1 Unless otherwise indicated, subsequent section

references are to the Internal Revenue Code in effect for the

year in issue, and Rule references are to the Tax Court Rules of

Practice and Procedure.

T.C. Summary Opinion 2005-85

UNITED STATES TAX COURT

CHARLES A. BROWN, JR. AND LINDA L. BROWN, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 18198-03S. Filed June 16, 2005.

Charles A. Brown, Jr., for petitioners.

Robert F. Saal, for respondent.

POWELL, Special Trial Judge: This case was heard pursuant

to the provisions of section 74631 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.
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Respondent determined a deficiency of $3,075 in petitioners’

1998 Federal income tax and an addition to tax under section

6651(a)(1) of $769.25. After respondent’s concession that

petitioners are entitled to an education credit of $383, the

issues are whether petitioners are (1) entitled to deduct certain

Schedule C, Profit or Loss From Business, business expenses under

section 162 relating to a part-time law practice of petitioner

Charles A. Brown, Jr. (Mr. Brown); (2) entitled to deduct a

greater amount of charitable contributions under section 170 than

allowed by respondent; and (3) liable for the addition to tax

under section 6651(a)(1) for failing to timely file their 1998

return. 

At the time the petition was filed petitioners resided in

Westfield, New Jersey. 

Background

Mr. Brown has been an attorney for 30 years. In 1998, he

worked full-time for a company called Mecca and part-time with

his own law practice. Petitioner Linda L. Brown (Mrs. Brown)

operated a child day care services business. Each filed a

Schedule C for the respective business, but only items concerning

Mr. Brown’s Schedule C are in dispute. 
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Mr. Brown’s Schedule C for 1998 reflected the following:

Gross Income $1,800

Less:

Car and truck 2,496

Insurance 

(other than health) 3,096

Rent or lease 6,002

Utilities 1,800

The insurance amount includes car, homeowner’s, and life

insurance expenses. The amounts claimed as a deduction under car

and truck and rent or lease are for expenses for a leased 1997

Acura. The amount deducted under utilities relates to expenses

from Mr. Brown’s home office. Petitioners also deducted $7,375

in charitable contributions.

 On April 15, 1999, petitioners timely requested an

extension for the filing of their 1998 return. The filing date

was extended to August 15, 1999. Petitioners’ 1998 return was

filed on January 25, 2001. 

Upon examination, respondent disallowed the following

amounts claimed as deductions on Mr. Brown’s Schedule C: $2,042

of the car and truck expenses; $2,377 of the insurance expenses;

$4,530 of the rent or lease expenses; and the entire $1,800 of

utilities expenses. Respondent also disallowed $1,600 of the

claimed deduction for charitable contributions. 
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2 Sec. 7491(a), concerning burden of proof, is not

applicable here because petitioners have not satisfied the

substantiation requirements. Sec. 7491(a)(2)(A).

Respondent issued a notice of deficiency to petitioners for

1998 on August 13, 2003, determining an income tax deficiency of

$3,075 and an addition to tax under section 6651 of $769.25 for

failure to file a tax return or to pay a tax penalty. 

Discussion

A. Schedule C Expenses

Section 162 allows a deduction for all ordinary and

necessary expenses incurred in carrying on a trade or business if

the taxpayer maintains records or other proof sufficient to

substantiate the expenses.2 Secs. 162(a), 6001; sec. 1.6001-

1(a), Income Tax Regs. Section 274(d), however, provides more

stringent substantiation requirements for certain expenses and

requires that the taxpayer “substantiates by adequate records or

by sufficient evidence corroborating the taxpayer’s own

statement” the time and place of the travel and the business

purpose of the expense. The deductions that fall within section

274(d) include expenses “with respect to any listed property (as

defined in section 280F(d)(4))”. Sec. 274(d)(4). “Listed

property” includes passenger automobiles, any computer or

peripheral equipment, and any cellular telephone (or other

similar telecommunications equipment). Sec. 280F(d)(4). 
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3 Temporary regulations are entitled to the same weight

as final regulations. Peterson Marital Trust v. Commissioner,

102 T.C. 790, 797 (1994), affd. 78 F.3d 795 (2d Cir. 1996).

1. Passenger Automobile Expenses

To substantiate the adequate records requirement for a

passenger automobile, “a taxpayer shall maintain an account book,

diary, log, statement of expense, trip sheets, or similar record

* * * which, in combination, are sufficient to establish each

element of an expenditure”. Sec. 1.274-5T(c)(2)(i), Temporary

Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985).3 Based on a

reconstructed log provided by Mr. Brown, respondent allowed a

total of 7,562 business miles on a leased 1997 Acura, and

accordingly allowed a deduction for a percentage of the vehicle’s

lease payment, insurance, and gasoline expenses. Mr. Brown did

not provide any additional account book, diary, log, statement of

expense, trip sheets, or similar record for the remaining amounts

of his vehicle expenses at trial. Mr. Brown testified to these

expenses with estimations.

We are generally permitted to approximate the amount of an

expense if it is deductible but unsubstantiated, bearing heavily

against the taxpayer whose inexactitude is of his or her own

making. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir.

1930). The estimate, however, must have a reasonable evidentiary

basis. Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985). No

deduction for expenses under section 274(d), however, may be
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4 Respondent’s allowance of even a portion of Mr. Brown’s

claimed business expenses was an act of considerable kindness. 

We question whether Mr. Brown was engaged in the trade or

business of practicing law. From the record and Mr. Brown’s own

testimony, it does not appear that he conducted his law practice

with continuity or regularity, or with the primary purpose of

making a profit. Sec. 162; see Commissioner v. Groetzinger, 480

U.S. 23, 35 (1987); Antonides v. Commissioner, 893 F.2d 656, 659

(continued...)

allowed on the basis of an approximation or the unsupported

testimony of the taxpayer. See, e.g., Murata v. Commissioner,

T.C. Memo. 1996-321; Golden v. Commissioner, T.C. Memo. 1993-602.

Therefore, Mr. Brown’s unsupported testimony as to estimations is

not a basis on which we can allow a deduction for these

automobile expenses. Respondent’s disallowance of the remaining

amounts claimed for insurance, car and truck, and rent or lease

expenses relating to the 1997 Acura is sustained. 

2. Home Office

Petitioners claimed a deduction of $1,800 for utilities for

the portion of their home used as Mr. Brown’s office for his law

practice. Generally, no deductions are allowed with respect to

the use of a dwelling unit which is used by the taxpayer as a

residence. Sec. 280A(a). A taxpayer may be excepted from this

general rule if the dwelling unit is exclusively used on a

regular basis “as the principal place of business for any trade

or business of the taxpayer”. Sec. 280A(c)(1)(A). Respondent

stipulated that Mr. Brown was “engaged in the practice of law in

the year 1998”.4 
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4(...continued)

(4th Cir. 1990), affg. 91 T.C. 686 (1988). Mr. Brown only had

one income-producing client during the year at issue, and that

was the business operated by his wife, Mrs. Brown. Given our

finding and conclusion, infra p. 10, that petitioners did not

substantiate the claimed amounts, we need not and do not address

the issue further. 

 

We begin by noting that Mr. Brown admitted that he had no

written records of these utilities expenses. He testified with

estimations as to the expenses of local and long distance

telephone service, a cellular telephone, computers, and an

internet connection. The cellular telephone and the computers

are subject to the more stringent substantiation requirements of

section 274(d), and deduction of these expenses is not allowable

based on testimony and estimations alone. See Murata v.

Commissioner, supra; Golden v. Commissioner, supra. Mr. Brown

testified that 25 percent of his home’s local telephone service

was used for his law practice. When any charge for basic local

telephone service is based on the first telephone line provided

to any residence of a taxpayer, it shall be treated as a personal

expense and is not deductible. Sec. 262(b). 

Mr. Brown further testified to the exclusive use of the home

office for purposes of his law practice, but he presented no

evidence establishing the frequency or regularity with which the

home office was used, or the duties he performed there. Mr.

Brown testified that “potential clients” would sometimes meet
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5 If the remaining amount of the utility expenses were

properly substantiated and thus allowable, the deduction for

those expenses would have been limited by sec. 280A(c)(5) not to

exceed the excess of the gross income “derived from such use” of

the home office in the trade or business, reduced by other

expenses of the trade or business. 

with him at his office, and sometimes he would travel elsewhere

for meetings. Expenses incurred for incidental or occasional

trade or business use are not deductible even if the home office

was used exclusively for such purpose. See, e.g., Cally v.

Commissioner, T.C. Memo. 1983-203; Roth v. Commissioner, T.C.

Memo. 1981-699. Petitioners have not established that the

exception to section 280A(a) applies, and respondent’s

disallowance of the deduction for utility expenses claimed for

the home office is sustained.5 

Petitioners also included under insurance expenses a portion

of their homeowner’s insurance expense allocated to Mr. Brown’s

home office and life insurance for Mr. Brown. If insurance

expenses are directly related to business overhead, then they

constitute deductible business expenses under section 162. 

Blaess v. Commissioner, 28 T.C. 710, 714-715 (1957); see also

Green v. Commissioner, T.C. Memo. 1989-599. The life insurance

for Mr. Brown is not directly related to his law practice, and

the amount representing the homeowner’s insurance expense was not

substantiated; therefore, respondent’s disallowance of the

claimed deduction for insurance expenses is sustained. 
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6 The written acknowledgments are from the Vehicle

Donation Processing Center, Inc., and Friends of the Filipinos.

B. Charitable Contributions

Petitioners claimed a total deduction of $7,375 in

charitable contributions for the year at issue. Section 170(a)

provides a "deduction [for] any charitable contribution" made to

a qualified donee under section 170(c). Section 170(f) provides

record keeping requirements for certain charitable contributions. 

A deduction for any charitable contribution of $250 or more will

be disallowed "unless the taxpayer substantiates the contribution

by a contemporaneous written acknowledgment" prepared by the

donee. Sec. 170(f)(8)(A). The written acknowledgment must

include (1) the amount of cash contributed, (2) whether the donee

organization provided any goods or services in consideration of

the donation, and (3) a description and good faith estimate of

the value of those goods or services. Sec. 170(f)(8)(B). A

written acknowledgment is contemporaneous if the taxpayer obtains

the statement on or before the earlier of (1) the date on which

the taxpayer files a return for the taxable year in which the

contribution was made, or (2) the due date (including extensions)

for filing the return. Sec. 170(f)(8)(C). 

Of the total $7,375 deducted for charitable contributions,

petitioners substantiated $4,775 with contemporaneous written

acknowledgments prepared by the donees.6 Of the remaining
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7 The parties have stipulated that the return was filed

on this date; therefore respondent has met his burden of

production under sec. 7491(c) regarding the addition to tax.

$2,600, respondent allowed another $1,000 based on Mr. Brown’s

explanation for reasonableness. Mr. Brown testified that the

unsubstantiated $2,600 was merely an “estimate based on my

experience” and did not introduce anything further regarding the

remaining $1,600. We sustain respondent’s disallowance of the

deduction for the remaining, unsubstantiated charitable

contributions. 

C. Addition to Tax Under Section 6651(a)(1)

 Petitioners’ 1998 return was due August 15, 1999, as

extended, but it was not filed until January 25, 2001.7 Section

6651(a) imposes an addition to tax for failing to file a timely

income tax return, determined with regard to any extensions,

unless such failure to file is due to reasonable cause and not

due to willful neglect. Sec. 6651(a)(1). The question whether

failure to timely file is due to reasonable cause and not willful

neglect is one of fact, and the taxpayer bears the burden of

proof. See sec. 6651(a)(1); Rule 142(a); United States v. Boyle,

469 U.S. 241, 245 (1985). A taxpayer’s failure to file is due to

reasonable cause if he or she exercised ordinary business care

and prudence and was nevertheless unable to file the return

within the time prescribed by law. Sec. 301.6651-1(c)(1),

Proced. & Admin. Regs. 
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8 Alternatively, Mr. Brown argued that the addition to

tax was caused by respondent’s failure to follow his instruction

to apply his 1997 overpayment of tax to the next taxable year. 

We find no merit in this argument, as Mr. Brown acknowledged that

he received a refund for 1997 and the record does not contain any

evidence establishing the existence of the 1997 overpayment or

his instruction to apply it to the next taxable year. Moreover,

at no point do petitioners argue that the 1998 return was timely

filed. 

 Petitioners assert that a car accident involving Mr. Brown

in May of 1997 and his resulting surgery prevented the timely

filing of their return. Incapacity on the part of a taxpayer due

to physical illness can establish reasonable cause for failure to

file timely returns. Sec. 301.6651-1(c)(1), Proced. & Admin.

Regs.; see also United States v. Boyle, supra at 248 n.6. 

Petitioners have not presented any documentation as to the car

accident or Mr. Brown’s surgery, or why these events prevented

the timely filing of the return.8 We sustain respondent’s

determination as to the section 6651(a)(1) addition to tax. 

Reviewed and adopted as the report of the Small Tax Case

Division. 

Decision will be entered

under Rule 155.