T.C. Summary Opinion 2001-107



                     UNITED STATES TAX COURT



                GARY G. BENDICKSON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 786-00S.                       Filed July 24, 2001.



     Bruce N. Crawford, for petitioner.

     Melissa J. Hedtke, for respondent.



     PAJAK, Special Trial Judge:    This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.   The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in
                               - 2 -


effect for the years in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.

     Respondent determined deficiencies of $3,177, $410, and

$1,559 in petitioner's Federal income taxes for the years 1993,

1994, and 1995, respectively, and additions to tax under section

6651(f) of $2,597 and $2,206.50, for the years 1993 and 1995,

respectively.   Respondent conceded the additions to tax under

section 6651(f).   Respondent in the answer to Amended Petition

alleged that petitioner is liable for the addition to tax under

section 6651(a)(1) for the years 1993 and 1995 in the amounts of

$794.25 and $389.75, respectively, and for the penalty under

section 6662(a) for the years 1993, 1994, and 1995 in the amounts

of $635.40, $82.00, and $311.80, respectively.    Respondent has

the burden of proof as to those issues raised in the answer.

Rule 142(a).

     We must decide: (1) Whether petitioner is entitled to deduct

net operating losses in excess of the amounts allowed by

respondent; (2) whether petitioner is entitled to deduct Schedule

C, Profit or Loss From Business, expenses disallowed by

respondent; (3) whether petitioner is liable for the additions to

tax under section 6651(a)(1); and (4) whether petitioner is

liable for the penalties under section 6662(a).
                                - 3 -


     Some of the facts in this case have been stipulated and are

so found.    Petitioner resided in Plymouth, Minnesota, at the time

he filed his petition.

     During 1993, 1994, and 1995, petitioner worked as an

accountant.    During this time, petitioner resided at his family’s

cabin in Clearwater, Minnesota.    The cabin was located

approximately 55 miles from his father’s office in Plymouth,

Minnesota.    Petitioner’s father was a Certified Public

Accountant, with an accounting firm in Plymouth.    Petitioner

traveled to his father’s business office, 11425 Highway 55,

Plymouth, Minnesota, approximately four times each week during

the years in issue.    Petitioner met with clients at his father’s

office.   Petitioner did not meet with clients at the cabin where

he was living.    Petitioner listed the Plymouth office address as

his business address on the Schedules C for the years in issue.

     Petitioner became involved in a horse breeding/racing

operation in the 1980s.    Petitioner sold his final interest in

the horse breeding/racing operation in 1995.    Partnership returns

for the horse breeding/racing operation were not filed for the

1993, 1994, and 1995 taxable years.

     Petitioner deducted net operating loss carryforwards from

his horse breeding/racing operation in all 3 years.    Respondent

allowed the net operating loss carryforwards to the extent

petitioner showed that he had a basis of $65,486, $47,255, and
                                 - 4 -


$35,910 for 1993, 1994, and 1995, respectively.     Respondent

disallowed $94,268, $117,563, and $123,076 of the carryforwards

for 1993, 1994, and 1995, respectively.

     A net operating loss is the excess of the deductions allowed

over the gross income.    Sec. 172(c).   A net operating loss for

any taxable year may be carried forward to each of the 20 taxable

years following the taxable year of the loss.     Sec. 172(b).

However, deductions are strictly a matter of legislative grace.

INDOPCO, Inc. v. Commissioner, 

, 84 (1992); New

Colonial Ice Co. v. Helvering, 

, 440 (1934).

Taxpayers must substantiate claimed deductions.     Hradesky v.

Commissioner, 

, 89 (1975), affd. per curiam 

 (5th Cir. 1976).     Moreover, taxpayers must keep sufficient

records to establish the amounts of the deductions.     Meneguzzo v.

Commissioner, 

, 831 (1965); sec. 1.6001-1(a), Income

Tax Regs.

     Petitioner presented no evidence.     Petitioner made no

argument that would prove he was entitled to deduct the

disallowed carryforwards.     Petitioner failed to substantiate his

basis in the partnership and the amount of the net operating loss

carryover.    We hold that petitioner is not entitled to deduct any

net operating loss carryover in excess of the amounts allowed by

respondent.
                                 - 5 -


     At trial, petitioner’s counsel said the only other issue

(other than the net operating loss carryover issue) was the

deductibility of auto and travel expenses.   Counsel at that point

appeared to be conceding the disallowance of deductions for

entertainment and bookkeeping expenses in the years in question.

No evidence was introduced by petitioner on these two issues.   On

brief, petitioner’s counsel erroneously states that bookkeeping

expenses are subject to the rules of section 274, as the

entertainment expenses are.

     There is a complete lack of evidence with respect to the

entertainment and bookkeeping expenses, and no valid legal

argument regarding these issues was made by petitioner.

Petitioner has failed to substantiate these deductions.    We

sustain respondent as to these two determinations.

     There remains the question of petitioner’s disallowed

automobile expense deductions.    Petitioner deducted car and truck

expenses of $8,877, $8,420, and $8,315 on his 1993, 1994, and

1995 returns, respectively.   The exact amount of the

disallowances of the automobile expense are not part of the

record.   At trial, respondent stated that all of the mileage was

allowed except for the commute between the cabin where petitioner

resided and his father’s office.    Petitioner did not dispute this

statement.
                                 - 6 -


     Petitioner’s position is that because his principal place of

business was the cabin where he lived, he could deduct daily

transportation expenses incurred between his residence and

another work location.   Respondent’s position is that the

principal place of business was the office of petitioner’s

father.

     In Commissioner v. Soliman, 

 (1993), the Supreme

Court held that when a taxpayer carries on business in more than

one location the principal place of a taxpayer’s business is the

most important or significant place of business.    This turns on

two conditions:   (1) The relative importance of the activities

performed at each business location, and (2) the time spent at

each place.   Id. at 175.   Here we find that most of petitioner’s

accounting services were rendered on the premises of his father’s

office in Plymouth, Minnesota.    Petitioner went to that office

four times each week during the years in issue.    Petitioner met

with clients at his father’s Plymouth office.    Petitioner

admitted that he did not meet with clients at the cabin where he

was living.   On his Schedules C for the 3 years, petitioner

listed the Plymouth office address as his business address.

Petitioner testified that his principal place of business was the

cabin where he resided and that he kept some records there.    We

are not required to accept the self-serving testimony of

petitioner as gospel.    Tokarski v. Commissioner, 

, 77
                               - 7 -


(1986).   We find that petitioner’s principal place of business

was the Plymouth office.   Accordingly, petitioner’s expenses of

driving to and from Plymouth are nondeductible commuting

expenses.   Commissioner v. Flowers, 

, 473-474 (1946).

     Because the record is not clear as to the exact amounts of

disallowance of car and truck expense deductions, we consider

section 274(d).   Section 274(d)(4) imposes stringent

substantiation requirements for the deduction of certain listed

property as defined under section 280F(d)(4), such as an

automobile.   Taxpayers must substantiate by adequate records the

following items in order to claim automobile deductions:    The

amount of each separate expenditure, the listed property’s

business and total usage, the date of the expenditure or use, and

the business purpose for an expenditure or use.    Sec. 274(d);

sec. 1.274-5T(b)(6), Temporary Income Tax Regs., 50 Fed. Reg.

46016 (Nov. 6, 1985).   To substantiate a deduction by means of

adequate records, a taxpayer must maintain an account book,

diary, log, statement of expense, trip sheets, and/or other

documentary evidence which, in combination, are sufficient to

establish each element of expenditure or use.    Sec. 1.274-

5T(c)(2)(i), Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov.

6, 1985).

     Petitioner had no such records.   Petitioner did not attempt

to satisfy the requirements of section 274(d).    Because of
                                 - 8 -


petitioner’s failure to substantiate the expenses as required

under section 274(d), respondent’s disallowance of car and truck

expense deductions is sustained in all respects.

     Respondent contends that petitioner is liable for additions

to tax pursuant to section 6651(a)(1).    Section 6651(a)(1)

imposes an addition to tax for failure to file a Federal income

tax return by its due date, determined with regard to any

extension of time for filing previously granted.     The addition

equals 5 percent for each month that the return is late, not to

exceed 25 percent.   Sec. 6651(a)(1).

     Additions to tax under section 6651(a)(1) are imposed unless

the taxpayer establishes that the failure was due to reasonable

cause and not willful neglect.    Sec. 6651(a)(1).   The taxpayer

must prove both reasonable cause and a lack of willful neglect.

Crocker v. Commissioner, 

, 912 (1989).     "Reasonable

cause" requires the taxpayer to demonstrate that he exercised

ordinary business care and prudence.     United States v. Boyle, 

, 246 (1985).   Willful neglect is defined as a

"conscious, intentional failure or reckless indifference."     Id.

at 245.

     Petitioner filed his 1993 return on September 16, 1996, and

his 1995 return on December 29, 1997.    Respondent established

that the returns were not filed by their due date.     Petitioner

made no argument and presented no evidence to show that his
                                 - 9 -


failure to file was due to reasonable cause and not due to

willful neglect.     Accordingly, we hold that petitioner is liable

for additions to tax under section 6651(a)(1) for the years 1993

and 1995 in the amounts of $794.25 and $389.75, respectively.

     Respondent contends that petitioner is also liable for the

section 6662(a) penalty.     Section 6662(a) provides for an

accuracy-related penalty in the amount of 20 percent of the

portion of an underpayment of tax attributable to, among other

things, negligence or disregard of rules or regulations.       Sec.

6662(a) and (b)(1).     Negligence is defined to include any failure

to make a reasonable attempt to comply with the provisions of the

Internal Revenue laws, and also includes any failure by the

taxpayer to keep adequate books and records, or to substantiate

items properly.     Sec. 6662(c); sec. 1.6662-3(b)(1), Income Tax

Regs.     Moreover, negligence is the failure to exercise due care

or the failure to do what a reasonable and prudent person would

do under the circumstances.     Neely v. Commissioner, 

,

947 (1985).     Disregard is defined to include any careless,

reckless, or intentional disregard of rules or regulations.       Sec.

6662(c); sec. 1.6662-3(b)(2), Income Tax Regs.

        Petitioner did not provide any substantiation at trial for

the deductions he claimed.     He did not maintain adequate records

as required under section 6001.     We find that respondent

established that petitioner was negligent and that he disregarded
                              - 10 -


the rules and regulations.   Petitioner made no argument to the

contrary.   Accordingly, we hold that petitioner is liable for

accuracy-related penalties under section 6662(a) for the years

1993, 1994, and 1995 in the amounts of $635.40, $82.00, and

$311.80, respectively.

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                         Decision will be entered

                                    for respondent for the

                                    deficiencies and the additions

                                    to tax under section 6651 and

                                    the penalties under section

                                    6662(a) and for petitioner

                                    for the additions to tax under

                                    section 6651(f).