Abstract
Case Name: Near v. Commissioner, T.C. Memo 2020-010 (January 14, 2020).
Jurisdiction: U.S.T.C.
Petitioners: Daniel Alan Near and Denise Frances Mayhugh.
Respondent: Commissioner of the Internal Revenue Service.
Concepts: Schedule C, Profit or Loss from Business; Tax Deduction; Travel and Car and Truck Expenses; Accuracy Related Penalty
Nature of Case: Whether petitioners are entitled to deduct travel and car and truck expenses reported on petitioner husband’s Schedule C and whether petitioner husband, in the alternative, is entitled to deduct unreimbursed employee expenses?
Introduction
The Tax Court denied a pre-2018 expense deduction to an attorney who failed to submit claims for business expenses to his employer for likely payment and for which he could not substantiate the actual costs.
Background
The Commissioner of Internal Revenue determined a deficiency of $8,721 and a penalty of $1,744 in relation to travel expenses related to work for petitioner, Daniel Near.1 Near worked as an employee for the State of California Department of Transportation, (hereinafter “Caltrans”) in Sacramento, and also owned his own law firm in Folsom, California.2 Near’s wife, Denise Mayhugh, worked as a secretary for Caltrans.3 Near had a monthly Caltrans pass and did not drive to work regularly, sometimes he would carpool with his wife but their schedules did not often match up.4
Near worked on a State civil case requiring him to attend trial in Solano County from October 26 until December 23, 2015.5 During the trial, he rented a hotel room near the courthouse.6 Caltrans allows for reimbursement of miles beyond one’s normal commute and lodging expenses for Near while working as a Caltrans attorney.7
Near and his wife filed a joint Federal income tax return for 2015.8 Included in the tax return was a Schedule C reporting a total of $64,192 in travel expenses related to the trial and for several other trips.9 The Commissioner issued a notice of deficiency disallowing travel, car and truck, and other expenses.10
Case Description
Generally, the Commissioner’s deficiency is presumed correct, and the taxpayer bears the burden of proving it erroneous.11 The buren will shift back to the Commissioner once the taxpayer has submitted all necessary documentation to account for expenses and deductions related to the deficiency on a tax return.12 Here, Near is required to submit receipts, account books, and documentary evidence to meet strict substantiation rules and establish the business purpose of the travel expenses.13
Near did in fact submit receipts and bank statements identifying the amounts, dates, and locations of his reported travel expenses in the amount of $16,954.14 However, none of the documentation provided by Near establish to what extent these expenses establish a business purpose.15 Some of the receipts produced were for Near’s family members and he provided no evidence to distinguish which travel expenses were for business and which were for personal purposes.16 The strict substantiation requirements were not met, and Near is not entitled to a deduction for travel expenses.17
Near additionally contends he is entitled to $5,259 in deductions on his Schedule C for car and truck expenses incurred while operating his law firm.18 To substantiate this, he submitted a list of dates, locations, mileage, parking costs, bank statements, receipts and a calendar.19 The calendar contained names, times, and locations but failed to properly distinguish which appointments were personal and which were for Caltrans or his law firm.20 Expenses for car and truck deductions are also subject to strict substantiation rules and are not met here.21
Conclusion
The documentation provided by Near on his jointly filed tax return does not provide enough information to distinguish which expenses, if any, were incurred for the sole purpose of business.22 Thus, Near is not entitled to deductions for unreimbursed employee expenses nor for travel, car and truck expenses.23