                  T.C. Summary Opinion 2009-191



                      UNITED STATES TAX COURT



                 VIRGINIA AGOSTO, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 2693-07S.             Filed December 14, 2009.



     Virginia Agosto, pro se.

     Kim A. Palmerino, for respondent.



     GOEKE, Judge:   This case is before the Court pursuant to the

provisions of section 74631 of the Internal Revenue Code in

effect at the time the petition was filed.   Pursuant to section

7463(b), the decision to be entered is not reviewable by any




     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                                - 2 -

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

for any other case.

     Respondent determined a deficiency of $2,991 in petitioner’s

Federal income tax for 2005.    After concessions,2 the issues for

decision are:   (1) Whether petitioner substantiated her reduction

of gross income; (2) whether petitioner is entitled to deduct

automobile and parking expenses; (3) whether petitioner is

entitled to claim a $44,000 casualty loss; and (4) whether

petitioner is entitled to additional miscellaneous itemized

deductions.

                             Background

     At the time the petition was filed, petitioner was a

resident of New York.

     During 2005 petitioner owned two houses in New York and one

house in Connecticut.    Petitioner ran two businesses:   (1) A tax

return preparation business and (2) Agosto & Associates, a music

production business.    Petitioner filed a Form 1040, U.S.

Individual Income Tax Return, reporting gross income of $18,000,

which all came from her tax preparation business.    On her

Schedule C, Profit or Loss From Business, petitioner reported

$15,000 of losses from Agosto & Associates.    Petitioner also



     2
      Petitioner concedes that she received and failed to include
in income $12,000 from her individual retirement account.
Petitioner also concedes the sec. 72(t)(1) 10-percent additional
tax of $1,200 on early withdrawal.
                                 - 3 -

filed a Schedule E, Supplemental Income and Loss, claiming

$60,000 of passive activity losses.

       On November 2, 2006, respondent issued a notice of

deficiency to petitioner disallowing the $60,000 passive activity

loss to the extent it exceeded the $25,000 limit under section

469.    On January 31, 2007, petitioner petitioned this Court

contesting respondent’s determination.

       At trial petitioner produced a Form 1040X, Amended U.S.

Individual Income Tax Return, decreasing her gross income from

the tax return preparation business from $18,000 to $8,000,

claiming a typographical error.     Petitioner also claimed an

additional $4,000 deduction for automobile and parking expenses

from Agosto & Associates.     Petitioner conceded the $60,000

passive activity loss claim but claimed a $44,000 casualty loss

as a result of fire damage to property she owned in Connecticut.

Petitioner stated that she had $8,379 of gain from the sale of

property in New York and the $44,000 casualty loss, resulting in

a net loss of $36,000.     Respondent claims that because the

$44,000 casualty loss was from rental activity, it should still

be limited to $25,000 pursuant to section 469.

                              Discussion

I.   Reduction of Income

       Petitioner reported $18,000 of gross income on her original

Federal income tax return yet reduced that amount to $8,000 on
                               - 4 -

her amended return.   Petitioner stated that she was in poor

health at the time she completed the original return and that she

accidently put a number “1” in front of the $8,000.    As proof,

petitioner stated that she deposited $5,624 into her account from

her tax preparation business along with $2,250 in cash receipts

from other clients.   We find petitioner’s testimony credible.

Accordingly, on the basis of the record at trial, we find that

petitioner’s gross income was $8,000 in 2005.

II.   Automobile Expenses

      At trial petitioner claimed a $4,116 deduction on her

amended Schedule C for automobile expenses, contending that they

were ordinary and necessary business expenses from Agosto &

Associates.   Deductions are a matter of legislative grace, and

the taxpayer must prove he is entitled to the deductions claimed.

Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440

(1934).   Section 162(a) generally allows as a deduction “all the

ordinary and necessary expenses paid or incurred during the

taxable year in carrying on any trade or business”.    See Primuth

v. Commissioner, 54 T.C. 374, 377-378 (1970).   However,

deductions for travel and transportation expenses otherwise

allowable under section 162(a) are subject to strict

substantiation requirements.   See sec. 274(d)(1); sec. 1.274-

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

1985).
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     Expenses associated with travel, meals, and certain listed

property defined in section 280F(d)(4), including passenger

automobiles, computers, and cellular telephones, are subject to a

heightened level of substantiation, requiring taxpayers to

corroborate their statements with adequate records or sufficient

other evidence establishing the amount, time, place, and business

purpose of the expense.   Sec. 274(d).    In order to substantiate

the amount of an automobile expense, the taxpayer must prove:

(1) The amount of the expenditure (i.e., cost of maintenance,

repairs, or other expenditures); (2) the amount of each business

use and the amount of the vehicle’s total use by establishing the

amount of its business mileage and total mileage; (3) the time

(i.e., the date of the expenditure or use); and (4) the business

purpose of the expenditure or use.     Sec. 1.274-5T(b)(6),

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

     The taxpayer may substantiate the mileage by “adequate

records” or sufficient evidence that corroborates her statements.

Sec. 274(d).   To meet the adequate records requirement, the

taxpayer must maintain an account book, diary, log, statement of

expense, trip sheets, or similar record and documentary evidence

that in combination are sufficient to establish each element of

the expenditure or use.   Sec. 1.274-5T(c)(2)(i), Temporary Income

Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985).     An adequate record

must be prepared or maintained in such a manner that each
                                   - 6 -

recording of an element of an expenditure or use is made at or

near the time of the expenditure or use.       Sec. 1.274-

5T(c)(2)(ii), Temporary Income Tax Regs., supra.       “‘[M]ade at or

near the time of the expenditure or use’ means the elements of an

expenditure or use are recorded at a time when, in relation to

the use or making of an expenditure, the taxpayer has full

present knowledge of each element of the expenditure or use”.

Sec. 1.274-5T(c)(2)(ii)(A), Temporary Income Tax Regs., supra.

       Petitioner’s only evidence consisted of receipts from gas

stations.       However, petitioner provided no other evidence of

whether these trips were business or personal.       She provided no

travel log detailing trips that she made.       Petitioner has not met

the section 274(d) substantiation requirements and is not

entitled to the claimed deductions.3

III.       Casualty Loss

       Petitioner claims a $44,000 casualty loss due to fire damage

to her Connecticut property.       Petitioner also claims an $8,379

gain from her sale of property in New York.       The combination from

both properties equals roughly $36,000 of net loss.       Respondent

does not contest the amount of the net loss but argues that

because the Connecticut property was used in rental activity, the




       3
      Petitioner also seeks to deduct payment of parking tickets.
Such expenses are fines or penalties that are nondeductible, even
if related to business. See sec. 162(f).
                                - 7 -

passive activity limitation limits the $44,000 casualty loss to

$25,000.

       Section 165(a) allows a deduction for any loss sustained

during the taxable year and not compensated for by insurance or

otherwise.    For individuals, section 165(c)(3) allows a taxpayer

to deduct a loss from fire, storm, shipwreck, or other casualty,

or from theft.

       The section 469 passive activity loss rules disallow the

current deduction of losses and credits from activities in which

a given owner does not materially participate.    Section 469(i)

permits a passive activity loss up to $25,000 attributable to a

rental real estate activity in which an individual actively

participates.    However, section 469 does not apply to all

casualty and theft losses.    Section 1.469-2(d)(2)(xi), Income Tax

Regs., provides that certain casualty and theft losses are not

passive activity deductions.    This rule applies to any deduction

for a loss from fire, storm, shipwreck, or other casualty, or

from theft, as those terms are used in section 165(c)(3), if

losses that are similar in cause and severity do not recur

regularly in the conduct of the activity and the taxpayer

sustains the loss during a taxable year beginning after December

31, 1989.    Even though an activity is passive, casualty losses

are permitted if the casualty requirements in section 165 are

met.    Because respondent has conceded that petitioner’s property
                                - 8 -

sustained $44,000 of casualty loss and the passive loss

limitation will not apply, petitioner is entitled to the $44,000

casualty loss.

IV.   Miscellaneous Itemized Deductions

      Petitioner claimed on Schedule A, Itemized Deductions, of

her amended return miscellaneous itemized deductions for

unreimbursed employee business expenses totaling $4,114.

Respondent reduced petitioner’s expenses and miscellaneous

deductions by $658.

      The only evidence petitioner presented at trial was copies

of miscellaneous receipts for medical expenses, which were

subsequently returned to her.   Petitioner claims that these

receipts were additional credits and expenses which she

erroneously failed to report.   We do not find this explanation

credible.   Petitioner does not meet the substantiation

requirements of section 274, and her miscellaneous itemized

deductions were properly reduced.

      Accordingly, we conclude that:    (1) Petitioner’s gross

income was $8,000; (2) petitioner was not entitled to deduct

automobile and parking expenses; (3) petitioner is entitled to

the full $44,000 casualty loss; and (4) petitioner is not

entitled to additional miscellaneous itemized deductions.
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To reflect the foregoing,


                                         Decision will be entered

                                    under Rule 155.
