Opinion ID: 3048935
Heading Depth: 2
Heading Rank: 3

Heading: Deductions for Newark T&B and Alviso Racing

Text: Finally, Maciel contends that the tax court erred when it refused to permit deductions associated with two of Maciel’s unincorporated businesses, Newark Truck and Body (“Newark T&B”) and Alviso Rock/HK Racing (“Alviso Racing”). Maciel did not report any income from these businesses for the 1990-92 tax years. He claims that, in calculating his taxable income and tax liability from these business activities, the tax court should have offset certain bona fide expenses. With respect to Newark T&B, Maciel seeks a depreciation MACIEL v. CIR 6941 deduction of $3,813 per year and a deduction of $2,621.43 for utilities expenses incurred in 1992. With respect to Alviso Racing, Maciel seeks to deduct $17,847.23 of expenses for 1990, $15,065.23 for 1991, and $30,283.07 for 1992. It is the taxpayer’s burden to substantiate claimed deductions. See Boyd Gaming Corp. v. Comm’r, 177 F.3d 1096, 1098 (9th Cir. 1999); Rapp v. Comm’r, 774 F.2d 932, 935 (9th Cir. 1985); see also 26 U.S.C. § 274(d). We review for clear error the tax court’s factual determination that a taxpayer has failed to produce sufficient evidence to support a deduction. See Schachter v. Comm’r, 255 F.3d 1031, 1033 (9th Cir. 2001); Boyd Gaming Corp., 177 F.3d at 1098. The tax court, however, “is obligated to detail its reasoning.” Estate of Trompeter, 279 F.3d at 770. We hold that it was clearly erroneous for the tax court to deny some, though not all, of the claimed deductions at issue here. It is undisputed that Newark T&B conducted its business at a property that Maciel purchased in 1990 for $200,000. According to Maciel’s documentary evidence, when the County of Alameda assessed this property, it allocated $80,900 of the purchase price to land and the remaining $119,100 to “improvements” (i.e., the buildings out of which Newark T&B operated). Maciel also provided evidence of his closing costs. Because the land itself is not depreciable, Maciel’s total depreciable basis in the property—consisting of improvements and a portion of the closing costs—was $120,121. Using the applicable straight-line method for depreciating real property over a useful life of 31.5 years, Maciel calculated depreciation deductions of approximately $3,800 per year. See 26 U.S.C. §§ 167-168 (1992). The record indicates that Maciel did not claim these depreciation deductions in his 1990-92 personal or corporate income tax returns. [11] The tax court’s opinion does not expressly consider Maciel’s depreciation-related documents. Instead, the tax court’s analysis of the issue consists of a single line in a foot6942 MACIEL v. CIR note: “[T]here is insufficient evidence in the record with which we can calculate any depreciation to which [Maciel] might be entitled.” Maciel, 2004 WL 205819, at  n.42. Given the uncontroverted documentary evidence establishing Maciel’s depreciable basis in the property, and given the conclusory nature of the tax court’s reasoning, we conclude that it was clear error to deny a depreciation deduction for Newark T&B. Although Maciel is entitled to the full amount of this deduction for 1991 and 1992, his deduction for 1990 must be prorated because the property was not purchased until May of that year. [12] Maciel points to similar documentary evidence of his 1992 utility expenses for Newark T&B. The problem here, however, is that the record does not exclude the possibility that Maciel has already claimed these deductions. Because Maciel had commingled the assets of his businesses and failed to respect corporate formalities, the tax court was rightly concerned that Maciel had included Newark T&B’s utility expenses on another return. See id. at . The 1992 corporate tax return for Alviso Rock, Inc., and George Maciel Trucking, Inc., deducts more than $50,000 in utilities expenses. These expenses are not itemized by type or location. Consequently, the tax court did not clearly err when it denied the deduction for Newark T&B’s utilities expenses. [13] With respect to Alviso Racing, Maciel offers a number of account statements, invoices, and bank records to establish his deductible expenses. The documents show, for example, that Maciel regularly purchased racing equipment from Kaeding Performance, Inc., as well as from Shaver Specialty, Inc., a supplier of racing engines. The tax court concluded that it was “unable to determine whether the expenses detailed in the invoices were for the benefit of petitioner’s racing business or for one of his related businesses.” Id. at . The court noted that most of the invoices were made out to “Alviso,” which could have referred to Maciel’s trucking corporation, Alviso Rock, Inc., rather than to Maciel’s racing business. Id. at  MACIEL v. CIR 6943 n.44. It is clear, however, that Maciel was purchasing racing equipment rather than trucking equipment and that Maciel paid for the equipment using checks drawn on Maciel’s “Alviso Rock/HK Racing” bank account. Furthermore, there is no indication that Maciel deducted these expenses on his corporate tax returns. We therefore conclude that the tax court clearly erred when it denied Maciel’s claimed deductions for Alviso Racing.