T.C. Memo. 2008-65
UNITED STATES TAX COURT
BARRY L. MORRIS, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 14487-05. Filed March 17, 2008.
P failed to file Federal income tax returns for
1999, 2000, 2001, and 2002. R determined deficiencies
and additions to tax pursuant to sec. 6651(a)(1),
I.R.C. After concessions, P and R dispute only whether
P is entitled to certain additional deductions.
Held: P is not entitled to deductions in excess
of those conceded by R.
Barry L. Morris, pro se.
Annie Lee, for respondent.
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MEMORANDUM FINDINGS OF FACT AND OPINION
WHERRY, Judge: This case is before the Court on a petition
for redetermination of Federal income tax deficiencies and
additions to tax under section 6651(a)(1) that respondent
determined with respect to petitioner’s 1999, 2000, 2001, and
2002 taxable years.1
Before trial, the parties resolved a number of issues and
filed a stipulation of settled issues, which is hereby
incorporated by reference into our findings. After concessions,
the issues remaining for decision are:
(1) Whether petitioner is entitled to numerous additional
deductions claimed on Schedule C, Profit or Loss From Business,
for all 4 taxable years at issue;
(2) whether petitioner is entitled to a deduction for state
taxes paid in 2000; and
(3) whether petitioner is entitled to a deduction for
alimony payments in 2001.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated
facts and accompanying exhibits are hereby incorporated by
reference into our findings. Petitioner failed to file Federal
1
All section references are to the Internal Revenue Code of
1986, as amended and in effect for the taxable years at issue.
The Rule reference is to the Tax Court Rules of Practice and
Procedure.
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income tax returns for the 1999, 2000, 2001, and 2002 taxable
years. Respondent issued notices of deficiency on May 6, 2005.
Petitioner then filed a timely petition with this Court. At the
time he filed his petition, petitioner resided in Hayward,
California. A trial was held on May 22-23, 2007, in San
Francisco, California.
Before proceeding, it is noteworthy that Mr. Morris is an
experienced attorney specializing in criminal law. This case was
initially set for trial in August 2006. At petitioner’s request,
he was granted two continuances. The second continuance was
granted in March 2007 over respondent’s objection.
Despite the additional time he was granted and his
representations to the Court that if the continuances were
granted he would promptly find and provide respondent with
relevant documents demonstrating his entitlement to additional
deductions, petitioner failed to do so. To make matters worse,
petitioner violated the Court’s standing pretrial order by
providing respondent with documents less than the required 14
days before trial. He also showed up for trial without records
pertaining to 3 of the 4 taxable years at issue on the basis that
his “computer wasn’t printing.” The case was nevertheless tried,
although 3 of the 4 taxable years at issue had to be tried on the
following day in order to permit petitioner to finalize and print
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the rest of the accounting records that he was relying on and to
provide them to respondent.
Because petitioner’s records were discovered, during trial,
to be fraught with errors, the Court concluded that respondent
was prejudiced by petitioner’s violation of the pretrial order.
The Court therefore sustained respondent’s objection to the
admission of those documents into evidence. However, the record
was held open until July, 9, 2007, to offer petitioner an
opportunity to confer with respondent in order to reach an
agreement concerning the filing of additional documents. Such
documents could have included corrected versions of the documents
that were not admitted into evidence at trial and additional
supplemental stipulations of the parties. Petitioner failed to
confer with respondent and then inexplicably failed to file a
brief or a reply brief. In the end, although provided ample
opportunity, petitioner has done little to help himself prevail
on the remaining issues.
OPINION
I. General Deduction Rules
Deductions are a matter of legislative grace, and the
taxpayer must maintain adequate records to substantiate the
amounts of any deductions or credits claimed. Sec. 6001;
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); sec.
1.6001-1(a), Income Tax Regs.
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Generally, the Court may allow for the deduction of a
claimed expense (other than those subjected to the strict
substantiation requirements of section 274) even where the
taxpayer is unable to fully substantiate it, provided the Court
has an evidentiary basis for doing so. Cohan v. Commissioner, 39
F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85
T.C. 731, 742-743 (1985); sec. 1.274-5T(a), Temporary Income Tax
Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985). In these instances,
the Court is permitted to approximate the allowable expense,
bearing heavily against the taxpayer whose inexactitude is of his
or her own making. Cohan v. Commissioner, supra at 544.
The taxpayer bears the burden of proving entitlement to any
claimed exemptions or deductions; the taxpayer’s burden includes
the burden of substantiation. Hradesky v. Commissioner, 65 T.C.
87, 89-90 (1975), affd. 540 F.2d 821 (5th Cir. 1976). Although
section 7491(a) may shift the burden of proof to the Commissioner
in specified circumstances, petitioner has not established that
he meets the requirements under section 7491(a)(1) and (2) for
such a shift.
II. Business Expense Deductions
Section 162(a) authorizes a deduction for “all the ordinary
and necessary expenses paid or incurred during the taxable year
in carrying on any trade or business”. A trade or business
expense is ordinary for purposes of section 162 if it is normal
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or customary within a particular trade, business, or industry and
is necessary if it is appropriate and helpful for the development
of the business. Commissioner v. Heininger, 320 U.S. 467, 471
(1943); Deputy v. du Pont, 308 U.S. 488, 495 (1940). In
contrast, “personal, living, or family expenses” are generally
nondeductible. See sec. 262(a).
Certain business expenses described in section 274(d) are
subject to strict substantiation rules that supersede the Cohan
doctrine. 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., supra. Section 274(d) applies to: (1) Any
traveling expense, including meals and lodging away from home;
(2) entertainment, amusement, and recreational expenses; (3) any
expense for gifts; or (4) the use of “listed property”, as
defined in section 280F(d)(4), including passenger automobiles.
To deduct such expenses, the taxpayer must substantiate by
adequate records or sufficient evidence to corroborate the
taxpayer’s own testimony: (1) The amount of the expenditure or
use, which includes mileage in the case of automobiles; (2) the
time and place of the travel, entertainment, or use; (3) its
business purpose; and in the case of entertainment, (4) the
business relationship to the taxpayer of each expenditure or use.
Sec. 274(d) (flush language).
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Because petitioner has failed to file a brief, the nature of
his arguments is not entirely clear. In any event, no evidence
has been admitted that would tend to support any of the claimed
business expense deductions that were not conceded by respondent.
To make matters worse, petitioner’s testimony was plagued by
memory lapses and confessions of error with respect to some of
his claimed deductions. The Court therefore concludes that
petitioner has failed to demonstrate entitlement to deductions
for any business expenses in excess of those conceded by
respondent.
III. Deduction for State Tax Payments
State income taxes paid or accrued during the taxable year
are generally deductible. See sec. 164(a)(3). At trial,
petitioner asserted tersely that he made five payments of $310 to
the California Franchise Tax Board in 2000. Aside from that
assertion, there is no evidence of record to demonstrate that
petitioner actually made those payments on behalf of his
business. Because petitioner has failed to properly substantiate
the claimed State tax payments, he has not demonstrated
entitlement to a deduction for State tax payments with respect to
his 2000 taxable year.
IV. Deduction for Alimony or Separate Maintenance Payments
Payments incident to a divorce that are characterized as
alimony or separate maintenance are deductible by the payor.
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See sec. 215(a) (“In the case of an individual, there shall be
allowed as a deduction an amount equal to the alimony or separate
maintenance payments paid during such individual’s taxable
year.”). For Federal income tax purposes, alimony is defined as
any payment in cash that satisfies all of the following
requirements: (a) Such payment is received by, or on behalf of, a
spouse under a divorce or separation instrument; (b) the divorce
or separation instrument does not designate such payment as a
payment which is not includable in gross income under section 71
and not allowable as a deduction under section 215; (c) the payee
spouse and the payor spouse are not members of the same household
at the time the payment is made; and (d) there is no liability to
make any such payment, or a substitute for such payments, in cash
or property, after the death of the payee spouse.
Sec. 71(b)(1)(A)-(D).
At trial, petitioner testified that he “paid $59,000 in
spousal support in the year 2001.” Respondent indicates, on
brief, that respondent was willing to allow petitioner a
deduction for alimony payments if petitioner provided adequate
documentation to show the year in which alimony was paid.
Petitioner attempted to do so at trial by submitting copies of
computer records reflecting numerous transfers of funds ($850 per
transfer) to his ex-wife in 2001. However, those amounts could
also have been for child support and, in any event, those records
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were not admitted into evidence. As a result, we are left to
guess if and when petitioner paid alimony. Petitioner has
therefore not demonstrated entitlement to a deduction for alimony
payments with respect to his 2001 taxable year.
The Court has considered all of petitioner’s contentions,
arguments, requests, and statements. To the extent not discussed
herein, we conclude that they are meritless, moot, or irrelevant.
To reflect the foregoing,
Decision will be entered
under Rule 155.