                        T.C. Memo. 1996-71



                      UNITED STATES TAX COURT



           JOHN EDWARD AND LINDA HALL, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6300-94.                February 21, 1996.



     John Edward Hall, pro se.

     Dennis R. Onnen, for respondent.



                        MEMORANDUM OPINION

     KÖRNER, Judge:   Respondent determined a deficiency in

petitioners' 1990 Federal income tax in the amount of $22,217 and

a penalty under section 6662(a) in the amount of $5,281 for 1990.

       All statutory references are to the Internal Revenue Code

in effect for the year in issue, and all Rule references are to
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the Tax Court Rules of Practice and Procedure, except as

otherwise noted.

     Petitioners, John Edward and Linda Hall, were residents of

Kansas at the time the petition was filed herein.   Hereinafter,

all references to "petitioner" refer to John Edward Hall.

     In the year 1986, a corporation known as Hall/McCollum

Laboratories, Inc., was formed in the State of Nevada.     One

million shares of this corporation were issued to petitioner.    In

1987, petitioner sold back to the corporation 800,000 of these

shares, for which he received $150,000.

     Thereafter, a dispute arose between petitioner and the

corporation and, after the corporation had changed its name to

HML Medical, Inc., petitioner brought suit against it.     In 1990,

the dispute was settled, and the lawsuit was dismissed.     As part

of the settlement, petitioner surrendered his remaining 200,000

shares of the corporation to it, in return for the payment to him

of $212,500.

     Upon audit, respondent determined that petitioner's

remaining cost basis in his stock in the corporation was only

$8,801, as compared to a basis of $212,500, which petitioner had

claimed in his return.   Respondent also disallowed a claimed net

capital loss carryforward of $3,000 contained in petitioner's

return.   Finally, respondent, having initially allowed a net

operating loss carryback to petitioner from 1991 to 1990 in the
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amount of $18,789, has now conceded that such net operating loss

carryback should be increased by $2,000.

     As part of the statutory notice of deficiency herein for the

year 1990, respondent also determined a penalty under section

6662(a) against petitioner.

     So far as the deficiency in tax is concerned, we think it is

clear in this Court that the burden of proof is upon petitioner

to show error in respondent's determination.   Rule 142(a); Welch

v. Helvering, 290 U.S. 111 (1933).    This record provides

absolutely no evidence upon which we can determine that

respondent's determination was in error to any extent.    There is

no evidence to show petitioner's cost basis in his original one

million shares in the corporation, other than the $44,004

determined by respondent, and there is no evidence to indicate

that respondent's allocation of 20 percent of such original cost

basis, or $8,801, to petitioner's remaining 200,000 shares that

he sold in 1990 was an unreasonable action.    At trial, petitioner

claimed that his stock basis in the 200,000 shares was over $1

million, and proffered a written receipt indicating such amount.

Upon cross-examination, however, it developed that this so-called

"receipt" was prepared by petitioner himself, showing money as

coming from himself to himself, and was, in fact, prepared just

before trial of this case.    It was admitted solely as a summary
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of his testimony, and is entitled to no evidentiary weight

whatever.1

       Respondent also determined a penalty against petitioner

under section 6662(a), in the amount of $5,281, for the year

1990.       That section provides for the imposition of a penalty

equal to 20 percent of the portion of the underpayment, if such

underpayment arises either from negligence, disregard of rules or

regulations, or is attributable to a substantial understatement

of income tax.       Section 6662(d) in turn defines a substantial

understatement of income tax as being either 10 percent of the

tax required to be shown on the return for the taxable year, or

$5,000, whichever is greater.       The determined deficiency here was

of $22,217, as reported as compared to a reported tax liability

of zero, and was above $5,000.       As in the case of the predecessor

section covering cases of this type, section 6653(a), the burden

of proof to show error on the part of respondent is clearly

placed upon petitioner.       Neely v. Commissioner, 85 T.C. 934, 947

(1985); Arcadia Plumbing Trust v. Commissioner, T.C. Memo. 1994-

455.       The matter was not mentioned by petitioner in pleading, in

trial, or on brief; we cannot be sure if he intended to abandon

it, but in any case respondent's determination of the applicable

penalty must be sustained.



       1
        The net capital loss carryforward that was disallowed by
respondent was not mentioned in the pleadings, at trial, or on
brief, and we deem it to be abandoned.
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     To give effect to respondent's concession herein with regard

to the amount of allowable net operating loss carryback,

                                    Decision will be entered

                              under Rule 155.
