                  T.C. Memo. 2002-310



                UNITED STATES TAX COURT



           JOYCE E. HASTINGS, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 6565-99.              Filed December 23, 2002.



     R determined a deficiency for P’s 1993 taxable
year. Using the bank deposits method, R reconstructed
P’s taxable income for 1993 and determined that P had
unreported income from her sole proprietorship.

     P operated a horse activity in 1993. Over a
number of years, P incurred substantial losses in such
activity. In no year did the activity make a profit.
P deducted losses sustained in the horse activity. R
disallowed these deductions on the ground that the
horse activity was not engaged in for profit within the
meaning of sec. 183, I.R.C.

     Held: P had unreported taxable income from her
sole proprietorship.

     Held, further, based on all the facts and
circumstances, the horse activity was an activity not
engaged in for profit within the meaning of sec. 183,
                               - 2 -

     I.R.C., and P is not entitled to deduct the losses
     therefrom.

          Held, further, allowing for concessions, R’s
     deficiency determination is upheld.

          Held, further, P is liable for the sec.
     6651(a)(1), I.R.C., addition to tax for failure timely
     to file her 1993 income tax return.

          Held, further, P is liable for the sec. 6662(a),
     I.R.C., accuracy-related penalty.



     Joyce E. Hastings, pro se.

     Michael S. Hensley, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     NIMS, Judge:   Respondent determined a Federal income tax

deficiency for petitioner’s 1993 taxable year of $22,053.

Respondent also determined an addition to tax of $5,485 pursuant

to section 6651(a)(1) and an accuracy-related penalty of $4,411

pursuant to section 6662(a).

     After concessions, the issues remaining for decision are:

     (1) Whether petitioner had unreported income from her sole

proprietorship, Joyce Hastings, Attorney at Law, as determined by

respondent, for the 1993 taxable year;

     (2) whether petitioner's horse activity constituted an

activity not engaged in for profit within the meaning of section

183, for the 1993 taxable year;
                               - 3 -

      (3) whether petitioner is liable for the section 6651(a)(1)

addition to tax for failure timely to file an income tax return

for 1993; and

      (4) whether petitioner is liable for the section 6662(a)

accuracy-related penalty for 1993.

      Additional adjustments to petitioner's self-employment taxes

and deduction for self-employment taxes are computational in

nature and will be resolved by our holdings on the foregoing

issues.

      Unless otherwise indicated, all section references are to

sections of the Internal Revenue Code in effect for the year at

issue, and all Rule references are to the Tax Court Rules of

Practice and Procedure.

                          FINDINGS OF FACT

I.   General Background

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

The stipulations of the parties, with accompanying exhibits, are

incorporated herein by this reference.   At trial, the parties

stipulated that, to the extent relevant, the facts contained in

Hastings v. Commissioner, T.C. Memo. 1999-167, may be

incorporated by reference in this proceeding.   Where relevant,

the findings of fact in Hastings are incorporated herein by this

reference.   At the time the petition was filed in this case,

petitioner resided in Julian, California.
                                - 4 -

      Petitioner did not timely file Form 1040, U.S. Individual

Income Tax Return, for taxable year 1993.     Petitioner requested

an extension of time to file her 1993 Federal income tax return

and paid $300 therewith.    Respondent extended the filing date for

petitioner's 1993 Federal income tax return from April 15, 1994

until August 15, 1994.    On February 16, 1996, petitioner filed

her 1993 Federal income tax return.     On December 17, 1997, the

IRS began its examination of petitioner's 1993 taxable year.

II.   Unreported Income

      During 1993, petitioner was an attorney, practicing as Joyce

Hastings, Attorney at Law.    During 1993, petitioner deposited

amounts totaling $107,883.48 in her general business account.

      The Schedule C, Profit or Loss From Business, attached to

petitioner’s 1993 Form 1040 reflected gross receipts of $55,442

from Joyce Hastings, Attorney at Law.

      In the notice of deficiency, respondent determined that

petitioner failed to report $52,592 in gross receipts from her

law practice.   Respondent subsequently conceded that deposits

totaling $6,100 were nontaxable transfers and that deposits

totaling $1,980 were pension and annuity income that petitioner

reported on her 1993 return.    Respondent’s revised determination

is that petitioner had unreported taxable income of $44,361.48.

This amount is the result of subtracting petitioner’s reported

law practice gross receipts ($55,442) and the amount conceded by
                                 - 5 -

respondent ($8,080) from the total of petitioner’s deposits into

her general business account ($107,883.48).

III.    Horse Activity

       Petitioner has been involved with horses since she was 5

years old.    She is familiar with training, breeding, and showing

horses.

       In 1985, petitioner began to join saddlebred horse

associations and became more involved in horse-related activity.

From 1988 to 1996, petitioner belonged to 11 different

organizations related to her horse activity.     Petitioner

maintained a library of books and video tapes concerning training

and breeding of horses and related subjects.     From 1986 to 1989,

petitioner visited farriers and horse farms to determine ways to

generate income from horse activity.     Based on advice she

received, petitioner decided to purchase and/or breed a stud

horse to generate revenue.    Petitioner intended to show the

stallions, and any other horses of the same bloodline, as a means

of advertisement.    Petitioner concluded that more income could be

generated from selling a stallion’s stud services than could be

generated from showing horses.    Petitioner did not prepare any

profit projections prior to commencing her horse activity.

       In 1989, petitioner began her horse activity by hiring a

well-qualified horse expert to acquire a horse on petitioner’s

behalf.    The horse so acquired was Misty, a yearling saddlebred.
                                - 6 -

In 1991, petitioner purchased Rey, a registered palomino.       In

1993, petitioner purchased a broodmare, Jolly Berry, for $8,000;

another broodmare, Fairy Dust, for $3,800; a third broodmare,

Trigger Happy, for $2,200; and a yearling gelding, Defy, for

$1,100.    Petitioner made efforts to advertise her horses at

shows, in magazines, and within various associations.

     Petitioner maintained separate records for each horse.        The

records for each horse contained information regarding pedigree,

pictures and information about the sire and dam, medical history,

pictures of the horse, breeding information, medical information,

insurance information, and training records.       Petitioner also

maintained numerous horse activity files.     These files contained

information and documents, including:     Forms, horses for sale,

health tips, boarding and training information, equipment

information, horse-related articles, and association membership.

     For the years 1989 through 1995, petitioner reported income

and expenses and claimed losses from her horse activity as

follows:

      Year             Income           Expenses          Losses
      1989               -0-             $7,025           $7,025
      1990               $305            12,838           12,533
      1991               -0-             12,994           12,994
      1992                447            19,667           19,220
      1993             10,402            21,531           11,129
                                 - 7 -

       1994               -0-              26,876         26,876
       1995               -0-              31,322         31,322
       Totals          $11,154           $132,253       $121,099

      In 1993, petitioner received $9,774 for pasturing horses

owned by a third party and $627.50 from a horse show.

      Petitioner did not maintain a separate bank account for her

horse activity.   Petitioner marked an “H” on each check written

for a horse expenditure.     Invoices or bills underlying each check

expenditure were kept separately for each horse and accumulated

and maintained on a monthly basis.

      Petitioner maintains a trailer on the Julian, California,

property that serves as her residence when she is tending the

horses there.

                                 OPINION

I.   Unreported Income

     The income of a sole proprietorship must be included in

calculating the income and tax liabilities of the individual

owning the business.     Sec. 61(a)(2).    The net profit or loss of

such a business is generally computed on Schedule C, Profit or

Loss From Business.

     Taxpayers are required to maintain records sufficient to

establish the existence and amount of all items reported on the

tax return, including both income and deductions therefrom.        Sec.

6001; sec. 1.6001-1(a), Income Tax Regs.       In the absence of books

and records adequate to determine a taxpayer's proper tax
                                - 8 -

liability, the Commissioner is authorized to reconstruct income

by any reasonable method which will clearly reflect income.     Sec.

446(b); Commissioner v. Hansen, 360 U.S. 446, 467 (1959); Palmer

v. IRS, 116 F.3d 1309, 1312 (9th Cir. 1997); Petzoldt v.

Commissioner, 92 T.C. 661, 686-687 (1989).

     As a general rule, in court proceedings arising in

connection with examinations commenced before July 23, 1998, the

Commissioner's deficiency determination is presumed correct, and

the taxpayer bears the burden of proof in such cases.    Sec.

7491(a)(2); Omnibus Consolidated and Emergency Supplemental

Appropriations Act of 1999, Pub. L. 105-277, sec. 4002(b), 112

Stat. 2681-906; Rule 142(a).    As previously stated, the

examination in this case began on December 17, 1997.

     The Court of Appeals for the Ninth Circuit, to which appeal

in the instant case would normally lie, has indicated that before

the presumption of correctness will attach in an unreported

income case, the determination must be supported by at least a

minimal factual predicate or foundation of substantive evidence

linking the taxpayer to income-generating activity or to the

receipt of funds.   Palmer v. IRS, supra at 1312; Rapp v.

Commissioner, 774 F.2d 932, 935 (9th Cir. 1985); see also

Petzoldt v. Commissioner, supra at 687-689.

     Here, the record clearly links petitioner to an

income-generating activity.    During 1993, petitioner was an
                                - 9 -

attorney with an active law practice.    On the Schedule C attached

to petitioner’s 1993 Form 1040, petitioner reported gross

receipts of $55,442 from her law practice.    Petitioner's law

practice is an income-generating activity.    Additionally, the

record clearly links petitioner to the receipt of funds.

Petitioner deposited amounts totaling $107,883.48 in her general

business account during 1993.    Petitioner does not dispute

receiving these funds.    Accordingly, respondent’s reconstruction

of petitioner’s income, to the extent it reveals unreported

income, is supported by the requisite factual predicate for

placing the burden to show otherwise upon petitioner.

     Respondent reconstructed petitioner's 1993 income using the

bank deposits method.    The use of the bank deposits method for

computing unreported income has long been sanctioned by the

courts.   Clayton v. Commissioner, 102 T.C. 632, 645 (1994); DiLeo

v. Commissioner, 96 T.C. 858, 867 (1991), affd. 959 F.2d 16 (2d

Cir. 1992).   Underlying this method is the principle that bank

deposits constitute prima facie evidence of income.     Clayton v.

Commissioner, supra at 645; DiLeo v. Commissioner, supra at 868;

Tokarski v. Commissioner, 87 T.C. 74, 77 (1986).

     A bank deposits analysis must generally encompass a totaling

of bank deposits, an elimination from such total of any amounts

derived from duplicative transfers or nontaxable sources of which

the Commissioner has knowledge, and a further reduction of the
                              - 10 -

adjusted total by any deductible or offsetting expenditures of

which the Commissioner is aware.   Clayton v. Commissioner, supra

at 645-646; DiLeo v. Commissioner, supra at 868.   Using this

method, respondent initially determined that petitioner failed to

report $52,592 in gross receipts from her law practice.   After

concessions, respondent’s revised determination is that

petitioner failed to report $44,361.48 in gross receipts from her

law practice.   As previously indicated, the burden rests on

petitioner to show error in respondent's determination.

     Petitioner does not challenge respondent’s approach or

methodology in reconstructing her income by means of the bank

deposits method.   Petitioner does not dispute that she received

additional funds in the amounts determined by respondent.

Rather, petitioner contends that funds underlying the disputed

deposits totaling $44,361.48 were from a nontaxable source.

Petitioner claims that she received money throughout 1993 as

loans, transfers, and/or inheritance from her mother.   Petitioner

claims that she recorded deposits made into her general business

account in a handwritten deposit ledger.   Petitioner claims that

she recorded the date of the deposit, the deposit number, the

source of the funds deposited, and the amount of the deposit in

said deposit ledger at or near the time she made each deposit.
                              - 11 -

     Petitioner testified that deposits to her general business

account consisted solely of money received as fees from her law

practice and money received from her mother.   Petitioner also

testified that, when she deposited money that she received from

her mother, she recorded the source of funds as a “loan from me

or a loan from my mother.”   On brief, petitioner explained that

she used the term “loan” in her deposit ledger to “describe money

that did not originate as earnings” but rather “belonged to her

mother”.

     Petitioner provided copies of canceled checks for amounts

totaling $6,100.   These checks show that petitioner deposited

into her general business account amounts totaling $6,100 drawn

from her mother’s account.   Based on these canceled checks,

respondent conceded that an amount totaling $6,100 constituted

nontaxable transfers into petitioner’s account.   Other than

canceled checks for the amount conceded by respondent, petitioner

offered no credible evidence of loans, transfers, or inheritance

from her mother.   We do not accept petitioner's self-serving

testimony and handwritten ledger with respect to additional

loans, transfers, or inheritance without corroborative evidence.

Petitioner failed to overcome the presumption of correctness of

respondent's determination of unreported taxable income.

Allowing for concessions made by respondent, we uphold

respondent's determination of unreported taxable income.
                                 - 12 -

II.   Horse Activity

      A.   Statutory Framework

      Section 183(a) provides the following general rule:   “In the

case of an activity engaged in by an individual * * *, if such

activity is not engaged in for profit, no deduction attributable

to such activity shall be allowed under this chapter except as

provided in this section.”    Section 183(b)(1) then goes on to

prescribe that, if an activity is not engaged in for profit, a

taxpayer may take those deductions which would be allowable

without regard to profit motive.     Furthermore, if an activity is

not engaged in for profit, section 183(b)(2) permits the taxpayer

to claim those deductions which would be allowable “if such

activity were engaged in for profit, but only to the extent that

the gross income derived from such activity for the taxable year

exceeds the deductions allowable by reason of paragraph (1).”     In

other words, because deductions for expenses related to an

activity not engaged in for profit are generally limited to the

amount of gross income from such activity, the practical effect

of section 183 is to preclude a taxpayer from deducting losses

incurred in such activity.

      An “activity not engaged in for profit” is defined in

section 183(c) as “any activity other than one with respect to

which deductions are allowable for the taxable year under section

162 [trade or business expenses] or under paragraph (1) or (2) of
                               - 13 -

section 212 [expenses incurred in the production of income].”

See also sec. 1.183-2(a), Income Tax Regs.   Deductions are

allowable under these sections only if a taxpayer’s “primary

purpose and intention in engaging in the activity is to make a

profit.”   Golanty v. Commissioner, 72 T.C. 411, 425 (1979), affd.

without published opinion 647 F.2d 170 (9th Cir. 1981).     The

taxpayer’s expectation of a profit need not be reasonable, but

the taxpayer must possess an “‘actual and honest objective of

making a profit.’”    Keanini v. Commissioner, 94 T.C. 41, 46

(1990)(quoting Dreicer v. Commissioner, 78 T.C. 642, 644-645

(1982), affd. without opinion 702 F.2d 1205 (D.C. Cir. 1983)).

Conversely, no deductions are allowable under section 162 or 212

for “activities which are carried on primarily as a sport, hobby,

or for recreation.”   Sec. 1.183-2(a), Income Tax Regs.

     The taxpayer bears the burden of establishing the requisite

profit objective.    Rule 142(a); Keanini v. Commissioner, supra at

46; Golanty v. Commissioner, supra at 426.    Whether the requisite

profit objective exists is determined by considering all the

surrounding facts and circumstances.    Keanini v. Commissioner,

supra at 46; sec. 1.183-2(b), Income Tax Regs.   Greater weight is

accorded to objective facts and circumstances than to the

taxpayer’s mere statement of intent.    Sec. 1.183-2(a), Income Tax

Regs.
                                - 14 -

     A nonexclusive list of factors set forth in section 1.183-

2(b), Income Tax Regs., guides section 183 analysis by indicating

relevant facts and circumstances for consideration:    (1) Manner

in which the taxpayer carries on the activity; (2) the expertise

of the taxpayer or his advisers; (3) the time and effort expended

by the taxpayer in carrying on the activity; (4) expectation that

assets used in activity may appreciate in value; (5) the success

of the taxpayer in carrying on other similar or dissimilar

activities; (6) the taxpayer’s history of income or losses with

respect to the activity; (7) the amount of occasional profits, if

any, which are earned; (8) the financial status of the taxpayer;

and (9) elements of personal pleasure or recreation.

     B.   Application of the Statutory Framework

            1.   Manner in which the taxpayer carries on the

activity.

     Petitioner claims to have drafted a business plan in 1993.

As evidence of this business plan, petitioner submitted a

business plan from a later year with the date “1993” handwritten

on the cover sheet.    Petitioner testified that she deleted

portions of the submitted plan identifying two horses that did

not exist in 1993.    She testified that the submitted plan, from

the beginning up to the identification of the horses, was exactly

what was written in 1993.    Upon evaluation of the submitted plan,

it is clear that petitioner’s testimony that the same language
                              - 15 -

present in the submitted plan was also present in 1993 is false.

Even the beginning sections of the submitted business plan

contain language that could not have been present in 1993.    For

example, on page three in a section entitled “SUMMARY OF

SADDLEBRED INDUSTRY”, the submitted business plan references the

lineage of petitioner’s horse “Princess”.   Princess was not born

until 1994.   The Court is not convinced that any portion of this

submitted business plan was drafted before or during 1993.    It is

therefore doubtful that petitioner had any business plan in 1993.

     Other than her claim to have drafted a business plan,

petitioner does not claim to have made any changes during 1993

from the manner in which she maintained books and records for the

years at issue in Hastings v. Commissioner, T.C. Memo. 1999-167,

where we held that petitioner’s horse activity was not engaged in

for profit.

     Petitioner’s attempts to improve profitability through

changes in operating methods and techniques can only be termed

minimal.   While attempting to enter into a deal to breed one of

her horses with Andalusians, petitioner pastured Andalusians

owned by a third party, thus producing gross receipts of $9,774.

Compared to petitioner’s reported gross receipts of only $752

from horse activity for the years 1989 to 1992, these pasturing

receipts were substantial.   Despite this potential for income,

petitioner declined to continue pasturing horses after the
                              - 16 -

attempted breeding deal did not materialize as planned.   As in

prior years, petitioner made no attempt to cut her overhead or

losses by ridding herself of unproductive horses or limiting her

acquisitions to horses that furthered a profit-making objective.

Rather, in 1993, petitioner purchased three broodmares and a

gelding even though these horses could not produce stud fees.

     Based on the above considerations, petitioner did not

operate her horse activity in a businesslike manner in 1993.

This factor fails to indicate a profit objective.

          2.   The expertise of the taxpayer or his advisers.

     In considering this factor, the focus is upon expertise and

preparation with regard to the economic aspects of the particular

activity, and failure to possess or obtain expertise in this area

will not be excused by study of other aspects of the activity or

by general business acumen.   See, e.g., Golanty v. Commissioner,

72 T.C. at 432.

     Petitioner is bereft of the requisite economic expertise.

Although petitioner consulted experts on how to generate income

from horse activities before she began her horse activity, she

does not claim to have consulted with any economic or financial

experts during her operations, even when faced with mounting

losses.   This factor does not indicate a profit objective.
                               - 17 -

          3.    The time and effort expended by the taxpayer in

carrying on the activity.

     Respondent argues that petitioner could not have devoted

enough time and effort to the horse activity to make it

profitable in 1993.   As support for this claim, respondent relies

on the facts that petitioner maintained her law practice in

Huntington Beach, California, during the entire 1993 taxable year

and that the driving distance from petitioner’s home in

Huntington Beach, California, to the location of her horse

activity in Julian, California, is approximately 120 miles.   From

these facts, respondent argues that petitioner would only have

been able to devote any substantial time and effort to her horse

activity on an occasional weekend or holiday.   Petitioner claims,

however, to have spent a significant amount of time conducting

her horse activity in 1993.   She claims that until June 1993, she

spent 4 days per week conducting horse activity in Julian,

California.    Petitioner also claims that, starting at the end of

June 1993, she spent 6 days per week conducting horse activity in

Julian, California.   Petitioner also testified that she purchased

a trailer in 1993, presumably to serve as her residence while

conducting horse activity in Julian, California.   Petitioner also

claims that she began to scale back her law practice during 1993

due to her age, the health of her mother, and the increase in her

horse activity.   Petitioner offered no corroborating evidence to
                                 - 18 -

support any of these claims.     The time she claims to have spent

conducting her horse activity is not inconsistent with the amount

of time one might expect from someone conducting a horse activity

as a hobby during the process of retirement.      This factor is

neutral in the determination of whether petitioner had a profit

objective.

          4.      Expectation that assets used in activity may

appreciate in value.

     Petitioner provided no evidence as to the value of her

horses in 1993 nor any evidence showing that her horses were

expected to appreciate in value.     Petitioner claimed that Defy,

the gelding she purchased in 1993, would have been worth

approximately $20,000 if he had “hit”.      Petitioner introduced no

evidence to support this assertion.       Petitioner eventually sold

Defy for his acquisition price.     Defy did not appreciate in

value, and petitioner did not recoup any money she spent for his

upkeep.   This factor does not support petitioner’s claim of

profit objective.

             5.   The success of the taxpayer in carrying on other

similar or dissimilar activities.

     Petitioner is an attorney, with an active and profitable law

practice, Joyce Hastings, Attorney at Law.      Petitioner’s law

practice is not similar to her horse activity.      Petitioner’s

experiences in law practice simply do not translate meaningfully
                                - 19 -

into her horse activity.    This factor is neutral as to whether

petitioner had the requisite profit objective in conducting her

horse activity.

            6.   The taxpayer’s history of income or losses with

respect to the activity.

     Petitioner’s horse activity did not generate a profit during

any of the years from the inception of her horse activity through

the year in issue.    We have previously held that the startup

phase of an American saddlebred horse breeding activity is 5 to

10 years.    Engdahl v. Commissioner, 72 T.C. 659, 669 (1979).     The

year in issue falls within this startup phase.    Petitioner

reported increasing losses from 1989 to 1995.    During that

period, 1993 was the only year in which petitioner’s losses

declined from the previous year.    This decline was the result of

petitioner’s earning pasturing income of $9,774 and horse show

income of $627.50.    Without the pasturing income, petitioner’s

losses would have increased in 1993 from the previous year, as

was the general pattern for petitioner’s horse activity.    From

1989 to 1995, petitioner reported losses in excess of $100,000.

In spite of these losses, petitioner never considered abandoning

the activity.     Petitioner has not demonstrated that future horse

activity income will be sufficient to generate an overall profit
                              - 20 -

for her horse activity.   Since petitioner’s horse activity was in

the startup phase for the year in issue, this factor is neutral

as to whether petitioner had a profit objective.

          7.   The amount of occasional profits, if any, which are

earned.

     As indicated above, petitioner has earned no profits from

her horse activity, so this factor does not support a profit

objective.

          8.   The financial status of the taxpayer.

     Petitioner used the losses from the horse activity to reduce

her taxable income by offsetting income from her law practice.

Petitioner claims to have been in the process of reducing the

size of her law practice during 1993.   Due to her underreporting

of income from the law practice, as discussed above, it is

unclear whether petitioner actually reduced the size of her law

practice in 1993.   Petitioner reported income from her law

practice that was almost completely offset by losses claimed from

the horse activity.   This factor does not indicate a profit

objective.

          9.   Elements of personal pleasure or recreation.

     Petitioner derived substantial personal pleasure from her

horse activity.   We have no doubt that petitioner worked hard in
                               - 21 -

the horse activity.    Even a hobby, however, can require

considerable work.    With regard to a profit objective, this

factor is neutral.

       In summary, the circumstances of this case, when considered

within the framework of the nine factors above, indicate that

petitioner did not possess the requisite intent to profit from

her horse activity.    Petitioner therefore is subject to the

restrictions set forth in section 183 and improperly deducted

losses from her horse activity.

III.    Section 6651(a)(1) Addition to Tax

       Respondent determined that petitioner is liable for an

addition to tax under section 6651(a)(1) for failure timely to

file her 1993 Federal income tax return.     Section 6651(a)(1)

provides for an addition to tax of 5 percent of the tax required

to be shown on the return for each month or fraction thereof for

which there is a failure to file, the aggregate not to exceed 25

percent.    In order to avoid the imposition of the addition to

tax, the taxpayer bears the burden of proving that the failure

did not result from willful neglect and that the failure was due

to reasonable cause.    Sec. 6651(a)(1); United States v. Boyle,

469 U.S. 241, 245 (1985).

        Respondent extended the due date for petitioner’s 1993

Federal income tax return from April 15 to August 15, 1994.

Petitioner filed her 1993 income tax return on February 16, 1996.
                              - 22 -

Petitioner has not offered any explanation for her delinquency.

Petitioner has engaged in a lengthy and consistent pattern of

failing timely to file income tax returns.    See Hastings v.

Commissioner, T.C. Memo. 1999-167.     We therefore hold that

petitioner is liable for the section 6651(a)(1) addition to tax

for the 1993 taxable year.

IV.   Section 6662(a) Accuracy-Related Penalty

      Respondent determined that petitioner is liable for the

accuracy-related penalty under section 6662(a) for 1993.

Subsection (a) of section 6662 imposes a penalty in an amount

equal to 20 percent of the portion of any underpayment of tax

attributable to causes specified in subsection (b).    Subsection

(b) of section 6662 then provides that among the causes

justifying imposition of the penalty are:    (1) Negligence or

disregard of rules or regulations and (2) any substantial

understatement of tax.

      “Negligence” is “any failure to make a reasonable attempt to

comply with the provisions of this title”, and “disregard” is

“any careless, reckless, or intentional disregard.”    Sec.

6662(c).   An understatement is equal to the excess of the amount

of tax required to be shown on the return less the amount of tax

shown on the return.   Sec. 6662(d)(2)(A).   In the case of an
                               - 23 -

individual, an understatement is substantial if it exceeds the

greater of 10 percent of the tax required to be shown on the

return or $5,000.   Sec. 6662(d)(1)(A).

     An understatement is reduced to the extent attributable to

an item:    (1) For which there existed substantial authority for

the taxpayer’s treatment thereof, or (2) with respect to which

relevant facts were adequately disclosed in the return or in a

statement attached thereto and there existed a reasonable basis

for the taxpayer’s treatment of the item.     Sec. 6662(d)(2)(B).

     The accuracy-related penalty under section 6662(a) does not

apply to any portion of an underpayment if it is shown that there

was reasonable cause for such portion of the underpayment and

that the taxpayer acted in good faith with respect to such

portion.    Sec. 6664(c)(1); Jelle v. Commissioner, 116 T.C. 63, 72

(2001).    In general, the determination of whether a taxpayer

acted with reasonable cause and in good faith depends upon the

pertinent facts and circumstances.      Sec. 1.6664-4(b)(1), Income

Tax Regs.    The crucial factor is the extent of the taxpayer's

effort to assess the proper tax liability.      Id.

     Petitioner bears the burden of proving that respondent's

determination is erroneous.    Rule 142(a); Jelle v. Commissioner,

supra at 72.
                              - 24 -

     Petitioner has offered no explanation or argument on this

issue.   Petitioner has engaged in a lengthy and consistent

pattern of underreporting income and of claiming deductions for

losses sustained in an activity not engaged in for profit.    See

Hastings v. Commissioner, supra.     We therefore hold that

petitioner is liable for the section 6662(a) accuracy-related

penalty for the 1993 taxable year.

     To reflect the foregoing and respondent’s concessions,


                                            Decision will be entered

                                      under Rule 155.
