                  T.C. Summary Opinion 2008-24



                      UNITED STATES TAX COURT



      SCOTT OWEN SCHUBERT AND AMY K. MOORE, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 22477-06S.             Filed March 5, 2008.



     Scott Owen Schubert and Amy K. Moore, pro sese.

     Margaret A. Martin, for respondent.



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

the provisions of section 7463 of the Internal Revenue Code (IRC)

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 IRC in effect for the year in
                                 - 2 -

issue, and all Rule references are to the Tax Court Rules of

Practice and Procedure.

     Respondent determined a $6,521 deficiency in petitioners’

2003 Federal income tax and a $1,304.20 accuracy-related penalty

under section 6662(a).    The issues for decision are whether

petitioners are:   (1) Entitled to deduct their unreimbursed

employee business expenses; (2) entitled to deduct their

expenditure for tax preparation materials (i.e., Turbo Tax and

tax publications); and (3) liable for the accuracy-related

penalty under section 6662(a).1

                              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.

     During the first 6 months of 2003, Mr. Schubert worked as a

salesman selling telephone calling cards for “Winstar

Communications, LLC”, a.k.a. IDT Telecom.      Mr. Schubert’s sales

routes required traveling to various parts of northern and

southern California.     For the last 4 months of 2003, Mr. Schubert

worked for Cura Group, Inc., a.k.a. Vozzcom, which was a



     1
        Amy Moore did not appear at trial or sign the stipulation
of facts. The Court will dismiss Ms. Moore for failure properly
to prosecute and will enter a decision against Ms. Moore
consistent with the decision entered against Mr. Schubert.
                                   - 3 -

subcontractor for Comcast.      As a subcontractor, Mr. Schubert

traveled to customers’ residences and disconnected the customers’

cable for failure to pay their Comcast bills.       Mr. Schubert was

unemployed for the remainder of 2003.

       Ms. Moore worked as a real estate agent for Intero Real

Estate Services and as an administrator for Superior Employment,

Inc.       Ms. Moore showed properties to clients, transported

transactional documents, and performed other errands in San Jose,

Santa Clara, and Palo Alto, California.

       Petitioners timely filed a joint Form 1040, U.S. Individual

Income Tax Return, for 2003.      Petitioners reported $55,955 as

compensation for services ($13,687 for Mr. Schubert and $42,268

for Ms. Moore).       On petitioners’ Schedule A, Itemized Deductions,

they claimed a $75 deduction for their tax preparation materials

and the following unreimbursed employee expenses:

              Category           Mr.Schubert          Ms. Moore
                                  1                   1
           Vehicle expense         $12,884             $12,312
           Parking, tolls,             625                 550
             transportation
           Travel expense              1,650               1,300
             away from home
           Meals and                     550                 650
             entertainment
           Business expense            4,725              11,175
                                   2                   2
             Total                    20,434              25,987
       1
            Based on a 36-cent standard mileage rate.
       2
            Before application of the sec. 67(a) 2-percent floor.

       Respondent disallowed petitioners’ deductions for

unreimbursed employee expenses and tax preparation materials.
                               - 4 -

Respondent allowed the standard deduction, which was larger than

petitioners’ itemized deductions as adjusted by respondent.

Respondent’s adjustments resulted in a deficiency, and he

determined an accuracy-related penalty under section 6662(a).

      At trial, Mr. Schubert submitted into evidence revised Forms

2106-EZ, Unreimbursed Employee Business Expenses, which were

admitted into evidence as petitioners’ new position.    The revised

forms reduced Mr. Schubert’s claimed vehicle and business

expenses to $10,233 and $2,283, respectively.    The revised forms

increased Ms. Moore’s claimed vehicle expenses to $15,176 and

reduced her business expenses to $9,225.    In the revised forms,

neither petitioner claimed deductions for travel, meals and

entertainment, nor parking fees, tolls, and transportation.2

                            Discussion

I.   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



      2
        Petitioners abandoned these issues at trial and in effect
conceded that the following claimed deductions were not proper:
(1) Travel; (2) meals and entertainment; (3) parking fees, tolls,
and transportation; and (4) $4,392 of the total $15,900 in
business expenses. Accordingly, respondent’s determination is
sustained.
                               - 5 -

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).

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

applies; accordingly, petitioners must prove 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).

II.   Unreimbursed Employee Business Expenses

      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 his trade or business are

deductible subject to the limitations of section 67.3   See secs.

67(a) and (b), 162(a); Primuth v. Commissioner, 54 T.C. 374

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


      3
        Sec. 67(a) imposes a limitation on the deductibility of
an individual’s miscellaneous itemized deductions: such
deductions are allowable only to the extent that the aggregate
deductions exceed a floor of 2 percent of adjusted gross income
(AGI). The term “miscellaneous itemized deductions” is defined
in sec. 67(b) as those itemized deductions that are not
specifically enumerated therein.
                               - 6 -

     It is also well established that 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.    But if the taxpayer

establishes that he has incurred a deductible expense yet is

unable to substantiate the exact amount, the Court may estimate

the deductible amount in some circumstances (the Cohan rule).

See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930).

     A.   Claimed Business Expenses

     Mr. Schubert testified that he reduced the total $15,900

claimed as businesses expenses to $11,508 because “I omitted a

lot of these extra –- the fluff”; i.e., the job search.    Mr.

Schubert did not explain the nature of their business expenses,4

and no receipts or other documents were submitted into evidence

to substantiate the expenditures.     Respondent’s determination is

sustained.

     B.   Vehicle Expenses

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

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


     4
        Mr. Schubert briefly referred to the remaining $11,508 in
business expenses as a “home office expense”. Whether the
expenses are home office expenses under sec. 280A(c) is
uncertain. Nevertheless, the expenditures would not be
deductible under sec. 280A(c) since Mr. Schubert has not shown
that a portion of their residence was exclusively used on a
regular basis as their principal place of business and that the
exclusive use was for their employers’ convenience. See sec.
280A(c).
                               - 7 -

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

F.2d 201 (2d Cir. 1969).   In pertinent part, section 274(d)

provides that no deduction is allowable for “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.   See sec. 280F(d)(4)(A)(i) and (ii).

     To substantiate the amount of an automobile expense, the

taxpayer must prove the following:     (1) The amount of the

expenditure (i.e., cost of acquisition); (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).   If the amount is not substantiated by adequate records or

sufficient corroborative evidence, then it is disallowed.      See

sec. 274(d).

     As to the “Rules of substantiation”, the temporary

regulation provides that taxpayers must substantiate each element

of an expenditure or use by adequate records or other sufficient

evidence that corroborates his statements.     Sec. 1.274-5T(c),

Temporary Income Tax Regs., supra.     Taxpayers must maintain and

produce such substantiation as will constitute proof of each
                                 - 8 -

expenditure or use.    Id.   Written evidence has considerably more

probative value than oral evidence, and the probative value of

written evidence is greater the closer in time it is to the

expenditure or use.    Id.   Although a contemporaneous log is not

required, a record made at or near the time of the expenditure or

use that is supported by sufficient documentary evidence has a

higher degree of credibility than a subsequently prepared

statement.   Id.   The corroborative evidence required to support a

statement not made at or near the time of the expenditure or use

must have a high degree of probative value to elevate the

statement and evidence to the level of credibility reflected by a

record made at or near the time of the expenditure or use

supported by sufficient documentary evidence.     Id.

     Mr. Schubert submitted reconstructions of petitioners’

mileage logs to prove their vehicle expenses.     Mr. Schubert

testified that he incorporated the information from the scribbles

in his planner into the spreadsheet.     As to Ms. Moore’s vehicle

expenses, Mr. Schubert testified that he extrapolated the

information from calendars within an Outlook computer program

belonging to Ms. Moore’s employer that showed the date and the

type of errand Ms. Moore performed.

     Mr. Schubert did not provide the underlying materials to

respondent or produce them at trial.     Mr. Schubert did not

testify as to the amounts of their business mileage or to the
                                   - 9 -

nature of their appointments.       The category designated as

“purpose” merely states “Appts”.       Mr. Schubert attempted to

explain his cursory reconstruction by stating:       “it was tough

enough doing the odometers * * * [and I] went back to doing the

summary”.       The Court finds that petitioners have not satisfied

the strict substantiation requirements of section 274(d).

Accordingly, respondent’s determination is sustained.5

III.       Deduction for Tax Preparation Materials

       A taxpayer may be allowed a deduction for ordinary and

necessary expenses paid or incurred during the taxable year in

connection with the determination, collection, or refund of any

tax subject to the 2-percent floor of section 67(a).       See secs.

67(a) and (b), 212(3); see also supra note 3.

       In order to have a deductible amount, petitioners’ aggregate

miscellaneous itemized deductions must exceed $1,436.72 ($71,836

(AGI) x 2 percent).      After the disallowance of the unreimbursed

employee expenses, petitioners’ sole miscellaneous itemized

deduction is the $75 for tax preparation materials.       Petitioners’

$75 miscellaneous itemized deduction does not exceed the 2-




       5
        Even if the Court were to find that petitioners had
substantiated their deductions for unreimbursed employee
expenses, the Court would nevertheless disallow the deductions
because petitioners failed to show that their employers did not
have a reimbursement policy. See, e.g., Boltinghouse v.
Commissioner, T.C. Memo. 2007-324.
                                 - 10 -

percent floor.    Accordingly, respondent’s determination is

sustained.

IV.   Accuracy-Related Penalty

      Initially, the Commissioner has the burden of production

with respect to any penalty, addition to tax, or additional

amount.   Sec. 7491(c).   The Commissioner satisfies this burden of

production by coming “forward with sufficient evidence indicating

that it is appropriate to impose the relevant penalty.”        Higbee

v. Commissioner, 116 T.C. 438, 446 (2001).       Once the Commissioner

satisfies this burden of production, the taxpayer must persuade

the Court that the Commissioner’s determination is in error by

supplying sufficient evidence of reasonable cause, substantial

authority, or a similar provision.        Id.

      In pertinent part, section 6662 imposes an accuracy-related

penalty equal to 20 percent of the underpayment that is

attributable to negligence or disregard of rules or regulations

or a substantial understatement of income tax.6      Sec. 6662(a) and

(b)(1) and (2).    “Negligence” is defined to include “any failure

to make a reasonable attempt to comply with the provisions of

this title”, and “disregard” is defined to include “any careless,

reckless, or intentional disregard.”       See sec. 6662(c).

Negligence also includes any failure by the taxpayer to keep


      6
        Because the Court finds for respondent on the negligence
ground, the Court need not discuss the substantial understatement
of income tax ground.
                               - 11 -

adequate books and records or to substantiate items properly.

See sec. 1.6662-3(b)(1), Income Tax Regs.

     In interpreting section 6662, the Court has defined the term

“negligence” as a “‘lack of due care or the failure to do what a

reasonable and ordinarily prudent person would do under the

circumstances.’”   Freytag v. Commissioner, 89 T.C. 849, 887

(1987) (quoting Marcello v. Commissioner, 380 F.2d 499, 506 (5th

Cir. 1967), affg. 43 T.C. 168 (1964) and T.C. Memo. 1964-299, and

citing Zmuda v. Commissioner, 731 F.2d 1417, 1422 (9th Cir.

1984), affg. 79 T.C. 714 (1982)), affd. 904 F.2d 1011 (5th Cir.

1990), affd. 501 U.S. 868 (1991).

     Section 6664(c)(1) provides an exception to the section

6662(a) penalty:   no penalty is imposed with respect to any

portion of an underpayment if it is shown that there was

reasonable cause therefor and the taxpayer acted in good faith.

Section 1.6664-4(b)(1), Income Tax Regs., incorporates a facts

and circumstances test to determine whether the taxpayer acted

with reasonable cause and in good faith.    The most important

factor is the extent of the taxpayer’s effort to assess his

proper tax liability.   Id.   Circumstances that may indicate

reasonable cause and good faith include an honest

misunderstanding of fact or law that is reasonable in view of the

taxpayer’s experience, knowledge, and education.    Id.
                              - 12 -

     The Court finds that respondent has met his burden of

production and that petitioners were negligent.    Petitioners did

not properly substantiate their deductions as required by the IRC

and the regulations.   Petitioners did not establish a defense for

their noncompliance with the IRC’s requirements.    Accordingly,

respondent’s determination is sustained.

     To reflect the foregoing,


                                      An order of dismissal will be

                                 entered as to petitioner Amy K.

                                 Moore, and decision will be entered

                                 for respondent.
