LAMB v. COMMISSIONER

T.C. Summary Opinion 2004-140

UNITED STATES TAX COURT

CAROLYN LAMB, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 14660-03S. Filed October 12, 2004.

Carolyn Lamb, pro se.

R. Scott Schieldes, for respondent.

ARMEN, Special Trial Judge: This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time that the petition was filed.1 The decision to

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

should not be cited as authority.

1
Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for 2000,
the taxable year in issue. All Rule references are to the Tax
Court Rules of Practice and Procedure.
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Respondent determined a deficiency in petitioner’s Federal

income tax in the amount of $11,834 for the taxable year 2000.

This is a substantiation case. After a concession by

respondent, the issue for decision is whether petitioner is

entitled to various Schedule C deductions in amounts greater than

those allowed and conceded by respondent. We hold that

petitioner is entitled to the deductions to the limited extent

provided herein.

Background

Some of the facts have been stipulated, and they are so

found. At the time that the petition was filed, petitioner

resided in Houston, Texas.

During 2000, the taxable year in issue, petitioner was self-

employed. She owned and operated two businesses: a child care

business and a property maintenance and cleanup business.

Child Care Business

Petitioner operated the child care business out of her

residence. She generally had 8 to 12 children in her care during

the day throughout the workweek. The children included infants,

preschoolers, elementary school students, and a 13-year-old.

The children would be dropped off at petitioner’s home by

their parents on their way to work, and would be picked up by

their parents on their way home. After dropoff by the parents in

the morning, petitioner would drive the older children to school;
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she would return after school had finished and drive them back to

her house. The preschoolers would remain in petitioner’s care

throughout the day. Petitioner would use her Chevy Astro van to

transport the children to and from school.

Petitioner operated her child care business without paid

assistance. However, petitioner’s sister “or somebody” would

help out on a volunteer basis.

Property Maintenance and Cleanup Business

Petitioner operated this business as a contractor for Action

Properties of Tomball, Texas. Petitioner provided services such

as lawn mowing and debris clearing for townhomes and single-

family residences that had been repossessed after default on

loans guaranteed by the U.S. Department of Housing and Urban

Development. Petitioner would care for the property until it was

resold. Most of the properties were located in Houston and the

immediate environs.

Petitioner’s older son, Clifton Lamb, was employed as a

truck driver in 2000, but he helped out on an occasional basis in

the property maintenance and cleanup business. Clifton’s friend,

Michael Dean, who lived in petitioner’s home “on and off”, also

helped out. Petitioner’s younger son, Adam Lamb, may also have

helped out from time to time when he was not attending college at

Texas Southern University. Whether other individuals may have

provided assistance in the operation of the business is not
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disclosed in the record.

Petitioner’s Methods of Paying Expenses

During 2000, petitioner maintained a personal checking

account that she used to pay personal expenses. In contrast,

petitioner did not maintain a separate checking account for

either of her businesses, nor did she pay any business expense

using her personal checking account. Rather, petitioner chose to

deal principally in cash, and occasionally in money orders, in

paying business expenses.

The record does not disclose what receipts, if any,

petitioner may have obtained when paying in cash.

Tropical Storm Allison

In June 2001, petitioner’s residence was damaged by Tropical

Storm Allison. Until her home was repaired, petitioner lived in

a travel trailer.

Petitioner’s Tax Return

For 2000, petitioner filed a Form 1040, U.S. Individual

Income Tax Return. Petitioner attached to her return a Schedule

C, Profit or Loss From Business, for her childcare business, and

a second Schedule C for her property maintenance and cleanup

business. On the Schedules C, petitioner reported gross income

in the aggregate amount of $92,092 and total expenses in the

aggregate amount of $74,179.

On the Schedule C for her childcare business, petitioner
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claimed a $3,000 expense deduction under section 179 for a

computer and printer.

On her Schedule C for the property maintenance and cleanup

business, petitioner claimed a $7,500 expense deduction under

section 179 for a trailer ($2,000) and a lawn mower ($5,500).

Petitioner also claimed depreciation in the amount of $7,950 on a

Ford F150 truck ($2,950) and a GMC Suburban SUV ($5,000).

Additionally, petitioner claimed car and truck expenses in the

amount of $16,029 in respect of the Ford truck and GMC Suburban.

Petitioner claimed various other deductions, including one for

landfill expenses ($8,000) and another for contract labor

($7,000).

Respondent’s Notice of Deficiency

In the notice of deficiency, respondent determined as

follows:

Claimed Allowed Disallowed
Child Care Business
Computer/printer $3,000 --- $3,000

Property Main. &
Cleanup Business
Trailer (§179) 2,000 --- 2,000
Lawn mower (§179) 5,500 --- 5,500
Ford F150 (depreciation) 2,950 $2,950 ---
Suburban (depreciation) 5,000 --- 5,000
Actual operating expenses
[1]
(Ford & Suburban) 16,029 8,341 7,688
Landfill 8,000 4,320 3,680
Contract labor 7,000 --- 7,000

[1]
Ford F150 only. At trial, respondent conceded that petitioner is
entitled to an additional $656.77 in actual operating expenses for
the Ford F150.
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Petitioner’s Petition

In her petition, petitioner asserted that all of her tax

records were destroyed by Tropical Storm Allison. Petitioner

also asserted that “I was asked by IRS representative[s] to

reconstruct a mileage log from memory which would force me to

tell untruths about mileage.” At trial, petitioner did not

explain why a reconstruction of her records would necessarily be

untruthful.

Discussion

Generally, the Commissioner’s determinations are presumed

correct, and the taxpayer bears the burden of proving that those

determinations are erroneous. Rule 142(a); Welch v. Helvering,

290 U.S. 111, 115 (1933).2

In her petition and at trial, petitioner attributed her lack

of records to Tropical Storm Allison. Clearly petitioner

suffered damage because of that storm, and some of her records

may have been lost or destroyed. However, a taxpayer is still

obliged to reconstruct his or her records as best as possible,

and on this score petitioner did not acquit herself well.

In addition, the focus on Tropical Storm Allison begs the

question regarding the quality and quantum of records that

2
Sec. 7491(a) does not apply in this case to shift the
burden of proof to respondent because petitioner neither alleged
that sec. 7491(a) is applicable nor satisfied the threshold
requirements of sec. 7491(a)(2)(A) and (B). See Higbee v.
Commissioner, 116 T.C. 438, 442-443 (2001).
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petitioner kept in the first instance. For example, during the

year in issue, petitioner maintained a personal checking account

that she used to pay personal expenses. Yet, inexplicably, she

did not maintain a separate checking account for either of her

businesses, nor did she pay any business expense using her

personal checking account. Rather, she chose to deal principally

in cash, and occasionally in money orders.

We find this arrangement odd. Petitioner provided no

persuasive explanation at trial why she would pay her personal

expenses by check and her business expenses in cash, particularly

given the fact that her businesses generated gross income of

$92,092 and that she claimed business expenses of $74,179.

Surely she must have known that paying in cash does not leave the

paper trail that is essential to proving entitlement to

deductions claimed on a return. Also, making large purchases in

cash, e.g., a $5,500 mower, or even buying money orders, must

have been inconvenient, as well as unsafe. Quite frankly, we

regard this proclivity to using cash (or cash substitutes) as

fostering testimony that is self-serving. See Niedringhaus v.

Commissioner, 99 T.C. 202, 212 (1992); Tokarski v. Commissioner,

87 T.C. 74, 77 (1986). This proclivity also reflects poorly on

petitioner’s credibility. See Diaz v. Commissioner, 58 T.C. 560,

564 (1972); Kropp v. Commissioner, T.C. Memo. 2000-148.

Also noteworthy is the fact that petitioner failed to call
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any witnesses. Perhaps some witnesses who could have provided

corroborating testimony could not be located. But one would

think that those relatives whom petitioner identified at trial as

involved (at least on a volunteer basis) in her businesses could

have been called to support her case. See Pollack v.

Commissioner, 47 T.C. 92, 108 (1966), affd. 392 F.2d 409 (5th

Cir. 1968); Wichita Terminal Elevator Co. v. Commissioner, 6 T.C.

1158, 1165 (1946), affd. 162 F.2d 513 (10th Cir. 1947).

With these preliminary comments in mind, we turn now to the

specific adjustments in issue, beginning with petitioner’s child

care business.

A. Child Care Business

Petitioner claimed a deduction of $3,000 pursuant to section

179 for the purchase of a computer and printer in connection with

her child care business. Respondent disallowed the deduction on

the ground that petitioner failed to establish her cost in the

equipment and the date the equipment was placed in service.

Section 179(a) allows a taxpayer to treat the cost of

certain property as a current expense for the year in which such

property is placed in service, within specified dollar

limitations. The taxpayer is required to maintain records that

permit specific identification of each piece of section 179

property and that reflect how and from whom such property was

acquired and when it was placed in service. Sec. 1.179-5(a),
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Income Tax Regs.

In addition, a computer and peripheral equipment such as a

printer constitute “listed property” for purposes of section

274(d). Secs. 274(d)(4), 280F(d)(4)(A)(iv); see sec.

168(i)(2)(B). Accordingly, the stringent substantiation

requirements of section 274(d) apply.

The record in this case does not permit us to find that

petitioner even purchased a computer and printer in 2000, much

less its cost and the date placed in service. The only

documentary evidence that petitioner introduced was a one-

sentence letter on personal stationery from “Frank Anderson”,

which provided no detail whatsoever other than to assert that

petitioner purchased a computer and printer for $3,000 “for the

entire setup during the year of 2000.”

At trial, petitioner described herself as “computer

illiterate”. She stated that she had “no idea” what type of

software was installed on the computer, and she was totally

unfamiliar with any of the computer’s specifications. Indeed,

she was not even able to describe convincingly the use to which

the computer was supposedly put.

In view of the foregoing, we hold that petitioner failed to

satisfy her burden of proof. Accordingly, we sustain

respondent’s determination on this issue.
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B. Property Maintenance and Cleanup Business

1. Section 179 Deductions

Petitioner claimed a $2,000 section 179 expense deduction

for the purchase of a trailer and a $5,500 section 179 expense

deduction for the purchase of a lawn mower. Respondent

disallowed both deductions in their entirety on the grounds that

petitioner failed to establish her cost in the trailer and in the

lawn mower and the date on which each was placed in service.

We have previously discussed the provisions of section 179

so we dispense with that matter.

a. Trailer

At trial, the only document that petitioner introduced

regarding the trailer was a “receipt” that was virtually

indecipherable and therefore not helpful. Petitioner was not

even able to adequately explain the application of the receipt to

the trailer supposedly purchased in 2000. We say “supposedly

purchased in 2000" because the record demonstrates that

petitioner claimed a $2,000 section 179 expense deduction for a

trailer on her Schedule C for 1999, and there is nothing in the

record to demonstrate that petitioner would have needed another

trailer in 2000.

b. Lawn Mower

At trial, petitioner testified that she purchased a 32-inch

walk-behind lawn mower for $5,500 in 2000. However, the only
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document that petitioner introduced to support her testimony was

a product registration card from Exmark Manufacturing Co., Inc.,

indicating that petitioner bought a 32-inch mower on May 20,

1995. This document hardly supports a section 179 expense

deduction for 2000. In addition, petitioner’s returns for 1998

and 1999 report the purchase of lawn mowers in the aggregate

amount of exactly $16,000. We are not persuaded that petitioner

spent yet another $5,500 on a lawn mower in 2000.

Although petitioner certainly used a lawn mower(s) in her

business, there is nothing in the record to demonstrate

persuasively that petitioner is entitled to a section 179 expense

deduction for the purchase of a $5,500 lawn mower in 2000.

c. Conclusion

In sum, petitioner did not satisfy her burden of proof as to

either section 179 expense deduction. We therefore hold for

respondent on the section 179 issue as to both the trailer and

the lawn mower.

2. Depreciation Deductions

Petitioner claimed depreciation in the amount of $2,950 on a

Ford F150 truck and depreciation in the amount of $5,000 on a GMC

Suburban. Respondent allowed in full the depreciation deduction

on the Ford; however, respondent disallowed the depreciation

deduction on the Suburban in its entirety on the grounds that

petitioner failed to establish ownership of the vehicle, its
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depreciable basis, and its business percentage use.

The record includes a number of documents related to the

Ford F150 and the GMC Suburban. These documents convincingly

demonstrate that petitioner had an ownership interest in the Ford

F150, but that the GMC Suburban was owned by Clifton Lamb,

petitioner’s older son.

We are unable to credit the testimony of petitioner that

Clifton was merely her nominee. Without the Suburban, Clifton

would have been without a vehicle, and petitioner’s testimony

that he relied on his girlfriend to drive him around is not

persuasive.

Based on the foregoing, we hold for respondent on this

issue.

3. Vehicle Operating Expenses

Petitioner claimed car and truck expenses of $16,029 for the

use of the Ford F150 and the GMC Suburban. Petitioner based the

deduction on actual expenses incurred and not the standard

mileage rate. Respondent allowed a deduction in the amount of

$8,341 for the use of the Ford F150 and disallowed the remainder.

At trial, respondent conceded that petitioner was entitled to an

additional deduction for the Ford F150 for interest expense in

the amount of $656.77.

Petitioner appears to be content with the deduction allowed

and conceded by respondent for the use of the Ford F150. In
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contrast, she contends that she is entitled to a deduction for

the use of the Suburban.

In the case of a passenger automobile, section 274(d)

proscribes a deduction on the basis of any approximation or the

unsupported testimony of the taxpayer. Sec. 274(d)(4), sec.

280F(d)(5). The term “passenger automobile” is defined as any 4-

wheeled vehicle that is manufactured primarily for use on public

streets, roads, and highways and that is rated at 6,000 pounds

unloaded gross vehicle weight or less. Sec. 280F(d)(5)(A).

Although the term “passenger automobile” does not include any

truck or van under regulations promulgated by the Commissioner,

see sec. 280F(d)(5)(B), petitioner failed to demonstrate that the

Suburban comes within the definition of an excepted truck or van,

see sec. 1.280F-6T(c)(3)(iii), Temporary Income Tax Regs., 49

Fed. Reg. 42713 (Oct. 24, 1984); sec. 1.274-5T(k)(2), Temporary

Income Tax Regs., 50 Fed. Reg. 46033 (Nov. 6, 1985).

Even if the stringent substantiation requirements of section

274(d) were not applicable, and even if we were to conclude that

petitioner incurred deductible expenses for the use of a vehicle

owned by another taxpayer, the record provides no basis

whatsoever for us to estimate a reasonable allowance for the use

of the Suburban. See Williams v. United States, 245 F.2d 559,

560 (5th Cir. 1957); Vanicek v. Commissioner, 85 T.C. 731, 743

(1985).
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In view of the foregoing, we hold that petitioner is

entitled to vehicle operating expenses only in the aggregate

amount allowed and conceded by respondent in respect of the Ford

F150.

4. Landfill Expense

Petitioner claimed a deduction for landfill expense in the

amount of $8,000. Of this amount, respondent allowed $4,320

based on the following estimate: one landfill trip per day for 6

days a week for 36 weeks at a per trip price of $20.

At trial, petitioner presented no documentary evidence to

support this deduction other than a written statement from Waste

Management (WM) attesting to the fact that in 2000 she was a

customer of WM’s Cougar Landfill.

The amount claimed by petitioner strikes us as an estimate.

However, given the nature of her property maintenance and cleanup

business, there is little question that she made frequent trips

to the dump. Based on her testimony and the record as a whole,

we hold that petitioner is entitled to a deduction for landfill

expense in the amount of $5,500. See Cohan v. Commissioner, 39

F.2d 540 (2d Cir. 1930).

5. Contract Labor Expense

Petitioner claimed a deduction for contract labor expense in

the amount of $7,000. Respondent disallowed the deduction in its

entirety.
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At trial, petitioner testified that the amount in issue was

paid to Michael Dean, and she produced a notarized statement

signed by him to that effect. The statement, however, was

conclusory and did not provide any details regarding the manner,

mode or frequency of payment.

Although petitioner admitted that she did not issue a Form

1099-Miscellaneous to Mr. Dean for 2000, we find that petitioner

did incur contract labor expense in that year. The fact that

petitioner was operating two distinct businesses necessarily

required that she have some assistance. Although relatives might

have provided their assistance on a volunteer basis, Mr. Dean did

not fall into that category, and we doubt that he would have

provided his services gratis.

Based on the record as a whole, we hold that petitioner is

entitled to a deduction for contract labor expense in the amount

of $5,000. See Cohan v. Commissioner, supra.

C. Conclusion

Reviewed and adopted as the report of the Small Tax Case

Division.
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To reflect our disposition of the disputed issue, as well as

respondent’s concession,

Decision will be entered

under Rule 155.