                               T.C. Memo. 2013-163



                         UNITED STATES TAX COURT



                     JOHN C. HOM, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 9399-11.                            Filed July 8, 2013.



      John C. Hom, pro se.

      Tyler N. Orlowski, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      COHEN, Judge: Respondent determined the following deficiencies,

additions to tax, and penalties with respect to petitioner’s Federal income tax:
                                         -2-

     [*2]                              Additions to tax                Penalty

                             Sec.           Sec.           Sec.         Sec.
    Year    Deficiency    6651(a)(1)     6651(a)(2)        6654        6662(a)

    2005       $67,263 $16,815.75    -0-                     -0-      $13,452.60
    2006        53,181 13,285.75     -0-                     -0-       10,636.20
    2007        96,240 21,654.00 $15,879.60               $3,244.36      -0-
    2008        38,938   8,761.05  4,088.49                1,251.32      -0-

After concessions, the issues for decision are: (1) whether the notice of deficiency

is invalid for failing to include the address and telephone number of the local

office of the National Taxpayer Advocate as directed by section 6212(a); (2)

whether the notice of deficiency is invalid with respect to 2007; (3) whether

petitioner received unreported wages of $114,323.73, $103,513.97, $68,578.04,

and $88,581.76 in 2005, 2006, 2007, and 2008, respectively, from his wholly

owned subchapter C corporation, John C. Hom & Associates (JCHA); (4) whether

petitioner was an employee of JCHA pursuant to section 3121(d)(1) or (2); (5)

whether petitioner is entitled to deduct additional gambling losses for 2006, 2007,

and 2008, and if so, in what amounts; (6) whether petitioner is entitled to deduct

additional gambling expenses under section 162(a) for 2005, 2006, 2007, and

2008; (7) whether petitioner is entitled to deduct other expenses listed on the

Schedules C, Profit or Loss From Business, for his laundromat business in

amounts greater than respondent conceded; and (8) whether petitioner is liable for
                                         -3-

[*3] accuracy-related penalties under section 6662(a) for 2005 and 2006. The

parties agree that petitioner was required to use the married filing separate status

during the years in issue. Unless otherwise indicated, all section references are to

the Internal Revenue Code as in effect for the years in issue, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

                                FINDINGS OF FACT

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

incorporated in our findings by this reference. Petitioner resided in California

when he filed his petition.

I.    Background

      Petitioner received a bachelor of science degree from the University of

California at Berkeley. Petitioner has been licensed by and registered with

California as a civil engineer and a geotechnical engineer since 1978.

II.   Petitioner’s Businesses

      A.     JCHA

      On April 2, 1986, petitioner registered JCHA, his wholly owned subchapter

C corporation, as a California corporation. Petitioner is the president and chief

executive officer of JCHA, and no other person has served as an officer of JCHA.

On March 1, 2004, the State of California Franchise Tax Board suspended JCHA’s
                                        -4-

[*4] corporate powers, rights, and privileges for failure to pay State income taxes.

Nevertheless, JCHA continued its business operations during the years in issue.

      Petitioner managed the day-to-day operations of JCHA, and he alone

provided licensed engineering services for JCHA during the years in issue.

Petitioner did not perform engineering services for any other engineering firm

during the years in issue, and he maintained health insurance through JCHA

during the years in issue.

      According to time records JCHA maintained, petitioner worked the

following hours:

                       Start date       End date       Hours

                      Apr. 1, 2005   Mar. 31, 2006    2,103.60
                      Jan. 1, 2006   Dec. 31, 2006    1,679.10
                      Jan. 1, 2007   Dec. 31, 2007      631.25
                      Jan. 1, 2008   Dec. 31, 2008      358.50

      JCHA maintained a Wells Fargo bank account with an account number

ending in 6759 (JCHA’s account). Petitioner had sole access to JCHA’s account.

After petitioner ignored information document requests from the Internal Revenue

Service (IRS), Revenue Agent Kevan Mullins summoned bank statements for the

years in issue for JCHA’s account and performed a bank deposits analysis on the
                                        -5-

[*5] account. The bank deposits analysis, after a correction, shows that petitioner

made the following withdrawals, electronic deposits, paper deposits, and net

withdrawals from JCHA’s account:

                            2005           2006           2007           2008

  Withdrawals            $138,860.91    $113,812.93    $94,953.75    $126,561.11
  Electronic deposits      24,537.18      10,298.96     26,375.71      26,309.95
  Paper deposits             -0-            -0-            -0-         11,669.40
   Net withdrawals        114,323.73     103,513.97     68,578.04      88,581.76

      On April 5, 2010, petitioner submitted to the IRS Forms 1120, U.S.

Corporation Income Tax Return (corporate income tax returns), for JCHA’s

taxable years ending March 31, 2004, 2005, 2006, 2007, and 2008. On its

corporate income tax returns JCHA reported paying officer’s compensation of

$9,350, $66,476, $55,689, $19,794, and $78,011 for its taxable years ending

March 31, 2005, 2006, 2007, 2008, and 2009, respectively.

      B.       Petitioner’s Gambling Business

      Petitioner has played poker regularly since 1995, and during the years in

issue he was in the trade or business of gambling. In 2002 petitioner won an event

at the World Series of Poker, and he feels that he can compete against the world’s

top players.
                                      -6-

[*6] During the years in issue petitioner played online poker and casino poker.

Petitioner played online poker at Pokerstars.com and Partypoker.com. Petitioner

played casino poker in Las Vegas, Nevada.

      Petitioner had the following gross receipts from his gambling business:

                           2005           2006          2007            2008

    Pokerstars.com     $147,353.95    $149,139.15 $95,219.91 $55,363.83
    Partypoker.com        7,065.00         -0-        -0-        -0-
    Casino                3,965.00        -0-     149,687.00   2,769.00
     Gross receipts     158,383.95     149,139.15 244,906.91 58,132.83

      Petitioner’s gross receipts from playing casino poker in 2007 include $4,740

from RIO All-Suite Hotel & Casino (Rio Casino); $3,987 from Rio Casino;

$136,695 from Grand Sierra Resort & Casino on February 27, 2007; and $4,265

from Bellagio.

      Petitioner had the following losses from his gambling business:

                         2005           2006            2007            2008

   Pokerstars.com     $163,241.09    $135,332.50    $100,364.90     $72,464.82
   Partypoker.com        9,200.00     Unknown            -0-            -0-
   Casino                9,035.00     Unknown        Unknown         Unknown
    Losses             181,476.09     Unknown        Unknown         Unknown
                                       -7-

[*7] Petitioner had the following expenses from his gambling business in 2006:

                            Flights             $1,149
                            Hotels               2,756
                            Car rentals          1,298
                            Parking               -0-
                             Total expenses      5,203

       C.    Petitioner’s Laundromat Business

       On October 31, 2001, petitioner purchased a laundromat in San Francisco,

California. Petitioner employed one individual at the laundromat. Petitioner kept

handwritten logs for the laundromat during the years in issue. In February 2008

petitioner closed the laundromat.

       The laundromat had gross sales or receipts of $36,312, $32,704.25,

$38,096.75, and $3,355.25 for 2005, 2006, 2007, and 2008, respectively.

III.   Petitioner’s Tax Reporting

       On February 29, 2008, petitioner filed his 2005 Form 1040, U.S. Individual

Income Tax Return (income tax return). On December 8, 2008, petitioner filed his

2006 income tax return. Petitioner failed to file timely his 2007 or 2008 income

tax return. On November 9, 2009, the IRS prepared substitutes for returns

pursuant to section 6020(b) for 2007 and 2008. On March 7, 2010, petitioner

submitted to the IRS a 2007 income tax return. On January 18, 2011, the IRS

prepared updated substitutes for returns for 2007 and 2008, which were used in
                                         -8-

[*8] preparation of the notice of deficiency. In February 2012 petitioner submitted

to the IRS a 2008 income tax return.

      Petitioner’s submitted income tax returns reported total income of -$5,889,

$2,779, $31,985, and -$887 for 2005, 2006, 2007, and 2008, respectively.

      Petitioner did not report the receipt of any wage income during the years in

issue. Petitioner attached Schedules C to his 2005-08 income tax returns that

showed net profit or loss from the following businesses: (1) a soil engineering

consultant business; (2) a gambling business; and (3) a laundromat business.

      A.     Soil Engineering Consultant Schedules C

      On Schedules C attached to his income tax returns for the years in issue

petitioner reported his soil engineering consultant business’ gross income, total

expenses, and net profit as follows:

                                 2005       2006      2007      2008

             Gross income      $50,954    $59,314    $8,075 $84,234
             Total expenses      -0-        -0-        -0-    -0-
              Net profit        50,954     59,314     8,075 84,234

      B.     Gambling Schedules C

      On Schedules C attached to his income tax returns for the years in issue

petitioner reported the gambling business’s gross income, total expenses, and net

loss as follows:
                                        -9-

           [*9]               2005        2006       2007       2008

           Gross income       $9,700 $19,762      -0-      -0-
           Total expenses     49,561   51,867 $15,413 $45,376
            Net loss         (39,861) (32,105) (15,413) (45,376)

      C.     Laundromat Schedules C

      On Schedules C attached to his income tax returns for the years in issue

petitioner reported the laundromat business’s gross income, total expenses, and net

loss as follows:

                              2005        2006        2007       2008

           Gross income      $30,201     $25,841 $35,578        $3,330
           Total expenses     47,183      50,271   66,301       42,151
            Net loss         (16,982)    (24,430) (30,723)     (38,821)

IV.   Notice of Deficiency

      The notice of deficiency included the following:

             The contact person can access your tax information and help
      you get answers. You also have the right to contact the office of the
      Taxpayer Advocate. Taxpayer Advocate assistance is not a substitute
      for established IRS procedures such as the formal appeals process.
      The Taxpayer Advocate is not able to reverse legally correct tax
      determinations, nor extend the time fixed by law that you have to file
      a petition in the U.S. Tax Court. The Taxpayer Advocate can,
      however, see that a tax matter that may not have been resolved
      through normal channels gets prompt and proper handling. If you
      want Taxpayer Advocate assistance, please contact the Taxpayer
      Advocate for the IRS office that issued this notice of deficiency.
                                        - 10 -

      [*10] Please visit our website at
      www.irs.gov/advocate/content/0,,id=150972,00.html for the Taxpayer
      Advocate telephone numbers and addresses for this location.

                                      OPINION

I.    Preliminary Matters

      Five months before trial the Court’s standing pretrial order was served along

with the notice setting case for trial. The standing pretrial order includes the

following:

             2. Trial Exhibits. It is ORDERED that any documents or
      materials which a party expects to use (except solely for
      impeachment) if the case is tried, but which are not stipulated, shall
      be identified in writing and exchanged by the parties at least 14 days
      before the first day of the trial session. The Court may refuse to
      receive in evidence any document or material that is not so stipulated
      or exchanged, unless the parties have agreed otherwise or the Court
      so allows for good cause shown.

More than four months after trial, and more than one month after the parties filed

their opening briefs, petitioner filed a motion to reopen the record. Respondent

objected to reopening the record and also to the admission of additional

documentary evidence without an evidentiary hearing. Petitioner’s motion was

denied for the following reasons.

      Reopening the record for the submission of additional evidence lies within

the discretion of the Court. Butler v. Commissioner, 114 T.C. 276, 286-287
                                         - 11 -

[*11] (2000) (citing Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321,

331 (1971)). The policy of the Court is to try all of the issues raised in a case in

one proceeding to avoid piecemeal and protracted litigation. Markwardt v.

Commissioner, 64 T.C. 989, 998 (1975). Petitioner was given ample opportunity

to provide evidence both before and at trial, and he failed to introduce the

additional evidence that he now wishes to introduce. Moreover, petitioner failed

to abide by the Court’s standing pretrial order that requires all documents that a

party expects to use at trial be provided to the other party at least 14 days in

advance of the trial calendar. Under such circumstances, we declined to bifurcate

the trial to receive additional evidence.

      Petitioner did not cooperate with respondent’s examination or with the

Appeals Office. Petitioner refused to turn over requested records; he ignored

information document requests, and the IRS had to resort to a court order to gain

access to petitioner’s Pokerstars.com records. Petitioner’s failure to cooperate

with respondent in producing requested documents before trial is an additional

ground for denying petitioner’s motion. See Tinnerman v. Commissioner, T.C.

Memo. 2006-250. Reopening the record after the opening briefs were filed would

necessitate a further hearing and would prejudice respondent and would
                                       - 12 -

[*12] unreasonably protract the proceedings. Such unusual relief is not justified in

this case.

II.   Validity of the Notice of Deficiency

      A.     Missing Taxpayer Advocate Information

      Petitioner contends that the notice of deficiency is invalid because the

inclusion of a Web site address where the address and telephone number of the

local office of the taxpayer advocate may be found does not comply with the

applicable statute. See sec. 6212(a). We addressed this contention in a related

case petitioner brought on behalf of JCHA and held that the failure of a notice of

deficiency to include the address and telephone number of the local office of the

taxpayer advocate does not invalidate the notice where the taxpayer has not shown

that the taxpayer was prejudiced by that failure. See John C. Hom & Assocs., Inc.

v. Commissioner, 140 T.C. __, __-__ (slip op. at 5-8) (May 7, 2013); see also

Elings v. Commissioner, 324 F.3d 1110, 1112-1113 (9th Cir. 2003)

(nonprejudicial, minor and technical errors do not invalidate a notice of

deficiency). As in John C. Hom & Assocs., Inc. v. Commissioner, 140 T.C. at __

(slip op. at 5-8), and for the same reasons, petitioner has not shown that he was

prejudiced by the failure of the notice of deficiency to include the address and
                                        - 13 -

[*13] telephone number of the local office of the taxpayer advocate. We therefore

conclude that the notice of deficiency was valid.

      B.     Respondent’s Alleged Failure To Examine Petitioner’s 2007 Return

      Petitioner contends that the notice of deficiency is invalid with respect to

2007 because respondent failed to examine the 2007 income tax return that he

claims he filed on March 7, 2010. Petitioner cites Scar v. Commissioner, 814 F.2d

1363, 1368 (9th Cir. 1987) (holding that a notice of deficiency was invalid where

the Commissioner did not examine the taxpayer’s return and the notice of

deficiency referred to a transaction that was unrelated to the taxpayer), rev’g 81

T.C. 855 (1983), but there is no similarity between Scar and this case. To support

his contention petitioner argues that the IRS did not accept his 2007 income tax

return but instead filed a substitute for return on January 18, 2011. However,

petitioner’s account transcripts show that petitioner’s 2007 income tax return was

not filed because the IRS had already prepared a substitute for return for 2007 on

November 9, 2009, before petitioner submitted a return. The notice of deficiency

was sent after the IRS examined the initial substitute for return and considered any

records that petitioner provided. We therefore conclude that the notice of

deficiency is valid with respect to 2007.
                                       - 14 -

[*14] III.   Burden of Proof

      Generally, the taxpayer bears the burden of proof. See Rule 142(a); New

Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Section 7491(a) shifts to

the Commissioner the burden of proof with respect to any factual issue if the

taxpayer introduces credible evidence and has complied with substantiation

requirements, has maintained required records, and has cooperated with

reasonable requests for witnesses, information, and documents. See sec.

7491(a)(1) and (2). Petitioner has not satisfied the requirements of section

7491(a)(1) and (2).

      Petitioner failed to maintain required records or to provide them to

respondent. See sec. 6001. Respondent was therefore authorized to reconstruct

petitioner’s income by any method that clearly reflects income. See sec. 446(b);

Petzoldt v. Commissioner, 92 T.C. 661, 693 (1989); sec. 1.446-1(b)(1), Income

Tax Regs. The bank deposits method is a permissible method of reconstructing

income. See Clayton v. Commissioner, 102 T.C. 632, 645 (1994). Respondent’s

bank deposits analysis shows that petitioner withdrew for personal use significant

amounts from JCHA’s account that he did not report as wages. The withdrawals

from JCHA’s account are prima facie evidence of income, and petitioner has the

burden of showing the nontaxable nature of established receipts. See Tokarski v.
                                       - 15 -

[*15] Commissioner, 87 T.C. 74, 77 (1986); Estate of Mason v. Commissioner, 64

T.C. 651, 656-657 (1975), aff’d, 566 F.2d 2 (6th Cir. 1977). Petitioner bears the

burden of establishing that the unreported income adjustments were arbitrary or

erroneous. See Hardy v. Commissioner, 181 F.3d 1002, 1004 (9th Cir. 1999),

aff’g T.C. Memo. 1997-97; Clayton v. Commissioner, 102 T.C. at 645.

      Citing Cohen v. Commissioner, 266 F.2d 5, 11 (9th Cir. 1959), remanding

T.C. Memo. 1957-172, petitioner contends that respondent’s disallowance of

petitioner’s claimed gambling losses in their entirety rendered the deficiency

determination “arbitrary or erroneous”, thereby shifting the burden of proof to

respondent. However, respondent disallowed petitioner’s claimed gambling losses

because petitioner’s gambling records did not clearly show petitioner’s gambling

losses and petitioner was uncooperative. Respondent accurately determined

petitioner’s gambling income but disallowed petitioner’s claimed losses because

petitioner failed to substantiate them. By contrast, in Cohen v. Commissioner, 266

F.2d at 9-11, the court held that the Commissioner failed to determine accurately

the taxpayer’s income in the first instance because the Commissioner included in

the taxpayer’s income amounts that the taxpayer held for third parties.
                                        - 16 -

[*16] IV.    Unreported Wage Income From JCHA

      Petitioner made net withdrawals from JCHA’s account of $114,323.73,

$103,513.97, $68,578.04, and $88,581.76 in 2005, 2006, 2007, and 2008,

respectively. Respondent determined that these amounts were constructive wages

to petitioner and allowed JCHA to deduct the difference between these amounts

and the amounts that it reported on its returns. Petitioner introduced no credible

evidence showing that any of the withdrawals he made from JCHA’s account were

for JCHA’s expenses. Instead, petitioner contends that these net withdrawals were

repayments of loans he made to JCHA in 2000 and 2001.

      “In the context of taxation, courts have defined a loan as ‘an agreement,

either express or implied, whereby one person advances money to the other and

the other agrees to repay it upon such terms as to time and rate of interest, or

without interest, as the parties may agree.’” Calloway v. Commissioner, 135 T.C.

26, 36-37 (2010) (quoting Welch v. Commissioner, 204 F.3d 1228, 1230 (9th Cir.

2000), aff’g T.C. Memo. 1998-121), aff’d, 691 F.3d 1315 (11th Cir. 2012). For a

transaction to be a bona fide loan the parties must have actually intended to

establish a debtor-creditor relationship at the time the funds were advanced.

Fisher v. Commissioner, 54 T.C. 905, 909-910 (1970). “Whether a bona fide
                                        - 17 -

[*17] debtor-creditor relationship exists is a question of fact to be determined

upon a consideration of all the pertinent facts in the case.” Id. at 909.

      Petitioner contends that he lent money to JCHA in 2000 and 2001 and that

the amounts he withdrew from JCHA during the years in issue were repayments of

those loans. However, petitioner introduced records from JCHA that purport to

show that, from May 2002 until December 2005, petitioner borrowed $234,151.92

from, and repaid $164,066.92 to JCHA. These records do not reflect any of the

amounts that petitioner claims he lent to JCHA in 2000 and 2001. Moreover,

petitioner admitted at trial that (1) he did not execute a note to memorialize the

purported loan, (2) JCHA did not pay interest on the purported loan, and (3) there

was no repayment schedule on the purported loan. We are not persuaded that a

bona fide debtor-creditor relationship existed between petitioner and JCHA. We

conclude that any amounts that petitioner transferred to JCHA in 2000 and 2001

were capital contributions and not loans.

      Whether personal use of corporate property constitutes constructive

dividends, wages (i.e., compensation for services), or something else is a question

of fact. Loftin & Woodard, Inc. v. United States, 577 F.2d 1206, 1242 (5th Cir.

1978); Goldstein v. Commissioner, 298 F.2d 562, 566 (9th Cir. 1962), aff’g T.C.

Memo. 1960-276. Petitioner failed to introduce credible evidence showing that
                                       - 18 -

[*18] respondent’s characterization of the amounts that he withdrew from JCHA’s

account as wages was erroneous. The evidence of petitioner’s services to JCHA,

discussed further below, suggests strongly that the amounts withdrawn were

compensation for his services as an engineer and as an officer of the corporation.

We sustain respondent’s determination on this issue.

V.    Whether Petitioner Was an Employee of JCHA

      Respondent determined that petitioner was an employee of JCHA during the

years in issue. Under section 3121(d)(2), the term “employee” includes any

individual who has the status of an employee under the common law. Paragraphs

(1), (3), and (4) of section 3121(d) describe other individuals who are considered

employees regardless of their status under the common law. Individuals described

within those paragraphs are commonly referred to as “statutory” employees. See

Joseph M. Grey Pub. Accountant, P.C. v. Commissioner, 119 T.C. 121, 126

(2002), aff’d, 93 Fed. Appx. 473 (3d Cir. 2004).

      One category of statutory employee is defined as “any officer of a

corporation”. Sec. 3121(d)(1). Section 31.3121(d)-1(b), Employment Tax Regs.,

clarifies the scope of section 3121(d) in determining the employee status of

corporate officers as follows: “Generally, an officer of a corporation is an

employee of the corporation. However, an officer of a corporation who as such
                                        - 19 -

[*19] does not perform any services or performs only minor services and who

neither receives nor is entitled to receive, directly or indirectly, any remuneration

is considered not to be an employee of the corporation.” Consequently, if an

officer performs substantial services for a corporation and receives remuneration

for those services, that officer is an employee. See Veterinary Surgical

Consultants, P.C. v. Commissioner, 117 T.C. 141, 145 (2001), aff’d sub nom.

Yeagle Drywall Co. v. Commissioner, 54 Fed. Appx. 100 (3d Cir. 2002).

      Petitioner contends that he was not an officer of JCHA because its corporate

powers were suspended on March 1, 2004, for failure to pay State income taxes,

see Cal. Rev. & Tax. Code sec. 23302 (West 2004), and that it therefore lacked the

power to appoint officers under California law. However, petitioner has not cited

any authoritative California law to support his contention that he could not be an

officer of JCHA while its powers, rights, and privileges were suspended. During

the years in issue, he and JCHA continued to conduct business in the same manner

as before.

      The parties stipulated that petitioner is the president and chief executive

officer of JCHA, and petitioner testified that no other person has served as an

officer of JCHA. Moreover, on April 5, 2010, petitioner signed JCHA’s corporate

income tax returns for its taxable years ending March 31, 2004, 2005, 2006, 2007,
                                       - 20 -

[*20] and 2008, even though its corporate powers, rights, and privileges were then

suspended. See sec. 6062 (providing that corporate returns must be signed by an

officer of the corporation). We conclude, therefore, that petitioner was an officer

of JCHA during the years in issue.

      Petitioner performed substantial services as an officer of JCHA. In

particular, petitioner admits that he managed the day-to-day operations of JCHA.

Accordingly, petitioner was a “statutory” employee pursuant to section 3121(d)(1)

because he was an officer of JCHA who provided substantial managerial services

as an officer of the corporation. See Van Camp & Bennion v. United States, 251

F.3d 862, 865-866 (9th Cir. 2001).

VI.   Gambling Losses and Expenses

      A.     Section 165(d)

      Section 162(a) allows deductions for all ordinary and necessary expenses

paid or incurred during the taxable year in carrying on any trade or business.

However, section 165(d) applies to preclude deduction of wagering losses against

other income, even if the taxpayer is engaged in the trade or business of gambling.

See Boyd v. United States, 762 F.2d 1369, 1372-1373 (9th Cir. 1985); Mayo v.

Commissioner, 136 T.C. 81, 85 (2011). As we explained in Mayo v.
                                       - 21 -

[*21] Commissioner, 136 T.C. at 85-90, this result is consistent with the holding

of Commissioner v. Groetzinger, 480 U.S. 23 (1987).

      The parties stipulated that petitioner was in the trade or business of

gambling during the years in issue. Accordingly, petitioner is entitled to deduct

his gambling losses to the extent of his gambling gains. See secs. 162(a), 165(d);

Mayo v. Commissioner, 136 T.C. at 85.

      Petitioner contends that United States v. Hughes Props., Inc., 476 U.S. 593

(1986), treated wagering losses by a casino engaged in the trade or business of

gambling as ordinary and necessary expenses under section 162(a) and not as

wagering losses under section 165(d). But Hughes Props., 476 U.S. at 601,

did not discuss whether wagering losses are subject to section 165(d) but, rather,

whether the taxpayer had incurred the wagering loss during the year for which it

was claimed. Accordingly, petitioner’s contention is misplaced.

      B.    Additional Gambling Losses

      Petitioner failed to introduce evidence substantiating additional gambling

losses during the years in issue. Petitioner contends, however, that we should

estimate and allow additional gambling losses.

      Where a taxpayer establishes that he or she incurred a deductible expense

but is unable to substantiate the precise amount, we may, bearing heavily against
                                       - 22 -

[*22] the taxpayer who has failed to maintain records, approximate the amount of

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

However, we must have sufficient evidence upon which to make a reasonable

estimate to apply the Cohan rule. See Vanicek v. Commissioner, 85 T.C. 731,

742-743 (1985).

      Respondent conceded on brief that petitioner received no gross receipts

from online poker on Partypoker.com and from casino poker in 2006. Thus there

are no gains from online poker on Partypoker.com to be offset by losses from that

activity in 2006, and additional losses from gambling will not be allowed for 2006.

      Petitioner had gross receipts from casino poker of $149,687 and $2,769 in

2007 and 2008, respectively. Petitioner introduced no evidence showing how

often he played casino poker in 2007 and 2008. However, petitioner’s 2007 gross

receipts from casino poker were won on four dates in 2007, including $136,695 at

Grand Sierra Casino on February 27, 2007. This suggests that petitioner’s casino

poker earnings were won in relatively few events. Petitioner was a skillful and

seemingly successful poker player. Unlike cases involving slot machine players

with continuous play but occasional jackpots, petitioner did not necessarily suffer

any losses from playing casino poker in 2007 or 2008. Cf. Briseno v.

Commissioner, T.C. Memo. 2009-67. We therefore have no basis upon which to
                                       - 23 -

[*23] estimate petitioner’s gambling losses for those years. See Vanicek v.

Commissioner, 85 T.C. at 742-743. Accordingly, petitioner is not entitled to

deduct any additional gambling losses for 2007 and 2008.

      C.    Additional Gambling Expenses

            1.     Transportation and Lodging

      Petitioner introduced three summary exhibits to substantiate his gambling

business’s transportation and lodging expenses for 2005, 2007, and 2008.

However, petitioner failed to introduce credible evidence substantiating any of the

purported transportation and lodging expenses for 2005, 2007, or 2008.

Petitioner’s summary exhibits are not corroborated or reliable. Section 274(d)

establishes a heightened substantiation requirement for certain types of expenses,

and we may not estimate the transportation and lodging expenses for 2005, 2007,

and 2008. See Sanford v. Commissioner, 50 T.C. 823, 827-828 (1968), aff’d, 412

F.2d 201 (2d Cir. 1969). Accordingly, petitioner is not entitled to deduct any of

his gambling business’s purported transportation and lodging expenses for 2005,

2007, and 2008.

            2.     Rake and Tournament Entry Fees

      Petitioner contends that he is entitled to deduct rake and tournament entry

fees as gambling expenses. Respondent concedes that section 165(d) does not
                                         - 24 -

[*24] apply to rake and tournament entry fees but contends that petitioner has not

proven that he incurred any such fees.

      Petitioner testified that he incurred rake fees of $2 to $4 per hand to play

poker at Pokerstars.com. However, petitioner failed to introduce credible

evidence corroborating his testimony. Petitioner’s testimony standing alone is not

reliable, and we have no basis upon which to estimate petitioner’s rake fee

expenses for the years in issue. See Vanicek v. Commissioner, 85 T.C. at

742-743. Accordingly, petitioner is not entitled to deduct any rake fees.

      The record contains copies of receipts issued to petitioner by various

casinos. The receipts show that petitioner paid tournament entry fees totaling

$595 and $20 in 2005 and 2006, respectively. However, petitioner has not shown

that the tournament entry fees for 2005 were not included in the stipulated

gambling losses for that year. Petitioner introduced no receipts for tournament

entry fees for 2007 and 2008. However, the record shows that petitioner played

casino poker in at least four tournaments in 2007 and in at least one tournament in

2008. Using the tournament entry fees that petitioner paid in 2005 and 2006, we

estimate that petitioner paid tournament entry fees of $160 and $40 in 2007 and

2008, respectively. We have no basis to estimate any additional tournament fees

for the years in issue. See id. We conclude, therefore, that (1) $595 of the
                                        - 25 -

[*25] stipulated gambling loss for 2005 is not subject to the section 165(d)

limitation; and (2) and petitioner is entitled to deduct $20, $160, and $40 in

tournament entry fees for 2006, 2007, and 2008, respectively.

VII. Laundromat Expenses and Depreciation

      In the notice of deficiency respondent allowed the reported expenses for

petitioner’s laundromat business for 2005 and 2006 and allowed the following

expenses for 2007 and 2008:

                 Expense                            2007          2008

           Other                                   $31,580      $5,458.00
           Depreciation and sec. 179                10,457         871.42

      Petitioner failed to address in his opening brief the issue of whether he was

entitled to deduct additional expenses for 2007 and 2008 with respect to his

laundromat business. We, therefore, deem these issues to be conceded or

abandoned. See Rules 123(a) and (b), 151(e)(5); Lunsford v. Commissioner, 117

T.C. 183, 187 n.6 (2001).

      In any event, petitioner failed to satisfy his burden of proof on these issues.

Petitioner offered only a summary exhibit that purports to show expenses totaling

$57,010.31 for his laundromat business in 2007. Petitioner also introduced

various invoices and canceled checks to substantiate his laundromat expenses for

2007 and 2008. However, the invoices and canceled checks do not corroborate
                                        - 26 -

[*26] petitioner’s summary exhibit, and the summary exhibit without

corroboration is unreliable. The invoices and canceled checks do not otherwise

show that petitioner is entitled to deduct any of the laundromat business’s

expenses for 2007 and 2008 in amounts greater than respondent allowed. He did

not introduce any evidence showing that he is entitled to deduct depreciation or

section 179 expenses for 2007 or 2008 with respect to his laundromat business in

amounts greater than respondent allowed. Accordingly, petitioner is not entitled

to deduct additional laundromat business expenses, depreciation, or section 179

expenses for 2007 and 2008.

VIII. Section 6662(a) Penalty

      Respondent determined that petitioner is liable for an accuracy-related

penalty under section 6662(a) for 2005 and 2006. Section 6662(a) and (b)(1) and

(2) provides for a penalty of 20% on the portion of an underpayment of tax (1) due

to negligence or disregard of rules or regulations or (2) attributable to a substantial

understatement of income tax. Section 6662(c) defines “negligence” as any failure

to make a reasonable attempt to comply with the provisions of the Internal

Revenue Code, and “disregard” means any careless, reckless, or intentional

disregard. The evidence of failure to maintain records, unreported income, and
                                       - 27 -

[*27] unsubstantiated loss and expense deductions claimed by petitioner is

sufficient to prove negligence and satisfies respondent’s burden of production.

      Whether applied because of negligence or disregard of rules or regulations

or a substantial understatement of income tax, the accuracy-related penalty is not

imposed with respect to any portion of the underpayment as to which the taxpayer

acted with reasonable cause and in good faith. See sec. 6664(c)(1). Whether the

taxpayer acted with reasonable cause and in good faith depends upon all the

pertinent facts and circumstances. See sec. 1.6664-4(b)(1), Income Tax Regs.

Petitioner has the burden of proving reasonable cause and good faith. See Higbee

v. Commissioner, 116 T.C. 438, 449 (2001). He has not done so here.

      We have considered the other arguments of the parties. They are irrelevant,

lack merit, or are unnecessary to the result reached. To reflect respondent’s

concessions and the foregoing,


                                                     Decision will be entered

                                                under Rule 155.
