 2020-119, at *58. Personal expenses are generally not allowed as deductions. See I.R.C. § 262(a). Section 274(d) establishes higher substantiation requirements for certain expenses. 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). For certain kinds of business expenses, including vehicle expenses and travel, section 274(d) 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 9 imposes heightened substantiation requirements. See, e.g., Kamal v. Commissioner, T.C. Memo. 2023-80, at *21. To meet this requirement the taxpayer must 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). A taxpayer may satisfy these requirements by providing other corroborating evidence, including the taxpayer's own statements. I.R.C. § 274(d); Temp. Treas. Reg. § 1.274-5T(c)(3). II. Mr. Grubaugh Failed to Substantiate His Entitlement to Deductions The Commissioner did not disallow meal expenses. To the extent Mr. Grubaugh claimed meal expenses as travel expenses, he is not entitled to those deductions. At trial, Mr. Grubaugh submitted receipts to substantiate meal expenses relating to meals that he consumed when he was not travelling away from home overnight. As a general matter, the "costs of a taxpayer's meals not incurred in traveling away from home are nondeductible personal expenses." Treas. Reg. § 1.262-1(b)(5). We have previously described daily meals "as an inherently personal expense, and a taxpayer bears a heavy burden in proving that they are routinely deductible." Moss v. 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 10 Commissioner, 80 T.C. 1073, 1078 (1983), aff'd 758 F.2d 211 (7th Cir. 1985). The receipts Mr. Grubaugh provided were for meals near his home. Because the meal expenses were not incurred while travelling away from home, and he has not otherwise established their deductibility, they are not deductible. Mr. Grubaugh failed to substantiate a business purpose for his travel expenses. At trial, Mr. Grubaugh described travelling to two locations in Florida for trade shows. We do not find his testimony to be credible. He could not remember the names of these trade shows. Given the outbreak of COVID-19 in 2020, it is questionable whether these trade shows existed. Mr. Grubaugh did not meet his burden with his vague testimony uncorroborated by any documentary evidence of any business purpose. His evidence falls far from the heightened substantiation requirements for travel expenses. As for car and truck expenses, Mr. Grubaugh did not provide an "account book, diary, log, statement of expense, trip sheets, or similar record." Although he testified that his receipts included gas expenses, he did not direct the Court to any such receipts, and the Court did not identify any in its own review of the receipts submitted into evidence. Regardless, he did not substantiate any business purpose for any car or truck 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 11 expenses. For example, he did not identify any customer site he traveled to, the dates of any such travel, the distance of any such travel, or the business purpose of any such travel. To the extent his travel was to and from his regular place of employment, commuting expenses are not deductible. Sec. 1.162-2(e); Kroll v. Commissioner, 49 T.C. 557, 566 (1968). III. Conclusion In sum, Mr. Grubaugh failed to substantiate expenses in the amounts disallowed by the Commissioner. To the extent that he provided receipts for some expenses he incurred, he failed to substantiate a business purpose for any of them. And it appears that he principally was claiming personal expenses as business expenses. Decision will be entered for the Commissioner. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 3:21 p.m., the above-entitled matter was concluded.)