                     T.C. Summary Opinion 2010-145



                        UNITED STATES TAX COURT



            GARY ALLEN ROZAR AND MISA ROZAR, Petitioners v.
              COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 15145-09S.           Filed September 27, 2010,



        Gary Allen Rozar and Misa Rozar, pro sese.

        Jeffrey W. Belcher, for respondent.



     DEAN, 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.     Pursuant to section 7463(b),

the decision to be entered is not reviewable by any other court,

and this opinion shall not be treated as precedent for any other

case.     Unless otherwise indicated, subsequent section references

are to the Internal Revenue Code in effect for the years at
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issue, and Rule references are to the Tax Court Rules of Practice

and Procedure.

     Respondent determined for 2006 a deficiency of $5,564 in

petitioners’ Federal income tax and an accuracy-related penalty

under section 6662(a) of $1,112.80.    Respondent determined for

2007 a deficiency of $4,681 in petitioners’ Federal income tax.

     The issues for decision are whether petitioners have

properly substantiated deductions claimed on Schedules C, Profit

or Loss From Business, on their Federal income tax returns for

2006 and 2007 and whether petitioners are liable for the

accuracy-related penalty for 2006.1

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

The stipulation of facts and the exhibits received in evidence

are incorporated herein by reference.    Petitioners resided in

California when the petition was filed.

                            Background

     Gary Allen Rozar (petitioner) at the time of trial had been

a minister of religion for over 20 years.    He was a missionary

for 10 years and traveled to every continent except South

America.   Petitioner wife was a teacher and waitress.

     Petitioners filed a Form 1040, U.S. Individual Income Tax

Return, jointly for 2006 reporting on Schedule C gross income of


     1
      Adjustments to petitioners’ self-employment tax deductions
and self-employment taxes are computational and will be resolved
consistent with the Court’s decision.
                                - 3 -

$100, car and truck expenses of $21,197, travel, meals, and

entertainment expenses of $1,289, and other expenses of $4,960,

for a net loss of $27,346.2   Petitioners jointly filed their

Federal income tax return for 2007 reporting on Schedule C gross

income of $800, car and truck expenses of $20,564, insurance

expenses of $3,500, repairs and maintenance expenses of $1,850,

supplies expenses of $590, and other expenses of $3,525, for a

net loss of $29,229.

     Petitioners later submitted to respondent Forms 1040X,

Amended U.S. Individual Income Tax Return, for 2006 and 2007 on

which they claimed to have “Grossly over-stated our income for

the year”.   The amended returns showed all income and tax

liability amounts as zero.    Attached to the returns were Forms W-

2, Wage and Tax Statement, that had been altered to show zero

wages.   Although petitioners reported for 2006 total credits for

tax payments of $2,462, including Federal withholding tax of

$2,412, the Form 1040X for 2006 claimed Federal withholding tax

payments and a refund of $6,373.

     Petitioners filed a second Form 1040X for 2007 that claimed

a refund of Federal withholding taxes of $6,493 despite having


     2
      The adjustments in the statutory notice for 2006 are
overstated. The statutory notice includes an adjustment of
$4,960 to other expenses both in the total adjustment for “Sch C1
- All Expenses” of $27,346 as well as in a separate adjustment
for “Sch C1 - Other Expenses”. The adjustment for “Sch C1 - All
Expenses” should be reduced by $4,960 or the adjustment to “Sch
C1 - Other Expenses” should be eliminated.
                               - 4 -

reported Federal withholding taxes of $2,468 on their original

return.

                            Discussion

     Generally, the Commissioner’s determinations in a notice of

deficiency are presumed correct, and the taxpayer has the burden

of proving that those determinations are erroneous.    See Rule

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

cases the burden of proof with respect to relevant factual issues

may shift to the Commissioner under section 7491(a).    Because

petitioners have not satisfied the requirements of section

7491(a), the burden of proof does not shift to respondent.

     Section 162 generally allows a deduction for ordinary and

necessary expenses paid or incurred during the taxable year in

carrying on a trade or business.   Generally, no deduction is

allowed for personal, living, or family expenses.    See sec. 262.

The taxpayer must show that any claimed business expenses were

incurred primarily for business rather than personal reasons.

See Rule 142(a).   To show that an expense was not personal, the

taxpayer must show that the expense was incurred primarily to

benefit his business, and there must have been a proximate

relationship between the claimed expense and the business.

Walliser v. Commissioner, 72 T.C. 433, 437 (1979).

     Where a taxpayer has established that he has incurred a

trade or business expense, failure to prove the exact amount of
                                 - 5 -

the otherwise deductible item may not always be fatal.

Generally, unless prevented by section 274, we may estimate the

amount of such an expense and allow the deduction to that extent.

See Finley v. Commissioner, 255 F.2d 128, 133 (10th Cir. 1958),

affg. 27 T.C. 413 (1956); Cohan v. Commissioner, 39 F.2d 540,

543-544 (2d Cir. 1930).    In order for the Court to estimate the

amount of an expense, however, we must have some basis upon which

an estimate may be made.    See Vanicek v. Commissioner, 85 T.C.

731, 742-743 (1985).    Without such a basis, an allowance would

amount to unguided largesse.    See Williams v. United States, 245

F.2d 559, 560 (5th Cir. 1957).

       Petitioner testified that petitioners were “scammed” into

filing the amended returns showing zero amounts for income and

tax.    Petitioner further testified that they have lost all of

their tax records for 2006 and 2007 except for the 2006 “driving

log”.    He testified that “We have nothing to show for 2007, and

we have no other [sic] to show for 2006 than the driving log.”

Petitioner called it the “ministry driving log”.

       Petitioners have failed to provide the Court with sufficient

evidence on which to base an estimate of deductions for business

expenses other than those represented by the ministry driving

log.

       The ministry driving log purports to cover the period of

January 3 through September 18, 2006.    It indicates that
                               - 6 -

petitioner generally drove between 276 and 301 miles 4 or 5 days

a week, every week, throughout those months.   Although the listed

mileage varies, every trip is listed as starting in Costa Mesa,

then continuing to Bonita, San Bernardino, and Huntington Beach,

California.   There is no explanation for the purpose of the

trips, nor was there any testimony putting the locations in

context.

     Certain business expense deductions described in section 274

are subject to strict rules of substantiation that supersede the

doctrine in Cohan v. Commissioner, supra.   See sec. 1.274-

5T(c)(2), Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6,

1985).   Section 274(d) provides that no deduction shall be

allowed with respect to:   (a) Any traveling expense, including

meals and lodging away from home; (b) any item related to an

activity of a type considered to be entertainment, amusement, or

recreation; or (c) the use of any “listed property”, as defined

in section 280F(d)(4),3 unless the taxpayer substantiates certain

elements.

     For an expense described in one of the above categories, the

taxpayer must substantiate by adequate records or sufficient

evidence to corroborate the taxpayer’s own testimony:   (1) The

amount of the expenditure or use based on the appropriate measure



     3
      “Listed property” includes any passenger automobile.     Sec.
280F(d)(4)(A)(i).
                              - 7 -

(mileage may be used in the case of automobiles); (2) the time

and place of the expenditure or use; (3) the business purpose of

the expenditure or use; and in the case of entertainment, (4) the

business relationship to the taxpayer of each expenditure or use.

See sec. 274(d).

     To meet the adequate records requirements of section 274(d)

a taxpayer must maintain some form of records and documentary

evidence that in combination are sufficient to establish each

element of an expenditure or use.    See sec. 1.274-5T(c)(2),

Temporary Income Tax Regs., supra.     A contemporaneous log is not

required, but corroborative evidence to support a taxpayer’s

reconstruction of the elements of expenditure or use must have “a

high degree of probative value to elevate such statement” to the

level of credibility of a contemporaneous record.    Sec. 1.274-

5T(c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6,

1985).

     Petitioners’ ministry driving log does not meet the

requirements of section 274(d).     Petitioners did not adequately

substantiate the business expense deductions they claimed on

their Schedules C for 2006 and 2007.

     Respondent’s adjustments for 2007 are sustained.

Respondent’s adjustments to Schedule C for 2006 are sustained

except to the extent of $4,960 as described supra note 2.
                                - 8 -

       Section 7491(c) imposes on the Commissioner the burden of

production in any court proceeding with respect to the liability

of any individual for penalties and additions to tax.      Higbee v.

Commissioner, 116 T.C. 438, 446 (2001); Trowbridge v.

Commissioner, T.C. Memo. 2003-164.      In order to meet the burden

of production under section 7491(c), the Commissioner need only

make a prima facie case that imposition of the penalty or

addition to tax is appropriate.    Higbee v. Commissioner, supra at

446.

       Respondent determined that petitioners are liable for an

accuracy-related penalty under section 6662(a).     Section 6662(a)

imposes a 20-percent penalty on the portion of an underpayment

attributable to any one of various factors, including negligence

or disregard of rules or regulations and a substantial

understatement of income tax.    See sec. 6662(b)(1) and (2).

“Negligence” includes any failure to make a reasonable attempt to

comply with the provisions of the Internal Revenue Code,

including any failure to keep adequate books and records or to

substantiate items properly.    See sec. 6662(c); sec.

1.6662-3(b)(1), Income Tax Regs.    A “substantial understatement”

is an understatement of income tax that exceeds the greater of 10

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

See sec. 6662(d)(1)(A); sec. 1.6662-4(b), Income Tax Regs.
                                 - 9 -

     Section 6664(c)(1) provides that the penalty under section

6662(a) shall not apply to any portion of an underpayment if it

is shown that there was reasonable cause for the taxpayer’s

position and that the taxpayer acted in good faith with respect

to that portion.   The determination of whether a taxpayer acted

with reasonable cause and in good faith is made on a case-by-case

basis, taking into account all the pertinent facts and

circumstances.   Sec. 1.6664-4(b)(1), Income Tax Regs.     The most

important factor is the extent of the taxpayer’s effort to assess

his proper tax liability for the year.      Id.

     Petitioners deducted business expenses which they failed to

substantiate with adequate books and records.      The Court

concludes that respondent has produced sufficient evidence to

show that the imposition of the accuracy-related penalty under

section 6662(a) is appropriate.

     Petitioners did not show that their failure to properly

substantiate their business expense deductions was due to

reasonable cause and in good faith.      Respondent’s determination

of the accuracy-related penalty under section 6662(a) for 2006 is

sustained.

     To reflect the foregoing,


                                      Decision will be entered

                                 under Rule 155.
