                   T.C. Summary Opinion 2011-52



                      UNITED STATES TAX COURT



           CRISTIAN AND GABRIELA BURERIU, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14064-09S.             Filed April 18, 2011.



     Cristian and Gabriela Bureriu, pro sese.

     Melanie E. Senick, for respondent.



     HAINES, Judge:   This case was heard pursuant to 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 any other court, and this opinion shall not

be treated as precedent for any other case.


     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986, as amended, and Rule
references are to the Tax Court Rules of Practice and Procedure.
Amounts are rounded to the nearest dollar.
                                -2-

     The stipulation of facts and the supplemental stipulation of

facts, together with the attached exhibits, are incorporated

herein by this reference and are so found.   At the time

petitioners filed their petition, they resided in Washington.

     Respondent determined a deficiency in petitioners’ 2006

Federal income tax of $19,151 and a section 6662(a) penalty of

$3,830.   The deficiency was the result of the denial of

deductions claimed on petitioners’ Schedule C, Profit or Loss

From Business, attached to their 2006 Federal income tax return.

Before trial respondent conceded that:   (1) Petitioners are

entitled to their claimed $2,813 depreciation expense for

property placed in service for taxable years beginning before

2006; (2) in 2006 petitioners paid $9,801 of the $12,974 of other

expenses listed on Schedule C but have not proven that those

expenses were ordinary and necessary; (3) in 2006 petitioners

paid mortgage interest, real estate taxes, utilities expenses,

$1,533 of other expenses, $3,312 of repair and maintenance

expenses, and $2,282 of capital expenditures but have not proven

that those amounts relate to the regular and exclusive business

use of their home; and (4) petitioners are entitled to depreciate

their home using the 27.5-year recovery period for residential

rental property.

     We must decide whether petitioners are entitled to

deductions for 2006 for:   (1) Car and truck expenses; (2)
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depreciation expenses for their four vehicles; (3) expenses

related to the business use of their home; and (4) other Schedule

C expenses.   We must further decide whether petitioners are

subject to the section 6662(a) penalty.

                            Background

     During 2006 petitioner Gabriela Bureriu (Ms. Bureriu) ran an

adult caregiver business, Gentle Care AFH, out of petitioners’

home.   Gentle Care AFH’s clients lived full time with petitioners

and their two children, ages 3 and 4.    The total square footage

of petitioners’ home was approximately 1,780 square feet and

included four bedrooms, a living room, a dining room, a kitchen,

a laundry room, and a recreation room.

     Petitioners used the master bedroom and master bathroom in

their home predominantly for personal purposes.    On occasion,

petitioners and their children also used the kitchen and the

laundry room for personal purposes.   The three other bedrooms

were used exclusively for the occupancy and care of Gentle Care

AFH’s clients.   On petitioners’ 2006 Form 1040, U.S. Individual

Income Tax Return, they claimed that 1,520 square feet, or 85.39

percent of their home, was used exclusively for business

purposes.   Petitioners provided a floor plan of their home but

the dimensions of each room are not clear.

     Petitioners owned four vehicles in 2006:   A 1999 Lexus

GS300, a 1999 Toyota Camry, a 2001 Toyota Sequoia, and a 2003
                                 -4-

Chevy Silverado.    Petitioners claim they used each of the four

vehicles for business in 2006.    Mileage logs petitioners kept for

the Lexus, the Camry, and the Silverado listed the business miles

driven in 2006 for each car to be 3,109, 1,820, and 1,470,

respectively.    Ms. Bureriu estimated the mileage on the logs, and

the logs did not include details or the business purpose for each

trip.    A log was not kept for the Sequoia in 2006.

     On petitioners’ 2006 Federal income tax return they reported

business use of 5,127, 3,127, and 4,996 miles for the Lexus, the

Camry, and the Silverado, respectively.    Petitioners did not

report any business use for the Sequoia.    The mileage amounts

reported on petitioners’ Federal income tax return in excess of

those in the mileage logs were determined solely on the basis of

petitioners’ oral communications to their accountant.

     Petitioners’ Schedule C listed “other expenses” totaling

$12,974.    These expenses comprised bank charges, computer

expenses, decorations, disposal fees, dues and subscriptions,

first aid, food and groceries, laundry and cleaning, licenses and

fees, linens, medical supplies, postage, printing, promotions and

gifts, seminars, small tools, telephone, uniforms, videos, and

tapes.    Respondent has conceded, on the basis of petitioners’

receipts, bank records, and credit card statements, that in 2006

petitioners paid $9,801 of the $12,974 of “other expenses” listed
                               -5-

on their Schedule C but argues that petitioners have not proven

they were ordinary and necessary.

     Petitioners occasionally paid for the “other expenses” using

the same credit card they used for personal expenses.

Additionally, petitioners used business accounts to pay personal

expenses, and those expenses were not noted when incurred.

Petitioners’ accountant relied on petitioners’ bank statements

and oral representations as the only evidence that the “other

expenses” listed on Schedule C were attributable to ordinary and

necessary business expenses.

      On March 5, 2009, respondent issued a notice of deficiency.

Petitioners timely mailed and postmarked their petition to this

Court on June 3, 2009.

                           Discussion

I.   Burden of Proof

     Respondent’s determinations in the notice of deficiency are

presumed correct, and petitioners bear the burden of proving that

respondent’s determinations are incorrect.   See Rule 142(a)(1).

Petitioners do not argue that the burden of proof shifts to

respondent pursuant to section 7491(a), nor have they shown that

the threshold requirements of section 7491(a) have been met for

any of the determinations at issue.   Accordingly, the burden of

proof remains on petitioners to prove that respondent’s

determination of a deficiency in their income tax is erroneous.
                                  -6-

II.   Business Use of Home

      Deductions are a matter of legislative grace, and the

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

circumstances 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); see

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

(Nov. 6, 1985).   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).

      In addition to the requirements discussed above, section

280A(a) provides the general rule that deductions with respect to
                                -7-

the use of the taxpayer’s residence are not allowable unless an

exception applies.   The exceptions are found in section 280A(c),

which provides in relevant part:2

          SEC. 280A(c). Exceptions for Certain Business or
     Rental Use; Limitation on Deductions for Such Use.--

               (1) Certain business use.--Subsection (a) shall
          not apply to any item to the extent such item is
          allocable to a portion of the dwelling unit which is
          exclusively used on a regular basis--

                    (A) as the principal place of business for
               any trade or business of the taxpayer,

                    (B) as a place of business which is used by
               patients, clients, or customers in meeting or
               dealing with the taxpayer in the normal course of
               his trade or business * * *

Because there are substantial business and personal motives for

the expenses related to petitioners’ residence, we must determine

what portion of the residence was used regularly and exclusively

for petitioners’ business.   See Intl. Trading Co. v.

Commissioner, 275 F.2d 578, 584-587 (7th Cir. 1960), affg. T.C.

Memo. 1958-104; Deihl v. Commissioner, T.C. Memo. 2005-287.

Combined personal and business use of a section of the residence




     2
      Sec. 280A(c)(4) generally provides an exception to sec.
280A(a) for items allocable to the use of any portion of a
dwelling unit on a regular basis in a taxpayer’s trade or
business of providing “day care” services for children,
individuals who have attained the age of 65, and individuals who
are physically or mentally incapable of taking care of
themselves. Sec. 280A(c)(4) is not applicable to petitioners
because Gentle Care AFH was not a “day care” service in 2006, but
rather, provided 24-hour care to its clients.
                                -8-

precludes deductibility.   See generally Sam Goldberger, Inc. v.

Commissioner, 88 T.C. 1532, 1557 (1987).

     Petitioners argue that the personal use of their home was

limited to the master bedroom and master bathroom and, therefore,

1,520 square feet, or 85.39 percent of their home, was used

exclusively for business purposes.    Petitioners admit, however,

that they occasionally used the kitchen and the laundry room for

personal purposes.   With respect to the living room, dining room,

and recreation room, petitioners have not presented any evidence

outside of Ms. Bureriu’s testimony to support their contention

that those rooms were exclusively used for business purposes.

Common sense tells us that petitioners’ young children, ages 3

and 4, were not confined to the master bedroom and master

bathroom at all times while in petitioners’ home.   Accordingly,

petitioners have failed to overcome their burden and are not

entitled to deductions with respect to the kitchen, laundry room,

living room, dining room, and recreation room.

     At trial respondent did not question Ms. Bureriu as to

whether the three bedrooms where Gentle Care AFH’s clients

resided were used exclusively for business purposes.   There is

nothing in the record to indicate that petitioners used those

bedrooms for any personal purpose in 2006.   Accordingly, in

accordance with Cohan v. Commissioner, supra at 543-544, and the

floor plans of petitioners’ home, we estimate that the three
                                  -9-

bedrooms, covering approximately 400 square feet of petitioners’

home, were used exclusively for business purposes.    Any

inexactitude in the estimate by the Court is of petitioners’ own

making and due to their failure to maintain proper business

records.    See id.   As 400/1,780 represents about 22.47 percent of

the total area of the home, petitioners are entitled to 22.47

percent of their allowable expenses allocable to the portion of

their home used exclusively for business purposes.

III.    Other Expenses

       As noted above, respondent concedes that petitioners paid

$9,801 of the $12,974 of “other expenses” listed on Schedule C.

Petitioners produced receipts, bank records, and credit card

statements as proof of the $9,801 respondent conceded.      However,

petitioners have failed to maintain adequate records or produce

any evidence outside of Ms. Bureriu’s testimony to prove that the

$9,801 of “other expenses” paid in 2006 was incurred for ordinary

and necessary business purposes.

       The Cohan doctrine allows the Court to approximate allowable

expenses, bearing heavily against the taxpayer who failed to

maintain adequate records.    It is not disputed that Gentle Care

AFH provided 24-hour care for three to four elderly clients

throughout 2006 and such care required the payment of certain

expenses.    An approximation weighing heavily against petitioners

is therefore warranted under the Cohan doctrine because we are
                                -10-

satisfied that some of the “other expenses” were incurred for

business purposes.   Accordingly, for 2006, petitioners may deduct

50 percent of each “other expense” that respondent has conceded

as paid.

IV.   Car Expenses

      Passenger automobiles and any other property used as a means

of transportation are “listed property” as defined by section

280F(d)(4).   Secs. 274(d)(4), 280F(d)(4)(A)(i).      Expenses for

items described in section 274 are subject to strict

substantiation rules.   No deduction shall be allowed for, among

other things, traveling expenses, entertainment expenses, gifts,

and expenses with respect to listed property (including passenger

automobiles) “unless the taxpayer substantiates by adequate

records or by sufficient evidence corroborating the taxpayer’s

own statement”:   (1) The amount of the expense or other item; (2)

the time and place of the travel, entertainment or use, or date

and description of the gift; (3) the business purpose of the

expense or other item; and (4) in the case of entertainment or

gifts, the business relationship to the taxpayer of the

recipients or persons entertained.     Sec. 274(d).    We may not use

the Cohan doctrine to estimate expenses covered by section

274(d).    See Sanford v. Commissioner, 50 T.C. 823, 827 (1968),

affd. per curiam 412 F.2d 201 (2d Cir. 1969); sec. 1.274-5T(a),

Temporary Income Tax Regs., supra.
                               -11-

     Petitioners kept logs to track business miles driven in 2006

for three of their four vehicles.     Petitioners’ mileage logs do

not include a description of the business purpose of each trip.

On their 2006 Federal income tax return, petitioners claimed that

the total miles driven for business purposes in each vehicle in

2006 far exceeded the mileage reported on the logs.    At trial Ms.

Bureriu testified that this discrepancy was the result of

emergency miles driven to care for her elderly clients.

Petitioners argue that they were too busy with emergencies to

properly document their mileage.    As a result, petitioners

communicated their final mileage calculations orally to their

accountant for purposes of preparing their 2006 Federal income

tax return.

     Petitioners’ oral account of mileage records with respect to

the business use of their vehicles in 2006 is not sufficient to

substantiate the associated deductions.    Further, petitioners’

mileage logs fail to provide any detail regarding the business

purpose of each entry.   As discussed above, we may not use the

Cohan doctrine to estimate section 274(d) expenses.    Accordingly,

petitioners have failed to meet the heightened substantiation

requirements of section 274, and we sustain respondent’s

determination with regard to the car and truck expenses.

     Petitioners also claimed depreciation deductions with

respect to their vehicles for 2006.    Because petitioners have
                                -12-

failed to substantiate the business use of the vehicles pursuant

to section 274 for 2006, we sustain respondent’s determinations

with respect to petitioners’ depreciation deductions.

V.   Section 6662(a) Penalty

     Section 6662(a) and (b)(2) imposes an accuracy-related

penalty upon any underpayment of tax resulting from a substantial

understatement of income tax.    The penalty is equal to 20 percent

of the portion of any underpayment attributable to a substantial

understatement of income tax.    Id.   The term “substantial

understatement” is defined as exceeding the greater of:    (1) 10

percent of the tax required to be shown on the return for the

taxable year or (2) $5,000.    Sec. 6662(d)(1)(A).   Section 6662(a)

and (b)(1) also imposes a penalty equal to 20 percent of the

amount of an underpayment attributable to negligence or disregard

of rules or regulations.   Negligence includes any failure to make

a reasonable attempt to comply with the provisions of the

Internal Revenue Code, including any failure to maintain adequate

books and records or to substantiate items properly.    Sec.

6662(c); sec. 1.6662-3(b)(1), Income Tax Regs.

     Petitioners’ failure to produce records substantiating their

Schedule C deductions supports the imposition of the accuracy-

related penalty for negligence for 2006.    The applicability of

section 6662(b)(2) will depend on the magnitude of the

understatement of income tax as calculated under Rule 155.     If
                                 -13-

petitioners’ understatement of income tax as calculated under

Rule 155 exceeds the greater of $5,000 or 10 percent of the tax

required to be shown on the return for 2006, respondent will have

met his burden of production under section 7491(c).       If not,

respondent will have failed to meet his burden of production

under section 7491(c).

     An accuracy-related penalty is not imposed on any portion of

the underpayment as to which the taxpayer acted with reasonable

cause and in good faith.   Sec. 6664(c)(1).      The taxpayer bears

the burden of proof with regard to those issues.       Higbee v.

Commissioner, 116 T.C. 438, 446 (2001).       Petitioners have failed

to show reasonable cause, substantial authority, or any other

basis for reducing the penalties.       Accordingly, pending a final

calculation of petitioners’ understatement of income tax under

Rule 155, we find petitioner liable for the section 6662 penalty

for 2006 as commensurate with respondent’s concessions and our

holding.   See id.

     In reaching our holdings herein, we have considered all

arguments made, and, to the extent not mentioned above, we

conclude they are moot, irrelevant, or without merit.

     To reflect the foregoing,


                                             Decision will be entered

                                        under Rule 155.
