                  T.C. Summary Opinion 2001-120



                     UNITED STATES TAX COURT



             ADOLFO AND MARIA BEDOY, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4108-00S.                     Filed August 6, 2001.



     Frank H. Whitehead, for petitioners.

     Jordan Musen, for respondent.



     PAJAK, Special Trial Judge:     This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.    The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.    Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year in issue.
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     Respondent determined a deficiency in petitioners' 1996

Federal income tax in the amount of $2,310 and a penalty under

section 6662(a) of $462.   This Court must decide whether

petitioners are entitled to itemized deductions for medical

expenses and job expenses and whether petitioners are liable for

the section 6662(a) penalty.

     Some of the facts in this case have been stipulated and are

so found.   Petitioners resided in Ontario, California, at the

time they filed their petition.

     Petitioner Adolfo Bedoy (petitioner) was employed by

Treasure Chest Advertising (Treasure Chest).   He was a shift

supervisor in the press room of Treasure Chest.    Petitioner

operated a press machine which produced advertising material for

furniture and other types of stores.   He also supervised other

press operators working near his press machine.

     On their 1996 Federal income tax return, petitioners

reported Form W-2 income of $49,075, interest of $56, and a

taxable refund of $1,150 for an adjusted gross income of $50,281.

     On their 1996 return, petitioners listed on Schedule A,

Itemized Deductions, the following medical and dental expenses:

                Glasses/hearing aids        $500
                Insurance                  2,500
                Hospital, etc.             3,400
                Doctors, etc.              2,500
                Prescription drugs         1,300
                                          10,200
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The 7.5 percent of adjusted gross income limitation pursuant to

section 213(a) reduced this amount by $3,771 so that the net

medical expense deduction was $6,429.

     On their 1996 return, petitioners also listed on Schedule A

the following amounts as job expenses:

            Business meals              $2,500
            Out of town meals              700
            Fuel                         1,000
            Repairs/maintenance          1,800
            Insurance                    2,500
            Wash/wax/misc.                 200
            Tax preparation fees           200
            Work wear/shoes/cleaners     2,700
                                        11,600

Only 50 percent of the expenses for the business meals and out-

of-town meals ($1,600) was deductible under section 274(n), which

reduced the total to $10,000.    The 2 percent of adjusted gross

income floor under section 67(a) reduced the resulting $10,000

amount by $1,006 so that the net job expense deduction was

$8,994.

     Respondent disallowed the aforesaid deductions in full.

Respondent determined that petitioners did not prove that the

amounts shown were for medical expenses and were paid, and that

they did not establish that the employee business expenses were

paid or incurred or were ordinary and necessary to the taxpayers’

business.

     Section 213 provides a deduction for certain medical

expenses.    Section 162(a) provides that there shall be allowed as
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a deduction all the ordinary and necessary expenses paid or

incurred in carrying on any trade or business.     Deductions are

strictly a matter of legislative grace.      INDOPCO, Inc. v.

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

Helvering, 292 U.S. 435, 440 (1934).     Taxpayers must substantiate

claimed deductions.   Hradesky v. Commissioner, 65 T.C. 87, 89

(1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976).     Moreover,

taxpayers must keep sufficient records to establish the amounts

of the deductions.    Meneguzzo v. Commissioner, 43 T.C. 824, 831

(1965); sec. 1.6001-1(a), Income Tax Regs.     Generally, except as

otherwise provided by section 274(d), when evidence shows that a

taxpayer incurred a deductible expense, but the exact amount

cannot be determined, the Court may approximate the amount,

bearing heavily if it chooses against the taxpayer whose

inexactitude is of his own making.      Cohan v. Commissioner, 39

F.2d 540, 543-544 (2d Cir. 1930).    The Court, however, must have

some basis upon which an estimate can be made.      Vanicek v.

Commissioner, 85 T.C. 731, 742-743 (1985).     There are strict

substantiation requirements under section 274(d) for items such

as travel expenses and meals.

     Respondent stated that up to the date of trial, petitioners

provided no substantiation.   The day of trial, petitioner

provided evidence that $315 of dental expenses were paid.
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Respondent conceded that petitioners were entitled to deduct $315

of dental expenses, subject to the limitations of section 213.

     At trial, petitioner offered no substantiation for any of

the deductions.   Petitioner claimed all receipts were missing

because of a renovation of his home over a three-year period from

1996 to 1998.   Petitioner admitted he had no receipts for the job

expense deduction.   Petitioner made no attempt to reasonably

reconstruct any of his expenditures.    Secs. 1.162-17, 1.274-

5(c)(5), Income Tax Regs.    But cf. Gizzi v. Commissioner, 65 T.C.

342 (1975).

     The claimed deductions are suspect because of the rounded

amounts, the repeated deduction of $2,500 amounts, and the

exaggerated deductions for some items.    With regard to the

claimed employee business expenses, Mary Lou Gutierrez, Human

Resources Manager for Treasure Chest, was a most credible

witness.   She explained that Treasure Chest reimburses employees

for work related expenses.   She also testified that petitioner

did not work off the premises where the press machines were

located and had no reason to travel for his job.    Respondent

detailed petitioner’s job related claims.    Ms. Gutierrez did not

believe they were related to his job.    It is clear to this Court

that these items of expenditure were not related to the job

petitioner performed for Treasure Chest.
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     We find that the medical and job expenses were not

substantiated, except for the $315 amount respondent conceded.

This amount has no net tax effect because of the 7.5 percent of

adjusted gross income limitation under section 213(a).     We also

find that the job expenses were not ordinary and necessary to

petitioner’s job as a shift supervisor.     Sec. 162(a).

Accordingly, we sustain respondent’s determinations as to these

issues.

     Respondent determined that petitioners were liable for the

section 6662(a) penalty in the amount of $462.     Section 6662(a)

provides for an accuracy-related penalty in the amount of 20

percent of the portion of an underpayment of tax attributable to,

among other things, negligence or disregard of rules or

regulations.   Sec. 6662(a) and (b)(1).    Negligence is defined to

include any failure to make a reasonable attempt to comply with

the provisions of the Internal Revenue laws and any failure by

the taxpayer to keep adequate books and records or to

substantiate items properly.   Sec. 6662(c); sec. 1.6662-3(b)(1),

Income Tax Regs.

      Petitioners provided no records which substantiated their

alleged expenses, aside from the amounts of dental expenses

substantiated, minor in amount compared to the amounts

petitioners claimed as deductions.     Nor did they attempt to
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reconstruct the alleged expenses.   Accordingly, we sustain

respondent’s determination as to the penalty.

     Reviewed and adopted as the report of the Small Tax Case

Division.



                                           Decision will be entered

                                      for respondent.
