                             T.C. Memo. 1999-39



                           UNITED STATES TAX COURT



            DAN PISTORESI AND ELAINE M. PISTORESI, Petitioners v.
                 COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 24774-96.               Filed February 8, 1999.



        Dan Pistoresi, pro se.

        Ralph W. Jones, for respondent.



                             MEMORANDUM OPINION


        DINAN, Special Trial Judge:     This case was heard 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 taxable year in
issue. All Rule references are to the Tax Court Rules of
Practice and Procedure.
                                   - 2 -

       Respondent determined a deficiency in petitioners' Federal

income tax for 1992 in the amount of $1,740 and an accuracy-

related penalty pursuant to section 6662(a) in the amount of

$348.

       After concessions by petitioners,2 the issues for decision

are:       (1) Whether petitioners are entitled to a Schedule C

utility expense deduction; (2) whether petitioners are entitled

to a loss deduction with respect to certain stock; (3) whether

petitioners are entitled to a deduction for tax preparation fees;

and (4) whether petitioners are liable for the section 6662(a)

accuracy-related penalty.

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

The stipulations of fact and attached exhibits are incorporated

herein by this reference.       Petitioners resided in the State of

Oregon on the date the petition was filed in this case.

        The first issue for decision is whether petitioners are

entitled to a Schedule C utility expense deduction.       Section

162(a) allows a deduction for the ordinary and necessary expenses

paid or incurred during the taxable year in carrying on a trade

or business.       Respondent does not dispute that petitioner husband

       2
          In their petition, petitioners disputed the deficiency
and accuracy-related penalty by stating that they "can justify to
where we might even have a little coming back to us." At trial,
petitioners failed to address or introduce any evidence with
respect to many of the adjustments in the statutory notice of
deficiency. Petitioners are deemed to have conceded the
adjustments which they failed to properly address in their
petition or at trial. Rule 34(b)(4). We therefore address only
those adjustments and other matters raised at trial.
                                 - 3 -

carried on a Schedule C business called "Adaptable Business

Concepts" during 1992.

     Petitioners claimed a Schedule C deduction for utility

expenses in the total amount of $2,921.    In the statutory notice

of deficiency, respondent disallowed the claimed deduction.    A

self-prepared statement attached to petitioners' return reveals

that the total amount claimed and disallowed for utility expenses

includes $1,025.30 for "TELEPHONE" and $1,253.70 for "FAX".

     Petitioners had two telephone lines at their personal

residence.   The first telephone line was used primarily for

personal purposes.3    Petitioner husband alleges that the second

telephone line (line 2) was used only for business purposes.

According to petitioner husband, line 2 was used to make both

telephone calls and facsimile transmissions in connection with

various projects which he worked on during 1992.

     Although we believe that petitioner husband used line 2 for

business purposes during 1992, we are not convinced that it was

used exclusively for business purposes.    After considering

petitioner husband's testimony and reviewing his telephone

records, we estimate that $250 of the charges for 1992 were

business related.     See Cohan v. Commissioner, 39 F.2d 540, 543-

544 (2d Cir. 1930).     Petitioners have presented no evidence with

respect to their other claimed utility expenses.    Accordingly, we


     3
          The cost of basic service on the first telephone line
is rendered nondeductible by sec. 262(b).
                               - 4 -

hold that petitioners are entitled a Schedule C utility expense

deduction in the amount of $250.

     The second issue for decision is whether petitioners are

entitled to a loss deduction with respect to certain stock.

Petitioners did not claim any stock loss deductions on their

return.   They first claimed these losses during the audit of

their 1992 taxable year.

     Petitioner husband established through his testimony and two

documents that he purchased stock in Codecard Inc. and Horizon

Tech Corp. sometime prior to 1989.     He failed to prove, however,

that the stock became worthless during petitioners' 1992 taxable

year.   Sec. 165(g); sec. 1.165-5(c), Income Tax Regs.   We

therefore hold that petitioners are not entitled to a stock loss

deduction for 1992.

     The third issue for decision is whether petitioners are

entitled to a deduction for tax preparation fees.    Petitioners

submitted as evidence a charge for the preparation of their 1991

Federal income tax return which was paid during 1992.    In the

statutory notice of deficiency, respondent allowed petitioners

their claimed Schedule C deduction for legal and professional

services in the amount of $1,000.

     We find that petitioners have not proved that the amount

allowed by respondent as a Schedule C deduction for legal and

professional services did not include the amount paid for the tax

preparation fees.   Moreover, the tax preparation fees would only

be allowable as a Schedule A miscellaneous expense deduction if
                                 - 5 -

they were not otherwise allowed by respondent.     See sec. 1.67-

1T(a)(1)(iii), Temporary Income Tax Regs., 53 Fed. Reg. 9870

(Mar. 28, 1988).    Since petitioners claimed the standard

deduction for 1992 and have not proved that their total itemized

deductions exceeded their claimed standard deduction, the tax

preparation fees, if allowable under section 67, would not

decrease their taxable income.    Sec. 63.   Accordingly, we hold

that petitioners are not entitled to a deduction for tax

preparation fees.

     The fourth issue for decision is whether petitioners are

liable for the section 6662(a) accuracy-related penalty.

Respondent's determinations of negligence are presumed to be

correct, and petitioners bear the burden of proving that the

penalty does not apply.    Rule 142(a); Welch v. Helvering, 290

U.S. 111, 115 (1933); Bixby v. Commissioner, 58 T.C. 757, 791-792

(1972).

     Section 6662(a) imposes a 20-percent penalty on the portion

of an underpayment attributable to any one of various factors,

one of which is negligence or disregard of rules or regulations.

Sec. 6662(b)(1).    Respondent determined that petitioners are

liable for the accuracy-related penalty imposed by section

6662(a) for their underpayment of tax in 1992, and that such

underpayment was due to negligence or disregard of rules or

regulations.   "Negligence" includes a failure to make a

reasonable attempt to comply with the provisions of the Internal

Revenue laws or to exercise ordinary and reasonable care in the
                                 - 6 -

preparation of a tax return.    Sec. 6662(c); sec. 1.6662-3(b)(1),

Income Tax Regs.   "Disregard" includes any careless, reckless, or

intentional disregard of rules or regulations.       Sec. 6662(c);

sec. 1.6662-3(b)(2), Income Tax Regs.

     Section 6664(c)(1), however, provides that the penalty under

section 6662(a) shall not apply to any portion of an

underpayment, if it is shown that there was reasonable cause for

the taxpayer's position with respect to that portion and that the

taxpayer acted in good faith with respect to that portion.        The

determination of whether a taxpayer acted with reasonable cause

and in good faith is made on a case-by-case basis, taking into

account all the pertinent facts and circumstances.         Sec.

1.6664-4(b)(1), Income Tax Regs.    The most important factor is

the extent of the taxpayer's effort to assess his proper tax

liability for the year.   Id.

     Based on the record, we find that petitioners have not

proved that their underpayment was due to reasonable cause or

that they acted in good faith.    Accordingly, we hold that they

are liable for the section 6662(a) accuracy-related penalty for

1992.

     To reflect the foregoing,



                                              Decision will be entered

                                         under Rule 155.
