                      T.C. Summary Opinion 2011-7



                        UNITED STATES TAX COURT



 GEORGE EDWARD EPPS III AND MICHELLE HAYNIE EPPS, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 20276-09S.             Filed January 25, 2011.



        George Edward Epps III and Michelle Haynie Epps, pro sese.

        Jeffrey R. Knight and Bradley C. Plovan, for respondent.



     JACOBS, 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 reviewable by any other court, and

this opinion shall not be treated as precedent for any other

case.
                               - 2 -

     Respondent determined a deficiency of $13,102 in

petitioners’ Federal income tax for 2006.   The issue for decision

is whether various expenditures reported on Schedule C, Profit or

Loss From Business (namely automobile and entertainment expenses)

with respect to George E. Epps III’s (Mr. Epps) employment in

2006 are deductible.   Petitioners concede that the expenditures

reported on Schedule C, if deductible, are properly reportable on

Schedule A, Itemized Deductions, as unreimbursed employee

business expenses, subject to the 2-percent adjusted gross income

limitation.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for 2006, and all Rule

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

                            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.   Petitioners resided in

Maryland when the petition was filed.

     During 2006 Mr. Epps was employed by CIT, a large consumer

finance company, where he was an area sales manager responsible

for the effective and efficient operation of his sales team.

To accomplish his assigned tasks, Mr. Epps went “out in the

field” two to three times a week, using his own automobile.
                               - 3 -

     Mr. Epps had a reimbursable “area manager travel and

expense” budget of $150 a month.    CIT’s job description for Mr.

Epps’ position stated that the area manager should “practice

effective expense control by managing within * * * [the $150]

established monthly budget”.   Mr. Epps admitted that during 2006

CIT reimbursed him for automobile and entertainment expenses

associated with his job up to the $150 monthly limit.

     On their 2006 Form 1040, U.S. Individual Income Tax Return,

petitioners attached Schedule C on which they reported the

following items:

                Utilities                           $3,000
                Office expenses                      3,500
                Interest--mortgage                  25,887
                Insurance (other than health)          500
                Meals and entertainment                212
                Travel                               2,364
                Car and truck expenses               7,220
                Other expenses                       4,366

     As stated supra p. 2, petitioners concede that these items

are not deductible on Schedule C.   Moreover, petitioners admit

that the $25,887 of mortgage interest was deducted twice--once on

Schedule A and once on Schedule C and that Mr. Epps did not incur

travel expenses for his employer.

     At trial petitioners introduced a mileage log with regard to

Mr. Epps’ purported business use of his automobile during 2006.

The log contains, for each date of use, the automobile’s starting

odometer reading, its ending odometer reading, and the total

miles driven.   Mr. Epps admitted that he used his automobile for
                               - 4 -

both business and personal reasons.    The mileage log does not

indicate the number of miles driven for business vis-a-vis the

number of miles driven for personal use.

     Petitioners also introduced a contract between Mr. Epps as

purchaser and WFI Stadium, Inc. as seller for two club seat

season tickets for the Washington Redskins 2006 football season.

In addition, petitioners introduced a meals and entertainment

expense ledger listing the date of eight Washington Redskins

football games, the persons attending the game, the cost of the

ticket claimed as a deduction ($454 for each game), and a column

entitled “nature of benefit”, which gave a vague description of

the business relationship between Mr. Epps and the person

attending the game, such as “lending fees”, “mortgage funding”,

and “interest rate”.   Mr. Epps admitted he did not attempt to

obtain reimbursement for the cost of the season tickets from CIT.

He further admitted that had he requested reimbursement, his

request probably would have been denied.

     Petitioners further introduced several receipts for meals at

local restaurants.   No information as to the persons attending

the functions or the business purposes behind the functions to

which the receipts pertain was provided.

                            Discussion

     Deductions are a matter of legislative grace and are

allowable only as specifically provided by statute.    See INDOPCO,
                               - 5 -

Inc. v. Commissioner, 503 U.S. 79, 84 (1992); Joseph v.

Commissioner, T.C. Memo. 2005-169.     Taxpayers bear the burden of

proving that they are entitled to any deductions claimed.     New

Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); Singh v.

Commissioner, T.C. Memo. 2009-36;1 see sec. 6001 (requiring the

taxpayer to keep and produce adequate records so as to enable the

Commissioner to determine the taxpayer’s correct tax liability);

Hradesky v. Commissioner, 65 T.C. 87 (1975), affd. per curiam 540

F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), Income Tax Regs.

     Section 162(a) provides that “There shall be allowed as a

deduction all the ordinary and necessary expenses paid or

incurred during the taxable year in carrying on any trade or

business”.   The performance of services as an employee

constitutes a trade or business.     O’Malley v. Commissioner, 91

T.C. 352, 363-364 (1988); Spielbauer v. Commissioner, T.C. Memo.

1998-80.   An ordinary expense is one that is common and accepted

in the particular business.   Welch v. Helvering, 290 U.S. 111,

113-114 (1933).   A necessary expense is one that is appropriate

and helpful in carrying on the trade or business.     Id. at 113;

Heineman v. Commissioner, 82 T.C. 538, 543 (1984).     An employee’s

trade or business is the earning of compensation, and generally


     1
      Sec. 7491(a)(1) shifts the burden of proof to the
Commissioner under certain circumstances. Petitioners have
neither alleged that this section applies nor established their
compliance with the substantiation and recordkeeping
requirements. See sec. 7491(a)(2)(A) and (B).
                                - 6 -

only those expenses that relate to the continuation of his

employment are deductible.    Noland v. Commissioner, 269 F.2d 108,

111 (4th Cir. 1959), affg. T.C. Memo. 1958-60.    In Spielbauer v.

Commissioner, supra, we stated:

     If, as a condition of employment, an employee is required to
     incur expenses on behalf of his employer, the employee is
     entitled to a deduction for those expenses that are ordinary
     and necessary to his business as an employee to the extent
     such expenses are not subject to reimbursement. * * *

See Schmidlapp v. Commissioner, 96 F.2d 680 (2d Cir. 1938).

     Respondent maintains that petitioners have not shown that

the expenditures claimed as deductions were required or expected

by CIT.    According to respondent, since these expenses were not a

condition of employment, they are not petitioners’ ordinary and

necessary expenses.   We agree with respondent.

     As noted supra p. 3, Mr. Epps’ area office manager 2006 job

description stated that as part of his “Territory & Relationship

Management” responsibilities, Mr. Epps was to “practice effective

expense control by managing within [his] established monthly

[$150] budget”.   At trial Mr. Epps acknowledged his spending on

entertainment, such as for happy hours with clients and for

Washington Redskins club level tickets, was something he did on

his own.   Although it is understandable that Mr. Epps wanted to

inspire mortgage brokers to funnel business to CIT, entertaining

them lavishly was not a condition of Mr. Epps’ employment with
                                - 7 -

CIT.    Accordingly, we sustain respondent’s determination

disallowing the deductions claimed.

       Moreover, petitioners did not satisfy the strict

substantiation requirements with respect to deductibility of Mr.

Epps’ automobile and entertainment expenses, as set forth in

section 274(d) and section 1.274-5T(c)(2), Temporary Income Tax

Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985).    Section 274(d)

provides that no deduction under section 162 shall be allowed

for:    (a) Travel expenses (including meals and lodging while away

from home); (b) any item related to an activity of a type

considered to be entertainment, amusement, or recreation; (c) any

expense for gifts; or (d) the use of any “listed property”, as

defined in section 280F(d)(4), unless the taxpayer substantiates

by adequate records or sufficient evidence certain elements

corroborating the taxpayer’s own testimony.    Section

280F(d)(4)(A)(i) provides that a passenger vehicle is “listed

property”.

       For an expense governed by section 274(d), the taxpayer must

substantiate by adequate records or sufficient evidence to

corroborate the taxpayer’s own testimony:    (a) The amount of the

expense; (b) the time and place of the travel or entertainment;

(c) the business purpose of the expense; and in the case of

entertainment, (d) the business relationship to the taxpayer of

persons entertained or using the property.    To meet the adequate
                                 - 8 -

records requirements of section 274(d), a taxpayer must maintain

documentary evidence sufficient to establish each element of an

expenditure or use.    See sec. 1.274-5T(c)(2), Temporary Income

Tax Regs., supra.     Contemporaneous logs are not required, but

corroborative evidence to support a taxpayer’s reconstruction of

the elements of an expenditure or use must have “a high degree of

probative value to elevate such statement” to the level of

credibility of a contemporaneous record.    Sec. 1.274-5T(c)(1),

Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).

     With respect to Mr. Epps’ entertainment expenses (including

his football tickets), while petitioners’ records indicate that

the claimed expenditures were incurred, neither petitioners’

records nor evidence corroborating Mr. Epps’ testimony

demonstrates the business purpose of the expenditures or the

business relationship to Mr. Epps of the individuals entertained.

Hence, petitioners have not satisfied the requirements of section

274(d) with regard to the claimed entertainment expenses.

     With respect to Mr. Epps’ automobile mileage deductions,

petitioners again failed to demonstrate the business purpose of

the automobile use or distinguish between Mr. Epps’ business and

personal use of the automobile.    Petitioners’ mileage log is not

an adequate record within the meaning of section 274(d) and the

regulations thereunder, and petitioners failed to provide other
                              - 9 -

corroborative evidence sufficient to satisfy the requirements of

that section.

     To reflect concessions by the parties,


                                           Decision will be entered

                                      under Rule 155.
