T.C. Memo. 1996-104
UNITED STATES TAX COURT
SUSAN J. BOKHARI O'NEIL, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3952-94. Filed March 6, 1996.
Susan J. Bokhari O'Neil, pro se.
Elaine L. Sierra, for respondent.
MEMORANDUM OPINION
DAWSON, Judge: This case was assigned to Special Trial
Judge John F. Dean pursuant to the provisions of section
7443A(b)(4) and Rules 180, 181, and 183.1 The Court agrees with
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year at issue. All
Rule references are to the Tax Court Rules of Practice and
Procedure.
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and adopts the Special Trial Judge's opinion, which is set forth
below.
OPINION OF THE SPECIAL TRIAL JUDGE
DEAN, Special Trial Judge: Respondent determined a
deficiency in petitioner's 1991 Federal income tax in the amount
of $10,610 and an accuracy-related penalty under section 6662(a)
in the amount of $2,122.2
After concessions,3 the issues for decision are: (1)
Whether petitioner has substantiated various itemized deductions
claimed on Schedule A of her 1991 Federal income tax return; and
(2) whether petitioner is liable for an accuracy-related penalty
under section 6662(a) for negligence or disregard of rules or
regulations.
2
Petitioner originally elected to have her case heard as a
small tax case under Rule 172 and sec. 7463. However, in
reviewing the record, we have determined that the sum of the
deficiency disputed by petitioner and the penalty stipulated as
an issue in this case ($2,122) is in excess of the $10,000
statutory limit for small tax cases. Rule 171(a); sec. 7463(a).
The "S" designation of this case was therefore removed pursuant
to our own motion. Rule 173; sec. 7463(d).
3
For the year at issue, for which petitioner and her husband
filed a joint income tax return, petitioner has conceded that
she: (1) Is not entitled to Schedule C deductions in the amount
of $13,125 claimed with respect to her husband's export-import
business, and (2) failed to report taxable interest income in the
amount of $190. Respondent has conceded that petitioner is
entitled to Schedule C deductions in the amount of $17,575 with
respect to her husband's taxi cab business. To the extent
indicated below, respondent has also made concessions with
respect to certain deductions claimed on petitioner's Schedule A.
Finally, respondent acknowledges that, to the extent petitioner
is liable for self-employment tax under sec. 1401, she will be
allowed a corresponding deduction under sec. 164(f).
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Some of the facts have been stipulated and are so found.
The stipulation of facts and attached exhibits are incorporated
herein by this reference. Although petitioner filed a joint
Federal income tax return with her husband for the taxable year
1991, she alone filed a timely petition in this matter. At the
time the petition in this case was filed, petitioner resided in
San Mateo, California.
Background
Petitioner worked as an outside salesperson for Bay Area
Cellular Telephone Company (Bay Area) during the taxable year
1991. The Form W-2 provided to petitioner by Bay Area reflects
that she was reimbursed $4,200 for employee business expenses,
the equivalent of $350 monthly as a car allowance. Respondent
concedes that petitioner is entitled to a deduction for this
amount.4 To the extent indicated below, however, respondent
contests, for lack of substantiation, deductions claimed by
petitioner for unreimbursed employee expenses and other
miscellaneous expenses on Schedule A of her 1991 Federal income
tax return:
Unreimbursed Employee Expenses
Item Claimed Allowed Disputed
Car Transportation $7,150 $0 $7,150
Parking 200 0 200
Meals & Entertainment 1,7281 0 1,728
4
As this reimbursement was reported on petitioner's Form
W-2, it appears that the payment was made under a nonaccountable
plan. See sec. 1.62-2(c)(5).
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Total 9,078 0 9,078
1
80% of the reported expense of $2,160.
Other Expenses5
Item Claimed Allowed Disputed
Referral Fees $130 $0 $01
Gifts 854 216 638
Continuing Education 350 350 0
Tax Preparation 160 0 160
Total 1,494 566 798
1
Petitioner concedes that she can not substantiate
expenditures for referral fees, and does not dispute
respondent's disallowance of this deduction.
Schedule A Deductions
Deductions are strictly a matter of legislative grace, and a
taxpayer bears the burden of proving entitlement to any deduction
claimed. Rule 142(a); New Colonial Ice Co. v. Helvering, 292
U.S. 435 (1934); Welch v. Helvering, 290 U.S. 111, 115 (1933).
Moreover, a taxpayer is required to maintain records that are
sufficient to substantiate her deductions. Sec. 6001.
Ordinary and necessary business expenses incurred by an
employee that are not reimbursed by her employer are generally
deductible under section 162(a), which allows a deduction for all
ordinary and necessary expenses paid or incurred during the
taxable year in carrying on a trade or business. Primuth v.
Commissioner, 54 T.C. 374, 377 (1970). Section 274(d) provides,
5
We note that deductions claimed for "gifts" and "continuing
education" should have been claimed as "unreimbursed employee
expenses" rather than as "other expenses" on petitioner's
Schedule A.
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however, that no deductions shall be allowed: (1) For any
traveling expense, including meals and lodging while away from
home, (2) for any item with respect to an activity which is of a
type generally considered to constitute entertainment, amusement,
or recreation, (3) for any expense for gifts, or (4) with respect
to any "listed property" as defined in section 280F(d)(4), unless
substantiated in accordance with the strict requirements of
section 274(d) and the regulations promulgated thereunder.
Included in the items defined as listed property in section
280F(d)(4) is any passenger automobile. Sec. 280F(d)(4)(A)(i).
To substantiate a deduction under section 274(d), a taxpayer
must maintain adequate records or present other corroborative
evidence to show, among other things, the business purpose and
business relationship of the expense. Sec. 1.274-5T(b),
Temporary Income Tax Regs., 50 Fed. Reg. 46014-46016 (Nov. 6,
1985).
In order to substantiate a deduction by means of adequate
records, a taxpayer generally must maintain a diary, a log, or a
similar record, and documentary evidence, which, in combination,
are sufficient to establish each element of each expenditure or
use, including business purpose and relationship. Sec. 1.274-
5T(c)(2)(i), Temporary Income Tax Regs., 50 Fed. Reg. 46017
(Nov. 6, 1985).
Although petitioner produced various receipts and charts in
support of her deductions for unreimbursed employee business
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expenses, a record of a business purpose and relationship for
these items is conspicuously absent. Furthermore, petitioner's
testimony in this regard was vague and unhelpful. Thus, we find
that, other than as allowed by respondent, petitioner has failed
to substantiate the deductions claimed for car transportation,
parking, meals and entertainment, and gifts, as required by
section 274 and the regulations thereunder.
We also find that, although a deduction for tax preparation
fees is generally available to taxpayers under section 212,
petitioner has failed to present any evidence to corroborate the
deduction claimed for such an expense on her Schedule A.
Section 6662(a) Penalty
Respondent determined an accuracy-related penalty under
section 6662(a) with respect to petitioner's 1991 Federal income
tax return for negligence or disregard of rules or regulations.
In pertinent part, section 6662 imposes an accuracy-related
penalty equal to 20 percent of the portion of an underpayment of
tax that is attributable to negligence or disregard of rules or
regulations. Sec. 6662(a), (c). Section 6662(c) defines
"negligence" as including any failure to make a reasonable
attempt to comply with the provisions of the Internal Revenue
Code, and defines "disregard" as including any careless,
reckless, or intentional disregard.
Petitioner failed to offer any evidence to rebut
respondent's determination of an accuracy-related penalty in this
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matter. Accordingly, she has not met her burden of proof on this
matter, and respondent's determination will be sustained.
To reflect the foregoing,
Decision will be entered
under Rule 155.