T.C. Summary Opinion 2008-88
UNITED STATES TAX COURT
DOUGLAS K. AND GAYLE L. BARRETT, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7917-07S. Filed July 21, 2008.
Douglas K. Barrett, pro se.
Brooke S. Laurie, for respondent.
GOEKE, Judge: This case was heard pursuant to the
provisions of section 7463 of the Internal Revenue Code in effect
when the petition was filed.1 Pursuant to section 7463(b), the
decision to be entered is not reviewable by any other court, and
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
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this opinion shall not be treated as precedent for any other
case.
This case arises from a petition filed in response to a
notice of deficiency.
Respondent determined that petitioners failed to report
income of $28,239 on Schedule C, Profit or Loss From Business, of
their joint 2003 Federal income tax return. Respondent further
disallowed petitioners’ deductions claimed on Schedule A,
Itemized Deductions, and business expense deductions claimed on
Schedule C.
Respondent conceded the issue of Schedule C unreported
income. Therefore, we must decide whether: (1) Petitioners are
entitled to the claimed Schedule A deductions, (2) petitioners
are entitled to the claimed Schedule C deductions, and (3)
respondent’s determination of an accuracy-related penalty under
section 6662 was appropriate.
Background
At the time the petition was filed petitioners were
residents of California.
Petitioners claimed Schedule A deductions of $5,629, a
$9,540 adjustment for cost of goods sold, and Schedule C
deductions of $33,719 which included car and truck expense
deductions for a 2003 Chevrolet truck reportedly used in
conjunction with Mr. Barrett’s contracting business, purchases of
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small tools, and various other expenses. Respondent disallowed
these deductions in the notice of deficiency. Respondent also
determined an accuracy-related penalty pursuant to section
6662(a).
Discussion
Generally, taxpayers bear the burden of proving the
Commissioner’s determinations are erroneous. Rule 142(a); Welch
v. Helvering, 290 U.S. 111, 115 (1933). Section 162(a) allows
deductions for ordinary and necessary expenses of carrying on a
trade or business. Section 7491 regarding the burden of proof is
not applicable in this case because petitioners have failed to
meet the requirements of section 7491(a)(1) and (2). These
deductions are strictly a matter of legislative grace, and
taxpayers bear the burden of proving they are entitled to any
claimed deductions. INDOPCO, Inc. v. Commissioner, 503 U.S. 79,
84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440
(1934).
Section 6001 requires taxpayers to maintain adequate books
and records sufficient to substantiate all costs of goods sold
and all deductions claimed on tax returns. Petitioners have not
provided any documentation to substantiate the cost of goods sold
reported on their tax return. Respondent’s examination agent
allowed petitioners a portion of their claimed cost of goods
sold; in view of petitioners’ lack of any substantiating
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documentation, we find petitioners are not entitled to a greater
amount than that which respondent has already allowed.
Section 274(d) requires taxpayers to substantiate any
claimed deductions of listed property by adequate records or
sufficient evidence and bars any deduction for an expenditure
governed by section 274 on the basis of unsupported testimony of
the taxpayers or on the basis of the taxpayers’ approximation.2
Sec. 1.274-5T(c)(1), Temporary Income Tax Regs., 50 Fed. Reg.
46016 (Nov. 6, 1985). We have held that where taxpayers’
testimony is general, conclusory, or uncorroborated, the Court is
not required to accept such testimony as sustaining taxpayers’
burden of proof. See Lerch v. Commissioner, T.C. Memo. 1987-295,
affd. 877 F.2d 624 (7th Cir. 1989); Geiger v. Commissioner, T.C.
Memo. 1969-159, affd. 440 F.2d 688 (9th Cir. 1971).
At his meeting with respondent’s examination agent, Mr.
Barrett submitted only a purchase agreement for the 2003
Chevrolet truck and one vehicle insurance invoice to substantiate
the depreciation and vehicle expenses, and he provided no
documents to substantiate his claim that the truck had been used
for business purposes.
2
Pursuant to sec. 280F(d)(4)(A), “listed property” includes
a passenger automobile, a computer or peripheral equipment, and
any cellular telephone or other similar telecommunications
equipment.
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Mr. Barrett produced no documentation to substantiate the
other claimed Schedule A or C deductions. His testimony on the
matters was brief and conclusory, offering only statements that
respondent had not produced adequate records to demonstrate his
deficiency and that the claimed business expenses were not
“unusual or alarming for a small business.” In addition, he
called no witnesses to corroborate his testimony. Accordingly,
we find petitioners have failed to establish entitlement to the
cost of goods sold and deductions claimed on their Schedules A
and C.
Respondent determined petitioners are liable for an
accuracy-related penalty under section 6662(a). Section 6662(a)
and (b)(1) imposes a 20-percent penalty on the portion of an
underpayment attributable to negligence. Negligence includes any
failure to keep adequate books and records or to substantiate
items properly. Sec. 1.6662-3(b)(1), Income Tax Regs.
The Commissioner has the burden of production with respect
to accuracy-related penalties. Sec. 7491(c). To meet that
burden, the Commissioner must produce sufficient evidence
indicating that it is appropriate to impose the penalty. See
Higbee v. Commissioner, 116 T.C. 438, 446 (2001). Once the
Commissioner meets his burden of production, the taxpayer must
come forward with persuasive evidence that the Commissioner’s
determination is incorrect. Rule 142(a); Higbee v. Commissioner,
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supra at 446-447. The taxpayer may meet this burden by proving
that he or she acted with reasonable cause and in good faith.
See sec. 6664(c)(1); sec. 1.6664-4(a) and (b)(1), Income Tax
Regs.
We conclude that respondent has met his burden of production
under section 7491(c). The record shows that petitioners failed
to keep adequate books and records or to substantiate the claimed
cost of goods sold and deductions properly. As discussed above,
Mr. Barrett offered no testimony or documentation to establish
reasonable cause for failing to substantiate petitioners’ claimed
cost of goods sold and deductions. On the basis of our
examination of the entire record before us, we find petitioners
have failed to carry their burden of establishing that they are
not liable for the 2003 accuracy-related penalty under section
6662(a).
To reflect the foregoing,
Decision will be entered
under Rule 155.