T.C. Memo. 2008-209
UNITED STATES TAX COURT
DIANE J. SANDERLIN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13612-07. Filed August 28, 2008.
Diane J. Sanderlin, pro se.
Nhi T. Luu, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COHEN, Judge: Respondent determined deficiencies and
penalties with respect to petitioner’s Federal income taxes as
follows:
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Penalty
Year Deficiency Sec. 6662(a)
2003 $3,689 $738
2004 3,389 678
2005 2,305 461
The issues for decision are whether petitioner is entitled to
deductions reported on Schedules A, Itemized Deductions, attached
to her returns, and whether she is liable for penalties
determined by respondent. Unless otherwise indicated, all
section references are to the Internal Revenue Code in effect for
the years in issue.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference.
Petitioner resided in Oregon at the time that she filed her
petition.
During 2003, 2004, and 2005 petitioner was employed as a
licensed practical nurse. Petitioner worked for multiple
employers to whom she was referred by employment agencies. Her
income from employment was reported on her tax returns as wages
and salaries.
On her Federal income tax returns petitioner reported
adjusted gross income of $49,138 for 2003, $45,634 for 2004, and
$34,015 for 2005. On the Schedule A attached to each return,
petitioner claimed job expenses and other miscellaneous
deductions totaling $15,408 for 2003, $24,423 for 2004, and
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$12,531 for 2005. Also attached to each return was a Form 8283,
Noncash Charitable Contributions, in which the description of
items allegedly donated was shown as “Misc Household” or
“Household Misc”, the dates of acquisition and contribution of
the items were omitted, and the value of each item was claimed as
“thrift shop value”. The “thrift shop value” claimed was
approximately 46 percent, 33 percent, and 24 percent of the
alleged purchase price for 2003, 2004, and 2005 deductions,
respectively. The statutory notice of deficiency that is the
basis of this case disallowed the claimed deductions which remain
in dispute, as follows:
Deductions 2003 2004 2005
Unreimbursed employee $15,408 $22,299 $12,531
business expenses
Noncash charitable deduction 6,500 7,200 4,923
Cash charitable deduction 2,500 3,500 -0-
Medical expenses 4,431 5,822 -0-
Petitioner’s returns for the years in issue were prepared by
Demara Guaspari, also known as Demara Lucker, a return preparer
in Clackamas, Oregon. For the preparation of her returns,
petitioner provided the preparer with only a handwritten summary
of deductions and amounts of deductions to be claimed.
Petitioner shredded original receipts and other records of
her deductions after entering them on a computer program,
Quicken. She provided neither receipts nor a computer printout
to her preparer, and she did not produce any receipts or other
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corroborating documents during the subsequent examination of her
returns by the Internal Revenue Service, during pretrial
proceedings in this case, or during trial. Because of
petitioner’s lack of cooperation during the audit, the examiner
issued a summons to compel testimony and production of documents.
Because petitioner failed to appear in response to the summons,
an action was commenced in Federal district court.
Petitioner did not make a reasonable attempt to reconstruct
the expenses claimed on her tax returns for 2003, 2004, and 2005.
She refused to secure copies of canceled checks because she did
not want to pay the $2 per check fee that would have been charged
by her bank.
OPINION
The facts found above are sparse because petitioner failed
to provide any explanation of the items that she claimed as
deductions on her tax returns. The findings include, however,
facts occurring during and after the examination of her returns
because this case depends entirely on the credibility of
petitioner. Because she did not retain required records, did not
cooperate with reasonable requests for records, and did not
introduce credible evidence with respect to the disputed
deductions, the burden of proof remains with her. See sec.
7491(a); Rockwell v. Commissioner, 512 F.2d 882, 885 (9th Cir.
1975), affg. T.C. Memo. 1972-133. For the reasons set forth
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below, we conclude that her testimony is not reliable and that
she is not entitled to any of the deductions in issue.
Petitioner testified that she shredded all original
documents reflecting deductible expenditures after making entries
on her computer and that the computer was stolen. Her testimony
failed to identify any specific expenses which she was entitled
to deduct, and she had not made reasonable attempts to
reconstruct the missing records. She claimed that she was a
traveling nurse incurring mileage and “nursing items”, but she
did not even suggest that she maintained a log of her mileage or
other required records. She claimed that she had been following
the same format for many years and had not had a problem with her
tax reporting before. She suggested that the Court allow her
deductions under the rule of Cohan v. Commissioner, 39 F.2d 540,
543-544 (2d Cir. 1930).
The so-called Cohan rule is that, when a taxpayer adequately
establishes that he or she paid or incurred a deductible expense
but does not establish the precise amount, we may estimate the
allowable deduction, bearing heavily against the taxpayer whose
inexactitude caused the inadequacy of the evidence. Id.
Estimates are not permitted with respect to vehicle expenses and
other types of expenses covered by section 274(d). See Sanford
v. Commissioner, 50 T.C. 823, 827-828 (1968), affd. 412 F.2d 201
(2d Cir. 1969). In any event, there must be sufficient evidence
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in the record to provide a basis upon which an estimate may be
made and to permit us to conclude that a deductible expense was
incurred in at least some amount. No such evidence has been
presented here. Petitioner admittedly shredded the original
records, and the alleged loss of records does not excuse the
necessity of production of evidence. See, e.g., Malinowski v.
Commissioner, 71 T.C. 1120, 1124-1125 (1979); Priestly v.
Commissioner, T.C. Memo. 2003-267, affd. 125 Fed. Appx. 201 (9th
Cir. 2005).
Moreover, we are not required to accept testimony that is
improbable or vague. Geiger v. Commissioner, 440 F.2d 688, 689-
690 (9th Cir. 1971), affg. T.C. Memo. 1969-159. Petitioner’s
claimed deductions against her reported income were so large as
to be improbable. Her destruction of evidence and failure to
make a reasonable attempt to identify specific items suggests
that her claimed deductions were exaggerated and perhaps
fabricated. We are certainly not persuaded that the amounts
claimed were incurred.
Section 6662(a) imposes a 20-percent accuracy-related
penalty on the portion of an underpayment of tax attributable to
any one of various factors, including negligence or disregard of
rules or regulations. See sec. 6662(b)(1). Under section
7491(c), respondent bears the burden of production with regard to
penalties and must come forward with sufficient evidence
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indicating that it is appropriate to impose the penalty. Higbee
v. Commissioner, 116 T.C. 438, 446 (2001). However, once
respondent has met the burden of production, the burden of proof
remains with the taxpayer, including the burden of proving that
the penalty is inappropriate because of reasonable cause or
substantial authority. Id. at 446-447.
Respondent’s burden of production is met by showing
petitioner’s negligence and disregard for rules and regulations
through her failure to maintain records to support the deductions
claimed, as required by section 6001. Petitioner’s lack of
compliance justifies the imposition of the section 6662(a)
penalty in this case.
To reflect the foregoing,
Decision will be entered for
respondent.