                                 T.C. Memo. 2019-109



                           UNITED STATES TAX COURT



                      SURESH HATTE, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 13738-18.                            Filed August 28, 2019.



      Suresh Hatte, pro se.

      Stephen C. Welker and Bartholomew Cirenza, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION


      LAUBER, Judge: With respect to petitioner’s Federal income tax for 2014

and 2015, the Internal Revenue Service (IRS or respondent) determined deficien-

cies and accuracy-related penalties under section 6662(a) as follows:1


      1
          All statutory references are to the Internal Revenue Code in effect for the
                                                                         (continued...)
                                         -2-

[*2]                     Year    Deficiency       Penalty

                        2014       $14,266        $2,853
                        2015        31,132         6,226

Most issues were resolved in a stipulation of settled issues submitted before trial.

In his post-trial brief respondent conceded the accuracy-related penalties in light

of the Court’s Opinion in Clay v. Commissioner, 152 T.C. __ (Apr. 24, 2019),

which was released shortly after this case was tried. The sole question remaining

for decision is whether petitioner is entitled to deduct car and truck expenses re-

ported on Schedule C, Profit or Loss From Business, for his real estate appraisal

business. We resolve this issue in respondent’s favor.

                                FINDINGS OF FACT

       The parties filed a stipulation of facts with accompanying exhibits that is

incorporated by this reference. Petitioner resided in Maryland when he filed his

petition.

       During 2014 and 2015 petitioner worked as a taxi driver and as a real estate

appraiser in the Washington, D.C., metropolitan area. He reported income and ex-

penses for these two businesses on separate Schedules C. For the taxi business,


       1
       (...continued)
years in issue, and all Rule references are to the Tax Court Rules of Practice and
Procedure. We round all monetary amounts to the nearest dollar.
                                       -3-

[*3] his Schedule C for 2014 reported gross profit of $12,413 and expenses of

$8,125 for gasoline, oil, carwash, licenses, insurance, and supplies. He wound

down his taxi business during 2014. For 2015 he reported gross profit of zero

from the taxi business and expenses of $2,365, which resembled the expenses he

had reported for 2014. He reported no mileage-based vehicle expenses on the

Schedules C for his taxi business.

      Petitioner’s appraisal business was more robust. On his 2014 Schedule C

for the appraisal business he reported gross profit of $111,610 and expenses of

$95,176, including $45,153 of car and truck expenses. For 2015 he reported gross

profit of $183,770 and expenses of $154,979, including $64,303 of car and truck

expenses.

      Petitioner owned three vehicles allegedly used in his appraisal business: a

Ford Crown Victoria (his taxicab), a Honda Accord, and a Nissan Maxima. For

2014 he reported on Form 4562, Depreciation and Amortization, the following

mileage on these vehicles:

              Type           Ford    Honda    Nissan   Total

            Business      55,800     24,830     -0-    80,630
            Personal       2,200       600      -0-     2,800

For 2015 he reported on Form 4562 the following mileage on these vehicles:
                                         -4-

[*4]           Type         Ford     Honda     Nissan     Total

             Business        -0-     65,250     46,580 111,830
             Personal        -0-      3,000        230   3,230

       Petitioner calculated vehicle expenses for his appraisal business by multi-

plying the business mileage shown above by the applicable standard mileage rates.

See Notice 2013-80, 2013-52 I.R.B. 821 ($0.56 per mile for 2014); Notice 2014-

79, 2014-53 I.R.B. 1001 ($0.575 per mile for 2015). In addition to these mileage-

based costs, he separately reported, on the Schedule C for his appraisal business,

expenses for oil changes and carwash.2

       The IRS selected petitioner’s 2014 and 2015 returns for examination. It dis-

allowed all deductions for car and truck expenses related to his appraisal business

on the ground that he had not adequately substantiated them. On May 2, 2018, the

IRS sent petitioner a timely notice of deficiency, and he timely sought redetermi-

nation in this Court.

       At trial petitioner testified that extensive driving was required for his ap-

praisal business. He said that he conducted this business from a friend’s house in

       2
       Petitioner’s Schedules C for the appraisal business reported expenses of
$32,000 and $51,200 for “contract labor” for 2014 and 2015, respectively. These
amounts were apparently paid to Muktayi Hatte, who shared a home (and a last
name) with petitioner. Although Ms. Hatte is listed as his spouse on an insurance
policy, he testified that the two were not married and that she was a friend who
helped him by visiting appraisal sites and preparing documents.
                                           -5-

[*5] Silver Spring, Maryland, and that he commuted there almost daily from his

residence in Hyattsville, Maryland. He did not keep contemporaneous mileage

logs or other records of the mileage he drove for the appraisal business. Rather, he

created spreadsheets during the IRS examination by using Google maps to

calculate the round-trip distance from Silver Spring to each of his alleged

destinations. There is no evidence showing where petitioner actually started each

trip, and the spreadsheets do not show which vehicle was used for any of the

travel.

          According to petitioner’s spreadsheet for 2014, he visited at least one ap-

praisal site every day but one between January and October, with no trips in No-

vember or December. The spreadsheet for 2015 shows a substantially identical

pattern. Many of these alleged trips were repeat visits to the same property. Peti-

tioner testified that repeat trips were often necessary because the realtor failed to

show up, the customer canceled and rebooked, or the exterior lighting was too

poor for him to take photographs. We did not find this testimony credible.

          Petitioner testified that the Honda was the primary vehicle he used for his

appraisal business. During 2014 he allegedly used the Ford (his taxicab) to visit

appraisal sites in between trips with taxi customers. He testified at trial that he
                                        -6-

[*6] discarded the Nissan in 2015 and reported no miles on it, but his return

clearly shows otherwise.

                                     OPINION

      The IRS’ determinations in a notice of deficiency are generally presumed

correct, though the taxpayer can rebut this presumption. Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933). Petitioner does not contend that the burden

of proof should shift to respondent under section 7491(a); had he advanced this

contention, it would lack merit. He thus bears the burden of proof.

      Deductions are a matter of legislative grace. The taxpayer bears the burden

of proving that reported business expenses were actually paid and were “ordinary

and necessary.” Sec. 162(a); Rule 142(a). The taxpayer bears the burden of sub-

stantiating the expenses underlying his claimed deductions by keeping and pro-

ducing records sufficient to enable the IRS to determine the correct tax liability.

Sec. 6001; INDOPCO v. Commissioner, 503 U.S. 79, 84 (1992); sec. 1.6001-1(a),

(e), Income Tax Regs. The failure to keep and present such records counts heavily

against a taxpayer’s attempted proof. Rogers v. Commissioner, T.C. Memo. 2014-

141, 108 T.C.M. (CCH) 39, 43.

      Section 274(d) imposes relatively strict substantiation requirements for de-

ductions claimed for (among other things) “listed property.” Listed property in-
                                         -7-

[*7] cludes (with exceptions not relevant here) “any passenger automobile” and

“any other property used as a means of transportation.” Sec. 280F(d)(4)(A). No

deduction is allowed under section 274(d) unless the taxpayer substantiates, by

adequate records or by sufficient evidence corroborating his own statements, the

amount, time and place, and business purpose for each expenditure. Sec. 1.274-

5T(a), (b), and (c), Temporary Income Tax Regs., 50 Fed. Reg. 46014, 46016

(Nov. 6, 1985); see sec. 1.274-5(j)(2), Income Tax Regs. (noting that a taxpayer

using a mileage rate in lieu of actual costs is not relieved of the substantiation

requirement).3

      Because petitioner’s three automobiles constituted “listed property,” his re-

ported car and truck expenses are subject to the heightened substantiation require-

ments described above. See Fernandez v. Commissioner, T.C. Memo. 2011-216.

To satisfy these requirements, the taxpayer generally must keep a contemporane-


      3
        A vehicle used in the trade or business of transporting persons or property
for compensation generally is not classified as a “personal automobile.” Sec.
280F(d)(5)(B)(ii). But as “property used as a means of transportation,” such a
vehicle will nevertheless constitute listed property unless “substantially all” of its
use is connected to that trade or business. Id. para. (4)(C). For 2014 petitioner
reported that 55,800 of the 58,000 miles driven on his Ford were related to his
appraisal business; he therefore did not carry his burden of proving that “sub-
stantially all” of that vehicle’s use was connected to his taxi business. The Ford
was thus listed property during 2014 whether or not it is considered a personal
automobile.
                                         -8-

[*8] ous mileage log or similar record, such as a diary or trip sheets, that

substantiates the extent to which the vehicle was actually used for business rather

than personal purposes. See Michaels v. Commissioner, 53 T.C. 269, 275 (1969);

Flake v. Commissioner, T.C. Memo. 2014-76; sec. 1.274-5T(c), Temporary

Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985). Lacking contemporaneous

records, the taxpayer must produce other credible evidence sufficient to

corroborate his or her own statements concerning business use. See sec. 1.274-

5T(a), (b), and (c), Temporary Income Tax Regs., supra.

      For a variety of reasons we did not find petitioner’s spreadsheets or his testi-

mony to be credible. He did not prepare these spreadsheets contemporaneously

with (or near to the time of) his alleged travel. Rather, he created them several

years later, during the IRS examination. He did not produce at trial any notes, cal-

endars, or other contemporaneous documents to support the entries on the spread-

sheets. Although he produced invoices associated with some of his appraisal

work, these only cover January and February of 2014. It is implausible that he

could have recalled the details of more than 600 trips so long after the fact.

      Petitioner’s testimony concerning the cars that he used at different times for

his appraisal business contradicted the mileage reported on his returns. He testi-

fied that he discarded the Nissan in 2015 and reported no miles on it, but his return
                                          -9-

[*9] clearly shows otherwise. And while he testified that he used the Ford

primarily in his taxi business, he reported that 96% of the miles driven in that

vehicle during 2014--55,800 miles out of 58,000--were connected with his

appraisal business.

      Petitioner’s spreadsheet for 2014 shows entries for every single day--except

one--from January through October, including holidays and weekends. His

spreadsheet for 2015 likewise has daily entries from January through October. We

find it implausible that petitioner drove for his appraisal business with such regu-

larity. It is also peculiar that each spreadsheet shows daily entries for the first ten

months of each year and no entries for the last two months. Petitioner testified

that he visited appraisal sites during November and December but that the “mile-

age [for those trips] had been taken into consideration before.” This statement

constitutes an admission that the mileage shown for the earlier trips was inflated.

      Petitioner’s spreadsheets allege several trips that he could not possibly have

taken. The record includes certificates showing that he completed at least five

full-day continuing education courses during 2014-2015. On May 7, 2015, for ex-

ample, he flew to Detroit, Michigan, to complete a seven-hour training course.

His spreadsheet asserts that, on the same day, he made three trips totaling 334

miles to conduct appraisals in Maryland and Virginia. It is beyond implausible
                                         - 10 -

[*10] that he flew to Michigan, completed a seven-hour course, flew back to

Maryland, and then drove 334 miles to take photographs in the dark. The

spreadsheets allege multiple appraisal trips on four other days on which he

attended seven-hour continuing education classes in Maryland. On cross-

examination he admitted that the mileage he recorded for those days could not

possibly be correct.

      During 2014-2015 petitioner reported on the Schedule C for his appraisal

business aggregate expenses of $83,200 for “contract labor.” See supra note 2.

He testified that he paid these sums to an assistant who helped him (inter alia) by

making visits to appraisal sites. His assistant did not testify. There is no evidence

as to whether the spreadsheets included her trips or (if so) whether she used his car

to make the journeys.

      Although petitioner’s spreadsheets calculate all round-trip mileage from

Silver Spring, it is unlikely that his 600 alleged appraisal trips all originated there.

He lived in Hyattsville and efficiency would surely have dictated starting certain

trips from home. During 2014 almost 70% of his appraisal-related mileage was

recorded for the Ford, his taxicab, which he supposedly used to visit appraisal

sites between trips with taxi customers. If that is so, it is unlikely that those trips

all began in Silver Spring.
                                        - 11 -

[*11] Finally, petitioner’s spreadsheets reveal many internal inconsistencies that

make them unreliable. For example:

      • On at least six occasions, the spreadsheets implausibly show two round

trips to the same address on the same day. And some of these entries lack credi-

bility for other reasons. On January 3, 2014, petitioner alleges that he made two

trips--one of 34 miles and the other of 36 miles--to the same address in Hyattsville,

Maryland. Since petitioner lived in Hyattsville, these numbers are highly suspect.

And even if we assume that petitioner drove from Hyattsville to Silver Spring and

then back to Hyattsville--and did so twice on the same day--the distance from

Silver Spring to Hyattsville is less than 10 miles.

      • On many occasions the spreadsheets show that petitioner made, on the

same day, separate round trips to distant locations fairly close to each other. On

June 12, 2014, for example, the spreadsheet asserts that he took separate round

trips, each of 70 miles, to two addresses in Baltimore. We find it unlikely that

petitioner drove from Silver Spring to Baltimore and back to Silver Spring, only to

turn around and drive back to Baltimore.

      • On back-to-back days in January 2015, the spreadsheet shows a 289-mile

round trip to Cumberland, Maryland, and a 371-mile round trip to Oakland, Mary-

land. Cumberland is on the way from Silver Spring to Oakland. It is wholly im-
                                        - 12 -

[*12] plausible that petitioner made separate trips of over six hours to these two

destinations.

      These examples only scratch the surface of the improbabilities that pervade

petitioner’s spreadsheets. He offered no credible testimony or other evidence to

support the mileage he claimed. We have no doubt that he used one or more of his

vehicles in his appraisal business. But because vehicle costs are subject to the

strict substantiation requirements of section 274(d), we are not at liberty to esti-

mate his costs under Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir.

1930). See Sanford v. Commissioner, 50 T.C. 823, 827-829 (1968), aff’d, 412

F.2d 201 (2d Cir. 1969). Given petitioner’s failure to submit any credible substan-

tiating evidence, we have no alternative but to sustain respondent’s disallowance

of his deductions for car and truck expenses in their entirety.

      To reflect the foregoing,


                                                 Decision will be entered under

                                        Rule 155.
