                        T.C. Memo. 2011-121



                      UNITED STATES TAX COURT



                 BISWESH B. MALI, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18668-07.               Filed June 2, 2011.



     Biswesh B. Mali, pro se.

     Mark S. Schwarz, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     GALE, Judge:   Respondent determined a deficiency of $3,409

and an addition to tax under section 6651(a)(1)1 of $852 with

respect to petitioner’s 2003 Federal income tax.   After


     1
      All section references are to the Internal Revenue Code of
1986, as in effect for the year in issue, and all Rule references
are to the Tax Court Rules of Practice and Procedure. All dollar
amounts are rounded to the nearest dollar.
                               - 2 -

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

petitioner is entitled to a deduction of $724 for meals and

entertainment expenses;3 (2) whether petitioner is entitled to a

deduction of $3,456 for car and truck expenses; (3) whether

petitioner is entitled to a deduction of $10,130 for supplies

expenses;4 and (4) whether petitioner is liable for an addition

to tax under section 6651(a)(1) of $852.

                         FINDINGS OF FACT

     Some facts are stipulated and are so found.    The stipulation

of facts, with accompanying exhibits, is incorporated herein by

this reference.   At the time the petition was filed, petitioner

resided in Nevada.

     Petitioner was self-employed in the business of graphic

design during 2003 as a sole proprietor.     As part of his

business, he produced T-shirts, promotional flyers, billboard


     2
      The notice of deficiency disallowed $13,000 that petitioner
claimed as a wages expense on his Schedule C, Profit or Loss From
Business. Petitioner conceded at trial that he had no wages
expense. Petitioner has not disputed respondent’s determination
that he is liable for self-employment tax of $2,495 (computed on
the assumption that the other adjustments in the notice of
deficiency will be sustained). Accordingly, petitioner is deemed
to have conceded this issue. See Rule 34(b)(4).
     3
      Petitioner claimed meals and entertainment expenses of
$1,200 on his Schedule C but conceded at trial that the expenses
did not exceed $724.
     4
      Petitioner did not claim any supplies expenses on his
Schedule C but contended at trial that he had $10,130 in supplies
expenses.
                                - 3 -

advertisements, and television commercials.    Petitioner reported

$22,290 in gross receipts on his Schedule C from his graphic

design business and claimed $22,466 in expenses.    Respondent

disallowed the deduction for $17,656 of the expenses.

     Petitioner conducted the graphic design business from his

residence.

     Petitioner has two bachelor’s degrees:    One in microbiology

from a university in his native Nepal and the other in graphic

design from Midwestern State University in Texas.

     Respondent concedes that petitioner was granted an extension

of time to file his 2003 Federal income tax return until August

15, 2004.    Respondent received petitioner’s 2003 return on April

19, 2006.

                               OPINION

I.   Meals and Entertainment Expenses

     Respondent disallowed a deduction for meals and

entertainment expenses of $1,200 as petitioner originally

claimed.    Petitioner now concedes that his meals and

entertainment expenses did not exceed $724.    Petitioner bears the

burden of proving error in respondent’s determination.    See Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933); see also

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New
                               - 4 -

Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).5

Furthermore, deductions are a matter of legislative grace, and

the taxpayer bears the burden of proving entitlement to any

claimed deductions.   Rule 142(a)(1); INDOPCO, Inc. v.

Commissioner, supra at 84; New Colonial Ice Co. v. Helvering,

supra at 440.

     Where a taxpayer establishes that he paid or incurred a

deductible expense but does not establish the amount of the

deduction to which he may be entitled, we may in certain

circumstances estimate the amount allowable.    See Cohan v.

Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v.

Commissioner, 85 T.C. 731, 742-743 (1985).     However, certain

categories of expenses, including those for meals and

entertainment, must also satisfy the strict substantiation

requirements of section 274(d) in order to be deductible.      See

sec. 274(d)(2); sec. 1.274-5T(b)(3), Temporary Income Tax Regs.,


     5
      Petitioner has not shown entitlement to a shift in the
burden of proof to respondent under sec. 7491(a) with respect to
any factual issue. See H. Conf. Rept. 105-599, at 239-242
(1998), 1998-3 C.B. 747, 993-996 (taxpayer has the burden of
proving that he meets prerequisites for application of sec.
7491(a)). A prerequisite to a shift in the burden of proof under
sec. 7491(a) is that the taxpayer cooperate with reasonable
requests for information and meetings. Sec. 7491(a)(2)(B).
Petitioner conceded that he did not respond to a request from
respondent to meet and exchange information before trial as
required by Branerton Corp. v. Commissioner, 61 T.C. 691 (1974).
See Krohn v. Commissioner, T.C. Memo. 2005-145; Lopez v.
Commissioner, T.C. Memo. 2003-142, affd. on this issue 116 Fed.
Appx. 546 (5th Cir. 2004).
                               - 5 -

50 Fed. Reg. 46015 (Nov. 6, 1985).     The Cohan rule may not be

used to estimate expenses covered by section 274(d).    See Sanford

v. Commissioner, 50 T.C. 823, 827 (1968), affd. per curiam 412

F.2d 201 (2d Cir. 1969); sec. 1.274-5T(a), Temporary Income Tax

Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).

     To substantiate a deduction pursuant to section 274(d), the

taxpayer must, through adequate records or sufficient evidence

corroborating the taxpayer’s own statement, show (1) the amount

of the expense; (2) the time and place of the expense; (3) the

business purpose of the expense; and (4) the business

relationship of the taxpayer to the persons entertained (if

applicable).   See sec. 1.274-5T(b)(2) and (3), Temporary Income

Tax Regs., 50 Fed. Reg. 46014-46015 (Nov. 6, 1985).

     Petitioner testified that he incurred meals and

entertainment expenses, both in Las Vegas, Nevada, where he

resided during the year at issue, and in California, where he

claimed he traveled on business.   Besides his general and vague

testimony, petitioner has not presented any evidence that these

claimed meals and entertainment expenses were for business

purposes.   The only documentary evidence that petitioner

presented to substantiate meals and entertainment expenses

totaling $724 was five credit card receipts from restaurants

(totaling $165) and a receipt from a bowling alley (for $26).

The restaurant receipts were all for restaurants in Las Vegas,
                                - 6 -

precluding any claim they were for meals while traveling on

business.    The receipts do not indicate who was present at the

meals or their business purpose, and petitioner’s general claim

in his testimony does not fill that gap.    Similarly, the bowling

alley receipt standing alone does not substantiate a business

purpose, nor does petitioner’s testimony suggest a business

purpose.    We conclude that petitioner has not substantiated the

meals and entertainment expenses he claimed and sustain

respondent’s disallowance of all such expenses.

II.    Car and Truck Expenses

       Respondent disallowed petitioner’s claimed deduction for car

and truck expenses of $3,456.    Petitioner testified that he used

his car 80 percent for business and that he drove it to

California for business and to several client sites within Las

Vegas.

       Passenger automobiles are subject to the substantiation

requirements of section 274(d) because they are listed property

as defined in section 280F(d)(4)(A)(i).    For automobile expenses,

taxpayers must substantiate:    (1) The amount of the expenditure;

(2) the mileage for each business use of the automobile and the

total mileage for all purposes during the taxable period; (3) the

date of the business use; and (4) the business purpose of the

use.    See sec. 1.274-5T(b)(6), Temporary Income Tax Regs., 50

Fed. Reg. 46016 (Nov. 6, 1985).
                                - 7 -

     Petitioner has not established either the total miles driven

or the miles driven for business purposes.   The only documentary

evidence petitioner provided was a repair receipt for his car

that does not list the cost of the repair and a receipt for $299

for a rental car.   The repair receipt includes an odometer

reading, but standing alone such a reading does not establish

total mileage driven during the year.   There is no evidence

regarding the business purpose of the car rental other than

petitioner’s general claim that it was for business purposes.

     Petitioner has not substantiated any business use of his car

or any other car and truck expenses as required by section 274.

We accordingly sustain respondent’s disallowance of all such

expenses.

III. Supplies Expenses

     At trial petitioner claimed entitlement to a deduction for

supplies expenses of $10,130.   To the extent he provided

substantiation, it reveals that he used the supplies category to

denominate a range of expenditures, including those for

equipment, supplies, graphic design production items, cellular

telephone equipment and service, utilities, and other items.

Petitioner offered into evidence various invoices, receipts, and

canceled checks that he contends substantiate the expenses he

claims were for supplies.   We will discuss petitioner’s proffered

substantiation as best we can categorize it.
                                - 8 -

     A.   Equipment

     Petitioner testified that he made the following purchases in

2003 for use in his graphic design business:   $2,000 for a

laptop, $900 for a video camera, $1,100 for a digital camera,

$800 for another laptop, and an unspecified amount for a desk.

The only documentary evidence petitioner offered concerning the

foregoing was a credit card receipt for the purchase of a video

camera for $1,072 in 2003.   There is no substantiation for any of

the other claimed purchases; accordingly, no deduction for any

other equipment is allowable.   See sec. 6001; sec. 1.6001-1(a),

Income Tax Regs.

     A video camera is listed property subject to the

substantiation requirements of section 274(d), see sec.

280F(d)(4)(A)(iii); sec. 1.280F-6T(b)(3), Temporary Income Tax

Regs., 50 Fed. Reg. 46041 (Nov. 6, 1985), with certain

exceptions.6   Petitioner’s general claim that the video camera

was used for business purposes does not satisfy the

substantiation requirements of section 274(d), under which the


     6
      A video camera is not listed property if it is used
exclusively in connection with the taxpayer’s principal business
or exclusively at the taxpayer’s regular business establishment.
See sec. 1.280F-6T(b)(3)(ii), Temporary Income Tax Regs., 50 Fed.
Reg. 46041 (Nov. 6, 1985). Petitioner has not shown that his use
of the video camera was confined in either of these ways.
     The temporary regulation was made final on June 25, 2004,
effective for property placed in service after July 7, 2003, and
is redesignated sec. 1.280F-6(b)(3), Income Tax Regs. See T.D.
9133, 2004-2 C.B. 25. The video camera at issue was purchased on
Jan. 31, 2003.
                                 - 9 -

periods of business use and overall use must be shown.   See sec.

1.274-5T(b)(6), Temporary Income Tax Regs., 50 Fed. Reg. 46016

(Nov. 6, 1985).   Therefore, petitioner is not entitled to any

additional deduction for the expenditure represented by the

receipt for the video camera.7

     B.   Supplies

     Petitioner offered into evidence credit card receipts for

2003 for purchases totaling $238 at Circuit City, CompUSA, and

Office Max.   Petitioner claimed $590 for “office expense” on the

Schedule C, which respondent allowed.    Petitioner has not shown

that the amounts represented by the foregoing credit card

receipts have not already been allowed as office expenses.    He

therefore is not entitled to any additional deduction for the

expenditures reflected in these receipts.

     C.   Graphic Design Production Expenses

     Petitioner offered into evidence invoices and cancelled

checks for 2003 (including some checks with completed memo


     7
      Petitioner elected a sec. 179 expense deduction of $768 for
a “camera” on a Form 4562, Depreciation and Amortization,
attached to his Schedule C, that was carried over to 2004. Even
if one assumes that the camera for which a $768 expensing
election was made is the video camera reflected in the $1,072
credit card receipt in evidence, petitioner has not shown
entitlement to any deduction in 2003 with respect to the camera
because it is listed property subject to the substantiation rules
of sec. 274(d), and petitioner has not shown that he satisfied
those requirements, as discussed above. See sec. 1.274-5T(b)(6),
Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985);
see also Singh v. Commissioner, T.C. Memo. 2009-36; Whalley v.
Commissioner, T.C. Memo. 1996-533.
                              - 10 -

entries) that he testified reflected payment for services related

to his graphic design business.   Upon our examination of this

evidence we are satisfied that petitioner has substantiated

payments for graphic-design-related items as follows:8

                                                      Payment
                     Vendor                        Substantiated
Tee Shirts of Nevada                                      $186
Full Color Printing                                      3,186
Envelopes of Nevada                                        892
WOW Printing                                               740
Pappapetru’s (diemaker)                                    365
Final Cut Letterpress                                      751
Rotocolor, Inc. (label maker)                               23
United Parcel Service, Inc. (shipping from

  Rotocolor, Inc.)                                          31
Banner Outlet                                               16
Creative Eye Embroidery (cap embroiderer)                  109
Discount Labels, Inc.                                       73
Dare to Dream Digital, Inc.                                437
Pictographics                                              100
Rory Rehm (for banners)                                     90
Glenn Grayson (for audiovisual services)                   650
Peter Chmiel (for DVD compressor)                          300
  Total                                                  7,949



     8
      In many instances, invoices and cancelled checks can be
matched. In other situations, we are persuaded on the basis of
other contextual evidence that invoices lacking cancelled checks
or cancelled checks lacking invoices still substantiate payment.
                               - 11 -

     We accordingly hold that petitioner has demonstrated

entitlement to a deduction for Schedule C expenses totaling

$7,949 not previously allowed.

     We further find that petitioner failed to show a business

purpose for payments during 2003 to the following individuals and

organizations:   David Ban, Joey Franco, Drivers License Renewal

[sic], CCSN-Board of Regions [sic], BMG Music, Apple, Server

City, Cox, Fleet, and Indian Hills, or for a draft invoice for

Jeep Window Vision.   Therefore, petitioner has not shown

entitlement to a deduction for these expenditures as trade or

business expenses under section 162.

     Petitioner also offered into evidence a cancelled check for

$358 payable to the “IRS”.    Except in circumstances which

petitioner has not shown apply, payments of Federal tax are

generally not deductible.    See sec. 275(a).9   Petitioner has not

shown entitlement to a deduction for this expenditure.

     D.   Cellular Telephone Expenses

     Petitioner offered into evidence a number of receipts and

cancelled checks that appear to relate to the purchase of a

cellular telephone and service for either a cellular or other



     9
      Although petitioner was self-employed and one-half of any
Federal self-employment tax paid is deductible, see secs. 164(f),
275(a), there is no evidence that petitioner paid any self-
employment tax in 2003. Indeed, respondent determined a
deficiency in self-employment tax of $2,495 for 2003 which
petitioner has not disputed.
                                - 12 -

telephone.   Certain receipts from “good guys!” indicate that he

made payments totaling $134 to purchase a cellular telephone and

possibly to purchase some portion of a service package.      The

checks to Sprint and Sprint PCS indicate that he made additional

payments of $1,281 for cellular telephone service or

alternatively for other telephone service.   As discussed above,

certain listed property is subject to stricter substantiation

requirements under section 274(d)(4).    For 2003 cellular

telephones were listed property,10 and both the purchase of,

including any possible depreciation deduction or expensing, and

service for, cellular telephones were subject to the

substantiation requirements of section 274(d).   See sec.

280F(d)(4)(A)(v); Lang v. Commissioner, T.C. Memo. 2010-152;

Singh v. Commissioner, T.C. Memo. 2009-36; Vaksman v.

Commissioner, T.C. Memo. 2001-165, affd. 54 Fed. Appx. 592 (5th

Cir. 2002); Whalley v. Commissioner, T.C. Memo. 1996-533; see

also sec. 280F(d)(1); sec. 1.179-1(d)(3), Income Tax Regs.      To

meet the substantiation requirements for a cellular telephone,

petitioner must substantiate:    (1) The amount of the expenditure;

(2) the total time that the cellular telephone was used for

business purposes and the total overall time that the cellular



     10
      Effective for taxable years beginning after Dec. 31, 2009,
cellular telephones are no longer listed property. See Small
Business Jobs Act of 2010, Pub. L. 111-240, sec. 2043, 124 Stat.
2560.
                                   - 13 -

telephone was used; (3) the date of the business use; and (4) the

business purpose of the use.       See sec. 274(d); sec. 1.274-

5T(b)(6), Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6,

1985).      Petitioner has not provided any testimony or other

evidence that would indicate the total time that the cellular

telephone was used, either for business purposes or overall.

Petitioner has also not provided any testimony or provided any

documentary evidence indicating the dates of cellular telephone

use.    On the alternative assumption that some of the checks to

Sprint were for conventional “landline” telephone service, they

are not deductible because there is no showing that these

payments were for an additional telephone line.       Basic local

telephone service for a first line to a personal residence is a

nondeductible personal expense.       See sec. 262(b).   Therefore,

petitioner has not shown entitlement to any deduction for the

foregoing telephone expenditures.

       E.     Utilities Expenses

       Petitioner introduced into evidence several cancelled checks

for 2003 payable to Nevada Power and to Southwest Gas that

totaled $588 and $146, respectively.        However, petitioner claimed

$1,620 for “utilities” expenses on the Schedule C, which

respondent allowed.      Petitioner has not shown that the amounts

represented by the cancelled checks payable to Nevada Power and

to Southwest Gas have not already been allowed.       He therefore is
                               - 14 -

not entitled to any additional deduction for the expenditures

reflected in these checks.

     F.    Other Payments

     Petitioner introduced into evidence a 2003 cancelled check

for $173 payable to the City of Las Vegas for a business license.

Petitioner claimed $499 for “taxes and licenses” on his Schedule

C, which respondent allowed.   Petitioner has not shown that the

amount represented by this cancelled check has not already been

allowed.   He therefore is not entitled to any additional

deduction for the expenditure reflected in this check.

IV. Section 6651(a)(1) Addition to Tax

     Section 6651(a)(1) imposes an addition to tax for any

failure to file a return by its due date.    The addition is equal

to 5 percent of the amount required to be shown as tax on the

return for each month or portion thereof that the return is late,

up to a maximum of 25 percent.   Sec. 6651(a)(1).   The addition is

imposed on the net amount due, calculated by reducing the amount

required to be shown as tax on the return by any part of the tax

which is paid on or before its due date.    Sec. 6651(b)(1).   Under

section 7491(c), respondent has the burden of production for any

addition to tax.

     The addition will not apply if it is shown that the failure

to file a timely return was due to reasonable cause and not due

to willful neglect.   See sec. 6651(a)(1); see also United States
                               - 15 -

v. Boyle, 469 U.S. 241, 245 (1985).     A failure to file is due to

reasonable cause “If the taxpayer exercised ordinary business

care and prudence and was nevertheless unable to file the return

within the prescribed time”.   Sec. 301.6651-1(c)(1), Proced. &

Admin. Regs.; see United States v. Boyle, supra at 246.      Willful

neglect is interpreted as a “conscious, intentional failure or

reckless indifference.”   United States v. Boyle, supra at 245.

     Petitioner was granted an extension under which his 2003

Federal income tax return was due on August 15, 2004.    See secs.

6072(a), 6081(a); sec. 1.6081-4(a), Proced. & Admin. Regs.

Respondent received his return on April 19, 2006.    These

undisputed facts satisfy respondent’s burden of production under

section 7491(c) and establish petitioner’s liability for the

section 6651(a)(1) addition to tax unless petitioner can

establish that his failure to file timely was due to reasonable

cause and not willful neglect.    See sec. 6651(a)(1); see also

United States v. Boyle, supra at 245.

     Petitioner testified that he filed late because he was

experiencing acute financial difficulties and because he did not

understand that he would incur a penalty that increased over time

for his failure to file timely.    As there is no evidence that

petitioner was unable to manage other matters at the due date and

during the period of the delinquency, petitioner’s explanation

falls short of reasonable cause for a failure to file timely.
                              - 16 -

See Campbell v. Commissioner, T.C. Memo. 2011-42; Wright v.

Commissioner, T.C. Memo. 1998-224, affd. without published

opinion 173 F.3d 848 (2d Cir. 1999); Bear v. Commissioner, T.C.

Memo. 1992-690, affd. without published opinion 19 F.3d 26 (9th

Cir. 1994).   Accordingly, petitioner did not have reasonable

cause for failure to file timely, and petitioner is liable for

the addition to tax under section 6651(a)(1) in an amount to be

computed under Rule 155.

     To reflect the foregoing,


                                         Decision will be entered

                                    under Rule 155.
