                  T.C. Memo. 1999-194



                UNITED STATES TAX COURT



             GEORGE COLONEY, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 23087-97.                      Filed June 16, 1999.



     On the facts, Held: (1) P may not deduct gambling
losses in excess of amounts allowed by R; (2) P's deduction
for State income taxes is limited to the amount of New York
State income tax withheld by P's employer in 1994; and (3)
R's determination that there is an accuracy-related penalty
due from P under sec. 6662(a), I.R.C., for the 1994 taxable
year is sustained.



Edmund J. Mendrala, for petitioner.

Timothy V. Mulvey, for respondent.
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                          MEMORANDUM OPINION

     NIMS, Judge: Respondent determined the following deficiency

and accuracy-related penalty with respect to petitioner's Federal

income taxes as follows:

                           Income Tax            Penalty
     Year                  Deficiency          Sec. 6662(a)
     1994                   $39,792               $6,921

     Unless otherwise indicated, all section references are to

sections of the Internal Revenue Code in effect for the years in

issue.   All Rule references are to the Tax Court Rules of

Practice and Procedure.    All dollar amounts are rounded to the

nearest dollar.

     After concessions made by petitioner, the issues for

decision are: (1) Whether petitioner has substantiated alleged

gambling losses over the amount already allowed by respondent,

entitling him to deduct such losses against his unreported

gambling winnings of $25,309; (2) whether petitioner is entitled

to deduct certain expenses claimed on Schedule C of his 1994

Federal income tax return; and (3) whether petitioner is liable

for an accuracy-related penalty under section 6662(d).

     This case was submitted fully stipulated.    The stipulation

of facts and the attached exhibits are incorporated herein by

this reference.   Petitioner resided in Fort Lauderdale, Florida,

when the petition was filed.
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                            Background

     On Schedule C of petitioner's 1994 Federal income tax

return, petitioner listed his principal business or profession as

"consulting", and indicated that he is a cash receipts and

disbursements method taxpayer.

     In the statutory notice of deficiency, respondent made the

following adjustments regarding petitioner's 1994 taxable year:

     Exemption for daughter                           $2,450
     Unreported gambling winnings                     25,309
     Schedule C expenses                             107,850
     Self-employment tax deduction                    (2,684)
     Itemized deductions                               2,204
     Deduction for exemptions                          1,813
       Total adjustments                             136,942

     Petitioner was not entitled to claim an exemption for his

daughter on his 1994 Federal income tax return.

Gambling Activity

     During the 1994 taxable year, petitioner received gambling

winnings as follows:

     New York Racing Association                     $14,510
     Yonkers Raceway                                   5,370
     MGM Grand Hotel & Theme Park                     11,745
     Boardwalk Regency Corporation                     1,668
       Total                                          33,293

However, petitioner reported only $7,984 of gambling winnings

($25,309 less than what should have been reported) and deducted

$7,894 in gambling losses on Schedule A of his 1994 Federal

income tax return.   Respondent allowed petitioner a gambling loss

of $7,984 and does not dispute the $90 difference.
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     Petitioner produced the following evidence to establish

unreported gambling losses: (1) 83 Yonkers Raceway tickets (Race

Tickets) with an original date of April 2, 1994, and (2) a copy

of a Complaint filed in 1995 by Trump Plaza Associates d/b/a

Trump Plaza Hotel & Casino (TPA Complaint) against petitioner in

the Superior Court of New Jersey for his failure to make good on

$124,400 in checks payable to "T.P.A.", which were returned by

the bank stamped "insufficient funds."         These checks had been

delivered by petitioner in payment of a Trump Plaza statement of

petitioner's account, which reflected the following charges:

            Date                           Amount
            May 5, 1995                    $51,400
            May 19, 1995                    23,000
            May 19, 1995                    50,000

     The TPA Complaint alleges that petitioner made an

application for credit with Trump Plaza Associates, which was

approved March 13, 1992.   Petitioner's credit record, which was

attached as an exhibit to the TPA Complaint, reveals the

following extensions of credit to petitioner:

     Date                    Time               Amount

     Mar. 13, 1992         12:45   a.m.         $25,000
     May 29, 1992          12:00   a.m.          50,000
     Feb. 14, 1993          6:00   p.m.         illegible
     July 26, 1994          8:50   p.m.          50,000
     July 26, 1994         10:00   p.m.         100,000
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Schedule C Expenses

     Petitioner claimed the following expense deductions on

Schedule C of his 1994 Federal income tax return:

     Supplies expense                    $6,500
     Taxes & licenses                    49,000
     Travel                              16,500
     Meals and entertainment             14,400
     Other expenses                      21,450
       Total                            107,850

     Petitioner has produced a New York Statement of Income Tax

Adjustment for 1994 (New York income tax adjustment) and an

undated, handwritten New York State Estimated Income Tax Payment

Voucher for the 1994 taxable year (Estimated Income Tax Voucher)

in connection with the amount claimed as a deduction for State

income taxes.   The New York income tax adjustment shows that

petitioner estimated his 1994 New York State income tax liability

to be $25,000 when he submitted Form IT-370, Application for

Automatic Extension of Time to File for Individuals, and had

$2,610 withheld in New York State income tax for the 1994 taxable

year which respondent has allowed as an itemized deduction on

Schedule A of petitioner's 1994 Federal income tax return.    The

New York State Department of Taxation and Finance determined that

petitioner made an overpayment of $27,610 for the 1994 taxable

year but applied the overpayment to other liabilities.

     Petitioner has submitted copies of his 1994 American Express

Card statements to establish travel, meals, and entertainment

expenses.
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                            Discussion

I.   Gambling Losses

     The first issue is whether petitioner is entitled to deduct

alleged gambling losses, over the $7,984 already allowed by

respondent, against his unreported gambling winnings of $25,309.

Petitioner argues that although he failed to report gambling

winnings of $25,309 for the 1994 taxable year, he incurred

sufficient gambling losses during that year to offset his

unreported gambling winnings pursuant to section 165(d).

Petitioner has submitted 83 Race Tickets in the aggregate face

amount of $12,790 and a copy of the TPA Complaint to establish

unreported Casino gambling losses of at least $50,000.

Respondent asserts that the evidence submitted by petitioner is

insufficient to substantiate petitioner's claimed gambling

losses.

     Section 165(a) allows a deduction for losses sustained

during the taxable year and not compensated for by insurance or

otherwise. Section 165(d) provides: "Losses from wagering

transactions shall be allowed only to the extent of the gains

from such transactions."   Under section 1.165-10, Income Tax

Regs., gambling losses are limited to the extent of gains from

such transactions during the taxable year.    The amount of

petitioner's gambling losses is a question of fact to be

determined from the entire record.     See Green v. Commissioner, 66
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T.C. 538, 545 (1976).    The burden lies with petitioner to prove

with competent evidence the fact and amount of gambling losses,

if any.    See Rule 142(a).

     Parimutuel tickets carry little, if any, evidentiary weight

where no corroboration is offered to show that each and every

ticket was a losing ticket purchased by petitioner.     See Woosley

v. Commissioner, T.C. Memo. 1982-316; Scoccimarro v.

Commissioner, T.C. Memo. 1979-455.      In Scoccimarro v.

Commissioner, supra, we held that parimutuel tickets by

themselves were insufficient to prove that the taxpayer had

sustained gambling losses.    We stated that we had

     no way of knowing whether petitioner purchased these tickets
     or received them from acquaintances and friends at the track
     or acquired them by resorting to the time-honored technique
     of 'stooping'; i.e., stooping down and picking up the
     discarded stubs of disheartened bettors. [Id.]

     Similarly, we have no way of determining in this case

whether petitioner had in fact sustained losses at the Yonkers

Raceway.    Petitioner has failed to keep adequate records of his

winnings and losses and has not produced any evidence to

corroborate his assertion that all the Race Tickets represent
                                - 8 -


losses sustained by him.    Like the taxpayer in Scoccimarro v.

Commissioner, supra, petitioner could have received the Race

Tickets from friends or acquired them by stooping.

     Furthermore, the TPA Complaint does not establish Casino

gambling losses in the amount of at least $50,000.   A copy of

petitioner's credit record, attached to the TPA Complaint, shows

that at 8:50 P.M., on July 26, 1994, Trump Plaza Associates

advanced $50,000 to petitioner on his line of credit.    On that

same night at approximately 10:00 P.M., Trump Plaza Associates

advanced an additional $100,000 to petitioner.   Petitioner

asserts that his credit record proves that he suffered Casino

gambling losses in the amount of $50,000 within 70 minutes.

     We disagree.   The credit record, without further

explanation, merely indicates that Trump Plaza Associates

extended credit to petitioner totaling $150,000 on July 26, 1994.

Petitioner has offered nothing to support the assertion that the

use of the proceeds resulted ultimately in losses.   It is

perfectly possible that the use of the credit line resulted in

net winnings, or in net losses in an amount less than, but not

all of, the entire line of credit, but the 3 items on the 1995

statement of account indicate to us that petitioner's 1994

$150,000 line of credit had been satisfied by some means by the

time the 3 additional extensions of credit were made by Trump

Plaza Associates in 1995.   It is therefore not possible to
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establish what petitioner's net gambling gain or loss position at

Trump Plaza Associates was at the close of his 1994 taxable year.

Therefore, petitioner has not shown that he incurred Casino

gambling losses in the amount of $50,000.

      Accordingly, we hold that petitioner is not entitled to

deduct gambling losses over the $7,984 already allowed by

respondent.

II.   Schedule C Expenses and Other Adjustments

      The second issue is whether petitioner is entitled to deduct

certain expenses claimed on Schedule C of his 1994 Federal income

tax return.   As noted above, petitioner claimed expenses on

Schedule C totaling $107,850.   Respondent has fully disallowed

the Schedule C expenses, arguing that petitioner has failed to

substantiate these expenses pursuant to sections 162 and 274(d).

      Deductions are a matter of legislative grace and petitioner

has the burden of proving his entitlement to them.     See, e.g.,

Deputy v. du Pont, 308 U.S. 488, 493 (1940).      Petitioner has

produced no evidence in connection with the deductibility of

$6,500 of "supplies" expenses, and $21,450 of "other expenses".

We therefore uphold respondent's disallowance of these expenses.

      Petitioner claims $49,000 of expenses for "Taxes &

licenses".    Section 164(a)(3) allows a deduction for State income

taxes paid during the taxable year.     Petitioner has produced an
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undated, handwritten Estimated Income Tax Voucher for the 1994

taxable year and a New York income tax adjustment statement to

substantiate his State income tax deduction.

     As previously noted, the New York income tax adjustment

shows that petitioner estimated his New York State income taxes

to be $25,000 when he submitted Form IT-370, and had $2,610

withheld in New York State income tax for the 1994 taxable year.

The Estimated Income Tax Voucher states that petitioner made an

estimated New York State income tax payment of $35,000.   However,

the Estimated Income Tax Voucher lacks credibility because

petitioner has not produced a check or other evidence of actual

payment, and the amount shown thereon is inconsistent with the

amount shown on the New York income tax adjustment.

     We uphold respondent's determination that petitioner is

entitled to deduct, as an itemized deduction, only $2,610 which

is attributable to New York State income tax withheld because

this amount constituted payments of income tax made in 1994.

Petitioner has not shown that the $25,000 attributable to

estimated tax payments submitted with Form IT-370 was paid in

1994.

     Lastly, petitioner claims $16,500 in travel expenses and

$14,400 for meals and entertainment expenses.   In order to deduct

an expense pursuant to section 162(a), petitioner must show that

each item was (1) paid or incurred during the taxable year, (2)
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for carrying on any trade or business, (3) an expense, (4) a

necessary expense, and (5) an ordinary expense.   See Commissioner

v. Lincoln Sav. & Loan Association, 403 U.S. 345, 352 (1971).      In

addition to the requirements of section 162(a), petitioner must

also satisfy the substantiation requirements of section 274(d)

with respect to travel, meals and entertainment expenses.

Section 274(d) requires the evidence or records substantiating

said expenses to show:

     (A) the amount of such expense or other item, (B) the time
     and place of the travel, entertainment, amusement,
     recreation, or use of the facility or property, * * * (C)
     the business purpose of the expense or other item, and (D)
     the business relationship to the taxpayer of persons
     entertained, using the facility or property * * * *

     Petitioner has submitted a copy of his 1994 American Express

Card statements, with copies of receipts attached thereto, as

proof of his entitlement to deduct travel and meals and

entertainment expenses.   Although petitioner's American Express

Card statements show the place, amount, and date of a given

expense, we have no way of determining which of these expenses

petitioner deducted on his 1994 Federal income tax return or

whether any of these expenses were germane to the conduct of his

consulting business.   Furthermore, the American Express

statements do not meet the substantiation requirements of section

274(d) because, among other things, they do not show the business

purpose of the expense or, with regard to entertainment expenses,

information on the persons entertained.   Since petitioner has
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failed to carry his burden, we uphold respondent's disallowance

of these expenses.

III.   Accuracy-Related Penalty under Section 6662(a)

       Respondent determined an accuracy-related penalty under

section 6662(a) in the amount of $6,921.      Section 6662(a) imposes

an accuracy-related penalty of 20 percent on any portion of an

underpayment of tax that is attributable to items set forth in

section 6662(b).     Section 6662(b)(2) applies section 6662(a) to

any portion of an underpayment attributable to a substantial

understatement of income tax.      There is a substantial

understatement of income tax if the amount of the understatement

exceeds the greater of 10 percent of the tax required to be shown

on the return for the taxable year, or $5,000.      See Sec.

6662(d)(1)(A).    Under section 6662(d)(2), the term

"understatement" means the excess of the amount of tax required

to be shown on the return over the amount of tax shown on the

return, reduced by any rebate (within the meaning of section

6211(b)(2)).    Respondent’s determination that there is an

accuracy-related penalty due from petitioner under section

6662(a) for the 1994 taxable year is sustained.

       To reflect the foregoing,

                                        Decision will be

                                   entered for respondent.
