T.C. Summary Opinion 2005-53
UNITED STATES TAX COURT
EDWARD C. ROSA, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8299-03S. Filed April 25, 2005.
Edward C. Rosa, pro se.
Miriam C. Dillard, for respondent.
DEAN, 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. Unless otherwise
indicated, all 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.
The decision to be entered is not reviewable by any other court,
and this opinion should not be cited as authority.
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Respondent determined a deficiency of $3,104 in petitioner’s
Federal income tax for 2000 and an addition to tax under section
6651(a)(1) of $109. After petitioner’s concession of unreported
income of $10,881, the issues for decision are whether
petitioner: (1) Is entitled to itemized deductions of $5,704,
(2) is entitled to deduct business expenses of $8,882, and (3) is
liable for the addition to tax for failure to file timely a
Federal income tax return.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the exhibits received in evidence
are incorporated herein by reference. At the time the petition
was filed, petitioner resided in Vega Alta, Puerto Rico.
Petitioner filed on April 28, 2001, a Federal income tax
return for 2000. The return failed to report $10,881 of
nonemployee income earned by petitioner in 2000 from “J&S Floor
Covering” (J&S). After the statutory notice of deficiency in
this case was issued, petitioner submitted to respondent a Form
1040X, Amended U.S. Individual Income Tax Return, reporting the
$10,881 of nonemployee income omitted from his tax return. The
amended return also reported for the first time on Schedule A,
Itemized Deductions, itemized deductions of $5,704 and on
Schedule C, Profit or Loss From Business, business expense
deductions of $8,882.
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Discussion
Because petitioner failed to meet the requirements of
section 7491(a)(2), the burden of proof does not shift to
respondent in this case on the issues of itemized and business
expense deductions.
1. Itemized deductions
Tax deductions are a matter of legislative grace with a
taxpayer bearing the burden of proving entitlement to the
deductions claimed. Rule 142(a)(1); INDOPCO, Inc. v.
Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v.
Helvering, 292 U.S. 435, 440 (1934). Taxpayers bear the burden
of substantiating the amount and purpose of any claimed
deduction. See Hradesky v. Commissioner, 65 T.C. 87 (1975),
affd. per curiam 540 F.2d 821 (5th Cir. 1976). Taxpayers are
required to maintain sufficient records to establish the amounts
of income and deductions. Sec. 6001; Higbee v. Commissioner, 116
T.C. 438, 440 (2001); sec. 1.6001-1(a), Income Tax Regs.
Petitioner, therefore, must produce evidence that he is entitled
to the deductions he claims.
At trial, petitioner offered no evidence to support his
claim for itemized deductions, mostly unreimbursed employee
expenses. He stated that he worked for J&S during the tax year
“doing maybe three projects for them to get on my feet.” He then
found a better job with a service department in upstate New York,
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he said. Petitioner testified that in moving from New York to
Puerto Rico he lost “nine boxes of documents”. He testified that
the amounts deducted on the return are estimates. Petitioner,
however, failed to explain how he arrived at his estimates.
This Court is not bound to accept a taxpayer’s unverified
and self-serving testimony. Blodgett v. Commissioner, 394 F.3d
1030, 1036 (8th Cir. 2005), affg. T.C. Memo. 2003-212; Shea v.
Commissioner, 112 T.C. 183, 189 (1999). Because petitioner has
failed to corroborate his testimony or provide any substantiation
to support his itemized deductions, we sustain respondent’s
position with respect to the itemized deductions.
2. Schedule C Expenses
Section 162 generally allows a deduction for ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on a trade or business. Generally, no deduction is
allowed for personal, living, or family expenses. See sec. 262.
The taxpayer must show, Rule 142(a), that any claimed business
expenses were incurred primarily for business rather than social
reasons, see Walliser v. Commissioner, 72 T.C. 433, 437 (1979).
To show that the expense was not for personal reasons, the
taxpayer must show that the expense was incurred primarily to
benefit his business, and there must have been a proximate
relationship between the claimed expense and the business. See
id.
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Where a taxpayer has established that he has incurred a
trade or business expense, failure to prove the exact amount of
the otherwise deductible item may not be dispositive. Generally,
unless precluded by section 274, the Court may estimate the
amount of such an expense and allow the deduction to that extent.
Finley v. Commissioner, 255 F.2d 128, 133 (10th Cir. 1958), affg.
27 T.C. 413 (1956); Cohan v. Commissioner, 39 F.2d 540, 543-544
(2d Cir. 1930). In order for the Court to estimate the amount of
an expense, however, there must be some basis upon which an
estimate may be made. Vanicek v. Commissioner, 85 T.C. 731, 742-
743 (1985). Without such a basis, an allowance would amount to
unguided largesse. Williams v. United States, 245 F.2d 559, 560
(5th Cir. 1957).
In this case, where petitioner presented no evidence in
support of his claimed business expenses, there is an
insufficient basis upon which to estimate whether, and to what
extent, he incurred business expenses.
3. Addition to Tax Under Section 6651(a)(1)
Respondent bears the burden of production with respect to an
addition to tax. Sec. 7491(c). In order to meet this burden,
respondent must produce evidence sufficient to establish that it
is appropriate to impose the addition to tax. Higbee v.
Commissioner, supra at 446-447. The parties agree that
petitioner’s tax return was not filed until April 28, 2001.
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Respondent has met his burden of production under section 7491(c)
with respect to imposing the addition to tax under section
6651(a)(1).
It is then petitioner’s burden to prove that he had
reasonable cause and lacked willful neglect in not filing his
return timely. See United States v. Boyle, 469 U.S. 241, 245
(1985); Higbee v. Commissioner, supra; sec. 301.6651-1(a)(2),
Proced. & Admin. Regs. Because petitioner failed to offer any
evidence of reasonable cause and lack of willful neglect for his
failure to file timely, respondent’s determination that he is
liable for the addition to tax under section 6651(a)(1) is
sustained.
Respondent’s determinations in the notice of deficiency are
in all respects sustained.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be
entered for respondent.