                        T.C. Memo. 2000-359



                      UNITED STATES TAX COURT



             KENNETH ANDREW BARATELLE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8772-98.                Filed November 22, 2000.


     Kenneth Andrew Baratelle, pro se.

     Paul K. Voelker, for respondent.



                        MEMORANDUM OPINION


     MARVEL, Judge:   Respondent determined a deficiency in

petitioner’s Federal income tax of $13,282 and an accuracy-

related penalty, pursuant to section 6662(a),1 of $2,656 for




     1
      All section references are to the Internal Revenue Code in
effect for the year in issue. All Rule references are to the Tax
Court Rules of Practice and Procedure.
                                - 2 -

1994.    Petitioner filed a petition seeking a redetermination of

the deficiency and contesting his liability for the penalty.

     Following concessions,2 the issues for decision are:

     (1) Whether petitioner may deduct Schedule C, Profit or Loss

From Business, expenses in excess of those conceded by

respondent; and

     (2) whether petitioner is liable for the accuracy-related

penalty.

     Background

     Prior to trial, the parties filed a “stipulation of facts”,

which did little more than outline the factual disputes remaining

for trial and provide to the Court various written summaries of

petitioner’s litigating positions, and a supplemental stipulation

of facts.    To the extent that the stipulations reflect agreement

regarding material facts, those facts are summarized below and

are found accordingly.

     Petitioner resided in Henderson, Nevada, at the time he

filed his petition in this case.

     In March 1994, petitioner’s employer, Mattel, terminated

petitioner’s employment.   At that time, petitioner, who had more

than 20 years of manufacturing experience in the toy industry,


     2
      Respondent also proposed adjustments for a State tax refund
that petitioner allegedly received and to petitioner’s exemptions
and itemized deductions. The parties agree that petitioner is
not required to include any State tax refund in income and that
the remaining adjustments are computational.
                               - 3 -

was earning a salary in excess of $243,000 per year.    Following

the termination of his employment, petitioner promptly began to

look for an income source to replace his lost income.    He

ultimately decided to start a manufacturing consulting business,

KAB Consulting, and did so in 1994.    On Schedule C of his 1994

Federal income tax return, petitioner deducted expenses allegedly

paid in connection with KAB Consulting.

     Respondent audited petitioner’s 1994 return and, in a notice

of deficiency dated February 19, 1998, proposed adjustments

disallowing all of petitioner’s Schedule C deductions because

petitioner failed to substantiate them.    During the trial in this

case, respondent modified his litigating position and conceded

that the following adjustments to petitioner’s Schedule C

deductions were appropriate:
                                 - 4 -

                     Claimed
Deduction           per return           Allowed        Disallowed

Advertising          $1,340                 $511            $829
Car and truck         8,840                  -0-           8,840
Depreciation &
 Sec. 179 exp.       10,260                3,205           7,055
Insurance               250                  250             -0-
Legal & prof.         1,750                1,750             -0-
Office expense          200                  200             -0-
Repairs                 425                  425             -0-
Supplies                660                  660             -0-
Travel                3,182                2,451             731
Meals & enter.
                                            1
 $4,871 x 50%         2,435                  967           1,468
Utilities (phone)       635                  635             -0-
Wages                 2,340                  -0-           2,340

  Total             $32,317              $11,054         $21,263
     1
      Respondent conceded that petitioner substantiated meal and
entertainment expenses of $1,933.62. After applying the sec.
274(n) limitation, the correct deduction for meals and
entertainment appears to be $967, not $911. We have adjusted the
figures above accordingly.

     We address each of the remaining disputed adjustments and

the applicable legal principles below.

     In General

     Ordinarily, a taxpayer is permitted to deduct the ordinary

and necessary expenses that he pays or incurs during the taxable

year in carrying on a trade or business.        See sec. 162(a).   A

taxpayer is required to maintain records sufficient to establish

the amount of his deductions.    See sec. 6001; sec. 1.6001-1(a),

Income Tax Regs.

     When a taxpayer establishes that he paid or incurred a

deductible expense but does not establish the amount of the
                                - 5 -

deduction, we may estimate the amount allowable in some

circumstances.    See Cohan v. Commissioner, 39 F.2d 540, 543-544

(2d Cir. 1930).    There must be sufficient evidence in the record,

however, to permit us to conclude that a deductible expense was

paid or incurred in at least the amount allowed.    See Williams v.

United States, 245 F.2d 559, 560 (5th Cir. 1957).    In estimating

the amount allowable, we bear heavily upon the taxpayer whose

inexactitude is of his or her own making.   See Cohan v.

Commissioner, supra at 544.

     For certain kinds of business expenses, such as travel,

meal, and entertainment expenses, and those expenses attributable

to “listed property”, section 274(d) overrides the rule of Cohan

v. Commissioner.    See Sanford v. Commissioner, 50 T.C. 823, 827

(1968), affd. per curiam 412 F.2d 201 (2d Cir. 1969); sec. 1.274-

5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6,

1985).   Listed property includes any passenger automobile and any

other property used as a means of transportation, under section

280F(d)(4)(A)(i) and (ii), unless excepted by section

280F(d)(4)(C) or (d)(5)(B).

     Under section 274(d), a taxpayer must satisfy strict

substantiation requirements before a deduction is allowable.    See

sec. 274(d); sec. 6001; sec. 1.6001-1(a), (e), Income Tax Regs.

If section 274(d) applies, we may not use the Cohan doctrine to

estimate those expenses covered by that section.
                                - 6 -

     Advertising Expenses

     Petitioner claimed a deduction of $1,340 for advertising

expenses on his 1994 Schedule C.   At trial, petitioner contended

that he was entitled to a larger deduction than that claimed on

his Schedule C and presented a document entitled “Summary of 1994

Mktg. Expenses” showing total advertising expenses of $1,586.94.

     Among the items listed on the summary were four purchases of

personal clothing, totaling $563.71.    The cost of personal

clothing is not deductible, and petitioner so conceded at trial.

See sec. 262; Donnelly v. Commissioner, 28 T.C. 1278, 1280

(1957), affd. 262 F.2d 411 (2d Cir. 1959).

     Also included on petitioner’s summary of his advertising

expenses were the following items, which were paid by check:

          Date          Payee                       Amount

        03/01/94        CFLL                        $50.00
        03/18/94        CFLL                         14.00
        04/10/94        Jewish Federation            50.00
        05/09/94        Or Co Register               32.09
        06/08/94        Jewish Federation            75.00
        08/18/94        TCB Printers                 75.96
        08/18/94        TCB Printers                 40.00
        08/22/94        Cypress High                 60.00
        08/22/94        City of Cypress              50.00
        08/22/94        Franklin Photo               20.00
        09/23/94        Landell                      57.25
        10/05/94        Playthings                   24.00
        10/05/94        CSULB                        50.00
        10/05/94        City of Cypress              65.00
        11/05/94        Or Co Register               29.93
        11/05/94        City of Cypress              15.00
        11/05/94        City of Cypress              25.00
        11/05/94        City of Cypress              40.00
          Total                                    $773.23
                                - 7 -

     The parties have agreed that the above checks were issued to

the named payees in the amounts stated, and respondent has

conceded that petitioner is entitled to deduct advertising

expenses of $511.

     Petitioner testified that most of the expenditures were for

advertisements, business cards, brochures, and trade

publications.   Petitioner could not recall the purpose of some of

the items such as the $20 expenditure to Franklin Photo, the

$57.25 expenditure to Landell School, and the multiple

expenditures to the City of Cypress on November 5, 1994.

Petitioner did not introduce as evidence any advertisement,

business cards, or other business items allegedly purchased with

the listed checks.

     Petitioner also claimed a miscellaneous cash amount of $250

to cover miscellaneous amounts that he allegedly spent but could

not remember or substantiate.   Petitioner conceded at trial that

this amount was an estimate.

     On this record, we conclude that respondent’s concession of

$511 for advertising is reasonable, and we sustain respondent’s

adjustment to petitioner’s advertising expense deduction as

modified.

     Car and Truck Expenses

     On his 1994 Schedule C, petitioner claimed a deduction for

car and truck expenses in the amount of $8,840.   In connection
                                 - 8 -

with that deduction, petitioner stated in Part IV, Information on

Your Vehicle, of his 1994 Schedule C that he placed his vehicle

in service for business purposes on April 15, 1994, and that he

subsequently drove the vehicle 21,500 miles, of which 15,500 were

for business, 3,000 were for commuting, and 3,000 were for

“other”.   At trial, petitioner contended that he is entitled to a

larger deduction for car and truck expenses in the total amount

of $9,981.01, as reflected on an exhibit entitled “Summary of

1994 Auto Expenses”.   Petitioner alleged that he drove 17,575

miles for business purposes and that the business use of his

vehicle was summarized on an exhibit entitled “1994 Daily Log”.

Although petitioner admits that the entries in the daily log were

not made contemporaneously, he contends that the daily log was

reconstructed using contemporaneous notes that he filled out each

time he traveled on business and then threw in a box.    Petitioner

did not introduce into evidence the notes he claims he kept in

the box.

     Respondent conceded on brief that petitioner used his

automobile for business purposes and that he has documented

business mileage of 336 miles.    Respondent also conceded that

petitioner substantiated the following automobile expenses:

           Lease payments                $4,521
           Insurance and lic.             2,107
           Oil Max                           43
             Total                       $6,671
                               - 9 -

After estimating petitioner’s fuel expense, respondent conceded

that petitioner is entitled to a deduction for car and truck

expenses in the amount of $134.40.

     Although we have no doubt that petitioner had more

automobile expenses than those listed above and probably drove

more business miles than respondent conceded, we agree

petitioner’s failure to substantiate his automobile expenses

forecloses any greater deduction.    Section 274(d)(4) provides, in

pertinent part, that no deduction or credit shall be allowed

under section 162 with respect to any listed property (as defined

in section 280F(d)(4)) unless the taxpayer substantiates by

adequate records or by sufficient evidence corroborating the

taxpayer’s own statement:   (a) The amount of such expense or

other item, (b) the time and place of the use of the property,

and (c) the business purpose of the expense or other item.

     Section 1.274-5T(b)(6), Temporary Income Tax Regs., provides

a more detailed statement confirming that a taxpayer must prove

the following with respect to listed property: (a) The amount of

each separate expenditure with respect to an item of listed

property, such as the cost of lease payments, the cost of

maintenance and repairs, or other expenditures, (b) the amount of

each business use based on the appropriate measure (i.e., mileage

for automobiles) and the total use of the listed property for the

taxable period, (c) the date of the expenditure or use with
                             - 10 -

respect to listed property, and (d) the business purpose for an

expenditure or use.

     Petitioner simply did not comply with section 274(d).

Petitioner did not maintain a contemporaneous diary, calendar, or

mileage log of his business travel, and he has failed to prove

that he otherwise made a record of the alleged business use of

his automobile at or near the time of the use.   He did not retain

receipts for most of the expenses he claimed to have paid, and he

did not establish the total business miles driven during 1994.

Even after we gave petitioner the opportunity to produce

additional records to respondent and the Court following trial,

petitioner failed to take the necessary steps to supplement the

record in this case.

     On this record, we sustain respondent’s adjustment to

petitioner’s car and truck expense deduction as modified.

     Depreciation and Section 179 Expenses

     On his 1994 Schedule C, petitioner claimed total deductions

for depreciation and section 179 expense of $10,260.   On Form

4562, Depreciation and Amortization, Part I, Election to Expense

Certain Tangible Property (Section 179), petitioner described the

property as “computer, fax, printer, furniture, desks, chairs,

lamps” and claimed a cost of $10,260.   Petitioner now contends

that he is entitled to a greater section 179 deduction, as

reflected on an exhibit entitled “Summary of 1994 179 Expenses”.
                                - 11 -

That exhibit shows the following items:

      Date              Payee               Amount

     Checks:

     01/14       Cerritos Trophy           $156.00
     01/23       Bradex                      32.74
     02/05       Bradex                      32.74
     02/05       Bradex                      30.74
     02/05       Matt’s Glass & Mirror      760.00
     02/27       Van Hygan & Smith           41.42
     03/13       Bradex                      32.74
     03/16       Bradex                      30.74
     04/04       Circuit City             1,040.38
     04/04       Circuit City               153.85
     04/04       Fedco                      293.00
     04/07       Matt’s Glass & Mirror      800.00
     04/19       Bradex                      35.74
     04/23       Fedco                      880.00
     05/09       Bradex                      32.74
     05/16       Bradex                      32.74
     05/16       Bradex                      32.74
     05/27       Bradex                      30.74
     06/24       Bradex                      35.74
     06/24       Bradex                      96.69
     07/03       Bradex                      35.74
     07/26       Bradex                      32.74
     07/26       Van Hygan & Smith           54.60
     08/05       Bradex                      32.74
     08/12       Bradex                      35.74
     08/12       Bradex                      35.89
     08/22       Bradex                      32.89
     08/26       Aaron Brothers              48.35
     09/02       Bradex                      35.74
     09/11       Bradex                      43.79
     10/14       Bradex                      35.74
     10/21       Bradex                      35.89
     11/21       Van Hygan & Smith           39.34
     12/05       Bradex                      32.89
     12/05       Bradex                      35.74
     12/17       Sheryl Davenport            24.35
     12/28       Bradex                      35.89
                 Misc.                      300.00
                                - 12 -

     Charges:

     07/22        Shelves & Cabinets            377.10
     07/29        ADV Computer Systems        2,321.76
     08/04        Service Merchandise           140.00
     08/16        Office Depot                    5.38
     08/16        Office Depot                  345.00
     09/26        Office Depot                   16.13

     Items purchased in 1993:

                  Ken Crane                     652.95
                  Wickes                        705.00

                    Total                   $10,725.81


     The parties agree that petitioner is entitled to deduct, as

section 179 expenses, the items listed as “Charges” above, the

cost of which totals $3,205.37.

     With respect to furniture purchased from Wickes totaling

$705, the record shows that the furniture was purchased in 1993.

Petitioner did not begin his consulting business until 1994.

Section 179(d)(1) provides that the property must be acquired by

purchase for use in the active conduct of a trade or business.

Since petitioner was not engaged in his consulting business

during 1993, the purchase price of the furniture is not

deductible under section 179.    See Reynolds v. Commissioner, T.C.

Memo. 2000-20.   Respondent conceded, however, that petitioner is

entitled to a depreciation deduction of $121 for his Wickes

furniture (basis--$705, salvage–$100, useful life--5 years).

     Petitioner also claimed a section 179 deduction for the cost

of a television, television stand, and VCR.   Petitioner conceded
                               - 13 -

at trial that he did not use these items exclusively for business

purposes.   Section 1.179-1(d)(1), Income Tax Regs., provides that

a section 179 expense deduction may be claimed only for the

portion of the cost attributable to business use and that no such

deduction is allowed if the business use is less than 50 percent.

Petitioner claims that he used, and intended to use, the

television and the VCR to make tapes, but he failed to show how

much this equipment was used for business.    Consequently,

petitioner has not established that he is entitled to a deduction

for the cost of these items under section 179.    Respondent

conceded, however, that petitioner is entitled to a depreciation

deduction of $40 with respect to these items (basis--$1,377,

salvage--$377, business use--20 percent, useful life--5 years).

      Petitioner also claimed a section 179 deduction for payments

to Cerritos Trophy, Matt’s Glass & Mirror, Van Hygan & Smith,

Aaron Brothers, and Bradex totaling $2,817.96.    Petitioner

contends these payments were for 25 decorative plates,

identification plaques and frames for the plates, and a glass

case to hold the plates.    Respondent contends that petitioner has

failed to demonstrate any business use for these items and that

petitioner’s claimed deduction for their cost should not be

allowed.    We agree that petitioner was required to substantiate

the business use of these items and that petitioner failed to do

so.
                                  - 14 -

       Finally, petitioner claimed a section 179 deduction for

payments to Fedco and Sheryl Davenport and miscellaneous cash

payments totaling $1,497.35.      Petitioner could not recall the

purpose of any of these payments and did not establish that the

expenditures were deductible under section 179.

       We sustain respondent’s adjustment of petitioner’s section

179 expenses and depreciation deductions as modified.

       Travel Expenses

       On his 1994 Schedule C, petitioner claimed a deduction for

travel in the amount of $3,182.      Petitioner now contends that he

is entitled to a larger deduction for travel in the total amount

of $5,433.16, as shown on an exhibit entitled “Summary of 1994

Travel Expenses”.    Respondent has conceded items totaling

$2,450.54 and has disallowed the remaining items as follows:

                             Dog Boarding

Date                Description                  Amount

02/02/94            Animal Inns of America       $77.25
05/02/94            Animal Inns of America       138.75

                                  Airfare

Date                Description                  Amount

04/24/94            American Airlines            650.00
05/23/94            United Airlines              154.00
                         - 15 -


10/22/94   American Airlines              650.00
                                           1
2/29/94    Southwest Airlines                6.00
                         Lodging

Date       Description                    Amount

03/27/94   Dana Inn & Marina              128.62
04/30/94   Hillcrest Motel                 53.50
12/03/94   Radisson Hotel                 113.50

                    Meals & Golf

Date       Description                    Amount

07/16/94   Doubletree Hotel                43.00
08/17/94   Carlton Oaks                    58.00

              Other Items with Receipts

Date       Description                    Amount

04/25/94   Bay Tree                        39.00
04/29/94   Tee & Sea Resort                44.00

                  Passport Renewal

Date       Description                    Amount

03/18/94   Passport Service                65.00

              Traffic Fines and Towing

Date       Description                    Amount

07/26/94   Barstow Traffic Court          109.00
                                      2
10/28/94   Car Rental                     278.00
10/28/94   MB Towing                       75.00
                                 - 16 -

                          Miscellaneous Cash

Date               Description                    Amount

                   Miscellaneous                  300.00

                     Total                     $2,976.62
       1
      Petitioner’s claimed expenditure was $150.      Respondent
conceded $144.
       2
      Petitioner agrees that this amount was not for car rental
but was for a traffic fine.

       Petitioner is not entitled to deduct amounts spent to board

his dog.    See Estate of Beck v. Commissioner, 56 T.C. 297, 352

(1971) (expenses incurred to board taxpayer’s dogs are

nondeductible personal expenses).     Likewise, the cost of renewing

petitioner’s passport is a nondeductible personal expense.         See

Wenz v. Commissioner, T.C. Memo. 1995-277 (passport renewal fees

classified as nondeductible personal expenses).      Traffic fines

and towing paid in connection with those fines also are

nondeductible.    See sec. 162(f).

       Respondent disallowed the balance of the contested items for

failure to substantiate either the payment or the business

purpose of the payment.      We agree that the items in question are

subject to the strict substantiation requirements of section

274(d) and that petitioner has failed to satisfy them.

       Petitioner claimed airfare but presented no documentation

that he actually paid for the airfare.     While we do not doubt

that petitioner flew to the places he described, there is no
                              - 17 -

credible evidence in the record to prove that petitioner paid for

the airfare.   Petitioner’s airfare could have been paid by a

third party or purchased with frequent flier mileage.    On this

record, we simply do not know what happened.   Section 274(d)

requires more substantiation than simply a taxpayer’s testimony.

See Langer v. Commissioner, T.C. Memo. 1990-268 (deduction for

airfare disallowed without receipt), affd. 980 F.2d 1198 (8th

Cir. 1992).

     Likewise, petitioner had no receipts or other documentation

to support his deduction of lodging, meals, and golf.    These

expenses also are subject to the requirements of section 274(d),

and the requirements have not been met in this case.    See also

sec. 1.274-5T(b)(2) and (3), Temporary Income Tax Regs.

     Although petitioner had receipts for expenditures at the Tee

& Sea Resort and the Bay Tree, petitioner did not substantiate

the nature of the expenditures or their business purpose.

Petitioner claimed that the Bay Tree expense was for lodging, but

this does not appear to be the case.   Respondent already has

conceded petitioner’s lodging expenses of $547 for that trip.

Petitioner offered no explanation for the Tee & Sea Resort

expense.

     We sustain respondent’s adjustment to petitioner’s travel

expense deduction as modified.
                              - 18 -

     Meals and Entertainment Expenses

     On his 1994 Schedule C, petitioner claimed a deduction for

meals and entertainment in the amount of $2,435, calculated as

follows:

           Meals and entertainment               $4,871
           Less: 50% limitation of sec. 274      (2,436)
                  Total deduction                $2,435

     Petitioner now contends that he is entitled to a deduction

for meals and entertainment of $1,770, calculated as follows:

           Meals and entertainment               $3,539
           Less: 50% limitation of sec. 274      (1,769)
                  Total revised deduction        $1,770


     Of the revised meals and entertainment expenses claimed by

petitioner, respondent conceded that petitioner has substantiated

meals and entertainment expenses of $1,933.62 before the 50-

percent limitation of section 274(n) is applied.    Respondent

maintains that he has allowed a deduction for “substantially all

of the items for which petitioner has presented documentary

evidence, except for the cost of golfing.”

     We have reviewed the record, and we agree petitioner

failed to substantiate the remainder of the items claimed.    The

remaining items fell into two categories–-meals for which

petitioner presented no documentation ($1,328.89) and golf

expenses as to which petitioner failed to substantiate all of the

elements required by section 274(d) ($323.60).    Section 274(d)

requires adequate documentation of a covered expense and its
                               - 19 -

business purpose.   See Moylan v. Commissioner, T.C. Memo. 1968-15

(expenses of golf outings disallowed where taxpayer did not show

direct relationship between expense and conduct of business);

sec. 1.274-5T(b)(3), Temporary Income Tax Regs.

     We sustain respondent’s adjustment to petitioner’s meals and

entertainment expense deduction as modified.

     Wage Expense

     On his 1994 Schedule C, petitioner claimed a deduction for

wages in the amount of $2,340.   The items allegedly included in

calculating the deduction were listed on an exhibit entitled

“1994 Wage Expenses”.    Petitioner contends that he paid various

people amounts from $30 to $250 for clerical and research work

and for computer training.

     Petitioner did not maintain any documentation regarding the

alleged wage payments.   Although he claimed that he made the

payments in cash, he did not obtain any receipts for the

payments.

     The record is devoid of any credible evidence substantiating

the alleged wage payments.   As a businessperson, petitioner

surely knew that he was required to substantiate his business

deductions.   Petitioner failed to offer any evidence other than

his own testimony to prove that he actually made the wage

payments.   We are not required to accept a taxpayer’s self-

serving and uncorroborated testimony.   See Wood v. Commissioner,
                                - 20 -

338 F.2d 602, 605 (9th Cir. 1964), affg. 41 T.C. 593 (1964);

Tokarski v. Commissioner, 87 T.C. 74, 77 (1986).    Since we are

unwilling to accept petitioner’s testimony without some

corroboration on this issue, we sustain respondent’s adjustment

disallowing petitioner’s wage deduction.

     Accuracy-Related Penalty

     Respondent has proposed an accuracy-related penalty against

petitioner for 1994 under section 6662(a).    Section 6662(a)

authorizes respondent to impose a penalty in an amount equal to

20 percent of the portion of the underpayment attributable to

negligence or disregard of rules or regulations.    Negligence is

defined as “any failure to make a reasonable attempt to comply

with the provisions of * * * [the Internal Revenue Code]”.      Sec.

6662(c); see also Neely v. Commissioner, 85 T.C. 934, 947 (1985)

(negligence is lack of due care or failure to do what a

reasonable and prudent person would do under the circumstances).

Negligence also includes any failure by the taxpayer to keep

adequate books and records or to substantiate items properly.

See sec. 1.6662-3(b)(1), Income Tax Regs.    The term “disregard”

includes any careless, reckless, or intentional disregard.      Sec.

6662(c).   Disregard of rules or regulations is careless if the

taxpayer does not exercise reasonable diligence to determine the

correctness of a return position that is contrary to the rule or

regulation.   See sec. 1.6662-3(b)(2), Income Tax Regs.   A
                                - 21 -

taxpayer is not liable for the penalty if he shows that he had

reasonable cause for the underpayment and that he acted in good

faith.   See sec. 6664(c).

     Petitioner failed to maintain adequate records to

substantiate the deductions he claimed on his 1994 Schedule C.

See sec. 6001; sec. 1.6001-1(a), Income Tax Regs.      He offered no

evidence at trial to explain this failure.   Accordingly, we hold

that petitioner is liable for an accuracy-related penalty under

section 6662(a) for 1994 in an amount to be calculated in

accordance with this opinion.

     To reflect the foregoing,


                                          Decision will be entered

                                     under Rule 155.
