                       T.C. Memo. 1997-111



                     UNITED STATES TAX COURT



                   ROBIN ADAMS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 17817-94.                      Filed March 4, 1997.


     Robin Adams, pro se.

     Ann M. Murphy, for respondent.


                       MEMORANDUM OPINION


     GOLDBERG, Special Trial Judge:   This case was heard pursuant

to section 7443A(b)(3) and Rules 180, 181, and 182.1   Respondent

determined deficiencies in petitioner's 1990 and 1991 Federal

income taxes in the respective amounts of $3,529 and $3,694.

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

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

Whether petitioner has substantiated the payment of expenses

related to his jewelry design activity for 1990 and 1991; and (2)

if so, whether petitioner was engaged in this activity for profit

during those years.

     Some of the facts have been stipulated and are so found.

The stipulations and the exhibits attached thereto are

incorporated herein by this reference.   Petitioner resided in

Portland, Oregon, at the time his petition was filed.

     Petitioner had training in mineral recognition and completed

courses in lapidary and jewelry mounting.   In 1982, petitioner

began designing, making, and selling jewelry (referred to herein

as petitioner's jewelry design activity).   Petitioner also

performed jewelry services such as mountings and repairs.

Petitioner carried on this activity under the name Adams Design

Jewelry which he registered with the town of Beaverton, Oregon,

in April 1984.   Petitioner conducted this activity in his home

until the summer of 1988, at which time he rented a shop located

at 625 Southwest Washington Street in downtown Portland, Oregon.

Petitioner leased the property on a month-to-month basis.

     Near the end of 1989, petitioner decided that he should

abandon the shop location because it was not successful.


2
     Petitioner has conceded adjustments to his 1990 taxable
income in the amount of $1,615. Petitioner has paid the amount
of the deficiency attributable thereto.
                                   3

Petitioner vacated the shop premises in March 1990.       Petitioner

removed fixtures from the shop including six jewelry cases.

Petitioner retained one of the cases for use in his activity at

home and placed the other five in storage in his home.

Petitioner's jewelry design activity generated gross receipts of

$637 in 1990.   Petitioner's customers were past customers or

friends of friends.

     Petitioner was employed full time as a technical writer by

Tektronics during part of 1990 and by Mitron Corporation for a

portion of 1990 and for all of 1991.

     In 1990, petitioner decided to engage in a second activity,

and he began to create correspondence courses.       In the first

year, petitioner offered two basic jewelry making classes and two

basic technical writing classes.       Petitioner's correspondence

school activity generated gross receipts of $320.

     In 1991, petitioner placed two or three advertisements in

the Oregonian newspaper, but otherwise he did not actively

solicit sales of jewelry in 1991.       During the year, petitioner

had gross receipts for this activity of $528 from three jewelry

mountings.   In that same year, petitioner's correspondence school

activity generated gross receipts of $480.

     Petitioner's record of the expenses that he paid in

connection with his jewelry design activity is in the form of a

bookkeeping notebook.   The book contains an expense log by month.

For each month, entries are posted on one side of the page
                                  4

reflecting information such as payee names and amounts paid.      The

adjacent or facing page reflects totals by expense category such

as electricity, telephone, shop expenses, rent, and office

expenses.   Petitioner then applied percentages to certain

expenses such as electricity, heat, insurance, and telephone

because the amounts paid reflected the total usage for his

household including personal use.     Petitioner claimed deductions

for business expenses at a rate of approximately 50 percent of

the amounts paid for utilities for the house.    The yearend total

page includes expenses which are not recorded on the monthly

logs.   For example, rent expense is shown as 40 percent of

petitioner's total house payments of $11,400, or $4,560 for 1990,

but no rent expense is shown for any particular month during that

year.   Petitioner estimated certain expenses such as fuel

expense, which he approximated as $100 per month.

     During 1990, petitioner traveled to Hawaii.    Petitioner

claimed a portion of the expenses from this trip as business

related.    Petitioner traveled to Antwerp sometime in 1991 to tour

a diamond cutting facility, and petitioner claimed expenses from

this trip as a business deduction.    Petitioner provided no

records of these expenses.

     Petitioner and his former wife filed joint Federal income

tax returns for 1990 and 1991 and reported combined total wages

in the respective amounts of $38,253 and $47,310.    Petitioner

also reported pension and annuity distributions from Tektronics
                                          5

in the amounts of $6,123 and $3,098 for 1990 and 1991,

respectively.     On the Schedules C attached to his 1990 and 1991

returns, petitioner claimed the following deductions with respect

to his jewelry design activity:
     Expense                             1990      1991

     Advertising                         $113       $67
     Car and truck expenses             1,401     1,454
     Insurance                            446       427
     Office expense                     5,202     4,820
     Rent or lease
        Other business property         4,560     4,572
     Supplies                             480       720
     Taxes and licenses                    24        24
     Travel, meals, and entertainment
        Travel                            679     3,477
        Meals and entertainment           327       843
     Utilities                          1,228     1,416
     Other expenses
        Contributions                      24       -0-
        Shop expenses                   7,850     3,957
        Misc. expenses                    960     1,200

        Total                       $23,294     $22,977

Petitioner reported gross receipts from his jewelry design

activity of $637 and $528 in 1990 and 1991, respectively.

Petitioner did not report any income with respect to his

correspondence school activity.

     In the notice of deficiency, respondent determined that

petitioner's jewelry design activity was not a trade or business

or an activity for the production of income.              In the alternative,

respondent determined that petitioner failed to substantiate his

claimed expenses and failed to establish that any such amounts

were ordinary and necessary.            Further, respondent determined that

any amounts constituting start-up expenses were to be amortized

over 60 months starting in the month the activity opened for

business.
                                 6

     Petitioner contends that he carried on his jewelry design

activity for profit in 1990 and 1991, and thus was entitled to

deduct expenses incurred in carrying on this activity as a

business.   Although it is not clear from the record, we do not

believe that petitioner contends that he carried on his

correspondence school activity for profit; rather he contends

that it was in the development stage in 1990 and 1991.    Further,

petitioner testified that he did not claim any expenses related

to this activity on his 1990 and 1991 returns, except to the

extent that the expense was part of the overhead for his jewelry

design activity as well.   Therefore, although petitioner

testified at length concerning the correspondence school

activity, we shall confine our discussion to petitioner's jewelry

design activity.

     Deductions are a matter of legislative grace, and petitioner

has the burden of establishing that he is entitled to any

deductions claimed on his return.    New Colonial Ice Co. v.

Helvering, 292 U.S. 435, 440 (1934).   Taxpayers must maintain

adequate records to substantiate the amount of any deductions.

Sec. 6001; sec. 1.6001-1(a), Income Tax Regs.

     Section 162 allows deductions for ordinary and necessary

expenses paid or incurred in carrying on a trade or business.

Section 212 allows deductions for ordinary and necessary expenses

paid or incurred in the production of income.   Section 183

generally limits allowable deductions to the extent of gross
                                   7

income generated by "an activity not engaged in for profit".

Sec. 183(b).   An activity not engaged in for profit is one for

which deductions are not allowable under section 162 or section

212(1) or (2).   Sec. 183(c).

     Generally, when evidence shows that petitioner incurred a

deductible expense, but the exact amount cannot be determined,

the Court may approximate the amount.       Cohan v. Commissioner, 39

F.2d 540 (2d Cir. 1930).   However, there must be sufficient

evidence from which an estimate may be made.          Vanicek v.

Commissioner, 85 T.C. 731, 742-743 (1985).       Further, section

274(d) prohibits the estimation of expenses for travel or

deductions with respect to certain property; thus, the Cohan rule

does not apply to these types of expenses.       Listed property

includes automobiles.   Sec. 280F(d)(4).

     Petitioner offered no records to substantiate his travel or

automobile expense aside from the expense log.         The expense log

does not meet the substantiation requirements of section 274

because it does not show the date, place, or business purpose of

these expenses or business uses.       Sec. 274(d).

     Moreover, petitioner has failed to establish that he

incurred any expenses as claimed.       Petitioner's testimony was

vague and was not consistent with his expense log.         For example,

petitioner testified that his rent expense in 1990 included rent

on his downtown shop of approximately $650 per month.         The

expense log shows no such expense.       According to petitioner's
                                  8

log, rent expense for the entire year was calculated as 40

percent of $11,400.    Petitioner testified that this figure

corresponded to his mortgage payments for the year.     Petitioner

offered no support for this percentage.    Further, petitioner

testified that he did not move his shop until the end of March

1990; thus, this allocation of his annual mortgage payments would

be inconsistent.    Petitioner also testified that he paid two

women to work at his shop and that their salaries were included

in shop expenses.    However, the expense log does not list any

payees supporting petitioner's testimony.

     We believe that petitioner incurred some expense in carrying

on his jewelry design activity during the years in issue.

However, on this record, we are unable to determine or estimate

the amount of such expense.    Accordingly, petitioner has not

established that he is entitled to the deductions claimed.

     Because petitioner has not shown he is entitled any

deductions in connection with his jewelry design activity for the

years in issue, we need not address the issue of whether

petitioner was engaged in such activity for profit.

     To reflect the foregoing,


                                           Decision will be entered

                                      for respondent.
