                               T.C. Memo. 2015-128




                         UNITED STATES TAX COURT



                 JAMES BONEPARTE, JR., Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 2452-14.                           Filed July 13, 2015.



      James Boneparte, Jr., pro se.

      Kathleen K. Raup, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      KERRIGAN, Judge: Respondent determined a deficiency of $13,187 and a

penalty of $2,637 under section 6662(a) with respect to petitioner’s Federal

income tax for tax year 2010. Unless otherwise indicated, all section references

are to the Internal Revenue Code (Code) in effect for the year at issue, and all Rule
                                         -2-

[*2] references are to the Tax Court Rules of Practice and Procedure. We round

all monetary amounts to the nearest dollar.

      After concessions,1 the issues for consideration are whether petitioner:

(1) was a professional gambler during 2010, entitling him to deduct his gambling

losses and expenses on his amended Schedule C, Profit or Loss From Business;

(2) was entitled to deductions on his amended Schedule A for medical

transportation expenses under section 213(a) and for $25,000 of gambling losses;

(3) is entitled to deduct several nonbusiness bad debts; (4) is liable for a 10%

additional tax under section 72(t); and (5) is liable for an accuracy-related penalty

under section 6662(a).

                               FINDINGS OF FACT

      Some of the facts are stipulated and are so found. Petitioner received mail

at a post office box in New Jersey at the time the petition was filed.

      Petitioner was employed full time by the Port Authority of New York and

New Jersey (Port Authority) as a tunnel bridge agent. During 2010 he generally




      1
       With the exception of the deduction for State and local taxes, petitioner
conceded that he was not entitled to the deductions claimed on Schedule A,
Itemized Deductions, on his originally filed Form 1040, U.S. Individual Income
Tax Return. Petitioner filed an amended Schedule A along with a Form 1040X,
Amended U.S. Individual Income Tax Return, which respondent did not accept.
                                         -3-

[*3] worked from 2 p.m. to 10 p.m., working four days on, two days off, four days

on, two days off, five days on, two days off.

      Petitioner did not maintain a permanent residence. Instead, he kept a

storage locker in New Jersey where he would keep his personal belongings.

Generally, after his shift at the Port Authority was over, he would drive

approximately 125 miles to Atlantic City and check in at a casino hotel to stay the

night and gamble. If he had work at the Port Authority the next day, he would

depart at 10 a.m. to return to the Port Authority to perform his duties.

      During 2010 petitioner gambled in casinos and at horse racetracks. At the

casinos his preferred game was baccarat, but he also played slots as well as other

table games. He gambled primarily in Atlantic City, but he also gambled at other

venues across New Jersey, Nevada, California, Arizona, Maryland, Florida, and

Connecticut. He did not keep a contemporaneous written log of wins and losses

for any of his gambling activities. Rather, he would keep a running ledger in his

head. Some of the casinos would also track his gambling activity, but they would

provide only averages over time rather than precise amounts.

      While petitioner was gambling in Atlantic City, he became friends with

another frequent gambler. The two would discuss strategy, and the friend taught
                                         -4-

[*4] petitioner about some aspects of the gambling world. They would travel

together to various destinations to gamble.

      On August 25, 2010, petitioner fractured his right wrist while at the Port

Authority. Although he was unable to work for the rest of the year, he continued

to receive his full salary because he was injured on the job. Petitioner’s wrist

injury required a visit to the emergency room on the day of the injury and at least

10 more visits to the hospital for treatment. With respect to his wrist injury,

petitioner’s employer’s insurance paid his medical bills but not his transportation

costs. Petitioner also visited the dentist in 2010.

      During 2010 petitioner defaulted on a loan of $12,178 from his qualified

retirement plan.

Original 2010 Tax Return

      Petitioner timely filed his 2010 Form 1040. He reported income of $92,310.

This income comprised $76,779 from his wages, $3,353 from his tax refund, and

$12,178 as a deemed distribution from his qualified retirement plan. He did not

report any gambling winnings. He claimed various Schedule A deductions

totaling $66,297. These deductions included a medical expense deduction, a home

mortgage interest deduction, a State and local tax deduction, a charitable

contribution deduction, and miscellaneous deductions. He did not deduct any
                                        -5-

[*5] gambling losses. He reported a total tax liability of $4,156. This liability

included a 10% additional tax under section 72(t) of $1,218 for the deemed

retirement plan distribution.

      On September 4, 2012, respondent sent petitioner a letter explaining that

petitioner’s 2010 tax return had been selected for audit and requesting

documentation to support the claimed Schedule A deductions.

Amended 2010 Tax Return

      On September 30, 2013, after the parties exchanged various letters and

documents, petitioner mailed respondent a Form 1040X. Respondent did not

accept the amended return.

      On the Form 1040X petitioner claimed the following Schedule A

deductions:

                    Schedule A                 Amount claimed
                 Medical travel
                  expenses                         $14,043
                 Taxes                                8,891
                 Gambling losses--
                  other miscellaneous
                  deductions                        25,000
                  Total                             47,934
                                     -6-

[*6] On the Form 1040X petitioner claimed that he was a professional gambler

with the following Schedule C income and expenses:

              Schedule C                   Amount claimed
             Income:
              Gross receipts                  $25,000
              Returns                          25,000
              Gross income                       -0-
             Expenses:
              Car and truck                    23,000
              Add’l car and truck              16,300
              Depreciation                      2,850
              Add’l depreciation                2,850
              Insurance                         4,868
              Legal and
               professional
               services                         6,500
              Office                            1,020
              Rent of vehicles,
               machinery,
               equipment                         275
              Rent of other
               business property                1,128
              Repairs and
               maintenance                      2,208
              Supplies                          3,900
              Travel                           12,634
                                          -7-

                 [*7] Deductible meals
                   and entertainment                 14,166
                                                     1
                    Total                                91,699
                     Net income                     (91,699)

      1
          On the return petitioner reports this amount as $91,707.
      Petitioner also deducted the following amounts as nonbusiness bad debts:

               Name                  Relationship            Amount
          Erin Liburd                  Friend                 $6,500
          LaShana Boneparte            Daughter                   5,000
          Keith Boneparte              Son                        2,000
          Freddie Boneparte            Brother                    4,000
          Marcia Bentham               Friend                     3,400

      Petitioner claimed zero tax liability and requested that his claimed

overpayment of $3,429 be applied to 2009. This amount did not include the 10%

additional tax resulting from an early withdrawal of retirement moneys pursuant to

section 72(t).

      On November 12, 2013, respondent issued the notice of deficiency. The

notice disallowed petitioner’s claimed Schedule A medical expense deduction,

home mortgage interest deduction, charitable contribution deduction, and

miscellaneous deductions from his original return. Respondent did not dispute

petitioner’s State and local tax deduction.
                                        -8-

[*8]                                 OPINION

       Generally, the Commissioner’s determinations in a notice of deficiency are

presumed correct, and the taxpayer bears the burden of proving that those

determinations are erroneous. Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111,

115 (1933). The taxpayer likewise bears the burden of proving his entitlement to

deductions allowed by the Code and of substantiating the amounts of items

underlying claimed deductions. INDOPCO, Inc. v. Commissioner, 503 U.S. 79,

84 (1992); sec. 1.6001-1(a), Income Tax Regs. Under section 7491(a), in certain

circumstances, the burden of proof may shift from the taxpayer to the

Commissioner. Petitioner has not claimed or shown that he meets the

requirements of section 7491(a) to shift the burden of proof to respondent as to

any relevant factual issue. The burden of proof remains with petitioner.

I.     Professional Gambler

       The parties disagree about whether petitioner was engaged in the trade or

business of gambling. Petitioner contends that he was a professional gambler and

that as a result he is entitled to deduct his gambling-related expenses and losses on

his Schedule C. Respondent determined that petitioner engaged in gambling as a

hobby, not as a business.
                                        -9-

[*9] Section 61(a) defines gross income to mean all income from whatever

source derived. Gambling winnings are includable in gross income. Lyszkowski

v. Commissioner, T.C. Memo. 1995-235, aff’d without published opinion, 79 F.3d

1138 (3d Cir. 1996).

      Section 162(a) allows deductions for ordinary and necessary expenses paid

or incurred during the taxable year in carrying on any trade or business. If a

taxpayer is engaged in the trade or business of gambling, his losses from

gambling, up to the amounts of his gains from such transactions, are deductible in

arriving at his adjusted gross income. See secs. 62(a)(1), 165(d). However,

expenses incurred while carrying on the trade or business of gambling other than

wagering losses are not subject to the section 165(d) gambling loss restriction.

Mayo v. Commissioner, 136 T.C. 81, 97 (2011).

      To be a professional gambler, the taxpayer must have engaged in gambling

with the objective of making a profit. Sec. 183(a), (b), and (c); Commissioner v.

Groetzinger, 480 U.S. 23, 35 (1987); sec. 1.183-2(a), Income Tax Regs. Although

a reasonable expectation of profit is not required, the taxpayer’s profit objective

must be actual and honest. Dreicer v. Commissioner, 78 T.C. 642, 644-645

(1982), aff’d without published opinion, 702 F.2d 1205 (D.C. Cir. 1983); sec.

1.183-2(a), Income Tax Regs. Whether a taxpayer has an actual and honest profit
                                        - 10 -

[*10] objective is a question of fact to be answered from all of the relevant facts

and circumstances. Hastings v. Commissioner, T.C. Memo. 2002-310; sec. 1.183-

2(a), Income Tax Regs.

      The pertinent regulations set forth a nonexhaustive list of factors that may

be considered in deciding whether a profit objective exists. These factors include:

(1) the manner in which the taxpayer carries on the activity; (2) the expertise of the

taxpayer or his advisers; (3) the time and effort expended by the taxpayer in

carrying on the activity; (4) the expectation that assets used in the activity may

appreciate in value; (5) the success of the taxpayer in carrying on other similar or

dissimilar activities; (6) the taxpayer’s history of income or losses with respect to

the activity; (7) the amount of occasional profits, if any, which are earned; (8) the

financial status of the taxpayer; and (9) the elements of personal pleasure or

recreation. Sec. 1.183-2(b), Income Tax Regs.; see also Golanty v. Commissioner,

72 T.C. 411, 426 (1979), aff’d without published opinion, 647 F.2d 170 (9th Cir.

1981). No single factor or group of factors is determinative. Golanty v.

Commissioner, 72 T.C. at 426. While the focus of the test for whether a taxpayer

engaged in an activity with the intent to make a profit is on the subjective intent of

the taxpayer, greater weight is given to objective facts than to the taxpayer’s mere

statement of his or her intent. Sec. 1.183-2(a), Income Tax Regs.; see also
                                         - 11 -

[*11] Stasewich v. Commissioner, T.C. Memo. 2001-30. A final determination is

made only after a consideration of all of the relevant facts and circumstances.

        We do not believe it necessary to analyze each of the factors enumerated in

section 1.183-2(b), Income Tax Regs., to determine whether petitioner engaged in

his gambling activities with an actual and honest objective of making a profit.

Rather, we focus on the factors we believe more important and applicable in this

case.

        A.    Manner in Which the Taxpayer Carries On the Activity

        The fact that a taxpayer carries on the activity in a businesslike manner and

maintains complete and accurate books and records, may indicate a profit motive.

Id. subpara. (1).

        Petitioner did not maintain complete and accurate records of his gambling

activity. He testified that he kept only a running total in his head. The

handwritten records he provided were not kept contemporaneously but rather were

created while his return was being audited. He did not testify that he spent any

time honing or adjusting his system or attempting to improve his profitability by

adopting new methods. Accordingly, he did not carry on his gambling activity in

a businesslike manner. This factor weighs against petitioner.
                                        - 12 -

[*12] B.      Expertise of the Taxpayer or His Advisers

      Preparation for the activity by extensive study of its accepted business

practices, or consultation with those who are expert therein, may indicate a profit

objective where the taxpayer carries on the activity in accordance with such

practices. Id. subpara. (2).

      Petitioner testified that he spent time with one friend who also frequently

gambled. He testified that they took at least one trip together and would talk

strategy and that he was learning the “ins and out of how to gamble”. Although

petitioner testified that he “created a system” for gambling on the game of

baccarat, we are not persuaded that he achieved any level of expertise. See

Merkin v. Commissioner, T.C. Memo. 2008-146. This factor weighs against

petitioner.

      C.      Taxpayer’s Success in Carrying On Other Similar or Dissimilar
              Activities

      The fact that the taxpayer has engaged in similar activities in the past and

converted them from unprofitable to profitable enterprises may indicate that the

activity in question was engaged in for profit, even though the activity is presently

unprofitable. Sec. 1.183-2(b)(5), Income Tax Regs.
                                         - 13 -

[*13] Petitioner provided no evidence of history of success with business

activities other than working as an employee of the Port Authority. There is no

evidence that his success in this field paved the way for success as a gambler.

This factor weighs against petitioner.

      D.     Taxpayer’s History of Income or Losses

      “A series of losses during the initial or startup stage of an activity may not

necessarily be an indication that the activity is not engaged in for profit.” Id.

subpara. (6). However, if a taxpayer continues to sustain losses beyond the period

which customarily is necessary to bring the operation to profitable status, such

continued losses, if not explainable, may indicate that the activity is not engaged

in for profit. Id. The “goal must be to realize a profit on the entire operation,

which presupposes not only future net earnings but also sufficient net earnings to

recoup the losses which have meanwhile been sustained in the intervening years.”

Bessenyey v. Commissioner, 45 T.C. 261, 274 (1965), aff’d, 379 F.2d 252 (2d Cir.

1967).

      Petitioner testified that he worked at the Port Authority for over 30 years

and that he had been gambling for about 11 years. He provided no evidence

regarding his history of income or losses from gambling. As petitioner is the party

with the burden of proof, this factor weighs against him.
                                         - 14 -

[*14] E.     Taxpayer’s Financial Status

      “The fact that the taxpayer does not have substantial income or capital from

sources other than the activity may indicate that an activity is engaged in for

profit.” Sec. 1.183-2(b)(8), Income Tax Regs. Substantial income from sources

other than the activity, particularly if the losses from the activity generate

substantial tax benefits, may indicate that the activity is not engaged in for profit.

Id.

      Petitioner earned $76,779 as an employee of the Port Authority during

2010. He derived the bulk of his income from the Port Authority. If he is

permitted to deduct his gambling-related expenses from his Port Authority income,

his taxable income will be significantly reduced. See Moore v. Commissioner,

T.C. Memo. 2011-173 (taxpayer’s financial status did not indicate profit motive

when he derived bulk of income from employment outside of gambling). This

factor counts against petitioner.

      F.     Elements of Personal Pleasure or Recreation

      The presence of personal motives in carrying on an activity may indicate

that the activity is not engaged in for profit, especially where there are elements of

recreation or personal pleasure. Sec. 1.183-2(b)(9), Income Tax Regs.
                                           - 15 -

[*15] Petitioner testified that he enjoys gambling. This factor weighs against

petitioner.

      Considering all the facts and circumstances and weighing the factors

analyzed above, we hold that petitioner did not conduct his gambling activity in a

businesslike manner and he did not engage in that activity with the requisite profit

objective during the year at issue. Accordingly, we sustain respondent’s

determination that petitioner is not entitled to deductions under section 162(a) for

gambling-related expenses.

II.   Schedule A Deductions

      On his amended Schedule A petitioner deducted medical transportation

costs and $25,000 of gambling losses. Respondent contends that petitioner is not

entitled to either of these deductions.2

      A.      Medical Transportation Expense Deductions

      Petitioner claims that he is entitled to deduct his transportation costs for

medical care for 2010. Respondent does not dispute that petitioner made several

trips to the hospital and to the dentist’s office in 2010. Rather, respondent

contends that petitioner has not substantiated the expenses underlying the

      2
      Petitioner also deducted $8,891 for State and local taxes on his amended
Schedule A. This deduction is the same as the one claimed on his original
Schedule A, and respondent does not dispute it.
                                        - 16 -

[*16] deductions he claimed for the miles driven, toll fees, and parking expenses.

Additionally, it appears that petitioner also deducted a per diem using Publication

1542, Per Diem Rates, for each day he went to the hospital. As respondent

disallowed petitioner’s deduction in full, we infer that respondent also contends

that petitioner is not entitled to deduct per diem amounts.

      Section 213(a) allows a deduction for expenses paid during the taxable year,

not compensated by insurance or otherwise, for medical care of the taxpayer to the

extent that such expenses exceed 7.5% of the taxpayer’s adjusted gross income.

Of relevance here, the term “medical care” includes amounts paid “for

transportation primarily for and essential to medical care”. Sec. 213(d)(1)(A) and

(B). Transportation primarily for and essential to medical care is deductible at a

set mileage rate. The standard mileage rate for medical transportation was 16.5

cents per mile for 2010. Rev. Proc. 2009-54, sec. 2.01(3), 2009-51 I.R.B. 930.

      A taxpayer is generally required to keep sufficient records to enable the

Secretary to determine the taxpayer’s correct income tax liability. Sec. 6001; sec.

1.6001-1(a), Income Tax Regs. To substantiate medical and dental expenses, a

taxpayer must furnish the name and address of each payee, the amount of the

expense, and the date paid. Sec. 1.213-1(h), Income Tax Regs.
                                        - 17 -

[*17] Petitioner claimed itemized deductions for medical and dental transportation

expenses of $14,043 for the taxable year 2010. He contends that he took 31 trips

for medical purposes in 2010 and that for each of these trips he drove 250 miles

round trip from Atlantic City to the hospital or dental offices, incurred parking

fees of $20, and paid toll fares of $25, for a total of $14,181 in transportation

expenses. He then “pro rated” this amount by multiplying it by 0.75 to arrive at

$10,636 of medical transportation expenses. Finally, using Publication 1542, he

allotted himself a $166 per diem for each day he traveled to the doctor for a total

of $5,146. He added this amount to the $10,636 for a total amount of $15,782. He

then reduced this amount by 7.5% of his adjusted gross income to arrive at the

$14,043 deduction that he claimed on his amended return.

      Petitioner provided no receipts or mileage logs to substantiate the claimed

mileage, tolls, and parking expenses. There is no evidence that the handwritten

ledgers that he did provide detailing these expenditures were prepared

contemporaneously or were otherwise reliable. See Adams v. Commissioner, T.C.

Memo. 2013-92.

      Additionally, petitioner is not entitled to deduct any per diem expenses for

costs incurred while traveling to receive medical care. Publication 1542 provides

Federal per diem allowances that apply only to employers for reimbursements of
                                      - 18 -

[*18] lodging, meals, and incidental expenses. See IRS Publication 1542.

Because petitioner is not an employer, such an allowance is inapplicable to him.

Accordingly, he is not entitled to deduct per diem amounts for the days he traveled

to the hospital.

      B.     Gambling Loss Deduction

      Petitioner also deducted $25,000 of “Gambling Losses” on his Schedule A.

Respondent contends that this deduction was improper and the losses were not

substantiated.

      Gambling losses of nonprofessional gamblers are deductible as an itemized

deduction in arriving at taxable income. Sec. 63(a); Calvao v. Commissioner, T.C.

Memo. 2007-57. However, gambling losses deducted as an itemized deduction on

Schedule A are allowed only to the extent of any gambling winnings. Sec. 165(d);

Sec. 1.165-10, Income Tax Regs.

      Petitioner did not keep contemporaneous records of his winnings and losses.

He testified that he based his reported casino wins and claimed losses on averages

provided to him by the casinos which he conceded were not “exact monetary

amount[s]” but rather were averages. He provided handwritten itemized lists of

the days and amounts where he won and lost gambling on horse racing but has not

provided any additional documentation to indicate where this information came
                                        - 19 -

[*19] from and to establish its accuracy. Petitioner has not substantiated his

losses. Further, even if his losses were substantiated, he did not report any

winnings on his Schedule A. Given that losses are deductible only to the extent of

winnings, petitioner would not be entitled to deduct his purported $25,000 of

losses.

III.   Nonbusiness Bad Debts

       Petitioner claims he is entitled to deduct several nonbusiness bad debts for

loans that he made to Erin Liburd, LaShana Boneparte, Keith Boneparte, Freddie

Boneparte, and Marcia Bentham. Respondent contends that none of these

purported loans are bona fide debts.

       Section 166(a)(1) allows as a deduction any bona fide debt that becomes

worthless within the taxable year. For nonbusiness bad debt held by a taxpayer

other than a corporation, section 166(a)(1) does not apply, and the taxpayer is

allowed a short-term capital loss for the taxable year in which the debt becomes

completely worthless. Sec. 166(d)(1); sec. 1.166-5(a)(2), Income Tax Regs. A

bona fide debt is a debt that arises from “a debtor-creditor relationship based on a

valid and enforceable obligation to pay a fixed or determinable sum of money.”

Kean v. Commissioner, 91 T.C. 575, 594 (1988); sec. 1.166-1(c), Income Tax

Regs. A gift is not considered a “debt” for purposes of section 166. Kean v.
                                        - 20 -

[*20] Commissioner, 91 T.C. at 594. Whether a purported loan is a bona fide debt

for tax purposes is determined from the facts and circumstances of each case. See

Gross v. Commissioner, 401 F.2d 600, 603 (9th Cir. 1968), aff’g T.C. Memo.

1967-31; Dixie Dairies Corp. v. Commissioner, 74 T.C. 476, 493 (1980). Factors

indicative of a bona fide debt include whether: (1) evidence of indebtedness

exists; (2) any security is requested; (3) there has been a demand for repayment;

(4) the parties’ records reflect the transaction as a loan; (5) any payments have

been made; and (6) any interest was charged. See Sundby v. Commissioner, T.C.

Memo. 2003-204.

      Transactions between family members are subject to special scrutiny to

determine whether a purported loan was actually a gift. Caligiuri v.

Commissioner, 549 F.2d 1155, 1157 (8th Cir. 1977), aff’g T.C. Memo. 1975-319.

A transfer between family members is presumed for tax purposes to be a gift.

Perry v. Commissioner, 92 T.C. 470, 481 (1989), aff’d without published opinion,

912 F.2d 1466 (5th Cir. 1990); Estate of Reynolds v. Commissioner, 55 T.C. 172,

201 (1970). This presumption may be rebutted by an affirmative showing that

there existed at the time of the transfer a real expectation of repayment and an

intent to enforce the collection of the indebtedness. Estate of Van Anda v.
                                        - 21 -

[*21] Commissioner, 12 T.C. 1158, 1162 (1949), aff’d per curiam, 192 F.2d 391

(2d Cir. 1951).

      LaShana, Keith, and Freddie Boneparte are petitioner’s daughter, son, and

brother, respectively. Since they are all petitioner’s family members, a transfer to

any one of them is presumed a gift. Petitioner testified that he always expected

them to pay him back. He did not provide any supporting evidence, including any

loan documents or demands for repayment, that would indicate a real expectation

of repayment and an intent to enforce collection. Accordingly, he has not rebutted

the presumption and these payments are not bona fide loans.

      Neither Marcia Bentham nor Erin Liburd was a family member, but

petitioner still must show that those debts were bona fide. Petitioner testified that

he always expected repayment. For the transfer to Marcia Bentham, petitioner did

not provide any evidence other than his testimony. Petitioner failed to meet his

burden with respect to this purported loan. For the purported loan to Erin Liburd,

in addition to testimony, petitioner provided a promissory note executed by Mr.

Liburd as well as bank deposit records showing that Mr. Liburd had transferred

money to petitioner as repayment. The promissory note, dated March 28, 2011,

states the following: “I Erin Liburd will be borrowing the amount of $7,000 from

James Boneparte”. (Emphasis added.) Not only is the promissory note dated well
                                         - 22 -

[*22] after the close of the 2010 tax year, but the underscored words also indicate

that the loan had not yet been granted in 2010. Additionally, the bank deposit

records show that at the earliest Mr. Liburd made transfers to petitioner in May

2011. Taken together, the evidence does not support that a bona fide debt existed

in 2010, let alone that such debt had become worthless.

        Petitioner has not met his burden, and he is not entitled to deduct any of the

purported bad debts.

IV.     Section 72(t) Additional Tax

        A distribution from a qualified plan such as petitioner’s is generally

includable in the income of the distributee in the year of distribution. Sec. 402(a).

If a participant or beneficiary of a qualified plan receives a loan from the plan, that

amount is treated as a distribution in the year received unless it falls into one of

several exceptions. See sec. 72(p)(2). If a plan fails to satisfy these requirements,

a deemed distribution will occur at the first time those requirements are not

satisfied, either in form or in operation. Sec. 1.72(p)-1, Q&A-4(a), Income Tax

Regs.

        Respondent and petitioner agree that petitioner defaulted on a loan of

$12,178 from his qualified retirement plan and that petitioner therefore received

an early distribution in 2010.
                                           - 23 -

[*23] Section 72(t) provides for a 10% additional tax on early distributions from a

qualified retirement plan for the taxable year in which such amount is received.

Section 72(t)(2)(B) provides an exception to this rule: With exceptions not

relevant here, an early distribution from a qualified retirement plan is not subject

to the 10% additional tax to the extent it does not exceed “the amount allowable as

a deduction under section 213 * * * for amounts paid during the taxable year for

medical care (determined without regard to whether the * * * [taxpayer] itemizes

deductions for such taxable year).” Section 213(a) in turn allows as a deduction

“the expenses paid during the taxable year, not compensated for by insurance or

otherwise, for medical care of the taxpayer, his spouse, or a dependent * * * to the

extent that such expenses exceed 7.5 percent of adjusted gross income.”

      Petitioner does not dispute that he received an early distribution from a

qualified retirement plan in 2010. Rather, he asserts that the early distribution was

used to pay his claimed medical transportation expenses and that he falls under the

exception in section 72(t)(2)(B). As discussed supra Part II.A, petitioner is not

entitled to deduct his claimed medical transportation expenses under section

213(a). Therefore, he does not fall under the exception in section 72(t)(2)(B) and

he is liable for the 10% additional tax.
                                        - 24 -

[*24] V.     Accuracy-Related Penalty

      Respondent determined that petitioner is liable for an accuracy-related

penalty pursuant to section 6662(a) for 2010. Section 6662(a) provides a penalty

for an underpayment attributable to negligence or disregard of rules or regulations

within the meaning of section 6662(b)(1).

      The Commissioner bears the burden of production regarding the taxpayer’s

liability for any penalty. Sec. 7491(c); see also Higbee v. Commissioner, 116 T.C.

438, 446-447 (2001). Once the Commissioner has met this burden, the taxpayer

must provide persuasive evidence that the Commissioner’s determination was

incorrect. See Rule 142(a); Higbee v. Commissioner, 116 T.C. at 447.

      Negligence includes any failure to make a reasonable attempt to comply

with the provisions of the internal revenue laws, to exercise due care, or to do

what a reasonable and prudent person would do under the circumstances. Sec.

6662(c); Neely v. Commissioner, 85 T.C. 934, 947 (1985); sec. 1.6662-3(b)(1),

Income Tax Regs. Negligence also includes any failure by a taxpayer to keep

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

Income Tax Regs. Respondent has demonstrated that petitioner failed to keep

accurate records with respect to his claimed professional gambling activity,

medical transportation expenses, gambling losses, bad debts, and use of early
                                        - 25 -

[*25] withdrawn retirement funds. Respondent has shown that petitioner acted

negligently.

      The accuracy-related penalty does not apply with respect to any portion of

an underpayment for which it is shown that the taxpayer had reasonable cause and

acted in good faith. Sec. 6664(c)(1). Petitioner did not show reasonable cause for

failing to keep adequate books and records in order to substantiate items properly.

We hold that petitioner is liable for a section 6662(a) penalty for negligence.

      Any contentions we have not addressed are irrelevant, moot, or meritless.

      To reflect the foregoing,


                                                 Decision will be entered for

                                       respondent.
