                             T.C. Summary Opinion 2020-8



                            UNITED STATES TAX COURT



          HAKEEM ABUBAKR AND SHARMILA KASSIM, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 20248-18S.                            Filed January 30, 2020.



      Hakeem Abubakr and Sharmila Kassim, pro sese.

      Brian P. Beddingfield, Willis B. Douglass, and Hans Famularo, for

respondent.



                                 SUMMARY OPINION


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

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


      1
          Unless otherwise indicated, all section references are to the Internal
                                                                           (continued...)
                                         -2-

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

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

      Respondent determined a $10,342 income tax deficiency and a $2,068.40

section 6662(a) penalty2 for petitioners’ 2015 tax year. The deficiency is

attributable to respondent’s disallowance of deductions of $46,476.65 claimed on

Schedule C, Profit or Loss From Business. The issue for our consideration is

whether petitioners have shown substantiation for any of the deductions

respondent disallowed.

                                    Background

      When the petition was timely filed, petitioners resided in California. During

2015 petitioners were married, and they filed a joint return for that taxable year.

Mr. Abubakr was engaged in the business of making travel arrangements, and Ms.

Kassim was a software engineer. Mr. Abubakr has been engaged in the travel

business for his entire career. He has taught classes and has been making travel

arrangements since 1980. He has worked for large corporations arranging their

corporate business travel.


      1
      (...continued)
Revenue Code in effect at all relevant times.
      2
      At trial respondent conceded that petitioners are not liable for the sec.
6662(a) penalty.
                                        -3-

      On Schedule C of petitioners’ 2015 income tax return, Mr. Abubakr

reported $17,619 of gross receipts and $94,286 of expenses, resulting in a $76,667

loss. Of the $94,286 in expenses, respondent disallowed $46,476.65, consisting of

$35,221 for “Other Expenses”, $8,008.65 for “Travel”, and $3,247 for “Legal and

Professional Services”. Petitioners claimed the $76,667 loss as an offset or

reduction of $147,612 in wages Ms. Kassim earned and $13,739 in Social Security

benefits.

      Of the $94,286 in expenses reported on Schedule C, respondent allowed

$47,809.35, consisting of $2,886 for “Advertising”, $453 for “Taxes and

licenses”, $35,553.35 for “Travel”, $955 for “Deductible meals and

entertainment”, and $7,962 for “Utilities”.

      Between the time of the filing of the 2015 return and respondent’s

examination, Mr. Abubakr experienced difficulties, including the loss of his father

and the pending divorce from Ms. Kassim. As a result of these difficulties, his

recordkeeping was not up to his normal standards and was less organized.

      Mr. Abubakr classified his business travel expenses into two categories:

“other expense” and “travel expense”. Travel expenses were those he incurred

while engaged in his business. Of the $43,562 he reported as travel expenses,

respondent disallowed deductions of $8,008.65 and allowed $35,553.35. The
                                       -4-

“other expense” category concerned travel expenses that he paid up front for the

clients. The clients would then repay petitioner through some medium such as

PayPal. In this category respondent disallowed any deduction for the $35,221

claimed.

      Some of the travel expenses included a personal trip with Mr. Abubakr’s

family to Fiji. He also included many of the documents and receipts claimed and

allowed as travel expense deductions in the other expense category. The

documentation he presented at trial in support of his Schedule C business expenses

totaled slightly more than $66,000 without considering duplications. After

eliminating duplications, the documentation he presented accounted for slightly

more than $37,000.

                                   Discussion

      The sole controversy is whether Mr. Abubakr can show entitlement to more

than the $47,809.35 in Schedule C expense deductions respondent allowed. In

that regard Mr. Abubakr bears the burden of showing that respondent’s

determination is in error. See Welch v. Helvering, 290 U.S. 111, 115 (1933). In

order to do that he must show that the expenses deducted on Schedule C of

petitioners’ 2015 income tax return were supported by adequate records. See
                                         -5-

Campbell v. Commissioner, 134 T.C. 20, 28 (2010) (and cases cited thereat), aff’d

per curium, 658 F.3d 1255 (11th Cir. 2011).

      Section 162(a) requires that in order for taxpayers to be entitled to

deductions they must incur ordinary and necessary expenses paid in carrying on a

trade or business. In addition section 274(d) provides more stringent

substantiation requirements for travel expenses which, in great part, produced the

income tax deficiency determined in this case. Mr. Abubakr must show the

amount, time and place, business purpose, and business relationship of the travel

expenses reported for 2015. He must substantiate entitlement to deductions

exceeding the $47,809.35 respondent allowed.

      At trial Mr. Abubakr offered 226 photocopied documents containing spread

sheets, some bank records, receipts, and other related materials. It was his

position that the documentation would show that he was entitled to more than the

amounts respondent allowed.

      Upon cross-examination it became clear that the documents relating to the

$35,221 of “other expenses” contained numerous duplications to those Mr.

Abubakr offered in support of the $43,562 of travel expenses. Moreover, on the

basis of his testimony, the amounts in the “other expense” category comprised

expenditures made on behalf of clients. He also testified that the clients paid him
                                        -6-

back for those expenditures. This explanation logically fits with the pattern of a

for-profit travel business. What seems lacking in substance are alleged

expenditures made on behalf of clients which were not paid back. Considering the

duplication and Mr. Abubakr’s failure to meet the more stringent substantiation

requirements of section 274(d), respondent’s disallowance of deductions for the

$35,221 for “other expenses” is sustained.

      With respect to the $43,562 deduction Mr. Abubakr claimed for his business

travel, respondent disallowed $8,008.65 and allowed $35,553.35. Included in this

category were personal and family nonbusiness travel. Mr. Abubakr has not

shown which, if any, of the documentation presented would entitle him to more

than the $35,553.35 of deductions respondent allowed. Accordingly, respondent’s

disallowance of the $8,008.65 for travel expense deductions is sustained.

      With respect to the $3,247 Mr. Abubakr deducted for legal and professional

services Mr. Abubakr claimed, he has failed to adduce or direct the Court to any

evidence which substantiates any portion of the amount respondent disallowed.

Accordingly, respondent’s disallowance of the $3,247 for the legal and

professional services deduction is sustained.

      Ultimately, the records Mr. Abubakr submitted total approximately two-

thirds of the $94,286 of total Schedule C expenses reported. If duplications in the
                                      -7-

submitted documentation are considered, the net amount is about $10,000 less

than the $47,809.35 in Schedule C expense deductions respondent allowed.

      To reflect the foregoing,


                                            Decision will be entered for

                                     respondent as to the deficiency and for

                                     petitioners as to the accuracy-related penalty

                                     under section 6662(a).
