T.C. Summary Opinion 2012-50

T.C. Summary Opinion 2012-50

UNITED STATES TAX COURT

THOMAS G. NOLDER, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 27414-10S.

Filed May 29, 2012.

Thomas G. Nolder, pro se.

Richard J. Hassebrock, Nancy P. Klingshirn, and Emma Woodward, for

respondent.

SUMMARY OPINION

PANUTHOS, 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. Pursuant to section 7463(b), the decision to be entered is not

NAY 2 9 2012

-2reviewable by any oth r court, and this opinion shall not be treated as precedent

for any other case. Unless otherwise indicated, subsequent section references are

to the Internal Revenué Code in effect for the years in issue, and all Rule

references are to the Tsx Court Rules of Practice and Procedure.

Respondent determinÈd deficienÊies of Êl,138 and $1,600 in petitioner's

2007 and 2008 Federal income tax, respectively. Respondent also determined

accuracy-related penalties of $227.60 and $320 for 2007 and 2008, respectively.

The issues for decision are (1) whether petitioner is entitled to deductions for

certain unreimbursed employee expenses related to his work as an over-the-road

truck driver and (2) wh ther petitioner is liable for the section 6662(a) accuracyrelated penalties.

Background

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

facts and the attached exhibits are incorporated herein by this reference. Petitioner

resided in Ohio at the tiine the petition was filed. For convenience we combine

some of our fmdings wi

our analysis.

During thEyears n isãue petition

w 541

an över-the-röad tfuck driver. As

such, petitioner lived i the cab of his truclé whil a

y from home. Petitièmer

-3used the services of a tax preparer, John Devine, to prepare his returns for the

years in issue as well as for prior years.

Mr. Devine provided petitioner with preprinted worksheets entitled

"Trucker's Deductible Business Expenses" which listed various items and also

included blank lines for him to complete. Mr. Devine instructed petitioner that he

did not need to retain receipts for any items under $75. The worksheets also

include the statement "Over 30 Years experience in Trucker Taxation."

Respondent examined petitioner's tax returns for 2007 and 2008 and for each year

disallowed a portion.ofthe claimed employee business expense deduction.

On September 10, 2010, respondent issued a notice of deficiency

disallowing unreimbursed employee expense deductions of $6,939 for 2007 and

$9,544 for 2008. At trial petitioner provided detailed testimony and schedules

relating to the claimed employee expense deductions.

Discussion

In general, the Commissioner's determination set forth in a notice of

deficiency is presumed correct, and the taxpayer bears the burden of showing that

the determination is in error. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933). Deductions are a matter of legislative grace. Deputy v. du Pont, 308 U.S.

488, 493 (1940); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). A

-4taxpayer bears the burd n of proving entitlement to any deduction claimed. Rule

142(a); INDOPCO, Inc v. Commissioner, 503 U.S.·79, 84 (1992); Welch v.

Helvering, 290 U.S. at 115; Wilson v. Commissioner, T.C. Memo. 2001-139. A

taxpayer is required to maintain records sufficient to substantiate deductions

claimed on his or her income tax return. Sec. 6001; sec. 1.6001-1(a), (e), Income .

Tax Regs. The fact that a taxpayer claims a deduction on the taxpayer's income

tax return is not sufficient to substanhiate it. Wilkinson v. Commissioner, 71 T.C.

633, 639 (1979); Roberts v. Commissioner, 62 T.Cn834, 837 (1974). Rather, an

income tax return is merely a statement of the taxpayer's claim; it is not presumed

to be correct. Wilkinson v. Commissioner, 71 T.C: at 639; Roberts v.

Commissioner, 62 T.C. t 837.

.

Pursuant to section 7491(a), the burden,0fproof as to factual matters shifts

to the Commissioner under certain circumstances. Petitioner has neither alleged

that section 7491(a) applies nor established his compliance with the substantiation

and recordkeeping requirements. See sec. 7491(a)(2)(A) and (B). Petitioner:

therefore bears the burden of proof. See Rule 142(a).

I.

> Unreimbursed Employee Expenses t

.

An individual pe forming services as an employee may deduct expenses

incurred in the performance of services,as an employee only as miscellaneous

-5itemized deductions on Schedule A, Itemized Deductions, and then only to the

extent such expenses exceed 2% of the individual's adjusted gross income. Secs.

62(a)(2), 63(a), (d), 67(a) and (b), 162(a). In order to qualify for the deduction

under section 162(a), "an item must be (1) 'paid or incurred during the taxable

year,' (2) for 'carrying on any trade or business,' (3) an 'expense,' (4) a

'necessary' expense, and (5) an 'ordinary' expense." Commissioner v. Lincoln

Sav. & Loan Ass'n, 403 U.S. 345, 352 (1971); Deputy v. du Pont, 308 U.S. at 495

(to qualify as "ordinary", the expense must relate to a transaction "of common or

frequent occurrence in the type of business involved"). Whether an expense is

ordinary is determined by the time, place, and circumstance. Welch v. Helvering,

290 U.S. at 113-114. Section 262(a) disallows deductions for personal, living, or

family expenses. In instances where both section 162(a) and section 262(a) may

be applicable, section 262 takes precedence. Heineman v. Commissioner, 82 T.C.

538, 542 (1984).

If a taxpayer establishes that he or she paid or incurred a deductible business

expense but does not establish the amount of the expense, we may approximate the

amount of the allowable deduction, bearing heavily against the taxpayer whose

inexactitude is of his or her own making. Cohan v. Commissioner, 39 F.2d 540,

543-544 (2d Cir. 1930). However, for the Cohan rule to apply, there must be

sufficient evidence in tlie record to provide a basis for the estimate. Vanicek v.

Commissioner, 85 T.C. 731, 743 (1985) . Certain expenses may not be estimated

because of the strict substantiation requirements of section 274(d). See sec.

280F(d)(4)(A); Sanford v. Commissioner, 50 T.C. 823, 827 (1968), aff'd per

curiam, 412 F.2d 201.(2d Cir. 1969).

The expenses to which the strict,substantiation requirements of section

274(d) apply include, among other things, expenses for listed property (e.g.,

automobile expenses, cellular telephones, computer equipment, or any property of

a type generally used for purposes of entertainment, recreation, or amusement) and

travel expenses (including meals and lodging while away from home). Secs.

274(d)(1)-(4), 280F(d)( )(A). To substantiate a deduction attributable to.listed

property, a taxpayer must maintain adequate records or present evidence

corroborating -his own statement to show the following: (1) the amount of the

expense; (2) the time and place of use of the listed property; and (3) the business

purpose of the use. Sec 1.274-5T(b)(6); Temporary Income Tax Regs., 50 Fed.

Reg. 46016 (Nov. 6, 1985).

There are some discrepancies among the amounts petitioner reported on

various forms and schedules and his Federal income tax returns for 2007 and

2008. Petitioner reported $14,472 for meals and entertainment and $6,939 for

-7"other than meals and entertainment" on his 2007 Form 2106, Employee Business

Expenses. After appropriate reductions for meals and entertainment, the total

employee business expenses reported on the Form 2106 is $17,793. On his 2007

Schedule A petitioner claimed the $17,793 deduction from the Form 2106, as well

as $288 for uniforms and $237 for tax preparation fees, for a total of $18,417.1 In

the notice of deficiency, respondent determined that petitioner is entitled to

$11,478 rather than the $18,417 claimed on the return for taxable year 2007.

Thus, for 2007 it appears respondent disallowed only the $6,939 of "other than

meals and entertainment" expenses and allowed all of the remaining claimed

expense deduction.

Petitioner reported $13,740 for meals and entertainment and $9,544 for

"other than meals and entertainment" on his 2008 Form 2106. After reductions,

the total of employee business expenses reported on the Form 2106 is $19,534.

On his 2008 Schedule A petitioner claimed the $19,534 deduction from the Form

2106, as well as $240 for uniforms and $246 for tax preparation fees, for a total of

'These amounts total $18,318. The $99 difference appears to be a

typographical or mathematical error.

-8$20,072.? In the notice of deficiency respondent-determined that petitioner is

entitled to $10,528 rathèr than the $20,0:72 he claimed. Thus, for 2008 it appears

respondent,disallowed nly the;$9,544;of "other than meals and entertainment"

expenses and allowed all of the remaining claimed expense deductions. With the

above principles in min 1,. we address each of the claimed expenses.

A. . Cellular Telephone

.

Petitioner claimed a deduction for unreimbursed employee expenses for

cellular telephone servi e of $864 for 2007 and $600 for 2008.; Petitioner's

employer had a reimbur ement policy which would reimburse $45 per month for

cellular telephone expenses. This policy was in place during the years in issue,

but petitioner did not seek this reimbursement because he was not aware of the

policy. In order to deduct unreimbursed employee expenses, a taxpayer must not

have received reimbursement and must not have had the right to obtain

reimbursement from his employer. Orvis v. Commissioner, 788 F.2d 1406, 1408

(9th Cir. 1986), aß T. . Memo. 1984-533; Leamy v. Commissioner, 85 T.C.

798, 810 (1985). Petiticner is not entitled to an expense deduction for each of the

2These amounts t tal $20,020. The $52 difference appears to be a

typographical or mathematical error.

.i

-9years in issue for the $540 ($45 x 12 months) that was reimbursable by his

employer. See Orvis v. Commissioner, 788 F.2d at 1408.

With respect to the amounts in excess of $540, petitioner must meet the

strict substantiation requirements of section 274(d). Petitioner did not provide

bills, receipts, or bank records reflecting the amounts of the expenditures.

Petitioner also did not present evidence as to the amount of business versus

personal use. See sec. 1.274-5T(b)(6)(i)(B), Temporary Income Tax Regs., supra.

We therefore disallow the entire claimed expense deduction for cellular telephone

service for each year.

B.

Clothing

Petitioner claimed expense deductions of $288 and $240 for uniforms for

2007 and 2008, respectively. As outlined above, it appears these amounts were

previously allowed, and we therefore make no additional findings as to these

claimed expense deductions. Petitioner also purchase.d some specialized clothing

and safety equipment for his job as an over-the-road truck driver. The cost of

clothing and maintaining this clothing may be deductible as an ordinary and

necessary business expense if a taxpayer establishes that the clothing is (1)

required or essential in the taxpayer's employment, (2) not suitable for general or

personal wear, and (3) not so worn. Yeomans v. Commissioner, 30 T.C. 757, 767

- 10 (1958). Some of petitioner's specialized clothing and safety equipment satisfy

these criteria. Petitione has substantiated allowable employee expenses of $840

for 2007 and $705 for 2008 for specialized clothing and safety equipment.

Petitioner purchaÁed additional clothing and related items:which were

suitable for general or pprsonal,wear ormotherwise not·required for his

employment. These iteins are therefore personal expenses under section 262(a),

and petitioner is not entitled to the claimed deductions for them.4

3For 2007 petitioner claimed a deduction for the following clothing

expenses: insulated coveralls ($75), hard hatiliner ($16), rain gear ($150), safety

glasses ($6 each for a total of $24), steel-toed boots ($75 each for a total of $150),

winter work boots ($75), and work gloves ($7 each for a total of $350), totaling

$840.

For 2008 petition r claimed a deduction for the following clothing

expenses: coveralls ($75), lightweight coveralls ($24), hard hat liner ($17), rain

gear ($75), safety glasses ($14), steel toed boots ($75), winter work boots ($75),

and work glov,es ($7 each for a total of $350), totaling $705.

4For 2007 petitioner claimed a deduction for the following as clothing

expenses: sunglasses ($ 0 each for a total of $160), thermal undérwear ($20 each

for a total of $80), tenni shoes ($45 each for a total of $180), and sweatshirts ($10

each for a total of $80), totaling $500.

For 2008 petitionér claimed a deduction for ihe following as clothing

expenses: sunglasses ($40 each for a total of $160), thermal underwear ($80), and

tennis shoes ($200), totaling $440.

- 11 C.

Professional Supplies

Petitioner claimed an employee business expense deduction for professional

supplies. Many of the items in this category appear to be ordinary and necessary

for petitioner's employment. We are satisfied that petitioner has substantiated

allowable employee expenses for professional supplies of $95 for 2007 and $209

for 2008.5 Petitioner also claimed $15 for ATM fees in 2007 under this category.

We disallow the claimed employee expense deduction for ATM fees as a

nondeductible personal expense. Sec. 262(a).

D.

Truck Supplies/Parking

Petitioner purchased various items for his truck during the years in issue.

Many of the items are equipment and supplies which are ordinary and necessary

for the safe operation of his truck and timely deliveries. Petitioner has

5For 2007 petitioner claimed a deduction for the following professional

supplies expenses: briefcase ($24), calculator ($9 each for a total of $18), camera

($6 each for a total of $12), faxes to his employer ($20), film developing ($6), dry

erase markers ($12), and pens/pencils ($3), totaling $95.

For 2008 petitioner claimed a deduction for the following professional

supplies expenses: briefcase ($22), calculator ($10), camera ($75), commercial

driver's license ($40), faxes to his employer ($48), logbook ($4), paper/notebooks

($4), and pens/pencils ($6), totaling $209.

- 12 substantiated allowable mployee expenses of $1,645 for 2007 and $2,196 for

2008 for such items.

Petitioner clainted a $25 monthly expense deduction for parking his trailer.

Petitioner's home driveway would not accommodate the.trailer, so he made

arrangements to park it t a location near his home which provided some security.

This expense is ordinar and necessary and we thus allow him to deduct the $300

yearly expense for both 2007 and.2008.

Petitioner also claimed a $300 expense deduction for putting gravel in his

driveway in 2008 to accommodate the cab of his truck. The cost of repairs "which

6For 2007 petitioder claimed a deduction for the following truck supplies

expenses: antenna ($75 each for a total of $150), CB radio ($75), XM Radio

($156), atlas/maps ($40), scanner ($75), crowbar ($19), tool set ($39), lock ($12),

two inch strap/rachet coinbo ($240), four inch strap/rachet combo ($300), tarps

($150), flashlight ($7), atteries ($25), first aid kit ($24), Armorall ($8), paper

towels ($50), towels ($5 ), truck wash ($60), floor mats ($30), seatbelt covers

($28), power cord ($24) power booster ($75), and duct tape ($8), totaling $1,645.

For 2008 petition r claimed a deduction for the following truck supplies

expenses: antenna ($75 each for a total of $150), CB radio repair ($60), XM

Radio ($156), atlas/map ($49), long handle crowbár ($24), tool set ($48), jumper

cables ($42), tire changi g tools ($60), fifth wheel lock ($19), keys ($6), spotlight

($34), two inch strap/ra et combo ($180), four inch strap/rachet combo ($420),

tarps ($150), coax cable ($40), flashlight ($9), batteries ($25), first aid kit and

supplies ($75), Armorall ($8), WD 40 ($12), paper towels ($24), towels ($40),

truck washes ($75), floor mats ($24), seat cover ($32), window screen set ($40),

circuit tester ($40), pow r booster ($299), shovel and broom ($33), electrical tape

($10), and duct tape ($12), totaling $2,196.

- 13 neither materially add to the value of the property nor appreciably prolong its life,

but keep it in an ordinarily efficient operating condition, may be deducted as an

expense". Sec. 1.162-4, Income Tax Regs. Petitioner used his driveway for

parking both his personal vehicle and the cab of his truck. Because he parked his

cab in the driveway, the driveway deteriorated and became muddy. The gravel

slowed the rate of deterioration and also allowed petitioner to continue to use the

driveway to park his cab. The gravel appears to have been in the nature of a

repair, and its cost is thus deductible as a business expense. See id.

E.

Miscellaneous

1.

Meals and Entertainment

Respondent allowed claimed meals and entertainment expense deductions

of $14,472 for 2007 and $13,740 for 2008. Petitioner included items on his

worksheet which appear to fall under that category, such as gratuities, "TV/VCR",

"TV & DVD", "Books", "Books/Novels", "DVD movies", "DVD disks", "DVD

player", "Books/Magazines", and "VCR tapes rented". The gratuities are part of

meal expenses, and the remaining items were for entertainment. Petitioner did not

assert that these items were not included in the previously allowed amounts. Even

assuming that they were not previously allowed by respondent, petitioner has

failed to satisfy the heightened substantiation requirements of 274(d). Sec.

274(d)(2). Petitioner did not provide receipts.for these items, and his testimony

indicates that the expense items were for his personal entertainment and

relaxation. Respondent's determination is sustained with respect to these items.

S_ee sec. 274(d).

2:

Persdnal Items

The.worksheet provided by the prepare and completed by petitioner

included some pretyped items which are clearly personal as well as some items

marked as personal that etitioner included on blank·lines. As indicated, personal,

living, or family expenses are not deductible under section 262(a). We therefore

disallow deductions for hese items as personal expenses.8 Petitioner also claimed

7For 2007 petitioner claimed a deduction for the following: gratuities

($1,052), TV/VCR ($'75), Books/Novels ($60), DVD movies ($12 each for a total

of $600), DVD player ($75), Books/Magazines ($48), and VCR tapes rented

($100),itotaling $2,010. For 2008 petitioner claimed the following: gratuities

($940), TV & DVD ($4Ö0), Books ($80), and DVD disks ($10 each for a total of

$500), totaling $1,920.

8For 2007 petitior7er claimed a gleduction for the follovginggxpenses as

employee expenses: ladndry bag ($24), 2 containers of laundry detergent ($16),

Visine eye wash ($10), ir fresheners, 50 at $2 ($100), bunk heater ($60), 2 down

pillows ($80), 4 sets of heets ($48), sleeping bag ($75), storage container ($7),

coffee pot ($24), cooler motor ($20), personal hygiene items ($200), travel bag

($45), refrigerator ($75), 200 sauce pan/tin foil pans ($150), showers ($75),

thermos bottle ($20), 2 lunchbox ovens ($48), toiletries ($60), cleaning supplies

($40), disinfectant ($40 , hand cleaner ($12), and 12 bags of epsom salt ($36), for

a total of $1,265.

(continued...)

- 15 a $75 expense in 2007 for "cab interior detailed". Petitioner paid someone to

clean the interior of his cab, including the space where he lived and slept while

working. This is a personal expense and is also not deductible under section

262(a).

Petitioner claimed a deduction for identity theft insurance of $72 for each

year. Petitioner was concerned about identity theft because he had to show many

forms of identification to pick up a load in Texas in a town near Mexico.

Petitioner did not assert that his employer required identity theft insurance. We

conclude that this does not constitute an ordinary or necessary employee business

expense. The expense is a nondeductible personal expense. See sec. 262(a).

8(...continued)

For 2008 petitioner claimed a deduction for the following expenses as

employee expenses: laundry bag ($24), 2 containers of laundry detergent ($17),

Visine eye wash ($15), air fresheners ($50), alarm clock ($19), bunk heater ($65),

heated mattress pad ($56), 2 pillows ($75), 4 sets of sheets ($60), sleeper fan

($19), sleeping bag ($75), 4 storage containers ($20), trash bags ($50), vacuum

cleaner ($19), coffee pot ($29), cooler ($49), cooler motor ($19), personal hygiene

items ($200), travel bag ($24), refrigerator ($129), sauce pan/tin foil pans ($75),

showers ($75), thermos bottle ($24), toaster oven ($49), toiletries ($75), cleaning

supplies ($50), disinfectant ($20), and hand cleaner ($12), for a total of $1,394.

- 16 II.

Accuracy-Related Penalties

Taxpayers may b liable.for a 20% penalty on the portion of an

underpayment of tax att ibutable to negligence. Sec. 6662(a) and (b)(1). The term

"negligence" in section 662(b)(1) includes any failure to make a reasonable

attempt to comply with he Internal Revenue Code, and the term "disregard"

includes any careless, reckless, or intentional disregard. See: 6662(c). Negligence

has also been defined as the failure to exercise due care or the failure to do what a

reasonable person would do under the circumstances. See Allen v. Commissioner,

92 T.C. 1, 12 (1989), aff'd, 925 F.2d 348, 353 (9th Cir. 1991); Neely v.

Commissioner, 85 T.C. 934, 947 (1985). Negligence also includes any failure by

the taxpayer to keep adequate books and records or to substantiate items properly.

Sec. 1.6662-3(b)(1), Inc me Tax Regs.

A taxpayer may a oid the application of an accuracy-related penalty by

proving he acted with reasonable cause and in good faith. See sec. 6664(c)(1); see

also Higbee v. Commissioner, 116 T.C. 438, 467447 (2001); sec. 1.6664-4(a),

Income Tax Regs. We analyze whether a taxpayer acted with reasonable cause

and in good faith by examining the relevant facts and circumstances and, most

importantly, the extent to which the taxpayer attempted to assess his proper tax

liability. See Neely v. Commissioner, 85 T.C. at 947; Stubblefield v.

- 17 Commissioner, T.C. Memo. 1996-537; sec. 1.6664-4(b)(1), Income Tax Regs. In

order for the reasonable cause exception to apply, the taxpayer must prove that he

exercised ordinary business care and prudence as to the disputed items.

Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 98 (2000), aff'd, 299

F.3d 221 (3d Cir. 2002).

The tax preparer supplied petitioner with worksheets to complete and

include his expenses. The pretyped worksheet includes items which are

presumptively personal and nondeductible under section 262(a). Despite the

inclusion of personal items on the worksheet and the inaccurate advice of the

preparer advising him that he need not retain any receipts for items under $75,

petitioner reasonably relied upon his preparer. The Court finds that petitioner was

credible and detailed in his testimony and had reasonable cause to claim many of

the items. We therefore conclude that petitioner is not liable for the accuracyrelated penalties.

- 18 Conclusion

In addition to the amounts respondent allowed in the notice of deficiency,

petitioner has substantiated allowable unreimbursed employee expenses of $2,880

for 2007 and $3,710 for 2008.9 For the reasons discussed, petitioner is not liable

for the accuracy-related penalties. We leave it to the parties to calculate the

allowable employee expense deductions, given the amounts respondent previously

allowed and the 2% floor imposed by section 67.

To reflect the foregoing,

Decision will be entered under

Rule 155.

9The amount for 2007 includes: specialized clothing ($840), professional

supplies ($95), truck supplies ($1,645), and parking ($300), for a total of $2,880.

The amount for 2008 includes: specialized clothing ($705), professional supplies

($209), truck supplies ($2,196), gravel ($300), and parking ($300), for a total of

$3,710.