T.C. Summary Opinion 2001-50
UNITED STATES TAX COURT
VINCENT EKEH, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11921-99S. Filed April 5, 2001.
Vincent Ekeh, pro se.
Dennis R. Onnen, for respondent.
DINAN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. The decision to be
entered is not reviewable by any other court, and this opinion
should not be cited as authority. Unless otherwise indicated,
subsequent section references are to the Internal Revenue Code in
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effect for the years in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
Respondent determined deficiencies in petitioner’s Federal
income taxes of $2,664 and $818 and accuracy-related penalties of
$532.80 and $163.60 for the taxable years 1995 and 1996.
After a concession by respondent,1 the issues for decision
are with respect to each year in issue: (1) Whether petitioner
is entitled to a charitable contribution deduction; (2) whether
petitioner is entitled to miscellaneous itemized deductions for
employee business expenses; and (3) whether petitioner is liable
for the accuracy-related penalty under section 6662(a) for
negligence or disregard of rules or regulations.
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
Kansas City, Kansas, on the date the petition was filed in this
case.
The first issue for decision is whether petitioner is
entitled to a charitable contribution deduction for each year in
issue. Petitioner claimed deductions for charitable
contributions in the amounts of $5,396.45 for 1995 and $2,694.45
1
Respondent concedes that if petitioner is allowed only the
standard deduction in lieu of the itemized deductions claimed in
1995 (as determined by respondent), he is not required to include
in income a $552.52 tax refund as reported on his 1996 return.
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for 1996. In the statutory notices of deficiency, respondent
disallowed the charitable deductions in full because petitioner
had not established that the amounts shown were paid during the
respective tax years.
A taxpayer is required to maintain records sufficient to
establish the amount of his deductions. See sec. 6001; sec.
1.6001-1(a) and (e), Income Tax Regs. In the event that a
taxpayer establishes that a deductible expense has been paid but
is unable to substantiate the precise amount, we generally may
estimate the amount of the deductible expense, bearing heavily
against the taxpayer whose inexactitude in substantiating the
amount of the expense is of his own making. See Cohan v.
Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). We may
estimate a deductible expense only where the taxpayer presents
evidence sufficient to provide some basis upon which an estimate
may be made. See Vanicek v. Commissioner, 85 T.C. 731, 742-743
(1985). Certain expenses related to travel, entertainment,
gifts, and listed property (as defined in section 280F(d)(4)) are
additionally subject to the strict substantiation requirements of
section 274(d). See sec. 274(d); sec. 1.274-5T(b), Temporary
Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).
Section 170(a) allows a deduction for charitable
contributions made during the taxable year to certain types of
organizations if the deductions are verified under regulations
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prescribed by the Secretary. Without written records, a
deduction for charitable contributions generally is not allowed.
See sec. 1.170A-13, Income Tax Regs. In certain circumstances,
however, we have applied Cohan v. Commissioner, supra, to allow a
deduction even without written records where a taxpayer provides
a sufficient basis to estimate the amount of the contributions,
such as showing regular church attendance and regular cash
contributions thereto. See, e.g., Fontanilla v. Commissioner,
T.C. Memo. 1999-156; Meeks v. Commissioner, T.C. Memo. 1998-109,
affd. 208 F.3d 221 (9th Cir. 2000); Drake v. Commissioner, T.C.
Memo. 1997-487.
Petitioner presented no evidence corroborating the alleged
contributions. He testified that the relevant records were in
the possession of his former spouse, but he did not explain why
he was unable to obtain the records for trial. He attempted to
provide an estimate of a portion of these expenses by multiplying
an approximate number of times he attended Mass per year by his
average weekly contribution, but he was uncertain of even this
estimate. Because he failed to establish any regularity in
occurrence or extent of the donations from which we could
estimate an amount, or to present any reliable evidence
indicating he actually made these or other contributions, we
uphold respondent’s disallowance.
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The second issue for decision is whether petitioner is
entitled to miscellaneous itemized deductions for employee
business expenses in each of the years in issue. Petitioner
claimed miscellaneous itemized deductions for employee business
expenses in the amounts of $14,875.54 for 1995 and $5,974.66 for
1996. Respondent disallowed the miscellaneous itemized
deductions in full because petitioner had not established both
that the expenses shown were paid or incurred during the taxable
year and that they were ordinary and necessary to his business.
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. A taxpayer may be in the trade
or business of being an employee. See Primuth v. Commissioner,
54 T.C. 374, 377-378 (1970). In order for a taxpayer to be
engaged in a trade or business, “the taxpayer must be involved in
the activity with continuity and regularity”. Commissioner v.
Groetzinger, 480 U.S. 23, 35 (1987). An ordinary expense is one
that relates to a transaction “of common or frequent occurrence
in the type of business involved”, Deputy v. du Pont, 308 U.S.
488, 495 (1940), and a necessary expense is one that is
“appropriate and helpful” for “the development of the
petitioner’s business,” Welch v. Helvering, 290 U.S. 111, 113
(1933). Finally, job search expenses are deductible under
section 162(a) to the extent they are incurred in searching for
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new employment in the employee’s same trade or business. See
Primuth v. Commissioner, supra. If the employee is seeking a job
in a new trade or business, however, the expenses are not
deductible under section 162(a). See Frank v. Commissioner, 20
T.C. 511, 513-514 (1953).
Petitioner’s primary source of income during the years in
issue, not including income of his spouse, was from West
Telemarketing in Omaha, Nebraska. The following sources and
amounts of income were reported on his returns:
1995 1996
West Telemarketing $7,518.69 $23,405.48
Sitel Corporation 2,156.60 -0-
Westin Hotels and Resorts 281.13 -0-
Sharp Personnel Services 681.50 -0-
Nesco Service Company 883.88 -0-
11,521.80 23,405.48
Petitioner failed to establish how expenses he deducted on
his returns were ordinary and necessary expenses in carrying on
his employment at West Telemarketing or at one of the other
companies by which he was employed. Nor did petitioner establish
the existence of any other business for which the expenses could
have been ordinary and necessary. Petitioner on occasion paid
“practicing fees” to the Supreme Court of Nigeria; he testified
that he maintained a legal practice in Nigeria, and that the
travel expenses he incurred were primarily in connection with
this practice. He also testified that a portion of the expenses
was related to (1) his contacting businesses in order to
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ascertain their needs regarding recruitment, possibly in
connection with an immigration visa service he contemplated
providing, and (2) his contacting a bank to ascertain its
interest in establishing a money wire transfer service to
Nigeria. We find this brief testimony to be insufficient to
establish the existence of any continuous and regular activity
which constituted a trade or business. See sec. 162(a);
Groetzinger v. Commissioner, supra.
On petitioner’s returns, he indicated that a portion of the
employee business expenses was job search expenses. The nature
of the expenses discussed above, however, does not give rise to
job search expense deductions because petitioner was not
searching for a job within the same trade or business. See Frank
v. Commissioner, supra.
We uphold respondent’s disallowance of petitioner’s claimed
itemized deductions for employee business expenses.
The final issue for decision is whether petitioner is liable
for the accuracy-related penalty under section 6662(a) for
negligence or disregard of rules or regulations for each of the
years in issue. Respondent determined that petitioner was liable
for the penalty for an underpayment equal to the total amount of
the deficiency in each year in issue.
Section 6662(a) imposes a 20-percent penalty on the portion
of an underpayment attributable to any one of various factors,
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one of which is negligence or disregard of rules or regulations.
See sec. 6662(b)(1). “Negligence” includes any failure to make a
reasonable attempt to comply with the provisions of the Internal
Revenue Code, including any failure to keep adequate books and
records or to substantiate items properly. See sec. 6662(c);
sec. 1.6662-3(b)(1), Income Tax Regs. Section 6664(c)(1)
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 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. See sec.
1.6664-4(b)(1), Income Tax Regs. The most important factor is
the extent of the taxpayer’s effort to assess his proper tax
liability for the year. See id.
Petitioner’s purported substantiation was meager. He
presented receipts for various expenses which were not self-
evidently employee business expenses and which were not
adequately explained as such at trial. The receipts appear to
have been haphazardly assembled, and those receipts which were
dated in the years in issue (with legible dollar amounts) are far
from equal the amount of expenses claimed by petitioner on his
returns. Finally, many of the receipts were for travel expenses
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and do not meet the strict substantiation requirements of section
274(d). We hold that the record supports respondent’s
determination of negligence in this case.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing and the concession by respondent,
Decision will be entered
under Rule 155.