                        T.C. Memo. 2010-16



                      UNITED STATES TAX COURT



              DOUGLAS ARTHUR ROYSTER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3039-08.               Filed February 1, 2010.



     Douglas Arthur Royster, pro se.

     Brenda M. Fitzgerald, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     WELLS, Judge:   Respondent determined the following

deficiencies in petitioner’s Federal income taxes and accuracy-

related penalties for the following tax years:
                              - 2 -

                                                Penalty
          Year           Deficiency           Sec. 6662(a)

          2003               $204                   --
          2004              9,549                $1,910
          2005              4,081                   816


We must decide the following issues:   (1) Whether petitioner is

entitled, pursuant to sections 162 and 274(d), to deductions for

car and truck expenses claimed on Schedules C, Profit or Loss

From Business, for mileage driven during the tax years in issue;

(2) whether petitioner failed to report net taxable gain from the

sale of real property received during tax year 2003; (3) whether

petitioner is entitled to a capital loss carryover for tax year

2004; (4) whether petitioner’s gross income should be increased

for a State tax refund, interest income, and retirement income he

received during tax year 2004; and (5) whether petitioner is

liable for the accuracy-related penalties pursuant to section

6662 for tax years 2004 and 2005.1


     1
      Unless otherwise indicated, all Rule references are to the
Tax Court Rules of Practice and Procedure, and all section
references are to the Internal Revenue Code (Code), as amended,
for the years in issue. Amounts are rounded to the nearest
dollar.

     Petitioner claimed net operating loss carryovers for tax
years 2004 and 2005, self-employment tax deductions for tax years
2003, 2004, and 2005, and an earned income credit for 2004. The
net operating loss carryovers, self-employment taxes and their
corresponding deduction and the earned income credit are
mechanical calculations that depend on the Court’s resolution of
the issues discussed herein. Respondent’s determinations in the
notice of deficiency include such calculations based upon the
                                                   (continued...)
                                - 3 -

                          FINDINGS OF FACT

     Some of the facts and certain exhibits have been stipulated

by the parties.    The parties’ stipulations of fact are

incorporated in this opinion by reference and are so found.

     At the time he filed his petition, petitioner resided in

Georgia.

     During 2003, petitioner sold real property at 6906 Speese

Drive, Hiawassee, Georgia (real property), for $132,500.

According to his settlement statement, at the time he purchased

the real property in 2001, petitioner had a basis of $122,670 in

the real property.

     During the years in issue, petitioner was self-employed in

the business of selling merchandise to retailers for resale to

their customers.    In connection with his business, petitioner

drove to his customers’ places of business in Georgia, South

Carolina, North Carolina, and Virginia.      Petitioner did not have

a dedicated vehicle for his business travel, but rather used

several vehicles for both business and personal use.     Petitioner

owned at least two vehicles during the years in issue, but he was

unable to substantiate the number of vehicles he owned.

     During each year in issue, petitioner kept a log of his

travel (log).   Each day, petitioner noted in his log the



     1
      (...continued)
other determinations respondent made in the notice of deficiency.
                               - 4 -

beginning and ending mileage but did not note each place he

stopped or the business purpose of the stop.   For tax year 2003,

petitioner claimed a deduction for 67,910 miles on his Federal

income tax return; however, the log for business purposes for

that year was lost.   For tax year 2004, petitioner claimed on his

return a deduction for 62,456 miles for business purposes;

however, the log for that year totals 63,398 miles.    For tax year

2005, petitioner claimed on his return a deduction for 58,616

miles for business purposes, which is the same total miles in his

log for that year.

                              OPINION

     Generally, the Commissioner’s determination of a deficiency

is presumed correct, and the taxpayer has the burden of proving

it incorrect.   Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933).2

     We first address the issue of whether petitioner is

entitled, pursuant to sections 162 and 274, to deductions for

mileage on his Schedules C for the years in issue.    Petitioner

contends that he substantiated his mileage deductions through his




     2
      Petitioner does not contend that sec. 7491(a) should apply
to shift the burden of proof to respondent, nor did he establish
that it should apply to the instant case.
                                - 5 -

logs.3   Respondent contends that petitioner’s logs do not meet

the strict substantiation requirements of section 274(d).

     Deductions are a matter of legislative grace, and taxpayers

bear the burden of proving their entitlement to the deductions

claimed.   INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).

Section 162 allows a deduction from income for all ordinary and

necessary expenses for carrying on a trade or business during the

taxable year.   Sec. 162(a).   A deduction is not allowed for any

listed property unless the taxpayer properly substantiates:    (1)

The amount of such expense, (2) the time and place of the travel,

and (3) the business purpose.   Sec. 274(d).   Section 280F(d)(4)

includes as listed property any passenger automobile.   Generally,

automobile expenses must be disallowed in full unless the

taxpayer satisfies the strict substantiation requirements of

section 274(d).   Sanford v. Commissioner, 50 T.C. 823, 827-828

(1968), affd. per curiam 412 F.2d 201 (2d Cir. 1969); Larson v.

Commissioner, T.C. Memo. 2008-187; sec. 1.274-5T(a), Temporary

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



     3
      Petitioner deducted amounts for car and truck expenses
based on the standard mileage rates pursuant to sec. 1.274-
5(g)(1), Income Tax Regs. For 2003 the standard mileage rate was
36 cents per mile. Rev. Proc. 2002-61, sec. 5.01, 2002-2 C.B.
616, 618. For 2004 the standard mileage rate was 37.5 cents per
mile. Rev. Proc. 2003-76, sec. 5.01, 2003-2 C.B. 924, 925. From
Jan. 1 to Aug. 31, 2005, the standard mileage rate was 40.5 cents
per mile. Rev. Proc. 2004-64, sec. 5.01, 2004-2 C.B. 898, 900.
From Sept. 1 to Dec. 31, 2005, the standard mileage rate was 48.5
cents per mile. Announcement 2005-71, 2005-2 C.B. 714.
                                 - 6 -

     Taxpayers may substantiate their mileage either by adequate

records or by sufficient evidence that corroborates the

taxpayer’s own statement.    Sec. 274(d).   To satisfy the adequate

records requirement, a taxpayer must maintain records and

documentary evidence that in combination are sufficient to

establish each element of an expenditure or use.     Larson v.

Commissioner, supra; sec. 1.274-5T(c)(2)(i), Temporary Income Tax

Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985).    A contemporaneous log

is not required, but corroborative evidence used to support a

taxpayer’s reconstruction “of the elements of * * * the

expenditure or use must have a high degree of probative value to

elevate such statement” to the level of credibility of a

contemporaneous record.     Larson v. Commissioner, supra; sec.

1.274-5T(c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46016

(Nov. 6, 1985).

     In the absence of adequate records, a taxpayer may

alternatively establish an element by “his own statement, whether

written or oral, containing specific information in detail as to

such element” and by “other corroborative evidence sufficient to

establish such element.”    Larson v. Commissioner, supra; sec.

1.274-5T(c)(3), Temporary Income Tax Regs., 50 Fed. Reg. 46020

(Nov. 6, 1985).   If a factual basis exists to do so, the Court

may in some instances approximate an allowable expense, bearing

heavily against the taxpayer who failed to maintain adequate
                                 - 7 -

records.    Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir.

1930).   However, section 274(d) specifically precludes the

deduction of automobile expenses on the basis of an approximation

or a taxpayer’s uncorroborated testimony.    Sanford v.

Commissioner, supra at 827-828; Larson v. Commissioner, supra.

     For tax year 2003, we conclude that petitioner has not

offered sufficient proof of his mileage.    Petitioner testified

that his mileage logs for his 2003 tax year were kept but had

been lost.    Petitioner offered a random sampling of invoices to

corroborate his mileage.    However, as section 274(d) requires a

specific showing of time, place of travel, and business purpose,

we are not persuaded that such evidence rises to the “level of

credibility of a contemporaneous record.”    See Larson v.

Commissioner, supra; sec. 1.274-5T(c)(1), Temporary Income Tax

Regs., supra.    Consequently, petitioner has not met the

requirements for deducting the claimed mileage.    Accordingly, we

sustain respondent’s deficiency determination disallowing the

deduction for car and truck expenses petitioner claimed for tax

year 2003.

     For tax year 2004, petitioner offered a log purporting to

show that he drove a total of 63,398 miles in connection with his

business.    We note that petitioner claimed fewer miles on his

Schedule C for 2004 than those recorded in his log but offered no

explanation of the difference.    For 2005, petitioner offered a
                               - 8 -

log similar to that offered in 2004.   The total mileage of 58,616

from the 2005 log matches the total mileage claimed on

petitioner’s Schedule C for tax year 2005.

     Petitioner’s logs contain entries for only the beginning and

ending odometer reading of the vehicle for each day.   The logs do

not contain any entries regarding the business purpose of the

trips or the destination of each trip as required by section

274(d).   The logs also indicate that petitioner drove multiple

vehicles during tax years 2004 and 2005.   However, petitioner was

unable to verify how many vehicles he used for business during

tax years 2004 and 2005 and how much of his mileage was personal.

Accordingly, we conclude that the logs do not adequately

substantiate petitioner’s car and truck expenses for tax years

2004 and 2005.

     Petitioner also offered a bookkeeping record and invoices

for tax years 2004 and 2005.   The invoices are a sampling of the

total invoices for the respective tax year.   We conclude that the

bookkeeping record and invoices fail to meet the strict

requirements of section 274(d).   See Larson v. Commissioner,

supra; sec. 1.274-5T(c)(1), Temporary Income Tax Regs., supra.

     Additionally, petitioner offered his testimony regarding the

mileage expenses.   Petitioner’s testimony, however, was vague,

unspecific, and unpersuasive as to the business purpose of the

respective trips.   Moreover, section 274(d) specifically
                               - 9 -

precludes the allowance of automobile expenses on the basis of an

approximation or a taxpayer’s uncorroborated testimony.     Larson

v. Commissioner, T.C. Memo. 2008-187.   Petitioner’s testimony was

not sufficiently corroborated to be persuasive.    Consequently, we

sustain respondent’s denial of petitioner’s deductions for car

and truck expenses for tax years 2004 and 2005.

     We next turn to the issue of petitioner’s income from

capital gains.   Respondent contends that petitioner failed to

include $9,830 of income from capital gains received in 2003 and

claimed an improper capital loss carryover for tax year 2004.

Petitioner stipulated that he realized gross income of $132,500

from the sale of real property in tax year 2003.   Petitioner’s

settlement statement from 2001 when he purchased the real

property in issue provides a basis of $122,670.4   Petitioner has

the burden of proving that respondent’s determination was

incorrect.   See Rule 142(a); Welch v. Helvering, 290 U.S. at 115.

Petitioner did not include the $9,830 gain from the sale of the

real property in his gross income for tax year 2003 and has not

presented any evidence or argument regarding that amount.

Petitioner, therefore, has failed to meet his burden of proof.

Accordingly, we sustain respondent’s determination of a



     4
      Neither petitioner nor respondent has presented evidence
that petitioner’s basis in the real property should be any amount
other than the amount of the purchase price shown on the 2001
settlement statement.
                               - 10 -

deficiency with respect to the capital gain income from the sale

of real property in 2003.

     On his 2004 return, petitioner claimed a net capital gain

of $53,256 after deducting both short-term and long-term capital

losses.   Respondent disallowed $6,700 of capital losses,

increasing petitioner’s income for tax year 2004 by $6,700.

Petitioner bears the burden of proving that respondent’s

determination was incorrect.    See Rule 142(a); Welch v.

Helvering, supra at 115.    Petitioner presented no evidence or

argument regarding the issue and therefore has failed to meet his

burden of proof.   Accordingly, we hold that petitioner has failed

to meet his burden, and we sustain respondent’s deficiency

determination regarding petitioner’s income from capital gains

for tax year 2004.

      As to the issue of whether petitioner’s gross income for

tax year 2004 should be increased for a State income tax refund,

interest income, and retirement income of $3,150, $131, and

$6,395, respectively, petitioner bears the burden of proving that

respondent’s determination was incorrect.   See Rule 142(a); Welch

v. Helvering, supra at 115.    Petitioner failed to present any

evidence or argument on such issue, and therefore, fails to meet

his burden of proof.   Accordingly, we sustain respondent’s

deficiency determinations regarding the State income tax refund,
                                - 11 -

interest income, and retirement income petitioner received in tax

year 2004.

     Lastly, we turn to the issue of whether petitioner is liable

for accuracy-related penalties for tax years 2004 and 2005

pursuant to section 6662.   Taxpayers are subject to a 20-percent

penalty for any underpayment which is attributable to, among

other things, (1) negligence or disregard of rules or regulations

or (2) any substantial understatement of income tax.    Sec.

6662(a) and (b)(1) and (2); New Phoenix Sunrise Corp. & Subs. v.

Commissioner, 132 T.C.      ,     (2009) (slip op. at 45-47).

Negligence includes any failure to make a reasonable attempt to

comply with the provisions of the Code.   Sec. 6662(c); see Neely

v. Commissioner, 85 T.C. 934, 947 (1985) (negligence is lack of

due care or failure to do what a reasonably prudent person would

do under the circumstances).    “‘Negligence’ also includes any

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

substantiate items properly.”    Sec. 1.6662-3(b)(1), Income Tax

Regs.   For individual taxpayers, there is a substantial

understatement of income tax if the amount of the understatement

for the tax year exceeds the greater of 10 percent of the amount

required to be shown on the return or $5,000.    Sec.

6662(d)(1)(A).   Pursuant to section 7491(c), the Commissioner

generally bears the burden of production for any penalty, but the
                               - 12 -

taxpayer bears the ultimate burden of proof.    Higbee v.

Commissioner, 116 T.C. 438, 446 (2001).

     The accuracy-related penalty does not apply to any part of

an underpayment of tax if it is shown that the taxpayer acted

with reasonable cause and in good faith.   Sec. 6664(c)(1).    This

determination is made on a case-by-case basis, taking into

account all the pertinent facts and circumstances.   Sec. 1.6664-

4(b)(1), Income Tax Regs.   Taxpayers bear the burden of proving

that they had reasonable cause and acted in good faith.     See

Higbee v. Commissioner, supra at 446; Dollander v. Commissioner,

T.C. Memo. 2009-187.

     Respondent contends that petitioner is liable for an

accuracy-related penalty on account of negligence or disregard of

rules or regulations for tax years 2004 and 2005.    Alternatively,

respondent contends that petitioner’s understatement for tax year

2005 was a substantial understatement.

     The record establishes that respondent has met his burden of

production.    Petitioner has failed to meet his burden of proving

that he was not negligent or that he acted with reasonable cause

and in good faith.   As discussed above, petitioner’s mileage logs

are not adequate records for his car or truck expenses claimed on

Schedules C.   Furthermore, petitioner was not able to provide

sufficient additional evidence to meet the strict substantiation

requirements of section 274(d) or to prove that he did not
                             - 13 -

receive the unreported income items for his 2004 tax year.

Accordingly, we hold that petitioner is liable for the accuracy-

related penalties determined for tax years 2004 and 2005.5

     The Court has considered all other arguments made by the

parties and, to the extent we have not addressed them herein, we

consider them moot, irrelevant, or without merit.

     To reflect the foregoing,


                                           Decision will be entered

                                      for respondent.




     5
      Because we hold petitioner liable for the accuracy-related
penalty for his 2005 tax year on account of negligence or
disregard of rules and regulations, we do not need to reach
respondent’s alternative argument that petitioner substantially
understated his income tax.
