T.C. Summary Opinion 2010-131
UNITED STATES TAX COURT
TONI MARIE OGNIBENE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24828-08S. Filed September 7, 2010.
Toni Marie Ognibene, pro se.
Nicholas Doukas, for respondent.
ARMEN, 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.1 Pursuant to section
7463(b), the decision to be entered is not reviewable by any
1
Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for 2005,
the taxable year in issue, and all 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.
Respondent determined a deficiency in petitioner’s 2005
Federal income tax of $2,961.
The issue for decision is whether petitioner is entitled to
various Schedule A and Schedule C deductions that respondent
disallowed for lack of substantiation. We hold that she is not.
Background
The parties stipulated only to venue and to copies of
petitioner’s 2005 Federal income tax return and respondent’s
notice of deficiency. The fact stipulated is so found, and we
incorporate by reference the parties’ stipulation of facts and
its two accompanying exhibits.
Petitioner resided in the State of California when the
petition was filed.
During 2005, the taxable year in issue, petitioner lived in
Los Angeles, California, and worked downtown, presumably on a
full-time basis, for Ancillary Care Management, Inc. (Ancillary
Care), “doing third-party health care coordination”.2
In addition to her employment, petitioner engaged in “mobile
tutoring”, which petitioner described as “a tutoring business,
for ages kindergarten through senior year of high school,
2
As further described by petitioner: “My responsibilities
was [sic]--it was coordination and fixing of paperless claims
through Blue Cross/Blue Shield.”
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teaching anything from reading to SATs.” As a “mobile tutor”,
petitioner traveled between Los Angeles, where she had
“approximately” two students, and Fresno, where she had
“approximately” three students. “I would drive back and forth,
which is about 317 miles one way, tutoring students from SATs to
reading.” Petitioner drove between Los Angeles and Fresno
“nearly every weekend” using her only personal vehicle, a Ford
Explorer SUV, which “takes a great deal of fuel.”
Petitioner tutored “for 1 hour at a time” but did not always
get paid because, as petitioner explained: “there were times
where the client couldn’t pay, where the parents were just unable
to.” Petitioner’s fee “per session was about $15, $10,
averaging”.
During 2005, petitioner maintained a checking account, and
she regularly used a debit card “so all transactions are logged.”
Petitioner filed a Federal income tax return for 2005. On
her return, petitioner listed her occupation as “finance”, and
she reported negative taxable income, which was occasioned
principally by itemized deductions of $22,000 claimed on a
Schedule A, Itemized Deductions, and a net loss of $18,149
claimed on a Schedule C, Profit or Loss From Business.
On her Schedule A, petitioner claimed the following
deductions:
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Medical/Dental $ 3,539
less: 7½% AGI - 1,002 $ 2,537
Taxes 1,163
Charity
cash or check 4,372
property 350
carryover from prior year 462 5,184
Job Expenses & Tax Prep fees
employee expenses 13,303
tax preparation fees 80
13,383
less: 2% AGI -267 13,116
Total Itemized Deductions $22,000
In support of the $13,303 deduction claimed for job
expenses, petitioner attached to her return a Form 2106, Employee
Business Expenses. On that form, petitioner claimed the
following:
Vehicle expense $ 7,838
Other business expenses 5,228
Meals/entertainment
total $474
less: 50% -237 237
Total $13,303
Petitioner claimed a vehicle expense of $7,838 based on
“actual expenses”, which petitioner computed as follows:
Gasoline, oil repairs
insurance, etc. $7,801
x business use percentage x 81.850%
6,385
+ depreciation 1,453
Total $7,838
Petitioner computed the business use percentage of 81.85 as
follows:
Total miles driven in 2005 50,298
less: commuting miles -4,025
other nonbusiness miles -5,106
Business miles 41,167
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Percentage of business use:
41,167mi. ÷ 50,298mi. 81.850%
Petitioner computed depreciation based on a vehicle cost of
$29,995 and a vehicle placed-in-service date of May 23, 2002.
Petitioner attached to her return a Form 4562, Depreciation
and Amortization, regarding the aforementioned depreciation
deduction of $1,453, as well as a second depreciation deduction
of $558 that was apparently subsumed in the category of “Other
business expenses” on the Form 2106. The Form 4562 reflected the
following:
Business Use Depreciation
Property Service date Percentage Cost Basis Deduction
Ford Explorer May 23, 2002 81.850 $29,995 $1,453
Dell computer Jan 01, 2004 70.000 3,560 558
$2,011
On her Schedule C for her “mobile tutoring business”,
petitioner reported gross receipts of $445 and claimed total
expenses of $18,594, for a net loss of $18,149. Chief among the
claimed expenses were the following two:
Car and truck expenses $14,368
Depreciation 2,654
Petitioner did not complete Part IV of Schedule C regarding
“Information on Your Vehicle” in support of the deduction for car
and truck expenses of $14,368. But in support of the
depreciation deduction of $2,654, petitioner attached to her
return a second Form 4562, Depreciation and Amortization,
reporting the following:
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Business Use Depreciation
Property Service date Percentage Cost Basis Deduction
Ford Explorer May 23, 2002 91.610 $29,995 $1,626
Dell computer Jan 01, 2004 100.000 3,560 1,028
$2,654
In the notice of deficiency, respondent disallowed, for lack
of substantiation, deductions claimed by petitioner on Schedule A
for medical and dental expenses, charitable contributions, and
employee business expenses. Respondent did not specifically
disallow the deduction claimed for taxes paid; however, that
deduction was less than the standard deduction, so respondent
allowed the latter instead as it was more advantageous to
petitioner. See sec. 63(c). Respondent appears to have
disallowed the deduction claimed for tax prep fees only because
it did not exceed 2 percent of petitioner’s adjusted gross
income. See sec. 67(a).
Also in the notice of deficiency, respondent disallowed, for
lack of substantiation, deductions claimed by petitioner on
Schedule C for car and truck expenses and depreciation.
Discussion
Burden of Proof
Generally, the Commissioner’s determinations are presumed
correct, and the taxpayer bears the burden of proving that those
determinations are erroneous. Rule 142(a); INDOPCO, Inc. v.
Commissioner, 503 U.S. 79, 84 (1992); Welch v. Helvering, 290
U.S. 111, 115 (1933). Specifically, deductions are a matter of
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legislative grace, and the taxpayer bears the burden of proving
entitlement to any deduction claimed. Rule 142(a); Deputy v. du
Pont, 308 U.S. 488, 493 (1940); New Colonial Ice Co. v.
Helvering, 292 U.S. 435, 440 (1934). Although section 7491(a)
may serve to shift the burden of proof to the Commissioner under
certain circumstances, it does not do so here for at least three
reasons: Petitioner failed to raise the matter; petitioner
failed to comply with substantiation requirements and to
cooperate with reasonable requests by respondent, see sec.
7491(a)(2)(A) and (B); and petitioner failed to introduce
credible evidence, see sec. 7491(a)(1). Accordingly, petitioner
bears the burden of proof.
Principles Governing Substantiation
Contrary to petitioner’s apparent view, the fact that a
taxpayer reports a deduction on the taxpayer’s income tax return
and attaches some IRS-prescribed form in support of that
deduction is not sufficient to substantiate the deduction claimed
on the return. Wilkinson v. Commissioner, 71 T.C. 633, 639
(1979); Roberts v. Commissioner, 62 T.C. 834, 837 (1974). A tax
return is merely a statement of the taxpayer’s claim; the return
is not presumed to be correct. Wilkinson v. Commissioner, supra
at 639; Roberts v. Commissioner, supra at 837; see also Seaboard
Commercial Corp. v. Commissioner, 28 T.C. 1034, 1051 (1957) (a
taxpayer’s income tax return is a self-serving declaration that
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may not be accepted as proof for the deduction or exclusion
claimed by the taxpayer); Halle v. Commissioner, 7 T.C. 245
(1946) (a taxpayer’s return is not self-proving as to the truth
of its contents), affd. 175 F.2d 500 (2d Cir. 1949).
A taxpayer is required to maintain records sufficient to
substantiate deductions claimed by the taxpayer on his or her
return. See generally sec. 6001 (“Every person liable for any
tax imposed by this title, or for the collection thereof, shall
keep such records * * * and comply with such rules and
regulations as the Secretary may from time to time prescribe.”);
sec. 1.6001-1(a), Income Tax Regs. (“Any person subject to tax *
* * shall keep such permanent books of account or records * * *
as are sufficient to establish the amount of * * * deductions.”);
sec. 1.6001-1(e), Income Tax Regs. (“The books or records
required by this section shall be kept at all times available for
inspection by authorized internal revenue officers or employees,
and shall be retained so long as the contents thereof may become
material in the administration of any internal revenue law.”).
As a general rule, if, in the absence of such records, a
taxpayer provides sufficient evidence that the taxpayer has
incurred a deductible expense, but the taxpayer is unable to
adequately substantiate the amount of the deduction to which he
or she is otherwise entitled, the Court may estimate the amount
of such expense and allow the deduction to that extent. Cohan v.
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Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). However, in
order for the Court to estimate the amount of an expense, we must
have some basis upon which an estimate may be made. Vanicek v.
Commissioner, 85 T.C. 731, 743 (1985). Without such a basis, any
allowance would amount to unguided largesse. Williams v. United
States, 245 F.2d 559, 560 (5th Cir. 1957).
However, in the case of certain expenses, section 274(d)
overrides the so-called Cohan doctrine. 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). Specifically, and as pertinent herein,
section 274(d) provides that no deduction is allowable for
traveling expenses (including meals and lodging while away from
home) or entertainment expenses or with respect to listed
property as defined in section 280F(d)(4), unless the deduction
is substantiated in accordance with the strict substantiation
requirements of section 274(d) and the regulations promulgated
thereunder.3 Included within the definition of listed property
3
Sec. 274(d) provides in pertinent part as follows:
SEC. 274. Disallowance of Certain Entertainment, Etc. Expenses.
(d) Substantiation required.-–No deduction or credit shall
be allowed--
(1) * * * for any traveling expense (including meals
and lodging while away from home,
(2) for any item with respect to an activity which is
of a type generally considered to constitute entertainment,
amusement, or recreation, * * *
(continued...)
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in section 280F(d)(4) is any passenger automobile or other
property used as a means of transportation and any computer.
Sec. 280F(d)(4)(A)(i), (ii), (iv), (5); sec. 1.280F-6(b) and (c),
Income Tax Regs.
Thus, under section 274(d), no deduction is allowable for
expenses incurred in respect of listed property on the basis of
any approximation or the unsupported testimony of the taxpayer.
See, e.g., Murata v. Commissioner, T.C. Memo. 1996-321; Golden v.
Commissioner, T.C. Memo. 1993-602. In other words, in the
absence of adequate records or sufficient evidence corroborating
the taxpayer’s own statement, any deduction that is subject to
the stringent substantiation requirements of section 274(d) is
proscribed.
3
(...continued)
(3) for any expense for gifts, or
(4) with respect to any listed property (as defined in
section 280F(d)(4)),
unless the taxpayer substantiates by adequate records or by
sufficient evidence corroborating the taxpayer's own statement
(A) the amount of such expense or other item, (B) the time and
place of the travel, entertainment, amusement, recreation, or use
of the facility or property, or the date and description of the
gift, (C) the business purpose of the expense or other item, and
(D) the business relationship to the taxpayer of persons
entertained, using the facility or property, or receiving the
gift * * *.
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Analysis
Schedule A Deduction for Medical and Dental Expenses
Petitioner introduced no documentary evidence whatsoever
regarding the claimed deduction. The sum total of petitioner’s
testimonial evidence on this issue was as follows:
PETITIONER: The medical and dental expenses were
-- I paid cash for my -- they are for copay visits, as
well as the cost of lingual braces, which was $10,000,
as well as the cost for the regular visits. I go to a
psychiatrist, as well as pay for my medication out of
cash. My insurance premiums were extremely high that
year. So all my medical expenses are paid from cash
out of -- per my employer.
* * * * * * *
THE COURT: * * * So the medical providers would
take a debit card?
PETITIONER: Yes. * * * And their charts upon --
indicated for a copay -- so a dermatologist,
ophthalmologist for contact lenses, psychiatrist,
orthodontist, dentist, and dermatologist, a second
dermatologist, a surgeon. * * * All specialists. * * *
And the deduction indicates the cost for copay, the
cost of prescriptions, the cost of optical lenses, the
cost of lingual braces, extractions, cleanings, for
each of those, which are -- which are indicated on --
in my checking -- checking account statements, which
can be substantiated.
As previously stated, petitioner did not introduce her
checking account statements, or any other documentary evidence,
in support of the claimed deduction. Although we are willing to
accept petitioner’s testimony that copays were incurred in
consulting with specialists, there is no support in the record
for a finding that allowable medical and dental expenses exceed
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the statutory threshold of 7.5 percent of adjusted gross income
as required by section 213(a). See Williams v. United States,
supra at 560; Vanicek v. Commissioner, supra at 743.
Respondent’s disallowance determination is therefore sustained.
Schedule A Deduction for Charitable Contributions
Petitioner introduced no documentary evidence whatsoever
regarding the claimed deduction.4 And petitioner did not even
testify regarding the “carryover from prior year”. Regarding
contributions in 2005, petitioner’s testimony was, at best, vague
regarding the beneficiaries of her largesse and specific amounts
4
Substantiation requirements for 2005 that are
specifically applicable to deductions of charitable contributions
are succinctly summarized in Freedman v. Commissioner, T.C. Memo.
2010-155, as follows:
A taxpayer claiming a charitable contribution of money
is generally required to maintain for each contribution
a canceled check, a receipt from the donee charitable
organization showing the name of the organization and
the date and amount of the contribution, or other
reliable written records showing the name of the donee,
the date, and amount of the contribution. Sec. 1.170A-
13(a)(1), Income Tax Regs. Factors that indicate
reliability include, but are not limited to, the
contemporaneous nature of the writing, the regularity
of the taxpayer’s recordkeeping procedures, and the
existence of any other evidence from the donee
charitable organization evidencing receipt. Sec.
1.170A-13(a)(2), Income Tax Regs. In addition, no
deduction is allowed, for any contribution of $250 or
more unless the taxpayer substantiates the contribution
by a contemporaneous written acknowledgment by a
qualified donee organization. Sec. 170(f)(8)(A).
[Fn. ref. omitted.]
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donated. The sum total of petitioner’s testimonial evidence on
this issue was as follows:
PETITIONER: Contributions were for -- were for
traveling back and forth to Team in Training, which was
a marathon. I worked with the local chapter. I do
have statements of just cash donations. The other cash
donations were in terms of paying for rides, working
with my Los Angeles Church, which was Valley
Presbyterian Church, working with a high school group.
So the second organization that I worked with was
Valley Presbyterian. That was taking -- I worked with
a junior high group, mentoring them. So I -- the cost
of fuel and -- which can be substantiated with Well
Fargo checking accounts.
As previously stated, petitioner did not introduce her Wells
Fargo checking accounts, or any other documentary evidence, in
support of the claimed deduction. Although we are willing to
accept petitioner’s testimony that she made charitable
contributions, there is no support in the record for a finding
that allowable contributions, in combination with other allowable
itemized deductions, exceed the standard deduction. See Williams
v. United States, 245 F.2d at 560; Vanicek v. Commissioner, 85
T.C. at 743. Respondent’s disallowance determination is
therefore sustained.
Schedule A Deduction for Employee Business Expenses
According to petitioner’s return, the $13,303 deduction for
employee business expenses consisted of vehicle expense of $7,838
and “other business expenses” of $5,228. Other than depreciation
of $558 on a Dell computer, the return does not identify the
other components of “other business expenses”. At trial,
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petitioner attempted to explain; the sum total of her testimony
in that regard was as follows:
PETITIONER: One of them is -- one of them was for
travel to Minnesota, which was -- which was for
business deductions.[5] They were travel back and forth
to several of our locations. We had to pay for parking
on our own without reimbursement, which was $170 --
which was -- I’m sorry -- $72 -- $72 a month to pay for
parking that was not reimbursed, the use of my own
computer, which was also included with that, and the
cost to furnish my own supplies for that same business,
as we ran out of money that year.[6]
Most of the claimed deduction for employee business expenses
is subject to the strict substantiation requirements of section
274(d) because the expenses relate to petitioner’s vehicle,
traveling expenses, or meals and entertainment. Suffice it to
say that the record includes no documentation substantiating such
expenses,7 and petitioner’s testimony is no substitute for such
5
We infer from this testimony, as well as petitioner’s
Form W-2, Wage and Tax Statement, that the home office or
headquarters of petitioner’s employer, Ancillary Care, was
located in Minnesota.
6
“That same business” refers to the business of
petitioner’s employer, Ancillary Care.
7
At trial, a small spiral notebook was marked for
identification and moved by petitioner for admission into
evidence. Counsel for respondent objected on the grounds that
petitioner had not previously made such notebook available to the
examining agent, that after calendar call on the first day of the
trial session petitioner had declined to permit an Appeals
officer to review the notebook, and that on the morning of the
second day of the trial session petitioner had declined to meet
with the Appeals officer to go over the notebook and whatever
other records petitioner might have. After a prolonged voir dire
of the Appeals officer by both parties, the Court sustained
(continued...)
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documentation.8 Without the requisite documentation, no deduction
is allowable.
Regarding that part of the claimed deduction that might not
be subject to the strict substantiation requirements of section
274(d), suffice it to say that there is no support in the record
for a finding that allowable expenses exceed the statutory
threshold of 2 percent of adjusted gross income as required by
section 67(a) or, to the extent that such threshold might be
exceeded, that such excess, in combination with other allowable
itemized deductions, exceeds the standard deduction for the year.
See Williams v. United States, supra at 560; Vanicek v.
Commissioner, supra at 743.
In view of the foregoing, respondent’s disallowance
determination is sustained.
Schedule C Deductions
The claimed Schedule C deductions are subject to the strict
substantiation requirements of section 274(d) because they relate
to petitioner’s vehicle and computer, both of which are listed
property. Suffice it to say that the record includes no
7
(...continued)
counsel’s objection, and the notebook was not admitted into
evidence.
8
Because we hold that petitioner failed to satisfy the
strict substantiation requirements of sec. 274(d) and is
therefore not entitled to the deductions in issue on that basis,
we need not discuss the duplication of deductions most obviously
revealed in petitioner’s two Forms 4562.
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documentation substantiating such expenses, and petitioner’s
testimony is no substitute for such documentation.9 Without the
requisite documentation, no deduction is allowable. Respondent’s
disallowance determination is therefore sustained.
Conclusion
Petitioner failed to prove that she is entitled to any of
the deductions in issue. Respondent’s deficiency determination
is therefore sustained.
To reflect the foregoing,
Decision will be entered
for respondent.
9
See supra notes 7 and 8.