                         T.C. Summary Opinion 2013-76



                        UNITED STATES TAX COURT



JAY DOUGLAS HASKETT AND CYNTHIA S. WEBB-HASKETT, Petitioners
      v. COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 17571-11S.                      Filed September 26, 2013.



      Jay Douglas Haskett and Cynthia S. Webb-Haskett, pro sese.

      Michelle M. Robles, for respondent.



                             SUMMARY OPINION


      GUY, Special Trial Judge: This case was heard pursuant to the provisions

of section 7463 of the Internal Revenue Code in effect when the petition was
                                         -2-

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.

        Respondent determined a deficiency of $9,880 in petitioners’ joint Federal

income tax for 2008 and an accuracy-related penalty of $1,976 under section

6662(a). Petitioners filed a timely petition for redetermination with the Court

pursuant to section 6213(a).

        After concessions,2 the issues remaining for decision are whether petitioners

are (1) entitled to a dependency exemption deduction for Ms. Webb-Haskett’s

mother, (2) entitled to a deduction for charitable contributions in excess of the

amount respondent allowed, (3) entitled to deductions for various expenses

reported on Schedule C, and (4) liable for an accuracy-related penalty under



        1
        Unless otherwise indicated, section references are to the Internal Revenue
Code (Code), as amended, for 2008, and Rule references are to the Tax Court
Rules of Practice and Procedure. Monetary amounts are rounded to the nearest
dollar.
        2
        The parties agree that petitioners are entitled to deductions on Schedule C,
Profit or Loss From Business, as follows: (1) tax and license expenses of $942
(comprising $691 reported on Schedule C plus additional expenses of $251), and
(2) meals and incidental expenses of $627 (after the application of the 50%
limitation prescribed in sec. 274(n)). Petitioners concede that they are unable to
substantiate the deduction of $1,500 claimed on Schedule C for telephone
expenses.
                                        -3-

section 6662(a). To the extent not discussed herein, other issues are

computational and flow from our decision in this case.3

                                    Background

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

facts and the accompanying exhibits are incorporated herein by this reference.

Petitioners, husband and wife, resided in Florida at the time the petition was filed.

Dr. Haskett is a board-certified emergency room physician and has practiced

medicine since 1981. He earned a doctor of medical dentistry degree from the

University of Kentucky and a medical doctor degree from the University of

Oklahoma. Ms. Webb-Haskett earned a doctoral degree in education. Although

she retired in 2008, she previously worked as a public school teacher and

administrator and as an instructor at Indian River State College.

I. Lottie Saputa

      Lottie Saputa was Ms. Webb-Haskett’s mother. Petitioners testified that,

because of her failing health, Ms. Saputa moved out of her residence in Port St.

Lucie, Florida, and came to live with them in November 2007. Ms. Webb-Haskett

      3
         Respondent determined petitioners’ tax deficiency after allowing a standard
deduction of $10,900 and an additional deduction of $1,000 for real property tax.
The notice of deficiency also states that respondent denied Ms. Webb-Haskett’s
claim for spousal relief. Ms. Webb-Haskett did not allege in the petition that she
is entitled to spousal relief, and she did not raise the issue at trial.
                                        -4-

generally assisted her mother with daily activities and took her to medical

appointments.

      In May 2008 Ms. Saputa moved to Lawnwood Commons (Lawnwood), a

nursing home. The record includes several Lawnwood invoices addressed to

“Lottie Saputa #230, c/o Cynthia Haskett”. The invoices are dated May 1,

May 22, June 20, and July 18, 2008, and reflect payments of $3,743 (including a

$1,000 admission fee), $2,743, $2,743, and $1,527, respectively.

      During 2008 Ms. Saputa received $7,824 in benefits from the Social

Security Administration, unspecified Medicare benefits, $740 per month from the

U.S. Department of Veterans Affairs (paid directly to Lawnwood), and $419 from

the State of Florida (paid directly to Lawnwood). Ms. Saputa passed away on

August 22, 2008.

      Petitioners testified that during 2008 they paid Ms. Saputa’s daily living

expenses, a portion of her medical expenses, property taxes and insurance on her

Port St. Lucie residence, $1,743 per month to Lawnwood for the four months from

May to August 2008, and $4,529 toward her funeral expenses. Petitioners’ bank

records show that they paid $1,743 to Lawnwood, $249 for a walker, and $60 to a

medical aide.
                                         -5-

II. Charitable Contributions

      Ms. Webb-Haskett served on the board of directors of the Humane Society

of Vero Beach & Indian River County (Humane Society). During 2008 petitioners

made separate contributions of $1,000 and $250 by cash or check to the Humane

Society in connection with certain fundraising events. The Humane Society

acknowledged receipt of the $1,000 contribution in a letter to petitioners which

refers to their attendance at two events: a charitable auction “preview party” and

the charitable auction itself. The letter states in relevant part that “[d]onations are

tax deductible to the extent that they exceed the $50 per person value of

refreshments at the Auction.”

      Ms. Webb-Haskett testified that, having recently retired, she began to

downsize her professional wardrobe during 2008 and donated numerous items of

clothing to the Humane Society. Petitioners produced a number of receipts for

donations that they received from the Humane Society Thrift Shop (thrift shop).

By way of example, a thrift shop receipt dated February 2, 2008, consists of a

standard form addressed to Ms. Webb-Haskett and signed by a thrift shop

employee, along with a schedule prepared by Ms. Webb-Haskett listing 34 items

of clothing (e.g., blazers, trousers, jeans, sweaters, etc.) and bed linens, and

estimates of the cost of the items new, $4,460, and the value of the items in used
                                        -6-

condition, $950. The reverse side of the schedule includes an appraisal of the

donated items (generally consistent with the value that Ms. Webb-Haskett had

assigned to them) and a statement that the thrift shop received the items listed on

the schedule, the items were in good to excellent condition, and no goods or

services were provided in exchange for the donated items. The appraisal is

initialed--apparently by the person who signed the standard form described above.

Petitioners believed that the appraisers were volunteer employees of the thrift

shop. Some of the schedules also include a statement indicating that an appraisal

was performed by Goodwill Industries, but the statements do not include the name

or qualifications of the appraiser.

        The remaining thrift shop receipts, dated February 20, March 31, April 8,

June 22, and November 6, 2008, are similar in format to the receipt described

above and indicate that petitioners donated items with aggregate values of $1,440,

$2,025, $1,206, $1,915, and $2,525, respectively. In sum, petitioners claim that

they donated approximately 200 items of clothing with an aggregate value of

approximately $9,500 and housewares with an aggregate value of approximately

$525.
                                          -7-

III. Dr. Haskett’s Physician Activities

      A. Medical Doctor Associates, LLC

      During 2008 Dr. Haskett worked in Arizona and Florida as an independent

contractor providing medical services for Medical Doctor Associates, LLC

(MDA), a health care staffing company.

             1. Arizona

      Dr. Haskett traveled from Florida to San Carlos Indian Hospital in San

Carlos, Arizona, to provide medical services for residents of an Apache Indian

reservation on the following dates: December 27, 2007, to January 2, 2008;

January 18 to 23, 2008; February 18 to 24, 2008; and April 30 to May 7, 2008.

Dr. Haskett’s travel expenses between Florida and Arizona, including airfare,

rental car charges, hotel charges, and meals and incidental expenses, normally

were billed directly to and paid by MDA. MDA’s records reflect that, when

traveling to Arizona, Dr. Haskett normally flew round trip between Orlando,

Florida, and Phoenix, Arizona.

      MDA preferred that its doctors stay at Dream Manor, a hotel near San

Carlos, but Dr. Haskett testified that he often chose to stay elsewhere. Dr. Haskett

testified that he stayed at a Quality Inn during his February 2008 trip to Arizona

and that he paid the hotel charges himself. MDA’s business records indicate that
                                        -8-

it paid $367 to Dream Manor to cover Dr. Haskett’s hotel charges for February 18

to 23, 2008.

      San Carlos is approximately 100 miles from Phoenix. Dr. Haskett rented a

car during his trips to Arizona, and MDA paid all rental car charges except Dr.

Haskett’s gasoline purchases. Dr. Haskett did not retain gasoline receipts. The

record includes rental car receipts which reflect that he drove 1,395, 592, 437, and

1,945 miles during his trips to Arizona ending January 2, January 23, February 24,

and May 7, 2008, respectively.

      During his trip to Arizona from April 30 to May 7, 2008, Dr. Haskett

worked five shifts (May 1 to May 5), he spent five nights (April 30 to May 4) at a

Comfort Inn in Globe, Arizona, at a daily rate (including taxes and other charges)

of $91, and he spent two nights (May 5 to 6) at a Ramada Hotel in Phoenix at a

daily rate (including taxes and other charges) of $75. Although MDA paid these

hotel charges, it withheld $182 (the charges for a two-night stay at the Comfort

Inn) from Dr. Haskett’s paycheck dated May 13, 2008.

               2. Florida

      Dr. Haskett also provided medical services for MDA at Solantic, a medical

care provider with clinics in Port St. Lucie and Vero Beach, Florida, and at Hendry

Regional Medical Center (HRMC) in Clewiston, Florida. Dr. Haskett testified that
                                        -9-

MDA’s Vero Beach and Port St. Lucie clinics were 10 miles and 38 miles from his

home, respectively.

      MDA’s business records indicate that Dr. Haskett worked at a Solantic

clinic or HRMC on November 25 and December 10, 22, 30, and 31, 2008, at two

of the clinics on December 17, 2008, and at a clinic and HRMC on December 19,

2008. Although Dr. Haskett appeared for work at one or more of Solantic’s

clinics on a few other days during December 2008, he was sent home and did not

work those days because of scheduling errors.

      MDA’s parent corporation was acquired by another corporation in the latter

half of 2008. As a result, Dr. Haskett received separate Forms 1099-MISC,

Miscellaneous Income, issued by MDA and Crystal M, Inc., reporting

nonemployee compensation of $14,210 and $20,520, respectively, for 2008.

      B. Medical Resources, Inc.

      During 2008 Dr. Haskett worked as an attending physician for Medical

Resources, Inc. (MRI), at five medical clinics in South Florida (referred to herein

as Vero Beach, Okeechobee, Port St. Lucie West, Port St. Lucie South, and Ft.

Pierce), and a rehabilitation center, Consulate Health Care (CHC).

      Dr. Haskett testified that he normally drove from his home to the Vero

Beach, Okeechobee, and CHC facilities daily, Monday through Friday, adding
                                       - 10 -

trips to Port St. Lucie West on Mondays and Wednesdays, Port St. Lucie South on

Tuesdays and Thursdays, and Ft. Pierce on Fridays. Dr. Haskett further testified

that he routinely drove 120 miles between clinics on both Mondays and

Wednesdays, 128 miles between clinics on both Tuesdays and Thursdays, and 115

miles on Fridays. He also testified that he drove round trips of 20 miles from his

home to CHC on Saturdays and Sundays.

       Dr. Haskett did not maintain a daily mileage log related to his work for

MRI, but he kept a calendar listing his four daily clinic assignments (i.e., by name,

address, and time of day he was expected to arrive at each clinic). The entries for

some days are stricken with a handwritten notation that Dr. Haskett was “off” that

day.

       Dr. Haskett testified that he paid continuing medical education expenses

(CME expenses) of $4,100 during 2008 and that MRI reimbursed him for the

expenses but nevertheless included the reimbursements in his wages reported on

Form W-2, Wage and Tax Statement. The record includes copies of Dr. Haskett’s

MRI earnings statements for the pay periods ending July 13 and August 10, 2008.

Both statements include an item for “Cme” of $2,336 under the heading for
                                        - 11 -

“Earnings”. The record does not include a copy of Dr. Haskett’s final MRI

earnings statement for 2008.4

      MRI issued two Forms W-2 to Dr. Haskett for 2008 reporting wages of

$114,092 and $42,966, respectively, for a total of $157,058. There are no entries

on the Forms W-2 indicating that Dr. Haskett received any payments other than

wages or suggesting that Dr. Haskett’s wages included reimbursements for CME

expenses.

IV. Petitioners’ Joint 2008 Tax Return

      Petitioners filed a joint Form 1040, U.S. Individual Income Tax Return, for

2008. They did not report any dependents on line 6c of the return.

      A. Itemized Deductions

      Petitioners attached a Schedule A, Itemized Deductions, to their return and

claimed a deduction of $8,000 for charitable contributions made by cash or check.

Dr. Haskett testified that this item was erroneously reported inasmuch as most of


      4
        During the trial of this case Dr. Haskett produced letters which stated that
MRI had included CME expense reimbursements in the calculation of his wages
for 2008. Dr. Haskett conceded that he did not know who signed the letters. He
testified that MRI’s owners would not return his phone calls before trial, and,
therefore, he was unable to call any witnesses to authenticate the letters. Under
the circumstances, the Court sustained respondent’s objection and declined to
admit the letters into evidence.
                                         - 12 -

petitioners’ charitable donations consisted of contributions of property. He further

testified that he attached to the return a Form 8283, Noncash Charitable

Contributions, reporting substantial contributions of clothing and housewares to

the thrift shop. Respondent’s records indicate that no Form 8283 was attached to

petitioners’ return when it was filed.

      The Form 8283 that Dr. Haskett purportedly attached to the return is

handwritten and is signed and dated by him. Part III of the form, requiring a

declaration by an appraiser, is blank and part IV, requiring the donee’s

acknowledgment, is not signed but rather is initialed by an otherwise unidentified

“volunteer” employee from the thrift shop.5

      B. Schedule C

      Petitioners attached a Schedule C to their return related to Dr. Haskett’s

physician activities. The Schedule C reports gross receipts of $35,530 (including

$34,730 that MDA reported on Forms 1099-MISC), expenses of $32,641, and net

profit of $2,889. Although petitioners claimed a deduction of $9,950 for vehicle

expenses, they did not complete part IV of Schedule C (Information on Your

      5
        In the event a taxpayer claims a deduction for a charitable contribution of
property valued at more than $5,000, sec. 1.170A-13(c)(2)(i)(B), (3)(i)(B),
(4)(i)(B), Income Tax Regs., requires the taxpayer to attach to his or her tax return
a fully completed appraisal summary bearing the signatures of a qualified
appraiser and a qualified representative of the donee.
                                        - 13 -

Vehicle). Petitioners also claimed deductions of $16,975 for travel expenses and

$3,000 for CME expenses.

V. Tax Return Preparation

      Everett A. Slone has prepared petitioners’ tax returns since 1983, and he

prepared their tax return for 2008. Dr. Haskett conceded at trial that he did not

review petitioners’ tax return in sufficient detail before it was filed. Mr. Slone is

not a certified public accountant.

                                     Discussion

      The Commissioner’s determination of a taxpayer’s liability in a notice of

deficiency normally is presumed correct, and the taxpayer bears the burden of

proving that the determination is incorrect. Rule 142(a); Welch v. Helvering, 290

U.S. 111, 115 (1933). We consider as a preliminary matter petitioners’ contention

that the burden of proof has shifted to respondent pursuant to section 7491(a).

      Section 7491(a) provides that the burden of proof may shift to the

Commissioner as to any factual issue relevant to a taxpayer’s liability for tax if

(1) the taxpayer introduces credible evidence with respect to that issue; and (2) the

taxpayer satisfies certain other conditions, including substantiation of any item

and cooperation with the Government’s requests for witnesses, documents, other

information, and meetings. Sec. 7491(a)(1) and (2); see also Rule 142(a)(2). The
                                       - 14 -

taxpayer bears the burden of proving that the requirements of section 7491(a) have

been met. See Rolfs v. Commissioner, 135 T.C. 471, 483 (2010), aff’d, 668 F.3d

888 (7th Cir. 2012). As we explain below, petitioners failed to present credible

evidence sufficient to substantiate most of the items in dispute. On those issues,

the burden of proof remains with petitioners. Petitioners presented credible

evidence sufficient to substantiate a portion of their vehicle expenses. However,

because we decide that issue in petitioners’ favor on the preponderance of the

evidence, the allocation of the burden of proof is immaterial. See Knudsen v.

Commissioner, 131 T.C. 185, 189 (2008).

      Deductions are a matter of legislative grace, and the taxpayer generally

bears the burden of proving entitlement to any deduction claimed. Rule 142(a);

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

v. Helvering, 292 U.S. 435, 440 (1934). A taxpayer must substantiate deductions

claimed by keeping and producing adequate records that enable the Commissioner

to determine the taxpayer’s correct tax liability. Sec. 6001; Hradesky v.

Commissioner, 65 T.C. 87, 89-90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir.

1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer

claiming a deduction on a Federal income tax return must demonstrate that the

deduction is allowable pursuant to a statutory provision and must further
                                        - 15 -

substantiate that the expense to which the deduction relates has been paid or

incurred. Sec. 6001; Hradesky v. Commissioner, 65 T.C. at 89-90.

I. Lottie Saputa

      Petitioners contend that they spent approximately $13,000 for Ms. Saputa’s

support and maintenance during 2008 and that they are therefore entitled to a

deduction for the exemption amount allowed for dependents under section 151.

Respondent contends that petitioners failed to show that they provided more than

one-half of Ms. Saputa’s support. We agree with respondent.

      Section 151(c) provides that a taxpayer generally is allowed a deduction for

the applicable exemption amount for each individual who is a dependent. Section

152(a) defines a “dependent” to include a “qualifying child” or a “qualifying

relative”. As relevant herein, a taxpayer’s parent is a qualifying relative if the

parent’s gross income for the calendar year in which the taxable year begins is less

than the exemption amount prescribed in section 151(d)6 and if the taxpayer

provides over one-half of the parent’s support. Sec. 152(d)(1) and (2). Any

amount that the parent contributes toward his or her own support, including

      6
      The applicable exemption amount for 2008 is $3,500. See Rev. Proc.
2007-66, sec. 3.19(1), 2007-2 C.B. 970, 975. Respondent concedes that after
some or all of her Social Security benefits are excluded from gross income in
accordance with sec. 86, Ms. Saputa’s gross income was less than the exemption
amount.
                                        - 16 -

income which is ordinarily excluded from gross income, such as Social Security

benefits, must be taken into account in determining whether the taxpayer has

provided over one-half of a parent’s support. Sec. 1.152-1(a)(2)(ii), Income Tax

Regs.

        The record does not establish that Ms. Saputa was petitioners’ qualifying

relative within the meaning of section 152(d). During 2008 Ms. Saputa received

Social Security benefits of $7,824, monthly assistance of approximately $740 from

the U.S. Department of Veterans Affairs while she resided at Lawnwood, and

approximately $419 from the State of Florida--a total of slightly more than

$11,000.

        Although we accept petitioners’ testimony that Ms. Saputa resided with

them for the first four months of 2008, the bank records that they offered into

evidence show only that they made the following payments: $1,743 to

Lawnwood, $249 for a walker, and $60 for a medical aide. These expenditures are

far short of one-half of Ms. Saputa’s total support during 2008.7 Moreover,

petitioners did not offer any documentation to support the proposition that

Ms. Saputa’s Social Security benefits were used solely to maintain her Port St.

        7
        Ms. Saputa’s funeral expenses are not considered in determining whether
petitioners furnished more than one-half of her support. See Rev. Rul. 65-307,
1965-2 C.B. 40.
                                       - 17 -

Lucie residence and to pay for her medical care as opposed to being used to cover

Lawnwood charges and her other daily expenses.

      We are not required to, nor will we, rely on petitioners’ testimony alone to

establish their entitlement to the disputed dependency exemption deduction. See,

e.g., Shea v. Commissioner, 112 T.C. 183, 188-189 (1999). On the record

presented, we hold that petitioners are not entitled to claim Ms. Saputa as a

dependent.

II. Charitable Contributions

      Petitioners claimed an itemized deduction of $8,000 on Schedule A for

charitable contributions by cash or check. During the examination process,

however, petitioners asserted that they had made contributions by cash or check of

$1,250 and contributions of used clothing and housewares to the thrift shop

totaling approximately $10,000. Respondent determined that petitioners are

entitled to a deduction for charitable contributions of $4,650, comprising

contributions by cash or check of $1,0508 and noncash contributions (clothes and

housewares) of $3,600.

      8
       Respondent disallowed $200 of petitioners’ contributions by cash or check
to the Humane Society in connection with the auction events (described above) to
account for the value of refreshments served to two guests at the two events (e.g.,
$50 × 2 guests × 2 events = $200).
                                         - 18 -

      Charitable contributions are deductible under section 170 only if verified

under regulations prescribed by the Secretary. Sec. 170(a)(1). Section

170(f)(8)(A) provides that the taxpayer must obtain a contemporaneous written

acknowledgment from the donee for any claimed charitable contribution deduction

of $250 or more. Section 170(f)(8)(B) provides in relevant part that the

contemporaneous written acknowledgment must include the amount of cash and a

description of any property other than cash contributed, whether the donee

organization provided any goods or services in consideration, in whole or in part

for any cash or property contributed, and, if so, a description and good-faith

estimate of the value of any goods or services provided by the donee. Sec.

1.170A-13(b)(1), Income Tax Regs.; see Thorpe v. Commissioner, T.C. Memo.

1998-123. Section 170(f)(8)(C) provides that a written acknowledgment is

contemporaneous when the taxpayer obtains it on or before the earlier of (1) the

date the taxpayer files a return for the year of contribution; or (2) the due date,

including extensions, for filing that return.

      In addition to the written acknowledgment requirement, section 170(f)(11)

and related regulations establish more detailed requirements for substantiating

contributions of property other than money. For noncash contributions of $500 or

less, the taxpayer must substantiate the contribution with a receipt from the donee
                                        - 19 -

indicating the donee’s name, the date and location of the contribution, and “[a]

description of the property in detail reasonably sufficient under the

circumstances.” Sec. 1.170A-13(b)(1), Income Tax Regs. For noncash

contributions in excess of $500, the taxpayer normally must maintain written

records showing the manner in which the item was acquired, the approximate date

of acquisition, and the cost or adjusted basis of the property. Sec. 1.170A-

13(b)(3), Income Tax Regs.; see Lattin v. Commissioner, T.C. Memo. 1995-233.9

Lastly, for noncash contributions in excess of $5,000, the taxpayer must:

(1) obtain a qualified appraisal for the contributed property, (2) attach a fully

completed appraisal summary (i.e., Form 8283) to the tax return on which the

deduction is claimed, and (3) maintain records pertaining to the claimed deduction

in accordance with section 1.170A-13(b)(2)(ii), Income Tax Regs. See sec.

1.170A-13(c)(2), Income Tax Regs.

      For noncash contributions, in general, the value of the contribution is the

fair market value of the property at the time of contribution. Hewitt v.

Commissioner, 109 T.C. 258, 261 (1997), aff’d without published opinion, 166

      9
       If information regarding the acquisition date or cost basis of the property is
not available and the taxpayer attaches a statement to his return setting forth
reasonable cause for not being able to provide such information, the taxpayer’s
charitable contribution deduction shall not be disallowed on that account. Sec.
1.170A-13(b)(3)(ii), Income Tax Regs.
                                          - 20 -

F.3d 332 (4th Cir. 1998); sec. 1.170A-1(c)(1), Income Tax Regs. The fair market

value of contributed property is the price at which the property would change

hands between a willing buyer and a willing seller, neither being under any

compulsion to buy or sell and both having reasonable knowledge of relevant facts.

Sec. 1.170A-1(c)(2), Income Tax Regs.

      For purposes of determining whether a taxpayer’s donation of property

exceeds the $500 and $5,000 thresholds prescribed in section 170(f)(11), all

similar items of property donated to one or more donees are treated as one

property (i.e., the values of all similar items of property contributed to one or more

donees are considered in the aggregate). See sec. 170(f)(11)(F); sec. 1.170A-

13(c)(1)(i), (7)(iii), Income Tax Regs.

      Section 170(f)(11)(E)(i) provides that a qualified appraisal is an appraisal

carried out by a qualified appraiser pursuant to regulations or other guidance

prescribed by the Secretary. Section 170(f)(11)(E)(ii) provides that a qualified

appraiser generally means an individual who has earned an appraisal designation

from a recognized professional appraiser organization or has otherwise met

minimum education, experience, and other requirements set forth in regulations

prescribed by the Secretary and regularly performs appraisals for which the

individual receives compensation. Section 1.170A-13(c)(3)(i)(B), Income Tax
                                       - 21 -

Regs., provides that a qualified appraisal must be prepared, signed, and dated by a

qualified appraiser. Section 1.170A-13(c)(5)(iv)(C) and (D), Income Tax Regs.,

provides that the donee or an employee of the donee of property cannot serve as a

qualified appraiser.

      A. Contributions by Cash or Check

      There is no dispute that petitioners made contributions of $1,250 by cash or

check to the Humane Society. Respondent reduced by $200 the amount of the

contribution that petitioners made in connection with the two related auction

events, however, purportedly to account for the value of refreshments served at the

events. In this regard, the Humane Society’s letter stated: “Donations are tax

deductible to the extent that they exceed the $50 per person value of refreshments

at the Auction.” Contrary to respondent’s interpretation of this letter, we

understand that refreshments were served at the actual auction event, as opposed

to the preauction event. Taking this fact into account, we hold that petitioners

have adequately substantiated charitable contributions of $1,150 by cash or check.

      B. Noncash Contributions

      Petitioners contributed clothing and housewares to the thrift shop during

2008 as evidenced by receipts and related schedules. For purposes of determining

whether petitioners have satisfied the substantiation requirements for noncash
                                        - 22 -

contributions set forth in the Code and regulations, we are obliged to consider the

aggregate value of the various categories of petitioners’ noncash contributions. In

this regard, petitioners contend that they contributed clothing with an aggregate

value of approximately $9,500 and housewares with an aggregate value of

approximately $525.

      Under the circumstances, petitioners were obliged to maintain written

records showing the manner in which the donated items were acquired, the

approximate date of acquisition, and the cost or adjusted basis of the property.

Sec. 1.170A-13(b)(3), Income Tax Regs. Petitioners failed to offer such written

records at trial, and they did not show reasonable cause for not being able to

provide such information. See sec. 1.170A-13(b)(3)(ii), Income Tax Regs.

      In addition, petitioners claim a deduction for a charitable contribution of

clothing valued at $9,500, yet they did not obtain qualified appraisals for the

contributed property as required by section 1.170A-13(b)(2)(ii), (c)(2), Income

Tax Regs. Although petitioners could not definitively identify the various persons

whose initials appeared on the appraisals, they assumed the appraisers were

volunteer employees of the thrift shop. In accordance with section 1.170A-

13(c)(5)(iv)(C) and (D), Income Tax Regs., the donee or an employee of the donee
                                        - 23 -

cannot serve as a qualified appraiser.10 Consistent with the foregoing, we hold that

petitioners are not entitled to a deduction for noncash charitable contributions in

excess of the amount respondent allowed.

III. Trade or Business Expenses

      Dr. Haskett claimed various deductions on Schedule C including vehicle

expenses of $9,950, travel expenses of $16,975, and CME expenses of $3,000.

Respondent disallowed these deductions for lack of substantiation.

      Under section 162(a), a deduction is allowed for ordinary and necessary

expenses paid or incurred during the taxable year in carrying on any trade or

business. A deduction normally is not available, however, for personal, living, or

family expenses. Sec. 262(a). Whether an expenditure satisfies the requirements

for deductibility under section 162 is a question of fact. See Commissioner v.

Heininger, 320 U.S. 467, 475 (1943).

      The term “trade or business” includes performing services as an employee.

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

business expense is not ordinary and necessary if the employee is entitled to




      10
        In addition, petitioners failed to attach to their return a Form 8283 bearing
the signatures of a qualified appraiser and a qualified representative of the donee.
See sec. 1.170A-13(c)(2)(i)(B), (3)(i)(B), (4)(i)(B), Income Tax Regs.
                                        - 24 -

reimbursement from his or her employer. See Podems v. Commissioner, 24 T.C.

21, 22-23 (1955); Noz v. Commissioner, T.C. Memo. 2012-272.

      Section 274(d) prescribes more stringent substantiation requirements before

a taxpayer may deduct certain categories of expenses, including expenses related

to the use of listed property as defined in section 280F(d)(4). See Sanford v.

Commissioner, 50 T.C. 823, 827 (1968), aff’d, 412 F.2d 201 (2d Cir. 1969). As

relevant here, the term “listed property” includes passenger automobiles. Sec.

280F(d)(4)(A)(i). To satisfy the requirements of section 274(d), a taxpayer

generally must maintain adequate records or produce sufficient evidence

corroborating his own statement, establishing the amount, date, and business

purpose for an expenditure or business use of listed property. Sec. 1.274-5T(b)(6),

(c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46016-46017 (Nov. 6, 1985).

Section 1.274-5T(c)(2), Temporary Income Tax Regs., 50 Fed. Reg. 46017-46018

(Nov. 6, 1985), provides in relevant part that “adequate records” generally consist

of an account book, a diary, a log, a statement of expense, trip sheets, or similar

record made at or near the time of the expenditure or use, along with supporting

documentary evidence. Section 1.274-5(j)(2), Income Tax Regs., provides that the

strict substantiation requirements for vehicle expenses prescribed in section 274(d)
                                        - 25 -

must be met even where the optional standard mileage rate is used.11 Moreover,

the Court may not use the rule established in Cohan v. Commissioner, 39 F.2d

540, 543-544 (2d Cir. 1930), to estimate expenses covered by section 274(d).

Sanford v. Commissioner, 50 T.C. at 827; sec. 1.274-5T(a), Temporary Income

Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).

      A. Vehicle Expenses

      Dr. Haskett testified at trial that the “travel expenses” of $16,975 that he

reported on Schedule C actually represented transportation expenses he incurred

driving between the various clinics that he covered for MRI and for trips from

home to MDA’s clinics (including HRMC). With regard to his work for MRI,

Dr. Haskett testified that he routinely drove 120 miles between clinics on both

Mondays and Wednesdays, 128 miles on both Tuesdays and Thursdays, 115 miles

on Fridays, and 20 miles round trip from home to CHC on Saturdays and Sundays.

Dr. Haskett further testified that MDA’s Vero Beach and Port St. Lucie clinics

were 10 miles and 38 miles from his home, respectively.

      11
        The Commissioner generally updates the optional standard mileage rate
annually. See sec. 1.274-5(j)(2), Income Tax Regs. Rev. Proc. 2007-70, sec. 5.01,
2007-2 C.B. 1162, 1164, established a standard mileage rate of 50.5 cents per mile
effective for transportation expenses incurred on or after January 1, 2008. The
standard mileage rate was modified midyear, however, by Announcement 2008-
63, 2008-2 C.B. 114, which increased the standard rate to 58.5 cents per mile for
transportation expenses paid or incurred on or after July 1, 2008.
                                        - 26 -

      As an employee of MRI, Dr. Haskett’s transportation costs related to his

employment with that firm are deductible, if at all, as unreimbursed employee

business expenses on Schedule A (subject to the 2% floor of section 67(a)). In

contrast, Dr. Haskett’s transportation expenses related to his work as an

independent contractor for MDA would be deductible, if at all, on Schedule C.

             1. MRI

      Although Dr. Haskett did not maintain a daily mileage log related to his

work for MRI, he kept a calendar listing his four daily clinic assignments by name,

address, and the time of day he was expected to arrive at each location. Some of

the daily listings are stricken with a handwritten notation that Dr. Haskett was

“off” that day. His days off were largely attributable to the days that he worked

for MDA in Arizona and Florida. Respondent contends that Dr. Haskett has failed

to satisfy the strict substantiation requirements for transportation expenses

prescribed in section 274(d).12

      Section 1.274-5T(c)(2)(ii)(C), Temporary Income Tax Regs., 50 Fed. Reg.

46018-46019 (Nov. 6, 1985), provides that the level of detail required in an

adequate record to substantiate business use of a vehicle may vary depending upon


      12
       Respondent does not contend that Dr. Haskett could have obtained
reimbursement for his transportation expenses from MRI.
                                        - 27 -

the facts and circumstances, including the fact that the taxpayer travels an

established route. Having observed Dr. Haskett’s demeanor at trial, we find him

to be credible with respect to the weekly routes that he drove between MRI’s

various clinics. We conclude that his testimony, considered in conjunction with

his calendar, establishes that he drove 363 miles per week between MRI clinics,

over a total of 44 weeks during the year, or 15,972 miles. In computing the 15,972

miles for which Dr. Haskett may claim a deduction for vehicle expenses on

Schedule A, we exclude the miles that he drove from his home to CHC on

Saturdays and Sundays.13 In short, these trips represent nondeductible personal

commuting expenses. See, e.g., Heuer v. Commissioner, 32 T.C. 947, 951-953

(1959), aff’d, 283 F.2d 865 (5th Cir. 1960).

             2. MDA

      As for Dr. Haskett’s transportation costs related to his work for MDA,

nearly all of those costs were attributable to round trips from his home to MDA’s

clinics. Like his round trips to CHC, the trips to MDA’s clinics in South Florida

constitute nondeductible personal commuting expenses. See, e.g., id. Consistent


      13
        Of the 15,972 miles that Dr. Haskett drove during 2008, we find that he
drove half of those miles before July 1, 2008, and the other half thereafter. The
parties will compute the amount of the Schedule A deduction pursuant to Rule
155.
                                        - 28 -

with the foregoing, we hold that petitioners are not entitled to a deduction for

vehicle expenses on Schedule C related to Dr. Haskett’s work for MDA in Florida.

      B. Travel Expenses

      Dr. Haskett conceded at trial that the $9,950 deduction reported on Schedule

C for vehicle expenses was incorrect. Moreover, he could not identify with any

specificity most of the expenditures deducted. In addition to a small deduction for

meals and entertainment expenses that the parties have agreed to, Dr. Haskett

asserted that a portion of the deduction was attributable to his work for MDA

including (1) vehicle expenses he incurred driving 183 miles round trip from his

home to the airport in Orlando in connection with each of his four trips to Arizona,

and (2) the cost of the gasoline that he purchased for rental cars while working in

Arizona.

      MDA’s records reflect that Dr. Haskett normally flew round trip between

Orlando and Phoenix. Considering MDA’s records, Dr. Haskett’s testimony that

he used his personal vehicle for transportation to and from the airport, and the

distance between petitioners’ home and Orlando, we hold that petitioners have

adequately substantiated a deduction on Schedule C for travel (vehicle) expenses
                                        - 29 -

equal to the applicable standard mileage rate multiplied by 732 miles (i.e., 183

miles round trip × 4 trips).14

      Although MDA did not reimburse Dr. Haskett for gasoline he purchased

while traveling in Arizona, the record does not include any receipts, credit card

records, or similar documentation to substantiate these expenses. Moreover,

although Dr. Haskett’s rental car statements arguably provide enough information

to permit the Court to estimate the amount of the deduction, such travel

expenditures fall within the strict substantiation requirements of section 274(d),

which preclude such an estimate.15 See Sanford v. Commissioner, 50 T.C. at 827;

sec. 1.274-5T(a), Temporary Income Tax Regs., supra.

      Dr. Haskett also asserts that a portion of the $9,950 deduction was

attributable to hotel charges that he paid out-of-pocket when he declined to stay at

Dream Manor in Arizona. Although Dr. Haskett testified that he stayed at a

Quality Inn during his February 2008 trip to Arizona and paid the hotel charges

himself, he failed to produce a hotel receipt or a credit card statement


      14
         All of Dr. Haskett’s trips to Orlando are subject to the standard mileage
rate in effect before July 1, 2008.
      15
        Dr. Haskett’s rental car statements show that he drove 1,395, 592, 437, and
1,945 miles during his trips to Arizona ending January 2, January 23, February 24,
and May 7, 2008, respectively. Dr. Haskett did not explain the wide variance in
the miles that he drove on these trips.
                                       - 30 -

demonstrating that he paid any amount to Quality Inn. In the absence of any

credible evidence substantiating Dr. Haskett’s testimony, we decline to allow a

deduction for Quality Inn hotel charges.

      On the other hand, the record reflects that MDA deducted $182 (Comfort

Inn charges for two nights) from Dr. Haskett’s paycheck dated May 13, 2008.

MDA’s business records do not clearly explain the adjustment to Dr. Haskett’s

paycheck. Because the record shows that Dr. Haskett was working for MDA in

San Carlos while he was staying at the Comfort Inn during May 2008, we

conclude that Dr. Haskett is entitled to an additional deduction of $182 on

Schedule C for travel (hotel) expenses.

      C. CME Expenses

      Dr. Haskett claimed a deduction of $3,000 on Schedule C for CME

expenses. He maintains that he enrolled in and paid for CME courses and that

MRI reimbursed him for these expenses but inexplicably included the

reimbursements in his taxable wages reported on Form W-2.16 Dr. Haskett’s

      16
        Amounts paid to an employee as reimbursement under an accountable plan
are excluded from the employee’s gross income, are not reported as wages or other
compensation on Form W-2, and are exempt from withholding and payment of
employment taxes. Biehl v. Commissioner, 118 T.C. 467, 476 (2002), aff’d, 351
F.3d 982 (9th Cir. 2003); sec. 1.62-2(c)(4), Income Tax Regs. It appears that Dr.
Haskett contends, in the alternative, that CME expense reimbursements should be
                                                                     (continued...)
                                       - 31 -

earnings statements issued during the middle of 2008 arguably lend some support

to the proposition that MRI included payments for CME expenses in Dr. Haskett’s

wages. The record, however, does not include Dr. Haskett’s final earnings

statement from MRI for 2008, and the Forms W-2 that MRI issued to him for 2008

do not indicate whether CME expenses were included in his total wages as he

contends. Moreover, there is no evidence in the record as to the specific CME

programs that Dr. Haskett participated in or canceled checks, credit card records,

or similar documentation to substantiate the amounts, if any, that Dr. Haskett paid

for CME. On this record, we conclude that Dr. Haskett is not entitled to a

Schedule C deduction for CME expenses or to exclude any amount from his

taxable income for CME reimbursements.

IV. Accuracy-Related Penalty

      Section 6662(a) and (b)(1) imposes a penalty equal to 20% of any portion of

an underpayment attributable to negligence or disregard of rules or regulations.

The term “negligence” includes any failure to make a reasonable attempt to

comply with tax laws, and “disregard” includes any careless, reckless, or

intentional disregard of rules or regulations. Sec. 6662(c). Negligence also


      16
       (...continued)
excluded from his taxable income.
                                        - 32 -

includes any failure to keep adequate books and records or to substantiate items

properly. Sec. 1.6662-3(b)(1), Income Tax Regs.; see Olive v. Commissioner, 139

T.C. 19, 43 (2012).

        Section 6664(c)(1) provides an exception to the imposition of the accuracy-

related penalty if the taxpayer establishes that there was reasonable cause for, and

the taxpayer acted in good faith with respect to, the underpayment. Sec. 1.6664-

4(a), Income Tax Regs. The determination of whether the taxpayer acted with

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

account the pertinent facts and circumstances. Sec. 1.6664-4(b)(1), Income Tax

Regs.

        A taxpayer may be able to demonstrate reasonable cause and good faith (and

thereby escape the accuracy-related penalty of section 6662) by showing reliance

on professional advice. See id. However, reliance on professional advice is not an

absolute defense to the section 6662(a) penalty. Freytag v. Commissioner, 89 T.C.

849, 888 (1987), aff’d, 904 F.2d 1011 (5th Cir. 1990), aff’d, 501 U.S. 868 (1991).

A taxpayer asserting reliance on professional advice must prove that (1) the

adviser was a competent professional with sufficient expertise to justify reliance,

(2) the taxpayer provided the adviser necessary and accurate information, and (3)

the taxpayer actually relied in good faith on the adviser’s judgment. See
                                        - 33 -

Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 99 (2000), aff’d, 299

F.3d 221 (3d Cir. 2002). As a defense to the penalty, petitioners bear the burden

of proving that they acted with reasonable cause and in good faith. See Higbee v.

Commissioner, 116 T.C. 438, 446 (2001).

      With respect to a taxpayer’s liability for any penalty, section 7491(c) places

on the Commissioner the burden of production, thereby requiring the

Commissioner to come forward with sufficient evidence indicating that it is

appropriate to impose the penalty. Id. Once the Commissioner meets his burden

of production, the taxpayer must come forward with persuasive evidence that the

Commissioner’s determination is incorrect. Id. at 447; see Rule 142(a); Welch v.

Helvering, 290 U.S. at 115.

      Respondent discharged his burden of production under section 7491(c) by

showing that petitioners failed to keep adequate records and properly substantiate

most of their claimed deductions. See sec. 1.6662-3(b)(1), Income Tax Regs.

      Although petitioners relied on a paid tax preparer and trusted him to

properly prepare their tax return, there is no evidence in the record regarding the

return preparer’s experience or qualifications that would support the conclusion

that they reasonably relied on him. Dr. Haskett admitted that the return that Mr.

Slone prepared contained significant errors and that he did not carefully review the
                                       - 34 -

return before filing it. Taxpayers have a duty to review their tax returns before

signing and filing them, and the duty of filing accurate returns cannot be avoided

by placing responsibility on a tax return preparer. Metra Chem Corp. v.

Commissioner, 88 T.C. 654, 662 (1987); Magill v. Commissioner, 70 T.C. 465,

479-480 (1978), aff’d, 651 F.2d 1233 (6th Cir. 1981). In sum, on the record

presented, petitioners failed to show that they acted with reasonable cause and in

good faith within the meaning of section 6664(c)(1). Accordingly, respondent’s

determination that petitioners are liable for an accuracy-related penalty under

section 6662(a) is sustained.

      Consistent with the preceding discussion,


                                                Decision will be entered under

                                       Rule 155.
