                        T.C. Memo. 2000-46



                      UNITED STATES TAX COURT



          DAN E. AND SUSAN J. MARTENS, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4652-98.                 Filed February 10, 2000.



     Lawrence R. Jones, Jr., for petitioners.

     Candace M. Williams, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     FOLEY, Judge:   By notice dated December 10, 1997, respondent

determined deficiencies of $21,977 and $7,266, and section

6662(a) penalties of $4,395 and $1,453, relating to petitioners’

1993 and 1994 Federal income taxes, respectively.   All section

references are to the Internal Revenue Code in effect for the
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years in issue, and all Rule references are to the Tax Court

Rules of Practice and Procedure.

     After concessions, the issues for decision are

whether petitioners are:    (1) Entitled, pursuant to section 166,

to a business bad debt deduction relating to 1993; (2) entitled,

pursuant to section 162, to a business expense deduction

relating to 1994; and (3) liable, pursuant to section 6662(a),

for accuracy-related penalties relating to the deductions.

                           FINDINGS OF FACT

     Mr. Martens, during adolescence, college, and law school,

worked at The Stork Shop, Inc. (the Stork Shop), a maternity wear

retail store owned by his mother, Estele Wooden.    In 1966, she

gave him a joint tenancy with right of survivorship in the stock

of the Stork Shop.    The store was located in Oklahoma City,

Oklahoma, approximately 200 miles from Dallas, Texas, where

petitioners, husband and wife, have resided and worked since

1982.   Mr. Martens has been an attorney since 1974, and Ms.

Martens was a homemaker during the years in issue.

     Ms. Wooden operated the Stork Shop until it ceased

operations in 1993.    Mr. Martens made management decisions, and

Ms. Martens regularly bought apparel for and monitored inventory

levels at the store, but neither of them received any

compensation.   Petitioners made a series of loans to the Stork
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Shop, and, on their 1993 tax return, deducted these loans as a

“business loan loss”.

     In 1994, petitioners paid $10,745 to various creditors of

the Stork Shop for ordinary and necessary business expenses that

it had incurred.   On their 1994 tax return, petitioners deducted

the $10,745 as business expenses relating to the Stork Shop.

                              OPINION

I.   Bad Debt Deduction

     Section 166 allows a deduction for any debt that becomes

worthless during the taxable year and distinguishes between

business and nonbusiness debts.   A business bad debt must be

related to the taxpayer’s trade or business.   See sec. 166(d)(2).

     Respondent concedes that petitioners’ loans to the Stork

Shop became worthless in 1993, but we must determine whether

those loans related to petitioners’ trade or business.   Although

they devoted time and energies to the affairs of the Stork Shop,

petitioners earned no income from the corporation.   Cf. Whipple

v. Commissioner, 373 U.S. 193, 203 (1963) (stating that someone

in a trade or business gets “income received directly for his own

services rather than indirectly through the corporate

enterprise”).   Petitioners’ efforts were consistent with those of

shareholders or of a dutiful son and daughter-in-law.    See Garner

v. Commissioner, 987 F.2d 267, 271 (5th Cir. 1993) (upholding

conclusion that shareholder-employee’s motive was to protect his
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investment and not his salary, which was zero), affg. T.C. Memo.

1991-569.    Mr. Martens was a full-time lawyer, and Ms. Martens

was a homemaker.    They were not employees of the Stork Shop and

not in the trade or business of retailing maternity wear.

Accordingly, petitioners are not entitled to the business bad

debt deduction.

II.   Expense Deduction

      Section 162(a) provides that a taxpayer engaged in a trade

or business may deduct all ordinary and necessary expenses.

Petitioners have failed to establish that the Stork Shop was

their trade or business or that the $10,745 was ordinary and

necessary expenses of Mr. Martens’ law practice or law firm.

Moreover, the law firm and the Stork Shop are corporations.

Petitioners may not deduct the $10,745 of corporate expenses on

their personal return.    See Deputy v. DuPont, 308 U.S. 488, 494

(1940) (stating that “well established decisions of this Court do

not permit any such blending of the corporation’s business with

the business of its stockholders.”); sec. 1.162-1(a), Income Tax

Regs. (stating that to be deductible, business expenses must be

“directly connected with or pertaining to the taxpayer’s trade or

business”).    Accordingly, respondent’s determinations are

sustained.
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III. Accuracy-Related Penalties

     Section 6662 imposes an accuracy-related penalty equal to 20

percent of any underpayment attributable to a substantial

understatement of income tax.    See sec. 6662(a) and (b)(2).

Petitioners have not established, pursuant to section 6664(c)(1),

that there was a reasonable cause and that they acted in good

faith in claiming the deductions.    Accordingly, petitioners are

liable for the accuracy-related penalties.

     To reflect the foregoing,



                                              Decision will be entered

                                         under Rule 155.
