1997 Tax Ct. Memo LEXIS 91">*91 Decision will be entered under Rule 155.
MEMORANDUM OPINION 1997 Tax Ct. Memo LEXIS 91">*92
COUVILLION,
Respondent determined a deficiency of $ 5,359 in petitioners' Federal income tax for 1992.
The issues for decision are whether petitioners, for their 1992 tax year, are entitled to a deduction for the cost of an automobile used in the trade or business activity of Eli Yecheskel (petitioner) and deductions for other expenses incurred in that activity. 2
1997 Tax Ct. Memo LEXIS 91">*94 Some of the facts were stipulated. Those facts, with the exhibits annexed thereto, are so found and are incorporated herein by reference. At the time the petition was filed, petitioners were legal residents of Silver Spring, Maryland.
Petitioner was self-employed during 1992. He holds a doctor of philosophy degree in management science. For a time prior to the year in question, petitioner was a professor at Johns Hopkins University. Petitioner left the academic field to pursue a self-employed activity. Petitioners filed a Schedule C, Profit or Loss From Business, with their 1992 return that described petitioner's activity as research and development. At trial, petitioner testified that he was the creator of software for internet use relating to national health information and patient care management. He presented a lengthy list of clients, from all parts of the United States, which included doctors, hospitals, medical schools, scientific institutions, health organizations, academies, and government or quasi-government agencies.
On the 1992 Schedule C of their return, petitioners reported $ 500 gross income from petitioner's activity, expenses of $ 16,053, and a net loss of $ 15,553. 1997 Tax Ct. Memo LEXIS 91">*95 In the notice of deficiency, respondent disallowed all the expenses claimed but allowed petitioners a deduction of $ 510 for telephone expenses that petitioner had substantiated during the audit process. The telephone expenses allowed had not been claimed on petitioners' 1992 return. 3
The expenses claimed by petitioners on their Schedule C, which respondent disallowed, are the following:
| Insurance | $ 600 |
| Rent or lease of vehicles | 15,333 |
| Taxes and licenses | 120 |
| Total | $ 16,053 |
Respondent disallowed the expenses on the ground that the expenses related to travel and transportation, and petitioners had failed1997 Tax Ct. Memo LEXIS 91">*96 to establish that the expenses were (a) incurred during the taxable year, and (b) were ordinary and necessary business expenses.
The determinations of the Commissioner in a notice of deficiency are presumed correct, and the taxpayer bears the burden of proving that the determinations are incorrect.
The $ 15,333 item that petitioner claimed as an expense for the rent or lease of vehicles represented the cost of a Mercury Sable automobile petitioner purchased for cash on July 3, 1992. That automobile was used exclusively in petitioner's Schedule C activity by himself and his clients. 4 Petitioners presented no documentary information to substantiate the $ 600 claimed for insurance and the $ 120 claimed for taxes and licenses.
1997 Tax Ct. Memo LEXIS 91">*97 Petitioners presented no evidence and cited no authority supporting their claim of a deduction for the entire cost of the automobile in the year of purchase. It is elementary tax law that an expenditure that results in the acquisition of property with a useful life extending beyond the year of purchase is generally a capital expenditure, and the recovery of such expenditure is an allowance for depreciation under
For years after 1985, a deduction for transportation expenses (which includes depreciation) is allowed only if the taxpayer1997 Tax Ct. Memo LEXIS 91">*98 meets the strict substantiation requirements of unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating the taxpayer's own statement (A) the amount of such expense or other item, (B) the time and place of the travel * * *, (C) the business purpose of the expense or other item, and (D) the business relationship to the taxpayer of persons entertained, using the facility or property, or receiving the gift. * * *
Listed property, as defined in
The elements required to substantiate a claimed transportation expense deduction under
As to the other disallowed Schedule C expenses, petitioners presented no evidence to substantiate those expenses. Respondent, therefore, is sustained on those items.
1997 Tax Ct. Memo LEXIS 91">*100 To account for the allowed depreciation,
1. Unless otherwise indicated, section references are to the Internal Revenue Code in effect for the year at issue. All Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. Two other adjustments in the notice of deficiency were conceded by petitioner at trial: a disallowed casualty loss deduction of $ 16,190 and disallowed legal expenses of $ 20,700. The $ 16,190 casualty loss represented the amount of the loss prior to the limitation provisions of sec. 165(h)(1) and (2). After applying these limitations, the net casualty deduction claimed was $ 10,000. In a memorandum of authorities and at trial, petitioner argued that the Court should "deviate from the general rule and look behind the notice of deficiency" to establish that "the deficiency notice stems from incompetent examination of Petitioners' 1992 Tax Return or alternatively that the examination was not instituted or conducted in good faith or for a legitimate purpose." The Court rejects that argument under the well-recognized rule, which petitioner is familiar with, that this Court generally will not look behind a notice of deficiency to examine evidence used or the propriety of the Commissioner's motives, administrative policies, or procedures involved in making the determinations in the notice.
3. The adjustment in the notice of deficiency of $ 15,543 is based upon a disallowance of all the expenses claimed, $ 16,053 less $ 510 allowed for telephone expenses, which petitioners had not claimed on the return. Respondent did not reduce the $ 15,543 by the $ 500 gross income reported for the reason that petitioners failed to establish that any of the expenses claimed had been paid or incurred.↩
4. Petitioner paid for the automobile by issuance of a check in the amount of $ 15,313 payable to the dealer. No explanation was advanced to account for the $ 20 difference between the amount of the check, $ 15,313, and the amount claimed as an expense on Schedule C, $ 15,333.↩
