TAX COURT OPINION

Case: Virginia L. Pearce
Docket Number: 13287-15S
Judge: Holmes
Opinion Type: bench
Filed: 11/14/2016
Pages: 6

UNITED STATES TAX COURT WASHINGTON, DC 20217 VIRGINIA L. PEARCE, Petitioner(s), v. COMMISSIONER OF INTERNAL REVENUE, Respondent cz ) ) ) ) ) Docket No. 13287-15S. ) ) ) ) ) ) ) ) ) ORDER 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 to respondent a copy of the pages of the transcript of the trial in the above case before Judge Mark V. Holmes at El Paso, Texas, on November 1, 2016, 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 for respondent will be entered. (Signed) Mark V. Holmes Judge Dated: Washington, D.C. November 14, 2016 SERVED Nov 15 2016 Capital Reporting Company 3 1 2 Bench Opinion by Judge Mark V. Holmes November 1, 2016 3 Virginia L. Pearce v. Commissioner 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Docket No. 13287-15S In the case of Virginia L. Pearce v. Commissioner, Docket Number 13287-15S, the Court has decided to render oral findings of fact and opinion, and the following is the Court's oral findings of fact and opinion. This bench opinion is made pursuant to the authority granted by Section 7459(b) of the Internal Revenue Code of 1986, as amended, and Rule 152 of the Tax Court's Rules of Practice and Procedure. Now, this case involves the 2011 tax bill for Ms. Pearce, a resident of Texas when she filed the petition and through to this day. All the deductions at issue are on her Schedule A. The parties were able to reach a stipulation; together 19 with her testimony it constitutes the record of the case. 20 21 The first deduction that I'll discuss this 22 morning is her medical-expense deduction of $10,462. 23 When examined, Ms. Pearce had no idea where these 24 25 numbers came from, and I don't find credible her explanation that maybe she had surgery in 2011. I 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 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 think a reasonable person would have remembered that. In any event, the records that did get produced by her were of her pay stubs from her former employment as a teacher. She claims that the amount of money withdrawn from each -- during each pay period for health and dental insurance costs should be deductible as medical or dental expenses. These added up nowhere near close to $10,000, and I have no reason to doubt the validity of the pay stubs. They also included none of the information required by 26 CFR.Section 1.213-1(h) for the deductibility of medical expenses. It appears that, like many working Americans, she had pretax deductions for the cost of her medical insurance and, of course, in order for a taxpayer to deduct payments for medical insurance premiums under Section 213, those premiums must have been paid with money that was included in the taxpayer's gross taxable income. See, e.g., Adams v. Commissioner, TC Memo 2013-92, 105 TCM 1555 (2013) and cases cited therein. In other words, the Commissioner wins on the medical deductions. Ms. Pearce also had numerous miscellaneous deductions. These were her unreimbursed employee business expenses and totaled $15,632. They're 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 9 broken down into car expenses, travel, meals and entertainment, and '.'business expenses." She testified that she just assumed teachers were entitled to such expenses. Of course, like everybody else, they have to prove them up, so there's no teachers' exception to the general rule of keeping records and proving deductions. Moreover, she had no backup whatsoever for any of these deductions. For some of them, 10 particularly the car expenses, the travel, and the 11 meals and entertainment, Ms. Pearce runs as well into 12 13 14 Section 274(d) of the Code. This section prescribes additional substantiation requirements that a taxpayer has to 15 meet before certain categories of expenses, as 16 17 18 19 20 21 22 23 24 25 defined by Section 280F(d)(4) (A), can be deducted. The listed property in that section includes passenger automobiles. See Section 280F(d) (4) (A) (I). To satisfy the requirements of Section 274(d), a taxpayer generally must maintain adequate records or produce sufficient evidence corroborating her own statement which, in combination, are sufficient to establish the amount, date and time, and business purpose for each expenditure or business use of the listed property or category of expense. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 Her more than 16,000 miles that she said she put on her car for business consisted only of commuting. This is a person expense, not deductible. Her travel deductions had no substantiation 5 whatsoever; same with her meals and entertainment: 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 no contemporaneous records, none of the detailed information required for deductibility for such expenses. That left the category of "business expenses." Perhaps these were not subject embencedpataae substantiation, but again her case was devoid to es of any records whatsoever and indeed only the vaguest description of what her expenses were. Finally, there was the very odd claim that was not unique to Ms. Pearce, that she did not have to provide any documents for these unreimbursed employee business expenses because this issue was outside the scope of the examination audit, by which she means it was not a box checked on a letter 566 sent to her at the beginning of the audit. Truly I have never heard of this argument before. It has no basis in law. That which the IRS gets interested in is not that which the IRS might in the end determine in a notice of deficiency is a problem with a taxpayer's return. And of course once 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 you get to Tax Court, all bets are off, and either side can prove what the correct amount of tax liability is, quite without regard to whatever the audit was prompted by in the first place. Decision will be entered for Respondent in this one. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 9:12 a.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 25 866.488.DEPO www.CapitalReportingCompany.com