                         T.C. Memo. 2000-7



                      UNITED STATES TAX COURT



        DON D. COFFMAN AND DEBRA COFFMAN, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 16609-98.                    Filed January 7, 2000.


     Don D. Coffman and Debra Coffman, pro se.

     Jean Song, for respondent.


                        MEMORANDUM OPINION


     NAMEROFF, Special Trial Judge:   Respondent determined a

deficiency in petitioners’ 1995 Federal income tax in the amount

of $3,851 plus an accuracy-related penalty under section 6662(a)

of $770.20.   Unless otherwise indicated, section references are

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

all Rule references are to the Court’s Rules of Practice and

Procedure.
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       After concessions by both parties, the issues to be decided

are:    (1) Whether petitioners are entitled to a deduction for

charitable contributions, (2) whether petitioners are entitled to

a deduction on Schedule A for miscellaneous business expenses,

(3) whether petitioners are entitled to a deduction under section

179, (4) whether petitioners are entitled to deductions for home

office expenses, and (5) whether petitioners are liable for the

accuracy-related penalty.

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

found.    Petitioners resided in Canyon Lake, California, at the

time of the filing of their petition.

Charitable Contributions

       Petitioners claimed a deduction for charitable contributions

for $3,312, consisting of cash gifts of $412 and $2,900 of gifts

other than cash or check.    A Form 8283, Noncash Charitable

Contributions, was attached to the 1995 return and detailed

contributions of four separate groups of property items, the fair

market value of which allegedly totaled $2,900.    Respondent

disallowed the entire claimed deduction.    Petitioners now concede

that they are not entitled to the deduction for the noncash gifts

as set forth on Form 8283, while respondent concedes that

petitioners have substantiated $81 of cash gifts.

       Petitioner Don Coffman (Mr. Coffman) testified that part of

the cash gifts consisted of his estimate of currency that
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petitioners contributed when they went to church on Sundays.     He

maintained no records of such contributions.      He did not

participate in the church’s envelope system whereby the church

would have a record of his donations.      Mr. Coffman estimated that

he gave no less than a $20 bill each time he attended the church.

On the other hand, Mrs. Coffman testified with regard to one

check in the record that it was given to the church because they

did not have any cash at the time.      Petitioners have not

indicated the manner in which they determined the total amount

given to the church.

     Charitable contributions are deductible under section 170

only if verified under regulations prescribed by the Secretary.

See sec. 170(a)(1).    Pursuant to the regulations, contributions

of money are required to be substantiated by one of the

following:   (1) A canceled check; (2) a receipt from the donee

charitable organization showing the name of the donee, the date,

and the amount of the contribution; or (3) in the absence of a

canceled check or receipt, other reliable written records showing

the name of the donee, the date, and the amount of the

contribution.   See Thorpe v. Commissioner, T.C. Memo. 1998-123;

sec. 1.170A-13 (a)(1), Income Tax Regs.      Contributions of

property other than money are required to be substantiated by a

receipt from the donee charitable organization showing the name

and address of the donee, the date and location of the
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contribution, and a description of the property in detail

reasonably sufficient under the circumstances.   See Thorpe v.

Commissioner, supra; sec. 1.170A-13(b)(1), Income Tax Regs.

Where it is unrealistic to obtain a receipt, taxpayers must

maintain reliable written records of their contributions.     See

Daniel v. Commissioner, T.C. Memo. 1997-328; sec. 1.170A-

13(b)(1), Income Tax Regs.

     On this record, we hold that petitioners have failed to

substantiate any gifts of currency to their church.

     The second category of charitable contribution consists of

seven checks written by Mrs. Coffman totaling $285, to the

Temescal Canyon High School.   Petitioners’ youngest daughter was

a senior at the high school.   In 1995, the parents and school

authorities decided to put on a graduation night party in the

form of an amusement park.   They secured the services of an

individual who worked for the Disney company, who assisted the

various committees in designing items for the party.   Many

parents and neighbors contributed to this function.    The students

who attended this function had to pay an admission fee, but

petitioners’ substantiation does not include any payment for

admission.   Basically, petitioners and other parents were

spending money to fund a graduation party for the seniors.     Their

purpose of using the amusement park theme to prevent “partying

and drinking” by the graduates is commendable, but it does not
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elevate the cost of the party to a charitable deduction.

Respondent is sustained on this issue.

     The third category of charitable contributions consists of a

check and a credit card slip showing that Mrs. Coffman bought

certain items in connection with a rummage sale for the benefit

of a children’s hospital.   Mrs. Coffman could not remember what

she bought nor their values.   Allegedly, she donated what she

purchased back to the hospital, but there is no substantiation of

that fact.   Under these circumstances no charitable contribution

deduction is allowable.

Miscellaneous Business Expenses

     Petitioners claim miscellaneous business expenses for job

search of $3,527, tax preparation of $124, safety deposit box of

$120, and professional dues of $245.22.    Mr. Coffman is a

technical salesman in the glue industry.    Petitioners concede the

job-hunting expense item and have adequately substantiated

professional expenses of $185 to TAPPI (Technical Association of

Paper and Pulp Industry).   The claimed deduction for $192 for a

subscription to the Los Angeles Times, a newspaper of general

distribution, does not qualify as a business deduction.    See sec.

262; Wallendal v. Commissioner, 31 T.C. 1249, 1252 (1959).    No

information was submitted with regard to the tax preparation and

safety deposit box.
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Section 179

     Petitioners filed a Schedule C on which they claimed a

section 179 deduction of $7,594.   Petitioners agree that the

filing of the Schedule C was erroneous and that the claimed

deduction should have been claimed on Schedule A as an employee

business expense of Mr. Coffman’s.     Moreover, the $7,594 is

conceded as an erroneous combination of two computer printouts,

one for $3,758 and one for $3,836, pertaining to the same assets.

Therefore, the issue is whether petitioners are entitled to a

section 179 deduction for $3,758, with regard to petitioners’

cost for a computer of $2,134, a printer/fax of $912, and a desk

and chair of $712.   After a review of the record, we conclude

that petitioners have substantiated the purchase of the desk and

chair for use in Mr. Coffman’s home office and that they are

entitled to a miscellaneous itemized deduction for $712.      See

sec. 67(a).

     Section 162(a) allows deductions for all the ordinary and

necessary expenses paid or incurred during the taxable year in

carrying on any trade or business.     An “ordinary” expense is one

that relates to a transaction “of common or frequent occurrence

in the type of business involved”, Deputy v. du Pont, 308 U.S.

488, 495 (1940), and a “necessary” expense is one that is

“appropriate and helpful” for “the development of the

petitioner’s business”, Welch v. Helvering, 290 U.S. 111, 113
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(1933).   A trade or business includes the trade or business of

being an employee.   See O’Malley v. Commissioner, 91 T.C. 352,

363-364 (1988); Primuth v. Commissioner, 54 T.C. 374, 377-378

(1970).   Section 262(a) provides that no deduction shall be

allowed for personal, living, or family expenses.

     Section 179 provides that a taxpayer may elect to expense in

the year placed in service the cost of section 179 property

acquired for use in the active conduct of a trade or business.

Section 280F(d)(3)(A), however, provides that an employee may not

claim a section 179 deduction for listed property unless the

employee’s use of the listed property is “for the convenience of

the employer” and “required as a condition of employment.”

Listed property includes any computer or peripheral equipment.

See sec. 280F(d)(4)(A)(iv).

     The “convenience of the employer” and “required as a

condition of employment” tests are essentially the same.    See

Benninghoff v. Commissioner, 71 T.C. 216, 218 (1978), affd. per

curiam 614 F.2d 398 (5th Cir. 1980).    In order to satisfy the

“condition of employment” requirement, the use of the property

must be required in order for the employee to perform the duties

of his or her employment properly.     See sec. 1.280F-6T(a)(2)(ii),

Temporary Income Tax Regs., 49 Fed. Reg. 42713 (Oct. 24, 1984).

Whether the use of the property is so required depends on all the

facts and circumstances.   The standard is an objective one.   See
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Dole v. Commissioner, 43 T.C. 697, 706 (1965), affd. per curiam

351 F.2d 308 (1st Cir. 1965).    The employer need not explicitly

require the employee to use the property.    Similarly, a mere

statement by the employer that the use of the property is a

condition of employment is not sufficient.    See sec. 1.280F-

6T(a)(2)(ii), Temporary Income Tax Regs., supra.    Petitioners

have not demonstrated that the acquisition of the computer

equipment was for the convenience of Mr. Coffman’s employer;

therefore, they are not entitled to a section 179 deduction for

those assets.

Home Office

     Petitioners did not claim a deduction for home office on

their 1995 return, which failure petitioners contend was

inadvertent.    Petitioners now claim that they are entitled to

claim home office deductions totaling $6,902 pertaining to Mrs.

Coffman’s Schedule C business and Mr. Coffman’s employment.

     Petitioners’ 1993 and 1994 Federal income taxes were before

this Court in docket No. 22154-97S, for which Summary Opinion

1999-134 was filed on August 5, 1999.    In that opinion, we held

that Mr. Coffman was entitled to a deduction for home office

based upon 9 percent of the qualified expenses as an itemized

deduction on Schedule A.   We held further that Mrs. Coffman was

not entitled to a deduction for a home office expense because of
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the provisions of section 280A(c)(5) and the fact that her

Schedule C for D.C. Enterprises reflected a loss of $3,311.

     In the case involving 1993 and 1994, respondent had not

contested the substantiation of the claimed qualified expenses

which petitioners used in computing their home office deductions.

In the instant case, respondent has agreed to accept the Court’s

findings for 1993 and 1994; however, respondent contends that

petitioners have not substantiated any of the items making up the

qualified expenses for purposes of the home office deduction.

Petitioners have claimed surprise and were not prepared at trial

to substantiate these items.   Accordingly, the Court kept the

record open for purposes of receiving in evidence copies of

petitioners’ substantiating documents with respect to insurance

and utilities.   Interest and taxes were already documented and

unchallenged on the 1995 Form 1040 Schedule A.

     Subsequently, petitioners filed a motion to supplement the

record offering:   (1) A revised Form 8829, Expenses for Business

Use of Your Home (marked for identification as Exhibit 8-P); (2)

two premium statements from Fireman’s Fund Insurance Co. (marked

for identification as Exhibit 9-P); (3) a bill showing payments

for water service, power and sewer for March 1, 1994 through 1996

(marked for identification as Exhibit 10–P); (4) records of fire

insurance from Cal-Vet Fire Insurance and TIG Insurance (marked

for identification as Exhibit 11-P); (5) 11 pages of canceled
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checks reflecting payments of various phone bills and utilities

(marked for identification as Exhibit 12-P); (6) 15 pages of

telephone bills (marked for identification as Exhibit 13-P); and

(7) 17 pages of various receipts and charge card statements

purporting to show additional purchases with regard to repairs

and maintenance (marked for identification as Exhibit 14-P).

Many of these exhibits contained additional material written on

them by petitioners.   Respondent filed an objection to

petitioners’ motion to supplement the record.    In the main,

respondent’s objections go to the weight of the proffered

evidence and not to its admissibility.    However, we sustain

respondent’s objection with regard to Exhibit 14-P as not being

responsive to the Court’s order and for lack of foundation.     In

addition, none of the handwritten material will be considered, as

it is testimonial and not self-authenticating.    Moreover, the

first seven pages submitted with petitioners’ cover letter we

consider as part of petitioners’ motion and not as documentation,

inasmuch as they are testimonial; they are not admitted.

     With regard to a home office deduction for Mrs. Coffman, we

note that her testimony generally supports the conclusion that 9

percent of the home was used by her exclusively for her then

business entitled D.C. Enterprises, a dog-grooming and breeding

business.   For 1995, she reported a net profit from that business

of $406.    Section 280A(c)(5) requires the allocation of items
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which would be allowed as deductions regardless of the business

use of the home, such as interest and taxes on the residence,

before allocating other items, such as insurance, utilities,

repairs, etc.   Petitioners reported real estate taxes of $5,311

and mortgage interest of $12,540, 9 percent of which exceeds the

net profit reported on Mrs. Coffman’s Schedule C.     Accordingly,

we allow Mrs. Coffman a Schedule C deduction for interest and

taxes for the home office expenses of $406, which amount will

reduce the itemized deductions on Schedule A.

     Similarly, with respect to Mr. Coffman’s home office, we

allow him 9 percent of the itemized deductions for real estate

tax and interest paid, as well as 9 percent of his Southern

California Edison expense of $2,246.09 (electricity) and CLPOA

expense of $3,709 (property association dues).     We further allow

a deduction for telephone expense for Mr. Coffman’s business line

of $81.88.   Except for the interest and taxes, the allowable

deductions are miscellaneous itemized deductions subject to the

limitations set forth in section 67(a).     None of the other

documentation submitted substantiates deductible items without

further testimony and explanation.     Petitioners did not make a

habit of identifying the purpose of their checks on the memo

line.
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Section 6662(a)

     Section 6662(a) imposes a penalty of 20 percent on any

portion of an underpayment of tax that is attributable to

negligence or disregard of rules or regulations.     See sec.

6662(a) and (b)(1).   “Negligence” is defined as any failure to

make a reasonable attempt to comply with the provisions of the

Internal Revenue Code, to exercise ordinary and reasonable care

in the preparation of a tax return, and to keep adequate books

and records, or to substantiate items properly.     See sec. 1.6662-

3(b)(1), Income Tax Regs.   The term “disregard” includes any

careless, reckless, or intentional disregard of rules or

regulations.   See sec. 6662(c).

     Section 6664(c) 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 with respect to that portion and that the taxpayer acted

in good faith with respect to that portion.     See sec. 6664(c)(1).

The determination of whether a taxpayer acted with reasonable

cause and good faith within the meaning of section 6664(c)(1) is

made on a case-by-case basis, taking into account all the

pertinent facts and circumstances.     See sec. 1.6664-4(b)(1),

Income Tax Regs.

     Taxpayers are required to keep adequate books and records

sufficient to establish the amount of deductions and other items
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required to be shown on their returns.   Failure to maintain

adequate books and records or to substantiate items properly

constitutes negligence.   See sec. 1.6662-3(b)(1), Income Tax

Regs.

     Notwithstanding petitioners’ belief and testimony that they

made a good-faith effort to determine their income tax liability,

we hold that petitioners are liable for the accuracy-related

penalty as it pertains to the issues described above pertaining

to the disallowed charitable contributions, job expenses, and

section 179 deduction, except as to that portion of the latter

relating to the duplication occasioned by the computer error.

                                         Decision will be entered

                                    under Rule 155.
