O'Neill v. Dept. of Rev. ( 2017 )

IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Income Tax
MARK O’NEILL, )
)
Plaintiff, ) TC-MD 160260C
)
v. )
)
DEPARTMENT OF REVENUE, )
State of Oregon, )
)
Defendant. ) FINAL DECISION1
Plaintiff appealed Defendant’s Notice of Assessment, dated April 15, 2016, for the 2012
tax year. A trial was held in the courtroom of the Oregon Tax Court on March 10, 2017.
Plaintiff appeared pro se and testified. Michele Engel of Defendant’s Audit Unit appeared and
testified on behalf of Defendant. The court sustained Defendant’s objection to the admission of
Plaintiff’s unlabeled exhibit, which was not exchanged before trial as required by Tax Court
Rule – Magistrate Division 12 C. Defendant’s Exhibits A, B, and C were admitted without
objection.
I. STATEMENT OF FACTS
During the tax year in question, Plaintiff sold products to hair salons on behalf of his
employer. He drove extensively throughout southern Oregon, as well as making regular trips to
Portland for meetings. He testified that he drove 50,239 miles for business purposes in 2012 and
incurred $465 in unreimbursed entertainment expenses.
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1
This Final Decision incorporates without change the court’s Decision, entered March 22, 2017. The court
did not receive a statement of costs and disbursements within 14 days after its Decision was entered. See Tax Court
Rule–Magistrate Division (TCR–MD) 16 C(1).
DECISION TC-MD 160260C 1
Plaintiff claimed an employee business expense deduction based on a $27,883 vehicle
expense and a $233 meals and entertainment expense. (Def’s Ex B-6.) Defendant disallowed
the entire deduction.
II. ANALYSIS
The issue in this case is whether Plaintiff may be allowed a deduction for his mileage and
entertainment expenses.2
Oregon taxes the “taxable income” of its residents, and Oregon law incorporates the
federal Internal Revenue Code (IRC) in its definition of taxable income. ORS 316.037;
316.022(6).3 Under IRC section 162(a), taxpayers are allowed to deduct the ordinary and
necessary expenses of carrying on their trade or business.
Taxpayers are generally required to keep sufficient records to substantiate all the amounts
claimed on their tax returns. Treas Reg § 1.6001–1; IRC § 6001. Beyond that general
recordkeeping requirement, deductions for certain kinds of expenses are subject to heightened
substantiation requirements. IRC § 274(d). Expenses subject to heightened substantiation
include expenses of passenger automobiles and expenses from activities generally considered to
constitute “entertainment, amusement, or recreation.” IRC §§ 274(d); 280F(d)(4). No deduction
is allowed for such expenses “unless the taxpayer substantiates by adequate records or by
sufficient evidence corroborating the taxpayer’s own statement” the amount, time and place,
business purpose, and business relationship to any beneficiary of the expenditure. IRC § 274(d).
(Emphasis added.) Thus, a deduction cannot be allowed unless there is additional evidence
beyond “the taxpayer’s own statement.”
2
In describing the issues before trial, Plaintiff stated that he had incurred some unspecified expenses for
office supplies. No such expenses were claimed on Plaintiff’s return, and Plaintiff did not present any admissible
evidence of them at trial. (See Ex B-6.) The court considers Plaintiff to have waived the issue of office expenses.
3
The court’s references to the Oregon Revised Statutes (ORS) are to 2011.
DECISION TC-MD 160260C 2
Treasury regulations spell out in more detail the kinds of documentation that employees
must keep to deduct their unreimbursed vehicle and entertainment expenses. See Treas Reg §§
1.162–17; 1.274–5T. Taxpayers are required to keep an “account book, diary, log, statement of
expense, trip sheet, or similar record.” See Treas Reg § 1.274–5T(c)(2)(ii). Such a record
should be made “at or near the time of the expenditure” and should be sufficient to show “the
amount, time, place, and business purpose of the expenditure and business relationship.” Id. For
automobiles, the appropriate measure of the amount of business use is mileage. Treas Reg §
1.274–5T(b)(6)(i). Where adequate records were not kept, expenses may be corroborated by
other evidence, such as the written statements or oral testimony of witnesses. Treas Reg §
1.274–5T(c)(3)(i). Where records were lost through circumstances beyond the taxpayer’s
control, the taxpayer may provide a “reasonable reconstruction” of the expenditures or use.
Treas Reg § 1.274–5T(c)(5).
Here, Plaintiff did not introduce any admissible documentation of expenses—neither
records nor a reasonable reconstruction of lost records. Plaintiff in his testimony did not provide
specific information about the amounts, times, and places of each of his business trips and other
expenses. Plaintiff did not call any witnesses to support his testimony. Plaintiff’s evidence does
not establish that he is entitled to a deduction for passenger automobile and entertainment
expenses. See IRC § 274(d).
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DECISION TC-MD 160260C 3
III. CONCLUSION
Because Plaintiff did not introduce any evidence to corroborate his testimony regarding
automobile and entertainment expenses, he did not meet the substantiation requirements of
IRC section 274(d). Now, therefore,
IT IS THE DECISION OF THIS COURT that Plaintiff’s appeal is denied.
Dated this day of April 2017.
POUL F. LUNDGREN
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. TCR-MD 19 B.
This document was filed and entered on April 10, 2017.
DECISION TC-MD 160260C 4