LEMOS v. COMMISSIONER

T.C. Summary Opinion 2002-29

UNITED STATES TAX COURT

GUIDO LEMOS AND ADABELLE HERRERA-LEMOS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 4749-00S. Filed March 29, 2002.

Guido Lemos and Adabelle Herrera-Lemos, pro sese.

Nancy L. Spitz, for respondent.

CARLUZZO, 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. Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code in effect for 1996. Rule references are to the Tax

Court Rules of Practice and Procedure. The decision to be

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

should not be cited as authority.
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Respondent determined a deficiency of $1,653 in petitioners’

1996 Federal income tax. The issues for decision are: (1)

Whether petitioners are entitled to certain employee business

expense deductions claimed on a Schedule A, Itemized Deductions;

and (2) whether petitioners are entitled to certain business

expense deductions claimed on a Schedule C, Profit or Loss From

Business.

Background

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

Petitioners are husband and wife. At the time that the petition

was filed, they resided in Hollywood, Florida. References to

petitioner are to Adabelle Herrera-Lemos.

Petitioner was self-employed as a real estate agent from May

through December during the year in issue. She was associated

with Sato Realty, Inc., a real estate broker, and compensated

exclusively on a sales commission basis. On September 18, 1996,

petitioner leased a 1996 Honda Accord. The monthly lease payment

was $255.13, payable on the 20th day of each month. Petitioner

used this car in connection with her employment as a real estate

agent.

Guido Lemos was employed full-time as a supervisor for the

service support department at Cintas Corporation (Cintas); he

also worked part-time for Enterprise Leasing Company preparing

rental cars for customers.
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Petitioners filed a timely joint 1996 Federal income tax

return which was prepared by a professional income tax return

preparer. Petitioners elected to claim itemized deductions and

included a Schedule A with their return. Of relevance here, on

the Schedule A, they claimed an employee business expense

deduction of $5,174, related to Guido Lemos’ employment with

Cintas.

Petitioners’ 1996 return also includes a Schedule C on which

the following items attributable to petitioner’s employment as a

real estate agent are reported:

Amount

Income $2,550

Deductions:
Car and truck expenses 2,002
Insurance 1,400
Legal and professional 75
Office expenses 44
Rent or lease (vehicles,
machinery, & equip.) 1,021
Taxes and licenses 280
Meals and entertainment 310

Other expenses 3,765
Total expenses 8,897

Net loss 6,347

Taking into account the net loss reported on the Schedule C,

petitioners reported adjusted gross income of $21,345 on their

1996 return.

The examination of petitioners’ 1996 return began sometime

prior to June of 1998. On June 12, 1998, petitioners’ car was
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burglarized. According to the police report, a briefcase was

stolen from the front seat of petitioners’ car.

In the notice of deficiency, respondent disallowed the

employee business expense deduction claimed on the Schedule A.

With respect to the deductions claimed on the Schedule C,

respondent disallowed the car and truck expense deduction, the

rent or lease expense deduction, and $3,058 of the $3,765

deduction claimed as “Other expenses”. Each deduction was

disallowed upon the ground that petitioners failed to establish

that “any amount was paid * * * or, if paid, was for ordinary and

necessary business or investment expenses”. Other adjustments

made in the notice of deficiency need not be discussed.

Discussion

1. Schedule A Employee Business Expense Deduction

During 1996, Guido Lemos was employed as a supervisor in the

shipping department of Cintas. According to petitioners, it was

his responsibility to ensure that the delivery trucks dispatched

from the company contained the proper cargo. According to

petitioners, if an item was erroneously omitted from a designated

shipment, Mr. Lemos, without his employer’s knowledge, used his

own car to deliver the item to the customer, sometimes at

substantial distances from his place of work. The deduction

claimed for employee business expenses consists of automobile and

other travel expenses claimed to have been incurred by Mr. Lemos
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in the course of delivering various items to his employer’s

customers.

In general, a taxpayer is entitled to deductions for

ordinary and necessary trade or business expenses. Sec. 162(a).

Trade or business expense deductions are allowed to those

taxpayers who are self-employed as well as those taxpayers who

are engaged in the trade or business of being an employee.

Primuth v. Commissioner, 54 T.C. 374, 377 (1970); Christensen v.

Commissioner, 17 T.C. 1456 (1952).

During 1996, Mr. Lemos was an employee of Cintas. However,

nothing in the record suggests that, as a condition of that

employment, Mr. Lemos was required or expected to use his own car

for delivery purposes. That being so, the expenses, even if

incurred, are not deductible. Schmidlapp v. Commissioner, 96

F.2d 680 (2d Cir. 1938); Eder v. Commissioner, T.C. Memo. 1981-

408. Respondent’s determination disallowing the deduction for

employee business expenses is, therefore, sustained.1

1
The disallowance of this itemized deduction in and of
itself reduces the total of other itemized deductions to an
amount below the standard deduction applicable to married
individuals who elect to file a joint return. Consequently,
respondent computed the deficiency here in dispute by disallowing
all itemized deductions and allowing the appropriate standard
deduction. Because we have sustained respondent’s disallowance
of the employee business expense deduction, it is unnecessary to
address the dispute between the parties with respect to the
proper amount of petitioners’ medical expense deduction.
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2. Schedule C Business Expense Deductions

There is no dispute between the parties that petitioner was

an independent real estate sales agent during 1996. The income

and deductions attributable to petitioner’s activities as a real

estate agent are reported on the Schedule C included with

petitioners’ 1996 return. Some of the deductions claimed on the

Schedule C were disallowed for a variety of reasons, including

lack of substantiation.

As a general rule, taxpayers must keep sufficient records to

establish the amounts of their claimed deductions. Meneguzzo v.

Commissioner, 43 T.C. 824, 831 (1965); sec. 1.6001-1(a), Income

Tax Regs. In this case, petitioners claim that while they

maintained sufficient tax and business records, the records that

provide substantiation for the deductions here in dispute were in

the briefcase that was stolen from their car. Accepting

petitioners’ explanation on the matter, we address each of the

disallowed Schedule C deductions separately.

Deductions for otherwise deductible car and truck expenses

are subject to strict substantiation requirements. Sec. 274(d);

sec. 1.274-5T(b)(2) and (3), Temporary Income Tax Regs., 50 Fed.

Reg. 46014-46015 (Nov. 6, 1985). If records required to

substantiate a deduction for car expenses are lost through

circumstances beyond the taxpayer’s control (such as theft), the
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taxpayer may substantiate the deduction through the use of a

reasonable reconstruction of the lost records. Sec. 1.274-

5T(c)(4) and (5), Temporary Income Tax Regs., 50 Fed. Reg. 46021-

46022 (Nov. 6, 1985). Here, no attempt to reconstruct

petitioners’ records was made. Petitioners described the type of

records claimed to have been maintained and stolen, but, except

for petitioner’s generalized testimony on the point, they did not

provide the Court with sufficient information that would allow

the lost records, if any, to be reasonably reconstructed.

Because petitioners failed to substantiate, either by original or

reconstructed records, the deduction claimed for car and truck

expenses, respondent’s disallowance of that deduction is

sustained.

The deduction for the lease expense relates to the Honda

Accord. We accept petitioner’s estimate that 60 percent of the

usage of this car related to her business. According to the

lease, four monthly payments of $255.13 were due during 1996.

We accept petitioner’s testimony that all four of these payments,

totaling $1,020.52, were made as due during 1996. They are

entitled to a deduction of 60 percent of this amount.

The $3,765 deduction for “Other expenses” consists of the

following items:
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State exam $185
School course 250
Cellular phone &
beeper 1,200
Clothes & cleaning 1,440

Shoes 150
Insurance 20
Supra key pad &
lock box 120
Electronic organizer 300
Miscellaneous 100

In the notice of deficiency, respondent disallowed $3,058 of

the total amount, allowing petitioners a $707 deduction for the

above expenses. Respondent did not identify which of the above

items were allowed, and, based on the record, we were not able to

ascertain the combination of the above items that totals $707.

Nevertheless, ignoring the mathematics and keeping in mind

that petitioners failed to substantiate any of the expenses, we

note the following with regard to some of the larger expense

items listed above. The expenses for clothes, cleaning, and

shoes would not be deductible even if paid and substantiated.

Petitioner’s testimony establishes that the clothing to which the

expenses relate is suitable for general usage. Consequently, the

expenses are personal in nature and may not be deducted. Sec.

262(a); Hynes v. Commissioner, 74 T.C. 1266, 1290 (1980); Foster

v. Commissioner, T.C. Memo. 1990-427. We think it highly

unlikely that any of the $707 allowed by respondent is

attributable to a portion of the deductions for clothes,

cleaning, and shoes.
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The deduction for cell phone and beeper expenses is subject

to the same strict substantiation requirements as the car

expenses, as discussed above. Secs. 274(d), 280F. Petitioners’

failure to substantiate the expense by original or reasonably

reconstructed records is grounds for disallowing the deduction.

Again, we think it highly unlikely that respondent allowed any

portion of the deduction for cell phone and beeper expenses.

The remaining items included in the deduction for “Other

expenses” total slightly more than the $707 allowed by

respondent. That being the case, it appears that respondent has

already allowed, in the absence of substantiating records, the

majority of these items. We find no basis in the record for

increasing that amount.

Reviewed and adopted as the report of the Small Tax Case

Division.

To reflect the foregoing,

Decision will be entered

under Rule 155.