T.C. Memo. 1997-105

UNITED STATES TAX COURT

RAYMOND STRONG, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 27340-90. Filed March 3, 1997. 

During 1987, petitioner (P) was a business manager at

two automobile dealerships. P claimed various employee

business expense deductions, primarily for business meals.

1. Held: P is not entitled to deductions for business

meals expenses because he has not satisfied the requirements

of sec. 274, I.R.C. 1986.

2. Held, further, deductions are not allowable for P’s

otherwise deductible other employee business expenses

because they do not in the aggregate exceed the 2-percent

floor on miscellaneous itemized deductions. Sec. 67, I.R.C.

1986. 

3. Held, further, P is liable for additions to tax

under secs. 6653(a)(1) and 6661(a), I.R.C. 1986.

Stuart E. Abrams, for petitioner.

Mark A. Ericson, Nancy Chassman Rothbaum, and Rosemarie D.

Camacho, for respondent.
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1 Unless indicated otherwise, all section references are to

sections of the Internal Revenue Code of 1986 as in effect for

the year in issue.

2 In the notice of deficiency, respondent disallowed

petitioner’s claimed $250 tax preparation fee deduction. At the

opening statement, this matter remained in dispute. On the third

day of the trial, a witness was questioned about this matter. 

However, petitioner, who has the burden of proof, did not argue

this matter on brief. We treat petitioner’s failure to argue as,

in effect, a concession by petitioner of this matter. See

subpars. (4) and (5) of Rule 151(e); Sundstrand Corp. v.

Commissioner, 96 T.C. 226, 344 (1991); Money v. Commissioner, 89

T.C. 46, 48 (1987).

MEMORANDUM FINDINGS OF FACT AND OPINION

CHABOT, Judge: Respondent determined deficiencies in

Federal individual income tax and additions to tax under sections

6653(a)1 (negligence, etc.) and 6661 (substantial understatement

of liability) against petitioner as follows:

 Additions to Tax 

Year Deficiency Sec. 6653(a)(1)(A) Sec. 6653(a)(1)(B) Sec. 6661

1987 $20,272 $1,014 1 $5,068

1 An amount equal to 50 percent of the interest due on $20,272.

After a deemed concession by petitioner,2 the issues for

decision are as follows:

(1) Whether petitioner is entitled to various itemized

employee business expense deductions;

(2) Whether petitioner is liable for additions to tax

under section 6653(a); and

(3) Whether petitioner is liable for additions to tax

under section 6661(a).
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3 The parties stipulated that petitioner was employed by the

Crabtree Dealerships as a “salesperson” in 1987. Our finding,

contrary to the stipulation, is in accord with petitioner's trial

testimony and with both parties’ proposed findings of fact. 

FINDINGS OF FACT

Some of the facts have been stipulated; the stipulations and

the stipulated exhibits are incorporated herein by this

reference.

When the petition was filed in the instant case, petitioner

resided in Syosset, New York. 

Background

Petitioner has a degree from Baruch College (CUNY) and a

Masters in Business Administration degree from Adelphi

University. During 1987, petitioner was employed by Crabtree

Toyota, Inc., and Crabtree Hyundai, Inc. (hereinafter sometimes

collectively referred to as the Crabtree Dealerships). The

Crabtree Dealerships were located in New Rochelle, Westchester

County, New York, and were in the business of selling

automobiles. In 1987, Crabtree also had Mazda, Cadillac,

Mitsubishi, Suzuki, and Nissan dealerships in New Rochelle, and a

Ford dealership in Larchmont, also in Westchester County.

Petitioner was employed at the Crabtree Dealerships as a

business manager, which position was sometimes referred to as a

finance and insurance manager.3 The Crabtree Dealerships

required business managers to be in the showrooms from 50 to 70

hours a week. Petitioner's duties at the Crabtree Dealerships
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4 The record in the instant case does not indicate how the

amount of referral commission was determined, or what the

mechanics were for petitioner to receive such a commission

without a Form W-2’s being issued by the dealership at which the

referred sale occurred. Respondent appears to agree that the two

Forms W-2 include all of petitioner’s commission income from the

Crabtree Dealerships and the related companies.

were to (1) arrange financing, (2) sell insurance and warranties,

(3) assist customers with their automobile registration, and (4)

make leasing arrangements. Petitioner's duties as a business

manager generally took place after a deal was agreed to for the

sale of an automobile. However, at times, petitioner arranged

the automobile sale. 

Petitioner received $163,289 commission income from the

Crabtree Dealerships in 1987. Petitioner's business manager

commissions were directly tied to the amount of financing and

other arrangements he successfully concluded and were not based

on a pool of all business managers at the Crabtree Dealerships. 

In those instances when petitioner arranged for sales of

automobiles, not merely financing, etc., petitioner’s commissions

were based on the entire sales price. Petitioner sold about 50

automobiles in 1987.

When petitioner referred customers to other Crabtree

Dealerships, he earned commissions from the resulting sales. 

Petitioner’s Forms W-2 for 1987, report income only from Crabtree

Hyundai, Inc., and Crabtree Toyota, Inc.4
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The Crabtree Dealerships had a busy year in 1987. Banks

competed to obtain the Crabtree Dealerships' financing business

in 1987. Petitioner maintained close relationships with

representatives of banks and other financial institutions, such

as insurance companies and leasing companies, in order to be sure

that, once a deal was made between the customer and the

dealership, the financing would be approved by a bank or other

financial institution. 

Crabtree sold the Crabtree Dealerships around mid-1989, and

Crabtree no longer had access to the Crabtree Dealerships’ books

and records.

During 1987, petitioner resided in Syosset, New York, which

is located in northeastern Nassau County, on Long Island. The

Crabtree Dealerships are about 34 miles from petitioner’s

residence. Driving between Syosset and New Rochelle ordinarily

requires one to pass through Queens and Bronx Counties, and to

cross the East River by one of three toll bridges.

Employee Business Expenses

Business Meals

Petitioner recorded in a diary the amounts he claims he

spent each day for business meals. Each entry in petitioner’s

diary for meals lists the name of the restaurant, the names of

the people present, the type of meal (breakfast, lunch, or

dinner), and the cost of the meal. Petitioner’s diary does not

show the business purpose of any of these meals and does not show
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what was the business relationship to petitioner of any of the

people present. The business meals shown in the diary include

274 dinners, 104 lunches, and 10 breakfasts. For 1987,

petitioner made 388 such entries, showing a total cost of 

$65,777.39 over 304 days. Petitioner’s diary shows entries for

every day of 1987 except Sundays, six holidays, and one 3-day

vacation.

Petitioner paid for many of his business meals in currency

and others of his business meals by credit card. Petitioner's

entries in his diary for business meals average about $5,481 a

month. 

Many of the restaurants listed in the diary, including those

shown as lunch sites, are located within a few miles of

petitioner’s home on Long Island. Some of the listed restaurants

are in The Bronx, some in Manhattan, some in Westchester, and

some in Connecticut.

Thomas Mercer (hereinafter sometimes referred to as Mercer)

hired petitioner to work for the Crabtree Dealerships about 1985

or late 1984. In 1986, Mercer was the general manager of

Crabtree Toyota, Inc., Crabtree Mazda, Inc., and Crabtree

Hyundai, Inc. In 1986 or 1987, Mercer left those dealerships to

become president of an unrelated auto leasing company. According

to petitioner's diary, petitioner entertained Mercer once in

1987. In fact, Mercer had dinner with petitioner once or twice

during 1987, but he (Mercer) paid for the meals. 
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Paula Wright (hereinafter sometimes referred to as Wright)

was a senior credit analyst at Chemical Bank who dealt with the

Crabtree Dealerships, among about 35 auto dealerships, during

1987. At that time, Wright worked in Jericho, which is about 3

miles southwest of Syosset. According to petitioner's diary,

petitioner entertained Wright only once during 1987. In fact,

Wright had business dinners with petitioner many times during

1987. These dinners, which sometimes involved others from the

Crabtree Dealerships and sometimes involved others from Chemical

Bank, generally took place at restaurants in or near Syosset or

Glen Cove. Glen Cove is about 7 miles northwest of Syosset and

Jericho. Petitioner paid for these dinners with Wright.

John Sullivan (hereinafter sometimes referred to as

Sullivan) was a retail sales representative with Chemical Bank

until around the end of May or beginning of June 1987, at which

time he became a credit specialist with Citibank. As a retail

sales representative with Chemical Bank, Sullivan had a business

relationship with petitioner. As a credit specialist with

Citibank, Sullivan did not have a business relationship with

petitioner. According to petitioner's diary, petitioner

entertained Sullivan seven times in 1987--three times at lunch

and four times at dinner. According to petitioner’s diary, one

lunch and one dinner took place while Sullivan was with Chemical

Bank, and two lunches and three dinners took place while Sullivan

was with Citibank. In fact, while working for Chemical Bank,
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Sullivan went out to lunch weekly or biweekly with petitioner;

most of the time Chemical Bank paid for the lunches, sometimes

petitioner paid. After Sullivan left Chemical Bank, the few

times he had lunch with petitioner, petitioner paid for the

lunch. Sullivan never had dinner with petitioner. Sullivan does

not know many of the restaurants at which petitioner’s diary

shows that he ate with petitioner. Sullivan does not know some

of the people petitioner’s diary shows as having shared a meal

with him and petitioner. 

In addition to his diary, petitioner presented the bottom

perforated portion of restaurant checks (hereinafter sometimes

collectively referred to as the stubs) as substantiation for his

meals expenses. Less than half the stubs have the name of the

restaurant imprinted on them. On most of the stubs there is a

name of a restaurant, a month and day but not a year, and an

amount, handwritten in pencil. Petitioner wrote the handwritten

information on most, if not all, of the stubs that have

handwritten information. 

Table 1 shows the information recorded in petitioner’s diary

about meals at Frank’s Steaks in 1987. All of these meals are

shown in the diary as dinners.

Table 1

Date Amount Diners (in addition to petitioner)

Jan 05 $132.80 B. Newman, A. McDermott

Feb. 21 203.75 A. Loomis, C. Walsh, N. Hawkins

Mar. 14 235.50 C. Shiflet, W. Keller, J. Orr
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May 08 193.50 L. Lewis, M. Lewis, N. Hannon

Jun. 01 196.85 G. Becker, J. Ferraro, D. Voelker

Aug. 04 212.45 T. Schwitz, N. Annarella, C. Bouse

Aug. 19 206.35 G. Levy, N. Pierce, F. Loria

Sep. 30 196.00 J. Gold, M. Hong, J. Niceberg

Oct. 09 265.00 B. Ragan, R. Grossman, D. Dearney

Oct. 22 223.35 J. Paevor, N. Cohen, J. Cowen

Dec. 30 246.60 M. Smith, J. Fox, M. Hannon

 Total 2,312.15

Nine of these 11 dinners at Frank’s Steaks in 1987 were

“substantiated” by stubs which do not have the name of the

restaurant imprinted on them; there are not any stubs for the

remaining two dinners.

Frank’s Steaks, a restaurant on the border of Westbury and

Jericho, opened under that name in July 1988. From January 1987

to July 1988 there was no Frank’s Steaks, and there were not any

restaurant operations at the Frank’s Steaks location. For about

a year before that hiatus, the restaurant at this location was

named “The Peculiar Penguin”. Before that, the restaurant at

this location was named “The Great American Cafe”. There are no

other restaurants in the Westbury or Jericho area named “Frank’s”

or “Frank’s Steaks”. There were only two restaurants in the New

York City metropolitan area in 1987 with “Frank’s” in the name;

one was “Frank’s” in Manhattan at 14th St. and 9th Ave., and the

other was “Frank’s Pizzeria” in Huntington, in the northwest

corner of Suffolk County, about 6 miles west of Syosset. The

stubs that petitioner presented as substantiation of his dinners

at Frank’s Steaks were not the sort of stubs that had ever been
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used at Frank’s Steaks or at its predecessor, The Peculiar

Penguin.

Petitioner presented two stubs to substantiate two meals at

Montauk Yacht Club. Montauk is at the easternmost end of Long

Island, more than 80 miles east of Syosset. One stub shows 

$219.35 for dinner on July 29; the other shows $211 for dinner on

September 1. Both stubs are imprinted with the name of the

restaurant. Both stubs have the serial no. 05284 imprinted on

them. One stub is light paper, with the serial number in red;

the other is heavy paper, with the serial number in dark gray. 

It is evident that the two stubs were parts of separate copies of

a single bill, and not stubs for two separate bills almost 5

weeks apart (July 29 and Sept. 1).

Petitioner’s diary shows that on Friday, June 26, 1987, he

took three people to dinner at Smith & Wollensky, at a cost of

$212.75. Petitioner’s diary does not show any other meals for

that day. Petitioner presented two stubs to substantiate meals

on June 26, each in the amount of $212.75. One stub is imprinted

with the name of the restaurant, Smith & Wollensky. The other

stub does not have any name imprinted on it. The date and amount

were hand-written on both stubs. That June 26 dinner is the only

meal shown in the entire diary as costing $212.75.

Petitioner’s diary shows that on Tuesday, July 7, 1987, he

took three people to dinner at Gian-Lorenzo Ristorante, at a cost

of $193.50. Petitioner’s diary does not show any other meals for
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that day. Petitioner presented two stubs to substantiate meals

on July 7, each in the amount of $193.50. Neither stub has the

name of the restaurant imprinted on it. The stubs are of the

same style, but with different serial numbers. Petitioner’s

diary shows a $193.50 dinner for January 31 and another one for

May 8; there are different stubs to “substantiate” each of these

meals. The diary does not show any other meals costing $193.50.

Petitioner’s diary shows that petitioner took people to

meals at North Shore Steak House on four occasions in 1987--all

were dinners during the 16-week period from September 4 through

December 23. Petitioner presented stubs to substantiate each of

these four dinners. None of these four stubs has a restaurant’s

name imprinted on it. Each of these four stubs is in a style

different from the other three.

There are numerous instances in which a single restaurant is

represented by stubs of different styles. There are numerous

instances in which stubs of a single style with close receipt

numbers are represented as coming from different restaurants.

The Crabtree Dealerships did not have a formal reimbursement

policy for meals and entertainment expenses incurred by an

employee. The Crabtree Dealerships’ informal policy was to

reimburse an employee for meals and entertainment expenses if the

employee was asked to incur the expense, but not otherwise.

Auto Expenses
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In petitioner’s diary he noted mileage amounts for each of

the days on which he also noted business meals, intending to show

how many business miles he had driven that day. The mileage

amounts that petitioner so noted in his diary total 28,867. In

petitioner’s diary he noted parking and toll amounts for some of

the days on which he also noted business meals, intending to show

business parking and tolls. The parking toll amounts that

petitioner so noted in his diary total $1,101.75.

The Crabtree Dealerships provided various demonstration

vehicles to petitioner for his use during 1987. Petitioner had

exclusive use of these vehicles while the vehicles were in his

possession. Petitioner used these vehicles to commute to and

from work and for other personal purposes. Petitioner did not

incur any repair expenses relating to these vehicles. Petitioner

paid for gasoline, for oil and other maintenance, and $35 per

month rental fee.

Petitioner’s Tax Return

Petitioner’s 1987 tax return was prepared by Morris A.

Levine (hereinafter sometimes referred to as Levine), a C.P.A.,

who signed the tax return as preparer on April 10, 1988. This

tax return was filed timely.

Petitioner’s 1987 tax return was the first tax return Levine

prepared for petitioner. Levine prepared this tax return

primarily from statements made by petitioner and not from
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underlying books or records. In particular, petitioner did not

give petitioner’s diary to Levine.

On his 1987 tax return, petitioner claimed the deductions

shown in table 2.

Table 2

Form 2106

Meals and entertainment $62,500

Less: 20 percent 112,500 $50,000

Vehicle expenses 4,016

Parking fees, tolls, and local trans. 900 

Other business expenses 840

 Total Form 2106 $55,756

Schedule A

Form 2106 $55,756

Tax preparation fees 250

 56,006

 Less: 2 percent A.G.I. 23,350

 Net miscellaneous deductions 52,656

1 Petitioner acknowledges the limitation, and showed it on his

tax return. Sec. 274(n).

2 Petitioner acknowledges the limitation, and showed it on his

tax return. Sec. 67. Both sides agree that $3,350 is the

correct amount. 

On the Form 2106 of his 1987 tax return, petitioner arrived

at the $4,016 vehicle expenses amount shown in table 2, by the

route described in table 3.

Table 3

Total mileage vehicle used 35,000 mi.

Business use 27,500 mi.

Percent of business use 78.571 

“Average daily round trip commuting distance” 10 mi.1

Total commuting 2,500 mi.2

Other personal mileage 5,000 mi.
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Gasoline, oil, repairs, vehicle ins. $3,361

Vehicle rentals 1,750

Total 5,111

Total times percent business use (78.571) 4,016

1 The parties have stipulated that the distance between

petitioner’s home and his workplace is about 34 miles; the

roundtrip is about 68 miles.

2 Although the implication of the commuting items is that

petitioner worked 250 days in 1987 (2,500 mi. divided by 10 mi.

per day = 250 days) petitioner’s diary, discussed supra, shows

business meals on 304 days in 1987.

In the notice of deficiency, respondent disallowed all the

deductions described supra in tables 2 and 3.

_________________________

The information in petitioner’s diary and the stubs was not

recorded at or near the times of the events described therein. 

Petitioner’s diary and the stubs are not “adequate records” for

purposes of section 274(d) and section 1.274-5T(c)(2), Temporary

Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6,1985). The record

in the instant case does not include “sufficient evidence” for

purposes of section 274(d) and section 1.274-5T(c)(3), Temporary

Income Tax Regs., 50 Fed. Reg. 46020 (Nov. 6, 1985).

Petitioner paid for some meals that were expenses of his

trade or business as an employee. 

Petitioner’s business use of his vehicles was well under

1,000 miles.

The entire underpayment is due to petitioner’s negligence.
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OPINION

I. Deductions

Respondent contends that, under section 162(a), petitioner

is not entitled to the claimed employee business expense

deductions because petitioner has failed to substantiate that the

expenses (1) were incurred and (2) were ordinary and necessary

expenses of petitioner’s trade or business as a Crabtree

Dealerships business manager. See supra note 3. In addition,

respondent contends that petitioner is not entitled to these

deductions because of petitioner’s failure to meet the strict

record-keeping requirements of section 274(d).

Petitioner maintains that (1) he has satisfied the

requirements of section 162(a) as to all his claimed employee

business expense deductions, (2) he has satisfied the

requirements of section 274(d) as to his claimed meals expenses

deductions, and (3) section 274(d) does not apply to his claimed

automobile and other nonmeal business expense deductions. 

Respondent apparently does not dispute petitioner’s contention

that section 274(d) does not apply to the claimed automobile and

other nonmeal business expense deductions. But see secs.

274(d)(1), and (4), and 280F(d)(4)(A)(i), and the regulations

thereunder.

We agree with respondent that petitioner has failed to

establish that he is entitled to any of these deductions. 
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5 Sec. 162 provides, in relevant part, as follows:

SEC. 162. TRADE OR BUSINESS EXPENSES.

(a) In General.--There shall be allowed as a deduction

all the ordinary and necessary expenses paid or incurred 

during the taxable year in carrying on any trade or 

business, * * *

Deductions are a matter of legislative grace, and a taxpayer

seeking a deduction has the burden of overcoming the presumption

of correctness that attaches to respondent's factual

determinations in the notice of deficiency. Rule 142(a); New

Colonial Co. v. Helvering, 292 U.S. 435, 440 (1934); Welch v.

Helvering, 290 U.S. 111, 115 (1933).

Section 162(a)5 allows a deduction for "all the ordinary and

necessary expenses paid or incurred during the taxable year in

carrying on any trade or business," including a trade or business

as an employee. See, e.g., Lucas v. Commissioner, 79 T.C. 1, 6-7

(1982). Under section 6001 and section 1.6001-1(a) and (e),

Income Tax Regs., a taxpayer must keep such permanent books of

account or records as are sufficient to establish the amount of

gross income, deductions, credits, or other matters required to

be shown on the tax return. If the books and records are not

adequate to establish the amounts of deductions or credits, but

there is evidence that something more should be allowed than

respondent allowed, then we are required to make some estimate of
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6 Sec. 274(d) provides, in relevant part, as follows:

SEC. 274. DISALLOWANCE OF CERTAIN ENTERTAINMENT, ETC., 

 EXPENSES.

* * * * * * *

(d) Substantiation Required.--No deduction or credit

shall be allowed-- 

* * * * * * *

(2) for any item with respect to an activity

which is of a type generally considered to constitute

entertainment, amusement, or recreation, or with

respect to a facility used in connection with such an

activity, 

* * * * * * *

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 travel, entertainment, amusement,

recreation, or use of the facility or property, or the date

and description of the gift, (C) the business purpose of the

expense or other item, and (D) the business relationship to

the taxpayer of persons entertained, * * *

how much more should be allowed. Cohan v. Commissioner, 39 F.2d

540, 543-544 (2d Cir. 1930).

However, section 274(d)6 provides that a deduction is not

allowable under section 162 for meals and entertainment expenses,

as well as certain other types of expenses, unless the taxpayer

substantiates certain matters by “adequate records” or by

“sufficient evidence” corroborating the taxpayer's own statement. 

Where section 274(d) applies, it overrules the “Cohan rule”. 
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Sanford v. Commissioner, 50 T.C. 823, 827-828 (1968), affd. 412

F.2d 201 (2d Cir. 1969).

We consider first petitioner’s claimed business meals

expenses, then his other claimed business expenses.

A. Business Meals Expenses

The parties agree that petitioner’s claimed business meals

expenses are not deductible if they fail to meet the requirements

of section 274(d).

Petitioner’s right to deduct his claimed meals and

entertainment expenses turns on (1) whether the diary and the

stubs constitute adequate records for purposes of section 1.274-

5T(c)(2), Temporary Income Tax Regs., and if not, then (2)

whether sufficient evidence to corroborate petitioner’s own

statements has been presented. Sec. 1.274-5T(c)(3), Temporary

Income Tax Regs.

(1) Adequate Records

Under section 1.274-5T(c)(2)(i), Temporary Income Tax Regs.,

in order to meet the "adequate records" requirement, a taxpayer

is to maintain an account book, diary, statement of expenses, or

similar record and documentary evidence (such as receipts, paid

bills, or similar evidence) which, when combined, establish each

element of the expense that section 274(d) requires to be

established. The account book, diary, statement of expense, or

similar record must be prepared or maintained in such a manner
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that each recording of an element of expenditure is made at or

near the time of the expenditure. Sec. 1.274-5T(c)(2)(ii),

Temporary Income Tax Regs. If the taxpayer lacks "adequate

records", then the taxpayer is to provide a written or oral

statement by the taxpayer containing sufficient information in

detail as to each element set forth in section 274(d), as well as

sufficient other corroborative evidence. Sec. 1.274-5T(c)(3)(i),

Temporary Income Tax Regs.

Petitioner’s diary paints a picture of an indefatigable

worker (the diary shows that he had business meals on 304 days,

even though his tax return showed that he worked only 250 days

during 1987) who was, if anything, overly cautious on his tax

return (his diary showed the meals cost him $65,777.39, but he

deducted only $62,500). Supra tables 3 and 2. The bill stubs

present an ostensibly plausible backup, in a bewildering variety

of styles, sizes, and colors.

However, neither the diary nor the stubs show (1) the

business purpose of any of the claimed business meals or (2) the

business relationship to petitioner of any of the people with

whom he dined. In addition, substantially all the other

information in the record about business meals contradicts the

information that is presented in the diary and stubs. Mercer

testified that he, not petitioner, paid for their dinners. 

Wright testified that she had many dinners with petitioner during
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1987, and that petitioner paid for them, but petitioner’s diary

shows Wright as a guest only once. Sullivan went to lunch with

petitioner many times, but not to dinner, during 1987;

petitioner’s diary shows Sullivan as petitioner’s guest for four

dinners and only three lunches. Petitioner’s diary shows 11

dinners at Frank’s Steak in 1987; 9 were purportedly

substantiated by stubs. However Frank’s Steaks did not open

until July 1988, and the predecessor restaurant, The Peculiar

Penguin, closed in January 1987. Also, the stubs petitioner

presented to substantiate the Frank’s Steaks business meals were

of a style that had never been used by either Frank’s Steaks or

The Peculiar Penguin. In addition, our findings set forth

numerous inconsistencies among the stubs.

Petitioner’s cause is not helped by his testimony that he

relied on stubs that he filled in, even where he had paid the

bill by credit cards and thus had credit card receipts. He

testified that the stubs that he filled in were just as

trustworthy as credit card receipts.

The record does not include meaningful evidence to

corroborate the reliability of petitioner’s diary or stubs. Nor

has petitioner offered as adequate explanation for the

inaccuracies and inconsistencies which are identified with

respect to the diary and stubs. Based on the record, we

conclude, and we have found, that petitioner’s diary and the
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stubs are not adequate records for purposes of section 274(d). 

Sec. 1.274-5T(c)(2), Temporary Income Tax Regs.

On brief, petitioner attempts to counter the Frank’s Steaks

evidence as follows:

The one restaurant representative called by respondent,

Brent Gindel, the owner of a restaurant known as Frank’s

Steaks, was unable to identify the receipts provided by the

petitioner. Since the evidence showed there were other

restaurants known as “Frank’s” in the New York metropolitan

area that were open during 1987, Mr. Gindel’s testimony is

incompetent to establish anything concerning the restaurant

receipts proffered by Strong.

The record indicates that there were only two other restaurants

in the New York City metropolitan area in 1987 with “Frank’s” in

the name. One of them, Frank’s Pizzeria, was in Huntington,

about 8-10 miles from the Westbury-Jericho location of Frank’s

Steaks. The other, Frank’s, was in lower Manhattan, on the west

side.

Before Brent Gindel testified, petitioner testified that the

“Frank’s” in question was “on the Westbury Jericho border on Long

Island”. About half an hour later, petitioner testified that the

“Frank’s” in question was “I believe in Westbury.” Although

petitioner’s responses between these two occasions were somewhat

evasive, he did not suggest, in his pre-Gindel testimony, that

the “Frank’s” or “Frank’s Steak” referred to in his diary and the

stubs was in any other location than the Westbury-Jericho border. 

Two days after Gindel’s testimony, petitioner was on the witness

stand again. On this occasion, counsel for both sides “danced
- 22 -

around” the question of what petitioner had stated about Frank’s

in a response to an interrogatory. Because of the form of

respondent’s counsel’s questions, and respondent’s counsel’s

tactical decision to not offer into evidence the interrogatory

and petitioner’s written response thereto, the evidence of record

is not clear as to petitioner’s statements in discovery. 

However, it is clear that, up to that point in the trial,

petitioner had identified the Frank’s Steaks mentioned in his

diary and on some of the stubs as the restaurant on the border of

Westbury and Jericho. Also, Brent Gindel’s testimony clearly

contradicted petitioner’s testimony. This point was important--

petitioner claimed in his diary to have taken 32 different people

to Frank’s in 1987, and to have spent more than $50 per person

per meal there that year. Supra table 1. Respondent had

informed petitioner some 9 months before the trial that Frank’s

Steaks did not open until 1988, and so was not open on the

relevant 1987 dates shown in petitioner’s diary and on the stubs. 

In addition, petitioner had 2 days after the Gindel testimony to

check records or call any of his 32 claimed dinner guests. Yet

petitioner did not take this or any other opportunity to identify

the correct location of the Frank’s Steaks where he took his

claimed dinner guests and incurred his claimed expenses. We

conclude that petitioner did not explain or rebut because there

was no plausible explanation or rebuttal. See Wichita Terminal

Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162
- 23 -

F.2d 513 (10th Cir. 1947). This strongly suggests that

petitioner’s diary and stubs (1) are materially false, and (2)

were not substantially contemporaneous in 1987, but were

constructed well after August 1988 when the restaurant first

opened as Frank’s Steaks.

We conclude, and we have found, that petitioner’s diary and

the stubs are not “adequate records” for purposes of section

274(d) and section 1.274-5T(c)(2), Temporary Income Tax Regs.

(2) Corroboration

Substantiation by “sufficient evidence corroborating the

taxpayer’s own statement” requires the cost, time, place, and

date of the expenditure to be corroborated by “direct evidence,”

while business purpose or business relationship may be shown by

“circumstantial evidence.” Sec. 1.274-5T(c)(3)(i), Temporary

Income Tax Regs.

The witnesses who testified about sharing meals with

petitioner were unable to support the specifics of petitioner’s

testimony or diary. None of the witnesses could identify (1) any

particular date on which they had dined with petitioner, (2)

where they had eaten, (3) who else was present during the meal,

or (4) the amount of any bill. Some of the witnesses could not

even recollect ever being at some of the restaurants that,

according to the diary, they had dined at, nor could they

recollect ever having met the people who, according to the diary,

shared a meal with them. Indeed, with the exception of general
- 24 -

assertions by some of the witnesses that they attended meals with

petitioner, the testimony did not provide an adequate description

of the circumstances surrounding any of the meals. Not only was

there a total failure of direct evidence to corroborate

petitioner’s statement as to cost, time, place, and date, but

some of the witnesses’ testimony directly contradicted at least

some of petitioner’s statements. See supra the discussion of

Mercer’s, Wright’s, and Sullivan’s testimony.

Thus, we conclude, and we have found, that the record does

not include “sufficient evidence” of corroboration for purposes

of section 274(d) and section 1.274-5T(c)(3), Temporary Income

Tax Regs.

Petitioner argues that he should not be held to strict

compliance with section 274(d), because important records have

become unavailable. The records that petitioner claims are

unavailable are the Crabtree Dealerships’ records of who bought

automobiles from the Crabtree Dealerships during 1987. 

Petitioner contends that he is unable to obtain those records

because the Crabtree Dealerships were sold sometimes after 1987.

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

that if records have become unavailable through no fault of the

taxpayer, then the taxpayer is permitted “to substantiate a

deduction by reasonable reconstruction of his expenditures”. In

order to qualify for relief under this provision, petitioner must

establish that (1) at one time he possessed adequate records and
- 25 -

7 Sec. 1.274-5T(c)(5), Temporary Income Tax Regs., which

applies to 1986 and later years (see sec. 1.274-5T(a), Temporary

Income Tax Regs.), is identical in all material respects with

sec. 1.274-5(c)(5), Income Tax Regs., the provision interpreted

in Gizzi v. Commissioner, 65 T.C. 342, 345 (1975).

(2) his present lack of records is due to fire, flood, or other

casualty beyond his control. Gizzi v. Commissioner, 65 T.C. 342,

345 (1975).7 There is not any evidence that (1) petitioner ever

possessed the records in question or (2) if the records were

available, then the records would contain sufficient evidence to

satisfy the requirements of section 274(d). Even if the records

of who bought automobiles from the Crabtree Dealerships in 1987

were available, then petitioner’s records would still have all

the problems discussed supra, that caused us to conclude that

petitioner’s diary and the stubs are materially false and were

not substantially contemporaneous. Thus, petitioner is not

entitled to relief under section 1.274-5T(c)(5), Temporary Income

Tax Regs.

(3) Conclusions

We believe that it is more likely than not that petitioner’s

diary and the stubs were created by petitioner well after the

events they purport to describe. We are satisfied that

petitioner did, indeed, have some business meals in 1987 for

which deductions would have been allowable if contemporaneous

records had been kept. However, petitioner failed to keep

contemporaneous records, and his efforts to create
- 26 -

8 Our qualms about the credibility of petitioner’s testimony

may be illustrated by his statements about the number of days he

worked. When confronted with his diary, he testified that he

worked “well over 300 days.” When confronted with his tax

return, he testified that “that was a guess when I said 300”, and

that he probably went to work about 250 days in 1987. When asked

how to reconcile his diary and his tax return, he responded--

I don’t know, Your Honor, probably between 250 and 300. 

I can’t be certain.

contemporaneous-appearing records have succeeded only in

destroying what modicum of credibility his testimony might

otherwise have had.8

Petitioner has wholly failed to meet the requirements of

section 274(d) with respect to the business meal expenses. As a

result, he is not permitted to deduct any of his claimed business

meal expenses.

Under these circumstances, it is not necessary to examine

the details of section 162(a) with respect to these expenses.

We hold for respondent on this issue.

B. Other Business Expenses

See supra tables 2 and 3 for petitioner’s other claimed

business expenses. The “Other business expenses” category on

table 2 evidently consists of telephone expenses.

Expenses incurred in going from home to work, and from work

to home, are generally treated as nondeductible personal

expenses. Sec. 262; Commissioner v. Flowers, 326 U.S. 465

(1946); Green v. Commissioner, 59 T.C. 456, 458 (1972), secs.

1.262-1(b)(5), 1.162-2(e), Income Tax Regs. However, expenses
- 27 -

incurred in going from one workplace to another are generally

treated as trade or business expenses deductible under sec.

162(a). E.g., Steinhort v. Commissioner, 335 F.2d 496, 504-505

(5th Cir. 1964), affg. and remanding T.C. Memo 1962-233; Dancer

v. Commissioner, 73 T.C. 1103 (1980).

The claimed business use of the vehicles that the Crabtree

Dealerships leased to petitioner is for business meetings (such

as with bank employees) and for demonstrations to customers and

potential customers. Although we are satisfied that petitioner

did have business meals in 1987, our efforts to determine the

amount of business usage of petitioner’s vehicles and the amount

of petitioner’s vehicle-related expenses have largely foundered

on the inadequate record herein and on the contradictions in

petitioner’s contentions.

For reasons explained supra, we have concluded that

petitioner’s diary and stubs are unreliable. In addition, there

is no evidence in the record as to the locations of many of the

restaurants named in the diary and on the stubs, and no evidence

as to locations of any nonmeal business meetings, so we could not

check on the mileage figures petitioner wrote in his diary. 

Although we are satisfied that petitioner incurred some vehiclerelated expenses, we do not have any reliable evidence as to the

$5,111 he claims to have spent on the vehicles. Supra table 3. 

Also, we have no satisfactory explanation of why petitioner

claims that his “Average daily round trip commuting distance” is
- 28 -

only 10 miles, in light of the parties’ stipulation that the oneway distance between his home and his workplace is about 34

miles. Supra table 3. Finally, we do not have any explanation

of why on his tax return petitioner claims to have used his auto

to go to work on 250 days of the year (average daily round trip

commute of 10 mi., divided into total 1987 commuting distance of

2,500 mi.), while in his diary, petitioner claims to have had

business meals on 304 days.

Even if we were to find that petitioner substantiated some

vehicle-related expenses, any such allowance would be well under

$1,000. We note that both sides agree that the 2-percent floor

on miscellaneous itemized deductions is $3,350. Supra table 2,

note 2. Table 2 shows that, even if we were to allow $1,000

vehicle expenses, when added to petitioner’s remaining claimed

miscellaneous deductions it would not be enough to enable

petitioner to pass the $3,350 threshold; thus petitioner is not

entitled to any net miscellaneous deductions. Under these

circumstances, it is not necessary for us to set a more precise

number on petitioner’s vehicle expenses, nor on his parking fees,

etc., nor on his other business expenses. We have already deemed

petitioner to have conceded the claimed tax preparation fees. 

Supra note 2.

We hold for respondent on this issue.
- 29 -

9 Sec. 6653 provides, in relevant part, as follows:

SEC. 6653. ADDITIONS TO TAX FOR NEGLIGENCE AND FRAUD.

(a) Negligence.--

(1) In general.--If any part of any underpayment

* * * is due to negligence or disregard of rules or

regulations, there shall be added to the tax an amount

equal to the sum of--

(A) 5 percent of the underpayment, and

(B) an amount equal to 50 percent of the

interest payable under section 6601 with respect

to the portion of such underpayment which is

attributable to negligence for the period

beginning on the last date prescribed by law for

payment of such underpayment * * * and ending on

the date of the assessment of the tax * * *.

The later amendments of this provision by sec. 1015(b)(2)(A)

of the Technical and Miscellaneous Revenue Act of 1988 (Pub. L.

100-647, 102 Stat. 3342, 3569), and by sec. 7721(a) of the

Omnibus Budget Reconciliation Act of 1989 (OBRA 89--Pub. L. 101-

239, 103 Stat. 2106, 2395) do not affect the instant case.

As a result of OBRA 89, the substance of former sec. 6653(a)

now appears in subsecs. (b)(1) and (c) of sec. 6662.

II. Additions to Tax

A. Section 6653(a)

Section 6653(a)(1)(A)9 imposes an addition to tax of 5

percent of the underpayment if any part of the underpayment is

due to negligence or disregard of rules or regulations. Section

6653(a)(1)(B) imposes an additional addition to tax equal to 50

percent of the interest payable under 6601 with respect to the

portion of the underpayment attributable to negligence, etc. 

Petitioner has the burden of proving error in respondent's

determination that these additions to tax should be imposed

against him. Goldman v. Commissioner, 39 F.3d 402, 407 (2d Cir.
- 30 -

1994), affg. T.C. Memo. 1993-480; Bixby v. Commissioner, 58 T.C.

757, 791-792 (1972). 

Broadly speaking, for purposes of this provision, negligence 

is lack of due care or failure to do what a reasonable and

ordinarily prudent person would do under the circumstances. 

Neely v. Commissioner, 85 T.C. 934, 947-948 (1985). Petitioner

contends that he relied on his tax return preparer, Levine, to

prepare the 1987 tax return, and, thus, he neither was negligent,

nor acted in intentional disregard of the rules or regulations. 

Respondent contends that petitioner was negligent as to the

entire underpayment and thus, the additions to tax under section

6653(a)(1) should be imposed. 

We agree with respondent.

Petitioner was obligated to keep and present adequate and

accurate records of his trade or business expenses. Sec. 6001; 

Stovall v. Commissioner, 762 F.2d 891, 895 (11th Cir. 1985),

affg. T.C. Memo. 1983-450; Crocker v. Commissioner, 92 T.C. 899,

917 (1989). An ordinarily prudent taxpayer who contends that he

spent more than $60,000, supra table 2, on employee trade or

business expenses (about 40 percent of his $163,289 gross

receipts from that trade or business) would keep such records and

present them to his or her tax return preparer. Petitioner’s

diary and stubs are inadequate, and they conflict with the facts

in material respects. In addition, petitioner testified that he

did not give his diary to Levine, his tax return preparer. 
- 31 -

Petitioner’s failure to do what an ordinarily prudent taxpayer

would do is negligence. This negligence led to the entire

deficiency in the instant case. Thus, the entire deficiency (in

the instant case, the entire underpayment) is attributable to

petitioner’s negligence.

Levine testified that petitioner presented “papers” to

Levine and gave certain information orally to Levine, but Levine

could not recall the specifics. Petitioner’s testimony on this

matter is consistent with, and no more detailed than, Levine’s

testimony. The following colloquy is illustrative:

THE COURT: Mr. Strong, it appears that Mr. Levine

prepared your 1987 tax return, is that correct?

THE WITNESS: That’s correct.

THE COURT: When he prepared your tax return, did you

simply give him the numbers or did you give him the

documents and he figured out the numbers from the documents?

THE WITNESS: No, I gave him the numbers. I provided

the information to him.

THE COURT: Did you give him the diary?

THE WITNESS: No, sir.

THE COURT: So, did you then total the information on

the diary? You add up the mileage, the dollar amounts and

so on?

THE WITNESS: Yes, Your Honor.

As a general rule, the duty of filing accurate tax returns

cannot be avoided by placing responsibility on an agent. Metra

Chem Corp. v. Commissioner, 88 T.C. 654, 662 (1987); Pritchett v.

Commissioner, 63 T.C. 149, 174 (1974). Because the record does
- 32 -

10 Sec. 6661 provides, in relevant part, as follows:

SEC. 6661. SUBSTANTIAL UNDERSTATEMENT OF LIABILITY.

(a) Addition to Tax.--If there is a substantial

understatement of income tax for any taxable year, there

shall be added to the tax an amount equal to 25 percent of

the amount of any underpayment attributable to such

understatement.

Sec. 6661 was repealed by sec. 7721(c)(2) of OBRA 89, Pub.

L. 101-239, 103 Stat. 2106, 2399. The substance of former sec.

6661 now appears as secs. 6662(b)(2), 6662(d), and 6664(c)(1).

not include evidence that petitioner provided complete and

accurate information to Levine, it is not necessary for us to

explore in the instant case whether he could have avoided the

negligence addition to tax by providing this information to

Levine. See discussions in Metra Chem Corp. v. Commissioner, 88

T.C. at 662; Pritchett v. Commissioner, 63 T.C. at 174.

We hold for respondent on this issue.

B. Section 6661

Section 6661(a)10 imposes an addition to tax of 25 percent

of the amount of any underpayment attributable to a substantial

understatement of tax. Pallottini v. Commissioner, 90 T.C. 498

(1988). An understatement is substantial if it exceeds the

greater of 10 percent of the correct tax or $5,000. Sec.

6661(b)(1)(A). (Our holdings make it clear that petitioner has a

substantial understatement for 1987.)

If an item is not attributable to a tax shelter, then the

understatement shall be reduced on account of the item, and the

addition to tax accordingly reduced, if (1) the taxpayer's
- 33 -

treatment of the item was based on substantial authority, or (2)

the taxpayer adequately disclosed on the tax return or in a

statement attached to the tax return the relevant facts affecting

the item's tax treatment. Sec. 6661(b)(2)(B).

Respondent has authority to waive this addition to tax, if

the taxpayer shows there was reasonable cause for the

understatement and the taxpayer acted in good faith. Sec.

6661(c).

Petitioner has the burden of proving error in respondent's

determination that such an addition to tax should be imposed

against him. Rule 142(a); Welch v. Helvering, 290 U.S. at 115. 

Petitioner has not shown (1) that he had substantial authority

for the position taken on his tax return, (2) that he adequately

disclosed his position in a statement attached to the tax return

or on the tax return, (3) that he had reasonable cause for the

understatement, or (4) that he acted in good faith. Thus,

petitioner has failed to carry his burden of proof. 

We hold for respondent on this issue.

To reflect the foregoing,

Decision will be entered 

for respondent.