Hassan S. Niyitegyeka, Petitioner

T .C . Summary Opinion . 2008-12 9

UNITED STATES TAX COURT

HASSAN S . NIYITEGYEKA, Petitioner v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 3916-07S .-' Filed September 24, 2008 .

Hassan S . Niyitegyeka, pro se .

William C . Bogardus, for respondent .

GOLDBERG, Special Trial Judge : This case was heard pursuant to the provisions of section 7463 of the Internal Revenue Code in effect at the time the petition was filed . Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case . Unless otherwise indicated, subsequen t section references are to the Internal Revenue Code in effect fo r

SERVED SEP 2 4,2008

a,.w .

the'°y,e'ar ., .iri i ssue , and all . Rule references are to the Tax Court Rules of Practice and Procedure .

Respondent determined ,a $2,413 deficiencytiin petitioner' s Federal income. tax for 2004 . . After petitioner's concession th e sole issue,-for decision is whether petitioner is entitled to de' "duct the unreimbursed employee . business expenses that he claimed .

Background .

Some of the .,facts have been stipulated and are so fou n The stipulation of facts and the-attached exhibits are incorporated herein by this reference .'` Petition.er resided in .Ne w York when the petition was filed .

During 200 4.petitioner .work.ed for five--,'or six,(cid:127)different- employers, and he .reported totalincome,of $26,3926 . His principal employer was the News York Life Insurance'Co . .(New=Y.ork Life), where he worked for 6 ,or 7 months from,January`„throug h June or July . New York Life employed petitioner as a "salesperson ; in training" . He did not receive a :salary ; rather , he earned his income entirely .`through commissions .

During 200 4 petitioner . earned .:$18, 706 from ;,:New .: York .Life .

Petitioner lived in Brooklyn-and- commuted . via subway to an office in Manhattan -that New, .York Life- :designated . His,sales territory included Manhattan` and,the .surr,ounding areas .

; , Petitioner generated about(cid:127),8-0percent of-hi :s business by calling on prospective clients . He worked days, nights, and weekends .

Petitioner traveled as far as the outlying parts of Queens, New 3 - Jersey, .and Connecticut to meet with clients, and heoften drove his own car, stayed in hotels, and paid for meals . New York Life did .not reimburse petitioner .-for his expenses because the company's policy was not to reimburse its sales trainees . Thos e unreimbursed expenses are the . ones at :issue .

Petitioner hired a tax . preparation firm to prepare,his 2004 tax return, and he provided some receipts to the preparer .

However, because petitioner did not maintain a log book, did not have other receipts, and did not have totals for the business expenses he paid, the preparer and petitioner estimated the amount of the expenses . Petitioner claimed a total of $15,500 in unreimbursed employee business expenses .as a miscellaneous deduction on Schedule A, Itemized Deductions .' The $15,500 consisted of : (1) $4,500 in automobile expenses using the standard mileage rate, (2) $7,500 for travel expenses 'on overnight trips, and (3) $3,500 for other expenses such as meals near home . Respondent disallowed the entire amount of the deduction .

' Petitioner's actual deduction was less because-he properly reduced his miscellaneous itemized expenses by 2 percent of his adjusted gross income as sec . 67(a) requires. . However, petitioner did not first reduce his meal and entertainment expenses by 50 percent as sec . 274(n) requires .

- ' - Petitioner . stored his ; 'receipt;s ,in ~ a` binder in This car . In November 2005 the,car was-stolen .

;Petitioner notified th e police, and 2 or 3 weeks ;later, the pol ice recovered -the vehicle ; however , the ,,business receipts ;were gone , ., 'Consequently," petitioner was not able; . to,cp. rovide'receipts. to respondent or th e -Court . w At trial petitioner"p .r,ovided for, the first time a computer- listing, purportedly from New York Life, 'that detailed dates, client names, . ,and amounts for : his ,,draw 'and,, commission activities .

.

The listing did . not, ;` however, provide ,client addresses, locations, or ; .distances . The li{st'ing, was :printed on,,plain -white paper with no indication of ,the source - ;Petitioner .,did_not .have a representative ,, ;from New .York Life corroborate°t .he listing,, and he did not, call his . tax preparer,- clients, or anyone-else-,to testify on hirs, behalf Discussio n In- general, , the Commissi"oner's determination set forth-in a notice °: of deficiency is presumed corrects ,, and ,the . `.taxpayer bears the `burden :of showing that .,the ; determinat on is ' in error . -;Rule 142(a ) ; Welch v . Helverina ,, .290 U . S . 111 ,. 115 (1933) .

Deductions are a matter of legislative grace , and taxpayers , bear the burden of proving their entitlement to a deduction .

INDOPCO, `Inc. v 'Commissioner 503 U :-S . 79,, 84 (1992 Ne w Colonial Ice 'Co . v . Helverina ,` 292 `U `S . `435,` 440 (1934) Section ,6001 requires taxpayers to maintain records sufficient t o establish the amount of each deduction . See sec . 1 .6001-'1(a ('e), Income Tax Regs' . Thus, taxpayers may deduct only the business expenses that they can substantiate .

Ronnen v .

Commissioner ; 90 T .C . 74, 102 (1988) .

Under section 7491(a) a taxpayer may shift the burden to the Commissioner regarding a factual-issue if the taxpayer produces credible evidence and meets the other requirements of the, section . Under section 7491(a), a taxpayer must substantiate items, . maintain records ; and cooperate fully with the Secretary's reasonable requests for documents, information, and similar corroboration .

Connors v . Commissioner , 277 Fed . Appx .°122 (2d Cir . 2008), affg . T .C . Memo . 2006-239 . Neither party raised section 7491(x)' as an issue . Because Petitioner did not' substantiate :his expenses, we find that the burden of'proo f remains with him .

A taxpayer may deduct ordinary and necessary expenses that he or she pays in connection with the operation of a trade or business . Sec . 162(a) ; Boyd v . Commissioner ,' 122 T .C . 305, 313 (2004) . 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, supra at 113 . Additionally, the expenditure must be "directly connected .(cid:127)with or pertainingN .to the taxpayer',s trade .or business" .< Sec ., 1 .16271(a)(cid:127),,Income Tax,Regs . Sectiori .% 2 .62(a) excludes deductions for personal,. living,-or family , expenses . A-trade-or business-includes the trade or businessry"of- being an employee . O'Malley v . Commissioner , 91 .T .C ., 352,, ; 363 - 364, ,(1988) However, a full-time .life insurance salesperson- , might qualify as-a statutory employee = under . section ,,.

3121(d)(3)(B), so that the employee may deduc.t,,business expenses on Schedule . .C,~ Profit .= or ;Loss -From Business, "above the , line'' .: on Form 104-0,-U .S .Individual,Income :Tax Return . : . instead of .,claiming .

the expenses "below, the line" on Schedule A, htemizedDeductions,= as miscellaneous itemized .deductions,.,which section 67(a) reduces, by 2 percent of adjusted gross=irricome Rev .' Rul 90793, 1990-2 C .B . 33 . Petition.er°has ;neither,argued :nor established,that?he is a statutory employee as, opposed to being .a .common ,l°a w employee .

To qualify for a .,..deduction, the -taxpayer must not have .. .,the right to obtain reimbursement from ,,his employer . See,- Orvis . v .

Commissioner , .7.88 F...2d 1406,'.14 .08, (9th Cir . 198,6), affg . T .C .

Memo . 19 .8,4-533 . - Likewise :aa,taxpay.er may "not =deduct "unreimbursedA _ employee expenses if :the empl1oyer maintains= .a ,-reimbursement . plan and the employee fails to : seek . reimbursement for~°work-'related .

expenses . See . Orvis v .

.Commi?s'si°"oner ,- supra at, 1-408 ; Le .amy„ v Commissioner , ,85 . T .C . 798 .,, 810 (1985) . The .-record :indicates that 7 _ New York Life had a policy to not reimburse its sales trainees and'that petitioner did not receive reimbursement .

If a taxpayer establishes that he or she paid a deductible expense but is unable to substantiate the precise amount, we may estimate the amount of the deductible expense bearing heavily against the taxpayer whose inexactitude is of his own making .

Cohan v . Commissioner , 39 F .2d 540, 543-544 (2d Cir . 1930) .

However, we .can estimate only when the taxpayer presents sufficient evidence . Vanicek v . Commissioner , 85 T .C . . 731, 742- 7 .43 (1985) . Without such a basis, any allowance would amount to unguided largesse .

Williams v . United States , 245 F .2d 559, 560- 561 (5th Cir . 195 .7 ) Section 274 overrides the Cohan rule for certain business expenses . Sec . 1 .274-5T(a), Temporary Income Tax Regs ., 50 Fed .

Reg . 46014 (Nov . 6, 1985) . Section 274 requires stricter substantiation for travel, meals, entertainment, and listed property such as a passenger automobile . Thus, all three of the unreimbursed business expenses that petitioner deducted are subject to section 274 substantiation requirements . Section 274(d) requires taxpayers to provide adequate records or sufficient other evidence establishing the amount, time, place, , and business purpose of the expense to corroborate the taxpayers' statements . Even if such an expense would otherwise be I deductible, section 274 may still disallow a'deduction if the taxpayer does not have sufficient substantiation : See sec . °' 1.274-5T(a), Temporary Income Tax'Regs ., . ., supra . Keeping, .in min d these well-established principles ; . we must'now-!determine for=each of the three unre'imbursed expenses whether petitioner,satisfie d his burden-of proving that-he may deduct the expense :

Regarding the-automobile deduction of $4,500, petitioner ..

used the standard mileage . . rate, but ,he .dida`not maintain a : log` .

We recognize that .a contemporaneous .log=is not-a :requirement, s, ,however,the .a.lternate°evidence .must noneth e ' level of credibility as a contemporaneous log .: See .sec . 1 .274-_ 5T (e) (1) ° Temporary Income Tax Regs . 50 Fed .y Reg . 46016-17 (Nov :

6, .1985) . The only evidence in the -record is the='computer .

listing that petitioner ; entered at trial . However, -, the . listing did not indicate "distance, address,, . or which-clients required .

mileage . As a>result,petitioner didnot,substantiate his .

business mileage and, "consequently, ,,he is not ; :entitled_to >an : , automobile ; ;,.deduction for-2004 .

, Similarly, regarding petitioner's travel and,- meal expenses , he may deduct . those expensesonlyif he met the stringen t substantiation requirements . of section 274(d) .-,,,See 'Sanford'v . i .

Commissioner ; 50 T .-C . 823, :827-828 (1968 .), 'affd . -412 F . 2d 201 : (2d .b- Cir .

.1969)- ; sec . 1 .274-.5T (a) , Temporary Income Ta .x,Begs :;,°w ..50 Fed .- Reg . 46014, (Nov .--6,-,1985) :.-,-,,,Further,,,-even when a, taxpayer Chas ' lost records through :circumstances,beyond his control, .such a 9 - the auto theft here, the taxpayer must substantiate the deductions through other evidence such as a credible reconstruction of the records .

Boyd v . Commissioner , 122 T .C . at 320-321 ; sec . 1 .274-5T(c)-(5), Temporary Income Tax Regs ., 50 Fed .

Reg . 46022 (Nov . 6, 1985) . The only documentary evidence in the record for the travel . and meals is the computer listing of draw s and commissions that did not indicate locations or which clients required an overnight trip or a meal . Thus, petitioner 'failed to provide corroborating evidence sufficient to satisfy sectio n 274(d), and therefore he may not deduct his travel or .meal expenses .

In summary, we have taken into consideration petitioner's .testimony and the other evidence . The record lacks a journal, receipts, or other documentary evidence to provide a rational basis on which we may determine even a partial deduction . Thus, we have no foundation on which to provide an estimate even if section 274 allowed such an estimate .

In conclusion, we sustain respondent's determination in full . Petitioner may not deduct the unreimbursed employee business expenses for 2004 .

Decision will be entere d for respondent .