IN THE OREGON TAX COURT MAGISTRATE DIVISION Income Tax
RICHARD R. ALMODOVAR ) and VICKIE R. ALMODOVAR, ) ) Plaintiffs, ) TC-MD 180243N ) v. ) ) DEPARTMENT OF REVENUE, ) State of Oregon, ) ) Defendant. ) DECISION
Plaintiffs appealed Defendant’s Notices of Assessment, dated February 26, 2018, for the
2014 and 2016 tax years. A trial was held on January 24, 2019, in the courtroom of the Oregon
Tax Court in Salem, Oregon. Paul W. Kingsland (Kingsland), CPA, appeared on behalf of
Plaintiffs. Plaintiffs called no witnesses. Benjamin Barlow (Barlow), tax auditor, appeared and
testified on behalf of Defendant. Plaintiffs’ Exhibits 1 and 2 and Defendant’s Exhibits A to U
were received without objection.
I. STATEMENT OF FACTS
Because Plaintiffs did not appear at trial or give sworn testimony, the facts set forth in
this Statement of Facts are based upon the parties’ stipulated exhibits and Barlow’s testimony.
During the tax years at issue, Plaintiff Richard R. Almodovar (Almodovar) worked as a
plasterer and was a member of the Operative Plasterers and Cement Masons International
Association, Plasterers Local #82 of Portland, Oregon (the union). (See Ptfs’ Exs 1, 2; Def’s Ex
S.) For the 2014 tax year, Plaintiffs claimed employee business expenses of $14,172, composed
of vehicle expenses of $11,141 and other business expenses of $3,031. (Ptfs’ Ex 1.) For the
2016 tax year, Plaintiffs claimed employee business expenses of $22,238, composed of vehicle
DECISION TC-MD 180243N 1 expenses of $10,560; parking expenses of $312; travel expenses of $3,621; other business
expenses of $5,299; and meals and entertainment of $2,446. (Ptfs’ Ex 2.)
Defendant sent Plaintiffs letters dated November 2, 2017, requesting certain information
and documentation supporting Plaintiffs’ Schedule A deductions for the 2014 and 2016 tax
years. (Def’s Ex A at 1-5, Ex E at 1-5.) Because no response was received, Defendant sent
proposed adjustment letters dated November 22, 2017, disallowing Plaintiffs’ employee business
expenses for both tax years. (Def’s Ex B at 3, Ex F at 3.) Subsequently, Plaintiffs provided to
Defendant mileage logs for both years; bank and credit card statements to support phone and
parking expenses; a few lodging receipts; and various other receipts from Home Depot and other
vendors. (Def’s Exs I-R.) Barlow testified about the deficiencies he found with documentation
provided by Plaintiffs and the documents he requested but did not receive. (See also Def’s Ex
T.) He identified questions that were not answered about some of the documents provided.
Barlow maintains that Plaintiffs have not provided sufficient substantiation for the majority of
those expenses. He agreed to allow deductions for union dues and tax preparation, but not the
remainder. (See Def’s Exs L at 8, M, Q at 1-2, R.)
Barlow testified that Plaintiffs failed to establish that Almodovar’s employee business
expenses were “necessary” because they never provided a reimbursement policy from his
employer, Harver Company. (See Def’s Ex T at 1, U (Defendant’s request for a copy of the
policy and Plaintiffs’ response.) Rather, Kingsland sent Barlow a letter stating that “the union
and his employer do not reimburse for employee business expenses.” (Def’s Ex U at 1.)
Kingsland argued that the documentation Plaintiffs provided is sufficient under IRS
Publication 463 and Defendant refuses to accept it based on its own standards. Barlow testified
in response that IRS publications are guidance, but not law.
DECISION TC-MD 180243N 2 II. ANALYSIS
The issues presented are whether Plaintiffs are entitled to deductions for unreimbursed
employee business expenses for either the 2014 or 2016 tax years.
The Oregon Legislature intended to “[m]ake the Oregon personal income tax law
identical in effect to the provisions of the Internal Revenue Code [IRC] relating to the
measurement of taxable income of individuals, * * * modified as necessary by the state’s
jurisdiction to tax and the revenue needs of the state[.]” ORS 316.007(1).1 In general, terms
have “the same meaning as when used in a comparable context in the laws of the United States
relating to federal income taxes, unless a different meaning is clearly required or the term is
specifically defined * * *.” ORS 316.012. On the issue of employee business expenses,
“Oregon law makes no adjustments to the rules under the [IRC] and therefore, federal law
governs the analysis.” See Porter v. Dept. of Rev., 20 OTR 30, 31 (2009).
Deductions are “a matter of legislative grace” and taxpayers bear the burden of proving
their entitlement to the deductions claimed. INDOPCO, Inc. v. Comm’r, 503 US 79, 84, 112 S
Ct 1039, 117 L Ed 2d 226 (1992). “In all proceedings before the judge or a magistrate of the tax
court and upon appeal therefrom, a preponderance of the evidence shall suffice to sustain the
burden of proof. The burden of proof shall fall upon the party seeking affirmative relief[.]”
ORS 305.427. “Preponderance of the evidence means the greater weight of evidence, the more
convincing evidence.” Feves v. Dept. of Revenue, 4 OTR 302, 312 (1971). “[I]f the evidence is
inconclusive or unpersuasive, the taxpayer will have failed to meet his burden of proof * * *.”
Reed v. Dept. of Rev., 310 Or 260, 265, 798 P2d 235 (1990). “In an appeal to the Oregon Tax
1 The court’s references to the Oregon Revised Statutes (ORS) are to 2013. The 2015 version of the ORS is applicable to the 2016 tax year, but the relevant statutes contain no material differences from the 2013 version.
DECISION TC-MD 180243N 3 Court from an assessment made under ORS 305.265, the tax court has jurisdiction to determine
the correct amount of deficiency, even if the amount so determined is greater or less than the
amount of the assessment determined by the Department of Revenue, and even if determined
upon grounds other or different from those asserted by the department, * * *” ORS 305.575.
IRC section 162(a) allows a deduction for “all the ordinary and necessary expenses paid
or incurred during the taxable year in carrying on any trade or business.” To be “ordinary,” “the
transaction which gives rise to [the expense] must be of common or frequent occurrence in the
type of business involved.” Deputy v. DuPont, 308 US 488, 495, 60 S Ct 363, 84 L Ed 416
(1940), citing Welch v. Helvering, 290 US 111, 114, 54 S Ct 8, 78 L Ed 212 (1933). A
“necessary” expense is one that is “appropriate and helpful” to the taxpayer’s business.
See Welch, 290 US at 113.
“Numerous courts have held that an expense is not ‘necessary’ under § 162(a) when an
employee fails to claim reimbursement for the expenses, incurred in the course of his
employment, when entitled to do so.” Orvis v. Comm’r, 788 F2d 1406, 1408 (9th Cir 1986)
(citations omitted). An employee “cannot deduct as his own expenses amounts which are not
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IN THE OREGON TAX COURT MAGISTRATE DIVISION Income Tax
RICHARD R. ALMODOVAR ) and VICKIE R. ALMODOVAR, ) ) Plaintiffs, ) TC-MD 180243N ) v. ) ) DEPARTMENT OF REVENUE, ) State of Oregon, ) ) Defendant. ) DECISION
Plaintiffs appealed Defendant’s Notices of Assessment, dated February 26, 2018, for the
2014 and 2016 tax years. A trial was held on January 24, 2019, in the courtroom of the Oregon
Tax Court in Salem, Oregon. Paul W. Kingsland (Kingsland), CPA, appeared on behalf of
Plaintiffs. Plaintiffs called no witnesses. Benjamin Barlow (Barlow), tax auditor, appeared and
testified on behalf of Defendant. Plaintiffs’ Exhibits 1 and 2 and Defendant’s Exhibits A to U
were received without objection.
I. STATEMENT OF FACTS
Because Plaintiffs did not appear at trial or give sworn testimony, the facts set forth in
this Statement of Facts are based upon the parties’ stipulated exhibits and Barlow’s testimony.
During the tax years at issue, Plaintiff Richard R. Almodovar (Almodovar) worked as a
plasterer and was a member of the Operative Plasterers and Cement Masons International
Association, Plasterers Local #82 of Portland, Oregon (the union). (See Ptfs’ Exs 1, 2; Def’s Ex
S.) For the 2014 tax year, Plaintiffs claimed employee business expenses of $14,172, composed
of vehicle expenses of $11,141 and other business expenses of $3,031. (Ptfs’ Ex 1.) For the
2016 tax year, Plaintiffs claimed employee business expenses of $22,238, composed of vehicle
DECISION TC-MD 180243N 1 expenses of $10,560; parking expenses of $312; travel expenses of $3,621; other business
expenses of $5,299; and meals and entertainment of $2,446. (Ptfs’ Ex 2.)
Defendant sent Plaintiffs letters dated November 2, 2017, requesting certain information
and documentation supporting Plaintiffs’ Schedule A deductions for the 2014 and 2016 tax
years. (Def’s Ex A at 1-5, Ex E at 1-5.) Because no response was received, Defendant sent
proposed adjustment letters dated November 22, 2017, disallowing Plaintiffs’ employee business
expenses for both tax years. (Def’s Ex B at 3, Ex F at 3.) Subsequently, Plaintiffs provided to
Defendant mileage logs for both years; bank and credit card statements to support phone and
parking expenses; a few lodging receipts; and various other receipts from Home Depot and other
vendors. (Def’s Exs I-R.) Barlow testified about the deficiencies he found with documentation
provided by Plaintiffs and the documents he requested but did not receive. (See also Def’s Ex
T.) He identified questions that were not answered about some of the documents provided.
Barlow maintains that Plaintiffs have not provided sufficient substantiation for the majority of
those expenses. He agreed to allow deductions for union dues and tax preparation, but not the
remainder. (See Def’s Exs L at 8, M, Q at 1-2, R.)
Barlow testified that Plaintiffs failed to establish that Almodovar’s employee business
expenses were “necessary” because they never provided a reimbursement policy from his
employer, Harver Company. (See Def’s Ex T at 1, U (Defendant’s request for a copy of the
policy and Plaintiffs’ response.) Rather, Kingsland sent Barlow a letter stating that “the union
and his employer do not reimburse for employee business expenses.” (Def’s Ex U at 1.)
Kingsland argued that the documentation Plaintiffs provided is sufficient under IRS
Publication 463 and Defendant refuses to accept it based on its own standards. Barlow testified
in response that IRS publications are guidance, but not law.
DECISION TC-MD 180243N 2 II. ANALYSIS
The issues presented are whether Plaintiffs are entitled to deductions for unreimbursed
employee business expenses for either the 2014 or 2016 tax years.
The Oregon Legislature intended to “[m]ake the Oregon personal income tax law
identical in effect to the provisions of the Internal Revenue Code [IRC] relating to the
measurement of taxable income of individuals, * * * modified as necessary by the state’s
jurisdiction to tax and the revenue needs of the state[.]” ORS 316.007(1).1 In general, terms
have “the same meaning as when used in a comparable context in the laws of the United States
relating to federal income taxes, unless a different meaning is clearly required or the term is
specifically defined * * *.” ORS 316.012. On the issue of employee business expenses,
“Oregon law makes no adjustments to the rules under the [IRC] and therefore, federal law
governs the analysis.” See Porter v. Dept. of Rev., 20 OTR 30, 31 (2009).
Deductions are “a matter of legislative grace” and taxpayers bear the burden of proving
their entitlement to the deductions claimed. INDOPCO, Inc. v. Comm’r, 503 US 79, 84, 112 S
Ct 1039, 117 L Ed 2d 226 (1992). “In all proceedings before the judge or a magistrate of the tax
court and upon appeal therefrom, a preponderance of the evidence shall suffice to sustain the
burden of proof. The burden of proof shall fall upon the party seeking affirmative relief[.]”
ORS 305.427. “Preponderance of the evidence means the greater weight of evidence, the more
convincing evidence.” Feves v. Dept. of Revenue, 4 OTR 302, 312 (1971). “[I]f the evidence is
inconclusive or unpersuasive, the taxpayer will have failed to meet his burden of proof * * *.”
Reed v. Dept. of Rev., 310 Or 260, 265, 798 P2d 235 (1990). “In an appeal to the Oregon Tax
1 The court’s references to the Oregon Revised Statutes (ORS) are to 2013. The 2015 version of the ORS is applicable to the 2016 tax year, but the relevant statutes contain no material differences from the 2013 version.
DECISION TC-MD 180243N 3 Court from an assessment made under ORS 305.265, the tax court has jurisdiction to determine
the correct amount of deficiency, even if the amount so determined is greater or less than the
amount of the assessment determined by the Department of Revenue, and even if determined
upon grounds other or different from those asserted by the department, * * *” ORS 305.575.
IRC section 162(a) allows a deduction for “all the ordinary and necessary expenses paid
or incurred during the taxable year in carrying on any trade or business.” To be “ordinary,” “the
transaction which gives rise to [the expense] must be of common or frequent occurrence in the
type of business involved.” Deputy v. DuPont, 308 US 488, 495, 60 S Ct 363, 84 L Ed 416
(1940), citing Welch v. Helvering, 290 US 111, 114, 54 S Ct 8, 78 L Ed 212 (1933). A
“necessary” expense is one that is “appropriate and helpful” to the taxpayer’s business.
See Welch, 290 US at 113.
“Numerous courts have held that an expense is not ‘necessary’ under § 162(a) when an
employee fails to claim reimbursement for the expenses, incurred in the course of his
employment, when entitled to do so.” Orvis v. Comm’r, 788 F2d 1406, 1408 (9th Cir 1986)
(citations omitted). An employee “cannot deduct as his own expenses amounts which are not
his, but which are, to the contrary, expenses of his corporate employer. * * * That [the employee]
was not in fact reimbursed does not change expenditures made on behalf of the corporation into
ordinary and necessary expenses of the [employee].” Worth v. Comm’r, 20 TCM (CCH) 216
(1961) (citations omitted). The Ninth Circuit described the underlying policy of the rule:
“A bright line rule prohibiting deductions for reimbursable expenses avoids the difficult inquiry into the taxpayer’s knowledge, and gives the taxpayer an incentive to determine which expenses are reimbursable. The rule also forecloses an avenue for tax manipulation by preventing the taxpayer from converting a business expense of his company into one of his own simply by failing to seek reimbursement.”
Orvis, 788 F2d at 1408 (citations omitted).
DECISION TC-MD 180243N 4 Plaintiffs have failed to provide persuasive evidence that Almodovar had no right to
reimbursement for any of the employee business expenses deducted in 2014 or 2016. They
failed to provide a reimbursement policy from Harver Company or a letter stating that no such
policy existed. The letter written by Kingsland is insufficient for a few reasons. First, there is no
evidence that Kingsland had personal knowledge of Harver Company’s reimbursement policy
(or lack thereof). Relatedly, Kingsland did not explain the basis for his conclusion that Harver
Company did not reimburse any employee business expenses. Accordingly, the court is not
convinced that Almodovar’s employee business expenses were necessary in either tax year.
Without persuasive evidence that Almodovar’s employee business expenses were
necessary, the court need not consider the secondary issue pertaining to whether Plaintiffs
provided adequate substantiation of claimed employee business expenses.
III. CONCLUSION
Upon careful consideration, the court concludes that Plaintiffs have failed to prove by a
preponderance of the evidence that they are entitled to deductions in 2014 or 2016 for employee
business expenses under IRC section 162. Now, therefore,
IT IS THE DECISION OF THIS COURT that Plaintiffs’ appeal is denied.
Dated this day of April 2019.
ALLISON R. BOOMER MAGISTRATE If you want to appeal this Decision, file a complaint in the Regular Division of the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR 97301-2563; or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR. Your complaint must be submitted within 60 days after the date of this Decision or this Decision cannot be changed. TCR-MD 19 B.
This document was signed by Magistrate Allison R. Boomer and entered on April 22, 2019.
DECISION TC-MD 180243N 5