Browne v. Commissioner

T.C. Memo. 1998-14

UNITED STATES TAX COURT

ALICE PAULINE BROWNE, A.K.A. A. PAULINE BROWNE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 15144-96. Filed January 12, 1998.

Alice Pauline Browne, pro se.

Stephen R. Doroghazi, for respondent.

MEMORANDUM OPINION

DINAN, Special Trial Judge: This case was heard pursuant

to the provisions of section 7443A(b)(3) and Rules 180, 181, and

182.1

1
Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect for the taxable years in
issue. All Rule references are to the Tax Court Rules of
Practice and Procedure.
 - 2 -

Respondent determined deficiencies in petitioner's Federal

income taxes, an addition to tax, and accuracy-related penalties

for the years indicated:

Addition to Tax Penalties
Year Deficiency Sec. 6651(a)(1) Sec. 6662(a)

1992 $4,438 $221.90 $638.40
1993 $2,730 - $546.00

After a concession by petitioner,2 the issues remaining for

decision are: (1) Whether petitioner is entitled to Schedule C

business expense deductions in excess of the amounts allowed by

respondent; (2) whether petitioner is liable for the section

6651(a)(1) addition to tax for 1992; and (3) whether petitioner

is liable for the section 6662(a) accuracy-related penalties for

1992 and 1993.

Some of the facts have been stipulated and are so found.

The stipulations of fact and the attached exhibits are

incorporated herein by this reference. Petitioner resided in

Royal Palm Beach, Florida, on the date the petition was filed in

this case.

2
Petitioner concedes that respondent properly determined
that one-half of the Social Security benefits she received during
1992 must be included in her gross income for her 1992 taxable
year. On her 1992 return, petitioner correctly reported her
Social Security benefits received in the amount of $8,885 but
mistakenly entered the taxable amount of such benefits on the
line labeled "other income". The proper adjustment to
petitioner's taxable Social Security benefits for 1992 is only
$2,247.50, which represents the difference between the taxable
amount reported on the wrong line ($2,195) and the correct
taxable amount ($4,442.50).
 - 3 -

Petitioner is a multi-talented individual. She works

primarily as a legal secretary, having received her juris doctor

degree from Atlanta Law School. In addition to her work in the

legal field, petitioner is an income tax return preparer, artist,

photographer, author, and minister. Respondent agrees that

petitioner possessed a business purpose for her pursuit of all of

these occupations.

The first issue for decision is whether petitioner is

entitled to Schedule C business expense deductions in excess of

the amounts allowed by respondent. In general, respondent's

position is that petitioner failed to substantiate the claimed

deductions in excess of the amounts allowed in the statutory

notice of deficiency.

Respondent's determinations in the statutory notice of

deficiency are presumed to be correct, and petitioner bears the

burden of proving otherwise. Rule 142(a); Welch v. Helvering,

290 U.S. 111, 115 (1933). Moreover, deductions are strictly a

matter of legislative grace, and petitioner bears the burden of

proving her entitlement to any deductions claimed. Rule 142(a);

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New

Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).

Petitioner's burden includes the requirement that she

substantiate any deductions claimed. Hradesky v. Commissioner,

65 T.C. 87 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976).
 - 4 -

Section 162(a) allows a deduction for the ordinary and

necessary expenses paid or incurred during the taxable year in

carrying on a trade or business. In the event that a taxpayer

establishes that she has paid a deductible expense, but is unable

to substantiate the precise amount of the expense, we may

estimate the amount of the deductible expense. Cohan v.

Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). In order to

make such an estimate, the taxpayer must present evidence

sufficient to provide some rational basis upon which an estimate

may be made. Vanicek v. Commissioner, 85 T.C. 731, 743 (1985).

Petitioner presented no receipts in support of her claimed

deductions. She maintains, however, that she fully substantiated

her claimed deductions during respondent's audit of her 1992 and

1993 returns. Her explanation for failing to produce the records

at trial is that such records were too voluminous to fit in her

car.

We reject petitioner's excuse for being unprepared for

trial. As a law school graduate, tax accountant, and previous

litigant in this Court,3 petitioner should have known that the

documents she allegedly showed to respondent at the

administrative level would need to be produced as evidence at

trial. More importantly, petitioner was served with a notice on

3
See Browne v. Commissioner, 73 T.C. 723 (1980);
Dandeneau v. Commissioner, T.C. Memo. 1971-128, affd. without
published opinion sub nom. Browne v. Commissioner, 456 F.2d 799
(5th Cir. 1972).
 - 5 -

March 20, 1997, setting her case for trial on June 9, 1997.

Attached to the notice of trial was the Court's standing pretrial

order which states in part:

ORDERED that all facts shall be stipulated to the
maximum extent possible. All documentary and written
evidence shall be marked and stipulated in accordance
with Rule 91(b), unless the evidence is to be used to
impeach the credibility of a witness. Objections may
be preserved in the stipulation. If a complete
stipulation of facts is not ready for submission at
trial, and if the Court determines that this is the
result of either party's failure to fully cooperate in
the preparation thereof, the Court may order sanctions
against the uncooperative party. Any documents or
materials which a party expects to utilize in the event
of trial (except for impeachment), but which are not
stipulated, shall be identified in writing and
exchanged by the parties at least 15 days before the
first day of the trial session. The Court may refuse
to receive in evidence any document or material not so
stipulated or exchanged, unless otherwise agreed by the
parties or allowed by the Court for good cause shown.

Petitioner failed to comply with the Court's order to

stipulate her documentary evidence. As a result, the record in

this case does not contain any receipts which support her claimed

business expense deductions.4 We find that petitioner has failed

to meet her burden of proving her entitlement to the claimed

deductions. Rule 142(a).

After reviewing the record, we find it insufficient to allow

us to make an estimate of petitioner's deductible business

4
We refuse to rely on petitioner's self-serving written
statement describing the costs of her trip to Europe in 1992
because it is not corroborated by any canceled checks, receipts,
or other written documents. Niedringhaus v. Commissioner, 99
T.C. 202, 219-220 (1992); Tokarski v. Commissioner, 87 T.C. 74,
77 (1986).
 - 6 -

expenses under the Cohan rule. Vanicek v. Commissioner, supra.

Therefore, we hold that petitioner is not entitled to business

expense deductions for 1992 and 1993 in excess of the amounts

allowed by respondent.5

The second issue for decision is whether petitioner is

liable for the section 6651(a)(1) addition to tax for 1992.

Section 6651(a)(1) imposes an addition to tax for failure to

timely file a return, unless the taxpayer establishes that such

failure is due to reasonable cause and not due to willful

neglect. "Reasonable cause" requires the taxpayer to demonstrate

that she exercised ordinary business care and prudence and was

nonetheless unable to file a return within the prescribed time.

United States v. Boyle, 469 U.S. 241, 245-246 (1985). "Willful

neglect" means a conscious, intentional failure or reckless

indifference. Id. at 246. The addition to tax equals 5 percent

of the tax required to be shown on the return if the failure to

file is for not more than 1 month, with an additional 5 percent

for each additional month or fraction of a month during which the

failure to file continues, not to exceed a maximum of 25 percent.

Sec. 6651(a)(1).

Petitioner's 1992 return was originally due on April 15,

1993. Sec. 6072(a). She applied for and received an automatic,

5
We note that respondent allowed petitioner deductions
for substantial portions of her claimed expenses.
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4 month extension of time to file until August 16, 1993.6 Sec.

6081; sec. 1.6081-4, Income Tax Regs. Section 7502 generally

provides that a return which is timely mailed will be treated as

filed on the date it is mailed. However, this rule does not

apply in petitioner's case because she admits to mailing her

return on August 20, 1993, 4 days after the prescribed, extended

date for filing the return. Sec. 7502(a)(2). We therefore find

that petitioner's 1992 return was filed on August 30, 1993, the

date it was received by respondent.

Based on the record, we further find that petitioner has

failed to prove that her failure to timely file her return was

not due to willful neglect or that such failure was due to

reasonable cause. We reject her argument that her responsibility

to prepare other individuals' tax returns constitutes reasonable

cause for failing to timely file her own return. Accordingly, we

hold that petitioner is liable for the section 6651(a)(1)

addition to tax.

The third issue for decision is whether petitioner is liable

for the section 6662(a) accuracy-related penalties for 1992 and

1993. Respondent's determinations of negligence are presumed to

be correct, and petitioner bears the burden of proving that the

penalties do not apply. Rule 142(a); Welch v. Helvering, 290

U.S. at 115; Bixby v. Commissioner, 58 T.C. 757, 791-792 (1972).

6
Since August 15, 1993, fell on a Sunday, petitioner was
allowed an extra day to file the return. Sec. 7503.
 - 8 -

Section 6662(a) imposes a 20-percent penalty on the portion

of an underpayment attributable to any one of various factors,

one of which is negligence or disregard of rules or regulations.

Sec. 6662(b)(1). Respondent determined that petitioner is liable

for the accuracy-related penalty imposed by section 6662(a) for

her underpayments of taxes in 1992 and 1993, and that such

underpayments were due to negligence or disregard of rules or

regulations. "Negligence" includes a failure to make a

reasonable attempt to comply with the provisions of the Internal

Revenue laws or to exercise ordinary and reasonable care in the

preparation of a tax return. Sec. 6662(c); sec. 1.6662-3(b)(1),

Income Tax Regs. "Disregard" includes any careless, reckless, or

intentional disregard of rules or regulations. Sec. 6662(c);

sec. 1.6662-3(b)(2), Income Tax Regs.

Section 6664(c)(1), however, provides that the penalty under

section 6662(a) shall not apply to any portion of an

underpayment, if it is shown that there was reasonable cause for

the taxpayer's position with respect to that portion and that the

taxpayer acted in good faith with respect to that portion. The

determination of whether a taxpayer acted with reasonable cause

and in good faith is made on a case-by-case basis, taking into

account all the pertinent facts and circumstances. Sec.

1.6664-4(b)(1), Income Tax Regs. The most important factor is

the extent of the taxpayer's effort to assess her proper tax

liability for the year. Id.
 - 9 -

Based on the record, we find that petitioner has not proved

that her underpayments were due to reasonable cause or that she

acted in good faith. Accordingly, we hold that petitioner is

liable for the section 6662(a) accuracy-related penalties as

determined by respondent.

To reflect the foregoing,

Decision will be entered

under Rule 155.