                         T.C. Memo. 2011-39



                       UNITED STATES TAX COURT



                  JOHN ARTHUR RAEBER, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13089-09.               Filed February 10, 2011.



     John Arthur Raeber, pro se.

     Audra M. Dineen and Matthew A. Mendizabal, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     VASQUEZ, Judge:    Respondent determined deficiencies in

petitioner’s Federal income tax and accuracy-related penalties as

follows:

                                                   Penalty
     Year               Deficiency               Sec. 6662(a)

     2006               $90,029                  $18,005.80
     2007                90,536                   18,107.20
                               - 2 -

     The issues for decision are:   (1) Whether petitioner is

entitled to deductions for business expenses of $252,013 and

$253,490 claimed on Schedules C, Profit or Loss From Business,

for 2006 and 2007, respectively; and (2) whether petitioner is

liable for accuracy-related penalties under section 6662(a)1 for

2006 and 2007.2

                         FINDINGS OF FACT

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

The stipulations of facts and the attached exhibits are

incorporated herein by this reference.   Petitioner resided in

California at the time he filed his petition.

     In 2006 and 2007 petitioner worked as a self-employed

consultant to various architects throughout the world.    He

operated his consulting business as a sole proprietorship and

reported his income and expenses from the business on a Schedule

C.   Petitioner timely filed Forms 1040, U.S. Individual Income

Tax Return, for 2006 and 2007, and attached Schedules C on which




     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code (Code) in effect for the years in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
     2
        Respondent’s determinations with respect to the reduction
of petitioner’s personal exemption deductions and with respect to
the increase in petitioner’s self-employment taxes are automatic
adjustments that will be resolved by our decision of the primary
issue.
                                - 3 -

he reported gross income of $336,475 and $334,860, respectively,

and business expenses of $252,0133 and $253,490,4 respectively.

     Respondent audited petitioner’s 2006 and 2007 returns and

requested that petitioner substantiate all of his Schedule C

business expenses.   Petitioner refused to substantiate any of his

claimed business expenses, arguing that the substantiation

requirement violates his Fifth Amendment rights under the U.S.

Constitution.   Respondent then issued petitioner a notice of

deficiency disallowing petitioner’s deductions for business

expenses claimed on his Schedules C.

     At trial petitioner told the Court that he had no knowledge

of any pending criminal investigation.   Respondent’s counsel

informed the Court that she too was unaware of any pending

criminal investigation of petitioner.

                               OPINION

I. Deficiency Determinations

     A. Burden of Proof

     As a general rule, taxpayers bear the burden of proving the

Commissioner’s deficiency determinations incorrect.   Rule 142(a);


     3
        Petitioner reported the following business expenses on
his Schedule C for 2006: (1) Meals and entertainment of $17,612;
(2) business use of home of $16,940; (3) contract labor of
$102,400; and (4) various other expenses of $115,061.
     4
        Petitioner reported the following business expenses on
his Schedule C for 2007: (1) Meals and entertainment of $17,790;
(2) business use of home of $17,012; (3) contract labor of
$73,700; and (4) various other expenses of $144,988.
                                - 4 -

Welch v. Helvering, 290 U.S. 111, 115 (1933).    To shift the

burden of proof to the Commissioner with respect to a factual

issue relevant to the liability for tax, taxpayers must, inter

alia, maintain all records required by the Code and regulations

and cooperate with reasonable requests by the Secretary for

witnesses, information, documents, meetings, and interviews.

Sec. 7491(a)(2).   Petitioner neither claims nor shows that he

satisfies the requirements of section 7491(a) to shift the burden

of proof to respondent.   Accordingly, petitioner bears the burden

of proof.

     B. Schedule C Deductions

     Deductions are a matter of legislative grace, and taxpayers

have the burden of showing that they are entitled to any

deduction claimed.   Rule 142(a); New Colonial Ice Co. v.

Helvering, 292 U.S. 435, 440 (1934).    Taxpayers are required to

maintain records that are sufficient to enable the Commissioner

to determine their correct tax liability.   Sec. 6001; sec.

1.6001-1(a), Income Tax Regs.   Additionally, taxpayers bear the

burden of substantiating the amount and purpose of the item

claimed as a deduction.   Hradesky v. Commissioner, 65 T.C. 87, 89

(1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976).

     Petitioner argues that reporting his expenses on his 2006

and 2007 Schedules C and signing his returns under penalty of

perjury constitute sufficient substantiation.   We have long held
                                 - 5 -

that signing a return under penalty of perjury is not sufficient

to substantiate its accuracy.     Wilkinson v. Commissioner, 71 T.C.

633, 639 (1979); Roberts v. Commissioner, 62 T.C. 834, 837-839

(1974) (holding that a taxpayer does not satisfy his burden to

substantiate claimed business expenses by merely signing his

return under penalty of perjury and testifying to its accuracy,

without producing additional evidence); Whitaker v. Commissioner,

T.C. Memo. 2010-209.

     Petitioner failed to introduce any other evidence to

substantiate his claimed business expenses, asserting instead his

Fifth Amendment privilege against self-incrimination.    The Court

is not aware of any pending or likely criminal investigation of

petitioner.    The privilege against self-incrimination does not

apply where the possibility of criminal prosecution is remote or

unlikely.    Wilkinson v. Commissioner, supra at 638.   Petitioner’s

baseless Fifth Amendment claim cannot stand in the way of a

determination of his civil tax liability.

     At trial the Court warned petitioner that his Fifth

Amendment claim would not excuse him from his burden to

substantiate his claimed business expenses and offered petitioner

an additional opportunity to introduce evidence to satisfy his

burden.     However, petitioner continued to assert his Fifth

Amendment privilege and offered no further evidence to

substantiate his claimed business expenses.     Accordingly, we
                               - 6 -

sustain respondent’s disallowance of petitioner’s deductions for

business expenses claimed on his Schedules C for 2006 and 2007.

II. Section 6662(a) Accuracy-Related Penalties

     Pursuant to section 6662(a), taxpayers may be liable for a

penalty of 20 percent of the portion of an underpayment of tax

attributable to:   (1) A substantial understatement of income tax

or (2) negligence or disregard of rules or regulations.    See sec.

6662(b).   The term “understatement” means the excess of the

amount of tax required to be shown on a return over the amount of

tax imposed which is shown on the return, reduced by any rebate

(within the meaning of section 6211(b)(2)).   Sec. 6662(d)(2)(A).

Generally, an understatement is a “substantial understatement”

when it exceeds the greater of $5,000 or 10 percent of the amount

of tax required to be shown on the return.    Sec. 6662(d)(1)(A).

In addition, section 6662(c) defines “negligence” as any failure

to make a reasonable attempt to comply with the provisions of the

Code, and “disregard” means any careless, reckless, or

intentional disregard.

     The Commissioner has the burden of production with respect

to the section 6662(a) accuracy-related penalty.   Sec. 7491(c).

To meet this burden, the Commissioner must produce sufficient

evidence indicating that it is appropriate to impose the penalty.

See Higbee v. Commissioner, 116 T.C. 438, 446 (2001).     Once the

Commissioner meets this burden of production, the taxpayer must
                                 - 7 -

come forward with persuasive evidence that the Commissioner’s

determination is incorrect.   Rule 142(a); see Higbee v.

Commissioner, supra at 447.   Whether applied because of a

substantial understatement of income tax or negligence or

disregard of rules or regulations, the accuracy-related penalty

is not imposed with respect to any portion of the understatement

as to which the taxpayer acted with reasonable cause and in good

faith.   The taxpayer is responsible for putting forth evidence to

show that he acted with reasonable cause and in good faith.

     Petitioner’s understatement exceeded the greater of $5,000

or 10 percent of the amounts of tax required to be shown on his

2006 and 2007 returns.   Therefore, we find that respondent

satisfied his burden of production.       Petitioner offered no

evidence that he acted with reasonable cause and in good faith.

Accordingly, we hold that petitioner is liable for the section

6662(a) accuracy-related penalty for 2006 and 2007.

     In reaching all of our holdings herein, we have considered

all arguments made by the parties, and to the extent not

mentioned above, we conclude they are irrelevant or without

merit.

     To reflect the foregoing,


                                         Decision will be entered

                                 for respondent.
