                  T.C. Summary Opinion 2009-164



                     UNITED STATES TAX COURT



                  IVETTE MUNSON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18210-07S.                Filed October 26, 2009.



     Ivette Munson, pro se.

     Melissa J. Hedtke, for respondent.



     PANUTHOS, Chief Special Trial Judge:    This case was heard

pursuant to the provisions of section 7463 of the Internal

Revenue Code (Code) in effect when the petition was filed.1

Pursuant to section 7463(b), the decision to be entered is not



     1
      Unless otherwise indicated, section references are to the
Code in effect for the year at issue, Rule references are to the
Tax Court Rules of Practice and Procedure, and dollar amounts are
rounded to the nearest whole dollar.
                               - 2 -

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

treated as precedent for any other case.

     Respondent determined a $7,3242 deficiency in petitioner’s

2005 Federal income tax and a $1,465 accuracy-related penalty

under section 6662(a).   The issues for decision are whether

petitioner is entitled to deductions for business expenses and

whether she is liable for the accuracy-related penalty.3

                            Background

     The parties submitted a stipulation of facts with

accompanying exhibits that is incorporated by reference.

Petitioner resided in Minnesota when she filed the petition.

     In 2005 petitioner worked part time for Data Recognition

Corp. (DRC) and for Target Corp. (Target).   She received a 2005

Form W-2, Wage and Tax Statement, from each employer.    She also

performed freelance translating services for Betmar Languages,

Inc. (Betmar), and Multilingual Word, Inc. (Word).   Each

corporation reported petitioner’s 2005 earnings on a Form 1099-




     2
      The $7,324 deficiency is composed of income tax of $3,329
and self-employment tax of $3,995. Petitioner’s liability for
the self-employment tax and her deduction therefor are
computational matters to be resolved consistent with the Court’s
opinion. See secs. 164(f), 1401, 1402.
     3
      Petitioner admits that she received and failed to report
self-employment income of $10,201 from Betmar Languages, Inc.,
and $18,073 from Multilingual Word, Inc., as respondent
determined in the notice of deficiency issued in May 2007.
                               - 3 -

MISC, Miscellaneous Income, which she admits to receiving.       As a

freelance translator, she earned about $20 per hour.

     Petitioner exchanged telephone calls, emails, and faxes with

Betmar and Word to schedule translating services.     She maintained

a fax machine, a computer and a printer, and workspace in the

living room of her one-bedroom apartment.     She used the computer

and Internet access to communicate with Betmar and Word, to print

directions to the assigned locations, and also for personal

activities.

     Petitioner’s assignments for Betmar and Word involved

translating for patients at hospitals and other health care

facilities in the Twin Cities area and “in some cases to [two

different towns in Minnesota], out of the Twin Cities”.     She

drove her personal automobile to and from the facilities where

she provided translating services.     Neither Betmar nor Word

reimbursed her for the expenses of driving to work, and neither

firm paid her for the time she spent driving.     She also drove the

automobile to commute to Target and DRC and for shopping or other

personal purposes.

     Late in 2005 petitioner compiled a mileage log purporting to

document the dates and distances she drove for translating

assignments.   She obtained the information from loose scraps of

paper on which she kept notes of her translating assignments.
                                - 4 -

     Petitioner timely filed a 2005 Form 1040A, U.S. Individual

Income Tax Return, on which she reported wages from DRC and

Target and unemployment compensation of $1,051.   Her 2005 Form

1040A did not include a Schedule C, Profit or Loss From Business.

Thus, she did not report the amounts received from Betmar or

Word, which were reported on Forms 1099-MISC, or claim deductions

for any related business expenses.

     In July 2007 petitioner submitted to respondent a Form

1040X, Amended U.S. Individual Income Tax Return, for 2005 that

included a Schedule C for the translating activity.4   She

reported gross receipts of $18,074 and total expenses of $30,348

for a $12,274 loss.   The claimed business expenses include:

                      Description             Amount

          Advertising                           $75
          Car and truck expenses             25,070
          Legal and professional services       250
          Repairs and maintenance                75
          Supplies                              200
          Other expenses
            Telephone                         3,738
            Postage                              40
            Education                           150
            Miscellaneous                       480
            Parking and tolls                   200
            Phone                                70

     On Form 8829, Expenses for Business Use of Your Home,

petitioner claimed she used 50 percent of her apartment for

business and incurred $4,500 in deductible home office expenses.


     4
      Respondent has not accepted the Form 1040X as filed.
                                 - 5 -

Because her Schedule C reflected a loss, she did not claim a home

office deduction.

       The Court accepted petitioner’s Form 1040X as a statement of

her then-current claims of expenses for the translating activity,

which the Court discusses infra.

                              Discussion

I.    Burden of Proof

       The Commissioner’s determinations are presumed correct, and

the taxpayer bears the burden of proving that a determination set

forth in a notice of deficiency is incorrect.    See Rule

142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933).

Deductions are a matter of legislative grace, and the taxpayer

bears the burden of proving that she is entitled to any deduction

claimed.    Rule 142(a); New Colonial Ice Co. v. Helvering, 292

U.S. 435, 440 (1934).    This includes the burden of

substantiation.     Hradesky v. Commissioner, 65 T.C. 87, 90 (1975),

affd. per curiam 540 F.2d 821 (5th Cir. 1976).    Although section

7491(a) may shift the burden of proof to the Commissioner, that

section is not applicable where, as here, a taxpayer has failed

to satisfy the recordkeeping and substantiation requirements of

the Code.    See sec. 7491(a)(2)(A) and (B).

II.    Business Expense Deductions

       Taxpayers may generally deduct the ordinary and necessary

expenses paid or incurred during the taxable year in carrying on
                                - 6 -

a trade or business.   Sec. 162(a); see also Commissioner v.

Lincoln Sav. & Loan Association, 403 U.S. 345, 352 (1971); FMR

Corp. & Subs. v. Commissioner, 110 T.C. 402, 414 (1998).      An

ordinary and necessary expense is one that is appropriate and

helpful to the taxpayer’s business and that results from an

activity that is common and accepted practice.    Boser v.

Commissioner, 77 T.C. 1124, 1132 (1981), affd. without published

opinion (9th Cir., Dec. 22, 1983).

     If a taxpayer establishes that deductible expenses were

incurred but has not established the exact amounts, the Court may

in some circumstances estimate the amounts allowable (the Cohan

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

1930).   The Court can estimate the amount of a deductible expense

only when the taxpayer provides evidence sufficient to establish

a rational basis for making the estimate.    Vanicek v.

Commissioner, 85 T.C. 731, 743 (1985).    Where a taxpayer fails to

provide adequate evidence of his expenses, the Court may uphold

the Commissioner’s determination denying the deduction.      See

secs. 274(d), 6001.    But the Court cannot estimate a taxpayer’s

expenses with respect to the items enumerated in section 274(d).

Sanford v. Commissioner, 50 T.C. 823, 827 (1968), affd. per

curiam 412 F.2d 201 (2d Cir. 1969); Rodriguez v. Commissioner,

T.C. Memo. 2009-22 (the strict substantiation requirements of
                                 - 7 -

section 274(d) preclude the Court and taxpayers from

approximating those expenses).

     Section 274(d) requires strict substantiation for certain

categories of expenses, including those for listed property such

as cellular telephones, computers and peripheral equipment, and

passenger automobiles.   Secs. 274(d)(4), 280F(d)(4).      For listed

property, section 274(d) requires the taxpayer to adequately

substantiate:   (1) The amount of the expense; (2) the amount of

each business use and total use (e.g., mileage for automobiles

and time for other listed property); (3) the time (i.e., date of

the expenditure or use); and (4) the business purpose of the

expense or use.   Sec. 1.274-5T(b)(6), Temporary Income Tax Regs.,

50 Fed. Reg. 46016 (Nov. 6, 1985).       In the absence of evidence

establishing the elements of the expenditure or use, deductions

are to be disallowed entirely.    Sec. 274(d); Sanford v.

Commissioner, supra at 827; see also sec. 1.274-5T(a), Temporary

Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).

     Respondent does not dispute that petitioner’s translating

activity qualifies as a trade or business.       Rather, respondent

argues that petitioner has not substantiated any expenses related

to her translating activity.     Petitioner contends that her

business expenses exceeded her self-employment income.
                                 - 8 -

     A.   Transportation Expenses

     Petitioner has neither asserted nor established that her

residence is the principal place of business for her translating

activity.    See infra pp. 15-16.    Thus, she is not entitled to a

deduction for mileage or the actual costs of her transportation

expenses for commuting between her residence and the job sites of

her translating activity.    See sec. 262(a); Strohmaier v.

Commissioner, 113 T.C. 106, 113-114 (1999); Rev. Rul. 99-7,

1999-1 C.B. 361.    She may, however, be entitled to a deduction

for mileage or the actual costs of her transportation expenses

for driving between the job sites.       Steinhort v. Commissioner,

335 F.2d 496, 503-504 (5th Cir. 1964), affg. and remanding T.C.

Memo. 1962-233; Heuer v. Commissioner, 32 T.C. 947, 953 (1959),

affd. per curiam 283 F.2d 865 (5th Cir. 1960).      As discussed

infra, even if some or all of petitioner’s claimed transportation

expenses are otherwise deductible, petitioner failed to

substantiate her deductions in accordance with sections 274(d)

and 6001 and the regulations thereunder.

            1.   Deduction for Vehicle Expenses Based on the
                 Standard Mileage Rate

     Petitioner’s Form 1040X does not show how she arrived at car

and truck expenses of $25,070.      The second page of her Schedule C

reflects that she drove her vehicle 54,000 miles for business,

while the standard mileage rate for business use of an automobile

in 2005 was 40.5 cents (which amounts to a $21,870 deduction).
                                 - 9 -

See Rev. Proc. 2004-64, secs. 2, 5.01, 2004-2 C.B. 898, 899-900.

She also estimated that she drove roughly 10,000 miles in 2005

that were not directly related to her translating activity.

     Petitioner introduced a mileage log at trial.    The first

page is a summary and indicates that the odometer on her vehicle

read 55,000 miles at the beginning of 2005 and 104,907 miles at

the end of 2005 and that she drove 49,907 miles in 2005.    Each

page of the log includes entries for several days.    The daily

entries include the number of miles she claims to have driven for

each translating assignment and an ending odometer reading for

each day.   The sum of the miles driven for translating

assignments for each day exactly equals the increased odometer

reading for that day.   The log suggests that she worked 7 days

each week from January 3 through December 31, 2005, with the

exception of the entire month of August.5   The beginning of the

mileage log indicates the odometer reading on January 3, 2005,

was 65,010.   The last page includes a final odometer reading on

December 31, 2005, of 104,907.    The Court notes that there are

inconsistent claims of mileage driven in the record:    the log

summary includes 49,907 miles, the log reflects 38,897 miles, and




     5
       The mileage log includes no entries for August.
Furthermore, the last mileage reading on July 31 and the first
reading on Sept. 1 suggest that the odometer on petitioner’s
automobile did not change at all during August.
                                - 10 -

the Form 8829 reflects 54,000 miles.     The inconsistent claims of

mileage undermine the veracity of these documents.

       Petitioner also testified that she and her husband had

separate cars and, as noted, that she used her car for personal

purposes, to commute to DRC and Target, and to drive to and from

her translating assignments.    Her purported mileage log does not

reflect the actual distances she drove for her translating

activity; rather, it seems simply to spread the total number of

miles somewhat evenly over the year.

       In addition, she admitted that she prepared the log in

either August or September 2005.    Thus, she fails the requirement

that the record be made at or near the time of the expenditure or

use.    See sec. 1.274-5T(c)(1) and (2), Temporary Income Tax

Regs., 50 Fed. Reg. 46016, 46017 (Nov. 6, 1985) (a record

maintained on a weekly basis that accounts for use during the

week is an example of a record made at or near the time of use).

       In short, the Court does not accord any weight to the log

and finds that it is inadequate to substantiate a deduction for

mileage.    Petitioner is not entitled to a deduction for car and

truck expenses based on the standard mileage rate.

            2.   Deduction for Vehicle Expenses Based on Actual
                 Costs (Including Repairs and Maintenance)

       Petitioner also claims that she is entitled to deductions

for the actual costs of her transportation expenses such as her

expenditures for gas, oil, automobile insurance, and repairs and
                                - 11 -

maintenance.    She provided her 2005 bank statements as evidence

of her expenditures.

       As a general rule, however, taxpayers are prohibited from

claiming deductions for automobile expenses using both the actual

cost method and the standard mileage rate.     See Tesar v.

Commissioner, T.C. Memo. 1997-207; Rev. Proc. 2004-64, sec. 5.02,

2004-2 C.B. at 900 (taxpayers generally may deduct an amount

based on the standard mileage rate or actual costs).     In

addition, the Court has concluded that petitioner’s evidence was

not sufficient to substantiate her claimed deduction based on the

standard mileage rate.     Her evidence also does not sufficiently

substantiate her claimed deduction based on the actual costs of

her transportation expenses.     Petitioner, therefore, is not

entitled to her claimed deduction based on the actual costs of

her transportation expenses.     See Sanford v. Commissioner, 50

T.C. at 827; Rodriguez v. Commissioner, T.C. Memo. 2009-22.

       B.   Parking and Toll Expenses

       Parking and toll expenses generally may be deducted as a

separate item.     See Rev. Proc. 2004-64, sec. 5.04, 2004-2 C.B. at

900.

       Petitioner has provided neither evidence nor argument that

she is entitled to her claimed deduction.     The issue is therefore

deemed abandoned or conceded.     See Money v. Commissioner, 89 T.C.
                                - 12 -

46, 48 (1987); see also Stutsman v. Commissioner, T.C. Memo.

1961-109 (and cases cited therein).

          C.   Telephone Expenses

     Petitioner explained that she used the telephone in her

apartment for both business and personal calls and to send

business faxes.

     Basic service on the first telephone line in a taxpayer’s

residence is deemed a nondeductible personal expense.    Sec.

262(b).   Petitioner has neither alleged that she used a dedicated

business line nor shown that her telephone expenses were more

than the basic service on a first telephone line.   Thus, she is

not entitled to any deduction for the use of the telephone in her

apartment.

     Petitioner testified that because of limits in the number of

minutes in her T-Mobile cellular telephone calling plan, she used

it exclusively for her translating activity (with the exception

of at most one brief call each month).   She also provided her

2005 bank statements as evidence of the amount of each

expenditure.

     Her evidence, however, does not substantiate the amount of

each business use or her total use, the time of each use, or the

business purpose of each use.    See sec. 1.274-5T(b)(6), Temporary

Income Tax Regs., supra.   Accordingly, petitioner is not entitled
                              - 13 -

to a deduction for cellular phone expenses.   See Sanford v.

Commissioner, supra at 827; Rodriguez v. Commissioner, supra.

     D.   Advertising and Postage Expenses

     At trial petitioner estimated her expenses for advertising

at $50 and postage at $30.   Her Form 1040X shows expenses for

advertising of $75 and postage of $40.   Bearing heavily against

petitioner, whose inexactitude is of her own making, the Court

will allow deductions for advertising of $50 and postage of $30.

See Cohan v. Commissioner, 39 F.2d at 543-544.

     E.   Supplies, Internet, and Computer Expenses

     Expenditures for supplies and Internet use are generally

deductible under section 162(a).    Verma v. Commissioner, T.C.

Memo. 2001-132 (the Internet is a utility expense).   Strict

substantiation does not apply, and the Court may apply the Cohan

rule to estimate the taxpayer’s deductible expense, provided that

the Court has a reasonable basis for making an estimate.    See

Vanicek v. Commissioner, 85 T.C. at 742-743; Pistoresi v.

Commissioner, T.C. Memo. 1999-39.

     Petitioner testified that she paid about $14 per month for

supplies, such as ink for her printer, and Internet access.    Her

bank statements indicate that she paid $12.95 each month for

Internet service.   She testified that she used the Internet to

exchange business emails and to print directions to her

translating assignments.   But she also testified that she used
                                - 14 -

the Internet for both business and personal activities.    Bearing

heavily against petitioner, the Court will allow a deduction of

$84 ($14 x 12 (months) x 50% (business use)).

     Petitioner testified that she purchased a computer in 2005

for about $948 for use in her translating activity.    She provided

her 2005 bank statements as evidence of the amount of her

expenditure.

     The evidence, however, does not substantiate the amount of

each business use or her total use, the time of each use, or the

business purpose of each use.    See sec. 1.274-5T(b)(6), Temporary

Income Tax Regs., supra.   Nor did she properly elect to expense

the computer.   See sec. 179(c) (providing that the election must

be made on the taxpayer’s return for the year).    She did not

attach a Schedule C to her 2005 Form 1040A, and respondent has

not accepted her Form 1040X as filed.    See sec. 1.179-5(a),

Income Tax Regs.   Accordingly, petitioner is not entitled to a

deduction for the computer.

     F.   Education, Miscellaneous, and Legal and Professional
          Services Expenses

     Petitioner testified that she did not incur legal or

professional business expenses in 2005 and did not explain why

she claimed a $250 deduction for such expenses on Form 1040X.

She also failed to present evidence or argument that she is

entitled to her deductions for education and miscellaneous

expenses.   The Court deems petitioner to have conceded these
                              - 15 -

issues.   See Money v. Commissioner, 89 T.C. at 48; see also

Stutsman v. Commissioner, supra.

     G.   Business Use of Her Home

     Expenses for the business use of a taxpayer’s residence are

deductible under limited circumstances.   The taxpayer must show

that a portion of the residence was exclusively used on a regular

basis as his/her principal place of business.   Sec. 280A(c)(1).

The term ““‘a portion of the dwelling unit’” refers to ‘a room or

other separately identifiable space;’” a permanent partition

marking off the area is not necessary.    Hefti v. Commissioner,

T.C. Memo. 1993-128 (quoting section 1.280A-2(g)(1), Proposed

Income Tax Regs., 48 Fed. Reg. 33324 (July 21, 1983)).    The term

“principal place of business” includes a place of business used

by the taxpayer to perform administrative or management

activities related to the trade or business if there is no other

fixed location of the trade or business where substantial

administrative or management activities are undertaken.   Sec.

280A(c)(1).

     Petitioner claims she used 800 of the 1600 square feet of

her one-bedroom apartment regularly and exclusively for business.

She also testified that her home office consisted of her desk, a

computer and a printer, and a fax machine located in the living

room of her apartment.
                                   - 16 -

        Even though petitioner’s translating activity reflects a

profit after the Court sustains many of respondent’s adjustments,

the Court nevertheless concludes that she is not entitled to a

home office deduction.        Petitioner has not substantiated the

amount of her claimed deduction, nor has she established that she

satisfies the requirements under section 280A.

III.        Accuracy-Related Penalty

        In pertinent part, section 6662(a) and (b)(2) imposes an

accuracy-related penalty equal to 20 percent of the underpayment

that is attributable to a substantial understatement of income

tax.6       A substantial understatement of income tax exists if the

amount of the understatement for the taxable year exceeds the

greater of 10 percent of the tax required to be shown on the

return for the taxable year or $5,000.        Sec. 6662(d)(1)(A).    The

term “understatement” means the excess of the amount of the tax

required to be shown on the return for the taxable year over the

amount of the tax imposed that is shown on the return less any

rebate as defined by section 6211(b)(2).        Sec. 6662(d)(2)(A).

The amount of the understatement is reduced by the portion of the

understatement that is attributable to:        (1) The taxpayer’s tax


        6
      Respondent determined an accuracy-related penalty based on
a substantial understatement of income tax. In respondent’s
pretrial memorandum he argued that petitioner was also liable for
the accuracy-related penalty based on negligence. Because the
Court finds that petitioner substantially understated her income
tax, the Court need not discuss whether she was negligent. See
sec. 6662(b); Fields v. Commissioner, T.C. Memo. 2008-207.
                                - 17 -

treatment of the item if there is or was substantial authority

for the treatment; or (2) any item if the relevant facts

affecting the item’s tax treatment are adequately disclosed in

the return or in a statement attached to the return and there is

a reasonable basis for the taxpayer’s tax treatment of the item.

Sec. 6662(d)(2)(B).

     By virtue of section 7491(c), respondent has the burden of

production with respect to the accuracy-related penalty.    To meet

this burden, respondent must produce sufficient evidence

indicating that it is appropriate to impose the penalty.    See

Higbee v. Commissioner, 116 T.C. 438, 446 (2001).    Once

respondent meets this burden of production, petitioner must come

forward with persuasive evidence that respondent’s determination

is incorrect.   See Rule 142(a); Higbee v. Commissioner, supra.

     Respondent satisfied his burden of production under section

7491(c) because the record shows that petitioner substantially

understated her income tax for the year in issue and she has not

proven that she satisfies the substantial authority or adequate

disclosure provisions.   See sec. 6662(d)(1)(A), (2)(B); Higbee v.

Commissioner, supra at 442.

     Section 6664(c)(1), however, provides a defense to the

penalty if the taxpayer establishes that there was reasonable

cause for the understatement and that she acted in good faith

with respect to that portion.    Sec. 1.6664-4(a), Income Tax Regs.
                                - 18 -

The determination of whether a taxpayer acted with reasonable

cause and in good faith is made on a case-by-case basis, taking

into account all the pertinent facts and circumstances.    Sec.

1.6664-4(b)(1), Income Tax Regs.    Generally, the most important

factor is the extent of the taxpayer’s effort to assess the

proper tax liability.    Id.   An honest misunderstanding of fact or

law that is reasonable considering the taxpayer’s education,

experience, and knowledge may indicate reasonable cause and good

faith.   Id.

     Petitioner asserts that she did not report the income and

expenses from her translating activity on her 2005 Form 1040A

because she did not know how to report business income and

expenses and because her business expenses exceeded her business

income with the result that she realized a loss from her

business.   The Code is certainly complex, but a taxpayer’s

ignorance of how to report her income and expenses does not

provide reasonable cause for failing to include those items on

her return.    Respondent’s determination is sustained.

     To reflect the foregoing,


                                           Decision will be entered

                                      under Rule 155.
