                     T.C. Summary Opinion 2008-15



                        UNITED STATES TAX COURT



THEODORE L. SIZELOVE, SR. AND ELAINE J. SIZELOVE, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 21996-06S.               Filed February 11, 2008.



        Theodore L. Sizelove, Sr., and Elaine J. Sizelove, pro sese.

        Kelley A. Blaine, for respondent.



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

the provisions of section 7463 of the Internal Revenue Code in

effect when the petition was filed.    Pursuant to section 7463(b),

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

and this opinion shall not be treated as precedent for any other

case.     Unless otherwise indicated, subsequent section references

are to the Internal Revenue Code in effect for the year in issue,
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and all Rule references are to the Tax Court Rules of Practice

and Procedure.

     Respondent determined a $1,813 deficiency in petitioners’

2004 Federal income tax.   The issues for decision are whether

petitioners are entitled to claim:     (1) A bad debt deduction for

a “loan” they provided to their son; (2) a deduction for medical

and dental expenses; (3) a deduction for the business use of

their home that is attributable to the operation of a nonprofit

activity; and (4) a miscellaneous itemized deduction for vehicle

expenses incurred in the operation of a nonprofit activity and in

Mr. Sizelove’s employment.

                             Background

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the exhibits received into evidence

are incorporated herein by reference.     At the time the petition

was filed, petitioners resided in California.

     On their timely filed 2004 joint Form 1040, U.S. Individual

Income Tax Return, petitioners claimed a $10,000 bad debt

deduction for a “loan” made to their son and his new wife during

2004 and an $8,460.38 deduction for medical and dental expenses

(before application of the 7.5-percent floor).    Petitioners

substantiated $2,551 in medical expenses, consisting of payments

to Medicare and their health insurance provider, Teamsters

Benefit Trust.
                               - 3 -

     During 2004, Mr. Sizelove was employed as a liquor store

clerk and served as the president of a nonprofit social

organization from which he derived no salary.   Petitioners

claimed a $1,200 deduction (based on $100 per month) for the

business use of their home.   Mr. Sizelove used a second bedroom

as a home office for the club and to store its artifacts and

records.

     Additionally, petitioners claimed a $4,441.15 deduction for

vehicle expenses attributable to the club and Mr. Sizelove’s

employment with the liquor store.   The $4,441.15 figure consists

of $2,619.43 in actual vehicle expenses based on a 38-percent

“percentage of business use” and a $1,821.72 depreciation

deduction.   The $2,619.43 in actual vehicle expenses includes 38

percent of the $2,099.24 claimed as expenditures for gas,

repairs, and insurance1 plus $1,821.72 in depreciation.

Petitioners claimed the same depreciation deduction twice.




     1
       Petitioners listed the following expenditures on an
attachment to their Form 2106, Employee Business Expenses:

           Gas $75 per month x 12          $900.00
           Repairs per year                 587.24
           Insurance per year               612.00
             Total                        2,099.24
                               - 4 -

                             Discussion

1.   Burden of Proof

      The Commissioner’s determinations in a notice of deficiency

are presumed correct, and the taxpayer has the burden to prove

that the determinations are in error.     Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933).      But the burden of proof on

factual issues that affect a taxpayer’s tax liability may be

shifted to the Commissioner where the “taxpayer introduces

credible evidence with respect to * * * such issue.”     Sec.

7491(a)(1).   The burden will shift only if the taxpayer has

complied with the substantiation requirements and has cooperated

with the Commissioner’s reasonable requests for witnesses,

information, documents, meetings, and interviews.     Sec.

7491(a)(2).   And the taxpayer must keep records sufficient to

establish the amount of the items required to be shown on his

Federal income tax return.   See sec. 6001; sec. 1.6001-1(a), (e),

Income Tax Regs.

      Petitioners have not alleged or proven that section 7491(a)

applies; accordingly, the burden remains on petitioners to show

that they are entitled to the deductions.     See INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992) (stating that deductions are

strictly a matter of legislative grace, and taxpayers bear the

burden of proving that they are entitled to claim the deduction).
                                - 5 -

2.   Bad Debt Deduction

       Section 166 allows an individual a deduction from ordinary

income for any business debt that becomes wholly or partially

worthless during the taxable year.      See sec. 166(a), (d)(1)(A).

To deduct a business bad debt, the taxpayer must establish, among

other requirements, that he was engaged in a trade or business,

and the acquisition or worthlessness of the debt was proximately

related to the conduct of the trade or business.      United States

v. Generes, 405 U.S. 93 (1972); sec. 1.166-5(b)(2), Income Tax

Regs.    For a debt to be considered a business debt, it must have

a proximate relation to the taxpayer’s trade or business.        United

States v. Generes, supra at 96.    In determining whether a

proximate relationship exists, the proper measure is the

taxpayer’s dominant motivation for incurring the debt.      Id. at

103.

       The term “nonbusiness debt” is defined as a debt other than

a debt created or acquired in connection with the taxpayer’s

trade or business or a loss from the worthlessness of a debt that

is incurred in the taxpayer’s trade or business.      See sec.

166(d)(2).    The loss from a nonbusiness bad debt that becomes

wholly worthless within the year is treated as a loss arising

from the sale or exchange of a capital asset held for less than 1

year and is deductible subject to certain limitations.     See sec.

166(d)(1); sec. 1.166-5(a)(2), Income Tax Regs.
                                 - 6 -

     Only a bona fide debt qualifies for the bad debt deduction.

Sec. 1.166-1(c), Income Tax Regs.    A bona fide debt is one that

arises from a debtor-creditor relationship based upon a valid,

enforceable obligation to pay a fixed or determinable sum of

money.   Id.; see also Estate of Van Anda v. Commissioner, 12 T.C.

1158, 1162 (1949), affd. 192 F.2d 391 (2d Cir. 1951).   Factors

indicative of a bona fide debt include whether:   (1) Evidence of

indebtedness exists; i.e., a note; (2) any security is requested;

(3) there has been a demand for repayment; (4) the parties’

records reflect the transaction as a loan; (5) any payments have

been made; and (6) any interest was charged.

     A gift is not considered a debt for purposes of section 166.

Sec. 1.166-1(c), Income Tax Regs.; see also Calumet Indus., Inc.

v. Commissioner, 95 T.C. 257, 285 (1990).    Purported “loans”

between family members are subject to rigid scrutiny and are

presumed to be gifts.   Estate of Van Anda v. Commissioner, supra

at 1162.   The presumption may be rebutted by proving that at the

time of the transaction there existed a real expectation of

repayment and an intent to enforce collection of the “debt”.     See

id. (and cases cited thereat).

     In a letter attached to petitioners’ joint return, Mr.

Sizelove stated that he lent $10,000 to help his son and his new

wife, he did not expect to recover this $10,000 “Gift” nor the
                                - 7 -

$10,000 “Gift” in 2003, and therefore, he was deducting it as a

“Non-Recoverable Loan or Bad Debt.”

      At trial, Mrs. Sizelove testified:    “it wasn’t a gift, it

was a loan.    And if he ever comes into money, we will get that

money back.”    She also claimed to have received a promissory note

containing provisions for interest and a sum certain; however,

the note was not introduced into evidence or shown to respondent

before trial.

      Petitioners have not proven that the $10,000 “loan” to their

son was a bona fide debt.    Petitioners have not shown that the

loan was proximately related to the conduct of a trade or

business.   Petitioners have not shown that the loan became wholly

or partially worthless during the taxable year.     Therefore,

respondent’s determination denying petitioners’ $10,000 deduction

for a bad debt is sustained.

3.   Deduction for Medical and Dental Expenses

      Petitioners claim to have incurred $8,460.38 in medical and

dental expenses in 2004 before subtracting 7.5 percent of their

adjusted gross income (AGI).

      Respondent concedes that petitioners have substantiated

$2,551 in medical and dental expenses.     Respondent contends,

however, that petitioners are not entitled to a $2,551 deduction

for medical and dental expenses because the amount does not

exceed the 7.5-percent floor.
                               - 8 -

     Section 213(a) allows a deduction for medical and dental

expenses paid during the year that are not compensated for by

insurance or otherwise but only to the extent that the expenses

exceed a floor of 7.5 percent of AGI.

     To substantiate medical and dental expenses, the taxpayer

must furnish the name and address of each payee, the amount, and

the date paid.   See sec. 1.213-1(h), Income Tax Regs.; see also

Davis v. Commissioner, T.C. Memo. 2006-272.    If requested by the

Commissioner, the taxpayer must furnish an itemized invoice from

the payee that identifies the patient, the type of service

rendered, the specific purpose of the expense, the amount paid,

the date paid, and any other information the Commissioner deems

necessary.   See sec. 1.213-1(h), Income Tax Regs.; see also Davis

v. Commissioner, supra; Cotton v. Commissioner, T.C. Memo.

2000-333.

     If a taxpayer establishes that deductible expenses were

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

estimate the amounts allowable in some circumstances (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
                                - 9 -

the Commissioner’s determination denying the deduction for

medical and dental expenses.    See Davis v. Commissioner, supra

(citing Hunter v. Commissioner, T.C. Memo. 2000-249, and

Nwachukwu v. Commissioner, T.C. Memo. 2000-27).

     Mrs. Sizelove testified that petitioners had other medical

and dental expenses, but she did not know why she failed to

provide evidence of the expenditures to respondent.     Mrs.

Sizelove also testified that they “guesstimated” their medical

and dental expenses for the year using recurring expenditures

(i.e., amounts of copayments and medical supplies for her

diabetic husband).

     Petitioners failed to provide any evidence showing that they

actually made payments of $5,909.38 for medical and dental

expenses in 2004.    See sec. 213(a).   Petitioners also have not

provided documentation that satisfies the additional requirements

imposed by section 1.213-1(h), Income Tax Regs.     See Davis v.

Commissioner, supra; Cotton v. Commissioner, supra.     Finally,

petitioners failed to provide sufficient evidence as to their

recurring expenditures, i.e., amounts of copayments and supplies,

for the Court to make a reasonable estimate.     See Vanicek v.

Commissioner, supra.    The Court finds that petitioners have not

substantiated the $5,909.38 in medical and dental expenses that

respondent has not conceded.
                                 - 10 -

      In order to have a deductible amount, petitioners must show

medical and dental expenses exceeding $6,191.18 ($82,549 (AGI) x

7.5 percent).2   The $2,551 in medical and dental expenses that

respondent has conceded does not exceed the 7.5-percent floor.

      Accordingly respondent’s determination denying petitioners’

deduction for medical and dental expenses is sustained.

4.   Deduction for the Business Use of the Home

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

deductible only in very limited circumstances.    The taxpayer must

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

regular basis as his principal place of business for any trade or

business of the taxpayer; and in the case of an employee, the

exclusive use must be for the employer’s convenience.    See sec.

280A(c)(1).   If the taxpayer uses the dwelling unit as a

residence, the deduction is limited to the excess of the gross

income derived from such business use over the sum of certain

deductions.   Sec. 280A(c)(5).

      It is well established that an individual may be in the

trade or business of being an employee and that ordinary and

necessary expenses incurred in a trade or business are

deductible.   See sec. 162(a); Primuth v. Commissioner, 54 T.C.

374 (1970); Christensen v. Commissioner, 17 T.C. 1456 (1952).



      2
        Petitioners reported AGI of $82,548.94, and respondent
rounded it to the nearest dollar; i.e., $82,549.
                              - 11 -

But it is also well established that a genuine profit motive must

exist before an activity constitutes a trade or business.     See

Brydia v. Commissioner, 450 F.2d 954 (3d Cir. 1971), affg. per

curiam T.C. Memo. 1970-147; Hirsch v. Commissioner, 315 F.2d 731

(9th Cir. 1963), affg. T.C. Memo. 1961-256; Kurkjian v.

Commissioner, 65 T.C. 862, 869 (1976).

     On an attachment to petitioners’ return, Mr. Sizelove stated

that he was the president of a nonprofit social organization, he

derived no salary from it, and he used a second bedroom as a home

office and to store the club’s artifacts and records.

     Mrs. Sizelove testified that Mr. Sizelove never received

compensation from the club.

     Mr. Sizelove was not compensated by the club, and

petitioners did not establish that he expected to derive a profit

in his capacity as the club’s president.   Therefore, the Court

finds that Mr. Sizelove was not engaged in the trade or business

of being an employee of the club.   See Kurkjian v. Commissioner,

supra at 869 (stating that when services are rendered

gratuitously and are motivated by personal and charitable

impulses, the individual is not in the trade or business of being

an employee of the charitable organization).   Accordingly,

petitioners are not entitled to a deduction for the business use

of their home since Mr. Sizelove failed to show that a portion of

his residence was exclusively used on a regular basis as his
                               - 12 -

principal place of business for his trade or business.3    See sec.

280A(c)(1)(A).

5.   Vehicle Expenses as Employee Business Expenses

      Pursuant to section 274(d), the Court cannot estimate a

taxpayer’s expenses with respect to certain items.     See Sanford

v. Commissioner, 50 T.C. 823, 827 (1968), affd. per curiam 412

F.2d 201 (2d Cir. 1969).   Section 274(d) provides that no

deduction is allowable with respect to “listed property” unless

the taxpayer complies with certain strict substantiation

requirements.    The term “listed property” is defined to include

passenger automobiles and other property used as a means of

transportation.   Sec. 280F(d)(4)(A)(i) and (ii).

      In order to substantiate the amount of an automobile

expense, the taxpayer must prove the following:     (1) The amount

of the expenditure (i.e., cost of maintenance, repairs, or other

expenditures); (2) the amount of each business use and the amount

of its total use by establishing the amount of its business

mileage and total mileage; (3) time (i.e., the date of the

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

expenditure or use.   See sec. 1.274-5T(b)(6)(i) through (iii),

Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).


      3
        Even if the Court were to find that Mr. Sizelove’s tenure
as the club’s president constituted a trade or business, the
deduction would be limited by sec. 280A(c)(5) to $0. See Cousino
v. Commissioner, T.C. Memo. 1981-19, affd. 679 F.2d 604 (6th Cir.
1982).
                               - 13 -

The taxpayer may substantiate the amount of mileage by adequate

records or sufficient evidence that corroborates his statements.

See sec. 274(d).   A record of the mileage made at or near the

time of the automobile’s use that is supported by documentary

evidence has a high degree of credibility not present with a

subsequently prepared statement.    See sec. 1.274-5T(c)(1) through

(3), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6,

1985).    If the amount is not substantiated by adequate records or

sufficient corroborative evidence, then it is disallowed.    Sec.

274(d).

     Petitioners did not submit any evidence to substantiate the

amounts of the expenditures or business mileage.    At trial, Mrs.

Sizelove testified that respondent “brought to my attention that

we deducted the depreciation [twice, which Mr. Sizelove

guesstimated, and] the only thing I can say is * * * we did

everything honest and above-board”.

     Because the Court has determined that Mr. Sizelove was not

an employee of the club, it follows that petitioners are not

entitled to a deduction for the portion of the vehicle expenses

attributable to the club.    As to the portion of the vehicle

expenses related to Mr. Sizelove’s employment at the liquor

store, petitioners did not provide any evidence that satisfies

the strict substantiation requirements of section 274(d), and

therefore, they are not entitled to deduct it.    Accordingly,
                                - 14 -

respondent’s determinations denying the deduction for vehicle

expenses with respect to both activities are sustained.

6.   Charitable Contributions

      Although the issue was not raised by the parties, the Court

has considered the possibility that the deduction for the

business use of petitioners’ home and the vehicle expenses

attributable to the nonprofit activity might be deductible as

charitable contributions.

      Taxpayers are allowed a deduction for any “charitable

contribution * * * payment of which is made within the taxable

year” subject to certain limitations.    See sec. 170(a)(1).    A

charitable contribution includes a contribution or gift to or for

the use of an organization described in section 170(c) (a

qualified recipient).   A deduction for the “contribution” of

services is not allowed, but unreimbursed expenditures made

incident to the rendition of services, i.e., transportation

expenses, may be deductible as a charitable contribution.      See

sec. 1.170A-1(g), Income Tax Regs.

      It is not clear from the record whether the club is a

qualified recipient.4   Assuming that the club is a qualified

recipient, the expenditures nevertheless are not deductible as a

charitable contribution.    Petitioners cannot deduct the $100 per



      4
        Respondent represents that the “activity appears to
involve holding fundraisers for college-bound youth.”
                               - 15 -

month for the portion of the rent attributable to the second

bedroom since the “contribution” consists of less than

petitioners’ entire interest in the property.    See sec.

170(f)(3); sec. 1.170A-7(a)(1), Income Tax Regs.; Logan v.

Commissioner, T.C. Memo. 1994-445 (classifying the donee’s “rent-

free” use of the taxpayer’s real property (a garage) as a mere

right to use property and disallowing a deduction for its fair

rental value as a charitable contribution under section

170(f)(3)).    Petitioners cannot deduct as a charitable

contribution the expenses for utilities connected with their

residence that are attributable to the club since the

expenditures were not properly substantiated.5    See sec. 6001;

sec. 1.170A-13(b), Income Tax Regs.; cf. Stussy v. Commissioner,

T.C. Memo. 2003-232.    Petitioners cannot deduct the portion of

the $75 per month for the gas connected with Mr. Sizelove’s

vehicle that is attributable to the nonprofit activity as a

charitable contribution because the expenditures were not

substantiated.    See sec. 6001; sec. 1.170A-13(b), Income Tax

Regs.    The portion of the vehicle expenses attributable to the

nonprofit activity for depreciation, repairs, and auto insurance

is not deductible as a charitable contribution.    See Orr v.



     5
        On the attachment to their return, Mr. Sizelove stated
that the $100 per month included utilities. No documentation was
provided to substantiate the amounts actually expended for
utilities.
                              - 16 -

United States, 343 F.2d 553 (5th Cir. 1965) (disallowing

deductions for depreciation as charitable contributions since

depreciation does not constitute a payment, for repairs on

account of the failure to show that the charitable use of the

vehicle caused the repairs and it was used for both charitable

and other purposes, and for insurance premiums since the taxpayer

failed to show that the donee was the sole beneficiary of the

policy).   Petitioners may not otherwise claim a deduction for

mileage under section 170(i) since there is no evidence as to the

amount of the mileage they accumulated in their charitable

endeavors.

     To reflect the foregoing,


                                      Decision will be entered for

                                 respondent.
