TAX COURT OPINION

Case: Myrtis Stewart
Docket Number: 10376-08
Judge: Vasquez
Opinion Type: memo
Filed: 08/16/2010
Pages: 29

SuB nl rr 2b V wttsQv~~-Z T .C . Memo . 2010-184 UNITED STATES TAX COUR T MYRTIS STEWART, Petitioner v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 10376-08 . Filed August 16, 2010 . Myrtis Stewart, pro se . Shawna A . Early and Robert A . Baxer , for' respondent . MEMORANDUM FINDINGS OF FACT AND OPINIO N VASQUEZ, Judge : For 2004 and 2005 respondent determine d deficiencies in petitioner's Federal income taxes and sectio n 6662(a)' accuracy-related penalties as follows : 1 Unless otherwise indicated, all section references are to the Internal Revenue Code (Code) in effect for the years in issue, and all Rule references are to the Tax Court Rules o f (continued . . . ) SERVED AUG 16 2010 Year 2004 2005 Deficiency $9,240 12,447 Penalty Sec . 6662(a ) $1,848 .0 0 2,489 .4 0 The issues for decision are whether petitioner is : (1) Entitled to deductions for losses of $25,000 for rental ,expenses claimed on Schedule E, Supplemental Income and Loss, for each year ; (2) entitled to deductions for theft losses of $12,093 and $23,525 .75 claimed on Schedules A, Itemized Deductions, fo r 2004 and 2005, respectively ; (3) entitled to carryover losses of $1,521 .13 and $1,521 for 2004 and 2005, respectively ; and (4) liable for the section 6662(a) accuracy-related penalties . FINDINGS OF FACT Some of the facts have been stipulated and are so found . The stipulation of facts and the . attached exhibits ar e incorporated herein by this reference . Petitioner resided in New 1'York when the petition was filed . Petitioner has worked for the Internal Revenue Service (IRS ) as an international examiner , i .e ., . a revenue agent, for over 21 years, including 2004 and 2005 . Through her work, which includes examining tax returns, she has acquired a general knowledge of the Federal income tax laws and the substantiation requirements of the Code and the regulations thereunder . She also made i R ; '( . Practice and Procedure . . .continued) . 3 - several business investments before or during 2004 and 2005 (discussed infra ) . I .,: 116 Highland Lake (Highland Lake property), Highland, N .Y . and 112 .Hillside (Hillside property), Barryville, N .Y . A . Backgroun d Petitioner and Mary Anastasio (Ms . Anastasio) invested i n several properties together . They acquired the Hillside property sometime before the years in issue . The Hillside property covers 4 to 5 acres of land and has a New England style double Cape Cod house with an adjoining garage . Petitioner used the Hillsid e property as her. headquarters . for the management-of her real estate . Petitioner and Ms . Anastasio purchased the Highland Lake property in or around 1995 for about $200,000 . with a $25,000 downpayment . Petitioner-paid-$12,500 of the downpayment . According to petitioner, Ms . Anastasio acquired the Highland Lake property in her name because petitioner,2 an African American , was not "able to purchase this property * * * in this town ." The Highland Lake property is a 22-room Victorian style house with a wraparound porch, which petitioner and Ms . Anastasio renovated . They purchased it because they-planned to operate a . bed and breakfast out of the-house . But they sometimes rented it out . 2 Petitioner has purchased several properties in her name or in a coinvestor's name . - 4 - A first mortgage on the Highland Lake property of about x'$100,000 was held by First National Bank of Jeffersonville (FNB) , and a second mortgage of about $100,000 was held by the seller of kl r { the Highland Lake property . Petitioner and Ms . Anastasio each ,made mortgage payments of $788 .623 per month until Ms . Anastasio 9 became ill in 2000 and could not work . Thereafter, petitioner paid both mortgages . Petitioner used both properties to store her collectibles . B . Collectibles Kept at the Highland Lake and Hillside Properties , 1 . Stamps, Coins, and Currency Sheet s Petitioner has been collecting stamps and coins for over 5 0 years . As a young child she started collecting stamps and Lincoln wheat pennies, Indian head pennies, and buffalo nickels . In her teen years she started buying uncirculated and proof coins ifrom the Mint . In her twenties she started buying coins and . J!proof coins at coin shows and from coin shops . She usually , purchased stamps at trade shows or stamp shops . She recorded her ,,purchases in books (inventory records) . Petitioner accumulated a large coin collection : she had 'rolls of coins, unopened bags of-Mint nickels and dimes, and uncut currency sheets of various denominations, including a 3 The mortgage payments amounted to $1,577 .23 per mont h !($777 .67 and $799 .56 for the first and second mortgage, respectively) ; $788 .62 represents their equal share of both payments . - 5 - Hawaiian dollar bill . . She kept the less valuable coins at her Manhattan-apartment and,kept the more valuable coins at her Highland Lake and Hillside properties . . She stored the coins in closets in plastic :..containers that were on rollers like toolboxes at her Highland Lake property . At the Hillside property, petitioner stored her coins in a glass . curio cabinet and in a .. .glass display cabinet with-some .stamps,on a wall in her library . 2 . Book s Petitioner also collected books for her libraries-at the Highland Lake and Hillside properties . She purchased a set of 20 books on financial rating services with,yearly updates for her professional library at the Highland Lake property and entire collections of books from auctions for her library at the Hillside property . 3 . Artwor k Petitioner also collected art . Specifically, she owned a 2- by 3-foot painting that depicts Custer's Last Stand at the Battle of the Little Bighorn in 1876 and was signed by the artist . She kept this painting at the Hillside property . C . Falling Out and Theft s Petitioner and Ms . Anastasio's business . relationship fragmented and eventually, in or around-2004, petitioner stopped doing business with Ms . Anastasio . G - 6 - Ms . Anastasio filed for bankruptcy and allowed the Highlan d Lake property to go into foreclosure . Petitioner filed a notice 1of pendency4 for the Highland Lake property in Ms . Anastasio' s bankruptcy proceeding because Ms . Anastasio allegedly did not ;,:comply with the terms of a settlement agreement and becaus e 'p petitioner wanted to protect .her interest in the Highland Lake I property . Ms . Anastasio sold the Highland Lake property in 200 1 'or 2002 without petitioner's knowledge . Petitioner did not .receive any proceeds from the sale . Petitioner's collectibles allegedly were stolen from th e Hillside and Highland Park properties .at some point . She discovered the thefts from the Hillside and Highland Park properties in 2004 and 2005,, respectively, when she went to the ~F ;'properties and discovered that the items were gone . Neithe r property had been broken into or forcibly entered .- The items .were purportedly stolen by an acquaintance of Ms . Anastasio to whom Ms . Anastasio had given the keys to both properties . ' ;Petitioner filed police reports in New Jersey for the thefts . 5 A notice of 1,,affecting the title to or an interest-in property . l awsu t See, e .g . Debral Realty, Inc . v . DiChiara , 420 N .E .2d 343 (Mass . 1981) . ers a out a i f n orms o p endenc y th b 4 i , 5 Petitioner testified that she filed police reports in New I iJersey because the New York police would not allow her to fil e police reports since the alleged perpetrators resided in New ''Jersey . D . Deductions Claimed for the Highland Lake and Hillside propertie s 1 . Legal Expenses and Bad Debt Deduction Petitioner claimed on her 2004 Schedule E . a deduction for legal expenses of $768 for the Highland Lake property . Sh e provided a copy of a settlement agreement and a complaint for another lawsuit that she filed against Ms . Anastasio as substantiation of her legal expenses . The settlement agreement provides in pertinent part that Ms . Anastasio will allow petitioner to remove "clothing, books, shoes, furniture, toys, and other collectibles" from the Highland Lake property . .Petitioner concluded that she had suffered a loss for a bad debt in 2004 and 2005 after she had exhausted all legal avenues against Ms . Anastasio . She claimed on her 2004 and 2005 Schedules E deductions for bad debts of $18,926 .76 and $18,328 .62, respectively,-for the Highland Lake property . She reconstructed her mortgage payments from 1996 to 2000 and for each of the years 2004 and 2005 deducted as a bad debt 2 years of mortgage payments as her "basis"yin the Highland Lake property . Petitioner provided an account statement from FNB for .February 2 to May 1, 1996, to substantiate her basis . The account statement shows that three mortgage payments of $777 .67 were drawn from petitioner and Ms . Anastasio's joint account .' 2 . Theft Loss Deductio n - 8 - Petitioner was not compensated by insurance or otherwise fo r the thefts of her collectibles, and she deducted the purchas e prices of the items as the amounts of her theft losses . Petitioner claimed on her 2004 Schedule A a deduction for theft losses of $12,093 for the Hillside property . Her deduction for the theft loss relates to coins, paintings, antiques , furniture, her library, and appliances . ' Petitioner claimed on her 2005 Schedule A a deduction fo r theft losses of $18,525 .75 for the Highland Lake property . He r deduction for the theft loss relates to coins, paintings , antiques , furniture, her professional library, and appliances . ' =II . 229 East 29th Street (East 29th Street property) New York, N .Y . A . Backgroun d Petitioner, . Ms . Anastasio, and another coinvestor purchased the East 29th Street property in 2003 . They paid $3,000 and (assumed the $21,000 or $27,-0008 debt to which the East 29t h ,,Street property was subject . Ms .,Anastasio and the other .coinvestor purchased .the East 29th Street property in their name s i 6 Petitioner's testimony about the items stolen in eac h 'theft loss was. less than clear . 1 7 Petitioner did not describe the antiques, furniture, !appliances, and paintings . Petitioner could not recall the exact amount of the debt . because, according to petitioner, she was not allowed to purchas e that property. in her name . . The East 29th Street property is a co-op apartment that was occupied by tenants . Petitioner, Ms . Anastasio, and the other coinvestor invested in the East 29th Street property to obtain the benefits of appreciation and tax deductions . Petitioner reported rental income received of $2,304 for 2004 and 2005 . B . Deductions Claimed for the-East 29th Street Property Petitioner claimed on each of her 2004 and 2005 Schedules E deductions for management fees of .$2,652 .06 and property taxes .of $2,114 .31 for the East 29th Street property . The management . fees include about $50 per month for maintenance . The property taxes. include some special assessments that were billed at the end of- each year . She paid $309 .01 .per month for the management fees, maintenance fees, and property taxes .9 She made the payments by checks drawn from her account . Petitioner provided . carbon copies of checks of $309 .01 for November 2004 and May 2005 payable to "229 E . 29th St . Owners Corp ." to substantiate some of her payments . She also provided copies of bank statements for the period November 2003 t o 9 Ms . Anastasio and/or the other coinvestor'gave petitioner their portions of the expenses, and petitioner paid the payments in whole . ; The $309 .01 per ., month ., did not include amounts paid for additional amounts owed at the end of each year, includin g amounts paid for special assessments . November 2004 that show checks of $309 .01 were drawn from her e account . ;;III . Tighe Avenue (Tighe Ave . property) and Brooksid e Lots (Brookside property), Newburgh (Newburgh) and Harriman, N .Y . 'A Backgroun d Petitioner' purchased the Tighe Ave . and Brookside properties . for investment purposes with the intent to develop them . She purchased the . Tighe Ave . property_in_2003 .for $500 at an auction . I he Tighe Ave . property is undeveloped-land . She rented the Tighe Ave .,property to-a person who resided at the Tighe Ave . 1 1 rlproperty° :in an "RV" trailer or mobile home . The . record i s unclear as-to how and when petitioner acquired the Brookside property. The Brookside property consists of two undevelope d buildable", and nonadjoining lots in a development . Petitione r , ;reported rental income received of $1,000 and $1,015 for 2004 and 2005, respectively . B . Deductions Claimed for the Tighe Ave . and Brookside Propertie s Petitioner claimed the following deductions for her Tigh e "Ave . and Brookside properties : Auto ./ Auto . Cleanin g Year Travel Ins . Maint . Supplies Mail Rent 2004 $1,500 .00 $816 .00 -0- -0- -0- -$3,048 2005 1,526 .01 1916 .23 $489 .62 $525 .36 $120 .02 3,16 8 1 Petitioner explained that. her $916 .23 deduction for automobile insurance was erroneously reported as an other 'interest expense on Schedule E . 1 . Automobile and Travel Expense s 11 - Petitioner kept a car in Newburgh to travel to, from, or between her Tighe Ave . and-Brookside properties - . Her deductions for automobile insurance , automobile expenses , and travel expenses are based -on.her actual costs, not mileage . Her actual costs include amounts she paid for automobile insurance , travel to, from, and between her properties with her car ; bus fare from her New York'apartment to-Newburgh, and taxi farexfor travel between the Tighe - Ave . or Brookside properties and the taxi stand at a Newburgh bus stop . She did not keep a mileage log for th e use of her car, and other than her testimony she did not provide any written evidence to substantiate her expenditures .. 2 ., Rent'- Expense s Petitioner deducted payments of $254 per month to Uncle Bob's Storage as rent, of which she paid $52 per month for the storage of her car and $202 per month for the storage of office furniture,'filing cabinets, and°files .10 She moved the office furniture, filing cabinets, and files from the Hillside'property to the Newburgh area . .Petitioner provided copies of account statements'for the period November 2003 to November 2004 to substantiate her ren t 10 Petitioner' s rent expense increased by $120 in 2005 . It is unclear from the record how much, if any, of the $120 is attributable to the storage of her car . .payments . The account statements show that checks of $254 pe r - 12 - month were drawn from her account in,2004 . 3 . Cleaning and Maintenance Expense s Petitioner paid $489 .62 infcash to a company to cut back an d clear the Tighe Ave . property because of downed power line s caused by a storm . 4 . Supplies and Mail Expense s Petitioner deducted supplies, expenses of $525 .36 and mail ';expenses of $120 .02 for 2005 ., The supplies expenses were-paid in cash . ,IV . Other Real Propert y A . Backgroun d Petitioner and a coinvestor also invested in other real property. that they later sold . When the property was purchased , it .had a factory located on it that contained gold-spinning machines from the 1700s to the 1800s . The gold-spinning machine s 1!,made gold threads for clothing from,spools of gold . Petitioner , and the : coinvestor-agreed that petitioner could, remove half o f the gold-spinning machines before the sale . The coinvestor, however, locked the property, and petitioner could not remove her half of the gold-spinning machines . Petitioner filed a lawsui t against the coinvestor, and while the lawsuit was pending, the ;,gold-spinning machines disappeared from the property . . - 13 - B . Deductions Claimed for the Other Real Property . Petitioner claimed on her 2005'Schedule A a theft loss . deduction of $5,000 for the theft of her .gold-spinning machines . She testified that her gold-spinning machines were worth a lot of money and that .her basis in them .was $5,000 . She explained that she deducted only $5,000 because .she was being conservative, and the fair market value of her gold-spinning machines was uncertain .. . According to petitioner, the purchase price of the gold-spinning machines was included in the purchase price of the real property, but it might .have,been separately listed . She filed a police report-in New Jersey for,the-theft-, but she was not compensated by insurance or otherwise for the theft . . V . Carryover Losses . Petitioner reported on Schedules E carryover losses of $1,521 .1311 and $1,521 .2312 for 2004 and 2005, respectively,' that would carryover to 2005 and 2006 . Respondent disallowed the . carryover losses in the notice'of deficiency because petitioner had not provided any-information'to substantiate her expenses . OPINION Deductions are a matter of legislative grace, and taxpayers bear the burden of proving that they Ware entitled to an y 11 $26,521 .13 (claimed Schedule E losses ) - $ 25,000 (sec . 469(i) limitation for individuals) . 12 $26,521 .23 (claimed Schedule E losses ) - $25,000 (sec . 469(1) limitation for individuals) . - 14 - eductions claimed .'3 Rule 142(a) ; INDOPCO, Inc . v . Commissioner , 503 U .S . 79 (1992) ; New Colonial Ice Co . v . Helvering , 292 U .S . 435 (1934) . In addition, taxpayers bear the 1«4burden of substantiating the amount and purpose of the ite m 4 ;claimed as a deduction . Hradesky v . Commissioner , 65 T .C . 87, 9 0 !'(1975), affd . per curiam 540 F .2d 821 (5th, Cir . 1976) . Taxpayer s are also required to maintain records that are sufficient t o k enable the Commissioner to determine their correct tax liability . i ;Sec . 6001 ; sec . 1 .6001-1(a), Income Tax Regs . When taxpayers establish that they .have incurred . deductibl e expenses but are unable to substantiate the exact amounts, we can estimate the deductible amounts, but only if the taxpayers present sufficient evidence to establish a rational basis fo r making the estimates . See Cohan v . Commissioner , 39 F .2d 540, '543-544 (2d Cir . 1930) ; Vanicek v . Commissioner , 85 T .C . 731, 742-743 (1985) . In estimating the amount allowable, we bear heavily upon the taxpayer whose inexactitude is of his or her own making . See Cohan v . Commissioner , supra at 544 . We may not use the Cohan doctrine, however, to estimate expenses covered . by section 274(d) . See Sanford v . Commissioner , 50 T .C . 823, 82 7 (1968), affd . per curiam 412 F .2d 201 (2d Cir . 1969) ; sec . 13 Petitioner does not claim or show that sec . 7491(a) applies . Accordingly, she bears the burden of proof . See Rule ;142 (a). - - .. 1 5 1 .274-5T(a), Temporary Income Tax Regs ., 50 Fed . Reg .-46014 (Nov . .6, 1985 ) Generally, we find petitioner's testimony and that of her, witness, Nelson Abrahantel4 (Mr .,Abrahante), honest and credible . They testified credibly as to the investment purpose of many of the deductions claimed on : petitioner's returns . For some of those deductions, petitioner recalled the amounts of her expenses . Where petitioner's testimony provided a sufficient basis for the Court to estimate the amounts,of her expenditures, we have done .so, taking''account of her inexactitude where appropriate . Where the . original documents were lost, but where petitioner . presented credible reconstructions of her expenses, we have allowed the claimed amounts .1 5 14 Mr . Abrahante is a coinvestor and a former, coworker of petitioner . is It is well established that the Court may permit 'a Boyd v . Commissioner , 122 T .C . 305, 320-.321 (2004) ; taxpayer to substantiate deductions through secondary evidence where the underlying documents have been unintentionally lost or destroyed . Malinowski v . Commissioner , 71 T .C . 1120, 1125 (1979) ; Furnish v . Commissioner , T .C . Memo . 2001-286 ; Joseph v . Commissioner , T .C . Memo . 1997-447 ; Watson v . Commissioner , T. .C ., Memo . 1988-29 . Moreover, even though Congress imposed heightened substantiation requirements for certain deductions by enacting sec . 274, the regulations thereunder allow a taxpayer to substantiate a deduction by reasonable reconstruction of his or her expenditures when records are lost through no fault of the taxpayer . Sec . 1 .274-5T(c)(5), Temporary Income Tax Regs ., 50 Fed . Reg . 46022 (Nov . 6, 1985) . Petitioner testified that Ms . Anastasio took some of her records and that other records were submitted to other courts i n . ) (continued . . 16 - Section 165 and 166 Theft Loss and Bad Debt Deductions Section 165 ( a) provides that there shall be allowed ..as, a kkdeduction any loss sustained during the taxable . year and no t .compensated by insurance or otherwise . Section 165 ( c) limits the ,;loss deduction for individuals to losses incurred in a trade o r business , losses incurred in a transaction entered into for ..,profit, and certain other losses . including those arising from a theft . Petitioner has the burden of proving that she sustained a loss during the taxable year . , Section 166(a) generally provides that a taxpayer may deduct a debt that become worthless . during the . taxable year . A bona io !fide debt is a debt that arises from a debtor-creditor relationship reflecting an enforceable and .unconditiona l obligation to repay a fixed sum of money . Sec . 1 .166-1(c) , Income Tax Regs : The existence of a bona fide debt is a factual 1 1 1 inquiry, and the taxpayer bears the burden of proving that a bona fide debt existed . Dixie Dairies Corp . v . Commissioner , 74 T .C . '476, 493 ( 1980) ;, Litton Bus . Sys ., Inc . v . Commissioner , 61 T .C . .367, 377 (1973 ) 15( . . .continued) her lawsuits against Ms . Anastasio . A . Highland Lake Propert y 17 - As stated supra , petitioner claimed on her 2004 and 2005 Schedules E deductions for bad debts of $18 .,9"26 .76 and $18,32 .8 .62, respectively, for the-Highland Lake property . Respondent asserts that to the extent petitioner has realized a gain or loss on the Highland Lake property, .the gain or loss is capital and was incurred uponthe- disposition of the property in 2001 .or 2002, not during either of the years i n issue .. Therefore ., according to-respondent,-petitioner is not entitled to'her deductions for bad debts . ' Petitioner's testimony-on this issue'was less than clear . She testified that she had'initiated lawsuits against Ms, . Anastasio, which she later withdrew, and that ownership of the Highland Lake property was being negotiated as part of a ,settlement . She,also testified, . however, that she was~ .occupying the Hillside property and had exchanged her interest in the Highland Lake property for Ms . Anastasio's interest in the Hillside property . But, according to petitioner, Ms . Anastasi o breached their settlement agreement ; and she initiated another lawsuit against Ms . Anastasio, which she also withdrew . Sh e A testified further that Ms . Anastasio sold the Highland Lake property without. her knowledge in either 2001 or 2002, and she did not receive any of the proceeds . She explained that she deducted 2 years of mortgage payments as her basis in the I - 18- - Highland Lake property as a bad debt .in 2004 and 2005 after sh e 'exhausted her legal remedies and concluded that she had sustained r a loss . Petitioner has not established that a debt owed to her by Ms . Anastasio became worthless during either year in issue or that she otherwise sustained a loss during either year with respect to the Highland Lake property . Petitioner's testimony on , .,this issue and her records are confused, uncertain, an d is ambiguous . She has not substantiated a basis in the Highlan d t . Lake property or in a purported debt owed to her by Ms . F Anastasio . See secs . 165(b), 166(b) ; . Whitaker v . Commissioner , C . Memo . 1988-418 . Consequently,-respondent's disallowance . o f ,the bad debt deductions . claimed in respect of the Highland Lak e 'property is sustained . B . Anticrues, Artwork, Coins and Currency Sheets, Libraries , Gold-Spinning Machines, Furniture, and Appliance s As stated supra, petitioner claimed deductions for theft losses of $12,093 and $23,525 .7516 for 2004 and 2005, .respectively . She deducted her bases and not the fair market values of her artwork, coins and currency sheets, libraries, gold-spinning machines, furniture, and appliances as the amount of her theft losses . 16 As stated supra, $18,525 .75 is attributable to the theft of her coins, paintings , antiques , . furniture, her professional library, and appliances , while $5,000 is attributable to the !theft of her gold-spinning machines . - 19 - Petitioner has not substantiated the items'-fair market values immediately before the alleged theft . See secs . 1 .165- 7(b)(1), 1 .165-8(c), Income Tax Regs . (in the case of property held for personal use the . amount of the theft loss is the lesser of the property's fair market value immediately before the theft or its adjusted basis) . - She also has not substantiated the items' bases ., See Hubert Enters ., Inc . v . Commissioner , T .C . Memo . 2008-46 (the basis of property, under section 1012, is generally defined as,cost and that cost is adjusted pursuant to section 1016) ; see also Kikalos v . Commissioner , . T .C . Memo . 1998-92 (it'is settled . that,the_deductible . amount of a theft loss may not exceed basis), :revd . on other grounds 190 F .3d 791 (7th Cir . 1999) . Neither the items' fair market values nor their bases can be determined from the record with any degree o f certainty . Therefore, we cannot apply the Cohan rule t o determine a reasonable allowance for the theft losses . Consequently, petitioner is not entitled to her claimed theft losses, and respondent's determinations in .that respect ar e sustained . II . Section 212 Expense s Section 212 allows,an individual to deduct all of the ordinary and necessary expenses paid or incurred : (1) For the production of income ; (2) for management, conservation, or maintenance of property held for the production of,income ; or } 20 - (3) in connection with the determination, collection, or refun d a tax . A . Legal Expense s We apply the origin of the claim test to determine whether a !taxpayer' s legal expenses are personal, for the .production o f income, or capital . The ascertainment of a claim's origin an d ;character is a factual determination that must be made on th e ' .'basis of the facts and circumstances .of the litigation . Unite d States v . Gilmore , 372 U .S . 39, 47-49 (1963) . The most importan t !factor to consider is the circumstances out of which th e ;litigation arose . Boagni v . Commissioner , 59 T .C . 708 (1973) . Petitioner testified that she initiated the lawsuit agains t Ms . Anastasio because Ms . Anastasio breached a settlement agreement allowing, petitioner to remove "clothing, books, shoes, furniture, toys, and other collectibles" from the Highland Lake property . Petitioner has not established that her claim against Ms . Anastasio, out of which her legal expenses arose, has its origi n in a profit-seeking activity as distinct from a personal one . ' Petitioner, . therefore, is not entitled to her-claimed deductions If or legal expenses, and respondent's determination, in tha t t ;respect, is sustained . B . Management Fees and Property Taxe s - 21 - Petitioner.credibly testified about the amounts-of and the purposes for her deductions for-management fees and property taxes for 2004 and 2005 for the 229 East 29th Street property . She also provided'-additional' substantiation for some of her 2004 payments with copies of her account statements and carbon copies of checks . Petitioner is entitled to her claimed deductions-for management fees- :of. .$2,652 .06 and property taxes of-$2,114 .31 for 2004'and 2005 . - C . Cleaning and Maintenance' Expense s 2Petitioner credibly testified(cid:127)-that she paid $489 .62 in 200 5 to a company to cut back and clear the Tighe Ave .'. property because of downed power lines caused by a"storm . Petitioner is entitled to her claimed deduction for cleaning and maintenanc e expenses of $489 .62 for 2005 . D . -. Supplies and Mail Expense s Petitioner credibly testified that she paid $525 .36 for supplies expenses and $120 .02 for mail expenses in 2005 for the Tighe Ave and Brookside properties . Petitioner is entitled to her-claimed deductions for,supplies,and'mail expenses . - E .- Rent Expense s Petitioner credibly testified that sherpaid about $202 per month in' 2004 and 2005 for the cost of storing office furniture, filing cabinets, and files (we discuss the storage of her car - 22 - infra ) . She also provided additional-substantiation for some o f I~'iher 2004 payments with copies of her account statements . Petitioner is entitled to deductions of $202-per month for ren t ,expenses for 2004 and 2005 .17 I III . Section- 212 Expenses Subject to Section 274 . In addition to satisfying the criteria for deductibilit y under section,212, certain expenses must also satisfy the stric t substantiation requirements of section 274(d) . Section 274(d ) and section 1 .274-5T(a), (b)(2), and (6), Temporary Income .Tax Regs ., 50 Fed . Reg . 46014, 46016 (Nov . 6, 1985), provide that n o deduction or,credit shall be allowed for travel .or automobil e expenses unless the taxpayer substantiates his or her expenses ,with adequate' records or other corroborating evidence . A . Travel Expense s For travel away from home expenses, section 274(d) and the regulations thereunder require the taxpayer to substantiate : (1) The amount of each expenditure ; (2) the time of the travel ; (3) the place of the travel ; and (4) the business purpose of th e travel . Sec . 1 .274-5T (b)(2), Temporary Income Tax Regs ., supra . As stated supra , petitioner's travel expenses include her actual costs of travel by taxi between her properties and a tax i i ;( stand and travel by bus to . Newburgh . It is unclear from th e irecord whether petitioner 's travel to Newburgh was travel away 17 See supra note 10 . 23 - from home--that is,,overnight trips 'in which the exigencies of her investment activity required"her to sleep or rest before returning home . . See United States v .'Correll , 389 U .S . 299 (1967) . ; Lackey v . Commissioner , T .C . Memo : 1977-213 ; see also I .T . 3395, 1940 .-2 C .B . 64 . To the extent, however, tha t petitioner's travel was travel away from home, she has no t complied with the substantiation requirements of°section 274(d) . Petitioner is not entitled to deduct her travel expenses under section 212, and respondent'=s determination, in that respect, i s sustained . See Lackey v . Commissioner , supra . B . Automobile Expense s For automobile expenses, section 274(d) and the regulations thereunder require the taxpayer to substantiate : (1) The amount of each expenditure or use ; (2) the time of the expenditure or use ; and (3)(cid:127) the business or investment purpose of the expense or use . See sec . 1 .274-5T(b)(6)(i)(B), Temporary Income Tax Regs ., supra . As stated supra , petitioner's automobile expenses include her actual costs for automobile insurance, travel with her car to, from, or between her properties, and $52'per month for the storage cost of her car . Other than the $52 per 'month petitioner paid for the storage of her car, she did not substantiate the amounts of her expenditures . She also did not substantiate the amounts or the - 24 - times of the automobile's use . Consequently,,petitioner is not entitled to her deductions for automobile expenses or the "deductions claimed for, storage costs attributable to her car . ,The Cohan rule is .not applicable, see Sanford v . Commissioner , 5 0 T .C . at 827, and respondent's determinations, in that respect, are sustained . IV . Carryover Losses As stated supra, petitioner reported on Schedules E losses- of $1,521 .13 and $1,521 .23 for 2004 and 2005, respectively, tha t would carry over to 2005 and 2006 . The section 469 passive activity loss rules generall y disallow the current deduction of losses and credits fro m activities in which the taxpayer does not materially participate . Rental activity is generally treated as a per se passive activity regardless of whether the taxpayer materially participates . Sec . 469(c)(2) . Section 469(i)(1), however, permits a passiv e activity loss up to $ 25,000 attributable to a rental real estat e [,;activity in which an individual actively participates (subject t o bertain phaseouts not applicable here) . Amounts disallowed ma y be carried forward to subsequent years . Sec . 469(b) ; sec . 1 .469-1(f)(4), Income Tax Regs . Petitioner reported on Schedules E rental income totaling ~ti ;$3,304 and $3,319 for 2004 and 2005, respectively . We have - .2 5 allowed petitioner Schedule E deductions of $7,190 .3718 an d $8,325 .3719 for 2004 and 2005, respectively, which result i n losses of only $3,886 .37 20 and $5,006 =.-3721 for 2004 and 2005, respectively . . Petitioner., therefore, does not have any carryover loss for either year . V . Section 6662(a) Accuracy-Related Penaltie s Section 7491(c) provides . that the Commissioner will bear th e burden of production with respect t the liability of any individual for additions-to tax . and penalties . The Commissioner's burden of production under section 7491(c) is to produce evidence that it is appropriate to impose the relevant penalty, addition to tax, or additional- .,amount . Higbee v . Commissioner , 116 T .C .. 438,, 446 (2001) ; see also swain v . Commissioner , 118 T .C . 358, 363 (2002) . Once the Commissioner satisfies this burden of production, the taxpayer must persuade the Court that the Commissioner's determination is in error b y 18' $2,652 .06 ( management fees ) + $2,114 .31 (property tax) + $2,424 ( rent expense) . 19 $2,652 .06 (management fees) + $489 .62 (cleaning and maintenance expense) + $525 .36 (supplies expense) + $120 .02 (mail expense) + $2,114 .31 (property tax) + $2,424 (rent expense) . 20 $3,304 (total rental income) - $7,190 .37 (total rental expenses) . 21 $3,319 (total rental income) - $8,325 .37 (total rental expenses) . 26 - supplying sufficient evidence of-an applicable exception .. Higbee .v . Commissioner , supra at 446 . ° Pursuant to section 6662(a) and (b)(1) and (2), a taxpaye r !Imay be liable for a penalty of 20 percent on the portion of an underpayment of tax due to negligence or disregard of rules or regulations or a substantial understatement of .income tax .22 The ,; ;term "negligence" includes any failure to make a reasonable attempt to comply with the Code and any failure to keep adequate books and records or to substantiate items properly . . Sec . ',6662(c) ; sec . 1 .6662-3(b),(l), Income Tax Regs . Petitioner failed to . provide respondent-with any records and was unable to substantiate her deductions at,the administrative level . Accordingly, respondent has met his burden of production . ,See sec . 1 .6662-3(b)(1), Income Tax Regs . ; see also Smith v . Commissioner , T .C . Memo . 1998-33 . , The accuracy-related penalty, however, is not imposed with respect to any portion of the underpayment as to which the taxpayer acted with reasonable cause and in good faith . Sec . 6664(c)(1) . The decision as to whether the taxpayer acted wit h reasonable cause and in good faith depends upon all the pertinen t i 22 Because we find that petitioner was negligent, we need not discuss whether she substantially understated her Federal !income taxes . See sec . 6662(b) ; Ochsner v . Commissioner , T .C . Memo . 2010-122 ; Fields v . Commissioner , T .C . Memo . 2008-207 . - 27 - facts and circumstances . Sec . 1 .6664-4(b)(1), Income Tax Regs . The most important factor is the extent of the taxpayer's effort to assess his or her proper tax liability . Id . Petitioner argues she has shown reasonable cause or :good faith on account of her medical-illness and/or lost or stolen, records . Although we sympathize with petitioner's circumstances (i .e ., her alleged-illnesses), . we are reluctant to,rely on her self-serving and uncorroborated testimony about .her illness . Moreover, she . continued to work for=the IRS and to participate in her investment activity during the years in issue . Consequently, petitioner's illness does . not support a reasonable cause or goo d faith defense . In certain circumstances,-however, the .loss or theft of a taxpayer's records may support a-reasonable cause . or good faith defense to an accuracy-related penalty . See Allemeier v . Commissioner , T .C . .Memo . 2005-207 ; Brown v . Commissioner , T .C . Memo . 1997-418 ; Burkart .v,. Commissioner , T .C .. Memo. 1984-429 ; Cavell v .. Commissioner , T- .C . Memo . 198 .0-516 .- As stated supra ; petitioner claimed deductions for-bad debts and legal expenses for the Highland Lake-property that she was not able to substantiate . Petitioner credibly testified that°she maintained records, .-,but that Ms . Anastasio took some of the records, some records were submitted to other courts in her lawsuits against Ms . Anastasio, and in either case, petitioner - 28 - was unable to retrieve the records .- She also attempted t o reconstruct her records for the Highland Lake property . We find that petitioner has a reasonable cause or good faith defense for :the portions of the underpayments attributable to her claime d deductions for bad debts and legal expenses attributable to the Highland Lake property . See Irving v . Commissioner , T .C . Memo . 1 :2006-169 ; Lyons v . Commissioner , T .C . Memo .-1991-84 ; Haley v . Commissioner , T .C . Memo . 1977-348 . I Petitioner's claimed deductions for theft losses related t o ,coins and uncut currency sheets, paintings, antiques, furniture , her libraries, appliances, and the gold-spinning machines . Sh e 1credibly testified that she maintained records of her purchase s of her coins and uncut currency sheets and that her inventor y records were stolen with her coin collections and uncut currency .!- :sheets .- It is unclear from the evidence, however, whether sh e , maintained records of her purchases for the other stolen items . The,evidence also provides no mechanism for . allocating the amounts of her theft losses among the stolen items .2 3 ;addition, she did not attempt to reconstruct the records of he r purchases for any of the stolen items . Consequently, petitione r , ;idoes not have a reasonable cause or good faith defense for the portions of the underpayments attributable to her claime d 23 On her 2004 Schedule A, petitioner only wrote "Orange Co . The", and on her 2005 Form 4684, Casualties and Thefts, ;petitioner only wrote "Su-Berryvil Prop ." 29 - deductions for theft losses . See Kolbeck .v . Commissioner , T .C . Memo . 2005-253 ; Cherry v . Commissioner , T .C . Memo . 1998-360 ; Smith v . Commissioner , supra ; Cook v . Commissioner , T .C . Memo . 1991-590 . Similarly, . there is no, evidence that petitioner maintaine d records during the years in issue sufficient to meet the strict substantiation requirements of section 274(d) for travel and automobile expenses . Moreover, even if such records existed, there is no evidence that those records were lost or stolen . And except for the amounts of her parking expenses, she did not attempt to reconstruct those . records . Consequently, petitioner does not have a reasonable cause or good faith defense for the portions of the underpayments attributable to her claimed, deductions for travel and automobile expenses . See Makspringer v . Commissioner , T .C . Memo . 1994-468 ; Robbins v . Commissioner , .T .C . Memo . 1981-449 . In reaching all of our holdings herein, we have considered all arguments made by the parties, and to the extent not mentioned above, we find them to be irrelevant or without merit . To reflect the foregoing, Decision will be entere d under Rule 155 .