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Guinn v. Dep't of Revenue4/19/2005
uctions." Id. For example, IRC ยง 274 imposes "strict substantiation of expenses for travel, meals and entertainment, and gifts, and with respect to any listed property as defined in section 280F(d)(4). Sec 274(d). Listed property includes any passenger automobile * * *. Sec. 280F(d)(4)(A)(i)(ii)(iv)." Boyd v. Commissioner, 83 TCM (CCH) 1253 (2002). As the following analysis will detail, the lack of proper substantiation or documentation can result in the denial of a claimed deduction.
For ease of reference, the court will analyze the issues in the order presented in the conference officer's report, dated March 17, 2004.
A. Gross Receipts and Cost of Goods Sold
Plaintiffs reported gross receipts from the sale of Guinn's book, 21st Century, in the amount of $560.00 for tax year 1999. (Def's Ex D-8.) Guinn introduced into evidence a copy of his book, retailing for $10.99. (Ptfs' Ex Item 6A.) At trial, Guinn did not provide any evidence to support the amount ($560.00) reported as income from the sale of books. He stated that because Defendant accepted his reported amount he did not think it was necessary to provide the court with documentation to support that amount. Defendant did not disagree with Guinn's statement and confirmed that the auditor reviewed Plaintiffs' bank statements and other related information. (Def's Exs C 20-21; C-24.)
Plaintiffs deducted $2,476.00 for cost of goods sold. (Def's Ex D-8.) Plaintiffs determined that amount based on the difference between the value of inventory on hand at the end of the year and the publishing expenses for the books incurred during the year. Defendant allowed $56.25 as the cost of goods sold on the basis that Plaintiffs sold 15 books. (Def's Ex A-1.) After reviewing Guinn's contract with Winepress Publishing, Defendant concluded that Plaintiffs paid $3.75 per book for production, shipping and handling. (Def's Ex A-1.) At trial, Thompson stated that he was unable to determine the correct amount for cost of goods sold because it was unclear to him how many books Guinn had sold.
The number of books sold by Guinn and corresponding cost of goods sold are at issue. Plaintiffs disagree with Defendant's conclusion that Guinn only sold 15 books. Guinn wrote that " hese are proof that the conference officer's statement that I sold '15 books' in Item 1 was unfounded based on the information, verbal and in writing provided to her." (Guinn's letter at 1, Jan 16, 2005.) In one document submitted to Defendant on October 18, 2003, Guinn wrote that during 1999 he sold 391 books (net). (Def's Ex B-12.) Guinn submitted the same number for books sold (391) to the court. (Ptfs' Ex Item 1A at 1.) Statements from the publisher show total shipments of Guinn's book in the amount of 301, not 391. (Ptfs' Ex Item 1A at 3 and 5.) Based on Plaintiffs' statement from his publisher, the total number of books sold by Guinn for tax year 1999 was 301.
Plaintiffs appear to have made errors on the tax returns in reporting both the gross receipts and cost of goods sold. Plaintiffs' evidence, a copy of the book with the printed retail price on the back cover of the book, supports a retail price of $10.99 per book. The court cannot accept Plaintiffs' tax return reporting that gross receipts or sales were $560.00 for the sale of 301 books or $1.86 per book. (Def's Ex D-8.) Further, Plaintiffs reported a cost of goods sold based on the total purchase price of all books printed, not those that were sold. Defendant correctly states that the court has previously held that, "except for those professionals who have established their status by actually earning income, writers are required to capitalize their expenses until income is earned fr
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