Juvy v. Comm'r

T.C. Summary Opinion 2008-25
UNITED STATES TAX COURT
JUVY LYN ANDRADE TE ENG FO, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24023-05S. Filed March 5, 2008.
Juvy Lyn Andrade Te Eng Fo, pro se.
Orsolya Kun, for respondent.
GOLDBERG, 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 any
1
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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other court, and this opinion shall not be treated as precedent
for any other case.
Respondent determined a $3,195 deficiency in petitioner’s
Federal income tax for 2002.
The issue for decision is whether petitioner is entitled to
the deduction for unreimbursed employee expenses claimed on
Schedule A, Itemized Deductions, of her 2002 return.
Background
Some of the facts have been stipulated, and they are so
found. Petitioner resided in New York, at the time that the
petition was filed.
In 2002, the taxable year in issue, petitioner was employed
as a family physician by the Fridley Children’s and Teenagers’
Medical Center, P.A., in Fridley, Minnesota. Petitioner worked
full time at the medical center from November of 2000 to November
of 2002. Petitioner has been unemployed and seeking employment
as a physician since November of 2002.
Petitioner filed a Federal income tax return for 2002 on
which she reported total income of $117,007 and adjusted gross
income of $116,679.
Petitioner attached to her return a Schedule A. Petitioner
claimed total itemized deductions of $44,245, which included
unreimbursed employee expenses of $15,059 before diminution by
the 2-percent floor prescribed by section 67.
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In support of her Schedule A deduction for unreimbursed
employee expenses, petitioner attached to her return Form 2106,
Employee Business Expenses, and reported the following:
Vehicle expenses $4,289
Unreimbursed employee
expenses:
Uniforms/protective clothing 1,236
Laundry/dry cleaning 548
Shoes, stockings, socks 425
Instrument/equipment 704
Supplies 601
Books/journals/magazines 350
Malpractice insurance 2,359
Professional license 192
Job seeking expenses 2,608
Business gifts 1,747
Total 15,059
Petitioner’s 2002 State of Minnesota income tax return was
selected for income tax audit by the State of Minnesota. For
taxable year 2002, the State tax audit allowed $4,419 of the
claimed $15,059 of unreimbursed employee expenses claimed on
Schedule A and disallowed the remainder, $10,640. Deductions
were allowed for: (1) Malpractice insurance; (2) professional
license; and (3) a substantiated portion ($1,868) of job-seeking
expenses. The State auditor disallowed $10,640 of unreimbursed
employee expenses because they were either unsubstantiated and/or
personal. The personal expenses related to receipts petitioner
provided for items of clothing purchased such as khaki slacks
from the J.Crew clothing store and shirts and slacks from the
Armani and Banana Republic clothing stores. When at work,
petitioner wore a pair of khaki pants and a dress shirt or
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blouse. There was no dress code per se for physicians at the
medical center. When petitioner was seeing patients, she usually
wore either a scrub shirt or a lab coat over her blouse.
Petitioner did not wear suits or dresses while at work.
Petitioner did not purchase any scrubs or lab coats in 2002.
Petitioner’s State income tax liability was recomputed as a
result of the State audit, and she consented to the recalculated
liability. The result of the State audit was then forwarded to
the Internal Revenue Service (IRS) pursuant to an exchange
agreement between the IRS and the Minnesota Department of
Revenue.
Respondent mailed to petitioner a notice of deficiency in
which it was determined that petitioner had failed to fully
substantiate the aforementioned deduction claimed for
unreimbursed employee expenses. Accordingly, respondent reduced
$44,245 of Schedule A deductions to $33,605, disallowing
unreimbursed employee expenses totaling $10,640. Respondent
allowed the same $4,419 of the claimed $15,059 unreimbursed
employee expenses that were allowed by the State audit.
Petitioner disputed respondent’s deficiency determination by
timely filing a petition for redetermination; however, she did
not set forth any reason in her petition as to why she is
entitled to relief. Petitioner’s quarrel, as expressed at trial,
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was that she is entitled to the deduction at issue because she
claimed the expenses “as a lay person [would]”.
Discussion
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); New Colonial Ice Co. v.
Helvering, 292 U.S. 435, 440 (1934); see INDOPCO, Inc. v.
Commissioner, 503 U.S. 79, 84 (1992). 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 does not effect any burden shifting given
petitioner’s failure to: (1) Raise the matter and (2) comply
with all requirements of section 7491(a)(2)).
Section 162 allows a deduction for ordinary and necessary
business expenses paid or incurred during the taxable year in
carrying on a trade or business. Sec. 162(a); Deputy v. du Pont,
308 U.S. 488, 495 (1940). A trade or business includes the trade
or business of being an employee. O’Malley v. Commissioner, 91
T.C. 352, 363-364 (1988). The taxpayer bears the burden of
substantiation. Hradesky v. Commissioner, supra at 90.
Section 6001 provides, in pertinent part, as follows:
SEC. 6001. NOTICE OR REGULATIONS REQUIRING RECORDS,
STATEMENTS, AND SPECIAL RETURNS.
Every person liable for any tax imposed by this
title [title 26, Internal Revenue Code of 1986], or
for the collection thereof, shall keep such records,
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render such statements, make such returns, and comply
with such rules and regulations as the Secretary may
from time to time prescribe. * * *
Generally, 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 the
expense and allow the deduction to that extent. Cohan v.
Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). In order for
the Court to estimate the amount of the expense, however, 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
Cohan. 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, 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 property in section 280F(d)(4) is any
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passenger automobile. Sec. 280F(d)(4)(A)(i). Cellular phones
are also included in “listed property” for purposes of sections
274(d)(4) and 280F(d)(4)(A)(v) and are thus subject to the strict
substantiation requirements. Gaylord v. Commissioner, T.C. Memo.
2003-273.
Accordingly, under section 274(d), no deduction is allowable
for expenses incurred with respect to 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. These stringent
substantiation requirements are designed to encourage taxpayers
to maintain records together with the 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).
With respect to petitioner’s claimed vehicle expense
incident to her employment as a physician, we must decide whether
this expense (or any portion thereof) is allowable under sections
162(a) and 274(d) and the regulations thereunder.
Petitioner presented evidence at trial consisting of a
single page of handwritten notations as follows:
Car insurance $1,258.10
Gasoline/fuel 875.39
Car maintenance 615.60
Car repairs 267.50
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At the bottom of this same page petitioner attached a copy
of a $267.50 receipt from Coon Rapids Collision dated September
18, 2002. There were no other receipts presented that pertained
to petitioner’s 2002 vehicle expenses.
As previously stated, no deduction is allowable under
section 274(d) with respect to expenses incurred for a passenger
vehicle on the basis of any approximation or the unsupported
testimony of the taxpayer. 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.
As an initial matter, we are unconvinced that petitioner
used the automobile for which these purported expenses were
incurred for anything other than her commute from her home to the
medical center and personal use. Second, petitioner has not
satisfied the strict substantiation requirements under section
274(d) for claiming such expenses. Accordingly, because
commuting to and from a workplace is nondeductible as a matter of
law, and further because petitioner’s one-page record does not
satisfy the strict substantiation requirements of section 274(d)
and section 1.274-5T(a), Temporary Income Tax Regs., supra, we
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sustain respondent’s disallowance of petitioner’s deduction for
vehicle expenses.
As previously stated, petitioner deducted the following
unreimbursed employee expenses as reflected on Form 2106
accompanying her Schedule A for 2002:
Uniforms/protective clothing $ 1,236
Laundry/dry cleaning 548
Shoes, stockings, socks 425
Instrument/equipment 704
Supplies 601
Books/journals/magazines 350
Job-seeking expenses 2,608
Business gifts 1,747
At trial, petitioner offered the following evidence to
substantiate her claimed unreimbursed employee expenses: (1) 13
receipts from Plaza Cleaners totaling $242.52; (2) 6 receipts
from Office Max totaling $387.28; (3) 1 receipt from Sprint
totaling $10.64; and (4) 11 receipts totaling $665.06 for a
variety of clothing purchased from stores including J.Crew, Ann
Taylor, and Macy’s. Petitioner testified that the supplies
purchased at Office Max were for her patient medical records kept
at home and that her dry cleaning expenses were for her work
attire. Petitioner also submitted six pages of handwritten notes
wherein she listed other purported expenses, such as business
gifts and job-seeking expenses. Petitioner provided no evidence
whatsoever to substantiate that she actually incurred any of the
expenses annotated in these handwritten notes.
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In the light of petitioner’s testimony regarding her need to
keep patient medical records at home and the aforementioned
receipt from Office Max that petitioner provided to the Court, we
hold that petitioner is entitled to a deduction of $387.28 for
supplies.
With respect to the $1,236 and $425 in unreimbursed employee
expenses for uniforms/protective clothing and shoes/stockings
/socks, petitioner testified that she would not wear either the
clothing or stockings that she wore to work outside of work,
although she did admit they would be suitable for wear outside of
work. Articles of clothing, including shoes, stockings, and
socks are deductible under section 162(a) only if the clothing is
required in the taxpayer’s employment, is not suitable for
general or personal wear, and is not worn for general or personal
purposes. Yeomans v. Commissioner, 30 T.C. 757, 767-768 (1958).
Petitioner testified that there was no dress code or uniform
requirement at the medical center where she worked, and that even
though she was not inclined to wear the clothing in question when
she was not at work, the clothes were, in fact, suitable for
general wear. In fact, petitioner acknowledged at trial that she
was actually wearing some of the clothes that she purchased for
work in 2002. Therefore, and on the record before us, we find
that petitioner is not entitled to the deductions she claims for
clothing, shoes, stockings, and socks for her 2002 taxable year,
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nor is she entitled to claim dry cleaning expenses for these
items. Accordingly, respondent’s determination is sustained
regarding the aforementioned unreimbursed employee expenses.
With respect to the $704 claimed as instrument/equipment
expenses, petitioner testified that most of the amount claimed as
an unreimbursed expense was for her cellular phone. A taxpayer
must establish the amount of business use and the amount of total
use for the property. Nitschke v. Commissioner, T.C. Memo. 2000-
230; sec. 1.274-5T(b)(6)(i)(B), Temporary Income Tax Regs., 50
Fed. Reg. 46016 (Nov. 6, 1985). As previously discussed,
cellular phones are included in “listed property” for purposes of
section 274(d)(4), and therefore, the strict substantiation
requirement applies.
Petitioner offered scant evidence regarding the claimed
expenses for her cellular phone. That evidence consisted of the
aforementioned $10.64 receipt from Sprint and her testimony that
she often had to return patient phone calls using her cell phone.
Petitioner did not offer a detailed breakdown of the personal
versus business use of the cellular phone. In addition,
petitioner failed to introduce any evidence to prove that the
medical center required her to have a cellular phone. While
petitioner did provide handwritten notations of some of the
amounts that she purportedly paid to Sprint for cellular service
in 2002, we do not find these notes credible or sufficient to
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satisfy the strict substantiation requirements under section
274(d). Accordingly, and on the basis of the foregoing, we hold
that petitioner is not entitled to deduct any cellular phone
expenses under the listing of “instrument/equipment” for taxable
year 2002.
Finally, and with respect to the unreimbursed employee
expenses for books/journals/magazines, job-seeking expenses, and
business gifts, petitioner provided no credible evidence
whatsoever substantiating that she did, in fact, actually incur
these costs. First, petitioner did not provide any titles of
journals or books or periodicals or any documentary evidence that
she actually incurred the expenses claimed. Second, and with
respect to the $1,868 of job-seeking expenses disallowed by
respondent, petitioner did not provide any credible evidence
showing that she incurred the job-seeking expenses claimed on her
2002 return. Although petitioner did testify that she flew to
New York City for interviews, she admitted that these trips were
for personal pleasure and that she did not always make these
trips for primarily job-seeking reasons. For example, petitioner
candidly admitted that one of the trips was actually made for the
purpose of attending a funeral. Finally, petitioner produced
only one receipt for a bottle of cologne to substantiate the
$1,747 business gifts expense included in unreimbursed business
expenses on her Schedule A. We are unconvinced that the expense
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for which this receipt was included was actually a business gifts
expense. Accordingly, we hold that petitioner is not entitled to
claim any unreimbursed employee expenses for books/journals/
magazines, job-seeking expenses, or business gifts.
To reflect the foregoing,
Decision will be entered
under Rule 155.