McKie v. Dept. of Rev.

DECISION TC-MD 220378R 1
IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Income Tax
KEVIN MCKIE, )
)
)
)
)
)
)
)
)
)
Plaintiff, TC-MD 220378R
v.
DEPARTMENT OF REVENUE,
State of Oregon,
DECISION	Defendant.
Plaintiff appealed Defendant’s Notice of Assessment dated June 2, 2022, for the 2018 tax
year. A trial was held remotely on December 15, 2022. Kevin McKie (McKie) appeared and
testified on his own behalf. Jordan Peasley (Peasley), auditor for the Department of Revenue
(the Department), appeared and testified on behalf of Defendant. Plaintiff’s Exhibits 1 to 13, 15
to 17, and Defendant’s Exhibits A and B were received into evidence without objection. The
court requested Defendant to submit a copy of Plaintiff’s original tax return after trial, which was
marked as Exhibit C and received into evidence without objection.
I. APPROACH
In a typical income tax case, the court starts its analysis with the taxpayer’s return, looks
at the Department’s Notice of Assessment, and then considers the appeal in the context of the
conflict between the two. In this case, that approach would unlikely result in an efficient
analysis because neither party offered a copy of Plaintiff’s original tax return during trial.
Instead, Plaintiff submitted a significantly revised tax return (“revised return”) which had never
been accepted by Defendant and did not immediately inform the court of that fact.
In general, the Department does not accept amended returns after an audit; to do so could
lead to an inefficient and potentially endless loop of back-and-forth adjustments. Likewise, the

DECISION TC-MD 220378R 2
court does not regularly use unfiled amended returns as a starting point for the analysis of a case.
However, after post-trial receipt of Plaintiff’s original tax return, the court views beginning its
analysis with Plaintiff’s revised return as an approach better suited for the resolution of this
matter.
In this Decision the court will start with Plaintiff’s revised tax return, assume the
numbers contained therein are correct unless otherwise challenged by Defendant, and analyze
and discuss only those sections that are disputed or where the court deems necessary. This
approach appears to the court to be in conformity with the spirit of ORS 305.575, which provides
as follows:
“In an appeal to the Oregon Tax Court from an assessment made under ORS
305.265, the tax court has jurisdiction to determine the correct amount of
deficiency, even if the amount so determined is greater or less than the amount of
the assessment determined by the Department of Revenue, and even if determined
upon grounds other or different from those asserted by the department[.]”1
II. FACTUAL OVERVIEW
This factual overview serves merely as a general introduction to the case and its subject
matter. The court introduces additional and more specific facts in the Analysis section of this
Decision.
During the 2018 tax year, Plaintiff was employed as a registered nurse and self-employed
as a real estate investor. Plaintiff owned five residential rental properties: one in Boise, Idaho; a
second in Houston, Texas; a third in Tomball, Texas; a fourth in Memphis, Tennessee; and a
fifth in Conroe, Texas.
In 2013, Plaintiff purchased a 2010 Lance trailer for recreational use. He testified that in
2017, he converted the trailer to 100 percent business use. In 2018, to avoid incurring hotel
1 The court’s references to the Oregon Revised Statutes (ORS) are to 2017.

DECISION TC-MD 220378R 3
expenses, Plaintiff used the trailer as lodging during a three-day real estate seminar held in
Eugene, and during several trips to Boise to repair his rental property.
In May 2018, Plaintiff attended a real estate investment seminar in Eugene. He claimed
as deductions, mileage for travel from his home in Bend to Eugene and he used a per diem
method to deduct meal expenses. On his original tax return, Plaintiff also used a per diem
method to deduct lodging expenses. However, after the audit Plaintiff realized he could not use
that method to deduct lodging expenses, so on his revised tax return he instead elected to add the
trailer as a business asset and depreciate it using a five-year life span.
A speaker at the real estate seminar touted the favorable returns on foreign real estate
investments. Plaintiff testified that he traveled to Panama and Colombia on one trip and to the
Philippines on a second trip looking for real estate investing opportunities. Plaintiff kept
handwritten notes for properties he viewed during his trips. He took out cash from ATMs in the
Philippines because many businesses there did not accept credit cards. Plaintiff did not obtain
receipts for his purchases and opined that it was “common sense” that he would incur business
expenses as part of his travel. Plaintiff testified that he has never purchased or owned any
foreign real property as of the trial date and was uncertain of the legal and regulatory
requirements of acquiring or owning property in the countries he visited.
Plaintiff traveled to his rental property in Boise, Idaho, on several occasions in 2018 to
make significant repairs prior to sale of the property. Plaintiff claimed as deductible expenses
supplies purchased for use in repairing and maintaining his Boise property.
Plaintiff sold his Boise rental property on December 7, 2018. During the audit the parties
agreed to adjust the figures regarding gain on sale of the property to include a recapture of
previously taken depreciation. Despite that agreement, the parties had different computations on

DECISION TC-MD 220378R 4
the gain on sale based on the travel expenses claimed by Plaintiff when he repaired and prepared
the property for sale.
III. ANALYSIS
The issues presented are: (1) the deductibility of various business expenses, including
expenses for mileage, meals, travel, and repairs; and (2) Plaintiff’s gain on the sale of his Boise
rental property.
A. General Statements of Law
Federal tax provisions apply to this state tax case because, subject to modifications not
pertinent here, Oregon defines taxable income by reference to the federal tax code. See ORS
316.022(6); see also ORS 316.048. In cases before this court, the party seeking affirmative relief
bears the burden of proof and must establish their case by a preponderance of the evidence. ORS
305.427. That standard is met by a showing that “the facts asserted are more probably true than
false[.]” Cook v. Michael, 214 Or 513, 527, 330 P2d 1026 (1958). Allowable deductions from
taxable income are a “matter of legislative grace” and the burden of proof (substantiation) is
placed on the individual claiming the deduction. INDOPCO, Inc. v. Comm’r, 503 US 79, 84,
112 S Ct 1039, 117 L Ed 2d 226 (1992). Additionally, taxpayers are required to maintain
records sufficient to establish the amount of their income and deductions. IRC § 6001; Treas.
Reg. § 1.6001–1(a).
B. Substantiation of Seminar Expenses
Plaintiff testified that he traveled from his home in Bend to Eugene to attend an
educational seminar on real estate investing occurring from May 9 to May 13, 2018. Plaintiff
claimed deductions for his trip, including the expense of the seminar, mileage, and meals.
/ / /

DECISION TC-MD 220378R 5
Plaintiff submitted an invoice for the expense of the seminar in the amount of $197. A
charge in the same amount appears on Plaintiff’s credit card statement. Deductions are generally
allowed for ordinary and necessary business expenses. IRC § 162. Self-employed individuals
may deduct education expenses to maintain or improve skills required by current employment.
Treas. Reg. § 1.162-5(a). At the time of the seminar, Plaintiff was a self-employed real estate
investor having owned at least one rental property since 2005. Thus, Plaintiff’s educational
seminar expense of $197 is deductible as an ordinary and necessary business expense under
Internal Revenue Code (IRC) section 162.
Plaintiff claimed a mileage deduction for the seminar. Though ordinary and necessary
business expenses are generally deductible, automobile expenses require a heightened level of
substantiation. IRC §§ 162, 274(d). Plaintiff submitted a typed record including handwritten
notes for the purpose of documenting mileage to attend the seminar. Though Plaintiff submitted
one mileage record, two differing mileage totals are listed: one portion of the record shows a
starting odometer reading of 120,337 and an ending odometer reading of 120,617, totaling 280
miles driven, whereas the other portion of the record shows 250 total miles for the same trip.
Plaintiff testified that the portion of the record listing 280 total miles is correct. Given the lack
of evidence explaining the additional 30 miles claimed, the court accepts the lower number of
250 miles as more plausible. The Internal Revenue Service standard mileage rate in 2018 was
54.5 cents per mile; thus, Plaintiff may deduct $136.25 as mileage expenses. Rev. Proc. 2010-
51, § 4.01.
Plaintiff claimed a per diem meal allowance of $51 per day for four days of the seminar,
including a travel day. “[S]elf-employed individuals may substantiate the amount of deductible
meal expenses by using [a per diem] rate * * *.” Rev. Proc. 2011-47 § 4.03. Because he is self-

DECISION TC-MD 220378R 6
employed, Plaintiff may use a per diem allowance for meals and incidental expenses. Id.
Plaintiff substantiated four days of meals expenses totaling $204. However, deductions for
meals cannot exceed 50 percent of the amount of the meal expense. IRC § 274(n)(1). Plaintiff’s
use of a $51 per diem rate is reduced by 50 percent for an allowance of $102.
Plaintiff’s deductions for the costs of attending the Eugene real estate investing seminar
are granted in the amounts of $197 (seminar expense), $136.25 (mileage), and $102 (meals).2
C. Depreciation of Travel Trailer
Plaintiff testified that in 2013 he purchased a 2010 Lance trailer for personal use, which
he converted to 100 percent business use in 2017. Plaintiff presented a printout from an online
“NADA” guide estimating the average retail price for the trailer as of April 2017 was $12,540.
Plaintiff testified that the trailer was used for business travel and accommodations for the real
estate seminar and while visiting and repairing his rental property in Boise in lieu of staying in a
hotel. Plaintiff did not claim depreciation for the trailer in his original tax return, but he sought
the deduction in his revised return after Defendant denied his per diem lodging claim.
IRC section 167(a) generally allows for the depreciation of property used in a trade or
business. However, a travel trailer is considered “listed property” under IRC section 274 and
therefore, no deduction, including for depreciation, related to it is allowable unless it meets the
heightened standard of substantiation imposed by IRC section 274(d). IRC § 280F(d)(4); Treas.
Reg. § 1.274-5T(a). That is, taxpayers must substantiate by adequate records or by sufficient
evidence corroborating the taxpayer’s own statement the amount of the expense, the time and
/ / /
2 Plaintiff used a per diem for lodging in his original return but removed the deduction in his revised return
as that method is not allowable. Rev. Proc. 2011-47. Plaintiff changed his lodging expense methodology which is
considered under the next section regarding depreciation for his travel trailer.

DECISION TC-MD 220378R 7
place of use of the property, and the business purpose of the property. IRC § 274(d); Treas. Reg.
§ 1.274-5T(a), (b)(6).
The court is not persuaded that Plaintiff’s evidence is sufficient to substantiate the travel
miles for the trailer based on an aggregation of several factors. Plaintiff asserts 100 percent
business use beginning in 2017, but it appears he did not take the depreciation until 2018 which
is not the first year it was placed into service. Second, mileage records of the trailer’s use are
suspect. Plaintiff’s mileage log for the real estate seminar contains conflicting mileage
information. Plaintiff’s mileage log for the travel to Idaho purports to show odometer readings
from Bend to Boise during the period August 17, 2018, to August 25, 2018. However, Plaintiff’s
credit card statement shows charges from Hines, Oregon on August 21, 2018. Additionally,
Plaintiff’s log documents travel to Boise from September 22, 2018, to October 4, 2018.
However, Plaintiff’s credit card statements show charges during that period from Grand Teton
National Park and Jackson, Wyoming—more than 700 miles round trip from where Plaintiff’s
log shows he was. Based on the above, the court does not find Plaintiff’s mileage logs reliable.
“[A] taxpayer is not allowed a deduction or credit on the basis of approximations or
unsupported testimony.” Ghardiri-Asli v. Comm’r, 118 TCM (CCH) 355 (2019), 2019 WL
5423725 at *11 (US Tax Ct).
“If a taxpayer does not substantiate the travel expense as required by section
274(d), he is not entitled to a deduction for the expense no matter how plausible it
may be that he paid the expense. For expenses covered by section 274, the
proposition is simple--a taxpayer who cannot prove the expense loses the
deduction.”
Schladweiler v. Comm’r, 80 TCM (CCH) 681 (2000), 2000 WL 1690282 at *3 (US Tax Ct),
aff’d, 28 F Appx 602 (8th Cir 2002). Based on a lack of substantiation, Plaintiff’s claim to
depreciate the 2010 Lance trailer as a business asset in 2018 is denied.

DECISION TC-MD 220378R 8
D. Substantiation of International Business Travel Expenses
1. Travel to Panama and Colombia
Plaintiff testified that he traveled to Panama and Colombia seeking investment property
opportunities. His handwritten itinerary shows that he missed his flight on December 1, 2018,
and arrived in Panama the next day. Over the next four-day period, Plaintiff went on several
tourism excursions and viewed two listed properties. On December 6, 2018, he flew to
Cartagena, Colombia. In the following six-day period, he went on several tourism excursions
and viewed one listed property. On December 11, 2018, Plaintiff flew to Bogota, Colombia and
over the next six days viewed one listed property. Plaintiff seeks deductions consisting of meals,
incidentals, and lodging in the amount of $2,248.71; air travel in the amount of $1,139.47; and
cash withdrawals plus ATM fees totaling $815.83.
Plaintiff testified that 100 percent of his trip to Panama and Colombia was for business
purposes. During trial, Peasley questioned Plaintiff as to how that could be true when Plaintiff
recorded seeing only one property in Colombia over a course of days. Plaintiff responded that he
was always looking at, and for, properties in unrecorded ways, such as by informal appointment
or looking for “for sale” signs.
Under IRC section 162(a), a deduction is allowed for “all the ordinary and necessary
expenses paid or incurred during the taxable year in carrying on any trade or business[.]”
However, IRC section 274(d) provides that no deduction is allowable under IRC section 162 for
any traveling expense, including meals and lodging, unless the taxpayer substantiates the
expense “by adequate records or by sufficient evidence corroborating the taxpayer’s own
statement[.]”
“[I]n addition to satisfying the substantiation requirements in IRC section 274(d),
a taxpayer who travels outside the United States must comply with IRC section

DECISION TC-MD 220378R 9
274(c), which requires a taxpayer to track much more precisely—and to
document—the time the taxpayer spends on business vs. nonbusiness activity and
allows deductions only to the extent the expenses are specifically allocable to
business activity.”
Khalaf v. Dept. of Rev., 24 OTR 1, 13 (2020). “The more rigorous tracking and expense
allocation rules under IRC section 274(c) apply when the trip exceeds one week and the amount
of time attributed to nonbusiness activities is more than 25 percent of the total time of the trip.”
Id. at 21 n 11 (2020); see also Treas. Reg. § 1.274-4(d)(1).
Plaintiff’s travel was longer than one week and based on Plaintiff’s own testimony and
records, the court finds the evidence insufficient to establish that the time attributed to
nonbusiness activity did not amount to more than 25 percent of the trip. Treas. Reg. § 1.274-
4(b)-(d). Thus, Plaintiff is subject to the heightened requirements of IRC section 274(c). Id.
Plaintiff’s testimony, itinerary and supporting credit card statements are wholly
inadequate to support his claims for foreign travel expenses. Firstly, Plaintiff’s itinerary is rather
sparse on details. Information about properties visited, names, addresses and phone number of
persons he met with are incomplete or missing. The numbers of properties viewed is minimal in
relation to the length of the trip. He did not present testimony or other evidence that as a
foreigner, he could even have legally purchased property in those countries. Even if the purpose
of the trip was mainly business, the testimony and records are insufficient for the court to
determine a percentage of business versus personal time. Plaintiff’s testimony regarding taking
“tours” and strolling through the streets and looking for “for sale” signs does not persuasively
show a primary business purpose. Plaintiff’s deduction of cash advances without receipts or any
other account of what items he purchased is insufficient substantiation to show a business
purpose. Plaintiff has failed to substantiate the business percentage on his trips to Panama and
Colombia. Therefore, Plaintiff’s deduction for costs related to the trips is denied.

DECISION TC-MD 220378R 10
2. Travel to the Philippines
Plaintiff’s testimony and exhibits regarding the trip to the Philippines are substantially
similar to those concerning the trip to Panama and Colombia and fail for the same reasons.
Plaintiff’s travel records and cash advances are insufficient to substantiate the percentage of
business activity. His testimony that he was always looking for business, even while scuba
diving, was not persuasive. Further, Plaintiff admitted at trial he was aware that he could not
purchase any property in the Philippines due to a local law requiring citizenship. Plaintiff
claimed that his girlfriend could purchase property but admitted that he traveled alone on the trip,
making Plaintiff’s claimed workaround improbable. Thus, Plaintiff’s deduction for travel
expenses to the Philippines must be denied.
E. Substantiation of Repair and Improvement Expenses to Rental Property
Plaintiff testified that several expenses related to the repair and improvement of his rental
property in Boise were improperly disallowed by Defendant. Defendant’s Conference Decision
Letter allowed expenses for the repair of the Boise property in the amount of $7,938.
Ordinary and necessary business expenses are deductible under IRC section 162, though
they must be substantiated. Plaintiff submitted evidence in the form of testimony, credit card
statements, and written reports documenting trips to Boise. The credit card receipts do not detail
what items were purchased and the court cannot ascertain whether they were personal or
business items. Plaintiff testified that he could provide receipts and invoices, possibly more or
different ones than were provided to Defendant at conference. However, Plaintiff failed to do so.
Without proof substantiating the business expenses, the court must find that they are not
deductible.
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DECISION TC-MD 220378R 11
F. Cost Basis for Boise Rental
After the audit, the parties’ disagreement regarding the Boise rental property was limited
to whether costs of repairs could be included as costs of sale when calculating the net gain on
sale of the property. Plaintiff did not present evidence substantiating the costs of repairs apart
from those already allowed during the audit. Therefore, the court sustains Defendant’s
calculation of the net gain of the property as $108,812.
IV. CONCLUSION
After careful consideration, the court finds that for the 2018 tax year, the parties are deemed
to have agreed to depreciation recapture in the amount of $80,241 and the exclusion from gross
income of $23,892 as transfers between Plaintiff’s accounts. Plaintiff is entitled to deductions in the
amounts of (1) $197 for the expense of a real estate seminar in Eugene, (2) $136.25 for miles driven
to and from the seminar, and (3) $102 for meal expenses while attending the same seminar.
Plaintiff did not substantiate his claims regarding (1) expenses relating to international travel
to Panama and Colombia or separately, (2) to the Philippines, (3) depreciation of a 2010 Lance
trailer, and (4) repair and improvement expenses for Plaintiff’s Boise property denied by Defendant
in the Conference Decision Letter. Now, therefore,
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DECISION TC-MD 220378R 12
IT IS THE DECISION OF THIS COURT that Plaintiff’s appeal is granted in part and denied
in part. His income and deductions are to be adjusted in accordance with this Decision.
Dated this ___ day of March, 2024.
RICHARD 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 Davis and entered on March
22, 2024.