Robert Gollnick, Jr. & Piyanut Ustsasan-Gollnick v. Commissioner , 2017 T.C. Summary Opinion 94 ( 2017 )

T.C. Summary Opinion 2017-94UNITED STATES TAX COURT
ROBERT GOLLNICK, JR. AND PIYANUT USTSASAN-GOLLNICK,
Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 18269-16S. Filed December 26, 2017.
Robert Gollnick, Jr., pro se.
Jason T. Scott, Michael A. Skeen, and Trent D. Usitalo, for respondent.
SUMMARY OPINION
GUY, Special Trial Judge: This case was heard pursuant to the provisions
of section 7463 of the Internal Revenue Code in effect when the petition was
filed.1 Pursuant to section 7463(b), the decision to be entered is not reviewable by
1
Unless otherwise indicated, all section references are to the Internal
(continued...)
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any other court, and this opinion shall not be treated as precedent for any other
case.
Respondent determined a deficiency of $4,336 in petitioners’ Federal
income tax for 2013. Petitioners, husband and wife, filed a timely petition for
redetermination with the Court pursuant to section 6213(a). At the time the
petition was filed, they resided in California.
The issue for decision is whether petitioners are entitled to a deduction for
various expenses related to Mr. Gollnick’s insurance sales and educator activities.2
Background3
In 2013 Mr. Gollnick was an independent agent of New York Life
Insurance Co. (NYL). He drove his own vehicle from home to various locations
in California and attempted to sell insurance policies to small businesses, walking
door to door. He also attempted to sell insurance to family and friends in New
York and Florida.
1
(...continued)
Revenue Code, as amended and in effect for 2013, and all Rule references are to
the Tax Court Rules of Practice and Procedure. Monetary amounts are rounded to
the nearest dollar.
2
Ms. Ustsasan-Gollnick did not appear when this case was called for trial.
3
Some of the facts have been stipulated and are so found.
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NYL notified Mr. Gollnick that he was terminated in December 2013 and
that he owed the company $1,299 at that time. It appears that NYL did not issue a
Form 1099 or similar record to Mr. Gollnick for 2013.
Petitioners filed a joint Form 1040, U.S. Individual Income Tax Return, for
2013, reporting adjusted gross income of $78,476, including wages paid to
Mr. Gollnick by St. Leo University. On Form 2106-EZ, Unreimbursed Employee
Business Expenses, Mr. Gollnick claimed that, while working as an insurance
agent and educator, he incurred unreimbursed employee business expenses of
$28,014, comprising vehicle expenses, parking fees, tolls and transportation, travel
expenses while away from home, meals and entertainment expenses, and other
expenses. Petitioners carried over to Schedule A, Itemized Deductions, the
amount reported on Form 2106-EZ, along with “Excess Educator Expenses” of
$2,753, claiming a miscellaneous deduction of $30,767 (before the application of
section 67(a)). Petitioners also attached to their return a Schedule C, Profit or
Loss From Business, reporting that Mr. Gollnick earned gross income of $481 as
an insurance agent in 2013.
The Internal Revenue Service (IRS) examined petitioners’ tax return and
disallowed the miscellaneous deduction claimed on Schedule A for lack of
substantiation of the underlying expenses. Petitioners subsequently submitted to
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the IRS an amended tax return for 2013, eliminating the Schedule A deduction
described above, but including a deduction for similar expenses on Schedule C.4
Discussion
As a general rule, the Commissioner’s determination of a taxpayer’s liability
in a notice of deficiency is presumed correct, and the taxpayer bears the burden of
proving that the determination is incorrect. Rule 142(a); Welch v. Helvering, 290
U.S. 111, 115 (1933).5 Deductions and credits are a matter of legislative grace,
and the taxpayer generally bears the burden of proving entitlement to any
deduction or credit claimed. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503
U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).
Under section 162(a), a deduction is allowed for ordinary and necessary
expenses paid or incurred during the taxable year in carrying on any trade or
business. A deduction is not allowed, however, for personal, living, or family
expenses. Sec. 262(a). Whether an expenditure satisfies the requirements for
deductibility under section 162 is a question of fact. See Commissioner v.
Heininger, 320 U.S. 467, 475 (1943).
4
The amended tax return is not part of the record.
5
Petitioners do not contend, and the record does not suggest, that the burden
of proof should shift to respondent pursuant to sec. 7491(a).
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When a taxpayer establishes that he paid or incurred a deductible expense
but fails to establish the amount of the deduction, the Court normally may estimate
the amount allowable as a deduction. Cohan v. Commissioner, 39 F.2d 540, 543-
544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985).
There must be sufficient evidence in the record, however, to permit the Court to
conclude that a deductible expense was paid or incurred in at least the amount
allowed. Williams v. United States, 245 F.2d 559, 560 (5th Cir. 1957).
Section 274(d) prescribes strict substantiation requirements for deductions
for expenses related to travel (including meals and lodging), entertainment, and
gifts, and with respect to “listed property”. Sanford v. Commissioner, 50 T.C.
823, 826-829 (1968), aff’d 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). As
relevant here, the term “listed property” includes passenger automobiles. Sec.
280F(d)(4)(A)(i). To satisfy the requirements of section 274(d), a taxpayer
generally must maintain adequate records and documentary evidence which, in
combination, are sufficient to establish the amount, date, and business purpose for
a covered expenditure or business use of listed property. Sec. 1.274-5T(b)(6),
(c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).
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Section 1.274-5T(c)(2), Temporary Income Tax Regs., 50 Fed. Reg. 46017-
46018 (Nov. 6, 1985), provides in relevant part that “adequate records” generally
consist of an account book, a diary, a log, a statement of expense, trip sheets, or a
similar record made at or near the time of the expenditure or use, along with
supporting documentary evidence. Section 1.274-5(j)(2), Income Tax Regs.,
provides that the strict substantiation requirements of section 274(d) for vehicle
expenses must be met even where the optional standard mileage rate is used.
Moreover, the Court may not use the rule established in Cohan v. Commissioner,
39 F.2d at 543-544, to estimate expenses covered by section 274(d). Sanford v.
Commissioner, 50 T.C. at 827; sec. 1.274-5T(a), Temporary Income Tax Regs.,
supra.
There is no dispute that Mr. Gollnick’s activities as an insurance agent and
educator during the year in issue constituted trades or businesses within the
meaning of section 162. The sole issue for decision is whether Mr. Gollnick has
properly substantiated the business expenses in dispute.
I. Vehicle, Travel, Meals and Entertainment Expenses
Mr. Gollnick produced a partial milage log at trial--a document that he had
failed to share with the IRS Office of Appeals or respondent’s counsel before trial.
Because he failed to produce the partial mileage log before trial, and in the light of
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unexplained inconsistencies between the log and claims made on petitioners’ tax
return, the Court gives no weight to the document. In sum, Mr. Gollnick failed to
satisfy the heightened substantiation requirements prescribed for vehicle expenses
under section 274(d), and it follows that petitioners are not entitled to a deduction
for vehicle expenses.
Mr. Gollnick did not maintain a log or a similar record to substantiate or
demonstrate the business purpose for travel, meals and entertainment expenses.
Many of the expenditures for travel and meals and entertainment appear to be
personal expenses. In any event, Mr. Gollnick failed to satisfy the heightened
substantiation requirements prescribed for these type of expenses in section
274(d). Consequently, we sustain respondent’s disallowance of a deduction for
travel, meals and entertainment expenses.
II. Other Expenses
Mr. Gollnick produced copies of numerous receipts in an effort to
substantiate expenses for business-related supplies, educational items, parking fees
and tolls, cellular phone service, and postage. On close examination, the receipts
in question include a mix of business and personal expenses. In some cases, the
nature of the expense is not discernable. Nevertheless, applying the rule in Cohan
v. Commissioner, 39 F.2d at 543-544, the Court finds that there is sufficient
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evidence in the record showing that Mr. Gollnick paid $1,100 for deductible
business expenses in 2013.
To reflect the foregoing,
Decision will be entered
under Rule 155.