                               T.C. Memo. 2014-198



                         UNITED STATES TAX COURT



                CHARLES PAUL LE BEAU, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 9312-11.                            Filed September 30, 2014.



      Charles Paul Le Beau, pro se.

      Jeffrey A. Schlei, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      GOEKE, Judge: For several years petitioner Charles Paul Le Beau has

failed to timely file his Federal income tax returns. Before the Court are

petitioner’s returns for 2002 through 2007. With the exception of the 2007 return,

all of the returns were filed long after they were due.
                                         -2-

[*2] In each return petitioner admitted that he did not have records but estimated

the amounts set forth on the return. In a notice of deficiency, respondent

disallowed a number of business expense deductions and other claimed deductions

and determined deficiencies for 2002 through 2007 and determined additions to

tax and penalties for 2002 through 2006. The issues for decision are:

      (1) whether petitioner is entitled to certain deductions claimed on Schedule

A, Itemized Deductions, and Schedule C, Profit or Loss From Business, for each

year at issue greater than those allowed by the respondent in the notice of

deficiency. We hold he is to a limited extent;

      (2) whether petitioner is liable for the additions to tax, pursuant to section

6651(a)(1),1 for the years 2002, 2003, 2004, 2005, and 2006. We hold he is; and

      (3) whether petitioner is liable for accuracy-related penalties, pursuant to

section 6662(a), for the years 2002, 2003, 2004, 2005, and 2006. We hold he is.

                               FINDINGS OF FACT

      Petitioner resided in California when he filed his petition. Petitioner did not

file his income tax returns for 2002 through 2006 until 2008. Petitioner filed his

2007 Federal income tax return in April 2008.

      1
      Unless otherwise indicated all section references are to the Internal
Revenue Code in effect for the years at issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
                                         -3-

[*3] Petitioner’s income tax returns for the years at issue state: “Taxpayer has

lost records and has estimated amounts reported on tax return. Taxpayer believes

they [sic] have estimated within plus or minus 5% or 10%.”

      Petitioner operated a law practice and another business during portions of

the years at issue. Respondent accepts as reported his income from the businesses

but disputes some of the expenses. Petitioner has presented no evidence

concerning the contested wage and contract labor expense deductions.

      For both 2003 and 2004 petitioner paid office rental expenses of $12,600.

Petitioner claimed that he used his automobile 100% for business, and he deducted

related expenses accordingly. However, he has failed to substantiate this use.

      Approximately 80% of petitioner’s medical expenses during the years at

issue were covered by insurance and the record does not contain sufficient

evidence to establish how many unreimbursed medical expenses fell upon

petitioner.

       By agreement of the parties, certain income and deduction items originally

attributed to petitioner’s spouse, Victoria Joy Le Beau, in a notice of deficiency

issued to Mrs. Le Beau, will instead be attributed to petitioner. We specifically

find that the revised annual itemized real estate tax deductions resulting from this
                                          -4-

[*4] agreement are to be no less than $6,578 for the years in issue upon the basis

of the record of trial.

       Before the years at issue petitioner built a pool at his personal residence and

claimed medical expense deductions related to the building of the pool and the

pool maintenance. Petitioner was advised to lose weight, and he testified the pool

assisted his weight loss. The pool maintenance expense was $1,440 annually for

the years at issue; the record does not establish the capital cost of the pool.

       Petitioner has attached to his brief numerous documents that were not made

part of the record at trial. Petitioner has not filed any motions to reopen the record

to allow additional documentation that was not presented at trial. These

documents are not evidence. See Rule 143(c).

                                      OPINION

       On the returns for the years at issue, petitioner claimed various deductions

on Schedule A and a number of business expense deductions on Schedule C. In

the notice of deficiency respondent disallowed some of the deductions because

petitioner failed to substantiate the related items. Petitioner’s lack of attention to

maintaining appropriate records and timely filing his tax returns is the core issue

of this case.
                                         -5-

[*5] As we have often recognized, deductions are a matter of legislative grace,

and the taxpayer bears the burden of proving that he is entitled to any deduction

claimed. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992);

New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). This includes the

burden of substantiation. Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff’d

per curiam, 540 F.2d 821 (5th Cir. 1976). Taxpayers must maintain books and

records sufficient to substantiate the amounts of items for which they claim

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

      Petitioner, by his own admission, estimated all of the deductions stated on

his tax returns, asserting that he lost his records. In an attempt to meet his burden

of substantiation, petitioner has presented documents relating to various medical

and business expenses. We will not consider additional documents petitioner

attached to his posttrial brief as we explained at trial that documents submitted

posttrial would not be admitted.

A. Medical Expense Deductions

      The medical records do not support petitioner’s argument that he should be

allowed the medical expense deductions that respondent disallowed. The records

show only the costs he paid and do not reflect any reimbursement or insurance
                                          -6-

[*6] payments that may have offset the expenses. Petitioner concedes that his

insurance paid most of his medical expenses.

      At trial the Court instructed petitioner to provide spreadsheets that would

specifically tie the amounts of the deductions petitioner claimed to the documents

included in the record. Petitioner has failed to do this, and the Court simply

cannot find a basis to hold that petitioner is entitled to deduct any of the additional

expenses reflected in the documents.

      Petitioner also claimed medical expense deductions for costs he paid to

build and maintain a pool that he claims to have used for therapeutic purposes. A

stipulated document indicates the pool was built in 2001, but the only evidence

petitioner has presented to support the medical purpose for the expense is his

testimony that doctors told him to lose weight.

      Section 213 provides a deduction for medical care expenses, not

compensated by insurance, that exceed 7.5% of the taxpayer’s adjusted gross

income. “Medical care” expenses are defined as amounts paid “for the diagnosis,

cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting

any structure or function of the body”. Sec. 213(d)(1) (A). An expenditure for

medical care is deductible if it is strictly confined to expenses incurred primarily
                                         -7-

[*7] for the prevention or alleviation of a physical or mental defect or illness. Sec.

1.213-1(e)(1)(ii), Income Tax Regs.

      In some circumstances, a taxpayer may deduct a capital expenditure as a

medical expense in the year of payment, but only to the extent the expenditure

exceeded the increase in value of the underlying property resulting from the

expenditure. Cherry v. Commissioner, T.C. Memo. 1983-470; Polacsek v.

Commissioner, T.C. Memo. 1981-569; sec. 1.213-1(e)(1)(iii), Income Tax Regs.

Petitioner has not presented evidence concerning when he paid for the pool and

whether the expenditure exceeded the resulting increase in property value.

Accordingly, petitioner is not entitled to the deduction.

      Petitioner has also failed to carry the burden of proving the pool was

primarily for the treatment of medical ailments. Accordingly, he may not deduct

as medical expenses the amounts he paid for pool maintenance, and these

expenses would not exceed the 7.5% deductibility threshold in any event.

B. Allowable Deductions

      Petitioner has established that in 2003 and 2004 he paid rental expenses in

connection with his business. These expenses are deductible for those years, but

all other Schedule C business expenses for which respondent has disallowed

deductions are not deductible because they have not been substantiated. Likewise,
                                          -8-

[*8] we found petitioner paid real estate tax in excess of the amounts respondent

determined for 2003 and 2004. This is the only adjustment we find to

respondent’s Schedule A adjustments.

C. Penalties for Failure To Timely File

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

return. This addition to tax is equal to 5% of the amount of tax required to be

shown on the return for each month the return is not filed, not to exceed 25% in

the aggregate.

      To avoid this addition to tax, the taxpayer must prove that his failure to file

was: (1) due to reasonable cause, and (2) not due to willful neglect. Sec.

6651(a)(1); United States v. Boyle, 469 U.S. 241, 245 (1985); Church of

Scientology v. Commissioner, 823 F.2d 1310, 1321 (9th Cir. 1987), aff’g 83 T.C.

381 (1984). “A failure to file a tax return on the date prescribed leads to a

mandatory penalty unless the taxpayer shows that such failure was due to

reasonable cause and not due to willful neglect.” McMahan v. Commissioner, 114

F.3d 366, 368 (2d Cir. 1997), aff’g T.C. Memo. 1995-547.

      Reasonable cause under section 6651 means the exercise of ordinary

business care and prudence. Walter v. Commissioner, 753 F.2d 35, 40 (6th Cir.

1985), aff’g T.C. Memo. 1983-202; sec. 301.6651-1(c)(1), Proced. & Admin.
                                         -9-

[*9] Regs. Willful neglect is defined as a conscious, intentional failure or reckless

indifference. Boyle, 469 U.S. at 245. A failure to timely file a Federal income tax

return is due to reasonable cause if the taxpayer exercised ordinary business care

and prudence and, nevertheless, was unable to file the return within the prescribed

time. Sec. 301.6651-1(c)(1), Proced. & Admin. Regs.

      Taxpayers have the burden of proving that the failure to file is due to

reasonable cause and not willful neglect. Rule 142(a); Cluck v. Commissioner,

105 T.C. 324, 339 (1995); Baldwin v. Commissioner, 84 T.C. 859, 870 (1985);

Davis v. Commissioner, 81 T.C. 806, 820 (1983), aff’d without published opinion,

767 F.2d 931 (9th Cir. 1985).

      Petitioner has produced no evidence to show that his failure to timely file

his returns was due to reasonable cause and not willful neglect. Accordingly, the

addition to tax is sustained for each of the years 2002-06.

D. Accuracy-Related Penalties

      Respondent determined that an accuracy-related penalty under section

6662(a) should be imposed for each of the years 2002-06. Section 6662(a) and

(b)(1) imposes a penalty equal to 20% of the amount of any underpayment

attributable to negligence or disregard of rules or regulations. The term

“negligence” includes any failure to make a reasonable attempt to comply with tax
                                        -10-

[*10] laws, and “disregard” includes any careless, reckless, or intentional

disregard of rules or regulations. Sec. 6662(c).

        Negligence also includes any failure by the taxpayer to keep adequate books

and records or to substantiate items properly. Negligence is strongly indicated

where a taxpayer fails to make a reasonable attempt to ascertain the correctness of

a deduction on a return which would seem to a reasonable and prudent person to

be too good to be true under the circumstances. Sec. 1.6662-3(b)(1), Income Tax

Regs.

        Section 6664(c)(1) provides an exception to the imposition of the accuracy-

related penalty if the taxpayer establishes that there was reasonable cause for the

underpayment and that the taxpayer acted in good faith with respect to the

underpayment. Sec. 1.6664-4(a), Income Tax Regs. The determination of

whether the taxpayer acted with reasonable cause and in good faith is made on a

case-by-case basis, taking into account the pertinent facts and circumstances. Sec.

1.6664-4(b) (1), Income Tax Reg. Once the Commissioner presents a prima facie

case that the penalty should apply, the taxpayer bears the burden of proving that he

or she acted with reasonable cause. Higbee v. Commissioner, 116 T.C. 438, 446-

449 (2001).
                                         -11-

[*11] The imposition of the accuracy-related penalty is appropriate because

petitioner has claimed deductions that he himself admits are estimates. Because

petitioner did not keep adequate books and records and failed to substantiate items

underlying the claimed deductions, we find that his underpayments resulted from

negligence and sustain the accuracy-related penalty against him. His blanket

claim that the records for all the years at issue were lost is simply not credible.

      In conclusion, with the exception of the deductions allowed herein

respondent’s deficiency determinations are sustained as well as the determined

additions to tax and penalties.

      In reaching our holdings herein, we have considered all arguments made,

and, to the extent not mentioned above, we conclude they are moot, irrelevant, or

without merit.

      To reflect the foregoing,


                                                      Decision will be entered under

                                                Rule 155.
