TAX COURT OPINION

Case: Rebecca W. & Randall E. Thompson
Docket Number: 23526-07S
Judge: Colvin
Opinion Type: bench
Filed: 07/14/2008
Pages: 9

UNITED STATES TAX COUR T WASHINGTON , D .C . 2021 7 Docket No . 23526-07 S CAL STAT . FILE S REBECCA W . AND RANDALL E . THOMPSON,) Petitioners, 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 petitioners 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 Judge Dated : Washington, D .C . July 14, 2008 SERVED JUL 14 2008 2 1 Bench Opinion by Judge Diane L . Kroupa June 11, 200 8 2 Thompson v . Commissioner Docket No . 23526-07S 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 and 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 under section 7463 and Rules 170 through 175 . 12 This bench opinion is made pursuant to the authority 13 granted by section 7459(b) and Rule 152 . All section 14 references are to the Internal Revenue Code in effect 15 for 2004, and all rule references are to the Tax Court 16 Rules of Practice and Procedure . 17 Charles D . Harrison appeared for 18 petitioners , and Caroline R . Krivacka appeared for 19 respondent . 20 FINDINGS OF FAC T 21 Certain facts have been stipulated . The 22 stipulation of facts the parties filed, wit h 23 accompanying exhibits, is incorporated by this 24 reference , and the facts are so found . 25 Petitioners resided in Arkansas at the time Heritage Reporting Corporatio n (202) 628-4888 3 1 they filed the petition . 2 Petitioners filed a return for 2004 on 3 August 12, 2005, even though they did not request an 4 extension of time . Petitioners self-prepared th e 5 joint return . Petitioner-husband was employe d 6 preparing income tax returns for his mother, Susan 7 Boyer of Susanstax, Inc ., in Kingston Springs , 8 Tennessee . Ms . Boyer, also known as Susan Sperl, 9 petitioner-husband, and Susanstax, Inc ., are being 10 charged in the United States District Court for th e 11 Middle District of Tennessee for injunctive relief for 12 violations of sections 6700 and 6701 regardin g 13 promotion of abusive tax shelters and penalties for 14 aiding and abetting the understatement of ta x 15 liabilities (Docket 3 :06-0175) . The lawsuit alleges 16 that the three defendants prepared grossly inaccurate 17 income tax returns in 2002, 2003 and 2004 . Th e 18 lawsuit is currently pending . 19 Petitioner-husband retired from the Navy on 20 January 31, 2004 . Beginning in February 2004 , 21 petitioner-husband worked for his mother and/or her 22 corporations doing various tasks, including preparing 23 individual income tax returns . In February, March and 24 April 2004, petitioner-husband traveled with hi s 25 mother to Temecula, California, to prepare income tax Heritage Reporting Corporatio n (202) 628-4888 4 1 returns . Petitioner-husband had no formal income tax 2 training, but learned from his mother through on-the- 3 job training, Internal Revenue Service publications, 4 and the IRS web site . 5 Petitioner-husband had two separate business 6 endeavors in 2004, namely, his own salvage and repair 7 business and worked for his mother and her businesses 8 in California and Tennessee . 9 Petitioners reported $11,517 of wages an d 10 $16,160 of pension income and claimed a $1,961 loss on 11 Schedule C, entitled Profit or Loss From Business, for 12 petitioners' two businesses labele d 13 "salvage/ sales /consulting" and "evangelist/musician ." 14 The Schedule C-i for the salvage /sales /consulting 15 business offset the $62,010 of income by $63,567 o f 16 expenses to reject a net loss of $1,557 . The expenses 17 for the salvage/sales/consulting business consiste d 18 primarily of $45,822 of section 179/depreciation 19 expenses and $8,232 car and truck expenses . The C-2 20 for the evangelist/musician business offsets the 21 $5,222 of income with $5,626 of expenses to reflect a 22 net loss of $404 . The primary expense of th e 23 evangelist/musician business consists of $3,931 of car 24 and truck expenses and $1,368 cell phone expenses . 25 Respondent disallowed all expenses on Heritage Reporting Corporation (202) 628-4888 5 1 Schedule C-1 and Schedule C-2 except for $1,179 o n 2 Schedule C-1 for car and truck expenses . Petitioners 3 failed to maintain any contemporaneous records o f 4 their car and truck expenses or cell phone usage . The 5 major expense petitioner-husband claimed was a spor t 6 utility vehicle, a Ford Excursion for approximatel y 7 $45,000, which was the only vehicle petitioner-husband 8 had available to him for any use during 2004 . 9 Petitioner-husband acquired the SW with his former 10 wife . There is nothing in the record to explain how 11 the SUV was purchased for use in the petitioner- 12 husband's business, especially given that it was 13 purchased with his former wife . 14 In addition, the mileage log petitioner- 15 husband submitted contained several generic an d 16 identical entries for most days . Petitioner-husband 17 claimed mileage for driving to lunch and dinner each 18 day . Petitioner-wife's mileage log also lack s 19 credibility because the per diem meals and mileage do 20 not match the amounts claimed on the return . 21 And while petitioner-husband provided some 22 documents to Examinations and/or Appeals, including 23 hotel receipts, spreadsheets and miscellaneou s 24 receipts, the receipts failed to indicate the business 25 usage and whether they were ordinary and necessary Heritage Reporting Corporatio n (202) 628-4888 6 1 business expenses . 2 Petitioner-husband spent most of the yea r 3 working for his mother 's businesses preparing returns 4 and repairing her rental properties . 5 Respondent determined a $20,166 deficiency 6 against petitioners for 2004 and determined tha t 7 petitioners were liable for a $3,626 .46 late filing 8 addition, a late payment addition under sectio n 9 6651( a)(2), and a $4,033 .20 accuracy-related penalty 10 under section 6662 . Respondent made thes e 11 determinations in a statutory notice of deficiency 12 dated July 12, 2007 . At trial, respondent conceded 13 the late payment addition under section 6651( a)(2) . 14 Petitioners timely filed a petition, yet 15 failed to make any specific allegation of errors 16 regarding respondent's determinations in th e 17 deficiency notice . The petition, despite being for 18 two taxpayers, merely asserts that, "IRS has refused 19 to work with taxpayer even though taxpayer ha s 20 provided receipts and information requested of them ." 21 OPINION 22 This is primarily a substantiation case on 23 whether petitioners are entitled claim Schedule C 24 expenses and whether petitioners are liable for the 25 additions to tax and accuracy-related penalty for Heritage Reporting Corporation (202) 628-4888 7 1 2004 . 2 We begin with three fundamental principles 3 of tax litigation . First, the Commissioner' s 4 determinations are generally presumed correct, and the 5 taxpayer bears the burden of proving that thos e 6 determinations are erroneous . Rule 142(a) . Thi s 7 principle is not affected by section 7491(a) because 8 petitioners failed to comply with the substantiation 9 requirements and failed to maintain adequate records . 10 See sec . 7491(a)(2)(A) and ( B) ; see also Higbee v . 11 Commissioner , 116 T .C . 438 (2001) . 12 Second, deductions are a matter o f 13 legislative grace, and the taxpayer must show that he 14 or she is entitled to any deduction claimed . Rule 15 142(a) ; Deputy v . duPont , 308 U .S . 488, 493 (1940) ; 16 Welch v . Helvering , 290 U .S . 111 (1933) . Thi s 17 includes the burden of substantiation . Hradesky v . 18 Commissioner , 65 T .C . 87, 90 (1975), affd . per curiam 19 540 F .2d 821 (5th Cir . 1976) . Substantiation means 20 that a taxpayer shall keep such permanent records or 21 books of account as are sufficient to establish the 22 amount of deductions claimed on the return . Sec . 23 6001 ; sec . 1 .6001-1(a), (e), Income Tax Regs . The 24 Court need not accept a taxpayer's self-serving 25 testimony when the taxpayer fails to present other Heritage Reporting Corporation (202) 628-4888 8 1 probative evidence . Beam v . Commissioner , T .C . Memo . 2 1990-304 ( citing Tokarski v . Commissioner , 87 T .C . 74, 3 77 (1986)) . 4 Third , personal living expenses are not 5 deductible . Sec . 162 ( a) and 262(a ) . In fact, ther e 6 are many expenses that are helpful, even essential, to 7 one's business , but which are not deductible in our 8 tax system . See Carroll v . Commissioner , 51 T .C . 213, 9 215 ( 1968 ), affd . 418 F .2d 91 (7th Cir . 1969) . 10 Expenses of driving to and from work , for example, are 11 not deductible as personal expenses . Strohmaier v . 12 Commissioner , 113 T .C . 106 , 113 (1999) ; sec . 1 .162(e), 13 Income Tax Regs . 14 We now apply these rules to the facts here . 15 First and foremost, we find the record and testimony 16 of petitioner- husband to be incredible . Petitioner- 17 husband would have us believe that he acquired the SUV 18 for his " businesses ." Yet he acquired the vehicl e 19 with his former wife, and it was the only vehicle 20 petitioner had for his use in 2004 . Petitioner- 21 husband did not deny that there were any othe r 22 vehicles for his personal use . Some personal use must 23 be presumed . Petitioner- husband also claimed trip s 24 for lunches and dinner were all business-related, not 25 personal . The Court further finds that petitioners Heritage Reporting Corporation (202) 628-4888 9 1 claimed deductions on the returns for 2004 that were 2 personal, not business, use . This petitioners cannot 3 do . 4 Accordingly, we sustain respondent' s 5 determination in the deficiency notice regarding the 6 deficiency . 7 We turn now to the additions to tax and 8 penalties . Petitioners did not challenge th e 9 imposition of any additions to tax or the accuracy- 10 related penalty in the petition . Accordingly , 11 petitioners have conceded these issue . See Swain v . 12 Commissioner , 118 T .C . 358 (2002) . Respondent a t 13 trial conceded the late payment addition under section 14 6651(a)(2) . 15 To reflect the foregoing, decision will be 16 entered for respondent regarding the deficiency, the 17 late filing addition under section 6651(a)(1) and the 18 section 6662 accuracy-related penalty . 19 This concludes the Court's oral findings of 20 fact and opinion in this case . 21 (Whereupon, at 10 :18 a .m ., the bench opinion 22 in the above-entitled matter was concluded . ) 23 2 4 25 Heritage Reporting Corporation (202) 628-4888