                  T.C. Summary Opinion 2003-100



                      UNITED STATES TAX COURT



           GREGORY C. AND PHYLLIS LAM, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 12153-00S.            Filed July 23, 2003.


     Gregory C. and Phyllis Lam, pro sese.

     Margaret Rigg, for respondent.



     PAJAK, Special Trial Judge:   This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   Unless otherwise

indicated, section references are to the Internal Revenue Code in

effect for the year in issue.   The decision to be entered is not

reviewable by any other court, and this opinion should not be

cited as authority.

     Respondent determined a deficiency of $1,981 and an
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accuracy-related penalty of $396.20 in petitioners’ 1998 Federal

income tax.   This Court must decide:   (1) Whether petitioners are

entitled to deduct expenses claimed on Schedule C, Profit or Loss

From Business, and (2) whether petitioners are liable for the

accuracy-related penalty under section 6662(a).

     Some of the facts in this case have been stipulated and are

so found.   Petitioners resided in San Mateo, California, at the

time they filed their petition.

     During taxable year 1998, petitioner Gregory C. Lam

(petitioner) purportedly was involved in three businesses:

project management, photography, and construction.   In connection

with these businesses, petitioners attached three Schedules C,

Profit or Loss From Business, to their 1998 Form 1040, U.S.

Individual Income Tax Return.   The deductions claimed on the

Schedule C relating to petitioner’s photography business are not

at issue.   Respondent disallowed deductions claimed on the other

two Schedules C because petitioners did not establish that the

claimed expenses were paid or incurred during taxable year 1998

or that the expenses were ordinary and necessary to petitioner’s

businesses.

     On the Schedule C pertaining to petitioner’s project

management business, petitioner reported gross income of $250 and

a net loss of $6,695.   Respondent disallowed deductions claimed

on that Schedule C for car and truck expenses of $755,
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depreciation expense of $2,810, and other expenses of $1,586.   On

the Schedule C pertaining to petitioner’s construction business,

petitioner reported gross income of $1,000 and a net loss of

$10,763.    Respondent disallowed deductions claimed on that

Schedule C for car and truck expenses of $1,356, depreciation

expense of $1,501, insurance expense of $1,422, and other

expenses of $5,326.

     Respondent contends that the documents offered by petitioner

provide insufficient evidence to support the claimed deductions.

We agree.    Section 7491 is inapplicable here because petitioners

have not complied with the requisite substantiation requirements.

Sec. 7491(a)(2)(A).

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

expenses paid or incurred during the taxable year in carrying on

a trade or business.    Taxpayers, however, must maintain

sufficient records to establish the amount of claimed deductions.

Sec. 6001; sec. 1.6001-1(a), Income Tax Regs.

     Section 274(d)(4) imposes stringent substantiation

requirements for the deduction of certain listed property defined

under section 280F(d)(4).    Listed property includes, inter alia,

automobiles and computers.    Sec. 280F(d)(4)(A).   To deduct

expenses for such listed property, including depreciation,

taxpayers must substantiate by adequate records the following

items:   The amount of each separate expenditure, the listed
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property’s business and total usage, the date of the expenditure

or use, and the business purpose for an expenditure or use.      Sec.

274(d); sec. 1.274-5T(b)(6), Temporary Income Tax Regs., 50 Fed.

Reg. 46016 (Nov. 6, 1985).   To substantiate a deduction by means

of adequate records, a taxpayer must maintain an account book,

diary, log, statement of expense, trip sheets, and/or other

documentary evidence, which, in combination, are sufficient to

establish each element of expenditure or use.    Sec. 1.274-

5T(c)(2)(i), Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov.

6, 1985).   Each element of an expenditure or use must be made at

or near the time of the expenditure or use.    Sec. 1.274-

5T(c)(2)(ii)(A), Temporary Income Tax Regs., 50 Fed. Reg. 46017

(Nov. 6, 1985).   Moreover, when section 274(d) applies, as here,

this Court cannot rely on Cohan v. Commissioner, 39 F.2d 540 (2d

Cir. 1930), to estimate the taxpayer’s expenses.    Sanford v.

Commissioner, 50 T.C. 823, 827-828 (1968), affd. per curiam 412

F.2d 201 (2d Cir. 1969).

     Petitioner had no books of account or other records

concerning his alleged businesses or any evidence of the

expenditures in issue.   At trial, petitioner had no reconstructed

records to support his claimed deductions.    Petitioner’s

miscellaneous documents from third parties and some items from

petitioner or his wife were not adequate to support any of his

deductions.   Petitioner relied on his own testimony.
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     It is well established that this Court is not bound to

accept a taxpayer’s self-serving, unverified, and undocumented

testimony.   Tokarski v. Commissioner, 87 T.C. 74, 77 (1986);

Hradesky v. Commissioner, 65 T.C. 87 (1975).       We find

petitioner’s testimony to be just that, self-serving, unverified,

and undocumented.    As such, we conclude that petitioners have

failed to establish that they are entitled to the deductions

claimed on their Schedules C under section 162, much less under

the strict standards of section 274.

     As to the accuracy-related penalty, section 6662(a) imposes

a 20 percent penalty on the portion of any underpayment of tax

attributable to negligence or disregard of rules or regulations.

Sec. 6662(b)(1).    Negligence is any failure to make a reasonable

attempt to comply with the provisions of the internal revenue

laws and includes any failure by the taxpayer to keep adequate

books and records or to substantiate items properly.         Sec.

6662(c); sec. 1.6662-3(b)(1), Income Tax Regs.       Moreover,

negligence is the failure to exercise due care or failure to do

what a reasonable and prudent person would do under the

circumstances.     Neely v. Commissioner, 85 T.C. 934, 947 (1985).

Disregard includes any careless, reckless, or intentional

disregard of rules or regulations.       Sec. 6662(c); sec. 1.6662-

3(b)(2), Income Tax Regs.    No penalty will be imposed with

respect to any portion of any underpayment if it is shown that
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there was a reasonable cause for such portion and that the

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

6664(c).

     On this record, we conclude that petitioners are liable for

the accuracy-related penalty under section 6662(a) as imposed by

respondent.   Petitioners have failed to provide any reasonable

explanation or credible evidence to substantiate entitlement to

the claimed deductions.   Such actions are not those of a

reasonable and prudent person under the circumstances.

     Reviewed and adopted as the report of the Small Tax Case

Division.



                                         Decision will be entered

                                    for respondent.
