                       T.C. Memo. 1999-174



                     UNITED STATES TAX COURT



                  CHRYS L. UDOH, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 22424-97.                      Filed May 21, 1999.



     Chrys L. Udoh, pro se.

     Lindsey D. Stellwagen, for respondent.



                       MEMORANDUM OPINION


     PANUTHOS, Chief Special Trial Judge:     This case was heard

pursuant to section 7443A(b)(3)1 and Rules 180, 181, and 182.



     1
           Unless otherwise indicated, 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.
                               - 2 -


     Respondent determined deficiencies in petitioner's 1994 and

1995 Federal income taxes in the amounts of $5,813 and $3,036,

respectively.   Respondent also determined an addition to tax

under section 6651(a)(1) in the amount of $1,431 for failure to

timely file a 1994 Federal income tax return.    Petitioner filed a

timely petition with this Court.    At the time of filing the

petition, petitioner resided in Washington, D.C.

     The issues for decision are:    (1) Whether petitioner is

entitled to deduct claimed Schedule C expenses in amounts in

excess of those allowed by respondent; (2) whether petitioner

failed to report $1,098 in income received from sales of

insurance in 1994; (3) whether petitioner failed to include $440

in income received from a retirement plan distribution in 1994;

(4) whether petitioner is subject to a 10-percent tax on a

premature distribution from a retirement plan in 1994, as

provided under section 72(t); and (5) whether petitioner is

subject to the addition to tax under section 6651(a)(1) for

failure to file a timely Federal income tax return for tax year

1994.

     Some of the facts have been stipulated, and they are so

found.   The stipulation of facts and the attached exhibits are

incorporated herein by this reference.
                                 - 3 -


Background

     During the period 1987 through 1994, petitioner sold

insurance for United American Insurance Company (hereinafter

United).     Petitioner received $1,098 in compensation from United

in 1994.     Upon his resignation from United in 1994, petitioner

received a distribution in the amount of $1,422 from his

retirement fund.     Petitioner used this money to establish a mail-

order business, and was issued a "Sales and Use Tax Certificate

of Registration" from the Government of the District of Columbia

on September 13, 1995.     Also during 1994 and subsequent years,

petitioner studied law through Kensington University College of

Law, an unaccredited law school in California.     Petitioner paid

$650 to the State Bar of California for law school examination

fees in 1994 and $300 for law school examination fees in 1995.

     Petitioner attached two Schedules C to each of his 1994 and

1995 Federal income tax returns.    The Schedules C reflect the

following:
                              - 4 -


                              1994

Schedule C: "Sales Person"
  Advertising                                     $934
  Car & truck expense                             4,588
  Legal & professional services                     655
  Office expense                                  1,485
  Travel                                          2,156
  Other expenses:
    Beeper, phone                         $849
    Subscriptions & law books              974
    Clothing, shoes & maintenance          728
    Seminars                               593
    Continuous legal education
     & examination fees                   1,935    5,079
  Total
                                                  14,897


Schedule C: "Clothing And Accessories"
Cost of goods sold                                $3,128
Expenses:
  Advertising                                       455
  Supplies                                          826
  Taxes & licenses                                  312
  Other expenses:
    Transportation                       $1,508
    Freight charges & postage               651
    Location rentals                        765
    Telephone                               493    3,417
  Total
                                                  8,138

                              1995

Schedule C: "Insurance Agent"
  Travel                                           $796
  Other expenses
    Transportation, parking & tolls      $3,194
    Subscriptions                           145
    Beeper, phone                           987
    Continuous education                  2,500
    Professional examination                600    7,426
  Total
                                                  8,222
                                - 5 -


Schedule C: "Accessories And Apperals [sic]"
Cost of goods sold                                           $2,546
Expenses:
  Advertising                                                     255
  Legal & professional services                                   250
  Supplies                                                        982
  Taxes & licenses                                                216
  Travel                                                        1,695
  Meals & entertainment                                           397
  Other expenses:
    Transportation                                 $967
    Telephone                                       825
    Freight charges & postage                       483
    Location rentals                                396         2,671
  Total                                                         9,012

     Petitioner filed his 1994 return on May 3, 1996.     Petitioner

timely filed his 1995 return.   Upon examination of the returns,

respondent disallowed all of petitioner's claimed expenses2 and

cost of goods sold for 1994 due to lack of substantiation.

Additionally, respondent adjusted petitioner's income for 1994 to

include $1,0983 received from United and $440 for the taxable

portion of petitioner's retirement distribution.   Respondent

asserted a 10-percent tax of $44 on the early distribution of

petitioner's retirement fund.   Respondent disallowed all but $452

     2
          Petitioner's expenses listed on the 1994 Schedule C,
"Clothing and Accessories", totaled $5,010. We note the notice
of deficiency contains a typographical error with regard to the
disallowance of these expenses. Although respondent disallowed
petitioner's expenses for 1994 in full, the notice of deficiency
lists the total amount of expenses disallowed as $5,001.
     3
          The parties have stipulated $1,098 as the amount of
income petitioner received from United. United issued petitioner
a Form 1099-MISC for 1994 reflecting income paid in the amount of
$1,098.39. However, the notice of deficiency increased
petitioner's income by the amount of $1,097.
                                - 6 -


of petitioner's claimed expenses, and he also disallowed $1,002

of cost of goods sold for 1995 due to lack of substantiation.

Discussion

1.   Schedule C Expenses

     Deductions are a matter of legislative grace, and a taxpayer

seeking a deduction must establish his entitlement to the

deduction claimed.    See New Colonial Ice Co. v. Helvering, 292

U.S. 435, 440 (1934).

     Section 162(a) generally provides that there shall be

allowed as a deduction all the ordinary and necessary expenses

paid or incurred during the taxable year in carrying on a trade

or business.   To be entitled to a deduction under section 162(a),

a taxpayer is required to substantiate the deduction through the

maintenance of books and records.   Section 6001 requires

generally that a taxpayer liable for any tax shall maintain such

records, render such statements, make such returns, and comply

with such regulations as the Secretary may from time to time

prescribe.

     While petitioner testified that he incurred certain

expenses, he concluded that he incurred a loss in his business in

the amount of $355.   The record shows the transaction from which

the loss originated took place in 1996.   The loss is not properly

deductible in 1994 or 1995.
                                - 7 -


     Petitioner deducted $728 for "Clothing, Shoes and

Maintenance" in 1994.   Petitioner testified these expenses were

incurred for suits, blazers, shoes, and dry cleaning so that he

may dress in an acceptable manner in the insurance business.       The

expense of uniforms is deductible under section 162(a) if:    (1)

The uniforms are of a type specifically required as a condition

of employment; (2) the uniforms are not adaptable to general

usage as ordinary clothing; and (3) the uniforms are not so worn.

See Yeomans v. Commissioner, 30 T.C. 757, 767-769 (1958); Beckey

v. Commissioner, T.C. Memo. 1994-514.     It is clear from

petitioner's testimony that the articles of clothing claimed as

expenses were adaptable to general use.    Therefore, petitioner's

clothing expenses are not deductible.   The remaining expenses for

dry cleaning likewise constitute personal expenses and are not

deductible under section 162.   See sec. 262.

     Petitioner deducted approximately $15,529 for his legal

education expenses on his Schedules C for tax years 1994 and

1995.   Included in this amount is the cost of travel to

California for the taking of law school examinations, examination

fees, tuition, books, lodging, and meals.    Petitioner combined

some of these expenses with other expenses on his Schedules C

and, therefore, the amounts claimed are estimates.    At trial,

petitioner testified he incurred an estimated $10,610 in

educational expenses.   The only documentation petitioner
                               - 8 -


presented to substantiate these claimed expenses is a statement

from the State Bar of California, showing examination fees paid.

Petitioner paid $650 and $300 in examination fees for the 1994

and 1995 tax years, respectively.    It is evident from this

statement and petitioner's testimony that the claimed expenses

were incurred over the period 1992 through 1997.    Even if we were

to find that petitioner substantiated these expenses, and the

expenses were incurred in 1994 and 1995, these expenses must be

disallowed.   Petitioner's educational expenses are not deductible

under section 162 as an ordinary and necessary business expense

as these expenditures qualify him for the new trade or business

of the practice of law.   See Wu v. Commissioner, T.C. Memo. 1991-

100; sec. 1.162-5(b)(3)(i) and (ii) (Ex.1); see also Taubman v.

Commissioner, 60 T.C. 814 (1973); Meeks v. Commissioner, T.C.

Memo. 1998-109; Meredith v. Commissioner, T.C. Memo. 1993-250;

Harper v. Commissioner, T.C. Memo. 1990-239.

     Petitioner has not presented any substantiation, with the

exception of the above, for any of the expenses claimed.

Although petitioner provided the Court with numerous papers, none

contained receipts, bills, invoices, records, etc.    Even the

documentation that was provided was not for the years 1994 or

1995.   In a previous motion to continue this case before the

Court, petitioner testified that his car was broken into and the

pertinent documents were taken.     At trial in the instant matter,
                                   - 9 -


petitioner testified that some items were stolen, and the police

were unable to provide petitioner with a record of the stolen

items.    Petitioner provided the Court with a copy of a request

for the police report which showed the incident occurred in 1993.

The tax years before us are 1994 and 1995, not 1993, so any items

stolen should not affect the years in issue.       For the foregoing

reasons, respondent is sustained on this issue.

2.   Unreported Income

     A.    Insurance Sales

     Respondent determined that petitioner received $1,098 in

income from United in 1994, which amount petitioner did not

include in income.    Petitioner concedes that he received this

amount as commissions earned.

     Gross income means all income from whatever source derived,

including (but not limited to) compensation for services,

including commissions.       See sec. 61(a)(1).   Although petitioner

concedes he received this amount, he argues that amounts in

excess of $1,098 were taken from him by United due to lapsed

policies sold by petitioner.       Petitioner has not provided this

Court with any credible testimony or documentation to establish

his assertion.    Respondent is sustained on this issue.

     B.    Retirement Plan Distribution

     Respondent determined petitioner received $1,422 during 1994

from a retirement plan distribution, $440 of which respondent
                                - 10 -


determined to be taxable and includable in income.    Petitioner

concedes that he received the distribution in this amount.

     Petitioner argues that, although he received this income, he

used the funds to try to establish his mail order business.

Petitioner testified that whatever income he had was spent

compiling information for his business.     It is not entirely clear

from petitioner's testimony the basis he is alleging for

exclusion of the funds from income.

     Gross income means all income from whatever source derived.

See sec. 61(a).   Petitioner has not asserted any basis under the

tax laws for exclusion of this amount from income.    Petitioner

must include the amount received in his gross income as provided

under section 61(a).   Respondent is, therefore, sustained on this

issue.

3. 10-Percent Additional Tax on Early Distribution From
Qualified Retirement Plan

     In 1994, petitioner received a retirement distribution in

the total amount of $1,422.     Respondent determined $440 of this

amount to be taxable, and determined a 10-percent additional tax

in the amount of $44 due to a premature distribution of

petitioner's retirement fund.    Section 72(t) provides for a 10-

percent additional tax on the taxable amount of an early

distribution from a qualified retirement plan.    Section 72(t)(2)

provides exceptions to the tax for certain types of distributions
                              - 11 -


from qualified retirement plans.   Using funds received from a

distribution in petitioner's business is not encompassed within

these exceptions.   See sec. 72(t)(2)(A), (B), and (C).

Respondent is sustained on this issue.

4.   Section 6651(a) Addition to Tax

     Respondent determined that petitioner is liable for the

addition to tax under section 6651(a) for failure to file a

timely return for the 1994 taxable year.

     Section 6651(a)(1) provides for an addition to tax for

failure to file a timely return.   The addition to tax is equal to

5 percent of the amount required to be shown as tax on the

return, with an additional 5 percent for each additional month or

fraction thereof that the return is filed late, not exceeding 25

percent in the aggregate.

     A taxpayer may avoid the addition to tax by establishing

that the failure to file a timely return was due to reasonable

cause and not willful neglect.   Rule 142(a); United States v.

Boyle, 469 U.S. 241, 245-246 (1985).   A failure to file is due to

"reasonable cause" if the taxpayer exercised ordinary business

care and prudence and was, nevertheless, unable to file his

return within the date prescribed by law.   See Crocker v.

Commissioner, 92 T.C. 899, 913 (1989); Estate of Vriniotis v.

Commissioner, 79 T.C. 298, 310 (1982); sec. 301.6651-1(c)(1),

Proced. & Admin. Regs.   Willful neglect is viewed as a conscious,
                               - 12 -


intentional failure or reckless indifference to the obligation to

file.    See United States v. Boyle, supra.

     Petitioner filed his 1994 tax return on May 3, 1996.

Petitioner has not provided any explanation for the late filing

of the return.   Petitioner has not addressed the issue in his

pleadings or his testimony.   Petitioner has not established his

late filing of his 1994 Federal income tax return was due to

reasonable cause and not willful neglect.     Accordingly, we hold

petitioner is liable for the addition to tax under section

6651(a).

     We have considered all of petitioner's arguments and, to the

extent not discussed above, find them to be without merit.4

     To reflect the foregoing,

                                          Decision will be entered

                                     for respondent.




     4
          Petitioner asserts that respondent has wrongfully
assessed and levied Federal and District of Columbia tax refunds
granted for the 1997 tax year, while he is a petitioner before
this Court. The record before us demonstrates the levy was
applied to petitioner's assessed tax liabilities for tax year
1993, a year not before us.
