T.C. Summary Opinion 2009-173



                     UNITED STATES TAX COURT



     ANTHONY T. YOUNG AND KIMBERLEE M. YOUNG, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5130-05S.              Filed November 23, 2009.



     Anthony T. Young, pro se.

     Alex Shlivko, for respondent.



     CARLUZZO, 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.1   Pursuant to section




     1
      Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986, as amended, in effect for the year
in issue. Rule references are to the Tax Court Rules of Practice
and Procedure.
                               - 2 -

7463(b), the decision to be entered is not reviewable by any

other court, and this opinion shall not be cited as precedent for

any other case.

     In a notice of deficiency dated December 16, 2004,

respondent determined a $6,962 deficiency in and a $1,392.40

section 6662(a) accuracy-related penalty with respect to

petitioners’ 2002 Federal income tax.

     After concessions, the issues for decision are as follows:

(1) Whether petitioners are entitled to a charitable contribution

deduction; (2) whether petitioners are entitled to a deduction

for employee business expenses; (3) whether petitioners are

entitled to a deduction for expenses claimed on a Schedule C,

Profit or Loss From Business, relating to a business identified

as “GASY Investment Co.”; and (4) whether petitioners are liable

for a section 6662(a) accuracy-related penalty.

                            Background

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

the time the petition was filed, petitioners resided in New York.

Petitioners are and were at all times relevant married to each

other.   They filed a timely 2002 joint Federal income tax return.

     During 2002 Anthony T. Young (petitioner), who holds a

bachelor’s degree in economics and has taken some courses towards
                               - 3 -

a postgraduate degree, was employed as a salesperson by Salomon

Smith Barney, Inc.   Kimberlee M. Young was employed as a

veterinarian by Secaucus Animal Hospital.

     On January 24, 2003, petitioners’ residence and its contents

suffered significant damages due to a furnace malfunction that

allowed the water pipes in the house to freeze and ultimately

burst.   Petitioners were out of town at the time.

     Petitioners are members of the Greater Faith Church of the

Abundance in Haledon, New Jersey.   During 2002 they made

contributions in cash and property to that organization.    The

property contributions consisted of computer equipment, including

monitors, central processing units, and keyboards.2

     Petitioner prepared petitioners’ 2002 joint Federal income

tax return using a computer-based, income tax return preparation

program.   Before the return was filed, it was “reviewed and

revised” by a paid income tax return preparer.

The incomes earned and received from their respective

employers are shown on Forms W-2, Wage and Tax Statement, and

reported on the return.   Included with petitioners’ 2002 return

are a Schedule A, Itemized Deductions, and a Schedule C.




     2
      This is as specific a description as the record allows.
                                   - 4 -

     As relevant here, the following deductions are claimed on

the Schedule A:

                       Deduction                  Amount

             Cash gifts to charity                $1,923
             Gifts to charity other than cash      4,843
             Employee business expenses           34,240

According to petitioner, the cash gifts to charity consist in

part of contributions to Greater Faith Church of the Abundance

and in part of contributions to animal rescue organizations.

According to a Form 8283, Noncash Charitable Contributions,

included with petitioners’ 2002 return, the gifts to charity made

other than in cash were made to the Salvation Army in Secaucus,

New Jersey, and consist of “clothing”, “toys”, “couch, chairs,

dresser”.3    The employee business expense deduction relates to

Kimberlee Young’s employment as a veterinarian with Secaucus

Animal Hospital.

     The Schedule C relates to a business identified as “GASY

Investment Co.”; its principal business is shown as

“Consultant/Brokerage Sales & Trading”.     Petitioner is listed as

the proprietor of GASY on the Schedule C.       No income is reported

on the Schedule C; as relevant here the following deductions are

claimed:




     3
      See supra note 2.
                                 - 5 -

                     Deduction                Amount

           Advertising                        $2,781
           Car and truck expenses              4,699
           Legal and professional services     2,075
           Travel                              1,730
           Meals                               1,825
           Other expenses                      3,955

     In the above-referenced notice of deficiency, respondent:

(1) Disallowed the charitable contribution deduction; (2)

disallowed the employee business expense deduction; (3)

disallowed the above-listed deductions claimed on the Schedule C;

and (4) imposed a section 6662(a) accuracy-related penalty.

According to the notice of deficiency, petitioners failed to

substantiate the amounts of the disallowed deductions.    Other

adjustments made in the notice of deficiency are computational

and need not be addressed.

                             Discussion

     We begin by noting, as we have observed in countless

opinions, that deductions are a matter of legislative grace, and

the taxpayer bears the burden of proof to establish entitlement

to any claimed deduction.4   Rule 142(a); INDOPCO, Inc. v.

Commissioner, 

, 84 (1992); New Colonial Ice Co. v.

Commissioner, 

, 440 (1934); Hradesky v. Commissioner,

, 90 (1975), affd. per curiam 

(5th Cir.

1976).   A taxpayer claiming a deduction on a Federal income tax


     4
      Petitioners do not claim that the provisions of sec.
7491(a) are applicable, and we proceed as though they are not.
                                - 6 -

return must demonstrate that the deduction is allowable pursuant

to some statutory provision and must further substantiate by

adequate records that the expense to which the deduction relates

has been paid or incurred.   See sec. 6001; Hradesky v.

Commissioner, supra; sec. 1.6001-1(a), Income Tax Regs.

     None of the deductions here in dispute have been adequately

substantiated by any written records or documents admitted into

evidence.   According to petitioner, his 2002 tax records were

damaged, destroyed, or otherwise lost when the water pipes in his

house burst in January 2003.5   Petitioner explained his failure

to attempt to reconstruct any of the records upon his mistaken

belief that the case had been settled.   According to petitioner,

he did not learn otherwise until shortly before the trial date,

and he did not have sufficient time to contact third parties in

an attempt to acquire copies of canceled checks, etc.

Sympathetic to petitioners’ dilemma, the Court allowed the record

to remain open for a substantial period to allow for the

introduction of additional evidence by stipulation or further

trial.   The parties apparently could not agree to any further

stipulations, and neither party requested further trial.




     5
      Set against evidence establishing the date of this event,
petitioner testified that at the time he prepared the 2002 return
(which is dated Apr. 15, 2003), his tax records, including
records to support the deductions claimed on that return, were
available to and relied upon by him.
                              - 7 -

     As it stands, the evidence in this case consists of:    (1)

Petitioner’s testimony; (2) a copy of petitioners’ 2002 joint

Federal income tax return; (3) a copy of the notice of deficiency

that forms the basis for this case; (4) a copy of an invoice from

petitioners’ accountant showing that their 2002 return was

“reviewed and revised” in April 2003; (5) documents demonstrating

the damages to petitioners’ residence as described above; and (6)

a letter dated in 2005 from the pastor of petitioners’ church

acknowledging donations of computer equipment during 2002.

     Petitioners are both well educated, and the manner in which

petitioner proceeded at trial demonstrates that he is

sophisticated in Federal income tax matters.   That being so, we

are satisfied that little discussion is required to support our

resolution of each of the issues here in dispute.

Charitable Contribution Deduction

     In general, section 170(a) allows a deduction for any

charitable contribution made within the taxable year if properly

verified pursuant to regulations promulgated by the Commissioner.

The charitable contribution deduction claimed on the return and

disallowed in the notice of deficiency consists in part of cash

donations and in part of donations made in property.    Petitioner

testified that some of the cash donations were made by check, but

no canceled checks were produced to support his testimony or the

amount shown on the return.
                                 - 8 -

     With respect to the property donations, petitioner testified

that from time to time during 2002 various items of clothing were

left in containers placed by the Salvation Army.    He also

testified that he donated computer equipment to his church, a

donation evidenced by a letter from the church’s pastor.      The

donations made to the Salvation Army are shown on petitioners’

2002 return; the donation of computer equipment is not.

     After careful review of the evidence, we find that

petitioners are entitled to a charitable contribution deduction

totaling $1,500.

Employee Business Expense Deduction

     In general, section 162(a) allows a deduction for ordinary

and necessary expenses paid or incurred during the taxable year

in carrying on any trade or business.    The term “trade or

business” as used in section 162(a) includes the trade or

business of being an employee.     Primuth v. Commissioner, 

, 377-378 (1970); Christensen v. Commissioner, 

(1952).   In general, an expense is ordinary if it is considered

normal, usual, or customary in the context of the particular

business out of which it arose.    See Deputy v. du Pont, 

, 495 (1940).   In general, an expense is necessary if it is

appropriate and helpful to the operation of the taxpayer’s trade

or business. See Commissioner v. Tellier, 

(1966);

Carbine v. Commissioner, 

, 363 (1984), affd. 

9 -

662 (11th Cir. 1985).   The determination of whether an

expenditure satisfies the requirements for deductibility under

section 162 is a question of fact.     See Commissioner v.

Heininger, 

, 475 (1943).

     The employee business expense deduction here in dispute

relates to Kimberlee M. Young, who did not attend trial or submit

in any form any explanation regarding the circumstances giving

rise to the expenses that underlie the deduction.    When

petitioner was asked on cross-examination whether his wife was

required to incur the expenses in connection with her employment

at the animal hospital he responded:    “I don’t know”.

     Absent sufficient evidence that the expenses were

“necessary” in connection with Kimberlee M. Young’s employment,

and in the absence of any substantiating documents to support a

finding that the expenses were paid or incurred, respondent’s

disallowance of the deduction is sustained.

Schedule C Deductions

     Petitioner’s description of what business activity he

conducted as the proprietor of GASY Investment Co. was, at best,

vague.   The lack of specificity regarding the business

activities, coupled with the absence of any substantiating

documents to support the deductions in dispute, constrains us to

sustain respondent’s disallowances of those deductions.
                                - 10 -

Section 6662(a) Accuracy-Related Penalty

     Section 6662(a) imposes an accuracy-related penalty of 20

percent of any portion of an underpayment of tax, if among other

reasons, the underpayment is attributable to a substantial

understatement of income tax.    Sec. 6662(b)(2), (d).   An

understatement of income tax is a substantial understatement of

income tax if it exceeds the greater of $5,000 or 10 percent of

the tax required to be shown on the taxpayer’s return.     Sec.

6662(d)(1).   Ignoring conditions not relevant here, for purposes

of section 6662 an understatement is defined as the excess of the

amount of the tax required to be shown on the taxpayer’s return

over the amount of the tax which is shown on the return.      Sec.

6662(d)(2)(A).   In this case the understatement of income tax is

computed in the same manner as, and is equal to, the deficiency

as redetermined taking into account the foregoing.    That amount

will exceed $5,000.   See secs. 6211, 6662(d)(2).

     Under section 7491(c) respondent has the burden of

production with respect to the accuracy-related penalty under

section 6662(a).   To meet that burden, respondent must come

forward with sufficient evidence to show that imposition of the

penalty is appropriate.   See Higbee v. Commissioner, 

, 446 (2001).   We have sustained adjustments in the notice of

deficiency that will give rise to a deficiency and underpayment

of tax that exceeds $5,000 for 2002.
                                - 11 -

     The accuracy-related penalty does not apply to any part of

an underpayment of tax if it is shown the taxpayer acted with

reasonable cause and in good faith.      Sec. 6664(c)(1).   The

determination of whether a taxpayer acted in good faith is made

on a case-by-case basis, taking into account all the pertinent

facts and circumstances.   Sec. 1.6664-4(b)(1), Income Tax Regs.

Petitioners bear the burden of proving that they had reasonable

cause and acted in good faith with respect to the underpayment.

See Higbee v. Commissioner, supra at 449.      This they have failed

to do.   Respondent’s imposition of the section 6662(a) accuracy-

related penalty is sustained.

     To reflect the foregoing,


                                      Decision will be entered

                                 under Rule 155.