                            T.C. Memo. 1996-503



                          UNITED STATES TAX COURT



          LES B. MARTIN AND MILLIE A. MARTIN, Petitioners v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 21214-93.                Filed November 7, 1996.



        Les B. Martin and Millie A. Martin, pro sese.

        T. Keith Fogg and Veena Luthra, for respondent.



                MEMORANDUM FINDINGS OF FACT AND OPINION


       JACOBS, Judge:     In a notice of deficiency, dated August 12,

1993,     respondent    determined   the   following   deficiencies   and

penalties with respect to petitioners' Federal income taxes:

                                     Accuracy-Related Penalty
Year         Deficiency                  Sec. 6662(a)
1989         $12,672                          $2,399
1990           9,276                           1,855
                                    -2-

     Following concessions by the parties, the issues for decision

are: (1) Whether petitioners properly deducted as job expenses and

other miscellaneous deductions on Schedule A (itemized deductions)

of their 1989 tax return: $3,272 in moving expenses, $5,020 for

country club dues and expenses, $14,542 in unreimbursed employee

business expenses, $2,101 in investment expenses, $15,355 in job-

search expenses, and $3,612 for tax-work (audit) expenses; (2)

whether    petitioners   properly   deducted     $11,540   as   Schedule   C

business   expenses   for   1989;   (3)    whether   petitioners   properly

deducted miscellaneous expenses totaling $7,174 on Schedule A of

their 1990 tax return; (4) whether petitioners properly deducted

$12,489 as business expenses on Schedule C of their 1990 tax

return; and (5) whether petitioners are liable for the accuracy-

related penalty under section 6662(a) for 1989 and 1990.

     All section references are to the Internal Revenue Code for

the years under consideration.      All Rule references are to the Tax

Court Rules of Practice and Procedure.           All dollar amounts have

been rounded.

                            FINDINGS OF FACT

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

stipulation of facts and the attached exhibits are incorporated

herein by this reference.

     Petitioners, husband and wife, resided in Charlottesville,

Virginia, at the time they filed their petition.         They timely filed

joint returns for 1989 and 1990.          They submitted amended 1989 and
                                  -3-

1990 tax returns (Form 1040X) to respondent's counsel on August 26,

1995, which was approximately 10 days prior to trial.

        In January 1987, Mr. Martin accepted employment with Woodhead

Industries, Inc. (Woodhead), as president of Aero-Motive Co. (Aero-

Motive), a subsidiary of Woodhead.         As such, Mr. Martin was

responsible for overseeing a 250-person, $25 million manufacturing

plant in Kalamazoo, Michigan.     He was hired to "do a turnaround and

save the company."     Prior to accepting employment with Woodhead,

Mr. Martin worked for Allen Bradley Co. in Cleveland, Ohio.

     Mr. Martin was relieved of his duties as president of Aero-

Motive on September 20, 1989; he remained in Woodhead's employ, as

a consultant, until June 8, 1990.          As part of Mr. Martin's

severance package, Woodhead agreed to continue paying Mr. Martin

from June 8, 1990, until September 7, 1990, in the event he found

no other employment during that period of time.

Moving Expenses

        In January 1987, Mr. Martin moved from Cleveland to Kalamazoo,

living in an apartment made available to him by Woodhead (the

company apartment).     Mrs. Martin joined her husband in Kalamazoo

following the sale of their house in Cleveland in April or May of

1987.     Because Mrs. Martin brought the family pets (a dog and a

cat) with her to Kalamazoo, petitioners were required to move from

the company apartment to another apartment.        The furniture and

personal belongings of the Martins were shipped from Cleveland to

Kalamazoo at the time Mrs. Martin joined her husband; most of the
                                     -4-

furnishings and belongings were placed in storage.          Woodhead paid

approximately $1,700 of the expenses of shipping; Mr. Martin paid

the expenses incurred in moving from the company apartment to the

second apartment.      The record does not reveal the year in which

Woodhead paid the $1,700, but apparently the $1,700 was reported on

Mr. Martin's Form W-2 in the year paid.

      Petitioners purchased a house in Kalamazoo that required

refurbishing.      Refurbishing was completed in 1989; thereafter,

petitioners moved into the refurbished house.

      On Schedule A of their 1989 return, petitioners claimed $3,272

in moving expenses. The moving expenses were for costs incurred in

1989 in moving petitioners' furniture and belongings from storage

and   their    apartment   to   petitioners'   newly   refurbished    house.

Respondent disallowed this deduction claiming (1) the expenses

incurred were not reasonably proximate in time to the commencement

of Mr. Martin's employment with Woodhead, and (2) the storage

expenses were not in-transit storage expenses.

Unreimbursed Employee Business Expenses

      On Schedule A of their 1989 return, petitioners claimed

$19,562 in unreimbursed employee business expenses.                  Of this

amount, $5,020 was for membership fees and expenses in Gull Lake

Country Club (the country club) paid for by Woodhead and reported

on Mr. Martin's 1989 Form W-2.1      Mr. Martin joined the country club

      1
              Because Woodhead paid the country club fees and
                                                       (continued...)
                                           -5-

in July 1989, and resigned in December 1989, when it was apparent

that his position as president of Aero-Motive would be terminated.

Approximately $5,000 of the country club expenses represents an

initiation         fee;   the    balance     is   for     client   entertainment.

Respondent disallowed the deduction for country club fees and

expenses claiming (1) the membership fees are a capital expenditure

and (2) they are not ordinary and necessary business expenses.

       On petitioners' amended 1989 tax return, the amount claimed as

unreimbursed employee business expenses, other than country club

fees and expenses, was reduced from $14,542 ($19,562 - $5,020) to

$1,936.       At   trial and in their posttrial brief, petitioners state

they are willing to concede 60 percent of the $1,936, so that now

they       claim   $774   for   unreimbursed      employee   business    expenses.

Respondent         disallowed   the   deduction     for   unreimbursed    employee

business expenses claiming (1) petitioners failed to substantiate

these expenses and (2) petitioners did not prove Mr. Martin's

employer would have denied reimbursement for these expenses had Mr.

Martin sought it.

Investment Expenses

       On Schedule A of their 1989 return, petitioners deducted

$2,101 as investment expenses.              On petitioners' amended 1989 tax


       1
      (...continued)
expenses and reported the payment as income to Mr. Martin on his
W-2, the claimed deduction for the country club fees and expenses
should have been characterized as "other expenses" rather than
unreimbursed employee business expenses.
                                    -6-

return, the amount claimed as investment expenses was reduced to

$872.    At trial and in their posttrial brief, petitioners state

they are willing to concede 40 percent of the $872, so that now

they claim $349 for investment expenses.        The investment expenses

were    incurred   with   respect    to   Mr.   Martin's   investigating

petitioners' possible purchase of stock in publicly held companies.

Respondent disallowed this deduction primarily on the basis of

petitioners' failure to substantiate, and on the alternative basis

that even if the expenses are substantiated, they were incurred in

connection with searching for or acquiring new investments and

should be added to the basis of the stock acquired.

Job-Search Expenses

       On Schedule A of their 1989 return, petitioners claimed

$15,355 in job-search expenses. These expenses were incurred prior

to and following the termination of Mr. Martin's position as

president of Aero-Motive.     At trial and in their posttrial brief,

petitioners state they are willing to concede 40 percent of the

$15,355, so that now they claim $9,213 for job-search expenses.

Respondent disallowed this deduction on the basis of petitioners'

failure to substantiate and petitioners' failure to show the

business purpose of the expenditures.

Tax-Work Expenses

       On Schedule A of their 1989 return, petitioners claimed $3,612

in tax-work (audit) expenses. The expenses are for travel to their

attorney's office and related activities relative to prior years'
                                      -7-

taxes. On petitioners' amended 1989 tax return, the amount claimed

for tax-work expenses was reduced to $1,800.            At trial and in their

posttrial brief, petitioners state they are willing to concede 60

percent   of   the    $1,800,   so   now    they   claim    $720   for   tax-work

expenses.      Respondent disallowed this deduction on the basis of

failure to substantiate.

Schedule C Expenses

     After Mr. Martin was relieved of his duties as president of

Aero-Motive,     he   started   a    consulting    business      known    as   M.L.

Associates.

     During 1989 and 1990, and for 6 or 7 years prior thereto, Mrs.

Martin operated a business, known as MAM Leasing-R.E., that leased

2 personal computers which had been acquired in 1983.               Starting in

1989, petitioners decided to change the business direction of MAM

Leasing-R.E. to that of real estate development. The Schedules C

filed   with    petitioners'    original      returns      for   1989    and   1990

aggregated the income and expenses of M.L. Associates and MAM

Leasing-R.E.      On petitioners' amended tax returns for 1989 and

1990, the income and expenses of M.L. Associates and MAM Leasing-

R.E. were separately reported on separate Schedules C.                  The income

and expenses reported on Schedules C of petitioners' original and

amended returns are as follows:


                         GROSS INCOME                   EXPENSES
                        1989      1990               1989      1990
Original Return       $ 1,778      -0-             $11,540    $12,489
Amended Return         40,840      -0-              21,774     13,297
                                    -8-

The increase in the amount of income for 1989 ($39,062) between

that reported on the amended return and that reported on the

original return is the gain (short-term) from the sale of Woodhead

stock   which   had    originally   been   reported   on     Schedule   D    of

petitioners' 1989 tax return.         At trial and in their posttrial

brief, petitioners state they are willing to concede 30 percent of

the expenses claimed on their amended returns, so that now they

claim expenses of $15,241 for 1989 and $9,308 for 1990.                     The

majority   of   these    expenses   represents     home    office   expenses

(including the purchase of furniture) and automobile expenses.

     Respondent disallowed this deduction on the ground that the

expenditures    were    not   ordinary     and   necessary    expenditures.

Further, as to those deductions claimed in connection with the use

of petitioners' residence as a home office, the deductions were

disallowed, in part, on the basis that some of the claimed expenses

were personal, and on the basis that petitioners failed to prove

their home office was used exclusively for business purposes.

Miscellaneous Itemized Deductions

     On Schedule A of their 1990 return, petitioners claimed $7,174

in miscellaneous itemized expenses. Apparently the majority of the

expenses with regard to this deduction consist of travel and meal

expenses in connection with Mr. Martin seeking new employment.               On

petitioners' amended 1990 tax return, the amount of the deduction

was increased to $7,176; no explanation was given for the $2

difference.     Respondent disallowed the deduction for lack of

substantiation.
                                         -9-

                                    OPINION

       Deductions are a matter of legislative grace.              New Colonial

Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).           Taxpayers bear the

burden of establishing that they are entitled to the claimed

deductions.     Rule 142(a); Welch v. Helvering, 290 U.S. 111, 114

(1933).    This includes the burden of substantiating the amount and

purpose of the item claimed.        Sec. 6001; Hradesky v. Commissioner,

65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th Cir.

1976); sec. 1.6001-1(a), Income Tax Regs.             If claimed deductions

are not adequately substantiated, we may estimate them, provided we

are convinced that the taxpayer has incurred such expenses and we

have   a   basis   upon     which   to    make   an   estimate.      Cohan    v.

Commissioner, 39 F.2d 540 (2d Cir. 1930); Vanicek v. Commissioner,

85 T.C. 731, 743 (1985).

Moving Expenses

       Section 217 permits a deduction for moving expenses paid or

incurred     during   the    taxable      year   in   connection    with     the

commencement of work by the taxpayer as an employee at a new

principal place of work.        To qualify as being in connection with

the commencement of work, the move must be reasonably proximate

both in time and place to the commencement of work at the new

workplace.    In general, moving expenses incurred within 1 year of

the commencement of work are considered to be reasonably proximate

in time to such commencement.            Moving expenses incurred after the

1-year period may be considered reasonably proximate in time if
                                        -10-

there are circumstances which prevented the taxpayer from incurring

the expenses of moving within the 1-year period.                           Sec. 1.217-

2(a)(3), Income Tax Regs.             Costs of storage are not deductible

unless    incurred   in    transit,         which   is   defined     as    within     any

consecutive 30-day period after the goods are moved from the

taxpayer's      former    residence     and     before      delivery      at   the    new

residence.      Sec. 1.217-2(b)(3), Income Tax Regs.

     Petitioners moved from Cleveland to Kalamazoo in early 1987,

when Mr. Martin began a new job.                    Petitioners claim a $3,273

deduction for moving expenses that were incurred in 1989.                           We do

not believe that these expenses were reasonably proximate in time

to the commencement of Mr. Martin's new employment in Kalamazoo.

Petitioners     claim    that   there       were    circumstances         beyond    their

control which dictated the amount of time for the move:                        (1) The

local    real   estate    market      was    very   tight    and    no     houses    were

available, and (2) business related job activities required all of

Mr. Martin's time.        We have considered these arguments and reject

them.    There was no showing that a suitable house in the Kalamazoo

area could not have been acquired within a 1-year period, and

although    Mr.   Martin's      job    activities        might     have    required     a

substantial portion of his time, there was no showing that Mrs.

Martin could not have looked for suitable housing.                        Further, the

expenses of moving the goods from storage to petitioners' newly

refurbished house were not incurred in transit, but rather are

storage related expenses.             Therefore, respondent's determination
                                           -11-

with respect to the disallowance of the deduction for moving

expenses is sustained.

Employee Business Expenses

      We now turn our attention to petitioners' deduction for

employee business expenses. Pursuant to section 162(a), a taxpayer

may deduct all ordinary and necessary expenses paid or incurred

during the taxable year in carrying on a trade or business.                       In

general, an expense is ordinary if it is considered "normal, usual,

or customary" in the context of the particular business out of

which it arose.        Deputy v. duPont, 308 U.S. 488, 495-496 (1940).

The   term     "ordinary"      is   also     used   to    distinguish      currently

deductible     items    from     capital     expenditures.         Commissioner   v.

Tellier, 383 U.S. 687, 689-690 (1966).               An expense is necessary if

it is appropriate and helpful to the operation of the taxpayer's

trade or business.          Carbine v. Commissioner, 83 T.C. 356, 363

(1984),      affd.    777   F.2d    662     (11th   Cir.    1985);     Heineman   v.

Commissioner, 82 T.C. 538, 543 (1984).                   Only the portion of an

expense that is reasonable in amount is deductible under section

162. United States v. Haskel Engg & Supply Co., 380 F.2d 786, 788-

789 (9th Cir. 1967).

      Petitioners deducted $5,020 for membership fees and expenses

in Gull Lake Country Club.           Mr. Martin was an active member of the

country club from July to December 1989. Mr. Martin testified that

he    joined    the    country      club    only    because   he     was   "strongly

encouraged" to do so in connection with his employment. He further
                                 -12-

testified that he and his wife never belonged to a country club

prior to the time he joined Gull Lake Country Club and have not

belonged to one since.       He used the country club solely to

entertain business customers, and never on social occasions; his

wife and family never used the facilities of the club.   Mr. Martin

further testified:

     frankly, Mrs. Martin did not want to join a country club.
     We're not country club type people and she was very much
     against it, always has been against it, still is against
     it * * * But after I received some pressure, I said,
     hey, it's going to be one way or the other, so I'll join
     and we'll try it. And I finally joined it.

We found Mr. Martin's testimony in this regard to be credible.



     Respondent argues that a one-time club membership is not

currently deductible, but is a capital expenditure.      Mercantile

Natl. Bank v. Commissioner, 30 T.C. 84 (1958), affd. 276 F.2d 58

(5th Cir. 1960).     As a general proposition, we agree that a one-

time club membership fee is a capital expenditure because the

benefits of the payment will last beyond a 1-year period. However,

here, Mr. Martin both joined and terminated   his membership in the

country club in 1989.

     Because we find that Mr. Martin's expenses and fees in the

country club were business expenses, and because Mr. Martin both

joined and terminated his country club membership in the same year,

we hold that petitioners are entitled to a deduction of $5,020 on

Schedule A of their 1989 tax return.
                               -13-

     Petitioners also claim for 1989 $774 as a deduction for

unreimbursed employee business expenses.   These expenses are for

"[taking] employees for refreshments after work to summarize the

events from the day and plan the next day".

     Ordinary and necessary business expenses generally may not be

deducted under section 162(a) if reimbursement is available from a

taxpayer's employer.   Lucas v. Commissioner, 79 T.C. 1, 7 (1982).

Mr. Martin testified that most of the expenses he incurred for

taking employees for refreshments after work were submitted to and

reimbursed by his employer, but that he was required to "pocket

[the claimed expenses] because of budget constraints". Petitioners

presented no other evidence in this regard.



     We are not convinced that had Mr. Martin sought reimbursement

for the claimed "pocketed" expenses in 1989, his request would have

been denied.   Accordingly, except for the country club fees and

expenses, we sustain respondent's disallowance of petitioners'

claimed deductions for unreimbursed employee business expenses for

1989.

Investment Expenses

     The next matter for our attention is whether petitioners are

entitled to deduct $348 in investment expenses for 1989. The

expenses were incurred in Mr. Martin's investigating publicly held

companies with a view towards the possible purchase of their stock.

Respondent disallowed a deduction for these costs on the ground
                                 -14-

that they are nondeductible capital expenditures, to be added to

the basis of the stock acquired.     Wagner v. Commissioner, 78 T.C.

910, 915 (1982).    Petitioners failed to show error in respondent's

determination.     Thus, we sustain respondent's disallowance of the

deduction for investment expenses.

Job-Search Expenses

     Petitioners claim entitlement to deduct in 1989 $9,213 in job-

search expenses.      Although respondent argued that petitioners

failed to show the business purposes of these expenditures, Mr.

Martin testified that when he realized that his position with Aero-

Motive was in jeopardy, he began to look for other work.         We

believe him, but we do not find that the entire amount of job-

search expenses that petitioners claim is deductible.



     A review of petitioners' receipts shows a number of items that

are not ordinary and necessary expenses, as required by section

162(a).   For instance, petitioners submitted receipts for the

purchase of People magazine and the Enquirer, and for gifts to

friends visited by petitioners.     There is a $65 check payable to

Video Land, with no notation as to its purpose.     Petitioners also

submitted receipts for the purchase of insecticide, charcoal, and

charcoal starter.

     Based on the record presented, and using our best estimate, we

find, and thus hold, that petitioners are entitled to a deduction

for job-search expenses in the amount of $8,000 for 1989.
                                        -15-

Tax-Work Expenses

      Petitioners now claim entitlement to deduct $720 as tax-work

(audit) expenses for 1989.           Most of these expenses are for travel

to   petitioners'     attorney's       office    and    related    activities     for

earlier    years.         Respondent    argues    that      petitioners    did    not

substantiate mileage expenses as required by section 274(d).2                      We

agree     with    respondent;     accordingly,         we   sustain    respondent's

disallowance of the deduction for tax-work (audit) expenses.

Schedule C Expenses

      Petitioners originally claimed a $9,763 Schedule C business

loss for     1989,    that     resulted   from    their     claiming    $11,540    in

business expenses and $1,778 in income.                     The statutory notice

disallowed       $9,361   of   the   expenses     claimed     as   a   section    179

deduction.3       On their original 1989 return, petitioners claimed

$12,860 in expenses relating to the business of Mr. Martin.                        On

their amended 1989 return, petitioners claimed $12,860 in expenses

relating to the business of Mr. Martin and $8,914 in expenses



      2
          The requirements imposed by sec. 274(d) are in addition
to those of sec. 162. Furthermore, in the case of travel
expenses, sec. 274(d) overrides the Court's ability to
approximate a taxpayer's allowable expenses under the Cohan
doctrine. Sanford v. Commissioner, 50 T.C. 823, 826-828 (1968),
affd. per curiam 412 F.2d 201 (2d Cir. 1969).
      3
          Sec. 179(a), in general, allows a taxpayer to elect to
expense the cost of certain property (known as sec. 179 property)
for the taxable year in which the property is placed in service.
In general, sec. 179 property is tangible property used in the
active conduct of a taxpayer's trade or business that would be
subject to depreciation but for the election.
                                    -16-

relating to the business of Mrs. Martin.          Thus, the total expenses

petitioners claimed for 1989 on their amended return for both

businesses was $21,774.        Respondent contends that petitioners

should be allowed no Schedule C expenses for the year 1989 other

than those expenses already allowed by respondent in the statutory

notice.

     Petitioners originally claimed a $12,489 Schedule C business

loss for 1990 that resulted from their claiming $12,489 in business

expenses and no gross receipts.          The statutory notice disallowed

all of the claimed expenses.             On their amended 1990 return,

petitioners claimed $8,349 in expenses relating to the business of

Mr. Martin, and $4,948 in expenses relating to the business of Mrs.

Martin.   Thus, the total expenses petitioners claimed for 1990 on

their amended return for both businesses was $13,297.            Respondent

contends that petitioners are entitled to no Schedule C expenses

for 1990.

     Petitioner   and   Mrs.    Martin     each   claimed   a   home   office

deduction.   Respondent contends that with respect to 1989, Mr.

Martin used his office until September 20, 1989, both for his

consulting   business   and    as   an   employee,   thus   violating    the

exclusive-use requirement of section 280A(c)(1) because his use of

a home office as an employee was not for the convenience of his

employer.4



     4
          Mr. Martin used his claimed home office in connection
with his work as president of Aero-Motive until Sept. 20, 1989.
                                     -17-

      Respondent also argues that many of the expenses petitioners

are claiming for business appear to be household expenses, and that

they did not prove that these expenses are ordinary and necessary

business expenses.     For example, Mr. Martin claimed expenses for

plumbing, installing a fireplace door, snow removal, pest spraying,

and repair and maintenance of a deck. Mrs. Martin claimed expenses

for sewage and garbage collection and stress training.            Respondent

also argues that most of the furniture Mr. Martin purchased for his

home office was more of a personal nature than for business.

Respondent notes that       Mr. Martin had no income from his Schedule

C activity during 1989 and 1990.

      Section 262 denies a deduction for any personal, living, or

family expenses. With respect to deductions under section 162, the

taxpayer bears the burden of proving that an expense was incurred

for   business,   rather     than    personal    reasons.       Walliser   v.

Commissioner, 72 T.C. 433, 437 (1979).          Specifically, the taxpayer

must show that the expense was incurred primarily to benefit

his/her business, and there must be a proximate, rather than a

remote or incidental, relationship between the claimed expenses and

the taxpayer's business.       Id.     In the instant case, petitioners

failed to substantiate that some of the claimed expenses were

incurred   primarily   to    benefit    their    Schedule   C    businesses.

Further, we do not find that petitioners used (as required by sec.

280A(c)) that portion of their residence claimed as a home office

either (a) as the principal place of business for their claimed
                                           -18-

business activities, or (b) as a place of business to meet or deal

with       clients.       Moreover,   petitioners      have      not   satisfied   the

limitation of section 280A(c)(5), which provides that the amount of

the home office deduction is limited to the excess of the gross

income generated from the business activity conducted in the home

office, less all other deductible expenses attributable to such

activity which are not allocable to the use of the home office

itself.       In other words, the deduction may not create or increase

a   net     loss   from    the   business    activity       to   which   it   relates.

Grinalds v. Commissioner, T.C. Memo. 1993-66 (citing H. Rept. 99-

426, at 134-135 (1985), 1986-3 C.B. (Vol. 2) 135).                     In the instant

case, Mr. Martin derived no income from his consulting business in

1989 or 19905 and Mrs. Martin only derived $1,778 in 1989 from her

Schedule C activity and no income for 1990.

       Petitioners also claim entitlement to a business deduction for

the use       of   their    1988   Honda    Accord    for    business    activities.

Petitioners both testified that their 1988 Honda was used almost

exclusively for business.             However, on the application for the

insurance policy on the automobile, petitioners stated the car was

used for pleasure and not for business.               In this regard, we do not

find petitioners' testimony credible.                In sum, petitioners are not



       5
          Mr. Martin contends his income from Woodhead from the
time he was relieved as president of Aero-Motive in September
1989 until September 1990, should be characterized as Schedule C
income. We disagree. Mr. Martin received a W-2 with respect to
his income, which petitioners reported as wages on their original
1989 and 1990 tax returns.
                                    -19-

entitled to a deduction for any of the claimed Schedule C expenses

for 1989 or 1990, except to the extent allowed in the statutory

notice of deficiency.

Miscellaneous Itemized Deductions

     For 1990, petitioners claimed $7,176 of miscellaneous itemized

deductions.       Petitioners    provided    no    documentary      evidence    to

support   their    conclusory    testimony       that   they    incurred   these

deductions. Although sworn testimony may suffice as proof, when it

is so general and conclusory in character (as it was here), it will

not be sufficient to satisfy petitioners' burden of proof.                     See

Hearn v. Commissioner, 36 T.C. 672, 673-674 (1961), affd. 309 F.2d

431 (9th Cir. 1962).

     In addition, since the majority of these expenses are for

travel    and   entertainment,     they    are    subject      to   the   special

substantiation provisions of section 274(d), and hence normally can

not be substantiated by testimony alone.           Consequently, we sustain

respondent's disallowance of petitioner's claimed deduction in 1990

for miscellaneous itemized deductions.

Accuracy-Related Penalty

     Finally, we must decide whether petitioners are liable for the

accuracy-related penalty under section 6662(a) for 1989 and 1990.

Section 6662 imposes a penalty equal to 20 percent of the portion

of the underpayment that is attributable to negligence or disregard

of rules or regulations.        Sec. 6662(a) and (b)(1).
                                       -20-

     Negligence is defined as the failure to exercise the due care

that a reasonable, prudent person would exercise under similar

circumstances.      Zmuda v. Commissioner, 731 F.2d 1417, 1422 (9th

Cir. 1984), affg. 79 T.C. 714 (1982); Neely v. Commissioner, 85

T.C. 934, 947 (1985).       A taxpayer has the burden of proving that

respondent's determination is in error.                Rule 142(a); Luman v.

Commissioner, 79 T.C. 846, 860-861 (1982).

     Petitioners     claimed     numerous      Schedule    A   and    Schedule   C

expenses    on   their   1989    and    1990    returns.       At    trial,    they

substantially reduced the amount of the deduction for most of these

expenses.    For the most part, their documentation to substantiate

these expenses was lacking.             Indeed, petitioners presented no

documentary      evidence   to   support       their   claim    of    $7,174     in

miscellaneous itemized deductions for 1990.

     Considering all the facts, we find that petitioners were

negligent and disregarded rules and regulations in preparing their

1989 and 1990 returns. Thus, we sustain respondent's determination

that petitioners are liable for the accuracy-related penalty on the

amount of the underpayment for 1989 and 1990.

            To reflect the foregoing,


                                                   Decision will be entered

                                              under Rule 155.
-21-
