T.C. Memo. 1996-403
UNITED STATES TAX COURT
BILL R. AND CAROLINA N. THOMAS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 12096-94. Filed August 27, 1996.
Kenneth Alan Thomas, for petitioners.
Alvin A. Ohm, for respondent.
MEMORANDUM OPINION
GOLDBERG, Special Trial Judge: This case was heard pursuant
to section 7443A(b)(3) and Rules 180, 181, and 182.1 Respondent
determined a deficiency in petitioners' Federal income tax for
1991 in the amount of $1,335. After concessions, the issue for
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year at issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
2
decision is whether petitioners are entitled to a Schedule A
deduction claimed for unreimbursed employee business expenses.
Some of the facts have been stipulated and are so found.
The stipulation of facts and exhibits received into evidence are
incorporated herein by this reference. Petitioners resided in
Dallas, Texas, at the time their petition was filed.
During the tax year in question, Bill R. Thomas (petitioner)
was a practicing certified public accountant and owner of an
accounting practice, Thomas & Associates, P.C. Petitioner
managed the office, supervised field audits, and performed
consulting work. The business was organized as a professional
corporation for which corporate tax returns were filed.
Petitioner owned a second business, Thomas Business
Brokerage, a sole proprietorship engaged in the sale of
companies. Both the accounting practice and brokerage business
required petitioner to travel locally and away from home.
Petitioners owned four cars. Petitioner used one car for
business travel, commuting, and some personal travel. Petitioner
recorded the odometer readings of this car at the beginning and
end of the taxable year. Petitioner also maintained a daily
calendar on which he recorded names representing the clients with
whom he met on that day. He did not write down the nature of the
business conducted or a location of the meeting.
At trial, petitioner testified as to approximate distances
traveled and the nature of the business involved with respect to
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various names on his calendar. Petitioners attached an exhibit,
a summary of petitioner's business travel for 1991, including
mileage totals, to their posttrial brief. This exhibit was not
offered or entered into evidence at trial, and therefore is not
evidence. See Rule 143(b).
Petitioner testified that it was the policy of the
accounting firm to reimburse employees for their mileage expense.
Petitioner testified that although he was entitled to
reimbursement from the accounting firm for his mileage expense,
he chose not to request reimbursement because of the financial
condition of the firm. Petitioner received no wages or
compensation from the accounting firm, although all other
employees were paid.
During 1991, petitioner traveled to Santa Fe, New Mexico, to
attend a required Government course in order to qualify to
perform certain audits. Petitioner drove from Dallas and stayed
in a hotel while in Santa Fe.
On their 1991 Federal income tax return, petitioners claimed
a Schedule A deduction for unreimbursed employee business
expenses of $8,188. These expenses included $5,913 for vehicle
expense, $150 for parking fees, tolls, and local transportation,
$1,775 for other business expenses, and $350 for union and
professional dues. Petitioner had been audited for a prior
year's return, which resulted in the allowance of a business
deduction for automobile expense based on 82 percent of his total
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annual mileage. For the taxable year at issue, petitioner
multiplied the standard mileage rate of 27.5 cents by 82 percent
of his annual mileage, and claimed this amount as vehicle
expense. Petitioner filed a Schedule C, reporting income and
deducting expenses incurred in the brokerage business, but did
not deduct any automobile expense.
In the notice of deficiency, respondent disallowed $6,663 of
petitioners' claimed employee business expenses for lack of
substantiation. The disallowed expenses include $5,913 for
vehicle expense, $150 for parking fees, tolls, and local
transportation, and $600 for other business expenses. In her
brief, respondent concedes the $150 deduction for parking fees,
tolls, and local transportation.
Respondent's determinations are presumed correct, and
petitioners have the burden of proving them erroneous. Rule
142(a); Welch v. Helvering, 290 U.S. 111 (1933). Deductions
against income are allowed as a matter of legislative grace. New
Colonial Ice Co. v. Commissioner, 292 U.S. 435, 440 (1934).
Taxpayers must maintain adequate records to substantiate the
amount of any deductions. Sec. 6001; sec. 1.6001-1(a), Income
Tax Regs.
Generally, when evidence shows that petitioners incurred a
deductible expense, but the exact amount cannot be determined,
the Court may approximate the amount. Cohan v. Commissioner, 39
F.2d 540 (2d Cir. 1930). An exception to the Cohan rule is
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section 274(d), which prohibits the estimation of expenses for
travel or deductions with respect to certain listed property.
Sec. 274(d). Listed property includes automobiles. Sec.
280F(d)(4).
Section 274(d) requires substantiation of these expenses
either "by adequate records or by sufficient evidence
corroborating the taxpayer's own statement." Sec. 274(d). The
records must show the amount, date, and business purpose of each
expense or business use. Id.; sec. 1.274-5T(b)(6), Temporary
Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). The
regulations provide that other evidence may be offered in the
form of sampling. Taxpayers may use adequate records maintained
for "a portion of the taxable year" to substantiate business use
for the entire year if they "demonstrate by other evidence that
the periods for which an adequate record is maintained are
representative of the use for the taxable year". Sec. 1.274-
5T(c)(3)(ii)(A), Temporary Income Tax Regs., 50 Fed. Reg. 46021
(Nov. 6, 1985).
Petitioner's daily calendar does not meet the requirement of
adequate records to substantiate petitioners' claimed deduction
for vehicle expense. While it contains dates and client names,
it fails to indicate mileage or business purpose for any of the
entries. In the alternative, petitioners contend that 82 percent
represents a sampling of mileage from a prior year and is
sufficient evidence, arguing that the regulations do not mandate
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that each taxable year be treated independently. The language of
the regulations is clear and does not permit estimation of
current business use by reference to a prior year. In addition,
there is no indication on the record that the 82 percent was
based on adequate records or any evidence that the prior year was
representative of the year at issue.
Petitioners offered no further evidence at trial.
Accordingly, petitioners have not met the requirements of
substantiation under section 274(d). Respondent is sustained on
this issue.
Because petitioners failed to substantiate the automobile
expense, we need not address their general contention that they
are entitled to a business deduction for petitioner's mileage
expense because he was not reimbursed by the accounting firm. We
note, however, that a taxpayer ordinarily is not allowed a trade
or business deduction for expenditures to the extent that he has
a right of reimbursement from the corporation. Leamy v.
Commissioner, 85 T.C. 798, 809-810 (1985).
It is unclear from the record what the business expenses of
$600 are. Petitioner testified at trial that he stayed in Santa
Fe for approximately 3 days. However, he did not testify as to
the amount of the expenses incurred and did not produce any
receipts or documentary evidence for support. Therefore,
petitioners have failed to substantiate the $600 in business
expenses, and respondent is sustained on this issue.
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Decision will be entered
under Rule 155.