T.C. Summary Opinion 2006-54
UNITED STATES TAX COURT
SAMIE M. AND NORA L. FINCH, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 20308-04S. Filed April 17, 2006.
Samie M. and Nora L. Finch, pro sese.
William J. Gregg, 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 year in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
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Respondent determined a deficiency in petitioners’ Federal
income tax of $5,801 for the taxable year 2002.
After concessions,1 the issues for decision are: (1)
Whether petitioners are entitled to miscellaneous itemized
deductions of $28,1882 as claimed on their 2002 Federal income
tax return; (2) whether petitioners are entitled to a charitable
contribution deduction of $5,640 for taxable year 2002; and (3)
whether petitioners are entitled to a deduction for medical and
dental expenses of $2193 for taxable year 2002.
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. Petitioners resided in
Moorefield, West Virginia, on the date the petition was filed in
this case.
1
Petitioners claimed deductions for two dependency
exemptions and Schedule E expenses of $3,267 on their 2002
Federal income tax return. Respondent, in the notice of
deficiency, disallowed the deductions for the two dependency
exemptions and the Schedule E expenses. However, at trial,
respondent conceded that petitioners are entitled to deduct the
two dependency exemptions and the Schedule E expenses.
2
This amount has been calculated by petitioners taking into
account the 2-percent floor imposed by sec. 67(a). The amount
claimed before the limitation was $29,288.
3
This amount has been calculated by petitioners taking into
consideration the 7.5-percent floor imposed by sec. 213(a). The
amount reported before the limitation was $4,344.
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During taxable year 2002, petitioners lived in Moorefield,
West Virginia. Petitioners chose to live in Moorefield, West
Virginia, for personal reasons. During the year in issue, Samie
M. Finch (petitioner) was employed as a nonunion ironworker by
Cianbro. Cianbro’s headquarters was in Pittsfield, Maine.
Cianbro had a regional office in Baltimore, Maryland, and it was
out of this office that petitioner was based.
As an employee of Cianbro, petitioner traveled to different
job sites within his region. Those job sites included:
Annapolis, Maryland, Union Bridge, Maryland, Arlington, Virginia,
and Baltimore, Maryland. Petitioner drove from his residence in
Moorefield, West Virginia, to the job site and returned home each
night. According to petitioner, he made the following round
trips during taxable year 2002: (1) 72 to Baltimore, Maryland;
(2) 52 to Union Bridge, Maryland; (3) 104 to the Pentagon or
Arlington, Virginia; and (4) 14 to the Bay Bridge in Annapolis,
Maryland. The monthly mileage figures for these trips, together
with the cost of meals by month, were reported on a summary
sheet. Also attached to the summary sheet were Mapquest
directions to each job site dated March 2, 2003.
Also during the year in issue, petitioner was a pastor in
the First Church of God in Christ located in Piedmont, West
Virginia. Petitioner did not receive compensation for his
services as a pastor during taxable year 2002.
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During taxable year 2002, petitioner Nora L. Finch was
retired and received Social Security benefits.
Petitioners filed a joint Federal income tax return for 2002
which included a Schedule A, Itemized Deductions, a Schedule B,
Interest and Ordinary Dividends, and a Schedule E, Supplemental
Income and Loss.
On their jointly filed 2002 tax return, petitioners reported
adjusted gross income of $55,009 and claimed Schedule A itemized
deductions of $43,639.
On their Schedule A, petitioners claimed the following
deductions, in pertinent part:
Itemized Deductions Amount
Line 1 Medical and dental expenses $4,344
Line 4 Net medical deduction 219
Line 5 State and local income taxes 1,474
Line 8 Other taxes 262
Line 9 Total taxes 1,736
Line 15 Gifts by cash or check 5,640
Line 18 Total gifts to charity 5,640
Line 20 Unreimbursed employee business expenses 29,288
Line 26 Net limited miscellaneous deduction 28,188
Line 28 Total itemized deductions 43,639
On October 8, 2004, respondent issued petitioners a notice
of deficiency for taxable year 2002. Respondent disallowed
$34,046 of petitioners’ claimed $43,639 Schedule A itemized
deductions for taxable year 2002. The $34,0464 disallowed by
4
It appears from adding together the disallowed items that
the total amount disallowed should be $34,047 (rounded to the
nearest dollar).
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respondent consists of: (1) A disallowed net medical deduction
of $219; (2) disallowed total gifts to charity of $5,640; and (3)
disallowed net limited miscellaneous itemized deductions of
$28,188.
Discussion
In general, the Commissioner’s determination in a notice of
deficiency is presumed correct. Welch v. Helvering, 290 U.S.
111, 115 (1933). In pertinent part, Rule 142(a)(1) provides the
general rule that “The burden of proof shall be upon the
petitioner”. In certain circumstances, however, if the taxpayer
introduces credible evidence with respect to any factual issue
relevant to ascertaining the proper tax liability, section 7491
places the burden of proof on the Commissioner. Sec. 7491(a)(1);
Rule 142(a)(2). Credible evidence is “‘the quality of evidence
which, after critical analysis, * * * [a] court would find
sufficient * * * to base a decision on the issue if no contrary
evidence were submitted’”.5 Baker v. Commissioner, 122 T.C. 143,
168 (2004) (quoting Higbee v. Commissioner, 116 T.C. 438, 442
(2001)). Section 7491(a)(1) applies only if the taxpayer
complies with substantiation requirements, maintains all required
records, and cooperates with the Commissioner for witnesses,
5
We interpret the quoted language as requiring the
taxpayer’s evidence pertaining to any factual issue to be
evidence the Court would find sufficient upon which to base a
decision on the issue in favor of the taxpayer. See Bernardo v.
Commissioner, T.C. Memo. 2004-199.
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information, documents, meetings, and interviews. Sec.
7491(a)(2). Although neither party alleges the applicability of
section 7491(a), we conclude that the burden of proof has not
shifted to respondent with respect to any of the issues in the
present case.
Section 6001 and the regulations promulgated thereunder
require taxpayers to maintain records sufficient to permit
verification of income and expenses. As a general rule, if the
trial record provides sufficient evidence that the taxpayer has
incurred a deductible expense, but the taxpayer is unable to
adequately substantiate the precise amount of the deduction to
which he or she is otherwise entitled, the Court 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, and allow the deduction to that
extent. Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930).
However, in order for the Court to estimate the amount of an
expense, the Court must have some basis upon which an estimate
may be made. Vanicek v. Commissioner, 85 T.C. 731, 742-743
(1985). Without such a basis, any allowance would amount to
unguided largesse. Williams v. United States, 245 F.2d 559, 560-
561 (5th Cir. 1957).
Moreover, deductions are a matter of legislative grace and
are allowed only as specifically provided by statute. INDOPCO,
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Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice
Co. v. Helvering, 292 U.S. 435, 440 (1934).
With these well-established propositions in mind, we must
determine whether petitioners have satisfied their burden of
proving that they are entitled to the claimed itemized deductions
mentioned above.
1. Miscellaneous Itemized Deductions
As previously stated, on their Schedule A for taxable year
2002, petitioners claimed miscellaneous itemized deductions of
$28,188 for job expenses incurred during taxable year 2002. The
deduction was claimed for expenses incurred relating to
petitioner’s travel between his residence in Moorefield, West
Virginia, and construction/work sites in Baltimore, Maryland,
Arlington, Virginia, Union Bridge, Maryland, and Annapolis,
Maryland. Respondent disallowed the deductions in full.
Respondent determined that petitioners did not substantiate the
claimed expenses or, if substantiated, petitioners did not prove
that the expenses were not reimbursed by petitioner’s employer;
nor did petitioners prove that Moorefield, West Virginia, was
petitioner’s tax home.
Section 162(a) allows a deduction for ordinary and necessary
business expenses paid or incurred during the taxable year in
carrying on any trade or business. For an expense to be
“ordinary” the transaction that gives rise to the expense must be
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of a common or frequent occurrence in the type of business
involved. Deputy v. du Pont, 308 U.S. 488, 495 (1940). To be
“necessary” an expense must be “appropriate and helpful” to the
taxpayer’s business. Welch v. Helvering, supra at 113-114. The
performance of services as an employee constitutes a trade or
business. See sec. 1.162-17(a), Income Tax Regs. The employee
must show the relationship between the expenditures and the
employment. See Evans v. Commissioner, T.C. Memo. 1974-267,
affd. 557 F.2d 1095 (5th Cir. 1977). The taxpayer bears the
burden of substantiation. Hradesky v. Commissioner, 65 T.C. 87,
90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976). “The
determination of whether an expenditure satisfies the
requirements of section 162 is a question of fact.” Shea v.
Commissioner, 112 T.C. 183, 186 (1999).
In the case of travel expenses, entertainment expenses, and
expenses paid or incurred with respect to listed property, e.g.,
passenger automobiles, section 274 overrides the Cohan doctrine,
and expenses are deductible only if the taxpayer meets the
section’s stringent substantiation requirements. Secs. 274(d),
280F(d)(4); Sanford v. Commissioner, 50 T.C. 823, 827-828 (1968),
affd. 412 F.2d 201 (2d Cir. 1969); sec. 1.274-5T(a), Temporary
Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).
Section 274(d) specifically provides:
SEC. 274(d). Substantiation Required.--No deduction or
credit shall be allowed–-
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(1) under section 162 or 212 for any traveling
expense (including meals and lodging while away
from home),
(2) for any item with respect to an activity which
is of a type generally considered to constitute
entertainment, amusement, or recreation, or with
respect to a facility used in connection with such
an activity,
(3) for any expense for gifts, or
(4) with respect to any listed property (as
defined in section 280F(d)(4)),
unless the taxpayer substantiates by adequate records or by
sufficient evidence corroborating the taxpayer’s own
statement (A) the amount of such expense or other item, (B)
the time and place of the travel, entertainment, amusement,
recreation, or use of the facility or property, or the date
and description of the gift, (C) the business purpose of the
expense or other item, and (D) the business relationship to
the taxpayer of persons entertained, using the facility or
property, or receiving the gift. * * *
This section “contemplates that no deduction or credit shall be
allowed a taxpayer on the basis of such approximations or
unsupported testimony of the taxpayer.” Sec. 1.274-5T(a),
Temporary Income Tax Regs., supra.
In order to substantiate a deduction by means of adequate
records, a taxpayer must maintain a diary, log, statement of
expenses, trip sheet, or similar record, and documentary evidence
which, in combination, are sufficient to establish each element
of each expense or use. Sec. 1.274-5T(c)(2)(i), Temporary Income
Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985). A contemporaneous
log is not required, but corroborative evidence to support a
taxpayer’s record of the elements of expenditure or use must have
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“a high degree of probative value to elevate such statement and
evidence to the level of credibility” of a contemporaneous
record. Sec. 1.274-5T(c)(1), Temporary Income Tax Regs., supra.
Thus, no deduction for expenses under section 274(d) may be
allowed on the basis of any approximation or the unsupported
testimony of the taxpayer. See, e.g., Murata v. Commissioner,
T.C. Memo. 1996-321; Golden v. Commissioner, T.C. Memo. 1993-602.
Petitioner did not keep a handwritten log of his travel and
meals. In order to substantiate his claimed business travel for
2002, petitioner offered into evidence the typed summary of his
travel and an information sheet from his employer showing trips
to job sites. The typed summary, as stated before, shows the
number of round trips made from petitioner’s home to the job
sites, the round-trip mileage, and the meal expenses paid. There
are no receipts in the record indicating meal expenses. In
addition, the Court cannot determine what the numbers on the
information sheet from petitioner’s employer indicate. Further,
petitioner did not explain the information sheet, nor did he
testify as to its contents. Petitioner received $35 as
reimbursement from his employer for every day he traveled to a
nongovernment work site, such as Baltimore, Maryland, or Union
Bridge, Maryland. The $35 was to reimburse him for gasoline
expenses and meal expenses paid during work-related travel.
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Also, petitioner’s employer reimbursed him “34 cents per mile for
traveling expenses”, in addition to the $35 per day.
We believe petitioner did travel to the job sites during
2002. However, we conclude that petitioner has not satisfied the
substantiation requirements of section 274(d) as to the mileage
and meal expenses. Although, for the sake of argument, if we
conclude that petitioner has satisfied the substantiation
requirements of section 274(d) as to the mileage and meal
expenses, petitioner has not shown that he was not reimbursed for
all of his traveling expenses, i.e., mileage and meals, by his
employer. Further, even if petitioner could substantiate the
travel expenses in issue and that such amounts were not
reimbursed by his employer, upon the basis of the record we
conclude that Baltimore, Maryland, and not Moorefield, West
Virginia, was petitioner’s “tax home”, and therefore he would be
entitled to reimbursement only for travel while he was away from
his employer’s regional office in Baltimore, Maryland, on work
assignment. The mileage for these trips is not in the record,
and thus we could not make a Cohan determination.
2. Charitable Contribution
As previously stated, petitioners on their Schedule A filed
with their Federal income tax return for taxable year 2002
claimed a deduction for contributions to charity by cash or check
of $5,640.
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Respondent determined that petitioners did not adequately
substantiate any of their claimed charitable contribution
deduction.
A deduction generally is allowed for any charitable
contribution made within the taxable year. Sec. 170(a)(1).
As previously stated, taxpayers generally must keep records
sufficient to establish the amounts of the items required to be
shown on their Federal income tax return. Sec. 6001; sec.
1.6001-1(a), (e), Income Tax Regs. In the event that 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 at
543-544. 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 (1985).
Deductions for charitable contributions are subject to
further substantiation requirements. Sec. 170(a)(1). Generally,
such deductions must be substantiated with reliable written
records reflecting the name of the donee, the date of the
contribution, and either the amount of any cash contribution or a
description of the property contributed. Sec. 1.170A-13(a) and
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(b), Income Tax Regs. Deductions for contributions of $250 or
more are disallowed in the absence of a contemporaneous written
acknowledgment of the contribution by the donee. Sec. 170(f)(8);
sec. 1.170A-13(f), Income Tax Regs.
Petitioners provided a typed receipt, signed by Bishop
Henderson Wheeler, acknowledging that petitioners contributed
$3,359.87 to the First Church of God in Christ. Petitioners
testified that a total amount of $3,359.87 was contributed by
them during the taxable year 2002 at Sunday worship services. In
view of the fact that petitioners attended services regularly and
that we believe the receipt is credible, we find that the receipt
is sufficient substantiation of petitioners’ charitable
contribution of $3,359.87. However, petitioners have not
testified as to or substantiated charitable contributions above
that amount. Thus, we conclude that petitioners are entitled to
a charitable contribution deduction of $3,3606 for the taxable
year 2002.
3. Medical and Dental Expenses
As previously stated, on their Schedule A for taxable year
2002, petitioners claimed a deduction for medical and dental
expenses incurred of $219 above the 7.5-percent floor.
Respondent disallowed the deduction in full. Respondent
determined that petitioners did not prove that the expenses were
6
This amount is rounded to the nearest dollar.
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incurred or, if incurred, that they were paid during taxable year
2002.
Section 213(a) allows as a deduction any expenses that are
paid during the taxable year for the medical care of the
taxpayer, his spouse, and dependents and that are not compensated
for by insurance or otherwise. Estate of Smith v. Commissioner,
79 T.C. 313, 318 (1982). The deduction is allowed only to the
extent the amount exceeds 7.5 percent of adjusted gross income.
Sec. 213(a); sec. 1.213-1(a)(3), Income Tax Regs. The term
“medical care” includes amounts paid “for the diagnosis, cure,
mitigation, treatment or prevention of disease, or for the
purpose of affecting any structure or function of the body”.
Sec. 213(d)(1)(A); Estate of Smith v. Commissioner, supra at 318-
319.
Petitioners testified that they paid $1,231 in medical
expenses during taxable year 2002. Giving petitioners the
benefit of the doubt, we find that petitioners’ testimony
substantiates medical expenses of $1,231. However, as previously
stated, the deduction for medical expenses is allowed only to the
extent the amount exceeds 7.5 percent of adjusted gross income.
Sec. 213(a); sec. 1.213-1(a)(3), Income Tax Regs. Because
petitioners reported adjusted gross income for taxable year 2002
of $55,009, $1,231 does not exceed 7.5 percent of petitioners’
adjusted gross income. Therefore, since petitioners did not
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testify as to any other medical and dental expenses, and they
have not offered into evidence any documentation substantiating
other medical and dental expenses, we conclude that they are not
entitled to any medical and dental expense deduction for taxable
year 2002. See sec. 213(a); sec. 1.213-1(a)(3), Income Tax Regs.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
under Rule 155.