T.C. Summary Opinion 2001-180
UNITED STATES TAX COURT
GAIL MARIE HARMON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5884-00S. Filed December 10, 2001.
Gail Marie Harmon, pro se.
H. Clifton Bonney, Jr., for respondent.
DINAN, 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
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effect for the year in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
Respondent determined a deficiency in petitioner’s Federal
income tax of $2,621 for the taxable year 1996.
The issue for decision is whether petitioner is entitled to
various rental activity expense deductions and miscellaneous
itemized deductions which were disallowed by respondent.
Some of the facts have been stipulated and are so found.
The stipulations of fact and the attached exhibits are
incorporated herein by this reference. Petitioner resided in
Livermore, California, on the date the petition was filed in this
case.
For the taxable year in issue, petitioner filed with her
Federal income tax return a Schedule E, Supplemental Income and
Loss, for two rental properties. In the statutory notice of
deficiency, respondent determined that petitioner was not
entitled to deduct a portion of the expenses claimed with respect
to these rental properties, as detailed below, because it had not
been established that any of the amounts disallowed both were
paid during the taxable year and were ordinary and necessary
business expenses. The rental activity expenses which remain at
issue1 are the following:
1
Respondent has conceded the notice of deficiency’s
adjustment to automobile and travel expenses with respect to the
(continued...)
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Forestville Oakland
Property Property
Claimed Allowed Claimed Allowed
Cleaning and maintenance $4,073 $405 $2,186 $186
Repairs 4,153 55
Supplies 1,741 1,488
Petitioner also claimed miscellaneous itemized deductions for
travel and transportation expenses of $6,373. Respondent
determined that petitioner was entitled to deductions of only
$4,946.2
A taxpayer generally must keep records sufficient to
establish the amounts of the items reported on her Federal income
tax return. Sec. 6001; sec. 1.6001-1(a), (e), Income Tax Regs.
However, in the event that a taxpayer establishes that a
deductible expense has been paid but that she is unable to
substantiate the precise amount, we generally may estimate the
amount of the deductible expense bearing heavily against the
taxpayer whose inexactitude in substantiating the amount of the
expense is of her own making. Cohan v. Commissioner, 39 F.2d
540, 543-544 (2d Cir. 1930). We cannot estimate a deductible
expense, however, unless the taxpayer presents evidence
1
(...continued)
Forestville property.
2
Respondent’s adjustment to the miscellaneous itemized
deductions pursuant to the sec. 67(a) limitation is computational
and will be resolved by the Court’s holding on the issue in this
case.
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sufficient to provide some basis upon which an estimate may be
made. Vanicek v. Commissioner, 85 T.C. 731, 743 (1985).
Section 274(d) supersedes the Cohan doctrine. Sanford v.
Commissioner, 50 T.C. 823, 827 (1968), affd. 412 F.2d 201 (2d
Cir. 1969). As relevant here, section 274(d) provides that,
unless the taxpayer complies with certain strict substantiation
rules, no deduction is allowable for traveling expenses under
section 212 or for expenses with respect to automobiles. To meet
the strict substantiation requirements, the taxpayer must
substantiate the amount, time, place, and business purpose of the
expenses. Sec. 274(d); sec. 1.274-5T, Temporary Income Tax
Regs., 50 Fed. Reg. 46006 (Nov. 6, 1985).
The first rental expenses at issue are the cleaning and
maintenance expenses for the Forestville property. To
substantiate these expenses, petitioner provided a summary
reconstructed from bridge toll receipts. The summary listed each
time period when petitioner was allegedly at the property after
crossing the bridge, along with an amount she allegedly paid
individuals--whoever happened to be in the neighborhood at the
time--to help her with cleaning and maintenance. She admits that
the time periods are estimates; nearly all of them are rounded to
the nearest hour. Although she testified that the amounts of the
expenses are based upon an hourly wage of $15 on each occasion,
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the summary itself reflects amounts which vary and which average
$16.14 per hour.
The next expenses at issue are the repair expenses for the
Forestville property. Petitioner’s substantiation again consists
of a summary; this one was allegedly compiled from a number of
“sticky notes” allegedly kept contemporaneously with the alleged
amounts paid for the repairs. Petitioner was unable to identify
the individuals listed as completing the work other than by their
first names.
The next expenses at issue are for the supplies for the
Forestville property. Petitioner provided a copy of a sticky
note indicating $160 paid for “paint downstairs” and $93 for
“supplies”.
The final rental expenses at issue are the cleaning and
maintenance expenses for the Oakland property. Petitioner
provided a summary which she reconstructed from landfill
receipts: The summary shows expenses allegedly incurred working
at the property prior to her visits to the landfill. From
memory, she estimated the amount of time she spent working
(exactly 0, 1, 2, or 3 hours on each occasion) and listed an
expense of $10 per hour to pay a neighborhood individual to
assist her with yard work and cleaning. Petitioner also provided
a summary relating to alleged housecleaning expenses, as well as
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a note on a piece of paper listing $89 for “roto rooter”, $200
for “fence”, and $240 for “painting”.
We find all of the evidence produced by petitioner to
substantiate the various rental expenses to be unreliable.
Furthermore, petitioner has failed to provide a sufficient basis
upon which to estimate the expense amounts, despite her attempt
to reconstruct the expenses based upon available records. We do
not find credible petitioner’s testimony that she hired someone
from the neighborhood to perform services for her on nearly every
visit she made to the properties, and that she paid all these
individuals in cash, never producing a written record of the
payment. As for the few written records she did produce--
primarily the sticky notes upon which her summary was based--the
records contained too little information and did not appear to be
contemporaneously maintained with the payment of the expenses.
We sustain respondent’s determination with respect to the rental
expenses.
Finally, to substantiate the disallowed miscellaneous
itemized deductions, petitioner provided a summary listing
various travel and transportation expenses. Petitioner testified
that the expenses were incurred in travel to several different
investment properties. We again find this to be unreliable
evidence and to be insufficient substantiation, especially with
respect to those expenses subject to the strict substantiation
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rules of section 274(d). Petitioner also provided copies of
credit card statements which list expenses matching those of the
summary with respect to certain airline tickets and car rentals
for travel to Texas. She testified that she traveled to Texas on
several occasions to inspect certain property located there.
However, her reason for inspecting the property was family-
oriented because the property was held in a trust in which family
members, not petitioner, were trustor and trustee. Therefore, we
hold that these expenses were personal expenses which are
nondeductible pursuant to section 262(a).
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
under Rule 155.