                          T.C. Summary Opinion 2012-84



                         UNITED STATES TAX COURT



KUMAR ANTHONY PERIES AND JANNA ISKAKOVA PERIES, Petitioners v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket Nos. 7928-09S, 23184-10S.              Filed August 27, 2012.



      Kumar Anthony Peries and Janna Iskakova Peries, pro sese.

      Michael A. Raiken, for respondent.



                               SUMMARY OPINION


      DEAN, Special Trial Judge: These consolidated cases were 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
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any other case. Unless otherwise indicated, subsequent section references are to the

Internal Revenue Code in effect for the years in issue, and all Rule references are to

the Tax Court Rules of Practice and Procedure.

      Respondent issued two notices of deficiency (notices) to petitioners--one for

petitioners’ joint Federal income tax return for 2005 and one for petitioners’ joint

Federal income tax return for 2006 and petitioner Kumar Peries’ married filing

separately Federal income tax return for 2007. Respondent determined deficiencies

of $7,965 and $9,968 for 2005 and 2006, respectively, against petitioners and a

deficiency of $4,943 for 2007 against Mr. Peries. Additionally, respondent

determined that petitioners are liable for accuracy-related penalties under section

6662(a) of $1,593 and $1,993.60 for 2005 and 2006, respectively, and that Mr.

Peries is liable for the section 6662(a) accuracy-related penalty of $988.60 for 2007.
                                         -3-

After concessions,1 the issues2 for decision are: (1) whether petitioners are entitled

to claimed deductions on Schedules A, Itemized Deductions, for 2005 and 2006; (2)

whether Mr. Peries is entitled to claimed deductions on Schedule A for 2007; (3)

whether petitioners are liable for section 6662(a) accuracy-related penalties for 2005

and 2006; and (4) whether Mr. Peries is liable for the accuracy-related penalty for

2007.3




         1
        Respondent determined that Mr. Peries had unreported dividend income of
$32, decreased his State refunds, credits, or offsets by $20, and denied him a
dependency exemption deduction for 2007. Mr. Peries did not address these issues
in his petition. These issues are deemed conceded by him. See Rule 34(b)(4).
         2
       Other adjustments made in the notice of deficiency are computational and
will not be discussed.
         3
        In his pretrial memorandums respondent stated that petitioner Janna Peries
requested innocent spouse relief for 2005 and 2006 on May 21, 2009, that that
request was denied on August 11, 2009, and that her request for relief was in issue
in these cases. Mrs. Peries did not testify at trial. There is no evidence in the
record that she requested innocent spouse relief or requested such relief as a defense
to the determined deficiencies for 2005 and 2006. The Court finds that neither a
review of denial of innocent spouse relief by respondent nor a pleading of innocent
spouse relief as a defense to the proposed deficiencies is before us in docket Nos.
7928-09S and 23184-10S.
                                        -4-

                                    Background

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

facts and the attached exhibits are incorporated herein by reference. Petitioners

resided in Maryland when they filed their petitions.

      Mr. Peries has a computer science degree from the University of Maryland.

He filed articles of incorporation for Information Technology Consortium, Inc.

(ITC), on July 20, 1988, and again on December 7, 1996. The Internal Revenue

Service assigned ITC an employer identification number. During the years in issue

Mr. Peries performed information technology work as an employee of the U.S.

Department of State, Bureau of Consular Affairs (State Department).

      In 2005 and 2006 Mrs. Peries performed the duties of a registered nurse as an

employee of the U.S. Department of Health and Human Services, National Institutes

of Health (DHHS). She also held a real estate license and worked as a real estate

agent for Long & Foster.

      For 2005 and 2006 petitioners timely filed their joint Federal income tax

returns. On their 2005 Schedule A they claimed, inter alia, charitable contribution

deductions of $3,800 and miscellaneous itemized deductions of $31,320.4


      4
      All of petitioners’ claimed miscellaneous itemized deductions take into
account the 2% floor of sec. 67(a).
                                         -5-

      On their 2006 Schedule A petitioners claimed, inter alia, charitable

contributions of $5,780 and miscellaneous deductions of $35,506.

      On his 2007 Schedule A Mr. Peries claimed, inter alia, miscellaneous

deductions of $33,688.

      Respondent sent petitioners the notices, which disallowed: (1) for 2005,

$560 of their claimed deduction for charitable contributions and all of their claimed

miscellaneous deductions; (2) for 2006, $2,350 of their claimed deduction for

charitable contributions and all of their claimed miscellaneous deductions for 2006;

and (3) for 2007, all of Mr. Peries’ claimed miscellaneous deductions. Respondent

also determined that petitioners are liable for accuracy-related penalties under

section 6662(a) for 2005 and 2006 and that Mr. Peries is liable for the section

6662(a) accuracy-related penalty for 2007.

                                     Discussion

      Generally, the Commissioner’s determinations are presumed correct, and the

taxpayer bears the burden of proving that those determinations are erroneous. Rule

142(a); see INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); 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). Petitioners did not argue or present evidence that they satisfied the
                                           -6-

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

with respect to the issues in the notices of deficiency.

         Deductions and credits are a matter of legislative grace, and the taxpayer

bears the burden of proving that he or she is entitled to any deduction or credit

claimed. Rule 142(a); Deputy v. du Pont, 308 U.S. 488, 493 (1940); New Colonial

Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); Segel v. Commissioner, 89 T.C.

816, 842 (1987) (credits, like deductions, are a matter of legislative grace).

Additionally, a taxpayer must substantiate all expenses. Sec. 6001; Hradesky v.

Commissioner, 65 T.C. 87, 89 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir.

1976).

I.       Petitioners’ 2005 Deductions

         Respondent disallowed a portion of petitioners’ claimed charitable

contributions and all of their claimed miscellaneous deductions for 2005. All of

petitioners’ claimed miscellaneous deductions were for unreimbursed employee

business expenses.

         A.    Deduction for Charitable Contributions

         A deduction for charitable contributions is allowed under section 170.

Respondent disallowed $560 of petitioners’ deduction for charitable contributions
                                         -7-

because petitioners could not verify that they were entitled to a deduction in that

amount.

      The evidence petitioners presented at trial substantiated a deduction for

charitable contributions of $3,240 for 2005--the amount respondent allowed.

Therefore, respondent’s determination to disallow petitioners’ deduction for

charitable contributions of $560 is sustained.

      B.     Deduction for Unreimbursed Employee 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, family, or living expenses. See sec.

262. The performance of services as an employee is considered a trade or business

for section 162 purposes. Primuth v. Commissioner, 54 T.C. 374, 377 (1970).

      In order to deduct unreimbursed employee business expenses, a taxpayer

must not have received reimbursement and must not have had the right to obtain

reimbursement from his employer. Orvis v. Commissioner, 788 F.2d 1406, 1408

(9th Cir. 1986), aff’g T.C. Memo. 1984-533.

      Section 6001 and its regulations require a taxpayer to maintain records

sufficient to permit verification of income and expenses. Some expenses can be
                                         -8-

estimated by the Court if there is a basis upon which an estimate can be made. See

Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v.

Commissioner, 85 T.C. 731, 742-743 (1985).

      Travel expenses, including amounts for meals and lodging, entertainment

expenses, and expenses with respect to listed property, however, must be

substantiated by adequate records or sufficient evidence corroborating the

taxpayer’s own statement showing the: (1) amount of each expenditure, (2) time

and place of the travel or entertainment, (3) business purpose of the expense, and

(4) in the case of entertainment expenses, the business relationship to the taxpayer

of the person being entertained. Sec. 274(d); sec. 1.274-5T(a) and (b), Temporary

Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985). A passenger automobile is

listed property. Sec. 280F(d)(4).

      To satisfy the adequate records requirement of section 274(d), the taxpayer

shall maintain an account book, a diary, a log, a statement of expense, trip sheets, or

similar record and documentary evidence that in combination are sufficient to

establish each element of the expenditure or use. Sec. 1.274-5T(c)(2)(i), Temporary

Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985). If a taxpayer does not have

adequate records to substantiate each element of an expense, he may alternatively

establish an element by “his own statement, whether written or oral, containing
                                         -9-

specific information in detail as to such element,” and by “other corroborative

evidence sufficient to establish such element.” Sec. 1.274-5T(c)(3), Temporary

Income Tax Regs., 50 Fed. Reg. 46020 (Nov. 6, 1985).

      Petitioners provided no credible evidence to substantiate most of their

claimed deductions for unreimbursed employee business expenses. They provided

copies of several bills that were in the names of individuals other than themselves.

Petitioners submitted as evidence Cavalier Telephone bills for a residential line in

the name of Vatalyi Iskakova, Comcast bills in the name of Vatalyi Iskakova, and

Pepco bills in the name of Edward Peries.

      Petitioners also provided carbon copies of checks they claim were for

business expenses of Mr. Peries. The checks’ memo lines include statements such

as: “Ebay: 5787064619”, “Barrister Fee 2005”, “Legal Asst. 2005”, “Meter Fee”,

and “Flag Fee”. Mr. Peries did not testify as to how any of these expenses related

to his job as an employee of the State Department.5

      5
         It is possible that the expenses were related to ITC, which Mr. Peries
planned to devote his time to after he retired from the State Department. If that was
the case, the expenses might be deductible by ITC and not petitioners. See Craft v.
Commissioner, T.C. Memo. 2005-197 (citing Deputy v. du Pont, 308 U.S. 488, 494
(1940), Noland v. Commissioner, 269 F.2d 108 (4th Cir. 1959), aff’g T.C. Memo.
1958-60, and Rink v. Commissioner, 51 T.C. 746, 751 (1969)). “Such payments
constitute either capital contributions or loans to the corporation and are deductible,
if at all, only by the corporation.” Gantner v. Commissioner, 91 T.C. 713, 725
                                                                          (continued...)
                                         - 10 -

      Petitioners also submitted a mileage log for each of them and receipts for

vehicle repair expenses. Mr. Peries’ log is totaled monthly for 2005 and lists his

destinations as “various” and the purpose of his travel as “business”. Mrs. Peries’

log is totaled monthly for 2005 and does not list any specific locations to which she

traveled. Petitioners’ receipts for vehicle repairs and maintenance list no business

purposes, and petitioners did not testify at trial as to how the maintenance and repair

receipts related to their positions as employees for their respective employers or to

Mrs. Peries’ real estate activities. Petitioners’ mileage logs and receipts for vehicle

repairs and maintenance fail to meet the strict substantiation requirements of section

274(d) and its regulations.

      Petitioners also submitted as evidence the monthly bills for three credit card

accounts and their bank statements for 2005. The bank statements and the monthly

bills for two of the credit cards accounts were simply lists of expenditures--and

deposits in the case of the bank statements--with nothing to identify the purpose of

the expenditures. Petitioners offered no testimony at trial as to how the bank

statements and the statements for the two credit card accounts substantiated their


      5
       (...continued)
(1988) (citing Deputy v. du Pont, 308 U.S. at 494, and Rink v. Commissioner, 51
T.C. at 751), aff’d, 905 F.2d 241 (8th Cir. 1990).
                                        - 11 -

expenses. The Court will not sift through the voluminous documents to attempt to

match the evidence to respondent’s adjustments. See, e.g., Hale v. Commissioner,

T.C. Memo. 2010-229.

       One credit card account’s monthly statements did have certain expenses

highlighted that petitioners claimed were unreimbursed employee business

expenses. Most of these expenses were for amounts paid to the post office, Federal

Express, bookstores and other retail outlets. Petitioners did not prove that those

expenses were not personal expenses. Therefore, the expenses are not deductible.

See sec. 262.

      Four of the highlighted entries are expenses related to Mrs. Peries’

employment at either DHHS or her work with Long and Foster6-the expenses were

$56.75 paid to the “MD Board of Nursing”, two charges of $165 paid to “MRIS

Inc.”, and $443 paid to the “Greater Capital Area Association of Realtors”. She also

had an expense of $26.25 paid to the Long and Foster Institute.




       6
        It is not clear from the record whether Mrs. Peries was an employee or an
independent contractor for Long and Foster. One may work in either capacity as a
real estate agent. See Kindred v. Commissioner, T.C. Memo. 1979-457, aff’d, 669
F.2d 400 (6th Cir. 1982). Petitioners reported the expenses related to Long and
Foster on Schedules A. Mrs. Peries earned no income from Long and Foster and
did not file a Schedule C, Profit or Loss From Business, for any year in issue.
                                         - 12 -

      Although petitioners substantiated that Mrs. Peries paid these expenses, they

provided no evidence of either DHHS’ or Long and Foster’s reimbursement policies.

Petitioners did provide a letter from Long and Foster that states it did not reimburse

Mrs. Peries for any expenses in 2005, 2006, or 2007. The letter does not mention

Long and Foster’s reimbursement policy or whether Mrs. Peries could have been

reimbursed for her expenses. Petitioners have not proved that Mrs. Peries was not

entitled to reimbursement by DHHS or Long and Foster. See Orvis v.

Commissioner, 788 F.2d at 1408. Therefore, petitioners are not entitled to a

deduction for the unreimbursed business expenses described supra.

      Respondent’s determination for 2005 is sustained.

II.   Petitioners’ Claimed Deductions for 2006 and Mr. Peries’ Claimed
      Deductions for 2007

      Respondent disallowed petitioners’ claimed deduction for charitable

contributions of $2,350 and all of their claimed miscellaneous deductions for 2006.

He also disallowed all of Mr. Peries’ claimed miscellaneous deductions for 2007.

      Petitioners presented no evidence to substantiate the disallowed deductions for

2006 and 2007. When the Court questioned Mr. Peries about whether he had

evidence to substantiate the claimed deductions for 2006 and 2007, he answered that

they definitely had the documents but did not bring them to court.
                                         - 13 -

       Respondent’s determinations for 2006 and 2007 are sustained.

III.   Accuracy-Related Penalties Under Section 6662(a)

       Section 6662(a) and (b)(1) and (2) imposes a 20% accuracy-related penalty on

the portion of an underpayment that is attributable to negligence or disregard of rules

or regulations or a substantial understatement of income tax.7 The Commissioner

bears the burden of production with respect to the applicability of an accuracy-

related penalty determined in a notice of deficiency. Sec. 7491(c). In order to meet

that burden, the Commissioner need only make a prima facie case that imposition of

the penalty is appropriate. Higbee v. Commissioner, 116 T.C. 438, 446 (2001).

Once that burden is met, the taxpayer bears the burden of proving that the accuracy-

related penalty does not apply because of reasonable cause, substantial authority, or

the like. Secs. 6662(d)(2)(B), 6664(c); Higbee v. Commissioner, 116 T.C. at 449.

       Respondent determined that petitioners were liable for section 6662(a)(1)

accuracy-related penalties of $1,593 and $1,993.60 for 2005 and 2006, respectively.




       7
        Because the Court finds that Mr. and Mrs. Peries were negligent, the Court
 need not discuss their substantial understatements of income tax. See New Phoenix
 Sunrise Corp. & Subs. v. Commissioner, 132 T.C. 161, 187 (2009) (only one
 accuracy-related penalty may be imposed on an underpayment, even if the
 underpayment is attributable to more than one of the types of listed conduct), aff’d,
 408 Fed. Appx. 908 (6th Cir. 2010); sec. 1.6662-2(c), Income Tax Regs.
                                         - 14 -

Respondent also determined that Mr. Peries was liable for an accuracy-related

penalty of $988.60 for 2007.

      For purposes of section 6662, negligence is any failure to make a reasonable

attempt to comply with the provisions of the Internal Revenue Code, and disregard

includes any careless, reckless, or intentional disregard. Sec. 6662(c); see also

Neely v. Commissioner, 85 T.C. 934, 947 (1985) (negligence is lack of due care or

failure to do what a reasonably prudent person would do under the circumstances);

sec. 1.6662-3, Income Tax Regs. Negligence also includes any failure to exercise

ordinary and reasonable care in the preparation of a tax return or any failure to keep

adequate books and records and to properly substantiate items. Sec. 1.6662-3(b)(1),

Income Tax Regs.

      Respondent has met his burden of production because petitioners claimed

thousands of dollars of deductions for expenses that they could not substantiate or

that they did not prove were not reimbursable by their employers.

      An accuracy-related penalty is not imposed on any portion of the

underpayment as to which the taxpayer acted with reasonable cause and in good

faith. Sec. 6664(c)(1). Section 1.6664-4(b)(1), Income Tax Regs., incorporates a

facts and circumstances test to determine whether the taxpayer acted with reasonable
                                           - 15 -

cause and in good faith. The most important factor is the extent of the taxpayer’s

effort to assess his or her proper tax liability. Id.

       Mr. Peries testified repeatedly that he and his wife were “working people”

who pay their taxes timely. Apart from that statement, petitioners provided no

evidence that they acted with reasonable cause and in good faith. In fact, they

provided little substantiation for expense deductions claimed for 2005 and no

substantiation for the expense deductions they claimed for 2006 and the expense

deductions Mr. Peries claimed for 2007. Therefore, respondent’s determinations of

accuracy-related penalties against petitioners for 2005 and 2006 and against Mr.

Peries for 2007 are sustained.

       We have considered all of petitioners’ arguments, and, to the extent not

addressed herein, we conclude that they are moot, irrelevant, or without merit.

       To reflect the foregoing,


                                                              Decisions will be entered

                                                        for respondent.
