T.C. Summary Opinion 2010-74
UNITED STATES TAX COURT
ZDZISLAW F. BEDNARSKI, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 25853-08S. Filed June 16, 2010.
Zdzislaw F. Bednarski, pro se.
Melanie E. Senick, 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
are to the Internal Revenue Code in effect for the years at
- 2 -
issue, and Rule references are to the Tax Court Rules of Practice
and Procedure.
Respondent determined for 2005 a deficiency in petitioner’s
Federal income tax of $1,778 and an accuracy-related penalty of
$355.60 and for 2006 a deficiency of $5,361 and an accuracy-
related penalty of $1,072.20.
Petitioner concedes that he is not entitled to a dependency
exemption for Z.R.B. for 2006. The issues remaining for
decision1 are whether for 2005 and 2006 petitioner is entitled to
deductions on Schedule C, Profit or Loss From Business, in excess
of those respondent allowed and whether petitioner is liable for
accuracy-related penalties under section 6662(a).
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the exhibits received in evidence
are incorporated herein by reference. Petitioner resided in the
State of Washington when the petition was filed.
Petitioner was a real estate agent during the years at
issue. Petitioner deducted on his Schedules C for both years car
and truck expenses, advertising expenses, and other expenses.
After examining petitioner’s Federal income tax returns,
respondent disallowed a portion of his advertising and other
1
Adjustments to petitioner’s self-employment tax deductions
and self-employment taxes are computational and will be resolved
consistent with the Court’s decision.
- 3 -
expenses for both years. Respondent disallowed almost all of
petitioner’s deductions for car and truck expenses for 2005 and
2006.
Discussion
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
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). In some
cases the burden of proof with respect to relevant factual issues
may shift to the Commissioner under section 7491(a). Petitioner
did not argue or present evidence that he satisfied the
requirements of section 7491(a). Therefore, the burden of proof
does not shift to respondent.
Business Expenses
Section 162 generally allows a deduction for ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on a trade or business. Generally, no deduction is
allowed for personal, living, or family expenses. See sec. 262.
Where a taxpayer has established that he has incurred a
trade or business expense, failure to prove the exact amount of
the otherwise deductible item may not always be fatal.
Generally, unless precluded by section 274, the Court may
estimate the amount of such an expense and allow the deduction to
that extent. See Finley v. Commissioner, 255 F.2d 128, 133 (10th
- 4 -
Cir. 1958), affg. 27 T.C. 413 (1956); Cohan v. Commissioner, 39
F.2d 540, 543-544 (2d Cir. 1930). In order for the Court to
estimate the amount of an expense, however, there must be some
basis upon which an estimate may be made. Vanicek v.
Commissioner, 85 T.C. 731, 742-743 (1985). Without such a basis,
an allowance would amount to unguided largesse. Williams v.
United States, 245 F.2d 559, 560 (5th Cir. 1957).
Petitioner offered no evidence with respect to respondent’s
adjustments to his deductions for advertising and other expenses.
The Court sustains respondent’s determination as to those two
items for both years.
Certain business deductions described in section 274 are
subject to rules of substantiation that supersede the doctrine in
Cohan v. Commissioner, supra. See sec. 1.274-5T(c), Temporary
Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). Section
274(d) provides that no deduction shall be allowed with respect
to: (a) Any traveling expense, including meals and lodging away
from home; (b) any item related to an activity of a type
considered to be entertainment, amusement, or recreation; or (c)
the use of any “listed property”, as defined in section
280F(d)(4),2 unless the taxpayer substantiates certain elements.
2
“Listed property” includes any passenger automobile. Sec.
280F(d)(4)(A)(i).
- 5 -
For an expense described in one of the above categories, the
taxpayer must substantiate by adequate records or sufficient
evidence to corroborate the taxpayer’s own testimony: (1) The
amount of the expenditure or use applying the appropriate measure
(mileage may be used in the case of automobiles); (2) the time
and place of the expenditure or use; (3) the business purpose of
the expenditure or use; and (4) in the case of entertainment, the
business relationship to the taxpayer of each expenditure or use.
See sec. 274(d).
To meet the adequate records requirements of section 274, 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
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., 50 Fed. Reg. 46016 (Nov. 6, 1985).
In May 2008 petitioner reported to police that his
automobile had been broken into. Petitioner advised the police
that a jacket and a “briefcase full of documents” were stolen
from the car. Petitioner testified that his briefcase contained
- 6 -
his mileage log, which he had not yet submitted to the examiner.
Petitioner, however, attempted to recreate his mileage records.
Petitioner prepared for 2005 a handwritten numbered list
(list) of 14 addresses and 13 names. Most of the addresses have
beside them two factors that are multiplied to give a product
while all of the names have beside them but a single number.
Thirteen of the 14 addresses on the list are shown on a ledger
accompanying the list. The ledger contains, among other items,
the income earned from each sale of property at the addresses on
the list (the total sales comport with the amount reported as
gross receipts on Schedule C). Petitioner, to complete his
reconstruction, attached copies of Web pages from Internet
mapping sites that show the mileage from his home to most of the
places on the list. Similar documentation was provided for 2006.
Comparing the mileage from the Internet maps with the
factors on the list reveals that one of the two factors is
mileage. The other factor, where there is one, is apparently the
number of trips petitioner alleges that he made from his house to
each of the properties. There is no explanation as to how
petitioner arrived at multipliers representing the number of
trips alleged. There is no explanation of how he computed the
apparent mileage numbers for the items that lack a multiplier and
multiplicand. These flaws (and his failure to give the time of
use) preclude petitioner’s documentation from reaching the “high
- 7 -
degree of probative value to elevate” his statements to the level
of credibility of a contemporaneous record. Sec. 1.274-5T(c)(1),
Temporary Income Tax Regs., supra. But that is not the only
problem petitioner faces.
Generally, expenses that a taxpayer incurs in commuting
between his home and place of business are personal and
nondeductible. See Commissioner v. Flowers, 326 U.S. 465, 473-
474 (1946); Heuer v. Commissioner, 32 T.C. 947, 951 (1959), affd.
per curiam 283 F.2d 865 (5th Cir. 1960); secs. 1.162-2(e), 1.262-
1(b)(5), Income Tax Regs. Expenses incurred, however, in going
between two or more places of business may be deductible as
ordinary and necessary business expenses under section 162 if
incurred for business reasons. See Steinhort v. Commissioner,
335 F.2d 496, 503-504 (5th Cir. 1964), affg. T.C. Memo. 1962-233;
Heuer v. Commissioner, supra at 953.
Where a taxpayer attempts to deduct the expenses of
traveling between two places of business, one of which is an
office in his home, such office must be the taxpayer’s principal
place of business for the trade or business conducted by the
taxpayer at those other work locations. See Strohmaier v.
Commissioner, 113 T.C. 106 (1999); Curphey v. Commissioner, 73
T.C. 766, 777-778 (1980). On his Schedules C for 2005 and 2006,
line 30, “Expenses for business use of your home”, petitioner
listed $0. Even if the Court accepted petitioner’s
- 8 -
reconstruction of his mileage, he offered no evidence and made no
argument that his home was his “principal place of business”.
See Commissioner v. Soliman, 506 U.S. 168, 175-177 (1993).
The Court concludes that petitioner is not entitled to
transportation expenses in excess of those respondent already
allowed.
Accuracy-Related Penalty
Section 7491(c) imposes on the Commissioner the burden of
production in any court proceeding with respect to the liability
of any individual for penalties and additions to tax. Higbee v.
Commissioner, 116 T.C. 438, 446 (2001); Trowbridge v.
Commissioner, T.C. Memo. 2003-164. In order to meet the burden
of production under section 7491(c), the Commissioner need only
make a prima facie case that imposition of the penalty or
addition to tax is appropriate. Higbee v. Commissioner, supra at
446.
Respondent determined that for both 2005 and 2006,
petitioner underpaid a portion of his income taxes due to
negligence or intentional disregard of rules and regulations.
Section 6662(a) and (b)(1) imposes a penalty equal to 20 percent
of the portion of the underpayment attributable to negligence or
disregard of rules or regulations.
Negligence is defined as any failure to make a reasonable
attempt to comply with the provisions of the Internal Revenue
- 9 -
Code, and the term “disregard” includes any careless, reckless,
or intentional disregard. See sec. 6662(c). Negligence also
includes any failure by the taxpayer to keep adequate books and
records or to substantiate items properly. Sec. 1.6662-3(b)(1),
Income Tax Regs.
The accuracy-related penalties will apply unless petitioner
has demonstrated that there was reasonable cause for the
underpayment and that he acted in good faith with respect to the
underpayment. See sec. 6664(c). Section 1.6664-4(b)(1), Income
Tax Regs., specifically provides: “Circumstances that may
indicate reasonable cause and good faith include an honest
misunderstanding of fact or law that is reasonable in light of
* * * the experience, knowledge, and education of the taxpayer.”
Petitioner has not demonstrated that there was reasonable
cause for the underpayment and that he acted in good faith with
respect to the underpayment. Respondent’s determinations of
accuracy-related penalties under section 6662(a) for 2005 and
2006 are sustained.
To reflect the foregoing,
Decision will be entered
under Rule 155.