                    T.C. Summary Opinion 2010-96



                        UNITED STATES TAX COURT



                 MARTHA ANN OLSON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4954-08S.               Filed July 19, 2010.



     Martha Ann Olson, pro se.

     Stewart Todd Hittinger, for respondent.



     RUWE, Judge:     This case was heard pursuant to the provisions

of section 74631 of the Internal Revenue Code in effect when the

petition was filed.    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.


     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code as amended, and all Rule references are
to the Tax Court Rules of Practice and Procedure.
                               - 2 -

     Respondent determined an $8,133 deficiency in petitioner’s

2000 Federal income tax and a $1,475 addition to tax under

section 6651(a)(1).   The issues we must decide are:   (1) Whether

petitioner is entitled to a $38,3222 bad debt deduction; (2)

whether petitioner is entitled to a $120 depreciation deduction;

(3) whether petitioner is entitled to a $6,920 amortization

deduction; and (4) whether petitioner is liable for an addition

to tax pursuant to section 6651(a)(1).

                            Background

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

The stipulation of facts and the attached exhibits are

incorporated herein by reference.

     At the time the petition was filed, petitioner resided in

Indiana.

     In July 1996 petitioner purchased a check cashing business

which she operated under the name Checkrite.   Although a written

memorandum of understanding was prepared, there was no formal

written contract for the purchase of the business.     A portion of

the purchase price was satisfied by the transfer of a parcel of


     2
      On Schedule C, Profit or Loss From Business, petitioner
claimed a $38,322 bad debt deduction. However, on the Form 5278,
Statement--Income Tax Changes, and the Form 886-A, Explanation of
Adjustments, attached to the notice of deficiency respondent
adjusted petitioner’s income by $38,332 for the disallowed bad
debt deduction. Although this discrepancy will not bear upon our
decision of whether petitioner is entitled to a bad debt
deduction, it will need to be addressed in the final
computations.
                               - 3 -

real estate containing a pole barn.    Included in the purchase of

the business were some outstanding receivables.   The business was

operated in a building Checkrite leased.

     The Checkrite business consisted of making “pay day” loans

to customers at an interest rate of approximately 11 percent per

week.3   Petitioner decided to close the Checkrite business at the

end of October 1997 because the local laws regarding “pay day”

loans had changed.

     Petitioner continued paying rent on the business premises

for “quite a few months after * * * [she] closed the business”

because she initially had planned on reopening the business.

Although the specific date has not been disclosed, the parties

stipulate that some time during 1999 petitioner decided to sell

to her brother some of the furniture and equipment she acquired

when she purchased the business in 1996.   After she had closed

the Checkrite business, petitioner’s brother, who was also in the

business of making “pay day” loans, sublet the business premises

from her.

     Petitioner and her husband filed joint Federal income tax

returns for the years 1996 and 1997.   Using the cash method of



     3
      Although the parties stipulate that the business consisted
of making loans for very short periods for a significant fee in
relation to the amount of the loan and cashing checks for which
petitioner charged a 10-percent fee, petitioner’s testimony,
corroborated by record evidence, establishes that the fee (or
interest rate) was 11 percent per week.
                               - 4 -

accounting, petitioner reported her husband’s wages and his

muffler shop business income on the 1996 and 1997 joint returns.

However, petitioner did not report any of the operations of

Checkrite on the 1996 and 1997 returns.    Petitioner did not

believe that she needed to report anything from the Checkrite

business on the 1996 and 1997 returns because, in her view, she

reinvested all the income back into the business; i.e., as

customers would make payments against their outstanding

liabilities, petitioner would collect the payments and then make

additional loans to new or existing customers.

     Before filing her 2000 return petitioner had not reported

any income or expenses regarding Checkrite.    Petitioner and her

husband’s 2000 joint Federal income tax return was filed on April

15, 2003.4   On the Schedule C, Profit or Loss From Business,

attached to the 2000 return petitioner reported that Checkrite

used the cash method of accounting.    On the Schedule C for the

Checkrite business, petitioner reported zero gross income but

also claimed deductions of $38,322 for bad debts, $120 for

depreciation, $200 for legal and professional services, and

$6,920 for amortization of goodwill.    The 2000 return reported a

$45,562 loss from Checkrite.   At trial petitioner provided

numerous canceled checks from third parties dated in 1996 and

1997 that indicate they were dishonored because of insufficient


     4
      Petitioner’s husband died in 2004.
                                 - 5 -

funds or closed accounts.     Petitioner testified that the

dishonored checks represent bad debts but she did not produce any

other records to establish that they were related to unpaid

loans.

                              Discussion

A.   Schedule C Deductions

      Deductions are a matter of legislative grace, and the

taxpayer bears the burden of proving that she is entitled to any

deductions claimed.5    Rule 142(a); see also INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992); Deputy v. du Pont, 308 U.S.

488, 493 (1940); New Colonial Ice Co. v. Helvering, 292 U.S. 435,

440 (1934).

      1.   Bad Debts

      In the case of a noncorporate taxpayer, section 166 permits

a deduction for a business debt that becomes worthless during the

taxable year.    Sec. 166(a), (d)(1)(A).

      On the 2000 Schedule C for Checkrite petitioner reported

zero gross income.     Petitioner operated Checkrite in 1996 and

1997 and terminated the business around October 1997.     Petitioner

did not report income from Checkrite on either the 1996 or 1997

returns or on any other return before the 2000 return.

Petitioner has not established the existence of bad debts, or if


      5
      Petitioner does not contend that the burden should shift
under sec. 7491(a), and the record shows no basis for such a
contention.
                                 - 6 -

they existed, when the amounts claimed as bad debts became

worthless.   Although the record contains what appear to be

dishonored checks dated in 1996 and 1997, petitioner has failed

to offer anything more than her self-serving testimony that they

represent debts that became worthless in 2000.    At trial

petitioner testified that she determined that the debts became

worthless in 2000 because she had verified that some of the

people she had lent money to had either filed bankruptcy or died

and she also believed that 3 years was the statutory period

within which she could submit any claim to the local prosecutor.

This Court is not bound to accept a taxpayer’s self-serving,

unverified, and undocumented testimony.    Shea v. Commissioner,

112 T.C. 183, 189 (1999); Tokarski v. Commissioner, 87 T.C. 74,

77 (1986).   Accordingly, we hold that petitioner is not entitled

to the claimed $38,322 bad debt deduction.

     2.   Depreciation Expense

     Section 167(a) generally allows as a depreciation deduction

a reasonable allowance for the exhaustion, wear and tear, and

obsolescence of:   (1) Property used in a trade or business, or

(2) property held for the production of income.    Trask v.

Commissioner, T.C. Memo. 2010-78.    In addition a taxpayer must

establish the property’s depreciable basis by showing the cost of

the property, its useful life, and the previously allowable

depreciation.   Cluck v. Commissioner, 105 T.C. 324, 337 (1995).
                               - 7 -

     Petitioner, however, has failed to provide documentary or

testimonial evidence establishing the property subject to

depreciation, the adjusted basis of the property, see secs.

167(c), 1011, the applicable depreciation method, see sec.

168(b), the applicable recovery period, see sec. 168(c), and the

applicable convention, see sec. 168(d).    In fact, petitioner did

not address this issue at trial, and the record indicates that

the Checkrite business ended in 1997.    Accordingly, petitioner

has failed to satisfy her burden of proof, and, therefore, we

sustain respondent’s determination disallowing the claimed $120

depreciation deduction.   See Rules 142(a), 149(b); Petzoldt v.

Commissioner, 92 T.C. 661, 683 (1989).

     3.   Amortization Deduction

     Section 197(a) generally provides that a taxpayer is

entitled to an amortization deduction with respect to any

amortizable section 197 intangible.    For this purpose section

197(d) defines the term “section 197 intangible” as, inter alia,

goodwill.   Section 197(c)(1) defines the term “amortizable

section 197 intangible” as any section 197 intangible:    (A) Which

is acquired by the taxpayer after the date of the enactment of

this section, and (B) which is held in connection with the

conduct of a trade or business or an activity described in

section 212.
                               - 8 -

      Petitioner claimed a $6,920 amortization deduction for

goodwill acquired upon the purchase of Checkrite.   The Checkrite

business ended in 1997.   Petitioner did not provide any

documentary or testimonial evidence establishing the acquisition

of goodwill when she purchased Checkrite in 1996.   On her 2000

return she described goodwill related to Checkrite with a basis

of $103,800 and an acquisition date of July 1, 1996, but has not

established how the basis was determined nor how it is deductible

in 2000 after she closed the business in 1997.   Petitioner did

not address this issue at trial.   Accordingly, petitioner has

failed to satisfy her burden of proving respondent’s

determination is incorrect, and, therefore, we sustain

respondent’s determination disallowing the $6,920 amortization

deduction.   See Rules 142(a), 149(b); Petzoldt v. Commissioner,

supra at 683.

B.   Addition to Tax Under Section 6651(a)(1)

      Section 6651(a)(1) imposes an addition to tax for failure to

file a return unless it is shown that such failure is due to

reasonable cause and not due to willful neglect.    See United

States v. Boyle, 469 U.S. 241, 245 (1985).

      Petitioner filed her 2000 return on April 15, 2003,

approximately 2 years after its due date, April 15, 2001.

Respondent has satisfied his burden of production with respect to

the section 6651(a)(1) addition to tax.   See sec. 7491(c).
                                 - 9 -

     Petitioner did not address this issue at trial.

Accordingly, we sustain respondent’s determination with respect

to the section 6651(a)(1) addition to tax.    See Rules 142(a),

149(b); Petzoldt v. Commissioner, supra at 683.

     To reflect the foregoing,


                                           Decision will be entered

                                      under Rule 155.
