TAX COURT OPINION

Case: Rebecca Moorman Thompson
Docket Number: 23525-07S
Judge: Colvin
Opinion Type: bench
Filed: 07/14/2008
Pages: 9

UNITED STATES TAX COUR T WASHINGTON , D .C . 2021 7 REBECCA MOORMAN THOMPSON , Petitioner, ) Docket No . 23525-07S v . COMMISSIONER OF INTERNAL REVENUE, Respondent, O 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 petitioner and to respondent a copy of the pages of the transcript of the trial of the above case before Judge Diane L . Kroupa at Memphis, Tennessee on June 11, 2008, containing her oral findings of fact and opinion rendered after the conclusion of trial . In accordance with the oral findings of fact and opinion, decision will be entered for respondent . (Signed) Diane L . Kroupa Judg e Dated : Washington, D .C . July 14, 2008 SERVED Y& 14 2 1 Bench Opinion by Judge Diane L . Kroupa June 11, 2008 2 Thompson v . Commissioner Docket No . 23525-07S 3 4 THE COURT : The Court has decided to render 5 oral findings of fact and opinion in this case, an d 6 the following represents the Court's oral findings of 7 fact and opinion . These oral findings of fact an d 8 opinion shall not be relied upon as precedent in any 9 other case . 10 This proceeding was conducted as a Small Tax 11 Case pursuant to section 7463 and Rules 170 throug h 12 175 . This bench opinion is made pursuant to the 13 authority granted by section 7459(b) and Rule 152 . 14 All section references are to the Internal Revenue 15 Code in effect for 2003, and all rule references are 16 to the Tax Court Rules of Practice and Procedure . 17 Charles D . Harrison appeared for petitioner, 18 and Caroline R . Krivacka appeared for respondent . 19 FINDINGS OF FAC T 20 Certain facts have been stipulated . The 21 stipulation of facts the parties filed, wit h 22 accompanying exhibits, is incorporated by this 23 reference, and the facts are so found . 24 Petitioner resided in Arkansas at the time 25 she filed the petition . Heritage Reporting Corporation (202) 628-4888 3 1 Petitioner timely filed a return for 2003 , 2 prepared by Susan Boyer of Susanstax, Inc . in Kingston 3 Springs , Tennessee . Ms . Boyer, also known as Susa n 4 Sperl, became petitioner's mother-in - law in 2004 when 5 petitioner married Randall Thompson, Ms . Boyer's son . 6 Ms . Boyer , Susanstax, Inc ., and Randall Thompson are 7 being charged in the United States District Court for 8 the Middle District of Tennessee for injunctive relief 9 for violations of sections 6700 and 6701 regardin g 10 promotion of abusive tax shelters and penalties for 11 aiding and abetting the understatement of ta x 12 liabilities (Docket 3 :06-0175) . The lawsuit alleges 13 that the three defendants prepared grossly inaccurate 14 income tax returns in 2002, 2003 and 2004 . The 15 lawsuit is currently pending . 16 Petitioner reported $ 15,865 of wages and 17 $4,830 of unemployment income on the original return, 18 yet claimed a $13,011 loss on Schedule C, entitled 19 Profit or Loss From Business, for a business labeled 20 "music ministries ." The Schedule C reflects $7,000 of 21 income and $20,011 of expenses including $10,985 car 22 and truck expenses, $5,000 commissions , $ 2,964 of meal 23 and entertainment , and $515 of utilities . 24 Petitioner provided no contemporaneous 25 records but provided a reconstructed travel log as Heritage Reporting Corporation (202) 628-4888 4 1 well as her travel expense records maintained by her 2 employer . Examinations apparently allowed 30 percent 3 of the claimed car and truck expense, even thoug h 4 there were instances in which petitioner was in two 5 places at the same time according to the documents 6 petitioner provided to Exams . 7 Petitioner submitted little or inadequate 8 documentation for the majority of the claime d 9 expenses . Petitioner failed to submit an y 10 documentation regarding the $5,000 commission expense, 11 but the claimed meal expense was apparently based on 12 the Federal per diem rate for each day of travel . No 13 documentation was presented regarding the utilities 14 expense, but it appears to be a claimed charitabl e 15 contribution . 16 Petitioner failed to respond to informal 17 discovery . On May 16, 2008, however, petitioner 18 submitted an unsigned copy of an amended return , 19 prepared by "Vision Tax Solutions, Inc .," which is an 20 entity owned by Susan Sperl, petitioner's now mother- 21 in-law . The amended return differs from the original 22 return in that petitioner concedes the commissio n 23 expense and the utility expense in their entirety, and 24 concedes all but $810 of meal expenses, and $6,034 of 25 car and truck expenses . Based on the amount of ca r Heritage Reporting Corporation (202) 628-4888 5 1 and truck expenses claimed, petitioner claims sh e 2 drove almost 38,000 miles between her Schedule C miles 3 and her employee miles, leaving only 882 miles a s 4 personal miles . 5 The amended return also claims additiona l 6 Schedule C expenses not previously examined as well as 7 new itemized expenses on Schedule A not claimed on the 8 original return . For example, petitioner claim s 9 $8,421 of charitable contributions and $3,785 of 10 unreimbursed employee business expenses . The 11 charitable contribution deduction includes ga s 12 expenses petitioner paid for a non-profit entity known 13 as Mercy House, a residential house for men suffering 14 from alcohol and drug addiction . 15 Respondent determined a $2,710 deficiency 16 against petitioner for 2003 and determined tha t 17 petitioner was liable for a $542 accuracy-related 18 penalty under section 6662 . Respondent made these 19 determinations in a statutory notice of deficiency 20 dated July 16, 2007 . 21 Petitioner timely filed a petition, yet 22 failed to make any specific allegation of errors 23 regarding respondent's determinations in the 24 deficiency notice . The petition merely asserts that 25 "IRS has refused to work with taxpayer even though Heritage Reporting Corporatio n (202) 628-4888 6 1 taxpayer has provided receipts and information 2 requested of [her]" instead of them as in the 3 petition . 4 OPINION 5 This is primarily a substantiation cas e 6 where we must determine whether petitioner is entitled 7 to the claimed Schedule C expenses and the Schedule A 8 itemized deductions petitioner asserts on the proposed 9 amended return as well as whether petitioner is liable 10 for the accuracy-related penalty for 2003 . 11 We begin with two fundamental principles of 12 tax litigation . First, the Commissioner' s 13 determinations are generally presumed correct, and the 14 taxpayer bears the burden of proving that thos e 15 determinations are erroneous . Rule 142(a) . Thi s 16 principle is not affected by section 7491(a) because 17 petitioner failed to comply with the substantiation 18 requirements and failed to maintain adequate records . 19 See sec . 7491(a) (2) (A) and (B) ; see also Higbee v . 20 Commissioner , 116 T .C . 438 (2001) . 21 Second, deductions are a matter o f 22 legislative grace, and the taxpayer must show that he 23 or she is entitled to any deduction claimed . Rule 24 142(a) ; Deputy v . duPont , 308 U .S . 488, 493 (1940) ; 25 Welch v . Helvering , 290 U .S . 111 (1933) . This Heritage Reporting Corporatio n (202) 628-4888 7 1 includes the burden of substantiation . Hradesky v . 2 Commissioner , 65 T .C . 87, 90 ( 1975 ), affd . per curiam 3 540 F .2d 821 (5th Cir . 1976 ) . Substantiation mean s 4 that a taxpayer shall keep such permanent records or 5 books of account as are sufficient to establish the 6 amount of deductions claimed on the return . Sec . 7 6001 ; sec . 1 .6001-1(a), (e), Income Tax Regs . The 8 Court need not accept a taxpayer's self-servin g 9 testimony when the taxpayer fails to present other 10 probative evidence . Beam v . Commissioner , T .C . Memo . 11 1990-304 (citing Tokarski v . Commissioner , 87 T .C . 74, 12 77 (1986) . 13 Although the Cohan rule allows the Court in 14 certain situations to approximate the amount o f 15 allowable deductions, no such circumstances exis t 16 here . Cohan v . Commissioner , 39 F .2d 540, 543-544 (2d 17 Cir . 1930) . We must have some basis upon which a n 18 estimate may be made . Vanicek v . Commissioner , 85 19 T .C . 731, 743 (1985) . Without such a basis, any 20 allowance would amount to unguided largesse . Williams 21 v . Commissioner , 245 F .2d 559, 560 (5th Cir . 1957) . 22 In addition , certain expenses, such as those 23 for listed expenses , which includes car and truc k 24 expenses , may not be estimated , because of the strict 25 substantiation requirements mandated by section Heritage Reporting Corporatio n (202) 628-4888 8 1 274(d) . See sec . 280F (d) (4) (A) ; Sanford v . 2 Commissioner , 50 T .C . 823, 827 (1968), affd . per 3 curiam 412 F .2d 201 (2d Cir . 1969) . For suc h 4 expenses , only documentary substantiation will 5 suffice . 6 We now apply these rules to the facts here . 7 First and foremost, we find the record and testimony 8 of petitioner to be incredible . On the origina l 9 return, petitioner claimed expenses of $20,011 when 10 she only reported gross income of $27,695, whic h 11 allowed her very little, if any, remaining income on 12 which to live . By preparing the amended return , 13 petitioner concedes that the expenses claimed on the 14 original return were incorrect . The situation does 15 not improve with the amended return, however . If we 16 were to believe that petitioner reported all income 17 and that the expenses claimed were accurate, we would 18 have to find that every penny petitioner spent wa s 19 deductible . This we refuse to do . We also refuse to 20 find that petitioner drove approximately 38,000 miles 21 during 2003 . It is common knowledge that mos t 22 taxpayers generally put 10- to 12,000 miles on a 23 vehicle in a year . Petitioner would have us believe, 24 however, that she put three times that amount on a 25 vehicle in 2003 . In addition, only 882 miles were for Heritage Reporting Corporatio n (202) 628-4888 9 1 personal, nondeductible use . We find that petitioner 2 is only entitled to the deductions allowed in Exams . 3 Accordingly, we sustain respondent's determination in 4 the deficiency notice regarding the deficiency . 5 We turn now to respondent's determination 6 that petitioner is liable for an accuracy-related 7 penalty . Petitioner did not challenge the imposition 8 of the accuracy-related penalty in the petition . 9 Accordingly, petitioner has conceded this issue . See 10 Swain v . Commissioner , 118 T .C . 358 (2002) . 11 To reflect the foregoing, decision will be 12 entered for respondent . 13 This concludes the Court's oral findings of 14 fact and opinion in this case . 15 (Whereupon, at 10 :05 a .m ., the bench opinion 16 in the above-entitled matter was concluded . ) 17 18 19 20 21 22 23 2 4 25 Heritage Reporting Corporation (202) 628-4888