T.C. Memo. 2000-255
UNITED STATES TAX COURT
HAROLD L. & LACHEER A. DOZIER, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 10087-99. Filed August 11, 2000.
Harold L. Dozier and LaCheer A. Dozier, pro se.
Eric B. Jorgensen, for respondent.
MEMORANDUM OPINION
PAJAK, Special Trial Judge: Respondent determined
deficiencies in petitioners’ 1995 and 1996 Federal income taxes
in the amounts of $6,382 and $1,440, respectively, and an
accuracy-related penalty under section 6662(a) in the amount of
$1,276 for 1995. Unless otherwise indicated, all section
references are to the Internal Revenue Code in effect for the
years in issue.
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After a concession by respondent that petitioners are not
liable for the accuracy-related penalty under section 6662(a) for
1995, we must decide whether petitioners are entitled to deduct
claimed Schedule C expenses of $26,860 and $4,800 in 1995 and
1996, respectively.
Some of the facts have been stipulated and are so found.
Petitioners resided in Decatur, Georgia, at the time the petition
was filed.
Petitioner Harold L. Dozier was a welder, and petitioner
LaCheer A. Dozier was a laundry worker. For 1995, on a Schedule
C listing Public Pay Telephone/Long Distance Services as the
principal business, petitioners claimed a loss of $24,500. On
that Schedule C, petitioners claimed total deductions of $26,860
as follows: commissions and fees - $17,500, legal and
professional services - $650, office expenses - $4,200, rent or
lease: vehicles, machinery and equipment - $4,200, supplies -
$310. For 1996, on a Schedule C listing Long Distance/
Information Services as the principal business, petitioners
reported a gain of $8,386. On that Schedule C, petitioners
claimed a deduction of $4,800 for rent or lease: vehicles,
machinery and equipment. Respondent disallowed the Schedule C
deductions of $26,860 for 1995 and $4,800 for 1996 on the grounds
that it was not established that any of the amounts claimed were
for ordinary and necessary business expenses or were expended for
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the purposes designated.
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). Section 6001 imposes upon every person liable
for any tax a duty to maintain records that are sufficient to
enable the Commissioner to determine the taxpayer’s correct tax
liability. Sec. 1.6001-1(a), Income Tax Regs.
Petitioner Harold L. Dozier claimed he was in business with
Ms. Faye Williams and Mr. Leonard Campbell to buy and sell names
“over the Web”.
Mr. Herman Tyler, petitioners’ tax return preparer,
testified. Mr. Tyler claimed that petitioners borrowed
approximately $25,000 from Keanon Thompson, a 14 year-old boy, so
they could participate in the business. Mr. Tyler asserted that
he arranged the loan because he had Keanon Thompson’s power of
attorney. Mr. Tyler referred to a promissory note, but no
promissory note was introduced in evidence. According to his
testimony, the funds never went to petitioners, but remained in
Mr. Tyler’s hands. Mr. Tyler also testified that he held funds
in trust for petitioners and made wire transfers to Mr. Leonard
Campbell of California. He said these wire transfers represented
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payment of petitioners’ expenses to Mr. Campbell. Many of the
wire transfers by Mr. Tyler were to Ms. Faye Williams, who was
Mr. Campbell’s sister. No agreement between Mr. Campbell and
petitioners or between Ms. Williams and petitioners was
introduced in evidence. Mr. Tyler alleged payments also were
made by petitioners to Mr. Campbell by means of payments made by
Mr. Tyler to Mr. Tyler’s brother, Ed Tyler, of Colorado for an
alleged purchase of real estate. No agreement of sale and no
agreement relating to a real estate commission was introduced in
evidence. Mr. Tyler testified petitioners leased office space
from Mr. Campbell who leased it from another brother of Mr.
Tyler, Ernest Tyler, of Colorado. No lease between Mr. Ernest
Tyler and Mr. Campbell or between Mr. Campbell and petitioners
was introduced in evidence.
Petitioners had no books or records of this alleged
business. Petitioners had no copies of lease agreements with
respect to this alleged business. Petitioners had no copies of
agreements with any of the individuals named above. Petitioners
had no copies of loan agreements with respect to this alleged
business. Petitioners had no checks to evidence payment of any
expenses with respect to this alleged business. Petitioners had
no receipts for payment of alleged expenses of this alleged
business.
We need not accept self-serving testimony of a petitioner or
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of a witness if we find it to be unworthy of belief. Tokarski v.
Commissioner, 87 T.C. 74, 77 (1986). We decide whether a witness
is credible based on objective facts, the reasonableness of the
testimony, and the demeanor of the witness. Quock Ting v. United
States, 140 U.S. 417, 420-421 (1891); Wood v. Commissioner, 338
F.2d 602, 605 (9th Cir. 1964), affg. 41 T.C. 593 (1964).
Mr. Tyler may have been attempting to support the tax
returns he prepared. He did not do so. There was nothing in the
documents detailing the wire transfers which tied them to
petitioners. Mr. Tyler had no written records of his own to
prove he held funds in trust for petitioners or that moneys
flowed in and out of the purported trust account. We found the
statements of Mr. Tyler to be unreasonable and not consistent
with normal business practices. We observed Mr. Tyler’s demeanor
and did not find him credible.
Petitioners offered no business records, checks, or receipts
to prove that the sums claimed as deductions were actually spent
and no documentary evidence to substantiate that any claimed
expenditures were for a business purpose. In sum, petitioners
failed to substantiate the deductions in issue. We have no
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choice but to sustain respondent’s determination of the
deficiencies for each of the years in issue.
Decision will be entered
for respondent in the amount
of the deficiencies and for
petitioners with respect to
the accuracy-related penalty
under section 6662(a).