Judges: "Gustafson, David"
Attorneys: T. Keith Fogg , for petitioner. Ronald S. Collins , Keith L. Gorman , Kelly Anne Hicks , and Gary J. Merken , for respondent.
Filed: Sep. 16, 2009
Latest Update: Dec. 05, 2020
Summary: T.C. Memo. 2009-213 UNITED STATES TAX COURT LESLIE FREEMAN, JR., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 12761-08, 12793-08. Filed September 16, 2009. In 1999 and 2000 P worked as a courier for an auto parts delivery business. Each workday, P drove his own vehicle from a warehouse to several customers in a loop through Maryland and Delaware, dropping off auto parts and picking up cash and returned auto parts to deliver back to the warehouse. P drove from the locati
Summary: T.C. Memo. 2009-213 UNITED STATES TAX COURT LESLIE FREEMAN, JR., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 12761-08, 12793-08. Filed September 16, 2009. In 1999 and 2000 P worked as a courier for an auto parts delivery business. Each workday, P drove his own vehicle from a warehouse to several customers in a loop through Maryland and Delaware, dropping off auto parts and picking up cash and returned auto parts to deliver back to the warehouse. P drove from the locatio..
More
T.C. Memo. 2009-213
UNITED STATES TAX COURT
LESLIE FREEMAN, JR., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 12761-08, 12793-08. Filed September 16, 2009.
In 1999 and 2000 P worked as a courier for an auto
parts delivery business. Each workday, P drove his own
vehicle from a warehouse to several customers in a loop
through Maryland and Delaware, dropping off auto parts
and picking up cash and returned auto parts to deliver
back to the warehouse. P drove from the location of
his last customer to his home in the evening and then
drove from his home to the warehouse in the morning to
deliver the cash and returned auto parts he had
collected the previous day. At trial P alleged for the
first time that his wife also worked as a courier for
the auto parts delivery business and earned some of the
income he reported as his own.
Held: P is entitled to deduct his mileage
incurred in connection with the auto parts delivery
business, except for mileage added by his commute to
and from his home.
- 2 -
Held, further, P is not entitled to exclude his
wife’s alleged income from the auto parts delivery
business or deduct her alleged mileage incurred in
connection with that business.
T. Keith Fogg, for petitioner.
Gary J. Merken, Keith L. Gorman, and Kelly Anne Hicks, for
respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
GUSTAFSON, Judge: The Internal Revenue Service (IRS) issued
to petitioner, Leslie Freeman, Jr., two statutory notices of
deficiency on February 21, 2008, pursuant to section 6212,1
showing determinations of the following deficiencies in income
tax and accompanying failure-to-file additions to tax under
section 6651(a)(1) for tax years 1999 and 2000:
Addition to Tax
Tax Year Deficiency Sec. 6651(a)(1)
1999 $16,058 $4,014.50
2000 8,514 2,128.50
1
Unless otherwise indicated, all citations of sections refer
to the Internal Revenue Code of 1986 (26 U.S.C.), as amended, and
all citations of Rules refer to the Tax Court Rules of Practice
and Procedure.
- 3 -
After concessions,2 the issues for decision are whether
Mr. Freeman is entitled to (i) a deduction under section 162 for
his mileage between his personal residence and job locations, and
(ii) either an exclusion of his wife’s alleged portion of the
delivery business income or a deduction for his wife’s alleged
business mileage. We find that Mr. Freeman is entitled to a
deduction for his mileage, except for the mileage added by his
commute to and from his residence. We also find that Mr. Freeman
is not entitled to an exclusion for his wife’s alleged income or
a deduction for her alleged business mileage.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts filed February 23, 2009, and the
attached exhibits are incorporated herein by this reference.
Trial of this case was held in Philadelphia, Pennsylvania, on
February 23, 2009. Mr. Freeman was the only witness who
testified. At the time that Mr. Freeman filed his petition, he
resided in Delaware.
2
Mr. Freeman concedes that to the extent he is required to
show tax on his Form 1040, U.S. Individual Income Tax Return, for
either or both of the tax years at issue, he is liable for the
failure-to-file addition to tax under section 6651(a)(1).
- 4 -
Mr. Freeman’s Residence and Job at PDX
During tax years 1999 and 2000, Mr. Freeman resided with his
wife, Cheryl Freeman,3 in a house in Lincoln, Delaware, and
worked as a courier for Parts Distribution Xpress, Inc. (PDX), an
auto parts delivery company. Mr. Freeman’s job as a courier
involved picking up auto parts at PDX’s warehouse in Baltimore,
Maryland, and delivering those parts to 15 or more of PDX’s
customers on a route that went through several cities in Maryland
and Delaware. Mr. Freeman also collected cash and returned auto
parts from PDX’s customers at each stop along his route.
Following the last stop on his route, Mr. Freeman returned to his
residence in Lincoln, Delaware, without going back to PDX’s
warehouse in Baltimore. After he arrived home, he filled out
invoices. The following day he delivered the previous day’s
invoices, cash, and returned auto parts to the warehouse in
Baltimore, where he picked up the next shipment of auto parts and
repeated his route. Mr. Freeman made these deliveries for PDX 5
days each week, 50 weeks each year, during the tax years at
3
Mr. Freeman is still married to Cheryl Freeman. However,
he separated from Mrs. Freeman after their house in Lincoln,
Delaware, was destroyed by an accidental fire on November 13,
2004. She did not testify at trial.
- 5 -
issue.4 He used his own vehicles to make these deliveries and
was not reimbursed by PDX for his mileage.5
Mr. Freeman’s Delivery Route6
During tax years 1999 and 2000, Mr. Freeman’s delivery route
took the form of a loop through Delaware and Maryland, with 15 or
more stops at automobile dealers and repair shops. Mr. Freeman
started his delivery route at 5 a.m. each workday by driving 98
miles west and north from his house in Lincoln, Delaware, to
PDX’s warehouse in Baltimore, Maryland. (At mile 12 on that 98-
mile route, he passed through Harrington, Delaware, which would
later be the last stop on his delivery route.) When Mr. Freeman
arrived at the Baltimore warehouse, he dropped off the invoices,
cash, and returned auto parts that he had collected from
customers the day before, picked up the next shipment of auto
4
Mr. Freeman alleged that he worked as a courier for PDX 5
days for every week of the year, except “Christmas and Easter” or
when he was “gravely sick”. Thus, we find that the record shows
that Mr. Freeman did take some workdays off, and that he worked 5
days each week for only 50 weeks each year, for a total of 250
workdays in each of 1999 and 2000.
5
Mr. Freeman credibly testified that he purchased and used
three vehicles for his work as a courier for PDX (of which he
used one at any given time) and that he was not reimbursed for
the purchase or use of his vehicles.
6
The distances given in this opinion were not proved at
trial, but we take judicial notice of them pursuant to Fed. R.
Evid. 201(b). Mr. Freeman testified that traffic or other
considerations sometimes caused him to take alternate routes; but
he did not substantiate these alternates, and in this opinion we
assume the shortest distances between the cities on his route.
- 6 -
parts, and drove 58 miles northeast from Baltimore to Elkton,
Maryland, then 36 miles southward to Chestertown, Maryland, then
36 miles eastward to Dover, Delaware, then 18 miles southward to
Harrington, Delaware. Along each of these legs of his route,
Mr. Freeman left the highway to make stops at various locations,
but he did not testify about the particular locations. As a
result, the record shows only the main cities along his route,
between which the mileages are as follows:
Baltimore to Elkton 58
Elkton to Chestertown 36
Chestertown to Dover 36
Dover to Harrington 18
Total 148
The total minimum for this route from warehouse to last stop was
therefore 148 miles. Mr. Freeman apparently drove more than 148
miles to make his individual stops; but as we explain below, he
did not substantiate the greater number of miles he actually
drove on this route.
After his last stop in Harrington, Mr. Freeman drove
12 miles east to his house in Lincoln, Delaware. Thus, he drove
a total of no less than 258 miles each workday (i.e., 98 miles to
the warehouse, plus a minimum of 148 miles on his route, plus 12
miles to his house). It should be noted that if Mr. Freeman had
driven directly from his last delivery stop in Harrington,
Delaware, back to PDX’s warehouse in Baltimore, Maryland--a trip
of 86 miles--rather than first driving the 12 miles to his house
- 7 -
in Lincoln plus the 12 miles back to Harrington--then he would
have driven a total of 234 miles each work day, rather than the
258 miles he actually drove. His drive to his house and back
therefore constituted a 24-mile side trip from the route he
otherwise would have driven; but 234 miles of his daily circuit
were the same miles that he would have driven (and on the same
highways on which he would have driven them) if he had never
veered from his delivery route.
Mr. Freeman’s Forms 1099
During tax years 1999 and 2000, Mr. Freeman was an
independent contractor with respect to PDX. PDX paid Mr. Freeman
weekly with bank checks. PDX issued to Mr. Freeman (in his sole
name) Forms 1099-MISC, Miscellaneous Income, which showed non-
employee compensation of $52,904 for 1999 and $35,986 for 2000.
Mr. Freeman’s Substantiation of His Expenses
Mr. Freeman testified that during his work with PDX in 1999
and 2000, he drove the delivery route described above each
workday. Mr. Freeman kept a daily log of that delivery route, in
part because he needed to verify his auto part deliveries to PDX
and its customers:
You almost had to keep a log, and especially when you
took a part and a customer said that you didn’t bring
it, you could say, yes, I did, and you would keep the
amount that the part was so that you could have our tax
record. You would also keep your mileage in your logs
so that you could refer to them.
- 8 -
Mr. Freeman kept this log by recording daily his vehicles’
odometer readings and his stops in a spiral-bound logbook, the
pages of which were formatted to include dates and spaces for
different entries. However, Mr. Freeman did not present this
logbook, or any other log, calendar, diary, work or leave record,
or written record to corroborate his testimony.
Destruction of Mr. Freeman’s House and Records
On November 13, 2004, Mr. Freeman’s house in Lincoln,
Delaware, in which he had resided with his wife during the tax
years at issue, was destroyed by an accidental fire. The fire
was caused by water leakage that short circuited Mr. Freeman’s
clothes dryer. This fire and its cause were both confirmed by a
“Statement of Verification” issued by the Office of the State
Fire Marshal of the State of Delaware on January 2, 2008.
Mr. Freeman credibly testified that he kept his PDX logbook
in his house in Lincoln, Delaware, and that the logbook was
destroyed along with his house in the 2004 fire.
Mr. Freeman’s Forms 1040 and the IRS’s Notices of Deficiency
Mr. Freeman did not timely file his Forms 1040 for 1999 and
2000. However, Mr. Freeman had begun to self-prepare his Forms
1040 for 1999 and 2000 before the occurrence of the 2004 fire
that destroyed the daily log of his mileage for PDX along with
his house. Mr. Freeman used entries from his daily log to
- 9 -
calculate his business mileage for PDX for purposes of filling
out the drafts of his Forms 1040 for 1999 and 2000.
Mr. Freeman kept those drafts in a small briefcase, which he
used to transport the drafts to and from a library where he
worked on them. On the day of the 2004 fire, that briefcase and
the partially completed Forms 1040 were behind the seat of one of
Mr. Freeman’s vehicles and therefore were not destroyed. After
the 2004 fire Mr. Freeman discovered the partially completed
Forms 1040 with the business mileage for PDX already listed on
Schedule C, Profit or Loss From Business. He completed and filed
those forms using the status of married filing separately on
October 27, 2006.
On the 1999 Form 1040, Mr. Freeman claimed a deduction of
$57,900 on Schedule C under the heading “Car and truck expenses”.
He claimed $48,7007 on the Form 1040 for 2000. Mr. Freeman
calculated these claimed deductions by multiplying 30 cents8 per
7
Mr. Freeman acknowledges that he miscalculated the amount
shown on Schedule C of the 2000 Form 1040, i.e., 30 cents
multiplied by 129,000 equals $38,700, not $48,700 as
claimed.
8
Section 1.274-5(g)(1), Income Tax Regs., provides that the
Commissioner may prescribe (in pronouncements of general
applicability) a standard mileage rate that a taxpayer may use to
determine a deduction with respect to the business use of a
passenger automobile. This rate is set forth in a revenue
procedure published by the IRS each year. For 1999 the rate was
32.5 cents per mile from January 1 through March 31 and 31 cents
per mile for the remainder of the year. Rev. Proc. 98-63, sec.
2.01, 1998-2 C.B. 818, 818; Announcement 99-7, 1999-1 C.B. 306.
(continued...)
- 10 -
mile by the 193,000 business miles he reported on the Schedule C
for 1999 and the 129,000 business miles he reported for 2000.9
In the two notices of deficiency dated February 21, 2008,
the IRS disallowed Mr. Freeman’s claimed deductions for car and
truck expenses and determined the resulting deficiencies.
OPINION
At issue is Mr. Freeman’s entitlement to deductions for job-
related expenses. Section 162(a) allows a deduction for all the
ordinary and necessary expenses paid or incurred during the
taxable year in carrying on a trade or business. Section 262,
however, provides that no deduction is allowed for personal,
living, or family expenses. Deductions are strictly a matter of
legislative grace, and taxpayers must satisfy the specific
requirements for any deduction claimed. See INDOPCO, Inc. v.
Commissioner,
503 U.S. 79, 84 (1992); New Colonial Ice Co. v.
Helvering,
292 U.S. 435, 440 (1934). Furthermore, taxpayers are
required to maintain records sufficient to substantiate their
8
(...continued)
For 2000 the rate was 32.5 cents per mile. Rev. Proc. 99-38,
sec. 2.01, 1999-2 C.B. 525, 525. Mr. Freeman rounded the
standard mileage rate down to 30 cents for both 1999 and 2000.
Mr. Freeman alleged that he did so in order to simplify the
calculations on his Forms 1040.
9
Mr. Freeman alleged that he arrived at these numbers by
adding his own business mileage for PDX to his wife’s alleged
business mileage for PDX, discussed below, and rounding up or
down to the nearest thousand miles.
- 11 -
claimed deductions. See sec. 6001; sec. 1.6001-1(a), Income Tax
Regs. (26 C.F.R.).
I. Mr. Freeman’s Vehicle Expenses
A. Personal Commuting Versus Business Travel
Mr. Freeman contends that he is entitled to deduct the
standard mileage rate for the miles he drove on his delivery
route for PDX between his residence in Lincoln, Delaware, and his
job locations in Delaware and Maryland.10 In general, the cost
of daily commuting to and from work is a nondeductible personal
expense. See Commissioner v. Flowers,
326 U.S. 465, 473-474
(1946); sec. 1.162-2(e), Income Tax Regs. However, “[c]ertain
types of business-related travel have been found to be
deductible”, including “local travel incurred while performing a
job, Lopkoff v. Commissioner, T.C. Memo. 1982-701; [and] travel
between jobs or job locations, Fausner v. Commissioner,
55 T.C.
620 (1971)”. Pollei v. Commissioner,
87 T.C. 869, 872 (1986),
revd. on another issue
877 F.2d 838 (10th Cir. 1989). In order
10
At trial Mr. Freeman also contended for the first time
that he is entitled to deduct the tolls he allegedly paid on his
delivery route. However, Mr. Freeman did not claim deductions
for tolls on his 1999 and 2000 Forms 1040, nor did he place
deductions for tolls in issue in his petition. Therefore, we
need not consider this contention. See Lewis v. Commissioner,
90
T.C. 1044, 1053-1054 (1988). Moreover, Mr. Freeman does not
allege, nor does the record show, that he ever kept any records
or otherwise kept track of the tolls he allegedly paid on his
delivery route. Therefore, even if the issue of deductions for
tolls were properly before this Court, Mr. Freeman has failed to
substantiate those expenses.
- 12 -
to prevail, Mr. Freeman must prove that his mileage arises from
deductible business-related travel rather than nondeductible
commuting.
“Unreimbursable transportation expenses incurred between two
places of business are deductible.” Gilliam v. Commissioner,
T.C. Memo. 1986-90 (citing Steinhort v. Commissioner,
335 F.2d
496, 503-505 (5th Cir. 1964), affg. and remanding T.C. Memo.
1962-233); see also Pollei v.
Commissioner, supra at 872; Fausner
v. Commissioner,
55 T.C. 620 (1971).
However, as is noted above, the cost of daily commuting to
and from work is a nondeductible personal expense. See
Commissioner v. Flowers, supra at 473-474; sec. 1.162-2(e),
Income Tax Regs. Respondent characterizes Mr. Freeman’s 12-mile
drive from the Harrington delivery stop to his house and the 98-
mile drive from his house to the Baltimore warehouse as personal
commutes and therefore as nondeductible. Evaluating this
characterization requires attention to the purpose and occasion
of the miles driven.
In Lopkoff v. Commissioner, T.C. Memo. 1982-701, we observed
that “[i]f traveling between two businesses is an allowable
section 162(a) deduction, traveling within a business is most
assuredly so.” In Lopkoff, the taxpayer worked at a hospital as
an administrative employee and also ran her own x-ray delivery
business on the side. In that case, the taxpayer picked up x-
- 13 -
rays at the end of her workday at the same hospital where she
worked, and then drove 27 miles to deliver them to a medical
center for interpretation by a radiologist. Afterward, she drove
one-half mile from the medical center to her personal residence.
The next morning, the taxpayer would drive one-half mile from her
personal residence to the medical center to pick up the x-rays
she had delivered the previous day. The taxpayer then drove
27 miles to deliver the interpreted x-rays to the hospital, where
she began her workday as an administrative employee. In Lopkoff,
we held that the taxpayer’s nondeductible “commute was from her
home to where she began the first of her trades or businesses,”
i.e., the half mile from her personal residence to the medical
center, where she began to travel within her x-ray delivery
business. A “[delivery] business is the travel itself.”
Id.
Therefore, any transportation expense incurred in a delivery
business is travel within a business, and “is most assuredly”
deductible.
Id.
B. Analysis of Mr. Freeman’s Mileage
Mr. Freeman worked as a courier for PDX, and thus there is
no dispute that he was engaged in a delivery business during the
tax years at issue. Any transportation expense that Mr. Freeman
incurred within that business “is most assuredly” deductible to
the extent that he substantiates it.
Id. Therefore, the pivotal
question is whether the mileage reported on Mr. Freeman’s 1999
- 14 -
and 2000 Forms 1040 was incurred in connection with his auto
parts delivery business or his personal commute from his house to
work.
1. Mileage Between PDX’s Warehouse and
Mr. Freeman’s Stops on His Delivery
Route
PDX’s warehouse and the stops on Mr. Freeman’s delivery
route in Maryland and Delaware are indisputably places of
business for Mr. Freeman. Respondent does not allege that
Mr. Freeman’s mileage between these locations was incurred in
connection with his personal commute. It is clear that such
mileage (at least 148 miles per workday) arose from travel
between two job locations, discussed above, and travel within a
business, and is deductible under either rationale if
substantiated. Therefore, Mr. Freeman is entitled to a deduction
for his substantiated mileage between those job locations (i.e.,
the 148 miles from Baltimore to Harrington).
2. Mileage To and From Mr. Freeman’s House
In his brief, respondent contends that even if Mr. Freeman
substantiates his mileage in the tax years at issue, his mileage
“between home and the PDX warehouse and between the last stop of
the day and home represents commuting for which no deduction is
available.” Respondent points out that on these legs of the trip
to and from his house, Mr. Freeman made no stops for any
customers; and respondent contends that Mr. Freeman’s mileage on
- 15 -
those legs therefore represents personal commuting. However, as
to most of the pertinent miles, this last contention contradicts
the facts. Unlike the taxpayer in Lopkoff v.
Commissioner,
supra, who always dropped off the x-rays before her one-half-mile
commute to and from her personal residence, Mr. Freeman was
required to deliver from Harrington (his last stop) to the
Baltimore warehouse the invoices, cash, and returned auto parts
that he had collected along his delivery route. Thus, any
mileage arising from this Harrington-to-Baltimore delivery was
incurred in connection with Mr. Freeman’s auto parts delivery
business, and its costs are deductible if substantiated.
However, PDX did not require Mr. Freeman to live 12 miles
off his route in Lincoln, Delaware. Rather, Mr. Freeman must
have had other reasons, sufficient to him, for living there. He
is certainly free to live there and free to work wherever he
pleases, but his reasons for living in Lincoln were personal in
nature and unrelated to his job at PDX. Cf. Tucker v.
Commissioner,
55 T.C. 783, 785-788 (1971). Mr. Freeman
transported the invoices, cash, and returned auto parts in his
vehicle when he drove in the evening from his last stop of the
day in Harrington to his house in Lincoln, and when he drove the
next morning from his house in Lincoln, through Harrington, and
on to PDX’s warehouse in Baltimore. Since Mr. Freeman was
required to return the cash and parts to Baltimore, but was not
- 16 -
required to do so via a side trip to and from his house, the
mileage he incurred in connection with that route arose from both
business-related and personal travel. Thus, Mr. Freeman’s
mileage from that route arose from travel within a business (and
is therefore deductible) only to the extent that it did not
exceed the distance of the trip that PDX required him to make,
i.e., the distance between his last stop of the day and PDX’s
warehouse. See Pollei v. Commissioner,
87 T.C. 872; Lopkoff
v. Commissioner, T.C. Memo. 1982-701. Any excess mileage is
nondeductible commuting that is attributable to Mr. Freeman’s
personal choice to live in Lincoln, Delaware. Therefore,
Mr. Freeman is entitled to deduct--if substantiated--the costs of
234 miles per workday, which represents (i) the 148 miles between
PDX’s warehouse and the stops on his delivery route in Maryland
and Delaware; and (ii) the 86 miles between his last stop of the
day in Harrington, Delaware, and PDX’s warehouse. The additional
24 miles, which he drove from his last stop to home and back,
constituted nondeductible commuting that arose from his personal
choice to live off his route in Lincoln, Delaware.
C. Substantiation
Respondent contends that Mr. Freeman’s claimed deductions
under section 162 for car and truck expenses of $57,900 for 1999
and $48,700 for 2000 must be disallowed for the additional reason
- 17 -
that he has not substantiated the mileage he claims to have
driven in connection with his auto parts delivery business.
In addition, section 274(d) imposes stringent substantiation
requirements for claimed deductions relating to the use of
“listed property”, which is defined under section
280F(d)(4)(A)(i) to include passenger automobiles. Under this
provision any deduction claimed with respect to the use of a
passenger automobile, like Mr. Freeman’s vehicles, will be
disallowed unless the taxpayer substantiates specified elements
of the use by adequate records or by sufficient evidence
corroborating the taxpayer’s own statement. See sec. 274(d);
sec. 1.274-5T(c)(1), Temporary Income Tax Regs., 50 Fed. Reg.
46016 (Nov. 6, 1985).
The elements that must be substantiated to deduct the
business use of an automobile are: (i) the amount of the
expenditure; (ii) the mileage for each business use of the
automobile and the total mileage for all uses of the automobile
during the taxable period; (iii) the date of the business use;
and (iv) the business purpose of the use of the automobile. See
sec. 1.274-5T(b)(6), Temporary Income Tax
Regs., supra.
In lieu of substantiating the actual amount of an
expenditure relating to the business use of a passenger
automobile, a taxpayer may use a standard mileage rate
- 18 -
established by the Internal Revenue Service.11 See
sec. 1.274-5(j)(2), Income Tax Regs. Use of the standard mileage
rate establishes the amount deemed expended with respect to the
business use of a passenger automobile, but such use does not
relieve a taxpayer of his burden of substantiating the other
elements required by section 274 and the regulations thereunder.
Sec. 1.274-5(j)(2), Income Tax Regs.
Mr. Freeman kept a daily log for his auto parts delivery
business in a spiral-bound logbook that would have provided the
required information. However, Mr. Freeman testified--and
provided a “Statement of Verification” from the Office of the
State Fire Marshal of the State of Delaware to prove--that his
house was destroyed, along with its contents, including his
logbook, in an accidental fire. “It is well established that the
Tax Court may permit a taxpayer to substantiate deductions
through secondary evidence where the underlying documents have
11
As respondent notes, the so-called fleet rule may prohibit
the use of the standard mileage rate in the tax years at issue to
compute the deductible expenses of two or more automobiles used
simultaneously. Rev. Proc. 98-63, sec. 5.06, 1998-2 C.B. at 820;
Rev. Proc. 99-38, sec. 5.06, 1999-2 C.B. at 527; see also West v.
Commissioner,
63 T.C. 252, 254-255 (1974). Mr. Freeman makes
several arguments for the inapplicability of the fleet rule here.
However, as is discussed below, we do not accept Mr. Freeman’s
unsupported testimony that his wife or others also simultaneously
drove additional miles in connection with his auto parts delivery
business; we allow a deduction for only one driving of the
delivery route--by one vehicle--each day. Consequently, the
fleet rule is not applicable to this case and Mr. Freeman may use
the standard mileage rate.
- 19 -
been unintentionally lost or destroyed.” Davis v. Commissioner,
T.C. Memo. 2006-272 (citing Boyd v. Commissioner,
122 T.C. 305,
320-321 (2004), Malinowski v. Commissioner,
71 T.C. 1120, 1125
(1979), Furnish v. Commissioner, T.C. Memo. 2001-286, Joseph v.
Commissioner, T.C. Memo. 1997-447, Watson v. Commissioner, T.C.
Memo. 1988-29). Moreover, even though Congress imposed stringent
substantiation requirements for some business deductions by
enacting section 274, the regulations under that section allow a
taxpayer to “substantiate a deduction by reasonable
reconstruction of his expenditures or use” when records are lost
through circumstances beyond the taxpayer’s control, including a
fire. Sec. 1.274-5T(c)(5), Temporary Income Tax
Regs., supra.
If documentation is unavailable, we may accept the taxpayer’s
credible testimony to substantiate the deduction. See Boyd v.
Commissioner, supra at 320; Watson v.
Commissioner, supra.
Having observed Mr. Freeman’s appearance and demeanor at
trial, we find him to be credible with respect to the route he
drove in connection with his auto parts delivery business. We
find that Mr. Freeman at one time possessed adequate
documentation, in the form of a daily log, to establish the
required elements under section 274(d) for deducting his business
mileage. His failure to produce that daily log stemmed from
circumstances beyond his control--namely, the accidental fire
that destroyed his house and the logbook. Although he did not
- 20 -
testify about the details of the locations of each stop along his
route, Mr. Freeman did provide through his testimony a reasonable
reconstruction of his general route. We therefore hold that
Mr. Freeman kept adequate records to substantiate his business
mileage for tax years 1999 and 2000, to the extent of 234 miles
per day.
II. Mr. Freeman Is Not Entitled to Exclude His Wife’s Alleged
Income From PDX Or Deduct Her Alleged Business Mileage
Incurred In Connection With PDX
At trial Mr. Freeman contended for the first time that his
wife also worked as a courier for PDX, and that half of the
income and business mileage shown on his 1999 and 2000 Forms 1040
is attributable to her. Mr. Freeman explained that his wife was
contractually obligated to refrain from working for PDX, under a
covenant not to compete that she had entered into with a previous
employer. To evade this contractual obligation, PDX allegedly
agreed to pay Mr. Freeman for Mrs. Freeman’s deliveries and to
issue one Form 1099 in Mr. Freeman’s name only for both of the
Freemans’ compensation. On the basis of these alleged facts,
Mr. Freeman contends in the alternative that he is entitled
either (i) to exclude his wife’s income from PDX, or (ii) to
deduct the costs of his wife’s business mileage incurred in
connection with PDX.
However, Mr. Freeman’s contention lacks merit for two
reasons. First, this contention is not properly before the
- 21 -
Court, because Mr. Freeman failed to raise in his petition the
issue of his wife’s working for PDX. See Lewis v. Commissioner,
90 T.C. 1044, 1053-1054 (1988). Second, even if this issue were
properly before the Court, Mr. Freeman failed to prove that
portions of the income from PDX shown on his 1999 and 2000 Forms
1040 are the income of his wife (as opposed to income properly
his, even if paid by PDX for work done by his wife as his agent
or employee). Neither Mrs. Freeman nor any personnel from PDX
attended the trial or testified. Thus, the only evidence that
Mrs. Freeman worked independently for PDX, earned her own income
from PDX, or incurred business mileage expenses in connection
with PDX is Mr. Freeman’s unsupported testimony. Moreover, this
testimony is contradicted by Mr. Freeman’s 1999 and 2000 Forms
1040, and the Forms 1099-MISC issued to Mr. Freeman by PDX, which
all identify the income from PDX as his and his alone. Mr.
Freeman made no showing that his wife reported this income on tax
returns of her own. On the record before us, we cannot find that
any portion of the income from PDX is attributable to Mrs.
Freeman, or that she incurred any additional business mileage
expenses in connection with PDX for which Mr. Freeman might be
entitled to a deduction. Accordingly, Mr. Freeman is not
entitled to exclude his wife’s alleged income from PDX nor to
deduct any additional business mileage expenses allegedly
incurred by her in connection with PDX.
- 22 -
Therefore, we hold that Mr. Freeman is entitled to
deductions under section 162 for 234 miles for each of his 250
workdays (i.e., 58,250 miles) in both 1999 and 2000 using the
applicable standard mileage rates. We also hold that Mr. Freeman
is not entitled to exclude the portions of his income allegedly
attributable to his wife nor to deduct her alleged additional
mileage expenses incurred in connection with PDX deliveries.
To reflect the foregoing,
Decisions will be entered
under Rule 155.