T.C. Memo. 2008-228

UNITED STATES TAX COURT

PATRICK S. ARNOLD, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 708-06, 12304-06, Filed October 8, 2008.

12312-06, 12475-06.

Steven D. Morford, for petitioner.

Kelly M. Davidson, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

THORNTON, Judge: In these consolidated cases, respondent

determined the following deficiencies and additions to tax with

respect to petitioner’s Federal income taxes:
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1 After issuing the notice of deficiency for 1999,

respondent issued petitioner a new examination report,

redetermining a 1999 deficiency of $73,625 and additions to tax

pursuant to secs. 6651(a)(1) and (2), and 6654 in the amounts of

$16,565, $18,406, and $3,563, respectively. Respondent has

conceded the amounts of deficiency and additions to tax in excess

of those determined in the new examination report.

2 Neither in his petition nor otherwise in this proceeding

has petitioner assigned error to respondent’s determination that

he is liable for additions to tax pursuant to secs. 6651(a)(1)

and (2), and 6654. We deem petitioner to have conceded that the

additions to tax are appropriate. See Swain v. Commissioner, 118

T.C. 358, 365 (2002) (if an individual does not challenge a

penalty by assigning error to it, the Commissioner has no

obligation under sec. 7491(c) to produce evidence that the

penalty is appropriate). The exact amount of the additions to

tax shall be determined in the parties’ Rule 155 calculations. 

 Additions to Tax 

 Sec. Sec. Sec.

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

19991 $79,706 $17,933 $19,926 $3,857

2000 57,404 14,351 -- --

2001 67,571 15,203 13,514 2,700

2002 53,953 12,139 5,934 1,802

The sole issue is whether petitioner is entitled to

deductions claimed on Schedules A, Itemized Deductions, and

Schedules C, Profit or Loss From Business, attached to his

untimely returns for the years at issue.2 Unless otherwise

indicated, all section references are to the Internal Revenue

Code in effect for the years at issue, and all Rule references

are to the Tax Court Rules of Practice and Procedure. 
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3 Petitioner failed to file any posttrial brief and

consequently failed to set forth any objections to respondent’s

proposed findings of fact. We consider petitioner to have waived

any objections to respondent’s proposed findings of fact. See

Rule 151(e)(3) (“In an answering or reply brief, the party shall

set forth any objections, together with the reasons therefor, to

any proposed findings of any other party”). 

FINDINGS OF FACT3

The parties have stipulated some facts, which we incorporate

herein. When he petitioned the Court, petitioner resided in

Arizona. 

During the years at issue, petitioner was in the masonry,

tile, and stone installation business. He failed to file timely

Forms 1040, U.S. Individual Income Tax Return, for 1999, 2000,

2001, and 2002 and made no estimated tax payments. Respondent

issued separate notices of deficiency for each of these years,

determining that petitioner had unreported income.

Each petition in these consolidated cases alleges as the

sole assignment of error that respondent has failed to take into

account petitioner’s “ordinary and necessary expenses”. The

petitions state identically: “Tax returns are in the process of

being prepared to reflect those expenses.” After petitioning

this Court, petitioner submitted to respondent Federal income tax

returns for the years at issue. Attached to these returns, which

are in evidence, are Schedules A and Schedules C in which

petitioner claimed numerous and sizable deductions. 
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4 On his Schedules C, Profit or Loss From Business,

petitioner reported as gross receipts or sales the same amounts

that respondent had determined in the notices of deficiency as

unreported income.

5 Petitioner does not claim and has not established that the

conditions of sec. 7491(a) have been met to shift the burden of

proof to respondent with regard to any factual issue as to

petitioner’s liability for tax.

OPINION

Petitioner does not dispute respondent’s determinations as

to the amounts of his unreported income for the years at issue.4

Although his contentions are vague, petitioner appears to claim

entitlement to at least some of the various deductions claimed on

his untimely returns. The record is sparse. Petitioner’s

counsel was unprepared at trial, called no witnesses, and filed

neither a pretrial memorandum nor a posttrial brief as ordered. 

The evidence consists almost entirely of the parties’ limited

stipulations and the testimony of respondent’s revenue agent.

Generally, the Commissioner’s determinations in a notice of

deficiency are presumed correct, and the taxpayer has the burden

to prove that the determinations are in error. Rule 142(a);

Welch v. Helvering, 290 U.S. 111, 115 (1933).5 Deductions are a

matter of legislative grace, and a taxpayer must prove

entitlement to claimed deductions. Rule 142(a)(1); INDOPCO, Inc.

v. Commissioner, 503 U.S. 79, 84 (1992). The taxpayer must keep

sufficient records to substantiate any deductions claimed. Sec.

6001. If a taxpayer establishes a deductible expense but is
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6 Petitioner’s claimed 1999 charitable deduction included a

$12,618 carryover of excess charitable contributions from his

1997 taxable year. On brief respondent concedes that petitioner

had available a $9,859 charitable contribution carryover from

(continued...)

unable to substantiate the precise amount, the Court generally

may approximate the deductible amount, but only if the taxpayer

presents sufficient evidence to establish a rational basis for

making the estimate. Cohan v. Commissioner, 39 F.2d 540, 543-544

(2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743

(1985); cf. Kendrix v. Commissioner, T.C. Memo. 2006-9

(questioning whether the Cohan rule applies with respect to

claimed charitable contributions that have not been adequately

substantiated). 

On the Schedules A attached to his untimely returns

petitioner claimed, among other things, cash and noncash

charitable contributions (including carryover amounts) in the

following amounts: 

Year Charitable Contributions

 

1999 $35,028

2000 13,078

2001 13,905 

2002 9,408

Respondent concedes that petitioner has substantiated charitable

contributions in 1999 and 2000 in the amounts of $15,525 and

$4,215, respectively. Petitioner has failed to establish that he

is entitled to any greater amount of charitable deduction.6
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6(...continued)

1997 but contends, on the basis of stipulated evidence, that the

entire carryover must be treated as a charitable contribution

paid in 1998. See sec. 170(d)(1); sec. 1.170A-10(b)(1) and (2),

Income Tax Regs. (individuals’ charitable contributions in excess

of the applicable percentage limitation must be treated as

charitable contributions paid in each of the 5 taxable years

immediately succeeding the contribution year in order of time). 

Petitioner has offered neither evidence nor argument against

these contentions.

7 At trial petitioner’s counsel stated that it was “pretty

obvious” that petitioner must have had labor expenses to generate

his income. Shortly before trial petitioner provided respondent

with copies of Forms 1096, Annual Summary and Transmittal of U.S.

(continued...)

Moreover, in this proceeding petitioner has offered no evidence

to show that he is entitled to any other itemized deductions. 

On the Schedules C attached to his untimely returns,

petitioner claimed, among other things, expenses for materials 

and supplies in the following amounts: 

 Year Amount

 1999 $28,086

 2000 64,821

 2001 43,257 

 2002 63,830

The parties have stipulated certain of petitioner’s receipts for

materials and supplies, totaling $7,642 for 1999; $17,028 for

2000; $15,778 for 2001; and $16,043 for 2002. We hold that

petitioner is entitled to deductions for materials and supplies

in these amounts. Petitioner has introduced no evidence to

substantiate any greater amount of Schedule C expenses or to

provide any basis for us to estimate them.7
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7(...continued)

Information Returns, for his 1999 through 2002 taxable years with

attached Forms 1099-MISC, Miscellaneous Income, reporting

payments allegedly made to specified individuals for those years. 

The parties have stipulated, however, that the Social Security

numbers reported in the Forms 1099-MISC do not belong to the

individuals whose names are reported therein. Moreover,

respondent alleges that he has no record that petitioner ever

filed the Forms 1096 and 1099-MISC. In any event, at trial

petitioner offered neither these forms nor any other evidence to

substantiate claimed labor expenses.

To reflect the foregoing and concessions by respondent, 

Decision will be entered

under Rule 155.