                          T.C. Summary Opinion 2016-60



                         UNITED STATES TAX COURT



              ANDREW CHRISTOPHER SANEK, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 4700-14S.                          Filed September 22, 2016.



      Andrew Christopher Sanek, pro se.

      Jamie A. Schindler, for respondent.



                              SUMMARY OPINION


      CARLUZZO, Special Trial 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 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 and in effect for 2010. Rule references are to the Tax
Court Rules of Practice and Procedure.
                                         -2-

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

for any other case.

      In a notice of deficiency dated December 6, 2013 (notice), respondent

determined a $7,388.72 deficiency in petitioner’s 2010 Federal income tax and

imposed a $1,477.74 section 6662(a) accuracy-related penalty.

      After concessions,2 the issues for decision are whether petitioner: (1) is

entitled to deductions claimed on a Schedule A, Itemized Deductions, in excess of

the amounts now allowed by respondent and (2) is liable for a section 6662(a)

accuracy-related penalty.

                                     Background

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

petition was filed, petitioner resided in Florida.

      Petitioner holds a bachelor’s degree in construction management from the

University of Florida. During the year in issue he worked as a project manager for

Kirlin Florida, LLC (Kirlin), a mechanical contractor. At the time, his normal post

of duty was at Kirlin’s Riviera Beach, Florida office (office), but he spent the


      2
        Respondent concedes petitioner’s entitlement to a $5,493 travel expense
deduction related to rent, and petitioner concedes the remaining portion of the
claimed travel expense deduction, or $5,777. Petitioner concedes that he is
entitled, at most, to a $3,933.80 vehicle expense deduction.
                                        -3-

entire year in issue working on jobsites in Miami: first on a project at the Miami

Airport that lasted until April 2, 2010, and then at Marlins Park for the remainder

of the year. With the exception of his two-week vacation, petitioner typically

worked five days a week.

      While working on the above-referenced projects in the Miami area,

petitioner stayed in a rented apartment/room in Weston, Florida (Weston

apartment), approximately 30 miles from the Miami Airport and Marlins Park

jobsites. On Friday afternoons he traveled by car approximately 80 miles from

either the Miami Airport or the Marlins Park jobsite to the office and then another

111 miles to Sebastian, Florida, where he maintained his residence. Typically, he

returned to the Miami area on Monday mornings, usually stopping at the office

along the way to whatever jobsite he was working at that day. He maintained a

Sunpass account that he used to pay tolls. Kirlin did not provide housing to

petitioner or reimburse him for the Weston apartment, nor did it provide him a per

diem travel allowance. Kirlin reimbursed petitioner for mileage driven in

connection with his employment to the extent discussed below.

      At all times relevant, petitioner maintained a monthly mileage log in which

he recorded daily entries showing, as relevant, a date, a beginning and ending

odometer reading, and total miles driven.
                                       -4-

      Petitioner used his personal automobile in connection with

employment-related travel. Kirlin’s employee business expense reimbursement

policy (reimbursement policy) provided for reimbursement for the use of “personal

vehicles to conduct business in and around the work place, [and] to drive to

another location for business”. According to the reimbursement policy, an

employee was entitled to reimbursement for mileage at “the rate established by the

IRS”. In practice, however, Kirlin provided petitioner with a mileage allowance of

$350 per month pursuant to what was apparently a “nonaccountable plan.” See

sec. 1.62-2(c)(3), Income Tax Regs. The monthly mileage reimbursements are

included in the income shown on petitioner’s 2010 Federal income tax return,

which he prepared and filed electronically.

       That return includes a Schedule A. As relevant, on the Schedule A

petitioner claimed a $33,867 unreimbursed employee business expense deduction.

The details of the unreimbursed employee business expense deduction are shown

on a Form 2106, Employee Business Expenses, also included with petitioner’s

2010 return, as follows:
                                        -5-

                    Expense                          Amount

          Vehicle                                     $9,000
          Tolls                                          400
          Travel                                      11,270
          Unspecified business expenses1               1,908
            Total2                                    33,867
          1
            Unspecified business expenses include: (1) $1,762.39 for the use of a
      cell phone; (2) $100 for steel-toe “construction work boots”; and (3)
      $45.61 for work shirts.
          2
            On the Form 2106 petitioner mistakenly multiplied his total employee
      business expenses of $22,578 by 50% for a result of $11,289 and reported
      that amount on line 9, column B. The amount reported on line 9, column B,
      which should have been zero, was taken into account in the calculation of
      petitioner’s employee business expense deduction. This, in turn, caused
      petitioner to overstate the claimed employee business expense deduction by
      $11,289 on Schedule A of his 2010 return. At trial the parties mistakenly
      proceeded as though the overstated amount related to petitioner’s meals
      expense. However, in a letter to respondent dated May 9, 2013, petitioner
      acknowledged this mistake and appeared to concede entitlement to the
      deduction at trial.

      In the notice respondent: (1) disallowed the entire deduction for

unreimbursed employee expenses and (2) imposed a section 6662(a)

accuracy-related penalty. According to the notice, petitioner “did not establish

that the business expense * * * was paid or incurred during the taxable year and

that the expense was ordinary and necessary to” his business. Respondent also

imposed a section 6662(a) accuracy-related penalty for “negligence or disregard of

rules or regulations.” Other adjustments made in the notice need not be discussed
                                       -6-

as they are computational or have no consequence to the deficiency here in

dispute.

                                    Discussion

      As we have observed in countless opinions, deductions are a matter of

legislative grace, and the taxpayer bears the burden of proving entitlement to any

claimed deduction.3 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). This

burden requires the taxpayer to substantiate expenses for deductions claimed by

keeping and producing adequate records that enable the Commissioner to

determine the taxpayer’s correct tax liability. Sec. 6001; Hradesky v.

Commissioner, 65 T.C. 87, 89-90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir.

1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). 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. at 89-90; sec.

1.6001-1(a), Income Tax Regs. In the event that a taxpayer establishes that a


      3
        Petitioner does not claim and the record does not show that the provisions
of sec. 7491(a) are applicable, and we proceed as though they are not.
                                       -7-

deductible expense has been paid but is unable to substantiate the precise amount,

we generally may estimate the amount of the deductible expense, bearing heavily

against the taxpayer whose inexactitude in substantiating the amount of the

expense is of the taxpayer’s own making. Cohan v. Commissioner, 39 F.2d 540,

543-544 (2d Cir. 1930). We cannot estimate a deductible expense, however,

unless the taxpayer presents evidence sufficient to provide some basis upon which

an estimate may be made. Vanicek v. Commissioner, 85 T.C. 731, 743 (1985).

      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).

      A deduction under section 162 generally is not allowable to an employee to

the extent that the employee is entitled to (but does not claim) reimbursement of

the expense. Lucas v. Commissioner, 79 T.C. 1, 7 (1982); Podems v.

Commissioner, 24 T.C. 21 (1955). Such an expense generally is not considered

“necessary”. See Orvis v. Commissioner, 788 F.2d 1406, 1408 (9th Cir. 1986),

aff’g T.C. Memo. 1984-533; Podems v. Commissioner, 24 T.C. at 22-23.
                                         -8-

      Section 274(d) imposes strict substantiation requirements for travel,

entertainment, gift, 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: (1) the amount of the expense; (2) the

time and place the expense was incurred; (3) the business purpose of the expense;

and (4) in the case of an entertainment or gift expense, the business relationship to

the taxpayer of each expense incurred. For “listed property” expenses, the

taxpayer must establish the amount of business use and the amount of total use for

such property. See sec. 1.274-5T(b)(6)(i)(B), Temporary Income Tax Regs., 50

Fed. Reg. 46016 (Nov. 6, 1985).

      Substantiation by adequate records requires the taxpayer to maintain an

account book, a diary, a log, a statement of expense, trip sheets, or a similar record

prepared contemporaneously with the expenditure and documentary evidence

(e.g., receipts or bills) of certain expenditures. Sec. 1.274-5(c)(2)(iii), Income Tax

Regs.; sec. 1.274-5T(c)(2), Temporary Income Tax Regs., 50 Fed. Reg. 46017

(Nov. 6, 1985). Substantiation by other sufficient evidence requires the
                                       -9-

production of corroborative evidence in support of the taxpayer’s statement

specifically detailing the required elements. Sec. 1.274-5T(c)(3), Temporary

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

I. Vehicle and Toll Expenses

      Petitioner claimed unreimbursed employee business expense deductions for

vehicle expenses of $9,000 and tolls of $400. Petitioner now claims that he is

entitled, at most, to a $3,933.80 vehicle expense deduction in addition to the $400

tolls expense deduction.

      According to petitioner, the deduction he now claims includes mileage

driven only on his Friday afternoon travel from either the Miami Airport or the

Marlins Park jobsite to the office and on his Monday morning drives from the

office to either the Miami Airport or the Marlins Park jobsite. Petitioner computed

the $3,933.80 deduction he now claims for vehicle expenses by applying the

applicable standard mileage rate of 50 cents per mile to the 7,867.60 business

miles he claims to have driven.4




      4
       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
50 cents per mile for 2010 is set forth in Rev. Proc. 2009-54, sec. 2.01, 2009-51
I.R.B. 930, 930.
                                        - 10 -

      Petitioner contends that the tolls were paid through the use of a Sunpass

account. According to petitioner, the tolls expense includes only tolls paid for

travel between the office and the Miami area jobsites.

      According to respondent, petitioner is not entitled to a deduction for vehicle

and toll expenses because those expenses were reimbursable by his employer.

See Lucas v. Commissioner, 79 T.C. at 7; Podems v. Commissioner, 24 T.C. 21.

Respondent further argues that petitioner has failed to adequately substantiate

those expenses.

      Kirlin’s written mileage reimbursement policy notwithstanding, we find

from petitioner’s credible testimony on the point that in practice the company

reimbursed his employment-related mileage only to the extent of $350 per month,

and that amount is included in the income shown on his 2010 return. We further

find that Kirlin’s practice, rather than its written policy, controls. Under the

circumstances, the applicable regulations provide that the vehicle and toll

expenses, if properly substantiated, are allowable as miscellaneous itemized

deductions. See sec. 1.62-2(c)(5), Income Tax Regs.

      Taking into account his credible testimony on the point and his required

duties as a project manager for Kirlin, including the locations of the office and the

jobsites where he performed his work, and after reviewing his mileage logs, we
                                          - 11 -

find that petitioner has established that he traveled 7,867.60 business miles, and he

is entitled to a deduction for those miles as an unreimbursed employee business

expense.

      With reference to the $400 deduction for tolls, petitioner provided bank

records showing debits from his bank account to replenish his Sunpass account as

well as Sunpass documentation showing the effective toll rates as of July 1, 2014,

for tolls from the office to the Miami area. Because his Sunpass documentation is

from a year other than the year in issue, we cannot determine the amount petitioner

expended for Sunpass charges related to business miles. Petitioner has failed to

satisfy the strict substantiation requirement of section 274(d) with regard to the

tolls expense deduction, and accordingly he is not entitled to a deduction for tolls.

II. Unspecified Business Expense

      Petitioner claimed an unspecified business expense deduction relating to:

(1) $1,762.39 for the use of a cell phone; (2) $100 for steel-toe “construction work

boots”; and (3) $45.61 for work shirts.

      A. Cell Phone Expense

      Petitioner’s bank records indicate that he incurred charges for the use of a

cell phone during the year in issue. This documentation does not provide

sufficient detail to distinguish between charges for business and personal use;
                                         - 12 -

thus, the Court is unable to estimate a deductible amount. See Cohan v.

Commissioner, 39 F.2d at 543-544; see also Vanicek v. Commissioner, 85 T.C. at

742-743. Accordingly, petitioner is not entitled to a deduction for cell phone

expenses.

      B. Clothing

      The cost of clothing may be deductible if: (1) the clothing is of a type

specifically required as a condition of employment; (2) it is not adaptable to

general usage as ordinary clothing; and (3) it is not so worn. Yeomans v.

Commissioner, 30 T.C. 757, 767 (1958). Petitioner testified that he purchased

steel-toe “construction work boots” for $100 and work shirts for $45.61 during the

year in issue, and we accept his testimony that he did. We find that the work boots

satisfy the criteria set forth in Yeomans, and therefore petitioner is entitled to a

$100 deduction for them. See Cohan v. Commissioner, 39 F.2d at 543-544.

However, he failed to establish that the work shirts were not suitable or adaptable

to general use as ordinary clothing. Consequently, he is not entitled to a deduction

for that expense.

III. Accuracy-Related Penalty

      Lastly, we consider whether petitioner is liable for a section 6662(a)

accuracy-related penalty.
                                       - 13 -

      Various grounds for the imposition of that penalty are set forth in the notice.

Nevertheless, if petitioner shows that he acted in good faith and there is reasonable

cause for the underpayment, then the section 6662(a) accuracy-related penalty is

not applicable. See sec. 6664(c); Higbee v. Commissioner, 116 T.C. 438, 446-447

(2001).

      Petitioner, who is relatively unsophisticated as to tax matters, made a

reasonable attempt to comply with the provisions of the Code and to exercise

ordinary and reasonable care in the preparation of his 2010 return. We are

satisfied that petitioner had reasonable cause and acted in good faith with respect

to the underpayment of tax that will remain. See sec. 6664(c). He is not liable for

the section 6662(a) accuracy-related penalty.

      To reflect the foregoing,


                                                     Decision will be entered

                                                under Rule 155.
