In Langlois v. Commissioner, T.C. Memo. 2025-12, the Tax Court addressed a deficiency of $27,820 and an accuracy-related penalty of $5,564 asserted by the IRS against Thomas W. Langlois for the 2015 tax year. The court’s decision hinged on Mr. Langlois’s failure to substantiate deductions for unreimbursed employee business expenses and partnership losses, largely due to inadequate recordkeeping. This case underscores the critical importance of maintaining meticulous records to support tax deductions.

Factual Background

Mr. Langlois, a union power line worker, supplemented his income through entrepreneurial ventures. In 2008, he co-founded Forbearance, a storm response company, with Denise Dudek, where he held a 49% interest. In 2012, he started Hair Station, a hair salon, with Sandra Bedell, again holding a 49% interest. Mr. Langlois also owned a rental property in Illinois.

Forbearance initially struggled to secure power line work and focused on landscaping and tree work, with the partners often using personal funds for expenses. The company began renting its trucks for storm response work, with Mr. Langlois assisting in finding and supervising workers. Ms. Dudek testified that the company kept receipts for expenses but did not track them as capital contributions. Forbearance’s tax returns from 2008 to 2014 showed fluctuating income and losses.

Hair Station, located near a commuter rail stop in Illinois, also struggled with competition. Mr. Langlois agreed to invest a total of $200,000 in the salon, receiving a 90% allocation of profits and losses. Ms. Bedell and other stylists worked as independent contractors. Mr. Langlois monitored the salon remotely and visited when in the area. From 2012 to 2014, Mr. Langlois reported substantial losses from Hair Station.

In 2015, Mr. Langlois was employed by Asplundh Construction Corp. in Connecticut. He was responsible for providing his own hand tools and work clothing, and was sometimes reimbursed for meals and miscellaneous expenses. In addition, he purchased multiple plane tickets to Chicago, as well as to Phoenix and Fort Myers.

On his 2015 tax return, Mr. Langlois reported $195,264 in wages and claimed a total loss of $87,793 from rental real estate and partnerships. This loss included $58,381 for Forbearance and $26,583 for Hair Station. He also claimed $21,576 in unreimbursed employee business expenses.

The IRS examined Mr. Langlois’s return, disallowing the partnership losses due to lack of basis substantiation and limiting his employee business expense deduction to $6,330 for union dues. The IRS also asserted an accuracy-related penalty under section 6662(a).

Taxpayer’s Arguments

Mr. Langlois argued that he was entitled to deduct:

Unreimbursed Employee Business Expenses: He claimed these expenses related to tools, clothing, and travel for his work at Asplundh, as well as travel for a job search in Phoenix.
Partnership Losses: He argued that his contributions to Forbearance totaled at least $259,049 between 2008 and 2015, and to Hair Station, $178,099. He argued these contributions exceeded the total losses reported on his tax returns.

Tax Court’s Analysis

The Tax Court evaluated Mr. Langlois’s claims based on the following legal principles:

Burden of Proof: The Court noted that the IRS’s determinations are presumed correct and that the taxpayer has the burden of proving entitlement to deductions. See Welch v. Helvering, 290 U.S. 111, 115 (1933); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). The burden of proof did not shift to the IRS under section 7491(a)(1).
Recordkeeping: The Court emphasized that taxpayers must keep sufficient records to substantiate their tax attributes under section 6001, Treasury Regulation § 1.6001-1(a), and Treasury Regulation § 1.6001-1(e). The records must establish the nature, amount, and purpose of claimed deductions. See Higbee v. Commissioner, 116 T.C. 438, 440 (2001); Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976). The Court also noted that the Cohan rule allows for estimates where a deductible expense has been established, but precise substantiation is lacking. See Cohan v. Commissioner, 39 F.2d 540, 543–44 (2d Cir. 1930). However, such estimates require a sufficient evidentiary basis, and the Court will not simply guess. See Vanicek v. Commissioner, 85 T.C. 731, 742–43 (1985); Rodriguez v. Commissioner, T.C. Memo. 2009-22, 2009 WL 211430, at *4. If records are lost due to casualty, the Court may allow for reconstruction if the taxpayer establishes the casualty and the credibility of the secondary evidence. See Phillips v. Commissioner, T.C. Memo. 2013-250, at *8; Boyd v. Commissioner, 122 T.C. 305, 320 (2004); Temp. Treas. Reg. § 1.274-5T(c)(5).
Unreimbursed Employee Business Expenses: The Court referenced section 162, which allows deductions for ordinary and necessary business expenses. See Commissioner v. Heininger, 320 U.S. 467, 471 (1943); Welch v. Helvering, 290 U.S. at 113–14. An employee can deduct ordinary and necessary business expenses, but personal expenses are not deductible under section 262(a). See Primuth v. Commissioner, 54 T.C. 374, 377 (1970); Barnes v. Commissioner, T.C. Memo. 2016-79, at *7. The expenses must not be reimbursed and the taxpayer must not have been entitled to reimbursement. See Orvis v. Commissioner, 788 F.2d 1406, 1408 (9th Cir. 1986), aff’g T.C. Memo. 1984-533; Fountain v. Commissioner, 59 T.C. 696, 708 (1973). Furthermore, the Court noted that clothing is deductible as an ordinary and necessary business expense only if the clothing is required or essential in the taxpayer’s employment, is not suitable for general wear, and is not so worn. See Barnes, T.C. Memo. 2016-79, at *7. Travel expenses are deductible under section 162(a)(2) if incurred "while away from home in the pursuit of a trade or business." See Commissioner v. Flowers, 326 U.S. 465, 470 (1946). A taxpayer’s home, for this purpose, is usually the vicinity of the taxpayer’s principal place of business. See Mitchell v. Commissioner, 74 T.C. 578, 581 (1980); Kroll v. Commissioner, 49 T.C. 557, 562 (1968).
Partnership Losses: The Court noted that under section 704(d), a partner can only deduct their share of partnership losses up to their adjusted basis in the partnership. See Simpson v. Commissioner, T.C. Memo. 2023-4, at *26. A partner’s basis is increased by contributions and distributive share of income and reduced by distributive share of losses and distributions. See I.R.C. §§ 705(a)(1), 722; Duffy v. Commissioner, T.C. Memo. 2020-108, at *47; I.R.C. §§ 705(a)(2), 733; Kohout v. Commissioner, T.C. Memo. 2022-37, at *11, aff’d, No. 23-11135, 2024 WL 3069309 (11th Cir. June 20, 2024). If a partner fails to establish their adjusted basis, no losses can be deducted. See I.R.C. § 704(d); Sennett v. Commissioner, 80 T.C. 825, 829 (1983), aff’d per curiam, 752 F.2d 428 (9th Cir. 1985); O’Neill v. Commissioner, 271 F.2d 44, 50 (9th Cir. 1959), aff’g T.C. Memo. 1957-193; Powers v. Commissioner, T.C. Memo. 2013-134, at *28–30.
Accuracy-Related Penalty: The Court referred to section 6662(a) and (b)(2), which impose an accuracy-related penalty for a substantial understatement of income tax. The Commissioner has the burden of production with respect to penalties under section 7491(c), and once that burden is met, the burden of proof shifts to the taxpayer. See Higbee, 116 T.C. at 447. Under section 6751(b), the initial penalty assessment must be approved in writing by the immediate supervisor.

Court’s Findings

The Tax Court ruled against Mr. Langlois, concluding that he had not met his burden of proof regarding his deductions and was liable for the accuracy-related penalty.

Unreimbursed Employee Business Expenses: The Court found that Mr. Langlois did not adequately demonstrate that his tool purchases were required for his work for Asplundh, or that he used the tools for work, rather than personal use. See Savignano v. Commissioner, T.C. Memo. 1979-1, 1979 Tax Ct. Memo LEXIS 525, at *5; Deihl v. Commissioner, T.C. Memo. 2005-287, 2005 WL 3446081, at *10. The Court also found that his clothing purchases were not shown to be unsuitable for general wear. See Ayria v. Commissioner, T.C. Memo. 2022-123, at *9; Kinney v. Commissioner, T.C. Memo. 2008-287, 2008 WL 5330815, at *9. The Court further determined that his travel expenses to Chicago were not deductible since they were not incurred in pursuit of his employment with Asplundh. Mr. Langlois failed to show that he was not entitled to reimbursement from Asplundh for any expenses. See Humphrey v. Commissioner, T.C. Memo. 2017-78, at *8; Orvis v. Commissioner, 788 F.2d at 1408. Finally, the Court found that he did not substantiate the business purpose for his trip to Phoenix. See I.R.C. § 274(d)(1), (4); see also Sutherland v. Commissioner, T.C. Memo. 2018-186, at *10; Geiman v. Commissioner, T.C. Memo. 2021-80, at *9. Additionally, he did not establish that he was driving his personal vehicle in Arizona or California to claim vehicle expenses using the standard mileage rate. See Christine v. Commissioner, T.C. Memo. 2010-144, 2010 WL 2640125, at *5, aff’d, 475 F. App’x 259 (9th Cir. 2012).
Partnership Losses: The Court concluded that Mr. Langlois failed to provide credible evidence of his adjusted basis in either Forbearance or Hair Station for 2015. He did not establish the amount of his initial capital contributions for either partnership. The Court found that the receipts Mr. Langlois presented for Forbearance were insufficient because they did not clearly establish a business purpose, demonstrate that he made the expenditures, or connect the expense with the business. See Venuto v. Commissioner, T.C. Memo. 2017-123, at *9; Akey v. Commissioner, T.C. Memo. 2015-227, at *21; Patterson v. Commissioner, T.C. Memo. 1979-362, 1979 Tax Ct. Memo LEXIS 162, at *7. The Court also noted that Forbearance’s records included personal expenses of the partners. See Hradesky, 65 T.C. at 90; Shah v. Commissioner, T.C. Memo. 2015-31, at *43; Hopkins v. Commissioner, T.C. Memo. 2005-49, 2005 WL 615687, at *5. For Hair Station, the Court determined that Mr. Langlois improperly included payments to independent contractors as part of his basis because those payments were made by Hair Station, not Mr. Langlois.
Accuracy-Related Penalty: The Court found that the IRS met its burden of production, and Mr. Langlois failed to demonstrate that the penalty was incorrect. The penalty was approved by the revenue agent’s supervisor in writing under section 6751(b) and Mr. Langlois substantially understated his income tax.

Impact of Deficient Records

The Tax Court emphasized that Mr. Langlois’s failure to keep adequate records was a significant factor in the outcome of the case. His submission of a large volume of receipts, without proper categorization or substantiation, was not sufficient to meet his burden of proof. The Court specifically stated that it would not “sort through . . . voluminous evidence” to determine if each expense was substantiated. This lack of organized records made it impossible for Mr. Langlois to demonstrate the connection between the expenses and the business, or that he personally made the claimed expenditures. In particular, the absence of documentation detailing his initial capital contributions or subsequent contributions to the partnerships made it impossible for him to establish his adjusted basis in the partnerships and claim the losses. The Court also found that the lack of adequate records made it impossible for Mr. Langlois to prove his unreimbursed employee business expenses, and his right to the deductions for his travel.

In summary, Langlois v. Commissioner serves as an important reminder of the necessity of maintaining detailed and organized records to support tax deductions. The case illustrates how a failure to properly document expenses and contributions can lead to the disallowance of those claims and the imposition of penalties. Mr. Langlois’s inability to establish his adjusted basis in the partnerships, due to a lack of verifiable records, ultimately prevented him from deducting the reported losses, and demonstrates the burden taxpayers bear in demonstrating entitlement to deductions.

Prepared with assistance from NotebookLM.

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