                          T.C. Summary Opinion 2014-91



                         UNITED STATES TAX COURT



          J. DAVID MONSALVE AND RUTH MONSALVE, Petitioners v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 19325-12S.                         Filed September 11, 2014.



      J. David Monsalve and Ruth Monsalve, pro sese.

      Tracey B. Leibowitz, for respondent.



                              SUMMARY OPINION


      CARLUZZO, 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.1 Pursuant to section 7463(b), the decision to be entered is not



      1
      Unless otherwise indicated, section references are to the Internal Revenue
Code of 1986, as amended, in effect for the year in issue.
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reviewable by any other court, and this opinion shall not be treated as precedent

for any other case.

      In a notice of deficiency (notice) dated May 7, 2012, respondent determined

a $3,697 deficiency in petitioners’ 2009 Federal income tax. The issue for

decision is whether petitioners are entitled to a deduction for unreimbursed

employee business expenses, and if so, in what amount.

                                     Background

      Some of the facts have been stipulated and are so found. At the time the

petition was filed, petitioners resided in Florida.

      Mr. Monsalve (petitioner) has been employed as a pastor for the Conference

of Seventh-Day Adventists since 1986; during 2009 he was employed by the

Central California Conference of Seventh-Day Adventists (Conference), serving

as a senior pastor for at least two congregations.

      Petitioner’s pastoral duties required him to visit and travel to, among other

places, hospitals, funerals, Bible study sessions, and homes belonging to members

of his congregations (pastoral duties). In addition to his pastoral duties, he was

also required to attend Conference meetings at the Conference’s headquarters in

Clovis, California, and once a year he was required to attend a Conference meeting

at a camp in Soquel, California.
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      Petitioner used his privately/personally owned automobile in connection

with employment-related travel. The Conference’s travel reimbursement policy

provided reimbursement to Conference employees for “necessary and reasonable

travel expenses incurred for properly authorized conference business”. In

accordance with the Conference’s travel reimbursement policy, petitioner was

entitled to reimbursement for employment-related travel upon the submission of

monthly travel and expense reports, which he submitted as required.

      Petitioner’s monthly travel and expense reports bifurcate his employment-

related mileage into travel related to: (1) his pastoral duties other than related to

Conference meetings (routine travel); and (2) travel related to Conference

meetings (Conference travel). Petitioner’s travel and expense reports show: (1)

21,487 miles for routine travel and (2) 9,751 miles for Conference travel. The

Conference reimbursed petitioner for all mileage related to Conference travel but

did not reimburse him for routine travel.

      During 2009 petitioner paid for meals, entertainment, gifts, and aid to

members of his congregation and visitors from foreign countries. He also made

gifts to leaders of other ministries. Some of the items petitioner purchased as gifts

and aid include clothing, decorations, beauty products, and cleaning supplies. The

Conference did not reimburse petitioner for any of those expenses.
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      Petitioners’ timely filed joint 2009 Federal income tax return was prepared

by a paid Federal income tax return preparer and includes a Schedule A, Itemized

Deductions, and a Form 2106-EZ, Unreimbursed Employee Business Expenses.

As relevant here, on the Schedule A petitioners claimed a $30,623 unreimbursed

employee business expense deduction relating to petitioner’s employment with the

Conference. Petitioners calculated petitioner’s unreimbursed employee business

expenses on the attached Form 2106-EZ. On that Form petitioners reported that

petitioner paid vehicle expenses of $16,024 and meals, entertainment, gifts, and

aid expenses of $14,599.

      In the notice respondent disallowed the miscellaneous itemized deduction

for unreimbursed employee business expenses. According to the notice,

petitioners “did not establish that the business expense * * * was paid or incurred

during the taxable year and that the expense was ordinary and necessary to”

petitioner’s 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. Rule 142(a); INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Commissioner,
                                        -5-

292 U.S. 435, 440 (1934). 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, 65 T.C. 87, 90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir.

1976); sec. 1.6001-1(a), Income Tax Regs.

      Taxpayers may deduct ordinary and necessary expenses paid in connection

with operating a trade or business. Sec. 162(a); Boyd v. Commissioner, 122 T.C.

305, 313 (2004). Generally, the performance of services as an employee

constitutes a trade or business. Primuth v. Commissioner, 54 T.C. 374, 377

(1970). 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. 111, 113 (1933). If, as a condition of

employment, an employee is required to incur certain expenses, then the employee

is entitled to a deduction for those expenses, unless reimbursed by his or her

employer. See Fountain v. Commissioner, 59 T.C. 696, 708 (1973); Spielbauer v.

Commissioner, T.C. Memo. 1998-80. An employee business expense is not

deductible as “ordinary and necessary” if the employee is entitled to
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reimbursement from his or her employer. See Podems v. Commissioner, 24 T.C.

21, 22-23 (1955); Noz v. Commissioner, T.C. Memo. 2012-272.

Vehicle Expenses

      If otherwise deductible, section 274(d) imposes strict substantiation

requirements for deductions for travel, meals, entertainment, gifts, and “listed

property” (including passenger automobiles) 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).

      Under section 274(d), the taxpayer generally must substantiate either by

adequate records or by sufficient evidence corroborating the taxpayer’s own

statement: (A) the amount of the expense; (B) the time and place the expense was

incurred; (C) the business purpose of the expense; and (D) in the case of an

entertainment or gift expense, the business relationship to the taxpayer of each

expense incurred. For “listed property” expenses, in addition to the recordkeeping

requirements in section 274(d), the taxpayer must establish the amount of business

use and the amount of total use for the property. See sec. 1.274-5T(b)(6)(i)(B),

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

      Petitioners computed the $16,024 deduction for vehicle expenses by

applying the applicable standard mileage rate of 55 cents per mile to 29,134
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business miles petitioner claims to have driven for routine travel.2 However, the

entries in petitioner’s travel and expense reports total only 21,487 miles for routine

travel, and there is no explanation in the record for the 7,647-mile discrepancy

(excess mileage).3

      According to respondent, petitioners are not entitled to a deduction for

routine travel expenses because those expenses were reimbursable by his

employer. Respondent further argues that petitioners have failed to adequately

substantiate the excess mileage.4

      According to petitioner, the disallowed mileage deduction is attributable to

mileage incurred on behalf of the Conference, as recorded in the travel and

expense reports he submitted to the Conference. Petitioner further states that the

Conference would not reimburse him for any mileage expense incurred for routine



      2
       The Commissioner generally updates the optional standard mileage rates
annually. See sec. 1.274-5(j)(2), Income Tax Regs. The standard mileage rate of
55 cents per mile for 2009 is set forth in Rev. Proc. 2008-72, sec. 2.01, 2008-2
C.B. (Vol. 2) 1286, 1286.
      3
      Petitioners did not claim a deduction for mileage related to petitioner’s
Conference travel; petitioner was reimbursed by the Conference for that travel.
      4
       Petitioner’s monthly travel and expense reports satisfy the requirements of
sec. 274 with respect to a deduction for the mileage shown on those reports;
otherwise petitioners have not submitted adequate substantiation for the excess
mileage.
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travel because the Conference did not “have enough money” in the budget to

reimburse any travel expenses other than mileage related to Conference travel.

      The Conference’s travel reimbursement policy states that employees are

entitled to reimbursement for “necessary and reasonable travel expenses incurred

for properly authorized conference business”. On its face, the travel

reimbursement policy suggests that petitioner is entitled to reimbursement for all

of his business-related travel, including mileage incurred for routine travel.

Nonetheless, petitioner submitted monthly travel and expense reports that included

the mileage for routine travel and the Conference did not reimburse him for those

miles. Had petitioner been entitled to reimbursement for routine travel, we assume

that he would have actually been reimbursed by the Conference in the same

manner in which he was reimbursed for mileage incurred for Conference meetings.

      Taking into account petitioner’s credible testimony on the point, his duties

as the pastor of at least two congregations, and the purposes for the travel, and

after reviewing petitioner’s travel and expense reports, we find that petitioners

have established that petitioner traveled 21,487 miles for routine travel and they

are entitled to a deduction for those miles as unreimbursed employee business

expenses.
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Meals and Entertainment, Gifts, and Aid Expenses

      The unreimbursed employee business expense deduction here in dispute

includes $14,599 petitioner paid for meals, entertainment, gifts, and aid for others.

      According to respondent, petitioners have not shown that these expenses

were “ordinary and necessary” to petitioner’s business as a Conference employee;

that being so, according to respondent, the expenses are not deductible. We agree

with respondent.

      At trial petitioner acknowledged that the Conference did not: (1) require

him to incur these expenses or (2) consider them reimbursable employee business

expenses.

      Petitioner might very well have felt an obligation to entertain members of

his congregation and to provide gifts and aid to both members of his congregation

and others, but it is clear that he was not required to incur the expenses for doing

so as a condition of his employment. Nor have petitioners established that the

aforementioned expenses were otherwise ordinary and necessary expenses of

petitioner’s business as a Conference employee. Accordingly, petitioners are not

entitled to include $14,599 for meals, entertainment, gifts, and aid in their

allowable unreimbursed employee business expense deduction.
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To reflect the foregoing,


                                          Decision will be entered

                                     under Rule 155.
