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Oregon Judicial Department - Publications

IN THE REGULAR DIVISION OF THE OREGON TAX COURT Peter C. BROWN and Judith A. Brown, Plaintiffs, v. DEPARTMENT OF REVENUE, Defendant. (TC 4390) The court found that Plaintiffs did not give sufficient substantiation of their alleged business expenses to warrant allowance of further business deductions. Income taxation-Deductions-Substantiation 1. Plaintiffs must provide substantiating documentation in order to claim certain business expense deductions. Income taxation-Deductions-Year of deductibility-Credit card 2. Business expense payments made by credit card are deductible in the tax year in which the payment is made regardless of the year in which the credit card charges are actually paid. Trial was held January 18, 2000, in the courtroom of the Oregon Tax Court, Salem. Peter and Judith Brown, Plaintiffs (taxpayers), argued the cause pro se. Jerry Bronner, Assistant Attorney General, Department of Justice, Salem, argued the cause for Defendant (the department). Decision for Defendant rendered March 8, 2000. CARL N. BYERS, Judge. Plaintiffs (taxpayers) appeal assessments of additional income taxes, penalties, and interest for the 1989, 1990, and 1991 tax years. Taxpayers' appeal was dismissed by the magistrate for failure to appear for trial. The underlying claims concern disallowed business expenses. FACTS Prior to 1988, Mr. Brown was employed by Benjamin Franklin stores, a chain of craft stores. In 1988, he left that employment and started a consulting business. He testified that he consulted on site evaluations, leases, and markets for craft stores. Apparently, he taught Mrs. Brown how to assist with inventory selection and display craft items. He testified that the two of them constituted a full partnership and that the nature of their business required extensive travel with significant expenses for entertainment, meals, and lodging. While he anticipated great success and spent substantial sums in 1989 getting the business started, by the end of 1990, the business was diminishing rapidly. Taxpayers also had trouble collecting the amounts owing them and, as a result, in 1991 declared personal bankruptcy. Apparently due to their business difficulties and taxpayers' own procrastination, they did not file income tax returns for 1989, 1990, and 1991 until 1995. When the returns were filed, they were audited. The auditor requested additional records and information substantiating the expenses claimed. Taxpayers furnished copies of their credit card statements, showing items purchased. However, taxpayers' use of the same

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Oregon Judicial Department - Publications

credit card for personal expenses and business expenses caused the auditor to request more information. No other records were provided and eventually additional taxes, penalties, and interest were assessed. Taxpayers appealed the assessments to a conference officer at the department. After a conference, the officer granted taxpayers some additional limited deductions. Taxpayers then appealed to the Magistrate Division of the Tax Court. Taxpayers testified that no case management conference was held, and they never received any notice of a trial date. Consequently, they were unaware of the date the trial was to be held and therefore should be excused from failing to appear for trial. ISSUES Should taxpayers' appeal be considered on the merits? If so, are taxpayers entitled to greater deductions other than those allowed? ANALYSIS The normal practice of the Magistrate Division of this court is to conduct a case management conference, at which time a trial is scheduled if necessary. Taxpayers testified that they do not remember any case management conference and did not receive notice of the trial. Counsel for the department indicated that he was unaware of whether a case management conference had been conducted. After considering the testimony, and being in doubt as to whether adequate notice was given, the court determined that it would hear this matter on the merits. Taxpayers appeal from the disallowance of items claimed as business expenses. IRC

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Oregon Law