Westerman v. Comm'r

T.C. Memo. 2011-204

UNITED STATES TAX COURT

ROBERT ROWAN WESTERMAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 11504-09. Filed August 22, 2011.

Robert R. Westerman, pro se.

William B. McClendon, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

HAINES, Judge: Petitioner petitioned the Court for

redetermination of a deficiency of $7,743 and an addition to tax

under section 6651(a)(1)1 of $111 for 2006. The deficiency was

1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended, and all Rule references
are to the Tax Court Rules of Practice and Procedure. Amounts
are rounded to the nearest dollar.
 - 2 -

the result of the denial of deductions claimed on petitioner’s

Schedule C, Profit or Loss From Business, attached to his 2006

Federal income tax return. The issues for decision after

concessions2 for 2006 are whether petitioner is entitled to

deductions for: (1) Car and truck expenses; (2) travel expenses;

(3) meals and entertainment expenses; and (4) other Schedule C

expenses. We must further decide whether petitioner is liable

for the addition to tax under section 6651(a)(1).

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

The stipulation of facts, together with the attached exhibits, is

incorporated herein by this reference. At the time petitioner

filed his petition, he resided in Tennessee.

I. Background

On June 6, 2007, petitioner filed his 2006 income tax

return. On February 10, 2009, respondent sent a notice of

deficiency for petitioner’s 2006 Federal income tax return.

Petitioner filed a timely petition with this Court.

2
On brief respondent concedes that petitioner may deduct the
following expenses on his 2006 Schedule C: (1) $523 for a May
17, 2006 round trip flight for petitioner’s daughter; (2) $35
paid to MCCS Recreation Division for a craft table; (3) $4,195
paid to Adamos Studios for studio time in California; (4) $875
paid to studio musicians; (5) $1,469 paid to hearharmony.com for
transcription services; and (6) $943 paid to Motion Video Inc.
for location shooting in Philadelphia.
 - 3 -

During 2006 petitioner worked as an operations research

analyst at Fort Smith in Hawaii. Petitioner also dabbled in the

music and entertainment business, recording CDs and writing

books. Before 2006 petitioner had recorded a CD with his

daughter titled “A Father-Daughter Christmas” and published a

children’s book titled “The Legend of Kalikimaka”. In 2006

petitioner began recording a second CD titled “Christmas Hawaiian

Style”. That year, petitioner also decided to remake “A Father-

Daughter Christmas” into a new CD titled “It Won’t be Christmas”.

On his 2006 Federal income tax return petitioner deducted many of

the expenses associated with recording his CDs, performing and

selling his music, and selling his books.

In his notice of deficiency, respondent disallowed the

following deductions:

Expense Amount

Car and truck $1,989
Travel 9,927
Meals and entertainment 1,564
Other 15,600
Total 29,080

The other expenses included performance expenses of $2,869,

recording expenses of $7,859, rehearsal studio and disk expenses

of $2,569, transcription service expenses of $1,470, and video

expenses of $1,013.
 - 4 -

II. Travel

In 2006 petitioner made several trips to Los Angeles and

Philadelphia to record “Christmas Hawaiian Style” and “It Won’t

Be Christmas” and to shoot a music video. Overall, petitioner

took seven trips in 2006, three trips to Philadelphia and four

trips to Los Angeles. Petitioner’s wife usually accompanied him

on these trips. Petitioner claimed all seven trips were business

trips and deducted the costs of flights, hotels, car rentals,

meals and entertainment, recording and video expenses, and other

miscellaneous expenses on his Schedule C.

Petitioner’s Philadelphia trips consisted of: (1) A 4-day

trip in January in which petitioner spent two-thirds of 1 day

shooting his music video; (2) a 6-day trip in November during

which petitioner, his wife, and their two children traveled to

New York City to see a Broadway play; and (3) a 3-day trip in

December to reshoot the music video. Petitioner’s son also

traveled to Philadelphia for the 4-day January trip.

Petitioner’s Los Angeles trips consisted of: (1) A 3-day

trip in January in which petitioner spent all 3 days recording at

Adamos Recording studio; (2) a 3-day trip in May in which

petitioner’s daughter recorded at Adamos Recording studio; (3) an

8-day trip in August in which petitioner spent 1 day recording at

Adamos Recording studio; and (4) a 10-day trip in November in
 - 5 -

which petitioner spent 3 days recording at Adamos Recording

studio.

Aside from petitioner’s first trip to Los Angeles in

January, petitioner spent little time in the studio recording.

For instance, during the May trip, though petitioner had rented

the recording studio for 3 days, he was present for only 1 day of

recording. The remaining days were used by his daughter to

record her portion of the CD. Similarly, though petitioner

recorded for 1 day on his August trip to Los Angeles, the

remainder of the 8-day trip was spent on vacation with his wife

in Nashville and Miami. Petitioner spent his time in Nashville

attending his daughter’s play and touring the Grand Old Opry.

Respondent disallowed petitioner’s deductions for travel expenses

and meals and entertainment expenses associated with these trips.

III. Business in Hawaii

Petitioner also conducted business in Hawaii. Petitioner

deducted car and truck expenses related to his business activity

on his Schedule C. However, petitioner failed to maintain a log

of dates and miles driven. Therefore, respondent disallowed the

deduction.

Respondent also disallowed petitioner’s deduction for

performance expenses. Petitioner produced receipts for expenses

incurred in repairing his guitar, obtaining dental work, and

purchasing hair dye and sunglasses. Petitioner did not wear his
 - 6 -

sunglasses during his performances; instead, he used them mostly

for driving.

Further, respondent disallowed petitioner’s deduction for

recording expenses. A portion of petitioner’s CD was recorded at

a studio in Hawaii. Petitioner produced ATM receipts of cash

withdrawals with handwritten notes on them to substantiate this

recording expense.

Respondent also disallowed petitioner’s deduction for

rehearsal studio and disk expenses. Petitioner produced receipts

from music stores and bar receipts from the Warriors Lounge at

the Hale Koa Hotel to substantiate the deductions.

OPINION

I. Business Expense Deductions

Deductions are a matter of legislative grace, and the

taxpayer must prove he or she is entitled to the deductions

claimed. Rule 142(a); New Colonial Ice Co. v. Helvering, 292

U.S. 435, 440 (1934). Section 162(a) provides that “There shall

be allowed as a deduction all the ordinary and necessary expenses

paid or incurred during the taxable year in carrying on any trade

or business”. The parties stipulated that petitioner carried on

a trade or business during 2006. The regulations specify that

ordinary and necessary business expenses include “the ordinary

and necessary expenditures directly connected with or pertaining

to the taxpayer’s trade or business”. Sec. 1.162-1(a), Income
 - 7 -

Tax Regs. Taxpayers are required to maintain records sufficient

to establish the amounts of allowable deductions and to enable

the Commissioner to determine the correct tax liability. Sec.

6001; Shea v. Commissioner, 112 T.C. 183, 186 (1999).

In addition to satisfying the criteria for deductibility

under section 162, certain categories of expenses must also

satisfy the strict substantiation requirements of section 274(d)

in order for a deduction to be allowed. The expenses to which

section 274(d) applies include, among other things, traveling

expenses (which include expenses for meals and lodging while away

from home) and entertainment expenses. See sec. 274(d)(1) and

(2).

If the trial record provides sufficient evidence that the

taxpayer has incurred a deductible expense, but the taxpayer is

unable to substantiate adequately the precise amount of the

deduction to which he or she is otherwise entitled, the Court may

estimate the amount of the deductible expense and allow the

deduction to that extent (Cohan rule). Cohan v. Commissioner, 39

F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85

T.C. 731, 742-743 (1985); Sanford v. Commissioner, 50 T.C. 823,

827-828 (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). In these instances, the Court is permitted to

make as close an approximation of the allowable expense as it
 - 8 -

can, bearing heavily against the taxpayer whose inexactitude is

of his or her own making. Cohan v. Commissioner, supra at 544.

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, supra at 742-743. Without

such a basis, any allowance would amount to unguided largesse.

Williams v. United States, 245 F.2d 559, 560-561 (5th Cir. 1957).

Section 274(d) overrides the Cohan rule and thus

specifically precludes the Court from allowing a deduction for

travel expenses, entertainment expenses, gifts, and expenses with

respect to section 280F(d)(4) “listed property” (including

passenger automobiles) “unless the taxpayer substantiates by

adequate records or by sufficient evidence corroborating the

taxpayer’s own statement”: (1) The amount of the expense or

other item; (2) the time and place of the travel, entertainment

or use, or date and description of the gift; (3) the business

purpose of the expense or other item; and (4) in the case of

entertainment or gifts, the business relationship to the taxpayer

of the recipients or persons entertained.

A. Car and Truck Expenses, Travel Expenses, and Meals and
Entertainment Expenses

On his return, petitioner claimed a deduction for (i) car

and truck expenses, (ii) travel expenses, and (iii) meals and

entertainment expenses. These expenses are subject to the
 - 9 -

substantiation requirements of section 274(d). See secs.

274(d)(1), (2), (4), 280F(d)(4).

1. Car and Truck Expenses

Petitioner claims a deduction for car and truck expenses of

$1,989 for 2006. Passenger automobiles and any other property

used as a means of transportation are “listed property” as

defined by section 280F(d)(4). Secs. 274(d)(4),

280F(d)(4)(A)(i). Accordingly, a taxpayer must satisfy the

strict substantiation requirements of section 274 for car and

truck expenses. The taxpayer must substantiate the automobile

expenses by adequate records or other corroborating evidence of

items such as the amount of each expense, the time and place of

the automobile’s use, and the business purpose of its use. See

Sanford v. Commissioner, supra at 827-828; Maher v. Commissioner,

T.C. Memo. 2003-85.

To satisfy the adequate records requirement of section

274(d), a taxpayer must maintain records and documentary evidence

that in combination are sufficient to establish each element of

an expenditure or use. Sec. 1.274-5T(c)(2), Temporary Income Tax

Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985). Although a

contemporaneous log is not required, corroborative evidence to

support a taxpayer’s reconstruction “of the elements * * * of the

expenditure or use must have a high degree of probative value to

elevate such statement” to the level of credibility of a
 - 10 -

contemporaneous record. Sec. 1.274-5T(c)(1), Temporary Income

Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).

In the absence of adequate records to substantiate each

element of an expense, a taxpayer may alternatively establish an

element by “his own statement, whether written or oral,

containing specific information in detail as to such element”,

and by “other corroborative evidence sufficient to establish such

element.” Sec. 1.274-5T(c)(3), Temporary Income Tax Regs., 50

Fed. Reg. 46020 (Nov. 6, 1985).

Petitioner determined his car and truck expenses by

estimating the miles he drove in furtherance of his business.

Petitioner testified that for 30 weeks a year he drove

approximately 149 miles per week for his business, picking up and

delivering books, arranging to be on radio and television, and

appearing at performances and book signings. However, petitioner

failed to keep a mileage log and failed to introduce written or

oral evidence beyond his testimony of the estimated miles

sufficient to establish the elements required under section

274(d). Thus, we sustain respondent’s determination with regard

to the car and truck expenses.

2. Travel Expenses

Petitioner claimed a deduction for travel expenses of $9,927

for 2006. Petitioner introduced a printout he created from his

financial software and some receipts for airfare, rental cars,
 - 11 -

and hotels. Respondent argues that petitioner has failed to

substantiate that these costs were incurred in the ordinary

course of petitioner’s trade or business.

Only such traveling expenses as are reasonable and necessary

in the conduct of the taxpayer’s business and directly

attributable to it may be deducted. Sec. 1.162-2(a), Income Tax

Regs. If a taxpayer travels to a destination and while at the

destination engages in both business and personal activities,

traveling expenses to and from such destination are deductible

only if the trip is related primarily to the taxpayer’s trade or

business. Sec. 1.162-2(b)(1), Income Tax Regs. If the trip is

primarily personal, the traveling expenses to and from the

destination are not deductible even though the taxpayer engages

in business activities while at the destination. Id. However,

expenses while at the destination which are properly allocable to

the taxpayer’s trade or business are deductible even though the

traveling expenses to and from the destination are not

deductible. Id.

Petitioner claimed a deduction for travel expenses

associated with his seven trips to Philadelphia and Los Angeles.

The record shows that the only trip on which petitioner spent

most of his trip in the studio recording or filming was his

January trip to Los Angeles. Therefore, we find that petitioner

has established a primarily business purpose for only the January
 - 12 -

trip to Los Angeles. The travel expenses associated with all the

other trips are not ordinary and necessary trade or business

expenses. With respect to the January trip to Los Angeles, we

must determine whether petitioner provided adequate

substantiation for these travel expenses pursuant to section

274(d).

Section 274(d) places heightened substantiation requirements

on taxpayers claiming deductions under section 162 for any

traveling expense while away from home. In order to be entitled

to a deduction for an expense for travel, the taxpayer must show

each of the following elements: (1) The amount of each separate

expenditure; (2) the dates of departure and return and the number

of days spent on business; (3) the place of destination by name

of city or town; and (4) the business reason or expected business

benefit from travel. See sec. 274(d); sec. 1.274-5T(b)(2),

Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).

Petitioner must substantiate each element of an expenditure or

use by adequate records or by sufficient evidence corroborating

his own statement. See sec. 1.274-5T(c), Temporary Income Tax

Regs., supra.

Petitioner has failed to satisfy the substantiation

requirements of section 274(d) with respect to the deductions for

travel expenses associated with this trip. Petitioner failed to

produce a receipt for his flight. Additionally, petitioner
 - 13 -

testified that his wife routinely joined him on his business

trips. Petitioner failed to provide any evidence as to whether

he alone used the rental car and the hotel room or whether his

wife also used them. Without more information regarding the use

of the rental car and hotel room, we sustain respondent’s

determination with regard to the travel expenses.

3. Meals and Entertainment Expenses

Petitioner reported meals and entertainment expenses of

$1,564. Respondent argues that petitioner has failed to

substantiate that these costs were incurred in the ordinary

course of petitioner’s trade or business.

Meals and entertainment expenses are subject to the strict

substantiation requirements of section 274(d). No deduction is

allowed for these expenses unless the taxpayer substantiates by

adequate records or by sufficient evidence corroborating the

taxpayer’s own statement each of the following elements: (1) The

amount of each separate expenditure; (2) the date of the

entertainment; (3) the name, if any, address, or location of the

entertainment; (4) the business reason for the entertainment or

the nature of the business benefit derived or expected to be

derived as a result of the entertainment and the nature of the

business discussion or activity; and (5) the occupation of or

other information relating to the person or persons entertained,

including the name, title, or other designation sufficient to
 - 14 -

establish the business relationship to the taxpayer. See sec.

274(d); sec. 1.274-5T(b)(3), Temporary Income Tax Regs., 50 Fed.

Reg. 46015 (Nov. 6, 1985).

Petitioner produced receipts for approximately one-third of

his claimed meals and entertainment expenses and provided bank

account statements for a portion of the remainder of those

expenses. The receipts list the amount, the date, and the name

and address of the place of business, but most indicate that

petitioner was accompanied by other individuals. Petitioner

acknowledged that his wife usually traveled with him on his

business trips, but he failed to indicate how many people each

claimed expense covered, what amount he paid for himself, and

what amounts were paid for third parties or the identity of the

third parties. Furthermore, the receipts fail to state an

adequate business purpose and the business relationship of the

people at the meal. Petitioner has failed to provide adequate

information relating to the person or persons entertained

sufficient to establish the business relationship. See sec.

1.274-5T(b)(3)(v), Temporary Income Tax Regs., supra. Therefore,

we sustain respondent’s determination with regard to the meals

and entertainment expenses.

B. Other Expenses

Petitioner deducted other expenses of $15,600 in 2006.

These expenses consist of (i) performance expenses, (ii)
 - 15 -

recording expenses, (iii) rehearsal studios and disks, and (iv)

video expenses. As discussed above, petitioner is permitted to

deduct ordinary and necessary expenses he pays or incurs during

the year in carrying on a trade or business. See sec. 162(a).

Petitioner, however, is required to maintain records sufficient

to establish the amounts of his deductions. See sec. 6001; sec.

1.6001-1(a), Income Tax Regs.

1. Performance Expenses

At trial petitioner introduced copies of receipts and other

documentation in support of his contention that he incurred

performance expenses of $2,869. These amounts consisted of

guitar repair costs, dental work, hair dye, sunglasses and

miscellaneous items. In general, no deduction is allowed for

personal, living, or family expenses. See sec. 262. Dental

expenses and hair color expenses are inherently personal. See

Irwin v. Commissioner, T.C. Memo. 1996-490, affd. without

published opinion 131 F.3d 146 (9th Cir. 1997). Thus, we find

that petitioner’s dental, hair color, and personal grooming

expenses are not ordinary and necessary trade or business

expenses. Moreover, petitioner did not wear his sunglasses

during performances, and as a result petitioner cannot claim them

as a performance expense.

However, we do find that petitioner has produced sufficient

evidence to substantiate trade or business expenses of $486 paid
 - 16 -

to Guitar Tech. Petitioner is a musician who plays the guitar

during his performances and on his CDs. Petitioner produced

receipts from Guitar Tech for repairs to his guitar.

Accordingly, we find that petitioner is entitled to a $486

deduction for performance expenses. With respect to all other

performance expenses, we sustain respondent’s determination.

2. Recording Expenses

Petitioner claims to have paid $2,180 in cash for studio

time in Hawaii to record a portion of his album. Petitioner

produced ATM receipts of cash withdrawals with hand written notes

on them as evidence of payment of these expenses. ATM receipts

that do not identify the person to whom the cash is being paid

are not enough to substantiate these claimed expenses.

Petitioner also claimed computer training expenses of $468.

Petitioner provided a receipt from Mac Made Easy. However, the

receipt failed to provide a description of the training provided.

Without a description of the training provided, the receipt fails

to substantiate that the training was related to petitioner’s

trade or business. Accordingly, we sustain respondent’s

determination with respect to the recording expenses.

3. Rehearsal Studio and Disk Expenses

At trial petitioner introduced copies of receipts and other

documentation to substantiate rehearsal studio and disk expenses

of $2,569. This amount consisted of purchased CDs, karaoke
 - 17 -

disks, payment for computer training, and payment to the Warriors

Lounge. As discussed above, no deduction is allowed for

personal, living, or family expenses. See sec. 262. Petitioner

failed to explain how the CDs and karaoke disks purchased were

related to his trade or business. Without such an explanation,

we cannot find that the CDs are an ordinary or necessary trade or

business expense.

Petitioner deducted $530 for a practice studio. The studio

in question is the Warriors Lounge at the Hale Koa Hotel.

Petitioner submitted receipts from the lounge bar. We find that

these expenses are personal and may not be deducted. Finally,

petitioner claimed $1,469 in computer training expenses.

Petitioner introduced a receipt for $281 for training on video

and music editing software. The remaining receipts petitioner

provided do not specify what training petitioner received.

Without a description of the training received, we cannot find

that the remaining payments for computer training were ordinary

and necessary trade or business expenses. Accordingly, we find

that petitioner is entitled to a $281 deduction for rehearsal

studio and disks expenses. With respect to all other rehearsal

studio and disk expenses, we sustain respondent’s determination.

4. Video Expenses

At trial petitioner introduced receipts to substantiate his

deduction for video expenses of $1,013. These amounts consisted
 - 18 -

of $943 for location shooting and $70 for a sweatshirt. Of this

amount, respondent has conceded the $943 for location shooting

expenses. Petitioner failed to establish that the purchase of

the sweatshirt was not a personal expense. Thus we sustain

respondent’s determination with respect to the sweatshirt.

II. Addition to Tax

Respondent determined that petitioner is liable for

an addition to tax under section 6651(a)(1) for failure to timely

file his income tax return for 2006. In general, the

Commissioner bears the burden of production with respect to a

taxpayer’s liability for additions to tax. Sec. 7491(c); Higbee

v. Commissioner, 116 T.C. 438, 446-447 (2001). To meet his

burden of production with respect to section 6651, respondent

must come forward with sufficient evidence indicating that it is

appropriate to impose the addition to tax. Higbee v.

Commissioner, supra at 446. The parties stipulated that

petitioner’s Federal income tax return was filed on June 6, 2007.

Petitioner’s return was due on April 17, 2007. Thus, respondent

has carried the burden of production with respect to the addition

to tax under section 6651(a)(1).

Section 6651(a)(1) imposes an addition to tax for failure to

file the return on the date prescribed (determined with regard to

any extension of time for filing), unless petitioner can

establish that the failure was due to reasonable cause and not
 - 19 -

due to willful neglect. A showing of reasonable cause requires

petitioner to demonstrate he exercised ordinary business care and

prudence and nevertheless was unable to file the return by the

due date. Sec. 301.6651-1(c)(1), Proced. & Admin. Regs. In

order to avoid an addition to tax under section 6651(a),

petitioner must carry the burden of establishing reasonable

cause. See Higbee v. Commissioner, supra at 446.

Failure to timely file a tax return is not excused by the

taxpayer’s reliance on an agent, and this reliance is not

reasonable cause for a late filing under section 6651(a). United

States v. Boyle, 469 U.S. 241, 251 (1985). Petitioner testified

that his accountant allegedly filed a request for an extension of

time for filing his 2006 Federal income tax return. However, the

record is devoid of any evidence substantiating petitioner’s

testimony. We find that the failure to timely file a Federal

income tax return for 2006 was not due to reasonable cause and

was due to willful neglect. Accordingly, we conclude that

petitioner is liable for an addition to tax under section

6651(a)(1) in the amount respondent determined.

In reaching our holdings, we have considered all arguments

made, and, to the extent not mentioned, we conclude that they are

moot, irrelevant, or without merit.
 - 20 -

To reflect the foregoing,

Decision will be entered

under Rule 155.