T.C. Summary Opinion 2006-187

UNITED STATES TAX COURT

EMMANUEL M. AND BLESSING N. NWANKWO, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 3981-05S, 8353-05S. Filed December 12, 2006. 

Emmanuel M. and Blessing N. Nwankwo, pro sese.

Robert Mopsick, for respondent.

GOLDBERG, Special Trial Judge: These consolidated cases

were heard pursuant to the provisions of section 7463 of the

Internal Revenue Code in effect at the time the petitions were

filed. The decisions to be entered are not reviewable by any

other court, and this opinion should not be cited as authority. 

Unless otherwise indicated, subsequent section references are to

the Internal Revenue Code in effect for the years at issue, and

Rule references are to the Tax Court Rules of Practice and
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1In the 2003 taxable year, respondent also disallowed a

claimed dependency exemption for Raphael Nwankwo. At trial,

petitioners conceded their error in listing Raphael Nwankwo as a

dependent in 2003, as he died in August 2002. Accordingly, this

exemption is no longer an issue. 

Procedure. Respondent determined deficiencies in petitioners’

Federal income taxes and penalties as follows: 

Taxable Year Deficiency Sec. 6662(a) Penalty

2002 $4,112 $822

 2003 8,562 1,712

After concessions,1 the issues for decision are: 

(1) Whether petitioners are entitled to claimed dependency

exemption deductions for Raphael Nwankwo and Caroline Nwankwo for

taxable year 2002. We hold that they are with respect to

Caroline Nwankwo and are not with respect to Raphael Nwankwo. 

(2) Whether petitioners are entitled to claimed Schedule C,

Profit or Loss From Business, deductions for legal and

professional fees in the amounts of $2,850 and $1,861 for taxable

years 2002 and 2003, respectively. We hold that they are

entitled to deduct legal and professional fees of $105 for

taxable year 2002. We hold that they are not entitled to such

deductions for taxable year 2003. 

(3) Whether petitioners are entitled to claimed Schedule C

deductions for travel expenses of $3,202 and $4,102 for taxable

years 2002 and 2003, respectively. We hold that they are not. 
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(4) Whether petitioners are entitled to claimed Schedule C

deductions for employee benefit program expenses of $1,241 and

$2,040 for taxable years 2002 and 2003, respectively. We hold

that they are not. 

(5) Whether petitioners are entitled to deduct Schedule C

repairs and maintenance expenses in excess of $6,726 and $9,126

for taxable years 2002 and 2003, respectively. We hold that they

are not. 

(6) Whether petitioners are entitled to deduct Schedule C

“other” expenses in excess of $15,337 and $15,108 for taxable

years 2002 and 2003, respectively. We hold that they are not. 

(7) Whether petitioners are entitled to claimed Schedule C

deductions for commissions and fees expenses in the amount of

$3,001 for taxable year 2002. We hold that they are not. 

(8) Whether petitioners are liable for accuracy-related

penalties under section 6662(a) of $882.40 and $1,712.40 for

taxable years 2002 and 2003, respectively. We hold that they

are. 

Background

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

The stipulation of facts and the attached exhibits are

incorporated herein by reference. At the time the respective

petitions were filed, petitioners resided in Somerset, New

Jersey. 
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In 1998, petitioner husband (Mr. Nwankwo) started his own

small trucking business by purchasing an 18-wheeler Mack truck. 

Mr. Nwankwo, who was self-employed, operated his business by

contracting his services to other large trucking companies. 

During the taxable years at issue, Mr. Nwankwo contracted with at

least three different trucking companies, picking up and

delivering loads in Pennsylvania, Delaware, Connecticut, New

York, and New Jersey. His work frequently had him on the road at

least 3 days a week, often with overnight stays away from home. 

Petitioner wife worked for Sommerset Community Action Program, a

social services agency, on a part-time basis in 2002, and then on

a full-time basis in 2003. Petitioners have four minor children

at home. 

In 1998 and 1999, respectively, Mr. Nwankwo’s parents,

Raphael and Caroline Nwankwo, arrived from Nigeria to live with

petitioners. Neither Raphael nor Caroline Nwankwo worked outside

of the home. In late January 2002, Raphael Nwankwo returned to

Nigeria where he immediately fell ill. Between February and

August of 2002, petitioners sent the elder Mr. Nwankwo

approximately $1,450 to cover his medical and incidental

expenses, and paid approximately $700 for his travel expenses. 

During this time, Raphael Nwankwo sporadically received a state

pension from the Nigerian Government of approximately $60 a

month. This pension, and petitioners’ support, constituted 100
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2Respondent disallowed deductions for Mr. Nwankwo’s

uniforms, dry cleaning, and telephone expenses. (Of these

expenses, respondent allowed petitioners’ fuel costs, which were,

notably, identical to the amount claimed in taxable year 2003.) 

percent of Raphael Nwankwo’s income when he returned to Nigeria. 

Raphael Nwankwo died in August 2002. 

Caroline Nwankwo resided with petitioners throughout 2002. 

In early 2003, she left petitioners’ home to live with distant

relatives near Baltimore, Maryland. 

For each of the taxable years 2002 and 2003, petitioners

included with their Federal income tax return a Schedule C,

Profit or Loss From Business, related to Mr. Nwankwo’s trucking

business. 

Taxable Year 2002

The income and expenses of Mr. Nwankwo’s trucking business

for taxable year 2002 were reported as follows: 

Income $61,723

 Expenses: 

 Commissions & fees 3,001

 Depreciation 1,775

 Employee benefit programs 1,241

 Insurance 4,100

 Legal & professional 2,850

 Repairs & maintenance 11,210

 Taxes & licenses 2,906

 Travel 3,202

 Other expenses*2 20,785

 Profit 10,653

*Consisted of:

 Tolls and parking 5,115

 Uniforms and cleaning 2,713
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 Telephone 2,735

 Fuel 10,222

In the notice of deficiency for taxable year 2002,

respondent disallowed deductions for: all legal and professional

fees; all travel expenses; all employee benefit programs

expenses; and all commissions and fees. Respondent also

disallowed $4,484 of the $11,210 deducted for repairs and

maintenance expenses, and $5,448 of the $20,785 deducted for 

other expenses. 

In addition to the disallowed Schedule C business expense

deductions, respondent disallowed dependency exemptions claimed

for both Raphael and Caroline Nwankwo. 

Taxable Year 2003

For taxable year 2003, petitioners reported the following

income and expenses related to Mr. Nwankwo’s trucking business on

their Schedule C: 

Income: $80,633 

Expenses: 

 Depreciation 1,238 

 Employee benefit programs 2,040 

 Insurance 4,101 

 Legal & professional 1,861 

 Repairs & maintenance 15,210 

 Taxes & licenses 3,412 

 Travel 4,102 

 Other expenses* 37,771 

Profit 10,898 

*Consisted of: 

 Tolls and parking 5,115 

 Uniforms and cleaning 2,853 

 Telephone 3,352 
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 Fuel 24,200 

 Lumber services 2,251 

In the notice of deficiency for taxable year 2003,

respondent disallowed deductions for: all legal and professional

fees; all travel expenses; all employee benefit programs

expenses; $6,084 of the $15,210 claimed as repairs and

maintenance expenses; and $22,663 of the $37,771 deducted as

“other expenses.” 

Discussion

In general, the Commissioner’s determination as set forth in

a notice of deficiency is presumed correct. Welch v. Helvering,

290 U.S. 111, 115 (1933). Moreover, deductions are a matter of

legislative grace and are allowed only as specifically provided

by statute. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84

(1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440

(1934). 

In pertinent part, Rule 142(a)(1) provides the general

rule that “The burden of proof shall be upon the petitioner”.

In certain circumstances, however, if the taxpayer introduces

credible evidence with respect to any factual issue relevant to

ascertaining proper tax liability, section 7491 places the burden

of proof on the Commissioner. Sec. 7491(a)(1); Rule 142(a)(2).

Credible evidence is “‘the quality of evidence which, after

critical analysis, the court would find sufficient * * * to

base a decision on the issue if no contrary evidence were
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submitted’”. Baker v. Commissioner, 122 T.C. 143, 168 (2004)

(quoting Higbee v. Commissioner, 116 T.C. 438, 442 (2001)).

In this case, petitioners have neither argued that section

7491 is applicable to shift the burden of proof to respondent nor

established that they complied with the requirements of section

7491(a)(2)(A). The resolution of the issues presented, however,

does not depend on which party has the burden of proof. 

Accordingly, we resolve the issues on the preponderance of the

evidence in the record. 

2002 Dependency Exemptions

Petitioners argued their entitlement to dependency

exemptions for taxable year 2002 for Raphael and Caroline

Nwankwo. Petitioners testified that Raphael Nwankwo lived in

their home from 1998 through the end of January 2002, and that

Caroline Nwankwo lived in their home from 1999 until January

2003. 

Section 151(c) allows as a deduction a dependency exemption

for each dependent as defined in section 152. To prevail, the

taxpayer must show: (1) That the individual claimed as a 

dependent is a qualified relative of the taxpayer or is an

individual within the meaning of section 152(a)(9); (2) that the

taxpayer furnished over half of the individual’s total support

for the year; and (3) that the individual is a United States

citizen or national for whom a taxpayer identification number
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(TIN) has been included on the return reporting the exemption. 

Secs. 152(a) and (b)(3), 151(e).

Section 152(a)(4) defines a dependent as including the

parent of the taxpayer over half of whose support for the year

was received from the taxpayer. Support generally includes

amounts used for food, shelter, clothing, medical and dental

care, education, and the like. Sec. 1.152-1(a)(2)(i), Income Tax

Regs. To meet the support test under section 152(a), a taxpayer

must show: (1) The total amounts received by the claimed

dependent from all sources; (2) the amounts actually applied for

the support of the dependent; (3) the sources which contributed

to the total support costs expended on behalf of the dependent;

and (4) that the taxpayer provided over half of the total

expenditures for the dependent’s support. Turecamo v.

Commissioner, 554 F.2d 564 (2d Cir. 1977), affg. 64 T.C. 720

(1975); Archer v. Commissioner, 73 T.C. 963 (1980); Seraydar v.

Commissioner, 50 T.C. 756, 760 (1968). 

The evidence necessary to prove total support must be

convincing. Seraydar v. Commissioner, supra at 760; Stafford v.

Commissioner, 46 T.C. 515, 517 (1966). If the amount of total

support is not shown and cannot be reasonably inferred from the

competent evidence available, then it is impossible to conclude

that the taxpayer furnished more than half. Blanco v.
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Commissioner, 56 T.C. 512, 514-515 (1971); Stafford v.

Commissioner, supra at 518. 

With respect to the elder Mrs. Nwankwo, petitioners provided

credible evidence that Caroline Nwankwo remained in their home

throughout all of 2002, that she did not work outside their home,

and that they provided all of her support by way of food,

clothing, shelter, and medical care. We are satisfied,

therefore, that petitioners provided more than half of the elder

Mrs. Nwankwo’s support in taxable year 2002. 

With respect to Raphael Nwankwo, petitioners provided

credible evidence that although the elder Mr. Nwankwo left their

home in late January 2002, they contributed more than half of his

total financial support for the taxable year. Petitioners

offered credible testimony that between January and August 2002,

they provided Mr. Nwankwo with $1,450 in support for food,

clothing, and medical care. In addition, petitioners also paid

approximately $700 for travel-related expenses. When he returned

to Nigeria in late January 2002, the elder Mr. Nwankwo received a

state pension of $60 a month. This was his only source of income

in Nigeria. During this time, petitioners remained the primary

source of Raphael Nwankwo’s economic support, often sending cash

to him in Nigeria. He died in August 2002. 

However, while we are satisfied that petitioners provided

more than half the support for both Raphael and Caroline Nwankwo
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in 2002, in order to decide this issue, we must resolve the

residency requirement of section 151(e); that is, we must

consider whether either of the claimed individuals could be

classified as a U.S. citizen or national in 2002. 

Under section 152(b)(3), an individual who is not a citizen

or national of the United States is excluded from the definition

of the term “dependent” unless the individual is a resident of

the United States. Section 1.871-2, Income Tax Regs., contains

guidelines for determining if a noncitizen is a resident within

the meaning of section 152(b)(3). See DeLauzirika v.

Commissioner, T.C. Memo. 1971-181. 

Section 1.871-2(b), Income Tax Regs., defines “residence”

as: 

(b) Residence defined. An alien actually present in

the United States who is not a mere transient or sojourner

is a resident of the United States for purposes of the

income tax. Whether he is a transient is determined by his

intentions with regard to the length and nature of his stay. 

A mere floating intention, indefinite as to time, to return

to another country is not sufficient to constitute him a

transient. If he lives in the United States and has no

definite intention as to his stay, he is a resident. One

who comes to the United States for a definite purpose which

in its nature may be promptly accomplished is a transient;

but, if his purpose is of such a nature that an extended

stay may be necessary for its accomplishment, and to that

end the alien makes his home temporarily in the United

States, he becomes a resident, though it may be his

intention at all times to return to his domicile abroad when

the purpose for which he came has been consummated or

abandoned. An alien whose stay in the United States is

limited to a definite period by the immigration laws is not

a resident of the United States within the meaning of this

section, in the absence of exceptional circumstances.
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Section 1.871-4, Income Tax Regs., sets forth the rules of

evidence that further govern the determination of an alien’s

residence: 

Sec. 1.871-4. Proof of residence of aliens.

(a) Rules of evidence. The following rules of

evidence shall govern in determining whether or not an

alien within the United States has acquired residence

therein for purposes of the income tax. 

(b) Nonresidence presumed. An alien, by reason of

his alienage, is presumed to be a nonresident alien. 

(c) Presumption rebutted. * * *.

(2) Other aliens. In the case of other

aliens, the presumption as to the alien’s nonresidence

may be overcome by proof-- 

(i) That the alien has filed a

declaration of his intention to become a citizen of the

United States under the naturalization laws; or 

(ii) That the alien has filed Form 1078

or its equivalent; or

(iii) Of acts and statements of the

alien showing a definite intention to acquire residence

in the United States or showing that his stay in the

United States has been of such an extended nature as to

constitute him a resident. 

First, although it is unclear from the record before us

whether the elder Nwankwos filed a declaration of their

intentions or Forms 1078, Certificate of Alian Claiming Residence

in the United States, we are satisfied that the elder Mrs.

Nwankwo, through both deed and word, desired to remain

permanently in the United States. Petitioners testified that

Caroline Nwankwo spoke of her desire never to return to Nigeria,
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and that she wished to remain close to her children and

grandchildren. Accordingly, under section 1.871-4(c)(2)(i) and

(ii), Income Tax Regs., we find her words and actions sufficient

as to constitute her a resident for taxable year 2002. Having

considered the facts before us and after giving due consideration

to the presumption as set forth in the regulations, we conclude

that Caroline Nwankwo was a resident of the United States in

taxable year 2002, and that petitioners are entitled, therefore,

to a dependency exemption for her. 

In contrast, the record indicates that the elder Mr. Nwankwo

was adamant in both deed and word that his stay in the United

States was temporary. Petitioners testified that he often told

them of his desire to return to Nigeria, that he regretted

leaving behind his other son and family, with whom he wished to

be reunited, and that he did not want petitioners to purchase him

a round trip ticket upon his return to Nigeria in January 2002. 

Petitioners also testified that the elder Mr. Nwankwo was

dissatisfied from the time that he first came to the United

States in 1998, and that he often told them of his distaste for

the cold New Jersey winters and the high cost of public

transportation. In fact, petitioners testified that were it not

for the presence of the elder Mrs. Nwankwo, and the costs

associated with a return to Nigeria, the elder Mr. Nwankwo would

have returned to Nigeria. Finally, Raphael Nwankwo returned to
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Nigeria in January of 2002 with the intention of never returning

to the United States. See sec. 1.871-5, Income Tax Regs. 

 With respect to Raphael Nwankwo, we conclude that he never

intended to become a U.S. citizen and that he abandoned any

resident status that he may have otherwise attained in the 3

years prior to his departure. Accordingly, irrespective of our

finding that petitioners did provide more than half of his total

support in 2002, we must sustain respondent on this issue. 

2002 Schedule C Expenses

As stated in the notice of deficiency for 2002, respondent

disallowed part of petitioners’ claimed Schedule C expense

deductions because petitioners failed to “keep adequate records

and documentary evidence to substantiate” these expenses. 

Despite their lack of substantiation, respondent afforded

“consideration” for petitioners’ depreciation, and repairs and

insurance expenses, allowing petitioners 60 percent of their

claim. Respondent, however, disallowed some of petitioners’

deductions for legal and professional fees, travel expenses,

employee benefit program expenses, repair and maintenance

expenses,“other expenses”, including uniforms and dry cleaning

and telephone, and commissions and fees for “lack of adequate

records and documentary evidence.” 

Section 162 allows “as a deduction all the ordinary and

necessary expenses paid or incurred during the taxable year in
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3The two photocopies provided are identical insofar as they

have the same claim accident number, date, and location

information. They appear to have been written by the same

person. There are two marked differences between the documents:

the document listing an amount of $105 appears to be a photocopy,

whereas the document showing $1,105 appears, at least on first

blush, to be an original. However, upon closer inspection, we

find that an extra “1” was likely added to the $105 copy and then

re-copied, whereupon the “original” $105 copy was either

distressed or re-faxed to give the appearance of two separate

receipts. 

carrying on any trade or business”. Sec. 162(a); Deputy v.

duPont, 308 U.S. 488, 495 (1940). 

Respondent did not challenge the validity of petitioners’

claimed Schedule C expenses as ordinary and necessary expenses

paid or incurred for Mr. Nwankwo’s trucking business but rather

disallowed the expenses on the grounds that petitioners failed to

provide substantiation that these expenses were actually paid or 

incurred in the taxable years, and in the amounts, that they were

claimed.

With respect to the legal and professional fees, the record

contains evidence of two citations incurred by Mr. Nwankwo in

2002 as shown on payroll deduction forms provided by his

employer. The amounts of these citations were $105 and $1,105,

respectively. However, upon closer scrutiny of this evidence, we

find only one of the photocopied receipts provided by petitioner

to be legitimate,3 and accordingly, conclude that petitioner is

entitled to a deduction of $105. Petitioner then testified that

he incurred attorney’s fees of $400 associated with this
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citation; however, the record is devoid of any proof that he

actually incurred this expense. Accordingly, we find petitioner

is entitled to deduct a Schedule C expense for legal and

professional fees only to the extent of $105. 

On their 2002 Schedule C, petitioners deducted travel

expenses of $3,202. With respect to travel expenses and certain

other expenses, including property used as a means of

transportation, section 274(d) imposes stringent substantiation

requirements to document with particularity the nature and amount

of such expenses. For such expenses, substantiation of the

amounts claimed by adequate records or by other sufficient

evidence corroborating the expenses is required. Sec. 274(d);

sec. 1.274-5T(a)(1), Temporary Income Tax Regs., 50 Fed. Reg.

46014 (Nov. 6, 1985). To meet the adequate records requirements

of section 274(d), a taxpayer “shall maintain an account book,

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

* * * and documentary evidence * * * 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). These substantiation requirements are designed

to encourage taxpayers to maintain records, together with

documentary evidence substantiating each element of the expense

sought to be deducted. Sec. 1.274-5T(c)(1), Temporary Income Tax

Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).
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Mr. Nwankwo’s records with respect to his travel expenses do

not satisfy the requirements of section 274(d) and the

regulations thereunder. Petitioner testified at trial that he

did not keep a log book or any travel records for 2002 and that,

in fact, he did not begin keeping a log book for his travel

expenses until very recently. Although Mr. Nwankwo testified

that he no longer had receipts from 2002, he also stated that

many of his travel expenses were charged to his personal credit

card. However, petitioners provided no credit card statements

(that could have easily been reproduced by contacting their

credit card company) as evidence. We are therefore unpersuaded

that Mr. Nwankwo incurred the costs he purports in taxable year

2002 and, accordingly, sustain respondent with respect to this

issue. 

With respect to the employee benefit programs expenses, the

record is devoid of any evidence showing that petitioners

incurred such costs. Accordingly, we must sustain respondent

with respect to this issue. 

With respect to the disallowed deductions for repair and

maintenance expenses, Mr. Nwankwo testified at trial that he

presented “a bag of receipts” to the agent during the examination

of their 2002 return, but that the agent refused to look at them. 

Petitioners did not recall the dollar amount or number of the

receipts contained in the bag, they did not reproduce these
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receipts, and they did not testify that the receipts in question

were no longer available. Rather, petitioners maintained that

the agent simply and flatly refused to consider any of the

receipts they brought with them to the examination. Petitioners

then produced at trial photocopies of approximately 25 receipts

(some from automotive shops, some from taxable year 2003 and

later, and others, unreadable) that they claimed were reflective

of the receipts contained in the bag presented at the

examination. These documents were received into evidence. 

We cannot tell from the record whether any of the

photocopied receipts for taxable year 2002 as provided by

petitioners were a part of the amounts disallowed by respondent. 

Irrespective, we are ultimately unpersuaded that the agent at

examination flatly refused to look at any of the documentation

petitioners purportedly provided to her. Moreover, we note that

respondent disallowed the amounts claimed by petitioners based on

a lack of supporting documentation “as of 8-12-04.” Petitioners

concede that they were not in possession of any of their receipts

from 2002 on August 12, 2004. We must therefore conclude that

petitioners have failed to establish that these expenses were, in

fact, paid or incurred in the course of Mr. Nwankwo’s trucking

business in 2002. 

With respect to the disallowed deductions for uniforms and

cleaning expenses, Mr. Nwankwo testified that the uniforms and
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cleaning costs resulted from his work uniform, and although he

did not wear a corporate uniform per se, he did wear “jeans from

head to toe.” Articles of clothing are deductible under section

162(a) only if the clothing is required in the taxpayer’s

business, is not suitable for general or personal wear, and is

not worn for general or personal purposes. Yeomans v.

Commissioner, 30 T.C. 757, 767-768 (1958). There is nothing in

the record to prove that the jeans worn by Mr. Nwankwo were

required in petitioner’s business, were not suitable

for general or personal wear, and were not worn for general or

personal purposes. Accordingly, we must sustain respondent with

respect to these expenses. 

With respect to the disallowed deductions for telephone

expenses, as a general rule, the deductibility of telephone

expenses is also guided by section 162(a). But see sec. 262(b). 

However, if the telephone expense at issue is for a cellular

phone, the stringent substantiation requirements under section

274(d) will apply, as a cellular phone is listed property

pursuant to sections 274(d)(4) and 280F(d)(4)(A)(iv). 

The record is devoid of any evidence showing Mr. Nwankwo’s

business-related telephone expenses, or in what amount these

expenses occurred. The only reference contained in the record is

a letter addressed to Mr. Nwankwo from his cellular phone company

notifying him of a replacement fee that he must pay for a non-
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working phone. This letter is dated August 17, 2004. Based upon

the lack of substantiation as to deduction, we must sustain the

determination with respect to the telephone expenses.

With respect to the commissions and fees expenses,

petitioners testified at trial that this deduction was due to an

error made by their C.P.A. Accordingly, with no evidence in the

record to the contrary, we sustain respondent’s determination on

this issue. 

2003 Schedule C Expenses

As stated in the 2003 notice of deficiency, respondent

disallowed petitioners’ claimed Schedule C deductions for

employee benefits programs and legal and professional services

expenses because they failed to establish that the “expenses

shown on [their] tax return were paid or incurred during the

taxable year and that the expenses were ordinary and necessary to

your business.” Respondent disallowed petitioners’ claimed

deductions for repairs, travel, and other expenses because they

“did not substantiate these reported expenses.” 

As previously stated, section 162 allows “as a deduction all

the ordinary and necessary expenses paid or incurred during the

taxable year in carrying on any trade or business”. Sec. 162(a);

Deputy v. duPont, 308 U.S. at 495. 

With respect to the legal and professional fees, Mr. Nwankwo

testified that these costs stemmed from citations that he
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received while driving his 18-wheeler in 2003. However, he

failed to provide respondent, either at the examination, or

before or at trial, with proof of these expenses. He did not

offer any testimony at trial of these costs. Accordingly, we

must sustain respondent’s determination as to this issue. 

With respect to petitioners’ claimed deductions for travel

expenses, as previously discussed, section 274(d) imposes

stringent substantiation requirements to document with

particularity the nature and amount of such expenses. Mr.

Nwankwo testified that these receipts were also kept in the bag

that was mistakenly thrown out in the trash by his mother. Mr.

Nwankwo testified that he did not keep a travel log for that

year, and the record is devoid of any additional evidence that

could prove his travel expenses. Although Mr. Nwankwo testified

that he often used credit cards to pay his travel-related

expenses in 2003, he did not produce any records from his credit

card companies to this effect. Accordingly, we must sustain

respondent on this issue. 

With respect to the employee benefit programs expenses, the

record is devoid of any evidence showing that petitioners

incurred such costs. Accordingly, we must sustain respondent

with respect to this issue. 

With respect to the disallowed repair and maintenance

expenses, Mr. Nwankwo testified that the bulk of the receipts for
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these items were contained in a “bag of receipts” mistakenly

thrown out in the trash by his mother, the elder Mrs. Nwankwo,

sometime in late 2003 when she was staying at petitioners’ home. 

Petitioners did not recall a total dollar amount for the receipts

contained in the bag, nor did they testify that the receipts in

question were no longer available. Petitioners produced at trial

photocopies of approximately 15 readable receipts that they

claimed were reflective of the receipts contained in the bag that

was thrown out in the trash. These receipts were received into

evidence. 

Again, we cannot tell from the record whether any of the

photocopied receipts provided by petitioners were a part of the

amounts disallowed by respondent. We must therefore sustain

respondent on this issue. 

With respect to the disallowed deductions for uniforms and

dry cleaning expenses, we again find that there is nothing in the

record to prove that the “jeans uniform” worn by Mr. Nwankwo in

2003 was required in petitioner’s business, was not suitable

for general or personal wear, and was not worn for general or

personal purposes. Moreover, as a general observations, we are

unwilling to believe that blue jeans of the type Mr. Nwankwo

testified that he wore while on the job required dry cleaning.

Accordingly, we sustain respondent with respect to this

deduction. 
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With respect to the disallowed telephone expenses, 

the record is devoid of any evidence showing that Mr. Nwankwo had 

telephone expenses in 2003, and for reasons previously discussed,

we must again sustain respondent’s determination with respect to

this issue.

Finally, respondent disallowed petitioners’ Schedule C

“other expenses” deduction for “lumber services” of $2,251. Mr.

Nwankwo testified that “lumber services” was an expense that he

would incur if, upon arrival to his offloading destination, he

found himself either too tired or too time pressured to offload

his rig himself. He would often find “street people” at his

destination to offload his rig for him, pay them approximately

$200 in cash, and obtain their signature on a slip of scrap paper

as proof of this expense. 

Respondent argues that these expenses were not ordinary and

necessary to Mr. Nwankwo’s business within the meaning of section

162. However, the term “necessary” imposes only the minimal

requirement that the expense be “appropriate and helpful” for

“the development of the * * * [taxpayer’s] business.” Welch v.

Helvering, 290 U.S. at 113; Lilly v. Commissioner, 343 U.S. 90,

93-94 (1952); Commissioner v. Heininger, 320 U.S. 467, 471

(1943); cf. Kornhauser v. United States, 276 U.S. 145, 152

(1928); McCulloch v. Maryland, 17 U.S. 316, 413-415 (1819). 
- 24 -

Accordingly, we conclude that “lumber services” were, in

fact, within the scope of section 162(a), as helpful to the

development of Mr. Nwankwo’s business insomuch as they enabled

him to save time and make a greater number of deliveries. If the

record provides sufficient evidence that the taxpayer has

incurred a deductible expense, but the taxpayer is unable to

adequately substantiate the amount of the deduction to which he

or she is otherwise entitled, the Court may estimate the amount

of such expense and allow the deduction to that extent. See

Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Green

v. Commissioner, T.C. Memo. 1989-599. 

In this case, however, although we find Mr. Nwankwo’s

testimony credible to the fact that he did incur these expenses

on certain occasions, we must recognize that he provided neither

a total dollar amount nor the actual slips that he received from

these laborers, nor any other testimony upon which we could base

a Cohan estimation. See Vanicek v. Commissioner, 85 T.C. 731,

742-743 (1985). Accordingly, for lack of basic evidence, we must

sustain respondent’s determination with respect to these

expenses. 

Section 6662(a) Penalty

As previously stated, respondent, in the notices of

deficiency, determined that petitioners are liable for accuracy-
- 25 -

related penalties pursuant to section 6662(a) for taxable years

2002 and 2003. 

Section 6662(a) provides for an accuracy-related penalty of

20 percent of the portion of any underpayment attributable to,

among other things, negligence or intentional disregard of rules

or regulations. Sec. 6662(b)(1). Negligence means a

“‘failure to make a reasonable attempt to comply with the

provisions of the Internal Revenue Code, or the failure to do

what a reasonable and ordinarily prudent person would do under

the circumstances.’” Neely v. Commissioner, 85 T.C. 934, 947

(1985) (quoting Marcello v. Commissioner, 380 F.2d 499, 506 (5th

Cir. 1967), affg. in part and remanding in part 43 T.C. 168

(1964) and T.C. Memo. 1964-299). Negligence also includes the

failure by the taxpayer to keep adequate books and records. Sec.

1.6662-3(b)(1), Income Tax Regs. No accuracy-related penalty may

be imposed on any portion of an underpayment if it is shown that

there was “reasonable cause” for such portion and that the

taxpayer acted in “good faith” with respect to such portion. 

Sec. 6664(c)(1). The determination of whether a taxpayer acted

in good faith is made on a case-by-case basis, taking into

account all pertinent facts and circumstances. Sec. 1.6664-4(b),

Income Tax Regs. The most important factor is the extent of the

taxpayer’s efforts to determine his or her proper tax liability. 

Id.
- 26 -

The Commissioner bears the burden of production with respect

to all penalties. See sec. 7491(c). The burden imposed by

section 7491(c), however, is merely for the Commissioner to come

forward with evidence regarding the appropriateness of applying a

particular addition to tax or penalty to the taxpayer. The

Commissioner need not negate all defenses to the additions or

penalties. See Higbee v.Commissioner, 116 T.C. 438, 446 (2001). 

Respondent has met his burden with respect to the negligence

claim by establishing that petitioners failed to maintain

adequate and accurate accounts of their expenses in taxable years

2002 and 2003. Moreover, petitioners have not shown that there

was reasonable cause for their failures to maintain such records. 

Therefore, we sustain respondent’s determination of the penalties

under section 6662(a) for taxable years 2002 and 2003. 

To the extent that we have not addressed any of the parties’

arguments, we have considered them and conclude they are without

merit.

Reviewed and adopted as the report of the Small Tax Case

Division. 

Decisions will be entered

under Rule 155.