                            T.C. Summary Opinion 2018-26



                            UNITED STATES TAX COURT



                       ADAM D. FEHR, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 14470-16S.                            Filed May 16, 2018.



      Adam D. Fehr, pro se.

      Sandeep Singh, Janice B. Geier, and Catherine J. Caballero, for respondent.



                                 SUMMARY OPINION


      GUY, 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 reviewable by


      1
          Unless otherwise indicated, all section references are to the Internal
                                                                           (continued...)
                                         -2-

any other court, and this opinion shall not be treated as precedent for any other

case.

        Respondent determined that petitioner is liable for Federal income tax

deficiencies and accuracy-related penalties for the years and in the amounts as

follows:

                                                    Penalty
                    Year         Deficiency       sec. 6662(a)

                    2013           $7,365            $1,473
                    2014            7,640             1,528

Petitioner filed a timely petition for redetermination with the Court pursuant to

section 6213(a). At the time the petition was filed, petitioner resided in California.

        After concessions,2 the issues remaining for decision are whether petitioner

is: (1) entitled to deductions for unreimbursed employee business expenses of

$37,640 and $22,625 for 2013 and 2014 (years in issue), respectively, (2) entitled




        1
       (...continued)
Revenue Code (Code), as amended and in effect for 2013 and 2014, and all Rule
references are to the Tax Court Rules of Practice and Procedure. Monetary
amounts are rounded to the nearest dollar.
        2
       Petitioner concedes that he is not entitled to deductions for medical
expenses claimed on Schedule A, Itemized Deductions, for 2013, or an itemized
deduction for charitable contributions for 2014.
                                          -3-

to a deduction for charitable contributions of $16,637 for 2013, and (3) liable for

accuracy-related penalties for the years in issue under section 6662(a).

                                     Background3

I. Petitioner’s Employment

      During the years in issue petitioner was employed as a sales manager for

Valley Packline Solutions, Inc. (VPS), at its headquarters in Reedley, California.

VPS builds, installs, and maintains equipment used to process fresh fruits and

vegetables at various customer facilities in the United States and abroad.

      Petitioner’s duties at VPS included overseeing the sales department,

maintaining customer relationships, and managing sales, installation, and

maintenance of the firm’s equipment. Petitioner frequently visited customer

facilities around the San Joaquin Valley and other locations.

      The record includes a letter from VPS’ general manager, stating that VPS

did not reimburse its employees for “expenses for the ordinary conduct of their

employment with * * * [the firm].”




      3
          Some of the facts have been stipulated.
                                        -4-

II. Petitioner’s Tax Returns

      A. 2013

      Petitioner filed a Form 1040, U.S. Individual Income Tax Return, for 2013

reporting wages of $171,916. On Schedule A, attached to his tax return, petitioner

claimed, in relevant part, a deduction of $16,637 for charitable gifts by cash or

check and a deduction of $37,640 for unreimbursed employee business expenses

(before the application of the 2% floor prescribed in section 67(a)). Petitioner also

attached to his tax return a Form 2106-EZ, Unreimbursed Employee Business

Expenses, and a schedule titled “Unreimbursed Expense Statement”, reporting the

following work-related expenses:
                                           -5-

                                   Item              Amount
                      Vehicle expenses                $5,580
                      Parking fees, tolls, and
                       transportation                    185
                      Travel expenses                  2,571
                      Other expenses                     302
                      Meals and entertainment
                       expenses4                         818
                      Union and professional
                       dues                            3,998
                      Uniforms                         2,808
                      Tools                            6,319
                      Cell phone                       3,417
                      Miscellaneous work
                       expenses                        5,153
                      Work-related expenses            6,489


      B. 2014

      Petitioner filed a Form 1040 for 2014, reporting wages of $161,322. On

Schedule A, attached to his tax return, petitioner claimed, in relevant part, a

deduction of $22,625 for unreimbursed employee business expenses (before the

application of the 2% floor prescribed in section 67(a)). Petitioner also attached to



      4
          This amount reflects the 50% reduction prescribed in sec. 274(n).
                                        -6-

his tax return a Form 2106-EZ (essentially blank) and a schedule titled “2014

Unreimbursed Expense Statement”, reporting the following work-related

expenses:

                                 Item               Amount
                    Union and professional
                     dues                            $1,416
                    Uniforms                          1,295
                    Tools                             5,489
                    Cell phone                        1,918
                    Miscellaneous work
                     expenses                         5,596
                    Work-related expenses             6,911

III. Petitioner’s Records

      Petitioner produced eight receipts from Goodwill Industries (Goodwill) in

an effort to substantiate the charitable contribution deduction that he claimed for

2013. Each receipt included a list of several items (e.g., “Adult Bike”, “TV”,

“Bedroom Dressers”, “Jackhammer”), and petitioner recorded his own “educated

guess” of the cumulative value of the items on each receipt. The total value that

petitioner assigned to the items on each receipt ranged from a low of $1,700 to a

high of $2,500, and the eight receipts totaled $16,100.
                                           -7-

      Petitioner also offered various records in an effort to substantiate the

unreimbursed employee business expenses that he claimed for the years in issue.

For 2013 petitioner produced a log recording the number of miles that he drove

each day, the places that he visited, and meals and entertainment expenses. He

also produced separate schedules listing travel-related expenses, amounts that he

purportedly paid for tools purchased at Lowes, Jenson & Pilegard, and Exeter

Mercantile, and amounts that he paid for golf outings, hunting/fishing trips, and

wine and liquor purchases.5 Petitioner also provided his bank and credit card

statements for 2013.

      Petitioner’s mileage log for 2013 shows that he frequently drove from his

home to a customer’s facility, purchased lunch for one or more individuals, and

then drove home. On some days, petitioner drove from his home and made two or

more stops at customers’ facilities or at VPS, purchased lunch for one more

individuals, and then drove home. Petitioner did not describe the work he

performed, and he did not record the number of miles that he drove between

destinations; he recorded only the total number of miles that he drove each day.




      5
          Petitioner failed to produce receipts identifying the tools that he purchased.
                                        -8-

      For 2014 petitioner again produced a combined mileage/meals and

entertainment log. Unlike his mileage log for 2013, this log included a breakdown

of the miles that petitioner drove between various destinations each day.

      Petitioner’s tax returns for 2013 and 2014 were prepared at Fiesta Tax

Service by Javier Garcia and Tony Garcia, respectively. Petitioner testified that he

provided his tax records to the tax return preparers and his tax returns were

prepared and processed while he waited.

                                    Discussion

      As a general rule, the Commissioner’s determination of a taxpayer’s liability

in a notice of deficiency is presumed correct, and the taxpayer bears the burden of

proving that the determination is incorrect. Rule 142(a); Welch v. Helvering, 290

U.S. 111, 115 (1933).6 Deductions and credits are a matter of legislative grace,

and the taxpayer generally bears the burden of proving entitlement to any

deduction or credit claimed. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503

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

      When a taxpayer establishes that he paid or incurred a deductible expense

but fails to establish the amount of the deduction, the Court normally may estimate


      6
      Petitioner does not contend, and the record does not suggest, that the
burden of proof should shift to respondent pursuant to sec. 7491(a).
                                       -9-

the amount allowable as a deduction. Cohan v. Commissioner, 39 F.2d 540, 543-

544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985).

There must be sufficient evidence in the record, however, to permit the Court to

conclude that a deductible expense was paid or incurred in at least the amount

allowed. Williams v. United States, 245 F.2d 559, 560 (5th Cir. 1957).

I. Unreimbursed Employee Business Expenses

      A deduction is allowed under section 162(a) for ordinary and necessary

expenses paid or incurred during the taxable year in carrying on any trade or

business. As used in section 162, an “ordinary” expense is defined as one which is

“normal, usual, or customary” in the taxpayer’s trade or business, see Deputy v.

du Pont, 308 U.S. 488, 494-495 (1940), and “necessary” has been defined as

“appropriate and helpful”, see Welch v. Helvering, 290 U.S. at 113. A deduction

normally is not allowed, however, for personal, living, or family expenses. Sec.

262(a). Whether an expenditure satisfies the requirements for deductibility under

section 162 is a question of fact. See Commissioner v. Heininger, 320 U.S. 467,

475 (1943).

      The term “trade or business” includes performing services as an employee.

Primuth v. Commissioner, 54 T.C. 374, 377-378 (1970). An employee business

expense is not ordinary and necessary, however, if the employee is entitled to
                                       - 10 -

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, at *22.7

      Section 274(d) prescribes more stringent substantiation requirements to be

met before a taxpayer may deduct certain categories of expenses, including travel

expenses, meals and entertainment expenditures, and expenses related to the use of

listed property as defined in section 280F(d)(4)(A). See Sanford v. Commissioner,

50 T.C. 823, 827 (1968), aff’d, 412 F.2d 201 (2d Cir. 1969). The term “listed

property” includes, inter alia, passenger automobiles. Sec. 280F(d)(4)(A)(i). To

satisfy the requirements of section 274(d), a taxpayer generally must maintain

adequate records or produce sufficient evidence corroborating his or her own

statement, which, in combination, are sufficient to establish the amount, date and

time, and business purpose for each expenditure for travel away from home or

each expenditure or business use of listed property. Sec. 1.274-5T(b)(2), (6),

(c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46014, 46016-46017 (Nov. 6,

1985).




      7
       The record includes a statement from VPS that the firm did not reimburse
its employees for work-related expenses. The Court concludes that petitioner was
not entitled to be reimbursed for the expenses in dispute.
                                        - 11 -

      A. Vehicle/Meals and Entertainment/Travel Expenses

      The logs and related schedules that petitioner offered at trial in an effort to

substantiate the vehicle, meals and entertainment, and travel expenses in dispute

do not satisfy the strict substantiation requirements of section 274(d). An

overarching shortcoming is the absence of any objective evidence of the business

purpose for the disputed expenses. The logs lack any description of the work that

petitioner may have performed or business matters that he may have discussed

with VPS’ customers. Although we have no reason to doubt petitioner’s testimony

that his responsibilities at VPS included maintaining good customer relationships,

his logs indicate that nearly every day for two consecutive years (excluding most

weekends) he drove to a customer’s facility and bought lunch for himself and

others. Assuming that petitioner’s logs are accurate, this pattern of activity

strongly suggests that the expenditures in dispute were predominantly personal

and were only indirectly related to the conduct of VPS’ business.8

      The foregoing aside, petitioner’s logs show that on many days he drove

from his home to a customer’s facility, had lunch, and then returned home. He


      8
        For the sake of completeness, we note that petitioner failed to produce
receipts substantiating many of the expenditures for meals and entertainment and
travel. His bank and credit card statements provided little in the way of
corroboration of the expenditures.
                                       - 12 -

likewise reported mileage expenses for round trips from his home to VPS’

headquarters. In the absence of evidence that petitioner’s principal place of

employment was somewhere other than VPS’ headquarters, the miles that he drove

on round trips from his home to customer facilities, and to and from VPS’

headquarters, constitute nondeductible personal commuting expenses. See, e.g.,

Green v. Commissioner, 59 T.C. 456, 459 (1972).

      In sum, respondent’s disallowance of the deductions petitioner claimed for

vehicle, meals and entertainment, and travel expenses for the years in issue is

sustained.

      B. Other Expenses

      Petitioner claimed deductions for other employment-related expenses

including union dues, uniforms, tools, cell phone charges, and miscellaneous

expenses, but he offered no documents, records, or receipts to either substantiate

these expenditures or show that those expenditures qualified as ordinary and

necessary business expenses within in the meaning of section 162. On this record,

there is insufficient evidence to permit the Court to employ the Cohan rule to

estimate the amount allowable as a deduction. Consequently, we sustain

respondent’s proposed disallowance of the remaining amounts petitioner claimed

for unreimbursed employee expenses for the years in issue.
                                        - 13 -

II. Charitable Contributions for 2013

      Petitioner claimed a deduction of $16,637 for charitable contributions by

cash or check on Schedule A for 2013. At trial, however, he produced eight

receipts, listing household items, tools, and sports equipment that he purportedly

had donated to Goodwill. Each receipt included petitioner’s own estimate of the

cumulative value of the items at the time of the donations.

      Section 170 allows deductions for contributions made during a taxable year

to qualifying charitable organizations. Charitable contributions are deductible

only if verified in accordance with regulations prescribed by the Secretary. Sec.

170(a)(1); see Van Dusen v. Commissioner, 136 T.C. 515, 530 (2011).

      Section 170(f)(8)(A) provides that the taxpayer must obtain a

contemporaneous written acknowledgment from the donee for any claimed

charitable contribution deduction of $250 or more. Section 170(f)(8)(B) provides

in relevant part that the contemporaneous written acknowledgment must include

the amount of cash and a description of any property other than cash contributed,

whether the donee organization provided any goods or services in consideration,

in whole or in part, for any cash or property contributed, and, if so, a description

and good-faith estimate of the value of any goods or services provided by the

donee. Sec. 1.170A-13(b), (f), Income Tax Regs.
                                        - 14 -

      In addition to the written acknowledgment requirement, section 170(f)(11)

and related regulations establish more detailed requirements for substantiation of

contributions of property other than money. For noncash contributions of $500 or

less, the taxpayer must substantiate the contribution with a receipt from the donee

indicating the donee’s name, the date and location of the contribution, and “[a]

description of the property in detail reasonably sufficient under the

circumstances.” Sec. 1.170A-13(b)(1), Income Tax Regs. For noncash

contributions in excess of $500, the taxpayer normally must also maintain written

records showing the manner in which the item was acquired, the approximate date

of acquisition, and the cost or adjusted basis of the property. Id. subpara. (3); see

Lattin v. Commissioner, T.C. Memo. 1995-233.9

      The Goodwill receipts that petitioner offered at trial do not include the value

of individual items that he donated. Although it does not appear that any one item

was worth more than $500, petitioner offered no evidence on this point. In any

event, the Goodwill receipts include only generic descriptions of the items

donated. Petitioner did not identify the age, quality, or condition of the donated

      9
       If information regarding the acquisition date or cost basis of the property is
not available and the taxpayer attaches a statement to his return setting forth
reasonable cause for not being able to provide such information, the taxpayer’s
charitable contribution deduction shall not be disallowed on that account. Sec.
1.170A-13(b)(3)(ii), Income Tax Regs.
                                        - 15 -

items, nor did he explain the method or process he used in making his “educated

guess” as to the value of the items. On this record we conclude that petitioner

failed to meet the substantiation requirements for contributions of property other

than money prescribed in section 170(f) and the related regulations.

Consequently, we sustain respondent’s determination that petitioner is not entitled

to a deduction for charitable contributions for 2013.

III. Accuracy-Related Penalties

      Section 6662(a) and (b)(1) and (2) imposes an accuracy-related penalty

equal to 20% of the amount of any underpayment of tax that is due to the

taxpayer’s negligence or disregard of rules or regulations or to any substantial

understatement of income tax. The term “negligence” includes any failure to make

a reasonable attempt to comply with the provisions of the Code, and the term

“disregard” includes any careless, reckless, or intentional disregard of rules or

regulations. Sec. 6662(c). A taxpayer is negligent if he or she fails to maintain

sufficient records to substantiate disputed expenses. Higbee v. Commissioner, 116

T.C. 438, 449 (2001); sec. 1.6662-3(b)(1), Income Tax Regs. By definition, an

understatement generally means the excess of the amount of the tax required to be

shown on the return over the amount of the tax imposed which is shown on the

return, reduced by any rebate. Sec. 6662(d)(2)(A). An understatement is
                                        - 16 -

substantial in the case of an individual if the amount of the understatement for the

taxable year exceeds the greater of 10% of the tax required to be shown on the

return or $5,000. Sec. 6662(d)(1)(A).

      With respect to a taxpayer’s liability for any penalty, section 7491(c) places

on the Commissioner the burden of production, thereby requiring the

Commissioner to come forward with sufficient evidence indicating that it is

appropriate to impose the penalty. Higbee v. Commissioner, 116 T.C. at 446-447.

Once the Commissioner meets his burden of production, the taxpayer must come

forward with persuasive evidence that the Commissioner’s determination is

incorrect. Id. at 447; see Rule 142(a); Welch v. Helvering, 290 U.S. at 115.

      Respondent met his burden of production.10 Petitioner was negligent in

failing to maintain adequate records to substantiate the expenses in dispute.

Moreover, the understatements of income tax for the years in issue are substantial

within the meaning of section 6662(d)(1)(A).

      Petitioner did not offer a defense to the imposition of accuracy-related

penalties in this case other than to assert that respondent had erred in determining

tax deficiencies. That matter having been resolved against him, respondent’s

      10
       The record includes Civil Penalty Approval Forms executed by the
examining agent’s group manager with respect to the sec. 6662 penalties
determined in the notice of deficiency.
                                        - 17 -

determination that petitioner is liable for accuracy-related penalties under section

6662(a) is sustained.

      To reflect the foregoing,


                                                 Decision will be entered

                                       for respondent.
