TAX COURT OPINION

Case: Coriann M. Bright
Docket Number: 11183-19
Judge: Kerrigan
Opinion Type: bench
Filed: 11/18/2020
Pages: 12

UNITED STATES TAX COURT WASHINGTON, DC 20217 CORIANN M. BRIGHT, Petitioner(s), v. ) ) ) ) ) Docket No. 11183-19. SR COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) 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 Kathleen Kerrigan at San Francisco, California (Remote), containing her 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 under Rule 155. (Signed) Kathleen Kerrigan Judge Dated: Washington, D.C. November 18, 2020 SERVED Nov 19 2020 RECEIVED 11/18/20 IN THE UNITED STATES TAX COURT In the Matter of: CORIANN M. BRIGHT, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) Docket No. 11183-19 ) ) ) ) ) ) ) ) Pages: 1 through 10 Place: San Francisco, California (Remote Proceeding) Date: November 13, 2020 IN THE UNITED STATES TAX COURT In the Matter of: CORIANN M. BRIGHT, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) Docket No. 11183-19 ) ) ) ) ) ) ) ) & U.S. Cthse. Burton Federal Bldg. 450 Golden Gate Avenue Room 2-1408, 2nd Floor San Francisco, California 94102 (Remote Proceeding) November 13, 2020 The above-entitled matter came on for bench opinion, pursuant to notice at 1:00 p.m. BEFORE: HONORABLE KATHLEEN KERRIGAN Judge APPEARANCES: For the Petitioner: No Appearance For the Respondent: No Appearance 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 P R O C E E D I N G S 2 (1:00 p.m.) THE CLERK: Calling docket number 11183-19, Coriann M. Bright. (Whereupon, a bench opinion was rendered.) 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 3 1 2 3 4 5 6 7 8 9 Bench Opinion by Judge Kathleen Kerrigan November 13, 2020 Coriann M. Bright v. Commissioner of Internal Revenue Docket No. 11183-19 THE COURT: The Court has decided to render in this case the following as its oral findings of fact and opinion, which shall not be relied upon as precedent in any other case. This Bench Opinion is made pursuant to the authority granted by section 7459(b) of the Internal 10 Revenue Code and Rule 152 of the Tax Court Rules of 11 Practice and Procedure. Unless otherwise indicated, all 12 section references are to the Internal Revenue Code in 13 effect for the year in issue, and all Rule references are 14 15 to the Tax Court Rules of Practice and Procedure. Respondent determined a deficiency of $4,863 in 16 petitioner's Federal income tax and a penalty pursuant to 17 18 section 6662(a) for tax year 2016. The deficiency arose from respondent's adjustments to travel expenses and car 19 and truck expenses reported on petitioner's Schedule C, 20 Profit or Loss From Business. Petitioner concedes the car 21 and truck expenses. The remaining issues for 22 consideration are whether petitioner was (1) entitled to 23 travel expenses as reported on her Schedule C and (2) 24 25 liable for the accuracy-related penalty under section 6662(a). e o oers Trial of this case was conducted on November 9, 4 2020, during a remote San Francisco, California trial session. Petitioner represented herself and Nathan C. Johnston represented respondent. The parties' stipulation of facts and accompanying exhibits were admitted into evidence. Petitioner was the only witness. We find the following facts: FINDINGS OF FACT Petitioner resided in California when she timely 1 2 3 4 5 6 7 8 9 10 filed her petition. During the tax year at issue, 11 Petitioner ran a design business under the name "Bright 12 Living Organization + Design." Petitioner incorporated 13 mindfulness and principles of feng shui into her design 14 work. She received training in these practices throughout 2016. 15 16 Additionally, petitioner sought out business 17 OPportunities, such as a project with Overstock.com, Inc. 18 (Overstock). The project with Overstock involved the 19 sourcing of artisan products from around the world, and it 20 was related to the work petitioner did for her own design 21 business. The project was not completed and did not 22 result in petitioner entering into a contract with 23 Overstock. 24 25 On her 2016 income tax return, petitioner reported $8,991 in travel expenses in connection with her design business. These claimed expenses consisted of flights, hotel stays, and meals associated with Petitioner's trips to Mexico, Egypt, and Japan, as well as several domestic trips. The trip to Mexico was for a 5 seminar conducted by Yadira Albarran. On June 8, 2018, the examination agent's direct supervisor signed and issued a 30-day letter to Petitioner and asserted the section 6662(a) penalty. On November 14, 2018, the same supervisor signed a civil 1 2 3 4 5 6 7 8 9 10 penalty approval form. aespondent issued the notice of 11 deficiency on April 4, 2019. 12 13 14 15 OPINION Generally, the Commissioner's determinations in a notice of deficiency are presumed correct, and a taxpayer bears the burden of proving those determinations 16 are incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 17 111, 115 (1933). Petitioner has neither claimed nor shown 18 that she meets the specifications of section 7491(a) to 19 shift the burden of proof to respondent as to any relevant 20 factual issue. 21 Travel Expenses 22 Section 162(a) allows a taxpayer to deduct all 23 ordinary and necessary expenses paid or incurred in 24 carrying on a trade or business. An ordinary expense is 25 one that commonly or frequently occurs in the taxpayer's . Cnre 6 business, Deputy v. du Pont, 308 U.S. 488, 495 (1940), and a necessary expense is one that is appropriate and helpful in carrying on the taxpayer's business, Welch v. Helvering, 290 U.S. at 113; sec. 1.162-1(a), Income Tax Regs. A taxpayer may not deduct a personal, living, or family expense unless the Code expressly provides otherwise. Sec. 262(a). Deductions are a matter of legislative grace, and a taxpayer must prove his or her entitlement to a deduction. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). To that end, taxpayers are required to 1 2 3 4 5 6 7 8 9 10 11 12 13 substantiate each claimed deduction by maintaining records 14 sufficient to establish the amount of the deduction and to 15 16 17 18 enable the Commissioner to determine the correct tax liability. Sec. 6001; see also Higbee v. Commissioner, 116 T.C. 438, 440 (2001). Normally, the Court may estimate the amount of a 19 deductible expense if a taxpayer establishes that an 20 expense is deductible but is unable to substantiate the 21 precise amount. See Cohan v. Commissioner, 39 F.2d 540, 22 23 24 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985). This principle is often referred to as the Cohan rule. See, e.g., Estate of Reinke v. 25 Commissioner, 46 F.3d 760, 764 (8th Cir. 1995), aff'g T.C. 9733406-2250loperations@esaibersnet|www.escribersaet Memo. 1993-197. Certain expenses specified in section 7 274, such as travel expenses, including meals and lodging, are subject to heightened substantiation requirements. Sec. 274(d)(1). To meet the heightened substantiation requirements, a taxpayer must substantiate by adequate records or by sufficient evidence the amount, time of use, and business purpose of the expense. Sec. 274(d). To substantiate by adequate records, the taxpayer must 1 2 3 4 5 6 7 8 9 10 provide (1) an account book, a log, or a similar record 11 and (2) documentary evidence, which together are 12 sufficient to establish each element of an 13 expenditure. Sec. 1.274-5T(c)(2)(i), Temporary Income Tax 14 Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985). Documentary 15 16 17 evidence include receipts, paid bills, or similar evidence. Sec. 1.274-5(2)(iii), Income Tax Regs. Petitioner contends that she is entitled to 18 deductions for travel expenses because the trips were 19 related to her business. From the materials petitioner 20 provided about her trips, it is unclear which portions of 21 the trips pertained to her business. For example, the 22 brochure for the trip to Mexico shows that massages and 23 excursions were included. We were unable to determine the 24 amount of the cost of her trips that pertained to business 25 expenses. Accordingly, petitioner did not meet the 8 requirements of section 274 and is not entitled to deduct the claimed travel expenses. sec. 6662(a) Penalty Respondent bears the burden of production with respect to the penalty imposed by section 6662(a). Sec. 7491(c). This burden of production includes producing evidence that respondent has complied with the procedural requirements of section 675100). Frost v. Commissioner, 154 T.C. , (slip op. at 20) (Jan. 7, 2020). Once respondent meets this burden, the taxpayer must come forward with contrary evidence. Id. Respondent must show compliance with section 6751(b)(1), which requires that certain expenses be 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Personally approved in writing by the immediate supervisor 15 of the individual making the determination. See Graev v. 16 Commissioner, 149 T.C. 485, 493 (2017), supplementing and 17 overruling in part 147 T.C. 460 (2016). Respondent has 18 satisfied his burden of production with regard to the 19 supervisory approval requirement of section 675103) (and 20 Petitioner does not contend otherwise). see Flume v. 21 Commissioner, T.C. Memo. 2020-80, at *34. 22 section 6662(a) imposes a 20 percent accuracy- 23 related penalty on any portion of an underpayment of tax 24 25 required to be shown on a return if, as provided by section 6662 03)(1), the underpayment is attributable to (973)406-2250joperations@escribers.net|www.escribersaet 9 "[n]egligence or disregard of rules or regulations." Negligence includes "any failure to make a reasonable attempt to comply" with the internal revenue laws and "disregard" includes "any careless, reckless, or intentional disregard." Sec. 6662(c). The accuracy-related penalty does not apply with respect to any portion of the underpayment for which the taxpayer shows that he or she had reasonable cause and acted in good faith. Sec. 6664(c)(1); see Higbee v. 1 2 3 4 5 6 7 8 9 10 Commissioner, 116 T.C. at 446-447. Petitioner did not act 11 with intentional disregard for rules and regulation. She 12 acted in good faith. Accordingly, petitioner is not 13 14 15 liable for the section 6662(a) penalty for 2016. This concludes the Court's oral Findings of Fact and Opinion in this case. A decision will be entered 16 pursuant to Rule 155. (Whereupon, at 1:10 p.m., the above-entitled matter was concluded.) 17 18 19 20 21 22 23 24 25 CERTIFICATE OF TRANSCRIBER AND PROOFREADER 10 CASE NAME: Coriann M. Bright v. Commissioner DOCKET NO.: 11183-19 We, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 10 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Troy Ray on November 13, 2020 before the United States Tax Court at its remote session in San Francisco, CA, in accordance 1 2 3 4 5 6 7 8 9 10 with the applicable provisions of the current verbatim 11 12 reporting contract of the Court and have verified the accuracy of the transcript by comparing the typewritten 13 transcript against the verbal recording. 14 18 19 20 21 22 23 24 25 Amy Parnell, CDLT-179 Transcriber 11/17/20 Date Traci Fine, CDLT-169 Proofreader 11/17/20 Date