Andrews v. Dept. of Rev.

1 printed pages contain little extracted OCR body text; searchable legal-body completeness has not been established for those pages.

OCR transcription for search; preserved printed pages are authoritative

IN THE OREGON TAX COURT

MAGISTRATE DIVISION
Income Tax

RICHARD E. ANDREWS )
and KRISTINE M. ANDREWS, )
)

Plaintiffs, ) TC-MD 240575R
)
V. )
)
DEPARTMENT OF REVENUE, )
State of Oregon, )
)

Defendant. ) DECISION

Plaintiffs appeal from Defendant’s Notice of Assessment, dated June 28, 2024 (Notice).
The Notice arose from Defendant’s audit of Plaintiffs’ personal and corporate income tax returns
for the 2020 tax year.' Plaintiffs ask the court to allow various claimed business expense
deductions and waive penalties imposed. ‘Trial was held on February 26, 2025, in the courtroom
of the Oregon Tax Court. Richard “Rick” Andrews (Andrews) appeared and testified on behalf
of Plaintiffs. Kelly Y oung (Y oung), auditor, appeared and testified on behalf of Defendant.
Defendant’s Exhibits A to L were received into evidence. No exhibits from Plaintiffs were
received into evidence.”

I. STATEMENT OF FACTS
For the tax year at issue, Plaintiffs owned and operated Andrews & Andrews Consulting,

Inc. (A&A), a domestic corporation registered with the Oregon Secretary of State with its

1 Because the corporation was a pass-through entity, the issues before the court are for Plaintiffs as
individual taxpayers.

2 A copy of Plaintiffs’ exhibits had not been served on Defendant, rendering them inadmissible at trial. See
Tax Court Rule- Magistrate Division (TCR-MD) 11 A (“Any evidence the parties want considered must be filed with
the court and exchanged with all other parties as an exhibit even if it was already presented in a prior administrative
hearing or submitted with an earlier pleading or document”) (emphases added). However, prior to tial, Andrews
acknowledged that Defendant’s exhibits contain substantially the same information as Plaintiffs’ proffered exhibits.

DECISION TC-MD 240575R 1

DECISION TC-MD 240575R 2
principal place of business in Corbett. (Def’s Ex G-1.) A&A filed its federal 2020 income tax
return as an S corporation. (Def’s Ex B-1.) Andrews was the company’s president, and his
spouse, Plaintiff Kristine “Kris” Andrews, was its vice president. (Def’s Ex G-1; Def’s Ex L-
10.) Andrews testified at trial that A&A operated in the construction industry. Andrews
provided consulting, procurement, inspection, shipping, crane operation, equipment erection,
implementation, and training services related to rock crushing and aggregate processing
equipment. Kris Andrews took photos and wrote descriptions of projects for the purposes of
accounting when A&A provided estimate and appraisal services. (Def’s Ex L-2.)
A&A became involved with a project in Hawaii that was originally expected to last three
years. (Def’s Ex L-2.) Andrews testified that equipment for that project’s aggregate processing
plant was assembled in Hawaii between 2017 and 2019, and the project’s installation and
training started to wind down in 2020. When the COVID-19 pandemic hit in 2020, Andrews
testified, he was no longer working full-time on the project and began consulting for other
entities on the island.
A. Hawaii Condo Expense
Because of A&A’s involvement with the project in Hawaii, Plaintiffs began leasing a
condo there in 2017. (Def’s Ex J-1.) The lease took effect May 1, 2017. (Id.) For the 2020 tax
year, Plaintiffs claimed $31,800 as a rent expense on A&A’s federal income tax return. (Def’s
Ex B-1.) They request that “10% of the total cost” be accepted as a deductible business expense.
(Compl at 2.)
The rental agreement describes the property as a furnished two-bedroom residential
condo with a garage and one parking space. (Def’s Ex C-2; Def’s Ex J-1.) Defendant
disallowed the claimed rent expense, citing a lack of business purpose. (Def’s Ex C-2.)

DECISION TC-MD 240575R 3
At trial, Andrews testified about the reason he opted to rent a condo and not a hotel room:
work-related equipment he had to ship to Hawaii, store there, and transport to and from job sites.
That equipment included air compressors, welders, three job boxes with tools, and rigging
equipment for a crane. Andrews explained that hotels could not accommodate the equipment,
but at a condo he could put it all in a garage on a trailer and take it to and from the job site.
Andrews testified that equipment could not be stored at the job site because theft was “rampant”
and, despite the site having 24-hour guard service, everyone who stored things there still lost
tools. In September 2024, Andrews emailed Young and stated that he leased the condo because
“[i]t was cheaper to stay in Hawaii for weeks instead of flying back and forth.” (Def’s Ex L-6.)
No exhibit or testimony at trial established whether the garage was attached to the condo or was
a separate structure.
Andrews testified that he was spending 80 to 85 percent of the year in Hawaii prior to
2020. However, once it became apparent he was not going to need to be there more than 100 or
120 days in 2020, he asked to be let out of the lease. Instead of relieving Plaintiffs from their
lease obligation, the landlord reduced the rent and Plaintiffs stayed.
B. Travel Expenses
Plaintiffs request that $10,279.68 in travel expenses be allowed as deductible business
expenses for the 2020 tax year. (Compl at 2, 6.) Those expenses are for airfares, lodging, a car
rental, and airport parking. (Id. at 6.) Over half of the airfares requested are for travel between
Portland and Honolulu. (Id.) Plaintiffs argue that their business required them to travel between
their home in Oregon and the job location in Hawaii, making air travel between Honolulu and
Portland a deductible business expense. Andrews testified that his travel to Oregon from Hawaii
was required because he had to maintain the Corbett residence by mowing the lawn and

DECISION TC-MD 240575R 4
collecting the mail. Young testified that she disallowed all expenses associated with travel to
and from Hawaii, asserting that Plaintiffs were not away from home on a “temporary work
assignment.” She testified that Hawaii was Plaintiffs’ “tax home” and, as such, “all travel to and
from is considered nondeductible personal expense.”
Plaintiffs also request expense deductions for travel to and from Las Vegas, San
Francisco, and San Diego. (Compl at 6.) Andrews testified that the purpose of the Las Vegas
trip was to attend an industry convention and meet with a customer. (See also Def’s Ex H-28.)
Two trips to San Francisco were to meet with a customer in connection with the sale of an
automation system. (Id.) The San Diego trip was to meet with a customer and prepare a bid for
a plant expansion. (Id. at H-29.)
Despite a lack of Plaintiffs’ receipts in evidence, Young testified that she reviewed
receipts attached to Plaintiffs’ Complaint and used some of them as the basis for recommending
that $1,250 in travel expenses be allowed. (Status Report at 2, Dec 11, 2024.) She testified that
the receipts supported a departing flight to San Francisco on March 12, 2020, and a return flight
on March 22. Based on that documentation, she recommended allowing a $798 per diem and
$233 for airfare. She also recommended allowing $219 for lodging for one night at The Lodge at
Tiburon, although that receipt was dated in 2021. Young testified that she did not allow any
travel expenses associated with the Las Vegas trip. She explained that Plaintiffs had purchased
two flights to San Francisco on March 12—one departing from Las Vegas and one from
Portland—and that the credit card statements did not show either flight was canceled. She
allowed the Portland flight but disallowed the Las Vegas flight.
For the second San Francisco trip, Andrews testified that he and Kris Andrews traveled
from Portland to San Francisco on September 29, 2020, and returned on October 1. Plaintiffs

DECISION TC-MD 240575R 5
request deductions for $692.40 in airfare and $163.57 for a car rental. (Compl at 6.) Young
testified that documentation supported $521.99 in airfare and $158.36 for the car rental.
For the San Diego trip, Andrews testified that he and Kris Andrews traveled from
Portland to San Diego on September 15, 2020, and returned on September 18. Plaintiffs request
$424.40 in airfare and $1,014.24 for lodging. (Compl at 6.) The Complaint includes a receipt
for the airfare and a “Reservation Reminder” email from Hyatt Hotels & Resorts. (Id. at 13-16,
38.) Defendant’s Exhibits H-1 through H-26 contain Andrews’s American Express transaction
listing for the tax year at issue. The listing includes a charge for $1,014.24 to “HYATT
REGE…” dated September 18, with a handwritten note reading “lodging San Diego.” (Def’s Ex
H-8.)
C. Cell Phone and Internet Expenses
Plaintiffs request that cell phone charges totaling $2,070.79 and Internet charges totaling
$2,223.48 be allowed as deductible business expenses. (Compl at 2.) Andrews testified that he
used his cell phone for both business and personal purposes. He testified that his cell phone
provider, Nextel, charged one monthly fee for unlimited use. He stated that he provided
Defendant with a bill containing a call log, which provided an example of what the cell phone
was used for. The court did not receive a copy of that call log, and Andrews did not testify about
what portion of the cell phone usage was for business versus personal reasons. He stated his
belief that allowing “zero” is unfair and that he “should get something for a business phone.”
Plaintiffs attached to their Complaint a “Bill Pay” listing from Wells Fargo showing a total of
$2,070.79 in payments made to payee “NEXTEL” in 2020. (Compl at 8.)
As for Internet service, Plaintiffs attached to their Complaint one page from Andrews’s
American Express card transaction listing. (Compl at 10.) On that page, a line for “HAWAIIAN

DECISION TC-MD 240575R 6
T…” charged at $185.29 is circled. (Id.) Plaintiffs calculated their requested expense for
business Internet by multiplying that amount by 12. (Id. at 9-10.) Plaintiffs did not supply the
court with any document establishing the service address associated with those charges.
Andrews offered no testimony or documentary evidence regarding the business-personal
allocation of Internet expense, but he argues that an “Internet connection is essential to any
business.” (Id. at 2.)
The American Express transaction listing includes monthly charges from “HAWAIIAN
T…” and “AT&T UVERS…” with handwritten notes such as “Office Phone,” “Hawaii Phone,”
and “Phone/Internet.” (Compl at 10.) However, the notes do not distinguish between phone and
Internet service, and no documentation was provided to show the charges were for Internet
access used for business purposes.
D. Recordkeeping
Andrews testified that he uses his American Express card exclusively for business and
not for personal expenses. Each transaction on the transaction listing for the card shows (1) a
posting or transaction date, (2) a truncated vendor name, (3) Andrews’s handwritten notes, and
(4) a dollar amount.
Some of those transaction listings are as follows:
Date Vendor Name Handwritten Note Amount
Dec 21 “AT&T UVERS…” “Hawaii Phone/Internet” $229.77
Dec 6 “HAWAIIAN T…” “Office Phone/Internet” $185.29
Nov 5 “HAWAIIAN T…” “Office Phone” $178.27
Oct 6 “HAWAIIAN T…” “Hawaii Phone” $177.71
Sep 5 “HAWAIIAN T…” “Hawaii Offic[e] Phone” $177.71
Aug 5 “HAWAIIAN T…” “Office Phone” $178.41
Feb 5 “HAWAIIAN T…” “Hawaii Office” $158.54
Jan 5 “HAWAIIAN T…” “Air” $181.31
(Def’s Ex H-1, H-3, H-4, H-6, H-9, H-11, H-24, H-26.)

DECISION TC-MD 240575R 7
In his trial testimony, Andrews stated, “I didn’t keep proper records. I failed to do so,
and that’s why I’m here right now.”3
II. ANALYSIS
The issue presented is whether Plaintiffs are entitled to deductions for certain business
expenses during the tax year at issue. The court will also address Plaintiffs’ request that the
court waive penalties imposed by Defendant. Plaintiffs bear the burden of proof, because they
are the parties seeking affirmative relief. Oregon Revised Statute (ORS) 305.427.4 To satisfy
their burden, Plaintiffs must establish their case by a preponderance of the evidence. Id. A
preponderance of the evidence exists when “the facts asserted are more probably true than
false[.]” Cook v. Michael, 214 Or 513, 527, 330 P2d 1026 (1958).
Oregon defines taxable income in the same manner as the federal Internal Revenue Code
(IRC) does, subject to certain modifications that are not relevant here. ORS 316.007; ORS
316.022(6). In computing taxable income, IRC section 162(a) allows the deduction of ordinary
and necessary expenses incurred in connection with the carrying on of any trade or business.
Income tax deductions are “a matter of legislative grace and * * * the burden of clearly showing
the right to the claimed deduction is on the taxpayer.” Interstate Transit Lines v. Comm’r, 319
US 590, 593, 63 S Ct 1279, 87 L Ed 1607 (1943).
/ / /
/ / /
/ / /
3 Plaintiffs’ proffered exhibits did not contain invoices or receipts either. The only receipts submitted to the
court during this appeal were attached to Plaintiffs’ Complaint, which were not received into evidence at trial but are
discussed in part II.B of this decision.
4 The court’s references to the Oregon Revised Statutes (ORS) are to the 2019 edition.

DECISION TC-MD 240575R 8
In estimating the taxable income of any taxpayer, Department of Revenue representatives
may require as proof and examine “any books, papers, records or memoranda bearing upon the
matter required to be included in [a] return[.]” ORS 314.425(1); see also IRC § 6001 (requiring
taxpayers to keep sufficient records to justify their tax liability).
Different types of business expense deductions require different levels and types of proof
(substantiation) to support them. Compare Cohan v. Comm’r, 39 F2d 540, 543-44 (2nd Cir
1930) (allowing reasonable estimates of deductible expenses when records of the precise amount
are unavailable, if the taxpayer provides a “basis for some allowance”) (Cohan doctrine) with
IRC § 274(d) (requiring strict substantiation for travel, gift, and “listed property” expenses).
Because of this, the court analyzes each type of expense separately, beginning with Plaintiffs’
request to deduct a portion of rent paid for their condo in Hawaii.
A. Hawaii Condo Expense
Plaintiffs seek an expense deduction equal to 10 percent of the cost of the Hawaii condo
rental for the tax year at issue. They argue that a portion of the condo rental was a necessary
business expense because Andrews had a lot of bulky work equipment that needed to be stored
when not being used at the job site. Defendant answers that Plaintiffs have not proven the
business purpose of the expense.
The general rule is that, for individuals and S corporations, “no deduction * * * shall be
allowed with respect to the use of a dwelling unit which is used by the taxpayer during the
taxable year as a residence.” IRC § 280A(a). There are very limited exceptions to the general
rule. Under one exception, a portion of a dwelling unit used exclusively on a regular basis “as
the principal place of business for any trade or business of the taxpayer” is not subject to the
general rule. IRC § 280A(c)(1)(A). Under another, a “separate structure which is not attached to

DECISION TC-MD 240575R 9
the dwelling unit” exclusively used on a regular basis “in connection with the taxpayer’s trade or
business” is also not subject to the general rule. IRC § 280A(c)(1)(C). These very limited
allowances reflect Congress’s concern that “expenses which were otherwise personal in nature
would be allowed as business deductions[.]” Hamacher v. Comm’r, 94 TC 348, 355 (1990).
Here, the court understands Andrews’s testimony about the use of the garage: storing a
trailer and equipment for use on A&A’s project in Hawaii. However, the fact that A&A
benefitted from use of the residential garage does not entitle Plaintiffs to a de facto discount on
their rent—an expense “otherwise personal in nature.” Business use is not all that the law
requires, and the court finds no basis in the tax code to support the deduction requested.
Plaintiffs cannot reasonably argue that the portion of the garage used to store the trailer and
equipment was used as a principal place of business, so the exception under IRC section
280A(c)(1)(A) cannot be applied.5 Plaintiffs bear the burden of proof for their deductions and
failed to provide evidence showing the garage was a separate structure. ORS 305.427.
Therefore, the exception under IRC section 280A(c)(1)(C) does not apply. Consequently, the
court concludes that the entire rent expense is personal, and nondeductible.
B. Travel Expenses
Plaintiffs also ask the court to allow deductions for business travel, which the court
divides into two categories. The first includes the recurring travel between Hawaii and Oregon.
The second includes the isolated travel to Las Vegas, San Francisco, and San Diego. The court
analyzes each category separately, beginning with the Hawaii travel.
/ / /
5 That exception does apply, for example, when a taxpayer uses a home office for the sole purpose of
administering or managing their trade or business.

DECISION TC-MD 240575R 10
1. Recurring Travel Between Oregon and Hawaii
To be deductible, a business travel expense must be motivated by “[t]he exigencies of
business rather than the personal conveniences and necessities of the traveler.” Comm’r v.
Flowers, 326 US 465, 474, 66 S Ct 250, 90 L Ed 203 (1946). “[I]f a taxpayer chooses for
personal reasons to maintain a family residence far from his principal place of employment, then
his additional traveling and living expenses are incurred as a result of that personal choice, and
are therefore not deductible.” Tucker v. Comm’r, 55 TC 783, 786 (1971). The court in James v.
United States opined on Congress’s reasoning for allowing business travel deductions:
“While * * * there is little or no legislative history behind these sections,
particularly as to the travel deduction provision, it would appear that Congress
must have reasoned in this manner: No person is permitted to deduct living
expenses generally, and ordinarily people are employed in the immediate vicinity
of their home. However, there are certain employments which require the
taxpayer to be and remain away from his home for extended intervals of time,
during which period he is incurring additional and duplicitous expenses; that in
order to equalize the burden between the ‘home’ working person and the ‘away
from home’ working person[,] an exemption should be granted as to the extent of
travel expense, meals[,] and lodging incurred by the ‘away from home’ taxpayer *
* *.”
176 F Supp 270, 272 (D Nev 1959), aff’d, 308 F2d 204 (9th Cir 1962). In 1992, Congress
amended IRC section 162(a) by adding a sentence that remains part of the statute today: “For
purposes of [the travel expense deduction], the taxpayer shall not be treated as being temporarily
away from home during any period of employment if such period exceeds 1 year.” Pub L 102-
486, § 1938(a), 106 Stat 2776 (1992).
Two aspects of the James opinion are instructive here. First, that court accepted the
presumption that everyone takes employment in the immediate vicinity of their home. A person
would not ordinarily live on one side of the country and commute to the other side for work.
This presumption forms the basis for the legal concept of a “tax home,” which Young identifies

DECISION TC-MD 240575R 11
in Defendant’s Status Report. (Status Report at 1, Dec 11, 2024.) Crediting that presumption,
the James court then considered Congress’s rationale for allowing certain business travel
expense deductions—the second aspect of the opinion helpful here. The deduction’s purpose is
to provide relief to taxpayers who must duplicate living expenses because their business requires
them to be away from home temporarily. It follows that the deduction does not apply where a
taxpayer chooses to maintain a permanent residence outside the immediate vicinity of their work
for a long or indefinite period.
Plaintiffs’ travel between Oregon and Hawaii in 2020 is not allowable as a business
deduction for at least two reasons. First, by 2020, A&A’s work on the Hawaii project had
continued for over two years, exceeding the one-year limit Congress sets for being “temporarily
away from home” when claiming business travel deductions. Second, Andrews offered no
business reason for returning to Corbett. He testified that the purpose was to maintain Plaintiffs’
permanent residence in Oregon. However, travel for personal residence maintenance is not a
business necessity, and these expenses were therefore personal in nature. Because Andrews
spent most of 2020 working in Hawaii on the A&A project, the court finds that Hawaii was
Plaintiffs’ tax home for that year. Accordingly, the travel was attributable to personal choice, not
business need, and is not deductible as a business expense.
2. Travel to Las Vegas, San Francisco, and San Diego
The court next analyzes whether Plaintiffs are entitled to deduct expenses incurred while
traveling to Las Vegas, San Francisco, and San Diego for business. When a taxpayer wishes to
deduct a travel expense under IRC section 162, they must substantiate that deduction in one of
two ways. IRC § 274(d). They may either provide “adequate records” or “sufficient evidence
corroborating [their] own statement.” Id. Whichever path a taxpayer chooses, they must

DECISION TC-MD 240575R 12
substantiate four elements: (1) the dollar amount of each separate travel-related expenditure; (2)
dates of departure and return, and the number of days away from home spent on business; (3) the
name of the destination; and (4) the business reason for travel. Temp Treas Reg § 1.274-
5T(b)(2)(i)-(iv) (as amended in 2010).
Under the Cohan doctrine, discussed above, courts may, in certain circumstances,
reasonably estimate deductible expenses where a taxpayer fails to substantiate the precise
amount. Cohan, 39 F2d at 543-44. However, the elements of strict substantiation required under
IRC section 274(d) “supersede[] the doctrine found in Cohan v. Commissioner.” Temp Treas
Reg § 1.274-5T(a). Consequently, Plaintiffs’ expenses for this travel must be strictly
substantiated.
a. Las Vegas
Plaintiffs seek expense deductions for travel expenses to Las Vegas to attend an industry
convention. While no trial exhibit contains invoices or receipts for these expenses, Plaintiffs’
Complaint contains some. Ordinarily, a party must comply with Tax Court Rule-Magistrate
Division (TCR-MD) 11 A if it wants a document to be considered as evidence at trial—even if
that document was already submitted with a filing at an earlier stage in the appeal. Despite being
notified of their duty to exchange exhibits in accordance with this court’s rules, Plaintiffs failed
to fulfill that duty.6 The court exercises its discretion to consider receipts attached to Plaintiffs’
Complaint, despite their not being offered as trial exhibits.7
6 The court’s written trial notice to Plaintiffs, dated and emailed to Andrews on December 30, 2024, states,
“Exhibits must be properly labeled and exchanged no later than the date set by the court, or as provided by rule. For
more information, see Tax Court Rule – Magistrate Division 12.” The notice also states, “Exhibits must be
postmarked by February 12, 2025, or delivered by Feb 17, 2025.”
7 The court is mindful of Defendant’s entitlement to a fair proceeding, which is ensured, in part, through
enforcement of notice requirements. However, Young acknowledged receiving and reviewing the receipts months
before trial and made a detailed recommendation to the court based on them. Had Young not been so diligent and
willing to sort through Plaintiffs’ Complaint receipts to produce a recommendation in Plaintiffs’ favor, the court

DECISION TC-MD 240575R 13
After its own careful review of the Complaint receipts, the court concludes that Plaintiffs
have not established they are entitled to any deduction in connection with the Las Vegas trip.
Plaintiffs did provide a receipt establishing the cost of travel to Las Vegas. However, they also
purchased a second ticket for travel to San Francisco on the same day, departing from Portland.
The court finds that Plaintiffs have not credibly established that Andrews was in Las Vegas on
March 12, 2020, or that he departed from there. If Plaintiffs cannot establish that Andrews
departed Las Vegas on March 12, they cannot establish the number of days he was away from
home on a business trip to Las Vegas. This failure to establish the substantiation element
required by Temporary Treasury Regulation section 1.274-5T(b)(2)(ii) means Plaintiffs have not
met their burden of proof as to this expense. The court holds that Plaintiffs are not entitled to
any travel expense deductions related to the Las Vegas trip for the tax year at issue.
b. San Francisco
Plaintiffs also seek expense deductions for two business trips to San Francisco that were
required in connection with a sale to a customer. Defendant recommends allowing $1,250 for
the first trip and has not allowed any deductions related to the second. The court accepts
Defendant’s recommendation to allow $233 for the first flight to San Francisco, as well as the
$798 per diem allowance. The court rejects Defendant’s recommendation to allow $219 for
lodging at The Lodge at Tiburon because the receipt Plaintiffs submitted with their Complaint is
for 2021 and not the tax year at issue. That travel expense is unsubstantiated under Temporary
Treasury Regulation section 1.274-5T(b)(2). Therefore, the court holds that $1,031.00 of travel
expenses incurred in connection with the first trip to San Francisco are deductible.
/ / /
would have been less inclined to include those receipts in its review.

DECISION TC-MD 240575R 14
As for the second trip to San Francisco, Plaintiffs request $692.40 in airfare and $163.57
for a car rental. The court concludes that Plaintiffs have substantiated $521.99 and $158.36,
respectively.
Documentation attached to Plaintiffs’ Complaint and included in Defendant’s exhibits
establish those dollar amounts. The airline receipt and car rental confirmation both establish
dates of departure and return. Those documents also state the name of the destination. Andrews
provided the business reason for travel. Therefore, the court holds that $680.35 of travel
expenses incurred in connection with the second trip to San Francisco are deductible.
c. San Diego
Plaintiffs also seek expense deductions in connection with business travel to San Diego to
meet with a customer and prepare a bid for their plant expansion. The court construes Plaintiffs’
request for multiple instances of $424.40 for the same round-trip airfare between Portland and
San Diego as an inadvertent error. The court analyzes whether that single expense, plus the
$1,014.24 for San Diego lodging, are deductible. Defendant has not recommended allowing a
deduction for either of these expenses.
The court finds that Plaintiffs have satisfied all elements of required substantiation for
these expenses. The airfare receipt establishes the dollar amount, dates of departure and return,
and the name of the destination. Andrews provided the business reason for travel. The
“Reminder” email from Hyatt corroborates the dates of travel and name of the destination.
That document would not be enough, on its own, to substantiate the lodging expense
because it does not state the cost. However, the American Express transaction listing
corroborates the email because of the vendor’s name and transaction date, and it substantiates the
cost. Therefore, the court holds that $1,438.64 in travel expenses incurred in connection with the

DECISION TC-MD 240575R 15
San Diego trip are deductible. In total, the court allows $3,149.99 in deductible business travel
expenses for the tax year at issue.
C. Cell Phone and Internet Expenses
The court next considers Plaintiffs’ request for business expense deductions for cell
phone and Internet service. Plaintiffs claim expenses of $2,070.79 and $2,223.48, respectively.
As a general rule under IRC section 262(a), “no deduction shall be allowed for personal,
living, or family expenses.” Under IRC section 162(a), “all the ordinary and necessary expenses
paid or incurred during the taxable year in carrying on any trade or business” are deductible. For
mixed-use (i.e. business and personal) expenses, the portion that is allocable to personal use is
not deductible, and the burden is on the taxpayer to establish the amount of business use. See
Kilpatrick v. Comm’r, 112 TCM (CCH) 277 (2016), 2016 WL 4521629 at *12-13 (stating
burden of proof and substantiation requirements for mixed-use cellular and Internet service). A
court may only estimate the amount of a deductible expense using the Cohan doctrine if the
record provides a reasonable basis for doing so. See id. at *12 (citing Vanicek v. Comm’r, 85 TC
731, 742-43 (1985)). When making such an estimate, the court “should make as close an
approximation as it can, bearing heavily if it chooses upon the taxpayer whose inexactitude is of
his own making.” Cohan, 39 F2d at 544.
Here, the court finds Andrews’s testimony credible that he used his cell phone for some
business during the tax year at issue. However, Plaintiffs provided no estimate of the percentage
of business use, no call logs, and no other documentation from which the court could reasonably
determine the business portion of the expense. Similarly, Plaintiffs offered no testimony or
documentary evidence regarding the business-personal allocation of the Internet expense. The
court accepts the Wells Fargo Bill Pay listing and the American Express transaction listing as

DECISION TC-MD 240575R 16
substantiation for the amounts Plaintiffs paid to their identified cellular and Internet
vendors. But without any evidence of business allocation, the court cannot apply the Cohan
doctrine to estimate deductible amounts.
In Biege v. Dept. of Rev., TC-MD 180399R, 2019 WL 13250372 at *3 (Or Tax M Div,
Nov 15, 2019), this court denied a claimed cell phone deduction where the taxpayer failed to
provide any evidence of the business use percentage. The court explained that it “will not guess”
and emphasized that the Cohan doctrine requires a factual basis for estimation. The same
reasoning applies here. Although the court is persuaded that some business use
occurred, Plaintiffs’ failure to provide any basis for allocation precludes the court from allowing
even partial deductions. Accordingly, the court holds that none of the claimed cell phone or
Internet expenses are deductible.
D. Penalty
As a final matter, Plaintiffs also ask the court to waive penalties imposed by Defendant
under ORS 314.400 and ORS 314.402. (Compl at 2; Def’s Ex E-1.) However, this court lacks
jurisdiction to review Defendant’s discretionary denial of a penalty waiver.
ORS 305.145(4) authorizes Defendant to adopt rules governing when it may waive
penalties. Defendant has done so through Oregon Administrative Rule (OAR) 150-305-0068.8
When a taxpayer requests a waiver and Defendant denies it, that decision is final and not subject
to appeal. See OAR 150-305-0060(2); OAR 150-305-0192(2).
/ / /
/ / /
/ / /
8 The court’s references to the Oregon Administrative Rules (OAR) are to 2020.

DECISION TC-MD 240575R 17
ORS 305.560(1)(a) confirms that an appeal may not be taken from an order denying a
discretionary waiver of penalty or interest. This court has previously held that such denials are
not subject to judicial review. See Pelett v. Dept. of Rev., 11 OTR 364 (1990). Accordingly, the
court denies Plaintiffs’ claim for relief from penalties for lack of jurisdiction.
III. CONCLUSION
After careful consideration of the testimony, documents, and arguments presented, the
court concludes that Plaintiffs have met their burden of proof with respect to some of their
claimed expenses and have failed to substantiate others. The court further concludes that it lacks
jurisdiction to adjudicate the portion of Plaintiffs’ claim concerning relief from penalties
imposed by Defendant. Now, therefore,
IT IS THE DECISION OF THIS COURT that Plaintiffs’ appeal is granted in part and
denied in part. Plaintiffs are entitled to deduct $3,149.99 in business travel expenses for the tax
year at issue, but none of their Hawaii condo rent, travel to and from Hawaii, cell phone
expenses, or home Internet expenses are deductible. Plaintiffs’ claim for relief from penalties is
denied for lack of jurisdiction.
RICHARD D. DAVIS
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 Richard D. Davis and entered on
September 26, 2025.

DECISION TC-MD 240575R
18