In Uncategorized on 08/11/2021 at 20:16

Some of us growl at “the electric leash”; others couldn’t live without it. Whichever camp in which we sit, the smartphone is unavoidable.

Dion E. Monroe and Kim M. Monroe, 2021 T. C. Sum. Op. 24, filed 8/11/21, would be just another run-of-the-mill indocumentado, were it not for Dion’s smartphone app that actually seems to satisfy Section 274 and its substantiation stonewall against which so many trade-or-business automobilists crash.

Dion is a car salesman, but instead of hitting the bricks, he mimics his namesake’s 1961 hit and “goes around around around around around.”

Judge Elizabeth A. (“Tex”) Copeland tells us all about it.

“In order to facilitate his overall car sales, Mr. Monroe engaged in certain marketing activities. Those activities involved offering incentives to: (1) potential customers who test drove a…vehicle for which Mr. Monroe was the designated salesman, (2) customers who purchased a … vehicle for which Mr. Monroe was the salesman, and (3) persons who referred customers to Mr. Monroe. The various incentives included a free round of golf for two people, lunch, dinner, a $100 gift card, or tickets to a Kansas City Chiefs football game. Mr. Monroe would market these incentives by taking a day every other week to drive a circuit along which he would deliver to and post flyers at certain targeted insurance agencies, golf courses, golf stores, and junk yards.” 2021 T. C. Sum. Op. 24, at p. 4.

OK, mileage deduction. There’s the usual Schedule C vs Schedule A (with the 2% AGI cutoff) argy-bargy, but save that; we’ll come back to it.

In the meantime, Dion is running up miles and potential deductions, but Section 274 is blocking the way.

“On days when he drove the circuit, Mr. Monroe used a phone application (app) to track his mileage. The app allowed him to manually enter the starting odometer reading; then it would use the phone’s Global Positioning System receiver to track mileage driven and, at the end, add the mileage driven to the initial odometer reading to calculate a final odometer reading. The app also allowed Mr. Monroe to generate a mileage log. His mileage logs included: (1) the date; (2) the time travel was initiated (but no other times); (3) a description, which is either “[d]eliver flyers” or  “[d]eliver flyers/[s]etup tourn”; (4) a purpose, which is always “[b]usiness”; (5) which is always “Golf Stores”, “Golf Courses”, “Junk Yards”, or “Insurance Agents”; (7) a beginning odometer reading; (8) an ending odometer reading; and (9) a mileage calculation.” 2021 T. C. Sum. Op. 24, at pp. 4-5.

Good enough? Yes, says Judge Tex Copeland.

“In addition to credible testimony, the Monroes provided contemporaneous mileage logs, which they were able to relate back to Mr. Monroe’s customer lists. For 2014 Mr. Monroe’s mileage log states that he drove 19,907 miles for business purposes. Similarly, Mr. Monroe’s 2015 mileage log states that he drove 15,610 miles for business purposes. We will accept the mileage shown in the contemporaneous mileage log for each year. Thus, we hold that the Monroes are entitled to deduct car and truck expenses of $11,148 (19,907 × .56) for 2014 and $8,976 for 2015 (15,610 × .575).” 2021 T. C. Sum. Op. 24, at p. 18.

Most of the rest of Dion’s deductions bite the dust, but when deficiencies of around $12K are on the line, and IRS is Boss Hossing 20% five-and-ten chops at no extra cost, those smartphone deductions could save a lot.

As for the Schedule C vs Schedule A, Dion claimed the incentive payments he got from the auto manufacturer whose tin he was pushing was a separate trade or business, hence Schedule C. That one craters, but when it comes to those five-and-ten chops (lesser of 10% or $5K understatement of tax earns a 20% chop), maybe Dion and Kim have a point.

“All of the adjustments relate to the Monroes’ failure to report some of their income or to the disallowed Schedule C deductions. The record reflects that some of the expenses were deductible on Schedule A. While the 2% floor may have limited some of the deductions we allowed, the Monroes were not unreasonable in claiming those amounts as Schedule C deductions in that the judiciary has never spoken on the proper characterization of those items in the setting herein. As to the unreported income and as to the expense deductions that we specifically disallowed for reasons other than the 2% limitation, the Monroes did not establish that they are entitled to a reasonable cause defense. Consequently we hold that the Monroes are liable for the section 6662(a) and (b)(2) accuracy-related penalties to the extent the Rule 155 computations show there are underpayments attributable to substantial understatements of income tax, except not as to the portions of the understatements that relate to a limitation resulting from the 2% floor.” 2021 T. C. Sum. Op. 24, at p. 28.

Gonna be quite a Rule 155 beancount.

Takeaway for Wanderers: Get that smartphone app. Use it well. And no, I don’t get any compensation for mentioning it here.


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