T.C. Memo. 2010-132

UNITED STATES TAX COURT

DIANA M. COURY, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 17747-07. Filed June 15, 2010.

Diana M. Coury, pro se.

William J. Gregg, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

GOEKE, Judge: Respondent determined deficiencies in

petitioner’s Federal income tax and additions to tax under 
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1Unless otherwise indicated, all section references are to

the Internal Revenue Code, and all Rule references are to the Tax

Court Rules of Practice and Procedure. 

2Respondent conceded petitioner is entitled to: (1)

Depreciation deductions for all years at issue claimed on

Schedule C, Profit or Loss From Business; (2) Schedule C auto

expense deductions for 2001; (3) a long-term capital loss

deduction for 2002; and (4) Schedule C expense deductions for

2003. 

section 6651(a)1 for 1999 through 2004. The amounts remaining in

dispute are as follows: 

Additions to Tax

Year Deficiency Sec. 6651(a)(1)

1999 $13,922 $2,974.25

2000 18,262 4,108.95

2001 22,490 5,060.25

2002 20,127 4,528.58

2003 16,466 3,704.85

2004 11,111 2,499.98

After concessions,2 the issues left for decision are: (1)

Whether petitioner is entitled to deductions in excess of those

respondent allowed; and (2) whether petitioner is liable for the

additions to tax under section 6651(a)(1). For the reasons

stated herein, we hold that petitioner is not entitled to

deductions in excess of those respondent allowed and is liable

for the additions to tax under section 6651(a)(1). 

FINDINGS OF FACT

 Petitioner resided in Maryland when she filed her petition. 

Petitioner is a self-employed insurance broker selling life,

health, and disability insurance. Since 1999 petitioner has
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suffered several medical problems including injuries from two car

accidents, one occurring in June 1999 and the other in April

2003. Despite her accidents, illnesses and medical conditions,

petitioner received the following income from her insurance

business:

1999 2000 2001 2002 2003 2004

$86,640 $100,226 $115,521 $108,933 $102,856 $91,683

Although petitioner requested extensions of time to file

income tax returns for all years at issue, she failed to actually

file the returns. Respondent prepared substitutes for returns. 

On May 7, 2007, respondent issued to petitioner a notice of

deficiency for the years in issue. Petitioner filed a timely

petition to the Court. Petitioner conceded receipt of the income

but contended that she was entitled to deductions. During the

discovery process respondent conceded that petitioner was

entitled to portions of the deductions she claimed. The

deductions petitioner claims and the amounts respondent has

allowed are as follows:

 Expense 1999 2000 2001 2002 2003 2004

Car & truck

 P seeks $18,844 $16,389 $20,038 $14,564 $13,748 $12,215

 R allowed 9,432 8,195 10,019 7,283 6,875 6,108

Business use

of Home

 P seeks 23,669 25,625 26,932 27,676 27,151 30,553

 R allowed 16,568 17,938 18,852 19,374 19,006 21,387
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Expense 1999 2000 2001 2002 2003 2004

Self-employed

health insurance

 P seeks 3,512 4,531 5,618 6,510 8,887 11,033

 R allowed 2,108 2,719 3,371 4,457 8,888 11,034

Medical

 P seeks 90 2,095 6,990 2,040 2,368 1,142

 R allowed -0- -0- -0- -0- -0- -0-

Travel1

 P seeks --- --- --- --- --- ---

 R allowed 2,154 2,154 2,154 2,154 2,154 2,154

Total

 P seeks 48,269 50,794 61,732 52,949 54,308 57,094

 R allowed 30,262 31,006 34,396 33,268 36,932 40,683

 1Petitioner seeks unspecified amounts of deductions in excess

of those respondent allowed.

In the notice of deficiency, respondent determined additions

to tax for late filing and late payment under section 6651(a)(1)

and (2). Respondent concedes that petitioner is not liable for

the section 6651(a)(2) additions to tax. Rather, respondent

seeks to increase the section 6651(a)(1) additions to tax for the

years in issue. 

OPINION

Burden of Proof

The taxpayer bears the burden of proving by a preponderance

of the evidence that the Commissioner’s determinations are

incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933). Deductions are a matter of legislative grace, and a

taxpayer bears the burden of proving entitlement to any claimed

deductions. Rule 142(a)(1); INDOPCO, Inc. v. Commissioner, 503
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U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S.

435, 440 (1934). 

In general, the burden of proof with regard to factual

matters rests with the taxpayer. Under section 7491(a), if the

taxpayer produces credible evidence with respect to any factual

issue relevant to ascertaining the taxpayer’s liability for tax

and meets other requirements, the burden of proof shifts from the

taxpayer to the Commissioner as to that factual issue. 

Petitioner has not alleged that section 7491(a) applies or

established her compliance with its requirements. Therefore, the

burden of proof remains on petitioner. See Rule 142(a). 

Section 6214(a) grants the Court jurisdiction to redetermine

a deficiency and to determine whether any additional amounts or

any additions to tax should be assessed. Respondent may assert

an increased amount under section 6214(a). Thus, with respect to

the increased section 6651(a)(1) additions to tax, respondent

bears the burden of proof.

Deductions

A taxpayer may deduct ordinary and necessary expenses paid

or incurred during the taxable year in carrying on any trade or

business. See sec. 162. Where a taxpayer claims a business

expense but cannot fully substantiate it, the Court generally may

approximate the allowable amount. Cohan v. Commissioner, 39 F.2d

540, 543-544 (2d Cir. 1930). We may do so only when the taxpayer
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provides evidence sufficient to establish a rational basis upon

which an estimate can be made. Vanicek v. Commissioner, 85 T.C.

731, 743 (1985).

For certain kinds of expenses otherwise deductible under

section 162(a), a taxpayer must satisfy substantiation

requirements set forth in section 274(d) before such expenses

will be allowed as deductions. Section 274(d) substantiation

requirements supersede the Cohan doctrine. Sec. 1.274-5T(a),

Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985). 

Section 274(d) disallows deductions for travel expenses, gifts,

meals, and entertainment, as well as for listed property as

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

by adequate records or corroborates by sufficient evidence the

taxpayer’s own statements as to: (1) The amount of the expense;

(2) the time and place of the travel or entertainment, or the

date and description of the gift; (3) the business purpose of the

expense; and (4) the business relationship of the taxpayer to the

persons entertained.

Petitioner claimed a number of deductions for her insurance

business. We will take each expense in turn. 

1. Car and Truck Expenses

Respondent conceded that petitioner is entitled to a

deduction of 50 percent of her claimed auto expenses for each

year. Petitioner claims she is entitled to deduct the total
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costs associated with vehicle ownership including car payments,

car insurance, and other maintenance charges for 1999 to 2004.

Petitioner’s passenger automobile is listed property under

section 280F(d)(4)(A)(i) and thus related expenses are subject to

the substantiation requirements of section 274(d). A taxpayer

must prove four elements to be allowed a deduction for listed

property: (1) Amount of expenditures, (2) amount of use (3)

time, and (4) business or investment purpose. Sec. 1.274-

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

1985). The amount of expenditure concerns the amount of each

separate expenditure with respect to an item of listed property

whereas the amount of use concerns the amount of each business or

investment use based on the appropriate measure and the total use

of the listed property for the taxable period. Sec. 1.274-

5T(b)(6)(i)(A) and (B), Temporary Income Tax Regs., supra. 

Additionally, a taxpayer must substantiate each element by

adequate records or by sufficient evidence corroborating her

testimony. Sec. 1.274-5T(c)(1), Temporary Income Tax Regs., 50

Fed. Reg. 46016 (Nov. 6, 1985). To satisfy the adequate records

standard, the taxpayer shall maintain an account book, diary,

log, statement of expense, trip sheets or similar record, and

other documentary evidence such as receipts. Sec. 1.274-

5T(c)(2), Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6,

1985). 
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 Petitioner submitted a printout of all transactions

conducted through her checking account for every year at issue. 

Petitioner attached separate calculations to each year’s 

checking records, one of which was labeled “Auto expenses”. 

Petitioner also presented an invoice from February 2002 for the

purchase of two radial tires. Petitioner failed to produce any

appointment books, mileage records, or driving summaries

indicating business use of the vehicle. Petitioner has failed to

adequately substantiate under section 274(d) the vehicle’s

business use. Thus, petitioner is not entitled to additional

deductions for her vehicle for any year at issue.

2. Travel Expenses

Respondent allowed a deduction of $2,154 for travel expenses

for each of the years at issue. Petitioner claims she is

entitled to an unspecified amount of additional travel expenses

for each year.

A deduction is allowed for ordinary and necessary travel

expenses in the conduct of a taxpayer’s trade or business. Sec.

1.162-2(a), Income Tax Regs. Travel expenses, including

transportation and lodging while away from home, are subject to

the strict substantiation requirements of section 274(d). Sec.

274-5T(b), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov.

6, 1985). To substantiate a deduction attributable to travel

away from home, a taxpayer must maintain adequate records or
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present corroborative evidence to show: (1) The amounts of the

expenses, (2) time and place of travel, and (3) the business or

investment purpose of the expenses. Sec. 274(d) (flush

language); sec. 1.274-5T(b)(2), (c)(1), Temporary Income Tax

Regs., 50 Fed. Reg. 46014, 46016 (Nov. 6, 1985). 

Petitioner did not claim any specific amounts of deductions

but vaguely testified that she was entitled to deduct additional

travel expenses. Petitioner testified that her customer accounts

were located throughout the United States and offered as evidence

boarding passes, shuttle receipts, and flight itineraries for

both US Airways and Southwest Airlines. However, petitioner did

not testify as to the specific business purposes of these trips. 

Petitioner has failed to produce trip logs, meeting records, or

any documentary evidence connecting the details of her travel

with a business purpose. Thus, because petitioner has not

satisfied the strict substantiation requirements of section

274(d), petitioner is denied additional travel expense

deductions. 

3. Business Use of Home

Respondent allowed petitioner a deduction equal to 70

percent of the expenses she claimed for business use of her home

for each year at issue. Petitioner claims she is entitled to

deduct her total monthly payments for rent, cable, Internet, and

other utilities.
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a. Rent

Section 280A(a) disallows deductions with respect to a

dwelling unit used by a taxpayer as a residence during the

taxable year, with certain exceptions. One of those exceptions

applies to use of a home office. Sec. 280A(c)(1). Home office

expenses are allowable if a portion of the dwelling unit is (1)

used exclusively, (2) on a regular basis, (3) for the purposes

enumerated in section 280A(c)(1). Hamacher v. Commissioner, 94

T.C. 348, 353-354 (1990). A taxpayer may not deduct 100 percent

of home expenses where only a portion of the property is used

exclusively for the taxpayer’s business. See, e.g., Stricker v.

Commissioner, T.C. Memo. 1995-530. 

Petitioner claims that she used her apartment 100 percent 

for work, but she gave no testimony in support of how the

apartment was used solely for business. 

b. Utilities

Section 262(a) provides that personal, living and family

expenses are not deductible unless expressly allowed. The

regulations specify that personal, living, and family expenses

include utilities tied to a taxpayer’s home unless the taxpayer

uses a part of the home for business. Sec. 1.262-1(b)(3), Income

Tax Regs. If part of the home is used as a place of business, a

corresponding portion of the rent and other similar expenses,

such as utilities, as is properly attributable to such place of
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business is deductible as a business expense. Id.; see

Boltinghouse v. Commissioner, T.C. Memo. 2007-324 (determining

the taxpayer could not deduct cable costs when he provided no

evidence establishing use of the home for business purposes even

though a small portion of the taxpayer’s cable use was for a

business purpose). Utility expenses may be deductible under

section 162(a) if the expenses incurred are ordinary and

necessary in carrying on a trade or business. Vanicek v.

Commissioner, 85 T.C. at 742. Internet expenses have been

characterized as utility expenses. See Verma v. Commissioner,

T.C. Memo. 2001-132. Taxpayers must provide the Court with a

basis to determine what portion of the utilities was allocable to

their business. Adler v. Commissioner, T.C. Memo. 2010-47. 

Petitioner claims that the cable, Internet, and utilities

were solely for her job. The only evidence petitioner presented

was her Nation’s Bank report showing monthly payments to the

power and cable companies. Petitioner did not testify as to why

the cable was necessary for her work. 

In conclusion, petitioner is not entitled to deductions in

excess of the amount respondent allowed for any year at issue

because she has not shown that more than 70 percent of her home

expenses, including rent and utilities, related to business.
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4. Self-Employed Health Insurance

Respondent allowed petitioner deductions of 60 percent of

claimed self-employed health insurance for years 1999-2001 and 70

percent for 2002. Petitioner claims she is entitled to deduct

100 percent of the costs of health insurance for the years 1999-

2002. 

The deductibility of health insurance costs paid or incurred

by self-employed individuals is subject to section 162(l). 

Section 162(l) limits the amount of deductions allowed for health

insurance of self-employed individuals. For 1999-2001, selfemployed individuals may deduct only 60 percent of the amount

paid or incurred during the year for health insurance. Sec.

162(l)(1). For 2002 self-employed individuals may deduct only 70

percent of the amount. Id. Respondent allowed petitioner the

appropriate deductions. Because petitioner received the maximum

deductions possible for years 1999-2002, she is not entitled to

additional deductions. 

5. Medical Expenses

Respondent did not allow petitioner any medical expense

deductions in excess of the insurance discussed above. 

Petitioner seeks deductions for medical care expenses for 1999-

2004. She claims medical expenses of:

1999 2000 2001 2002 2003 2004

 $90 $2,095 $6,990 $2,040 $2,368 $1,142 
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Section 213(a) allows a deduction for expenses paid during

the taxable year for medical care that is not compensated for by

insurance or otherwise, to the extent that such expenses exceed

7.5 percent of adjusted gross income. 

Petitioner’s medical expenses do not exceed 7.5 percent of

her adjusted gross income for any of the years at issue. 

Accordingly, she is not entitled to deduct additional medical

expenses. 

Section 6651(a)(1) Addition to Tax

For taxable years 1999-2004, petitioner requested extensions

of time to file, but never submitted, returns. Section

6651(a)(1) imposes an addition to tax equal to 5 percent of the

amount required to be shown as tax on the return. An additional

5 percent is imposed for each additional month or fraction

thereof during which the failure continues, but not to exceed 25

percent in the aggregate. Id. Under section 7491(c), the

Commissioner must come forward with sufficient evidence to show

that an addition to tax is appropriate. Higbee v. Commissioner,

116 T.C. 438, 446 (2001). Here respondent also bears the burden

of proof of the additional amounts asserted at trial. 

This addition to tax may be avoided if the failure to file

was due to reasonable cause and not willful neglect. United

States v. Boyle, 469 U.S. 241, 245-246 (1985). Reasonable cause

exists for late filing if the taxpayer exercised ordinary care
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and prudence but was nevertheless unable to file on time. Sec.

301.6651-1(c)(1), Proced. & Admin. Regs. Illness or incapacity

may constitute reasonable cause if the illness caused an

inability to file. Joseph v. Commissioner, T.C. Memo. 2003-19. 

Petitioner argues that she had reasonable cause because her

health problems prevented her from filing and notes that she

attempted to file as evidenced by timely requests for extensions. 

She provided numerous medical records detailing her health

complications during the years at issue and continuing to the

present. We note that she was involved in two car accidents and

was diagnosed with other medical conditions. We acknowledge the

severity of these medical issues, but we note that throughout the

duration of petitioner’s health problems she generated

significant compensation as a self-employed insurance broker,

traveled, and remained aware of her tax responsibilities. 

Finally, a request for an extension is not a license never to

file, and thus petitioner’s extension requests do not absolve her

from actually filing. Because petitioner conceded her receipt of

income and respondent established that she never filed,

respondent has met the burden of production under section

7491(c); and on the record as a whole we find the addition to tax

under section 6651(a)(1) is applicable as respondent asserted. 
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We therefore find that petitioner did not have reasonable cause

and is liable for the section 6651(a)(1) addition to tax for

failure to file for each year at issue. 

Conclusion

Because petitioner has not adequately substantiated her

deductions, she is not entitled to deductions in excess of those

respondent allowed. Respondent has met the burdens of production

and proof with respect to the addition to tax for failure to

file, and petitioner is liable for the section 6651(a)(1)

addition to tax for 1999-2004. 

To reflect the foregoing,

Decision will be entered

under Rule 155.