                           T.C. Memo. 2006-58



                       UNITED STATES TAX COURT



                    KAREN V. HOUGH, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6686-04.                 Filed March 28, 2006.


     Karen V. Hough, pro se.

     Francis C. Mucciolo and Lorianne D. Masano, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     VASQUEZ, Judge:    Respondent determined the following

deficiencies in, addition to, and penalties on petitioner’s

Federal income tax:

                                 Addition to Tax     Penalty
     Year       Deficiency       Sec. 6651(a)(1)   Sec. 6662(a)

     1999        $19,153            $2,060.50       $3,830.60
     2000         81,696               –-           16,339.20
                               - 2 -

Unless otherwise indicated, all section references are to the

Internal Revenue Code in effect for the years in issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure.

     At trial, petitioner stated that she was contesting only

some of the business expense deductions respondent disallowed for

1999 and 2000.   At trial, petitioner did not dispute the amounts

of unreported gross income, the self-employment tax, the addition

to tax, or the penalties determined by respondent.   Although

ordered to do so, petitioner did not file any briefs.

Accordingly, petitioner has abandoned all issues other than

whether she substantiated business expenses in excess of the

amounts allowed or conceded by respondent for 1999 and 2000.1

Petzoldt v. Commissioner, 92 T.C. 661, 683 (1989); Money v.

Commissioner, 89 T.C. 46, 48 (1987); cf. Funk v. Commissioner,

123 T.C. 213 (2004); Swain v. Commissioner, 118 T.C. 358 (2002).

                         FINDINGS OF FACT

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   At the time she filed the

petition, petitioner resided in Largo, Florida.




     1
        We note that on brief respondent also conceded $612 of
unreported income for 2000. This concession will be accounted
for in the Rule 155 computation.
                               - 3 -

     During 1999 and 2000, petitioner operated as a sole

proprietorship a nursing business.     The nursing business

consisted of working as an expert witness (medical legal

consulting) and as a nurse practitioner.

     Petitioner reported her nursing business expenses on

Schedule C, Profit or Loss From Business, of her 1999 and 2000

tax returns (nursing business expenses).     Respondent issued to

petitioner a notice of deficiency for 1999 and 2000 that

disallowed some of the nursing business expenses in part and

other nursing business expenses in full.     Petitioner filed a

petition challenging the disallowance of her nursing business

expenses.

                              OPINION

     Petitioner has neither claimed nor shown that she satisfied

the requirements of section 7491(a) to shift the burden of proof

to respondent with regard to any factual issue.     Accordingly,

petitioner bears the burden of proof.     Rule 142(a).    Deductions

are a matter of legislative grace; petitioner has the burden of

showing that she is entitled to any deduction claimed.        Id.; New

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

     Petitioner relies on her own testimony to substantiate the

nursing business expenses.   The Court is not required to accept

petitioner’s unsubstantiated testimony.     See Wood v.

Commissioner, 338 F.2d 602, 605 (9th Cir. 1964), affg. 41 T.C.
                               - 4 -

593 (1964).   We found petitioner’s testimony to be general,

vague, conclusory, and/or questionable in certain material

respects.   On the record, we repeatedly noted petitioner’s lack

of credibility and veracity.   Under the circumstances presented

here, we are not required to, and generally do not, rely on

petitioner’s testimony to sustain her burden of establishing

error in respondent’s determinations.   See Lerch v. Commissioner,

877 F.2d 624, 631-632 (7th Cir. 1989), affg. T.C. Memo. 1987-295;

Geiger v. Commissioner, 440 F.2d 688, 689-690 (9th Cir. 1971),

affg. per curiam T.C. Memo. 1969-159; Tokarski v. Commissioner,

87 T.C. 74, 77 (1986).

     When taxpayers establish that they have incurred deductible

expenses but are unable to substantiate the exact amounts, we can

estimate the deductible amount, but only if the taxpayers present

sufficient evidence to establish a rational basis for making the

estimate.   See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d

Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985).

In estimating the amount allowable, we bear heavily upon

taxpayers whose inexactitude is of their own making.   See

Cohan v. Commissioner, supra at 544.    We may not use the Cohan

doctrine, however, to estimate expenses covered by section

274(d).   See Sanford v. Commissioner, 50 T.C. 823, 827 (1968),

affd. per curiam 412 F.2d 201 (2d Cir. 1969); sec. 1.274-5T(a),

Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).
                                - 5 -

There must be sufficient evidence in the record, however, to

permit us to conclude that a deductible expense was paid or

incurred.   Williams v. United States, 245 F.2d 559, 560 (5th Cir.

1957).

     One “contractor”,2 Mandy Babyak, who worked for petitioner’s

nursing business in 2000 testified regarding petitioner’s nursing

business expenses.    We found Ms. Babyak to be credible.   We shall

rely on Ms. Babyak’s testimony to estimate petitioner’s nursing

business expenses under the Cohan doctrine.

1.   Contractor Expenses

     Petitioner claimed $23,100 in expenses for subcontractors

for 1999.   For 1999, respondent allowed $575 in the notice of

deficiency and conceded an additional $8,550.77 on brief for a

total of $9,125.77.    This $9,125.77 represents checks paid to

Carol Blank, Robert Shearer, and Kim Atkins.    Petitioner has

failed to substantiate that any additional amounts were paid to

contractors in 1999.    Accordingly, respondent’s determination, as

modified by his concession, is sustained.

     Petitioner claimed $49,836 in expenses for subcontractors

for 2000.   For 2000, respondent conceded on brief $58,528 in

contractor expenses.    This concession represents amounts paid by



     2
        We use the term “contractor” for convenience only. We
make no findings whether the people who worked for petitioner’s
nursing business were independent contractors or employees.
                               - 6 -

checks to Carol Blank, Robert Shearer, Kim Atkins, Harold

Stratton, and Natalie Stephens.

      Ms. Babyak credibly testified that she was a contractor of

petitioner’s nursing business for 2000.   Ms. Babyak testified

that she started working for petitioner’s nursing business in the

middle (summer) of 2000, she was paid $15 per hour, and earned

approximately $600 per week, but this amount varied and

occasionally it was less.   On the basis of the record, we

approximate that petitioner paid Ms. Babyak $9,000 in 2000, and

petitioner is entitled to deduct this amount in addition to the

amount respondent conceded for 2000.   Petitioner has failed to

substantiate that any additional amounts were paid to contractors

in 2000.

2.   Insurance

      Petitioner claimed $6,424 and $1,956 in expenses for

insurance for 1999 and 2000, respectively.   Respondent disallowed

these expenses in full.

      Ms. Babyak credibly testified that for 2000 petitioner paid

$1,200 for medical malpractice insurance and $1,500 for office

insurance.   On the basis of the record, we shall allow these

amounts for each of the years 1999 and 2000.   Petitioner has
                                 - 7 -

failed to substantiate that any additional amounts were paid for

insurance for 1999 or 2000.3

3.   Dues and Memberships

      Petitioner claimed $2,204 and $2,504 in expenses for dues

and memberships for 1999 and 2000, respectively.    Respondent

allowed $800 for 1999 and disallowed this expense in full for

2000.

      Ms. Babyak credibly testified that in 2000 petitioner paid

approximately $300 each for dues and memberships to approximately

four to five nursing societies/agencies.    On the basis of the

record, we approximate that petitioner paid $1,200 in 2000 for

dues and memberships and is entitled to deduct this amount for

2000.     Petitioner has failed to substantiate that any additional

amounts were paid for dues and memberships for 1999 or 2000.

4.   Fed Ex and P.O. Box (Postage and Delivery Expenses)

      Petitioner claimed $7,204 for postage for 1999, $15,023 in

delivery and freight expenses for 2000, and $360 for P.O. box

      3
        Petitioner claimed she paid $1,800 for flood insurance.
Ms. Babyak testified that petitioner paid flood insurance, but
she did not testify as to the amount paid. We do not rely on
petitioner’s testimony to establish the amount paid for flood
insurance. As there is insufficient credible evidence to
establish a rational basis for making an estimate, we shall not
allow petitioner a deduction for flood insurance. See Cohan v.
Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v.
Commissioner, 85 T.C. 731, 742-743 (1985). Additionally,
petitioner claimed she paid disability insurance. We do not
accept petitioner’s unsubstantiated and uncorroborated testimony.
See Wood v. Commissioner, 338 F.2d 602, 605 (9th Cir. 1964),
affg. 41 T.C. 593 (1964).
                               - 8 -

expenses for each of the years 1999 and 2000.     Respondent allowed

$1,014 and $1,731 for 1999 and 2000, respectively.     This amount

included $36 for a P.O. box for both years.

      Petitioner has failed to substantiate that any additional

amounts were paid for a P.O. box for 1999 or 2000.     Accordingly,

respondent’s determination on this issue is sustained.

      Ms. Babyak credibly testified that while she worked for

petitioner Fed Ex picked up packages from petitioner’s nursing

business approximately two times per week, but petitioner tried

to limit the number of pickups.   Ms. Babyak estimated the cost of

each pickup to be between $75 and $200.     On the basis of the

record, we approximate that in 2000 petitioner paid $7,800 to Fed

Ex.   Accordingly, in addition to the $1,695 in delivery and

freight expense allowed by respondent for 2000 ($1,731 minus $36

for the P.O. box), petitioner is entitled to deduct an additional

delivery and freight expense of $6,105 for 2000.     We believe that

petitioner likely paid a similar amount to Fed Ex in 1999.

Accordingly, petitioner is entitled to deduct her total claimed

postage expense, $7,204, for 1999.     Petitioner has failed to

substantiate that any additional amounts were paid for postage or

delivery expenses for 1999 or 2000.
                                 - 9 -

5.   Books

      Petitioner claimed zero for books on her 2000 return.

Respondent, however, allowed petitioner at audit $1,870 for book

expenses for 2000.   Ms. Babyak testified that petitioner bought

books for Ms. Babyak in 2000, but there is no evidence regarding

the cost of the books.    As there is insufficient evidence to

establish a rational basis for making an estimate, petitioner is

not entitled to a deduction greater than that allowed by

respondent for books for 2000.    See Cohan v. Commissioner, 39

F.2d at 543-544; Vanicek v. Commissioner, 85 T.C. at 742-743.

6.   Supplies

      Petitioner claimed $1,359 and $20,997 for supplies for 1999

and 2000, respectively.    Respondent allowed $1,724.98 and $2,179

for supplies for 1999 and 2000, respectively.    Although Ms.

Babyak testified that petitioner bought various supplies in 2000,

there is no evidence regarding the cost of the supplies or that

the amount spent exceeds the amount allowed by respondent.       As

there is insufficient evidence to establish a rational basis for

making an estimate, we shall not allow petitioner a deduction for

these items greater than that allowed by respondent for supplies

for 1999 and 2000.   See Cohan v. Commissioner, supra at 543-544;

Vanicek v. Commissioner, supra at 742-743.
                              - 10 -

7.   Pest Control and Lawn Service

      Petitioner claimed $770 for pest control for 2000 and at

trial claimed she also paid for lawn service.     Respondent

disallowed the amount claimed for pest control in full.     Although

Ms. Babyak testified that petitioner paid for pest control and

lawn service in 2000, there is no evidence regarding the cost of

the pest control and lawn service.     As there is insufficient

evidence to establish a rational basis for making an estimate, we

shall not allow petitioner a deduction for these items.     See

Cohan v. Commissioner, supra at 543-544; Vanicek v. Commissioner,

supra at 742-743.

8.   Advertising/Marketing

      Petitioner claimed $6,234 and $3,063 in expenses for

advertising for 1999 and 2000, respectively.     Respondent allowed

$1,560.60 and $5,580.91 for 1999 and 2000, respectively.

Respondent conceded an additional $3,395 for 2000 (for a total of

$8,975.91 for 2000).

      Ms. Babyak testified that petitioner mailed marketing

packages during 2000.   Ms. Babyak’s testimony, however, did not

establish the cost of the marketing packages or how many were

mailed.   We do not accept petitioner’s unsubstantiated and

uncorroborated testimony as to the cost of these marketing

packages or the amount mailed.   See Wood v. Commissioner, 338

F.2d at 605.   It is unclear whether petitioner spent amounts on
                               - 11 -

advertising in excess of the amounts already allowed or conceded

by respondent.   As there is insufficient credible evidence to

establish a rational basis for making an estimate, we shall not

allow petitioner a deduction for this item greater than that

allowed or conceded by respondent.      See Cohan v. Commissioner,

supra at 543-544; Vanicek v. Commissioner, supra at 742-743.

9.   Section 274 Expenses (Automobile and Travel)

      In addition to satisfying the criteria for deductibility

under section 162, certain categories of expenses must also

satisfy the strict substantiation requirements of section 274(d)

in order for a deduction to be allowed.     The expenses to which

section 274(d) applies include, among other things, listed

property (e.g., automobile expenses and cellular telephones) and

travel expenses (including meals and lodging while away from

home).    Secs. 274(d)(4), 280F(d)(4)(A)(i), (ii), (v).   We may not

use the Cohan doctrine to estimate expenses covered by section

274(d).    See Sanford v. Commissioner, 50 T.C. at 827; sec. 1.274-

5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6,

1985).

      To substantiate a deduction attributable to travel and

listed property, a taxpayer must maintain adequate records or

present corroborative evidence to show the following:     (1) The

amount of the expense; (2) the time and place of use of the

listed property; and (3) the business purpose of the use.     Sec.
                              - 12 -

1.274-5T(b)(6), Temporary Income Tax Regs., 50 Fed. Reg. 46016

(Nov. 6, 1985).   Petitioner failed to do so.   Accordingly,

respondent’s determination regarding expenses subject to section

274, as modified by his concessions, is sustained.

10.   Computer, Fax, and Printer

      At trial, petitioner tried to establish she is entitled to

deduct as expenses computers, faxes, and printers.    Section

274(d) applies to, among other things, computer and peripheral

equipment; however, there is an exception for such equipment used

exclusively at a regular business establishment and owned or

leased by the person operating such establishment.    Secs.

274(d)(4), 280F(d)(4)(A)(iv), (B).

      Regardless of whether section 274 applies or not (some of

the computers and peripheral equipment were at petitioner’s

nursing business office, and some were at the homes of

petitioner’s contractors), the evidence does not establish when

the computers, faxes, and printers were purchased or how much

they cost.   As there is insufficient evidence to establish these

items were purchased during the years in issue, or if they were

so purchased a rational basis for making an estimate, we shall

not allow petitioner a deduction for these items.    See Cohan v.

Commissioner, supra at 543-544; Vanicek v. Commissioner, supra at

742-743; see also secs. 274(d), 280F(d)(4)(A)(iv), (B).
                              - 13 -

11.   Expenses Allowed or Conceded by Respondent

      Respondent has allowed or conceded other items, such as

telephone expenses and legal expenses, up to the amounts of

checks or receipts previously provided by petitioner.   As there

is insufficient evidence to establish a rational basis for making

an estimate of a greater amount, we shall not allow petitioner a

deduction for these items greater than that allowed or conceded

by respondent.   See Cohan v. Commissioner, supra at 543-544;

Vanicek v. Commissioner, supra at 742-743.

      To reflect the foregoing,



                                         Decision will be entered

                                    under Rule 155.
