                 T.C. Summary Opinion 2004-150



                     UNITED STATES TAX COURT



               JERRY HOWARD-CROWLEY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8491-03S.             Filed November 3, 2004.


     Jerry Howard-Crowley, pro se.

     Carina J. Campobasso, for respondent.



     DEAN, 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.   Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code in effect for the year at issue, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

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

and this opinion should not be cited as authority.
                              - 2 -

     Respondent determined a deficiency in petitioner's 2000

Federal income tax of $12,915, an addition to tax of $646 under

section 6651(a)(1), and an accuracy-related penalty of $2,583

under section 6662(a).

     The parties agree that petitioner received miscellaneous

income of $45,548 from B & D Stone Property Management, Inc., and

$189 in interest income from Community Guaranty Savings.    The

parties further agree that petitioner is entitled to deduct on

Schedule A, Itemized Deductions, medical expenses of $1,731.50,

taxes of $1,879.05, and interest of $1,297.63.   And the parties

agree that petitioner is entitled to deduct on Schedule C, Profit

or Loss From Business, insurance of $377, taxes and license fees

of $128.20, repairs and maintenance expenses of $104.73, and

supplies expenses of $18,129.19.

     The issues remaining for decision are whether petitioner is:

(1) Entitled to any deductions in excess of those agreed to by

respondent; (2) liable for the addition to tax under section

6651(a)(1); and (3) liable for the accuracy-related penalty under

section 6662.

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

The stipulation of facts and the exhibits received in evidence

are incorporated herein by reference.   At the time the petition

was filed, petitioner resided in Plymouth, New Hampshire.
                               - 3 -

                            Background

     Petitioner is self-employed as a carpenter and builder

primarily performing renovation work.    During the year at issue,

petitioner performed services for B & D Stone Property

Management, Inc., located in Waterville Valley, New Hampshire.

     Petitioner is divorced and has two children.    Petitioner's

former wife was granted primary physical custody of both

children, but petitioner, in the agreement to amend the decree,

was granted the right to claim his daughter as a dependent

beginning with the 1999 tax year.

     Petitioner attempted to file as a tax return for 2000 a Form

1040, U.S. Individual Income Tax Return, containing zeros on all

lines except line 6 where he claimed one exemption, line 36 where

he claimed the standard deduction, and line 38 where he claimed

the amount for a personal exemption.     Petitioner attached to the

form a signed document in which he stated that he is not liable

for income taxes nor is he required to file a Federal income tax

return.

     Respondent notified petitioner by mail that third-party

payors had reported income items that petitioner failed to

include on his Form 1040.   Petitioner responded by letter to

respondent's communication, claiming that Federal income tax laws

are unconstitutional.
                                - 4 -

     After the notice of deficiency was issued, the case was

assigned to respondent's Appeals Office for consideration.    While

Appeals was considering the case, petitioner submitted a Form

1040 for 2000 that listed the income determined in the notice of

deficiency and claimed deductions on Schedules A and C.    The

parties agree that petitioner was required to file a Federal

income tax return for 2000.

                              Discussion

     At trial, petitioner argued that he is entitled to

additional deductions for:    (a) A dependency exemption for his

daughter; (b) medical expenses; (c) home office expenses; (d)

computer expenses; (e) business transportation expenses; and (f)

work clothing expenses.   Petitioner failed to meet the

requirements of section 7491(a)(2), and the Court decides this

case on the basis of the preponderance of the evidence.

Deductions Petitioner Claimed

     Deduction for Dependency Exemption

     Section 151(c) allows a taxpayer to deduct an exemption

amount for each "dependent" as defined in section 152.    Section

152(a) defines a dependent to include a son or daughter of the

taxpayer "over half of whose support, for the calendar year in

which the taxable year of the taxpayer begins, was received from

the taxpayer (or is treated under subsection (c) or (e) as

received from the taxpayer)".
                                - 5 -

       In the case of a child of divorced parents, section

152(e)(1) provides that if a child receives over half of his

support from parents who are divorced under a decree of divorce

and the child is in the custody of one or both of his parents for

more than one-half of the year, then the child will be treated as

receiving over half of his support from the parent having custody

for a greater portion of the calendar year.      The term "custody"

is "determined by the terms of the most recent decree of

divorce".    Sec. 1.152-4(b), Income Tax Regs.   Because the divorce

decree granted petitioner's former wife primary physical custody

of the children, she is considered their "custodial parent" under

section 152(e).    See Cafarelli v. Commissioner, T.C. Memo. 1994-

265.

       Petitioner contends that because he was in compliance with

the terms of the divorce decree, as modified by the agreement to

amend decree, he is entitled to the claimed deductions.      The

Court, however, need not discuss the merits of this argument

because petitioner, as the noncustodial parent, did not abide by

the statutory requirements as explained below.

       The requirements of section 152(e) must be met regardless of

the language of the State court divorce decree.     See Miller v.

Commissioner, 114 T.C. 184 (2000), affd. sub nom. Lovejoy v.

Commissioner, 293 F.3d 1208 (10th Cir. 2002).      As the

"noncustodial parent", petitioner is allowed to claim his
                                 - 6 -

children as dependents only if one of the three statutory

exceptions in section 152(e) is met.     Under these exceptions, the

"noncustodial parent" is treated as providing over half of a

child's support if:   (1) Pursuant to section 152(e)(2), the

custodial parent signs a written declaration that the custodial

parent will not claim the child as a dependent, and the

noncustodial parent attaches the written declaration to the

noncustodial parent's return for the taxable year; (2) pursuant

to section 152(e)(3), there is a multiple-support agreement

between the parties as provided in section 152(c); or (3)

pursuant to section 152(e)(4), there is a qualified pre-1985

instrument providing that the noncustodial parent shall be

entitled to any deduction allowable under section 151 for the

child, provided that certain other requisites, not pertinent

here, are met.

     There is no evidence that any of the exceptions applies to

this case.   Petitioner's former wife did not release her claim to

the exemptions.    For 2000, she did not sign a Form 8332, Release

of Claim to Exemption for Child of Divorced or Separated Parents,

or any similar statement substantially in the form of a Form

8332, to release to petitioner her right to claim deductions for

certain dependency exemptions.    Petitioner did not attach a Form

8332 or anything substantially similar to a Federal income tax

return for 2000.   See Miller v. Commissioner, supra.
                                - 7 -

     There is no evidence in the record that petitioner complied

with the requirements of section 152, and the Court holds that

petitioner is not entitled to a dependency exemption deduction

for his daughter for 2000.

     Deduction for Medical Expenses

     Petitioner argued at trial that he should be allowed medical

expense deductions for himself and amounts he spent for medical

insurance on his children.   He alleges that he incurred as a

medical expense for himself less than $100 for anger management

counseling from a person named Dolly Powell.   He testified that

he was unable to obtain any information from her and that her

telephone number is unpublished.

     A taxpayer generally must keep records sufficient to

establish the amounts of the items reported on his Federal income

tax return.   See sec. 6001; sec. 1.6001-1(a), (e), Income Tax

Regs.   However, in the event that a taxpayer establishes that a

deductible expense has been paid but is unable to substantiate

the precise amount, the Court generally may estimate the amount

of the deductible expense, bearing heavily against the taxpayer

whose inexactitude in substantiating the amount of the expense is

of his own making.    See Cohan v. Commissioner, 39 F.2d 540, 543-

544 (2d Cir. 1930).   The Court cannot estimate a deductible

expense, however, unless the taxpayer presents evidence

sufficient to provide some basis upon which an estimate may be
                                 - 8 -

made.     See Vanicek v. Commissioner, 85 T.C. 731, 743 (1985).

Petitioner has not provided sufficient evidence upon which the

Court may allow a deduction for amounts he says were paid to

Dolly Powell.

     Under section 213, individuals are allowed to deduct the

expenses paid for the "medical care" of the taxpayer, the

taxpayer's spouse, or a dependent, to the extent the expenses

exceed 7.5 percent of adjusted gross income and are not

compensated for by insurance or otherwise.    The Court has

determined that under section 152(e) petitioner's children do not

qualify as his dependents during the year, and he therefore is

not entitled to deduct the cost of insurance for his children

that he paid for the year.

     Deduction for Home Office Expense

        Petitioner testified at trial that he used his dining room

as an office and his garage as a storage facility for items he

used in his trade or business.     Petitioner submitted to Appeals a

Form 1040 for 2000 showing a tax liability that did not reflect

an amount for a home office deduction.     On the attached Schedule

C, line 30, "Expenses for business use of your home.     Attach Form

8829", no amount was listed.     Petitioner did, however, attach to

the Form 1040 a Form 8829, Expenses for Business Use of Your

Home, showing expenses of $4,161.41.     The form indicates that
                               - 9 -

petitioner claims 52 percent of the area of his home was used for

business.

     Section 162 generally allows a deduction for ordinary and

necessary expenses incurred in carrying on a trade or business.

Under section 280A(c)(1)(A), however, business expenses relating

to use of any portion of a taxpayer's home are not allowable

unless the taxpayer establishes that the portion of the

taxpayer's home to which the expenses relate was used exclusively

and on a regular basis as the principal place of the taxpayer's

trade or business.   Hamacher v. Commissioner, 94 T.C. 348, 353

(1990).   The flush language following section 280A(c)(1)(C)

provides that the term "principal place of business" includes a

place used by the taxpayer "for the administrative or management

activities" of a trade or business.    Occasional use, however, of

a portion of a taxpayer's home for business purposes will not

satisfy the requirements of section 280A(c).    LaFavor v.

Commissioner, T.C. Memo. 1998-366; Anderson v. Commissioner, T.C.

Memo. 1982-576.

     Petitioner testified that his dining room office contained a

file cabinet, construction magazines, a television (for watching

the Learning and Discovery channels), a computer, and a desk.

Petitioner further testified that he was a subcontractor for

Stone Property Management during the entire year and had no other

sources of income.   When asked for what purpose the office was
                                - 10 -

used, he said it was for writing "bills", writing proposals, and

investigating new techniques.    Upon further questioning he stated

that there were no proposals written for the year and that the

office was used mainly for writing "bills" and for "personal e-

mail to send bills" rather than to mail them.

     Petitioner also testified that he used his garage as a

storage facility for his "business items".    He presented pictures

of the interior and exterior of his garage.   The pictures of the

interior show a mixture of items that could be used for

petitioner's trade or business or for personal purposes.

     The Court finds by a preponderance of the evidence that

petitioner used his dining room and his garage only occasionally

and not exclusively or on a regular basis as the principal place

of business for his trade or business.

     Deductions for Business Transportation Expenses
     and Computer Expenses

     Where a taxpayer has established that he has incurred a

trade or business expense, failure to prove the exact amount of

the otherwise deductible item may not be fatal.   Generally,

unless precluded by section 274, the Court may estimate the

amount of such an expense and allow the deduction to that extent.

See Finley v. Commissioner, 255 F.2d 128, 133 (10th Cir. 1958),

affg. 27 T.C. 413 (1956); Cohan v. Commissioner, supra.    Certain

business deductions described in section 274, however, are

subject to rules of substantiation that supersede the doctrine in
                              - 11 -

Cohan.   See sec. 1.274-5T(c)(2), Temporary Income Tax Regs., 50

Fed. Reg. 46017 (Nov. 6, 1985).   Section 274(d) provides that no

deduction shall be allowed with respect to the use of any "listed

property", as defined in section 280F(d)(4), unless the taxpayer

substantiates certain elements. "Listed property" includes any

property used as a means of transportation, and any computer or

peripheral equipment.   Sec. 280F(d)(4)(A)(ii), (iv).

     For an expense described in the above category, the taxpayer

must substantiate by adequate records or sufficient evidence to

corroborate the taxpayer's own testimony:    (1) The amount of the

expenditure or use on the basis of the appropriate measure

(mileage may be used in the case of automobiles); (2) the time

and place of the expenditure or use; and (3) the business purpose

of the expenditure or use.

     To meet the adequate records requirements of section 274, a

taxpayer must maintain some form of records and documentary

evidence that in combination are sufficient to establish each

element of an expenditure or use.    See sec. 1.274-5T(c)(2),

Temporary Income Tax Regs., supra.     A contemporaneous log is not

required, but corroborative evidence to support a taxpayer's

reconstruction of the elements of expenditure or use must have "a

high degree of probative value to elevate such statement" to the

level of credibility of a contemporaneous record.    Sec. 1.274-
                                - 12 -

5T(c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6,

1985).

     Petitioner testified that his remodeling work required him

to "spend a lot more time driving around getting specific items

for a specific job, specialty items."    Petitioner also testified

that his method of recording his business miles was to write down

the mileage for his truck at the beginning of the year and to

note the mileage at the end of the year.

     Petitioner testified that he bought a computer in 1999 that

he used for both business and personal purposes in 2000.

Petitioner claims that he is entitled to deduct the part of the

cost of the computer that he paid in 2000 as a business expense.

     The Court finds that petitioner has failed to meet the

adequate records requirements of section 274 with respect to his

truck and his computer.

     Deduction of Expenses for Work Clothing

     Petitioner claims that he is entitled to a deduction for

"work clothing", including winter boots, pants, underwear, and a

liner.   Expenses for work clothing may be deductible under section

162 if the taxpayer can establish that:    (1) The clothing was

required or essential in the taxpayer's employment; (2) the

clothing was not suitable for general or personal wear; and (3)

the clothing was not so worn.    Yeomans v. Commissioner, 30 T.C.

757, 767-769 (1958); Kozera v. Commissioner, T.C. Memo. 1986-604.
                                 - 13 -

The clothing expenses petitioner incurred were for clothes of a

type which can be worn outside of work.    The articles of clothing

seem especially suited for ordinary wear in the State of New

Hampshire.    A deduction may not be claimed for the expenses

because they are nondeductible personal expenses rather than

business expenses, even if the clothing was in fact used

exclusively for work.   Sec. 262(a); Barone v. Commissioner, 85

T.C. 462, 469 (1985) ("The general rule concerning the

deductibility of work clothes under section 162(a) is that they

must be of a type specifically required as a condition of

employment and not adaptable to general usage as ordinary

clothing."), affd. without published opinion 807 F.2d 177 (9th

Cir. 1986).    Petitioner's clothing was suitable for general or

personal wear.

     Petitioner is not entitled to any deductions in excess of

those agreed to by respondent.

Addition To Tax and Penalty

     Addition To Tax for Failure To Timely File

     Section 6651(a)(1) provides for an addition to tax of 5

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

month or fraction thereof for which there is a failure to file,

not to exceed 25 percent.    The addition to tax for failure to file

a timely return will be imposed if a return is not timely filed

unless the taxpayer shows that the delay was due to reasonable
                                 - 14 -

cause and not willful neglect.    See sec. 6651(a)(1).

     The Commissioner has the "burden of production in any court

proceeding with respect to the liability of any individual for

any" addition to tax.    Sec. 7491(c).    It is clear from the record

here that petitioner did not file a timely tax return.     His

explanation for his failure to file timely was that he filed a

"zero" return because "I was led astray, and learned that I was

doing the wrong thing.   It just took some time."

     The Court holds that petitioner's return for the year was not

timely filed and that petitioner has not shown that the delay was

due to reasonable cause and not willful neglect.

     Accuracy-related Penalty under Section 6662

     The Commissioner has the "burden of production in any court

proceeding with respect to the liability of any individual for any

penalty" under section 6662(a).      Sec. 7491(c); Higbee v.

Commissioner, 116 T.C. 438, 446-447 (2001).      To meet this burden,

the Commissioner must come forward with sufficient evidence

indicating that it is appropriate to impose the penalty.         Higbee

v. Commissioner, supra at 447.    Once the Commissioner meets his

burden of production, the taxpayer must come forward with evidence

sufficient to persuade the Court that the Commissioner's

determination is incorrect.    Id.    The taxpayer also bears the

burden of proof with regard to issues of reasonable cause,

substantial authority, or similar provisions.      Id. at 446.
                                 - 15 -

     Section 6662(a) imposes a penalty of 20 percent of the

portion of the underpayment which is attributable to, inter alia,

negligence or disregard of rules or regulations.    Sec. 6662(b)(1).

Negligence is the "'lack of due care or failure to do what a

reasonable and ordinarily prudent person would do under the

circumstances.'"    Neely v. Commissioner, 85 T.C. 934, 947 (1985)

(quoting Marcello v. Commissioner, 380 F.2d 499, 506 (5th Cir.

1967)).   The term "disregard" includes any careless, reckless, or

intentional disregard.     Sec. 6662(c).

     No penalty shall be imposed if it is shown that there was

reasonable cause for the underpayment and the taxpayer acted in

good faith with respect to the underpayment.     Sec. 6664(c).   The

determination of whether a taxpayer acted with reasonable cause

and in good faith is made on a case-by-case basis, taking into

account all pertinent facts and circumstances.     The most important

factor is the extent of the taxpayer's effort to assess the

taxpayer's proper tax liability.     "Circumstances that may indicate

reasonable cause and good faith include an honest misunderstanding

of fact or law that is reasonable in light of all the facts and

circumstances, including the experience, knowledge and education

of the taxpayer."     Sec. 1.6664-4(b)(1), Income Tax Regs.; see

Reynolds v. Commissioner, 296 F.3d 607, 618 (7th Cir. 2002), affg.

T.C. Memo. 2000-20.
                              - 16 -

     Respondent has satisfied his burden of production under

section 7491(c) by establishing that petitioner received the

income items that he failed to report.   Petitioner does not

dispute receiving the payments and offered no reasonable cause for

his failure to report the items.

     The Court holds that petitioner is liable for the accuracy-

related penalty under section 6662(a).

     Reviewed and adopted as the report of the Small Tax Case

Division.


                                         Decision will be entered

                                   under Rule 155.
