                  T.C. Summary Opinion 2003-146



                     UNITED STATES TAX COURT



      EDWARD L. PYRDUM AND TERRI L. PYRDUM, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1052-02S.             Filed October 2, 2003.



     Edward L. Pyrdum and Terri L. Pyrdum, pro se.

     Edsel Ford Holman, Jr., for respondent.


     POWELL, Special Trial Judge:   This case was heard pursuant

to the provisions of section 74631 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.



1
   Unless otherwise indicated, subsequent 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.
                                 - 2 -

     Respondent determined deficiencies and accuracy-related

penalties under section 6662(a) in petitioners’ 1999 and 2000

Federal income taxes in the following amounts:

          Year              Deficiency          Sec. 6662(a) Penalty

          1999               $6,783                 $1,356.60
          2000               10,565                  2,113.00

The issues are (1) whether petitioners are entitled to deductions

on Schedule C, Profit or Loss From Business, for expenses of

$21,194 and $30,178 for the years in issue, and (2) whether

petitioners are liable for the accuracy-related penalties under

section 6662(a).   Petitioners resided in Shelbyville, Tennessee,

at the time the petition was filed.

                              Background

     The facts may be summarized as follows.         On Schedule C

included in their 1999 and 2000 Federal income tax returns

petitioners claimed the following deductions:

                                         1999             2000

     Car & truck expenses             $10,844           $16,268
     Mortgage interest                  -0-               6,767
     Depreciation                       4,125              -0-
     Supplies                             750               375
     Travel                             2,750             1,265
     Meals                                325               238
     Utilities                          2,400             4,136
     Business use of home                -0-              1,129
                                 - 3 -

Petitioners reported income of $2,424 in 1999 and $2,679 in 2000

from the Schedule C activity.2    The car expenses were computed by

using the standard mileage expense method.      See Rev. Proc. 98-63,

1998-2 C.B. 818 ($.31 per mile); Rev Proc. 99-38, 1999-2 C.B. 525

($.325 per mile).   The depreciation deduction claimed for the

1999 taxable year was for automobiles for which deductions using

the standard rate were claimed, and petitioners concede that they

are not entitled to that deduction.      On the 2000 tax return,

petitioners deducted the mortgage interest expense also as an

itemized deduction, and they concede that the deduction was

properly disallowed on the Schedule C.

     The activity reported on the Schedules C related to

petitioner Terri L. Pyrdum (hereinafter petitioner).      Petitioners

divorced in 2001, and petitioner is now married to Allan Brittain

(Mr. Brittain).   During 1999 and 2000, petitioner was employed

full time as an inside sales representative by Holt Specialty

Equipment (Holt), a machinery manufacturer.      As a sales

representative, she traveled to various machinery trade shows in

the region.   Holt reimbursed petitioner for all of her travel

expenses incurred on behalf of Holt.

     During the years in issue, petitioner was also associated

with Key Credit Corp. (Key Credit), a financing company.      Key



2
   In the notice of deficiency respondent increased petitioners’
income by these amounts. Respondent concedes that these items of
income were included in the returns.
                                - 4 -

Credit financed equipment purchases.    Petitioner would refer a

purchaser of equipment to Key Credit, and, if the financing were

approved, petitioner would get a nominal percentage of the profit

on the financing.   According to Emelio Salinas, petitioner’s

contact with Key Credit, the maximum amount petitioner could have

made under the arrangement would have been $2,000 to $5,000 per

year.   Key Credit treated petitioner as an independent contractor

and issued her Forms 1099 for 1999 and 2000.

     Key Credit did not require that petitioner travel, and she

was informed that Key Credit would not reimburse her for any

travel expenses she incurred.   The travel expenses shown on the

Schedules C allegedly were incurred by petitioner in connection

with her association with Key Credit.    With respect to the car

expenses, petitioner did not maintain a log or other record of

mileage.   With regard to the travel and meal expenses, petitioner

introduced receipts which consist of copies of a round trip air

travel itinerary for Mr. Brittain and petitioner to Columbus,

Ohio, in 2000 of $406, a round trip air travel itinerary for

petitioner to Buffalo, New York, in 2000 of $218 to meet with Mr.

Brittain, a hotel receipt from Columbus, Ohio, of $231, and a

ticket stub to a concert in Columbus, Ohio, of $61.    The

deductions for utilities allegedly are derived from the utility

expenses at petitioners’ personal dwelling.
                               - 5 -

                            Discussion

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

necessary expenses incurred in carrying on a trade or business.

Section 274(d), however, provides that no deduction is allowed

for certain expenses unless the taxpayer “substantiates by

adequate records or by sufficient evidence corroborating the

taxpayer’s own statement”, inter alia, the time and place of the

travel and the business purpose of the expense.   The deductions

that fall within section 274(d) include travel expenses including

meals and lodging, sec. 274(d)(1), and deductions “with respect

to any listed property (as defined in section 280F(d)(4)”, sec.

274(d)(4).   Included within the ambit of “listed property” are

passenger automobiles.   Sec. 280F(d)(4)(A)(i).   To substantiate

the adequate records requirement for a passenger automobile, “a

taxpayer shall maintain an account book, diary, log, statement of

expense, trip sheets, or similar record * * * which, in

combination, are sufficient to establish each element of an

expenditure”.   Sec. 1.274-5T(c)(2)(i), Temporary Income Tax

Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985).   To substantiate a

business purpose for listed property “the record must contain

sufficient information as to each element of every business/

investment use.”   Sec. 1.275-5T(c)(2)(ii)(C), Temporary Income

Tax Regs., 50 Fed. Reg. 46018 (Nov. 6, 1985).
                                 - 6 -

     With regard to the deductions for car expenses, petitioner

has no logs or trip sheets.3   Rather, from what we gather, she

totaled the mileage driven for various periods and extrapolated

the total yearly mileage.   This does not meet the substantiation

requirements of section 274 and the regulations thereunder.

Moreover, we note that the indicated business mileage driven

during 1999 was 34,981 miles ($10,844 ÷ .31) and during 2000 was

51,644 miles ($16,268 ÷ .315).    During this time petitioner was

also a full time employee at Holt, and Holt reimbursed her for

any travel expenses to trade shows.4     While it may not have been

impossible to accomplish this driving, we find it highly

unlikely.   For example, during 2000, she would have had to have

driven almost 1,000 miles per week, and, since she worked for

Holt full time, that driving would have to have been done on the

weekends.   That would be approximately 500 miles per day.5

Respondent’s disallowance of the car expenses is sustained.



3
   Sec. 7491, concerning the burden of proof, is not applicable
here because petitioners have not satisfied the substantiation
requirement. Sec. 7491(a)(2)(A).
4
   Petitioner also introduced a copy of a hotel receipt from a
hotel in Alpharetta, Georgia, with the written notation “Show
Atlanta (16-18) - May - (Took vacation from work to go)”. The
notation is contradicted by petitioner’s testimony that Holt
reimbursed her for travel to trade shows.
5
   We note that petitioner was in Buffalo, New York, and
Columbus, Ohio, on two weekends and her husband testified that
she was not away every weekend. Given that, the actual mileage
per week would have been even greater.
                                 - 7 -

     Similarly, with regard to the other travel expenses,

petitioner has no records indicating the business purpose of the

trips.    Petitioner testified that the trip to Buffalo, New York,

was to meet a “potential customer”, but there is no indication of

any business discussions.    While in preparation for the trial

petitioner wrote the name Davis Evans on the Columbus, Ohio,

hotel receipt, there again is no indication of any business

discussions.    These records do not satisfy the adequate record

requirements of section 274, and we sustain respondent’s

disallowance of the travel expense deductions.6

     Turning to the deductions claimed for “utilities”, as we

understand, petitioners claim that petitioner used a portion of

their home for her business.     For the 2000 taxable year

petitioners also claimed a deduction for business use of their

home.    Section 280A(a) prohibits any deduction “with respect to

the use of a dwelling unit which is used by the taxpayer * * * as

a residence.”    A portion of a dwelling may be exempted from

section 280A(a) if it is exclusively used on a regular basis “as

the principal place of business for any trade or business of the

taxpayer”.    Sec. 280A(c)(1).




6
   Petitioner also introduced into evidence pages of a January
and December 2000 calendar and what she describes as customer
sheets containing the names, addresses, and telephone numbers of
potential customers. Neither indicated whether she had any
business meetings with these customers during her travels.
                                - 8 -

       We begin by noting that petitioners have no records showing

the total amounts paid for utilities.    For the 2000 taxable year

they claimed a deduction based on the business use of a portion

of the dwelling and for both years they claimed utility expenses

connected with this use.    According to a Form 8829, Expenses for

Business Use of Your Home, included in the 2000 tax return,

petitioner used 14.81 percent of the home exclusively for her Key

Credit business.    If this were correct, petitioners’ total

utility bills for 2000 would have been approximately $27,000

($4,000 ÷ .1481).    We decline to visit further into this land of

Oz.7   Respondent’s disallowance of the utility expenses is

sustained.

       Furthermore, petitioners have not substantiated that

petitioner used a portion of the home exclusively for her

business.    Petitioner-husband testified that the home office was

in the living room of the house.    But, there is nothing to

indicate that exclusive use of that room was for the Key Credit

business.    Petitioners have not shown that the exception to

section 280A(a) applies, and we sustain respondent’s

determination.

       The remaining deductions for 1999 and 2000 were for

supplies.    Again, petitioners have no receipts or other documents



7
   According to petitioners, the utility records could not be
located. We suspect that we know the reason for this.
                                - 9 -

substantiating these alleged expenditures.    Respondent’s

determinations are sustained.

Penalties Under Section 6662(a)

     As relevant here, section 6662(a) imposes a penalty in the

amount of 20 percent of the underpayment due to, inter alia,

negligence or substantial understatement of tax.    Negligence

includes “any failure to make a reasonable attempt to comply with

the provisions of” the revenue laws and any failure to keep

adequate books and records or to substantiate items properly.

Sec. 6662(c); sec. 1.6662-3(b)(1), Income Tax Regs.    We find that

there was no reasonable attempt to comply.8   Petitioner-husband

prepared the returns using information supplied by petitioner.

Petitioners failed to comply with the substantiation requirements

of section 274.   Petitioners claimed double deductions for

mortgage interest in 2000 and, in essence, for automobile

expenses in 1999.   Putting aside the section 280A failure to

substantiate the business use of any portion of the home, the

amounts claimed for utilities were, at best, fanciful, and the

same may be said for the claims of the mileage driven.

Respondent’s determinations of the accuracy-related penalties

under section 6662(a) are sustained.




8
    Respondent has satisfied his burden of production with
respect to the penalties. Sec. 7491(c).
                            - 10 -

    Reviewed and adopted as the report of the Small Tax Case

Division.

                                       Decision will be entered

                                  under Rule 155.
