                          T.C. Summary Opinion 2013-53


                         UNITED STATES TAX COURT



          FRANCIS J. MAGUIRE AND LISA A. MAGUIRE, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 18214-12S.                         Filed July 3, 2013.



      Francis J. Maguire and Lisa A. Maguire, pro sese.

      Jonathan E. Behrens, for respondent.



                              SUMMARY OPINION


      LAUBER, Judge: This case was heard pursuant to the provisions of section

7463 of the Internal Revenue Code.1 Pursuant to section 7463(b), the decision to


      1
       All statutory references are to the Internal Revenue Code of 1986, as
amended and in effect for the tax years at issue. All references to Rules are to the
Tax Court Rules of Practice and Procedure. We round all dollar amounts to the
nearest dollar.
                                         -2-

be entered is not reviewable by any other court, and this opinion shall not be

treated as precedent for any other case. This case was tried in Philadelphia,

Pennsylvania, and petitioners resided in New Jersey when they petitioned this

Court. They commenced this proceeding to contest deficiencies, additions to tax,

and penalties that respondent determined for tax years 2007 and 2008.

      After concessions by each party,2 the issues remaining for decision are: (1)

whether petitioners are entitled to deduct expenses reported on Schedule C, Profit

or Loss From Business, related to petitioner husband’s business; (2) whether

petitioners are entitled to claimed medical expense deductions; and (3) whether

petitioners are liable for accuracy-related penalties under section 6662 and

additions to tax under section 6651(a)(1).

                                     Background

      Before trial the parties filed a stipulation of facts and related exhibits with

the Court. We incorporate the stipulation of facts and the accompanying exhibits

by this reference.



      2
        Petitioners conceded that they failed to report wages of $3,169 and $1,385
for 2007 and 2008, respectively. Respondent conceded deductible medical and
dental expenses of $131 and $88 for 2007 and 2008, respectively, and deductible
office expenses of $4 for 2008. Respondent also conceded that petitioners are not
liable for a sec. 6651(a)(2) addition to tax for 2007 or 2008.
                                        -3-

      Francis Maguire was self-employed during the years at issue as an insurance

broker.3 His business consisted principally of marketing annuities and other estate

planning insurance products, chiefly to church groups and police benevolent

associations. During 2007 and 2008, Mr. Maguire resided in Little Egg Harbor,

New Jersey, which he referred to as “South Jersey.” He traveled almost daily

either to Bayonne or Hackensack, which he referred to collectively as “North

Jersey.” While in North Jersey, Mr. Maguire met with clients, worked to develop

his business, and tried to build a sales force of independent contractors. Mr.

Maguire maintained no office space in North Jersey; rather, he used the offices or

conference rooms of business associates when in the area. He introduced no

evidence that he maintained an office or principal place of business near or at his

home in South Jersey. Petitioners did not claim any deductions attributable to a

“home office” on their 2007 or 2008 Federal tax return.




      3
        Lisa Maguire, Francis’ wife, while a named petitioner on account of the
filing of a joint return, had no significant involvement in her husband’s business
activities.
                                           -4-

      In a notice of deficiency, respondent determined the following deficiencies,

penalties, and additions to tax:

                                           Penalty        Addition to tax
      Year          Deficiency            sec. 6662       sec. 6651(a)(1)

      2007          $ 7,729               $1,546              $1,635

      2008            3,731                 746                  757

       Total        11,460                 2,292                2,392

The deficiencies resulted from the complete disallowance of petitioners’ claimed

deductions for Schedule C car and truck expenses, travel expenses, and meals and

entertainment expenses, coupled with the partial disallowance of petitioners’

claimed deductions for medical and dental expenses and Schedule C office

expenses. The disallowance of the Schedule C expenses generated computational

adjustments not directly at issue here.

                                     Discussion

A.    Burden of Proof

      The Commissioner’s determinations set forth in a notice of deficiency are

generally presumed correct, and the taxpayer bears the burden of proving them

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

Petitioners do not contend that the burden of proof as to any factual issue should
                                        -5-

shift to respondent under section 7491(a) and, if they had advanced this

contention, it would lack merit. As explained below, petitioners have not

complied with the substantiation and recordkeeping requirements of section

7491(a)(2)(A) and (B).

B.    Schedule C Expenses

      The principal issue is whether petitioners are entitled to deduct certain

expenses reported on Schedule C related to Mr. Maguire’s business. Section

162(a) allows a taxpayer to deduct “all the ordinary and necessary expenses paid

or incurred during the taxable year in carrying on any trade or business.” A

necessary expense is one that is “appropriate and helpful” to the taxpayer’s

business, while an ordinary expense is one that is common or frequent in the type

of business in which the taxpayer is engaged. Deputy v. du Pont, 308 U.S. 488,

495 (1940); Welch v. Helvering, 290 U.S. at 113. The taxpayer bears the burden

of proving that claimed expenses are ordinary and necessary, Rule 142(a), and also

bears the burden of substantiating claimed deductions, sec. 6001; Hradesky v.

Commissioner, 65 T.C. 87, 89 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir.

1976). In certain circumstances, the Court may estimate the amount of a

deductible expense if a taxpayer establishes that an expense is deductible and

furnishes some documentation but is unable to substantiate the precise amount.
                                        -6-

See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v.

Commissioner, 85 T.C. 731, 742-743 (1985).

      Section 274 imposes more rigorous substantiation requirements for certain

types of expenses. In particular, section 274(d) disallows deductions for travel

expenses, expenses for business meals and entertainment, and expenses related to

listed property, 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 travel or entertainment; (3) the business

purpose of the expense; and (4) in the case of meals and entertainment, the

business relationship to the taxpayer of the persons entertained. See sec. 274(d)

(flush language). The Court may not apply the Cohan rule to estimate expenses

when the heightened substantiation requirements of section 274(d) apply. Sanford

v. Commissioner, 50 T.C. 823, 827 (1968), aff’d, 412 F.2d 201 (2d Cir. 1969);

sec. 1.274-5T(a)(4), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6,

1985).

      1.     Car and Truck Expenses

      Respondent completely disallowed petitioners’ mileage-based deductions

for car and truck expenses of $12,964 for 2007 and $9,125 for 2008. These

expenses fall into two categories--four trips to Florida and almost daily trips from
                                          -7-

petitioners’ home to North Jersey for routine business. Mr. Maguire testified in

support of the claimed deductions, and petitioners entered into evidence a travel

log that he prepared. The travel log consists of 24 month-by-month calendar

pages. For each day on which he traveled, Mr. Maguire entered an abbreviation

for his destination, e.g., “BAY” for Bayonne or “HACK” for Hackensack. In the

margins he entered “beginning mileage” and “ending mileage” for each year and

the round trip mileage of a trip to Bayonne (212 miles) and to Hackensack (218

miles). All told, he recorded approximately 350 round trips to Bayonne,

approximately 100 round trips to Hackensack, and four round trips to Florida.

      The Florida trips require only brief discussion. The sole evidence of the

business nature of these trips was Mr. Maguire’s testimony that he visited Florida

in an effort to recruit his two sisters into his insurance business. Mr. Maguire did

not explain how he tried to recruit his sisters; why they were qualified for the work

he was allegedly recruiting them to do (one is a retired schoolteacher and one a

retired church administrator); which of the four trips to Florida entailed recruiting;

or why each trip lasted a full week. We accordingly conclude that petitioners have

failed to establish the business nature of these trips.

      The bulk of Mr. Maguire’s automobile expenses involved travel from his

home in South Jersey to his business destinations in North Jersey. Respondent
                                        -8-

urges two distinct grounds for disallowing a deduction for these expenses: that

they were nondeductible commuting expenses and that, if they would otherwise

qualify for deduction under section 162, they fail the substantiation tests of section

274(d). We agree with respondent on both counts.

      Section 262(a) provides that “no deduction shall be allowed for personal,

living, or family expenses.” Many expenses that are helpful to a person’s

employment--such as the cost of clothing worn to work and of purchasing meals

during the business day--are inherently personal and hence nondeductible. See,

e.g., Moss v. Commissioner, 80 T.C. 1073 (1983) (disallowing deduction of

petitioner’s share of daily office lunch expenses), aff’d, 758 F.2d 211 (7th Cir.

1985); Hynes v. Commissioner, 74 T.C. 1266 (1980) (disallowing deduction of

business wardrobe and cleaning expenses). The costs of commuting from home to

work are a prime example of “personal” or “living” expenses: the nature and

length of the commute depend entirely on the taxpayer’s personal choice about

where to live. See Commissioner v. Flowers, 326 U.S. 465 (1946); Bogue v.

Commissioner, T.C. Memo. 2011-164 (commuting expenses generally constitute

nondeductible personal expenses), aff’d,      Fed. Appx.      , 2013 WL 2382310

(3d Cir. June 3, 2013); sec. 1.162-2(e), Income Tax Regs. In order for daily travel

expenses to be deductible under section 162, they must be expenses, not of
                                         -9-

commuting from home to work, but of traveling from one worksite to another.

See, e.g., Wis. Psychiatric Servs., Ltd. v. Commissioner, 76 T.C. 839 (1981) (car

expenses qualify as deductible business travel expenses, not commuting expenses,

if the taxpayer’s residence is his principal place of business).

      Mr. Maguire testified that he originally resided in North Jersey and spent

time developing business relationships in that part of the State. He moved his

residence to South Jersey 12 years ago, but many of his clients, business

associates, and prospective customers remained concentrated in North Jersey. He

introduced no evidence that he maintained an office or place of business at or near

his home in South Jersey. He did not claim deductions attributable to a “home

office” for 2007 or 2008, and no evidence was introduced at trial to show that his

residence in South Jersey constituted his principal place of business.

      To the contrary, the evidence before us indicates that Mr. Maguire’s

principal place of business was in North Jersey and that he conducted his business

from the offices and conference rooms of his business associates there. It appears

from his testimony and the travel log he submitted that Mr. Maguire traveled to

North Jersey four to six times a week for a total of approximately 450 round trips

during 2007 and 2008. Considering that the round trip drive to each of the two

cities he frequented exceeded 200 miles and would take approximately 3.5 hours
                                        - 10 -

without traffic, it is hard to see how Mr. Maguire could have maintained a

principal place of business at his home during these years. For these reasons, we

conclude that his travel expenses from his home to North Jersey were not

deductible business expenses but rather were personal commuting expenses that

are nondeductible under section 262(a).

      Even if we were to conclude that Mr. Maguire’s automobile expenses were

business expenses, they would be nondeductible because he has not met the

rigorous substantiation requirements of section 274. The travel log he proffered

does not constitute an adequate record because it does not contain “sufficient

information as to each element of every business * * * use.” Sec. 1.274-

5T(c)(2)(ii)(C), Temporary Income Tax Regs., supra. The log simply indicates

that Mr. Maguire visited certain cities in North Jersey on certain days; no detail is

provided concerning the business purpose of any individual trip. His log does not

negate the possibility that some trips may have focused on visiting family or

friends in North Jersey, where he previously lived.

      In addition, we question whether Mr. Maguire maintained the travel log at

or near the time of the expenditure, as required to generate an adequate record.

See sec.1.274-5T(c)(2)(ii)(A), Temporary Income Tax Regs., supra. The log

entries (the abbreviations “BAY and “HACK”) bear a striking resemblance to one
                                       - 11 -

another. Many appear to have been written using the same pen and are recorded at

the same angle and in the same size and manner. While an individual can no

doubt exercise consistent penmanship, the Court has reason to question Mr.

Maguire’s testimony that all of these log entries were recorded contemporaneously

with his travels.

      Other documents produced at trial reinforce the Court’s credibility concerns.

On one of the days that Mr. Maguire was supposed to have traveled to Bayonne

(Saturday, June 28, 2008), a document he provided respondent as evidence of a

deductible business expense shows a purchase at the U.S. Post Office in Little Egg

Harbor, New Jersey, at 12:05 p.m. Considering that he faced a 3.5-hour round trip

commute to Bayonne, one may reasonably question whether Mr. Maguire did in

fact make this trip when he was engaged in a commercial transaction near his

home at noon on a Saturday. Mr. Maguire also provided at least four documents

to the IRS during the examination process that he admitted at trial were

fraudulently prepared by his tax return preparer.

      In the absence of adequate records, the substantiation requirements of

section 274(d) can be met by other sufficient evidence corroborating the

taxpayer’s own statement. See sec. 1.274-5T(c)(3), Temporary Income Tax Regs.,

supra. But petitioners failed to provide such other evidence or testimony that was
                                          - 12 -

both relevant and credible. Mr. Maguire admitted at trial that he could not orally

reconstruct the business conducted or the people he met with on each of the days

in question over the course of two years. When this lack of evidence is coupled

with the questionable nature of his travel log, we have no alternative but to

conclude that petitioners have not substantiated their automobile expenses with

the rigor that section 274(d) requires.

      2.     Other Travel Expenses

      Petitioners claimed Schedule C deductions for travel, apparently attributable

to airplane travel, of $4,600 for 2007 and $1,900 for 2008. These expenses, which

respondent completely disallowed, are likewise subject to the heightened

substantiation requirements of section 274(d).

      When asked about these travel expenses at trial, Mr. Maguire mentioned a

trip to Florida. But that trip appears to have been an automobile trip, the expenses

for which we have discussed previously. He also mentioned that he might have

taken a trip to Green Bay, Wisconsin, but the only airplane travel for which he

provided documentation was a trip to Indianapolis in May 2007, which he did not

mention in his testimony. Had Mr. Maguire offered detailed testimony about the

business nature of the Indianapolis trip, the receipts he provided may have been

sufficient corroborating evidence to substantiate the deduction under section
                                        - 13 -

274(d). As it is, we are forced to conclude that he failed to substantiate his travel

expenses and that respondent properly disallowed deductions for them in their

entirety.

      3.     Meals and Entertainment

      Petitioners claimed Schedule C deductions of $2,140 and $1,778 for meals

and entertainment for 2007 and 2008 respectively. These expenses, which

respondent completely disallowed, are likewise subject to the heightened

substantiation requirements of section 274(d).

      The evidence submitted to substantiate the meal expenses is incomplete and

inconsistent. Petitioner offered a 2007 meal log that he testified was maintained

contemporaneously with the events. Many of the accompanying receipts are

unreadable, while others paint an inconsistent picture. When asked about a receipt

for a meal expense incurred on January 6, 2007, with a St. John’s Church minister,

Mr. Maguire testified: “That would have been St. John’s Byzantine Church in

Bayonne.” Although Bayonne was one of the two cities that Mr. Maguire often

visited, his own travel log does not place him in Bayonne that Saturday, and the

meal receipt places him in Little Egg Harbor, his hometown. When asked whether

another purported expense from the same day was related to the meeting with St.
                                       - 14 -

John’s Church, he testified: “No. I’m just up in North Jersey, tried to maximize

my time.”

      Regarding the claimed entertainment expenses, petitioners submitted three

receipts--two for “Tutankhamun & Golden Age of Pharaohs,” and one for

“Thomas & Friends Live!” Each ticket has “Broker drawing contest” written on

the back in Mr. Maguire’s handwriting, but no other evidence or testimony was

offered to support the business nature of this entertainment. We note that both

shows were in the Philadelphia area, the closest large metropolitan area to

petitioners’ home. Presumably, events in the New York City area would have

been a greater draw for business associates based in Bayonne and Hackensack

than admission to a museum exhibit at 11 a.m. on a Thursday or the opportunity to

see Thomas the Tank Engine in a city more than 80 miles away.

      Because of inconsistencies in the documents presented, as well as the dearth

of documentation overall, we find that petitioners failed to carry their burden of

proof. They have not shown that they are entitled to deduct any meals and

entertainment expenses under section 162, and they have not adequately

substantiated those expenses as required by section 274(d).
                                        - 15 -

      4.     Office Expenses

      Petitioners reported on Schedule C office expenses of $8,229 and $7,248 for

2007 and 2008 respectively. Respondent has allowed deductions for $162 of the

2007 expenses and $609 of the 2008 expenses.

      While office expenses are not subject to the heightened substantiation

requirements of section 274(d), petitioners still bear the burden of proving that the

claimed deficiency is in error. Petitioners put forth no evidence at trial to

substantiate the additional claimed office expenses. When asked about the

additional office expenses at trial, Mr. Maguire provided no testimony to support

the claimed deductions and simply reiterated that the car and truck expenses were

the most important issue to him. Because petitioners failed to meet their burden,

respondent’s disallowance of a deduction for the remaining office expenses was

proper.

C.    Medical Expenses

      Petitioners claimed Schedule A deductions for medical and dental expenses

of $15,600 for 2007 and $8,468 for 2008. Respondent allowed $4,015 of the 2007

expenses and $6,440 of the 2008 expenses (before application of the statutory

floor imposed by section 213(a)).
                                       - 16 -

      Section 213(a) permits a taxpayer to deduct expenses for medical care, not

compensated for by insurance or otherwise, to the extent that such expenses

exceed 7.5% of the taxpayer’s adjusted gross income. A taxpayer claiming a

deduction under section 213 must “furnish the name and address of each person to

whom payment for medical expenses was made and the amount and date of the

payment thereof in each case.” Sec. 1.213-1(h), Income Tax Regs.

      Petitioners offered no testimony at trial and few receipts by way of

stipulated documents to substantiate their disallowed medical expenses. However,

upon review of the submitted documentation, we determine that petitioners

substantiated $255 of additional medical expenses for 2007 and $14 of additional

medical expenses for 2008. To the extent these expenses exceed the applicable

statutory floor, a deduction should be allowed.

D.    Penalties and Additions to Tax

      1.    Section 6662 Penalty

      Section 6662 imposes a 20% accuracy-related penalty upon the portion of

any underpayment of tax that is attributable to (among other things) “[n]egligence

or disregard of rules or regulations.” Sec. 6662(b)(1). “Negligence” is defined as

“any failure to make a reasonable attempt to comply with the provisions of [the

Code].” Sec. 6662(c). The Commissioner bears the burden of production with
                                         - 17 -

respect to a section 6662 penalty. Sec. 7491(c). Once the Commissioner satisfies

his burden, the burden shifts to the taxpayer to prove that the penalty does not

apply. Higbee v. Commissioner, 116 T.C. 438, 447 (2001).

        The section 6662 accuracy-related penalty does not apply to any portion of

an underpayment “if it is shown that there was a reasonable cause for such portion

and that the taxpayer acted in good faith with respect to * * * [it].” Sec.

6664(c)(1). The decision whether the taxpayer acted with reasonable cause and in

good faith is made on a case-by-case basis, taking into account all pertinent facts

and circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. Generally, the most

important factor is a taxpayer’s effort to assess correctly his or her tax liability.

Ibid.

        Respondent met his burden of production by showing that petitioners did

not maintain appropriate records to substantiate their claimed deductions, thus

shifting the burden of proof to petitioners. Petitioners, in turn, offered little

evidence to show that they tried to assess their tax liability correctly. Mr. Maguire

testified that he thought keeping the travel log would be enough to substantiate the

car and truck expenses, but he offered no explanation of where he received that

information or why it was reasonable to rely on it. Petitioners provided no
                                        - 18 -

evidence of reasonable cause or good faith with respect to any of the other

disallowed deductions.

      Mr. Maguire did testify that petitioners used a tax return preparer, but that

testimony does not establish a defense of reliance on professional advice. This

defense is available only where the taxpayer relies on the advice of a competent

tax professional. Sec. 1.6664-4(c)(1), Income Tax Regs. Petitioners did not

establish that they ever received advice from their tax return preparer, that they

relied on the advice, or that the preparer was a competent tax professional. At trial

Mr. Maguire seemed to admit that his return preparer had created and submitted

fraudulent documents to the IRS, which inspires little confidence in that person’s

competence.

      For the foregoing reasons, we find that petitioners were negligent and failed

to show that any portion of their 2007 or 2008 underpayments met the “reasonable

cause” exception. The accuracy-related penalties were properly imposed under

Section 6662(b)(1) for both 2007 and 2008.4




       4
        Petitioners would also be liable for a substantial understatement penalty
pursuant to 6662(b)(2) for 2007. Having found petitioners liable for an accuracy-
related penalty under section 6662(b)(1) for both years, we need not consider the
“substantial understatement” issue. See sec. 1.6662-2(c), Income Tax Regs. (only
one accuracy-related penalty may be imposed for any tax year).
                                         - 19 -

      2.     Section 6651(a)(1) Addition to Tax

      Section 6651(a)(1) provides for an addition to the tax in case of a taxpayer’s

failure timely to file a return, unless the taxpayer proves that such failure is due to

reasonable cause and not due to willful neglect. The evidence is uncontroverted

that petitioners filed their tax 2007 and 2008 tax returns on September 21, 2009,

well past the statutory deadline for each year. Petitioners put on no evidence to

show reasonable cause for their late filings. Reliance on a return preparer--even if

petitioners had established it, which they did not do--is not available as a defense

to the addition to tax for late filing of a tax return. See United States v. Boyle, 469

U.S. 241 (1985).


                                                  Decision will be entered

                                        under Rule 155.
