                        T.C. Memo. 2003-273



                      UNITED STATES TAX COURT



                  AJUBA GAYLORD, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 14840-02, 16962-02.   Filed September 22, 2003.


     Ajuba Gaylord, pro se.

     Milan K. Patel, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     KROUPA, Judge:   Respondent determined deficiencies in

petitioner’s Federal income taxes for the years 1999 and 2000 of

$3,576 and $2,524, respectively, and determined penalties under
                               - 2 -

section 6662(a)1 in the amounts of $715 for 1999 and $504 for

2000.

     After concessions,2 the issues to be decided are:

     (1) Whether petitioner is entitled to deductions for various

expenses claimed on Schedule C, Profit or Loss From Business, for

the taxable years 1999 and 2000.   We find that petitioner is

entitled to some of the deductions.

     (2) Whether petitioner is eligible for head-of-household

filing status in 2000 and a dependency exemption deduction for

her brother for that year.   We hold she is not.

     (3) Whether petitioner is liable for accuracy-related

penalties pursuant to section 6662(a) for the years at issue.     We

hold she is.

                        FINDINGS OF FACT

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

The stipulation of facts, the second stipulation of facts, and

the attached exhibits are incorporated herein by this reference.

At the time the petition was filed, petitioner resided in New

York, New York.




     1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years at issue. All
Rule references are to the Tax Court Rules of Practice and
Procedure.
     2
       The concessions of petitioner and respondent, as well as
the amounts which remain in dispute, are detailed in table 2,
infra p. 5.
                                - 3 -

     During the years in question, petitioner was employed full

time as an administrative assistant by Columbia University, from

which she reported wage income of $40,329 for 1999 and $39,824

for 2000.

     In addition to her position as an administrative assistant,

petitioner was working as a “field trainer” for American

Communications Network (American), a telecommunications company

that provides, inter alia, long-distance, Internet, and paging

services.   Petitioner commenced working for American in 1996 and

was primarily involved in the solicitation of customers for the

company.    Petitioner sought to attract customers by holding

receptions at her home every weekend and occasionally on

weekdays.   She also attended individual meetings with customers

to discuss the business.   Petitioner’s compensation for her work

for American consisted of a percentage of her customers’ phone

bills.

     Petitioner filed her Federal income tax returns for 1999 and

2000 as a head of household and claimed, for each year, a

dependency exemption deduction for her brother.    With respect to

her work for American, on Schedule C petitioner reported gross

income of $657 for 1999 and $327 for 2000 and claimed numerous

deductions resulting in net losses from the activity for those

years of $26,715 and $25,902, respectively.    In addition to the

Schedule C deductions, petitioner filed a Schedule A, Itemized
                                       - 4 -

Deductions, with her 2000 return on which she claimed $4,565 in

deductions for unreimbursed employee business expenses incurred

in connection with her employment as an administrative assistant.

     Respondent issued a notice of deficiency for 1999 in which

he made adjustments to the Schedule C deductions petitioner

claimed.     In the notice of deficiency for 2000, respondent denied

petitioner the head-of-household status and dependency exemption

deduction, disallowed the Schedule A deductions in their

entirety, and made adjustments to the Schedule C deductions

petitioner claimed.       The Schedule C adjustments respondent made

for 1999 and 2000 are laid out in the following table 1:
                                      Table 1

                              1999                            2000

Schedule C                                Dis-                          Dis-
Deductions         Claimed   Allowed     allowed   Claimed   Allowed   allowed


Advertising          --        --           --       $284      $284      --
Legal &
 professional        $147      --           $147      288       288      --
Office
 expenses           5,200      --          5,200    6,701     4,500    $2,201
Rent                7,883      --          7,883    5,223      --       5,223
Repair and
  maintenance        --        --           --        215      --         215
Travel              1,605    $1,605         --        987       741       246
Meals &
  entertainment     2,151      --          2,151    2,357      --       2,357
Utilities           3,120      --          3,120    3,613     2,357     1,256
Business
 meetings           1,221      --          1,221      685       390       295
Business gifts        404      --            404      502      --         502
Transportation      1,949     1,949         --      2,502      --       2,502
Cellular-
 phone/pager        3,692      --          3,692    2,836     2,260       576
Subscriptions        –-        –-           –-         36      –-          36
  Total            27,372     3,554       23,818   26,229    10,820    15,409
                                   - 5 -

     Respondent disallowed the Schedule C and Schedule A

deductions on the grounds that they were not ordinary and

necessary, lacked sufficient substantiation, or were personal.

Likewise, respondent denied petitioner’s entitlement to head-of-

household filing status and the dependency exemption deduction on

account of her failure to substantiate that:               (1) Her brother

lived with her; (2) she provided more than half of his support;

and (3) he did not earn more than the statutory amount.

     At trial, the parties entered into a stipulation wherein

petitioner conceded the entire amount of the Schedule A

deductions.      With respect to the Schedule C deductions, the

parties’ concessions are set forth in table 2:
                                   Table 2
                                       1999

Schedule C                    Previously      Additional   Petitioner
Deductions          Claimed     allowed         allowed     conceded    Disputed


Legal &
 professional          $147       --             $82            $65        --
Office
 expenses             5,200       --             427          1,228      $3,545
Rent                  7,883       --             --           7,883        --
Travel                1,605     $1,605           --            --          --
Meals &
 entertainment        2,151       --              --          1,890         261
Utilities             3,120                       --          2,623         497
Business                          --
  meetings            1,221       --              --           469          752
Business gifts          404       --              --           242          162
Transportation        1,949      1,949            --           --          --
Cellular-
 phone/pager          3,692       –-             335          1,515       1,842
  Total              27,372      3,554           844         15,915       7,059
                                  - 6 -
                                   2000




Schedule C                   Previously   Additional   Petitioner
Deductions       Claimed       allowed      allowed     conceded    Disputed


Advertising        $284          $284         --           --             --
Legal &
 professional       288           288         --           --             --
Office
 expenses         6,701         4,500         --         $2,201           --
Rent              5,223          --           --          5,223           --
Repairs and
 maintenance        215          --          $215          --             --
Travel              987           741         --            246           --
Meals &
 entertainment    2,357          --           --          1,243      $1,114
Utilities         3,613         2,357         --          1,256        --
Business
 meetings           685           390         --            295           --
Business gifts      502          --           --            191            311
Transportation    2,502          --           --          2,502           --
Cellular-
 phone/pager      2,836         2,260         --            576        --
Subscriptions        36          –-            36          –-          –-
  Total          26,229        10,820         251        13,733       1,425


     Allowing for these concessions, therefore, the Schedule C

deductions that remain in dispute are those taken for:              (1)

Office expenses; (2) meals and entertainment expenses; (3)

utilities; (4) business meeting expenses; (5) business gifts; and

(6) use of the cellular phone.

                                 OPINION

     At the outset, we note that it is petitioner who bears the

burden of proving that respondent’s determination of income tax

deficiencies is incorrect.      See Rule 142(a); Welch v. Helvering,

290 U.S. 111, 115 (1933).3



     3
       Sec. 7491 does not apply in this case to shift the burden
of proof to respondent because petitioner neither alleged that
sec. 7491 was applicable nor established that she fully complied
with the requirements of sec. 7491(a)(2).
                                - 7 -

A.   Schedule C Deductions

     Section 162(a) allows a taxpayer deductions for ordinary and

necessary business expenses incurred during the taxable year in

carrying on a trade or business.    Deductions, however, are a

matter of legislative grace, and the taxpayer bears the burden of

proving the entitlement to any deductions claimed.    See INDOPCO,

Inc. v. Commissioner, 503 U.S. 79, 84 (1992).    Generally, a

taxpayer must establish that deductions taken pursuant to section

162 are ordinary and necessary business expenses and must

maintain records sufficient to substantiate the amounts of the

deductions claimed.   Sec. 1.6001-1(a), Income Tax Regs.

     With respect to certain business expenses specified in

section 274(d), however, more stringent substantiation

requirements apply.   Section 274(d) disallows deductions for

traveling expenses, gifts, and meals and entertainment, as well

as for “listed property”, unless the taxpayer substantiates by

adequate records or by sufficient evidence corroborating the

taxpayer’s own statement:    (1) The amount of the expenses; (2)

the time and place of the expense; (3) the business purpose of

the expense; and (4) the business relationship to the taxpayer of

the persons involved in the expense.    The term “listed property”

is defined in section 280F(d) and includes cellular phones.      See

sec. 280F(d)(4)(v).
                                - 8 -

     1.     Office Expenses

     Petitioner contests respondent’s disallowance of $3,545 in

deductions for office expenses incurred during 1999. These

expenses include, according to petitioner’s testimony and

receipts she produced, outlays for music CDs, videos, home

cleaning products, packs of Kleenex, napkins, a laptop computer,

computer hardware, batteries, certain office supplies, and

postage.

     At trial, petitioner presented receipts and bank statements

to substantiate her office-related expenses.     Some of the

receipts simply indicate the amount paid but do not contain any

itemization from which the nature of the items purchased can be

ascertained.    The only available evidence to that effect is

petitioner’s own self-serving testimony, which we are not

required to accept, and which we do not, in fact, find to be

credible.    See Niedringhaus v. Commissioner, 99 T.C. 202, 219
(1992).    Thus, with regard to the expenses for which there are no

adequate receipts, petitioner’s claim fails for lack of

substantiation.

     With respect to expenses that are supported by adequate

receipts, there are items we find to be related to petitioner’s

business and therefore deductible.      These are expenses for office

supplies, totaling some $44.4   Additionally, while petitioner


     4
         These comprise expenses for bookmarks, markers, writing
                                                     (continued...)
                                 - 9 -

failed to submit adequate evidence that the postage expenses were

incurred for business purposes, we are persuaded that some

portion of the $421 incurred for postage was related to

petitioner’s business and is therefore deductible.     Where the

taxpayer establishes that a deductible expense has been incurred,

but is unable to substantiate the exact amount, the Court may

estimate the amount, bearing heavily if it chooses against the

taxpayer, whose inexactitude is of his own making.     See Cohan v.

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

consideration the magnitude of petitioner’s business, we find $75

of the postage costs to be deductible by petitioner as a business

expense.

     With respect to the remainder of the documented expenses,

petitioner failed to provide us with any credible evidence that

would allow us to conclude that the items were purchased for

business rather than personal use, or otherwise that they were

ordinary and necessary for petitioner’s business.     Accordingly,

we hold that petitioner is not entitled to these deductions.

     2.      Business Meetings

     Petitioner claims deductions for $752 in expenses she

asserts she incurred during business meetings in 1999.

         Most of the evidence petitioner produced to verify the

expenses comprises handwritten receipts, some of them completed

by petitioner herself, which contain notations of the purpose for


     4
      (...continued)
pads, a stapler, and a planner pad.
                               - 10 -

which the payments were allegedly made such as “briefing,”

“training”, and “dues”.   Except for the signature of the

individual in charge of collecting those fees (which is

frequently that of petitioner herself), however, the receipts do

not disclose any information regarding the identity of the payee,

the business purpose, or the nature of the expense.    Petitioner

has failed to provide us any additional credible information that

these expenses are related to, or were required by, her business.

Accordingly, we agree with respondent’s determination disallowing

these deductions.

     3.   Gifts and Meals and Entertainment

     Petitioner disputes respondent’s disallowance of $162 and

$311 in expenses she incurred for business gifts in 1999 and

2000, respectively.    She also claims that respondent erred in

denying her deductions for meals and entertainment expenses of

$261 for 1999 and $1,114 for 2000.

     As discussed above, both business gifts and meals and

entertainment expenses are subject to the substantiation

requirements of section 274(d).    See sec. 274(d)(2) and (3).    Yet

the only evidence petitioner submitted to substantiate her gifts

and business meals and entertainment expenditures is receipts on

which she has notated “gifts for client” or “meeting with [name

of the individual]”.    Petitioner has not proffered any

information regarding the business purpose of the expenses, her

business relationship with the recipient of the gift or the

individual entertained, or any other information that would
                              - 11 -

comply with the substantiation requirements of section 274(d).

Accordingly, we sustain respondent’s determination with respect

to these deductions.

     4.   Cellular Phone Expenses

     Petitioner disputes respondent’s denial of $1,842 in

cellular phone expenses she incurred in 1999.

     Cellular phones are included in the definition of “listed

property” for purposes of section 274(d)(4) and are thus subject

to the strict substantiation requirements of this section.

     In support of her claim for deductions, petitioner presented

copies of 10 checks, drawn on her account for a total of $1,842.

Six of the checks were made payable to “Bell Atlantic Mobile” and

“C-work Solutions”, while the remaining four were made payable to

a specific individual.   Petitioner testified that the recipient

of the latter payments was her sister, whose phone she was using

during that time.   Even if we were to believe petitioner’s

assertions, which we do not, petitioner has produced no evidence

that the phone was used for business purposes or any other

reliable evidence regarding the services rendered.   Given

petitioner’s failure to substantiate the cellular phone expenses,

we sustain respondent’s determination denying these deductions.

     5.   Utilities

     Petitioner claimed deductions for utilities used in her home

office for both 1999 and 2000.   After concessions by petitioner

at trial, the amount that remains in contention is $497 incurred

during 1999.
                              - 12 -

     In general, a taxpayer may not deduct expenses incurred with

respect to the use of the taxpayer’s residence.   See sec.

280A(a).   Section 280A(c)(1) provides a narrow exception to the

disallowance of home office deductions where the taxpayer can

establish that the portion of the home to which the expenses are

attributable is exclusively used on a regular basis as either the

taxpayer’s principal place of business or a place of business

which is used by clients or customers in meeting or dealing with

the taxpayer in the normal course of business.

     Petitioner claimed expenses attributable to a portion of her

home she contends she used exclusively as a home office.

Petitioner estimated that portion at about 50 percent of her

residence.   Petitioner failed, however, to provide any credible

evidence to support her contention that any portion of her home

was used exclusively for business purposes.   The only evidence

regarding the use of petitioner’s home for business-related

matters is petitioner’s own testimony.   We find petitioner’s

testimony not credible.

     Even if we were persuaded that some portion of the house was

used exclusively for business purposes, petitioner has not

offered any evidence that would support her allocation of

expenses or otherwise allow the Court to reach an alternate

determination under Cohan v. Commissioner, supra.   Petitioner

testified that her residence has two bedrooms, a kitchen, a

separate eating area, one bathroom, and a living room.   The

portion of the house used exclusively for the business, according
                               - 13 -

to petitioner, was a “a little area * * * [connected to the

living room] that has all the office equipment.”     This testimony

is sharply inconsistent with petitioner’s allocation and suggests

that the portion used, if any, as a home office by petitioner was

substantially less than the 50 percent she claims.    While Cohan

allows us to estimate the amount of expense that we find to be

deductible when the exact amount cannot be ascertained, in order

for us to do so, petitioner must have supplied us with some basis

upon which an estimate can be made.     See Vanicek v. Commissioner,

85 T.C. 731, 742,743 (1985).   Petitioner, however, has failed to

provide the Court with any measurements, pictures, floor plans,

or any other evidence that would enable us to estimate the

portion allocable to the home office.

     Accordingly, having failed to substantiate that a portion of

her home was used exclusively for business purposes, petitioner

is not entitled to a deduction for these expenses.

B.   Head-of-Household Filing Status and Dependency Exemption

     Petitioner filed her Federal income tax return for 2000 as a

head of household and claimed the dependency exemption deduction

for her brother.

     In order to qualify for head-of-household filing status, a

taxpayer must satisfy the requirements of section 2(b).    Pursuant

to this section, an individual qualifies as a head of household

if she (1) is not married at the close of the taxable year, and

(2) maintains as her home a household that constitutes for more

than one-half of the taxable year the principal place of abode,
                               - 14 -

as a member of such household, of any person who is a dependent

of the taxpayer, if the taxpayer is entitled to a deduction for

the taxable year for such person under section 151.    Section 151

allows the taxpayer to claim an exemption deduction for a

dependent whose gross income for the calendar year in which the

taxable year of the taxpayer begins is less than the “exemption

amount”.   Sec. 151(c)(1)(A) and (d)(1).   Included among those

that qualify as dependents is a taxpayer’s brother, so long as

more than half of his support for the year at issue was received

from the taxpayer.   See sec. 152(a)(3).

     Petitioner, who during 2000 was married but separated from

her husband, testified that her brother, born in 1976, has been

living with her since his last year in high school.    She stated

that since then she has been supporting her brother and has paid

all his expenses, including his education, food, clothing, and

rent.   Petitioner testified that her brother worked in several

part-time jobs during 2000 but that she did not know how much he

had earned.   Respondent introduced into evidence documents

showing that petitioner’s brother filed a Federal income tax

return for 2000 in which he reported gross income of $7,789.

     We have already noted that the burden is on petitioner to

establish that she is entitled to head-of-household filing

status.    Apart from petitioner’s testimony, however, she did not

offer any other credible evidence that would substantiate that

her home constituted the principal place of abode for her brother

during the year in question or that she provided more than half
                                - 15 -

of his support.    Furthermore, given that petitioner’s brother

earned $7,789 during 2000, a sum in excess of the limitation

amount of section 151, he does not qualify as a dependent for

whom she is entitled to a deduction under section 151, and thus,

petitioner would not be entitled to file as a head of household

even if she could substantiate the aforementioned requirements.

Accordingly, we hold that petitioner is not entitled to claim

head-of-household status and the dependency exemption.

C.   Penalties

     Section 6662 imposes a penalty of 20 percent of the portion

of the underpayment which is attributable to negligence or

disregard of rules or regulations.       See sec. 6662(a) and (b).

Negligence is the “lack of due care or failure to do what a

reasonable and ordinarily prudent person would do under the

circumstances.”     Neely v. Commissioner, 85 T.C. 934, 947 (1985).

“Negligence” includes the failure to make a reasonable attempt to

comply with provisions of the Internal Revenue Code, as well as

any failure by the taxpayer to keep adequate books and records or

to substantiate items properly.       See sec. 1.6662-3(b)(1), Income

Tax Regs.   The term “disregard” includes any careless, reckless,

or intentional disregard.     See sec. 6662(c).

     Nevertheless, a taxpayer may avoid the imposition of a

penalty if she is able to show that there was a reasonable cause

for, and that she acted in good faith with respect to, the

underpayment.     See sec. 6664(c).   The determination of whether

the taxpayer acted with reasonable cause and in good faith is
                              - 16 -

made by taking into account all the pertinent facts and

circumstances.   See sec. 1.6664-4(b)(1), Income Tax Regs.

     In her Federal tax returns, petitioner claimed excessive

Schedule C and Schedule A expenses that she was unable to

substantiate, thereby disregarding the requirements of sections

162 and 274.   Further, neither the receipts petitioner submitted

nor her testimony establish a business purpose for the claimed

expenses.

     At trial petitioner failed to demonstrate that she acted in

good faith with respect to the underpayments during the years at

issue.   Accordingly, we hold that petitioner is liable for

accuracy-related penalties under section 6662(a) for 1999 and

2000.

     To reflect the foregoing,


                                         Decisions will be entered

                                    under Rule 155.
