Kyne v. Comm'r

T.C. Summary Opinion 2009-98

UNITED STATES TAX COURT

JOHN F. KYNE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 18227-08S. Filed June 25, 2009.

John F. Kyne, pro se.

Robert W. Mopsick, for respondent.

NIMS, 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
 -2-

otherwise indicated, all section references are to the Internal

Revenue Code in effect for the year in issue, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

Respondent determined a $3,381 deficiency in petitioner’s

Federal income tax for the 2005 tax year. The issues for

decision are: (1) Whether petitioner is entitled to deduct

medical and dental expenses of $19,045; (2) whether petitioner is

entitled to deduct charitable contributions in excess of those

respondent allowed; and (3) whether petitioner is entitled to

deduct miscellaneous itemized expenses in excess of those

respondent allowed.

Background

Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by reference. Petitioner resided in New

Jersey at the time he filed his petition.

During 2005 petitioner worked as a corporate field sales

representative for Thomson West Publishing (Thomson West),

selling legal research materials to corporate legal departments

in New Jersey and Pennsylvania. Thomson West’s corporate field

sales representatives were required to work from their home-based

offices and were reimbursed up to $500 per month for monthly

operating expenses and up to $150 per day for hotels, meals, and
 -3-

transportation expenses. The record does not reflect the extent,

if any, to which petitioner was reimbursed by Thomson West.

Petitioner timely filed a 2005 Form 1040, U.S. Individual

Income Tax Return, in which he claimed a medical and dental

expense deduction of $19,045, a charitable contribution deduction

of $8,848, and miscellaneous itemized deductions of $35,857. The

miscellaneous itemized deductions consisted of: (1) $11,004 for

vehicle expenses; (2) $4,822 for parking fees and tolls; (3)

$14,708 for unspecified business expenses; (4) $3,256 for meal

and entertainment expenses; (5) $1,717 for job search expenses;

and (6) $350 for tax preparation fees.

Upon examination of the return, respondent determined that

petitioner had failed to substantiate most of these deductions.

On this basis, respondent disallowed the entire medical and

dental expense deduction, $7,760 of the charitable contribution

deduction, and $5,280 of the miscellaneous itemized deductions.

At trial, respondent conceded a $16,958.21 employee business

expense deduction consisting of: (1) $9,328.88 for vehicle

expenses; (2) $2,648 for parking fees and tolls; (3) $3,306.33

for “home office expenses”; and (4) $1,675 for telephone

expenses.
 -4-

Discussion

Deductions are a matter of legislative grace, and taxpayers

bear the burden of establishing entitlement to any claimed

deduction. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S.

79, 84 (1992). Taxpayers must maintain records sufficient to

allow the Commissioner to determine their correct tax liability.

Sec. 6001; sec. 1.6001-1(a), Income Tax Regs. Additionally,

taxpayers bear the burden of substantiating the amount and

purpose of each item they claim as a deduction. Hradesky v.

Commissioner, 65 T.C. 87, 89 (1975), affd. per curiam 540 F.2d

821 (5th Cir. 1976).

I. Medical and Dental Expenses

Section 213(a) permits a deduction for a taxpayer’s medical

and dental expenses that were paid and not compensated for by

insurance, to the extent the expenses exceed 7.5 percent of the

taxpayer’s adjusted gross income.

To substantiate these expenses, the taxpayer must furnish

the name and address of each payee and the date and amount of

each payment. Sec. 1.213-1(h), Income Tax Regs. If requested by

the Commissioner, the taxpayer must also furnish a statement or

itemized invoice identifying the patient, the type of service

rendered, and the specific purpose of the expense. Id.

Petitioner has not adequately substantiated his claimed

expenses. He submitted only a self-prepared summary of his
 -5-

monthly medical and dental expenses (medical expense summary).

The medical expense summary names three of his four doctors.

However, it does not provide the address of any payee or the date

and amount of each payment. Petitioner also failed to furnish

any statements or invoices from his doctors.

When a taxpayer establishes that deductible expenses were

incurred but fails to substantiate the exact amounts, we

generally may estimate the amounts allowable if sufficient

evidence exists to provide a rational basis for the estimate.

Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930);

Vanicek v. Commissioner, 85 T.C. 731, 743 (1985). Petitioner has

not provided a rational basis for an estimate because his medical

expense summary is not credible. It states petitioner’s total

expenses were $17,564.90 and thereby conflicts with the amount

claimed on the return. No explanation is given for this

discrepancy. In fact, petitioner has not offered any evidence to

corroborate any of the figures on the medical expense summary or

on the return. We are not required to accept petitioner’s self-

serving and inconsistent statements.

Accordingly, we hold that petitioner is not entitled to any

deduction for medical and dental expenses.

II. Charitable Contributions

Section 170(a)(1) allows as a deduction any charitable

contribution verified under regulations prescribed by the
 -6-

Secretary. For each contribution, the regulations generally

require a taxpayer to maintain a canceled check, a receipt from

the donee, or another reliable written record. Sec. 1.170A-

13(a)(1), Income Tax Regs. Factors to consider in assessing

reliability include whether the record was made contemporaneously

with the contribution and whether the taxpayer kept regular

records of contributions. Sec. 1.170A-13(a)(2)(i), Income Tax

Regs. Additionally, any charitable contribution of $250 or more

must be further substantiated by “a contemporaneous written

acknowledgment of the contribution by the donee organization”.

Sec. 170(f)(8)(A).

In support of his claimed deduction, petitioner provided a

self-prepared list of his charitable contributions, debit card

statements, and a canceled check for $25 to the Memorial Sloan-

Kettering Cancer Center. The statements listed donations of $250

and $200 to the Red Cross.

While the canceled check constitutes adequate substantiation

of the contribution under certain circumstances, the statements

and list do not. We do not find petitioner’s list to be a

reliable written record. There is no evidence in the record that

indicates the list was prepared contemporaneously or that

petitioner routinely kept records of his contributions.

Furthermore, we question the accuracy of the list because

petitioner declared his total charitable contributions to be
 -7-

different amounts on three different occasions. Petitioner first

claimed a deduction of $8,848 on his return but admitted at trial

that this figure was inaccurate: “my accountant who was doing my

taxes unfortunately got a little creative, and unfortunately I

went along with him.” Petitioner subsequently provided

respondent with a list of contributions, which states the total

amount as $1,088. However, petitioner’s own testimony

contradicts this figure as well. Petitioner testified that he

made charitable contributions of only $475.

Accordingly, we sustain respondent’s disallowance of all but

$1,088 of petitioner’s $8,848 claimed charitable contribution

deduction.

III. Miscellaneous Itemized Deductions

Section 162(a) allows a taxpayer to deduct all ordinary and

necessary business expenses paid or incurred during the taxable

year. A taxpayer’s personal or living expenses are not

deductible. Sec. 262.

Petitioner claimed $35,857 of miscellaneous itemized

deductions for vehicle expenses, parking fees and tolls,

unspecified business expenses, meal and entertainment expenses,

job search expenses, and tax preparation expenses. On audit

respondent allowed $30,577 of these deductions but did not

specify which items were specifically disallowed.
 -8-

A. Vehicle Expenses

Section 274(d) prohibits us from making estimating a

taxpayer’s travel, entertainment, gift, and “listed property”

(e.g., automobiles and other property used for transportation)

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).

To deduct these expenses, the taxpayer must substantiate either

by adequate records or by sufficient evidence corroborating the

taxpayer’s own statement: (A) The amount of the expense; (B) the

time and place the expense was incurred; (C) the business purpose

of the expense; and (D) in the case of an entertainment or gift

expense, the business relationship to the taxpayer of each

expense incurred. Sec. 274(d). Substantiation by adequate

records requires the taxpayer to maintain an account book, diary,

log, statement of expense, trip sheets, or similar record

prepared contemporaneously with the expenditure and documentary

evidence (e.g., receipts or bills) of certain expenditures. Sec.

1.274-5(c)(2)(iii), Income Tax Regs.; sec. 1.274-5T(c)(2),

Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985).

Substantiation by other sufficient evidence requires the

production of corroborative evidence in support of the taxpayer’s
 -9-

statement specifically detailing the required elements. Sec.

1.274-5T(c)(3), Temporary Income Tax Regs., 50 Fed. Reg. 46020

(Nov. 6, 1985).

The Commissioner may establish mileage allowances deemed to

substantiate the amount of listed property expenses. Sec. 1.274-

5(j)(2), Income Tax Regs. However, the taxpayer is still

required to substantiate the remaining elements of time, place,

and business purpose. Id.; see Rev. Proc. 2004-64, sec. 9.02,

2004-2 C.B. 898, 904. In 2005, the specific mileage allowance

was 40.5 cents a mile for the first 8 months and 48.5 cents for

the last 4 months. Rev. Proc. 2004-64, sec. 5.01, 2004-2 C.B. at

900, as modified by Announcement 2005-71, 2005-2 C.B. 714.

Petitioner claimed a vehicle expense deduction of $11,004 on

his return. However, his 2005 expense summary reported a vehicle

expense of only $10,571 based on the mileage allowances in effect

for 2005. In support of that calculation, petitioner submitted a

log of his daily business travel. For each entry, the log

usually indicated the city petitioner visited, the person he met,

the company for whom that person worked, and the distance

petitioner drove. While the log establishes the time and place

of petitioner’s vehicle expenses, it does not provide the

business purpose of the expenses and therefore does not satisfy
 -10-

the strict substantiation requirements of section 274(d).

Petitioner is entitled only to the $9,328.88 of vehicle expenses

respondent conceded.

B. Parking Fees and Tolls

A taxpayer using the mileage allowance may also deduct

parking fees and tolls. Rev. Proc. 2004-64, sec. 5.04, 2004-2

C.B. at 900. Petitioner claimed a $4,822 deduction for parking

fees and tolls. However, his 2005 expense summary reported that

he spent $2,617, and he did not present any evidence that his

expenses exceeded the $2,648 respondent conceded. Any excess is

disallowed.

C. Unspecified Business Expenses

Petitioner claimed unspecified business expenses of $14,708.

Petitioner’s 2005 expense summary states that he spent $2,578 for

telephone service, $7,500 for rent, $540 for monthly Internet

service, $1,794 for utilities, and $13,877 for “business

expenses”. The record indicates that petitioner’s claimed

“business expenses” comprised office supplies, gifts to

prospective clients, subscriptions to newspapers and magazines,

copying, postage, tolls (discussed supra), and meals and

entertainment expenses (discussed infra). Petitioner did not

explain how he computed the $14,708 figure he claimed as a

deduction on his return.
 -11-

Petitioner submitted a summary of his telephone expenses

which indicated that he spent $1,127 for cellular telephone

service from Cingular, $1,311 business telephone service from

Verizon, and $140 business telephone service from Quest.

Petitioner documented only $800 of payments to Verizon. He did

not substantiate any payments to Quest or Cingular.

Cellular telephones are included in the definition of

“listed property”, sec. 280F(d)(4)(A)(v), and are subject to the

strict substantiation requirements of section 274(d). We

therefore would not include petitioner’s cellular telephone

expenses in an estimate of his telephone expenses. In addition,

any expense for basic local telephone service with respect to the

first telephone line to a residence is treated as a nondeductible

personal expense. Sec. 262(b). However, any estimate is

unnecessary because respondent has conceded an amount greater

than the purported payments to Verizon and Quest. Petitioner is

not entitled to a deduction greater than that amount.

Petitioner also provided canceled checks which substantiated

payments of $6,875 for rent and $1,794 for utilities in 2005. He

did not present any documentation of his Internet expenses.

Section 280A(c)(1) permits the deduction of expenses

allocable to a portion of a dwelling unit that is used

exclusively and on a regular basis as either (1) the principal

place of business for the taxpayer’s trade or business, or (2) a
 -12-

place of business that is used by clients or customers in meeting

or dealing with the taxpayer in the normal course of the

taxpayer’s trade or business.

Petitioner failed to establish what portion of the house was

used as a home office. Accordingly, he is not entitled to a home

office deduction greater than the $3,306.33 respondent allowed.

Petitioner submitted debit card statements in support of his

expenses for business gifts, office supplies, newspaper and

magazine subscriptions, copying, and postage. Those statements

contradict his expense summaries and establish that he did not

incur $13,877 in “business expenses”. The highlighted entries in

the statements add up to far less than that amount, even with the

inclusion of charges for meals, entertainment, and tolls. In

addition, petitioner reported several newspaper and magazine

subscriptions on his business expense summary, but the statements

evidence only a single subscription to the Star Ledger. As to

petitioner’s gift expenses, the statements do not meet the

substantiation requirements under section 274(d) because they do

not provide a description of the gift, the business purpose of

the gift, and the recipient’s business relationship to

petitioner. See sec. 1.274-5T(b)(5), Temporary Income Tax Regs.,

50 Fed. Reg. 46016 (Nov. 6, 1985).
 -13-

While we believe that petitioner did incur some expenses for

office supplies, we note that petitioner was entitled to partial

reimbursement from his employer of up to $500 per month for his

monthly operating expenses. Petitioner has not presented any

evidence that these expenses exceeded that amount.

For these reasons, petitioner is not entitled to a deduction

for his unspecified business expenses greater than the amounts

respondent conceded for telephone and “home office” expenses.

D. Meals and Entertainment

On his return, petitioner claimed he incurred meals and

entertainment expenses of $6,511, giving rise to a $3,256

deduction. Section 274(d) requires a taxpayer to substantiate

the amount, time, place, and business purpose of these expenses

and the business relationship to the persons entertained. In

addition to his debit card statements, petitioner provided a

calendar which indicated the person he met, the restaurant at

which they ate, and how much he spent. We find the calendar to

be wholly unreliable. Petitioner routinely recorded amounts much

greater than the amounts actually charged on his debit card.

Lacking credible documentation of his expenses, petitioner has

thus failed to substantiate any of his meals and entertainment

expenses under section 274(d).
 -14-

E. Job Search Expenses

Job search expenses are deductible under section 162(a) so

long as the search is for employment in the same trade or

business as that in which the taxpayer is currently engaged, or

if the taxpayer is unemployed, that in which he was most recently

engaged. See Primuth v. Commissioner, 54 T.C. 374, 379 (1970).

Expenses for a search in a different type of trade or business

are not deductible. See Frank v. Commissioner, 20 T.C. 511, 513

(1953).

Petitioner claimed $1,717 of job search expenses on his

return. His debit card statements included highlighted entries

for fax services and Internet access, but he has not produced any

evidence that these related to a job search or that such a search

was in the same trade or business as that in which he is or was

currently engaged. Furthermore, his 2005 expense summary lists

his job search expenses as $267 and thus indicates he did not

incur the amount claimed on his return, which is therefore

disallowed.

F. Tax Preparation Expenses

Petitioner testified that he relied on an accountant in

preparing his return, but he has provided no evidence to

corroborate that testimony. Neither his expense summaries nor

his debit card statements contain any entries for tax return

preparation expenses. We cannot verify petitioner’s testimony
 -15-

from his Form 1040 because the page that would contain the return

preparer’s signature was omitted. Petitioner is therefore not

entitled to a deduction for his tax preparation expenses.

G. Conclusion

Petitioner has not substantiated any expenses in excess of

the $30,577 respondent allowed on audit. Accordingly, we uphold

respondent’s determination regarding petitioner’s miscellaneous

itemized deductions.

To reflect the foregoing,

Decision will be entered

for respondent.