                       T.C. Memo. 1996-121



                     UNITED STATES TAX COURT



         ROBERT P. AND CHRISTINE M. LOLLI, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 2752-94, 4272-94.        Filed March 12, 1996.


     Robert P. Lolli, pro se.

     Andrew J. Horning, for respondent.


                        MEMORANDUM OPINION


     DEAN, Special Trial Judge:   These consolidated cases were

assigned pursuant to the provisions of section 7443A(b)(3) and

Rules 180, 181, and 182.1




     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue. All
Rule references are to the Tax Court Rules of Practice and
Procedure.
                              - 2 -

     Respondent determined deficiencies in petitioners' 1990 and

1991 Federal income taxes in the amounts of $6,871 and $632,

respectively, and an accuracy-related penalty under section

6662(a) for the taxable year 1990 in the amount of $1,374.

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

Whether petitioners are entitled to a business loss deduction in

the amount of $24,675 for the taxable year 1990; (2) whether

petitioners are entitled to a business loss deduction in the

amount of $3,000 for the taxable year 1991; (3) whether

petitioner Robert Lolli received a $184 taxable refund of taxes

from the State of Arizona during the taxable year 1991; (3)

whether petitioner Robert Lolli received $369 of interest income

during the taxable year 1991; and (4) whether petitioners are

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

the taxable year 1990 for negligence or disregard of rules or

regulations.

     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.   Although the record does

not disclose petitioners' residence at the time they filed their


     2
      The parties agree that: (1) Petitioner Robert Lolli
received, but failed to report, $24,500 of self-employment income
during the taxable year 1990 that is subject to self-employment
tax under sec. 1401; (2) petitioners did not receive interest
income in the amount of $332 during the taxable year 1990; and
(3) petitioner Robert Lolli earned, but failed to report, $3,106
of W-2 wages earned during the taxable year 1991. We note that
petitioners are entitled to a deduction under sec. 164(f) for
one-half the self-employment tax paid under sec. 1401.
                                - 3 -

petition, they resided in Scottsdale, Arizona, at the time their

amended petition was filed.   References to petitioner are to

Robert Lolli.

Background

     For the taxable year 1990, respondent determined a

deficiency with respect to $24,500 of self-employment income that

petitioners failed to report on their 1990 Federal income tax

return.   Respondent also determined that petitioners were liable

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

amount of $1,374.20 for negligence or disregard of rules or

regulations.    Petitioners now claim for the first time that they

are entitled to "an offsetting business loss of $24,675" with

respect to the self-employment income they failed to report.

     For the taxable year 1991, petitioners filed a Schedule C

for a business identified as "Horizon America", the principal

activity of which was "landscaping of new homes".   Although

petitioners reported no gross receipts for Horizon America for

1991, they claimed a Schedule C loss that year in the amount of

$3,000 for bad debts from sales or services.   Respondent

determined in her notice of deficiency for 1991 that petitioners

had failed to report a $184 taxable refund of taxes from the

State of Arizona and $369 of taxable interest.   Respondent did

not, however, disallow the $3,000 bad debt deduction claimed by

petitioners on their 1991 Schedule C.
                                - 4 -

     At trial, respondent orally moved for an increased

deficiency, arguing that the $3,000 loss claimed with respect to

"Horizon America" for 1991 was duplicative of the business loss

claimed for 1990, and should, therefore, be disallowed.    Pursuant

to the Court's instruction, respondent reduced her oral motion to

writing, and filed a motion for increased deficiency in

petitioners' 1991 Federal income tax in the amount of $487 on

May 4, 1995.   Respondent's motion for increased deficiency was

granted on June 5, 1995.

Discussion

     We begin with the often-stated principle that respondent's

determinations are presumed correct, and petitioners generally

bear the burden of proving otherwise.   Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933).

     Business loss deductions

     At trial, petitioner explained that the $24,675 "business

loss" claimed for the first time in the amended petition

represents a deduction for the "theft" of sums he invested during

1988 in a partnership identified as "Sonoran Verde Landscaping".

We need not address the details of this testimony, however, as

the following exchange between respondent and petitioner is

sufficient to dispose of the issue:


          Q:   Okay. And you're claiming you realized [that
     you were] * * * swindled * * * in 1988 or early 1989,
     is that right, January * * * of '89?
                                 - 5 -

          A:   That's really a matter of   when we had this
     discussion once before. The minute    I handed him money
     it was a swindle. The last time --    the last check he
     got in my heart, in my opinion, was   the swindle.

             Q:   Right

          A:      Now, when did I know that, probably a week
     later.

             Q:   Which was in January of 1989?

             A:   Or December of '88 in that little time frame,
     yeah.


Section 165(a) generally provides that there shall be allowed as

a deduction any loss sustained during the taxable year and not

compensated for by insurance or otherwise.    For purposes of

section 165(a), a loss arising from theft is treated as sustained

during the taxable year in which the taxpayer discovers such

loss.3   Sec. 165(e); sec. 1.165-8, Income Tax Regs.   Thus, even

if we accept, arguendo, that there was a theft of the moneys

invested by petitioner, his testimony belies his claim that the

proper year to account for such a loss was 1990.4

     Respondent bears the burden of proof with respect to her

determination of an increased deficiency in the amount of $487


     3
      The record does not demonstrate, with respect to the
purported theft of his investment, that there was a claim for
which petitioner had a "reasonable prospect of recovery".
Accordingly, the provisions of sec. 1.165-1(d)(3), Income Tax
Regs., are not applicable in this matter.
     4
      Furthermore, even if we were to characterize the "business
loss" claimed in the amended petition as a deduction for a bad
debt, petitioner has failed to produce any evidence, other than
his own self-serving testimony, that such a debt became worthless
within the taxable year 1990. Sec. 166(a).
                               - 6 -

for the taxable year 1991.   Rule 142(a).   Based upon the

testimony elicited from petitioner at trial, we find that

respondent has met her burden of demonstrating that the $3,000

business loss deduction claimed for 1991 on the "Horizon America"

Schedule C was duplicative of the business loss deduction claimed

for 1990.   Respondent's determination of an increased deficiency

is therefore sustained.

     Refund and interest

     Petitioners failed to produce any evidence to refute

respondent's determination that petitioner received taxable

interest income in the amount of $369 and a $184 taxable refund

from the State of Arizona during the taxable year 1991.

Accordingly, respondent is sustained on these issues.

     Section 6662 penalty

     Respondent determined an accuracy-related penalty under

section 6662(a) with respect to petitioners' 1990 Federal income

tax return for negligence or disregard of rules or regulations.

     In pertinent part, section 6662 imposes an accuracy-related

penalty equal to 20 percent of the portion of an underpayment of

tax that is attributable to negligence or disregard of rules or

regulations.   Sec. 6662(a), (c).   Section 6662(c) defines

"negligence" as including any failure to make a reasonable

attempt to comply with the provisions of the Internal Revenue

Code, and defines "disregard" as including any careless,

reckless, or intentional disregard.
                                 - 7 -

     Petitioners failed to offer any evidence regarding

respondent's determination of an accuracy-related penalty in this

matter.   Accordingly, they have not met their burden of proof,

and respondent's determination will be sustained.

     To reflect the foregoing,

                                              Decisions will be entered

                                         under Rule 155.
