                         T.C. Memo. 2009-164



                       UNITED STATES TAX COURT



                  EDILBERTO TOMAS GUERRERO AND
            SALVIE VILLAFLOR GUERRERO, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 27203-07.                Filed July 6, 2009.



     Edilberto Tomas Guerrero and Salvie Villaflor Guerrero, pro
sese.

     Scott B. Burkholder, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     VASQUEZ, Judge:    Respondent determined a $4,998 deficiency

in and a $999.60 section 6662(a)1 penalty on petitioners



     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 -

Edilberto Guerrero (Mr. Guerrero) and Salvie Guerrero’s (Mrs.

Guerrero) 2004 Federal income tax.

     The issues for decision are:    (1) Whether petitioners are

entitled to deductions for personal property taxes, other taxes,

charitable contributions, and individual retirement account (IRA)

contributions; and (2) whether petitioners are liable for the

section 6662(a) penalty.

                           FINDINGS OF FACT

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.    At the time petitioners

filed the petition, they resided in California.

     Petitioners were notified by the IRS by letter in April 2007

that their 2004 return was being audited.     The initial contact

letter identified the audit issues and informed petitioners of

the need to bring records supporting their position with regard

to the issues presented in the letter.    Mr. Guerrero contacted

the auditing IRS office’s group secretary on April 20, 2007, and

scheduled an interview.2    On June 7, 2007, Mr. Guerrero met with

Ms. Tamara Burrell, the tax auditor assigned to his return.3


     2
        Group secretaries make it a point when scheduling
appointments to tell taxpayers of the substantiation
requirements.
     3
        Ms. Burrell testified that Mrs. Guerrero did not
accompany Mr. Guerrero to the meeting. However, Mrs. Guerrero
                                                   (continued...)
                               - 3 -

     At the interview, Mr. Guerrero did not provide any

documentation to support the claimed deductions and contended he

was entitled to those deductions without having to provide any

substantiation.   Ms. Burrell informed Mr. Guerrero that the

taxpayer must “maintain some semblance of record keeping” and

“provide records to support the deductions”, as well as “provide

validity to the figures that appear on the return.”

     Respondent issued a notice of deficiency to petitioners

disallowing $39,000 of claimed deductions comprising the

following:   Personal property taxes of $3,300, other taxes

(automobile registration) of $2,700, charitable contributions of

$26,000, and IRA contributions of $7,000.4   These deductions were

disallowed because petitioners failed to provide any checks,

receipts, bills, invoices, letters confirming donations, or any

other documents proving the payment of those amounts.

     Petitioners timely filed a petition challenging respondent’s

denial of their claimed deductions.    A January 10, 2008, letter


     3
      (...continued)
did sign the return and the petition.
     4
        On petitioners’ Schedule A, Itemized Deductions, they
claimed total deductions of $40,669. Respondent denied $32,000
of these itemized deductions: Personal property taxes of $3,300,
other taxes of $2,700, and charitable contributions of $26,000,
leaving petitioners with $8,669, $1,031 less than the standard
deduction of $9,700. In adjusting the return, respondent allowed
the standard deduction because it provided petitioners with a
larger deduction than the allowable itemized deductions.
Petitioners claimed the IRA contributions as “above the line”
deductions.
                                - 4 -

from the IRS notified petitioners they would have another

opportunity to substantiate the contested deductions.

Petitioners failed to provide any substantiation at this second

interview.

     At trial Mr. Guerrero claimed he lacked substantiating

documents for the $26,000 of charitable contributions because

petitioners made anonymous cash donations to their church.     Mr.

Guerrero also claimed he was unaware that he needed to

substantiate the contributions.   However, when asked whether he

followed the instructions on the tax return that relate to

charitable contributions over $250, Mr. Guerrero stated: “I don’t

have to follow [them], I just put whatever is necessary to put

the deduction.   This is my deduction, the cash plate that I

donated.”    Mr. Guerrero, despite claiming he had some supporting

evidence, provided no substantiation or explanation for the other

claimed deductions.

     Even though petitioners’ gross income is not in issue, at

trial Mr. Guerrero argued that gain derived from wages, salaries,

and compensation for personal services is not taxable income.5



     5
        In his pretrial memorandum, Mr. Guerrero cites various
opinions including Lucas v. Earl, 281 U.S. 111 (1930) (he is
actually quoting the syllabus accompanying the opinion, which is
not considered part of the opinion), and Edwards v. Keith, 231 F.
110 (2d Cir. 1916). He contends that those cases support the
proposition that gain from wages, salaries, and compensation for
personal services is not within the concept of income and thus is
not taxable.
                                - 5 -

At trial Mr. Guerrero was advised by the Court that his case

involved deductions and not gross income, and that his position

was inconsistent with and nonresponsive to the issues presented.

Petitioners offered no other arguments or evidence.

                               OPINION

I.   Substantiation of Claimed Deductions

      Deductions are a matter of legislative grace, and a taxpayer

bears the burden of proving that he is entitled to the deductions

claimed.    See Rule 142(a); INDOPCO, Inc. v. Commissioner, 503

U.S. 79 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435

(1934).    The taxpayer is required to maintain records that are

sufficient to enable the Commissioner to determine his correct

tax liability.    See sec. 6001; sec. 1.6001-1(a), Income Tax Regs.

In addition, the taxpayer bears the burden of substantiating the

amount and purpose of the claimed deduction.    See Hradesky v.

Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d

821 (5th Cir. 1976).

      Section 7491(a) shifts the burden of proof to the

Commissioner with respect to a factual issue affecting the tax

liability of a taxpayer who meets certain preliminary conditions.

Petitioners failed to cooperate with respondent and did not

produce any credible evidence with respect to any matter in this

case.   See sec. 7491(a).   Furthermore, petitioners did not claim
                                - 6 -

that section 7491(a) applies.   Accordingly, section 7491(a) does

not apply in this case.

      Although Mr. Guerrero denies having knowledge of the

substantiation requirement, it is clear respondent made him aware

of this duty.   Respondent’s letters, Ms. Burrell, and this Court

all informed Mr. Guerrero of his duty to substantiate the claimed

deductions, yet he repeatedly failed and refused to do so.

Despite petitioners’ adamant denial of any duty to substantiate,

it is clear taxpayers must provide records supporting their

claimed deductions.   See sec. 6001; sec. 1.6001-1(a), Income Tax

Regs.   Accordingly, because petitioners have not presented any

evidence supporting the claimed deduction amounts, they have not

met their burden of substantiation and are not entitled to the

deductions.   See Hradesky v. Commissioner, supra.

II.   Section 6662(a) Accuracy-Related Penalty

      Section 6662(a) imposes a penalty in an amount equal to 20

percent of the portion of the underpayment of tax attributable to

one or more of the items set forth in section 6662(b), including

negligence or disregard of rules or regulations.     “Negligence” is

the failure to exercise due care or the failure to do what a

reasonable and prudent person would do under the circumstances

and includes any failure to make a reasonable attempt to comply

with the provisions of the internal revenue laws.     Sec. 6662(c);

Neely v. Commissioner, 85 T.C. 943, 947 (1985); sec. 1.6662-
                                - 7 -

3(b)(1), Income Tax Regs.    “Disregard” includes any careless,

reckless, or intentional disregard of rules or regulations.      Sec.

6662(c); sec. 1.6662-3(b)(2), Income Tax Regs.

     The accuracy-related penalty of section 6662 does not apply

with respect to any portion of an underpayment if it is shown

that there was reasonable cause for such portion and that the

taxpayer acted in good faith with respect to such portion.       Sec.

6664(c)(1).   The determination of whether a taxpayer acted with

reasonable cause and in good faith depends upon the pertinent

facts and circumstances.    Sec. 1.6664-4(b)(1), Income Tax Regs.

The most important factor is the extent of the taxpayer’s effort

to assess his or her proper tax liability.    Id.

      Section 7491(c) provides that the Commissioner bears the

burden of production with respect to the liability of any

individual for additions to tax and penalties.      “The

Commissioner’s burden of production under section 7491(c) is to

produce evidence that it is appropriate to impose the relevant

penalty, addition to tax, or additional amount”.      Swain v.

Commissioner, 118 T.C. 358, 363 (2002); see also Higbee v.

Commissioner, 116 T.C. 438, 446 (2001).    If a taxpayer files a

petition alleging some error in the determination of an addition

to tax or penalty, the taxpayer’s challenge will succeed unless

the Commissioner produces evidence that the addition to tax or

penalty is appropriate.     Swain v. Commissioner, supra at 363-365.
                                - 8 -

The Commissioner, however, does not have the obligation to

introduce evidence regarding reasonable cause or substantial

authority.    Higbee v. Commissioner, supra at 446-447.

     Petitioners failed to provide any substantiation for the

deductions respondent disallowed and claimed they were not

required to do so.    Alone, a failure to substantiate deductions

may be indicative of negligence.    Sec. 1.6662-3(b)(1).    Further,

petitioners’ repeated failures and refusals to substantiate the

claimed deductions despite knowing of the substantiation

requirement demonstrates an intentional disregard for section

6001.    See secs. 1.6662-3(b)(2), 1.6001-1(a), Income Tax Regs.

     Petitioners have offered no evidence to contradict this

inference, and their arguments presented at trial and in their

pretrial memorandum do not address the issue at hand.

Petitioners’ reliance on Lucas v. Earl, 281 U.S. 111 (1930), and

Edwards v. Keith, 231 F. 110 (2d Cir. 1916), is misplaced and

reflects a misunderstanding of the issues presented in those

cases.   Both cases involved assignments of income and whether

income was attributable to the person who earned it.      Neither

pertains directly to whether deductions must be substantiated.

Thus, it cannot be said petitioners acted reasonably or in good

faith.   Given this, respondent’s determination of the section

6662(a) penalty is sustained.
                            - 9 -



To reflect the foregoing,


                                    Decision will be entered

                            for respondent.
