PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b), THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE.
DEAN,
Respondent determined a $ 6,521 deficiency in petitioners' 2003 Federal income tax and a $ 1,304.20 accuracy-related penalty under
Some of the facts have been stipulated and are so found. The stipulation of facts and the exhibits received into evidence are incorporated herein by reference. At the time the petition was filed, petitioners resided in California.
During the first 6 months of 2003, Mr. Schubert worked as a salesman selling telephone calling cards for "Winstar Communications, LLC", a.k.a. IDT Telecom. Mr. Schubert's sales routes required traveling to various parts of northern and southern California. For the last 4 months of 2003, Mr. Schubert worked for Cura Group, Inc., a.k.a. Vozzcom, which was a subcontractor for Comcast. As a subcontractor, Mr. Schubert traveled to customers' residences and disconnected the customers' cable for failure to pay their Comcast bills. Mr. Schubert was unemployed for the remainder of 2003.
Ms. Moore 2008 Tax Ct. Summary LEXIS 27">*29 worked as a real estate agent for Intero Real Estate Services and as an administrator for Superior Employment, Inc. Ms. Moore showed properties to clients, transported transactional documents, and performed other errands in San Jose, Santa Clara, and Palo Alto, California.
Petitioners timely filed a joint Form 1040, U.S. Individual Income Tax Return, for 2003. Petitioners reported $ 55,955 as compensation for services ($ 13,687 for Mr. Schubert and $ 42,268 for Ms. Moore). On petitioners' Schedule A, Itemized Deductions, they claimed a $ 75 deduction for their tax preparation materials and the following unreimbursed employee expenses:
Vehicle expense | 1 $ 12,884 | n.1 $ 12,312 |
Parking, tolls | 625 | 550 |
transportation | ||
Travel expense | 1,650 | 1,300 |
away from home | ||
Meals and | 550 | 650 |
entertainment | ||
Business expense | ||
Total | 2 20,434 | n.2 25,987 |
Respondent disallowed petitioners' deductions for unreimbursed employee expenses and tax preparation materials. Respondent allowed the standard deduction, which was larger than petitioners' itemized deductions as adjusted by respondent. Respondent's 2008 Tax Ct. Summary LEXIS 27">*30 adjustments resulted in a deficiency, and he determined an accuracy-related penalty under
At trial, Mr. Schubert submitted into evidence revised Forms 2106-EZ, Unreimbursed Employee Business Expenses, which were admitted into evidence as petitioners' new position. The revised forms reduced Mr. Schubert's claimed vehicle and business expenses to $ 10,233 and $ 2,283, respectively. The revised forms increased Ms. Moore's claimed vehicle expenses to $ 15,176 and reduced her business expenses to $ 9,225. In the revised forms, neither petitioner claimed deductions for travel, meals and entertainment, nor parking fees, tolls, and transportation. 2
The Commissioner's determinations in a notice of deficiency are presumed correct, and the taxpayer has the burden to prove that the determinations are in error.
Petitioners have not alleged or proven that
It is well established that an individual may be in the trade or business of being an employee and that ordinary and necessary expenses incurred in his trade or business are deductible subject to the limitations of
It is also well established that the taxpayer must keep records sufficient to establish the amount of the items required to be shown on his Federal income tax return. See
Mr. Schubert testified that he reduced the total $ 15,900 claimed as businesses expenses to $ 11,508 because "I omitted a lot of these extra -- the fluff"; i.e., the job search. Mr. Schubert did not explain the nature of their business expenses, 4 and no receipts or other documents were submitted into 2008 Tax Ct. Summary LEXIS 27">*33 evidence to substantiate the expenditures. Respondent's determination is sustained.
Pursuant to
To substantiate the amount of an automobile expense, the taxpayer must prove 2008 Tax Ct. Summary LEXIS 27">*34 the following: (1) The amount of the expenditure (i.e., cost of acquisition); (2) the amount of each business use and the amount of its total use by establishing the amount of its business mileage and total mileage; (3) time (i.e., the date of the expenditure or use); and (4) the business purpose for the expenditure or use. See
As to the "Rules of substantiation", the temporary regulation provides that taxpayers must substantiate each element of an expenditure or use by adequate records or other sufficient evidence that corroborates his statements.
Mr. Schubert submitted reconstructions of petitioners' mileage logs to prove their vehicle expenses. Mr. Schubert testified that he incorporated the information from the scribbles in his planner into the spreadsheet. As to Ms. Moore's vehicle expenses, Mr. Schubert testified that he extrapolated the information from calendars within an Outlook computer program belonging to Ms. Moore's employer that showed the date and the type of errand Ms. Moore performed.
Mr. Schubert did not provide the underlying materials to respondent or produce them at trial. Mr. Schubert did not testify as to the amounts of their business mileage or to the nature of their appointments. The category 2008 Tax Ct. Summary LEXIS 27">*36 designated as "purpose" merely states "Appts". Mr. Schubert attempted to explain his cursory reconstruction by stating: "it was tough enough doing the odometers * * * [and I] went back to doing the summary". The Court finds that petitioners have not satisfied the strict substantiation requirements of
A taxpayer may be allowed a deduction for ordinary and necessary expenses paid or incurred during the taxable year in connection with the determination, collection, or refund of any tax subject to the 2-percent floor of
In order to have a deductible amount, petitioners' aggregate miscellaneous itemized deductions must exceed $ 1,436.72 ($ 71,836 (AGI) x 2 percent). After the disallowance 2008 Tax Ct. Summary LEXIS 27">*37 of the unreimbursed employee expenses, petitioners' sole miscellaneous itemized deduction is the $ 75 for tax preparation materials. Petitioners' $ 75 miscellaneous itemized deduction does not exceed the 2 percent floor. Accordingly, respondent's determination is sustained.
Initially, the Commissioner has the burden of production with respect to any penalty, addition to tax, or additional amount.
In pertinent part,
In interpreting
The Court finds that respondent has met his burden of production and that petitioners were negligent. Petitioners did not properly substantiate their deductions as required by the IRC and the regulations. Petitioners did not establish a defense for their noncompliance with the IRC's requirements. Accordingly, respondent's determination is sustained.
To reflect the foregoing,
1. Amy Moore did not appear at trial or sign the stipulation of facts. The Court will dismiss Ms. Moore for failure properly to prosecute and will enter a decision against Ms. Moore consistent with the decision entered against Mr. Schubert.
1. Based on a 36-cent standard mileage rate.↩
2. Before application of the
2. Petitioners abandoned these issues at trial and in effect conceded that the following claimed deductions were not proper: (1) Travel; (2) meals and entertainment; (3) parking fees, tolls, and transportation; and (4) $ 4,392 of the total $ 15,900 in business expenses. Accordingly, respondent's determination is sustained.↩
3.
4. Mr. Schubert briefly referred to the remaining $ 11,508 in business expenses as a "home office expense". Whether the expenses are home office expenses under
5. Even if the Court were to find that petitioners had substantiated their deductions for unreimbursed employee expenses, the Court would nevertheless disallow the deductions because petitioners failed to show that their employers did not have a reimbursement policy. See, e.g.,
6. Because the Court finds for respondent on the negligence ground, the Court need not discuss the substantial understatement of income tax ground.↩