T.C. Summary Opinion 2009-126



                        UNITED STATES TAX COURT



                 GEORGE AND SUSAN GIST, Petitioners v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 30224-07S.            Filed August 6, 2009.



        Carter Vest, for petitioners.

     Jeremy L. McPherson, for respondent.



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

the provisions of section 7463 of the Internal Revenue Code in

effect when the petition was filed.     Pursuant to section 7463(b),

the decision to be entered is not reviewable by any other court,

and this opinion shall not be treated as precedent for any other

case.     Unless otherwise indicated, subsequent section references

are to the Internal Revenue Code (Code) in effect for the year in
                                - 2 -

issue, and all Rule references are to the Tax Court Rules of

Practice and Procedure.

     For 2003 respondent determined a $22,085 deficiency in

petitioners’ Federal income tax and an accuracy-related penalty

under section 6662(a).    The remaining issues1 for decision are

whether petitioners are entitled to deductions for section 179

expenses with respect to a vehicle (Ford F-250), automobile

insurance, vehicle license fees, and gasoline, fuel, and oil and

whether petitioners are liable for the accuracy-related penalty

under section 6662(a).
                             Background

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the exhibits received into evidence

are incorporated herein by reference.     When the petition was

filed, petitioners resided in California.

     In 2003 George Gist (Mr. Gist) and Susan Gist (Mrs. Gist)

resided in Oroville, California.    Mr. Gist worked for All Metals,


     1
      Petitioners presented neither evidence nor argument that
they are entitled to their claimed deductions or to allowances
greater than the amounts that respondent determined with respect
to custom hire; other (rent); water; sec. 179 expenses consisting
of a Quad, a Quad trailer, 3.5 acres of olive trees, a storage
building, and six duck blinds; a special depreciation allowance
under sec. 168(k); and a depreciation allowance for 7-year
property with a $4,900 basis for depreciation. Petitioners are
therefore deemed to have conceded or abandoned the issues. See
Leahy v. Commissioner, 

, 73-74 (1986); Nielsen v.
Commissioner, 

, 312 (1973). Petitioners also concede
that the adjustments to their itemized deductions are
computational matters.
                               - 3 -

Inc. in or around Santa Clara, California.    Mr. Gist also owned

and operated an olive orchard and pastured cows (collectively the

farm activity).   Mrs. Gist owned and operated Reflections Hair

and Nail Studio in Oroville.   Petitioners also established and

operated G & S Hunting Club.

     G & S Hunting Club consists of “quality” duck and goose

hunting on 111 acres of land near Princeton, California.

Petitioners rented that land for $3,330 for the 2003-04 hunting

season.   They sold three memberships in G & S Hunting Club at

$1,500 each to Richard Nodlinski, Aaron Scott (Mr. Scott), and

Clayton McCoy for the 2003-04 hunting season.    Petitioners

operated G & S Hunting Club during each hunting season through

2007.

     On or about December 12, 2003, petitioners purchased a Ford

F-250 for $53,625.50 (which included a service contract of $1,786

and license and titling fees of $574).    On their 2003 Federal

income tax return they elected under section 179 to expense the

cost of the Ford F-250.   They did not maintain during 2003 a

written log of their expenditures or uses of their Ford F-250 or

other vehicles.

     Petitioners’ 2003 Federal income tax return was prepared by

a certified public accountant (C.P.A.).    The income and expenses

of G & S Hunting Club and petitioners’ farming activity were

reported on a single Schedule F, Profit or Loss From Farming,
                               - 4 -

which described their principal product as “OLIVES/CATTLE.”    The

Schedule F reported gross income of $5,001, which consisted of

sales of livestock and produce of $2,001 and other income of

$3,000,2 and total expenses of $77,345 for a $72,344 farm loss.

      Respondent examined petitioners’ 2003 Federal income tax

return.   During the examination petitioners signed on August 10,

2007, a Form 870, Waiver of Restrictions on Assessment and

Collection of Deficiency in Tax and Acceptance of Overassessment,

in which they agreed to the assessment of additional income tax

of $4,077 and an accuracy-related penalty of $632.   Thereafter,

on October 16, 2007, respondent mailed a notice of deficiency to

petitioners.

                            Discussion

I.   Burden of Proof

      The Commissioner’s determinations in a notice of deficiency

are presumed correct, and the taxpayer bears the burden to prove

that the determinations are in error.    See Rule 142(a); Welch v.

Helvering, 

, 115 (1933); see also INDOPCO, Inc. v.

Commissioner, 

, 84 (1992) (stating that deductions are

strictly a matter of legislative grace and taxpayers bear the

burden of proving that they are entitled to claim the deduction).

But the burden of proof on factual issues that affect the


      2
      Mr. Gist conceded that petitioners understated G & S
Hunting Club’s income by $1,500 (i.e., they should have reported
$4,500, not $3,000).
                                   - 5 -

taxpayer’s tax liability may be shifted to the Commissioner if

the taxpayer introduces credible evidence with respect to the

issue and the taxpayer satisfies certain conditions.         Sec.

7491(a)(1) and (2).       Petitioners have not alleged that section

7491(a) applies, and they have neither complied with the

substantiation requirements nor maintained all required records.

See sec. 7491(a)(2)(A) and (B).       Accordingly, the burden of proof

remains on them.

II.    Sections 162, 179, 274, 280F, 6001 and the Regulations
       Thereunder

       Section 162(a) authorizes a deduction for all the ordinary

and necessary expenses paid or incurred during the taxable year

in carrying on any trade or business.       And when property is used

in a trade or business or held for the production of income, the

taxpayer may be allowed a depreciation deduction.       Secs. 167 and

168.       Alternatively, in certain circumstances the cost of

“section 179 property”3 may be expensed and deducted in the year

that the property is placed in service.       Sec. 179(a).    If the

property is used for both business and other purposes, then the

portion of the cost that is attributable to the business use is

eligible for expensing under section 179(a) but only if more than

50 percent of the use is for business purposes.       Sec. 1.179-1(d),



       3
      See sec. 179(d) for the definition of the term “section 179
property”.
                                   - 6 -

Income Tax Regs.       In addition, the deduction allowable under

section 179(a) with respect to any listed property is subject to

the limitations of section 280F(a),4 (b),5 and (d)(3) in the same

manner as if it were a recovery deduction allowable under section

168.       Sec. 280F(d)(1); sec. 1.280F-2T(b), Temporary Income Tax

Regs., 49 Fed. Reg. 42701 (Oct. 24, 1984).

       The term “listed property” is defined to include passenger

automobiles and any other property used as a means of

transportation.       Sec. 280F(d)(4)(A)(i) and (ii).   The term

“passenger automobile” means any four-wheeled vehicle that is

manufactured primarily for use on public streets, roads, and

highways and is rated at 6,000 pounds gross vehicle weight or

less in the case of a truck or van.        Sec. 280F(d)(5).

       The parties have stipulated that the gross vehicle weight of

the Ford F-250 is 8,800 pounds.       The Ford F-250 therefore is

excepted from the definition of “passenger automobile”.        See sec.

280F(d)(5).       Consequently, petitioners’ deduction for

depreciation and section 179 expenses on Schedule C, Profit or


       4
      Sec. 280F(a)(1) and (d)(7) limits the depreciation
deduction for passenger automobiles to certain amounts for the
applicable recovery period. See Rev. Proc. 2003-75, sec. 4.01
and .02, 2003-2 C.B. 1018, 1019-1022, for the applicable amounts
of the limitations.
       5
      Sec. 280F(b) provides that if listed property is not used
predominantly in a qualified business use, then the depreciation
deduction for the property is determined under sec. 168(g)
(relating to the alternative depreciation system; i.e., the
straight-line method) rather than sec. 168(a).
                               - 7 -

Loss From Business, is not limited by section 280F(a).    See supra

note 4.   But the “catch all” provision of section

280F(d)(4)(A)(ii) (relating to any other property used as a means

of transportation) nevertheless applies; and because the

exception in section 280F(d)(4)(C)6 does not apply, the Ford F-

250 is listed property.   In addition, the Ford F-250 is not a

qualified nonpersonal use vehicle.7    In short, petitioners’

deductions for section 179 expenses, automobile insurance,

vehicle license fees, and gasoline, fuel, and oil must be

substantiated in accordance with sections 274(d) and 6001 and the

regulations thereunder.

     Generally, section 274(d) provides that no deductions are

allowed for gifts, listed property, traveling, entertainment,

amusement, or recreation unless substantiated.    Section 6001

requires taxpayers to keep records sufficient to establish the

amounts of the items required to be shown on their Federal income

tax returns.   If the taxpayer establishes that he has incurred a


     6
      The term “listed property” does not include any other
property used as a means of transportation if substantially all
of the use of it is in a trade or business of providing to
unrelated persons services consisting of the transportation of
persons or property for compensation or hire. Sec.
280F(d)(4)(C).
     7
      The flush language of sec. 274(d) provides that any
qualified non-personal-use vehicle (as defined in sec. 274(i)) is
not subject to the substantiation requirements of sec. 274(d).
See sec. 1.274-5T(k)(2)(ii), Temporary Income Tax Regs., 50 Fed.
Reg. 46033 (Nov. 6, 1985), for a list of examples of vehicles
that constitute qualified non-personal-use vehicles.
                               - 8 -

deductible expense yet is unable to substantiate the exact

amount, the Court may estimate a deductible amount in some

circumstances.   Cohan v. Commissioner, 

, 543-544 (2d

Cir. 1930).   But the Court cannot estimate a taxpayer’s expenses

with respect to the items enumerated in section 274(d).     Sanford

v. Commissioner, 

, 827 (1968), affd. per curiam 

(2d Cir. 1969); Rodriguez v. Commissioner, T.C. Memo.

2009-22.

     Section 274(d) and the regulations thereunder require

taxpayers to substantiate their deductions for listed property by

adequate records or sufficient evidence to corroborate the

taxpayer’s own testimony as to:   (1) The amount of the

expenditure (e.g., the cost of acquisition, maintenance or

repairs, or other expenditures); (2) the amount of each business

use and total use by establishing the amount of its business

mileage and total mileage in the case of automobiles and other

means of transportation; (3) time (i.e., the date of the

expenditure or use); and (4) the business purpose for the

expenditure or use.   Sec. 1.274-5T(b)(6), Temporary Income Tax

Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).

     The regulation further provides that taxpayers must maintain

and produce such substantiation as will constitute proof of each

expenditure or use.   Sec. 1.274-5T(c)(1), Temporary Income Tax

Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).   Written evidence has
                                 - 9 -

considerably more probative value than oral evidence, and the

probative value of written evidence is greater the closer in time

it is to the expenditure or use.

log is not required, a record made at or near the time of the

expenditure or use that is supported by sufficient documentary

evidence has a higher degree of credibility than a subsequently

prepared statement.

required to

support a statement not made at or near the time of the

expenditure or use must have a high degree of probative value to

elevate the statement and evidence to the level of credibility

reflected by a record made at or near the time of the expenditure

or use supported by sufficient documentary evidence.

adequate records requirement, the taxpayer

shall maintain an account book, a diary, a log, a statement of

expense, trip sheets, or a similar record and documentary

evidence that 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).       The

adequate record must be prepared or maintained in such manner

that each recording of an element or use is made at or near the

time of the expenditure or use.    Sec. 1.274-5T(c)(2)(ii),

Temporary Income Tax 

.       “‘[M]ade at or near the time

of the expenditure or use’ means [that] the elements of an

expenditure or use are recorded at a time when, in relation to
                               - 10 -

the use or making of an expenditure, the taxpayer has full

present knowledge of each element of the expenditure or use”.

Sec. 1.274-5T(c)(2)(ii)(A), Temporary Income Tax 

.

     The level of detail required in an adequate record to

substantiate the taxpayer’s business use may vary depending on

the facts and circumstances.   Sec. 1.274-5T(c)(2)(ii)(C),

Temporary Income Tax Regs., 50 Fed. Reg. 46018 (Nov. 6, 1985).

For example, a taxpayer’s use of a vehicle for both business and

personal purposes and whose only business use of the vehicle is

to make deliveries to customers on an established route may

satisfy the adequate record requirement by recording the total

number of miles driven during the taxable year, the length of the

delivery route, and the date of each trip at or near the time of

the trips or by establishing the date of each trip with a

receipt, record of delivery, or other documentary evidence.

Income Tax 

, provides that a written statement of the business purpose

is generally required in order to constitute an adequate record

of business purpose unless the business purpose is evident from

the surrounding facts and circumstances.   “For example, in the

case of a salesman calling on customers on an established sales

route, a written explanation of the business purpose of such

travel ordinarily will not be required.”

     Petitioners did not keep an adequate written record with

respect to the Ford F-250 or their other vehicles.   Rather, their

evidence consists of a computer printout from their insurer

showing that they made two payments of $289.85 in 2003, a retail

installment sale contract for the Ford F-250 with a purchase

price of $53,625.50, and Mr. Gist’s testimony and that of his

witness, Mr. Scott.

     Mr. Gist testified that he purchased the Ford F-250 late in

the evening on December 13, 2003.   He testified that on December

14, 2003, he drove it from the dealership to his home in

Oroville, put trailer hitches on it, loaded it up with equipment,

such as the Quad, and “placed it into service” on the morning of

December 15, 2003.    He testified that on the morning of December

15, 2003, he drove the Ford F-250 from his home in Oroville to

Princeton to pick up G & S Hunting Club’s members, and he

transported the members and their equipment to G & S Hunting

Club.   He testified that once the hunters were in their blinds,

the Ford F-250 remained parked on G & S Hunting Club’s property,

unless he took the hunters to Willows, California, for supplies

or lunch.   He testified that he drove to G & S Hunting Club 15

days, starting December 16, 2003, except for Christmas, because

he had a 7-year-old daughter who “wanted Santa Claus at the

house”.   According to Mr. Gist, he recalls that December 15,

2003, was the day that he first placed the Ford F-250 into
                               - 12 -

service because:    “That’s the first chance I had to make that

trip * * * [with the Ford F-250], it was kind of exciting.”      He

also testified that it was 106 miles round trip from Oroville to

G & S Hunting Club and 29 miles round trip from G & S Hunting

Club to Willows.    Lastly, he testified that he did not use the

Ford F-250 for any other purpose in 2003.

     Mr. Scott testified that Mr. Gist picked them up in

Princeton and drove them to G & S Hunting Club and sometimes they

went to Willows for lunch or shells.    He also testified that he

hunted every day from December 15 through 31, 2003, except

Christmas Eve, Christmas Day, and New Year’s Eve.    Mr. Scott

recalls that he did not hunt on December 24 and 25, 2003, because

he spent those days with his father’s family on the 24th and his

mother’s family on the 25th.    He also added that he did not hunt

on December 31, 2003, because he was attending a New Year’s Eve

party at a friend’s home in Vacaville, California, that he

attends every year.

     Petitioners’ evidence fails to establish the amount of each

expenditure.    For example, they provided no receipts to

substantiate their claimed $4,800 deduction for gasoline, fuel,

and oil.    In addition, they substantiated payments of only

$579.70 of their claimed $3,358 deduction for insurance and

payments of only $574 of their claimed $1,219 deduction for

licenses.    Moreover, there is no evidence of the amount of each
                                    - 13 -

business use of the Ford F-250 versus its total use, other than

Mr. Gist’s testimony that it was 106 miles round trip from

Oroville to G & S Hunting Club and 29 miles round trip from G & S

Hunting Club to Willows.         Lastly, their evidence does not

establish the business purpose of each expenditure or use.

Accordingly, the Court holds that petitioners are not entitled to

their claimed deductions for section 179 expenses with respect to

the Ford F-250, automobile insurance, vehicle license fees, and

gasoline, fuel, and oil.         See secs. 274(d), 6001; sec. 1.274-

5T(c)(1), Temporary Income Tax 

(the substantiation

requirements are designed to encourage taxpayers to maintain

records and documentary evidence).           Respondent’s determination is

sustained.

III.       G & S Hunting Club:    40-Percent Reduction for Personal Use

       Respondent determined that petitioners’ deductions8 with

respect to G & S Hunting Club should be reduced by 40 percent

because of Mr. Gist’s personal use.

       Mr. Gist testified that he quit hunting on a regular basis

around 2001 on account of the death of his “hunting buddy”, his

son.       He testified that when he is at G & S Hunting Club he is

taking care of business such as checking water, maintenance or



       8
      Respondent allowed deductions of $3,000 for rent, $830 for
water, and $6,549 for the Quad (as depreciation and sec. 179
expenses).
                                 - 14 -

making repairs, and performing services for the members such as

chasing down birds or calling birds for them, depending on the

weather.   According to Mr. Gist, he never used G & S Hunting Club

“for that purpose” (i.e., hunting).       Finally, he testified that

he is not an active hunter because the “whole side of my face is

all bridge”, which has been knocked loose twice by a shotgun, and

it is $18,000 if it breaks.   But he also testified that he paid

to hunt a couple of times at a club that opened next to G & S

Hunting Club a couple of years after he started G & S Hunting

Club to see how the property hunted and to determine whether he

wanted to acquire it.

      Mr. Scott testified that Mr. Gist “[brought] everyone out to

the blinds, he [got] everything prepared.”       He also testified

that Mr Gist would get out of the Ford F-250, unload the Quad,

and “then drive us out there, shuttle us, basically with our

equipment.”

      Petitioners have not carried their burden of proving that

respondent erred in reducing the deductions for G & S Hunting

Club by $4,152 (or 40 percent) and allocating that amount as a

personal expense.   The disallowance of the $4,152 as a business

expense is sustained.   See sec. 262(a); Rule 142(a).

IV.   Accuracy-Related Penalty

      Initially, the Commissioner has the burden of production

with respect to any penalty, addition to tax, or additional
                                   - 15 -

amount.       Sec. 7491(c).   The Commissioner satisfies this burden of

production by coming forward with sufficient evidence that

indicates that it is appropriate to impose the penalty or

addition to tax.       Higbee v. Commissioner, 

, 446

(2001).       Once the Commissioner satisfies this burden of

production, the taxpayer must persuade the Court that the

Commissioner’s determination is in error by supplying sufficient

evidence of reasonable cause, substantial authority, or a similar

provision.

section 6662(a) and (b)(1) and (2)

imposes an accuracy-related penalty equal to 20 percent of the

underpayment that is attributable to negligence or disregard of

rules or regulations or a substantial understatement of income

tax.9       Section 6662(c) defines the term “negligence” to include

“any failure to make a reasonable attempt to comply with the

provisions of this title,” and the term “disregard” to include

“any careless, reckless, or intentional disregard.”       Negligence

also includes any failure by the taxpayer to keep adequate books

and records or to substantiate items properly.       Sec. 1.6662-

3(b)(1), Income Tax Regs.




        9
      Because the Court finds that petitioners were negligent or
disregarded rules or regulations, the Court need not discuss
whether there is a substantial understatement of income tax. See
sec. 6662(b); Fields v. Commissioner, T.C. Memo. 2008-207.
                                - 16 -

     Section 6664(c)(1) is an exception to the section 6662(a)

penalty:   no penalty is imposed with respect to any portion of an

underpayment if it is shown that there was reasonable cause

therefor and the taxpayer acted in good faith.        Section

1.6664-4(b)(1), Income Tax Regs., incorporates a facts and

circumstances test to determine whether the taxpayer acted with

reasonable cause and in good faith.      The most important factor is

the extent of the taxpayer’s effort to assess his/her proper tax

liability.

indicate reasonable

cause and good faith include an honest misunderstanding of fact

or law that is reasonable in light of * * * the experience,

knowledge, and education of the taxpayer.”

of petitioners’ 2003 Federal income

tax return they agreed to the assessment of additional income tax

of $4,077 and an accuracy-related penalty of $632.        At trial Mr.

Gist conceded that petitioners understated G & S Hunting Club’s

income by $1,500.    See supra note 2.    In addition, petitioners

effectively conceded that they are not entitled to their claimed

deductions or to allowances greater than the amounts that

respondent determined with respect to custom hire; rent; water;

section 179 expenses consisting of the Quad, the Quad trailer,

3.5 acres of olive trees, a storage building, and six duck

blinds; a special depreciation allowance under section 168(k);

and a depreciation allowance for 7-year property with a $4,900
                                - 17 -

basis for depreciation.    See supra note 1.   Petitioners also have

not maintained adequate books or records nor substantiated their

deductions in accordance with sections 274 and 6001 and the

regulations thereunder.    See sec. 1.6662-3(b)(1), Income Tax

Regs.   The Court, therefore, finds that respondent has met his

burden of production.     Petitioners were negligent, and they have

not established a defense for their noncompliance with the Code’s

requirements.   Respondent’s determination is therefore sustained.

     Other arguments made by the parties and not discussed herein

were considered and rejected as irrelevant, without merit, and/or

moot.

     To reflect the foregoing,


                                           Decision will be entered

                                      for respondent.