T.C. Summary Opinion 2006-4
UNITED STATES TAX COURT
WALTER MICHAEL ALLEY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20484-03S. Filed January 19, 2006.
Walter Michael Alley, pro se.
James E. Cannon, for respondent.
GOLDBERG, 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 years in issue, and 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 of $6,513 and $5,753 for the taxable years 2000 and
2001, respectively. Additionally, respondent determined an
addition to tax of $654 pursuant to section 6651(a) for the
taxable year 2000.
After concessions,1 the issue still in dispute is whether
petitioner’s stipulated truck expenses of $12,757 and $12,657 for
taxable years 2000 and 2001, respectively, should be reported on
petitioner’s Schedule A, Itemized Deductions, and therefore be
subject to the 2-percent floor of section 67, or whether such
expenses were a result of an independent trade or business and
therefore should be reported on a Schedule C, Profit or Loss From
Business.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. Petitioner resided in
1
At trial, the parties agreed: (1) With respect to the 2000
tax year, petitioner is entitled to an itemized deduction for
unreimbursed employee business expenses of $24,921, which is
subject to the 2-percent floor of sec. 67; (2) with respect to
the 2001 tax year, petitioner is entitled to an itemized
deduction for unreimbursed employee business expenses of $23,487,
which is subject to the 2-percent floor of sec. 67; (3) with
respect to the 2000 tax year, petitioner substantiated truck
expenses of $12,757; (4) with respect to the 2001 tax year,
petitioner substantiated truck expenses of $12,657; and (5) that
petitioner’s 2000 Federal income tax return was delinquent and
thus petitioner is liable for the addition to tax of $654
pursuant to sec. 6651(a).
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Farmington, New Mexico, on the date the petition was filed in
this case.
During taxable years 2000 and 2001, petitioner was employed
by Pacific Industrial Electric, Inc. (Pacific) as a field
superintendent. As field superintendent, petitioner was
responsible for all aspects of total on-site job management and
supervision. Petitioner’s duties included but were not limited
to: personnel supervision, work assignments, work schedule
management, materials ordering, materials management, customer
and inspector interaction, and tool and equipment management.
Pacific did not have a formal written expense reimbursement
policy during taxable years 2000 and 2001. However, Pacific’s
verbal reimbursement policy, as relevant in the present case, was
to pay every employee $25 per day for the use of a personal
vehicle while driving on corporate business.
During taxable year 2000, petitioner used his personal
vehicle, a Ford pickup truck, for 135 days while driving on
business. In accordance with Pacific’s verbal reimbursement
policy, petitioner received payments from Pacific totaling $3,375
for the taxable year 2000.
During taxable year 2001, petitioner used his personal
vehicle for 282 days while driving on business. Again, in
accordance with Pacific’s verbal reimbursement policy, petitioner
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received payments from Pacific totaling $7,050 for the taxable
year 2001.
Petitioner delinquently filed his taxable year 2000 Form
1040, U.S. Individual Income Tax Return, on April 19, 2002.2
Petitioner timely filed his taxable year 2001 Form 1040 on April
15, 2002.
Petitioner attached to his 2000 Federal income tax return a
Schedule C. On his Schedule C for taxable year 2000, petitioner
listed as his principal business or profession: “Truck Lease”.
Petitioner reported $3,3753 of business income on his Schedule C
for taxable year 2000 and deducted $16,059 in business expenses.
This resulted in a reported business loss in the amount of
$12,684. Petitioner’s Schedule C business expenses were as
follows:
Line 10 Car and truck expenses $12,757
Line 16b Interest: Other (Auto loan) 230
Line 21 Repairs and maintenance 2,892
Line 23 Taxes and licenses 45
Line 27 Other expenses 135
Line 28 Total expenses $16,059
Petitioner attached to his 2001 Federal income tax return a
Schedule C. On his Schedule C for taxable year 2001 petitioner
2
As previously noted, petitioner stipulated that his Form
1040 for taxable year 2000 was filed delinquently and conceded
the addition to tax of $654 pursuant to sec. 6651(a).
3
This amount represents the payments received by petitioner
from Pacific for the use of his personal vehicle in furtherance
of Pacific’s business.
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listed as his principal business or profession: “Truck Lease”.
Petitioner reported $7,0504 of business income on his Schedule C
for taxable year 2001 and deducted $16,107 in business expenses.
This resulted in a reported business loss in the amount of
$9,057. Petitioner’s Schedule C business expenses were as
follows:
Line 10 Car and truck expenses $12,657
Line 16 Insurance (other than health) 867
Line 16b Interest: Other (Auto loan) 559
Line 21 Repairs and maintenance 904
Line 23 Taxes and licenses 985
Line 27 Other expenses 135
Line 28 Total expenses $16,107
On October 31, 2003, respondent issued a notice of
deficiency to petitioner for the 2000 and 2001 taxable years. In
the notice of deficiency, respondent denied petitioner the
reported business losses from his alleged trade or business for
both taxable years 2000 and 2001 and disallowed all Schedule C
claimed deductions.5
4
As previously noted, this amount represents the payments
received by petitioner from Pacific for the use of his personal
vehicle in furtherance of Pacific’s business.
5
As previously noted, the parties have agreed that
petitioner incurred truck expenses of $12,757 and $12,657 for the
taxable years 2000 and 2001, respectively.
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Discussion6
As previously stated, on his Schedule C for taxable years
2000 and 2001 petitioner deducted business expenses of $16,059
and $16,107, respectively. The parties agreed, at trial, that
petitioner substantiated truck expenses of $12,757 and $12,657
for the taxable years 2000 and 2001, respectively.
As we understand it, petitioner’s principal contention is
that he was individually and independently in the business of
leasing his truck to his employer, and that the agreed-upon
expenses incurred for maintenance and repairs of his truck were
deductible as ordinary and necessary expenses of conducting that
business and thus were above-the-line Schedule C deductions.
On the other hand, respondent contends that the agreed-upon
expenses are deductible as unreimbursed employee business
expenses and thus are itemized deductions subject to the 2-
percent floor of section 67.
It is well established that a taxpayer is engaged in a trade
or business if the taxpayer is involved in the activity (1) with
continuity and regularity, and (2) with the primary purpose of
making a profit. Commissioner v. Groetzinger, 480 U.S. 23, 35
(1987); Antonides v. Commissioner, 893 F.2d 656, 659 (4th Cir.
6
We decide the issue in this case without regard to the
burden of proof. Accordingly, we need not decide whether the
general rule of sec. 7491(a)(1) is applicable in this case. See
Higbee v. Commissioner, 116 T.C. 438 (2001).
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1990), affg. 91 T.C. 686 (1988). Petitioner has the burden of
proving that he was engaged in a trade or business. Rule 142(a);
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New
Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); Welch v.
Helvering, 290 U.S. 111 (1933).
This Court in Kurkjian v. Commissioner, 65 T.C. 862, 868
(1976) (quoting Hirsch v. Commissioner, 315 F.2d 731, 736 (9th
Cir. 1963), affg. T.C. Memo. 1961-256), stated:
From the very import of Section 23 [referring to sec.
23(a)(1)(A), the 1939 Code predecessor of sec. 162(a)],
which presupposes that the taxpayer has received taxable
income before deductions can be taken therefrom, it is clear
that Congress intended that the profit or income motive must
first be present in and dominate any taxpayer’s “trade or
business” before deductions may be taken. While the
expectation of the taxpayer need not be reasonable, and
immediate profit from the business is not necessary,
nevertheless, the basic and dominant intent behind the
taxpayer’s activities, out of which the claimed expenses or
debts were incurred, must be ultimately to make a profit or
income from those very same activities. * * * Absent that
basic and dominant motive, the taxpayer’s activities, no
matter how intensive, extensive or expensive, have not been
construed by the Courts as carrying on a trade or business
within the purview of Section 23. * * *
We therefore must determine whether petitioner entered into a
lease with his employer and, if so, whether petitioner entered
into said lease with the intent to make a profit.
During taxable years 2000 and 2001, petitioner did not lease
any other vehicles. Petitioner testified: (1) He did not try to
lease his truck to any other individual; and (2) there was no
formal written lease between himself and his employer.
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Furthermore, petitioner did not negotiate leasing terms with his
employer; instead, he was paid a flat rate of $25 per day for the
use of his personal vehicle in furtherance of Pacific’s business.
The flat rate of $25 per day could be received by any employee of
Pacific who used his or her personal vehicle in furtherance of
Pacific’s business.
Based upon on the record in this case, we conclude that
petitioner did not possess the required profit or income motive
when he used his personal vehicle in furtherance of Pacific’s
trade or business. In fact, we find that petitioner did not
enter into any lease with his employer. Further, we conclude
that petitioner’s use of his personal vehicle in furtherance of
Pacific’s trade or business was within the scope of his
activities as an employee of Pacific and that petitioner was not
individually and independently in the business of leasing his
truck to his employer.
It is clear that an individual may be in the trade or
business of being an employee and that ordinary and necessary
expenses incurred in that trade or business are deductible under
section 162. See sec. 1.162-17(a), Income Tax Regs. Section
162(a) allows a taxpayer to deduct all ordinary and necessary
business expenses paid or incurred during the taxable year in
carrying on a trade or business. To be “necessary” an expense
must be “appropriate and helpful” to the taxpayer’s business.
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Welch v. Helvering, supra at 113-114. To be “ordinary” the
transaction which gives rise to the expense must be of a common
or frequent occurrence in the type of business involved. Deputy
v. Du Pont, 308 U.S. 488, 495 (1940).
We hold that the agreed-upon expenses of $12,757 and $12,657
for taxable years 2000 and 2001, respectively, are unreimbursed
employee business expenses properly deducted on Schedule A and
thus are itemized deductions subject to the 2-percent floor of
section 67.
In view of the foregoing, we sustain respondent’s
determination on this issue.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
under Rule 155.