Ferrington v. Department of Revenue ( 2014 )

IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Income Tax
VICTORIA FERRINGTON, )
)
Plaintiff, ) TC-MD 130349D
)
v. )
)
DEPARTMENT OF REVENUE, )
State of Oregon, )
)
Defendant. ) FINAL DECISION
The court entered its Decision in the above-entitled matter on April 9, 2014. The court
did not receive a request for an award of costs and disbursements (TCR-MD 19) within 14 days
after its Decision was entered. The court’s Final Decision incorporates its Decision without
change.
Plaintiff appeals Defendant’s Notices of Deficiency Assessment, dated February 27,
2013, denying Plaintiff’s claimed employee business expenses and job search expenses for tax
years 2010 and 2011. A trial was held in the Oregon Tax Court Courtroom, Salem, Oregon, on
January 27, 2014. Plaintiff appeared and testified on her own behalf. Nancy Berwick (Berwick),
Tax Auditor, appeared and testified on behalf of Defendant.
Plaintiff’s Exhibits 1 through 11 and Defendant’s Exhibits A through H were admitted
without objection.
I. STATEMENT OF FACTS
Plaintiff testified that she claimed deductions for business expenses incurred while
employed as an outside sales representative for Latin Media NW in tax year 2010 and as the
corporate sales manager for The Fruit Company during tax years 2010 and 2011. (Ptf’s Compl
at 1; Ptf’s Exs 2, 4; Def’s Exs C-D.) Plaintiff testified that she is entitled to deductions claimed
FINAL DECISION TC-MD 130349D 1
for expenses relating to her job search conducted April through September 2010. (Ptf’s Ex 1 at
2; Def’s Ex B at 7.) She testified that the claimed business expenses and job search expenses
included payments made for a shared cell phone, internet, office supplies, computer repairs,
parking, meals and entertainment, and transportation expenses. (Ptf’s Exs 1, 6, 9.)
Plaintiff testified that her work with Latin Media NW in 2010 required substantial daily
travel to make sales calls and service existing clients. (See Ptf’s Ex 1 at 2.) She testified that her
employer’s reimbursement policy did not reimburse her for transportation, cell phone expenses,
client gifts, or other work-related expenses. (See Ptf’s Exs 1 at 2, 4 at 1.) Plaintiff submitted a
letter from Latin Media NW stating that it did not reimburse Plaintiff “for any incurred expenses
such as cell phone use, client gifts, and automobile gas mileage.” (Ptf’s Ex 4 at 1.) Plaintiff
provided one cell phone bill addressed to her daughter and testified that she paid her daughter for
a portion of the cell phone expenses. Plaintiff also provided a signed statement from her
daughter indicating that Plaintiff “tends to pay me every 2 months for her phone. The check is
usually $230.00 for every 2 months.” (Ptf’s Ex 3 at 1.) Plaintiff testified that the internet service
purchased for use at home is utilized for both work and personal use. In support of her claimed
internet expense, Plaintiff provided a welcome email and one monthly bill for her internet use in
2010. (Ptf’s Ex 9 at 18, 22.)
To substantiate her transportation expenses, Plaintiff submitted a log book that listed her
appointments for each relevant work day in 2010. (Ptf’s Ex 7.) In that log book, Plaintiff noted
the date and time of each appointment, and the name of the client and its address. (Id.) At the
top of each daily log entry, Plaintiff indicated her starting address – her home in Vancouver,
Washington – and the total number of miles for the day. (Id.) Plaintiff did not indicate the
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FINAL DECISION TC-MD 130349D 2
number of miles for each client contacted and at times did not state the specific business purpose
for the client contact. (Id.)
For a portion of tax year 2010 and all of tax year 2011, Plaintiff testified that she was
employed as the corporate sales manager at The Fruit Company. (Ptf’s Exs 1 at 2, 4 at 2.)
Plaintiff testified that her duties included early morning computer work at home, daily client
calls or meetings, sales calls, team member training, sample distribution, and additional work at
home in the evening. (See Ptf’s Ex 1 at 2.) Plaintiff testified that she worked significantly more
than 40 hours per week, both beginning and ending her work activities at home each day. (Ptf’s
Ex 1 at 3.) Plaintiff submitted a letter from her employer stating that The Fruit Company
reimbursed Plaintiff “for approved expenses incurred on behalf of the company, which are
typically only travel-related costs for attendance at trade shows.” (Ptf’s Ex 4 at 2.) Plaintiff
submitted a daily log book for her work for The Fruit Company in 2010 and 2011; the log book
for 2011 was similar in format to that submitted for 2010. (Ptf’s Exs 7, 10.) Plaintiff also
provided a summary excel spreadsheet of her 2011 log book. (Ptf’s Ex 8.)
Plaintiff testified that The Fruit Company corporate offices were located in Hood River,
Oregon. (See Ptf’s Ex 2 at 1.). Plaintiff testified that the direct commute to her office from her
home in Vancouver, Washington, was 53 miles, or 106 miles round-trip. On her 2011 tax return,
Plaintiff noted 10 miles as her daily commute; Plaintiff testified that because she began her work
at home most days and then traveled to her first sales call, she believed that she had no commute.
(Def’s Ex C at 3.) According to Plaintiff’s testimony, the stated 10-mile commute represented
an average of the occasional direct commute from home to work.
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FINAL DECISION TC-MD 130349D 3
Plaintiff claimed the following expenses for tax years 2010 and 2011.
2010 2011
Transportation ($0.50 per $6,901.00 (13,803 miles) $19,313.00 (38,626 miles)
mile rate)
Parking $559.00 $67.00
Other Travel Expenses $300.00 $3,342.00
Other Business Expenses $4,503.00 $8,415.00
Meals & Entertainment $113.00 ($227.00 x 50%) $706.00 ($1,411.00 x 50%)
Job Supplies $3,926.00
TOTAL $12,376.00 $35,769.00
(Def’s Exs C, D at 6, 12.) In addition, Plaintiff submitted the following receipts to support her
claimed expenses.
2010 2011
Gas $786.83 $3,305.06
Vehicle Expenses $451.24 $66.00 (car wash)
Computer Expenses $304.98 $187.20
Cell Phone $370.62 (shared account with 0.00
her daughter)
Internet 0.00 $36.991
Parking 0.00 0.00
Meals & Entertainment $145.51 $433.09
Office Supplies $46.25 (team snacks/drinks) $796.67 (team snacks/drinks)
$42.68 (paper/copies) $78.38 (copies/binders)
Trade Show Expenses $8.50 0.00
Postage $10.63 0.00
TOTAL $2,167.24 $4,903.39
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1
Plaintiff provided one statement stating monthly charges of $36.99. (Ptf’s Ex 9 at 22.) Plaintiff provided
an introductory email from Comcast, noting service began in June, 2011. (Id. at 18.)
FINAL DECISION TC-MD 130349D 4
(Ptf’s Exs 9, 11.) Plaintiff acknowledged that several of her submitted receipts were illegible or
only partially copied. (Id.) Plaintiff admitted that on some receipts, the copies cut off Plaintiff’s
written notes regarding the expense, rendering them indecipherable. (Id.)
Defendant disallowed Plaintiff’s claimed expenses. Berwick testified that Plaintiff’s
claimed deductions were not substantiated by Plaintiff’s evidence. Berwick testified that
Plaintiff failed to adequately separate business and personal expenses, pointing to Plaintiff’s
receipts for cell phone and internet service charges. (See Ptf’s Exs 6 at 12-17, 9 at 22.) Berwick
expressed concern that Plaintiff claimed duplicate expenses, which resulted in double-counting
of some claimed deductions, including the use of both mileage and gas receipts for her claimed
transportation deduction. (See Def’s Ex H at 1.) Berwick testified that Plaintiff failed to reduce
her claimed business mileage expense for commuting to her workplace and her mileage log did
not include individual notations on the business purpose of each trip or the specific mileage per
trip. (See id; see also Ptf’s Exs 7, 10.)
Following the audit, Defendant adjusted Plaintiff’s 2010 return to allow $30 of Other
Business Expenses and disallowing all other claimed business and job search expenses.
(Def’s Ex D at 6.) Defendant adjusted Plaintiff’s return for tax year 2011, allowing $28 of Other
Business Expenses and disallowing all other claimed business expenses. (Def’s Ex D at 12.)
II. ANALYSIS
The issue before the court is Plaintiff’s deduction of claimed employee business and job
search expenses. The Oregon Legislature has adopted the federal definition for deductions in
order to “make Oregon personal income tax law identical to the Internal Revenue Code (IRC) for
purposes of determining Oregon taxable income[.]”2 Ellison v. Dept. of Rev. (Ellison), TC-MD
2
The court’s references to the Internal Revenue Code and accompanying regulations are to the 1986 code,
and include updates applicable to 2010 and 2011.
FINAL DECISION TC-MD 130349D 5
No 041142D, WL 2414746 at *6 (Sept 23, 2005). That election is “subject to adjustments and
modifications specified in Oregon law.” ORS 316.007;3 Ellison, WL 2414746 at *6.
To prevail in her dispute in the Oregon Tax Court, Plaintiff bears the burden of proof and
must demonstrate her case by a preponderance of the evidence. ORS 305.427. That means that
she must demonstrate she is entitled to her claimed expenses by the “more convincing evidence.”
Feves v. Dept. of Revenue, 4 OTR 302, 312 (1971). If Plaintiff provides evidence that is
inconclusive, or simply unpersuasive to the court, she has failed to carry her burden of proof and
her claim fails. Reed v. Dept. of Rev., 310 Or 260, 265, 798 P2d 235 (1990). Despite any claims
made by either Plaintiff or Defendant, the court may, itself, determine the correct tax owed, if
any. ORS 305.575.
A. Statutory framework
As a general rule, Internal Revenue Code (IRC) § 262 does not permit deductions to be
taken for any personal, living, or family expenses unless those deductions are specifically
allowed elsewhere in the IRC. According to IRC § 162(a), an eligible taxpayer may claim a
deduction for “all the ordinary and necessary expenses paid or incurred during the taxable year in
carrying on any trade or business[.]” Under that IRC section, a taxpayer must demonstrate the
business expense in question is both “ordinary” and “necessary” for the taxpayer to carry on her
employment. IRC § 162(a). An expense is necessary under the IRC if it is “ ‘appropriate and
helpful’ to the taxpayer’s business.” Boyd v. Comm’r, 83 TCM (CCH) 1253, WL 236685 at *2
(2002) (internal citations omitted). To be ordinary, the expense “must be of a common or
frequent occurrence in the type of business involved.” Id. Under Oregon case law, that does not
mean that an expense is ordinary simply because the taxpayer customarily experiences it;
3
The court’s references to the Oregon Revised Statutes (ORS) are to the 2009 version.
FINAL DECISION TC-MD 130349D 6
instead, it is ordinary if it “is customary or usual[] * * * [for] a particular trade, industry or
community.” Roelli v. Dept. of Rev., 10 OTR 256, 258 (1986) (citing Welch v. Helvering, 290
US 111, 54 S Ct 8, 78 L Ed 212 (1933)); Guinn v. Dept. of Rev., TC-MD No 040472D, WL
1089727 at *4 (Apr 19, 2005) (citing Roelli at 258).
To qualify for some deductions permitted under IRC § 162(a), a taxpayer must meet a
substantiation threshold set out in IRC section 274(d)(4), which requires “adequate records or []
sufficient evidence corroborating the taxpayer’s own statement” for any travel expenses or
expenses relating to entertainment. Because deductions are allowable as “a matter of legislative
grace, [the] taxpayer must meet the specific requirements for any deduction claimed[,]”
including the maintenance of “records sufficient to substantiate their claimed deductions.”
Gapikia v. Comm’r, 81 TCM (CCH) 1488, WL 332038 at *2 (2001) (citations omitted). If a
taxpayer claims an allowable deduction but fails to provide adequate written substantiation that
she is entitled to that expense, the deduction may be denied. See IRC § 274(d); Temp Treas Reg
§ 1.274-5T(a)(4) (as amended in 2003). For a taxpayer to be entitled to claimed transportation,
meals, or entertainment, a taxpayer must satisfy the requirements of both IRC §§ 162(a) and
274(d).
B. Transportation expenses
The court first addresses Plaintiff’s claimed deduction for the business use of her
personal automobile. Plaintiff claimed deductions for unreimbursed transportation expenses for
tax years 2010 and 2011. Plaintiff elected to claim that deduction as a per-mile deduction, at a
rate of $0.50 per mile claimed. For 2010, Plaintiff claimed $6,901 in work-related transportation
expenses for her work with Latin Media NW and The Fruit Company. Of those mileage
expenses, Plaintiff claimed $580.50 for travel to job interviews during a period of unemployment
FINAL DECISION TC-MD 130349D 7
in 2010. Plaintiff claimed $19,313 in transportation expenses in 2011 for work performed for
The Fruit Company.
1. Necessary and ordinary under IRC § 162(a)
Plaintiff testified at trial, and Defendant did not disagree, that transportation costs
incurred as a result of business-related sales calls were both necessary and ordinary for her sales-
related employment at Latin Media NW and The Fruit Company during the relevant tax years.
Likewise, Defendant does not challenge on the basis of the requirements of IRC § 162(a) those
transportation expenses incurred as a result of Plaintiff’s job search interviews in 2010.
2. Substantiation under IRC § 274(d)
To adequately substantiate transportation expenses as required by IRC § 274(d), a
taxpayer must provide for each use the mileage, time, place, and business purpose. See Temp
Treas Reg § 1.274-5T(b)(2),(c). A taxpayer may provide substantiation through written
documents accurately representing that information in the form of trip logs or a diary or other
document, ideally prepared contemporaneously or near the same time as the use. Contreras v.
Commissioner, 93 TCM (CCH) 1017 (2007) (citations omitted). If a taxpayer cannot produce a
trip log prepared at the time of use, she must provide another type of evidence that corroborates
her claims, and that evidence “must have a high degree of probative value to elevate [it] to the
level of credibility [of a contemporaneous record].” Temp Treas Reg § 1.274-5T(c)(1) (as
amended in 2003); see Daiz v. Comm’r, 84 TCM (CCH) 148, WL 1796832 at *6 (2002).
Plaintiff provided two sets of daily log books for the miles traveled in her personal
automobile during 2010 and 2011, and a summary excel spreadsheet of her 2011 log book.
Plaintiff testified that she kept handwritten records at the time of the automobile use, but did not
include those records in her exhibits. The accuracy of Plaintiff’s spreadsheet is not confirmed
FINAL DECISION TC-MD 130349D 8
because Plaintiff failed to submit the original logs. Plaintiff’s daily log books typically included
a date and time of appointment and the business name and address of the client contact. The top
of each daily log entry included a total daily mileage; Plaintiff did not break out that daily
mileage for each client contact. Some, but not all, entries stated a specific business purpose.
To provide substantiation sufficient to satisfy the requirements of IRC § 274(d), Plaintiff
must support any item not stated in her daily log, such as business purpose, with an “adequate
record * * * which substantiates business/investment use * * * [h]owever, the level of detail
required in an adequate record * * * may vary depending upon the facts and circumstances.”
Temp Treas Reg 1.274-5T(c)(2)(ii)(C). Plaintiff testified that her travel typically correlated with
sales calls on current or prospective clients in 2010 and 2011. Defendant did not dispute
Plaintiff’s testimony that the business purpose of her travel was primarily for sales calls. For
mileage associated with Plaintiff’s employment in 2010 and 2011, the court accepts Plaintiff’s
substantiation provided by her daily logs and supporting spreadsheet for those entries that state a
location and date, and where the purpose of the business trip is discernible from the evidence
provided.
For mileage incurred as a result of Plaintiff’s 2010 employment interviews, Plaintiff
provided entries in her 2010 daily log book listing the interviewing employer, total mileage
incurred, and the date and location of the interview. Because “expenses incurred in seeking new
employment in the same trade or business are deductible under [IRC] section 162 * * * if
directly connected with such trade or business[,]” the substantiation requirements for Plaintiff’s
travel expenses relating to her job interviews are the same. Rev Rul 75-120. For the mileage
claimed for job search in 2010, the court accepts Plaintiff’s substantiation. As a result, the court
FINAL DECISION TC-MD 130349D 9
accepts Plaintiff’s transportation expenses of $580.50 for travel associated with her 2010 job
search.
3. Commuting
Under IRC § 162, a taxpayer may deduct “such traveling expenses [that] are reasonable
and necessary in the conduct of the taxpayer’s business and directly attributable to it * * *.”
Treas Reg § 1.162-2(a). Generally, a taxpayer may not deduct daily transportation expenses,
commonly referred to as commuting expenses, incurred in going between the taxpayer’s
residence and her regular place of business or employment. Treas Reg § 1.262-1(b)(5); see also
1.162-2(e); Rev Rul 99-7, 1999-1 C B 361. That rule is based on the premise that “* * * where a
taxpayer chooses to live is a personal decision. The distance a taxpayer chooses to live from
[her] place of business does not change the character of the expense.” Harding v. Dept. of Rev.,
13 OTR 454, 458 (1996); see Commissioner v. Flowers, 326 US 465, 473, 66 S Ct 250, 90 L Ed
203 (1946). In contrast, if a taxpayer has one or more regular work locations away from the
taxpayer’s residence, the taxpayer may deduct daily transportation expenses incurred in going
between the taxpayer’s residence and a temporary work location in the same trade or business.
Rev Rul 99-7, 1999-1 CB 361. A taxpayer bears the burden of proof.
Plaintiff claims that her work day begins at home where she conducts required
employment-related business activities. According to Plaintiff, her home is her first job site and
any travel from her home to another sales call is not a commute but is an allowable deduction.
Plaintiff provided no substantiation in her daily log, specifically mileage and business purpose,
that her claimed transportation expense was incurred in going between her residence and a
temporary work location. If Plaintiff’s work at home is not conducted in her principal place of
business as that term is defined by IRC § 280A(c)(1), then “the business activity there (if any) is
FINAL DECISION TC-MD 130349D 10
not sufficient to overcome the inherently personal nature of the residence and the daily
transportation expenses incurred in going between the residence and regular work locations.”
Rev Rul 99-7. Plaintiff has not sought to establish, nor has she established, a home office or
principal place of business under IRC § 280A(c)(1). Although Plaintiff testified that she
regularly completed some employment-related work at her residence, Plaintiff failed to establish
that her primary purpose in returning home was to return to her principal place of business to
conduct work. Plaintiff’s mileage deductions must be reduced by the amount of her daily
commute to and from the corporate business or headquarters where her office is located.
In the early part of 2010, Plaintiff was employed by Latin Media NW with corporate
offices located in downtown Portland, Oregon. Plaintiff lived in Vancouver, Washington, in
2010. Plaintiff did not provide evidence as to the distance between her residence and the Latin
Media NW offices. Without information on the number of personal miles traveled daily for her
commute, Plaintiff’s allowable mileage cannot be determined. Plaintiff failed to meet her burden
of proof. Plaintiff’s request for a deduction for travel related to her work at Latin Media NW is
denied.
From September 2010 through the end of tax year 2011, Plaintiff was employed by The
Fruit Company. Plaintiff testified that the average commute between her home in Vancouver,
Washington, and her workplace, The Fruit Company in Hood River, Oregon, was 106 miles
round-trip; Berwick did not dispute Plaintiff’s testimony. Plaintiff’s daily commute of 106 miles
is deducted from the mileage claimed in her daily log. All other mileage properly substantiated
by entries in Plaintiff’s daily logs including a noted business purpose as required by IRC §
274(d) will be allowed.4
4
The court disallows 42 miles claimed by Plaintiff for travel to and from the airport for air travel relating to
a trade show. (Ptf’s Ex 10 at 12, 15.) The letter provided by Plaintiff from her employer, The Fruit Company,
FINAL DECISION TC-MD 130349D 11
Plaintiff‘s allowable business transportation expense claimed as unreimbursed employee
expense is $430 for tax year 2010 and $2,677 for tax year 2011.5
4. Gas receipts
Under IRC § 162(a), Plaintiff may claim transportation expenses using either standard
rate per mile or actual costs, but may not claim both. Treas Reg § 1.274-5(j)(2). Defendant
asserts that Plaintiff claimed automobile transportation expenses twice: once using a standard
rate per mile and again using gas receipts. Defendant is correct. Plaintiff cannot claim
transportation expenses using both methods. Plaintiff’s transportation deduction using gas
receipts is denied.
D. Entertainment and meals
Like transportation expense, Plaintiff must sufficiently substantiate her claimed
entertainment and meals business expenses under IRC § 274(d). The Oregon Tax Court has
noted that “because of the personal nature of the [entertainment and meals] expense, the law
imposes extensive requirements for substantiating the amount, time, and place of the expense;
the business purpose of the expense; and the relationship to the taxpayer of the persons
entertained.” Harding v. Dept. of Rev. (Harding), 13 OTR 454, 461 (1996) (citing Treas Reg §
1.274-5T(c) (1989)). In Harding, the court denied the taxpayer’s claimed entertainment and
meal expenses for failure to adequately substantiate those deductions, stating “[t]axpayer’s
records consist of receipts showing a date, amount, receipt number, and a hand-written name or
two. In many instances, the receipt does not indicate the name or location of the restaurant and
indicates that travel expenses for trade shows are typically reimbursable expenses. Under IRC § 162(a), an expense
is not necessary if an employee can seek reimbursement but fails to do so. Orvis v. Comm’r, 788 F2d 1406 (1986).
Plaintiff provided no evidence that she sought reimbursement for that mileage.
5
The allowable business mileage is 860 and 5,354 miles set forth in Plaintiff’s 2010 and 2011 daily logs as
unreimbursed employee travel expenses reduced for personal commute miles and multiplied by the standard per-
mile rate of $0.50.
FINAL DECISION TC-MD 130349D 12
none of the receipts state a business purpose for the expense.” Harding, 13 OTR at 461.
Although most of Plaintiff’s meal receipts clearly show the date, time, place, and amount of the
charge, a large number of the meal receipts either omit any stated qualifying business purpose or
bear unexplained hand-written notations such as “corp lunch” or “group lunch.” (Ptf’s Exs 6
at 7, 9 at 3.) No further information was provided. Plaintiff’s receipts are insufficient to meet
the business purpose and business relationship requirements of IRC § 274(d).
A few of Plaintiff’s receipts include the name of a particular client or business, which,
coupled with Plaintiff’s daily log notes, provide sufficient substantiation of a qualifying business
purpose and business relationship to allow a deduction for the claimed expenses. Those receipts,
totaling $28 in 2010 and $204 (rounded) in 2011, are allowed but must be reduced 50 percent.
IRC § 274(n).
Plaintiff claimed a deduction for a final category of meals, typically pizza delivery orders
or take-out items, which she labeled “for team.” (Ptf’s Ex 6 at 7, 8; Ex 9 at 7, 29.) “An
employee may deduct unreimbursed * * * entertainment expenses which were actually paid by
[her] and which were ordinary and necessary expenses of [her] trade or business.” Worth v.
Comm’r (Worth), 20 TCM (CCH) 216 (1961) (citation omitted). Plaintiff failed to prove that
purchasing meals for her coworkers is an ordinary and necessary expense of her job. It is
undoubtedly generous of Plaintiff to provide her team with lunch, and it may be an activity
normally carried on by an employer to show appreciation and generate a sense of camaraderie.
In this case, Plaintiff provided no evidence that those claimed expenses were either a type of
expense required by her employer or that it was customary or usual and ordinary, specifically for
a corporate sales manager to purchase meals for employees in her department. See also Engel v.
Dept. of Rev., TC-MD No 110807D, WL 541520 at *5 (Feb 16 2012) (denying a claimed
FINAL DECISION TC-MD 130349D 13
deduction because taxpayers failed to demonstrate it was a customary or usual expense under the
circumstances).
Plaintiff is allowed a meals and entertainment deduction of $14 for 2010 and $102 for
2011.
D. Computer, internet, and cell phone expenses
Plaintiff states that she is entitled to claim deductions relating to payments made for her
shared cell phone and internet services. Plaintiff provided letters from both of her employers
during the tax years at issue, stating that Plaintiff was required to maintain a cell phone and
computer with internet access to perform her job duties.
Plaintiff also claims expenses relating to her home computer. Those expenses include a
new computer monitor, computer upgrades, and a memory card. Plaintiff provided receipts for
those claimed business expenses.
Plaintiff concludes she is entitled to claim these deductions because she has assumed
expenses that are clearly attributable to her employment. See Kessler v. Comm’r (Kessler), 49
TCM (CCH) 1565 (1985) (citations omitted), noting that “an additional cost which [is] directly
attributable to [a taxpayer’s] employment” may be deducted. Plaintiff’s testified that her cell
phone use was both mixed and personal. IRC § 262 provides that “no deduction shall be allowed
for personal, living, or family expenses.”
Looking first at the Plaintiff’s shared cell phone deduction, Plaintiff provided one cell
phone bill addressed to her daughter and testified that she paid her daughter for a portion of the
cell phone expenses. Plaintiff also provided a signed statement from her daughter indicating that
Plaintiff “tends to pay me every 2 months for her phone. The check is usually $230.00 for every
2 months.” (Ptf’s Ex 3 at 1.) Plaintiff failed to substantiate the actual payment of cell phone
FINAL DECISION TC-MD 130349D 14
expenses. In addition, without documented business use of Plaintiff’s shared cell phone, she is
not entitled to “convert an otherwise personal expense into a business expense to be shared by
the Government.” Kessler, 49 TCM (CCH) 1565. Plaintiff’s deduction claimed for cell phone
use is denied.
To claim a deduction for home internet service and computer equipment as an ordinary
and necessary business expense under IRC § 162, Plaintiff must demonstrate both actual
payment of internet charges, and the proportionate business use of that service and her computer.
Plaintiff provided a welcome email and one monthly bill for her internet use in 2010. Plaintiff
testified that the internet service she purchased was for both work and personal use. Plaintiff
failed to demonstrate what portion of her internet service was used for employment-related
purposes. Plaintiff failed to provide adequate substantiation to support the monthly charge:
Plaintiff provided only one bill for the internet service – one bill is inadequate proof of the
amount of an ongoing expense.
Even though Plaintiff provided receipts to substantiate her claimed deduction for her
computer equipment, Plaintiff offered no evidence documenting what portion of her computer
use was business in contrast to personal. Plaintiff’s receipts are insufficient to document
business use.
Plaintiff failed to carry her burden of proof to substantiate the claimed business use of a
shared cell phone, internet service and computer equipment.
E. Parking, other travel expenses and trade show expenses
On her 2010 and 2011 income tax returns, Plaintiff claimed expenses for parking in the
amounts of $559 and $67. Plaintiff did not testify about the specific parking expenses, nor did
she provide any documentary evidence to substantiate her claimed parking deductions. The
FINAL DECISION TC-MD 130349D 15
court has insufficient evidence to determine if Plaintiff is entitled to a deduction for parking
expenses and Plaintiff’s deduction is denied.
Plaintiff also claimed “other travel expenses” on her tax returns in the amounts of $300
and $3,342 for tax years 2010 and 2011, respectively. Plaintiff did not testify regarding those
expenses and offered no substantiation for her claimed deductions.
Plaintiff provided a receipt totaling $8.50 for expenses relating to candy purchased for a
trade show, which Plaintiff attended in Las Vegas in 2011. (Ptf’s Ex 6 at 4.) That purchase is
supported by Plaintiff’s daily log entry which notes “pick up supplies for trade show” on the
same date as the candy purchase. (Ptf’s Ex 7 at 49.) Plaintiff adequately substantiated the
expense in the amount of $8.50 for trade show candy; that expense is allowed. All other travel
expenses claimed by Plaintiff for the tax years at issue have not been properly substantiated and
are denied.
F. Office supplies and other miscellaneous expenses
Plaintiff claimed deductions relating to a variety of items labeled “office expenses.” A
review of Plaintiff’s substantiating receipts shows that those expenses are primarily grocery store
purchases: Ziploc bags, tea, coffee, creamer, soup, and other similar consumables. (Ptf’s Exs 6
at 8, 9 at 8, 12.) Plaintiff submitted receipts showing samples purchased from her employer.
(Ptf’s Ex 9 at 6.) Plaintiff provided no explanation as to why she purchased samples from her
employer. Although it is admirable that Plaintiff provides small treats or makes other thoughtful
gestures for her coworkers, the use or consumption of these items at the workplace does not
render them expenses eligible for deduction. “That [Plaintiff] was not in fact reimbursed does
not change expenditures made on behalf of the corporation into ordinary and necessary expenses
of [Plaintiff].” Worth, 20 TCM (CCH) 216. Likewise, a car wash service is typically considered
FINAL DECISION TC-MD 130349D 16
a personal expense, the unsubstantiated cost of which is not passed on to an employer simply
because the service is rendered for an automobile used for business purposes. (Ptf’s Ex 9 at 14-
15.) Because IRC § 262 “operates to exclude items that are required by an employer but are
nonetheless inherently personal in nature,” Plaintiff cannot claim these purchases or services
without first demonstrating that they are necessary and ordinary expenses of her employment.
Kessler, 49 TCM (CCH) 1565. Plaintiff has not done so here, and Plaintiff’s claimed deductions
are denied.
Plaintiff submitted a few receipts for copies, specifically Fedex Office for $33.00, cash
deposit at Fedex Office for $20 and postage ($10.63). Plaintiff offered no explanation through
her testimony that those expenses were ordinary and necessary business expenses. Those
deductions claimed by Plaintiff are denied.
III. CONCLUSION
After careful review of the testimony and evidence, the court concludes that Plaintiff has
successfully substantiated some of her claimed employment-related business and job search
expenses, but not all deductions that she claimed for tax years 2010 and 2011. Now, therefore,
IT IS DECIDED that Plaintiff’s appeal of Defendant’s denial of claimed deductions for
parking, other travel expenses, other business expenses including cell phone, internet and
computer, and office supplies including samples purchased from her employer, copies, postage,
and car wash expense for tax years 2010 and 2011 is denied.
IT IS FURTHER DECIDED that Plaintiff is allowed to deduct transportation expenses of
$430 for tax year 2010.
IT IS FURTHER DECIDED that Plaintiff is allowed to deduct $580.50 for transportation
expenses relating to her job interviews in tax year 2010.
FINAL DECISION TC-MD 130349D 17
IT IS FURTHER DECIDED that Plaintiff is allowed to deduct transportation expenses of
$2,677 for tax year 2011.
IT IS FURTHER DECIDED that Plaintiff is allowed to deduct entertainment and meals
expenses of $14 for tax year 2010.
IT IS FURTHER DECIDED that Plaintiff is allowed to deduct entertainment and meals
expenses of $102 for tax year 2011.
IT IS FURTHER DECIDED that Plaintiff is allowed to deduct trade show expenses as an
ordinary and necessary expense in the amount of $8.50 for tax year 2011.
Dated this day of April 2014.
JILL A. TANNER
PRESIDING MAGISTRATE
If you want to appeal this Final Decision, file a Complaint in the Regular
Division of the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR
97301-2563; or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.
Your Complaint must be submitted within 60 days after the date of the Final
Decision or this Final Decision cannot be changed.
This document was signed by Presiding Magistrate Jill A. Tanner on April 28,
2014. The court filed and entered this document on April 28, 2014.
FINAL DECISION TC-MD 130349D 18