DocketNumber: Docket No. 190-14.
Citation Numbers: 110 T.C.M. 1087, 111 T.C.M. 1087, 2016 Tax Ct. Memo LEXIS 23, 2016 T.C. Memo. 21
Filed Date: 2/16/2016
Status: Non-Precedential
Modified Date: 4/18/2021
Decision will be entered under
LAUBER,
The parties submitted before trial a partial stipulation of settled issues, a stipulation of facts, and a supplemental stipulation of facts. We incorporate the stipulation*24 of settled issues, the stipulations of facts, and the related exhibits by this reference. Petitioners resided in New Jersey when they filed their petition.
Petitioners, Juan Carlos Garcia and Caridad Leon-Garcia, are married and have two minor children. Mr. Garcia is a truck driver. Early in 2010 he engaged in a job search after his situation with his prior employer deteriorated. In March 2010 he was hired by J.B. Hunt Transport Services and continued working there for the remainder of 2010. Mrs. Garcia worked as an elementary school teacher during 2010.
Petitioners timely filed for 2010 a joint Federal income tax return on which they reported adjusted gross income (AGI) of $131,847. That amount is not in *23 dispute. On the attached Schedule A, Itemized Deductions, petitioners reported charitable contributions of $13,279, medical and dental expenses of $37,942, unreimbursed employee business expenses of $25,625, and other expenses of $8,284.
Petitioners prepared their 2010 return using tax return preparation software. The IRS selected this return for examination. Following the examination, the IRS issued them a timely notice of deficiency that denied, for lack of substantiation, most of*25 the deductions they had claimed.2
During 2010 Mr. Garcia allegedly incurred travel expenses as part of his employment search and various expenses related to his job as a truck driver. He incurred expenses for meals and lodging while on the road, and he occasionally paid to park his truck at truck stops while eating. He enjoys smoking cigars and testified that he sometimes gave cigars as gifts to workers who unloaded his truck. He purchased clothing and boots to wear for work; some of his shirts were embroidered with his company logo and he paid to have these items cleaned. He purchased *24 a cell phone that he used for business and personal purposes. As part of his job, he was required to be present during inspections of his truck, but*26 he was not paid for the time he spent waiting.
During 2010 Mrs. Garcia purchased and wore to work dresses, skirts, blouses, and similar attire acceptable to her school district. These clothes were also acceptable for everyday wear on the street. She bought a laptop computer that enabled her to perform some of her school-related tasks while at home. Petitioners had internet service in their home primarily for personal use, but Mrs. Garcia occasionally used the internet when preparing for class. Petitioners' claimed deduction for "other" expenses included $8,135 of alleged legal and accounting fees; petitioners conceded at trial that these items were nondeductible.
Petitioners have donated cash, property, and their own time to a variety of not-for-profit organizations. The IRS allowed a charitable contribution deduction of $2,415 for certain cash contributions they made in 2010. Petitioners donated an additional $400 to the Catholic Diocese of Trenton and received a letter substantiating this contribution. Petitioners allegedly contributed clothing to AMVETS through unattended donation bins, but they were unable to substantiate these gifts. The remaining contributions in dispute involve*27 the local chapter of the Knights of Columbus (KoC), of which Mr. Garcia was an active member. Petitioners made *25 cash gifts to this chapter, St. Mary's Council 11527, and provided meals and financial assistance to the family of a KoC member who lost his job.
During 2010 petitioners and their children required treatment for various medical conditions including diabetes, chronic pain, and scoliosis. In some cases petitioners followed the advice of a medical service provider in treating these conditions, but the disputed pharmacy items did not require prescriptions. Alleged medical expenses that respondent disallowed included those for over-the-counter pain relievers (such as ibuprofen or Aspercreme), diabetic testing supplies, knee braces, shoe inserts, allergy medications, diet products, moisturizers, throat lozenges, and eye drops. Petitioners paid for heating and air conditioning in their home; both were helpful in managing the family's medical conditions, but the utility expenses thus incurred did not exceed what was required for their general comfort. Petitioners also incurred expenses for toiletries such as shampoo, toothpaste, and dental floss.
By way of substantiating these expenses*28 petitioners submitted canceled checks, credit card bills, and bank account statements. While petitioners had receipts for some purchases, the documentation of their medical expenses was poor; and they maintained no contemporaneous records of the amount, timing, or business nature of their alleged unreimbursed employee business expenses. *26 During the IRS audit they prepared a "log" of their various expenses and contributions. This log included estimates of the total amounts petitioners spent on various items throughout the year (i.e., an estimated price per item multiplied by the estimated number of times it was purchased).
The Commissioner's determinations in a notice of deficiency are generally presumed correct.
Taxpayers must maintain sufficient records to establish their claimed deductions, retain these records for as long as the contents may become material, and keep these records*29 available for inspection.
To satisfy the
Petitioners have not carried their burden of substantiating any of the expenses governed by
Mr. Garcia testified that his employer requires him to have a cell phone and that he used that phone exclusively for business purposes. We found this testimony unconvincing, especially given the nature of his occupation. Petitioners have not adequately substantiated any expense connected with business use of Mr. Garcia's cell phone.
Mr. Garcia testified that he spent approximately one hour of unpaid time per day waiting for his truck to be inspected. Petitioners claimed a deduction for the value of this unpaid time. Petitioners have articulated no theory to support this *30 claim, nor have they established any expenses that Mr. Garcia incurred in consequence of his downtime. The IRS properly disallowed the claimed deductions.
The cost of clothing may be deductible as a business expense if the clothing is*32 "of a type specifically required as a condition of employment," it is "not adaptable to general usage as ordinary clothing," and "it is not so worn."
The school district did not require Mrs. Garcia to wear a uniform of any kind; the clothing she wore to work was suitable for use as ordinary street wear. Mr. Garcia's boots and work pants, while perhaps heavy duty, were likewise suitable for ordinary usage, and their costs are thus nondeductible. Mr. Garcia *31 testified that he purchased from a uniform supplier several shirts embroidered with his employer's logo. While costs of these items might qualify for deduction as a uniform, he submitted substantiation of only one such purchase, for $60.
Because petitioners' AGI in 2010 was $131,847, they can deduct unreimbursed employee business expenses only to the extent such expenses exceeded $2,637 ($131,847 × .02).
For all contributions, taxpayers are required to keep "reliable written records," such as canceled checks or receipts, establishing the identity of the donee and the date and amount of the contribution.
The IRS concluded that petitioners had substantiated cash contributions of $2,415. For the other reported contributions, petitioners generally did not have contemporaneous records or receipts but relied on a "log" they created during the *33 audit. Finding this inadequate, the IRS disallowed the balance of the claimed deduction for lack of substantiation.
In an effort to substantiate charitable contributions in addition to the $2,415 that the IRS allowed, petitioners produced at trial a letter dated July 10, 2010, from the Diocese of Trenton indicating that they had made a $400 contribution to the Bishop's Annual Appeal. This letter, which states that petitioners received no goods or services in exchange, appears to qualify as a "contemporaneous written acknowledgment"*35 under
Petitioners claimed a deduction of $390 for travel expenses allegedly incurred in performing services for their church. Petitioners provided no contemporaneous record of this travel and no evidence as to how this amount was computed. They likewise produced no evidence that they performed distinct services for their church apart from attending regular worship services. We conclude that the IRS properly disallowed this claimed deduction.
Petitioners claimed a deduction of $3,560 for clothing allegedly donated to AMVETS during 2010. During the IRS examination petitioners created a "log" listing approximately 450 articles of clothing, along with a value supposedly derived *34 from a valuation tool included in their tax return preparation software. Petitioners testified that these gifts were made through an unattended donation bin.
To substantiate these alleged contributions, petitioners submitted a letter from AMVETS dated August 2014. This letter, which petitioners secured during the IRS audit, was not a "contemporaneous written acknowledgment" of their alleged 2010 gifts.
Petitioners claimed a deduction of $5,350 for gifts of cash and property to their local KoC chapter, of which Mr. Garcia was a member. Before determining whether petitioners have adequately substantiated these gifts, we must decide whether they have met their burden of establishing that the donee entity was recognized by the IRS as an organization described in
Petitioners presented no evidence establishing that their local KoC chapter was eligible to receive tax-deductible contributions. An undated letter from the chapter states only that it is a "not for profit organization [that] works very closely with the charities of the Roman Catholic*37 Church." This letter indicates that the chapter is organized under
As in effect for 2010,
Amounts paid for medicine and drugs, including over-the-counter*39 medications, are deductible "only if such medicine or drug is a prescribed drug or is insulin."
Petitioners deducted as medical expenses the full cost of heating and cooling their home, along with their expenditures for lawn service. To support the medical necessity of these items, petitioners submitted letters from alleged healthcare providers, several of which are suspect on their face. In any event, petitioners did not establish that these expenses exceeded what was required for their general comfort or that these expenses "would not have otherwise been incurred for nonmedical reasons."
Petitioners allegedly spent considerable sums on over-the-counter pharmacy items, such as pain relievers, diet products, eye drops, skin care products, and allergy medications. While these items are no doubt*40 beneficial to petitioners and their family,
Petitioners' testimony established that they incurred medical expenses in 2010 for treatment for scoliosis and for testing blood sugar. However, resolving all evidentiary doubts in petitioners' favor, the additional expenses they could be thought to have substantiated, besides the $3,589 that respondent conceded, could not exceed $2,000. Because petitioners' AGI in 2010 was $131,847,
The Code imposes a 20% penalty upon the portion of any underpayment of tax that is attributable (among other things) to "[a]ny substantial understatement of income tax."
Under
The
Petitioners offered no evidence that they attempted to ascertain their tax liability correctly. They had no colorable basis for deducting most of their personal expenses, and they had few if any reliable contemporaneous records. They do not contend that they relied on the advice of a competent tax professional in taking these positions.
Mr. Garcia understood that the KoC chapter to which he belonged was a not-for-profit entity. But he made no effort to determine whether it was an organization entitled to receive tax-deductible contributions; he received no contemporaneous written acknowledgment letter from it; and he kept no contemporaneous record of his alleged gifts. Given the receipts and acknowledgment letters that petitioners received and maintained from their church and from other charities, they were clearly aware of the documentation they should have sought and received. We accordingly sustain the accuracy-related penalty in its entirety.
*41 To reflect the foregoing,
1. Unless otherwise indicated, all statutory references are to the Internal Revenue Code (Code), as amended and in effect for the taxable year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. We round all monetary amounts to the nearest dollar.↩
2. The notice of deficiency allowed a charitable contribution deduction of $2,415. The IRS determined that petitioners had adequately substantiated $3,589 of medical expenses, $1,036 of unreimbursed employee business expenses (corresponding to Mrs. Garcia's union dues), and $149 of other expenses (representing tax return preparation fees). However, because these amounts were below the applicable thresholds of
3. A court may take judicial notice of appropriate adjudicative facts at any stage in a proceeding whether or not the parties request it.
4.
5. The AGI floor was raised to 10% for taxable years beginning after December 31, 2012.
James Donnelly v. Commissioner of Internal Revenue , 262 F.2d 411 ( 1959 )
Cohan v. Commissioner of Internal Revenue , 39 F.2d 540 ( 1930 )
Barry D. And Sandra J. Pevsner v. Commissioner of Internal ... , 628 F.2d 467 ( 1980 )
United States v. Daniel Wesley Harris , 331 F.2d 600 ( 1964 )
Commissioner of Internal Revenue v. Stringham. Stringham v. ... , 183 F.2d 579 ( 1950 )
reyns-pasta-bella-llc-jeffrey-ledon-deweese-barry-leonard-dba-critter , 442 F.3d 741 ( 2006 )
Welch v. Helvering , 54 S. Ct. 8 ( 1933 )
Commissioner v. Heininger , 64 S. Ct. 249 ( 1943 )
Indopco, Inc. v. Commissioner , 112 S. Ct. 1039 ( 1992 )
Stringham v. Commissioner , 12 T.C. 580 ( 1949 )
Donnelly v. Commissioner , 28 T.C. 1278 ( 1957 )
Yeomans v. Commissioner , 30 T.C. 757 ( 1958 )
Primuth v. Commissioner , 54 T.C. 374 ( 1970 )
Cremona v. Commissioner , 58 T.C. 219 ( 1972 )