                              T.C. Memo. 2018-44



                        UNITED STATES TAX COURT



        RAYMOND EDWARDS AND ROSA EDWARDS, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 12651-16.                        Filed April 4, 2018.



      Raymond Edwards and Rosa Edwards, pro sese.

      Nancy M. Gilmore and David A. Indek, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      LAUBER, Judge: With respect to petitioners’ Federal income tax for 2012,

2013, and 2014, the Internal Revenue Service (IRS or respondent) determined de-

ficiencies of $3,987, $4,796, and $4,707, respectively. The IRS also determined
                                         -2-

[*2] for 2012 a late-filing addition to tax of $314 under section 6651(a)(1).1 After

concessions,2 we must decide whether petitioners are entitled to deductions

claimed on Schedule A, Itemized Deductions, for unreimbursed employee busi-

ness expenses in excess of the amounts the IRS allowed. Resolving this question

in respondent’s favor, we will sustain the deficiencies he has determined.

                               FINDINGS OF FACT

      The parties filed two stipulations of facts that are incorporated by this refer-

ence. Petitioners resided in Maryland when they timely petitioned this Court.

      During the tax years in issue Mr. Edwards worked as a transportation sys-

tems supervisor for the Maryland Department of Transportation (MDOT). For all

three years he also served as the president of the American Federation of State,

County, and Municipal Employees (AFSCME) Local 631, a labor union. Mrs.


      1
        All statutory references are to the Internal Revenue Code (Code) in effect
for the years in issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure. We round all monetary amounts to the nearest dollar.
      2
        At trial petitioners conceded: (1) that they received but failed to report tax-
able interest income of $43, $72, and $25 for 2012, 2013, and 2014, respectively;
(2) that they received but failed to report a taxable refund of State income tax of
$3,041 for 2013; and (3) that respondent properly disallowed itemized deductions
for personal property taxes of $380 and $190 for 2012 and 2014, respectively. Pe-
titioners stipulated that they “late filed their 2012 return,” and they did not chal-
lenge, in their petition or at trial, respondent’s determination of a late-filing addi-
tion to tax for 2012. We accordingly deem them to have conceded the $314 addi-
tion to tax for that year. See Rule 34(b)(4).
                                           -3-

[*3] Edwards worked as a human resources officer for the Central Intelligence

Agency (CIA).

      Mr. Edwards’ job involved responding to emergencies, such as floods and

hurricanes, that could adversely affect Maryland’s transportation systems. He was

responsible for supervising communications (e.g., emergency broadcasts and

police transmissions) and for assigning personnel and equipment to disaster loca-

tions. When an emergency occurred, he was usually required, at any time of day

or night, to travel to the site to supervise the activities of the first responders.

MDOT generally reimbursed its employees for meals consumed on trips involving

overnight travel and for certain meals consumed during unusually long workdays.

      In his capacity as president of AFSCME Local 631, Mr. Edwards was re-

sponsible for arranging meetings, conferences, and social events. When doing so

he was sometimes required to make deposits for restaurant and hotel space. His

services for AFSCME required travel to various locations in southern Maryland,

including Annapolis, where he occasionally met with elected officials. He also

traveled to attend AFSCME national conventions. The union reimbursed him for

hotel and air travel expenses.

      Petitioners jointly filed Forms 1040, U.S. Individual Income Tax Return, for

2012-14. They filed their 2012 return late, on October 23, 2012, and they filed
                                        -4-

[*4] their 2013 and 2014 returns on time. On these returns they claimed itemized

deductions on Schedule A for unreimbursed employee business expenses as

follows:

                                 Year         Amount

                                 2012         $22,472
                                 2013          26,186
                                 2014          26,785

      The IRS selected petitioners’ 2012-14 returns for examination. After re-

ceiving substantiating documentation, the IRS allowed portions of Mr. Edwards’

claimed deductions as follows:

                      Item                    2012      2013    2014

                Union dues                    $493      $515     $502
                Vehicle expenses                604      615      609
                P.O. box rental                  72       72        72
                Cell phone                       21       21        21
                Other business expenses       2,445      -0-     1,053
                  Total                       3,635     1,223    2,257

      On March 1, 2016, the IRS sent petitioners a timely notice of deficiency dis-

allowing the balance of their claimed deductions for unreimbursed employee busi-

ness expenses. They timely petitioned this Court for redetermination of the defici-

encies.
                                        -5-

[*5]                                 OPINION

       The IRS’ determinations in a notice of deficiency are generally presumed

correct, and the taxpayer bears the burden of proving those determinations errone-

ous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Petitioners do

not contend that the burden of proof shifts to respondent under section 7491(a) as

to any issue of fact.

        Section 162(a) allows the deduction of “all the ordinary and necessary ex-

penses paid or incurred during the taxable year in carrying on any trade or busi-

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

Primuth v. Commissioner, 54 T.C. 374, 377-378 (1970). Deductions are a matter

of legislative grace; the taxpayer bears the burden of proving his entitlement to

deductions allowed by the Code and of substantiating the amounts of expenses

underlying claimed deductions. Sec. 6001; INDOPCO, Inc. v. Commissioner, 503

U.S. 79, 84 (1992); sec. 1.6001-1(a), Income Tax Regs. The failure to keep and

present accurate records counts heavily against a taxpayer’s attempted proof.

Rogers v. Commissioner, T.C. Memo. 2014-141, 108 T.C.M. (CCH) 39, 43.

       Section 274(d) imposes relatively strict substantiation requirements for de-

ductions claimed for (among other things) “listed property.” Listed property in-

cludes any “passenger automobile.” Sec. 280F(d)(4). No deduction is allowed
                                         -6-

[*6] under section 274(d) unless the taxpayer substantiates, by adequate records or

by sufficient evidence corroborating his own statements, the amount, time, place,

and business purpose for each expenditure. Sec. 1.274-5T(a), (b), and (c), Tem-

porary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).

      The IRS disallowed deductions of $18,837, $24,963, and $24,529 for 2012,

2013, and 2014, respectively. Of these amounts, $11,011, $12,600, and $13,370,

respectively, were claimed on Forms 2106-EZ, Unreimbursed Employee Business

Expenses, for Mrs. Edwards’ business as a CIA employee.3 At trial she conceded

that the CIA reimbursed her for all out-of-pocket expenses, so that none of the ex-

penses reported for her was properly deductible. The deductions remaining in dis-

pute--$7,826, $12,363, and $11,159 for 2012, 2013, and 2014, respectively--were

claimed on Forms 2106, Employee Business Expenses, for Mr. Edwards.




      3
       Petitioners were unable to produce a copy of their 2012 return, and respon-
dent was able to secure only a tax return transcript, rather than an original copy, of
the 2012 return. The tax return transcript shows only the total amount of
unreimbursed employee business expenses reported, $22,472, rather than the
amount for each spouse. For 2013 and 2014 the percentage of petitioners’
unreimbursed employee business expenses reported on Mrs. Edwards’ Forms
2106-EZ was roughly 49%. We have assumed that the same percentage was
allocable to her for 2012.
                                         -7-

[*7] A.    Car and Truck Expenses

      Mr. Edwards claimed vehicle costs--comprising mileage allowances, park-

ing, and tolls--in connection with his business as a MDOT employee and also in

connection with his business as president of AFSCME Local 631.4 In 2013, for

example, he reported that he had driven 10,500 business miles (out of 14,000 total

miles driven in that vehicle), generating vehicle costs of $4,955 (at $0.565 per

mile). He also reported expenses of $800 for parking and tolls. The examining

agent for 2013 allowed him to deduct a mileage expense of $615, representing

1,088 business miles, and no expense for parking and tolls.

      Because passenger automobiles constitute “listed property,” Mr. Edwards’

reported car and truck expenses are subject to the heightened substantiation re-

quirements described above. See Fernandez v. Commissioner, T.C. Memo. 2011-

216, 102 T.C.M. (CCH) 242, 244. To satisfy these requirements, the taxpayer

generally must keep a contemporaneous mileage log or a similar record, such as a

diary or trip sheets, that substantiates the extent to which the vehicle was actually

used for business rather than personal purposes. See Michaels v. Commissioner,

      4
      Petitioner submitted no testimony or other evidence to establish that he was
compensated for his service as president of AFSCME Local 631. If he received no
compensation, this would be an “activity * * * not engaged in for profit,” and any
expenses he incurred in connection therewith would be nondeductible for that rea-
son. See sec. 183(a), (b)(2).
                                         -8-

[*8] 53 T.C. 269, 275 (1969); Flake v. Commissioner, T.C. Memo. 2014-76, 107

T.C.M. (CCH) 1399, 1401-1402. Lacking contemporaneous records, the taxpayer

must produce other credible evidence sufficient to corroborate his own statements

concerning business use. Sec. 1.274-5T(c), Temporary Income Tax Regs., supra.

      We find that petitioners have failed to carry their burden of proving that Mr.

Edwards incurred deductible car and truck expenses in excess of the amounts re-

spondent has allowed. Mr. Edwards’ claimed mileage seems implausible on its

face: Since he used the car for personal purposes and for daily commuting, we did

not find persuasive the assertion that 75% of the miles driven during 2013 (10,500

÷ 14,000) were business related. In any event, petitioners failed to submit for any

year at issue any form of documentation, such as mileage logs, odometer readings,

diaries, or trip sheets, to substantiate the extent to which the vehicle was actually

used for business rather than personal purposes.5 Petitioners accordingly have not

met the strict requirements of section 274(d) for substantiating expenses attribut-

able to listed property.




      5
       Petitioners submitted some receipts for parking and tolls but supplied no
evidence linking those costs to any business activity. Petitioners also submitted
receipts for gasoline purchases, but gasoline costs are subsumed within the mile-
age allowance. See Rev. Proc. 2010-51, sec. 4.02, 2010-51 I.R.B. 883, 884.
                                        -9-

[*9] B.     Other Employee Expenses

      The bulk of Mr. Edwards’ other expenses were reported on line 4 of Form

2106, which covers business expenses other than vehicle costs, meals, entertain-

ment, and travel expenses incurred while away from home overnight. Petitioners

did not specify the nature of the reported expenses on the attachments to their re-

turns. And Mr. Edwards’ trial testimony on this point was vague. He stated that,

in his capacity as president of AFSCME Local 631, he sometimes had to make

deposits for hotel and restaurant space. The record does contain several checks

signed by Mr. Edwards and made out to hotels, but all of these checks were drawn

on an AFSCME Local 631 bank account.

      The examining agent allowed deductions of $2,445 and $1,053 for other

unreimbursed employee business expenses Mr. Edwards paid in 2012 and 2014,

respectively. As far as we can tell, these allowances appear generous. After

careful review of the record evidence, we have discerned no substantiation for

unreimbursed employee business expenses beyond the amounts the IRS has

allowed.6

      6
       The parties submitted a second stipulation of facts that included additional
documents proffered by petitioners by way of substantiation. Three of these docu-
ments related to home mortgage interest. Far from questioning petitioners’ item-
ized deductions for home mortgage interest, the notice of deficiency for each year
                                                                       (continued...)
                                     - 10 -

[*10] To implement the foregoing,


                                              Decision will be entered for

                                    respondent.




      6
        (...continued)
allowed increased deductions in excess of $3,000. Most of the other documents
petitioners included in the second stipulation of facts were illegible.
