T.C. Memo. 2001-59
UNITED STATES TAX COURT
LARRY M. PETTY AND JEAN L. PETTY, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 4038-99. Filed March 9, 2001.
Larry M. Petty and Jean L. Petty, pro sese.
Stephen P. Baker, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
CHIECHI, Judge: Respondent determined deficiencies in,
additions under section 6651(a)(1)1 to, and accuracy-related
penalties under section 6662(a) on, petitioners’ Federal income
1
All section references are to the Internal Revenue Code
(Code) in effect for the years at issue. All Rule references are
to the Tax Court Rules of Practice and Procedure.
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tax (tax), as follows:
Addition to Tax Accuracy-Related Penalty
Year Deficiency Under Sec. Under Sec. 6662(a)
6651(a)(1)
1992 $4,271 $417 $854
1993 7,848 1,240 1,570
The issues remaining for decision2 are:
(1) Are petitioners entitled for 1993 to Schedule C deduc-
tions in excess of those conceded by respondent? We hold that
they are not.
(2) Are petitioners liable for 1993 for the addition to tax
under section 6651(a)(1)? We hold that they are.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
Petitioners resided in Alaska at the time the petition was
filed.
On April 5, 1997, petitioners signed Form 1040, U.S. Indi-
vidual Income Tax Return, for 1993 (petitioners’ joint return),
which respondent received on April 9, 1997. Attached to peti-
tioners’ joint return was Schedule C, Profit or Loss From Busi-
ness (Schedule C), in which petitioner Larry Petty (Mr. Petty)
reported his principal business or profession as “Truck Service”.
In Schedule C, petitioners reported gross income of $5,820 and
claimed expenses of $30,268 and a net loss of $24,448. Included
2
Computational issues also remain, resolution of which flows
automatically from the concessions of the parties and our find-
ings with respect to petitioners’ claimed Schedule C deductions.
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in the expenses claimed in Schedule C were $7,902 for “Repair
parts”, $3,748 for “Repairs and maintenance”, $6,205 for “Depre-
ciation”, and $3,208 for “Fuel”.
During 1993, petitioners paid the amounts indicated with
respect to the following expenses that they claim are part of the
total expenses that they deducted for 1993 in Schedule C for
“Repair parts”:
Date of
Check Amount Claimed Nature of Expense
05/22/93 $0.48 Bolts for gate
04/21/93 14.00 Keys for side bin of farm truck
01/02/93 3.89 Parts
01/06/93 43.20 Parts
03/30/93 6.92 Parts--bolts and nuts
04/21/93 19.25 Keys
07/03/93 25.00 Interior Tax Assoc. membership
07/06/93 8.43 Generator parts
08/31/93 46.88 Ford part
11/10/93 15.54 Parts--fuses
Total $183.59
During 1993, petitioners paid the amounts indicated with
respect to the following expenses that they claim are deductible
for 1993 as Schedule C expenses for “Repairs and maintenance”:
Date of
Check Amount Claimed Nature of Expense
01/02/93 $192.89 Repairs to farm building
03/05/93 41.44 Part ‘98 Olds
03/05/93 45.00 Dodge starter
03/08/93 200.00 Transfer case
03/10/93 18.16 Dodge ad
01/07/93 79.93 Seatcover, truck mat, and weather
cord for wrecker
01/08/93 119.97 Tool box
01/11/93 31.76 Supplies
02/19/93 8.74 Part for CB radio
03/03/93 49.00 Tool
02/12/93 17.95 Not disclosed by the record
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06/12/93 100.00 Part for 1978 Dodge
06/16/93 72.75 Case of oil
03/29/93 4.73 Oil
03/28/93 22.82 Part for 966 loader
06/16/93 32.65 Fence bolts
03/24/93 15.08 Repairs
05/15/93 205.00 Built farm gates
04/01/93 20.06 Ford switch
11/30/93 69.41 Part for F-250
08/13/93 188.11 Ford parts
01/19/93 17.65 Wrecker parts
01/15/93 118.46 Wrecker lights
01/14/93 15.58 Bolts for wrecker
01/02/93 8.60 Not disclosed by the record
03/11/93 85.50 Organizer
02/22/93 7.43 Log forks repair
02/23/93 124.60 Wrecker motor heads
01/25/93 120.00 Ford tow
01/25/93 40.00 Dodge tag
11/23/93 46.14 Repairs--No. 10 black
stranded wire
03/26/93 70.27 Oil change and oil
08/02/93 120.00 Not disclosed by the record
07/29/93 106.12 Batteries for Case tractor
12/08/93 102.26 Chains
04/13/93 65.00 Title change and registration
03/24/93 51.00 Not disclosed by the record
04/14/93 19.96 Tools
03/22/93 45.00 Title transfer and tags
05/27/93 30.90 Used tire
01/22/92 91.85 Headlights, farm use
01/17/93 36.30 Tools
01/31/93 447.45 Wood tools
01/30/93 85.00 Tow and 4-day storage of wrecked
farm truck
02/03/93 76.67 Tool box, etc.
01/29/93 30.19 Ad
01/29/93 1,092.62 Wrecker repair
02/09/93 138.77 Wrecker repair
02/08/93 291.91 Wrecker repair
Total $5,020.68
At some time around December 1993 or January 1994, petition-
ers traveled from Alaska to Texas to purchase certain farm
equipment. After purchasing such equipment, petitioners discov-
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ered that the truck and the trailer that they had driven to Texas
were not large enough to transport all of that equipment back to
Alaska. Consequently, at a time not established by the record,
petitioners purchased another truck and another trailer to use in
transporting to Alaska the farm equipment that they had purchased
in Texas.
In the notice of deficiency issued to petitioners for 1992
and 1993 (notice), respondent determined, inter alia, to disallow
deductions for 1993 for certain of the total expenses claimed in
Schedule C because petitioners did not establish that Mr. Petty
was engaged in a trade or business during 1993, that such ex-
penses were paid or incurred during 1993, and that such expenses
were ordinary and necessary expenses within the meaning of
section 162(a). Respondent further determined, inter alia, that
petitioners are liable for 1993 for the addition to tax under
section 6651(a)(1) for their failure to file timely petitioners’
joint return.
OPINION
At trial, respondent conceded all determinations in the
notice relating to 1992 and 1993, except certain determinations
for 1993.3 After concessions, it is respondent’s position that
3
In addition to respondent’s concessions of most of the
determinations in the notice, respondent conceded at trial that
petitioners are entitled for 1993 to deductions in Schedule F,
Profit or Loss from Farming, in excess of those claimed by them
(continued...)
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petitioners have a deficiency in tax for 1993 of $1,483 and that
they are liable for that year for the addition to tax under
section 6651(a)(1). At trial, petitioners conceded all expenses
claimed in Schedule C for “Fuel” in excess of those conceded by
respondent for 1993.
Petitioners bear the burden of proving error in the determi-
nations for 1993 that remain at issue and their entitlement to
the new matter that they claimed at trial.4 See Rule 142(a);
Welch v. Helvering, 290 U.S. 111, 115 (1933).
Schedule C Deductions
Deductions are strictly a matter of legislative grace, and
petitioners bear the burden of proving that they are entitled to
any deductions claimed. See INDOPCO, Inc. v. Commissioner, 503
U.S. 79, 84 (1992). At trial, petitioners attempted to satisfy
that burden through Mr. Petty’s testimony and certain documentary
evidence. We found Mr. Petty’s testimony to be general, vague,
conclusory, and/or questionable in certain material respects.
Under these circumstances, we are not required to, and we shall
not, rely on Mr. Petty’s testimony to sustain petitioners’ burden
of proving that they are entitled to any Schedule C deductions in
excess of those conceded by respondent. See Lerch v. Commis-
3
(...continued)
when they filed their 1993 joint return.
4
Although the Court gave petitioners the opportunity to file
briefs, they chose not to do so.
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sioner, 877 F.2d 624, 631-632 (7th Cir. 1989), affg. T.C. Memo.
1987-295; Geiger v. Commissioner, 440 F.2d 688, 689-690 (9th Cir.
1971), affg. per curiam T.C. Memo. 1969-159; Tokarski v. Commis-
sioner, 87 T.C. 74, 77 (1986).
As for the documentary evidence on which petitioners rely,
some of that evidence establishes that petitioners paid certain
amounts for various expenditures.5 However, we find that that
documentary evidence does not show that any of those paid amounts
is deductible for 1993.
On brief, respondent concedes that during 1993 Mr. Petty
operated a truck service Schedule C business. However, respon-
dent contends on brief that petitioners have failed to establish
their entitlement for 1993 to the claimed Schedule C deductions
at issue.
Section 162(a) generally allows a deduction for ordinary and
necessary expenses paid during the taxable year in carrying on a
trade or business. The determination of whether an expenditure
5
Not all of the documentary evidence on which petitioners
rely establishes that petitioners paid the expenditures to which
that evidence relates. For example, petitioners introduced
carbon copies of the front, and not the back, of certain checks.
By way of further illustration of documentary evidence on which
we are unwilling to rely is a check that was endorsed on the back
by the payee and immediately thereunder reendorsed by Mr. Petty.
Under Mr. Petty’s endorsement appears petitioners’ bank account
number. Finally, the documentary evidence proffered by petition-
ers included certain invoices which do not indicate that the
sales described in such invoices were made to, and paid by,
petitioners.
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satisfies the requirements for deductibility under section 162 is
a question of fact. See Commissioner v. Heininger, 320 U.S. 467,
475 (1943). In general, an expense is ordinary if it is consid-
ered normal, usual, or customary in the context of the particular
business out of which it arose. See Deputy v. du Pont, 308 U.S.
488, 495 (1940). Ordinarily, an expense is necessary if it is
appropriate and helpful to the operation of the taxpayer’s trade
or business. See Commissioner v. Tellier, 383 U.S. 687, 689
(1966); Carbine v. Commissioner, 83 T.C. 356, 363 (1984), affd.
777 F.2d 662 (11th Cir. 1985).
With respect to the deductions for 1993 totaling $7,902
claimed in Schedule C for “Repair parts”, respondent concedes
that petitioners are entitled to deduct $5,214 of those claimed
expenses. However, respondent contends that petitioners are not
entitled to deduct the balance (i.e., $2,688) of those claimed
Schedule C expenses because they have not shown that such ex-
penses are ordinary and necessary expenses paid during 1993 in
carrying on Mr. Petty’s truck service business. Of the $2,688 of
claimed Schedule C expenses for “Repair parts” that are at issue,
petitioners have shown that during 1993 they paid only $183.59
of such claimed expenses.6 We find on the instant record that
6
Petitioners contend that the entire amount of the $183.59
of Schedule C expenses at issue for 1993 that we have found they
paid during that year relates to, and is deductible as, “Repair
parts”. On the record presented, we reject that contention. For
(continued...)
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petitioners have failed to establish that during 1993 they paid
more than $183.59 of the claimed Schedule C expenses for “Repair
parts” that are at issue. We further find on the record before
us that petitioners have failed to establish that the $2,688 of
Schedule C expenses at issue claimed as deductions for 1993 for
“Repair parts” are ordinary and necessary expenses paid during
that year in carrying on Mr. Petty’s truck service business.
Based on our examination of the entire record before us, we
find that petitioners have failed to prove that they are entitled
for 1993 to deduct under section 162(a) $2,688 of their claimed
Schedule C expenses for “Repair parts” that remain at issue or
any other amount in excess of that conceded by respondent.
With respect to the deductions for 1993 totaling $3,748
claimed in Schedule C for “Repairs and maintenance”, respondent
concedes that petitioners are entitled to deduct $865 of those
claimed expenses. However, respondent contends that petitioners
are not entitled to deduct the balance (i.e., $2,883) of those
claimed Schedule C expenses because they have not shown that such
expenses are ordinary and necessary expenses paid during 1993 in
carrying on Mr. Petty’s truck service business. On the record
before us, we agree with respondent.
We note initially that the documentary evidence on which
6
(...continued)
example, two such claimed paid expenses are for keys and one such
claimed expense is for a membership fee in a tax association.
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petitioners rely to establish their entitlement to deduct for
1993 the expenses remaining at issue that they claimed in Sched-
ule C for “Repairs and maintenance” shows that they paid amounts
during 1993 totaling $5,020.68. However, petitioners claimed a
deduction in Schedule C for “Repairs and maintenance” of only
$3,748, of which, as noted above, respondent conceded $865 at
trial, leaving only $2,883 which remains at issue. Furthermore,
the documentary evidence on which petitioners rely to support
their entitlement to deduct for 1993 the $2,883 of claimed
Schedule C expenses for “Repairs and maintenance” that remain at
issue included a number of checks which do not even involve or
relate to repair and/or maintenance expenses.7 On the instant
record, we find that petitioners have failed to establish that
the entire amount of $5,020.68 that the record establishes they
paid during 1993 relates to “Repairs and maintenance”. We
further find on the record before us that petitioners have failed
to prove that such paid amounts are ordinary and necessary
expenses paid during 1993 in carrying on Mr. Petty’s truck
7
For example, three of the checks petitioners introduced
into evidence to substantiate their claimed Schedule C expenses
for “Repairs and maintenance” represent amounts paid for car
titles and registrations; two of such checks represent amounts
paid for ads; and four of such checks represent amounts paid for
items not established by the record. In this connection, Mr.
Petty indicated at trial that a number of the checks introduced
by petitioners with respect to the deductions claimed in Schedule
C for “Repairs and maintenance” represented “a bunch of checks as
an afterthought, that I put in here.”
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service business.8
Based on our examination of the entire record before us, we
find that petitioners have failed to prove that they are entitled
for 1993 to deduct under section 162(a) $2,883 of their claimed
Schedule C expenses for “Repairs and maintenance” that remain at
issue or any other amount in excess of that conceded by respon-
dent.
With respect to the deductions for 1993 totaling $6,205
claimed in Schedule C for depreciation, respondent concedes that
petitioners are entitled under section 167(a) to deduct $2,055.
However, respondent contends that petitioners are not entitled to
deduct the remaining amount (i.e., $4,150) of claimed Schedule C
depreciation. Section 167(a) allows a deduction for a reasonable
allowance for the exhaustion, wear and tear, and obsolescence of
property used in a trade or business or held for the production
of income. The basis on which a depreciation deduction is
allowable with respect to any property under section 167(a) is
the adjusted basis of the property, determined under section 1011
for the purpose of determining gain on the sale or other disposi-
tion of such property. See sec. 167(c). Petitioners introduced
no evidence to support the $4,150 of claimed Schedule C deprecia-
8
We also find on the record presented that petitioners have
failed to establish that the $5,020.68 of expenses that the
documentary evidence introduced at trial establishes they paid
did not include amounts of expenses conceded by respondent as
deductible Schedule C expenses.
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tion deductions at issue for 1993 other than Mr. Petty’s testi-
mony that “my Schedule C was filled out by my accountant, and I
stand by [that] as correct.”9
Based on our examination of the entire record before us, we
find that petitioners have failed to prove that they are entitled
for 1993 to deductions under section 167(a) for $4,150 of their
claimed Schedule C depreciation deductions that remain at issue
or any other amount in excess of that conceded by respondent.
At trial, petitioners raised a new issue with respect to the
purchase of a truck and a trailer, which they contend they
purchased in 1993. Although petitioners do not claim a specific
total dollar amount for any deductions with respect to that
purchase, it is our understanding that petitioners are claiming
depreciation on the truck and the trailer and all of the expenses
that they paid during their round trip from Alaska to Texas.10
Mr. Petty initially testified that the purchase price of the
truck and the trailer was approximately $40,000. He thereafter
testified that he did not remember the purchase price of the
9
Assuming arguendo that petitioners had established that the
properties on which they are claiming the Schedule C depreciation
deductions at issue for 1993 were used in a trade or business or
held for the production of income during that year, we find on
the instant record that petitioners have failed to prove their
respective bases in any such properties for 1993.
10
Mr. Petty indicated at trial that he wanted to claim “All
the expenses that went [sic] involved in the going to Texas, and
the truck and trailer in service in ‘93, whatever that is”.
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truck and the trailer. The only documentary evidence petitioners
submitted with respect to the purchase in question was a check
dated January 7, 1994 (check), in the amount of $500 that was
payable to Bledsoe Ford. The signature line on that check bore
the name “Larry Petty”, and a notation on the check stated:
“down on 93 F350". Petitioners contend that the check was for
the purchase of the extended warranty on the truck and not for
the purchase of the truck itself. On the record before us, we
find that petitioners have failed to establish that they paid
specified amounts of expenses during their round trip from Alaska
to Texas, that any such amounts were paid in 1993, that any such
amounts were for ordinary and necessary expenses paid in 1993 in
carrying on any trade or business of Mr. Petty or petitioners,
and that any such amounts were not already included as part of
the expenses conceded by respondent. We further find on the
instant record that petitioners have failed to establish their
entitlement for 1993 to any deduction for depreciation under
section 167(a) with respect to their purchase in Texas of a truck
and a trailer.
Based on our examination of the entire record before us, we
find that petitioners have failed to prove that they are entitled
for 1993 to deductions under sections 162(a) and 167(a) in excess
of any such deductions conceded by respondent with respect to
amounts that they claim they paid during their round trip from
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Alaska to Texas and for the purchase of a truck and a trailer in
Texas.
Addition to Tax Under Section 6651(a)(1)
Section 6651(a)(1) imposes an addition to tax for failure to
file timely a tax return. The addition to tax does not apply if
the failure is due to reasonable cause and not to willful ne-
glect. See sec. 6651(a)(1). Petitioners’ joint return for 1993
was received by respondent on April 9, 1997. Petitioners intro-
duced no evidence and advanced no contentions at trial regarding
respondent’s determination to impose for 1993 the addition to tax
under section 6651(a)(1). On the instant record, we find that
petitioners have failed to carry their burden of establishing
that they are not liable for 1993 for the addition to tax under
section 6651(a)(1).
We have considered all of the arguments and contentions of
petitioners that were advanced at trial, which are not discussed
herein, and we find them to be without merit and/or irrelevant.
To reflect the foregoing and the concessions of the parties,
Decision will be entered under
Rule 155.