                    T.C. Summary Opinion 2006-174



                       UNITED STATES TAX COURT



                 CURTIS MUHAMMAD, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14743-05S.               Filed October 24, 2006.



     Curtis Muhammad, pro se.

     Harry J. Negro, for respondent.



     RUWE, Judge:    This case was heard pursuant to section 74631

in effect when the petition was filed.    The decision to be

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

should not be cited as authority.




     1
       Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the year in issue. Rule
references are to the Tax Court Rules of Practice and Procedure.
                                - 2 -

     Respondent determined a deficiency in petitioner’s 2002

Federal income tax of $4,279.    After concessions by the parties,2

the issues for decision are whether petitioner can deduct:        (1)

$6,500 on Schedule A, Itemized Deductions, for cash charitable

contributions; (2) $1,800 on Schedule C, Profit or Loss From

Business, for legal and professional expenses; (3) $2,400 on

Schedule C for rental expenses; and (4) $2,155 on Schedule C for

business use of the home.

     Some facts have been stipulated and are so found.      The

stipulation of facts and the attached exhibits are incorporated

by this reference.    When the petition was filed, petitioner

resided in West Chester, Pennsylvania.

     Petitioner earned a biomedical engineering degree from a

community college in, or about, 1990 and also graduated from

Lyons Tech in 1978.    While he served in the Air Force, petitioner

worked as an accountant.    During the taxable year 2002,

petitioner worked full time for SEPTA and also worked as a

financial adviser for Waddell & Reed.

     Petitioner timely filed his 2002 Federal income tax return

via electronic filing.    Petitioner’s return for 2002 was prepared


     2
       The parties stipulated that the proper mortgage interest
and real estate taxes on Schedule A, Itemized Deductions, are
$5,143 and $1,178, respectively, and that the proper mortgage
interest and real estate taxes on Schedule E, Supplemental Income
and Loss, are $4,494 and $1,254, respectively. At trial,
petitioner also conceded that he is not entitled to a deduction
for a $500 noncash charitable contribution.
                                - 3 -

by Chalamar Muhammad, petitioner’s wife, who worked for Business

Management Solutions, Inc. (BMS).    Chester Muhammad, Chalamar

Muhammad’s father and petitioner’s father-in-law, owned BMS in

2002.    Petitioner claimed Chalamar Muhammad as a dependent on his

2002 Federal income tax return.3    Respondent issued petitioner a

notice of deficiency.

                             Discussion

     As a general rule, the Commissioner’s determinations set

forth in a notice of deficiency are presumed correct, and the

taxpayer bears the burden of proving that these determinations

are in error.   Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933).    Pursuant to section 7491(a), the burden of proof as to

factual issues may shift to the Commissioner where the taxpayer

introduces credible evidence and complies with substantiation

requirements, maintains records, and cooperates fully with

reasonable requests for witnesses, documents, and other

information.    Petitioner has not met the requirements of section

7491(a) because he has not met the substantiation requirements or

introduced credible evidence regarding the deductions at issue.




     3
       Petitioner reported that his filing status in 2002 was
head of household. Respondent did not change petitioner’s status
in the notice of deficiency. Nevertheless, petitioner testified
that he and Chalamar Muhammad were married in 2002, while
Chalamar Muhammad testified that they were not married. Chalamar
Muhammad also testified that she could not remember the date when
she and petitioner married.
                               - 4 -

      Section 6001 and section 1.6001-1(a), Income Tax Regs.,

require that any person subject to tax or any person required to

file a return of information with respect to income, shall keep

such permanent books of account or records, as are sufficient to

establish the amount of gross income, deductions, credits, or

other matter required to be shown by such person in any return of

such tax or information.   Deductions are strictly a matter of

legislative grace, and the taxpayer bears the burden of proving

entitlement to the claimed deduction.    Rule 142(a); INDOPCO, Inc.

v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v.

Helvering, 292 U.S. 435, 440 (1934).

A.   Charitable Contribution Deductions Claimed on Schedule A

      Respondent disallowed a deduction of $6,500 that petitioner

claimed as charitable contributions.    Respondent argues that

petitioner failed to retain adequate records and that the

documents provided by petitioner to support cash contributions

should be disregarded because they do not constitute credible

evidence.

      Section 170(a) allows as a deduction any charitable

contribution the payment of which is made within the taxable

year.   Deductions for charitable contributions are allowable only

if verified under regulations prescribed by the Secretary.      Sec.

170(a)(1).   In general, the regulations require a taxpayer to

maintain for each contribution one of the following:    (1) A
                                - 5 -

canceled check; (2) a receipt from the donee;4 or, in the absence

of a check or receipt, (3) other reliable written records.    Sec.

1.170A-13(a)(1), Income Tax Regs.    Section 1.170A-13(a)(2)(i),

Income Tax Regs., provides special rules to determine the

reliability of records on the basis of all the facts and

circumstances of the particular case and further provides factors

to consider in making this determination, including:    (1) Whether

the writing that evidences the contribution was written

contemporaneously and (2) whether the taxpayer keeps regular

records of the contributions.

     Petitioner had a checking account in 2002; however, because

he claimed to have made only cash charitable contributions,

petitioner provided no canceled checks to substantiate his

claimed deductions.   Petitioner testified that the total cash

charitable contributions he claimed were based on receipts he

received from his mosque, but that he could not provide the

receipts because he shredded them.

     Petitioner produced two documents to substantiate his

charitable contributions.   The first is the computer-generated

list of charitable contributions prepared by BMS.    The computer-

generated document lists weekly contributions of $130 to Muhammad

Mosque No. 12 (the mosque) from January 8 to December 27, 2002


     4
       A receipt is required to contain the name of the donee,
the date of the contribution, and the amount of the contribution.
Sec. 1.170A-13(a)(1), Income Tax Regs.
                                - 6 -

($6,500 total).   At trial, petitioner testified that this

document was inaccurate.5   The second is a two-page undated

document purportedly from the mosque consisting of a cover letter

and a list of total contributions to a variety of mosque funds.

At the bottom of the first page of the document there is an

address line but white correction fluid has been applied to

obscure a telephone number on that line.    The contributions,

totaling $6,500, are listed on the second page of the document as

follows:

                  SAVIOURS’ DAY (FEB)      $2,200.00
                  NO.2 POOR CHARITY        $1,000.00
                  OBLIGATORY CHARITY       $1,300.00
                  MOSQUE NO 12 BLDG FUND     $905.00
                  LOCAL CHARITY              $565.00
                  3 YEAR ECONOMIC PLAN       $530.00

This document does not show the dates or amounts of the

individual contributions.   Petitioner testified that he received

the latter document on May 28, 2006, nearly 4 years after the

alleged charitable contributions were made, and only provided it


     5
       Petitioner had previously submitted another erroneous
document to respondent. Although petitioner eventually conceded
that he was not entitled to a noncash charitable contribution
deduction, he originally submitted to respondent a letter that
was allegedly from the Salvation Army. The letter is addressed
to petitioner and thanks him for donations of furniture and
clothing. Respondent obtained from a supervisor in the Vehicle
Donation Program of the Salvation Army a certification of
business records declaring that the letter submitted by
petitioner purporting to be from the Salvation Army was not
genuine. The certification states that the division of the
Salvation Army from which petitioner’s letter appears to have
been sent does not handle furniture and clothing, but only
vehicle donations.
                               - 7 -

to respondent on June 5, 2006, the day before trial.     The first

page indicates that the document was issued by “Sister LaVerne

Muhammad, Delaware Valley Regional Secretary.”    However,

petitioner testified that LaVerne Muhammad is not the current

Delaware Valley Regional Secretary.    Petitioner did not provide a

statement of charitable contributions from the current regional

secretary or any current recordkeeper at the mosque.

      Applying the previously mentioned standards for

substantiating deductions for contributions, we find that

petitioner failed to provide reliable evidence of his purported

contributions and failed to meet his burden of proof.    We hold

that respondent’s determination disallowing petitioner’s claimed

charitable contribution deduction is sustained.

B.   Business Expense Deductions Claimed on Schedule C

      Section 162(a) permits a taxpayer to deduct expenses paid or

incurred during the taxable year in carrying on the taxpayer’s

trade or business and requires a taxpayer to prove that the

expenses deducted were:   (1) Paid or incurred during the taxable

year; (2) incurred to carry on the taxpayer’s trade or business;

and (3) ordinary and necessary expenditures of the business.    See

sec. 162(a); Commissioner v. Lincoln Sav. & Loan Association, 403

U.S. 345, 352 (1971).
                                 - 8 -

     1.     Legal and Professional Expenses

     Respondent argues that petitioner failed to substantiate his

legal and professional expenses because the receipts submitted by

petitioner are untrustworthy.

     Petitioner produced four sales receipts from BMS, the

company that employed petitioner’s wife and that was owned by his

father-in-law, to substantiate his legal and professional expense

deductions.

     Although he had a checking account, each BMS receipt

indicates a $450 cash payment.

     Petitioner testified that the charges on the receipts

represented costs incurred while Chester Muhammad helped him set

up a limited liability company for his rental real estate

activity.     The receipts indicate that they were for services

including monthly accounting, bookkeeping, and payroll.

Petitioner testified that he hired an employee, whom he paid

sometimes with both a check and cash and sometimes just with

cash.     Petitioner issued neither a Form W-2, Wage and Tax

Statement, nor a Form 1099 and claimed no deduction for the

employee’s wages.     Petitioner testified that he did not deduct

his employee’s wages because he did not want the employee to have

to pay taxes on them.     Petitioner’s testimony indicates that

although the receipts he received from BMS represent charges for
                               - 9 -

payroll services, his payments to his only purported employee

would not necessitate such services.

     Other than the BMS receipts, petitioner failed to produce

any substantiation that he actually made payments to his father-

in-law or BMS or that the purported payments actually related to

a trade or business.   Given the relationship between petitioner

and the people who operated BMS, the fact that the payments were

allegedly made in cash, and the fact that the receipts indicate

that they were for payroll work that would seem unnecessary, we

find that petitioner has failed to meet his burden of proof.

Respondent’s determination disallowing petitioner’s claimed legal

and professional expense deductions is sustained.

     2.   Rental Expenses

     Respondent argues that petitioner failed to substantiate the

$2,400 rental equipment expense deduction because the invoices

submitted by petitioner lack credibility and are generally

untrustworthy.   To substantiate his rental expenses, petitioner

submitted five invoices from CB Associates indicating that he

leased a laptop computer for $3,600 and a printer for $2,400 from

January 7 to December 7, 2002, at monthly rates of $300 and $200

for the computer and printer, respectively.6   Craig Brown,

     6
       The invoice dates and amounts purportedly paid in 2002 are
as follows: January 7-$500; April 7-$1,500; August 7-$2,000;
November 7-$1,500; December 7-$500. The return address for CB
Associates on the invoices was incorrect because it had the wrong
                                                   (continued...)
                               - 10 -

petitioner’s brother-in-law, owns CB Associates.7   Petitioner

claimed a deduction for the rental expense of the printer, but

not the computer, on his return.   Although the total lease price

referenced in the invoices is based on a 12-month lease term, the

term referenced on the invoices is for only the 11 months between

January 7 and December 7, 2002.

     Petitioner had a checking account in 2002 but purports to

have paid $6,000 using multiple money orders for the lease of the

computer and printer from CB Associates.   Petitioner did not

produce any money order receipts or a lease agreement to

substantiate the expense he claimed on his return for the lease

of the printer.   Petitioner testified that, after 11 months, he

returned the computer and printer via mail to his brother-in-law

in Houston, Texas.

     Bearing in mind the questionable nature of several other

documents that petitioner produced in this case, invoices

purporting to be from a family member at an address that does not

exist are insufficient to substantiate petitioner’s rental

expense deductions.    We find that petitioner has failed to meet

his burden of proof and hold that respondent’s determination


     6
      (...continued)
ZIP Code.
     7
       Petitioner initially testified that Craig Brown was his
father’s son, but he refers to him as his brother-in-law
throughout the rest of his testimony.
                                 - 11 -

disallowing petitioner’s claimed rental expense deduction is

sustained.

     3.   Business Use of Home

     Respondent argues that petitioner is not eligible for a

business use of home deduction because his residence was not his

principal place of trade or business.     If the Court decides that

petitioner’s residence was his principal place of trade or

business, respondent argues that the deductions petitioner

claimed in relation to the business use of home, other than

mortgage interest and real estate taxes, should be disallowed for

a lack of substantiation.   Mortgage interest and real estate

taxes on petitioner’s home have already been allowed.8

     Section 280A(a) provides as a general rule that no deduction

otherwise allowable to an individual “shall be allowed with

respect to the use of a dwelling unit which is used by the

taxpayer during the taxable year as a residence.”     The seemingly

prohibitory rule of section 280A(a) is ameliorated by section

280A(c), which provides exceptions for certain business uses.     As


     8
       Petitioner submitted to respondent a Form 1098, Mortgage
Interest Statement (former Form 1098), in support of mortgage
interest expenses of $5,142.69 and real estate taxes of $1,178.11
for petitioner’s personal residence. Petitioner also produced an
identical Form 1098 (latter Form 1098), except for the fact that
the amount for real estate taxes was changed from $1,178.11 to
$2,299.11, an amount which petitioner originally included on
Schedule A of his return. The parties stipulated that the former
Form 1098 was correct and the latter Form 1098 was incorrect
because it indicated an improper amount for real estate taxes.
                              - 12 -

relevant herein, section 280A(c)(1) provides that the general

rule of section 280A(a) is not applicable to any item to the

extent it is allocable to a portion of the dwelling unit which is

exclusively used on a regular basis as the principal place of

business for any trade or business of the taxpayer, or as a place

of business which is used by patients, clients, or customers in

meeting or dealing with the taxpayer in the normal course of his

trade or business.   Expenses deducted as a business use of home

must be deductible under section 162 or some other Code section.

See sec. 280A(a).

     Petitioner testified that he used his basement as his home

office.   The evidence and testimony available do not indicate

that petitioner met with clients or customers in his basement.

Therefore, petitioner’s deductions for business use of home can

only be sustained if he used the basement on a regular basis as

the principal place of business for a trade or business.

     Petitioner argues that an income statement, which lists

operating expenses and which he testified had been created by

BMS, was created from a log petitioner kept of his expenses and

was averaged over the year.   Petitioner argues that this income

statement is sufficient to substantiate his business use of home

expenses.   Petitioner testified that from January 2001 to
                              - 13 -

September 2002, he was being trained as a financial adviser for

Waddell & Reed and worked out of an office in Langhorne,

Pennsylvania.   After September 2002, petitioner was assigned to a

Waddell & Reed district office located in Philadelphia,

Pennsylvania, where petitioner had a desk from which to work.

     Petitioner also testified that he received assistance from

Chester Muhammad in setting up a limited liability company for

his rental real estate, but petitioner failed to establish that

he actually operated this enterprise from his basement.    In terms

of working in a business, petitioner refers mostly to his job as

a financial adviser for Waddell & Reed.

     The evidence and testimony indicate that petitioner’s

principal place of business was the office of Waddell & Reed, in

Langhorne, Pennsylvania, until September 2002, and in

Philadelphia, Pennsylvania, for the rest of 2002.   We find that

petitioner has failed to establish that his basement was his

principal place of business in 2002.   Because petitioner has

failed to meet the requirements necessary to apply a section

280A(c)(1) exception to the general rule of section 280A(a), it

is unnecessary to examine whether petitioner substantiated the

expenses he deducted in relation to the purported business use of
                              - 14 -

home.   Respondent’s determination disallowing petitioner’s

claimed business use of home deduction is sustained.

     To reflect the foregoing,

                                         Decision will be entered

                                    under Rule 155.
