                       T.C. Memo. 1997-487



                     UNITED STATES TAX COURT



               RICHARD WALTER DRAKE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6119-96.              Filed October 28, 1997.



     Richard Walter Drake, pro se.

     Robert W. Mopsick and William F. Halley, for respondent.


                       MEMORANDUM OPINION

     GOLDBERG, Special Trial Judge:   This case was heard pursuant

to section 7443A(b)(3) and Rules 180, 181, and 182.1   Respondent


1
     Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
     Petitioner originally elected to have his case heard as a
small tax case. See sec. 7463. Thereafter, pursuant to
petitioner's motion, the "S" designation was removed.
                                  2

determined a deficiency in petitioner's Federal income tax for

the year 1993 in the amount of $2,972 and an accuracy-related

penalty in the amount of $534 pursuant to section 6662(a).      The

issues for decision are:   (1) Whether petitioner is entitled to

Schedule E deductions in excess of the amount allowed by

respondent; (2) whether petitioner is entitled to a deduction for

a contribution to an Individual Retirement Account (IRA); (3)

whether petitioner is entitled to itemized deductions; and (4)

whether petitioner is liable for an accuracy-related penalty.

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

The stipulation of facts and the attached exhibits are

incorporated by this reference.       Petitioner resided in Elberon,

New Jersey, at the time his petition was filed.

     Petitioner purchased the property located at 60 Norwood

Avenue in Elberon, New Jersey, approximately 20 years prior to

the year in issue.   The property was part of an old estate of

approximately 2-1/2 acres.   The original buildings included a

farmhouse, a cottage, a carriage house, a cow barn, and a second

barn.   Petitioner restored and rebuilt the property, and

converted four of the buildings into rental units.      Petitioner

lived on the upper level of the carriage house and used the lower

level as a studio and storage area.

     During the year in issue, petitioner made various repairs

and additions to the property.    After a sewer line broke,
                                 3

petitioner paid $7212 to have the basement of one of the houses

power washed and sanitized and $1,390 for repairs to the floor

due to water damage from the sewer line break.   In addition,

petitioner had the exteriors of the houses power washed,

primarily in preparation for painting, at a cost of $1,616.

Petitioner also purchased various supplies, including paint,

paint supplies, and lumber, in order to repair and maintain the

property.   Petitioner purchased and installed a "Stop" sign along

the driveway of the property.   The sign cost $29.   Petitioner

also paid $30 for computer software to produce lease forms.

     During the year in issue, petitioner owned two vehicles.

Petitioner owned a van which he and Brian Hegarty, who helped him

perform work on the property, used to haul items on the property

itself.   Petitioner also owned a car.

     In addition to petitioner’s activities with respect to the

rental property during the year in issue, petitioner was employed

by Delta Air Lines (Delta) as a flight attendant.    Petitioner had

been employed by Pan American since 1963.   Sometime prior to the

year in issue, petitioner became an employee of Delta as a result

of Delta's purchase of a portion of Pan American's routes.

Petitioner was required to purchase his uniforms for use as a

flight attendant with Delta.    Petitioner was permitted to charge

these expenses which Delta recorded as an account receivable from


2
    All amounts have been rounded.
                                4

petitioner.   Petitioner's Form W-2 issued by Delta indicates that

petitioner was a participant in Delta's pension plan during 1993.

     On Schedule E of his Federal income tax return filed for

1993, petitioner reported rents received in the amount of $21,995

and claimed deductions for expenses as follows:

     Advertising                            $340
     Auto and travel                       1,710
     Cleaning and maintenance              2,617
     Insurance                             2,602
     Legal and other professional fees       127
     Mortgage interest                    27,263
     Repairs                               4,896
     Supplies                                 78
     Taxes                                13,780
     Utilities                             1,721
        Total                            $55,134

Thus petitioner claimed a loss of $33,139 from rental real

estate.   Petitioner claimed a deduction of $2,000 for a

contribution to an IRA.   Petitioner did not claim itemized

deductions but rather claimed a standard deduction of $5,450.

     In the notice of deficiency respondent allowed petitioner

Schedule E deductions for mortgage interest and real estate taxes

in the amounts of $20,447 and $11,481, respectively.   Respondent

determined that the remaining mortgage interest and real estate

taxes were paid with respect to the portion of the property that

was petitioner's home and office.   Respondent allowed petitioner

a deduction for office expense of $5,322 and allowed petitioner

Schedule A deductions totaling $5,322.   Respondent disallowed the

remaining expense claimed on petitioner's Schedule E with the
                                 5

exception of supplies in the amount of $78.    As a result of these

adjustments, respondent increased petitioner's taxable income by

$17,806.    Respondent disallowed petitioner's deduction for an IRA

contribution in full.    In addition, respondent determined that

petitioner was liable for an accuracy-related penalty of $534

pursuant to section 6662(a) for negligence or intentional

disregard of rules or regulations.

     At trial, petitioner filed a Schedule A for 1993 claiming

deductions for mortgage interest of $3,407, real estate taxes of

$1,913, charitable contributions of $300, and miscellaneous

expenses of $1,050 before the 2-percent floor.    The Court filed

this document as petitioner's amendment to petition.

     Respondent's determinations are presumed to be correct, and

the burden is on petitioner to prove that the determinations are

erroneous.   Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933).    Further, deductions are a matter of legislative grace,

and petitioner must prove entitlement to any deductions claimed.

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).    A

taxpayer must maintain adequate records to substantiate the

amount of any deductions claimed.    Sec. 6001; sec. 1.6001-1(a),

Income Tax Regs.

     Generally, when evidence shows that a taxpayer has incurred

a deductible expense, but the exact amount cannot be determined,

the Court may approximate the amount.    Cohan v. Commissioner, 39
                                    6

F.2d 540 (2d Cir. 1930).       However, the Court may bear heavily

against the taxpayer "whose inexactitude is of his own making."

Id. at 544.    An exception to the Cohan rule is section 274(d),

which requires strict substantiation of certain expenses,

including those paid or incurred with respect to certain listed

property.     Sec. 274(d).   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).

Rental Expenses

     Section 469 limits the allowance of passive activity losses.

Section 469(a) provides that for an individual, no passive

activity loss will be allowed for a taxable year.       Section

469(c)(2) defines the term "passive activity" to include any

rental activity.     A "passive activity loss" is the amount by

which losses from passive activities exceed income from such

activities.     Sec. 469(d).    The disallowance set forth in section

469(a) shall not apply to the portion, not to exceed $25,000, of

the passive activity loss which is attributable to all rental

real estate activities with respect to which an individual

taxpayer actively participated in the taxable year.       Sec. 469(i).

     Petitioner argues that section 469 does not apply to his

rental activity.     Petitioner contends that he is entitled to

claim a loss from rental real estate in the amount of $27,817.
                                7

Respondent concedes that petitioner actively participated in his

rental activity in the year in issue.   Respondent, however,

argues that petitioner has not substantiated expenses in excess

of those allowed in the notice of deficiency.3

     Petitioner presented numerous receipts and his own testimony

to substantiate his expenses.   Based upon the record, we find

that petitioner has substantiated cleaning, maintenance, and

repair expenses totaling $3,727 related to the sewer line break

and other power washing.   We have reviewed petitioner's remaining

receipts for purchases of items for repairs.     The majority of the

purchases were made at home improvement or hardware stores and

are for amounts under $100 each.    It is not readily apparent what

every receipt is for--some do not contain a description of the

items purchased.   However, most of the receipts contain a

description of the items purchased including paint, drop cloths,

boards, caulking materials, and other related materials.

Petitioner's own testimony concerning the purchases did little to

explain the purpose of the purchases as it was extremely general.

The receipts reflect purchases totaling approximately $2,400,

excluding the repairs related to the sewer line break.    Based on

the record, we find that petitioner paid additional repair

expenses in the amount of $1,800.

3
    Respondent's brief, due on or before May 27, 1997, was
postmarked May 25, 1997, and was filed by the Court on May 28,
1997. Petitioner requests that we strike respondent's brief as
untimely. We deny petitioner's request.
                                8

     Petitioner presented receipts in an attempt to substantiate

additional cleaning expenses.   The purchases total approximately

$200.   It is not clear from the record for what purposes these

purchases were made, and we find that petitioner has not

established that he paid cleaning expenses above those paid for

the power washing as above.

     In an attempt to substantiate his claimed advertising

expenses, petitioner presented receipts and credit card

statements.   Petitioner testified that he made copies of color

photographs of the property, and the evidence includes receipts

for $3 for the cost of such copies.   Petitioner testified that he

was attempting to sell the property and that he provided the

copies to a real estate agent or to potential buyers.   The credit

card statements include charges for the Asbury Park Press

classified section totaling $173.   Petitioner testified that he

paid these charges in connection with advertisements he placed in

the paper in an attempt to sell the property.    The final receipt

in this category is a restaurant bill for $81.   There is no

convincing evidence concerning the purpose for this expenditure.

Petitioner's advertising expenses were not related to his rental

activity.   Petitioner testified that his real estate activity

included selling properties; however, petitioner presented no

other evidence concerning this matter, and we are unconvinced by
                                 9

his testimony alone.    Therefore, petitioner has not established

that he is entitled to a deduction for advertising expense.

       Petitioner presented two bills for fire insurance premiums

from 1992 in an attempt to substantiate his insurance expense.

Petitioner has not established through his testimony or other

evidence that he paid any amounts for fire insurance during the

year in issue.

       Petitioner presented three receipts in an attempt to

substantiate additional rental expenses that he identified as

"legal" expenses.    The purchases include $29 for the stop sign

and $30 for the lease form software.    Based on the record, we

find that petitioner has established that he paid additional

expenses with respect to his rental activity in the amount of

$59.

       Finally, petitioner presented four receipts for purchases of

automobile parts and two receipts for purchases of gasoline.      In

addition, petitioner presented two receipts for amounts of $660

and $216 paid for repairs to the van.    Based on petitioner's

testimony and that of Brian Hegarty, we are satisfied that the

van was used exclusively with respect to petitioner's rental

activity.    Petitioner has established that he paid $876 in

expenses with respect to the van during the year in issue.

Petitioner has not established the purpose for the remaining

expenditures evidenced by the other receipts.    Petitioner also
                                10

presented a bill in the amount of $1,263 for automobile insurance

premiums for three vehicles; two cars and a pick-up truck.

Petitioner has not established that he used any of these vehicles

in his rental activity or that the amount of this bill was paid

in the year in issue.   Petitioner has established that he is

entitled to a deduction for automobile expense in the amount of

$876.

     Petitioner presented no evidence to establish that he paid

any utilities expense during the year in issue.   Petitioner has

not established that he incurred a loss in excess of $25,000, and

therefore we need not reach petitioner's argument that section

469 does not limit a loss in excess of $25,000.

IRA Deduction

     Generally, an individual is allowed a deduction for

contributions to an IRA in an amount not in excess of the lesser

of $2,000, or an amount equal to the compensation includable in

the taxpayer's gross income.   Sec. 219(a) and (b)(1).   Section

219(g) limits the allowable deduction where the individual is an

"active participant" in a qualified retirement plan.     In the case

of an unmarried taxpayer, the $2,000 limitation is reduced by an

amount determined using a ratio in which the excess of the

taxpayer's adjusted gross income, subject to certain adjustments,

over $25,000 is divided by $10,000.   Sec. 219(g)(2) and (3).   As

relevant here, adjusted gross income is determined after the
                                 11

application of section 469.    Sec. 219(g)(3).   An "active

participant" is defined to include an individual who is an

"active participant" in any of certain specified plans.       Sec.

219(g)(5).

     Petitioner did not raise the issue of whether the Delta

pension plan is of the type listed in section 219(g)(5).

Therefore, we find that petitioner has conceded that the plan is

among those so listed.   However, petitioner contends that he was

not an active participant in Delta's pension plan.     He therefore

argues that he is entitled to a deduction for a $2,000 IRA

contribution.

     Respondent contends that petitioner was an active

participant in Delta's plan.    Respondent apparently concedes that

petitioner made a $2,000 contribution to an IRA for the year in

issue.   Respondent argues that petitioner is prohibited from

deducting any amount contributed to an IRA during the year in

issue.   Respondent relies on section 1.219-1(b)(2), Income Tax

Regs.

     Petitioner testified that he was not a participant in

Delta's pension plan during the year in issue.     The only other

evidence in the record is the Form W-2 issued by Delta indicating

that petitioner was a participant in its pension plan.     Based on

the scant evidence in the record, we find that petitioner has
                                12

failed to establish that he was not an active participant within

the meaning of section 219(g) during the year in issue.

     Petitioner's IRA contribution deduction is subject to the

limitations provided in section 219(g).    We do not agree with

respondent that petitioner's deduction is necessarily disallowed

in full.   Section 1.219-1(b)(2), Income Tax Regs., provides that

no deduction is allowable under section 219(a) to an individual

if such individual is an active participant in any of the plans

listed therein.   Clearly, section 1.219-1(b)(2), Income Tax

Regs.,4 is not consistent with the current version of section

219(g) to the extent that the latter allows a deduction to an

unmarried individual who is an active participant in a qualified

plan and who has adjusted gross income of less than $35,000.      If

petitioner’s adjusted gross income for 1993 is less than $35,000,

he is entitled to a deduction under section 219 of $2,000 less

the amount disallowed by application of section 219(g), to be

calculated in the Rule 155 computation.

     Itemized Deductions

     Petitioner contends that he is entitled to itemized

deductions for the year in issue.    Petitioner contends that he

made charitable contributions in the amount of $300 and that he

incurred unreimbursed employee expenses in the amount of $1,050.


4
     Sec. 1.219-1(b)(2), Income Tax Regs., was published in 1980
prior to the enactment in 1986 of sec. 219(g), allowing a
deduction to active participants in certain circumstances.
                                  13

Respondent contends that petitioner has failed to establish that

he made any contributions or that he paid any additional expenses

during the year.

     Section 170 allows a deduction for any charitable

contributions made during the taxable year.     Petitioner testified

that he made cash donations in the amount of $25 each month to

the Episcopal church he attended, but provided no other evidence

to substantiate this amount.   We find that petitioner is entitled

to a deduction for charitable contributions in the amount of

$150.    See Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930).

     Petitioner contends that he paid deductible unreimbursed

employee business expenses during the year in issue.     Petitioner

testified that he paid $211 for luggage which he was required to

purchase as a flight attendant.    Petitioner also testified that

he paid amounts for meals in excess of the amounts reimbursed by

Delta.   Petitioner did not present any other evidence to

substantiate these expenses.   Petitioner has not convinced us

that these amounts were paid in the year in issue.

     Petitioner also contends that he paid $519 for new uniforms

he purchased as a Delta employee.      Petitioner presented copies of

his "Employee's accounts receivable statement" issued by Delta in

an attempt to substantiate this amount.     The first statement is

dated September 15, 1992, and reflects a previous balance of $517

and new charges of $117 for uniforms and accessories.     Thus, the
                                  14

ending balance was $634.    However, there is no evidence

indicating the charges for which the beginning balance of $517

was derived.    A statement dated November 15, 1992, shows a

balance forward of $634, new uniform charges of $100.18, and an

ending balance of $734.    A statement dated March 15, 1993, shows

a balance forward of $734, other charges of $15, and an ending

balance of $749.    Petitioner has only established that he charged

uniforms in the amount of $217.    Petitioner testified that he

paid the balance on his account by the end of 1993 because he

stopped working for Delta at that time.    Based on the record,

petitioner has established that he purchased uniforms at a cost

of $217, and he is entitled to a deduction for unreimbursed

employee expenses in this amount subject to the 2-percent floor.

Accuracy-Related Penalty

     Respondent determined that petitioner is liable for an

accuracy-related penalty for negligence and disregard of rules or

regulations under section 6662(a).     Petitioner bears the burden

of proving that respondent's determination is erroneous.    Rule

142(a); Bixby v. Commissioner, 58 T.C. 757, 791 (1972).

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

20 percent of the portion of any underpayment of tax that is due

to negligence or disregard of rules or regulations.    Sec. 6662(a)

and (b)(1).    "Negligence" is any failure to make a reasonable

attempt to comply with the provisions of the Internal Revenue
                                 15

Code.   Sec. 6662(c).   "Disregard" includes any careless,

reckless, or intentional disregard.    Id.    The failure to maintain

adequate records may constitute negligence.       Zafiratos v.

Commissioner, T.C. Memo. 1992-135, affd. without published

opinion 993 F.2d 880 (3d Cir. 1993).

     Petitioner did not present any evidence to establish that

the accuracy-related penalty should not apply.      Respondent is

sustained on this issue.

     To reflect the foregoing,


                                             Decision will be entered

                                      under Rule 155.
