                  T.C. Summary Opinion 2004-49



                     UNITED STATES TAX COURT



         CARL ALBERT AND LORRAINE ROUSE, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 2266-03S.              Filed April 16, 2004.


     Carl Albert Rouse and Lorraine Rouse, pro sese.

     Michael S. Hensley, for respondent.



     GOLDBERG, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.
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     Respondent determined a deficiency in petitioners’ Federal

income tax of $8,372 for the taxable year 1999.    In his answer,

respondent seeks an increased deficiency of $8,904.

     The issue for decision is whether petitioners are entitled

to deduct certain expenses related to research activity by

petitioner Carl Albert Rouse (petitioner).

     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.   Petitioners resided in

Del Mar, California, on the date the petition was filed in this

case.

     During the year in issue, petitioner was involved in physics

research activities based out of his residence.    In conducting

this research, petitioner used computer resources located at the

University of California, San Diego.   Petitioner, who had left

his salaried position in order to conduct research at home, has

published many articles in his research field.    Petitioner did

not receive any income during the year in issue related to his

research activity.

     During the year in issue, petitioner was the sole

shareholder and president of a corporation known as Rouse

Research Incorporated (RRI).   RRI was incorporated in California

on November 25, 1992, as a nonprofit corporation.
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     Petitioners filed a joint Federal income tax return for

taxable year 1999.    On their return, petitioners claimed

miscellaneous itemized deductions for expenses of $32,089.    These

expenses were for unreimbursed employee business expenses of $154

and “other expenses” of $31,950.    The “other expenses” were for

“safe deposit box, invest., professional, misc.”    Petitioners

also filed a Schedule C, Profit or Loss From Business, which

listed RRI as the name of the business and petitioner as the

proprietor thereof.    Petitioners reported zero income from RRI,

and they claimed deductions for car and truck expense of $2,200,

commission and fee expense of $10, and supply expense of $450.

     In the notice of deficiency, respondent’s sole adjustment

was to disallow in full the miscellaneous itemized deductions.

In his answer, respondent asserts that petitioners are not

entitled to deduct the expenses claimed on the Schedule C.

Respondent admits in his answer that the notice of deficiency is

incorrect insofar as it did not allow petitioners a standard

deduction of $8,9001 in lieu of their allowed itemized deductions

of $8,157.

     Petitioners argue that they are entitled to miscellaneous

itemized deductions for the following expenses:


     1
      Petitioners are entitled to the standard deduction of
$7,200 for joint filers, plus an additional amount of $1,700 for
taxpayers aged 65 or over. Sec. 63(c), (f); Rev. Proc. 98-61,
sec. 3.05(1), (3), 1998-2 C.B. 811, 815.
                                - 4 -

     Professional fees           $154
     Copying expense              449
     Telephone expense            180
     Car expense                2,200
     House expense             24,000
     Safe deposit box              15
       Total                  $26,998

Petitioners also argue that they are entitled to the business

expenses claimed on the Schedule C--car and truck expense of

$2,200, commission and fee expense of $10, and supply expense of

$450.

     Respondent bears the burden of proof with respect to the

increased deficiency.    Rule 142(a)(1).   However, we decide this

case based on the record, without regard to the burden of proof.

See sec. 7491(a).

     A corporation formed for legitimate business purposes is an

entity separate from its shareholders, and the business of the

corporation is separate and distinct from the business of its

shareholders.   Moline Props., Inc. v. Commissioner, 319 U.S. 436,

438-439 (1943); Deputy v. du Pont, 308 U.S. 488, 494 (1940).

Consequently, a shareholder generally is not entitled to a

deduction for the payment of corporate expenses.     Deputy v. du

Pont, supra; Hewett v. Commissioner, 47 T.C. 483 (1967).     The

Schedule C that petitioners filed with their return listed

petitioner’s corporation, RRI, as the name of his business.    To

the extent that the expenses listed on the Schedule C--as well as

the research-related expenses claimed as itemized deductions--
                               - 5 -

were in fact expenses incurred by or on behalf of RRI, such

expenses are expenses of that corporation and are not deductible

by petitioners on their individual return.

     During petitioners’ testimony regarding the operation of RRI

and certain research-related expenses which were incurred, he

interchangeably referred to the corporation and the Schedule C

business.   If indeed these expenses were incurred in a trade or

business which was separate from the trade or business of the

corporation, petitioners are not entitled to either the research-

related miscellaneous itemized deductions or the Schedule C

deductions for the reasons discussed below.

     A taxpayer generally may deduct the ordinary and necessary

expenses paid or incurred during the taxable year in carrying on

his trade or business.   Sec. 162(a).   A taxpayer is engaged in a

trade or business if the taxpayer is involved in the activity

with continuity and regularity and with the primary purpose of

making a profit.   Commissioner v. Groetzinger, 480 U.S. 23, 35

(1987).   A taxpayer also is “allowed as a deduction all the

ordinary and necessary expenses paid or incurred during the

taxable year * * * for the production or collection of income”.

Sec. 212(1).   However, a taxpayer generally may not deduct

personal, living, or family expenses.   Sec. 262(a).

     We first address petitioners’ miscellaneous itemized

deduction for “house expense” of $24,000.    Petitioners calculated
                               - 6 -

the amount of this expense by estimating the value of their house

to be $5 per square foot.   They argue that petitioner used a

portion of their residence for his research activity.

     As a general rule, a taxpayer may not deduct an expense

related to the use of his personal residence unless the expense

is of a type that is specifically allowed as a deduction, such as

mortgage interest under section 163(a) and (h) or State and local

property taxes under section 164(a).   Sec. 280A(a) and (b).     Also

allowable as deductions are certain expenses related to income-

producing rental or business activities.    Sec. 280A(c).   For such

expenses to be deductible, the related use of the residence must

fit into one of several categories specified in section 280A(c).

The only category that is arguably applicable to the case at hand

is where a portion of the home is used exclusively on a regular

basis as the principal place of business for the taxpayer’s trade

or business.   Sec. 280A(c)(1)(A).   However, regardless of whether

petitioner’s use of his personal residence fits within this

category, petitioner does not meet a final requirement of section

280A:   A taxpayer in petitioner’s situation may not deduct any

amount for the business use of his home if the taxpayer derived

no gross income from such business use.    Sec. 280A(c)(5).   In

other words, such a taxpayer cannot claim a loss in a business

activity based solely on the use of his home.    Id.   Because

petitioner did not receive any income from his research activity
                                - 7 -

during the year in issue,2 petitioners may not deduct any

expenses for the business use of their home during that year.

Id.

      We next address the Schedule C deductions claimed by

petitioners.   A taxpayer must keep records sufficient to

establish the amounts of the items required to be shown on his

Federal income tax return.    Sec. 6001; sec. 1.6001-1(a), (e),

Income Tax Regs.    In the event that a taxpayer establishes that a

deductible expense has been paid but is unable to substantiate

the precise amount, we generally may estimate the amount of the

deductible expense bearing heavily against the taxpayer whose

inexactitude in substantiating the amount of the expense is of

his own making.    Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d

Cir. 1930).    We cannot estimate a deductible expense, however,

unless the taxpayer presents evidence sufficient to provide some

basis upon which an estimate may be made.    Vanicek v.

Commissioner, 85 T.C. 731, 743 (1985).

      Section 274(d) supersedes the Cohan doctrine.   Sanford v.

Commissioner, 50 T.C. 823, 827 (1968), affd. 412 F.2d 201 (2d

Cir. 1969).    Section 274(d) provides that, unless the taxpayer


      2
      Petitioners argue that petitioner’s ability to use the
computer resources at the university without charge was “income”.
Even if this were so, however, petitioners’ taxable income would
not be affected in their favor. Any such income would be
includable in petitioners’ gross income under sec. 61(a), and
would only be offset by a sec. 280A(c) deduction to the extent of
that income.
                                - 8 -

complies with certain strict substantiation rules, no deduction

is allowable (1) for traveling expenses, (2) for entertainment

expenses, (3) for expenses for gifts, or (4) with respect to

listed property.   Listed property includes passenger automobiles

and other property used as a means of transportation.      Sec.

280F(d)(4).   To meet the strict substantiation requirements, the

taxpayer must substantiate the amount, time, place, and business

purpose of the expenses.   Sec. 274(d); sec. 1.274-5T, Temporary

Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).

     In order to substantiate the amount of expenses for listed

property, a taxpayer must establish the amount of business use

and the amount of total use for such property.      Sec. 1.274-

5T(b)(6)(i)(B), Temporary Income Tax Regs., 50 Fed. Reg. 46006

(Nov. 6, 1985).    With respect to the use of automobiles, in order

to establish the amount of an expense the taxpayer must establish

the amount of business mileage and the amount of total mileage

for which the automobile was used.      Id.   The taxpayer may

substantiate the amount of mileage by adequate records or by

sufficient evidence corroborating his own statement.      Sec.

274(d).   A record of the mileage made at or near the time the

automobile was used, supported by documentary evidence, has a

high degree of credibility not present with a subsequently

prepared statement.   Sec. 1.274-5T(c)(1), (2), and (3), Temporary

Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).
                               - 9 -

     Petitioners base the amount of the Schedule C car expense on

estimates they made after the mileage was incurred--the only

documentary evidence provided by petitioners is a summary

prepared in anticipation of trial and dated several years after

the actual use of the car.   Petitioners likewise did not present

any reliable substantiation of the commission, fee, and supply

expenses reported on their Schedule C.   We conclude that

petitioners have not substantiated these expenses and therefore

are not entitled to any deductions therefor.   Secs. 274(d),

6001.3

     Petitioners admit that the car and truck expense on the

Schedule C is the same expense that is listed as a miscellaneous

itemized deduction.   Petitioners are not entitled to a

miscellaneous itemized deduction for this expense for the same

reasons that they are not entitled to the Schedule C deduction.

     The remaining deductions claimed by petitioners are the

miscellaneous itemized deductions for the professional fees,

copying expense, telephone expense, and safe deposit box.

Because these expenses total less than 2 percent of petitioners’



     3
      Based on our holding, we need not reach respondent’s
argument that petitioner was not engaged in the research activity
for profit within the meaning of sec. 183(a). See also
Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987) (stating that
a taxpayer is engaged in a trade or business if the taxpayer is
involved in the activity with the primary purpose of making a
profit). Likewise, we need not consider whether the research
expenses were startup expenditures under sec. 195(c).
                             - 10 -

adjusted gross income, they are not allowed as deductions

pursuant to section 67(a).

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                   Decision will be entered for

                              respondent in the amount of the

                              increased deficiency.
