Campbell v. Comm'r
| Decision Date | 12 July 2018 |
| Docket Number | T.C. Summary Opinion 2018-37,Docket No. 23865-15S. |
| Parties | DANIEL CAMPBELL AND TERRI CAMPBELL, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
Daniel Campbell and Terri Campbell, pro sese.
Michael Francis O'Donnell and Ashley Swick (student), for respondent.
CARLUZZO, 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 notreviewable by any other court, and this opinion shall not be treated as precedent for any other case.
In a notice of deficiency dated June 15, 2015 (notice), respondent determined deficiencies in, and penalties with respect to, petitioners' Federal income tax as follows:
| Year |
| Deficiency |
| Penalty |
| sec. 6662(a) |
| 2012 |
| $5,065 |
| $1,013.00 |
| 2013 |
| 5,582 |
| 1,116.40 |
After concessions,2 the issues for decision for each year are whether petitioners are: (1) entitled to various deductions claimed on a Schedule A, Itemized Deductions, and (2) liable for a section 6662(a) accuracy-related penalty.
Some of the facts have been stipulated and are so found. At the time the petition was filed and at all times relevant here, petitioners resided in New Lenox, Illinois, within the Chicago, Illinois, metropolitan area.
During the years in issue petitioner was employed by Midwest Fireproofing, LLC (Midwest), to install flame-retardant insulating materials in new buildings and large renovation projects. Midwest's records show the dates, clients, and locations of petitioner's assignments, none of which lasted for more than a few weeks. He was seldom required to be present at any of Midwest's office/business locations. Instead, he routinely worked at various temporary worksites in the Chicago metropolitan area, except for a four-week period in 2012 when he worked in St. Louis, Missouri, and a five-week period in 2013 when he worked in Alton, Illinois (distant worksites).3
During the years in issue petitioner owned a half-ton pickup truck that he used to transport himself and whatever tools and equipment were required for an assignment. When working in the Chicago metropolitan area, petitioner drove histruck between his residence and his then-current worksites. Once a week on his way to a worksite he stopped to pick up materials and/or equipment from a Midwest warehouse. When petitioner worked at a distant worksite, he drove to the worksite at the beginning of the week, stayed at a hotel during the workweek, and returned to his home for the weekend.
While working at the distant worksites petitioner was entitled to and received a $70-per-day travel allowance. Midwest did not otherwise compensate or reimburse petitioner for lodging, meals, or other travel expenses for any of his work assignments. Petitioner did not maintain a mileage log or logs during the years in issue, and he did not retain any receipts that show lodging and meals expenses he paid or incurred while working at the distant worksites.
While working at the various worksites petitioner wore overalls and protective glasses. During the application of the flame-retardant insulating materials to the buildings, petitioner's clothes got covered in a "gypsum and a cementitious product" that required him to use a commercial laundromat to clean them.
A paid income tax return preparer prepared petitioners' 2012 and 2013 Federal income tax returns. On Schedules A attached to the returns petitioners claimed deductions for unreimbursed employee business expenses totaling $19,218 for 2012 and $20,594 for 2013. The details of the unreimbursed employee business expense deductions are shown on Forms 2106 also included with petitioners' 2012 and 2013 returns, as follows:4
Unreimbursed employee business expenses 2012 2013 Vehicle $11,243 $12,006 Travel while away from home 3,640 3,940 Business1
888 987 Meals and entertainment2
2,020 2,248
1Petitioners' returns do not identify specific expenses included in the deduction for "Business expenses".
2Before the application of the 50% limitation prescribed in sec. 274(n)(1).
Petitioners also claimed deductions of $555 and $505 for 2012 and 2013, respectively, attributable to the cost of cleaning the overalls that petitioner wore for work (laundry expenses).
In addition to other adjustments now conceded, in the notice respondent disallowed the deductions described in the preceding paragraph and imposed a section 6662(a) accuracy-related penalty for each year.
As we have observed in countless opinions, deductions are a matter of legislative grace, and the taxpayer bears the burden of proving entitlement to any claimed deduction.5 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).
Taxpayers must substantiate deductions claimed by keeping and producing adequate records that enable the Commissioner to determine the taxpayer's correct tax liability. Sec. 6001; Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), aff'd per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that the expense to which the deduction relates has been paid or incurred. See sec. 6001; Hradesky v. Commissioner, 65 T.C. at 89-90; sec. 1.6001-1(a), Income Tax Regs.
Taxpayers may deduct ordinary and necessary expenses paid in connection with operating a trade or business. Sec. 162(a); Boyd v. Commissioner, 122 T.C. 305, 313 (2004). Generally, the performance of services as an employeeconstitutes a trade or business. Primuth v. Commissioner, 54 T.C. 374, 377 (1970).
Section 274(d) imposes strict substantiation requirements for travel, entertainment, gift, and listed property (including passenger automobiles) expenses. Sanford v. Commissioner, 50 T.C. 823, 827 (1968), aff'd 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). Under section 274(d), the taxpayer generally must substantiate either by adequate records or by sufficient evidence corroborating the taxpayer's own statement: (1) the amount of the expense; (2) the time and place the expense was incurred; (3) the business purpose of the expense; and (4) in the case of an entertainment or gift expense, the business relationship to the taxpayer of each expense incurred. For listed property expenses, the taxpayer must establish the amount of business use and the amount of total use for the property. See sec. 1.274-5T(b)(6)(i)(B), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). Substantiation by adequate records requires the taxpayer to maintain an account book, a diary, a log, a statement of expense, trip sheets, or a similar record prepared contemporaneously with the expenditure and documentary evidence (e.g., receipts or bills) of certain expenditures. Sec. 1.274-5(c)(2)(iii), Income Tax Regs.; sec. 1.274-5T(c)(2), Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985). Substantiation by other sufficient evidence requires the production of corroborative evidence in support of the taxpayer's statement specifically detailing the required elements. Sec. 1.274-5T(c)(3), Temporary Income Tax Regs., 50 Fed. Reg. 46020 (Nov. 6, 1985).
Petitioners claimed vehicle expense deductions of $11,243 and $12,006 for 2012 and 2013, respectively. Petitioner computed those deductions by applying the applicable standard mileage rate6 for each year in issue to the business miles he claims to have driven: (1) between his residence and temporary worksites in the Chicago metropolitan area, sometimes stopping along the way at his employer's warehouse to pick up various items, and (2) between his residence and the distant worksites, including mileage driven while at the distant worksites.
In general, and if properly substantiated, transportation expenses between places of business are deductible, but as a general rule, a taxpayer's costs of commuting between his or her residence and place of business or employment arenondeductible personal expenses. Secs. 162(a), 262(a); Steinhort v. Commissioner, 335 F.2d 496, 503-504 (5th Cir. 1964), aff'g and remanding T.C. Memo. 1962-233; Heuer v. Commissioner, 32 T.C. 947, 951-952 (1959), aff'd per curiam, 283 F.2d 865 (5th Cir. 1960); see also Fausner v. Commissioner, 413 U.S. 838, 839 (1973); Commissioner v. Flowers, 326 U.S. 465, 469-470 (1946); Sanders v. Commissioner, 439 F.2d 296, 297 (9th Cir. 1971), aff'g 52 T.C. 964 (1969); Curphey v. Commissioner, 73 T.C. 766, 777 (1980); Roy v. Commissioner, T.C. Memo. 1997-562, aff'd without published opinion, 182 F.3d 927 (9th Cir. 1999); secs. 1.162-2(e), 1.262-1(b)(5), Income Tax Regs. Seemingly nondeductible commuting expenses may be deducted if the expense is for travel: (1) between a taxpayer's residence and a temporary distant worksite; (2) from the taxpayer's home office to a place of business; and (3) requiring the taxpayer to pay or incur additional costs to transport tools and materials from the taxpayer's residence to a place of business. See Rev. Rul. 99-7, 1999-1 C.B. 361; Rev. Rul. 75-380, 1975-2 C.B. 59.
According to respondent, petitioner is not entitled to the deductions for vehicle expenses because he has failed properly to substantiate the amounts of the underlying expenses (substantiation argument). To the extent the deductions might have been adequately substantiated, respondent further takes the position that at least some of the vehicle expenses may not be deducted because the expenses are attributable to the cost of commuting (commuting argument).
Our attention is first directed to respondent's substantiation argument. As earlier explained,...
To continue reading
Request your trial