                          T.C. Summary Opinion 2012-61



                         UNITED STATES TAX COURT



          RANDY C. STIDHAM AND BOBBI J. STIDHAM, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 6615-09S.                           Filed June 26, 2012.



      Randy C. Stidham and Bobbi J. Stidham, pro sese.

      Martha J. Weber, for respondent.



                              SUMMARY OPINION


      RUWE, Judge: This case was heard pursuant to the provisions of section

74631 of the Internal Revenue Code in effect when the petition was filed. Pursuant



      1
       Unless otherwise indicated, all section references are to the Internal Revenue
Code as amended and in effect for the year in issue, and all Rule references are to
the Tax Court Rules of Practice and Procedure.
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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.

       Respondent determined a $3,206 deficiency in petitioners’ 2005 Federal

income tax and a $359.25 addition to tax under section 6651(a)(1). After

concessions,2 the issues remaining for decision are: (1) whether petitioners are

entitled to deduct $31,503 in unreimbursed employee business expenses; (2)

whether petitioners are entitled to deduct $55 for tax preparation fees; and (3)

whether petitioners are liable for an addition to tax for failure to timely file their

2005 Federal income tax return.

                                       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.

       At the time the petition was filed, petitioners resided in Tennessee.

During the taxable year 2005 Mr. Stidham was employed by ASCAP (American

Society of Composers, Authors, and Publishers) as a representative. Mr. Stidham’s

job involved traveling to and from bars, taverns, restaurants, nightclubs, roller


       2
       In the notice of deficiency respondent disallowed a $1,400 mortgage interest
deduction petitioners claimed on their 2005 Schedule A, Itemized Deductions.
Respondent concedes that petitioners are entitled to the $1,400 mortgage interest
deduction.
                                         -3-

skating rinks, shopping malls, or any other place of business that plays music

through a sound system, in order to verify that the businesses paid fees to copyright

holders as required by copyright law. Mr. Stidham’s work required that he travel

throughout his territory, which included the entire States of Kentucky and

Tennessee.

      On November 2, 2007, petitioners filed a delinquent joint Federal income tax

return for the 2005 taxable year, claiming the following unreimbursed business

expenses relating to Mr. Stidham’s employment: (1) $19,887 for vehicle expenses

using the standard mileage rate; (2) $6,500 for overnight travel, including lodging;

(3) $3,274 for other unspecified business expenses; (4) $1,750 for meals and

entertainment expenses; and (5) $92 for parking fees, tolls, etc. Petitioners also

claimed $55 on Schedule A for tax preparation fees.

      Mr. Stidham received a $9,775 automobile allowance from ASCAP for the

taxable year 2005 on account of the considerable number of miles that he was

required to travel. This amount was included on Mr. Stidham’s 2005 Form W-2,

Wage and Tax Statement, and was reported as income on petitioners’ 2005 Federal

income tax return.

      In addition, Mr. Stidham’s employment with ASCAP during 2005 was

subject to ASCAP’s “Business Travel & Entertainment Policies and Procedures”
                                        -4-

(policy), which provided that its employees were eligible to be reimbursed for a

multitude of business expenses, including all of the types of nonvehicle expenses

claimed as unreimbursed employee business expense deductions on petitioners’

2005 income tax return. The unreimbursed nonvehicle business expenses here at

issue were not submitted to ASCAP by Mr. Stidham for reimbursement under the

policy.

      On December 15, 2008, respondent issued to petitioners a notice of

deficiency with respect to the 2005 tax year, disallowing the entire $31,503 of

unreimbursed employee business expenses, as well as the $55 of claimed tax

preparation fees.

                                     Discussion

      Generally, the Commissioner’s determinations in a notice of deficiency are

presumed correct, and the taxpayer has the burden of proving that those

determinations are erroneous. See Rule 142(a); Welch v. Helvering, 290 U.S. 111,

115 (1933). In some cases the burden of proof with respect to relevant factual

issues may shift to the Commissioner under section 7491(a). As petitioners did

not argue or prove that the requirements of section 7491(a) have been met, the

burden of proof does not shift to respondent.
                                        -5-

      Deductions are a matter of legislative grace, and taxpayers bear the burden of

proving their entitlement to a deduction. INDOPCO, Inc. v. Commissioner, 503

U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).

Section 6001 requires taxpayers to maintain records sufficient to establish the

amount of each deduction. See also Ronnen v. Commissioner, 90 T.C. 74, 102

(1988); sec. 1.6001-1(a), Income Tax Regs.

      Section 162(a) allows a deduction for ordinary and necessary expenses that a

taxpayer pays in connection with the operation of a trade or business. Boyd v.

Commissioner, 122 T.C. 305, 313 (2004). To be “ordinary” the expense must be of

a common or frequent occurrence in the type of business involved. Deputy v. du

Pont, 308 U.S. 488, 495 (1940). To be “necessary” an expense must be

“appropriate and helpful” to the taxpayer’s business. Welch v. Helvering, 290 U.S.

at 113. Additionally, the expenditure must be “directly connected with or pertaining

to the taxpayer’s trade or business”. Sec. 1.162-1(a), Income Tax Regs. However,

section 262(a) disallows deductions for personal, living, or family expenses.

      Generally, the performance of services as an employee constitutes a trade or

business. Primuth v. Commissioner, 54 T.C. 374, 377-78 (1970). For such

expenses to be deductible, the taxpayer must not have the right to obtain
                                        -6-

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

1408 (9th Cir. 1986), aff’g T.C. Memo. 1984-533.

      If a taxpayer establishes that an expense is deductible but is unable to

substantiate the precise amount, we may estimate the amount, bearing heavily

against the taxpayer whose inexactitude is of his own making. Cohan v.

Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). The taxpayer must present

sufficient evidence for the Court to form an estimate because without such a basis,

any allowance would amount to unguided largesse. Williams v. United States, 245

F.2d 559, 560-561 (5th Cir. 1957); Vanicek v. Commissioner, 85 T.C. 731, 742-743

(1985).

      However, section 274 overrides the Cohan rule with regard to certain

expenses. Sanford v. Commissioner, 50 T.C. 823, 827 (1968), aff’d per curiam,

412 F.2d 201 (2d Cir. 1969); sec. 1.274-5T(a), Temporary Income Tax Regs., 50

Fed. Reg. 46014 (Nov. 6, 1985). Section 274 requires stricter substantiation for

travel, meals, and certain listed property. In the case of automobile expenses,

section 274(d) provides that no deduction shall be allowed unless the taxpayer

substantiates by adequate records or by sufficient evidence corroborating the

taxpayer’s own statement: (1) the amount of the expense; (2) the time and place of

the expense; and (3) the business purpose of the expense. See Oswandel v.
                                         -7-

Commissioner, T.C. Memo. 2007-183. Even if such an expense would otherwise be

deductible, section 274 may still preclude a deduction if the taxpayer does not

present sufficient substantiation. Sec. 1.274-5T(a), Temporary Income Tax Regs.,

supra. However, in the alternative, each element of an expenditure or use may be

established by the taxpayer’s own written or oral statement “containing specific

information in detail as to such element” combined with corroborative evidence

sufficient to establish such element. Sec. 1.274-5T(c)(3)(i), Temporary Income Tax

Regs., 50 Fed. Reg. 46020 (Nov. 6, 1985).

Unreimbursed Employee Business Expenses

      1. Vehicle Expenses

      On their 2005 return petitioners deducted $19,887 for vehicle expenses using

the standard mileage rate.

      At trial Mr. Stidham testified that his job required extensive travel over a

large territory. This testimony is supported by ASCAP’s description of Mr.

Stidham’s position, as well ASCAP’s decision to provide him with a substantial

automobile allowance.3 In addition, petitioners presented the Court with numerous

documents to indicate the extent of Mr. Stidham’s travel. Petitioners provided the

      3
       Mr Stidham also testified that the $9,775 automobile allowance he received
from ASCAP was included in his income for 2005, and neither respondent, nor
anything in the record, contradicts this testimony.
                                         -8-

Court with receipts for expenditures on hotels, restaurants, gas stations, credit cards,

etc., which illustrate that Mr. Stidham traveled continuously throughout the States of

Kentucky and Tennessee during 2005. Petitioners also submitted a detailed

reconstruction of Mr. Stidham’s travel for the first two weeks of January 2005,

indicating that he traveled approximately 2,000 miles during only a two-week

period. All of this documentation and testimony supports petitioners’ contention

that Mr. Stidham necessarily traveled extensive miles to perform his professional

duties.

      Therefore, we find that petitioners’ documentation and testimony, along with

ASCAP’s decision to provide Mr. Stidham an automobile allowance, constitute a

written or oral statement “containing specific information in detail as to such

element” and other corroborative evidence sufficient to establish each element of an

expenditure or use with respect to a portion of petitioners’ claimed mileage

deduction. See sec. 1.274-5T(c)(3), Temporary Income Tax Regs., supra. As a

result, petitioners are entitled to deduct their claimed mileage expense, but only to

the extent of the $9,775 allowance Mr. Stidham received from ASCAP, which

represents approximately 25,000 miles at the standard mileage rate in effect for most

of 2005.
                                        -9-

      2. Other Expenses

      A taxpayer is entitled to deduct unreimbursed employee business expenses

under section 162(a) only to the extent that the taxpayer demonstrates that the

taxpayer could not have been reimbursed for the expenses by the taxpayer’s

employer. Podems v. Commissioner, 24 T.C. 21, 22-23 (1955); Benson v.

Commissioner, T.C. Memo. 2007-113; Putnam v. Commissioner, T.C. Memo.

1998-285.

      Petitioners claimed deductions of $6,500 for overnight travel, including

lodging, $3,274 for other unspecified business expenses, $1,750 for meals and

entertainment expenses, and $92 for parking fees, tolls, etc. The record indicates

that Mr. Stidham had the opportunity to be reimbursed for the non-vehicle-related

employee business expenses claimed on petitioners’ 2005 income tax return but

failed to obtain reimbursement from ASCAP.4 When an employee has a right to

reimbursement for expenditures related to his status as an employee but fails to

claim reimbursement, the expenses are not deductible because they are not

“necessary”; i.e., it is not necessary for an employee to remain unreimbursed for




      4
        At trial Mr. Stidham indicated that he claimed deductions for these expenses,
rather than pursuing reimbursement, because he failed to timely file the necessary
reimbursement paperwork with ASCAP.
                                         - 10 -

expenses to the extent he could have been reimbursed. Orvis v. Commissioner, 788

F.2d at 1408; Lucas v. Commissioner, 79 T.C. 1, 7 (1982).

      As a result of the foregoing, we sustain respondent’s disallowance of

petitioners’ claimed deductions of non-vehicle-related unreimbursed employee

business expenses.

      On their 2005 Schedule A petitioners claimed an itemized deduction of $55

for tax preparation fees. Petitioners have not provided any information to

substantiate this deduction. Therefore, we sustain respondent’s disallowance.

Addition to Tax Under Section 6651(a)(1)

      Section 6651(a)(1) provides for an addition to tax of 5% of the tax required to

be shown on a return for each month or fraction thereof for which there is a failure

to file, not to exceed 25%. A taxpayer may avoid this addition to tax if it can be

shown (1) that the failure did not result from willful neglect and (2) that the failure

was due to reasonable cause. Crocker v. Commissioner, 92 T.C. 899, 912 (1989).

“Reasonable cause” requires that taxpayers demonstrate that they exercised

ordinary business care and prudence. United States v. Boyle, 469 U.S. 241, 246

(1985). Willful neglect is defined as a “conscious, intentional failure or reckless

indifference.” Id. at 245.
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       Respondent has met the burden of producing evidence that petitioners did not

timely file their return. Petitioners stipulated that they failed to file their return

timely and have not provided any explanation for the untimeliness of their filing.

Therefore, we uphold respondent’s determination that petitioners are liable for an

addition to tax for failing to timely file their 2005 return.   In reaching our holdings

herein, we have considered all arguments made, and to the extent not mentioned

above, we find them to be moot, irrelevant, or without merit.

       To reflect the foregoing,


                                                                Decision will be entered

                                                         under Rule 155.
