                  T.C. Summary Opinion 2004-63



                     UNITED STATES TAX COURT



          SHAWN M. AND DEBRA E. SWAGLER, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 17724-02S.           Filed May 14, 2004.


     Shawn M. and Debra E. Swagler, pro sese.

     Sean R. Gannon, for respondent.



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

the provisions of section 7463 of the Internal Revenue Code in

effect at the time that the petition was filed.   Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code in effect for the year in issue.    The decision to be

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

should not be cited as authority.
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     Respondent determined for 1998 a deficiency in petitioners'

Federal income tax of $2,279.

     The issues for decision are:   (1) Whether petitioners are

entitled to deductions on Schedule A, Itemized Deductions, in

excess of those allowed by respondent; and (2) whether

petitioners are entitled to deductions on Schedule E,

Supplemental Income and Loss, in excess of those allowed by

respondent.

     The stipulated facts and exhibits received into evidence are

incorporated herein by reference.   At the time the petition in

this case was filed, petitioners resided in Chicago, Illinois.

                            Background

     During 1998, Mr. Swagler was employed as a fireman by the

Village of Oak Brook.   Mr. Swagler was also employed elsewhere as

a carpenter and performed services for several organizations that

provided carpentry services for various exhibit halls.    Mrs.

Swagler was employed as an office manager with Anthony Valentino

Salon for Hair, Inc.

     During 1998, petitioners also owned two rental properties in

Chicago, Illinois, one located at 5740 N. McVicker Avenue, and

the other located at 5466 Gettysburg.

     Petitioners' Individual Income Tax Return for 1998

     On April 15, 1999, petitioners jointly filed with the

Internal Revenue Service a Form 1040, U.S. Individual Income Tax
                              - 3 -

Return for tax year 1998.1   Attached to the return were various

schedules including Schedule A and Schedule E.

     The Form 1040 was prepared by Joseph House.    In his

preparation of the return, Mr. House used books and records,

schedules, and worksheets petitioners had prepared and some

information they conveyed to him orally.   Petitioners gave Mr.

House actual receipts only for substantial expenditures, such as

the purchase and installation of a furnace.   They did not give

him receipts for charitable gifts.

     Respondent issued a statutory notice of deficiency to

petitioners in which he disallowed certain deductions claimed on

the Schedules A and E for lack of substantiation.

1.   Schedule A Itemized Deductions

     a.   Unreimbursed Employee Expenses

     On their Schedule A, petitioners reported unreimbursed

employee expenses in the amount of $6,232.    Petitioners claimed

$4,238 of this amount was incurred by Mr. Swagler during his

employment as a fireman with the Village of Oak Brook, and

itemized on Form 2106, Employee Business Expenses, were the

following:




     1
      The names shown on the 1998 Form 1040 are Shawn M. Swagler
and Debra E. Fitzsimmons. The names of the petitioners as shown
on the petition filed Nov. 12, 2002, are "Shawn M. and Debra E.
Swagler", and the Court refers to petitioners in this manner.
                                 - 4 -

          Parking and toll fee expenses                   $380
          Vehicle expenses                               2,034
          Other business expenses                        1,256
          Travel and lodging expenses                      568

Mr. Swagler could have received reimbursement for a portion of

his vehicle expenses but instead chose to deduct them on his

return.

     The other business expenses in the amount of $1,256

consisted of money Mr. Swagler paid into a common meal fund at

the fire station where he worked.      As a firefighter, Mr. Swagler

worked in 24-hour shifts during which he was not permitted to

leave the fire station for meals.      Firefighters voluntarily

contributed money to the optional common meal fund to pay for

food for their meals.   Mr. Swagler also incurred $568 in travel

and lodging expenses while attending seminars and instructional

training related to fire and rescue services at various locations

throughout Illinois.

     Petitioners claim that $1,591 of the $6,232 in unreimbursed

employee expenses was incurred by Mrs. Swagler during her

employment with Anthony Valentino Salon for Hair, Inc.        They

itemized the expenses on Form 2106 as follows:        $1,083 of vehicle

expenses, $2202 for meals and entertainment expenses, and $288

for professional publications.


     2
      The $220 reported   as being   incurred by   Mrs. Swagler for
meals and entertainment   expenses   is one-half   of the total amount
reported by petitioners   as being   expended by   Mrs. Swagler for
meals and entertainment   expenses   for taxable   year 1998.
                                - 5 -

     It appears that petitioners claimed the $288 expense for

professional publications twice.     It was claimed once on Mrs.

Swagler's Form 2106, where it was included in the total.     It was

claimed again on a supplemental schedule as an expense added to

the total expenses of both Mr. and Mrs. Swagler's Forms 2106.

     Additionally, petitioners claimed that they spent $115 for a

phone.    They presented three checks payable to Cellular One to

show they had incurred the expense.     The checks, however, did not

bear any indication of a business use for the phone.

     Respondent allowed petitioners $975 of the total $2,034 for

Mr. Swagler's vehicle expenses and all $380 in parking and toll

fee expenses and disallowed the remaining $4,877 due to lack of

substantiation.

     b.     Miscellaneous Expenses

     Petitioners reported miscellaneous expenses including tax

preparation fees in the amount of $150 and other expenses in the

amount of $2,004.    The other expenses are as follows:   $38 in

fire service union dues, $470 in carpenter union dues, $422 for

uniforms, $389 for uniform cleaning, $100 for use of a pager,

$480 for use of a mobile phone, and $105 for required tools.

Respondent allowed $150 for the tax preparation fees, $470 in

carpenter union dues, and an additional $200 as a reasonable

allowance for the remaining expenses.     Respondent disallowed the

remainder due to lack of substantiation.
                                - 6 -

     c.    Gifts to Charity

     Petitioners reported gifts to charity in the amount of

$1,452.   Respondent disallowed the entire amount due to lack of

substantiation.

2.   Schedule E Rental Expenses

     Petitioners claimed Schedule E deductions, excluding

depreciation, pertaining to their rental properties located at

5740 N. McVicker Avenue (McVicker), and the other located at 5466

Gettysburg (Gettysburg) in the amounts of $11,216, and $13,931,

respectively.   The expenses consisted of auto and travel

expenses, insurance, legal and professional fees, mortgage

interest, water, taxes, and repairs.

     In the notice of deficiency, respondent determined that

petitioners failed to substantiate adequately any amount greater

than $22,532, and disallowed $86 of the expenses pertaining to

McVicker and $1,907 of the expenses pertaining to Gettysburg.

Respondent, however, allowed an additional $622 expense deduction

for mortgage interest paid on petitioners' rental property.

                              Discussion

     Under section 7491(a)(1),3 the burden of proof may shift to

the Commissioner.   Because petitioners failed to meet the

     3
      Sec. 7491 is effective with respect to court proceedings
arising in connection with examinations by the Commissioner
commencing after July 22, 1998, the date of its enactment by sec.
3001(a) of the Internal Revenue Service Restructuring and Reform
Act of 1998, Pub. L. 105-206, 112 Stat. 685.
                                - 7 -

requirements of section 7491(a)(2), the burden of proof does not

shift to respondent in this case.

     Respondent's determinations are presumed correct, and

petitioners bear the burden of proving otherwise.      Welch v.

Helvering, 290 U.S. 111, 115 (1933).     Moreover, deductions are a

matter of legislative grace, and petitioners bear the burden of

proving that they are entitled to any deduction claimed.      New

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

Helvering, supra at 115.   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).

     Section 162(a) allows a deduction for all ordinary and

necessary expenses incurred in carrying on a trade or business.

Section 212 provides a deduction for all ordinary and necessary

expenses paid or incurred with respect to management,

conservation, and maintenance of property held for production of

income, including real property.    Sec. 1.212-1(h), Income Tax

Regs.   Generally, a taxpayer must establish that deductions taken

pursuant to sections 162 and 212 are ordinary and necessary

expenses and must maintain records sufficient to substantiate the

amounts of the deductions claimed.      Sec. 6001; Meneguzzo v.

Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), (e),

Income Tax Regs.
                                 - 8 -

     With respect to certain business expenses specified in

section 274(d), however, more stringent substantiation

requirements apply.   Section 274(d) disallows deductions for

traveling expenses, gifts, and meals and entertainment, as well

as for listed property, unless the taxpayer substantiates by

adequate records or by sufficient evidence corroborating the

taxpayer's own statement:    (1) The amount of the expenses; (2)

the time and place of the expense; (3) the business purpose of

the expense; and, (4) the business relationship to the taxpayer

of the persons involved in the expense.    The term "listed

property" is defined in section 280(F)(d) and includes passenger

vehicles, cellular phones, and other similar telecommunications

equipment, such as pagers.    See sec. 280F(d)(4)(i),(v).

     The substantiation requirements of section 274(d) are

designed to encourage taxpayers to maintain records, together

with documentary evidence substantiating each element of the

expense sought to be deducted.    Sec. 1.274-5T(c)(1), Temporary

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

1.   Employee Business Expenses

     a.   Vehicle Expenses

     Petitioners claimed deductions for their vehicle expenses as

unreimbursed employee business expenses.    The prerequisites to

deductibility of vehicle expenses incurred by an employee are,

first, that the expenses be nonreimbursable outlays, and, second,
                                - 9 -

that the expenses be substantiated in accordance with the

requirements of section 274.    Secs. 162(a), 274(d).

       Under section 274(d), substantiation by means of adequate

records requires a taxpayer to maintain a diary, a log, or a

similar record, and documentary evidence that, in combination,

are sufficient to establish each element of each expenditure or

use.    Sec. 1.274-5T(c)(2)(i), Temporary Income Tax Regs., 50 Fed.

Reg. 46017 (Nov. 6, 1985).    To be adequate, a record must

generally be written.    Each element of an expenditure or use that

must be substantiated should be recorded at or near the time of

that expenditure or use.    Sec. 1.274-5T(c)(2)(ii)(A), Temporary

Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985).     Thus, under

section 274(d) no deduction may be allowed for expenses incurred

for use of a passenger automobile on the basis of any

approximation or the unsupported testimony of the taxpayer.

Bradley v. Commissioner, T.C. Memo. 1996-461; Golden v.

Commissioner, T.C. Memo. 1993-602.      In any event, under section

162(a), petitioners are not entitled to deduct expenses for which

they have been or could have been reimbursed.      Orvis v.

Commissioner, 788 F.2d 1406 (9th Cir. 1986) (deduction not

allowable to the extent that the employee is entitled to

reimbursement from the employer), affg. T.C. Memo. 1984-533;

Lucas v. Commissioner, 79 T.C. 1, 7 (1982) (same); Kennelly v.
                               - 10 -

Commissioner, 56 T.C. 936, 943 (1971), affd. without published

opinion 456 F.2d 1335 (2d Cir. 1972) (same).

     Mr. Swagler claimed a deduction for vehicle expenses but he

failed to keep any mileage records and could have been reimbursed

by his employer.    Mrs. Swagler also claimed a deduction for

vehicle expenses, but she did not provide any documentation to

substantiate them and her testimony failed to address them.

     Respondent allowed petitioners a deduction for vehicle

expenses in the amount of $975.    Because petitioners have

failed to prove that the determination is erroneous, the Court

sustains respondent on this issue.

     b.   Travel and Lodging/Meals and Entertainment Expenses

     The deduction of travel expenses away from home, including

meals and lodging, under section 162(a)(2), is also conditioned

on such expenses' being substantiated by adequate records or by

other sufficient evidence corroborating the claimed expenses

pursuant to section 274(d).    Sec. 1.274-5T(a)(1), Temporary

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

     Although Mr. Swagler testified that he attended various fire

and rescue training sessions throughout Illinois, he failed to

provide any documentation with respect to his claimed travel and

lodging expenses.    Respondent's disallowance of petitioners'

claimed travel and lodging expenses is sustained.
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     c.    Other Business Expenses

     Respondent disallowed petitioners' deduction for Mr.

Swagler's payments into the firefighter's common meal fund.    Mr.

Swagler is in the trade or business of being an employee.

Cooper v. Commissioner, 67 T.C. 870, 872 (1977), affd. sub nom.

Sibla v. Commissioner, 611 F.2d 1260 (9th Cir. 1980); Primuth v.

Commissioner, 54 T.C. 374, 377 (1970).    Where a fire department

requires its firefighter-employees to make payments into a common

meal fund as a condition of employment, such expenses are

ordinary and necessary within the meaning of section 162(a).

Sibla v. Commissioner, 68 T.C. 422, 432 (1977), affd. 611 F.2d

1260 (9th Cir. 1980); Cooper v. Commissioner, supra at 872; see

also Belt v. Commissioner, T.C. Memo. 1984-167 (firefighters

required by their employer to pay their share of a common mess

even if they did not eat the meal could deduct the amount they

paid).    If, however, a firefighter's payments into a common meal

fund are not a condition of employment, then such expenses

constitute personal expenses and are not deductible pursuant to

section 262.    Duggan v. Commissioner, 77 T.C. 911, 914-915

(1981); see Matta v. Commissioner, T.C. Memo. 1990-356; Phillips

v. Commissioner, T.C. Memo. 1986-503; Morton v. Commissioner,

T.C. Memo. 1986-132; Alvarado v. Commissioner, T.C. Memo. 1985-

118, affd. 781 F.2d 901 (5th Cir. 1986); Sloyan v. Commissioner,

T.C. Memo. 1985-41; Banks v. Commissioner, T.C. Memo. 1981-490.
                                - 12 -

     Mr. Swagler testified that the food fund into which he

contributed was optional and voluntary.    As such, his payments

into that fund are personal expenses and are not deductible.

2.   Miscellaneous Expenses

     a.   Phone and Pager Expenses

     Cellular phones and pagers are included in the definition of

listed property for purposes of section 274(d)(4) and are subject

to its strict substantiation requirements.    Petitioners submitted

copies of three checks drawn on their account and payable to

Cellular One.   However, there is nothing on the check copies that

shows the expenditures were business-related, and petitioners

were unable to provide any other evidence or documentation

substantiating their cellular phone and pager expenses as

deductible items.    Respondent's disallowance is sustained.

     b.   Other Expenses

     Petitioners did not provide any evidence or testimony

pertaining to their claimed expenses for tools, professional

publications, uniforms and related cleaning expenses, or

professional dues.    Respondent allowed $200 as a reasonable

allowance for these expenses.    Because petitioners have failed to

prove that the determination is erroneous, the Court sustains

respondent on this issue.
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3.   Charitable Contributions

     Section 170 allows a taxpayer to deduct a charitable

contribution "only if verified under regulations prescribed by

the Secretary."   Sec. 170(a)(1).   The regulations provide

specific record-keeping requirements.    With respect to each

charitable contribution of money in a taxable year beginning

after December 31, 1982, a taxpayer is required to maintain one

of the following:   (1) A canceled check; (2) a receipt or letter

from the donee indicating the name of the donee, the date of the

contribution, and the amount of the contribution; or (3) any

other reliable written record showing 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.

     At trial, Mr. Swagler conceded that petitioners could not

substantiate their claimed charitable contributions.

Respondent's disallowance of the entire $1,452 claim for

charitable contributions is sustained.

4.   Schedule E Rental Real Estate Expense Deductions

     Respondent disallowed $86 of the expenses pertaining to

McVicker and $1,907 of the expenses pertaining to Gettysburg for

lack of substantiation.   At trial, petitioners submitted a number

of receipts, cash register tapes, and invoices to substantiate

their claimed deductions.   With regard to most of the receipts

and cash register tapes, the Court is unable to determine from
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these records what types of items petitioners purchased.

Additionally, other than handwritten notations on some of the

receipts and cash register tapes, petitioners failed to offer any

evidence linking any of the expenses to the rental properties.

The Court holds that petitioners offered no evidence that

supports deductions in excess of the amounts allowed by

respondent.   Therefore, the Court sustains respondent on this

issue.

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                    Decision will be entered

                               for respondent.
