TAX COURT OPINION

Case: Idowu O. Oghogho
Docket Number: 2007-09
Judge: Colvin
Opinion Type: bench
Filed: 07/12/2010
Pages: 8

UNITED STATES TAX COURT WASHINGTON , DC 2021 7 IDOWU O . OGHOGHO, Petitioner , v . ) Docket No . 2007-09 COMMISSIONER OF INTERNAL REVENUE , Respondent . ) O R D E R Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it i s ORDERED that the Clerk of the Court shall transmit to petitioner and to respondent a copy of the pages of the transcript of the proceedings of the above case before Judge Diane L . Kroupa at San Francisco, California on June 18, 2010, containing her oral findings of fact and opinion . In accordance with the oral findings of fact and opinion, decision will . be entered for respondent . (Signed) Diane L . Kroupa Judge Dated : Washington, D .C . July 12, 2010 SERVED JUL 14 2010 3 1 2 Bench Opinion by Judge Diane L . Kroupa June 18, 2010 3 Idowu 0 . Oghogho v . Commissioner Docket No . 2007-0 9 4 5 THE COURT : The Court has decided to render ora l 6 findings of fact and opinion in this case, and the following 7 represents the Court's oral findings of fact and opinion . 8 These oral findings of fact and opinion shall not 9 be relied upon as precedent in any other case . This bench 10 opinion is made pursuant to the authority granted by section 11 7459(b) and Rule 152 . All section references are to the 12 Internal Revenue Code for 2005, the year at issue, and all 13 rule references are to the Tax Court Rules of Practice & 14 Procedure . 15 Mr . Oghogho appeared pro se, on his own behalf, 16 and Jeremy L . McPherson appeared on behalf of Respondent . 17 FINDINGS OF FAC T 18 Petitioner reported wage income, interest income, 19 a state income tax refund, and unemployment compensation on 20 his return for 2005 . Petitioner also attached two Schedule 21 C forms, one for a landscaping business and one for a 22 construction business . Petitioner reported $500 in gross 23 receipts and a $12,241 net loss on the landscaping Schedule 24 C, and reported no gross receipts and a $1319 loss on the 25 construction Schedule C . Heritage Reporting Corporation (202) 628-4888 4 1 Respondent issued Petitioner a deficiency notice , 2 disallowing a $2719 home office deduction, $2000 fo r 3 supplies expenses, and $4005 for car and truck'expenses, all 4 reported on Petitioner's landscaping Schedule C . Respondent 5 made no adjustment to Petitioner's income . 6 Respondent performed a cash-T analysis based on the income and expenses Petitioner claimed on his return . Respondent determined Petitioner could not have lived on th e 9 income Petitioner reported , and that Petitioner had 10 unreported income for 2005 . 11 Petitioner contends that he paid some amounts 12 using credit cards, and that he had obtained funds b y 13 refinancing a home loan . Petitioner admits living beyond 14 his means . 15 Petitioner - failed to provide documentation 16 regarding the credit card charges or refinancing t o 17 Respondent and did not bring any documentation to court . 18 Petitioner also argues that Respondent illegally imposed 19 income on him . He submits he would owe no deficiency if 20 Respondent would simply disallow his expenses . 21 Respondent made certain concessions and determined 22 a reduced deficiency of $2 .-T against Petitioner, and We4a G 23 determined Petitioner was liable for a reduced accuracy- 24 related penalty of $ 528 .40 under section 6662(a) . 25 Heritage Reporting Corporation . (202) 628-4888 5 1 OPINION 2 This is primarily a substantiation case . We begin 3 with two fundamental principles of tax litigation . First , 4 as a general rule, the commissioner's determinations are 5 presumed correct, and the taxpayer bears the burden o f 6 proving that those determinations are erroneous . Rule 7 142(a) . 8 Second, deductions are a matter of legislative 9 grace and the taxpayer must show that he or she is entitled 10 to any deduction claimed . Rule 142(a) . Welch v . Helvering, 11 290 U .S . 111, 115 (1933) . 12 This includes the burden of substantiation . 13 Hradesky v . Commissioner , 65 T .C .. 87, 90 (1975) ; affd . per 14 curiam 540 F .2d 821 (5th Cir . 1976) . 15 A taxpayer must substantiate amounts claimed a s 16 deductions by maintaining the records necessary to establish 17 he or she is entitled to the deductions . Sec . 6001 . 18 Hradesky v . Commissioner , supra . 19 Substantiation means that a taxpayer shall kee p 20 such permanent records or books of account as are sufficient 21 to establish the amount of deductions claimed on thei r 22 return . Sec . 6001 . Sec . 1 .6001-1(a), (e), Income Tax Regs . 23 The Court need not accept a taxpayer's self- 24 serving testimony when the taxpayer fails to present other 25 probative evidence . Beam v . Commissioner , T .C . Memo 1990- Heritage Reporting Corporation (202) 628-4888 6 1 304, citing Tokarski v . Commissioner , 87 T .C . 74, 77 (1986) ; 2 affd . 956 F .2d 1166 (9th Cir . 1992) . 3 Petitioner introduced no credible evidence t o 4 substantiate the expenses he claimed . In fact, he concedes 5 that he is not entitled to the expenses claimed . We not e 6 that no circumstance exists here for us to 'guesstimate' th e 7 expenses . See Cohan v . Commissioner , 39 F .2d 540, 543, 544 8 (2nd Cir . 1930) . 9 We must have some basis upon which an estimate may 10 be made . Vanicek v . Commissioner , 85 T .C . 731, 743 (1985) . 11 Without such a basis, any allowance would amount 12 to unguided largesse . Williams .v . Commissioner , 245 F .2d, 13 559, 560 (5th Cir . 1957) . 14 Moreover, we are not obliged to speculate as to 15 the amount of the expenses when there is a possibility that 16 some income may not have been reported . Buelow v . 17 Commissioner , 970 F .2d 412 (7th Cir . 1992), affg . T .C . Memo 18 1990-219 . Lerch v . commissioner , 87 F .2d 624, 628 (7th Cir . 19 1989), affg . T .C . Memo 1987-295 . Pfluger v . Commissioner , 20 840 F .2d 1379 (7th Cir . 1988) (a taxpayer who will pay more 21 tax than if he or she had been more forthright should not 22 cause a court to bend the law in the taxpayer's favor) , 23 affg . T .C . Memo 1986-78 . Norgaard v . Commissioner , T .C .)Jf.QtkQ, 01- 24 1989-390 ( Cohan rule not applicable to estimate gamblin g 25 losses where taxpayer failed to :establish actual gambling Heritage Reporting Corporation (202) 628-4888 7 1 gross receipts), affd . on this issue and reversed in part, 2 939 F .2d 874 (9th Cir . 1991) . 3 Accordingly, based on the record as a whole, w e 4 hold that Petitioner is not -entitled to deduct any Schedule 5 C expenses other than those allowed or conceded b y 6 Respondent . 7 As for the income, Petitioner strongly contends 8 that he should not have income imposed on him . Petitioner 9 disclosed on his tax return that he worked in th e 10 construction industry in 2005 and that he conducted two 11 businesses (landscaping and construction) in 2005 . 12 Petitioner's admissions in his tax return satisf y 13 Respondent's burden of producing evidence of a likely source 14 of currently taxable income . See United States v . Mas .s4, 15 355 U .S . 595 (1958) . 16 A deficiency determined by the cash-T method is 17 presumptively correct, and the burden of proof is on th e 18 taxpayer to prove otherwise . See Welch v . Helvering , supra . 19 Rule 142(a) . 20 Taxpayers can meet that burden by showing that 21 someone else made the expenditures or that the funds were 22 from nontaxable sources, such as loans, gifts, inheritances, 23 or assets on hand at the beginning of the year . Taglianetti 24 v . United States , 398 F .2d 558, 563 (1st Cir . 1968), affd . 25 394 U .S . 316 (1969) . Heritage Reporting Corporation (202) 628-4888 8 1 Petitioner claims he received nontaxable fund s 2 from credit cards and a home refinancing . Petitioner failed 3 to provide any documentation, however . Petitioner canno t 4 rely upon bald assertions, he must supply the Court with the 5 necessary documentation . Petitioner has failed to suppl y 6 either the Court or Respondent with any documents t o 7 document or any records to document his credit card receipts 8 or mortgage refinancing . 9 Petitioner has therefore not met his burden . 10 Accordingly, we affirm Respondent's income 11 determinations using the cash-T analysis . 12 We turn now to Respondent's determination that 13 Petitioner is liable for the reduced accuracy-relate d 14 penalty for 2005 of $528 .40 for a substantial understatement 15 of income tax under section 6662 ;(a) . 16 Petitioner argues that he is not liable for the 17 penalty because he is not liable for the underlying tax . 18 The Court has informed Petitioner that this is not a defense 19 to the penalty . Petitioner has provided no justification or 20 reasonable cause why he failed to keep adequate records . 21 We find Petitioner liable for the reduced 22 accuracy-related penalty . 23 In view of the foregoing, we sustain Respondent's 24 determinations regarding the reduced deficiency and th e 25 reduced accuracy-related penalty . Heritage Reporting Corporation (202) 628-4888 1 This concludes the Court's oral findings of fact 2 and opinion in this case . 3 (Whereupon, at 9 :22 a .m ., the bench opinion in the 4 above-entitled matter was concluded . ) 9 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 2 0 21 22 23 24 25 // Heritage Reporting Corporation (202) 628-48,88