T.C. Summary Opinion 2009-175
UNITED STATES TAX COURT
MOLLIE E. SMITH, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7853-07S. Filed November 24, 2009.
Mollie E. Smith, pro se.
Nancy W. Hale, for respondent.
CARLUZZO, Special Trial Judge: This case was heard
pursuant to the provisions of section 7463.1 Pursuant to section
7463(b), the decision to be entered is not reviewable by any
1
Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986, as amended, in effect for the year
at issue. Rule references are to the Tax Court Rules of Practice
and Procedure.
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other court, and this opinion shall not be treated as precedent
for any other case.
In a notice of deficiency dated February 20, 2007,2
respondent determined a deficiency in, and additions to,
petitioner’s 2003 Federal income tax as follows:
Additions to Tax
Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654(a)
$22,488 $2,974.27 $2,115.04 $314.51
After concessions, the issues for decision are: (1) Whether
petitioner is entitled to various trade or business expense
deductions; (2) whether petitioner is entitled to a home mortgage
interest deduction; and (3) whether petitioner is liable for a
section 6651(a)(2) addition to tax.
Background
Some of the facts have been stipulated and are so found. At
the time the petition was filed, petitioner resided in Florida.
At all times relevant, petitioner lived with her mother in
her mother’s house. Although nothing in the record suggests that
petitioner had any legal obligation to do so, she typically paid
her mother’s real estate taxes and utility bills.
2
In a separate notice of deficiency, also dated Feb. 20,
2007, respondent determined a deficiency in and additions to
petitioner’s 2002 Federal income tax. The deficiency and
additions to tax for 2002 are placed in dispute in the petition,
but all issues for that year have been resolved by the parties.
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During 2003 petitioner provided services to five health care
providers (petitioner’s clients). Some of her clients treated
her as an employee; others considered her an independent
contractor.
During 2003 petitioner’s clients were located throughout the
United States. She routinely traveled by car between her
residence in Florida and the locations of her clients. Her
business travels routinely required that she incur expenses for
transportation and meals and lodging, some of which were paid or
reimbursed by her clients.
Respondent’s records indicate that petitioner’s 2003 Federal
income tax return, if submitted, was not received. Consequently,
relying upon information returns received from petitioner’s
clients, respondent prepared what is commonly referred to as a
“section 6020(b) return” for petitioner for 2003.3 The
adjustments to income and the determination made in the above-
referenced notice of deficiency are consistent with the items
shown on the section 6020(b) return.
Discussion
Petitioner now agrees that she earned and received the
income attributed to her in the notice of deficiency. According
3
The income tax liability shown on the sec. 6020(b) return
takes into account a personal exemption deduction and the
standard deduction. That return also allows credit for $9,269 of
income tax withholdings.
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to petitioner, she reported that income on a Federal income tax
return that she prepared and timely “efiled” using a popular
computer-based, income tax return preparation program.
Petitioner claims that the efiled return shows deductions for
mortgage interest and business travel expenses incurred in
connection with providing services to her clients.4 As noted,
respondent’s records do not show receipt of any 2003 return from
petitioner, and petitioner did not produce a copy of any such
return at trial. Nevertheless, respondent now concedes the
section 6651(a)(1) addition to tax, although without agreeing
that petitioner’s 2003 return was submitted as claimed.
I. Deductions
We begin by noting, as we have observed in countless
opinions, that deductions are a matter of legislative grace, and
the taxpayer bears the burden of proof to establish entitlement
to any claimed deduction.5 Rule 142(a); INDOPCO, Inc. v.
Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v.
Commissioner, 292 U.S. 435, 440 (1934). This burden requires the
4
Because some of her clients treated her as an employee and
others treated her as an independent contractor some of the
deductions, if otherwise allowable, would be properly claimed as
miscellaneous itemized deductions on a Schedule A, Itemized
Deductions, and some on a Schedule C, Profit or Loss From
Business. The record hardly allows for any such technical
precision.
5
Petitioner does not claim that the provisions of sec.
7491(a) are applicable, and we proceed as though they are not.
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taxpayer to substantiate deductions claimed by keeping and
producing adequate records that enable the Commissioner to
determine the taxpayer’s correct tax liability. Sec. 6001;
Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam
540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C.
824, 831-832 (1965). A taxpayer claiming a deduction on a
Federal income tax return must demonstrate that the deduction is
allowable pursuant to some statutory provision and must further
substantiate that the expense to which the deduction relates has
been paid or incurred. See sec. 6001; Hradesky v. Commissioner,
supra; sec. 1.6001-1(a), Income Tax Regs.
Having set out these fundamental principles, we turn our
attention first to the deductions in dispute.
A. Business Travel Expense Deductions
According to petitioner, her 2003 efiled return shows a
deduction or deductions for business traveling expenses. As
noted, a copy of that return has not been made part of the
record, and petitioner has not actually quantified the amount of
deduction or deductions to which she claims entitlement. She
did, however, produce various receipts for lodging and meals, and
more or less tied those receipts to specific business trips. She
drove to the locations of her clients, but if she maintained a
mileage log, it has not been made part of the record.
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Ordinarily, a taxpayer may not deduct personal expenses,
such as the costs of meals and lodging. Sec. 262(a). However,
if properly substantiated, traveling expenses, including meals
and lodging, incurred by a taxpayer during the taxable year while
traveling away from home in the pursuit of a trade or business
are deductible. Secs. 162(a)(2), 274(d).
If a taxpayer’s traveling expenses are reimbursed or
reimbursable, then the expenses are not a necessary expense to
the taxpayer and are therefore not deductible under section
162(a). Podems v. Commissioner, 24 T.C. 21 (1955); Orvis v.
Commissioner, T.C. Memo. 1984-533, affd. 788 F.2d 1406 (9th Cir.
1986).
Petitioner acknowledges that she was reimbursed for some
portion of the business travel expenses to which the deduction or
deductions relate, and she apparently understands that she is not
entitled to a deduction for reimbursed travel expenses. See
Podems v. Commissioner, supra. Because petitioner has not
established the extent to which she was reimbursed for the
business travel expenses she incurred, we are unable to determine
what, if any, expenses were left unreimbursed. Therefore,
petitioner fails to meet her burden of establishing entitlement
to any deduction or deductions for travel expenses for 2003.
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B. Home Mortgage Interest Deduction
In general, a taxpayer is entitled to a deduction for
qualified residence interest (referred to on the Schedule A as
“Home mortgage interest”). Sec. 163(h)(2)(D). Because the
qualified residence interest deduction petitioner now claims does
not exceed the standard deduction applicable to her filing
status, see sec. 63, we need not consider her entitlement to this
deduction.
II. Section 6651(a)(2) Addition to Tax
Respondent imposed a section 6651(a)(2) addition to tax for
2003. Respondent bears the burden of production with respect to
the addition to tax here in dispute. See sec. 7491(c).
In general, section 6651(a)(2) provides for an addition to
tax in the case of the failure to pay an amount of tax shown on a
return unless the taxpayer can establish that the failure is due
to reasonable cause and not due to willful neglect.6
Under section 6651(g)(2), a return the Commissioner
prepares under section 6020(b) is treated as the return filed by
the taxpayer for purposes of determining the amount of the
addition under section 6651(a)(2). For these purposes, a section
6020(b) return “must be subscribed, it must contain sufficient
6
The sec. 6651(a)(2) addition to tax accrues at the rate of
0.5 percent per month until the maximum 25 percent is reached.
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information from which to compute the taxpayer’s tax liability,
and the return form and any attachments must purport to be a
‘return’.” Spurlock v. Commissioner, T.C. Memo. 2003-124; see
also Cabirac v. Commissioner, 120 T.C. 163, 170-171 (2003). The
section 6020(b) return respondent prepared constitutes
petitioner’s 2003 return for purposes of section 6651(a)(2).
To prove reasonable cause for a failure to pay the tax, the
taxpayer must show that he or she exercised ordinary business
care and prudence in providing for payment of the tax and
nevertheless was either unable to pay the tax or would suffer
undue hardship if he or she paid the tax on the due date. Sec.
301.6651-1(c)(1), Proced. & Admin. Regs.
According to petitioner, her 2003 return was timely filed
and shows a refund due, rather than unpaid tax. Her explanation
of the circumstances surrounding the preparation of her 2003
return is, at best, vague. She did not produce a copy of the
2003 return she claims to have prepared, and the summary of the
electronically prepared return introduced into evidence says
little regarding whether the return was electronically
transmitted to respondent or otherwise manually filed.
Furthermore, she does not suggest that she was unable to pay the
tax or that she would have suffered undue hardship if the tax had
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been paid on the due date. Respondent’s imposition of the
section 6651(a)(2) addition to tax for 2003 is sustained.
To reflect the foregoing,
Decision will be entered
under Rule 155.