                     T.C. Summary Opinion 2010-156



                        UNITED STATES TAX COURT



                   COLLETTE M. LEWIS, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 341-09S.                Filed October 19, 2010.



        Collette M. Lewis, pro se.

        Mayah Solh, for respondent.



     DEAN, Special Trial Judge:       This case was heard pursuant to

the provisions of section 7463 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,

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

case.     Unless otherwise indicated, subsequent section references

are to the Internal Revenue Code in effect for the year at
                              - 2 -

issue, and Rule references are to the Tax Court Rules of Practice

and Procedure.

     Respondent determined for 2005 a deficiency of $36,349 in

petitioner’s Federal income tax, an addition to tax under section

6651(a)(1) of $9,087.25, and an addition to tax under section

6654(a) of $1,458.01.

     The parties agree that petitioner received in 2005 $83,448

of nonemployee compensation from Madison Financial, Inc., $30,017

of nonemployee compensation from Harborside Financial Network,

Inc., and $567 in interest from Indymac Bank.   The parties also

agree that petitioner is entitled to the standard deduction for

2005.

     The parties further agree that petitioner is entitled to

deductions on Schedule C, Profit or Loss From Business, for:    (a)

Car and truck expenses of $2,194; (b) other expenses for credit

card report fees of $689; (c) other expenses of $738 for a

cellular telephone; (d) other expenses for postage of $194; (e)

other expenses of $1,336 for storage; (f) other expenses of $240

for real estate education; (g) small equipment expenses of $463;

(h) appraisal fees of $2,520; and (i) office expenses of $306.

     The issues remaining for decision are whether petitioner is

entitled to deduct on Schedule C amounts in addition to those

respondent agreed to, whether petitioner is liable for the

addition to tax under section 6651(a)(1) for failure to timely
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file her Federal income tax return for 2005, and whether

petitioner is liable for the addition to tax under section

6654(a) for failure to pay estimated income tax.1

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the exhibits received in evidence

are incorporated herein by reference.    Petitioner resided in

California when the petition was filed.

                            Background

     During the year at issue through the time of trial

petitioner was a mortgage broker who was also certified as a

“life coach”, a practitioner of “esogetic colorpuncture”,2 and a

personal trainer.   Petitioner’s only income for the year,

however, was from her work as a mortgage broker.

     Petitioner obtained her certification in esogetic

colorpuncture by attending classes in 2005.    Her colorpuncture

certification would allow her to have a trade or business in

colorpuncture therapy.   The courses for certification were taught

in various cities in California, Arizona, and Colorado.

     Petitioner did not timely file a Form 1040, U.S. Individual

Income Tax Return, for 2005.   Respondent initiated an examination


     1
      Adjustments to petitioner’s self-employment tax deductions
and self-employment taxes are computational and will be resolved
consistent with the Court’s decision.
     2
      Petitioner did not object to respondent’s description of
colorpuncture therapy as the practice of focusing colored lights
on points on the skin to encourage healing.
                               - 4 -

for petitioner’s 2005 tax year in March 2008 and prepared a

substitute for return3 for petitioner on March 24, 2008.

Petitioner submitted to respondent a Form 1040 for 2005 that

respondent received on August 11, 2008.   The Form 1040 was not

accepted as filed.   Petitioner attached to the return a Schedule

C that listed her principal business or profession as “Mortgage

Broker/Cert. Esogetic Medicine Practitioner”.

     Petitioner’s Form 1040 reported business income and adjusted

gross income of negative $128 and claimed itemized deductions of

$6,112.   Petitioner’s reported business loss was a result of

business expenses claimed on Schedule C attached to the Form 1040

submitted to respondent in 2008.   She claimed office expenses of

$2,114 and travel expenses of $2,138.    Petitioner also claimed on

Schedule C other expenses of $93,038.    Included in other expenses

were payments for “outside services” of $60,701, referral fees of

$11,136, client reimbursements of $3,077, continuing

education/seminars of $3,647, continuing education publications

of $2,396, and esogetic “equipment supplies” of $972.

                            Discussion

     Generally, the Commissioner’s determinations in a notice of

deficiency are presumed correct, and the taxpayer has the burden

of proving that those determinations are erroneous.    See Rule


     3
      Respondent did not demonstrate that the substitute for
return constituted a sec. 6020(b) return. See Spurlock v.
Commissioner, T.C. Memo. 2003-124.
                                - 5 -

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).       In some

cases the burden of proof with respect to relevant factual issues

may shift to the Commissioner under section 7491(a).    Petitioner

did not argue or present evidence that she satisfied the

requirements of section 7491(a).    Therefore, the burden of proof

does not shift to respondent.

Trade or Business Expenses

     Section 162 generally allows a deduction for ordinary and

necessary expenses paid or incurred during the taxable year in

carrying on a trade or business.    Generally, no deduction is

allowed for personal, living, or family expenses.    See sec. 262.

The taxpayer must therefore show that any claimed business

expenses were incurred primarily for business rather than

personal reasons.   See Rule 142(a); Walliser v. Commissioner, 72

T.C. 433, 437 (1979).

     To show that the expense was not personal, the taxpayer must

show that the expense was incurred primarily to benefit his

business, and there must have been a proximate relationship

between the claimed expense and the business.    See Walliser v.

Commissioner, supra at 437.     Taxpayers are required to maintain

sufficient records to establish the amounts of their income and

deductions.   Sec. 6001; Higbee v. Commissioner, 116 T.C. 438, 440

(2001); sec. 1.6001-1(a), Income Tax Regs.    Petitioner,
                                 - 6 -

therefore, must produce evidence that she is entitled to the

claimed deductions.

     Other Expenses--Outside Services

     Petitioner alleges that she paid to Juan A. Bravo (Mr.

Bravo) $60,701 for outside services during 2005.    Petitioner’s

tax return preparer testified that petitioner gave him a list of

expenses to be included on the return for 2005.    She did not

provide him with any receipts, logs, or other records reflecting

payments to Mr. Bravo.   The return preparer used the amount on

petitioner’s list of expenses to prepare a Form 1099-MISC,

Miscellaneous Income, that was given to Mr. Bravo.    The return

preparer does not “recall” filing a Form 1099-MISC for Mr. Bravo

with the Internal Revenue Service (IRS).    The IRS has no record

of a Form 1099-MISC having been filed by petitioner with respect

to payments to Mr. Bravo in 2005.    A copy of the Form 1099-MISC

was provided to respondent just days before trial.

     Petitioner called Mr. Bravo to testify.    He testified that

he worked as petitioner’s “assistant” in 2005.    He prepared

packages for lenders, talked to real estate agents, and did “a

whole variety of things”, according to his testimony.    Mr. Bravo

testified that he worked on a commission basis and was always

paid in cash.   According to Mr. Bravo, he did not keep records of

the cash payments petitioner made to him during the year “because

she’s going to give me a 1099.    She has to keep the record.”   Mr.
                                 - 7 -

Bravo further testified that he received the Form 1099-MISC for

2005 and he agreed with petitioner that he used it “with your tax

return when you filed it for 2005”.

     The Court is reluctant to rely on Mr. Bravo’s testimony on

this issue.   He could not have relied on the Form 1099-MISC that

was created in 2008 to file timely his 2005 tax return that was

due in April 2006.   It is possible that he filed a 2005 Federal

income tax return even later than did petitioner, but he gave no

such explanation.

     Because petitioner failed to provide any proper

substantiation to support her claimed deduction for expenses for

outside services, the Court finds that no estimate of

petitioner’s deduction can be made under Cohan v. Commissioner,

39 F.2d 540, 543-544 (2d Cir. 1930).     In order for the Court to

estimate the amount of an expense there must be some basis upon

which an estimate may be made.     Vanicek v. Commissioner, 85 T.C.

731, 742-743 (1985).   Without such a basis, an allowance would

amount to unguided largesse.     Williams v. United States, 245 F.2d

559, 560 (5th Cir. 1957).

     The Court sustains respondent’s disallowance of petitioner’s

claimed deduction for outside services.    See sec. 6001; sec.

1.6001-1(a), (e), Income Tax Regs.
                                 - 8 -

     Other Expenses--Referral Fees

     Petitioner attempted to substantiate her deduction of

$11,136 of referral fees by presenting photocopies of what

respondent’s counsel believed to be cashier’s check stubs.      The

stubs, though uniform in appearance, do not identify either the

issuing bank or the purchaser.    They do, however, contain the

name of the payee.   Respondent objected to the admission of the

documents on the basis of relevance and hearsay.    The Court

overrules respondent’s objections and finds the documents to be

relevant and, when considered along with the testimony of Gary

Offelt (Mr. Offelt), to be of probative value.    See Rule 174(b).

     Mr. Offelt was in 2005, and at the time of trial, the owner

of a mortgage brokerage firm and was himself a mortgage broker.

Petitioner worked for Mr. Offelt in 2005 as an independent

contractor originating and processing loans.    According to Mr.

Offelt, approximately half of all real estate transactions

involve referrals “to the agent, to the broker, to the loan

officer.”   Mr. Offelt recognized the names of two individuals,

Hugh Salazar (Mr. Salazar) and Miguel Perez (Mr. Perez), who are

listed as payees on the cashiers’ check stubs petitioner

presented as having had business with petitioner.

     In an effort to estimate under Cohan v. Commissioner, supra,

the deductible referral fees petitioner paid, the Court has

examined petitioner’s exhibit in support of her deduction of
                                   - 9 -

referral fees and considered Mr. Offelt’s testimony.      Considering

only indicated payments to payees Messrs. Salazar and Perez, the

Court finds that petitioner made referral payments of $5,750 in

2005.     A payment dated 02/09/06, as well as payments for 03/17,

04/18 and 02/10 for which the year is illegible were ignored.

Any inexactitude in the estimate by the Court is of petitioner’s

own making through her failure to maintain proper business

records.     See id. at 543-544.

        Other Expenses--Client Reimbursements

     Petitioner offered as evidence of her expenses for client

reimbursements items similar to those she presented as evidence

of referral fees.     Respondent made the same objection to the

items as he did with the referral fees, and the Court overrules

the objections on the same bases.      Mr. Bravo, petitioner’s

assistant, identified one payee, Anjelica Suarez, as a listed

agent who worked with petitioner.      Petitioner also introduced as

evidence a record of the State of California showing that

Anjelica Suarez was issued a real estate salesperson license on

June 8, 1990, that was scheduled to expire on June 22, 2010.      The

cashiers’ check stub showing Anjelica Suarez as payee bears the

notation “Tax money returned”.      Using the license information,

the testimony of Mr. Bravo, and the check stub, the Court

estimates that petitioner had a client reimbursement of the

amount listed on the stub, $2,076.68.
                                - 10 -

     Other Expenses--Esogetic Medicine

     The issue to which petitioner devoted most of her energy at

trial was her deduction of expenses related to her study of

esogetic medicine.   She deducted expenses for continuing

education/seminars of $3,647.    Respondent agrees that petitioner

is entitled to deduct expenses for real estate education of $240

but argues that she is not entitled to deduct any amounts related

to esogetic medicine.

     Petitioner believes that respondent does not understand her

circumstance.   She testified that she is a mortgage banker and

life coach and does not have a colorpuncture business.

Petitioner argues that her colorpuncture education informs her

life coaching which in turn contributes to her success as a

mortgage banker.   Because colorpuncture and life coaching are

used in her mortgage banking business, petitioner believes that

expenses related to those activities, including certain

educational expenses, are deductible as business expenses.

     Section 1.262-1(b)(9), Income Tax Regs., provides that a

taxpayer’s expenditures in obtaining or furthering an education

are not deductible unless they qualify under section 162 and

section 1.162-5, Income Tax Regs.    Section 1.162-5(a), Income Tax

Regs., sets forth objective criteria for deciding whether an

education expense is a business, as opposed to a personal,

expense.   The general rule of the regulation allows the deduction
                              - 11 -

of educational expenses if the education maintains or improves

the skills required by the individual in his or her employment or

other trade or business or meets the express requirements of the

employer or applicable law.   Id.

     Section 1.162-5(b)(2) and (3), Income Tax Regs., provides,

however, that if a taxpayer is pursuing a course of study that

meets the minimum educational requirements for qualification in

that employment or will qualify her for a new trade or business,

the expenditures are not deductible.

     Since the satisfaction of either of the two “disallowance”

tests will preclude the deduction whether or not either of the

two “allowance” tests is met, the analysis of the Court will,

because of the facts here, begin with the disallowance test of

section 1.162-5(b)(3), Income Tax Regs.

     Otherwise deductible educational expenses are nondeductible

if they will lead to qualifying the taxpayer for a new trade or

business.   The taxpayer bears the burden of demonstrating that

her education expenditures will not lead to qualifying her for a

new trade or business.   See Rule 142(a); Petrovics v.

Commissioner, T.C. Memo. 1981-508.     If the education qualifies

the taxpayer to perform significantly different tasks and

activities than she could perform before the education, then the

education qualifies her for a new trade or business.     See Davis
                               - 12 -

v. Commissioner, 65 T.C. 1014, 1019 (1976); Glenn v.

Commissioner, 62 T.C. 270, 275 (1974).

     Petitioner’s certification as a practitioner of esogetic

medicine qualified her to perform tasks and activities

significantly different from those she could perform as a

mortgage broker.    Petitioner admitted at trial that

“technically”, her certificate entitled her to open a business in

colorpuncture therapy.   But she explained that she did not and

did not intend to open such a practice.     What matters, however,

is whether the education qualifies the taxpayer for a new trade

or business, not whether the taxpayer engages in a new trade or

business.    Weiszmann v. Commissioner, 52 T.C. 1106, 1110 (1969),

affd. per curiam 443 F.2d 29 (9th Cir. 1971); sec. 1.162-

5(b)(3)(ii), Example (2), Income Tax Regs.

     Respondent’s determination that petitioner is not entitled

to deduct education expenses in excess of $240 is sustained.

     Other Expenses--Continuing Education Publications

     Petitioner claimed on her delinquent return $2,396 for

continuing education publications.      She provided photocopies of

receipts and other documents to substantiate her deduction.

Respondent raised multiple objections to the admissibility of the

documents.   The receipts appear to be for the purchase of

personal items, including greeting cards and candles.     The Court

need not rule on respondent’s objections because the documents,
                              - 13 -

even if admitted, do not substantiate petitioner’s deduction.

Respondent’s determination on this issue is sustained.

     Other Expenses--Esogetic Equipment and Supplies

     Because petitioner was not engaged in the trade or business

of practicing esogetic medicine or colorpuncture therapy in 2005,

the expenditure of $972 for esogetic “equipment supplies” is a

nondeductible personal expense.    Respondent’s determination on

this issue is sustained.

     Office Expenses

     As with some of her other deductions, petitioner provided

photocopies of receipts to show that she is entitled to office

expense deductions in excess of those respondent allowed.      The

receipts appear to be for the purchase of personal items,

including a watch and candles.    The Court need not rule on

respondent’s objections because the documents, even if admitted,

do not substantiate petitioner’s deductions.

     Travel, Meals, and Entertainment Expenses

     Certain business deductions described in section 274 are

subject to strict rules of substantiation that supersede the

doctrine in Cohan v. Commissioner, 39 F.2d at 543-544.    See sec.

1.274-5T(c)(2), Temporary Income Tax Regs., 50 Fed. Reg. 46017

(Nov. 6, 1985).   Section 274(d) provides that no deduction shall

be allowed with respect to:   (a) Any traveling expense, including

meals and lodging away from home; (b) any item related to an
                              - 14 -

activity of a type considered to be entertainment, amusement, or

recreation; or (c) the use of any “listed property”, as defined

in section 280F(d)(4),4 unless the taxpayer substantiates certain

elements.

     For an expense described in one of the above categories, the

taxpayer must substantiate by adequate records or sufficient

evidence to corroborate the taxpayer’s own testimony:    (1) The

amount of the expenditure or use; (2) the time and place of the

expenditure or use; (3) the business purpose of the expenditure

or use; and in the case of entertainment, (4) the business

relationship to the taxpayer of each expenditure or use.    See

sec. 274(d).

     To meet the adequate records requirements of section 274, a

taxpayer must maintain some form of records and documentary

evidence that in combination are sufficient to establish each

element of an expenditure or use.    See sec. 1.274-5T(c)(2),

Temporary Income Tax Regs., supra.    A contemporaneous log is not

required, but corroborative evidence to support a taxpayer’s

reconstruction of the elements of expenditure or use must have “a

high degree of probative value to elevate such statement” to the

level of credibility of a contemporaneous record.    Sec. 1.274-




     4
      “Listed property” includes any computer or peripheral
equipment. Sec. 280F(d)(4)(A)(iv).
                              - 15 -

5T(c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6,

1985).

     Petitioner’s travel, meals, and entertainment expense

deductions, including meals and lodging away from home, are

subject to section 274(d) and the regulations thereunder.

Petitioner presented photocopies of receipts and travel documents

that meet the adequate records requirements to substantiate some

travel expenditures and the time and place of the expenditures.

Respondent raised multiple objections to petitioner’s receipts

and documents.   The Court need not address respondent’s

objections because petitioner has failed to provide adequate

records of the business purpose of the expenditures.5

     Petitioner has failed to provide the Court with any adequate

records or sufficient evidence to corroborate her own testimony,

and respondent’s determination on this issue is sustained.

Additions to Tax

     Respondent bears the burden of production with respect to an

addition to tax.   Sec. 7491(c).   To meet this burden, respondent

must produce evidence sufficient to establish that it is

appropriate to impose the addition to tax.    Higbee v.

Commissioner, 116 T.C. at 446-447.




     5
      To the extent the travel, meal, and entertainment expenses
were related to her classes for colorpuncture therapy, they are
personal expenses. See sec. 1.262-1(b)(5), (9), Income Tax Regs.
                              - 16 -

     Addition to Tax Under Section 6651(a)(1)

     Petitioner agrees that she failed to file her Federal income

tax return until she submitted one on August 11, 2008, which

return respondent did not accept as filed.   Respondent has met

his burden of production under section 7491(c) with respect to

imposing the addition to tax under section 6651(a)(1).

     It is petitioner’s burden to prove that she had reasonable

cause and lacked willful neglect in not filing the return timely.

See United States v. Boyle, 469 U.S. 241, 245 (1985); Higbee v.

Commissioner, supra at 446; sec. 301.6651-1(a)(2), Proced. &

Admin. Regs.   Because petitioner failed to offer any evidence of

reasonable cause and lack of willful neglect for her failure to

file timely, respondent’s determination that she is liable for

the addition to tax under section 6651(a)(1) is sustained.

     Section 6654(a) Addition to Tax

     Section 6654(a) imposes an addition to tax for failure to

make timely and sufficient payments for estimated taxes.     In

order for respondent to satisfy his burden of production under

section 7491(c) he must produce evidence necessary to enable the

Court to conclude that petitioner had an obligation to make an

estimated tax payment.   See Wheeler v. Commissioner, 127 T.C.

200, 211 (2006), affd. 521 F.3d 1289 (10th Cir. 2008).

Specifically, respondent must produce evidence showing that

petitioner had a “required annual payment” as defined by section
                               - 17 -

6654(d)(1)(B) for the year at issue.    See id.

     The section 6654 addition to tax is calculated with

reference to four required installment payments of the taxpayer’s

estimated tax liability.    Sec. 6654(c)(1).   Each required

installment of estimated tax is equal to 25 percent of the

“required annual payment.”    Sec. 6654(d)(1)(A).

     Under section 6654(d)(1)(B), “required annual payment” means

the lesser of:

               (i) 90 percent of the tax shown on the
          return for the taxable year (or, if no return
          is filed, 90 percent of the tax for such
          year), or

               (ii) 100 percent of the tax shown on the
          return of the individual for the preceding
          taxable year.

     Clause (ii) shall not apply if the preceding taxable
     year was not a taxable year of 12 months or if the
     individual did not file a return for such preceding
     taxable year.

     Petitioner failed to file a return for 2005.     The evidence

is sufficient for the Court to make the analysis required by

section 6654(d)(1)(B)(i).    Respondent introduced evidence showing

that petitioner filed an untimely return for the preceding

taxable year, i.e., 2004, and the amount of tax shown on that

return was $1,026.

     Petitioner for 2005 failed to pay either 90 percent of the

tax due for 2005 or 100 percent of the tax due for 2004.
                             - 18 -
Accordingly, petitioner is liable for the addition to tax under

section 6654(a) for 2005.

     We have considered the other arguments of the parties, and

they are either without merit or not necessary to address in view

of our resolution of the issues in this case.

     To reflect the foregoing,


                                        Decision will be entered

                                   under Rule 155.
