T.C. Memo. 2007-139



                      UNITED STATES TAX COURT



                   HON PUI YIP, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 689-06.                 Filed June 4, 2007.



     Hon Pui Yip, pro se.

     Stephanie M. Profitt, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     HAINES, Judge:   Respondent determined a deficiency in

petitioner’s 2001 Federal income tax of $58,956.1   After




     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended, and Rule references are to
the Tax Court Rules of Practice and Procedure. Amounts are
rounded to the nearest dollar.
                               - 2 -

concessions,2 the issues for decision are:   (1) Whether

petitioner is entitled to deduct on Schedule C, Profit or Loss

From Business, expenses in an amount greater than determined by

respondent; and (2) whether petitioner is liable for self-

employment tax.

                          FINDINGS OF FACT

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   At the time he filed his

petition, petitioner resided in San Bruno, California.

     During 2001, petitioner operated Sam Transportation, a

transportation company.   Petitioner’s sister and brother-in-law

also participated in Sam Transportation.

     Petitioner timely filed his 2001 Federal income tax return,

reporting adjusted gross income of $9,211 and total tax of $377.

Petitioner did not report any items from the operation of Sam

Transportation on his tax return.




     2
        The parties agree that petitioner: Correctly reported
gross receipts of $403,845 on his Schedule C, Profit or Loss From
Business; is entitled to a deduction of $1,142 for self-
employment health insurance; and, pursuant to sec. 164(f), is
entitled to a self-employment tax deduction of one-half of the
self-employment tax imposed by sec. 1401. The amount of the
self-employment tax deduction, as well as petitioner’s personal
exemption and a rate reduction credit, are computational matters
that the parties shall resolve as part of their Rule 155
computations.
                                - 3 -

     On October 9, 2003, respondent received petitioner’s 2001

amended Federal income tax return and an attached Schedule C

which identified petitioner as the sole proprietor of Sam

Transportation.    On the Schedule C, petitioner reported gross

receipts of $403,845, total expenses of $536,473, and a net loss

of $132,628.    As a result of the net loss, petitioner decreased

his adjusted gross income by $132,628 and reported total tax of

zero.

     At some point after petitioner filed his original tax

return, respondent commenced an examination for petitioner’s 2001

tax year.    On February 14, 2005, petitioner executed a Form 872,

Consent to Extend the Time to Assess Tax, which extended the time

within which respondent could assess any Federal income tax due

with respect to petitioner’s 2001 tax year to April 15, 2006.

     On November 3, 2005, respondent issued petitioner a notice

of deficiency.    On the basis of bank deposits, respondent

determined petitioner received Schedule C gross receipts of

$416,903.3     Because petitioner substantiated only $260,111 of

the claimed Schedule C expenses, respondent determined petitioner

was entitled to deduct Schedule C expenses only to the extent

substantiated.    Respondent increased petitioner’s total income to

$154,312, determined petitioner was liable for self-employment



     3
        Respondent concedes that petitioner correctly reported
Schedule C gross receipts of $403,845. See supra note 2.
                                 - 4 -

tax of $13,150, and determined a deficiency in petitioner’s 2001

Federal income tax of $58,956.

     In response to the notice of deficiency, petitioner filed

his petition with this Court on January 9, 2006.

                              OPINION

     Deductions are a matter of legislative grace, and a taxpayer

bears the burden of proving that he has complied with the

specific requirements for any deduction he claims.4   See INDOPCO,

Inc. v. Commissioner, 

, 84 (1992); New Colonial Ice

Co. v. Helvering, 

, 440 (1934).   A taxpayer may

deduct all ordinary and necessary expenses paid or incurred

during the taxable year in carrying on any trade or business if

the taxpayer maintains sufficient records to substantiate the

expenses.   Secs. 162(a), 6001; Deputy v. du Pont, 

,

495-496 (1940); sec. 1.6001-1(a), Income Tax Regs.    If a claimed

business expense is deductible, but the taxpayer is unable to

substantiate it, we are generally permitted to approximate the

amount of the expense if we have a reasonable evidentiary basis




     4
        Under sec. 7491(a)(1), if the taxpayer introduces
credible evidence with respect to any factual issue, the burden
of proof shall shift to the Commissioner. On this issue, the
burden of proof does not shift to respondent because petitioner
did not maintain adequate books and records and was unable to
substantiate $276,362 of the claimed Schedule C expenses. See
sec. 7491(a)(2).
                               - 5 -

for the estimate.   Cohan v. Commissioner, 

, 543-544

(2d Cir. 1930); Vanicek v. Commissioner, 

, 743 (1985).

     The parties stipulated that petitioner substantiated only

$260,111 of the $536,473 in claimed Schedule C expenses.

Petitioner asserts that he was unable to substantiate the

remaining $276,362 because his sister and brother-in-law now

operate Sam Transportation and either they refused to give

petitioner the records or the records were destroyed by fire.

While the Court found petitioner to be sincere, we are

nevertheless unable to approximate the amount of expenses because

we do not have a reasonable evidentiary basis on which to do so.

Therefore, we sustain respondent’s determination that petitioner

is entitled to deduct Schedule C expenses only to the extent

substantiated, $260,111.

     Section 1401 imposes a tax on the self-employment income of

individuals.   Self-employment income means the net earnings from

self-employment derived by an individual.    Sec. 1402(b).

Respondent determined that the net profit petitioner received

from the operation of Sam Transportation constituted self-

employment income and, consequently, petitioner was liable for

self-employment tax.   Petitioner bears the burden of proving

respondent’s determination incorrect.    See Rule 142(a); Welch v.

Helvering, 

, 115 (1933).    Petitioner presented no

testimony or other evidence regarding his liability for self-
                                 - 6 -

employment tax and has failed to meet his burden of proof.

Therefore, we sustain respondent’s determination that petitioner

is liable for self-employment tax.

     In reaching our holdings, we have considered all arguments

made, and, to the extent not mentioned above, we conclude that

they are moot, irrelevant, or without merit.

     To reflect the foregoing,


                                               Decision will be

                                         entered under Rule 155.