T.C. Summary Opinion 2007-24
UNITED STATES TAX COURT
ROBERT J. DAMRON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7430-05S. Filed February 20, 2007.
Robert J. Damron, pro se.
Catherine G. Chang, for respondent.
COUVILLION, Special Trial Judge: This case was heard
pursuant to section 7463 in effect when 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, 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.
- 2 -
Respondent determined a deficiency of $2,272 in petitioner’s
Federal income tax for the year 2001. The sole issue for
decision is whether petitioner is entitled to deductions for
certain expenses claimed on Schedule C, Profit or Loss From
Business, for the year in question in excess of amounts allowed
by respondent.
Some of the facts were stipulated. Those facts, with the
annexed exhibits, are so found and are made part hereof.
Petitioner’s legal residence at the time the petition was filed
was San Francisco, California.
During the year 2001, petitioner was an employee of the U.S.
Postal Service. Petitioner was also engaged in a self-employed
trade or business activity that he called Innovative Financial
Services. The activity was described as “negotiation and other
services for business/individuals”.
On Schedule C, which petitioner included with his 2001
Federal income tax return, he reported the following gross income
and expenses from this activity:
Income $ 1,200.00
Expenses:
Legal and professional $ 300.00
Office expenses 6,659.04
Rent (business property) 3,500.00
Taxes/licenses 200.00
Meals/entertainment 24.65
Utilities 544.78
Wages 3,600.00 14,828.47
Loss ($13,628.47)
- 3 -
In the notice of deficiency, respondent disallowed the following
expenses:
Rent $ 3,500
Wages 3,600
Office expenses 5,179
Total $12,279
Respondent agrees that the activity is a trade or business
activity engaged in for profit and disallowed the expenses for
failure to substantiate the amounts claimed. During the trial,
respondent conceded that petitioner was entitled to a deduction
for rent of $700 and $400 for wages paid that had been disallowed
in the notice of deficiency.
The nature of the activity is somewhat vague. At trial,
petitioner gave examples of the services he provided, such as
assisting businesses collecting debts from customers, searching
courthouse records or newspapers that might provide information
that could lead to assets of delinquent customers, negotiating
with debtors, etc. Petitioner had engaged in this activity only
for 2 or 3 years prior to the year at issue and had not realized
a profit in any of the prior years. The sole issue in this case
is whether petitioner substantiated the expenses disallowed.2
2
Because of the year involved, the examination of
petitioner’s return at issue commenced after July 22, 1998.
Therefore, sec. 7491, which under certain circumstances shifts
the burden of proof to the Commissioner, applies. However, for
the burden to be placed on the Commissioner, the taxpayer must
(continued...)
- 4 -
In general, deductions are a matter of legislative grace.
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Taxpayers
are required to maintain records sufficient to enable the
Commissioner to determine their correct tax liability. Sec.
6001; Higbee v. Commissioner, 116 T.C. 438 (2001); sec. 1.6001-
1(a), Income Tax Regs. Such records must substantiate both the
amount and purpose of the claimed deductions. Higbee v.
Commissioner, supra.
Section 162 allows a deduction for ordinary and necessary
expenses that are paid or incurred during the taxable year in
carrying on a trade or business. Sec. 162(a); Deputy v. duPont,
308 U.S. 488, 495 (1940).
At trial, petitioner offered into evidence copies of various
checks that were issued purportedly for payment of expenses
related to the activity; however, no documentation was offered to
tie in or corroborate that such payments were in connection with
the business activity. Petitioner claims he had such information
at home and did not realize that such information was crucial to
his case.
2
(...continued)
comply with the substantiation and record-keeping requirements of
the Internal Revenue Code. Sec. 7491(a)(2)(A) and (B). On this
record, petitioner has not wholly satisfied that requirement;
therefore, the burden has not shifted to respondent under sec.
7491. Higbee v. Commissioner, 116 T.C. 438 (2001).
- 5 -
Section 6001 requires generally that every person liable for
any tax keep such records, render such statements, make such
returns, and comply with such regulations as the Secretary may
from time to time prescribe. Section 1.6001-1(a), Income Tax
Regs., provides, in pertinent part, that “any person subject to
tax under subtitle A of the Code * * *, shall keep such permanent
books of account or records, including inventories, as are
sufficient to establish the amount of gross income, deductions,
credits, or other matters required to be shown by such person in
any return of such tax”.
After careful consideration of the evidence presented,
including petitioner’s testimony and the concessions by
respondent, the Court is not inclined to go beyond what
respondent has conceded. Accordingly, this Court holds that
petitioner is not entitled to any deductions in excess of the
amounts allowed and conceded by respondent.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
under Rule 155.