T.C. Summary Opinion 2002-95

UNITED STATES TAX COURT

JOYCE H. SAMS, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 12430-00S. Filed July 19, 2002.

Joyce H. Sams, pro se.

Michele A. Yates, for respondent.

PANUTHOS, Chief Special Trial Judge: This case was heard

pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect at the time the petition was filed. The

decision to be entered is not reviewable by any other court, and

this opinion should not be cited as authority. Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code in effect for the year in issue, and all Rule

references are to the Tax Court Rules of Practice and Procedure.
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1 Respondent conceded $9,740 of the original adjustment of

$35,318 of unreported income.

2 Sams, Inc. deducted $35,866 of expenses on its return of

which respondent disallowed $13,279.

Respondent determined a deficiency in petitioner’s Federal

income tax of $23,243 and a penalty under section 6662(a) of

$4,648.60 for 1996. After a concession by respondent,1 the

issues for decision are: (1) Whether $37,828 reported by Joyce

Sams, Inc. (Sams, Inc.), on Form 1120S, U.S. Income Tax Return

for an S Corporation, is taxable to petitioner; (2) whether

petitioner received unreported income of $25,578; (3) whether

petitioner is entitled to deduct expenses of $13,2792 on her

individual return that were claimed by Sams, Inc. and disallowed

by respondent; (4) whether petitioner is entitled to a claimed

loss on Schedule E, Supplemental Income and Loss, of $3,287; (5)

whether petitioner is entitled to claimed Schedule E deductions

of $1,246; (6) whether petitioner is entitled to the claimed net

operating loss (NOL) carryover of $56,699; (7) whether petitioner

is entitled to the standard mileage deduction for business miles

traveled; and (8) whether petitioner is liable for an accuracyrelated penalty under section 6662.

 Respondent also determined that petitioner is subject to

self-employment tax and to the alternative minimum tax. These

adjustments are computational and dependent on the adjustments to

income. Therefore, we need not separately address these issues. 
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Petitioner resided in Charlotte Hall, Maryland, at the time

she filed her petition. Some of the facts have been stipulated

and are so found. For convenience we combine our findings of

fact and conclusions.

Background

Petitioner has worked as a real estate agent licensed by the

State of Maryland since 1980. Petitioner incorporated Sams, Inc.

in the State of Maryland in 1980 in order to limit her personal

liability from lawsuits which she believed to be potentially

substantial. Petitioner refiled the articles of incorporation

for Sams, Inc. in 1995. Petitioner was the president and the

sole shareholder of Sams, Inc., and the only person providing

services purportedly on behalf of Sams, Inc. Sams, Inc. is an S 

corporation for Federal income tax purposes.

During 1996, petitioner also worked as a broker-sales

associate and independent contractor with O’Brien Home Sales,

Inc. and O’Brien Realty, Inc. (collectively referred to as

O’Brien), a real estate agency, pursuant to the terms of an

agent-broker agreement dated March 28, 1991. Although the body

of the agreement indicates that petitioner is the sales

associate, the signature line indicates that Sams, Inc. is the

sales associate.
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In addition to her work as a real estate agent, petitioner

was involved with other real estate matters in 1996, both as an

individual and purportedly on behalf of Sams, Inc. On occasion,

petitioner taught real estate classes for O’Brien. Petitioner

owned two rental properties in Waldorf, Maryland. In addition,

petitioner also maintained and managed rental property by finding

and placing tenants for Skyview Farm and managed real estate

property for Bill Stallman (the Stallman property). Petitioner

received rental checks from the tenants of Skyview Farm and the

Stallman property, deposited the checks into her personal

checking (the account), and wrote checks to Skyview Farm and Bill

Stallman for the amount of the rents paid by the tenant minus her

management fee.

On Form 1040, U.S. Individual Income Tax Return, for 1996

petitioner reported income and claimed deductions as follows:

Income

Taxable interest $341

Rental real estate, royalties, (10,576)

 partnerships, S corporations, 

 trusts, etc. 

Other income (Net operating loss (56,699)

 carryover)

Adjusted gross income (negative) (66,934)

Petitioner reported income and claimed deductions on

Schedule E attached to her individual return as follows:
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Income Property A Property B Total

Rents received $10,800 $8,800 $19,600

Deductions

Commissions –0- 288 288

Insurance 249 222 471

Mortgage interest 7,597 7,281 14,878

Taxes 1,457 1,140 2,597

Utilities –0- 9 9

Association dues –0- 188 188

Painting and –0- 652 652

 decorating

Plumbing and –0- 1,050 1,050

 electrical

Depreciation 3,915 2,841 6,756

Total deductions 26,889

Losses (7,289)

Passive Income and Loss

Nonpassive loss from Sch. K-1, (5,249)

 Shareholder’s Share of Income, Credits,

 Deductions, etc.

Nonpassive income from Sch. K-1 1,962

Total income or loss (10,576)
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Sams, Inc. reported income and claimed deductions on its

Form 1120S for its 1996 tax year as follows: 

Income

Gross receipts $37,828

Deductions

Repairs and maintenance 2,257

Interest 20,010

Advertising 975

Other deductions 112,624

Total income 21,962

1 The other claimed deductions are as follows: Accounting

($300), dues and subscriptions ($1,118), gifts ($333), insurance

($906), legal and professional ($644), outside services ($3,165),

supplies ($1,472), telephone ($867), utilities ($3,539), and

communications ($280).

2 The income of $1,962 flowed through to petitioner

individually as reflected on a Sch. K-1 issued to her by Sams,

Inc. 

Discussion

Generally, the burden of proof is on the taxpayer. Rule

142(a)(1). The burden of proof may shift to the Commissioner

under section 7491 if the taxpayer establishes compliance with

the requirements of section 7491(a)(2)(A) and (B) by

substantiating items, maintaining required records, and fully

cooperating with the Secretary’s reasonable requests. Section

7491 is effective with respect to court proceedings arising in

connection with examinations by the Commissioner commencing after

July 22, 1998, the date of its enactment by section 3001(a) of

the Internal Revenue Service Restructuring and Reform Act of
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3 Respondent subsequently allowed an additional deduction

for an advertising expense of $20.

4 Respondent concedes that petitioner is entitled to these

deductions if the Court concludes that respondent’s allocation of

income to petitioner is proper. 

1998, Pub. L. 105-206, 112 Stat. 685, 726.

It is not clear from the record when respondent commenced

the audit of petitioner’s individual return; therefore, we cannot

determine whether section 7491 is applicable. Nevertheless,

petitioner has not established that she complied with its

requirements. Respondent claims that petitioner showed only

partial cooperation in the examination and Appeals processes and

that she produced only minimal documentation after repeated

requests. We agree. Accordingly, even if section 7491 were

applicable, we conclude that the burden of proof remains upon

petitioner. 

1. Allocation of Gross Receipts

The notice of deficiency determined that gross receipts

reported on the return for Sams, Inc. of $37,828 should have been

reported on petitioner’s individual return. Respondent

disallowed deductions claimed on the return of Sams, Inc. of

$35,866 but allowed Schedule A deductions of $2,5773 and a

Schedule C deduction of $20,010 on petitioner’s individual

return.4 The net disallowance is $13,279 ($35,866 less ($2,577

plus $20,010)). Respondent reasons that the income and certain
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5 We note that respondent has not alleged that the gross

receipts should be allocated under sec. 269A. The application of

sec. 269A to a personal service corporation (PSC) requires a

finding that the principal purpose for forming or availing of

that PSC is the avoidance or evasion of income tax by reducing

income or securing the benefit of an expense, deduction, credit,

exclusion, or other allowance for any employee-owner which would

not otherwise be available. Sec. 269A(a). There are no facts in

the record that would lead us to conclude that petitioner’s

principal purpose for incorporating Sams, Inc. was avoidance or

evasion of income tax. Therefore, sec. 269A is inapplicable.

deductions should have been reported and claimed on petitioner’s

individual return because: Petitioner sold real estate for and

received commissions from O’Brien; all payments were made to

petitioner in her name and were either deposited in her

individual bank accounts or endorsed by her; and petitioner did

not receive a salary from Sams, Inc. during the year at issue.

We consider whether the gross receipts were properly

allocated by respondent and are taxable to petitioner under

either the assignment of income doctrine and section 61 or under

section 482, the regulations, and the case law thereunder.5

Gross income includes all income from whatever source

derived. Sec. 61(a). Under the assignment of income doctrine

and section 61, salaries, fees, and compensation are taxed to

those who earned them. United States v. Basye, 410 U.S. 441, 447

(1973); Leavell v. Commissioner, 104 T.C. 140, 149 (1995) (citing

Lucas v. Earl, 281 U.S. 111, 114-115 (1930)). The application of

the assignment of income doctrine requires an analysis of who

controlled the earning of income and who is the employer. 
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Leavell v. Commissioner, supra at 149. In determining whether

the taxpayer was an employee of his personal service corporation

as opposed to an employee of a professional sports club, the

Court in Leavell considered whether the service recipient had the

right to control the “manner and means” by which the services

were performed. Id. The employee must be just that--an employee

of the corporate employer. Johnson v. Commissioner, 78 T.C. 882,

891 (1982), affd. without published opinion 734 F.2d 20 (9th Cir.

1984). Also, there must be a “contract or similar indicium”

between the corporation and the person recognizing the

corporation’s controlling position. Id. at 891.

Petitioner has attempted to show that Sams, Inc. actually

conducted business. Moline Props., Inc. v. Commissioner, 319

U.S. 436, 438-439 (1943). For example, Sams, Inc. was

incorporated in 1980. The name of Sams, Inc. appears on the

signature line of the agent-broker agreement with O’Brien. Sams,

Inc. was the payee on Forms 1099-MISC, Miscellaneous Income,

issued by O’Brien.

These facts do not convince us that petitioner was an

employee of Sams, Inc., and that we should respect her allocation

of income to Sams, Inc. Petitioner did not receive a salary from

Sams, Inc. Sams, Inc. had no source of income outside of the

ventures in which petitioner personally participated. Petitioner

earned the income of Sams, Inc. See United States v. Basye,
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supra at 447. Petitioner did not have a contract for employment

with Sams, Inc., which evidences lack of control by Sams, Inc. 

See Johnson v. Commissioner, supra at 891. Sams, Inc. had no

employees in 1996. In addition, many of the checks deposited

into the account (which is in petitioner’s name) reflect

petitioner individually as the payee, and not Sams, Inc. 

Furthermore, petitioner did not maintain records of the expenses

claimed on her individual return separately from the expenses

claimed on the return of Sams, Inc.

We conclude that petitioner was not an employee of Sams,

Inc., and that petitioner, not Sams, Inc., earned the gross

receipts at issue. We also conclude that petitioner was selfemployed. Secs. 1401 and 1402. Therefore, the gross receipts

reported on the return of Sams, Inc. are properly allocated to

petitioner under the assignment of income doctrine. 

Based on the above holding, we need not and do not apply

section 482 to these facts.

2. Unreported Income and Bank Deposits

During the examination of petitioner’s individual return,

respondent’s agent requested petitioner’s books and records,

including a sales journal, general ledger, and a general journal,

none of which petitioner produced. Petitioner produced to

respondent (and to the Court) bank statements reflecting deposits

to and withdrawals from the account from January 1 through
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December 3, 1996; however, she did not produce a bank statement

from the account for the period December 4 through 31, 1996. 

Because petitioner did not produce all of the requested records,

respondent reconstructed petitioner’s income by performing a bank

deposit analysis of her account. Respondent determined in the

notice of deficiency that petitioner had unexplained deposits in

the account and, therefore, unreported gross income of $35,318. 

Subsequent to the issuance of the notice of deficiency respondent

reduced this amount to $25,578 calculated as follows:

Total deposits into account $99,381

Returned checks (3,375)

Deposits from home equity line of credit (13,000)

Income reported on return (57,428)

Total unexplained deposits 25,578

In addition to the use of the bank deposit methodology,

respondent determined that petitioner received $12,589.55 in

commission income and $1,800 in teaching income from O’Brien,

based upon Forms 1099-MISC issued to Sams, Inc. and filed with

respondent. Petitioner reported the teaching income of $1,800

but only $10,122 of the commission income in 1996.

Petitioner asserts that the deposits into the account can be

explained from the following sources: 

Returned checks $3,375

Home equity line of credit 14,700

1099-MISC O’Brien commissions 10,122

1099-MISC O’Brien teaching 1,800

Mack/Middleton interest 22,140

Mack/Middleton reimbursement 3,881 
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Partnership agreement 7,500

Property management rent 14,950

Rental income 1 19,500

Miscellaneous 1,413

Total 99,381

1 Petitioner alleges that this amount includes a security

deposit; however, she failed to indicate the amount of the

security deposit. Petitioner reported the amount of rental

income on her individual return as $19,600.

a. Forms 1099-MISC

Respondent determined that the full amounts reported on the

Forms 1099-MISC were includable in petitioner’s gross income in

1996. Petitioner challenged the accuracy of the information

provided in the Form 1099-MISC concerning commission income of

$12,589.55. Petitioner admits that she received and deposited

$10,122.05 into the account in 1996 but alleges that the

remaining $2,467.50 was deposited on January 2, 1997, and,

therefore, was not includable in income for 1996. 

Under section 6201(d), if a taxpayer in a court proceeding

asserts a reasonable dispute with respect to income reported on

an information return (e.g., Form 1099-MISC) and fully cooperates

with the Secretary (including providing access to and inspection

of all witnesses, information, and documents within the control

of the taxpayer as reasonably requested by the Secretary), then

the Secretary shall have the burden of producing reasonable and

probative information in addition to such information return. 

See Tanner v. Commissioner, 117 T.C. 237 (2001); McQuatters v.

Commissioner, T.C. Memo. 1998-88; Dennis v. Commissioner, T.C.
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Memo. 1997-275.

As discussed above, petitioner did not reasonably cooperate

with respondent, and she did not produce all documents within her

control (e.g., a bank statement from December 4 through 31,

1996). Accordingly, the burden of production as well as the

burden of proof with respect to this issue remains on petitioner. 

Petitioner has not provided credible evidence substantiating

her position. For example, petitioner has not produced a bank

statement for the period December 4 through 31, 1996. We

conclude that the $12,589.55 reported on the Form 1099-MISC from

O’Brien is includable in petitioner’s gross income in 1996. 

b. Bank Deposit Analysis

Generally, a taxpayer is required to maintain adequate books

and records of income. Sec. 6001; sec. 1.6001-1(a), Income Tax

Regs. The Commissioner is authorized to reconstruct a taxpayer’s

income by using any reasonable method that clearly reflects

income, including an indirect method, when a taxpayer has failed

to provide adequate records substantiating income. Sec. 446(b);

Holland v. United States, 348 U.S. 121 (1954); Clayton v.

Commissioner, 102 T.C. 632, 643 (1994). The Commissioner may use

bank deposit records to reconstruct a taxpayer’s income. Clayton

v. Commissioner, supra at 645. Bank deposits are prima facie

evidence of income, and the taxpayer has the burden of showing

that the determination is incorrect. Id. The Commissioner must
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take into account any nontaxable source or deductible expense of

which the Commissioner has knowledge. Id. at 645-646.

We agree that petitioner’s records were inadequate to

substantiate all of her income and deductions. We note that the

records petitioner produced to the Court are voluminous but

disorganized. Petitioner commingled the records of expenses

claimed on her return with the records of expenses claimed on the

return of Sams, Inc. While we conclude generally that

respondent’s use of the bank deposit methodology was reasonable,

we now consider whether each separate deposit into the account

was gross income to petitioner because it appears that respondent

has not taken into consideration whether each item is from a

nontaxable source or a deductible expense. 

Deposits made into the account in 1996 total $99,381. Of

the deposits, returned checks account for $3,375 of this amount. 

The returned checks are not includable in petitioner’s gross

income. 

Deposits of $14,700, as reflected in deposit slips, are

withdrawals from petitioner’s home equity line of credit. These

withdrawals are loans and, therefore, are not includable in

petitioner’s gross income. 

Petitioner provided credible evidence that the deposit of

$3,881 is a reimbursement of engineering expenses. Therefore,

the reimbursement is not includable in petitioner’s gross income.
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Petitioner alleges that only fees of $1,455 from property

management rents of $14,950 deposited into the account are

includable in gross income because she was a collection agent for

which she received a fee. Petitioner’s bank statements indicate

that deposits of $6,150 from the Skyview Farm tenant and $10,300

from the Stallman property tenant were made into the account. 

Canceled checks written on the account indicate that petitioner

paid $5,542 to Skyview Farm and $9,453 to Bill Stallman. We

conclude that petitioner retained $608 and $847, respectively,

totaling $1,455 of fees received that are includable in

petitioner’s gross income. 

Petitioner argues that only one-fourth of the deposit of

$7,500 as shown on the partnership agreement is includable in

gross income. Although the relevant partnership agreement

indicates that petitioner had a one-fourth interest in the assets

of the partnership capital and for purchases and sales, profits,

losses, and distributions, petitioner did not present any

credible evidence that she distributed any of $7,500 that she

received pursuant to the partnership agreement to the other

partners. We note that the record contains neither a return for

this partnership nor a Schedule K-1 issued by this partnership to

petitioner reflecting the distribution of income. We conclude

that the entire deposit of $7,500 is includable in petitioner’s

gross income. 
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Petitioner alleges that the remaining $1,412.59 of

miscellaneous deposits are not includable in gross income. 

Petitioner claims the deposits are from the following sources: 

Party expenses; Southern States store refund; Winnebago

Industries stock dividends; repayment of gift from brother; cash

ATM redeposit; Pagenet phone rebate; Catherine Douglas loan

repayment; Farm Credit crop refund; and reimbursement for gift

purchased by mother. Petitioner provided copies of checks

received and deposited into the account that reflect these

payments. We are satisfied that petitioner has provided credible

evidence establishing that these deposits are from nontaxable

sources and are not includable in petitioner’s gross income.

3. Deductions

Petitioner claims that she is entitled to deductions for

expenses for repairs, dues, gifts, insurance, legal and

professional services, outside services, supplies, telephone and

communications, and utilities of $13,279 that were claimed by

Sams, Inc. and disallowed by respondent.

Under section 162(a), a taxpayer may deduct all ordinary and

necessary expenses paid during the taxable year in carrying on

any trade or business. Commissions and insurance expenses paid

are deductible under section 1.162-1(a), Income Tax Regs. The

cost of incidental repairs which neither materially add to the

value of a property nor appreciably prolong its life are
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deductible. Sec. 1.162-4, Income Tax Regs. 

No deduction is generally allowed for amounts paid or

incurred for membership in any club organized for business,

pleasure, recreation, or other social purpose. Sec. 274(a)(3).

Under section 274(a)(1), no deduction otherwise allowable shall

be allowed for any item with respect to a facility used in

connection with an activity which is of a type generally

considered to constitute entertainment, amusement, or recreation

unless the taxpayer establishes that the item was directly

related to the active conduct of a trade or business or related

to a substantial and bona fide business discussion. Dues or fees

paid to any social, athletic, or sporting club or organization

shall be treated as an item with respect to facilities. Sec.

274(a)(2)(A). In the case of a club, the taxpayer must establish

that the facility was used primarily for the furtherance of the

taxpayer’s trade or business and that the item was directly

related to the active conduct of such trade or business. Sec.

274(a)(2)(C). 

No deduction shall be allowed for an 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 the deduction. Sec. 274(d)(2). The

taxpayer must substantiate by adequate records or sufficient
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evidence corroborating the taxpayer’s own statement (A) the

amount of the expense, (B) the time and place of the use of the

facility, (C) the business purpose of the expense, and (D) the

business relationship to the taxpayer of persons entertained or

using the facility. Sec. 274(d). The taxpayer must establish

that the expenditure was directly related to the active conduct

of the taxpayer’s trade or business. Sec. 1.274-2(a)(1)(i),

Income Tax Regs. An expenditure for entertainment that is

directly related to the active conduct of the taxpayer’s trade or

business is one that meets all of the following requirements: 

(1) At the time the expenditure was made the taxpayer had more

than a general expectation of deriving some income or other

specific trade or business benefit; (2) during the entertainment

period, the taxpayer actively engaged in a business meeting,

negotiation, discussion, or other bona fide business transaction,

for the purpose of obtaining such income or other specific trade

or business benefit; (3) in light of all the facts and

circumstances, the principal character or aspect of the combined

business and entertainment was the active conduct of the

taxpayer’s trade or business; and (4) the expenditure was

allocable to the taxpayer and a person with whom the taxpayer

engaged in the active conduct of a trade or business during the

entertainment or establishes that he would have engaged in the

active conduct of trade or business were it not for circumstances
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beyond the taxpayer’s control. Sec. 1.274-2(c)(3), Income Tax

Regs.

A taxpayer must satisfy the same substantiation requirements

of section 274(d) for listed property as defined under section

280F(d)(4). Listed property includes any cellular telephone (or

similar telecommunications equipment). Sec. 280F(d)(4)(A)(v).

Under section 274(b) deductions for gifts made by the

taxpayer to an individual are not allowed to the extent that such

expense, when added to prior expenses of the taxpayer for gifts

made to such individual during the taxable year, exceeds $25. 

Sec. 1.274-3(a), Income Tax Regs. The business gift must also be

ordinary and necessary under section 162.

Because petitioner provided supporting canceled checks,

invoices and bills, and other substantiating information, we are

satisfied that petitioner has provided credible evidence and

satisfied the requirements of section 162 and (if applicable)

section 274(a)(1), (2)(A), and (d) concerning the time, place of

use, business purpose of, and business relationship to clients,

with respect to the following claimed expenses: 
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Repairs $2,257 

Dues 1,118

Insurance 906

Legal services 644

Services 3,165 

Supplies 1,214 

Telephone and 1,147 

 communications (pager)

Utilities 3,539 

Accordingly, we conclude that petitioner is entitled to deduct 

these expenses.

Petitioner produced canceled checks and other information

concerning her business gifts. We are satisfied that petitioner

has provided credible evidence and has satisfied the requirements

of section 274(b) and section 1.274-3(a), Income Tax Regs.,

relating to the following business gift expenses: $5 (Schultz);

$50 (Burns and Henderson); $25 (Wells); $25 (Slater); $25

(Sullivan); $25 (Marsh); $16.28 (Berry); $72 (Rose, Wiley, and

Hytton); and $50 (Dorsey and Gray), for a total of $293.28 that

petitioner is entitled to deduct.

4. Schedule E Loss

On Schedule E petitioner reported nonpassive income of

$1,962 and claimed a nonpassive loss of $5,249, which respondent

disallowed. Petitioner indicated that both the loss and income 

flowed through from a partnership as reported on a Schedule K-1. 

The Schedule K-1 issued by Sams, Inc. reflects income of $1,962

but does not reflect the nonpassive loss of $5,249. Petitioner

has failed to substantiate the claimed nonpassive loss of $5,249. 
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Accordingly, respondent’s determination on this issue is

sustained.

5. Schedule E Expenses

Respondent disallowed deductions for a commission expense,

insurance expenses, association dues, a utility expense, and $290

of the painting expense claimed on Schedule E of petitioner’s

individual return, for a total of $1,246 of disallowed

deductions.

Petitioner produced copies of canceled checks, bills, and

invoices to substantiate her claimed commission expense,

association dues, and painting expense. We are satisfied that

petitioner has provided credible evidence relating to the claimed

commission expense of $288, the dues expense of $188, and the

painting expense of $652, and she is entitled to deduct these. 

Petitioner has not provided any credible evidence substantiating

the claimed insurance expenses of $471 or the claimed utility

expense of $9. Accordingly, the claimed deductions for insurance

expenses and utility expense are disallowed.

6. NOL Carryover

On her 1996 tax return petitioner claimed an NOL carryover

of $56,699 from her 1991 tax year. Petitioner produced a copy of

the first page of her individual 1991 Federal income tax return,

which reflects a negative adjusted gross income of $25,803. 

Petitioner claims that the NOL from 1991 was not eliminated by
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virtue of the Order and Decision entered in Sams v. Commissioner,

docket No. 20161-98S. Petitioner alleges that she is entitled to

claim the NOL because she never received a copy of the agreement

between her counsel and respondent which formed the basis of the

settlement in that case.

Respondent determined that petitioner is not entitled to the

claimed NOL carryover of $56,699 because all NOL’s available for

petitioner to carryover were eliminated in a prior docketed case,

Sams v. Commissioner, docket No. 20161-98S. The Court entered an

Order and Decision in Sams v. Commissioner, docket No. 20161-98S,

on February 11, 2000, and ordered and decided that petitioner had

deficiencies in Federal income taxes, additions to tax, and

penalties for the taxable years 1992, 1993, 1994, and 1995. 

An individual taxpayer may generally deduct an NOL carryover

for up to 20 years from the tax year of the loss. Sec.

172(b)(1)(A).

It is not clear from the record how or when the loss was

sustained, how the NOL carryover was computed, or whether the NOL

was computed properly under section 172. Petitioner’s 1991

return does not reflect the NOL available to be carried forward;

nevertheless, even if it properly reflected the NOL available to

be carried over, submission of the return is not sufficient

evidence of the claimed loss. Wilkinson v. Commissioner, 71 T.C.

633, 639 (1979). We conclude that petitioner has not
- 23 -

substantiated the claimed NOL carryover, and the claimed NOL

carryover is denied. 

7. Standard Business Mileage Deduction

At trial, petitioner claimed that she was entitled to deduct

standard business mileage of $5,249.23. Although petitioner

attached to her individual return a Form 4562, Depreciation and

Amortization, reflecting 10,761 business miles driven by Vehicle

1 (a Cadillac) and 6,172 business miles driven by Vehicle 2 (a

truck), for a total of 16,933 business miles driven, petitioner

did not actually claim the deduction because she alleges that her

accountant mistakenly failed to claim it. We consider this

matter as an affirmative issue raised by petitioner.

Under section 274(d)(4), no deduction is allowed with

respect to listed property as defined in section 280F(d)(4)

unless the taxpayer adequately substantiates the expense, as

discussed above. Listed property includes any passenger

automobile and any other property used as a means of

transportation. Sec. 280F(d)(4)(A)(i) and (ii). A taxpayer may

deduct a mileage allowance for ordinary and necessary expenses of

local travel and transportation while traveling away from home. 

Sec. 1.274(d)-1(a)(2)(iii), Income Tax Regs. The Commissioner is

authorized to establish the standard mileage rate that is deemed

to satisfy the substantiation requirements for purposes of

section 1.274-5T(c), Temporary Income Tax Regs., 50 Fed. Reg.
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46017 (Nov. 6, 1985). Sec. 1.274(d)-1(a), Income Tax Regs. The

standard business mileage rate for transportation expenses paid

or incurred on or after January 1, 1996, is 31 cents per mile for

all miles of use for business purposes. Rev. Proc. 95-54, 1995-2

C.B. 450, 452.

Petitioner produced a copy of her daily appointment book 

that reflects approximately 17,300 business miles traveled in

1996 to substantiate her claim. We are satisfied that petitioner

has provided credible evidence substantiating the number of

business miles traveled, and petitioner is allowed a deduction of

$5,249.23 (31 cents times 16,933).

8. Section 6662 Accuracy-Related Penalty

The accuracy-related penalty is equal to 20 percent of any

portion of an underpayment of tax required to be shown on the

return that is attributable to, among other things, the

taxpayer’s negligence or disregard of rules or regulations or any

substantial understatement of income tax. Sec. 6662(a) and (b). 

“Negligence” includes any failure to make a reasonable attempt to

comply with the provisions of the Code and any failure by the

taxpayer to keep adequate books and records or to substantiate

items properly. Sec. 6662(c); sec. 1.6662-3(b)(1), Income Tax

Regs. “Disregard” includes any careless, reckless, or

intentional disregard. Sec. 6662(c). A taxpayer has a

substantial understatement of income tax if the amount of the
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understatement exceeds the greater of either 10 percent of the

tax required to be shown on the return for the taxable year or

$5,000. Sec. 6662(d)(1)(A). 

The penalty provided for in section 6662 is not imposed on

any portion of an underpayment if it is shown that there was

reasonable cause for such portion and the taxpayer acted in good

faith with respect to that portion. Sec. 6664(c)(1); sec.

1.6664-4(b), Income Tax Regs. Reliance on the advice of a

professional, such as an accountant, does not necessarily

demonstrate reasonable cause and good faith unless the reliance

was reasonable and the taxpayer acted in good faith. Sec.

1.6664-4(b)(1) and (c)(1), Income Tax Regs. In the case of

claimed reliance on the accountant who prepared the taxpayer’s

tax return, the taxpayer must establish that correct information

was provided to the accountant and that the item incorrectly

omitted, claimed, or reported in the return was the result of the

accountant’s error. Ma-Tran Corp. v. Commissioner, 70 T.C. 158,

173 (1978). 

Respondent determined that petitioner is liable for the

accuracy-related penalty because of either negligence or

disregard of the rules or regulations or substantial

understatement of income tax. Petitioner asserts that she is not

liable for the section 6662 penalty because she was not

negligent, she did not disregard the statutes or regulations, she
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properly reported all income and expenses, and she relied on the

advice of a tax professional. 

We conclude that petitioner did not act with reasonable

cause or good faith. We conclude that her reliance on the advice

of a tax professional is not reasonable or in good faith. 

Accordingly, petitioner is liable for the accuracy-related

penalty.

Reviewed and adopted as the report of the Small Tax Case

Division.

To reflect the foregoing, 

Decision will be entered

under Rule 155.