                        T.C. Memo. 1998-69



                      UNITED STATES TAX COURT



               FATAI and MARY KING, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8025-96.                 Filed February 19, 1998.



     Fatai King, pro se.

     Carol-Lynn E. Moran, for respondent.



                        MEMORANDUM OPINION


     FOLEY, Judge:   In the notice of deficiency relating to Fatai

and Mary King's 1992 Federal income tax, respondent determined a

deficiency of $11,945 and an accuracy-related penalty of $2,389.

The Kings, who resided in Wyndmoor, Pennsylvania, when they filed

their petition, dispute certain adjustments that respondent made
                                  2

to their Schedule C business income.   Petitioners have the burden

of proving that such adjustments are erroneous.    Welch v.

Helvering, 290 U.S. 111, 115 (1933).   All section references are

to Internal Revenue Code in effect for 1992, and all Rule

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

During 1992, petitioners owned and operated three newsstands.    On

Schedule C of their 1992 Federal income tax return, petitioners

reported cost of goods sold of $403,350 and gross receipts of

$445,000.   During the audit, petitioners attempted to

substantiate these items with altered and incomplete records.

Because the records were patently unreliable, respondent used a

combination of methods (i.e., percentage markup, unit and volume,

and specific items methods of proof) to reconstruct petitioners'

income.   We conclude that respondent's methods were reasonable.

     On Schedule C of their return, petitioners reported $40,250

of expenses, of which respondent disallowed the following:

$3,500 in bad debts, $8,500 for repairs and maintenance, $3,600

for meals and entertainment, $9,000 for utilities, and $8,500 for

wages.    With respect to wages, petitioners established that they

paid $180 per week for 40 weeks in 1992.   Therefore, they are

entitled to a deduction of $7,200.    Petitioners failed to offer

any evidence that supports, or any reasonable evidentiary basis

for the Court to estimate, any of the remaining expenses.

     Respondent determined an accuracy-related penalty pursuant

to section 6662.   The accuracy-related penalty applies to any
                                  3

portion of the underpayment that is attributable to negligence or

disregard for rules or regulations.    Sec. 6662(b).   Petitioners

failed to exercise due care in reporting their income and

expenses.   In addition, petitioners submitted altered documents

to the IRS and to the Court.    Accordingly, they are liable for

the accuracy-related penalty.

     To reflect the foregoing and concessions by respondent,


                                      Decision will be entered

                                under Rule 155.
