1All subsequent section references are to the Internal

Revenue Code, as in effect for 2002 and 2003, the years in issue.

T.C. Summary Opinion 2008-124

UNITED STATES TAX COURT

CHARLES R. OLIVER, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 16034-06S. Filed September 18, 2008.

Charles R. Oliver, pro se.

Beth A. Nunnink, for respondent.

WELLS, Judge: The instant case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect

when the petition was filed.1 Pursuant to section 7463(b), the

decision to be entered is not reviewable by any other court, 
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and this opinion shall not be treated as precedent for any other

case. 

The issues we must decide are: (1) Whether petitioner is

entitled to business expense deductions and costs of goods sold

greater than those respondent allowed for 2002 and 2003; (2)

whether petitioner had gambling winnings of $3,097 and $1,250 in

2002 and 2003, respectively, and whether petitioner is entitled

to deduct gambling losses; and (3) whether petitioner is liable

for penalties under section 6662 for 2002 and 2003.

Background

Some of the facts and certain exhibits have been stipulated. 

The parties’ stipulations of fact are incorporated in this

Summary Opinion by reference and are found as facts in the

instant case. 

At the time of filing the petition, petitioner resided in 

Tennessee.

During 2002 and 2003 petitioner engaged in a painting

business named R & B Paint & Repair Co., using subcontractors,

the income and expenses of which he reported on Schedules C,

Profit or Loss From Business, attached to his returns for those

years. Petitioner maintained no receipts, contracts, invoices,

Forms 1099, or Forms W-2, Wage and Tax Statement, with respect to

the income and expenses reported on his Schedules C. The only 
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documentation petitioner maintained was his checking account

records. 

During 2002 and 2003 petitioner gambled at Fitzgerald’s

Casino. During 2002 petitioner had gambling winnings of $3,097. 

During 2003 petitioner had gambling winnings of $1,250. In both

2002 and 2003 petitioner’s gambling losses met or exceeded his

gambling winnings. On each of his returns for 2002 and 2003

petitioner omitted his gambling winnings from gross income and

claimed the standard deduction. 

Discussion

Schedule C Expenses

In general, deductions are a matter of legislative grace and

the burden of showing the right to claimed deductions is on the

taxpayer. Welch v. Helvering, 290 U.S. 111 (1933).

Section 162(a) allows the deduction of “ordinary and

necessary expenses” incurred while carrying on a trade or

business. Section 6001 requires a taxpayer to maintain adequate

books of account or records that are sufficient to establish the

amount of gross income, deductions, or other matters required to

be shown on his tax return. 

If a taxpayer establishes that a deductible expense has been

paid but is unable to substantiate the precise amount, the Court

may estimate the amount of the deductible expense, bearing

heavily against the taxpayer whose inexactitude in substantiating
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the amount of the expense is of his own making. Cohan v.

Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). An estimate

is possible, however, only if the taxpayer presents evidence

sufficient to provide some basis upon which an estimate can be

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

In general, no deduction is allowed for personal, living, 

or family expenses. Sec. 262. In Richards v. Commissioner, T.C.

Memo. 1999-163, the Court stated that television sets are

“inherently personal items under section 262.” The Court has

also held that the expense incurred in repairing a television 

is inherently personal. O’Connor v. Commissioner, T.C. Memo.

1986-444. Additionally, costs of daily newspapers in general

circulation, which contain a significant amount of information

that is inherently personal, are nondeductible personal expenses.

Richards v. Commissioner, supra. 

Car and truck expenses are subject to the strict

substantiation requirement found in section 274(d) and section

280F(d)(4)(A)(i) and (ii). The taxpayer must provide documents

that corroborate by adequate records or by sufficient evidence

the amount of the expense, the mileage for each business use of

the vehicle and the total mileage for all use of the vehicle

during the taxable period, the date of the business use, and the

business purpose for the use. Sec. 1.274-5T(b)(6), Temporary

Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). The
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taxpayer must substantiate each element of an expenditure or use

by adequate records or by sufficient evidence corroborating his

own statement. Sec. 1.274-5T(c), Temporary Income Tax Regs., 50

Fed. Reg. 46016 (Nov. 6, 1985). During 2002 the standard mileage

rate was $0.365. Rev. Proc. 2001-54, 2001-2 C.B. 530. During

2003 the standard mileage rate was $0.36. Rev. Proc. 2002-61,

2002-2 C.B. 616. 

On his Schedules C petitioner deducted expenses for

“DirecTV” (cable television) and listed the cable television

access as “weather info service” on the theory that the cable

television included weather information. Petitioner claims that

the purpose of having cable television was to watch the Weather

Channel. However, petitioner admitted that he had basic cable

television which gave him access to 40 to 50 stations. Basic

cable television, similar to daily newspapers, contains a

significant amount of information which is inherently personal. 

As with the purchase of a television or television repair,

petitioner’s cable television access is not deductible as

petitioner has failed to prove that his use of the cable

television access was not primarily personal. Accordingly, we

hold that petitioner is not entitled to deduct the claimed “Other

expenses” for cable television.

For 2002 petitioner claimed cost of goods sold of $51,531. 

Petitioner included cost of labor of $18,484, materials and
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supplies of $31,414, and other costs of $1,633. According to

petitioner’s check analysis, petitioner had materials and

supplies expenses of $11,650 and subcontractor expenses of

$18,509.89. Many of petitioner’s checks for materials and

supplies expenses are made out to “cash”. He provided no

receipts to show that the cash was actually used for materials

and supplies. 

Additionally, some of the checks were payable to places that

do not appear to be related to petitioner’s business, such as a

grocery store. Petitioner made credit card payments to Wachovia,

Home Depot, Cabelas, Exxon, Lowes, Texaco, Union76, Citi, 

Discover, NAEC, Lasalle Bank, Sams, and Conseco Finance totaling

$16,572.21. Petitioner offered no receipts, invoices, or

statements that show the items purchased with the credit cards. 

Accordingly, the record does not show which, if any, business

expenses were paid with the credit cards. Because petitioner

failed to offer any receipts or invoices, we cannot estimate

which if any of such items should be included in petitioner’s

cost of goods sold. 

Petitioner provided no Forms W-2 or Forms 1099 issued to his

subcontractors to support his claimed cost of labor. 

Petitioner’s own check analysis indicates materials and supply

costs of $11,650 and subcontractor expenses of $18,510 for total

cost of goods sold of $30,160. In the notice of deficiency
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respondent allowed cost of goods sold of $35,251. Accordingly,

even if we were to accept all the checks petitioner issued for

“materials and supplies” and “subs” as petitioner’s expenses,

respondent already has allowed cost of goods sold greater than 

the amount shown in petitioner’s analysis. On the basis of the

foregoing, we hold that petitioner is not entitled to additional

cost of goods sold for 2002.

For 2003 petitioner claimed cost of goods sold of $117,195. 

Petitioner included cost of labor of $39,055 and materials and

supplies of $78,140. According to petitioner’s “Client’s Recap

of Books”, petitioner had subcontractor expenses of $48,070.42

and materials and supplies expenses of $69,125.53. On the basis

of petitioner’s memos on his checks, the checks are broken down

into materials, subs, and credit card payments. Petitioner did

not offer any Forms W-2 or Forms 1099 for his subcontractor

expenses. Even if we were to accept all the checks to

petitioner’s subcontractors, the checks marked materials (usually

made out to “cash”), and the checks to Porter Paints and Sherwin

Williams as petitioner’s expenses, they would total only $76,058,

and respondent already has allowed cost of goods sold of $93,719. 

Additionally, petitioner offered checks made out to “cash”

which listed “materials” on the memo line. However, he provided

no receipts to show that the cash was actually used for materials

and supplies. Because petitioner did not offer any receipts or
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invoices regarding his materials and supplies, it is unclear

whether any items were returned for cash or credit. Some

of the checks in the record are for purposes unrelated to

petitioner’s business, for example, check No. 1958 for boat

registration and check No. 1956 for a birthday present to Casey

Oliver. Accordingly, we are unable to conclude that petitioner

used his checking account exclusively for business. Petitioner

made credit card payments to Wachovia, Home Depot, Cabelas,

Exxon, Lowes, Providian, and Bank One. To the extent petitioner

is claiming that some or all of those credit card payments are

deductible, there are no receipts, invoices, or statements in the

record that show what was purchased with those credit cards. 

Because petitioner failed to offer any receipts or invoices, we

cannot determine which if any of such claimed expenses were paid

with the credit cards and should be included in petitioner’s cost

of goods sold. We hold that petitioner has failed to show that

he had cost of goods sold greater than the amount respondent

allowed for 2003.

For 2002 petitioner deducted rent expenses of $2,400. 

Petitioner stated that he agreed to pay his companion $100 a week

for rent and utilities. However, petitioner admitted that his

companion would not make him pay and he was allowed to pay only

when he was able to. Petitioner offered no rental agreement and

no documents that would show he paid a consistent amount to his
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companion. Moreover, petitioner did not offer any credible

evidence that shows the payments were actually for business rent. 

For the checks made out to petitioner’s companion on which the

memo line was completed, none of the checks indicated the

payments were for rent. Only two checks written to petitioner’s

companion contained memos: (1) Petitioner’s companion wrote

check No. 1416 to herself and wrote in the memo line

“Reimbursement for all payments” and (2) petitioner wrote check

No. 1471 and wrote in the memo line “loan payment.” Respondent

suggests that petitioner’s payments to his companion appear to be

either his share of living expenses or repayment of a loan. 

Additionally, petitioner did not provide any evidence that his

payments were actually business expenses. Indeed, petitioner’s

companion appears to have had check writing authority on

petitioner’s checking account. Furthermore, three of the checks

to petitioner’s companion were written by petitioner’s companion. 

Petitioner’s checking account was not used only for business

expenses. For example, petitioner wrote checks to Fitzgerald’s

Casino for gambling and had debit card transactions on the

account for Leslie’s Pool Supply, Carl’s Wine and Liquor, and

Travis Boating Center. On the basis of the foregoing, we find

that petitioner has not established that he paid any rent and

hold that he is not entitled to deduct his claimed rent expenses.
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For 2002 petitioner deducted utility expenses of $817.

Petitioner testified that he agreed to pay his companion $100 a

week for rent and utilities. However, as stated above,

petitioner was not required to make such payments and would pay

only when he was able. Furthermore, none of the checks to

petitioner’s companion indicate that they are for rent or

utilities. We are unable to conclude that petitioner’s payments

to his companion were for rent or utilities used in his business.

Petitioner contends that he deducted utility expenses

related to water use, electricity to charge tools and to heat

work trailers, and trash pickup. In petitioner’s checking

account analysis, he included in utilities items from Salesville

Water, Bartlett Water, MLGW (Memphis Light, Gas, & Water),

Southern Disposal, and the City of Bartlett. However, petitioner

offered no evidence as to what portion of those expenses was

personal and what portion, if any, was for business. Water,

trash pickup, gas, and electricity are all expenses that

generally are for personal use in a residence. Accordingly, we

have no basis for concluding that the claimed utility expense

deductions were business related. Consequently, we hold that

petitioner is not entitled to his claimed utility expense

deductions.

Petitioner claimed mileage of 21,263 miles and 20,247 miles

for 2002 and 2003, respectively. For 2002 petitioner provided a
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document labeled “Key Figures” dated January 16, 2006, which

shows business mileage of 21,263. For 2003 petitioner provided a

document labeled “Client’s Recap of Books” that shows mileage of

21,313 and business use of 95 percent. However, petitioner

admitted that his Client’s Recap of Books would have been created

in 2004 for his 2003 taxes. Petitioner offered no

contemporaneous records, mileage logs, or calendars in regard to

his claimed mileage. Petitioner offered no records or evidence

which substantiated his testimony. The only evidence petitioner

offered was evidence he created after the years in issue, and it

is in the nature of statements or testimony rather than actual

substantiation of his testimony. 

Petitioner prepared and had three of his subcontractors sign

letters stating “he did not use his work truck except to work out

of.” The letters are identical and appear to be petitioner’s

statements and not the subcontractors’ statements. Furthermore,

there are no addresses, phone numbers, or Social Security numbers

to enable corroboration of the subcontractors’ statements. 

Moreover, the subcontractors could not have had such extensive 

knowledge unless they were in petitioner’s presence at all times

during the years in issue. On the basis of the record, we

conclude that petitioner has not established the business use of

his vehicle and has not met the strict substantiation

requirements for his car and truck expenses. Consequently, we
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hold that petitioner is not entitled to deduct his claimed car

and truck expenses.

Gambling Winnings

Section 61 defines gross income as all income from whatever

source derived. Section 165(a) provides the general rule that

there shall be allowed as a deduction any loss sustained during

the taxable year and not compensated for by insurance or

otherwise. Section 165(d) limits the loss deduction of section

165(a), providing: “Losses from wagering transactions shall be

allowed only to the extent of the gains from such transactions.” 

Section 165 permits a deduction for gambling losses for a

taxpayer who is not in the business of gambling, see Commissioner

v. Groetzinger, 480 U.S. 23, 35 (1987), only to the extent the

taxpayer elects to itemize his deductions, sec. 63(a); see Calvao

v. Commissioner, T.C. Memo. 2007-57; Heidelberg v. Commissioner,

T.C. Memo. 1977-133.

During 2002 and 2003 petitioner gambled at Fitzgerald’s

Casino. During 2002 petitioner had gambling winnings of $3,097. 

During 2003 petitioner had gambling winnings of $1,250. In both

2002 and 2003 petitioner’s gambling losses met or exceeded his

gambling winnings. On each of his returns for 2002 and 2003

petitioner failed to include his gambling winnings in income and

claimed the standard deduction. Although the gambling losses

would be allowable as an itemized deduction up to the amount of
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2A taxpayer may change his or her election pursuant to sec.

63(e)(3). However, the losses for both 2002 and 2003 would not

be as advantageous to petitioner as the standard deduction for

those years.

the winnings, since petitioner did not elect to itemize his

deductions, he is not entitled to deduct the gambling losses.2

Sec. 63(a) and (b); see Calvao v. Commissioner, supra; Heidelberg

v. Commissioner, supra. Consequently, we hold that for each of

the years in issue petitioner is required to include the gambling

winnings in gross income and is not entitled to any deduction for

losses.

Accuracy-Related Penalties Under Section 6662

Section 6662(a) and (b)(1) and (2) imposes a penalty for a

taxpayer’s underpayment which is attributable to negligence or

disregard of rules or regulations or a substantial understatement

of income tax. Negligence is any failure to make a reasonable

attempt to comply with the provisions of Internal Revenue Code,

and disregard is any careless, reckless, or intentional

disregard. Sec. 6662(c). Negligence includes the failure of a

taxpayer to keep proper records or to substantiate his reported

expenses. Sec. 1.6662-3(b)(1), Income Tax Regs. A “substantial

understatement” of income tax is $5,000 or 10 percent of the tax

required to be shown on the return, whichever is greater. Sec.

6662(d)(1). Pursuant to section 7491(c), the Commissioner bears

the burden of production with respect to the imposition of any

penalty. Petitioner has deficiencies of $7,167 and $8,872 for
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2002 and 2003, respectively. Those amounts exceed both $5,000

and 10 percent of the tax required to be shown on those returns. 

Consequently, petitioner had substantial understatements of

income tax and is liable for the penalties under section

6662(b)(2).

On the basis of the record, we sustain respondent’s

determinations. We have considered all of the arguments of the

parties, and, to the extent not addressed in this Summary

Opinion, we conclude those issues are without merit, irrelevant,

or unnecessary to reach. 

To reflect the foregoing, 

Decision will be entered

for respondent.