                       T.C. Memo. 2002-46



                     UNITED STATES TAX COURT


                    KAREN BOYD, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 7734-00.                 Filed February 19, 2002.


     Steven T. Flowers, for petitioner.

     Igor Drabkin, for respondent.


                       MEMORANDUM OPINION


     GOLDBERG, Special Trial Judge:    Respondent determined a

deficiency in petitioner’s Federal income tax for the taxable

year 1997 in the amount of $3,937 and an accuracy-related penalty

in the amount of $787.40.    Unless otherwise indicated, 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.
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     After concessions by petitioner,1 the remaining issues for

decision are:   (1) Whether petitioner is entitled to deduct

certain Schedule C, Profit or Loss From Business, expenses; and

(2) whether petitioner is liable for an accuracy-related penalty

under section 6662.   Adjustments to the self-employment income

tax and the deduction therefor are computational and will be

resolved by the Court’s holding in this case.

     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 Beverly Hills, California.

     Petitioner is the sole proprietor of Boyd PC Consulting,

which is in the business of legal software consulting.    She

started this business during the year in issue.   Through Boyd PC

Consulting, petitioner created specialized macros in computer

programs, such as WordPerfect, for law firms.   For example,

petitioner would install special macro functions to create

pleading form documents tailored to the client’s needs.    During

1997, petitioner was also a full-time legal secretary at the law

firm Paul, Hastings & Janofsky in its Santa Monica office, and

then worked in its downtown Los Angeles office.

     During the year in issue, petitioner owned a 1993 Toyota


     1
          At trial, petitioner conceded the disallowance of
travel and meals/entertainment expenses of $2,620 claimed on her
Schedule C, Profit or Loss From Business.
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Corolla that she used for all her transportation needs, including

business travel, commuting to work, and personal use.    Petitioner

did not maintain a mileage log or diary of miles driven in 1997.

     Petitioner timely filed her 1997 Federal income tax return.

Petitioner reported on Schedule C, attached to her 1997 return,

gross income from Boyd PC Consulting of $7,520.   Petitioner

claimed the following Schedule C expenses:

     Expense                   Claimed

     Advertising                $1,490
     Car and truck               2,347
     Depreciation                  205
     Repairs/maintenance         1,200
     Travel, meals & enter-      2,620
      tainment
     Other                       4,000
       Total                   $11,862

On the Vehicle Expense Worksheet, attached to her 1997 return,

petitioner reported 12,500 total miles driven in 1997.    Of that

amount, 7,450 miles were reported to be used for business

purposes.   Petitioner claimed a car and truck expense of $2,347

based on the purported 7,450 business miles multiplied by the

standard mileage rate of $0.315 per mile.

     In the notice of deficiency respondent disallowed the above

Schedule C expense deductions in their entirety because

petitioner failed to show that each claimed deduction was an

ordinary and necessary business expense, or, in the alternative,

because petitioner failed to substantiate that she paid or

incurred the expense for which the deduction was claimed.
                                - 4 -

     Section 7491(a) places the burden of proof on respondent

with regard to certain factual issues.    Section 7491 applies to

examinations commencing after July 22, 1998.    Restructuring and

Reform Act of 1998 (RRA 1998), Pub. L. 105-206, sec. 3001, 112

Stat. 726.    Upon reviewing the record, it is unclear when the

examination of petitioner’s 1997 return commenced.    Further,

neither party raised the issue of whether section 7491(a) applies

here.    However, under section 7491(a)(2)(B), the burden of proof

does not shift to respondent where the taxpayer has not

cooperated with reasonable requests by the Secretary for

information or documents.    Respondent sent letters to

petitioner’s counsel on January 16, February 6, and February 8,

2001, asking petitioner to present documents which would

substantiate the disallowed deductions.    Respondent also made

phone calls on January 26 and 30, 2001, to petitioner’s counsel.

One phone call, the only communication between the parties prior

to trial, was returned.    At trial, petitioner offered into

evidence documents to substantiate some of her claimed Schedule C

deductions which had not been presented to respondent prior to

trial.    Because we find that petitioner failed to cooperate with

respondent prior to trial, section 7491(a) does not apply in this

case.

     Deductions are a matter of legislative grace, and the

taxpayer bears the burden of proving the entitlement to any
                                - 5 -

deduction claimed.    INDOPCO, Inc. v. Commissioner, 503 U.S. 79,

84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440

(1934).    A taxpayer is required to maintain records sufficient to

establish the amount of his or her income and deductions.     Sec.

6001; sec. 1.6001-1(a), (e), Income Tax Regs.

     Section 162(a) allows a taxpayer to deduct all ordinary and

necessary business expenses paid or incurred during the taxable

year in carrying on any trade or business.    To be “necessary” an

expense must be “appropriate and helpful” to the taxpayer’s

business.    Welch v. Helvering, 290 U.S. 111, 113 (1933).    To be

“ordinary” the transaction which gives rise to the expense must

be of a common or frequent occurrence in the type of business

involved.    Deputy v. Du Pont, 308 U.S. 488, 495 (1940).    No

deduction is allowed for personal, living, or family expenses.

Sec. 262(a).

     Generally, if a claimed business expense is deductible, but

the taxpayer is unable to substantiate it, the Court is permitted

to make as close an approximation as it can, bearing heavily

against the taxpayer whose inexactitude is of his or her own

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

1930).    The estimate must have a reasonable evidentiary basis.

Vanicek v. Commissioner, 85 T.C. 731, 743 (1985).    However,

section 274 supersedes the doctrine of Cohan v. Commissioner,

supra, sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg.
                                - 6 -

46014 (Nov. 6, 1985), and requires strict substantiation of

expenses for travel, meals and entertainment, and gifts, and with

respect to any listed property as defined in section 280F(d)(4).

Sec. 274(d).   Listed property includes any passenger automobile

or any other property used as a means of transportation, and

computers.   Sec. 280F(d)(4)(A)(i), (ii), (iv).

     A taxpayer is required by section 274(d) to substantiate a

claimed expense by adequate records or by sufficient evidence

corroborating the taxpayer’s own statement establishing the

amount, time, place, and business purpose of the expense.    Sec.

274(d).   Even if such an expense would otherwise be deductible,

the deduction may still be denied if there is insufficient

substantiation to support it.   Sec. 1.274-5T(a), Temporary Income

Tax Regs., supra.

     Respondent disallowed petitioner’s car and truck expense

deduction of $2,347.   As stated above, section 274 requires

strict substantiation for deductions claimed for transportation

in a passenger car.    At trial, petitioner testified that she used

the actual mileage to calculate the car and truck expense.

Petitioner’s car was used to commute to and from petitioner’s

full-time job and for other personal uses.   Petitioner offered

automobile service documents to show the odometer readings for

the beginning and end of tax year 1997 but failed to provide a

mileage log noting how many miles she drove for her consulting
                                - 7 -

business.

     The rule for substantiating car and truck expenses is clear.

Petitioner is required to provide a mileage log or other

corroboration sufficient to establish the amount, time, place,

and business purpose of the expense.    At trial, petitioner failed

to provide any corroborating evidence, besides her self-serving

testimony.    The Court has discretion to disregard testimony which

we find self-serving.    Niedringhaus v. Commissioner, 99 T.C. 202,

212 (1992).   Accordingly, petitioner is not entitled to deduct a

car and truck expense for the year in issue.

     Petitioner claimed an advertising expense of $1,490.    At

trial petitioner offered into evidence an invoice from Daily

Journal Corporation, the local daily legal newspaper, showing

$1,218.76 in advertising services rendered.    The advertisement

placed generally stated “Learn Word Perfect”.    We find that this

invoice substantiates petitioner’s advertising expense of

$1,218.76, and, therefore, petitioner is entitled to deduct this

amount.

     Section 167(a) permits a depreciation deduction for the

exhaustion and wear and tear of property used in a trade or

business.    In calculating the depreciation deduction petitioner

included:    Fax machine ($300), printer ($700), and computers

($2,500).

     At trial petitioner offered into evidence a receipt from
                                 - 8 -

Target showing a Sony CFD530 for $139.99.     Petitioner testified

that the receipt represents the purchase of a Sony facsimile

machine.     Petitioner also offered a receipt from Sonia Reyes, of

the law firm Crosby, Heafey, Roach & May, in downtown Los

Angeles, showing the purchase of a Hewlett Packard Laser Jet

Series II laser printer for $750, and two receipts from Superbyte

Inc., showing the purchase of two computers for $1,045 and

$1,550, respectively.

     We find that petitioner substantiated the purchase of the

above items for the use in her consulting business.     Accordingly,

petitioner is entitled to a depreciation deduction premised on

cost bases of $139.99 for the fax machine, of $750 for the

printer, and of $2,595 for the computers.     All items are 5-year

property as defined under section 168(e)(3)(B) and are subject to

the midquarter convention under section 168(d)(3)(A).

     Petitioner failed to provide any evidence for the claimed

repairs/maintenance deduction and other deduction.     Petitioner’s

Schedule C itemizes the other expenses of $4,000 to include bank

charges of $600, educational seminars of $750, and telephone of

$2,650.     However, petitioner is deemed to have conceded these

items because she failed to offer any evidence to support these

amounts.     Rules 142(a), 149; Pearson v. Commissioner, T.C. Memo.

2000-160.

    The last issue for decision is whether petitioner is liable
                                 - 9 -

for an accuracy-related penalty pursuant to section 6662(a) for

the year in issue.    Section 6662(a) imposes a penalty of 20

percent of the portion of the underpayment which is attributable

to negligence or disregard of rules or regulations.     Sec.

6662(b)(1).   Negligence is the “‘lack of due care or failure to

do what a reasonable and ordinarily prudent person would do under

the circumstances.’”     Neely v. Commissioner, 85 T.C. 934, 947

(1985) (quoting Marcello v. Commissioner, 380 F.2d 499, 506 (5th

Cir. 1967), affg. in part and remanding in part on another issue

43 T.C. 168 (1964) and T.C. Memo. 1964-299).     It includes any

failure by the taxpayer to keep adequate books and records or to

substantiate items properly.    Sec. 1.6662-3(b)(1), Income Tax

Regs.   The term “disregard” includes any careless, reckless, or

intentional disregard.    Sec. 6662(c).   No penalty shall be

imposed if it is shown that there was reasonable cause for the

underpayment and the taxpayer acted in good faith with respect to

the underpayment.    Sec. 6664(c).

     At trial, petitioner testified that her accountant prepared

her 1997 return based on receipts and “all kinds of stuff” she

brought to him.   Although petitioner purportedly provided

documentation to her accountant, it remains her responsibility to

provide information necessary to accurately prepare her return

and to review the return prior to filing.     Moreover, her claim

that she provided adequate documentation to her accountant is
                              - 10 -

suspect in view of her total concessions with regard to the

disallowance of travel and meals and entertainment expenses of

$2,620, other deductions of $4,000, and repair/maintenance

deductions of $1,200.   We find that respondent has met his burden

of production under section 7491(c) through petitioner’s above

concessions, along with evidence in the record indicating that

petitioner lacked proper record keeping for the accurate

preparation of her 1997 return.   Higbee v. Commissioner, 116 T.C.

438, 449 (2001).   Accordingly, petitioner is liable for the

negligence penalty under section 6662(a)(1).

     We have considered all arguments by the parties, and, to the

extent not discussed above, conclude that they are irrelevant or

without merit.

                                         Decision will be entered

                                    under Rule 155.
