T.C. Memo. 2008-209

UNITED STATES TAX COURT

DIANE J. SANDERLIN, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 13612-07. Filed August 28, 2008.

Diane J. Sanderlin, pro se.

Nhi T. Luu, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

COHEN, Judge: Respondent determined deficiencies and

penalties with respect to petitioner’s Federal income taxes as

follows:
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Penalty

Year Deficiency Sec. 6662(a)

2003 $3,689 $738

2004 3,389 678

2005 2,305 461

The issues for decision are whether petitioner is entitled to

deductions reported on Schedules A, Itemized Deductions, attached

to her returns, and whether she is liable for penalties

determined by respondent. Unless otherwise indicated, all

section references are to the Internal Revenue Code in effect for

the years in issue.

FINDINGS OF FACT

Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference. 

Petitioner resided in Oregon at the time that she filed her

petition.

During 2003, 2004, and 2005 petitioner was employed as a

licensed practical nurse. Petitioner worked for multiple

employers to whom she was referred by employment agencies. Her

income from employment was reported on her tax returns as wages

and salaries. 

On her Federal income tax returns petitioner reported

adjusted gross income of $49,138 for 2003, $45,634 for 2004, and

$34,015 for 2005. On the Schedule A attached to each return,

petitioner claimed job expenses and other miscellaneous

deductions totaling $15,408 for 2003, $24,423 for 2004, and
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$12,531 for 2005. Also attached to each return was a Form 8283,

Noncash Charitable Contributions, in which the description of

items allegedly donated was shown as “Misc Household” or

“Household Misc”, the dates of acquisition and contribution of

the items were omitted, and the value of each item was claimed as

“thrift shop value”. The “thrift shop value” claimed was

approximately 46 percent, 33 percent, and 24 percent of the

alleged purchase price for 2003, 2004, and 2005 deductions,

respectively. The statutory notice of deficiency that is the

basis of this case disallowed the claimed deductions which remain

in dispute, as follows:

 Deductions 2003 2004 2005

Unreimbursed employee 

 business expenses

$15,408 $22,299 $12,531

Noncash charitable deduction 6,500 7,200 4,923

Cash charitable deduction 2,500 3,500 -0-

Medical expenses 4,431 5,822 -0-

Petitioner’s returns for the years in issue were prepared by

Demara Guaspari, also known as Demara Lucker, a return preparer

in Clackamas, Oregon. For the preparation of her returns,

petitioner provided the preparer with only a handwritten summary

of deductions and amounts of deductions to be claimed.

Petitioner shredded original receipts and other records of

her deductions after entering them on a computer program,

Quicken. She provided neither receipts nor a computer printout

to her preparer, and she did not produce any receipts or other
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corroborating documents during the subsequent examination of her

returns by the Internal Revenue Service, during pretrial

proceedings in this case, or during trial. Because of

petitioner’s lack of cooperation during the audit, the examiner

issued a summons to compel testimony and production of documents. 

Because petitioner failed to appear in response to the summons,

an action was commenced in Federal district court.

Petitioner did not make a reasonable attempt to reconstruct

the expenses claimed on her tax returns for 2003, 2004, and 2005. 

She refused to secure copies of canceled checks because she did

not want to pay the $2 per check fee that would have been charged

by her bank.

OPINION

The facts found above are sparse because petitioner failed

to provide any explanation of the items that she claimed as 

deductions on her tax returns. The findings include, however,

facts occurring during and after the examination of her returns

because this case depends entirely on the credibility of

petitioner. Because she did not retain required records, did not

cooperate with reasonable requests for records, and did not

introduce credible evidence with respect to the disputed

deductions, the burden of proof remains with her. See sec.

7491(a); Rockwell v. Commissioner, 512 F.2d 882, 885 (9th Cir.

1975), affg. T.C. Memo. 1972-133. For the reasons set forth
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below, we conclude that her testimony is not reliable and that

she is not entitled to any of the deductions in issue.

Petitioner testified that she shredded all original

documents reflecting deductible expenditures after making entries

on her computer and that the computer was stolen. Her testimony

failed to identify any specific expenses which she was entitled

to deduct, and she had not made reasonable attempts to

reconstruct the missing records. She claimed that she was a

traveling nurse incurring mileage and “nursing items”, but she

did not even suggest that she maintained a log of her mileage or

other required records. She claimed that she had been following

the same format for many years and had not had a problem with her

tax reporting before. She suggested that the Court allow her

deductions under the rule of Cohan v. Commissioner, 39 F.2d 540,

543-544 (2d Cir. 1930).

The so-called Cohan rule is that, when a taxpayer adequately

establishes that he or she paid or incurred a deductible expense

but does not establish the precise amount, we may estimate the

allowable deduction, bearing heavily against the taxpayer whose

inexactitude caused the inadequacy of the evidence. Id.

Estimates are not permitted with respect to vehicle expenses and

other types of expenses covered by section 274(d). See Sanford

v. Commissioner, 50 T.C. 823, 827-828 (1968), affd. 412 F.2d 201

(2d Cir. 1969). In any event, there must be sufficient evidence
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in the record to provide a basis upon which an estimate may be

made and to permit us to conclude that a deductible expense was

incurred in at least some amount. No such evidence has been

presented here. Petitioner admittedly shredded the original

records, and the alleged loss of records does not excuse the

necessity of production of evidence. See, e.g., Malinowski v.

Commissioner, 71 T.C. 1120, 1124-1125 (1979); Priestly v.

Commissioner, T.C. Memo. 2003-267, affd. 125 Fed. Appx. 201 (9th

Cir. 2005).

Moreover, we are not required to accept testimony that is

improbable or vague. Geiger v. Commissioner, 440 F.2d 688, 689-

690 (9th Cir. 1971), affg. T.C. Memo. 1969-159. Petitioner’s

claimed deductions against her reported income were so large as

to be improbable. Her destruction of evidence and failure to

make a reasonable attempt to identify specific items suggests

that her claimed deductions were exaggerated and perhaps 

fabricated. We are certainly not persuaded that the amounts

claimed were incurred.

Section 6662(a) imposes a 20-percent accuracy-related

penalty on the portion of an underpayment of tax attributable to

any one of various factors, including negligence or disregard of

rules or regulations. See sec. 6662(b)(1). Under section

7491(c), respondent bears the burden of production with regard to

penalties and must come forward with sufficient evidence
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indicating that it is appropriate to impose the penalty. Higbee

v. Commissioner, 116 T.C. 438, 446 (2001). However, once

respondent has met the burden of production, the burden of proof

remains with the taxpayer, including the burden of proving that

the penalty is inappropriate because of reasonable cause or

substantial authority. Id. at 446-447.

Respondent’s burden of production is met by showing

petitioner’s negligence and disregard for rules and regulations

through her failure to maintain records to support the deductions

claimed, as required by section 6001. Petitioner’s lack of

compliance justifies the imposition of the section 6662(a)

penalty in this case.

To reflect the foregoing,

Decision will be entered for

respondent.