T.C. Summary Opinion 2009-72
UNITED STATES TAX COURT
JONELL S. AND SEDELIA R. DURAND, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21076-07S. Filed May 11, 2009.
Jonell S. and Sedelia R. Durand, pro sese.
Derek P. Richman, for respondent.
DEAN, 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 effect for the year in issue,
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and all Rule references are to the Tax Court Rules of Practice
and Procedure.1
For 2004 respondent determined a $6,106 deficiency in
petitioners’ Federal income tax. Respondent disallowed
petitioners’ claimed miscellaneous itemized deductions of $29,701
(before application of the 2-percent floor of section 67(a)) and
deduction for charitable contribution(s) of $500. Respondent
allowed petitioners the standard deduction instead. The issue
remaining for decision2 is whether petitioners are entitled to
itemized deductions in an amount in excess of the standard
deduction.
Background
Some of the facts have been stipulated and are so found.
1
Sedelia R. Durand (Mrs. Durand) did not appear at trial or
sign the stipulation of facts. The Court will dismiss Mrs.
Durand for failure properly to prosecute and will enter a
decision against Mrs. Durand consistent with the decision entered
against Jonell Durand (Mr. Durand).
2
Mr. Durand concedes that petitioners are not entitled to
the claimed $1,200 deduction for “job supplies” or the claimed
$22,535 deduction for “education”.
Respondent concedes that petitioners are entitled to a:
(1) $2,000 lifetime learning credit for 2004; and (2) $200
deduction for tax preparation for 2004, subject to sec. 67.
Finally, Mr. Durand presented neither evidence nor argument
that petitioners are entitled to their claimed deduction for
charitable contribution(s) of $500. Petitioners are therefore
deemed to have conceded the issue. See Nielsen v. Commissioner,
61 T.C. 311, 312 (1973); Mikalonis v. Commissioner, T.C. Memo.
2000-281.
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The stipulation of facts and the exhibits received into evidence
are incorporated herein by reference. When the petition was
filed, Mrs. Durand resided in New York, and Mr. Durand resided in
Florida.
During 2004 Mr. Durand worked as a salesperson for BenQ
Latin America Corp. He “was required to visit accounts within
the immediate territory of Miami and Fort Lauderdale.” Mr.
Durand was also required by his employer to have a cell phone and
Internet service at his home. He was not reimbursed by his
employer for his expenditures. Instead, petitioners claimed
$29,501 in unreimbursed employee expenses on their Schedule A,
Itemized Deductions (before application of the 2-percent floor of
section 67(a)). Petitioners’ unreimbursed employee expenses
consist of: (1) $3,900 for vehicle expenses (based on the
standard mileage rate of 37.5 cents for 10,400 miles); (2) $390
for parking fees and tolls; (3) $1,476 for unspecified business
expenses; (4) $1,200 for job supplies; and (5) $22,535 for
education.
Discussion
I. Burden of Proof
The Commissioner’s determinations in a notice of deficiency
are presumed correct, and the taxpayer bears the burden to prove
that the determinations are in error. See Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933). But the burden of proof on
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factual issues that affect the taxpayer’s tax liability may be
shifted to the Commissioner where the taxpayer introduces
credible evidence with respect to the issue and the taxpayer has
satisfied certain conditions. See sec. 7491(a)(1). Petitioners
have not alleged that section 7491(a) applies, and they have
neither complied with the substantiation requirements nor
maintained all required records. See sec. 7491(a)(2)(A) and (B).
Accordingly, the burden of proof remains on petitioners.
II. Unreimbursed Employee Expenses
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. But as a general rule,
deductions are allowed only to the extent that they are
substantiated. Secs. 274(d) (no deductions are allowed for
gifts, listed property,3 or traveling, entertainment, amusement,
or recreation unless substantiated), 6001 (taxpayers must keep
records sufficient to establish the amount of the items required
to be shown on their Federal income tax returns). If the
taxpayer establishes that he has incurred a deductible expense
yet is unable to substantiate the exact amount, the Court may
estimate the deductible amount in some circumstances (the Cohan
rule). Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir.
3
The term “listed property” is defined to include passenger
automobiles and cell phones. Sec. 280F(d)(4)(A)(i), (v).
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1930). But the Court cannot estimate a taxpayer’s expenses with
respect to the items enumerated in section 274(d). Sanford v.
Commissioner, 50 T.C. 823, 827 (1968), affd. per curiam 412 F.2d
201 (2d Cir. 1969); Rodriguez v. Commissioner, T.C. Memo. 2009-22
(the strict substantiation requirements of section 274(d)
preclude the Court and taxpayers from approximating their
expenses).
Section 274(d) and the regulations thereunder require
taxpayers to substantiate their deductions by adequate records or
sufficient evidence to corroborate the taxpayer’s own testimony:
(1) The amount of the expenditure or use; (2) the time of the
expenditure or use; (3) the place of the expenditure or use; (3)
the business purpose of the expenditure or use; and (4) the
business relationship to the taxpayer of the persons entertained
or receiving the gift. See sec. 1.274-5T(a) and (b), Temporary
Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).
As to the “Rules of substantiation”, the temporary
regulation provides that taxpayers must maintain and produce such
substantiation as will constitute proof of each expenditure or
use. Sec. 1.274-5T(c)(1), Temporary Income Tax Regs., 50 Fed.
Reg. 46016 (Nov. 6, 1985). Written evidence has considerably
more probative value than oral evidence, and the probative value
of written evidence is greater the closer in time it is to the
expenditure or use. Id. Although a contemporaneous log is not
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required, a record made at or near the time of the expenditure or
use that is supported by sufficient documentary evidence has a
higher degree of credibility than a subsequently prepared
statement. Id. The corroborative evidence required to support a
statement not made at or near the time of the expenditure or use
must have a high degree of probative value to elevate the
statement and evidence to the level of credibility reflected by a
record made at or near the time of the expenditure or use
supported by sufficient documentary evidence. Id.
To satisfy the “adequate records” requirement of section
274(d), the taxpayer shall maintain an account book, diary, log,
statement of expense, trip sheets, or similar record and
documentary evidence that in combination are sufficient to
establish each element of expenditure or use. Sec. 1.274-
5T(c)(2)(i), Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov.
6, 1985). The adequate record must be prepared or maintained in
such manner that each recording of an element or use is made at
or near the time of the expenditure or use. Sec. 1.274-
5T(c)(2)(ii), Temporary Income Tax Regs., 50 Fed. Reg. 46017
(Nov. 6, 1985). “‘[M]ade at or near the time of the expenditure
or use’ means [that] the elements of an expenditure or use are
recorded at a time when, in relation to the use or making of an
expenditure, the taxpayer has full present knowledge of each
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element of the expenditure or use”. Sec. 1.274-5T(c)(2)(ii)(A),
Temporary Income Tax Regs., supra.
The level of detail required in an adequate record to
substantiate the taxpayer’s business use may vary depending on
the facts and circumstances. Sec. 1.274-5T(c)(2)(ii)(C),
Temporary Income Tax Regs., 50 Fed. Reg. 46018 (Nov. 6, 1985).
For example, a taxpayer’s use of a vehicle for both business and
personal purposes and whose only business use of the vehicle is
to make deliveries to customers on an established route may
satisfy the adequate record requirement by: (1) Recording the
total number of miles driven during the taxable year, the length
of the delivery route once, and the date of each trip at or near
the time of the trips; or (2) establishing the date of each trip
with a receipt, record of delivery, or other documentary
evidence. Id.
A. Vehicle Expenses
1. Deduction Based on the Standard Mileage Rate
To substantiate petitioners’ deduction for vehicle expenses,
Mr. Durand submitted a letter from his employer, which states
that Mr. Durand was not entitled to reimbursement for his “visits
and travel” to his accounts, a customer list, and a “summary”
that includes: (1) Customers’ names and addresses; (2) the
number of miles traveled one way and round trip and the total
miles traveled per month from his employer’s office to each
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account; (3) the cost per toll and the total cost per month; and
(4) the cost of parking per visit and the total cost per month.
In addition, Mr. Durand testified that he created his summary by:
“[Googling] the miles from my office to each” customer’s address
from the customer list his employer provided and providing a
“conservative average” of the number of visits to each customer
during an average month. He also testified that his summary was
not created in 2004; rather, he made the summary “recently”.
Mr. Durand’s testimony established that he did not
accurately record his business mileage at or near the time of his
business use and that the numbers of “visits” were mere estimates
or “averages”. See sec. 1.274-5T(b)(6)(i)(B), (c)(2), Temporary
Income Tax Regs., 50 Fed. Reg. 46016, 46017 (Nov. 6, 1985). The
Court therefore finds that petitioners are not entitled to their
deduction for mileage. See Sanford v. Commissioner, supra at
827; Rodriguez v. Commissioner, supra; see also sec. 1.274-
5T(c)(1), Temporary Income Tax Regs., supra (the substantiation
requirements are designed to encourage taxpayers to maintain
records and documentary evidence). Respondent’s determination is
sustained.
2. Deduction for Parking Fees, Tolls, and
Transportation Expenses
Petitioners claimed a $390 deduction for parking fees and
tolls. These expenses may generally be deducted as a separate
item. See Rev. Proc. 2003-76, sec. 5.04, 2003-2 C.B. 924, 926.
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With respect to Mr. Durand’s summary of his expenses for
tolls and parking, Mr. Durand testified that he “took the
customers that [he] would have to pay the tolls coming from the
office to downtown * * * [by] the toll road”. He also testified
that he did not have any receipts for his parking expense;
rather, he “put an average” between $4 to $8. Finally, he
explained that his “estimates were very conservative with regard
to the parking, with the tolls and the miles.”
Other than Mr. Durand’s summary and testimony, petitioners
have provided no other evidence, e.g., a receipt, to substantiate
their deduction for parking fees and tolls. The Court therefore
finds that petitioners are not entitled to their deduction for
parking fees and tolls. See Kodak v. Commissioner, T.C. Memo.
1991-485, affd. without published opinion 14 F.3d 47 (3d Cir.
1993); Jones v. Commissioner, T.C. Memo. 1987-554; see also Urban
Redev. Corp. v. Commissioner, 294 F.2d 328, 332 (4th Cir. 1961)
(the Court may reject a taxpayer’s uncorroborated, self-serving
testimony), affg. 34 T.C. 845 (1960); Tokarski v. Commissioner,
87 T.C. 74, 77 (1986) (same). Absent credible documentation of
petitioners’ expenditures, the record provides no basis for
making a determination under the Cohan rule. Respondent’s
determination is sustained.
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B. Unspecified Business Expenses
Petitioners’ deduction for unspecified business expenses
consists of charges for Internet service and Mr. Durand’s cell
phone use. To substantiate petitioners’ deduction for
unspecified business expenses Mr. Durand provided the letter from
his employer, which states that cell phone charges and home
Internet service were not reimbursed by BenQ, and a Cingular
Wireless statement for the period “12/24/04 - 01/23/05”. Mr.
Durand also testified that he had no other records of these
expenses for 2004 because “some of them were thrown away.”4
Expenses for cell phone use must be substantiated in
accordance with section 274 and the regulations thereunder. Sec.
274(d); see supra pp. 4-5 and note 3.
Petitioners have provided no evidence that substantiates
their cell phone expense in accordance with section 274(d) and
the regulations thereunder. Thus, petitioners are not entitled
to their claimed deduction, and the Court cannot apply the Cohan
rule to estimate a deductible expense. See Sanford v.
Commissioner, 50 T.C. at 827.
4
Petitioners did not attempt to reconstruct the records of
their unspecified business expenses. See Boyd v. Commissioner,
122 T.C. 305, 319-322 (2004); Sanderlin v. Commissioner, T.C.
Memo. 2008-209; sec. 1.274-5T(c)(5), Temporary Income Tax Regs.,
50 Fed. Reg. 46022 (Nov. 6, 1985), (if a taxpayer can establish
that the taxpayer’s failure to produce an adequate record is due
to the loss of the record through circumstances beyond the
taxpayer’s control, the taxpayer may substantiate a deduction by
reasonable reconstruction of the expenditures).
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The Court has characterized Internet expenses as utility
expenses. Verma v. Commissioner, T.C. Memo. 2001-132. Strict
substantiation therefore does not apply, and the Court may apply
the Cohan rule to estimate petitioners’ deductible expense,
provided that the Court has a reasonable basis for making an
estimate. See Vanicek v. Commissioner, 85 T.C. 731, 742-743
(1985) (an estimate must have a reasonable evidentiary basis);
Pistoresi v. Commissioner, T.C. Memo. 1999-39.
Petitioners have provided no receipts or other documentation
to substantiate their Internet expense. Therefore, petitioners
are not entitled to the deduction, and the Court cannot estimate
a deductible expense because they have not provided the Court
with any basis for making an estimate.
In sum, respondent’s determination denying petitioners’
$1,476 deduction for unspecified business expenses is sustained.
III. Itemized Deductions
Respondent conceded that petitioners are entitled to a $200
miscellaneous itemized deduction for tax preparation fees. The
$200 amount, however, does not exceed the 2-percent floor of
section 67(a); thus, petitioners are not entitled to the claimed
deduction.5
5
Taking into account respondent’s concession of a $2,000
lifetime learning credit, petitioners’ adjusted gross income for
2004 is $61,977. To exceed the 2-percent floor of sec. 67(a),
petitioners’ miscellaneous itemized deductions must exceed
(continued...)
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Respondent made no adjustments in the notice of deficiency
to petitioners’ itemized deductions for real property taxes of
$2,160 and mortgage interest of $6,718. But taking into account
petitioners’ concessions and the Court’s determinations, their
remaining itemized deductions total $8,878, which is less than
the $9,700 standard deduction. See Rev. Proc. 2003-85, sec.
3.10, 2003-2 C.B. 1184, 1188. The Court assumes that petitioners
would want the larger amount and therefore sustains respondent’s
use of the standard deduction. See sec. 63; George v.
Commissioner, T.C. Memo. 2006-121 (taxpayers may either elect the
standard deduction or elect to itemize deductions).
To reflect the foregoing,
An appropriate order will
be issued, and decision will
be entered under Rule 155.
5
(...continued)
$1,239.54.