Ayria v Commissioner, T.C. Memo. 2022-123 | December 19, 2022 | Lauber, J.| Dkt. No. 13745-20

Short Summary: This case involves the disallowance of taxpayer’s business expenses reported on Schedule C, Profit or Loss from Business for not meeting substantiation requirements and the assessment of an accuracy-related penalty. In the 2017 tax return, Ayria reported wages income received as an employee of Honda. Additionally, he included in his tax return a Schedule C where he described his sole proprietorship as “consulting”, where he reported gross receipts and claimed several deductions. All the expenses reported were incurred in connection with his work as manager of Honda. The expenses incurred were vehicle expenses, meals, and entertainment, gifts, telephone and Internet Charges, and Dry Cleaning. The IRS disallowed all the deductions claimed under Schedule C. The Tax Court determined that expenses shall be “ordinary and necessary” business expenses to be deductible under Section 26 U.S.C. § 162. The tax Court disallowed all the deductions made by Ayria under Schedule C, for the following reasons: (1) Lodging expenses – Ayria incurred hotel expenses that were not essential to carry out his business, but merely a substitution of his daily commuting from his home to his job. (2) Vehicle expenses – Ayria did not maintain any odometer readings to keep track of his mileage nor records for his business travel related. (3)

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