Abrahan Pichardo & Carolina Pichardo

• Court: United States Tax Court
• Decided: March 8, 2021
• Docket: 24311-18
• Status: Unpublished

Opinion

T.C. Summary Opinion 2021-7

UNITED STATES TAX COURT

ABRAHAN PICHARDO AND CAROLINA PICHARDO, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 24311-18S. Filed March 8, 2021.

Abrahan Pichardo and Carolina Pichardo, pro sese.

Estevan D. Fernandez, for respondent.

SUMMARY OPINION

PANUTHOS, Special Trial Judge: This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect when the

petition was filed.1 Pursuant to section 7463(b), the decision to be entered is not

1 Unless otherwise indicated, all section references are to the Internal (continued...)

Served 03/08/21 -2-

reviewable by any other court, and this opinion shall not be treated as precedent

for any other case.

In a notice of deficiency dated September 10, 2018, the Internal Revenue

Service (IRS or respondent) determined a deficiency in petitioners’ Federal

income tax for taxable year 2016 (year in issue) of $5,348 and a section 6662(a)

accuracy-related penalty of $1,070.

After concessions,2 the issues for decision are:

(1) whether petitioners are entitled to deduct certain unreimbursed employee

business expenses totaling $23,169 for the year in issue; and

(2) whether petitioners are entitled to an American Opportunity Credit for

the year in issue related to $2,250 of adjusted qualified education expenses.

Background

Some of the facts have been stipulated, and we incorporate the stipulation

and accompanying exhibits by this reference. The record consists of the

1 (...continued) Revenue Code (Code) in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. We round monetary amounts to the nearest dollar. 2 Respondent concedes that petitioners are entitled to deduct charitable cash contributions of $1,200 on their 2016 Schedule A, Itemized Deductions. Respondent further concedes that petitioners are not liable for an accuracy-related penalty under sec. 6662(a) for the year in issue. -3-

stipulation of facts as supplemented with attached exhibits and petitioner Abrahan

Pichardo’s testimony. Petitioners lived in California when the petition was timely

filed.

I. Petitioners’ Professional Background

During the year in issue petitioner Carolina Pichardo was employed as a

planning supervisor. Petitioner Abrahan Pichardo was a regional planning safety

manager employed by Loss Prevention Specialists, LLC (LPS), a company

headquartered in Ontario, California.

In his work Mr. Pichardo educated employers and workers from multiple

industries about risk management and safety compliance. He educated

construction workers who use heavy machinery, general industry workers who

operate equipment such as forklifts and conveyors, and agricultural workers who

perform hazardous tasks such as irrigation and pesticide application. He also

performed outreach work in the business community and facilitated safety

measures for businesses including agricultural, healthcare, and construction

companies. In his management capacity Mr. Pichardo oversaw 50 other safety

consultants who performed similar work for LPS. -4-

Mr. Pichardo’s employment required significant travel, including travel

away from home overnight. In 2016 he traveled for work throughout the State of

California.

Mr. Pichardo’s work required him to be credentialed as a safety liaison. To

achieve the necessary certifications, he took training courses every four years on

the applicable laws and safety requirements of various industries. During the year

in issue Mr. Pichardo attended the required training courses through a program

accredited by the Occupational Safety and Health Administration at the University

of California San Diego Extension (UCSD Extension). Mr. Pichardo attended

three training courses at UCSD Extension in 2016. Each course consisted of three

credit units and cost $750, resulting in a total education expense of $2,250 during

the year in issue.

II. LPS’ Reimbursement Policy and Mr. Pichardo’s Business Credit Card

During the year in issue LPS reimbursed Mr. Pichardo $600 per month for

vehicle expenses. The company required its employees to substantiate all

additional business expenses. There is nothing in this record that indicates Mr.

Pichardo requested reimbursement from his employer for his reported business

and education expenses beyond the amount received for vehicle reimbursement. -5-

With the approval of LPS, American Express issued a business credit card to Mr.

Pichardo. The business credit card was in Mr. Pichardo’s name, and he was liable

for paying bills associated with it.

III. Petitioners’ Tax Return and Business Records

Petitioners timely filed their 2016 Federal income tax return, electing a

filing status of married filing jointly. Petitioners hired a professional tax return

preparer to prepare their return. Petitioners provided the preparer with

spreadsheets of Mr. Pichardo’s monthly business expenses, his client interactions,

and equipment that LPS issued to Mr. Pichardo.

Petitioners’ 2016 income tax return included Schedule A on which they

claimed various deductions totaling $33,948. Petitioners’ reported business

expenses related to Mr. Pichardo’s employment at LPS were calculated using

Form 2106, Employee Business Expenses, as follows:

Form 2106 expenses Amount

Vehicle expenses $3,834 Travel expenses while away from home overnight 11,976 Other business expenses 7,359 Total 23,169 -6-

For the year in issue petitioners reported 7,100 business miles and 1,800

commuting miles driven. They multiplied the business miles driven by the

standard mileage rate of $0.54 to arrive at the reported vehicle expense of $3,834.3

Although a letter delivered to respondent dated November 4, 2019, indicates that

petitioners included the $600 per month vehicle reimbursement from LPS, the

Form 2106 does not reflect any reimbursements received on line 7. Petitioners

provided various Excel spreadsheets and other documents in an attempt to

substantiate the reported business expenses.

Petitioners also reported $2,250 of adjusted qualified education expenses on

their 2016 Form 8863, Education Credits, related to Mr. Pichardo’s training

courses at UCSD Extension. The reported expenses resulted in a claimed

refundable American Opportunity Credit.

To substantiate the education expenses reported on their tax return,

petitioners submitted into evidence three invoices of college courses from UCSD

Extension. The invoices show that each course attended by Mr. Pichardo in 2016

was paid for with the American Express business credit card. Respondent also

received Form 1098-T, Tuition Statement, from the Regents of the University of

3 In lieu of substantiating actual passenger automobile expenses, a taxpayer may calculate them by using the standard mileage rate established by the Commissioner. See sec. 1.274-5(j)(2), Income Tax Regs. -7-

California UCSD showing $2,250 of tuition expenses paid related to Mr.

Pichardo’s education in 2016.

IV. Notice of Deficiency

On September 10, 2018, respondent issued a notice of deficiency to

petitioners for the year in issue. Respondent disallowed certain of the expenses

related to petitioners’ claimed Schedule A itemized deductions, including the

entirety of the Form 2106 employee business expense deductions totaling $23,169

and the education expenses of $2,250.

Respondent disallowed the employee business expense deductions because

petitioners failed to respond to the IRS examiner’s request for information, failed

to substantiate that the expenses were paid or incurred during the year in issue, and

failed to substantiate that the expenses were ordinary and necessary to Mr.

Pichardo’s employment as a regional safety manager. Respondent disallowed the

education expense deductions because petitioners failed to verify that the

payments qualified for the education credit. Respondent allowed petitioners a

standard deduction of $12,600 for the year in issue. -8-

Discussion

I. Burden of Proof

In general, the Commissioner’s determination set forth in a notice of

deficiency is presumed correct, and the taxpayers bear the burden of proving that

the determination is in error. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933). In certain circumstances the burden of proof shifts to the Commissioner if

the taxpayers introduce credible evidence with respect to any factual issues

relevant to ascertaining the taxpayers’ tax liability. Sec. 7491(a)(1). Because

petitioners have not alleged or shown that section 7491(a) applies, the burden of

proof remains on them.

II. Unreimbursed Employee Business Expenses

Petitioners claimed a Schedule A itemized deduction (before application of

the 2% floor of section 67(a)) for unreimbursed employee business expenses

totaling $23,169 for the year in issue. Respondent disallowed the unreimbursed

employee business expense deduction in full. According to respondent,

petitioners have failed to substantiate the reported expenses related to Mr.

Pichardo’s work. Respondent asserts that petitioner failed to prove that he was

required to incur the expenses in the course of his employment with LPS or to

prove that any expenses incurred were not reimbursable by his employer. -9-

Deductions are a matter of legislative grace, and taxpayers bear the burden

of proving that they are entitled to any deduction claimed. INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292

U.S. 435, 440 (1934). Taxpayers claiming a deduction on a Federal income tax

return must demonstrate that the deduction is provided for by statute and must

further substantiate that the expense to which the deduction relates has been paid

or incurred. Sec. 6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975),

aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43

T.C. 824, 831-832 (1965); sec. 1.6001-1(a), Income Tax Regs. Taxpayers are

required to maintain records sufficient to enable the Commissioner to determine

their correct tax liability. Sec. 6001; sec. 1.6001-1(a), Income Tax Regs. Such

records must substantiate both the amount and the purpose of the claimed

deductions. Higbee v. Commissioner, 116 T.C. 438, 440 (2001).

Section 162(a) allows deductions for all ordinary and necessary business

expenses paid or incurred during the taxable year in carrying on a trade or

business. Boyd v. Commissioner, 122 T.C. 305, 313 (2004). Performing services

as an employee constitutes a trade or business. Primuth v. Commissioner, 54 T.C.

374, 377-378 (1970). - 10 -

In order to deduct employee business expenses, taxpayers must not have

received reimbursement, and must not have had the right to obtain reimbursement,

from their employer. See Orvis v. Commissioner, 788 F.2d 1406, 1408 (9th Cir.

1986), aff’g T.C. Memo. 1984-533. The taxpayers bear the burden of proving that

they are not entitled to reimbursement from their employers for such expenses.

See Fountain v. Commissioner, 59 T.C. 696, 708 (1973). Taxpayers can prove

that they were not entitled to reimbursement by showing, for example, that they

were expected to bear the costs in question. See id.; see also Dunkelberger v.

Commissioner, T.C. Memo. 1992-723 (finding that management team expected

taxpayer to bear expense of business lunches with vendors).

For the year in issue petitioners reported $3,834 in vehicle expenses on the

basis of the standard mileage rate, $11,976 in travel expenses while away from

home overnight, and $7,359 in other business expenses.4 Mr. Pichardo testified

4 Although we find for respondent on a separate ground, we note that Mr. Pichardo’s records were generally insufficient to substantiate his reported business expenses. Mr. Pichardo submitted into evidence a spreadsheet entitled “2016 Expense Report Totals” listing, among other expenses, amounts purportedly spent on gas, hotels, airfares, rental cars, and overnight meals. Each of these categories is subject to the strict substantiation rules of sec. 274(d), and thus the amounts cannot be estimated. Apart from a single airline invoice and a document entitled “Summary of Tolls per Transponder / Vehicle” (toll invoice), Mr. Pichardo did not provide the Court with additional substantiating receipts, invoices, or other documentary evidence. The 2016 Expense Report Totals spreadsheet lists (continued...) - 11 -

that he received $7,200 ($600 per month) of vehicle reimbursements from his

employer during the year in issue. It is unclear which, if any, of the vehicle and

travel expenses reported on petitioners’ tax return was covered by the vehicle

reimbursements received. Mr. Pichardo further testified that his employer

required him to substantiate expenses beyond the $600 vehicle allowance.

Petitioners have not offered credible evidence as to which of Mr. Pichardo’s

expenses might have been eligible for reimbursement by LPS. Mr. Pichardo’s

testimony implied that he would have had the right to reimbursement for his

reported business expenses if he had provided his employer with the appropriate

substantiation. He did not testify that he attempted to obtain reimbursement for

4 (...continued) monthly totals for broad expense groups; it does not adequately provide the amount, time, place, and business purpose of any of the individual expenses as required by the Code. See sec. 274(d); sec. 1.274-5T(c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). Nor does the spreadsheet provide the Court with a reasonable basis to estimate the rest of Mr. Pichardo’s reported business expenses. See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985). Mr. Pichardo did submit documentary evidence that $544 in tolls and $110 in fees associated with eight different toll transponders were prepaid by some party in 2016. However, the toll invoice did not list Mr. Pichardo as the payor. Nor did Mr. Pichardo provide additional evidence connecting him to the account number listed on the document. Additionally, his testimony was unclear as to why he would have used eight different transponders in a single year and whether any of the transponders listed on the toll invoice were associated with his vehicle. For these reasons, the toll invoice is insufficient to substantiate Mr. Pichardo’s purported toll expenses. - 12 -

the expenses from LPS at any time. Petitioners have not met their burden of

showing that LPS would not have reimbursed the reported vehicle expenses,

expenses associated with travel away from home overnight, or other business

expenses. See Orvis v. Commissioner, 788 F.2d at 1408; Fountain v.

Commissioner, 59 T.C. at 708. For these reasons, we conclude that petitioners

were not entitled to deduct any unreimbursed employee business expenses for the

year in issue.

III. Education Credits

The Code allows a variety of education credits, including the American

Opportunity Tax Credit, a modified version of the Hope Scholarship Credit that

was in effect for the year in issue. See sec. 25A(i). The American Opportunity

Tax Credit provides for a credit against tax equal to 100% of qualified tuition and

related expenses paid by a taxpayer during the taxable year up to $2,000, plus 25%

of such expenses paid that exceed $2,000 but do not exceed $4,000, allowing for a

maximum credit of $2,500. Sec. 25A(i)(1). Up to 40% of the credit may be

refundable. Sec. 25A(i)(5). The credit is allowed for the first four years of

postsecondary education for qualified tuition and expenses including required

course materials. Sec. 25A(i)(2) and (3). The credit is allowed only for four - 13 -

taxable years with respect to any eligible student. Sec. 25A(i)(2).5 The credit is

available only if (among other things) the student is enrolled at least half time for

at least one academic period that begins during the taxable year. See sec.

25A(b)(2)(B).

For two independently sufficient reasons, we conclude that petitioners are

not entitled to the education credit they claim. First, the record shows that Mr.

Pichardo was not enrolled at least half time at an eligible educational institution

during 2016. To substantiate his education expenses, petitioners provided three

invoices related to courses at UCSD Extension. Respondent also received a Form

1098-T confirming that $2,250 of expenses was paid relating to Mr. Pichardo’s

enrollment at UCSD Extension during the year in issue. The Form 1098-T states

that Mr. Pichardo was a “less than half time student”, a fact which Mr. Pichardo

confirmed during his testimony. On the basis of this status petitioners do not

qualify for the American Opportunity Tax Credit for 2016. See sec. 25A(b)(2)(B).

5 Sec. 25A(i)(2) modifies sec. 25A(b)(2)(A) to read: “Credit allowed only for 4 taxable years.--An election to have this section apply with respect to any eligible student for purposes of the Hope Scholarship Credit under subsection (a)(1) may not be made for any taxable year if such an election (by the taxpayer or any other individual) is in effect with respect to such student for any 4 prior taxable years.” - 14 -

Second, to claim a credit petitioners must show that they paid Mr.

Pichardo’s tuition. See sec. 25A(b)(1)(A) (allowing credit for “qualified tuition

* * * paid by the taxpayer”). The Form 1098-T was addressed to Mr. Pichardo

and shows that tuition was paid using his business credit card. Although he

testified that he was responsible for managing and paying the bills on that card,

Mr. Pichardo has not supplied bank statements or other corroborating evidence

proving that he personally paid the business credit card bills. It is also unclear

which, if any, expenses on the card were reimbursed by LPS.

For these reasons, petitioners have failed to demonstrate their entitlement to

any education credit for the year in issue.6

IV. Conclusion

In reaching our holdings herein, we have considered all arguments made by

the parties, and to the extent not mentioned above, we find them to be moot,

irrelevant, or without merit.

6 We need not address petitioners’ entitlement to a Lifetime Learning Credit in lieu of an American Opportunity Tax Credit because they have failed to substantiate their payment of any qualified tuition or related expenses. - 15 -

To reflect the foregoing conclusions and respondent’s concessions,

Decision will be entered under

Rule 155.