T.C. Summary Opinion 2009-101

UNITED STATES TAX COURT

JILL E. HAGER, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 10422-06S. Filed July 7, 2009. 

Jill E. Hager, pro se.

Edward L. Walter, 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. Pursuant to section 7463(b),

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

and this opinion shall not be treated as precedent for any other

case. Unless otherwise indicated, subsequent section references

are to the Internal Revenue Code in effect for the year in issue,
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1Adjustments to petitioner’s self-employment tax and her

deduction therefor are computational and are to be resolved

consistent with the Court’s opinion in the parties’ Rule 155

computations. See secs. 164(f), 1401, 1402.

and all Rule references are to the Tax Court Rules of Practice

and Procedure.

Respondent determined an $8,173 deficiency in petitioner’s

2003 Federal income tax and additions to tax under sections

6651(a)(1) and (2) and 6654(a). Respondent concedes that

petitioner is entitled to the following deductions: (1) $8,257

for “contract labor”; (2) $871 for supplies; and (3) $1,800 for

office expenses. 

By submitting a 2003 Form 1040, U.S. Individual Income Tax

Return, petitioner concedes that she: (1) Received interest of

$1,145, distributions of $6,808, and nonemployee compensation of

$27,956; and (2) is liable for self-employment tax.1 See Lare v.

Commissioner, 62 T.C. 739, 750 (1974) (statements made in a tax

return signed by a taxpayer may be treated as admissions), affd.

without published opinion 521 F.2d 1399 (3d Cir. 1975). 

Petitioner also concedes that she is not entitled to deduct the

following expenses: (1) $3,100 for supplies; (2) $1,978 for

utilities; and (3) $350 for postage. Petitioner presented no

argument or evidence as to her liability for the 10-percent

additional tax on early distributions from her qualified

retirement plan; she is therefore deemed to have conceded the
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issue. See sec. 72(t)(1); Nielsen v. Commissioner, 61 T.C. 311,

312 (1973); Mikalonis v. Commissioner, T.C. Memo. 2000-281.

The issues remaining for decision are whether petitioner is: 

(1) Entitled to a $13,773 deduction for vehicle expenses; and 

(2) liable for the additions to tax under sections 6651(a)(1) and

(2) and 6654(a).

Background

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

The stipulation of facts and the exhibits received into evidence

are incorporated herein by reference. When the petition was

filed, petitioner resided in Ohio.

During 2003 petitioner was self-employed in promotions and

marketing for various entities in Ohio. She drove to various

locations, changing out displays or advertisements or sending

models to various restaurants or bars to promote certain liquor

brands.

Petitioner did not timely file her 2003 Form 1040. 

Therefore, respondent prepared a substitute for return for

petitioner pursuant to section 6020(b). From third-party payor

reports respondent determined that petitioner received $35,809 in

gross income. Respondent allowed petitioner one personal

exemption of $3,050, a standard deduction of $4,750, and a credit

for withheld tax of $3. Respondent also determined a net tax of
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2The net tax includes income tax of $3,556 plus selfemployment tax of $3,936 and an IRA early withdrawal penalty of

$681. 

$8,1702 and that petitioner was liable for additions to tax

pursuant to sections 6651(a)(1) and (2) and 6654(a). In

response, petitioner filed a petition with the Court; she was

ordered to file her 2003 Form 1040 by December 17, 2007, which

she submitted to respondent on February 17, 2008.

Discussion

I. Burden of Proof

The Commissioner’s determinations in a notice of deficiency

are presumed correct, and the taxpayer bears the burden to prove

that the determinations are in error. Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933). But the burden of proof on

factual issues that affect the taxpayer’s tax liability may be

shifted to the Commissioner if the taxpayer introduces credible

evidence with respect to the issue and the taxpayer has satisfied

certain conditions. Sec. 7491(a)(1). Petitioner has not alleged

that section 7491(a) applies, and she has not complied with the

substantiation requirements. See sec. 7491(a)(2)(A). Thus, the

burden of proof remains on her.

II. Vehicle Expenses

Section 162(a) authorizes a deduction for all the ordinary

and necessary expenses paid or incurred during the taxable year

in carrying on any trade or business. But as a general rule,
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3The term “listed property” is defined to include passenger

automobiles. Sec. 280F(d)(4)(A)(i).

deductions are allowed only to the extent that they are

substantiated. Secs. 274(d) (no deductions are allowed for

gifts, listed property,3 traveling, entertainment, amusement, or

recreation unless substantiated), 6001 (taxpayers must keep

records sufficient to establish the amount of the items required

to be shown on their Federal income tax returns). If the

taxpayer establishes that she has incurred a deductible expense

yet is unable to substantiate the exact amount, the Court may

estimate the deductible amount in some circumstances. Cohan v.

Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). But the Court

cannot estimate a taxpayer’s expenses with respect to the items

enumerated in section 274(d). Sanford v. Commissioner, 50 T.C.

823, 827 (1968), affd. per curiam 412 F.2d 201 (2d Cir. 1969);

Rodriguez v. Commissioner, T.C. Memo. 2009-22 (the strict

substantiation requirements of section 274(d) preclude the Court

and taxpayers from approximating expenses). 

Section 274(d) and the regulations thereunder require

taxpayers to substantiate their deductions by adequate records or

sufficient evidence to corroborate the taxpayer’s own testimony

as to: (1) The amount of the expenditure or use; (2) the time of

the expenditure or use; (3) the place of the expenditure or use;

(3) the business purpose of the expenditure or use; and (4) the
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business relationship to the taxpayer of the persons entertained 

or receiving the gift. Sec. 1.274-5T(a) and (b), Temporary

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

Taxpayers are required to maintain and produce such

substantiation as will constitute proof of each expenditure or

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

Reg. 46016 (Nov. 6, 1985). Written evidence has considerably

more probative value than oral evidence, and the probative value

of written evidence is greater the closer in time it is to the

expenditure or use. Id. Although a contemporaneous log is not

required, a record made at or near the time of the expenditure or

use that is supported by sufficient documentary evidence has a

higher degree of credibility than a subsequently prepared

statement. Id. The corroborative evidence required to support a

statement not made at or near the time of the expenditure or use

must have a high degree of probative value to elevate the

statement and evidence to the level of credibility reflected by a

record made at or near the time of the expenditure or use

supported by sufficient documentary evidence. Id. 

To satisfy the “adequate records” requirement of section

274(d), the taxpayer shall maintain an account book, a diary, a

log, a statement of expense, a trip sheet, or a similar record

and documentary evidence that in combination are sufficient to

establish each element of expenditure or use. Sec. 1.274-
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4Petitioner testified that these were “just some of them

that [she] happened to keep.” 

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

6, 1985). The adequate record must be prepared or maintained in

such manner that each recording of an element or use is made at

or near the time of the expenditure or use. Sec. 1.274-

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

(Nov. 6, 1985). “‘[M]ade at or near the time of the expenditure

or use’ means [that] the elements of an expenditure or use are

recorded at a time when, in relation to the use or making of an

expenditure, the taxpayer has full present knowledge of each

element of the expenditure or use”. Sec. 1.274-5T(c)(2)(ii)(A),

Temporary Income Tax Regs., supra. 

To substantiate petitioner’s deduction for vehicle expenses,

she submitted: (1) Certain “Client Care Representative Payment

[Reports]” that include the clients’ names and locations by city

and ZIP Code and the months and years that she serviced the

accounts;4 (2) a “Suave Event Staffing Schedule” that includes

the clients’ store numbers and addresses and the dates she

serviced the accounts; (3) certain timesheets that include the

clients’ names, store numbers, and addresses (in some cases) and

the dates she serviced the accounts and the durations thereof;

(4) a list entitled “2003 Approximate Mileage” that includes the

miles she drove round trip from her home to certain cities and
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5Petitioner testified that she could not find her mileage

booklet and that she did not believe that she got it back from

her accountant. 

the miles she drove within each city (in some cases); and (5) her

testimony.

Petitioner testified that she drove to various locations

within the cities to set up displays and to change out

advertisements or wallboards. She also testified that her “2003

Approximate Mileage” list was prepared “last year” (i.e., 2007)

and that she “tried to at least Mapquest all of these so that

[she] would have an idea of what the mileage was.” According to

petitioner, she wrote down her mileage in a mileage booklet5 but

not every time: “It was sometimes shoddy. I was [driving and]

sometimes somebody would tell me a different way to go. So it

was pretty messy.” 

Petitioner’s testimony established that she did not

accurately record her business mileage at or near the time of her

business use. See sec. 1.274-5T(b)(6)(i)(B), (c)(2), Temporary

Income Tax Regs., 50 Fed. Reg. 46016, 46017 (Nov. 6, 1985). In

addition, her mileage was based upon estimates or approximations

that were derived from Mapquest after the notice of deficiency

was issued in March 2006. The Court therefore holds that

petitioner is not entitled to a deduction for mileage. See

Sanford v. Commissioner, supra at 827; Rodriguez v. Commissioner,

supra; see also sec. 1.274-5T(c)(1), Temporary Income Tax Regs.,
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6If the Secretary makes a return for the taxpayer under sec.

6020(b), it is disregarded for purposes of determining the amount

of the addition to tax under sec. 6651(a)(1), but it is treated

as a return filed by the taxpayer for purposes of determining the

amount of the addition to tax under sec. 6651(a)(2). Sec.

6651(g).

supra (the substantiation requirements are designed to encourage

taxpayers to maintain records and documentary evidence). 

Respondent’s determination is sustained. 

III. Additions to Tax

Initially, the Commissioner has the burden of production

with respect to any penalty, addition to tax, or additional

amount. Sec. 7491(c). The Commissioner satisfies this burden of

production by coming forward with sufficient evidence that

indicates that it is appropriate to impose the penalty or

addition to tax. See Higbee v. Commissioner, 116 T.C. 438, 446

(2001). Once the Commissioner satisfies this burden of

production, the taxpayer must persuade the Court that the

Commissioner’s determination is in error by supplying sufficient

evidence of an applicable exception. Id.

A. Section 6651(a)(1) and (2)

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

file a return on the date prescribed (determined with regard to

any extension of time for filing) unless the taxpayer can

establish that the failure is due to reasonable cause and not due

to willful neglect.6 To prove reasonable cause for a failure to
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7The amount of the addition to tax under sec. 6651(a)(2)

reduces the amount of the addition under sec. 6651(a)(1) for any

month to which an addition to tax applies under both paragraphs. 

Sec. 6651(c)(1). 

file timely, a taxpayer must show that she exercised ordinary

business care and prudence and was nevertheless unable to file

the return within the prescribed time. Crocker v. Commissioner,

92 T.C. 899, 913 (1989); sec. 301.6651-1(c)(1), Proced. & Admin.

Regs. 

Section 6651(a)(2) imposes an addition to tax for failure to

pay the amount shown as tax on the taxpayer’s return on the date

prescribed (determined with regard to any extension of time for

payment) unless the taxpayer can establish that the failure is

due to reasonable cause and not due to willful neglect.7 To

prove reasonable cause for a failure to pay the tax, the taxpayer

must show that she exercised ordinary business care and prudence

in providing for payment of the tax and nevertheless was either

unable to pay the tax or would suffer undue hardship if she paid

the tax on the due date. Sec. 301.6651-1(c)(1), Proced. & Admin.

Regs. In determining whether the taxpayer was unable to pay the

tax in spite of the exercise of ordinary business care and

prudence, consideration will be given to all of the facts and

circumstances of the taxpayer’s financial situation, including

the amount and nature of the taxpayer’s expenditures in view of

the income (or other amounts) she could at the time of the
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8Petitioner submitted a $989 payment with her 2003 Form 1040

that she submitted on Feb. 17, 2008. 

expenditures reasonably expect to receive before the date

prescribed for the payment of the tax. Id.

Petitioner did not file her 2003 Form 1040; however, she 

submitted a 2003 Form 1040 to respondent on February 17, 2008. 

Respondent has met his burden of production as to the section

6651(a)(1) addition to tax for failure to file timely. See

Higbee v. Commissioner, supra at 446; Ruggeri v. Commissioner,

T.C. Memo. 2008-300. 

Respondent provided a copy of the substitute for return that

he prepared for petitioner, and petitioner did not pay the tax as

shown on the substitute for return on April 15, 2004. See

Wheeler v. Commissioner, 127 T.C. 200, 208-209 (2006), affd. 521

F.3d 1289 (10th Cir. 2008); Hawkins v. Commissioner, T.C. Memo.

2008-168. Respondent has met his burden of production as to the

section 6651(a)(2) addition to tax for failure to pay.8 

Petitioner has not established a reasonable cause defense

for the section 6651(a)(1) and (2) additions to tax. 

Respondent’s determinations are sustained.

B. Section 6654(a)

Section 6654(a) imposes an addition to tax on an

underpayment of estimated tax unless an exception applies. Sec.

6654(e). The addition to tax is calculated with reference to
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four required installment payments of the taxpayer’s estimated

tax. Sec. 6654(c)(1); Wheeler v. Commissioner, supra at 210. 

Each required installment of estimated tax is equal to 25 percent

of the “required annual payment.” Sec. 6654(d)(1)(A). The

required annual payment is generally equal to the lesser of: (i)

90 percent of the tax shown on the taxpayer’s return for the year

(or, if no return is filed, 90 percent of the taxpayer’s tax for

the year); or (ii) if the taxpayer filed a return for the

immediately preceding taxable year, 100 percent of the tax shown

on that return. Sec. 6654(d)(1)(B); Wheeler v. Commissioner,

supra at 210-211. But if the taxpayer did not file a return for

the preceding year, then clause (ii) does not apply. Sec.

6654(d)(1)(B). A taxpayer has an obligation to pay estimated tax

for a particular year only if she has a “required annual payment”

for that year. Wheeler v. Commissioner, supra at 211.

Petitioner failed to file a return for 2003 and that is

sufficient for the Court to make the analysis required by section

6654(d)(1)(B)(i). Respondent, however, failed to introduce

evidence showing whether petitioner filed a return for the

preceding taxable year, i.e., 2002, and if she did, the amount of

tax shown on her 2002 return. Without that evidence, the Court

cannot identify the amount equal to 100 percent of the tax shown

on her 2002 return. Therefore, the Court cannot conclude that

petitioner had a required annual payment for 2003 because
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respondent failed to produce sufficient evidence, as required by

section 7491(c), to allow the Court to complete the comparison

required by section 6654(d)(1)(B). See Wheeler v. Commissioner,

supra at 211-212. Accordingly, petitioner is not liable for the

addition to tax under section 6654(a) for 2003.

To reflect the foregoing, 

Decision will be entered

under Rule 155.