DocketNumber: Docket No. 13825-13.
Citation Numbers: 111 T.C.M. 1437, 2016 Tax Ct. Memo LEXIS 100, 2016 T.C. Memo. 101
Filed Date: 5/23/2016
Status: Non-Precedential
Modified Date: 11/20/2020
Decision will be entered under
GALE,
(1) whether petitioner had unreported income for 2008 and 2011 as respondent determined;
(2) whether petitioner is entitled to deductions claimed on Schedules C, Profit or Loss From Business, for expenses for 2008, 2009, 2010, and 2011 in amounts greater than those respondent allowed;
(3) whether petitioner is liable for additions to tax for 2008, 2009, 2010, and 2011; and
(4) whether petitioner is liable for accuracy-related penalties for 2008, 2009, and 2010.
Some of the facts have been stipulated and are so found. The stipulation of facts and the accompanying exhibits are incorporated herein by this reference. At the time the petition was filed petitioner resided in California.
Petitioner was a licensed vocational nurse (LVN) during all the years at issue and worked in some instances as an independent contractor. During the years at issue he maintained bank accounts at Bank of America and at Washington Mutual (which was acquired by Chase) where he deposited funds. Petitioner made over $100,000 of deposits into these accounts in 2008 and over $46,000 in 2011.
Petitioner filed Federal income tax returns for*102 2008, 2009, 2010, and 2011. On the returns he reported gross income on Schedules C of $81,048, $93,692, $84,010, and $1,955 for 2008, 2009, 2010, and 2011, respectively, and claimed deductions for Schedule C expenses of $82,134, $99,718, $87,089, and $16,937 for 2008, 2009, 2010, and 2011, respectively.
Respondent subsequently examined each return. Petitioner failed to provide respondent's revenue agent with any records to substantiate the income he reported on his returns or the expenses underlying deductions he claimed. The revenue agent issued summonses to Bank of America and Washington Mutual/Chase for records pertaining to petitioner's bank accounts. The revenue*104 agent performed a bank deposits analysis based on the summoned bank records, and after reviewing the bank records, characterized deposits that petitioner made in 2008 and 2011 as follows:
Other income | $6,310 | $2,076 |
Schedule C income | 98,527 | 12,200 |
Rent | 7,641 | --- |
Nontaxable | 2,474 | 5,532 |
Loan/misc | 10,000 | 400 |
Wages | --- | 19,811 |
Transfers (between | ||
accounts) | ||
Total deposits | 125,318 | 46,226 |
The deposits characterized as rent represented checks made out to petitioner and deposited by him that had the word "rent" entered in the check's*103 memo line.
Bank statements issued by Bank of America and Washington Mutual/Chase during the years at issue are addressed to petitioner at a La Verne, California, address. Petitioner reported a home address in Greenfield, California, on his 2008 and 2009 tax returns and in Delano, California, on his 2010 tax return. Checks in petitioner's bank records issued in 2009 by "Solvere National Medical Registry*105 Inc." and Federal and State tax refund checks issued in 2010 are addressed to the Greenfield address that he used on his 2008 and 2009 returns.
Respondent subsequently issued a notice of deficiency to petitioner for his 2008, 2009, 2010, and 2011 taxable years. Respondent disallowed deductions for all Schedule C expenses reported for all years except a $1,560 expense for 2011. Respondent also determined that petitioner had unreported Schedule C gross receipts or sales of $9,218 and unreported rental income of $7,554 for 2008 and unreported Schedule C gross receipts or sales of $10,245 for 2011. Respondent also determined that petitioner was liable for additions to tax for all these years and accuracy-related penalties for 2008, 2009, and 2010. Respondent also made computational adjustments,*104 including disallowance of a refundable $267 making work pay credit and a refundable $457 earned income credit pertaining to petitioner's 2010 taxable year.
Petitioner filed a timely petition with the Court seeking redetermination of the deficiencies, additions to tax, and accuracy-related penalties.
At trial petitioner asserted that he had not received respondent's bank deposits analysis before trial. The Court thereupon granted petitioner additional time to review the bank deposits analysis and recalled the case for a second trial setting approximately eight weeks later, at which time petitioner offered no*106 testimony or evidence to dispute respondent's bank deposits analysis. The Court thereupon closed the record.4
Generally, a taxpayer bears the burden of proving the Commissioner's determinations incorrect.
Respondent offered into evidence a bank deposits analysis, petitioner's bank records that he*106 obtained by summons, and the testimony of the revenue agent who conducted the bank deposits analysis in support of his determination regarding the unreported income. A taxpayer is required to maintain adequate books and records sufficient to establish his or her income.
Petitioner failed to provide respondent's revenue agent with any records that documented his income. The bank records show that petitioner had over $100,000 of deposits in 2008 and over $46,000 in 2011. We find that it was reasonable for*109 respondent to rely on the bank deposits method to reconstruct petitioner's income in these circumstances.
The revenue agent testified that the bank deposits analysis reflected her conclusions regarding the character of the deposits documented in petitioner's bank records that she obtained. The bank deposits analysis for 2008 consisted of a summary page listing total deposit amounts by category (e.g., Schedule C income) and spreadsheets listing information on each deposit (e.g., date of deposit, payor of check). The summary page of the bank deposits analysis calculated that petitioner had made deposits of Schedule C gross receipts totaling $98,527 during 2008 but had reported Schedule C gross receipts on his 2008 return of only $81,048--suggesting an unreported amount of $17,479. The bank deposits analysis further calculated that petitioner had deposited rent receipts totaling $7,641 during 2008 but had reported no*108 rent receipts on his 2008 return. After adjustments apparently for nontaxable sources, the notice of deficiency determined that petitioner had unreported Schedule C gross receipts of $9,218 and unreported rent receipts of $7,554.
In reviewing the bank deposits analysis and the bank records, the Court has found that the bank deposits analysis double counted $6,179 of deposits*110 characterized as Schedule C receipts and understated the value of one of the rental income deposits by $270. These errors do not preclude respondent from satisfying his evidentiary foundation requirement using the bank deposits analysis. With the exceptions just noted, each of the deposits that the bank deposits analysis characterized as Schedule C or rent receipts is documented in the bank records. We find that the bank deposits analysis, supported by the bank records and the revenue agent's testimony, meets the evidentiary foundation requirement.
Petitioner has not met his burden of showing that these deposits were not taxable income,
The bank deposits analysis for 2011 consists of a summary page and a spreadsheet concerning a limited number of deposits. The summary page indicates that petitioner made deposits of Schedule C income totaling $12,200. These deposits are prima facie evidence of income.
Petitioner claimed (in a status report) that these deposits were nontaxable gifts from Kate Zalwango and Odette Graves. Petitioner did not produce evidence to corroborate this claim or identify deposits in the 2011 bank records that constituted such gifts. Our review of the 2011 bank records revealed three checks*112 from Ms. Zalwango totaling $1,100 (two checks for $500 and one check for $100) but no checks or other payments from Ms. Graves. We will assume that respondent determined that the checks from Ms. Zalwango were Schedule C income in the absence of information in the bank deposits analysis indicating how the revenue agent characterized these deposits.5*111 In the absence of evidence indicating other payments from Ms. Zalwango or Ms. Graves or contentions that implicate other deposits, we deem petitioner to have conceded the determined Schedule C income in excess of $1,100.
For the two $500 checks, we find that petitioner has not shown that they were nontaxable gifts. Petitioner did not produce any credible evidence to corroborate his statement that they were nontaxable gifts, and the bank records do not provide any indication of the purpose of these payments, such as a note in either check's memo line. For the $100 check, we find that petitioner has shown that it was a nontaxable gift. A "Christmas gift" notation in the memo line of that check corroborates petitioner's statement. We are satisfied that this deposit was a nontaxable gift to petitioner under
*113 We therefore sustain respondent's determination of unreported income for 2011 to the extent of $10,145 ($10,245 less $100 we redetermined to be a gift).
Petitioner claimed deductions for business expenses of $82,134, $99,718, $87,089, and $16,937 for 2008, 2009, 2010, and 2011, respectively. As detailed in the Schedules C attached*112 to his returns, the expenses underlying the deductions he claimed consisted of the amounts in the table below:
Car and truck | $22,988 | $18,143 | $24,537 | $15,377 |
Legal and professional | ||||
services | 7,121 | --- | --- | --- |
Repairs and maintenance | 7,156 | --- | --- | --- |
Utilities | 3,652 | --- | --- | --- |
Other | 41,217 | --- | --- | --- |
Contract labor | --- | 15,988 | 21,900 | --- |
Rent or lease--vehicles, | ||||
machinery, and | ||||
equipment | --- | 19,443 | 17,015 | 1,560 |
Rent or lease--other | ||||
business property | ||||
Totals | 82,134 | 99,718 | 87,089 | 16,937 |
Respondent disallowed deductions for all of these expenses except for the rent or lease--vehicles, machinery, and equipment entry of $1,560 for 2011. This*114 leaves $82,134, $99,718, $87,089, and $15,377 in dispute for 2008, 2009, 2010, and 2011, respectively.
Deductions are a matter of legislative grace, and the burden of showing entitlement to a claimed deduction is on the taxpayer.6
*115 Certain expenses, such as vehicle expenses, are subject to the more stringent substantiation requirements of
Petitioner did not address the $51,990 of legal and professional expenses, utilities, and other expenses underlying the deduction he claimed*114 for 2008. We accordingly find that he has conceded them and sustain respondent's disallowance thereof.
Petitioner claimed deductions for vehicle expenses in multiple categories in the previous table. His testimony indicates that the vehicle expenses were incurred in connection with round trips between residences in La Verne, California, and Lake Elsinore, California, and California State correctional facilities where he claimed that he worked. He testified that these facilities were in three cities: Soledad, Delano, and Tehachapi.7*115 He testified that his shifts at these correctional facilities lasted from three to four days, that he lodged overnight near the facilities during his shifts, and that he returned to his residence when he completed his shifts.
His testimony indicates that he claimed deductions for the costs of repairing and maintaining the vehicle used for the round trips in his repair and maintenance entry for 2008 and in his rent or lease--vehicles, machinery, and equipment entries*117 for 2009 and 2010.8 He did not address the car and truck expenses he reported for any of the years at issue, but the business miles that he reported on the lines 44a of his 2009 and 2010 Schedules C (32,988 and 49,073, respectively) when multiplied by the standard business mileage rate for those years (55 cents and 50 cents, respectively9) equals the car and truck expenses for which he claimed deductions for those years. Petitioner did not report any vehicle information on his 2008 return, and the business miles that he reported on his 2011 return, when multiplied by the standard business mileage rates for that year (51 cents and 55 cents for the first and second six months, respectively10) fall just short of the car and truck expenses that he reported. The car and truck expenses*118 and other vehicle expenses in dispute total $30,144, $37,586, $41,552, and $15,37711 for 2008, 2009, 2010, and*116 2011, respectively.12
A taxpayer may be entitled to deduct as a business expense the cost of travel between his residence and temporary places of work where he stays over one or more nights.
Petitioner appears to have claimed deductions for both actual expenses and expenses based on mileage for his vehicle for 2008, 2009, and 2010, but he can claim only deductions for one or the other expense.
Petitioner*118 failed to produce any documentary evidence tending to establish the number of business miles he drove for any of the years at issue. He did not, for example, produce a schedule listing the dates of his round trips between his residence and the correctional facilities and the distances driven or documents substantiating that he had made such trips. Petitioner's testimony on the business*120 miles he drove was vague and unconvincing. Even if his testimony were credible, he could not rely on it without corroborating documentary evidence because he failed to show that his records were lost due to circumstances beyond his control.
The bank records show that petitioner used a debit card for purchases that appear to be in the vicinity of the Delano and Tehachapi facilities in 2008, 2009, and 2010 and for purchases that appear to*119 be in the vicinity of the Solano facility in 2009, 2010, and 2011. This evidence by itself, particularly in the absence of credible evidence offered by petitioner on this issue, is insufficient to establish, for purposes of calculating travel expenses, instances when he worked at a correctional facility.
Additionally, the record contains conflicting evidence regarding the location of petitioner's residence that precludes any showing that he had business mileage from driving between certain cities.
*122 In view of the foregoing, petitioner has failed to satisfy
Petitioner's testimony indicates that the deductions he claimed in the rent or lease--other business property entries on his Schedules C for 2009 and 2010 reflected lodging costs he incurred near the correctional facilities where he worked.14 As listed in the prior table, the reported*121 expenses were $46,144 and $23,637 for 2009 and 2010 respectively, or approximately $4,000 and $2,000 per month.
Lodging expenses relating to business travel are also subject to
*123 Evidence in the record indicating that petitioner resided in Greenfield and Delano suggests that he may have stayed at his residence when working at the correctional facilities, given the proximity. Petitioner did not identify any expenditures documented in the bank records that constituted lodging expenses, and the Court will not assume his responsibility and sift through the bank records to match the evidence to respondent's adjustments.
As petitioner has failed to substantiate these expenses as required by
Petitioner testified that he claimed deductions for payments to companies that helped him find work at correctional facilities. Petitioner testified that these companies took a percentage of his compensation from the correctional facilities and then issued him a check for the remainder. As listed in the table
*124 A taxpayer may be entitled to deduct as a business expense payments for placement services.
Respondent determined that petitioner is liable for additions to tax for failure to timely file his 2008, 2009, 2010, and 2011 returns.
To prove that petitioner filed untimely returns, respondent offered IMFOL-T transcripts for petitioner's 2008, 2009, 2010, and 2011 taxable years and the testimony of the revenue agent. The revenue agent testified that the IMFOL-T transcripts were part of respondent's regularly maintained business records for petitioner. She further testified that each transcript recorded the date when respondent received petitioner's return for that year.*124 The dates of receipts recorded on the transcripts for 2008, 2009, 2010, and 2011 are August 10, 2010, August 16, 2010, August 2, 2011, and July 8, 2012, respectively. The revenue agent also testified that the transcripts indicated that petitioner had not been granted any filing extensions because there was no "EXT" notation next to any of the entries indicating the date of receipt. On the basis of the IMFOL-T transcripts and the revenue agent's testimony, we find that respondent has met his burden of production for imposing on petitioner for 2008, 2009, 2010, and 2011,
Petitioner failed to prove error in respondent's determination. He contended that he had filed each return well before the date of receipt recorded on the transcript, but he produced no evidence to corroborate his contention. The*126 signatures on petitioner's 2009 and 2010 returns are dated March 11, 2010, and May 12, 2011, respectively, but petitioner's entry of those dates on the returns is not evidence of their mailing. Beyond his self-serving testimony, petitioner offered no evidence that he actually mailed the returns timely or that the transcripts contain irregularities. In these*125 circumstances, we decline to accept petitioner's self-serving testimony without corroboration,
Respondent determined accuracy-related penalties under
An "understatement" is the excess of the amount of tax required to be shown on a return over the amount of tax shown on the return.
As with additions to tax under
Respondent has met his burden of production for substantial understatements of income tax for 2008, 2009, and 2010. Petitioner's unreported income for 2008 and disallowed deductions and credits for 2008, 2009, and 2010, as redetermined by this Court, result in understatements of income tax that exceed both 10% of the tax required to be shown on petitioner's returns for those years and $5,000.16 Petitioner did not show reasonable cause with respect to either his unreported income or his disallowed deductions or credits.17*128 Accordingly,*129 petitioner is liable for accuracy-related penalties on his underpayments for 2008, 2009, and 2010.
We have considered all the remaining arguments for results contrary to those reached herein. To the extent not discussed, we conclude those arguments are moot, without merit, or unnecessary to reach.
To reflect the foregoing,
1. All section references are to the Internal Revenue Code of 1986, as in effect for the years at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. All dollar amounts are rounded to the nearest dollar.↩
2. The cover page of the notice of deficiency indicates that respondent determined a $373 accuracy-related penalty instead of an addition to tax in that amount for 2011. But the contents of the notice of deficiency indicate that respondent determined an addition to tax rather than an accuracy-related penalty, and that was respondent's position at trial.↩
3. Respondent also made computational adjustments to petitioner's self-employment tax for each year,
4. Petitioner subsequently sought to add certain documents to the record by mailing them to the Court, but these documents were not admitted.↩
5. Had the revenue agent characterized the checks as "other income", for example, this would not affect the Schedule C income shown in the bank deposits analysis. Because respondent neglected to attach this information to the bank deposits analysis that he introduced into evidence, we will give petitioner the benefit of the doubt.
6. Petitioner has not claimed or shown entitlement to any shift in the burden of proof pursuant to
7. Petitioner did not identify these facilities by name, but the California Department of Corrections and Rehabilitation Web site facilities locator,
8. Petitioner did not address the rent or lease--vehicles, machinery, and equipment entry for 2010, but we will assume it has the same character as the 2009 entry.↩
9.
10.
11. As noted, respondent allowed the $1,560 claimed in the rent or lease--vehicles, machinery, and equipment entry for 2011.↩
12. Petitioner also testified that he incurred rental car expenses, but he did not address either the amounts of these expenses or where he reported them on his return. His testimony indicated that he may have used such rental cars for personal purposes. We thus have no basis for considering the extent to which rental car expenses may have been included in the amounts petitioner listed under the rent or lease--vehicles, machinery, and equipment entries.↩
13. Stated distances between cities were calculated using Bing Maps.
14. Petitioner addressed only the amount for 2010, but we will assume that the 2009 amount reflects similar expenses.↩
15.
16. The
17. Indeed, petitioner provided no records to corroborate that he even incurred any portion of the expenses for which he claimed deductions. The expenses amount to $268,941 for these three years. Because we sustain the
William F. Sanford v. Commissioner of Internal Revenue , 412 F.2d 201 ( 1969 )
Joseph R. Dileo, Mary A. Dileo, Walter E. Mycek, Jr., ... , 959 F.2d 16 ( 1992 )
Johnny Weimerskirch v. Commissioner of Internal Revenue , 596 F.2d 358 ( 1979 )
James O. Henderson v. Commissioner of Internal Revenue , 143 F.3d 497 ( 1998 )
Estate of Mary Mason, Deceased, Herbert L. Harris, ... , 566 F.2d 2 ( 1977 )
Cohan v. Commissioner of Internal Revenue , 39 F.2d 540 ( 1930 )
Van Dusen v. Comm'r , 136 T.C. 515 ( 2011 )
Cathy Miller Hardy v. Commissioner of Internal Revenue , 181 F.3d 1002 ( 1999 )
Welch v. Helvering , 54 S. Ct. 8 ( 1933 )
Commissioner v. Glenshaw Glass Co. , 75 S. Ct. 473 ( 1955 )
Indopco, Inc. v. Commissioner , 112 S. Ct. 1039 ( 1992 )
Sanford v. Commissioner , 50 T.C. 823 ( 1968 )
Primuth v. Commissioner , 54 T.C. 374 ( 1970 )
Weimerskirch v. Commissioner , 67 T.C. 672 ( 1977 )
Tokarski v. Commissioner , 87 T.C. 74 ( 1986 )
Petzoldt v. Commissioner , 92 T.C. 661 ( 1989 )