Opinion ID: 886038
Heading Depth: 2
Heading Rank: 3

Heading: Expense calculation.

Text: ¶ 19 Keith contends that the District Court erred by rejecting business expenses that he claimed in his 1999 tax returns. Keith argues that the similarity in the language used by the Guidelines and IRS Regulations suggest that deductions for tax purposes are the same as deductions for child support purposes. Patricia claims there was no error because expenses for income taxes may differ from income and expenses for child support purposes. ¶ 20 Keith testified that certain travel expenses were not considered by the District Court in its calculation of income. He referred generally to credit card receipts from 1999 as documentation of travel expenses incurred while looking for excavating equipment. Keith also claimed that expenses such as advertising, dump fees, vehicle expenses and office expenses were not considered by the court. ¶ 21 The District Court found that the business expenses claimed by Keith were not legitimate. Furthermore, testimony given at trial by Mr. Bourdeau convinced the court that the expenses claimed for tax purposes were not properly documented and therefore not permitted pursuant to the Guidelines. ¶ 22 The District Court found substantial commingling of personal and business expenses in Keith's records. The separation of personal and business expenses accounts in part for the difference in the court's expense figures and Keith's expense figures. The court concluded that business expenses for tax purposes are not necessarily permitted for child support purposes which was supported by testimony given by Mr. Bourdeau at trial: A: See, there's a difference between tax return income and income for child support. .... A: [W]e are going to allow business expenses but only expenses that are necessary and reasonable to the operation and generation of the income of the business. TR page 20, lines 9-11; TR page 21, lines 8-11. ¶ 23 Actual income includes economic benefit from whatever source derived. Rule 37.62.106(2)(a), ARM. Rule 37.62.106(2)(b), ARM, provides that when determining actual income for the purposes of child support, reasonable ordinary and necessary expenses required for the production of income may be deducted from the gross receipts of a parent who receives income or benefits as the result of an ownership interest in a business. Business expenses for purposes of calculating child support do not include personal expenses or expenses not necessary for the production of income. Rule 37.62.106(2)(b), ARM. Furthermore, reimbursement allowances for actual employment expenses may only be considered to the extent they have been documented. Rule 37.62.106(2)(e), ARM. According to Mr. Bourdeau's interpretation, which was adopted by the court and not raised on appeal, Rule 37.62.106(2)(e), ARM, requires a self-employed parent to provide documentation to prove expenses are legitimate. ¶ 24 The Guidelines' rule for expense deductions mirrors IRS Reg. § 1.162(a), which provides that a deduction for all ordinary and necessary expenses incurred while carrying on a trade or business is permitted. The federal tax regulations burden the taxpayer to demonstrate that claimed expenses are necessary and legitimate. 26 C.F.R. § 162.17(d)(2). Expenses may be estimated through secondary sources where the records are incomplete: [A] taxpayer might establish the he was in travel status a certain number of days but that it was impractical for him to establish the details of all his various items for travel expense. In such a case rail fares or plane fares can usually be ascertained with exactness and automobile costs approximated on the basis of mileage covered. A reasonable approximation of meals and lodging might be based upon receipted hotel bills ... since detailed records of incidental items are not required, deductions for these items may be based upon a reasonable approximation. In cases where a taxpayer is called upon to substantiate expense account information, the burden is on the taxpayer to establish that the amounts claimed as a deduction are reasonably accurate and constitute ordinary and necessary business expense paid or incurred by him in connection with his trade or business. 26 C.F.R. § 162.17(d)(3). ¶ 25 Keith alleges that the similarities in the language require a court to permit the expenses claimed for tax purposes as expenses for child support purposes as well. We agree that the categories and types of expenses permitted by the tax code and the Guidelines are similar. However, a district court is not required to accept expenses at face value simply because they were claimed on tax returns when calculating income for child support. In re Marriage of Sullivan, 243 Mont. at 296, 794 P.2d at 689. Disposable income and not taxable income is the focus of inquiry for child support purposes. In re Marriage of Murphy (1994), 268 Mont. 1, 6, 885 P.2d 440, 443. A district court has broad discretion to determine whether a parent's claimed business expenses are reasonable for purposes of calculating child support. In re Marriage of Chiovaro (1991), 247 Mont. 185, 192, 805 P.2d 575, 579. ¶ 26 Based on our review of the record, we conclude that with one exception the District Court did not abuse its discretion when it decided which of Keith's claimed expenses were deductible and that its findings with regard to expenses were not clearly erroneous. However, based upon our review of Petitioner's Exhibit P-2 and Mr. Bourdeau's audit, we find no evidence to indicate that advertising and dump fees were taken into account. Keith claimed a total of $741.00 in advertising expenses and $503.15 in dump fees. We conclude that the District Court abused its discretion when it did not consider advertising and dump expenses claimed by Keith as business expenses.