Court Opinion

ID: 9910908
Source: CourtListenerOpinion
Date Created: 2023-12-18 20:01:37.985177+00
Date Added: 2024-06-11T12:55:00.061202
License: Public Domain

United States Tax Court

                         T.C. Summary Opinion 2023-35

                              SEAN PAUL POLETE,
                                   Petitioner

                                            v.

               COMMISSIONER OF INTERNAL REVENUE,
                           Respondent

                                       —————

Docket No. 13479-20S.                                      Filed December 18, 2023.

                                       —————

Sean Paul Polete, pro se.

Joseph D. Boteler, Marc L. Caine, and Louis H. Hill, for respondent.

                               SUMMARY OPINION

       LEYDEN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 1 of the Internal Revenue Code in effect
when the Petition was filed. Pursuant to section 7463(b), the decision
to be entered is not reviewable by any other court, and this Opinion shall
not be treated as precedent for any other case.

      Petitioner failed to file his 2017 federal income tax return, so the
Internal Revenue Service (IRS) 2 prepared a substitute for return in
accordance with section 6020(b). Subsequently, the IRS issued a notice

        1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C. (I.R.C.), in effect at all relevant times, regulation references are
to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times,
and Rule references are to the Tax Court Rules of Practice and Procedure.
        2 The Court uses the term “IRS” to refer to administrative actions taken outside

of these proceedings. The Court uses the term “respondent” to refer to the
Commissioner of Internal Revenue, who is the head of the IRS and is respondent in
this case, and to refer to actions taken in connection with this case.

                                   Served 12/18/23
                                          2

of deficiency to petitioner and determined an income tax deficiency of
$34,273 and additions to tax under sections 6651(a)(1) and (2) and 6654
of $6,575.17, $5,114.02, and $686.15, respectively. Petitioner timely
filed a Petition with this Court contesting the notice of deficiency. After
filing the Petition, petitioner asserted that he was entitled to various
deductions, as discussed below.

      Both before and during trial, respondent and petitioner made
concessions, listed in the table below relating to petitioner’s 2017 tax
year.

                   Item                                      Concession
 Section 6651(a)(2) addition to tax           Petitioner is not liable for this addition
                                              to tax
 Section 6654 addition to tax                 Petitioner is not liable for this addition
                                              to tax
 Head of Household filing status              Petitioner is entitled to Head of
                                              Household filing status
 Personal exemptions                          Petitioner is entitled to three personal
                                              exemptions
 Wage income                                  $59,510
 Taxable retirement distributions             $52,433
 Interest                                     $14
 Capital gain                                 $3,417
 Donations (to Goodwill)                      $90
 Withholdings                                 $5,050
 Estimated tax payments                       $0
 Surplus & Adventure gross receipts           $10,404
 Surplus & Adventure cost of goods sold       $7,595
 Fibre Arts gross receipts                    $3,238
 Fibre Arts cost of goods sold                $7,595
 STEAM Works gross receipts                   $0
 Maryland rental property net rental          $18,948.50
 income
 Maryland rental property real estate         $2,887.33
 taxes
 Maryland rental property mortgage            $8,917.28
 interest
                                       3

 Maryland rental property hazard           $845.48
 insurance
 Oakwood residence                         Petitioner utilized this property as a
                                           personal residence in 2017
 Oakwood residence real estate taxes       $13,560.03 (petitioner was the sole
                                           payor/borrower)
 Oakwood residence mortgage interest       $9,264.48 (petitioner was the sole
                                           payor/borrower)
 Beavercreek rental income                 $7,437.35
 Beavercreek expenses                      $1,199.36
 Alimony                                   $3,000

       After concessions, the remaining issues for the Court to decide are
whether for 2017 petitioner is (1) entitled to deduct asserted expenses
relating to three alleged businesses; (2) entitled to deduct asserted
expenses related to two real estate properties; and (3) liable for an
addition to tax for failure to timely file his tax return under section
6651(a).

       The Court holds that petitioner is entitled to deduct some of his
asserted expenses, as discussed below, and petitioner is liable for an
addition to tax for failure to timely file.

                                   Background

       Some of the facts have been stipulated and are so found. The First
Stipulation of Facts and the accompanying Exhibits 1-J, and 3-J through
14-J are incorporated herein by this reference. The Second Stipulation
of Facts and the accompanying Exhibit 15-J are also incorporated herein
by this reference.

      Respondent also filed Exhibit 2-R with the First Stipulation of
Facts. At trial petitioner objected to the admission of Exhibit 2-R into
evidence. The Court overruled petitioner’s objection and admitted
Exhibit 2-R.

      Before the trial petitioner filed Proposed Trial Exhibits 1001-P
through 1018-P. At trial the Court admitted Proposed Trial Exhibits
1006-P, 1009-P, 1013-P, and 1015-P renumbered as Exhibits 16-P, 17-P,
18-P, and 19-P, respectively. The Court did not admit the remaining
Proposed Trial Exhibits.
                                            4

      Petitioner resided in Ohio when he filed the Petition. Petitioner
and his spouse separated in May 2017 and thereafter maintained
separate households. 3

I.      Section 6020(b) Return

       On April 15, 2018, petitioner filed for and received an extension
of time to file his 2017 federal income tax return by October 15, 2018.
However, petitioner did not file his 2017 tax return by the extended due
date. After the extended filing deadline had passed, the IRS prepared a
substitute for return for petitioner’s 2017 tax year pursuant to section
6020(b).

II.     Notice of Deficiency

       On November 16, 2020, the IRS issued petitioner a notice of
deficiency proposing for 2017 a deficiency of $34,273 and additions to
tax under sections 6651(a)(1) and (2) and 6654 of $6,575.17, $5,114.02,
and $686.15, respectively.

       In the notice of deficiency respondent determined that in 2017
petitioner received $158,209 in income. With respect to petitioner’s tax
and credits the IRS calculated petitioner’s tax owed by (1) allowing a
standard deduction of $6,350 and one personal exemption of $3,888 and
(2) proposing a tax of $660 on individual retirement accounts (IRAs),
other retirement plans, and medical savings accounts (MSAs). 4

       After the IRS issued the notice of deficiency, petitioner mailed to
the IRS a proposed 2017 Form 1040, U.S. Individual Income Tax Return.
The IRS did not accept or process that proposed tax return. At trial
petitioner asserted he was entitled to deductions for various expenses.

III.    Petitioner’s Activities

     During 2017 petitioner operated three activities: (1) Surplus,
Adventure, & Survival Gear (Surplus & Adventure), (2) Fibre Arts

        3 The notice of deficiency at issue was addressed only to petitioner.  Petitioner’s
wife did not sign the Petition filed by petitioner and is not a party to this case.
        4 Some of the items in the notice of deficiency have been conceded. The parties

stipulated the amount of unreported retirement income, and the $660 tax on IRAs,
other retirement plans, and MSAs proposed in the notice of deficiency is purely
computational.
                                     5

Enterprises (Fibre Arts), and (3) STEAM Works Labs, LLC (STEAM
Works).

      A.     Surplus & Adventure

       Petitioner operated Surplus & Adventure as a business that
purchased and resold outdoor gear and equipment. In addition to the
stipulated 2017 gross receipts and cost of goods sold for this business,
petitioner paid advertising/marketing expenses of $1,092.37, PayPal
fees of $1,077.77, a Penske truck rental expense of $80.19, and shipping
fees from FedEx and the U.S. Postal Service (USPS) of $229.94.

      B.     Fibre Arts

       Petitioner operated Fibre Arts as a business that sold
embroidered articles online. In addition to the stipulated 2017 gross
receipts for this business, petitioner paid Etsy selling fees of $202.90 and
Ohio business filing fees of $145.15.

      C.     STEAM Works

       Beginning in 2016 petitioner conducted STEAM Works, an
activity which maintained a workshop where students could use the
space and equipment such as 3–D printers without charge. Petitioner
had planned to sell memberships that would allow only members to use
the workshop and the 3–D printers, but he never sold such
memberships. STEAM Works did not have any gross receipts in 2017.

IV.   Petitioner’s Real Estate Properties

      During 2017 petitioner and his wife jointly owned two real estate
properties. The first was in Beavercreek, Ohio (Beavercreek property),
and the second was in Lexington Park, Maryland (Maryland property).

      A.     Beavercreek Property

       During 2017 petitioner and his wife jointly paid real estate taxes
and mortgage interest of $4,715.32 and $5,490.90, respectively, for the
Beavercreek property. Petitioner and his wife hired a property
management company for the Beavercreek property that issued in both
of their names a 2017 Form 1098, Mortgage Interest Statement.
Because petitioner stipulated that he and his wife both paid the real
estate taxes and mortgage interest, the Court finds that petitioner paid
                                    6

one half of the real estate taxes and mortgage interest. There is not
anything in the record that suggests a different allocation.

      In 2017 petitioner rented out the Beavercreek property for five
months out of the year. Petitioner either did not rent out the
Beavercreek property or lived in it as his personal residence for the other
seven months of the year.

     Only petitioner received the conceded rental income from the
Beavercreek property.

       The property management company also prepared and sent
petitioner an owner activity statement listing the 2017 expenses,
totaling $1,199.36. The parties have stipulated that petitioner paid
those expenses.

      B.     Maryland Property

       During 2017 petitioner and his wife jointly paid real estate taxes
and mortgage interest of $2,887.33 and $8,917.28, respectively, for the
Maryland property. Petitioner and his wife received a 2017 Form 1098
issued in both of their names. Because petitioner stipulated that he and
his wife both paid the real estate taxes and mortgage interest, the Court
finds that petitioner paid one half of the real estate taxes and mortgage
interest. There is not anything in the record that suggests a different
allocation.

      Petitioner contracted with a property management company with
respect to the Maryland property. The company provided petitioner a
2017 Form 1099–MISC, Miscellaneous Income, that reported gross
income of $21,000 paid to petitioner during that year.

      The property management company also provided petitioner with
a yearend statement that listed for the Maryland property rental income
minus expenses of $18,948.50. On the basis of the parties’ stipulations
the Court finds that petitioner paid the Maryland property expenses of
$2,051.50.

                               Discussion

I.    Burden of Proof

       Generally, the Commissioner’s determination set forth in a notice
of deficiency is presumed correct, and a taxpayer bears the burden of
                                   7

proving that the determination is in error. Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933). Deductions are a matter of
legislative grace, and a taxpayer bears the burden of proving that he is
entitled to any deduction claimed. See Rule 142(a); INDOPCO, Inc. v.
Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering,
292 U.S. 435, 440 (1934). A taxpayer must maintain adequate records
to substantiate the amounts of their income and entitlement to any
deductions or credits claimed. I.R.C. § 6001. Under section 7491(a), the
burden of proof may shift to the Commissioner if a taxpayer produces
credible evidence with respect to any relevant factual issue and meets
other requirements. Petitioner has neither argued that section 7491(a)
applies nor established that its requirements have been met. The
burden of proof remains with petitioner.

       Respondent contends that petitioner has failed to carry his
burden of proof with respect to the alleged deductions, as well as the
section 6651(a)(1) addition to tax. Petitioner asserts that he did carry
his burden of proof with respect to the disputed deductions and the
section 6651(a)(1) addition to tax.

II.   General Rules for Deductions

      Generally, a taxpayer may deduct ordinary and necessary
expenses paid or incurred during the taxable year in connection with
operating a trade or business. I.R.C. § 162(a); Boyd v. Commissioner,
122 T.C. 305, 313 (2004).

       To be ordinary the expense must be of a common or frequent
occurrence in the type of business involved. Deputy v. Du Pont, 308 U.S.
488, 495 (1940). To qualify as necessary an expense must be appropriate
and helpful to the taxpayer’s business. Welch v. Helvering, 290 U.S.
at 113. It must be “directly connected with or pertaining to the
taxpayer’s trade or business.” Treas. Reg. § 1.162-1(a). However, if an
expense is a personal, living, or family expense, it may not be deducted.
I.R.C. § 262(a).

      When a taxpayer claims a deduction related to operating a trade
or business, he must demonstrate that the deduction is allowable
pursuant to some statutory provision, and he must further substantiate
that the expense to which the deduction relates has been paid or
incurred. See I.R.C. § 6001; Hradesky v. Commissioner, 65 T.C. 87,
89–90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo
v. Commissioner, 43 T.C. 824, 831–32 (1965); Treas. Reg. § 1.6001-1(a).
                                   8

       If a taxpayer incurs a trade or business expense contemplated by
section 162(a) but is unable to adequately substantiate the amount, the
Court may estimate the amount and allow a deduction to that extent.
Cohan v. Commissioner, 39 F.2d 540, 543–44 (2d Cir. 1930). However,
there must be some basis upon which an estimate may be made. Vanicek
v. Commissioner, 85 T.C. 731, 742–43 (1985).

      For certain expenses, section 274(d) overrides the Cohan doctrine.
Sanford v. Commissioner, 50 T.C. 823, 827 (1968), aff’d per curiam, 412
F.2d 201 (2d Cir. 1969); Temp. Treas. Reg. § 1.274-5T(a).

       Deductions for expenses with respect to the use of passenger
automobiles, if otherwise allowable, are subject to strict substantiation
rules. See I.R.C. §§ 274(d), 280F(d)(4); Sanford, 50 T.C. at 827; Temp.
Treas. Reg. § 1.274-5T(a).        For expenses relating to passenger
automobiles, a taxpayer must substantiate with adequate records or by
sufficient evidence corroborating the taxpayer’s own statement: (1) the
amount of each separate expense; (2) the mileage for each business use
of the passenger automobile and the total mileage for all purposes
during the taxable period; (3) the date of the business use; and (4) the
business purpose of the use. See Temp. Treas. Reg. § 1.274-5T(b)(6).
Substantiation by adequate records generally requires a taxpayer to
“maintain an account book, diary, log, statement of expense, trip sheets,
or similar record” prepared contemporaneously with the use of the
passenger automobile as well as documentary evidence of the individual,
actual expenses. Id. para (c)(2).

       In the absence of adequate records, a taxpayer may substantiate
passenger automobile expenses with sufficiently detailed written or oral
statements and other collateral evidence establishing that the expenses
were incurred. Dyer v. Commissioner, T.C. Memo. 2012-224, at *22; see
Temp. Treas. Reg. § 1.274-5T(c)(3). While a noncontemporaneous log
may be used to substantiate these kinds of expenses, “the corroborative
evidence required to support a statement not made at or near the time
of the expenditure or use must have a high degree of probative value to
elevate such statement and evidence to the level of credibility reflected
by a record made at or near the time of the expenditure or use supported
by sufficient documentary evidence.” Temp. Treas. Reg. § 1.274-
5T(c)(1).

      Deductions for meals and entertainment expenses are also
subject to strict substantiation rules. With respect to deductions for
these types of expenses, section 274(d) requires that the taxpayer
                                    9

substantiate either by adequate records or by sufficient evidence
corroborating the taxpayer’s own statement: (1) the amount of the
expense; (2) the time and place the expense was incurred; (3) the
business purpose of the expense; and (4) in the case of an entertainment
expense, the business relationship to the taxpayer of each person
entertained. Temp. Treas. Reg. § 1.274-5T(a) and (b).

       Section 167(a) allows as a depreciation deduction a reasonable
allowance for exhaustion, wear and tear, and obsolescence of property if
a taxpayer uses that property in a trade or business or other income-
producing activity. See also Treas. Reg. § 1.167(a)-1(a). To substantiate
such a deduction, “[a] taxpayer must show that the property was used
in a trade or business (or other profit-oriented activity). In addition, a
taxpayer must establish the property’s depreciable basis, by showing the
cost of the property, its useful life, and the previously allowable
depreciation.” Cluck v. Commissioner, 105 T.C. 324, 337 (1995). A
depreciation schedule alone is insufficient to substantiate the deduction.
See Holden v. Commissioner, T.C. Memo. 2015-131, at *65–66.

III.   Petitioner’s Businesses

      During 2017 petitioner operated Surplus & Adventure and Fibre
Arts as businesses, and he asserts he is entitled to deduct various
expenses.

       A.    Surplus & Adventure

       Petitioner asserts that during 2017 he incurred ordinary and
necessary expenses operating Surplus & Adventure. Petitioner testified
and the record includes documentary evidence that supports he is
entitled     to    deduct    the     following     asserted     expenses:
(1) advertising/marketing expenses of $1,092.37, (2) PayPal fees of
$1,077.77, (3) a Penske truck rental of $80.19, and (4) shipping fees from
FedEx and USPS of $229.94.

     As discussed below, petitioner is not entitled to deduct the
remaining asserted Surplus & Adventure expenses or depreciation.

             1.     Car and Truck Expenses

      Although petitioner did provide some noncontemporaneous
records and credible testimony about his asserted car and truck
expenses, the records and testimony do not meet the statutory strict
substantiation requirements discussed above.     He did not keep
                                   10

contemporaneous records of the amounts of each separate expense, but
rather noncontemporaneous estimates of mileage driven for his
business. Further, those records did not include the required date or
business purpose of the miles driven. Therefore, petitioner has not met
his burden of proof that he is entitled to deduct the asserted car and
truck expenses for this business.

             2.    Depreciation

       To prove he is entitled to the asserted depreciation deduction for
this business petitioner must show that the property was used in the
business and establish the property’s depreciable basis, its useful life,
and the previously allowable depreciation. Although petitioner testified
that he was eligible to claim a depreciation deduction with respect to
unidentified assets of Surplus & Adventure, he did not prove the
properties’ depreciable bases, their useful lives, and the previously
allowable depreciation deductions for any assets. Therefore, petitioner
is not entitled to his asserted depreciation deduction.

      B.     Fibre Arts

      Petitioner asserts that during 2017 he incurred ordinary and
necessary expenses operating Fibre Arts. Petitioner testified and the
record includes documentary evidence that supports he is entitled to
deduct the following asserted expenses: (1) Etsy selling fees of $202.90
and (2) Ohio business filing fees of $145.15.

     As discussed below, petitioner is not entitled to deduct the
remaining asserted Fibre Arts expenses or depreciation.

             1.    Car and Truck Expenses

       As discussed above, car and truck expenses are subject to
statutory strict substantiation rules. Petitioner’s records and testimony
do not provide the Court with sufficient evidence of the dates and
business purposes of petitioner’s asserted expenses. Petitioner kept only
a noncontemporaneous summary log of his estimated miles driven for
this business. As the Court concluded above, this type of record does not
meet the strict substantiation requirements necessary for car and truck
expenses. Therefore, petitioner did not meet his burden of proof that he
is entitled to deduct the asserted car and truck expenses for this
business.
                                    11

             2.     Depreciation

       To prove he is entitled to the asserted depreciation deduction for
this business petitioner must show that the property was used in the
business and establish the property’s depreciable basis, its useful life,
and the previously allowable depreciation. Although petitioner testified
that he was eligible to claim a depreciation deduction with respect to
two embroidery machines, a generator, and a trailer used for Fibre Arts,
he did not prove the properties’ depreciable bases, their useful lives, and
the previously allowable depreciation deductions for any assets.
Therefore, petitioner is not entitled to his asserted depreciation
deductions.

IV.   STEAM Works

       A taxpayer is generally allowed to deduct business expenses. See
I.R.C. §§ 162, 212. However, a taxpayer may not deduct expenses
incurred in connection with activities not engaged in for profit, such as
activities primarily carried on as a sport, a hobby, or for recreation,
except to the extent provided by section 183(b). See I.R.C. § 183(a);
Treas. Reg. § 1.183-2(a). Section 183(b) allows a taxpayer to deduct
expenses that would have been allowable had the activity been engaged
in for profit, but only to the extent of gross income derived from the
activity.

      A.     STEAM Works Operated as a Hobby

       Section 183(c) defines an activity not engaged in for profit as “any
activity other than one with respect to which deductions are allowable
for the taxable year under section 162 or under paragraph (1) or (2) of
section 212.” Deductions are allowable under section 162 or under
section 212(1) or (2) if a taxpayer shows that he is engaged in the activity
with the primary objective of making a profit. Hayden v. Commissioner,
889 F.2d 1548, 1552 (6th Cir. 1989), aff’g T.C. Memo. 1998-310. The
expectation of a profit need not be reasonable, but the taxpayer must
conduct the activity with the actual and honest objective of making a
profit. Keating v. Commissioner, 544 F.3d 900, 904 (8th Cir. 2008), aff’g
T.C. Memo. 2007-309. Greater weight is given to objective facts than to
the taxpayer’s self-serving statement of intent. King v. Commissioner,
116 T.C. 198, 205 (2001); Treas. Reg. § 1.183-2(a) and (b).

      To determine whether the required profit objective exists, the
Court must look to the surrounding facts and circumstances. See
Golanty v. Commissioner, 72 T.C. 411, 425–26 (1979), aff’d without
                                    12

published opinion, 647 F.2d 170 (9th Cir. 1981). The regulations set
forth a nonexhaustive list of factors that may be considered in deciding
whether a profit objective exists. These factors are (1) the manner in
which the taxpayer carries on the activity; (2) the expertise of the
taxpayer or his advisers; (3) the time and effort expended by the
taxpayer in carrying on the activity; (4) the expectation that assets used
in the activity may appreciate in value; (5) the taxpayer’s success in
carrying on other similar or dissimilar activities; (6) the taxpayer’s
history of income or losses with respect to the activity; (7) the amount of
occasional profits, if any, which are earned; (8) the financial status of
the taxpayer; and (9) any elements indicating personal pleasure or
recreation. Treas. Reg. § 1.183-2(b). No single factor, or even the
existence of a majority of factors supporting or rebutting the existence
of a profit objective, is controlling. Id. Rather, all facts and
circumstances with respect to the activity are to be taken into account.
Golanty, 72 T.C. at 426; Treas. Reg. § 1.183-2(b).

      Considering all the facts and circumstances, the Court concludes
that petitioner did not conduct STEAM Works in a businesslike manner
and did not engage in the activity with the requisite profit objective
during tax year 2017. Rather, STEAM Works was operated as a hobby.

      B.     Not Any Deductible Losses

       If an activity is not engaged in for profit, section 183(b)(1) allows
deductions that would be allowable without regard to whether the
activity is engaged in for profit. Section 183(b)(2) allows deductions
equal to the amounts of deductions that would be allowable if the
activity were engaged in for profit, but only to the extent gross income
derived from the activity exceeds the deductions allowed by reason of
section 183(b)(1).

      However, because petitioner did not have any gross income from
STEAM Works in 2017, he is not entitled to deduct any of the asserted
expenses related to this hobby.

V.    Petitioner’s Real Estate Properties

      Under section 212, ordinary and necessary expenses paid or
incurred to manage or maintain property held to produce income are
deductible.
                                         13

       A.      Beavercreek Property

       At trial respondent conceded that petitioner rented out the
Beavercreek property as a business for five months of 2017. 5 Petitioner
either did not rent it out or lived in it as his personal residence for seven
months in 2017. The parties agree that petitioner and his wife jointly
owned the Beavercreek property during 2017 and that each paid half of
the associated real estate taxes and mortgage interest. However, the
parties further agree that petitioner received the rental income and paid
the expenses detailed in the owner activity statement provided by the
property management company.

       Therefore, for the Beavercreek property petitioner may deduct
five-twelfths of his half of the mortgage interest and real estate taxes he
paid under sections 162(a) and 212(2), and may deduct the remaining
seven-twelfths as itemized deductions under sections 163(h) and 164(a),
respectively.

       Further, as to petitioner’s expenses enumerated in the owner
activity statement and conceded by respondent, petitioner may deduct
five-twelfths under sections 162(a) and 212(2). The remaining seven-
twelfths of those expenses are personal expenses and are not deductible.

               1.      Car and Truck Expenses

       In support of his purported car and truck expenses for the
Beavercreek property, petitioner provided a summary “Auto & Travel
Log” with estimated cost and miles traveled with respect to his various
rental properties. His records also included repair receipts for two
vehicles. However, as discussed above, car and truck expenses are held
to strict substantiation rules, which petitioner did not meet. His
evidence of mileage traveled consists of a combined summary for his
businesses and rental properties and does not include the required dates
and business purpose of his asserted car and truck traveling expenses.
For these reasons, petitioner has not met his burden of proof that he is
entitled to deduct his asserted car and truck expenses with respect to
the Beavercreek property for the five months it was rented.

       5 Neither party has asserted that section 280A is applicable to the Beavercreek
property, and the record does not support applying it.
                                    14

             2.     Meals Expenses

       As with car and truck expenses, section 274(d) imposes stricter
substantiation for deductions claimed for other travel expenses,
including meals and entertainment expenses. Such deductions are not
allowed unless a taxpayer substantiates by adequate records, or by
sufficient evidence corroborating his own statement, the amount, time,
place, and business purpose for each expenditure. See I.R.C. § 274(d)
(flush text).

       The evidence provided to substantiate petitioner’s asserted meals
expenses consists of a spreadsheet with the headings “Groceries” and
“Restaurants” under which petitioner included dates, property location
(Beavercreek), and a designation of “lunch” or the name of a grocery
store or restaurant. He also referenced bank statements and credit card
records, but none of his records included a referenced business purpose
for his asserted meals expenses. See Treas. Reg. § 1.274-5(j) (detailing
the substantiation requirements for meals allowances). Thus, petitioner
has not met his burden of proof and is not entitled to his asserted meals
expenses with respect to the Beavercreek property.

             3.     Depreciation

      Petitioner testified that he should be entitled to a depreciation
deduction “[i]n the range of $3,000” but did not provide the property’s
depreciable basis, its useful life, or the amount of any previous allowable
depreciation. Therefore, petitioner is not entitled to his asserted
depreciation deduction for the Beavercreek property.

      B.     Maryland Property

        The parties agree that the Maryland property was rented during
all of 2017 and was also jointly owned by petitioner and his wife. The
parties also agree that petitioner and his wife each paid half of the
associated real estate taxes and mortgage interest for the property.
Accordingly, petitioner may deduct one half of the total real estate taxes
and mortgage interest under sections 162(a) and 212(2). The parties
further agree that petitioner received the rental income and paid the
expenses detailed in the yearend statement provided by the property
management company. Further, the parties agree that petitioner paid
hazard insurance for the Maryland property of $845.48. Thus,
petitioner may deduct those expenses totaling $2,896.98 under sections
162(a) and 212(2).
                                     15

             1.     Car and Truck Expenses

       Petitioner testified that he drove one of his vehicles for business
purposes for several of his businesses and for the Maryland property.
He also submitted receipts for repairs to the vehicle and a spreadsheet
with estimated mileage driven for his various business activities.
Petitioner did not keep contemporaneous records of the amount of each
separate expense, but rather noncontemporaneous estimates of mileage
driven for his business. Further, those records did not include the
required date or business purpose of the miles driven. For these
reasons, petitioner has not met his burden of proving that he is entitled
to deduct his asserted car and truck expenses with respect to the
Maryland property.

             2.     Meals Expenses

       Petitioner’s evidence provided to substantiate his asserted meals
expenses with respect to the Maryland property consisted of a
spreadsheet with the headings “Groceries” and “Restaurants” under
which petitioner included dates, property location (Maryland property),
and a designation of “lunch” or the name of a grocery store or restaurant.
Petitioner also included bank and credit card statements to substantiate
his expenses in this category. However, as with his Beavercreek records,
petitioner’s records did not include a business purpose for his asserted
meals expenses. Thus, petitioner has not met his burden of proving that
he is entitled to deduct his asserted meals expenses with respect to the
Maryland property.

             3.     Depreciation

       Petitioner testified that he should be entitled to depreciation
deductions on the house and on a fence on the property but did not
provide the property’s depreciable basis, its useful life, or the amount of
any previous allowable depreciation. Therefore, petitioner is not
entitled to his asserted depreciation deductions for the Maryland
property.

VI.   Failure to File Addition to Tax Under Section 6651(a)(1)

       Section 6651(a)(1) imposes an addition to tax for a taxpayer’s
failure to file a required tax return on or before the specified filing date,
including extensions. The addition equals 5% of the net amount due for
each month that the tax return is late, not to exceed 25%. The
Commissioner has the burden of production with respect to any addition
                                     16

to tax. I.R.C. § 7491(c). The Commissioner satisfies his burden of
production for an addition to tax for failure to timely file by providing
sufficient evidence to show that the taxpayer filed his or her tax return
late. Wheeler v. Commissioner, 127 T.C. 200, 207–08 (2006), aff’d, 521
F.3d 1289 (10th Cir. 2008); Higbee v. Commissioner, 116 T.C. 438, 447
(2001). A substitute for return prepared by the IRS is not considered a
return filed by a taxpayer for purposes of section 6651(a)(1). I.R.C.
§ 6651(g)(1).

       The record establishes that petitioner’s 2017 federal income tax
return, after he received an extension, was required to be filed by
October 15, 2018, and petitioner did not file his return by that date. The
IRS prepared a return for petitioner’s 2017 tax year, which does not
qualify as a return filed by petitioner for the purposes of the failure to
timely file a tax return addition to tax pursuant to section 6651(g)(1).
Therefore, respondent has met his burden of production with respect to
the addition to tax under section 6651(a)(1) for failure to timely file a
tax return for tax year 2017.

        A taxpayer is not liable for an addition to tax for failure to timely
file a return if he shows the untimeliness was due to reasonable cause
and not due to willful neglect. I.R.C. § 6651(a)(1); Higbee, 116 T.C. at
447. “If the taxpayer exercised ordinary business care and prudence and
was nevertheless unable to file the return within the prescribed time,
then the delay is due to a reasonable cause.” Treas. Reg. § 301.6651-
1(c)(1). The taxpayer can show that he did not act with “willful neglect”
if he can “prove that the late filing did not result from a ‘conscious,
intentional failure or reckless indifference.’”           Niedringhaus v.
Commissioner, 99 T.C. 202, 221 (1992) (quoting United States v. Boyle,
469 U.S. 241, 245–46 (1985)). The burden of showing reasonable cause
under section 6651(a)(1) remains with petitioner. See Higbee, 116 T.C.
at 446–48.

        Petitioner has not claimed nor proven that he qualifies for an
exception to the addition to tax for failure to timely file a return. He
does not claim that he filed his return timely. Petitioner argues instead
that he does not owe any deficiency for 2017, and, thus, he is not liable
for the late filing addition to tax. Petitioner has not shown reasonable
cause for failing to timely file his 2017 tax return. Therefore, petitioner
is liable for the section 6651(a)(1) addition to tax for 2017 to the extent
that after Rule 155 computations there is a determined deficiency.
                                   17

       The Court has considered all of the parties’ arguments, and, to
the extent not addressed above, concludes that they are moot, irrelevant,
or without merit.

      To reflect the foregoing,

      Decision will be entered under Rule 155.