                  T.C. Summary Opinion 2003-162



                     UNITED STATES TAX COURT



             MICHAEL ROBERT COTTRELL, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 127-03S.               Filed November 18, 2003.



     Michael Robert Cottrell, pro se.

     Douglas S. Polsky, for respondent.



     COUVILLION, Special Trial Judge:     This case was heard

pursuant to section 7463 of the Internal Revenue Code in effect

at the time the petition was filed.1    The decision to be entered



     1

     Unless otherwise indicated, subsequent section references
are to the Internal Revenue Code in effect for the year at issue,
and Rule references are to the Tax Court Rules of Practice and
Procedure.
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is not reviewable by any other court, and this opinion should

not be cited as authority.

     Respondent determined a deficiency of $1,652 in

petitioner's Federal income tax for 2000.

     The sole issue for decision is whether petitioner is

entitled to deductions for trade or business expenses under

section 162(a).   The Court's holding on that issue will

determine petitioner's liability for self-employment taxes, a

deduction for one-half of such taxes, and petitioner's

entitlement to an earned income credit.

     Some of the facts were stipulated.   Those facts, with the

annexed exhibits, are so found and are made part hereof.

Petitioner's legal residence at the time the petition was filed

was Jefferson City, Missouri.

     During the first 8 months of the year 2000, petitioner was

self-employed as a plasterer.   For the last 4 months of the

year, petitioner was an employee, for which he earned wage

income.

     For the year 2000, petitioner filed a Federal income tax

return, utilizing Form 1040EZ, Income Tax Return for Single and

Joint Filers With No Dependents.   On that return, petitioner

reported $9,717 in wage and salary income.   He reported no other

income.   His return did not include any income or expenses in

connection with petitioner's trade or business as a plasterer.
                                 - 3 -


     Based on information returns filed by third-party payers,

respondent determined that petitioner realized income from such

payers that was not included on petitioner's income tax return.

These payments totaled $5,700.    In his petition and at trial,

petitioner conceded he had received the payments, and that such

payments were for plastering and stucco work he performed during

the first 8 months of the year 2000.       However, in his petition

and at trial, petitioner contended that at least 50 percent of

the payments he received went toward materials used on the job,

an additional 25 percent went toward subcontracted labor, and,

beyond that, the remainder of the payments was offset by "pre-

owned capital losses and outstanding debts incurred".       Thus,

petitioner's position is that he realized no net income from his

business activity during the year 2000.

     At trial, petitioner presented no books and records to

substantiate his claimed expenses.       He testified that he

maintained "fairly good records"; however, those records were

lost when he was evicted from his apartment.       He made no effort

to reconstruct his records for trial of this case.       Petitioner

contends he paid workers he employed in cash but never exacted

receipts from them.   Although petitioner contended that he

maintained records of these cash payments, those records were

lost in the eviction proceeding.    Petitioner gave no testimony

and presented no documentary evidence regarding the allegation
                               - 4 -


in his petition that he sustained capital losses in prior years

that would offset his net income during 2000.   In his testimony,

petitioner acknowledged that, during 2000, he received other

payments for services performed in his business activity, as to

which no information returns were filed by such payers with the

Internal Revenue Service.   These additional payments were not

included as income on petitioner's 2000 income tax return.

Petitioner did not indicate in his testimony the amounts of

these additional payments, nor did respondent pursue the matter.

     Deductions are a matter of legislative grace.      INDOPCO,

Inc. v. Commissioner, 503 U.S. 79, 84 (1992).   The taxpayer

bears the burden of proof, which means the presentation of

adequate documentation to support the deductions claimed on tax

returns.   Rule 142; Welch v. Helvering, 290 U.S. 111, 115

(1933).    It is also the taxpayer's responsibility to maintain

records sufficient to enable the Commissioner to determine the

correct tax liability.   Sec. 6001; Higbee v. Commissioner, 116

T.C. 438 (2001); sec. 1.6001-1(a), Income Tax Regs.     The

taxpayer must substantiate both the amount and purpose of the

claimed deductions.   Higbee v. Commissioner, supra.2

     2
          Sec. 7491, under certain circumstances, places the
burden of proof on the Commissioner in connection with
proceedings arising from the examination of returns that
commenced after July 22, 1998. Although it is obvious that
petitioner's 2000 return was examined after July 22, 1998, the
applicability of sec. 7491 in shifting the burden to the
                                                  (continued...)
                                 - 5 -


     As noted earlier, petitioner presented no books and records

to substantiate his claim that expenses and losses from prior

years totally offset the income he realized from his trade or

business activity during 2000.    Although petitioner's records

for the year 2000 were lost, petitioner made no attempt to

reconstruct his records or to offer any other evidence that

would satisfy the Court that the income at issue was offset by

trade or business expenses or losses.    Of concern to the Court

is petitioner's admission at trial that he received other income

payments during 2000 in his trade or business activity that were

not reported by the payers to the Internal Revenue Service, and

which petitioner did not include as income on his income tax

return.

     Section 6001 requires generally that every person liable

for any tax keep such records, render such statements, make such

returns, and comply with such regulations as the Secretary may

from time to time prescribe.   Section 1.6001-1(a), Income Tax

Regs., provides, in pertinent part, that "any person subject to

tax under subtitle A of the Code * * *, shall keep such

     2
      (...continued)
Commissioner is conditioned upon the taxpayer's introduction of
credible evidence with respect to any factual issue relevant to
ascertaining the liability of the taxpayer and the taxpayer's
cooperation with reasonable requests for witnesses, information,
documents, meetings, and interviews. Sec. 7491(a)(2). The facts
of this case do not demonstrate to the Court that the burden of
proof shifted to respondent.
                               - 6 -

permanent books of account or records, including inventories, as

are sufficient to establish the amount of gross income,

deductions, credits, or other matters required to be shown by

such person in any return of such tax".

     Under certain circumstances, where a taxpayer establishes

entitlement to a deduction but does not establish the amount of

the deduction, the Court is allowed to estimate the amount

allowable.   See Cohan v. Commissioner, 39 F.2d 540 (2d Cir.

1930).   However, there must be sufficient evidence in the record

to permit the Court to conclude that a deductible expense was

incurred in at least the amount allowed.     See Williams v. United

States, 245 F.2d 559, 560 (5th Cir. 1957).     In estimating the

amount allowable, the Court bears heavily against the taxpayer

whose inexactitude is of his or her own making.     See Cohan v.

Commissioner, supra at 544.

     In this case, since there is both unreported gross income

and unsubstantiated expenses, the Court is unable to allow any

deductions to petitioner under Cohan v. Commissioner, supra.

Accordingly, the Court sustains respondent in this case.

     Reviewed and adopted as the report of the Small Tax Case

Division.



                                            Decision will be entered

                                       for respondent.
