                        T.C. Memo. 1998-33



                      UNITED STATES TAX COURT


                BENJAMIN H. SMITH, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 14945-96.                    Filed January 27, 1998.


     Benjamin H. Smith, pro se.

     Ron J. Mizrachi, for respondent.


                        MEMORANDUM OPINION

     PAJAK, Special Trial Judge:   This case was heard pursuant to

section 7443A(b)(3) of the Code and Rules 180, 181, and 182.     All

section references are to the Internal Revenue Code in effect for

the years in issue.   All Rule references are to the Tax Court

Rules of Practice and Procedure.

     Respondent determined deficiencies in and accuracy-related

penalties on petitioner's Federal income taxes as follows:
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                                 Accuracy-Related Penalty
Year             Deficiency           Sec. 6662(a)
1992               $3,122                $624
1993                3,138                 628

       The Court must decide:   (1) Whether petitioner is entitled

to deduct Schedule C expenses; (2) whether petitioner is entitled

to additional itemized deductions; (3) whether petitioner is

entitled to deduct rental expenses; and (4) whether petitioner is

liable for the accuracy-related penalties under section 6662(a).

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

Petitioner resided in New York, New York, when his petition was

filed.

       During the taxable years in issue, petitioner was a teacher

for the New York City Board of Education.    Petitioner also was an

attorney admitted to practice in the State of Connecticut.

Petitioner's solo law practice was located in Bridgeport,

Connecticut.    During 1992 and 1993, petitioner was involved in

the litigation of two civil cases on a contingency-fee basis.

One case involved a medical malpractice claim in which petitioner

claimed his client sought damages, and the case eventually was

settled for $70,000 in 1995.    The other case involved a personal

injury claim against the State of Connecticut.    The amount of

damages sought was $248,000.

       On his Form 1040, U.S. Individual Income Tax Return,

petitioner reported $32,281 in 1992 and $37,030 in 1993, in gross
                                -3-


income from his job as a teacher.     On his 1992 and 1993 Schedules

C, Profit or Loss From Business, petitioner reported total gross

receipts of $3 and $5, respectively, from his law practice, and

claimed business expenses of $29,351 and $28,587, respectively.

     Respondent disallowed the Schedules C expenses because

petitioner had not established that the expenses were ordinary

and necessary business expenses and that they were paid or

incurred.   Respondent's alternative position was that

petitioner's activity was "not engaged in for profit" within the

meaning of section 183.   Respondent also reduced petitioner's

taxable income by $8,556 for 1992 and $8,242 for 1993, because

petitioner's verified itemized deductions exceeded his standard

deductions as shown on his returns.    Finally, respondent

determined that petitioner was liable for the accuracy-related

penalties due to negligence.

     The Commissioner's determinations are presumed correct, and

the taxpayer bears the burden to prove that those determinations

are erroneous.   Rule 142(a); Welch v. Helvering, 290 U.S. 111,

115 (1933).   Deductions are strictly a matter of legislative

grace, and the taxpayer bears the burden to prove that he is

entitled to the deductions claimed.     INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v.

Helvering, 292 U.S. 435, 440 (1934).     Included within this burden
                                -4-


is the requirement that petitioner substantiate his claimed

deductions.   Hradesky v. Commissioner, 65 T.C. 87 (1975), affd.

per curiam 540 F.2d 821 (5th Cir. 1976).

     Section 6001 imposes upon every person liable for any tax a

duty to maintain records that are sufficient to enable the

Commissioner to determine the taxpayer's correct tax liability.

Meneguzzo v. Commissioner, 43 T.C. 824, 831 (1965); sec. 1.6001-

1(a), Income Tax Regs.

     Section 162(a) provides for the deduction of all ordinary

and necessary expenses paid or incurred during the taxable year

in carrying on a trade or business.   Only ordinary and necessary

business expenditures directly connected with or pertaining to

the taxpayer's trade or business are deductible from gross

income.   Sec. 1.162-1(a), Income Tax Regs.   Whether or not a

payment constitutes an ordinary and necessary business expense

is, in most instances, a question of fact.

     After a review of the record, we conclude that petitioner

failed to meet his burden of proof.   Petitioner failed to

produced any documentary or corroborative evidence to

substantiate that the claimed expenses were ordinary and

necessary, and that they were in fact paid or incurred in the

course of his law practice.
                                 -5-


     At trial, petitioner testified that the reason he could not

substantiate the expenses was that most of his records and

receipts had been destroyed.   Petitioner stated that the U-Haul

trailer, which contained most of his records and receipts, became

unhitched and overturned, destroying all of its contents.

     We note for the record that petitioner failed to produce any

evidence of the destruction of the trailer.     Notwithstanding the

lack of such evidence, we recognize that when a taxpayer's

records have been lost or destroyed through circumstances beyond

his control, he is entitled to substantiate a deduction by

reconstruction of his expenditures through other credible

evidence.   Watson v. Commissioner, T.C. Memo. 1988-29.     Absent

the availability of further documentation, although not required

to do so, this Court may accept credible testimony of a taxpayer.

Watson v. Commissioner, supra.

     On this record, we find that petitioner failed to provide

any information or credible testimony regarding the expenses

associated with his law practice.      Petitioner provided no

receipts, bills, journals, ledgers, canceled checks, or expense

statements.   Moreover, petitioner failed to reconstruct any

portion of his expenses.

     Instead, petitioner submitted to the Court copies of court

pleadings involving the litigation of his two civil cases.
                                  -6-


Petitioner argues that although he does not have any documents to

evidence the expenses, the fact that he represented two clients

in their protracted civil matters necessarily sustains the

legitimacy and accuracy of the claimed expenses.    Petitioner

claims the accuracy of these expenses is supported by the

extensive preparation, time, and energy involved, and the

expenditure of huge sums of money for expert testimony,

investigation, medical records, and research, in connection with

his cases.   We disagree.

     This Court has held that unverified oral testimony, with no

supporting documentary evidence is not enough.     Hradesky v.

Commissioner, supra.    We consider it incredulous that petitioner

could purportedly be so involved with the two civil cases, yet

cannot even produce any corroborative evidence to support the

expenses he allegedly incurred.     We are cognizant of the

difficulty petitioner may have in reconstructing his expenses.

However, petitioner did not even attempt to convince the Court

that he made any effort whatsoever to do so.     Petitioner claimed

that he expended huge sums of money, for example, to hire expert

witnesses to testify.   We are perplexed as to why he did not

secure the testimony or affidavits of those expert witnesses to

prove that he did pay for their services.
                                  -7-


     Petitioner also testified that he is a member of the State

of Connecticut Bar.   He further testified that he attended

Continuing Legal Education seminars, Connecticut Bar Association

seminars, and subscribed to the Connecticut Bar Journal.

However, petitioner failed to submit any corroborative evidence

regarding his dues or the costs of attending those seminars.

Again, petitioner offered no testimony that he even attempted to

reconstruct or obtain any receipts from those organizations.

     Petitioner raises Cohan v. Commissioner, 39 F.2d 540 (2d

Cir. 1930).   Petitioner argues that he is entitled to his claimed

expenses despite the absence of any certainty as to the exact

amount of those expenses.   We conclude that the so-called Cohan

rule has no application where, as here, the record lacks any

basis for estimation.   Vanicek v. Commissioner, 85 T.C. 731,

742-743 (1985).

     Given the lack of any substantiating evidence, we cannot

sustain any of petitioner's claimed expenses.     Accordingly, we

conclude that petitioner has not met his burden of proof for

either year at issue.   Respondent, therefore, is sustained.    We

need not decide respondent's alternative argument.

     We must next decide whether petitioner is entitled to

additional itemized deductions.     In the notice of deficiency,

respondent reduced petitioner's income by $8,556 and $8,242 for
                                 -8-


1992 and 1993, respectively, which represents the excess of

petitioner's verified itemized deductions of $12,156 and $11,942,

respectively, over the standard deductions claimed by petitioner

for those years.   Respondent concedes that during the Appeals

conference, respondent allowed itemized deductions in the total

amounts of $12,434 for 1992 and $12,273 for 1993.       However, the

following itemized deductions were disallowed due to lack of

     substantiation:

                                        1992          1993
Safe deposit rental                                 $   119
Moving expenses                                         800
Charitable contributions               $3,100         3,757
Casualty/theft loss                                  52,000
                                       ______       _______
Total                                  $3,100       $56,676

     On brief, petitioner mentioned without discussion the

additional itemized deductions issue, but did not address this

issue at trial.    Accordingly, we conclude that petitioner has

conceded this issue.    Petitioner is not entitled to any itemized

deductions other than those allowed by respondent.

     Even though petitioner had not claimed rental expenses on

his 1992 and 1993 returns, at trial he raised the issue that he

was entitled to claim rental expenses as a lessor for those two

years.    He admitted he rented the property for only two months in

1991.    He presented no credible evidence of any expenses for 1992

and 1993.    On this record, petitioner has failed to substantiate
                                 -9-


any expenses for the 2 years in question.     We find that

petitioner is not entitled to any rental deductions.

     Finally, we must decide whether petitioner is liable for the

accuracy-related penalties under section 6662(a).     Section

6662(a) imposes a penalty of 20 percent on any portion of an

underpayment of tax that is attributable to negligence or

disregard of rules or regulations.     Sec. 6662(a) and (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 failure by

the taxpayer to keep adequate books and records or to

substantiate items properly.   Sec. 1.6662-3(b)(1), Income Tax

Regs.   The penalty does not apply, however, to any portion of an

underpayment for which there was reasonable cause and with

respect to which the taxpayer acted in good faith.     Sec. 6664(c).

The determination of whether a taxpayer acted with reasonable

cause and in good faith is made on a case-by-case basis, taking

into consideration all of the relevant facts and circumstances.

Sec. 1.6664-4(b)(1), Income Tax Regs.     Reasonable cause and good

faith can be found in circumstances involving an honest

misunderstanding of fact or law that is reasonable in light of

the experience, knowledge, and education of the taxpayer.
                                 - 10 -


     On the facts before us, we conclude that petitioner has

failed to carry his burden of proof to establish that the

underpayment was due to reasonable cause and not negligence.

Petitioner has failed to maintain adequate books and records.

Further, he has failed to provide any documents or corroborative

evidence to substantiate any of the claimed expenses.        Petitioner

gave the Court no explanation as to why he did not make any

attempts to reconstruct any records or receipts.

     Petitioner is an attorney.     He claims he has been in private

practice for several years.   Although petitioner contends that he

lacks any proficiency with regard to the tax matters, we believe

that as a member of the legal profession, he should have

recognized the importance of substantiating his expenses.

Petitioner was given ample time and opportunity to procure and

reconstruct the necessary records and receipts.        Petitioner chose

not to do so.   Accordingly, petitioner is liable for the section

6662(a) accuracy-related penalties.

     To reflect the foregoing,

                                               Decision will be entered

                                          under Rule 155.
