Williams v. Dept. of Rev.

DECISION TC-MD 210208G 	1 of 4
IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Income Tax
KORY WILLIAMS
and SELMA WILLIAMS,
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Plaintiffs, 	TC-MD 210208G
v.
DEPARTMENT OF REVENUE,
State of Oregon,
DECISION	Defendant.
Plaintiffs appealed Defendant’s adjustments of their claimed business expenses for the
2016 tax year. At trial, Plaintiff Kory Williams appeared pro se and testified. Defendant was
represented at trial by Kelly Young, auditor, who testified. Neither party offered exhibits.
I. STATEMENT OF FACTS
Because no exhibits were offered, the facts of this case are derived entirely from
testimony.
Plaintiff Kory Williams has a construction business for which he incurred expenses in
2016, including expenses for use of his truck and for contract labor payments.
Mr. Williams testified that his truck was used solely for business purposes and that, with
its dump trailer and ladder rack, it was unsuited for other purposes. He testified Plaintiffs had
another vehicle for personal use after hours and on weekends.
Prior to trial, Mr. Williams had provided Defendant with reconstructed mileage logs
using customer contracts and receipts from businesses where he had purchased supplies
throughout the year. Ms. Young testified that the two mileage logs provided by Plaintiffs had
discrepancies with odometer readings on the truck’s service records and with the dates of the

DECISION TC-MD 210208G 	2 of 4
purchases as shown on his bank statements. She also testified the customer contracts did not
show the dates the work was performed, only the dates the contracts were signed.
Based on documents reviewed outside of trial, Defendant conceded $25,850 in previously
disallowed contract labor expenses. Mr. Williams testified that he made additional payments to
his subcontractors in cash, which Defendant did not concede. Mr. Williams testified that when
he paid cash, he wrote down the date and time of the payment and subsequently issued 1099s to
the subcontractors. Ms. Young testified that business and personal expenses were commingled
in Plaintiffs’ bank statements, and that those statements did not show withdrawals corresponding
to the alleged cash payments.
Plaintiffs ask the court to reverse Defendant’s disallowance of expense deductions for
truck use and for cash payments to subcontractors. Defendant asks the court to sustain all its
adjustments other than the conceded $25,850 in contract labor expenses.
II. ANALYSIS
The issue is whether Plaintiffs have shown they qualify for business expense deductions
under section 162 of the Internal Revenue Code (IRC). The IRC applies because taxable income
in Oregon is defined by reference to the IRC, subject to modifications not pertinent here. See
ORS 316.022(6); 316.048.1 Federal Treasury regulations pertaining to relevant portions of the
IRC are also applicable. See ORS 316.032(3). Because Plaintiffs seek an order from the court
changing the tax assessment, they must bear the burden of proof. See ORS 305.427.
A deduction is generally allowed for “all the ordinary and necessary expenses paid or
incurred during the taxable year in carrying on any trade or business[.]” IRC § 162(a).
Deductible business expenses include reasonable “compensation for personal services actually
1 The court’s references to the Oregon Revised Statutes (ORS) are to 2015.

DECISION TC-MD 210208G 	3 of 4
rendered.” Treas Reg § 1.162–7(a). Such contract labor expenses are only allowed, however, “if
the taxpayer maintains sufficient records to substantiate the expenses.” Garrison v. Comm’r, 97
TCM (CCH) 1132 (2009) (denying contract labor expense deduction where “petitioners failed to
offer any credible evidence to substantiate the amounts paid”).
Expenses involving the use of a car or truck may also be deductible under IRC section
162(a). Where the car or truck meets the definition of a “passenger automobile” found in IRC
section 280F(d)(5), a deduction is allowed only where the taxpayer can substantiate the expense
according to the stricter requirements of IRC section 274(d).2 Expenses not subject to IRC
section 274(d) may be estimated by the court where documents are lacking, but only if the court
has sufficient evidence to make a “reasoned approximation.” Scott v. Dept. of Rev., TC 5192,
2018 WL 1884627 at *5 (Or Tax Reg Div Apr 19, 2018) (declining to estimate expense amount
where taxpayer did not provide “sufficient evidence for the court to make a reasoned
approximation”).
In the present case, although Mr. Williams testified that he kept a log of his cash
payments for contract labor, neither that log nor any other supporting documents were in
evidence. Without any documents, Plaintiffs have not met their burden of proving contract labor
expenses beyond those conceded by Defendant. See Garrison, 97 TCM (CCH) 1132.
With respect to Plaintiffs’ claimed truck expenses, it is not clear whether Mr. Williams’s
truck is a “passenger automobile” under IRC section 280F(d)(5). Because IRC section 274(d)
can never be satisfied by a taxpayer’s unsupported statement, if the truck is a passenger
2 Under IRC section 274(d), taxpayers cannot claim a deduction unless they are able to provide either
“adequate records” or other “sufficient evidence.” For vehicles, adequate records are generally a diary or log in
which each use of the vehicle is recorded “at or near the time of the expenditure or use.” Treas Reg § 1.274–
5T(c)(2)(ii). Alternatively, an expense can be substantiated by means of “sufficient evidence”—meaning the
taxpayer’s statement in conjunction with evidence showing the date, mileage, and business purpose of each use of
the vehicle. See Treas Reg §§ 1.274–5T(c)(3); 1.274–5T(b)(6).

DECISION TC-MD 210208G 	4 of 4
automobile no deduction is possible. See IRC § 274(d). If the truck is not a passenger
automobile, and if it is not otherwise listed property, then IRC section 274(d) would not apply.
Even so, the court may not allow a deduction without an evidentiary basis on which to make a
reasoned approximation of the expense incurred. See Scott, 2018 WL 1884627 at *5. Although
Mr. Williams testified to the existence of contracts and receipts showing business use of the
truck, those documents are not in evidence. The evidence in this case does not permit an
adjustment to Plaintiffs’ claimed truck expenses.
III. CONCLUSION
Without documentary evidence, Plaintiffs have not carried their burden of proof. Now,
therefore,
IT IS THE DECISION OF THIS COURT that, as conceded by Defendant, Plaintiffs be
allowed a contract labor expense of $25,850.
IT IS FURTHER DECIDED that Plaintiffs’ remaining claims for relief be denied.
Dated this _____ day of September 2022.
POUL F. LUNDGREN
MAGISTRATE
If you want to appeal this Decision, file a complaint in the Regular Division of
the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR 97301-2563;
or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.
Your complaint must be submitted within 60 days after the date of this Decision
or this Decision cannot be changed. TCR-MD 19 B.
This document was signed by Magistrate Poul F. Lunddgren and entered on
September 29, 2022.