T.C. Summary Opinion 2003-97
UNITED STATES TAX COURT
THOMAS JAMES ALLEN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11105-01S. Filed July 23, 2003.
Thomas James Allen, pro se.
Edwina Jones, 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
effect for the year in issue. All Rule references are to the Tax
Court Rules of Practice and Procedure.
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Respondent determined deficiencies in petitioner’s Federal
income taxes for the years 1998 and 1999 in the amounts of $2,409
and $3,617, respectively. All issues regarding the year 1999
raised in the statutory notice of deficiency mailed to petitioner
on September 5, 2001, have been conceded by petitioner, and we
need address only the issues pertaining to the year 1998.
For the year 1998, we are asked to decide: (1) Whether
petitioner is entitled to claimed job expenses and other
miscellaneous itemized deductions in excess of the $1,105 amount
allowed by respondent, and (2) whether petitioner is entitled to
Schedule C business expense deductions in the amount of $12,747
as claimed on his return, or in the amount of $2,459, as allowed
by respondent in the notice of deficiency.
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
Charlotte, North Carolina, on the date the petition was filed in
this case.
On Schedule A, Itemized Deductions, of his 1998 return,
petitioner claimed job expenses and other miscellaneous
deductions in the amount of $5,915, subject to the 2-percent
floor on miscellaneous itemized deductions in the amount of $510.
Upon auditing petitioner’s return, respondent disallowed the
amount claimed. Respondent also determined, however, that
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petitioner was entitled to a job-related education miscellaneous
itemized deduction in the amount of $1,105, subject to the 2-
percent floor on miscellaneous itemized deductions.
On Schedule C, Profit or Loss From Business, petitioner
claimed business expense deductions in the amount of $12,747
resulting in a loss claimed on Schedule C in the amount of
$9,372. Respondent disallowed the claimed deductions in the
amount of $12,747. Respondent also determined, however, that
petitioner was entitled to deduct business expenses as follows:
Entertainment, gift, etc. $ 193
Auto expenses 1,950
Travel, etc. 316
$2,459
Discussion
Taxpayers generally bear the burden of proving that the
Commissioner’s determination is incorrect. Rule 142(a); Welch v.
Helvering, 290 U.S. 111 (1933). Pursuant to section 7491(a)(1),
however, the burden of proof shifts to the Commissioner if, among
other requirements, the taxpayer introduces “credible evidence
with respect to any factual issue relevant to ascertaining” his
tax liability. The burden of proof in this case does not shift
to respondent because petitioner has not complied with the
requirements of section 7491(a)(1).
A taxpayer generally must keep records to substantiate the
amounts of items reported on his Federal income tax return. Sec.
6001; sec. 1.6001-1(a), (e), Income Tax Regs. In the event that
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a taxpayer establishes that a deductible expense has been paid
but 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 his 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 sufficient to provide some basis upon which an
estimate may be made. Vanicek v. Commissioner, 85 T.C. 731, 743
(1985). Furthermore, section 274(d) supersedes the Cohan
doctrine and prohibits estimating certain expenses. Sanford v.
Commissioner, 50 T.C. 823, 827 (1968), affd. 412 F.2d 201 (2d
Cir. 1969). That section provides that unless the taxpayer
complies with certain strict substantiation rules, no deduction
is allowable (1) for travel expenses, (2) for entertainment
expenses, (3) for expenses for gifts, or (4) with respect to
listed property. Listed property includes passenger automobiles
and other property used as a means of transportation, computers,
and cell phones or other similar telecommunications equipment.
Sec. 280F(d)(4). 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. 46014 (Nov. 6, 1985).
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Schedule A Itemized Deductions
Petitioner claimed the following Itemized deductions:
Form 2106 vehicle expenses $4,007
Tax preparation fees 156
Tax prep. & tax pubs. 100
Cont. educ. books 500
Uniform/shoes 1,152
5,915
At trial, petitioner had no memory of the expenses he
deducted for the purchases of continuing education books,
uniforms, and shoes. He also testified that he prepared and
electronically filed his own 1998 return. No evidence was
submitted to substantiate expenses deducted for tax preparation
fees and tax publications. Finally, petitioner admitted that all
employee business expenses incurred by him during his employment
with Polygram Manufacturing & Distribution Centers were
reimbursed. He would not, therefore, be entitled to claim a
miscellaneous employee business expense deduction for automobile
expenses on Schedule A. We sustain respondent’s disallowance of
the $5,915 claimed as miscellaneous itemized deductions on
Schedule A of his 1998 return.1
Schedule C Business Expenses
During the examination of petitioner’s 1998 return, and in
particular with regard to Schedule C, respondent allowed
petitioner the following business expenses:
1
As discussed infra, respondent did allow petitioner to
deduct automobile expenses on Schedule C of his 1998 return.
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Entertainment, gifts $ 193
Automobile expenses 1,950
Travel 316
2,459
None of these expenses were deducted by petitioner on Schedule C
of his return.
Respondent reviewed the Form 2106, Employee Business
Expenses, attached to petitioner’s 1998 return to support the
$4,007 automobile deduction claimed on Schedule A. On that form,
petitioner reported 4,138 miles driven at $.325 per mile for an
amount of $1,345. Petitioner also reported actual automobile
expenses of $2,662 for a total of $4,007. For reasons not
appearing in the record, respondent determined that petitioner
was entitled to an automobile expense deduction of $1,950, based
upon 6,000 miles traveled at the standard mileage rate of $.325
per mile for 1998.
Petitioner claimed an advertising expense deduction of $450
on his 1998 Schedule C. Petitioner informs us that he made signs
that he placed in the windows of various stores to advertise
goods that he held for sale. He submitted no evidence either
that he spent $450 to produce the signs or that he paid $450 to
display them in the various store windows. Respondent is
sustained on this issue.
Petitioner claimed a $403 depreciation expense deduction on
his 1998 Schedule C. He admitted at trial that he was not
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entitled to the claimed $403 deduction because that amount
pertained to the automobile for which he was allowed an
automobile expense deduction in the amount of $1,950, based upon
6,000 miles of business travel. Respondent is sustained on this
issue.
Petitioner claimed a $1,300 legal and professional services
expense deduction on his 1998 Schedule C. He explained that he
paid that to a friend of a friend to draw up a business plan that
would lead to the incorporation of an unexplained business that
petitioner intended to pursue. There is no evidence in the
record that petitioner had an incorporated business during the
years in issue. Testimony may be sufficient as proof but in an
instance such as here, where the testimony is conclusory and
subject to doubt, it falls short of overcoming respondent’s
presumption of correctness. Hearn v. Commissioner, 36 T.C. 672
(1961), affd. 309 F.2d 431 (9th Cir. 1962). We sustain
respondent on this issue.
Petitioner claimed a vehicle rent or lease deduction on his
1998 Schedule C. He stated that he rented vans to transport
various items to his home from Chicago and Commerce, Georgia, to
sell. Again, we are left with petitioner’s uncorroborated self-
serving testimony to substantiate the claimed deduction, which
this Court need not accept. Sacks v. Commissioner, T.C. Memo.
1994-217, affd. 82 F.3d 918 (9th Cir. 1996); Niedringhaus v.
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Commissioner, 99 T.C. 202, 212 (1992); Tokarski v. Commissioner,
87 T.C. 74, 77 (1986). We sustain respondent on this issue.
Petitioner claimed a $500 repairs and maintenance expense
deduction on his 1998 Schedule C. He admitted at trial that he
was not entitled to the claimed deduction. It pertained to
maintenance expenses paid to repair the automobile for which he
was allowed a standard mileage expense. Respondent is sustained
on this issue.
Petitioner claimed deductions of $175 and $150 for supplies
and licenses, respectively, on his 1998 Schedule C. No evidence
was submitted to substantiate these claimed deductions.
Respondent is sustained on this issue. See Niedringhaus v.
Commissioner, supra.
In Part V of his 1998 return, petitioner deducted “Other
Expenses” as follows:
Education $3,500
Telephone 1,750
Cellular phones 2 2,000
Pagers 2 144
Laptop computer 2,150
9,544
As noted, supra, respondent determined in the notice of
deficiency that petitioner was entitled to a job-related
education miscellaneous itemized deduction in the amount of
$1,105 subject to the 2-percent floor on miscellaneous
deductions. Petitioner has not substantiated that he is entitled
to any education expense deduction in excess of the amount
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determined by respondent, nor has he shown that the education
expense allowed should be a Schedule C deduction, rather than a
Schedule A itemized deduction. Respondent is sustained on this
issue.
Even had petitioner established that he spent the amounts
claimed, supra, for a telephone, two cellular phones, two pagers,
and a laptop computer, petitioner would not be entitled to deduct
the amounts expended for those items on Schedule C of his 1998
return.2
Section 179 permits taxpayers (other than estates, trusts
and certain noncorporate lessors) to elect to deduct the cost of
qualifying depreciable property in the year in which the property
is placed in service rather than to recover the cost through
depreciation.
A section 179 election to expense the cost of qualifying
property must be made on either (1) the taxpayer’s first return
for the tax year in which the property is placed in service or
(2) an amended return that is filed prior to the due date
(including extensions) for filing the return. Sec. 1.179-5(a),
Income Tax Regs. The election is made on Form 4562, Depreciation
and Amortization. Petitioner did not elect to expense the above-
2
We need not and do not decide whether the above-
mentioned property constitutes qualifying depreciable property.
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mentioned property on his 1998 return. Respondent is sustained
on this issue.
At trial, petitioner raised a new issue, arguing that he is
entitled to a business expense deduction on his 1998 return for
amounts he paid to Morningstar Storage to “store everything”.
Petitioner submitted no documents to substantiate the claimed
business expense deduction. His testimony was vague and
unpersuasive:
The Court: That storage business still in
existence?
The Witness: Yes, sir.
The Court: Did you ever go to anyone and ask
them for a receipt?
The Witness: Yes.
The Court: What did they tell you?
The Witness: They said they couldn’t pull any records
back from that far. They’re still in
business, Morningstar Storage on Sharon--
The Court: This 1998, and they couldn’t pull any
records back from 1998?
The Witness: That’s what the manager on site said.
They have an in-house guy right there.
Petitioner has submitted no credible evidence that he is
entitled to a business expense deduction for storage rental space
in 1998, and we do not further consider the issue.
Reviewed and adopted as the report of the Small Tax Case
Division.
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To reflect the foregoing,
Decision will be entered
for respondent.