                  T.C. Summary Opinion 2007-24



                     UNITED STATES TAX COURT



                 ROBERT J. DAMRON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 7430-05S.               Filed February 20, 2007.


     Robert J. Damron, pro se.

     Catherine G. Chang, for respondent.




     COUVILLION, Special Trial Judge:   This case was heard

pursuant to section 7463 in effect when the petition was filed.1

The decision to be entered is not reviewable by any other court,

and this opinion should not be cited as authority.


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

     Respondent determined a deficiency of $2,272 in petitioner’s

Federal income tax for the year 2001.    The sole issue for

decision is whether petitioner is entitled to deductions for

certain expenses claimed on Schedule C, Profit or Loss From

Business, for the year in question in excess of amounts allowed

by respondent.

     Some of the facts were stipulated.    Those facts, with the

annexed exhibits, are so found and are made part hereof.

Petitioner’s legal residence at the time the petition was filed

was San Francisco, California.

     During the year 2001, petitioner was an employee of the U.S.

Postal Service.   Petitioner was also engaged in a self-employed

trade or business activity that he called Innovative Financial

Services.   The activity was described as “negotiation and other

services for business/individuals”.

     On Schedule C, which petitioner included with his 2001

Federal income tax return, he reported the following gross income

and expenses from this activity:


     Income                                         $ 1,200.00
     Expenses:
       Legal and professional       $  300.00
       Office expenses               6,659.04
       Rent (business property)      3,500.00
       Taxes/licenses                  200.00
       Meals/entertainment              24.65
       Utilities                       544.78
       Wages                         3,600.00        14,828.47
     Loss                                          ($13,628.47)
                               - 3 -

In the notice of deficiency, respondent disallowed the following

expenses:


                     Rent                $ 3,500
                     Wages                 3,600
                     Office expenses       5,179
                       Total             $12,279


Respondent agrees that the activity is a trade or business

activity engaged in for profit and disallowed the expenses for

failure to substantiate the amounts claimed.   During the trial,

respondent conceded that petitioner was entitled to a deduction

for rent of $700 and $400 for wages paid that had been disallowed

in the notice of deficiency.

     The nature of the activity is somewhat vague.   At trial,

petitioner gave examples of the services he provided, such as

assisting businesses collecting debts from customers, searching

courthouse records or newspapers that might provide information

that could lead to assets of delinquent customers, negotiating

with debtors, etc.   Petitioner had engaged in this activity only

for 2 or 3 years prior to the year at issue and had not realized

a profit in any of the prior years.    The sole issue in this case

is whether petitioner substantiated the expenses disallowed.2


     2
      Because of the year involved, the examination of
petitioner’s return at issue commenced after July 22, 1998.
Therefore, sec. 7491, which under certain circumstances shifts
the burden of proof to the Commissioner, applies. However, for
the burden to be placed on the Commissioner, the taxpayer must
                                                   (continued...)
                               - 4 -

     In general, deductions are a matter of legislative grace.

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).   Taxpayers

are required to maintain records sufficient to enable the

Commissioner to determine their correct tax liability.   Sec.

6001; Higbee v. Commissioner, 116 T.C. 438 (2001); sec. 1.6001-

1(a), Income Tax Regs.   Such records must substantiate both the

amount and purpose of the claimed deductions.   Higbee v.

Commissioner, supra.

     Section 162 allows a deduction for ordinary and necessary

expenses that are paid or incurred during the taxable year in

carrying on a trade or business.   Sec. 162(a); Deputy v. duPont,

308 U.S. 488, 495 (1940).

     At trial, petitioner offered into evidence copies of various

checks that were issued purportedly for payment of expenses

related to the activity; however, no documentation was offered to

tie in or corroborate that such payments were in connection with

the business activity.   Petitioner claims he had such information

at home and did not realize that such information was crucial to

his case.




     2
      (...continued)
comply with the substantiation and record-keeping requirements of
the Internal Revenue Code. Sec. 7491(a)(2)(A) and (B). On this
record, petitioner has not wholly satisfied that requirement;
therefore, the burden has not shifted to respondent under sec.
7491. Higbee v. Commissioner, 116 T.C. 438 (2001).
                               - 5 -

     Section 6001 requires generally that every person liable for

any tax keep such records, render such statements, make such

returns, and comply with such regulations as the Secretary may

from time to time prescribe.   Section 1.6001-1(a), Income Tax

Regs., provides, in pertinent part, that “any person subject to

tax under subtitle A of the Code * * *, shall keep such permanent

books of account or records, including inventories, as are

sufficient to establish the amount of gross income, deductions,

credits, or other matters required to be shown by such person in

any return of such tax”.

     After careful consideration of the evidence presented,

including petitioner’s testimony and the concessions by

respondent, the Court is not inclined to go beyond what

respondent has conceded.   Accordingly, this Court holds that

petitioner is not entitled to any deductions in excess of the

amounts allowed and conceded by respondent.

     Reviewed and adopted as the report of the Small Tax Case

Division.



                                           Decision will be entered

                                       under Rule 155.
