T.C. Memo. 2001-165



                     UNITED STATES TAX COURT



                  FABIAN VAKSMAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4741-00.                       Filed July 3, 2001.


     Fabian Vaksman, pro se.

     Derek B. Matta, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     ARMEN, Special Trial Judge:   Respondent determined a

deficiency in petitioner’s Federal income tax for 1997 in the

amount of $2,217.
                                - 2 -

     After concessions by the parties,1 the issues for decision,

all of which involve the substantiation of deductions claimed by

petitioner on his Schedule C, are as follows:

     (1) Whether petitioner is entitled to a deduction for

depreciation on his automobile.    We hold that he is not.

     (2) Whether petitioner is entitled to a deduction for

cellular telephone expense.    We hold that he is not.

     (3) Whether petitioner is entitled to a deduction for

educational expense.    We hold that he is not.

     (4) Whether petitioner is entitled to a deduction, in excess

of the amount allowed by respondent in the notice of deficiency,

for business use of home.    We hold that he is not.

     Adjustments in the notice of deficiency relating to self-

employment tax under section 1401 and the deduction under section

164(f) for one-half the self-employment tax are mechanical

matters.2   The resolution of these adjustments depends solely on


     1
        Petitioner concedes that he failed to include $305 of
interest income from Chase Bank on his return. Respondent
concedes that petitioner is entitled to the deduction for “Davis
Petroleum expenses” as claimed by petitioner on Schedule C. The
parties agree that petitioner is entitled to a Schedule C
deduction for tax preparation fees in the amount of $198, rather
than $248 as claimed. (The parties also agree that petitioner is
entitled to a Schedule A deduction for tax preparation fees in
the amount of $127; however, that deduction will have no tax
effect if petitioner’s itemized deductions do not exceed the
standard deduction.) Finally, respondent concedes that the
examination of petitioner’s tax return began after July 22, 1998.
     2
         Unless otherwise indicated, all section references are to
                                                     (continued...)
                               - 3 -

our disposition of the disputed issues, as well as the parties’

concessions regarding the Schedule C deductions described supra

in note 1.

                         FINDINGS OF FACT

     Some of the facts have been stipulated, and they are so

found.   Petitioner resided in Houston, Texas, at the time that

his petition was filed with the Court.

     During 1997, the taxable year in issue, petitioner held

himself out as a Russian translator.

     On January 7, 1997, petitioner completed work on a contract

with Davis Petroleum Corp. of Houston, Texas (Davis Petroleum).3

Thereafter, from January 8, 1997, through the end of the year,

petitioner did not have any clients for whom he provided

translation services.

     During 1997, petitioner was registered with the History

Department of the University of Houston, where he was pursuing a

doctoral degree.   From May 1996 to February 1997, petitioner also

worked for the History Department as a research assistant,

focusing on Russian medieval history, for which he was paid a


     2
      (...continued)
the Internal Revenue Code in effect for 1997, the taxable year in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
     3
        On or about Jan. 27, 1997, Davis    Petroleum paid
petitioner $19,244 for services rendered    (and expenses incurred)
by petitioner from November 1996 through    Jan. 7, 1997. Most, if
not all, of the amount paid relates to a    trip to Kazakhstan.
                                 - 4 -

stipend.4

     During 1997, petitioner rented a one-bedroom apartment.

Petitioner had a land-line telephone in his apartment, and he

also had a cellular telephone.

     During 1997, petitioner owned a 1994 Pontiac automobile.

Petitioner did not maintain any log or other record regarding the

use of his vehicle.

Petitioner’s Income Tax Return

     Petitioner filed a Federal income tax return for 1997,

utilizing Form 1040PC, Format U.S. Individual Income Tax Return.5

Petitioner “attached” to his return several forms and schedules,

including the following: Schedule C, Profit or Loss From

Business; Form 4562, Depreciation and Amortization; and Form

8829, Expenses for Business Use of Your Home.



     4
       Petitioner testified that his work as a research assistant
in Russian medieval history “couldn’t really be reconciled with
[my] dissertation because I actually passed my orals in US
history”.
     5
        A Form 1040PC return is a computerized return prepared
using a personal computer; it is the forerunner of electronic
filing. IRS Publication 17 (1997 ed.) describes a Form 1040PC
return as follows:

          The computer prints the return in a three-column
     “answer sheet” format. It prints line numbers and
     dollar amounts (and/or supporting explanations if
     necessary) only for lines on which you made an entry.
     Supporting tax forms and schedules are also printed in
     this format. As a result, an 11-page conventional
     return requiring forms and schedules can be printed as
     a two-page 1040PC return.
                                 - 5 -

    Petitioner reported his tax liability on Form 1040PC as

follows:

           Wages                                $1,714
           Taxable interest                      3,518
           Business income (Schedule C)          4,434
           Unemployment compensation             2,837
           Total income                         12,503
           Less: ½ self-employment tax            -314
           Adjusted gross income                12,189
           Less: Standard deduction             -4,150
                                                 8,039
           Less: Personal exemption             -2,650
           Taxable income                        5,389

           Tax                                      806
           Self-employment tax                      627
           Total tax                              1,433
           Less: Payments                           -0-
                                                1
           Amount owed                            1,510
               1
               Includes estimated tax penalty
               in the amount of $77.


    Petitioner reported business income on Schedule C as

follows:

      Gross receipts [Davis Petroleum Corp.]          $19,244
      Less: Returns and allowances                        ---
      Gross profit                                     19,244
      Less: Cost of goods sold                            ---
      Gross income                                     19,244
      Less:
         Car and truck expenses      $2,048
         Depreciation (Form 4562)     1,325
         Legal and professional         500
         Office expense                 400
         Other expenses1              5,257
      Total expenses                                      -9,530
      Tentative profit                                     9,714
      Less: Business use of home (Form 8829)              -5,280
      Net profit                                           4,434
         1
           Other expenses [see next page]
                                   - 6 -

          1
           Other expenses
               Davis Petroleum expenses          $2,744
               Cellular telephone                   715
               Continuing education               1,550
               Tax preparation                      248
                                                  5,257


     In computing the $1,325 depreciation deduction on Form 4562,

petitioner determined his automobile’s depreciable basis by

applying a business use percentage (79.1 percent) against the

automobile’s reported cost basis ($16,500).          Petitioner

determined the business use percentage as follows:

       Total   business miles driven during year         11,865
       Total   commuting miles driven during year          ---
       Total   other personal miles driven during year    3,135
       Total   miles driven during year                  15,000

       Business use percentage =
       11,865 business miles/15,000 total miles = 79.10%


     In computing the $5,280 deduction for business use of home

on Form 8829, petitioner applied a business use percentage (80

percent) against the reported cost ($6,600) of keeping up and

running his apartment.      Petitioner determined the business use

percentage by dividing his estimate of the area used regularly

and exclusively for business (720 square feet) by the total area

of his apartment (900 square feet).
                               - 7 -

                             OPINION6

A.   Depreciation

      Petitioner claims that he drove his automobile 15,000 miles

in 1997 and that of this total, exactly 79.10 percent, or 11,865

miles, were for business.   We find this claim curious, given the

fact that (1) from January 8, 1997, through the end of the year,

petitioner did not have any clients for whom he provided

translation services and (2) petitioner did not maintain any log

or other record regarding the use of his vehicle.7

      By virtue of the strict substantiation requirements of

section 274(d)(4), no deduction is allowable with respect to any

listed property, as defined in section 280F(d)(4), on the basis

of any approximation or the unsupported testimony of the



      6
        We decide the issues in this case without regard to the
general rule of sec. 7491(a)(1), which was amended by the
Internal Revenue Service Restructuring and Reform Act of 1998,
Pub. L. 105-206, sec. 3001(a), 112 Stat. 685, 726, because the
record demonstrates that petitioner did not comply with the
requirements of sec. 7491(a)(2)(A) and (B). See Higbee v.
Commissioner, 116 T.C.     (June 6, 2001). Moreover, we do not
regard petitioner’s conclusory and self-serving statements as
credible evidence within the meaning of sec. 7491(a)(1). See id.
      7
       At trial, petitioner was asked how he differentiated
between business use and personal use of his vehicle.
Petitioner’s explanation, which was nonresponsive to the
question, was as follows:

           I do what’s feasible in this situation, and the
      cost of running this business had to be kept to a
      minimum, so to maintain separate logs like this would
      be very cumbersome. It’s an undue burden on a small
      business like this, so I did not have any such record.
                               - 8 -

taxpayer.   See Sanford v. Commissioner, 

, 827 (1968),

affd. per curiam 

 (2d Cir. 1969); Golden v.

Commissioner, T.C. Memo. 1993-602; sec. 1.274-5T(a), Temporary

Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).   “Listed

property” is defined to include a passenger automobile.   Sec.

280F(d)(4)(A)(i).

     In order to be allowed a deduction with respect to listed

property, the taxpayer must substantiate the deduction by

adequate records, or by sufficient evidence corroborating the

taxpayer’s own statement, showing: (1) The amount of such expense

or other item; (2) the time and place of the use of the property;

and (3) the business purpose of the expense or other item.   See

sec. 274(d); see also sec. 1.274-5T(b)(6), Temporary Income Tax

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

elements to be substantiated with respect to any listed

property); sec. 1.274-5T(c), Temporary Income Tax Regs., 50 Fed.

Reg. 46016 (Nov. 6, 1985) (regarding the specific rules of

substantiation).

     In view of the foregoing, we sustain respondent’s

determination and hold that petitioner is not entitled to any

deduction for depreciation on his automobile.8


     8
        The record demonstrates that petitioner may also not be
entitled to the other automobile-related deduction ($2,048) that
he claimed on Schedule C. See sec. 274(d)(4). However,
respondent did not disallow this deduction in the notice of
                                                   (continued...)
                                  - 9 -

B.   Cellular Telephone Expense

      Petitioner claims that he paid $715 for cellular telephone

service.    At trial, petitioner admitted that there was “some”

personal use of his cellular telephone; he insisted, however,

that such use was minimal and that his cellular telephone was

used principally in order to insure the safety and security of

his clients.9

      The record does not include any documentary evidence showing

that petitioner paid any particular amount of money to any

particular telephone company for cellular telephone service.

      A cellular telephone is classified as listed property under

section 280F(d)(4)(A)(v).    See Tarakci v. Commissioner, T.C.

Memo. 2000-358; Nitschke v. Commissioner, T.C. Memo. 2000-230.

Accordingly, no deduction is allowable with respect to a cellular

telephone on the basis of any approximation or the unsupported

testimony of the taxpayer.    See sec. 274(d)(4); see also Taracki

v. Commissioner, supra; Nitschke v. Commissioner, supra.


      8
      (...continued)
deficiency, nor did respondent ever assert any claim for an
increased deficiency or otherwise raise the issue. See sec.
6214(a). Accordingly, we do not address this matter.
      9
          Petitioner testified as follows:

      If I’m carrying a passenger who does not speak a word
      of English, * * * and he has a heart attack or
      something happen on the road or whatever, or he needs
      to talk to somebody on emergency basis, the cell phone
      is critical business expense to ensure * * *
      businessman safety.
                                - 10 -

      In view of the foregoing, we sustain respondent’s

determination and hold that petitioner is not entitled to any

deduction for cellular telephone expense.

C.   Educational Expense

     Petitioner claims that he paid $1,550 for “continuing

education”.    At trial, petitioner testified that this amount

represents what he paid to the University of Houston for

“dissertation hours” in the pursuit of a Ph.D degree in

history.10    The record does not include any documentary evidence

showing that petitioner paid any particular amount of money to

the University of Houston.    Regardless, the record does not

demonstrate that there was a “proximate and direct relationship”

between any educational expense that petitioner may have incurred

in pursuing a course of study in the History Department and his

job skills as a Russian translator.11    See Carroll v.

Commissioner, 

, 218 (1968), affd. 

 (7th

Cir. 1969); see also Schwartz v. Commissioner, 

, 889

(1978); Zimmer v. Commissioner, T.C. Memo. 1992-678; sec. 1.162-

5(a), Income Tax Regs.; cf. sec. 1.162-5(b)(1), Income Tax Regs.



     10
        Petitioner gave the impression that the focus of his
doctoral studies was American history when he testified that “I
actually passed my orals in U.S. history”.
     11
       Although petitioner’s work as a research assistant for
the History Department dealt with Russian medieval history,
petitioner’s academic orientation was apparently toward U.S.
history. See supra note 4.
                               - 11 -

     However, petitioner’s claim that the expense in question is

deductible is based principally not on the theory that the

expense is “educational”, but rather on the theory that

petitioner’s “affiliation” with the University was essential for

him to generate business.12

     In order for an expense to be deductible as a business

expense, the expense must be ordinary and necessary.   See sec.

162(a).   An expense is “ordinary” if it is "normal, usual, or

customary" in the taxpayer's trade or business.    Deputy v. du

Pont, 

, 495 (1940) (citing Welch v. Helvering, 

, 114 (1933)).   An expense is "necessary" if it is

"appropriate and helpful".    Welch v. Helvering, supra at 113.   In

deciding whether an expense is ordinary and necessary, we

generally focus on whether there is a reasonably proximate

relationship between the expense and the taxpayer's trade or

business.   See Henry v. Commissioner, 

, 884 (1961).

Conclusory statements by a taxpayer that the expense was incurred

in pursuit of the taxpayer’s trade or business are not sufficient



     12
       According to petitioner, when someone needs a Russian
translator:

     what they do is they call the university and they try
     to find within the university who knows someone there
     who can do this. So if I’m not affiliated, my name
     will not come up. Usually they call a professor of
     Russian, but they could call a lot of people, and
     that’s how this business–-the Davis Petroleum business
     was generated exactly that way.
                               - 12 -

to establish that the expense had a reasonably proximate

relationship to that trade or business.   See Ferrer v.

Commissioner, 

, 185 (1968), affd. per curiam 

 (2d Cir. 1969); see also Tokarski v. Commissioner, 

, 77 (1986) (“we are not required to accept the self-serving

testimony of petitioner * * * as gospel”).

     In the present case, petitioner was pursuing a doctoral

degree in an academic discipline that was unrelated to his trade

or business of being a Russian translator.   Petitioner failed to

demonstrate that the cost of pursuing such a degree was

reasonably proximate to his trade or business.   Indeed,

petitioner admitted that Davis Petroleum did not contact the

History Department of the University of Houston in search of a

Russian translator.13   The fact that petitioner was registered as

a doctoral candidate in the History Department at the time that

he was retained by Davis Petroleum does not, in our view, provide

a sufficient nexus between the cost of university enrollment and

petitioner’s particular trade or business.   Were it otherwise,

the cost of university enrollment, regardless of the underlying

academic discipline, would be deductible as a business


     13
        We take notice of the fact that the Yellow Pages for
major metropolitan areas such as Houston, Texas, includes a
listing for “Translators & Interpreters”. We also take notice of
the fact that the American Translators Association maintains both
a Translation Services Directory and searchable On-Line
Directories (www.ATAnet.org) that list individuals and companies
that provide translation services.
                               - 13 -

development expense; indeed, the cost of any activity or

undertaking, regardless of its relationship to a taxpayer’s trade

or business, would be similarly deductible.    The “ordinary and

necessary” requirement, which is an integral part of section

162(a), is not so elastic a concept as to countenance a marginal

relationship between an expense and a taxpayer’s trade or

business.

      In view of the foregoing, we sustain respondent’s

determination and hold that petitioner is not entitled to any

deduction for educational expense.

D.   Home Office Expense

      Petitioner deducted $5,280 for business use of home.

Petitioner claims that he used 80 percent of his one-bedroom

apartment for business and that the cost of keeping up and

running his apartment was $6,600.    In contrast, respondent

allowed a deduction in the amount of $1,588 based on a business

use percentage of 25 applied against documented rent expense of

$6,350.

      At trial, petitioner readily admitted that the 80 percent

figure was an estimate.    Petitioner sought to justify his

estimate through such testimony as “Even the bed is being used

when I’m translating” and “I have my staplers standing in the

bathroom.”

      As a general rule, section 280A(a) provides that no
                               - 14 -

deduction shall be allowed with respect to the use of a dwelling

unit that is used by the taxpayer during the year as a residence.

However, section 280A(c)(1) provides an exception for certain

business use of a dwelling unit, provided, however, that a

portion of the dwelling unit is exclusively used on a regular

basis.

     The fact that petitioner may use his bed when he translates

or that he may store his staplers in his bathroom is insufficient

to satisfy the requirement of section 280A(c)(1) regarding

exclusive use.   Moreover, the fact that petitioner did not have

any clients for whom he provided translation services from

January 8, 1997, through the end of the year undercuts

petitioner’s claim that he used 80 percent of his apartment for

business on a regular basis.

     In short, there is no persuasive evidence that more than 25

percent of petitioner’s apartment was “exclusively used on a

regular basis” for business, as required by section 280A(c)(1).

In addition, there is no evidence that such percentage should be

applied against any amount greater than $6,350.   Accordingly, we

sustain respondent’s determination and hold that petitioner is

not entitled to any deduction for business use of home greater

than that allowed in the notice of deficiency.
                             - 15 -

Conclusion

     To give effect to our disposition of the disputed issues, as

well as the parties’ concessions,



                                         Decision will be entered

                                    under Rule 155.