                  T.C. Summary Opinion 2010-154



                     UNITED STATES TAX COURT



               JAMES D. GROAT, JR., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10463-09S.               Filed October 14, 2010.



     James D. Groat, Jr., pro se.

     Thomas R. Mackinson and Timothy Froehle (specially

recognized), for respondent.




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

the provisions of section 7463 of the Internal Revenue Code in

effect when the petition was filed.1   Pursuant to section



     1
        Unless otherwise indicated, all 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 -

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.

       Respondent determined a deficiency in petitioner’s 2006

Federal income tax of $4,123.

       After a concession by respondent,2 the issues for decision

are:       (1) Whether petitioner is entitled to a deduction for the

payment of legal fees; and (2) whether petitioner is entitled to

a deduction for unreimbursed employee business expenses.

                                Background

       Some of the facts have been stipulated, and they are so

found.      We incorporate by reference the parties’ stipulation of

facts and accompanying exhibits.

       Petitioner resided in the State of California when the

petition was filed.

       In November 2002, petitioner filed for divorce from his

wife.      Petitioner initially represented himself in the divorce

action; petitioner’s wife was represented by an attorney.

       Petitioner began making informal spousal support payments to

his wife in August 2002 when he moved out of the marital home.

Through her attorney, petitioner’s wife requested a formal amount

of support in October 2003, which amount was awarded by the



       2
        Respondent concedes that petitioner is entitled to a
deduction for tax preparation fees of $240.
                               - 3 -

court.   In February 2004, petitioner signed an agreement for

spousal support based upon a settlement officer’s

recommendations.

     Sometime in 2005 petitioner discovered what he thought were

discrepancies in his wife’s financial disclosures suggesting that

she was depositing approximately $10,000 per year into a bank

account, which amount did not correlate to any other reported

income source.   Petitioner subsequently sought legal

representation to assist him with reducing the amount of spousal

support he was paying to his wife.     As a result, petitioner

incurred legal fees of $13,574 in 2006.     In September 2006,

petitioner and his wife signed a marital settlement agreement,

one of the terms of which reduced the amount of spousal support

petitioner paid to his wife.

     On December 31, 2006, petitioner’s divorce became final.

Petitioner continued to pay spousal support through March 2009,

when his ex-wife remarried.

     During 2006, petitioner worked as a hardware engineer for

Lockheed Martin Corp. (Lockheed Martin).     Lockheed Martin

provided petitioner with a workspace that included a laptop

computer, a telephone, and Internet access.

     At some point petitioner purchased a home computer and

arranged to have Internet service provided to his home.     Because

petitioner’s Internet service provider could only provide
                              - 4 -

Internet access through a telephone line, petitioner also had a

telephone line installed in his home.    (Previously, petitioner

maintained just a cellular telephone.)    Petitioner used both the

computer and the Internet service for personal and business

purposes.

     Petitioner upgraded his cellular telephone service in 2006

to allow him better access to the Internet so as to receive and

send email messages when he was away from his workstation.

     In 2006, petitioner purchased various office supplies and

pieces of equipment such as computer software, batteries, a paper

shredder, and a computer keyboard.    Most of the equipment was

used in the maintenance and use of petitioner’s home computer,

but according to petitioner some of the items (not identified in

the record) were used exclusively at work.

     During 2006, petitioner maintained a post office box where

he received all of his personal mail and some business mail.

Petitioner also incurred expenses for postage for work-related

items.

     Petitioner was not reimbursed nor was he eligible for

reimbursement for any of the business-related expenses that he

incurred in 2006.

     Petitioner timely filed his 2006 Federal income tax return.

Attached to his return was a Schedule A, Itemized Deductions, on

which he claimed deductions for, inter alia, legal fees of
                                - 5 -

$13,574 and unreimbursed employee business expenses of $1,921.

The unreimbursed employee business expenses consisted of $444 for

Internet service, $621 for cellular telephone service, $694 for

office supplies and equipment, and $162 for postal expenses.

      In a notice of deficiency, respondent disallowed, inter

alia, the deductions for legal fees and unreimbursed employee

business expenses.

                             Discussion

I.   Burden of Proof

      In general, the Commissioner’s determination in a notice of

deficiency is presumed correct, and the taxpayer bears the burden

of showing that the determination is in error.      Rule 142(a);

Welch v. Helvering, 290 U.S. 111, 115 (1933).

      Pursuant to section 7491(a), the burden of proof as to

factual matters may shift to the Commissioner under certain

circumstances.   Petitioner has neither alleged that section

7491(a) applies nor established his compliance with its

requirements.    Accordingly, petitioner bears the burden of proof.

See Rule 142(a).

      Deductions are a matter of legislative grace, and the

taxpayer bears the burden of proof to establish entitlement to

any claimed deduction.   Rule 142(a); INDOPCO, Inc. v.

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

Helvering, 292 U.S. 435, 440 (1934).      This burden requires the
                               - 6 -

taxpayer to demonstrate that the deduction is allowable pursuant

to some statutory provision and that the expense to which the

deduction relates has been paid or incurred.    See sec. 6001

(requiring the taxpayer to keep and produce adequate records so

as to enable the Commissioner to determine the taxpayer’s correct

tax liability); Hradesky v. Commissioner, 65 T.C. 87, 90 (1975),

affd. per curiam 540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a),

Income Tax Regs.

II.   Legal Fees

      Personal, living, and family expenses generally are not

deductible by taxpayers.   Sec. 262(a).   Attorney’s fees and other

costs paid in connection with a divorce generally are personal

expenses and therefore nondeductible.     Sec. 1.262-1(b)(7), Income

Tax Regs.   On the other hand, expenses paid for the production or

collection of income, or in connection with the determination,

collection, or refund of any tax, generally are deductible.     Sec.

212(1), (3).

      Section 1.262-1(b)(7), Income Tax Regs., provides that

      the part of an attorney’s fee and the part of the other
      costs paid in connection with a divorce * * *, which
      are properly attributable to the production or
      collection of amounts includible in gross income under
      section 71 are deductible by the * * * [person who
      receives amounts includable in gross income] under
      section 212.

      Whether legal fees and expenses are deductible under section

212, or nondeductible under section 262(a), depends on the origin
                                - 7 -

of the underlying claim, not on its potential effects on the

fortunes of the taxpayer.    See United States v. Gilmore, 372 U.S.

39, 51 (1963) (taxpayer was not entitled to deduct legal expenses

incurred in divorce proceedings in which his spouse sought a

share of his controlling interests in three corporations because

his spouse’s claims stemmed from the marital relationship, not

from an income-producing activity).

       Petitioner contends that the attorney fees in his divorce

action were incurred in “defending [his] income” and attempting

to reduce the previously agreed amount of alimony.   Petitioner

further argues that the alimony paid “severely limited [his]

ability to invest money that would have been income earning

either as 401(k) monies or perhaps rental property or other

business endeavors”.    However, such fees are not made deductible

by section 212 but rather are governed by the general rule of

nondeductibility of attorney’s fees related to divorce.   Sec.

262(a); United States v. Gilmore, supra; see also sec. 1.262-

1(b)(7), Income Tax Regs.

       Accordingly, petitioner is not entitled to a deduction for

legal fees paid in 2006.

III.    Unreimbursed Employee Business Expenses

       Section 162 generally allows a deduction for ordinary and

necessary expenses paid or incurred during the taxable year in

carrying on a trade or business.    The determination of whether an
                                - 8 -

expense satisfies the requirements for deductibility under

section 162 is a question of fact.      Commissioner v. Heininger,

320 U.S. 467, 475 (1943).

     In general, an expense is ordinary if it is considered

normal, usual, or customary in the context of the particular

business out of which it arose.    Deputy v. du Pont, 308 U.S. 488,

495 (1940).    Generally, an expense is necessary if it is

appropriate and helpful to the operation of the taxpayer’s trade

or business.    Commissioner v. Tellier, 383 U.S. 687, 689 (1966);

Carbine v. Commissioner, 83 T.C. 356, 363 (1984), affd. 777 F.2d

662 (11th Cir. 1985).    On the other hand, section 262(a)

generally disallows a deduction for personal, living, or family

expenses.

     The term “trade or business” as used in section 162(a)

includes the trade or business of being an employee.      Primuth v.

Commissioner, 54 T.C. 374, 377-378 (1970).     Unreimbursed employee

business expenses incurred as a requirement of a taxpayer’s

employment are deductible.    Fountain v. Commissioner, 59 T.C.

696, 708 (1973).    Where expenses may pertain to either personal

or business use, a taxpayer may deduct that portion allocable to

business use.    Vanicek v. Commissioner, 85 T.C. 731, 742 (1985).

Absent evidence from the taxpayer allocating the expenses between

personal and business use, the Court may estimate a deductible

amount, but we may bear heavily against the taxpayer whose
                                - 9 -

inexactitude is of his own making.      Cohan v. Commissioner, 39

F.2d 540, 544 (2d Cir. 1930).     However, the taxpayer must present

sufficient evidence for the Court to form an estimate because

without such a basis, any allowance would amount to unguided

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

1957); Vanicek v. Commissioner, supra at 742-743.

     Notwithstanding the foregoing, the Court may not estimate a

taxpayer’s expenses with respect to the items enumerated in

section 274(d).    Sanford v. Commissioner, 50 T.C. 823, 827-828

(1968), affd. per curiam 412 F.2d 201 (2d Cir. 1969); Rodriguez

v. Commissioner, T.C. Memo. 2009-22 (strict substantiation

requirements of section 274(d) preclude any approximation of

expenses subject to that section).      Section 274 requires strict

substantiation for listed property such as cellular telephones

and computers or peripheral equipment.     See sec. 280F(d)(4).

Section 274(d) and the regulations thereunder require taxpayers

to substantiate their deductions by adequate records or

sufficient evidence establishing the amount, time, place, and

business purpose of the expense to corroborate the taxpayer’s own

testimony.   See sec. 1.274-5T(b), Temporary Income Tax Regs., 50

Fed. Reg. 46014 (Nov. 6, 1985).    In the absence of evidence

establishing the elements of the expenditure or use, deductions

must be disallowed entirely.    Sec. 274(d); Sanford v.
                                 - 10 -

Commissioner, supra at 827-828; see also sec. 1.274-5T(a),

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

     Finally, we note that certain deductions, including

unreimbursed employee business expenses, are subject to the 2

percent of adjusted gross income limitation under section 67(a).

     A.    Telephone, Cellular Phone, and Internet Costs

     Petitioner stated that he maintained a telephone line to his

home in order to have Internet access as required by his Internet

service provider.    However, basic service on the first telephone

line in a taxpayer’s residence is deemed a nondeductible personal

expense.    Sec. 262(b).   Petitioner has not shown that his

landline telephone expenses were more than the basic service on a

first telephone line.      Thus, he is not entitled to any deduction

for the use of the telephone in his home.

     Cellular telephones are included in the definition of listed

property, sec. 280F(d)(4)(A)(v), and are subject to the strict

substantiation requirements of section 274(d).       Petitioner has

not introduced evidence sufficient to substantiate the expense

and use of his cellular telephone.        Further, petitioner did not

demonstrate that any business use of his cellular telephone was

other than incidental.     Accordingly, petitioner is not entitled

to a deduction for cellular telephone expenses for 2006.

     Petitioner stated that he maintained Internet access to his

home so that he could work after hours on research and to
                                - 11 -

communicate via email with coworkers.    But petitioner also used

his computer and the Internet for personal purposes.

     The Court has characterized Internet expenses as utility

expenses.    Verma v. Commissioner, T.C. Memo. 2001-132.   Strict

substantiation therefore does not apply, and the Court may

estimate petitioner’s deductible expenses provided that the Court

has a reasonable basis for making an estimate.    Cohan v.

Commissioner, supra at 544; see Vanicek v. Commissioner, supra at

742-743 (an estimate must have a reasonable evidentiary basis);

Pistoresi v. Commissioner, T.C. Memo. 1999-39.    Petitioner has

not demonstrated that his business use of the Internet was other

than incidental, nor has petitioner presented any evidence

allocating his personal and business use of the Internet; thus

the Court is unable to estimate a deductible amount.

Accordingly, petitioner is not allowed a deduction for costs

associated with Internet access.3

     B.     Supplies and Equipment

     Petitioner contends that he purchased various office

supplies and equipment for his computer to enable him to work

after hours.

     One of the equipment items was an upgrade of petitioner’s

cellular telephone.    As discussed supra p. 10, petitioner is not



     3
        We note that Lockheed Martin provided Internet access to
petitioner at his place of business.
                                  - 12 -

entitled to a deduction for the upgrade of his cellular

telephone.   See secs. 280F(d)(4)(A)(v), 274(d).

     The other supply and equipment items include, inter alia,

computer software, batteries, a paper shredder, and a computer

keyboard.    Petitioner has not presented any evidence allocating

his personal and business use of these items; thus the Court is

precluded from estimating a deductible amount.      Therefore,

petitioner is not allowed a deduction for other supplies and

equipment.

     C.   Postal Expenses

     Petitioner maintained a post office box for the receipt of

all of his mail.    Petitioner also incurred expenses for postage

but acknowledged at trial that he did not “recall the specific

details” of the mailings.    We conclude that petitioner is not

entitled to a deduction for postal expenses as they are personal

expenses.    See sec. 262(a).

                                Conclusion

     We have considered all of the other arguments made by

petitioner, and, to the extent that we have not specifically

addressed them, we conclude that they are without merit.

     To reflect our disposition of the disputed issues, as well

as respondent’s concession,


                                             Decision will be entered

                                       under Rule 155.
