Opinion
9082-21S
07-27-2022
JOSEPH C. MALEK & MELINDA J. MALEK, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Peter J. Panuthos, Special Trial Judge.
Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is
ORDERED that the Clerk of the Court shall transmit herewith to petitioners and to respondent a copy of the pages of the transcript of the trial in the above case before Special Trial Judge Peter J. Panuthos at Chicago, Illinois, on June 13, 2022, containing his oral findings of fact and opinion rendered at the trial session at which this case was heard.
In accordance with the oral findings of fact and opinion, a decision will be entered for respondent except with respect to I.R.C. section 6662(a) accuracy-related penalty for taxable year 2017.
Bench Opinion
June 16, 2022
Joseph C. Malek & Melinda J, Malek v. Commissioner
Docket No. 9082-21S
THE COURT: The Court has decided to render oral findings of fact and opinion in this case and the following represents the Court's oral findings of fact and opinion (bench opinion). The oral findings of fact and opinion are made pursuant to the authority granted by section 7459 (b) of the Internal Revenue Code and Tax Court Rule 152(a). Rule references in this opinion are to the Tax Court Rules of Practice and Procedure, and section references are to the Internal Revenue Code, in effect at all relevant times.This proceeding for the redetermination of a deficiency is a small tax case subject to the provisions of section 7463 and Rules 170 through 174. Except as provided in Rule 152 (c), this bench opinion shall not be cited as authority, and pursuant to section 7463(b) the decision entered in this case shall not be treated as precedent for any other case.
In a notice of deficiency dated December 28, 2020, respondent determined a deficiency in petitioner's Federal income tax in the amount of $4,834 and a section 6662(a) accuracy-related penalty of 5966.80 for taxable year 2017.
Respondent conceded the accuracy-related penalty under section 6662 (a) . After concession, the issues for decision are whether petitioners are entitled to itemized deductions beyond those already allowed by respondent for: (1) $16,757 in miscellaneous deductions, and (2) $5,150 in cash charitable contribution deductions.
Some of the facts have been stipulated and are so found. We incorporate the First Stipulation of Facts and the attached exhibits by this reference. The record consists of the First Stipulation of Facts with attached exhibits and Mr. Malek's testimony. Petitioners resided in Illinois when the petition was timely filed.
In 2017, Joseph Malek, hereinafter sometimes petitioner, was employed by the City of Chicago as a Chicago Police Department patrol officer and Melinda Malek was an underwriter for Accurate Insurance.
During the relevant time period, Officer Malek was a member of the Fraternal Order of Police Chicago Lodge No. 7 (FOP). Some of the terms and conditions of petitioner's employment was subject to an agreement between the FOP and the City of Chicago. The agreement provided that a police officer could be entitled to reimbursement for certain expenses related to employment. In order to make a claim, police officers were required to provide receipts to the Chicago Police Department. Petitioner did not provide any receipts nor make a claim for employee reimbursement with the Chicago Police Department in 2017.
In addition to his duties as a patrol officer, petitioner was sometimes obligated to appear in local court proceedings on behalf of the Chicago Police Department.
Petitioners timely filed a joint 2017 Federal income tax return. The return included a Schedule A, Itemized Deductions, on which petitioners claimed various itemized deductions, including $250 in tax preparation fees and $16,507 in unreimbursed employee business expenses (before the application of the 2% limitation imposed by section 67 (a)), noncash charitable contributions of $500, and cash charitable contributions of $5,150.
In the notice of deficiency, respondent: (1) disallowed Schedule A deductions for cash charitable contributions and miscellaneous itemized deductions, and (2} imposed a section 6662(a) accuracy-related penalty.
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. 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 deductions claimed by keeping and producing adequate records that enable the Commissioner to determine the taxpayer's correct tax liability. Section 6001; Hradesky v. Commissioner, 65 T.C, 67, 90 (1975J, aff'd per curiam, 540 F.2d 821 (5th Cir. 1976). 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 section 6001; Hradesky v. Commissioner, 65 T.C, at 90.
A taxpayer may deduct ordinary and necessary expenses paid in connection with operating a trade or business. See section 162; Boyd v. Commissioner, 122 T.C. 305, 313 (2004) . Generally performing services as an employee constitutes a trade or business. Primuth v. Commissioner, 54 T.C. 374, 377-378 (1970). To be deductible, however, the taxpayer must not have a right to reimbursement for the expense from the taxpayer's employer. See Orvis v. Commissioner, 788 F.2d 1406, 1408 (9th Cir. 1986) aff'g T.C. Memo 1984-533.
Further, when a taxpayer establishes that he has paid a deductible trade or business expense but is unable to adequately substantiate the amount, the Court may estimate the amount to allow a deduction to that extent. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). To apply the Cohan rule, however, the Court must have a reasonable basis upon which to make the estimate. Vanicek v. Commissioner, 85 T.C 731, 742-743 (1985).
Congress overrode the Cohan rule with section 274 (d), which requires strict substantiation for certain categories of expenses, including travel and meal expenses, as well as vehicle expenses. A taxpayer must substantiate by adequate records or by sufficient evidence corroborating their own statement, the amount, time, place, and business purpose of these expenditures. Section 274(d); Temp. Treas. Reg. 1.274- 5(c)(1).
Despite the fact that petitioner was entitled to reimbursement for at least some business-related expenses, petitioner did not make a claim, nor did he provide detailed testimony or documentary evidence at trial, to support the claimed deductions. Even if the failure to seek reimbursement was not an issue, the Court has no reasonable basis upon which to make any estimates for any expenses under the Cohan rule because of petitioners failure to substantiate any of the claimed expenditures. To the extent some of the claimed expense deductions are subject to section 274(d), petitioners likewise failed to substantiate the claimed deductions. Accordingly, petitioners are not entitled to any miscellaneous itemized deduction. Respondent's determination is sustained as to this issue.
A taxpayer may be entitled to deduct a charitable contribution if he satisfies all the requisites of the Internal Revenue Code. Section 170(a) (1). Petitioners failed to provide any documents or detailed testimony to support the charitable contribution deductions. Accordingly, petitioners are not entitled to additional charitable contributions deductions beyond those already allowed by respondent in the notice of deficiency. Respondent's determination is sustained on this issue.
To reflect the foregoing, decision will be entered for respondent as to the deficiency and for petitioner as to the section 6662 (a) penalty.
This concludes the Court's oral findings of fact and opinion in this case.
(Whereupon, at 11:41 a.m., the above-entitled matter was concluded.)