Harrell v. Comm'r

T.C. Summary Opinion 2006-165

UNITED STATES TAX COURT

LAWRENCE K. AND RUTH L. HARRELL, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 17918-05S. Filed October 16, 2006.

Ruth L. Harrell, pro se.

Brian A. Pfeifer, for respondent.

JACOBS, 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 in issue, and 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 of $8,866 in petitioners’

2002 Federal income tax. The issues for decision are: (1) The

amount of noncash charitable contribution deductions which

petitioners are entitled to claim on Schedule A, Itemized

Deductions, and; (2) the amount of the excess unreimbursed

employee and other miscellaneous expenses deduction1 to which

petitioners are entitled.

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. At the time of filing the

petition, petitioners resided in Miami, Florida.

Petitioners timely filed a joint Form 1040, U.S. Individual

Income Tax Return, for taxable year 2002, in which they claimed

as Schedule A deductions medical and dental expenses, charitable

contributions, and excess unreimbursed employee and other

miscellaneous expenses. Respondent determined that the amounts

claimed for these latter deductions were overstated and

accordingly sent petitioners a notice of deficiency. Petitioners

timely petitioned this Court. Petitioners concede, and thus no

1
The excess unreimbursed employee and other miscellaneous
expenses deduction is a Schedule A deduction. The amount equals
the sum of: (1) Unreimbursed employee expenses--job travel,
union dues, job education, etc.; (2) tax preparation fees; and
(3) other expenses--investment, safe deposit box, etc., less an
amount equal to 2 percent (the 2-percent floor) of the taxpayer’s
adjusted gross income. See sec. 67(a).
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longer challenge, respondent’s determinations that they are not

entitled to the medical and dental expense deduction. However,

they continue to challenge respondent’s other determinations.

Discussion

As a general rule, the Commissioner’s determinations in the

notice of deficiency are presumed correct, and the burden of

proving an error is on the taxpayer. Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933). However, pursuant to

section 7491(a), the burden of proof with respect to any factual

issue relating to ascertaining the liability for tax shifts to

the Commissioner if the taxpayer: (1) Maintained adequate

records; (2) satisfied the substantiation requirements; (3)

cooperated with the Commissioner’s agents; and (4) during the

Court proceeding introduced credible evidence with respect to the

factual issue involved. Petitioners did not meet the

substantiation requirements or introduce credible evidence

regarding the disallowed amounts; therefore, the burden of proof

does not shift to respondent.

It is settled law that deductions are a matter of

legislative grace, and the taxpayer must prove that he/she is

entitled to the claimed deductions. INDOPCO, 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 decide whether petitioners have
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satisfied their burden of proving entitlement to deduct noncash

charitable contributions and excess unreimbursed employee and

other miscellaneous expenses in amounts greater than those

respondent determined.

As noted, petitioners claimed deductions on their 2002

return for charitable contributions, consisting of $3,200 in cash

and $7,753 in noncash contributions. At trial, the parties

stipulated that petitioners were entitled to a deduction of $950

for cash charitable contributions and that the $2,250 balance was

improperly claimed because the disallowed portion was made not by

petitioners but by their family members.

Respondent disallowed the $7,753 deduction for noncash

contributions for lack of substantiation. At trial, respondent

conceded that petitioners are entitled to a deduction for noncash

charitable contributions of $1,600.

Section 170 allows a deduction for charitable contributions

during the taxable year if verified as provided in the

regulations. Sec. 170(a)(1). The term “charitable contribution”

includes a contribution or gift to a corporation, trust, or

community chest, fund, or foundation, with certain provisos.

Sec. 170(c). For example, the recipient organization must have

been “created or organized in the United States or in any

possession thereof, or under the law of the United States, any

State, the District of Columbia, or any possession of the United
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States”. Sec. 170(c)(2)(A). Furthermore, no part of the net

earnings of a qualified organization may inure to the benefit of

any private shareholder or individual. Sec. 170(c)(2)(C).

The charitable contribution deduction is subject to certain

substantiation requirements. Sec. 170(f)(8). No deduction is

allowed for any contribution of $250 or more unless the taxpayer

substantiates the contribution by a contemporaneous written

acknowledgment of the contribution by the qualified donee

organization. Sec. 170(f)(8)(A). This written acknowledgment

must state the amount of cash and a description (but not

necessarily the value) of any property other than cash the

taxpayer donated and whether any consideration was given to the

taxpayer. Sec. 1.170A-13(f)(2), Income Tax Regs.

Petitioners attached to their 2002 Form 1040 a Form 8283,

Noncash Charitable Contributions, listing eight dates on which

they claimed to have made noncash donations to charitable

organizations. At trial, petitioners presented as evidence

receipts that were furnished blank by charitable organizations

and admittedly filled in by petitioners. The receipts, which

total $6,903, purport to show that petitioners made noncash

contributions on seven separate dates during 2002: January 14,

March 15, May 14, June 28, August 16, September 30, and November

21. In addition, petitioners submitted a list, which they
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prepared, of items allegedly contributed on December 31, with a

value of $850,2 but no receipt for this contribution was produced.

The dates on the receipts for January 14 and September 30

appear to have been altered, and we are not satisfied that those

contributions were in fact made during 2002. The list of items

with respect to the purported December 31 contribution does not

support the section 170 deduction because it was prepared

exclusively by petitioners and is therefore not a

“contemporaneous written acknowledgment of the contribution by

the donee organization”.

The remaining five receipts are supported by detailed lists

of items that petitioners allegedly contributed, but the values

listed for the individual items do not add up to the total amount

claimed for each contribution. Additionally, the list of items

purportedly contributed on June 28 includes a situp table and

weights that were also listed in the receipt prepared for the

purported January 14 charitable contribution. And as noted, we

are not satisfied that these items in fact were contributed to

charity in 2002.

2
We note that the sums listed on the various receipts
petitioners produced plus the amount on the list of items they
allegedly contributed on Dec. 31 is less than the amount claimed
for noncash contributions on their 2002 tax return. Moreover,
the values claimed for the individual contributed items listed in
the receipts do not total the claimed sum.
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When a taxpayer establishes that he/she has incurred

deductible expenses but is unable to establish the exact amounts,

we can estimate the deductible amounts, but only if the taxpayer

presents sufficient evidence to establish a rational basis for

making the estimates. See Cohan v. Commissioner, 39 F.2d 540,

543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-

743 (1985). In estimating the amount allowable, we bear heavily

on the taxpayer whose inexactitude in substantiating the amount of

the expense is of his own making. See Cohan v. Commissioner,

supra at 544. However, without a rational basis for making the

estimate, any allowance we made would amount to unguided largesse.

Williams v. United States, 245 F.2d 559, 560-561 (5th Cir. 1957).

Respondent concedes that petitioners made noncash

contributions during 2002 but maintains that the value of those

contributions did not exceed $1,600. Considering the record

before us, we do not doubt that petitioners made noncash

charitable contributions during 2002. However, they failed to

provide reliable evidence to prove that the amount thereof

exceeded the $1,600 respondent conceded. We therefore hold that

for 2002 petitioners are entitled to a $2,550 charitable

contribution deduction (rather than the claimed $10,953

deduction), comprising $950 for cash contributions and $1,600 for

noncash contributions.
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We now turn to the amount of the excess unreimbursed employee

and other miscellaneous expenses deduction to which petitioners

are entitled. On their return, petitioners claimed a deduction

for excess unreimbursed employee and other miscellaneous expenses

of $17,600. After considering the 2-percent floor, petitioners

claimed a deduction for excess unreimbursed employee and other

miscellaneous expenses of $15,834. Of this amount, respondent

does not dispute that petitioners are entitled to a deduction of

$690 for unreimbursed employee expenses--union dues. The

remaining components of the claimed deduction are uniforms

($5,625), supplies and equipment ($3,510), job search expenses

($4,800), telephone expenses ($2,850), and tax preparation fees

($125). Respondent disallowed the deduction for all of these

components.

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 it must be 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 290 U.S. 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
 - 9 -

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, 89 (1975),

affd. per curiam 540 F.2d 821 (5th Cir. 1976). Section 6001 and

the regulations promulgated thereunder require taxpayers to

maintain records sufficient to permit verification of income and

expenses. As previously noted, the Court may in some

circumstances estimate the amount of a deduction to which the

taxpayer is otherwise entitled. Cohan v. Commissioner, supra at

543-544.

Petitioners deducted $5,625 for uniforms for the taxable year

and stipulated that the uniforms Mr. Harrell wore were washed and

ironed at petitioners’ home. The expense of uniforms is

deductible under section 162(a) if: (1) The uniforms are of a

type specifically required as a condition of employment; (2) the

uniforms are not adaptable to general usage as ordinary clothing;

and (3) the uniforms are not so worn. See Yeomans v.

Commissioner, 30 T.C. 757, 767-769 (1958); Beckey v. Commissioner,

T.C. Memo. 1994-514.

Mr. Harrell, in his position with United Parcel Service, was

required to work in a clean uniform every day. Mrs. Harrell

washed and ironed Mr. Harrell’s work uniforms at home. The

employer provided the uniforms but did not reimburse Mr. Harrell
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for the cleaning of his uniforms. Although petitioners would be

entitled to a deduction for the cost of washing and ironing the

uniforms, they provided no evidence upon which we can estimate the

amount thereof. At trial, Mrs. Harrell testified that the amount

claimed was a guess that was based on the hypothesis of paying to

have the uniforms cleaned commercially. Deductions are based on

actual, not hypothetical, costs.

As the uniforms were not sent to a commercial cleaner but

were laundered and ironed at home, the amount claimed is not

allowable. Moreover, the amount claimed ($468.75 per month)

appears grossly inflated. In the absence of a rational basis for

estimating the cost of the cleaning of the uniforms, we sustain

respondent’s disallowance of this component of the claimed

unreimbursed employee and other miscellaneous expenses. See Cohan

v. Commissioner, supra at 543-544.

Petitioners deducted $3,510 for “supplies and equipment” for

the taxable year in issue. Taxpayers carrying supplies on hand

can deduct the costs of those supplies to the extent that the

supplies are actually consumed or used in operation during the

taxable year for which the return is made if the cost of the

supplies was not deducted in a previous year. If the supplies are

incidental and are carried on hand with no record of consumption

kept, the taxpayer may deduct the total cost of such supplies
 - 11 -

purchased during the taxable year for which the return was made.

Sec. 1.162-3, Income Tax Regs.

Petitioners presented no documentation to support their

claimed deduction of $3,510 for supplies and equipment. There is

no rational basis in the record on which we can estimate the

magnitude of this expense. We therefore sustain respondent’s

disallowance of this component of the claimed excess unreimbursed

employee and other miscellaneous expenses deduction.

Petitioners deducted $4,800 for job search expenses in

connection with Mrs. Harrell’s efforts to secure employment as

well as deducting $2,850 for “telephone cell phone” expense for

the taxable year in issue. We consider these two expenses

together because they are subject to more stringent substantiation

requirements than the other components of the disallowed employee

expense deduction.

Job search expenses are deductible under section 162(a) to

the extent they are incurred in searching for new employment in

the employee’s same trade or business. See Primuth v.

Commissioner, 54 T.C. 374, 377-378 (1970). However, if the

employee is seeking a job in a new trade or business, the expenses

are not deductible under section 162(a). See Frank v.

Commissioner, 20 T.C. 511, 513-514 (1953). Job search expenses

include résumé preparation expenses, postage, and travel and
 - 12 -

transportation expenses. See Murata v. Commissioner, T.C. Memo.

1996-321.

Before the taxable year in issue, Mrs. Harrell was employed

as an administrative assistant and during 2002 she was unemployed,

searching for employment. Petitioners’ substantiating evidence

for the job search expenses consists of: (1) Correspondence

between Mrs. Harrell and potential employers; (2) a “work search

form” required by the State of Florida for purposes of

administering the State unemployment compensation program;3 and

(3) a mileage log which shows the addresses of companies which

Mrs. Harrell visited over the course of the year and the dates of

the visits.

The correspondence and work search forms were prepared

contemporaneously with the search for employment and establish to

our satisfaction that Mrs. Harrell incurred deductible job search

expenses. Hampered by a lack of evidence in the record as to the

amount thereof, but recognizing that expenses for a job search

were in fact incurred, we place the amount for that portion of her

job search expenses consisting of résumé preparation, telefax

transmission, and postage at $250. Mrs. Harrell’s remaining job

3
The work search form contains the following language: Each
employer you contact in your search for work must be shown below.
It is important to make as many IN PERSON applications as
possible during EACH WEEK for which you claim benefits. Mrs.
Harrell certified that the information she provided on the report
was correct and complete to the best of her knowledge.
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search expenses consisted of the cost of travel in her own

automobile to potential employers’ places of business. This

portion of her job search expenses is supported by the work search

record with respect to three interviews and by the mileage log.

In the case of travel expenses, entertainment expenses, and

expenses paid or incurred with respect to certain listed property,

section 274 overrides the Cohan doctrine, discussed previously,

and those expenses are deductible only if the taxpayer meets the

stringent substantiation requirements of section 274(d). Sanford

v. Commissioner, 50 T.C. 823, 827-828 (1968), affd. per curiam 412

F.2d 201 (2d Cir. 1969).

Section 274 contemplates that no deduction may be allowed for

expenses incurred for travel on the basis of any approximation or

the unsupported testimony of the taxpayer. Sec. 1.274-5T(a),

Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).

Section 274(d) specifically proscribes deductions for travel

expenses in the absence of adequate records or of sufficient

evidence corroborating the taxpayer’s own statement. At a

minimum, the taxpayer must substantiate: (1) The amount of such

expense; (2) the time and place such expense was incurred; and (3)

the business purpose for which such expense was incurred.

Mrs. Harrell’s unemployment compensation work search record

constitutes substantiation within the meaning of section 274 with

respect to three job interviews that required travel. The record
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shows that her round trip travel to those interviews was 28.02

miles per trip, for a total of 84.06 miles. Petitioners did not

present receipts for the actual cost of this travel, but we may

apply the standard mileage rate to determine the allowable

deduction.4 The standard mileage rate for 2002 was 36.5 cents per

mile, so that the total allowable deduction amounted to $30.68.

Unlike the work search record, Mrs. Harrell’s travel log was

not prepared contemporaneously with the purported travel and

appears inaccurate in some respects. The travel log includes

entries that do not appear on the work search record that was

prepared contemporaneously for unemployment compensation purposes.

The job seeker, in preparing the work search record, is

exhorted to document each employer that had been contacted, and

those records (certified by Mrs. Harrell) contain only three

reports of job interviews. Yet the travel log indicates that she

attended eight interviews and traveled on more than 80 occasions,

for a total of more than 5,000 miles, to apply for jobs. We find

that the travel log is unreliable and does not constitute adequate

4
The standard mileage rate is a matter of administrative
convenience by which a taxpayer may compute the amount of
deductible automobile expenses using a standard rate rather than
separately establishing the amount of an expenditure for travel
or transportation. Sec. 1.274-5(j), Income Tax Regs., in part,
grants the Commissioner the authority to establish a method under
which a taxpayer may use mileage rates to substantiate, for
purposes of sec. 274(d), the expense of using a vehicle while
traveling away from home. See Rev. Proc. 2001-54, 2001-2 C.B.
530.
 - 15 -

substantiation for the claimed deductions for Mrs. Harrell’s

travel in the course of her job search.

In addition to applying to traveling expenses, the strict

substantiation requirements of section 274 apply to deductions

with respect to “any listed property (as defined in section

280F(d)(4).” Section 280F(d)(4)(A)(v), in turn, includes “any

cellular telephone” in the definition of listed property. The

only substantiation petitioners submitted with respect to their

cellular telephone expenditures was a letter from Mr. Harrell’s

employer stating that Mr. Harrell used his cellular telephone to

communicate and conduct business with the company and that he was

not reimbursed for those charges. No substantiation was

introduced as to: (1) Specific telephone calls made using the

cellular telephone; (2) the portion of the use that might be

related to Mr. Harrell’s work (rather than to personal calls); or

(3) any other matter that would support a claim that the cellular

telephone was property used in Mr. Harrell’s trade or business of

performing services as an employee. We therefore sustain

respondent’s disallowance of this component of the claimed excess

unreimbursed employee and other miscellaneous expenses deduction.

Finally, petitioners deducted $125 for tax preparation fees.

Petitioners used a commercial software package to prepare their

2002 tax return. The record does not reveal the cost of the

software package, but we recognize that there in fact was a cost.
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We estimate this cost to be $40 and allow a deduction for tax

preparation fees in that amount.

Petitioners’ adjusted gross income for 2002 was $88,311. As

previously noted, see supra note 1, there is a 2-percent floor in

calculating the deduction for excess unreimbursed employee and

other miscellaneous expenses. Thus, petitioners may deduct only

their unreimbursed employee and other miscellaneous expenses that

exceed $1,766 (2 percent times $88,311). The amount of the

unreimbursed employee and other miscellaneous expenses that we

have found are deductible does not exceed that amount.

To reflect the foregoing and concessions by the parties,

Decision will be entered

under Rule 155.