                     T.C. Summary Opinion 2007-175



                        UNITED STATES TAX COURT



                 MALCOLM ELWOOD MCCLAIN, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 10870-00S.             Filed October 17, 2007.



        Malcolm Elwood McClain, pro se.

        Frederick J. Lockhart, for respondent.



     DEAN, Special Trial 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 other section references

are to the Internal Revenue Code in effect for the years at
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issue, and all Rule references are to the Tax Court Rules of

Practice and Procedure.

     Respondent determined deficiencies in petitioner’s Federal

income tax of $40,017 for 1994, $3,446 for 1995, and $12,959 for

1997.   Respondent also determined additions to tax under:

Section 6651(a)(1) of $9,397.50 for 1994, $254.75 for 1995, and

$1,448.55 for 1997; section 6651(a)(2) of $869.13 for 1997; and

section 6654 of $175.09 for 1994 and $305.68 for 1997.

     A substantial number of issues have been resolved and are

listed in the stipulation of settled issues filed on October 25,

2006.   In addition to their mutual agreements, the parties have

made separate concessions:   (1) Petitioner concedes that his

basis in 30.8760 shares of certain Federal Express Corp. stock

sold in 1994 is equal to one-half of the $2,154.34 gross

proceeds; (2) petitioner concedes all deductions for dependency

exemptions except those for his son, his daughter, and one Stacy

Brown; (3) respondent concedes the additions to tax under section

6654 for 1994 and 1997; and (4) respondent concedes the addition

to tax under section 6651(a)(2) for 1997.

     The issues remaining for decision are whether petitioner:

(a) Is entitled to deductions for dependency exemptions for his

son and daughter for 1994, 1995, and 1997, and for one Stacy

Brown for 1994 and 1995; (b) is entitled to losses from various

activities reported on Schedules C, Profit or Loss From Business,
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for all years; and (c) is liable for the addition to tax under

section 6651(a)(1) for failure to file timely without reasonable

cause for all years under consideration.

                           Background

     The stipulation of facts and the exhibits received into

evidence are incorporated herein by reference.   At the time the

petition in this case was filed, petitioner resided in Colorado

Springs, Colorado.

     The parties agree that petitioner did not provide respondent

with Federal income tax returns for 1994, 1995, and 1997 until

after the notice of deficiency was issued.   Petitioner claimed on

the returns dependency exemption deductions for a number of

individuals, including his son, his daughter, and for 1994 and

1995, an individual named Stacy Brown.   Petitioner’s son and

daughter were both over the age of 19 in 1994.   Neither was a

full-time student during the years 1995 through 1997.   Both of

his children filed tax returns for the years at issue claiming

personal exemptions for themselves.

     In or around 1993, petitioner retired on disability from his

job in computer operations with Federal Express.   Petitioner

bought 5 acres of land, originally zoned as agricultural but

subsequently rezoned as rural/residential.   During the years

under consideration, petitioner lived on his property in a mobile

home, a 1976 Eaton Park double-wide.
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Schedule C Activities

     Petitioner attached to his tax returns Schedules C, claiming

losses from five different activities: (1) Automobile restoration

for all 3 years, (2) “Board and Room Rental” for all 3 years, (3)

timber and firewood sales for 1994, (4) health food sales and

“resort” for 1994 and 1995, and (5) oil and gas for 1997.

     Automobile Restoration

     Petitioner bought several automobiles with the expectation

of restoring and selling them.    After the rezoning of his real

estate, however, the county “raised a fuss” about the cars and

certain building materials he maintained on his property.    As a

result, in 1994 or 1995 petitioner was forced to dispose of his

cars, machine tools, parts, trailers, and “a good part” of his

building materials.

     Petitioner had an unrestored 1967 Dodge Dart and a 1952

Chevy pickup truck that he sold at auction.    In 1994, he traded a

1979 Dodge “window van” for two electric motors, a compressor,

three “windows with aluminum frames”, and some machine tool

equipment.   In that same year petitioner allowed an individual to

remove parts from three nonrunning vehicles in return for an

electric hammer drill before he sent the vehicles to the auto

wrecking yard.   Another transaction in 1994 included the sale of

a Chevy Chevette for $25 plus sales tax of 75 cents.
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     Board and Room Rental

     Petitioner’s mobile home has three bedrooms.    He also

converted an attached heated porch into a bedroom.    Petitioner

allowed to stay with him individuals who were friends of his son

or daughter or who had previously stayed with him.    Some were

minors.   Sometimes as many as seven people lived with him,

including his son and daughter.    There were sometimes two or

three persons to a bed.   His guests were people “who had been in

some sort of misfortune or down and out with nowhere to go.”      As

it turned out, many of petitioner’s guests were using drugs.

They did not, with a few exceptions, pay any rent or do any work

to compensate petitioner for their room and board.

     Petitioner, on his Schedule C for board and room rental,

checked the box for “other” method of accounting and wrote in

“rent accrued”.   Under petitioner’s “rent accrued” method, he

kept a running total of the amounts that he thought should have

been paid by each individual.    In the case of Stacy Brown,

petitioner shows an “accrual” of $7,293.16 for 1994, but it

includes unpaid amounts from 1992 and 1993.    The “accruals” do

not reflect amounts that may have been paid by work or cash

during the respective years.    For 1994 and 1997, petitioner

claimed bad debt deductions for unpaid rent.    Petitioner used a

method other than the accrual method for his expenses.
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     Other Schedule C Activities

     There were no sales of timber or firewood with respect to

petitioner’s timber and firewood sales activity for 1994, because

“the thing fell apart”.   His “venture capital” health food and

resort enterprise “never got off the ground.”     The only items in

petitioner’s possession to show his involvement in an oil and gas

venture were copies of two uncleared checks that he showed to

respondent’s counsel before trial.

                            Discussion

     The Commissioner’s deficiency determinations are presumed

correct, and taxpayers generally have the burden of proving that

the determinations are incorrect.    Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933).     Under certain

circumstances, however, section 7491(a) may shift the burden to

the Commissioner with respect to a factual issue affecting

liability for tax.   Petitioner did not present evidence or

argument that he satisfied the requirements of section 7491(a),

and, therefore, the burden of proof does not shift to respondent.

Deductions for Dependency Exemptions

     Petitioner argues that he is entitled to dependency

exemption deductions for his son and daughter for the years at

issue and for Stacy Brown for 1994 and 1995.

     Section 151(c)(1) allows a taxpayer to claim an exemption

deduction for each dependent as defined in section 152 whose
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gross income is less than the exemption amount.     A child of the

taxpayer is considered a “dependent” so long as the child has not

attained the age of 19 at the close of the calendar year in which

the taxable year of the taxpayer begins and more than half the

dependent’s support for the taxable year was received from the

taxpayer.    Secs. 151(c)(1)(B), 152(a)(1).   The age limit is

increased to 24 if the child was a student as defined by section

151(c)(4).    Sec. 151(c)(1)(B).

     Petitioner testified that both his children were over the

age of 19 in 1994.    Neither was a full-time student as defined by

section 151(c)(4) during the years 1994 through 1997.        Therefore,

neither qualifies as a dependent under section 151(c)(1)(B) for

any of the years at issue.

     Petitioner claims Stacy Brown as a dependent for 1994 and

1995.    Petitioner also claims her to have been a renter who owed

him for room and board for those same years.     He claimed a bad

debt deduction for that “debt”.      See discussion infra.

        A dependent is defined as an individual over half of whose

support for the year was received from the taxpayer or is treated

as having been received from the taxpayer.     Sec. 152(a).    In

order for petitioner to establish that he provided more than half

of the support of Stacy Brown, he must first show by competent

evidence the total amounts of support she received from all

sources for the years at issue.      See Blanco v. Commissioner, 56
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T.C. 512, 514 (1971).    Petitioner has not provided evidence of

the total amount of support provided for Stacy Brown for either

year at issue, except for his own testimony.    He testified that

he provided all her room and board and other support.    The Court

is not required to accept petitioner’s self-serving testimony,

particularly in the absence of corroborating evidence.    See

Geiger v. Commissioner, 440 F.2d 688, 689 (9th Cir. 1971), affg.

per curiam T.C. Memo. 1969-159; Urban Redev. Corp. v.

Commissioner, 294 F.2d 328, 332 (4th Cir. 1961), affg. 34 T.C.

845 (1960).

     It is not necessary under section 152(a)(9) that an

individual be related to the taxpayer to qualify as his

dependent.    However, in order for an unrelated individual to

qualify as a dependent under section 152(a)(9), such individual

must live with the taxpayer and be a member of the taxpayer’s

household throughout the entire taxable year of the taxpayer.

Trowbridge v. Commissioner, 268 F.2d 208, 209 (9th Cir. 1959),

affg. per curiam 30 T.C. 879 (1958); McMillan v. Commissioner, 31

T.C. 1143, 1145-1146 (1959); sec. 1.152-1(b), Income Tax Regs.

     Petitioner offered no evidence that Stacy Brown was a member

of his household for the entire year of 1994 or 1995 except for

his own testimony.
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     The Court finds that petitioner has not shown that he is

entitled to a dependency exemption deduction for Stacy Brown for

1994 or 1995.

Schedule C Activities

     Petitioner provided to respondent, for the years under

consideration, Schedules C for five different activities that

petitioner claims were operated as businesses.   Deductions are

allowed under section 162 for the ordinary and necessary expenses

of carrying on an activity that constitutes the taxpayer’s trade

or business.    Deductions are allowed under section 212(1) and (2)

for expenses paid or incurred in connection with an activity

engaged in for the production or collection of income or for the

management, conservation, or maintenance of property held for the

production of income.

     Petitioner, in order to show that he was engaged in a trade

or business, must show not only that his primary purpose for

engaging in the activity was for income or profit but also that

he engaged in the activity with “continuity and regularity”.

Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987).

     With respect to either section, however, the taxpayer must

demonstrate a profit objective for the activity in order to

deduct associated expenses.   See Jasionowski v. Commissioner, 66

T.C. 312, 320-322 (1976); sec. 1.183-2(a), Income Tax Regs.    The

profit standards applicable for section 212 are the same as those
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used for section 162.    See Agro Science Co. v. Commissioner, 934

F.2d 573, 576 (5th Cir. 1991), affg. T.C. Memo. 1989-687;

Antonides v. Commissioner, 893 F.2d 656, 659 (4th Cir. 1990),

affg. 91 T.C. 686 (1988); Allen v. Commissioner, 72 T.C. 28, 33

(1979); Rand v. Commissioner, 34 T.C. 1146, 1149 (1960).

     Whether the required profit objective exists is to be

determined on the basis of all the facts and circumstances of

each case.   See Hirsch v. Commissioner, 315 F.2d 731, 737 (9th

Cir. 1963), affg. T.C. Memo. 1961-256; Golanty v. Commissioner,

72 T.C. 411, 426 (1979), affd. without published opinion 647 F.2d

170 (9th Cir. 1981); sec. 1.183-2(a), Income Tax Regs.   While a

reasonable expectation of profit is not required, the taxpayer’s

objective of making a profit must be bona fide.   See Elliott v.

Commissioner, 84 T.C. 227, 236 (1985), affd. without published

opinion 782 F.2d 1027 (3d Cir. 1986).   In making this factual

determination, the Court gives greater weight to objective

factors than to a taxpayer’s mere statement of intent.   See

Indep. Elec. Supply, Inc. v. Commissioner, 781 F.2d 724, 726 (9th

Cir. 1986), affg. Lahr v. Commissioner, T.C. Memo. 1984-472;

Dreicer v. Commissioner, 78 T.C. 642, 645 (1982), affd. without

published opinion 702 F.2d 1205 (D.C. Cir. 1983); sec. 1.183-

2(a), Income Tax Regs.

     Section 1.183-2(b), Income Tax Regs., sets forth nine

nonexclusive factors that should be considered in determining
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whether a taxpayer is engaged in a venture with a profit

objective.   They include:   (1) The manner in which the taxpayer

carried on the activity; (2) the expertise of the taxpayer or his

advisers; (3) the time and effort expended by the taxpayer in

carrying on the activity; (4) the expectation that the assets

used in the activity may appreciate in value; (5) the success of

the taxpayer in carrying on other similar or dissimilar

activities; (6) the taxpayer’s history of income or loss with

respect to the activity; (7) the amount of occasional profits

that are earned; (8) the financial status of the taxpayer; and

(9) whether elements of personal pleasure or recreation are

involved.

     No single factor is controlling, and the Court does not

reach its decision by merely counting the factors that support

each party’s position.   See Dunn v. Commissioner, 70 T.C. 715,

720 (1978), affd. 615 F.2d 578 (2d Cir. 1980); sec. 1.183-2(b),

Income Tax Regs.   Rather, the facts and circumstances of the case

are determinative.   See Golanty v. Commissioner, supra at 426.

     Automobile Restoration

     The only evidence petitioner presented to establish that he

operated an automobile restoration activity was a couple of

receipts showing trades of vehicles for unrelated items and the

sale of unrestored vehicles.   Petitioner also provided evidence

that he had advertised for sale a 1974 Toyota.   It appears from
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his testimony that he was forced to dispose of his automobiles

and some equipment because the property where he lived was

rezoned by the county.   It does not appear that petitioner ever

started his activity of restoring automobiles.   Startup or

preopening expenses are not deductible under either section 162

or section 212.   Hardy v. Commissioner, 93 T.C. 684 (1989);

Goodwin v. Commissioner, 75 T.C. 424, 433 (1980), affd. without

published opinion 691 F.2d 490 (3d Cir. 1982); Polachek v.

Commissioner, 22 T.C. 858, 863 (1954).   Deduction of such

expenses, even if substantiated, is specifically denied by

section 195(a).

     Board and Room Rental

     The evidence, including petitioner’s testimony, leads the

Court to conclude that petitioner did not conduct his room and

board activity primarily with the objective to make a profit.

Petitioner seems to have allowed minors and others to stay in his

mobile home on the basis of his perception of their needs and

their friendship with his son or daughter.   Most of the

individuals were allowed to stay with him without paying rent or

board in any form.   Petitioner’s description of his guests as

people “who had been in some sort of misfortune or down and out

with nowhere to go” strongly suggests to the Court that profit

was not the primary purpose for his room and board activity.

Petitioner is clearly a caring and generous person, but this
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activity was conducted neither for profit nor as a business

operation.

Other Schedule C Activities

       There were no sales of timber or firewood with respect to

petitioner’s timber and firewood sales activity for 1994 because

“the thing fell apart”.    His “venture capital” health food and

resort enterprise “never got off the ground.”     The only items in

petitioner’s possession to show his involvement in an oil and gas

venture were copies of two uncleared checks that he showed to

respondent’s counsel before trial.      These three activities appear

never to have reached the operational stage.     As with

petitioner’s automobile restoration activity, startup or

preopening expenses are not deductible under either section 162

or section 212.    Hardy v. Commissioner, supra; Goodwin v.

Commissioner, supra at 433; Polachek v. Commissioner, supra at

863.    Deduction of such expenses, even if substantiated, is

specifically denied by section 195(a).

Additions to Tax Under Section 6651(a)

       Respondent bears the burden of production with respect to

any addition to tax.    Sec. 7491(c).    In order to meet this

burden, respondent must produce evidence sufficient to establish

that it is appropriate to impose the addition to tax.      Higbee v.

Commissioner, 116 T.C. 438, 446-447 (2001).
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     The parties agree that petitioner did not file timely

Federal income tax returns for 1994, 1995, and 1997.    Respondent

has met his burden of production under section 7491(c) with

respect to imposing the addition to tax under section 6651(a)(1).

     It is petitioner’s burden to prove that he had reasonable

cause and lacked willful neglect in not filing his return timely.

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

Commissioner, supra; sec. 301.6651-1(a)(1), Proced. & Admin.

Regs.

     Petitioner argues that he was unable to file timely returns

because of health problems and lost computer data.    Petitioner

provided the Court with a “Problem List” of 29 health items that

he alleges contributed to his inability to file his Federal

income tax returns timely.   When asked why he did not hire

someone to prepare his returns for him, petitioner replied:     “I

just don’t commit to things I can’t pay for.”    Petitioner,

however, testified that he invested $15,000 by check in his oil

and gas activity.   The Court finds that petitioner willfully

neglected to file timely his Federal income tax returns for the

years at issue.   Respondent’s determination that he is liable for

the additions to tax under section 6651(a)(1) is sustained.

     To reflect the foregoing,

                                                Decision will be

                                         entered under Rule 155.
