                  T.C. Summary Opinion 2010-102



                     UNITED STATES TAX COURT



          WILLIE J. AND THELMA L. MOORE, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 17670-09S.             Filed July 28, 2010.



     Willie J. and Thelma L. Moore, pro sese.

     Adam P. Sweet, for respondent.



     ARMEN, 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 any




     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for the
year in issue, and all Rule references are to the Tax Court Rules
of Practice and Procedure.
                                 - 2 -

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

for any other case.

     Respondent determined a deficiency in petitioners’ 2004

Federal income tax of $11,299.99, an addition to tax of $2,063.55

under section 6651(a)(1) for failure to timely file a tax return,

and an accuracy-related penalty of $2,260 under section 6662(a).

     After concessions by both parties, the issues remaining for

decision are:

     (1)    Whether petitioners are entitled to deductions for car

and truck expenses claimed on two Schedules C, Profit or Loss

From Business;

     (2)    whether petitioners are liable for the addition to tax

for failure to timely file a tax return; and

     (3)    whether petitioners are liable for the accuracy-related

penalty for negligence or disregard of rules or regulations.

                              Background

     Some of the facts have been stipulated, and they are so

found.     We incorporate by reference the parties’ stipulation of

facts and accompanying exhibits.    Petitioners resided in Texas

when the petition was filed.    All references to petitioner in the

singular are to petitioner Willie J. Moore.

     During 2004 petitioner worked full time for the City of

Houston, Texas, as a computer analyst.     In addition to his full-

time employment petitioner worked as a real estate broker and
                               - 3 -

mortgage broker.   Petitioner had two offices from which he

transacted his real estate and mortgage businesses:     One located

in La Marque, Texas, southeast of Houston (the La Marque office);

and one located in Houston, 2 miles from his City of Houston job

(the Houston office).   Although petitioner was both a real estate

broker and a mortgage broker, he focused mainly on the real

estate business while petitioner Thelma L. Moore (Mrs. Moore)

conducted most of the work associated with the mortgage business.

     At trial, petitioner described his typical weekday as

follows:   He would leave his home in League City, Texas, in the

morning and drive to the La Marque office, where he would turn on

the computer and copier.   Mrs. Moore would arrive at the La

Marque office 1 or 2 hours later.2     After he left the La Marque

office he would drive to the Houston office, where he would also

turn on the computer and copier.     He would then drive to his City

of Houston job where he worked Monday through Friday from 8 a.m.

until 5 p.m.   After his City of Houston workday, he would reverse

the trip from Houston to La Marque (where he presumably turned

off the computer and copier), but also drive through subdivisions

looking for homes that were “for sale by owner” before finally

arriving home in League City late in the evening.



     2
        Petitioner did not explain why Mrs. Moore was unable to
turn on the computer and copier. La Marque is southeast of
League City, in the vicinity of Galveston, Texas, and therefore
considerably further from Houston than League City.
                                 - 4 -

     During 2004 petitioners owned three vehicles:    A Suburban, a

Mercedes-Benz, and a Cadillac.    According to petitioner, the

Suburban was driven for personal purposes, whereas the Mercedes-

Benz was used by him for business purposes and the Cadillac was

used by Mrs. Moore for business purposes.

     At trial, petitioners introduced two Excel spreadsheets that

petitioner described as mileage logs for the Mercedes-Benz and

the Cadillac.   The mileage log for each vehicle consists of a 12-

page spreadsheet with one page for each month of the year and an

entry for each day of the month.    Each daily entry includes the

beginning and ending odometer readings, the total “deductible

business miles driven” and the total “nondeductible commuting

miles driven”, and the destination and “business reason” for the

“business miles driven”.    For all entries, the beginning odometer

reading matches the ending odometer reading for the previous

entry.

     On petitioner’s mileage log the entry for “business miles

driven” typically exceeds 100 miles per day and occasionally is

over 200 miles per day.    For every Monday through Friday

throughout the year petitioner listed 60 commuting miles; these

miles were included on the log even for those days that

petitioner admitted were holidays for his City of Houston
                               - 5 -

position.3   The business destination entered for each Monday

through Friday is “La Marque to Houston”.    The business

destination listed for the weekend days usually lists a town in

the greater Houston area to which petitioner would drive from

his home in League City.   The “business reason” entries are

nondescript, such as “show properties” or “show homes”, “preview

bank foreclosure”, or “make offers on investment property” or

“look for investment property”.    The daily entry for

Thanksgiving Day 2004 indicates that petitioner commuted to his

City of Houston job and also drove 119 miles to “preview bank

foreclosure” at some undisclosed location; the daily entry for

Christmas Day 2004 indicates that petitioner drove 150 miles to

Hempstead, Texas, to “preview property for investment”.     Daily

entries were not made on January 31, February 29, July 31, and

October 30 and 31.

     On Mrs. Moore’s mileage log the entry for “business miles

driven” also typically exceeds 100 miles per day and is as much

as 345 miles for a single day.    Every day, Sunday through




     3
        For example, petitioner’s Jan. 1 entry lists 60 commuting
miles even though petitioner stated Jan. 1 was a holiday. On
typical Government holidays including Jan. 19 (Martin Luther
King, Jr. Day), Feb. 16 (Presidents’ Day), Sept. 6 (Labor Day),
Nov. 11 (Veterans Day), and Nov. 25 (Thanksgiving Day) petitioner
listed 60 commuting miles even though petitioner admitted that
each day was a holiday for his City of Houston job.
     Other than the commuting miles, petitioner’s log includes no
personal miles whatsoever.
                              - 6 -

Saturday, includes an entry of 15 commuting miles.4   The

business destination for each of the entries is La Marque to a

surrounding town, often Houston or Galveston.   The business

purpose entries are also nondescript, including “showed client

properties”, “distribute flyers”, “preview HUD properties”, or

“visit client”.   The daily entry for Thanksgiving Day 2004

indicates that Mrs. Moore commuted 15 miles and drove 95

business miles from La Marque to Galveston to “place ad in

newspaper/visit client”.   Daily entries for January 1 and

December 25 and 26 state “off”, suggesting that Mrs. Moore did

not work on those days; the log does not include the dates of

February 29 and August 31.

     Petitioners’ 2004 Federal income tax return was dated “12-

31-07” and received by the Internal Revenue Service field office

in Dallas, Texas, on that same date.   On their return,

petitioners reported wages of $53,961 (attributable to

petitioner’s City of Houston job) and aggregate business losses

of $26,782, for a net income of $27,179.

     Attached to petitioners’ return were three Schedules C.

The first Schedule C was for the mortgage business (“United Home

Mortgage”) and listed Mrs. Moore as the proprietor.   This

Schedule C claimed a deduction for car and truck expenses of



     4
        Other than commuting miles, Mrs. Moore’s log includes no
personal miles whatsoever.
                                - 7 -

$16,177.50 for 43,140 business miles driven.    The second

Schedule C was for the real estate business (“United Realty”)

and listed petitioner as the proprietor.    This Schedule C

claimed a deduction for car and truck expenses of $19,162.50 for

51,100 business miles driven.    The third Schedule C was for an

auto sales business (“United Auto Sales”) and listed petitioner

as the proprietor; however, this Schedule C is not at issue in

this case.

      On the first and second Schedules C, the business addresses

for United Home Mortgage and United Realty are both listed as

the same address in Houston, Texas, and no mention is made of

any office location in La Marque.5

      In the notice of deficiency, respondent disallowed in full

the deductions claimed by petitioners for car and truck expenses

on the first and second Schedules C.     Respondent also determined

that petitioners are liable for an addition to tax for failure

to timely file a tax return and for an accuracy-related penalty

based on negligence or disregard of rules or regulations.

                            Discussion

A.   Burden of Persuasion and Burden of Production

      Generally, the Commissioner’s determination of a deficiency

is presumed correct, and the taxpayer has the burden of proving



      5
        The business address for United Auto Sales is listed as
Texas City, Texas.
                              - 8 -

otherwise.   Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S.

79, 84 (1992); Welch v. Helvering, 290 U.S. 111, 115 (1933); cf.

sec. 7491(a)(1), applicable only if, inter alia, the taxpayer

has both complied with the requirements to substantiate an item,

sec. 7491(a)(2)(A), and maintained all records required under

the Internal Revenue Code, sec. 7491(a)(2)(B).

      Section 7491(c) generally provides that the Commissioner

bears the burden of production with respect to the liability of

an individual for any penalty or addition to tax.    The

Commissioner may meet his burden of production by coming forward

with sufficient evidence indicating that it is appropriate to

impose the relevant penalty or addition to tax.     Higbee v.

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

B.   Schedule C Deductions for Car and Truck Expenses

      Deductions are strictly a matter of legislative grace, and

a taxpayer bears the burden of proving his or her entitlement to

the deductions claimed.   Rule 142(a); INDOPCO, Inc. v.

Commissioner, supra at 84; New Colonial Ice Co. v. Helvering,

292 U.S. 435, 440 (1934); Welch v. Helvering, supra at 115.

This includes the burden of substantiation.   Hradesky v.

Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d

821 (5th Cir. 1976).

      Section 6001 further requires taxpayers to maintain books

and records sufficient to substantiate the amounts of the
                               - 9 -

deductions claimed.    Sec. 1.6001-1(a), (e), Income Tax Regs.    If

a taxpayer is unable to fully substantiate the expenses

incurred, but there is evidence that deductible expenses were

incurred, the Court may under certain circumstances allow a

deduction based upon an approximation of expenses.    Cohan v.

Commissioner, 39 F.2d 540, 544 (2d Cir. 1930).    But see Williams

v. United States, 245 F.2d 559, 560-561 (5th Cir. 1957); Vanicek

v. Commissioner, 85 T.C. 731, 742-743 (1985).

     However, in the case of expenses relating to the use of

listed property, specifically including any passenger automobile

or other property used as a means of transportation, section

274(d) imposes stringent substantiation requirements to document

the nature and amount of such expenses.    Sec. 280F(d)(4)(A)(i),

(ii), (5); Sanford v. Commissioner, 50 T.C. 823, 827 (1968),

affd. per curiam 412 F.2d 201 (2d Cir. 1969); Larson v.

Commissioner, T.C. Memo. 2008-187; sec. 1.274-5T(a), Temporary

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

superseding the so-called Cohan rule and making it

inapplicable).    Thus, in order to satisfy these strict

substantiation requirements, the taxpayer must maintain adequate

records or sufficient corroborating evidence to establish each

element of an expenditure.    Sec. 274(d); sec. 1.274-5T(b)(6),

(c)(2)(i), Temporary Income Tax Regs., 50 Fed. Reg. 46016, 46017

(Nov. 6, 1985).    Elements of an expenditure include (1) the
                              - 10 -

amount of such expense, (2) the time and place of the expense,

and (3) the business purpose of the expense.   Sec. 274(d).   If

the listed property is used for both personal and business

purposes, deductions are disallowed unless a taxpayer

establishes the amount of the business use of the property in

question.   Kinney v. Commissioner, T.C. Memo. 2008-287; sec.

1.274-5T(b)(6)(i)(B), Temporary Income Tax Regs., 50 Fed. Reg.

46016 (Nov. 6, 1985).

     On their 2004 return, petitioners claimed deductions for

car and truck expenses of $16,177.50 and $19,162.50 for two

separate vehicles.   Petitioners contend that these vehicles were

used solely for business and not for any personal purpose (other

than commuting) such as going to church or to the grocery store.

According to petitioner, “anytime you’re moving, you’re actually

in business”.   So, for example, “when you drive to the grocery

store, you will transact business.”    In this regard, when asked

by the Court what part of the grocery store was most conducive

to conducting his business, petitioner replied as follows:

          MR. MOORE: I would say the meat section, where
     they have the chips and all that good stuff. That’s
     where people stop, and the fruit section; that’s where
     I, you know--and if you’re an agent and people know
     you’re an agent, they will stop you and you will--you
     know, just have a conversation with them. If they’re
     in the store and you pass a [business] card out.

          THE COURT: I mean, do you wear a sign that says,
     I’m an agent, and stop them–-
                               - 11 -

          MR. MOORE: No. This is only the people that
     know you, not strangers. You know, this would be
     individuals who live in the same community you live in
     and may have wanted to talk to you but haven’t seen
     you. When they get to chance to see you--it might be
     a church member, you know, a deacon at the church
     * * *.

     We find petitioner’s theorem regarding the transmutation of

nondeductible personal expenses into deductible business

expenses through kinesis to be so fundamentally flawed that we

reject it without further discussion, and we move on to a

consideration of the proffered mileage logs.

     The mileage logs are, of course, the bedrock of

petitioners’ case.   Unfortunately for petitioners, we are unable

to accept those logs at face value because we are not convinced

that they reliably record petitioners’ use of their automobiles.

By way of example, we point to the following.

     Petitioner’s mileage log claimed commuting miles for

several days that were holidays for his full-time position with

the City of Houston.   In addition, petitioner stated that “my

commuting miles include occasional * * * personal use”; however,

petitioner’s log shows the same 60 commuting miles for each

entry Monday through Friday.

     Petitioner also stated that some personal miles were

included in business miles because, as previously quoted, “any

time you are moving, you’re actually in business”.   Although

petitioner stated that he worked every day of the year, the log
                              - 12 -

for his vehicle is missing entries for several days;

nevertheless, the ending odometer reading from the last entry

before the skipped day or days is the same as the beginning

odometer reading of the next entry.    Petitioner argued that the

log is not “incorrect”, but he did admit that there are some

days on which “there might have been an error on the log.”

     Mrs. Moore’s mileage log lists 15 commuting miles for each

day except for the 5 days for which there is no entry.   However,

the mileage from League City, where petitioners’ home is

located, to La Marque is approximately 13 miles.   Thus, round

trip travel or commuting miles from petitioners’ home to the La

Marque office is approximately 26 miles.   Therefore, every entry

for commuting miles on Mrs. Moore’s mileage log is understated

by approximately 11 miles.

     In addition, the destination descriptions and business

purposes listed on both mileage logs are vague and generic in

nature.   For example, the destination might list the city

visited without providing a more specific address, even though

the business purpose would list “preview home”, “show property”,

or “make offer on for sale by owner”.

     Finally, petitioners were unable to produce third-party

records of their vehicles’ odometer readings, such as service

records, for 2004 or any other year, or any other evidence which
                              - 13 -

might support the claimed mileage.     See Larson v. Commissioner,

supra.

      Undoubtedly, petitioners used their vehicles for business

purposes during the year in issue.     However, we are unable to

find that petitioners’ mileage logs are sufficiently credible to

accept them at face value, as we are convinced that petitioners

both overstated deductible business miles and understated

nondeductible commuting and personal miles.6    Thus, we conclude

that petitioners’ mileage logs are not adequate records, within

the meaning of section 274(d) and the regulations thereunder, of

mileage expenses and that petitioners have failed to provide

other corroborative evidence sufficient to establish that they

have met the requirements of that section.     See also Tokarski v.

Commissioner, 87 T.C. 74, 77 (1986).     Accordingly, we sustain

respondent’s determination disallowing the deductions for car

and truck expenses claimed by petitioners on their 2004 tax

return.

C.   Addition to Tax for Failure To File

      Section 6651(a)(1) imposes an addition to tax for failure

to file a return by its due date.    The addition equals 5 percent



      6
        For example, on the weekend days of Jan. 3 and 4,
petitioner’s log lists Brazoria, Texas, as the business
destination and business miles as 189 and 178, respectively.
However, Brazoria is approximately 47 miles from La Marque, which
would mean petitioner drove 95 and 84 miles, respectively, within
various subdivisions on those days looking at/for property.
                              - 14 -

for each month or fraction thereof that the return is late, not

to exceed 25 percent.   Id.

     In the absence of an extension, the last date for

petitioners to have timely filed their Federal income tax return

for 2004 was Friday, April 15, 2005.   See sec. 6072(a).

Respondent has proven, and has therefore discharged his burden

of production under section 7491(c), that petitioners’ 2004

Federal income tax return was not received and filed until

December 31, 2007, more than 2-1/2 years after its due date.

     “A failure to file a tax return on the date prescribed

leads to a mandatory penalty unless the taxpayer shows that such

failure was due to reasonable cause and not due to willful

neglect.”   McMahan v. Commissioner, 114 F.3d 366, 368 (2d Cir.

1997), affg. T.C. Memo. 1995-547.   A showing of reasonable cause

requires a taxpayer to show that he or she exercised “ordinary

business care and prudence” but was nevertheless unable to file

the return within the prescribed time.   United States v. Boyle,

469 U.S. 241, 246 (1985); sec. 301.6651-1(c)(1), Proced. &

Admin. Regs.

     Petitioners have not offered any persuasive evidence to

establish that the late filing of their return was due to

reasonable cause and not due to willful neglect.   Accordingly,

we hold that petitioners are liable for the addition to tax

under section 6651(a)(1).
                               - 15 -

D.   Section 6662 Penalty

      Section 6662(a) and (b)(1) imposes a penalty equal to 20

percent of the amount of any underpayment attributable to

negligence or disregard of rules or regulations.    The term

“negligence” includes any failure to make a reasonable attempt

to comply with tax laws, and “disregard” includes any careless,

reckless, or intentional disregard of rules or regulations.

Sec. 6662(c).    Negligence also includes any failure by the

taxpayer to keep adequate books and records or to substantiate

items properly.    Sec. 1.6662-3(b)(1), Income Tax Regs.

Furthermore, negligence is strongly indicated where a taxpayer

fails to make a reasonable attempt to ascertain the correctness

of a deduction on a return which would seem to a reasonable and

prudent person to be “to good to be true” under the

circumstances.    Sec. 1.6662-3(b)(1)(ii), Income Tax Regs.

      Section 6664(c)(1) provides an exception to the imposition

of the accuracy-related penalty if the taxpayer establishes that

there was reasonable cause for, and the taxpayer acted in good

faith with respect to, the underpayment.    Sec. 1.6664-4(a),

Income Tax Regs.    The determination of whether the taxpayer

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

by-case basis, taking into account the pertinent facts and

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

taxpayer bears the burden of proving that he or she did not act
                              - 16 -

negligently or disregard rules or regulations.   Rule 142(a);

Welch v. Helvering, 290 U.S. at 115; Higbee v. Commissioner, 116

T.C. at 446; see sec. 7491(c) (regarding the Commissioner’s

burden of production).

     Respondent based his determination of the accuracy-related

penalty in large part on the disallowance of petitioners’

Schedule C deductions for car and truck expenses of $16,177.50

and $19,162.50.7   Respondent has proven, and has therefore

discharged his burden of production under section 7491(c), that

petitioners failed to maintain records sufficient to satisfy the

strict substantiation rules of section 274(d).

     Petitioners have not met their burden of persuasion with

respect to reasonable cause and good faith.8   Thus, on the

record before us, we are unable to conclude that petitioners

acted with reasonable cause and in good faith within the meaning

of section 6664(c)(1).   Accordingly, petitioners are liable for

the accuracy-related penalty under 6662(a).




     7
        Respondent also based his penalty determination on
petitioners’ failure to report certain items of income. The
includability of each of those items has been resolved by the
parties through various concessions.
     8
        At trial, petitioners had little to say about this issue
other than to imply that no penalty was applicable because there
was no deficiency.
                                - 17 -

                              Conclusion

     We have considered all of the arguments made by petitioners

and, to the extent that we have not specifically addressed those

arguments, we conclude that they are without merit.

     To reflect our disposition of the disputed issues, as well

as the parties’ concession,


                                           Decision will be entered

                                     under Rule 155.
