                               T.C. Memo. 2014-119



                         UNITED STATES TAX COURT



                  HERMANN CHERIZOL, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 811-12.                            Filed June 16, 2014.



      Hermann Cherizol, pro se.

      Jane J. Kim, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      WELLS, Judge: Respondent determined the following deficiencies in

petitioner’s Federal income tax, additions to tax pursuant to section 6651(a)(1),1


      1
      Unless otherwise indicated, section references are to the Internal Revenue
Code of 1986, as amended (Code) and in effect for the years in issue, and Rule
                                                                      (continued...)
                                         -2-

[*2] and accuracy-related penalties pursuant to section 6662(a) for his 2007, 2008,

and 2009 tax years:

                                       Addition to tax             Penalty
      Year         Deficiency          sec. 6651(a)(1)           sec. 6662(a)

      2007            $8,095               $1,699                  $1,619
      2008            10,531                 ---                    2,106
      2009            12,666                 ---                    2,533

The issues for decision are (1) whether we have jurisdiction pursuant to section

6213(a) to consider the instant case; (2) whether petitioner is entitled to deduct

expenses reported on Schedules C, Profit or Loss From Business, of $42,335,

$52,150, and $67,039 for his 2007, 2008, and 2009 tax years (years in issue),

respectively; (3) whether petitioner is entitled to deduct a capital loss carryforward

of $3,000 on Schedule D, Capital Gains and Losses, for each of the years in issue;

(4) whether petitioner is liable for an addition to tax pursuant to section 6651(a)(1)

for his 2007 tax year; and (5) whether petitioner is liable for accuracy-related

penalties pursuant to section 6662(a) for the years in issue.2


      1
       (...continued)
references are to the Tax Court Rules of Practice and Procedure. We round all
monetary amounts to the nearest dollar.
      2
      The remaining adjustments set forth in the notice of deficiency are
computational and will be resolved by our holdings on the aforementioned issues.
Consequently, we do not specifically address the remaining adjustments in this
                                                                     (continued...)
                                        -3-

[*3]                           FINDINGS OF FACT

       Some of the facts and certain exhibits have been stipulated. The parties’

stipulated facts are incorporated in this opinion by reference and are found

accordingly. At the time of filing the petition, petitioner resided in New York.

       During the years in issue petitioner was a train operator with the

Metropolitan Transportation Authority of New York City, where he typically

worked 8 hours per day and 40 hours per week. Petitioner’s commute to work was

approximately 1 hour and 20 minutes.

       During the years in issue petitioner also engaged in various activities under

an unincorporated venture that he named “Right Connections”. Petitioner’s

activities, each of which he contends should qualify as a trade or business for

Federal income tax purposes, included: (1) planning, and accompanying models

on, overnight trips to a clothing-optional beach for suntanning; (2) selling comic

books, baseball cards, and other paraphernalia; (3) creating and publishing a book

of restaurant reviews; (4) trading stocks on the Internet; and (5) consulting.




       2
       (...continued)
opinion.
                                        -4-

[*4] On January 20, 2009, respondent received petitioner’s Form 1040, U.S.

Individual Income Tax Return (tax return), for petitioner’s 2007 tax year.

Petitioner timely filed tax returns for his 2008 and 2009 tax years. On each of his

2007, 2008, and 2009 tax returns petitioner reported on Schedule C the following

expenses that petitioner claims are related to the various activities he pursued

under Right Connections:

         Schedule C expense                     2007       2008        2009

        Wages                                  $7,235     $7,600      $9,316
        Meals & entertainment                   2,700       3,100       ---
        Travel                                  4,300       5,600      6,285
        Repairs & maintenance                   1,650       2,900      4,258
        Office                                  1,850       2,800      6,325
        Legal & professional                   12,000     14,000      19,755
        Advertising                            10,500     13,100      17,800
        Cost of goods sold                      2,100       3,050      3,300
         Total                                 42,335     52,150      67,039

      Petitioner also claimed a $3,000 capital loss carryforward on Schedule D of

each of his 2007, 2008, and 2009 tax returns. On those tax returns petitioner listed

a post office box in New York (New York P.O. box) as his address.
                                         -5-

[*5] On November 3, 2011, respondent issued petitioner a notice of deficiency

for his 2007, 2008, and 2009 tax years, determining the aforementioned income

tax deficiencies, accuracy-related penalties, and addition to tax. On January 9,

2012, petitioner filed a petition with this Court challenging respondent’s

determinations. On the petition, petitioner listed the New York P.O. Box as his

address.

                                      OPINION

I.    Burden of Proof

      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
                                         -6-

[*6] proving that the taxpayer has met the requirements of section 7491(a). Rolfs

v. Commissioner, 135 T.C. 471, 483 (2010), aff’d, 668 F.3d 888 (7th Cir. 2012).

      Petitioner did not argue that the burden should shift, and he failed to comply

with the substantiation and cooperation requirements. Accordingly, the burden of

proof remains on petitioner.3

II.   Jurisdiction

      In his petition, petitioner claims that he did not receive a notice of

deficiency and contends that the case should be dismissed, presumably for lack of

jurisdiction pursuant to section 6213(a). Petitioner’s contention is without merit.

      A valid notice of deficiency and a timely petition are essential to this

Court’s jurisdiction in a deficiency case, and any case in which one or the other is

not present must be dismissed. Rule 13(a), (c); Monge v. Commissioner, 93 T.C.




      3
        We note that petitioner failed to comply with the Court’s orders to file a
posttrial brief. When a party fails to file a brief altogether, the failure has been
held by this Court to justify the dismissal of all issues as to which the nonfiling
party has the burden of proof. See Rule 123; Stringer v. Commissioner, 84 T.C.
693 (1985), aff’d without published opinion, 789 F.2d 917 (4th Cir. 1986). While
we decline to enter a default judgment against petitioner for failure to file a brief,
we view his failure as an indication of his tenuous position with regard to the
issues in question. See McGee v. Commissioner, T.C. Memo. 2000-308, 2000 WL
1434240, at *6.
                                         -7-

[*7] 22, 27 (1989); Pyo v. Commissioner, 83 T.C. 626, 632 (1984). A notice of

deficiency is valid for purposes of section 6212(a) and section 6213(a), regardless

of actual receipt by the taxpayer, if it is mailed to the taxpayer’s last known

address. Sec. 6212(b)(1); see Yusko v. Commissioner, 89 T.C. 806, 810 (1987);

King v. Commissioner, 88 T.C. 1042, 1047(1987), aff’d, 857 F.2d 676 (9th Cir.

1988); Frieling v. Commissioner, 81 T.C. 42, 52 (1983). The term “last known

address” is well defined in the tax law. A taxpayer’s last known address is the

address that appears on the taxpayer’s most recently filed and properly processed

Federal tax return unless the IRS is given clear and concise notification of a

different address. Sec. 301.6212-2(a), Proced. & Admin. Regs.

       Respondent mailed the notice of deficiency to petitioner’s New York P.O.

box, which was the same address that petitioner gave on each of his 2007, 2008,

and 2009 tax returns, as well as on his petition. Petitioner does not contend that he

gave respondent clear and concise notification of a different address. See id.

Accordingly, we conclude that petitioner’s New York P.O. box was his last known

address pursuant to section 6212 and that respondent mailed the notice of
                                         -8-

[*8] deficiency to petitioner’s last known address.4 See id. Consequently, we

decline to dismiss the instant case for lack of jurisdiction.

III.   Schedule C Expenses

       On Schedules C of his 2007, 2008, and 2009 tax returns petitioner claimed

deductions pursuant to section 162 for various expenses relating to his activities

pursued through Right Connections. Section 162(a) permits a taxpayer to deduct

the ordinary and necessary expenses paid or incurred during the taxable year in

carrying on a trade or business. See Commissioner v. Lincoln Sav. & Loan Ass’n,

403 U.S. 345, 352 (1971). In order for a taxpayer “to be engaged in a trade or

business, the taxpayer must be involved in the activity with continuity and

regularity and * * * the taxpayer’s primary purpose for engaging in the activity

must be for income or profit.” Commissioner v. Groetzinger, 480 U.S. 23, 35


       4
        We note that respondent has the burden of proving that the notice of
deficiency was properly mailed. See August v. Commissioner, 54 T.C. 1535, 1536
(1970). Sec. 6212(a) expressly authorizes the Commissioner, after determining a
deficiency, to send a notice of deficiency to the taxpayer by certified or registered
mail. Respondent presented the mailed notice of deficiency and its certified mail
number. Petitioner does not contend that there was any mailing impropriety.
Moreover, petitioner did not stipulate facts, present admissible evidence, or
otherwise contend at trial or on brief that he did not receive a notice of deficiency,
much less that there was any mailing impropriety. Accordingly, we conclude that
petitioner has conceded that the notice of deficiency was properly mailed. See
Rule 149(b); Cadwell v. Commissioner, 136 T.C. 38, 48-49 (2011), aff’d, 483 Fed.
Appx. 847 (4th Cir. 2012).
                                        -9-

[*9] (1987). An expense is ordinary if it is normal, usual, or customary within a

particular trade, business, or industry or arises from a transaction “of common or

frequent occurrence in the type of business involved.” Deputy v. du Pont, 308

U.S. 488, 495 (1940). An expense is necessary if it is appropriate and helpful for

the development of the business. See Commissioner v. Lincoln Sav. & Loan

Ass’n, 403 U.S. at 353; Commissioner v. Heininger, 320 U.S. 467, 471 (1943).

Section 262(a) disallows deductions for personal, living, or family expenses. See

also sec. 1.162-17(a), Income Tax Regs.5

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

burden of proving that he is entitled to any claimed deductions. INDOPCO, Inc.

v. Commissioner, 503 U.S. 79, 84 (1992). This includes the burden of

substantiation. Sec. 6001; Hradesky v. Commissioner, 65 T.C. 87, 89 (1975),

aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Martell v. Commissioner, T.C.

Memo. 2013-115, at *24; sec. 1.6001-1(a), (e), Income Tax Regs. Taxpayers must

maintain records relating to their income and expenses and must prove their

entitlement to all claimed deductions, credits, and expenses in controversy. See


      5
        For purposes of the instant opinion, we assume, without deciding, that
petitioner’s reported Schedule C expenses on his 2007, 2008, and 2009 tax
returns, insofar as they are properly substantiated, are trade or business expenses
pursuant to sec. 162.
                                       - 10 -

[*10] sec. 6001; Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. at 84;

Welch v. Helvering, 290 U.S. at 115. Adequate substantiation must establish the

nature, amount, and purpose of a claimed deduction. Higbee v. Commissioner,

116 T.C. 438, 440 (2001); see also Hradesky v. Commissioner, 65 T.C. at 89-90.

The taxpayer must produce such records upon the Secretary’s request. Sec.

7602(a); see also sec. 1.6001-1(e), Income Tax Regs.

      An expense may be deductible even where the taxpayer is unable to fully

substantiate it. Christine v. Commissioner, T.C. Memo. 2010-144, 2010 WL

2640125, at *2, aff’d, 475 Fed. Appx. 259 (9th Cir. 2012). The regulations

provide that “[w]here records are incomplete or documentary proof is unavailable,

it may be possible to establish the amount of the expenditures by approximations

based upon reliable secondary sources of information and collateral evidence.”

Sec. 1.162-17(d)(3), Income Tax Regs. However, there must be sufficient

evidence in the record to provide a basis upon which an estimate may be made and

to permit us to conclude that a deductible expense, rather than a nondeductible

personal expense, was incurred in at least the amount allowed. Cohan v.

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

85 T.C. 731, 742-743 (1985); Christine v. Commissioner, 2010 WL 2640125, at

*2. In these instances, the Court is permitted to make as close an approximation
                                       - 11 -

[*11] of the allowable expense as it can, bearing heavily against the taxpayer

whose inexactitude is of his or her own making. Cohan v. Commissioner, 39 F.2d

at 543-544. In making such an approximation,

      due consideration will be given to the reasonableness of the stated
      expenditures for the claimed purposes in relation to the taxpayer’s
      circumstances (such as his income and the nature of his occupation),
      to the reliability and accuracy of records in connection with other
      items more readily lending themselves to detailed record-keeping, and
      to all of the facts and circumstances in the particular case.

Sec. 1.162-17(d)(3), Income Tax Regs. In deciding whether a taxpayer has

satisfied his or her burden of substantiating a deduction, we are not required to

accept the taxpayer’s self-serving, undocumented testimony. Niedringhaus v.

Commissioner, 99 T.C. 202, 219-220 (1992); Tokarski v. Commissioner, 87 T.C.

74, 77 (1986).

      However, certain expenses may not be estimated because of the strict

substantiation requirements of section 274(d). Sanford v. Commissioner, 50 T.C.

823, 827-828 (1968), aff’d per curiam, 412 F.2d 201 (2d Cir. 1969). Travel

expenses, meals and entertainment, and expenses relating to certain listed property

are subject to the specific and more stringent substantiation requirements of

section 274. See sec. 274(d). To deduct such expenses, the taxpayer must

substantiate by adequate records or sufficient evidence to corroborate the
                                        - 12 -

[*12] taxpayer’s own testimony: (1) the amount of the expense; (2) the time and

place of the travel or meal expenditure; (3) the business purpose of the expense;

and (4) in the case of meals and entertainment, the business relationship between

the taxpayer and the persons being entertained. Id. 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, 50 T.C. at 827-828; sec. 1.274-5T(a),

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

      To substantiate by adequate records, the taxpayer must provide (1) an

account book, log, or similar record and (2) documentary evidence, which together

are sufficient to establish each element of an expenditure. Sec. 1.274-5T(c)(2)(i),

Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985). Documentary

evidence includes receipts, paid bills, or similar evidence. Sec. 1.274-5(c)(2)(iii),

Income Tax Regs. 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, T.C. Memo. 2008-187, 2008 WL 2986387, at *4 (quoting section
                                        - 13 -

[*13] 1.274-5T(c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6,

1985)).

      To substantiate by sufficient evidence corroborating the taxpayer’s own

statement, the taxpayer must establish each element by his or her own statement

and by documentary evidence or other direct evidence. Sec. 1.274-5T(c)(3)(i),

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

the business purpose of an expenditure, however, a taxpayer may corroborate his

or her own statement with circumstantial evidence. Id.

      Petitioner claims various expense deductions on Schedules C attached to his

2007, 2008, and 2009 tax returns. We review the deductibility of each of

petitioner’s expenses in turn.

      A.     Wages

      Petitioner claimed $7,235, $7,600, and $9,316 of wage expense deductions

on Schedules C attached to his 2007, 2008, and 2009 tax returns, respectively.

Petitioner has not offered any written substantiation, testimony, or other evidence

in support of these expenses. Consequently, we conclude that petitioner has failed

to carry his burden of proving that he is entitled to the claimed deductions for

wage expenses.
                                       - 14 -

[*14] B.    Meals

      Petitioner claimed deductions for $2,700 and $3,100 of expenses related to

meals on Schedules C attached to his 2007 and 2008 tax returns, respectively.

Petitioner contends that he incurred these expenses while attempting to compile a

book of New York restaurant reviews; petitioner alleges that he paid for meals for

reviewers who would then review the dining experience. To substantiate these

expenses, petitioner submitted an unsigned sample confidentiality agreement that

he contends he used for contracts with the reviewers. The sample agreement does

not substantiate the amount, time, or place of any meals expenses. Petitioner also

submitted self-prepared spreadsheets listing total amounts spent at each restaurant

for 2007 and 2008 and sample reviews submitted by the restaurant reviewers.

None of the submitted documents indicates, on its own or when viewed with the

others, when it was created or provides enough information for us to determine

precisely what was purchased or when it was purchased. Moreover, we question

the credibility of the submitted documents because petitioner himself created the

spreadsheets and the reviewers failed to sign or otherwise authenticate the

submitted reviews. Accordingly, we do not accept any of the documents as

credible evidence of the underlying expenses and, therefore, petitioner has not
                                       - 15 -

[*15] carried his burden of proving that he is entitled to the claimed deductions for

these expenses.

      C.     Travel

      Petitioner claimed $4,300, $5,600, and $6,285 of travel expense deductions

on Schedules C attached to his 2007, 2008, and 2009 tax returns, respectively.

Travel expenses may not be estimated and are subject to the specific and more

stringent substantiation requirements of section 274. See sec. 274(d); Sanford v.

Commissioner, 50 T.C. at 827-828. Petitioner did not submit any substantiation in

support of the $6,285 of travel expense deductions claimed on his 2009 tax return.

Regarding his claimed 2007 and 2008 travel expenses, petitioner submitted (1)

self-prepared spreadsheets indicating the cost of ferry tickets and overnight tent

lodging for his travels related to the suntanning activities of Right Connections

and (2) handwritten, generic receipts documenting the cost of tent lodging, but not

ferry tickets, for his suntanning activities. As to the submitted documents, we

question their credibility because petitioner himself created the spreadsheets and

the submitted receipts were drafted on generic, rather than customized, receipt

paper and were not authenticated.6 Accordingly, we do not accept any of the

      6
       Attached to some, but not all, of the documents petitioner submitted as
substantiation are notarized statements affirming that the “aforementioned
                                                                      (continued...)
                                        - 16 -

[*16] documents as credible evidence of the underlying travel expenses.

Consequently, petitioner has failed to carry his burden of proving that he is

entitled to the claimed deductions for travel expenses.

      D.     Repairs and Maintenance

      Petitioner claimed $1,650, $2,900, and $4,258 of repair and maintenance

expense deductions on Schedules C attached to his 2007, 2008, and 2009 tax

returns, respectively. Petitioner has not offered any written substantiation,

testimony, or other evidence in support of his 2009 repair and maintenance

expenses. Regarding his 2007 and 2008 repair and maintenance expenses,

petitioner submitted two self-created job invoices for computer repair and

reconstruction. Petitioner admits that he lost the original receipts and submitted

recreated job invoices. The recreated job invoices were not contemporaneous with

any of the work and were signed by a former employee of the company that

provided the computer services, but that former employee no longer has any


      6
        (...continued)
Statements, Ledgers, Receipts, and/or Diaries are true and genuine.” However,
petitioner’s notarized statements only confirm that petitioner himself signed the
notarized statements. They do not authenticate any of the underlying documents
he created and submitted as substantiation for his expenses. Instead, we question
the contemporaneity and accuracy of petitioner’s self-created documents because
the attached notarized statements were not notarized until July 6, 2010, more than
a year after the expenses were claimed to have been incurred.
                                        - 17 -

[*17] authority to bind the company. Additionally, the former employee did not

appear at trial to authenticate the recreated job invoices. Accordingly, we do not

accept the recreated job invoices as credible substantiation of the underlying

expenses. Moreover, petitioner did not testify as to how the repair expenses were

related to his alleged business. Consequently, we conclude that petitioner has

failed to carry his burden of proving that he is entitled to the claimed deductions

for repair and maintenance expenses.

      E.     Office

      Petitioner claimed $1,850, $2,800, and $6,325 of office expense deductions

on Schedules C attached to his 2007, 2008, and 2009 tax returns, respectively.

Petitioner did not offer any written substantiation, testimony, or other evidence in

support of those expenses and, therefore, has failed to carry his burden of proving

that he is entitled to the claimed deductions.

      F.     Legal and Professional

      Petitioner claimed $12,000, $14,000, and $19,755 of legal and professional

expense deductions on Schedules C attached to his 2007, 2008, and 2009 tax

returns, respectively. Petitioner did not offer any written substantiation,

testimony, or other evidence in support of his 2009 legal and professional

expenses. Regarding his claimed 2007 and 2008 legal expenses, petitioner
                                        - 18 -

[*18] submitted a (1) self-created notice of legal expenses listing costs for court

fees and administration, costs to prepare legal documents, and costs of labor for

petitioner’s pro se representation, and (2) two self-created promissory notes in

which petitioner signed as both the payor, acting on behalf of Right Connections,

and the payee. The notice of legal expenses does not separately document each

specific court fee or document produced. Petitioner admits that his substantiation

and recollection of the legal expenses “is a little murky” and that he “probably

didn’t break down the expense properly.” Accordingly, we do not accept the

notice of legal expenses and the promissory notes as credible substantiation of the

underlying legal expenses. Consequently, we conclude that petitioner has failed to

carry his burden of proving that he is entitled to the claimed deductions for legal

and professional expenses.

      G.     Advertising

      Petitioner claimed $10,500, $13,100, and $17,800 of advertising expense

deductions on Schedules C attached to his 2007, 2008, and 2009 tax returns,

respectively. Petitioner did not offer any written substantiation, testimony, or

other evidence in support of his 2009 advertising expenses. Regarding his

claimed 2007 and 2008 advertising expenses, petitioner submitted two job

invoices, dated March 15, 2007, and April 17, 2008, for various advertising
                                        - 19 -

[*19] materials and distribution services. However, both documents lack invoice

numbers and appear to have been created by petitioner. Moreover, the alleged

invoices were signed only by petitioner and were not authenticated by a

representative of the advertising company that provided the alleged services.

Accordingly, we do not accept either invoice as credible evidence of the

underlying advertising expenses. Consequently, we conclude that petitioner has

failed to carry his burden of proving that he is entitled to the claimed deductions

for advertising expenses.

      H.     Cost of Goods Sold

      Petitioner reported $2,100, $3,050, and $3,300 of costs of goods sold on

Schedules C attached to his 2007, 2008, and 2009 tax returns, respectively.

Petitioner did not offer any written substantiation, testimony, or other evidence in

support of his 2009 cost of goods sold. Regarding his claimed 2007 and 2008

costs of goods sold, petitioner submitted self-created spreadsheets of purchases

that he made through PayPal.7 Petitioner’s submissions are not official PayPal

records, and they do not indicate account numbers, items ordered or sold, or even

seller or buyer information beyond a PayPal identification name. In fact, some of


      7
       PayPal is an Internet business wholly owned by eBay, Inc, through which
funds may be transferred between a buyer and seller.
                                        - 20 -

[*20] the sellers or buyers, such as the ones named “the finest fragrances”,

“SHOES FOR AUCTION”, and “Teahouse Treasures”, cause us to question

whether the transactions were even related to his alleged business activities

performed under the trade name Right Connections. Moreover, in the

spreadsheets petitioner seems to have haphazardly compiled both sales and

purchases, and we are unable to distinguish the ones from the others. We do not

accept petitioner’s spreadsheets as credible evidence of costs of goods sold.

Accordingly, we conclude that petitioner has failed to carry his burden of proving

that he is entitled to the claimed costs of goods sold.

      Upon the basis of the foregoing, we sustain respondent’s determinations in

the notice of deficiency that petitioner is not entitled to deduct any expenses

pursuant to section 162 on his 2007, 2008, or 2009 tax return.

IV.   Schedule D Expenses

      Section 165(a) generally permits deductions for losses sustained during the

taxable year and not compensated for by insurance or otherwise. However, capital

losses on the sale or exchange of capital assets are limited to the extent allowed

under sections 1211 and 1212. Sec. 165(f). Subject to the limitations of section

1211, taxpayers can carry forward their capital losses to succeeding taxable years.

Sec. 1212(b). Pursuant to section 1211, noncorporate taxpayers are permitted to
                                         - 21 -

[*21] deduct losses on the sale or exchange of capital assets to the extent of the

gain from such sales or exchanges, plus the lower of: (1) $3,000 ($1,500 in the

case of a married individual filing separately) or (2) the excess of such losses over

such gains. Sec. 1211(b). Section 1212(b)(1)(B) provides that the excess of the

net long-term capital loss over the net short-term capital gain is to be treated as a

long-term capital loss for the succeeding taxable year.

      To be entitled to a deduction under section 165(a), a taxpayer is required to

keep records to establish the loss. Sec. 6001. If a deduction is carried forward

from one year to another, the taxpayer must keep records to substantiate the

amount. Sec. 1.6001-1(e), Income Tax Regs. To substantiate a capital loss

carryforward, the taxpayer must show: that a loss was incurred; when the loss was

incurred; that the taxpayer is entitled to deduct the loss; whether the loss is capital

or noncapital, or business or personal; and the amount of capital gain during the

intervening years. Widemon v. Commissioner, T.C. Memo. 2004-162, 2004 WL

1559185, at *5; Meissner v. Commissioner, T.C. Memo. 1995-191, 1995 WL

243505, at *3; Aazami v. Commissioner, T.C. Memo. 1993-436, 1993 WL

369137, at *3-*4.

      Petitioner claimed a $3,000 capital loss carryforward on Schedule D of each

of his 2007, 2008, and 2009 tax returns. However, petitioner (1) offered no
                                         - 22 -

[*22] credible evidence to substantiate the capital loss carryforwards, (2) did not

address the capital loss carryforwards in his petition, in his pretrial memorandum,

or during trial, and, (3) as we previously noted, failed to submit a posttrial brief.

We treat the issue as conceded by petitioner. See Rule 149(b). In any event, we

conclude that petitioner has failed to carry his burden of substantiating the claimed

capital loss carryforwards. On the basis of the foregoing, we sustain respondent’s

determinations in the notice of deficiency that petitioner is not entitled to deduct

any capital loss carryforward on his 2007, 2008, or 2009 tax return.

V.    Additions to Tax

      For petitioner’s 2007 tax year, respondent determined that petitioner is

liable for the addition to tax pursuant to section 6651(a)(1) for his failure to timely

file a Federal income tax return.

      Section 6651(a)(1) provides that, in the case of a failure to file a tax return

on the date prescribed for filing (including any extension of time for filing), there

shall be added to the tax required to be shown on the return an amount equal to 5%

of that tax for each month or fraction thereof that the failure to file continues, not

exceeding 25% in the aggregate. The addition to tax is mandatory unless it is

shown that the failure to file is due to reasonable cause and not willful neglect.

Sec. 6651(a)(1); Estate of Cavenaugh v. Commissioner, 100 T.C. 407, 426 (1993),
                                        - 23 -

[*23] aff’d in part, rev’d in part on other grounds, 51 F.3d 597 (5th Cir. 1995).

Reasonable cause for delay is established where a taxpayer is unable to file despite

the exercise of ordinary business care and prudence. Bassett v. Commissioner, 67

F.3d 29, 31 (2d Cir. 1995), aff’g 100 T.C. 650 (1993); sec. 301.6651-1(c)(1),

Proced. & Admin. Regs. “Willful neglect” has been defined as a “conscious,

intentional failure or reckless indifference.” United States v. Boyle, 469 U.S. 241,

245 (1985). Whether a failure to file timely is due to reasonable cause and not

willful neglect is a question of fact. Id. at 249 n.8; Crocker v. Commissioner, 92

T.C. 899, 913 (1989).

      In the notice of deficiency, respondent determined that petitioner’s 2007 tax

return was received by the Internal Revenue Service on January 20, 2009, more

than 11 months after the filing deadline of April 15, 2008, and determined that

petitioner was liable for an addition to tax of $1,699 for petitioner’s 2007 tax year.

Petitioner does not contend or offer evidence to prove that the return was timely

filed, that respondent incorrectly computed the addition to tax, or that his failure to

file timely was due to reasonable cause. Indeed, petitioner does not address

respondent’s proposed addition to tax in his petition, in his pretrial memorandum,

or during trial, and, as we previously noted, petitioner failed to submit a posttrial

brief. We treat the issue as conceded by petitioner. See Rule 149(b).
                                        - 24 -

[*24] Accordingly, we sustain respondent’s determination that petitioner is liable

for an addition to tax pursuant to section 6651(a)(1) for his 2007 tax year.

VI.   Accuracy-Related Penalty

      For each of the years in issue, respondent determined that petitioner is liable

for an accuracy-related penalty pursuant to section 6662(a).

      Section 6662(a) imposes an accuracy-related penalty of 20% 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. An “understatement” is the excess of

the amount of tax required to be shown on the return over the amount of tax that is

actually shown on the return, reduced by any rebate. Sec. 6662(d)(2)(A). A

“substantial understatement” of income tax exists if the amount of the

understatement for the taxable year exceeds the greater of (1) 10% of the tax

required to be shown on the return or (2) $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. at 446. However, petitioner did not address respondent’s

proposed accuracy-related penalties in his petition, in his pretrial memorandum, or

during trial, and, as we previously noted, petitioner failed to submit a posttrial
                                        - 25 -

[*25] brief. See Rule 149(b). Accordingly, we treat the issue as conceded by

petitioner and we sustain respondent’s determination that petitioner is liable for

the accuracy-related penalties pursuant to section 6662(a) for the years in issue.

VII. Conclusion

      In sum, we conclude that (1) we have jurisdiction pursuant to section

6213(a) to consider the instant case; (2) petitioner is not entitled to deduct

Schedule C expenses of $42,335, $52,150, and $67,039 for his 2007, 2008, and

2009 tax years, respectively; (3) petitioner is not entitled to deduct a Schedule D

capital loss carryforward of $3,000 for any of the years in issue; (4) petitioner is

liable for an addition to tax pursuant to section 6651(a)(1) for his 2007 tax year;

and (5) petitioner is liable for an accuracy-related penalty pursuant to section

6662(a) for each of the years in issue. Consequently, we sustain respondent’s

determinations that petitioner is liable for income tax deficiencies, an addition to

tax, and accuracy-related penalties.

      In reaching these 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.
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[*26] To reflect the foregoing,


                                           Decision will be entered for

                                  respondent.
