                          T.C. Memo. 2000-100



                        UNITED STATES TAX COURT



                 RONNA JOAN ROBERTSON, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3183-98.                        Filed March 24, 2000.



     Ronna Joan Robertson, pro se.

     Guy H. Glaser, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION

     GERBER, Judge:     In a notice of deficiency addressed to

petitioner, respondent determined deficiencies and additions to

tax as follows:

                                      Additions to Tax
     Year         Deficiency     Sec. 6651(a)   Sec. 6654(a)
     1993           $8,740         $2,185        $366.16
     1994            2,143            450          -–-
                               - 2 -

     After concessions,1 the issues for our consideration are:

(1) Whether petitioner is entitled to any Schedule A itemized

deductions for the taxable years 1993 and 1994; (2) whether

petitioner is liable for additional tax under section 722 in 1993

and 1994 for premature distributions of $35,000 and $8,717.32,

respectively, from individual retirement accounts; and (3)

whether petitioner is liable for additions to tax under section

6651(a) for 1993 and 1994 or under section 6654(a) for 1993.

                         FINDINGS OF FACT3

     Petitioner resided at 318 Georgia Circle, Placentia,

California, during the tax years at issue and at the time her

petition was filed.   Petitioner was born on January 18, 1941.

Petitioner was employed as a flight attendant for Trans World

Airlines (TWA) from September 1963 until she voluntarily left in

March 1991.   During the 1993 and 1994 taxable years, petitioner

maintained a joint checking account at First Interstate Bank with

her sister, Alexandra Robertson, and her mother, Joanne

Robertson.




     1
       During trial, petitioner conceded all of the unreported
income issues set forth in the two notices of deficiency.
     2
       Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the years in issue, and all
Rule references are to the Tax Court Rules of Practice and
Procedure.
     3
       The stipulation of facts and exhibits attached thereto are
incorporated herein by this reference.
                               - 3 -

     Petitioner filed Federal income tax returns for the taxable

years prior to 1993, but she did not file Federal income tax

returns for the taxable years ended December 31, 1993 or 1994.

Petitioner did, however, file an extension with the Internal

Revenue Service (IRS) for the 1993 taxable year.   Petitioner

chose not to file 1993 or 1994 Federal income tax returns because

she ran out of money and was employed only part-time during those

years.   Petitioner also decided not to file tax returns for those

years in protest over a dispute she was having with the IRS

concerning some FICA overwithholding by her former employer, TWA,

for the 1988 taxable year.   In November of either 1992 or 1993,

petitioner consulted Mr. Henschel, a tax attorney, about filing a

Federal income tax return for the 1993 year.

     During the 1993 taxable year, petitioner received $35,000 in

taxable distributions from two qualified individual retirement

accounts (IRA’s), and, during the 1994 taxable year, petitioner

received another taxable distribution in the amount of $8,717.32

from one of her qualified IRA’s.   No portion of the 1993 or 1994

distributions was rolled over into another plan or account, was

made on or after the date on which petitioner attained the age of

59-1/2, was made to petitioner after attaining the age of 55

years, or was made pursuant to a qualified domestic relations

order.   Petitioner did not incur any qualified higher education

expenses in 1993 or 1994 and was not a first-time home buyer in
                                - 4 -

either 1993 or 1994.   Petitioner was aware that the withdrawals

from her qualified IRA’s would be taxable to her, but she

withdrew the money in order to subsist and to help her family.

     For the 1993 taxable year, Transworld Mortgage Corp. issued

petitioner and her sister, Adrianna, a Form 1098 Mortgage

Interest Statement reporting the payment of $8,189.68 in

deductible mortgage interest.   For the 1994 taxable year,

Transworld Mortgage Corp. issued petitioner and Adrianna a Form

1098 Mortgage Interest Statement reporting the payment of

$7,386.58 in deductible mortgage interest.

     After the trial, the record remained open to give petitioner

an opportunity to submit additional evidence in order to

substantiate certain additional Schedule A itemized deductions.

Petitioner submitted documentation regarding medical expenses,

real property taxes, automobile fees, corporate organizational

expenses, and interest expenses.   Specifically, in 1993 and 1994,

various doctors were paid $1,501.74 and $631.14, respectively,

from a joint checking account that petitioner maintained with her

mother and her sister.   Petitioner paid $1,866.81 and $1,910.13

in 1993 and 1994, respectively, in real property taxes.    In 1993

and 1994, respectively, payments of $379.95 and $236.95 were made

to the California Department of Motor Vehicles (DMV) for

registration fees and smog certification fees.   Petitioner also

paid the California DMV $93 in 1994 for an automobile sales
                                 - 5 -

license.   Petitioner paid $403.95 in 1994 for expenses relating

to a Delaware corporation of which she was a shareholder.

Finally, petitioner paid interest of $481.65 and $118.19 in 1993

and 1994, respectively, on a personal loan for an automobile.

                                OPINION

      We must decide whether petitioner (1) is entitled to any

Schedule A itemized deductions for the 1993 and 1994 taxable

years; (2) is liable for additional tax under section 72; and (3)

is liable for any additions to tax under section 6651(a) or

6654(a).

I.   Schedule A Itemized Deductions

      Deductions are a matter of legislative grace, and petitioner

bears the burden of proving that she is entitled to the

deductions she is claiming.   See Rule 142(a); INDOPCO, Inc. v.

Commissioner, 503 U.S. 79 (1992); New Colonial Ice Co. v.

Helvering, 292 U.S. 435 (1934).    Taxpayers are required to

maintain records that are sufficient to enable the Commissioner

to determine their correct tax liability.    See sec. 6001;

Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec.

1.6001-1(a), Income Tax Regs.    Moreover, a taxpayer who is

claiming a deduction bears the burden of substantiating the

amount and purpose of the item claimed.    See Hradesky v.

Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d

821 (5th Cir. 1976); sec. 1.6001-1(a), Income Tax Regs.
                               - 6 -

     A.   Medical and Dental Expenses

     Section 213(a) permits a deduction for expenses paid during

the taxable year for medical care of the taxpayer, his or her

spouse, or a dependent (as defined in section 152), to the extent

such expenses exceed 7.5 percent of adjusted gross income and to

the extent such expenses are not compensated for by insurance or

otherwise.

     Petitioner claims that she is entitled to medical expense

deductions of $1,501.74 and $631.14 for the 1993 and 1994 taxable

years, respectively.   During 1993 and 1994, petitioner maintained

a joint bank account at First Interstate Bank with her mother,

Joanne Robertson, and her sister, Alexandra Robertson.

Petitioner submitted into evidence numerous canceled checks from

this joint bank account payable for medical and dental expenses

in 1993 and 1994.   For the years in issue, only one check--check

number 8390, dated October 14, 1993, in the amount of $42--bears

petitioner’s signature.   The remainder of the checks submitted by

petitioner bear the signature of either petitioner’s mother or

petitioner’s sister, a strong indicator that these payments were

not made for expenses incurred by petitioner.4




     4
       While deductions are permitted for medical expenses paid
for a dependent, petitioner has not produced any evidence that
her mother or her sister was her dependent during the taxable
years at issue.
                                 - 7 -

     More important, however, is the fact that all of the checks

submitted by petitioner were issued from a joint bank account.

Petitioner has failed to produce any evidence describing the

contributions or deposits made by petitioner, petitioner’s

mother, and petitioner’s sister to the joint bank account.     Thus,

it is unclear which of the joint account holders actually paid

for these medical expenses.     Accordingly, petitioner has not

shown entitlement to medical and dental deductions for 1993 or

1994.

     B.   Real Property Taxes

     Section 164(a)(1) provides that taxpayers are entitled to a

deduction for real property taxes paid during the taxable year.

During 1993 and 1994, petitioner resided in and owned a home at

318 Georgia Circle, Placentia, California,5 and paid real

property taxes of $1,866.81 and $1,910.13 in 1993 and 1994,

respectively.   Accordingly, petitioner is entitled to deduct

these amounts as real property taxes on her 1993 and 1994 Federal

income tax returns.

     C.   Personal Property Taxes

     Section 164(a)(2) permits deductions for State and local

property taxes.   Under section 164(b)(1), property taxes are



     5
       Respondent states in his brief that this house was jointly
owned by petitioner and other members of petitioner’s immediate
family, including her sisters and mother. There is no evidence
of this in the record, however.
                               - 8 -

defined as an ad valorem tax that is imposed on an annual basis

in respect of personal property.    Thus, an ad valorem auto

license fee is deductible as a personal property tax, whereas an

annual flat registration fee is not deductible.    See sec.

164(a)(2); Mann v. Commissioner, T.C. Memo. 1975-74; sec. 1.164-

3(c), Income Tax Regs.   In 1993 and 1994, respectively,

petitioner and/or her family members paid $268 and $207 in fees

to the California DMV for the registration and licensing of four

different vehicles.   The record does not indicate what portion of

these fees was an annual flat registration fee.    Respondent,

however, conceded that all of these DMV registration fees are ad

valorem taxes.6

     After respondent’s concession, the only remaining issue

regarding these DMV registration fees is whether they were

imposed on petitioner.   Generally, personal property taxes are

only deductible by the taxpayer upon whom they are imposed.      See

sec. 1.164-1(a), Income Tax Regs.    Thus, in order to be entitled

to these deductions, petitioner bears the burden of establishing

ownership of the vehicles in question.    See Rule 142(a).    During

1993 and 1994, only two of the cars for which petitioner is

attempting to deduct DMV registration fees were actually



     6
       Petitioner also contends that she is entitled to deduct
smog certification expenses and driver’s license renewal fees.
These expenses, however, are not ad valorem fees and are
therefore not deductible by petitioner.
                               - 9 -

registered in petitioner’s name (the 1986 Pontiac and the 1974

Pontiac).   Thus, only the fees paid for the 1986 Pontiac ($131 in

1993 and $112 in 1994) and the 1974 Pontiac ($50 in 1993 and $50

in 1994) may be allowed as deductions by petitioner.

Accordingly, petitioner is entitled to deductions of $181 and

$162 for the 1993 and 1994 tax years, respectively, for personal

property taxes.

     D.   Automobile Sales License

     Section 162(a) generally allows a taxpayer to deduct all

ordinary and necessary expenses incurred during the taxable year

in carrying on a trade or business.    An expense is ordinary if it

is considered to be “normal, usual, or customary” in the context

of the particular business out of which it arose.    See Deputy v.

du Pont, 308 U.S. 488, 495-496 (1940).    A taxpayer’s general

statement that his or her expenses were incurred in pursuit of a

trade or business normally is not sufficient to establish that

the expenses had a reasonably direct relationship to that trade

or business.   See Ferrer v. Commissioner, 50 T.C. 177, 185

(1968), affd. per curiam 409 F.2d 1359 (2d Cir. 1969).

     During the trial, petitioner alluded to the fact that she

worked part-time for a used car dealer.    Petitioner contends that

she is therefore entitled to deduct the $93 that she paid to the

California DMV for an automobile sales license.    Petitioner,

however, has failed to present any evidence establishing that a
                                 - 10 -

license was required under California law.     In short, petitioner

has failed to substantiate her claim for a deduction, and

accordingly, no deduction is allowed for her automobile sales

license.

     E.    Interest Expense

     Section 163(a) provides a deduction for interest paid or

incurred on indebtedness within the taxable year.     Not all

interest incurred, however, is deductible.

     In October 1989, petitioner borrowed $12,070.46 to purchase

a 1986 Pontiac Grand Prix at a 12.5-percent interest rate.      In

1993 and 1994, petitioner paid $481.65 and $118.19, respectively,

of interest on this loan.     Petitioner also paid $8,189.68 and

$7,386.58 of mortgage interest during the 1993 and 1994 taxable

years, respectively.    Section 163(h) denies taxpayers a deduction

for personal interest paid or accrued during the taxable year

unless it fits within certain narrowly prescribed categories.

The interest paid by petitioner on her personal car loan during

1993 and 1994 is personal in nature and does not fall into one of

the excepted categories.      Accordingly, petitioner is not entitled

to deduct the interest paid on her personal car loan.     Section

163(h)(2)(D), however, allows a deduction for interest on a

qualified residence.    Respondent concedes that petitioner is

entitled to deductions for the interest paid on the mortgage for

petitioner’s home during the 1993 and 1994 taxable years.
                               - 11 -

Accordingly, petitioner is entitled to deduct the mortgage

interest paid in 1993 and 1994.

     F. Delaware Corporation Startup Expenses

     Petitioner contends that she is allowed to deduct Delaware

corporation startup expenses and submitted documentation

concerning a corporation known as Worldly Connections, Inc.    The

documentation submitted indicates that in January 1994 petitioner

paid $248.95 for Delaware State filing fees, registered agent

fees, a corporate kit, and basic mail forwarding service.

Petitioner also remitted an additional $155 in November 1994 for

advanced payment of agent fees and renewal filing fees.

     Section 248 permits a corporation to elect to amortize on

its corporation income tax return its organizational expenditures

over a period of 60 months or more from the month in which the

corporation began business.   The term “organizational

expenditures” is defined to mean any expenditure that is (1)

incident to the creation of the corporation; (2) chargeable to a

capital account; and (3) of a character that, if expended

incident to the creation of a corporation having a limited life,

would be amortizable over such life.    Sec. 248(b).

     Organizational costs that are paid by the shareholder of a

corporation do not normally qualify for amortization under

section 248 but, instead, must be capitalized as part of the

shareholder’s stock basis.    Cf., e.g., Deputy v. du Pont, supra;
                              - 12 -

Woodward v. Commissioner, 397 U.S. 572 (1970); United States v.

Hilton Hotels Corp., 397 U.S. 580 (1970).    Accordingly, the

organizational expenses of Worldly Connections, Inc., paid by

petitioner are not deductible on petitioner’s 1994 Federal income

tax return.

      Similarly, to the extent that petitioner paid any additional

expenses for Worldly Connections, Inc., during the 1994 taxable

year out of her own pocket (e.g., $155), these expenses should

also be considered contributions of capital and are nondeductible

to petitioner on her individual Federal income tax return.      See

Deputy v. du Pont, supra.

II.   Section 72(t) Tax

      Section 72(t) imposes an additional 10-percent tax on the

amount of an early distribution from a qualified retirement

account (as defined in section 4974(c)).    See sec. 72(t).

Section 72(t)(2) provides for certain exceptions to the

imposition of this 10-percent tax.

      Petitioner received a $35,000 distribution in 1993 and a

$8,717.32 distribution in 1994 from her IRA’s, which are

qualified retirement plans under section 4974(c)(4).    Petitioner

testified that she withdrew the money from her IRA’s to provide

for her own subsistence and that of her family.    This is not one

of the exceptions set forth in section 72(t)(2), and petitioner

has failed to present evidence that would trigger any of the
                               - 13 -

statutory exceptions to the imposition of the 10-percent tax.

Accordingly, petitioner is liable for the 10-percent additional

tax on the $35,000 and $8,717.32 early distributions under

section 72(t).

III.   Additions to Tax Under Sections 6651(a) and 6654(a)

       We now address whether petitioner is liable for additions to

tax under section 6651(a) for the 1993 and 1994 taxable years and

under section 6654(a) for the 1993 taxable year.      Petitioner

bears the burden of proving respondent’s determination is in

error.    See Rule 142(a).

       Section 6012(a) requires the filing of income tax returns,

section 6072(a) sets forth the due date, and section 6651(a)(1)

imposes an addition to tax for failure to file a return timely.

Pursuant to section 6651(a)(1), the addition to tax for failure

to timely file a required income tax return is imposed “unless it

is shown that such failure is due to reasonable cause and not due

to willful neglect”.

       Petitioner regularly filed Federal income tax returns up to

and through the 1992 taxable year.      Sometime in 1992 or 1993,

petitioner consulted with a tax attorney regarding the filing of

her tax return for the 1993 taxable year.      Subsequently,

petitioner timely filed a request with the IRS seeking an

extension of time to file her 1993 Federal income tax return.
                              - 14 -

Thus, it is clear that petitioner knew of her obligation to file

tax returns.

     Petitioner stated that the reason she did not file Federal

income tax returns for the 1993 and 1994 taxable years was

because she “ran out of money.”   Inability to pay, however, does

not relieve a taxpayer of his or her obligation to properly and

timely file an income tax return.   See Bowden v. Commissioner,

T.C. Memo. 1996-318 (taxpayer’s alleged inability to pay tax was

not reasonable cause for late filing).   Petitioner also stated

that she did not file her Federal income tax returns in protest

over a dispute with the IRS concerning FICA overwithholding by

her former employer, TWA, for the 1988 taxable year.   The

existence of a dispute or protest with the IRS does not

constitute reasonable cause for not timely filing one’s returns

for subsequent years.   See Glowinski v. Commissioner, 25 T.C. 934

(1956), affd. per curiam 243 F.2d 635 (D.C. Cir. 1957)

(taxpayer’s dispute with IRS concerning liability for prior tax

years was not reasonable cause for not filing for year in

question).

     The fact that petitioner lacked the ability to pay the tax

liability and the fact that petitioner was in disagreement with

the Commissioner concerning a prior taxable year do not

constitute reasonable cause for failing to file Federal income

tax returns for the 1993 and 1994 tax years.   Accordingly,
                               - 15 -

petitioner is liable for additions to tax under section

6651(a)(1).

     Section 6654(a) requires the imposition of an addition to

tax in the case of any underpayment of estimated tax by an

individual.    See Estate of Ruben v. Commissioner, 33 T.C. 1071,

1072 (1960).    Section 6654(e) provides exceptions to the

imposition of additions to tax under section 6654(a).    Petitioner

bears the burden of proving that one of these exceptions is

applicable.    Petitioner introduced no evidence as to the

applicability of the exceptions provided under section 6654(e).

Accordingly, petitioner is liable for the addition to tax under

section 6654(a).

     To reflect the foregoing,


                                      Decision will be entered under

                                 Rule 155.
