T.C. Summary Opinion 2007-154
UNITED STATES TAX COURT
IBRAHIM B. KEITA, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 9596-06S. Filed September 5, 2007.
Ibrahim B. Keita, pro se.
Michele E. Craythorn, 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
- 2 -
effect for the year in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
Respondent determined a deficiency in petitioner’s 2004
Federal income tax of $3,231. After concessions,1 the issues for
decision are: (1) Whether petitioner is entitled to certain
deductions claimed on Schedule C, Profit or Loss From Business,
and (2) whether petitioner is entitled to certain deductions
claimed on Schedule A, Itemized Deductions.
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 the petition
was filed, petitioner resided in Santa Rosa, California.
Petitioner was employed as a psychiatric technician during
tax year 2004, earning wage income. He also worked as a licensed
vocational nurse, for which he received income that he reported
on his Schedule C.
On his 2004 Federal income tax return, petitioner reported
wages totaling $59,580, a Schedule C business loss of $15,652,
and Schedule A itemized deductions of $48,599. Respondent issued
1
Petitioner conceded that he received a State income tax
refund in the amount of $269 and that he received $575 in wages
from Maxim Healthcare Services, Inc., during tax year 2004.
Petitioner also conceded that he is not entitled to his claimed
itemized deduction of $11,000 for legal fees related to defense
of a tax lien. At trial, respondent conceded that petitioner is
entitled to a $250 deduction for tax preparation fees.
- 3 -
petitioner a notice of deficiency in February 2006 disallowing
$11,802 of petitioner’s claimed Schedule C deductions, consisting
of $7,853 for business use of petitioner’s home, and $3,949 in
other expenses for computers, monitors, and a fax machine. The
notice of deficiency also disallowed $19,897 of petitioner’s
itemized deductions, consisting of $9,384 in unreimbursed
employee vehicle expenses, and $11,375 in attorney’s and tax
preparation fees, reduced by 2 percent of petitioner’s adjusted
gross income.
Discussion
In general, the Commissioner’s determinations set forth in a
notice of deficiency are presumed correct, and the taxpayer bears
the burden of proving that these determinations are in error.
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
Pursuant to section 7491(a), the burden of proof as to factual
matters shifts to the Commissioner under certain circumstances.
Petitioner has neither alleged that section 7491(a) applies nor
established his 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.
Petitioner therefore bears the burden of proof.
Deductions are a matter of legislative grace, and the
taxpayer bears the burden of proving that he is entitled to any
deduction claimed. INDOPCO, Inc. v. Commissioner, 503 U.S. 79,
- 4 -
84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440
(1934). The taxpayer is required to maintain records sufficient
to enable the Commissioner to determine his correct tax
liability. Sec. 6001; Higbee v. Commissioner, 116 T.C. 438, 440
(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.
I. Schedule C Deductions
Petitioner claimed a $15,652 Schedule C business loss for
2004 that resulted from his deducting $20,548 in business
expenses and reporting $4,896 in income. The notice of
deficiency disallowed $7,853, the entire amount claimed for
business use of the home, and $3,949 in other expenses claimed
for computers, monitors, and a fax machine.
A. Business Use of Home
Section 162(a) allows a taxpayer to deduct all ordinary and
necessary expenses paid or incurred in carrying on a trade or
business. The taxpayer is generally precluded from deducting
expenses incurred in connection with the business use of the
residence. See sec. 280A. As an exception to the general rule,
section 280A(c)(1) permits the deduction of expenses allocable to
a portion of the dwelling unit which was used exclusively and
regularly (1) as a principal place of business, (2) as the place
for meeting with customers, clients, or patients in the normal
- 5 -
course of business, or (3) in the case of an unattached separate
structure, in connection with the business. The deduction cannot
exceed the gross income derived from the business use of the
residence over the sum of certain deductions allocable to such
income. Sec. 280A(c)(5); Tobin v. Commissioner, T.C. Memo. 1999-
328; Cunningham v. Commissioner, T.C. Memo. 1996-141, affd.
without published opinion 110 F.3d 59 (4th Cir. 1997).
In order for a taxpayer to establish use on a “regular”
basis, the business use must be more than occasional or
incidental. Irwin v. Commissioner, T.C. Memo. 1996-490, affd.
without published opinion 131 F.3d 146 (9th Cir. 1997); Hefti v.
Commissioner, T.C. Memo. 1993-128. A taxpayer “exclusively” uses
a portion of his dwelling unit in a trade or business if the
portion in question is not used for other than business purposes.
Irwin v. Commissioner, supra; Hefti v. Commissioner, supra. The
use of a portion of a dwelling unit both for personal purposes
and for the carrying on of a trade or business does not meet the
exclusive use test. See Sengpiehl v. Commissioner, T.C. Memo.
1998-23; Hefti v. Commissioner, supra. Whether a taxpayer’s home
office is his principal place of business is dependent on the
amount of time spent at each location, and the relative
importance of the activities performed at each location. See
Commissioner v. Soliman, 506 U.S. 168, 175 (1993).
- 6 -
Petitioner contends that he is entitled to a deduction for
business use of his home because he used his garage as a home
office for scheduling purposes, sending and receiving faxes,
keeping mileage records, and meeting with clients at times.
Although petitioner testified that he maintained his home office
for those reasons, the record does not indicate that petitioner
met with clients or patients in his garage. Nor does the record
establish that the garage was an “unattached separate structure”.
Therefore, the claimed deductions for business use of
petitioner’s home can be sustained only if he used the garage on
a regular basis as the principal place of business for a trade or
business.
Although petitioner may have done some work related to his
business in his home office, his principal place of business as a
licensed vocational nurse was not in his home office. Petitioner
testified that when he was working as a licensed vocational nurse
out of his home, he received his schedule by fax at his home
office, he called the places at which he was going to work, and
then he went to the actual jobs at various hospitals in the
community. At the hospitals, petitioner worked as a nurse, where
he sometimes supervised certified nursing assistants, dispensed
medications, and gave wound treatments. Based on the record, we
find that petitioner’s primary place of business as a licensed
vocational nurse was not in his home where he received his work
- 7 -
schedule, but at the hospitals in which he provided licensed
vocational nursing services. To the extent that petitioner used
his home for administrative activities, he has not established
that the work at home was for the convenience of his employer.
Based on the foregoing, we hold that petitioner’s use of his
garage for scheduling and faxing does not fulfill the business
use exception of section 280A(c)(1), and petitioner is therefore
not entitled to a deduction for business use of his home.
B. Computers, Monitors, and Fax Machine
At trial, petitioner tried to establish that he was entitled
to deduct $3,949 as Schedule C business expenses on his 2004 tax
return for computers, monitors, and a fax machine. Because
petitioner’s computer and peripheral equipment do not fall within
the home office exception to section 274 under section
280F(d)(4)(B),2 they are listed property under section
280F(d)(4), and their deductibility is subject to the strict
substantiation requirements of section 274(d).
When a taxpayer establishes that he has incurred a
deductible expense but is unable to substantiate the exact
2
Listed property does not include any computer or
peripheral equipment used exclusively at a regular business
establishment. Sec. 280F(d)(4)(B). Any portion of a dwelling
unit shall be treated as a regular business establishment if (and
only if) the requirements of sec. 280A(c)(1) are met with respect
to such portion. Sec. 280F(d)(4)(B). For the reasons discussed
above, petitioner’s use of his garage does not satisfy the
requirements of sec. 280A(c)(1), and therefore the computers,
monitors, and fax machine are listed property.
- 8 -
amount, we are generally permitted to estimate the deductible
amount. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir.
1930). To apply the Cohan rule, the Court must have a reasonable
basis upon which an estimate can 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 (5th Cir. 1957). However, the
strict rules of substantiation that apply to certain business
deductions described in section 274(d) supersede the rule in
Cohan v. Commissioner, supra at 544. Sanford v. Commissioner, 50
T.C. 823, 827-828 (1968), affd. per curiam 412 F.2d 201 (2d Cir.
1969); Keating v. Commissioner, T.C. Memo. 1995-101; Jeffers v.
Commissioner, T.C. Memo. 1986-285; sec. 1.274-5T(a)(4), Temporary
Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).
Petitioner did not provide any receipts or any other
evidence to establish when the computers, monitors, and fax
machine were purchased, or the cost of the items. Petitioner
testified that the amount he claimed on his Schedule C for the
computers and peripheral equipment was “a little over-inflated”
and that one of the computers was not even purchased in the tax
year in issue. There is insufficient evidence to establish that
these items were purchased during the year in issue, or to
substantiate the cost. Accordingly, petitioner is not entitled
to a deduction for his computers, monitors, and fax machine.
- 9 -
II. Schedule A Deductions
On Schedule A of his 2004 return, petitioner claimed
itemized deductions of $48,599. Respondent disallowed $19,897 of
this amount, which consisted of claimed unreimbursed employee
expenses of $9,384, and attorney’s and tax preparation fees of
$11,375, reduced by 2 percent of petitioner’s adjusted gross
income.
A. Unreimbursed Employee Expenses
Petitioner claimed a deduction of $9,384 for his vehicle
expenses on Schedule A. He completed Form 2106-EZ, Unreimbursed
Employee Business Expenses, and claimed that he drove 25,024
miles for business. Petitioner provided mileage logs totaling
12,985 miles.
Petitioner contends he worked as a licensed vocational nurse
and contracted with several agencies to work at various jobs at
hospitals in the community. Petitioner argues that he is
entitled to a deduction for the mileage because he was traveling
from his home office to the various contracting jobs, so he was
traveling from one job to another.
Pursuant to section 162, expenses relating to the use of an
automobile that a taxpayer pays or incurs while commuting between
the taxpayer’s residence and the taxpayer’s place of business or
employment are not deductible because such expenses are personal,
and not business expenses. See Fausner v. Commissioner, 413 U.S.
- 10 -
838 (1973); Commissioner v. Flowers, 326 U.S. 465 (1946); secs.
1.162-2(e), 1.262-1(b)(5), Income Tax Regs. Automobile mileage
deductions are also subject to the strict substantiation
requirements of section 274(d).
Transportation expenses between a home office and another
place of business, however, may be deductible if the home office
is the taxpayer’s principal place of business. Strohmaier v.
Commissioner, 113 T.C. 106, 113-114 (1999); Curphey v.
Commissioner, 73 T.C. 766, 777-778 (1980); Gosling v.
Commissioner, T.C. Memo. 1999-148.
Where a taxpayer shows that his automobile expenses satisfy
the requirements of section 162 but fails to establish that his
records satisfy the heightened substantiation requirements of
section 274(d), the expenses will not be allowed. To
substantiate such expenses, the taxpayer must provide the
following adequate records or sufficient evidence to corroborate
his own testimony: (1) The amount of the expenditures; (2) the
mileage for each business use of the automobile and the total
mileage for all use of the automobile during the taxable period;
(3) the date of the business use; and (4) the business purpose
for the use of the automobile. Sec. 1.274-5T(b)(6), Temporary
Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).
For the reasons discussed supra, petitioner’s residence was
not his principal place of business. Even if petitioner had
- 11 -
established that his use of the vehicle satisfied the
requirements of section 162, the logs he provided listing the
business miles he drove do not meet the substantiation
requirements of section 274(d), because petitioner did not
provide the total mileage for all use of the automobile during
the taxable period. Therefore, petitioner’s transportation
expenses do not meet the trade or business requirement of section
162, or the substantiation requirements of section 274(d), so he
is not entitled to deduct his transportation expenses as Schedule
A unreimbursed employee expenses.
B. Tax Preparation Fees
A taxpayer may be allowed a deduction for ordinary and
necessary expenses paid or incurred during the taxable year in
connection with the determination, collection, or refund of any
tax. Sec. 212(3). Petitioner claimed a deduction for tax
preparation fees of $375 as a miscellaneous deduction on Schedule
A. At trial, respondent conceded that petitioner was allowed
$250 of the claimed deduction, so we do not further address this
amount.
Petitioner claims that he purchased Turbo Tax software for
$125 to prepare his return for tax year 2003, after his taxes
were not prepared satisfactorily by a professional tax preparer.
Petitioner admitted at trial that he did not know how much Turbo
Tax cost and that the $125 was an estimate. Petitioner presented
- 12 -
no evidence to support the claimed deduction for the purchase of
tax preparation software.
As discussed supra, when a taxpayer establishes that he has
incurred a deductible expense but is unable to substantiate the
exact amount, the Cohan doctrine permits the Court to estimate
the deductible amount. Cohan v. Commissioner, 39 F.2d at 543-
544. The Court must, however, have a reasonable basis upon which
an estimate can be made. Vanicek v. Commissioner, 85 T.C. at
742-743. Because the record contains no evidence upon which we
could base an estimate, we conclude that petitioner is not
entitled to the remaining $125 deduction claimed for tax
preparation fees, and respondent’s determination with regard to
this amount is sustained.
To reflect the foregoing and the concessions made by the
parties,
Decision will be entered
under Rule 155.