Falodun v. Comm'r ( 2008 )

T.C. Summary Opinion 2008-5
UNITED STATES TAX COURT
AKIN FALODUN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 16424-05S. Filed January 7, 2008.
Akin Falodun, pro se.
William J. Gregg, for respondent.
ARMEN, Special Trial Judge:1 This case was heard pursuant
to the provisions of section 7463 of the Internal Revenue Code in
1
Special Trial Judge Carleton D. Powell, to whom this case
was submitted, died on Aug. 23, 2007, while in office. By Order
dated Aug. 30, 2007, the parties were directed to file, on or
before Oct. 2, 2007, either a response consenting to the
reassignment of this case or a notice objecting to the
reassignment, together with a motion for a new trial or a motion
to supplement the record, stating reasons in support of either
motion. On Sept. 11, 2007, counsel for respondent filed a
response consenting to the reassignment of this case. To date,
and despite several followup Orders, the Court has received no
response from petitioner. After allowing ample time for a
response from petitioner, the Chief Judge reassigned this case to
Special Trial Judge Robert N. Armen, Jr., for disposition on the
existing record.
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effect when the petition was filed.2 Pursuant to section
7463(b), the decision to be entered is not reviewable by any
other court, and this opinion shall not be treated as precedent
for any other case.
Respondent determined a deficiency in petitioner’s Federal
income tax for 2003 of $3,330.00.
This is purely a substantiation case. The issues for
decision are as follows:
(1) Whether petitioner is entitled to the deduction claimed
by him on his return for charitable contributions in the amount
of $12,921. We hold that he is to the extent provided herein.
(2) Whether petitioner is entitled to the deduction claimed
by him on his return for unreimbursed employee expenses in the
amount of $10,348. We hold that he is not.
Background
Some of the facts have been stipulated, and they are so
found.
Petitioner
Petitioner resided in Laurel, Maryland, at the time that the
petition was filed.
2
Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for the
taxable year in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
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In 2003, the taxable year in issue, petitioner was employed
by Hughes Network Systems, Inc. (Hughes), of Germantown,
Maryland, on a full-time basis, working Monday through Friday
from 9 a.m. to 5 p.m. In addition, petitioner “did some private
tutoring as well”, working some evenings and weekends.
At year’s end, petitioner received a Form W-2, Wage and Tax
Statement, from Hughes reporting wages paid of $43,563 and a Form
1099-MISC, Miscellaneous Income, from Consolidated Education
Resources, LLC of Manassas, Virginia, reporting nonemployee
income of $6,215.
Petitioner’s Return
Petitioner timely filed a Federal income tax return for
2003. On his return, petitioner reported adjusted gross income
of $52,587, consisting principally of wages of $43,563 and
business income of $6,215. On his return, petitioner listed his
occupation as “engineer”.
Petitioner itemized his deductions, attaching to his return
a Schedule A, Itemized Deductions, in support thereof.
Petitioner claimed total itemized deductions of $35,822, which
included charitable contributions of $12,921 and unreimbursed
employee expenses of $10,348.
Charitable Contributions
On his return, petitioner subdivided total charitable
contributions as follows:
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Gifts by cash or check $ 4,356
Other than by cash or check 8,565
$12,921
In support of his claimed deduction of the latter category,
petitioner attached to his return a Form 8283, Noncash Charitable
Contributions, reporting therein the following three categories
of donated property, which we reproduce literally, and the
associated donee organizations:
“A” GOLD CLOTHES APPLI TOYATV Nat’l Children’s Center, Adelphi, MD
“B” SHOE RACK TV VCR BOGSCLOT Salvation Army, Gaithersburg, MD
“C” 5LEATHERCASE 1000CUPS DTS Salvation Army, Hyattsville, MD
Petitioner then provided the following information regarding each
of these three categories of donated property:
Category Date of the Date acquired How aquired Donor’s cost Fair market Method used
contribution by donor by donor or adjusted value to determine
basis fmv
“A” 8/8/2003 5/1/2000 Purchased $4,512 $3,488 MPV
“B” 8/12/2003 5/1/2001 Purchased 4,511 2,500 MPV
“C” 8/12/2002[1] 5/1/2001 MPV[2] 2,577 2,577 Purchased
Total $8,565
1
Presumably, a typographical error made on the form.
2
Not further explained on the form.
Unreimbursed Employee Expenses
As previously indicated, petitioner also claimed on Schedule
A a deduction for unreimbursed employee expenses consisting of a
vehicle expense of $10,348 (prior to diminution by the 2-percent
floor prescribed by section 67). In support of this deduction,
petitioner attached to his return a Form 2106, Employee Business
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Expenses, and reported the following:
Business miles driven during 2003 28,744 miles
Other miles driven 17,036 miles
Total miles driven 45,780 miles
Percentage of business use 62.790 %
Standard mileage rate $0.36/business
x Business miles x 28,744 miles
Deduction $10,348
Somewhat inconsistent with the foregoing, petitioner also
attached to his return a Schedule C-EZ, Net Profit From Business.
On this schedule, petitioner reported nonemployee compensation
from Consolidated Education Resources, LLC, of $6,215, but
reported no expenses, claiming them instead on Schedule A as
unreimbursed employee expenses, as discussed in the preceding
paragraph. However, petitioner did report, and pay, self-
employment tax on the basis of nonemployee compensation of $6,215
without reduction for any expense.3
Notice of Deficiency and Petition
In the notice of deficiency, respondent determined that
petitioner had failed to substantiate the deductions claimed for
charitable contributions and employee business expenses.
Accordingly, respondent disallowed those two deductions in their
3
Petitioner also claimed a so-called above-the-line
deduction for one-half of the self-employment tax reported. See
sec. 164(f).
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entirety. Respondent did not disturb the other itemized
deductions claimed by petitioner on Schedule A.4
Petitioner disputed respondent’s deficiency determination by
timely filing a petition for redetermination.
Discussion
A. General Principles
Deductions are a matter of legislative grace, and the
taxpayer bears the burden of proving that he or she is entitled
to any deduction claimed. Rule 142(a); Deputy v. du Pont, 308
U.S. 488, 493 (1940); New Colonial Ice Co. v. Helvering, 292 U.S.
435, 440 (1934); see INDOPCO, Inc. v. Commissioner, 503 U.S. 79,
84 (1992); Welch v. Helvering, 290 U.S. 111, 115 (1933). This
includes the burden of substantiation. Hradesky v. Commissioner,
65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th Cir.
1976); cf. sec. 7491(a) (which section does not serve to effect
any burden-shifting in the instant case given petitioner’s
failure (1) to raise the matter and (2) to comply with all of the
requirements of section 7491(a)(2)).
We also observe that section 6001 and the regulations
promulgated thereunder require taxpayers to maintain records
4
The allowed deductions exceeded the amount of the
standard deduction to which petitioner would otherwise have been
entitled.
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sufficient to permit verification of income and expenses. See
sec. 1.6001-1(a), Income Tax Regs.
As a general rule, if, in the absence of such records, a
taxpayer provides sufficient evidence that the taxpayer has
incurred a deductible expense, but the taxpayer is unable to
adequately substantiate the amount of the deduction to which he
or she is otherwise entitled, the Court may estimate the amount
of such expense and allow the deduction to that extent. Cohan v.
Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). However, in
order for the Court to estimate the amount of an expense, we must
have some basis upon which an estimate may be made. Vanicek v.
Commissioner, 85 T.C. 731, 743 (1985). Without such a basis, any
allowance would amount to unguided largesse. Williams v. United
States, 245 F.2d 559, 560 (5th Cir. 1957).
In the case of certain expenses, section 274(d) overrides
the so-called Cohan doctrine. Sanford v. Commissioner, 50 T.C.
823, 827 (1968), affd. per curiam 412 F.2d 201 (2d Cir. 1969);
sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014
(Nov. 6, 1985). Specifically, and as relevant herein, section
274(d) provides that no deduction is allowable with respect to
listed property as defined in section 280F(d)(4) unless the
deduction is substantiated in accordance with the strict
substantiation requirements of section 274(d) and the regulations
promulgated thereunder. Included in the definition of listed
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property in section 280F(d)(4) is any passenger automobile. Sec.
280F(d)(4)(A)(i).
Thus, under section 274(d), no deduction is allowable for
expenses incurred in respect of listed property such as a
passenger automobile on the basis of any approximation or the
unsupported testimony of the taxpayer. E.g., Golden v.
Commissioner, T.C. Memo. 1993-602. In other words, in the
absence of adequate records or sufficient evidence corroborating
the taxpayer’s own statement, any deduction that is subject to
the stringent substantiation requirements of section 274(d) is
proscribed. These stringent substantiation requirements are
designed to encourage taxpayers to maintain records, together
with documentary evidence substantiating each element of the
expense to be deducted. Sec. 1.274-5T(c)(1), Temporary Income
Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).
B. Charitable Contributions
1. Gifts by Cash or Check
At trial, petitioner offered only one document that was
admitted into evidence, viz, a receipt dated January 4, 2004,
acknowledging a $50 contribution for 2003 to Feed The Hungry
International of Alexandria, Virginia. We allow this deduction.
Notably, although petitioner claimed to have (1) tithed to
his church and (2) made yet additional contributions to other
churches, and although he claimed to have made at least some of
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his contributions by check, he made no effort to introduce any
canceled checks, bank statements, check registers, or similar
bank-related evidence in support of his claims, offering only
unpersuasive excuses for his failure to do so. The sole church-
related document that petitioner sought to introduce was not
admitted into evidence because it was not found by the Court to
be trustworthy.5
On the other hand, we are satisfied that petitioner made
some church contributions. Accordingly, exercising our
discretion, but bearing heavily against petitioner who bears sole
responsibility for any inexactitude, see Cohan v. Commissioner,
supra, we hold that petitioner is entitled to a deduction for
church contributions in the amount of $250.
2. Other Than by Cash or Check
At trial, petitioner introduced several “receipts”
acknowledging gifts of property. However, petitioner admitted
that, for the most part, he was the person who had filled out the
receipts, describing the condition of the property donated
generally as either “new” or “excellent”, and that he was, in
each instance, the person who had ascribed the monetary value
5
At calendar call, petitioner was expressly advised by the
Court of the importance of calling the church treasurer, business
manager, or similar church individual as a witness to corroborate
his claims if he lacked sound documentary evidence, such as
canceled checks or bank statements. At trial, later that week,
petitioner produced the aforementioned document but called no
witness to support his claimed church donations.
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reflected on the receipts. The Court admitted these receipts
into evidence solely for the purpose of showing that some gifts
of property had been made.
Petitioner’s testimony regarding value leaves much to be
desired, as does his testimony regarding the even more
fundamental issue of deciding exactly what was donated. For
example, petitioner claims to have donated to the Salvation Army
a brand-new surround-sound radio with 12 speakers having a value
of “about maybe $400”. However, petitioner was unable to produce
a receipt for his purchase because “it was cash, actually” given
to “some guys, you know, in the parking lot” “who approached me
at Cosco” as “I was driving one day”. According to petitioner:
The speakers, you know--they were very expensive
speakers, and they gave me them at a discount price.
So I paid for the speakers, but when I go home, the
power wasn’t sufficient. It wasn’t worth what the guy
told me, so I couldn’t use it.
We accept petitioner’s testimony that he made some gifts of
property, but his proof pales in comparison to what was claimed.
As before, we exercise our discretion, but bear heavily against
petitioner, see id., and we hold that he is entitled to a
deduction for gifts of property in the amount of $250.
C. Employee Business Expenses
As an initial matter, we note that petitioner’s vehicle
expense, to the extent allowable, is a business expense
deductible under section 162(a) as a so-called above-the-line
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trade or business expense incident to petitioner’s tutoring
activity.6 That said, we are left to decide whether petitioner’s
vehicle expense (or any portion thereof), the sole deduction
claimed by petitioner in respect of that activity, is allowable
under sections 162(a) and 274(d) and the pertinent regulations
thereunder.
At trial, petitioner introduced into evidence a “log”. This
document does not satisfy the strict substantiation requirements
imposed by law, as the following colloquy from trial clearly
demonstrates:
THE COURT: * * * What is the total of this
mileage?
PETITIONER: It’s not for the whole year. I
didn’t complete it. When I did my taxes, I just
estimated, okay, you know, the car was–
THE COURT: So you really just guessed what your
total mileage was?
PETITIONER: I didn’t finish it, sir. Like I
said, I didn’t do it for the whole year. As the year
went by, I got lazy. It was a lot of work writing,
writing that, and then I kind of, you know--as the year
went by, I think I wrote that for like maybe two
months.
6
Respondent has not sought to characterize petitioner’s
tutoring activity as an activity other than one entered into for
profit. Cf. sec. 183. Nor has respondent sought to characterize
petitioner’s status, vis-a-vis the tutoring activity, as other
than that of a sole proprietor.
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Later, on cross-examination, the following colloquy took
place between respondent’s counsel and petitioner, which further
illuminates the inadequacies of the log:
COUNSEL: Turning your attention to the mileage
for the automobile, how was the total mileage
calculated?
PETITIONER: It was an estimate. It was an
estimate. Actually, when I go to the place where I
was--okay, I try to remember the mileage at the
beginning because I didn’t complete this here, so I
didn’t have an accurate--so it was an estimate.
COUNSEL: And the mileage did not pertain to your
work at Hughes Television Network?
PETITIONER: No. I mean some of those would have
been part of it. You know, what I did was I just
looked at the--try to remember my mileage at the
beginning of the year and the end of the year. So some
of it probably, you know, I might not have taken into
account my drive to work.
As previously discussed, no deduction under section 274(d)
is allowable for expenses incurred in respect of a passenger
automobile on the basis of any approximation or the unsupported
testimony of the taxpayer. E.g., Golden v. Commissioner, T.C.
Memo. 1993-602. In addition, it is clear that, as a matter of
law, a taxpayer’s cost of commuting between the taxpayer’s
personal residence and place of employment is a nondeductible
personal expense. Commissioner v. Flowers, 326 U.S. 465, 473-474
(1946); secs. 1.162-2(e), 1.262-1(b)(5), Income Tax Regs.
In contrast to commuting expenses, expenses incurred in
traveling between two places of business are deductible, Heuer v.
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Commissioner, 32 T.C. 947, 953 (1959), affd. per curiam 283 F.2d
865 (5th Cir. 1960), and we acknowledge that petitioner may very
well have, and probably did on occasion, leave work and drive
directly to a tutoring client’s home for a lesson. But the crux
of the matter is that petitioner’s log does not permit us to make
the requisite evaluation without supposition, conjecture, and
surmise, for the log (among its other infirmities) does not
identify a single client but merely lists towns (e.g., Silver
Spring) in the Maryland suburbs of metropolitan Washington, D.C.7
Because commuting is nondeductible as a matter of law, and
further because petitioner’s so-called log does not satisfy the
strict substantiation requirements of section 274(d) and section
1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov.
6, 1985), we are constrained to sustain respondent’s disallowance
of petitioner’s deduction for vehicle expense.
D. Conclusion
In order to reflect our disposition of the disputed issues,
Decision will be entered
under Rule 155.
7
Further by way of example, the very first entry in
petitioner’s log is shown simply as “Laurel 6 Germantown 6 Silver
Spring”. Laurel, Md. is petitioner’s home; Germantown, Md. is
the business address of Hughes Network Systems, Inc.
(petitioner’s employer), and Silver Spring is a community along
petitioner’s Beltway commute. Petitioner ascribes 90 miles to
this entry, all of which is presumably business-related in his
mind.