                  T.C. Summary Opinion 2006-32



                     UNITED STATES TAX COURT



            FREDERICK DOUGLAS ABDULLAH, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 2721-04S.            Filed February 21, 2006.



     Frederick Douglas Abdullah, pro se.

     Catherine G. Chang, for respondent.



     PANUTHOS, Chief 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.   The

decision to be entered is not reviewable by any other court, and

this opinion should not be cited as authority.   Unless otherwise

indicated, subsequent section references are to the Internal
                               - 2 -

Revenue Code in effect for the year in issue, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

     Respondent determined a $6,717 deficiency in petitioner’s1

2001 Federal income tax and a $1,977 penalty pursuant to section

6662(a).   In his answer, respondent asserted an increased

deficiency totaling $7,398 and a reduced section 6662(a)

accuracy-related penalty of $1,480.

     The issues remaining for decision are:2 (1) Whether amounts

petitioner received from various third parties (principals)

represent wages paid as an employee or payments as an independent

contractor; (2) whether petitioner is entitled to claimed

deductions either as miscellaneous itemized deductions (employee)

or as Schedule C, Profit or Loss From Business, expense

deductions (independent contractor); and (3) whether petitioner

is liable under section 6662(a) for an accuracy-related penalty.

                             Background

     Some of the facts have been stipulated, and they are so

found.   The stipulation and supplemental stipulation of facts and

the attached exhibits are incorporated herein by this reference.




     1
        A joint 2001 Federal income tax return was filed and the
notice of deficiency was issued to Frederick and S. Ghaswala
Abdullah. The petition was filed only by petitioner Frederick
Douglas Abdullah.
     2
        Petitioner agreed that he did not report $255 in interest
income received in 2001.
                                - 3 -

At the time of filing the petition, petitioner resided in Union

City, California.

     During the taxable year 2001 petitioner received

compensation for services from the following principals:

     Critchfield Mechanical, Inc. (Critchfield)    $6,117.76
     Thermal Mechanical, Inc. (Thermal)             9,698.04
     Therma                                        63,096.37
             Subtotal                              78,912.00
     Matheson Mail Trans, Inc. (Matheson)           5,788.28
             Total1                                84,700.00
     1
         Subtotal and total are rounded to the nearest dollar.

The principals reported this compensation to the Internal Revenue

Service on respective Forms W-2, Wage and Tax Statement.

     Petitioner was a member of the Local 342, Plumbers and

Pipefitters Union.    Petitioner performed pipefitting work for

Critchfield, Thermal, and Therma.    In order to perform this work,

petitioner was required to obtain a certified Journeyman

Pipefitter certification.

     Petitioner worked for Critchfield from sometime in 2000

through March 2001.    His pay was determined based upon union

contracts referred to as “project agreements” which set hourly

wages and pay differentials.    The contracts permitted petitioner

to be hired and fired.    Petitioner worked for Thermal for a few

weeks during the period from April through June of 2001.    From

sometime in June through December 2001 petitioner worked for

Therma.
                               - 4 -

     Petitioner was paid on an hourly basis for his work as a

pipefitter as determined by respective project managers.

Petitioner was required to sign in and sign out at the worksite.

He typically worked an 8-hour day.     Petitioner was required to

wear certain safety equipment, submit safety reports, and undergo

safety training.   Petitioner was supervised on the job by

respective project managers.   He was subject to discharge if his

finished product did not pass certain tests.     While petitioner

utilized some of his own small tools on the jobs, approximately

90 percent of petitioner’s equipment was furnished by the

respective companies.

     Petitioner also performed part-time work as a driver for

Matheson.   The company delivered bulk mail for the U.S. Postal

Service under a contract negotiated with the International

Brotherhood of Teamsters Union.   The contract permitted Matheson

to hire and fire petitioner.   Petitioner would “on load” or “off

load” bulk mail and deliver it to various sites as directed by

Matheson.   The trucks were owned by Matheson.    Petitioner would

complete route sheets indicating the routes driven, and he was

compensated based on the number of routes driven.

     Petitioner owned hand tools such as wrenches, screwdrivers,

and levels that he kept in his privately owned Mazda automobile.

In performing his work as a pipefitter, petitioner would drive

his Mazda to various jobsites and take his tools with him.     The
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record does not reveal the number of trips or distances traveled.

     As previously indicated, the above-described income was

reported to the IRS on four separate Forms W-2.   Petitioner does

not assert that he did not receive Forms W-2 from each of the

principals.

     Petitioner and his wife timely filed a joint Federal income

tax return for the taxable year 2001 and attached two Schedules C

to the Form 1040, U.S. Individual Income Tax Return.   Petitioner

reported his combined income from Critchfield, Thermal, and

Therma in the amount of $78,912 as gross receipts on a Schedule

C.   Petitioner listed the nature of the business as “steamfitting

and pipefitting” (Schedule C pipefitting).   The Schedule C listed

deductions as follows:

           Expenses                           Amount

           Advertising                         $653
           Bad debts from sales or service    1,953
           Car and truck expenses             3,012
           Commissions and fees               4,524
           Insurance (other than heath)       1,147
           Office expenses                    1,765
           Repairs and maintenance            1,336
           Supplies                           1,187
           Taxes and licenses                   611
           Travel                               407
           Meals and entertainment              171
           Utilities                          1,944
                  Total                      18,710

Petitioner also claimed a $3,602 deduction for business use of

home on the Schedule C.
                               - 6 -

     On a second Schedule C petitioner reported the income from

Matheson as $5,778 gross receipts.     The nature of the business

was listed as “Trucking - General Freight & Postal” (Schedule C

trucking).   Petitioner claimed deductions on this Schedule C as

follows:

           Expenses                             Amount

           Advertising                           $636
           Car and truck expenses               2,307
           Repairs and maintenance                475
           Taxes and licenses                     150
           Meals and entertainment                756
                  Total                         4,324

     The notice of deficiency determined that petitioner was not

entitled to the $22,312 expenses ($18,710 plus the $3,602 of home

office expenses), claimed on the Schedule C pipefitting.     No

adjustment was made with respect to the income, except that

respondent allowed petitioner a $299 self-employment tax

deduction.   Respondent made no adjustments to the Schedule C

trucking in the notice of deficiency.

     In an answer filed with the Court, respondent claims an

increased deficiency and seeks to correct adjustments from the

notice of deficiency.   Respondent claims that the gross receipts

reported on the two Schedules C should be treated as salary or

wages.   Consistent with this, respondent seeks to reverse the

$299 self-employment tax deduction previously allowed in the

notice of deficiency.   Finally, respondent claims that petitioner

is not entitled to the $4,324 Schedule C trucking expenses.
                                 - 7 -

                              Discussion

I.    Burden of Proof

       Generally, the burden of proof is on the taxpayer.     Rule

142(a)(1).     Under section 7491, the burden of proof shifts from

the taxpayer to the Commissioner if the taxpayer produces

credible evidence with respect to any factual issue relevant to

ascertaining the taxpayer’s liability.     Sec. 7491(a)(1).

However, where the Commissioner raises a new matter or claims an

increase in the deficiency, the burden of proof is on the

Commissioner.     Rule 142(a)(1); Achiro v. Commissioner, 77 T.C.

881, 889-890 (1981); Burris v. Commissioner, T.C. Memo. 2001-49;

Jamerson v. Commissioner, T.C. Memo. 1986-302.

       As to the adjustments set forth in the notice of deficiency,

petitioner has neither argued that the burden of proof should

shift nor satisfied the criteria that would cause the burden of

proof to shift.     Given the lack of documentation and information

provided by petitioner, we conclude that the burden of proof

remains with him as to all adjustments determined in the notice

of deficiency.     We further hold that the burden of proof is on

respondent with respect to the adjustments claimed in the answer

filed with the Court.

II.    Petitioner’s Employment Status

       A.   Income--Employee Versus Independent Contractor

       As indicated previously, this is a new issue first raised by

respondent in his answer, and accordingly the burden of proof is
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on respondent.   We must decide whether the income that petitioner

received was reportable as gross receipts on Schedules C, or

whether the amounts are reportable as wages or salary on Form

1040.

     The term “employee” is not defined in the Internal Revenue

Code for purposes of this income tax issue.   Under these

circumstances, we apply common law rules to determine whether an

individual is an employee.   Nationwide Mut. Ins. Co. v. Darden,

503 U.S. 318, 323-325 (1992); Weber v. Commissioner, 103 T.C.

378, 386 (1994), affd. 60 F.3d 1104 (4th Cir. 1995).   Whether an

individual is a common law employee is a question of fact.

Profl. & Executive Leasing, Inc. v. Commissioner, 862 F.2d 751,

753 (9th Cir. 1988), affg. 89 T.C. 225 (1987); Simpson v.

Commissioner, 64 T.C. 974, 984 (1975).   Among the relevant

factors in determining the nature of an employment relationship

are the following:   (1) The degree of control exercised by the

principal over the details of the work; (2) the taxpayer’s

investment in the facilities used in the work; (3) the taxpayer’s

opportunity for profit or loss; (4) the permanency of the

relationship between the parties; (5) the principal’s right of

discharge; (6) whether the work performed is an integral part of

the principal’s business; (7) what relationship the parties

believe they are creating; and (8) the provision of employee

benefits.   NLRB v. United Ins. Co., 390 U.S. 254, 258 (1968);
                                 - 9 -

Profl. & Executive Leasing, Inc. v. Commissioner, supra; Simpson

v. Commissioner, supra.    No one factor is determinative; rather,

all the incidents of the relationship must be assessed and

weighed.   NLRB v. United Ins. Co., supra.

     Upon a review of these factors, we conclude that petitioner

was an employee of each of the four principals for which he

performed services in 2001.

     We first look to the degree of control exercised by the

principals.    The principals controlled the manner in which

petitioner performed his work.    With respect to his work as a

pipefitter, petitioner was given specific jobs to do, and the

work was reviewed and inspected.    To retain the requisite control

over the details of an individual’s work, the employer need not

stand over the individual and direct every move made; it is

sufficient that the employer has the right to do so.    Weber v.

Commissioner, supra at 388.    We are satisfied that all four of

the principals possessed the requisite degree of control over

petitioner.    This factor supports a finding that petitioner was

an employee.

     We next consider the extent of petitioner’s investment in

the facilities used at work.    While petitioner used some of his

own tools, in the pipefitting activity, the large majority of

equipment was owned by the respective principals.    With respect

to the his work as a truck driver, there is no evidence that
                               - 10 -

petitioner had any investment in the trucking business.     The

trucks and equipment for delivery was owned by the principal.

Petitioner had no investment in any of the facilities where he

performed work.   This factor is strongly in favor of treating

petitioner as an employee.

     The next factor is opportunity for profit or loss.

Petitioner received pay based on the hours worked as a pipefitter

and was paid based on the routes driven as a truck driver.

Petitioner had no risk of loss.   Petitioner had no opportunity to

increase his profit.   This factor supports a finding that

petitioner was an employee.

     The next factor is the permanency of the relationship.

During the tax year 2001 petitioner worked for four different

principals.   It does not appear that any of these relationships

had any permanency.    This factor would support a finding in favor

of petitioner’s being treated as an independent contractor.

     We next consider the principal’s right to discharge.    It is

clear that petitioner could be discharged by any of the

principals involved.   The respective principals had total control

of the decision to terminate employment.   This factor strongly

supports a finding that petitioner was an employee.

     The next factor is whether petitioner was an integral part

of the business of the principal.   Petitioner performed

pipefitting work for principals that provided these services and
                                - 11 -

drove a truck for a delivery company.     It seems clear that

petitioner’s services were an integral part of the business of

the respective principals.     This factor supports the finding that

petitioner was an employee.

      The next factor is the relationship the parties believe they

created.    Each of the principals treated petitioner as an

employee.    Petitioner was issued a Form W-2 by each principal,

and   there was withholding from petitioner’s paycheck.    See Azad

v, United States, 388 F.2d 74, 78 (8th Cir. 1968); Weber v.

Commissioner, supra at 392.     This factor supports a finding that

petitioner was an employee.

      The final factor is employee benefits.    There is nothing in

this record as to any employee benefits paid by any of the

principals.     This factor is neutral.

      Considering all the factors, we conclude that petitioner was

a common law employee, and accordingly gross income from the four

employers involved should have been reported as salary or wages

on Form 1040 and not gross receipts on Schedules C.     Further,

petitioner is not subject to self-employment tax as determined in

the notice of deficiency.

      B.    Expenses

      Based on our conclusions above, it is clear that any expense

deductions claimed, if allowable, should be deducted as Schedule

A, Miscellaneous Itemized Deductions.
                               - 12 -

     Section 162(a) permits a deduction for the ordinary and

necessary expenses paid or incurred during the taxable year in

carrying on a trade or business.   The performance of services as

an employee constitutes a trade or business.   See sec. 1.162-

17(a), Income Tax Regs.   There must be a relationship between the

expenditures and the employment.   See Evans v. Commissioner, T.C.

Memo. 1974-267, affd. in part, revd. in part 557 F.2d 1095 (5th

Cir. 1977).    Expenses that are personal in nature are generally

not allowed as deductions.   Sec. 262(a).   A taxpayer is required

to maintain records sufficient to establish the amount of his

income and deductions.    Sec. 6001; sec. 1.6001-1(a), (e), Income

Tax Regs.   A taxpayer must substantiate his deductions by

maintaining sufficient books and records to be entitled to a

deduction under section 162(a).    When a taxpayer establishes that

he has incurred a deductible expense but is unable to

substantiate the exact amount, we are generally permitted to

estimate the deductible amount.    Cohan v. Commissioner, 39 F.2d

540, 543-544 (2d Cir. 1930).    We can estimate the amount of the

deductible expense only when the taxpayer provides evidence

sufficient to establish a rational basis upon which the estimate

can be made.    Vanicek v. Commissioner, 85 T.C. 731, 743 (1985).

     Section 274(d) supersedes the general rule of Cohan v.

Commissioner, supra, and prohibits the Court from estimating the

taxpayer’s expenses with respect to certain items.    Sanford v.
                              - 13 -

Commissioner, 50 T.C. 823, 827 (1968), affd. per curiam 412 F.2d

201 (2d Cir. 1969).   Section 274(d) imposes strict substantiation

requirements for listed property as defined in section

280F(d)(4), gifts, travel, entertainment, and meal expenses.

Sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014

(Nov. 6, 1985).   To obtain a deduction for a listed property,

travel, meal, or entertainment expense, a taxpayer must

substantiate by adequate records or sufficient evidence to

corroborate the taxpayer’s own testimony the amount of the

expense, the time and place of the use, the business purpose of

the use, and, in the case of entertainment, the business

relationship to the taxpayer of each person entertained.   Sec.

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

Reg. 46014 (Nov. 6, 1985).   Section 274 requires that expenses be

recorded at or near the time when the expense is incurred.     Sec.

1.274-5T(c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46016

(Nov. 6, 1985).   Listed property includes passenger automobiles.

Sec. 280F(d)(4)(A)(i).

     We first consider the claimed expenses relating to

petitioner’s employment as a pipefitter.   Petitioner presented no

documents to support the claimed business expense deductions.     To

the extent that some of the claimed deductions are subject to the

strict substantiation requirements of section 274(d), it is clear

that petitioner is not entitled to said deductions.   We now
                                - 14 -

consider some of the other expenses.      Petitioner testified that

the $1,953 bad debt expense claimed related to interest paid on

personal debt that he incurred while out of work.      It is clear

that such interest expense would not be deductible.      Sec. 163(h).

Petitioner testified that the claimed insurance expense related

to his privately owned automobile.       Petitioner did not establish

that any deductions relating to the use of his privately owned

automobile are deductible.   Petitioner also claimed a deduction

for business use of his home.    Petitioner provided some minimal

information as to activities that took place in a room in his

house, but he did not establish that these expenditures

constitute an ordinary and necessary expense in relationship to

his activity as a pipefitter.    Petitioner did not present any

documents or explanations as to other expense deductions claimed.

Based on the above analysis petitioner is not entitled to any of

the deductions claimed on his Schedule C pipefitting.

     The claimed deductions on petitioner’s Schedule C trucking

present a different issue.   As indicated, respondent has the

burden of proof to establish that the claimed deductions do not

relate to petitioner’s trucking activity and are not properly

deductible as miscellaneous itemized deductions.      Respondent

presented no evidence or argument in this regard.      Accordingly we

hold for petitioner on this issue.
                                - 15 -

III.    Section 6662(a) Accuracy-Related Penalty

       The final issue for decision is whether petitioner is liable

for an accuracy-related penalty under section 6662(a) for the

year in issue.

       Section 6662(a) imposes a penalty equal to 20 percent of any

underpayment of tax that is attributable to either negligence or

disregard of rules or regulations, or a substantial

understatement of income tax.    See sec. 6662(a) and (b)(1) and

(2).

       The term “negligence” includes any failure to make a

reasonable attempt to comply with the provisions of the internal

revenue laws.    Sec. 6662(c); sec. 1.6662-3(b)(1), Income Tax

Regs.    The term “disregard” includes any careless, reckless, or

intentional disregard.    Sec. 6662(c); sec. 1.6662-3(b)(2), Income

Tax Regs.

       An understatement of income tax is “substantial” if it

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

on the return, or $5,000.    Sec. 6662(d)(1)(A).   An

“understatement” is defined as the excess of the tax required to

be shown on the return over the tax actually shown on the return.

Sec. 6662(d)(2)(A).

       Whether the accuracy-related penalty is applied because of

negligence or disregard of rules or regulations, or a substantial

understatement of tax, section 6664 provides an exception to
                                - 16 -

imposition of the accuracy-related penalty if the taxpayer

establishes that there was reasonable cause for the

understatement and that the taxpayer acted in good faith with

respect to that portion.    Sec. 6664(c)(1); sec. 1.6664-4(b),

Income Tax Regs.; see United States v. Boyle, 469 U.S. 241, 242

(1985).   Although not defined in the Code, “reasonable cause” is

viewed in the applicable regulations as the “exercise of ordinary

business care and prudence”.    Sec. 301.6651-1(c)(1), Proced. &

Admin. Regs.; see United States v. Boyle, supra at 246.      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, including reliance on the advice of a tax return

preparer.   Id.

     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.     Rule 142(a); see Higbee v. Commissioner, supra.
                               - 17 -

As a defense to the penalty, petitioner bears the burden of

proving that he acted with reasonable cause and in good faith.

See sec. 6664(c)(1); see also Higbee v. Commissioner, supra; sec.

1.6664-4(b)(1), Income Tax Regs.

     Respondent satisfied his burden of production under section

7491(a)(1) because the record shows that petitioner substantially

understated his income tax for the year in issue.         See sec.

6662(d)(1)(A)(ii); Higbee v. Commissioner, supra at 442.

Accordingly, petitioner bears the burden of proving that the

accuracy-related penalty should not be imposed with respect to

any portion of the understatement for which he acted with

reasonable cause and in good faith.     See sec. 6664(c)(1); Higbee

v. Commissioner, supra at 446.

     A review of this record reflects that petitioner claimed

substantial deductions for which he apparently maintained no

records.    Further, some of the claimed deductions, like bad

debts, which petitioner testified was personal interest, are

clearly nondeductible personal items.     Based on this entire

record, we conclude that petitioner is liable for the penalty

under section 6662(a).

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,


                                             Decision will be entered

                                        under Rule 155.
