                                T.C. Memo. 2015-217



                          UNITED STATES TAX COURT



                    MARIE BEAUBRUN, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 2790-13.                             Filed November 16, 2015.



      Wayne Hartke,1 for petitioner.

      Kimberly A. Daigle, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


      VASQUEZ, Judge: Respondent determined a Federal income tax

deficiency of $16,362 and an accuracy-related penalty under section 6662(a)2 of

      1
         Mr. Hartke submitted an entry of appearance on September 24, 2014, but
did not appear at trial.
      2
          Unless otherwise indicated, all section references are to the Internal
                                                                         (continued...)
                                          -2-

[*2] $3,404 for petitioner’s 2009 taxable year. After concessions,3 the issues for

decision are: (1) whether petitioner is entitled to deductions for business

expenses, tax preparation fees, charitable contributions, general sales taxes, and

home mortgage interest4 in amounts in excess of the amounts that respondent

allowed; (2) whether petitioner is entitled to the American Opportunity Credit; and

(3) whether petitioner is liable for the accuracy-related penalty under section

6662(a).

                                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. Petitioner

resided in Florida at the time she filed her petition.




      2
      (...continued)
Revenue Code in effect for the year in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
      3
        Petitioner conceded that she failed to report gross receipts of $82,486 on
Schedule C, Profit or Loss From Business, and is liable for self-employment tax.
Respondent conceded that petitioner did not receive, and was therefore not
required to report, other income of $84,680 and that petitioner is entitled to the
self-employment tax deduction.
      4
         While petitioner did not address the home mortgage interest deduction in
her petition, we find that it was tried by consent. See Rule 41(b).
                                         -3-

[*3] During 2009 petitioner was a self-employed visiting nurse. She provided

in-home nursing services to patients who were assigned to her by two health care

agencies (agencies). She was responsible for providing her own uniforms, gloves,

and medical supplies for treating patients. Additionally, under the terms of her

agreements with the agencies, petitioner was required to use her own car and

maintain insurance on it. She purchased a Toyota Corolla in 2008 in order to

fulfill this requirement. Having a car enabled petitioner to travel to patients’

homes, carry her medical supplies, and transport patients as needed. She owned

only one car in 2009. Petitioner had no other source of income in 2009.

      Petitioner made donations to a church--Christian Life Restoration Center--in

2009. The donations were recorded in Christian Life Restoration Center’s

financial records. On or about September 15, 2014, Christian Life Restoration

Center sent petitioner a letter certifying that she had made $3,230 in contributions

to the church in 2009.

      Petitioner took out a mortgage to purchase a home in 2006. During 2009

petitioner made payments of home mortgage interest totaling $14,252.16.

Petitioner continues to reside in the home.

      On March 15, 2010, petitioner and her husband timely filed a joint Form

1040, U.S. Individual Income Tax Return, for 2009. The Internal Revenue Service
                                        -4-

[*4] (IRS) selected petitioner’s 2009 Form 1040 for examination. On November

2, 2012, the IRS issued petitioner a notice of deficiency. Petitioner timely

petitioned this Court for redetermination.5

                                     OPINION

I.    Deductions

      As a general rule, the Commissioner’s determinations in a notice of

deficiency are presumed correct, and the taxpayer bears the burden of proving that

those determinations are erroneous.6 Rule 142(a); Welch v. Helvering, 290 U.S.

111, 115 (1933). A taxpayer must show entitlement to any deduction claimed.

See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). When taxpayers

establish that they have paid or incurred deductible expenses but are unable to



      5
        Petitioner and her husband jointly filed the petition. However, the Court
dismissed the petition for lack of jurisdiction insofar as it related to petitioner’s
husband because it was filed in violation of an automatic stay under 11 U.S.C. sec.
362(a)(8) (2006).
      6
         Sec. 7491(a) provides that if, in any court proceeding, a taxpayer
introduces credible evidence with respect to any factual issue relevant to
ascertaining the liability of the taxpayer for any tax imposed by subtit. A or B, the
Secretary shall have the burden of proof with respect to such issue. Higbee v.
Commissioner, 116 T.C. 438, 440-441 (2001). However, petitioner has neither
claimed nor shown that she satisfied the requirements of sec. 7491(a) to shift the
burden of proof to respondent. Accordingly, petitioner bears the burden of proof.
See Rule 142(a).
                                        -5-

[*5] substantiate the exact amounts, we can estimate the deductible amount in

some circumstances, but only if the taxpayers present sufficient evidence to

establish a rational basis for making the estimate. See Cohan v. Commissioner, 39

F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731,

742-743 (1985). In estimating the amount allowable, we bear heavily upon

taxpayers whose inexactitude is of their own making. See Cohan v.

Commissioner, 39 F.2d at 544. There must be sufficient evidence in the record,

however, to permit us to conclude that a deductible expense was paid or incurred.

Williams v. United States, 245 F.2d 559, 560 (5th Cir. 1957).

      A.     Business Expenses

      Petitioner argues that she is entitled to deductions for business expenses of

$28,654 because they were ordinary and necessary expenses for her trade or

business as a visiting nurse. Respondent argues that petitioner is not entitled to

deductions for any business expenses because she failed to adequately substantiate

the expenses underlying her claimed deductions.

      A taxpayer may deduct ordinary and necessary expenses paid or incurred

during the taxable year in carrying on a trade or business, sec. 162(a), but the

taxpayer must maintain sufficient records to substantiate the expenses claimed,

sec. 6001; sec. 1.6001-1(a), Income Tax Regs. To be a trade or business expense
                                       -6-

[*6] the expenditure must be “directly connected with or pertaining to the

taxpayer’s trade or business”. Sec. 1.162-1(a), Income Tax Regs. Generally,

taxpayers may not deduct personal, living, or family expenses. Sec. 262(a).

Therefore, taxpayers must prove to what extent their expenses were incurred for

business rather than personal purposes. See Michaels v. Commissioner, 53 T.C.

269, 275 (1969). To be “ordinary” an 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). To be “necessary” an expense must be “appropriate and helpful” to the

taxpayer’s business. Welch v. Helvering, 290 U.S. at 113.

      Section 274(d) provides heightened substantiation requirements for certain

business expenses. Section 274(d) requires proof of the date, amount, and

business purpose of each use or expenditure. See sec. 1.274-5T(b)(6), Temporary

Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). The rules of substantiation

provided by section 274(d) supersede the Cohan doctrine. See Sanford v.

Commissioner, 50 T.C. 823, 827-828 (1968), aff’d per curiam, 412 F.2d 201 (2d

Cir. 1969); sec. 1.274-5T, Temporary Income Tax Regs., 50 Fed. Reg. 46014

(Nov. 6, 1985).
                                         -7-

[*7]         1.     Automobile Expenses

       The strict substantiation requirements of section 274(d) apply to use of and

expenses related to passenger automobiles. Secs. 274(d)(4), 280F(d)(4)(A)(i).

       Although we are satisfied that petitioner used the Toyota Corolla during

2009 at least partially for business purposes, we cannot allow a deduction for any

of her automobile expenses. The Toyota Corolla was a passenger automobile,7

and related expenses were therefore subject to the strict substantiation

requirements of section 274(d). See secs. 274(d)(4), 280F(d)(4)(A)(i). Petitioner

did not keep a diary, a log, trip sheets, or a similar record regarding the business

use of the Toyota Corolla, nor did she establish the time and place of its use. See

secs. 274(d)(4), 280F(d)(4)(A)(i); sec. 1.274-5T(c)(2), Temporary Income Tax

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

       Furthermore, petitioner has made no attempt to segregate the use of the

Toyota Corolla for business purposes from its use for personal purposes. See

Michaels v. Commissioner, 53 T.C. at 275. The evidence in the record provides

no factual basis upon which to estimate the business component of her automobile

expenses; and in any event, the Court lacks discretion to make such an estimate.

       7
        Petitioner has not argued that the Toyota Corolla was not a passenger
automobile as defined by sec. 280F(d)(5)(A). In addition, petitioner has not
argued for the application of the exception provided by sec. 280F(d)(5)(B).
                                        -8-

[*8] See Sanford v. Commissioner, 50 T.C. at 827-828; sec. 1.274-5T, Temporary

Income Tax Regs., supra.

      Petitioner did not substantiate any of her automobile expenses in accordance

with the requirements of sections 162 and 274 and the regulations thereunder.

Accordingly, we sustain respondent’s disallowance of a deduction for petitioner’s

automobile expenses.

             2.    Cellular Phone Expenses

      Cellular phone expenses petitioner incurred are subject to the requirements

of section 274(d). See secs. 274(d)(4), 280F(d)(4)(A)(v). Petitioner did not

substantiate the amounts, dates, and business purpose of her cellular phone use.

Additionally, she did not segregate the use of the cellular phone for business

purposes from its use for personal purposes. As petitioner has not satisfied the

requirements of sections 162 and 274(d), respondent’s determination regarding

petitioner’s cellular phone expense deduction is sustained.

             3.    Other Business Expenses

      Petitioner deducted several other business expenses, including license

renewal fees, uniforms, medical supplies, a background check, and a physical

examination. Petitioner did not provide any evidence to substantiate the amounts

of these expenses. Without such evidence, we cannot employ the Cohan doctrine
                                        -9-

[*9] to estimate petitioner’s other business expenses. See Vanicek v.

Commissioner, 85 T.C. at 742-743. Accordingly, respondent’s determination

regarding petitioner’s deduction for other business expenses is sustained.

      B.     Tax Preparation Fees

      Petitioner argues that she is entitled to a deduction of $400 for tax

preparation fees. Respondent argues that petitioner is not entitled to a deduction

for tax preparation fees because she has failed to provide adequate substantiation.

      A taxpayer may deduct ordinary and necessary expenses incurred in

connection with the determination, collection, and refund of taxes. See sec.

212(3). Such deductible expenses include expenses incurred in connection with

the preparation of tax returns. See sec. 1.212-1(1), Income Tax Regs. Petitioner

did not provide adequate evidence to substantiate the amount of such expenses.

Without such evidence, we cannot employ the Cohan doctrine to estimate

petitioner’s tax preparation fees, see Vanicek v. Commissioner, 85 T.C. at

742-743, nor can petitioner satisfy her burden of proof, see Welch v. Helvering,

290 U.S. at 115. Accordingly, respondent’s determination regarding petitioner’s

tax preparation fees deduction is sustained.
                                        - 10 -

[*10] C.     Charitable Contributions

      Petitioner argues that she is entitled to a deduction of $10,026 for charitable

contributions. Respondent argues that petitioner is not entitled to deduct any of

her reported charitable contributions because they have not been sufficiently

substantiated.

      In general, a taxpayer is entitled to deduct charitable contributions made

during the taxable year to or for the use of certain types of organizations. Sec.

170(a)(1), (c). A taxpayer is required to substantiate charitable contributions;

records must be maintained. Sec. 6001; sec. 1.6001-1(a), Income Tax Regs. A

cash contribution of less than $250 may be substantiated with a canceled check, a

receipt, or other reliable evidence showing the name of the donee, the date of the

contribution, and the amount of the contribution. Sec. 1.170A-13(a)(1), Income

Tax Regs. Contributions of cash or property of $250 or more generally require the

donor to obtain a contemporaneous written acknowledgment of the donation from

the donee.8 Sec. 170(f)(8)(A); Villareale v. Commissioner, T.C. Memo. 2013-74.

At a minimum, the contemporaneous written acknowledgment must contain a


      8
         A taxpayer who makes separate contributions of less than $250 to a donee
organization during a taxable year is not required to obtain contemporaneous
written acknowledgments even if the sum of the contributions is $250 or more.
Sec. 1.170A-13(f)(1), Income Tax Regs.
                                        - 11 -

[*11] description of any property contributed, a statement as to whether any goods

or services were provided in consideration by the donee, and a description and

good-faith estimate of the value of any goods or services provided in

consideration. Sec. 170(f)(8)(B). A written acknowledgment is contemporaneous

if it is obtained by the taxpayer on or before the earlier of (1) the date on which the

taxpayer files a return for the taxable year in which the contribution was made, or

(2) the due date (including extensions) for filing such return. Sec. 170(f)(8)(C).

      Respondent does not question that Christian Life Restoration Center is a

valid section 170(c) exempt organization. In 2009 petitioner made a donation of

$150 to Christian Life Restoration Center that was sufficiently substantiated by a

canceled check and a written statement from the organization. Because that

donation was for less than $250, a contemporaneous written acknowledgment is

not required. Therefore, petitioner is entitled to a $150 charitable contribution

deduction.

      Petitioner argues that her canceled checks for donations of $250 or more

and the written statement from Christian Life Restoration Center are sufficient to

substantiate the remainder of her contributions. We disagree. The canceled

checks do not qualify as contemporaneous written acknowledgments because they

do not state whether petitioner received any goods or services in exchange for her
                                        - 12 -

[*12] contributions. See sec. 170(f)(8)(B)(ii); Linzy v. Commissioner, T.C.

Memo. 2011-264 (finding that receipt from charitable organization did not

constitute contemporaneous written acknowledgment because it did not state

whether taxpayer received any goods or services in exchange for her contribution).

Additionally, the written statement from Christian Life Restoration Center does

not qualify as a contemporaneous written statement because it was written more

than four years after petitioner’s tax return had been filed. See sec. 170(f)(8)(C).

We therefore sustain respondent’s disallowance of petitioner’s claimed charitable

contribution deduction for amounts exceeding the properly substantiated $150

donation.

      D.      General Sales Tax

      Petitioner argues that she is entitled to a general sales tax deduction of

$2,056. Respondent argues that petitioner has failed to substantiate her claimed

deduction.9




      9
        Respondent concedes that petitioner is entitled to a deduction on Schedule
A, Itemized Deductions, for general sales tax based on the “Optional Sales Tax
Tables”. See sec. 164(b)(5)(H); see also Figures v. Commissioner, T.C. Memo.
2012-296. Because petitioner’s sales tax deduction will be based, in part, on her
2009 adjusted gross income (taking into account the parties’ concessions and our
findings and holdings herein), the actual amount of petitioner’s deduction will be
determined pursuant to the parties’ Rule 155 computations.
                                       - 13 -

[*13] Section 164(a)(3) allows a deduction for State and local income taxes paid

or accrued during the taxable year. However, section 164(b)(5)(A) provides that a

taxpayer may elect to deduct State and local general sales taxes in lieu of State and

local income taxes. Petitioner has not provided any evidence that would

substantiate her entitlement to a $2,056 general sales tax deduction. Therefore,

petitioner may deduct general sales taxes only to the extent provided by the

optional sales tax tables. See sec. 164(b)(5)(H).

      E.     Mortgage Interest

      Petitioner argues that she is entitled to a mortgage interest deduction of

$14,252.16. Respondent argues that petitioner has not adequately substantiated

her entitlement to a mortgage interest deduction.

      Section 163(h)(1) generally disallows a deduction for personal interest. An

exception to this rule is qualified residence interest. Sec. 163(h)(2)(D). Qualified

residence interest includes interest paid or accrued during the taxable year on

acquisition indebtedness. Sec. 163(h)(3)(A). Acquisition indebtedness means any

indebtedness that is incurred in acquiring, constructing, or substantially improving

any qualified residence of the taxpayer and is secured by the residence. Sec.

163(h)(3)(B)(i). A qualified residence includes the principal residence of the

taxpayer. Sec. 163(h)(4)(A).
                                        - 14 -

[*14] We find petitioner’s canceled checks, corroborated by the loan refinance

summary, the foreclosure judgment, the deed to the property, and petitioner’s

testimony, to be credible evidence of the amount that petitioner paid for home

mortgage interest. Accordingly, we conclude that petitioner has substantiated

$14,252.16 for this expense and is entitled to a home mortgage interest deduction

in that amount.

II.   American Opportunity Credit

      Tax credits are a matter of legislative grace, and a taxpayer bears the burden

of proving her entitlement to a claimed tax credit. See Rule 142(a); New Colonial

Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). The American Opportunity Credit

is a modified version of the Hope Scholarship Credit and is in effect for tax years

2009 to 2018. Sec. 25A(i). The American Opportunity Credit provides for a

credit against tax equal to “(A) 100 percent of so much of the qualified tuition and

related expenses paid by the taxpayer during the taxable year * * * as does not

exceed $2,000, plus (B) 25 percent of such expenses so paid as exceeds $2,000 but

does not exceed $4,000.” Sec. 25A(i)(1). The credit phases out for taxpayers

whose modified adjusted gross income exceeds $80,000, or $160,000 for married

taxpayers filing joint returns. Sec. 25A(i)(4). In addition, up to 40% of this credit

may be refundable. Sec. 25A(i)(5). Petitioner offered no evidence indicating that
                                        - 15 -

[*15] she paid any tuition and related expenses in 2009. As a result, petitioner is

not entitled to the American Opportunity Credit.

III.   Accuracy-Related Penalty

       Respondent argues that petitioner is liable for an accuracy-related penalty

under section 6662(a) and (b)(1) and (2) for either negligence or disregard of rules

or regulations or for a substantial understatement of income tax. Petitioner argues

that she should not be held liable for an accuracy-related penalty because she has

acted with reasonable cause and in good faith.

       Pursuant to section 6662(a), a taxpayer may be liable for a penalty of 20%

on the portion of an underpayment of tax attributable to: (1) negligence or

disregard of rules or regulations or (2) a substantial understatement of income tax.

Sec. 6662(b)(1) and (2). Whether applied because of a substantial understatement

of income tax or negligence or disregard of rules or regulations, the accuracy-

related penalty is not imposed with respect to any portion of the underpayment as

to which the taxpayer acted with reasonable cause and in good faith. Sec.

6664(c)(1). The decision as to whether the taxpayer acted with reasonable cause

and in good faith depends upon all the pertinent facts and circumstances. See sec.

1.6664-4(b)(1), Income Tax Regs.
                                       - 16 -

[*16] The term “negligence” in section 6662(b)(1) includes any failure to make a

reasonable attempt to comply with the Internal Revenue Code and any failure to

keep adequate books and records or to substantiate items properly. Sec. 6662(c);

sec. 1.6662-3(b)(1), Income Tax Regs. Negligence has also been defined as the

failure to exercise due care or the failure to do what a reasonable person would do

under the circumstances. See Allen v. Commissioner, 92 T.C. 1, 12 (1989), aff’d,

925 F.2d 348, 353 (9th Cir. 1991); Neely v. Commissioner, 85 T.C. 934, 947

(1985). The term “disregard” includes any careless, reckless, or intentional

disregard. Sec. 6662(c).

      The term “understatement” means the excess of the amount of tax required

to be shown on a return over the amount of tax imposed which is shown on the

return, reduced by any rebate (within the meaning of section 6211(b)(2)). Sec.

6662(d)(2)(A). Generally, an understatement is a “substantial understatement”

when the understatement exceeds the greater of $5,000 or 10% of the amount of

tax required to be shown on the return. Sec. 6662(d)(1)(A).

      The Commissioner has the burden of production with respect to the

accuracy-related penalty. Sec. 7491(c). To meet this burden, the Commissioner

must produce sufficient evidence indicating that it is appropriate to impose the

penalty. See Higbee v. Commissioner, 116 T.C. at 446. Once the Commissioner
                                       - 17 -

[*17] meets this burden of production, the taxpayer must come forward with

persuasive evidence that the Commissioner’s determination is incorrect. Rule

142(a); see Higbee v. Commissioner, 116 T.C. at 447. The taxpayer may meet this

burden by proving that he or she acted with reasonable cause and in good faith

with respect to the underpayment. See sec. 6664(c)(1); see also Higbee v.

Commissioner, 116 T.C. at 447; sec. 1.6664-4(b)(1), Income Tax Regs.

      Respondent satisfied his burden of production with regard to negligence.

Respondent established that petitioner: (1) did not substantiate several items

properly and (2) failed to properly report self-employment income. Petitioner has

not come forward with sufficient evidence that respondent’s determination is

incorrect. Accordingly, we hold that petitioner is liable for a section 6662(a)

accuracy-related penalty, which the parties shall compute in their Rule 155

calculations.

      In reaching our holding, we have considered all arguments made, and to the

extent not mentioned, we consider them irrelevant, moot, or without merit.

      To reflect the foregoing,


                                                     Decision will be entered under

                                                Rule 155.
