                         T.C. Memo. 2001-289



                       UNITED STATES TAX COURT



                  JACK B. NEWHART, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18226-99.                  Filed October 31, 2001.



     Richard C. Miller, for petitioner.

     Kenneth P. Dale, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     CHIECHI, Judge:    Respondent determined a deficiency in

petitioner’s Federal income tax (tax) for 1995 in the amount of

$18,181.
                                - 2 -

     The issues remaining for decision1 are:2

     (1)    Did petitioner materially participate in a certain

business within the meaning of section 469(h)(1)?3   We hold that

he did not.

     (2)    Is petitioner entitled to deduct under section 212

certain claimed expenses with respect to a rental property that

he owned?    We hold that he is not.

                          FINDINGS OF FACT

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

     At the time the petition was filed, petitioner resided in

Redwood City, California.

     Petitioner was a full-time employee of Scimed/Boston

Scientific Corporation (Scimed), a medical device corporation,

working 10 to 12 hours a day in that company’s sales operations.

The sales territory of petitioner, who resided in Foster City,

California (Foster City), included California, Nevada, and

Hawaii.    Petitioner’s employment with Scimed required him to

travel an aggregate of about one week each month.



     1
      Computational issues also remain, resolution of which flows
automatically from our resolution of the issues that we address
herein.
     2
      Although not expressly stated except where needed for
clarity, our statement of issues, Findings of Fact, and Opinion
pertain to the year at issue unless otherwise indicated.
     3
      All section references are to the Internal Revenue Code in
effect for the year at issue. All Rule references are to the Tax
Court Rules of Practice and Procedure.
                               - 3 -

Chicken Bar

     During 1991, petitioner, Marc Caplan (Mr. Caplan), a friend

of petitioner who lived in Lake Oswego, Oregon (Lake Oswego),4

and three other individuals incorporated Chicken Bar, Inc.

(Chicken Bar), under the laws of the State of Oregon.   At all

relevant times including 1995, Chicken Bar owned and operated a

fast food restaurant (Chicken Bar restaurant), located in

Beaverton, which is near Portland.

     At all relevant times including 1995, petitioner owned 35

percent, Mr. Caplan owned 35 percent, and three other individuals

owned the remaining 30 percent of the stock of Chicken Bar.   The

board of directors of Chicken Bar consisted of five members, two

of whom were petitioner and Mr. Caplan.5

     Mr. Caplan was the president, and petitioner was the

secretary, of Chicken Bar.   Mr. Caplan, as president, had primary

responsibility for the day-to-day management and operations of

Chicken Bar, including the Chicken Bar restaurant.6   Petitioner,


     4
      Lake Oswego is near Portland, Oregon (Portland), and
Beaverton, Oregon (Beaverton). In addition to Mr. Caplan,
petitioner had two or three other friends who lived in the
Portland area.
     5
      The bylaws of Chicken Bar provided in pertinent part that
“The business and affairs of the corporation shall be managed by
a Board of Directors who shall exercise or direct the exercise of
all corporate powers”.
     6
      The bylaws of Chicken Bar provided in pertinent part that
the president “shall * * * have general supervision, direction
                                                   (continued...)
                              - 4 -

as secretary, had no responsibility for the day-to-day management

and operations of Chicken Bar, including the Chicken Bar

restaurant.7

     Sometime during 1994, Chicken Bar hired a general manager


     6
      (...continued)
and control of the business and affairs of the corporation. * * *
He shall have the general powers and duties of management usually
vested in the office of President of a corporation”.
     7
      Article III of the bylaws of Chicken Bar provided in
pertinent part:

     Section 4.   SECRETARY

          (a) The Secretary shall keep or cause to be kept
     at the principal office or such other place as the
     Board of Directors may order, a book of minutes of all
     meetings of directors and shareholders showing the time
     and place of the meeting, whether it was required by
     the Bylaws of the corporation, how authorized, the
     notice given, the names of those present at Directors’
     meetings and the proceedings thereof.

          (b) The Secretary shall keep or cause to be kept
     at the principal office of the corporation’s transfer
     stock agent, a share register, or a duplicate share
     register, showing the names of the shareholders and
     their addresses, the number of shares held by each, the
     numbers and dates of certificates issued for such
     shares, and the number and date of cancellation of each
     certificate surrendered for cancellation.

          (c) The Secretary shall give or cause to be given
     such notice of the meetings of the shareholders and of
     the Board of Directors as is required by the Bylaws,
     and shall have such other powers and perform such other
     duties as may be prescribed by the Board of Directors
     or Bylaws.

          (d) The Secretary shall be responsible for the funds
     of the corporation, and have payments made only on the check
     of the corporation signed in the manner authorized by the
     Board of Directors.
                                 - 5 -

(general manager) who was to be directly responsible for planning

and implementing its objective of opening three additional

restaurants.   During 1995, $180,000 was made available to the

general manager in order to enable him to accomplish that

objective.   Through the efforts of the general manager, sometime

during 1995, a new corporation was organized,8 which opened and

operated a fast food restaurant in Beaverton.    Because the

general manager exhausted the entire $180,000 that had been made

available to him in order to open only one restaurant in 1995,

his services were terminated around March 15, 1995.

     Petitioner did not keep a contemporaneous log of any

activities that he undertook with respect to the Chicken Bar

business.    At a time or times not disclosed by credible evidence

in the record, petitioner prepared a handwritten document

entitled “1995 - CHICKEN BAR LOG BOOK OF TIME SPENT ON CHICKEN

BAR BUSINESS” (1995 document).    The 1995 document contains a

series of entries9 consisting of (1) very brief summaries of

certain activities that petitioner claims he undertook with

respect to the Chicken Bar business, (2) the respective dates

on which petitioner claims he undertook those activities, and

(3) the number of hours that he claims he spent on each such


     8
      The record does not disclose the identities of the
stockholders, the officers, and other employees of the
corporation organized in 1995.
     9
      The 1995 document contains 151 entries.
                               - 6 -

activity.   The 1995 document does not indicate where petitioner

claims he undertook the various activities listed in that

document or whether petitioner was required to travel in order to

perform any of those claimed activities.

     The following chart shows the total number of hours listed

in the 1995 document that petitioner contends he spent on certain

types of activities:

        Claimed Types of Activities          Claimed Total Hours
Review of management files and                        2
  responsibilities
Review of catering functions with local               2.5
  schools
Review of, and/or planning, new business              3.5
  sites
Review of, and/or recommendations on,                 9
  employee hiring criteria and/or employee
  pay scales
Review of, and/or recommendations on, menu           17.5
  items and/or pricing
Review of employee files                             18.5
Review of, and/or drafting of, budgets               19.5
Review of prospective purchase proposals             22.5
Internet search for, and/or study of,                25
  licensing information and/or
  opportunities
Review of payroll reports                            28
Review of past growth and/or drafting of,            28.5
  or review of, projections relating to
  expansion
                              - 7 -

Discussions with Mr. Caplan                             32.5
  regarding:
     Franchising concepts and
        possibilities                        4
     Advertisements, budgets, and payroll    4
     Licensing and franchising               4
     Pro forma                               3.5
     Employee issues, wages, and payroll     5
     Budget and menu items                   4
     Financial reports                       3.5
     Current financial status                4.5
                                             1
     Budgets for 1995 and 1996
Review of, and/or recommendations on,                   33
  budgets
Advertisement and media review and/or                   35.5
  study
Internet stock market search and/or                     41.5
  comparison analysis to Chicken Bar
Internet searches for, and/or study of,                 46.5
  franchising information and/or
  opportunities
Internet searches for, and/or analysis of,              59.5
  restaurant statistics
Review and analysis of financial reports              98
                                                    2
                        Total Hours Listed           523
     1
       The 1995 document does not show any number of hours for the
entry relating to claimed discussions with Mr. Caplan regarding
budgets.
     2
       The 1995 document shows the total number of hours listed in
that document as 524. That total is wrong.

     The following chart shows the total number of hours listed

in the 1995 document that petitioner claims he spent on each day

of the week on the activities listed in that document:

    Day of the Week for              Total Hours Shown
  Which Entries Were Made         for Each Day of the Week
            Mondays                          36.5
           Tuesdays                          30.5
         Wednesdays                          29
          Thursdays                          17
            Fridays                         116
                                   - 8 -

            Saturdays                           150
             Sundays                            144

Tacoma Property

     Petitioner owned certain rental real property (Tacoma

property) located in Tacoma, Washington (Tacoma), a city in which

various members of his family lived, including his father Jack E.

Newhart, his mother Juanita Demas, his brother David Newhart, and

his sister Julie Ayala.

     Stan Cybaliski (Mr. Cybaliski) managed the Tacoma property

on behalf of petitioner.       Mr. Cybaliski was a property manager

who worked for Clover Creek Realty, a real estate company owned

by Roy Burnsides.       As the property manager, Mr. Cybaliski was

responsible for, inter alia, collecting the rent and soliciting

bids when the Tacoma property needed work.       Petitioner paid

approximately $50 a month for the management of the Tacoma

property.

     Petitioner traveled at various times to Portland and to

Tacoma.   Petitioner’s trips to Portland were usually made in

combination with his trips to Tacoma (combination trips).       On his

combination trips, petitioner usually:       Drove from his home in

Foster City to the airport in San Francisco, California (San

Francisco), flew from that airport to the Portland airport,

rented a car, drove to Tacoma, returned the rental car to

Portland, flew from the Portland airport to the San Francisco

airport, and drove home to Foster City.       A one-way trip from
                               - 9 -

petitioner’s home in Foster City to Portland took approximately

three hours, including ground transportation.

     During 1997, at the recommendation of the revenue agent

examining petitioner’s 1995 tax return (return), petitioner

prepared a handwritten document entitled “JACK NEWHART TRAVEL LOG

& EXPENSES” (1997 document).   The 1997 document contains a series

of entries consisting of (1) very brief summaries of certain

activities that petitioner claims he undertook with respect to

both the Chicken Bar restaurant and the Tacoma property, (2) the

respective dates on which petitioner claims he undertook those

activities, and (3) the respective locations at which petitioner

claims such activities took place.     The 1997 document does not

indicate the number of hours that petitioner claims he spent on

the activities listed in that document.

     Petitioner paid the amounts indicated with respect to the

following airplane flights from San Francisco:

     Departure Date              Destination            Amount
         3/19/95                   Portland              $178
        5/19/95                    Portland               210
        7/17/95                    Portland               125
          8/4/95               Seattle, Wash.             125
                                 (Seattle)
          8/7/95                   Portland               203
         8/25/95                   Portland               198
         9/22/95                   Portland               101
        11/15/95                   Portland               111
        11/22/95                   Portland               101
        12/20/95                   Portland                91
                                             Total     $1,443
                                 - 10 -

     Petitioner paid the amounts indicated with respect to the

following car rentals:10

                              Location Where
      Date                    Car Was Rented               Amount
     6/4/95                      Portland                  $41.30
     8/7/95                      Portland                   98.99
    10/2/95                      Portland                  107.34
    11/26/95                     Portland                  231.00
                                                Total     $478.63

     Petitioner paid the amounts indicated with respect to the

following meals:

                            Location Where
    Date                   Meal Took Place                 Amount
                                  1
  3/18/95                                                 $263.00
                                  1
  5/20/95                                                   235.00
  7/19/95                      Tacoma                       187.00
   8/4/95                      Tacoma                       197.22
                                  1
  8/26/95                                                   427.00
                                  1
  9/23/95                                                   278.00
                                  1
  11/15/95                                                  158.00
  11/22/95                     Tacoma                       276.00
                                  1
  12/18/95                                                  455.00
                                               Total    $2,476.22
     1
      There is no credible evidence in the record disclosing the
location at which the meal took place.

     Petitioner paid the amounts indicated with respect to the

following hotel expenses:



     10
      On Dec. 23, 1995, an individual identified as “Jack
Newhart” rented a car in Seattle and returned that car at the
Portland airport on Dec. 27, 1995. The total charges for that
rental car were $365.21. No credible evidence in the record
discloses whether the individual who rented the car over the
period Dec. 23-27, 1995, was Jack B. Newhart, petitioner in this
case, or Jack E. Newhart, his father.
                                - 11 -

                           Location Where
     Date                Hotel Was Located                 Amount
    6/6/95                   Lake Oswego                  $112.80
   10/2/95                    Beaverton                    225.66
  11/28/95                  Lake Oswego                    104.49
  12/26/95                  Lake Oswego                    116.74
                                             Total        $559.69

     Petitioner paid the amounts indicated with respect to the

following types of expenses:

                  Type of           Location Where
     Date         Expense          Expense Was Paid         Amount
   3/23/95       Parking             San Francisco            $85
                                        airport
   8/6/95            Parking        San Francisco             50
                                        airport
   8/6/95        Gasoline         Federal Way, Wash.           9
                                     (Federal Way)
  11/25/95           Parking        San Francisco             84
                                        airport
  11/25/95       Gasoline             Federal Way             12
  12/21/95        Parking           San Francisco             44
                                        airport
                                                  Total     $284

Petitioner’s Return for the Year at Issue

     Petitioner timely filed Form 1040, U.S. Individual Income

Tax Return, for 1995 (1995 return).

     The 1995 return included Schedule E, Supplemental Income and

Loss (Schedule E).    With respect to the Tacoma property, the 1995

Schedule E reported rental income of $10,200 and claimed rental

expenses of $24,505, which included $4,896 of claimed “TRAVEL”

expenses (petitioner’s claimed traveling expenses), and a

Schedule E loss of $14,305.
                                - 12 -

     On a date not disclosed by the record, Chicken Bar, an S

corporation, issued petitioner Schedule K-1, Shareholder’s Share

of Income, Credits, Deductions, etc., for 1995.     That schedule

indicated, inter alia, that petitioner’s pro rata share of

Chicken Bar’s ordinary loss from trade or business activities

(Schedule K-1 loss) was $19,412.

     On a date not disclosed by the record, petitioner filed Form

1040X, Amended U.S. Individual Income Tax Return (Form 1040X),

for 1995.   In Form 1040X for 1995, petitioner claimed, inter

alia, the Schedule K-1 loss of $19,412 attributable to Chicken

Bar and a refund of $5,937.     On February 3, 1997, the Internal

Revenue Service sent petitioner a refund of $5,937 with respect

to his 1995 tax year.

Notice of Deficiency

     In the notice of deficiency (notice) issued to petitioner

for 1995, respondent determined, inter alia, to disallow $19,212

of the $19,412 Schedule K-1 loss that petitioner claimed in the

1995 Form 1040X on the ground that petitioner did not materially

participate in the Chicken Bar business within the meaning of

section 469(h)(1).     Respondent further determined to disallow

petitioner’s claimed traveling expenses of $4,896 on the ground

that petitioner “did not prove that the amount shown [$4,896] was

(a) rental expense, and (b) paid”.
                               - 13 -

                              OPINION

     Petitioner bears the burden of showing error in the

determinations in the notice that remain at issue.   See Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).   Deductions

are strictly a matter of legislative grace, and petitioner bears

the burden of proving that he is entitled to any deductions

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

     Petitioner attempted to satisfy his burden of proof through

his own testimony and certain documentary evidence, including the

1995 document, the 1997 document, and certain alleged receipts

for a claimed car rental expense,11 taxi expense, and meal

expenses.12   We found petitioner’s testimony to be questionable

and not credible in certain material respects.   We also found the

1995 document,13 the 1997 document, and the alleged car rental


     11
      Petitioner relies on a receipt issued to “Jack Newhart”
for a rental car expense incurred for the period Dec. 23-27,
1995. See supra note 10.
     12
      Petitioner relies on nine claimed meal receipts. Eight of
those nine receipts consist of restaurant chits (chits) that were
removed from certain restaurant bills and that were filled in by
hand. Only four of those eight chits indicate the names of the
restaurants at which petitioner contends he ate meals, the cost
of which he is claiming as rental expense deductions under sec.
212. Two of those four chits also indicate the locations of the
restaurants. Petitioner indicated in his handwriting on each of
the nine claimed meal receipts the individuals who he contends
attended each of the meals in question and the purpose that he
claims for each such meal. Petitioner’s handwriting on two of
the claimed meal receipts indicates that his mother Juanita Demas
attended the meals to which those receipts purportedly refer.
     13
       The 1995 document contains a series of entries claiming
                                                    (continued...)
                              - 14 -

receipt, taxi receipt, and meal receipts to be questionable and

not credible.   In this connection, virtually all of that

documentary evidence was prepared by petitioner whose testimony

we found to be questionable and not credible in certain material

respects; we found certain inconsistencies and/or discrepancies

between the 1995 document and the 1997 document;14 and we found


     13
      (...continued)
that petitioner spent a total of 523 hours on certain activities
with respect to the Chicken Bar business. Of those total claimed
hours, the 1995 document indicates that throughout 1995
petitioner allegedly spent 36.5 hours on Mondays, 30.5 hours on
Tuesdays, 29 hours on Wednesdays, 17 hours on Thursdays, and 116
hours on Fridays, or a total of 229 hours on weekdays.
Petitioner also claims in the 1995 document that during 1995 he
spent a total of 294 hours on weekend days in activities with
respect to the Chicken Bar business. Petitioner testified that
he spent between 10 to 12 hours a day, or 50 to 60 hours each
workweek, working for Scimed and that his employment with that
company required him to travel an aggregate of about one week
each month. Given that each workweek petitioner worked for
Scimed 10 to 12 hours a day and that he traveled for that company
an aggregate of one week each month, we find the total number of
hours, especially weekday hours, shown in the 1995 document as
hours that petitioner spent in undertaking activities with
respect to the Chicken Bar business to be highly suspect.
     14
      Many of the entries in the 1997 document contradict, or
otherwise appear to be inconsistent with, the 1995 document. By
way of illustration, the 1995 document contains an entry for Mar.
19, 1995, which indicates that petitioner spent 3.5 hours
studying and reviewing franchising information. The 1997
document contains an entry for Mar. 19, 1995, which indicates
that petitioner flew to Portland and met with Mr. Caplan to
discuss the purchase of cooking pots and other equipment. By way
of further illustration, the 1995 document contains an entry for
June 4, 1995, which indicates that petitioner spent 4.5 hours
reviewing new franchising ideas on the internet. The 1997
document contains an entry for June 4, 1995, which indicates that
petitioner flew to Portland, met with Mr. Caplan, and attended an
employee meeting. Another illustration relates to an entry in
                                                   (continued...)
                              - 15 -

certain of the entries (1) in the 1995 document and the 1997

document with respect to the activities that petitioner claims he

undertook and (2) on the claimed meal receipts with respect to

the purposes for which petitioner claims he incurred the meal

expenses at issue to be vague and ambiguous.15   Based on our

evaluation of petitioner’s testimony and the documentary evidence

on which he relies, we are not required to, and we shall not,

rely on that evidence in determining whether petitioner has


     14
      (...continued)
the 1997 document for Sept. 29, 1995, which indicates that
petitioner flew to Portland for an “emergency meeting w/Marc
Caplan to discuss firing of 2 employee [sic]”. The 1997 document
also lists Oct. 2, 1995, as possibly the date on which that
alleged emergency meeting took place. The 1995 document does not
contain any entry for Sept. 29, 1995, or Oct. 2, 1995. As a
final illustration, the 1997 document contains an entry for Dec.
20, 1995, which indicates that petitioner flew to Portland, met
with Mr. Caplan, drove to Tacoma on Dec. 23, 1995, returned to
Portland on Dec. 27, 1995, and had another meeting with Mr.
Caplan. The 1995 document contains no entries for any of the
dates listed in the 1997 document on which petitioner claims he
was meeting with Mr. Caplan.
     15
      By way of illustration of the vague and ambiguous nature
of some entries in the 1995 document, a number of those entries
claimed that petitioner undertook the following: “analyse [sic]
national restaurant statistics from internet”, “study & review
franchising from/on internet”, “internet–-review national
restaurant statistics to see how we compare”, “look on internet
for stock market data to compare–-vs–-our #s”, “study & review
text on franchising”. Although petitioner testified about
certain entries in the 1995 document, as indicated above, we
found his testimony to be questionable and not credible in
certain material respects. By way of illustration of the vague
and ambiguous nature of some entries in the 1997 document and on
the claimed meal receipts, a number of those entries merely
indicated that the purpose of certain claimed meetings and
claimed meals was to discuss rental property or rental property
issues.
                                - 16 -

carried his burden of establishing error in respondent’s

determinations with respect to the two issues that remain in this

case.

Chicken Bar

     Respondent determined to disallow $19,212 of the $19,412

loss that petitioner claimed with respect to Chicken Bar on the

ground that respondent determined that petitioner did not

materially participate in the Chicken Bar business within the

meaning of section 469(h)(1).    Petitioner disagrees with

respondent’s determination.    Before turning to the specific

contentions of the parties in support of their respective

positions, we shall set forth the general framework of section

469 and the regulations thereunder.

     Pursuant to section 469(a), a passive activity loss of an

individual for the taxable year is generally not allowed as a

deduction for such year.16    For this purpose, the passive

activity loss for the taxable year is generally the amount, if

any, by which the passive activity deductions for the taxable

year exceed the passive activity gross income for such year.

Sec. 469(d)(1).

     As pertinent here, section 469(c) defines the term “passive

activity” to include any activity which involves the conduct of


     16
      A disallowed passive activity loss for a taxable year is
generally treated as a deduction allocable to a passive activity
for the next year. Sec. 469(b).
                              - 17 -

any trade or business and in which the taxpayer does not

materially participate.   Sec. 469(c)(1).   For purposes of section

469(c)(1), the term “trade or business” is defined in section

469(c)(6) to include any activity in connection with a trade or

business or any activity with respect to which expenses are

allowable as a deduction under section 212.

     Section 469(h)(1) provides that generally an individual is

to be treated as materially participating in an activity only if

such individual is involved in the operations of the activity on

a basis that is regular, continuous, and substantial.    Congress

expressly authorized the Secretary of the Treasury to prescribe

such regulations as may be necessary or appropriate to carry out

the provisions of section 469, including regulations that specify

“what constitutes * * * material participation”.    Sec. 469(l)(1).

     Both temporary and final regulations relating to the meaning

of the terms “participation” and “material participation” have

been promulgated under section 469.    With respect to the term

“participation”, final regulations issued under section 469

provide that generally

     any work done by an individual (without regard to the
     capacity in which the individual does the work) in
     connection with an activity in which the individual
     owns an interest at the time the work is done shall be
     treated for purposes of this section as participation
     of the individual in the activity. [Sec. 1.469-
     5(f)(1), Income Tax Regs.]

Temporary regulations issued under section 469 provide certain
                             - 18 -

exceptions to that definition of participation.   As pertinent

here, section 1.469-5T(f)(2)(ii)(A), Temporary Income Tax Regs.,

53 Fed. Reg. 5727 (Feb. 25, 1988), provides that work done by an

individual in such individual’s capacity as an investor in an

activity is not to be treated as participation by the individual

in the activity unless the individual is involved in the day-to-

day management or operations of the activity.   For this purpose,

work done by an individual in such individual’s capacity as an

investor in an activity includes:

          (1) Studying and reviewing financial statements or
     reports on operations of the activity;

          (2) Preparing or compiling summaries or analyses
     of the finances or operations of the activity for the
     individual’s own use; and

          (3) Monitoring the finances or operations of the
     activity in a non-managerial capacity. [Sec. 1.469-
     5T(f)(2)(ii)(B), Temporary Income Tax Regs., 53 Fed.
     Reg. 5727 (Feb. 25, 1988).]

     Temporary regulations relating to the meaning of the term

“material participation” in section 469(h)(1) provide that, in

general,

     an individual shall be treated, for purposes of section
     469 and the regulations thereunder, as materially
     participating in an activity for the taxable year if
     and only if--

          (1) The individual participates in the activity
     for more than 500 hours during such year;

          (2) The individual’s participation in the activity
     for the taxable year constitutes substantially all of
     the participation in such activity of all individuals
     (including individuals who are not owners of interests
                             - 19 -

     in the activity) for such year;

          (3) The individual participates in the activity
     for more than 100 hours during the taxable year, and
     such individual’s participation in the activity for the
     taxable year is not less than the participation in the
     activity of any other individual (including individuals
     who are not owners of interests in the activity) for
     such year;

          (4) The activity is a significant participation
     activity (within the meaning of paragraph (c) of this
     section) for the taxable year, and the individual’s
     aggregate participation in all significant
     participation activities during such year exceeds 500
     hours;

          (5) The individual materially participated in the
     activity (determined without regard to this paragraph
     (a)(5)) for any five taxable years (whether or not
     consecutive) during the ten taxable years that
     immediately precede the taxable year;

          (6) The activity is a personal service activity
     (within the meaning of paragraph (d) of this section),
     and the individual materially participated in the
     activity for any three taxable years (whether or not
     consecutive) preceding the taxable year; or

          (7) Based on all of the facts and circumstances
     (taking into account the rules in paragraph (b) of this
     section), the individual participates in the activity
     on a regular, continuous, and substantial basis during
     such year. [Sec. 1.469-5T(a), Temporary Income Tax
     Regs., 53 Fed. Reg. 5725-5726 (Feb. 25, 1988).]

     According to petitioner, he is to be treated as having

materially participated in the Chicken Bar business within the

meaning of section 469(h)(1) because he satisfies both section

1.469-5T(a)(1) and (7), Temporary Income Tax Regs., 53 Fed. Reg.
                               - 20 -

5725-5726 (Feb. 25, 1988).17   Respondent counters that petitioner

does not comply with either of those provisions of the temporary

regulations and that consequently he is not to be treated as

having materially participated in the Chicken Bar business within

the meaning of section 469(h)(1).

     We turn first to section 1.469-5T(a)(1), Temporary Income

Tax Regs., 53 Fed. Reg. 5725 (Feb. 25, 1988), on which petitioner

relies.   According to petitioner, the 1995 document and his

testimony establish that he spent 523 hours on activities

relating to the conduct of the Chicken Bar business and that all

of those hours must be taken into account in determining whether

he satisfies section 1.469-5T(a)(1), Temporary Income Regs., 53

Fed. Reg. 5725 (Feb. 25, 1988).   As we indicated above, we shall

not rely on that evidence in determining whether petitioner has

carried his burden of establishing that he satisfies that

temporary regulation.18   On the record before us, we find that


     17
      Petitioner does not rely on sec. 1.469-5T(a)(2), (3), (4),
(5), or (6), Temporary Income Tax Regs., 53 Fed. Reg. 5725-5726
(Feb. 25, 1988), in support of his position that he is to be
treated as having materially participated within the meaning of
sec. 469(h)(1) in the Chicken Bar business.
     18
      Petitioner failed to call Mr. Caplan, the president of
Chicken Bar who was involved in its day-to-day operations, as a
witness to corroborate petitioner’s position with respect to his
claimed role in the Chicken Bar business. We infer from
petitioner’s failure to call Mr. Caplan that his testimony would
not have been favorable to petitioner’s position on the question
of whether petitioner materially participated in the Chicken Bar
business within the meaning of sec. 469(h)(1) and the regulations
                                                   (continued...)
                               - 21 -

petitioner has failed to carry his burden of proving that he is

to be treated as having materially participated in the Chicken

Bar business under section 1.469-5T(a)(1), Temporary Income Tax

Regs., 53 Fed. Reg. 5725 (Feb. 25, 1988).19

     We turn next to section 1.469-5T(a)(7), Temporary Income Tax

Regs., 53 Fed. Reg. 5726 (Feb. 25, 1988), on which petitioner

relies.   Petitioner argues that, in applying that temporary

regulation in this case, we should disregard section 1.469-

5T(b)(2)(ii), Temporary Income Tax Regs., 53 Fed. Reg. 5726 (Feb.

25, 1988).20   That is because, according to petitioner, that


     18
      (...continued)
thereunder on which petitioner relies. See Wichita Terminal
Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162
F.2d 513 (10th Cir. 1947).
     19
      Assuming arguendo that we had found the 1995 document to
be credible, on the record before us, we find that petitioner has
failed to carry his burden of showing that many of the activities
listed in that document constitute activities performed by him in
his capacity as other than an investor. See sec. 1.469-
5T(f)(2)(ii), Temporary Income Tax Regs., 53 Fed. Reg. 5727 (Feb.
25, 1988). In this connection, petitioner’s reliance on Mordkin
v. Commissioner, T.C. Memo. 1996-187, is misplaced. Mordkin is
distinguishable from the instant case.
     20
      In determining whether a taxpayer is to be treated as
materially participating in an activity under sec. 1.469-
5T(a)(7), Temporary Income Tax Regs., 53 Fed. Reg. 5726 (Feb. 25,
1988), sec. 1.469-5T(b)(2)(ii), Temporary Income Tax Regs., 53
Fed. Reg. 5726 (Feb. 25, 1988), provides:

          (ii) Certain management activities. An
     individual’s services performed in the management of an
     activity shall not be taken into account in determining
     whether such individual is treated as materially
     participating in such activity for the taxable year
                                                   (continued...)
                                - 22 -

latter temporary regulation is invalid.   In support of that

position, petitioner asserts:

     The regulation [section 1.469-5T(b)(2)(ii), Temporary
     Income Tax Regs.,53 Fed. Reg. 5726 (Feb. 25, 1988)] too
     simplistically uses the word management without any
     attempt to actually look at the surrounding facts and
     circumstances. The regulation provides that ONLY one
     person can materially participate as a manager under
     the facts and circumstances test. The regulation’s
     test is two-fold. No person is compensated and no
     other individual invests more hours in management of
     the activity. This emasculates the regular,
     continuous, and substantial requirement.

     We need not decide whether petitioner is correct in arguing

that section 1.469-5T(b)(2)(ii), Temporary Income Tax Regs., 53

Fed. Reg. 5726 (Feb. 25, 1988), is invalid.   That is because, on

the record before us,21 we find that, without regard to that



     20
      (...continued)
     under paragraph (a)(7) of this section unless, for such
     taxable year--

          (A) No person (other than such individual) who
     performs services in connection with the management of
     the activity receives compensation described in section
     911(d)(2)(A) in consideration for such services; and

          (B) No individual performs services in connection
     with the management of the activity that exceed (by
     hours) the amount of such services performed by such
     individual.

     Petitioner concedes on brief that if we were to find sec.
1.469-5T(b)(2)(ii), Temporary Income Tax Regs., 53 Fed. Reg. 5726
(Feb. 25, 1988), to be valid, he does not satisfy that temporary
regulation.
     21
      As discussed above, we did not find petitioner’s testimony
and the 1995 document to be credible, and we shall not rely on
that evidence.
                                - 23 -

temporary regulation, petitioner has failed to carry his burden

of showing that he participated in the Chicken Bar business on a

regular, continuous, and substantial basis during the year at

issue and that he should be treated as having materially

participated in the Chicken Bar business under section 1.469-

5T(a)(7), Temporary Income Tax Regs., 53 Fed. Reg. 5726 (Feb. 25,

1988).    See sec. 469(h)(1).

     Based on our examination of the entire record before us, we

find that petitioner has failed to carry his burden of

establishing that he is to be treated as having materially

participated in the Chicken Bar business within the meaning of

section 469(h)(1) and the regulations thereunder on which he

relies.

Tacoma Property

     Respondent determined that petitioner is not entitled to

deduct petitioner’s claimed traveling expenses of $4,896.

Although not altogether clear, petitioner appears to contend that

not only is respondent’s determination wrong, but he is entitled

to deduct an additional $760.75 of claimed traveling expenses

with respect to the Tacoma property, or a total of $5,656.75.22




     22
      The parties stipulated, and therefore respondent concedes,
that petitioner paid the following expenses:

                                                   (continued...)
                                   - 24 -

     In support of respondent’s position that petitioner is not

entitled to deduct any of the traveling expenses that petitioner

claims with respect to the Tacoma property, respondent contends

that petitioner failed to prove (1) that those claimed expenses

are ordinary and necessary expenses paid or incurred for the

production or collection of income and/or for the management,

conservation, or maintenance of property held for the production

of income under section 212 and (2) that petitioner complied with

the substantiation requirements of section 274(d).

     An individual is allowed a deduction for all the ordinary

and necessary expenses paid or incurred for the production or

collection of income and for the management, conservation, or

maintenance of property held for the production of income.       Sec.

212(1) and (2).     Section 274(d) operates to disallow any



     22
          (...continued)

                 Type of Expense                      Amount
                Airplane flights                    $1,443.00
                   Car rentals                          478.63
                       Meals                         2,476.22
                     Parking                            263.00
                      Hotels                            559.69
                     Gasoline                            21.00
                                            Total   $5,241.54

     In addition to the foregoing stipulated expenses that
petitioner paid, petitioner contends that he is entitled to
deduct with respect to the Tacoma property a car rental expense
of $365.21 and a taxi expense of $50, both of which he claims he
paid.
                              - 25 -

deduction otherwise allowable under section 212 for any traveling

expense, including meals and lodging while away from home, sec.

274(d)(1), and for any item with respect to an activity that is

of a type generally considered to constitute, inter alia,

entertainment, such as a meal expense paid by a taxpayer for a

guest, sec. 274(d)(2), unless the taxpayer substantiates by

adequate records or by sufficient evidence corroborating the

individual’s own statement the amount of such expense, the time

and the place of the travel and entertainment, the business

purpose of the expense, and the business relationship to the

taxpayer of any person entertained.    Rules for substantiation of

each element of an expenditure for traveling and for

entertainment are prescribed by section 1.274-5T, Temporary

Income Tax Regs., 50 Fed. Reg. 46014-46018 (Nov. 6, 1985).

     According to petitioner, the 1997 document, the claimed car

rental receipt, taxi receipt, and meal receipts and his testimony

establish that he is entitled under section 212 to deduct the

expenses at issue.   As we indicated above, we shall not rely on

that evidence in determining whether petitioner has carried his

burden of establishing that he is entitled under section 212 to

deduct those expenses.   On the record before us, we find that

petitioner has failed to carry his burden of proving that the

expenses at issue constitute ordinary and necessary expenses paid

or incurred for the production or collection of income and/or for
                               - 26 -

the management, conservation, or maintenance of property held for

the production of income under section 212.   We further find on

that record that petitioner has failed to carry his burden of

establishing that he is entitled under section 212 to deduct any

of those claimed expenses.23

     We have considered all of the contentions and arguments of

petitioner that are not discussed herein, and we find them to be

without merit and/or irrelevant.

     To reflect the foregoing and the concessions of the parties,



                                         Decision will be entered

                                    under Rule 155.




     23
      Assuming arguendo that we had found that petitioner had
satisfied his burden of showing that he is entitled under sec.
212 to deduct the expenses at issue, on the record before us, we
find that petitioner has failed to satisfy his burden of showing
that he complies with the substantiation requirements of sec.
274(d)(1) and (2) and the regulations thereunder with respect to
those expenses.
