Decision will be entered for respondent.
HOLMES,
During 2009 Galbraith was a traveling salesman selling maintenance parts like nuts, bolts, power tools, and certain electrical items. He used to work for a single company, but in 2009 he began to split his time between a distributor--Winzer--which sent him a Form W-2 that he reported as wages on his return; and his own business, whose receipts and expenses he reported on a Schedule C. Whether he was on his own time or on the distributor's time, Galbraith's job was the same. He would make cold calls on potential clients, visit those who would receive him, and try to close sales.
Many of the products that Galbraith sold were difficult to find, so he had a niche market. His Schedule C sales were very specialized, and he had only one customer2016 Tax Ct. Memo LEXIS 166">*167 in that business in the year before us, a Spanish windmill manufacturer that needed a very particular kind of bolt that Galbraith knew how to procure.
Even though Galbraith had only one non-Winzer customer that year, he claimed a great deal of mileage for what he said were cold calls for his Schedule C business. This raises an obvious question: How is it that an experienced salesman gave such frequent and voluminous sales pitches yet gets only one customer? It *170 seems more likely that Galbraith's mileage was related to his work on commission for Winzer rather than his Schedule C business. This hurts his credibility, and it isn't the only thing that does.
The most serious problem came from discrepancies in his mileage logs. He operated four vehicles during the 2009 tax year: a truck, a 1999 Jeep, a 2002 Acura, and a 2007 Acura. Galbraith claimed at trial that he recorded his daily mileage by writing the starting and ending odometer readings for each trip on a Post-it note. After he recorded the number, he would stick the Post-it note in his Day-Timer. But the mileage log for the 1999 Jeep stated that its odometer read 118,905 miles on January 1, 2009, while a Carfax report on the same2016 Tax Ct. Memo LEXIS 166">*168 vehicle showed an odometer reading of 126,121 in November 2007. Galbraith said that after he had the Jeep's dashboard replaced there was a "new starting mileage" on the Jeep. But we also spotted a similar problem in the logs for Galbraith's 2002 Acura: In November 2008 the Acura had an odometer reading of 109,422, but by January 1, 2009, it had run backward to 103,723. This time, Galbraith admitted that he couldn't account for the discrepancy. We do not find Galbraith's testimony about these logs convincing.
Galbraith also failed to report income from various sources and claimed numerous other deductions on his 2009 tax return. In October 2012 the *171 Commissioner sent him a notice of deficiency. Galbraith, a California resident, timely filed his petition. After a slew of concessions, only his Schedule C expenses and the
Car & truck | $37,152 | $750 | $36,402 |
Depreciation | 5,522 | — | 5,522 |
Insurance | 2,133 | — | 2,133 |
(non-health)2016 Tax Ct. Memo LEXIS 166">*169 | |||
Office | 3,066 | — | 3,066 |
Repairs & | 3,281 | — | 3,281 |
maintenance | |||
Travel | 2,177 | — | 2,177 |
Meals & | |||
entertainment | 342 | — | 342 |
Utilities | 6,660 | 600 | 6,060 |
Other | 4,782 | 600 | 4,182 |
Non-transcribed | 31,408 | — | 31,408 |
Total | 96,523 | 1,950 | 94,573 |
Some expenses have enhanced substantiation requirements under
Car & truck | $37,152 | $750 | $36,402 |
Galbraith claimed $37,152 in car-and-truck expenses for the 2009 tax year-- opting to use the standard mileage rate. He provided pages of purported mileage logs for the four vehicles he operated, but the discrepancies with the odometer readings make them not credible. Another problem with the logs is that Galbraith admitted twice during trial that he was out of town or doing work in his capacity as Winzer's employee on a day that he logged miles for his Schedule C business. See
Travel | $2,177 | — | $2,177 |
Meals & | |||
entertainment | 342 | — | 342 |
Galbraith claimed just over $2,177 in travel expenses and another $342 for his meals and entertainment. To substantiate these expenses, Galbraith submitted various credit-card statements and receipts for airfare, hotels, and meals. There is no way to tell from these documents, however, what the business purpose of each expense was--or if there even was one at all. Therefore, we find for the Commissioner on these expenses.
Cellular phone | $2,887 | $361 | $2,526 |
Galbraith claimed $2,887 in expenses for his cellular phones. The Commissioner did allow $361, so we are only deciding whether Galbraith is *175 entitled to any deduction beyond that. To substantiate these expenses he submitted 2009 bills from Verizon Wireless.
In 2009 cellular phones were listed property and thus subject to strict substantiation requirements under
Depreciation | $5,522 | — | $5,522 |
*176 Galbraith claimed $5,522 in depreciation expenses for the 2009 tax year. He did not submit
Insurance | |||
non-health) | $2,133 | — | $2,133 |
Galbraith claimed $2,133 in insurance expenses. The only document he submitted as substantiation was something titled "Evidence of Insurance"2016 Tax Ct. Memo LEXIS 166">*173 for the 1999 Jeep and the 2007 Acura. This document did not identify the cost of the insurance, or show that he had paid it (and it wasn't even for 2009). Again, we cannot apply
Office | $3,066 | — | $3,066 |
Galbraith claimed $3,066 in office expenses. As he did for his meals-and-entertainment expenses, Galbraith submitted only credit-card statements and receipts as substantiation. This does not help us to figure out if the expenses were personal or served a business purpose. We find for the Commissioner on this issue.
Repairs & | |||
maintenance | $3,281 | — | $3,281 |
Galbraith claimed $3,281 in expenses for repairs and maintenance. He didn't provide any documents—either contemporaneous or reconstructed—to substantiate these expenses. We were also unable to figure out what he was claiming had to be repaired or maintained. So again, Galbraith failed to substantiate his expenses. See
Utilities (other | |||
than cellular | |||
phone) | $3,773 | $239 | $3,534 |
Galbraith claimed $3,773 in other utility expenses. The Commissioner did allow $239, so we are only deciding whether Galbraith is entitled to any deduction beyond that. To substantiate these expenses he submitted 2009 bills from PG&E and AT&T.
Galbraith submitted AT&T statements for landline phones for his wife and sister-in-law. Galbraith claimed that he sometimes used his sister-in-law's phone for his own business, but even if we found his testimony credible, there is no way to distinguish between charges for personal use and charges that had a business purpose. See
*179 Galbraith also claimed utility expenses for electricity and heat. He submitted PG&E statements for his personal residence. He also testified that he conducted business in only one room of the house2016 Tax Ct. Memo LEXIS 166">*175 and that even when he did it was mostly to fax documents. Galbraith testified that he used this room only as a home office, but we don't find him credible. There's also a subtler failure of proof here: A taxpayer is only entitled to claim utilities expenses for the portion of a personal residence that he uses
To recap, the Commissioner allowed $600 in utilities expenses. Galbraith is not entitled to anything more.
Other | $4,782 | $600 | $4,182 |
*180 Galbraith claimed $4,782 in other expenses. The Commissioner allowed $600, but there was no evidence of what these expenses even were, much less how they related to Galbraith's business. No more deductions here.
Non-transcribed | |||
expenses | $31,408 | — | $31,408 |
Galbraith claimed2016 Tax Ct. Memo LEXIS 166">*176 $31,408 in "non-transcribed" expenses. These expenses are a miscellaneous-expense category, and there was no evidence to support their deductibility. See
Even though Galbraith did not claim rent as an expense on his 2009 Schedule C, he submitted a lease document relating to other years. He also submitted invoices for rent allegedly due in 2009, but no proof that he paid the rent. These documents don't prove that there was a lease or that rent was paid for the 2009 tax year, so Galbraith is not entitled to a deduction. See
*181 To sum up, poor recordkeeping—and for some categories, no recordkeeping at all—means no deductions beyond what the Commissioner already allowed.
The Commissioner determined an accuracy-related penalty under
A taxpayer can rebut the penalty only by proving that he acted with reasonable cause and in good faith.
1. All section references are to the Internal Revenue Code in effect for the year in issue, and all Rule reference are to the Tax Court Rules of Practice and Procedure, unless otherwise indicated.↩
2.
3. The Code also imposes this penalty for negligence or disregard of rules or regulations,