                   T.C. Memo. 2010-265



                 UNITED STATES TAX COURT



             EMMANUEL OWENS, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 6933-09.              Filed December 7, 2010.



     R determined a deficiency in P’s income tax for the
2006 tax year based on P’s failure to substantiate a
deduction claimed on Form 1040, U.S. Individual Income Tax
Return, Schedule A, Itemized Deductions.

     Held:   P is liable for the deficiency.



Emmanuel Owens, pro se.

Tracey B. Leibowitz, for respondent.
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             MEMORANDUM FINDINGS OF FACT AND OPINION


     WHERRY, Judge:   This case is before the Court on a petition

for redetermination of an income tax deficiency that respondent

determined for petitioner’s 2006 tax year.    First we address

whether his amended return affects the outcome of the case.      Then

we decide whether petitioner substantiated a deduction claimed on

Schedule A, Itemized Deductions.

                         FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts and the accompanying exhibits are hereby incorporated by

reference into our findings.    At the time he filed his petition,

petitioner resided in Florida.

     In 2006 petitioner was employed by Miami-Dade County as a

full-time corrections officer and reported $63,247 of wage income

on his Form 1040, U.S. Individual Income Tax Return.     Petitioner

claimed an itemized deduction of $22,921 for job-related expenses

on line 26 of his Schedule A.    Respondent disallowed this claimed

deduction in the notice of deficiency issued on January 5, 2009,

in which respondent determined an income tax deficiency of $3,595

arising solely from this adjustment.     Petitioner filed a timely

petition with this Court on March 19, 2009, contesting the

deduction disallowance and denying liability for the deficiency.

A trial was held on January 11, 2010, in Miami, Florida.
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     To support his claimed Schedule A deduction, petitioner

filed, as an attachment to his Form 1040, Form 2106, Employee

Business Expenses.     On the Form 2106 he listed his occupation as

“Correction Officer”.    He categorized the components of the

deduction as follows:    $6,453 for vehicle expense; $1,144 for

parking fees, tolls, and transportation, including train, bus,

etc.; $4,820 for travel expense while away from home overnight;

and $10,195 of business expenses not included in the previous

amounts.

     At trial petitioner introduced a copy of Form 1040X, Amended

U.S. Individual Income Tax Return, for the 2006 tax year

recharacterizing portions of his Schedule A deduction as

deductions claimed on Schedule C, Profit or Loss From Business,

incurred in a new, different business.    Petitioner introduced a

number of exhibits relating to this new business.    We will

therefore address the amended return first and then the original

return.

                                OPINION

I.   Burden of Proof

     The Commissioner’s determination of a deficiency is presumed

correct, and the taxpayer bears the burden of proving that the

determination is improper.    See Rule 142(a); Welch v. Helvering,
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290 U.S. 111, 115 (1933).1   However, pursuant to section

7491(a)(1), the burden of proof on factual issues that affect the

taxpayer’s tax liability may be shifted to the Commissioner where

the “taxpayer introduces credible evidence with respect to * * *

such issue.”    The burden will shift only if the taxpayer has,

inter alia, complied with substantiation requirements pursuant to

the Code and “maintained all records required under this title

and has cooperated with reasonable requests by the Secretary for

witnesses, information, documents, meetings, and interviews”.

Sec. 7491(a)(2).   Petitioner did not contend that the burden

should shift, and he failed to introduce credible evidence,

maintain required records, or comply with the substantiation

requirements.   Accordingly, the burden of proof remains on

petitioner.

II.   Amended Return

      Although petitioner signed his original tax return under

penalty of perjury, at trial he introduced a copy of Form 1040X

with entirely different sources for his claimed expenses.     He

explained that while his original return was under audit, his

accountant decided that the return should have been filed

differently and prepared an amended return.   It appears that the


      1
      Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986, as amended and in effect for the
tax year at issue. All Rule references are to the Tax Court
Rules of Practice and Procedure.
                                - 5 -

amended return was prepared on September 4, 2009, well after the

notice of deficiency was issued on January 5, 2009, and was not

signed by petitioner until the date of the trial, January 11,

2010.

     We note that the “‘treatment of amended returns is a matter

of internal administration, and solely within the discretion of

the Commissioner.’”   Evans Cooperage Co. v. United States, 712

F.2d 199, 204 (5th Cir. 1983) (quoting Badaracco v. Commissioner,

693 F.2d 298, 301 n.5 (3d Cir. 1982), revg. T.C. Memo. 1981-404).

Respondent never indicated that he would accept or had accepted

the amended tax return.

     We decide petitioner’s case on the basis of the trial record

and his original tax return.2   See Colvin v. Commissioner, 122

Fed. Appx. 788, 790 (5th Cir. 2005) (“even if the Commissioner

had a legal duty to accept the amended return, it would have no

impact on the deficiencies upheld by the Tax Court, because they

were issued before * * * [the taxpayer] attempted to submit his

amended return, and amended returns do not vitiate deficiencies

that have already been issued.”), affg. T.C. Memo. 2004-67.

Further, “the Internal Revenue Code does not explicitly provide


     2
      We note that even if petitioner’s amended return had been
an attempt on his part to abandon the itemized deductions and
substitute a claim for Schedule C deductions, it did “not relieve
* * * [petitioner] of the burden of establishing the deductible
nature and amount of the items in dispute.” Outerbridge v.
Commissioner, T.C. Memo. 2009-173, affd. without published
opinion 106 AFTR 2d 2010-5629, 2010-2 USTC par. 50,547 (4th Cir.
2010).
                                - 6 -

either for a taxpayer’s filing, or for the Commissioner’s

acceptance, of an amended return; instead, an amended return is a

creature of administrative origin and grace.”    Badaracco v.

Commissioner, 464 U.S. 386, 393 (1984).

III. Expense Deductions

     A.     General Rules

     Deductions are a matter of legislative grace, and the

taxpayer must maintain adequate records to substantiate the

amounts of any deductions or credits claimed.    Sec. 6001 (the

taxpayer “shall keep such records”); INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a), Income

Tax Regs.    Taxpayers must maintain records relating to their

income and expenses and must prove their entitlement to all

claimed deductions, credits, and expenses in controversy.    See

sec. 6001.

     Section 162(a) authorizes a deduction for “all the ordinary

and necessary expenses paid or incurred during the taxable year

in carrying on any trade or business”.    A trade or business

expense is ordinary for purposes of section 162 if it is normal

or customary within a particular trade, business, or industry and

is necessary if it is appropriate and helpful for the development

of the business.    Commissioner v. Heininger, 320 U.S. 467, 471

(1943); Deputy v. du Pont, 308 U.S. 488, 495 (1940).    Any amount

claimed as a business expense must be substantiated.    Sec. 6001;
                                - 7 -

Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), affd. 540

F.2d 821 (5th Cir. 1976).    The taxpayer bears the burden of

proving that the claimed expenses were ordinary and necessary, as

required by section 162.    Rule 142(a); Welch v. Helvering, supra;

sec. 1.6001-1(a), Income Tax Regs.

       If a taxpayer claims a business expense, the Court may allow

a deduction even where the taxpayer is unable to fully

substantiate the expense, provided the Court has an evidentiary

basis for doing so.    Cohan v. Commissioner, 39 F.2d 540, 543-544

(2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743

(1985).    But see sec. 1.274-5T(a), Temporary Income Tax Regs., 50

Fed. Reg. 46014 (Nov. 6, 1985).    In such an instance, the Court

is permitted to approximate the allowable expense, bearing

heavily against the taxpayer whose inexactitude is of his or her

own making.    Cohan v. Commissioner, supra at 544.   The record

must contain sufficient evidence to provide a basis upon which

the estimate may be made and to permit us to conclude that those

expenses were deductible expenses, rather than nondeductible

personal expenses.    Williams v. United States, 245 F.2d 559, 560

(5th Cir. 1957); Vanicek v. Commissioner, supra at 742-743.

       In certain circumstances, the taxpayer must meet specific

substantiation requirements in addition to those of section 162,

which are not subject to the Cohan doctrine.    See, e.g., sec.

274.    To satisfy the adequate records requirement of section 274,
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a taxpayer must maintain records and documentary evidence that in

combination are sufficient to establish each element of an

expenditure or use.    Sec. 1.274-5T(c)(1) and (2), Temporary

Income Tax Regs., 50 Fed. Reg. 46016, 46017 (Nov. 6, 1985).

Although a contemporaneous log is not required, corroborative

evidence 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.     Sec. 1.274-5T(c)(1),

Temporary Income Tax Regs., supra.

     B.     Schedule A Deduction

     This Court has long followed the maxim that “every person

who works for compensation is engaged in the business of earning

his pay”.    Noland v. Commissioner, 269 F.2d 108, 111 (4th Cir.

1959), affg. T.C. Memo. 1958-60.      Therefore, petitioner may

deduct “all the ordinary and necessary expenses paid or incurred

during the taxable year” in earning his pay, provided that he

meets the substantiation requirements discussed above.      See secs.

162(a), 274.

     Petitioner did not present any evidence to substantiate the

claimed Schedule A deduction.      Instead, despite having signed and

sworn to the original return under penalty of perjury, he chose,

during his testimony at trial, to focus exclusively on the

business expense deductions claimed on his amended return and
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paid no attention to his original return.          We note that most

components of petitioner’s listed Schedule A deduction are

subject to the heightened substantiation requirements of section

274.       However, as petitioner did not attempt to substantiate the

expenses at all, he failed to meet his burden of substantiation,

and consequently none of the claimed $22,921 Schedule A deduction

is allowable.

       C.      Startup Expenditures

       We note that even if we considered the claims in the amended

return, the result would be no different.          Petitioner failed to

establish that his claimed real estate investment business was in

fact an ongoing business for profit as required by section

162(a).3      At trial petitioner explained that he was in the

process of establishing a business and that it was in its startup

phase during the tax year at issue.           Petitioner failed to explain

the business and never discussed how the receipts for alleged

deductible expenditures, contained in the exhibits, were related

to a business purpose.




       3
      Petitioner also indicated he had a management business that
ran several entities that he could “make an income off of.
Initially it was the real estate investing, and then it was other
entities that I tried to make an income off of, and I did try and
establish an LLC in 2006.” He did not, however, explain these
other businesses. He failed to establish that they were
operational or produced any gross income during 2006 or had
specific ordinary and necessary documented expenses.
                              - 10 -

     Pursuant to section 195(a), startup or preopening

expenditures are generally not deductible.    However, at the

election of the taxpayer, a limited amount of startup

expenditures may be deducted for the year in which a trade or

business begins, and the remainder may be amortized over the

180-month period beginning with the month in which the active

trade or business begins.   See sec. 195(b)(1), (c).   The taxpayer

bears the burden of proving that he or she executed such a timely

election.   See sec. 195(d); Krebs v. Commissioner, T.C. Memo.

1992-154; sec. 1.195-1(b), Income Tax Regs.

      Petitioner made no attempt to explain his business at

trial.   There is no evidence in the record that petitioner’s

business, in fact, existed or was in operation in 2006.

Petitioner did not present evidence that the business had ever

generated revenue or that he had claimed expense deductions

relating to it in prior tax years.     Consequently, petitioner may

not deduct these expenditures in 2006.

     We also note that even if we found that petitioner’s

business was in existence in 2006, we would still disallow the

claimed Schedule C business expense deductions.    Petitioner

failed to meet the substantiation requirements discussed above.

At trial he did not adequately explain the exhibits nor how the

claimed expenses were related to the business.
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     The Court has considered all of petitioner’s contentions,

arguments, requests, and statements.   To the extent not discussed

herein, we conclude that they are meritless, moot, or irrelevant.

     To reflect the foregoing,


                                         Decision will be entered

                                   for respondent.
