                  T.C. Summary Opinion 2011-21



                     UNITED STATES TAX COURT



                  XIANFENG ZHANG, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 28557-08S.              Filed March 2, 2011.



     Xianfeng Zhang, pro se.

     Halvor Melom, 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, all section references are to
the Internal Revenue Code in effect for the year in issue. All
Rule references are to the Tax Court Rules of Practice and
Procedure.
                                 - 2 -

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

precedent for any other case.

     Respondent determined a deficiency of $1,624 in petitioner’s

2006 Federal income tax.   After concessions,2 the issues for

decision are whether petitioner is entitled to deductions claimed

on Schedule C, Profit or Loss From Business, for travel expenses

and a home office.

                            Background

     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.    Petitioner resided in

California at the time the petition was filed.

     Petitioner sold travel insurance through KCG Insurance Co.

(KCG).   Petitioner was compensated with commissions for the

insurance policies he sold, and he reported those commissions as

business income on Schedule C.    Petitioner’s primary clientele

was Chinese travelers visiting the United States.    Petitioner

traveled to China to meet with clients and sell travel insurance

covering the insureds’ stays in the United States.    The time




     2
      Petitioner conceded other expenses of $1,000 reported on
Schedule C and a real estate loss of $1,992 reported on Schedule
E, Supplemental Income and Loss, and that he received unreported
Schedule C income of $10,000. Other adjustments made in the
notice of deficiency were computational and will not be
discussed.
                                - 3 -

petitioner spent in China and the number of clients he had are

unclear from the record.

     Petitioner used one room of his dwelling as an office, which

was approximately 25 percent of the total area of his home.    KCG

did not provide petitioner with an office.    Petitioner shared his

house with his parents and his son.     Neither petitioner’s parents

nor his son used the home office.   Petitioner performed

administrative and management activities related to selling

insurance in the home office.

     Petitioner timely filed his 2006 Federal income tax return.

On Schedule C petitioner reported gross receipts of $20,000 and

claimed deductions for car and truck expenses of $5,408,

insurance expenses of $1,400, other expenses of $1,000, travel

expenses of $7,000, and meals and entertainment expenses of $750.

Petitioner reported a net profit of $4,442 after deductions.

Petitioner did not claim a home office deduction on his original

Federal income tax return.   Respondent mailed petitioner a notice

of deficiency dated August 20, 2008, disallowing petitioner’s

claimed Schedule C deductions for travel expenses.

     Petitioner, through his tax return preparer, submitted three

amended Federal tax returns after the petition was filed and

before trial.
                                   - 4 -
               Petitioner’s Schedule C for Each Amended Return1

                      Car and                                Home
 Amended    Gross      Truck      Insurance      Travel     Office          Net
 Returns   Receipts   Expenses    Expenses      Expenses   Deduction       Profit
                                                           2
First      $20,000    $4,998      $1,100            -0-     $9,786         $4,116
                                                               3
Second      20,000     4,998       1,100        $5,543             3,848    4,511
                                                4              3
Third       30,000     4,998       1,100         15,420         3,848       4,634

     1
        The expenses claimed on Schedule C changed with each amended return.
Petitioner asserted that the returns were structured to reflect a net profit
above $4,000.
      2
        This amounts to 100 percent of the real estate taxes assessed on
petitioner’s home.
      3
        This amounts to 25 percent of the real estate taxes assessed on
petitioner’s home.
      4
        Petitioner used a per diem of $257 for 60 days in China.


                                 Discussion

I.   General Law

     In general, the Commissioner’s determination set forth in a

notice of deficiency is presumed correct, and the taxpayer bears

the burden of showing that the determination is in error.                   Rule

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

to section 7491(a), the burden of proof as to factual matters

shifts to the Commissioner under certain circumstances.

Petitioner does not allege that section 7491(a) applies.                   See

sec. 7491(a)(2)(A) and (B).       Therefore, petitioner bears the

burden of proof.      See Rule 142(a).

     Deductions are allowed solely as a matter of legislative

grace, and the taxpayer bears the burden of proving his

entitlement to them.      Rule 142(a); INDOPCO, Inc. v. Commissioner,

503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292
                                - 5 -

U.S. 435, 440 (1934).   The taxpayer also bears the burden of

substantiating claimed deductions.      Sec. 6001; Hradesky v.

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

821 (5th Cir. 1976).

     The fact that a taxpayer claims a deduction on his income

tax return is not sufficient to substantiate it.      Wilkinson v.

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

62 T.C. 834, 837 (1974).   Rather, an income tax return is merely

a statement of the taxpayer’s claim; it is not presumed to be

correct.   Wilkinson v. Commissioner, supra at 639; Roberts v.

Commissioner, supra at 837; see also Seaboard Commercial Corp. v.

Commissioner, 28 T.C. 1034, 1051 (1957) (a taxpayer’s income tax

return is a self-serving declaration that may not be accepted as

proof for the claimed deduction or exclusion); Halle v.

Commissioner, 7 T.C. 245 (1946) (a taxpayer’s income tax return

is not self-proving as to the truth of its contents), affd. 175

F.2d 500 (2d Cir. 1949).

     Section 162(a) allows a deduction for ordinary and necessary

business expenses paid or incurred during the taxable year in

carrying on any trade or business.      In order for an expense to be

“necessary”, it must be “appropriate and helpful” to the

taxpayer’s business.    Welch v. Helvering, supra at 113-114.    An

expense will be considered “ordinary” if it is a common or
                               - 6 -

frequent occurrence in the type of business in which the taxpayer

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

II.   Travel Expenses

      Travel expenses while away from home3 are included as

ordinary and necessary business expenses.    Sec. 162(a)(2).

In order to deduct travel expenses (including meals and lodging),

a taxpayer must substantiate the expenditures.    Sec. 274(d).   To

substantiate travel expenses under section 274(d), a taxpayer

must show by adequate records or sufficient evidence

corroborating his or her testimony:    (1) The amount of the

expense; (2) the time and place of the travel; and (3) the

business purpose of the expense.   There are additional

requirements for certain foreign travel.    Sec. 274(c).   No

deduction will be allowed under section 162 for the portion of

expenses otherwise allowable under such section that are not

allocable to such trade or business.    Sec. 274(c)(1).    Paragraph

(1) will not apply to expenses of travel outside the United

States away from home if such travel does not exceed 1 week or

the portion of travel time not attributable to a trade or

business is less than 25 percent of the total time of such

travel.   Sec. 274(c)(2)(A) and (B).




      3
      The question of whether petitioner was “away from home”
within the meaning of Commissioner v. Flowers, 326 U.S. 465
(1946), is not at issue.
                                 - 7 -

     As a general rule, if the taxpayer has incurred a deductible

expense but is unable to adequately substantiate the precise

amount of the deduction, the Court may estimate the amount of the

deductible expense and allow the deduction to that extent.     Cohan

v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930).    The rule

in Cohan, however, does not apply to expenses, such as travel

expenses, that must be substantiated under section 274(d).

Sanford v. Commissioner, 50 T.C. 823, 827 (1968), affd. per

curiam 412 F.2d 201 (2d Cir. 1969); sec. 1.274-5T(a), Temporary

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

     Petitioner testified that he took three separate trips to

China for business purposes in 2006--one in June lasting

approximately 90 days, another in September lasting approximately

60 days, and a third that began in December 2006 and ended

sometime in 2007.   Petitioner entered into evidence three

airplane tickets for flights from both Beijing to Los Angeles and

Los Angeles to Beijing.    The dates on the airplane tickets are

not consistent with the dates or periods of travel to which

petitioner testified.   Although petitioner’s passport bears

customs stamps from both the United States and China, some of the

stamps are illegible.     The stamps that are legible do not

correspond with the dates petitioner testified he was in China

for business.
                               - 8 -

     Petitioner did not testify to or produce other evidence

explaining precisely what business was conducted in China or the

length of each business trip to China.   Petitioner presented no

evidence delineating how much of each trip was devoted to

business or how much was devoted to nonbusiness activities.      See

sec. 274(c)(2)(B).

     Petitioner did produce several receipts that appear to be

for automobile and lodging expenses in China.    The receipts,

however, are in Chinese and do little to explain petitioner’s

business activities.   The receipts do not satisfy the strict

substantiation requirement of section 274(d).    Petitioner has

failed to substantiate the travel expenses he claimed for his

trips to China.   Therefore, we sustain respondent’s disallowance

of petitioner’s deduction for travel expenses.

III. Home Office Deduction4

     Generally, a deduction for an expense relating to property

that is occupied by a taxpayer as a residence is disallowed.

Sec. 280A(a).   An exception to the general rule is found in

section 280A(c)(1)(A), which provides that an expense that is

allocable to a portion of the taxpayer’s dwelling that is used

exclusively on a regular basis as the taxpayer’s principal place


     4
      Although not in the pleadings, the parties stipulated that
the home office deduction was at issue, and the Court finds the
issue was tried by consent and is properly before us. See Rule
41(b)(1).
                               - 9 -

of business will be allowed as a deduction.   The term “principal

place of business” includes a place of business that is used by a

taxpayer for administrative and management activities if no other

fixed location of the trade or business is used by the taxpayer

to conduct substantial administrative or management activities.

Sec. 280A(c)(1).   A portion of the taxpayer’s dwelling is a room

or other separately identifiable space.   Hefti v. Commissioner,

T.C. Memo. 1993-128.

     The activities petitioner performed at his home office

consisted of phone calls, paperwork, and other administrative or

management activities associated with selling insurance.5

Petitioner credibly testified that his family members did not use

the home office and credibly testified that he used the home

office portion of his dwelling exclusively for trade or business

purposes.

     We conclude that petitioner’s use of a home office was

exclusive and on a regular basis and that his home office was his

principal place of business under section 280A(c).   Therefore,




     5
      Petitioner testified that he met with the Chinese travelers
to whom he sold insurance at his home office while they were in
the United States. From the record it does not appear that
petitioner met with clients on a regular basis in his home
office. See sec. 280A(c)(1)(B).
                             - 10 -

petitioner is entitled to a home office deduction for the portion

of his dwelling that was used as such.6

     We have considered the parties’ arguments and, to the extent

not discussed herein, we conclude the arguments to be irrelevant,

moot, or without merit.

     To reflect the foregoing,


                                          Decision will be entered

                                   under Rule 155.




     6
      It appears that petitioner’s home office deduction includes
only real estate taxes and depreciation as business expenses.
Accordingly, the Rule 155 computation is limited to these two
items.
