Curtis v. Dep't of Revenue, TC-MD 210413N

CourtOregon Tax Court
PartiesARTHUR B. CURTIS and CATHY L. CURTIS, Plaintiffs, v. DEPARTMENT OF REVENUE, State of Oregon, Defendant.
Docket NumberTC-MD 210413N
Decision Date27 September 2022


DEPARTMENT OF REVENUE, State of Oregon, Defendant.

No. TC-MD 210413N

Tax Court of Oregon, Magistrate Division, Income Tax

September 27, 2022


Plaintiffs appealed Defendant's Notice of Assessment, dated September 23, 2021, for the 2017 tax year. A trial was held on June 16, 2022, in the courtroom of the Oregon Tax Court. Mary J. Sykes, an Oregon CPA, appeared on behalf of Plaintiffs. Arthur B. Curtis (Curtis) testified on behalf of Plaintiffs.[1] Rodney King, conference officer, appeared on behalf of Defendant. Plaintiffs' Exhibits 1 to 6 and Defendant's Exhibits A to I were received without objection. The parties reached an agreement on several items and filed a partial stipulated agreement on June 29, 2022, that is incorporated into this decision.


Plaintiffs owned a trucking business, Rocky Road LLC (Rocky Road), during the 2017 tax year. Rocky Road hauled loads for individuals, businesses, and contractors in the Douglas County area. Curtis did all the driving, bookkeeping, and scheduling, and performed most of the repairs on the vehicles and machinery involved in the business. Rocky Road had no employees. Cathy Curtis would, at times, assist with errands and administrative tasks, but the business was


primarily run by Curtis. Defendant audited Plaintiffs' 2017 personal income tax return, including the Schedule C for Rocky Road. Defendant disallowed some of the business deductions claimed by Plaintiffs related to fuel and transportation, travel away from home, and other expenses, including a cell phone, tablet, and home internet.

A. Vehicle Expenses-Crew Cab

Plaintiffs claimed depreciation of $6,518 for a 2017 Chevy Crew Cab (Crew Cab). (See Ptfs' Ex 1.) Curtis testified that the Crew Cab was used solely for business and Defendant agreed to allow a total of 2,710 business miles on the Crew Cab for the purpose of depreciation.

Plaintiffs also claimed a total of $861 in fuel costs with $619 allocated to the Crew Cab, and $242 allocated to "equipment." (Ptfs' Ex 1.1.) Curtis testified that "equipment" refers to fuel he purchased for a Kubota backhoe and steam cleaner that were used in his business. Plaintiffs provided a spreadsheet detailing those fuel purchases and listing odometer readings for the Crew Cab that correspond to the 2,710 miles claimed. (Id.) Plaintiffs provided receipts of fuel purchases corresponding to the amounts listed on their spreadsheet. (See Ptfs' Ex 1.1.1-1.1.6.) Defendant disallowed those costs at audit, finding there was no way to discern which gas receipts were for the Crew Cab as opposed to other purposes. (Def's Ex A at 4-5.[2]) At audit, Defendant declined to accept Plaintiffs' mileage log for the Crew Cab due to discrepancies with other records. (See id.)


In 2017, Plaintiffs also had a Jeep driven primarily by Cathy Curtis, but occasionally used to run errands and pick up parts for the business. They did not claim any business expenses associated with the Jeep because its use was primarily personal.

B. Motorhome Depreciation and Travel Expenses

Plaintiffs claimed expenses associated with four business trips in their Monaco Motorhome in 2017. They claimed depreciation for the motorhome, campground fees, and gas. (Ptfs' Ex 2, 2.4, 2.6, 2.8.) Curtis testified that Plaintiffs also used the motorhome for personal trips on 15 days in 2017. (See also Def's Ex G-1 (reflecting 1,001 personal miles in 2017).)

Each business trip began and ended at Plaintiffs' home. In February 2017, Plaintiffs traveled to and from Fort Bragg, California, over eight days to view two trucks Curtis found advertised for sale on Craigslist. (Ptfs' Ex 2.1-2.3.) In Fort Bragg, Curtis viewed a truck for sale but discovered water in the oil and chose not to purchase it. On the way back, Plaintiffs stopped in Coquille, Oregon, to look at a 1998 Kenworth T800 truck. (Ptfs' Ex 2.3.) The owner of that truck did not possess service records and the truck was not in good shape, so Curtis declined to purchase it. Plaintiffs paid campground fees totaling $335 on the trip. (Ptfs' Ex 2.4, 2.6.)

In June 2017, Plaintiffs traveled to Utah and Colorado over 15 days. Curtis testified that the trip's purpose was to evaluate whether it was feasible for Plaintiffs to relocate the business to Colorado. Plaintiffs have family in Colorado who wished for them to move there. From June 9 until June 14, Plaintiffs traveled from Oregon to Alamosa, Colorado, where their family lived. Along the way, Plaintiffs stopped in Salt Lake City, Utah, on June 11 to spend the day with an aunt and two cousins who lived there. From June 14 until June 20, Plaintiffs stayed with their family in Alamosa and traveled around the area to investigate relocating the business. (See Ptfs' Ex 2.7.) Curtis testified that his cousin introduced him to some people, and they discussed


whether another trucking business was needed in the area. Plaintiffs did not provide a log or any other documents pertaining to those meetings. Plaintiffs incurred costs for campgrounds and gas totaling $809 on the trip. (See Ptfs' Ex 2.8 (total of marked items on bank statement).)

In August 2017, Plaintiffs took a four-day trip to Sacramento, California, to look at a truck up for auction. (See Ptfs' Ex 2.9[3]; Def's Ex G at 2.) In October 2017, Plaintiffs took a three-day trip to Bend, Oregon, to look at a trailer. (See Ptfs' Ex 2.10[4]; Def's Ex G at 2.) C. Other Expenses

Plaintiffs originally claimed $3,126 in "Other Expenses." (Compl at 10.) At audit, Defendant allowed $288 for a former business owner's phone line and denied the remaining expenses for cell phones, tablet, and internet service. (Def's Ex A at 8.) At trial, Plaintiffs claimed $2,296 in business expenses for a cell phone line, a former business owner's phone line, a tablet, and internet service. (Ptfs' Ex 4.1.[5])

1. Cell phone and tablet

Plaintiffs claimed $1,198 for Curtis' cell phone and $111 for a tablet. (Ptfs' Ex 4.1.) Plaintiffs also have a personal landline and a cell phone line for Cathy Curtis, neither of which they claim for deduction.

Curtis' cell phone expense is comprised of $770 for the plan charge and $428 for the phone line itself. (Ptfs' Ex 4.1.) Curtis testified that he uses his cell phone primarily for business and 89 percent of calls to his cell phone are business calls. To support that percentage,


he provided one month of cell phone call logs in which he marked calls as personal, business, or unknown. (Ptfs' Exs 4.8-4.10.)

Plaintiffs claimed $111 for a tablet. (Ptfs' Ex 4.1.) Curtis testified that he installed QuickBooks software on the tablet, allowing him to check prior prices for repeat customers.

2. Internet

Plaintiffs claimed $644 for internet service in 2017. (Ptfs' Ex 4.1.) Curtis used the internet to look up contractors' licenses, and to research vehicle parts and repairs, among other things. Plaintiffs also claimed expenses for a home office using a Form 8829, which included utilities totaling $2,398. (Def's Ex D at 9 (Form 8829).) Defendant did not adjust those expenses but denied Plaintiffs' internet expense reasoning that it should already have been included in the home office expense calculation or, alternatively, that Plaintiffs failed to show that they incurred any business-related charges that would not have already been incurred for personal use. (See Def's Exs A at 7, B at 4, 10.)


The issue is whether Plaintiffs may deduct certain business expenses for the 2017 tax year. The court looks to provisions of the Internal Revenue Code (IRC) to determine Plaintiffs' taxable income. See ORS 316.007; ORS 316.048.[6] As the parties seeking affirmative relief, Plaintiffs bear the burden of proof by a preponderance of the evidence. See ORS 305.427; see also INDOPCO, Inc. v. Comm'r, 503 U.S. 79, 84, 112 S.Ct. 1039, 117 L.Ed.2d 226 (1992) (deductions are "a matter of legislative grace" so taxpayers bear the burden of proving entitlement to any deduction claimed).


IRC section 162(a) allows a deduction for certain ordinary and necessary business expenses. "To be 'necessary[,]' an expense must be 'appropriate and helpful' to the taxpayer's business. * * * To be 'ordinary[,]' the transaction which gives rise to the expense must be of a common or frequent occurrence in the type of business involved." Boyd v. Comm'r, 83 TCM (CCH) 1253 WL 236685 at *2 (2002) (internal citations omitted). Deductions for personal, living, or family expenses are generally disallowed under IRC section 262, unless expressly allowed elsewhere in the IRC.

In general, if an expense is deductible, but the taxpayer is unable to fully substantiate it, the court is permitted to make an approximation of the allowable amount. Cohan v. Comm'r, 39 F.2d 540, 543-44 (2nd Cir 1930). However, that estimate must have a reasonable evidentiary basis. Vanicek v. Comm'r, 85 TC 731, 743 (1985). Certain listed expenses are subject to more stringent substantiation requirements-IRC section 274(d) supersedes the Cohan rule and requires taxpayer to substantiate each element of such expenses "by adequate records or by sufficient evidence corroborating the taxpayer's own statement * * *." IRC § 274(d). This heightened standard of proof known as "strict substantiation." Deductions for traveling expenses and the use of listed property such as passenger vehicles are subject to strict substantiation requirements. IRC § 274(d); IRC 280F(d)(4)(A).

A. Vehicle Expenses-Crew Cab

Expenses associated with the use of a passenger vehicle are subject to strict substantiation. That means that taxpayer must provide adequate records substantiating 1) the amount of the expense, 2) the time and place of travel, and 3) the business purpose of the expense. IRC § 274(d). At trial, Defendant stipulated to a depreciation deduction of $6,518 for the Crew Cab. See IRC §...

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