                        T.C. Memo. 2010-252




                      UNITED STATES TAX COURT


 SHARON LOUISE GRIFFIN, Petitioner v. COMMISSIONER OF INTERNAL
                      REVENUE, Respondent


     Docket No. 10285-07.              Filed November 17, 2010.



     Sharon Louise Griffin, pro se.

     Loren Mark, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     HOLMES, Judge:   Sharon Louise Griffin worked part time as a

videotape operator and technician.    But, if her returns are to be

believed, she operated nine businesses in her spare time,

grossing $2,876,957 during 2001-2003, but ending up in the red

each year.   She doesn’t contest her receipt of income, but
                                 -2-

disputes the Commissioner’s disallowance of her claimed expenses

and other deductions.

                           FINDINGS OF FACT

     Griffin worked in Los Angeles’ entertainment industry as a

videotape operator and technician.     She was essentially a temp

filling in for absent employees at companies such as ABC, NBC,

Univision, etc.   She claims an inability to recall how many days

a year she worked–-declining to give even a rough estimate.     But

she worked enough to earn over $70,000 annually in wages from

2001-2003.

     Griffin was also an entrepreneur, who tried to supplement

her income through many other jobs in the South Los Angeles

neighborhood she called the “Jungle”.1    Her entrepreneurial

endeavors are reflected in her 2001, 2002, and 2003 tax returns,

where she reported the following nine businesses on separate

Schedule Cs:

     • Delivery Service,

     • Video Production,

     • Janitorial Maintenance Service,

     • Computer Repair Service,

     • Handyman Service,



     1
       It is a neighborhood apparently well-known for its lush
plant life. Griffin explained the origins of the name--“If you
go over there it’s inhabited with overgrown trees so it looks
like a jungle.”
                                 -3-

     • Landscape Maintenance Service,

     • Parking Lot Maintenance/Steam Cleaning Service,

     • Consulting Service, and

     • Notary/Process Server Service.

Millions of dollars flowed through these businesses, but Griffin

claimed enough expenses to eliminate any taxable income.

     The record has no direct evidence showing why Griffin would

spend so much effort to operate nine businesses when she would

lose money year after year--especially since she earned a

reasonably good wage in the entertainment industry.   The

Commissioner points to a lack of “sufficient veracity” in her

testimony.   Certain aspects of her testimony were indeed unusual.

For example, she was reluctant to give her home address,

referring instead to a P.O. box.    And the only business address

she had for her numerous enterprises was an 800-square-foot

warehouse/storage facility, because she tries “not to do business

at home.”

     Griffin also dealt almost entirely in cash.   She explained

that “I’m not the kind of person who would write a check to

somebody I don’t know because it has all my information on it.”

She also avoided banks and the paper trail their records tend to

create.

     THE COURT: So it never was to the point where you were
     making large deposits to banks, or buying money orders
     or something?
                                    -4-

        THE WITNESS:    No, because then I would have had to file
        a CTR.[2]

     THE COURT: And that was too much of a hassle for you?          You
     wouldn’t want to get into that?

     THE WITNESS: It is in the Jungle and certain other
     number neighborhoods.

When asked what she did with so much cash, she replied:       “I

didn’t have hundreds and thousands of cash lying around.       I was

giving it to people.”

     THE COURT: So the idea would be to spend it on stuff
     right away?

     THE WITNESS: That’s the idea because people will steal
     things from you, but if they know they have to
     negotiate it to get it into some spendable form, it’s
     less of an encouragement to them to take it from you.
     If you have cash, that’s not traceable.

This testimony affected our findings on the particular issues

presented.

     Griffin filed her 2001 and 2002 returns about two years

late, and her 2003 return about a year late.       The Commissioner

audited her returns in 2005, and issued a notice of deficiency in

2007.       In it, the Commissioner denied various deductions and

asserted the failure-to-file and accuracy-related penalties.

Griffin timely petitioned the Tax Court for redetermination of

the deficiencies and penalties and the trial delved into the


        2
       Griffin was apparently using a common abbreviation for
currency transaction reports. CTRs are designed to prevent money
laundering, and banks are required to file them with the
government for currency transactions in excess of $10,000. 31
C.F.R. sec. 103.22(b)(1) (2010).
                                -5-

specifics of each of Griffin’s businesses during the years at

issue.

                              OPINION

     Section 162(a)3 allows a deduction for ordinary and

necessary business expenses, but taxpayers must substantiate the

deductions they claim with adequate supporting records.    Sec.

6001; see also, e.g., Meneguzzo v. Commissioner, 43 T.C. 824,

831-32 (1965).   If a taxpayer claims a business expense, but

cannot fully substantiate it, we may approximate the allowable

amount under certain circumstances.     Cohan v. Commissioner, 39

F.2d 540, 543-44 (2d Cir. 1930).   For this rule to apply,

however, there must be some basis for the Court to make a

reasonable estimate of the deductible amount based on the record.

Vanicek v. Commissioner, 85 T.C. 731, 742-43 (1985).    We need not

apply the Cohan rule at all if the evidence presented by the

taxpayer is insufficient to identify the nature of or estimate

the extent of the expense.   See, e.g., Williams v. United States,

245 F.2d 559, 560 (5th Cir. 1957) (“there [must] be sufficient

evidence * * * that at least the amount allowed in the estimate

was in fact spent or incurred for the stated purpose”).    In

addition, section 274(d) and its regulations supersede the Cohan



     3
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years at issue, and
Rule references are to the Tax Court Rules of Practice and
Procedure.
                                 -6-

rule and lay out strict substantiation requirements for certain

types of expenses.    See, e.g., Sanford v. Commissioner, 50 T.C.

823, 827-28 (1968), affd. 412 F.2d 201 (2d Cir. 1969); sec.

1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov.

6, 1985).

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

timely file a return unless the taxpayer shows that his failure

was due to reasonable cause and not willful neglect.      Section

6662 provides for a penalty of 20 percent of the underpayment

attributable to negligence, disregard of rules or regulations, or

substantial understatement of income tax. “Negligence * * *

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 section 6662 penalty, however, is subject

to a reasonable-cause-and-good-faith defense.


I.   Griffin’s Evidence

     Griffin presented two types of evidence–-documentary and

testimonial.    Her documentary evidence consisted of the

following:

     •      Summary of depreciation/section 179 expenses with
            illegible backup documents,

     •      summary of travel expenses,

     •      summary of car and truck expenses,

     •      summary of supply expenses,
                                 -7-

     •      a letter from her church with a summary of
            contributions,

     •      documents about a casualty loss,

     •      a job order and other documents relating to
            licensing of someone she did business with,

     •      copies of credit-card statements, and

     •      incomplete copies of bank statements.

     Griffin submitted all of her documentary evidence to the

Commissioner less than 14 days before trial.    And the evidence

was filled with problems.    It consisted mostly of summaries, many

of which lacked receipts or other backup documentation.    And the

backup documentation that she did provide at the last minute–-

such as handwritten cash receipts with only her own signature,

copies of receipts xerographically reduced to such a small size

as to render them illegible, and credit-card statements with

nothing to tie the expenses to her various businesses–-lacked

credibility.    Such gaps in the documentary evidence can, however,

be filled by testimony, and Griffin did try to fill in these

gaps.    But we found her testimony to be generally vague and

evasive.
                                                 -8-

II.    Griffin’s Businesses

       A.         Delivery Service

                    Delivery Service’s Income as Reported on Schedule C
        Year                Gross Income               Net Income          Net Cash Income1
           2001                 $54,775                   $358                   $1,016
           2002                   78,691                (4,447)                        48
           2003                   68,006                (5,331)                      1,333

       1
        Net cash income is equal to the net income plus the depreciation
expense.

                   Delivery Service’s Expenses Disallowed by Commissioner
      Year           Depr./§179       Travel           Supplies     Commissions        Car/Truck
      2001              $658               ---         $25,074        $6,992            $8,678
      2002              4,495              ---          31,343           7,181          24,775
      2003              6,664              ---          29,179           1,375          24,964

       We begin with Griffin’s delivery business, for which she

claims to have logged many miles delivering goods throughout the

greater Los Angeles area.                   She testified that she would purchase

inventory, collect money from customers, and then profit on the

difference--essentially acting as a middleman retailer.                                There is

insufficient evidence to understand the nature of her inventory:

       A significant portion of the delivery income was
       related to myself representing my business acting as a
       middle person for the purchase of other items. So the
       gross income does not only include the cost of the
       delivery but for whatever items it was that were
       delivered.

                    *       *          *          *         *        *           *

       The delivery was putting the goods in their hands[.]

                    *       *          *          *         *        *           *
                                         -9-


     Usually we were a facilitator for people who needed to
     get a product that could not necessarily go acquire it
     themselves but they still needed it.

She said she remembers neither the number of customers she

supplied with this unnamed merchandise, nor any of their names.

     B.     Video Production

              Video Production’s Income as Reported on Schedule C
     Year             Gross Income             Net Income          Net Cash Income
     2001                 $258,524              ($34,251)                  $369
     2002                 218,354                (35,615)                  (501)
     2003                 153,337                (20,725)                 11,182


             Video Production’s Expenses Disallowed by Commissioner
   Year        Depr./§179       Travel         Supplies     Commissions      Car/Truck
   2001         $34,620        $25,081         $48,363       $67,055          $29,797
   2002          35,114         27,589          38,443        39,300           24,979
   2003          31,907          9,268          28,059         1,829           26,175

     Griffin claims that her video-production business involved

copying master tapes, editing, and providing graphics and other

services to various customers.           Once again, she couldn’t remember

how many customers she serviced annually; she thought it was

somewhere between 100 and 1000.4           And she had no retail location


     4
       THE COURT: How many customers did you have for your
video production business?

     THE WITNESS: Once again, I don’t know the answer to that
from a customer standpoint. * * *

     THE COURT:      You’re talking 1,000 customers?
                                                                    (continued...)
                                  -10-

for “solicitation and walk-in.”      In her trial testimony, Griffin

explained that the content of the videos included such

traditional videographic jobs as weddings, but extended even to

stop-action animation:

       THE COURT: People would come in and if they had some
       creative type make a video, live action short of the
       Smurfs or something and you--

       THE WITNESS:   Yeah.   We did duplications, editing,
       graphics.

       She also allegedly brought her video-production skills to

the Southern California rave scene.       She said she set up video

screens for customers she termed “teenyboppers” at parties she

described as:

       [A]ll undercover and you can only find out by somebody
       actually giving you a handout * * * They do a lot of
       drinking, illegal drugs and things they probably
       wouldn’t do in the presence of their parents * * *
       They’re just going hook[5] wild and crazy is the bottom
       line.



       4
        (...continued)

       THE WITNESS: Not necessarily.      Not 1,000.   I can ballpark
you.    I’d say not 1,000.

       THE COURT:   How many?

       THE WITNESS:   I said not 1,000.

       THE COURT:   A hundred?

       THE WITNESS:   Definitely more than 100--jobs I’ve done.
       5
       This is either a transcription error of “hog wild” or “off
the hook” or a level of craziness with which the Court is
unfamiliar.
                                       -11-

     Griffin reported substantial depreciation for her video-

production business each year.6          But her choice of suppliers was

unorthodox.      One of her favorite suppliers, “VCR Gary,”7 offered

her the convenience of taking cash in increments of less than

$10,000.

     THE WITNESS: * * * [H]e would be the guy I’d be
     getting them from because he’s the guy who could accept
     payment from me and things like that that would be more
     accommodating to me.

     THE COURT: What do you mean “accept payment from you,”
     because normally anybody would accept payment from you.

     THE WITNESS: When I say “payments” I mean if a machine
     cost $18,000, he would take $9,000 now and $9,000
     later.

     C.     Janitorial Maintenance Service

         Janitorial Maintenance Service’s Income as Reported on Schedule C
     Year             Gross Income         Net Income         Net Cash Income
     2001               $126,357              ($4,612)             $126
     2002                146,986              (6,685)              (670)
     2003                109,556              (4,058)             1,014


    Janitorial Maintenance Service’s Expenses Disallowed by Commissioner



     6
       Some of the most expensive items Griffin was depreciating
include: two motor vehicles, eight different purchases of
Microsoft Office, eight camcorders, twelve tripods, eight tripod
head/adapter plates, three VCRs, eleven different machines for
video editing, and nine LCD monitors.
     7
        An IRS agent credibly testified about his effort to
contact VCR Gary to verify the claimed expenses by calling
several different telephone numbers, all of which had been
disconnected. Griffin explained that VCR Gary “has passed away
in the sense of the guy who’s VCR Gary.”
                                        -12-

   Year       Depr./§179       Travel      Supplies         Commissions    Car/Truck
   2001         $4,738         $6,878      $10,414           $22,499        $48,620
   2002          6,015          8,919          13,289         28,124         49,060
   2003          5,072          2,879          11,987            829         50,573

     Griffin explained that her janitorial business focused on

cleaning up after new home construction.                She couldn’t remember

the names of any customers, how many homes her service cleaned,

or how much time she spent on the business.                 She noted that her

role was managerial and that she used day laborers instead of

doing any of the work herself.           We pointed out that she grossed

over $109,000 in 2003 but had not claimed any wage expenses (and

only $829 in commissions).           She explained that people to whom she

had lent money when they found themselves short of cash would

work for her to pay down their debts.              She did admit that,

despite the very large number of delinquent loans she had, she

had never deducted any bad-debt expenses.                This is all the more

remarkable in light of her testimony that she had loaned out

between $100,000 and $200,000 during the years at issue--all with

no records kept, no interest charged, and no knowledge of how the

debtors would use the loan proceeds.

     D.      Computer Repair Service

          Computer Repair Service’s Income as Reported on Schedule C
      Year               Gross Income          Net Income          Net Cash Income
      2001                 $45,386              ($1,994)                  $32
      2002                  55,037               (7,223)                  (476)
                                          -13-

     2003                   43,918                 (7,034)                 1,759


          Computer Repair Service’s Expenses Disallowed by Commissioner
   Year        Depr./§179        Travel          Supplies    Commissions     Car/Truck
   2001          $2,026          $1,012          $7,164       $12,483          $8,714
   2002           6,747          2,312            8,955        15,605          12,007
   2003           8,793          1,008           11,194         1,328              9,156



     Griffin also claimed to have hired contractors to repair

computers for what was--yet again--an unknown number of

customers.8     According to Griffin, most of these customers were

individual consumers in need of simple repairs, such as hard-

drive replacements or RAM upgrades.                She also allegedly serviced

small businesses with up to about 20 computers.                   She explained

that the contractors would drive to the customer’s home or

business to perform the repairs.             Griffin didn’t advertise,

claiming her customers came from word-of-mouth referrals.                          Much

as she had in her janitorial business, she spent very little on

labor costs in 2003 and grossed $43,918, all without doing any of

the repair work herself.

     THE COURT: And commissions were only $1328. Was this,
     again, people that you had given money to who were paying
     it off in the form of services to you?

     THE WITNESS:         Yes.   I was doing a whole lot of work-
     offs.



     8
       Griffin testified that she had “more than 100, but less
than 1,000” computer-repair customers.
                                            -14-

    THE COURT: And you were fortunate in having lent money
    to people who knew how to do computer repair?

    THE WITNESS: Most people know how to replace a hard
    drive or pull the RAM out. * * *

    E.         Handyman Service

                 Handyman Service’s Income as Reported on Schedule C
        Year             Gross Income              Net Income          Net Cash Income
        2001                 $196,732               ($2,883)                  $695
        2002                 283,723                (10,407)                  (412)
        2003                 157,418                (10,974)                  2,619


                Handyman Service’s Expenses Disallowed by Commissioner
   Year           Depr./§179       Travel          Supplies     Commissions      Car/Truck
   2001             $3,578          ---            $57,747       $83,211          $30,567
   2002              9,995         $1,349          86,444         97,974              62,975
   2003             13,593          1,714          53,558          3,128              63,300

     Griffin’s next small business was a handyman service.                              She

ran it very similarly to the others, testifying that she farmed

out different jobs to a variety of subcontractors.                         She would

occasionally do simple jobs herself like pouring a concrete

driveway and testified that her personal specialty was electrical

work.    She also said that she used day laborers for basic manual

labor.    Griffin explained as well that her handyman business

often took her to the border, where she personally picked up

supplies.

     THE COURT: What was going on in San Diego for your
     handyman service?
                                         -15-

     THE WITNESS: That’s where the work was, so that’s
     where we were going to to accomplish the task.

     THE COURT: Did you have a lot of shuttling back and
     forth from San Ysidro/San Diego area?

     THE WITNESS: Yes. On most occasions, L.A. to San
     Diego was a daily trip.

     THE COURT:     And the supplies that year are for nearly
     $54,000.

     THE WITNESS: That is a combination of either
     purchasing concrete or mix, lumber or buying baffles
     * * *

     As was true with her other businesses, the handyman service

had negligible labor expenses and a complete absence of records.

     F.     Landscape Maintenance Service

      Landscape Maintenance Service’s Income as Reported on Schedule C
     Year            Gross Income               Net Income          Net Cash Income
     2001                $89,801                 ($3,268)                  $37
     2002                112,041                  (4,879)                  (571)
     2003                   58,842                (3,356)                  839


    Landscape Maintenance Service’s Expenses Disallowed by Commissioner
   Year        Depr./§179       Travel          Supplies     Commissions     Car/Truck
   2001         $3,305          $2,796          $2,631        $46,893         $20,037
   2002          4,308           3,495           3,289         58,554            25,372
   2003          4,195           1,819           7,111            989            21,647

     Griffin also claimed that she hired day laborers for her

landscaping business.         As with her janitorial and computer

businesses, a very low labor expense ($989) generated

extraordinary sales (almost $59,000 in 2003) in what is usually

thought of as a labor-intensive enterprise.                  And she couldn’t
                                        -16-

remember any of the business’s customers because she did not

perform the work.        (She also had no explanation for why she had

no memory of billing customers or soliciting their business.)                      In

addition, she claimed that she kept her equipment in vans because

her 800-square-foot warehouse couldn’t hold all of it--especially

when combined with the equipment for all her other businesses.

The vans were parked in a vacant lot or on the street in South

Central Los Angeles.

     G.     Parking Lot Maintenance/Steam-Cleaning Service

   Parking Lot Maintenance/Steam-Cleaning Service’s Income as Reported on
                                 Schedule C
     Year            Gross Income              Net Income          Net Cash Income
     2001                $134,938               ($8,718)                   $88
     2002                 178,547               (11,167)                   797
     2003                 167,118                (8,154)                  2,039


   Parking Lot Maintenance/Steam-Cleaning Service’s Expenses Disallowed by
                                Commissioner
   Year        Depr./§179      Travel          Supplies     Commissions     Car/Truck
   2001         $8,806         $2,348          $6,643        $37,081         $56,743
   2002         11,964          2,935           8,304         46,361          82,538
   2003         10,193          3,699          13,806         23,430          79,873

     Griffin’s workers--by her account, about 100 different

laborers--swept parking lots and steamed sidewalks for somewhere

between 100 and 1000 customers a year.               She remembers almost none

of the business’s customers, but she did receive a 1099 from the

Hollywood DMV.     Her other customers were unspecified convenience

stores, restaurants, and other establishments with dirty
                                              -17-

sidewalks in “the Jungle.”               Her workers would spend about a half-

hour steam cleaning each customer’s sidewalks and were paid in

cash.     She said she didn’t remember any of their names “off the

top of my head.”         To get a better sense of the scope of this

business, we asked whether the cleaning business included any

laundering activities.

     THE COURT: So this was steam-cleaning. Did that
     include any sort of window-cleaning or laundering as
     well?

     THE WITNESS: Whenever you steam-clean sidewalks
     and there’s windows near, you have to clean the
     windows because the overspray. You don’t really
     have a choice.

     H.        Consulting Service

                Consulting Service’s Income as Reported on Schedule C
        Year             Gross Income                Net Income           Net Cash Income
        2001                 $9,139                   ($1,901)                    $16
        2002                 10,940                    (2,079)                    343
        2002                   7,798                         371                 1,662


               Consulting Service’s Expenses Disallowed by Commissioner
   Year           Depr./§179       Travel            Supplies      Commissions     Car/Truck
   2001             $1,917             $733            ---           $4,783              ---
   2002              2,422         1,106               ---            4,912              ---
   2003              1,291             853             ---              615              ---

        Griffin’s consulting business involved website design.                             She

claimed she wouldn’t develop an entire website from start to

finish, but would design website features offline for later use

by her clients.         The income from this business was a lagniappe to
                                            -18-

her other enterprises, since she admitted that she doesn’t have

any website-design expertise; as she put it:                     “I’m not a website

designer, I’m not an HTML kind of person.”                      She allegedly hired

someone--whose name she can’t remember--with the required

expertise.      Unlike her 100-to-1000-customer businesses, this

business served only 10 to 20 customers annually, she said, but

she still couldn’t name anyone even from this putatively smaller

customer base.

     I.     Notary/Process Server Service

         Notary/Process Server Service’s Income as Reported on Schedule C
     Year              Gross Income                Net Income          Net Cash Income
     2001                  $35,528                  ($8,477)                   ($4)
     2002                    43,202                 (10,970)                   307
     2003                    32,263                  (9,004)                  1,838


    Notary/Process Server Service’s Expenses Disallowed by Commissioner
   Year         Depr./§179       Travel            Supplies     Commissions     Car/Truck
   2001           $8,473              ---          $3,222         $6,879         $10,143
   2002           11,277              ---           2,727          7,125              9,839
   2003           10,842              ---           3,335          1,520              9,882

     Griffin’s last business return was for a combination of

notarial fees and process serving.                  Griffin admitted that she did

not do the bulk of this work herself, again relying on “a lot” of

people9 for her notary and process server business.                        Her target

customers were incarcerated.                Since the amount she could charge


     9
       An indeterminate number, according to her testimony,
falling somewhere in the range of 100 to 1000.
                                          -19-

as a notary was limited by law, she claims that most of the

revenue came from “arrival fees” to go to the various

correctional facilities to provide services to the inmates.

Griffin testified that the business brought in about $30 to $40

for each complaint served.            She said she found herself forced

into this niche because she didn’t have a physical retail

location, though she did include herself on several web-based

directories for process servers.             We tried to figure out whether

this might have been a home business:

     THE COURT:       So this was done out of your home, in other
     words.

     THE WITNESS: I’m not going to say that but you
     can make that assessment because I try not to do
     business at home.

     THE COURT:       Where do you do business out of?

     THE WITNESS: * * * [A] warehouse/storage facility.
     Not a specific office, but definitely where that
     kind of thing was done. Not in my home.

     J.     Total

                    Total Income as Reported on All Schedules C
     Year              Gross Income              Net Income          Net Cash Income
     2001                 $951,180                ($65,746)                 $2,375
     2002                1,127,521                 (93,472)                 (1,135)
     2003                   798,256                (68,265)                 24,285

      Total              2,876,957                (227,483)                 25,525


               Total of All Expenses Disallowed by Commissioner
   Year        Depr./§179       Travel           Supplies     Commissions     Car/Truck
   2001         $68,121         $38,848          $161,258      $287,876        $213,299
                                        -20-

    2002            92,337     47,705          192,7941     305,136    291,545
    2003            92,550     21,240          158,229       35,043    285,570

        Total      253,008    107,793          512,281      628,055    790,414

        1
        The Commissioner’s brief erroneously provides $195,794 as the total
amount of deductions disallowed for supplies in 2002.

        Over $2.8 million in cash flowed through Griffin’s nine

businesses over the course of three years.                If her returns are to

be believed, these gross receipts were almost entirely offset

with cash expenses, were never profitable, and apart from a

single 1099, generated no records or identifiable customers.

        The Commissioner also identified more problems with her

returns, which we discuss next.

III.        Griffin’s Returns and the Investigation

       One problem was that Griffin had trouble filing her returns

on time.        Her 2001 and 2002 returns were filed about two years

late, but even her 2003 return was about a year late.10               The

Commissioner selected Griffin’s 2001-2003 returns for audit in

2005.       And here the Commissioner ran into a bigger problem--

something less than full cooperation during the audit.                Veronica

Love, the revenue agent assigned to Griffin’s case, tried to set

up a meeting with Griffin on three different occasions, but

Griffin never showed up.        Due to Griffin’s failure to respond,

Love summoned Griffin’s bank records.              Despite her


       10
       Griffin filed her 2001 return on March 12, 2004; her 2002
return on April 14, 2005; and her 2003 return on June 17, 2005.
                                      -21-

noncooperation, the Commissioner allowed over $800,000 in

Schedule C expenses,11 but disallowed those we’ve already outlined

in Section II.

     The Commissioner also disallowed all of Griffin’s Schedule A

itemized deductions:

                  Total Claimed/Disallowed Schedule A Deductions
                           2001                2002                 2003

 Medical                 $14,653             $13,113               $12,267
 Taxes                     3,372               3,084                3,162
  Contributions           16,6721             16,2062               1,017
  Casualty loss            ---                 ---                  1,492
  Miscellaneous           12,681                  259              10,060

   Total                  30,706               16,456              27,998

     1
         Griffin’s 2001 Schedule A lists $13,672 in gifts made in 2001 (line
15), and $9,732 in charitable gifts carried over from the prior year (line
17). However, Griffin claimed zero in charitable gifts overall (line 18).
Because the total deduction claimed on Griffin’s 2001 Schedule A did not
include any amount for charitable gifts, the $16,672 amount disallowed by the
Commissioner was not included in the total amount of Schedule A deductions
disallowed for 2001.

     2
        The itemized deduction Griffin claimed for 2002 also did not include
any amount for charitable gifts. As such, this amount was not included in the
total amount of Schedule A deductions disallowed for 2002.

     In addition, the Commissioner disallowed a 2003 tuition-and-

fees deduction of $2,387 for failure to substantiate, and

asserted failure-to-file and accuracy-related penalties.




     11
       The Commissioner allowed the following Schedule C
expenses in the original audit: advertising, insurance, legal
and professional, office expenses, rent-machinery, rent-other
property, repairs, taxes/licenses, meals and entertainment, and
utilities. The record fails to reflect why.
                                 -22-

      Griffin timely petitioned the Tax Court, and trial was set

for June 2008.     Griffin asked for a continuance because she had

failed to meet with IRS counsel for trial preparation and wanted

another opportunity to get her records together.     The case was

continued and Love reached out to Griffin, trying to move things

along.     She tried calling the number Griffin provided--323-555-

121212--but when that failed she sent a letter via certified mail

to Griffin’s last known address.     Griffin replied by fax,

explaining she would be in Beijing for the Olympics and could not

meet until the end of August.     Love set up a meeting for late

August, after the case had been set for trial on January 26,

2009--giving her “one last opportunity” to substantiate her

deductions.     Griffin showed up without any substantiating

documentation, but got another chance to get her records in order

by mid-September.    At the September meeting, Griffin arrived with

only a few documents, and they were disorganized.     Once again,

Love gave her another chance and scheduled a meeting for December

16.   The morning of December 16 arrived, but Griffin did not.

Griffin rescheduled for the following day, but again failed to

appear.     After three one-last-chance opportunities had passed,

Love sent Griffin’s file back to IRS counsel in December.




      12
       Griffin had provided a working number, albeit the number
for local telephone directory assistance in the 323 area code.
                                 -23-

     Love, IRS counsel, and Griffin did meet in January 2009 to

prepare for trial.    Griffin provided summaries of expenses

without any backup documentation, which didn’t satisfy the

Commissioner.     After calendar call, we held a chambers conference

and ordered Griffin to organize her records and deliver them to

the Los Angeles IRS office at 10 a.m., three days later.    She

couldn’t make it.    The IRS suggested faxing them in as she

completed them.

     The faxes started to come in throughout the day of January

29 and everything seemed legit, with summaries of expenses

supported by photocopies of invoices.     Love was about to allow

the expenses until she attempted to verify an invoice from a firm

named Office World with an L.A.-area address.    Love looked up the

company online and called its Oregon headquarters.    Office World,

it turned out, has no locations in greater Los Angeles.     Then she

faxed the invoice to the company to verify its authenticity--

Office World had not issued it.

     The morning of the trial Love visited the address on the

Office World invoice only to discover an apartment building.      The

Commissioner then reasonably declined to stipulate to the

authenticity of any of Griffin’s proffered documentary records of

her businesses.    (Though his agents apparently did not re-review

any of the records that had already been accepted by the IRS as

proof during the initial audit.)    The Commissioner nevertheless
                                     -24-

allowed some personal deductions when Griffin provided canceled

checks.

                         Allowed Schedule A Deductions
                           2001                2002                 2003
   Contributions           $8,827             $2,680                 -
   Taxes                    3,045              2,561               $2,681
      Total                11,872              5,241                2,6811

      1
        The total amount is less than the standard deduction.   Therefore, for
2003 Griffin is entitled to the standard deduction.

      We tried the case in Los Angeles, where Griffin more likely

than not resided when she filed her petition.            Griffin didn’t

bother to file a posttrial brief, despite our order to do so.13

IV.   Admissibility of Evidence

      We consider what evidence to admit.         The Commissioner argues

that Griffin’s evidence should be excluded because she failed to

comply with the “14 Day Rule” and Federal Rule of Evidence 1006.

      A.      The “14 Day Rule”

      We issued our standing pretrial order which requires that

any unstipulated documents be provided to the opposing party “at

least 14 days before the first day of the trial session.”                Rule

131(b) provides that failure to comply with a standing pretrial



      13
       We could dismiss Griffin’s case or deem unopposed issues
conceded because of her failure to file a brief and history of
noncooperation. See Rule 123; Stringer v. Commissioner, 84 T.C.
693, 708 (1985), affd. without published opinion 789 F.2d 917
(4th Cir. 1986); Diesel Cnty. Truck Stop, Inc. v. Commissioner,
T.C. Memo. 2000-317. Nevertheless, we’ll evaluate her case on
its merits to the extent we can.
                                -25-

order may subject a party to sanctions.   One such sanction, as

laid out in the order, is the exclusion of evidence offered in

violation of the 14-day rule.   See Kanofsky v. Commissioner, T.C.

Memo. 2006-79, affd. 271 Fed. Appx. 146 (3d Cir. 2008).

     Griffin didn’t meet the 14-day deadline.   She was also on

notice about the 14-day rule from an earlier trial session yet

disregarded it a second time.   She offers no excuse, and we

therefore exclude her last-minute evidence from our consideration

because of her failure to comply with our pretrial order.

     B.   FRE 1006

     Most of Griffin’s evidence was also mere summaries.

Although Federal Rule of Evidence 1006 allows for the

admissibility of this kind of evidence, the original source

documents on which the summaries are based must be made available

to the opposing party.   Griffin put together several summaries,

but failed to provide the backup documentation to the

Commissioner for review.   Therefore, the summaries presented at

trial are also inadmissible under Federal Rule of Evidence 1006.

See Rager v. Commissioner, 775 F.2d 1081, 1083 (9th Cir. 1985),

affg. T.C. Memo. 1984-563; Kalgaard v. Commissioner, T.C. Memo.

1984-283 (excluding summaries of purported contributions because

of the taxpayer’s failure to provide original source documents),

affd. 764 F.2d 1322 (9th Cir. 1985).
                                -26-

V.   Merits of Evidence

     Out of an abundance of caution, we also consider the

credibility of Griffin’s evidence.

     A.   Business Expenses

          1.   Overview

     Because the evidence Griffin provided lacks credibility, we

will not use the Cohan rule in recalculating her deductions.     See

Lerch v. Commissioner, 877 F.2d 624, 628-29 (7th Cir. 1989)

(holding that there is no obligation to apply the Cohan rule

where the taxpayer fails to cooperate with the Commissioner and

the Tax Court), affg. T.C. Memo. 1987-295.   Moreover, Griffin

provided no records that meet the substantiation requirements of

section 274(d).14   Such requirements go to her claims for

depreciation, car and truck, and travel expenses.   With these

general thoughts in mind, we now look to each category of the

disputed deductions.




     14
       Under section 274(d), a deduction for traveling expenses,
meals and entertainment, or listed property (as defined in
section 280F(d)(4)) is disallowed unless the taxpayer properly
substantiates: “(1) The amount of such expense, (2) the time and
place of the expense, (3) the business purpose, and (4) in the
case of meals and entertainment, the business relationship
between the taxpayer and the persons being entertained.” Fleming
v. Commissioner, T.C. Memo. 2010-60 (citing section 274(d)).
Listed property includes: automobiles and other transportation
vehicles, property used for entertainment or recreational
purposes, computers and computer equipment, and cellular
telephones. Sec. 280F(d)(4).
                                 -27-

          2.      Depreciation

     Griffin claimed depreciation/section 179 expenses for a wide

range of items15 for which she provided a summary and backup

documentation.    Her backup documentation included copies of

receipts and invoices--reduced to four per page--that were often

too small or too light to decipher.     Furthermore, some of the

items could easily be for personal rather than business use.       And

several items were subject to the substantiation requirements of

section 274(d).16    For those purchases she did not provide

sufficient proof of the amounts expended, the time and place of

acquisition, or the business purpose.     See also sec. 1.274-5T(a),

Temporary Income Tax Regs., supra.      Griffin is thus not entitled

to the depreciation/section 179 expenses claimed.

          3.      Travel and Car and Truck Expenses

     Griffin provided bare-bones charts for travel and car and

truck expenses.     Although the charts list the date, vendor, and

amount spent for each purchase, there is no mention of the


     15
       The following list provides some of the items Griffin was
depreciating: cellphones, notebook computers, design software,
digital cameras, digital video cameras, projectors, brooms,
dustpans, hoses, rakes, shovels, trash cans, cleaning supplies,
vacuum cleaners, mops, ladders, vehicles, toolboxes,
wheelbarrows, painting supplies, extension cords, lawnmowers,
lawn edgers, cables, power supplies, tripods, camera batteries,
chairs, a microwave oven, an encyclopedia set, a copier,
televisions, data-recovery software, furniture dollies, and
moving equipment.
     16
       These items include vehicles, computers, and cellphones,
to name a few. See secs. 274(d), 280F(d)(4).
                                    -28-

business purpose.     Griffin thus failed to establish that such

expenses were ordinary and necessary for her businesses as

required by section 162, or even that they were business-related

at all.   See sec. 1.6001-1, Income Tax Regs.   These expenses are

also subject to the heightened substantiation requirements of

section 274(d).    The only documentary evidence that she provided

was credit-card receipts that lacked sufficient detail, and could

not be matched with the expenses she claimed as deductions.    This

documentation does not meet the requirements of section 274(d).

            4.    Supply Expenses

     Griffin provided more charts in order to justify her supply

expense deductions.    The charts indicate the credit card used,

date, vendor, and amount spent for each purchase.    They do not

have any information regarding what was purchased or how it was

used.   As we have already discussed, there is a serious question

about the validity of the purported source documents.    There is

also no way to determine whether the supply expenses were

previously accounted for in other Schedule C categories allowed

by the Commissioner--such as office expenses or repairs.    For

example, the purchases from Office Depot could have been

categorized as both supply and office expenses.    The same problem

presents itself when looking at the entries for Home Depot, where

many of these purchases could be viewed as both repair and supply

expenses.    In addition, several of the purchases listed on the
                                -29-

chart could be construed as personal, such as an XM Radio

subscription and the items from Target.   The summary of supply

expenses simply does not give enough information to determine the

legitimacy of Griffin’s supply-expense deductions, and her

evasive testimony doesn’t shed much light on the issue either.

          5.   Commission Expenses

     Griffin claims to have incurred cash-commission expenses.

But her vague testimony regarding such payments and her

supporting documentation are not credible.   She provided

summaries at trial with over 800 handwritten “cash receipts” per

year as backup documentation.   Based on the receipts, she never

paid the same person more than once.   The payees never signed the

receipts, and some of them had very unusual names.17   Moreover, no

contact information for any of the payees was provided.     Even if

we were to admit this evidence, we wouldn’t believe it.

     B.   Other Deductions

          1.   Church Contributions

     Griffin provided contribution statements from her church for

2001, 2002, and 2003.   If she had provided the statements


     17
       In Griffin’s records, for example, the name “Xander”
appeared five times and “Zander” appeared six times. They were
presumably different people because each Xander or Zander had a
different surname. According to the Commissioner’s
investigation, there are very few Xanders or Zanders in the
entire state of California--about 85 Xanders and 95 Zanders.
Griffin either had an uncanny ability to find Xanders/Zanders, or
her cash receipts are unreliable evidence. We do not believe the
former possibility.
                                  -30-

earlier, the Commissioner would have been able to examine them

and possibly confirm their authenticity with the church.      On

their face, the statements do appear legitimate.      But no canceled

checks or other underlying validation of the statements were

provided.    We need not decide the credibility of the statements

because Griffin didn’t submit them until trial; their

inadmissibility rests on other grounds as discussed above.

            2.   Casualty Loss

       Griffin claims someone stole rented equipment out of her

van.    She submitted rental invoices from Home Depot to support

her claim for a casualty loss.      But the invoices are from 2002

and the loss was claimed on her 2003 return.      In any event, she

didn’t submit the invoice until the day of trial, and it is

therefore inadmissible.

            3.   Tuition and Fees

       Griffin offered no substantiation for her tuition and fees

deduction.

VI.    Additions to Tax and Penalties

       A.   Failure to File

       Griffin conceded she filed her 2001, 2002, and 2003 returns

more than five months late.      She didn’t offer any evidence to

invoke the reasonable cause exception.      This addition to tax

therefore applies for each year.
                               -31-

     B.   Accuracy-Related Penalty

     Griffin has not produced any evidence to establish why this

penalty should not be imposed for each year.    Griffin’s disregard

for recordkeeping is apparent throughout the record.    She also

reduced her income tax liability to zero through her invalid

deductions.   Her understatement of income tax due clearly

exceeded the greater of ten percent of the tax required to be

shown on each return or $5,000.   See sec. 6662(d)(1)(A).    We

therefore uphold the Commissioner’s assertion of the section

6662(a) penalty for 2001, 2002, and 2003.



                                      Decision will be entered under

                               Rule 155.
