                    T.C. Summary Opinion 2006-132



                       UNITED STATES TAX COURT



                    BRETT ALAN COMBS, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20828-04S.              Filed August 28, 2006.


     Brett Alan Combs, pro se.

     Leonard T. Provenzale, for respondent.



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

the provisions of section 7463 of the Internal Revenue Code.

Unless otherwise indicated, subsequent section references are to

the Internal Revenue Code as in effect for the year at issue, and

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

Procedure.    The decision to be entered is not reviewable by any

other court, and this opinion should not be cited as authority.
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     Respondent determined for 2000 a deficiency in petitioner’s

Federal income tax of $8,698, an addition to tax under section

6651(a)(1) of $1,957.05, an addition to tax under section

6651(a)(2) of $1,652.62, and an addition to tax under section

6654(a) of $467.81.

     The issues for decision are whether petitioner:   (1) Had

unreported income, (2) is liable for self-employment tax, (3) is

liable for the addition to tax under section 6651(a)(1) for

failure to file timely his Federal income tax return without

reasonable cause, (4) is liable for the addition to tax under

section 6651(a)(2) for failure to pay timely the tax due without

reasonable cause, and (5) is liable for the addition to tax under

section 6654(a) for failure to pay estimated income tax.

                            Background

     The stipulated facts and exhibits received into evidence are

incorporated herein by reference.   At the time the petition in

this case was filed, petitioner resided in Fort Lauderdale,

Florida.

     Petitioner failed to file an income tax return for 2000, and

the Internal Revenue Service made a return for him under section

6020(b).   Petitioner received in 2000, nonemployee compensation

of $34,673, dividends of $22 and capital gain of $261.

Petitioner does not contest the amounts or character of the items

that respondent determined that he received in 2000.   Respondent

determined that petitioner is allowed a personal exemption, the
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standard deduction (which exceeds the itemized deductions

substantiated by petitioner), and a deduction for half of his

self-employment taxes.

                            Discussion

Section 861

     Petitioner’s first and, apparently, primary argument

concerns his “confusion” about the “requirements” of section 861,

Income From Sources Within the United States.    According to

petitioner, in a West publication that he read, section 61 cross

referenced section 861, and he is therefore “required” to

consider it.   While the Court suspects that petitioner’s

“confusion” is disingenuous, the Court will, for his present and

future benefit, explain the operation of section 861.

     It seems strange that petitioner feels compelled to delve

into the intricacies of section 861 as that section, along with

those immediately following, are aimed at the U.S. income tax

effects of international activities.     Section 861(a) provides a

rule for determining whether items of gross income are from

sources within the United States (U.S. source).    Section 862

provides the sourcing rules for items of gross income from

sources without the United States (foreign source).    Under

section 863, items of gross income, expenses, losses and

deductions other than those specified in sections 861 and 862
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“shall be allocated or apportioned to sources within or without

the United States, under regulations prescribed by the

Secretary.”   Petitioner admits, and the facts show, that he had

no items of gross income, expenses, losses, and deductions other

than those from a U.S. source.

     From the items of U.S. source gross income, the taxpayer

“shall” deduct the expenses, losses, and other deductions

properly apportioned or allocated to U.S. source income along

with a ratable portion of expenses, losses, and other deductions

that cannot definitely be allocated to an item or class of gross

income.   Sec. 861(b).   The standard deduction is considered a

deduction that cannot definitely be allocated to an item or class

of gross income.   Sec. 861(b).    The remainder, if any, after

taking the above expenses, losses, and other deductions, is

included in full as U.S. source taxable income.      Sec. 861(b).

     Because 100 percent of petitioner’s gross income is U.S.

source gross income, 100 percent of petitioner’s expenses,

losses, and other deductions are properly allocated and

“apportioned” to U.S. source income.      The thoughtful reader need

go no further than the words of the statute to determine that

section 861 is unnecessary to the determination of petitioner’s

income tax liability.

     Petitioner, however, claimed at trial to be confused by the

terms “classes of gross income” and “statutory groupings”.     The
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latter term is not used in the statute but is contained in the

implementing regulations, specifically sec. 1.861-8, Income Tax

Regs.

     Section 1.861-8(a)(2), Income Tax Regs., requires the

taxpayer to allocate deductions to a class of gross income and,

if necessary, to apportion deductions within the class of gross

income between the “statutory grouping” (foreign source income)

and the “residual grouping” (U.S. source income).    See sec.

1.861-8(a)(4), (f)(1), Income Tax Regs.    The classes of gross

income are listed in section 1.861-8(a)(3), Income Tax Regs., the

same income items as are listed in section 61.    Allocations and

apportionments are made based on the factual relationship of the

deductions to the gross income except for deductions not

definitely related to specific gross income, like the standard

deduction, which is ratably apportioned across all gross income.

Sec. 1.861-8(a)(2), (4), Income Tax Regs.

     The result is a determination of the taxpayer’s U.S. source

taxable income, and foreign source taxable income, the sum of

which taxable income is subject to U.S. income taxation.    See

sec. 1.    The distinction between U.S. source taxable income and

foreign source taxable income may, however, be important for

other reasons.    See, e.g., secs. 901, 904 (the foreign tax

credit).    The international aspect of U.S. income taxation is an
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interesting and complicated area of the law, but of no importance

in determining petitioner’s tax liability.

     No matter how you look at it, petitioner had only U.S.

source income.   One hundred percent of petitioner’s expenses,

losses, and other deductions will be allocated to his U.S. source

income.   No apportionment is possible because he has only one

“grouping” of income, U.S. source income.    He ends up with U.S.

source taxable income, only.   With respect to determining

petitioner’s tax liability for 2000, section 861 is superfluous.

The Court hopes that as long as all of petitioner’s income is

U.S. source income he will no longer be “confused”, purposely or

otherwise, by section 861.

Petitioner’s Business Expenses

     Petitioner has made no argument that the burden of proof

shifting provisions of section 7491(a)(1) apply to this case, nor

has he offered any evidence that he has complied with the

requirements of section 7491(a)(2).

     Petitioner alleged at trial that he is entitled to

additional deductions for business expenses, including

transportation expenses and a computer.   Petitioner, however, had

no business records and relied solely on his testimony as

evidence.

     Section 162 generally allows a deduction for ordinary and

necessary expenses paid or incurred during the taxable year in
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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

the otherwise deductible item may not always be fatal.

Generally, unless prevented by section 274, the Court may

estimate the amount of such an expense and allow the deduction to

that extent.   See Finley v. Commissioner, 255 F.2d 128 (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, the Court 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).

     Certain business deductions described in section 274 are

subject to strict rules of substantiation that supersede the
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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 while 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), unless the taxpayer substantiates

certain elements.   Listed property includes any passenger

automobile and any computer or peripheral equipment.   Sec.

280F(d)(4)(A)(i), (iv).

     Section 274(d) provides that no deduction shall be allowed

with respect to any “listed property”, as defined in section

280F(d)(4), unless the taxpayer substantiates 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 (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 (4) the

business relationship to the taxpayer of each expenditure or use.

     To meet the adequate records requirements of section 274, 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.   Sec. 1.274-5T(c)(2), Temporary
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Income Tax Regs., supra.    Because petitioner presented no

adequate records or sufficient evidence to corroborate his own

testimony, he may not claim a deduction for his business

expenses.

Petitioner’s Charitable Contributions

     Petitioner alleged at trial that he is entitled to a

deduction for “church and charitable” donations.    He had no

evidence of any charitable gifts other than his own testimony.

     Taxpayers are required to keep records of charitable

contributions of money.    Section 1.170A-13(a)(1), Income Tax

Regs., requires substantiation for charitable contribution

deductions.   A taxpayer must maintain one of the following:     (1)

a canceled check; (2) a receipt or letter from the donee

charitable organization showing the name of the donee, and the

date and the amount of the contribution; or (3) other reliable

records showing the name of the donee, and the date and the

amount of the contribution.    Sec. 1.170A-13(a)(1), Income Tax

Regs.

     Petitioner testified that “the point of giving is not to

make a worldly claim”.    While petitioner’s sentiment is correct,

substantiating a gift does not taint the heart of the giver.

Petitioner’s church and charity donations do not meet the

requirements of section 1.170A-13(a)(1), Income Tax Regs.     See

Blair v. Commissioner, T.C. Memo. 1988-581.
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Self-employment Tax

       During his testimony petitioner objected to being subject to

the self-employment tax of section 1401.     When asked by the Court

if he had filed for an exemption, he replied: “I’ve never filed

for anything, sir.”    To obtain an exemption from the self-

employment tax, a taxpayer must file for an exemption according

to regulations prescribed by the Secretary.     See sec. 1402(e),

(g).    As petitioner has “never filed for anything”, he is not

entitled to an exemption from self-employment tax.

Additions to Tax

       Respondent bears the burden of production with respect to an

addition to tax.    Sec. 7491(c).   In order to meet this burden,

respondent must produce evidence sufficient to establish that it

is appropriate to impose the addition to tax.     Higbee v.

Commissioner, 116 T.C. 438, 446-447 (2001).

       Addition to Tax Under Section 6651(a)(1)

       The parties agree that petitioner did not file a Federal tax

return for 2000.    Respondent made a return for petitioner under

section 6020(b).    A return prepared under section 6020(b) is to

be disregarded for purposed of determining the amount of the

addition to tax under section 6651(a)(1).     Sec. 6651(g)(1).

Respondent has met his burden of production under section 7491(c)

with respect to imposing the addition to tax under section

6651(a)(1).
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     It is petitioner’s burden to prove that he had reasonable

cause and lacked willful neglect in not filing his return timely.

See United States v. Boyle, 469 U.S. 241, 245 (1985); Higbee v.

Commissioner, supra; sec. 301.6651-1(a)(1), Proced. & Admin.

Regs.   Because petitioner failed to offer any evidence of

reasonable cause and lack of willful neglect for his failure to

file timely, respondent’s determination that petitioner is liable

for the addition to tax under section 6651(a)(1) is sustained.

     Addition to Tax Under Section 6651(a)(2)

     Under section 6651(g)(2) the return made by respondent under

section 6020(b) is to be treated as a return filed by petitioner

for purposes of determining the amount of the addition to tax

under section 6651(a)(2).   Because petitioner failed to offer any

evidence of reasonable cause and lack of willful neglect for his

failure to pay timely, respondent’s determination that he is

liable for the addition to tax under section 6651(a)(1) is

sustained.

     Addition to Tax Under Section 6654

     The section 6654 addition to tax applies in a mathematical

fashion unless it is shown that any of certain statutory

exceptions apply.   See Grosshandler v. Commissioner, 75 T.C. 1,

20-21 (1980); Goers v. Commissioner, T.C. Memo. 1999-354.

Petitioner has not shown that any exceptions apply.   Accordingly,
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the Court holds that respondent’s section 6654 determination is

sustained.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,

                                        Decision will be

                                   entered for respondent.
