                        T.C. Memo. 1996-155




                      UNITED STATES TAX COURT



                 CHARLES J. DUGAN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1053-94.              Filed March 27, 1996.



     Charles J. Dugan, pro se.

     George D. Curran, for respondent.



                        MEMORANDUM OPINION


     DAWSON, Judge:   This case was assigned to Chief Special

Trial Judge Peter J. Panuthos pursuant to the provisions of

section 7443A(b)(4) and Rules 180, 181, and 183.1   The Court



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

agrees with and adopts the opinion of the Chief Special Trial

Judge, which is set forth below.

                     OPINION OF THE SPECIAL TRIAL JUDGE

       PANUTHOS, Chief Special Trial Judge:     Respondent determined

a deficiency in petitioner's 1991 Federal income tax in the

amount of $8,241, an addition to tax pursuant to section 6651(a)

in the amount of $894.25, and an addition to tax pursuant to

section 6654 in the amount of $175.85.2       The issues for decision

are:       (1) Whether petitioner timely filed his 1991 Federal income

tax return;3 (2) whether petitioner can elect married filing

joint return status pursuant to section 6013; (3) whether



       2
        We granted respondent's motion for leave to amend her
answer to conform the pleadings to the evidence presented.
Respondent asserts additional Schedule C income in the amount of
$5,547 and a capital gain of $4,217. The increase results from
items reflected on the purported copy of the 1991 return.
Petitioner agrees to the additional Schedule C income; however,
he claims offsetting expenses. Petitioner agrees to the capital
transaction but claims a loss rather than a gain. The deficiency
and additions to tax asserted in the amended answer are as
follows:
                                Additions to Tax
     Deficiency         Sec. 6651(a)          Sec. 6654

           $10,126              $1,366                $326

Respondent bears the burden of proof to the extent she seeks an
increased deficiency and increased additions to tax. Rule
142(a).
       3
        There is a dispute as to whether the 1991 return was
filed and whether a purported copy of the return submitted by
petitioner to the Internal Revenue Service at a later date
constitutes the filing of a return. Because of this dispute, any
references to the 1991 return are not intended as a conclusion
that the document constitutes a return or that it was filed.
                                 - 3 -

petitioner is entitled to dependency exemptions for his two

daughters; (4) whether petitioner may claim certain Schedule C

expenses as deductions; (5) whether petitioner is entitled to a

long-term capital loss deduction; and (6) whether the additions

to tax for failure to file and failure to pay estimated income

tax, pursuant to sections 6651 and 6654, respectively, should be

sustained.

     For simplicity and clarity, we will first set forth the

relevant background facts.     We shall then combine our findings of

fact and opinion with respect to each issue.

     Some of the facts have been stipulated, and they are so

found.     The stipulation of facts and the attached exhibits are

incorporated herein by this reference.     At the time of filing the

petition herein, petitioner resided in Riverside, New Jersey.

     During 1991, petitioner was a manager for Drink-A-Toast Co.,

a small soft drink manufacturing company.     Petitioner received

wages from Drink-A-Toast Co. totaling $39,773.     As manager,

petitioner was in charge of personnel, payroll, and the

manufacturing process.     Petitioner has prepared individual and

business income tax returns since 1975.

Issue 1 and 2.     Petitioner's Filing Status and the Filing of the
1991 Return

     (a)     General

     The first two issues--(1) whether petitioner timely filed

his 1991 return, and (2) whether petitioner may elect "married

filing joint" status--are intertwined.
                                  - 4 -

     Petitioner's initial position is that he filed a return

(claiming married filing separate return status) prior to the

mailing of the notice of deficiency.      Despite this assertion,

petitioner argues that he is entitled to claim married filing

joint return status.4

     Respondent determined that petitioner did not file a return

prior to the mailing of a notice of deficiency or the filing of

the petition herein.    Nevertheless, respondent argues that

petitioner is not entitled to joint filing status since the copy

of the tax return, submitted after the mailing of the notice of

deficiency and after the filing of the petition, claimed married

filing separate return status.     Respondent argues that section

6013(b)(2)(C) applies to prohibit the joint return election.

     Since our analysis of petitioner's entitlement to joint

filing status is affected by a finding with respect to the filing

of the 1991 tax return, we first consider the question of when

the 1991 return was filed.5

     (b)   Respondent's Records

     On April 15, 1992, petitioner filed an application for

extension of time for filing his 1991 Federal income tax return

with the Internal Revenue Service (IRS) and enclosed a payment of



     4
        We note that petitioner's position in this regard is
contrary to the clear language of sec. 6013(b)(2)(C).
     5
        We further note that the timing of the filing of the 1991
return is also relevant to issue (6), the addition to tax under
sec. 6651.
                                 - 5 -

$1,000.    An IRS computer-generated report dated June 9, 1995,

indicates that a substitute return was prepared for the tax year

ended 1991 on June 24, 1993.    The substitute return reported

petitioner's adjusted gross income as $39,453 and his taxable

income as $23,741.    A notice of deficiency dated October 19,

1993, was subsequently mailed to petitioner.    IRS records reflect

that no return was filed by petitioner for 1991 prior to the

issuance of the statutory notice of deficiency.    Petitioner

timely filed his petition in this Court on January 18, 1994.

       On April 15, 1994, respondent's Appeals Office received a

purported copy of petitioner's 1991 return.    The return reflects

adjusted gross income of $39,453 and taxable income of $23,741.

The return bears an original signature and date of April 12,

1993, next to the signature line.    The return claimed married

filing separate return status.    On March 30, 1995, the IRS

District Director in Camden, New Jersey, received petitioner's

amended 1991 return.    The amended return claimed married filing

joint return status.    The parties now agree that petitioner and

his wife, Diane Dugan, intended this document to be a joint

return for 1991.

     (c)    Presumption of Correctness

     Petitioner argues that he timely filed his 1991 return and

that respondent's determination that he failed to file should not

be accorded the normal presumption of correctness.    Petitioner

suggests that, as a result of a past history of the IRS' making
                                - 6 -

mistakes in processing his tax return information, respondent

should bear the burden of proof with respect to the question of

whether petitioner timely filed his 1991 return.

     It is well established that in the absence of exceptional

circumstances the Court will not look behind a deficiency notice

to determine whether the Commissioner's agents followed proper

administrative procedures.    Human Engineering Institute v.

Commissioner, 61 T.C. 61, 66 (1973); see also Greenberg's

Express, Inc. v. Commissioner, 62 T.C. 324, 327 (1974).    Even in

such exceptional circumstances, the Court will generally not hold

the deficiency notice null and void to relieve the taxpayer of

any tax liability.    Greenberg's Express, Inc. v. Commissioner,

supra at 328.

     The evidence presented does not indicate that respondent's

agents engaged in any conduct violative of petitioner's rights,

nor does it show that the deficiency notice was arbitrary or

without foundation.   Accordingly, respondent's determination is

presumed correct.

     (d)   Filing of the 1991 Return

     Having concluded that petitioner has the burden of proof to

establish the timely filing of his 1991 return, we must consider

whether he has met that burden.   Petitioner alleges that he filed

his 1991 return on or about April 15, 1992.6   The only evidence


     6
        At trial, petitioner testified that he filed his 1991
return on Apr. 15, 1992. It was not clear whether petitioner
                                                   (continued...)
                              - 7 -

produced by petitioner is a purported "copy" of his 1991 return

bearing an original signature and date of April 12, 1993.

     We note that the information reflected on the purported copy

of petitioner's income tax return submitted to respondent's

Appeals Office on April 15, 1994, corresponds to the information

reflected on the substitute return prepared by the IRS.

Petitioner suggests that this 1991 return was timely filed and

that the IRS used information from the 1991 return in preparing

the substitute return in June 1993.   However, we are not

convinced that the information reflected in the substitute return

supports petitioner's argument that he filed a 1991 return prior

to the issuance of the notice of deficiency.   The June 9, 1995,

IRS computer record reflecting the substitute return was not

generated when the substitute return was prepared, but rather it

was created in anticipation of trial.   Therefore, the

similarities between the amounts reflected in the substitute

return prepared by respondent and the amounts reflected in the

purported copy of petitioner's return do not lead us to conclude

that the 1991 return was filed in 1992 or 1993.   It appears

probable that petitioner prepared the purported copy of the 1991



     6
      (...continued)
misspoke with respect to this assertion. Given that he filed a
request for an extension on Apr. 15, 1992, and the purported copy
of his 1991 return reflects a signature and date of Apr. 12,
1993, it seems unlikely that petitioner intended to testify that
he filed the return in 1992. Based upon our discussion, infra,
this apparent misstatement is not determinative but does reflect
a certain amount of confusion and inconsistency by petitioner.
                                - 8 -

return using the information reflected in the substitute return.

There is nothing in the IRS records which would lead us to

believe that a 1991 return was filed prior to the mailing of the

notice of deficiency.

     As a general rule, we are not required to accept

petitioner's self-serving testimony as to when he filed his

return.    Masters v. Commissioner, 243 F.2d 335, 338 (3d Cir.

1957), affg. 25 T.C. 1093 (1956); Tokarski v. Commissioner, 87

T.C. 74 (1986).   Petitioner has not met his burden of proving

that he timely filed his 1991 return.   Therefore, we conclude

that petitioner did not file a return prior to the issuance of

the notice of deficiency and the filing of the petition.

     (e)   Election of Married Filing Joint Return Status

     Having found that no return was filed and that the purported

copy of the 1991 return was not submitted until after the mailing

of the notice of deficiency and after the filing of the petition

herein, we must decide whether petitioner may elect married

filing joint return status.   On the purported copy, submitted

April 15, 1994, petitioner designated his filing status as

"married filing separate".    On March 30, 1995, the IRS received

an amended return for 1991 on which petitioner elected the filing

status of "married filing joint".7


     7
        The purported copy of the 1991 return submitted Apr. 15,
1994, includes substantially identical income to that determined
in the notice of deficiency. The return submitted by petitioner
                                                   (continued...)
                               - 9 -

     At the outset, we note that once a taxpayer chooses to

litigate a claim in the Tax Court, we have exclusive jurisdiction

over the issues involved in adjudicating the tax liability.

Naftel v. Commissioner, 85 T.C. 527, 533 (1985).   As we stated in

Naftel v. Commissioner, supra at 533:   "We acquire jurisdiction

when a taxpayer files with the Court and that jurisdiction

extends to the entire subject matter of the correct tax for the

taxable year."

     At the time the notice of deficiency was mailed, and at the

time of filing the petition, a 1991 return had not been filed by

petitioner.   The question, then, is what effect the submission of

a purported copy of the 1991 return and amended return, after the

filing of the petition, had upon petitioner's ability to elect

joint return status.   The parties submitted the purported copy of

the return and amended return into the record.   Evidence and

argument were presented as to the correctness of petitioner's

position as reflected in the purported copy of the 1991 return

and the amended return.   Respondent does not argue that the

matters raised by the submission of the April 15, 1994, return or

the March 30, 1995, amended return are not in issue in this case.


     7
      (...continued)
claims additional dependency exemptions, itemized deductions,
Schedule C expenses, and a capital loss. The return reflects no
tax due. The amended return submitted Mar. 30, 1995, seeks
married filing joint return status. In a supplemental
stipulation of facts filed with the Court, the parties agree that
petitioner and his wife intended the return submitted Mar. 30,
1995, as a joint return.
                               - 10 -

Rather, respondent argues that petitioner is not entitled to

claim joint filing status pursuant to section 6013(b)(2)(C).

     Section 6013(b)(2) permits the election of a joint return,

after a separate return has been filed, under specified

circumstances.    Section 6013(b)(2)(C) precludes the filing of a

joint return where a separate return has been filed, a notice of

deficiency has been mailed to either spouse, and a petition has

been timely filed with the Court.8      Millsap v. Commissioner, 91

T.C. 926, 929 (1988); Jacobson v. Commissioner, 73 T.C. 610, 614

(1979).

     On brief respondent argues that section 6013(b)(2)(C)

applies since the election to file a joint return was made after

a notice of deficiency was mailed to petitioner and after a

petition was filed with this Court.      Respondent's argument misses

the mark.    In submitting a purported copy of the 1991 return to

respondent's Appeals Office on April 15, 1994, it is not clear

that petitioner intended to "file" the 1991 return on that date.



     8
          SEC. 6013(b)(2). Limitations for making of
     election.--The election provided for in paragraph (1)
     may not be made--

                 * * *

                 (C) after there has been mailed to
            either spouse, with respect to such taxable
            year, a notice of deficiency under section
            6212, if the spouse, as to such notice, files
            a petition with the Tax Court within the time
            prescribed in section 6213; * * *
                              - 11 -

Rather it appears that petitioner attempted to provide support

for his position that he had previously filed his 1991 return.

The purported copy was submitted to respondent's Appeals Office

as evidence of a filing.   There is no question that the document

submitted to the IRS by petitioner purports to be a copy of a

previously filed return.   Respondent's argument that the

submission of the purported copy of a return to the IRS Appeals

Office (after the petition was filed) constitutes the filing of a

return (which, she claims, would invoke section 6013(b)(2)(C)) is

unpersuasive.

       At the time the notice of deficiency was mailed and the

petition was filed, no return had been filed by petitioner.

Thus, at that time, petitioner was in the same position as the

taxpayers in Millsap v. Commissioner, supra at 938, and the

taxpayer in Phillips v. Commissioner, 86 T.C. 433, 437 (1986),

affd. on this issue 851 F.2d 1492 (D.C. Cir. 1988).   In those

cases, we held that the taxpayers could elect joint return status

after a proceeding was commenced in this Court.   We reasoned in

Millsap v. Commissioner, supra at 937, as follows:

          To treat the issue of a taxpayer's filing status
     any differently than the issues involving deductions or
     income items would be arbitrary and without reason. A
     taxpayer is no less entitled to question respondent's
     determination of filing status than he is any other
     determination. * * *

     we hold that in situations where deficiency procedures
     are availed of and a taxpayer has not filed a return,
     the taxpayer may file a return and contest respondent's
     filing status determination, even though respondent has
                              - 12 -

     "filed" a substitute return under section 6020(b), in
     which filing status has been "elected" by respondent.
     To hold otherwise would be to cede jurisdiction as to
     the determination of filing status in all cases where
     no return has been filed to respondent for his absolute
     and final determination. * * *

Based on the foregoing analysis, we conclude that petitioner is

not prohibited from claiming joint return status.    Since the

parties agree that petitioner and his wife, Diane Dugan, intended

to file a joint return for the taxable year 1991 by the

submission of the amended return on March 30, 1995, petitioner

and his wife are entitled to joint filing status.

Issue 3.   Dependency Exemptions

      The question presented is whether petitioner is entitled to

dependency exemption deductions for his two daughters on the 1991

amended joint return.   Respondent disallowed the exemptions on

the basis that petitioner had not demonstrated that his two

daughters resided with him and that he supported them.

Petitioner contends that he is entitled to the claimed deduction

because he provided all financial support for the children.

     Deductions are strictly a matter of legislative grace, and

petitioner bears the burden of proving that he is entitled to any

deduction claimed.   Rule 142(a); New Colonial Ice Co. v.

Helvering, 292 U.S. 435 (1934).    This includes the burden of

substantiation.   Hradesky v. Commissioner, 65 T.C. 87, 90 (1975),

affd. per curiam 540 F.2d 821 (5th Cir. 1976).
                                 - 13 -

     A dependency exemption may be allowed as a deduction only if

the requirements of sections 151 and 152 are satisfied.     If the

child is under the age of 19, and is a "dependent" within the

meaning of section 152, the exemption will be allowed.     Sec.

151(c)(1)(B).    "Dependent" includes, among other family members,

a daughter "over half whose support, for the calendar year in

which the taxable year of the taxpayer begins, was received from

the taxpayer".   Sec. 152(a).    Support is determined by taking

into account--

     the amount of support received from the taxpayer as
     compared to the entire amount of support which the
     individual received from all sources, including support
     which the individual himself supplied. The term
     "support" includes food, shelter, clothing, medical and
     dental care, education, and the like. * * * [Sec.
     1.152-1(a)(2)(i), Income Tax Regs.]

     Petitioner lived with his wife and two children during the

1991 tax year.   During 1991, petitioner's two daughters were

under the age of 19.    Petitioner's taxable income for 1991 was

approximately $40,000, and his wife's income was approximately

$2,200.    We find that petitioner provided over half the support

for the two children.    From the foregoing, we conclude that

petitioner is entitled to the dependency exemptions for the two

children claimed on the amended 1991 jointly filed Federal income

tax return.

Issue 4.   Schedule C Expenses

     In addition to his employment at Drink-A-Toast Co., during

1991, petitioner operated Smoluk, Dugan & Gaines, Inc. (SDG), an
                               - 14 -

accounting/computer consulting business.    On Schedule C of his

1991 return, petitioner reported income totaling $7,195 and

expenses totaling $5,560.    The expenses listed on petitioner's

Schedule C are as follows:

   Car and truck expenses                            $1,950
   Depreciation and section 179 expenses1             1,945
   Other                                                425
   Supplies                                             945
   Subscriptions                                        295

         Total expenses                              $5,560
     1
        The sec. 179 expenses petitioner reported were computer
  expenses.

     The parties stipulated that petitioner received $7,195 in

gross receipts from his Schedule C business.    The stipulation

also reflects that petitioner submitted the following receipts as

substantiation for the claimed Schedule C expenses:

   Automotive expenses:
     Gary's Automotive                     $848.88

   Computer expenses:
     Sam's Club                          1,368.85
     Software Gallery                      234.32

   Other:
     Clerk of Superior Court                 80.00

     Total expenses                     $2,532.05

     Respondent disallowed the claimed expenses on the basis that

petitioner failed to establish that they were ordinary and

necessary business expenses, and, further, that some of the

claimed expenses were not substantiated (including satisfying the

provisions of section 274(d)).    Petitioner argues that he is
                                - 15 -

entitled to deduct all of his claimed expenses.    Respondent

asserts that we should not estimate petitioner's expenses because

petitioner has not demonstrated that the expenses were incurred

for a business purpose.     Respondent argues that petitioner is not

entitled to all claimed Schedule C expenses because he has not

properly substantiated such expenses in accordance with sections

162, 179, 274(d), and 280F(d).

     Section 162(a) provides "There shall be allowed as a

deduction all the ordinary and necessary expenses paid or

incurred during the taxable year in carrying on any trade or

business."   The regulations promulgated under section 162 provide

that only those expenses "directly connected with or pertaining

to the taxpayer's trade or business" may be deducted.    Sec.

1.162-1(a), Income Tax Regs.

     Whether an expenditure is ordinary and necessary is

generally a question of fact.    To be "necessary" an expense need

be "appropriate and helpful" to the taxpayer's business.       Welch

v. Helvering, 290 U.S. 111, 113 (1933).    For an expense to be

"ordinary", "the transaction which gives rise to it must be of

common or frequent occurrence in the type of business involved".

Deputy v. duPont, 308 U.S. 488, 495 (1940) (citing Welch v.

Helvering, supra at 114).    The taxpayer bears the burden of

proving that the claimed expense is deductible.     Welch v.

Helvering, supra at 115.
                               - 16 -

     As a general rule, if the trial record provides sufficient

evidence that the taxpayer has incurred a deductible expense, but

the taxpayer is unable to adequately substantiate the amount of

the deduction to which he or she is entitled, the Court may

estimate the amount of such expense and allow the deduction to

that extent.   Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d

Cir. 1930).    With respect to travel and entertainment expenses

and listed property (as defined in section 280F(d)(4)), section

274(d) overrides this so-called Cohan doctrine, and requires

substantiation "by adequate records or by sufficient evidence

corroborating the taxpayer's own statements".    Sec. 274(d).    The

taxpayer must substantiate:    (1) The amount of the claimed

expense; (2) the time and place the expense was incurred; and (3)

the business purpose of the expense.    Sec. 274(d).

     Petitioner claimed a computer expense in the amount of

$1,945 as a deduction pursuant to section 179.    Petitioner

submitted receipts from Sam's Club and the Software Gallery to

substantiate part of the claimed expense.    Computers and other

peripheral equipment are "listed property" and must meet the

strict substantiation requirements imposed by section 274(d).

Sec. 280F(d)(4)(A)(iv).    Given that petitioner has failed to

demonstrate the business purpose for the computer expense in

accordance with section 274(d), the deduction is disallowed.

     On Schedule C of his 1991 return, petitioner claimed an

automotive expense in the amount of $1,950.    It is not clear
                                - 17 -

whether the automotive expense petitioner claimed was incurred

solely in the operation of his business activity; i.e., as a

travel expense subject to the substantiation requirements of

section 274(d).   The extent of petitioner's personal use of the

automobile is also unclear.   Given that petitioner has failed to

identify the purpose for which the claimed expense was incurred,

the deduction is not allowed.

     Petitioner's check to the Clerk of the Superior Court is

inadequate to justify his entitlement to the claimed expenditure.

We cannot determine whether this fee is associated with a claim

which is personal to petitioner, or whether it is business

related.   United States v. Gilmore, 372 U.S. 39 (1963); O'Malley

v. Commissioner, 91 T.C. 352, 361 (1988).      Petitioner has not

demonstrated that the expense is an ordinary and necessary

business expense under section 162.      Accordingly, we will not

allow petitioner to deduct the $80 payment to the Clerk of the

Superior Court as a Schedule C expense.

     Petitioner claimed deductions for supplies, subscriptions,

and other expenses totaling $1,665.      These expenditures do not

fall within the purview of "listed property" and, therefore, are

not subject to the substantiation requirements of section 274(d).

However, petitioner has not provided the Court with any basis for

allowing these expenditures as ordinary and necessary business

expenses pursuant to section 162.    In order for the Court to

estimate the amount of an expense, we must have some basis upon
                               - 18 -

which an estimate may be made.    Vanicek v. Commissioner, 85 T.C.

731, 743 (1985).    Without such a basis, any allowance would

amount to unguided largesse.     Williams v. United States, 245 F.2d

559, 560 (5th Cir. 1957).    Since petitioner has not demonstrated

a business purpose for these expenses, the claimed expenses are

disallowed.

Issue 5.    The Capital Loss Deduction

       SDG was incorporated on June 1, 1981.   On the date of its

incorporation, 33 shares of stock were issued to petitioner at a

cost of $1 per share.    On November 30, 1981, petitioner

transferred his automobile, valued at $2,600, to the corporation

in exchange for 10 additional shares of stock.

       Shortly after its incorporation, petitioner realized that

SDG needed additional short-term capital for its operating

expenses.    Petitioner approached an acquaintance, William J.

Vaughn (Mr. Vaughn), with the prospect of investing in SDG.

Mr. Vaughn expressed some concern regarding the safety of his

investment.    Accordingly, petitioner orally agreed to guarantee

Mr. Vaughn's investment against a loss upon the liquidation of

SDG.    The agreement was never reduced to writing, nor did the

parties discuss the method or schedule of payments under the

guaranty.    In the fall of 1981, Mr. Vaughn invested $15,000 in

SDG in exchange for 60 shares of stock.

       When SDG was liquidated in November 1983, the outstanding

loan balance due to petitioner from SDG totaled $8,650.     At the
                              - 19 -

time of liquidation, SDG's assets consisted of office furniture,

a client list, the car, and goodwill.   Upon liquidation,

petitioner received the client list, the automobile (valued at

$1,000), and some office furniture (valued at $1,000).   The

record does not reflect what, if anything, Mr. Vaughn received

upon liquidation.

     Subsequent to the liquidation of SDG, petitioner made

several payments to Mr. Vaughn in accordance with the guaranty.

Petitioner's records reflect that he paid Mr. Vaughn $1,858.18

during 1991.   In 1991, petitioner sold the client list for

$13,500.

     On the purported copy of petitioner's original return,

petitioner claimed a capital loss of $1,500 from the sale of

SDG's client list.   Petitioner arrived at this amount by

subtracting his asserted basis in the client list, $15,000, from

the amount he received upon its sale, $13,500.   Petitioner

calculated his basis in the client list as equal to the amount of

money he contributed to SDG in exchange for SDG stock, plus SDG's

outstanding loan balance to petitioner, less the amount he

received upon liquidation.

     At trial, petitioner argued that his basis in the client

list was $24,283, or $9,283 plus the $15,000 oral guaranty.

Petitioner contends that he recognized a loss of $10,783 when he

sold the client list for $13,500 in 1991.
                                - 20 -

     Respondent asserts that petitioner's basis in the client

list was $9,283 and, thus, petitioner recognized a capital gain

of $4,217 upon its sale.     Respondent does not include

petitioner's oral guaranty as part of petitioner's basis.

     At the time the notice of deficiency was issued, petitioner

had not filed a Federal income tax return for the taxable year

1991.     The substitute return did not reflect, and the notice of

deficiency did not make an adjustment with respect to, the sale

of the client list.     To the extent that petitioner claims a loss

from this transaction, the burden of proof is on petitioner.

Rule 142(a); Welch v. Helvering, 290 U.S. at 115.     On the other

hand, to the extent that respondent asserts that the transaction

resulted in a gain, and asserts an increased deficiency,

respondent bears the burden of proof.     Rule 142(a); Estate of

Cordeiro v. Commissioner, 51 T.C. 195, 203 (1968).

        The parties agree that the client list was sold in 1991 for

$13,500.     The parties, however, are not in agreement with respect

to the basis of the client list.     Accordingly, we must decide

whether either party has established petitioner's basis in the

client list.

        Under section 331, amounts distributed in complete

liquidation of a corporation shall be treated as full payment in
                                - 21 -

exchange for the stock.    Sec. 331(a).9    The exchange generally is

treated as a disposition.    Secs. 331(c), 1001.

   Under section 334(a), the basis of      property received in a
   complete liquidation in which gain      or loss is recognized by
   the shareholder is the fair market      value of such property
   on the date of distribution (i.e.,      the basis is considered
   stepped up to fair market value).       Sec. 334(a). [Shelton
   v. Commissioner, 105 T.C. 114, 120      (1995).]

In other words, the basis of property received by a shareholder

in a taxable corporate liquidation is equal to its fair market

value on the date it is distributed.

     Petitioner's theory as to the computation of his basis in

the client list is erroneous.    Petitioner has failed to present

evidence of the fair market value of the client list on the date

of distribution to him.    Having failed to establish the basis,

petitioner is not entitled to the claimed loss.

     As indicated, respondent bears the burden of proving that

petitioner incurred a capital gain upon the sale of the client

list.    Respondent has failed to present any evidence as to the

fair market value of the client list as of November 1983.       Since

the record does not reflect the fair market value of the client

list on the date it was distributed to petitioner, respondent has

failed to carry her burden of proving that petitioner incurred a

capital gain upon the sale of the client list.

Issue 6.    Section 6651(a) Addition to Tax


     9
        Sec. 331(b) provides that sec. 301 (relating to effects
on shareholder of distributions of property) shall not apply to
any distribution in complete liquidation.
                                 - 22 -

     The question presented is whether petitioner should be

liable for an addition to tax for failure to file a tax return

pursuant to section 6651.     Respondent asserts that petitioner is

liable for the addition to tax as petitioner has not presented

any evidence that his 1991 return was timely filed.

Additionally, respondent argues that petitioner has not

demonstrated reasonable cause for the untimely filing.

     Section 6651(a) imposes an addition to tax in the amount of

5 percent per month, not to exceed 25 percent, of the amount of

such tax for failing to file a return within the time prescribed

by statute, including extensions.     The addition to tax will not

be imposed where it is shown that the failure to file was due to

reasonable cause and not to willful neglect.       Baldwin v.

Commissioner, 84 T.C. 859, 870 (1985).

     We have found that petitioner did not timely file his 1991

return.    Sec. 6072(a).   Based upon our review of the record, we

are satisfied that petitioner's failure to file was not due to

reasonable cause.    Sec. 6651(a)(1).     We hold that petitioner is

liable for the addition to tax pursuant to section 6651(a) for

the taxable year 1991.

Issue 7.    Section 6654(a) Addition to Tax

     Respondent determined that petitioner is liable for an

addition to tax pursuant to section 6654(a) for failure to pay

estimated income tax.      This Court has noted that section 6654(a)

contains "no provision relating to reasonable cause and lack of
                              - 23 -

willful neglect."   Estate of Ruben v. Commissioner, 33 T.C. 1071,

1072 (1960); see also United States v. Steck, 295 F.2d 682, 685

(10th Cir. 1961); Judge v. Commissioner, 88 T.C. 1175, 1188

(1987).   Petitioner has failed to show error in respondent's

determination.   Accordingly, petitioner is liable for the

addition to tax pursuant to section 6654(a).

                                       Decision will be entered

                                   under Rule 155.
