                  T.C. Summary Opinion 2003-12



                     UNITED STATES TAX COURT



               FLORENCE C. BLANKSON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10845-00S.             Filed February 14, 2003.



     Florence C. Blankson, pro se.

     Nina P. Ching, for respondent.



     COUVILLION, Special Trial Judge:    This case was heard

pursuant to section 7463 of the Internal Revenue Code in effect

at the time the petition was filed.1    The decision to be entered




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


is not reviewable by any other court, and this opinion should not

be cited as authority.

     In separate notices of deficiency, respondent determined the

following deficiencies in Federal income taxes and penalties

against petitioner and her husband, Moses A. Blankson, for the

years indicated:2


     Year           Deficiency           Sec. 6662(a) Penalty

     1993           $10,971                    $2,191
     1994             5,681                     1,136
     1995             6,066                     1,204
     1996             9,259                     1,851


     After concessions,3 the issues for decision are:       (1)

Whether assessment or collection of the deficiency and penalty



     2
          With regard to one of the notices of deficiency, for
the 1993 and 1994 tax years, petitioner and her husband (Mr.
Blankson) filed a petition with this Court in docket No. 16417-
97. At the time the petition was filed, petitioner had a pending
bankruptcy proceeding. On motion by respondent, petitioner was
dismissed from the case for lack of jurisdiction. Mr. Blankson
remained in the case and later conceded the deficiencies and
penalties for the years 1993 and 1994. Thereafter, respondent
issued a notice of deficiency to petitioner and Mr. Blankson for
the 1995 and 1996 tax years. About that time, petitioner’s
bankruptcy proceeding was concluded, and petitioner timely filed
a petition with respect to both notices of deficiency for the
years 1993, 1994, 1995, and 1996. Mr. Blankson did not petition
the Court with respect to the 1995 and 1996 notice of deficiency.
     3
          At trial, petitioner conceded a dependency exemption
deduction for her son, Samuel, for 1993. Respondent conceded his
determination that petitioner failed to report a $73 taxable
distribution for 1993 and $2,753 in wage and salary income for
1995.
                              - 3 -


for 1993 is barred by the statute of limitations under section

6501(a); (2) whether petitioner is entitled to various Schedule

A, Itemized Deductions, and Schedule C, Profit or Loss From

Business, deductions in excess of amounts allowed by respondent

for 1993 through 1996; (3) whether petitioner is entitled to

charitable contribution deductions under section 170 in excess of

amounts allowed by respondent for 1993, 1994, and 1995; (4)

whether petitioner is entitled to a trade or business loss

deduction under section 165 for 1996; (5) whether petitioner is

entitled to a dependency exemption deduction for her sister under

section 151 for 1993 and 1994; (6) whether petitioner is entitled

to a child care credit under section 21 for 1995; and (7) whether

petitioner is liable for the accuracy-related penalty under

section 6662(a) for 1993 through 1996, inclusive.4

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

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




     4
          In a supplemental posttrial brief, petitioner argued
that her 1994 tax liability should have been included in her
bankruptcy proceeding. The Court construes that as an argument
that this Court has no jurisdiction over her 1994 tax liability
and that such jurisdiction should be in the bankruptcy court.
The Court rejects such argument. Although this Court lacks
jurisdiction as to whether a tax liability has been discharged in
bankruptcy, this Court nevertheless has jurisdiction to determine
the amount of the deficiency. Neilson v. Commissioner, 94 T.C.
1, 8-9 (1990); Graham v. Commissioner, 75 T.C. 389, 399-400
(1980).
                                - 4 -


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

was Atlanta, Georgia.

     Petitioner is married to Moses Blankson.    The Blanksons

emigrated to the United States from Ghana, West Africa.

Petitioner is a registered nurse with a nursing degree from

Cambridge University in England.    Her husband, Mr. Blankson, was

a financial analyst and accountant for a bank during the years at

issue and also held a second job.    Petitioner and Mr. Blankson

have four children:    Samuel, born in 1965, Rosemary, born in

1975, Melissa, born in 1979, and Clara, born in 1985.

     During the years 1993 through 1996, petitioner was employed

as a salaried nurse by the Atlanta, Georgia, public school system

during the school year.    Petitioner was also engaged in a self-

employed activity as a critical care nurse for coronary care

patients, for which she was paid by the hour.    Petitioner

performed critical care services on weekends, holidays, and some

week nights during the school year, and full time during the

summer months.

     In 1995, petitioner incurred child care expenses for her

youngest child, Clara, who was then 10 years old.    The care was

provided during evenings when petitioner and Mr. Blankson worked

night shifts.    Petitioner claimed a $480 credit on her 1995

return for child care expenses of $2,600 paid to Kuddle Korner.

The care provider was paid in cash, and the total expense
                                 - 5 -


reported was based on a cost of $75 per week.    Petitioner did not

present any written documentation from Kuddle Korner, the care

provider, although she allegedly showed a letter from a Mrs.

Mankle to the examining agent who questioned the expense.

Respondent allowed a child care credit for 1993 and 1994 but

disallowed the credit for 1995 for lack of substantiation.

     Petitioner has a younger sister, Cecilia Ofori.    Ms. Ofori,

who is handicapped, resided with petitioner during 1993 and 1994

while attending a trade school.    Ms. Ofori was 29 or 30 years old

during that time and had come to the United States from Ghana.

Petitioner contends that she paid all of Ms. Ofori’s expenses in

cash during that period, including tuition, books, clothing,

school supplies, and medicine.    Petitioner also claims to have

provided Ms. Ofori’s board and lodging.    Ms. Ofori was not

employed, had no income, and did not receive any government

grants, food stamps, or welfare benefits.    Petitioner did not

receive financial support from any other sources or family

members for the support of Ms. Ofori.

     Petitioner claimed a dependency exemption deduction for Ms.

Ofori for 1993 and 1994 but incorrectly listed as Ms. Ofori’s a

Social Security number that was the Social Security number of one

of petitioner’s daughters.   Respondent disallowed the exemption

for Ms. Ofori.   Petitioner never provided a correct Social

Security number for her sister, who moved back to Ghana in 1995.
                                - 6 -

The only evidence presented by petitioner in support of her

entitlement to the dependency exemption deduction was an

insurance profile from a Revco pharmacy in Atlanta, which

revealed that Ms. Ofori was 30 years old during the 1993 tax year

and that a total of $247.15 was paid on five occasions for

medication for Ms. Ofori during 1993.

     Petitioner performed her critical care nursing in hospital

intensive care or coronary care units and occasionally in homes.

The hospitals were located various distances from Atlanta, in

Rockdale County, Henry County, and Savannah, Georgia.    Petitioner

generally used a Jaguar automobile that she acquired in 1992 to

travel to the long-distance hospital jobs.    For her school nurse

job or for nearby critical care nursing jobs, she used a smaller

automobile.   She had some records of expenses pertaining to a

1979 Toyota Corolla and a 1992 Acura Vigor in addition to the

Jaguar.   Although she claimed to have kept records of her mileage

for the agencies for which she worked, she did not produce such

records at trial.    Petitioner maintained and offered into

evidence some expense records of insurance premiums and

automobile maintenance expenses in the form of duplicate and

canceled checks.    However, these records did not chronicle

petitioner’s vehicle expenses with respect to these automobiles.

Petitioner did not maintain a log reflecting the days, times,

places, and purposes for which she used her vehicles.
                                - 7 -

     On her Federal income tax returns for the years at issue,

petitioner claimed deductions for expenses relating to her

employment as a nurse on Schedule A.      With respect to her self-

employed activity as a critical care nurse, petitioner claimed

expenses relating to that activity on Schedule C.     In the notices

of deficiency, respondent made some adjustments shifting some of

the expenses between the Schedules A and C and, additionally,

disallowing some of the expenses.    Petitioner’s objections are

directed to the disallowed expenses rather than the shifting of

expenses between the two schedules.

     In 1996, petitioner’s Acura automobile was damaged in an

accident.   While it was being repaired, she drove a rented car

provided by her insurance company.      The rental car was stolen,

along with equipment in the car that petitioner used in her

critical care nursing activity.    The loss of the equipment was

not covered by insurance.    Petitioner claimed a casualty loss

deduction of $4,500 on her 1996 income tax return, Schedule 4684,

Casualty Loss, pursuant to section 165(c)(3) but realized no tax

benefit because the amount claimed was less than 10 percent of

her adjusted gross income.    Sec. 165(h)(2).    Petitioner presented

a list of the stolen equipment at trial, which she valued at
                                - 8 -

$1,709.03.5   She presented no evidence to substantiate the

amounts.

     Petitioner claimed charitable contributions deductions in

the years at issue.   For 1993, petitioner claimed a deduction for

contributions of $9,500 by cash or check and $500 by other than

cash or check.   Respondent allowed $2,700 and disallowed the

remainder for lack of substantiation.   For 1994, petitioner

claimed a deduction for contributions of $4,100 by cash or check

and $210 by other than cash or check.   Respondent allowed $3,600

and disallowed the remainder.   For 1995, petitioner claimed a

deduction for contributions of $5,280 by cash or check.

Respondent allowed $2,230 and disallowed the remainder.

Petitioner acknowledged that some of the donated items were to

individuals and not to recognized charitable organizations.     For

example, petitioner donated a television to a handicapped child.

Other than her testimony, petitioner presented no evidence at




     5
          Petitioner’s list consisted of the following items:
Thermometer, digital, $9.19; fiber opticoloscope/opthalmoscope
set, $229.95; Beltone Audio Scout audiometer, $575 (with an “X”
next to this item on the list); scale, $30; hemoglobin
photometer, $600; hemoglobin curettes, $50; heavy duty tote-a-
chart carrier, $14.95; Uso sticks, $26.57; two blood pressure
kits, $150.59 each; cardiac stethoscope, $68.29; fan, $14;
completely stocked first aid kit, $59.95; clinic supplies, $75.
The list gives a total of $1,709.03, with an offset of $250
without explanation, for a net amount of $1,459.03. The Court
notes petitioner's figures do not add up correctly; see
discussion of the substantive issue, infra.
                                   - 9 -

trial to substantiate the charitable contributions that were

disallowed by respondent.

     Petitioner and Mr. Blankson filed joint income tax returns,

prepared by a return preparer, for the years at issue.        In

January 1997, the Blanksons and respondent executed IRS Form 872,

Consent to Extend the Time to Assess Tax, for 1993.        In that

consent, the period of limitations for 1993 was extended from

April 15, 1997, to April 15, 1998.

     The first issue is whether respondent is barred by the

statute of limitations under section 6501(a) from pursuing the

deficiency against petitioner for 1993.        The Commissioner is

generally required to assess taxes within 3 years after the due

date of the return.    Sec. 6501(a).       However, the taxpayer and the

Commissioner may extend the period of limitations by written

agreement.    Sec. 6501(c)(4).

     Petitioner entered into a valid written agreement with

respondent to extend the statutory period for the 1993 year to

April 15, 1998.    Respondent issued the statutory notice with

regard to 1993 on June 19, 1997, well within the period agreed to

by the parties.    Sec. 6213(a).    Petitioner thereafter filed for

bankruptcy.    Bankruptcy law prohibits debtors with Federal tax

liabilities from petitioning this Court until the earlier of the

closing of the case, the dismissal of the case, or the granting

of a discharge.    11 U.S.C. sec. 362(a)(8), (c) (2000).
                              - 10 -

Petitioner petitioned this Court timely with respect to 1993 upon

conclusion of her bankruptcy proceeding.    Sec. 6213(f).

Respondent acted within the prescribed limitations period and,

therefore, is sustained on this issue.

     The second issue is whether petitioner is entitled to

various Schedule A and Schedule C deductions in excess of amounts

allowed by respondent in the notices of deficiency.       Deductions

are a matter of legislative grace.     INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992).    Petitioner bears the

burden of proof to present adequate documentation to support the

deductions claimed on her returns.     Rule 142; Welch v. Helvering,

290 U.S. 111, 115 (1933).6   It is also petitioner’s

responsibility to maintain records sufficient to enable

respondent to determine her correct tax liability.     Sec. 6001;

sec. 1.6001-1(a), Income Tax Regs.; Higbee v. Commissioner, 116

T.C. 438 (2001).   The taxpayer must substantiate both the amount

and purpose of the claimed deductions.     Higbee v. Commissioner,

supra.




     6
          Sec. 7491, under certain circumstances, places the
burden of production on the Commissioner with respect to a
taxpayer’s liability for taxes, penalties, and additions to tax
in court proceedings arising in connection with examinations
commencing after July 22, 1998. In this case, petitioner does
not contend, nor is there evidence, that the examination of her
returns commenced after July 22, 1998, or that sec. 7491 is
applicable.
                               - 11 -

     Section 162 allows a deduction for ordinary and necessary

expenses that are paid or incurred during the taxable year in

carrying on a trade of business.    Sec. 162(a); Deputy v. Dupont,

308 U.S. 488, 495 (1940).    A trade or business includes the trade

or business of being an employee.     O’Malley v. Commissioner, 91

T.C. 352, 363-364 (1988).

     As noted earlier, petitioner was engaged during the years at

issue both as an employee and as a self-employed person.      Some of

the deductions claimed on her returns related to employee

business expenses (Schedule A), and others related to her self-

employment activity (Schedule C).   Respondent reallocated some of

the expenses between petitioner’s two activities, a determination

that petitioner does not challenge.     Other expenses were

disallowed for lack of substantiation, which petitioner does

challenge.    With respect to those expenses, the Court notes that

petitioner did not maintain books and records to chronicle her

income and expenses, nor did she maintain logs on the uses of her

vehicles in her activities.    She presented at trial receipts and

copies of checks purportedly to substantiate expenses she

incurred.    However, those receipts do not establish to the

Court’s satisfaction a substantiation of expenses incurred in any

amounts greater than the amounts allowed by respondent in the

notices of deficiency, with one exception discussed below.     Some

of the evidence presented appeared to be for personal expenses,
                              - 12 -

which are not deductible under section 262.   As to the

documentation that represented business expenses, petitioner

failed to establish that the receipts that related to deductible

expenses were not already allowed in the notices of deficiency by

respondent.   Consequently, for the years 1993 and 1994, the Court

sustains respondent on the disallowed Schedule A and Schedule C

expenses.

     Petitioner’s critical care nursing activity for 1995 and

1996 needs to be considered separately for the following reason.

The parties stipulated that petitioner earned “only W-2 wages”

during 1995 and 1996, which implicitly suggests that petitioner

did not earn any income in her self-employed critical care

nursing activity during these 2 years.   In the notices of

deficiency, respondent did not allow or concede any deductions

for trade or business expenses for this activity for 1995 and

1996.   Nonetheless, in spite of the stipulation referred to,

petitioner reported gross receipts of $4,684 and $8,173,

respectively, for 1995 and 1996, on Schedule C of her returns for

those years in connection with her critical care nursing

activity.   In the notices of deficiency, these income amounts

were not removed, and all of the claimed expenses were

disallowed.   The Court concludes that the stipulation of the

parties on this issue is in error, since petitioner did earn

gross income during 1995 and 1996 from her critical care nursing
                                - 13 -

activity.7   Petitioner, therefore, is entitled to an allowance of

expenses for these 2 years relating to her self-employment

activity.    Pursuant to Cohan v. Commissioner, 39 F.2d 540, 543-

544 (2d Cir. 1930), the Court allows petitioner expense

deductions of $234 and $409, respectively, for 1995 and 1996 for

her critical care nursing activity in approximately the same

proportions allowed by respondent for 1993 and 1994.

     The third issue is whether petitioner is entitled to

charitable contribution deductions in excess of amounts allowed

by respondent.    Section 170 allows a deduction for charitable

contributions during the taxable year, if verified as provided in

the regulations.    Sec. 170(a)(1).   The term “charitable

contribution” includes a contribution or gift to a corporation,

trust, or community chest, fund, or foundation, with certain

provisos.    Sec. 170(c).   For example, the recipient organization

must have been “created or organized in the United States or in

any possession thereof, or under the law of the United States,

any State, the District of Columbia, or any possession of the

United States.”    Sec. 170(c)(2)(A).    It must be organized and

operated exclusively for religious, charitable, scientific,



     7
          The Court is not bound by stipulations of fact that
appear contrary to the facts disclosed by the record. Estate of
Eddy v. Commissioner, 115 T.C. 135 (2000) (citing Rule 91(e));
Blohm v. Commissioner, 994 F.2d 1542, 1553 (11th Cir. 1993),
affg. T.C. Memo. 1991-636; Jasionowski v. Commissioner, 66 T.C.
312 (1976).
                               - 14 -

literary, educational, or other specifically enumerated purposes.

Sec. 170(c)(2)(B).   The contribution or gift is deductible only

“if it is to be used within the United States or any of its

possessions exclusively” for those purposes.      Sec. 170(c)(2).

Further, no part of the net earnings of a qualified organization

may inure to the benefit of any private shareholder or

individual.   Sec. 170(c)(2)(C).

     The charitable contributions deduction is subject to certain

substantiation requirements.   Sec. 170(f)(8).     No deduction is

allowed for any contribution of $250 or more unless the taxpayer

substantiates the contribution by a contemporaneous written

acknowledgment of the contribution by the qualified donee

organization.   Sec. 170(f)(8)(A).    The standards for record

keeping and return requirements for deductions for charitable

contributions are set forth in section 1.170A-13, Income Tax

Regs.

     Petitioner did not establish at trial that she is entitled

to charitable contribution deductions in excess of the amounts

allowed by respondent.   Donations she made to individuals do not

qualify for the deduction due to the applicable restrictions on

qualified donee organizations.     Sec. 170(c).   Respondent allowed

those contributions that were properly substantiated, and the

Court declines to allow any additional amounts.      Respondent is

sustained on this issue.
                                - 15 -

     The fourth issue is whether petitioner is entitled to a

trade or business loss deduction for 1996 for the medical

equipment that was stolen from her rental vehicle.    Section

165(a) allows as a deduction any loss sustained by a taxpayer

during the taxable year that is not compensated for by insurance

or otherwise.   Theft losses to individuals are allowable as a

deduction under section 165(c).    Theft losses are treated as

having been sustained during the taxable year in which the

taxpayer discovers the loss.    Sec. 165(e).   In any taxable year,

personal casualty losses are generally allowed only to the extent

the losses from each casualty exceed $100 and exceed 10 percent

of the adjusted gross income of the individual.    Sec. 165(c)(3),

(h)(2).   However, section 165(h)(2) does not apply here because

the Court is satisfied that the claimed loss arose in connection

with petitioner’s trade or business.

     The proper measure of a casualty loss is the difference

between the fair market value of the property before the casualty

and its fair market value immediately after the casualty but not

exceeding its adjusted basis.     Helvering v. Owens, 305 U.S. 468,

471 (1939); Millsap v. Commissioner, 46 T.C. 751, 759 (1966);

secs. 1.165-7(b)(1), 1.165-8(c), Income Tax Regs.    Where the

casualty loss is the result of theft, the fair market value of

the property immediately after the theft is zero.    Sec. 1.165-

8(e), Income Tax Regs.   The Court is satisfied from the record
                              - 16 -

that petitioner sustained a theft loss of medical equipment used

by her in her critical care nursing activity during 1996.    She

claimed a loss of $4,500 on her 1996 income tax return but

presented no evidence to substantiate that amount.   At trial, she

presented a list of the equipment totaling $1,709.03, which was

not substantiated.   On this record, pursuant to Cohan v.

Commissioner, supra, the Court allows petitioner a theft loss

deduction of $750 for 1996.   Since the theft involved property

used in petitioner’s trade or business, the amount of the loss is

not subject to the limitation provisions of section 165(h)(2).

Sec. 165(c)(1).

     The fifth issue is whether petitioner is entitled to a

claimed dependency exemption deduction for her sister, Cecilia

Ofori, for 1993 and 1994.   Ms. Ofori was reported as a dependent

on petitioner’s return using an incorrect Social Security number.

A correct Social Security number was never provided.8

     Section 151(c) allows a taxpayer to deduct an annual

exemption amount for each dependent, as defined in section 152.

Under section 152(a), the term “dependent” means certain



     8
          Sec. 151(e), which was enacted on Aug. 20, 1996, as
part of the Small Business Job Protection Act of 1996, Pub. L.
104-188, sec. 1615(a), 110 Stat. 1853, expressly denies a
dependency exemption with respect to an individual unless the
Social Security number for such individual is provided on the
return claiming the exemption. However, this section is
applicable to all tax returns due after Sept. 18, 1996, and thus
is not applicable to the years at issue.
                              - 17 -

individuals, including a brother or sister of the taxpayer, over

half of whose support was received from the taxpayer during the

taxable year.   The term “support” includes food, shelter,

clothing, medical and dental care, education, and the like.     Sec.

1.152-1(a)(2)(i), Income Tax Regs.     The term “dependent” does not

include any individual who is not a citizen or national of the

United States unless such individual is a resident of the United

States or of a country contiguous to the United States.    Sec.

152(b)(3).

     The regulations under section 152 do not define the term

"resident of the United States," but section 1.871-1, Income Tax

Regs., and sections following contain provisions relating to the

residence of alien individuals for "purposes of the income tax".

Section 1.871-2(c), Income Tax Regs., specifies: “To determine

the residence of aliens for taxable years beginning after

December 31, 1984, see section 7701(b) and [sections]

301.7701(b)-1 through 301.7701(b)-9 of this chapter.”    Section

7701(b)(1)(A) defines the term “resident alien” as follows:


     An alien individual shall be treated as a resident of the
     United States with respect to any calendar year if (and only
     if) such individual meets the requirements of clause (i),
     (ii), or (iii):

          (i) Lawfully admitted for permanent residence.-–Such
     individual is a lawful permanent resident of the United
     States at any time during such calendar year.
                               - 18 -

          (ii) Substantial presence test.-–Such individual meets
     the substantial presence test of paragraph (3).

          (iii) First year election.-–Such individual makes the
     election provided in paragraph (4).


Petitioner presented no evidence to establish (i) or (iii);

therefore, the question is whether Ms. Ofori meets the

substantial presence test under (ii).

     Substantial presence is defined in section 7701(b)(3) and

its accompanying regulation, section 301.7701(b)-1(c), Proced. &

Admin. Regs.   In general, an individual meets the substantial

presence test if (i) such individual was present in the United

States on at least 31 days during the calendar year, and (ii) the

sum of the number of days on which such individual was present in

the United States during the current year and the 2 preceding

calendar years (when multiplied by the applicable multiplier)

equals or exceeds 183 days.    Sec. 7701(b)(3)(A).   Section

7701(b)(3)(D) then provides:    “An individual shall not be treated

as being present in the United States on any day if-–(i) such

individual is an exempt individual for such day”.     An individual

is an exempt individual for any day if, for such day, such

individual is a student.   Sec. 7701(b)(5)(A).   The term “student”

means any individual who is temporarily present in the United

States either (I) under section 101(15)(F) or (M) of the

Immigration and Nationality Act (1952), ch. 477, 66 Stat. 163; or

(II) section 101(15)(J) or (Q) of the same act; and who
                               - 19 -

substantially complies with the requirements of being admitted.

Sec. 7701(b)(5)(D); sec. 301.7701(b)-(4), Proced. & Admin. Regs.

     Petitioner did not establish that her sister became a

resident of the United States in 1993 or 1994 under the foregoing

standards.    No evidence or argument was presented on Ms. Ofori’s

status as a legal resident, how many days she was present in the

United States during those years, or whether she was an exempt

individual.    Ms. Ofori attended vocational school but, on this

record, whether she met the definition of “student” was not

established.   Further, the only evidence presented of

petitioner’s support costs with respect to Ms. Ofori was a record

from a pharmacy.   All that is known is that Ms. Ofori, a grown

woman who was not a U.S. citizen, resided with petitioner while

attending trade school and later returned to her home in Ghana.

Ms. Ofori, by reason of her alienage, is legally presumed to be a

nonresident for purposes of the income tax, and that presumption

has not been rebutted.   Sec. 1.871-4, Income Tax Regs.   For the

foregoing reasons, the Court holds that petitioner is not

entitled to a dependency exemption deduction for her sister for

1993 and 1994.

     The sixth issue is whether petitioner is entitled to a child

care expense credit under section 21 for 1995 with respect to her

daughter, Clara.   Section 21(a) generally provides for a credit

against the tax to any individual who maintains a household that
                              - 20 -

includes as a member one or more qualifying individuals.    The

term “qualifying individual,” under section 21(b)(1), includes a

dependent of the taxpayer under age 13, with respect to whom the

taxpayer is entitled to a dependency deduction under section

151(c).   The allowable credit, under section 21(b)(2), is based

upon employment-related expenses that are incurred to enable the

taxpayer to be gainfully employed, including expenses incurred

for the care of a qualifying individual.   Respondent does not

dispute that petitioner’s daughter was a “qualifying individual”

under section 21(b)(1), or that petitioner’s payments to Kuddle

Korner, if actually paid, were employment related under section

21(b)(2).   Respondent contends, however, that petitioner failed

to substantiate payments made during 1995 for the care of Clara

while petitioner and her husband were working.

     Petitioner claimed the expenses paid to Kuddle Korner and

provided identifying information with respect to that service

provider on her 1995 return pursuant to section 21(e)(9).

Petitioner did not substantiate these child care expenses with

written records but testified credibly about the expense.    See

sec. 1.44A-1(e), Income Tax Regs. (taxpayer must substantiate

credit by adequate records or other sufficient evidence).    The

Court is satisfied from the record that petitioner did incur

child care expenses with respect to a qualifying individual, her

daughter, Clara.   In the absence of adequate substantiation, this
                                - 21 -

Court may, if convinced by the evidence, estimate the amount of

deductible expenses incurred.    Cohan v. Commissioner, 39 F.2d 540

(2d Cir. 1930).   On this record, the Court holds that petitioner

paid child care expenses of $1,000 for 1995.   She is therefore

entitled to a child care credit for 1995 based upon the

applicable percentage allowable under section 21(a)(2).

     The final issue is whether petitioner is liable for the

accuracy-related penalties under section 6662(a) for the years at

issue.    Section 6662(a) provides for an accuracy-related penalty

equal to 20 percent of any portion of an underpayment of tax

required to be shown on the return that is attributable to the

taxpayer’s negligence or disregard of rules or regulations.    Sec.

6662(a) and (b)(1).   Negligence consists of any failure to make a

reasonable attempt to comply with the provisions of the Internal

Revenue Code.   Sec. 6662(c).   Disregard consists of any careless,

reckless, or intentional disregard.      Id.

     The courts have refined the Code definition of negligence as

a lack of due care or failure to do what a reasonable and prudent

person would do under similar circumstances.    Allen v.

Commissioner, 925 F.2d 348, 353 (9th Cir. 1991), affg. 92 T.C. 1

(1989).    Treasury regulations further provide that negligence

includes any failure to exercise ordinary and reasonable care in

the preparation of a tax return, failure to keep books and

records, or failure to substantiate items properly.    Sec. 1.6662-
                               - 22 -

3(b)(1), Income Tax Regs.   A return position that has a

“reasonable basis” as defined in the regulation is not

attributable to negligence.    Id.

     An exception to the section 6662 penalty applies when the

taxpayer demonstrates:   (1) There was reasonable cause for the

underpayment, and (2) the taxpayer acted in good faith with

respect to the underpayment.   Sec. 6664(c).9    Whether the

taxpayer acted with reasonable cause and in good faith is

determined by the relevant facts and circumstances on a case-by-

case basis.   See Stubblefield v. Commissioner, T.C. Memo. 1996-
537; sec. 1.6664-4(b)(1), Income Tax Regs.      “Circumstances that

may indicate reasonable cause and good faith include an honest

misunderstanding of fact or law that is reasonable in light of

all the facts and circumstances, including the experience,

knowledge and education of the taxpayer.”       Sec. 1.6664-4(b)(1),

Income Tax Regs.   A taxpayer is not subject to the addition to

tax for negligence where the taxpayer makes honest mistakes in

complex matters, but the taxpayer must take reasonable steps to

determine the law and to comply with it.     Niedringhaus v.

Commissioner, 99 T.C. 202, 222 (1992).     The most important factor

is the extent of the taxpayer’s effort to assess the proper tax




     9
          This section may provide relief even if a return
position does not satisfy the reasonable basis standard. Sec.
1.6662-3(b)(3), Income Tax Regs.
                                - 23 -

liability.   Stubblefield v. Commissioner, supra; sec. 1.6664-

4(b)(1), Income Tax Regs.

     Petitioner took the position that she should be relieved of

the section 6662(a) penalties due to reliance on her income tax

return preparer.   In general, taxpayers are dutybound to file

complete and accurate tax returns.       United States v. Boyle, 469

U.S. 241, 250-251 (1985).   They may not avoid this duty simply by

relying on a return preparer.    Id.     Thus, blind reliance on a

return preparer is not a defense to negligence, and taxpayers are

required to review their return before signing it.        Metra Chem

Corp. v. Commissioner, 88 T.C. 654, 662 (1987).

     Petitioner did not convince the Court that she acted with

reasonable cause and in good faith. She presented no evidence of

having taken reasonable steps to determine the law and to comply

with it regarding the various issues of her case.        Her lack of

substantiation on these issues supports the imposition of a

penalty, and the bare argument of having relied on a return

preparer is unpersuasive.   Petitioner is therefore liable for the

section 6662(a) penalties for the years in question.        Respondent

is sustained on this issue.

     Reviewed and adopted as the report of the Small Tax Case

Division.



                                             Decision will be entered

                                       under Rule 155.
