                         T.C. Summary Opinion 2012-125



                         UNITED STATES TAX COURT



                    NEAL C. EVANS, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 1263-12S.                           Filed December 26, 2012.



      Neal C. Evans, pro se.

      Craig A. Ashford, for respondent.



                               SUMMARY OPINION


      SWIFT, Judge: This case was heard pursuant to the provisions of section

7463 of the Internal Revenue Code in effect when the petition was filed.1


      1
       Unless otherwise noted, section references are to the Internal Revenue Code
applicable for the years in issue, and all Rule references are to the Tax Court Rules
of Practice and Procedure.
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Pursuant to section 7463(b), the decision to be entered is not renewable by any

other court, and this opinion shall not be treated as precedent for any other case.

      Respondent determined deficiencies of $4,148 and $7,281 in petitioner’s

2008 and 2009 Federal income tax, plus a penalty under section 6662(a) for each

year. The primary issue for decision is whether certain expenses petitioner reported

on his tax returns are deductible as ordinary and necessary expenses of a trade or

business.

                                      Background

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

the petition, petitioner resided in Utah.

      In 2008 and 2009 petitioner was employed full time with a pest control

company from which he received an annual salary of approximately $55,000.

      On the side and apart from his employment, petitioner provided limited

consulting services (side activity) relating to pest control on a dairy farm in

Snowville, Utah, approximately 100 miles from Magna, Utah, where he lived.

Petitioner’s side activity generated total gross income of $1,500 for 2008 and

$1,487 for 2009. In his side activity petitioner apparently provided consulting

services only to one “client”--the dairy farm in Snowville.
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       Petitioner did not maintain any credible books and records relating to his side

activity.

       On his 2008 and 2009 Federal income tax returns, petitioner described his

side activity as “food consultant”, and he reported gross income therefrom of only

$500 for 2008 and $1,487 for 2009. On Schedules C, Profit or Loss From Business,

attached to his tax returns petitioner reported the following business expenses

relating to his side activity:

             Expense                            2008                2009

     Advertising                                 $654               $936
     Car and truck                             14,833             11,560
     Commissions and fees                         633                330
     Contract labor                             1,339              1,785
     Depreciation/sec. 179                     12,207                 88
     Insurance                                  1,224              1,720
     Interest--other                            3,192              5,030
     Legal and professional                     1,500              2,749
     Office                                       900              4,953
     Rental of vehicle and machinery              345                438
     Rental of other business property            120              1,878
     Travel, meals, and entertainment           1,767              1,483
     Travel                                       -0-              2,767
     Repairs and maintenance                      -0-              1,017
     Supplies                                     -0-              1,633
     Taxes and licenses                           -0-                594
     Utilities                                    -0-              1,145
     Other                                      1,846              4,780
      Total                                    40,560             44,886
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      In addition, on his 2008 tax return petitioner reported deductible business

expenses of $250 for “returns and allowances” and $19,328 for business use of his

home. On his 2009 return petitioner reported deductible business expenses of $377

for “returns and allowances” and $424 for business use of his home.

      On audit, respondent disallowed all of the expense deductions petitioner

claimed on his tax returns relating to his side activity in excess of the income

received therefrom on the grounds that petitioner’s side activity did not constitute a

trade or business and also on the ground that petitioner had not substantiated the

expenses relating thereto. At trial, without conceding that petitioner substantiated

the expenses in dispute, respondent argues only that petitioner’s side activity did not

constitute a trade or business.

                                      Discussion

      With regard to an activity that does not constitute a trade or business or is

not otherwise engaged in for profit taxpayers are limited to deductions equal to the

amount of income from the activity. Sec. 183(a) and (b). Whether an activity is to

be treated as a trade or business, on the one hand, or as a not-for-profit activity, on

the other hand, depends on the particular facts and circumstances. Commissioner

v. Groetzinger, 480 U.S. 23, 36 (1987). Under the regulations, among factors to

consider are the manner in which the taxpayer conducted the activity, the
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regularity of the activity, the expertise of the taxpayer, the time and effort

expended in the activity, the taxpayer’s history of income or losses from the

activity, and elements of personal pleasure. See sec. 1.183-2(b), Income Tax

Regs.

        With regard to the relevant factors, petitioner has the burden of proof

because he does not qualify under section 7491 for a shift to respondent of the

burden of proof. See Rule 142(a).

        Petitioner has not established that he conducted his side activity as a trade

or business. Petitioner’s testimony and other evidence were much too vague and

inadequate to support a finding that his side activity constituted a trade or

business.

        Petitioner claims to have had a written business plan, but no such plan was

produced at trial. Petitioner offered no written evidence of any marketing efforts,

of advertising, or of profit projections.

        With regard to large expenses reported for a home office, at trial petitioner

admitted his calculation of approximately $19,000 for 2008 was significantly in

error, and he provides no credible evidence for the business use of any portion of

his home.
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         We conclude that petitioner is not entitled to business expense deductions for

any of the reported expenses respondent disallowed.

         Section 6662(a) and (b)(1) imposes a 20% penalty on the portion of a tax

underpayment attributable to a taxpayer’s negligence. Negligence is defined as a

failure to make a reasonable attempt to comply with the Internal Revenue Code and

as a lack of due care in preparation of a tax return. Sec. 6662(c); Leuhsler v.

Commissioner, 963 F.2d 907, 910 (6th Cir. 1992), aff’g T.C. Memo. 1991-179;

Antonides v. Commissioner, 91 T.C. 686, 699 (1988), aff’d, 893 F.2d 656 (4th Cir.

1990).

         Alternatively, section 6662(a) and (b)(2) imposes a 20% penalty on a

substantial understatement of income tax, defined in section 6662(d)(1)(A) as an

understatement that exceeds the greater of 10% of the tax required to be shown on a

return or $5,000.

         As a result of our holding in which we sustain respondent’s deficiency

determinations against petitioner, respondent has satisfied his burden of production

with regard to the section 6662 penalties respondent determined against petitioner.

Sec. 7491(c); Tyson v. Commissioner, T.C. Memo. 2009-176.

         Petitioner has not offered credible evidence or arguments against imposition

of the section 6662(a) negligence penalties, see Higbee v. Commissioner, 116 T.C.
                                       -7-

438, 446-447 (2001), and we sustain respondent’s penalty determinations against

petitioner for 2008 and 2009.

      To reflect the foregoing,


                                                   Decision will be entered

                                             for respondent.
