TAX COURT OPINION

Case: Donald P. & Margie C. Osborne
Docket Number: 4838-05
Judge: Foley
Opinion Type: memo
Filed: 02/26/2008
Pages: 6

T .C . Memo . 2008-0 UNITED STATES TA X URT DONALD P . AND MARGIE C . OS COMMISSIONER OF INTERNAL REV E BORN , Petitioners v . 1UE, Responden t Docket No . 4838-05 . F i ed February 26, 2008 . Donald P . and Margie C . Osborne , sese . Joan E . Steele , for respondent . MEMORANDUM FINDINGS OF FAC T AND OPINION FOLEY, Judge : After concessions, e issues for decision are whether : (1) Petitioners are entit d to depreciation, insurance, interest, supplies, tax and censes, travel, an d other expense deductions relating to 20 and 2002 ; (2 ) petitioners properly calculated cost of oods sold relating to SERVED FEB 2 B ZQQB - 2 - 2001 and 2002 ; (3) petitioners failed to report gross income relating to 2001 and 2002 ; and (4) petitioners are liable for section 6662(a)1 accuracy-related penalties . FINDINGS OF FAC T Petitioner Donald Osborne (Mr . Osborne) was a self-employed truck driver . In addition, he maintained a business, Don Osborne Enterprises, which rented trailers and bought and sold over-the- road trucks and trailers . On his Schedules C, Profit or Los s from Business, relating to 2001 and 2002, Mr . Osborne combined income and expenses relating to these activities and claimed expense deductions for depreciation, insurance, interest, supplies, tax and licenses, travel, and other expenses . In 2004, petitioners' 2001 and 2002 returns were selected for audit, and respondent's Revenue Agent Mary Miller began an examination of the items on the returns . To substantiate their expense deductions, petitioners submitted canceled checks, credit card statements, insurance records, and other documentation . Petitioners were given credit for the expenses that were properly substantiated . Using canceled checks and vehicle title information for Mr . Osborne's business, Ms . Miller made adjustments to the inventory, cost of goods sold, and depreciabl e 1 Unless otherwise indicated, all section references are to the Internal Revenue Code of 1986, as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure . - 3 - assets relating to 2001 and 2002 . In a dition, Ms . Miller used a bank deposits analysis to determine pet tioners' unreporte d income . On December 6, 2004, respondent is ued petitioners a notice of deficiency relating to 2001 and 2002 In the notice o f deficiency, respondent determined that etitioners were not entitled to portions of the deductions laimed on their returns, had failed to report gross receipts inc me, had improperly calculated cost of goods sold, and were liable for sectio n 6662(a) accuracy-related penalties . On March 11, 2005, petitioners, wh le residing in Colorado , filed their petition with the Court . OPINION Petitioners contend that they are ntitled to the Schedule C deductions relating to 2001 and 2002 fo Don Osborne Enterprises . Section 162(a) allows as a deduction al the ordinary an d necessary expenses paid or incurred dur ng the taxable year in carrying on a trade or business . Petit oners must maintain sufficient records to substantiate the eductions . See sec . 6001 ; sec . 1 .6001-1(a), Income Tax Reg s At trial, petitioners produced can eled checks, credit card statements, insurance records, and othe documentary evidenc e that respondent had previously taken in o account in the 4 - determinations .' There is no credible evidence to substantiate deductions (i .e ., those relating to depreciation, insurance, interest, supplies, tax and licenses, travel, and other expenses) beyond those that respondent allowed in-the notice of deficiency . In addition, we sustain respondent's determinations relating to cost of goods sold . During the trial, pursuant to a stipulated agreement, the parties reduced the amount of unreported gross income in dispute . To determine petitioners' unreported income, respondent conducted a bank deposits analysis . Bank deposits are prima facie evidence of income, Tokarski v . Commissioner , 87 T .C . 74, 77 (1986), and under the bank deposits method,,all money deposited into a taxpayer's bank account during a given period is assumed to be taxable income, DiLeo v . Commissioner , 96 T .C . 858, 868 (1991), affd . 959 F .2d 16 (2d Cir . 1992) . Respondent's determinations are presumed to be correct, and petitioners bear the burden of proving that respondent's bank deposits analysis is erroneous . See Rule 142(a) ; Parks v . Commissioner , 94 T .C . 654, 658 (1990) . Petitioners did not submit sufficient evidence to 2 Pursuant to sec . 7491(a), petitioners have the burden of proof unless they introduce credible evidence relating to the issue that would shift the burden to respondent . See Rule, 142(a) . Our conclusions, however, are based on a preponderance of the evidence, and thus the allocation of the burden of proof is immaterial . See Martin Ice Cream Co . v . Commissioner , 110 T .C . 189, 210 n .16 (1998) . - 5 - rebut respondent's determinations, and e determinations are, a s adjusted by the parties' stipulation, t erefore, sustained . With respect to 2001 and 2002, res ondent-determined that petitioners were liable for accuracy-re ated penalties pursuan t to section 6662(a) . The penalty applie o any portion o f petitioners' underpayment that is attri utable to negligence o r disregard of rules or regulations . See sec . 6662 (b) (1) . Respondent bears and has met the burden of production relating to the section 6662(a) accuracy-related pe alties and ha s established that petitioners were negli ent in the filing o f their 2001 and 2002 returns . See sec . 491(c) ; Higbee v . Commissioner , 116 T .C . 438, 446 (2001) . Petitioners failed to report income, maintain adequate busine s records, or exercis e due care in reporting their income and xpenses . Accordingly, w e sustain respondent's determinations . Contentions we have not addressed re irrelevant, moot, o r meritless . To reflect the foregoing, Decision will be entere d unde l Rule 155 .