                  T.C. Summary Opinion 2009-144



                      UNITED STATES TAX COURT



    JANELLO S. DUNGCA AND MARIA C. GUTIERREZ, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 17802-08S.            Filed September 17, 2009.



     Janello S. Dungca and Maria C. Gutierrez, pro sese.

     Matthew D. Carlson, for respondent.



     GERBER, Judge:   This case was heard pursuant to the

provisions of section 74631 of the Internal Revenue Code in

effect when the petition was filed.   Pursuant to section 7463(b),

the decision to be entered is not reviewable by any other court,



     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for 2005, the taxable year in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
                               - 2 -

and this opinion shall not be treated as precedent for any other

case.

     Respondent determined a $33,091 income tax deficiency and a

$6,618 section 6662(a) accuracy-related penalty for petitioners’

2005 tax year.   After concessions,2 the issues presented for our

consideration are:   (1) Whether petitioners are entitled to

deduct expenses for meals and entertainment claimed on Schedule

C, Profit or Loss From Business; (2) whether petitioners are

entitled to deduct gambling losses; (3) whether petitioners are

entitled to deduct moving expenses;3 (4) whether petitioners are

entitled to deduct educational expenses; and (5) whether

petitioners are liable for a section 6662(a) accuracy-related

penalty.

                           Background

     Petitioners resided in California at the time their petition

was filed.   Petitioners were married during the period under


     2
      Petitioners conceded $643 in unreported income and that
they are not entitled to deductions claimed for utilities and
business use of their home. Respondent conceded that petitioners
are entitled to gambling losses of $10,497.10. Petitioners
claimed losses of $78,437.
     3
      Petitioners provided no evidence in support of their
claimed deduction for moving expenses and, accordingly, are
considered to have abandoned this issue. See Petzoldt v.
Commissioner, 92 T.C. 661, 683 (1989). Respondent made numerous
adjustments to petitioners’ 2005 tax return, and only a limited
number were presented to the Court. To the extent that any of
those adjustments have not been conceded or settled, petitioners
failed to adduce evidence in support of those deductions and have
thus abandoned those items.
                               - 3 -

consideration and filed a joint Federal Income tax return for

their 2005 tax year.   During 2005 petitioner Janello S. Dungca

(Mr. Dungca) was employed by a consulting company in Pittsburgh,

Pennsylvania.   His consulting assignment from January 1 through

July 30, 2005, was at the Mayo Clinic in Rochester, Minnesota.

During that same period, approximately every other weekend

petitioners visited a gambling establishment named Canterbury

Park that offered wagering on horse racing.

     Mr. Dungca was an inveterate gambler, and since 1991 he had

spent a good amount of his nonworking time gambling.   His

gambling activity focused upon horse racing, and he made multiple

bets on each race in the form of trifecta and other multiple

wagers where horses had to finish in a particular order.     He

gambled whenever he had access to funds.   During 2005 Mr. Dungca

gambled every other weekend because his salary was paid on a

biweekly basis.   At the betting establishment Mr. Dungca would

place a wager on every available race.   Occasionally, when he had

winnings he would entrust them to his wife with instructions not

to return them to him.   Nevertheless, Mr. Dungca would approach

his wife and convince her to give him the winnings.    Mr. Dungca

would retain betting slips, receipts, and records of cash

withdrawals, and at the end of each day he would record the day’s

bets, winnings, and cash withdrawals (cash in and out) in a
                               - 4 -

journal.   The journal entries reflected the net cashflow for the

day, because there were large numbers of bets made each day.

     On the days that he gambled, it was not unusual for Mr.

Dungca to wager total daily amounts ranging from approximately

$500 to over $3,000.   His pattern was to withdraw cash from his

bank account (usually through an ATM) and to place wagers.    If he

lost, he would withdraw more funds.    If he won, he would

“reinvest” the winnings.   During 2005 Mr. Dungca received Forms

W-2G, Certain Gambling Winnings, reflecting total gambling

winnings of $78,262.   For their 2005 tax year petitioners

reported gambling winnings of $78,437 and corresponding gambling

losses of $78,437, thereby showing no net gambling income for the

year.   Only gambling winnings that exceeded $600 were reported on

Forms W-2G, and winnings in amounts less than $600 were not

included in the $78,437 (either on Forms W-2G or reported on

petitioners’ 2005 income tax return).

     Mr. Dungca retained betting ticket stubs and maintained

records of his cash withdrawal and gambling activity.    He used

that information, which included all winning and losing bets, to

determine that his losses exceeded his winnings during 2005.

Unfortunately, his wife petitioner Maria C. Gutierrez (Ms.

Gutierrez), discarded some of the stubs and records sometime

after the 2005 return had been prepared and filed because she did

not think that they were of any future use.
                                 - 5 -

     Mr. Dungca’s journal contained only summary entries.    On any

day that he gambled he would record the date, location, types of

wager, the net amount won, and the net amount lost.    He would

also record the cash withdrawals from the bank and the amount on

hand at the end of each day.    The winnings over $600 can be

verified, but there is no way to verify winnings less than $600

or the bets or losses for each day without reference to the

underlying tickets, which, to some extent, have been discarded.

     Mr. Dungca’s recordkeeping was based on cash on hand.      He

would account for cash withdrawals from the bank and any net

winnings.    He did not, however, segregate his gambling cash on

hand from one day to the next.    As an example, on December 30,

2005, he ended the day with $3,000 cash on hand and had only

$2,500 cash on hand on December 31, 2005.    The $500 difference

was spent on purchases other than betting.    In addition, Mr.

Dungca’s journal entries were occasionally inconsistent or

inaccurate.

     When petitioners’ 2005 tax return was audited, Mr. Dungca

presented his journal, in which he had recorded the net

transactions for each day.    He also presented 2005 bank records

reflecting cash withdrawals that corresponded to and supported

his log.    He did not, however, have some of the betting stubs

and/or receipts because of his wife’s mistake, and he was forced

to reconstruct his betting patterns for 2005.    After some days of
                               - 6 -

gambling, Mr. Dungca had net winnings, but, inevitably, he would

use those winnings to fund future gambling.    For purposes of his

audit Mr. Dungca constructed a spreadsheet that is backed by

documentation that was available to respondent’s agents,

reflecting that he bet $92,727.95 during 2005.   The contemporary

log, however, reflected losses/bets totaling $98,323.80.   The

difference, as Mr. Dungca explained, is represented by tickets

that were discarded by his wife.

     Mr. Dungca also used detailed information from 2006 and 2007

to show his betting patterns, and he testified that they were

substantially the same as his 2005 patterns.   Essentially, his

betting pattern for part of 2006 was to gamble for about 4 or 5

hours per day and make multiple bets on each race in the

approximate range of $12 to $100.   Most of the bets did not

result in winnings.   Occasionally, Mr. Dungca would win large

amounts.   For example, on October 28, 2006, he bet $68 and won

$6,328.70.   He also won smaller amounts ranging approximately

from $16 to $700.   For 2005, however, there are no backup records

to show the winnings under $600.

     For 2005 Mr. Dungca deducted $4,000 for meals purchased

while he was away from home on business.   Mr. Dungca had accepted

a temporary assignment in Santa Clara, which was approximately

184 miles from his home.   He was able to stay with relatives in

Santa Clara and accordingly claimed only expenses for meals.     Mr.
                                - 7 -

Dungca produced receipts for meals.       The receipts were

occasionally for more than one person, but there was no specific

evidence of the identity of the other person(s) or the business

purpose for the meal.

     Ms. Gutierrez was married to Mr. Dungca during 2004.      She

moved to the United States from Colombia, South America, where

she was licensed as a physician specializing in anesthesiology.

In order to practice medicine in the United States she had to

become certified.   To become certified she had to appear before

three boards and be tested as to her qualifications.       Before the

testing, she took courses to prepare herself.       The cost of three

preparatory courses during 2005 was $2,560.       Petitioners claimed

only $2,000 for education on their 2005 return.

                            Discussion4

     Petitioners’ entitlement to claimed gambling losses

represents a substantial portion of the $33,091 deficiency.

Mr. Dungca was an inveterate gambler, and he wagered substantial

amounts during 2005.    He had retained his individual betting

receipts and maintained a journal of the net cashflow for each

day’s betting activity.    Although Mr. Dungca has bank records

showing substantial withdrawals of cash that correspond to the


     4
      Neither party raised the question of the burden of proof or
the application of sec. 7491. Under established principles and
in general, petitioners bear the burden with respect to the
disallowed deduction items, and respondent has the burden of
production with respect to the accuracy-related penalty.
                               - 8 -

entries in his journal, his wife mistakenly discarded some of his

betting receipts so that he is not able to show that his gambling

losses equaled or exceeded his gambling winnings.

     Further complicating his situation, Mr. Dungca received and

maintained only records of winnings that were $600 or more, and

there is no way to verify the winnings that were less than $600

other than the daily summary entries in Mr. Dungca’s journal.

One final complication is that, to some extent, Mr. Dungca’s

journal does not account for all cash withdrawn or won because he

did not account for variances in cash on hand from one day to the

next.

     Taxpayers are entitled to deduct5 gambling losses only to

the extent of gambling winnings.   Sec. 165(d); sec. 1.165-10,

Income Tax Regs.   Taxpayers are required to maintain adequate

records in support of the amounts reported on their tax returns.

Sec. 6001.   Mr. Dungca’s journal reflects $98,323.80 in 2005

wagering, based on his summary cashflow analysis.   One could

assume that the difference between the total wagers and the

$78,437 reflected on Forms W-2G represented winnings in amounts

less than $600, however, there is no accurate way to support that




     5
      We note that petitioners’ gambling losses are itemized
deductions subject to the limitations for deductions claimed on
Schedule A, Itemized Deductions, because they are not in the
trade or business of gambling. See Hochman v. Commissioner, T.C.
Memo. 1986-24.
                               - 9 -

assumption.   One could also assume that Mr. Dungca always6

“reinvested” his winnings and that his losses always equaled his

winnings.   However, there is no accurate way to support that

assumption.

     Mr. Dungca has established his inveterate gambling pattern

and has presented sufficient records to permit the Court to make

a judgment as to the amount of his gambling losses for 2005.

Under the principles expressed in Cohan v. Commissioner, 39 F.2d

540 (2d Cir. 1930), a court is permitted to make such a judgment.

On the basis of all of the information available, we hold that

Mr. Dungca’s gambling losses for 2005 were $65,000, relying upon

his reporting of $78,437 of income or winnings.6   In great part,

our holding is based upon our estimate of Mr. Dungca’s personal

use of winnings for expenditures other than wagering and

inconsistencies in his cashflow analysis.

     Ms. Gutierrez was licensed as a physician specializing in

anesthesiology in her native country of Colombia, South America.

In order to practice medicine in the United States, she was

required to become board certified and licensed.   To that end,



     6
      We have not considered any amounts of winnings or losses in
excess of the $78,437 reported and, in effect, assumed that
winnings of less than $600 and wagers (losses) of those amounts
were equal. Our holding is based solely on the evidence before
the Court. Our holding that petitioner is entitled to $65,000 in
gambling losses includes the $10,497.10 respondent conceded.
                                - 10 -

she took specialized courses.    During 2005 her tuition was

$2,560, only $2,000 of which was deducted on petitioners’ 2005

tax return.

     Under section 222, taxpayers are allowed a deduction for

tuition and related expenses paid during the taxable year.      For

the year 2005 the deduction was limited in amount and depended

upon the taxpayer’s adjusted gross income.    On the basis of

petitioners’ combined adjusted gross income, the limitation was

$2,000, the amount they claimed.    See sec. 222(b)(2)(B)(ii).

     Respondent argues that petitioners did not substantiate the

educational expenditure.    On the record before us, we find that

Ms. Gutierrez paid $2,560 for qualified tuition, $2,000 of which

is deductible for 2005 under section 222.

     For 2005 Mr. Dungca deducted $4,000 for meals purchased

while he was away from home on business.    He had accepted a

temporary assignment in Santa Clara, approximately 184 miles from

his home in California.    He paid only meal expenses because he

was able to stay with relatives in Santa Clara.    Mr. Dungca

produced receipts for meals.    The receipts were occasionally for

meals purchased for more than one person.    In instances of

multiple meals there was no evidence of the identity of the other

person(s) or the business purpose for the meal.

     In general, taxpayers are allowed a deduction for ordinary

and necessary expenses paid or incurred during the taxable year
                              - 11 -

in carrying on any trade or business.   Sec. 162.   Traveling

expenses, including amounts expended for meals while away from

home in the pursuit of a trade or business, may be deductible.

Commissioner v. Flowers, 326 U.S. 465 (1946).   In addition, when

a taxpayer is away from home on a temporary basis, his living or

travel expenses may be considered deductible business expenses.

Peurifoy v. Commissioner, 358 U.S. 59, 60 (1958).    Employment has

been defined as “temporary” if it is foreseeably terminable or

lasts for a relatively short fixed duration.    Boone v. United

States, 482 F.2d 417, 419 (5th Cir. 1973).   Mr. Dungca’s work in

Santa Clara was temporary.   Accordingly, the remaining question

is one of substantiation of the $4,000 claimed for meals.    See

sec. 274(d)(1) (requiring substantiation by adequate records of

traveling expenses, including meals).

     The Court reviewed the meal receipts Mr. Dungca provided

for a period beginning July 6 and ending September 23, 2005.      For

each receipt that indicated multiple diners, the number of diners

was divided into the total to arrive at the amount deductible for

Mr. Dungca.   In addition, a limited number of receipts were for

restaurants that were close to Mr. Dungca’s home in Fairfield and

far from his temporary work location in Santa Clara.    Those

receipts were not counted toward the deductible amount allowable.

On the basis of that approach, the Court finds that petitioners

substantiated $875.88 of meals expense for 2005.    Because of the
                                - 12 -

section 274(n) limitation, petitioners are limited to a deduction

of $437.94.

     Finally, we consider whether petitioners are liable

for an accuracy-related penalty.    Section 6662(a) and (b)(1)

and (2) imposes an accuracy-related penalty of 20 percent on

the portion of an underpayment attributable to negligence,

disregard of rules or regulations, or a substantial

understatement of income tax.    Negligence includes any failure

to keep adequate books and records or to substantiate items

properly.   Sec. 1.6662-3(b)(1), Income Tax Regs.     An

understatement is substantial if it exceeds the greater of:      (1)

10 percent of the tax required to be shown on the return for the

taxable year, or (2) $5,000.    Sec. 6662(d)(1)(A).

     Respondent determined that petitioners were liable for the

section 6662 accuracy-related penalty for negligence because of

their failure to maintain adequate records and their failure to

substantiate claimed deductions.    It is patently clear from the

record that petitioners failed to maintain adequate records, and

to the extent that we have specifically disallowed such

deductions, our basis was failure to substantiate the amounts.

In addition, they did not establish reasonable cause and good

faith for their underpayment.    See sec. 6664(c)(1); Higbee v.

Commissioner, 116 T.C. 438, 446 (2001).    Therefore, we hold that
                             - 13 -

petitioners are liable for an accuracy-related penalty on the

resulting underpayment.

     All other adjustments in the notice of deficiency were

either computational or items for which petitioners did not

provide the Court with any evidence or argument and which are

therefore deemed abandoned or conceded.   In view of the

foregoing,


                                   Decision will be entered

                              under Rule 155.
