                  T.C. Summary Opinion 2002-78



                      UNITED STATES TAX COURT



                GREGORY M. BESTOR, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13304-00S.            Filed June 27, 2002.


     Gregory M. Bestor, pro se.

     Paul L. Dixon, for respondent.



     PAJAK, 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, section references are to the Internal Revenue Code in

effect for the year in issue.   The decision to be entered is not

reviewable by any other court, and this opinion should not be

cited as authority.

     Respondent determined a deficiency in petitioner’s 1997
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Federal income tax in the amount of $3,349.    This Court must

decide:   (1) Whether petitioner is entitled to deduct claimed

Schedule C expenses, and (2) whether petitioner is entitled to

Schedule E expenses in excess of the amounts allowed by

respondent.   The additional adjustment made in the statutory

notice of deficiency with respect to petitioner’s itemized

deductions is computational in nature and will be resolved by our

holding on the issues herein.

      Some of the facts in this case have been stipulated and are

so found.   Petitioner resided in Las Vegas, Nevada, at the time

he filed his petition.

      During 1997, petitioner resided at 2021 Hallwood Drive

(Hallwood residence) in Las Vegas, Nevada.    Petitioner purchased

the Hallwood residence in 1995 for $122,200.

      On his 1997 Form 1040, U.S. Individual Income Tax Return

(1997 return), petitioner listed his occupation as “Investor”.

The Hallwood residence was listed as petitioner’s business

address on his Schedule C, Profit or Loss From Business (Schedule

C).   On his Schedule C, petitioner reported no gross receipts or

sales with respect to his purported “investor” business.

Petitioner claimed total deductions on his Schedule C as follows:

(1) Car and truck expense of $4,123; (2) depreciation expense of

$1,396; (3) supplies expense of $835; (4) utilities expense of

$445; and (5) office expense of $1,480.   Petitioner reported a
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net loss of $8,279 in 1997 on his Schedule C.

     In 1997, petitioner reported $2,625 in rent received on his

Schedule E, Supplemental Income and Loss, attached to his 1997

return.   On the Schedule E, petitioner’s Hallwood residence was

listed as the rental real estate property.     Petitioner’s claimed

deductions attributable to the rental use of the Hallwood

property in 1997 included:   (1) Cleaning and maintenance expense

of $565; (2) insurance expense of $369; (3) repairs expense of

$10,726; and (4) utilities expense of $2,401.     On his Schedule E,

petitioner reported a total rental real estate loss of $11,436.

     Section 7491 does not apply in this case because petitioner

has not complied with all applicable substantiation requirements,

including those of section 274(d).     Sec. 7491(a)(2)(A).

     Respondent disallowed all of petitioner’s Schedule C

expenses because he had not established that he was in a trade or

business and that the expenses were expended for the purposes

designated.

     Section 162(a) allows a deduction for all the ordinary and

necessary expenses paid or incurred during the taxable year in

carrying on any trade or business.     To be deductible as a

business expense, the expenditure must relate to activities which

constitute the current carrying on of an existing trade or

business.   Corbett v. Commissioner, 55 T.C. 884, 887 (1971).

Whether activities carried on by an individual can be
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characterized as a trade or business requires an examination of

the facts in each case.    Commissioner v. Groetzinger, 480 U.S.

23, 36 (1987).   There are three factors to consider:   (1) The

taxpayer must undertake the activity with the intent to make a

profit; (2) the taxpayer must be regularly and actively involved

in the activity; and (3) the taxpayer’s business operations must

actually have commenced.    McManus v. Commissioner, T.C. Memo.

1987-457, affd. per curiam without published opinion 865 F.2d 255

(4th Cir. 1988).

     At trial, petitioner failed to establish that he was in a

trade or business.   Petitioner had no books or records of a trade

or business.   He had no current profits from a trade or business

and did not prove a history of such profits.   Petitioner reported

no profits from the sales of stock, and he made no sales of real

estate during 1997 or the prior year.   There is nothing in the

record to support his assertion except petitioner’s self-serving,

unbelievable statements.    Tokarski v. Commissioner, 87 T.C. 74,

77 (1986).    Because we find that petitioner was not in a trade or

business during the year in issue, we hold he is not allowed to

deduct any of the Schedule C expenses he claimed in 1997.

     In addition to the prior holding, we find that petitioner

failed to substantiate his claimed deductions.    A taxpayer must

keep sufficient records to establish the amounts of the

deductions.    Meneguzzo v. Commissioner, 43 T.C. 824, 831 (1965);
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sec. 1.6001-1(a), Income Tax Regs.     Generally, except as

otherwise provided by section 274(d), when evidence shows that a

taxpayer incurred a deductible expense, but the exact amount

cannot be determined, the Court may approximate the amount,

bearing heavily if it chooses against the taxpayer whose

inexactitude is of his own making.     Cohan v. Commissioner, 39

F.2d 540, 543-544 (2d Cir. 1930).    The Court, however, must have

some basis upon which an estimate can be made.     Vanicek v.

Commissioner, 85 T.C. 731, 742-743 (1985).

     Section 274(d)(4) imposes stringent substantiation

requirements for the deduction of certain listed property as

defined under section 280F(d)(4).    Listed property, as defined in

section 280F(d)(4), includes any passenger automobile or any

other property used as a means of transportation.     Taxpayers must

substantiate by adequate records the following items in order to

deduct any car and truck expenses (including depreciation):     The

amount of each separate expenditure, the listed property’s

business and total usage, the date of the expenditure or use, and

the business purpose for an expenditure or use.     Sec. 274(d);

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

46016 (Nov. 6, 1985).   To substantiate a deduction by means of

adequate records, a taxpayer must maintain an account book,

diary, log, statement of expense, trip sheets, and/or other

documentary evidence, which, in combination, are sufficient to
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establish each element of expenditure or use.   Sec. 1.274-

5T(c)(2)(i), Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov.

6, 1985).   Each element of an expenditure or use that must be

substantiated should be recorded at or near the time of that

expenditure or use.   Sec. 1.274-5T(c)(2)(ii)(A), Temporary Income

Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985).   Travel and car and

truck expenses cannot be estimated under Cohan.   Sanford v.

Commissioner, 50 T.C. 823, 827-828 (1968), affd. per curiam 412

F.2d 201 (2d Cir. 1969).

     On his 1997 Schedule C, petitioner deducted total car and

truck expenses of $4,123.   Petitioner also claimed a depreciation

expense deduction of $1,396 with respect to the business use of

his vehicle.

     After a review of the record, we find that petitioner failed

to maintain adequate records such as a diary, log book, or trip

sheets to show the distances he purportedly traveled in

furtherance of his “investor” business.   Petitioner’s mileage

summaries are insufficient because the mileage amounts were not

entered at the time the vehicles were used.   Therefore, under the

strict substantiation rules of section 274(d)(4), we hold that

petitioner is not entitled to deduct any car and truck expenses

for 1997.   Accordingly, respondent’s disallowance of petitioner’s

Schedule C deduction for car and truck expenses is also sustained

on this ground.
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     Section 280A limits the allowance of deductions related to

the use of a home office.   There is an exception if a portion of

the house is used exclusively on a regular basis as the principal

place of business for the taxpayer’s trade or business.      Sec.

280A(c)(1)(A).   Section 280A(c) requires that the taxpayer “use

the portion of the home solely for the purpose of carrying on a

trade or business and that there be no personal use of that part

of the home.”    Sengpiehl v. Commissioner, T.C. Memo. 1998-23.

     Petitioner deducted $1,480 for his home office expenses.       He

also deducted $445 for utilities and $835 for supplies used in

conjunction with his home office.    Petitioner provided limited

testimony regarding his use of the home office.     Petitioner

admitted that his renter also had use of the home office.      While

petitioner may have used the home office for some business

purposes, petitioner failed to show that the home office was used

exclusively for business purposes.      Accordingly, we sustain

respondent’s disallowance of the claimed home office deductions.

     Respondent allowed $1,126 of petitioner’s claimed Schedule E

deductions ($46 cleaning and maintenance expense + $30 insurance

expense + $858 repairs expense + $192 utilities expense) because

a small portion of his Hallwood property was considered rental

property.    Respondent also allowed petitioner a $574 depreciation

deduction.   Respondent explained this was with respect to

furniture purchased by petitioner for the Hallwood residence
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during the year in issue.

     Section 212(2) allows a deduction for the ordinary and

necessary expenses related to rental property.     Section 262

precludes deductions for personal living expenses.

     Petitioner testified at trial that during 1997 he rented the

Hallwood residence for the entire year to a tenant for $300 per

month.   Petitioner contends that his personal use of the Hallwood

residence was limited to his own bedroom.     Yet he used the

residence, except for the tenant’s room.

     After a review of the record, we find that during the year

in issue petitioner maintained personal use of the entire

Hallwood residence, with the lone exception of the tenant’s room.

Petitioner’s claimed rental expense deductions, which represented

most of his expenses in maintaining his residence, were

unwarranted and not supported by the record.     Most of his

expenses were personal expenses not deductible under section 262.

Accordingly, we sustain respondent’s determination as to the

allowable rental expenses.

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                            Decision will be entered

                                       for respondent.
