T.C. Summary Opinion 2009-151
UNITED STATES TAX COURT
JACK A. & LETTIE G. WHEELER, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 25087-08S. Filed September 28, 2009.
Alan C. Housholder, for petitioners.
Lynette Mayfield, for respondent.
COHEN, 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, all section references are to
the Internal Revenue Code in effect for the year in issue, and
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all Rule references are to the Tax Court Rules of Practice and
Procedure.
Respondent determined a deficiency of $5,070 in
petitioners’ Federal income tax for 2005. The issue for decision
is whether Jack A. Wheeler (petitioner) has substantiated
deductible vehicle expenses as required under sections 274(d) and
280F(d)(4).
Background
Petitioners resided in Tennessee at the time that they filed
their petition. During 2005 petitioner represented a laboratory
that provided testing for clinics performing renal services,
including dialysis, to patients. Petitioner’s employment
required him to make sales and service calls on customers.
Petitioner used his personal vehicle in calling on customers.
Petitioner did not maintain any logs reflecting his business use
of a vehicle or any other contemporaneous records of his vehicle
expenses.
On Schedule C, Profit or Loss From Business, attached to
petitioners’ Form 1040, U.S. Individual Income Tax Return, for
2005, petitioners reported no income but deducted $19,420 as car
and truck expenses. Petitioner prepared the return for 2005.
Respondent disallowed the claimed deduction and made
corresponding adjustments increasing the taxable portion of
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petitioners’ Social Security benefits and reducing deductible
medical expenses.
In their petition and at trial, petitioners reduced the
amount claimed for car and truck expenses to $4,841, based on a
proposed amended Form 1040 and an amended Schedule C prepared by
petitioners’ counsel. Attached to the proposed amended Form 1040
were a Schedule A, Itemized Deductions, which included a
deduction for employee business expenses, and a Form 2106-EZ,
Unreimbursed Employee Business Expenses, but neither form
separately identified any vehicle expenses. The reduced claim
was based on reconstructed mileage for weekly visits to two labs
and monthly and less frequent but regular visits to other
customers or potential customers of petitioner’s employer.
Discussion
Petitioner and a representative of one of his customers
testified at trial. Their testimony was to the effect that
petitioner made business calls on certain customers at various
intervals, and they estimated the mileage to the customer’s
places of business from some unspecified locale. Petitioner
offered a reconstructed schedule of “examples” of business calls
he made on behalf of his employer during 2005, including
estimates that he visited certain customers 1-1/2 times per week.
Petitioners’ counsel acknowledged that the reconstructed mileage
was employee business expense, rather than Schedule C expense,
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and relied on the proposed amended return as stating petitioners’
position.
Respondent objected to the testimony, to any discussion of
the amended return, and to the reconstruction that did not relate
to the amounts claimed on the original Schedule C. Respondent
asserts that the proposed amended return was not filed and was
“simply a settlement negotiation offer [and] inadmissible.”
From the time the petition was filed, it was apparent that
petitioners were not relying on the Schedule C filed with their
original return for 2005. If they adequately substantiated
deductible vehicle expenses that should have been claimed as
employee business expenses, the expenses might be allowable as
itemized deductions subject to the limitations on that category
of expenses. See secs. 67 and 68. Petitioners elected the small
tax case procedure under Rule 171 when they filed their petition,
and evidence having probative value is admissible under Rule
174(b). The testimony of petitioner and his witness had
probative value in explaining petitioner’s business use of his
vehicle. Respondent’s objections based on the difference between
the original Schedule C and the reduced claim are not well
founded, and they are overruled.
On the other hand, we cannot accept petitioners’ counsel’s
argument that Rule 174(b) relaxes the standards of evidence of
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deductible business expenses subject to the section 274(d)
requirement of substantiation by adequate records. A passenger
vehicle is listed property under section 280F(d)(4). Thus
deductions are disallowed unless the taxpayer adequately
substantiates the amount of the expense; the time and place of
business use of the vehicle; and the business purpose of the
travel. These rules were adopted to preclude estimates based
solely on a finding that some deductible business expenses were
incurred, as allowed in other contexts. See Sanford v.
Commissioner, 50 T.C. 823, 827 (1968), affd. per curiam 412 F.2d
201 (2d Cir. 1969). The statutory standard of adequacy of
evidence is not modifiable by a rule regarding admissibility of
evidence, such as Rule 174(b).
Petitioner admitted during trial that he did not keep a log
of the mileage for business or other use of his vehicle, and he
did not have any contemporaneous records that would corroborate
his reconstruction. He testified only that some motel or gas
receipts had been misplaced. We are not persuaded that
petitioner ever had adequate records to substantiate either the
$19,420 claimed on his filed return or the lesser amount of
$4,841 claimed at trial. The disparity in these claims casts
doubt on the reliability of petitioner’s recollections in
reconstructing the events of 2005.
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Petitioner has adequately explained and corroborated the
business purpose of his calls on customers during 2005. He has
not, however, adequately substantiated the time or date and
number of trips taken. His reconstruction is based on estimates
and averages; obviously he did not make 1-1/2 trips in a week.
His reconstruction based on weekly trips in each of 52 weeks or
monthly trips in each of 12 months in 2005, without any
indication of the day of the week or month on which he made those
trips, is unreliable.
We give no weight to the proposed amended return prepared by
petitioners’ counsel, beyond the concession of reduced business
mileage. The proposed amended return contains inconsistencies
and obvious errors; it also sets forth other unexplained
deductions that are not in issue here. Thus we need not resolve
the dispute between the parties about whether the amended return
was filed.
The other adjustments made in the statutory notice are
automatic, and petitioners have given us no reason to believe
that they are erroneous. For the foregoing reasons,
Decision will be entered
for respondent.