ALLISON v. COMMISSIONER

T.C. Summary Opinion 2001-161

UNITED STATES TAX COURT

ROBERT WALTER ALLISON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 13733-99S. Filed October 11, 2001.

Robert Walter Allison, pro se.

John W. Stevens and Robert D. Heitmeyer, for respondent.

GOLDBERG, Special Trial Judge: This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed. The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority. Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.

In a notice of deficiency, respondent determined that
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petitioner is liable for a deficiency in petitioner’s Federal

income tax for the taxable year 1995 in the amount of $3,081.

After concessions made by respondent,1 the issue for

decision is whether petitioner is entitled to deduct certain

Schedule C, Profit or Loss From Business, expenses in excess of

amounts allowed by respondent for the year in issue. Adjustments

to the earned income credit, self-employment income tax and the

deduction therefor are computational and will be resolved by the

Court’s holding in this case.

Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference. At the time the petition

was filed, petitioner resided in Troy, Michigan.

Background

Petitioner is the sole proprietor of Allison Associates,

which is in the business of selling training equipment and

supplies to public schools across the United States. He has been

in the business of sales for more than 40 years. During 1995,

petitioner operated Allison Associates out of his 1,050 square

foot, 2-bedroom apartment. Petitioner had lived alone in the

apartment since about 1990, and it was not used to entertain

family or other guests.

1
Respondent concedes that petitioner is entitled to $26
of the utility expense and $826 of the business use of home
expense claimed on his Schedule C, Profit or Loss From Business.
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Petitioner is an independent representative of various

school suppliers. Customers did not typically enter his

apartment for business. Rather, customers would telephone orders

through petitioner’s toll-free 800 number or via facsimile.

Petitioner traveled to various locations across the country to

meet with school representatives to sell school supply products.

Petitioner kept boxes of literature, samples of textbooks or

computer software, and office supplies in the apartment.

Petitioner also used a storage area in the basement,

approximately 8 feet by 12 feet, to store boxes of literature,

sample products, and office supplies. Petitioner did not store

items of inventory in the apartment or the storage area.

Petitioner uses the smaller of the two bedrooms,

approximately 10 feet by 10 feet, as his primary office. This

room is cluttered with office furniture, literature, files, and

office supplies. He did not have an office located outside of

this apartment. The master bedroom is petitioner’s bedroom,

approximately 11 feet by 15 feet. This room is furnished with a

nightstand and bed which petitioner uses at night. Petitioner

stacked boxes of miscellaneous files and supplies in the corner

of the master bedroom. The living room, approximately 17 feet by

12 feet, and dining room, approximately 8 feet by 9 feet, are

petitioner’s “work space” where he packages materials and fills

envelopes, and conducts other office work. There is also a large
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table in this area which petitioner does not clear off for eating

his meals. In his apartment, petitioner has three televisions,

which he watches for recreation.

In the notice of deficiency respondent made the following

adjustments to Schedule C deductions by petitioner:

1996
Claimed Allowed Disallowed
Car and truck $4,900 $1,225 $3,675
Interest 250 0 250
Travel 2,864 1,682 1,182
Utilities 120 26 94
Exhibits 575 550 25
General 1,949 683 1,266
Association 225 227 (2)
fees
Business use of 4,130 826 3,304
home
Total $15,013 $5,219 $9,794
All numbers are rounded up to the nearest dollar.

Respondent disallowed deductions in the amounts shown above

because petitioner failed to show that each claimed deduction was

an ordinary and necessary business expense, or, in the

alternative, because petitioner failed to substantiate the

claimed deduction.

Discussion

Deductions are a matter of legislative grace, and the

taxpayer bears the burden of proving the entitlement to any

deduction claimed. INDOPCO, Inc. v. Commissioner, 503 U.S. 79,

84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440

(1934). A taxpayer is required to maintain records sufficient to
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establish the amount of his or her income and deductions. Sec.

6001; sec. 1.6001-1(a), (e), Income Tax Regs.

Section 162(a) allows a taxpayer to deduct all ordinary and

necessary business expenses paid or incurred during the taxable

year in carrying on any trade or business. To be “necessary” an

expense must be “appropriate and helpful” to the taxpayer’s

business. Welch v. Helvering, 290 U.S. 111, 113 (1933). To be

“ordinary” the transaction which gives rise to the expense must

be of a common or frequent occurrence in the type of business

involved. Deputy v. Du Pont, 308 U.S. 488, 495 (1940). No

deduction is allowed for personal, living, or family expenses.

Sec. 262(a).

Generally, if a claimed business expense is deductible, but

the taxpayer is unable to substantiate it, the Court is permitted

to make as close an approximation as it can, bearing heavily

against the taxpayer whose inexactitude is of his or her own

making. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir.

1930). The estimate must have a reasonable evidentiary basis.

Vanicek v. Commissioner, 85 T.C. 731, 743 (1985). However,

section 274 supersedes the doctrine in Cohan v. Commissioner,

supra, see sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed.

Reg. 46014 (Nov. 6, 1985), and requires strict substantiation of

expenses for travel, meals and entertainment, and gifts, and with

respect to any listed property as defined in section 280F(d)(4).
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Sec. 274(d). Listed property includes any passenger automobile

or any other property used as a means of transportation. Sec.

280F(d)(4)(A)(i) and (ii).

A taxpayer is required by section 274(d) to substantiate a

claimed expense by adequate records or by sufficient evidence

corroborating the taxpayer’s own statement establishing the

amount, time, place, and business purpose of the expense. Sec.

274(d). Even if such an expense would otherwise be deductible,

the deduction may still be denied if there is insufficient

substantiation to support it. Sec. 1.274-5T(a), Temporary Income

Tax Regs., supra.

1. Car and Truck

At trial, petitioner’s testimony as to the car and truck

expense was confusing and inconsistent. As stated above, section

274 requires strict substantiation for deductions claimed for

transportation in a passenger car. Petitioner testified that he

used the actual mileage to calculate the $4,900 car and truck

expense. Steven Sheeley, the Internal Revenue Service agent who

handled petitioner’s audit, testified that petitioner explained

at audit that he calculated the amount of this deduction on a per

mile allocation; i.e., 20,000 business miles at 31 cents per

mile. Despite the apparent conflict in testimony, the rule for

substantiating car and truck expenses is clear. Petitioner is

required to provide a mileage log establishing the amount, time,
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place, and business purpose of the expense. At trial, petitioner

failed to provide any corroborating evidence, besides his self-

serving testimony. The Court has discretion to disregard

testimony which we find self-serving. Niedringhaus v.

Commissioner, 99 T.C. 202, 212 (1992). Accordingly, petitioner

is not entitled to deduct a car and truck expense in excess of

respondent’s allowed car and truck expense for the year in issue.

2. Travel

Respondent disallowed $3,675 of petitioner’s 1995 travel

expense deduction for failure to substantiate the amounts by the

necessary records. We agree with respondent.

Petitioner testified that he traveled extensively to public

schools across the United States. Although records were

submitted to show the location of travel and the amount of the

expense; i.e., lodging and airfare, petitioner failed to provide

any information as to the purpose of the travel. There is no

information in the record showing the names of the schools

visited, the name of the contact person at the school, or the

business purpose of the meeting. Section 274(d) requires strict

substantiation, and it is clear to this Court that petitioner

failed to meet his burden. Although we find that petitioner

traveled to these places, petitioner failed to comply with the

strict requirements of the statute.
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3. General

Petitioner claimed a deduction for general expenses of

$1,949. Respondent disallowed $1,266 of this general expense.

As with other items of expense deductions, petitioner’s

testimony provided little guidance as to what was claimed under

the “general” category. Although petitioner’s summary of his

credit card spending for 1995 is helpful to substantiate amounts

paid during that year, it provides no other helpful information.

Petitioner is required to provide a business purpose for expenses

claimed under section 162. Without a clear indication of what

amounts constitute “general” expenses, we cannot allow a

deduction in excess of respondent’s previously allowed amount.

Respondent is sustained on this issue.

4. Business Use of Home

Section 280A generally prohibits deduction of otherwise

allowable expenses with respect to the use of an individual

taxpayer’s home. This prohibition, however, does not apply to

any item that is allocable to a portion of the home that is

exclusively used on a regular basis as the principal place of

business for the taxpayer’s trade or business or to space that is

used on a regular basis for storage of the taxpayer’s inventory

held for use in the taxpayer’s trade or business of selling

products at retail or wholesale. Sec. 280A(c)(1) and (2).

Petitioner claimed a Schedule C business use of home expense
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deduction in the amount of $4,130. Petitioner deducted this

amount as a home office expense for the year at issue based on

the use of 50 percent of his apartment and use of his basement

storage closet, which he used as an office and storage space,

respectively.

Respondent conceded that the smaller bedroom was used

exclusively as petitioner’s principal place of business. This

concession resulted in the allowance of a home office deduction

of $826, based on petitioner’s business usage of 10 percent of

his apartment.2 However, petitioner contends that 50 percent of

his apartment, including the storage area, was used solely for

his business. We disagree.

Although there is evidence that petitioner performed some

office activities in other rooms of his apartment, i.e., his

living room and dining room, petitioner did not use those rooms

exclusively for his business. See Popov v. Commissioner, 246

F.3d 1190 (9th Cir. 2001), affg. in part and revg. in part T.C.

Memo. 1998-374.

In addition, the storage space used by petitioner and

claimed as a home office expense for 1995 was not used for the

storage of items used as inventory, and petitioner is not

entitled to a deduction for the use of this space pursuant to

2
Petitioner’s total rent of his apartment for 1995 was
$8,260.
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section 280A(c)(2). Accordingly, petitioner failed to establish

that he is entitled to deduct an additional amount in excess of

the amount respondent allowed. Respondent is sustained on this

issue.

5. Interest, Utilities, and Exhibit

Petitioner failed to provide any information as to the

claimed interest expense deduction, utility expense deduction, or

exhibit expense deduction. As a result, petitioner is deemed to

have conceded these items. See Rules 142(a), 149; Pearson v.

Commissioner, T.C. Memo. 2000-160.

We have considered all arguments by the parties, and, to the

extent not discussed above, conclude that they are irrelevant or

without merit.

Reviewed and adopted as the report of the Small Tax Case

Division.

Decision will be entered

under Rule 155.