T.C. Summary Opinion 2001-180

UNITED STATES TAX COURT

GAIL MARIE HARMON, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 5884-00S. Filed December 10, 2001.

Gail Marie Harmon, pro se.

H. Clifton Bonney, Jr., for respondent.

DINAN, 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
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1Respondent has conceded the notice of deficiency’s

adjustment to automobile and travel expenses with respect to the

(continued...)

effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.

Respondent determined a deficiency in petitioner’s Federal

income tax of $2,621 for the taxable year 1996.

The issue for decision is whether petitioner is entitled to

various rental activity expense deductions and miscellaneous

itemized deductions which were disallowed by respondent.

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

The stipulations of fact and the attached exhibits are

incorporated herein by this reference. Petitioner resided in

Livermore, California, on the date the petition was filed in this

case.

For the taxable year in issue, petitioner filed with her

Federal income tax return a Schedule E, Supplemental Income and

Loss, for two rental properties. In the statutory notice of

deficiency, respondent determined that petitioner was not

entitled to deduct a portion of the expenses claimed with respect

to these rental properties, as detailed below, because it had not

been established that any of the amounts disallowed both were

paid during the taxable year and were ordinary and necessary

business expenses. The rental activity expenses which remain at

issue1 are the following:
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1(...continued)

Forestville property.

 

2Respondent’s adjustment to the miscellaneous itemized

deductions pursuant to the sec. 67(a) limitation is computational

and will be resolved by the Court’s holding on the issue in this

case.

 Forestville Oakland

 Property Property

 Claimed Allowed Claimed Allowed

Cleaning and maintenance $4,073 $405 $2,186 $186

Repairs 4,153 55

Supplies 1,741 1,488

Petitioner also claimed miscellaneous itemized deductions for

travel and transportation expenses of $6,373. Respondent

determined that petitioner was entitled to deductions of only

$4,946.2

A taxpayer generally must keep records sufficient to

establish the amounts of the items reported on her Federal income

tax return. Sec. 6001; sec. 1.6001-1(a), (e), Income Tax Regs. 

However, in the event that a taxpayer establishes that a

deductible expense has been paid but that she is unable to

substantiate the precise amount, we generally may estimate the

amount of the deductible expense bearing heavily against the

taxpayer whose inexactitude in substantiating the amount of the

expense is of her own making. Cohan v. Commissioner, 39 F.2d

540, 543-544 (2d Cir. 1930). We cannot estimate a deductible

expense, however, unless the taxpayer presents evidence
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sufficient to provide some basis upon which an estimate may be

made. Vanicek v. Commissioner, 85 T.C. 731, 743 (1985).

Section 274(d) supersedes the Cohan doctrine. Sanford v.

Commissioner, 50 T.C. 823, 827 (1968), affd. 412 F.2d 201 (2d

Cir. 1969). As relevant here, section 274(d) provides that,

unless the taxpayer complies with certain strict substantiation

rules, no deduction is allowable for traveling expenses under

section 212 or for expenses with respect to automobiles. To meet

the strict substantiation requirements, the taxpayer must

substantiate the amount, time, place, and business purpose of the

expenses. Sec. 274(d); sec. 1.274-5T, Temporary Income Tax

Regs., 50 Fed. Reg. 46006 (Nov. 6, 1985).

The first rental expenses at issue are the cleaning and

maintenance expenses for the Forestville property. To

substantiate these expenses, petitioner provided a summary

reconstructed from bridge toll receipts. The summary listed each

time period when petitioner was allegedly at the property after

crossing the bridge, along with an amount she allegedly paid

individuals--whoever happened to be in the neighborhood at the

time--to help her with cleaning and maintenance. She admits that

the time periods are estimates; nearly all of them are rounded to

the nearest hour. Although she testified that the amounts of the

expenses are based upon an hourly wage of $15 on each occasion,
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the summary itself reflects amounts which vary and which average

$16.14 per hour.

The next expenses at issue are the repair expenses for the

Forestville property. Petitioner’s substantiation again consists

of a summary; this one was allegedly compiled from a number of

“sticky notes” allegedly kept contemporaneously with the alleged

amounts paid for the repairs. Petitioner was unable to identify

the individuals listed as completing the work other than by their

first names.

The next expenses at issue are for the supplies for the

Forestville property. Petitioner provided a copy of a sticky

note indicating $160 paid for “paint downstairs” and $93 for

“supplies”.

The final rental expenses at issue are the cleaning and

maintenance expenses for the Oakland property. Petitioner

provided a summary which she reconstructed from landfill

receipts: The summary shows expenses allegedly incurred working

at the property prior to her visits to the landfill. From

memory, she estimated the amount of time she spent working

(exactly 0, 1, 2, or 3 hours on each occasion) and listed an

expense of $10 per hour to pay a neighborhood individual to

assist her with yard work and cleaning. Petitioner also provided

a summary relating to alleged housecleaning expenses, as well as
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a note on a piece of paper listing $89 for “roto rooter”, $200

for “fence”, and $240 for “painting”.

We find all of the evidence produced by petitioner to

substantiate the various rental expenses to be unreliable. 

Furthermore, petitioner has failed to provide a sufficient basis

upon which to estimate the expense amounts, despite her attempt

to reconstruct the expenses based upon available records. We do

not find credible petitioner’s testimony that she hired someone

from the neighborhood to perform services for her on nearly every

visit she made to the properties, and that she paid all these

individuals in cash, never producing a written record of the

payment. As for the few written records she did produce--

primarily the sticky notes upon which her summary was based--the

records contained too little information and did not appear to be

contemporaneously maintained with the payment of the expenses. 

We sustain respondent’s determination with respect to the rental

expenses.

Finally, to substantiate the disallowed miscellaneous

itemized deductions, petitioner provided a summary listing

various travel and transportation expenses. Petitioner testified

that the expenses were incurred in travel to several different

investment properties. We again find this to be unreliable

evidence and to be insufficient substantiation, especially with

respect to those expenses subject to the strict substantiation
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rules of section 274(d). Petitioner also provided copies of

credit card statements which list expenses matching those of the

summary with respect to certain airline tickets and car rentals

for travel to Texas. She testified that she traveled to Texas on

several occasions to inspect certain property located there. 

However, her reason for inspecting the property was familyoriented because the property was held in a trust in which family

members, not petitioner, were trustor and trustee. Therefore, we

hold that these expenses were personal expenses which are

nondeductible pursuant to section 262(a).

Reviewed and adopted as the report of the Small Tax Case

Division.

To reflect the foregoing,

 Decision will be entered

under Rule 155.