                  T.C. Summary Opinion 2004-159



                     UNITED STATES TAX COURT



                 THOMAS N. COCCIA, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 9357-03S.            Filed November 18, 2004.


     Thomas N. Coccia, pro se.

     Jason M. Kuratnick, for respondent.



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

the provisions of section 7463 of the Internal Revenue Code in

effect at the time that the petition was filed.   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.

The decision to be entered is not reviewable by any other court,

and this opinion should not be cited as authority.
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       Respondent determined a deficiency in and additions to

petitioner's Federal income tax for taxable year 2000 as follows:

                                    Additions to Tax1
Year       Deficiency   Sec. 6651(a)(1) Sec. 6651(a)(2)    Sec. 6654(a)

2000        $16,583         $1,416              $629           $277
       1
        Figures are rounded to the nearest dollar.

       After concessions,1 the issues for decision are whether

petitioner is:        (1) Required to report wages he received; (2)

required to report gambling winnings he received; (3) required to

report interest he received; (4) required to report self-

employment income he received; (5) entitled to deduct certain

trade or business expenses on Schedule C, Profit or Loss From

Business; and (6) liable for self-employment tax pursuant to

section 1401.

                                 Background

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

The stipulation of facts and the exhibits received into evidence

are incorporated herein by reference.         At the time the petition

in this case was filed, petitioner resided in Philadelphia,

Pennsylvania.




       1
      Respondent concedes that petitioner is not liable for the
addition to tax for failure to pay tax under sec. 6651(a)(2).
Petitioner concedes that any deficiency redetermined by the Court
is subject to the addition to tax under sec. 6651(a)(1) for
failure to file a tax return timely and the addition to tax
under sec. 6654(a) for failure to pay estimated taxes.
                                 - 3 -

     Petitioner, a Philadelphia police officer, failed to file

timely a Federal income tax return for taxable year 2000.

Respondent determined petitioner's income on the basis of

information returns submitted to respondent by third party

payors.   Respondent also determined that petitioner is liable for

the above-listed additions to tax.

     On March 19, 2004, after respondent issued petitioner a

statutory notice of deficiency, petitioner submitted a tax return

for 2000 (March return).     Respondent has not processed the March

return, and no tax has been assessed as a result of petitioner's

submission of the March return.

     After the petition was filed, respondent filed an answer

conceding that petitioner is not liable for an addition to tax

under section 6651(a)(2) and asserting an increase in the

addition to tax under section 6651(a)(1) of $157.35.

     At trial, petitioner submitted an additional tax return he

referred to as an "amended return" for taxable year 2000.

A.   Petitioner's Income for the 2000 Taxable Year

     1.   Wages

     In 2000, petitioner received wages of $6,275 from Society

Hill Towers.    He also received wages of $66,935 from the City of

Philadelphia.     Federal income tax of $10,289 was withheld from

petitioner's wages.
                                 - 4 -

     2.   Gambling Winnings

     During 2000, respondent received from Showboat Casino three

Forms W2-G, Statement for Recipients of Certain Gambling

Winnings.    Two of the Forms W2-G were dated May 22, 2000, and

reported that petitioner had won a total of $3,100.    The third

Form W2-G dated August 9, 2000, reported that petitioner had an

additional $1,500 of gambling winnings.

     On his March return, petitioner reported $18,100 of gambling

winnings and an equivalent amount of gambling losses.

Petitioner's "amended return" reflected the winnings as $1,500.

Petitioner did not maintain a diary or any other contemporaneous

record reflecting either his gambling winnings or losses during

the 2000 taxable year.

     3.   Interest Income

     Petitioner received taxable interest income of $298 during

the 2000 taxable year.

B.   Petitioner's Deductions for the 2000 Taxable Year

     1.   Itemized Deductions

     The parties agree that petitioner is entitled to the

following itemized deductions:

                      Expense                    Amount

            State and local income taxes         $5,871
            Real estate taxes                     1,743
            Home mortgage interest                4,903
            Gifts to charity                      1,140
               Total                             13,657
                                - 5 -

     2.   Schedules C

     Petitioner attached Schedules C to the March return and to

the "amended return" he submitted to respondent.   The activities

reported therein included security brokerage services and the

operation of a newsstand.

           a.   Security Brokerage Services

     Respondent received a Form 1099, Miscellaneous Income, from

RBA Associates, Inc., reporting that petitioner received

nonemployee compensation of $1,024 in 2000.   On the March return,

petitioner attached a Schedule C for the principal business of

"Retail Stand" reporting income of $1,024, costs of goods sold of

$1,024, and expenses of $2,900.   Attached to his "amended return"

is a Schedule C-EZ, Net Profit From Business, for the principal

business of "Security" reflecting gross receipts of $1,024 and

total expenses of $1,024.

     Petitioner does not have any records pertaining to this

transaction other than the Form 1099.   He did not report any

self-employment tax liability on the March return he submitted to

respondent or on the "amended return" he submitted at trial.

          b.    Newsstand

     In 2000, petitioner attempted to open a newsstand in South

Philadelphia.   Petitioner does not have any records pertaining to

his expenses for the newsstand.
                                 - 6 -

     Petitioner never commenced operation of the newsstand.      On

his "amended return", petitioner reported a net loss of $11,900

for the business.

                              Discussion

A.   Burden of Proof

     The Commissioner's determinations are presumed correct, and

generally, taxpayers bear the burden of proving otherwise.       Welch

v. Helvering, 290 U.S. 111, 115 (1933).    Moreover, deductions are

a matter of legislative grace, and taxpayers bear the burden of

proving that they are entitled to any deduction claimed.     New

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

Helvering, supra at 115.    This includes the burden of

substantiation.     Hradesky v. Commissioner, 65 T.C. 87, 90 (1975),

affd. per curiam 540 F.2d 821 (5th Cir. 1976).

     The burden of proof may shift to the Commissioner under

section 7491(a).    Because petitioner failed to comply with the

requirements of section 7491(a)(2), however, section 7491 is

inapplicable.

B.   Petitioner's Income

     Pursuant to section 61(a), gross income includes "all income

from whatever source derived" unless excludable by a specific

provision of the Internal Revenue Code.    Petitioner does not

dispute that during 2000, he received wages of $73,210, gambling

winnings of $4,600, interest income of $298, and nonemployee
                               - 7 -

compensation of $1,024.2   Petitioner did not present any argument

that these amounts are not includable in income.    The Court

therefore concludes that petitioner is required to include these

amounts in income.

     While petitioner does not dispute that his gambling winnings

should be included in his income, he does assert that his

gambling winnings should be offset by his gambling losses.

Section 165(d) allows taxpayers to deduct losses from wagering

transactions to the extent of the gains from such transactions.

     In order to establish entitlement to a deduction for

wagering losses in this Court, the taxpayer must prove the losses

sustained during the taxable year.     Mack v. Commissioner, 429

F.2d 182 (6th Cir. 1970), affg. T.C. Memo. 1969-26; Stein v.

Commissioner, 322 F.2d 78 (5th Cir. 1963), affg. T.C. Memo.

1962-19.   The taxpayer must also prove that the amount of

wagering losses claimed as a deduction does not exceed the amount

of the taxpayer's gains from wagering transactions.    Sec. 165(d).

Implicitly, this requires the taxpayer to prove both the amount

of losses and the amount of winnings.     Schooler v. Commissioner,

68 T.C. 867, 869 (1977); Donovan v. Commissioner, T.C. Memo.



     2
      Pursuant to sec. 6211(b)(1), petitioner's withheld tax on
wages of $10,289 is not taken into consideration in determining
the deficiency. It is, however, applied in calculating the
amount required to be paid. Sec. 31(a)(1). The addition to tax
under sec. 6651(a) is calculated on the net amount of tax due.
Sec. 6651(b)(1).
                               - 8 -

1965-247, affd. per curiam 359 F.2d 64 (1st Cir. 1966).

Otherwise, there would be no way of knowing whether the sum of

the losses deducted on the return is greater or less than the

taxpayer's winnings.   Schooler v. Commissioner, supra at 869.

     Petitioner did not maintain a diary or any other

contemporaneous record reflecting either his winnings or his

losses from gambling during the 2000 taxable year.    The only

evidence presented at trial was petitioner's testimony, on which

we decline to rely.

     Although the Court acknowledges that petitioner most likely

had some gambling losses during the year, we are unable to

determine (either with specificity or by estimation) the amount

of those losses on the basis of the record at hand.    Petitioner

has not met his burden of proof on this issue.    See Mayer v.

Commissioner, T.C. Memo. 2000-295, affd. 29 Fed. Appx. 706 (2d

Cir. 2002); Zielonka v. Commissioner, T.C. Memo. 1997-81; see

also Finesod v. Commissioner, T.C. Memo. 1994-66.

C.   Petitioner's Business Losses

     The Schedule C attached to petitioner's "amended return"

reported trade or business expenses that resulted in a loss of

$11,900 for his newsstand business.    Petitioner claimed

entitlement to this business loss for the first time shortly

before trial and argued the issue at trial.    Respondent

questioned petitioner regarding substantiation of the expenses.
                                - 9 -

The Court deems the issue raised and tried by consent of the

parties under Rule 41(b)(1) and properly before the Court.     See

Christensen v. Commissioner, T.C. Memo. 1996-254, affd. without

published opinion 142 F.3d 442 (9th Cir. 1998).

     Section 162(a) allows a taxpayer deductions for ordinary and

necessary business expenses paid during the taxable year in

carrying on a trade or business.    Generally, a taxpayer must

establish that deductions claimed pursuant to section 162 are for

ordinary and necessary business expenses and must maintain

records sufficient to substantiate the amounts of the deductions

claimed.    Sec. 6001; sec. 1.6001-1(a), Income Tax Regs.   Under

section 6001, a taxpayer bears the sole responsibility for

maintaining his business records.

     Petitioner says he purchased an existing newsstand but does

not have any records to show how much he paid for it.    He

testified that the newsstand was burglarized twice before he was

able to commence operations.    Petitioner filed burglary reports

with the police and gave them estimates as to the value of the

items taken, including the strongbox containing all of his

receipts.

     If a claimed business expense is deductible, but the

taxpayer is unable to substantiate it, the Court is permitted to

make as close an approximation as it can, bearing heavily against

the taxpayer whose inexactitude is of his or her own making.
                                - 10 -

Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930).        The

estimate, however, must have a reasonable evidentiary basis.

Vanicek v. Commissioner, 85 T.C. 731, 743 (1985).     Without such a

basis, such an allowance would amount to unguided largesse.

Williams v. United States, 245 F.2d 559, 560 (5th Cir. 1957).

     In light of the complete absence of any documents or

reasonable evidence substantiating petitioner's claimed expenses,

the Court concludes that petitioner is not entitled to deduct any

Schedule C expenses for 2000.

D.   Self-Employment Tax

     Generally, a sole proprietor who derives income from a trade

or business is considered to have received self-employment

income.   Secs. 1.1401-1(c), 1.1402(c)-1, Income Tax Regs.

Self-employed individuals are also liable for self-employment tax

pursuant to section 1401 as part of their Federal income tax

liability.   Secs. 1.1401-1(a), 1.6017-1(a)(1), Income Tax Regs.

     Subject to statutory exclusions, the amount of

self-employment tax an individual owes is based on his "net

earnings from self-employment".    Sec. 1402(a).   "Net earnings

from self-employment" include "the gross income derived by an

individual from any trade or business carried on by such

individual, less the deductions allowed" which are attributable

to the trade or business.   Id.; sec. 1.1402(a)-1(a)(1), Income

Tax Regs.
                              - 11 -

     Petitioner was paid for brokering security services.   He

says he served as a middleman and did not realize any profit from

this one-time assignment because all the revenue he received was

paid out to the workers.   Petitioner had hoped that this

assignment would result in subsequent security jobs, but such was

not the case.   Petitioner, however, does not have any records

documenting any deductible expenses he may have paid.   Therefore,

the Court holds that petitioner is liable for self-employment tax

on the income he earned providing the security services.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,

                                         Decision will be entered

                                    under Rule 155.
