                        T.C. Memo. 2009-286



                      UNITED STATES TAX COURT



                  GREGORY HOUSTON, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 24342-07.            Filed December 14, 2009.



     Gregory Houston, pro se.

     Andrew M. Stroot, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     GOEKE, Judge:   Respondent determined deficiencies in

petitioner’s Federal income taxes and additions to tax as

follows:
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                                             Additions to Tax
Year       Deficiency   Sec. 6651(a)(1)        Sec. 6651(a)(2)   Sec. 6654(a)

2003        $7,378       $1,525.05              $1,253.93         $173.17
2004         4,511          983.70                 546.50          124.81

The issues for decision are:         (1) Whether petitioner is entitled

to certain business expense deductions for taxable years 2003 and

2004; and (2) whether petitioner is liable for additions to tax

for failure to file under section 6651(a)(1),1 failure to pay

under section 6651(a)(2), and failure to pay estimated taxes

under section 6654 for the years at issue.

                             FINDINGS OF FACT

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

The stipulation of facts and the accompanying exhibits are

incorporated herein by this reference.            At the time he filed his

petition, petitioner resided in Maryland.

       Petitioner did not file a timely return for 2002.

Respondent prepared a substitute for return for 2002 and assessed

tax based thereon.      Petitioner subsequently submitted a return

for 2002, on the basis of which respondent abated a portion of

the tax previously assessed.       Respondent stipulated that

petitioner’s income tax liability for 2002 was greater than zero

after the abatement.

       1
      All 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, unless otherwise
indicated.
                                - 3 -

     During 2003 petitioner received $18,615 of wage income from

Management Alternatives, Inc.    Petitioner also received

nonemployee compensation in 2003 from three sources:

               Source                            Amount

     Equals Three Communications, Inc.           $4,113
     American Federation of Teachers AFL         14,887
     KTA Group, Inc.                              2,047

     During 2004 petitioner received $790 of wage income from

International Limousine Service, Inc., and $5,664 from Management

Alternatives, Inc.   Petitioner also received nonemployee

compensation of $16,238 from the American Federation of Teachers

and $1,908 from IP-Central, L.L.C.

     Petitioner did not timely file a tax return for either of

the taxable years 2003 and 2004.    On April 16, 2007, respondent

prepared substitutes for returns under section 6020(b) on behalf

of petitioner for both years.    Respondent also mailed to

petitioner a Letter 2566 (30-day letter) for each of his taxable

years 2003 and 2004.    In those respective 30-day letters,

respondent advised petitioner that respondent had no record of

having received petitioner’s Federal income tax returns and

proposed assessments using information returns that respondent

had received from third-party payers.    Respondent also requested

that petitioner file a tax return for each of those years.

     On July 23, 2007, respondent sent petitioner notices of

deficiency for 2003 and 2004.    On October 22, 2007, petitioner
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timely petitioned the Court claiming that he had filed his tax

returns and expected a nominal refund.

      On June 23, 2008, petitioner mailed undated Forms 1040, U.S.

Individual Income Tax Return, to respondent for taxable years

2003 and 2004.   Petitioner subsequently submitted to respondent

another set of Forms 1040 for taxable years 2003 and 2004 dated

September 11, 2008.   In addition, on September 11, 2008,

petitioner provided photocopies of several receipts and a ledger

that was prepared on the same day.

                              OPINION

I.   Schedule C Business Expenses

      Deductions are a matter of legislative grace.   Taxpayers

generally bear the burden of proving that they are entitled to

claimed deductions.   See 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).    The taxpayer is required to

maintain records that are sufficient to enable the Commissioner

to determine his or her correct tax liability.   See sec. 6001;

sec. 1.6001-1(a), Income Tax Regs.

      The Commissioner’s determinations set forth in a notice of

deficiency are generally presumed correct, and the taxpayer bears

the burden of proving that the determinations are 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 issues may
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shift to the Commissioner where the taxpayer complies with

substantiation requirements, maintains records, and cooperates

fully with reasonable requests for information.       Petitioner does

not claim and has not shown that the burden shifts to respondent

under section 7491(a).

      A.      Automobile Expenses

      Petitioner claimed deductions for automobile expenses of

$857 and $2,215, respectively, for tax years 2003 and 2004 on his

Schedules’ C, Profit or Loss from Business, as business expenses.

Pursuant to section 274(d), automobile expenses otherwise

deductible as business expenses will be disallowed in full unless

the taxpayer satisfies strict substantiation requirements.       The

taxpayer must substantiate the automobile expenses by adequate

records or other corroborating evidence of items such as the

amount of the expense, the time and place of the automobile’s

use, and the business purpose of its use.       See Sanford v.

Commissioner, 50 T.C. 823, 827-828 (1968), affd. per curiam 412

F.2d 201 (2d Cir. 1969); Maher v. Commissioner, T.C. Memo. 2003-

85.   Petitioner provided gas receipts that he claimed are

evidence that he had traveled to Baltimore, Pennsylvania, and New

York.      Petitioner did not (1) keep records of each trip, (2) keep

a log as to the business purpose of each trip, and (3) keep a

record of what vehicle was used.       Gas expenses were paid from

petitioner’s personal checking account, and there is no
                                 - 6 -

indication that expenses listed on the receipts represent

expenses paid for petitioner’s business activities.    Therefore,

petitioner is not entitled to deductions for automobile expenses.

     B.    Bank Charges

     Petitioner claimed deductions for bank charges of $60 and

$154, respectively, for 2003 and 2004.    Petitioner argues that

the claimed bank charges were deductible ordinary and necessary

business expenses.   To substantiate his claim, petitioner

provided bank statements and claimed the charges were for

overdraft fees during the year.    Petitioner admitted that the

account giving rise to the overdraft fees was in part a personal

account.   Petitioner has not provided any evidence showing the

fees for the returned checks to be ordinary and necessary

expenses of his businesses.   Cf. Bailey v. Commissioner, T.C.

Memo. 1991-385, affd. without published opinion 968 F.2d 25 (11th

Cir. 1992).   Petitioner has not sustained his burden of proving

that the claimed bank charges for overdrafts were ordinary and

necessary expenses of his businesses.

     C.    Computer Equipment and Repairs

     Petitioner claimed deductions for computer equipment and

repairs for 2003 and 2004 of $2,538 and $591, respectively.

Petitioner claimed to have purchased a computer to maintain

business records at his house.    Petitioner also claimed

deductions for repairing the computers as part of his moving
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business.    As evidence, petitioner offered receipts from various

computer stores with charges for computer equipment.

     A computer is “listed property” and subject to the strict

substantiation requirements of section 274(d).    Sec.

280F(d)(4)(A)(iv).    Petitioner failed to present any evidence

that the computer was used for his moving business.      Further,

petitioner has not shown that he did not use the computer for

personal reasons.    Petitioner has failed to substantiate a

Schedule C deduction relating to the computer.

     Petitioner’s purchase of computer equipment and/or upgrades

to the computer equipment is not shown to be an ordinary and

necessary business expense.    See Riley v. Commissioner, T.C.

Memo. 2007-153; Wasik v. Commissioner, T.C. Memo. 2007-148.

     D.     Client Entertainment

     Petitioner claimed deductions for client entertainment

expenses of $271 and $211, respectively, for 2003 and 2004 on his

Schedules C.    Petitioner must satisfy the requirements of section

274(d) to the extent provided under the applicable regulations.

Under those regulations, petitioner must maintain adequate

records showing the amount, time, place, business purpose, and

business relationship of the recipient.    Sec. 1.274-5T(b)(3),

Temporary Income Tax Regs.    50 Fed. Reg. 46015 (Nov. 6, 1985).

Petitioner testified that he would take clients and coworkers out

after work for drinks and food and provided receipts from several
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social establishments.   Petitioner has not met the section 274

substantiation requirements because he has not provided evidence

as to the business nature of the expense.    See Henry Schwartz

Corp. v. Commissioner, 60 T.C. 728 (1973).

     E.   Office Expenses/Supplies

     Petitioner claimed deductions for office expenses of $138

and $85, respectively, for 2003 and 2004 on his Schedule C.

Petitioner testified that these deductions are for office paper

and carbon paper.    As evidence, petitioner provided receipts for

purchases made at a Staples office supply store.   Under these

circumstances we may estimate the amount of deductible expenses,

using our best judgment.    Cohan v. Commissioner, 39 F.2d 540 (2d

Cir. 1930).   Considering the record as a whole, we find that

petitioner is entitled to deductions for office expenses and

supplies of $86 and $11, respectively, for 2003 and 2004.

     F.   Telephone/Internet/Faxes

     Petitioner claimed deductions for telephone, Internet, and

fax expenses for his residence of $1,058 and $517, respectively,

for 2003 and 2004.

     Section 262 provides that personal, living, and family

expenses are not deductible unless expressly allowed, and the

regulations specify that personal, living, and family expenses

include utilities provided to a taxpayer’s home unless the

taxpayer uses a part of his home for his business.   Sec.
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1.262-1(b)(3), Income Tax Regs.      Section 262(b) specifically

disallows any deduction for the first line of basic local

telephone service provided to a taxpayer’s residence.      Petitioner

claimed a deduction for his telephone and fax expenses in 2003

and 2004.    Petitioner has provided no evidence to establish that

he uses his home as a place of business.      Petitioner’s telephone

and fax expenses are nondeductible personal expenses under

section 262.

     Petitioner claimed a deduction for Internet expenses.

Petitioner provided monthly bills for Internet services; however,

he failed to show the ratio of business to personal use.      In

addition, petitioner did not produce evidence that his business

required him to have Internet access.      The Internet expense

deductions petitioner claimed are therefore disallowed.

     G.     Parking and Taxicabs

     Petitioner claimed deductions for taxicabs and parking of

$43 and $36, respectively, for 2003.       Petitioner often traveled

to meet with clients in their offices.      Petitioner would either

take a taxicab to these local meetings or drive himself.

Petitioner presented several taxicab receipts totaling $43.

     Section 274(d)(4) applies to parking expenses, but

expenditures of $75 or less for transportation charges do not

require documentary evidence.      See sec. 1.274-5(c)(2)(iii)(A)(2),

Income Tax Regs.    Petitioner presented receipts from parking
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garages totaling $36.    We find that petitioner is entitled to a

deduction of $79 for these business expenses.

      H.   Rental Expenses

      Petitioner claimed deductions on his Schedule C for rental

expenses in 2003 and 2004 totaling $3,542, respectively.

Petitioner testified that those costs represented rental costs

for shipping carts, trucks, and jacks for his moving business.

At trial petitioner produced invoices of equipment rentals

totaling $1,158.09 for 2003 as well as receipts for truck rentals

totaling $262.26 for 2004.    We find that petitioner is entitled

to the claimed deductions.

II.   Additions to Tax

      Respondent determined that petitioner is liable for (1)

additions to tax for failure to timely file a return under

section 6651(a)(1); (2) failure to timely pay tax under section

6651(a)(2); and (3) failure to pay estimated income tax under

section 6654(a), for the 2 years at issue.    The Commissioner

bears the burden of production with respect to a taxpayer’s

liability for additions to tax under sections 6651(a)(1) and (2)

and 6654(a).    Sec. 7491(c); Rule 142(a); Higbee v. Commissioner,

116 T.C. 438 (2001).     At trial petitioner conceded that there was

no reasonable cause for his failure to timely file his income tax

returns nor any basis for not finding that he is liable for the

additions to tax.
                              - 11 -

     The evidence establishes that petitioner failed to timely

file income tax returns for 2003 and 2004.    Therefore, respondent

has sustained his burden of proving that the additions to tax are

appropriate.   See sec. 7491(c); Rule 142(a)(2).   Accordingly, we

hold that petitioner is liable for the additions to tax under

sections 6651(a)(1) and (2) and 6654 for the years in issue.

     To reflect the foregoing,


                                           Decision will be entered

                                       under Rule 155.
