Verbica v. Commissioner

MEMORANDUM FINDINGS OF FACT AND OPINION

NIMS, Judge: Respondent determined a deficiency of $30,240.95 in petitioner's 1978 Federal income tax and an addition to tax under section 6653(a) ¹ in the amount of $1,512.04.

After concessions, the issues for decision are: 1) whether petitioner is entitled to deduct certain automobile expenses under section 162(a); and 2) whether petitioner is liable for the addition to tax for negligence under section 6653(a).

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts and attached exhibits are incorporated herein by this reference.

Petitioner Robert George Verbica resided in San Jose, California, at the time he filed his petition.

During 1978, petitioner, a real estate broker, operated each of the following*122 automobiles: a Porsche, a Subaru and a Cadillac. Petitioner primarily used these cars to commute between his home and office and to show and inspect real estate.

On his 1978 Federal income tax return, petitioner estimated that 85 percent of his use of the cars was for business purposes. Consequently, petitioner deducted automobile expenses in the amount of $19,841.16. The automobile expenses consisted of: 1) lease payments for the Porsche and Subaru; 2) depreciation of the Cadillac; 3) payments for gasoline, car repairs and travel expenses; and 4) premium payments for automobile insurance.

At trial, petitioner offered into evidence the following cancelled checks to substantiate his automobile expense deduction:

*123 OPINION

Petitioner deducted automobile expenses totalling $19,841.16 as ordinary and necessary business expenses pursuant to section 162(a). Respondent argues that the entire automobile expense deduction should be disallowed because petitioner has failed to substantiate the claimed expenses.For the following reasons, we hold petitioner is entitled to deduct $2,161.29 for automobile expenses.

Section 162(a) allows a taxpayer to deduct all ordinary and necessary business expenses paid or incurred during the taxable year, including travel expenses incurred while away from home. A deduction for travel expenses, however, is subject to the specific substantiation requirements contained in section 274(d).

Petitioner submitted cancelled checks payable to cash totalling $3,362.00 as evidence of amounts spent for travel expenses. Section 274(d) requires petitioner to substantiate the amount of the expense, the time and place of travel, and the business purpose of the expense by adequate records or sufficient evidence corroborating his own statement. Petitioner offered no evidence*124 to meet the substantiation requirements of section 274(d) and, therefore, we must disallow his travel expenses.

To substantiate the $5,000 depreciation deduction he claimed for the Cadillac, petitioner submitted a check in the amount of $5,000 which was given as a downpayment on the purchase price of the car. Petitioner offered no evidence of the basis, salvage value or useful life of the car. Having no reasonable basis upon which to compute petitioner's depreciation deduction, we must disallow the deduction. Section 1.167(a)-1, Income Tax Regs.

Petitioner also submitted cancelled checks totalling $1,385.72 representing lease payments on the Subaru and payments on the Cadillac. The Cadillac payments are not currently deductible because they are capital expenditures under section 263.Although the lease payments attributable to the business use of the Subaru might otherwise be currently deductible, petitioner offered no evidence which would enable us to estimate the portion of the payments that relate to leasing the Subaru.

The remainder of petitioner's*125 1978 automobile expenses include lease payments for the Porsche in the amount of $4,041.84, payments for car repair and supply services in the amount of $812.04, payments for oil and gas totalling $1,836.93 and license and registration costs in the amount of $253.00. In addition, petitioner paid automobile insurance premiums in the amount of $1,701.35. Pursuant to section 162(a), petitioner is entitled to deduct these expenses to the extent he incurred them for business purposes.

Although petitioner estimated that 85 percent of the cars' use during 1978 was for business purposes, he offered no evidence to corroborate this claim. Moreover, he testified at trial that in calculating the business use of his automobiles, he included the commute between his home and office. Since petitioner's commute between his home and office is not a deductible expense under sections 1.162-2(e) and 1.262-1(b)(5), ² Income Tax Regs., we are unconvinced that petitioner's estimate of his business use of the automobiles is accurate.

*126 Nevertheless, based on petitioner's testimony, we believe a portion of petitioner's use of the automobiles was for business purposes. Making as close an approximation as we can, bearing heavily upon the taxpayer whose inexactitudes is of his own making, we find petitioner's business use of the automobiles constituted 25 percent of their total use. Cohan v. Commissioner,39 F.2d 540 (2d Cir. 1930). Accordingly, petitioner may deduct expenses in the amount of $2,161.29.

Respondent also determined an addition to tax for 1978 under section 6653(a). Petitioner conceded that he is subject to the negligence addition if we find a deficiency. Petitioner is therefore liable for an addition to tax pursuant to section 6653(a).

To reflect the foregoing,

Decision will be entered under Rule 155.