1Unless otherwise indicated, all section references are to

the Internal Revenue Code (Code), as amended, and all Rule

references are to the Tax Court Rules of Practice and Procedure. 

Amounts are rounded to the nearest dollar.

T.C. Memo. 2010-191

UNITED STATES TAX COURT

KEITH J. FESSEY, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 368-09. Filed August 30, 2010.

Keith J. Fessey, pro se.

Kimberly A. Kazda, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

HAINES, Judge: Keith J. Fessey petitioned the Court for

redetermination of the following deficiencies in Federal income

tax and additions to tax:1 
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2Petitioner concedes that he received gross receipts of

$73,874 for 2004, which is $30,403 more than the income

respondent determined in the 2004 notice of deficiency. 

Petitioner concedes the deficiency for 2005. 

Respondent concedes that petitioner is entitled for 2004 to

itemized deductions of $13,610, consisting of general sales taxes

of $781, real estate taxes of $2,235, home mortgage interest of

$9,760, and charitable contributions of $1,615. Respondent

concedes that petitioner is entitled to exemptions for two

dependents for 2004. 

 Additions to Tax

Year Deficiency Sec. 6651(a)(1) Sec. 6651(a)(2) Sec. 6654

2004 $10,994 $2,474 $2,144 $315

2005 743 167 100 ---

The issues for decision after concessions2 are: (1) Whether 

petitioner is entitled to deduct business expenses of $34,534 for

2004; (2) whether petitioner may deduct charitable contributions

for 2004; (3) whether petitioner is entitled to married filing

jointly filing status; and (4) whether petitioner is liable for

additions to tax under sections 6651(a)(1) and (2) and 6654 for

2004 and 2005. 

FINDINGS OF FACT

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

The stipulation of facts, together with the attached exhibits, is

incorporated herein by this reference. At the time petitioner

filed his petitions, he resided in California.

During 2004 and 2005 petitioner was self-employed as a loan

consultant. Petitioner worked from home and from a separate

office in a commercial real estate building. 
- 3 -

Petitioner failed to file tax returns for 2004 and 2005. 

Respondent prepared substitutes for returns for petitioner for

both years with a filing status of married filing separately. On

September 22, 2008, respondent mailed notices of deficiency for

2004 and 2005 to petitioner using third-party payor information. 

On January 5, 2009, petitioner filed a timely petition with

this Court with respect to both notices of deficiency. On

December 4, 2009, petitioner submitted to respondent a 2004 Form

1040, U.S. Individual Income Tax Return. Petitioner’s return

reported gross receipts of $73,874 for 2004. The Schedule C,

Profit or Loss From Business, attached to the 2004 return

reported the following expenses:

 Expense 2004

Advertising $2,335

Car and truck 5,539

Contract labor 17,525

Depreciation 942

Legal and professional 3,963

Office 2,723 

Supplies 2,343

 Travel, meals, and entertainment 2,511

Utilities 5,048

Business use of home 830

Bank charges 387

 Credit card dues 250

 Software 264

 Web site subscriptions 3,915

 Total 48,575

The 2004 Schedule A, Itemized Deductions, reported charitable

contributions of $1,765, home mortgage interest of $9,760, real

estate taxes of $2,235, and general sales taxes of $781.
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On December 8, 2009, a trial was held in San Francisco,

California. On January 6, 2010, respondent filed a motion to

amend his answer to increase petitioner’s gross receipts to

$73,874 for 2004. On January 25, 2010, the Court granted

respondent’s motion to amend his answer.

OPINION 

I. Business Expense Deductions

Deductions are a matter of legislative grace, and the

taxpayer must prove he or she is entitled to the deductions

claimed. Rule 142(a); New Colonial Ice Co. v. Helvering, 292

U.S. 435, 440 (1934). The burden of proof may shift to the

Commissioner under section 7491(a) with respect to a factual

issue relevant to the liability of the taxpayer for tax if the

taxpayer introduces credible evidence regarding the issue and

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. As discussed below, we find that petitioner

has failed to substantiate his claimed expenses and to maintain

adequate records. The burden of proof, therefore, does not shift

to respondent under section 7491(a). 

Section 162(a) provides that “There shall be allowed as a

deduction all the ordinary and necessary expenses paid or

incurred during the taxable year in carrying on any trade or
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business”. The regulations specify that ordinary and

necessary business expenses include “the ordinary and necessary

expenditures directly connected with or pertaining to the

taxpayer’s trade or business”. Sec. 1.162-1(a), Income Tax Regs.

Taxpayers are required to maintain records sufficient to

establish the amounts of allowable deductions and to enable the

Commissioner to determine the correct tax liability. Sec. 6001;

Shea v. Commissioner, 112 T.C. 183, 186 (1999).

As a general rule, if the trial record provides sufficient

evidence that the taxpayer has incurred a deductible expense, but

the taxpayer is unable to substantiate adequately the precise

amount of the deduction to which he or she is otherwise entitled,

the Court may estimate the amount of the deductible expense and

allow the deduction to that extent. Cohan v. Commissioner, 39

F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85

T.C. 731, 742-743 (1985); Sanford v. Commissioner, 50 T.C. 823,

827-828 (1968), affd. per curiam 412 F.2d 201 (2d Cir. 1969);

sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014

(Nov. 6, 1985). In these instances, the Court is permitted to

make as close an approximation of the allowable expense as it

can, bearing heavily against the taxpayer whose inexactitude is

of his or her own making. Cohan v. Commissioner, supra at 544. 

However, in order for the Court to estimate the amount of an

expense, the Court must have some basis upon which an estimate
- 6 -

may be made. Vanicek v. Commissioner, supra at 742-743. Without

such a basis, any allowance would amount to unguided largesse. 

Williams v. United States, 245 F.2d 559, 560-561 (5th Cir. 1957). 

 A. Advertising

Petitioner’s 2004 return lists advertising expenses of

$2,335. Petitioner concedes on brief he is claiming advertising

expenses of only $2,085. Respondent concedes on brief that

petitioner is entitled to advertising expenses of $1,978. The

discrepancy of $107 is mainly attributable to a floral

arrangement that petitioner sent to a woman who worked at his

business when her brother passed away and another floral item

that petitioner sent to a client after closing the client’s loan

file. 

In general, advertising expenses to promote a taxpayer’s

trade or business are deductible pursuant to section 162(a). 

See, e.g., Brallier v. Commissioner, T.C. Memo. 1986-42; sec.

1.162-1(a), Income Tax Regs. Petitioner has not demonstrated

that the floral items were purchased to promote his loan

consultation business. Accordingly, we will deny petitioner a

deduction for advertising expenses beyond the $1,978 respondent

conceded. 

B. Car and Truck Expenses 

Petitioner claims a deduction for car and truck expenses of

$5,539 for 2004. Respondent argues that petitioner is not
- 7 -

entitled to a deduction for car and truck expenses because of

lack of substantiation. 

Pursuant to section 274(d), automobile expenses otherwise

deductible as business expenses will be disallowed in full unless

the taxpayer satisfies strict substantiation requirements. The

taxpayer must substantiate the automobile expenses by adequate

records or other corroborating evidence of items such as the

amount of each expense, the time and place of the automobile’s

use, and the business purpose of its use. See Sanford v.

Commissioner, supra at 827-828; Maher v. Commissioner, T.C. Memo.

2003-85. 

To satisfy the adequate records requirement of section

274(d), a taxpayer must maintain records and documentary evidence

that in combination are sufficient to establish each element of

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

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

contemporaneous log is not required, corroborative evidence to

support a taxpayer’s reconstruction “of the elements * * * of the

expenditure or use must have a high degree of probative value to

elevate such statement” to the level of credibility of a

contemporaneous record. Sec. 1.274-5T(c)(1), Temporary Income

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

In the absence of adequate records to substantiate each

element of an expense, a taxpayer may alternatively establish an
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element by “his own statement, whether written or oral,

containing specific information in detail as to such element”,

and by “other corroborative evidence sufficient to establish such

element.” Sec. 1.274-5T(c)(3), Temporary Income Tax Regs., 50

Fed. Reg. 46020 (Nov. 6 1985). Section 274(d) overrides the

Cohan rule with respect to section 280F(d)(4) “listed property”

and thus specifically precludes the Court from allowing

automobile expenses on the basis of any approximation or the

taxpayer’s uncorroborated testimony. 

Petitioner determined his car and truck expenses using

a car and truck worksheet he filled out. The worksheet shows

that petitioner drove a 2002 Honda Accord which was placed in

service in 2003. Petitioner claims that he drove the car 23,560

miles during the year and that 14,677 of those miles were for

business. Petitioner did not recall how he arrived at the

mileage. 

Petitioner has failed to satisfy the adequate records

requirement of section 274(d), and the record is devoid of 

corroborative evidence to support petitioner’s reconstruction of

his mileage. See sec. 1.274-5T(c)(1), Temporary Income Tax

Regs., supra. Accordingly, we will deny petitioner a deduction

for car and truck expenses. 
- 9 -

C. Contract Labor

Petitioner’s 2004 return lists contract labor expenses of

$17,525. Petitioner concedes on brief he is claiming contract

labor expenses of only $9,700. Respondent argues that petitioner

is not entitled to a deduction for contract labor expenses. 

Petitioner testified at trial that in 2004 he paid his 18-

year-old son and 12-year-old daughter $12,675 and $4,850 in cash,

respectively, to perform tasks for the business both at his home

and his office. Petitioner did not produce records, such as

Forms W-2, Wage and Tax Statement, to indicate that these

payments were made or that they were made in the ordinary course

of his loan consultation business. Accordingly, petitioner has

failed to prove that these were necessary payments made in the

ordinary course of his business, and we will deny petitioner a

deduction for labor and contract expenses.

D. Depreciation

Petitioner claims a deduction for depreciation of $942 for

2004. Petitioner testified that the items he seeks to elect to

depreciate include a desk, a matching credenza, two bookcases,

and a lateral file cabinet. Petitioner provided no documentation

as to how the depreciation expense was calculated.

When property is used in a trade or business or held for the

production of income, the taxpayer may be allowed a depreciation

deduction for the exhaustion and wear and tear of the property. 
- 10 -

Sec. 167. As petitioner failed to produce evidence to support

his claim for depreciation, we will deny the deduction. 

E. Legal and Professional Expenses 

Petitioner claims a deduction for legal and professional

expenses of $3,963 for 2004. Most of these expenses relate to

compact discs that petitioner testified he purchased as part of a

“Brian Tracy” sales and marketing seminar in 2004. Respondent

concedes that petitioner may deduct $803 for legal and

professional expenses but argues that petitioner has failed to

prove that the seminar was related to his business. 

Although petitioner submitted a printout of his American

Express credit card purchases which includes an entry listed as

“Brian Tracy GTI Business”, petitioner has failed to offer any

probative evidence to support the business purpose of the

purchase. Accordingly, we will deny petitioner a deduction for

legal and professional expenses beyond those respondent already

conceded. 

F. Office Expenses

Petitioner’s 2004 return lists office expenses of $2,723. 

Petitioner concedes on brief he is claiming office expenses of

only $2,525. Respondent concedes on brief that petitioner is

entitled to office expenses of $2,360. 

Petitioner provided the Court with a printout of a credit

card statement showing charges he incurred at stores including
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the Home Consignment Center, Ross, and Lowes. However,

petitioner was unable to testify at trial with any specificity as

to the exact nature of his purchases or their ordinary and

necessary purpose in the context of his business. As petitioner

has failed to substantiate his office expenses, we will deny

petitioner a deduction for office expenses beyond those

respondent conceded. 

G. Travel, Meals, and Entertainment

Petitioner claims a deduction for travel, meals, and

entertainment expenses of $2,511 for 2004. Respondent argues

that petitioner is not entitled to any deduction for travel,

meals, and entertainment because of a lack of substantiation.

Section 274(d) places heightened substantiation requirements

on taxpayers claiming deductions under section 162 for any

traveling expense, including meals and lodging while away from

home. In order to be entitled to a deduction for an expense for

travel, meals, and entertainment, the taxpayer must show that the

item claimed is directly related to or associated with the active

conduct of the taxpayer’s trade or business. Sec. 274(a). 

Additionally, the taxpayer must provide adequate records showing

the amount of the expense, the time and place of the expense, the

business purpose of the expense, and the business relationship to

the taxpayer of the persons entertained. Sec. 274(d); sec.

1.274-5T(c)(2)(i), Temporary Income Tax Regs., supra. 
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Petitioner provided the Court with a printout he created

from his credit card statement showing amounts paid to various

restaurants, grocery stores, and fast food outlets. Petitioner

testified at trial that he would often take real estate agents to

fast food venues and coffee shops to discuss business and provide

the agents food purchased in grocery stores.

Petitioner’s printout and testimony do not provide the level

of substantiation required by section 274(d). At best, they can

be used to satisfy the first prong of the test under section

1.274-5T(c)(3), Temporary Income Tax Regs., supra. However, that

test “also requires corroborative evidence sufficient to

establish each element.” Tyler v. Commissioner, T.C. Memo. 1982-

160. As petitioner failed to present testimony of a third-party

or submit documentary evidence such as receipts, petitioner fails

the second prong of the test under section 1.274-5T(c)(3),

Temporary Income Tax Regs., supra. We are also barred from

estimating under the Cohan doctrine expenses that are subject to

the requirements of section 274(d). Lang v. Commissioner, T.C.

Memo. 2010-152. Accordingly, we will deny the deduction for

travel, meals, and entertainment expenses. 

H. Utilities

Petitioner deducted utility expenses of $5,048 on his 2004

return. Petitioner concedes on brief he is entitled to deduct
- 13 -

utility expenses of only $3,927. Respondent concedes on brief

that petitioner is entitled to deduct utility expenses of $2,315. 

Utility expenses may be deductible under section 162(a) if

the expenses incurred are ordinary and necessary in carrying on a

trade or business. Vanicek v. Commissioner, 85 T.C. at 742. 

Petitioner testified at trial that the expenses listed on his

return were incurred in the course of his business. Petitioner

also provided the Court with a printout he created from his

credit card statement showing amounts paid to various Internet

providers, Web site hosts, telephone companies, and a network

satellite service provider. However, petitioner failed to

provide any documentation indicating whether the utility expenses

listed on his return were necessary and were incurred in the

ordinary course of his business. 

Most of the utilities petitioner listed on the printout,

such as bills for telephone and Internet service, could have been

used for either work or personal use. Without specific evidence

to corroborate petitioner’s testimony at trial, we are unable to

conclude that petitioner’s utility expenses are greater than

those respondent conceded. 

I. Credit Card Membership Dues

Petitioner argues that he is entitled to a deduction for 

credit card membership fees of $250 that he paid to use his

American Express card in 2004. Respondent argues that petitioner
- 14 -

has not shown that these dues were ordinary and necessary to his

business.

Petitioner provided the Court with a printout he created

from his credit card statement showing amounts paid to American

Express as membership dues. Petitioner testified at trial that

most of the purchases made on his American Express card were for

business. Petitioner also testified that he used his American

Express card for personal travel.

Petitioner has failed to show that his dues payments were

necessary and were made in the ordinary course of his business. 

See sec. 1.162-1(a), Income Tax Regs. It is unclear whether

petitioner’s credit card was employed primarily for business

purposes, and petitioner admitted that he occasionally used the

card for personal expenses such as travel. Thus, we will deny

petitioner a deduction for credit card membership dues.

II. Charitable Contributions

Petitioner’s 2004 return lists charitable contributions of

$1,765. On brief, petitioner claims that he is actually entitled

to a charitable contribution deduction of $2,535. Respondent

concedes on brief that petitioner is entitled to a charitable

contribution deduction of $1,615. 

Petitioner alleges that he donated $920 in cash in 2004 to

Capital Christian Center, a church, by way of $20 weekly

donations made to the church’s Sunday service offering plate.
- 15 -

Section 170 allows a deduction for contributions made to

qualifying charitable organizations throughout the tax year. 

Petitioner provided the Court with a computer printout listing

the date, amount, and recipient of charitable donations

petitioner claims to have made in 2004. Petitioner also produced

receipts from several religious and charitable institutions

showing that petitioner had given them donations totaling $1,615

for 2004. However, petitioner did not produce a receipt or any

form of documentary evidence to substantiate his alleged weekly

offering plate donations. 

Petitioner has failed to substantiate that he provided cash

donations to Capital Christian Center. Accordingly, we will 

deny petitioner a deduction for charitable contributions beyond

those respondent conceded. 

III. Filing Status

Petitioner alleges that he is entitled to the filing status

of married filing jointly for 2004. Respondent argues that

petitioner is barred from changing his filing status from married

filing separately under section 6013(b)(2)(B). 

In general, section 6013(a) allows married taxpayers to file

a joint income tax return. Section 6013(b)(1) further provides

as a general rule that even where a taxpayer has filed a separate

return for a taxable year and the time prescribed for filing has
- 16 -

expired, the taxpayer may nevertheless make a joint return with

his or her spouse for such taxable year. 

Section 6013(b)(2) specifies that the election under section

6013(b)(1) may not be made “after there has been mailed to either

spouse, with respect to such taxable year, a notice of deficiency

under section 6212”. Respondent prepared a substitute for return

for petitioner for 2004 under section 6020(b) in which respondent

determined petitioner’s filing status to be married filing

separately. Respondent then mailed a notice of deficiency to

petitioner. 

Respondent contends that his preparation of a substitute for

return for petitioner under section 6020(b) constitutes a

separate return filed by the taxpayer under section 6013(b)(1)

for purposes of triggering the section 6013(b)(2) limitation. We

disagree. In Millsap v. Commissioner, 91 T.C. 926, 937 (1988),

we determined as follows: 

in situations where deficiency procedures are availed

of and a taxpayer has not filed a return, the taxpayer

may file a return and contest respondent’s filing

status determination, even though respondent has

“filed” a substitute return under section 6020(b), in

which filing status has been “elected” by respondent. 

* * * 

 

Accordingly, respondent’s substitute for return does not bar

petitioner from electing a different filing status on a return

submitted after filing a petition with this Court. As petitioner

submitted a 2004 return electing the filing status of married
- 17 -

filing jointly and has shown that he was legally married in 2004,

petitioner is entitled to the filing status of married filing

jointly.

IV. Additions to Tax

Respondent determined that petitioner is liable for

additions to tax under section 6651(a)(1) for failure to file

income tax returns for 2004 and 2005, under section 6651(a)(2)

for failure to pay the amounts shown on income tax returns for

2004 and 2005, and under section 6654(a) for failure to make

estimated tax payments for 2004 and 2005. Petitioner has not

contested respondent’s determinations regarding the additions to

tax in his petition, at trial, or on brief. 

In general, the Commissioner bears the burden of production

with respect to a taxpayer’s liability for additions to tax. 

Sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446-447

(2001). However, where a taxpayer does not challenge an addition

to tax by assigning error to it, the taxpayer is deemed to

concede the addition to tax, and the Commissioner need not plead

the addition to tax and has no obligation under section 7491(c)

to produce evidence that the penalty is appropriate. Swain v.

Commissioner, 118 T.C. 358, 364-365 (2002); see also Rule

34(b)(4). Consequently, we hold that respondent’s determination

that petitioner is liable for additions to tax must be sustained,
- 18 -

insofar as the calculation of petitioner’s additions to tax are

adjusted to take into account the concessions detailed above.

In reaching our holdings, we have considered all arguments

made, and, to the extent not mentioned, we conclude that they are

moot, irrelevant, or without merit.

To reflect the foregoing,

Decision will be entered

under Rule 155.