Colette Branch

United States Tax Court

T.C. Memo. 2026-51

COLETTE BRANCH,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

__________

Docket No. 7214-20. Filed June 17, 2026.

__________

James R. Washington III, for petitioner.

Kristen I. Nygren, Andrew J. Lorenz, Emily A. Westermeier, and Ardney

J. Boland, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

GOEKE, Judge: Petitioner failed to file returns for tax years

2015–17 (years at issue). Respondent prepared substitutes for returns

(SFRs) pursuant to section 6020(b) 1 and issued a Notice of Deficiency to

petitioner. Respondent determined the following deficiencies and

additions to tax:

1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C. (Code), in effect at all relevant times, regulation references are

to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times,

and Rule references are to the Tax Court Rules of Practice and Procedure. Most

monetary amounts are rounded to the nearest dollar.

Served 06/17/26

2

[*2]

Additions to Tax/Penalties

Year Deficiency

§ 6651(a)(1) § 6651(a)(2) § 6654

2015 $2,766,561 $621,909 *2 $1,415

2016 2,702,605 608,086 * 64,604

2017 2,856,528 642,698 * 68,390

Respondent’s deficiency determinations pertained mostly to gross

receipts not reported on Schedules C, Profit or Loss From Business,

attributable to petitioner’s sole proprietorship, A-1 Absolute Best Care,

LLC (A-1). Petitioner agreed that she failed to report gross receipts for

A-1 but claimed that respondent failed to account for (1) A-1’s expenses

that offset most of the unreported income, and (2) deductions claimed on

Schedules A, Itemized Deductions, that petitioner is entitled to.

The parties have narrowed the issues in dispute. We must still

decide (1) what petitioner’s filing status is for the years at issue,

(2) whether petitioner is entitled to certain Schedule A deductions

contested by respondent, (3) whether A-1 incurred deductible

Schedule C expenses greater than those respondent conceded, and

(4) whether petitioner is liable for additions to tax pursuant to sections

6651(a)(1) and (2) and 6654. We hold that (1) petitioner’s filing status

for the years at issue is married filing separate, (2) petitioner is entitled

to a portion of the Schedule A deductions respondent contested, (3) A-1

incurred deductible Schedule C expenses greater than those respondent

conceded, and (4) petitioner is liable for additions to tax pursuant to

sections 6651(a)(1) and (2) and 6654.

FINDINGS OF FACT

I. A-1’s Business

Since 1998 3 petitioner has owned and operated A-1 in the New

Orleans metropolitan area in the State of Louisiana. A-1 cared for

“clients” with intellectual handicaps (and, often, related physical

handicaps) so that they would not need to live in institutions. A-1’s

2 As stated in the Notice of Deficiency, the amounts of the section 6651(a)(2)

additions to tax were to be computed at a later date.

3 Unless otherwise indicated, facts stated in this Opinion pertain to the years

at issue.

3

[*3] clients are Medicaid recipients who are part of the New

Opportunities Waiver (NOW) program, 4 and A-1 is subject to both

federal and state laws and regulations regarding its services. The State

of Louisiana monitors A-1 to ensure that it complies with legal

requirements. During the years at issue A-1 cared for about 100 clients,

and almost all of its gross receipts were from Medicaid.

A-1’s services were aimed at helping its clients lead fulfilling,

healthy lives as part of the New Orleans community. A-1 was licensed

by the State of Louisiana to provide personal care attendants and

supervised independent living services and to run an “Adult Day Care–

Day Habilitation” program (daycare). The specific services that A-1

provided to clients were guided by comprehensive Plans of Care

approved by the State of Louisiana annually. Each client had a Plan of

Care tailored to the client’s specific needs. Certain clients might be

mostly independent and require only occasional assistance while other

clients might require continuous care. Although A-1’s services were

guided by the Plans of Care, A-1’s clients were adults who were

permitted and encouraged to lead self-directed lives in the community

like anyone else.

Some examples of the type of assistance A-1 and its caretakers

would provide to clients were (1) transportation and admission to places

clients wanted to visit, including restaurants, stores, movies, family

events, volunteering activities, casinos, cultural events, sporting

events/activities, and parks; (2) practicing and reinforcing appropriate

behavior; (3) education, including basic math, literacy, and writing;

(4) personal care, including bathing, dressing, bathroom use, haircuts,

use of feeding tubes, and preparing nutritious foods; (5) securing

housing and ensuring it remained habitable; (6) ensuring clients’

medical needs were met; (7) ensuring evacuation/safety plans were in

place should a natural disaster occur; 5 and (8) purchasing clothing,

medicine, food, home goods, and various other items that clients needed.

During certain activities, such as visiting restaurants or recreational

venues, A-1 would provide clients with small amounts of cash to spend

4 As described by the Louisiana Department of Health, “[t]he mission of the

NOW [program] is to use the principles of self-determination to supplement the family

and/or community supports while supporting dignity, quality of life, and security in

the everyday lives of people, while maintaining the recipient in the community.” New

Opportunities Waiver (NOW), La. Dep’t of Health, https://ldh.la.gov/office-for-citizens-

with-developmental-disabilities/new-opportunities-waiver (last visited June 12, 2026).

5 We take judicial notice that New Orleans is a coastal city at risk of hurricane

and flood damage.

4

[*4] on food or activities. In addition, A-1 provided many clients with a

cash allowance of $25 per week for miscellaneous spending. Such use of

cash helped clients practice routine social interactions and work on

math and financial skills.

A-1 owned several residential properties, and leased others, that

were used to house clients. Some of A-1’s clients had destructive

episodes, and A-1 often had to repair damage to client housing. Because

clients might have needs at any hour of the day, A-1 also provided

nearby housing to some of its employed caretakers so that they could be

close to clients and respond quickly if needed. These employees did not

pay rent to A-1 or reimburse A-1 for rents that A-1 paid to lease a

property. A-1 employed several people to maintain, repair, and clean

properties, in addition to hiring outside contractors for certain work on

properties. For example, A-1 employees/contractors paved the backyard

of one property and installed a wheelchair ramp so that a client in a

wheelchair living on the property could enjoy the outdoors more easily.

A-1 maintained an office, as well as a separate daycare facility

with a capacity of 40 clients. At the daycare, clients could socialize,

participate in events, and learn how to conduct day-to-day activities.

The events included birthday parties, arts and crafts sessions, cooking

classes, music lessons, other educational pursuits, etc. Breakfast, lunch,

and snacks were served at the daycare.

Ultimately, A-1 was responsible for ensuring clients’ physical,

emotional, and mental needs were met and that clients developed as

appropriate. This was true even though Medicaid payments to A-1 for a

given client did not always cover all of A-1’s expenses for that client. In

such instances, either (1) the client contributed to the excess expenses

from their salary (if they held a job) and/or Social Security disability

payments they received (if any), or (2) A-1 covered the excess expenses

and was not reimbursed. 6

6 Because some clients were unable to open and/or maintain their own bank

accounts, A-1 set up “holding accounts” to facilitate receipt of client salary and/or Social

Security disability payments. Little information was provided regarding the operation

of the holding accounts, how much money was deposited into them, or what amounts

of funds were transferred to A-1. One witness (hired by petitioner, in part, to review

A-1’s financial information) estimated that A-1 received $60,000 to $70,000 from such

holding accounts each year at issue, which was small relative to A-1’s gross receipts of

over $6 million for each year at issue. Considering the lack of evidence provided with

respect to the holding accounts, we cannot determine the amounts deposited into, or

5

[*5] II. Petitioner’s Family

Petitioner and Timothy Branch, Sr., married on October 14, 2015,

and remained married during the remainder of the years at issue. This

was their second marriage; they were previously married to each other

from May 1994 to March 2010.

Petitioner had three children. The eldest, Timothy Branch, Jr., 7

was a college student during the years at issue but also worked for A-1.

The middle child, C.B., 8 worked for A-1 in addition to attending high

school and college. The youngest child, S.B., started working for A-1

around 2017 (presumably, while she attended high school).

C.B. attended John Curtis Christian School (JCCS) during 2015,

2016, and a portion of 2017. Petitioner made payments (some of which

were charitable donations 9) to JCCS from A-1’s operating bank account

(A-1’s bank account), from a personal bank account that petitioner

jointly held with her husband (petitioner’s joint bank account), and with

a personal American Express card account (petitioner’s personal

American Express card). Petitioner’s husband and son were each

authorized users on petitioner’s personal American Express card.

In addition to her children, petitioner had other relatives who

worked for A-1. Petitioner’s father, a former university music professor,

was one of several musicians who taught music lessons at A-1’s daycare.

Petitioner’s niece was a dietician who planned meals for A-1’s clients.

Other relatives worked as client caretakers and/or provided general

services. A-1 also employed numerous persons who were not relatives of

petitioner.

Multiple businesses were registered to petitioner’s husband

during the years at issue, including Tim’s Soul Food & Poor Boy’s, LLC

(Tim’s Soul Food), and Sadie’s Seafood, LLC (Sadie’s Seafood). The food

served at A-1’s daycare was prepared by Tim’s Soul Food and Sadie’s

withdrawn from, them. Similarly, we cannot determine (as respondent suggested in

his briefs) that any such deposits or withdrawals represented income to A-1 or

reimbursements to A-1 for expenses paid.

7 To avoid confusion, we will mostly refer to Timothy Branch, Sr., as

petitioner’s husband and to Timothy Branch, Jr., as petitioner’s son.

8 It is the policy of this Court not to identify minor children. We refer to them

by their initials. See Rule 27(a)(3).

9 The terms “contribution” and “donation” are used interchangeably in this

Opinion.

6

[*6] Seafood. Both Sadie’s Seafood and Tim’s Soul Food were at one time

restaurants open to the public, but they ceased such operations at

unestablished times during or after 2015. 10

III. Petitioner’s Tax Issues and the Parties’ Stipulations

Although A-1’s work was commendable, petitioner’s

recordkeeping and tax compliance were not ideal. In addition to paying

some A-1 business expenses from A-1’s bank account, petitioner (1) paid

some of A-1’s expenses from petitioner’s joint bank account and with her

personal American Express card and (2) made some personal payments

from A-1’s bank account. Furthermore, (1) petitioner’s/A-1’s records

presented to the Court were often incomplete and/or lacked detail, and

(2) petitioner did not present records supporting certain business

expenses claimed, including records supporting business use of vehicles.

Bruce Thornton, a former Internal Revenue Service (IRS)

employee, provided bookkeeping and return preparation services for

petitioner and A-1. Allegations regarding advice Mr. Thornton gave to

petitioner will be discussed infra OPINION Part VI.

Petitioner did not file her 2014 return until April 2016. The

Commissioner examined that return and issued petitioner a notice of

deficiency pertaining to 2014 alone. Petitioner timely petitioned this

Court in response, and the case was settled, with a Stipulated Decision

entered June 3, 2022. See Branch v. Commissioner, Docket No. 7213-20.

Petitioner did not file returns for the years at issue. In 2019

respondent prepared SFRs for the years at issue. For each year at issue

respondent included Schedule C income of over $6 million resulting from

A-1’s receipt of Medicaid payments. Respondent also (1) included much

smaller items of taxable income (such as retirement account

distributions, capital gains, dividends, and interest); (2) allowed

petitioner a standard deduction for each year; (3) credited petitioner for

small amounts of tax withheld for 2015 and 2017; (4) listed petitioner’s

filing status as single; and (5) added additions to tax pursuant to

sections 6651(a)(1) and (2) and 6654.

10 A check paid from petitioner’s joint bank account dated November 10, 2015,

was made out to “KGLA” and the memo line reads “Ads for Sadie’s.” Earlier 2015

checks were also made out to KGLA with memo lines reading “Sadie’s & Tim’s” and

“Sadie’s Seafood.” Considering these checks, we find that Sadie’s Seafood and Tim’s

Soul Food were open to the public during at least part of 2015.

7

[*7] On January 7, 2020, respondent issued petitioner a Notice of

Deficiency setting forth his determinations as stated in the SFRs for the

years at issue. Petitioner resided in Louisiana when she filed a Petition

with this Court. The Petition mailed to the Court was timely postmarked

on April 6, 2020.

At various times beginning in April 2020, petitioner submitted to

the IRS proposed returns for the years at issue (three total, one for each

year at issue). On each of the three proposed returns petitioner claimed

head of household filing status. The IRS did not process any of the

proposed returns as filed returns. Petitioner later provided respondent’s

counsel with revised “draft” returns for the years at issue, each of which

reported petitioner’s filing status as married filing joint. The draft

returns were not filed with the IRS, and each one is marked by petitioner

as “Do not file” or “Do not mail.” Petitioner’s husband did not sign any

of the proposed or draft returns, nor did he file his own return for any of

the years at issue.

While the exact amounts varied, on each proposed and draft

return petitioner reported Schedule C gross receipts for A-1 close to the

Schedule C gross receipts determined by respondent for the relevant

year at issue. However, petitioner reported Schedule C expenses and (on

some of the proposed and draft returns) itemized deductions that

resulted in far smaller tax liabilities than those respondent determined.

The proposed and draft returns did not include separate Schedules C

for, nor any income or expenses pertaining to, the businesses registered

to petitioner’s husband.

Before trial the parties stipulated that (1) A-1’s gross receipts

were $6,571,989 for 2015, $6,502,372 for 2016, and $6,789,616 for

2017; 11 and (2) petitioner had non-Schedule C items of taxable income

11 In April 2024 the parties stipulated that “[i]n tax year 2017, A-1 . . . earned

gross receipts in the amount of $6,789,616.00.” In May 2025 the parties stipulated a

bank deposits analysis (performed by a person working for petitioner) that reflected

2017 total deposits to A-1’s bank account of $6,876,671 and 2017 total debits from A-1’s

bank account of $6,869,477. The parties did not stipulate the correctness of that bank

deposits analysis. In Pretrial Memoranda respondent stated that the correct amount

of A-1’s gross receipts for 2017 was $6,789,616 while petitioner stated that the correct

amount was $6,869,477 (erroneously referencing the total debits shown in the 2017

bank deposits analysis instead of the total deposits). The parties reversed themselves

on brief, with respondent asserting agreed gross receipts of $6,869,477 (and citing the

April 2024 stipulation in support, even though that stipulated amount was only

8

[*8] totaling $11,124 for 2015, $1,979 for 2016, and $3,478 for 2017.

There is no remaining dispute about the amounts of A-1’s gross receipts

or petitioner’s non-Schedule C income for the years at issue. 12

Considering petitioner’s proposed and draft returns and

supporting records she produced, respondent agreed (by stipulation and

concessions before trial) that petitioner is entitled to Schedule C

business expense deductions for A-1 of $4,901,421 for 2015, $5,014,311

for 2016, and $5,196,898 for 2017. 13 Petitioner claimed that A-1 is

entitled to additional expense deductions totaling $926,720 for 2015,

$1,071,475 for 2016, and $1,500,849 for 2017. Respondent argued that

$6,789,616) and petitioner asserting “Stipulated Gross Income” of $6,789,616. Neither

party addressed the discrepancy.

The discrepancy between the total deposits of $6,876,671 identified in the bank

deposits analysis and the $6,789,616 gross receipts figure stipulated by the parties

appears to relate mostly to transfers into A-1’s bank account from accounts in the

names of petitioner’s children. During the years at issue petitioner paid/transferred

approximately $850,000 total from A-1’s bank account to accounts in the names of her

children. During 2017, $79,000 was transferred back to A-1’s bank account from

accounts in the names of petitioner’s children. It appears that the $79,000 and certain

other small deposits into A-1’s bank account were (apparently mistakenly) included as

gross receipts in the 2017 bank deposits analysis completed for petitioner/A-1.

Generally, a stipulation is binding on the parties, and we are bound to enforce

it. Rule 91(e); Stamos v. Commissioner, 87 T.C. 1451, 1454 (1986). Rule 91(e) provides

an exception by permitting relief from the binding effect of a stipulation where justice

so requires. We generally enforce stipulations unless “manifest injustice” would result.

Bail Bonds by Marvin Nelson, Inc. v. Commissioner, 820 F.2d 1543, 1547 (9th Cir.

1987), aff’g T.C. Memo. 1986-23; see also Keenan v. Commissioner, T.C. Memo. 2018-

60, at *5. Absent manifest injustice, we “will not permit a party to a stipulation to

qualify, change, or contradict a stipulation in whole or in part.” Rule 91(e). Considering

the gross receipts discrepancy and the facts surrounding it, especially the lack of

agreement between the parties as to the correctness of the bank deposits analysis, we

will enforce the April 2024 stipulation.

12 In his Opening Brief, respondent claimed that approximately $174,000 in

low-income housing payments and $50,000 in unidentified other payments were

deposited into petitioner’s joint bank account during the years at issue. Respondent

claimed that these deposits “indicat[ed] there were other business operations outside

of A-1” but did not argue that we should find petitioner to have received taxable income

as a result of the deposits.

13 The figures in this sentence are based on amounts set forth in respondent’s

Pretrial Memorandum filed in August 2025. Figures in respondent’s filings

occasionally suffered from minor scrivener’s and/or math errors. See, e.g., infra note 22.

The parties shall attempt to resolve any minor issues resulting from respondent’s

errors in the Rule 155 computations.

9

[*9] A-1 is not entitled to deductions for any portion of the additional

expenses claimed.

The parties also stipulated that petitioner and/or her husband

made “charitable contributions” totaling $70,310 for 2015, $76,484 for

2016, and $67,956 for 2017. Petitioner claimed that she made additional

charitable donations other than those stipulated while respondent

argued that petitioner is entitled to deductions for only a portion of the

stipulated charitable donations. Petitioner also claimed that she is

entitled to a Schedule A deduction for state and local taxes paid in 2015,

which respondent contested.

OPINION

I. Burden of Proof

Generally, taxpayers bear the burden of proving, by a

preponderance of the evidence, that the Commissioner’s determinations

are incorrect. Welch v. Helvering, 290 U.S. 111, 115 (1933). Deductions

are a matter of legislative grace, and a taxpayer bears the burden of

proving that he or she is entitled to any deduction claimed. See Rule

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

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

claiming a deduction on a federal income tax return must demonstrate

that the deduction is provided for by statute and must further

substantiate that the expense to which the deduction relates has been

paid or incurred. Hradesky v. Commissioner, 65 T.C. 87, 89–90 (1975),

aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v.

Commissioner, 43 T.C. 824, 831–32 (1965). A taxpayer is required to

maintain records sufficient to enable the Commissioner to determine the

correct tax liability. See § 6001; Treas. Reg. § 1.6001-1(a). Such records

must substantiate both the amount and purpose of the related expense.

Higbee v. Commissioner, 116 T.C. 438, 440 (2001).

Under section 7491(a), the burden of proof may shift to the

Commissioner as to any relevant factual issue if the taxpayer produces

credible evidence with respect to that issue and meets other

requirements. Credible evidence is the quality of evidence which, after

critical analysis, a court would find sufficient on which to base a decision

on the issue if no contrary evidence were submitted. Baker v.

Commissioner, 122 T.C. 143, 168 (2004) (citing Higbee, 116 T.C. at 442).

The parties dispute whether petitioner has met the requirements of

section 7491(a) to shift the burden of proof to respondent with respect to

10

[*10] the issues in dispute. We need not decide which party is correct for

each issue. We decide most issues on the basis of the preponderance of

the evidence and need not decide which party bears the burden of proof

for such issues. See Knudsen v. Commissioner, 131 T.C. 185, 189 (2008),

supplementing T.C. Memo. 2007-340. For the issues we decide on the

basis of the burden of proof, we rule that petitioner failed to introduce

credible evidence with respect to such issues and therefore failed to

satisfy the requirements of section 7491 to shift the burden of proof to

respondent.

II. Respondent’s Use of Certain Materials Not Part of the Record

Several times in his Opening Brief, respondent asserted facts

based on materials not part of the record. Such materials included

photos of properties on Google Maps (using the Street View feature),

internet reviews of certain restaurants, and other internet

sources/websites. Respondent did not attempt to introduce such

materials into evidence, nor did he use them for any other purpose

during trial (such as refreshing a witness’s recollection). Instead,

respondent requested in his Opening Brief that we take judicial notice

of facts he alleged based on the materials.

Under section 7453, the Federal Rules of Evidence (Fed. R. Evid.)

apply to the proceedings in this case. Rule 143(a); Estate of Shafer v.

Commissioner, 80 T.C. 1145, 1151 (1983), aff’d, 749 F.2d 1216 (6th Cir.

1984). Fed. R. Evid. 201(b) provides that “court[s] may judicially notice

a fact that is not subject to reasonable dispute because it: (1) is generally

known within the trial court’s territorial jurisdiction; or (2) can be

accurately and readily determined from sources whose accuracy cannot

reasonably be questioned.” Considering the facts alleged and the

materials at issue, we find neither prong to be satisfied. Accordingly, we

decline to make factual findings based on any of the materials in

question.

III. Petitioner’s Filing Status and Community Property Issue

In the Notice of Deficiency respondent determined that

petitioner’s filing status was single. On brief respondent claimed that

petitioner’s filing status should be married filing separate, given that

she was married at the end of each year at issue and she and her

11

[*11] husband did not file valid joint returns. 14 We agree. Taxpayers can

secure joint filing status only by filing a joint tax return. § 6013(a); see

Treas. Reg. § 1.6013-1(a). However, petitioner and her husband did not

file a valid joint return for any of the years at issue. Therefore, we hold

that petitioner’s filing status for each of the years at issue was married

filing separate.

Petitioner did not address her filing status in her Opening Brief.

In her Answering Brief, petitioner did not dispute respondent’s position

that her filing status should be married filing separate. However, for the

first time, petitioner argued that she was “married in a community

property state. There has been no evidence to support the allocation of

th[e] income [in dispute] as separate property under IRC § 66 or

otherwise. Any income earned by Petitioner or A-1 . . . should be

allocated one-half to Petitioner and one-half to her spouse.” Petitioner is

correct that Louisiana is a community property state. See La. Civ. Code

Ann. art. 2334. We have recognized that “[m]arried persons who reside

in a community property State are generally each required to report one-

half of their community income for Federal income tax purposes.” Shea

v. Commissioner, 112 T.C. 183, 189 (1999) (first citing United States v.

Mitchell, 403 U.S. 190 (1971); and then citing Drummer v.

Commissioner, T.C. Memo. 1994-214, aff’d, 68 F.3d 472 (5th Cir. 1995)

(unpublished table decision)).

We may consider an issue raised for the first time in a party’s

answering brief to be abandoned and conceded. See Dutton v.

Commissioner, 122 T.C. 133, 142 (2004) (“Our practice is not to consider

new issues raised for the first time in an answering brief.”); Krause v.

Commissioner, 99 T.C. 132, 177 (1992), aff’d sub nom. Hildebrand v.

Commissioner, 28 F.3d 1024 (10th Cir. 1994). Here, petitioner failed to

raise the community income issue before or during trial, or even in her

Opening Brief. Petitioner has not shown the amount, if any, of the

income earned by her husband, which might affect the amount of income

taxable to petitioner. 15 In addition, petitioner neither argued nor

14 It appears that petitioner did not prove to respondent that she was married

during the years at issue until shortly before trial. The day before the trial began,

petitioner filed various proposed exhibits, one of which included a Certificate of

Marriage reflecting her marriage in October 2015.

15 In his Opening Brief respondent stated that he “is treating A-1 . . . as

petitioner’s separate property from her husband. Likewise, [petitioner’s husband’s]

business ventures [are being treated as] separate from petitioner based on the limited

information available from petitioner.” Considering the limited facts established by

12

[*12] established how income she and her husband earned in 2015

should be divided, considering they married on October 14, 2015. See

Adams v. Commissioner, 82 T.C. 563, 567–70 (1984) (discussing division

of community income when taxpayers were married for only a portion of

a year). Finally, petitioner’s failure to timely raise the community

income issue precluded respondent from establishing facts relevant to

section 66(b) (regarding otherwise community income being included in

only one spouse’s income for tax purposes in certain instances) for any

of the items of income at issue. In view of the circumstances, we consider

petitioner to have conceded the community income issue.

IV. Schedule A Deductions

A. 2015 State and Local Taxes

Petitioner claimed that she is entitled to a 2015 Schedule A

deduction for state and local taxes paid of $20,095. In support of her

claim, petitioner cited two checks totaling $20,095, paid from

petitioner’s joint bank account to the Louisiana Department of Revenue

in May 2015. The memo line for one check reads “2012 LDR,” and the

memo line for the other check reads “2013 State Tax [illegible].” Both

checks were signed by petitioner. Respondent does not contest that the

payments were made but argues that “it is unclear whether these

payments from [petitioner’s joint bank account] were expenses for an

unrelated business or state income tax obligation. There is simply not

enough information on the record to substantiate this claimed

deduction.”

Both parties could have done more to develop facts regarding the

state tax payments at issue. However, the evidence presented favors

petitioner. Although the checks were paid from a joint bank account,

they were signed by petitioner and paid before petitioner and her

husband were married in October 2015. Although petitioner and her

husband were previously married, that marriage ended in March 2010.

Thus, petitioner and her husband were not married at any time relevant

to the state tax payments. Furthermore, there is no indication that the

payments pertain to business taxes. Considering the evidence

presented, we rule that petitioner is entitled to a 2015 Schedule A

deduction for state and local taxes paid of $20,095.

petitioner regarding her husband’s businesses and her failure to timely raise

arguments regarding community income, we find respondent’s treatment to be

appropriate.

13

[*13] B. Charitable Donations

In their First Stipulation of Facts, filed in May 2025, the parties

stipulated:

In 2015, petitioner, either through [petitioner’s joint

bank] account or [A-1’s bank] account, made donations to

[JCCS] in the following amounts:

a. $2,500.00 on March 6, 2015 from [A-1’s

bank] Account.

b. $1,000.00 on April 24, 2015 from [A-1’s

bank] Account.

c. $3,000.00 on April 30, 2015 from [A-1’s

bank] Account.

d. $43,610.00 on May 26, 2015, from

petitioner’s joint [bank] account for 2015–2016

tuition. The check totaled $52,490.00 and included

the tuition for petitioner’s minor son, C.B., for the

2015–2016 school year.[16]

e. $7,200.00 on July 21, 2015 from [A-1’s

bank] Account.

f. $6,000.00 on September 30, 2015 from

petitioner’s joint [bank] account.

g. $7,000.00 on December 8, 2015 from [A-1’s

bank] Account.

The parties further stipulated that “[a] total of $70,310.00 of charitable

contributions were made to [JCCS] in 2015.”

In the First Stipulation of Facts, the parties similarly listed

charitable donations made to JCCS during 2016. The parties stipulated

that “[a] total of $76,484.00 of charitable contributions were made to

[JCCS] in 2016.”

16 This paragraph is not well written. The parties indicated that $43,610 of the

payment was for tuition, though it is clear from the total charitable donations the

parties stipulated that $43,610 of the payment was a charitable donation.

14

[*14] In the First Stipulation of Facts, the parties similarly listed

charitable donations made to JCCS during 2017 totaling $62,756. In

addition, the parties stipulated that “[p]etitioner and [her husband]

contributed $1,500.00 to St. Augustine Church . . . on April 5, 2017 from

[petitioner’s] joint [bank] account” and that “[p]etitioner contributed

$3,700.00 to All4One Society . . . on December 7, 2017 from [petitioner’s]

joint [bank] account.” Adding up the listed donations to JCCS, St.

Augustine Church, and All4One Society, the parties stipulated that “[a]

total of $67,956.00 of charitable contributions were made by petitioner

and/or [her husband] in 2017.”

In May 2025 respondent filed a Pretrial Memorandum in which

he included a section titled “RESOLVED ISSUES.” 17 In that section

respondent stated:

Respondent makes concessions as to the following

allowable Schedule A deductions:

2015 2016 2017

Sch. A Charitable

$70,310.00 $76,484.00 $67,956.00

Contributions

These are the total charitable donations that the parties stipulated for

each year at issue. Nowhere in the Pretrial Memorandum did

respondent indicate that the amount of deductible charitable

contributions was in any way at issue. In an updated Pretrial

Memorandum filed in August 2025, respondent again included the same

amount of charitable contributions in a section titled “RESOLVED

ISSUES.” Respondent further stated that the “charitable contributions

were stipulated in the First Stipulation of Facts” and did not indicate

that those donations were at issue.

In his Opening Brief, respondent attempted to walk back the

concessions reflected in his Pretrial Memoranda. Respondent claimed

that he “acknowledged that donations were made by petitioner and/or

her husband in the First Stipulation of Facts. However, respondent had

not addressed the deductibility of the claimed charitable contributions

due to inconsistent statements from petitioner regarding her marital

status.” (Citations omitted.) Respondent proceeded to argue that certain

of the charitable donations listed in the First Stipulation of Facts should

17 The trial in this case was scheduled to begin during the week of June 9, 2025.

The trial was later rescheduled for, and commenced on, August 5, 2025.

15

[*15] be limited because “[p]etitioner’s filing status is married filing

separate, and she lives in Louisiana, a community property State. For

personal expenses paid from a community fund—here the joint

account—petitioner is only entitled to half of the allowed charitable

contributions paid.” (Citations omitted.) Respondent concluded that

petitioner was entitled to charitable contribution deductions totaling

only $45,505 for 2015, $67,034 for 2016, and $47,232 for 2017. 18

Considering the statements made in respondent’s Pretrial

Memoranda, we will hold respondent to his concession that petitioner is

entitled to itemized deductions for 100% of the charitable donations

listed in the First Stipulation of Facts. At the time each Pretrial

Memorandum was filed, respondent was aware that petitioner was or

may have been married to Timothy Branch, Sr., during the years at

issue. Respondent was also aware that many of the donations were made

from petitioner’s joint bank account. Timothy Branch, Sr.’s name

appears on each joint bank account statement and each check written

against that account. In spite of these facts, respondent stated that the

amounts of “Sch. A Charitable Contributions” were part of the

“RESOLVED ISSUES.” Had respondent properly indicated that

petitioner might be entitled to deduct only 50% of certain donations

made, petitioner might have introduced evidence to the contrary.

We must also address additional payments not listed in the First

Stipulation of Facts (additional donations) that petitioner claimed

constitute deductible donations. In May 2025, petitioner filed a Pretrial

Memorandum that did not mention charitable contribution deductions.

In an updated Pretrial Memorandum filed in August 2025, petitioner

listed “Donations” totaling $97,900 for 2015, $19,000 for 2016, and

$39,654 for 2017. Petitioner cited specific payments in support of the

alleged donations she listed, though most of the payments were included

in the charitable donations stipulated by the parties. In her Opening

18 Respondent determined the 2015 and 2016 figures by starting with the

charitable donations listed in the First Stipulation of Facts and allowing petitioner

(1) 100% of donations made from A-1’s bank account and (2) 50% of donations made

from petitioner’s joint bank account. A chart in respondent’s Opening Brief shows that

he employed a similar method for 2017 but mistakenly omitted the $3,700 donation to

All4One Society rather than allow petitioner a deduction for 50% of the donation.

16

[*16] Brief, petitioner claimed the same total “Donations” set forth in

her updated Pretrial Memorandum and cited the same payments. 19

Respondent argued that petitioner failed to substantiate the

deductibility of any additional donations. Reviewing the evidence, we

agree with respondent. While petitioner cited checks showing payments

made, she failed to substantiate that those payments were deductible

donations.

Section 170(a)(1) allows a deduction for contributions to

charitable organizations defined in section 170(c). Section 170(f)(8)

provides substantiation requirements for certain charitable

contributions. Specifically, section 170(f)(8)(A) provides: “No deduction

shall be allowed under subsection (a) for any contribution of $250 or

more unless the taxpayer substantiates the contribution by a

contemporaneous written acknowledgment of the contribution by the

donee organization that meets the requirements of subparagraph (B).”

For donations of money, the donee’s written acknowledgment must state

the amount contributed, indicate whether the donee organization

provided any goods or services in consideration for the contribution, and

provide a description and good-faith estimate of the value of any goods

or services provided by the donee organization. See § 170(f)(8)(B); Treas.

Reg. § 1.170A-13(f)(2).

Most of the additional donations petitioner claimed pertain to

payments made to JCCS. However, petitioner has not shown that

payments to JCCS (above those identified as charitable donations in the

First Stipulation of Facts) were charitable donations rather than tuition

or another type of nondeductible payment. Petitioner also failed to

provide written acknowledgment of the alleged donations above $250 as

required under section 170(f)(8).

Three of the four remaining additional donations petitioner

claimed were made to NOLA Hope in 2015, Metairie Basketball in 2015,

and Tiffany Joseph in 2017. Petitioner failed to substantiate that any

payments to these three organizations/people were charitable donations.

19 For an unclear reason, petitioner included many of the charitable donations

listed in the First Stipulation of Facts but omitted others. However, petitioner cited

paragraphs in the First Stipulation of Facts that listed charitable donations made and

claimed that she should be given credit for all of the donations listed therein. We do

not interpret petitioner’s filings to concede any charitable donations listed in the First

Stipulation of Facts.

17

[*17] Petitioner also failed to provide written acknowledgment of

alleged donations above $250 as required under section 170(f)(8).

The final additional donation petitioner claimed was $1,500

contributed to St. Augustine Church by check dated March 1, 2017, and

paid from petitioner’s joint bank account on March 8, 2017. In the First

Stipulation of Facts, the parties stipulated that “[p]etitioner and [her

husband] contributed $1,500.00 to St. Augustine Church . . . on April 5,

2017, from [petitioner’s joint bank] account.” We see no indication in

petitioner’s joint bank account statements that such a donation was

made on or around April 5, 2017. We believe that the parties erred in

their stipulation, and that the $1,500 donation made to St. Augustine

Church in early March 2017 is the donation that the parties attempted

to stipulate. As discussed supra, we have already allowed petitioner a

$1,500 deduction for a donation to St. Augustine Church during 2017 in

accordance with the stipulation. Petitioner failed to provide a written

acknowledgment of any additional $1,500 donation as required under

section 170(f)(8).

V. Schedule C Deductions

As previously stated, respondent agreed that petitioner was

entitled to Schedule C business expense deductions for A-1 of $4,901,421

for 2015, $5,014,311 for 2016, and $5,196,898 for 2017. Petitioner

claimed that A-1 is entitled to deduct additional expenses totaling

$926,720 for 2015, $1,071,475 for 2016, and $1,500,849 for 2017. For the

reasons discussed infra, we hold that A-1 is entitled to deduct a portion

of the additional expenses claimed.

A. Business Expense Deductions in General

Pursuant to section 162(a), a taxpayer may deduct all ordinary

and necessary expenses paid during the taxable year in carrying on any

trade or business. An expense is ordinary if it is normal, usual, or

customary within a particular trade, business, or industry or arises from

a transaction of common or frequent occurrence in the type of business

involved. Deputy v. du Pont, 308 U.S. 488, 495 (1940). An expense is

necessary if it is appropriate and helpful for the development of the

business. Welch v. Helvering, 290 U.S. at 113. Ordinary and necessary

business expenses do not include nondeductible personal, living, or

family expenses. Treas. Reg. § 1.162-17(a); see § 262(a). Whether an

expenditure satisfies the requirements of section 162 is a question of

fact. Commissioner v. Heininger, 320 U.S. 467, 475 (1943).

18

[*18] When a taxpayer claims a deduction but cannot fully substantiate

the underlying expense, in certain circumstances we may approximate

the allowable amount, “bearing heavily . . . upon the taxpayer whose

inexactitude is of his own making.” Cohan v. Commissioner, 39 F.2d 540,

543–44 (2d Cir. 1930). Even where the taxpayer has failed to keep

records of deductible expenditures, we have discretion in appropriate

circumstances to estimate those expenditures where there is evidence

that deductible expenses were incurred. Id.; Vanicek v. Commissioner,

85 T.C. 731, 742–43 (1985). But we are not required to guess at a

number; rather “we must have some basis on which an estimate may be

made.” Vanicek, 85 T.C. at 743. On the record before us, we find that it

is appropriate to apply the Cohan rule to certain of the disputed expense

deductions, discussed further infra.

Under section 274(d), certain categories of deductions, including

deductions with respect to certain vehicle, travel, and other expenses,

are subject to strict substantiation requirements. See § 280F(d)(4).

Section 274(d) provides that no deduction shall be allowed for these

expenses unless the taxpayer substantiates the amount, time and place,

business purpose, and business relationship to the taxpayer of the

person receiving the benefit for each expenditure by adequate records or

sufficient evidence corroborating the taxpayer’s own statements. We

may not apply the Cohan rule to approximate expenses covered by

section 274(d). See Sanford v. Commissioner, 50 T.C. 823, 827–28 (1968),

aff’d per curiam, 412 F.2d 201 (2d Cir. 1969).

For meals not connected with travel, taxpayers may claim a

deduction for food and beverages provided the expense “is not lavish or

extravagant under the circumstances” and “the taxpayer (or an

employee of the taxpayer) is present at the furnishing of such food or

beverages.” § 274(k)(1). Such deductions are generally limited to 50% of

the amount paid. § 274(n). Similarly, deductions for entertainment

expenses are generally limited to 50% of the amount paid. Id.

Respondent did not argue that the section 274(k) and/or (n) limitations

apply to any of the expenses at issue in this case. In addition, petitioner

argued that no expenses at issue meet the definition of “entertainment”

set forth in Treasury Regulation § 1.274-2(b). 20 Respondent made no

counterargument regarding that regulation, nor did he identify

entertainment or meal expenses in the evidence to which section 274

might apply. We also note that there are numerous exceptions to the

20 As defined in Treasury Regulation § 1.274-2(b)(1)(i), “entertainment”

includes certain food and beverage expenses.

19

[*19] section 274(k) and (n) limitations, see § 274(k)(2), (n)(2), certain of

which might apply in this case. 21 Considering the circumstances, we find

respondent to have waived any argument regarding the section 274(k)

and/or (n) limitations.

In her Opening Brief, petitioner claimed that “[t]he receipts [she]

provided at trial and presented as Exhibits were just samples of the

receipts that were kept, contemporaneously, in [A-1’s] files. The total

documentation and receipts associated with [A-1’s] receipts and

expenditures were too voluminous to be produced.” However, it was

incumbent upon petitioner to produce all documentation supporting her

claimed business expenses. As we stated in Smith v. Commissioner, T.C.

Memo. 1981-371, 1981 Tax Ct. Memo LEXIS 372, at *15, aff’d, 698 F.2d

1236 (11th Cir. 1983) (unpublished table decision), “[t]hose amounts

which we can not identify or estimate confidently as deductible items we

must disallow. ‘We can not assume what might be proven by evidence

which was not introduced.’ Lyon v. Commissioner, 1 B.T.A. 378, 380

(1925).” See also Stonegate of Blacksburg, Inc. v. Commissioner, T.C.

Memo. 1974-213, 1974 Tax Ct. Memo LEXIS 106, at *11 (stating that

when a party claims additional records within its control exist, but fails

to introduce them into evidence, “we must presume that no such records

exist” (citing Wichita Terminal Elevator Co. v. Commissioner, 6 T.C.

1158, 1165 (1946), aff’d, 162 F.2d 513 (10th Cir. 1947))).

B. Petitioner’s Organization of Claimed Additional Expenses

For each year at issue, petitioner divided the additional expenses

she claimed into groups and subgroups. For most, but not all, of the

groups/subgroups, petitioner listed each payment made that she

asserted fell into the group/subgroup. Some of the groups/subgroups

included numerous types of alleged expenses. For example, one 2015

group was for assorted expenses paid using petitioner’s personal

American Express card. This group included payments made to

restaurants, clothing stores, sporting goods stores, hotels, home

improvement stores, transportation and vehicle services, etc.

21 For example, there is an exception for “[e]xpenses for goods or services” sold

by a taxpayer to customers in a bona fide transaction for an adequate and full

consideration. § 274(e)(8), (k)(2), (n)(2). A-1’s provision of meal and entertainment

goods/services to its clients may satisfy this requirement because A-1 was paid to

provide such goods and services. Had respondent argued that the section 274(k)

and/or (n) limitations apply, petitioner might have argued that this and/or other

exceptions are applicable.

20

[*20] To avoid confusing the parties, we will organize our discussion

around the groups and subgroups petitioner used for each year at issue.

C. 2015 Additional Expenses

1. Rent

The parties did not clearly identify the total 2015 rent expenses

in dispute. In her August 2025 Pretrial Memorandum and her Opening

Brief, petitioner stated that $108,330 in claimed rent expenses was in

dispute. However, the rent subgroup payments petitioner listed

(discussed infra) totaled only $59,060. Both parties failed to address this

discrepancy. The discrepancy appears to pertain to certain expenses

identified in a financial analysis that a witness for petitioner assembled.

In his financial analysis, the witness included rent expenses for “Client

Rent,” “A1 Rent (OakWood, LaPalco, Day Hab, Region 3),” “Emergency

Housing,” and “Furniture (Houston Emergency Housing).” The witness’s

financial analysis did not specify individual payments that made up

these alleged rent expenses, and the witness’s tally of total rent

expenses ($223,769) does not seem to match total rent expenses

petitioner claimed on brief (apparently $251,485, of which respondent

conceded $143,155). Other than payments specifically identified in her

Pretrial Memorandum and her Opening Brief, we are left guessing as to

what exact payments petitioner claimed to be deductible rent expenses.

For his part, in his Opening Brief respondent stated that total

rent expenses claimed by petitioner were $251,485, that respondent had

conceded $143,155, and that $108,330 remained in dispute. 22 However,

respondent attempted to walk back a portion of his 2015 rent expense

concession. Respondent claimed that petitioner operated a café, The

Dat’s Eatery, separately from A-1. Respondent stated that he

“believe[ed] that some stipulated expenses paid to ‘Novel Pay’ for rent of

property . . . could be attributed to The Dat’s Eatery.” We reject

respondent’s attempt to walk back his rent expense concessions totaling

$143,155 as being untimely, in addition to being ill supported. 23

22 Oddly, respondent’s May 2025 Pretrial Memorandum stated that respondent

conceded rent expenses totaling $150,430, and respondent’s August 2025 Pretrial

Memorandum stated that respondent conceded rent expenses totaling $147,155. The

discrepancies appear to be the result of scrivener’s and/or math errors. Respondent did

not explain the inconsistencies in his Opening Brief.

23 Respondent tried to walk back a portion of his 2016 rent expense concessions

on the same grounds. We also hold respondent to his 2016 rent expense concessions.

21

[*21] Regarding the rent expenses in dispute, considering the evidence

and filings, we will primarily discuss the $59,060 in rent subgroup

payments listed by petitioner. With one exception (discussed infra

OPINION Part V.C.1.b) petitioner failed to sufficiently argue or

establish that additional, unlisted rent expenses that are part of the

$108,330 allegedly in dispute are deductible.

a. Rent Subgroup: A-1 Rent

Petitioner claimed A-1 is entitled to a $28,500 deduction for rent

paid from petitioner’s joint bank account for two buildings.

Four rent payments totaling $12,000 were made for a building in

or near the New Orleans French Quarter. Petitioner briefly testified

that A-1 intended to turn the rented space into a job training facility for

A-1’s clients. Petitioner further testified that significant building repairs

were needed to accomplish this, but they were not completed and the

facility never became operational. Petitioner failed to support her claims

with documentary evidence. Considering the paucity of evidence

presented, we rule that petitioner failed to meet her burden of proof to

show that the $12,000 paid represented an ordinary and necessary

business expense for A-1.

Eleven rent payments totaling $16,500 were made for the

building that Tim’s Soul Food operated out of (Tim’s Soul Food building).

Although Tim’s Soul Food (along with Sadie’s Seafood) prepared the food

served at A-1’s daycare, there is no evidence that they were part of the

same business. Tim’s Soul Food was once a restaurant open to the

public. Though it eventually ceased such operations, the time it did so

was not established. The evidence presented supports a finding that rent

payments made for the Tim’s Soul Food building are not an ordinary and

necessary business expense for A-1, and we rule accordingly.

b. Rent Subgroup: Emergency Rent

Petitioner claimed A-1 is entitled to a $29,560 deduction for rent

paid from petitioner’s joint bank account for two apartments.

Twelve rent payments totaling $23,865 were made for an

apartment in New Orleans. Petitioner briefly testified that the

apartment was rented for potential emergency use and was vacant

during the years at issue. When asked to explain why the apartment

was rented, petitioner gave a rambling answer that began: “It was in

New Orleans. It was just—I mean, it was no rhyme or reason. It was

22

[*22] just an apartment in New Orleans . . . .” We do not find this

testimony compelling, and petitioner failed to otherwise substantiate

A-1’s business use of the apartment. Accordingly, we rule that petitioner

failed to meet her burden of proof to show that the $23,865 paid

represented an ordinary and necessary business expense for A-1.

Petitioner listed two rent payments totaling $5,695 for an

apartment in Houston, Texas (Houston apartment). However, our

review of the record shows that an additional payment of $2,630 was

made in August 2015 but not included in petitioner’s list. Unlike her

testimony with respect to the New Orleans apartment, petitioner’s

testimony with respect to the Houston apartment was detailed and

credible. Petitioner testified that Houston is a logical city to evacuate to

because of its proximity to New Orleans and abundance of hotel rooms

for clients. Petitioner also described why it is not ideal for A-1’s high-

level business operations to be run out of a hotel. It is sensible that a

business such as A-1 would maintain the Houston apartment to be used

in case of a natural disaster in New Orleans, and we rule that rent paid

for that apartment (including the $2,630 payment not listed by

petitioner) are ordinary and necessary business expenses for A-1.

c. Rent Subgroup: Emergency Utilities

Petitioner claimed A-1 is entitled to a $1,000 deduction for a

utility payment made for the Houston apartment. We have ruled that

the rent payments for the Houston apartment are deductible business

expenses. We similarly rule that the utility payment is a deductible

business expense.

2. Utilities

Petitioner claimed A-1 is entitled to a $49,270 deduction for

various utilities paid from petitioner’s joint bank account. Such

payments were mostly for electricity, though some were for phones,

cable, and water. Petitioner testified that these expenses pertained to

client and/or employee housing but provided limited documentary

evidence supporting the deductibility of the claimed expenses.

We find it credible that most of the contested utility expenses

pertained to clients or employees and were ordinary and necessary

business expenses for A-1. However, petitioner failed to fully

substantiate the deductibility of the $49,270 paid. Under the

circumstances, we find it proper to apply the Cohan rule to estimate the

portion of the utility expenses that is deductible by A-1, weighing

23

[*23] against petitioner. See Cohan v. Commissioner, 39 F.2d at 543–44.

Considering A-1’s business, the amounts and types of utility expenses

paid, the number of separate payments, the fact that the payments were

made from petitioner’s joint bank account, and the testimony/other

evidence presented, we rule that $35,000 (approximately 70%)

represents deductible business expenses for A-1.

3. Contractors

a. Contractor Subgroup: Contractor Checks

Petitioner claimed A-1 is entitled to a $49,931 deduction for

various checks paid from petitioner’s joint bank account. The checks

were paid to various people and entities, including petitioner’s father

and a repair company. Petitioner discussed several of the payees during

her testimony. However, others were not described; and the only

evidence regarding their payments is general testimony about

contractors, some receipts, and check copies that typically have general

memo line descriptions (i.e., “computer”) or no completed memo line at

all.

We found petitioner’s testimony regarding A-1’s use of contract

labor for many tasks to be credible. However, petitioner failed to fully

substantiate the deductibility of the $49,931 paid. Under the

circumstances, we find it proper to apply the Cohan rule to estimate the

portion of the payments deductible by A-1. Considering A-1’s business,

the payees, the amount of the checks paid, the fact that the payments

were made from petitioner’s joint bank account, and the testimony/other

evidence presented, we rule that $35,000 (approximately 70%)

represents deductible business expenses for A-1.

b. Contractor Subgroup: Additional Expenses

Petitioner claimed A-1 is entitled to a $466,800 deduction for

payments made to various people and entities from A-1’s bank account.

Most of the payments were made to people, many of whom are, or appear

to be, employees of A-1 or contractors who performed work for A-1. A few

of the payments were made to payees including Academy Sports, Sam’s

Club, Target, Home Depot, Urban Outfitters, Forever 21, restaurants,

car service/gas stations, a car rental company, and “Travel Reservation.”

There were also cash withdrawals from the account and a check paid to

cash.

24

[*24] We recognize that a company such as A-1 may incur numerous

types of expenses in the operation of its business. The testimony of

petitioner and other witnesses generally supported the deductibility of

a wide range of expenses. 24 However, petitioner failed to fully

substantiate the deductibility of the $466,800 paid. We make several

rulings regarding this subgroup.

First, petitioner failed to satisfy the strict substantiation

requirements of section 274(d) for certain vehicle and travel expenses

totaling $8,843. These expenses include a $7,000 payment to Tiffany

Joseph for “Transportation Reimbursement.” We rule that no part of

those expenses is deductible.

Second, cash withdrawals (and a check paid to cash) total

$21,871. In support of cash expenses, petitioner cites (1) testimony that

A-1 gave some clients cash allowances and/or gave clients small

amounts of cash when they were out with A-1 caretakers in the

community and (2) receipts showing A-1’s disbursement of (generally

small amounts of) cash to clients and caretakers. While it is clear that

A-1 used petty cash in its operations, cash is fungible; and it is difficult

to say what portion of the cash withdrawn from A-1’s bank account was

so used. However, A-1 receipts show that A-1 dispersed approximately

$9,000 in cash to clients and caretakers during 2015. Considering the

testimony and the specific amounts shown on the receipts, we rule that

A-1 is entitled to a deduction of only $9,000 for the substantiated use of

petty cash.

Third, respondent has identified payments totaling $10,205 that

respondent already conceded. We rule that A-1 is not entitled to

duplicative deductions for those payments.

Finally, considering the testimony and documentary evidence, we

find it proper to apply the Cohan rule to estimate the portion of the

remaining $425,881 that is deductible by A-1. Considering A-1’s

business, the types and amounts of expenses, the various payees, the

fact that the payments were made from A-1’s bank account, and the

testimony/other evidence presented, we rule that $256,000

(approximately 60%) represents deductible business expenses for A-1.

24 Respondent correctly noted that many of the expenses at issue were for

“personal items.” However, petitioner established that A-1 purchased for its clients

clothing, medicine, food, home goods, and other items that were personal.

Furthermore, the high amount of spending on personal items during the years at issue

also suggests that petitioner was not purchasing all such items for her own family.

25

[*25] This is in addition to the $9,000 deduction for the substantiated

use of petty cash.

4. Transportation

Petitioner claimed A-1 is entitled to a $3,100 transportation

expense deduction regarding a check paid from petitioner’s joint bank

account to Tiffany Joseph. Nothing was written in the memo line.

Multiple other checks were paid to Tiffany Joseph during the

years at issue. The checks include one paid in 2015 from A-1’s bank

account for $7,100 that has a memo line reading “Transportation

Reimbursement.” This payment was discussed supra OPINION

Part V.C.3.b. Another check paid in 2017 from petitioner’s joint bank

account for $4,000 has nothing written in the memo line. Petitioner

claimed that this payment was a charitable contribution, as discussed

supra OPINION Part IV.B.

Considering that the $3,100 check was paid from petitioner’s joint

bank account and has no memo line, as well as the limited additional

information in the record regarding Tiffany Joseph, we rule that

petitioner failed to meet her burden of proof to show that the payment

represented an ordinary and necessary transportation expense for A-1.

This is the case regardless of whether the strict substantiation

requirements of section 274(d) apply to the payment.

5. Depreciation

Section 167(a) “allow[s] as a depreciation deduction a reasonable

allowance for the exhaustion, wear and tear” of property used in a trade

or business or held for the production of income. Petitioner claimed A-1

is entitled to a $103,199 deduction for depreciation. 25 The assets shown

on the 2015–17 depreciation schedule included real properties

(subtracting alleged underlying land value) as well as two unspecified

25 Petitioner’s claims regarding depreciation deductions for the years at issue

were based on a depreciation schedule that she created and introduced into evidence

(2015–17 depreciation schedule). We found the formatting of the 2015–17 depreciation

schedule to be somewhat confusing. Apparently, so did petitioner. In her Opening Brief

petitioner claimed depreciation deductions of $81,772 for 2015, $82,045 for 2016, and

$82,045 for 2017. These amounts represented only a portion of the depreciation for

each year at issue shown on the 2015–17 depreciation schedule; total depreciation

shown was $103,199 for 2015, $98,577 for 2016, and $91,952 for 2017. We will treat

petitioner’s claims as if she had asked for the full amount of depreciation shown on the

2015–17 depreciation schedule for each year at issue.

26

[*26] vehicles. The vehicles appear to be a Ford-450 and a BMW SUV. 26

In support of the claimed depreciation expenses, petitioner argues that

[t]he 2014 tax year was litigated in the tax court, and the

parties hereto reached a settlement for [2014] . . . . Several

issues reviewed in the audit of 2014 and settled before this

Court directly impact the 2015, 2016, and 2017 tax years.

Specifically, the IRS reviewed and accepted Petitioner’s

depreciable assets and depreciation schedule for 2014,

which necessarily affects the treatment of depreciation in

subsequent tax years.

Considering petitioner’s arguments and the evidence presented, we rule

that A-1 is not entitled to any depreciation deduction for 2015.

First, we do not agree with petitioner’s argument that the

settlement regarding the 2014 year precludes respondent from

challenging A-1’s claimed depreciation expenses for the years at issue.

It appears that depreciation expenses were never at issue in the case

involving petitioner’s 2014 tax year—the Notice of Deficiency at issue in

that case actually allowed petitioner a greater depreciation deduction

for A-1 ($46,439) than the amount shown on the 2014 depreciation

schedule and reported on the 2014 Schedule C for A-1 ($44,775). Even if

depreciation deductions were at issue in the 2014 case, each tax year

stands on its own, with each year being the origin of new liability and a

separate cause of action. Koprowski v. Commissioner, 138 T.C. 54, 60

(2012). This means that the doctrine of res judicata does not apply.

Martin v. Commissioner, T.C. Memo. 2021-35, at *22. The doctrine of

collateral estoppel serves petitioner no better because, even if the same

depreciation issues were present in both the 2014 case and the instant

case, they were settled in the 2014 case by stipulated decision, whereas

collateral estoppel requires a decision, not just a settlement. See Sands

v. Commissioner, T.C. Memo. 1997-146, 1997 Tax Ct. Memo LEXIS 171,

at *16–17, aff’d sub nom. Murphy v. Commissioner, 164 F.3d 618 (2d Cir.

1998) (unpublished table decision). “It is well settled that the

26 On brief, petitioner claimed that “[t]he vehicles include a Ford F-450 . . . and

a BMW.” We note that a 2014 depreciation schedule for A-1 introduced into evidence

in this case (2014 depreciation schedule) includes a Cadillac Escalade purchased on

January 1, 2011, for $55,000. The same 2014 depreciation schedule includes neither

the Ford-450 nor the BMW SUV, even though one of these vehicles was allegedly

purchased in 2011 and the other on January 1, 2014. There were many inconsistencies,

or apparent inconsistencies, such as this between the 2014 depreciation schedule and

the 2015–17 depreciation schedule.

27

[*27] Commissioner’s failure to challenge a taxpayer’s treatment of an

item in one taxable year is irrelevant in the determination of the proper

treatment of a similar item in a different taxable year.” Little v.

Commissioner, 106 F.3d 1445, 1453 (9th Cir. 1997), aff’g T.C. Memo.

1993-281.

Second, and related to the first point, there are substantial

differences in assets shown on the 2014 depreciation schedule and the

assets shown on the 2015–17 depreciation schedule. Though real

property names/addresses are not included on the 2014 depreciation

schedule (all real properties are identified as “house”), few dates placed

in service or purchase prices match between the 2014 depreciation

schedule and the 2015–17 depreciation schedule. Furthermore, (1) many

more real properties are shown on the 2015–17 depreciation schedule

than on the 2014 depreciation schedule, and (2) there are various other

differences between the depreciation schedules that do not give us

confidence in the correctness of the 2015–17 depreciation schedule. See

supra note 26. Given these differences, we do not find that the

settlement regarding petitioner’s 2014 tax year supports her claimed

A-1 depreciation expenses for the years at issue.

Third, petitioner has provided little to no evidence supporting the

2015–17 depreciation schedule. She has introduced little to no evidence

supporting (1) A-1’s ownership of the assets in dispute; 27 (2) the claimed

purchase prices and/or dates placed in service for assets; (3) for the value

of real properties, the portions of basis that petitioner assigned to the

value of land (which is not a depreciable asset); 28 or (4) the amount of

improvements to buildings that might increase depreciable basis.

27 It was clear that A-1 did not own many of the properties for which

depreciation deductions were claimed. Petitioner testified (and rental agreements

reflect) that she herself owned several of the properties. Petitioner did not attach to

any of the tax returns prepared on her behalf for the years at issue Schedule E,

Supplemental Income and Loss, reporting rental property income or expenses.

Petitioner also testified that (1) her son owned one of the properties and A-1 paid him

rent to use the property, (2) her husband owned one of the properties, and (3) her

parents may have owned one of the properties.

28 For many of the real properties, the portion of basis that petitioner assigned

to land (as opposed to buildings/improvements) struck us as unreasonably small. For

example, the 2015–17 depreciation schedule includes one property in which A-1 had

an alleged basis of $550,000. Petitioner assigned only $14,730 of the property basis to

land. Another property was a vacant lot, though the 2015–17 depreciation schedule

assigned only 10% of the property basis to land.

28

[*28] Regarding the vehicles at issue, section 274(d) imposes strict

substantiation requirements for any deduction—including a

depreciation deduction—with respect to “listed property.” As defined in

section 280F(d)(4), listed property includes “any passenger automobile”

and “any other property used as a means of transportation.” Petitioner

failed to meet the strict substantiation requirements for the vehicles at

issue, and no 2015 depreciation deduction is allowed with respect to

them.

Regarding the remaining assets at issue (all of which are real

properties), for us to estimate the amount of a deduction using the

Cohan rule, petitioner must present some credible evidence that

provides a rational basis for the estimate. See Vanicek, 85 T.C. at 742–

43. We are not obligated to make an estimate under the Cohan rule

where there is insufficient evidence to allow us to make a rational

estimate. See Lerch v. Commissioner, 877 F.2d 624, 627–29 (7th Cir.

1989) (refusing to apply the Cohan rule where the taxpayer failed to

present evidence to support claimed deductions), aff’g T.C. Memo. 1987-

295. The taxpayer must supply some factual basis for an estimate;

otherwise, the allowance would amount to “unguided largesse.”

Williams v. United States, 245 F.2d 559, 560 (5th Cir. 1957). With

respect to the claimed 2015 depreciation deduction, we are unable to

apply the Cohan rule because petitioner failed to introduce sufficient

evidence supporting the 2015–17 depreciation schedule. Accordingly, we

rule that petitioner failed to meet her burden of proof to show that A-1

is entitled to any depreciation deduction for 2015.

6. Miscellaneous Expenses

Petitioner claimed A-1 is entitled to a $167,518 deduction for

miscellaneous expenses paid using petitioner’s personal American

Express card. The payments were made to/for a variety of entities and

expense categories, including restaurants, “clothes,” sporting goods

stores, “Cadillac,” hotels, home improvement stores, “[t]ravel,” a

restaurant supply business, “[m]arketing,” other transportation and

vehicle services, “[f]ood,” insurance companies, electronics stores,

various utilities, etc.

Petitioner created a spreadsheet with categories of alleged

miscellaneous 2015 expenses paid using her personal American Express

card (2015 expense spreadsheet). She cited the 2015 expense

spreadsheet and her personal American Express card statements in

support of the expense deductions claimed. The 2015 expense

29

[*29] spreadsheet lists only $158,732 in miscellaneous expenses paid,

while the card statements include total payments in excess of $167,518.

Petitioner did not specify the exact payments that make up the claimed

$167,518 amount. Considering the hundreds of transactions made, we

are unable to discern the payments that constitute the $167,518

amount. Rather than guess at unspecified payments, we will use the

lower $158,732 amount shown on the 2015 expense spreadsheet. We

rule that petitioner failed to meet her burden of proof to substantiate

the deductibility of any payments not included in the $158,732 of

expenses shown on the 2015 expense spreadsheet.

As stated supra, we recognize that a company like A-1 may incur

numerous types of expenses in the operation of its business. The

testimony of petitioner and other witnesses (in addition to documentary

evidence) generally supported this. However, petitioner failed to fully

substantiate the $158,732 paid. We make several rulings regarding this

group.

First, petitioner failed to satisfy the strict substantiation

requirements of section 274(d) for vehicle and travel expenses totaling

$29,589. We rule that no part of those expenses is deductible.

Second, respondent previously conceded payments totaling

$1,956 to Carnival Cruise Line. We rule that A-1 is not entitled to

duplicative deductions for such payments.

Third, we find it probable that the restaurant supply expenses of

$10,524 pertain to the restaurant businesses registered to petitioner’s

husband rather than to A-1. We rule that no part of those expenses is

deductible.

Finally, considering the testimony and documentary evidence, we

find it proper to apply the Cohan rule to estimate the portion of the

remaining $116,663 that is deductible by A-1. Considering A-1’s

business, the types and amounts of expenses, the various payees, the

fact that the payments were made from petitioner’s personal American

Express card, and the testimony/other evidence presented, we rule that

$35,000 (approximately 30%) represents deductible business expenses

for A-1.

30

[*30] D. 2016 Additional Expenses

1. Rent

a. Rent Subgroup: A-1 Rent

Petitioner claimed A-1 is entitled to a $36,771 deduction for rents

paid for four units/buildings. The payments at issue were made from

petitioner’s joint bank account.

Six rent payments totaling $12,250 were made for the apartment

in downtown New Orleans discussed supra OPINION Part V.C.1.b. It is

unclear why petitioner included rent for this building in the 2016 A-1

Rent subgroup after including it in the 2015 Emergency Rent subgroup.

Regardless, for the same reasons previously discussed, we rule that

petitioner failed to meet her burden of proof to show that the $12,250

paid represented an ordinary and necessary business expense for A-1.

Five payments totaling $1,272 were made to Jetro Holdings, LLC.

These payments were not explained, and we rule that petitioner failed

to meet her burden of proof to show that they represented an ordinary

and necessary business expense for A-1.

One payment of $5,250 was made to a person named Joan Lucky.

The parties previously stipulated that this payment was a deductible

rent expense, and it is included in the 2016 rent expenses respondent

conceded. We rule that A-1 is not entitled to a duplicative deduction for

this payment.

Twelve rent payments totaling $18,000 were made for the Tim’s

Soul Food building. For the same reasons discussed supra OPINION

Part V.C.1.a, we rule that these payments are not ordinary and

necessary business expenses for A-1.

b. Rent Subgroup: Emergency Rent

Petitioner claimed A-1 is entitled to a $26,961 deduction for rent

paid for the Houston apartment discussed supra OPINION Part V.C.1.b.

For the same reasons previously discussed, we rule that rent paid for

that apartment is an ordinary and necessary business expense for A-1.

31

[*31] 2. Utilities

Petitioner claimed A-1 is entitled to a $52,650 deduction for

various utilities paid from petitioner’s joint bank account. Such

payments were mostly for electricity, though some were for phones,

cable, and water. For the same reasons discussed supra OPINION Part

V.C.2, we find it proper to apply the Cohan rule to estimate the portion

of the utility expenses that is deductible by A-1 and rule that $37,000

(approximately 70%) represents deductible business expenses for A-1.

3. Contractors

a. Contractor Subgroup: Contractor Checks

Petitioner claimed A-1 is entitled to a $49,351 deduction for

various checks paid mostly from petitioner’s joint bank account, though

one check was paid from A-1’s bank account. The payments were made

to various people and entities. For the same reasons discussed supra

OPINION Part V.C.3.a, we find it proper to apply the Cohan rule to

estimate the portion of the expenses that is deductible by A-1 and rule

that $35,000 (approximately 70%) represents deductible business

expenses for A-1.

b. Contractor Subgroup: Additional Expenses

Petitioner claimed A-1 is entitled to a $110,950 deduction for

payments made from A-1’s bank account. Unlike the same subgroup

payments for 2015, see discussion supra OPINION Part V.C.3.b, the

payments for 2016 did not include payments made to restaurants, retail

stores, travel/car expenses, and similar payees. Rather, nearly all of the

payments were made to people, many of whom are, or appear to be,

contractors or other people who performed work for A-1. We make two

rulings regarding this subgroup.

First, respondent already conceded multiple payments totaling

$2,480, and we rule that A-1 is not entitled to duplicative deductions for

the payments.

Second, regarding the remaining $108,470 in claimed expenses,

for the same reasons discussed supra OPINION Part V.C.3.b, we find it

proper to apply the Cohan rule to estimate the portion of the $108,470

that is deductible by A-1. Considering A-1’s business, the types and

amounts of expenses, the various payees, the fact that the payments

were made from A-1’s bank account, and the testimony/other evidence

32

[*32] presented, we rule that $87,000 (approximately 80%) represents

deductible business expenses for A-1.

4. Transportation

Petitioner claimed A-1 is entitled to a $74,140 deduction for

alleged transportation expenses paid from petitioner’s joint bank

account. Checks and electronic withdrawals were paid to several

entities, including BMW Bank, “WU Auto,” Ford Credit, and Ally

(presumably the insurance company). We make two rulings regarding

this subgroup.

First, respondent already conceded three payments totaling

$8,600, and we rule that A-1 is not entitled to duplicative deductions for

the payments.

Second, regarding the remaining $65,540 in claimed expense

deductions, travel and car and truck expenses are subject to the strict

substantiation requirements of section 274(d). Petitioner failed to

satisfy the section 274(d) substantiation requirements for any payment.

We rule that A-1 is not entitled to deduct any of the remaining expenses

claimed.

5. Client Expenses

a. Client Spending

Petitioner claimed A-1 is entitled to a $26,230 deduction for

“Client Spending $.” In support of the claimed deduction, petitioner

points to cash withdrawals from her joint bank account. As discussed

supra OPINION Part V.C.3.b, we will allow a deduction for cash

payments shown on A-1’s 2016 petty cash receipts, which total

approximately $13,100. We accordingly rule that A-1 is entitled to a

deduction for the cash withdrawals of only $13,100.

b. Additional Client Expenses

Petitioner claimed A-1 is entitled to a $174,967 deduction for

additional client expenses paid from petitioner’s joint account. We make

several rulings regarding this subgroup.

First, $71,322 of the claimed deduction is attributable to checks

paid to cash. As discussed supra OPINION Part V.D.5.a, we have

already allowed a deduction for cash shown to be used in A-1’s business.

33

[*33] We will allow no further deduction for cash withdrawn from

petitioner’s joint bank account. We rule that no portion of the $71,322 is

deductible.

Second, $1,500 of the claimed deduction is attributable to a check

written to petitioner. It was not established why this payment would

constitute a client expense, and we rule that it is not deductible.

Third, respondent already conceded three payments totaling

$1,800, and we rule that A-1 is not entitled to duplicative deductions for

the payments.

Fourth, $1,610 of the claimed deduction is attributable to a check

written to R&E Automotive. This check is for a vehicle-related service.

The strict substantiation requirements of section 274(d) apply to this

payment, which petitioner has not satisfied. We rule that this payment

is not deductible.

Fifth, the remaining $98,735 was paid to various people and

businesses, many of whom are, or appear to be, contractors or other

people/businesses who performed work for A-1. Considering the

testimony and documentary evidence regarding the payment of such

people/entities, but also petitioner’s failure to fully substantiate the

deductibility of the $98,735, we find it proper to apply the Cohan rule to

estimate the portion that is deductible by A-1. Considering A-1’s

business, the types and amounts of expenses, the various payees, the

fact that the payments were made from petitioner’s joint bank account,

and the testimony/other evidence presented, we rule that $69,000

(approximately 70%) represents deductible business expenses for A-1.

6. Insurance

Petitioner claimed A-1 is entitled to a $19,838 deduction for

insurance payments made mostly to Blue Cross from petitioner’s joint

bank account.

For 2015 the parties stipulated that A-1 “paid employee insurance

premiums in the amount of $27,484 to Humana Insurance,” most of

which was paid from petitioner’s joint bank account. For 2016 the

parties made no stipulation with respect to employee insurance

premiums paid. Considering the payments of less than $250 made to

Humana from petitioner’s joint bank account in 2016, and the amounts

of the payments made to Humana in 2015 and Blue Cross in 2016, it

appears that A-1 changed employee insurance carriers from Humana to

34

[*34] Blue Cross at the end of 2015 or the beginning of 2016. The

preponderance of the evidence favors petitioner, and we rule that A-1 is

entitled to the $19,838 insurance deduction claimed.

7. Depreciation

Petitioner claimed A-1 is entitled to a $98,577 depreciation

deduction. For the same reasons discussed supra OPINION Part V.C.5,

we rule that no depreciation deduction for 2016 is allowable.

8. Miscellaneous Expenses

a. Miscellaneous A-1 Expenses

Petitioner claimed A-1 is entitled to a $59,937 deduction for

miscellaneous expenses paid. Most of these payments ($32,722) were

property tax payments made from A-1’s bank account to Jefferson

Parish, Louisiana. The remaining payments were made from

petitioner’s joint bank account to one person and a variety of entities,

such as wireless carriers and retailers. We make several rulings

regarding this subgroup.

First, regarding the property tax payments, petitioner has not

shown the business purpose for each payment or which properties the

payments are attributable to. However, considering the evidence

regarding A-1’s provision of housing to its clients and employees, we find

it proper to apply the Cohan rule to estimate the portion of the $32,722

that is deductible by A-1. Considering A-1’s business, the number of

property tax payments made (21), the fact that the payments were made

from A-1’s account, A-1’s lack of ownership of many of the properties at

issue in this case, see supra note 27, various lease agreements, and the

other evidence presented, we rule that $6,500 (approximately 20%)

represents deductible business expenses for A-1.

Second, respondent already conceded a $124 payment, and we

rule that A-1 is not entitled to a duplicative deduction for the payment.

Third, regarding the remaining $27,091, as stated supra, we

recognize that a company like A-1 may incur numerous types of

expenses in the operation of its business. While the testimony of

petitioner and other witnesses (in addition to documentary evidence)

generally supported the deductibility of a wide range of expenses,

petitioner failed to fully substantiate the deductibility of the $27,091

paid. We find it proper to apply the Cohan rule to estimate the portion

35

[*35] of the $27,091 paid that is deductible by A-1. Considering A-1’s

business, the types and amounts of expenses, the various payees, the

fact that the payments were made from petitioner’s joint bank account,

and the testimony/other evidence presented, we rule that $8,000

(approximately 30%) represents deductible business expenses for A-1.

b. Miscellaneous American Express Expenses

Petitioner claimed A-1 is entitled to a $357,635 deduction for

miscellaneous expenses paid using petitioner’s personal American

Express card.

As discussed supra OPINION Part V.C.6, petitioner created a

2015 expense spreadsheet with categories of alleged miscellaneous

expenses paid using her personal American Express card. Petitioner

also created an expense spreadsheet for 2016 (2016 expense

spreadsheet). Unlike the 2015 expense spreadsheet, the 2016 expense

spreadsheet does not divide the card payments by category. Rather, the

2016 expense spreadsheet simply includes an “AMEX” category with

monthly totals that add up to $389,713. 29 Petitioner also generally cited

American Express card statements in evidence to support the claimed

$357,635 deduction. Payments shown on the American Express card

statements were made for a variety of categories, including restaurants,

clothing, travel, gas, electronics, automobile, furniture, etc.

Considering the mishmash of expenses shown on the American

Express card statements and petitioner’s failure to make any effort to

identify deductible expenses or expense categories, we find that we are

unable to apply the Cohan rule to the claimed expenses. We rule that

petitioner failed to meet her burden of proof to substantiate that any

deductible business expenses were paid.

E. 2017 Additional Expenses

1. Rent

a. Rent Subgroup: A-1 Rent

Petitioner claimed A-1 is entitled to a $16,500 deduction for rents

paid for the Tim’s Soul Food building. For the same reasons discussed

29 The difference between the $389,713 amount shown on the 2016 expense

spreadsheet and the $357,635 deduction petitioner claimed on brief was not explained.

36

[*36] supra OPINION Part V.C.1.a, we rule that these payments are not

ordinary and necessary business expenses for A-1.

b. Rent Subgroup: Emergency Rent

Petitioner claimed A-1 is entitled to a $33,299 deduction for rents

paid for the Houston apartment discussed supra OPINION Part V.C.1.b.

For the same reasons previously discussed, we rule that rent paid for

that apartment is an ordinary and necessary business expense for A-1.

2. Utilities

Petitioner claimed A-1 is entitled to a $38,148 deduction for

various utilities paid from petitioner’s joint bank account. Such

payments were mostly for electricity, though some were for phones,

cable, and water. For the same reasons discussed supra OPINION Part

V.C.2, we find it proper to apply the Cohan rule to estimate the portion

of the utility expenses deductible by A-1 and rule that $27,000

(approximately 70%) represents deductible business expenses for A-1.

3. Contractors

a. Contractor Subgroup: Contractor Checks

Petitioner claimed A-1 is entitled to a $14,188 deduction for

various checks paid from petitioner’s joint bank account. We make two

rulings regarding this subgroup.

First, respondent already conceded a $1,000 payment, and we

rule that A-1 is not entitled to a duplicative deduction for the payment.

Second, regarding the remaining $13,188 in claimed expenses, for

the same reasons discussed supra OPINION Part V.C.3.a, we find it

proper to apply the Cohan rule to estimate the portion of the expenses

deductible by A-1 and rule that $9,000 (approximately 70%) represents

deductible business expenses for A-1.

b. Contractor Subgroup: Form 1099 Expenses

Petitioner claimed A-1 is entitled to a $52,756 deduction for

amounts shown on Forms 1099–MISC, Miscellaneous Income,

introduced into evidence. The forms purport to show A-1’s reporting of

certain amounts paid to contractors, though it was not established

whether the forms were actually filed with the Commissioner. The

37

[*37] parties have stipulated that A-1 did not issue Forms 1099 to some

other people that it paid for services during each of the years at issue.

Respondent has previously conceded many of the amounts shown

on the relevant forms. For example, a form regarding “Gleiny

Hernandez” shows $1,674 paid by A-1, while respondent has previously

conceded payments of $864 and $810 to “Gluny Hernandez.” Similarly,

a form regarding a person named Sedella Welch shows $16,100 paid by

A-1, while respondent has previously conceded payments of $5,000,

$2,100, and $9,000 to the same person. Other amounts respondent

conceded include $841 paid to Myron Henderson, $900 paid to Rontryce

Rogers, $816 paid to Heather Russel, $4,521 paid to Ezell Smith, and

$1,080 paid to Edgar Vado.

Subtracting the amounts respondent already conceded leaves

$26,824 in dispute. We have found checks paid from A-1’s bank account

to the remaining individuals at issue that add up to the amount shown

on the Form 1099–MISC regarding each person. Considering the

testimony regarding such individuals and the documentary evidence

presented, we find that the preponderance of the evidence favors

petitioner’s position. We rule that the $26,824 paid is a deductible

business expense for A-1.

4. Transportation

Petitioner claimed A-1 is entitled to a $115,532 deduction for

alleged transportation expenses paid from petitioner’s joint bank

account. Payments were made to several entities, including BMW Bank,

“Tinted Concepts of Marrero,” Ford Credit, and gas stations.

Travel and car and truck expenses are subject to the strict

substantiation requirements of section 274(d). The strict substantiation

requirements of section 274(d) apply to the payments at issue. Petitioner

has not met those requirements with respect to any payment. We rule

that A-1 is not entitled to deduct any of the transportation expenses

claimed.

5. Client Expenses

a. Client Spending

Petitioner claimed A-1 is entitled to a $23,178 deduction for

“client spending.” This amount comprised $22,478 in cash withdrawals,

$600 in checks ($100 each) paid to several people, and one check paid to

38

[*38] cash. The six checks paid to individuals have nothing written in

the memo lines, though the check paid to cash has a person’s name

written in the memo line. All withdrawals were made, and all checks

were paid, from petitioner’s joint bank account.

As discussed supra OPINION Part V.C.3.b, we will allow a

deduction for cash payments shown on A-1’s 2017 petty cash receipts,

which total approximately $13,400. We accordingly rule that A-1 is

entitled to a $13,400 deduction for the cash withdrawals.

Petitioner claims that the check payments totaling $700 were

“made to, or on behalf of, A1’s clients.” Comparing the names on the six

checks paid to individuals to a list of A-1’s clients in evidence, it appears

that none of the checks were written to clients. Nor is it clear what

connection, if any, the payees (or the person whose name was written in

the memo line of the check paid to cash) have to A-1. Considering the

lack of explanation/evidence, we rule that petitioner failed to meet her

burden of proof to substantiate that the check payments are deductible

expenses for A-1.

b. Additional Client Expenses

Petitioner claimed A-1 is entitled to a $249,822 deduction for

additional client expenses. All payments constituting the $249,822 were

made from petitioner’s joint account. We make several rulings regarding

this subgroup.

First, $52,042 of the claimed deduction is attributable to checks

paid to cash. As discussed supra OPINION Part V.E.5.a, we already

allowed a deduction for all the petty cash shown to have been used in

A-1’s business during 2017. We will allow no further deduction for cash

allegedly used. We rule no portion of the $52,042 is deductible.

Second, respondent already conceded three payments totaling

$4,880, and we rule that A-1 is not entitled to duplicative deductions for

the payments.

Third, the remaining $192,900 was paid to various people and

businesses, many of whom are, or appear to be, contractors or other

people/businesses who performed work for A-1 and/or its clients.

Considering the testimony and documentary evidence regarding the

payment of such people/entities, but also petitioner’s failure to fully

substantiate the deductibility of the $192,900, we find it proper to apply

the Cohan rule to estimate the portion that is deductible by A-1.

39

[*39] Considering A-1’s business, the types and amounts of expenses,

the various payees, the fact that the payments were made from

petitioner’s joint bank account, and the testimony/other evidence

presented, we rule that $135,000 (approximately 70%) represents

deductible business expenses for A-1.

6. Insurance

Petitioner claimed A-1 is entitled to a $42,172 deduction for

insurance. In support of the claimed deduction, petitioner points to

payments made to Blue Cross, “Citizens General,” Humana, “Direct

General Auto,” and Liberty Mutual from petitioner’s joint bank account.

For the same reasons discussed supra OPINION Part V.D.6, we

rule that $33,249 paid to Blue Cross and $189 paid to Humana are

deductible insurance expenses for A-1.

Petitioner has provided no evidence or argument regarding the

remaining insurance payments. Some of the payments are for car/truck

insurance subject to the strict substantiation requirements of section

274(d), which petitioner has not satisfied. We rule that petitioner failed

to meet her burden of proof to substantiate that any insurance payments

not paid to Blue Cross or Humana are deductible business expenses for

A-1.

7. Depreciation

Petitioner claimed A-1 is entitled to a $91,952 depreciation

deduction. For the same reasons discussed supra OPINION Part V.C.5,

we rule that no depreciation deduction for 2017 is allowable.

8. Miscellaneous Expenses

a. A-1 Bank Account Expenses

Petitioner claimed A-1 is entitled to a $179,547 deduction for

miscellaneous expenses paid from A-1’s bank account and the reversal

of certain amounts transferred into the account. We make several

rulings regarding the claimed deduction.

First, petitioner claims that $79,000 should be “[r]everse[d] out

transfer from kids account erroneously included in income.” Because the

parties stipulated a 2017 income amount for A-1 that (apparently) does

not include in income transfers from accounts in the names of

40

[*40] petitioner’s children, see supra note 11, we rule that no offsetting

deduction is allowable.

Second, $38,800 in checks was paid to Colette Branch. Most of the

checks had nothing written in the memo line, though one appears to

have petitioner’s signature written in the memo line. No explanation

was provided for why such payments would constitute miscellaneous

expenses for A-1. We rule that none of these payments are deductible.

Third, $6,208 in payments to Leonard Welch, Larry Riley, and

Waukesha Riley were already allowed as part of the deductions

discussed supra OPINION Part V.E.3.b. We rule that no additional

deduction is allowed with respect to these payments.

Fourth, one check for $250 was paid to cash. As discussed supra

OPINION Part V.E.5.a, we already allowed a deduction for all the petty

cash shown to have been used in A-1’s business during 2017. We will

allow no further deduction for cash allegedly used. We rule no portion of

the $250 is deductible.

The remaining $55,289 in claimed expenses was paid to a variety

of people and entities. As stated supra, we recognize that a company like

A-1 may incur numerous types of expenses in the operation of its

business. While the testimony of petitioner and other witnesses (in

addition to documentary evidence) generally supported the deductibility

of a wide range of expenses, petitioner failed to fully substantiate the

deductibility of the $55,289 paid. Considering the testimony and

documentary evidence, we find it proper to apply the Cohan rule to

estimate the portion of the $55,289 paid that is deductible by A-1.

Considering A-1’s business, the types and amounts of expenses, the

various payees, the fact that the payments were made from A-1’s bank

account, and the testimony/other evidence presented, we rule that

$39,000 (approximately 70%) represents deductible business expenses

for A-1.

b. Petitioner’s Joint Bank Account Expenses

Petitioner claimed A-1 is entitled to a $152,732 deduction for

miscellaneous expenses paid from petitioner’s joint bank account. We

make several rulings regarding this subgroup.

First, respondent already conceded three payments totaling

$6,784, and we rule that A-1 is not entitled to duplicative deductions for

the payments.

41

[*41] Second, checks totaling $6,350 were paid to cash. As discussed

supra OPINION Part V.E.5.a, we already allowed a deduction for all the

petty cash shown to have been used in A-1’s business during 2017. We

will allow no further deduction for cash allegedly used. We rule no

portion of the $6,350 is deductible.

Finally, the remaining payments of $139,598 were made to a

variety of people and entities, including Sam’s Club, electronics stores,

a wireless provider, etc. Considering the testimony and documentary

evidence regarding the payment of similar people/entities, but also

petitioner’s failure to fully substantiate the deductibility of the

$139,598, we find it proper to apply the Cohan rule to estimate the

portion that is deductible by A-1. Considering A-1’s business, the types

and amounts of expenses, the various payees, the fact that the payments

were made from petitioner’s joint bank account, and the testimony/other

evidence presented, we rule that $56,000 (approximately 40%)

represents deductible business expenses for A-1.

c. Miscellaneous American Express Expenses

Petitioner claimed A-1 is entitled to a $500,929 deduction for

miscellaneous expenses paid using petitioner’s personal American

Express card.

Similar to what she did for 2016, petitioner created an expense

spreadsheet for 2017 (2017 expense spreadsheet). Like the 2016 expense

spreadsheet, the 2017 expense spreadsheet does not divide up the

American Express card payments by category. Rather, the 2017 expense

spreadsheet simply includes an “AMEX” category with monthly totals

that add up to $579,514. 30 Petitioner also generally cited the American

Express card statements in evidence to support the claimed $500,929

deduction. Payments shown on the American Express card statements

were made for a variety of categories, including restaurants, clothing,

travel, gas, insurance, automobile, utilities, etc.

Considering the mishmash of expenses shown on the American

Express card statements and petitioner’s failure to make any effort to

identify deductible expenses or expense categories, we find that we are

unable to apply the Cohan rule to the claimed expenses. We rule that

30 The difference between the $579,514 amount shown on the 2017 expense

spreadsheet and the $500,929 deduction petitioner claimed on brief was not explained.

42

[*42] petitioner failed to meet her burden of proof to substantiate any

deductible business expenses were paid.

VI. Additions to Tax

The Commissioner has the burden of producing evidence with

respect to the liability of any individual for any addition to tax. § 7491(c).

To satisfy that burden, the Commissioner must offer sufficient evidence

to indicate that imposing the addition to tax is appropriate. Higbee, 116

T.C. at 446.

A. Section 6651(a)(1) and (2) Additions to Tax

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

income tax return by the due date (including extensions). To satisfy his

burden of production, the Commissioner must show that the taxpayer

did not file a return by the due date. See Wheeler v. Commissioner, 127

T.C. 200, 207–08 (2006), aff’d, 521 F.3d 1289 (10th Cir. 2008).

Section 6651(a)(2) imposes an addition to tax for failing to pay

taxes when due. To satisfy his burden of production, the Commissioner

must show that an income tax return was filed, or an SFR was prepared,

showing a tax liability for the relevant year. See Wheeler, 127 T.C.

at 210.

If the Commissioner satisfies the burden of production for

additions to tax under section 6651(a), the taxpayer bears the burden of

proving the additions to tax are inappropriate. Wheeler, 127 T.C. at 206;

Higbee, 116 T.C. at 446–47; see also § 6651(a)(1) and (2). A taxpayer may

demonstrate that additions to tax are inappropriate by establishing

reasonable cause, which requires showing that, despite exercising

ordinary business care and prudence, the taxpayer was unable to file the

return or pay the tax, as applicable, on time, typically for reasons

outside the taxpayer’s control. Treas. Reg. § 301.6651-1(c)(1).

Petitioner concedes that she did not file income tax returns for

the years at issue. The IRS consequently prepared an SFR for each year,

and the record contains a copy of each SFR and a certification validating

each SFR. See § 6020(b); Treas. Reg. § 301.6020-1(b)(2). The SFRs show

a tax liability for each year at issue. Accordingly, respondent has

satisfied his burden of production with respect to the section 6651(a)(1)

and (2) additions to tax.

43

[*43] Petitioner claimed that she had reasonable cause for her failure

to file tax returns for the years at issue. Petitioner alleged that she

provided her tax advisor, Mr. Thornton, with all necessary information

to prepare and timely file her tax returns, but that he advised her to

delay filing because of the audit for her 2014 tax year. When asked at

trial whether she had “a return filing requirement,” petitioner testified

that she was aware that she did.

In Morris v. Commissioner, T.C. Memo. 2021-120, at *7–8, we

stated:

Taxpayers may demonstrate reasonable cause for

failing to file a return timely through their good-faith,

reasonable reliance on the advice of an independent,

competent tax professional that no return was required to

be filed. [United States v. Boyle, 469 U.S. 241, 250–51

(1985).] Reliance on such advice “do[es] not sanction an

abdication of responsibility for the timely filing of a return

admittedly due.” United States v. Kroll, 547 F.2d 393, 397

(7th Cir. 1977); see also Fleming v. United States, 648 F.2d

1122, 1125–1126 (7th Cir. 1981). The Code provides an

unambiguous deadline, and “no special training or effort [is

required] to ascertain * * * that it is met.” Boyle, 469 U.S.

at 252.

[Taxpayers] were not advised that they were not

required to file a return. The alleged advice was to delay

filing while audits for prior years were completed. Allowing

such a basis for reasonable cause would make timely filing

optional for any taxpayer under audit. [Taxpayers] were

aware that they had a duty to file a return timely and

consciously failed to file. It is well settled that taxpayers

must file timely returns using the best information

available to them and may file amended returns if

necessary. Estate of Vriniotis v. Commissioner, 79 T.C. 298,

311 (1982).

(Footnote omitted.) Regardless of the alleged advice provided by Mr.

Thornton, 31 for the reasons discussed in Morris, T.C. Memo. 2021-120,

31 Similarly to the advisor at issue in Morris, Mr. Thornton did not testify at

trial. We are skeptical of petitioner’s allegations regarding advice Mr. Thornton gave

to her. We need not accept a taxpayer’s testimony that is self-serving and

uncorroborated by other evidence. See, e.g., Shea, 112 T.C. at 189.

44

[*44] at *7–8, we rule that the reasonable cause defense does not apply

and that the section 6651(a)(1) addition to tax applies for each year at

issue.

Petitioner did not raise the reasonable cause defense with respect

to the 6651(a)(2) additions to tax. Petitioner has not alleged or shown

that Mr. Thornton or any other person advised her not to pay the

amounts shown due on the SFRs. Nor has petitioner provided any other

reason for her failure to pay. Accordingly, we rule that the reasonable

cause defense does not apply and that the section 6651(a)(2) addition to

tax applies for each year at issue.

B. Section 6654 Addition to Tax

Section 6654(a) imposes an addition to tax on an individual for

failure to make required estimated tax payments. This addition to tax

is calculated with reference to four required installment payments of the

taxpayer’s estimated tax liability. § 6654(c) and (d). Each required

installment is generally equal to 25% of the “required annual payment.”

§ 6654(d). The required annual payment is equal to the lesser of (1) 90%

of the tax shown on the return for the tax year at issue (or, if no return

is filed, 90% of the tax for such year) or (2) if the individual filed a return

for the immediately preceding tax year, 100% (or in certain

circumstances 110%) of the tax shown on that return. § 6654(d)(1); see

Wheeler, 127 T.C. at 210–11. An SFR is not considered to be a return for

purposes of section 6654(d)(1)(B). See, e.g., Kupersmit v. Commissioner,

T.C. Memo. 2016-202, at *34; Duma v. Commissioner, T.C. Memo. 2009-

304, 2009 Tax Ct. Memo LEXIS 306, at *18 n.6.

To satisfy the burden of production, the Commissioner must show

that the taxpayer had a required annual payment. See Wheeler, 127 T.C.

at 211–12. As part of this burden, the Commissioner must establish the

tax shown on the taxpayer’s return for the preceding year or

demonstrate that the taxpayer filed no such return. Id.; Harvey v.

Commissioner, T.C. Memo. 2023-95, at *6–7; Collins v. Commissioner,

T.C. Memo. 2020-50, at *47. Except as provided in section 6654(e)(3)(B),

no reasonable cause exception exists for the section 6654(a) addition to

tax. Treas. Reg. § 1.6654-1(a)(1); see also Bray v. Commissioner, T.C.

Memo. 2008-113, 2008 Tax Ct. Memo LEXIS 114, at *20.

Petitioner filed her 2014 return in April 2016, reporting adjusted

gross income of $393,305 and total tax of $66,566. Respondent

calculated her 2015 section 6654(a) addition to tax based on 110% of the

45

[*45] tax shown on her 2014 return, see § 6654(d)(1)(B)(ii), (C)(i), which

was less than 90% of the tax shown on the 2015 SFR, see

§ 6654(d)(1)(B)(i). Because petitioner did not file a 2015 or 2016 return,

respondent calculated her 2016 and 2017 section 6654(a) additions to

tax based on 90% of the tax shown on the 2016 and 2017 SFRs,

respectively. Considering the facts regarding petitioner’s 2014 return,

petitioner’s failure to file returns for the years at issue, and respondent’s

calculations for the section 6654 additions to tax, 32 we rule that

respondent has met his burden of production and that a section 6654

addition to tax applies for each year at issue.

VII. Conclusion

We hold that (1) petitioner’s filing status for the years at issue is

married filing separate, (2) petitioner is entitled to a portion of the

Schedule A deductions respondent contested, (3) A-1 incurred deductible

Schedule C expenses greater than those respondent conceded, and

(4) petitioner is liable for additions to tax pursuant to sections 6651(a)(1)

and (2) and 6654. We have considered all arguments made by the

parties, and to the extent not mentioned or addressed, they are

irrelevant or without merit.

To reflect the foregoing,

Decision will be entered under Rule 155.

32 Respondent determined that petitioner had federal tax withholdings of

$2,520 for 2015 and $91 for 2017. Respondent accounted for these amounts when

calculating the section 6654 additions to tax for 2015 and 2017.