                       T.C. Memo. 1997-107



                     UNITED STATES TAX COURT



          CURTIS G. AND EDNA L. LOCKETT, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 3978-94.                       Filed March 3, 1997.


     Curtis G. Lockett, pro se.

     Ruth Perez, for respondent.


                       MEMORANDUM OPINION


     COUVILLION, Special Trial Judge:   This case was heard

pursuant to section 7443A(b)(3)1 and Rules 180, 181, and 182.

     Respondent determined deficiencies in Federal income taxes

of $7,012 and $5,985, respectively, for petitioners' 1991 and

1992 tax years.

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


     The issues for decision are:   (1) Whether petitioners are

entitled to deductions for expenses, under section 162(a),

incurred in connection with a medical research activity conducted

by Curtis G. Lockett (petitioner) during the years at issue, and

(2) whether petitioners are entitled to an itemized deduction,

under Schedule A, for job expenses and other miscellaneous

expenses for the year 1991.2

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

exhibits submitted therewith, are so found and are incorporated

herein by reference.   At the time the petition was filed,

petitioners' legal residence was Mobile, Alabama.

     For some 20 years prior to the years at issue, petitioner

was a home building contractor.   Sometime during this period,

petitioner maintained a home laboratory for the purpose of

developing a medicine to treat his minor daughter who was


2
     Petitioners conceded the failure to include in gross income
dividends for the year 1991. The parties agree that the correct
amount of the unreported dividend income is $94.52 instead of $96
as set out in the notice of deficiency. Petitioners also
conceded the failure to include in gross income for the year 1991
the $500 premature distribution of an individual retirement
account. Respondent determined, in the notice of deficiency, the
10-percent additional tax on early distributions from qualified
retirement plans under sec. 72(t). Although petitioners did not
expressly concede this adjustment, they presented no evidence and
did not address this issue at trial. Petitioners are deemed to
have waived this issue. The Court, therefore, determines that
adjustment against petitioners. Rule 149(b); Walker-Scott Corp.
v. Commissioner, 35 T.C. 34, 37 (1960). All other adjustments in
the notice of deficiency are computational, based upon the
Court's holding on the contested issues.
                               - 3 -


afflicted with sickle cell anemia.     Petitioner developed what he

referred to as a "compound" that he administered to his daughter

and that, to petitioner's satisfaction, placed her sickle cell

anemia in remission.   Petitioner was convinced that his compound

was effective because, for a time period in which he was unable

to administer the compound to his daughter, her condition

worsened, and she lost her left eye.    When the compound was again

administered to her, she became well.

     Petitioner is not a doctor of medicine, although he holds a

college degree in biology, chemistry, and physics.    For the years

prior to the years in question, petitioner did not consider his

home laboratory as a trade or business for tax purposes.    Also,

the record does not indicate that petitioner ever contacted or

made known to doctors and/or pharmaceutical companies his

development of the compound, which he was satisfied relieved his

daughter of her sickle cell anemia.    Petitioner did not

administer this compound to anyone other than his daughter, nor

did he ever sell or market the compound.    He was of the belief

that his compound would be effective in suppressing AIDS and

other human immune system problems.

     Sometime in 1991, or a short time prior thereto, petitioner

decided to proceed commercially with his compound.    He

discontinued his contracting business and spent considerable

amounts of money in improving his laboratory.    He adopted a trade
                                  - 4 -


name of TEL Sickle Cell Research & Development and attempted to

obtain tax-exempt status from the Internal Revenue Service

under section 501(c)(3).      That attempt was unsuccessful and was

not pursued further.     Petitioner, nevertheless, continued with

his laboratory and considered it a trade or business for tax

purposes for the years at issue.

     On their 1991 and 1992 income tax returns, petitioners

reported their construction/laboratory activity on Schedule C,

Profit or Loss From Business, as follows:


                                   1991

     Income                                                -0-
     Expenses:
       Bad debts from sales or services     $22,360.00
       Car and truck expenses                 1,034.74
       Insurance                              3,849.00
       Legal and professional services        8,494.71
       Office expense                           637.00
       Rent or lease of vehicles              2,640.00
       Utilities                              4,080.00
         Total                                           $43,095.45
     Loss                                                $43,095.45


                                   1992

     Income                                                 -0-
     Expenses:
       Advertising                           $ 3,840
       Commissions and fees                    2,130
       Insurance                               1,560
       Legal and professional services         2,500
       Office expense                            632
       Rent or lease of vehicles                 547
       Repairs and maintenance                18,350
       Taxes and licenses                        680
       Travel                                  1,303
       Meals and entertainment (net)             294
       Utilities                               2,880
         Total                                            $34,716
     Loss                                                 $34,716
                               - 5 -


     In the notice of deficiency, respondent disallowed all of

the expenses claimed for the 2 years in question on the ground

that petitioners "did not establish that the business expenses

shown on your tax return were paid or incurred during the taxable

year and that the expenses were ordinary and necessary to your

business".

     On Schedule A, Itemized Deductions, of their 1991 return,

petitioners claimed an itemized deduction for the following:


          Uniform rental                      $  360.00
          Leftover equipment expenses          5,435.00
          Less 2% (sec. 67(a))                  (188.44)
            Deduction claimed                 $5,606.56


Respondent disallowed that amount on the ground that no

information was provided to support the claimed deduction.

     The determinations of the Commissioner in a notice of

deficiency are presumed correct, and the taxpayer bears the

burden of proving that the determinations are incorrect.    Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).

     When this case was originally heard, the Court, after

hearing the testimony of petitioner and one witness for

respondent, recessed the trial because petitioner had no books

and records to present.   Petitioner stated that his books and

records were held at different places over the United States;

that he would gather his records and meet with counsel for

respondent; and that, if a settlement of the case was not
                               - 6 -


reached, the case would be recalendared for trial.   Over 1 year

later, the parties had failed to agree on a settlement; whereupon

the case was recalendared for completion of the trial.

     The evidence presented by petitioner to substantiate his

expenses was scant.   Although he produced copies of a series of

canceled checks, many of the checks were payable to cash, and no

receipts, bills, or invoices were produced to corroborate or

associate any of the checks with the expense purportedly being

paid.   Moreover, as to each of the expenses at issue, the checks

submitted to support the expense claimed did not add up to or

equal the amount claimed as an expense on the return.

Petitioner's basic answer was that he could not "come up" with

the missing checks.   Moreover, the evidence fails to support a

finding that petitioner was engaged in a trade or business during

the years in question.   Petitioner acknowledged that he was no

longer in the building construction business during 1991 and

1992, and the Court is satisfied that petitioner was not engaged

in a medical research and development activity during the 2 years

at issue.   At best, petitioner was attempting to start or begin

an activity in medical research, and the evidence falls short of

establishing that such an activity ever commenced or was likely

to commence.

     Section 162(a) provides generally that there shall be

allowed as a deduction all the ordinary and necessary expenses
                                - 7 -


paid or incurred during the taxable year in carrying on any trade

or business.    To be entitled to a deduction under section 162(a),

a taxpayer is required to substantiate the deduction through the

maintenance of books and records.    Section 6001 requires

generally that a taxpayer liable for any tax shall maintain such

records, render such statements, make such returns, and comply

with such regulations as the Secretary may from time to time

prescribe.    The meager records petitioner presented to

substantiate the expenses at issue do not satisfy the

recordkeeping requirements of section 6001 and do not prove that

the expenses claimed were paid or incurred.    The Court holds that

petitioners have not sustained their burden of establishing their

entitlement to a deduction of their Schedule C expenses for 1991

and 1992.    Respondent, therefore, is sustained on this issue.

     The second issue relates to the year 1991 and Schedule A,

Itemized Deductions, in the amount of $5,606.56 claimed by

petitioners that were also disallowed by respondent for lack of

substantiation.    As noted above, petitioners claimed a deduction

of $360 for uniform rental and $5,435 for leftover equipment

expenses, subject to the limitation provisions of section 67(a).

     The $5,435 represented payments petitioner claims he made

during 1991 on equipment that had been used in his construction

activity.    No documentary evidence was presented to substantiate

either the $5,435 for equipment payments or the $360 uniform
                               - 8 -


rental expenses.   Respondent, therefore, is sustained on this

issue.



                                            Decision will be entered

                                       under Rule 155.
