Leyla and Leobaldo D. Diaz v. Commissioner , 2011 T.C. Summary Opinion 103 ( 2011 )

T.C. Summary Opinion 2011-103UNITED STATES TAX COURT
LEYLA AND LEOBALDO D. DIAZ, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5634-09S. Filed August 29, 2011.
Leyla Diaz, pro se.
Brian A. Pfeifer, for respondent.
CARLUZZO, Special Trial Judge: This case was heard pursuant
to the provisions of section 7463.1 Pursuant to section 7463(b),
the decision to be entered is not reviewable by any other court,
1
Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986, as amended, in effect for the
relevant period. Rule references are to the Tax Court Rules of
Practice and Procedure.
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and this opinion shall not be treated as precedent for any other
case.
In a notice of deficiency dated December 8, 2008, respondent
determined a $1,365 deficiency in petitioners’ 2006 Federal
income tax. The issue for decision is whether petitioners are
entitled to deduct $9,090 in unreimbursed employee business
expenses.
Background
Some of the facts have been stipulated and are so found. At
the time the petition was filed, petitioners resided in Florida.
During 2006 Leyla Diaz (petitioner) was employed as an
assistant to the operations manager of Harkay Enterprises.
Harkay Enterprises owned and operated 11 Midas muffler shops
throughout the State of Florida (shops). Her employment duties
varied; as she describes her responsibilities, she did whatever
the operations manager required. On any given day she routinely
drove from one of the shops to another in order to attend
managers’ meetings, check inventory, check paperwork, enroll
employees in the company’s health insurance plan, and research
customer complaints. She used her own automobile when it was
necessary to drive between the shops.
Petitioner used a commercially available computer-based
spreadsheet program to create a mileage log in which she recorded
her many trips between the shops. Each entry in the mileage log
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includes the date of the trip, the beginning and ending address
of the trip, and the mileage driven between addresses. The
beginning and ending address for each trip recorded in
petitioner’s mileage log is the address of either Harkay
Enterprises or one of the shops. Entries in petitioner’s mileage
log were usually made during the day of travel. Petitioner’s
mileage log shows that petitioner drove 15,241 miles in
connection with her employment during the year in issue.
While at work, petitioner was required to wear, as she
described the clothing, “standard khaki pants”, “regular,
standard, red polo [shirts]”, and “sneakers”.
Petitioners subscribed to a cellular service family plan
offered by Cingular Wireless. Each petitioner had his or her own
cell phone and designated phone number. During the year in issue
petitioners paid $1,319.81 to Cingular Wireless in connection
with their cellular plan. Petitioner used her cell phone for
both personal and business purposes.
Petitioners’ timely, electronically filed 2006 joint Federal
income tax return was prepared by a paid income tax return
preparer. The taxable income and income tax liability shown on
that return were computed with reference to petitioners’ election
to claim itemized deductions in lieu of a standard deduction.
See sec. 63. As relevant here, the following deductions for
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unreimbursed employee business expenses are included in the
itemized deductions claimed on petitioners’ return:
Deduction Amount
Vehicle expenses $6,825
Uniform and shoe expense 1,400
Cell phone expense 1,300
Office expense 1,400
Each of the unreimbursed employee business expense
deductions listed above relates to petitioner’s employment
with Harkay Enterprises. The deduction for vehicle expenses
is computed by applying the then-standard mileage rate of 44.5
cents per mile to 15,000 miles, plus $150 attributable to
“miscellaneous” transportation expenses.
The above-listed deductions were disallowed in the notice of
deficiency, because according to an explanation given in the
notice, petitioner “did not establish that the business expense
* * * was paid or incurred during the taxable year and that the
expense was ordinary and necessary to * * * [her] business”.
Discussion
As we have observed in countless opinions, deductions are a
matter of legislative grace, and the taxpayer bears the burden of
proof to establish entitlement to any claimed deduction.2 Rule
142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992);
2
Petitioners do not claim that the provisions of sec.
7491(a) are applicable, and we proceed as though they are not.
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New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).
This burden requires the taxpayer to 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, 89-90 (1975),
affd. 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, supra at 89-90; sec. 1.6001-1(a),
Income Tax Regs.
The deductions here in dispute are allowable, if at all,
under section 162(a). That section generally allows a deduction
for ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business. The term
“trade or business” as used in section 162(a) includes the trade
or business of being an employee. Primuth v. Commissioner, 54
T.C. 374, 377-378 (1970); Christensen v. Commissioner, 17 T.C.
1456, 1457 (1952). The determination of whether an expenditure
satisfies the requirements for deductibility under section 162 is
a question of fact. See Commissioner v. Heininger, 320 U.S. 467,
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475 (1943). On the other hand, section 262(a) generally
disallows a deduction for personal, living, or family expenses.
Expenses incurred for the use of passenger automobiles,
computers, and cellular telephones in a taxpayer’s trade or
business are not allowed as deductions unless the taxpayer
satisfies the strict substantiation requirements of section
274(d). See secs. 274(d), 280F(d)(4)(A). With respect to
deductions for those types of expenses, the taxpayer must
substantiate each expense by either “adequate records”, or
“sufficient evidence corroborating the taxpayer’s own statement”.
Sec. 274(d); sec. 1.274-5T(c)(1), Temporary Income Tax Regs., 50
Fed. Reg. 46016 (Nov. 6, 1985). “To meet the ‘adequate records’
requirements of section 274(d), a taxpayer shall maintain an
account book, diary, log, statement of expense, trip sheets, or
similar record * * *, and documentary evidence”. Sec.
1.274-5T(c)(2)(i), Temporary Income Tax Regs., 50 Fed. Reg. 46017(Nov. 6, 1985). Generally, corroborative evidence must be direct
evidence, such as a statement in writing or the oral testimony of
witnesses involved in the event in relation to which a deduction
is claimed, or documentary evidence such as described in section
1.274-5T(c)(2), Temporary Income Tax Regs., supra. Sec.
1.274-5T(c)(3)(i), Temporary Income Tax Regs., 50 Fed. Reg. 46020- 7 -
(Nov. 6, 1985). In proving the business purpose of an
expenditure, the corroborative evidence may be circumstantial.
Id.Taking these fundamental principles into account, we turn
our attention to the deductions here in dispute.
Vehicle Expenses
Petitioners claimed a $6,825 deduction for vehicle expenses
incurred in connection with petitioner’s trade or business. The
deduction consists of $6,675 computed by applying the standard
mileage rate to the mileage driven plus $150 for miscellaneous
transportation expenses.
1. Business Miles
To support a deduction for business miles driven, the
taxpayer must show by adequate records: (1) The amount of the
expenditure; (2) the mileage for each business use of the
automobile and the total mileage for all use of the automobile
during the taxable period; (3) the date of the business use; and
(4) the business purpose of the use of the automobile. See sec.
1.274-5T(b)(6), Temporary Income Tax Regs., 50 Fed. Reg. 46016(Nov. 6, 1985). If properly substantiated, transportation
expenses between places of business are deductible, but
transportation to and from work is a nondeductible personal
commuting expense. See Commissioner v. Flowers, 326 U.S. 465,
469-470 (1946); Sanders v. Commissioner, 439 F.2d 296, 297 (9th
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Cir. 1971), affg. 52 T.C. 964 (1969); Curphey v. Commissioner, 73
T.C. 766, 777 (1980); Roy v. Commissioner, T.C. Memo. 1997-562,
affd. without published opinion 182 F.3d 927 (9th Cir. 1999);
secs. 1.162-2(e), 1.262-1(b)(5), Income Tax Regs.
Petitioner maintained and submitted her mileage log showing
the use of her automobile for business purposes during 2006. The
log shows the beginning and ending location of each trip, the
date of the trip, and the mileage for each trip. Petitioner’s
log does not show the total mileage for all use of the automobile
during 2006, nor does it state the business purpose of the use of
the automobile as required under section 1.274-5T(b)(6),
Temporary Income Tax Regs., supra. Nonetheless, petitioner’s
mileage log substantially complies with the “adequate records”
requirement of section 1.274-5T(b)(6), Temporary Income Tax
Regs., supra, and to the extent her log is deficient, she has
provided corroborative evidence sufficient to establish the
required elements. Accordingly, petitioners are entitled to a
$6,675 vehicle expense deduction attributable to business miles.
2. Miscellaneous Transportation Expenses
According to petitioner, she paid $150 for tolls in driving
between the shops. The tolls were paid through the use of a
Sunpass. Petitioners’ bank and/or credit card statements show
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some payments to Sunpass, but petitioner has failed to show that
any of the charges actually relate to business trips.
Petitioners are not entitled to include fees paid to Sunpass in
the deduction for vehicle expenses.
Uniform and Shoe Expense
The unreimbursed employee business expenses deducted on
petitioners’ return include $1,400 for uniforms and shoes.
Expenses for uniforms are deductible if the uniforms are of
a type specifically required as a condition of employment, the
uniforms are not adaptable to general use as ordinary clothing,
and the uniforms are not worn as ordinary clothing. Yeomans v.
Commissioner, 30 T.C. 757, 767-769 (1958); Wasik v. Commissioner,
T.C. Memo. 2007-148; Beckey v. Commissioner, T.C. Memo. 1994-514.
As described by her, while at work petitioner was required to
wear “standard khaki pants”, “regular, standard, red polo
[shirts]”, and “sneakers”. Petitioner explained that she did not
wear her work clothing other than in connection with her
employment. Be that as it may, the clothing she described is
adaptable to general use. Accordingly, petitioners are not
entitled to a uniform and shoe expense deduction.
Cell Phone Expense
The unreimbursed employee business expense deduction claimed
on petitioners’ return includes $1,300 for cellular phone
service. Petitioner used her cell phone for both business and
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personal purposes, and the total amount paid, that is, $1,319.81,
includes charges attributable to a cell phone used by her
husband.
The deduction for the cell phone expense is subject to the
same strict substantiation requirements as the vehicle expense,
as discussed above. See secs. 274(d), 280F. Petitioners failed
to allocate payments between the personal and business use of
petitioner’s cell phone as required under section 274(d). See
Kinney v. Commissioner, T.C. Memo. 2008-287. Accordingly,
petitioners are not entitled to a cell phone expense deduction.
Office Expense
The unreimbursed employee business expense deduction claimed
on petitioners’ return includes $1,400 for office expenses. More
specifically, petitioner testified that these expenses consist of
the costs of supplies, logs, and a $1,200 laptop purchased in
2005 for which she was still making payments.
Computers and peripheral equipment are “listed property” and
are therefore subject to the strict substantiation requirements.
Sec. 280F(d)(4)(A)(iv). Petitioners did not provide any
substantiating records in support of this deduction.
With regard to the portion of the office expense
attributable to the laptop, petitioners failed to satisfy the
strict substantiation requirements of section 274(d) and are
therefore not entitled to a deduction for any expense related to
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the computer. With regard to the portion of the office expense
attributable to supplies and logs, petitioners did not present
sufficient evidence for the Court to form an estimate, see
Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985), and
therefore petitioners are not entitled to the corresponding
deduction for this expense.
To reflect the foregoing,
Decision will be entered
under Rule 155.