                        T.C. Memo. 2009-10



                      UNITED STATES TAX COURT



  DELMINDA M. CARTIER, a.k.a. DELMINDA M. COSTA, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 22520-06.             Filed January 14, 2009.



     Delminda M. Cartier, pro se.

     Erika B. Cormier, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     WELLS, Judge:   Respondent determined a deficiency in

petitioner’s 2003 Federal income tax of $55,224 and additions to

tax under sections 6651(a)(1) and (2) and 6654(a)1 of $12,089.92,



     1
      All 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.
                                   - 2 -

$6,985.29, and $1,382.18, respectively.2        The issues for decision

are:       (1) Whether petitioner is entitled to construction costs of

$164,874 claimed on Schedule C, Profit or Loss From Business, of

her return; (2) whether petitioner is entitled to business

expense deductions of $19,996; and (3) whether income received by

petitioner from her business is subject to self-employment tax.

                             FINDINGS OF FACT

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.      At the time the petition

was filed, petitioner resided in New Hampshire.

       During 2003 petitioner, working as a customer service

representative for Lifeplus, Inc. (Lifeplus), a medical equipment

company, earned wages of $25,659 and nonemployee compensation of

$1,330.       Additionally, petitioner received interest income from

Butler Bank of $76.

       During 2003 petitioner was also self-employed as a home

builder and renovator, doing business as “D.C. Construction”.

On July 17, 2002, as part of her ongoing business, petitioner

purchased Lot # 106-1 on Moreau Street for development, which

later became 58 Moreau Street, Goffstown, NH 03045 (58 Moreau

Street).       The purchase price for 58 Moreau Street was $25,500.


       2
      Petitioner concedes that she is liable for the addition to
tax pursuant to sec. 6651(a)(1), and respondent concedes the
additions to tax under secs. 6651(a)(2) and 6654(a).
                                 - 3 -

     Shortly after the purchase petitioner initiated construction

on the lot.    On July 17, 2003, petitioner sold 58 Moreau Street

including a home newly constructed thereon for $183,500.

Consequently, D.C. Construction realized gross receipts of

$183,500.

     Petitioner’s husband, Daniel Cartier (Mr. Cartier), was also

self-employed as a home builder and renovator.    Mr. Cartier was

extensively involved with petitioner’s ongoing construction

business.     He assisted petitioner with the development and sale

of 58 Moreau Street.3

     On August 4, 2006, petitioner filed her 2003 Federal income

tax return late.4    Petitioner’s filing status was married filing

separately.    On Schedule C of her return, petitioner stated that

she used the cash method of accounting for D.C. Construction.

     Petitioner’s return reported the wages and nonemployee

compensation she received from Lifeplus, as well as the interest

income from Butler Bank.    Petitioner reported the $183,500 she

received from the sale of 58 Moreau Street as gross receipts to

D.C. Construction on Schedule C of her return.    Petitioner

reported costs of $164,874 on Schedule C as well, resulting in


     3
      Petitioner and Mr. Cartier built two other houses on Moreau
Street, including the home in which they now live.
     4
      Petitioner’s return was prepared by a third party. The
return preparer did not review receipts or other substantiation
before preparing the return. Instead, the return preparer used
only figures that petitioner had provided on a worksheet.
                              - 4 -

gross income to D.C. Construction of $18,626.   Petitioner also

claimed $19,966 in business expense deductions on Schedule C of

her return, resulting in a purported loss of $1,340.

     On or about August 3, 2006, Mr. Cartier also filed his 2003

Federal income tax return late.   Notably, his claimed costs and

business expense deductions mirrored those of petitioner.5

     Respondent sent a notice of deficiency to petitioner for her

2003 taxable year, but respondent’s determination in the notice

of deficiency was based on information gathered before receiving

petitioner’s return because respondent received petitioner’s

return only 3 days before the notice of deficiency was mailed.6

On the basis of the information provided on petitioner’s return,

respondent determined that the income from the sale of 58 Moreau

Street would be treated as ordinary income to D.C. Contruction.

Respondent further determined that such income, minus any

substantiated business expenses, would be subject to self-

employment tax.




     5
      At trial, Mr. Cartier testified that he did not have a bank
account for his business and that he received business income
only in the form of cash during the 2003 taxable year.
     6
      The notice was sent Aug. 7, 2006. Respondent had prepared
a substitute for return for petitioner pursuant to sec. 6020(b)
because petitioner had not yet filed her 2003 return. Respondent
had determined petitioner’s tax liability under the assumption
that petitioner’s filing status was single and that the proceeds
from the sale of 58 Moreau Street would be characterized as
short-term capital gain.
                                - 5 -

     Petitioner is entitled to construction costs of $95,571.66

and a business expense deduction of $1,200 for insurance costs.7

     Petitioner’s self-employment income for her 2003 taxable

year was $86,728.34.

                               OPINION

I. Whether Petitioner Is Entitled to Costs Claimed on Schedule C
   of Her Return of $164,874

     Costs directly related to the business of constructing a

home must be capitalized and are not currently deductible

expenses.    Sec. 263A(a)(1)(B); W.C. & A.N. Miller Dev. Co. v.

Commissioner, 81 T.C. 619, 632 (1983); Rev. Rul. 86-149, 1986-2

C.B. 67.    Costs so capitalized may then be recovered by the

builder upon the sale of the home.      Sec. 1.263A-1(c)(3) and (4),

Income Tax Regs.

     Taxpayers must show their entitlement to amounts claimed as

costs, see Rule 142(a), and must keep sufficient records to

substantiate those costs, see sec. 6001; Briggs v. Commissioner,

T.C. Memo. 2000-380; Newman v. Commissioner, T.C. Memo. 2000-345.8




     7
      The parties stipulated construction costs of $51,312.29,
and on the basis of evidence presented at trial, respondent
conceded on brief additional costs of $44,259.37.
     8
      Petitioner does not claim the benefit of sec. 7491(a).
Sec. 7491(a) does not shift the burden of proof to respondent
because petitioner failed to maintain records or comply with
substantiation requirements. See sec. 7491(a)(2)(A) and (B);
Higbee v. Commissioner, 116 T.C. 438, 441 (2001).
                                 - 6 -

     Respondent has conceded, as noted above, certain costs for

which there was adequate proof of payment and adequate proof that

the expenditure was connected with 58 Moreau Street.

     At trial petitioner offered substantiation of her

construction costs as follows:    (1) $539.99 paid by Anthony

Blanco (Mr. Blanco) for a range oven shown on a receipt dated

November 21, 2002; (2) $99.98 paid by Mr. Blanco for a chandelier

shown on a receipt dated November 1, 2002; (3) $404.99 paid by

Mr. Blanco for a dishwasher shown on a receipt dated November 21,

2002; (4) an undeterminable amount paid by Mr. Blanco for light

fixtures, bulbs, fan accessories, and doorbells shown on receipts

dated October 5, October 6, and November 8, 2002; (5) $2,418.60

to Robert Salyards, carpet installer, shown on a proposal dated

November 13, 2002; (6) $1,058.66 to Mast Road Grain and Building

Materials Co. (Mast Road Grain) shown on an invoice dated

September 6, 2002; and (7) $290 to Mast Road Grain shown on an

invoice and a check dated September 3, 2002, which was returned

for insufficient funds.

     After carefully reviewing the evidence, we hold that

petitioner has failed to prove that the foregoing amounts were in

fact paid or that they were paid in connection with 58 Moreau

Street.

     Additionally, petitioner offered substantiation of the

following amounts she contends were paid in connection with 58
                               - 7 -

Moreau Street:   (1) $4,350 to Daniel Sinotte Co., as shown on a

check dated June 20, 2002 (a date before July 17, 2002, the date

petitioner purchased 58 Moreau Street), which was returned for

insufficient funds; (2) $3,097.80 paid to Home Depot, as shown on

receipts of $397.44, $1,520.44, and $1,179.92 dated December 23,

December 24, and December 27, 2002, respectively; (3) $1,850 paid

to Joseph M. Weichert, LLC, land surveyor, as shown on a check

dated January 14, 2002 (a date before the date petitioner

purchased 58 Moreau Street); (4) $757.09 paid to Mast Road Grain,

as shown on a check dated April 23, 2002 (a date before the date

petitioner purchased 58 Moreau Street); (5) $1,956 paid to Mast

Road Grain as shown on a check dated September 11, 2002; (6)

$47.45 paid to Mast Road Grain, as shown on an invoice from and

check to Mast Road Grain dated October 11, 2002; and (7) $2,000

paid to Spruce Point Construction, as shown on a check dated

October 12, 2002.

     After carefully reviewing the evidence, we hold that

petitioner has failed to establish that the foregoing amounts

were in fact paid in connection with 58 Moreau Street.   At trial,

petitioner’s self-serving testimony lacked credibility, and the

documents she offered did not corroborate her contention that the

expenses were incurred in connection with 58 Moreau Street.

     Petitioner has failed to establish that she is entitled to

any amounts for costs incurred in connection with 58 Moreau
                               - 8 -

Street in excess of the amounts respondent conceded.

Consequently, we hold that petitioner is not entitled to costs

for taxable year 2003 beyond the amounts respondent conceded.

II. Whether Petitioner Is Entitled to Business Expense Deductions
    of $19,966

     Deductions are a matter of legislative grace, and the

taxpayer bears the burden of proving the entitlement to any

deduction claimed.   Rule 142(a)(1); INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992); Kay v. Commissioner, T.C.

Memo. 2002-197, affd. 85 Fed. Appx. 362 (5th Cir. 2003).     Section

162(a) authorizes a deduction for “all the ordinary and necessary

expenses paid or incurred during the taxable year in carrying on

any trade or business”.   An expense is ordinary for purposes of

this section if the expense is normal or customary within a

particular trade, business, or industry.     Deputy v. du Pont, 308

U.S. 488, 495 (1940).   An expense is necessary if it is

appropriate and helpful for the development of the business.

Commissioner v. Heininger, 320 U.S. 467, 471 (1943).    Section

262, in contrast, precludes deduction of “personal, living, or

family expenses.”

     Section 162(a) is tempered by the requirement that any

amount claimed as a business expense must be substantiated, and

taxpayers are required to maintain records sufficient to

substantiate the expenses claimed.     Sec. 6001; Hradesky v.

Commissioner, 65 T.C. 87, 89-90 (1975), affd. 540 F.2d 821 (5th
                                - 9 -

Cir. 1976); sec. 1.6001-1(a), Income Tax Regs.      When a taxpayer

adequately establishes that she paid or incurred a deductible

expense but does not establish the precise amount, the Court may

in some instances estimate the allowable deduction, bearing

heavily against the taxpayer whose inexactitude is of her own

making.   Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir.

1930).    There must, however, be sufficient evidence in the record

to provide a basis upon which an estimate may be made and to

permit the Court to conclude that a deductible expense, rather

than a nondeductible personal expense, was incurred in at least

the amount allowed.    Vanicek v. Commissioner, 85 T.C. 731, 742-

743 (1985).    Furthermore, business expenses described in section

274 are subject to rules of substantiation that supersede the

doctrine of Cohan.9   Kay v. Commissioner, supra.

     Petitioner provided no credible evidence of any business

expense paid or incurred during the taxable year in issue in

excess of the amounts conceded by respondent.10     Petitioner

provided no estimate of business expenses or other information



     9
      Sec. 274(d) provides that no deduction shall be allowed
for, among other things, traveling expenses, entertainment
expenses, gifts, and expenses with respect to listed property (as
defined in sec. 280F(d)(4)).
     10
      Petitioner attempted to supplement the record by attaching
documents to her brief. The record is closed. Petitioner may
not supplement the record without an order from the Court
reopening the record. The attachments therefore are not part of
the record and will not be considered.
                               - 10 -

that would assist the Court in determining her business expenses

for her 2003 taxable year.   We therefore hold that petitioner is

not entitled to any deduction for business expenses for the

taxable year in issue beyond the amounts respondent conceded.

III. Whether Income Received by Petitioner From Her Business Is
     Subject to Self-employment Tax

     Self-employment income is subject to self-employment tax.

Sec. 1401(a).   A taxpayer’s self-employment income is equal to

the gross income derived from business less any business expenses

which the taxpayer substantiates.   Sec. 1402(a) and (b); sec.

1.1402(a)-1(a)(1), Income Tax Regs.

     Petitioner admitted on her return that her business, D.C.

Construction, had gross receipts of $183,500 for taxable year

2003.   That amount, less substantiated costs, is the gross income

derived from her business.   The gross income derived from her

business less any business expenses that she is able to

substantiate is subject to self-employment tax.   Petitioner has

failed to substantiate any costs or business expenses beyond the

amounts respondent conceded.   Consequently, we hold that

petitioner is liable for self-employment tax on $86,728.34 of

self-employment income ($183,500 in gross receipts less

$95,571.66 in costs and $1,200 in insurance expense).

     We have considered all of the contentions raised by the

parties, and, to the extent they are not addressed in this
                             - 11 -

opinion, we conclude that they are irrelevant, immaterial, or

unnecessary to reach.

     To reflect the foregoing,


                                        Decision will be entered

                                   under Rule 155.
