                            T.C. Memo. 1998-56



                          UNITED STATES TAX COURT



                    JANET PHILLIPS, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



       Docket No. 22866-96.                    Filed February 10, 1998.



       Francis J. Sullivan, for petitioner.

       Carol E. Moran, for respondent.



                            MEMORANDUM OPINION


       FOLEY, Judge:     Respondent determined the following

deficiencies, additions to tax, and accuracy-related penalties

relating to petitioner's Federal income taxes:

                                   Addition to tax         Penalty
Year        Deficiency             Sec. 6651(a)(1)      Sec. 6662(a)

1992          $8,866                  $2,217               $1,773
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1993           17,755                 4,439                 3,551

       All section references are to the Internal Revenue Code in

effect for the years in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.        After concessions by

petitioner, the issues for decision are as follows:

       1.   Whether petitioner is entitled to a deduction for

business expenses.      We hold that she is not.

       2.   Whether petitioner is liable for additions to tax for

failing to file her tax returns in a timely manner.        We hold that

she is.

       3.   Whether petitioner is liable for accuracy-related

penalties for negligence.      We hold that she is.

                               Background

       The facts have been fully stipulated under Rule 122 and are

so found.     Petitioner resided in Bensalem, Pennsylvania, at the

time she filed her petition.

       Petitioner's husband, Glenn W. Phillips, was the sole

shareholder of N.H.R. Corp. (NHR).        Petitioner, who had no

affiliation with NHR, owned a disability insurance policy which

in 1992 and 1993 paid her $60,000 and $90,000, respectively,

allegedly to cover the cost of NHR's overhead expenses.

       On October 14, 1994, petitioner filed Federal income tax

returns for 1992 and 1993.      On the returns, petitioner selected

married filing separate status and did not report the benefits
                                - 3 -


received under the policy.    On May 18, 1995, petitioner filed

amended Federal income tax returns on which she reported income

of $60,000 and $90,000, respectively, for 1992 and 1993.    On her

1993 amended return, petitioner deducted $150,000 in business

expenses.   This resulted in a $60,000 net operating loss which

petitioner then carried back and applied against her 1992 gross

income.   On July 31, 1996, respondent issued a notice of

deficiency to petitioner.    Respondent determined that petitioner

was not entitled to deduct the claimed business expenses and was

liable for deficiencies in her Federal income tax, additions to

tax, and accuracy-related penalties.

                             Discussion

     Petitioner contends that she should be allowed to offset the

income she received from the insurance proceeds by deducting

NHR's business expenses.    Respondent contends that petitioner has

failed to establish that she is entitled to such a deduction.     We

agree with respondent.

     Petitioner did not present any evidence to establish that

she paid NHR's expenses.    Moreover, even if she had presented

such evidence, petitioner has failed to cite, and we have not

found, any authority that would permit her to deduct NHR's

expenses on her personal return.    See Rule 142(a); New Colonial

Ice Co. v. Helvering, 292 U.S. 435, 440 (1934) (stating that "a

taxpayer seeking a deduction must be able to point to an
                               - 4 -


applicable statute and show that he comes within its terms"); cf.

sec. 1.162-1(a), Income Tax Regs. (stating that to be deductible,

business expenses must be "directly connected with or pertaining

to the taxpayer's trade or business" (emphasis added)).

Accordingly, we hold that petitioner is not entitled to a

deduction for NHR's business expenses.

     Respondent determined that petitioner was liable for

additions to tax for failure to file her Federal income tax

returns in a timely manner as well as accuracy-related penalties

for negligence.

     Section 6651(a) imposes an addition to tax for failure to

file a tax return in a timely manner.    Petitioner's 1992 and 1993

tax returns were due on April 15, 1993 and 1994, respectively.

Petitioner did not file those returns, however, until October 14,

1994.   Petitioner has failed to establish that her tardiness was

due to reasonable cause and not due to willful neglect.    Sec.

6651(a); United States v. Boyle, 469 U.S. 241 (1985); Welch v.

Helvering, 290 U.S. 111, 115 (1933).    Accordingly, petitioner is

liable for the section 6651(a) additions to tax.

     Section 6662 imposes an accuracy-related penalty on the

portion of an underpayment that is attributable to negligence or

disregard of rules or regulations.     Negligence is the "'lack of

due care or failure to do what a reasonable and ordinarily

prudent person would do under the circumstances.'"     Neely v.
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Commissioner, 85 T.C. 934, 947 (1985) (quoting Marcello v

Commissioner, 380 F.2d 499, 506 (5th Cir. 1967), affg. in part

and remanding in part 43 T.C. 168 (1964)).       Petitioner has failed

to establish that she exercised due care in reporting her income

and expenses, Bixby v. Commissioner, 58 T.C. 757, 791 (1972), or

that she acted with reasonable cause and in good faith, sec.

6664(c).   Accordingly, petitioner is liable for the section 6662

accuracy-related penalties.

     All other arguments raised by the parties are either

irrelevant or without merit.

     To reflect the foregoing,


                                              Decision will be entered

                                         for respondent.
