                        T.C. Memo. 2002-42



                      UNITED STATES TAX COURT



        MICHAEL R. OLSEN AND SHEILA OLSEN, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5422-00.               Filed February 12, 2002.



     Michael R. Olsen and Sheila Olsen, pro sese.

     Christian A. Speck, for respondent.



                        MEMORANDUM OPINION

     DINAN, Special Trial Judge:   Respondent determined a

deficiency in petitioners’ Federal income tax of $2,658, and an

addition to tax under section 6651(a)(1) of $495.25, for the

taxable year 1996.   Unless otherwise indicated, section

references are to the Internal Revenue Code in effect for the
                               - 2 -

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

of Practice and Procedure.

     The sole issue for decision is whether petitioners are

entitled to various business expense deductions disallowed by

respondent.1   Petitioners resided in Sacramento, California, on

the date the petition was filed in this case.

     During the year in issue, petitioner husband (petitioner)

received compensation of $31,358 from the United States Postal

Service and $800 from Zears Painting & Decorating, Inc.    He also

received nonemployee compensation of $9,445 from Zears.

Petitioner wife received nonemployee compensation of $1,200 from

Joell’s Graphics.   Also during this year, petitioners were

involved with Olray Corporation, which was engaged in motorcycle

repair.   A Federal income tax return was filed for this

corporation for taxable year 1996, reporting gross receipts or

sales of $50,262 and a loss of $28,861.   No compensation was

reported as paid to officers or employees on the corporation’s

return.


     1
      Respondent concedes the disallowance of a $5,589 itemized
deduction for casualty and theft losses. The applicability of
the sec. 6651(a)(1) addition to tax for failure to timely file a
return was not raised by petitioners as an issue either in the
petition or at trial. We note, however, that the record supports
respondent’s assertion of the addition to tax because the return
was signed on April 10, 1998, and stamped received by the IRS on
May 8, 1998. All of the adjustments otherwise unaddressed
(including the correct amount of the addition to tax) are
computational and will be resolved by the Court’s holding on the
issue in this case.
                               - 3 -

     Petitioners filed a joint Federal income tax return for

taxable year 1996.   With this return, petitioners filed a

Schedule C, Profit or Loss From Business.   This schedule named

petitioners as proprietors of a business (“the Schedule C

business”) engaged in “Mgt, Consulting, Estimating, Bkpr”.

Petitioners reported the following amounts on this schedule:

     Gross receipts or sales                       $10,645
     Cost of goods sold                               (500)
     Expenses
          Advertising                     $500
          Bad debts                        500
          Car and truck                  3,053
          Depreciation                   2,446
          Insurance                        250
          Office                           250
          Rent or lease                  1,500
          Repairs and maintenance        2,000
          Supplies                         250
          Utilities                        240
          Total expenses                           (10,989)
     Loss                                             (844)

No income was reported on the Schedule C as having been received

from Olray Corporation for services rendered by petitioners.     In

the statutory notice of deficiency, respondent disallowed the

deductions for the car and truck, depreciation, and repairs and

maintenance expenses.

     Petitioners argue that the Schedule C business was engaged

in a variety of business activities, one of which was making

deliveries for Olray Corporation.   Petitioners testified that

they maintained separate office space on the premises of Olray

Corporation for conducting the activities of the Schedule C

business, and that the business ventures were separate and
                                - 4 -

distinct.   The only evidentiary support provided by petitioners

for the disallowed deductions relates to the activities conducted

for Olray Corporation.

     Ordinary and necessary expenses incurred in carrying on a

trade or business generally are deductible by the individual

engaged in the trade or business.    Sec. 162(a).

     A taxpayer generally must keep records sufficient to

establish the amounts of the items reported on his Federal income

tax return.   Sec. 6001; sec. 1.6001-1(a), (e), Income Tax Regs.

However, in the event that a taxpayer establishes that a

deductible expense has been paid but that he is unable to

substantiate the precise amount, we generally 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.    Cohan v. Commissioner, 39 F.2d

540, 543-544 (2d Cir. 1930).    We cannot estimate a deductible

expense, however, unless the taxpayer presents evidence

sufficient to provide some basis upon which an estimate may be

made.   Vanicek v. Commissioner, 85 T.C. 731, 743 (1985).

     Section 274(d) supersedes the Cohan doctrine.    Sanford v.

Commissioner, 50 T.C. 823, 827 (1968), affd. 412 F.2d 201 (2d

Cir. 1969).   As relevant here, section 274(d) provides that,

unless the taxpayer complies with certain strict substantiation

rules, no deduction is allowable for expenses with respect to
                                - 5 -

automobiles or other property used as a means of transportation.

Sec. 274(d)(4).    To meet the strict substantiation requirements,

the taxpayer must substantiate the amount, time, place, and

business purpose of the expenses.    Sec. 274(d); sec. 1.274-5T,

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

With respect to the use of automobiles, in order to establish the

amount of an expense the taxpayer must establish the amount of

business mileage and the amount of total mileage for which the

automobile was used.    Sec. 1.274-5T(b)(6)(i)(B), Temporary Income

Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).    The taxpayer may

substantiate the amount of mileage by adequate records or by

sufficient evidence corroborating his own statement.    Sec.

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

automobile was used, supported by documentary evidence, has a

high degree of credibility not present with a subsequently

prepared statement.    Sec. 1.274-5T(c)(1), (2), and (3), Temporary

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

     Petitioners’ exact relationship to the Olray corporation is

unclear:    Although petitioner testified that he is the president

of the corporation, nothing indicates an employment role for

petitioner wife, nor was the ownership of the corporation

explained.    The expenses at issue seem intricately tied to the

corporation; thus, it is unclear why petitioners claimed the

expenses as deductions on their individual income tax return
                               - 6 -

rather than on the corporation’s return.   We note that a

corporation is a separate legal entity, and an individual

generally may not claim deductions for expenses incurred by a

corporation.   See Gantner v. Commissioner, 91 T.C. 713, 725

(1988), affd. 905 F.2d 241 (8th Cir. 1990).   However, we need not

decide whether the deductions were those of the corporation (or

possibly employee business expenses) because we hold that

petitioners have not substantiated the expenses.

     The evidence provided to support the deductions for the

expenses in issue is comprised of a summary showing mileage for

pickup and delivery of motorcycles, a summary of repairs and

maintenance on a truck, and a summary showing the costs

associated with a motorcycle for which petitioners claimed

depreciation expenses.   All of the other evidence provided by

petitioners, as well as their testimony, helps to establish that

they were involved in the business of Olray Corporation but does

not provide adequate substantiation of any specific expenses.2

     We find the mileage summary to be insufficient

substantiation under section 274(d) because the mileage amounts

were not entered at the time the vehicle was used and because

they were based on figures in a computer atlas database rather

     2
      Petitioners filed an amended Federal income tax   return for
taxable year 1996, but the return was not accepted by   respondent.
This return, which was introduced as evidence, merely   contains
uncorroborated assertions by petitioners and does not   provide
substantiation for any of the amounts in issue.
                                 - 7 -

than actual odometer readings.    We find the summary of truck

repairs and maintenance to be insufficient substantiation because

the underlying records were not produced and because petitioners

have not shown the percentage of business versus personal use of

the truck as required by section 274(d).       Finally, we find the

summary of motorcycle costs to be insufficient substantiation

because it was based solely upon recollection and was not

supported by other reliable evidence.

     Because petitioners have not substantiated the amounts of

the expenses in issue, we sustain respondent’s disallowance of

the deductions therefor.

     To reflect the foregoing,

                                         Decision will be entered

                                 under Rule 155.
