                      T.C. Memo. 2000-13



                  UNITED STATES TAX COURT



      MARY T. KING AND FATAI O. KING, Petitioners v.
       COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8599-97.             Filed January 12, 2000.



     Fatai O. King, pro se.

     Carol-Lynn E. Moran, for respondent.



          MEMORANDUM FINDINGS OF FACT AND OPINION


     WHALEN, Judge:   Respondent determined the following

deficiency in, addition to, and penalty on petitioners'

Federal income tax for 1993:


                        Penalty and Addition to Tax
     Deficiency       Sec. 6651(a)(1)     Sec. 6662(a)

      $27,313              $2,736            $5,463
                              - 2 -

Unless stated otherwise, all section references are to the

Internal Revenue Code as in effect for the year in issue

and all Rule references are the Tax Court Rules of Practice

and Procedure.

       The issues for decision in this case involve

petitioners’ return for 1993.     After concessions, the

issues are:     (1) Whether petitioners are entitled to deduct

the Schedule C expenses claimed on their return in the

aggregate amount of $34,750 or the expenses allegedly

proven at trial in the aggregate amount of $39,403; (2)

whether petitioners are liable for the accuracy-related

penalty under section 6662(a); and, (3) whether petitioners

are liable for an addition to tax under section 6651(a)(1).

       Petitioners have prosecuted other cases before this

Court.    Their return for 1992 is the subject of King v.

Commissioner, T.C. Memo. 1998-69, and their return for 1994

is the subject of King v. Commissioner, T.C. Memo. 1999-

293.


                        FINDINGS OF FACT

       Petitioners are husband and wife who filed a joint

individual tax return for 1993.       At the time they filed the

petition in this case, petitioners resided in Wyndmoor,

Pennsylvania.    In this opinion, references to petitioner

are to Mr. Fatai O. King.
                             - 3 -

     Petitioner graduated from Temple University with a

bachelor’s degree in computer science.    He also received a

master’s degree in management.

     During 1993, petitioner owned four newsstands in the

city of Philadelphia.    He operated a newsstand located in

Germantown.   He rented a second newsstand located on Wayne

Avenue for $200 per month.    He sold a third newsstand

located on Knox Street on July 12, 1993, to Mr. John

Ebataleye for $40,000.    During 1993, petitioner received a

downpayment of $5,000 from that sale and monthly payments

of $972.22 for 6 months, a total of $10,832.    A fourth

newsstand located at Broad and Oxford Streets was closed

throughout the year.

     Petitioners’ return for 1993 includes a Schedule C,

Profit or Loss From Business, that reports net profit of

$3,250 from petitioner’s newsstand business, King

Newsstand.    The income and expenses reported on the

Schedule C are as follows:
                              - 4 -

     Gross receipts or sales                   $100,000
     Returns and allowances                       –-
     Cost of good sold                           62,000

     Gross income                                38,000

     Expenses
       Advertising                      $500
     Bad debts                         3,000
     Insurance                         1,300
     Mortgage interest                 2,500
     Legal and professional            2,000
     Repairs and maintenance          10,000
     Supplies                          7,000
     Taxes and licenses                  550
     Travel                            5,300
     Meals and entertainment           1,600
     Utilities                         1,000
                                                 34,750

       Net profit                                 3,250


     In the subject notice of deficiency, respondent

determined that the cost of goods sold for petitioner’s

newsstand business was $11,809, and that petitioners had

overstated the cost of goods sold claimed on their 1993

return by $50,191 (i.e., $62,000 minus $11,809).

Respondent also disallowed the expenses claimed on

petitioners’ Schedule C in the aggregate amount of $34,750

for lack of substantiation.    Respondent determined that

petitioners’ self-employment tax liability is increased and

that petitioners are allowed an additional self-employment

tax deduction of $4,522 due to the increase in their self-

employment tax liability.
                           - 5 -

     Respondent also determined in the notice of deficiency

that petitioners had failed to report interest income in

the aggregate amount of $489 that they had received during

1993 from accounts at three banks.    Finally, respondent

determined that petitioners had failed to report “rental

income” in the amount of $14,067.

     At trial, petitioners introduced into evidence an

amended return on Form 1040X.    Petitioners had submitted

the amended return to the Internal Revenue Service prior

to trial, but it was never processed and the notice of

deficiency is based upon petitioners’ original return.      The

amended return claims cost of goods sold with respect to

petitioner’s newsstand business in the amount of $11,809,

the amount determined in the notice.    The amended return

also reports rental income from “News Stand Rental” in the

amount of $14,067, the amount determined in the notice.

The Schedule C attached to the amended return reports the

following income and expenses:
                                  - 6 -
  Gross receipts or sales                          $16,381
  Returns and allowances                              --
  Costs of goods sold                               11,809

  Gross profit                                      4,572

  Other income (lottery commissions)               34,857

  Gross income                                     39,429

  Expenses
    Advertising                             882      --
    Bad debts                               –-       --
    Car and truck expenses                2,132      --
    Insurance                             1,000      --
    Mortgage interest                       –-       --
    Legal and professional                  800      --
    Repairs and maintenance               7,399      --
    Supplies                              1,684      --
    Taxes and licenses                    1,362      --
    Travel                                  –-       --
    Meals and entertainment                 –-       --
    Utilities                               450      --
    Other expenses
      Telephone                            1,382     --
      Independent contractors              4,609     --
      Bank charges                           518     --
      PA lottery shortage                 10,561     --
      United News/SEPTA-payment              956     --
      Lottery service charge                 936     --
      Cleaning                               520     --
                                                   35,191

     Net profit                                     4,238


                              OPINION

     The only issue specifically addressed in petitioners’

posttrial brief is the amount of expenses petitioners are

entitled to deduct in connection with their newsstand

business.   They argue that at trial they proved total

expenses of $39,403.

     In their posttrial brief, petitioners do not take

issue with respondent’s determination that the cost of

goods sold for their newsstand business is $11,809.          As
                            - 7 -

mentioned above, petitioners reported cost of good sold of

$11,809 on their amended return.    Thus, we hereby sustain

that adjustment.

     In their posttrial brief, petitioners do not take

issue with respondent’s determination that their gross

income should be increased by unreported interest income

in the aggregate amount of $489.    At trial, petitioner

acknowledged receiving interest income from accounts at

three banks in the aggregate amount of $489 during 1993.

Thus, we hereby sustain that adjustment.

     Finally, in their posttrial brief, petitioners do not

take issue with respondent’s determination that their gross

income should be increased by unreported “rental income” of

$14,067.   As mentioned above, petitioners reported “News

Stand Rental” of $14,067 on their amended return.    Even

though petitioners do not take issue with this adjustment,

it requires discussion.

     At trial, petitioner acknowledged that he had received

$2,400 from the rental of his newsstand on Wayne Avenue and

had received $10,833 from the sale of his newsstand on Knox

Street, a deposit of $5,000 and six installment payments of

$972.22 each.   Petitioners do not claim that the proceeds

from the sale of the newsstand on Knox Street should be

reduced by any basis in the property sold.    The total of
                              - 8 -

the unreported rental and sale payments is $13,233, or

$834 less than the amount determined in the notice of

deficiency, $14,067.   Respondent acknowledges that the

notice of deficiency should be sustained to the extent of

the lesser amount, $13,233.    Accordingly, we find that

petitioners’ gross income should be increased by unreported

rental payments of $2,400 and by unreported proceeds from

the sale of the newsstand on Knox Street of $10,833.

     We turn to the principal issue in this case, the

expenses petitioners are entitled to deduct in connection

with their newsstand business.    At trial, petitioners did

not attempt to substantiate the expenses claimed on the

Schedule C, Profit or Loss From Business, filed as part of

their original return.   In fact, petitioner admitted that

his original return was not correct.    Petitioner testified

that his original return was “done by mistakes” and “was

unintentionally done by me.”

     At trial, petitioners proceeded by attempting to

substantiate the expenses claimed as deductions on the

Schedule C attached to their amended return.    Petitioners

claimed different expenses on their original return, on

their amended return, and in their posttrial brief.    The

following is a list of the expenses claimed by petitioners

and the expenses conceded by respondent to be deductible:
                                        - 9 -
                                       Original    Amended              Conceded
                                        Return     Return    Brief    by Respondent
Expenses
  Advertising                            $500        $882       $96      $96.06
  Bad debts                             3,000         -–       -–           -–
  Car & truck expense                    -–         2,132     2,132         -–
  Insurance                             1,300       1,000       382         -–
  Mortgage                              2,500         -–       -–           -–
  Legal & professional                  2,000         800       800         -–
                                                                         1
  Repairs & maintenance                10,000       7,399    11,800        50.00
  Supplies                              7,000       1,684     2,467         -–
  Taxes & license                         550       1,362     1,362      930.90
  Travel                                5,300         -–       -–           -–
  Meals & entertainment                 1,600         -–       -–           -–
  Utilities                             1,000         -–       -–           -–
  Telephone                              -–         1,382     1,382      426.23
  Electricity                            -–           450       450      400.45
  Independent contractors                -–         4,609     4,609         -–
  Bank charges                           -–           518       950      233.10
  PA Lottery charges                     -–           936       936      936.00
  PA Lottery shortage                    --        10,561    10,561         -–
  United News debt paid/Septa tokens     -–           956       956      956.25
  Cleaning                               -–           520       520         --
  Depreciation on steel plates           -–           -–       -–        497.50
    & electrical system
  Depreciation on newsstand              -–           -–       -–      1,435.00

                                       34,750      35,191    39,403    5,961.49
1
 Permit fees



       We discuss each of the business expenses claimed by

petitioners at trial which, generally, are the same

expenses claimed by petitioners on the Schedule C filed as

part of their amended return.                   Petitioners claimed a

deduction for advertising expenses of $882 on their amended

return, but at trial they introduced into evidence only two

checks in the aggregate amount of $96.06 drawn to the order

of the Philadelphia Enquirer.                   Respondent concedes that

petitioners are entitled to deduct advertising expenses of

$96.06.

       Petitioners claim car and truck expenses of $2,132.

In his testimony, petitioner acknowledged that his family

used only one car during 1993 and that they used the car
                            - 10 -

for all of their personal travel.    In support of their

claim to be entitled to deduct car expenses in connection

with their newsstand business of $2,132, they sought the

introduction of three repair invoices and a handwritten

sheet purporting to show gasoline purchases in cash.    Two

of the repair invoices in the amounts of $817.20 and

$149.25 were paid in 1992 and do not have any apparent

connection to 1993.    They were not accepted into evidence.

The third repair invoice is in the amount of $273.42, but

there is no testimony or other evidence in the record to

show the relationship of the expenditure to petitioner’s

newsstand business as opposed to petitioners’ personal use

of the car.    Finally, petitioners have not substantiated a

deduction for gasoline purchases of $892.    Petitioners

introduced a handwritten list entitled “car gas purchases”,

and petitioner testified that it is a list of the weekly

cash expenditures “on the gas for traveling from the

newsstand to the warehouse”.    There are 61 entries of even

dollar amounts listed on the sheet that total $876, rather

than $892.    There are no dates on the list and no

indication of mileage.    There is no way to determine what

portion of the alleged gasoline purchases was used for

business and what portion was for petitioners’ personal use

of the car.    Thus, petitioners have not substantiated any
                           - 11 -

of the alleged expenditures as required by section

274(d)(1).

     In their amended return, petitioners claim insurance

expenses in the aggregate amount of $1,000.   At trial,

petitioners introduced copies of four checks totaling

$593.70.   Three of those checks in the aggregate amount of

$382.70 were payable to Flagship Insurance Co.    Petitioner

testified that those checks were for insurance on

petitioners’ newsstands but petitioner also acknowledged

that he maintained homeowner’s insurance on his residence.

There is nothing in the record, other than petitioner’s

vague testimony, to show that the subject expenditures in

the aggregate amount of $382.70 were for insurance on the

newsstands.   Petitioners introduced no documents to

corroborate Mr. King’s testimony, such as invoices or

insurance polices.   Accordingly, we agree with respondent

that the expenditures reflected by the three checks in the

aggregate amount of $382.70 are not deductible.    The fourth

check in the amount of $211 is payable to Pennsylvania Auto

Insurance Plan.   The expenditure reflected by this check

appears to be for insurance on petitioners’ automobile.     It

is not an allowable expense because petitioners have

provided no way to allocate the expenditure between their

personal and business use of the automobile, and, thus,
                           - 12 -

they have not substantiated the business nature of the

expense.   See sec. 274(d)(1).

     Petitioners claim legal and professional fees in the

amount of $800.   Of this amount, $300 was paid as a

retainer to a lawyer for advice regarding petitioner’s

citizenship.   Petitioners have not established that this

expenditure is related to their business.    In the case of

the other expenditure in the amount of $500, petitioners

did not submit an invoice from the attorney or any other

information regarding this expenditure, and petitioner’s

testimony that he sought advice concerning a possible suit

against the city of Philadelphia is too vague to

substantiate the nature of the expenditure.    We are not

satisfied that petitioners have proven that either

expenditure is a deductible business expense.

     Petitioners claim a deduction for repairs and main-

tenance in the amount of $11,800.   On brief, respondent

concedes that petitioners made capital expenditures in the

aggregate amount of $14,050 during 1993.    Respondent

concedes that petitioner paid $4,100 for construction work

at the newsstand at Broad and Oxford Streets.    Respondent

also concedes that he paid $1,750 for the installation of

steel plates and bars in the newsstand at Broad and Oxford

Streets.   Finally, respondent concedes that petitioner paid
                            - 13 -

$5,700 for excavation and concrete work in connection with

the installation of an electrical system at his newsstand

on Wayne and Chelten Avenues and he paid $2,500 for the

wiring of that system.    Respondent also concedes that

petitioner paid permit fees in the aggregate amount of $50

in connection with the electrical work.

       We agree with respondent that, except for the permit

fees, the above payments represent capital expenditures

that must be recovered through depreciation.    According to

respondent, petitioners are entitled to a depreciation

deduction of $497.50 with respect to the installation of

the steel plates ($1,750) and electrical system ($2,500

and $5,700), and a depreciation deduction of $1,435 for

the expenditures attributable to the construction of the

new newsstand ($4,100).    The depreciation deductions

computed by respondent appear to be correct but, if

petitioners do not agree with the amount of these

depreciation deductions, then they will have an opportunity

to raise their disagreement during the proceedings under

Rule 155.    Respondent also concedes that petitioners are

entitled to deduct permit fees in the aggregate amount of

$50.

       Petitioners claim a deduction in the amount of $2,467

for supplies.    In support thereof, petitioners introduced
                                - 14 -

11 checks made out to banks and credit card companies in

the aggregate amount of $4,166.31.       According to notations

on the checks, the expenditures were to purchase racks,

safes, air conditioners, and other equipment.              However, the

notations were written in different ink and petitioners

introduced no invoices.     Petitioner’s testimony was vague

and inconsistent.    In sum, we are not satisfied that

petitioners have substantiated the nature of the

expenditures claimed.

     Petitioners claim a deduction of $1,362 for taxes and

licenses.   In support thereof, they introduced copies of

15 checks totaling $1,052.90.       Respondent conceded $890.90

of these expenditures at trial and conceded an additional

$40 on brief for a total of $930.90.          The following is a

list of the checks that shows which checks have been

agreed by respondent and which checks were not agreed:

                                                                           Not
Check No.               Payee                   Claimed       Agreed      Agreed

 1707       Dept. of Revenue City of Phila.     $200.00       $200.00       --
 1706       Dept. of Revenue City of Phila.      200.00        200.00       --
 1695       Dept. of L&I                          80.00         80.00       –
 1680       Dept. of L&I                          40.00         40.00       --
 1681       Dept. of L&I                          40.00         40.00       –
 1682       Dept. of L&I                          40.00         40.00       –
 1694       Dept. of L&I                          80.00         80.00       –
 1315       City of Phila.                        40.00         40.00       –
 1357       City of Phila.                        15.00          --       $15.00
 1665       Pa. Revenue Dept.                     27.00          --        27.00
 1635       Pa. Lottery                           15.00         15.00       –
 1748       Pa. Revenue                           75.00         75.00       –
 1747       Pa. Revenue                           68.90         68.90       –
 1705       Dept. of State                        52.00         52.00       –
 1709       Dept. of State                        80.00          -–        80.00

                                                1,052.90       930.90     122.00
                           - 15 -

At trial, petitioner stated that he was not claiming the

expenditure reflected on check No. 1357 in the amount of

$15 or the expenditure reflected on check No. 1709 in the

amount of $80.   The last unagreed item, check No. 1665 made

payable to Pennsylvania Revenue Department in the amount of

$27, was a payment for State income tax.   Because

petitioners did not itemize deductions, they are not

entitled to a deduction for that expenditure.    Accordingly,

we agree with respondent that petitioners are entitled to a

deduction in the aggregate amount of $930.90 for payments

of taxes and licenses.

     Petitioners claim a deduction for payments made to

PECO for the electricity used at petitioner’s newsstands.

In support thereof, petitioners introduced 11 checks

payable to PECO in the aggregate amount of $450.45.

Respondent notes that one of those checks, check No. 1629,

in the amount of $50, was returned by the bank without

payment for “non-sufficient funds”.   Accordingly,

respondent argues, “petitioners provided $400.45 of

substantiation for electricity expense.”   We agree with

respondent that petitioners have substantiated electricity

expenses of $400.45.

     Petitioners also claim a deduction for telephone

expenses in the aggregate amount of $1,377.81.   In support
                            - 16 -

thereof, petitioners introduced 13 checks payable to “Bell

of Pennsylvania”.    Respondent notes that five of those

checks, in the aggregate amount of $426.23, bear notations

to show that they were paid with respect to a telephone

number assigned to petitioners’ newsstand at Germantown

Avenue.    Respondent appears to concede that those checks

are deductible.    Respondent also notes that six of the

checks, in the aggregate amount of $762.58, bear notations

which suggest that they were paid with respect to a

telephone number assigned to the newsstand at Broad and

Oxford Streets.    Petitioner initially testified that that

newsstand was closed during the entire year.    He then

changed his testimony to say that the newsstand at Broad

and Oxford Streets was open on the weekends when inspectors

from the Department of Licenses and Inspections were not

working.    We agree with respondent that petitioner’s vague

and contradictory testimony does not substantiate those

checks.    Similarly, two checks in the aggregate amount of

$189 bear no notation and we agree with respondent that

petitioners have not substantiated those checks.

Accordingly, we agree with respondent that petitioner is

entitled to a deduction for utilities in the aggregate

amount of $826.68, $400.45 for payments to PECO for
                                      - 17 -

electricity, and $426.23 for payments to Bell of

Pennsylvania for telephone expenses.

         Petitioners claim a deduction in the amount $4,609.09

for payments allegedly made to independent contractors.

Petitioners rely on 11 checks to substantiate that

deduction.      The following is a list of the check number,

date, payee, amount, and notation taken from the checks:

Check No.     Date            Payee              Amount          Notation

  2030       03/08/93   William H. Randleman    $500.00   711 Employee for 5+3 days
  2032       05/06/93   Randy L. Baptist         300.00   5 day pay employee
  1004       05/11/93   John Ebatebeye           146.69   Wk 1 -at Knox
  2035       06/02/93   John Ebatebeye           275.67   Week 22-23 5/18-6/1/93
  2037       06/14/93   John Ebatebeye           507.24   Wk 22/23
  2038       06/29/93   John Ebatebeye           437.05   Week
  2039       07/22/93   John Ebatebeye           900.82   Wk 26, 27 & 28
  2051       08/02/93   Veresta B. Hyman         500.00   #15155 (*$1)
  2052       08/02/93   Florence Young           250.00   #11555 (4 days)
  7330       08/07/93   John Ebatebeye           686.62   two at Knox lottery
  2062       11/30/93   John Ebatebeye           105.00   5 pk of Instant Tickets

                                               4,609.09



         Petitioner’s testimony concerning the above-alleged

payments to independent contractors is vague, contradic-

tory, and unworthy of belief.              For example, in the case

of payments made to Messrs. Randleman and Baptist,

Ms. Hyman, and Ms. Young, there is evidence that those

individuals were lottery winners and that the above checks

drawn to their order are payments of their winnings, and

not for services operating a newsstand.

         Similarly, we cannot determine the nature of the

payments allegedly made to Mr. John Ebatebeye.                 According

to petitioner’s testimony, Mr. Ebatebeye purchased the
                            - 18 -

newsstand at Knox Street on or about July 12, 1993.     Prior

to that time, petitioner claims to have paid Mr. Ebatebeye

to operate the newsstand.   Petitioner’s testimony concern-

ing the nature of those payments is vague, confusing, and

contradictory.   For example, he could not explain how the

payments were calculated, and several checks are dated

after July 12, 1993.   Based upon the record, we find that

petitioners have not substantiated their eligibility to

deduct these payments.

     Petitioners claim a deduction of $950 for bank

charges.   In support thereof, they introduced bank

statements from four business accounts maintained at PNC

Bank.   The statements show bank charges totaling $903.10.

Two types of bank charges are reflected on the statements,

charges in the aggregate amount of $670 for returned checks

and charges in the aggregate amount of $233.10 that are

described on the statements as “analysis charge”.

Respondent’s posttrial brief does not address these

charges.   In his testimony, petitioner makes reference to

a service charge for “bank analysis”.   He does not discuss

the bank charges, in the aggregate amount of $670, for

returned checks or provide any facts from which we can find

that those charges are ordinary and necessary expenses of

his newsstand business.   Cf. Bailey v. Commissioner,
                           - 19 -

T.C. Memo. 1991-385.   We find that the bank statements

substantiate petitioner’s testimony regarding the charges

in the aggregate amount of $233.10 that are labeled as

“analysis charges”.

     Petitioners also claim a deduction in the amount of

$936 for lottery service charges.    Respondent concedes the

deductibility of that amount.

     Petitioners claim a deduction for payments to the

Pennsylvania Lottery in the amount of $10,561.    In support

thereof, they introduced a check drawn by petitioner to the

order of “cash” in the amount of $2,200 and a check drawn

by petitioner to his own order in the amount of $8,361.15.

They also introduced the copy of a cashier’s check that

appears to be drawn to the order of the Pennsylvania

Lottery in the amount of $8,361.15.    Petitioner testified:

“The Pa Lottery, I owe them $10,562 because I lost the

tickets.”   Petitioners introduced no invoices or

correspondence from the Pennsylvania Lottery regarding

these alleged payments, and they did not deduct these

payments on their original return.    Petitioner’s testimony

concerning the nature of these payments is vague, confus-

ing, and unbelievable.   We find that petitioners have not

substantiated their eligibility to deduct these payments.
                            - 20 -

     Petitioners claim a deduction in the amount of $956

described on their amended return as “United News/Septa-

payment”.   In support thereof, they rely on two checks, one

drawn to the order of United News (Levy) in the amount of

$300, and the second drawn to the order of Septa in the

amount of $656.25.    Respondent conceded the deductibility

of those payments at trial.

     Petitioners claim a deduction for $520 attributable to

the cash payments allegedly given to a cleaning woman “to

clean the place”.    In support of their claim, petitioner

introduced a handwritten sheet purporting to show 26 cash

payments totaling $560.    There are 20 payments of $20, 4

payments of $25, and 2 payments of $30.    The ledger sheet

identifies the cleaning woman as “Gloria Ashers”.    In his

testimony, petitioner said:    “I pay her $20, $10 sometime,

and I have the record that I wrote down.”    He identified

the cleaning woman as Gloria Lashley, “L-A-S-H-L-E-Y-.”

When petitioner was asked what the cleaning woman cleaned,

he replied:   “The front because the place is dirty, because

people come, they drink, they throw bottle, they break it.

So I have to pay for that because when the Street Depart-

ment come they give me citation before.”    Petitioner’s

testimony is vague, and we find that petitioners have not
                            - 21 -

substantiated these alleged cash expenditures in the

aggregate amount of $520.

     The next issue for decision is whether petitioners are

liable for the accuracy-related penalty under section

6662(a) for 1993.   At the outset, we note that in the

notice of deficiency, the amount of the addition to tax for

delinquency under section 6651(a)(1), $2,736, is switched

with the amount of the penalty for substantial

understatement under section 6662(a), $5,463, and vice

versa.   This appears to be a typographical error.   The

notice makes reference to an enclosed statement that “shows

how [respondent] figured the deficiency.”   The enclosed

statement shows respondent’s computation of the additions

to tax for delinquency and the penalty for substantial

understatement and relates these amounts to the appropriate

statutory provisions.   Petitioners did not make an issue of

this error in their petition or at trial, and there is no

evidence that they were uncertain about the amounts that

were determined by respondent.   Thus, we need not address

this matter.   See Goodman v. Commissioner, T.C. Memo. 1985-

151 (relying on Mayerson v. Commissioner, 47 T.C. 340

(1966)).

     Respondent determined that petitioners are liable for

an accuracy-related penalty of $5,463 under section
                             - 22 -

6662(a).    Under section 6662, a penalty is added to a

taxpayer's tax liability if any portion of an underpayment

is attributable to negligence or disregard of the rules or

regulations, see sec. 6662(b)(1), or attributable to a

substantial understatement of income tax, see sec.

6662(b)(2).    For this purpose, an understatement is

"substantial" if it exceeds the greater of $5,000 or 10

percent of the tax required to be shown on the taxpayer's

return.    Sec. 6662(d).   The amount of the penalty is 20

percent of the portion of the underpayment to which the

section applies.    See sec. 6662(a).

     In this case, petitioners’ understatement was

substantial.    Petitioners did not address this issue at

trial, in their petition, trial memorandum, or posttrial

brief.    By failing to address the issue, petitioners have

conceded it.    See, e.g., Money v. Commissioner, 89 T.C. 46,

48 (1987).     Accordingly, we sustain respondent's

determination that petitioners are liable for the accuracy-

related penalty.

     The final issue for decision is whether petitioners

are liable for an addition to tax under section 6651(a)(1)

for 1993.     If a taxpayer fails to file an income tax return

on time, section 6651(a)(1) imposes an addition to tax

unless the failure was "due to reasonable cause and not
                           - 23 -

willful neglect".   The addition is 5 percent of the amount

of the tax required to be shown on the return for each

month the failure continues, not exceeding 25 percent in

the aggregate.

      In this case, petitioners filed their return more than

1 month after the due date.   Respondent determined that

petitioners are liable for an addition to tax of $2,736

pursuant to section 6651(a)(1).     Petitioners did not

address this issue in their petition, in their trial

memorandum, at trial, or in their posttrial brief.     By

failing to address the issue, petitioners have conceded

it.   See Money v. Commissioner, supra.     Accordingly, we

find petitioners are liable for an addition to tax under

section 6651(a)(1).

      Based upon the foregoing,



                                  Decision will be entered

                           under Rule 155.
