Petty v. Commissioner

MEMORANDUM FINDINGS OF FACT AND OPINION

CHIECHI, JUDGE: Respondent determined deficiencies in, additions under section 6651(a)(1)¹ to, and accuracy-related penalties under section 6662(a) on, petitioners' Federal income tax (tax), as follows:

            Addition to Tax

             Under Sec.      Accuracy-Related Penalty

Year  Deficiency     6651(a)(1)       Under Sec. 6662(a)

____  __________    _______________    ________________________

1992   $ 4,271        $ 417            $ 854

1993    7,848        1,240      *74       1,570

The issues remaining for decision ² are:

(1) Are petitioners entitled for 1993 to Schedule C deductions in excess of those conceded by respondent? We hold that they are not.

(2) Are petitioners liable for 1993 for the addition to tax under section 6651(a)(1)? We hold that they are.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

Petitioners resided in Alaska at the time the petition was filed.

On April 5, 1997, petitioners signed Form 1040, U.S. Individual Income Tax Return, for 1993 (petitioners' joint return), which respondent received on April 9, 1997. Attached to petitioners' joint return was Schedule C, Profit or Loss From Business (Schedule C), in which petitioner Larry Petty (Mr. Petty) reported his principal business or profession as "Truck Service". In Schedule*75 C, petitioners reported gross income of $ 5,820 and claimed expenses of $ 30,268 and a net loss of $ 24,448. Included in the expenses claimed in Schedule C were $ 7,902 for "Repair parts", $ 3,748 for "Repairs and maintenance", $ 6,205 for "Depreciation", and $ 3,208 for "Fuel".

During 1993, petitioners paid the amounts indicated with respect to the following expenses that they claim are part of the total expenses that they deducted for 1993 in Schedule C for "Repair parts":

  Date of

   Check      Amount      Claimed Nature of Expense

   _____      ______      _________________________

  05/22/93     $ 0.48         Bolts for gate

  04/21/93      14.00     Keys for side bin of farm truck

  01/02/93      3.89            Parts

  01/06/93      43.20            Parts

  03/30/93      6.92        Parts -- bolts and nuts

  04/21/93      19.25            Keys

  07/03/93      25.00     Interior Tax Assoc. membership

  07/06/93      8.43         Generator*76 parts

  08/31/93      46.88           Ford part

  11/10/93      15.54          Parts -- fuses

          ______

      Total $ 183.59

During 1993, petitioners paid the amounts indicated with respect to the following expenses that they claim are deductible for 1993 as Schedule C expenses for "Repairs and maintenance":

 Date of

  Check      Amount       Claimed Nature of Expense

  _____      ______       _________________________

01/02/93     $ 192.89       Repairs to farm building

03/05/93      41.44          Part '98 Olds

03/05/93      45.00          Dodge starter

03/08/93      200.00          Transfer case

03/10/93      18.16           Dodge ad

01/07/93      79.93     Seatcover, truck mat, and weather

                     cord for wrecker

01/08/93      119.97           Tool box

01/11/93      31.76           Supplies

*77 02/19/93       8.74         Part for CB radio

03/03/93      49.00            Tool

02/12/93      17.95       Not disclosed by the record

06/12/93      100.00         Part for 1978 Dodge

06/16/93      72.75           Case of oil

03/29/93       4.73             Oil

03/28/93      22.82         Part for 966 loader

06/16/93      32.65           Fence bolts

03/24/93      15.08            Repairs

05/15/93      205.00         Built farm gates

04/01/93      20.06           Ford switch

11/30/93      69.41          Part for F-250

08/13/93      188.11           Ford parts

01/19/93      17.65          Wrecker parts

01/15/93      118.46          Wrecker lights

01/14/93      15.58         Bolts for wrecker

01/02/93       8.60       Not disclosed by the record

03/11/93  *78     85.50           Organizer

02/22/93       7.43         Log forks repair

02/23/93      124.60         Wrecker motor heads

01/25/93      120.00           Ford tow

01/25/93      40.00           Dodge tag

11/23/93      46.14        Repairs -- No. 10 black

                     stranded wire

03/26/93      70.27         Oil change and oil

08/02/93      120.00       Not disclosed by the record

07/29/93      106.12       Batteries for Case tractor

12/08/93      102.26            Chains

04/13/93      65.00      Title change and registration

03/24/93      51.00       Not disclosed by the record

04/14/93      19.96            Tools

03/22/93      45.00        Title transfer and tags

05/27/93      30.90           Used tire

01/22/92      91.85        Headlights, farm*79 use

01/17/93      36.30            Tools

01/31/93      447.45           Wood tools

01/30/93      85.00     Tow and 4-day storage of wrecked

                      farm truck

02/03/93      76.67          Tool box, etc.

01/29/93      30.19             Ad

01/29/93     1,092.62          Wrecker repair

02/09/93      138.77          Wrecker repair

02/08/93      291.91          Wrecker repair

        _________

     Total $ 5,020.68

At some time around December 1993 or January 1994, petitioners traveled from Alaska to Texas to purchase certain farm equipment. After purchasing such equipment, petitioners discovered that the truck and the trailer that they had driven to Texas were not large enough to transport all of that equipment back to Alaska. Consequently, at a time not established by the record, petitioners purchased another truck and another trailer to use in transporting to Alaska the farm equipment that they had purchased*80 in Texas.

In the notice of deficiency issued to petitioners for 1992 and 1993 (notice), respondent determined, inter alia, to disallow deductions for 1993 for certain of the total expenses claimed in Schedule C because petitioners did not establish that Mr. Petty was engaged in a trade or business during 1993, that such expenses were paid or incurred during 1993, and that such expenses were ordinary and necessary expenses within the meaning of section 162(a). Respondent further determined, inter alia, that petitioners are liable for 1993 for the addition to tax under section 6651(a)(1) for their failure to file timely petitioners' joint return.

OPINION

At trial, respondent conceded all determinations in the notice relating to 1992 and 1993, except certain determinations for 1993. ³ After concessions, it is respondent's position that petitioners have a deficiency in tax for 1993 of $ 1,483 and that they are liable for that year for the addition to tax under section 6651(a)(1). At trial, petitioners conceded all expenses claimed in Schedule C for "Fuel" in excess of those conceded by respondent for 1993.

*81

Petitioners bear the burden of proving error in the determinations for 1993 that remain at issue and their entitlement to the new matter that they claimed at trial. ⁴ See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115, 78 L. Ed. 212, 54 S. Ct. 8 (1933).

SCHEDULE C DEDUCTIONS

Deductions are strictly a matter of legislative grace, and petitioners bear the burden of proving that they are entitled to any deductions claimed. See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84, 117 L. Ed. 2d 226, 112 S. Ct. 1039 (1992). At trial, petitioners attempted to satisfy that burden through Mr. Petty's testimony and certain documentary evidence. We found Mr. Petty's testimony to be general, vague, conclusory, and/or questionable in certain material respects. Under these circumstances, we are not required to, and we shall not, rely on Mr. Petty's testimony to sustain petitioners' burden of proving that they are entitled to any Schedule C deductions in excess of*82 those conceded by respondent. See Lerch v. Commissioner, 877 F.2d 624, 631-632 (7th Cir. 1989), affg. T.C. Memo 1987-295; Geiger v. Commissioner, 440 F.2d 688, 689-690 (9th Cir. 1971), affg. per curiam T.C. Memo 1969-159; Tokarski v. Commissioner, 87 T.C. 74, 77 (1986).

As for the documentary evidence on which petitioners rely, some of that evidence establishes that petitioners paid certain amounts for various expenditures. ⁵ However, we find that that documentary evidence does not show that any of those paid amounts is deductible for 1993.

*83 On brief, respondent concedes that during 1993 Mr. Petty operated a truck service Schedule C business. However, respondent contends on brief that petitioners have failed to establish their entitlement for 1993 to the claimed Schedule C deductions at issue.

Section 162(a) generally allows a deduction for ordinary and necessary expenses paid during the taxable year in carrying on a trade or business. The determination of whether an expenditure satisfies the requirements for deductibility under section 162 is a question of fact. See Commissioner v. Heininger, 320 U.S. 467, 475, 88 L. Ed. 171, 64 S. Ct. 249 (1943). In general, an expense is ordinary if it is considered normal, usual, or customary in the context of the particular business out of which it arose. See Deputy v. du Pont, 308 U.S. 488, 495, 84 L. Ed. 416, 60 S. Ct. 363 (1940). Ordinarily, an expense is necessary if it is appropriate and helpful to the operation of the taxpayer's trade or business. See Commissioner v. Tellier, 383 U.S. 687, 689, 16 L. Ed. 2d 185, 86 S. Ct. 1118 (1966); Carbine v. Commissioner, 83 T.C. 356, 363 (1984), affd. 777 F.2d 662 (11th Cir. 1985).

With respect to the deductions for 1993 totaling $ 7,902 claimed in Schedule C for*84 "Repair parts", respondent concedes that petitioners are entitled to deduct $ 5,214 of those claimed expenses. However, respondent contends that petitioners are not entitled to deduct the balance (i.e., $ 2,688) of those claimed Schedule C expenses because they have not shown that such expenses are ordinary and necessary expenses paid during 1993 in carrying on Mr. Petty's truck service business. Of the $ 2,688 of claimed Schedule C expenses for "Repair parts" that are at issue, petitioners have shown that during 1993 they paid only $ 183.59 of such claimed expenses. ⁶ We find on the instant record that petitioners have failed to establish that during 1993 they paid more than $ 183.59 of the claimed Schedule C expenses for "Repair parts" that are at issue. We further find on the record before us that petitioners have failed to establish that the $ 2,688 of Schedule C expenses at issue claimed as deductions for 1993 for "Repair parts" are ordinary and necessary expenses paid during that year in carrying on Mr. Petty's truck service business.

*85 Based on our examination of the entire record before us, we find that petitioners have failed to prove that they are entitled for 1993 to deduct under section 162(a) $ 2,688 of their claimed Schedule C expenses for "Repair parts" that remain at issue or any other amount in excess of that conceded by respondent.

With respect to the deductions for 1993 totaling $ 3,748 claimed in Schedule C for "Repairs and maintenance", respondent concedes that petitioners are entitled to deduct $ 865 of those claimed expenses. However, respondent contends that petitioners are not entitled to deduct the balance (i.e., $ 2,883) of those claimed Schedule C expenses because they have not shown that such expenses are ordinary and necessary expenses paid during 1993 in carrying on Mr. Petty's truck service business. On the record before us, we agree with respondent.

We note initially that the documentary evidence on which petitioners rely to establish their entitlement to deduct for 1993 the expenses remaining at issue that they claimed in Schedule C for "Repairs and maintenance" shows that they paid amounts during 1993 totaling $ 5,020.68. However, petitioners claimed a deduction in Schedule C for "Repairs*86 and maintenance" of only $ 3,748, of which, as noted above, respondent conceded $ 865 at trial, leaving only $ 2,883 which remains at issue. Furthermore, the documentary evidence on which petitioners rely to support their entitlement to deduct for 1993 the $ 2,883 of claimed Schedule C expenses for "Repairs and maintenance" that remain at issue included a number of checks which do not even involve or relate to repair and/or maintenance expenses. ⁷ On the instant record, we find that petitioners have failed to establish that the entire amount of $ 5,020.68 that the record establishes they paid during 1993 relates to "Repairs and maintenance". We further find on the record before us that petitioners have failed to prove that such paid amounts are ordinary and necessary expenses paid during 1993 in carrying on Mr. Petty's truck service business. ⁸

*87 Based on our examination of the entire record before us, we find that petitioners have failed to prove that they are entitled for 1993 to deduct under section 162(a) $ 2,883 of their claimed Schedule C expenses for "Repairs and maintenance" that remain at issue or any other amount in excess of that conceded by respondent.

With respect to the deductions for 1993 totaling $ 6,205 claimed in Schedule C for depreciation, respondent concedes that petitioners are entitled under section 167(a) to deduct $ 2,055. However, respondent contends that petitioners are not entitled to deduct the remaining amount (i.e., $ 4,150) of claimed Schedule C depreciation. Section 167(a) allows a deduction for a reasonable allowance for the exhaustion, wear and tear, and obsolescence of property used in a trade or business or held for the production of income. The basis on which a depreciation deduction is allowable with respect to any property under section 167(a) is the adjusted basis of the property, determined under section 1011 for the purpose of determining gain on the sale or other disposition of such property. See sec. 167(c). Petitioners introduced no evidence to support the $ 4,150 of claimed Schedule*88 C depreciation deductions at issue for 1993 other than Mr. Petty's testimony that "my Schedule C was filled out by my accountant, and I stand by [that] as correct." ⁹

Based on our examination of the entire record before us, we find that petitioners have failed to prove that they are entitled for 1993 to deductions under section 167(a) for $ 4,150 of their claimed Schedule C depreciation deductions that remain at issue or any other amount in excess of that conceded by respondent.

At trial, petitioners raised a new issue with respect to the purchase of a truck and a trailer, which they contend they purchased in 1993. Although petitioners do not*89 claim a specific total dollar amount for any deductions with respect to that purchase, it is our understanding that petitioners are claiming depreciation on the truck and the trailer and all of the expenses that they paid during their round trip from Alaska to Texas. ¹⁰ Mr. Petty initially testified that the purchase price of the truck and the trailer was approximately $ 40,000. He thereafter testified that he did not remember the purchase price of the truck and the trailer. The only documentary evidence petitioners submitted with respect to the purchase in question was a check dated January 7, 1994 (check), in the amount of $ 500 that was payable to Bledsoe Ford. The signature line on that check bore the name "Larry Petty", and a notation on the check stated: "down on 93 F350". Petitioners contend that the check was for the purchase of the extended warranty on the truck and not for the purchase of the truck itself. On the record before us, we find that petitioners have failed to establish that they paid specified amounts of expenses during their round trip from Alaska to Texas, that any such amounts were paid in 1993, that any such amounts were for ordinary and necessary expenses*90 paid in 1993 in carrying on any trade or business of Mr. Petty or petitioners, and that any such amounts were not already included as part of the expenses conceded by respondent. We further find on the instant record that petitioners have failed to establish their entitlement for 1993 to any deduction for depreciation under section 167(a) with respect to their purchase in Texas of a truck and a trailer.

Based on our examination of the entire record before us, we find that petitioners have failed to prove that they are entitled for 1993 to deductions under sections 162(a) and 167(a) in excess of any such deductions conceded by respondent with respect to amounts that they claim they paid during their round trip from Alaska to Texas and for the purchase of a truck and a trailer in Texas.

ADDITION TO TAX UNDER SECTION 6651(a)(1)

*91 Section 6651(a)(1) imposes an addition to tax for failure to file timely a tax return. The addition to tax does not apply if the failure is due to reasonable cause and not to willful neglect. See sec. 6651(a)(1). Petitioners' joint return for 1993 was received by respondent on April 9, 1997. Petitioners introduced no evidence and advanced no contentions at trial regarding respondent's determination to impose for 1993 the addition to tax under section 6651(a)(1). On the instant record, we find that petitioners have failed to carry their burden of establishing that they are not liable for 1993 for the addition to tax under section 6651(a)(1).

We have considered all of the arguments and contentions of petitioners that were advanced at trial, which are not discussed herein, and we find them to be without merit and/or irrelevant.

To reflect the foregoing and the concessions of the parties,

Decision will be entered under Rule 155.