T.C. Memo. 2000-385
UNITED STATES TAX COURT
JAMES L. CHRISTIAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 23902-97. Filed December 20, 2000.
James L. Christian, pro se.
Yvonne M. Peters, for respondent.
MEMORANDUM OPINION
BEGHE, Judge: Respondent determined a deficiency of $10,776
in petitioner’s 1993 Federal income tax. After concessions, the
issues remaining for decision are whether petitioner is entitled
to deduct expenses claimed in excess of the amounts allowed by
respondent with respect to the following three items or types of
items: (1) Of $2,332 claimed as a deduction for depreciation in
connection with writing and retreat activities, any more than the
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$79 allowed by respondent for “research and development”; (2) a
$5,328 rent deduction claimed out of $6,660 paid for use of an
apartment in connection with petitioner’s writing activity; and
(3) of $4,369 claimed as a deduction for supplies in connection
with petitioner’s retreat activity, any more than the $666
allowed by respondent.1 By reason of petitioner’s failure to
substantiate the deductions claimed, we sustain respondent’s
determinations.
Section references are to the Internal Revenue Code in
effect for the year in issue, and Rule references are to the Tax
Court Rules of Practice and Procedure.
For clarity and convenience, following a short initial
background statement, the findings of fact and discussion with
respect to the separate issues have been combined under separate
headings.
Background
Some of the facts have been stipulated and are so found.
The stipulations of fact and the accompanying exhibits are
incorporated by this reference. Petitioner resided in Hemet,
California, at the time he filed his petition in this case.
1
It is not clear from the record whether the deduction for
supplies allowed by respondent was over and above the amount
respondent allowed as an offset to the $2,336 of gross income
that petitioner received from retreat participants. This
question should be resolved in the Rule 155 computation.
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In 1993, the tax year in issue, petitioner’s home and place
of business in Hemet, California, was a small ranch that he had
inherited from his father in 1987. Petitioner lived in the main
house on the ranch, which also includes a guest house and a
separate office building.
In 1992, petitioner had retired from a teaching career in
Orange, California. During 1993, petitioner continued his prior
second career as a writer for profit and did his writing at the
ranch, which was both his home and his primary place of business
for his writing activity.
In 1992, petitioner also began to make the ranch available
as a retreat center. Petitioner did not maintain a separate bank
account for the retreat activity, which generated $2,336 of gross
income for 1993.
In addition to the activities in dispute, petitioner also
carried on farming activities at the ranch, raising figs and
dogs. The farming activities generated $1,325 of gross income
and $25,588 of expense deductions, with respect to which
respondent made no adjustments.
Issue 1. Depreciation in Connection With Writing and Retreat
Activities
Neither when petitioner inherited the ranch from his father
in 1987, nor at any later time, did he attempt to allocate the
basis of the ranch between land and buildings or between
buildings and furnishings, nor did he claim any deductions with
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respect to the inherited basis of the buildings or furnishings.
The $2,332 of depreciation petitioner claimed for 1993 consisted
of $79 for “research and development”, which respondent allowed,
and $537 for research furnishings and $1,716 for improvements,
which respondent disallowed. Petitioner was unable to remember
what specific items were being depreciated and had no records to
show basis. Respondent’s determination on these items must be
upheld on account of petitioner’s failures to identify the items
on which depreciation was claimed and to substantiate the cost of
such items.
Issue 2. Apartment Rental
During 1993, petitioner rented an apartment at 251 N. Olive,
Orange, California, which he had begun renting in 1988.
Originally, petitioner had used the apartment when he was
teaching in Orange. Orange is approximately 80 miles from
petitioner’s ranch; it takes petitioner approximately 1-1/2 to 2
hours to drive to Orange from his ranch. During 1993, petitioner
used the apartment for personal and business purposes. When
petitioner was using the apartment for business purposes in 1993,
he performed research at several libraries and met with friends
and colleagues.
During 1993, petitioner’s friend and assistant Lori used the
apartment when she was teaching in Orange. Lori did not pay rent
to petitioner for use of the apartment. Petitioner paid a total
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of $6,660 to rent the apartment during 1993 and deducted $5,328
as rent expense for other business property.
Petitioner’s claimed deduction of apartment rent must be
disallowed because he failed to provide the substantiation
required by section 274(d).
Taxpayers are permitted to deduct the expenses of a second
residence as travel expenses where the expenses are reasonable
and necessary, incurred while away from home, and incurred in
pursuit of business. See sec. 162(a)(2); Commissioner v.
Flowers, 326 U.S. 465, 470 (1946). Travel expense deductions are
permitted under section 162 only if the substantiation
requirements of section 274(d) are met. This includes deductions
for lodging while away from home. See sec. 274(d)(1); Shea v.
Commissioner, 112 T.C. 183, 188 (1999). The minimum requirements
include substantiating the amount of the expense, the time and
place of the travel or use of the facility or property, and the
business purpose of the expense. See sec. 274(d). A taxpayer
must substantiate each individual expenditure by producing (1)
adequate records or (2) sufficient evidence to corroborate his or
her own statements. See sec. 1.274-5T(c)(1), Temporary Income
Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).
To meet the adequate records standard, the taxpayer must
maintain an account book, diary, log, statement of expenses, or
other similar record in which entries are made at or near the
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time of the expenditure. See sec. 1.274-5T(c)(2), Temporary
Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985). In
addition, the taxpayer must supply documentary evidence such as
receipts or paid bills. See sec. 1.274-5T(c)(2)(iii), Temporary
Income Tax Regs., 50 Fed. Reg. 46019 (Nov. 6, 1985). A taxpayer
who is unable to meet the adequate records standard may be able
to substantiate travel expenses with his own statements
containing specific details of each element, in conjunction with
other corroborative evidence of each element. See sec. 1.274-
5T(c)(3), Temporary Income Tax Regs., 50 Fed. Reg. 46020 (Nov. 6,
1985).
Although the parties agreed at trial that petitioner paid
rent for the apartment in Orange, California, petitioner failed
to substantiate the rent payments as travel expenses related to
his business. He failed to provide any records indicating the
dates of travel or the specific purpose for each trip. In
failing to provide an account book, diary, log, or any other
specific record of his travel and expenditures, petitioner failed
to meet the adequate records standard.
Petitioner also flunked the alternative test. His testimony
failed to set forth with any particularity the dates and times of
his travel or the specific business purpose for each trip. Nor
did petitioner produce any witnesses or any other evidence to
corroborate when and how often he used the apartment and that
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each use was for business purposes. Instead, petitioner
estimated that he used the apartment 80 days during 1993. An
approximation of travel expenses, however, is not sufficient.
The Cohan rule, see Cohan v. Commissioner, 39 F.2d 540, 543, 544
(2d Cir. 1930), providing for the Court’s approximation of the
amount of general business expenses, does not apply to travel
expenses, see Sanford v. Commissioner, 50 T.C. 823, 827 (1968),
affd. per curiam 412 F.2d 201 (2d Cir. 1969). Inasmuch as travel
expenses may not be approximated and petitioner failed to meet
either the adequate records standard or the alternative test, the
deduction for apartment rent must be denied in its entirety.
At trial, petitioner argued that he should be permitted to
calculate his deduction for business use of the apartment by
using per diem rates. For the reasons discussed below,
petitioner is not entitled to calculate his deduction by using
per diem rates.
Section 274(d) and the regulations thereunder vest the
Secretary with authority to promulgate regulations that prescribe
alternative methods of substantiating expenses covered by section
274. See sec. 1.274-5T(j), Temporary Income Tax Regs., 50 Fed.
Reg. 46032 (Nov. 6, 1985). Pursuant to this authority, the
Secretary has issued a series of revenue procedures providing
rules under which the amount of an employee’s ordinary and
necessary business expenses for lodging, meals, and incidental
expenses incurred while traveling away from home will be deemed
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substantiated for purposes of section 274(d). Rev. Proc. 92-17,
1992-1 C.B. 679, and Rev. Proc. 93-21, 1993-1 C.B. 529, apply for
the taxable year 1993. These revenue procedures also provide an
optional method for employees and self-employed individuals to
substantiate the amounts of business meal and incidental expenses
incurred while traveling away from home.
While Rev. Proc. 92-17, sec. 4.01, 1992-1 C.B. at 680, and
Rev. Proc. 93-21, sec. 4.01, 1993-1 C.B. at 531, authorize the
use of the per diem method to substantiate the amount of lodging,
meal, and incidental costs, this method of reporting is available
only to employees whose employers pay a per diem allowance in
lieu of reimbursing the actual expenses incurred by the employee
while traveling away from home. However, petitioner’s expenses
for lodging are not covered by this provision because he was
self-employed. Although petitioner, as a self-employed
individual, would have been entitled to use the per diem method
allowed under Rev. Proc. 92-17, sec. 4.03, 1992-1 C.B. at 680,
and Rev. Proc. 93-21, sec. 4.03, 1993-1 C.B. at 531, those
provisions are limited to meals and incidental expenses.
Accordingly, petitioner’s away-from-home lodging expenses are not
deductible because they have not been otherwise substantiated
pursuant to section 274(d). See Duncan v. Commissioner, T.C.
Memo. 2000-269.
Petitioner’s failure to satisfy the substantiation
requirements under section 274(d) makes it unnecessary to
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consider his other arguments. We therefore need not expatiate on
petitioner’s substantive failure to persuade us of the business
necessity for maintaining the apartment or otherwise to supply
sufficient evidence that would have enabled us to apply the Cohan
rule in his favor.
Issue 3. Supplies Expense in Connection With Retreat Activity
Petitioner promoted the ranch as a retreat center called
East/West Retreat, to be used for field trips, classes, getaway
weekends, philosophy seminars, astronomy groups, weddings, and
meditation for personal renewal.
Petitioner estimated that the ranch was used for retreats
approximately 20 times during 1993. Petitioner charged retreat
guests $10 to $25 for 1 day at the ranch and $120 for a full week
at the ranch.
Petitioner deducted $4,369 for supplies for his retreat
activities. Petitioner provided receipts to respondent, which,
however, were not introduced into evidence, for groceries, office
supplies, party favors, and wine. Respondent allowed $666 as a
reasonable estimate of expenses for retreat supplies.2
In the absence of petitioner’s showing at trial that the
claimed expenditures were in fact incurred and were ordinary and
necessary to his activities as a retreat host, respondent’s
determination on this issue is sustained.
2
See supra note 1.
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To reflect the parties’ concessions,
Decision will be entered
under Rule 155.