T.C. Summary Opinion 2007-102
UNITED STATES TAX COURT
JAMES L. AND PATRICIA R. WILLIAMS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8323-06S. Filed June 20, 2007.
James L. and Patricia R. Williams, pro sese.
Lynn M. Curry, for respondent.
PANUTHOS, Chief Special Trial Judge: This case was heard
pursuant to the provisions of section 7463 of the Internal
Revenue Code in effect when the petition was filed. Pursuant to
section 7463(b), the decision to be entered is not reviewable by
any other court, and this opinion shall not be treated as
precedent for any other case. Unless otherwise indicated,
subsequent section references are to the Internal Revenue Code in
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effect for the years in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
Respondent determined deficiencies of $4,964, $5,482, and
$6,077 in petitioners’ 2002, 2003, and 2004 Federal income taxes
respectively.1 The issues for decision are whether petitioners
are entitled to (1) itemized deductions in amounts greater than
the standard deductions allowed by respondent for the years in
issue and (2) a credit for education expenses in 2003 and 2004.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits, as well as
additional exhibits introduced at trial, are incorporated herein
by this reference. Petitioners resided in Orlando, Florida, when
the petition was filed.
During the years at issue, Patricia R. Williams was an
engineer with the Florida Department of Environmental Protection
and James L. Williams was a salesman. For approximately the
first 9 months of 2002, Mr. Williams worked for U.S. Foods
selling food products in central Florida. Mr. Williams spent the
majority of his time at work visiting customers and soliciting
business. U.S. Foods did not provide an automobile for Mr.
Williams to use, nor did it reimburse him for gasoline or other
expenses.
1
All dollar amounts are rounded to the nearest dollar.
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In or about October 2002, Mr. Williams left U.S. Foods and
began working for Gold Medal. Gold Medal provided a vehicle and
paid for gasoline, although Mr. Williams occasionally used his
own car for business purposes without reimbursement.
In August 2004, Hurricane Charley struck the east coast of
Florida. Shortly after that, Mr. Williams lost his job with Gold
Medal and remained unemployed for the remainder of 2004.
Hurricane Charley also damaged petitioners’ home and destroyed
many of their records.
Petitioners timely filed joint Federal income tax returns
for the years in issue. On Schedule A, Itemized Deductions,
petitioners claimed deductions totaling $34,616, $30,872, and
$23,172 for 2002, 2003, and 2004, respectively. The claimed
deductions consist of medical and dental expenses, taxes,
contributions, tax preparation fees, and unreimbursed employee
business expenses. Respondent disallowed the claimed itemized
deductions in full and instead allowed petitioners the standard
deduction for each year. Petitioners also claimed education
credits of $2,272 and $3,000 in 2003 and 2004, respectively,
which respondent disallowed in full.
Discussion
I. In General
The Commissioner’s determinations set forth in a notice of
deficiency generally are presumed correct, and the taxpayer bears
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the burden of showing that the determinations are in error. Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Deductions
and credits are a matter of legislative grace, and the taxpayer
bears the burden of proving entitlement to any deduction or
credit claimed on a return. See INDOPCO, Inc. v. Commissioner,
503 U.S. 79 (1992); Wilson v. Commissioner, T.C. Memo. 2001-139.
Pursuant to section 7491(a), the burden of proof as to
factual matters shifts to the Commissioner under certain
circumstances. Petitioners have neither alleged that section
7491(a) applies nor established their compliance with the
requirements of section 7491(a)(2)(A) and (B) to substantiate
items, maintain records, and cooperate fully with respondent’s
reasonable requests. Petitioners therefore bear the burden of
proof.
Where a taxpayer establishes that he has incurred deductible
expenses but is unable to substantiate the exact amounts, the
Court can estimate the deductible amount if the taxpayer presents
sufficient evidence to establish a rational basis for making the
estimate. See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d
Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743
(1985).2 In addition, we may permit a taxpayer to substantiate
2
Sec. 274(d) imposes additional substantiation
requirements for certain types of expenses. See sec.
1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov.
6, 1985). The Cohan rule does not apply to expenses governed by
sec. 274(d). Sanford v. Commissioner, 50 T.C. 823, 827-828
(continued...)
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deductions through secondary evidence where the underlying
documents have been unintentionally lost or destroyed. See Boyd
v. Commissioner, 122 T.C. 305, 320-321 (2004).
II. Itemized Deductions
As stated above, petitioners claimed itemized deductions on
their 2002, 2003, and 2004 tax returns totaling $34,616, $30,872,
and $23,172, respectively. In reconstructing their records for
trial, however, petitioners appear to concede all but $11,920,
$10,060, and $9,715 of these amounts. We limit our discussion to
these amounts.
A. Medical and Dental Expenses
Under section 213(a), medical and dental expenses paid and
not compensated for by insurance or otherwise are deductible to
the extent they exceed 7.5 percent of adjusted gross income
(AGI).
Petitioners reported AGI of $68,488, $72,364, and $84,501 in
2002, 2003, and 2004, respectively. Multiplying these amounts by
7.5 percent yields $5,137, $5,427, and $6,338 for the years in
issue. Petitioners contend that they incurred medical and dental
expenses totaling $2,100 in 2002, $4,210 in 2003, and $5,315 in
2
(...continued)
(1968), affd. per curiam 412 F.2d 201 (2d Cir. 1969). Although
some of petitioners’ claimed itemized deductions are subject to
sec. 274(d), for the reasons discussed below we need not decide
whether petitioners meet the heightened substantiation
requirements.
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2004.3 Because the claimed medical and dental expenses are less
than 7.5 percent of petitioners’ reported AGI for each of the
years in issue, petitioners are not entitled to a deduction for
medical and dental expenses. See sec. 213(a).
B. Unreimbursed Employee Business Expenses
In general, a taxpayer may deduct ordinary and necessary
expenses paid or incurred in connection with the operation of a
trade or business. Sec. 162(a); Boyd v. Commissioner, supra at
313. A trade or business includes the trade or business of being
an employee. O’Malley v. Commissioner, 91 T.C. 352, 363-364
(1988). For such expenses to be deductible, the taxpayer must
not have the right to obtain reimbursement from his employer.
See Orvis v. Commissioner, 788 F.2d 1406, 1408 (9th Cir. 1986),
affg. T.C. Memo. 1984-533.
A taxpayer generally cannot deduct personal, living, or
family expenses. Sec. 262(a). Articles of clothing, including
shoes or boots, are deductible only if the clothing is required
in the taxpayer’s employment, is not suitable for general or
personal wear, and is not worn for general or personal purposes.
Yeomans v. Commissioner, 30 T.C. 757, 767-768 (1958); Nicely v.
Commissioner, T.C. Memo. 2006-172.
Petitioners contend they spent a total of $1,400 in each of
3
Petitioners did not claim a deduction for medical and
dental expenses on their 2002 return. However, the $11,920 of
reconstructed expenses for 2002 includes $2,100 of medical and
dental expenses.
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the years in issue for items such as clothing and shoes that were
required for employment. Petitioners’ testimony on this issue
was vague, however, and petitioners gave no indication that the
clothing or shoes were unsuitable for general or personal wear.
Accordingly, such expenses are not deductible. See Yeomans v.
Commissioner, supra.
Petitioners assert they spent $600 on haircuts in each of
the years at issue. We have repeatedly held that such costs are
nondeductible personal expenses. See Hynes v. Commissioner, 74
T.C. 1266, 1291-1292 (1980); Drake v. Commissioner, 52 T.C. 842,
844 (1969); Fryer v. Commissioner, T.C. Memo. 1974-26.
Petitioners therefore are not entitled to deduct the costs of
clothing, shoes, and haircuts as business expenses.
Petitioners contend they paid or incurred numerous other
business-related expenses for items such as gasoline, a computer,
and a facsimile machine. We need not consider these remaining
items. The standard deduction for 2002, 2003, and 2004 was
$7,850, $9,500, and $9,700, respectively. See sec. 63(c)(2),
(4). After the claimed deductions for medical and dental
expenses, clothing and shoes, and haircuts are disallowed,
petitioners’ remaining deductions for each year do not exceed
these amounts. Petitioners therefore are entitled only to the
standard deduction for each year. Sec. 63(b) and (c); Shepherd
v. Commissioner, T.C. Memo. 1999-19. Respondent’s determination
on this issue is sustained.
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III. Education Credits
A taxpayer who incurs tuition and related expenses may be
eligible for a credit under section 25A. See sec. 25A(b)(1),
(c)(1). Petitioners contend that Mrs. Williams qualifies for an
education credit under section 25A for 2003 and 2004.
Petitioners introduced no evidence concerning where Mrs. Williams
attended school or the amount, if any, of her tuition and related
expenses. Accordingly, respondent’s determination is sustained.
To reflect the foregoing,
Decision will be entered
for respondent.