                        T.C. Memo. 1998-414



                      UNITED STATES TAX COURT



                GREGORY C. WELTON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5035-97.                Filed November 17, 1998.



     Gregory C. Welton, pro se.

     Steven L. Walker, for respondent.



                        MEMORANDUM OPINION


     FOLEY, Judge:   In a notice of deficiency issued to Gregory

C. Welton on December 13, 1996, respondent determined a $53,692

deficiency in, and a $9,506 section 6662(a) penalty relating to,

Mr. Welton's 1994 Federal income tax.    All section references are

to the Internal Revenue Code in effect for the year in issue, and
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all Rule references are to the Tax Court Rules of Practice and

Procedure.   Mr. Welton resided in Solvang, California, at the

time his petition was filed.

     After concessions, the only remaining issues are whether

expenses reported on Mr. Welton's 1994 Schedule C (Profit or Loss

From Business) are deductible and whether Mr. Welton is liable

for an accuracy-related penalty pursuant to section 6662(a).     Mr.

Welton contends that he is involved in numerous business

activities (i.e., investing in securities, developing and selling

software, and selling real estate) and that he is allowed to

deduct the expenses reported on his Schedule C.    Respondent

disallowed these expenses.

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

or business may deduct all ordinary and necessary expenses.     A

taxpayer who is not engaged in a trade or business may deduct,

pursuant to section 212, ordinary and necessary expenses paid or

incurred in producing or collecting income.    An expenditure is

not "ordinary and necessary" unless the taxpayer establishes that

it is directly connected with, or proximately related to, the

taxpayer's activities.    See Bingham's Trust v. Commissioner, 325

U.S. 365, 370 (1945).    Mr. Welton established that he incurred

some of the disallowed expenses.    His testimony and the evidence

he presented, however, did not establish that his reported
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expenses related to a trade or business, or income-producing

activity.   Accordingly, we sustain respondent's determination.

     Respondent determined that Mr. Welton is liable for an

accuracy-related penalty pursuant to section 6662(a).       The

penalty applies to any portion of Mr. Welton's underpayment that

is attributable to negligence or disregard of the rules or

regulations.   See sec. 6662(b)(1).      Mr. Welton failed to

establish that he exercised due care in reporting his expenses.

Accordingly, we sustain respondent's determination.

     Contentions that we have not addressed are either

irrelevant, moot, or meritless.

     To reflect the foregoing,


                                              Decision will be entered

                                         under Rule 155.
