                          T.C. Summary Opinion 2013-44



                         UNITED STATES TAX COURT



  HARRIS CRAIG COHEN AND JENNIFER GAYLE COHEN, Petitioners v.
       COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 18208-11S.                            Filed June 3, 2013.



      Harris Craig Cohen and Jennifer Gayle Cohen, pro sese.

      Karen E. Walkenhorst, for respondent.



                              SUMMARY OPINION


      PANUTHOS, Chief 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
                                          -2-

for any other case. Unless otherwise indicated, subsequent 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.

        Respondent determined a deficiency in Harris Craig Cohen’s Federal

income tax of $7,052 for tax year 2006. Respondent also determined a deficiency

in petitioner and Jennifer Gayle Cohen’s Federal income tax of $8,122 for tax year

2007.

        After concessions,1 the issues for decision are: (1) whether petitioner is

entitled to deductions claimed on Schedule C, Profit or Loss From Business, for

tax year 2006, and whether petitioners are entitled to the same for tax year 2007;

and (2) whether petitioner is entitled to deductions claimed on Schedule A,

Itemized Deductions, greater than those respondent allowed for tax year 2006, and

whether petitioners are entitled to the same for tax year 2007.

        1
        Respondent concedes that petitioners are entitled to a deduction of $86 for
books on their 2007 Schedule A. Petitioners did not provide any evidence at trial
to substantiate the remaining $284 deduction for books that respondent disallowed
for tax year 2007. Accordingly, that amount is deemed conceded by petitioners.
See Rule 149(b). Respondent stipulated that petitioner made a cash charitable
contribution of $60 in 2006. Accordingly petitioner is entitled to that amount as a
deduction on his 2006 Schedule A. The parties stipulated that petitioner paid
union dues of $975 in 2006 and $994 in 2007. Respondent previously allowed
those amounts as deductions on the 2006 and 2007 Schedules A, and petitioner did
not provide any evidence at trial to substantiate the disallowed portions of the
deductions. Therefore, the disallowed portions are deemed conceded. See id.
                                        -3-

                                    Background

      Some of the facts have been stipulated, and we incorporate the stipulation of

facts and accompanying exhibits by this reference. Petitioners lived in California

when they filed the petition. Ms. Cohen is a party to this case because she filed a

joint Federal income tax return with petitioner for the 2007 tax year.

      In 2006 and 2007, the years in issue, petitioner was employed full time by

EP Entertainment (EP) as a picture editor. In his job as a picture editor, petitioner

created promotional videos for television shows. The promotional videos were

generally 15 to 30 seconds long, and petitioner created them daily.

      In 2004 petitioner established an LLC known as Untitled Productions (UP).

Petitioner formed UP in order to produce small television pilot programs on

speculation. Petitioner was the executive producer at UP, and he intended to film

pilot programs and then set up meetings to try to sell the pilot programs to clients.

The pilot programs that petitioner filmed were “basically small sales reels * * *

kind of like reality TV short trailers.” Petitioner did not receive any income from

UP in 2006 or 2007, and he dissolved UP in 2008 because of lack of interest in the

pilot programs.

      Petitioner asserted that he filmed two pilot programs as executive producer

for UP during 2006 and 2007. After filming, petitioner contacted producers that
                                        -4-

he knew in the business to see whether they had any interest in his pilot programs.

He talked to the producers about the concept and the idea; and if he presented the

pilot program to a potential client, he presented a two-minute trailer of the

program. Petitioner’s testimony was vague about the years in which the pilot

programs were actually filmed. The documents petitioner submitted to establish

that he filmed the pilot programs in 2006 and 2007 instead indicate that he likely

filmed the pilot programs in 2004 and not during the years in issue.

      Petitioner maintained a home office during the years in issue. His employer,

EP, did not require him to maintain a home office but did require that he log onto

EP’s servers to write scripts and start producing the promotional videos that he

would create the following day at EP’s offices. Petitioner typically worked 12

hours per day for EP. Of the 12 hours, petitioner worked about 3 hours per day

from his home office. When petitioner was not working for EP at his home office,

he used the same equipment and office for UP, the Schedule C activity. Petitioner

used four or five computers in his home office.

      Petitioner filed an individual return for tax year 2006 and a joint return for

the 2007 tax year. On his 2006 return petitioner claimed a noncash charitable

contribution deduction of $7,220. He also claimed a Schedule A deduction of

$9,908 for unreimbursed employee expenses consisting of books, union and
                                        -5-

professional dues, and vehicle expenses. Petitioner attached a Schedule C to his

2006 return for UP. He did not report gross receipts for the Schedule C activity,

but he claimed expense deductions totaling $11,609 for depreciation and section

179 expenses, meals and entertainment, and “other expenses”.

      On their 2007 joint return, petitioners claimed Schedule A deductions of

$11,600 for noncash charitable contributions and $6,906 for unreimbursed

employee expenses consisting of books, union and professional dues, and home

office expenses. Petitioners also claimed a Schedule A deduction of $2,421 for

miscellaneous mileage. Petitioners attached a Schedule C to their 2007 return for

UP. Petitioners did not report any gross receipts for the Schedule C activity, but

they claimed expense deductions totaling $11,665 for depreciation and section 179

expenses, taxes and licenses, and “other expenses”.

      Respondent issued notices of deficiency for petitioner’s 2006 tax year and

petitioners’ 2007 tax year on May 10, 2011. The notices of deficiency disallowed

the following expenses for lack of substantiation:
                                       -6-

                                    Schedule A

             Expense                         2006                    2007
 Charitable contributions                    $6,220                $10,600
 Unreimbursed employee
  expenses (subject to 2%
  floor)                                     8,501                    5,717
 Miscellaneous itemized
  deductions (subject to 2%
  floor)                                     ---                      2,421
                                    Schedule C
             Expense                         2006                    2007
 Depreciation                                $5,767                 $5,133
 Meals and entertainment                      1,350                   ---
 Taxes and licenses                           ---                      800
 Other expenses                              4,492                   5,732

                                    Discussion

      The Commissioner’s determination set forth in a notice of deficiency is

presumed correct, and a taxpayer generally bears the burden of proving otherwise.

Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Deductions are a

matter of legislative grace, and the taxpayer bears the burden of proving

entitlement to any deduction claimed. Rule 142(a); New Colonial Ice Co. v.

Helvering, 292 U.S. 435, 440 (1934).
                                        -7-

      Pursuant to section 7491(a), the burden of proof may shift to the

Commissioner if the taxpayer produces credible evidence with respect to any

relevant factual issue and meets other requirements. Petitioners do not contend

that section 7491(a) shifts the burden of proof to respondent, nor does the record

establish that petitioners satisfy the section 7491(a)(2) requirements.

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

expenses paid or incurred during the taxable year in carrying on any trade or

business. In order for an expense to be “necessary”, it must be “appropriate and

helpful” to the taxpayer’s business. Welch v. Helvering, 290 U.S. at 113. An

expense will be considered “ordinary” if it is a common or frequent occurrence in

the type of business in which the taxpayer is involved. Deputy v. Du Pont, 308

U.S. 488, 495 (1940). To be engaged in a trade or business, an individual must be

involved in an activity with continuity and regularity and the primary purpose for

engaging in the activity must be for income or profit. Commissioner v.

Groetzinger, 480 U.S. 23, 35 (1987).

      Taxpayers must keep sufficient records to substantiate any deductions

claimed. Sec. 6001. As a general rule, if the trial record provides sufficient

evidence that the taxpayer has paid or incurred a deductible expense but the

taxpayer is unable to adequately substantiate the precise amount of the deduction
                                        -8-

to which he is otherwise entitled, the Court may estimate the amount of the

deductible expense and allow the deduction to that extent, bearing heavily against

the taxpayer whose inexactitude in substantiating the amount of the expense is at

his own making. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930).

We cannot estimate the amount, however, unless the taxpayer proves that he or she

paid or incurred some deductible expense and provides some basis from which we

can develop a reasonable estimate. Williams v. United States, 245 F.2d 559, 560

(5th Cir. 1957).

      In the case of expenses paid or incurred with respect to listed property, e.g.,

passenger automobiles or other property used as a means of transportation, section

274(d) overrides the Cohan doctrine and provides that these expenses are

deductible only if the taxpayer meets stringent substantiation requirements. Secs.

274(d), 280F(d)(4); see Lewis v. Commissioner, 560 F.2d 973, 977 (9th Cir.

1977), rev’g on other grounds T.C. Memo. 1974-59; Sanford v. Commissioner, 50

T.C. 823, 827-828 (1968), aff’d per curiam, 412 F.2d 201 (2d Cir. 1969); sec.

1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).

I.    Schedules C

      On his 2006 return, petitioner claimed, and respondent disallowed,

deductions totaling $11,609 for Schedule C depreciation and section 179
                                         -9-

expenses, meals and entertainment, and other expenses. Respondent determined

that petitioner did not establish that the expenses were paid or incurred during the

taxable year and that the expenses were not ordinary and necessary business

expenses. On their 2007 return, petitioners claimed, and respondent disallowed,

deductions totaling $11,665 for Schedule C depreciation and section 179 expense,

taxes and licenses, and other expenses. Respondent determined that petitioners

did not establish that the expenses were paid or incurred during the taxable year

and that the expenses were not ordinary and necessary business expenses.

         A.    Depreciation

         Petitioner claimed, and respondent disallowed, a Schedule C deduction of

$5,767 for depreciation expenses on his 2006 return. Petitioner attached to his

return a Form 4562, Depreciation and Amortization, as well as a “2006 Federal

Depreciation Schedule”. The Form 4562 does not contain a description of the

property for which petitioner claimed the depreciation expenses. The 2006

Federal Depreciation Schedule allocates the total depreciation expenses claimed

for 2006 between machinery and equipment expenses of “misc cost-up exp” and

“misc cost-up exp tv pilot”, and miscellaneous expenses for “misc cost-up exp tv

pilo”.
                                        - 10 -

      Petitioners claimed, and respondent disallowed, a Schedule C deduction of

$5,133 for depreciation expenses on their 2007 return. Petitioners attached to their

return a Form 4562 as well as a “2007 Federal Depreciation Schedule”. The Form

4562 claims a section 179 expense deduction of $604 for a “5-year laptop”, and

the 2007 Federal Depreciation Schedule allocates the remaining depreciation

expenses claimed for 2007 between machinery and equipment expenses of “misc

cost-up exp”, “misc cost-up exp tv pilot”, “tv project exp” and miscellaneous

expenses for “misc cost-up exp tv pilo”.

      Section 167(a) allows as a depreciation deduction a reasonable allowance

for the exhaustion, wear and tear of property used in a trade or business. The

purpose of the deduction for depreciation is to allow the taxpayer to recover over

the useful life of the property its cost or other basis. United States v. Ludey, 274

U.S. 295, 300-301 (1927).

      Pursuant to section 168(a), the depreciation deduction provided by section

167(a) is determined by using the applicable depreciation method, applicable

convention, and the applicable recovery period. The period for depreciation of an

asset begins when the taxpayer first places the asset into service. Sec. 1.167(a)-

10(b), Income Tax Regs. Generally, depreciation is computed by using the cost of
                                         - 11 -

the property as its basis. Secs. 167(c), 1011, 1012; sec. 1.167(g)-1, Income Tax

Regs.

        Petitioner attempted to substantiate the depreciation deductions with the two

depreciation schedules, credit card statements from 2006 and 2007, and his

testimony regarding the 2006 depreciation deductions. Petitioner testified that the

“miscellaneous cost-up exp” listed on the 2006 depreciation schedule was for

computer equipment such as hard drives, cables, tapes and CD burners that

petitioner purchased to transfer videotapes into a digital format. Petitioner

asserted that the “misc cost-up exp tv pilot” listed on his 2006 depreciation

schedule was for computer decks and equipment that he rented or purchased for

his project. Petitioner asserted that miscellaneous expenses for “misc cost-up exp

tv pilo” on the 2006 depreciation schedule were incurred in 2006 and were

associated with his production of a pilot program in that year.

        There is nothing in the record that adequately identifies the assets for which

petitioner claimed depreciation deductions for 2006 and 2007. The depreciation

schedules are unclear in that they do not identify the property for which the

depreciation deductions were claimed, and it is not clear from the credit card

statements whether the items purchased were personal or business related.

Furthermore, some of the items may be subject to the substantiation requirements
                                       - 12 -

of section 274(d). For those purchases, petitioner did not provide sufficient proof

of the amounts expended, the time and place of acquisition, or the business

purpose. See sec. 1.274-5T(a) and (b), Temporary Income Tax Regs., supra.

Petitioner has not substantiated the claimed depreciation or section 179 expense

deductions, and his testimony does not establish that he is entitled to a deduction

for depreciation or section 179 expenses; nor does it provide a basis on which we

might estimate those claimed deductions that are not subject to the substantiation

requirements of section 274(d). See Cohan v. Commissioner, 39 F.2d at 543-544.

We sustain respondent’s determination disallowing the deductions for depreciation

and section 179 expenses for tax years 2006 and 2007.

      B.     Meals and Entertainment

      On his 2006 Schedule C petitioner claimed, and respondent disallowed, a

deduction for $1,350 in meals and entertainment expenses. A deduction is not

allowed for meals and entertainment expenses unless the taxpayer properly

substantiates: (1) the amount of such expense, (2) the time and place of the

expense, (3) the business purpose, and (4) the business relationship between the

taxpayer and the persons being entertained. Sec. 274(d).

      To substantiate the claimed deduction for meals and entertainment

expenses, petitioner offered credit card statements that he argues show payments
                                        - 13 -

for business-related meals and entertainment. Some of the charges do bear the

names of restaurants, but none of them reflects that the meals were business

related. Some of the charges on the credit card statements have handwritten

notations such as “Dinner Business-Chris” next to the charge for the purported

business meal. Petitioner also offered business meal logs for both the 2006 and

2007 tax years. The logs list the date of the meal, the location, the first names of

the people with whom petitioner had the meal, the reason for the meal, and the

cost of the meal. The logs, which were not prepared at the time the expenses were

incurred, were provided to respondent the day before trial.

      Although the logs purport to set forth the amount and the date of each

expense, petitioner admitted that the entries in the logs were not made at or near

the time any expenses were incurred. Additionally, there is nothing in the record

but petitioner’s own testimony to indicate that the credit card charges for meals

related to petitioner’s business. We are not required to find this self-serving and

unsupported testimony to be sufficient to prove that petitioner incurred meal and

entertainment expenses in 2006. See Tokarski v. Commissioner, 87 T.C. 74, 77

(1986); Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff’d per curiam, 540

F.2d 821 (5th Cir. 1976). Petitioner’s testimony did not contain specific

information in detail about the meals and entertainment expenses, and petitioner
                                         - 14 -

did not provide corroborative evidence of such expenses. See sec. 1.274-

5T(c)(3)(i), Temporary Income Tax Regs., 50 Fed. Reg. 46020 (Nov. 6, 1985).

Furthermore, a noncontemporaneous log does not satisfy the requirements of

section 274(d). Sec. 1.274-5T(c)(2)(ii), Temporary Income Tax Regs., 50 Fed.

Reg. 46017 (Nov. 6, 1985). Accordingly, respondent’s determination that

petitioner is not entitled to a deduction for meals and entertainment expenses is

sustained.

      C.     Taxes and Licenses

      On their 2007 Schedule C petitioners claimed, and respondent disallowed, a

deduction of $800 for taxes and licenses. To substantiate the expense, petitioner

provided a copy of a personal check for $800, payable to the Franchise Tax Board.

The exact date written on the check is illegible, but it is clear that the date is in

June 2007. Petitioner also provided a copy of a personal check for $27, dated

August 11, 2007, and payable to the City of Anaheim. We are satisfied that

petitioner paid $800 to the Franchise Tax Board and $27 to the City of Anaheim in

2007, but the record does not reflect for what the $800 and the $27 were paid. The

personal checks are insufficient to establish that these expenses were not personal,

and therefore the expenses are not deductible. See sec. 262(a).
                                      - 15 -

      D.    Other Expenses2

      Petitioner claimed, and respondent disallowed, Schedule C deductions

totaling $4,492 for “other expenses” on his 2006 return. Petitioner’s claimed

“other expenses” consist of $1,185 for cable expenses, $1,701 for cellular phone

expenses, $698 for equipment rentals, $110 for miscellaneous expenses, $498 for

repairs and maintenance, and $300 for software supplies.

      On their 2007 return petitioners claimed, and respondent disallowed,

Schedule C deductions totaling $5,732 for “other expenses”. Petitioners’ claimed

“other expenses” consist of $1,430 for cable expenses, $1,021 for cellular phone

expenses, $331 for software supplies, $298 for admissions fees, $1,500 for

convention expenses, $420 for Internet expenses, $419 for office supplies, $105

for parking, $88 for small equipment, and $120 for video rentals.




      2
        To establish that the “other expenses” claimed for 2006 and 2007 on the
Schedules C were ordinary and necessary business expenses, petitioner submitted
a letter dated September 1, 2009, from the Director of Membership Services at the
Motion Picture Editors Guild. The letter is addressed “To Whom it May Concern”
and describes a picture editor’s job requirements and lists various expenses that
“are an integral part of an editor’s job and are requirements for meeting the
expectations of their employers in an extremely demanding and competitive field.”
We are not persuaded that the letter establishes that the claimed “other expenses”
are ordinary and necessary business expenses for petitioner’s Schedule C activity,
since petitioner was an executive producer and not a picture editor.
                                        - 16 -

             1.    Cellular Phone Expenses

      Petitioner claimed deductions of $1,701 and $1,021 on the 2006 and 2007

Schedules C, respectively, for cellular phone expenses. Such expenses are subject

to heightened substantiation requirements. See secs. 274(d), 280F(d)(4).

Petitioner used his personal cellular phone to accept calls related to his business

and provided copies of credit card statements and canceled checks showing

payments to Verizon and Verizon Wireless to substantiate the expenses. Petitioner

did not provide an allocation between his business and personal use of the cellular

phone. Although petitioner provided records of payments for cellular phone

expenses in 2006 and 2007, he failed to provide adequate records or other

sufficient evidence to corroborate his claimed business use. See sec. 274(d); sec.

1.274-5T(b)(6), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).

Petitioner has not met the heightened substantiation requirements for his cellular

phone expenses, and thus respondent’s determination as to those expenses is

sustained.

             2.    Travel to Convention

      Petitioners claimed, and respondent disallowed, a deduction of $1,500 for

travel to Las Vegas for a convention in 2007. Petitioner testified that he attended

computer conventions and National Broadcast Association conventions in Las
                                        - 17 -

Vegas and that he incurred airfare and hotel expenses. Although petitioner

claimed travel expenses only on the 2007 Schedule C and not the 2006 Schedule

C, petitioner submitted a log titled “Harris Cohen Conventions & Travel Expenses

2006 & 2007” listing the dates on which he incurred expenses for travel from Los

Angeles to Las Vegas for both a convention in 2006 and a “b-roll shoot” in 2007.

The logs he submitted also list charges for registration, transportation, and meals.

Petitioner provided copies of credit card statements from both 2006 and 2007 with

handwritten notations next to certain charges for airline tickets and hotel

reservations. The credit card statements that show that airline ticket charges were

incurred in 2006, and not the year for which the travel expenses are at issue.

      Travel expenses are another type of expenditure to which the strict

substantiation requirements of section 274(d) apply. Petitioner did not explain and

the record does not show how the travel expenditures, if incurred, were ordinary

and necessary business expenses. Petitioner did not introduce evidence to

substantiate the expenditures under section 274(d) and is therefore not entitled to

any deductions for travel expenses. Respondent’s determination disallowing the

deduction for convention expenses for tax year 2007 is sustained.
                                       - 18 -

            3.     Cable Expenses

      Petitioner claimed, and respondent disallowed, deductions for cable

expenses of $1,185 and $1,430 on the 2006 and 2007 Schedules C, respectively.

Petitioner had cable in his entire home in 2006 and 2007, and he claimed

deductions for the entire cable expense for each year on the Schedules C. To

substantiate the cable expenses, petitioner submitted copies of bank statements

and canceled checks showing payments to “Direct TV”. Though petitioner

incurred cable expenses during the years in issue, his testimony and the documents

submitted do not establish that the cable expenses are ordinary and necessary

business expenses for an executive producer. We sustain respondent’s

determination disallowing the deductions for cable expenses.

            4.     Equipment Rental

      Petitioner claimed, and respondent disallowed, a Schedule C deduction of

$698 for equipment rental for the 2006 taxable year. Petitioner submitted several

equipment rental agreements dated October 10, 2004, and credit card statements

with handwritten notations of “equip rental” next to various charges. Petitioner

did not describe what equipment he rented and when, and nothing in the record

establishes that the equipment rental expenses were incurred in 2006 or that they
                                       - 19 -

were ordinary and necessary business expenses. We sustain respondent’s

determination disallowing the deduction for equipment rental.

             5.    Miscellaneous

      Petitioner claimed, and respondent disallowed, a Schedule C deduction of

$110 for miscellaneous expenses for the 2006 taxable year. Petitioner submitted

several pages of credit card statements with handwritten notations such as

“registration” and “actor search for TV pilot” next to certain charges. Nothing in

the record establishes that these charges were for ordinary and necessary business

expenses and not for personal expenses. Therefore, petitioner is not entitled to

deduct the miscellaneous expenses for the 2006 taxable year.

             6.    Repairs and Maintenance

      Petitioner claimed, and respondent disallowed, a Schedule C deduction of

$498 for repairs and maintenance for the 2006 taxable year. To substantiate this

deduction, petitioner submitted several pages of credit card statements with

handwritten notations of “office repair” and “office supplies” next to certain

charges. Petitioner also submitted a receipt dated April 29, 2007, for the purchase

of an air conditioner that was purportedly for the home office. Nothing in the

record establishes that repairs and maintenance charges were incurred in the year

for which petitioner claimed the deduction, and petitioner has not established that
                                        - 20 -

the expenses were ordinary and necessary for his business rather than personal.

We sustain respondent’s determination disallowing the deduction for repairs and

maintenance.

             7.    Software Supplies

      Petitioner claimed, and respondent disallowed, deductions for software

supplies of $300 and $331 on the 2006 and 2007 Schedules C, respectively.

Petitioner submitted copies of credit card statements with handwritten notations

next to the charges for the purported software supplies, as well as a receipt for a

stylus replacement shipped to Jennifer Colley. Nothing in the record establishes

that these charges were not personal and that they were instead ordinary and

necessary business expenses. We sustain respondent’s determination disallowing

the deductions for software supplies for tax years 2006 and 2007.

             8.    Admission Fees

      Petitioners claimed, and respondent disallowed, a Schedule C deduction for

admission fees for the 2007 taxable year. Petitioner testified that the admission

fees were for the TV Academy and Arc Light Cinemas, and he submitted one page

from a credit card statement with the handwritten notation “admissions” next to a

$150 charge at TV Academy for “records video”. Petitioner did not describe the

purpose of the admission fees, so there is nothing in the record to establish that the
                                        - 21 -

expenses were ordinary and necessary business expenses. Thus, respondent’s

determination disallowing the deduction for admission fees is sustained.

             9.     Internet

       Petitioners claimed, and respondent disallowed, a Schedule C deduction for

Internet expenses for the 2007 taxable year. Petitioner testified that for his full-

time job at EP he used the Internet at home to log onto EP’s Web site to decide

what portions of the videos to use in the promotions the following day. Petitioner

submitted copies of canceled checks payable to Verizon and copies of pages from

bank statements showing payments to Verizon.

       Generally, a taxpayer who is an employee may deduct unreimbursed

employee expenses as an ordinary and necessary business expense under section

162. Lucas v. Commissioner, 79 T.C. 1, 6 (1982). An employee, however, cannot

deduct such expenses to the extent that the employee is entitled to reimbursement

from his employer. Id. at 7. In addition, section 6001 requires a taxpayer to

maintain sufficient records to allow the determination of the taxpayer’s correct tax

liability.

       Petitioners deducted the Internet expenses in relation to the Schedule C

activity, but petitioner did not establish that Internet expenses were ordinary and

necessary business expenses for that activity. Petitioner used the Internet for his
                                        - 22 -

full-time job at EP, but his testimony did not establish whether he received

reimbursement from his employer or had the right to obtain reimbursement from

his employer for the Internet expenses. See id. We sustain respondent’s

determination disallowing the deduction for Internet expenses.

             10.   Office Supplies

      Petitioners claimed, and respondent disallowed, a Schedule C deduction for

office supplies for the 2007 taxable year. Petitioner submitted pages from credit

card statements with handwritten notations next to charges at Office Depot,

Staples, Circuit City, Lowes, Best Buy, and Target to substantiate the claimed

deduction. Petitioner did not explain the charges and has not offered any evidence

to establish that the reported expenses were ordinary and necessary business

expenses. See sec. 162(a). Accordingly, we hold that petitioners are not entitled

to a deduction for office supplies for the 2007 tax year.

             11.   Parking

      Petitioners claimed, and respondent disallowed, a Schedule C deduction for

parking for the 2007 taxable year. Petitioner did not substantiate the expense and

has not offered any evidence to establish that the claimed parking expenses were

ordinary and necessary business expenses. See id. Accordingly, we hold that

petitioners are not entitled to a deduction for parking for the 2007 tax year.
                                        - 23 -

             12.   Small Equipment

      Petitioners claimed, and respondent disallowed, a Schedule C deduction for

small equipment for the 2007 taxable year. To substantiate the claimed deduction,

petitioner submitted a Best Buy receipt for an MP3 player. Though the receipt

establishes that the expense was incurred, petitioner has not offered any evidence

to establish that the expense was an ordinary and necessary business expense. See

id. Accordingly, we hold that petitioners are not entitled to a deduction for small

equipment for the 2007 tax year.

             13.   Video Rentals

      Petitioners claimed, and respondent disallowed, a Schedule C deduction for

video rentals for the 2007 taxable year. To substantiate the claimed deduction,

petitioner submitted pages from credit card statements with handwritten notations

next to charges for Netflix, “The Daily Grind Espres”, and the Paramount

Commissary. Petitioner testified that the video rental expense is “just DVD’s that

again in my industry are customary and ordinary to my job.” Despite petitioner’s

testimony that the video rental expenses are “customary and ordinary”, some of the

charges on the credit card statements are not clearly for video rentals.

      Petitioners deducted the video rental expenses for his Schedule C activity,

but petitioner did not establish that these expenses were ordinary and necessary
                                         - 24 -

business expenses for that activity. Petitioner’s letter from the Motion Picture

Editors Guild stated that someone with the job of “picture editor” is expected to

keep up with movies to learn new techniques and to know who is working and on

what project. Petitioner testified, however, that at his Schedule C activity he “was

not an editor, [he was] the executive producer”. Petitioner’s testimony and

documents do not establish that the video rental expenses were ordinary and

necessary business expenses for the Schedule C activity. We are satisfied that

petitioners did incur at least some video rental expenses in 2007 and that they may

have been related to petitioner’s full-time job as a picture editor, but petitioner did

not establish whether he received reimbursement from his employer or had the

right to obtain reimbursement from his employer for the video rental expenses.

See Lucas v. Commissioner, 79 T.C. at 7. We sustain respondent’s determination

disallowing the deduction for video rental expenses.

II.   Schedules A

      A.     Charitable Contributions

      Petitioner deducted noncash charitable contributions of $7,220 for the 2006

taxable year, and respondent disallowed $6,220 of that amount. Petitioner

reported noncash contributions of $720 to Council Thrift Shops on September 4,

2006, and $6,500 to Goodwill on June 20, 2006. Petitioners deducted noncash
                                        - 25 -

charitable contributions of $11,600 for the 2007 taxable year, and respondent

disallowed $10,600 of that amount. Petitioners reported noncash contributions of

$7,805 to Council Thrift Shops on February 1, 2007, and $5,900 to Out of the

Closet on December 16, 2007.

      A taxpayer generally may deduct charitable contributions made during the

taxable year. Sec. 170(a). Charitable contributions, however, are deductible only

if verified under regulations prescribed by the Secretary. Sec. 170(a)(1); Hewitt v.

Commissioner, 109 T.C. 258, 261 (1997), aff’d without published opinion, 166

F.3d 332 (4th Cir. 1998). For charitable contributions made in property other than

cash, in general, the value of the contribution is the fair market value at the time of

contribution. Hewitt v. Commissioner, 109 T.C. at 261; sec. 1.170A-1(c)(1),

Income Tax Regs. The fair market value of contributed property is the price at

which the property would change hands between a willing buyer and a willing

seller, neither being under any compulsion to buy or sell and both having

reasonable knowledge of relevant facts. Sec. 1.170A-1(c)(2), Income Tax Regs.

      For any claimed charitable contribution deduction of $250 or more, the

taxpayer must obtain a contemporaneous written acknowledgment from the donee.

Sec. 170(f)(8)(A). Section 170(f)(8)(B) provides that the contemporaneous

written acknowledgment must include the following:
                                         - 26 -

              (B) Content of acknowledgment.--An acknowledgment meets
       the requirements of this subparagraph if it includes the following
       information:

                    (i) The amount of cash and a description (but not value)
              of any property other than cash contributed.

                    (ii) Whether the donee organization provided any goods
              or services in consideration, in whole or in part, for any
              property described in clause (i).

                   (iii) A description and good faith estimate of the value of
              any goods or services referred to in clause (ii) or, if such goods
              or services consist solely of intangible religious benefits, a
              statement to that effect.

Section 170(f)(8)(C) provides that a written acknowledgment is contemporaneous

when the taxpayer obtains it on or before the earlier of: (1) the date the taxpayer

files a return for the year of contribution; or (2) the due date, including extensions,

for filing that return.

       In addition to the written acknowledgment requirement, the regulations

establish a three-tier recordkeeping system for contributions of property other than

money. For a noncash contribution of $500 or less, the taxpayer must substantiate

the contribution with a receipt from the donee indicating the donee’s name, the

date and location of the contribution, and “[a] description of the property in detail

reasonably sufficient under the circumstances.” Sec. 1.170A-13(b)(1), Income

Tax Regs. If the taxpayer makes a charitable contribution of property other than
                                        - 27 -

money and claims a deduction in excess of $500, the taxpayer must maintain

written records showing the manner of acquisition of the item, the approximate

date of acquisition, and the cost or adjusted basis of the property. Sec. 1.170A-

13(b)(3), Income Tax Regs.; see also Lattin v. Commissioner, T.C. Memo. 1995-

233. Lastly, if the noncash contribution deduction exceeds $5,000, the taxpayer

must (1) obtain a qualified appraisal for the contributed property, (2) attach a fully

completed appraisal summary (i.e., Form 8283, Noncash Charitable Contributions)

to the tax return on which the deduction is claimed, and (3) maintain records

pertaining to the claimed deduction in accordance with section 1.170A-

13(b)(2)(ii), Income Tax Regs. See sec. 1.170A-13(c)(2), Income Tax Regs.

      Generally, the amount reported as a deduction for contributions of property

is an aggregate amount for all similar items of property. See sec. 1.170A-

13(c)(1)(i), Income Tax Regs. In 2006 petitioner’s reported contributions fall into

the general categories of clothing and housewares. Accordingly, we aggregate all

items in these categories and consider the claimed deduction in both categories to

exceed $500. Petitioner therefore needs to establish that he met the substantiation

requirements applicable to deductions over $500. In 2007 petitioners’ claimed

contributions also fall into the general categories of clothing and housewares.

Accordingly, we aggregate all items in these categories and consider the claimed
                                       - 28 -

deduction for clothing to exceed $5,000 and the claimed deduction for housewares

to exceed $500. Petitioners therefore need to establish that they met the

substantiation requirements applicable to deductions over $5,000 for the clothing

contributions, and that they met the substantiation requirements applicable to

deductions over $500 for the housewares contributions.

      Petitioner’s noncash contributions of clothing and housewares in 2006

exceed $500, so he must introduce contemporaneous written acknowledgments as

well as written records showing the manner of acquisition, the approximate date of

acquisition, and the cost or adjusted basis of the contributed property. See sec.

1.170A-13(b)(3)(i), Income Tax Regs.; see also Lattin v. Commissioner, T.C.

Memo. 1995-233. Petitioner introduced three receipts from Goodwill with lists of

donated items and three receipts from Council Thrift Shops. Petitioner reported

his cost or adjusted basis in the contributed items on his 2006 Form 8283 as

$6,500 for the items donated to Council Thrift Shops and $18,000 for the items

donated to Goodwill, and the date acquired for all of the items as “various”.

Petitioner reported the fair market values of the items donated to Council Thrift

Shops and Goodwill as $720 and $6,500, respectively.

      Petitioner did not provide the approximate dates of acquisition of the

contributed items, and he introduced no documentation to corroborate his
                                        - 29 -

calculation of his cost or adjusted basis in the contributed items. Petitioner failed

to show that he had reasonable cause for not providing information regarding the

acquisition dates or cost basis in the contributed items. See sec. 1.170A-

13(b)(3)(ii), Income Tax Regs. Furthermore, petitioner testified that he calculated

the fair market values of the contributed items by using the prices of similar items

listed on eBay and Amazon. Petitioner submitted printouts of items for sale on

eBay to support his calculations, but all of the printouts are dated either September

21 or 22, 2010. In the absence of corroborating evidence, we are not required to

accept petitioner’s self-serving testimony. See Shea v. Commissioner, 112 T.C.

183, 189 (1999).

      To substantiate their 2007 contributions, petitioners introduced four receipts

from Goodwill with lists of donated items, a receipt from Out of the Closet Thrift

Stores with a list of donated items, and five receipts from Council Thrift Shops.

Petitioners reported their costs or adjusted bases in the contributed items on their

2007 Form 8283 as $12,690 for the items donated to Council Thrift Shops and

$5,900 for the items donated to Out of the Closet Thrift Stores. They reported the

date acquired for all items as “various”, and reported the fair market values of the

items donated to Council Thrift Shops and Out of the Closet Thrift Stores as

$7,805 and $3,795, respectively.
                                        - 30 -

      Petitioners did not provide the approximate dates of acquisition of the

contributed items, nor did they introduce documentation to corroborate the

calculations of the costs or adjusted bases in the contributed items. Furthermore,

petitioners’ deduction for clothing exceeded $5,000, but they did not obtain a

qualified appraisal for the contributed property or maintain records pertaining to

the claimed deduction in accordance with section 1.170A-13(b)(2)(ii), Income Tax

Regs. See sec. 1.170A-13(c)(2), Income Tax Regs. In the absence of

corroborating evidence, we are not required to accept petitioner’s self-serving

testimony. See Shea v. Commissioner, 112 T.C. at 189. Accordingly, we sustain

respondent’s determination disallowing the deductions for noncash charitable

contributions of $6,220 and $10,600 for tax years 2006 and 2007, respectively.

      B.     Unreimbursed Employee Business Expenses

             1.    Vehicle Expenses

      Petitioner claimed, and respondent disallowed, an unreimbursed employee

business expense deduction for vehicle expenses of $8,231 on his 2006 Schedule

A. Petitioners claimed, and respondent disallowed, a deduction of $2,421 for

“misc mi” on their 2007 Schedule A. Passenger automobiles and any other

property used as a means of transportation are listed property, see sec.

280F(d)(4)(A)(i) and (ii), and these expenses are subject to the strict substantiation
                                        - 31 -

requirements of section 274(d). Section 274(d) requires a taxpayer to substantiate

the expenses by adequate records or other corroborating evidence of (1) the

amount of each use (i.e., the mileage), (2) the time and place of the use, and (3) the

business purposes of the use. See Fessey v. Commissioner, T.C. Memo. 2010-

191, slip. op. at 7; sec. 1.274-5T(b)(6), (c)(2), Temporary Income Tax Regs., 50

Fed. Reg. 46016-46017 (Nov. 6, 1985).

       Petitioner submitted several service invoices from Cerritos Nissan to

substantiate the claimed vehicle expense deduction for tax year 2006 and the

claimed miscellaneous mileage deduction for tax year 2007. Petitioner also

submitted pages from credit card statements that show charges at Cerritos Nissan.

The invoices list the vehicle’s mileage at the time it was dropped off at the service

center, and at the time it was picked up. Petitioner submitted recently created

mileage logs for both 2006 and 2007, and provided the logs to respondent the day

before trial.

       Petitioner did not establish that he did not receive reimbursement and did

not have the right to obtain reimbursement from his employer for the vehicle

expenses or the miscellaneous mileage expenses. See Lucas v. Commissioner, 79

T.C. at 7. Petitioner’s mileage logs and credit card statements do not substantiate

the vehicle expense deduction claimed for 2006 or the miscellaneous mileage
                                        - 32 -

deduction claimed for 2007. Petitioner did not establish the business purpose of

the use of his vehicle and we do not find his mileage logs to be credible.

Petitioner admitted that there were mistakes in the logs, and his credit card

statements establish that he incurred charges in Hawaii on the same dates that he

claimed to have driven business miles in California. While we believe that

petitioner did use his vehicle for some business travel, he failed to substantiate the

amount of his business mileage and vehicle expenses as required by section

274(d). Consequently, we sustain respondent’s determination that petitioner is not

entitled to deduct any amount for vehicle expenses for 2006 or miscellaneous

mileage for 2007.

              2.    Business Use of Home

      Petitioners claimed, and respondent disallowed, home office deductions

totaling $5,291 for rent, repairs and maintenance, and utilities on their 2007

Schedule A.

      In general, a taxpayer is not entitled to deduct any expenses related to the

use of a dwelling unit used by the taxpayer as a residence during the taxable year.

See sec. 280A. Expenses attributable to a home office are excepted from this

general rule, however, if the expenses are allocable to a portion of the dwelling

unit which is exclusively used on a regular basis as the principal place of business
                                        - 33 -

for the taxpayer’s trade or business. See sec. 280A(c)(1); Lofstrom v.

Commissioner, 125 T.C. 271, 278 (2005). If the taxpayer is an employee, the

exception under section 280A(c)(1) will apply only if the home office is

maintained for the convenience of the employer. See Hamacher v. Commissioner,

94 T.C. 348, 353-354 (1990). An employee satisfies this requirement when the

employee maintains the home office as a condition of his employment or as

necessary for the functioning of the employer’s business or as necessary for the

employee to properly perform his duties. Id. at 358. The home office must not,

however, “be ‘purely a matter of personal convenience, comfort, or economy’ with

respect to the employee.” Id. (quoting Sharon v. Commissioner, 66 T.C. 515, 523

(1976), aff’d, 591 F.2d 1273 (9th Cir. 1978)).

      Petitioner does not claim and has not established that during 2007 the home

office was used exclusively on a regular basis as the principal place of business for

either petitioner or that the home office was maintained for the convenience of

either of their employers. Petitioner’s employer, EP, did not require him to

maintain a home office. The fact that petitioner used the home office for business

purposes as he claims is insufficient to allow any deduction attributable to that

use. See Lofstrom v. Commissioner, 125 T.C. at 278. Petitioners are not entitled
                                      - 34 -

to a home office deduction for 2007, and respondent’s determination in this regard

is sustained.

      We have considered the parties’ arguments and, to the extent not discussed

herein, we conclude the arguments to be irrelevant, moot, or without merit.

      To reflect the foregoing,


                                               Decision will be entered under

                                      Rule 155.
