                       T.C. Memo. 1997-207



                     UNITED STATES TAX COURT



       KENNETH MILES AND MICHON SNOW TESAR, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 15613-95.              Filed May 5, 1997.



     Kenneth Miles Tesar, pro se.

     Donald B. Fields, for respondent.


                       MEMORANDUM OPINION

     COHEN, Chief Judge:    This case was assigned to Special Trial

Judge Stanley J. Goldberg, pursuant to the provisions of section

7443A(b)(4) and Rules 180, 181, and 183.1    The Court agrees with


1
     Unless otherwise indicated, 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.
                                 - 2 -


and adopts the opinion of the Special Trial Judge which is set

forth below.

               OPINION OF THE SPECIAL TRIAL JUDGE

     GOLDBERG, Special Trial Judge:      Respondent determined the

following deficiencies and accuracy-related penalties with

respect to petitioners' Federal income taxes:

                                          Accuracy-Related Penalty
        Year           Deficiency               Sec. 6662(a)

        1991            $5,068                       --
        1992             9,388                    $1,878
        1993             7,279                     1,456
                              - 3 -


After concessions,2 the issues for decision are:   (1) Whether

petitioners are entitled to deduct amounts paid by Kenneth Miles

Tesar (petitioner) for the purchase of comic books used in an

extracurricular activity at the school in which he taught;

(2) whether petitioners are entitled to a deduction with respect

to Michon Snow Tesar's (Mrs. Tesar) home office; (3) whether

petitioners are entitled to a Schedule C deduction for

Mrs. Tesar's automobile usage; and (4) whether petitioners are

liable for an accuracy-related penalty under section 6662(a) for


2
     For the taxable year 1991, respondent concedes that
petitioners are entitled to an exemption deduction for
petitioner's brother, Frank Tesar, and that petitioners are
entitled to a child-care credit in the amount of $960.
     For the taxable year 1992, respondent concedes that
petitioners are entitled to a Schedule C deduction in the amount
of $110 for insurance expense. Respondent further concedes that
petitioners are entitled to a deduction for charitable gifts in
the amount of $12,032.59. Respondent also concedes that
petitioners may deduct petitioner's unreimbursed employee
expenses in the amounts of $425 for dues and $1,155 for
automobile expense, subject to the limitation on miscellaneous
deductions. Further, respondent concedes that petitioners are
entitled to a child-care credit in the amount of $960.
     For the taxable year 1993, respondent concedes that
petitioners are entitled to a deduction for charitable gifts in
the amount of $12,916.98. In addition, respondent concedes that
petitioners may deduct petitioner's unreimbursed employee
expenses in the amounts of $397 in dues and $1,120 in automobile
expenses, subject to the limitation on miscellaneous deductions.
Respondent also concedes that petitioners are entitled to a
child-care credit of $350.45.
     For the taxable year 1992, petitioners concede that they are
not entitled to a deduction in the amount of $7,316 for points
incurred in refinancing their home mortgage in October 1992.
Petitioners are entitled to deductions in 1992 and 1993 with
respect to the amortization of the points over the 30-year term
of the mortgage.
                                - 4 -


a substantial understatement of taxes in 1992 and 1993.    An

increase in self-employment taxes for Mrs. Tesar is computational

and will be resolved by our decisions with respect to the second

and third issues.

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   Petitioners resided in

Homewood, Illinois, at the time their petition was filed.

     During the years in issue, petitioner was employed as a

mathematics teacher at Homewood-Flossmoor Community High School

(referred to as the school).   Petitioner had been teaching there

since 1969.   Petitioner was also employed as a mathematics

professor at Purdue University.

     Sometime in 1982, a group of students approached petitioner

and asked if he would be willing to sponsor a club for students

interested in comic books and sequential art.   Petitioner agreed.

In addition to teaching various high school math classes,

petitioner acted as the sponsor for a number of extracurricular

activities at the high school, including the chess club,

"Mathletes" (the math club), the Star Trek club, and the comic

book club.    Petitioner's understanding was that he should sponsor

or participate in some type of student activity as an employee of

the school district.
                                - 5 -


     Petitioner was interested in sequential and comic book art.

Prior to becoming a teacher, petitioner worked as a commercial

artist, and he had contributed work to fanzines on an unpaid

basis.    Petitioner had been collecting comic books for some time,

and his collection totaled approximately 28,000 titles prior to

1991.    Petitioner derived a great deal of enjoyment and personal

satisfaction from participating in the comic book club.

     The school did not require that the teachers have any

specific skill level in order to sponsor one of the school's non-

athletic clubs or activities.    The faculty sponsors primarily

were responsible for supervising the students.    The sponsors

commonly expended some personal funds for pizza or similar items

for the students.

     During the years in issue, the comic book club met on

afternoons each week after school for an hour or an hour and a

half.    Petitioner was not compensated separately for this time.

Approximately 30 to 40 students were members of the club during

the years in issue.    The club meetings were held in one of the

classrooms at the school where petitioner set up a comic book

reading library containing approximately 12,000 comic books for

use by the club.    During the meetings the members read comic

books or worked on producing their own comic book.    Some of the

members were poor readers, and petitioner believed that the club

was an aid to developing their reading skills.
                                 - 6 -


     The school did not fund the comic book club.    The club

participated in school sanctioned candy sales to raise funds for

its activities.    The club realized approximately $4,800 in

profits from these sales over the years in issue.    The students

retained half of the profits for their own use, and petitioner

encouraged them to use these funds to purchase comic books.     The

remaining funds were retained by petitioner to support club

activities such as attending comic book conventions.    Petitioner

was not entitled to reimbursement for any amounts he expended for

club purposes in excess of the funds raised by the club's candy

sales.

     Petitioner ordered comic books for the club including

multiple copies of certain publications that were particularly

popular with the students.    The comic books were delivered weekly

to petitioners' home, and petitioner carried some of the comic

books to school.    Petitioner purchased a total of approximately

16,000 comic books, for which he paid $7,632.74, $8,349.54, and

$12,675.21 during the years 1991, 1992, and 1993, respectively.

Petitioner did not purchase any of these comic books with

proceeds from the candy sales.

     Petitioner's employment with the high school terminated in

1995.    At that time, he removed 12,000 comic books from the

school premises and stored them in his home.
                                - 7 -


     Mrs. Tesar is a licensed physical therapist.    In her

practice, during the years in issue, she generally performed

services on her patients in their homes or other locations

outside of petitioners' home.   Mrs. Tesar used an extra bedroom

in petitioners' home as her office.     She maintained her records

in her home office, and she completed work at home including

transcribing her notes, contacting doctors and patients, and

updating her records on her patients.

     Generally, Mrs. Tesar drove from petitioners' home to the

location where she was to deliver services and then returned

home.   She maintained records of her travel on large calendar

sheets.   She listed the name and address of the patient she

visited in the box provided on the sheet for that day.

Petitioner copied information from Mrs. Tesar's calendar pages on

an annual basis for the preparation of petitioners' tax returns.

Petitioner's summary sheets list the name of each patient or

client along with the round-trip mileage and date of travel from

petitioners' home to the location where services were rendered.

     On their Federal income tax return for 1991, petitioners

claimed a Schedule C deduction for car and truck expenses

incurred by Mrs. Tesar in the amount of $4,574.    This amount

represents mileage of 6,960 times the standard mileage rate of

.275 plus depreciation expense of $2,660.    Petitioners also

claimed a deduction in the amount of $2,866 for expenses incurred
                               - 8 -


in the business use of their home.     Petitioners claimed a

Schedule A deduction in the amount of $8,681 before the 2-percent

floor for petitioner's unreimbursed employee business expenses.

This deduction includes dues in the amount of $404, automobile

expense in the amount of $671, and vocational supplies in the

amount of $7,606.   On their Federal income tax return for 1992,

petitioners claimed a Schedule C deduction for car and truck

expense incurred by Mrs. Tesar in the amount of $3,084, including

depreciation expense in the amount of $2,780.     Petitioners also

claimed a Schedule C deduction for home office expense in the

amount of $2,193.   Petitioners claimed a Schedule A deduction in

the amount of $9,299 for petitioner's unreimbursed employee

expenses.   On their Federal income tax return filed for 1993,

petitioners claimed a Schedule A deduction for petitioner's

unreimbursed employee business expenses in the amount of $14,186,

including vocational supplies in the amount of $12,648, small

tools in the amount of $91, and textbooks in the amount of $54.

     In the notice of deficiency for the tax year 1991,

respondent disallowed petitioners' Schedule C deduction for car

and truck expense for lack of substantiation and for failure to

establish any amount expended was ordinary and necessary.

Respondent disallowed petitioners' home office expense deduction

because it was not established that this expense was ordinary and

necessary for Mrs. Tesar's trade or business.     Respondent also
                               - 9 -


disallowed petitioners' Schedule A deduction for unreimbursed

employee expenses because the expenses claimed were not shown to

be ordinary and necessary nor had petitioners established that

the expenses were not reimbursable by petitioner's employer.     In

the notice of deficiency for the tax year 1992, respondent

disallowed petitioners' Schedule A employee business expenses for

lack of substantiation.   Respondent also disallowed petitioners'

Schedule C deductions for automobile expense as personal

commuting costs and disallowed Mrs. Tesar's home office expense

because it was not ordinary and necessary.     Respondent further

determined an accuracy-related penalty under section 6662(a).       In

the notice of deficiency for the tax year 1993, respondent

disallowed petitioners' deduction for employee business expense

due to a lack of substantiation.   Respondent further determined

an accuracy-related penalty pursuant to section 6662(a).

     As an initial matter, petitioners assert that respondent

audited petitioners' prior years' returns with respect to claimed

deductions for expenses for the purchase of comic books and for

the use of a portion of petitioners' home by Ms. Tesar as her

office, and they contend that respondent allowed those

deductions.   Petitioners argue that deductions should therefore

be allowed for amounts paid or incurred for these items during

the years in issue because they are identical in character to

those previously subject to audit.     We are not persuaded by
                                - 10 -


petitioners' argument.    Each tax year is to be considered

separately.   United States v. Skelly Oil Co., 394 U.S. 678, 684

(1969).   Respondent is not estopped from asserting a different

position in the years in issue even if she accepted petitioners'

treatment of certain items in prior years' returns.     Rose v.

Commissioner, 55 T.C. 28, 32 (1970); see Knights of Columbus

Council No. 3660 v. United States, 783 F.2d 69, 73 (7th Cir.

1986).

     Petitioners did not file a posttrial brief.    In their trial

memorandum, petitioners argue that the costs of the comic books

are deductible because the comic books were necessary for

petitioner to maintain his skills as an effective sponsor of the

comic book club.    At trial, petitioners also argued that

petitioner purchased comic books during the years in issue as a

necessary part of the after school activity that petitioner

sponsored to satisfy a requirement of his teaching position.

Petitioners argue that such costs are deductible as employee

business expense.

     Respondent contends that the costs incurred by petitioner

for the purchase of comic books were not ordinary because the

amount was in excess of what teachers generally expend for these

types of activities.     Respondent also argues that the amounts

were not necessary expenses of petitioner's trade or business as

a teacher because respondent contends petitioner was not required
                               - 11 -


to sponsor a club.   Respondent further contends that the costs

were not incurred primarily to maintain petitioner's skills

required in his employment or other trade or business.     Thus,

respondent argues that the costs were not incurred by petitioner

in carrying on his trade or business and are not allowable.     In

the alternative, respondent argues that the costs are non-

deductible capital expenditures subject to depreciation over the

useful life of the comic books and contends that petitioners have

failed to establish the useful life of the comic books.

     Section 162 allows a deduction for ordinary and necessary

expenses paid or incurred by a taxpayer in carrying on a trade or

business.   The expenses must be directly or proximately related

to the taxpayer's trade or business.      Deputy v. du Pont, 308 U.S.

488, 494-495 (1940); sec. 1.162-1, Income Tax Regs.     An expense

is considered ordinary if commonly or frequently incurred in the

trade or business of the taxpayer.      Deputy v. du Pont, supra at

495-496.    A necessary expense is one that is appropriate or

helpful in carrying on petitioner's trade or business.

Commissioner v. Heininger, 320 U.S. 467, 475 (1943).      The expense

must also be reasonable in amount relative to its purpose.

Cardwell v. Commissioner, T.C. Memo. 1982-453 (citing United

States v. Haskal Engg. & Supply Co., 380 F.2d 786, 788 (9th Cir.

1967).   An employee's trade or business is earning his

compensation, and generally only those expenses that are related
                               - 12 -


to the continuation of his employment are deductible.    Noland v.

Commissioner, 269 F.2d 108, 111 (4th Cir. 1959), affg. T.C. Memo.

1958-60.    Education expenses are considered ordinary and

necessary business expenses if the education maintains or

improves skills required by the taxpayer in his employment, or

meets the express requirements of an employer, imposed as a

condition for the taxpayer's continued employment, status, or

rate of compensation.    Sec. 1.162-5(a), Income Tax Regs.

Personal expenses are not deductible.    Sec. 262.

     Petitioner has not established through his testimony or by

other evidence that the purchase and use of the comic books

maintained or improved his skills required as a high school

teacher.    Nor is there any evidence that the expenses were

incurred to meet the express requirements of the school.     Thus,

the costs of the comic books are not deductible as education

expenses.

     In addition, we are not persuaded that the expenses were

ordinary or necessary in petitioner's trade or business of

earning pay as a school teacher.    Although petitioner believed

that he was required to sponsor an extracurricular activity as a

condition of his continued employment, it does not necessarily

follow that the expenses he incurred in doing so were ordinary

and necessary.    The comic books may have been helpful to the club

members, but petitioner has not established that they were
                               - 13 -


ordinary or necessary in his trade or business as a teacher of

mathematics.   The school only required that sponsors of

extracurricular activities supervise the students.      Furthermore,

while faculty sponsors commonly bought snacks for their students,

there is no evidence that they ordinarily purchased supplies with

personal funds for the activities.      Petitioner collected comic

books as a hobby, and when he left his job at the school he

retrieved for his own collection many of the comic books that he

had ordered for the club.   Petitioners have not established that

the costs of the comic books are deductible business expenses.

See Wheatland v. Commissioner, T.C. Memo. 1964-95; Mann v.

Commissioner, T.C. Memo. 1993-201.

     Petitioners argue that they are entitled to deduct expense

incurred with respect to Mrs. Tesar's home office.      Respondent

counters that Mrs. Tesar's home office was not her principal

place of business, and, therefore, petitioners may not deduct the

expenses incurred therewith.

     Section 280A generally prohibits deduction of otherwise

allowable expenses with respect to the use of an individual

taxpayer's home.   As an exception, this restriction does not

apply to:

     any item to the extent such item is allocable to a
     portion of the dwelling unit which is exclusively used
     on a regular basis--

                 (A) [as] the principal place of business for
            any trade or business of the taxpayer,
                               - 14 -


                 (B) as a place of business which is used by
            patients, clients, or customers in meeting or
            dealing with the taxpayer in the normal course of
            his trade or business, * * *

Sec. 280A(c).   While determination of a taxpayer's principal

place of business for purposes of section 280A depends upon the

particular facts of the case, two primary factors for

consideration are:   (1) "the relative importance of the

activities performed at each business location"; and (2) the time

spent at each location.    Commissioner v. Soliman, 506 U.S. 168,

175 (1993).

     Mrs. Tesar's business was providing physical therapy to

patients.    Mrs. Tesar performed the majority, if not all, of such

services at her patients' homes or other location outside of her

home.   These activities were of greater significance than the

administrative functions, such as transcribing notes and updating

files, that she performed at home.      This factor tends to show

that Mrs. Tesar's home office was not her principal place of

business.

     Petitioner testified that Mrs. Tesar spent approximately an

equivalent amount of time performing services outside the home as

she spent completing work at home.      Petitioner generally was not

present while Mrs. Tesar worked at home, and he did not have

actual knowledge concerning this matter.      Moreover, even if we

accept that Mrs. Tesar worked half of the time at home and half

of the time at other locations, the time factor would not
                               - 15 -


persuade us that her principal place of business was in her home

where none of the physical therapy was performed.    Petitioners

have failed to prove that Mrs. Tesar's home office was her

principal place of business.

     Petitioners assert that Mrs. Tesar met with some patients at

her home office.   However, there is no evidence in the record to

establish that these meetings occurred or the frequency or

regularity of the alleged meetings.     Thus, petitioners have not

established that Mrs. Tesar's home office was used by her

patients in meeting with her in the normal course of her

business.

     Petitioners have not established that any of the exceptions

in section 280A apply.    Accordingly, petitioners are not entitled

to a deduction in 1991 or 1992 related to Mrs. Tesar's use of

their home for business purposes.   Respondent is sustained on

this issue.

     Petitioners argue that they are entitled to deduct

automobile expense incurred by Mrs. Tesar in carrying on her

business during 1991 and 1992.   Respondent contends that

petitioners have not substantiated any automobile expense

incurred by Mrs. Tesar.   Further, respondent argues that even if

petitioners substantiate the expense, petitioners would not be

entitled to a deduction for the costs associated with

Mrs. Tesar's trips between their home and the place where she
                                - 16 -


performed services because such amounts represent nondeductible

commuting costs.

     Generally, section 162 allows a deduction for all ordinary

and necessary expense incurred or paid in carrying on a trade or

business, subject to the strict substantiation requirements of

section 274(d).    Section 274(d) requires substantiation of any

expense incurred or paid with respect to certain listed property.

Listed property includes automobiles.    Sec. 280F(d)(4).   Section

274(d) requires substantiation of these expenses either by

"adequate records or by sufficient evidence corroborating the

taxpayer's own statement".    Sec. 274(d).   The records must show

the amount, date, and business purpose of each expense or

business use.     Id.; sec. 1.274-5T(b)(6), Temporary Income Tax

Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).    Generally, in order to

be adequate, records must be written and must be prepared or

maintained such that a record of each element of an expenditure

or use that must be substantiated is made at or near the time of

such expenditure or use when the taxpayer has full present

knowledge of each element.    Sec. 1.274-5T(c)(2)(ii)(C), Temporary

Income Tax Regs., 50 Fed. Reg. 46018 (Nov. 6, 1985).    In the

alternative, each element of an expenditure or use must be

established by the taxpayer's own written or oral statement

"containing specific information in detail as to each element"

combined with corroborative evidence to establish such element.
                               - 17 -


Sec. 1.274-5T(c)(3)(i), Temporary Income Tax Regs., 50 Fed. Reg.

46020 (Nov. 6, 1985).    Automobile expense may be computed using

actual costs, such as depreciation, or using the standard mileage

method; thus, petitioners cannot deduct depreciation expense and

use the standard mileage rate.    See Rev. Proc. 91-67, 1991-2 C.B.

887.

       Petitioners have not produced evidence sufficient to

substantiate Mrs. Tesar's automobile expense as required by

section 274(d).    The summary sheets prepared by petitioner do not

constitute adequate records.    Petitioner did not prepare them at

or near the time of each use; moreover, petitioner did not have

knowledge of each element of Mrs. Tesar's automobile usage.

Mrs. Tesar was not present at trial and did not testify.      The

only other evidence in the record is petitioner's testimony

concerning the manner in which he compiled the information on the

summary sheets for the purpose of preparing petitioners' tax

returns.    There is no explanation in the record as to why

petitioners failed to present any records maintained by

Mrs. Tesar.    Accordingly, respondent is sustained on this issue.

       Respondent determined that petitioners are liable for an

accuracy-related penalty under section 6662(a) for 1992 and 1993

due to a substantial understatement of income tax.

       Section 6662(a) imposes an accuracy-related penalty equal to

20 percent of the portion of an underpayment of tax that is
                              - 18 -


attributable to a substantial understatement of income tax.    For

any taxable year, an understatement is substantial if the amount

of the understatement exceeds the greater of 10 percent of the

tax required to be shown on the return or $5,000.   Sec. 6662(d).

No penalty will be imposed under section 6662(a) with respect to

any portion of an underpayment, if it is shown that there was

reasonable cause for petitioners' position as to that portion,

and that petitioners acted in good faith with respect to that

portion.   Sec. 6664(c)(1); sec. 1.6664-4(a), Income Tax Regs.

This determination is based on all of the relevant facts and

circumstances.   Sec. 1.6664-4(b)(1), Income Tax Regs.

     Because of respondent's concessions with respect to the tax

years 1992 and 1993, Rule 155 computations are necessary to

determine whether there is a substantial understatement of tax

for either year.

     Furthermore, based on the record, we believe that

petitioners acted with reasonable cause and good faith with

respect to their conclusion that the costs of the comic books

were deductible as employee business expenses based on the

results of the examination of their prior years' returns in which

respondent allowed such costs.   See Matthews v. Commissioner, 92

T.C. 351, 363 (1989), affd. 907 F.2d 1173 (D.C. Cir. 1990);

De Boer v. Commissioner, T.C. Memo. 1996-174.   Therefore, the

penalty does not apply to the portion of the underpayment which
                             - 19 -


was attributable to petitioners' deduction for the costs of the

comic books.


                                        Decision will be entered

                                   under Rule 155.
