T.C. Summary Opinion 2011-4
UNITED STATES TAX COURT
GORDON ASBURY SANFORD, JR., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11539-08S. Filed January 18, 2011.
Gordon Asbury Sanford, Jr., pro se.
Shannon Edelstone, for respondent.
PANUTHOS, Chief 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
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue. All
Rule references are to the Tax Court Rules of Practice and
Procedure.
- 2 -
any other court, and this opinion shall not be treated as
precedent for any other case.
Respondent determined a deficiency of $12,264 in
petitioner’s 2005 Federal income tax as well as a section
6651(a)(1) addition to tax of $2,469 for failure to file a
Federal income tax return and a section 6662(a) accuracy-related
penalty of $2,452. After concessions,2 the issues for decision
are: (1) Whether petitioner is entitled to certain deductions
claimed on Schedule A, Itemized Deductions; (2) whether
petitioner is entitled to certain deductions claimed on Schedule
C, Profit or Loss From Business; (3) whether petitioner is liable
for the section 6651(a)(1) addition to tax; and (4) whether
petitioner is liable for the section 6662(a) accuracy-related
penalty.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. Petitioner resided in
California at the time the petition was filed.
Petitioner worked as a government marine biologist for 25
years. After retiring from the government, petitioner became a
forensic science teacher. During the year at issue he taught
science at both the high school and college levels. In 2005
2
See infra note 4.
- 3 -
petitioner taught for four different schools: Irvington High
School, Mission Valley Regional Occupational Program, Central
County Occupational Center, and West Valley College. At
Irvington High School petitioner taught forensics and other
science classes.3 For each of the other schools petitioner
taught only forensics. Each school had its own small budget, and
petitioner was reimbursed by each school for his expenses up to
the budget cap. Petitioner could not seek reimbursement for
amounts expended in excess of each school’s budget. Petitioner
spent personal funds in his teaching activity.
Petitioner also incurred unreimbursed expenses for
continuing education and to maintain professional licenses.
Petitioner maintained professional licenses in several areas,
including crime scene investigation, certified governmental
science, and marine and environmental sciences. The professional
credentials were necessary for petitioner to continue teaching
forensics as an occupational teacher. In 2005 petitioner
traveled to conferences in Baldwin Park, California; Palm
Springs, California; Washington, D.C.; and Gainesville, Florida.
In addition to being a teacher, petitioner was a certified
scuba instructor. Petitioner has been certified for over 30
years, teaching scuba, underwater photography, marine research,
3
The classes funded by Mission Valley Regional Occupational
Program were also taught at Irvington High School.
- 4 -
wreck diving, coral reef ecology, and fish identification. In
order to maintain an active scuba instructor’s license,
petitioner was required to certify others in scuba. In addition
to certifying others to dive, petitioner led dive trips for
students from his science classes and other individuals. On
these trips petitioner often dove with an underwater camera. He
would photograph the other divers and sea life. Petitioner would
then make photo CDs for the divers and send photo postcards to
the divers’ homes or businesses as keepsakes from the trip. When
diving for personal recreation, petitioner did not carry an
underwater camera.
Petitioner was separated from his wife in 2005, and he and
his wife were divorced sometime thereafter. Petitioner’s wife
took many of petitioner’s expense records when she left the
marital home. Petitioner did not file his 2005 Federal income
tax return until December 19, 2006.
Petitioner filed both a Schedule A and a Schedule C with his
2005 Federal income tax return. The deductions he claimed were
as follows:4
4
Petitioner conceded that he is not entitled to a deduction
for legal and professional service expenses of $7,637, commission
and fee expenses of $11,210, or travel expenses of $9,719.
Petitioner did not provide any evidence at trial to substantiate
his disallowed tuition and fee expenses. Therefore, those items
are deemed conceded. See Rule 149(b). Although petitioner did
substantiate expenses for professional licenses, respondent
(continued...)
- 5 -
Schedule A
Amount
Expense Amount Claimed Disallowed Amount Allowed
Medical and
Dental $3,829 $3,829 -0-
Taxes 2,744 -0- $2,744
Interest 6,248 -0- 6,248
Miscellaneous
Deductions 455 455 -0-
Schedule C
Amount
Expense Amount Claimed Disallowed Amount Allowed
Advertising $147 -0- $147
Car and truck 5,583 $5,583 -0-
Commissions and
fees 11,210 11,210 -0-
Legal and
professional
services 7,637 7,637 -0-
Rent or lease-- -0-
other business
property 2,848 2,848
Repairs and
maintenance 2,040 2,040 -0-
Supplies 10,913 10,913 -0-
Taxes and
licenses 710 -0- 710
Travel, meals and 14,354
entertainment (travel) 14,354 -0-
1,279
(meals and
entertainment) 1,279 -0-
Other expenses 2,758 -0- 2,758
4
(...continued)
allowed those expenses; so we will not discuss them here.
- 6 -
Discussion
In general, the Commissioner’s determination set forth in a
notice of deficiency is presumed correct, and the taxpayer bears
the burden of showing that the determination is in error. Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Pursuant
to section 7491(a), the burden of proof as to factual matters
shifts to the Commissioner under certain circumstances.
Petitioner did not allege that section 7491(a) applies. See sec.
7491(a)(2)(A) and (B). Therefore, petitioner bears the burden of
proof. See Rule 142(a).
I. Deductions
Deductions are allowed solely as a matter of legislative
grace, and the taxpayer bears the burden of proving his
entitlement to them. 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). The taxpayer also bears the burden of
substantiating claimed deductions. Sec. 6001; Hradesky v.
Commissioner, 65 T.C. 87, 89 (1975), affd. per curiam 540 F.2d
821 (5th Cir. 1976).
The fact that a taxpayer claims a deduction on his income
tax return is not sufficient to substantiate it. Wilkinson v.
Commissioner, 71 T.C. 633, 639 (1979); Roberts v. Commissioner,
62 T.C. 834, 837 (1974). Rather, an income tax return is merely
a statement of the taxpayer’s claim; it is not presumed to be
- 7 -
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 may not be accepted as
proof for the claimed deduction or exclusion); Halle v.
Commissioner, 7 T.C. 245 (1946) (a taxpayer’s income tax return
is not self-proving as to the truth of its contents), affd. 175
F.2d 500 (2d Cir. 1949).
Section 162(a) allows a deduction for ordinary and necessary
business expenses paid or incurred during the taxable year in
carrying on any trade or business. In order for an expense to be
“necessary”, it must be “appropriate and helpful” to the
taxpayer’s business. Welch v. Helvering, supra at 113-114. An
expense will be considered “ordinary” if it is a common or
frequent occurrence in the type of business in which the taxpayer
is involved. Deputy v. du Pont, 308 U.S. 488, 495 (1940).
A. Petitioner’s Schedule A
Petitioner deducted several expenses related to his job as a
forensic science teacher.5 The performance of services as an
employee is considered a trade or business for section 162
purposes. Primuth v. Commissioner, 54 T.C. 374, 377 (1970).
5
Petitioner claimed these expense deductions on his Schedule
C. We shall discuss them here because the deductions are
unreimbursed employee expenses and should have been properly
claimed on Schedule A.
- 8 -
“An employee’s trade or business is earning his compensation, and
generally only those expenses that are related to the
continuation of his employment are deductible.” Tesar v.
Commissioner, T.C. Memo. 1997-207 (citing Noland v. Commissioner,
269 F.2d 108, 111 (4th Cir. 1959), affg. T.C. Memo. 1958-60).
The first $250 of deductions for expenses paid or incurred
in connection with books, supplies, computer equipment, other
equipment, and supplementary materials used by an eligible
educator in the classroom is subtracted from gross income to
determine the taxpayer’s adjusted gross income. Sec.
62(a)(2)(D). Any substantiated expenses after the first $250
that relate to petitioner’s employment as a teacher will be
allowed as unreimbursed employee expenses to the extent that the
aggregate of such deductions exceeds 2 percent of adjusted gross
income for the taxable year. See secs. 62(a)(2)(D), 67(a),
162(a). To claim a deduction for teaching supplies, it is not
enough that the supplies be helpful to the students and
appropriate for use in the classroom; they must also be directly
related to the taxpayer’s job as a teacher and a necessary
expense of being a teacher. Wheatland v. Commissioner, T.C.
Memo. 1964-95.
In order to deduct unreimbursed employee expenses, a
taxpayer must not have received reimbursement and must not have
had the right to obtain reimbursement from his employer. Orvis
- 9 -
v. Commissioner, 788 F.2d 1406, 1408 (9th Cir. 1986), affg. T.C.
Memo. 1984-533; Leamy v. Commissioner, 85 T.C. 798, 810 (1985).
Petitioner credibly testified that once he was reimbursed to the
extent of the budget caps, the schools would not reimburse any
further expenditures.
At trial petitioner meticulously explained how most of his
receipts related to expenses that exceeded the budget each school
allotted. Although petitioner did submit some receipts for which
he claimed duplicate deductions,6 he did not submit any receipts
for which the schools had reimbursed him.
1. Expenses for Setting Up New Forensics Laboratory
Petitioner spent funds in excess of the budget allotted for
setting up and buying supplies for a new forensics laboratory for
Central County Occupational Center. He credibly testified and
produced two receipts for amounts spent at Home Depot for items
necessary to construct a new forensics laboratory. One receipt
was for $40 for the supplies needed to build an outside sink for
the laboratory. The second receipt was for $190, but the list of
items purchased is illegible.
Section 6001 and the regulations promulgated thereunder
require taxpayers to maintain records sufficient to permit
6
Petitioner deducted some expenses as both repairs and
maintenance and supplies on his Schedule C.
- 10 -
verification of income and expenses. As a general rule, if the
trial record provides sufficient evidence that the taxpayer has
incurred a deductible expense but the taxpayer is unable to
adequately substantiate the precise amount of the deduction to
which he is otherwise entitled, the Court may estimate the amount
of the deductible expense and allow the deduction to that extent,
bearing heavily against the taxpayer whose inexactitude in
substantiating the amount of the expense is of his own making.
Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930).
However, in order for the Court to estimate the amount of an
expense, the Court must have some basis upon which an estimate
may be made. Vanicek v. Commissioner, 85 T.C. 731, 742-743
(1985). Without such a basis, any allowance would amount to
unguided largesse. Williams v. United States, 245 F.2d 559, 560-
561 (5th Cir. 1957).
We are satisfied that petitioner did spend his own funds for
the construction of a new laboratory. He converted an old
welding shop into a forensics laboratory. Using our best
judgment and the record before us, we estimate that petitioner
spent $142.50 (75 percent of the claimed amount of the second
receipt) at Home Depot on supplies for the new laboratory. See
Cohan v. Commissioner, supra at 543-544. Petitioner is entitled
to a deduction of $40 for the supplies for the outside sink and
$142.50 for the supplies from Home Depot.
- 11 -
2. Expenses for Classroom Supplies
Most of the receipts petitioner provided relate to supplies
that he purchased for the classroom. Costs of many of the
supplies purchased constitute ordinary and necessary expenses for
teaching forensics. Petitioner purchased plugs and cords for
microscopes, computers, and other electronic devices used in the
classroom; ink for the forensic lab printers; chalklines to
triangulate crime scenes; Super Glue for lifting fingerprints;
and a mobile cart and belts for tools used in the laboratory.
All of these items are directly related to petitioner’s job of
teaching forensics. See Wheatland v. Commissioner, supra.
Therefore, petitioner may deduct $543 for the above-mentioned
items.7
Petitioner also provided receipts for books that he
purchased for his classroom. He had a library of over 200 books
available to the students. Petitioner testified that the books
were for the students’ benefit to enhance their understanding of
forensics outside the classroom. No evidence was presented:
(1) That the books were used in the classroom, (2) whether the
schools provided any books for the students’ use during
7
Petitioner also provided receipts for miscellaneous items
such as photo paper from Costco, a Sandisk from Staples, 9-volt
batteries from Orchard Supply, and gum from Dick’s for which he
did not explain their use. Petitioner is not allowed to deduct
the expenses for these items.
- 12 -
petitioner’s classes, or (3) whether the schools required
petitioner to purchase the books. See Mann v. Commissioner, T.C.
Memo. 1993-201; Patterson v. Commissioner, T.C. Memo. 1971-234.
Without more evidence than what is in the record, the
expenditures for books were not directed or requested by the
schools and are not directly related to petitioner’s job as a
teacher. See Wheatland v. Commissioner, T.C. Memo. 1964-95.
Therefore, petitioner is not entitled to a deduction for the cost
of books for his classroom.
3. Professional Conferences
Petitioner traveled to four conferences in 2005 that related
to his employment as a teacher. He traveled to Baldwin Park,
California, for a National Science Association meeting; Palm
Springs, California, for a science teaching conference;
Washington, D.C., for a forensics conference; and the University
of Florida in Gainesville, Florida, for the “32nd Annual Florida
Medical Examiners Educational Conference”. Petitioner’s employer
reimbursed him for the expenses of one professional conference
per year. None of the conference expenses for which petitioner
presented evidence were reimbursed by his employer. Petitioner
provided some receipts for his travel, meals, lodging, and
registration fees for the conferences. In order to deduct
traveling expenses (including meals and lodging), petitioner must
substantiate the expenditures. See sec. 274(d). To substantiate
- 13 -
travel expense deductions under section 274(d), a taxpayer must
show by adequate records or by sufficient evidence corroborating
the taxpayer’s own statement: (1) The amount of the expense; (2)
the time and place of the travel; and (3) the business purpose of
the expense.
Each of petitioner’s conferences was necessary for him to
retain his professional credentials and was sufficiently related
to his job as a teacher. See sec. 1.162-2(d), Income Tax Regs.;
see also sec. 274(d). Petitioner provided receipts and credibly
testified that he spent $2,614 for travel, lodging, and
registration fees for the conferences he attended. Therefore,
petitioner is entitled to a deduction in that amount for travel
expenses, lodging expenses, and registration fees associated with
the conferences he attended in 2005. Petitioner also provided
receipts totaling $610 for meals during the conferences.
Petitioner is also entitled to deduct 50 percent, i.e. $305,
of the expenses for meals associated with the conferences. See
sec. 274(n)(1).
B. Petitioner’s Schedule C
In addition to his teaching career, petitioner conducted a
business certifying scuba divers and taking students and
individuals on scuba diving trips. He reported his profits and
losses from his business on Schedule C. Petitioner credibly
testified regarding several of the deductions he claimed for
- 14 -
expenses related to his scuba diving business. We will discuss
each type of expense in turn.
1. Car and Truck Expenses
Under section 162(a) an employee or self-employed taxpayer
may deduct the cost of operating an automobile to the extent it
is used in a trade or business. However, under section 262, no
portion of the cost of operating an automobile that is
attributable to personal use is deductible.
A passenger vehicle is listed property under section
280F(d)(4) and subject to strict substantiation under section
274(d). The rule in Cohan v. Commissioner, 39 F.2d 540 (2d Cir.
1930), does not apply to expenses related to listed property.
Sec. 274(d); Sanford v. Commissioner, 50 T.C. 823, 827-828
(1968), affd. per curiam 412 F.2d 201 (2d Cir. 1969). For listed
property, section 274(d) requires the taxpayer to adequately
substantiate: (1) The amount of the expense; (2) the amount of
each business use and total use (e.g., mileage for automobiles
and time for other listed property); (3) the time (i.e., date of
the expenditure or use); and (4) the business purpose of the
expense or use. Sec. 1.274-5T(b)(6), Temporary Income Tax Regs.,
50 Fed. Reg. 46016 (Nov. 6, 1985). In the absence of evidence
establishing the elements of the expenditure or use, deductions
are to be disallowed entirely. Sec. 274(d); Sanford v.
Commissioner, supra at 827; see also sec. 1.274-5T(a), Temporary
Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).
- 15 -
Petitioner owned four vehicles: A Cadillac used for his
wife’s dental business; a Lexus for personal use; a Blazer used
solely for petitioner’s scuba business; and a 1948 Plymouth.
Petitioner claimed $5,583 of car and truck expenses on his
Schedule C for use of the Blazer in 2005. He reported that he
drove 15,000 business miles. Petitioner did not present a
mileage log for 2005 and did not testify as to how he computed
the mileage. Petitioner is not allowed a deduction for any of
the mileage expenses he deducted for 2005. See sec. 274(d);
Sanford v. Commissioner, supra at 827; see also sec. 1.274-5T(a),
Temporary Income Tax Regs., supra.
Petitioner also presented receipts and testified regarding
repairs for the Blazer in 2005. Petitioner submitted receipts
for an oil change, wiper blades, and brake, relay fuel pump,
seatbelt, and air conditioning work totaling $1,721.8 Petitioner
is entitled to a deduction for vehicle expenses in that amount.
2. Rent or Lease--Other Business Property
Petitioner rented a storage unit for his scuba equipment.
He rented storage unit number 2031 (the storage unit) for the
entire year 2005. The rental fee for the storage unit increased
from $150 to $154 per month in July 2005. Petitioner submitted
8
Petitioner submitted a receipt for repair work from Central
County Occupational Center that is illegible; therefore, that
receipt is not included in the total amount of car and truck
expenses allowed. See Cohan v. Commissioner, 39 F.2d 540 (2d
Cir. 1930).
- 16 -
receipts for the cost of renting the storage unit for February
2005 through June 2005, totaling $750. Petitioner also paid $150
in rent for the storage unit in January 2005. Petitioner
submitted two receipts for renting the storage unit for October
and December 2005, at $154 a month. He also paid $154 a month in
rent for the storage unit in July, August, September, and
November 2005. In addition to the fee for the storage unit,
petitioner spent $353 for a lock for the storage unit after there
were several break-ins at the facility where he stored his scuba
equipment. Petitioner is entitled to a deduction of $2,177 for
the rent or lease of other business property.
3. Repairs and Maintenance
Petitioner provided receipts for the purchase and repair of
several pieces of equipment related to his scuba diving business.
Petitioner credibly testified about and matched all of the
receipts he presented with the claimed expenses. Petitioner
expended $1,317 for repairs to his underwater camera equipment.
He also expended $55 to have the lens in his dive mask repaired.
Petitioner also testified regarding and provided receipts
totaling $1,050 for repairs to a pool used for scuba classes.
The pool was used in petitioner’s business for students to
practice diving and use of the scuba gear. Petitioner is
entitled to a deduction of $2,422 for repairs and maintenance
expenses.
- 17 -
4. Travel, Meals, and Entertainment
Petitioner took three separate trips related to his scuba
diving business and presented receipts for his travel. He made
one trip to Desoto, Texas, to present information about scuba
trips to interested individuals and two trips to scuba shows in
Boston, Massachusetts, and Key Largo, Florida. He spent $306 for
transportation and $137 for lodging in Desoto; $88 for lodging in
Boston; and $953 for lodging and transportation and $422 for
meals in Key Largo. Petitioner is entitled to deductions for his
transportation and lodging and for 50 percent of his meals for
the above-mentioned scuba shows. See sec. 274(d), (n)(1).
II. Failure To File Addition to Tax
Section 6651(a)(1) imposes an addition to tax of 5 percent
per month of the amount of tax required to be shown on the
return, not to exceed 25 percent, for failure to timely file a
return. The addition to tax under section 6651(a)(1) is imposed
unless the taxpayer establishes that the failure to file was due
to reasonable cause and not willful neglect.9 Petitioner did not
file his 2005 Federal income tax return until December 19, 2006.
The record does not establish that petitioner’s failure to timely
file his 2005 Federal income tax return was due to reasonable
9
Sec. 7491(c) provides that the Commissioner has the burden
of production in any Court proceeding with respect to liability
for an addition to tax. Respondent established that the tax
return for 2005 was not timely filed.
- 18 -
cause and not willful neglect. Therefore, petitioner is liable
for the section 6651(a)(1) addition to tax.10
III. Accuracy-Related Penalty
Taxpayers may be liable for a 20-percent penalty on the
portion of an underpayment of tax attributable to negligence,
disregard of rules or regulations, or a substantial
understatement of income tax. Sec. 6662(a) and (b)(1) and (2).
The term “negligence” in section 6662(b)(1) includes any
failure to make a reasonable attempt to comply with the Internal
Revenue Code, and the term “disregard” includes any careless,
reckless, or intentional disregard. Sec. 6662(c). Negligence
has also been defined as the failure to exercise due care or the
failure to do what a reasonable person would do under the
circumstances. See Allen v. Commissioner, 92 T.C. 1, 12 (1989),
affd. 925 F.2d 348, 353 (9th Cir. 1991); Neely v. Commissioner,
85 T.C. 934, 947 (1985). 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. An “understatement of income tax” is substantial if it
10
Since we have allowed some deductions respondent
disallowed, the amount of tax required to be shown on
petitioner’s 2005 Federal income tax return will be different
from the amount shown on the notice of deficiency. The addition
to tax will also differ. We leave the recalculation to the
parties’ Rule 155 computations.
- 19 -
exceeds the greater of 10 percent of the tax required to be shown
on the return or $5,000. Sec. 6662(d)(1)(A).
A taxpayer may avoid the application of an accuracy-related
penalty by proving he acted with reasonable cause and in good
faith. See sec. 6664(c)(1); see also Higbee v. Commissioner, 116
T.C. 438, 446-447 (2001); sec. 1.6664-4(a), Income Tax Regs. We
analyze whether a taxpayer acted with reasonable cause and in
good faith by examining the relevant facts and circumstances and,
most importantly, the extent to which the taxpayer attempted to
assess his proper tax liability. See Neely v. Commissioner,
supra at 947; Stubblefield v. Commissioner, T.C. Memo. 1996-537;
sec. 1.6664-4(b)(1), Income Tax Regs. In order for the
reasonable cause exception to apply, the taxpayer must prove that
he exercised ordinary business care and prudence as to the
disputed item. Neonatology Associates, P.A. v. Commissioner, 115
T.C. 43, 98 (2000), affd. 299 F.3d 221 (3d Cir. 2002).
Respondent has met his burden of production for the
accuracy-related penalty by showing that petitioner deducted
expenses that he could not substantiate. We must now decide
whether petitioner acted with reasonable cause and good faith.
In some instances, petitioner duplicated claimed deductions
and also claimed deductions in excess of $20,000 that he later
conceded or could not substantiate.11 Although the Court is
11
See, e.g., supra note 4.
- 20 -
sympathetic to the fact that petitioner’s wife took many of the
records petitioner needed to substantiate several of his claimed
deductions, we cannot overlook the large amount of expenses that
petitioner conceded were improper or his claimed duplicate
deductions. Therefore, petitioner is liable for the section
6662(a) accuracy-related penalty for negligence.12 Because we
have found that petitioner is liable for the accuracy-related
penalty for negligence, we need not discuss whether petitioner
had a substantial understatement of income tax.
We have considered the parties’ arguments and, to the extent
not discussed herein, we conclude the arguments are irrelevant,
moot, or without merit.
To reflect the foregoing,
Decision will be entered
under Rule 155.
12
See supra note 10 with respect to the amount of the
penalty.