                        T.C. Memo. 2004-180



                      UNITED STATES TAX COURT



         GEORGE A. AND CHRISTINE M. EVAN, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1312-01.             Filed August 3, 2004.



     George A. and Christine M. Evan, pro sese.

     Kathleen C. Schlenzig, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     HAINES, Judge:   Respondent determined deficiencies of $4,592

and $6,081 in petitioner George Evan’s (Mr. Evan’s) and

petitioner Christine Evan’s (Mrs. Evan’s) Federal income taxes

for 1997 and 1998 (years in issue), respectively.   The issues to

be decided are:   (1) Whether petitioners are entitled to

deductions for unreimbursed employee expenses claimed on Schedule
                                - 2 -

A, Itemized Deductions, for the years in issue; and (2) whether

petitioners are entitled to deductions for expenses claimed on

Schedule C, Profit or Loss from Business, for the years in issue.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the years in issue, and

all Rule references are to the Tax Court Rules of Practice and

Procedure.   Amounts are rounded to the nearest dollar.

                         FINDINGS OF FACT

     Some of the facts have been deemed stipulated pursuant to

Rule 91(f) and are so found.    The stipulation of facts and the

attached exhibits are incorporated herein by this reference.      At

the time they filed the petition, petitioners resided in

Valparaiso, Indiana.

     Mr. Evan obtained a bachelor of arts degree in economics and

business administration, a master of arts degree in economics, a

bachelor of business administration degree in management, and a

doctor of philosophy degree in management.

     Mr. Evan taught business courses at Purdue University but

was denied tenure there in April 1991.    Mr. Evan subsequently

received a Notice of Non-Renewal of Contract with Purdue

University on April 29, 1991.    Mr. Evan’s employment with Purdue

University expired on June 30, 1992.    Mr. Evan did not teach any

courses or provide any other services to Purdue University or any
                               - 3 -

affiliate of Purdue University from January 31, 1992, through the

years in issue.

     Mr. Evan became eligible for long-term disability benefits

from Purdue University on or about June 18, 1992.     Mr. Evan

received benefits under this plan from June 18, 1992, through the

years in issue.

     During the years in issue, petitioners had four children.

During this period, Mr. Evan was the primary caregiver for the

two youngest children.

     On petitioners’ Federal income tax return for 1997, Mr. Evan

listed his occupation as “Professor”, and Mrs. Evan listed her

occupation as “Claims Authorizer”.     Petitioners claimed a

deduction for Schedule A unreimbursed employee expenses of

$26,900, consisting of travel expenses, union and professional

dues, and professional subscriptions, but reported no wages from

Purdue University or any other source for any services performed

by Mr. Evan as a professor.   The only wages reported were from

Mrs. Evan’s work with the Social Security Administration.

     Mr. Evan organized the Center for Real Estate Services,

Inc., and was its sole employee.   Neither Mr. Evan nor the Center

for Real Estate Services, Inc., listed, showed, sold, or

facilitated the sale of any real estate or received any

remuneration for listing, showing, selling, or facilitating the

sale of any real estate from January 31, 1992, through the years
                               - 4 -

in issue.   On their 1997 tax return, petitioners claimed a

deduction for Schedule C business expenses of $17,809, consisting

of advertising expenses, car and truck expenses, office expenses,

taxes and licenses, and travel expenses.    Petitioners listed Mr.

Evan’s profession on the Schedule C as a “Licensed Real Estate

Broker & State Certified Appraiser”.    Petitioners reported no

income on the Schedule C from any business activities.

     On petitioners’ tax return for 1998, Mr. Evan listed his

occupation as “Professor”, and Mrs. Evan listed her occupation as

“Claims Authorizer”.   Petitioners claimed a deduction for

Schedule A unreimbursed employee expenses of $31,445, consisting

of parking fees, tolls, transportation, travel expenses, business

expenses, union and professional dues, professional

subscriptions, and job search costs, but reported no wages from

Mr. Evan’s occupation as a professor.    Petitioners reported wages

from Mrs. Evan’s employment with the Social Security

Administration.   Petitioners also claimed a deduction for

Schedule C business expenses of $6,752, consisting of advertising

expenses, car and truck expenses, depreciation, office expenses,

expenses for supplies, and travel expenses.    On the Schedule C,

Mr. Evan listed his principal business as “RE Broker, Appraiser”

but did not report any income from any business activities.

     Mr. Evan did not have interviews scheduled for any of the

job-hunting trips for which petitioners claimed expense
                              - 5 -

deductions on the Schedules A for 1997 and 1998.    Further, before

departing for such trips, Mr. Evan did not make any effort to

determine whether the person with whom he desired to speak

regarding job opportunities would be available.

     Petitioners did not own or operate a business during the

years in issue and were not self-employed during that period.

     On October 23, 2000, respondent sent petitioners a notice of

deficiency for 1997 and 1998, disallowing, inter alia, the

itemized deductions for unreimbursed employee expenses and the

Schedule C business expenses for 1997 and 1998.    Respondent

explained that the unreimbursed employee expenses “did not meet

the requirements for allowable job-hunting expenses” and “it has

not been established that these [Schedule C business expenses]

were ordinary and necessary trade or business expenses or

expended for the purpose designated.”

     On January 22, 2001, petitioners mailed a petition to the

Court disputing the disallowances.1

     On February 12, 2001, petitioners had a fire at their

residence, resulting in damages of over $500,000.    Although

petitioners searched through the rubble to try to find the

records for 1997 and 1998, none were found.   Petitioners did not



     1
        In the notice of deficiency respondent also disallowed a
portion of the medical expenses. Petitioners did not raise this
issue in the petition, and we deem it conceded. See Rule
34(b)(4).
                                - 6 -

contact any third party in order to reconstruct the records for

1997 and 1998.

     Because of the fire in petitioners’ residence and the damage

that resulted, the parties stipulated summaries of information

petitioners provided during respondent’s audit to support the

claimed expense deductions reported for 1997.   These summaries

reported a description of each expense, the expense amount, and

the type of support that petitioners provided to respondent’s

auditor.   The parties did not provide any summaries for 1998.

     The summaries reported that in 1997 petitioners took at

least 60 job-hunting trips, mostly in Illinois, starting with

Augustana College in January 1997 and ending with University of

St. Francis in December 1997.   Petitioners reportedly visited

each Illinois school in alphabetical order.   For each school

visited in Illinois, petitioners reported a mileage of 180 miles

and $4 for tolls and parking.

     The other expenses reported in the summaries for

petitioners’ Schedule A for 1997 included a fee for a basic

membership to the American Federation of Police, the cost of a

copy of “Wildlife”, the cost of a book titled “Eat Right Live

Longer”, a subscription to the “Men’s Health Book Service”, and

expense amounts for “Magazine/Newspaper” and “Books”.

     The reported Schedule C expenses for 1997 which petitioners

supported with receipts to respondent’s auditor included
                                 - 7 -

advertising expenses, listed generally as “Postage” or “P.O. Box

Rental”; office expenses, also listed generally in categories

such as “Supplies”, “Computer Ware”, and “Telephone”; and a fee

to the Office of Banks and Real Estate, State of Illinois.      The

summaries did not report the purpose of any of the expenses

listed.

                              OPINION

I.   Burden of Proof

     As a general rule, the Commissioner’s determinations are

presumed correct, and the taxpayer bears the burden of proving

that those determinations are erroneous.   Rule 142(a).   This

rule, however, is subject to the provisions of section 7491(a),

under which the burden of proof may, under certain circumstances,

be shifted to the Commissioner.

     On the basis of the record, we hold that section 7491(a)

does not operate to place the burden of proof on respondent

because:   (1) Petitioners did not introduce credible evidence

with respect to any factual issue relevant to ascertaining their

liability; (2) petitioners did not comply with the requirements

to substantiate their deductions; and (3) petitioners did not

maintain all records required.    Sec. 7491(a); see Higbee v.

Commissioner, 116 T.C. 438, 440-441 (2001).
                               - 8 -

     Petitioners argue that they did provide credible evidence

and complied with the substantiation and record-keeping

requirements of the Code.   We disagree.

     The legislative history of section 7491 defines “credible

evidence” as “the quality of evidence which, after critical

analysis, the court would find sufficient upon which to base a

decision on the issue if no contrary evidence were submitted

(without regard to the judicial presumption of IRS correctness).”

H. Conf. Rept. 105-599, at 240-241 (1998), 1998-3 C.B. 747, 994-

995; see Higbee v. Commissioner, supra at 442.     On the basis of

the record, we conclude that petitioners failed to meet this

standard.

     Most of the expense deductions reported in the stipulated

summaries for 1997 were substantiated only by petitioners’ oral

or written testimony, which we deemed not credible, as discussed

below.   Further, when records had been provided to respondent’s

auditor, petitioners did not submit credible evidence that the

purpose of the expenses was other than personal.    We further note

that no summaries were provided for 1998.

     After the fire in their residence, which occurred after

respondent’s audit and the issuance of the notice of deficiency,

petitioners searched through the rubble to try to find the

records for 1997 and 1998, but none were found.    Petitioners did

not contact any third party to assist in the record
                                  - 9 -

reconstruction.    As a result, we find that petitioners did not

offer into evidence a reasonable reconstruction of their

expenditures.

      We conclude that petitioners did not introduce credible

evidence or comply with the substantiation and record-keeping

requirements of the Code, and the burden of proof does not shift

to respondent under section 7491(a).

II.   Claimed Expenses

      In the notice of deficiency, respondent disallowed

deductions for the reported expenses because petitioners did not

establish that the reported expenses were ordinary and necessary

trade or business expenses or expended for the purpose designated

and they did not meet the requirements for allowable job-hunting

expenses.    Petitioners dispute these determinations and further

argue that expenses incurred by Mr. Evan as a professor are

deductible and the expenses have been substantiated by adequate

records.    We address each of these arguments below.

      A.    Schedule C Expenses

      On the Schedules C for 1997 and 1998, petitioners claimed

business expenses for advertising, car and truck expenses,

depreciation, taxes and licenses, office expenses, supplies, and

travel but reported no income on the Schedules C from any

business activities, specifically Mr. Evan’s profession as a real

estate broker.
                              - 10 -

     During the trial, petitioners stated that they did not own

or operate a business during the years in issue and that they

were not self-employed during that period.

     Deductions are a matter of legislative grace, and a taxpayer

bears the burden of proving that he has complied with the

specific requirements for any deduction he claims.      Rule 142(a);

see INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New

Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).

     Under section 162, a taxpayer may deduct all ordinary and

necessary expenses paid or incurred during the taxable year in

carrying on any trade or business.     Sec. 162(a).   Although the

term “trade or business” is not precisely defined in section 162

or the regulations promulgated thereunder, it is well established

that in order for an activity to be considered a taxpayer's trade

or business for purposes relevant here, the activity must be

conducted “with continuity and regularity” and “the taxpayer's

primary purpose for engaging in the activity must be for income

or profit.”   Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987).

     On the basis of the record, we conclude that Mr. Evan was

not in the trade or business of real estate during the years in

issue, as reported on the Schedules C.     We base this conclusion

on petitioners’ testimony that they did not own a business and

were not self-employed during the years in issue, and on the

record which reflects that Mr. Evan has been receiving long-term
                              - 11 -

disability benefits since 1992 and that Mr. Evan was a primary

caregiver during the years in issue.    The record reflects that

only Mrs. Evan was engaged in any income-producing activity

during the years in issue, and that she was employed rather than

self-employed in a business of her own.    As a result, we conclude

that petitioners are not entitled to deductions for the Schedule

C business expenses under section 162(a) because neither Mr. Evan

nor Mrs. Evan was in a reported trade or business, or in a

Schedule C trade or business, during the years in issue.

     B.   Mr. Evan’s Employment Status

     On brief, petitioners argue that the Schedule C expenses

should have been reported elsewhere on their tax returns,

presumably Schedule A, because, they argue, Mr. Evan was still an

employee of Purdue University.    Petitioners argue that the

reported expenses relate to Mr. Evan’s trade or business as a

professor.   Petitioners base their assertion on Mr. Evan’s

possession of a Purdue University identification card, dated July

23, 2003, which states:   “This is to identify George E. Evan and

to extend the same staff privileges as those available to an

employee of Purdue University.”

     There is no evidence on the record that would lead us to

agree with petitioners’ assertion that Mr. Evan was employed by

Purdue University during the years in issue.    The identification

card only states that Mr. Evan is entitled to the privileges
                               - 12 -

available to an employee of the university, not that Mr. Evan is

an employee.   Further, the parties stipulated that:    (1) Mr.

Evan’s employment with Purdue University expired on June 30,

1992; (2) Mr. Evan did not teach any courses or provide any other

services to Purdue University or any affiliate of Purdue

University from January 31, 1992, through the years in issue; and

(3) Mr. Evan received long-term disability benefits from the

university from June 18, 1992, through the years in issue.     As a

result, we conclude that Mr. Evan was not an employee of Purdue

University during the years in issue, and, therefore, petitioners

are not entitled to a deduction for expenses claimed to have been

incurred in such employment.

     C.   Job-Hunting and Education Expenses

     Petitioners argue that respondent erred in disallowing the

job-hunting and education expenses reported because they were

connected with Mr. Evan’s trade or business of being a professor.

We disagree.

     The deductible expenses allowable under section 162(a)

include those incurred in searching for new employment in the

employee’s same trade or business.      Cremona v. Commissioner, 58

T.C. 219, 222 (1972); Primuth v. Commissioner, 54 T.C. 374, 379

(1970).   If the employee is seeking a job in a new trade or

business, however, the expenses are not deductible under section

162(a).   Frank v. Commissioner, 20 T.C. 511, 513 (1953); Hobdy v.
                               - 13 -

Commissioner, T.C. Memo. 1985-414; Evans v. Commissioner, T.C.

Memo. 1981-413.   During temporary periods of unemployment, job-

hunting expenses can be considered and deducted as trade or

business expenses if the expenses are incurred during “a

reasonable period of transition” between leaving one position and

obtaining another.    Haft v. Commissioner, 40 T.C. 2, 6 (1963);

see also Sherman v. Commissioner, T.C. Memo. 1977-301.

     Education expenses may also be deductible trade or business

expenses under section 162(a) if the education for which the

expenses are made maintains or improves the skills required in

the taxpayer’s employment or other trade or business.    Sec.

1.162-5(a), Income Tax Regs.

     As relevant here, if unemployed, a taxpayer can still be

engaged in a trade or business if he was previously involved in

or actively seeks to return to that trade or business.     Haft v.
Commissioner, supra.    Amounts spent to prepare for the resumption

of business at some indefinite time are not deductible, and mere
membership in good standing in a profession does not constitute

carrying on of a trade or business.     Reisinger v. Commissioner,

71 T.C. 568, 572 (1979) (citing Owen v. Commissioner, 23 T.C.

377, 381 (1954)).    An important factor in determining whether a

taxpayer is still in a trade or business during a period of

unemployment is whether the taxpayer’s absence from the trade or

business is temporary or indefinite.    See Haft v. Commissioner,

supra; Sherman v. Commissioner, supra.
                              - 14 -

     Mr. Evan could not prove with other than oral testimony that

he was actively seeking to return to the trade or business of

being a professor during the years in issue.     Having observed

petitioners’ demeanors at trial, we do not find their testimony

to be forthright and credible in light of the evidence on the

record.   The record reflects that:    (1) Mr. Evan has not been

employed by Purdue University since June 30, 1992; (2) Mr. Evan

has not taught any courses or provided any other services to

Purdue University or any affiliate of Purdue University since

January 31, 1992; (3) Mr. Evan has received long-term disability

benefits from the university since June 18, 1992; and (4) Mr.

Evan was the primary caregiver for his youngest children during

the years in issue.   Further, the parties stipulated that Mr.

Evan did not have interviews scheduled for any of the job-hunting

trips, and, before departing for such trips, Mr. Evan did not

make any effort to determine whether the person with whom he

desired to speak regarding job opportunities would be available.

     We also note that 5 years had passed from the time of Mr.

Evan’s termination with Purdue University to the years in issue.

We do not find the length of time between Mr. Evan’s termination

and the reported job-hunting trips a “reasonable period of

transition” in light of the evidence on the record.

     As a result, we conclude that Mr. Evan was not actively

pursuing a return to the trade or business of being a professor

and his absence from that trade or business was, at least,

indefinite.   Because Mr. Evan was not in the trade or business of
                               - 15 -

being a professor during the years in issue, petitioners are not

entitled to deductions for claimed expenses on the basis of a

job-hunting or education purpose.

     D.   Substantiation of Expenses

     In any event, petitioners argue that the expenses were

substantiated with adequate records.    We disagree.

     Under section 162, a taxpayer may deduct all ordinary and

necessary expenses paid or incurred during the taxable year in

carrying on any trade or business if the taxpayer maintains

sufficient records to substantiate the expenses.    Secs. 162(a),

6001; sec. 1.6001-1(a), Income Tax Regs.    The taxpayer bears the

burden of substantiation.    Hradesky v. Commissioner, 65 T.C. 87,

90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976).    As a

general rule, no deductions are allowed for personal, living, or

family expenses.    Sec. 262(a).

     If a taxpayer has established that deductible expenses were

incurred but has not established the amount of those expenses, we

may estimate the amount allowable (Cohan doctrine).     Cohan v.

Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930).     There must be

evidence in the record, however, that provides a rational basis

for our estimate.    Vanicek v. Commissioner, 85 T.C. 731, 742-743

(1985).

     In the case of travel expenses and expenses paid or incurred

with respect to listed property, e.g., passenger automobiles,

section 274 overrides the Cohan doctrine, and expenses are

deductible only if the taxpayer meets the section’s stringent
                               - 16 -

substantiation requirements.   Secs. 274(d), 280F(d)(4); Sanford

v. Commissioner, 50 T.C. 823, 827 (1968), affd. 412 F.2d 201 (2d

Cir. 1969); sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed.

Reg. 46014 (Nov. 6, 1985).

     Section 274(d) specifically provides:

          SEC. 274(d) Substantiation Required.--No deduction
     or credit shall be allowed–-

               (1) under section 162 or 212 for any
          traveling expense (including meals and lodging
          while away from home),

               (2) for any item with respect to an activity
          which is of a type generally considered to
          constitute entertainment, amusement, or
          recreation, or with respect to a facility used in
          connection with such an activity,

               (3) for any expense for gifts, or

               (4) with respect to any listed property (as
          defined in section 280F(d)(4)),

     unless the taxpayer substantiates by adequate records
     or by sufficient evidence corroborating the taxpayer’s
     own statement (A) the amount of such expense or other
     item, (B) the time and place of the travel,
     entertainment, amusement, recreation, or use of the
     facility or property, or the date and description of
     the gift, (C) the business purpose of the expense or
     other item, and (D) the business relationship to the
     taxpayer of persons entertained, using the facility or
     property, or receiving the gift. * * *

The section “contemplates that no deduction or credit shall be

allowed a taxpayer on the basis of such approximations or

unsupported testimony of the taxpayer.”   Sec. 1.274-5T(a),

Temporary Income Tax Regs., supra.

     In order to substantiate a deduction by means of adequate

records, a taxpayer must maintain a diary, log, statement of
                              - 17 -

expenses, trip sheet, or similar record, and documentary evidence

which, in combination, are sufficient to establish each element

of each expense or use.   Sec. 1.274-5T(c)(2)(i), Temporary Income

Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985).     Thus, no deduction

for expenses under section 274(d) may be allowed on the basis of

any approximation or the unsupported testimony of the taxpayer.

See, e.g., Murata v. Commissioner, T.C. Memo. 1996-321; Golden v.

Commissioner, T.C. Memo. 1993-602.

     When a taxpayer’s records have been destroyed or lost

because of circumstances beyond his control, however, he is

generally allowed to substantiate the deductions by a reasonable

reconstruction of the expenditures or uses.     Sec. 1.274-5T(c)(5),

Temporary Income Tax Regs., 50 Fed. Reg. 46022 (Nov. 6, 1987).

If no other documentation is available, we may, although we are

not required to do so, accept the taxpayer’s testimony to

substantiate the deduction.   See Boyd v. Commissioner, 122 T.C.

305, 320 (2004); Watson v. Commissioner, T.C. Memo. 1988-29.

Having observed petitioners’ demeanors at trial, we find their

testimony not to be forthright and credible regarding the

substantiation of the deductions.

     At trial, the Court advised petitioners on several occasions

that the purpose of the trial was for petitioners to substantiate

the deductions by placing facts on the record that the Court can

look to in rendering its decision.     Other than the parties’

stipulations, petitioners failed to introduce further probative
                              - 18 -

evidence at trial and presented only legal arguments to the

Court.

     As noted above, because of the fire in petitioners’

residence and the damages that resulted, the parties stipulated

summaries of information provided by petitioners during

respondent’s audit to support the claimed expense deductions

reported for 1997.   The parties did not stipulate any summaries

for 1998.

     We find that the summaries are inadequate to substantiate

the claimed deductions.   For example, we find petitioners’ use of

the same mileage and parking fee for each school visited and

their claim that they visited each school in alphabetical order

implausible.   Also, as support for the travel expenses,

petitioners provided, for the most part, their own written and

oral testimony.   For the few receipts that were provided for the

trips (most notably, two trips to Florida taken in mid-March and

late December), petitioners offered only testimony that the trips

were for the purpose of job-hunting or continuing education.    We

find that petitioners’ proffered testimony does not qualify as

reasonable secondary evidence to replace that required by the

stringent record-keeping rules of section 274(d).

     Petitioners argue that these expenses were necessary for Mr.

Evan to maintain and improve his skills as a professor and to

keep his real estate license active, a requirement for teaching

real estate and appraising.   Although, according to the

summaries, petitioners did provide receipts for some expenses, we
                                - 19 -

do not conclude that petitioners established that these expenses

were for anything other than “personal, living, or family”

purposes.   See sec. 262(a).    As concluded above, Mr. Evan was not

in a trade or business as a professor or real estate broker

during the years in issue.     Mr. Evan was the primary caregiver

for his youngest children during the years in issue.     As a

result, we conclude that the reported expenses for 1997 have not

been sufficiently substantiated and hold that petitioners are not

entitled to deductions for these expenses for 1997.

     As noted above, the parties provided no summaries as to the

expenses reported for 1998, and petitioners provided no further

substantiation of these expenses on the record.     Therefore, we

also hold that petitioners are not entitled to a deduction for

these expenses for 1998.

     In reaching our holdings herein, we have considered all

arguments made, and, to the extent not mentioned above, we

conclude that they are moot, irrelevant, or without merit.

     To reflect the foregoing,



                                                Decision will be

                                           entered for respondent.
