To document his automobile mileage, in another spiral notebook Mr. Lysford jotted down similar sparse information relating to his automobile trips, indicating only the date and city to which he was driving.

Neither Mr. Lysford's two notebooks, nor any other evidence at trial (including Mr. Lysford's testimony) describes or identifies any 2012 Tax Ct. Memo LEXIS 39">*44 loan customer, bank, title company, business meeting, or contact in or around Forest Lake that Mr. Lysford met with or had relating to his mortgage activity during the years in issue.

In 2006 petitioners apparently incurred $45,314 in additional unspecified airplane maintenance expenses relating to the Cessna 182 airplane.

During 2006 and 2007 Mr. Lysford conducted on behalf of Northshore an activity called Hockey Heroes in which he took, developed, and sold photographs of members of his son's youth ice hockey team.

During 2006 and part of 2007 Mr. Lysford was an investment partner with three other individuals in a real estate investment partnership by the name of Lakebreeze Estates, LLC (Lakebreeze). ² In 2007 Mr. Lysford received $5,000 cash for the sale (apparently to the other partners) of his interest in Lakebreeze.

In 2007 Trinity ceased operating, and Mr. Lysford surrendered his one-third interest therein. ³

On its 2005 2012 Tax Ct. Memo LEXIS 39">*45 Federal income tax return, Northshore claimed a depreciation deduction under section 167 relating to the $68,500 cost of the Cessna 182 airplane and expensed currently under section 179 the $72,210 airplane overhaul expenses Mr. Lysford paid in 2005.

Also, on its Federal income tax returns for 2005 and prior years, Northshore claimed deductions under section 179 for miscellaneous costs associated with a camera, computer software, DVD studio equipment, furniture, tools, a pressure washer, a generator, a trailer, and various other items of equipment (hereinafter generally referred to simply as other assets). Northshore also claimed depreciation deductions under section 167 relating to the use of space in Mr. Lysford's home for his office.

Northshore's Federal income tax returns for 2006 and 2007 reported income relating to Mr. Lysford's mortgage loan activity, Hockey Heroes, and other activities of Mr. Lysford.

All of the income and expense deductions reported on Northshore's 2006 and 2007 tax returns were passed through to petitioners on Schedules K-1, Shareholder's Share of Income, Deductions, Credits, etc., and reported on their individual joint Federal income tax returns.

On audit for 2012 Tax Ct. Memo LEXIS 39">*46 2006 and 2007 respondent determined that petitioners had not substantiated the business use of the Cessna 182 airplane and the other assets. Accordingly, respondent disallowed many of the above-claimed business expense and depreciation deductions relating thereto, and under section 280F(b)(2) respondent required recapture on petitioners' 2006 tax return of airplane and other costs petitioners claimed as current expense deductions under section 179 for 2005 and prior years. ⁴

Respondent also determined that for 2007 petitioners had not substantiated their bases in Lakebreeze and Trinity. Respondent disallowed the capital losses petitioners claimed relating to both entities, and respondent charged petitioners with capital gain relating to the termination of their investment in Lakebreeze.

With regard only to the few adjustments respondent made that are still in dispute, the table below compares the section 179 expense recapture, the capital gains and losses, the section 167 depreciation, and 2012 Tax Ct. Memo LEXIS 39">*47 the section 179 current expenses as reflected on petitioners' filed 2006 and 2007 Federal income tax returns with those items as redetermined by respondent. Note that in the table for each income adjustment we show the amount of respondent's increase; for each expense deduction we show the amount respondent allowed, not the amount disallowed: ⁵

Finally, respondent determined accuracy-related penalties under section 6662(a) for both 2006 and 2007.

Taxpayers have a responsibility to maintain records sufficient to determine their correct Federal income tax liability. Sec. 6001; 2012 Tax Ct. Memo LEXIS 39">*48 Higbee v. Commissioner, 116 T.C. 438">116 T.C. 438, 116 T.C. 438">440 (2001).

Deductions are a matter of legislative grace, and taxpayers generally bear the burden of proving their entitlement to claimed deductions. Rule 142(a); New Colonial Ice Co., Inc. v. Helvering, 292 U.S. 435">292 U.S. 435, 292 U.S. 435">440, 54 S. Ct. 788">54 S. Ct. 788, 78 L. Ed. 1348">78 L. Ed. 1348, 1934-1 C.B. 194 (1934).

Respondent argues that petitioners have not established that the Cessna 182 airplane and the other assets were used predominately in a qualified business use as defined in sections 179 and 280F and, therefore, that petitioners must recapture expenses claimed for 2005 and prior years relating thereto. Respondent also argues that petitioners are not entitled to the current expense deductions claimed under section 179 for 2006 with regard to the airplane. We agree.

Taxpayers may elect to deduct as current expenses the cost of section 179 property acquired and used in the active conduct of a trade or business and placed in service during the year. Sec. 179(a), (b), (d)(1); sec. 1.179-4(a), Income Tax Regs. However, to be eligible for current expense deductions under section 179, taxpayers must show that the business use of such property exceeds 50%. Sec. 1.179-1(e)(2), Income Tax Regs. (relating to section 179 property); see 2012 Tax Ct. Memo LEXIS 39">*49 alsosec. 280F(b)(3) (relating to listed property). If in any year taxpayers' business use of property falls to 50% or less, deductions previously claimed under section 179 are subject to recapture under section 280F(b)(2) if "listed" property or under section 179(d)(10) if not "listed" property.

Taxpayers are required to substantiate the business use of section 274(d)(4) listed property (such as an airplane used for transportation) for any year for which recapture under section 280F(b) may be required, even if the taxpayers have fully depreciated the listed property in a prior year. Sec. 1.280F-3T(d)(3), Temporary Income Tax Regs., 50 Fed. Reg. 46038 (Nov. 6, 1985).

Section 274(d)(4) requires taxpayers to substantiate by adequate records or by sufficient evidence corroborating the taxpayers' own statements the amounts of the expenses, the time and place of the expenses or use of the property, and the business purpose of the expenses.

Section 1.274-5T(c)(2)(ii)(B), Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985), provides that in order to constitute an adequate record of business purpose within the meaning of section 274(d), a written statement of business purpose generally 2012 Tax Ct. Memo LEXIS 39">*50 is required. However, where the business purpose is evident from the surrounding facts and circumstances, a written statement of business purpose may not be required. ⁶See id. ("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.").

With respect to the use of the Cessna 182 airplane, petitioners urge us to infer from the facts and circumstances that Mr. Lysford's flights to and from Forest Lake constituted a routine, established route by which he conducted mortgage-related business and that a written statement of the business purpose for his 2012 Tax Ct. Memo LEXIS 39">*51 flights is not required. Mr. Lysford testified that all of his airplane flights and his automobile trips to Forest Lake were for business and that he did not describe in detail his use of the Cessna 182 airplane because, as a pilot with an "airline transport pilot" rating, he had no reason to log flight hours.

On the evidence before us, we conclude that while Mr. Lysford may have conducted some mortgage business in or around Forest Lake, petitioners have not substantiated the level of business use and purpose required under section 274(d). Other than Mr. Lysford's very general testimony, petitioners provided no credible evidence that Mr. Lysford sold any mortgages or met with specific clients, mortgage brokers, or title companies in or around Forest Lake. Neither Mr. Lysford's general business purpose nor his specific business purpose for making specific trips to Forest Lake from his home 200 miles away is evident from the facts and circumstances.

Mr. Lysford's entries in his spiral notebooks are wholly inadequate. They merely list the date and destination of airplane and automobile trips. No business purpose for the trips, no names of clients visited, and no description of business 2012 Tax Ct. Memo LEXIS 39">*52 scheduled, conducted, or attempted is provided. A list of dates representing Mr. Lysford's airplane and automobile trips with no identification of the people visited, the locations visited, the nature or purpose of the trips, or the business actually conducted falls well short of the substantiation required by section 274(d). For 2006 petitioners have failed to show that their business use of the Cessna 182 airplane exceeded 50%, and we sustain respondent's determination that the $72,210 in airplane overhaul expenses deducted for 2005 under section 179 relating to the Cessna 182 airplane is subject to recapture. For the same reason, we sustain respondent's disallowance of petitioners' $39,000 claimed section 179 current expenses for 2006 relating to the Cessna 182 airplane.

Petitioners provided no evidence of the cost or business use of the other assets for which they claimed expense deductions under section 179 for years before 2006. We therefore sustain respondent's determination that petitioners' section 179 expense deductions claimed for prior years relating to these other assets are subject to recapture for 2006.

Sections 167 and 168 allow depreciation and accelerated cost recovery 2012 Tax Ct. Memo LEXIS 39">*53 only for property used in a trade or business or held for the production of income. As noted, petitioners have failed to demonstrate a business use for the Cessna 182 airplane in excess of the 10% respondent allowed on audit. Petitioners also have failed to provide any evidence of the costs of the home office used in connection with Mr. Lysford's mortgage activity for 2006.

We sustain respondent's disallowance of the claimed depreciation deductions under section 167 relating to the Cessna 182 airplane for 2006 and 2007 and to the home office for 2006.

With regard to the deductions for expenses claimed for 2007 under section 179 relating to the camera, lens, computer, and other assets, petitioners have provided no documentation to reflect the existence, let alone cost or business purpose, of these items, and petitioners offered no testimony with regard thereto. We sustain respondent's disallowance of these claimed deductions.

As stated, respondent determined that petitioners were required to recognize a $5,000 gain on the sale of Mr. Lysford's interest in Lakebreeze. Because Lakebreeze was treated as a partnership for Federal tax purposes, the provisions of subchapter K of the Code and 2012 Tax Ct. Memo LEXIS 39">*54 the regulations thereunder apply. Loss to a distributee may be recognized in an amount equal to the distributee's adjusted basis over the amount of any money distributed to him. Sec. 731(a)(2); sec. 1.731-1(a)(2), Income Tax Regs. At trial petitioners offered various loan documents, deposit receipts, and bank statements, along with copies of their Schedules K-1 attached to their 2004 and 2005 joint Federal income tax returns, in an effort to substantiate their basis in Lakebreeze.

Petitioners have the burden to substantiate through adequate records their basis in Lakebreeze. SeeRule 142(a); Welch v. Helvering, 290 U.S. 111">290 U.S. 111, 290 U.S. 111">115, 54 S. Ct. 8">54 S. Ct. 8, 78 L. Ed. 212">78 L. Ed. 212 (1933). The only credible evidence establishing petitioners' basis in Lakebreeze is a photocopy of a signed check from Northshore to Lakebreeze for $1,000, dated March 26, 2004. All other documents offered in support of petitioners' basis in Lakebreeze are inadequate. They are unsigned. They fail to identify the source of the funds, and in the case of documents purporting to show loans obtained by or on behalf of Lakebreeze, they fail to identify the borrower and are unsigned. The Lakebreeze Schedules K-1 are not credible evidence of petitioners' basis in Lakebreeze. 2012 Tax Ct. Memo LEXIS 39">*55 See Wilkinson v. Commissioner, 71 T.C. 633">71 T.C. 633, 71 T.C. 633">636 (1979).

Petitioners have substantiated a basis of only $1,000 in Lakebreeze and are required to recognize a $4,000 capital gain in connection with the termination of Mr. Lysford's interest therein. ⁷Seesec. 732(a)(1); sec. 1.731-1(a)(1), Income Tax Regs.⁸

Section 6662(a) and (b)(2) imposes an accuracy-related penalty of 20% on any portion of an underpayment of tax attributable to a substantial understatement of income 2012 Tax Ct. Memo LEXIS 39">*56 tax. An understatement of income tax for a year is substantial if it exceeds 10% of the amount required to be shown on the Federal income tax return or $5,000. Sec. 6662(d)(1). Petitioners present no credible argument with regard to their liability for the section 6662(a) substantial understatement penalty, and we sustain respondent's imposition thereof.

We have considered all of petitioners' arguments, and to the extent not addressed herein, we conclude they are moot, irrelevant, or without merit.

To reflect the foregoing,

Decision will be entered under Rule 155. ^{92012 Tax Ct. Memo LEXIS 39">*57}