Morris v. Dept. of Rev.

• Court: Oregon Tax Court
• Decided: October 17, 2017
• Docket: TC-MD 160287R
• Status: Unpublished

Opinion

IN THE OREGON TAX COURT MAGISTRATE DIVISION Income Tax

RUSSELL D. MORRIS ) and JANICE I. MORRIS, ) ) Plaintiffs, ) TC-MD 160287R ) v. ) ) DEPARTMENT OF REVENUE, ) State of Oregon, ) ) Defendant. ) FINAL DECISION1

Plaintiffs appealed Defendant’s Notices of Assessment, dated July 19, 2016 and

October 5, 2016, for the 2012, 2013, and 2014 tax years. A trial was held on February 16, 2017,

in the Oregon Tax Court. Robert L. Armstrong appeared on behalf of Plaintiffs. Janice I. Morris

(Morris) and Robert L. Armstrong (Armstrong) testified on behalf of Plaintiffs. Kathleen

Johnson and Willie Lam appeared on behalf of Defendant. Kathleen Johnson (Johnson) testified

on behalf of Defendant. Plaintiffs’ Exhibits 1 to 6 were admitted without objection. Defendant’s

Exhibits A to H were admitted without objection.

At the outset of the trial Plaintiffs moved to continue the trial because the original tax

preparer had passed away. However, upon questioning from the court, Plaintiffs explained that

the death occurred in 2014. Plaintiffs’ request, made on the day of trial, was untimely and lacked

good cause.

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1 This Final Decision incorporates without change the court’s Decision, entered September 28, 2017. The court did not receive a statement of costs and disbursements within 14 days after its Decision was entered. See Tax Court Rule–Magistrate Division (TCR–MD) 16 C(1).

FINAL DECISION TC-MD 160287R 1 I. STATEMENT OF FACTS

Morris testified that she is a postal clerk. In 2012, Morris was assigned to work in

Hubbard, Oregon. Morris was periodically assigned to work in other locations on a temporary

basis and occasionally worked in multiple locations in a single day. Morris wrote down the

name of the locations where she worked on her calendar. (Ptfs’ Ex 6.) Morris testified that she

did not seek reimbursement from her employer for travel between locations because she was

unsure of the employer’s policy. Morris testified that she sought and was paid reimbursement

for travel related to work from her employer in 2009 and 2010. Morris explained that she

“thought it had to be a huge amount” in order to ask for reimbursement from her employer.

Morris testified that her spouse, Russell D. Morris (Mr. Morris), works as a mobile

mechanic for Frito-Lay. Morris testified that Mr. Morris was required to pick up and leave his

work truck in Salem. Occasionally, she would drive Mr. Morris between Salem and Tualatin and

keep track of the miles using the label “truck” on her calendar. Morris’ calendar did not include

actual mileage figures for travel related to driving Mr. Morris and was not sure whether the

individual calendar items represented travel to Tualatin or Salem.

Armstrong testified that he has been an accountant since 1978, and did not prepare any of

the tax returns at issue. He testified that Exhibit 2 represents Mr. Morris’ description of his job,

proof of the employer’s tool reimbursement policy, and a statement from his employer that

“[Mr.] Morris was required to park his [work] truck at the Salem DC location even though he

was required to work in Portland.”2 (Ptfs’ Ex 2 at 8.) Armstrong testified that Exhibit 5 at 1–2 is

a Google Map showing the distance from Mr. Morris’ home in Oregon City to the Salem

2 The employer’s document stated the northern business location was in “Portland.” However, an email from Mr. Morris (Ptfs’ Ex 2 at 2) and testimony from his spouse identified the location as Tualatin. The court takes judicial notice that Tualatin is an incorporated city within the Portland metropolitan area, but is not part of the city of Portland. The court finds that actual work location is in Tualatin.

FINAL DECISION TC-MD 160287R 2 location where he picked up his employer provided truck. Armstrong also testified that the

remainder of Exhibit 5 shows receipts on which Plaintiffs based their claim for unreimbursed

employee business expenses.

For the 2012 tax year, Mr. Morris claimed employee business expenses of $5,550 for

vehicle expense; $476 for travel expense; $14,951 in other business expenses; and $7,215 in

mileage expense; but, added back $1,000 for unreported employer reimbursements. (Ptfs’ Ex 3

at 3, 5.)

Johnson testified she is a tax auditor for Defendant. She testified that Defendant

considered Mr. Morris’ 2012 mileage as nondeducible commuting miles and also found that his

records lacked substantiation. She testified that of the $14,951 in other expenses claimed by

Mr. Morris, Defendant allowed $579.51 for tools, and denied the remainder for lack of

substantiation. Johnson testified that some of the receipts provided by Plaintiffs showed charges

to an American Express card that was in the name of Mr. Morris’ employer. She explained that

she was never told whether those charges were paid by the employer or by Mr. Morris. Johnson

testified that Morris’ mileage was denied because her employer’s reimbursement policy was

unclear and her documentation lacked substantiation.

II. ANALYSIS

In analyzing Oregon income tax cases the court starts with several general guidelines.

First, the court is guided by the intent of the legislature to make Oregon’s personal income tax

law identical in effect to the federal Internal Revenue Code (IRC) for the purpose of determining

taxable income of individuals, wherever possible. ORS 316.007.3 Second, in cases before the

Tax Court, the party seeking affirmative relief bears the burden of proof and must establish his or

3 The court’s references to the Oregon Revised Statutes (ORS) are to 2011.

FINAL DECISION TC-MD 160287R 3 her case by a “preponderance of the evidence.” ORS 305.427. Third, allowable deductions from

taxable income are a “matter of legislative grace” and the burden of proof (substantiation) is

placed on the individual claiming the deduction. INDOPCO, Inc. v. Commissioner, 503 US 79,

84, 112 S Ct 1039, 117 L Ed 2d 226 (1992).

The legal authority for the disputed deductions begins in IRC section 162(a), which

provides in relevant part:

“There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including – ***** (2) traveling expenses (including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business[.]”

IRC section 162 generally disallows deductions for “personal, living, or family expenses”

not otherwise expressly provided for in the IRC. Thus, in general, a taxpayer may not deduct

daily transportation expenses, commonly referred to as commuting expenses, incurred in going

between the taxpayer’s residence and their regular place of business or employment. Treas

Reg § 1.262-1(b)(5); see also §1.162-2(e). However, “if a taxpayer has one or more regular

work locations away from the taxpayers’ residence, the taxpayer may deduct daily transportation

expenses incurred in going between the taxpayer’s residence and a temporary work location[.]”

Rev Rul 99-7, 1999-1, CB 361, 1999 WL 15135 (emphasis in original).

IRC section 274(d) provides that no deduction is allowable under section 162 for any

traveling expenses unless the taxpayer complies with strict substantiation rules. IRC § 274(d)(1),

(4). A taxpayer must substantiate the amount, time, place, and business purpose of the expenses

by adequate records or by sufficient evidence corroborating his or her own statement.

IRC § 274(d)(4); Treas Reg § 1.274–5T(b)(2), (c).

FINAL DECISION TC-MD 160287R 4 A. Mr. Morris’ Travel Miles

Plaintiffs contend that Mr. Morris is entitled to deduct travel miles from his home to

Salem where he picks up his employer’s work truck because his assigned work location,

according to his employer, is in Portland. The problem with that argument is that Salem does not

represent a temporary work location – the employer requires him to park and pick up his work

truck at that location. Salem represents a normal work location for Mr. Morris. Thus, the

commute from his home to Salem represents nondeductible commuting miles.

B. Mr. Morris’ Tool Expense

Plaintiffs assert Mr. Morris should be able to deduct the cost of tools he purchased for

work. In support of that proposition, Plaintiffs presented the hearsay testimony of Armstrong

who stated that Mr. Morris told him the receipts presented in Exhibit 5 represented his

unreimbursed tool expenses. That hearsay testimony, without any first-hand knowledge, or any

meaningful explanation of the items purchased, was not persuasive. That leaves the invoices and

receipts presented as exhibits alone and without any support. Some of the receipts were charged

on the employer’s credit card. It is unclear whether the employer paid for any of the items. The

receipts often do not contain a detailed description of the items purchased. Without further

explanation, the court is unable to ascertain what the items are, whether they were related to a

legitimate business purpose, whether they were presented to the employer for reimbursement, or

whether the employer actually paid for the items, and if not, why not. The evidence is simply

lacking. Thus, the court finds that Plaintiffs have not met their burden of proof with respect to

their deduction for tool expenses.

FINAL DECISION TC-MD 160287R 5 C. Morris’ Mileage Expense

Plaintiffs assert Morris was entitled to a deduction for business related travel when she

went to temporary work locations for her employer and when she occasionally transported

Mr. Morris between his Salem and Tualatin work locations. Defendants denied the deduction

due to a lack of substantiation.

As noted above, travel to temporary work locations could certainly qualify for a

deduction. In this case, however, the issue is whether the claimed mileage expenses in going to

temporary work locations are “ordinary and necessary” under IRS section 162(a). This court has

consistently 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 [or her] employment, when

entitled to do so. Symonds v. Dept. of Rev., 11 OTR 417, 418 (1990) (citations omitted). Morris

acknowledged that in the past her employer had reimbursed her for travel related expenses.

Morris did not demonstrate by a preponderance of the evidence that she would not have been

reimbursed by her employer for travel to temporary work locations during the 2012 tax year.

Therefore, the deduction is not allowed.

Morris also sought to deduct for mileage related to occasionally transporting Mr. Morris

between Tualatin and Salem. As stated previously, that type of travel is potentially deductible, if

it is ordinary and necessary for the employer. But here, Morris was unable to state why the

travel was necessary for Mr. Morris’ employer. It is just as likely that the mileage was for

Mr. Morris’ own convenience. Thus, the deduction related to that travel must be disallowed.

D. Deductions for the 2013 and 2014 Tax Years

Plaintiffs did not present any evidence with respect to the 2013 or 2014 tax years. Thus,

their appeal for those years must be denied for lack of substantiation.

FINAL DECISION TC-MD 160287R 6 III. CONCLUSION

After careful consideration of the evidence presented, the court finds that Plaintiffs have

not met their burden of proof with respect to the deductions sought for the 2012, 2013, and 2014

tax years. Now, therefore,

IT IS THE DECISION OF THIS COURT that Plaintiffs’ appeal is denied

Dated this day of October, 2017.

RICHARD DAVIS MAGISTRATE

If you want to appeal this Final 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 the Final Decision or this Final Decision cannot be changed. TCR-MD 19 B.

This document was signed by Magistrate Davis and entered on October 17, 2017.

FINAL DECISION TC-MD 160287R 7