                           T.C. Summary Opinion 2013-19



                          UNITED STATES TAX COURT



                  ALVIN C. BERNSTINE, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 25944-10S.                          Filed February 25, 2013.



      Alvin C. Bernstine, pro se.

      Nathan H. Hall, for respondent.



                               SUMMARY OPINION


      GERBER, Judge: This case was heard pursuant to the provisions of section

7463 of the Internal Revenue Code in effect when the petition was filed.1 Pursuant


      1
       Unless otherwise indicated, all section references are to the Internal Revenue
Code in effect for the year in issue, and all Rule references are to the Tax Court
                                                                          (continued...)
                                         -2-

to section 7463(b), the decision to be entered is not reviewable by any other court,

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

determined an $18,698 income tax deficiency and a $3,739.60 accuracy-related

penalty for petitioner’s 2008 tax year. The deficiency is attributable to the

disallowance of deductions for various expenses petitioner reported on a Schedule

C, Profit or Loss From Business, and a Schedule A, Itemized Deductions, both

attached to his 2008 return. After concessions by the parties,2 the issues for

consideration by the Court are: (1) whether petitioner is entitled to certain

deductions claimed on his Schedule C; (2) whether petitioner is entitled to deduct

charitable contributions reported on his Schedule A; and (3) whether petitioner is

liable for the section 6662(a) accuracy-related penalty.

                                     Background

      Petitioner resided in California at the time his petition was filed. Petitioner

has served as a pastor for more than 35 years. In 2008 he moved from Brooklyn,

New York, to the San Francisco Bay area to serve as the pastor of Bethlehem

Missionary Baptist Church (Church) in Richmond, California. The Church provided

      1
       (...continued)
Rules of Practice and Procedure.
      2
        Petitioner conceded the income items at trial, and respondent conceded that
petitioner was entitled to a $9,246 charitable contribution deduction.
                                         -3-

petitioner with an office on the Church campus but not living space. However, they

did provide him with a $12,000-a-year home allowance. Petitioner rented a 1,200-

square-foot house in which he dedicated one room, approximately one-third of the

house, for use as an additional pastor’s office. Petitioner purchased supplies,

including computer software, computer accessories, books, pens, pencils, paper, and

printer cartridges, for use in his home office. The Church did not reimburse

petitioner for these supplies. Petitioner spent most of his professional time in his

home office but met with parishioners only at the office the Church provided.

      Additionally, petitioner used his automobile in connection with his service as

a pastor in order to make hospital and sick visits and to organize community events

in and around Richmond. Petitioner also traveled throughout California in

connection with his position as vice president of the State church convention.

      Petitioner was considered an independent contractor, and the Church issued

him a Form 1099-MISC, Miscellaneous Income, for 2008. On the basis of the

independent nature of his relationship with the Church, he reported his income and

expenses on a Schedule C. Respondent issued a notice of deficiency that was

based on petitioner’s original 2008 income tax return (original return) and
                                         -4-

disallowed all of the “other expenses” of $43,743, supplies expenses of $3,012, and

“business use of home” expenses of $8,932.

      Included in “other expenses” were bank charges, cell phone service charges,

membership dues in clergy organizations, and costs for continuing education,

parking, tolls, postage, clergy garments, and dry cleaning.

      During the audit and pretrial portion of this case, petitioner, with the

assistance of a tax professional, reconstructed his records and submitted an

amended 2008 income tax return (amended return). The following table shows the

deductions claimed on the original and amended Schedules C for 2008:

                                                            Amount

             Deduction                           Original               Amended

      Car and truck                              $12,625                $12,625
      Legal and professional                       2,400                  2,400
      Office expense                               1,322                  1,322
      Supplies                                     3,012                  2,107
      Travel                                       4,623                  8,138
      Meals and entertainment                      1,493                  1,493
      Business use of home                         8,932                  8,546

                                    Original                  Amended

      Other expenses:
       Business contributions        15,000                     -0-
       Laundry and cleaning             300                      300
       Miscellaneous                    808                    1,251
       Parking and tolls                100                      209
                                          -5-

        Parsonage allowance           24,000                  12,000
        Postage                           50                      50
        Telephone                      2,985                   2,985
        Uniforms                         500                     500
          Total other expenses        43,743                  17,295
             Total deductions                      78,150                53,926

Petitioner reported $89,070 as income on both the original and amended returns.

Petitioner reported net profit of $10,920 on his original return and $35,144 on his

amended return.

                                      Discussion

      This case concerns certain deductions claimed on Schedules C and A of

petitioner’s original and amended returns. On his amended return petitioner claimed

a “business use of home” expense of $8,546, supplies expense of $2,107, and

“other expenses” totaling $17,295 on Schedule C.

      Petitioner’s documentary evidence and the Schedule C he prepared using his

records reflect the same amount for his home office, but reflect $1,752.93 for

supplies and $14,036.32 for “other expenses”. To the extent that the amounts

petitioner asserted at trial are less than those on his amended return, we treat the

differences as concessions by him. The “other expenses” reported on petitioner’s

Schedule C comprise the following categories and amounts:
                                         -6-

                    Category                   Amount

             Books                                $57.25
             Bank fees                             58.00
             Cell phone                         2,222.29
             Cleaning                              50.10
             Dues                                 480.00
             Education                            656.12
             Meals and entertainment            1,470.58
             Parking                              209.14
             Supplies                             354.29
             Travel                             8,138.38
             Uniforms                             340.17
                Total                          14,036.32

      With respect to the items in dispute, respondent determined that petitioner

failed to substantiate or to show the business purpose of certain reported

expenditures. Section 162(a) allows for deductions for ordinary and necessary

business expenses as long as an expense is normal and customary within that

particular business or industry. See Deputy v. du Pont, 308 U.S. 488, 495 (1940).

Taxpayers are required to maintain records sufficient to permit the verification of

income and expenses. Sec. 6001. As a general rule, if the trial record provides

sufficient evidence that the taxpayer has incurred a deductible expense, but the

taxpayer is unable to fully substantiate the precise amount of the deduction, the

Court may estimate the amount of the deductible expense and allow a deduction to

that extent. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). Such
                                        -7-

estimates are to be made bearing heavily against the taxpayer whose inexactitude in

substantiating the amount of the expense is of his own making. Id. at 544. For the

Court to estimate the amount of an expense, there must be some basis upon which

an estimate may be made. Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985).

      However, under section 274(d), a taxpayer must satisfy strict substantiation

requirements for certain kinds of expenses, such as those for travel, meals and

entertainment, and “listed property” as defined in section 280F(d)(4), including

cellular phones. To deduct these expenses the taxpayer must maintain adequate

records and documentary evidence to prove the amounts, times, places, and

purposes of the expenses. Sec. 274(d); sec. 1.274-5T(b) and (c)(1) and (2),

Temporary Income Tax Regs., 50 Fed. Reg. 46014-46017 (Nov. 6, 1985).

I. Schedule C Deductions

      A. Educational Expenses and Books

      At trial petitioner claimed $656.12 for educational expenses, which includes

tuition and books and an additional $57.25, which he reported in a separate

category simply titled “books”. He explained that the books and other

expenditures were for the purpose of continuing his professional education. See

sec. 1.162-5(a), Income Tax Regs. However, on the basis of petitioner’s testimony
                                         -8-

and records it is unclear whether the $57.25 simply reported as “books” was

business related or personal. Accordingly, we hold that $656.12 of these

expenditures is deductible as a business expense and that the $57.25 expense is a

nondeductible personal expenditure.

      B. Supplies

      At trial petitioner claimed $354.29 for supplies as part of “other expenses”

and $1,752.93 as supplies in a separate category on the Schedule C he prepared. Of

the $1,752.93 listed as supplies, $656.12 was for educational expenses and books

that have already been addressed above, leaving $1,096.81 of the “supplies”

category in dispute. The supplies petitioner claimed total $1,451.10 ($1,096.81 plus

$354.29).

      After considering petitioner’s testimony and reviewing each of the items

claimed we have concluded that one-third of the supplies were for business and the

remaining two-thirds were personal. Accordingly, petitioner is entitled to deduct

$484 for supplies. In reaching this conclusion we have estimated the amount,

bearing heavily against petitioner because of the quality of his records.

      C. Bank Fees

      At trial petitioner claimed $58 for bank fees. He maintained one bank

account that was used for both personal and business purposes. On the basis of
                                          -9-

the checks petitioner scheduled it appears that only about one-half of the

expenditures were business related. Accordingly, petitioner is allowed $29 for bank

fees.

        D. Uniform and Dry Cleaning

        At trial petitioner claimed $340.17 for uniforms and $50.10 for dry cleaning.

Petitioner must show that the clothing was required and that it was not suitable for

general personal use. See Coppin v. Commissioner, T.C. Memo. 2009-221. There

is no way for the Court to decide from the record whether the clothing purchased or

dry cleaned was for specialized clergy uniforms. We accordingly hold that

petitioner has not shown entitlement to these deductions.

        E. Dues

        At trial petitioner claimed $480 in membership dues in connection with his

profession. He was vice president of the State church convention and was involved

in other professional organizations. We hold that such expenses are reasonable,

ordinary, and necessary to petitioner’s professional status and are therefore

deductible.

        F. Cell Phone

        At trial petitioner claimed $2,222.29 for cell phone use. As previously

noted a cell phone is “listed property” and is subject to the strict substantiation
                                       - 10 -

requirements of section 274(d). Sec. 280F(d)(4)(A)(v). The only evidence in

support of petitioner’s cell phone use was the payment of the cell phone bills. The

numbers, persons called, and purpose of the calls were not included in the record.

To be allowed to claim cell phone usage petitioner must establish the amount of

business use and the amount of total use for the cell phone. See Trupp v.

Commissioner, T.C. Memo. 2012-108; sec. 1.274-5T(b)(6)(i)(B), Temporary

Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). He has failed to meet that

standard. Accordingly, the amount claimed for cell phone use is not deductible.

      G. Travel and Meals and Entertainment

      At trial petitioner claimed $8,138.38 for travel, $1,470.58 for meals and

entertainment, and $209.14 for parking. As mentioned supra p. 7, travel and meals

and entertainment expenses are subject to a more rigorous standard of proof and

must be corroborated by adequate records with specific information, including the

amounts, times, places, and purposes of the business travel. Sec. 274(d); sec.

1.274-5T(b), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).

Petitioner’s records reflect the amounts expended for travel, meals and

entertainment, and parking, but not the time, place, and business purpose of each

expenditure. Although petitioner testified generally that these expenses were
                                           - 11 -

incurred in connection with his profession, there is insufficient information to meet

the requirements of section 274(d). We have no doubt that petitioner incurred

travel and related expenses in connection with his profession; however, we are

unable to find in his favor without more specific information. Accordingly,

petitioner is not entitled to deduct the travel, meals and entertainment, or parking

expenses.

       H. Business Use of Home

       At trial petitioner claimed $8,546 for business use of his home. Petitioner

computed that amount by adding $360 for insurance, $21,600 for rent, and $3,680

for utilities and dividing the total by three.

       Under the general rule of section 280A no deduction is allowed for use of a

personal residence. However, section 280A(c) provides for an exception when an

allocable portion of the residence is used exclusively on a regular basis as a

principal place of business for a trade or business of the taxpayer. Although

petitioner served the Church’s congregation and was involved as a pastor in the

community, he was not considered an employee of the Church. Petitioner lived in a

1,200-square-foot residence with one room dedicated exclusively for use related to

his work as a pastor. The dedicated room equaled one-third of the total space in the
                                        - 12 -

residence. Petitioner spent most of his time in his home office and much less time at

the office the Church provided, where he met with members of the congregation.

      Section 280A(c) may also apply where a home office is used as a place of

business to meet with customers in the normal course of a trade or business.

Although petitioner met with members of his congregation at the office the Church

provided, his home office was the focal point of his activity involving all other

individuals with whom he was involved with in his trade or business.

      Because petitioner’s trade or business is not limited to serving the Church and

because most of his business activity was conducted at his home office, we hold that

he qualifies for the exception and is entitled to a home office deduction of $8,546.

II. Charitable Contributions

      On his original return petitioner deducted $7,000 for charitable

contributions reported on his Schedule A. On his amended return petitioner

claimed a deduction of $11,147 for charitable contributions on his Schedule A. At

trial respondent conceded that petitioner was entitled to a $9,246 charitable

contribution deduction for 2008. Petitioner claimed that he could prove a larger

deduction than the amount respondent conceded, but he failed to do so.
                                         - 13 -

Accordingly, we hold that petitioner is not entitled to a charitable contribution

deduction in excess of the $9,246 respondent conceded.

III. Section 6662(a) Accuracy Related Penalty

      Respondent determined that petitioner was liable for an accuracy-related

penalty under section 6662(a) and (b)(1) and (2) for an underpayment due to a

substantial understatement of Federal income tax and/or to negligence or disregard

of rules and regulations. Section 6662(a) imposes an accuracy-related penalty equal

to 20% of an underpayment that is due to negligence or a substantial understatement

of income tax. Petitioner may avoid this penalty if the record shows that his income

tax was not understated by more than the greater of 10% of the tax required to be

shown on the return or $5,000. See sec. 6662(d)(1)(A). Additionally, the accuracy-

related penalty of section 6662 is not applicable to any portion of an underpayment

to the extent that an individual has reasonable cause for that portion and acts in good

faith with respect thereto. See sec. 6664(c)(1). Such a determination is made by

taking into account all facts and circumstances, including the experience and

knowledge of the taxpayer and his or her reliance on a professional tax adviser. See

sec. 1.6664-4(b)(1), Income Tax Regs.

      Negligence includes the failure to exercise due care or the failure to do what a

reasonable person would do under the circumstances. Neely v. Commissioner,
                                        - 14 -

85 T.C. 934, 947 (1985). “Disregard” includes any “careless, reckless, or

intentional disregard” of rules or regulations. See sec. 6662(c); sec. 1.6662-3(b)(2),

Income Tax Regs. Petitioner conceded that he failed to include $10,145 of income

on his 2008 income tax return. Petitioner also failed to keep adequate records of his

travel, meals and entertainment, cell phone usage, and other expenses deducted on

his 2008 income tax return. He did not provide any explanation that could be

considered reasonable cause. Accordingly, we hold that petitioner was negligent

with respect to the underpayment even in the absence of a substantial

understatement.

      To reflect the foregoing and because of concessions by the parties,


                                                       Decision will be entered

                                                 under Rule 155.
