T.C. Summary Opinion 2010-178
UNITED STATES TAX COURT
IRAJ MAHDAVI, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 23188-09S. Filed December 29, 2010.
Iraj Mahdavi, pro se.
Mistala G. Merchant, 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 the
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 2006
Federal income tax of $3,185. The issue for decision is whether
petitioner is entitled to a deduction for car and truck expenses
claimed on a Schedule C, Profit or Loss From Business. We hold
that petitioner is not entitled to such deduction.
Background
Some of the facts have been stipulated, and they are so
found. We incorporate by reference the parties’ stipulation of
facts and accompanying exhibits. Petitioner resided in Orange
County, California, when the petition was filed.
During 2006 petitioner worked as a university professor for
two different for-profit institutions in southern California
teaching business management at the graduate and undergraduate
levels. Most of the courses petitioner taught were on an
accelerated basis with some courses lasting 1 month and others 7-
1/2 weeks.
In addition to his teaching, petitioner had a Schedule C
property management and real estate brokerage business.
Petitioner obtained his real estate license in 1989 and his real
estate brokerage license in 1991. Since petitioner has been
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pursuing his real estate business he has never turned a profit.2
At trial petitioner explained that his real estate business “is
not a * * * regular real estate business * * * [but] a brokerage
for investment and large property.” Petitioner further explained
that he must
look for important, large properties, investigate them,
put as much information about them as possible
together, and then present it to clients, clients who
may be all over California. Some of them are even
outside of California. But in order to do that, I need
to have a good look at the property.
Most of the time petitioner would “look for property and then
find a client to match it”, but sometimes he “had some clients
who would be looking for certain things” and then he “would go
out and look for those kinds of things.”
As a result of his real estate activity, petitioner drove
from his home in Orange County, California, to various locations
throughout the State of California. Petitioner maintained a
calendar on which he listed the purported destinations of his
travel and total miles driven. For example, in the month of
January petitioner’s calendar shows he drove from his home in
Orange County to San Francisco, Ventura, Palmdale, Redding, San
2
At trial respondent conceded that petitioner’s real
estate business was not an activity not engaged in for profit
within the meaning of sec. 183 and that the expenses in issue
were not startup expenses as defined in sec. 195.
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Jose, Julian, Apple Valley, Santa Barbara, and Fresno and made
two trips to Palm Springs for a claimed total of 5,498 miles.3
During 2006 petitioner used three vehicles for both business
and personal purposes. For the first part of the year petitioner
drove a Ford Thunderbird; the Ford Thunderbird was later traded
in for a Dodge Magnum, which was used for the remainder of the
year. In the latter part of the year petitioner also drove, in
addition to the Dodge Magnum, a Honda Civic, which was his
daughter’s vehicle.
On his 2006 Federal income tax return petitioner reported
wages of $60,566 attributable to his teaching activities.
Attached to petitioner’s return was a Schedule C for his property
management and real estate brokerage business. On the Schedule C
petitioner reported income of $1,980 but claimed a net loss of
$16,962, which resulted from a number of deductions, specifically
including $13,636 of car and truck expenses that consisted
entirely of mileage for petitioner’s real estate brokerage
activity. All of the income reported on the Schedule C was from
petitioner’s property management activity as petitioner did not
have any income from his real estate brokerage activity.
3
Petitioner’s calendar shows that on Jan. 13 he drove from
Orange County to Redding and that he returned to Orange County on
Jan. 14 for a claimed total of 1,280 miles. At an average of 60
miles per hour this would have necessitated driving over 21 hours
in a 2-day period; thus the Court wonders how petitioner could
have had “a good look at the property”.
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In the notice of deficiency, respondent disallowed the
deduction of $13,636 claimed by petitioner for car and truck
expenses on the Schedule C.
Discussion
Generally, the Commissioner’s determinations are presumed
correct, and the taxpayer bears the burden of proving that those
determinations are erroneous. Rule 142(a); Welch v. Helvering,
290 U.S. 111, 115 (1933); cf. sec. 7491(a)(1) (applicable only
if, inter alia, the taxpayer has both complied with the
requirements to substantiate an item, sec. 7491(a)(2)(A), and
maintained all records required under the Internal Revenue Code,
sec. 7491(a)(2)(B)).
Deductions are strictly a matter of legislative grace, and a
taxpayer bears the burden of proving his or her entitlement to
the deductions claimed. Rule 142(a); INDOPCO, Inc. v.
Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v.
Helvering, 292 U.S. 435, 440 (1934). This includes the burden of
substantiation. Hradesky v. Commissioner, 65 T.C. 87, 90 (1975),
affd. per curiam 540 F.2d 821 (5th Cir. 1976).
Section 6001 further requires taxpayers to maintain books
and records sufficient to substantiate the amounts of the
deductions claimed. Sec. 1.6001-1(a), (e), Income Tax Regs. If
a taxpayer is unable to fully substantiate the expenses incurred,
but there is evidence that deductible expenses were incurred, the
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Court may under certain circumstances allow a deduction based
upon an approximation of expenses. Cohan v. Commissioner, 39
F.2d 540, 544 (2d Cir. 1930). But see Williams v. United States,
245 F.2d 559, 560-561 (5th Cir. 1957); Vanicek v. Commissioner,
85 T.C. 731, 742-743 (1985).
However, in the case of expenses relating to the use of
listed property, specifically including any passenger automobile
or other property used as a means of transportation, section
274(d) imposes stringent substantiation requirements to document
the nature and amount of such expenses. Sec. 280F(d)(4)(A)(i)
and (ii), (5); Sanford v. Commissioner, 50 T.C. 823, 827 (1968),
affd. per curiam 412 F.2d 201 (2d Cir. 1969); Larson v.
Commissioner, T.C. Memo. 2008-187; sec. 1.274-5T(a), Temporary
Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985) (expressly
superseding the so-called Cohan rule and making it inapplicable).
Thus, in order to satisfy these strict substantiation
requirements, the taxpayer must maintain adequate records or
sufficient corroborating evidence to establish each element of an
expenditure. Sec. 274(d); sec. 1.274-5T(b)(6), (c)(2)(i),
Temporary Income Tax Regs., 50 Fed. Reg. 46016, 46017 (Nov. 6,
1985). Elements of an expenditure include: (1) The amount of
such expense; (2) the time and place of the expense; and (3) the
business purpose of the expense. Sec. 274(d). If the listed
property is used for both personal and business purposes,
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deductions are disallowed unless a taxpayer establishes the
amount of the business use of the property in question. Kinney
v. Commissioner, T.C. Memo. 2008-287; sec. 1.274-5T(b)(6)(i)(B),
Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).
On his 2006 return, petitioner claimed a deduction for car
and truck expenses of $13,636. The only documentation petitioner
maintained as a mileage log was the calendar on which he wrote
the destination to which he drove and the number of miles driven.
The destination descriptions are vague and generic in nature,
listing just a city name. A business purpose for the miles
driven is noticeably absent, and no client identification is
provided.
Undoubtedly, petitioner used his vehicles for business
purposes during the year in issue. However, we are unable to
find that petitioner’s calendar is sufficient to constitute a
mileage log for purposes of section 274(d). Thus, we conclude
that petitioner’s mileage log is not an adequate record, within
the meaning of section 274(d) and the regulations thereunder, of
mileage expenses and that petitioner has failed to provide other
corroborative evidence sufficient to establish that he has met
the requirements of that section. See also Tokarski v.
Commissioner, 87 T.C. 74, 77 (1986). Accordingly, we sustain
respondent’s determination disallowing the deductions for car and
truck expenses claimed by petitioner on his 2006 tax return.
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Conclusion
We have considered all of the arguments made by petitioner
and, to the extent that we have not specifically addressed those
arguments, we conclude that they are without merit.
To reflect our disposition of the disputed issue,
Decision will be entered
for respondent.