                            T.C. Summary Opinion 2015-14



                            UNITED STATES TAX COURT



                   MANOLITO T. LEGASPI, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 19895-13S.                            Filed February 24, 2015.



      Manolito T. Legaspi, pro se.

      Paulmikell A. Fabian, for respondent.



                                 SUMMARY OPINION


      GUY, 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.1 Pursuant to section 7463(b), the decision to be entered is not reviewable by


      1
          Unless otherwise indicated, section references are to the Internal Revenue
                                                                          (continued...)
                                         -2-

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

case.

        Respondent determined a deficiency of $3,146 in petitioner’s Federal

income tax for 2010 (year in issue). Petitioner filed a timely petition for

redetermination with the Court pursuant to section 6213(a). At the time the

petition was filed, petitioner resided in California.

        After concessions,2 the issues remaining for decision are whether petitioner

is entitled to (1) a deduction (in excess of the $4,778 respondent allowed in the

notice of deficiency) for vehicle expenses claimed on Schedule C, Profit or Loss

From Business, (2) a noncash charitable contribution deduction of $4,230 claimed

on Schedule A, Itemized Deductions, (3) a dependency exemption deduction for

his minor son, and (4) an earned income credit (EIC).3




        1
        (...continued)
Code, as amended and in effect for 2010, and Rule references are to the Tax Court
Rules of Practice and Procedure. Monetary amounts are rounded to the nearest
dollar.
        2
        Petitioner concedes that he is not entitled to an itemized deduction for real
estate taxes in excess of the $3,895 deduction that respondent allowed in the
notice of deficiency.
        3
      To the extent not discussed herein, other issues are computational and flow
from our decision in this case.
                                        -3-

                                    Background

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

facts and the accompanying exhibits are incorporated herein by this reference.

I. Petitioner’s Web Site

      Petitioner earned a degree in computer science from De La Salle University

in the Philippines. In 2007 or 2008, after working as a computer programmer for

about 10 years, petitioner created a Web site, Filamnation.com, devoted to

publishing information about events of interest to Filipino Americans.

      Petitioner testified that Filamnation.com averaged about 1,000 to 1,500

visitors each day during 2010 and that he was able to generate income by selling

advertisement space on the Web site to various businesses. He further testified

that he entered into agreements with event promoters to include promotional

information about special events on Filamnation.com in exchange for permission

to set up a booth to promote his Web site at those events.

      When attending an event petitioner typically conducted a raffle as a means

to collect personal email addresses from participants in exchange for a chance to

win Filamnation.com T-shirts. Petitioner used the email addresses he collected

this way to disseminate Filamnation.com’s newsletter to as many as 80,000 email

addresses up to three times per week.
                                         -4-

      Petitioner testified that he traveled by car throughout California and

neighboring States to attend events and promote Filamnation.com. He further

testified that he usually spent the night with friends on longer trips.

      Petitioner produced a mileage log for 2010 that identified each event he

attended, the dates he traveled, the cities he traveled to, and the number of miles

he drove. According to the mileage log, petitioner attended more than 150 events

and drove 32,450 miles in 2010.

II. Petitioner’s Charitable Contributions

      Goodwill issued a receipt to petitioner, dated June 13, 2010, acknowledging

that he donated six bags of clothing, one bag of shoes/accessories, and six pieces

of furniture. The Goodwill receipt does not include a detailed description of the

items petitioner donated or a statement whether he received anything of value in

exchange for the items. At trial petitioner produced photographs of seven pieces

of furniture he claimed to have donated--a three-piece bedroom set, an armoire, a

console table, a CD rack, and a mirror. Each photograph included petitioner’s

handwritten notes listing the year the item was purchased, the original purchase

price for the item, and the item’s fair market value--an amount equal to one-third

of the listed purchase price. Petitioner did not obtain an independent appraisal of
                                         -5-

the noncash items that he donated to Goodwill, but rather he assigned a value to

each item himself.

III. Petitioner’s Divorce

      Petitioner testified that he and his now former spouse, Maria S. Reyes, were

divorced in 2009 but that he continued to reside with her and their two children

until November 2010. At that point petitioner moved out, and the couple’s two

children continued to reside with Ms. Reyes.

IV. Petitioner’s Tax Return for 2010

      Petitioner timely filed a Form 1040, U.S. Individual Income Tax Return, for

2010 claiming head of household filing status and dependency exemption

deductions for himself, his mother, and his minor son ML.4 He reported adjusted

gross income of $25,397, comprising net business income of $400 and

unemployment compensation of $24,997.

      Petitioner claimed various itemized deductions on Schedule A, including

gifts to charity (other than by cash or check) of $4,230. On Form 8283, Noncash

Charitable Contributions, petitioner reported that on June 2, 2010, he donated

items to Goodwill valued at $4,230 and that he had acquired the items on


      4
      It is the Court’s policy to refer to minor children only by their initials. See
Rule 27(a)(3).
                                         -6-

February 1, 2008, with a cost or adjusted basis of $8,250. Petitioner did not attach

to his tax return an appraisal of the noncash items that he donated to Goodwill.

      Petitioner reported on Schedule C that he conducted a “marketing” business,

Filamnation.com, that generated gross receipts of $29,585. He reported that he

drove 32,450 miles for business purposes, and, applying the applicable standard

mileage rate of 50 cents per mile, he claimed a deduction for vehicle expenses of

$16,225.5

V. Ms. Reyes’ Tax Return for 2010

      Ms. Reyes also filed a Federal income tax return for 2010. She reported

wage income of $38,880 and, like petitioner, claimed a dependency exemption

deduction for ML. She also claimed an EIC of $282.

VI. Developments During and After Trial

      The Court permitted petitioner to belatedly assert for the first time at trial

that he is entitled to an EIC for 2010. Placing the parties on equal footing, the

Court likewise permitted respondent to assert for the first time at trial that

petitioner was not entitled to a dependency exemption deduction for ML.


      5
       The Commissioner generally updates the optional standard mileage rates
annually. See sec. 1.274-5(j)(2), Income Tax Regs. The standard mileage rate of
50 cents per mile for 2010 is set forth in Rev. Proc. 2009-54, sec. 2.01, 2009-51
I.R.B. 930, 930.
                                        -7-

      At the conclusion of the trial the Court left the record open for a brief period

to permit petitioner to produce additional documentation substantiating his vehicle

expenses. The parties were unable, however, to agree to a supplemental

stipulation of facts, and the record subsequently was closed.

                                     Discussion

      The Commissioner’s determination of a taxpayer’s liability in a notice of

deficiency normally is presumed correct, and the taxpayer bears the burden of

proving that the determination is incorrect. Rule 142(a); Welch v. Helvering, 290

U.S. 111, 115 (1933).6

      Deductions are a matter of legislative grace, and the taxpayer generally

bears the burden of proving entitlement to any deduction claimed. Rule 142(a);

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co.

v. Helvering, 292 U.S. 435, 440 (1934). A taxpayer must substantiate deductions

claimed by keeping and producing adequate records that enable the Commissioner

to determine the taxpayer’s correct tax liability. Sec. 6001; Hradesky v.

Commissioner, 65 T.C. 87, 89-90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir.

      6
       Although petitioner has not asserted that the burden of proof as to any
relevant factual issue should shift to respondent under sec. 7491(a), respondent
bears the burden of proving that petitioner is not entitled to a dependency
exemption deduction for ML. See Rule 142(a) (respondent shall bear the burden
of proof in respect of any new matter or increases in the deficiency).
                                        -8-

1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer

claiming a deduction on a Federal income tax return must demonstrate that the

deduction is allowable pursuant to a statutory provision and must further

substantiate that the expense to which the deduction relates has been paid or

incurred. Sec. 6001; Hradesky v. Commissioner, 65 T.C. at 89-90.

      When a taxpayer establishes that he or she paid or incurred a deductible

expense but fails to establish the amount of the deduction, the Court normally may

estimate the amount allowable as a deduction. Cohan v. Commissioner, 39 F.2d

540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743

(1985). There must be sufficient evidence in the record, however, to permit the

Court to conclude that a deductible expense was paid or incurred in at least the

amount allowed. Williams v. United States, 245 F.2d 559, 560 (5th Cir. 1957).

      Under section 162(a), a deduction is allowed for ordinary and necessary

expenses paid or incurred during the taxable year in carrying on any trade or

business. A deduction normally is not allowed, however, for personal, living, or

family expenses. Sec. 262(a). Whether an expenditure satisfies the requirements

for deductibility under section 162 generally is a question of fact. See

Commissioner v. Heininger, 320 U.S. 467, 475 (1943).
                                         -9-

      Section 274(d) prescribes more stringent substantiation requirements to be

met before a taxpayer may deduct certain categories of expenses, including

expenses related to the use of listed property as defined in section 280F(d)(4)(A).

See Sanford v. Commissioner, 50 T.C. 823, 827 (1968), aff’d, 412 F.2d 201 (2d

Cir. 1969). As relevant here, the term “listed property” includes passenger

automobiles. Sec. 280F(d)(4)(A)(i). To satisfy the requirements of section

274(d), a taxpayer generally must maintain adequate records or produce sufficient

evidence corroborating his or her own statement, which, in combination, are

sufficient to establish the amount, date and time, and business purpose for each

expenditure or business use of listed property. Sec. 1.274-5T(b)(6), (c)(1),

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

      Section 1.274-5T(c)(2), Temporary Income Tax Regs., 50 Fed. Reg. 46017

(Nov. 6, 1985), provides in relevant part that “adequate records” generally consist

of an account book, a diary, a log, a statement of expense, trip sheets, or a similar

record made at or near the time of the expenditure or use, along with supporting

documentary evidence. Section 1.274-5(j)(2), Income Tax Regs., provides in

relevant part that a taxpayer who elects to use the optional standard mileage rate

method to compute vehicle expenses must nevertheless meet the strict

substantiation requirements of section 274(d). Moreover, the Court may not use
                                       - 10 -

the rule established in Cohan v. Commissioner, 39 F.2d at 543-544, to estimate

expenses covered by section 274(d). Sanford v. Commissioner, 50 T.C. at 827;

sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6,

1985).

I. Vehicle Expenses

      Petitioner elected to apply the standard mileage rate and claimed a

deduction for vehicle expenses of $16,225. Respondent maintains that petitioner

has not adequately substantiated vehicle expenses greater than $4,778.7

      Petitioner testified that he traveled extensively in 2010 to attend events

where he promoted Filamnation.com. The record includes a mileage log that

purports to show the number of miles that petitioner drove for business purposes.

Although we have no doubt that petitioner traveled to promote his Web site, he

nevertheless failed to produce any supporting documentation to substantiate the

information in his mileage log. In particular, he offered no evidence such as

gasoline receipts, credit card statements, emails from event promoters, or

testimony or statements from friends to corroborate the information in his mileage

log. On this record, we conclude that petitioner has failed to adequately

      7
       Respondent determined that petitioner drove 9,555 miles for business
purposes in 2010. Multiplying 9,555 miles by the standard mileage rate of 50
cents per mile, respondent allowed petitioner vehicle expenses of $4,778.
                                         - 11 -

substantiate a deduction for vehicle expenses greater than the amount respondent

allowed.

II. Charitable Contributions

      Charitable contributions are deductible only if verified in accordance with

regulations prescribed by the Secretary. Sec. 170(a)(1); see Van Dusen v.

Commissioner, 136 T.C. 515, 530 (2011). Section 170(f)(8)(A) provides that the

taxpayer must obtain a contemporaneous written acknowledgment from the donee

for any claimed charitable contribution deduction of $250 or more. Section

170(f)(8)(B) provides in relevant part that the contemporaneous written

acknowledgment must include the amount of cash and a description of any

property other than cash contributed, whether the donee organization provided any

goods or services in consideration, in whole or in part, for any cash or property

contributed, and, if so, a description and good-faith estimate of the value of any

goods or services provided by the donee. Sec. 1.170A-13(b), (f), Income Tax

Regs. Section 170(f)(8)(C) provides that a written acknowledgment is

contemporaneous when the taxpayer obtains it on or before the earlier of (1) the

date the taxpayer files a return for the year of contribution; or (2) the due date,

including extensions, for filing that return.
                                        - 12 -

      In addition to the written acknowledgment requirement, section 170(f)(11)

and related regulations establish more detailed requirements for substantiation of

contributions of property other than money. For noncash contributions of $500 or

less, the taxpayer must substantiate the contribution with a receipt from the donee

indicating the donee’s name, the date and location of the contribution, and “[a]

description of the property in detail reasonably sufficient under the

circumstances.” Sec. 1.170A-13(b)(1), Income Tax Regs. For noncash

contributions in excess of $500, the taxpayer normally must also maintain written

records showing the manner in which the item was acquired, the approximate date

of acquisition, and the cost or adjusted basis of the property. Id. para. (b)(3); see

Lattin v. Commissioner, T.C. Memo. 1995-233.8

      Goodwill issued a receipt to petitioner acknowledging that he donated

clothing, shoes/accessories, and furniture in June 2010. The receipt does not

include a statement whether Goodwill provided any goods or services in

consideration, in whole or in part, for the property that petitioner contributed, and

the receipt does not include a detailed description of the donated items. Under the

      8
       If information regarding the acquisition date or cost basis of the property is
not available and the taxpayer attaches a statement to his return setting forth
reasonable cause for not being able to provide such information, the taxpayer’s
charitable contribution deduction shall not be disallowed on that account. Sec.
1.170A-13(b)(3)(ii), Income Tax Regs.
                                        - 13 -

circumstances, petitioner has failed to meet the substantiation requirements for

contributions of $250 or more prescribed in section 170(f)(8), and, therefore, we

sustain respondent’s determination that he is not entitled to a deduction for the

noncash charitable contributions claimed on his return.

III. Dependency Exemption Deduction and EIC

      As previously discussed, the Court permitted petitioner to assert for the first

time at trial that he was entitled to an EIC. The Court likewise permitted

respondent to present evidence challenging the dependency exemption deduction

that petitioner claimed for ML.

      A. Dependency Exemption Deduction

      An individual is allowed a deduction for an exemption for “each individual

who is a dependent (as defined in section 152) of the taxpayer for the taxable

year.” Sec. 151(c). Section 152(a) defines the term “dependent” to include “a

qualifying child”. Generally, a “qualifying child” must (1) bear a specified

relationship to the taxpayer (e.g., be a child of the taxpayer), (2) have the same

principal place of abode as the taxpayer for more than one-half of such taxable

year, (3) meet certain age requirements, (4) not have provided over one-half of

such individual’s own support for the taxable year at issue, and (5) not have filed a

joint return for that year. Sec. 152(c)(1).
                                         - 14 -

      Section 152(c)(4) provides special rules when two or more taxpayers can

claim the same qualifying child as a dependent. As relevant here, section

152(c)(4)(B)(i) provides that, if the parents claiming any qualified child do not file

a joint return together, such child shall be treated as the qualifying child of the

parent with whom the child resided for the longest period during the taxable year.

      Petitioner moved out of what had been the marital home in November 2010,

and we have found that ML continued to reside with Ms. Reyes thereafter. Under

the circumstances, and inasmuch as petitioner did not file a joint tax return with

Ms. Reyes for 2010, it follows that ML was the qualifying child of Ms. Reyes in

accordance with the provisions of section 152(c)(4)(B)(i).

      Petitioner likewise cannot claim ML as his qualifying child under the

special rules that apply in the case of divorced parents. See sec. 152(e); Espinoza

v. Commissioner, T.C. Memo. 2011-108. Pursuant to section 152(e), when certain

criteria are met, a child may be treated as a qualifying child of the noncustodial

parent (here, petitioner) rather than of the custodial parent (Ms. Reyes).9 Sec.

152(e)(1); sec. 1.152-4, Income Tax Regs. In accordance with section 152(e)(1)


      9
       Consistent with petitioner’s testimony that he moved out of the marital
home in November 2010, Ms. Reyes was ML’s custodial parent. See sec.
152(e)(4)(A) (“The term ‘custodial parent’ means the parent having custody for
the greater portion of the calendar year.”).
                                         - 15 -

and (2), petitioner could treat ML as his qualifying child only if Ms. Reyes had

signed a written declaration that she would not claim ML as a dependent and if

petitioner attached the written declaration to his tax return for 2010. Petitioner did

not attach the requisite written declaration to his tax return, and, in fact, the record

reflects that Ms. Reyes claimed ML as her dependent for the taxable year 2010.

Considering all the circumstances, we conclude that petitioner is not entitled to a

dependency exemption deduction for ML for 2010.

      B. Earned Income Credit

      Petitioner asserted at trial that he is entitled to an EIC. Respondent

contends that petitioner is not entitled to an EIC because he did not have a

qualifying child as required by law for the year in issue.

      Section 32(a)(1) allows an eligible individual an EIC. Section

32(c)(1)(A)(i) defines an “eligible individual” as an individual who has a

qualifying child for the taxable year. The term “qualifying child” is defined in

section 32(c)(3)(A) to mean a qualifying child of the taxpayer (as defined in

section 152(c), determined without regard to paragraph (1)(D) thereof and section

152(e)). Consistent with the preceding discussion, ML was not petitioner’s
                                         - 16 -

qualifying child as that term is defined in section 152(c) for 2010. It therefore

follows that petitioner is not eligible for an EIC.10

      To reflect the foregoing,


                                                  Decision will be entered

                                        under Rule 155.




      10
         Petitioner did not assert that he would be eligible for an EIC without a
qualifying child under the provisions of sec. 32(c)(1)(A)(ii). For the sake of
completeness, we note that petitioner reported adjusted gross income of $25,397
for 2010, including $24,997 of unemployment compensation. See Rev. Proc.
2009-50, sec. 3.06, 2009-45 I.R.B. 617, 622 (for taxable year 2010, taxpayers with
a filing status of head of household are subject to the complete phaseout of the
EIC if adjusted gross income (or, if greater, earned income) exceeds $18,470).
