Court Opinion

ID: 4333440
Source: CourtListenerOpinion
Date Created: 2018-11-14 01:11:53.087048+00
Date Added: 2024-06-11T14:20:07.312614
License: Public Domain

GARY FRIEDMANN, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, RespondentFRIEDMANN v. COMMISSIONERNo. 17486-96United States Tax CourtT.C. Memo 2001-207; 2001 Tax Ct. Memo LEXIS 240; 82 T.C.M. 381; August 7, 2001, Filed 2001 Tax Ct. Memo LEXIS 240">*240  Decision will be entered under Rule 155.  Gary Friedmann, pro se.Keith L. Gorman and George D. Curran, for respondent.  Whalen, Laurence J.WHALENMEMORANDUM FINDINGS OF FACT AND OPINIONWHALEN, JUDGE: Respondent determined the following deficiencies in, additions to, and penalties with respect to petitioner's Federal income tax for 1989 and 1990:             Additions to Tax    PenaltiesYear    Deficiency     Sec. 6651(a)(1)   Sec. 6662(a)____    __________     ________________   ____________1989    $ 33,472        $ 4,065       $ 6,6941990     47,206        10,252        9,585Unless stated otherwise, all section references are to the Internal Revenue Code as in effect during the years in issue.After concessions, the issues for decision are: (1) Whether the period of limitations on assessment and collection set forth in section 6501(a) expired as to both of the years in issue, 1989 and 1990, before respondent issued the subject notice of deficiency to petitioner; and (2) whether petitioner is entitled to offset gross income by, or to deduct2001 Tax Ct. Memo LEXIS 240">*241  as business expenses under section 162, certain expenditures in the aggregate amount of $ 50,141 in 1989 and $ 97,854 in 1990 that respondent disallowed.FINDINGS OF FACTSome of the facts have been stipulated by the parties. The Stipulation of Facts filed by the parties and the exhibits attached thereto are incorporated herein by this reference. Petitioner resided in Moorestown, New Jersey, at the time he filed his petition in this case.Petitioner graduated from Northeastern University in 1979 with a degree in business administration. He passed the examination to become a certified public accountant (C.P.A.) and was licensed as a C.P.A. by the State of New York in 1980. He then worked for Arthur Anderson & Co. as an auditor for 1 year, before matriculating at Georgetown University Law Center to study law. He graduated from Georgetown in 1984 and was awarded a J.D. degree. Petitioner then enrolled in Georgetown University's graduate program in taxation, but he completed only one semester of the two-semester program leading to an LL.M. degree in taxation.Petitioner is currently licensed as an attorney in both the State of New Jersey and the Commonwealth of Pennsylvania. He also2001 Tax Ct. Memo LEXIS 240">*242  holds an inactive license as a C.P.A. from the State of New York.Petitioner has been self-employed since graduating from law school. His business involves providing various financial and tax services to clients including: Preparing personal, business, and employment tax returns, providing personal and business tax planning advice, providing investment advice, and reviewing and supervising the office staffs of small businesses. Additionally, petitioner is a member of the Bar of this Court, and he has represented taxpayers as an attorney before the Court. Petitioner has filed approximately 10 petitions on behalf of clients, and he has tried at least one case. See Epstein v. Commissioner, T.C. Memo 1994-34.Petitioner has also promoted various partnerships, including Friedmann Financial Number 2, Friedmann Investors Number 1, and Friedmann Investors Number 2. It appears that the business of these partnerships involved investments in real estate. A number of clients of petitioner's Schedule C business, including some clients on behalf of whom the expenditures at issue in this case were allegedly made, were investors in one or more of these partnerships. Petitioner was2001 Tax Ct. Memo LEXIS 240">*243  also the sole owner and employee of Friedmann Management Corp., which allegedly provided management services to the partnerships.In addition to the instant case, petitioner prosecuted a suit in District Court for refund of taxes paid with respect to his joint return for 1987. Friedmann v. United States, 107 F. Supp. 2d 502">107 F. Supp. 2d 502 (D.N.J. 2000). In that case, the court granted the Government's motion to dismiss one count of the complaint on the ground that it raised issues that had not been set forth in the claim for refund, and the court granted summary judgment as to the other count of the complaint, involving certain consulting fees that petitioner claimed as an expense deduction on his Schedule C, Profit or Loss From Business. According to the court, the consulting fees were not deductible because petitioner had admitted in his complaint that the consulting fees were not income to, nor a business expense incurred by, petitioner but should have been reported by Friedmann Management Corp.107 F. Supp. 2d 502">Id. at 511.Petitioner also prosecuted a case in this Court involving adjustments to his joint return for 1988 that was settled before trial pursuant to an agreement of the2001 Tax Ct. Memo LEXIS 240">*244  parties. Lastly, in 1996, he sued the United States to quash two Internal Revenue Service summonses, one of which demanded all documents and records regarding petitioner's assets, liabilities, and accounts for purposes of preparing a "collection information statement", and the other of which sought all books, records, documents, and receipts for income from all sources for purposes of preparing Federal income tax returns for 1991 through and including 1995 that had not been filed by petitioner.  Friedmann v. United States, 1997 U.S. Dist. LEXIS 1546">1997 U.S. Dist. LEXIS 1546, 79 A.F.T.R.2d (RIA) 895 (D.N.J. 1997). In that case, the court granted the Government's motion to dismiss petitioner's complaint. Id.Petitioner failed to timely file his individual Federal income tax returns for tax years 1989 through 1995. He filed delinquent returns for 1989 and 1990, the years at issue, as discussed below, but he had not yet filed his returns for tax years 1991 through 1995 at the time this case was tried.In 1992, during the audit of petitioner's 1988 income tax return, respondent's revenue agent requested copies of petitioner's 1989 and 1990 returns. In April 1992, petitioner gave photocopies of those returns to the agent. At that time, 2001 Tax Ct. Memo LEXIS 240">*245  the agent believed that petitioner had previously filed the returns with the Internal Revenue Service. Petitioner gave the agent no indication otherwise. Both returns had been signed before they were photocopied, and neither return bore petitioner's original signature. In September or October 1992, the agent began an examination of petitioner's 1989 and 1990 returns.In due course, the revenue agent found that the Internal Revenue Service had no record of having received either the 1989 or 1990 return. The agent notified petitioner, by letter dated November 6, 1992, that the photocopied returns would be processed as delinquent returns once the agent received a copy of each return that bore petitioner's original signature. The agent's letter states as follows:     As per our telephone conversation yesterday, I will process   the previously submitted copies of your 1989 & 1990 1040 income   tax returns as delinquent returns since our records do not   indicate receipt of the aforementioned at the service centers.   However, before I can process the copies I need them to have   original signatures. Please provide same above the copied 2001 Tax Ct. Memo LEXIS 240">*246    signature (also date) and return them to me so that I can   process them. Please return as soon as possible.On March 4, 1993, before the Internal Revenue Service had received petitioner's signed 1989 and 1990 tax returns, respondent prepared a substitute return for petitioner's taxable year 1990, as authorized by section 6020(b). On the basis of this substitute return, respondent issued a notice of deficiency to petitioner for taxable year 1990. Respondent mailed the notice of deficiency by certified mail to petitioner's last known address. Petitioner did not claim the notice from the U.S. Postal Service and it was returned unopened to respondent by the Postal Service on June 25, 1993.On October 4, 1993, after attempting to reach petitioner by telephone on two occasions and after writing to petitioner about the unfiled returns, a second revenue agent received copies of petitioner's 1989 and 1990 tax returns. The copy of each return received by the agent is identical to the photocopy that petitioner previously had provided to the former revenue agent, except that it also bears petitioner's original signature and the date, October 1, 1993.Respondent's transcript of petitioner's2001 Tax Ct. Memo LEXIS 240">*247  account for 1989 states that petitioner's 1989 return was filed on October 4, 1993. Respondent's transcript of petitioner's account for 1990 does not reflect that petitioner filed a return. This is due to the fact that respondent had filed a substitute return for petitioner under section 6020(b) on March 4, 1993.During the course of the audit of petitioner's individual income tax returns for 1989 and 1990, respondent's revenue agent discovered that the Internal Revenue Service had no record of having received returns from Friedmann Financial Number 2, Friedmann Investors Number 1, or Friedmann Investors Number 2 for taxable year 1989. During a meeting with respondent's agent, petitioner signed copies of the 1989 Forms 1065, U.S. Partnership Return of Income, for Friedmann Financial Number 2 and Friedmann Investors Number 2.Petitioner's individual return for 1989 reports wages, salaries, tips, etc. of $ 72,252. Attached to the return is a Form W- 2, Wage and Tax Statement, that reports wages of $ 24,252 from an employer, Dr. Carey Strom, who is also a client of petitioner's Schedule C business, as discussed further below. Petitioner's 1989 return also reports wages of $ 48,000 from2001 Tax Ct. Memo LEXIS 240">*248 Friedmann Management Corp.There is attached to petitioner's return for both 1989 and 1990 a Schedule C, Profit or Loss From Business, for a business or profession listed as "CPA", operating under the name of "Gary Friedmann CPA". Petitioner reported the following income and expenses for that business on the Schedules C:                                1989                                ____Gross receipts or sales            $ 177,072Returns and allowances              103,784                        _______Gross income                          $ 73,288Car and truck expenses               7,946Depreciation                    5,096Interest Mortgage                     -0- Other                       187Legal and professional servs.        2001 Tax Ct. Memo LEXIS 240">*249     2,000Office expenses                  21,935RentMachinery & equipment               -0-Other business property              4,600Repairs                       403Travel, meals & entertainment Travel                      6,089 Meals and entertainment    $ 25,051 20% of meals           5,010                _______                        20,041UtilitiesOther expenses Telephone             6,025 Legal               1,600 Dues                132 Assoc.              3,600 Gifts                719 Publications            600                _______                        12,676                   2001 Tax Ct. Memo LEXIS 240">*250       ______                                80,973                                ______Net profit or (loss)                       -7,685             [Table continued]                                1990                                ____Gross receipts or sales            $ 175,790Returns and allowances              97,854                       ________Gross income                          $ 77,936Car and truck expenses               8,584Depreciation                    5,096Interest Mortgage                     -0- Other                      2001 Tax Ct. Memo LEXIS 240">*251  -0-Legal and professional servs.            -0-Office expenses                  21,041RentMachinery & equipment               -0-Other business property              6,308Repairs                       632Travel, meals & entertainment Travel                     17,940 Meals and entertainment    $ 27,359 20% of meals           5,472                        21,887Utilities                      920Other expenses Telephone               3,100 Legal                 5,000 Dues                  600 Assoc. Gifts                 1,109 Publications              700                   _____                        10,5092001 Tax Ct. Memo LEXIS 240">*252                          ______                                92,917                               _______Net profit or (loss)                      -14,981On May 15, 1996, respondent issued a notice of deficiency to petitioner for taxable years 1989 and 1990. This is the second notice of deficiency respondent issued with respect to petitioner's 1990 return. Among other adjustments made in this notice, respondent disallowed $ 50,141 of the $ 103,784 claimed as returns and allowances on petitioner's 1989 return, and respondent disallowed the entire $ 97,854 claimed as returns and allowances on petitioner's 1990 return. The notice of deficiency describes this adjustment as follows:   The deductions of $ 103,784.00 and $ 97,854.00 shown on your 1989   and 1990 returns as returns and allowances are reduced by  $ 50,141.00 and $ 97,854.00 because it has not been established   that any amount more than $ 53,643.00 for 1989 and -0- for 19902001 Tax Ct. Memo LEXIS 240">*253     was for an ordinary and necessary business expense, or was   expended for the purpose designated. Therefore, your taxable   income is increased $ 50,141.00 for 1989 and $ 97,854.00 for 1990.OPINIONI. PERIOD OF LIMITATIONS ON ASSESSMENT AND COLLECTIONThe first issue for decision is whether respondent issued the subject notice of deficiency after the period of limitations on assessment and collection under section 6501(a) had expired for both of the taxable years in issue, 1989 and 1990. Petitioner's principal position is that the period of limitations on assessment began to run in April 1992 when he submitted photocopies of his 1989 and 1990 returns to respondent's revenue agent and that the period expired before the subject notice of deficiency was issued. According to petitioner, respondent "treated these tax returns 'as filed'", notwithstanding the fact that the returns did not bear petitioner's original signature and the fact that they were not filed at a location specified by section 6091(b)(1). Alternatively, petitioner argues that he filed each of the returns at issue by mail more than 3 years before the date of the second notice of deficiency with the2001 Tax Ct. Memo LEXIS 240">*254  result that the period of limitations on assessment and collection under section 6501(a) bars assessment of the deficiencies determined in that notice by respondent for each of the years at issue.Section 6501 provides rules limiting the time during which the amount of any tax can be assessed. As a general rule, section 6501(a) provides that the amount of any tax shall be assessed "within 3 years after the return was filed". Sec. 6501(a). In the case of a deficiency in tax, the Internal Revenue Code further prohibits the assessment of the deficiency until a notice of deficiency has been mailed to the taxpayer and, if a petition is filed in this Court, until the decision of the Court has become final. Sec. 6213(a). Thus, generally, a notice of deficiency must be mailed to the taxpayer before the expiration of the period of limitations on assessment and collection set out in section 6501(a).The bar of this statute of limitations on assessment and collection is an affirmative defense, and the party raising it must plead it and carry the burden of proving its applicability. Rules 39, 142(a), Tax Court Rules of Practice and Procedure; Amesbury Apts., Ltd. v. Commissioner, 95 T.C. 227">95 T.C. 227, 95 T.C. 227">240 (1990);2001 Tax Ct. Memo LEXIS 240">*255 Adler v. Commissioner, 85 T.C. 535">85 T.C. 535, 85 T.C. 535">540 (1985); Schalekamp v. Commissioner, T.C. Memo 1998-277. In this opinion, all Rule references are to the Tax Court Rules of Practice and Procedure. In this case, petitioner must prove that the date on which each of the subject returns was filed was more than 3 years before respondent issued the subject notice of deficiency. See United States v. Gurley, 415 F.2d 144">415 F.2d 144, 415 F.2d 144">147 (5th Cir. 1969); Young v. Commissioner, 208 F.2d 795">208 F.2d 795 (4th Cir. 1953), affg. a Memorandum Opinion of this Court dated Apr. 10, 1953; BJR Corp. v. Commissioner, 67 T.C. 111">67 T.C. 111, 67 T.C. 111">121 (1976).We note that the substitute return respondent prepared for petitioner's taxable year 1990 pursuant to section 6020(b) did not start the running of the period of limitations on assessment and collection. Section 6501(b)(3) provides: "Notwithstanding the provisions of paragraph (2) of section 6020(b), the execution of a return by the Secretary pursuant to the authority conferred by such section shall not start the running of the period of limitations on assessment and collection."We begin with petitioner's alternative argument that2001 Tax Ct. Memo LEXIS 240">*256  he filed his 1989 and 1990 returns by mail with the Internal Revenue Service Centers more than 3 years before respondent issued the subject notice of deficiency. The evidence on which petitioner relies in support of this factual assertion is his own testimony at trial. Petitioner's testimony is vague, is not supported by any documentary evidence, such as certified mail receipts, is contradicted by respondent's records, which do not record such filings, and is unbelievable.In the case of his 1989 return, petitioner testified: "I BELIEVE it's signed April 12th or 11th [of 1992] and that's when I APPARENTLY mailed it." (Emphasis supplied.) He further testified: "I BELIEVE I mailed it to Fresno, California" (emphasis supplied), notwithstanding the fact that he resided in New Jersey at the time. Petitioner's 1989 return states that his address is 1034 17th Street, No. 102, Santa Monica, California 90828. Petitioner states that he used a California address on his 1989 return because he "was spending a lot of time in California" and "was intending to move there".In the case of his 1990 return, petitioner testified that he prepared this return approximately 10 days after he prepared2001 Tax Ct. Memo LEXIS 240">*257  his 1989 return. The address listed on petitioner's 1990 return is 7 Baldwin Hill Place, Morristown, New Jersey 08057.Petitioner testified that he gave his 1990 return to the revenue agent who was auditing his 1988 return "and mailed a copy". Petitioner's testimony regarding the filing of his 1990 return also includes the following:   Q And for the 1990 return, you prepared that in New Jersey, as    well, correct?   A The actual return, yes.   Q And you mailed that in New Jersey, correct?   A My recollection is I gave this directly to Mr. Brokowski    [i.e., the revenue agent] in New Jersey.   Q So you're saying, then, for 1990, that you never filed a    return without giving one to Brokowski first. You never filed    one independently for 1990.   A I THINK I mailed it in, as well, but I gave him a copy. I gave    two -- I THINK I gave him the original and mailed a copy, it    is my recollection.   Q Would you mail a copy of a 1040 to a Service Center? Why?   A I didn't mail it initially. Subsequently, I mailed it. I    ACTUALLY THINK I sent it2001 Tax Ct. Memo LEXIS 240">*258  by certified mail, as I've indicated,    and I cannot locate those records.   Q Let's go back to 1990 again. What was -- when was the first    time that you filed your 1990 tax return?   A I BELIEVE I gave it directly to Mr. Brokowski.[Emphasis supplied.]On the basis of the above discussion, we find that petitioner has failed to establish that he filed his 1989 and 1990 returns by mail with the Internal Revenue Service Centers more than 3 years before respondent issued the subject notice of deficiency.Petitioner's principal argument is that he filed his 1989 and 1990 returns, and the period of limitations on assessment and collection under section 6501(a) began to run as to each tax year, in April 1992, when petitioner submitted photocopies of the returns to respondent's revenue agent. If measured from April 1992, the period of limitations on assessment and collection expired before the subject notice of deficiency was issued.Petitioner argues that, if respondent treats a return "as filed", then the period of limitations on assessment and collection under section 6501(a) begins to run, irrespective of whether the return was filed in a location2001 Tax Ct. Memo LEXIS 240">*259  specified by section 6091 and the regulations promulgated thereunder, or whether it contains the taxpayer's original signature. Petitioner contends that respondent used the photocopies of petitioner's 1989 and 1990 returns in formulating the audit of petitioner's returns and, thus, treated the returns "as filed".It has long been held that in order for the period of limitations on assessment and collection prescribed by section 6501 and its predecessors to run against the United States, a taxpayer must meticulously comply with all conditions for application of the statute. See Lucas v. Pilliod Lumber Co., 281 U.S. 245">281 U.S. 245, 281 U.S. 245">249, 74 L. Ed. 829">74 L. Ed. 829, 50 S. Ct. 297">50 S. Ct. 297 (1930); Florsheim Bros. Drygoods Co. v. United States, 280 U.S. 453">280 U.S. 453, 74 L. Ed. 542">74 L. Ed. 542, 50 S. Ct. 215">50 S. Ct. 215 (1930); Bachner v. Commissioner, 81 F.3d 1274">81 F.3d 1274, 81 F.3d 1274">1280 (3d Cir. 1996).As mentioned above, section 6501(a) prescribes that the tax "shall be assessed within 3 years after the return is filed". As the Supreme Court has noted, "The word 'return' is not a technical word of art." 280 U.S. 453">Florsheim Bros. Drygoods Co. v. United States, supra at 462. There are four elements in determining whether a document is sufficient for statute of limitations purposes: First, 2001 Tax Ct. Memo LEXIS 240">*260  the document must contain sufficient data to calculate the taxpayer's tax liability; second, it must purport to be a return; third, there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and fourth, the taxpayer must execute the document under penalties of perjury. Beard v. Commissioner, 82 T.C. 766">82 T.C. 766, 82 T.C. 766">777 (1984), affd.  793 F.2d 139">793 F.2d 139 (6th Cir. 1986). In order to have the effect of a return for statute of limitations purposes, a key element is that the document "must honestly and reasonably be intended as such" by the taxpayer.  280 U.S. 453">Florsheim Bros. Drygoods Co. v. United States, supra at 462.Among other filing requirements, the Internal Revenue Code specifies that a return "shall be signed in accordance with forms or regulations prescribed by the Secretary", sec. 6061(a), it "shall contain or be verified by a written declaration that it is made under the penalties of perjury", sec. 6065, and it shall be filed at the place specified by the Internal Revenue Code and the regulations promulgated thereunder, sec. 6091. In the case of the return of an individual, the general rule is that the return shall be made to the Secretary2001 Tax Ct. Memo LEXIS 240">*261  in the internal revenue district in which is located the taxpayer's legal residence or principal place of business, or it shall be made at the service center serving one of those districts. Sec. 6091(b)(1).A return form that is not signed or sworn to, as required by the statute, does not meet the plain requirements for the filing of a return and does not start the period of limitations on assessment and collection. See 281 U.S. 245">Lucas v. Pilliod Lumber Co., supra; Doll v. Commissioner, 358 F.2d 713">358 F.2d 713 (3d Cir. 1966), affg. T.C. Memo 1965-191; Richardson v. Commissioner, 72 T.C. 818">72 T.C. 818, 72 T.C. 818">823-824 (1979). Similarly, a return that is delivered to an office other than the one specified by the Code and the regulations for filing of that return is not considered filed and does not commence the period of limitations. See O'Bryan Bros., Inc. v. Commissioner, 127 F.2d 645">127 F.2d 645 (6th Cir. 1942) (gift tax return given to revenue agent), affg.  42 B.T.A. 18">42 B.T.A. 18 (1940); W.H. Hill Co. v. Commissioner, 64 F.2d 506">64 F.2d 506 (6th Cir. 1933) (return given to examining agent), affg.  23 B.T.A. 605">23 B.T.A. 605 (1931); Winnett v. Commissioner, 96 T.C. 802">96 T.C. 802 (1991)2001 Tax Ct. Memo LEXIS 240">*262  (return mailed to wrong service center); Espinoza v. Commissioner 78 T.C. 412">78 T.C. 412 (1982) (taxpayer failed to prove that amended returns were filed when they were handed to a revenue agent); Green v. Commissioner, T.C. Memo 1993-152 ("giving a delinquent return to an IRS agent does not constitute filing"); Metals Refining Ltd. v. Commissioner, T.C. Memo 1993-115 ("Even if the IRS agents received properly executed [partnership] returns, delivery to such agents does not necessarily constitute proper filing"); see also Kotovic v. Commissioner, T.C. Memo 1959-177.In this case, we find that there was no filing of the subject returns in April 1992 when petitioner gave photocopies of his 1989 and 1990 returns to respondent's revenue agent. Clearly, the revenue agent was not the prescribed place for filing those returns pursuant to section 6091(b)(1).  127 F.2d 645">O'Bryan Bros., Inc. v. Commissioner, supra; 64 F.2d 506">W.H. Hill Co. v. Commissioner, supra; 96 T.C. 802">Winnett v. Commissioner, supra; 78 T.C. 412">Espinoza v. Commissioner, supra; Green v. Commissioner, supra; Metals Refining Ltd. v. Commissioner, supra.2001 Tax Ct. Memo LEXIS 240">*263 Moreover, there is nothing in the record to show that petitioner intended his delivery of those documents to the agent in April 1992 to constitute the filing of his returns. See Berenbeim v. Commissioner, T.C. Memo 1992-272. Petitioner gave them to the revenue agent who had requested copies of the returns, and petitioner did not tell the agent that petitioner had not previously filed the returns with the Internal Revenue Service. Respondent's agent received the returns thinking that they were the copies that he had requested. The revenue agent reviewed the copies of petitioner's 1989 and 1990 returns and may have used information from the returns in formulating his request for information from petitioner, but there is no evidence that respondent ever treated the copies "as filed". To the contrary, for example, respondent took the step of filing a substitute return for 1990, pursuant to section 6020(b).We find that petitioner has failed to establish that he filed his 1989 and 1990 tax returns more than 3 years before the date the subject notice of deficiency was issued. Thus, petitioner has failed to prove that respondent's notice of deficiency for 1989 and 1990 is2001 Tax Ct. Memo LEXIS 240">*264  untimely under section 6501(a).II. RETURNS AND ALLOWANCESThe second issue in this case, the only substantive issue presented, involves certain payments that are reported as "returns and allowances" on the Schedules C filed as part of petitioner's 1989 and 1990 tax returns. As mentioned above, petitioner's Schedules C for 1989 and 1990 report "returns and allowances" of $ 103,784 and $ 97,854, respectively. Respondent allowed $ 53,643 of the amount reported for 1989, consisting of a check drawn by petitioner on January 18, 1989, to Hackett & Co., but disallowed the rest, i.e., $ 50,141 in 1989 and $ 97,854 in 1990, on the ground that petitioner had not "established that any amount more than 53,643.00 for 1989 and -0- for 1990 was for an ordinary and necessary business expense, or was expended for the purpose designated."At trial, petitioner was not able to identify the amounts reported as returns and allowances on his 1989 and 1990 returns. Although petitioner's Schedules C for 1989 and 1990 report returns and allowances of $ 103,784 and $ 97,854, respectively, he introduced documents that show aggregate expenditures of $ 118,817.83 in 1989 (including the payment of $ 53,643 to2001 Tax Ct. Memo LEXIS 240">*265  Hackett & Co. that respondent allowed) and $ 103,349.71 in 1990. Petitioner failed to offer an acceptable explanation for these discrepancies.According to petitioner, the subject payments can be grouped into three categories: (1) Direct refunds to clients and unreimbursed payments on behalf of clients to the Internal Revenue Service and to State tax authorities; (2) payments on behalf of one client for which petitioner was reimbursed; and (3) payments to clients for the purchase of supplies and services. Petitioner refers to the payments in the first category as "direct payments" and for convenience, we will do the same. The following is a list of the payments that petitioner claims as "returns and allowances" for each of the years at issue. The list shows the check number, date, payee, and amount of each payment, and groups each payment into one of petitioner's three categories:1989 Check    Date         Payee          Amount__________    ____         _____          ______  1931     1/7       Mass. Div. of                Employ. Security    2001 Tax Ct. Memo LEXIS 240">*266    $ 221.00  2200     11/19      Jepsco            4,500.00  1938     1/28      IRS               54.00  2083     5/12      IRS             3,585.99  2085     5/12      State of R. I.         75.01  2101     11/10      IRS             10,831.60  2102     11/10      IRS             3,930.09  Wire     12/12      Hospital Trust RI      5,010.00  Wire     12/14      Hospital Trust                Providence, RI      12,010.00  2082     5/12      IRS               35.66  2476     8/9       N.Y. State           576.16  2174     7/14      IRS             2,382.18  2201     12/1      N.Y. State           388.29  2135     6/3       Steven Dana          500.00  1957   2001 Tax Ct. Memo LEXIS 240">*267    6/17      IRS             7,687.75  1958     6/17      IRS              278.92  2203     12/1      Franchise Tax Board      371.55  1974     6/30      Jeff Kolton          500.00  2403     7/14      Sec. of State          5.00  2122     12/5      Employment Dev. Dept.      28.16  2405     7/14      Franchise Tax Board      122.71  2175     7/14      Franchase Tax Board      250.00  2404     7/14      Sec. of State          5.00  2436     10/17      Gary Chang          3,500.00  1959     6/17      Employment Dev. Dept.     458.82  2401     7/15      Franchise Tax Board     1,472.94  2402     7/15      IRS              198.09  2442     10/1      IRS             4,639.91  2443     10/1      Mass2001 Tax Ct. Memo LEXIS 240">*268  DOR           1,156.00  2202     12/1      Habhac             400.00  1536     1/18      Hackett & Co.        53,643.00                           __________ Total                         118,817.83  Amount reported                   103,784.00  on return                      __________ Difference                       15,033.83             [Table continued]                    Reimbursed     Supplies1989 Check     Direct Payments     Payments     and Services__________     _______________     __________    ____________  1931         $ 221.00        -0-        -0-  2200          -0-         -0-      $ 4,500  1938          54.002001 Tax Ct. Memo LEXIS 240">*269         -0-        -0-  2083         3,585.99        -0-        -0-  2085          75.01        -0-        -0-  2101        10,831.60        -0-        -0-  2102         3,930.09        -0-        -0-  Wire         5,010.00        -0-        -0-  Wire        12,010.00        -0-        -0-  2082          35.66        -0-        -0-  2476          576.16        -0-        -0-  2174         2,382.18        -0-        -0-  2201          388.29        -0-        -0-  2135          -0-         -0-        500  1957         7,687.75        -0-        -0-  1958          278.92        -0- 2001 Tax Ct. Memo LEXIS 240">*270         -0-  2203          371.55        -0-        -0-  1974          -0-         -0-        500  2403           5.00        -0-        -0-  2122          28.16        -0-        -0-  2405          122.71        -0-        -0-  2175          250.00        -0-        -0-  2404           5.00        -0-        -0-  2436         3,500.00        -0-        -0-  1959          458.82        -0-        -0-  2401         1,472.94        -0-        -0-  2402          198.09        -0-        -0-  2442         4,639.91        -0-        -0-  2443         1,156.00        -0-       2001 Tax Ct. Memo LEXIS 240">*271   -0-  2202          400.00        -0-        -0-  1536        53,643.00        -0-        -0-           __________        ___       ______  Total        113,317.83        -0-        5,5001990 Check    Date         Payee          Amount__________    ____         _____          ______  1758     2/20      State of Cal.          $ 5.00  1730     2/28      N.Y. State           470.29  1731     2/28      N.Y. State           114.70  1732     2/28      N.Y. State          2,850.38  1738     3/7       IRS               791.12  1737     3/7       Mass.             2,350.00  2269     3/9       Jeffrey Kolton        12,500.00   124     7/10      N.Y. State2001 Tax Ct. Memo LEXIS 240">*272           5,337.57   125     7/15      N.Y. State          1,128.13   189     11/20      Said Dermarkar        2,000.00   209     12/10      IRS               235.08   217     12/21      N.Y. State           150.00   215     12/12      IRS               228.64  1878     1990      Carey Storm           930.00   242     12/31      Employment Dev. Dept.     7,000.00   164     10/1      US Dept. of Treasury     12,000.00   163     9/26      City of Beverly Hills     2,679.75  1799     5/12      Employment Dev. Dept.      59.02  Wire     2/16      Shawmut Bros.        30,010.00  2292     2/20      Stewart Gleischman      18,500.00  Wire     11/28      Security -- Los Angeles    4,010.00                           2001 Tax Ct. Memo LEXIS 240">*273  __________  Total                         103,349.68   Amount reported                   97,854.00   on return                     __________    Difference                     5,495.68             [Table continued]                    Reimbursed     Supplies1990 Check     Direct Payments     Payments     and Services__________     _______________     __________    ____________  1758          $ 5.00        -0-       -0-  1730          470.29        -0-       -0-  1731          114.70        -0-       -0-  1732         2,850.38        -0-       -0-  1738          791.12        -0-       -0-  1737         2,350.00        -0-  2001 Tax Ct. Memo LEXIS 240">*274       -0-  2269        12,500.00        -0-       -0-   124         5,337.57        -0-       -0-   125         1,128.13        -0-       -0-   189         2,000.00        -0-       -0-   209          235.08        -0-       -0-   217          150.00        -0-       -0-   215          228.64        -0-       -0-  1878          930.00        -0-       -0-   242          -0-       $ 7,000.00      -0-   164          -0-        12,000.00      -0-   163          -0-        2,679.75      -0-  1799          59.02        -0-       -0-  Wire        30,010.00        -0-       -0-  2292        18,500.00   2001 Tax Ct. Memo LEXIS 240">*275       -0-       -0-  Wire         4,010.00        -0-       -0-           _________       _________    _______  Total        81,669.93       21,679.75     -0-At the outset, we note that there is a fundamental difference between expenditures that constitute "returns and allowances" and expenditures that are treated as business deductions under section 162. See Beatty v. Commissioner, 106 T.C. 268">106 T.C. 268, 106 T.C. 268">273 (1996); Max Sobel Wholesale Liquors v. Commissioner, 69 T.C. 477">69 T.C. 477 (1977), affd.  630 F.2d 670">630 F.2d 670 (9th Cir. 1980); B.C. Cook & Sons, Inc. v. Commissioner, 65 T.C. 422">65 T.C. 422, 65 T.C. 422">428 (1975), affd. per curiam 584 F.2d 53">584 F.2d 53 (5th Cir. 1978); see also sec. 1.61-3(a), Income Tax Regs. The former expenditures are taken into account in computing the gross income from a business activity. See 65 T.C. 422">B.C. Cook & Sons, Inc. v. Commissioner, supra at 428. Strictly speaking, they are not deductions and are not subject to the various limitations on deductions claimed under section 162. See2001 Tax Ct. Memo LEXIS 240">*276 Metra Chem Corp. v. Commissioner, 88 T.C. 654">88 T.C. 654, 88 T.C. 654">661 (1987); 65 T.C. 422">B.C. Cook & Sons, Inc. v. Commissioner, supra.As to returns and allowances, a taxpayer is required to maintain records that are sufficient to substantiate the amount claimed on his or her return. Sec. 6001. A taxpayer must establish a direct connection between an expenditure claimed as an offset of gross receipts and the activity giving rise to the gross receipt. See 69 T.C. 477">Max Sobel Wholesale Liquors v. Commissioner, supra at 483 (rebate treated as a reduction of gross income "where the rebate was a part of the transaction of sale"); see also Shriver v. Commissioner, 85 T.C. 1">85 T.C. 1, 85 T.C. 1">8 (1985).As to deductions under section 162(a), a taxpayer is required to maintain records that are sufficient to substantiate the deductions claimed on his or her return. Sec. 6001. Section 162 generally allows a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. Such expenses must be directly connected with or pertain to the taxpayer's trade or business.  Sec. 1.162-1(a), Income Tax Regs. Petitioner2001 Tax Ct. Memo LEXIS 240">*277  bears the burden of proving his eligibility for offsets to gross income or deductions under section 162(a).Petitioner reported the subject expenditures as returns and allowances for both 1989 and 1990 and reduced the gross income reported on his Schedule C for each year by the total expenditures for the year. In his posttrial briefs, petitioner's principal position is that the subject expenditures are "ordinary and necessary and deductible under section 162." It is not clear whether petitioner also takes the position that the subject expenditures are "returns and allowances" that offset the gross receipts realized from the business reported on petitioner's Schedules C. However, it is not necessary to sort out petitioner's legal position because we find that petitioner has failed to adequately substantiate any of the subject expenditures either as an offset of the gross receipts of his Schedule C business or as an ordinary and necessary business deduction.During his testimony at trial, petitioner sometimes compared the fees that he claims to have received during 1989 and 1990 from the clients of his Schedule C business with the payments treated as returns and allowances that he2001 Tax Ct. Memo LEXIS 240">*278  claims to have made to, or on behalf of, some of those clients. As was true in the case of the returns and allowances, at trial petitioner was unable to itemize the fees composing the gross receipts reported on his Schedules C for 1989 and 1990. The totals from the two lists of fees that petitioner introduced at trial do not match the gross receipts reported on the Schedules C filed with his returns.In any event, for both of the years in issue, the following schedule repeats the lists of fees that petitioner introduced at trial, it shows the payments allegedly made by petitioner to, or on behalf of, each of his clients, and it shows the net amounts for each client:               Fees            Payments               ____            ________    Client       1989     1990       1989      1990    ______       ____     ____       ____      ____Jeff Abrams      $ 12,213     -0-     $ 650.47    $ 228.67Automatic systems    24,375     -0-      -0- 2001 Tax Ct. Memo LEXIS 240">*279       -0-David Baumberg       500   $ 1,500      -0-      -0-Faith Burns       2,815     -0-     5,795.91     -0-Gary Chang        -0-    25,830     3,872.71     -0-Norman Dana       4,122    2,442      -0-      -0-Eric Friedmann      7,374     -0-     3,585.99    8,772.94Mark Grayson       -0-     4,703      -0-      -0-Bill Habelow       2,000     -0-     7,687.75    2,350.00Hackett & Co.      61,643     -0-      400.00     -0-Habsco          -0-      -0-     53,643.00     -0-Emily Harris       -0-     2,880      -0-      -0-Thomas Hickey      14,000     -0-      -0-      -0-Robert Hastings      -0-     7,955     3,382.29     941.12High Comps-Callan    16,000    31,278      54.00     -0-Art Jacob        4,500     -0-      -0-  2001 Tax Ct. Memo LEXIS 240">*280      -0-Jeff Kolton       4,272     -0-      500.00   12,500.00Margaret Lynch      5,159     -0-     31,856.70     -0-Jeanne Lynch        400    16,961      -0-      -0-Scott Mitchell      -0-     1,000      -0-      -0-Albert Pachew       -0-     4,980      -0-      -0-Victoria Shulman     -0-     6,627      -0-      -0-Carey Strom        -0-     28,560      38.16   22,668.77Corey Tynam        -0-     51,250      -0-      -0-Brain Wayset       6,374     -0-      -0-      -0-Steven Dana        -0-      -0-      500.00     -0-Said Dermarkar      -0-      -0-      -0-     2,000.00Carissa Drucker      -0-      -0-     1,671.03    4,010.00Stewart Gleischman    -0-      -0-      458.82   18,740.08Jepsco/Epstein      -0-      -0-     4,721.002001 Tax Ct. Memo LEXIS 240">*281    30,010.00Joblon          -0-      -0-      -0-     1,128.13           _______    _______    __________   __________  Total        165,747    185,966    118,817.83   103,349.71Amount reported    177,076    175,790    103,784.00   97,857.00Difference       -11,329    10,176    15,034.00    5,493.00             [Table continued]                      Net                      ___    Client             1989      1990    ______             ____      ____Jeff Abrams           $ 11,562.53    $ -228.67Automatic systems         24,375.00     -0-David Baumberg            500.00    1,500.00Faith Burns            -2,980.91     -0-Gary Chang             -3,872.71   25,830.00Norman Dana          2001 Tax Ct. Memo LEXIS 240">*282     4,122.00    2,442.00Eric Friedmann           3,788.01   -8,772.94Mark Grayson              -0-     4,703.00Bill Habelow            -5,687.75   -2,350.00Hackett & Co.           61,243.00     -0-Habsco              -53,643.00     -0-Emily Harris              -0-     2,880.00Thomas Hickey           14,000.00     -0-Robert Hastings          -3,382.29    7,013.88High Comps-Callan         15,946.00   31,278.00Art Jacob              4,500.00     -0-Jeff Kolton             3,772.00   -12,500.00Margaret Lynch          -26,697.70     -0-Jeanne Lynch             400.00   16,961.00Scott Mitchell             -0-     1,000.00Albert Pachew             -0-     4,980.00Victoria Shulman            -0-     6,627.00Carey Strom            2001 Tax Ct. Memo LEXIS 240">*283   -38.16    5,891.23Corey Tynam              -0-    51,250.00Brain Wayset            6,374.00     -0-Steven Dana             -500.00     -0-Said Dermarkar             -0-    -2,000.00Carissa Drucker          -1,671.03   -4,010.00Stewart Gleischman          -458.82   -18,740.08Jepsco/Epstein           -4,721.00   -30,010.00Joblon                 -0-    -1,128.13                 _________   _________  Total              46,929.17   82,616.29As shown above, petitioner claims to have made payments in 1989 of $ 118,817.83 or 71.68 percent of the fees received in that year and payments in 1990 of $ 103,349.71 or 55.57 percent of the fees received in that year. The above schedule shows that petitioner allegedly made substantial payments to persons from whom no fees are listed for 1989 or 1990. The net payments to clients in this category are as follows:            2001 Tax Ct. Memo LEXIS 240">*284      1989      1990                ____      ____   Steven Dana       $ -500.00      -0-   Said Dermarkar       -0-     $ -2,000.00   Carissa Drucker     -1,671.03    -4,010.00   Stewart Gleischman    -458.82    -18,740.08   Jepsco/Epstein     -4,721.00    -30,010.00   Joblon           -0-     -1,128.13              _________    __________              -7,350.85    -55,888.21The above schedule also shows that petitioner allegedly made payments to a number of clients, including his parents, that substantially exceeded the amount of fees petitioner received from those clients. The net payments to clients in this category are as follows:               1989       1990               ____       ____   Faith Burns      -$ 2,980.91      -0-   Eric Friedmann      3,788.01    -$ 8,722.94   Bill2001 Tax Ct. Memo LEXIS 240">*285  Habelow      -5,687.75     -2,350.00   Jeff Kolton       3,772.00    -12,500.00   Margaret Lynch     -26,697.70      -0-Another preliminary point should be noted. In his reply brief, petitioner implies that he was unable to produce some records necessary to substantiate the "returns and allowances" reported on his returns because certain of his records had been lost. In discussing the evidence that he adduced to substantiate the direct payments, petitioner states that his "business records were lost when he shipped the records from California to New Jersey with the United Parcel Service." In discussing the evidence adduced to substantiate the payments to clients for professional services and supplies, he also states that "his original books and records were lost by United Parcel Service when the records were shipped from California to New Jersey."At trial, petitioner made no suggestion that any records necessary to substantiate the returns and allowances claimed on his return had been lost. To the contrary, during his opening statement, petitioner mentioned certain business records that allegedly had been lost, but he2001 Tax Ct. Memo LEXIS 240">*286  limited that discussion to the substantiation of certain business deductions that are no longer at issue in this case. When it came to the returns and allowances at issue here, petitioner made it clear that he never had records of any of these expenditures. Petitioner stated as follows:     In other areas, for example, we'll get to the area of   returns and allowances. In this area, often the client had a   problem with the IRS or a government agency and I advanced taxes   on their behalf, without any expectation of getting the money   back from them, it -- from them. And unfortunately, at that   time, I was perhaps lax that I didn't have business contracts or   even key business records. There were just oral agreements with   respect to the treatment of these items. Obviously, it's a   practice of -- it's not an ideal practice and IT'S NOT THAT   THESE RECORDS WERE LOST. It's just that I didn't keep them at   the time. They were oral agreements. [Emphasis supplied.]Furthermore, after petitioner completed his direct testimony regarding returns and allowances, and before discussing the records that he allegedly2001 Tax Ct. Memo LEXIS 240">*287  lost in shipping, he stated: "As mentioned earlier, I shipped some information -- I'm done with the returns and allowances at this point." Thus, petitioner again made it clear that the records allegedly lost in shipping did not involve "returns and allowances." Finally, at trial, petitioner stated: "As such, my business logs were in there detailing in the instance of travel and entertainment, who I entertained and what -- and all the other requirements of Section 274(d)." Petitioner did not testify at trial that any of the documents that were allegedly lost involved amounts reported on his returns as "returns and allowances".Moreover, on the basis of the record of this case, we would have difficulty finding that petitioner lost any business records as a result of a shipment from California to petitioner's home in Moorestown, New Jersey. None of the documents introduced by petitioner substantiate a lost shipment of records from California to Moorestown. The documents on which petitioner relies, consisting of two receipts for the shipment that were filled out by petitioner on United Parcel Service forms and a Damage Tracer Copy that was issued by UPS, fail to show that any part of2001 Tax Ct. Memo LEXIS 240">*288  the shipment was lost. To the contrary, according to a handwritten phone message, a representative of UPS telephoned petitioner and stated that all seven boxes of the shipment had been delivered. The only formal communication from UPS concerning this shipment is the Damage Tracer Copy which states that petitioner had reported damage to a "Panasonic EASA Phone". There is no document from UPS to substantiate petitioner's assertion that "two bags" were lost and never recovered.A. REFUNDS TO CLIENTS AND UNREIMBURSED PAYMENTS TO THE INTERNAL  REVENUE SERVICE AND TO STATE TAX AUTHORITIESAs shown in the above schedules, petitioner claims offsets to gross receipts or deductions under section 162 for the aggregate amounts of direct payments in 1989 and 1990. For 1989, petitioner claims offsets or deductions in the form of direct payments totaling $ 113,317.83, including the $ 53,643 payment to Hackett and Co., sometimes referred to as Habsco, that was allowed by respondent, and for 1990 he claims offsets or deductions in the form of direct payments in the aggregate amount of $ 81,669.93. In his posttrial briefs, petitioner asserts that he made the subject payments to clients, to2001 Tax Ct. Memo LEXIS 240">*289  the Internal Revenue Service, or to State tax authorities in order to resolve "tax problems that was [sic] due to an error or omission made by the Petitioner." According to petitioner: "These [payments] were for tax services that I performed that there was some kind of problem with." According to petitioner, in each case after "negotiations with client(s) and once the Petitioner and the client came to an oral agreement that the Petitioner would pay the tax bill", "the direct payment was made to fully settle the legal dispute between the Petitioner and his client." Petitioner asserts that "he did not carry professional malpractice insurance", and he orally agreed with his clients to make each of the payments "to avoid litigation and to retain customers." Furthermore, according to petitioner, each of the direct payments was made "to resolve a tax problems [sic] that was due to an error or omission made by the petitioner." Petitioner states: "There was no connection between the 'direct payment' and billing", except in the case of the reimbursed payments, discussed below.To prove the nature of the subject direct payments, petitioner relies on his own testimony, copies of canceled2001 Tax Ct. Memo LEXIS 240">*290  checks or other evidence of payment, such as wire transfers, and in several instances, copies of the bills or statements issued by the taxing authority. The documentary evidence petitioner introduced supports a finding that petitioner made payments to his clients, to the Internal Revenue Service, and to various State tax administrators. However, the documentary evidence does not explain why the payments were made, what connection any of the payments had to petitioner's Schedule C business, or why these payments are ordinary and necessary business expenses. For this, petitioner relies upon his own uncorroborated testimony at trial. As we have often stated, we are not required to accept a taxpayer's self-serving testimony. See, e.g., Niedringhaus v. Commissioner, 99 T.C. 202">99 T.C. 202, 99 T.C. 202">219-220 (1992); Tokarski v. Commissioner, 87 T.C. 74">87 T.C. 74, 87 T.C. 74">77 (1986); Hradesky v. Commissioner, 65 T.C. 87">65 T.C. 87, 65 T.C. 87">90 (1975), affd. per curiam 540 F.2d 821">540 F.2d 821 (5th Cir. 1976).We have difficulty accepting petitioner's testimony that he made 27 payments totaling $ 59,674.83 (i.e., total direct payments of $ 113,317.83 less the amount allowed by respondent, $ 53,643) in 1989 and2001 Tax Ct. Memo LEXIS 240">*291  18 payments totaling $ 81,669.93 in 1990 to settle malpractice claims with 17 clients. Petitioner claims to have made these payments, but he failed to produce documents of any kind, such as agreements, correspondence, or memoranda, to substantiate the nature of any of the payments. We also find it significant that petitioner introduced no testimony or corroboration from any of his clients concerning the nature of these payments. We agree with respondent that this raises an inference that such testimony would not support petitioner's case. See McKay v. Commissioner, 89 T.C. 1063">89 T.C. 1063, 89 T.C. 1063">1069 (1987), affd.  886 F.2d 1237">886 F.2d 1237 (9th Cir. 1989); Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. 1158">6 T.C. 1158 (1946), affd.  162 F.2d 513">162 F.2d 513 (10th Cir. 1947); Metals Refining Ltd. v. Commissioner, T.C. Memo 1993-115.As mentioned above, petitioner relies entirely on his own testimony at trial to substantiate the subject payments. However, petitioner's testimony is extremely vague. He does not describe the services that he provided to the subject clients or the nature of the problem with those services that prompted him to make the payment or payments2001 Tax Ct. Memo LEXIS 240">*292  with respect to that client. The following example illustrates petitioner's vague testimony. Petitioner's testimony regarding two payments made on behalf of Faith and Joseph Burns is as follows:   The next items is items 22-19, which has to do with Faith and   Joseph Burns. I paid the Internal Service directly $ 4,640 and   the State of Massachusetts, which is item 20-22-20 -- $ 1,156.   They paid me fees in 1989 of $ 2,815.In response to questions from the Court about the fact that petitioner's payments exceeded the fees received, petitioner gave the following explanation:   They were paid out more in aggregate than I received in fees,   yes, and these had to do with old matters existing prior to 1989   that were ultimately paid or resolved in 1989. It's not that I   intended to lose money on this proposition. It's just that old   matters were resolved.     Now, people say, Gary, you could have not paid these   matters, had the clients either pay them or whatever, and let   them sue you, and then these would have been deductible at some   time down the road, you would have incurred legal2001 Tax Ct. Memo LEXIS 240">*293  fees and the   amounts may have been larger due to interest and penalties and   you would have been caught up in court. But I decided to resolve   older matters probably pertaining to years '82 to '84,   particularly in the -- well, these matters were resolved --   well, problems arising from earlier years were resolved and   negotiated with the clients in '89 and these were paid.     There is no real relationship to the $ 2,815 in fees   received in 1989 and the amounts paid. Obviously, in the case of   Dr. Chang, which is items 13, 14, and 15, which aggregate $ 400,   and item 21, which is a refund of $ 3,500 -- well, those three   amounts are minuscule in comparison to the 1990 collections of  $ 25,830.     So there is no correlation between the two. The reason I   mentioned the fees is to show that they were, one, current   clients, that I retained them, not obviously to show that this   agreement had been reached and to show some perspective that, by   and large, for most of the clients, the fees taken in and the   retention of the relationship exceeded2001 Tax Ct. Memo LEXIS 240">*294  the amounts that were   paid out in what would have been a divisive matter.     Well, if these things were not resolved amicably, it could   have been a divisive matter, which would have -- could have led   to litigation, as I said, I didn't have malpractice insurance,   and also, a loss of clients and client good will. That's my   rationale for paying them.In effect, petitioner states that the subject payments were made "to resolve older matters probably pertaining to years '82 to '84". Petitioner gives no explanation of the matters that were resolved.Petitioner's testimony concerning the payments made on behalf of his parents similarly fails to describe the nature of those payments. Petitioner's testimony is as follows:     The next check is 50 -- is 22-3, which was paid directly to   the Internal Revenue Service on behalf of my father, Eric   Friedmann. It's actually my parents, Eric and Phyllis Friedmann,   for a tax problem. I would just note that my parents were   clients and in the year 1989, they paid me taxable fees of  $ 7,374. When I say they paid me fees, these are all reflected2001 Tax Ct. Memo LEXIS 240">*295  in   my income schedules that were reconstructed, that are found in   files 20-J for 1989 and 21-J for 1990. And these have been   accepted by the Internal Revenue Service for purpose -- as noted   in the audit work papers, although they don't tie in precisely   to the income per the tax return.     The next item has to do with Eric Friedmann, who is, again,   my father. These had to do with items 15-A2, A3, A4, and A10.   The first one being payment directly to New York State on behalf   of him of $ 470.29. The next one is 15-A3, had to do with   payments directly to New York State in the amount of $ 114.70.   The next one is 15-A4, which is payment directly to New York   State of $ 2,880.38, and the last one is 15-A10, which has to do   with payments directly to New York State of $ 5,337.57. The   checks are in this file, Your Honor.Petitioner claims an offset to income or a deduction for payments made in 1989 in the amount of $ 31,856.70 allegedly on behalf of Ms. Margaret Lynch. His testimony regarding those payments is as follows:     The next item is number 22-4. Again, 2001 Tax Ct. Memo LEXIS 240">*296  these are all within   file 16-J, having to do with the taxpayer Margaret Lynch, and I   paid $ 75 -- $ 75.01 to the State of Rhode Island on her behalf,   for a tax problem.     In items 23, I paid the IRS, Internal Revenue Service,   directly, $ 10,831.50 on her behalf. Item 24, I paid the Internal   Revenue Service $ 3,930.09 on her behalf. Items 4-23 and 24 are   direct checks to either Rhode Island or the Internal Revenue   Service.     In addition, items 30(a) and 30(b) are direct wires or   returns of funds to Margaret Lynch, as agreed upon, in the   amounts of $ 5,010, in the instance of 30(a), and in the instance   of 30(b), $ 12,010. Margaret Lynch, in 1989, paid me fees -- and   these were all, as I say, agreed upon and accepted. Margaret   Lynch paid me fees of $ 5,159 and also in that period, her   sister, Jeanne Lynch, who is a client and had an influence over   her or their opinion of me counted, they spoke quite frequently,   paid me fees of $ 400 in 1989 and in 1990, paid me fees of  $ 16,961.     Again, I believe these offsets2001 Tax Ct. Memo LEXIS 240">*297  -- there's two components of   the offsets here. One is money given directly back to the   client, which I consider to be return of fees, and the other is   expenses that I paid directly for the client, that would be   items 24, 23 and 24, and the two wires, items 30 and 30(a) and   30(b) were funds paid directly -- wired directly to the client's   personal account.As true throughout petitioner's testimony at trial, petitioner offers no explanation for the nature of the services he provided to Ms. Lynch, the problems that arose with respect to those services, or the reason for his payment of those funds.Finally, in one instance, petitioner claims to have made a direct refund of fees to Dr. Strom in the amount of $ 930. When asked about this payment at trial, petitioner stated as follows:   Well, basically, it had to do with -- I looked after his   investments and as well as doing his personal -- doing his taxes   and corporate work, and he didn't feel the investments performed   as well as expected. Some of this had to do with indemnities and   the value of some of his investments.For the above reasons, we2001 Tax Ct. Memo LEXIS 240">*298  find that petitioner has failed to meet his burden of proving that any of the direct payments offset his gross receipts or can be deducted under section 162. Accordingly, we hereby sustain respondent's determination as to these payments.B. SUPPLIES AND SERVICESIncluded among the returns and allowances reported on his 1989 return are payments that petitioner claims to have made to clients to purchase "supplies and services". Petitioner relies upon his own testimony and copies of canceled checks to substantiate this claim. Petitioner testified that the payments in this category, totaling $ 5,500, consist of payments to three clients, Mr. Dana, Mr. Kolton, and Jepsco, in the amounts of $ 500, $ 500, and $ 4,500, respectively. At trial, petitioner testified that the $ 500 payment to Mr. Dana was a fee "for supplies that he provided for me in my business", the $ 4,500 payment to Jepsco was "for consulting fees", and the $ 500 payment to Mr. Kolton was "for legal services * * * in a probate matter" rendered by Mr. Kolton. Petitioner testified further that Mr. Kolton assisted petitioner with a probate matter and "looked up some stuff and filed a paper". Petitioner introduced copies of2001 Tax Ct. Memo LEXIS 240">*299  three canceled checks payable to Mr. Dana, Mr. Kolton, and Jepsco containing the notations "fee", "serv.", and "consulting", respectively, in the memo section of the checks.The evidence offered by petitioner is insufficient to substantiate that petitioner is entitled to offset gross income by, or to deduct, these amounts. Petitioner's testimony regarding the payments fails to provide sufficient information regarding the "supplies" purchased or the "consulting and legal work" actually performed. As stated earlier, we are not required to accept a taxpayer's self-serving testimony. See, e.g., Niedringhaus v. Commissioner, 99 T.C. 202">99 T.C. 219-220; Tokarski v. Commissioner, 87 T.C. 74">87 T.C. 77; Hradesky v. Commissioner, 65 T.C. 87">65 T.C. 90. For the above reasons, we hold that petitioner has failed to establish that he is entitled to a deduction for these payments, and we sustain respondent on this issue.C. REIMBURSED PAYMENTS ALLEGEDLY MADE ON BEHALF OF ONE CLIENTIncluded among the subject returns and allowances for 1990 are payments totaling $ 21,679.75, that petitioner allegedly made on behalf of a client, Dr. Strom, for licensing fees and tax liabilities. 2001 Tax Ct. Memo LEXIS 240">*300  Petitioner asserts that Dr. Strom reimbursed petitioner for these payments, as discussed below, and that they should be treated as offsets to gross income or as ordinary and necessary business expenses under section 162. In passing, we note that petitioner allegedly made two other payments on behalf of or to Dr. Strom in 1990, $ 59.02, and $ 930, that petitioner also treated as "direct payments".The evidence presented by petitioner regarding the payments totaling $ 21,679.75 consists of petitioner's testimony, copies of canceled checks, and a copy of a check stub. Petitioner testified that he made three separate payments on behalf of Dr. Strom in order to avoid penalty and interest charges that Dr. Strom had incurred in prior years for late fee payments and tax deposits. According to petitioner's testimony and the copies of the canceled checks petitioner offered as evidence, petitioner paid $ 2,679.75, on September 26, 1990, to the City of Beverly Hills for Dr. Strom's personal medical licensing fee, he paid $ 12,000 to the U.S. Department of the Treasury on October 1, 1990, for Dr. Strom's 1990 third quarter Federal payroll tax deposit, and he paid $ 7,000 on December 31, 1990, to2001 Tax Ct. Memo LEXIS 240">*301  the Employment Development Department for Dr. Strom's California employment tax liability.Petitioner claims to have reported receipts in 1990 from Dr. Strom in the aggregate amount of $ 28,560. Petitioner testified that "Dr. Strom paid me in two checks that year". According to petitioner, the second check in the amount of $ 26,700 or $ 26,200 was paid on December 19, 1990. Petitioner testified:   I actually wrote out the name to Gary Friedmann, wrote the word   fee, wrote the amount and wrote out the check. Dr. Strom signed   the check and gave it to me and it's his handwriting in there on   check 3009 where he writes in the date of 12/19/90, and writes   out reimbursement, and then $ 6,500 annual.           *   *   *   *   *   *   *   It's the check stub that I'm referring to. The check -- the   original check was returned to Dr. Carey Strom. There is my   writing on this register and in addition to that, Dr. Strom, in   aggregate, paid me, in 1990, $ 28,560 for -- that is -- there are   two payments to me at least equal that amount. This amount   represents $ 26,200. There2001 Tax Ct. Memo LEXIS 240">*302  was also other checks representing  $ 2,300 that reflected in income.Petitioner summarized his testimony regarding this matter as follows:   Getting back to returns and allowances for 1990, I just have one   point. On December 19th, 1990, Dr. Strom paid me the $ 26,700, of   which 6,500 was fees and the rest was reimbursement.     That was attributable, and this was our agreement, this is   my testimony, the reimbursement component was attributable to   taxes paid to Beverly Hills, the City of Beverly Hills in   September of that year of $ 2,679. Withholding taxes or payroll   taxes the entity owed that I paid on October 1st of that year,   1990, of $ 12,000 and it contemplated me paying state   unemployment tax -- state employment taxes of $ 7,000 on December   31st, 1990, which was subsequent to the payment that was made on   December 19th, 1990.     You have checks that I paid all those three amounts. That's   all I wish to say about that.     And I believe that the total amount was an advance, aside   from the $ 6,500 fee, and that these other2001 Tax Ct. Memo LEXIS 240">*303  amounts were just paid   as a flow-through.As we understand it, petitioner claims that the second payment that he received from Dr. Strom in the amount of $ 26,700 consisted of an annual fee of $ 6,500 and the reimbursement of three payments that petitioner allegedly made on behalf of Dr. Strom in the aggregate amount of $ 21,679.75 (viz, $ 2,679.75, $ 12,000, and $ 7,000). One problem we have with petitioners's testimony is that the total of the fees and reimbursements is $ 28,179.75, or $ 1,479.75 more than Dr. Strom's check of $ 26,700. Another problem we have with petitioner's testimony is that he does not explain why, in preparing the check for Dr. Strom's signature, to reimburse himself for payments made on Dr. Strom's behalf, petitioner included the $ 7,000 payment to the Employment Development Department that would be due on December 31, 1990, several days later. We do not understand why petitioner did not simply prepare a check for this upcoming payment directly from Dr. Strom to the Employment Development Department.Petitioner contends that the payments made on Dr. Strom's behalf in 1990 are deductible because petitioner received reimbursement for those payments2001 Tax Ct. Memo LEXIS 240">*304  from Dr. Strom, and petitioner included the reimbursements in computing gross income for that year. Petitioner states in his posttrial brief that he included fees of $ 28,560, from Dr. Strom as gross receipts on Schedule C of his 1990 return. As mentioned above, petitioner produced a handwritten list of the names of his clients and the amounts that petitioner allegedly received from these clients in 1990. According to the handwritten list, petitioner included $ 28,560 from Dr. Strom in the calculation of his gross receipts for that year.We find that the evidence petitioner adduced is insufficient to establish that amounts reimbursed by Dr. Strom were included in the computation of petitioner's gross receipts for 1990. According to the handwritten list, petitioner's gross receipts for 1990, $ 185,966, does not equal the gross receipts reported on Schedule C of petitioner's 1990 return, $ 175,790. Petitioner has failed to adequately explain this inconsistency. Furthermore, the handwritten list of fees introduced at trial is not supported by any other evidence, such as books, receipts, or other documentation.In addition, petitioner's testimony regarding the fees of $ 28,560 received2001 Tax Ct. Memo LEXIS 240">*305  from Dr. Strom in 1990 and allegedly included in his gross receipts for that year is confusing. At trial, petitioner testified that Dr. Strom's fees of $ 28,560 consisted of a $ 26,200 payment and "other checks representing $ 2,300". In his opening brief, however, petitioner contends that the $ 28,560 payment comprised a $ 960 payment and a $ 27,600 payment. Subsequently, in his answering brief, petitioner contends that the $ 28,560 payment comprised a $ 26,700 payment, consistent with the amount listed on the copy of the check stub introduced at trial, and a $ 1,860 payment.Furthermore, petitioner maintained a multifaceted business relationship with Dr. Strom. Petitioner's returns report wages from Dr. Strom's professional corporation totaling $ 24,252 in 1989 and $ 18,409 in 1990. Dr. Strom was also a client of petitioner's Schedule C business and, in that connection, petitioner claims to have made a direct payment to Dr. Strom of $ 930 because Dr. Strom "didn't feel the investments performed as well as expected". Dr. Strom was also an investor in one or more of the partnerships petitioner promoted. In view of these relationships, petitioners's testimony is too vague to substantiate2001 Tax Ct. Memo LEXIS 240">*306  the offset or deductions he claimed for 1990 in the aggregate amount of $ 21,679.75. In this connection, we also note the fact that petitioner did not produce to respondent the retainer agreement between himself and Dr. Strom or seek to introduce the agreement at trial.As a result of the inconsistent and insufficient evidence he presented, petitioner has failed to establish that he is entitled to a deduction for the payments, totaling $ 21,679.75, that he made on behalf of Dr. Strom. We hereby sustain respondent on this issue.On the basis of the foregoing, and concessions,Decision will be entered under Rule 155.