T.C. Memo. 1998-459

UNITED STATES TAX COURT

M. MAUREEN POLSBY, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 22742-96. Filed December 30, 1998.

M. Maureen Polsby, pro se.

Lindsey D. Stellwagen, for respondent.

MEMORANDUM OPINION

DAWSON, Judge: This case was assigned to Special Trial

Judge John J. Pajak pursuant to the provisions of section

7443A(b)(4) and Rules 180, 181, and 183. All section references

are to the Internal Revenue Code in effect for the year in issue. 

All Rule references are to the Tax Court Rules of Practice and
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Procedure. The Court agrees with and adopts the Opinion of the

Special Trial Judge, which is set forth below. 

OPINION OF THE SPECIAL TRIAL JUDGE

PAJAK, Special Trial Judge: Respondent determined a

deficiency in petitioner's 1992 Federal income tax in the amount

of $9,345 and an addition to tax under section 6651(a)(1) in the

amount of $2,373.

The issues for decision are: (1) Whether petitioner is

entitled to Schedule C deductions, (2) whether petitioner is

entitled to charitable contribution deductions, and (3) whether

petitioner is liable for an addition to tax under section

6651(a)(1) for failure to timely file a return.

Some of the facts have been stipulated and are so found. 

Petitioner resided in Washington, D.C., at the time the petition

was filed.

During 1992, petitioner was a self-employed medical doctor

with a specialty in neurology. Petitioner operated her medical

practice in her home office. Petitioner's home office occupied

one-third of her house. Also during 1992, petitioner reviewed

disability claims for the Social Security Administration (SSA) as

a consultant. Petitioner was required to review the disability

claims on SSA's premises located in Baltimore, Maryland. The

majority of petitioner's gross income for 1992 resulted from her
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activity as a consultant for the SSA. She saw a few patients in

her home office.

On Schedule C, Profit or Loss From Business, petitioner

reported gross income from her medical practice and consulting

work for the SSA in the total amount of $49,724, and claimed the

following deductions:

Car and truck expenses $7,011

Depreciation and section 179 expense 

 deduction 3,264

Insurance 127

Mortgage interest 258

Office expense 5,800

Repairs and maintenance 6,278

Taxes and licenses 809

Travel, meals, and entertainment

Travel 5,618

Meals and entertainment 826

Utilities 1,289

Other expenses

Business meetings 6,237

Secretarial 3,919

Medical books 817

Dues 1,722

Conferences 485

Telephone 550

 Security system 712

 Total $45,722

In the notice of deficiency, respondent disallowed the

claimed $45,722 in Schedule C deductions, adjusted petitioner's

self-employment tax and its corresponding deduction, adjusted

petitioner's Schedule A deductions due to the adjustment to her

adjusted gross income, and determined that petitioner is liable
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for an addition to tax under section 6651(a)(1). Basically, this

is a substantiation case.

Deductions are strictly a matter of legislative grace. 

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New

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

Taxpayers must substantiate any deductions claimed. Hradesky v.

Commissioner, 65 T.C. 87 (1975), affd. per curiam 540 F.2d 821

(5th Cir. 1976). A taxpayer must keep sufficient records to

establish the amount of the deductions. Sec. 6001.

When a taxpayer fails to keep records, but a court is

convinced that deductible expenditures were incurred, the court

may make an approximation, bearing heavily upon the taxpayer

"whose inexactitude is of [her] own making." Cohan v.

Commissioner, 39 F.2d 540, 544 (2d Cir. 1930). We cannot

estimate deductible expenses, however, unless the taxpayer

presents evidence sufficient to provide some rational basis upon

which estimates may be made. Vanicek v. Commissioner, 85 T.C.

731, 743 (1985). Nor may a Cohan estimate be made of expenses

that are subject to the substantiation requirements of section

274(d).

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

necessary expenses paid or incurred during the taxable year in

carrying on a trade or business. Whether an expenditure is

ordinary and necessary is a question of fact. Commissioner v.
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Heininger, 320 U.S. 467, 475 (1943). However, no deduction shall

be allowed for personal, living, or family expenses. Sec. 262. 

Section 274(d) imposes stringent substantiation requirements

for the deduction of travel expenses (including meals and lodging

while away from home), entertainment expenses, gift expenses, and

expenses of certain listed property defined under section

280F(d)(4) such as an automobile. Taxpayers must substantiate by

adequate records certain items in order to claim deductions, such

as the amount and place of each separate expenditure, the

property's business and total usage, the date of the expenditure

or use, and the business purpose for an expenditure or use. Sec.

274(d); sec. 1.274-5T(b), Temporary Income Tax Regs., 50 Fed.

Reg. 46016 (Nov. 6, 1985). 

To substantiate a deduction by means of adequate records, a

taxpayer must maintain an account book, diary, log, statement of

expense, trip sheets, and/or other documentary evidence which, in

combination, are sufficient to establish each element of

expenditure or use. Sec. 1.274-5T(c)(2)(i), Temporary Income Tax

Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985). 

If an expense item comes within the requirements of section

274(d), this Court cannot rely on Cohan v. Commissioner, supra,

to estimate the taxpayer's expenses with respect to that item.

Sanford v. Commissioner, 50 T.C. 823, 827 (1968), affd. per

curiam 412 F.2d 201 (2d Cir. 1969).
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Petitioner contends that she incurred car and truck expenses

as the result of her commutes to the SSA located in Baltimore,

Maryland. At trial, petitioner estimated that she made 156 trips

in 1992, averaging three or four trips a week. Using the 1992

standard mileage rate of 28 cents, we calculated that petitioner

purportedly traveled about 25,039 miles ($7,011 ÷ 28 cents). 

After a review of the record, we find that the record lacks

any documentary evidence to support petitioner's claimed car and

truck expenses. Petitioner failed to maintain adequate records

such as a diary, log book, or trip sheets to evidence the

distances she purportedly traveled in furtherance of her medical

practice. Indeed, petitioner admitted that she "didn't keep a

log" of her trips to Baltimore. Under the strict substantiation

rules of section 274(d), we hold that petitioner is not entitled

to deduct car and truck expenses for 1992.

With respect to insurance, mortgage interest, office

expense, repairs and maintenance, travel, utilities, secretarial,

medical books, dues, conferences, and security system, petitioner

introduced into evidence copies of receipts, invoices, billing

statements, and estimate worksheets in support of her claimed

deductions. On this record, the Court believes that petitioner

was seeking to deduct many expenses that are personal, living, or

family expenses which are nondeductible under section 262. 
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Nevertheless, we allow petitioner to deduct the following rounded

amounts: 

Insurance $127

Mortgage interest 258

Office expense 127

Repairs and maintenance 355

Travel 813

Utilities 596

Other expenses

Secretarial 3,919

Medical books 615

Dues 737

Conferences 485

 Security system 84

 Total $8,116

With respect to petitioner's claimed deductions for

depreciation and section 179 expense, taxes and licenses, meals

and entertainment, business meetings, and telephone, the record

does not establish that such expenses were incurred or were

ordinary and necessary business expenses. No credible

documentary evidence was introduced to support any of these

claimed deductions. Further, petitioner's testimony regarding

these deductions was vague, uncertain, and untenable. On several

occasions, petitioner admitted that she was unsure of the amounts

of some of these claimed deductions and that she basically relied

on her accountant to determine the amounts of her expenses. We

have stated on many occasions that this Court is not bound to

accept petitioner's self-serving, unverified, and undocumented

testimony. Tokarski v. Commissioner, 87 T.C. 74, 77 (1986);
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Hradesky v. Commissioner, 65 T.C. 87 (1975). Thus, we hold that

petitioner is not entitled to these claimed deductions.

Section 170(a) allows a taxpayer to deduct charitable

contributions made during the taxable year. A charitable

contribution is a contribution or gift for the use of an

organization described in section 170(c). Section 1.170A13(a)(1), Income Tax Regs., provides that a taxpayer making a

charitable contribution of money must maintain for each

contribution the following:

(i) A cancelled check.

(ii) A receipt from the donee charitable organization 

showing the name of the donee, the date of the contribution,

and the amount of the contribution. A letter or other 

communication from the donee charitable organization 

acknowledging receipt of a contribution and showing the date

and amount of the contribution constitutes a receipt * * * .

(iii) In the absence of a canceled check or receipt 

from the donee charitable organization, other reliable 

written records showing the name of the donee, the date of 

the contribution, and the amount of the contribution.

The reliability of the written records is to be determined

on the basis of all the facts and circumstances of a particular

case. Sec. 1.170A-13(a)(2), Income Tax Regs. Factors indicating

that the written records are reliable include the contemporaneous

nature of the writing and the regularity of the taxpayer's

recordkeeping procedures. Sec. 1.170A-13(a)(2), Income Tax Regs.

Petitioner contends that she is entitled to a charitable

contribution deduction in the amount of $2,366 (a carryover of
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excess charitable contribution deduction from 1991 of $1,921 plus

$445 in cash contributions made in 1992). Although petitioner

listed separately the carryover of excess charitable contribution

from 1991 and the cash contributions on her Schedule A under

Gifts to Charity, for some unexplained reason petitioner did not

claim them as a charitable contribution deduction. At trial,

petitioner stated that she is entitled to these deductions and an

additional charitable contribution deduction for "possessions",

including furniture, that she donated to Goodwill in 1992. 

With respect to petitioner's contention that she is entitled

to deduct the carryover charitable contribution from 1991, the

$445 in cash contributions, and the additional contributions for

"possessions" she donated to Goodwill, the record does not

support her claims. The record does not contain any evidence to

establish that she was entitled to a charitable contribution

deduction carryover. In fact, in direct conflict with the

reference to a charitable contribution deduction carryover on her

Schedule A, petitioner testified that although she did not

exactly remember, she believed that "this $2366, is what was in

my check register or slips I had." The record does not contain

any reliable written records which show the names of donees, the

dates of petitioner's alleged contributions, and the amounts that

petitioner purportedly donated. Sec. 1.170A-13(a)(1), Income Tax

Regs. We are not required to accept petitioner's testimony as
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gospel. Tokarski v. Commissioner, supra. On this record, we

hold that petitioner is not entitled to a charitable contribution

deduction.

Section 6651(a)(1) imposes an addition to tax for failure to

file a return on time. The addition is 5 percent for each month

that the return is late, not to exceed 25 percent. In order to

avoid the addition to tax under section 6651(a)(1), a taxpayer

must show both reasonable cause and a lack of willful neglect. 

United States v. Boyle, 469 U.S. 241, 245 (1985). A failure to

file is due to "reasonable cause" if the taxpayer exercised

ordinary business care and prudence and was, nevertheless, unable

to file his return within the time prescribed by law. United

States v. Boyle, supra at 246. The term 'willful neglect'

implies a conscious, intentional failure to file or reckless

indifference to the obligation to file. United States v. Boyle,

supra at 245. 

Petitioner filed her 1992 Federal income tax return on July

5, 1994. Petitioner contends that her failure to timely file her

1992 return was due to "the overwhelming nature of what has been

going on in her life." Petitioner asks the Court to take into

account her personal and professional circumstance, e.g., the

fact that she is a physician in solo practice, that her medical

career is in a state of turmoil, and that she was involved in

other litigation.
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We do not find that such circumstances constitute reasonable

cause which would justify petitioner's failure to timely file her

1992 return. Cf. Estate of Bevan v. Commissioner, T.C. Memo.

1989-256. On this record, we conclude that petitioner failed to

demonstrate that she exercised ordinary business care and

prudence. There is no evidence in the record that petitioner

took any measures to ensure that her 1992 return would be timely

filed. Accordingly, we sustain respondent on this issue. 

To the extent our findings above affect petitioner's selfemployment tax and its corresponding deduction, and the Schedule

A deductions, the parties shall address this in their Rule 155

computations.

To reflect the foregoing,

Decision will be entered

under Rule 155.