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Christensen v. Commissioner (T.C. Memo. 2020-14)

On January 15, 2020, the Tax Court issued a Memorandum Opinion in the case of Christensen v. Commissioner (T.C. Memo. 2020-14). The sole issue presented in Christensen was whether employee expenses for travel to and from home and work were deductible under IRC § 162(a).

Deductibility of Expenses in General

Because deductions are a “matter of legislative grace,” taxpayers bear the burden of establishing their entitlement thereto. Tax Court Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). The taxpayer’s burden is met by substantiating the amount and purpose of each expense that the taxpayer claims as a deduction. Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). As a part of satisfying this burden, taxpayers must maintain sufficient records. IRC § 6001; Treas. Reg. § 1.6001-1(a). No records, no substantiation.

Generally, ordinary and necessary business expenses paid or incurred during the taxable year are deductible under IRC § 162(a), while personal expenses are not deductible under IRC § 262(a). The taxpayer must show that the expense was incurred primarily for business, not personal, reasons, and that there was a proximate relationship between the expense and the business. See Walliser v. Commissioner, 72 T.C. 433, 437 (1979).

The term “ordinary,” when referring to expenses, means than an expense is common or frequent in the type of business involved. See Boser v. Commissioner, 77 T.C. 1124, 1132 (1981). The term “necessary,” similarly, denotes an expense that is appropriate or helpful, but not necessarily indispensable or absolutely required. Heineman v. Commissioner, 82 T.C. 538, 543 (1984); Ford v. Commissioner, 56 T.C. 1300, 1306 (1971), aff’d, 487 F.2d 1025 (9th Cir. 1973); see also Boser, 77 T.C. at 1132. Even if an expense is ordinary and necessary, it is deductible under IRC § 162 only to the extent that it is reasonable in amount. Gill v. Commissioner, T.C. Memo. 1994-92; Brallier v. Commissioner, T.C. Memo. 1986-42.

Travel Expenses Under IRC § 162 or IRC § 262

Employee expenses for travel between home and work are generally not deductible under IRC § 162(a); instead, they are considered personal, living, or family expenses under IRC § 262(a). Peurifoy v. Commissioner, 358 U.S. 59, 60 (1958). Furthermore, automobile, travel, and entertainment expenses are subject to more rigorous “strict substantiation” requirements under IRC § 274(d).

To deduct any of these expenses under IRC § 274(d), the petitioner must substantiate the amount of the expense; the time and place the expense was incurred; the business purpose of the expense; and, in the case of an entertainment or gift expense, the business relationship of the recipient to petitioner at the time each expense was incurred. Each and every element must be substantiated by adequate records or other sufficient evidence corroborating petitioner’s own statements. IRC § 274(d).

Original opinion: (T.C. Memo. 2020-14) Christensen v. Commissioner

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