Dunford v. Comm'r
This text of 2013 T.C. Memo. 189 (Dunford v. Comm'r) is published on Counsel Stack Legal Research, covering United States Tax Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
Decision will be entered under
Ps operated a consulting business, maintained a residence in Illinois, and did much of their consulting work at various other warmer locations while living in their motor home. Ps claimed deductions associated with their travel, including deductions for actual vehicle costs, depreciation for their vehicles, and interest expenses for their motor home, along with mileage deductions as business expenses. R allowed some of Ps' claimed deductions but determined that many were unsubstantiated or claimed twice. R also determined that Ps are liable for accuracy-related penalties.
GUSTAFSON,
*191 After concessions by the parties, the issues to be decided2 are: (1) whether the Dunfords are entitled to depreciation and business expense deductions associated with their claimed business use of their motor home and other vehicles (we hold they are not); (2) whether the Dunfords are entitled to a mortgage interest deduction for interest paid on a loan secured by their motor home (we hold they are); (3) whether the Dunfords are entitled to various other *200 non-vehicle business expense deductions (we hold that they are entitled to a few additional business expense deductions); (4) whether the Dunfords are entitled to net operating loss ("NOL") deductions (we hold that they are not); and (5) whether the Dunfords are liable for
At the time they filed their petition, Mr. and Mrs. Dunford resided in Quincy, Illinois. For their 2005 and 2006 tax years the Dunfords filed joint Federal income tax returns. With their returns the Dunfords filed Schedules C, "Profit or Loss From Business", on which they reported income and expenses of Exam Group, LLC ("Exam Group"). In dispute are deductions the Dunfords
*192 claimed for Exam Group's activities. For the years in issue the Dunfords were calendar-year, cash-method taxpayers.
In March 2002 the Dunfords purchased a 2002 Beaver Contessa motor home, which they *201 used for both business and personal travel during the years in issue, as is described below. The Dunfords bought the Beaver Contessa for $283,494. They paid $17,000 cash and, after a trade-in credit for their old motor home and other sales taxes and fees, still owed $240,889.91. The Dunfords paid the outstanding balance with a loan from Bank of America. As security for the loan the Dunfords gave Bank of America a lien on their newly purchased Beaver Contessa.
The motor home had a sleeping area, a bathroom, and a kitchenette with a countertop. Across the vehicle from the kitchen counter was a second countertop that Mr. Dunford used as a desk, and on which he had a computer and office supplies.
The Dunfords created Exam Group in 2004 as an entity to conduct a consulting business. They co-owned Exam Group.3 Mrs.
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Decision will be entered under
Ps operated a consulting business, maintained a residence in Illinois, and did much of their consulting work at various other warmer locations while living in their motor home. Ps claimed deductions associated with their travel, including deductions for actual vehicle costs, depreciation for their vehicles, and interest expenses for their motor home, along with mileage deductions as business expenses. R allowed some of Ps' claimed deductions but determined that many were unsubstantiated or claimed twice. R also determined that Ps are liable for accuracy-related penalties.
GUSTAFSON,
*191 After concessions by the parties, the issues to be decided2 are: (1) whether the Dunfords are entitled to depreciation and business expense deductions associated with their claimed business use of their motor home and other vehicles (we hold they are not); (2) whether the Dunfords are entitled to a mortgage interest deduction for interest paid on a loan secured by their motor home (we hold they are); (3) whether the Dunfords are entitled to various other *200 non-vehicle business expense deductions (we hold that they are entitled to a few additional business expense deductions); (4) whether the Dunfords are entitled to net operating loss ("NOL") deductions (we hold that they are not); and (5) whether the Dunfords are liable for
At the time they filed their petition, Mr. and Mrs. Dunford resided in Quincy, Illinois. For their 2005 and 2006 tax years the Dunfords filed joint Federal income tax returns. With their returns the Dunfords filed Schedules C, "Profit or Loss From Business", on which they reported income and expenses of Exam Group, LLC ("Exam Group"). In dispute are deductions the Dunfords
*192 claimed for Exam Group's activities. For the years in issue the Dunfords were calendar-year, cash-method taxpayers.
In March 2002 the Dunfords purchased a 2002 Beaver Contessa motor home, which they *201 used for both business and personal travel during the years in issue, as is described below. The Dunfords bought the Beaver Contessa for $283,494. They paid $17,000 cash and, after a trade-in credit for their old motor home and other sales taxes and fees, still owed $240,889.91. The Dunfords paid the outstanding balance with a loan from Bank of America. As security for the loan the Dunfords gave Bank of America a lien on their newly purchased Beaver Contessa.
The motor home had a sleeping area, a bathroom, and a kitchenette with a countertop. Across the vehicle from the kitchen counter was a second countertop that Mr. Dunford used as a desk, and on which he had a computer and office supplies.
The Dunfords created Exam Group in 2004 as an entity to conduct a consulting business. They co-owned Exam Group.3 Mrs. Dunford performed some secretarial work for Exam Group, while Mr. Dunford, who has expertise in electrical engineering, business management, and marketing, worked as a consultant on behalf of Exam Group. Mr. Dunford provided Exam Group's clients a variety of services, which included sales development, market development, product development, and advice on market conditions. *202 Exam Group had no other owners or employees.
Most of Exam Group's consulting during 2005 and 2006 was for XVD, a video technology company with offices in San Jose, California, and Tokyo,
*194 Japan.4Exam Group's service agreement with XVD provided that Exam Group (i.e., Mr. Dunford) would: identify and engage channels to market * * * products using the XVD technology * * *[,] identify and engage with potential business partners at various locations within the US, where a strategic relationship can bring significant benefit to the Client and the target partner * * * [, *203 and] provide assistance with aspects of product marketing and branding * * *.
During 2005 and 2006 (as in prior and subsequent years), the Dunfords' home was in Quincy, Illinois; but Mr. Dunford did most of his consulting work away from their home, sometimes working at or near clients' locations. The Dunfords were away from Quincy for about half of 2005 (i.e., the colder months);
*195 and in 2006 they were away the entire year. During these periods the Dunfords traveled and stayed in their motor home.
Throughout 2005 and 2006 the Dunfords traveled all across the United States and to Japan. However, they spent most of their travel time in Florida, California, and Nevada. During the years in issue, *204 the Dunfords' three children lived in Florida, Nevada, and Quincy, Illinois—locations where the Dunfords spent significant time. They kept no contemporaneous log that shows the business character of their travel and appointments; and the log they offered into evidence was a later reconstruction that often contradicted the documentary evidence of their whereabouts. They had blended purposes, personal and business, for their travel; but their dominant motive for their travel plans was personal—i.e., the pleasure of being in the locations they chose and of being near their children.5*205
*196 The Dunfords had two other vehicles—a Saturn SC2 and a Ford Explorer. On at least some of their travels in the motor home, they towed one of these cars behind their motor home. They did not keep a log or record of the miles driven in these vehicles nor the purposes of the trips, and they did not introduce at trial any evidence of the total number of miles driven in 2005 or 2006 for either vehicle. We are unable to determine the extent, if any, to which these other cars were used for business purposes.
The Dunfords did not maintain books of account for Exam Group. They maintained numerous but unorganized receipts of their personal and business-related expenses in 2005 and 2006. They failed to distinguish between business and personal expenses, and they defended at trial the supposed business character of some expenses that were plainly personal. Their handwritten notes on receipts are unreliable (e.g., identifying several meal expenses as "breakfast meetings" with clients when the receipts bear time stamps indicating an evening meal, and the evidence shows that the Dunfords ate alone).
*197 The *206 Dunfords billed their clients for some, but not all, of the business expenses the Dunfords incurred. According to Exam Group invoices and itemized expense reports, the Dunfords billed their clients for: airline, auto rental, personal auto (miles and dollar amount based on mileage rate6*207 ), per diem, meals, and office-related expenses. With the exception of their travel from Quincy to Florida in 2005 and 2006, the Dunfords appear to have been reimbursed for nearly all of the mileage they recorded in the activity log. The Dunfords deducted all of their reimbursed expenses as travel expenses or deductible meal expenses on their Federal income tax returns. Included in these deducted expenses are amounts associated with a car rental from July 1 to November 30, 2006, that Mr. Dunford used for XVD travel during that time. The IRS in large part does not dispute the Dunfords' entitlement to deduct their reimbursed expenses.
*198 The Dunfords did not bill their clients for individual or actual vehicle costs as they were incurred (e.g., interest, depreciation, repairs, or maintenance) or for other expenses such as telephone, Internet, and postage.
Appendix A (for 2005) and Appendix B (for 2006) to this opinion show (1) the expense amounts that the IRS allowed after its examination (in the third column from the left); (2) additional amounts reflecting concessions that the Commissioner made before or after trial (in the fourth column); and (3) additional amounts (in the fifth column) that we find the Dunfords substantiated at trial both as to amount and as to their deductible character. We find that the Dunfords incurred as deductible expenses the amounts that are listed in those three columns.
The Dunfords have business acumen but no specific training in taxation or accounting. They hired their longstanding return preparer *208 (who was not a certified public accountant) to prepare their 2005 and 2006 returns. Their preparer, with help and instruction from the Dunfords, completed their 2005 and 2006 returns. The Dunfords provided their return preparer with their receipts and their own allocation of the business versus personal character of their expenditures.
Appendixes A and B show, in the first two columns, the expense categories and the amount in each category that the Dunfords deducted on Schedules C
*199 attached to their returns for 2005 and 2006. As is noted above, those amounts included both the expenses they had billed to their clients as well as the unbilled expenses.
The Dunfords claimed NOL carryover deductions of $46,743 for 2005 and $21,633 for 2006. The record does not indicate how the Dunfords calculated these figures, nor is there any evidence before us to substantiate any losses for prior years.
The Dunfords' 2005 and 2006 returns were timely filed.
The IRS selected the Dunfords' 2005 and 2006 returns for examination. The IRS allowed the deduction of most of the expenses that the Dunfords had billed to clients and disallowed most of the deductions for non-billed expenses.
The IRS *209 also disallowed the net operating loss carryovers that the Dunfords had deducted, basing the disallowance on "similar adjustments [for the loss-generating years, 2003 and 2004] required as noted in paragraph 'b' below [relating to the Schedule C adjustments for 2005 and 2006]".
The IRS also determined that the Dunfords were liable for accuracy-related penalties.
*200 On October 30, 2009, the IRS issued to the Dunfords a notice of deficiency for their 2005 and 2006 tax years. On December 15, 2009, the Dunfords timely mailed their petition to this Court for redetermination of the deficiencies in the notice.
OPINION
The IRS's determinations are presumed correct, and taxpayers generally bear the burden to prove their entitlement to any deductions they claim.
*201 (e) Retention of records.—The
Certain expenses are subject to especially strict substantiation rules under
*202 statement: (1) the amount of the expense; (2) the time and place the expense was incurred; (3) the business purpose of the expense or business use of the asset; and (4) the business relationship of the taxpayer to other persons benefited by the expense or use, if any.
The Dunfords contend that they are entitled to depreciation deductions, interest expense deductions, and other business expenses deductions for expenditures related to their Exam Group activity. The *212 Commissioner has determined that the Dunfords are entitled to most of the travel and meal expenses they deducted on their returns (i.e., the expenses for which the Dunfords have received reimbursement from their clients), but he disputes the Dunfords' entitlement to any depreciation or interest expense deductions and their entitlement to business expense deductions in excess of those already allowed.
Pursuant to
*203 enumerated in the Code, no deductions are allowed for personal, living, or family expenses.
The Dunfords deducted $44,862 for 2005 and $48,703 for 2006 for: car and truck expenses, repairs and maintenance, depreciation, insurance, tax and license, and utilities. With the exception of a relatively small amount of depreciation for unspecified assets, all of these deductions appear related to the Dunfords' vehicles, and each of these deductions (including depreciation) is disallowed for at least one of three reasons: (a) The Dunfords used the motor home as a residence during 2005 and 2006, so that
Deductions that are "allowable to the taxpayer[s] without regard to * * * [their] connection with his trade or business" are not subject to the limitations in
The Dunfords' other motor home related deductions are claimed pursuant to
A taxpayer may deduct vehicle expenses on the basis of actual cost (e.g., depreciation, maintenance and repairs, tires, gasoline, oil, insurance, and other
*206 fees)
Even if the Dunfords could deduct vehicle expenses based on actual costs, they failed to substantiate those costs. Deductions related to the Dunfords' vehicles (apart from mortgage interest discussed below) *217 are subject to strict substantiation under
The Dunfords claimed deductions for car and truck expenses of $9,613 for 2005 and $3,605 for 2006 and repairs and maintenance expenses of $5,803 for 2005 and $2,354 for 2006. These deductions were for expenditures related to at least three vehicles: the Dunfords' motor home, their Ford Explorer, and their Saturn SC2. With regard to deductions for their motor home, we do not reach the question of whether they are adequately substantiated because even if they were, they are still disallowed under
The Dunfords provided receipts substantiating that they did incur many of the vehicle, repair, and maintenance expenses reported on their return; however, the Dunfords failed to adequately substantiate their business use of the Ford Explorer and the Saturn SC2. On their return the Dunfords reported 100% business use for both the Ford and Saturn. At trial Mr. Dunford testified that it was actually more like 80%, but neither his testimony nor his *218 reconstructed logs reliably show the nature or quantum of the use of these vehicles. On the contrary,
*208 any business use of the Ford or Saturn seems unlikely for much of 2006 since Mr. Dunford rented a car every day from July 1 to November 30, 2006.9
The Dunfords have failed to meet requirements under
The Dunfords claimed depreciation deductions totaling $24,698 for 2005 and $34,999 for 2006. For depreciation deductions, the Dunfords must establish each property's depreciable basis by showing the cost of the property, its useful life or recovery period, and the previously allowable depreciation.
The Dunfords claimed depreciation deductions for their motor home, two vehicles, and other unspecified assets. Apart from the original cost of their motor
*209 home, the Dunfords have failed to provide any evidence to substantiate their depreciation deductions or the calculations they made to determine those deductions. For this reason, in addition to the others discussed above, we sustain the IRS's determination with regard to depreciation.
The Dunfords deducted insurance expenses of $3,284 for 2005 and $3,449 for 2006; tax and license expenses of $194 for 2005 and $364 for 2006; and utility expenses of $1,270 for 2005 and $3,932 for 2006. Because the Dunfords provided neither proof of payment nor detailed explanations regarding these expenses—which we can only assume are related to the Dunfords' motor home and other automobiles—we sustain the IRS's determination and hold that the Dunfords are not entitled to any deductions for these expenses claimed on their 2005 and 2006 tax returns.
The Dunfords originally deducted their interest expenses of $14,985 for 2005 and $14,565 for 2006 as business *220 interest expenses on Schedules C, and the Commissioner contends that they have not satisfied the strict substantiation requirements in
*210 interest pursuant to
The interest that the Dunfords deducted for 2005 and 2006 was paid on a loan that they used to buy their motor home.
Acquisition indebtedness is defined as any indebtedness that is "incurred in acquiring, constructing, or substantially improving any qualified residence of the taxpayer" and "is secured by such residence".
*211 motor home and that the loan was secured by their motor home. Accordingly, the Dunfords have satisfied the "acquisition indebtedness" requirement.
The next question is whether the Dunfords' motor home was a "qualified residence", and we conclude it was. A "qualified residence" includes the principal residence of the taxpayer (which would be the Dunfords' home in Quincy, Illinois) and "1 other residence of the taxpayer which is selected by the taxpayer for purposes of * * *
*212 unit");
A taxpayer may deduct "traveling expenses * * * while away from home in the pursuit of a trade or business",11*224
*213 expenses for meals and travel to the heightened substantiation standards discussed above. The Dunfords deducted $13,464 for travel and $2,205 for meal expenses on their 2005 return. On their 2006 return, the Dunfords deducted $25,689 for travel and $5,527 for meal expenses. There can be no denying that the Dunfords traveled for their business; and the IRS did not deny it, allowing the deductions in large part: $11,971 for travel and $156 for meals for 2005, and $19,199 for travel and $2,461 for meals for 2006. The amounts allowed largely correspond to the expenses that the Dunfords' clients reimbursed. The Dunfords have receipts showing greater expenditures incurred while they were away from Quincy, but their failure to credibly distinguish between their personal expenses and their actual business expenses makes us unable to find any additional business-related travel expense. The Dunfords in their post-trial briefs have not
*214 addressed their entitlement to the remaining amounts *225 they claimed on their returns. We therefore sustain the IRS's determinations for travel and meals expenses.
The Dunfords claimed combined office and supplies expense deductions of $10,396 on their 2005 return and $12,796 on their 2006 return. Evidently conceding the bulk of those amounts, the Dunfords' post-trial briefs point to several receipts to substantiate their entitlement to deductions of $2,666.82 for 2005 and $194.19 for 2006. The Dunfords have provided little explanation of the expenses apart from the receipts. Most of them, standing alone, are inadequate to substantiate a business expenditure; and some receipts reflect expenses that the Commissioner had already stipulated as deductible. But a few of the remaining receipts do provide enough information to support a reasonable inference of a business purpose (e.g., printing costs, binders for presentations, and office rental). On the record before us, we conclude the Dunfords are entitled to the following additional deductions:
| *215 | |||
| Year | |||
| 2005 | $600.00 | Office rental | Quincy office rental |
| 2005 | 75.41 | Computer software | Staples |
| 2005 | Digital voice recorder | Radio Shack | |
| Total | 783.15 | ||
| Year | |||
| 2005 | $123.54 | Printer ink | Staples |
| 2005 | Printer ink | Staples | |
| Total | 175.29 | ||
| 2006 | 26.58 | Binders for XVD | Rite-Aid |
For *226 the remaining office and supplies expense deductions in dispute, we sustain the IRS's determinations because either the Dunfords failed to show that they incurred the expense, or they failed to show that the expense had a business purpose, or both.
On their 2006 return the Dunfords deducted $1,455 for legal and professional services; the IRS allowed $385 of that amount. Neither the Dunfords' trial testimony nor their post-trial briefs addressed their entitlement to
*216 the remaining $1,070, and we find no documentary evidence that relates to this deduction. Accordingly, we sustain the IRS's determination on this point.
In addition to $277 for postage and printing that the Commissioner has stipulated, the Dunfords contend that they should be allowed to deduct $3,45613 for communication expenses, *227 which they deducted as "Other expenses" on the Schedule C attached to their 2006 return.
*217 and a laptop computer. The Dunfords used these services while they lived in the motor home and contend they are entitled to deduct $3,456 for the associated costs.
We find that the Dunfords used two of the three mobile phones *228 for personal purposes, and deductions for those two phones are therefore not allowed. As for the part-year separate motor home line, the third mobile phone, and Internet service, we find that Mr. Dunford used those services for business purposes.
For the years in issue, mobile phones are subject to the strict substantiation standards of
Included in their claim for "communication expenses" is $1,014.70 for a laptop computer that the Dunfords bought in November 2006. This deduction must be disallowed for multiple reasons:
(1) A computer is a capital item, not an ordinary and necessary expense.
(2) Computers are also subject to the heightened substantiation requirements of
*219 (3) It appears that the IRS allowed this expense (presumably inadvertently) as one of the travel expenses it conceded. We will not overrule the IRS's concession, but we clearly should not allow a double deduction for this item. Accordingly, we will sustain the IRS's *230 determination regarding the $1,014.70 laptop expense.
The Dunfords assert that they are entitled to NOL carryover deductions of $46,743 for 2005 and $21,633 for 2006.In general, a taxpayer is entitled to deduct as an NOL for a taxable year an amount equal to the sum of the NOL carryovers and NOL carrybacks to that year.
The Dunfords offered no evidence to substantiate their alleged losses in prior years giving rise to the NOL carryover deductions they now claim. Rather,
*220 they assert that the prior-years' losses arise from Schedule C expenses like those they incurred in the years in issue, and they argue that if they prevail *231 as to those expenses for the years in issue, then for the same reasons they should prevail as to the NOL carryovers. Their contention fails, because even if they had largely shown their entitlement to Schedule C expenses for 2005 and 2006 (and they did not), this would not have carried their burden to prove the equivalent expenses in the loss-generating years. Accordingly, they have failed to substantiate their respective NOL carryovers and are not entitled to claim any NOL deductions for the years in issue.
*221 Commissioner's determination is incorrect. *232
An understatement of income tax for an individual is substantial if it exceeds the greater of 10% of the tax required to be shown on the return or $5,000.
The Dunfords contend that no penalty should be imposed against them, because "reasonable cause" and "good faith" warranted their tax reporting.14*233
*222
The Dunfords argue that they had reasonable cause and acted in good faith in relying on the advice of their longstanding accountant (i.e., not a certified public accountant but a return preparer). The Dunfords contend that because they "lack taxation training and expertise, [they] cannot be expected, on their own, to calculate properly and, for that matter, understand the proper tax treatment of the business deductions taken by them."
While *234 it is true that the Dunfords may not have had any specific training in tax or accounting, we find that the Dunfords were reasonably sophisticated business people. They were certainly able to tell the difference between a personal
*223 expense and a business expense—but the receipts in evidence (which they used to substantiate their deductions) show that they failed to take care to make this distinction. In addition, the Dunfords should have been able to determine that they were claiming multiple deductions for the same expenses. Nothing in the record indicates that these errors were the result of tax advice. To the contrary, the record indicates that their return preparer completed their return using the summaries of expenses and business use percentages that Mr. Dunford provided him. When their deductions were challenged, they produced no substantiation for significant portions of them.
We find that the Dunfords had neither reasonable cause nor good faith with regard to the positions they maintained on their returns. Accordingly, to the extent we sustain the IRS's determinations, we also sustain the corresponding accuracy-related penalties.
The determinations in the IRS's notice *235 of deficiency are sustained in part, as is explained above. So that the liabilities for the years in issue can be computed,
The following table displays (i) the amounts the Dunfords deducted on their 2005 return for various items, (ii) the amounts that the IRS allowed in the notice of deficiency, (iii) amounts that the parties have stipulated the Dunfords are entitled to, and (iv) additional amounts that we find the Dunfords incurred and for which they adequately substantiated the requisite business purpose or use:
| Car and truck | $9,613 | -0- | -0- | -0- |
| Depreciation | 24,698 | -0- | -0- | -0- |
| Insurance | 3,284 | -0- | -0- | -0- |
| Interest | 14,985 | -0- | -0- | $14,985 |
| Legal and professional | 305 | $305 | -0- | -0- |
| service | ||||
| Office | 5,923 | -0- | -0- | 783 |
| Repairs and maintenance | 5,803 | -0- | -0- | -0- |
| Supplies | 4,473 | -0- | $192 | 175 |
| Taxes and licenses | 194 | -0- | -0- | -0- |
| Travel | 13,464 | 11,971 | -0- | -0- |
| Deductible meals | 2,205 | 156 | -0- | -0- |
| Utilities | 1,270 | -0- | -0- | -0- |
| Other | 4,390 | -0- | 459 | -0- |
The following table displays similar amounts for the Dunfords' 2006 taxable year:
| Car and truck | $3,605 | -0- | -0- | -0- |
| Depreciation | 34,999 | -0- | -0- | -0- |
| Insurance | 3,449 | -0- | -0- | -0- |
| Interest | 14,565 | -0- | -0- | *236 $14,565 |
| Legal and professional | 1,455 | $385 | -0- | -0- |
| service | ||||
| Office | 9,177 | -0- | -0- | -0- |
| Repairs and maintenance | 2,354 | -0- | -0- | -0- |
| Supplies | 3,619 | -0- | $70 | 27 |
| Taxes and licenses | 364 | -0- | -0- | -0- |
| Travel | 25,689 | 19,199 | -0- | -0- |
| Deductible meals | 5,527 | 2,461 | -0- | -0- |
| Utilities | 3,932 | -0- | -0- | -0- |
| Other1 | 7,477 | -0- | 277 | 834 |
| 1 The other expenses included: subscriptions, postage, | ||||
| computer software, printing and copies, telephone services, | ||||
| mobile phones, Internet and Web services, communication equipment, | ||||
| promotional/gifts, express mail, clothes, and bank charges. | ||||
Footnotes
1. Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986 (26 U.S.C., "the Code"), as in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. The parties agree that the IRS's determinations regarding taxable Social Security income, self-employment tax, the self-employment tax deduction, and itemized deductions are computational issues that depend on our resolution of the other issues in the case.↩
3. An LLC with two owners is generally taxed like a partnership,
see sec.26 C.F.R. 301.7701-2(c)(1)↩ , Proced. & Admin. Regs., and each owner reports his share of LLC income or loss on a Schedule E, "Supplemental Income and Loss". Instead, the Dunfords appear to have treated Exam Group as disregarded entity and reported its income and expenses on Schedules C. However, the Dunfords were the only owners of Exam Group, and for the years in issue they elected to file joint returns. Consequently, their tax liability is unaffected by the schedule on which the Exam Group items were reported, and we need not address this technical flaw.4. Mr. Dunford also consulted for Argil Venture Capital, a South African company that owned a portfolio of technology companies, but his work with Argil ended in early 2005.↩
5. As they explained in a family email to their friends:
We will be heading back there [to Tampa] before Christmas as it is getting a bit too cold here—with daytime highs in the 20's * * * and the lows—well let's not even go there! So call us wimps, but Florida daytime highs in the 60's and 70's with nighttime lows in the 50's kind of has more appeal. So we shall be cranking up the old motor home about the time this letter is going out and heading south with a multitude of cats aboard. Anyone wishing to call us, the number at the bottom of your screens will reach us—probably at the beach or some Tiki Bar. We fit in quite nicely with the blue haired rinse crowd down there.
6. The rates the Dunfords used varied from 32 cents per mile for all vehicles in 2005 to 35 cents per mile for their cars and 50 cents per mile for their motor home in 2006. These amounts do not correspond to the deductible standard mileage rates in effect for the years in issue,
see infra note 8, but since the deductions will be disallowed for other reasons,see infra part II.B.1, we will not address their entitlement to deductions to the extent their mileage rate was less than the standard mileage rate,cf. Jackson v. Commissioner , T.C. Memo. 1999-226↩7. For tax years beginning after December 31, 2009, cellular phones are no longer "listed property" under
sec. 280F(d)(4)↩ .8. The standard mileage rate for January 1 to August 31, 2005, was 40.5 cents, and from September 1 to December 31, 2005, it was 48.5 cents.
Rev. Proc. 2004-64, 2004-2 C.B. 898 , as modified byAnnouncement 2005-71, 2005-41 2005-2 C.B. 714 . The standard mileage rate for 2006 was 44.5 cents.Rev. Proc. 2005-78, 2005-2 C.B. 1177↩ .9. The Dunfords have claimed a deduction for the associated rental car expenses, and the IRS does not dispute their entitlement to that deduction.↩
10. The Commissioner does not contend that the Dunfords exceeded the $1 million limit on acquisition indebtedness,
see sec. 163(h)(3)(B)(ii)↩ , and nothing in the record suggests that they did. We therefore do not address that issue.11. The Commissioner's principal contention as to travel expenses is that the Dunfords have not substantiated them, beyond what the Commissioner has conceded. In response to a question raised by the Court, the Commissioner contended after trial that, for tax purposes, the Dunfords had no "home" in 2005 and 2006 (other than the motor home, from which they were not "away" while traveling), so that "Petitioners are not entitled to deduct expenses arising from their travels in tax years 2005 and 2006 in amounts
greater than already allowed by respondent ." (Emphasis added.) Logically, the Commissioner should "allow"zero away-from-home travel expense amounts if petitioners had no "tax home"; but he does not retract his prior concession. Since we uphold the Commissioner's primary contention (lack of substantiation), and since the Commissioner continues to concede the deductibility of the amounts thatwere↩ substantiated, none of the amounts in dispute turn on the "tax home" issue, so we do not address it.12. On their 2005 return the Dunfords claimed a deduction of $4,390 for various "Other expenses". The parties have stipulated that the Dunfords are entitled to $459 of those deductions. The Dunfords have not indicated that they should be entitled to more than that amount, so we infer that there is no remaining dispute as to 2005 "Other expenses".↩
13. On their 2006 return, the Dunfords deducted $7,477 in "Other expenses". In their post-trial briefs they have not addressed the remaining $3,744 that they claimed on their 2006 return (i.e., beyond the Commissioner's stipulation and their continuing claim for $3,456), so we find that the Dunfords concede that this remaining amount is nondeductible.↩
14. The Dunfords do not contend that they had "substantial authority" for their position or that they disclosed on their return the issues resolved against them,
sec. 6662(d)(2)(B)↩ , and the record shows no basis for such contentions. We therefore do not address these other potential defenses.
Related
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