T.C. Summary Opinion 2009-81
UNITED STATES TAX COURT
HATEM ELSAYED, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8935-07S. Filed May 26, 2009.
Peter A. Lowy, for petitioner.
David B. Mora, for respondent.
GOLDBERG, Special Trial Judge: This case was heard pursuant
to the provisions of section 7463 of the Internal Revenue Code in
effect at the time 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
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the year in issue, and all Rule references are to the Tax Court
Rules of Practice and Procedure.
The issues for decision are: (1) Whether petitioner is
entitled to deduct unreimbursed employee business expenses in
excess of the amount that respondent allowed for 2004; and (2)
whether petitioner is entitled to a filing status of married
filing jointly for 2004.1
Background
Some of the facts have been stipulated and are so found.
The stipulations of facts and the attached exhibits are
incorporated herein by this reference. At the time he filed his
petition, petitioner resided in Texas.
Petitioner was employed as a truck driver in 2003, a job he
maintained through the end of 2004. He did not own or lease a
truck; rather, he drove trucks owned by his employers. In 2004
petitioner worked for two corporations, Swift Transportation
(Swift) and A-Z Transportation (A-Z). Swift and A-Z were related
businesses in that Swift owned A-Z or leased its assets.
Consequently, their driver reimbursement policies, discussed
below, were identical. Petitioner transported many types of
1
The notice of deficiency included a sec. 6662 accuracy-
related penalty for 2004. Petitioner did not dispute the penalty
in his petition or at trial. Therefore petitioner is deemed to
have conceded the issue. See Rule 34(b)(4); Swain v.
Commissioner, 118 T.C. 358, 364-365 (2002).
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shipments, including regular freight and hazardous materials, and
he drove to destinations throughout the continental United
States. Petitioner maintained a home in Texas, but he was an
active driver during 2004 logging 268 days away from home.
Swift and A-Z reimbursed their drivers for certain expenses
including tolls, scales, showers, truck supplies, truck washes,
motels, lumpers (people hired to help unload the truck), and
truck repairs. Swift and A-Z did not reimburse their drivers for
maps, tools, meals, clothing, bedding, coolers, batteries, office
supplies, first aid kits, or air fresheners. Petitioner kept
receipts for his purchases in separate envelopes by category.
Petitioner used a home computer to help record his driver logs
and account for his expenses.
Petitioner brought his two Forms W-2, Wage and Tax
Statement, and his receipts to a tax preparer who prepared
petitioner’s 2004 Federal income tax return. Petitioner timely
filed his return using single filing status and reporting wages
of $45,919 and deductions totaling $21,808 on Schedule A,
Itemized Deductions. Of the $21,808 in itemized deductions,
$18,755 are expenses that petitioner claimed on Form 2106,
Employee Business Expenses.
The Internal Revenue Service (IRS) selected petitioner’s
2004 Federal income tax return for examination. The sole
adjustment was the disallowance of $12,968 (or the allowance of
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$5,787) of the $18,755 deduction for unreimbursed employee
business expenses. Three categories of expenses made up the
$18,755: (1) Vehicle expenses--$469; (2) meals--$619 ($1,237
times a 50-percent reduction); and (3) “other” expenses--
$17,667. The examiner allowed in full petitioner’s deduction for
vehicle expenses. The meal expenses that petitioner had listed
separately were for restaurant meals while petitioner was home,
which respondent disallowed.
Petitioner could not reconcile the $17,667 deduction for
other expenses that he had claimed on the return. However, a
significant component was for meals he had purchased while away
from home. The examiner determined that petitioner incurred
$8,308 for meals and incidental expenses away from home based on
268 days times a per diem rate of $31. The examiner then reduced
the $8,308 total by 50 percent to allow a deduction of $4,154
because section 274(n) generally permits only 50 percent of meals
and entertainment as a deduction. The record is unclear as to
the specific expenses that make up the examiner’s remaining
allowance of $1,164 ($5,787 minus $469 and minus $4,154), other
than an electronic map for $223.37.
During the audit petitioner raised the issue of his filing
status for 2004. He claimed that he is entitled to use married
filing jointly rather than single status because by the end of
2004 he was in a common law marriage with Irma Angelica Cueto,
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whom he married in separate civil and religious ceremonies in
March 2005.
The examiner determined that petitioner’s filing status for
2004 was single. Therefore, solely on the basis of the $12,968
disallowance, respondent determined a deficiency in petitioner’s
2004 Federal income tax of $2,435 and an accuracy-related penalty
under section 6662(a) of $487.
Petitioner timely petitioned the Court for redetermination
of the deficiency, seeking an increased deduction for “other”
business expenses that he claimed on Form 2106. Additionally,
petitioner asks the Court to recognize his common law marriage to
Ms. Cueto during 2004 and permit him to file as married filing
jointly.
At trial petitioner called his wife and a friend, Ms. Brenda
Hernandez, as witnesses with respect to the common law marriage.
Petitioner did not call his tax preparer as a witness.
Discussion
In general, the Commissioner’s determination set forth in a
notice of deficiency is presumed correct, and the taxpayer bears
the burden of showing that the determination is in error. Rule
142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933). Under
section 7491(a) the burden may shift to the Commissioner
regarding a factual issue if the taxpayer produces credible
evidence and meets the other requirements of the section,
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including maintaining records required by the Internal Revenue
Code and cooperating fully with the Secretary’s reasonable
requests for witnesses, information, documents, meetings, and
interviews. Petitioner did not fulfill the requirements of
section 7491(a), and therefore the burden of proof regarding the
unreimbursed employee business expense deductions and his marital
status remains on petitioner. With respect to the accuracy-
related penalty, section 7491(c) places the burden of production
on respondent.
The first issue for decision is whether petitioner is
entitled to a deduction for unreimbursed employee business
expenses in excess of the amount respondent allowed.
Deductions are a matter of legislative grace, and taxpayers
bear the burden of proving their entitlement to a deduction.
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New
Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Section
6001 requires taxpayers to maintain records sufficient to
establish the amount of each deduction. See also Ronnen v.
Commissioner, 90 T.C. 74, 102 (1988); sec. 1.6001-1(a), (e),
Income Tax Regs.
Section 162(a) allows a deduction for ordinary and necessary
expenses that a taxpayer pays in connection with the operation of
a trade or business. Boyd v. Commissioner, 122 T.C. 305, 313
(2004). To be “ordinary” the expense must be of a common or
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frequent occurrence in the type of business involved. Deputy v.
du Pont, 308 U.S. 488, 495 (1940). To be “necessary” an expense
must be “appropriate and helpful” to the taxpayer’s business.
Welch v. Helvering, supra at 113. Additionally, the expenditure
must be “directly connected with or pertaining to the taxpayer’s
trade or business”. Sec. 1.162-1(a), Income Tax Regs. Section
262(a) disallows deductions for personal, living, or family
expenses.
Generally, the performance of services as an employee
constitutes a trade or business. Primuth v. Commissioner, 54
T.C. 374, 377 (1970). 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.
If a taxpayer establishes that an expense is deductible but
is unable to substantiate the precise amount, we may estimate the
amount, bearing heavily against the taxpayer whose inexactitude
is of his own making. Cohan v. Commissioner, 39 F.2d 540, 543-
544 (2d Cir. 1930). The taxpayer must present sufficient
evidence for the Court to form an estimate because without such a
basis, any allowance would amount to unguided largesse. Williams
v. United States, 245 F.2d 559, 560-561 (5th Cir. 1957); Vanicek
v. Commissioner, 85 T.C. 731, 742-743 (1985).
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Section 274 overrides the Cohan rule with regard to certain
business expenses. Sanford v. Commissioner, 50 T.C. 823, 827
(1968), affd. per curiam 412 F.2d 201 (2d Cir. 1969); Sec. 1.274-
5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6,
1985). Section 274 requires stricter substantiation for travel,
meals, and listed property such as cellular telephones. Section
274(d) requires taxpayers to provide adequate records or
sufficient other evidence establishing the amount, time, place,
and business purpose of the expense to corroborate the taxpayer’s
statements. Even if such an expense would otherwise be
deductible, section 274 may still preclude a deduction if the
taxpayer does not have sufficient substantiation. Sec. 1.274-
5T(a), Temporary Income Tax Regs., supra.
Keeping in mind these well-established principles, we now
decide whether petitioner is entitled to additional unreimbursed
employee business expenses.
With respect to the deduction for meals away from home,
respondent has already determined that petitioner is entitled to
use a per diem rate rather than actual expenses, and that 268 is
the proper number of days petitioner was away from home during
2004. Petitioner does not challenge these determinations.
Respondent also determined that $31 per day is the correct
per diem rate that petitioner should use for meals and
incidentals expenses (M&IE) while he was on the road in the
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continental United States (CONUS) during 2004. We disagree.
While $31 is generally the correct standard CONUS rate per Rev.
Proc. 2003-80, secs. 3.02(1)(a) and 4.01, 2003-2 C.B. 1037, 1039,
the same revenue procedure provides a separate $41 CONUS per diem
rate for employees in the transportation industry. Id. sec.
4.04(2), 2003-2 C.B. at 1040. The definition of transportation
industry employee includes in pertinent part an individual whose
work “directly involves moving people or goods by * * * truck”
and “regularly requires travel away from home which, during any
single trip away from home, usually involves travel to localities
with differing Federal M&IE rates.” Id. sec. 4.04(4), 2003-2
C.B. at 1040. Petitioner meets the definition because he
directly moved goods by truck, his 268 days away from home
constitute regular travel, and he made trips away from home
involving numerous localities with varying Federal M&IE rates.
Additionally, the 50-percent allowance for meals under
section 274(n) is superseded by a more generous 70 percent
allowance for 2004 under section 274(n)(3)(B) for individuals
subject to “the hours of service limitations of the Department of
Transportation”. Sec. 274(n)(3)(A). Truck drivers are subject
to Department of Transportation hours of service limitations,
e.g., generally truck drivers may not drive more than 60 hours in
any period of 7 consecutive days or more than 70 hours in 8
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consecutive days. See United States v. McCord, Inc.; 143 F.3d
1095, 1096 (8th Cir. 1998); 49 C.F.R. sec. 395.3 (2008).
Thus, instead of the deduction of $4,154 that respondent
allowed, petitioner is entitled to a deduction of $7,691.60 for
meals and incidental expenses on the basis of 268 days away from
home at $41 per day times an allowance rate of 70 percent.
With respect to the “other” expenses that petitioner seeks
to deduct in excess of the $1,174, the Court received into
evidence from petitioner a spreadsheet and copies of receipts
totaling $6,212.25, comprising three subcategories of expenses:
$2,161.51 for cellular telephone charges; $1,765.34 for
restaurant meals that petitioner purchased while in his hometown;
and $2,286.40 for unreimbursed supplies that petitioner bought
while on the road.
With respect to the cellular telephone bills totaling
$2,161.51, petitioner’s employers suggested that drivers might
find cellular telephones useful but did not reimburse its drivers
for a cellular telephone. Petitioner used the cellular telephone
to contact other truckers, shippers, and receivers to discuss,
among other things, the best routes for his particular
destination considering his load type, load weight, and vehicle
size, information that is not readily available from typical road
maps. Petitioner also used the cellular telephone for personal
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calls. Petitioner did not keep a log of his calls, but he
estimated that 80 percent of the calls had a business purpose.
Section 274(d)(4) governs the substantiation requirements
related to listed property, which under section 280F(d)(4)(A)(v),
includes cellular telephones. Under section 274(d) the taxpayer
must maintain adequate records or present corroborative evidence
to support: (1) The amount of the expense; (2) the time and
place of use of the listed property; and (3) the business purpose
of the use. Sec. 1.274-5T(b)(6), Temporary Income Tax Regs., 50
Fed. Reg. 46016 (Nov. 6, 1985). The Court may not use the Cohan
doctrine to estimate expenses governed by section 274(d). Boyd
v. Commissioner, 122 T.C. at 320.
Thus, while petitioner has substantiated that he paid
cellular telephone charges and he has established that he had a
business purpose for a cellular telephone, he has provided no
contemporaneous log or any other credible evidence of the portion
of the cellular telephone use that was business related. The
burden is on petitioner to support the business usage. Because
Congress has decided that a cellular telephone is listed
property, we may not estimate. Accordingly, petitioner is not
entitled to a deduction for his cellular telephone expenses for
2004.
With respect to the hometown meals, petitioner provided
receipts to show that he paid $1,765.34 for restaurant meals in
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between work assignments. Petitioner contends that although his
employers did not require the meals, the meals had a business
purpose in that they gave him an opportunity to meet with other
drivers to gain their wisdom as to how best to advance his
driving skills, e.g., learning safety tips, the rules for hours
worked, and how to increase his earnings. Petitioner wrote on
the backs of the receipts the first but not last names of the
person(s) with whom he ate. He did not record the business
purpose of the meals. Included in the total were payments of
$225 and $200 to purchase meals for several other drivers as
appreciation for their advice.
In instances where section 162(a) trade or business expenses
overlap with section 262(a) personal expenses, section 262 takes
precedence. Heineman v. Commissioner, 82 T.C. 538, 542 (1984).
Further, a deduction for meals and entertainment expenses,
similar to the deduction for travel expenses, is subject to
strict substantiation requirements. Sec. 274(d)(2). Moreover,
the individual must show more than a tangential connection with
the business; he must show that the expense is “directly
connected” with the trade or business. Sec. 1.162-1(a), Income
Tax Regs.
Petitioner has not sufficiently connected the meals with a
bona fide trade or business purpose. Moreover, the receipts that
petitioner submitted, while showing dates and prices, did not
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show last names or document a business purpose. See sec. 274(d)
(flush language). Thus petitioner did not establish a business
purpose that transcends the ordinary personal benefit of eating
an enjoyable meal with colleagues. Sec. 1.274-5T(b), Temporary
Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).
Accordingly, for the foregoing reasons we find the hometown meals
are a personal expense, and we sustain respondent’s disallowance.
See sec. 1.262-1(b)(5), Income Tax Regs.
With respect to the $2,286.40 in unreimbursed supplies, many
of the receipts just showed dollar amounts with a cryptic
description, e.g., a credit card purchase for $26.97 for “Luggage
Ro EAC” from an unidentified store, and $43.29 for “G-R-O-C” from
the Drivers Travel Mart in Anna, Texas. Many other receipts had
no description at all, such as a $323.83 credit card receipt from
Wal Mart in Houston, Texas; $23.46 from the Flying J Travel Plaza
in Carmel Church, Virginia; and $13.65 from Travel Centers of
America in Tallulah, Louisiana. A few receipts had an apparent
business purpose: $75.73 for a CB radio, $59.95 for an atlas
map, and $5.76 for a small map. However, most of the other
identifiable purchases were for seemingly personal purposes:
$115.26 from a Wal Mart in Humble, Texas, for shampoo and office
supplies; and $99.86, $188.84, and $19.99 from a Sam’s Club for
an executive chair, an L-shaped desk, and Nike tennis sneakers.
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Examining these receipts we find that petitioner did not
provide adequate substantiation establishing a business purpose
under section 274(d). In many cases the receipts did not
describe and petitioner did not furnish an explanation of what he
purchased. Therefore, even if we were to provide an estimate
under the Cohan doctrine, the amount that we would estimate as
business rather than section 262(a) personal expenses would be
far less than the nearly one-half, or $1,164 that respondent
allowed. Accordingly, we find no ground to increase petitioner’s
deduction for “other” expenses beyond the $1,164 that respondent
has already allowed.
The second issue for decision is whether petitioner is
entitled to a filing status of married filing jointly for 2004.
State law determines a person’s marital status for Federal
income tax purposes. Von Tersch v. Commissioner, 47 T.C. 415,
419 (1967); Rev. Rul. 58-66, 1958-1 C.B. 60. The State of Texas
recognizes common law marriages but requires that three
conditions be met: (1) The parties must agree to marry, (2) they
must live together in Texas as husband and wife, and (3) they
must represent to others that a marriage exists. Tex. Fam. Code
Ann. sec. 2.401 (Vernon 2006); Warren v. Sec. of HHS, 868 F.2d
1444, 1446 (5th Cir. 1989).
Petitioner and Ms. Cueto agreed to marry, and in fact they
did marry in 2005. We find credible their testimony that they
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had lived together since 2002. The critical test then is the
third one, whether they represented to others that they were
married. Representing to others means “holding each other out to
the public.” Estate of Claveria v. Claveria, 615 S.W.2d 164, 166
(Tex. 1981); see also Russell v. Russell, 865 S.W.2d 929, 932
(Tex. 1993) (requiring “public representation”); Ex parte Threet,
333 S.W.2d 361, 364 (Tex. 1960) (isolated reference to a person
as his husband or wife, and similarly an introduction to two
close friends and telling two or three other persons does not
constitute sufficient evidence of a common law marriage) and
Grigsby v. Reib, 153 S.W. 1124, 1130 (Tex. 1913) (“The
cohabitation must be professedly as husband and wife, and public,
so that by their conduct towards each other they may be known as
husband and wife.”).
In Russell v. Russell, supra at 931-932, the Supreme Court
of Texas observed that although Texas has recognized common law
marriages since 1847, the recognition is a “grudging” one in
which the State “merely tolerates” but “does not favor” such
marriages. In 1970 the Texas legislature enacted a statute to
allow a couple to file a declaration of informal marriage with
the county clerk. Id. In 1989 the legislature amended the
statute to make the proof of a common law marriage more
difficult, restricting the ability of courts to simply infer a
marriage. Id. Thus, the effect of the 1989 amendment is to
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tighten the rules for inferring a common law marriage, requiring
the evidence to be more convincing than before the 1989
agreement. Id. Accordingly, in a society where nonmarital
cohabitation for extended periods is far more common than it once
was, the fact finder will have to weigh the evidence more
carefully than in the past. Id. Occasional uncontradicted
reference to “my wife” or “my husband” needs corroboration, and
the context of the reference requires greater scrutiny. Id. A
forthright assertion of marriage with the consequence of
liability, such as when an alleged spouse seeks admission of the
other to a hospital, is highly probative of a tacit agreement.
Id.
Though Ms. Cueto and Ms. Hernandez testified on petitioner’s
behalf, their testimony was supportive but not decisive.
Ultimately, four factors weigh against petitioner’s claim that he
was in a common law marriage in 2004. First and importantly,
petitioner purchased a home in 2004 which became the couple’s
primary residence. Petitioner could have titled the home and
mortgage note jointly in his and Ms. Cueto’s names, but he did
not do so. This omission is highly probative because under
Russell v. Russell, supra, it was an opportunity for a forthright
assertion of marriage when there was a significant consequence of
liability. Second, petitioner did not add Ms. Cueto to the
utility bills or his bank account, and she did not change her
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driver’s license to her married name until 2005. Third, as noted
above, the State of Texas provided residents with the opportunity
to register their common law marriage with the local county
clerk, but again, petitioner chose not to do so. Fourth and also
significant, petitioner reported his filing status as single on
his 2004 Federal income tax return. He had the opportunity to
alert the world, or at least the IRS, that he believed he was
married, but he chose not to do so. Only later when his return
was audited did petitioner raise the issue of a common law
marriage. For the foregoing reasons, we sustain respondent’s
determination of petitioner’s filing status as single for 2004.
Conclusion
To reflect our disposition of the issues,
Decision will be entered
under Rule 155.