                  T.C. Summary Opinion 2008-90



                      UNITED STATES TAX COURT



                  DAVID C. CHOE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6569-07S.               Filed July 24, 2008.



     David C. Choe, pro se.

     Michael K. Park, for respondent.



     GERBER, 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 any other court, and



     1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for 2004, the taxable year in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
                               - 2 -

this opinion shall not be cited as precedent for any other case.

Respondent determined a $1,727 income tax deficiency and a

$345.40 penalty under section 6662(a) for petitioner’s 2004 tax

year.   The income tax deficiency is attributable to respondent’s

disallowance of legal and professional expenses, depreciation,

and automobile expenses petitioner claimed in connection with his

business activity.   The issues we consider are whether petitioner

has substantiated these expenses and/or whether they are ordinary

and necessary business expenses.   We also consider whether

petitioner is liable for the section 6662(a) penalty.

     Petitioner David C. Choe resided in California at the time

the petition was filed.   He was employed as a loan officer until

sometime in March 2004.   In March he left that employment and

began his own business as a loan consultant.   In connection with

starting this new business, petitioner purchased a laptop

computer that allowed him to perform his services in various

locations.   On March 12, 2004, petitioner purchased a Toshiba

Satellite Notebook computer for $1,437.   At the time of purchase,

petitioner already owned a desktop computer for personal use.    On

his Schedule C, Profit or Loss From Business, he elected under

section 179 to deduct $1,437 as an expense for his 2004 tax year.
                               - 3 -

     Section 162 allows a deduction for ordinary and necessary

expenses paid or incurred in carrying on a trade or business.2

Respondent questioned the business use of the laptop computer and

did not question the section 179 election.   Petitioner has

substantiated the cost of the laptop, and its business use has

been clearly established.   Accordingly, we hold that petitioner

is entitled to the $1,437 deduction for 2004.

     In order to perform services as a loan consultant,

petitioner acquired access to various professional data bases

that assisted him in the conduct of his business activity.    He

also attended educational courses that were intended to maintain

and improve his skills.   In addition he acquired prepaid legal

representation at $17 per month in case he was sued by a client.

For 2004 petitioner deducted $4,358 as professional and prepaid

legal expenses.   Respondent disallowed the entire amount for lack

of substantiation and because it had not been shown that the

claimed deductions were ordinary and necessary business expenses.

     At trial petitioner provided testimony and documentary

evidence showing that he spent $4,791 during 2004 for

professional and prepaid legal expenses.   Petitioner sufficiently

explained the business purpose of these items, and we hold that


     2
       No controversy exists in this case as to the burden of
proof or the burden of production. Petitioner bears the burden
of proof as to all adjustments (sec. 7491(a)), and respondent met
his burden of production with respect to the sec. 6662(a) penalty
(sec. 7491(c)).
                                 - 4 -

he is entitled to a $4,791 deduction for professional and prepaid

legal expenses for his 2004 tax year.

     Petitioner deducted $3,735 of expense in connection with his

use of an automobile for his consulting business.   Respondent

contends that petitioner did not maintain adequate records so as

to be able to claim the transportation expenses.    Section 274(d)

provides for a higher standard of substantiation for certain

business expense deductions.   Generally, a taxpayer must

substantiate expenditures “by adequate records or by sufficient

evidence corroborating his own statement.”   Sec. 1.274-5T(c)(1),

Temporary Income Tax Regs, 50 Fed. Reg. 46017 (Nov. 6, 1985).

     Petitioner fell short of that standard and was able to

present testimony, but no logs or documentation of his business

transportation expenses.   Therefore, we hold that petitioner is

not entitled to the $3,735 deduction for expenses in connection

with his use of an automobile.

     During November 2004 petitioner’s automobile was totaled,

and the insurance company paid him $2,360, the fair market value

of the automobile.   Petitioner entered the gross amount received

into his Turbo Tax preparation program.   Because petitioner had

claimed business use of the automobile for 2004, Turbo Tax

automatically deducted the amount of depreciation allowed or

allowable and thereby calculated a $1,132 gain which was

automatically reported as income on page one of petitioner’s 2004
                                 - 5 -

return.    During the trial, however, petitioner testified that he

did not use his car for business before 2004 and that he had not

claimed depreciation deductions with respect to it.        The Turbo

Tax treatment of petitioner’s automobile was incorrect, and

accordingly we hold that petitioner did not have $1,132 of

reportable gain from the insurance company recovery on his

automobile.

       Finally, we consider whether petitioner is liable for a

section 6662(a) accuracy-related penalty for negligence or

disregard of rules or regulations and/or a substantial

understatement of income tax under section 6662 for 2004.        A

taxpayer may be liable for a 20-percent penalty on any

underpayment of tax attributable to negligence or disregard of

rules or regulations or a substantial understatement of income

tax.    Sec. 6662(a) and (b).   “Negligence” is any failure to make

a reasonable attempt to comply with the provisions of the

Internal Revenue Code, and “disregard” means any careless,

reckless or intentional disregard.       Sec. 6662(c).   An

underpayment is not attributable to negligence or disregard to

the extent that the taxpayer shows that the underpayment is due

to reasonable cause or good faith.       Sec. 6664(c); Neonatology

Associates, P.A. v. Commissioner, 115 T.C. 43, 98 (2000), affd.

299 F.3d 221 (3d Cir. 2002); see also secs. 1.6662-3(a), 1.6664-

4(a), Income Tax Regs.   A substantial understatement of income
                                 - 6 -

tax is an understatement that exceeds the greater of 10 percent

of the tax required to be shown on the tax return or $5,000.

Sec. 6662(d)(1)(A).

     We have held that petitioner is entitled to the deductions

for depreciation and professional and legal expenses.       We have

also held that petitioner is not entitled to the claimed

automobile expenses but that he should not have reported income

from the insurance recovery on the automobile.       Petitioner did

not provide any argument or evidence that would have shown that

his failure to maintain or produce adequate substantiation under

the provisions of section 274(d) was not negligent and/or was

“reasonable”.

     Accordingly, to the extent that there is a resulting

underpayment attributable to the claimed automobile expenses,

petitioner is liable for a section 6662(a) penalty.

     To reflect the foregoing,


                                              Decision will be entered

                                         under Rule 155.
