T.C. Summary Opinion 2009-157
UNITED STATES TAX COURT
DONALD EUGENE DENESELYA AND SOLBORG JENFRID DENESELYA,
Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 18700-08S. Filed October 13, 2009.
Donald Eugene Deneselya and Solborg Jenfrid Deneselya, pro
sese.
Bradley C. Plovan, 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
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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.
For 2003 respondent determined a deficiency of $4,564 in
petitioners’ Federal income tax. The sole issue for decision is
whether petitioners are entitled to deduct car and truck expenses
claimed on Schedule C, Profit or Loss From Business.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the exhibits received into evidence
are incorporated herein by reference. At the time petitioners
filed their petition, they resided in Maryland.
In April 2007 petitioners jointly filed Form 1040, U.S.
Individual Income Tax Return, for 2003. On Schedule C
petitioners reported gross income of $5,250, expenses of
$29,872,1 and a net loss of $24,8722 from Mr. Deneselya’s
(petitioner) “Real Estate appraisal/Consulting, News consulting”
business (appraisal business). Petitioner’s appraisal business
expenses include: (1) Car and truck expenses of $16,272; (2)
business property expenses of $9,000; (3) utility expenses of
$2,300; and (4) office expenses of $2,300. On May 1, 2008,
1
These expenses exclude petitioners’ claimed $5,000 home
office deduction. See sec. 280A(c)(5).
2
Petitioners incorrectly calculated their losses as $24,872.
When calculated correctly, their total losses are $24,622.
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respondent issued petitioners a notice of deficiency disallowing
$16,272 of car and truck expenses for lack of substantiation.
Petitioner began working for Kevin McHugh (Mr. McHugh) in
2002 as an appraiser,3 and he continued through March 27, 2003.
As an appraiser for Mr. McHugh, petitioner would drive from his
home in Bowie, Maryland, to Severn, Maryland, to pick up his
order sheets from Mr. McHugh. He would then drive to various
locations on the Eastern Shore4 where he performed his appraisal
work.
In late March 2003 petitioner moved to the District of
Columbia (D.C.) because of Mr. McHugh’s untimely death. Because
he was properly licensed as an appraiser in D.C., he worked in
D.C. for the remainder of 2003.
Respondent contends petitioner is not entitled to a
deduction of $16,272 in car and truck expenses because he failed
to substantiate the total business miles driven in 2003.
Discussion
I. Burden of Proof
Generally, the Commissioner’s determinations in a notice of
deficiency are presumed correct, and the taxpayer has the burden
of proving that those determinations are erroneous. See Rule
3
Petitioner’s appraiser’s license had been suspended by the
State of Maryland; however, his work for Mr. McHugh required him
to inspect and appraise homes.
4
Petitioner testified that he performed appraisals on the
Eastern Shore, citing Rehoboth Beach as the main job site.
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142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). In certain
circumstances, however, section 7491(a)(1) places the burden of
proof on the Commissioner. Petitioner has not alleged that
section 7491 is applicable, nor has he established compliance
with the requirements of section 7491(a)(2)(A). Therefore, the
burden of proof does not shift to respondent.
II. Schedule C Expenses
Deductions are strictly a matter of legislative grace, and
taxpayers must satisfy the specific requirements for any
deduction claimed. See INDOPCO, Inc. v. Commissioner, 503 U.S.
79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435,
440 (1934). Taxpayers bear the burden of substantiating the
amount and purpose of any claimed deduction. See Hradesky v.
Commissioner, 65 T.C. 87 (1975), affd. per curiam 540 F.2d 821
(5th Cir. 1976).
With respect to certain business expenses subject to section
274(d), more stringent substantiation requirements apply than
with respect to other ordinary and necessary business expenses.
Section 274(d) imposes stringent substantiation requirements for
claimed deductions relating to the use of “listed property”,
which is defined under section 280F(d)(4)(A) to include passenger
automobiles. Under this provision, any deduction claimed with
respect to the use of a passenger automobile will be disallowed
unless the taxpayer substantiates specified elements of the use
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by adequate records or by sufficient evidence corroborating the
taxpayer’s own statement. See sec. 274(d); sec. 1.274-5T(c)(1),
Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).
To meet the adequate records requirements of section 274(d),
a taxpayer must maintain some form of records and documentary
evidence that in combination are sufficient to establish each
element of an expenditure or use. See sec. 1.274-5T(c)(2),
Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985). A
contemporaneous log is not required, but corroborative evidence
to support a taxpayer’s reconstruction of the elements of an
expenditure or use must have “a high degree of probative value to
elevate such statement” to the level of credibility of a
contemporaneous record. Sec. 1.274-5T(c)(1), Temporary Income
Tax Regs., supra.
The elements that must be substantiated to deduct expenses
for the business use of an automobile are: (1) The amount of the
expenditure; (2) the mileage for each business use of the
automobile and the total mileage for all use of the automobile
during the taxable period; (3) the date of the business use; and
(4) the business purpose of the use of the automobile. See sec.
1.274-5T(b)(6), Temporary Income Tax Regs., 50 Fed. Reg. 46016
(Nov. 6, 1985).
Although petitioner alleged he maintained “plenty of written
documents”, he did not submit any documents or other evidence,
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except for his testimony, to substantiate his claimed deduction
for car and truck expenses, nor did he supplement the record
following trial.5 Because petitioner failed to present sufficient
evidence to satisfy the strict substantiation requirements
pursuant to section 274(d), he is not entitled to deduct car and
truck expenses, and the Court upholds respondent’s determination.
To reflect the foregoing,
Decision will be entered
for respondent.
5
At trial petitioner inquired as to whether he could submit
additional documents following trial. The Court advised him that
upon agreement by respondent and a motion to reopen the record,
he could submit additional documents before the release of this
opinion.