                       T.C. Memo. 2000-333



                     UNITED STATES TAX COURT



                ROBERT COTTON, JR., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

                 SHARON C. COTTON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 6701-99, 7005-99.        Filed October 30, 2000.


     Robert Cotton, Jr., and Sharon C. Cotton, pro se.

     Michele A. Yates, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     PANUTHOS, Chief Special Trial Judge: Respondent determined

deficiencies in petitioners’ Federal income taxes and accuracy-

related penalties as follows:
                              - 2 -

             Robert Cotton, Jr., Docket No. 6701-99


                                  Penalty
     Year      Deficiency       Sec. 6662(a)

     1994        $6,749               $514
     1995         8,007                420
     1996         4,451                428


                Sharon Cotton, Docket No. 7005-99

                                  Penalty
     Year      Deficiency       Sec. 6662(a)

     1994        $2,684               $336
     1996         4,013                545

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.

     After concessions by petitioners (hereinafter referred to

individually as Mrs. Cotton and Mr. Cotton),1 the issues for


     1
          Mr. Cotton concedes that he is not entitled to the
following: (1) Head-of-household filing status under sec. 2(b)
for 1994 and 1996; (2) single filing status for 1995; (3)
dependent care credit pursuant to sec. 21 in the amount of $911
for 1994 (respondent erroneously categorized the credit as the
child care credit under sec. 24, which did not go into effect
until 1998); (4) Schedule C, Profit or Loss From Business, loss
in the amount of $10,150 for 1995; (5) deduction for a safety
deposit box in 1995; (6) deductions for personal property and
real estate taxes in the respective amounts of $600 and $1,300
for 1994 and 1995; and (7) deductions for charitable
contributions in the amounts of $4,650, $4,150, and $3,701 for
1994, 1995, and 1996, respectively.

     Mrs. Cotton concedes that she is not entitled to the
                                                   (continued...)
                               - 3 -

decision are:   (1) Whether petitioners are entitled to dependency

exemption deductions for various persons; (2) whether Mrs. Cotton

is entitled to the earned income credit under section 32; (3)

whether Mrs. Cotton is entitled to the standard deduction in

1996; (4) whether Mr. Cotton is entitled to a deduction for

medical expenses in 1994 and 1996; (5) whether Mr. Cotton is

entitled to deduct tax preparation fees; (6) whether Mr. Cotton

is entitled to deduct the cost of his work clothing and

protective equipment; (7) whether Mr. Cotton is entitled to a

deduction for real property taxes; and (8) whether petitioners

are liable for the accuracy-related penalty pursuant to section

6662(a).2

                         FINDINGS OF FACT

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

The stipulated facts and the related exhibits are incorporated




     1
      (...continued)
following: (1) Head-of-household filing status under sec. 2(b)
for 1994; (2) single filing status for 1996; and (3) dependent
care credits pursuant to sec. 21 in the amounts of $576 and
$1,104 for 1994 and 1996, respectively (respondent incorrectly
categorized the credits as child care credits under sec. 24).
     2
          The notices of deficiency contain adjustments to
petitioners’ itemized deductions. These are computational
adjustments which will be affected by the outcome of the other
issues to be decided, and we do not separately address them.
                                 - 4 -

herein by this reference.    At the time of filing the petitions in

these cases,3 petitioners resided in Forestville, Maryland.

     Petitioners were married in 1985 and were married during the

years at issue.    Mr. Cotton worked as an engineer for the U.S.

Department of the Navy, where he operated boilers and chillers.

Mrs. Cotton worked as a patent clerk for the U.S. Department of

Commerce.   Petitioners lived in a two-bedroom apartment in 1994

and 1995, and they moved to a five-bedroom house in 1996.        Mr.

Cotton’s adjusted gross income was $37,575 in 1994 and $48,380 in

1996.

     Several individuals lived in petitioners’ household between

1994 and 1996.    Samuel Douglas, petitioners’ son, lived with

petitioners between 1994 and 1996.       Samuel Douglas graduated high

school in 1994 or 1995.     Jerome Douglas, Mrs. Cotton’s brother,

periodically stayed with petitioners between 1994 and 1996.

Jerome Douglas was ill during the period at issue.      Jerome

Douglas slept at petitioners’ home on weekends in 1994.

Shirleetta Douglas,4 Mrs. Cotton’s sister, periodically stayed


     3
          Mr. and Mrs. Cotton each filed separate income tax
returns for the years in issue. Separate notices of deficiency
were issued to each petitioner and a separate petition was filed
by each petitioner. By order dated Apr. 10, 2000, the dockets
were consolidated.
     4
          Shirleetta Douglas’ first name is inconsistently
spelled throughout the record and exhibits as Sharleta, Sharletta
and Shirleetta. For consistency, we shall refer to her as
Shirleetta Douglas.
                                - 5 -

with petitioners between 1994 and 1996.    Shirleetta Douglas’

residence was located in the same neighborhood as petitioners’

residence.    Jerome Douglas also lived with Shirleetta Douglas

during the period at issue.    Shirleetta Douglas’ children,

Shaquita and Kevin Douglas, occasionally lived with petitioners

between 1994 and 1996.    Eula Cotton (Mr. Cotton’s sister), Kevin

Cotton, Starlesha Cotton, Maurice Cotton, and Johnny Gray (Mr.

Cotton’s nephews and niece) intermittently lived with petitioners

during the period at issue.    None of the claimed dependents, with

the exception of Samuel Douglas, lived with petitioners for an

entire year, and each of the claimed dependents lived with

petitioners for 6 months or less per year.

     Samuel Douglas worked in 1996 and received wages.5

Shirleetta Douglas received “Section 8" housing during the period

at issue.    Petitioners purchased groceries for the household.

Petitioners took the children to school, but petitioners did not

purchase clothing or pay for any other expenses for the claimed

dependents.

     Petitioners filed separate Federal income tax returns for

the years in issue.    Mr. Cotton, on his 1994, 1995, and 1996

Federal income tax returns, and Mrs. Cotton, on her 1994 and 1996




     5
            The amount received has not been made part of the
record.
                               - 6 -

Federal income tax returns, claimed the following dependency

exemption deductions:


                        Robert Cotton, Jr.

  Years         Name of Dependent      Relationship to Petitioner

1994            Maurice Cotton              Nephew (minor)1
1994, 1996      Johnny Gray                 Nephew (minor)2
1994            Starlesha Cotton            Niece (minor)3
1994            Kevin Cotton                Nephew (minor)4
1995, 1996      Jerome Douglas              Brother-in-law5
1995            Samuel Douglas              Son
1995            Shirleetta Douglas          Sister-in-law6
1996            Eula Cotton                 Sister7
     1
           Mr. Cotton reported Maurice Cotton as his foster child.
     2
          Mr. Cotton reported Johnny Gray as his foster child in
1994 and his son in 1996.
     3
           Mr. Cotton reported Starlesha Cotton as his foster
child.
     4
           Mr. Cotton reported Kevin Cotton as his foster child.
     5
          Mr. Cotton reported Jerome Douglas as his brother in
1995 and as “other” in 1996.
     6
           Mr. Cotton reported Shirleetta Douglas as his sister.
     7
           Mr. Cotton reported Eula Cotton as “other” in 1996.

                          Sharon Cotton

   Years        Name of Dependent        Relationship to Petitioner

1994            Kevin Douglas            Nephew (minor)1
1994, 1996      Samuel Douglas           Son
1994, 1996      Shirleetta Douglas       Sister
1994            Jerome Douglas           Brother
1996            Shaquita Douglas         Niece (minor)2
1996            Starlesha Cotton         Niece by marriage(minor)3
1996            Kevin Cotton             Nephew by marriage (minor)4
     1
           Mrs. Cotton reported Kevin Douglas as her foster child.
                                - 7 -
     2
            Mrs. Cotton reported Shaquita Douglas as her foster
child.
     3
            Mrs. Cotton reported Starlesha Cotton as her niece.
     4
            Mrs. Cotton reported Kevin Cotton as her nephew.

     Mrs. Cotton claimed earned credits in the amounts of $640

and $1,152 in 1994 and 1996, respectively.     Mr. Cotton claimed

the following deductions:

                                        1994      1995    1996

     Medical expenses               $10,001        ---   $3,980
     Tax preparation                    200        200      225
     Unreimbursed employee expenses   5,700      7,000    4,205
     Real estate tax                    ---        ---    2,804

     Respondent disallowed the dependency exemption deductions

(except for Samuel Douglas in 1994) claimed by petitioners

because petitioners did not establish that they provided more

than one-half of the support for any of the claimed dependents.

Respondent disallowed Mrs. Cotton’s earned income credits, on two

theories:    First, she did not establish that she had a qualifying

child under section 32(a); second, she did not file a joint

return with Mr. Cotton.    Respondent disallowed the deductions for

medical expenses, tax preparation fees, unreimbursed employee

expenses, and real property taxes because Mr. Cotton did not

establish that he paid these amounts for the reasons claimed.

     Since the disallowed deductions for 1994 and 1995 reduced

Mr. Cotton’s total itemized deductions to amounts less than the

standard deduction, respondent disallowed the other itemized
                                  - 8 -

deductions and allowed Mr. Cotton the standard deduction for 1994

and 1995.   Respondent disallowed the standard deduction for Mrs.

Cotton in 1996 because Mr. Cotton itemized deductions on his

separate return.

                                 OPINION

     Deductions are a matter of legislative grace, and taxpayers

must comply with the specific requirements for any deduction

claimed.    See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84

(1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440

(1934).    Taxpayers must maintain adequate records to substantiate

the amount of credits and deductions claimed.      See sec. 6001;

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

1.   Dependency Exemption Deductions

     A taxpayer is permitted to claim a deduction for personal

exemptions.   See sec. 151(a).    A taxpayer may claim an exemption

for dependents.    See sec. 151(c)(1).     A taxpayer’s son, sister,

brother, sister-in-law, brother-in-law, niece, and nephew qualify

as dependents so long as the taxpayer provided more than half of

the support to each dependent.     See sec. 152(a)(1), (3), (6),

(8); sec. 1.152-1(a)(1), Income Tax Regs.      Further, a taxpayer

may claim a dependency exemption deduction for an unrelated

individual who has as his principal place of abode the home of

the taxpayer, so long as the taxpayer provided more than one-half

of the support to the unrelated individual.      See sec. 152(a)(9).
                                 - 9 -

     The level of support is determined by the support test, in

which the total amount of support from all sources is compared

with the amount of support actually provided by a taxpayer.       The

taxpayer must initially demonstrate, by competent evidence, the

total amount of the support furnished by all sources for the

taxable years at issue.     See Turay v. Commissioner, T.C. Memo.

1999-315; Keegan v. Commissioner, T.C. Memo. 1997-511; sec.

1.152-1(a)(2)(i), Income Tax Regs.       If the total amount of

support is not established, then it is generally not possible to

conclude that the taxpayer provided more than half of the support

to the claimed dependents.    See Blanco v. Commissioner, 56 T.C.

512, 514-515 (1971); Batson v. Commissioner, T.C. Memo. 2000-172;

Butler v. Commissioner, T.C. Memo. 1998-355; Smith v.

Commissioner, T.C. Memo. 1997-544.

     From a review of this record, we cannot conclude that either

petitioner provided more than one-half of the support for any of

the claimed dependents at issue.    We are unsure as to the total

amount of support each dependent received from all sources.       The

record is also silent as to the amount of support each dependent

received from either of petitioners.       Therefore, respondent’s

determination is sustained.

2.   Earned Income Credit

     Section 32(a) permits an “eligible individual” to claim an

earned income credit against the individual’s income tax
                                - 10 -

liability.   An eligible individual is defined in section

32(c)(1)(A) as either (1) an individual who has a qualifying

child for the taxable year, or (2) an individual who does not

have a qualifying child for the taxable year, if the individual’s

principal place of abode is the United States for more than one-

half of the taxable year, the individual is at least 25 years of

age but has not reached the age of 65 years before the close of

the taxable year, and the individual is not a dependent for whom

a deduction is allowable under section 151 to another taxpayer.

A married individual will not be entitled to the earned income

credit unless he or she files a joint return.    See sec. 32(d);

Madrigal v. Commissioner, T.C. Memo. 1998-345; sec. 1.32-2(b)(2),

Income Tax Regs.

     Petitioners were married at the end of 1994 and 1996.

Since Mrs. Cotton did not file joint returns for 1994 and 1996,

she is not entitled to the earned income credit for either of

these tax years.

3.   Mrs. Cotton’s Standard Deduction

     Generally, a taxpayer can elect to itemize deductions or

claim the standard deduction.    See sec. 63(b), (c)(1).   If

married individuals file separately and one spouse itemizes

deductions, then the other spouse is not entitled to the standard

deduction.   See sec. 63(c)(6)(A).   Petitioners were married

during 1996 and filed separately.    Since Mr. Cotton itemized his
                                - 11 -

deductions in 1996, Mrs. Cotton is not entitled to the standard

deduction for 1996.

4.   Medical Expenses

     A taxpayer may deduct expenses incurred for medical care and

dental expenses to the extent that the expenses exceed 7.5

percent of the taxpayer’s adjusted gross income.      See sec.

213(a).   Medical care expenses includes amounts paid for

insurance premiums.     See sec. 213(d)(1)(D).   To substantiate

medical and dental expenses under section 213, a taxpayer must

provide the name and address of each person to whom payment was

made and the amount and date of each payment.      See sec. 1.213-

1(h), Income Tax Regs.

     At trial, Mr. Cotton estimated that he paid $1,638 for

medical insurance premiums and $500 in other medical expenses

(for copayments and emergency room visits) in 1996.      The record

is unclear if Mr. Cotton estimates that he paid a similar amount

in 1994, and we assume, for the purposes of this opinion, that

Mr. Cotton estimates that he paid $2,138 for medical expenses in

1994 and 1996.   Mr. Cotton’s adjusted gross income was $37,575 in

1994 and $48,380 in 1996.     The medical expenses estimated by Mr.

Cotton do not exceed 7.5 percent of his gross income ($2,818.13

in 1994 and $3,628.50 in 1996).     Mr. Cotton is not entitled to a

deduction under section 213 for 1994 and 1996.
                               - 12 -

     Even if the amount exceeded 7.5 percent of his adjusted

gross income, Mr. Cotton failed to substantiate his medical

expenses under section 1.213-1(h), Income Tax Regs.      Mr. Cotton

did not indicate the recipient of any of the payments.      In

regards to the $500 Mr. Cotton spent for copayments and emergency

room visits, Mr. Cotton did not indicate when the payments were

made, the name of the patient, or the reason for the treatment.

We hold for respondent.

5.   Tax Preparer’s Fees

     A taxpayer may deduct ordinary and necessary expenses

incurred in connection with the determination, collection, and

refund of taxes.   See sec. 212(3).     Such deductible expenses

include expenses incurred in connection with the preparation of

tax returns.   See sec. 1.212-1(l), Income Tax Regs.

     Where a taxpayer establishes that he has incurred certain

kinds of expenses but is unable to substantiate the precise

amount of the expenses, we may estimate the amount of the

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

543-544 (2d Cir. 1930).    We cannot estimate deductible expenses,

however, unless the taxpayer presents evidence sufficient to

provide some rational basis on which estimates may be made.        See

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

v. Commissioner, 85 T.C. 731, 742-743 (1985).
                                - 13 -

     Mr. Cotton claimed a deduction of $225 in 1996 for tax

preparation fees.6    At trial, Mr. Cotton provided credible

testimony that he incurred expenses for the preparation of his

tax return in the amount of $225.     Accordingly, we conclude that

Mr. Cotton is entitled to a deduction of $225.

6.   Work Clothing

     Work clothing may be deductible under section 162 if a

taxpayer can establish the following:     (1) The clothing was

required or essential in the taxpayer’s employment; (2) the

clothing was not suitable for general or personal wear; (3) and

the clothing is not so worn.     See Yeomans v. Commissioner, 30

T.C. 757, 767-769 (1958); Kozera v. Commissioner, T.C. Memo.

1986-604.     Mr. Cotton deducted unreimbursed employee business

expenses in the amount of $5,700, $7,000, and $4,205 in 1994,

1995, and 1996, respectively.     Mr. Cotton testified that he spent

$800 to $900 per year for uniforms, safety shoes, and safety

glasses.    He did not have any other business expenses related to

his employment with the U.S. Department of the Navy.     We have

held that expenses for this type of clothing and protection are

deductible.    See Kozera v. Commissioner, supra; Jeffers v.

Commissioner, T.C. Memo. 1986-285; Boback v. Commissioner, T.C.


     6
          Mr. Cotton is not entitled to a deduction for 1994 and
1995. After concessions and our holding, Mr. Cotton’s itemized
deductions for 1994 and 1995 do not exceed the standard
deduction. See sec. 63(c).
                                - 14 -

Memo. 1983-198.   We are satisfied that Mr. Cotton did incur some

expenses for these items.   See Cohan v. Commissioner, supra.      We

hold that Mr. Cotton incurred $800 in expenses in each of the

years 1994, 1995, and 1996.7

7.   Real Estate Taxes

     Generally, State and local real property taxes are

deductible in the year in which they are paid or accrued.    See

sec. 164(a)(1); sec. 1.164-3(b), Income Tax Regs.

     In 1996, Mr. Cotton deducted $2,804 for real property taxes.

Mr. Cotton did not provide evidence of payment, such as books,

records, canceled checks, or property tax assessments, to

substantiate the amount of tax paid or accrued in 1996.

Therefore, Mr. Cotton is not entitled to a deduction for real

property taxes for 1996.

8.   Accuracy-Related Penalty

     Respondent determined that each petitioner is liable for the

accuracy-related penalty under section 6662(a) for 1995.    The

accuracy-related penalty is 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

     7
          Mr. Cotton is not entitled to a deduction for 1994 and
1995 as previously indicated. After concessions and our
holdings, Mr. Cotton’s itemized deductions for 1994 and 1995 do
not exceed the standard deduction. See sec. 63(c). As to 1996,
sec. 67 imposes a 2-percent floor on miscellaneous itemized
deductions. It would appear that the $800 does not exceed the 2-
percent floor.
                                - 15 -

or regulations.   See 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.     See sec.

6662(c).   “Disregard” consists of any careless, reckless, or

intentional disregard.   Id.

     An exception applies to the accuracy-related penalty when

the taxpayer demonstrates (1) there was reasonable cause for the

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

respect to such underpayment.    See sec. 6664(c).   Whether the

taxpayer acted with reasonable cause and in good faith is

determined by the relevant facts and circumstances.     The most

important factor is the extent of the taxpayer’s effort to assess

the proper tax liability.   See Stubblefield v. Commissioner, T.C.

Memo. 1996-537; sec. 1.6664-4(b)(1), Income Tax Regs.     Section

1.6664-(b)(1), Income Tax Regs., specifically provides:

“Circumstances that may indicate reasonable cause and good faith

include an honest misunderstanding of fact or law that is

reasonable in light of all of the facts and circumstances,

including the experience, knowledge, and education of the

taxpayer.”   See Neely v. Commissioner, 85 T.C. 934 (1985).

     A taxpayer is generally charged with knowledge of the law.

See Niedringhaus v. Commissioner, 99 T.C. 202, 222 (1992).

Ignorance of the law is not always a defense to the imposition of
                                - 16 -

section 6662(a).   A taxpayer must take reasonable steps to

determine the law and apply it.    See id.

     It is the taxpayer’s responsibility to establish that he or

she is not liable for the accuracy-related penalty imposed by

section 6662(a).   See Rule 142(a); Tweeddale v. Commissioner, 92

T.C. 501, 505 (1989).

     Mr. Cotton testified that petitioners’ tax preparers

fabricated several deductions, such as the Schedule C deductions

for a nonexistent plumbing business.     Mr. Cotton was aware of

the inflated deductions, and he quarreled with his preparer

regarding the accuracy of the deductions.      Petitioners

nevertheless filed the returns.    The record does not indicate

that either petitioner took reasonable steps to properly report

the correct tax liability.   On the basis of the entire record, we

conclude petitioners have not established that the underpayment

was due to reasonable cause or that either petitioner acted in

good faith.   Accordingly, we hold each petitioner is liable for

the accuracy-related penalty.

     To reflect the foregoing,

                                             Decisions will be entered

                                     under Rule 155.
