T.C. Summary Opinion 2007-27

UNITED STATES TAX COURT

LORENZO BATTLE, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 17617-05S. Filed February 26, 2007.

Lorenzo Battle, pro se.

Frederick C. Mutter, for respondent.

DEAN, Special Trial Judge: This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect when the petition was filed. Unless otherwise indicated,

all 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. The decision
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to be entered is not reviewable by any other court, and this

opinion should not be cited as authority.

Respondent determined for 2002 a deficiency in petitioner’s

Federal income tax of $6,777, an addition to tax under section

6651(a)(1) of $394.25, and an accuracy-related penalty under

section 6662(a) of $1,355.40.

The issues for decision are whether petitioner: (1) Is

entitled to deductions for charitable contributions, (2) is

entitled to deductions for employee business expenses, (3) is

entitled to deductions for business-related expenses in excess of

amounts respondent allowed, (4) is liable for an addition to tax

under section 6651(a)(1), and (5) is liable for an accuracyrelated penalty under section 6662(a).

Background

The stipulation of facts and the exhibits received into

evidence are incorporated herein by reference. At the time the

petition in this case was filed, petitioner resided in Danbury,

Connecticut. 

During 2002, petitioner was employed full time by the City

of Yonkers as a firefighter and arson investigator. In addition,

petitioner operated a business called Zomans Productions, of

which he is the president and founder. Zomans Productions, among

other things, produces digital movies, videos, and graphics. 
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1During the audit of the return, respondent determined that

the “maintenance fee” of $430 was a miscellaneous itemized

deduction under sec. 67. Therefore, petitioner’s claimed

employee business expenses were increased to $4,425. Of this

amount, respondent determined that petitioner would claim

deductions of $3,322 after applying sec. 67.

2Petitioner claimed meal expenses in the total of $1,250,

which he reduced by 50 percent as required by sec. 274(n).

Petitioner used the address of his residence as the business

address of Zomans Productions in 2002. 

Petitioner filed for 2002 a Form 1040, U.S. Individual

Income Tax Return, which he prepared using tax preparation

software. Respondent did not receive the 2002 return until April

19, 2004. 

On Schedule A, Itemized Deductions, petitioner claimed

deductions for charitable contributions of $3,549 and a

“maintenance fee” of $430. Petitioner also reported on Schedule

A employee business expenses of $3,995.1 Of that amount,

petitioner claimed deductions of $2,892 after taking into account

the 2-percent floor of section 67. In the statutory notice of

deficiency, respondent disallowed for lack of substantiation the

deductions claimed on Schedule A.

On Schedule C, Profit or Loss From Business, petitioner

claimed deductions for: (1) Car and truck expenses of $4,910,

(2) office expenses of $2,715, (3) travel expenses of $1,540, (4)

meals and entertainment expenses of $625,2 (5) other expenses of

$5,200, and (6) home office expenses of $4,030. In the notice of
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deficiency, respondent allowed deductions of $122 for office

expenses and $672 for other expenses claimed on Schedule C. 

Respondent disallowed the balance of the deductions claimed on

Schedule C for lack of substantiation.

Discussion

Generally, the Commissioner’s determinations in a notice of

deficiency are presumed correct, and the taxpayer has the burden

of proving that those determinations are erroneous. See Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). In some

cases the burden of proof with respect to relevant factual issues

may shift to the Commissioner under section 7491(a). Petitioner

did not present evidence or argument that he satisfied the

requirements of section 7491(a). Therefore, the burden of proof

does not shift to respondent.

Tax deductions are a matter of legislative grace with a

taxpayer bearing the burden of proving entitlement to the

deductions claimed. Rule 142(a)(1); INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992). Taxpayers bear the burden

of substantiating the amount and purpose of any claimed

deduction. See Hradesky v. Commissioner, 65 T.C. 87 (1975),

affd. per curiam 540 F.2d 821 (5th Cir. 1976).
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A. Deductions Claimed on Schedule A

1. Charitable Contributions

Section 170 allows a deduction for a charitable contribution

during the year if the contribution is verified as provided in

the regulations. Sec. 170(a)(1). A charitable contribution

includes a contribution or gift to or for the use of an

organization described in section 170(c) within a taxable year.

a. Cash Contributions

Petitioner claimed deductions in the sum of $3,084 for

contributions of cash to various charitable organizations in

2002. Each cash contribution, except for two, was under $250. 

Respondent concedes that petitioner has substantiated

contributions of $35. At issue is whether petitioner is entitled

to deductions for the balance of the cash contributions.

Petitioner does not dispute that cash contributions greater

than $250 require substantiation. But petitioner argues that for

cash contributions under $250, receipts are not required

“according to statute”. He therefore concludes that he is

entitled to deductions for all cash contributions under $250,

even in the absence of receipts from the donee organizations. 

The Court assumes that the “statute” upon which petitioner

relied was section 170(f)(8). Under section 170(f)(8), a

taxpayer must comply with certain substantiation requirements to

deduct any charitable contribution of $250 or more. Petitioner
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apparently reasoned that for charitable contributions of less

than $250, it follows that a written acknowledgment from the

donee organizations was not required.

Petitioner’s reliance solely on section 170(f)(8) is

misplaced because that section merely makes more stringent the

substantiation requirements for any charitable contribution of

$250 or more. The substantiation rules governing all cash

contributions are set forth under section 1.170A-13(a)(1), Income

Tax Regs. The regulations provide that if the taxpayer makes a

charitable contribution of money, the taxpayer must maintain for

each contribution either a canceled check, a receipt, a letter or

other communication from the donee charitable organization, or

other reliable written records showing the name of the donee, the

date of the contribution, and the amount of the contribution. 

See Bradley v. Commissioner, T.C. Memo. 1996-461 (disallowing

deductions for cash gifts that were not substantiated by canceled

checks or receipts); Hammann v. Commissioner, T.C. Memo. 1996-160

(same); sec. 1.170A-13(a)(1), Income Tax Regs.

Petitioner did not present any receipts or documentation

from the donee charitable organizations. Petitioner is therefore

not entitled to deductions for cash contributions in excess of

the amount respondent conceded.
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b. Noncash Contributions

Petitioner claimed deductions for noncash contributions of

$220 to “D.A.R.E. - Clothing Drop-Off” and $245 to “X-mas Toys

for Kids (Local 628)” in 2002. To the extent that petitioner

relied on section 170(f)(8) to argue that substantiation is not

required for noncash contributions under $250, his argument also

fails.

The substantiation rules governing charitable contribution

of property other than money are set forth under section 1.170A13(b), Income Tax Regs. The donor must maintain for each

contribution a receipt from the donee organization. Sec. 1.170A13(b)(1), Income Tax Regs. The receipt must contain the name of

the donee, the date and location of the contribution, and a

description of the property in detail reasonably sufficient under

the circumstances. Id. If it is impractical to obtain a receipt

(e.g., because property is deposited at a charity’s unattended

drop site), the taxpayer must maintain reliable written records

with respect to each item of donated property. Id. 

Petitioner has not provided any receipts from the donee

organizations, nor has he maintained any reliable written

records. Petitioner therefore is not entitled to deductions for

the noncash contributions.
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Accordingly, respondent’s determination disallowing

deductions for charitable contributions, to the extent not

conceded, is sustained.

2. Employee Business Expenses

Petitioner reported employee business expenses of $3,995 for

2002. Of this amount, respondent concedes that petitioner has

substantiated expenses of $555.63. At issue is whether

petitioner is entitled to deductions for the remaining claimed

employee business expenses.

Section 162(a) allows a deduction for ordinary and necessary

expenses paid or incurred during the taxable year in carrying on

a trade or business. Services performed by an employee

constitute a trade or business. O’Malley v. Commissioner, 91

T.C. 352, 363-364 (1988); sec. 1.162-17(a), Income Tax Regs. The

employee must show the relationship between the expenditures and

the employment. See Joseph v. Commissioner, T.C. Memo. 2005-169. 

Section 6001 and the regulations promulgated thereunder require

taxpayers to maintain records sufficient to permit verification

of income and expenses. Higbee v. Commissioner, 116 T.C. 438,

440 (2001); sec. 1.6001-1(a), Income Tax Regs. 

Petitioner claimed “physical fitness dues” of $720 on

Schedule A as an employee business expense. In support,

petitioner presented a gym membership agreement showing that he

paid a gym membership fee of $708 in 2002. Respondent argues
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that the gym membership fee is not an ordinary or necessary

expense of petitioner’s employment as a firefighter and arson

investigator or as the president of Zomans Productions.

Petitioner argues that the gym membership fee was an

ordinary and necessary expense of his employment as a

professional firefighter. Petitioner contends that fitness is

mandatory since a healthy body is important to the performance of

his duties as a firefighter. Petitioner succinctly explained: 

“my tool is my body.”

Under section 262(a), no deductions are allowed for

personal, living, or family expenses. Moreover, section 262

takes precedence over section 162. Sharon v. Commissioner, 66

T.C. 515, 522-523 (1976), affd. 591 F.2d 1273 (9th Cir. 1978). 

The taxpayer must demonstrate that the expenses were different

from or in excess of what he would have spent for personal

purposes. Sutter v. Commissioner, 21 T.C. 170, 173 (1953);

Tschetter v. Commissioner, T.C. Memo. 2003-326; see also Moss v.

Commissioner, 80 T.C. 1073, 1078 (1983) (finding that daily meals

are an inherently personal expense, and a taxpayer bears a heavy

burden to prove that the meals are routinely deductible), affd.

758 F.2d 211 (7th Cir. 1985). 

A gym membership fee is an inherently personal expense. It

is desirable to be physically fit regardless of one’s profession. 

Petitioner has not offered any evidence to show that his gym
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expenses were different from or were in excess of what he would

have spent for personal reasons. In addition, petitioner has not

offered any evidence to substantiate his remaining employee

business expenses.

Accordingly, respondent’s determination disallowing

petitioner’s employee business expenses, to the extent not

conceded, is sustained.

B. Deductions Claimed on Schedule C

Under section 162, a taxpayer may deduct all ordinary and

necessary expenses paid or incurred during the taxable year in

carrying on a trade or business if the taxpayer maintains

sufficient records to substantiate the expenses. Sec. 162(a);

see sec. 6001; Deputy v. du Pont, 308 U.S. 488, 495 (1940). 

1. Expenses Required To Be Substantiated Under

Section 274(d)

In addition to satisfying the criteria for deductibility

under section 162, certain categories of expenses must also

satisfy the strict substantiation requirements of section 274(d)

before those expenses will be allowed as deductions. See secs.

274(d), 280F(d)(4). Expenses subject to the strict

substantiation requirements of section 274(d) include passenger

automobiles, meals and entertainment, traveling, and cellular

telephones. Secs. 274(d), 280F(d)(4)(A)(i), (v). 

The taxpayer must substantiate the amount, time, place, and

business purpose of the expenditures and must provide adequate
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records or sufficient evidence to corroborate his own statement. 

See sec. 274(d); sec. 1.274-5T(c)(1), Temporary Income Tax Regs.,

50 Fed. Reg. 46016 (Nov. 6, 1985). In order to meet the

“adequate records” requirements, 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. Sec.

1.274-5T(c)(2)(i), Temporary Income Tax Regs., 50 Fed. Reg. 46017

(Nov. 6, 1985).

Petitioner presented as evidence bank statements for 2002. 

Petitioner also presented a spreadsheet that he prepared,

summarizing and sorting business expenses paid in 2002 according

to category. Respondent agrees that the amounts shown on the

spreadsheet match the amounts stated in the bank statements. 

Therefore, the amounts of the expenses, to the extent set forth

in the spreadsheet, are not in dispute.

a. Car and Truck Expenses

Petitioner claimed deductions of $4,910 for car and truck

expenses. Petitioner indicated on the spreadsheet that he paid

car insurance of $1,300.30 and attributed half of that amount to

Zomans Productions. Petitioner has not shown that the car

insurance was for a business rather than a personal purpose. 
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Since petitioner did not provide any other substantiation, he is

not entitled to deductions for car and truck expenses.

b. Meals and Entertainment Expenses

Petitioner claimed deductions of $1,250 for meals and

entertainment expenses, before the application of section 67. 

Petitioner indicated on the spreadsheet that he paid $466.09 for

meals in connection with Zomans Productions. Petitioner contends

that he met regularly with four or five clients. Petitioner

presented a 2002 calendar which he claims noted the dates when he

took a client to lunch or dinner. The calendar, however, did not

make any cross-references to the spreadsheet, and the Court is

therefore unable to determine when the expenses were paid. 

Moreover, the calendar failed to specify, as required by the

regulations, who the clients were, the nature of the clients’

business relationship with petitioner, the business purpose of

the meals, and the locations of the meals. See sec. 1.274-

5T(b)(3), (c), Temporary Income Tax Regs., 50 Fed. Reg. 46015,

46016 (Nov. 6, 1985). 

The Court finds that the evidence petitioner presented is

insufficient to satisfy the strict substantiation requirements of

section 274(d). Since petitioner did not provide any other

substantiation, he is not entitled to deductions for meals and

entertainment expenses. 
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c. Travel Expenses

Petitioner claimed deductions of $1,540 for travel expenses. 

Petitioner indicated on the spreadsheet, under the category of

miscellaneous, that he paid travel expenses of $897.71 in

connection with Zomans Productions. Petitioner also indicated

that he paid toll charges of $161.05 with his EZ Pass and

attributed half of that amount to Zomans Productions. Petitioner

claims that these travel expenses were for trips to Miami,

Florida, and Ocean City, Maryland, for the purpose of shooting

stock footage for his movie production business.

Petitioner testified that his Miami trip had a “dual role”. 

The second purpose of the trip was to attend a student

conference. The student conference was unrelated to petitioner’s

business, but he claims to have shot some footage at the

conference for use in a possible project. Petitioner provided

receipts for the Miami trip but not for the Ocean City trip. The

receipts for Miami show that some of the travel expenses were

incurred by another individual. No information, however, was

provided regarding that individual. 

The Court has reviewed petitioner’s evidence and finds that

it is insufficient to satisfy the strict substantiation

requirements of section 274(d). See sec. 1.274-5T(b)(2),

Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985). 
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Moreover, petitioner has failed to show that the travel expenses

were for a business and not a personal purpose.

Accordingly, respondent’s determinations disallowing

deductions for expenses relating to car and truck, meals and

entertainment, and traveling are sustained.

2. Office Expenses

Petitioner claimed deductions of $2,715 for office expenses. 

In the notice of deficiency, respondent allowed a deduction of

$122. Subsequently, respondent conceded an additional deduction

of $842.54 based on receipts petitioner provided substantiating

office expenses in that amount.

At trial, petitioner failed to offer any additional

documentation to substantiate the remaining claimed office

expenses. Accordingly, respondent’s determination disallowing

office expenses, to the extent not conceded or previously

allowed, is sustained.

3. Other Expenses

Petitioner claimed deductions of $5,200 for other expenses,

consisting of: (1) Clothes of $1,100, (2) dry cleaning of $340,

(3) books of $560, and (4) classes of $3,200. In the notice of

deficiency, respondent allowed a deduction of $672 as an

education expense. At trial, petitioner conceded that he was not

entitled to claim deductions for his clothes and dry cleaning

because they were personal expenses. 
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Petitioner argues that in order to “fine-tune” his career as

a movie maker, he attended classes at Westchester Community

College. Petitioner’s testimony is supported by receipts from

the college totaling $1,028.50 for classes relating to motion

graphics, computer photo imaging, and digital video. The parties

stipulated a receipt for a book entitled “Photoshop 7 Down and

Dirty Tricks” for $36.97 and a receipt for a registration fee of

$75 for a professional conference targeting video production

enthusiasts.

The Court finds that petitioner is entitled to claim

deductions of $1,103.50 for his classes as an education expense

and $36.97 as a book expense. Petitioner provided substantiation

for no other business expenses. Therefore, the balance of

petitioner’s other expenses, to the extent not previously

allowed, is disallowed.

4. Business Use of Home

Section 280A(a) denies deductions with respect to the use of

a dwelling unit which was used by the taxpayer as a residence

during the taxable year. As an exception to the general rule,

section 280A(c)(1)(A) permits the deduction of expenses allocable

to a portion of the dwelling unit which was used exclusively and

regularly as the principal place of business for the taxpayer’s

trade or business.
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In order for a taxpayer to establish use on a “regular”

basis, the business use must be more than occasional or

incidental. Irwin v. Commissioner, T.C. Memo. 1996-490, affd.

without published opinion 131 F.3d 146 (9th Cir. 1997); Hefti v.

Commissioner, T.C. Memo. 1993-128. A taxpayer “exclusively” uses

a portion of his dwelling in a trade or business if the portion

in question is not used for other than business purposes. Irwin

v. Commissioner, supra; Hefti v. Commissioner, supra. The use of

a portion of a dwelling unit both for personal purposes and for

the carrying on of a trade or business does not meet the

exclusive use test. See Sengpiehl v. Commissioner, T.C. Memo.

1998-23; Hefti v. Commissioner, supra.

Petitioner claimed deductions of $4,030 for home office

expenses paid in connection with Zomans Productions. Petitioner

provided a diagram of his apartment in which he designated one

room as a “studio area” and another as an “office” for his movie

production business. In order to access the living room, the

bedroom, or the bathroom, petitioner must go through one of the

designated areas. It is well established that the Court is not

required to accept a taxpayer’s self-serving testimony in the

absence of corroborating evidence. See Niedringhaus v.

Commissioner, 99 T.C. 202, 219 (1992); Tokarski v. Commissioner,

87 T.C. 74, 77 (1986). Other than petitioner’s testimony, there
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is no evidence that petitioner used the designated areas

exclusively for his business. 

Petitioner also failed to offer any evidence regarding the

amount of time and the nature of the work conducted at his home

to establish regular use. Therefore, petitioner’s apartment does

not qualify as a home office. Respondent’s determination

disallowing deductions for home office expenses is sustained.

C. Late Filing Addition to Tax

Respondent determined an addition to tax under section

6651(a)(1) for 2002, asserting that petitioner failed to timely

file a return for that year. Section 7491(c) imposes the burden

of production in any court proceeding on the Commissioner with

respect to the liability of any individual for penalties and

additions to tax. Higbee v. Commissioner, 116 T.C. at 446;

Trowbridge v. Commissioner, T.C. Memo. 2003-164, affd. 378 F.3d

432 (5th Cir. 2004). In order to meet the burden of production

under section 7941(c), the Commissioner need only make a prima

facie case that imposition of the penalty or addition to tax is

appropriate. Higbee v. Commissioner, supra.

The burden of proof remains on the taxpayer, who must prove

that his failure to file timely was: (1) Due to reasonable

cause, and (2) not due to willful neglect. Sec. 6651(a); United

States v. Boyle, 469 U.S. 241, 245 (1985); Higbee v.

Commissioner, supra at 446-447. A failure to file timely a
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Federal income tax return is due to reasonable cause if the

taxpayer exercised ordinary business care and prudence and

nevertheless was unable to file the return within the prescribed

time. Barkley v. Commissioner, T.C. Memo. 2004-287; sec.

301.6651-1(c)(1), Proced. & Admin. Regs. Willful neglect means a

conscious, intentional failure or reckless indifference. United

States v. Boyle, supra at 245. 

Petitioner’s 2002 return was not filed until April 19, 2004. 

Therefore, respondent has met his burden of production. 

Petitioner introduced no evidence or any legally sufficient

reason for his failure to file a timely return. The Court finds

that petitioner did not have reasonable cause for his failure to

file as required by section 6651(a)(1). Accordingly,

respondent’s determination of an addition to tax under section

6651(a)(1) is sustained.

D. Accuracy-Related Penalty

Respondent determined that petitioner is liable for an

accuracy-related penalty under section 6662(a). Section 6662(a)

imposes a 20-percent penalty on the portion of an underpayment

attributable to any one of various factors, including negligence

or disregard of rules or regulations and a substantial

understatement of income tax. See sec. 6662(b)(1) and (2). 

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

comply with the provisions of the Internal Revenue Code,
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including any failure to keep adequate books and records or to

substantiate items properly. See sec. 6662(c); sec.

1.6662-3(b)(1), Income Tax Regs. A “substantial understatement”

includes an understatement of tax that exceeds the greater of 10

percent of the tax required to be shown on the return or $5,000. 

See sec. 6662(d); sec. 1.6662-4(b), Income Tax Regs. The

Commissioner bears the burden of production. Sec. 7491(c).

Section 6664(c)(1) provides that the penalty under section

6662(a) shall not apply to any portion of an underpayment if it

is shown that there was reasonable cause for the taxpayer’s

position and that the taxpayer acted in good faith with respect

to that portion. The determination of whether a taxpayer acted

with reasonable cause and in good faith is made on a case-by-case

basis, taking into account all the pertinent facts and

circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. The most

important factor is the extent of the taxpayer’s effort to assess

his proper tax liability for the year. Id.

Petitioner had a substantial understatement of tax for 2002

since the understatement amount exceeded the greater of 10

percent of the tax required to be shown on the return or $5,000. 

The Court concludes that respondent has produced sufficient

evidence to show that the accuracy-related penalty under section

6662 is appropriate. Nothing in the record indicates petitioner

acted with reasonable cause and in good faith. Respondent’s
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determination of an accuracy-related penalty under section

6662(a) is sustained.

Reviewed and adopted as the report of the Small Tax Case

Division.

To reflect the foregoing,

Decision will be entered

under Rule 155.