                  T.C. Summary Opinion 2005-90



                     UNITED STATES TAX COURT



          MARCUS V. AND POLLY A. BOOKER, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14036-03S.             Filed July 18, 2005.


     Marcus V. and Polly A. Booker, pro se.

     Brenda M. Fitzgerald, for respondent.



     COUVILLION, Special Trial Judge: This case was heard

pursuant to section 7463 in effect when the petition was filed.1

The decision to be entered is not reviewable by any other court,

and this opinion should not be cited as authority.




     1
      Unless otherwise indicated, subsequent section references
are to the Internal Revenue Code in effect for the years at
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
                               - 2 -

     Respondent determined deficiencies of $13,755 and $16,705 in

Federal income taxes, respectively, for petitioners’ 1999 and

2000 tax years, section 6662(a) penalties for the years 1999 and

2000 of $2,751 and $3,341, respectively, and a section 6651(a)(1)

addition to tax of $922.70 for the year 2000.

     After concessions at trial, noted hereafter, the issues for

decision are:   (1) Whether petitioners are entitled to dependency

exemption deductions under section 151 for the years 1999 and

2000; (2) whether petitioners are entitled to itemized deductions

of $11,650 and $13,405 under section 170 for charitable

contributions for the years 1999 and 2000, respectively; (3)

whether petitioners are entitled to trade or business expense

deductions of $14,900 and $15,198 for the years 1999 and 2000,

respectively, for supplies; (4) whether petitioners are entitled

to trade or business expense deductions of $4,525 and $4,800 for

the years 1999 and 2000, respectively, for wages; (5) whether

petitioners are liable for section 6662(a) penalties for the

years 1999 and 2000; and (6) whether petitioners are liable for a

section 6651 addition to tax for the year 2000.2

     2
      Generally, the burden of proof is on the taxpayer. Rule
142(a)(1). The burden of proof may shift to the Commissioner
under sec. 7491(a) if the taxpayer establishes compliance with
the requirements of sec. 7491(a)(2)(A) and (B) by substantiating
items, maintaining required records, and fully cooperating with
the Secretary’s reasonable requests. Prior to trial, petitioners
did not cooperate with respondent in producing books and records
to substantiate their expenses. The concessions by respondent
                                                   (continued...)
                               - 3 -

     Some of the facts were stipulated.   Those facts, with the

exhibits annexed thereto, are so found and made part hereof.

Petitioners’ legal residence at the time the petition was filed

was Atlanta, Georgia.

     Petitioners lived and worked in Atlanta, Georgia, during the

years in question.   Mr. Booker is self-employed as a tax return

preparer in Atlanta and the surrounding areas.   He has been

working in this capacity for 28 years.    He received his doctor of

jurisprudence degree and master of law in taxation degree from

the Atlanta Law School but is not licensed to practice law.    Mrs.

Booker worked as an assembler at a General Motors Corp. facility.

     Petitioners untimely filed their 1999 Federal income tax

return on June 7, 2000.3   On that return, petitioners claimed a

dependency exemption deduction for Mrs. Booker’s mother.

Petitioners also claimed an $11,650 itemized deduction for

charitable contributions and $19,425 in various trade or business




     2
      (...continued)
were based on documentation produced by petitioners at trial.
The burden of proof, therefore, does not shift to respondent
under sec. 7491(a). Further, respondent has the burden of
production with respect to the penalties and addition to tax
pursuant to sec. 7491(c), but petitioners have the burden of
proving that the penalties and addition to tax do not apply.
Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001).
     3
       Although petitioners filed their 1999 return late,
respondent did not determine the sec. 6651(a) addition to tax for
that year.
                                - 4 -

expense deductions for Mr. Booker’s business.    Respondent

disallowed the claimed deductions for lack of substantiation.

       Petitioners also untimely filed their 2000 Federal income

tax return on June 7, 2001.    On that return, petitioners claimed

a dependency exemption deduction for Mrs. Booker’s mother.

Petitioners also claimed itemized deductions of $13,405 for

charitable contributions and $19,998 for various trade or

business expenses deductions in connection with Mr. Booker’s

business.    Respondent also disallowed these deductions for lack

of substantiation.

       Deductions are a matter of legislative grace, and the

taxpayer bears the burden of proving entitlement to any

deductions claimed.    Rule 142(a); INDOPCO, Inc. v. Commissioner,

503 U.S. 79, 84 (1992).    The taxpayer is required to identify

each deduction available and show that all requirements have been

met.    New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440

(1934).    It is also the taxpayer’s responsibility to maintain

records sufficient to enable the Commissioner to determine the

correct tax liability.    Sec. 6001; Higbee v. Commissioner, 116

T.C. 438 (2001); sec. 1.6001-1(a), Income Tax Regs.    The taxpayer

must substantiate both the amount and purpose of claimed

deductions.    Higbee v. Commissioner, supra.   As previously
                                 - 5 -

discussed, the burden has not shifted to respondent in this

case.4

     With respect to the first issue, petitioners claimed section

151 dependency exemption deductions for years 1999 and 2000 for

Mrs. Booker’s mother, Carrie Mayfield (Ms. Mayfield).    Ms.

Mayfield did not reside with petitioners but lived alone in

Greenville, South Carolina.   During 1999, Ms. Mayfield suffered a

number of strokes and spent a portion of the year in the

hospital.   Petitioners contend they sent Ms. Mayfield money

almost every month to help pay her rent and insurance but

acknowledged they were not her sole source of support.    Ms.

Mayfield had other children and grandchildren who often

contributed to Ms. Mayfield’s support.    Ms. Mayfield also

received Social Security benefits of approximately $700 a month

and, additionally, received Medicare assistance.    Petitioners

also acknowledged that Ms. Mayfield received her deceased

husband’s pension every month.    The amount of that pension was

not disclosed.   Petitioners, however, were unable to establish

the specific amounts they contributed to Ms. Mayfield for the

years in question.   Mrs. Booker testified:   “I would give her

money certain times of the year.    Not exactly month per month,

like this month I might send her $500, or maybe two months from

then, I will send her another $500”.     Mrs. Booker also testified

     4
      See supra note 2.
                                 - 6 -

that one year she gave her mother approximately $6,200 to assist

in paying her mortgage and electric bill; however, petitioners

could not recall the exact year of the donation or provide any

written substantiation for such a payment.

     Section 151(c) allows for dependency exemption deductions in

certain circumstances.   The father or mother of a taxpayer may

qualify as a dependent of the taxpayer if the taxpayer provides

over half of that individual’s support in the calendar year for

which the deduction is sought.    Sec. 152(a)(4).    Although

petitioners testified they provided support to Mrs. Booker’s

mother, their testimony was vague, and they did not establish a

definite amount for either year.    In addition, petitioners

presented no written evidence to substantiate their

contributions.   Mrs. Booker acknowledged that Ms. Mayfield

received at least $700 a month in unrelated support but failed to

establish the amount of support Ms. Mayfield received from all

sources during the years at issue.       On this record, petitioners

failed to establish they contributed over half of Ms. Mayfield’s

support for each of the years in question.      Respondent,

therefore, is sustained on this issue.

     The next issue concerns itemized deductions claimed by

petitioners on Schedules A, Itemized Deductions, of their 1999

and 2000 income tax returns.   Petitioners claimed substantial

deductions on their 1999 and 2000 returns under section 170 for
                                  - 7 -

charitable contributions of $11,650 for the year 1999, consisting

of $2,400 by cash or check and $9,250 by other than cash or

check, and $13,405 for the year 2000, consisting of contributions

of $2,400 by cash or check and $11,005 by other than cash or

check.   Respondent disallowed the deductions for both years for

lack of substantiation.

      Section 170 allows a deduction for charitable contributions

during the taxable year if verified as provided in the

regulations.    Sec. 170(a)(1).    The term “charitable contribution”

includes a contribution or gift to a corporation, trust, or

community chest, fund, or foundation, with certain provisos.

Sec. 170(c).    For example, the recipient organization must have

been “created or organized in the United States or in any

possession thereof, or under the law of the United States, any

State, the District of Columbia, or any possession of the United

States”.   Sec. 170(c)(2)(A).     Furthermore, no part of the net

earnings of a qualified organization may inure to the benefit of

any private shareholder or individual.      Sec. 170(c)(2)(C).

     The charitable contributions deduction is subject to certain

substantiation requirements.      Sec. 170(f)(8).   No deduction is

allowed for any contribution of $250 or more unless the taxpayer

substantiates the contribution by a contemporaneous written

acknowledgment of the contribution by the qualified donee

organization.    Sec. 170(f)(8)(A).    This written acknowledgment
                                - 8 -

must state the amount of cash or description of property the

taxpayer donated and a statement confirming that no consideration

was given to the taxpayer.   Sec. 1.170A-13(f)(2), Income Tax

Regs.   The taxpayer is required to include in the records a “good

faith estimate” as to the value of goods or property contributed

in kind.   Sec. 170(f)(8)(B)(iii).

     Petitioners did not establish at trial that they were

entitled to any deduction for charitable contributions.   They

presented as evidence receipts that were furnished blank by

charitable organizations and admittedly filled in by petitioners.

This evidence purports to establish that, during 1999,

petitioners donated, among other things, at least 71 bags of

clothing, 4 humidifiers, 2 dehumidifiers, 4 vacuum cleaners, 6

chairs, and 25 wall fixtures.   The values claimed on the returns

are, in the Court’s view, inflated and do not amount to “good

faith estimates” of the value of the donated items, nor do they

add up to the $9,250 petitioners claimed as donations other than

by cash or check.   Petitioners offered little explanation as to

how they arrived at the fair market value of the items donated,

and no explanation as to how the final amount of $9,250, claimed

on their 1999 return, was calculated.   The Court is not satisfied

that petitioners made any donations; therefore, the deduction of

$9,250 petitioners claimed as charitable contributions other than

cash for 1999 is disallowed.
                                - 9 -

     Petitioners also claimed, on their 1999 return, a deduction

of $2,400 for cash donations under section 170.    Petitioners

claimed this consisted of cash donations made to various

churches, Mrs. Booker’s mother, and street beggars.    When

questioned about written substantiation, Mr. Booker responded:

“I just made a rough estimate.”    Any money petitioners gave to

street beggars, sometimes referred to as “pan handlers”, or to

relatives for their support is not deductible under section 170

as charitable contributions.    Sec. 170(c).   Petitioners did not

substantiate the amount of their other contributions, nor did

they establish that the organizations they contributed to were

qualified organizations.    The deduction of $2,400 in cash

contributions claimed by petitioners is, therefore, disallowed.

     With respect to the year 2000, petitioners also presented

filled-in receipts from various charitable organizations listing

donations received.    At trial, however, Mrs. Booker testified

that the lists did not represent items actually donated in 2000,

but was “Not 2000.    Just--that was a list--he [Mr. Booker] has

the forms for the year 2000.    I just made that list up * * *.    I

just made a list of items in which we have replaced over a period

of time.”   Mrs. Booker then testified she was sure she had

donated a copier and computer during 2000 but offered no proof of

such donations.   In addition, petitioners offered no evidence as

to the cash donations claimed on their 2000 return.    Due to the
                               - 10 -

lack of clear, convincing testimony and written substantiation,

respondent is sustained on this issue, and the entire $13,405

claimed as a deduction for charitable contributions on

petitioners’ 2000 Federal tax return is disallowed.

     The third issue relates to Mr. Booker’s trade or business as

a tax return preparer and consultant.     Mr. Booker did not

maintain an office, he merely visited his clients at their

business locations.   He referred to his activity as a traveling

tax service.   On Schedules C, Profit or Loss From Trade or

Business, of petitioners’ income tax returns for 1999 and 2000,

petitioners reported the following income and expenses from this

activity:


                                          1999            2000

Gross income                            $23,171         $20,118
Expenses
     Car and truck                       13,515          12,651
     Commissions and fees                   419             629
     Office expenses                      3,338           3,505
     Rent                                   891           1,010
     Supplies                            14,900          15,198
     Taxes/licenses                         360             360
     Travel                               -0-               890
     Meals and entertainment              -0-               611
     Utilities                            -0-               808
     Wages                               13,300          14,215
     Other expenses                       -0-               420
Total expenses                          $46,723         $50,297

Net loss                                $23,522         $30,179


     In the notices of deficiency, respondent disallowed

deductions for the following expenses:
                              - 11 -

                                         1999            2000

     Car and truck                     $13,515         $12,651
     Commissions and fees                -0-               629
     Office expenses                     -0-             3,505
     Rent                                -0-             1,010
     Supplies                           14,900          15,198
     Taxes/licenses                      -0-               360
     Utilities                           -0-               808
     Wages                              13,300          14,215
       Total adjustments               $41,715         $48,376


     Section 162 allows a deduction for ordinary and necessary

expenses that are paid or incurred during the taxable year in

carrying on a trade or business.   Sec. 162(a); Deputy v. duPont,

308 U.S. 488, 495 (1940).   Taxpayers carrying supplies on hand

can deduct the costs of those supplies in the amount that they

are actually consumed and used in operation during the taxable

year for which the return is made, if the cost of the supplies

was not deducted for any previous year.    If the supplies are

incidental and are carried on hand with no record of consumption

kept, the taxpayer may deduct the total cost of such supplies

purchased during the taxable year for which the return is made.

Sec. 1.162-3, Income Tax Regs.

     At trial, respondent conceded the following disallowed

expenses:
                              - 12 -

                                           1999             2000

     Car and truck                     $ 5,650.00     $ 7,006.00
     Supplies                             1,242.23      1,267.07
     Taxes/licenses                         -0-           360.00
     Utilities                              -0-           300.00
                                        1
     Wages                                13,825.00      9,415.00
       Total concessions               $20,717.23     $18,348.07
     1
      In addition to the $13,300 claimed by petitioners as a wage
expense on their 1999 income tax return, respondent also conceded
an additional $525 claimed by petitioners at trial. See infra
note 6.


     With respect to supplies, petitioners contended at trial

that they were entitled to amounts in addition to those

respondent conceded.   Petitioners, however, presented no

documenting information to support their arguments.    Moreover,

some of the purchases claimed, but not substantiated, included

computers and a copier, which would be capital assets subject to

depreciation.   They also presented receipts and copies of checks

purportedly for supplies; however, those records do not satisfy

the Court that the amount claimed is in excess of what respondent

has conceded.   Additionally, some of the other documentation

presented appeared to be for personal expenses, which are not

deductible under section 262.5   Petitioners, therefore, have not

established their entitlement to a deduction for supplies in

excess of the amounts conceded by respondent.



     5
      Petitioners offered into evidence two manila envelopes
containing receipts purportedly for supplies. The envelopes
included, however, receipts for beer, milk, underclothes, and
nail polish remover, which, without explanation from petitioners,
appear to be personal expenses.
                              - 13 -

     With respect to petitioners’ deductions for wages,

respondent, as shown above, conceded the entire amount

petitioners claimed on their 1999 tax return and $9,415 of the

$14,215 claimed by petitioners on their 2000 tax return.

Petitioners claimed at trial that they were entitled to deduct an

additional $4,525 for wages not claimed on their 1999 tax return

and the remaining $4,800 wage expense claimed on their 2000 tax

return that was not conceded by respondent.

     Mr. Booker claims that he employed several people to pass

out brochures promoting his tax return preparation business.

Also, he claims he paid his workers an incentive bonus for every

referral that resulted in additional business.   The amount of the

bonus depended on the type of tax return the client needed

prepared.   A “long-form” return earned the worker a larger bonus

than a “short form” return, and so on.   Petitioners paid all of

the workers in cash and kept no records of the payments; however,

at the end of each taxable year, Mr. Booker claims he issued a

Form 1099, Miscellaneous Income, to each person and filed a Form

1096, Annual Summary and Transmittal of U.S. Information Returns,

with the Social Security Administration.

     The additional wage deduction for 1999 and the remaining

wage deduction for 2000 claimed by petitioners consist of amounts

paid to one worker, Roy C. Bell.6   Mr. Booker testified that Mr.


     6
      Mr. Booker testified at trial that the $13,300 claimed as a
wage expense on petitioners’ 1999 tax return included the $4,000
he allegedly paid Mr. Bell during 1999. The $4,525 he claimed he
                                                   (continued...)
                              - 14 -

Bell worked for him part time passing out brochures and bringing

in referrals throughout 1999 and 2000.   Petitioners offered into

evidence copies of a completed Form 1096 for both 1999 and 2000

that listed nonemployee compensation to Mr. Bell of $4,000 for

1999 and $4,800 for 2000.

     Respondent disallowed deductions for the amounts Mr. Booker

claimed to have paid Mr. Bell because the Social Security

Administration, with which Forms 1096 would have been filed, has

no information on record of such payments to Mr. Bell for the

years 1999 and 2000.   Moreover, respondent averred that the

records of the Social Security Administration show that the

Social Security number listed as belonging to Mr. Bell does not

exist.   Also, although the Social Security Administration had a

record of all other employees for whose wages petitioners claimed

deductions for 1999 and 2000, it had no record of a Form 1099

being issued by petitioners to Roy C. Bell or to a person of

another name with the Social Security number petitioners listed



     6
      (...continued)
was entitled to as an additional wage expense deduction actually
pertained to another employee, Eric S. Williams. Mr. Booker
stated that he forgot to deduct wages paid to Mr. Williams during
1999 on his 1999 income tax return. The copy of the Form 1096
for 1999 petitioner admitted into evidence listed both Mr. Bell
and Mr. Williams as wage earners during 1999. In conceding the
entire $13,300 wage deduction for 1999, respondent stated the
intention to allow a deduction for wages paid to Mr. Williams
while disallowing any wage expense deduction pertaining to Mr.
Bell. Therefore, respondent also conceded at trial an additional
$525 deduction as a wage expense, leaving only $4,000 of the
additional $4,525 petitioners sought to deduct for 1999 in
dispute.
                               - 15 -

as belonging to Mr. Bell.    If the copies of the Forms 1096 for

both 1999 and 2000 petitioners admitted into evidence were

authentic, it seems highly unlikely that the Social Security

Administration would mistakenly omit Mr. Bell’s information for

both years.   Respondent questioned the authenticity of the copies

of Forms 1096 for 1999 and 2000 petitioners admitted into

evidence, and petitioners presented no proof the Forms 1096 were

actually filed for years 1999 and 2000.    In light of petitioners’

dubious record keeping and lack of clear and credible testimony,

the Court agrees with respondent’s conclusion that the copies of

Forms 1096 for 1999 and 2000 were not authentic.    Petitioners

presented no additional evidence, such as canceled checks,

establishing the payments to Mr. Bell during these 2 years.

Consequently, the Court sustains respondent on this issue.

Petitioners are not entitled to any deduction for wages for 1999

and 2000 in excess of the amounts conceded by respondent.

     Respondent determined section 6662(a) penalties against

petitioners in the amounts of $2,751 for 1999 and $3,341 for

2000.   Section 6662 provides for the imposition of a 20-percent

penalty for the portion of any underpayment to which the section

applies.   Sec. 6662(a).   Respondent determined that section

6662(b)(1) applied to petitioners because petitioners were

negligent or disregarded rules or regulations.

     Negligence is defined as “any failure to make a reasonable

attempt to comply with the provisions of this title.”    Disregard

includes “careless, reckless, or intentional disregard”.    Sec.
                              - 16 -

6662(c).   The majority of petitioners’ itemized deductions for

1999 and 2000 have been disallowed by the Court.    Petitioners

presented very little evidence as to how they arrived at many of

the amounts listed on their returns.    In addition, the majority

of their receipts admitted into evidence appear to be either

irrelevant or fabricated.   The Court holds that petitioners

disregarded rules and regulations in preparing their returns for

1999 and 2000 and sustains the section 6662(a) penalties.

     Respondent also determined a section 6651(a)(1) addition to

tax for the year 2000.   A taxpayer is liable for an addition to

tax for failure to file a timely return unless such failure “is

due to reasonable cause and not willful neglect.”    Sec.

6651(a)(1).   Willful neglect is defined as “a conscious,

intentional failure, or reckless indifference.”     United States v.

Boyle, 469 U.S. 241, 245 (1985).   Petitioners were required to

file a timely Federal income tax return for 2000.    Sec. 6012.

     Petitioners filed their 2000 Federal income tax return late,

on June 7, 2001.   When asked at trial why he did not file timely,

Mr. Booker claimed he had filed for an extension; however, he had

no evidence substantiating his claim.   Due to the lack of any

written evidence of an extension, the Court holds petitioners are

liable for the section 6651(a) addition to tax for 2000.
                            - 17 -

    Reviewed and adopted as the report of the Small Tax Case

Division.



                                      Decision will be entered

                                  under Rule 155.
