T.C. Memo. 1998-459
UNITED STATES TAX COURT
M. MAUREEN POLSBY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 22742-96. Filed December 30, 1998.
M. Maureen Polsby, pro se.
Lindsey D. Stellwagen, for respondent.
MEMORANDUM OPINION
DAWSON, Judge: This case was assigned to Special Trial
Judge John J. Pajak pursuant to the provisions of section
7443A(b)(4) and Rules 180, 181, and 183. All section references
are to the Internal Revenue Code in effect for the year in issue.
All Rule references are to the Tax Court Rules of Practice and
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Procedure. The Court agrees with and adopts the Opinion of the
Special Trial Judge, which is set forth below.
OPINION OF THE SPECIAL TRIAL JUDGE
PAJAK, Special Trial Judge: Respondent determined a
deficiency in petitioner's 1992 Federal income tax in the amount
of $9,345 and an addition to tax under section 6651(a)(1) in the
amount of $2,373.
The issues for decision are: (1) Whether petitioner is
entitled to Schedule C deductions, (2) whether petitioner is
entitled to charitable contribution deductions, and (3) whether
petitioner is liable for an addition to tax under section
6651(a)(1) for failure to timely file a return.
Some of the facts have been stipulated and are so found.
Petitioner resided in Washington, D.C., at the time the petition
was filed.
During 1992, petitioner was a self-employed medical doctor
with a specialty in neurology. Petitioner operated her medical
practice in her home office. Petitioner's home office occupied
one-third of her house. Also during 1992, petitioner reviewed
disability claims for the Social Security Administration (SSA) as
a consultant. Petitioner was required to review the disability
claims on SSA's premises located in Baltimore, Maryland. The
majority of petitioner's gross income for 1992 resulted from her
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activity as a consultant for the SSA. She saw a few patients in
her home office.
On Schedule C, Profit or Loss From Business, petitioner
reported gross income from her medical practice and consulting
work for the SSA in the total amount of $49,724, and claimed the
following deductions:
Car and truck expenses $7,011
Depreciation and section 179 expense
deduction 3,264
Insurance 127
Mortgage interest 258
Office expense 5,800
Repairs and maintenance 6,278
Taxes and licenses 809
Travel, meals, and entertainment
Travel 5,618
Meals and entertainment 826
Utilities 1,289
Other expenses
Business meetings 6,237
Secretarial 3,919
Medical books 817
Dues 1,722
Conferences 485
Telephone 550
Security system 712
Total $45,722
In the notice of deficiency, respondent disallowed the
claimed $45,722 in Schedule C deductions, adjusted petitioner's
self-employment tax and its corresponding deduction, adjusted
petitioner's Schedule A deductions due to the adjustment to her
adjusted gross income, and determined that petitioner is liable
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for an addition to tax under section 6651(a)(1). Basically, this
is a substantiation case.
Deductions are strictly a matter of legislative grace.
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New
Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).
Taxpayers must substantiate any deductions claimed. Hradesky v.
Commissioner, 65 T.C. 87 (1975), affd. per curiam 540 F.2d 821
(5th Cir. 1976). A taxpayer must keep sufficient records to
establish the amount of the deductions. Sec. 6001.
When a taxpayer fails to keep records, but a court is
convinced that deductible expenditures were incurred, the court
may make an approximation, bearing heavily upon the taxpayer
"whose inexactitude is of [her] own making." Cohan v.
Commissioner, 39 F.2d 540, 544 (2d Cir. 1930). We cannot
estimate deductible expenses, however, unless the taxpayer
presents evidence sufficient to provide some rational basis upon
which estimates may be made. Vanicek v. Commissioner, 85 T.C.
731, 743 (1985). Nor may a Cohan estimate be made of expenses
that are subject to the substantiation requirements of section
274(d).
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. Whether an expenditure is
ordinary and necessary is a question of fact. Commissioner v.
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Heininger, 320 U.S. 467, 475 (1943). However, no deduction shall
be allowed for personal, living, or family expenses. Sec. 262.
Section 274(d) imposes stringent substantiation requirements
for the deduction of travel expenses (including meals and lodging
while away from home), entertainment expenses, gift expenses, and
expenses of certain listed property defined under section
280F(d)(4) such as an automobile. Taxpayers must substantiate by
adequate records certain items in order to claim deductions, such
as the amount and place of each separate expenditure, the
property's business and total usage, the date of the expenditure
or use, and the business purpose for an expenditure or use. Sec.
274(d); sec. 1.274-5T(b), Temporary Income Tax Regs., 50 Fed.
Reg. 46016 (Nov. 6, 1985).
To substantiate a deduction by means of adequate records, a
taxpayer must maintain an account book, diary, log, statement of
expense, trip sheets, and/or other documentary evidence which, in
combination, are sufficient to establish each element of
expenditure or use. Sec. 1.274-5T(c)(2)(i), Temporary Income Tax
Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985).
If an expense item comes within the requirements of section
274(d), this Court cannot rely on Cohan v. Commissioner, supra,
to estimate the taxpayer's expenses with respect to that item.
Sanford v. Commissioner, 50 T.C. 823, 827 (1968), affd. per
curiam 412 F.2d 201 (2d Cir. 1969).
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Petitioner contends that she incurred car and truck expenses
as the result of her commutes to the SSA located in Baltimore,
Maryland. At trial, petitioner estimated that she made 156 trips
in 1992, averaging three or four trips a week. Using the 1992
standard mileage rate of 28 cents, we calculated that petitioner
purportedly traveled about 25,039 miles ($7,011 ÷ 28 cents).
After a review of the record, we find that the record lacks
any documentary evidence to support petitioner's claimed car and
truck expenses. Petitioner failed to maintain adequate records
such as a diary, log book, or trip sheets to evidence the
distances she purportedly traveled in furtherance of her medical
practice. Indeed, petitioner admitted that she "didn't keep a
log" of her trips to Baltimore. Under the strict substantiation
rules of section 274(d), we hold that petitioner is not entitled
to deduct car and truck expenses for 1992.
With respect to insurance, mortgage interest, office
expense, repairs and maintenance, travel, utilities, secretarial,
medical books, dues, conferences, and security system, petitioner
introduced into evidence copies of receipts, invoices, billing
statements, and estimate worksheets in support of her claimed
deductions. On this record, the Court believes that petitioner
was seeking to deduct many expenses that are personal, living, or
family expenses which are nondeductible under section 262.
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Nevertheless, we allow petitioner to deduct the following rounded
amounts:
Insurance $127
Mortgage interest 258
Office expense 127
Repairs and maintenance 355
Travel 813
Utilities 596
Other expenses
Secretarial 3,919
Medical books 615
Dues 737
Conferences 485
Security system 84
Total $8,116
With respect to petitioner's claimed deductions for
depreciation and section 179 expense, taxes and licenses, meals
and entertainment, business meetings, and telephone, the record
does not establish that such expenses were incurred or were
ordinary and necessary business expenses. No credible
documentary evidence was introduced to support any of these
claimed deductions. Further, petitioner's testimony regarding
these deductions was vague, uncertain, and untenable. On several
occasions, petitioner admitted that she was unsure of the amounts
of some of these claimed deductions and that she basically relied
on her accountant to determine the amounts of her expenses. We
have stated on many occasions that this Court is not bound to
accept petitioner's self-serving, unverified, and undocumented
testimony. Tokarski v. Commissioner, 87 T.C. 74, 77 (1986);
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Hradesky v. Commissioner, 65 T.C. 87 (1975). Thus, we hold that
petitioner is not entitled to these claimed deductions.
Section 170(a) allows a taxpayer to deduct charitable
contributions made during the taxable year. A charitable
contribution is a contribution or gift for the use of an
organization described in section 170(c). Section 1.170A-
13(a)(1), Income Tax Regs., provides that a taxpayer making a
charitable contribution of money must maintain for each
contribution the following:
(i) A cancelled check.
(ii) A receipt from the donee charitable organization
showing the name of the donee, the date of the contribution,
and the amount of the contribution. A letter or other
communication from the donee charitable organization
acknowledging receipt of a contribution and showing the date
and amount of the contribution constitutes a receipt * * * .
(iii) In the absence of a canceled check or receipt
from the donee charitable organization, other reliable
written records showing the name of the donee, the date of
the contribution, and the amount of the contribution.
The reliability of the written records is to be determined
on the basis of all the facts and circumstances of a particular
case. Sec. 1.170A-13(a)(2), Income Tax Regs. Factors indicating
that the written records are reliable include the contemporaneous
nature of the writing and the regularity of the taxpayer's
recordkeeping procedures. Sec. 1.170A-13(a)(2), Income Tax Regs.
Petitioner contends that she is entitled to a charitable
contribution deduction in the amount of $2,366 (a carryover of
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excess charitable contribution deduction from 1991 of $1,921 plus
$445 in cash contributions made in 1992). Although petitioner
listed separately the carryover of excess charitable contribution
from 1991 and the cash contributions on her Schedule A under
Gifts to Charity, for some unexplained reason petitioner did not
claim them as a charitable contribution deduction. At trial,
petitioner stated that she is entitled to these deductions and an
additional charitable contribution deduction for "possessions",
including furniture, that she donated to Goodwill in 1992.
With respect to petitioner's contention that she is entitled
to deduct the carryover charitable contribution from 1991, the
$445 in cash contributions, and the additional contributions for
"possessions" she donated to Goodwill, the record does not
support her claims. The record does not contain any evidence to
establish that she was entitled to a charitable contribution
deduction carryover. In fact, in direct conflict with the
reference to a charitable contribution deduction carryover on her
Schedule A, petitioner testified that although she did not
exactly remember, she believed that "this $2366, is what was in
my check register or slips I had." The record does not contain
any reliable written records which show the names of donees, the
dates of petitioner's alleged contributions, and the amounts that
petitioner purportedly donated. Sec. 1.170A-13(a)(1), Income Tax
Regs. We are not required to accept petitioner's testimony as
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gospel. Tokarski v. Commissioner, supra. On this record, we
hold that petitioner is not entitled to a charitable contribution
deduction.
Section 6651(a)(1) imposes an addition to tax for failure to
file a return on time. The addition is 5 percent for each month
that the return is late, not to exceed 25 percent. In order to
avoid the addition to tax under section 6651(a)(1), a taxpayer
must show both reasonable cause and a lack of willful neglect.
United States v. Boyle, 469 U.S. 241, 245 (1985). A failure to
file is due to "reasonable cause" if the taxpayer exercised
ordinary business care and prudence and was, nevertheless, unable
to file his return within the time prescribed by law. United
States v. Boyle, supra at 246. The term 'willful neglect'
implies a conscious, intentional failure to file or reckless
indifference to the obligation to file. United States v. Boyle,
supra at 245.
Petitioner filed her 1992 Federal income tax return on July
5, 1994. Petitioner contends that her failure to timely file her
1992 return was due to "the overwhelming nature of what has been
going on in her life." Petitioner asks the Court to take into
account her personal and professional circumstance, e.g., the
fact that she is a physician in solo practice, that her medical
career is in a state of turmoil, and that she was involved in
other litigation.
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We do not find that such circumstances constitute reasonable
cause which would justify petitioner's failure to timely file her
1992 return. Cf. Estate of Bevan v. Commissioner, T.C. Memo.
1989-256. On this record, we conclude that petitioner failed to
demonstrate that she exercised ordinary business care and
prudence. There is no evidence in the record that petitioner
took any measures to ensure that her 1992 return would be timely
filed. Accordingly, we sustain respondent on this issue.
To the extent our findings above affect petitioner's self-
employment tax and its corresponding deduction, and the Schedule
A deductions, the parties shall address this in their Rule 155
computations.
To reflect the foregoing,
Decision will be entered
under Rule 155.