T.C. Memo. 1998-43
UNITED STATES TAX COURT
SHANE L. APPLING AND MARINA L. APPLING, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4678-97. Filed February 5, 1998.
Shane L. Appling, pro se.
Gerald L. Brantley, for respondent.
MEMORANDUM OPINION
FOLEY, Judge: Respondent determined the following
deficiencies and accuracy-related penalties relating to
petitioners' Federal income taxes:
Penalty
Year Deficiency Sec. 6662(a)
1992 $4,350 $870
1993 5,224 1,045
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1994 4,012 802
Unless otherwise indicated, all section references are to the
Internal Revenue Code in effect for the years in issue, and all
Rule references are to the Tax Court Rules of Practice and
Procedure. After concessions, the issues for decision are: (1)
Whether petitioners are entitled to deduct certain unreimbursed
employee expenses; (2) whether petitioners are entitled to
Schedule C losses; and (3) whether petitioners are liable for
accuracy-related penalties pursuant to section 6662(b)(1).
At the time Shane and Marina Appling filed their petition,
they resided in El Paso, Texas, where Mr. Appling was employed as
a civil engineer for Silverton Construction Co. (Silverton). On
their 1992, 1993, and 1994 Federal income tax returns,
petitioners deducted $17,418, $19,132, and $14,590, respectively,
for unreimbursed employee expenses relating to Mr. Appling's job
with Silverton. Respondent determined that petitioners were only
entitled to deduct $3,009, $3,207, and $3,438, respectively, of
such expenses.
Generally, an employee may deduct unreimbursed employee
expenses pursuant to section 162(a). An employee may not deduct
such expenses, however, if the expenses are not substantiated or
if the employee has a right to, but fails to seek, reimbursement
from the employer. Kennelly v. Commissioner, 56 T.C. 936, 943
(1971), affd. without published opinion 456 F.2d 1335 (2d Cir.
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1972). Petitioners did not satisfy their burden of
substantiating their expenses. In addition, they failed to
establish that Silverton would not have reimbursed Mr. Appling
for the expenses at issue. Accordingly, petitioners are not
entitled to deduct the unreimbursed employee expenses at issue
for 1992, 1993, and 1994.
On their 1992 Federal income tax return, petitioners also
claimed a $10,809 Schedule C loss ($3,700 of gross receipts minus
$14,509 of expenses) relating to a business which marketed a car
wash product called "Dri Wash 'N Guard". Respondent determined
that petitioners were not entitled to deduct any losses
attributable to this activity. Respondent concedes, however,
that petitioners purchased $4,246 of the car wash product. Based
on concessions, testimony, reconstructed records, and executed
checks, we conclude that petitioners had expenses totaling
$4,831.23. Accordingly, petitioners are entitled to a $1,131.23
Schedule C loss for 1992.
On their 1993 and 1994 Federal income tax returns,
petitioners also claimed Schedule C losses of $18,008 and
$14,981, respectively, for a mining business. Petitioners have
failed, however, to prove that they sustained such losses.
Accordingly, petitioners are not entitled to Schedule C losses
for 1993 and 1994.
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Respondent determined that petitioners are liable for
accuracy-related penalties pursuant to section 6662(b)(1). The
penalty applies to any underpayment due to negligence or
intentional disregard of rules or regulations. Petitioners did
not maintain adequate books and records. Sec. 6001. In
addition, they failed to exercise due care in reporting their
income. Accordingly, petitioners are liable for the section 6662
accuracy-related penalties.
To reflect the foregoing,
Decision will be entered
pursuant to Rule 155.