                  T.C. Summary Opinion 2001-37



                     UNITED STATES TAX COURT


          HUBERT AND FLORA M. SWARINGER, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 282-00S.                      Filed March 22, 2001.


     Hubert and Flora M. Swaringer, pro se.

     Keith L. Gorman, for respondent.


     POWELL, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

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

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

should not be cited as authority.




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

     Respondent determined a deficiency in petitioners’ 1995

Federal income tax of $14,504 and a penalty under section 6662(a)

for negligence of $2,901.   After concessions,2 the issues are (1)

whether petitioner Hubert Swaringer (petitioner) had unreported

income of $24,316; (2) whether petitioner is entitled to Schedule

C deductions in amounts greater than those allowed by respondent;

and (3) whether the negligence penalty is applicable.

Petitioners resided in Philadelphia, Pennsylvania, at the time

the petition was filed and during the year at issue.

     The facts may be summarized as follows.   Petitioner Flora M.

Swaringer (Mrs. Swaringer) was employed as a secretary and was

paid a salary of $44,271 in 1995.   Petitioner was the pastor of

the United House of Prayer for All People (the church) in New

York, New York.   The parties stipulated that petitioner was not

an employee of the church and was self-employed.   Petitioner was

paid from the “offerings” of the congregation.   On Schedule C,

Profit or Loss From Business, relating to petitioner’s ministry,

petitioners reported $28,600 as income from the church.   Neither

petitioners nor the church maintained records of the “offerings”.

Respondent used a so-called bank deposits analysis to verify

petitioners’ income.   That analysis showed the following:



2
     Petitioners concede that they failed to report dividend
income of $629. Respondent concedes that the unreported income
should be reduced by $2,343 resulting from nontaxable bank
transfers.
                                 - 3 -

     Bank deposits                                 $94,013

     Less:
     Mrs. Swaringer’s deposits     $31,280
     Schedule C--Gross income       28,600
     Bank loan                       4,000
     Reimbursement from the church   5,817
                                                    69,697

     Unexplained bank deposits                     $24,316

     Respondent’s concession reduces the unexplained bank

deposits amount by $2,343.    Petitioner testified that, of the

remaining unexplained bank deposits, $1,000 was a loan from one

Robin Oliver and the remainder constituted nontaxable gifts from

parishioners of the church.    According to petitioner, on

occasions such as his birthday, Father’s Day, and Christmas,

parishioners would give him money as gifts.

     On Schedule C petitioners claimed deductions of $24,574 with

regard to petitioner’s activity as a minister.       Of this amount,

respondent disallowed $19,271.       The following schedule shows the

amounts claimed and disallowed:

     Expenses            Claimed         Allowed   Disallowed

     Advertising               $79         $79       -0-
     Automobile              9,294       1,328     $7,966
     Office                    125         125       -0-
     Repairs                 1,179       1,179       -0-
     Licenses                  443         443       -0-
     Travel                  2,100         649      1,451
     Meals                   1,560         500      1,060
                                - 4 -

     Utilities            2,034            -0-   2,034
     Robes, etc.          3,000            500   2,500
     Dry Cleaning         1,900            500   1,400
                                                 1
     Tithes               2,860            -0-     2,860
     1
       In the notice of deficiency respondent allowed petitioners
an additional $5,547 as charitable contributions on Schedule A,
Itemized Deductions, which includes the amount petitioners
claimed on Schedule C as tithes.

                              Discussion

A. Unreported Income

     Initially, we note that it appears that the bank deposits

analysis should be modified to reflect the dividend income ($629)

that petitioners concede was not reported on their return.    We

also accept petitioner’s testimony that the analysis should be

modified to reflect the money borrowed ($1,000) from Robin

Oliver.

     With respect to the balance of the unexplained bank

deposits, petitioners argue that these funds are nontaxable gifts

from various unspecified members of the church.     Section 102(a)

provides that “Gross income does not include the value of

property acquired by gift”.    Neither the Code nor the regulations

define a gift for the purposes of section 102.     In Commissioner

v. Duberstein, 363 U.S. 278, 285-286 (1960), the Supreme Court

summarized the case law regarding whether amounts received were

gifts within the meaning of section 102 as follows:

     The mere absence of a legal or moral obligation to make such
     a payment does not establish that it is a gift. And,
     importantly, if the payment proceeds primarily from “the
     constraining force of any moral or legal duty”, or from “the
                               - 5 -

     incentive of anticipated benefit” of an economic nature, it
     is not a gift. And, conversely, “[w]here the payment is in
     return for services rendered, it is irrelevant that the
     donor derives no economic benefit from it.” A gift in the
     statutory sense, on the other hand, proceeds from a
     “detached and disinterested generosity,” “out of affection,
     respect, admiration, charity or like impulses.” And in this
     regard, the most critical consideration * * * is the
     transferor’s “intention.” * * *

          * * * The donor’s characterization of his action is not
     determinative–-that there must be an objective inquiry as to
     whether what is called a gift amounts to it in reality. It
     scarcely needs adding that the parties’ expectations or
     hopes as to the tax treatment of their conduct * * * [has]
     nothing to do with the matter.

          * * * The proper criterion * * * is one that inquires
     what the basic reason for * * * [the donor’s] conduct was in
     fact--the dominant reason that explains his action in making
     the transfer. * * * [Fn. refs. and citations omitted.]

     Petitioners have the burden of establishing that the amounts

in dispute constituted nontaxable gifts.   See Rule 142(a).   The

fundamental problem with petitioners’ case is that we have no

evidence as to the dominant reason for the transfers.   Instead,

all we have is petitioner’s characterization of the transfers as

gifts, which in itself has little or no evidentiary value.

     On the other hand, the evidence that we do have strongly

suggests that the transfers were not gifts within the meaning of

section 102(a).   The transfers arose out of petitioner’s

relationship with the members of his congregation presumably

because they believed he was a good minister and they wanted to

reward him.   Furthermore, petitioner testified that without the

gifts his activity as a minister was essentially a money losing
                                 - 6 -

activity.    In short, as petitioner recognized, the so-called

gifts were a part of the compensation he received for being a

minister.    As such, the transfers are not excludable from income

under section 102(a).    See Goodwin v. United States, 67 F.3d 149

(8th Cir. 1995); Webber v. Commissioner, 219 F.2d 834 (10th Cir.

1955), affg. 21 T.C. 742 (1954); Banks v. Commissioner, T.C.

Memo. 1991-641.

B. Schedule C Expenses

     Section 162(a) allows deductions for ordinary and necessary

expenses paid or incurred in carrying on any trade or business

including travel expenses while away from home.    The taxpayer has

the burden of establishing that such expenses were paid or

incurred.    See Welch v. Helvering, 290 U.S. 111 (1933).   In

addition, certain other provisions mandate that a taxpayer

maintain specific records concerning certain types of expenses.

See sec. 274.     With these principles in mind we turn to the

expenses claimed and in dispute here.

     1.     Automobile.--Petitioners claimed a deduction of $9,294

for automobile expenses.    Respondent disallowed $7,966 of that

amount.   The deduction claimed was based on the number of miles

allegedly driven in connection with petitioner’s ministry.

Section 274(d)(4) provides that no deduction shall be allowed

with respect to “listed property” unless certain substantiation

rules are met.    Listed property includes any passenger
                                - 7 -

automobile.   See sec. 280F(d)(4)(A)(i).   To meet these

requirements petitioner must substantiate the amount of the

business use and total use of the automobile, the time of the use

of the automobile, and the business purpose for the use.    See

sec. 1.274-5T(b)(6), Temporary Income Tax Regs., 50 Fed. Reg.

46016 (Nov. 6, 1985).    Petitioner must maintain adequate records

such as a log, diary, or trip sheet.    See sec. 1.274-5T(c),

Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).

     Petitioner’s records consist of a document prepared by his

secretary after the end of the year that contains headings as to

the date of travel, the place of travel, the general purpose of

the travel, and the mileage.    There are, however, many problems

with the information contained in that document.    It contains

petitioner’s transportation to and from his residence

(Philadelphia) and his place of business (New York), which

represents personal commuting and not deductible expenses.      See

Holmes v. Commissioner, T.C. Memo. 1993-387.    It also contains a

trip to Los Angeles, California, that petitioner admits was

erroneous.    There are trips listed for which the stated mileage

is obviously wrong.3    Furthermore, the reasons stated for the


3
     The one-way mileage from Baltimore, Maryland, to
Spartanburg, South Carolina, is approximately 525. Petitioner’s
records indicate that the mileage is 1,135. The records also
indicate that the mileage from Philadelphia, Pennsylvania, to
Miami, Florida, is 5,700. The actual mileage is approximately
2,600. It is clear that petitioner did not intend to list
                                                   (continued...)
                                - 8 -

travel lack any specificity.4   In short, we do not find that

petitioner’s records satisfy the requirements of section 274(d).

We sustain respondent’s determination as to the automobile

expenses.

     2.   Travel and Meals.--Petitioners claimed deductions of

$2,100 and $1,560 for travel and meals, respectively.   Respondent

allowed $649 and $500, respectively.    As to the travel, section

274(d) requires that travel expenses be substantiated by evidence

establishing the amount of the expense, the business purpose for

the travel, and the time and place of the travel.   Petitioners

introduced no receipts or other evidence to show the amounts paid

or the business purpose of the travel.   With respect to the

meals, petitioner contends that he is entitled to use the so-

called per diem substantiation.   See Rev. Proc. 94-77, 1994-2

C.B. 825.   But, to use the per diem method in lieu of strict

substantiation, a taxpayer still must “[substantiate] the

elements of time, place, and business purpose of the travel

expenses in accordance with” the regulations under section

274(d).   Rev. Proc. 94-77, sec. 4.03, 1994-2 C.B. at 827; see

Reynolds v. Commissioner, T.C. Memo. 2000-20.    As we have noted,



3
 (...continued)
roundtrip mileage.
4
     Petitioner’s records state that the reason for many of the
trips was to attend a “Conference” without any description of the
nature of the conference.
                                 - 9 -

petitioners have not satisfied this requirement.      We sustain

respondent’s determinations.

     3.   Utilities.--Petitioners claimed a deduction of $2,034

for utilities which respondent disallowed in full.      As we

understand, the deduction claimed was for telephone expenses

incurred on petitioners’ home telephone.      Petitioners have no

records substantiating these expenditures as expenses incurred in

petitioner’s trade or business.    They apparently did not keep the

monthly telephone statements.    Petitioners could have, but did

not, obtain copies of statements from the telephone company.        In

addition, the cost of basic local telephone service with respect

to the first telephone line is a personal expense and is not

deductible.   See sec. 262(b).   We sustain respondent’s

disallowance of the deduction.

     4.   Robes and Dry Cleaning.--Petitioners claimed deductions

of $4,900 for robes and dry cleaning.      Respondent allowed $1,000

for these items.   Petitioner claims that, because of the nature

of his employment, he was required to wear business suits that he

would not otherwise have worn.    But, even if this were correct,

the cost of clothing is only deductible if the clothing is of a

type specifically required as a condition of employment and is

not adaptable as ordinary clothing.      This rule also applies to

the maintenance of such clothing.    See Pevsner v. Commissioner,

628 F.2d 467 (5th Cir. 1980); Kalms v. Commissioner, T.C. Memo.
                              - 10 -

1992-394.   There is no indication in the record that the amounts

disallowed were for clothing that could not be worn in an

ordinary way.   Respondent’s determinations are sustained.

     5.   Negligence.--Respondent determined that the omission

from income of the so-called “gifts” and the deductions claimed

on the Schedule C were due to negligence and that the penalty

under section 6662(a) is applicable.     Section 6662(a) imposes a

penalty with respect “to any portion of an underpayment of tax

required to be shown on a return” in an amount “equal to 20

percent of the portion of the underpayment to which this section

applies.”   Section 6662 applies, inter alia, to underpayments

attributable to negligence or disregard of rules or regulations.

See sec. 6662(b)(1).   “Negligence” includes any failure to make a

reasonable attempt to comply with the provisions of the Internal

Revenue Code, and “disregard” includes any careless, reckless, or

intentional disregard.   Sec. 6662(c).    Negligence also includes

any failure by the taxpayer to keep adequate books and records or

to substantiate items properly.   See sec. 1.6662-3(b)(1), Income

Tax Regs.   Also, “‘Negligence is a lack of due care or the

failure to do what a reasonable and ordinarily prudent person

would do under the circumstances.’”      Freytag v. Commissioner, 89

T.C. 849, 887 (1987) (quoting Marcello v. Commissioner, 380 F.2d

499, 506 (5th Cir. 1967), affg. on this issue 43 T.C. 168 (1964)

and T.C. Memo. 1964-299), affd. 904 F.2d 1011 (5th Cir. 1990),
                              - 11 -

affd. on other grounds 501 U.S. 868 (1991).    The question then is

whether petitioners’ conduct meets the reasonably prudent person

standard.   See id.

     We do not believe that petitioners’ conduct meets this

standard.   The law surrounding the disputed items is not complex.

With respect to the claimed deductions, petitioners were required

to maintain records, which they failed to do.    Furthermore, there

is no indication that petitioners sought the advice of a

qualified tax advisor concerning any of the disputed items.    We

sustain respondent’s determination.

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                           Decision will be entered

                                      under Rule 155.
