Court Opinion

ID: 4336461
Source: CourtListenerOpinion
Date Created: 2018-11-14 02:52:00.594199+00
Date Added: 2024-06-11T14:46:55.495013
License: Public Domain

T.C. Summary Opinion 2007-68

                     UNITED STATES TAX COURT

              BARBARA A. TRIMBLE-GEE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

     Docket No. 6051-06S.              Filed May 1, 2007.

     Barbara A. Trimble-Gee, pro se.

     Daniel J. Parent, for respondent.

     PANUTHOS, Chief 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.   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.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in
                                - 2 -

effect for the years in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.

     Respondent determined deficiencies of $4,945 and $4,734,

respectively, in petitioner’s 2001 and 2002 Federal income tax.1

Respondent also determined an accuracy-related penalty for each

year.    The issues for decision are (1) whether petitioner can

deduct business-related expenses, and (2) whether petitioner is

liable for the accuracy-related penalties.

                             Background

     Some of the facts have been stipulated and are so found.

The stipulation of facts and attached exhibits are incorporated

herein by this reference.    At the time the petition was filed,

petitioner resided in Pittsburg, California.

     In 2001 and 2002, petitioner was employed full-time by the

Internal Revenue Service as an examination group manager.

Petitioner also operated a cleaning business on weekends and

holidays.

     During the years at issue, petitioner owned a Plymouth

Voyager (the Voyager).    In July 2001, petitioner also purchased a

Chevrolet Astro Van (the Astro Van) for a total of $25,379 after

     1
         All dollar amounts are rounded to the nearest dollar.
                                - 3 -

rebate.    Petitioner used the vehicles to bring equipment to the

houses and businesses she cleaned, as well as for personal use.2

     On her 2001 and 2002 Federal income tax returns, petitioner

reported the income and expenses of the cleaning business on

Schedules C, Profit or Loss From Business.    On her 2001 Schedule

C, petitioner reported gross income of $5,745 and expenses of

$28,026.    On her 2002 Schedule C, petitioner reported gross

income of $2,377 and expenses of $28,045.

     In January 2006, respondent issued petitioner a notice of

deficiency.    For the taxable year 2001, the notice disallowed

claimed deductions for $16,815 of depreciation and section 179

expense; $4,031 of car and truck expense; and $323 of interest

expense.    For the taxable year 2002, the notice disallowed

claimed deductions for $2,977 of depreciation and section 179

expense; $10,390 of car and truck expense; $1,302 of meals and

entertainment expense; $329 of travel expense; $898 of wage

expense; and $5,202 of “remaining expenses”, which consist of

items such as rent, supplies, and utilities expenses.    Respondent

also determined a penalty pursuant to section 6662(a) for each

year.

     2
       Petitioner also owned a Volvo station wagon, but she
testified that it was not used in connection with the cleaning
business.
                                - 4 -

                             Discussion

     In general, the Commissioner’s determinations set forth in a

notice of deficiency are presumed correct, and the taxpayer bears

the burden of showing that the determinations are in error.     Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).     Deductions

and credits are a matter of legislative grace, and the taxpayer

bears the burden of proving entitlement to any deduction or

credit claimed on his return.   See INDOPCO, Inc. v. Commissioner,

503 U.S. 79 (1992).

     Pursuant to section 7491(a), the burden of proof as to

factual matters shifts to the Commissioner under certain

circumstances.   Petitioner has neither alleged that section

7491(a) applies nor established her compliance with the

requirements of section 7491(a)(2)(A) and (B) to substantiate

items, maintain records, and cooperate fully with respondent’s

reasonable requests.   Petitioner therefore bears the burden of

proof.

I.   Schedule C Deductions

     A taxpayer who carries on a trade or business generally may

deduct ordinary and necessary expenses paid or incurred in

connection with the operation of the business.   Sec. 162(a); see

also FMR Corp. & Subs. v. Commissioner, 110 T.C. 402, 414 (1998).

Respondent does not dispute that the cleaning business qualifies

as a trade or business for Federal income tax purposes.    Thus, we
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address only whether the expenses were ordinary and necessary,

and whether they were paid or incurred in connection with the

business.

     A.     Depreciation and Section 179 Expense

     For 2001, petitioner made an election under section 179 to

expense a portion of the cost of the Astro Van.      Petitioner

claimed a $17,886 deduction, representing a business usage of

63.88 percent multiplied by a reported total cost of $28,000.3

Respondent determined that petitioner was not eligible to make

the election.    Respondent instead allowed petitioner a

depreciation deduction of $1,071 and disallowed the remaining

$16,815 claimed on Schedule C.

     For 2002, petitioner claimed depreciation and section 179

expense of $5,378.    Respondent allowed petitioner a deduction of

$2,401 for depreciation expense and disallowed the remaining

$2,977.

     In general, a taxpayer is allowed as a depreciation

deduction a reasonable allowance for the exhaustion, and wear and

tear of property used in a trade or business.      Sec. 167(a).

Under section 179, a taxpayer may elect to expense the cost of

certain property rather than capitalizing and depreciating the

cost over time.    See sec. 179(a); Govier v. Commissioner, T.C.

     3
       The parties stipulated that the cost of the Astro Van
after rebate was $25,379. Petitioner did not explain why she
calculated the sec. 179 deduction based on a cost of $28,000.
                               - 6 -

Memo. 1990-611.   The deduction is allowed for the taxable year in

which the property is placed in service.    Sec. 179(a).   If the

property is used for trade or business as well as other purposes,

the portion of the cost of the property attributable to the trade

or business use is eligible for expensing under section 179 if

more than 50 percent of the property’s use is for trade or

business purposes.   See sec. 1.179-1(d)(1), Income Tax Regs.; see

also Whalley v. Commissioner, T.C. Memo. 1996-533.

     For 2001, respondent determined that 35 percent of the Astro

Van’s use was for trade or business purposes.     Petitioner, in

contrast, contends that the business use was 63.88 percent.     To

support her contention, petitioner introduced, inter alia, a

document titled “Weekly Expenses” that includes notations such as

“Vallejo/SF 18th”, “San Leandro 9/22”, and “Riverside 5 - 7th”.

According to petitioner, these notations represent business trips

taken in the Voyager or the Astro Van.     The document does not

indicate the distance between petitioner’s home and the

destinations listed, however, nor does it describe the purpose of

the trips.   In addition, it is not always clear whether a

particular trip was made in the Voyager or the Astro Van.

     We also note that petitioner indicated Riverside,

California, was approximately a 500-mile round trip from her

home.   When asked how it was economically feasible to travel that

distance for her cleaning business, petitioner explained that she
                                - 7 -

hoped to obtain a large cleaning contract that would enable her

to relocate to southern California.     Petitioner gave no details

about her efforts to obtain such a contract, however, and

petitioner acknowledged that her sister lived in or near

Riverside at the time.

     We conclude that petitioner has failed to establish that

more than 50 percent of the Astro Van’s use in 2001 was for trade

or business purposes.    Accordingly, she is not entitled to make

the election under section 179.    See sec. 1.179-1(d)(1), Income

Tax Regs.    Because petitioner introduced no credible evidence

establishing that respondent’s allowance for depreciation expense

was incorrect for either 2001 or 2002, respondent’s determination

on this issue is sustained.4

     B.     Expenses Subject to Section 274(d)

     Section 274(d) imposes strict substantiation requirements

for listed property, travel, entertainment, and meal expenses.

Sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014

(Nov. 6, 1985).    To obtain a deduction for such expenses, a

taxpayer must substantiate by adequate records or sufficient

evidence to corroborate the taxpayer’s own testimony the amount

     4
       The Code imposes additional restrictions on a taxpayer’s
ability to expense the cost of property under sec. 179. See,
e.g., secs. 179(b)(3)(A), 280F(d). Because petitioner failed to
establish that more than 50 percent of the Astro Van’s use in
2001 was for trade or business purposes, we do not address these
provisions.
                                 - 8 -

of the expense, the time and place of the use, the business

purpose of the use, and, in the case of entertainment, the

business relationship to the taxpayer of each person entertained.

Sec. 274(d); sec. 1.274-5T(b), Temporary Income Tax Regs., 50

Fed. Reg. 46014 (Nov. 6, 1985).

     With respect to the claimed deductions for travel,

entertainment, and meal expenses, petitioner introduced a number

of receipts and other records.    However, the receipts and records

fail to establish the business purpose of the expenses.

Accordingly, petitioner is not entitled to deductions for these

items for the taxable year 2002.

     With respect to the claimed deductions for car and truck

expense, listed property generally includes passenger automobiles

and any other property used as a means of transportation.     Sec.

280F(d)(4)(A)(i) and (ii).   In general, a passenger automobile

includes any truck or van that is 6,000 pounds “gross vehicle

weight” or less.   Sec. 280F(d)(4) and (5)(A); sec. 1.280F-

6T(c)(1)(ii), Temporary Income Tax Regs., 49 Fed. Reg. 42713

(Oct. 24, 1984).

     The Internal Revenue Code does not define the term “gross

vehicle weight”.   The regulations define it as “the value

specified by the manufacturer as the maximum design loaded weight

of a single vehicle.”   Sec. 48.4064-1(b)(3)(iv), Manufacturers &

Retailers Excise Tax Regs.   The term “gross vehicle weight
                                 - 9 -

rating” is similarly defined as “the value specified by the

manufacturer as the loaded weight of a single vehicle.”     49

C.F.R. sec. 571.3(b) (2006); see also 40 C.F.R. sec. 600.002-08

(2006).   The parties stipulated that a 2001 Astro Van has a gross

vehicle weight rating of 5,950 pounds.     Accordingly, the Astro

Van is a passenger automobile and subject to the requirements of

section 274(d).5

     For 2001, petitioner claimed a $5,459 deduction for car and

truck expense.     Respondent allowed $1,428 of that amount and

disallowed the remaining $4,031.     For 2002, petitioner claimed an

$11,430 deduction for car and truck expense.     Respondent allowed

$1,040 of that amount and disallowed the remaining $10,390.

     For the reasons discussed above, petitioner’s records fail

to meet the requirements of section 274(d).     Accordingly,

petitioner is not entitled to deductions for car and truck

expense beyond the amounts that respondent allowed.     Respondent’s

determination on this issue is sustained.

     5
       A pickup truck or van is excluded from the substantiation
requirements of sec. 274(d) if the truck or van is specially
modified to exclude more than de minimis personal use. Sullivan
v. Commissioner, T.C. Memo. 2002-131 n.2 (citing sec. 1.274-
5T(k)(7), Temporary Income Tax Regs., 50 Fed. Reg. 46035 (Nov. 6,
1985)). Because petitioner has not argued or demonstrated that
the Astro Van was so modified, this exception does not apply.
                                 - 10 -

      C.   Interest, Wage, and Remaining Expenses

      As indicated above, respondent disallowed claimed deductions

for interest expense, wage expense, and remaining expenses, such

as rent, supplies, and utilities expenses.    Petitioner either

failed to establish that she paid or incurred these expenses, or

that they were incurred in connection with the cleaning business.

Respondent’s determination therefore is sustained.

II.   Accuracy-Related Penalty

      Section 6662(a) provides that a taxpayer may be liable for a

penalty of 20 percent of the portion of an underpayment of tax

attributable to negligence or disregard of rules or regulations.

Sec. 6662(a) and (b)(1).   Negligence includes any failure by the

taxpayer to keep adequate books and records or to substantiate

items properly.   Sec. 1.6662-3(b)(1), Income Tax Regs.   Disregard

of rules or regulations includes any careless, reckless, or

intentional disregard.   Sec. 1.6662-3(b)(2), Income Tax Regs.

The Commissioner bears the burden of production with respect to

the accuracy-related penalty.     See sec. 7491(c); Higbee v.

Commissioner, 116 T.C. 438, 446 (2001).    An exception to the

section 6662(a) penalty applies when the taxpayer demonstrates

(1) there was reasonable cause for the underpayment, and (2) the

taxpayer acted in good faith with respect to the underpayment.

Sec. 6664(c).
                              - 11 -

     Respondent determined a $989 penalty for 2001 and a $947

penalty for 2002.   We sustain the penalty for each year.

Petitioner’s records are wholly inadequate to substantiate the

disallowed deductions.   Petitioner’s failure to maintain records

is especially egregious considering that she worked for the

Internal Revenue Service during the years at issue.    Petitioner

should understand the record-keeping requirements imposed by the

Internal Revenue Code.   See sec. 6001.   Petitioner should also

understand why the evidence she introduced at trial fails to

satisfy those requirements.   Respondent’s determination is

sustained.

     To reflect the foregoing,

                                          Decision will be entered

                                    for respondent.