                        T.C. Memo. 2005-195



                      UNITED STATES TAX COURT



               OTU AND CAROL OBOT, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20030-03.            Filed August 11, 2005.


     Otu and Carol Obot, pro sese.

     Jennifer S. McGinty, for respondent.



                        MEMORANDUM OPINION


     HOLMES, Judge:   This is a substantiation case.   Most

taxpayers understand that to win a substantiation case, they must

produce credible proof of their deductible expenses.   Otu Obot,

who used to own a small grocery store in Buffalo, seeks to deduct

expenses by relying mostly--if not quite entirely--on doctored
                               - 2 -

receipts and implausible testimony.    We must inventory his claims

and shelve those that are unsupported.1

                             Background

     During 1999, Otu Obot owned a small grocery store, and a

house in a marginal Buffalo neighborhood that he rented out.     All

the contested deductions flow from this grocery store and that

rental property.   His wife Carol was a senior corrections

counselor working for New York State, and she neither testified

nor was involved in the case in any way except for signing the

return and petition.   The case was tried in Buffalo, and both

Obots were New York residents when they filed their petition.

     The Obots itemized deductions on their 1999 return, using

Schedule A.   They also reported losses from both the grocery

store and the rental property on Schedules C and E.    The IRS

audited their return and disallowed many of their deductions:

                    Taken         Allowed        Disputed2

     Schedule A    $17,567        $10,174         $ 7,393
     Schedule C     17,096          3,023          14,073
     Schedule E     11,025          2,319           8,706
       Total        45,688         15,516          30,172




     1
       Section references are to the Internal Revenue Code in
effect during 1999, and Rule references are to the Tax Court
Rules of Practice and Procedure.
     2
       The amount shown as disputed from Schedule A includes
$2,174 in computational errors that are not at issue in this
case.
                              - 3 -


     The dispute over the Obots’ Schedule A is confined to their

attempted deductions for taxes paid:3

     County of Erie--county and town tax          $1,433
     Real property tax and sewer rent bill           734
     Public user fee                                 155
     Water bill                                      128
     Utilities, phone, gasoline, sewer, etc.       1,021
     Personal property taxes                       1,634
     Unsubstantiated balance                         114

     The Commissioner also challenged a number of deductions for

grocery store expenses that the Obots took on their Schedule C:

     Supplies                                     $2,248
     Advertising                                   2,343
     Cost of goods sold                            7,545
     Legal/professional                            1,282
     Other expenses                                  655

     And, finally, the Commissioner challenged most of the Obots’

Schedule E expenses on their rental property:

     Depreciation                                 $1,200
     Repairs                                       2,893
     Management fees                               3,200
     Utilities                                     1,413

The Trial

     In deciding whether a taxpayer has substantiated his

deductions, we ordinarily look at the proof he offers in the form

of documentation and testimony.   In Mr. Obot’s case, we can


     3
       Originally, the IRS allowed taxes paid deductions of only
$6,651 on Schedule A and $1,750 on Schedule C. The Obots have
since substantiated payments of local property tax bills for
$1,432.19 on their Schedule A, and a $100 advertising expense
deductible on their Schedule C, and the Commissioner concedes
those amounts.
                               - 4 -

neither give his testimony weight nor use the documents he

submitted as proof.

     His severe credibility problems began with his testimony

explaining why he had so few original records.   He said that a

broken pipe had flooded the grocery store and destroyed most of

his records.   The first time he mentioned the flood, however, was

shortly before trial--he had never mentioned it during his audit.

Even at trial, Mr. Obot testified variously that the flooding

happened in “2000, 2001,” and that he incurred legal fees

sometime in 1999 when “my stuff flooded and his [landlord’s]

insurance was supposed to cover part of that.”   He did not file

an insurance claim of his own, didn’t have any proof of filing

one with his landlord, and did not seek a casualty loss deduction

for the flood.   After the Commissioner challenged this flood

narrative, the Court specifically invited Mr. Obot to retake the

stand to rebut the Commissioner’s proof.   He declined to do so.

Because he offered no evidence besides his say-so that there was

a flood, we conclude that there was no flood.

     Then there were the receipts he introduced as proof of

deductible expenses.   Even a cursory look showed them to have

been either altered or photocopied in such a way as to obscure

key information.   For instance, he introduced a photocopy of a

receipt for the purchase of a cash register that was dated “July

2, 1999” at the top of the document, but “July 2, 1996” at the
                                - 5 -

bottom.   Testimony from the seller corroborated the 1996 sale

date.   He also offered photocopies of some receipts with the last

digit of the year hidden by two strategically placed paperclips,

and then capped his display of incredible evidence by trying to

introduce photocopies of advertising receipts with information

carefully whited out.    Federal Rule of Evidence 1003 tells us to

treat duplicates as originals unless there is a genuine question

as to the accuracy of their reproduction.   Here, there were not

only genuine questions but obvious answers to the question of

their accuracy.    As a result, we give little weight to either the

testimony or the documentary evidence that he provided.

     We also decline to base any part of our decision on Mr.

Obot’s posttrial brief.   This brief is largely a series of

“worksheets,” created utterly without any reference to evidence

or testimony at trial, that remarkably seeks to increase the

amounts of many of the implausible deductions claimed on the

Obots’ original return.

                             Discussion

     The law requires taxpayers to maintain records that enable

the IRS to verify income and expenses.    Sec. 6001; sec. 1.6001-

1(a), Income Tax Regs.    Under Rule 142(a), a petitioner bears the

burden of proof.   It is true that a petitioner who produces

sufficient credible evidence with regard to any factual issue may

be able to shift that burden to the Commissioner for that issue.
                                - 6 -

Sec. 7491(a).   Mr. Obot audaciously argues that the burden of

proof in this case should shift to the Commissioner.   We

disagree.   Though neither the Code nor the regulations define

“credible evidence”, the legislative history helps us:

     Credible evidence is the quality of evidence which,
     after critical analysis, the court would find
     sufficient upon which to base a decision on the
     issue if no contrary evidence were submitted * * *
     A taxpayer has not produced credible evidence for
     these purposes if the taxpayer merely makes
     implausible factual assertions, frivolous claims, or
     tax protestor-type arguments. The introduction of
     evidence will not meet this standard if the court is
     not convinced that it is worthy of belief. [H. Conf.
     Rept. 105-599, at 240-241 (1998), 1998-3 C.B. 747,
     994-995.]

     For us to shift the burden on a specific issue, not only

must Mr. Obot produce credible evidence, but he also must show

that he complied with the specific substantiation requirements

for the deduction in question, that he maintained all records,

and that he cooperated with the Commissioner’s reasonable

requests for items such as witnesses, information, and documents.

See sec. 7491(a)(2).

     We find that Mr. Obot has not cooperated with the IRS.

Instead of producing the records from his business, he falsely

claimed that they were lost in a flood.   The records he did

produce were not credible:   he doctored receipts or concealed key

information before photocopying them.   We conclude that the

burden of proof stays on him.
                                 - 7 -

     Taxpayers may meet their burden even without proof of

precise numbers.    If a taxpayer claims a business expense, but

cannot fully substantiate it, we may approximate the allowable

amount.    Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir.

1930).    For this rule to apply, the taxpayer must provide at

least some reasonable evidence from which to estimate a

deductible amount.     Vanicek v. Commissioner, 85 T.C. 731, 742-743

(1985).    We need not apply the Cohan rule at all if the evidence

is insufficient to identify the nature or estimate the extent of

the expenses.     See Williams v. United States, 245 F.2d 559, 560

(5th Cir. 1957).    Because the evidence Mr. Obot provided lacks

credibility, we will not use the Cohan rule in recalculating his

deductions.     See Lerch v. Commissioner, 877 F.2d 624, 628-629

(7th Cir. 1989) (no obligation to apply Cohan rule where taxpayer

fails to cooperate with Commissioner and Tax Court), affg. T.C.

Memo 1987-295.

     With these general thoughts in mind, we now look to each of

the disputed deductions.

Schedule A

     The disputed Schedule A deductions are taxes that Mr. Obot

paid.    The first group are excise taxes of $1,021 charged on his

personal utility, telephone, gasoline, and sewer bills.    Excise

taxes on personal bills are not deductible, Fife v. Commissioner,

73 T.C. 621, 623-624 (1980), and we disallow them.
                               - 8 -

     Mr. Obot also deducted state and local personal property

taxes of $1,634.   For these to be allowed, Mr. Obot must show

that they were a state or local tax annually charged on personal

property based on its value.   Sec. 164(a)(2), (b)(1).    He offered

no proof that the personal property taxes he allegedly paid were

based on his property’s value, and so we agree with the

Commissioner that he cannot deduct them.    Mr. Obot next claimed a

$155 public user fee and a $128 water bill.    He did not point us

to any Code section that would make these deductible, and finding

none ourselves, we cannot allow him these deductions either. See

Deputy v. du Pont, 308 U.S. 488, 493 (1940).

     The next two deductions--$1,433 in “County of Erie--County

and Town Tax” and $734 in “Real Property Tax and Sewer Rent Bill”

at least sound valid:   real property taxes levied by state,

local, or foreign jurisdictions are deductible.    Sec. 164(a)(1).

Mr. Obot did have bills for these two taxes, but he is a cash-

basis taxpayer, and so he must show that he paid each tax during

the year for which he’s claiming it as a deduction.    Sec. 1.446-

1(c)(1)(i), Income Tax Regs.   While he submitted these two bills

as proof, they showed no amount as having been paid.     Mr. Obot

had no canceled checks or receipts to prove payment, and the

bills alone are insufficient proof.    He doesn’t get these

deductions either.
                                 - 9 -

     That leaves only an additional $114, but the Obots never

described what kind of tax, if any, it was or to whom it was

paid--and so we disallow it too.

Schedule C

     Mr. Obot’s Schedule C deductions come from his grocery

store.   Under section 162, all ordinary and necessary expenses

paid or incurred during the taxable year in carrying on a trade

or business are deductible, but a taxpayer must of course have

sufficient records to substantiate them.    Sec. 1.6001-1(a),

Income Tax Regs.

     As already described, Mr. Obot did not have credible

records.     Therefore, we decline to use the Cohan rule to estimate

expenses that are based on incredible testimony and doctored

documents.    See Williams v. United States, 245 F.2d at 560.   With

the exception of the $100 advertising expense that the

Commissioner has already conceded, we do not allow any of Mr.

Obot’s claimed Schedule C deductions.

Schedule E

     Most of the expenses Mr. Obot claimed on Schedule E arise

from his rental real estate.    During the trial, Mr. Obot promised

that he would have a witness appear who would substantiate both

the repair expenses and the management fees.    This witness never

appeared.    Thus, we presume that had he appeared, his testimony

would have been unfavorable.    See Wichita Terminal Elevator Co.
                              - 10 -

v. Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162 F.2d 513

(10th Cir. 1947).   Because Mr. Obot failed to offer any credible

evidence to substantiate these expenses, we cannot allow any of

them.   Mr. Obot also claimed $1,200 in depreciation on equipment

for his grocery store.   At least that’s what he argued in his

brief, contending that he should have put the $1,200 depreciation

on Schedule C.   He again provided us with no evidence of which

items he was depreciating or the price that he paid for them.

See sec. 1.6001-1(a), Income Tax Regs.     We deny his depreciation

deduction because he didn’t substantiate it, not because he put

it on the wrong form.

     Nevertheless, because the Commissioner conceded some

additional deductions,



                                    Decision will be entered under

                               Rule 155.
