                  T.C. Summary Opinion 2005-65



                     UNITED STATES TAX COURT



                DANIEL A. AREGONI, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 2708-04S.              Filed May 24, 2005.


     Daniel A. Aregoni, pro se.

     Kathleen C. Schlenzig, for respondent.



     GOLDBERG, 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

effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.
                               - 2 -

     Respondent determined a deficiency in petitioner’s Federal

income tax of $3,319 for the taxable year 2000.

     The issue for decision is whether petitioner is entitled to

deduct $26,385 for job expenses and other miscellaneous

deductions.

                            Background

     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.   Petitioner resided in

Chicago, Illinois, on the date the petition was filed in this

case.

     Petitioner was a financial consultant who was employed by

Merrill Lynch, Pierce, Fenner & Smith (Merrill Lynch) during the

taxable year 2000.   During the year in issue, Merrill Lynch had a

reimbursement policy which stated:

     [petitioner] * * * [is] entitled to be reimbursed for
certain limited expenses, but * * * [is] also expected to   incur
expenses necessary to the job for which he would not   be
reimbursed. Such expenses, ordinary in this business,
include travel and transportation, as well as promotional
     and entertainment expenses, incurred in calling on customers
     of Merrill Lynch for the purpose of creating sales through
     investment discussions.

During taxable year 2000, petitioner requested reimbursement for

expenses of $4,866.38 incurred in furtherance of his job.

Merrill Lynch reimbursed petitioner for all of the requested
                                 - 3 -

expenses.1    Petitioner did not request any further reimbursement

from Merrill Lynch during taxable year 2000.    Petitioner’s

employment at Merrill Lynch was terminated in June of 2000.

     Petitioner reported the following job expenses and other

miscellaneous deductions on line 23 of Schedule A, Itemized

Deductions, of his Federal income tax return for the taxable year

2000:

                Description               Amount

             Form 2106-EZ                $43,038
             Tax preparation fees            350
             Brokerage account fees        1,685
             Depreciation                    597
                  Total                   45,670

On Form 2106-EZ, Unreimbursed Employee Business Expenses,

petitioner reported the following expenses:

                Description               Amount

             Parking fees, tolls, etc.    $3,100
             Travel expenses              27,159
             Other business expenses       8,718
             Meals and entertainment       4,061
                  Total                   43,038

On statement 3 attached to petitioner’s return, petitioner

reported that the other business expenses consisted of the

following items:




     1
      One such expense reimbursed by Merrill Lynch appears to
have been requested for reimbursement twice by petitioner and was
actually reimbursed twice by Merrill Lynch.
                                   - 4 -

                Description                  Amount

             Business telephone              $3,420
             Client gifts                     2,248
             Office supplies                  2,725
             Subscriptions                      325
                  Total                       8,718

     Following an examination of petitioner’s 2000 return,

respondent issued a notice of deficiency disallowing job expenses

and other miscellaneous deductions of $45,670.

                                Discussion

     As a general rule, the determinations of the Commissioner in

a notice of deficiency are presumed correct, and the taxpayer

bears the burden of proving the Commissioner’s determinations to

be in error.     Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933).     As one exception to this rule, section 7491(a) places

upon the Commissioner the burden of proof with respect to any

factual issue relating to liability for tax if the taxpayer

maintained adequate records, satisfied the substantiation

requirements, cooperated with the Commissioner, and introduced

during the Court proceeding credible evidence with respect to the

factual issue.     We decide the issue in this case without regard

to the burden of proof.       Accordingly, we need not decide whether

the general rule of section 7491(a)(1) is applicable in this

case.     See Higbee v. Commissioner, 116 T.C. 438 (2001).

        Moreover, deductions are a matter of legislative grace, and

the taxpayer bears the burden of proving that he or she is
                               - 5 -

entitled to the claimed deductions.     INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v.

Helvering, 292 U.S. 435, 440 (1934).     With these well-established

propositions in mind, we must determine whether petitioner has

satisfied his burden of proving that he is entitled to deductions

for job expenses and other miscellaneous deductions in excess of

the $19,285 conceded by respondent.

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

business expenses paid or incurred during the taxable year in

carrying on any trade or business.     For an expense to be

“ordinary” the transaction that gives rise to the expense must be

of a common or frequent occurrence in the type of business

involved.   Deputy v. du Pont, 308 U.S. 488, 495 (1940).      To be

“necessary” an expense must be “appropriate and helpful” to the

taxpayer’s business.   Welch v. Helvering, supra at 113-114.      The

performance of services as an employee constitutes a trade or

business.   See sec. 1.162-17(a), Income Tax Regs.    The employee

must show the relationship between the expenditures and the

employment.   See Evans v. Commissioner, T.C. Memo. 1974-267.         The

taxpayer bears the burden of substantiation.     Hradesky v.

Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d

821 (5th Cir. 1976).   Section 6001 and the regulations

promulgated thereunder require taxpayers to maintain records

sufficient to permit verification of income and expenses.      As a
                                - 6 -

general rule, if the trial record provides sufficient evidence

that the taxpayer has incurred a deductible expense, but the

taxpayer is unable to adequately substantiate the precise amount

of the deduction to which he or she is otherwise entitled, the

Court may estimate the amount of the deductible expense, bearing

heavily against the taxpayer whose inexactitude in substantiating

the amount of the expense is of his own making, and allow the

deduction to that extent.   Cohan v. Commissioner, 39 F.2d 540 (2d

Cir. 1930).   However, in order for the Court to estimate the

amount of an expense, the Court must have some basis upon which

an estimate may be made.    Vanicek v. Commissioner, 85 T.C. 731,

742-743 (1985).   Without such a basis, any allowance would amount

to unguided largesse.   Williams v. United States, 245 F.2d 559,

560-561 (5th Cir. 1957).

     In the case of travel expenses, entertainment expenses, and

expenses paid or incurred with respect to listed property, e.g.,

passenger automobiles, section 274 overrides the Cohan doctrine,

and expenses are deductible only if the taxpayer meets the

section’s stringent substantiation requirements.   Secs. 274(d),

280F(d)(4); Sanford v. Commissioner, 50 T.C. 823, 827-828 (1968),

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

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

     Section 274(d) specifically provides:

          SEC. 274(d). Substantiation Required.--No deduction or
     credit shall be allowed–-
                               - 7 -

               (1) under section 162 or 212 for any traveling
          expense (including meals and lodging while away
          from home),

               (2) for any item with respect to an activity which
          is of a type generally considered to constitute
          entertainment, amusement, or recreation, or with
          respect to a facility used in connection with such
          an activity,

               (3) for any expense for gifts, or

               (4) with respect to any listed property (as
          defined in section 280F(d)(4)),

     unless the taxpayer substantiates by adequate records or by
     sufficient evidence corroborating the taxpayer’s own
     statement (A) the amount of such expense or other item, (B)
     the time and place of the travel, entertainment, amusement,
     recreation, or use of the facility or property, or the date
     and description of the gift, (C) the business purpose of the
     expense or other item, and (D) the business relationship to
     the taxpayer of persons entertained, using the facility or
     property, or receiving the gift. * * *

This section “contemplates that no deduction or credit shall be

allowed a taxpayer on the basis of such approximations or

unsupported testimony of the taxpayer.”   Sec. 1.274-5T(a),

Temporary Income Tax Regs., supra.

     In order to substantiate a deduction by means of adequate

records, a taxpayer must maintain a diary, log, statement of

expenses, trip sheet, or similar record, and documentary evidence

which, in combination, are sufficient to establish each element

of each expense or use.   Sec. 1.274-5T(c)(2)(i), Temporary Income

Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985).   A contemporaneous

log is not required, but corroborative evidence to support a

taxpayer’s record of the elements of expenditure or use must have
                                - 8 -

“a high degree of probative value to elevate such statement and

evidence” to the level of credibility of a contemporaneous

record.   Sec. 1.274-5T(c)(1), Temporary Income Tax Regs., 50 Fed.

Reg. 46017 (Nov. 6, 1985).   Thus, no deduction for expenses under

section 274(d) may be allowed on the basis of any approximation

or the unsupported testimony of the taxpayer.   See, e.g., Murata

v. Commissioner, T.C. Memo. 1996-321; Golden v. Commissioner,

T.C. Memo. 1993-602.

     In this case, petitioner has attempted to substantiate his

expenditures through secondary and incomplete documentation.    In

particular, petitioner offered credit card statements and a

reconstructed summary of his expenditures.   Respondent reviewed

petitioner’s documents and, after performing a perfunctory

analysis, contends that most of the expenditures were for

transportation and entertainment.   Respondent further contends

that the submitted documents do not meet the more stringent

requirements of section 274(d).   Petitioner, on the other hand,

contends that all of the relevant expenditures represented by

these documents were incurred in connection with his financial

consulting business activity.

     At trial, petitioner testified that the original documents,

which substantiate his claimed job expenses and other

miscellaneous deductions, are on his hard drive and in files at

Merrill Lynch.   However, petitioner has not submitted those
                               - 9 -

documents in the record before this Court.     Petitioner claims

that Merrill Lynch will not turn over the documents.     Respondent

notified petitioner of the possibility of subpoenaing the

documents and continuing this case in an attempt to obtain them.

Petitioner did not avail himself of the opportunity either to

continue this case or to subpoena the alleged documents.

     Moreover, petitioner testified that he could not explain, as

to each entertainment expenditure, who he met with or what the

expense was incurred for, and he could not explain as to airline

expenditures what was the objective of the trip or the

destination.   As to the other claimed job expenses and

miscellaneous deductions, petitioner stated:     “It’d be impossible

to give * * * the exact name and prospect” for each expenditure.

     We have taken into consideration petitioner’s testimony and

incomplete records, and we conclude that petitioner failed to

satisfy the requirements of sections 162 and 274 as to any

expenditures in excess of the $19,285 respondent conceded.

     Reviewed and adopted as the report of the Small Tax Case

Division.


                                       Decision will be entered

                               under Rule 155.
