Court Opinion

ID: 7796356
Source: CourtListenerOpinion
Date Created: 2022-08-01 00:02:08.224659+00
Date Added: 2024-06-11T16:26:22.743959
License: Public Domain

United States Tax Court

                        T.C. Summary Opinion 2022-13

                             MARIBEL GONZALEZ,
                                  Petitioner

                                           v.

               COMMISSIONER OF INTERNAL REVENUE,
                           Respondent

                                     —————

Docket No. 1548-19S.                                            Filed July 18, 2022.

                                     —————

Maribel Gonzalez, pro se.

Brandon M. Chavez, for respondent.

                              SUMMARY OPINION

       PANUTHOS, Special Trial Judge: This case was heard pursuant
to the provisions of section 7463 of the Internal Revenue Code in effect
when the petition was filed. 1 Pursuant to section 7463(b), the decision
to be entered is not reviewable by any other court, and this opinion shall
not be treated as precedent for any other case.

       In a notice of deficiency dated October 4, 2018, respondent
determined a deficiency in petitioner’s federal income tax of $5,499 and
a section 6662(a) accuracy-related penalty of $1,099.80 for taxable year
2015 (year in issue).

        1 Unless otherwise indicated, all statutory references are to the Internal

Revenue Code, Title 26 U.S.C., in effect at all relevant times, all regulation references
are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant
times, and all Rule references are to the Tax Court Rules of Practice and Procedure.

                                 Served 07/18/22
                                        2

         After concessions, 2 the issues for decision are:

         (1)   whether petitioner is entitled to deduct car and truck
               expenses of $12,256 reported on Schedule C, Profit or Loss
               From Business, for the year in issue;

         (2)   whether petitioner is entitled to deduct travel expenses of
               $1,800 reported on Schedule C for the year in issue; and

         (3)   whether petitioner is entitled to deduct other expenses of
               $6,500 reported on Schedule C for the year in issue.

                                  Background

      Some of the facts have been stipulated and are so found. We
incorporate the Stipulation of Facts and the attached exhibits by this
reference. The record consists of the Stipulation of Facts with attached
exhibits and petitioner’s testimony.

         Petitioner resided in California when the Petition was timely
filed.

I.       General

       In 2014 petitioner moved from the Los Angeles area to Palo Alto,
California, so that her daughter could attend high school in Palo Alto.
Petitioner was employed full time by Stanford University as a grants
manager overseeing contracts for clinical trials. She described her work
as involving finance and operations. Beginning in 2014 she became
interested in starting a business in Los Angeles as a wholesaler,
designing children’s clothing. In 2014 and during the year in issue, she
began working with a patternmaker in Los Angeles to make patterns
and samples. At the end of the 2015 season, petitioner participated in a
sample sale, receiving $1,200 in gross receipts.

II.      Petitioner’s Travel

      During the year in issue, petitioner traveled to a patternmaker
workshop in Los Angeles and Inglewood in southern California,
approximately every other weekend from her residence in Palo Alto. She
made the 400-mile trips (one way) by car. Petitioner would review the

       2 Respondent concedes that petitioner is not liable for the section 6662(a)

accuracy-related penalty for the year in issue.
                                         3

progress of the workshop, provide supplies, and give further direction to
the patternmakers. Respondent allowed a deduction for a reported
Schedule C expense for “Rent or Lease—Other Business Property” as
well as for advertising and utilities. For at least one of these trips, she
went to a wholesale market in Los Angeles to sell samples. Petitioner
had family and friends living in the Los Angeles area and stayed with
them during these trips. The primary purpose of the travel to Los
Angeles was to engage in the wholesale clothing design.

III.    Petitioner’s Records

      Petitioner maintained limited personal and business records. She
maintained a log on Excel of the days that she went to Los Angeles or
Inglewood. To substantiate her expenses, petitioner submitted logs
estimating the miles she traveled and related expenses. She also
retained some receipts relating to two vehicle services dated March 2015
and March 2016.

IV.    Petitioner’s Tax Return

       Petitioner timely filed Form 1040, U.S. Individual Income Tax
Return, for the year in issue. Petitioner reported wages of $64,713
received from her employer. Petitioner reported gross receipts of $1,200
on her Schedule C. Her tax return for the year in issue also included:

                      Schedule C                Claimed Disallowed
          Advertising                               $140          –

          Other business property                 15,800          –

          Car and truck expenses                  12,256        $12,256
          Travel expenses 3                         1,800          1,800
          Other expenses                            6,500          6,500

          Utilities                                 4,000         –

        3 Petitioner calculated the travel expense deduction using a federal per diem

rate for the city in which the workshop was located. See Rev. Proc. 2011-47, 2011-42
I.R.B. 520.
                                           4

       On October 4, 2018, respondent issued a Notice of Deficiency to
petitioner for the year in issue, disallowing her Schedule C deductions
for car and truck expenses, travel expenses, and other expenses.

                                     Discussion

I.      Burden of Proof

       In general, the Commissioner’s determinations set forth in a
notice of deficiency are presumed correct, and the taxpayer bears the
burden of proving that the determinations are in error. Rule 142(a);
Welch v. Helvering, 290 U.S. 111, 115 (1933). 4 Deductions are a matter
of legislative grace, and the taxpayer bears the burden of proving that
she is entitled to any deduction claimed. See Rule 142(a); Deputy v. du
Pont, 308 U.S. 488, 493 (1940); New Colonial Ice Co. v. Helvering, 292
U.S. 435, 440 (1934). If the taxpayer is able to establish that he or she
paid or incurred a deductible expense but is unable to substantiate the
precise amount, the Court generally may approximate the deductible
amount, but only if the taxpayer presents sufficient evidence to establish
a rational basis for making the estimate. See Cohan v. Commissioner,
39 F.2d 540, 543–44 (2d Cir. 1930).

II.     Schedule C Business Expenses

      Section 162 generally allows a deduction for “all the ordinary and
necessary expenses paid or incurred during the taxable year in carrying
on any trade or business.” Boyd v. Commissioner, 122 T.C. 305, 313
(2004). The taxpayer bears the burden of proving that expenses were of
a business nature rather than personal and that they were ordinary and
necessary. Rule 142(a); Welch v. Helvering, 290 U.S. at 115.

       Section 162(a)(2) allows taxpayers to deduct traveling expenses if
they are: (1) ordinary and necessary, (2) incurred while away from
home, and (3) incurred in the pursuit of a trade or business. See
Commissioner v. Flowers, 326 U.S. 465, 470–72 (1946). A taxpayer’s
“home” is generally considered to be his or her regular or principal place
of business. Mitchell v. Commissioner, 74 T.C. 578, 581 (1980). When a

        4 Pursuant to section 7491(a), the burden of proof may shift to the

Commissioner if the taxpayer introduces credible evidence with respect to any factual
issues relevant to ascertaining the taxpayer’s tax liability. Because petitioner has not
alleged or shown that section 7491(a) applies, the burden of proof remains on her.
                                         5

taxpayer engages in business at multiple posts, his tax home is where
he spends most of his time, engages in most of his business activity, and
derives the greater proportion of his income. See Folkman v. United
States, 615 F.2d 493, 496 (9th Cir. 1980) (citing Markey v.
Commissioner, 490 F.2d 1249, 1255 (6th Cir. 1974), rev’g T.C. Memo.
1972-154). 5

       The record supports Palo Alto as petitioner’s principal place of
business, and her tax home. Petitioner worked full time in Palo Alto as
a grants manager, where she earned most of her income. She traveled
roughly every two weeks from Palo Alto to Los Angeles to conduct
business relating to the production of children’s clothing. Accordingly,
we conclude that petitioner’s tax home was Palo Alto and that her time
in Los Angeles was time spent away from home in pursuit of a business.
Given respondent’s allowance of petitioner’s other business expenses
and petitioner’s credible testimony, we are satisfied that the related
reported expenses satisfy section 162 as ordinary and necessary for her
business in wholesale clothing design.

       A.      Car and Truck Expenses

      Petitioner deducted car and truck expenses totaling $12,256 for
the year in issue, all of which respondent disallowed.

        Certain expenses, including vehicle and travel expenses, require
strict substantiation, through adequate records or by sufficient evidence
corroborating the taxpayer’s own statement, of the amount, time, place,
and business purpose of these expenditures. § 274(d). Substantiation
by adequate records requires the taxpayer to maintain an account book,
a diary, a log, a statement of expense, trip sheets, or a similar record
prepared contemporaneously with the expenditure and documentary
evidence (e.g., receipts or bills) of certain expenditures. Treas. Reg.
§ 1.274-5(c)(2)(iii); Temp. Treas. Reg. § 1.274-5T(c)(2). Substantiation
by other sufficient evidence requires the production of corroborative
evidence in support of the taxpayer’s statement specifically detailing the
required element. Temp. Treas. Reg. § 1.274-5T(c)(3).

       5 See also Hoeppner v. Commissioner, T.C. Memo. 1992-703; cf. Andrews v.

Commissioner, 931 F.2d 132, 138 (1st Cir. 1991) (considering the length of time spent
at each location to be determinative of the taxpayer’s principal place of business),
vacating and remanding T.C. Memo. 1990-391.
                                    6

        Petitioner submitted a mileage log detailing the dates traveled,
distances traveled, and the purpose of each trip. She also submitted
vehicle service receipts corroborating the miles driven. Petitioner
testified credibly to the business nature of her trips. As previously
indicated, respondent did not disallow claimed deductions for rent or
lease of business property as well as advertising and utilities. Given
respondent’s allowance of petitioner’s other business expenses, we are
satisfied that the reported vehicle expenses satisfy section 162 as
ordinary and necessary business expenses. Further, we find that
petitioner has met the strict substantiation requirement under section
274(d).

      Accordingly, we conclude that petitioner is entitled to deduct
$12,256 in car and truck expenses for the year in issue.

      B.     Travel Expenses

       Petitioner deducted travel expenses totaling $1,800 for the year
in issue, all of which respondent disallowed.

       A self-employed individual can deduct meal and incidental
expenses computed at the federal standard per diem rate for the locality
of travel for each calendar day of travel away from home. See Rev. Proc.
2011-47, § 1, 2011-42 I.R.B. at 520.           This amount is deemed
substantiated for purposes of section 274(d) provided the taxpayer can
substantiate the time, place, and business purpose of travel. See Temp.
Treas. Reg. § 1.274-5T(b)(2), (c); Rev. Proc. 2011-47, § 4, 2011-42 I.R.B.
at 522–23.

       Petitioner submitted a log estimating her claimed meals and
incidental expenses using the federal standard per diem rate for Los
Angeles. The record demonstrates that petitioner established the time,
place, and business purpose of her travel. She is not required to strictly
substantiate expenses under section 274(d) for expenses computed using
the federal standard per diem rate. While self-employed individuals
may not use the federal standard per diem rate to substantiate lodging
expenses, petitioner testified she did not incur nor include any lodging
expenses. See Rev. Proc. 2011-47, § 1.

      Accordingly, petitioner is entitled to deduct $1,800 in travel
expenses for the year in issue.
                                   7

      C.     Other Business Expenses

      Petitioner claimed other business expense deductions totaling
$6,500 for the year in issue, all of which respondent disallowed.

       Petitioner asserts she is entitled to deduct, under other business
expenses, payments she made to her patternmaker for her business.
Petitioner testified at trial that she paid the patternmaker in
installments, when she could, over the course of the year in issue. The
submitted invoice states that payments were made by “cashier check”
for a set of “25 patterns” to a workshop in Los Angeles. From the record
the Court is unable to determine when the payments were made, or for
what purpose. Petitioner did not submit any further receipts or
documentation of installment payments.

      Accordingly, petitioner is not entitled to deduct other business
expenses for the year in issue. Respondent’s determination is sustained.

       We have considered all arguments, and, to the extent not
addressed herein, we conclude that they are moot, irrelevant, or without
merit.

      To reflect the foregoing,

      Decision will be entered under Rule 155.