T.C. Summary Opinion 2001-177
UNITED STATES TAX COURT
CRAIG D. HOLLINGSWORTH, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 2003-01S. Filed November 26, 2001.
Craig D. Hollingsworth, pro se.
Trent D. Usitalo, for respondent.
ARMEN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect at the time that the petition was filed.1 The decision to
be entered is not reviewable by any other court, and this opinion
should not be cited as authority.
1
Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for 1998,
the taxable year in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
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Respondent determined a deficiency in, and an addition to
tax under section 6651(a)(1) to, petitioner's Federal income tax
for 1998 in the amounts of $5,505 and $273, respectively.
The issues for decision are as follows:
(1) Whether petitioner is entitled to the deductions claimed
by him on his Schedule C. We hold that he is not.
(2) Whether petitioner is liable for an addition to tax
under section 6651(a)(1). The resolution of this issue turns on
whether petitioner timely filed his income tax return for the
year in issue. We hold that he did; accordingly, he is not
liable for the addition to tax.
The amount of petitioner’s liability for self-employment tax
and the amount of the deduction under section 164(f) to which
petitioner is entitled are computational matters, the resolution
of which will depend on our disposition of the first of the two
issues enumerated above.
Background
Some of the facts have been stipulated, and they are so
found.
At the time that the petition was filed, petitioner resided
in Ceres, California.
A. Petitioner’s 1998 Income Tax Return
Petitioner filed Form 1040, U.S. Individual Income Tax
Return, for 1998. Petitioner attached to his return Schedule C,
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Profit or Loss From Business. Petitioner described his business
on his Schedule C as a part-time real estate loan officer.
Petitioner reported income and claimed expenses on his Schedule C
as follows:
Income
Gross receipts $22,331
Less: Cost of Goods Sold ---
Gross profit/gross income 22,331
Expenses
Advertising $3,538
Car & truck expenses 4,614
Insurance 928
Legal & professional services 3,540
Office expense 3,654
Repairs & maintenance 678
Supplies 593
Taxes & licenses 472
Utilities & telephone 1,669 19,686
Net profit 2,645
Petitioner also attached to his 1998 income tax return
Schedule SE, Self-Employment Tax, and reported self-employment
tax in the amount of $374. Petitioner claimed a deduction for
one-half of this amount, or $187, on page 1 of his Form 1040.
See sec. 164(f).
Petitioner dated his 1998 income tax return “8/14/99" and
mailed it to respondent’s service center in Fresno, California.
The envelope in which petitioner mailed his return bears a U.S.
Postal Service postmark date of August 16, 1999. Petitioner’s
return was received by respondent’s service center 2 days later,
on August 18, 1999.
Petitioner filed his 1998 income tax return pursuant to Form
4868, Application for Automatic Extension of Time To File U.S.
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Individual Income Tax Return. This form served to extend by 4
months the time within which petitioner was obliged to file his
1998 income tax return.
B. Examination of Petitioner’s 1998 Income Tax Return
In due course, petitioner’s 1998 income tax return was
selected for examination. The focus of the examination was the
deductions claimed by petitioner on his Schedule C. However,
petitioner “declined to open [his] books and records” or
otherwise provide substantiation for any of the deductions in
question. Thereafter, respondent disallowed petitioner’s
Schedule C deductions for lack of substantiation. Respondent
also determined that petitioner failed to timely file his 1998
return.
Discussion
A. Petitioner’s Schedule C Deductions
We begin with several fundamental principles that serve to
guide the decisional process.
First, deductions are a matter of legislative grace. Deputy
v. duPont, 308 U.S. 488, 493 (1940); New Colonial Ice Co. v.
Helvering, 292 U.S. 435, 440 (1934).
Second, a taxpayer bears the burden of proving that the
taxpayer is entitled to any deduction claimed. Rule 142(a);
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); Welch v.
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Helvering, 290 U.S. 111, 115 (1933).2
Third, a taxpayer is required to maintain records sufficient
to substantiate deductions claimed by the taxpayer on his or her
return. Sec. 6001; sec. 1.6001-1(a), (e), Income Tax Regs.
Fourth, the fact that a taxpayer reports a deduction on the
taxpayer’s income tax return is not sufficient to substantiate
the deduction claimed on the return. Wilkinson v. Commissioner,
71 T.C. 633, 639 (1979); Roberts v. Commissioner, 62 T.C. 834,
837 (1974). A tax return is merely a statement of the taxpayer’s
claim; the return is not presumed to be correct. Wilkinson v.
Commissioner, supra at 639; Roberts v. Commissioner, supra at
837; see also Seaboard Commercial Corp. v. Commissioner, 28 T.C.
1034, 1051 (1957) (a taxpayer's income tax return is a
self-serving declaration that may not be accepted as proof for
the deduction or exclusion claimed by the taxpayer); Halle v.
Commissioner, 7 T.C. 245 (1946) (a taxpayer’s return is not self-
proving as to the truth of its contents), affd. 175 F.2d 500 (2d
Cir. 1949).
At trial, petitioner did not introduce a single piece of
documentary evidence in support of any of the deductions in
issue. Likewise, petitioner did not offer testimony in support
2
We note that sec. 7491(a) does not affect the burden of
proof where a taxpayer fails to substantiate a deduction. Higbee
v. Commissioner, 116 T.C. 438 (2001); Caralan Trust v.
Commissioner, T.C. Memo. 2001-241.
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of any of those deductions. Therefore, even if petitioner may
have incurred some deductible expense in pursuing his Schedule C
activity, we have no basis whatsoever on which to approximate an
allowance. See Williams v. United States, 245 F.2d 559, 560 (5th
Cir. 1957); Vanicek v. Commissioner, 85 T.C. 731, 743 (1985); see
also Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930);
cf. sec. 274(d)(4), providing that no deduction is allowable with
respect to any “listed property”, such as a passenger automobile
or other property used as a means of transportation, on the basis
of any approximation or the unsupported testimony of the
taxpayer; Sanford v. Commissioner, 50 T.C. 823, 827 (1968), affd.
per curiam 412 F.2d 201 (2d Cir. 1969); Golden v. Commissioner,
T.C. Memo. 1993-602; sec. 1.274-5T(a), Temporary Income Tax
Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).
Rather, at trial, petitioner, while admitting that he was
obliged to file an income tax return, argued that respondent had
no right to examine it. The sheer folly of this assertion
requires no response. See Crain v. Commissioner, 737 F.2d 1417
(5th Cir. 1984); see also sec. 7602(a).3
3
To the extent that any of petitioner’s musings at trial
may imply reliance on the Fifth Amendment privilege against self-
incrimination, we note: (1) The deductions in issue were claimed
by petitioner on his return, and (2) a claim based on the
privilege, even if well founded, is not a substitute for relevant
evidence. United States v. Rylander, 460 U.S. 752, 758 (1983);
Petzoldt v. Commissioner, 92 T.C. 661, 684-685 (1989); Tinsman v.
Commissioner, T.C. Memo. 2000-55, affd. without published opinion
(continued...)
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In view of his failure to substantiate, we hold that
petitioner is not entitled to the deductions claimed by him on
his Schedule C.
B. Addition To Tax Under Section 6651(a)(1)
Section 6651(a)(1) imposes an addition to tax for failure to
timely file a return. Whether petitioner is liable for this
addition turns on whether he timely filed his 1998 income tax
return.
Absent an extension of time to file, petitioner’s 1998
income tax return was required to be filed by Thursday, April 15,
1999. See sec. 6072(a). Because petitioner filed Form 4868,
Application for Automatic Extension of Time To File U.S.
Individual Income Tax Return, the time within which petitioner
was required to file his return was extended by 4 months.4 Thus,
the filing deadline became August 15, 1999. But because that
3
(...continued)
F.3d (8th Cir. 2001). In other words, petitioner may not
avoid meeting his burden of proof by asserting that he has a
right not to testify. United States v. Rylander, supra at 761;
Traficant v. Commissioner, 89 T.C. 501, 504 (1987), affd. 884
F.2d 258 (6th Cir. 1989). Indeed, in a civil case, “the Court
may draw a negative inference from facts over which petitioner
has asserted his Fifth Amendment privilege against self-
incrimination.” Traficant v. Commissioner, supra, citing Baxter
v. Palmigiano, 425 U.S. 308 (1976). The negative inference that
we would draw in this case is that petitioner lacks
substantiation for the deductions that he claimed on his return.
4
At trial, respondent raised no issue regarding the
timeliness of Form 4868 or whether petitioner properly estimated
his tax liability thereon. See Crocker v. Commissioner, 92 T.C.
899, 910 (1989). Accordingly, we proceed on the basis that Form
4868 was both timely filed and valid.
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date was a Sunday, the filing deadline was extended to Monday,
August 16, 1999. See sec. 7503.
The envelope in which petitioner mailed his 1998 income tax
return bears a U.S. Postal Service postmark date of August 16,
1999, and petitioner’s return was received by respondent’s
service center 2 days later. Accordingly, because petitioner’s
return was timely mailed, it is treated as having been timely
filed. See sec. 7502(a).
Because petitioner timely filed his 1998 income tax return,
we hold that he is not liable for the addition to tax under
section 6651(a)(1).
C. Conclusion
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect our disposition of the disputed issues,
Decision will be entered for
respondent as to the deficiency in
income tax and for petitioner as to
the addition to tax.