                  T.C. Summary Opinion 2011-104



                     UNITED STATES TAX COURT



                 KENNETH NORDEEN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 9840-09S.             Filed August 29, 2011.




     Kenneth Nordeen, pro se.

     Michael J. Gabor, for respondent.



     PANUTHOS, Chief 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 filed.1   Pursuant to

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


     1
      Unless otherwise indicated, subsequent section references
are to the Internal Revenue Code in effect for the year in issue,
and all Rule references are to the Tax Court Rules of Practice
and Procedure. All dollar amounts are rounded to the nearest
dollar.
                                - 2 -

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

precedent for any other case.

     Respondent determined a $5,239 deficiency in petitioner’s

1999 Federal income tax and a $7,752 deficiency in petitioner’s

2000 Federal income tax.   Respondent also determined section

6651(a)(1) additions to tax of $1,310 and $1,938 for 1999 and

2000, respectively.   After concessions,2 the issues for decision

for the tax year 1999 are:   (1) Whether petitioner is entitled to

a deduction for expenses in excess of $253,355 claimed on

Schedule C, Profit or Loss From Business, and (2) whether

petitioner is liable for an addition to tax under section

6651(a)(1).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.    Petitioner resided in

Florida at the time the petition was filed.

     Petitioner worked as a self-employed general contractor on

various properties owned by Thomas Hoy (Mr. Hoy) during the year

at issue.   Mr. Hoy paid petitioner by check.   Petitioner cashed



     2
      Respondent conceded that there is no deficiency or addition
to tax due from petitioner for the taxable year 2000.
     3
      Respondent also determined that petitioner is liable for
self-employment tax of $3,113. This is a computational
adjustment and was not addressed at trial.
                                - 3 -

the checks, using some of the proceeds to purchase supplies and

materials for the construction of Mr. Hoy’s home.   Petitioner

retained some records with respect to his income-producing

activity; however, many of petitioner’s records were destroyed in

a hurricane.

     Mr. Hoy issued a Form 1099-MISC, Miscellaneous Income,

reflecting that he paid petitioner $274,366 in nonemployee

compensation in 1999.4   Petitioner filed his 1999 Form 1040, U.S.

Individual Income Tax Return, on December 19, 2005, as married

filing separately and reported gross receipts and gross income of

$275,386.   Petitioner deducted expenses of $278,575, reflecting a

loss of $3,189.

     Petitioner’s Schedule C reflected the following deductions:

                  Description                     Amount Claimed
Depreciation and section 179 expense                  $3,800
  deduction
Insurance                                              3,500
Legal and professional services                        2,800
Rent or lease (vehicles, machinery, and                5,100
  equipment)
Supplies                                             125,000
Deductible meals and entertainment                       275
Wages                                                135,000




     4
      Mr. Hoy included on Form 1099 funds he paid petitioner to
purchase supplies. See our discussion infra.
                                - 4 -

Other expenses (cell phone)                               3,100
     Total expenses                                   278,575

Petitioner did not initially provide respondent with any

documents to substantiate the expenses deducted on Schedule C.

Respondent allowed $253,355 of Schedule C deductions by using a

gross profit percentage based on industry norms for 1999.

Respondent mailed petitioner a notice of deficiency on January

27, 2009.5

                             Discussion

I.    Burden of Proof

       A notice of deficiency is generally presumed correct, and

the taxpayer bears the burden of proving otherwise.       See Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).       If the

taxpayer satisfies certain substantiation and recordkeeping

requirements, the burden of proof regarding factual matters may

shift to the Commissioner.    See sec. 7491(a).   Petitioner has not

alleged, and we do not find, that the burden of proof should

shift to respondent.    See sec. 7491(a)(2)(A) and (B).


       5
      At some point before trial petitioner found some records
relating to his Schedule C activity. Also at some point before
trial petitioner claimed entitlement to dependency exemption
deductions and a medical expense deduction for the taxable year
1999. The dependency exemption deductions and the medical
expense deduction were not claimed on the Federal income tax
return, nor were these issues raised in the petition. The Court
permitted petitioner the opportunity to raise these issues and
present evidence at trial. Petitioner, however, did not present
any evidence at trial, and accordingly, no adjustments are
allowed for these claims.
                                - 5 -

     Income tax deductions are a matter of legislative grace, and

the burden of clearly showing the right to the claimed deduction

is on the taxpayer.    INDOPCO, Inc. v. Commissioner, 503 U.S. 79,

84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440

(1934).     A taxpayer is generally allowed deductions under

section 162 for all the ordinary and necessary expenses paid or

incurred during the taxable year in carrying on any trade or

business.    To qualify as a deduction under section 162(a), “an

item must (1) be ‘paid or incurred during the taxable year,’ (2)

be for ‘carrying on any trade or business,’ (3) be an ‘expense,’

(4) be a ‘necessary’ expense, and (5) be an ‘ordinary’ expense.”

Commissioner v. Lincoln Sav. & Loan Association, 403 U.S. 345,

352 (1971); Commissioner v. Flowers, 326 U.S. 465, 470 (1946);

Deputy v. du Pont, 308 U.S. 488, 495 (1940).      An expense is

necessary if it is appropriate and helpful in carrying on the

trade or business.    Commissioner v. Heininger, 320 U.S. 467, 471

(1943); Welch v. Helvering, supra at 113; Heineman v.

Commissioner, 82 T.C. 538, 543 (1984).      An expense is ordinary

when it is “of common or frequent occurrence in the type of

business involved.”    Deputy v. du Pont, supra at 495.

     A taxpayer must maintain sufficient records to enable the

Commissioner to determine his correct tax liability.      Sec. 6001;

sec. 1.6001-1(a), Income Tax Regs.      A taxpayer must also

substantiate the purpose and amount of the deductions claimed.
                                - 6 -

Higbee v. Commissioner, 116 T.C. 438, 440 (2001); Hradesky v.

Commissioner, 65 T.C. 87, 89 (1975), affd. per curiam 540 F.2d

821 (5th Cir. 1976).    Merely claiming a deduction on a Federal

income tax return is not sufficient to substantiate those

deductions.    Wilkinson v. Commissioner, 71 T.C. 633, 639 (1979);

Roberts v. Commissioner, 62 T.C. 834, 837 (1974).

        Within the limitations set by section 274(d), if a taxpayer

is unable to substantiate his deductions, the Court is permitted

to estimate the deductible amount after the taxpayer has

established that he incurred deductible expenses.     Cohan v.

Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930).     A taxpayer

must provide sufficient evidence to establish a rational basis

upon which we can make the estimate.     Vanicek v. Commissioner, 85

T.C. 731, 743 (1985).

II.   Schedule C Expense Deductions

      Respondent allowed petitioner a deduction of $253,355 for

1999.    Although petitioner was able to provide some documentation

of expenses for 1999, petitioner’s testimony, combined with the

records produced, does not support deductible expenses in excess

of the amount respondent allowed.     Because petitioner has been

unable to substantiate deductions in excess of $253,355 for 1999,

we sustain respondent’s determination.
                                - 7 -

     We note that respondent’s revenue agent indicated to the

Court that she believed the Form 1099-MISC overstated gross

income, in that the Form 1099-MISC included funds Mr. Hoy gave

petitioner to purchase supplies and materials for the

construction of Mr. Hoy’s home.   Assuming the Court were to

conclude that the Form 1099-MISC was overstated as respondent’s

agent suggested, we would be inclined to sustain respondent’s

deficiency determination in any event.

     Petitioner credibly testified that he took a weekly “draw”

from funds received from Mr. Hoy as his pay for work done.

Petitioner indicated that the amount of the draw was

approximately $450 for the first 5-1/2 half months of 1999 and

approximately $900 for the following 6-1/2 months.    Accepting

petitioner’s testimony, we could conclude that petitioner

received approximately $36,450 of gross income during 1999.6

Petitioner did not present any evidence of expenses to offset

this income.   Thus, under this theory, we could conclude that the

amount of the deficiency would be greater than that determined by

respondent.    As respondent did not raise this alternative theory

nor make any claim for an increased deficiency, we do not

consider this question any further.     This discussion simply




     6
      We compute this amount on the basis of 23 weeks x $450 =
$10,350 + 29 weeks x $900 = $26,100. This equals $36,450.
                                - 8 -

illustrates that by his own testimony, petitioner appears to have

understated his taxable income.

III.    Addition to Tax

       Section 6651(a)(1) generally provides that there will be an

addition to tax for a failure to file a timely return unless a

taxpayer can show that the failure to file is on account of

reasonable cause and not willful neglect.

       Respondent satisfied his burden of production under section

7491(c) by establishing that petitioner did not file his 1999

Federal income tax return by its due date.    Therefore, petitioner

bears the burden of proving that his failure to file a return was

due to reasonable cause and not due to willful neglect.    See sec.

6664(c); Higbee v. Commissioner, supra at 446; Ruggeri v.

Commissioner, T.C. Memo. 2008-300.

       A taxpayer can establish that his failure to timely file was

due to reasonable cause if he exercised ordinary business care

and prudence and was nevertheless unable to file his return in

time.    United States v. Boyle, 469 U.S. 241, 246 (1985); Crocker

v. Commissioner, 92 T.C. 899, 913 (1989); sec. 301.6651-1(c)(1),

Proced. & Admin. Regs.    Willful neglect is the conscious,

intentional failure to file, or reckless indifference to the

obligation to file a tax return.     United States v. Boyle, supra

at 245.
                              - 9 -

     Petitioner has not offered, and we do not find, that he had

reasonable cause for failing to file his 1999 Federal income tax

return by the date prescribed by law.

     To reflect the foregoing and on the basis of the

concessions,


                                           Decision will be entered

                                      for respondent as to 1999 and

                                      for petitioner as to 2000.
