                        T.C. Memo. 2007-183



                      UNITED STATES TAX COURT



          ROY W. AND SHARON P. OSWANDEL, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent




     Docket No. 23622-04.            Filed July 12, 2007.



     Roy W. Oswandel, pro se.

     Patricia A. Komor, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     LARO, Judge:   Petitioners petitioned the Court to

redetermine respondent’s determination of deficiencies of $13,780

and $15,812 in their 2000 and 2001 Federal income taxes,

respectively, and section 6662(a) accuracy-related penalties of
                                 -2-

$2,756 and $3,162.40, respectively.1     After concessions by the

parties, we decide whether petitioners substantiated their

deductions for self-employment expenses, personal property tax,

student loan interest, noncash charitable contributions, job-

related mileage, and tuition.    We hold they did not.   We also

decide whether petitioners are liable for accuracy-related

penalties determined by respondent under section 6662(a).     We

hold they are.

                           FINDINGS OF FACT

     Some facts are stipulated and are so found.     The stipulated

facts and the exhibits submitted therewith are incorporated

herein by this reference.    Petitioners are husband and wife, and

they filed joint 2000 and 2001 Federal income tax returns.     They

resided in Colorado Springs, Colorado, when they filed their

petition with the Court.

     During 2000 and 2001, Roy Oswandel (petitioner) worked full

time for the U.S. Postal Service.      In 2001, he also worked part

time for two other employers, neither of which was a church.

     Petitioner is an ordained minister and before the years in

issue worked in the military as a chaplain.     After leaving the

military, he continued to perform ministerial duties.     These

duties included officiating weddings, holding retreats, and


     1
       Unless otherwise noted, section references are to the
applicable versions of the Internal Revenue Code. Rule
references are to the Tax Court Rules of Practice and Procedure.
                                 -3-

visiting the sick.    Petitioner does not accept compensation for

his ministerial duties, except for $10 per year, which he does

not report as income.2    For 2000 and 2001, petitioners included

with their Federal income tax returns a Schedule C, Profit or

Loss From Business, that reported that petitioner was a self-

employed minister of the Gospel.    During 2000 and 2001,

petitioners’ Federal income tax returns reported no income from

petitioner’s ministerial activities.

     For each of the years 2000 and 2001, petitioners claimed

$33,547 of Schedule C deductions for petitioner’s ministerial

activities.    Those deductions consisted of $30,752 for mileage,

$945 for nonovernight travel expenses, $600 for meals, and $1,250

for overnight travel expenses.    Petitioner’s 2000 and 2001

Federal income tax returns also claimed on Schedule A, Itemized

Deductions, deductions for personal property tax, student loan

interest, noncash charitable contributions, tuition, and job-

related mileage.    During respondent’s audit of petitioners’ 2000

and 2001 Federal income tax returns, petitioners did not meet

with respondent’s revenue agent and did not substantiate any of

the deductions.    Petitioners informed the revenue agent by a

letter that they had no substantiation for 2000 and 2001 because

their records had been stolen from a storage facility.

Petitioners enclosed with the letter (1) an unsigned, undated,


     2
         The record does not reveal who pays the $10 to petitioner.
                                 -4-

handwritten letter from the Colorado Springs police department

stating that “several burglaries to storage units” had occurred

and “at least three units were burglarized” and (2) an unsigned,

undated, typed letter from the storage facility stating that

petitioners’ storage unit was one of several storage units

subject to “vandalism and theft”.      The El Paso County Sheriff’s

office investigated the burglaries and prepared a report listing

the storage units that had been burglarized.3     That report does

not list petitioners’ storage unit among those burglarized.

     When this case was tried in part on October 26, 2005,

respondent’s counsel proffered to the Court and to petitioners

that petitioner would have had to drive approximately 100,000

miles to receive a mileage deduction of $30,752.     Subsequently,

petitioner asserted that his business miles during the subject

years were as follows:    5,280 miles for commuting to his part-

time jobs in each of 2000 and 2001; 28,600 miles and 31,900 miles

for job searching in 2000 and 2001, respectively; 7,000 miles and

8,000 miles for church-related visits in 2000 and 2001,

respectively; and 6,800 miles for graduate studies in 2001.

     Also at trial on October 26, 2005, the Court ordered the

parties to attempt to determine the allowable deductions among

themselves.    Subsequently, petitioners met with one of

respondent’s tax compliance officers, Anthony Atkinson


     3
         Colorado Springs is located in El Paso County.
                                -5-

(Atkinson).   Petitioners never gave Atkinson any books or records

to substantiate petitioners’ claimed deductions for petitioner’s

ministerial activities, tuition, mileage, student loan interest,

personal property tax, or noncash charitable contributions.

     When the trial of this case was resumed and concluded on

September 11, 2006, petitioners introduced (and the Court

admitted) into evidence 262 pages of documents to substantiate

their claimed deductions.   The documents included:

(1) Petitioner’s American Express credit card statement listing

purchases of airline tickets, train tickets, and lodging in

various cities in the amount of $1,857 (attached to the credit

card statement is a handwritten breakdown of estimated mileage

driven in connection with petitioner’s part-time jobs,

ministerial activities, and job searching); (2) an insurance

policy statement listing five cars covered under the policy; (3)

a Colorado vehicle registration/tax ownership receipt listing the

purchase date, purchase price, and taxable value of a car; (4) a

car payment history for a vehicle that petitioner has marked as

sold in February 2000; (5) handwritten notes listing petitioner’s

various destinations for his ministerial activities; and (6) an

account payment statement from Sallie Mae for student loan

payments from 2002 to 2005.   Petitioners rely upon the credit

card statement and the handwritten destination list as

substantiation for some of the deductions claimed for
                                -6-

petitioner’s ministerial activities.    Petitioners provided the

car insurance policy statement, Colorado vehicle registration/tax

ownership receipt, and car payment history to substantiate their

deduction for the payment of personal property taxes.

                          OPINION

     The burden of proof is on petitioners to show that

respondent’s determinations set forth in the notice of deficiency

are incorrect.   Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111,

115 (1933).   In certain circumstances, if the taxpayer introduces

credible evidence with respect to any factual issue relevant to

ascertaining the taxpayer’s proper tax liability, section

7491(a)(1) places the burden of proof on the Commissioner.     Sec.

7491(a)(1); Rule 142(a)(2).   For the burden to shift to the

Commissioner, the taxpayer must comply with the substantiation

and recordkeeping requirements of the Internal Revenue Code

(Code).   Sec. 7491(a)(2)(A) and (B).   In addition, section

7491(a)(2) requires that the taxpayer cooperate with reasonable

requests by the Commissioner for “witnesses, information,

documents, meetings, and interviews”.    Sec. 7491(a)(2)(B).   We

conclude that the burden of proof has not shifted to respondent

with respect to any of the issues in this case.    To this end, we

find that petitioners failed to cooperate with respondent during

the audit of their 2000 and 2001 Federal income tax returns.     We
                                -7-

also find that petitioners failed to comply with substantiation

requirements of the Code.

     Deductions are strictly a matter of legislative grace, and

petitioners must show that their claimed deductions are allowed

by the Code.   Rule 142(a); New Colonial Ice Co. v. Helvering, 292

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

Petitioners must keep sufficient records to substantiate any

deduction that would otherwise be allowed by the Code.    Sec.

6001; New Colonial Ice Co. v. Helvering, supra at 440.    In the

case of meals and traveling expenses, section 274(d) disallows

deductions for those expenses, unless the taxpayer substantiates

by adequate records or by sufficient evidence corroborating the

taxpayer’s own statement:   (1) The amount of the expense; (2) the

time and place of the expense; and (3) the business purpose of

the expense.   Section 1.274-5T(c)(5), Temporary Income Tax Regs.,

50 Fed. Reg. 46022 (Nov. 6, 1985) states that if an individual

taxpayer can establish that his or her failure to produce

adequate records is due to the loss of such records through

circumstances beyond the taxpayer’s control, such as destruction

by fire, flood, earthquake, or other casualty, the taxpayer may

substantiate a deduction by reasonable reconstruction of his or

her expenditures.   Under these regulations, therefore, a taxpayer

may be deemed to meet the requirements of section 274(d) if he or

she establishes the occurrence of a casualty causing the loss of
                                -8-

records and has adequately reconstructed the expenditures.     Sec.

1.274-5T(c)(5), Temporary Income Tax Regs., supra.

     Petitioners claimed Schedule C business expenses of $33,547

for each of the years 2000 and 2001.    Section 162 provides for

deduction of all ordinary and necessary business expenses paid or

incurred during the taxable year in carrying on a trade or

business.   For petitioner’s ministerial activity to qualify as a

trade or business, his dominant or primary objective of the

venture must be to earn a profit.     Hildebrand v. Commissioner, 28

F.3d 1024, 1027 (10th Cir. 1994), affg. Krause v. Commissioner,

99 T.C. 132 (1992).   Petitioners offered no evidence to establish

a profit motive for petitioner’s ministerial activities.      To the

contrary, petitioner admits that he receives no compensation for

his ministerial services, yet incurs substantial expenses for

those services.   On these facts, we conclude that petitioner’s

ministerial activities were not engaged in for profit and that

his expenses related to those activities are not deductible under

section 162 or section 183 (given that petitioners had no income

from these activities for 2000 or 2001).4    See Luellen v.

Commissioner, T.C. Memo. 1994-449; Anderson v. Commissioner, T.C.

Memo. 1984-59.



     4
       Of course, petitioner’s failure to substantiate expenses
related to his ministerial activities would also preclude
deductability of those expenses.
                                  -9-

     As to the Schedule A deductions in issue, petitioners assert

that they had the requisite substantiation to support their claim

to those deductions, but their tax records were stolen from their

storage facility.     Petitioners have failed to submit credible

evidence to establish either part of that assertion.     In fact,

the report of the law enforcement agency investigating the

burglary of the location of their storage unit indicates that

petitioners’ storage unit was not among those burglarized.

         Petitioner’s handwritten breakdown of estimated mileage

driven in connection with his part-time jobs and his job

searching is inadequate to substantiate his mileage deduction.

The documents petitioners submitted to substantiate their claim

to the personal property taxes deduction are also insufficient in

that not one of the documents lists 2000 or 2001 as the years in

which personal property tax was paid.     Nor does the student loan

payment statement substantiate any claim for a student loan

interest deduction for 2000 or 2001 as it provides a payment

history only for 2002 to 2005.     Petitioners presented no evidence

at trial, documentary or otherwise, to substantiate expenses

related to tuition or books or noncash charitable contributions.

We sustain respondent’s determination that petitioners are not

entitled to deduct any of the disallowed Schedule A deductions.5

     5
       While petitioners do not argue application of the rule
articulated in Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930),
                                                   (continued...)
                               -10-

     Respondent determined that petitioners are liable for

accuracy-related penalties under section 6662(a) and (b)(1) for

2000 and 2001.   Section 6662(a) imposes an accuracy-related

penalty equal to 20 percent of the portion of an underpayment

that is attributable to, among other things, negligence.

Petitioners will avoid this accuracy-related penalty if the

record shows that they were not negligent; i.e., they made a

reasonable attempt to comply with the provisions of the Code, and

they were not careless, reckless, or in intentional disregard of

rules or regulations.   See sec. 6662(c); Keeler v. Commissioner,

243 F.3d 1212, 1221 (10th Cir. 2001), affg. Leema Enters. Inc. v.

Commissioner, T.C. Memo. 1999-18.     Negligence connotes a lack of

due care or failure to do what a reasonable and prudent person

would do under the circumstances.     See Allen v. Commissioner, 92

T.C. 1 (1989), affd. 925 F.2d 348 (9th Cir. 1991); Neely v.

Commissioner, 85 T.C. 934, 947 (1985).     An accuracy-related

penalty is not applicable to any portion of an underpayment to

the extent that an individual has reasonable cause for that

portion and acts in good faith with respect thereto.    See sec.

6664(c)(1).


     5
      (...continued)
we note it does not apply to this case. Under the Cohan rule,
the Court can estimate the amount of certain deductible expenses,
but only if the taxpayer presents sufficient evidence to make
those estimates. See id. at 543-544. Petitioners have not
presented sufficient evidence for us to apply the Cohan rule.
                                -11-

     Respondent bears the burden of production with respect to

the accuracy-related penalties.    Sec. 7491(c).   In order to meet

this burden of production, respondent must produce sufficient

evidence that it is appropriate to impose the accuracy-related

penalties.    Once respondent has done so, the burden of proof is

upon petitioners.    Higbee v. Commissioner, 116 T.C. 438, 449

(2001).    Petitioners may carry their burden by proving that with

respect to their underpayment there was reasonable cause and they

acted in good faith.    Sec. 6664(c)(1).

     Respondent has satisfied his burden of production in that

the record establishes that petitioners failed to substantiate

their claimed deductions.    Section 6001 imposes on petitioners a

duty to maintain books and records sufficient to support items

reported on their returns, and petitioners’ breach of that duty

is contrary to what a prudent and responsible taxpayer would have

done under the circumstances.    See sec. 1.6662-3(b)(1), Income

Tax Regs.    Petitioners must now establish reasonable cause and

good faith in order to escape liability for the accuracy-related

penalties under section 6662(a).    Petitioners have failed to

persuade us that their failure to maintain the requisite

substantiation was excused by reasonable cause and good faith.

We sustain respondent’s determination that petitioners are liable

for the 2000 and 2001 accuracy-related penalties under section

6662(a).
                              -12-

     We have considered all arguments made by petitioners for

holdings contrary to those expressed herein and reject these

arguments not discussed herein as irrelevant or without merit.


                                          Decision will be entered

                                     under Rule 155.
