                    T.C. Summary Opinion 2007-150



                       UNITED STATES TAX COURT



                 JOHN JOSEPH STENSGAARD, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 23656-05S.               Filed August 30, 2007.



     John Joseph Stensgaard, pro se.

     Patricia A. Komor, for respondent.


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

the provisions of section 7463 of the Internal Revenue Code.

Unless otherwise indicated, all section references are to the

Internal Revenue Code in effect for the year at issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure.    Pursuant to section 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.
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     Respondent determined a deficiency in petitioner’s Federal

income tax of $20,951 for 2003.   Respondent conceded at trial

that petitioner is entitled to the dependency exemptions claimed

by petitioner.   Because respondent conceded petitioner’s

entitlement to deductions for dependency exemptions, he must

recompute petitioner’s child tax credit and additional child tax

credit and submit to the Court a Rule 155 computation.   At trial,

petitioner made no argument and presented no evidence that he:

(a) Is entitled to itemized deductions in excess of those allowed

by respondent, or (b) is not subject to self-employment tax.     The

Court therefore deems those issues to have been conceded by

petitioner.    See Rule 149(b); Rothstein v. Commissioner, 90 T.C.

488, 497 (1988); Cerone v. Commissioner, 87 T.C. 1, 2 n.1 (1986).

     The issues remaining for decision are whether petitioner is

entitled to:   (1) Deduct business expenses of $48,557, and

(2) the earned income credit.

                             Background

     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 Thornton,

Colorado.

     During 2003, petitioner was an engineer doing business as

S2E Consulting Engineers (S2E).   Petitioner, under the name S2E,

received income reported on Form 1099-MISC, Miscellaneous Income,
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from three sources in 2003.    In 2001, petitioner and his former

wife reached an agreement that remained in effect during 2003

concerning “parenting time and other parenting issues, and

financial issues regarding the children” with regard to their two

minor children.

     Petitioner filed a Form 1040, U.S. Individual Income Tax

Return, for 2003 in which he claimed the earned income credit

with two qualifying children.    With his Federal income tax return

for 2003, petitioner filed a Schedule C, Profit or Loss From

Business, on which he claimed total business expenses of $48,557.

Respondent disallowed the earned income credit and claimed

business expenses for lack of substantiation.

                              Discussion

     Generally, the Commissioner’s determinations are presumed

correct, and taxpayers bear the burden of proving otherwise.

Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933).

Petitioner has not raised the issue of section 7491(a), which

shifts the burden of proof to the Commissioner in certain

situations.   The Court concludes that section 7491 does not apply

here because petitioner has not produced any evidence that

establishes the preconditions for its application.

Schedule C Expenses

     Section 162 generally allows a deduction for ordinary and

necessary expenses paid or incurred during the taxable year in
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carrying on a trade or business.    Generally, no deduction is

allowed for personal, living, or family expenses.    See sec. 262.

The taxpayer must show that any claimed business expenses were

incurred primarily for business rather than social reasons.       See

Rule 142(a); Walliser v. Commissioner, 72 T.C. 433, 437 (1979).

To show that the expense was not for personal reasons, the

taxpayer must show that the expense was incurred primarily to

benefit his business, and there must have been a proximate

relationship between the claimed expense and the business.     See

Walliser v. Commissioner, supra.

     Where a taxpayer has established that he has incurred a

trade or business expense, failure to prove the exact amount of

the otherwise deductible item may not always be fatal.

Generally, unless precluded by section 274(d), the Court may

estimate the amount of such an expense and allow the deduction to

that extent.   See Finley v. Commissioner, 255 F.2d 128, 133 (10th

Cir. 1958), affg. 27 T.C. 413 (1956); Cohan v. Commissioner, 39

F.2d 540, 543-544 (2d Cir. 1930).    In order for the Court to

estimate the amount of an expense, however, the Court must have

some basis upon which an estimate can be made.    Vanicek v.

Commissioner, 85 T.C. 731, 742-743 (1985).    Without such a basis,

an allowance would amount to unguided largesse.     Williams v.

United States, 245 F.2d 559, 560 (5th Cir. 1957).
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     Petitioner prepared a computer-generated spreadsheet listing

19 categories of business expenses.    Petitioner provided at trial

copies of 18 checks written between January and April 2003,

miscellaneous credit card records, bank statements, and receipts

as substantiation for Schedule C expenses.    After reviewing

petitioner’s evidence, respondent conceded that he has

substantiated $8,106 of business expenses in 2003:    Advertising

expense of $575, commissions and fees of $75, office expense of

$2,613, supplies expense of $1,221, taxes and license fees of

$325, utilities expense of $2,306, and $991 for legal and

professional services.

     Petitioner offered no substantiation for his business

expense categories denominated as donations, “mortgage”, and

consulting.   Petitioner offered two monthly receipts for

telephone expenses that state that they are for his residential

line, a type of personal expense.    Sec. 262(b).

     Other categories of expenses listed on petitioner’s spread

sheet included those of “Vehicle”, “Ins.”, Travel, “Tr. Meals”,

Meals, and “Entert.”   Petitioner’s evidence included billing

statements reflecting lease payments to Ford Credit for a truck

and payments for automobile insurance to Safeco Insurance Co.    He

also produced a receipt for a hotel stay at the Sahara Hotel and

Casino in Las Vegas and a computer printout of an Orbitz

reservation for a trip to Houston.
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      Certain business deductions described in section 274 are

subject to rules of substantiation that supersede the doctrine in

Cohan v. Commissioner, supra.    See sec. 1.274-5T(c)(2), Temporary

Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985).    Section

274(d) provides that no deduction shall be allowed with respect

to:   (a) Any traveling expense, including meals and lodging away

from home; (b) any item related to an activity of a type

considered to be entertainment, amusement, or recreation; or (c)

the use of any “listed property”, as defined in section

280F(d)(4),1 unless the taxpayer substantiates certain elements.

      For an expense described in one of the above categories, the

taxpayer must substantiate by adequate records or sufficient

evidence to corroborate the taxpayer’s own testimony:    (1) The

amount of the expenditure or use based on the appropriate measure

(mileage may be used in the case of automobiles); (2) the time

and place of the expenditure or use; (3) the business purpose of

the expenditure or use; and in the case of entertainment, (4) the

business relationship to the taxpayer of each expenditure or use.

See sec. 274(d).

      To meet the adequate records requirements of section 274(d),

a taxpayer must maintain some form of records and documentary



      1
      “Listed property” includes any “passenger automobile”.
Sec. 280F(d)(4)(A)(i). A passenger automobile includes any truck
rated at 6,000 pounds gross vehicle weight or less. Sec.
280F(d)(5)(A).
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evidence that in combination are sufficient to establish each

element of an expenditure or use.    See sec. 1.274-5T(c)(2),

Temporary Income Tax Regs., supra.    A contemporaneous log is not

required, but corroborative evidence to support a taxpayer’s

reconstruction of the elements of expenditure or use must have “a

high degree of probative value to elevate such statement” to the

level of credibility of a contemporaneous record.    Sec. 1.274-

5T(c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6,

1985).

     Petitioner’s documentation for his categories of items that

appear to be for a vehicle, vehicle insurance, and for meals,

travel, and entertainment expenses do not meet the standard of

substantiation required by section 274(d).

     The Court is unable to determine from the documents provided

by petitioner that he is entitled to deduct any amount of

business expenses in excess of that conceded by respondent.

Petitioner is entitled to deduct various Schedule C expenses of

$8,106 for 2003.

Earned Income Credit

     Petitioner claimed the earned income credit for taxable year

2003 for two “qualifying children”.    Respondent determined that

petitioner is not entitled to the earned income credit for 2003.

     Section 32(a)(1) allows an eligible individual an earned

income credit against the individual’s income tax liability.
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Section 32(a)(2) limits the credit allowed.    Section 32(b)

prescribes different credit and “phaseout” percentages used to

calculate the credit based on whether the eligible individual has

no qualifying children, one qualifying child, or two or more

qualifying children.

     To be eligible to claim an earned income credit with respect

to a qualifying child, a taxpayer must establish, inter alia,

that the child bears a relationship to the taxpayer prescribed by

section 32(c)(3)(B), that the child meets the age requirements of

section 32(c)(3)(C), and that the child shares the same principal

place of abode as the taxpayer for more than one-half of the

taxable year as prescribed by section 32(c)(3)(A)(ii).

     Petitioner may be an “eligible individual” able to claim an

earned income credit under section 32(c)(1)(A).    The phaseout

percentages, however, must first be considered.    The “completed

phaseout amount” is the amount of adjusted gross income (or if

greater, earned income) at or above which no credit is allowed.

See Rev. Proc. 2002-70, sec. 3.06, 2002-2 C.B. 845, 847.    For

2003, a taxpayer may claim the earned income credit for two

qualifying children only if his adjusted gross income was less

than $33,692.   Id.    The phaseout amount is lower for a taxpayer

with one qualifying child or with no qualifying children.      Id.

Petitioner’s adjusted gross income, taking into consideration the
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determinations by respondent that the Court sustains, was in

excess of each of the phaseout amounts for 2003.

     Accordingly, petitioner is not eligible for an earned income

credit.   Respondent’s determination on this issue is sustained.

     To reflect the foregoing,



                                          Decision will be entered

                                     under Rule 155.
