Piedra v. Dept. of Rev.

IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Income Tax
ALBERTO GONZALEZ PIEDRA, )
)
Plaintiff, ) TC-MD 220475R
)
v. )
)
DEPARTMENT OF REVENUE, )
State of Oregon, )
)
Defendant. ) DECISION
Plaintiff appealed Defendant’s Notice of Assessment, dated October 11, 2022, for the
2018 tax year. A remote trial was held on November 15, 2023. Roger Mercier, Jr. appeared on
behalf of Plaintiff. Alberto Gonzalez Piedra (Piedra) testified on his own behalf. Roiland
Gonzalez Perez (Perez) also testified on behalf of Plaintiff. Richard Henshaw appeared on
behalf of Defendant but did not testify. Exhibits A to F were received into evidence without
objection.
Prior to trial the parties submitted a stipulation resolving all adjustments in the October
11, 2022, Notice of Assessment, with the exception of a single issue. The stipulation is
reproduced here in its entirety:
“1. Schedule C contract labor expense deduction, totaling $105,234. This number was
calculated by adding up the amounts transferred from Plaintiffs bank accounts to his son's
account. This amount does not include any of the deposits made into Roiland Gonzalez Perez's
Child Carrier Group account, because Plaintiff did not make those deposits and has not provided
documentation proving that the amounts deposited into the account were reported on his
Schedule C as income.
2. Schedule C insurance expense deduction, totaling $10,524.
DECISION TC-MD 220475R 1
3. Schedule C repairs and maintenance expense deduction, totaling $28,853.
4. Schedule C travel expense deduction, totaling $12,850.
5. Schedule C other expense deduction - diesel, totaling $33,604.
6. Schedule C other expense deduction - fuel tax, totaling $615.
7. Schedule C other expense deduction - Oregon road tax, totaling $856.
8. Schedule C other expense deduction - DOT registration, totaling $1,738.
9. Schedule C other expense deduction - business name registration, totaling $100.
10. Schedule C other expense deduction - work clothes, totaling $500.
11. Schedule C other expense deduction - cell phone, totaling $1,200.
On Plaintiffs 2018 Schedule C, he claims a contract labor expense deduction, totaling
$155,592. Based on the information reviewed by Defendant, Plaintiff has proven a contract
labor expense deduction, totaling $105,234. The only issue for the court to decide is whether or
not Plaintiff has sufficient evidence proving a contract labor expense deduction greater than
$105,234.”
I. STATEMENT OF FACTS
Plaintiff owns a trucking company known as Shango Express (Shango). His inventory
consists of two trucks and two trailers. Plaintiff uses one truck and the other is used by his son,
Perez, whom Plaintiff treats as an independent contractor. Plaintiff relies on factoring financing
for assistance in making large purchases for items such as diesel fuel.1
Piedra testified that he received a number of advances from a “factor,” deposited directly
to Shango’s bank account, that represented payments for his son, Perez. Piedra further testified
1
Factoring is type of financing in which a business sells its accounts receivable (i.e., invoices) to a third
party (factor) at a discount. The factor will often advance payments to the business to assist in cash flow
management.
DECISION TC-MD 220475R 2
that he transferred the sum of $155,592 to Perez, representing the total gross earnings for Perez
for the 2018 tax year. Piedra deducted $155,592 on his 2018 federal return Schedule C as
contract labor expenses. Piedra testified he received contemporaneous documentation regarding
payments from his factoring company. However, the documents supporting his deductions for
contract labor expenses are no longer available because they are too old. Reports from the
Internal Revenue Service show that Perez received a 1099N in the amount of $155,592 from
Shango and that Perez reported that amount as gross income on his 2018 federal income tax
return. (Ptf’s Ex C at 3.)
II. ANALYSIS
With most of the issues in the appeal being resolved by stipulation, the only issue before
the court is whether Plaintiff has presented sufficient evidence proving a contract labor expense
deduction greater than $105,234.
In analyzing Oregon income tax cases, the court starts with several guiding principles.
First, the federal Internal Revenue Code (IRC) applies because the Oregon Revised Statutes
define taxable income by reference to the IRC. See ORS 316.022(6); 316.048.2 Second, in cases
before the court, the party seeking affirmative relief bears the burden of proof and must establish
their case by a “preponderance” of the evidence. ORS 305.427. Third, deductions are a “matter
of legislative grace” and the burden of proof—substantiation—is placed on the individual
claiming the deduction. INDOPCO, Inc. v. Comm’r, 503 US 79, 84, 112 S Ct 1039, 117 L Ed 2d
226 (1992).
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2
References to the Oregon Revised Statutes (ORS) are to the 2017 version.
DECISION TC-MD 220475R 3
Fourth, IRC section 162 generally allows a deduction for “ordinary and necessary
expenses paid or incurred during the taxable year in carrying on any trade or business[.]” IRC §
162(a). However, a taxpayer is required to maintain records sufficient to establish the amount of
his or her income and deductions. See IRC § 6001; Treas Reg. § 1.6001–1(a).
Plaintiff concedes that he has no bank or other documentary records to prove the contract
labor expense amount was greater than allowed at audit. Plaintiff has provided evidence that his
son Perez received a Form 1099N showing that Plaintiff’s business Shango paid Perez more than
the amount determined by Defendant and that Perez filed his 2018 federal tax return with that
same figure as his gross income. However, Plaintiff has not presented persuasive evidence that
he or his company actually paid Perez any amounts greater than $105,234. It is possible that
Plaintiff’s factor paid or advanced funds to Perez, which account for the discrepancy; however, it
is implicit in the IRC that taxpayers may not deduct expenses paid by another.
III. CONCLUSION
After careful consideration, the court accepts the parties’ stipulation, reproduced above,
and finds that Plaintiff has failed to meet his burden of proof on the remaining issue. Plaintiff
has failed to maintain sufficient records to establish that the amount of his deductions for
contract labor expense was more than Defendant determined in its Notice of Assessment. Now,
therefore,
IT IS THE DECISION OF THIS COURT that the court accepts the parties’ stipulation
regarding deducted expenses, as reproduced above.
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DECISION TC-MD 220475R 4
IT IS FURTHER DECIDED that Plaintiff’s appeal with respect to deductions for contract
labor expense for the 2018 tax year is denied.
Dated this ____ day of December 2023.
RICHARD DAVIS
MAGISTRATE
If you want to appeal this 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 this Decision
or this Decision cannot be changed. TCR-MD 19 B.
This document was signed by Magistrate Richard Davis and entered on
December 29, 2023.
DECISION TC-MD 220475R 5