T.C. Summary Opinion 2004-56
UNITED STATES TAX COURT
GEORGE W. MOSS AND GWENDOLYN ARLINE-MOSS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11414-02S. Filed May 12, 2004.
George W. Moss and Gwendolyn Arline-Moss, pro sese.
Timothy S. Murphy, for respondent.
DEAN, 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 the year at issue, and all 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 in petitioners' Federal
income tax of $1,694 for 1998. Petitioners concede as correct
respondent's adjustments for: (a) Charitable contributions of
$4851 on Schedule A, Itemized Deductions; (b) repairs expense of
$1,175 on Schedule E, Supplemental Income and Loss; and (c) labor
expenses of $450 on Schedule E. Respondent concedes that
petitioners are entitled to deduct: (1) Travel expenses of
$3,319 on Schedule C, Profit or Loss From Business; and (2)
miscellaneous expenses of $400 on Schedule E. The issue
remaining for decision is whether petitioners are entitled to
deduct on Schedule C, $4,067 of telephone expenses.
Some of the facts have been stipulated and are so found.
The stipulation of facts and exhibits received in evidence are
incorporated herein by reference. At the time the petition was
filed, petitioners resided in Flint, Michigan.
Background
During the year 1998, Gwendolyn Arline-Moss (petitioner) was
employed by the State of Michigan as a supervisor in the Office
of Financial Management. She also worked part-time as a real
estate agent for Robert Edwards and Associates (Edwards). There
were 63 agents at the company and only 12 desks from which to
work. Due to the difficulty in obtaining work space at the
1
The amount of the adjustment was misstated as $450 during
the oral agreement on the record.
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Edwards office, petitioner set up an office in the basement of
her home.
She had installed in her basement office an Ameritech
telephone line that was separate from the personal home
telephone. The Ameritech line serviced her business phone
number, a Fax number, and an internet line. Petitioner was also
billed by Ameritech for cell phone service. Petitioner paid
Ameritech $4,128.24 for telephone services in 1998.
Discussion
Because petitioners failed to meet the requirements of
section 7491(a)(2), the burden of proof does not shift to
respondent in this case.
Section 162(a) allows a deduction for all ordinary and
necessary expenses incurred in carrying on a trade or business.
Generally, a taxpayer must establish that deductions taken
pursuant to section 162 are ordinary and necessary business
expenses and must maintain records sufficient to substantiate the
amounts of the deductions claimed. Sec. 6001; Meneguzzo v.
Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a),
Income Tax Regs.
Where a taxpayer has established that he has incurred a
trade or business expense, failure to prove the exact amount of
the otherwise deductible item may not always be fatal.
Generally, unless precluded by section 274, the Court may
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estimate the amount of such an expense and allow the deduction to
that extent. See Finley v. Commissioner, 255 F.2d 128, 133 (10th
Cir. 1958), affg. 27 T.C. 413 (1956); Cohan v. Commissioner, 39
F.2d 540, 543-544 (2d Cir. 1930). In order for the Court to
estimate the amount of an expense, however, there must be some
basis upon which an estimate may be made. Vanicek v.
Commissioner, 85 T.C. 731, 742-743 (1985). Without such a basis,
an allowance would amount to unguided largesse. Williams v.
United States, 245 F.2d 559, 560 (5th Cir. 1957).
With respect to certain business expenses specified in
section 274(d), however, more stringent substantiation
requirements apply. Section 274(d) disallows deductions for
traveling expenses, gifts, and meals and entertainment, as well
as for "listed property", unless the taxpayer substantiates by
adequate records or by sufficient evidence corroborating the
taxpayer's own statement: (1) The amount of the expenses; (2)
the time and place of the expense; (3) the business purpose of
the expense; and, (4) the business relationship to the taxpayer
of the persons involved in the expense. The term listed property
is defined in section 280(F)(d) and includes cellular phones, and
other similar telecommunications equipment, such as pagers. See
sec. 280F(d)(4)(v).
The substantiation requirements of section 274(d) are
designed to encourage taxpayers to maintain records, together
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with documentary evidence substantiating each element of the
expense sought to be deducted. Sec. 1.274-5T(c)(1), Temporary
Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).
Petitioners submitted copies of Ameritech phone bills for
1998 that contain summary information on petitioner's telephone
charges but give no detail on the nonbasic and larger charges
included in the total bill. For example, each bill shows a
monthly service charge, and separate charges for local and long
distance service, and for taxes. For some months, the bills
show separate charges for internet service and for paging. Still
other monthly bills show, in some cases, hundreds of dollars of
charges for which there is no explanation. The face of the bill
states: "For Detailed Charges - See Page 3". There is,
however, no page 3 available for any of the bills. With respect
to what the Court assumes from petitioners' testimony may be cell
phone charges, there is nothing in the record meeting the
requirements of sec. 1.274-5T(c)(1), Temporary Income Tax Regs.,
50 Fed. Reg. 46016 (Nov. 6, 1985). If the charges were other
than cell phone charges, petitioners have failed to offer any
explanation or any substantiation for them.
Petitioners, for the real estate business phone, paid
$1,148.15 for monthly service charges, and separate charges for
local and long distance service, taxes, internet service, and
paging. The Court finds that petitioners have failed to properly
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substantiate telephone charges in connection with a trade or
business in excess of that amount.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
under Rule 155.