Damian Peter Daly & Jeanne K. Daly ( 2022 )

United States Tax Court
Washington, DC 20217
Damian Peter Daly & Jeanne Daly, ET
AL.,
Petitioners
v. Docket Nos. 23070-19S,
7787-20S.
COMMISSIONER OF INTERNAL
REVENUE,
Respondent
ORDER OF SERVICE OF TRANSCRIPT
Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is
ORDERED that the Clerk of the Court shall transmit herewith to petitioner
and respondent a copy of the pages of the transcript in the above case before Judge
Richard T. Morrison, at Los Angeles, California, on May 19, 2022, containing his
oral findings of fact and opinion rendered at the conclusion of trial.
In accordance with the oral findings of fact and opinion, a decision will be
entered for each case.
(Signed) Richard T. Morrison
Judge
Served 07/11/22
3
1 Bench Opinion by Judge Richard T. Morrison
2 May 19, 2022
3 Damian Peter Daly & Jeanne Daly Et al v. Commissioner
4 Docket No. 23070-19S, 7787-20S
5 THE COURT: The Court has decided to render oral
6 findings of fact and opinion in this case, and the
7 following represents the Court's oral findings of fact and
8 opinion. The oral findings of fact and opinion shall not
9 be relied on as precedent in any other case.
10 Unless otherwise indicated, all references to
11 sections are to the Internal Revenue Code of 1986, as
12 amended and in effect at all relevant times. All Rule
13 references are to the Tax Court Rules of Practice and
14 Procedure. This bench opinion is made pursuant to the
15 authority granted by section 7459(b) and Rule 152.
16 The respondent, or the IRS, mailed the
17 petitioners, Damian Peter Daly and Jeanne Daly, notices of
18 deficiency for both 2016 and 2017. The notices determined
19 a $6,768 deficiency for 2016, a section 6662 penalty of
20 $1,306 for 2016, a $9,707 deficiency for 2017, and a
21 section 6662 penalty of $1,921 for 2017. The Dalys filed
22 timely petitions for redetermination of the deficiencies.
23 When the petitions were filed, the Dalys resided in South
24 Carolina.
25 We have jurisdiction under section 6214(a).
6
1 exceeded the taxpayer's tax liability are to be refunded
2 to the taxpayer under section 24(d). The refundable
3 amount under section 24(d) is referred to as an additional
4 child tax credit.
5 For 2016, the Dalys reported that they owed tax
6 of $226. They claimed a $226 child tax credit and an
7 additional child tax credit of $2,774. The adjustments in
8 the notice of deficiency resulted in an increase in the
9 tax liability of the Dalys above $3,000. As a result, the
10 notice of deficiency disallowed the $2,774 additional
11 child tax credit and increased the child tax credit by the
12 same amount, $2,774.
13 In summary, the notice of deficiency allowed
14 $3,000 for the total of both the child tax credit and the
15 additional child tax credit, which is the total amount the
16 Dalys claimed for both credits.
17 For 2017, the Dalys reported they owed tax of
18 $236. They claimed a child tax credit of $236 and an
19 additional child tax credit of $2,764. The 2017 notice of
20 deficiency, because of adjustments resulting in an
21 increase in the 2017 tax liability, disallowed the
22 additional child tax credit and increased the child tax
23 credit by the amount of the disallowance. Thus, for 2017
24 as for 2016, the disallowance of the additional child tax
25 credit was required by the Internal Revenue Code and did
9
1 During 2016 and 2017, Mr. Daly worked as an
2 adjunct professor of political science at Florence-
3 Darlington Tech. To teach there, Mr. Daly made various
4 trips from the Dalys' home in the Charleston area. The
5 Dalys seek to compute the deduction by multiplying the
6 miles Mr. Daly traveled to Florence each year by a mileage
7 allowance. However, Mr. Daly's testimony gives us only a
8 vague idea of how many days in each year he taught at
9 Florence-Darlington Tech.
10 Section 162(a) allows a deduction for the
11 expenses of carrying on a business, including travel away
12 from home. Even if Mr. Daly were entitled to deduct his
13 mileage for his trips to Florence under section 162(a),
14 section 274(d) imposes an additional limitation. Section
15 274(d) imposes what are called strict substantiation
16 requirements for deductions claimed for expenses of travel
17 away from home and for listed property. Under section
18 274(d), no such deduction is allowed unless the taxpayer
19 substantiates by adequate records or by sufficient
20 evidence corroborating the taxpayer's own statements as to
21 the amount, time and place, and business purpose for each
22 expenditure. For travel away from home, Temporary
23 Treasury Regulation § 1.274-5T(b)(2) subdivision (ii)
24 defines the term "time" as "[d]ates of departure and
25 return for each trip away from home, and number of days
10
1 away from home spent on business," and subdivision (iii)
2 defines the term "place" as "[d]estinations or locality of
3 travel, described by name of city or town or other similar
4 designation." The Dalys must therefore substantiate
5 through records, or through evidence other than Mr. Daly's
6 testimony, the dates of Mr. Daly's travel to Florence.
7 There is no evidence about these trips other than Mr.
8 Daly's testimony. Therefore, no deduction is allowable.
9 Alternatively, the Dalys argue that because the
10 trips to Florence were taken in a rental car, and because
11 they paid $800 per month to rent the car, they should
12 be allowed a deduction of the rental cost of the car, or
13 some fraction of that rental cost. But, as we have
14 explained, the cost of travel must be strictly
15 substantiated, and the Dalys have failed to meet these
16 requirements. Furthermore, for listed property, such as
17 an automobile, the strict-substantiation requirements
18 require the taxpayer to establish the amount of business
19 use "based on the appropriate measure (i.e., mileage for
20 automobiles . . .), and the total use of the listed
21 property for the taxable period." Id. subpara. (6)(i)(B).
22 Thus, to deduct the cost of renting the car, the Dalys are
23 required to substantiate through records, or through
24 evidence other than Mr. Daly's testimony, the number of
25 miles the car was used for business (i.e., for Mr. Daly's
11
1 trips to Florence-Darlington Tech), as well as the total
2 use of the rental car (i.e., for these trips and for
3 personal use). Again, there is no evidence about these
4 trips other than Mr. Daly's testimony. Thus, the Dalys
5 have failed to strictly substantiate the business and
6 personal use of the car. Furthermore, no evidence other
7 than Mr. Daly's testimony was adduced about the cost of
8 the rental vehicle, which in this situation is the
9 "amount" of the expense to be claimed as a deduction, and
10 therefore, which also must be strictly substantiated. For
11 these reasons, no deduction is allowable corresponding to
12 any fraction of the alleged $800 per month cost of the
13 rental vehicle.
14 We conclude that no deduction is allowed for the
15 cost of Mr. Daly's travel to Florence-Darlington Tech.
16 Fifth, the Dalys contend that they are entitled
17 to a federal income tax deduction for state income taxes
18 withheld from Mrs. Daly's wages.
19 Section 164(a) allows a deduction for state
20 income taxes. However, the Dalys provided no proof of the
21 amounts of state income taxes withheld from Mrs. Daly's
22 salary.
23 Therefore, they have not proven they are
24 entitled to a deduction for state income taxes.
25 Even had they proven an entitlement to a
12
1 deduction for state income taxes, such a deduction would
2 have no computational effect on their income because it
3 would be their only itemized deduction. Itemized
4 deductions are of no use to a taxpayer unless they exceed
5 the standard deduction. The Dalys claimed a standard
6 deduction of $12,600 in 2016 and a standard deduction of
7 $12,700 in 2017.
8 No deduction is allowable for the amounts of
9 state income taxes withheld from Mrs. Daly's wages.
10 A decision will be entered sustaining the
11 deficiencies determined by respondent and determining the
12 petitioners are not liable for the section 6662 penalties.
13 This concludes the Court's oral findings of fact and
14 opinion.
15 (Whereupon, at 1:15 p.m., the above-entitled
16 matter was concluded.)
17
18
19
20
21
22
23
24
25
13
1 CERTIFICATE OF TRANSCRIBER AND PROOFREADER
2 CASE NAME: Damian Peter Daly & Jeanne Daly Et al v.
3 Commissioner
4 DOCKET NO.: 23070-19S, 7787-20S
5 We, the undersigned, do hereby certify that the
6 foregoing pages, numbers 1 through 13 inclusive, are the
7 true, accurate and complete transcript prepared from the
8 verbal recording made by electronic recording by Meribeth
9 Ashley on May 19, 2022 before the United States Tax Court
10 at its remote session in Los Angeles, CA, in accordance
11 with the applicable provisions of the current verbatim
12 reporting contract of the Court and have verified the
13 accuracy of the transcript by comparing the typewritten
14 transcript against the verbal recording.
15
16
17
18 _______________________________________________
19 Meribeth Ashley, CET-507 6/6/22
20 Transcriber Date
21
22
23 _______________________________________________
24 Lori Rahtes, CDLT-108 6/6/22
25 Proofreader Date