Elverson v. Comm'r

T.C. Summary Opinion 2010-36

UNITED STATES TAX COURT

LEE EDWARD ELVERSON AND MARIE ELVERSON, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 13511-08S. Filed March 29, 2010.

Lee Edward Elverson and Marie Elverson, pro sese.

John R. Gilbert, for respondent.

NIMS, Judge: This case was heard pursuant to the provisions

of section 7463 of the Internal Revenue Code in effect when the

petition was filed. Pursuant to section 7463(b), the decision to

be entered is not reviewable by any other court, and this opinion

shall not be treated as precedent for any other case. Unless

otherwise indicated, all section references are to the Internal
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Revenue Code in effect for the years in issue, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

By separate notices of deficiency, respondent determined

deficiencies in the Federal income taxes of Lee Edward Elverson

(petitioner), additions to tax, and penalties as follows:

Addition to Tax Penalty
Year Deficiency Sec. 6651(a)(1) Sec. 6662(a)

2002 $4,167 $742.34 --
2004 6,663 1,031.75 $1,332.60
2005 6,537 -- 1,307.40
2006 4,013 -- --

After concessions, the issues remaining for decision are:

(1) Whether petitioner is entitled to deductions in connection

with his purported accounting business for 2002, 2004, 2005, and

2006 beyond those conceded by respondent; (2) whether petitioner

is entitled to miscellaneous itemized deductions for 2002, 2004,

2005, and 2006 in excess of the amounts conceded by respondent;

(3) whether petitioner is entitled to charitable contribution

deductions for 2005 and 2006; (4) whether petitioner is entitled

to a dependency exemption deduction for 2002; (5) whether

petitioner is liable for section 6651(a)(1) additions to tax for

2002 and 2004; and (6) whether petitioner is liable for section

6662(a) accuracy-related penalties for 2004 and 2005.

For purposes of order and clarity, after a brief general

background, each of the issues submitted for consideration is set

forth below with separate background and discussion.
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General Background

Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by reference. Petitioner resided in

Pennsylvania at the time the petition was filed.

Petitioner filed individual Forms 1040, U.S. Individual

Income Tax Return, for his 2002 and 2004 tax years, and

petitioner and Mrs. Elverson filed joint Forms 1040 for their

2005 and 2006 tax years.

On February 29, 2008, respondent issued a notice of

deficiency to petitioner for his 2002 and 2004 tax years. On

March 3, 2008, respondent issued a notice of deficiency to

petitioner and Mrs. Elverson for their 2005 and 2006 tax years.

On June 3, 2008, petitioner and Mrs. Elverson filed a

petition with the Court in response to the notices of deficiency.

Petitioner and Mrs. Elverson separated before trial, however, and

Mrs. Elverson did not execute the stipulation of facts and did

not appear at trial on April 21, 2009. Consequently, respondent

filed, and the Court granted, a motion to dismiss for lack of

prosecution with regard to Mrs. Elverson. The decision, when

entered, will be in the same amount as ultimately determined

against petitioner.
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Issue 1. Business Expense Deductions

Background

During the years at issue petitioner purportedly operated an

accounting business. The accounting activity consisted of

teaching clients how to prepare tax returns and performing

litigation support services for his friend, Terry Ann Stemple.

On the Schedules C, Profit or Loss From Business,

accompanying his returns, petitioner reported gross business

income of $1,735 in 2002, $775 in 2004, $575 in 2005, and $761 in

2006. Petitioner also claimed business expense deductions

totaling $14,659.34 in 2002, $14,602 in 2004, $11,198 in 2005,

and $10,316 in 2006.

Respondent disallowed petitioner’s claimed business expense

deductions in the following amounts (all figures are rounded).

Expense 2002 2004 2005 2006

Rent $2,400 $3,570 -- --
Utilities -- -- $2,048 $2,058
Postage 1,515 1,618 -- 420
Computer hardware 122 2,691 1,548 --
Computer software 1,487 1,149 1,507 1,990
Computer support -- -- -- 904
Periodicals 475 579 -- 435

Petitioner has conceded that he is not entitled to the

deductions for the periodical expenses. Respondent has conceded

computer expenses of $59.80 in 2005 and $104.05 in 2006.
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Discussion

Deductions are a matter of legislative grace, and taxpayers

bear the burden of establishing entitlement to any claimed

deduction. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S.

79, 84 (1992). Taxpayers must maintain records sufficient to

allow the Commissioner to determine their correct tax liability.

Sec. 6001; sec. 1.6001-1(a), Income Tax Regs. Additionally,

taxpayers bear the burden of substantiating the amount and

purpose of each item they claim as a deduction. Hradesky v.

Commissioner, 65 T.C. 87, 89 (1975), affd. per curiam 540 F.2d

821 (5th Cir. 1976).

Section 162(a) allows a taxpayer to deduct all ordinary and

necessary business expenses paid or incurred during the taxable

year. In order for a taxpayer to be in a trade or business, the

taxpayer must be involved in the activity with continuity and

regularity and with the primary purpose of realizing a profit.

Commissioner v. Groetzinger, 480 U.S. 23 (1987).

Petitioner is not entitled to the deductions claimed on his

Schedules C because he was not engaged in a trade or business.

The objective facts indicate that petitioner’s primary purpose

was not to realize a profit. Petitioner acknowledged that

relatively few of his clients ever paid, yet his expenses

consistently exceeded his revenues by a sizable margin. In fact,

petitioner admitted that his “business” had been profitable for
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only 1 of its 10 years of operation. Furthermore, petitioner’s

own testimony reveals that he subjectively did not intend to

operate his “business” for profit. Petitioner testified that

despite the difficulties in collecting from his clients, he

continued his activity “both as a service to the public and * * *

as a contribution to the community”.

Assuming petitioner’s activity did constitute a trade or

business, he would nevertheless not be entitled to his claimed

deductions for the following reasons.

A. Rent

Petitioner claims he rented office space and storage space

from his former employer, Nicholas Itri, at the rate of $100 per

month each ($200 per month total). Petitioner claims he used the

office and storage spaces to meet with clients and store their

tax records, respectively. Petitioner claims he later moved the

tax records to storage facilities operated by Huber’s Mini-

Storage and Pier 40 in 2004.

Petitioner could not, however, substantiate a large portion

of his claimed rent expenses. He provided canceled checks and

bank statements which document payments of only $1,000 to Mr.

Itri in 2002, $500 to Mr. Itri in 2004, $341 to Huber’s Mini-

Storage in 2004, and $747.59 to Pier 40 in 2004.

Petitioner accounts for the discrepancy by claiming that he

occasionally paid Mr. Itri in cash. We do not find petitioner’s
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claims credible because they are refuted by Mr. Itri’s testimony.

Mr. Itri testified that he charged petitioner $100 per month for

rental of storage space only and denied charging rent for the use

of the office space. Mr. Itri also denied accepting any cash

payments from petitioner.

We also reject petitioner’s claim regarding the business

purpose of the rent expenses. Petitioner insists he used the

storage space to store tax records only. However, Mr. Itri

testified that petitioner used approximately 75 percent of the

storage space to store personal items, such as clothes,

furniture, and appliances. Though Mr. Itri did observe boxes in

the remainder of the storage space, he could not determine

whether or not they contained tax records. Furthermore,

petitioner claimed he subsequently moved these tax records to

Huber’s Mini-Storage, but the checks used to pay for that rent

prove this claim also to be false. The checks were marked “FOR

MARIELLEN NICE” and thus indicate the payments were for her

personal storage space.

B. Utilities

Petitioner claimed utilities expenses of $2,048 in 2005 and

$2,058 in 2006.

As substantiation of his expenses, petitioner submitted to

respondent hand-prepared ledgers which he claimed were

contemporaneous records of his expenses. The 2005 ledger
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contained entries for “utilities” which totaled $1,761.50. The

2005 ledger also indicated that petitioner spent $286.80 for

Internet service.

Petitioner did not establish the amount of business use of

his Internet service because he failed to explain how the

Internet service was used in his business. Petitioner also could

not adequately explain the “utilities” entries in the 2005

ledger. He provided only bank statements on which he had

designated cash withdrawals from automated teller machines (ATMs)

as “utilities”. He could not, however, identify what utilities

he paid for and to whom those payments were made.

Petitioner claims he had a subledger which recorded this

information and to which were attached receipts from the payees.

Petitioner claims the subledger is unavailable because Mrs.

Elverson disappeared with it. Petitioner alleges that respondent

failed to assist him in locating Mrs. Elverson and thus blames

respondent for his inability to produce the subledger.

We need not assess the credibility of petitioner’s claims

regarding the subledger because he has nonetheless failed to

satisfy his burden of proof. Even if petitioner did have a

subledger which adequately substantiates his 2005 utilities

expenses, the responsibility of locating Mrs. Elverson and

producing that subledger belongs to him. Respondent has no duty
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to find her on petitioner’s behalf, and any alleged

uncooperativeness by respondent does not relieve petitioner of

his burden of proof.

Petitioner did not submit a ledger for his 2006 expenses,

but he designated $1,347.97 in payments made to Verizon Wireless

as utilities expenses on his bank statements.

Section 274(d) imposes strict substantiation requirements

for travel, entertainment, gift, and “listed property” expenses.

Sanford v. Commissioner, 50 T.C. 823, 827 (1968), affd. per

curiam 412 F.2d 201 (2d Cir. 1969); sec. 1.274-5T(a), Temporary

Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985). Cellular

telephones (cell phones) are included in the definition of

“listed property”. Sec. 280F(d)(4)(A)(v).

Under section 274(d), the taxpayer generally must

substantiate either by adequate records or by sufficient evidence

corroborating the taxpayer’s own statement: (A) The amount of

the expense; (B) the time and place the expense was incurred; (C)

the business purpose of the expense; and (D) in the case of an

entertainment or gift expense, the business relationship to the

taxpayer of each expense incurred. For “listed property”

expenses, the taxpayer must establish the amount of business use

and the amount of total use for such property. See sec.

1.274-5T(b)(6)(i)(B), Temporary Income Tax Regs., 50 Fed. Reg.

46016 (Nov. 6, 1985).
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Substantiation by adequate records requires the taxpayer to

maintain an account book, a diary, a log, a statement of expense,

trip sheets, or a similar record prepared contemporaneously with

the expenditure and documentary evidence (e.g., receipts or

bills) of certain expenditures. Sec. 1.274-5(c)(2)(iii), Income

Tax Regs.; sec. 1.274-5T(c)(2), Temporary Income Tax Regs., 50

Fed. Reg. 46017 (Nov. 6, 1985). Substantiation by other

sufficient evidence requires the production of corroborative

evidence in support of the taxpayer’s statement specifically

detailing the required elements. Sec. 1.274-5T(c)(3), Temporary

Income Tax Regs., 50 Fed. Reg. 46020 (Nov. 6, 1985).

Petitioner had three lines on his Verizon Wireless account.

Petitioner did not present any record or evidence of the business

and total usage of each line because he claimed the cell phones

were used entirely for business purposes. Although two of the

lines were used exclusively for personal calls between petitioner

and his wife (personal lines), petitioner nevertheless maintains

that his cell phone expenses were purely business expenses

because those calls were purportedly free under the family plan

to which he had subscribed.

Petitioner’s cell phone statements reveal his claims to be

false. The statements show that a significant number of minutes

were in fact billed to the personal lines, and therefore, not all

of the calls placed on those lines were free. The statements
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also show charges for data usage and text messaging.

Furthermore, even if the personal lines had been used as

petitioner claimed, they still would not have been free because

petitioner was required to pay a monthly service fee for each

line regardless of usage.

Petitioner did not present any evidence that would enable us

to identify which calls were made for business purposes. Because

petitioner has not established the amount of business use of the

cell phones, he has failed to adequately substantiate his cell

phone expenses under section 274(d).

C. Postage

Petitioner claimed postage expenses of $1,515 in 2002 and

$1,618 in 2004.

Petitioner failed to prove that he spent these amounts.

Petitioner’s own ledger indicates he spent only $122.71 on

postage in 2002. The discrepancy is attributable to petitioner’s

omission from the ledger of a $1,393 check payable to himself.

Petitioner claims the proceeds of this check were used to pay for

postage. However, the memo section of the check is marked as

“Transfer to PB” and thus indicates the check was used merely to

transfer funds to petitioner’s account at Premier Bank.

Similarly, petitioner’s 2004 ledger reported only $423.05 of

postage expenses. In addition, three of the entries in the

ledger reflect ATM withdrawals totaling $66. As with his
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utilities expenses, petitioner claims he had a subledger which

proved the cash was used for postage expenses. Petitioner claims

Mrs. Elverson took this subledger as well. As discussed supra,

petitioner’s explanation for the absence of corroborating

evidence does not excuse his failure to meet his burden of proof.

Petitioner also failed to establish that the amounts he did

spend on postage were business, rather than personal, expenses.

Petitioner claimed that a significant portion of his postage

expenses was for express mail in connection with the litigation

support services he performed for Ms. Stemple. We do not find

this claim credible. Petitioner initially testified that

documents “often had to go to her attorney as express mail.”

When pressed by respondent, however, petitioner could not recall

the attorney’s name. Petitioner then declared that most of the

express mail was sent directly to Ms. Stemple, who would have

then presumably passed the documents on to her attorney. We find

petitioner’s explanation unconvincing. If the documents were so

urgently needed as to require express mail service, we question

why petitioner would have sent them to Ms. Stemple rather than

directly to her attorney.

Petitioner also claimed that he incurred postage expenses

for billing letters sent to his clients. Petitioner, however,

could not produce any copies of these letters (discussed infra).

Furthermore, even if we did find petitioner’s claim credible, we
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would be unable to estimate these expenses under Cohan v.

Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930), because

petitioner has not presented sufficient evidence to establish a

rational basis for an estimate. See Vanicek v. Commissioner, 85

T.C. 731, 743 (1985). Although petitioner claimed that he

typically sent three or four billing letters to each client, he

did not give any indication as to the number of clients he had.

Without that information, there is no basis for an estimate.

D. Computer Expenses (Hardware, Software, and Support)

Computers are considered “listed property” subject to the

strict substantiation requirements of section 274(d). Sec.

280F(d)(4)(A)(iv).

Petitioner failed to prove that he spent the amounts claimed

as computer expenses. Petitioner did not present any evidence

regarding his claimed computer support expenses. In his ledgers

and bank statements petitioner identified purchases from various

stores, ATM withdrawals, and checks paid to cash as computer

hardware and software expenses. However, petitioner did not

present any documentary evidence to corroborate his claim that

computer hardware and software were purchased at these stores or

with the cash from the ATM withdrawals and checks.

Petitioner again claims he had a subledger which provided

such corroboration and which disappeared with Mrs. Elverson. As
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discussed supra, petitioner’s reason for the absence of

corroborating evidence does not discharge his burden of proof.

In fact, the record contradicts petitioner’s claims

regarding the total amount of his computer software purchases.

Petitioner identified two checks paid to cash as purchases of

professional tax software from Mr. Itri in 2002. However, Mr.

Itri testified that he let petitioner use the professional tax

software at his office for free and firmly denied selling any

such software to petitioner. These purported purchases also do

not appear in petitioner’s 2002 ledger.

Assuming that petitioner did purchase the professional tax

software, we also question the necessity of that expense.

Petitioner claims he needed the software to gain access to the

New Jersey, Maryland, and Delaware State tax codes. However, the

tax laws of these States were freely available in 2002 through

the official Web sites of the State of Delaware, New Jersey State

Legislature, and Maryland General Assembly, respectively.1

Petitioner paid for monthly Internet service and thus would have

been able to access these sites on his computer. Therefore,

since petitioner already had access to the State tax laws, the

purchase of the professional tax software was redundant and

unnecessary.

1
See http://www.delaware.gov; http://www.njleg.state.nj.us;
http://mlis.state.md.us. Archived copies of the sites are
available through the Internet Archive at http://www.archive.org.
 -15-

In addition, petitioner claims to have purchased the

professional tax software in May and July, after tax season.

Nevertheless, petitioner insists the software was necessary

because he advised clients throughout the year. However, even if

petitioner did need the software to assist clients in preparing

delinquent returns, petitioner has not demonstrated that the

purchase was necessary. Mr. Itri testified that the software was

essentially worthless after tax season and that he would have

given the software to petitioner.

Furthermore, if petitioner really did need professional tax

software to competently advise his clients in 2002, we presume

that he would have needed to purchase updated versions of the

software to do so in subsequent years. He did not. In fact,

petitioner purchased an off-the-shelf program, Turbotax, in 2006

for only $74.15. If off-the-shelf software was adequate for

petitioner’s “business” in 2006, we see no reason why

considerably more expensive professional tax software was

necessary in 2002.

Petitioner also failed to establish any business use of his

computer in his accounting business. Petitioner testified that

he did not use a computer in performing litigation support work

for Ms. Stemple. Petitioner also presented no evidence that he
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used his own computer when teaching clients how to prepare their

tax returns. In fact, he testified that he often met his clients

in one of the conference rooms at Mr. Itri’s office.

Petitioner’s only arguable use of his own computer was to draft

billing letters to his accounting clients and correspondence to

Ms. Stemple’s attorney. When asked by respondent to produce

copies of these documents, however, petitioner could not do so.

Petitioner claimed the documents were no longer available because

his computer files were corrupted in 2003. We do not find

petitioner’s claims credible, and his story does not account for

his inability to produce any correspondence prepared in 2004,

2005, and 2006.

Issue 2. Miscellaneous Itemized Deductions

Background

During the years at issue petitioner was also employed as a

registered nurse. On his Schedules A, Itemized Deductions,

petitioner claimed job expense deductions for 2002, 2004, 2005,

and 2006.

Respondent disallowed petitioner’s claimed deductions in the

following amounts (all figures are rounded).

Expense 2002 2004 2005 2006

Vehicle expenses $6,918 $10,769 $12,004 $9,807
Parking & tolls 554 540 983 880
Uniforms -- 3,566 2,043 --
Nursing tools and supplies -- 3,416 1,770 1,526
Subscriptions -- 515 675 --
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Job search expenses -- 1,565 2,779 --
Professional dues -- 230 550 --
Other expenses -- 9,560 -- 500
Meals & entertainment 417 374 639 699
Nursing licenses -- 107 122 115
Nursing insurance -- 89 89 97

Petitioner has conceded that he is not entitled to meals and

entertainment expenses for the years in issue. Respondent has

conceded that petitioner is entitled to deduct his expenses for

nursing licenses and nursing insurance. Respondent also conceded

parking and tolls expenses of $50 for each of the years in issue

and vehicle expenses of $424, $224, $516, and $71 for 2002, 2004,

2005, and 2006, respectively.

Discussion

A. Vehicle Expenses

The cost of transportation from one business location to

another is deductible as an ordinary and necessary business

expense under section 162. Steinhort v. Commissioner, 335 F.2d

496, 503-504 (5th Cir. 1964), affg. and remanding T.C. Memo.

1962-233; Heuer v. Commissioner, 32 T.C. 947, 953 (1959), affd.

per curiam 283 F.2d 865 (5th Cir. 1960). However, the cost of

commuting between one’s work and one’s residence is a

nondeductible personal expense. See sec. 262; Fausner v.

Commissioner, 413 U.S. 838, 839 (1973); Commissioner v. Flowers,

326 U.S. 465, 473 (1946); sec. 1.162-2(e), Income Tax Regs.
 -18-

Vehicle expenses are subject to the substantiation

requirements of section 274(d) because vehicles are listed

property under section 280F(d)(4)(A)(i).

During the years in issue petitioner claimed vehicle expense

deductions of $6,917.50, $10,769, $12,004, and $9,807,

respectively. These deductions consisted of claimed vehicle

expenses of $7,077.45, $11,133, $12,415, and $11,096 times

business-use percentages of 97.74 percent, 96.73 percent, 96.69

percent (average of two vehicles), and 88.39 percent,

respectively.

Respondent conceded vehicle expense deductions of only $424,

$224, $516, and $71, respectively. Respondent’s figures

consisted of conceded expenses of $4,928, $6,135, $6,779, and

$4,589 times conceded business-use percentages of 8.6 percent,

3.7 percent, 7.6 percent, and 1.5 percent, respectively.

Petitioner has not proven that he incurred the amount of

vehicle expenses claimed on his returns. Petitioner’s bank

statements show that he spent far less than these amounts and

less than the amounts conceded by respondent. In addition, the

transactions petitioner designated as vehicle expenses include

ATM withdrawals and purchases from Turkish Delight and Target.

Petitioner has not produced any receipts or other reliable

evidence to corroborate his claims that these transactions were,

in fact, vehicle expenses.
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Petitioner has also failed to prove the business-use

percentages claimed on his returns. Petitioner attempted to

transmute his nondeductible commuting expenses into deductible

transportation expenses by claiming minimal commuting mileage

during the years in issue. Petitioner claims he stopped by a

residence (Yardley Commons), where he purportedly performed the

litigation support work for Ms. Stemple, on the way to and from

work every day. Petitioner therefore contends that vehicle

expenses attributable to the trips between Yardley Commons and

the hospitals at which he worked were deductible business

expenses. We do not find petitioner’s claims credible since his

own travel logs make no mention of these daily stops at Yardley

Commons.

Accordingly, we hold that petitioner is not entitled to

vehicle expense deductions beyond those conceded by respondent.

B. Parking and Tolls

Although petitioner’s bank statements evidence some payments

to EZ Pass in 2004, 2005, and 2006, petitioner did not present

evidence that any tolls were incurred during business travel.

Accordingly, we hold that petitioner is not entitled to deduct

parking and tolls expenses in excess of the amounts conceded by

respondent.
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C. Uniforms

Petitioner claimed uniforms expenses for the purchase of

scrub shirts and white pants.

Section 262 expressly disallows deductions for personal,

living, or family expenses. It is well settled that clothing

suitable for general or personal wear does not qualify as a

business expense under section 162. Kennedy v. Commissioner, 451

F.2d 1023 (3d Cir. 1971), affg. T.C. Memo. 1970-58; Yeomans v.

Commissioner, 30 T.C. 757, 767 (1958).

Petitioner is not entitled to deduct the cost of the pants

because they are suitable for general or personal wear.

Petitioner’s contention that white pants are otherwise suitable

only for golf is groundless and irrelevant.

Petitioner is also not entitled to deduct the cost of the

scrubs because he has not specified the amounts of these

purchases. We cannot estimate these amounts under Cohan v.

Commissioner, 39 F.2d 540 (2d Cir. 1930), because petitioner has

not provided a rational basis for such an estimate. See Vanicek

v. Commissioner, 85 T.C. at 743. Petitioner presented no

evidence as to the cost of a scrub shirt and the number of scrubs

he typically purchased in a given year.

Accordingly, we hold that petitioner is not entitled to

deduct uniforms expenses for 2004 and 2005.
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D. Nursing Tools and Supplies

In his ledgers and bank statements petitioner designated

purchases at various stores and payments to Verizon Wireless (in

2004 and 2005) as nursing tools and supplies expenses.

Petitioner did not provide any evidence to corroborate his

claim that nursing tools and supplies were purchased at these

stores. As discussed supra, petitioner also failed to adequately

substantiate his cell phone expenses under section 274(d).

Accordingly, we hold that petitioner is not entitled to

deduct nursing tools and supplies expenses for 2004, 2005, and

2006.

E. Subscriptions

Petitioner did not present any evidence regarding his

subscriptions expenses. Accordingly, we hold that petitioner is

not entitled to deduct subscriptions expenses for 2004 and 2005.

F. Job Search Expenses

Petitioner did not present any evidence regarding his job

search expenses. Accordingly, we hold that petitioner is not

entitled to deduct job search expenses for 2004 and 2005.

G. Professional Dues

Petitioner did not present any evidence regarding his

professional dues expenses. Accordingly, we hold that petitioner

is not entitled to deduct professional dues expenses for 2004 and

2005.
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H. Other Expenses

Petitioner did not present any evidence regarding his

“other” business expenses in 2004 and 2006. Accordingly, we hold

that petitioner is not entitled to deduct these amounts.

Issue 3. Charitable Contribution Deductions

Background

Petitioner claimed cash charitable contribution deductions

of $9,693 in 2005 and $8,362 in 2006. Respondent disallowed both

of these amounts for lack of substantiation.

Discussion

Section 170(a)(1) allows as a deduction any charitable

contribution verified under regulations prescribed by the

Secretary. A “charitable contribution” is a contribution to or

for the use of a corporation, trust, or community chest, fund, or

foundation which is organized and operated exclusively for

religious, charitable, scientific, literary, or educational

purposes, provided that none of the net earnings inure to the

benefit of any private individual. See sec. 170(c)(2); see also

sec. 501(c)(3). The entities described in section 170(c)(2) are

essentially those organizations which qualify for an exemption

from tax under section 501(c)(3). See Dew v. Commissioner, 91

T.C. 615, 623 (1988); Graboske v. Commissioner, T.C. Memo.

1987-262.
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For each contribution, the regulations generally require a

taxpayer to maintain a canceled check, a receipt from the donee,

or another reliable written record. Sec. 1.170A-13(a)(1), Income

Tax Regs. Additionally, any charitable contribution of $250 or

more must be further substantiated by “a contemporaneous written

acknowledgment of the contribution by the donee organization”.

Sec. 170(f)(8)(A).

We do not find the amounts petitioner claimed as cash

charitable contributions to be accurate. Petitioner’s bank

statements contradict the amounts claimed and indicate he made

cash contributions of $5,449.93 and $14,982.24, respectively.

The amounts designated as charitable contributions on the

statements are themselves questionable, however, because they

include purchases from Wawa and Tobacco Express, ATM withdrawals,

and checks paid to cash.

Petitioner did not present any evidence to corroborate his

claim that the cash from the ATM withdrawals and checks was

donated to charities and could not identify any of the purported

donees. Petitioner claims he is unable to do so because Mrs.

Elverson took the subledger and receipts which contained that

information. As discussed supra, petitioner’s tale regarding the

disappearance of his records does not free him from his burden of

proof.
 -24-

Furthermore, petitioner failed to satisfy the requirements

of section 170(f)(8)(A) for some of the purported donations. All

of the checks and one of the ATM withdrawals were in the amount

of $250 or more, and petitioner did not provide contemporaneous

written acknowledgments for the corresponding donations.

Petitioner’s bank statements do show that he made donations

of $105 to WXPN in 2005, $40 to WXPN in 2006, $40 to Disabled

American Veterans in 2006, $25 to National Wildlife Federation in

2006, $20 to St. Labre Indian School in 2006, and $20 to American

Legion in 2006. However, petitioner did not present any evidence

that these donees were organized and operated exclusively for

tax-exempt purposes at the time of the donations.

Accordingly, we hold that petitioner is not entitled to his

claimed charitable contribution deductions for 2005 and 2006.

Issue 4. Dependency Exemption Deduction

Background

Petitioner claimed a $3,000 dependency exemption deduction

for his daughter on his 2002 return. In 2002 petitioner’s

daughter was 22 years old and reported $16,359 of gross income.

Respondent determined that she did not qualify as petitioner’s

dependent and therefore disallowed the deduction.

Discussion

A taxpayer is entitled to a dependency exemption deduction

for each dependent (A) whose gross income is less than the
 -25-

exemption amount or (B) who is a child of the taxpayer and is a

student under 24 years of age at the end of the year in question.

Sec. 151(c)(1).

To qualify as a dependent, an individual must have received

over half of his or her support for the taxable year from the

taxpayer. Sec. 152(a). A taxpayer cannot prove that he provided

more than half the support of a claimed dependent without

establishing the total amount of support costs. Archer v.

Commissioner, 73 T.C. 963, 967 (1980); Blanco v. Commissioner, 56

T.C. 512, 514-515 (1971); Cotton v. Commissioner, T.C. Memo.

2000-333.

Petitioner has not met the requirements for the dependency

exemption deduction. His daughter’s gross income exceeded the

$3,000 exemption amount for 2002. See sec. 151(d)(1), (4); Rev.

Proc. 2001-59, sec. 3.11, 2001-2 C.B. 623, 626. Though she was

under 24, there is no evidence that she was a student.

Furthermore, petitioner’s daughter did not qualify as a

dependent. No evidence was presented as to the total amount of

her support costs in 2002. Thus, petitioner did not prove that

he provided more than half of her support for that year.

Accordingly, we hold that petitioner is not entitled to a

dependency exemption deduction for 2002.
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Issue 5. Section 6651(a)(1) Additions to Tax

Background

Petitioner filed a return for his 2002 tax year on June 1,

2006. Petitioner filed his 2004 return on April 19, 2006.

Discussion

Section 6651(a)(1) provides for an addition to tax of up to

25 percent for failure to timely file a return unless such

failure was due to reasonable cause and not willful neglect.

United States v. Boyle, 469 U.S. 241, 245 (1985); Baldwin v.

Commissioner, 84 T.C. 859, 870 (1985). The Commissioner bears

the burden of production with respect to additions to tax and

penalties, but the taxpayer retains the burden of proving the

Commissioner’s determination is in error. Sec. 7491(c); Higbee

v. Commissioner, 116 T.C. 438, 446-447 (2001).

Petitioner admits that his 2004 return was filed late. As

to his 2002 return, however, petitioner claims he timely filed an

earlier return which was lost in the mail or misplaced by

respondent.

Petitioner presented no evidence to support this claim. We

are not required to accept petitioner’s self-serving and

uncorroborated testimony. See Tokarski v. Commissioner, 87 T.C.

74, 77 (1986).

Accordingly, we hold that petitioner is liable for section

6651(a)(1) additions to tax for 2002 and 2004.
 -27-

Issue 6. Section 6662(a) Penalties

Background

Petitioner reported tax liabilities of $6,318 and $4,824 on

his 2004 and 2005 returns, respectively. In the notices of

deficiency respondent determined that petitioner’s correct tax

liabilities were $12,981 and $11,361, respectively.

Discussion

Section 6662(a) and (b)(1) and (2) imposes an accuracy-

related penalty of 20 percent on the portion of an underpayment

attributable to negligence, disregard of rules or regulations, or

a substantial understatement of income tax. Negligence includes

any failure to keep adequate books and records or to substantiate

items properly. Sec. 1.6662-3(b)(1), Income Tax Regs. An

understatement is substantial if it exceeds the greater of: (1)

10 percent of the tax required to be shown on the return for the

taxable year, or (2) $5,000. Sec. 6662(d)(1)(A).

Petitioner was negligent because he failed to adequately

substantiate his claimed deductions. Petitioner also

substantially understated his income tax in 2004 and 2005. On

the basis of the figures in the notice of deficiency, respondent

calculated petitioner’s understatement of his 2004 tax liability

as $6,663 and the amount of tax required to be shown on the 2004

return as $12,981. For 2005 respondent calculated the

understatement as $6,537 and the amount of tax required to be
 -28-

shown on the return as $11,361. As calculated by respondent, the

understatements exceed the greater of $5,000 or 10 percent of the

tax required for that year. Although those calculations do not

account for respondent’s concessions, these items will produce

only minor adjustments in respondent’s figures, and substantial

understatements of income tax would remain.

Section 6664(c)(1) provides a defense to the section 6662

penalty for any portion of an underpayment where the taxpayer

establishes reasonable cause existed and that he acted in good

faith. See Higbee v. Commissioner, supra at 448.

Petitioner claims that he had records which adequately

substantiated his deductions. Petitioner claims he was unable to

produce these records because Mrs. Elverson disappeared with them

before trial. As discussed throughout this opinion, we doubt

petitioner’s credibility and do not find his claims regarding the

existence of these records to be believable.

Accordingly, we hold that petitioner is liable for section

6662(a) accuracy-related penalties for 2004 and 2005.

To reflect the foregoing,

Decision will be entered

under Rule 155.