                   T.C. Summary Opinion 2007-182



                      UNITED STATES TAX COURT



                   THOMAS EDWARDS, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 9025-06S.              Filed October 24, 2007.



     John G. Pierce, for petitioner.

     Jeffrey S. Leuchtefeld, for respondent.



     PANUTHOS, Chief Special Trial Judge:   This case was heard

pursuant to section 7463 of the Internal Revenue Code in effect

when the petition was filed.   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.   Unless otherwise indicated, all section references are to
                                - 2 -

the Internal Revenue Code for the year in issue and all Rule

references are to the Tax Court Rules of Practice and Procedure.

     Respondent determined a deficiency in petitioner’s 2001

Federal income tax of $7,514 and additions to tax under section

6651(a)(1) of $1,691, under section 6651(a)(2) of $1,578, and

under section 6654 of $297.

     After concessions,1 the issues for decision are:   (1)

Whether petitioner is entitled to business expense deductions for

2001 and (2) whether petitioner is liable for additions to tax

for failing to file a 2001 tax return, for failing to pay the

amount shown as due on a tax return, and for failing to pay

estimated taxes.

                              Background

     Some of the facts have been stipulated and are so found.

The stipulation of facts, with accompanying exhibits, is

incorporated herein by this reference.

     At the time he filed the petition, petitioner resided in

Apopka, Florida.   Petitioner has installed ceramic tile since

1957, and he operated a tile business in 2001.   Petitioner

accepted checks in payment for work performed and cashed those


     1
       At trial, respondent conceded that petitioner is entitled
to a filing status of married filing jointly and to a deduction
for home mortgage interest paid in 2001.

     By stipulation, petitioner conceded that for 2001 he
received $7,224 of Social Security income and $27,066 of
nonemployee compensation, and did not file a 2001 tax return.
                                 - 3 -

checks at the banks on which they were drawn.    Petitioner paid

workers and paid other expenses in cash.    During 2001, petitioner

used an extended-cab pickup truck to transport his crew and

materials to tile jobs.

     Petitioner did not make any estimated tax payments and did

not pay any withholding taxes in 2001.    Petitioner did not file a

tax return for either 2000 or 2001.

     Pursuant to section 6020(b), respondent prepared a

substitute for return for 2001.    Respondent included self-

employment income reported on Forms 1099-MISC, Miscellaneous

Income, and Social Security benefits reported on Form SSA-1099,

Social Security Benefit Statement, on the substitute for return.

Respondent allowed a personal exemption and a standard deduction

on the substitute for return.2    Respondent issued a notice of

deficiency.   Petitioner timely filed a petition for

redetermination.

                             Discussion

     The parties have stipulated the items of income but dispute

whether petitioner is entitled to deductions for expenses related

to his tile business.3    Petitioner did not submit a Schedule C,


     2
       As indicated supra note 1, respondent concedes the filing
status and home mortgage interest deduction.
     3
       Respondent does not dispute that petitioner’s installation
of tile in 2001 qualifies as a trade or business for Federal
income tax purposes. On the record as a whole, the Court presumes
                                                   (continued...)
                                  - 4 -

Profit or Loss From Business, reflecting expense deductions

claimed.      Rather, he claims deductions for cash payments to his

crew and for costs of transporting his crew and materials to tile

jobs.      We will address these deductions first and then consider

the additions to tax determined by respondent.

I.   Burden of Proof

      A.     Deficiency

      In general, a taxpayer bears the burden of proof.    Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).      The burden

of proof on factual issues that affect the taxpayer’s liability

may be shifted to the Commissioner if the taxpayer introduces

credible evidence with respect to such issues and satisfies the

requirements under section 7491(a)(2) to substantiate items,

maintain required records, and cooperate fully with the

Commissioner’s reasonable requests.       Sec. 7491(a).

      The burden of proof with respect to the deficiency

respondent determined remains with petitioner because he has

neither taken a position as to whether the burden should be

shifted to respondent nor established that he has complied with

the requirements of section 7491(a).4


      3
      (...continued)
that petitioner’s business was a sole proprietorship.
      4
       Even though petitioner did not assert a reasonable dispute
with respect to the income reported on the Forms 1099-MISC,
Miscellaneous Income, so as to require respondent to verify the
                                                   (continued...)
                                   - 5 -

       B.     Additions to Tax

       Pursuant to section 7491(c), the Commissioner has the burden

of production as to whether a taxpayer is liable for an addition

to tax.       To meet this burden, he must produce sufficient evidence

showing that imposition of the addition to tax is appropriate in

the particular case.       Higbee v. Commissioner, 116 T.C. 438, 446

(2001).

       Once respondent meets this burden, petitioner must come

forward with persuasive evidence that respondent’s determination

is incorrect.       See Rule 142(a); Higbee v. Commissioner, supra at

447.       As a defense to the additions to tax, petitioner bears the

burden of proof regarding reasonable cause and lack of willful

neglect or the applicability of an exception.       Secs. 6651(a),

6654(e).

II.    Business Expense Deductions

       As a general rule, section 162(a) authorizes deductions for

“all the ordinary and necessary expenses paid or incurred during

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

Taxpayers are required to maintain records sufficient to

substantiate each claimed deduction.       Sec. 6001; Hradesky v.




       4
      (...continued)
information returns per sec. 6201(d), respondent introduced in
evidence canceled checks substantiating most of the payments.
Moreover, the parties stipulated the nonemployee compensation
income.
                                 - 6 -

Commissioner, 65 T.C. 87, 89-90 (1975), affd. 540 F.2d 812 (5th

Cir. 1976); sec. 1.6001-1(a), Income Tax Regs.

     When a taxpayer adequately establishes that he paid or

incurred a deductible expense but does not establish the precise

amount, we may in some circumstances estimate the allowable

deduction, bearing heavily against the taxpayer whose

inexactitude is of his own making.       Cohan v. Commissioner, 39

F.2d 540, 544 (2d Cir. 1930).

     We can estimate the amount of the deductible expense only

when the taxpayer produces evidence sufficient to establish a

rational basis upon which the estimate can be made.       Vanicek v.

Commissioner, 85 T.C. 731, 743 (1985).

     Petitioner claims deductions for (1) compensation paid to

his crew and (2) business transportation expenses.      He asks the

Court to accept his testimony as to the amounts paid and the

expenses incurred, and to estimate the deductions allowable.         We

discuss these expenses in turn.

     A.     Compensation Expense Deductions

     Petitioner asserts that he hired several people in 2001 to

help him install tile.     Petitioner dealt primarily in cash.   He

paid his helpers in cash.     He did not issue or file Forms 1099-

MISC.     He explained that he did not have a bank account for the

business because checks made out in the name of a company were

difficult to cash.
                                 - 7 -

     Petitioner stated that Michael McKinney (Mr. McKinney), whom

petitioner referred to as his son, maintained records of how many

weeks each helper worked so that each could be paid.

     Melvin Burrell (Mr. Burrell), identified at trial as

petitioner’s other son, worked in petitioner’s tile business for

at least 15 years.     Petitioner and Mr. Burrell each testified as

to the following distribution of cash among petitioner and his

crew in 2001:

           Recipient                               Payment

           Petitioner                               $8,000
           Michael McKinney                          8,000
           Melvin Burrell                            4,500
           Arthur Edwards                            4,500
           Jeff Robinson                               800
           Berian Justice                              800
             Total cash distributed                 26,600
             Total paid to workers                  18,600

     Mr. Burrell claimed that he worked for petitioner for the

entire year 2001, working a standard 8 hours per day, 5 days a

week.   Mr. Burrell did not report the $4,500 he claims petitioner

paid him in 2001 or file a tax return for 2001.    Mr. Burrell

testified that he did not file a 2001 tax return because he did

not receive a Form 1099-MISC from petitioner.

     Compensation is deductible as a trade or business expense

only if it is (1) reasonable in amount, (2) based on services

actually rendered, and (3) paid or incurred.    See O’Connor v.

Commissioner, T.C. Memo. 1986-444; sec. 1.162-7(a), Income Tax

Regs.
                                - 8 -

     Petitioner claims he paid each worker, in cash, more than

the $600 reporting threshold of section 6041(a).    However, he

failed to prepare or submit the required information returns to

the Internal Revenue Service.    See sec. 1.6041-1(a)(1) and (2),

Income Tax Regs.   Petitioner asserted that Mr. McKinney

maintained records of how much each person worked so each could

be paid, but petitioner did not produce any records to support

payments to his crew and did not call Mr. McKinney to testify at

trial.

     We are not required to, and do not, accept petitioner’s

self-serving testimony without corroborating evidence.     See

Geiger v. Commissioner, 440 F.2d 688, 689-690 (9th Cir. 1971),

affg. per curiam T.C. Memo. 1969-159; Lerch v. Commissioner, T.C.

Memo. 1987-295, affd. 877 F.2d 624 (7th Cir. 1989).

     Mr. Burrell claimed that he earned $4,500 for working full

time for petitioner in 2001.    The Court does not find this

testimony credible.   Accordingly, Mr. Burrell’s testimony does

not corroborate petitioner’s testimony.

     To the extent such payments of compensation were made,

petitioner did not produce adequate records.    Mr. Burrell’s

failure to report the $4,500 he claims he was paid casts doubt on

whether any amounts were actually paid.    Petitioner’s failure to

file information returns casts further doubt as to the

compensation payments.   See Haeder v. Commissioner, T.C. Memo.
                               - 9 -

2001-7; Martens v. Commissioner, T.C. Memo. 1990-42, affd.

without published opinion 934 F.2d 319 (4th Cir. 1991).

     Petitioner did not introduce any credible evidence which

would provide a basis for the Court to conclude that deductible

compensation was paid.   Nor is there sufficient evidence to

estimate the amount of compensation paid.     We conclude that

petitioner is not entitled to a business expense deduction for

the $18,600 he claims he paid to his crew.5

     B.   Transportation Expense Deductions

     Petitioner asserts that his truck was driven approximately

100,000 miles during 2001 for his business and that Mr. McKinney

kept all the receipts for gasoline purchases and other business

expenses.   Mr. Burrell asserts that it was he who drove

petitioner’s truck to the job sites and that he drove close to

100,000 miles for the business in 2001.

     Section 274(d) supersedes the general rule of Cohan v.

Commissioner, supra, and prohibits the Court from estimating the

taxpayer’s expenses with respect to certain items.     Sanford v.

Commissioner, 50 T.C. 823, 827-828 (1968), affd. per curiam 412



     5
       The Court notes that each member of petitioner’s crew is
related to petitioner (two sons, two nephews, and a grandson).
When deductions are claimed for compensation paid to family
members, the Court carefully scrutinizes the transactions. Hamdi
v. Commissioner, T.C. Memo. 1993-38, affd. without published
opinion 23 F.3d 407 (6th Cir. 1994). Because we conclude that
petitioner has failed adequately to substantiate the payments
claimed, further scrutiny is not required.
                              - 10 -

F.2d 201 (2d Cir. 1969).   Section 274(d) imposes strict

substantiation requirements for, inter alia, traveling expenses

and expenses with respect to listed property.   Listed property is

defined in section 280F(d)(4) to include passenger automobiles

and other property used for transportation.

     Pursuant to section 274(d), a taxpayer must substantiate a

claimed automobile expense with adequate records or sufficient

evidence corroborating his own testimony as to:   (1) The amount

of the expenditure; (2) the mileage for each business use of the

automobile and the total mileage for all use of the automobile

during the taxable period; (3) the date of the business use; and

(4) the business purpose for the use of the automobile.    Sec.

1.274-5T(b)(6), Temporary Income Tax Regs., 50 Fed. Reg. 46016

(Nov. 6, 1985).

     Petitioner seeks to deduct expenses for driving to job sites

throughout Florida.   The only detail he offers is vague testimony

of roughly 100,000 miles driven in 2001.   Aside from his own

self-serving testimony and the testimony of Mr. Burrell,

petitioner has not offered any evidence to satisfy the threshold

requirement of showing that any transportation expenses were paid

or incurred in carrying on a particular trade or business.    A

fortiori, such evidence necessarily falls short of meeting the

heightened substantiation requisites of section 274.
                                  - 11 -

       Petitioner failed to satisfy the substantiation requirements

of section 274(d) and introduced no receipts for gasoline or

other transportation expenses.      The expenses claimed for

transporting crew and materials and for business use of a truck

in 2001 are not deductible.

III.    Additions to Tax

       Respondent determined additions to tax for failure to file a

tax return, sec. 6651(a)(1), for failure to pay tax reported on a

return, sec. 6651(a)(2), and for failure to pay estimated tax,

sec. 6654(a).

       Petitioner routinely hired a tax return preparer.    He

claimed that he turned the responsibility for managing the

financial aspects of his business over to Mr. McKinney in 2000.

       Petitioner argues that he should not be held liable for the

additions to tax because he relied on Mr. McKinney to prepare and

file his tax returns.

       A.   Section 6651(a)(1):   Failure To File a Tax Return

       The parties stipulated that petitioner did not file a

Federal income tax return for 2001 and that he had gross income

of $34,290.     His income exceeded the threshold of section

6012(a)(1)(A).     Therefore, he had an obligation to file a return.

       Respondent made a substitute for return for petitioner under

section 6020(b).     A return prepared under section 6020(b) is to
                              - 12 -

be disregarded for purposes of determining the amount of the

addition to tax under section 6651(a)(1).   Sec. 6651(g)(1).

     Respondent has met his burden of production under section

7491(c) with respect to imposing the addition to tax under

section 6651(a)(1).   Accordingly, it is petitioner’s burden to

prove that he had reasonable cause and lacked willful neglect in

not filing his return.   See sec. 6651(a); United States v. Boyle,

469 U.S. 241, 245 (1985); Higbee v. Commissioner, 116 T.C. at

446-447; sec. 301.6651-1(a)(1), Proced. & Admin. Regs.

     Petitioner claimed that for 2001 Mr. McKinney promised to

handle the record keeping for the business and to hire someone to

prepare and file the tax returns.   He asserts that he relied on

Mr. McKinney’s promise and only learned that Mr. McKinney had not

kept this promise when he received the notice of deficiency from

respondent.

     A taxpayer has a duty to file a complete and accurate tax

return and cannot avoid that duty by placing responsibility with

an agent.   United States v. Boyle, supra at 252; Metra Chem Corp.

v. Commissioner, 88 T.C. 654, 662 (1987).   “Morever, it is well

established that an * * * [agent’s] failure to prepare and file a

return does not itself constitute reasonable cause for failure to

file within the meaning of section 6651(a).”   Bradley v.

Commissioner, 57 T.C. 1, 11 (1971).
                                - 13 -

     Mr. McKinney’s failure to meet petitioner’s expectations

with respect to preparing and filing petitioner’s tax return does

not excuse petitioner’s failure to file his own tax return.

     Because petitioner has failed to offer satisfactory evidence

of reasonable cause and lack of willful neglect for his failure

to file, respondent’s determination that he is liable for the

addition to tax under section 6651(a)(1) is sustained.

     B.   Section 6651(a)(2):   Failure To Pay Amount Shown as Tax

     Respondent has met his burden of production under section

7491(c) with respect to imposing the addition to tax under

section 6651(a)(2) because the record clearly reflects that

petitioner did not pay the amount shown as due on a tax return.6

     As with petitioner’s failure to file, discussed above,

petitioner’s reliance on Mr. McKinney does not excuse

petitioner’s failure to pay the tax due for 2001.

     Petitioner failed to offer sufficient evidence of reasonable

cause and lack of willful neglect for his failure to pay the tax

due for 2001.   Accordingly, respondent’s determination that

petitioner is liable for the addition to tax under section

6651(a)(2) is sustained.




     6
       Under sec. 6651(g)(2), the substitute for return is to be
treated as a return filed by petitioner for purposes of
determining the amount of the addition to tax under sec.
6651(a)(2).
                              - 14 -

     C.   Section 6654: Failure To Pay Estimated Income Tax

     Section 6654 imposes an addition to tax for failure to make

timely and sufficient payments for estimated taxes.   Petitioner

challenged the applicability of each addition to tax respondent

determined.   Therefore, in order to satisfy his burden of

production under section 7491(c) for the section 6654 addition to

tax, respondent must produce the evidence necessary to enable the

Court to conclude that petitioner had an obligation to make an

estimated tax payment.   Wheeler v. Commissioner, 127 T.C. 200,

211 (2006).   Specifically, respondent must produce evidence

showing that petitioner had a “required annual payment” as

defined by section 6654(d)(1)(B) for the year at issue.      Id.

     Under section 6654(d)(1)(B), “required annual payment” means

the lesser of--

           (i) 90 percent of the tax shown on the return for
           the taxable year (or, if no return is filed, 90
           percent of the tax for such year), or

           (ii) 100 percent of the tax shown on the return of
           the individual for the preceding taxable year.

     Clause (ii) shall not apply if the preceding taxable
     year was not a taxable year of 12 months or if the
     individual did not file a return for such preceding
     taxable year.

     Petitioner did not file a tax return for 2000.   Therefore,

under the flush language of section 6654(d)(1)(B), clause (ii)

does not apply with respect to determining the required annual

payment for 2001.   Petitioner had a tax liability for 2001 but
                              - 15 -

did not file a tax return for 2001.    Therefore, the Court

concludes that petitioner had a required annual payment for 2001,

pursuant to the parenthetical language in section

6654(d)(1)(B)(i).

     The section 6654 addition to tax is mandatory unless

petitioner can place himself within one of the computational

exceptions provided by section 6654(e).    See Recklitis v.

Commissioner, 91 T.C. 874, 913 (1988); Grosshandler v.

Commissioner, 75 T.C. 1, 20-21 (1980).    There is no exception for

reasonable cause or lack of willful neglect.    Estate of Ruben v.

Commissioner, 33 T.C. 1071, 1072 (1960).

     Petitioner has not shown that any of the statutory

exceptions under section 6654(e) applies.    Respondent's

determination as to the addition to tax under section 6654(a) is

sustained.

     Respondent’s determinations are sustained except to the

extent of concessions made.

     To reflect the foregoing,


                                       Decision will be entered

                                 under Rule 155.
