                        T.C. Memo. 2011-206



                      UNITED STATES TAX COURT



          JEREMIAH AND ADDIE WEATHERLY, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 19823-09.               Filed August 25, 2011.



     Jeremiah and Addie Weatherly, pro sese.

     John W. Stevens, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     HAINES, Judge:   Respondent determined a deficiency of

$67,436, an addition to tax pursuant to section 6651(a)(1) of

$15,938, and a penalty pursuant to section 6662(a) of $13,487

with respect to petitioners’ 2005 Federal income tax.1   The sole


     1
      Unless otherwise indicated, all section references are to
                                                   (continued...)
                               - 2 -

issue remaining for decision after stipulations and concessions

is whether petitioners are entitled to deduct for 2005 a contract

labor expense in excess of that allowed by respondent.2   For the

reasons set forth below, we sustain respondent’s determination.

                         FINDINGS OF FACT

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

The stipulation of facts and the supplemental stipulation of

facts, together with the attached exhibits, are incorporated

herein by this reference.   At the time petitioners filed their

petition, they lived in Michigan.

     Petitioner Jeremiah Weatherly (Mr. Weatherly) operated a

bailiff consulting business as a sole proprietorship in 2005.     As

part of this business, Mr. Weatherly engaged the services of

daily workers to help perform evictions, move property, and serve

process.   Mr. Weatherly asked these daily workers for their names

and Social Security numbers.



     1
      (...continued)
the Internal Revenue Code, as amended for the year at issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure. Amounts are rounded to the nearest dollar.
     2
      Respondent disallowed petitioners’ entire claimed contract
labor expense of $177,925. Before trial, respondent conceded
$25,115 of this expense. The parties stipulated that petitioners
are disputing only the remaining $152,810. Accordingly,
petitioners have conceded all parts of the deficiency that are
not attributable to the contract labor expense as well as the
addition to tax and penalty.
                                - 3 -

     On Schedule C, Profit or Loss From Business, of their 2005

Federal income tax return, petitioners reported a contract labor

expense of $177,925.    During the audit of their return

petitioners provided 64 Forms 1099-MISC, Miscellaneous Income,

showing the names and Social Security numbers of the daily

workers whose services Mr. Weatherly engaged and the amounts paid

to each worker.    Petitioners did not file any Forms 1099-MISC as

payers with the Internal Revenue Service (IRS) for 2005.

     Respondent requested that petitioners obtain Forms 4669,

Statement of Payments Received, from the daily workers they claim

to have paid in 2005.    In response, petitioners provided eight

Forms 4669, with corresponding Forms 1099-MISC, showing the

names, Social Security numbers, and signatures of eight daily

workers and the amounts received.    Respondent accepted six of

these eight forms and rejected the remaining two because the

Social Security numbers on the forms did not match those of the

listed payees.    Petitioners have not provided any other

documentation to substantiate their claimed contract labor

expense.

     On May 29, 2009, respondent mailed petitioners a notice of

deficiency for 2005.    On August 9, 2009, petitioners timely filed

their petition with this Court.
                                 - 4 -

                                OPINION

     Deductions are a matter of legislative grace, and taxpayers

must prove they are entitled to the deductions claimed.    Rule

142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440

(1934).   Section 162(a) provides that “There shall be allowed as

a deduction all the ordinary and necessary expenses paid or

incurred during the taxable year in carrying on any trade or

business”.   Taxpayers are required to maintain records sufficient

to establish the amounts of allowable deductions and to enable

the Commissioner to determine the correct tax liability.    Sec.

6001; Shea v. Commissioner, 112 T.C. 183, 186 (1999).

     If a factual basis exists to do so, the Court may in some

contexts approximate an allowable expense, bearing heavily

against the taxpayer who failed to maintain adequate records.

Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930).

However, in order for the Court to estimate the amount of an

expense, the Court must have some basis upon which an estimate

may be made.   Vanicek v. Commissioner, 85 T.C. 731, 742-743

(1985).   Without such a basis, any allowance would amount to

unguided largesse.     Williams v. United States, 245 F.2d 559, 560-

561 (5th Cir. 1957).

     Petitioners have not provided contemporaneous books and

records to substantiate their contract labor expense for 2005.

Further, Mr. Weatherly failed to testify at trial to the
                                 - 5 -

recordkeeping practices of his business.      Petitioners merely

produced 64 Forms 1099-MISC prepared for the audit without any

supporting documentation.   These Forms 1099-MISC were not filed

with the IRS.   Petitioners were able to produce only six valid

Forms 4669 for six daily workers, for which respondent conceded a

deduction of $25,115.   As to the remainder of their claimed

contract labor expense, petitioners have failed to substantiate

that such an amount was paid.    In fact, the evidence submitted

does not provide us with a reasonable basis upon which an

approximation of an allowed amount of contract labor expense

could be made under the Cohan rule.      Accordingly, we sustain

respondent’s determination with respect to the contract labor

expense.

     In reaching these holdings, the Court has considered all

arguments made and, to the extent not mentioned, concludes that

they are moot, irrelevant, or without merit.

     To reflect the foregoing,


                                             Decision will be entered

                                         under Rule 155.
