                        T.C. Memo. 2011-164



                      UNITED STATES TAX COURT



                GLENN PATRICK BOGUE, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 12291-09.               Filed July 11, 2011.



     Glenn Patrick Bogue, pro se.

     Carrie L. Kleinjan, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     WELLS, Judge:   Respondent determined income tax deficiencies

of $5,900.85 and $6,738.11, and accuracy-related penalties

pursuant to section 6662(a)1 of $1,180.17 and $1,347.62 for



     1
      Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986, as amended, and Rule references
are to the Tax Court Rules of Practice and Procedure.
                                - 2 -

petitioner’s 2005 and 2006 tax years (the years in issue),

respectively.   After concessions, the issues we must decide are:

(1) Whether petitioner is entitled to deduct certain

transportation expenses for travel between his residence and

worksites during the years in issue; (2) whether petitioner is

entitled to certain depreciation deductions; (3) whether

petitioner is entitled to certain deductions on his Schedule C;

and (4) whether petitioner is liable for the accuracy-related

penalties for the years in issue.

                           FINDINGS OF FACT

     Some of the facts and certain exhibits have been stipulated.

The parties’ stipulations of fact are incorporated in this

opinion by reference and are found accordingly.    At the time he

filed his petition, petitioner was a resident of New Jersey.

     Petitioner is an independent contractor based in Cherry

Hill, New Jersey.   During the years in issue, petitioner lived in

a house owned by his fiancé, Janis Pannepacker (Ms. Pannepacker)

(we sometimes also refer to Ms. Pannepacker’s house as

petitioner’s residence).    During the years in issue, petitioner

was building an addition to Ms. Pannepacker’s house in his spare

time.

     During the years in issue, petitioner worked with Raymond J.

Mancino (Mr. Mancino) to renovate residential properties.    During

his 2005 tax year, petitioner worked on properties at the
                                - 3 -

following locations:   East Upsal Street, Philadelphia,

Pennsylvania; Wissahickon Avenue, Philadelphia, Pennsylvania; and

Seminole Avenue, Melrose Park, Pennsylvania.    During his 2006 tax

year, petitioner worked on properties at the following locations:

Seminole Avenue, Melrose Park, Pennsylvania; Albright Avenue,

Elkins Parks, Pennsylvania; and Coles Mills Road, Haddonfield,

New Jersey.   Those five work locations (hereinafter sometimes

referred to as worksites) were 20.1, 15.7, 15.0, 14.7, and 4.0

miles, respectively, from petitioner’s residence.    He worked at

each of the worksites for a number of months and then, when the

project at that worksite was finished, he moved to another

worksite.   Petitioner also received some income from his work as

a track team coach.

      Petitioner declared bankruptcy during 1999, following a

divorce.    During 2003, the bank foreclosed on his house and sold

it.   The individual who purchased it razed the house before

petitioner had removed all of his possessions, including some of

his important records.   Among the records he lost were the

purchase records for his 1991 Ford Explorer and for his tools.

      Petitioner’s credit was affected by his bankruptcy, and

consequently, he was unable to get a credit card or open a bank

account.    To provide a bank account for petitioner’s use, Ms.

Pannepacker opened an account in her name that was used only for
                                - 4 -

petitioner’s expenses.    Although Ms. Pannepacker wrote checks

from the account at the direction of petitioner, both she and

petitioner treated all of the funds in the account as

petitioner’s.

     On his returns for the years in issue, petitioner claimed

deductions for a variety of expenses related to his

transportation between his residence and the worksites.    He

claimed deductions for car and truck expenses of $9,232 and

$9,657.50 on Schedules C, Profit or Loss from Business, attached

to his tax returns for 2005 and 2006, respectively.    In addition

to car and truck expenses, petitioner deducted as part of his

“Other Expenses” on his Schedules C amounts for tolls that he

paid on the way to worksites.    He claimed deductions of $660 and

$400 for those tolls during 2005 and 2006, respectively.    As part

of the insurance expenses he reported on his Schedules C,

petitioner deducted auto insurance expenses of $2,028 and $1,866

for 2005 and 2006, respectively.    Petitioner also deducted $650

in car rental expenses for the period during 2005 when he was

renting a car after the 1991 Ford Explorer became inoperable.

     Additionally, petitioner claimed a deduction of $4,600 for

the depreciation of his 1991 Ford Explorer, which became

inoperable during 2005.   The $4,600 he claimed as a depreciation

deduction reflects petitioner’s estimate of its “Kelley Blue

Book” value when it became inoperable.
                                 - 5 -

     On his 2006 tax return, petitioner claimed depreciation of

$400 for tools he purchased in a prior year.    His tool purchase

records were lost when his house was destroyed during 2003, and

he subsequently estimated the values of those tools for the

purpose of depreciating them.

     During the years in issue, petitioner had a storage shed at

Ms. Pannepacker’s house where he kept all of his tools when he

was not using them.    However, he did not deduct any expense for

depreciation of the storage shed on his tax return for either

year.

     During 2005, petitioner had a dispute with one of his

clients over the payment of a bill and was arrested in

Pennsylvania when the client reported to the police that

petitioner had stolen a deposit.    In connection with that

dispute, Ms. Pannepacker paid $398 to the clerk of court.     On his

Schedule C for 2005, petitioner claimed a deduction for legal

expenses of $1,250.    That amount also included $800 petitioner

had paid a lawyer to represent him during 2003 but never claimed

as a deduction.     He therefore deducted both of those expenses on

his 2005 return.2

     On the Schedule C attached to his 2006 return, petitioner

claimed a deduction for $1,970 in legal expenses related to a


        2
      The sum of petitioner’s legal expenses from 2003 and 2005
is $1,198. It is not clear from the record how he arrived at a
deductible expense of $1,250.
                                - 6 -

lawsuit stemming from a contract dispute.    To substantiate those

expenses, he offered canceled checks totaling $1,423 from Ms.

Pannepacker to the law firm he retained to represent him.    He

also provided part of the complaint filed in that lawsuit and the

retainer agreement he signed with the law firm that represented

him.    Petitioner was unable to find any other records to

substantiate the full amount of his claimed legal expenses for

2006.

       Petitioner used one of the rooms in Ms. Pannepacker’s house

as his office (office) during the years in issue, but he did not

claim a deduction for the business use of his office.

Petitioner used the computer in the office to research parts for

building houses and to keep track of his billing.    He also used

the landline telephone in the office to contact building supply

stores.

       Petitioner claimed $1,200 for office expenses on his tax

returns for both of the years in issue, but respondent allowed

only $600 for each year.    Petitioner now contends that he should

be entitled to deduct office expenses of $2,184 for each of the

years in issue.    To substantiate his claimed expenses, petitioner

submitted a receipt from Ms. Pannepacker stating that petitioner

pays her the following amounts each month:    $50 for Internet

service; $30 for a landline telephone; $20 for computer and

printer use; and $82 for petitioner’s share of a joint cellular
                               - 7 -

phone plan.   Petitioner submitted several invoices in Ms.

Pannepacker’s name, including an invoice for Internet and cable

television that shows that Ms. Pannepacker paid only $33 per

month for Internet service.   Ms. Pannepacker also accesses the

Internet through her laptop at her home.

     On the Schedule C attached to his 2005 tax return,

petitioner claimed “Other Expenses” of $1,000 for the settlement

of a purchase dispute with Builder’s Prime Window.   On his 2006

tax return, petitioner claimed Schedule C “Other Expenses” of

$2,200 for books that he purchased during the preceding 5 years.

He eventually used those books as part of his research for a book

series that he recently published through a self-publishing

house.   Petitioner did not deduct those expenses as he paid them;

instead, he deducted all of them on his 2006 tax return because

it was not until 2006 that he firmly decided that he would write

the books.3

     Petitioner timely filed his Federal income tax returns for

the years in issue.   On April 23, 2009, respondent issued and

mailed to petitioner a notice of deficiency.   Petitioner timely

filed his petition with this Court.




     3
      Petitioner stated with regard to his work on the books that
during 2006, “I know I’m going forward.”
                               - 8 -

                              OPINION

I.   Whether the Burden of Proof Has Shifted Under Section 7491

     We consider as a preliminary matter petitioner’s contention

that the burden of proof has shifted to respondent pursuant to

section 7491(a).   Generally, the Commissioner’s determination of

a deficiency is presumed correct, and the taxpayer has the burden

of proving it incorrect.   Rule 142(a); Welch v. Helvering, 290

U.S. 111, 115 (1933).   Section 7491(a)(1) provides an exception

that shifts the burden of proof to the Commissioner as to any

factual issue relevant to a taxpayer’s liability for tax if:     (1)

The taxpayer introduces credible evidence with respect to that

issue; and (2) the taxpayer satisfies certain other conditions,

including substantiation of any item and cooperation with the

Government’s requests for witnesses, documents, other

information, and meetings.   Sec. 7491(a)(2); see also Rule

142(a)(2).   The taxpayer bears the burden of proving that the

taxpayer has met the requirements of section 7491(a).   Rolfs v.

Commissioner, 135 T.C. 471, 483 (2010).

     As we explain below, petitioner has failed to present

credible evidence sufficient to substantiate most items.   On

those issues, the burden of proof remains with petitioner.     With

respect to a few factual issues, petitioner presented credible

evidence sufficient to substantiate his expenses.   However,

because we decide those issues in petitioner’s favor on the
                                 - 9 -

preponderance of the evidence, the allocation of the burden of

proof is immaterial.   See Knudsen v. Commissioner, 131 T.C. 185,

189 (2008).   We therefore need not decide whether petitioner has

also met the conditions of section 7491(a)(2) required to shift

the burden of proof to respondent with respect to those issues.

II.   Whether Petitioner Is Entitled to the Claimed Deductions

      Deductions are a matter of legislative grace, and taxpayers

generally bear the burden of proving their entitlement to the

deductions claimed.    Sec. 6001; INDOPCO, Inc. v. Commissioner,

503 U.S. 79, 84 (1992).     Section 162(a) permits “as a deduction

all the ordinary and necessary expenses paid or incurred during

the taxable year in carrying on any trade or business”.      To be

deductible, ordinary and necessary expenses must be “directly

connected with or pertaining to the taxpayer’s trade or

business”.    Sec. 1.162-1(a), Income Tax Regs.    Additionally,

section 212 generally allows the deduction of ordinary and

necessary expenses paid or incurred during the tax year for the

production or collection of income.      Sec. 1.212-1(d), Income Tax

Regs.   Such expenses must be reasonable in amount and bear a

reasonable and proximate relationship to the production or

collection of taxable income.     Id.    However, a taxpayer may not

deduct personal expenses.    Sec. 262(a).
                              - 10 -

     Generally, a taxpayer must keep records sufficient to

establish the amounts of the items reported 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

generally will not estimate a deductible expense, however, unless

the taxpayer presents sufficient evidence 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 for certain

categories of expenses.   Sanford v. Commissioner, 50 T.C. 823,

827-828 (1968), affd. per curiam 412 F.2d 201 (2d Cir. 1969).

Generally, a deduction is disallowed for an expense for travel,

meals and entertainment, or listed property unless the taxpayer

properly substantiates:   (1) The amount of such expense; (2) the

time and place of the expense; (3) the business purpose; and (4)

in the case of meals and entertainment, the business relationship

between the taxpayer and the persons being entertained.   Sec.

274(d).   Listed property includes passenger automobiles, any type

of property generally used for entertainment or recreation, any
                              - 11 -

computer or peripheral equipment, and any cellular phone or other

similar telecommunications equipment.4     Sec. 280F(d)(4).

Generally, deductions for expenses subject to the strict

substantiation requirements of section 274(d) must be disallowed

in full unless the taxpayer satisfies every element of those

requirements.   Sanford v. Commissioner, supra at 827-828; Larson

v. Commissioner, T.C. Memo. 2008-187; sec. 1.274-5T(a), Temporary

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

for listed property that is used both personally and in the

taxpayer’s business are disallowed unless a taxpayer establishes

the amount of business use of the property.     Kinney v.

Commissioner, T.C. Memo. 2008-287; Olsen v. Commissioner, T.C.

Memo. 2002-42, affd. 54 Fed. Appx. 479 (9th Cir. 2003); sec.

1.274-5T(b)(6)(i)(B), Temporary Income Tax Regs., 50 Fed. Reg.

46016 (Nov. 6, 1985).

     Taxpayers may substantiate their deductions by either

adequate records or sufficient evidence that corroborates the

taxpayer’s own statement.   Sec. 274(d).    To satisfy the adequate

records requirement, a taxpayer must maintain records and

documentary evidence that in combination are sufficient to



     4
      Sec. 280F(d)(4) has since been amended by the Creating
Small Business Jobs Act of 2010, Pub. L. 111-240, sec. 2043(a),
124 Stat. 2560, which removed cellular phones and other similar
telecommunications equipment from “listed property”. However,
that amendment is effective only for tax years beginning after
Dec. 31, 2009.
                              - 12 -

establish each element of an expenditure or use.     Larson v.

Commissioner, supra; sec. 1.274-5T(c)(2)(i), Temporary Income Tax

Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985).    As we have stated, a

contemporaneous log is not required, but corroborative evidence

used to support a taxpayer’s reconstruction of the expenditure

“‘must have a high degree of probative value to elevate such

statement’” to the level of credibility of a contemporaneous

record.   Larson v. Commissioner, supra (quoting section 1.274-

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

1985)).

     In the absence of adequate records, a taxpayer alternatively

may establish an element of an expenditure by “his own statement,

whether written or oral, containing specific information in

detail as to such element” and by “other corroborative evidence

sufficient to establish such element.”   Larson v. Commissioner,

supra; sec. 1.274-5T(c)(3), Temporary Income Tax Regs., 50 Fed.

Reg. 46020 (Nov. 6, 1985).   Even if an expense would otherwise be

deductible, the deduction may still be denied if there is

insufficient substantiation to support it.    See sec. 1.274-5T(a),

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

We do not estimate under the Cohan doctrine expenses that are

subject to the requirements of section 274(d).     Sanford v.

Commissioner, supra at 827; Larson v. Commissioner, supra.
                               - 13 -

     A.   Commuting Expenses

     Respondent contends that many of petitioner’s expenses,

including the amounts petitioner claimed for car and truck

expenses, tolls, auto insurance, and car rental expenses, are not

deductible because they are commuting expenses.   As a general

rule, expenses for traveling between one’s home and one’s place

of business or employment constitute commuting expenses and,

consequently, are nondeductible personal expenses.    See sec.

262(a); Fausner v. Commissioner, 413 U.S. 838 (1973);

Commissioner v. Flowers, 326 U.S. 465 (1946); Feistman v.

Commissioner, 63 T.C. 129, 134 (1974).

     As the Supreme Court explained in Commissioner v. Flowers,

supra at 473, the core reason commuting expenses are not

deductible is that the taxpayer makes a personal choice about

where to live.   In Flowers, the taxpayer was a longtime resident

of Jackson, Mississippi, who accepted a job that required him to

spend most of his time in Mobile, Alabama.   For personal reasons,

the taxpayer decided to continue to maintain a home in Jackson

and made repeated trips between Jackson and Mobile.   The Supreme

Court held that the taxpayer was not entitled to deduct the costs

of traveling from Jackson to Mobile, despite the substantial

distance, because those costs were incurred for personal reasons

and not in the pursuit of the business of his employer.    The

Supreme Court explained:
                                  - 14 -

            The facts demonstrate clearly that the expenses were
       not incurred in the pursuit of the business of the
       taxpayer’s employer, the railroad. Jackson was his regular
       home. Had his post of duty been in that city the cost of
       maintaining his home there and of commuting or driving to
       work concededly would be non-deductible living and personal
       expenses lacking the necessary direct relation to the
       prosecution of the business. The character of such expenses
       is unaltered by the circumstance that the taxpayer’s post of
       duty was in Mobile, thereby increasing the costs of
       transportation, food and lodging. Whether he maintained one
       abode or two, whether he traveled three blocks or three
       hundred miles to work, the nature of these expenditures
       remained the same.

            The added costs in issue, moreover, were as unnecessary
       and inappropriate to the development of the railroad’s
       business as were his personal and living costs in Jackson.
       They were incurred solely as the result of the taxpayer’s
       desire to maintain a home in Jackson while working in
       Mobile, a factor irrelevant to the maintenance and
       prosecution of the railroad’s legal business. * * * The fact
       that he traveled frequently between the two cities and
       incurred extra living expenses in Mobile, while doing much
       of his work in Jackson, was occasioned solely by his
       personal propensities. * * *

Id. at 473-474.    By holding that commuting expenses are personal,

the Supreme Court placed those expenses in the category of

nondeductible expenses now governed by section 262(a).   Such

personal expenses contrast with trade or business expenses, which

are deductible provided they satisfy the requirements of section

162.    Section 162(a) provides that a deduction is allowed for

“all the ordinary and necessary expenses paid or incurred during

the taxable year in carrying on a trade or business”.

       Three exceptions to the general rule that commuting expenses

are nondeductible have evolved since the Supreme Court decided

Flowers.    The first exception is that expenses incurred traveling
                              - 15 -

between a taxpayer’s residence and a place of business are

deductible if the residence is the taxpayer’s principal place of

business (home office exception).   The second exception is that

travel expenses between a taxpayer’s residence and temporary work

locations outside of the metropolitan area where the taxpayer

lives and normally works are deductible (temporary distant

worksite exception).   The third exception is that travel expenses

between a taxpayer’s residence and temporary work locations,

regardless of the distance, are deductible if the taxpayer also

has one or more regular work locations away from the taxpayer’s

residence (regular work location exception).   Petitioner contends

that his transportation expenses driving between his residence

and worksites qualify under all three exceptions; we will

consider each exception in turn.

          1.   The Home Office Exception

     The first exception, that expenses incurred traveling

between a taxpayer’s residence and a place of business are

deductible if the residence is the taxpayer’s principal place of

business because a home office is located at the residence, is a

judicially created exception.5   See Strohmaier v. Commissioner,

113 T.C. 106, 113-114 (1999); Wis. Psychiatric Servs. v.


     5
      The first exception is also recognized under Rev. Rul. 99-
7, 1999-1 C.B. 361, 362, which states: “If a taxpayer’s
residence is the taxpayer's principal place of business * * *,
the taxpayer may deduct daily transportation expenses incurred in
going between the residence and another work location”.
                               - 16 -

Commissioner, 76 T.C. 839, 849 (1981); Curphey v. Commissioner,

73 T.C. 766, 777-778 (1980).   In the seminal case on the home

office exception, Curphey v. Commissioner, supra, the taxpayer

maintained a home office in his residence that qualified as his

“principal place of business” under section 280A(c)(1)(A).     We

stated:

          Petitioner made his trips from his home office (which
     we have held to be the principal place of business with
     respect to his rental activities) to his rental properties
     for a business purpose, i.e., to carry out management duties
     at those properties. We see no reason why the rule that
     local transportation expenses incurred in travel between one
     business location and another are deductible should not be
     equally applicable where the taxpayer’s principal place of
     business with respect to the activities involved is his
     residence. * * *

Id. at 777-778 (citations omitted).     According to the terms of

this judicially created home office exception, the taxpayer’s

residence must qualify as the taxpayer’s “principal place of

business”, and we have consistently equated the “principal place

of business” requirement for the home office exception with the

“principal place of business” requirement under section 280A.

See Walker v. Commissioner, 101 T.C. 537, 546 (1993); Curphey v.

Commissioner, supra at 777.    Consequently, although petitioner

did not claim a deduction for the business use of his residence

pursuant to section 280A(c)(1), we nonetheless must consider

whether petitioner’s office in his residence qualifies as his

principal place of business under that statute.
                               - 17 -

     Section 280A(a) provides that, as a general rule, no

deduction is allowed with respect to the taxpayer’s residence.

Section 280A(c)(1) provides several exceptions to that general

rule:

     Subsection (a) shall not apply to any item to the extent
     such item is allocable to a portion of the dwelling unit
     which is exclusively used on a regular basis--

               (A) as the principal place of business for any
          trade or business of the taxpayer,

               (B) as a place of business which is used by
          patients, clients, or customers in meeting or dealing
          with the taxpayer in the normal course of his trade or
          business, or

               (C) in the case of a separate structure which is
          not attached to the dwelling unit, in connection with
          the taxpayer’s trade or business.

     * * * For purposes of subparagraph (A), the term “principal
     place of business” includes a place of business which is
     used by the taxpayer for the administrative or management
     activities of any trade or business of the taxpayer if there
     is no other fixed location of such trade or business where
     the taxpayer conducts substantial administrative or
     management activities of such trade or business.

Where a taxpayer’s business is conducted in part at the

taxpayer’s residence and in part at another location, the Supreme

Court has held that there are two primary considerations in

deciding whether the home office qualifies as the taxpayer’s

principal place of business:   (1) The relative importance of the

functions or activities performed at each location; and (2) the

time spent at each location.   Commissioner v. Soliman, 506 U.S.
                              - 18 -

168, 175-177 (1993); Strohmaier v. Commissioner, supra at

111-112.

     Since the Supreme Court’s decision in Soliman, Congress has

added the flush language following section 280A(c)(1)(C) to

expand the scope of the home office deduction.   That flush

language was intended to permit taxpayers who manage business

activities from their homes to claim a home office deduction even

if they would not qualify under the Soliman standard.6   However,


     6
      The House report accompanying the amendment explained its
purpose as follows:

          The Committee believes that the Supreme Court’s
     decision in Soliman unfairly denies a home office deduction
     to a growing number of taxpayers who manage their business
     activities from their homes. Thus, the statutory
     modification adopted by the Committee will reduce the
     present-law bias in favor of taxpayers who manage their
     business activities from outside their home, thereby
     enabling more taxpayers to work efficiently at home, save
     commuting time and expenses, and spend additional time with
     their families. Moreover, the statutory modification is an
     appropriate response to the computer and information
     revolution, which has made it more practical for taxpayers
     to manage trade or business activities from a home office.

           *      *       *       *       *        *        *

          Section 280A is amended to specifically provide that a
     home office qualifies as the “principal place of business”
     if (1) the office is used by the taxpayer to conduct
     administrative or management activities of a trade or
     business and (2) there is no other fixed location of the
     trade or business where the taxpayer conducts substantial
     administrative or management activities of the trade or
     business. As under present law, deductions will be allowed
     for a home office meeting the above two-part test only if
     the office is exclusively used on a regular basis as a place
     of business by the taxpayer * * *
                                - 19 -

Congress did not change the requirement that, in order to qualify

as the principal place of business, the home office must be

regularly and exclusively used for business purposes.    The

exclusive-use requirement in section 280A(c)(1) is an “all-or-

nothing” standard.   Hamacher v. Commissioner, 94 T.C. 348, 357

(1990).

     Our first consideration is whether petitioner’s residence is

his principal place of business, a prerequisite for qualification

under the home office exception.    Petitioner stored tools in a

shed at his residence, used the telephone in his office in his

residence to contact building supply stores, and used his desktop

computer in his office to research parts for building houses and

to keep track of his billing.    Petitioner, however, offered no

testimony or other evidence that he used the office in his

residence exclusively for his business.    Although Ms. Pannepacker

testified that she did not use the office at all during regular

business hours, she did not include in her testimony anything

regarding her use of it during evenings or weekends.    Petitioner

did testify that he used a separate storage shed exclusively for

his business, and Ms. Pannepacker confirmed petitioner’s

testimony on that point.   It is clear from petitioner’s arguments



H. Rept. 105-148, at 407 (1997), 1997-4 C.B. (Vol. 1) 319, 729;
see also H. Conf. Rept. 105-220, at 464 (1997), 1997-4 C.B. (Vol.
2) 1457, 1934.
                               - 20 -

about the storage shed, and his direct examination of Ms.

Pannepacker on that subject, that he understood the importance of

exclusive use.   Nonetheless, he failed to offer any testimony or

other evidence that he used his home office exclusively for his

business.

     Petitioner also argues that his use of the storage shed

exclusively for business entitles him to deduct his commuting

expenses.   Although deductions are allowed for separate

structures used in connection with the taxpayer’s business,

pursuant to section 280A(c)(1)(C), the use of such separate

structures for business does not qualify the taxpayer’s residence

as his principal place of business.     The term “principal place of

business” is set forth in section 280A(c)(1)(A) and the flush

language following section 280A(c)(1)(C) that, by its terms,

clarifies only section 280(c)(1)(A).    Accordingly, petitioner’s

exclusive use of his storage shed does not make his residence his

principal place of business.

     Petitioner has the burden of proof on the home office

exception, yet he has failed to produce testimony or documentary

evidence that he used his home office exclusively for business

purposes.   Accordingly, we conclude that petitioner has not shown

that his residence was his principal place of business.

Consequently, we hold that petitioner is not entitled to deduct

his commuting expenses under the first exception.    See Strohmaier
                              - 21 -

v. Commissioner, 113 T.C. at 114 (“Since petitioner’s residence

was not his ‘principal place of business’, it follows that the

expenses relating to the disallowed mileage for each year

constitutes commuting expenses that are not deductible.”); see

also Romer v. Commissioner, T.C. Memo. 2001-168 (holding that

because the taxpayer’s residence did not qualify as his principal

place of business under section 280A(c)(1)(A), he was not

entitled to deduct travel expenses to and from his home); Beale

v. Commissioner, T.C. Memo. 2000-158 (same).

     Petitioner relies on Walker v. Commissioner, 101 T.C. 537

(1993), to argue that his travel expenses between his home and

his worksites are deductible under the home office exception even

if his home does not qualify as his “principal place of

business”.   The revenue ruling in effect at the time we decided

Walker was Rev. Rul. 90-23, 1990-1 C.B. 28, which allowed a

taxpayer to deduct expenses traveling between a “regular place of

business” and a “temporary work location”.   In Walker, we

interpreted “regular place of business” under Rev. Rul. 90-23,

supra, to include a taxpayer’s residence even though his

residence did not qualify as his “principal place of business”

under section 280A(c)(1).   We held that the “regular place of

business” standard employed by the Commissioner in Rev. Rul. 90-

23, supra, was a less exacting standard than the “principal place

of business” standard adopted in our prior cases.   Id. at 548.
                                - 22 -

We treated the Commissioner’s use of the “regular place of

business” standard as a concession that effectively expanded the

scope of the home office exception.      Id. at 550.   The IRS never

acquiesced to our interpretation of “regular place of business”,

and both Rev. Rul. 94-47, 1994-2 C.B. 18, and Rev. Rul. 99-7,

1999-1 C.B. 361, explicitly exclude a taxpayer’s residence from

what is considered a “regular work location”.     In Strohmaier v.

Commissioner, supra at 114, we made it clear that our holding in

Walker was limited to the “regular place of business” standard

under Rev. Rul. 90-23, supra.    In Strohmaier, we held that after

Rev. Rul. 90-23, supra, was superseded by Rev. Rul. 94-47, supra,

the home office exception remained limited to instances in which

the taxpayer’s residence qualifies under section 280A(c)(1) as

the taxpayer’s “principal place of business”.      Id.   Accordingly,

we decline to accept petitioner’s argument that our holding in

Walker permits him to deduct transportation expenses between his

residence and his worksites.

           2.   The Temporary Distant Worksite Exception

     The temporary distant worksite exception is also rooted in

caselaw.   In Schurer v. Commissioner, 3 T.C. 544 (1944), we held

that the taxpayer was entitled to deduct travel and lodging

expenses stemming from a series of temporary worksites at which

the taxpayer worked during the year, all of which were distant

from the taxpayer’s residence.    Our decision in that case was
                              - 23 -

based, in part, on the fact that the taxpayer had no principal

place of business during the tax year.   See also Leach v.

Commissioner, 12 T.C. 20 (1949).   The IRS acquiesced to our

decision in Schurer and later issued Rev. Rul. 190, 1953-2 C.B.

303, which stated that when an employee “is employed for a

strictly temporary (as distinguished from an indefinite) period

on a construction project situated at a distance from the

metropolitan area in which he is regularly employed, he may

deduct * * * his actual expenses incurred for daily

transportation between his principal or regular place of

employment and such job”.

     Originally, when courts decided whether transportation

expenses were nondeductible commuting expenses, they focused only

on the nature of the job:   whether it was of temporary or

indefinite duration.   In Peurifoy v. Commissioner, 358 U.S. 59,

60 (1958), the Supreme Court summarized the law as follows:

     Generally, a taxpayer is entitled to deduct unreimbursed
     travel expenses under this subsection only when they are
     required by “the exigencies of business.” * * *

          To this rule, however, the Tax Court has engrafted an
     exception which allows a deduction for expenditures of the
     type made in this case when the taxpayer’s employment is
     “temporary” as contrasted with “indefinite” or
     “indeterminate.” * * *

However, over the years, a number of courts added an additional

requirement that the temporary worksite had to be distant from

the area where the taxpayer lives and normally works.   See Dahood
                              - 24 -

v. United States, 747 F.2d 46, 48 (1st Cir. 1984); Kasun v.

United States, 671 F.2d 1059, 1061 (7th Cir. 1982); Epperson v.

Commissioner, T.C. Memo. 1985-382.     The Court of Appeals for the

First Circuit explained the reasoning underlying the temporary

distant worksite exception as follows:

          A judicial exception has been carved out of this
     general rule [that commuting expenses are nondeductible] to
     cover instances when people commute long distances to their
     workplaces for business, rather than personal, reasons.
     This exception permits taxpayers to deduct commuting
     expenses to a job that is temporary, as opposed to
     indefinite, in duration. The exception has been deemed
     necessary because “it is not reasonable to expect people to
     move to a distant location when a job is foreseeably of
     limited duration.” Implicit in this exception is the
     requirement that the taxpayer commute to a worksite distant
     from his or her residence. Without such a requirement, the
     absurd result would obtain of permitting a taxpayer, who
     commuted to a succession of temporary jobs, to deduct
     commuting expenses, no matter how close these jobs were to
     his residence.

Dahood v. United States, supra at 48 (citations omitted).

     Consistent with the holdings of similar cases, the IRS has

memorialized the temporary distant worksite exception in Rev.

Rul. 99-7, 1999-1 C.B. at 361, which states:     “A taxpayer * * *

may deduct daily transportation expenses incurred in going

between the taxpayer’s residence and a temporary work location

outside the metropolitan area where the taxpayer lives and

normally works.”   The revenue ruling defines a temporary work

location as one that “is realistically expected to last (and does

in fact last) for 1 year or less”.     Id.   Neither Rev. Rul. 99-7,
                              - 25 -

supra, nor any of its predecessors7 defines the term

“metropolitan area”.   The revenue ruling does not explain the

rationale for the temporary distant worksite exception.   However,

as we read the revenue ruling, on the basis of the caselaw cited

above, the revenue ruling recognizes that taxpayers whose work

consists of many temporary worksites might not always have a

choice about the location of those worksites.   Although the

taxpayer’s choices about where to live and where to “normally

work” are personal and it is assumed the taxpayer will live near

the place of employment, it is unreasonable to expect that a

taxpayer will move to a distant location for a temporary job.

See Kasun v. United States, supra at 1061.    The taxpayer’s choice

to take a temporary job at a remote location is therefore

dictated by business needs more than personal preference.

     Petitioner contends that because he lived in Cherry Hill,

New Jersey, and most of his worksites were across the State line

in Pennsylvania, those worksites were temporary work locations

not within his “metropolitan area”.    Because “metropolitan area”

is not defined in any revenue ruling, petitioner argues that we

should refer to the Office of Management and Budget (OMB) for a

definition of “metropolitan”, which petitioner contends is an

urban area with more than 50,000 people.   However, petitioner is


     7
      Rev. Rul. 94-47, 1994-2 C.B. 18; Rev. Rul. 90-23, 1990-1
C.B. 28; Rev. Rul. 190, 1953-2 C.B. 303.
                               - 26 -

mistaken about how the OMB defines “metropolitan area”.      The OMB

defines a “metropolitan statistical area” or a “micropolitan

statistical area” as “an area containing a recognized population

nucleus and adjacent communities that have a high degree of

integration with that nucleus.”    Standards for Defining

Metropolitan and Micropolitan Statistical Areas, 65 Fed. Reg.

82,228 (Dec. 27, 2000).    A metropolitan statistical area is

distinguished from a micropolitan statistical area by having a

population core of at least 50,000.     However, petitioner’s

reference to the definitions used by the OMB does not support his

contention because, as defined by the OMB, petitioner’s residence

in Cherry Hill, New Jersey, and all of his temporary worksites

are part of the Philadelphia-Camden-Wilmington Metropolitan

Statistical Area.    See Office of Mgmt. & Budget, Exec. Office of

the President, OMB Bull. No. 06-01, Update of Statistical Area

Definitions and Guidance on Their Uses (2005).

     Nonetheless, we decline to adopt any such rigid definition

for deciding when a taxpayer’s temporary worksites take him

“outside the metropolitan area where the taxpayer lives and

normally works.”    Adopting such a rigid definition would

inevitably lead to some absurd results.     In some situations, a

rigid definition would disallow the deduction of travel expenses

that should be permitted.    The metropolitan statistical areas

(MSAs) defined by the OMB are often quite large, such as the
                               - 27 -

Philadelphia-Camden-Wilmington MSA.     A taxpayer who lives and

normally works near the outskirts of one MSA may normally drive

only 5 miles to and from worksites.     However, if that taxpayer

accepts work at a temporary worksite on the opposite end of the

MSA, but still within the MSA, the taxpayer could end up driving

as much as 100 miles each way yet not be able to deduct such

transportation expenses because the worksite is still within the

MSA.

       In other situations, such a rigid definition would allow

commuting expense deductions that should not be permitted.      For

instance, a taxpayer may live on the border of two MSAs.       If that

taxpayer normally has worksites in one MSA and only occasionally

has worksites in the other MSA, the taxpayer would be permitted

to deduct the expenses incurred in traveling to the worksites in

the second MSA even if the distance traveled were no greater than

that normally traveled when working at worksites in the first

MSA.    Accordingly, employing rigid definitions would frustrate

the intent of the primary principle that commuting expenses are

nondeductible.

       Indeed, we conclude that respondent’s use of the term

“metropolitan area” is not helpful for answering the question of

whether petitioner’s travel expenses are deductible under the
                             - 28 -

temporary distant worksite exception.8   Instead, we will evaluate

the facts and circumstances to decide whether the travel expenses

in question were incurred in traveling to a worksite unusually

distant from the area where petitioner lives and normally works.

Such an approach is consistent with the approach historically

taken by a number of other courts.    See Ellwein v. United States,

778 F.2d 506, 511 (8th Cir. 1985) (holding that it was necessary

to consider whether the taxpayer’s temporary worksites were

within the “work area” of the city that was the taxpayer’s tax

home); Dahood v. United States, 747 F.2d at 48 (for commuting

expenses to a temporary worksite to be deductible, that temporary

worksite must be “distant from * * * [the taxpayer’s]

residence”); Frederick v. United States, 603 F.2d 1292, 1295 (8th

Cir. 1979) (commuting expenses to a temporary worksite “a

considerable distance” from the taxpayer’s residence were

deductible).

     As the maps introduced by respondent at trial show,

petitioner’s residence in Cherry Hill, New Jersey, is

approximately 10 miles east of Philadelphia.   Most of


     8
      We are not bound by revenue rulings, and we evaluate them
based on the “power to persuade” standard articulated by the
Supreme Court in Skidmore v. Swift & Co., 323 U.S. 134 (1944).
See Taproot Admin. Servs., Inc. v. Commissioner, 133 T.C. 202,
208-209 (2009); PSB Holdings, Inc. v. Commissioner, 129 T.C. 131,
142 (2007). Under that standard, the weight we give revenue
rulings “depends upon their persuasiveness and the consistency of
the Commissioner’s position over time.” Taproot Admin. Servs.,
Inc. v. Commissioner, supra at 209.
                               - 29 -

petitioner’s worksites during the years in issue were in

Philadelphia or its suburbs to the north.     Petitioner had five

worksites that were 20.1, 15.7, 15.0, 14.7, and 4.0 miles from

his residence.   Consequently, it was petitioner’s normal practice

during the years in issue to travel about 15 miles from his

residence to a worksite.   There was nothing unusual about those

trips.   Even the worksite that was farthest from petitioner’s

residence was still within the city limits of Philadelphia.

Given that four out of five of petitioner’s worksites during the

years in issue were in either Philadelphia or its suburbs to the

north, we conclude that those areas are the areas where

petitioner normally worked.   Accordingly, we hold that he was not

entitled to deduct travel expenses incurred in driving between

his residence and those worksites.      See Aldea v. Commissioner,

T.C. Memo. 2000-136 (holding that, because it was the taxpayer’s

personal choice to live outside the area where most of her

temporary worksites were located, she was not entitled to deduct

her commuting expenses).   Consequently, we conclude that

petitioner is not eligible to deduct his commuting expenses under

the temporary distant worksite exception.

           3.    The Regular Work Location Exception

     Unlike the first two exceptions, the regular work location

exception is not rooted in caselaw.     Rather, the regular work

location exception was originally articulated by the Commissioner
                              - 30 -

in Rev. Rul. 90-23, supra.   The current version of the regular

work location exception is found in Rev. Rul. 99-7, 1999-1 C.B.

at 362, which states:   “If a taxpayer has one or more regular

work locations away from the taxpayer’s residence, the taxpayer

may deduct daily transportation expenses incurred in going

between the taxpayer’s residence and a temporary work location in

the same trade or business, regardless of the distance.”   Rev.

Rul. 99-7, supra, does not define “regular work location”.

However, Rev. Rul. 90-23, 1990-1 C.B. at 28, defines “regular

place of business” as “any location at which the taxpayer works

or performs services on a regular basis.”    We infer that the same

definition should apply to “regular work location” under Rev.

Rul. 99-7, supra, except that a “regular work location” may not

include the taxpayer’s residence.   We also infer that, because

“regular work location” is contrasted with “temporary work

location”, the two are mutually exclusive.

     Rev. Rul. 90-23, 1990-1 C.B. at 29, explains the rationale

for the regular work location exception by analogy to Rev. Rul.

190, supra:

          A taxpayer who pays or incurs daily transportation
     expenses on trips between the taxpayer’s residence and one
     or more regular places of business is like the taxpayer
     described in Rev. Rul. 190 who pays or incurs daily
     transportation expenses on trips between the taxpayer’s
     residence and temporary work sites within the metropolitan
     area that is considered the taxpayer’s regular place of
     business. Such daily transportation expenses are
     nondeductible commuting expenses. On the other hand, a
     taxpayer who has one or more regular places of business and
                                 - 31 -

     who pays or incurs daily transportation expenses for trips
     between the taxpayer’s residence and temporary work
     locations is like the taxpayer described in Rev. Rul. 190
     who pays or incurs deductible daily transportation expenses
     for trips between the taxpayer’s residence and temporary
     work sites outside the metropolitan area that is considered
     the taxpayer’s regular place of business. Thus, for a
     taxpayer who has one or more regular places of business,
     daily transportation expenses paid or incurred in going
     between the taxpayer’s residence and temporary work
     locations are deductible business expenses under section
     162(a) of the Code regardless of the distance.

We do not follow the Commissioner’s reasoning.   It is unclear why

the Commissioner considers analogous the situation where a

taxpayer travels between the taxpayer’s residence and a distant

temporary work location and the situation where the taxpayer has

one or more regular work locations and travels between the

taxpayer’s residence and a nearby temporary work location.   The

exception would be logical if it were limited to distant

temporary work locations.   However, as it stands, the regular

work location exception reaches a result similar to what the

Court of Appeals for the First Circuit labeled “absurd” when it

held that there was an implicit requirement that, in order for

travel expenses between a taxpayer’s residence and a temporary

work location to be deductible, the temporary work location must

be distant from the taxpayer’s residence.   See Dahood v. United

States, supra at 48.   Nonetheless, we will treat the regular work

location exception as a concession by the Commissioner.9


     9
      Similarly, in Walker v. Commissioner, 101 T.C. 537, 550
(1993), we treated as a concession another portion of Rev. Rul.
                               - 32 -

     In the instant case, petitioner’s only work locations during

the years in issues were worksites where he performed

renovations.   All of those worksites were temporary as defined in

Rev. Rul. 99-7, supra, and petitioner has not shown that he had

other, regular work locations.10   Accordingly, petitioner has not

established facts that would qualify him for respondent’s

concession.    Consequently, we conclude that petitioner is not

entitled to deduct his commuting expenses under the regular work

location exception.

     Because petitioner has failed to qualify under any of the

three exceptions, we hold that his expenses in traveling between

his worksites and his residence were nondeductible commuting

expenses.

     4.     Other Travel Expense Deductions

     Petitioner contends that his travel between his residence

and his worksites should not be considered commuting because he

was carrying his tools in his pickup truck.    However, the Supreme

Court rejected a similar argument made by the taxpayer in Fausner



90-23, 1990-1 C.B. 28, that was inconsistent with our precedent
but that was a concession in favor of the taxpayer.
     10
      We reject petitioner’s contention that his storage shed,
his car, the bank, and various building supply stores should be
considered regular work locations. Petitioner has not
established that he “[worked] or [performed] services on a
regular basis” at any of those locations. See Rev. Rul. 90-23,
1990-1 C.B. 28.
                              - 33 -

v. Commissioner, 413 U.S. at 839.   In that case, the taxpayer was

an airline pilot who argued that his commuting expenses were

deductible because he used his automobile to transport the bags

he needed for his job.   Id. at 838.   The Supreme Court rejected

the taxpayer’s argument but left open the possibility that a

taxpayer could allocate expenses between the necessary costs for

commuting and additional costs that might be incurred to

transport job-related tools and materials.    Id. at 839.

     After Fausner, the IRS published Rev. Rul. 75-380, 1975-2

C.B. 59, stating that a taxpayer was entitled to deduct the cost

of “transporting the work implements by the mode of

transportation used in excess of the cost of commuting by the

same mode of transportation without the work implements.”

However, petitioner did not provide any evidence that would allow

us to decide what excess commuting expenses, if any, might be

attributable to transporting his tools to and from his worksites.

Because “any traveling expense” under section 162 is subject to

the strict substantiation requirements of section 274(d), the

Cohan doctrine does not apply, and we therefore will not estimate

the amount of any additional deductible commuting expenses

petitioner may have incurred by transporting his tools.11


     11
      We reject petitioner’s argument that the strict
substantiation requirements of sec. 274(d) do not apply because
petitioner’s cars were trucks, not passenger automobiles, and
therefore were not listed property under sec. 280F(d)(4). Sec.
                              - 34 -

Accordingly, we will not allow petitioner any deduction for the

transportation of his tools to his worksites.

     Petitioner contends that, even if he is not entitled to

deduct his commuting expenses, he should still be entitled to

deduct his expenses for short errands to pick up materials at

building supply stores.   Respondent acknowledges that such travel

expenses would be deductible but contends that petitioner failed

to supply evidence documenting his alleged trips.   In his brief,

petitioner contends that we may ascertain how many trips he made

to building supply stores by examining his debit card purchases

and calculating the distances from his worksites to those

building supply stores.   However, petitioner did not provide

sufficient evidence for us to link those trips to particular

worksites.   Because expenses for listed property and “any



280F(d)(5) defines a “passenger automobile” as “any 4-wheeled
vehicle * * * manufactured primarily for use on public streets,
roads and highways, and * * * rated at 6,000 pounds unloaded
gross vehicle weight or less.” In the case of a truck or van,
the vehicle will be considered a passenger automobile if the
gross vehicle weight is 6,000 pounds or less. The record does
not contain any evidence regarding the gross vehicle weight of
his Ford Explorer and Toyota Tundra, but we note that such
vehicles are commonly used passenger automobiles. Moreover, the
regulations specifically state that the substantiation
requirements of sec. 274(d) “apply generally to any pickup truck
or van, unless the truck or van has been specially modified with
the result that it is not likely to be used more than a de
minimis amount for personal purposes.” Sec. 1.274-5T(k)(7),
Temporary Income Tax Regs., 50 Fed. Reg. 46035 (Nov. 6, 1985).
Petitioner has not contended, and the record does not support a
finding, that his pickup truck was so modified.
                               - 35 -

traveling expense” under section 162 are subject to the strict

substantiation requirements of section 274(d), the Cohan doctrine

does not apply, and we therefore cannot estimate the amounts of

such expenses.    Moreover, petitioner was also performing

renovation and constructing an addition on his own residence

during the years in issue, and it is impossible for us to

determine from his debit card transactions whether purchases at

building supply stores were for his own residence or for his

business.    Accordingly, we conclude that petitioner has failed to

prove that he is entitled to deduct expenses related to trips

from his worksites to building supply stores.

     Finally, respondent also acknowledges that petitioner would

be entitled to deduct travel expenses between different temporary

worksites, but petitioner testified that he typically worked at

one worksite for several months at a time before moving on to

another worksite.    Accordingly, petitioner has failed to show

that he made any such trips.

     In sum, we hold that petitioner is not entitled to deduct

any transportation expenses during the years in issue.

     B.     Depreciation Expenses

     In order to be entitled to a deduction for depreciation with

respect to an automobile, a taxpayer must establish that the

automobile was used at least partially for business, and the

deduction will be allowed only to the extent of business use.
                                - 36 -

Sec. 167(a); Henry Schwartz Corp. v. Commissioner, 60 T.C. 728,

744 (1973).    An automobile is listed property under section

280F(d)(4) and is therefore subject to the strict substantiation

requirements of section 274(d) and the regulations thereunder.

Those regulations also require strict substantiation with respect

to depreciation expenses on listed property.    Sec. 1.274-5T(a),

Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).12

In order to deduct depreciation on listed property, the taxpayer

must strictly substantiate the percentage of business use, and we

will not estimate the appropriate allocation using the Cohan

rule.     See Sowards v. Commissioner, T.C. Memo. 2003-180; Vaksman

v. Commissioner, T.C. Memo. 2001-165, affd. 54 Fed. Appx. 592

(5th Cir. 2002); Bishop v. Commissioner, T.C. Memo. 2001-82;

Yecheskel v. Commissioner, T.C. Memo. 1997-89, affd. without

published opinion 173 F.3d 427 (4th Cir. 1999); Whalley v.

Commissioner, T.C. Memo. 1996-533.

     As we concluded above, most of petitioner’s claimed business

use of his automobile was actually for commuting, a nondeductible


     12
      Sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg.
46014 (Nov. 6, 1985), provides:

     For taxable years beginning on or after January 1, 1986, no
     deduction or credit shall be allowed with respect to * * *
     listed property * * * unless the taxpayer substantiates each
     element of the expenditure * * *. This limitation
     supersedes the doctrine found in Cohan v. Commissioner
     * * *. For purposes of this section * * * the term
     “expenditure” means expenses and items (including items such
     as loss and depreciation).
                               - 37 -

personal expense.   Petitioner provided no evidence regarding any

other use of his vehicle that would satisfy the substantiation

requirements of section 274(d).   Accordingly, we hold that he is

not entitled to deduct any depreciation on his automobile.13

     On his 2006 tax return, petitioner claimed a $400 deduction

for depreciation of his tools.    However, he did not explain how

he determined that he was entitled to such a deduction.   On

brief, he contends that $3,200 is a reasonable value for his

tools and that he should be entitled to deduct them using

straight-line depreciation over 4 years.   Petitioner contends

that we should employ the Cohan rule and estimate the amount of

depreciation to which he is entitled.

     The cost of tools with useful lives greater than a year is

recoverable by depreciation.   Secs. 167(a), 168(b); Seawright v.



     13
      At trial, petitioner attempted to introduce an incomplete,
unsigned portion of his 2004 tax return for the purpose of
showing that he put his Ford Explorer into service during 2003.
We sustained respondent’s objection to that exhibit and did not
admit it into evidence. Petitioner argues, in a separate motion,
that we erred in refusing to admit that exhibit. Even if that
exhibit were admitted, petitioner would not be allowed to
depreciate his Ford Explorer. Accordingly, we will deem
petitioner’s motion moot. Similarly, we will deem moot
petitioner’s motion to admit a portion of his 2007 tax return,
which he contends should be admitted to show that the IRS did not
object to deductions he claimed for commuting expenses during
2007. Whether the IRS examined petitioner’s return for his 2007
tax year is irrelevant to our decision in the instant case.
Respondent is not estopped from asserting a different position in
the years in issue even if he accepted petitioner’s treatment of
certain items during other years. See Rose v. Commissioner, 55
T.C. 28, 32 (1970).
                                - 38 -

Commissioner, 117 T.C. 294, 305 (2001).      Petitioner offered no

testimony or other evidence regarding the date on which he

purchased the tools.     Since he testified that the records

regarding their purchase were destroyed in 2003, we infer that

they were purchased some time before then.      Petitioner failed to

offer any evidence that the cost of his tools were not already

fully depreciated by 2005 and 2006.      Without more evidence, we

are unable to estimate the amount of depreciation to which

petitioner is entitled.14    See Vanicek v. Commissioner, 85 T.C.

at 743.

     Although he did not claim it on his return, petitioner

contends that he should also be allowed to depreciate the cost of

the toolshed that he used exclusively to store his tools for

work.     However, petitioner produced no evidence to substantiate

the amount he spent on the toolshed, nor did he indicate when he

purchased it.     He merely guessed what it was worth.

Accordingly, we conclude that petitioner has failed to produce




     14
      At trial, in order to provide a basis for estimating the
value of his tools, petitioner attempted to introduce a price
quote on similar tools. He obtained the price quote from Home
Depot during April 2008. We sustained respondent’s objection and
did not admit the price quote into evidence. Petitioner now
moves that we reconsider that ruling. However, even if we were
to admit petitioner’s price quote, we would still disallow
petitioner’s claim for depreciation of his tools because he
introduced no evidence regarding when he purchased those tools.
Accordingly, we will deem petitioner’s motion moot.
                                  - 39 -

evidence that would allow him to claim depreciation on the

toolshed.    See id.

     C.      Legal Expenses

     A taxpayer is entitled to deduct expenses for legal fees

pursuant to section 162(a) in a suit that “arises in connection

with” the taxpayer’s business.       United States v. Gilmore, 372

U.S. 39, 48 (1963); Kornhauser v. United States, 276 U.S. 145,

153 (1928); O’Malley v. Commissioner, 91 T.C. 352, 361-362

(1988).     A taxpayer is even permitted to deduct legal expenses

from a criminal matter, as long as the criminal matter is

sufficiently connected to the taxpayer’s business.      See

Commissioner v. Tellier, 383 U.S. 687 (1966).       The deductibility

of legal expenses is determined by looking at the “origin and

character of the claim with respect to which an expense was

incurred”.     United States v. Gilmore, supra at 49.

     Petitioner’s testimony established that his legal expenses

were incurred during several contract disputes, including one

that led to his arrest.       Those disputes arose in connection with

his business as an independent building contractor.      We are

satisfied by petitioner’s and Ms. Pannepacker’s testimony

regarding the origin and character of those expenses.      We are

also satisfied that, although the canceled checks provided by

petitioner to substantiate the majority of those expenses were

written by Ms. Pannepacker, they were written on a bank account
                               - 40 -

containing petitioner’s funds.   However, petitioner’s claimed

deduction of $800 in legal fees paid during 2003 cannot be

deducted on his 2005 return.   See Burke v. Commissioner, 32 T.C.

775, 782 (1959) (a cash basis taxpayer’s legal fees could be

deducted only in the years during which they were actually paid,

not in subsequent years), affd. 283 F.2d 487 (9th Cir. 1960); see

also Dehoney v. Commissioner, T.C. Memo. 2006-108.   Accordingly,

we conclude that petitioner is entitled to deduct only the legal

fees he has substantiated, i.e., $398 for 2005 and $1,423 for

2006.

     D.    Office Expenses

     Section 262(a) generally disallows deductions for personal

expenses, and section 262(b) provides that the first telephone

line of a taxpayer’s residence will be treated as a personal

expense.   Accordingly, we conclude that petitioner is not

entitled to deduct the cost of his landline telephone.

     Cellular phones15 and computers are listed items under

section 280F(d)(4) and are therefore subject to the heightened

substantiation requirements of section 274(d).16   Petitioner did


     15
      As noted above, for tax years beginning after Dec. 31,
2009, cellular phones are no longer “listed property” under sec.
280F(d)(4).
     16
      Because we have found that no portion of petitioner’s
residence qualified as his principal place of business under sec.
280A(c)(1), we reject petitioner’s argument that his computer
qualifies for the exception under 280F(d)(4)(B), which provides
                                - 41 -

not provide any testimony or other evidence regarding the extent

of his business use of his cellular phone or computer.

Accordingly, he has not satisfied the strict substantiation

requirements under section 274(d), and respondent’s disallowance

of those expenses will be sustained.

     The Court has characterized Internet service provider

expenses as utility expenses.    Verma v. Commissioner, T.C. Memo.

2001-132.   Strict substantiation therefore does not apply, and

the Court may estimate a taxpayer’s deductible expenses, provided

that the Court has a reasonable basis for making an estimate.

Vanicek v. Commissioner, supra at 743.   Petitioner provided

documentation that Ms. Pannepacker spends $33 per month on

Internet service, and he testified that he uses the Internet to

research parts and tools.   However, Ms. Pannepacker also uses the

Internet at home, presumably for recreation.

     The record before us would establish petitioner’s office

expense deduction of, at most, $16.50 per month.   However,

respondent conceded to petitioner in the notice of deficiency a

deduction of $50 per month for office expenses.    Accordingly, we

sustain respondent’s determination that petitioner is entitled to




that computers used at a regular business establishment are not
listed property. Sec. 280F(d)(4)(B) provides that any portion of
a dwelling unit will qualify as a “regular business
establishment” only if that portion of the dwelling satisfies the
requirements of sec. 280A(c)(1).
                              - 42 -

deduct only $600 per year for office expenses, not the $1,200 per

year he claimed on his returns.

     E.   Other Expenses

     As part of petitioner’s claimed “Other Expenses” on his 2005

Schedule C, he included a $1,000 expense related to a settlement

with Builder’s Prime Window (Builder’s Prime).   At some point,

Builder’s Prime billed Ms. Pannepacker approximately $2,500 for

windows that petitioner and Ms. Pannepacker testified she never

purchased.   Petitioner testified that the bill was related to

some work he was doing as general contractor, but that the

accounting department at Builder’s Prime had made an error and

billed him for windows he did not order.   Because petitioner used

a bank account in Ms. Pannepacker’s name to conduct his business,

the bill from Builder’s Prime was actually addressed to Ms.

Pannepacker, who has never bought anything from Builder’s Prime.

In addition to petitioner’s testimony and that of Ms.

Pannepacker, petitioner also provided copies of correspondence

with Builder’s Prime regarding the dispute, a canceled check

payable to Builder’s Prime with a note about settlement on the

memo line, and a settlement agreement signed by petitioner, Ms.

Pannepacker, and the president of Builder’s Prime.   The

settlement agreement also refers to the bills from another

project that petitioner explained were the source of the dispute.

Petitioner testified that he never received reimbursement for
                               - 43 -

that settlement expense from Mr. Mancino, and he also submitted a

statement from Mr. Mancino, included among the stipulated

exhibits, in which Mr. Mancino stated that he did not reimburse

petitioner for that amount.

     We are persuaded by petitioner’s evidence that the $1,000

paid to Builder’s Prime was a settlement payment that arose from

petitioner’s contracting business and that he was never

reimbursed for that payment.   Accordingly, we conclude that it is

a deductible business expense for 2005.

     Petitioner contends that he is entitled to deduct $2,200 on

his 2006 tax return for books he purchased between 2001 and 2005.

He contends that he did not deduct those expenses during prior

years because he did not begin writing seriously until 2006.    The

books purchased by petitioner consist almost entirely of popular

books that most purchasers would read for pleasure.   The record

is unclear as to whether, at the time petitioner made the

purchases, he intended to use the books as research material for

books he intended to write in the future.   Indeed, it is unclear

from the record whether petitioner had even conceived of the idea

of writing a book series when he began to purchase the books

during 2001.   In any case, because petitioner paid for the books

in prior years, he is not entitled to deduct them on his 2006

return.   See A. Finkenberg’s Sons, Inc. v. Commissioner, 17 T.C.

973, 982-983 (1951) (“Expenses incurred and paid in prior years
                               - 44 -

are not deductible in later years though incidental to earnings

in later years”).

III. Whether Petitioner Is Liable for Accuracy-Related Penalties

       Section 6662(a) imposes an accuracy-related penalty of 20

percent of any underpayment that is attributable to causes

specified in subsection (b).    Subsection (b) applies the penalty

to any underpayment attributable to, inter alia, a “substantial

understatement” of income tax, meaning that the amount of the

understatement exceeds the greater of 10 percent of the tax

required to be shown on the return for the tax year or $5,000.

Sec. 6662(d)(1)(A).

       Generally, the Commissioner bears the burden of production

with respect to any penalty, including the accuracy-related

penalty.    Sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446

(2001).    To meet that burden, the Commissioner must come forward

with sufficient evidence indicating that it is appropriate to

impose the relevant penalty.    Higbee v. Commissioner, supra at

446.    However, once the Commissioner has met the burden of

production, the burden of proof remains with the taxpayer,

including the burden of proving that the penalties are

inappropriate because of substantial authority or reasonable

cause under section 6664.    See Rule 142(a); Higbee v.

Commissioner, supra at 446-447.
                              - 45 -

     Respondent determined that petitioner was liable for the

penalty under section 6662(a) because he substantially

understated his income tax for both of the years in issue.

Section 6662(a) and (b)(2) imposes a 20-percent accuracy-related

penalty on any portion of a tax underpayment that is attributable

to any substantial understatement of income tax, defined in

section 6662(d)(1)(A) as an understatement that exceeds the

greater of 10 percent of the tax required to be shown on the

return or $5,000.   The exact amount of petitioner’s

understatement will depend upon the Rule 155 computations, which

we order below.   To the extent that those computations establish

that petitioner has a substantial understatement of income tax,

respondent has met his burden of production.     See Prince v.

Commissioner, T.C. Memo. 2003-247.

     The amount of an understatement on which the penalty is

imposed will be reduced by the portion of the understatement that

is attributable to the tax treatment of an item (1) that was

supported by “substantial authority” or (2) for which the

relevant facts were “adequately disclosed in the return or in a

statement attached to the return”.     Sec. 6662(d)(2)(B).

Additionally, no penalty will be imposed with respect to any

portion of an underpayment if it is shown that there was

reasonable cause for such portion and the taxpayer acted in good

faith with respect to such portion.     See sec. 6664(c)(1).
                             - 46 -

Petitioner has failed to show that he had substantial authority

or acted with reasonable cause and in good faith with respect to

any portion of his underpayment.   Accordingly, we hold that he is

liable for the section 6662(a) penalty insofar as the Rule 155

computations show a substantial understatement of income tax.

     In reaching the foregoing holdings, we have considered all

the parties’ arguments, and, to the extent not addressed herein,

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

     To reflect the foregoing,


                                         Decision will be entered

                                    under Rule 155.
