Court Opinion

ID: 9950317
Source: CourtListenerOpinion
Date Created: 2024-03-13 19:03:18.580587+00
Date Added: 2024-06-11T14:36:36.287585
License: Public Domain

United States Tax Court

                                 T.C. Memo. 2024-29

                            ANTHONY AULISIO, JR.,
                                 Petitioner

                                            v.

               COMMISSIONER OF INTERNAL REVENUE,
                           Respondent

                                       —————

Docket No. 13943-18.                                           Filed March 13, 2024.

                                       —————

Anthony Aulisio, Jr., pro se.

Jillian S. LeMaster-Dwyer, Brian P. Beddingfield, Sarah C. Nadel, and
Hans Famularo, for respondent.

         MEMORANDUM FINDINGS OF FACT AND OPINION

      MARSHALL, Judge: In a notice of deficiency dated April 9, 2018,
respondent determined a deficiency of $14,878 and a section 6662(a)1
accuracy-related penalty of $2,976 for petitioner’s 2015 tax year. On
July 16, 2018, petitioner timely filed his Petition for redetermination. 2
On October 25, 2019, respondent filed a Motion for Leave to File First
Amendment to Answer alleging that petitioner had additional income of
$101,413 based on the amount that petitioner reported on his Form
1040X, Amended U.S. Individual Income Tax Return, for the 2015 tax

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

Code, Title 26 U.S.C. (Code), 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. Except
where otherwise indicated, monetary amounts are rounded to the nearest dollar.
        2 The Petition bears a U.S. postmark of July 9, 2018. See § 7502(a).

                                   Served 03/13/24
                                           2

[*2] year (2015 Amended Return). The Court granted respondent’s
motion and filed respondent’s First Amendment to Answer.

        After concessions, the issues remaining for decision are whether
for the 2015 tax year petitioner (1) had $22,492 of unreported interest
income and $11,055 in gross receipts as reported on his 2015 Amended
Return Schedule C, Profit or Loss From Business, from his certified
public accountant (CPA) business (Schedule C–1); (2) is entitled to
deduct expenses of $44,950 associated with his CPA business; (3) is
entitled to deduct $80,000 of Schedule C expenses associated with a
leasing business (Schedule C–2); (4) is entitled to deduct a net operating
loss (NOL) of $437,141; (5) is entitled to deduct $28,336 of home
mortgage interest reported on Schedule A, Itemized Deductions; and
(6) is entitled to deduct $14,114 of other itemized deductions consisting
of property taxes on his primary and secondary residences and a
charitable contribution. 3

                              FINDINGS OF FACT

       Some of the facts have been stipulated and are so found. The
Stipulation of Facts and the accompanying Exhibits are incorporated
herein by reference. Petitioner resided in California when the Petition
was filed.

I.      2015 Return

       Petitioner is a CPA and attended law school. During the tax year
at issue petitioner operated a CPA business and a purported equipment
leasing business. On October 17, 2016, petitioner filed Form 1040, U.S.
Individual Income Tax Return, for the 2015 tax year (2015 Return). He
reported $10 of taxable income.

         3 Petitioner has conceded that he received $64,287 of unreported income as

determined in the notice of deficiency. Petitioner has also conceded $112,125 of the
$123,180 gross receipts related to his CPA business, and $1,250 in Schedule C–2 CAAJ
Leasing Trust gross receipts that were reported on his 2015 Amended Return, but not
$22,492 of interest income that was reported on the 2015 Amended Return.
Respondent has conceded the section 6662(a) accuracy-related penalty. Respondent
has also conceded that petitioner is entitled to deduct Schedule C–1 expenses of
$12,755 and Schedule A mortgage interest of $14,164 for the 2015 tax year.
Accordingly, the unreported income that remains in dispute is $11,055 in Schedule
C–1 gross receipts, and $22,492 of interest income. All amounts stated in the recitation
of the issues reflect reductions for the parties’ concessions described in this footnote.
                                         3

[*3] II.     2015 Amended Return

       On September 11, 2017, respondent’s Automated Underreporter
(AUR) program mailed petitioner a Letter CP2000, proposing changes
to his 2015 Return based on third-party reporting. Respondent’s AUR
program issued the notice of deficiency based on third-party reporting of
unreported income of $64,287.

       After receiving the Letter CP2000, petitioner signed the 2015
Amended Return under penalty of perjury and dated it October 23, 2017.
On October 25, 2017, petitioner submitted the 2015 Amended Return to
the local Internal Revenue Service (IRS) field office in Santa Ana,
California. The IRS did not process the 2015 Amended Return.

       On the 2015 Amended Return, Schedule C–1 was prepared with
respect to petitioner’s CPA business and Schedule C–2 related to
petitioner’s purported equipment leasing business. He reported income
of $165,700: $22,492 in taxable interest, $18,778 in Social Security
benefits, and $124,430 in Schedule C gross receipts. He also reported
$55,296 of deductible expenses on Schedule C–1 and $72,500 on
Schedule C–2. Petitioner also claimed an NOL carryover deduction of
$437,141.

      When petitioner’s 2015 Amended Return was prepared, the IRS
had already advised petitioner that it was proposing changes with
respect to petitioner’s 2015 tax year. In November 2018 an IRS tax
compliance officer requested documentation to substantiate petitioner’s
2015 Amended Return. Petitioner did not provide adequate
substantiation.

III.   Petitioner’s Trusts

       A.      HYEO/CAAJ Leasing Trust

       Petitioner is involved with different trusts that were referenced
throughout the testimony and the record in this case. Petitioner formed
the HYEO/CAAJ Leasing Trust (CAAJ Leasing Trust) to lease
equipment and, as he testified, to “live off of the rent of the equipment
and just kind of retire.” For 2013, 2014, and 2015, petitioner reported
activity from the CAAJ Leasing Trust on Schedules C of his tax returns. 4

      4 On the Schedules C that petitioner included with his tax returns he used the

name “HYEO Leasing” or “HYEO/CAAJ Leasing” to describe his leasing trust. For
                                          4

[*4] On his 2013 tax return, petitioner attached Schedule C–2 for CAAJ
Leasing Trust–Equipment Rental in North Carolina and a Schedule C
for CAAJ Leasing Trust–Equipment Rental (Schedule C–3) in
California. He also reported a $145,570 loss for a bankruptcy in North
Carolina attributable to the CAAJ Leasing Trust. On his 2014 tax return
petitioner attached Schedule C–2 for CAAJ Leasing Trust and again
reported a loss of $145,600 for a bankruptcy in North Carolina. On his
2015 Amended Return petitioner attached Schedule C–2 for CAAJ
Leasing Trust.

       In addition to using the CAAJ Leasing Trust to purportedly hold
and lease equipment, petitioner also used the CAAJ Leasing Trust with
respect to his nonequipment property. Robin Donatelli was the trustee
of the CAAJ Leasing Trust. Russell Singer was a real estate broker for
Adobe Oil Development Corp. (Adobe), the lender on petitioner’s
property in Laguna Beach, California (Laguna Beach Property).
Petitioner wanted the loan from Adobe with respect to the Laguna Beach
Property to be in the name of the CAAJ Leasing Trust; as a result,
Donatelli signed the loan as the obligor in her capacity as the trustee
and authorized signatory of the CAAJ Leasing Trust. Singer did not
request that Donatelli sign on the loan for the Laguna Beach Property.
Singer considered petitioner to be the borrower on the loan because
Singer looked to petitioner’s profession as a CPA and the fact that he
would reside at the property. Singer required petitioner to sign a
separate personal guaranty on the loan. Additionally, petitioner placed
other property under the CAAJ Leasing Trust.

       B.      Cooper Trust

       On his 2015 Amended Return, petitioner reported $22,492 in
taxable interest from the Cooper Trust. 5 He did not provide any records
relating to the Cooper Trust for the 2015 tax year. Donatelli also served
as the trustee of the Cooper Trust. The Cooper Trust was the trust of a
deceased childhood friend, Joan Cooper, and Cooper’s children were the
beneficiaries.

purposes of this Opinion we refer only to the CAAJ Leasing Trust, which performed
the activities that he attributed to either HYEO Leasing or HYEO/CAAJ Leasing on
his tax returns.
       5 On petitioner’s 2016, 2017, and 2018 tax returns, he reported interest income

from the Cooper Trust of $36,000, $42,500, and $42,500, respectively.
                                           5

[*5] The Cooper Trust did not file a tax return for the 2015, 2016, or
2017 tax year. The Cooper Trust was a grantor trust, and Cooper was
the grantor of the trust.

IV.     Unreported Income

       Petitioner has conceded most of the unreported income that was
at issue in this case. 6 The only amounts that remain in dispute are
respondent’s determinations that petitioner received $22,492 of interest
income from the Cooper Trust and an additional $11,055 in gross
receipts from his Schedule C–1 CPA business as reflected on his 2015
Amended Return.

      On Schedule B, Interest and Ordinary Dividends, of petitioner’s
2015 Amended Return, he reported $22,492 in taxable interest income
from Cooper Trust.

       On his 2015 Amended Return petitioner reported $123,180 in
gross receipts on Schedule C–1 for his CPA business and $1,250 in gross
receipts on Schedule C–2 for his purported leasing business. In his
Pretrial Memorandum and at trial petitioner argued that his gross
receipts for his Schedule C–1 CPA business were $112,125 and not
$123,180 as reported on the 2015 Amended Return. Thus, petitioner has
conceded $112,125 of gross receipts for his Schedule C–1 CPA business.
Accordingly, $11,055 in Schedule C–1 gross receipts remains in dispute.

V.      Schedule C–1 Business Expenses

      On the 2015 Amended Return petitioner reported Schedule C–1
business expenses of $55,296 as follows:

        6 Respondent’s notice of deficiency determined that petitioner failed to include

income reported on seven Forms 1099–MISC, Miscellaneous Income, totaling $48,326,
and $18,778 of Social Security benefits. At trial petitioner conceded that he failed to
report this income of $64,287 for tax year 2015 as determined in the notice of
deficiency. In respondent’s First Amendment to Answer he asserted an increased
deficiency of $123,180 based on the amounts that petitioner reported in his 2015
Amended Return Schedule C–1 gross receipts related to petitioner’s CPA business, and
$1,250 in Schedule C–2 CAAJ Leasing Trust gross receipts. At trial petitioner conceded
the $1,250 in Schedule C–2 CAAJ Leasing Trust gross receipts and $112,125 of the
$123,180 gross receipts for his Schedule C–1 CPA business. Accordingly, the only
unreported income that remains in dispute is $11,055 in Schedule C–1 gross receipts
and $22,492 of interest income from the Cooper Trust.
                                        6

[*6]                          Expense                Amount
             Car and Truck Expenses                  $19,329
             Interest Expense – Other                  2,155
             Office Expenses                           8,322
             Rent or Lease Other Business Property    10,400
             Supplies                                   846
             Travel – Meals                             182
             Other Expenses                           14,062
             Total                                   $55,296

      However, on October 28, 2019, petitioner submitted documents to
respondent to substantiate expenses associated with his Schedule C–1
business activity and asserted that he had $18,574 in Schedule C–1
business expenses.

      In his Pretrial Memorandum and at trial, petitioner asserted
modified amounts with respect to the identified expenses and conceded
he was entitled to deduct only $44,950 in Schedule C–1 business
expenses including an adjustment to income for self-employed health
insurance expense. The following table represents the modified
Schedule C–1 expenses that petitioner asserted along with respondent’s
subsequent concessions:

                  Expense         Amount Asserted Amount Allowed
       Car and Truck                        $2,990             $751
       Irvine Property Expenses             20,505               -0-
       Tax Program                           8,712             8,712
       Telephone                              720               720
       Internet                               480               480
       Bank Charges                           228               228
       Virtual Office                        1,140               -0-
       Fax                                    120               120
       Supplies                              1,136             1,136
       Maintenance                            123               123
                                        7

    [*7] Post Office                                 60                   60
    Computer Expense                               268                  269
    Software 7                                      -0-                 158
    Outside Services                             3,575                    -0-
    Continuing Education                           599                    -0-
    Health Insurance                             4,294                1,259
    Total                                     $44,950              $14,016

       A.     Car and Truck Expenses

      On his 2015 Amended Return petitioner reported $19,329 in car
and truck expenses. This amount was based on petitioner’s assertion
that he drove 33,615 miles for the 2015 tax year for his Schedule C–1
CPA business and the standard mileage rate of $0.575. In his October
28, 2019, submission to respondent to substantiate expenses, petitioner
changed the mileage that he asserted driving for his Schedule C–1 CPA
business to 1,306 miles. Respondent allowed the 1,306 miles at the
standard mileage rate of $0.575 for the 2015 tax year, resulting in a
deduction of $751.

       At trial petitioner changed the mileage amount from his October
28, 2019 submission to respondent, and asserted that he drove 5,200
miles for his Schedule C–1 business. During the 2015 tax year petitioner
kept a calendar where he wrote down the names and addresses of people
he visited. All of the names and addresses were of clients of his Schedule
C–1 CPA business. Subsequently, he reviewed the calendar and
determined the mileage.

       B.     Expenses Related to the Irvine Property

       In his Pretrial Memorandum petitioner asserted $20,505 in
Schedule C–1 business expenses associated with his property in Irvine,
California (Irvine Property), comprising $11,754 in mortgage interest,
$4,620 in homeowners’ association costs, $3,651 in property taxes, and
$480 in utilities. These expenses were not reported on petitioner’s 2015
Amended Return. Neither were they reported on his October 28, 2019

       7 At trial petitioner did not assert a software expense of $158; however,

respondent conceded this expense as part of the $14,016 in respondent’s Summary of
Expenses Allowed.
                                   8

[*8] submission to respondent to substantiate his Schedule C–1
business activity expenses.

       Petitioner borrowed funds from Linda Mercure memorialized in
two notes (i.e., for $75,000 and $150,000) for a total of $225,000. The
notes were secured by the Irvine Property and petitioner’s secondary
home in Running Springs, California (Running Springs Property).
Petitioner used $75,000 of the loan proceeds to pay down the loan on his
primary residence, the Laguna Beach Property. He did so by directing
Mercure to directly transfer the $75,000 loan proceeds to Singer at
Adobe. Petitioner did not provide canceled checks or bank statements
showing that he made payments on the loans in 2015; however, Mercure
received monthly interest payments of $11,754 on the loans and
reported this interest as income on her 2015 return.

      Petitioner asserts he is entitled to a deduction for $4,620 in
homeowners’ association costs for the Irvine Property. The monthly cost
was $385. Petitioner was unsure whether he paid any homeowners’
association costs in 2015.

        Petitioner seeks to deduct $3,651 in property taxes and $480 in
utility expenses for the Irvine Property. Petitioner was unsure whether
he paid any property taxes for the Irvine Property in 2015. As to the
utility expenses, petitioner introduced into evidence an account printout
for online billing and payments from the electricity provider, Southern
California Edison, from May 2020 to March 2022. The account printout
does not state the property address for which the electricity service was
provided other than a handwritten address added by petitioner.

      C.     Virtual Office Expense

       At trial petitioner asserted $1,140 in virtual office expenses
related to his Schedule C–1 business activity. Petitioner provided a
credit card authorization form for “Premier Business Centers” dated
November 3, 2016, for $95 as well as an invoice from “Premier Business
Centers” dated December 1, 2013, for $95. Petitioner could not find
documentation regarding the virtual office for the 2015 tax year.

      D.     Continuing CPA Education

       In addition to the expenses associated with the Irvine Property,
petitioner sought to deduct $600 related to continuing education for his
CPA license for the 2015 tax year.
                                          9

[*9]   E.       Health Insurance

       Finally, petitioner asserted a health insurance adjustment to
income of $4,294 for his Schedule C–1 CPA business. Respondent has
conceded that petitioner is entitled to an adjustment to income for a self-
employed insurance deduction for $1,259 for Medicare Part B premiums,
which was directly deducted from his Social Security benefits for the
2015 tax year. Additionally, petitioner seeks an adjustment to income
for a self-employed insurance deduction for $3,035 for health insurance
premiums he asserts he paid to Blue Cross.

VI.    CAAJ Leasing Trust

      Next, petitioner claimed deductions for expenses related to the
CAAJ Leasing Trust business. On petitioner’s 2015 Amended Return,
he attached a Schedule C–2 for “HYEO/CAAJ Leasing” and reported
$1,250 in gross receipts and $72,500 in expenses. Petitioner’s reported
Schedule C–2 gross receipts and expenses for tax years 2013 through
2016 are as follows:

              Tax Year           Gross Receipts Expenses           Net Loss
       2013 Schedule C–2                        -0-   $145,570    −$145,570
       2013 Schedule C–3 8                      -0-      1,900         −1,900
       2014                               $1,250       145,600      −144,350
       2015                                   1,250     72,500       −71,250
       2016                                   1,285     75,800       −74,515
       Total:                             $3,785 $441,370 −$437,585

      On Schedule C–2 for his 2015 Amended Return, petitioner
reported “Other Expenses” for a “Court Judgment Related to
Equipment” for $72,500. This expense related to a lawsuit involving a
2009 towing of petitioner’s 1987 Jeep from the Irvine Property. In June
2009 petitioner’s homeowners’ association towed his 1987 Jeep from
outside the Irvine Property. Petitioner sued several parties involved
including the towing company and the homeowners’ association. After

        8 On petitioner’s 2013 tax return he separated CAAJ Leasing Trust’s activities

onto two Schedules C. He included a Schedule C–2 for CAAJ Leasing Trust’s
equipment rental activities in North Carolina and a Schedule C–3 for CAAJ Leasing
Trust’s equipment rental activities in California. See Ex. 1000-R. In subsequent years
petitioner reported CAAJ Leasing Trust’s activities on a single Schedule C.
                                   10

[*10] several lawsuits, on April 6, 2015, petitioner lost a judgment for
malicious prosecution and was ordered to pay $73,767. However,
petitioner did not pay the judgment and actively contested the lawsuit
through June 2017.

       On June 9, 2017, the Court of Appeal of California for the Fourth
District (Court of Appeal of California) reversed the judgment against
petitioner in Bancroft v. Aulisio, No. G051732, 2017 WL 2493139 (Cal.
Ct. App. June 9, 2017). Thus, the judgment had already been overturned
by the time petitioner signed the 2015 Amended Return on October 23,
2017. Even though the judgment had been overturned, petitioner
reported the expense for the court judgment on his Schedule C–2. We
note that petitioner sought to change his method of accounting for the
Schedule C–2 business on his 2015 Amended Return to the accrual
method.

VII.   NOL

        On petitioner’s 2015 Amended Return he claimed an NOL
deduction of $437,141. Petitioner asserts the NOL originated from the
loss of certain equipment that was leased by his Schedule C–2 business
to companies in North and South Carolina. The record contains
contradictory evidence on the origin and nature of the loss.

VIII. Itemized Deductions

      Petitioner asserts he is entitled to an itemized deduction of
$42,500 for mortgage interest with respect to the Laguna Beach
Property. Petitioner did not claim a mortgage interest deduction on his
2015 Amended Return. As discussed above, petitioner took out a loan
from Singer, and his company Adobe, in the name of the CAAJ Leasing
Trust. Singer required petitioner to sign a personal guaranty for the
loan.

      Petitioner provided respondent with a 2015 Form 1098, Mortgage
Interest Statement, from “Adobe Oil & Development Corp.” The Form
1098 was issued to Donatelli as the trustee of the CAAJ Leasing Trust;
however, the payer’s Social Security number did not match the Social
Security number that belongs to Donatelli. At petitioner’s request
Singer changed the tax identification number on the Forms 1098 that
were issued annually for the loan. Singer could not recall what year that
change occurred. Adobe issued the 2015 Form 1098 to Donatelli with the
information petitioner provided.
                                          11

[*11] Petitioner provided respondent with substantiation for four
$3,541 payments that he made in 2015 to Adobe totaling $14,164.
Petitioner is unable to substantiate the remaining eight payments. As
discussed above, respondent has conceded that petitioner is entitled to
a mortgage interest deduction for the $14,164 that petitioner
substantiated.

       In addition to mortgage interest, in this litigation petitioner
asserted a deduction for property taxes totaling $10,476 related to the
Running Springs Property in San Bernardino County, California.
Petitioner also asserted a deduction for property taxes totaling $2,868
related to the Laguna Beach Property in Orange County, California.

       On December 10, 2015, property taxes of $1,084 were paid by
credit card to San Bernardino County. The payment receipt does not
state the address of the parcel subject to the property taxes; however,
the payment receipt contains the following description line item
identifier: “TAX PMT APN 0328233120000.” The real property tax bill
for the Running Springs Property lists the CAAJ Leasing Trust as the
owner of record of the Running Springs Property and contains the same
numerical identifier as was listed on the payment receipt,
0328233120000. The payment receipt for the property tax bill states
that the payor’s billing address was the Laguna Beach Property and lists
an email address belonging to petitioner.

       Finally, petitioner asserts a $500 itemized deduction for a
charitable contribution to the Los Angeles Philharmonic. The “Friends
of the LA Phil” sent petitioner an undated letter that states “Thank you
for your gift! Your membership has been upgraded. You are now at the
Rhapsody ($500) membership level.” The letter then invites petitioner
to attend events.

        On April 9, 2018, respondent issued the notice of deficiency.

                                     OPINION 9

I.      Burden of Proof

       Generally, the Commissioner’s determinations in a notice of
deficiency are presumed correct and the taxpayer bears the burden of

       9 Absent a stipulation to the contrary, this case is appealable to the U.S. Court

of Appeals for the Ninth Circuit, and we follow the precedent of that court that is
                                          12

[*12] proving that those determinations are in error. See Rule 142(a);
Welch v. Helvering, 290 U.S. 111, 115 (1933). Conversely, the
Commissioner bears the burden of proving new matters asserted in his
answer. See Rule 142(a).

       Section 7491(a)(1) provides that if, in any court proceeding, a
taxpayer introduces credible evidence with respect to any factual issue
relevant to ascertaining the liability of the taxpayer for any tax imposed
by subtitle A or B, the Commissioner shall have the burden of proof with
respect to that issue. See Higbee v. Commissioner, 116 T.C. 438, 440–41
(2001). For the burden to be placed on the Commissioner under this
section, however, the taxpayer must demonstrate that he has:
(1) complied with the requirements under the Code to substantiate any
item, (2) maintained all records required under the Code, and
(3) cooperated with reasonable requests by the Secretary for witnesses,
information, documents, meetings, and interviews. See § 7491(a)(2);
Higbee, 116 T.C. at 440–41.

       As discussed above, petitioner has conceded that he received
$64,287 of unreported income as determined in the notice of deficiency.
Petitioner has also conceded additional unreported income that was
reported on his 2015 Amended Return except for (i) $22,492 of interest
income and (ii) an additional $11,055 in gross receipts from his Schedule
C–1 CPA business. Thus, petitioner has conceded all of the unreported
income at issue except for the $22,492 of interest income and an
additional $11,055 in gross receipts from his Schedule C–1 CPA
business that was reported on the 2015 Amended Return. The 2015
Amended Return was admitted into evidence as part of the parties’
Stipulation of Facts. Petitioner signed the 2015 Amended Return under
penalty of perjury. In his First Amendment to Answer, respondent
asserted an increased deficiency based on the 2015 Amended Return
which included the $22,492 of interest income and the $11,055 in gross
receipts from petitioner’s Schedule C–1 CPA business. 10

squarely on point. See § 7482(b)(1); Golsen v. Commissioner, 54 T.C. 742, 757 (1970),
aff’d, 445 F.2d 985 (10th Cir. 1971).
        10 Respondent’s Motion for Leave to File a First Amendment to Answer and his

First Amendment to Answer referred to the $22,492 as “wages.” However, the 2015
Amended Return that the First Amendment to Answer was based on reflects that the
$22,492 of income was interest income. The parties’ other submissions to this Court
also clearly reflect that the $22,492 of income that respondent referenced in the First
Amendment to Answer was with respect to interest, and not wages.
                                   13

[*13] We are entitled to rely on petitioner’s 2015 Amended Return
because a taxpayer’s statements on his or her tax return are admissions
that may be overcome only through cogent evidence. See Waring v.
Commissioner, 412 F.2d 800, 801 (3d Cir. 1969), aff’g per curiam T.C.
Memo. 1968-126; Chapman Glen Ltd. v. Commissioner, 140 T.C. 294,
322 (2013). This is true even if the Commissioner does not accept the
taxpayer’s return for filing. See, e.g., Brown v. Commissioner, T.C.
Memo. 2014-167, at *19. Thus, because respondent’s increased
deficiency asserted in the Amendment to Answer was based on
petitioner’s 2015 Amended Return that was included in the Stipulation
of Facts, respondent has satisfied his burden of proof on these new
matters. Petitioner must present cogent evidence to overcome the
admissions on his tax return regarding the $22,492 of interest income
and the $11,055 in additional gross receipts from petitioner’s Schedule
C–1 CPA business. See Waring v. Commissioner, 412 F.2d at 801;
Chapman Glen Ltd., 140 T.C. at 322.

       Additionally, petitioner has introduced his entitlement to an NOL
deduction and a variety of other deductions (for reported Schedule C,
mortgage interest, property tax, and charitable contribution expenses)
into this case through the 2015 Amended Return, his pleadings before
this Court, or at trial. In his Motion for Leave to File a First Amendment
to Answer and his First Amendment to Answer, respondent did not raise
the NOL or the other deductions that petitioner asserted as issues.
Rather, respondent sought to amend his Answer to assert that petitioner
received additional unreported income. The issues involving the NOL
and the other deductions were properly tried by the parties’ consent. See
Rule 41(b). Because petitioner raised the NOL and the other deductions
as new matters, the burden of proof remains with petitioner to show his
entitlement to any deductions for his reported expenses.

       In his posttrial Opening Brief petitioner argued that the burden
of proof should shift to respondent under section 7491(a) with respect to
substantiating the existence of the NOL. However, petitioner has failed
to present credible evidence with respect to the NOL and has instead
provided contradictory testimony and exhibits as to the origin and
nature of the alleged loss. Accordingly, the burden of proof remains on
petitioner with respect to the NOL carryforward.

II.   Gross Income

       In his First Amendment to Answer, respondent alleged that
petitioner received $22,492 in interest income for the 2015 tax year and
                                          14

[*14] increased the deficiency accordingly. The First Amendment to
Answer was based on the 2015 Amended Return that petitioner signed
under penalty of perjury. Petitioner submitted the 2015 Amended
Return to the IRS, but the IRS did not process it. As discussed above,
petitioner must present cogent evidence to overcome the admissions on
the 2015 Amended Return. Thus, petitioner must present cogent
evidence that (i) the $22,492 represents loan proceeds and not interest
income, and (ii) respondent’s determination that petitioner received an
additional $11,055 in gross receipts from petitioner’s Schedule C–1 CPA
business is arbitrary and excessive. See Helvering v. Taylor, 293 U.S.
507, 515 (1935).

      Generally, gross income means all income from whatever source
derived. See § 61(a); Charley v. Commissioner, 91 F.3d 72, 73 (9th Cir.
1996), aff’g in part, rev’g in part T.C. Memo. 1993-558. Gross income
includes any funds that the taxpayer receives lawfully or unlawfully,
without the consensual recognition, express or implied, of an obligation
to repay and without restriction as to their disposition. See James v.
United States, 366 U.S. 213, 219 (1961). However, it does not include
loan proceeds. Id.; see also Commissioner v. Tufts, 461 U.S. 300, 307
(1983).

       Petitioner’s 2015 Return, upon which the notice of deficiency was
based, reported $10 of interest income. 11 On his 2015 Amended Return
petitioner reported $22,492 of interest income received from the Cooper
Trust. Petitioner contends that the $22,492 reported on his 2015
Amended Return was not interest income but rather loan proceeds from

       11 Petitioner testified that he accidentally submitted substantive information

from an extension request that he filed with the IRS in April 2016 on the 2015 Return.
He testified that he “hit the wrong button and sent in the extended return as a regular
return rather than the real return that had been prepared.” Tr. 108:7–10. Nonetheless,
the 2015 Return included substantive information such as exemptions, filing status,
and the standard deduction. Petitioner testified that he accidentally used the data
from his extension request on the 2015 Return and “right at the last minute, I hit the
wrong button.” Tr. 110:8–16. The alleged extension request is not in the record.
Petitioner’s testimony is unclear on what document was actually the extension request
for the 2015 tax year. It appears that he may have filed an extension request by
completing a Form 1040, rather than requesting an extension by filing a Form 4868,
Application for Automatic Extension of Time to File U.S. Individual Income Tax
Return. There is no Form 4868 in the record. Petitioner’s explanation is unconvincing.
In any event, petitioner filed the 2015 Return upon which the notice of deficiency was
properly based. See Chapman Glen Ltd., 140 T.C. at 322 (explaining that a taxpayer’s
statements on their tax returns are admissions that may be overcome only through
cogent evidence).
                                          15

[*15] the Cooper Trust and that the $22,492 should not be included in
his gross income.

        To explain why he reported the $22,492 as interest income on his
2015 Amended Return, petitioner theorized that his friend and
assistant, Lynn Aldis, who he testified prepared his 2015 Amended
Return, saw deposits from the alleged loan in petitioner’s bank account
and guessed that the deposits were income. 12 To determine whether the
$22,492 that petitioner reported on his 2015 Amended Return is income,
the Court must analyze whether that amount represents the proceeds
of a loan on which the petitioner is a debtor, or interest income petitioner
received from the Cooper Trust.

       The proceeds of a bona fide loan are not includible in gross income
because the receipt of money is offset by a corresponding obligation to
repay. See Commissioner v. Tufts, 461 U.S. at 307. For a bona fide loan
to exist the parties to the transaction must have had an actual, good-
faith intent to establish a debtor-creditor relationship at the time the
funds were advanced. Beaver v. Commissioner, 55 T.C. 85, 91 (1970). An
intent to establish a debtor-creditor relationship exists if the debtor
intends to repay the loan and the creditor intends to enforce the
repayment. Id.; Fisher v. Commissioner, 54 T.C. 905, 909–10 (1970).

       Objective factors are considered to determine the parties’ intent
and whether a bona fide loan occurred, and no single factor is
dispositive. See Welch v. Commissioner, 204 F.3d 1228, 1230 (9th Cir.
2000), aff’g T.C. Memo. 1998-121; Frierdich v. Commissioner, 925 F.2d
180, 182 (7th Cir. 1991), aff’g T.C. Memo. 1989-393. We examine the
following factors to determine whether the $22,492 that petitioner
received and reported on his 2015 Amended Return was, in fact, a loan:

       (1) whether the promise to repay is evidenced by a note or other
       instrument;

       (2) whether interest was charged;

         12 There was conflicting testimony on who prepared petitioner’s returns.

Petitioner initially testified that Aldis prepared his 2015 Amended Return. See
Tr. 104:20–22. He stated that Aldis reviewed his records and guessed as to what items
appeared to be income and what items appeared to be expenses. See Tr. 105:20–23;
Tr. 120:19–22. However, petitioner also provided contradictory testimony that he
prepared the 2015 Return and the 2015 Amended Return. See Tr. 103:17–22. In light
of petitioner’s conflicting testimony, we do not find credible his assertion that Aldis
prepared his 2015 Amended Return.
                                           16

[*16] (3) whether a fixed schedule for repayments was established;

        (4) whether collateral was given to secure payment;

        (5) whether repayments were made;

        (6) whether the borrower had a reasonable prospect of repaying
        the loan and whether the lender had sufficient funds to advance
        the loan; and

        (7) whether the parties conducted themselves as if the transaction
        were a loan.

See Welch v. Commissioner, 204 F.3d at 1230.

       We note that petitioner’s testimony on the characterization of the
$22,492 was inconsistent with what he reported on the 2015 Amended
Return and his 2016 through 2018 returns which reported interest
income received from the Cooper Trust. Petitioner testified that he never
received income from the Cooper Trust; however, his 2015 Amended
Return reported that he received $22,492 in interest income from the
Cooper Trust. He also offered inconsistent testimony as to whether his
alleged debt to the Cooper Trust was evidenced by a note. Initially,
petitioner testified that Donatelli, as the trustee of the Cooper Trust,
lent him small amounts over the years but that she eventually lent him
a large amount of $20,000 to $25,000 and that Donatelli took a note for
this large loan. Later, petitioner testified that there was no note when
he borrowed the $20,000 to $25,000 amount. 13

       Turning to the factors listed above, the first factor, whether the
promise to repay was evidenced by a note or other instrument, supports
income treatment. As previously discussed, petitioner provided
conflicting testimony on whether the alleged loan was evidenced by a
debt instrument. First, petitioner testified that the Cooper Trust took a
note from him; however, later he testified that there was never a note
for the alleged loan from the Cooper Trust to him. 14 If there was a debt

        13 Tr. 120:13–14 (“At the time, I borrowed the $25,000. There wasn’t even a

note.”); Tr. 120:18–19 (“So that’s I want to say there was never a note.”).
       14 Compare Tr. 107:6–7 (“But the 20 to $25,000 one wasn’t. That was a big

amount. And [Donatelli as the trustee for the Cooper Trust] took a note.”), with Tr.
120:13–19 (“At the time, I borrowed the 25,000. There wasn’t even a note. I was just
paying five percent. And the note didn’t come up until the loan was amortized. And I
                                         17

[*17] instrument evidencing the debt, it was not introduced into
evidence in this case. See id. at 1230–31. The absence of such
documentation and petitioner’s vacillating testimony strongly suggests
that there was no debt instrument between petitioner and the Cooper
Trust. This factor supports income treatment.

      The second factor, whether interest was charged, supports loan
treatment. Donatelli testified that there was a five percent interest rate
on the alleged loan. There is no evidence corroborating Donatelli’s
testimony. Nonetheless, we find that this factor narrowly supports loan
treatment. But see id. at 1231.

      The third factor, whether there was a fixed schedule for
repayments, supports loan treatment. Donatelli testified that petitioner
made interest only payments on the alleged loan; and later, when the
terms of the loan were ostensibly changed, petitioner made monthly
$500 payments with five percent interest for five years. However, aside
from Donatelli’s testimony there is no document or payment schedule in
the record to corroborate the payment terms. Accordingly, this factor
narrowly supports loan treatment. But see id.

        The fourth factor, whether collateral was given to secure
payment, supports income treatment. There was no evidence that the
alleged loan was secured or that any collateral was given. Donatelli
testified as to the terms of the original alleged loan and its subsequent
amendment. She did not discuss the Cooper Trust’s receiving any
collateral from petitioner. Moreover, the record contains no
documentation of a note or security interest for the alleged loan. A
lender does not have a valid security interest in property without a
written security agreement that provides a description of the
collateral. 15 As discussed in the context of the first factor, at trial
petitioner gave inconsistent testimony on whether the alleged loan was
evidenced by a note. First he testified that there was a note, and then
he testified that there no note for the alleged loan from the Cooper

started paying it off. If I had that much money, I wish I had that much money, but I
didn’t. So that’s I want to say there was never a note.”).
        15 See Greyhound Real Est. Fin. Co. v. Off. Unsecured Creditors’ Comm. (In re

Northview Corp.), 130 B.R. 543, 546 (B.A.P. 9th Cir. 1991) (“[California] Commercial
Code § 9203(1)(b) provides that one of the prerequisites for the creation of a valid
security interest is ‘a security agreement which contains a description of the
collateral.”).
                                      18

[*18] Trust. 16 When questioned as to why he had not provided the
underlying documentation to support his position, petitioner again
repeated that “there were no notes.” As with the first factor, the absence
of a security agreement evidencing any collateral and petitioner’s
vacillating testimony as to the alleged loan documentation strongly
suggests that the alleged loan was not secured by any collateral. See id.
Accordingly, this factor supports income treatment.

        The fifth factor, whether the borrower made repayments,
supports loan treatment. As with the fourth factor above, we do not find
petitioner’s testimony credible on this issue. However, Donatelli
testified that petitioner made payments on the alleged loan. We note
that there is no evidence corroborating her testimony. Nonetheless, we
find that this factor narrowly supports loan treatment. But see id.

       The sixth factor, whether the borrower had a reasonable prospect
of repaying the alleged loan and whether the lender had sufficient funds
to advance the alleged loan, supports income treatment. The record does
not contain any evidence regarding whether the alleged lender, the
Cooper Trust, considered or analyzed petitioner’s ability to repay the
alleged loan. See id. This factor supports income treatment.

       Finally, the seventh factor, whether the parties conducted
themselves as if the transaction were a loan, supports income treatment.
Petitioner’s records, and in particular, his 2015 Amended Return that
was signed under penalty of perjury, reported the $22,492 as interest
income received from the Cooper Trust. We are entitled to rely on
petitioner’s 2015 Amended Return because a taxpayer’s statements on
his or her tax return are admissions that may be overcome only through
cogent evidence. See Waring v. Commissioner, 412 F.2d at 801;
Chapman Glen Ltd., 140 T.C. at 322; see also Greenberg v.
Commissioner, T.C. Memo. 2018-74, at *39, aff’d, 10 F.4th 1136 (11th
Cir. 2021), and aff’d sub nom. Goddard v. Commissioner, No. 20-73023,
2021 WL 5985581 (9th Cir. Dec. 17, 2021); Brown, T.C. Memo. 2014-167,
at *19.

       Petitioner’s admission on his 2015 Amended Return is buttressed
by his consistent reporting of interest income from the Cooper Trust on
his post-2015 returns. He reported interest income from the Cooper
Trust of $36,000, $42,500, and $42,500 on his 2016, 2017, and 2018 tax
returns, respectively. Petitioner has not introduced other cogent

      16 Tr. 120:13–20 (“There was no documentation. There were no checks.”).
                                    19

[*19] evidence that would overcome the admission on his 2015 Amended
Return that the $22,492 was income.

       Aside from his 2015 Amended Return and his 2016 through 2018
returns, petitioner provided inconsistent testimony on whether there
was ever a note for the alleged loan. Initially, petitioner stated that
Donatelli took a note. However, shortly thereafter petitioner
unequivocally testified that “there was never a note . . . . There was no
documentation. There were no checks.” The only other evidence in the
record regarding the parties’ conduct is petitioner’s and Donatelli’s
testimony that he made payments on the alleged loan. In light of the
inconsistencies we do not find credible petitioner’s testimony on this
issue. Thus, we are left to weigh petitioner’s consistent reporting
position on four years of his tax returns (that he received interest from
the Cooper Trust) against Donatelli’s testimony that he made payments
on an alleged loan. On balance, we believe that Donatelli’s testimony is
insufficient to overcome petitioner’s admission on his tax returns that
consistently reported amounts received from the Cooper Trust as
interest income. See Welch v. Commissioner, 204 F.3d at 1231. Thus,
this seventh factor supports income treatment.

       Petitioner has not presented cogent evidence sufficient to
overcome the admissions on his 2015 Amended Return. After
considering all of the factors and the totality of the evidence, we conclude
that there was no genuine debtor-creditor relationship where petitioner
borrowed funds from the Cooper Trust. Therefore, we agree with
respondent’s determination that the $22,492 was not a loan from the
Cooper Trust to petitioner and instead was interest income that
petitioner received from the Cooper Trust. This interest should have
been included in income on his 2015 Return.

       Petitioner’s 2015 Amended Return also reported $123,180 in
Schedule C–1 gross receipts. At trial petitioner conceded that he
received $112,125 in gross receipts from his Schedule C–1 CPA business
but disputes the additional $11,055 in gross receipts that he reported on
his 2015 Amended Return. Petitioner’s statement on his 2015 Amended
Return that his Schedule C–1 CPA business had $123,180 in gross
receipts is an admission that may be overcome only through cogent
evidence. See Chapman Glen Ltd., 140 T.C. at 322; Brown, T.C. Memo.
2014-167, at *19. Respondent has satisfied his burden of proof for this
issue by introducing into the record petitioner’s 2015 Amended Return.
To overcome his admission in the 2015 Amended Return, petitioner
relies on a schedule prepared by Aldis that he found on his computer.
                                         20

[*20] Petitioner testified that he “just assumed” that the schedule was
correct and that the 2015 Amended Return was incorrect.

       Petitioner has not explained why the total gross receipts figure
that Aldis purportedly included on the schedule that she purportedly
prepared and that he found on his computer is more accurate than the
gross receipts that he reported on the 2015 Amended Return.
Petitioner’s testimony on the origin of the schedule and the total gross
receipts that is shown on the schedule for his CPA business is
uncorroborated. Accordingly, petitioner has not introduced cogent
evidence to overcome the admission on his 2015 Amended Return that
his Schedule C–1 CPA business had $123,180 in gross receipts in 2015.

III.   Schedule C–1 Business Expenses

       A.      Summary of the Parties’ Arguments

       Petitioner maintains that he paid all business expenses reported
on Schedule C–1 of his Amended 2015 Return and seeks to deduct
expenses that were not reported on Schedule C–1 but that he raised
during the course of this litigation. 17 Petitioner asserts that he has
provided adequate documentation to support the expenses and argues
that the Court should apply the rule in Cohan v. Commissioner, 39 F.2d
540, 543–44 (2d Cir. 1930), to estimate the amounts for expenses where
he is unable to provide substantiating documentation. Petitioner argues
that much of the relevant substantiating documentation is unavailable
to him because his assistant, Aldis, who worked on his Schedule C
businesses and who he asserts prepared his 2015 Amended Return,
passed away. See supra note 12. Petitioner asserts that Aldis
maintained petitioner’s records and that her estate discarded the
documents after she died.

       In response respondent argues that petitioner is not entitled to
deduct any Schedule C–1 expenses that he reported on his 2015
Amended Return or that he asserted during the course of this litigation
for the tax year at issue. Respondent contends that petitioner has failed
to show that the deductions sought meet the requirements of section
162(a) and that petitioner has failed to substantiate the claimed
deductions.

        17 Petitioner has changed the type and amount of Schedule C–1 expenses that

he is seeking to deduct for his CPA business several times throughout this litigation.
                                    21

[*21] B.     Legal Background

      Deductions are a matter of legislative grace, and taxpayers bear
the burden of proving their entitlement to any deduction claimed. Rule
142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).
A taxpayer must show that he has met all requirements for each
deduction and kept books or records that substantiate the expenses
underlying it. § 6001; Roberts v. Commissioner, 62 T.C. 834, 836 (1974).
Failure to keep and present such records counts heavily against a
taxpayer’s attempted proof. See Valentine v. Commissioner, T.C. Memo.
2022-42, at *10.

       Section 162(a) allows a deduction for “ordinary and necessary
expenses paid or incurred . . . in carrying on any trade or business.” See
Commissioner v. Lincoln Sav. & Loan Ass’n, 403 U.S. 345, 352 (1971).
Whether an expenditure is “ordinary and necessary” is generally a
question of fact. Commissioner v. Heininger, 320 U.S. 467, 475 (1943).
To be “ordinary,” the expense must be a common or frequent occurrence
for the taxpayer’s type of business. Deputy v. du Pont, 308 U.S. 488, 495
(1940). An expenditure is “necessary” if it is “appropriate and helpful” to
the taxpayer’s business,” Welch v. Helvering, 290 U.S. at 113, but it must
also be “directly connected with or pertaining to the taxpayer’s trade or
business,” Treas. Reg. § 1.162-1(a). On the other hand, “personal, living,
or family expenses” are not deductible. § 262(a). Section 262 takes
precedence over section 162. Commissioner v. Idaho Power Co., 418 U.S.
1, 17 (1974); Sharon v. Commissioner, 66 T.C. 515, 522–23 (1976), aff’d
per curiam, 591 F.2d 1273 (9th Cir. 1978). Consequently, if the origins
of petitioner’s claimed deductions are personal as defined under section
262, we need not consider whether they are ordinary and necessary to
his Schedule C business activities. See Kinney v. Commissioner, T.C.
Memo. 2022-81, at *10.

       Under Cohan v. Commissioner, 39 F.2d at 543–44, if a taxpayer
claims a deduction but cannot fully substantiate the underlying
expense, the Court in certain circumstances may approximate the
allowable amount, “bearing heavily if it chooses upon the taxpayer
whose inexactitude is of his own making.” The Court must have some
factual basis for its estimate, however, else the allowance would amount
to “unguided largesse.” Williams v. United States, 245 F.2d 559, 560 (5th
Cir. 1957).

      Section 274(d) sets forth heightened substantiation requirements
(and overrides the Cohan rule) for certain types of expenses. As in effect
                                    22

[*22] during 2015, section 274(d) made these strict requirements
applicable for “any traveling expense (including meals and lodging while
away from home),” “any item with respect to an activity which is of a
type generally considered to constitute entertainment,” “any expense for
gifts,” and “any listed property (as defined in section 280F(d)(4)).”
“Listed property” was defined to include “any passenger automobile.”
§ 280F(d)(4)(A)(i); Treas. Reg. § 1.280F-6(b)(1)(i).

      As in effect during 2015, section 274(d) provided that no
deduction shall be allowed for the expenses set forth above “unless the
taxpayer substantiates by adequate records or by sufficient evidence
corroborating the taxpayer’s own statement” the following facts:

      (A) The amount of such expense or other item;

      (B) The time and place of the travel or entertainment, or the date
      and description of the gift;

      (C) The business purpose of the expense or other item; and

      (D) The business relationship to the taxpayer of persons
      entertained or receiving the gift.

§ 274(d) (flush language); see Temp. Treas. Reg. § 1.274-5T(c).

       For expenses governed by section 274(d), “[w]ritten evidence has
considerably more probative value than oral evidence alone,” and “the
probative value of written evidence is greater the closer in time it relates
to the expenditure.” Temp. Treas. Reg. § 1.274-5T(c)(1). Substantiation
by “adequate records” generally requires the taxpayer to “maintain an
account book, diary, log, statement of expense, trip sheets, or similar
record,” as well as evidence documenting the expenditures. Id.
subpara. (2). To substantiate business use of vehicles an actual
contemporaneous log is not strictly required, but records made at or near
the time of the expenditure have greater probative value than records
created subsequently. Id. subparas. (1) and (2).

      C.     Car and Truck Expenses

       Respondent conceded $751 of deductions for car and truck
expenses that petitioner has claimed related to his Schedule C–1 CPA
business. The remainder of petitioner’s car and truck expenses remain
in dispute.
                                   23

[*23] The amount of car and truck expenses related to the CPA
business that petitioner reported has evolved over time. On his 2015
Amended Return, petitioner reported $19,329 in car and truck expenses.
This was based on his assertion that he drove 33,615 miles for the 2015
tax year for his Schedule C–1 CPA business. However, in his October
28, 2019 submission to respondent to substantiate his expenses,
petitioner reduced the mileage that he asserted driving for his Schedule
C–1 CPA business to 1,306 miles. Respondent allowed petitioner a
deduction for 1,306 miles at the standard mileage rate of $0.575 for the
2015 tax year, see I.R.S. Notice 2014-79, § 3, 2014-53 I.R.B. 1001, 1001
($0.575 per mile for 2015), resulting in an allowed deduction for $751.

       During the trial petitioner again changed the mileage amount,
this time asserting that he drove 5,200 miles for his Schedule C–1 CPA
business. To substantiate this figure, petitioner submitted a 2015
calendar listing the asserted names of persons he met with and the
duration of appointments he had each day of the year and a separate
mileage log listing the asserted date, name, and address of each person
visited and the mileage that he travelled for each meeting. The 2015
calendar was admitted into evidence as Exhibit 4-P, and the mileage log
was admitted into evidence as Exhibit 504-P. Petitioner testified that he
kept a calendar of his meetings and subsequently reviewed the calendar
to determine the mileage and create the mileage log. The record is
unclear when petitioner revisited the calendar and created the mileage
log. Petitioner also testified that the individuals named in both exhibits
were clients of his Schedule C–1 CPA business and that he travelled to
each client for meetings.

      As discussed above, section 274(d) imposes a heightened
substantiation requirement and overrides the Cohan rule for certain
expenses including travelling expenses for passenger automobiles. See
§ 280F(d)(4)(A)(i). The expense must be substantiated by adequate
records or sufficient evidence that corroborates the taxpayer’s statement
regarding the amount, time and place, and business purpose of the
expense. See § 274(d); Temp. Treas. Reg. § 1.274-5T(b)(6).

      The 2015 calendar contains the names of individuals and entities
that are clients of petitioner’s Schedule C–1 CPA business and that he
asserts he met with on the dates that their names appear on the
calendar. Subsequently, petitioner created the mileage log where he
added the address and the mileage from the Irvine Property to the
address or meeting location of each individual or entity. Petitioner’s
testimony suggested that neither document was a contemporaneous
                                          24

[*24] record. 18 While contemporaneousness is not a strict requirement
under section 274(d), substantiation documents created long after the
expenditure have much less probative value. Temp. Treas. Reg.
§ 1.274-5T(c)(1) and (2). This is even more so here because the 2015
calendar and the mileage log were based on petitioner’s recollection and
are not corroborated by other evidence documenting the expenditures.
In   short,     we    conclude   that  petitioner’s   testimony      and
noncontemporaneous documentation are insufficient to satisfy the
heightened substantiation requirements of section 274(d). Accordingly,
with the exception of the $751 deduction that respondent previously
conceded, respondent’s disallowance of a deduction for petitioner’s car
and truck expense is sustained.

       D.       Virtual Office Expenses

       As discussed above, petitioner asserted $1,140 in virtual office
expenses related to his Schedule C–1 business activity for the 2015 tax
year. Petitioner’s only support for the virtual office expense was a credit
card authorization form for Premier Business Centers dated
November 3, 2016, for $95 per month and an invoice from Premier
Business Centers dated December 1, 2013, for $95. Both documents
were admitted into evidence as Exhibit 508-P. Petitioner testified that
he paid $95 per month for the virtual office service but the 2013 invoice
and the 2016 credit card authorization forms were the only
documentation that he could find regarding the expense. The record
does not contain any corroborating documentary evidence that
petitioner paid any virtual office expense during the 2015 tax year.

      Petitioner has generally alleged that he is unable to provide
documentation for certain of the expenses and urges the Court to
approximate them under the Cohan rule. We decline to do so because

       18  THE WITNESS: Okay. Usually what I do when I want to
       substantiate, I tell all my clients to keep a calendar because I’ve talked
       to IRS agents and they don’t even keep contemporaneous mileage. But
       if you have a calendar and you say where you’re going, and you know
       where it is, then you can go recreate it and it is kind of
       contemporaneous on the calendar. So I have a calendar in there and it
       shows where I went and who I saw. And I went down and I just used—
       I put the address of where I went and I used the—the Google Maps to
       determine the mileage.
Tr. 131:2–12.
                                          25

[*25] petitioner has not demonstrated that any virtual office expense
was paid in the 2015 tax year.

      The substantiation documentation that petitioner provided to
respondent and which was admitted into evidence as Exhibit 4-P
includes some of petitioner’s credit card and bank statements from the
2015 tax year for his Chase Bank and Discover credit cards. These credit
card statements from 2015 do not include any charges for Premier
Business Centers or for $95 that could potentially be associated with the
virtual office expense.

       Exhibit 4-P also includes portions of petitioner’s Bank of America
checking account statements from 2015 that include check images for
checks petitioner drafted for his CPA business. Petitioner submitted
these statements to respondent and this Court as support for other
expenses that he is claiming. The inclusion of these statements for other
purposes indicates to the Court that petitioner could have obtained
credit card statements, bank account statements, or copies of checks
reflecting that he paid a monthly virtual office expense to Premier
Business Centers for $95 during the 2015 tax year. Petitioner has not
provided any substantiation or factual basis that such an expense was
paid in the 2015 tax year, and we decline to approximate any amount
under the Cohan rule.

       E.      Expenses Related to the Irvine Property

       The amount of expenses related to the Irvine Property that
petitioner has asserted as Schedule C–1 CPA business expenses has
changed several times during this litigation. 19 For purposes of the

       19 See Pet’r’s Proposed Statement of Facts, Exhibit C (asserting $21,542 in

business expenses related to the Cerrito Property). We note that petitioner’s Proposed
Statement of Facts contradicts his Pretrial Memorandum on which business the
expenses related to: his CPA business or his CAAJ Leasing Trust business. In
petitioner’s Proposed Statement of Facts, he stated that the Cerrito Property was used,
in part, for his Schedule C–2 business, CAAJ Leasing Trust, but he stored some CPA
files related to his Schedule C–1 CPA business at the Cerrito Property. He further
stated that he allocated the $21,542 of expenses for the Cerrito Property as follows:
“Amount to CAAJ schedule C is $21,542 less $2,400 (CPA storage) to CPA schedule C
or $19,142.” However, in his Pretrial Memorandum petitioner asserted $20,505 of
expenses related to the Cerrito Property to calculate the adjusted net income of the
CPA business. Pet’r’s Pretrial Memo. 7. As discussed infra, the nature and extent of
petitioner’s alleged CAAJ Leasing Trust business is unclear. Accordingly, we will
consider the $20,505 of expenses related to the Cerrito Property that petitioner
asserted in his pretrial memorandum in connection with his CPA business.
                                    26

[*26] analysis below, we will use petitioner’s most recent asserted
expense amount of $20,505, which he asserted in his Pretrial
Memorandum. This amount comprised $11,754 in mortgage interest,
$4,620 in homeowners’ association costs, $3,651 in property taxes, and
$480 in utilities, all related to the Irvine Property. We note that these
expenses were not reported on petitioner’s 2015 Amended Return or his
October 28, 2019 submission to respondent to substantiate expenses
associated with his Schedule C–1 CPA business activity.

             1.     Mortgage Interest

       We begin with the asserted mortgage interest expense for the
Irvine Property, which was the largest of the expenses that petitioner
asserts were related to his Schedule C–1 CPA business. As discussed
above, only ordinary and necessary expenses paid or incurred in
carrying on a trade or business are deductible under section 162(a).
Additionally, under section 262(a), “personal, living, or family expenses”
are not deductible. Petitioner has not provided evidence sufficient to
indicate that the mortgage interest expense asserted in his Pretrial
Memorandum as a Schedule C–1 CPA business expense was an ordinary
and necessary expense directly related to his Schedule C–1 CPA
business.

        Petitioner and Mercure testified that petitioner took out two loans
from Mercure for $75,000 and $150,000 that were secured by the Irvine
Property and the Running Springs Property. However, petitioner
testified that Mercure paid the $75,000 directly to Singer at Adobe to
repay the loan on his primary residence. Additionally, Mercure testified
that petitioner made monthly interest payments of $11,754 on the loans
and that she reported the interest as income on her 2015 return.

       There was conflicting testimony as to whether the Irvine Property
was used primarily for petitioner’s Schedule C–1 CPA business. Singer
and Mercure testified that petitioner had an office at the Irvine
Property; however, Mercure also testified that she understood it to be a
second home. Additionally, petitioner testified that he did not meet
clients at the Irvine Property and instead drove to the client’s location.
Regardless of the primary use of the Irvine Property, petitioner has not
provided evidence sufficient to substantiate any purported interest
payments. Aside from petitioner’s and Mercure’s testimony, there is no
corroborating documentary evidence in the record (canceled checks,
bank statements, receipts, etc.) that show petitioner paid mortgage
interest, that the interest was an ordinary and necessary business
                                    27

[*27] expense of his Schedule C–1 CPA business, and that the interest
was paid in 2015. Accordingly, petitioner’s asserted Schedule C–1
mortgage interest deduction is disallowed.

             2.     Homeowners’ Association Costs, Property Taxes, and
                    Utilities

       In addition to mortgage interest, in his Pretrial Memorandum
petitioner asserted Schedule C–1 expenses for homeowners’ association
costs, property taxes, and utilities. However, the only evidence that
petitioner offered that he paid any of these expenses for the Irvine
Property during the 2015 tax year was his testimony. Petitioner’s self-
serving testimony in this case is an insufficient basis on which to allow
a Schedule C deduction or to apply the Cohan rule. See Green Gas Del.
Statutory Tr. v. Commissioner, 147 T.C. 1, 65 (2016) (declining to apply
the Cohan rule where only corroboration for documentary evidence was
taxpayer’s self-serving testimony), aff’d, 903 F.3d 138 (D.C. Cir. 2018).

       First, there is no evidence that petitioner paid any homeowners’
association costs for the Irvine Property in 2015. Petitioner testified that
he did not have any supporting documentation for the expense but
stated that it was $385 a month so he multiplied it by 12 months to reach
the total amount that he reported. He provided no corroborating
canceled checks, bank statements, or receipts to indicate that he
actually made the payments. Moreover, on cross-examination petitioner
waivered when asked whether it was true that he did not pay his
homeowners’ association costs in 2015, stating: “It—probably. I don’t
know.” Petitioner’s testimony, standing alone, does not support his
claim for a Schedule C deduction for homeowners’ association costs.

       There are similar problems with petitioner’s asserted Schedule
C–1 expenses for property taxes and utilities. Petitioner testified that
he paid the property taxes and utility expenses for the Irvine Property
in 2015; however, he failed to provide sufficient corroborating
documentation for those expenses. The Court admitted into evidence the
property tax bill for the Irvine Property; however, the bill does not
indicate that petitioner made a payment for the 2015 property taxes on
the Irvine Property. Again, on cross-examination petitioner waivered on
whether he paid the Irvine Property taxes in 2015. When asked whether
it was true that he did not pay the property taxes in 2015 he stated:
“I don’t know, probably—maybe not.”
                                   28

[*28] The Court admitted into evidence an account printout for online
billing and payments for electricity provider Southern California Edison
from May 2020 to March 2022. Notably, the account printout does not
state the property address for which the electricity service was provided.
Petitioner added the handwritten address for the Irvine Property to the
statement. We also note that the account printout clearly has links for
each monthly bill that allows the user to access a copy of the monthly
bill. Presumably, the monthly bill from Southern California Edison
would have the property address where it provided electricity service, as
well as the specific electricity usage details and charges.

       Petitioner did not provide any individual monthly bill
demonstrating that the account was for the Irvine Property. He testified
that utility bills were unavailable for the 2015 year and that 2020 was
as far back as he could obtain any. He further testified that the account
printout that he submitted demonstrated that the utility bill averaged
$40 a month and that the amount has been about the same over the
years, and as a result, he estimated the yearly cost at $480.

       While the account printout indicates that petitioner paid utility
expenses from May 2020 to March 2022, the statement does not have a
service address linking the account to the Irvine Property. Additionally,
the printout does not address petitioner’s electric service or payments
for the 2015 tax year. In short, the information on the account printout
(and importantly the omission of evidence linking the statement to
electric service provided at the Irvine Property) does not support
petitioner’s asserted Schedule C–1 utility expense deduction at the
Irvine Property for the 2015 tax year.

      In sum, petitioner is not entitled to deduct Schedule C–1 expenses
for homeowners’ association costs, property taxes, and utilities that
were associated with the Irvine Property because he has failed to
substantiate those expenses.

      F.     Continuing Education

       Petitioner asserted a Schedule C–1 deduction for a continuing
education expense of $599 related to his CPA business. At trial
petitioner testified that he paid the continuing education expense but
had no documentation to support it. He testified that he estimated the
expense was $600. He did not testify that he paid the expense in the
2015 tax year. In this case, petitioner’s self-serving testimony alone is
insufficient to substantiate his entitlement to a Schedule C–1 deduction
                                    29

[*29] for a continuing education expense. See Green Gas Del. Statutory
Tr., 147 T.C. at 65.

      G.     Health Insurance

       The final Schedule C–1 expense at issue is petitioner’s assertion
of a health insurance adjustment to income of $4,294. Respondent has
conceded an adjustment to income for a self-employed insurance
deduction of $1,259 for Medicare Part B premiums for tax year 2015.
The rest remains in dispute.

       Petitioner testified that he paid premiums to Blue Cross, of
$3,035 for the 2015 tax year. However, petitioner did not provide any
corroborating documents or other evidence showing that he made
payments to Blue Cross in 2015. The only support petitioner provided
for the payment of the health insurance premiums was his testimony
that “Blue Cross was at the time—I can’t believe how much it went up—
was only $759 a quarter, so I paid 3,035.” When asked if he had other
documentation to support the payments to Blue Cross, petitioner stated:
“No. I don’t have—I didn’t have any receipts or anything.” Except for the
Medicare Part B premiums that respondent conceded, petitioner is not
entitled to a health insurance adjustment to income because he has not
substantiated that he made health insurance payments to Blue Cross in
tax year 2015.

IV.   CAAJ Leasing Trust

       On Schedule C–2 of his 2015 Amended Return, petitioner
reported $1,250 of income, $72,500 of expenses, and a net loss of $71,250.
At trial petitioner changed the amount of Schedule C–2 expenses that
he was asserting to $80,000. Respondent argues that petitioner is not
entitled to the Schedule C–2 expense deductions because he has failed
to show that the deductions sought meet the requirements of section
162(a) and because petitioner failed to substantiate the claimed
deductions.

      The nature of CAAJ Leasing Trust, petitioner’s Schedule C–2
business, is unclear. At trial petitioner provided uncertain and
contradictory testimony on what assets were leased by the Schedule C–2
business. First, he testified that the business leased his 1987 Jeep as a
day lease. Then he testified that the Jeep was used only in his CPA
business and that he did not lease it to others. Next, he testified that he
thought that CAAJ Leasing Trust leased a backhoe to a construction
company. On the Schedule C–2 attached to his 2015 Amended Return,
                                  30

[*30] petitioner reported “Other Expenses” for a “Court Judgment
Related to Equipment” for $72,500. Petitioner also claimed a deduction
for the same “Court Judgment Related to Equipment” on his Schedule
C–2 for his 2016 tax return.

       As discussed, petitioner’s 1987 Jeep was towed by his
homeowners’ association from outside the Irvine Property in 2009.
Petitioner sued the various parties involved, including the tow company
and the homeowners’ association. In turn these parties sued petitioner
for malicious prosecution and on April 6, 2015, secured a judgment
against him for $73,767. Petitioner did not pay the judgment and
actively contested the lawsuit until June 9, 2017, when the Court of
Appeal of California reversed the judgment in Aulisio, 2017 WL
2493139.

       Accordingly, the judgment against petitioner was overturned by
the time he signed his 2015 Amended Return on October 23, 2017. At
trial when asked why he included the $72,500 deduction on the Schedule
C–2 of his 2015 Amended Return after the judgment had been
overturned, petitioner stated that he did so “because the appeal process
wasn’t over for the appellee.”

      Petitioner has made varying arguments explaining why he
claimed the $72,500 deduction on the Schedule C–2 of his 2015 Amended
Return after the judgment had been overturned by the Court of Appeal
of California. Additionally, petitioner sought to change his method of
accounting to the accrual method for the Schedule C–2 business on his
2015 Amended Return.

        Under section 461, in general, an accrual basis taxpayer may
deduct an expense only “in the taxable year in which all events have
occurred that establish the fact of the liability, the amount of the
liability can be determined with reasonable accuracy, and economic
performance has occurred with respect to the liability.” Treas. Reg.
§ 1.461-1(a)(2). However, where a liability is contingent on the outcome
of a contested lawsuit, it is apparent that neither the fact nor the
amount of the expense would be reasonably ascertained, and
consequently the expense would not be deductible. See Dixie Pine Prods.
Co. v. Commissioner, 320 U.S. 516, 519 (1944); Lucas v. Am. Code Co.,
280 U.S. 445, 452 (1930). Section 461(f) provides an exception to this
rule for an accrual method taxpayer if the payment is actually made.
                                   31

[*31] Petitioner gave conflicting testimony on whether the 1987 Jeep
was used or leased in his CAAJ Leasing Trust business. In light of his
conflicting statements we do not find petitioner’s testimony on this point
credible. There is no evidence to suggest that the judgment secured
against petitioner for malicious prosecution related to the towing of the
1987 Jeep was an ordinary and necessary expense paid in carrying on
petitioner’s CAAJ Leasing Trust business.

       More importantly, even if we assume that (1) the expense was
related to petitioner’s CAAJ Leasing Trust business and (2) the CAAJ
Leasing Trust business was on the accrual method of accounting,
petitioner was not entitled to deduct the expense as an accrual basis
taxpayer because he actively contested the liability in 2015. See Dixie
Pine Prods. Co., 320 U.S. at 519; Lucas v. Am. Code Co., 280 U.S. at 452.
Moreover, petitioner would not be entitled to deduct the expense under
the cash method of accounting because he never paid the liability. In
summary, petitioner had no basis to claim the judgment for malicious
prosecution as a deduction on his 2015 Amended Return. He is not
entitled to deduct the $72,500 of Schedule C–2 expenses that he reported
on his 2015 Amended Return or the $80,000 of Schedule C–2 expenses
that he asserted at trial.

V.    NOL

       The asserted origins and amount of petitioner’s claimed NOL
deduction have evolved in his tax returns and the information that he
provided to respondent and this Court. Petitioner did not claim any NOL
deduction on his 2015 Return. Then, on his 2015 Amended Return
petitioner deducted an NOL of $437,141.

        Petitioner first argues that the burden of proof on this issue
should shift to respondent because he has introduced credible evidence
regarding any factual issues that are relevant to establishing tax
liability. Petitioner asserts that this is so because he made a Freedom of
Information Act (FOIA) request to the government for information
relating to a 1998 audit that he believed was relevant to the NOL, and
the IRS refused to give that information to petitioner. As we understand
his argument, because he made a FOIA request that was denied or from
which he did not receive the information sought, he has introduced
credible evidence regarding the factual underpinnings of the NOL and,
therefore, the burden should shift to respondent. As to the merits of the
origin and existence of the NOL, petitioner asserted that the lessee of
the equipment filed for bankruptcy and that a bankruptcy court seized
                                    32

[*32] the leased equipment belonging to petitioner to satisfy the lessee’s
debts. Respondent argues that petitioner failed to provide sufficient
documentation to substantiate the initial loss and how the NOL was
used and calculated in the intervening years. Respondent also argues
that petitioner failed to establish either when the underlying losses were
incurred or that the Cohan rule applies here.

       As discussed supra, petitioner has introduced his entitlement to
an NOL deduction into this case through the 2015 Amended Return and
his pleadings before this Court. Because he raised the NOL as a new
matter, the burden of proof remains with petitioner. Additionally, the
burden of proof on this issue does not shift to respondent under section
7491(a) because, as discussed infra, petitioner has failed to present
credible evidence with respect to the NOL deduction and has instead
provided contradictory testimony and exhibits as to the origin and
nature of the alleged loss. Accordingly, the burden of proof remains on
petitioner with respect to the NOL deduction.

       Section 172 allows a taxpayer to deduct an NOL for a taxable
year. The amount of the NOL deduction equals the aggregate of the NOL
carryovers and NOL carrybacks to the taxable year. § 172(a). Section
172(c) defines an NOL as the excess of deductions over gross income,
computed with certain modifications specified in section 172(d). See, e.g.,
Amos v. Commissioner, T.C. Memo. 2022-109, at *6 (citing Jasperson v.
Commissioner, T.C. Memo. 2015-186, at *6, aff’d per curiam, 658
F. App’x 962 (11th Cir. 2016)).

       An unused NOL is first required to “be carried to the earliest of
the taxable years to which . . . such loss may be carried.” § 172(b)(2);
McRae v. Commissioner, T.C. Memo. 2019-163, at *23. Any excess NOL
that is not applied in one year is carried to the then-ensuing year.
§ 172(b)(2). Absent an election under section 172(b)(3), an NOL for any
taxable year first must be carried back 2 years and then carried over
20 years. § 172(b)(1)(A), (2), (3). A taxpayer claiming an NOL must file
with his return “a concise statement setting forth the amount of the net
operating loss deduction claimed and all material and pertinent facts
relative thereto, including a detailed schedule showing the computation
of the net operating loss deduction.” Treas. Reg. § 1.172-1(c).

      “A taxpayer who claims a net operating loss deduction bears the
burden of establishing both the existence of the net operating loss and
the amount that may be carried over to the year involved.” Chico v.
Commissioner, T.C. Memo. 2019-123, at *39 (citing Keith v.
                                          33

[*33] Commissioner, 115 T.C. 605, 621 (2000)), aff’d without published
opinion, No. 20-71017, 2021 WL 4705484 (9th Cir. Oct. 8, 2021).
“A taxpayer ‘cannot rely solely on [her] own income tax returns to
establish the losses [she] sustained.’” Amos, T.C. Memo. 2022-109, at *7
(quoting Barker v. Commissioner, T.C. Memo. 2018-67, at *13, aff’d, 853
F. App’x 571 (11th Cir. 2021)); see also Wilkinson v. Commissioner, 71
T.C. 633, 639 (1979). The taxpayer “must establish that the NOL was
not fully absorbed in the years preceding the particular year for which
he seeks the NOL deduction.” Villanueva v. Commissioner, T.C. Memo.
2022-27, at *3. Thus, to meet his burden petitioner must introduce
persuasive evidence regarding the year in which he incurred the NOL
and also prove his taxable income for the period beginning the year
immediately following the creation of the NOL and ending with 2015. 20
See Power v. Commissioner, T.C. Memo. 2016-157, at *14.

       Petitioner is not entitled to deduct the claimed NOL carryforward
deductions for 2015 because (1) he failed to provide sufficient evidence
of the underlying NOL, including when it originated, and (2) he failed to
show that any NOL was available to carry forward to the year at issue.
We address each point below.

       Petitioner has failed to establish the facts underlying the NOL
and when it originated. Petitioner testified that the NOL originated
from certain equipment that was leased by his Schedule C–2 business
to companies in North and South Carolina. Petitioner testified that the
equipment lessees filed for bankruptcy and that the bankruptcy court
gave his leased property to the lessees’ creditors. The record contains no
documentation regarding the bankruptcy proceedings. We also note that
petitioner already claimed losses for the bankruptcies on his tax returns
for each of 2013 and 2014. On his Schedules C–2 for 2013 and 2014 he
claimed deductions for Other Expenses for a “bankruptcy in NC” of
$145,570 and $145,600, respectively. Petitioner did not explain or
provide any evidence differentiating these losses claimed on his 2013
and 2014 Schedules C–2 from the NOL currently at issue.

       Additionally, the date on which the losses arose is unclear.
Petitioner provided respondent with a schedule, Net Operating Loss
Worksheet 3, that was attached to his 2014 tax return and which alleged

        20 Additionally, absent an election to forgo the carryback of an NOL, a taxpayer

must prove his taxable income for the two years before the creation of the loss. See
Flora v. Commissioner, T.C. Memo. 1965-64, 24 T.C.M (CCH) 333, 339 (citing Pennock
v. Commissioner, 25 B.T.A. 1331 (1932), aff’d, 64 F.2d 1018 (2d Cir. 1933)).
                                   34

[*34] that the NOL originated in 2001. However, petitioner’s 2001 IRS
account transcript indicates that petitioner did not file a tax return in
2001. On his 2015 Amended Return petitioner reported that the NOL
was from 2013. In an October 2019 meeting with respondent’s tax
compliance officer, petitioner stated that the NOL was incurred in 2008
or 2009.

        In addition, petitioner did not provide respondent or the Court
with documentation to substantiate the losses. At trial petitioner
testified that “he does not have documentation for the deduction at the
time the NOL originated.” The only documents petitioner provided to
establish the NOL were the first page of a Form 1040 from 2014, an NOL
worksheet from a 2014 tax return, and the first page of a Federal
Statement from the 2015 Return. He introduced no other evidence or
documents regarding (1) how the NOL was computed or (2) bills,
receipts, books, checks, or records of the entity that incurred the NOL.

        Petitioner also gave inconsistent reasons to respondent’s tax
compliance officer and this Court as to why he did not provide
documents to substantiate the NOL. Initially, he told the tax compliance
officer that he could not provide the documents because they were on his
computer and something happened to his computer. However, at trial
he testified that Aldis maintained all of the records relating to the NOL
and they were lost when she passed away. Regardless of these
inconsistencies, petitioner did not present respondent or this Court with
adequate documentation substantiating the origin, nature, and
calculation of the NOL.

       Absent some other corroborating documents, tax returns (or
portions thereof) that simply restate a taxpayer’s claim coupled with a
taxpayer’s testimony are not sufficient to substantiate a taxpayer’s
entitlement to a loss carryforward. See Amos, T.C. Memo. 2022-109,
at *7; Bulakites v. Commissioner, T.C. Memo. 2017-79, at *8; see also
Rosser v. Commissioner, T.C. Memo. 2001-79, 81 T.C.M. (CCH) 1467,
1471 (finding tax returns did not establish that the taxpayer had income
and losses in the amounts reported on the returns); McWilliams v.
Commissioner, T.C. Memo. 1995-454, 70 T.C.M. (CCH) 783, 789
(denying deductions for NOLs where taxpayers failed to submit any
evidence of the NOLs other than the tax returns on which the NOLs
allegedly originated).

      Petitioner also failed to show that any NOL was available to carry
forward to the year at issue. Specifically, petitioner failed to introduce
                                          35

[*35] into the record evidence that would give a complete picture of his
gross income and expenses as necessary to substantiate the claimed
NOL. As discussed above, the record contains some documents,
including a Net Operating Loss Worksheet 3, that were attached to
petitioner’s 2014 tax return, his 2013 through 2018 tax returns, and his
IRS account transcripts from 2001 through 2012 that support his
assertion that he has claimed and carried forward an NOL. However,
these documents do not establish the date, amount, calculation, and use
of the NOL from its origin through the intervening years to 2015. Thus,
the record in this case is inadequate to substantiate petitioner’s
entitlement to an NOL carryforward. Petitioner is not entitled to the
NOL carryforward deduction of $437,141 that he claimed on his 2015
Amended Return, and we will sustain the Commissioner’s disallowance
of this deduction. 21

VI.     Itemized Deductions

        A.      Home Mortgage Interest

      Finally, there are several Schedule A itemized deductions that
remain at issue. First, petitioner asserted his entitlement to an itemized
deduction for home mortgage interest for the Laguna Beach Property for
$42,500. Petitioner did not claim this deduction on any 2015 return,
instead raising it for the first time during this litigation.

      Petitioner purchased the Laguna Beach Property through the
CAAJ Leasing Trust, and Donatelli signed the loan as the trustee of the
CAAJ Leasing Trust. 22 Singer did not request that Donatelli sign on the
loan for the Laguna Beach Property. Singer testified that petitioner
wanted the loan be in the name of the CAAJ Leasing Trust and because
Singer needed a signatory for the trust, Donatelli signed the loan as the

        21 Petitioner argued at trial and on brief that the Court can approximate his

allowable NOL carryforward deduction under Cohan. The Cohan rule is inappropriate
here because petitioner has failed to adduce evidence substantiating the origin, nature,
and calculation of the NOL. See Deutsch v. Commissioner, T.C. Memo. 2012-318, at *19
n.20.
         22 On cross-examination, Donatelli stated that she had “no duties with the

CAAJ Trust.” Donatelli testified that she was only a “nominee” trustee of the CAAJ
Leasing Trust. Petitioner did not provide testimony or other evidence as to why
Donatelli served as a “nominee” trustee for CAAJ Leasing Trust. We note that in
petitioner’s opening statement to the Court he stated that Donatelli would testify that
she was acting as the nominee trustee for the CAAJ Leasing Trust so that he was able
to get a loan on his primary home, the Laguna Beach Property.
                                           36

[*36] trustee of the CAAJ Leasing Trust. Thus, the Form 1098 issued
by Adobe was issued to Donatelli as the trustee of the CAAJ Leasing
Trust. However, the payer’s Social Security number listed on the Form
1098 did not match Donatelli’s Social Security number. Singer testified
that at petitioner’s request, he changed the Social Security number on
the Form 1098s, but he could not recall in what year that change
occurred. Singer also testified that Adobe submitted the Form 1098 with
the information petitioner provided.

     Petitioner provided respondent with substantiation for four
mortgage payments that he made to Adobe in 2015 totaling $14,164.
Respondent has conceded a deduction in this amount. 23 Petitioner
acknowledged that he was unable to substantiate the remaining eight
mortgage payments.

      As with other expenses discussed above, petitioner failed to
provide documents or evidence substantiating that he made the
remaining eight mortgage payments in 2015. Without bank records,
bank statements, canceled checks, receipts, or other records, petitioner
is unable to substantiate that he made the remaining eight mortgage
payments to Adobe. Because petitioner has failed to substantiate the
$28,336 of mortgage interest payments, he is not entitled to a Schedule
A mortgage interest deduction in excess of the $14,164 that respondent
previously conceded.

        B.      Real Property Taxes

      During this litigation petitioner asserted that he was entitled to
a deduction for property taxes paid for the Running Springs Property
and the Laguna Beach Property. He provided no documentation to
substantiate that he paid the property taxes for the Laguna Beach

         23 We note that even though the obligor on the mortgage payments was the

CAAJ Leasing Trust, petitioner is nonetheless entitled to deductions for mortgage
interest indebtedness on a mortgage on real estate of which he is the legal or equitable
owner under Treasury Regulation § 1.163-1(b) provided that he can substantiate the
expense. See Treas. Reg. § 1.163-1(b) (“Interest paid by the taxpayer on a mortgage
upon real estate of which he is the legal or equitable owner, even though the taxpayer
is not directly liable upon the bond or note secured by such mortgage, may be deducted
as interest on his indebtedness.”); see also Abarca v. Commissioner, T.C. Memo. 2012-
245, at *12–15 (explaining that Treasury Regulation § 1.163-1(b) provides an exception
to the general rule that interest paid on an obligation of the taxpayer is deductible only
by that taxpayer, and not an obligation of another).
                                          37

[*37] Property during 2015. 24 Instead, petitioner provided the property
tax bill for the Laguna Beach Property but did not introduce any
documentation or receipts indicating that he had paid it in 2015.

      Conversely, Exhibit 514-P attaches a confirmation receipt from
the San Bernardino County Tax Collector which shows that on
December 10, 2015, property taxes of $1,084 were paid by credit card to
San Bernardino County. This amount closely corresponds to the
Running Springs Property real property tax bill, which is also attached
to Exhibit 514-P. 25 The payment receipt does not state the address of
the parcel subject to the property taxes; however, the payment receipt
contains the following description line item identifier: “TAX PMT APN
0328233120000.” That description line item identifier matches the
numerical identifier that was listed on the real property tax bill for the
Running Springs Property, which does list the address of the Running
Springs Property.

       We note that the real property tax bill for the Running Springs
Property lists the CAAJ Leasing Trust as the owner of record; however,
the confirmation receipt states that the payor’s billing address was the
Laguna Beach Property and lists an email address belonging to
petitioner. Thus, while the owner of record for the Running Springs
Property was the CAAJ Leasing Trust, it appears that petitioner paid
$1,084 in property taxes by credit card on December 10, 2015, on behalf
of the CAAJ Leasing Trust. Finally, while the payment receipt does not
state the address of the Running Springs Property as the parcel subject
to property tax, the matching numerical identifiers on the property tax
bill and the payment receipt demonstrates to the Court that the $1,084
in property taxes was paid with respect to property taxes for the
Running Springs Property.

      Section 164 allows a deduction for certain taxes, including state
and local real property taxes, regardless of whether they were paid or
incurred in a trade or business. Tschetter v. Commissioner, T.C. Memo.
2003-326, 86 T.C.M. (CCH) 639, 645. Generally, taxes are deductible

        24Exhibit 514-P attached a confirmation receipt for real property taxes of
$5,284 paid to Orange County on November 22, 2021, for the Laguna Beach Property.
The receipt clearly states that the payment was for the 2021 tax year real property
taxes.
        25 The Running Springs Property real property tax bill for July 1, 2014, through

June 30, 2015, indicates that the full year bill totaled $2,068.64 and the half year bill
totaled $1,043.
                                         38

[*38] only by the person upon whom they are imposed. See Tuer v.
Commissioner, T.C. Memo. 1983-441, 46 T.C.M. (CCH) 870, 871; Treas.
Reg. § 1.164-1(a). However, we have held that taxpayers who do not hold
legal title to property but who establish they are equitable owners of the
property are entitled to deduct property tax they paid for the property.
See Steinert v. Commissioner, 33 T.C. 447, 449 (1959) (first citing
Horsford v. Commissioner, 2 T.C. 826 (1943); and then citing Estate of
Movius v. Commissioner, 22 T.C. 391 (1954)); Trans v. Commissioner,
T.C. Memo. 1999-233, 78 T.C.M. (CCH) 96, 101. Moreover, “[u]nder
general principles of trust law, trust beneficiaries hold ‘the equitable
estate or beneficial interest in’ property held in trust and are ‘regarded
as the real owner[s] of [that] property.’” Steinhart v. Cnty. of L.A., 223
P.3d 57, 72 (Cal. 2010) (quoting Title Ins. & Tr. Co. v. Duffill, 218 P. 14,
20 (Cal. 1923)).

       Petitioner formed the CAAJ Leasing Trust to lease equipment in
the hope that he “could live off of the rent of the equipment and just kind
of retire.” He placed assets in the CAAJ Leasing Trust, including the
Running Springs Property, which was his secondary home. The record
in this case indicates that petitioner was the beneficiary of the CAAJ
Leasing Trust as he formed the trust with the purpose of retiring on its
income. Petitioner as the trust beneficiary and the equitable owner of
the property held by the CAAJ Leasing Trust paid the real property
taxes of $1,084 for the Running Springs Property. 26 Accordingly,
petitioner is entitled to deduct $1,084 in real property taxes that he
substantiated for the Running Springs Property. Petitioner is not
entitled to deduct any other real property taxes for either the Running
Springs Property or the Laguna Beach Property because he failed to
substantiate that he paid those expenses.

       C.      Charitable Contributions

       Petitioner did not claim a charitable contribution deduction on
any 2015 return. He asserted the deduction, for the first time, in his
Pretrial Memorandum. Petitioner asserts a deduction for $500 for a gift
to the Friends of the LA Philharmonic. To substantiate this deduction,
petitioner introduced into evidence an undated letter from the “Friends
of the LA Phil” that states: “Thank you for your gift! Your membership

        26 Respondent did not contest petitioner’s ownership of the Running Springs

Property for purposes of challenging any of the expenses that petitioner asserted with
respect to the Running Springs Property.
                                          39

[*39] has been upgraded. You are now at the Rhapsody ($500)
membership level.”

       Generally, section 170(a) allows a deduction for any “charitable
contribution” made by the taxpayer. A contribution of $250 or more must
satisfy the requirement of section 170(f)(8)(A), which provides that the
taxpayer must substantiate the contribution with a contemporaneous
written acknowledgment from the donee organization. 27 Treas.
Reg. § 1.170A-13(f)(1). As relevant here, the acknowledgment must
include the amount of cash and a description of any property other than
cash contributed. § 170(f)(8)(B)(i); Treas. Reg. § 1.170A-13(f)(2)(i).
It must also include a statement regarding whether the donee
organization provided any goods or services in consideration for the
contribution and a description and good faith estimate of the value of
any such services. § 170(f)(8)(B)(ii) and (iii); Treas. Reg. § 1.170A-
13(f)(2)(ii) and (iii).

       The undated letter that petitioner submitted to substantiate the
asserted deduction does not satisfy the requirements of section 170(f)(8)
and Treasury Regulation § 1.170A-13(f). Even if we assume petitioner
made a contribution to the LA Philharmonic in 2015, the letter does not
state the amount that petitioner contributed or whether it was a cash
contribution or a contribution of property other than money. The letter
also does not state whether the donee organization provided any goods
or services in consideration for any property transferred to the donee,
and fails to provide a description and good faith estimate of the value of
any such goods and services that were provided. Therefore, petitioner is
not entitled to a $500 charitable contribution deduction under section
170(a).

VII.    Conclusion

       For the reasons discussed above, we hold that for tax year 2015
petitioner (1) had $22,492 of unreported income and $123,180 of
Schedule C–1 gross receipts as reported on his 2015 Amended Return;

        27 See Addis v. Commissioner, 374 F.3d 881, 887 (9th Cir. 2004) (holding that

taxpayer’s failure to satisfy the substantiation provisions of section 170(f)(8) for
payments of $250 or more resulted in a complete denial of charitable contribution
deduction), aff’g 118 T.C. 528 (2002). Separate contributions of less than $250 are not
subject to the requirements of section 170(f)(8), regardless of whether the contributions
made by a taxpayer to a donee organization during a taxable year total $250 or more.
Treas. Reg. § 1.170A-13(f)(1). Petitioner has made no assertion that he made multiple
donations of less than $250.
                                   40

[*40] (2) is not entitled to deduct $42,541 of Schedule C–1 expenses
associated with his CPA business; (3) is not entitled to deduct $80,000
of Schedule C–2 expenses associated with his leasing business; (4) is not
entitled to deduct an NOL of $437,141; (5) is not entitled to deduct
$28,336 of Schedule A home mortgage interest; (6) is entitled to deduct
$1,084 of property taxes; and (7) is not entitled to deduct $500 of
charitable contributions.

      We have considered all other arguments made and facts
presented in reaching our decision, and, to the extent not discussed
above, we conclude that they are moot, irrelevant, or without merit.

      To reflect the foregoing,

      Decision will be entered under Rule 155.