                  T.C. Summary Opinion 2003-119



                      UNITED STATES TAX COURT



                  WING Y. KWAN, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1663-02S.               Filed August 27, 2003.


     Wing Y. Kwan, pro se.

     Andrew R. Moore, for respondent.



     PAJAK, Special Trial Judge:   This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.    Unless otherwise

indicated, section references are to the Internal Revenue Code in

effect for the year in issue.   The decision to be entered is not

reviewable by any other court, and this opinion should not be

cited as authority.

     Respondent determined a deficiency of $2,910 and an
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accuracy-related penalty under section 6662(a) of $582 in

petitioner’s 1998 Federal income tax.   After a concession by

petitioner of his failure to report income from a State income

tax refund in the amount of $3,603, this Court must decide:     (1)

Whether petitioner is entitled to deduct expenses claimed on

Schedule C, Profit or Loss From Business, and (2) whether

petitioner is liable for the accuracy-related penalty under

section 6662(a).

     Some of the facts in this case have been stipulated and are

so found.   Petitioner resided in San Francisco, California, at

the time he filed his petition.

     During taxable year 1998, petitioner Wing Y. Kwan

(petitioner) was employed full-time as an electrical engineer by

the State of California.   He purportedly was involved in a travel

agent business and in a computer-assisted design business.    In

connection with these purported businesses, petitioner attached a

Schedule C to his 1998 Form 1040, U.S. Individual Income Tax

Return.   Respondent disallowed deductions claimed on the Schedule

C because petitioner did not establish that the claimed expenses

in excess of the amounts allowed were ordinary and necessary

business expenses paid or incurred in 1998.

     On the Schedule C, petitioner reported gross income of $-0-

and a net loss of $29,632.   Respondent disallowed deductions

claimed on that Schedule C for car and truck expenses of $1,395,
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depreciation expense/section 179 expenses of $9,986, and rent

expense of $4,400.

     Respondent contends that the documents offered by petitioner

provide insufficient evidence to support the claimed deductions.

Section 7491 is inapplicable here because petitioner has not

complied with the requisite substantiation requirements.    Sec.

7491(a)(2)(A).

     Section 162(a) allows a deduction for ordinary and necessary

expenses paid or incurred during the taxable year in carrying on

a trade or business.   Taxpayers, however, must maintain

sufficient records to establish the amount of claimed deductions.

Sec. 6001; sec. 1.6001-1(a), Income Tax Regs.

     Section 274(d)(4) imposes stringent substantiation

requirements for the deduction of certain listed property defined

under section 280F(d)(4).    Listed property includes, inter alia,

automobiles and computers.   Sec. 280F(d)(4)(A).   To deduct

expenses for such listed property, including depreciation,

taxpayers must substantiate by adequate records the following

items:   The amount of each separate expenditure, the listed

property’s business and total usage, the date of the expenditure

or use, and the business purpose for an expenditure or use.    Sec.

274(d); sec. 1.274-5T(b)(6), Temporary Income Tax Regs., 50 Fed.

Reg. 46016 (Nov. 6, 1985).   To substantiate a deduction by means

of adequate records, a taxpayer must maintain an account book,
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diary, log, statement of expense, trip sheet or similar record,

and/or other documentary evidence, which, in combination, are

sufficient to establish each element of expenditure or use.      Sec.

1.274-5T(c)(2)(i), Temporary Income Tax Regs., 50 Fed. Reg. 46017

(Nov. 6, 1985).    Each recording of an element of an expenditure

or use must be made at or near the time of the expenditure or

use.    Sec. 1.274-5T(c)(2)(ii)(A), Temporary Income Tax Regs., 50

Fed. Reg. 46017 (Nov. 6, 1985).    Alternatively, a taxpayer who is

unable to satisfy the adequate records requirement is still

entitled to a deduction for expenses that he can substantiate

with other corroborative evidence.      Sec. 1.274-5T(c)(3),

Temporary Income Tax Regs., 50 Fed. Reg. 46020 (Nov. 6, 1985).

Moreover, when section 274(d) applies, as here, this Court cannot

rely on Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930), to

estimate the taxpayer’s expenses.       Sanford v. Commissioner, 50

T.C. 823, 827-828 (1968), affd. per curiam 412 F.2d 201 (2d Cir.

1969).

       Petitioner had no books of account or other records

concerning his alleged businesses or any evidence of the

expenditures in issue.    Petitioner relied on his own testimony.

       Petitioner claimed that he found customers for the travel

agents at Sun Trips Travel (Sun Trips), San Jose, California.

Petitioner had no client lists.    Petitioner admitted that Sun

Trips did not require him to pick up the tickets.      Petitioner
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said:   “They can mail it to your office.”   Petitioner also

admitted that “I didn’t do a lot of travel business.”    Yet, he

provided a reconstructed mileage log prepared for the auditor

with 44 purported trips for “Sun Trips Pick up ticket”.      He had

no original records from which he prepared this reconstruction.

The mileage between petitioner’s address in San Francisco and Sun

Trips’s address in San Jose is 46.8 miles, so the 120 mile round

trips on the so-called log are overstated in any event.

Respondent states that petitioner was allowed 44 trips for 94

miles and a miscellaneous deduction for other mileage.    We

believe respondent was generous.    For the other mileage,

petitioner relied essentially on his own testimony as to the

business purpose of these alleged expenses, as well as for the

other expenses in issue.    It is well established that this Court

is not bound to accept a taxpayer’s self-serving, unverified, and

undocumented testimony.     Tokarski v. Commissioner, 87 T.C. 74, 77

(1986); Hradesky v. Commissioner, 65 T.C. 87 (1975), affd. 540

F.2d 821 (5th Cir. 1976).    We find petitioner’s testimony to be

just that, self-serving, unverified, and undocumented.    We agree

with respondent that petitioner did not prove that the disallowed

car and truck expenses represent ordinary and necessary business

expenses or that such expenses were paid in 1998.

     The depreciation/section 179 issue turns on petitioner’s

claims relating to the purchase of a computer and computer
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equipment.    This Court ruled in Kwan v. Commissioner, T.C.

Summary Opinion 2002-16, that petitioner was not entitled to any

section 179 expense deduction for 1997 with respect to computers

and computer equipment.    Nevertheless, petitioner carried over

$1,616 as a “deduction for 1997.”      This is improper on its face.

Petitioner had a collection of computer and computer equipment

receipts.    Respondent allowed petitioner a deduction of $1,465 on

this issue.    Petitioner did not show any credible business reason

for the purchase of an additional computer and computer equipment

to satisfy the requirement that the expenses were ordinary and

necessary.    In any event, because petitioner had no taxable

income from a trade or business, he is not entitled to a section

179 deduction.    Sec. 179(b)(3)(A).     Accordingly, respondent’s

determination on this issue is sustained.

     Respondent also allowed $2,200 of the $6,600 claimed as rent

expense and disallowed the remaining $4,400 because petitioner

did not establish that that amount was an ordinary and necessary

business expense paid in 1998.    Petitioner placed in evidence one

lease running through March 31, 1998, which we assume continued

on a month-to-month basis through August, and another lease for

the remainder of the year.

     Petitioner admitted that there were other businesses that

used the address covered by the second lease.       Petitioner did not

prove that he paid all the amounts in issue.       Nor did he provide
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a credible explanation as to why the entire business premises

were needed for business purposes.       On this record, we uphold

respondent’s disallowance of the $4,400 because petitioner did

not establish that that amount was an ordinary and necessary

business expense paid in 1998.

     As to the accuracy-related penalty, section 6662(a) imposes

a 20-percent penalty on the portion of any underpayment of tax

attributable to negligence or disregard of rules or regulations.

Sec. 6662(b)(1).    Negligence is any failure to make a reasonable

attempt to comply with the provisions of the internal revenue

laws and includes any failure by the taxpayer to keep adequate

books and records or to substantiate items properly.       Sec.

6662(c); sec. 1.6662-3(b)(1), Income Tax Regs.       Moreover,

negligence is the failure to exercise due care or failure to do

what a reasonable and prudent person would do under the

circumstances.     Neely v. Commissioner, 85 T.C. 934, 947 (1985).

Disregard includes any careless, reckless, or intentional

disregard of rules or regulations.       Sec. 6662(c); sec. 1.6662-

3(b)(2), Income Tax Regs.    No penalty will be imposed with

respect to any portion of any 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 such portion.        Sec.

6664(c).

     On this record, we conclude that petitioner is liable for
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the accuracy-related penalty under section 6662(a) as imposed by

respondent.   Respondent has satisfied his burden of production

under section 7491(c).    Higbee v. Commissioner, 116 T.C. 438,

446-447 (2001).   Petitioner has failed to provide any reasonable

explanation or credible evidence to substantiate entitlement to

the claimed deductions.   Such actions are not those of a

reasonable and prudent person under the circumstances.

     Reviewed and adopted as the report of the Small Tax Case

Division.



                                          Decision will be entered

                                     for respondent.
