                  T.C. Summary Opinion 2001-134



                     UNITED STATES TAX COURT



                  INEZ T. MORIN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6078-00S.           Filed September 4, 2001.



     Inez T. Morin, pro se.

     Ric Hulshoff and Jordan Musen, 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.    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 Revenue Code in
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effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.

     Respondent determined a deficiency of $28,449 in

petitioner's Federal income tax for the year 1996, and an

addition to tax under section 6651(a)(1) of $5,805.04.

     We must decide:   (1) Whether petitioner is entitled to

deduct Schedule C expenses in amounts greater than respondent has

determined; (2) whether petitioner has additional self-employment

income; and (3) whether petitioner is liable for an addition to

tax under section 6651(a)(1).

     Petitioner failed to substantiate her deductions on audit.

She failed to stipulate matters with respondent before trial.    At

trial, she refused to stipulate matters which she said were

correct.   The Court took a long recess for stipulation purposes.

Although respondent was willing to concede a number of items in

petitioner’s favor, she still refused to stipulate.   Finally,

only after the intervention of the Court, did petitioner

stipulate in part.

     To the limited extent stipulated, the facts are so found.

Petitioner resided in Sylmar, California, at the time her

petition was filed.

     Petitioner reported $9,240 as other income from services as

a notary public.   On her Schedule C, Profit or Loss From

Business, for “Morin Business Services” (MBS), petitioner
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deducted $59,323 in total expenses from $82,528 of gross receipts

for a net profit of $23,205.   On her first Schedule C, petitioner

described MBS as an accounting, bookkeeping, and income tax

business.   On her second Schedule C for “A Joyful Wedding”, which

was described as minister services, petitioner deducted $12,871

of total expenses from $13,600 of gross receipts for a net profit

of $729.

     Respondent disallowed $59,323 of deductions for the first

Schedule C and $12,871 for the second Schedule C because

petitioner did not establish that the business expenses shown on

her return were paid or incurred during the taxable year and that

the expenses were ordinary and necessary to her businesses.     At

trial, respondent conceded that petitioner was engaged in two

businesses.   Respondent in the notice of deficiency determined

that the $9,240 amount reported as other income for notary public

services was gross receipts of MBS and was subject to self-

employment tax.   The notice of deficiency attributed another

$3,600 of income to gross receipts of MBS, but respondent

conceded this amount at trial.

     Deductions are strictly a matter of legislative grace.

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New

Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).

Taxpayers must substantiate claimed deductions.   Hradesky v.

Commissioner, 65 T.C. 87, 89 (1975), affd. per curiam 540 F.2d
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821 (5th Cir. 1976).   Moreover, taxpayers must keep sufficient

records to establish the amounts of the deductions.     Meneguzzo v.

Commissioner, 43 T.C. 824, 831 (1965); sec. 1.6001-1(a), Income

Tax Regs.   Section 7491 does not change a taxpayer’s obligation

to substantiate deductions.   Higbee v. Commissioner, 116 T.C. 438

(2001).

     Generally, except as otherwise provided by section 274(d),

when evidence shows that a taxpayer incurred a deductible

expense, but the exact amount cannot be determined, the Court may

approximate the amount bearing heavily if it chooses against the

taxpayer whose inexactitude is of his own making.     Cohan v.

Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930).    The Court,

however, must have some basis upon which an estimate can be made.

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

     Section 274(d) imposes stringent substantiation requirements

for the deduction of travel expenses, automobile expenses, and

entertainment expenses.   Taxpayers must substantiate by adequate

records certain items in order to claim deductions, such as the

amount and place of each separate expenditure, the 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), Temporary Income Tax Regs., 50 Fed. Reg. 46014

(Nov. 6, 1985).   To substantiate a deduction by means of adequate

records, a taxpayer must maintain an account, book, diary, log,
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statement of expense, trip sheet, 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).   Travel,

automobile, and entertainment expenses cannot be estimated under

Cohan.   Sanford v. Commissioner, 50 T.C. 823, 827-828 (1968),

affd. per curiam 412 F.2d 201 (2d Cir. 1969).

     Petitioner did not have any books or records.   She did not

have a diary, a log, or trip sheets relating to her travel.    At

trial, petitioner had little evidence to support many of her

claimed deductions.   Many expenses appeared to be personal

expenses nondeductible under section 262.   Petitioner provided

some substantiation for business expense deductions and

respondent conceded that she was entitled to most of those

deductions.

     Petitioner was asked whether she could provide for MBS:

“Any kind of books or records that might show that [she] had any

reason to travel that year”.   Petitioner’s answer was:   “Not with

me, no.”   Petitioner failed to comply with the strict

substantiation rules of section 274(a) and is not entitled to

deduct any travel, meals, and entertainment expenses.     As to the

claimed $2,378 bad debt deduction for MBS, petitioner said:    “I

mean, it’s not worth the headache to point out all the returned

checks, and matching it [sic] to my deposits” so she conceded
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this issue.    Respondent, after reviewing the material petitioner

belatedly provided, made substantial concessions.   This should

prove to petitioner that a wiser course than the one she followed

in this case would be to provide respondent with information when

it is requested.

     The Court has reviewed the evidence and finds some instances

in which we allow petitioner additional deductions under the

Cohan rule, keeping in mind the admonition that we bear heavily

against petitioner whose inexactitude is of her own making and

the concept that we must have some basis upon which an estimate

can be made.   The rounded amounts of respondent’s concessions,

the Court’s additional allowances, and the total allowed are set

forth below for MBS:

                    Deductions    Respondent   Additional      Total
Expenses             Claimed       Conceded    Allowances     Allowed

Advertising             $852        $607                       $607
Bad Debts              2,378                                      0
Car and Truck          3,345                                      0
Depreciation           2,896                                      0
Legal                     99         115                        115
Office                 3,516                    $764            764
Business property      8,100       6,700                      6,700
Repairs                  188                                      0
Taxes/licenses         1,274                     879            879
Travels/meals            310                                      0
Utilities              1,556                     454            454
Wages                 11,212      11,212                     11,212
Other Expenses        23,597                      731           731
                     $59,323                                $21,462

Accordingly, we find that petitioner is entitled to deduct a

total of $21,462 of expenses for MBS.
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     On her second Schedule C for her Joyful Wedding business,

petitioner deducted a total of $12,871 in expenses.     The amounts

claimed and the rounded amounts respondent conceded are set forth

below:

                         Deductions              Respondent
     Expenses              Claimed                 Conceded

     Advertising            $3,725                  $3,508
     Bad debts                  75
     Office                    406                     438
     Bank charges              194                     113
     Licenses                7,996                   7,320
     Misc.                     267                      75
     Telephone                 208                       -
                           $12,871                 $11,454

Petitioner did not have any other credible evidence.     We find

that she is entitled to deduct $11,454 of expenses for the Joyful

Wedding business.

     Petitioner reported $9,240 as other income from notary

public services.    Respondent determined that the $9,240 was part

of petitioner’s gross receipts for MBS and that it was subject to

self-employment tax.   Income from services as a notary public is

not subject to the self-employment tax.     Sec. 1402(c); sec.

1.1402(c)-2(b), Income Tax Regs.     However, petitioner had no

records of a notary public business or any other evidence to show

she was entitled to exclude $9,240 from self-employment income.

When asked about her notary records, petitioner stated:       “It’s

just a lot of paperwork.    I didn’t bring that.   I didn’t bring

the details”.   She did have a notary seal.    Accordingly, we allow
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her to exclude $100 from self-employment income as income from

services as a notary public.    The remaining $9,140 is subject to

self-employment tax under section 1401.      Petitioner is entitled

to the corresponding deduction under section 164(f) on all self-

employment tax imposed by section 1401.

     Section 6651(a)(1) imposes an addition to tax for failure to

file a return on time.   The addition equals 5 percent for each

month that the return is late, not to exceed 25 percent.

Additions to tax under section 6651(a)(1) are imposed unless the

taxpayer establishes that the failure was due to reasonable cause

and not willful neglect.   Section 7491(c) does not change the

taxpayer’s burden of proof in this respect.       Higbee v.

Commissioner, 116 T.C. 438 (2001).       “Reasonable cause” requires a

taxpayer to demonstrate that she exercised ordinary business care

and prudence.   United States v. Boyle, 469 U.S. 241, 246 (1985).

Willful neglect is defined as a “conscious, intentional failure

or reckless indifference.”     Id. at 245.

     Petitioner’s return was untimely filed on July 21, 1997,

even though it bore a signature date of April 13, 1997.

Petitioner did not show reasonable cause why the return was not

timely filed.   A comparison of the signature date and the filing

date leads to the conclusion that the late filing was due to

willful neglect.   We conclude that petitioner is liable for an
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addition to tax under section 6651(a)(1) for failure to timely

file her 1996 return.

     Contentions that we have not addressed are moot, irrelevant,

or meritless.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,



                                              Decision will be entered

                                         under Rule 155.
