T.C. Summary Opinion 2003-56
UNITED STATES TAX COURT
LUCIANO V. FLORES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5411-02S. Filed May 19, 2003.
Luciano V. Flores, pro se.
Michael W. Lloyd and Sara J. Barkley, for respondent.
POWELL, 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.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, subsequent section references
are to the Internal Revenue Code in effect for the year in issue,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
- 2 -
Respondent determined a deficiency of $10,422 in
petitioner’s 1998 Federal income tax and an addition to tax under
section 6651(a)(1) of $2,338.50.2 The issues are whether
petitioner is entitled to greater deductions for Schedule C,
Profit or Loss From Business, expenses than that allowed by
respondent and whether petitioner is liable for the addition to
tax under section 6651(a)(1) for 1998. Petitioner resided in
Commerce City, Colorado, at the time the petition was filed.
1. Post-Trial Motions
On February 28, 2003, the Court received a document from
petitioner entitled “Motion to Admit Evidence”. Attached to that
document were literally hundreds of documents most of which
appear to be receipts. As far as we can tell, however, these
documents are in no particular order, nor are there any
explanations as to what the documents relate. Accordingly, this
document and the attachments thereto will be returned to
petitioner unfiled.
Prior to the trial on October 23, 2002, petitioner and
respondent executed a stipulation of facts that essentially
provided that petitioner had substantiated approximately $54,000
in expenses. On March 3, 2003, petitioner submitted a document
2
In the notice of deficiency, respondent also determined a
deficiency of $2,531 and an addition to tax under sec. 6651(a)(1)
of $273.45 for the taxable year 1999. In the petition,
petitioner did not raise the 1999 taxable year, and those
determinations are not before the Court.
- 3 -
that has been filed as petitioner’s Motion to be Relieved of the
Stipulation of Facts. As we understand, the gist of this motion
is that, even though petitioner signed the stipulation of facts
on the advice of his accountant, he had not been able to present
all of his receipts. Petitioner also submitted a document
entitled “Motion to be Released of Trial Memorandum”. The only
trial memorandum contained in this case was filed by respondent.
Trial memorandums are used as an information tool in the
preparation of a trial and are not evidence. As such, this
document is improper and will be returned to petitioner unfiled.
When this case was originally called for trial on Monday,
October 22, 2002, petitioner was not ready for trial. He had
turned over to respondent’s counsel some records the previous
Friday. His records were not organized in categories of
expenses. The case was set for trial on the following day and
petitioner was instructed to organize his records. Petitioner
did not organize the records.
In submitting the records in this fashion, petitioner
essentially asks this Court to conduct an accounting analysis of
his business. That is not a function of this Court. The notice
of deficiency was issued December 7, 2001, and petitioner was
surely aware of respondent’s determination that he had not
substantiated the deductions for the Schedule C expenses he had
claimed. The case was set for trial 10 months later. Petitioner
- 4 -
had the help of an accountant, and he still had not organized his
records. This is inexcusable. Petitioner’s posttrial motion to
be relieved of the stipulation of facts and the other documents
referred to above are simply a continuation of this conduct.
Petitioner’s motion will be denied.
2. The Deductions
For reasons that are apparent, we combine our findings of
facts with our discussion. Petitioner was a residential building
contractor during 1998. The parties agree that petitioner had
gross receipts of $107,668. While he did have a checking
account, petitioner received from his customers and paid to his
suppliers mostly cash. Petitioner kept no books of record of his
income or expenses. Rather he seems to have used a record-
keeping method of throwing receipts in a box and thereafter
ignoring the box when the return was prepared. On Schedule C
petitioner claimed total expenses of $100,330 or approximately 93
percent of his gross receipts. Even though he prepared the 1998
return, petitioner cannot explain the entries on the return.
Upon examination, respondent disallowed $36,914 of the expenses
claimed. Under respondent’s view, petitioner’s expenses were
approximately 59 percent of his gross receipts.
At trial petitioner’s testimony was often vague and
contradictory. Many of the receipts that petitioner presented
are made out to his brother, who was also a contractor, and/or
- 5 -
his girlfriend. But even if we accepted petitioner’s testimony
that these people acted as his agents, there are items that have
a hollow ring. For example, petitioner testified that his cell
phone was in his girlfriend’s name. However, deductions are
alleged for two phones.
Ordinarily we would be inclined to simply hold that
petitioner has not carried his burden of proof3 (see Rule 142)
and sustain respondent’s determination. We believe, however,
that most of the problem results from ignorance of any type of
bookkeeping skills and requirements. Furthermore, we are
concerned that, notwithstanding the failures in petitioner’s
case, respondent’s determination that petitioner’s expenses were
59 percent of his gross income is erroneous. During 1998, a
general building contractor’s expenses were approximately 86
percent of the gross income. See Internal Revenue Service,
Statistics of Income Bulletin, p. 30 (SOI) (Summer 2000). We
are, therefore, fairly confident that petitioner did have some
expenses in addition to those allowed by respondent.
In such circumstances, although absolute certainty is
usually impossible, courts have allowed deductions based on a
close approximation but bearing heavily against the taxpayer
3
It would be ludicrous to say that under these circumstances
petitioner is entitled to shift the burden of proof to respondent
under sec. 7491(a). To say the least, he did not maintain
adequate records or present credible evidence. See sec. 7491(a).
- 6 -
“whose inexactitude is of his own making.” See Cohan v.
Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). In making
such an approximation, we start with the consideration of the 86
percent figure derived from SOI. But, we recognize that there
are expenses contained in that figure (such as employee benefit
programs, commissions, profit-sharing plans, etc.) that
petitioner did not incur. Accordingly, we believe that
petitioner’s expenses would have been approximately 80 percent of
his revenues or $86,134.
With respect to the addition to tax under section
6651(a)(1), the parties have stipulated that the return was filed
March 7, 2000, almost 11 months after the return should have been
filed, and petitioner has offered no evidence that the late
filing was due to reasonable cause and not willful neglect. We
sustain respondent’s determination of the section 6651(a)(1)
addition to tax for 1998. See United States v. Boyle, 469 U.S.
241 (1985).
Reviewed and adopted as the report of the Small Tax Case
Division.
An appropriate order will be
issued, and decision will be
entered under Rule 155.