TAX COURT OPINION

Case: Andrew Ryan Barker
Docket Number: 22634-17S
Judge: Nega
Opinion Type: bench
Filed: 11/08/2018
Pages: 8

SD UNITED STATES TAX COURT WASHINGTON, DC 20217 ANDREW RYAN BARKER, Petitioner, v. ) ) ) ) Docket No. 22634-17S. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant to Rule 152(b) of the Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit to petitioner and to respondent a copy of the pages of the transcript of the proceedings in the above case before Judge Joseph W. Nega at Columbus, Ohio, on October 23, 2018, 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, decision will be for respondent. (Signed) Joseph W. Nega Judge Dated: Washington, D.C. November 8, 2018 SERVED Nov 15 2018 Bench Opinion by Judge Joseph W. Nega October 23, 2018 3 Andrew Ryan Barker v. Commissioner of Internal Revenue Docket No. 22634-17S THE COURT: The Court has decided to render oral findings of fact and opinion in this case. The following represents the Court's oral findings of fact and opinion. This bench opinion is made pursuant to section 7459(b) and Rule 152. This case was a small tax case subject to the 1 2 3 4 5 6 7 8 9 10 provisions of section 7463 and Rules 170 through 174. 11 Pursuant to section 7463(b), the decision to be entered is 12 13 14 15 not reviewable by any other court, and this opinion shall not be treated as precedent for any other case. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year at issue, and 16 all Rule references are to the Tax Court Rules of Practice 17 18 and Procedure. Petitioner Andrew Ryan Barker appeared pro se. 19 Richard L. Wooldridge appeared on behalf of respondent. 20 21 FINDINGS OF FACT This case was tried on October 22, 2018, in 22 Columbus, Ohio. Petitioner resided in Ohio when he filed 23 24 the petition. During 2014 Petitioner operated a business, MPS 25 Consulting, as a sole proprietorship. Petitioner's (973)406-2250|operationseescrbersnet|www.escribersnet Federal income tax return for 2014 included a Schedule C, Profit or Loss from Business, whereon he a claimed a loss 4 of $11,093 as a result of his MPS Consulting operations for that year. By a notice of deficiency dated July 31, 2017, respondent determined a deficiency of $4,981 in petitioner's Federal income tax for 2014. That deficiency arose from respondent's disallowance of petitioner's claimed Schedule C deductions for: (1) $1,800 of other 1 2 3 4 5 6 7 8 9 10 expenses, related to petitioner's cellular phone; (2) 11 12 13 $3,327 of meals and entertainment expenses; and (3) $15,389 of vehicle expenses, On October 30, 2017, petitioner timely filed his 14 petition with this Court contesting respondent's 15 determination. The issue for decision is whether 16 petitioner is entitled to those deductions claimed on his 17 Schedule C for 2014, as otherwise disallowed by 18 19 20 21 22 23 24 25 respondent. I. Burden of Proof OPINION Generally, the Commissioner's determinations set forth in a notice of deficiency are presumed correct, and the taxpayer bears the burden of proving otherwise. Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933). Deductions and credits are a matter of cribers órI3J406-2250loperationseescrbetsnetlwy,w.esolbermet legislative grace, and the taxpayer bears the burden of proving entitlement to any deduction or credit claimed. Rule 142(a); Deputy v. du Pont, 308 U.S. 488, 493 (1940); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 5 (1934). II. Schedule C Expenses Section 162(a) allows deductions for "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business". 1 2 3 4 5 6 7 8 9 10 An expense is "ordinary" if it is customary or usual 11 within a particular trade, business, or industry, and 12 13 14 "necessary" if it is appropriate and helpful for the development of the business. Deputy v. du Pont, 308 U.S. 495 Welch v. Helvering, 290 U.S. at 113. 15 Whether an expense is ordinary or necessary is a question 16 of fact. Commissioner v. Heininger, 320 U.S. 467, 475 17 18 19 20 21 22 23 24 (1943). Taxpayers must satisfy the specific requirements for any deduction claimed, and are required to maintain records sufficient to substantiate those claims. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec. 6001; sec. 1.6001-1(a), (e), Income Tax Regs. Generally, records are adequate substantiation if they establish the amount and purpose of the claimed deductions. Higbee v. 25 Commissioner, 116 T.C. 438, 440 (2001). No deduction may (973)406-2250{operationseescribersmet{www.escribesmet be allowed for personal, 6 living, or family expenses unless the code expressly provides otherwise. Sec. 262(a). A. Other Expense: Cellular Phone At trial, petitioner relied exclusively on bank statements in order to establish his entitlement to a business expense deduction of $1,800 for his use of a cellular telephone. Petitioner, however, did not testify with respect to this expense, and offered no other evidence to establish that this was a bona fide business expense rather than a personal expense. Accordingly, we find that petitioner has failed to carry his burden of 1 2 3 4 5 6 7 8 9 10 11 12 proof, and we sustain respondent's determination with 13 respect to this expense. 14 15 16 17 B. Strict Substantiation Expenses: Vehicles, Meals and Entertainment Taxpayers who wish to deduct business expenses related to travel, meals, entertainment, gifts, or the use 18 of "listed property" must comply with the strict 19 substantiation requirements of section 274(d). See also 20 Sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 21 46014 (Nov. 6, 1985). As relevant here, the term "listed 22 property" includes passenger automobiles. Sec. 23 280F(d)(4)(A)(i) and (ii). 24 25 Compliance with the strict substantiation requirements of section 274(d) requires a taxpayer to ||)cribers 73}406-2250l operationseestrbersmt j wwwescrbersmt 1 2 3 4 5 6 7 8 9 establish "by adequate records": (1) the amount of the claimed business expense, as well as (2) the time and place of the travel, use or purchase, and (3) the business purpose or business relationship, that gave rise to that expense. Sec. 274(d); sec. 1.274-5T(b)(6), (c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). In order to substantiate by "adequate records" a taxpayer must provide, in particular, (1) an account book, 10 log, or similar contemporaneous record, along with (2) 11 other documentary evidence that, in combination, can 12 sufficiently establish the expense meets each element 13 14 required for deduction. Sec. 1.274-5T(c)(2), Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985). 15 Documentary evidence includes receipts, paid bills, or 16 similar evidence. Sec. 1.274-5(c)(2)(iii), Income Tax 17 Regs. With respect to vehicle expenses, the strict 18 substantiation requirements of section 274(d) must be met 19 whether the taxpayer chooses to deduct either actual 20 21 expenses, or claim an amount in accordance with the standard mileage rate. Sec. 1.274-5(j)(2), Income Tax 22 Regs. 23 24 25 A taxpayer's uncorroborated testimony is insufficient to satisfy the strict substantiation requirements of section 274(d). See Rutz v. Commissioner, (973}406-2250)operationstestribenmet|www.escriben.net - 8 1 2 3 4 5 6 7 8 9 66 T.C. 879, 885-886 (1979), Respondent disallowed petitioner's deductions for vehicle, and meals and entertainment expenses because petitioner failed to produce adequate records to establish petitioner's entitlement to those deductions. At trial, petitioner similarly failed to produce any contemporaneous books, records, receipts, or mileage logs that might establish the amount or business purpose of his claimed vehicle, and meals and entertainment expenses. Rather, 10 petitioner attempted to substantiate his entitlement to 11 12 13 14 these deductions though his own testimony, as corroborated by a collection of bank account statements and a pair of non-contemporaneous mileage logs. Petitioner admits his mileage logs were 15 assembled after-the-fact and in anticipation of this 16 17 litigation. Furthermore, petitioner claims to have disposed of all contemporaneous documentary records that 18 might otherwise support his logs. To this extent, we find 19 petitioner's testimony and mileage logs lack credibility 20 21 and are insufficient to adequately establish the business purpose or nature of his vehicle use. Petitioner's 22 testimony also lacked credibility with respect to his 23 meals and entertainment expenses. Further, the bank 24 25 statements he offered in an attempt to corroborate his testimony also fail to adequately establish the business (973)406-2250(operationseexrbennetlwwnescribenmet purpose of any of his claimed expenses. 9 On the record before us, and in light of the applicable strict substantiation requirements, petitioner has failed to carry his burden of proof with respect to his claimed deductions for vehicle, and meals and entertainment expenses for 2014. As such, we sustain respondent's determinations with respect to those expenses. III. Conclusion Accordingly, a decision will be entered for respondent. This concludes the Court's oral findings of fact and opinion in this case. In reaching our holdings 1 2 3 4 5 6 7 8 9 10 11 12 13 herein, we have considered all arguments made, and, to the extent not mentioned above, we conclude they are moot, irrelevant, or without merit. (Whereupon, at 10:01 a.m., the above-entitled matter was concluded.) 14 15 16 17 18 19 20 21 22 23 24 25 (973)40&2250|operationseerrbersswt|wurnescribersnet