Taylor v. Commissioner of Internal Revenue, 060117 FEDTAX, 8965-15

Court:United States Tax Court
Attorney:Katrina E. Taylor and Avery Taylor, pro sese. Deborah Aloof and Bradley Hiller Bentley (student), for respondent.
Opinion Judge:LAUBER, Judge
Party Name:KATRINA E. TAYLOR AND AVERY TAYLOR, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Case Date:June 01, 2017
Docket Nº:8965-15
 
FREE EXCERPT

T.C. Memo. 2017-99

KATRINA E. TAYLOR AND AVERY TAYLOR, Petitioners

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

No. 8965-15

United States Tax Court

June 1, 2017

          Katrina E. Taylor and Avery Taylor, pro sese.

          Deborah Aloof and Bradley Hiller Bentley (student), for respondent.

          MEMORANDUM FINDINGS OF FACT AND OPINION

          LAUBER, Judge

         With respect to petitioners' Federal income tax for 2012, the Internal Revenue Service (IRS or respondent) determined a deficiency of $13, 885 and an accuracy-related penalty of $2, 777 under section 6662(a).1 The issues for decision are whether petitioners are entitled to deduct car and truck expenses reported on their Schedule C, Profit or Loss From Business, and whether they are liable for an accuracy-related penalty. We resolve both issues in respondent's favor.

         FINDINGS OF FACT

         The parties filed a stipulation of facts with accompanying exhibits that is incorporated by this reference. Petitioners resided in West Virginia when they filed their petition.

         During 2009-2011, the three years preceding the tax year in issue, petitioner husband, Avery Taylor, operated as a sole proprietorship AW Recycling, a recycling business. He transported products intended for recycling using a specialized truck. Petitioners reported the income and expenses of this business on Schedules C. For 2009 they reported gross profit of $3, 590 and a net loss of $51, 482; of their reported expenses, $43, 989 represented car and truck expenses. For 2010 they reported gross profit of $11, 360 and a net loss of $65, 375; of their reported expenses, $56, 244 represented car and truck expenses. For 2011 they reported gross profit of $2, 120 and a net loss of $93, 982; of their reported expenses, $91, 647 represented car and truck expenses. Petitioner wife, Katrina Taylor, testified that the AW Recycling business terminated in 2012.

         During 2009-2011 Mrs. Taylor allegedly also operated a billing services business called Long-Term Care Billing Solutions (LTC). She testified that she sought out healthcare providers, mainly nursing homes and hospitals, and offered to review their customer accounts. She allegedly proposed to prospective clients that, if she collected on any past-due accounts, they would pay her a percentage of the amount collected.

         Mrs. Taylor testified that she began her LTC activity in 2009 and continued it through 2014. But petitioners did not include with their 2009, 2010, or 2011 return a distinct Schedule C for the LTC activity. Rather, Mrs. Taylor testified that she included LTC's income and expenses, consisting mostly of alleged car and truck expenses, on the Schedules C for AW Recycling. Those Schedules C did not indicate which income and expenses were attributable to which business.

         Petitioners timely filed their 2012 Federal income tax return, reporting $96, 735 of taxable wages attributable chiefly to Mrs. Taylor's full-time employment at the Jefferson Memorial Hospital. They included in this return a Schedule C for LTC that reported zero gross receipts and total expenses of $75, 968, including $74, 373 of car and truck expenses. After taking into account that $75, 968 net loss, the standard deduction, and personal exemptions, petitioners' 2012 return showed zero income tax liability and claimed an earned income tax credit (EITC) of $5, 891 and an additional child tax credit of $2, 665.

         The IRS selected petitioners' 2012 return for examination. It disallowed the deduction for car and truck expenses on the grounds that petitioners had failed to substantiate these expenses and that the expenses (if substantiated) would constitute nondeductible startup costs of a new business. After increasing petitioners' net income to reflect this disallowance, the IRS determined an income tax...

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