T.C. Memo. 1997-494

UNITED STATES TAX COURT

GEORGE H. AND EVELYN G. COOPER, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 5574-96. Filed November 3, 1997.

On the facts, Held: (1) Ps have not established

that they are entitled to deduct on their 1987 Federal

income tax return ordinary and necessary business

expenses in excess of the amount allowed by R; and (2)

petitioners are liable for the late filing addition to

tax under sec. 6651(a)(1), I.R.C.

George H. Cooper, pro se.

Roberta D. Repasy, for respondent.
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MEMORANDUM FINDINGS OF FACT AND OPINION

NIMS, Judge: Respondent determined a deficiency in

petitioners' Federal income tax for 1987 in the amount of

$14,367, and an addition to tax for that year under section

6651(a)(1) in the amount of $3,204.

All section references are to sections of the Internal

Revenue Code in effect for 1987, and all Rule references are to

the Tax Court Rules of Practice and Procedure.

After concessions, the issues remaining for decision are (1)

whether petitioners are entitled to deduct certain alleged

business expenses incurred by George H. Cooper (petitioner) in

excess of $18,869, the amount allowed by respondent, and (2)

whether petitioners are liable for the late filing addition to

tax under section 6651(a)(1). (The limitation on the amount of

petitioners' claimed Schedule A miscellaneous itemized deductions

is a mechanical adjustment; the allowable amount of such

deductions will be calculated under Rule 155, using the amount of

petitioners' adjusted gross income determined as a result of this

proceeding. The amount of self-employment tax due on the income

that petitioner received from Con Tex, Inc., is also a mechanical

adjustment, the amount of which will also be calculated under

Rule 155.)
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FINDINGS OF FACT

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

Petitioners resided in London, England, when they filed

their petition. From July through December 1987, petitioner

performed services as an independent contractor for Con Tex, Inc. 

The stubs detached from the checks for services which petitioner

received from Con Tex, Inc., reveal that of the total amount

petitioner received from July 13, 1987, to December 16, 1987,

$18,485 represented reimbursed expenses. In addition, of the

$2,784 petitioner received on December 30, 1987, $384 represented

reimbursed expenses. Thus, petitioner's expense reimbursement

from Con Tex, Inc., totaled $18,869.

OPINION

In an opening statement preceding his testimony, petitioner

represented to the Court that he was engaged by Con Tex, Inc., as

a "contract worker" in connection with a contract that Con Tex,

Inc., had with Ford Motor Company (Ford) to introduce certain

systems and procedures to Ford. Petitioner stated that Con Tex,

Inc., was terminated by Ford after 7 months, and that both he and

Con Tex, Inc., ended up losing money. 

Petitioner testified that, insofar as his services as a

contract worker were concerned, Con Tex, Inc., agreed to

reimburse him for air fares and accommodations that he "would
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incur along the way", but that he was expected to pay some of his

own expenses in anticipation of further contracts. The parties

agree that petitioner incurred expenses of $18,869 for which he

was reimbursed, and that the $18,869 is included in the agreed

upon $46,229 which petitioner received from Con Tex, Inc., in

1987. Thus, the net income which petitioner received from Con

Tex, Inc., totaled $27,360. Neither the $46,229, the $18,869,

nor petitioner's relationship with Con Tex, Inc., is disclosed on

petitioners' 1987 return. 

Petitioners claim that they are entitled to deduct as

ordinary and necessary business expenses amounts in excess of the

$18,869 reimbursement falls short in at least two respects: (1) 

Petitioners have failed to show that any such excess expenditures

were ordinary and necessary expenses incurred in a trade or

business, and (2) they have failed to substantiate the amount of

any such excess. Petitioner's testimony that he was expected to

pay some of his own expenses over and above those for which he

was reimbursed is vague and self-serving and wholly unsupported

by any other credible evidence.

Section 162(a) permits a deduction for the ordinary and

necessary expenses paid or incurred during the tax year in

carrying on a trade or business. Such expenses must be ordinary

and necessary in the conduct of the taxpayer's business and
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directly attributable to such business. The term does not

include nondeductible personal, living, or family expenses. 

Section 1.162-17(a), Income Tax Regs. In addition, expenses paid

or incurred for travel, entertainment, and meals are not

deductible unless substantiated by adequate records or

corroborating evidence of (1) the amount of the expense, (2) the 

time and place of travel or entertainment, (3) the business

purpose of the expense, and (4) the business relationship to the

taxpayer of the beneficiary of the expense. Section 274(d).

Petitioner submitted various documents purporting to

substantiate his claimed excess expenses. In addition, he

submitted several "summaries" of his expenses. 

The documents and summaries submitted by petitioner and the

testimony he presented at the time of trial fail to substantiate

his claimed excess expenses. Indeed, although petitioner

testified that he kept "meticulous" records, he stated that one

of the summaries he prepared from these records was a "probable"

chronology of the travel he undertook on behalf of Con Tex, Inc. 

He also admitted that not all of the documents he submitted in

support of his claimed deductions pertained to his work for Con

Tex, Inc.

Furthermore, at least one of the airline itineraries

submitted by petitioner pertains to travel by petitioner's wife,
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Evelyn Cooper. Petitioner admitted that this travel was not

related to his work for Con Tex, Inc. In addition, a ticket for

travel in February 1987 submitted by petitioner does not relate

to petitioner's work for Con Tex, Inc., since he did not even

begin such work until July 1987. Therefore, petitioner's records

were not precise, as he maintains, and are not reliable.

Furthermore, despite petitioner's mischaracterized

meticulous record keeping, the various summaries he prepared from

his records each set forth a different amount of his alleged

expenses.

For example, a spreadsheet allegedly prepared by petitioner

to assist his return preparer with the preparation of

petitioners' 1987 tax return purports to show that petitioner

incurred expenses of $37,382 relating to his work with Con Tex,

Inc. (this summary also purports to show that petitioner was

reimbursed $31,992 for such expenses).

By contrast, a summary of expenses prepared by petitioner,

and presented to the examining agent in this case, states that

petitioner incurred business expenses totaling $43,579 relating

to his work with Con Tex, Inc., during the 1987 tax year.

A third summary purporting to show the expenses incurred by

petitioner, and which allegedly takes into account amounts set

forth on documents included within several exhibits prepared by
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petitioner, states that petitioner incurred $25,748 in expenses

during the 1987 tax year, yet the amounts set forth on the

documents total only $17,921.96.

Finally, a summary prepared by petitioner for purposes of

the trial of this case (and about which petitioner testified that

it was a "probable chronology" of his business travel during the

1987 tax year), reports that petitioner incurred business

expenses totaling $27,536 during the 1987 tax year.

When asked which of these amounts was accurate, petitioner

stated that "the actual expenses that I incurred is none of

these. These are different treatments of information at the time

that I was asked to provide information." If petitioner is

unable to accurately determine the amount of his expenses for the

1987 tax year, he cannot expect the Court to do so from the

jumble of data he has submitted. 

Petitioner has also failed to show that the claimed expenses

were ordinary and necessary for the conduct of business. Indeed,

petitioner testified that, with the exception of meals (unless

client or staff related), he was reimbursed by Con Tex, Inc., for

all expenses that "legitimately" contributed to its business.

Lastly, petitioner has not met the strict requirements of

section 274(d) as to his claimed travel, entertainment, and meals

expenses. Petitioner provided no evidence as to how much of his
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claimed meals expense was reimbursable (i.e., client or staff

related) and how much he actually paid out of his own pocket.

We accordingly hold that petitioners are not entitled to

deduct business expenses in excess of the amount allowed by

respondent.

Section 6651(a)(1) provides for an addition to tax of 5

percent per month for each month or part of a month for which a

return is late, the aggregate not to exceed 25 percent.

A taxpayer has a nondelegable duty to file a timely return,

but can avoid the addition to tax for failing to do so by

affirmatively showing that the delinquency was due to reasonable

cause and not due to willful neglect. Section 6651(a). The

taxpayer bears the burden of proving both (1) that the failure

did not result from willful neglect, and (2) that the failure was

due to reasonable cause. United States v. Boyle, 469 U.S. 241,

245 (1985). If the taxpayer does not meet this twin burden, the

imposition of the addition to tax is mandatory. Heman v.

Commissioner, 32 T.C. 479 (1959), affd. 283 F.2d 227 (8th Cir.

1960).

Petitioners maintain that they should not be liable for the

addition to tax under section 6651(a)(1) even though their return

for the 1987 tax year (which was due on April 15, 1988) was not

filed until June 2, 1993. Petitioner testified that, near the
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time their 1987 return was due to be filed, he and his wife were

moving to England. He stated that he turned over all of his

records to his return preparer for his use in preparing the 1987

return. Petitioner also testified that his return preparer told

him that petitioners did not owe any taxes for their 1987 tax

year. The implication apparently intended by petitioner through

his testimony regarding his return preparer appears to be that

the filing delinquency was somehow the fault of the return

preparer, and not petitioners'. Petitioner also testified that

he did not recall telling the return preparer that he had earned

any income from Con Tex, Inc. (the largest single source of

petitioners' income for 1987). 

As a matter of fact, petitioners have presented no evidence

that their return was actually prepared by someone other than

themselves. The return filed June 2, 1993, contains no signature

other than those of petitioners and bears no indication that it

was prepared by anyone other than them. But assuming, for the

sake of argument, that petitioners' return was prepared by

someone other than themselves, petitioners still have not met

their burden of proof. Reliance on another to timely file a

return is not reasonable cause for the delinquent filing of a

return. Taxpayers still have a duty to ascertain and meet the

statutory deadline, which petitioners have not done. United
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States v. Boyle, supra; see also Radabaugh v. Commissioner, T.C.

Memo. 1992-572; Massengill v. Commissioner, T.C. Memo. 1986-159.

Even if petitioners were told by a return preparer that it was

unnecessary to file a return, that would not excuse them from the

late filing addition in the absence of proof that adequate

disclosure of their income was made to the preparer.

We hold that petitioners are liable for the late filing

addition to tax under section 6651(a)(1), the amount to be

determined under Rule 155.

To reflect the foregoing,

Decision will be entered

under Rule 155.