TAX COURT OPINION

Case: Simon Tanta & Esthela J. Becerra
Docket Number: 27968-08S
Judge: Colvin
Opinion Type: bench
Filed: 02/23/2010
Pages: 12

UNITED STATES TAX COURT Washington, D .C . 2021 7 SIMON TANTA AN D ESTHELA J . B'ECERRA, Petitioners, v . Docket No . 27968-08 S COMMISSIONER OF INTERNAL REVENUE, Respondent . 0 R D E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it i s 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 of the above case befor e Special Trial Judge Lewis'R . Carluzzo at Los Angeles, California, on January 15, 2010, containing his oral findings of fact and opinion rendered at the conclusion of trial . In accordance with the oral findings of fact and opinion, an appropriate order dismissing the case as to Esthela J . Becerra will be issued and decision will be entered for respondent, . (Signed) Lewis R. Carluzzo Special Trial Judg e Dated : Washington, D .C . February 23, 2010 -SERVED HAIR -7 .2. 3 1 Bench Opinion by Special Trial Judge Lewis R . Carluzzo 2 Becerra v . Commissioner Docket No . 27968-08S 3 January 15, 201 0 4 THE COURT : The Court has decided to render 5 oral findings of fact and opinion in this case and the 6 following represents the Court's oral findings of fact 7 and opinion . This oral findings of fact and opinio n 8 shall not be relied upon as precedent in any other 9 case . 10 This proceeding for the redetermination of a 11 deficiency is a small tax case conducted pursuant to 12 the provisions of Section 7463 of the Internal Revenue 13 Code of 1986, as amended, and Rules 170 through 175 of 14 the Tax Court Rules of Practice and Procedure . 15 This bench opinion is made pursuant to the 16 authority granted by Section 7459(b) of the Internal 17 Revenue Code of 1986, as amended, and Rule 152 of the 18 Tax Court Rules of Practice and Procedure . 19 Hereinafter in this bench opinion, unless 20 otherwise specified, section references are to the 21 Internal Revenue Code of 1986, as amended, in effect 22 for 2005 . Rule references are to the Tax Court Rules 23 of Practice and Procedure . 24 Simon Tanta (Petitioner) appeared pro se . 25 Anna A . Long appeared on behalf of Respondent . There Heritage Reporting Corporatio n (202) 628-4888 4 1 was no appearance by or on behalf of Esthela J . 2 Becerra, and she did not sign the stipulation of facts 3 admitted into evidence . The case will be dismissed as 4 to her . The decision entered with respect to her wil l 5 reflect the resolution of the issues considered in 6 this bench opinion . 7 In a notice of deficiency dated August 19 8 2008, Respondent determined a $4,020 deficiency i n Petitioners' 2005 federal income tax . The issues fo r 10 decision are : (1) Whether Petitioners are entitled to 11 an itemized deduction for unreimbursed employe e 12 business expenses ; and (2) whether Petitioners are 13 entitled to an itemized deduction for charitable 14 contributions . 15 Some of the facts have been stipulated an d 16 are so found . At the time the petition was filed 17 Petitioners resided in California . 18 During 2005 Petitioner was a sales associate 19 for DriveTime Car Sales and Finance Corp . 20 (DriveTime), a company engaged in the business o f 21 selling and financing used cars . He began working for 22 DriveTime in 2002 . Esthela J . Becerra was als o 23 employed by DriveTime during 2005 -- for the first 24 half of the year as a sales associate and for the 25 remainder of the year as a sales manager . Heritage Reporting Corporation (202) 628-4888 5 1 Petitioner apparently was good at his 2 profession . During 2005 he sold more than 19 0 3 automobiles, which sales generated sales proceeds 4 exceeding $2 million . For his efforts he was pai d commission (he was compensated exclusively by commissions) totaling over $96,000 . 7 During the period of 2005 that Esthela J . 8 Becerra worked as a .sales associate for DriveTime, she 9 sold approximately 50 cars . We assume that like 10 Petitioner her compensation as a sales associate was 11 limited to commissions, but we have no informatio n 12 regarding how she was paid as a sales manager, and we 13 have no way of allocating her compensation fro m 14 DriveTime ($34,717) between the two types of jobs . 15 With respect to her, we assume that her experiences as 16 a sales associate were similar to Petitioner's . 17 DriveTime's customer base consisted 18 primarily of individuals who had little or no 19 potential to obtain credit . The cars sold by 20 Petitioners generally were five to six years old and 21 were sold in the $10,000 price range . Many sales were 22 transacted with a small or no down payment . All o f 23 the sales transactions took place in California . 24 From time to time, Petitioner would pick up 25 a potential customer who had no other way of getting Heritage Reporting Corporatio n (202) 628-4888 6 1 to DriveTime's car lot . . Sometimes Petitioner would 2 use a company car and sometimes he would use his ow n 3 car . Sometimes he would pick up a potential customer 4 from another car dealer and sometimes he woul d 5 transport a customer to and from the customer's house . 6 Some of the customers who bought cars from 7 DriveTime were referred to DriveTime by other ca r 8 dealers or car salespersons . In those instances , 9 DriveTime paid a referral fee that ranged from $100 to 10 $300 to the other car dealership, or salesperson, as 11 appropriate . In those instances where .DriveTime paid 12 less than a $300 referral fee, Petitioner, in order to 13 attract or ensure continued referrals, would sometimes 14 pay (in cash) the difference between what DriveTim e 15 paid and $300 . By stipulation, the parties agree that 16 the practice of paying such referral fees , 17 particularly in cash, is illegal in California, 18 although during 2005, neither Petitioners nor 19 DriveTime were aware that it was . 20 From time to time during 2005 Petitione r 21 purchased meals for DriveTime's customers or potential 22 customers . Furthermore, it was not unusual for him to 23 treat DriveTime's customers or potential customers to 24 various items sold in the company's vending machines . 25 Petitioner kept no written records of the amounts h e Heritage Reporting corporation (202) 628-4888 1 spent for these meals or snacks . 2 Petitioners' 2005 joint federal income tax 3 return was timely filed . Their return was prepared by 4 a paid income tax return preparer . As relevant here , 5 included with that return is a Schedule A, Itemized Deductions, on which deductions of $36,959 for unreimbursed employee business expenses and $3,859 fo r 8 charitable contributions are claimed . The amount just 9 referenced for unreimbursed employee business expenses 10 is before the reduction required by Section 67(a) . 11 The deduction for charitable contributions 12 consists . of amounts shown as cash contributions , 13 $3,360, and donations of property, $499 . No donee is 14 identified on-the return for either type o f 15 contribution. 16 There are two Form 2106, Employee Business 17 Expenses, one for each Petitioner, included wit h 18 Petitioners' 2005 return . These forms show that the 19 unreimbursed employee business expense deductio n 20 consist of three elements : (1) .Vehicle expenses 21 (including tolls, et cetera) computed with reference 22 to miles driven ; (2) meals, which presumably includes 23 the cost of items purchased from vending machines ; and 24 (3) the referral fees . 25 In the notice of deficiency Respondent Heritage Reporting Corporatio n (202) 628-4888 8 1 disallowed the unreimbursed employee business expenses 2 deduction and the charitable contribution deduction . 3 The adjustment allowing the standard deduction in lieu 4 of other itemized deductions, and the adjustment 5 reducing the alternative minimum tax shown on th e 6 Petitioners' 2005 return also shown in the notice of 7 deficiency are computational and need not b e 8 discussed . 9 The issues in this case involve disallowed 10 deductions . As we have observed in countles s 11 opinions, deductions are a matter of legislativ e 12 grace, and generally the taxpayer bears the burden of 13 proof to establish entitlement to any claimed 14 deduction . Section 7491(a) ; Rule 142(a) : INDOPCO, 15 16 Inc . v . Commissioner , 503 U .S . 79, 84 (1992) ; New Colonial Ice Co . v . Helvering , 292 U .S . 435, 440 17 (1934) . 18 The taxpayer's burden requires the taxpayer 19 (1) to identify a specific statute that allows for the 20 deduction claimed and (2) to substantiate any suc h 21 deduction by keeping and producing for the 22 Commissioner's inspection adequate records that show 23 the expense has been paid or incurred . Section 6001 ; 24 Hradesky v . Commissioner , 65 T .C . 87, 90 (1975) , 25 affirmed per curiam 540 F .2d 821 (5th Circuit 1976) ; Heritage Reporting Corporatio n (202) 628-4888 9 1 Meneguzzo v . Commissioner 43 T .C . 824, 831-832 (1965) . 2 1 . Unreimbursed Employee Business Expense 3 Deductio n 4 In general, a taxpayer is entitled to a 5 deduction for all ordinary and necessary expenses paid 6 or incurred during the taxable year in carrying on a 7 trade or business . See Section 162(a) . The ter m 8 "trade or business" as used in Section 162(a) includes 9 the trade or business of being an employee . Primuth 10 11 v . Commissioner , 54 T .C . 374, 377 (1970) ; Christensen v . Commissioner , 17 T .C . 1456 (1952) . 12 An ordinary expense is one routinel y 13 incurred in transactions that commonly occur in the 14 type of business involved . Deputy v . DuPont , 308 U .S . 15 488, 495 (1940) . A necessary expense is one that is 16 "appropriate and helpful" to the taxpayer's business . 17 Welch v . Helverinc{ , 290 U .S . 111 (1933) . State d 18 differently, to be deductible the expense must be 19 "directly connected with or pertaining to th e 20 taxpayer's trade or business" . See 1 .162-1(a), Income 21 Tax Regs . 22 There is a suggesting in Respondent' s 23 pretrial memorandum that the expenses that underlie 24 the unreimbursed employee business expenses deduction 25 are not "ordinary or necessary" because there is n o Heritage Reporting Corporation (202) 628-4888 1 0 1 showing that DriveTime required Petitioners to incu r 2 or pay such expenses . We agree that the record hardly 3 supports such a finding, but point out that employe e 4 business expenses may also be deducted if an employee 5 is expected, in connection with his or her employment, 6 to pay or incur the expenses without reimbursement . 7 See Dunkelberger v . Commissioner , T .C . Memo . 1992-723 . 8 Although only by the slimmest of margins, we 9 think the record supports a finding that Petitioner s 10 were "expected" as a condition of employment to pay or 11 incur, without reimbursement, the types of expense s 12 that underlie the deduction . That finding, however, 13 is, in and of itself, not sufficient to allow the 14 deduction as claimed . 15 Each component of the deduction is subject 16 to other sections of the Internal Revenue Code . The 17 portion of the deduction attributable to vehicl e 18 expenses and meals is subject to Section 274, which 19 requires strict written substantiation before such 20 expenses may be deducted . 21 In an attempt to satisfy the requirements of 22 Section 274 with respect to vehicle expenses, tw o 23 mileage logs were introduced into the record . Each on 24 its face contains information that, if reliable, would 25 satisfy the substantiation requirements set forth i n Heritage Reporting Corporation (202) 628-4888 11 1 Section 274 and related regulation . The mileage logs , 2 however , are far less than- reliable . 3 First, neither was made contemporaneously 4 with the events recorded . Second, and more 5 importantly , the mileage logs suggest that i n 6 substantially all of the sales transactions involvin g 7 Petitioners the customer was "picked up" by one or the other of them . The mileage longs further suggest tha t 9 except on rare occasions, neither Petitioner "picked 10 up" an individual who did not purchase a car fro m 11 DriveTime . We find it highly unlikely that the 12 mileage logs reflect actual events, and find n o 13 support in the mileage logs for the portion of the 14 deduction attributable to vehicle expenses . 15 Meals expenses are also subject to the 16 strict substantiation requirements of Section 274 . 17 Petitioner readily admitted that no written records of 18 these expenses were either kept or produce fo r 19 Respondent's inspection, consequently no deduction for 20 meals expense may be allowed . 21 There is some question whether the expenses 22 incurred for vending machine snacks should be included 23 in the definition of meals for purposes of Sectio n 24 274, but that question is purely academic in this 25 case . Petitioner estimated that during 2005 those Heritage Reporting Corporatio n (202) 628-4888 1 2 1 expenses totaled no more than $500 and even i f 2 allowed, the expenses would not exceed the limitations of Section 67 (a) . 4 The remaining portion of the deduction i s 5 attributable to referral fees . Petitioner stipulate d that such fees are illegal in California . We view 7 that stipulation to be a concession that Petitioners are not entitled to a deduction for whatever referra l 9 fees were paid by them during 2005 . See Section 10 162(c)(2) . 11 It follows that Petitioners are not entitle d 12 to the unreimbursed employee business expenses 13 deductions claimed on their 2005 return and 14 Respondent's disallowance of that deduction is, 15 sustained . 16 2 . Charitable Contributions Deductio n 17 In general, a taxpayer is allowed to deduct 18 any contributions or gifts made to qualifyin g 19 organizations for their use . See Section 170(a) . 20 Section 1 .170A-13(a)(1), Income Tax Regs ., requires 21 that charitable contribution deductions, whether made 22 by cash or otherwise, be substantiated by at least one 23 of the following : (1) A canceled check ; (2) a receipt 24 or letter from the donee charitable organizatio n 25 showing the name of the donee, the date of the Heritage Reporting Corporation (202) 628-4888 1 3 1 contribution , and the amount of the contribution ; or 2 (3)-in the absence of a canceled check, receipt o r 3 letter from the donee charitable organization, other 4 reliable written records showing the name of th e 5 donee, the date of the contribution , and the amount of 6 the contribution . 7 Petitioner readily admitted that no such 8 written records . were maintained . He had n o 9 recollection of any property donations, and he did not 10 identify the donee or donees to which any of th e 11 contributions might have been made . Petitioners are 12 not entitled to a deduction for charitabl e 13 contributions , and Respondent ' s disallowance of that 14 deduction is sustained . 15 To reflect the foregoing, an appropriate 16 order dismissing the case as to Esthela J . Becerra 17 will be issued and decision will be entered fo r 18 Respondent . 19 This concludes the Court ' s oral findings of 20 fact and opinion in this case . 21 (Whereupon , at 9 :20 a .m ., the bench opinion . 22 in the above - entitled matter was concluded . ) 23 24 25 Heritage Reporting Corporation (202) 628-4888