Nicholas Matthew Brown and Rebekah Brown v. Commissioner

PURSUANT TO INTERNAL REVENUE CODE
SECTION 7463(b),THIS OPINION MAY NOT
BE TREATED AS PRECEDENT FOR ANY
OTHER CASE.
T.C. Summary Opinion 2013-21
UNITED STATES TAX COURT
NICHOLAS MATTHEW BROWN AND REBEKAH BROWN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 29692-11S. Filed March 4, 2013.
Nicholas Matthew Brown and Rebekah Brown, pro sese.
Michael A. Skeen, for respondent.
SUMMARY OPINION
HAINES, Judge: This case was heard pursuant to section 7463 of the
Internal Revenue Code in effect when the petition was filed.1 Pursuant to section
1
Unless otherwise indicated, all section references are to the Internal Revenue
Code, as amended and in effect for the taxable years at issue, and all Rule
(continued...)
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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 deficiencies of $1,905 and $982 in petitioners’
Federal income tax for 2007 and 2008, respectively. The issues for decision are
whether petitioners are entitled to deductions claimed on Schedules A, Itemized
Deductions, for unreimbursed business expenses of $12,693 and $6,590 for 2007
and 2008 (years at issue), respectively.
Background
Some of the facts have been stipulated and are so found. Those exhibits
attached to the stipulations which were found relevant and admissible are
incorporated herein by this reference. At the time petitioners filed their petition,
they resided in California.
During the years at issue petitioner Nicholas Brown was employed as an
electrician for Vander Bros. Electric in Roseville, California. Mr. Brown’s
employer sent him to various jobsites within the general metropolitan area. Mr.
Brown worked at several jobsites during the years at issue, including a jobsite at
1
(...continued)
references are to the Tax Court Rules of Practice and Procedure. Amounts are
rounded to the nearest dollar.
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Sacramento High School. As part of his job, Mr. Brown drove back and forth to
shop for supplies at material supply stores.
On October 17, 2011, respondent sent petitioners a notice of deficiency for
the years at issue. Respondent disallowed petitioners’ itemized deductions of
$12,693 and $6,590 for 2007 and 2008, respectively, for unreimbursed employee
expenses. Petitioners timely filed a petition with this Court on December 28, 2011.
Discussion
Respondent determined that petitioners are not entitled to Schedule A
itemized deductions related to Mr. Brown’s automobile because they have failed to
substantiate his business mileage for the years at issue. Alternatively, respondent
argues that petitioners are not entitled to the Schedule A itemized deductions
because Mr. Brown was an employee and not an independent contractor since he
spent most of his time at the same jobsite at the Sacramento High School for both
years at issue.
Deductions are a matter of legislative grace, and the taxpayer must prove he
is entitled to the deductions claimed.2 Rule 142(a); New Colonial Ice Co. v.
2
Petitioners do not argue that the burden of proof shifts to respondent
pursuant to sec. 7491(a), nor have they shown that the threshold requirements of
(continued...)
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Helvering, 292 U.S. 435, 440 (1934). Section 162(a) allows a taxpayer to deduct
all ordinary and necessary expenses paid or incurred in carrying on a trade or
business. Pursuant to section 274(d), however, automobile expenses otherwise
deductible as a business expense will be disallowed in full unless the taxpayer
satisfies strict substantiation requirements. The taxpayer must substantiate the
automobile expenses by adequate records or other corroborating evidence of items
such as the amount of the expense, the time and place of the automobile’s use, and
the business purpose of its use. See Sanford v. Commissioner, 50 T.C. 823, 827-
828 (1968), aff’d per curiam, 412 F.2d 201 (2d Cir. 1969); Rasmussen v.
Commissioner, T.C. Memo. 2012-353.
To satisfy the adequate records requirement of section 274(d), a taxpayer
must maintain records and documentary evidence that in combination are
sufficient to establish each element of an expenditure or use. Sec. 1.274-5T(c)(2),
Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985). Although a
contemporaneous log is not required, corroborative evidence to support a taxpayer’s
reconstruction “of the elements * * * of the expenditure or use must have a high
degree of probative value to elevate such statement” to the level of credibility of a
2
(...continued)
sec. 7491(a) have been met. In any event, we decide the issue on the basis of the
preponderance of the evidence.
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contemporaneous record. Sec. 1.274-5T(c)(1), Temporary Income Tax Regs., 50
Fed. Reg. 46016 (Nov. 6, 1985).
In the absence of adequate records to substantiate each element of an
expense, a taxpayer may alternatively establish an element by “his own statement,
whether written or oral, containing specific information in detail as to such
element,” and by “other corroborative evidence sufficient to establish such
element.” Sec. 1.274-5T(c)(3), Temporary Income Tax Regs., 50 Fed. Reg. 46020
(Nov. 6, 1985).
If a factual basis exists to do so, the Court may in another context
approximate an allowable expense, bearing heavily against the taxpayer who failed
to maintain adequate records. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d
Cir. 1930) (Cohan rule); sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed.
Reg. 46014 (Nov. 6, 1985). However, section 274(d) overrides the Cohan rule with
respect to section 280F(d)(4) “listed property” and thus specifically precludes the
Court from allowing automobile expenses on the basis of any approximation or the
taxpayer’s uncorroborated testimony.
In lieu of substantiating the actual amount of any expenditure relating to the
business use of a passenger automobile, a taxpayer may use a standard mileage rate
as established by the Internal Revenue Service. See sec. 1.274-5(j)(2), Income Tax
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Regs. The use of the standard mileage rate establishes only the amount deemed
expended with respect to the business use of a passenger automobile. Id. The
taxpayer must still establish the amount (i.e., business mileage), the time, and the
business purpose of each use. Id.
Mr. Brown has failed to show that he is entitled to claim the business miles
respondent disallowed under the adequate records requirement of section 274(d).
Mr. Brown kept a contemporaneous notebook in which he logged the business use
of his personal vehicle. The logs included odometer readings and start and end
dates, though they did not include destinations. Mr. Brown’s logs were not entered
into evidence. Instead Mr. Brown testified as to his making of the mileage logs and
to the general contents of the records. Mr. Brown’s testimony was not specific and
thus failed to provide the information necessary to establish the elements of the
deductions in the absence of adequate records, i.e., actual business milage, dates,
places, and the business purpose. Moreover, the Cohan rule prevents the Court
from allowing automobile expenses on the basis of any approximation of the
taxpayer’s uncorroborated testimony. Thus we find for respondent and deny
petitioners’ claimed Schedule A itemized deductions.
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In reaching our holdings herein, we have considered all arguments made, and,
to the extent not mentioned above, we conclude they are moot, irrelevant, or without
merit.
To reflect the foregoing,
Decision will be entered for
respondent.