                       T.C. Memo. 1997-572



                     UNITED STATES TAX COURT



               DIANE CAMERON HORTON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 19647-95.                Filed December 29, 1997.



     Diane Cameron Horton, pro se.

     Patricia Montero and Laurel M. Robinson, for respondent.


                       MEMORANDUM OPINION

     PAJAK, Special Trial Judge:     This case was heard pursuant to

section 7443A(b)(3) of the Code, and Rules 180, 181, and 182.

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.

     Respondent determined a deficiency in petitioner's Federal

income tax for the year 1992 in the amount of $1,509, and an
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accuracy-related penalty in the amount of $302 pursuant to

section 6662(a).    A computational adjustment was made.

     The Court must decide whether section 280A and the overall

limitation set forth in section 280A(c)(5) are applicable to

business expense deductions claimed by petitioner in connection

with her art/fine art business located in the building where

petitioner resided.    Respondent has conceded that petitioner is

not liable for the penalty under section 6662(a).

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

For clarity and convenience, our findings of fact and opinion

have been combined.    Petitioner resided in Berkeley, California,

when her petition was filed.

     On her 1992 Federal income tax return, petitioner reported

wages of $25,308 that she earned as a part-time teacher at St.

Paul's and at Ecole Bilingue.

     On her 1992 return, petitioner also reported a net loss of

$6,925 from her art/fine art business.      She reported $2,400 in

gross receipts from that business on her Schedule C.      She

subtracted $1,159 as the cost of goods sold and reported gross

income of $1,241.    She claimed as deductions the following

expenses on her Schedule C:

          Expense                       Amount

          Car & Truck                   $  672
          Legal                            185
          Office                            80
          Rent                           6,740
          Repairs & Maintenance            100
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            Supplies                     68
            Utilities                   146
            Other-telephone              45
            Other-books/pub              75
            Other-dues                   55
                                     $8,166

     Respondent disallowed the $6,740 claimed as a rent expense

deduction by petitioner pursuant to section 280A(c)(5).

     During 1992, petitioner leased the upper and lower stories

of one half of a building located at 2743 Tenth Street, Berkeley,

California, for $1,050 per month, or $12,600 per year.    For our

purposes, we shall ignore the other half of the two-story

building and refer to petitioner's premises as "Tenth Street" or

"premises".    The lease was entitled "Commercial Lease and Deposit

Receipt".    The lease specifically stated that the premises were

to be used for "painting and residence."

     The Tenth Street building was located in a manufacturing

district and was in a commercially zoned area.    There was one

address for the premises and one lease for the premises.     The

rent and utilities were charged and paid as a unit for the

premises.

     Petitioner and her son resided in the upper level of the

premises.    She used the lower level for her art/fine art

business.

     Petitioner contends that she leased the Tenth Street

premises for the primary purpose of her art/fine art business.

She further argues that section 280A does not apply to her
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art/fine art business conducted in one portion of the Tenth

Street premises.

     Deductions are a matter of legislative grace.    A taxpayer

seeking a deduction must be able to show that the taxpayer comes

within the express provisions of the statute.     New Colonial Ice

Co. v. Helvering, 292 U.S. 435, 440 (1934).     Petitioner bears the

burden of proving that respondent's determination is incorrect.

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

     Section 162(a) generally allows a deduction for all ordinary

and necessary expenses paid or incurred during the taxable year

in carrying on any trade or business.

     Section 280A(a) provides that in the case of a taxpayer who

is an individual, no deduction otherwise allowable under

Chapter 1 of the Code (relating to normal taxes and surtaxes)

shall be allowed with respect to the use of a dwelling unit which

is used by the taxpayer during the taxable year as a residence.

     The term "dwelling unit" includes a house, apartment,

condominium, or similar property, and all structures or other

property appurtenant to such dwelling unit.   Sec. 280A(f)(1)(A).

     Section 280A(c) provides for exceptions to section 280A(a).

In pertinent part, section 280A(c)(1)(A) states that section

280A(a) shall not apply to any item to the extent such item is

allocable to a portion of the dwelling unit which is exclusively

used on a regular basis as the principal place of business for

any trade or business of the taxpayer.
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     Section 280A(c)(5) provides an overall limitation on the

deductions that may be allowed under various sections including

section 280A(c)(1)(A).   Specifically, section 280A(c)(5) provides

that the deductions allowed shall not exceed the excess of the

gross income derived from the trade or business use for the

taxable year, over the sum of certain deductions allocable to

such income (such as interest and taxes).

     Petitioner bases her argument on section 17958.11 of Cal.

Health and Safety Code (West 1984) (hereinafter referred to as

California Law.)   California Law provides for the adoption of

building regulations for the conversion of commercial or

industrial buildings to joint living and work quarters.

California Law recognizes that joint living and work quarters

means residential occupancy by a family maintaining a common

household of one or more floors in a building originally designed

for industrial or commercial occupancy, which building includes

cooking space and sanitary facilities and adequate working space

regularly used by a person residing in that building.

     Those provisions of California Law were based on legislative

determinations that a substantial number of manufacturing and

commercial buildings in urban areas have lost manufacturing and

commercial tenants, and that the untenanted portions of such

buildings constitute a potential resource capable of

accommodating joint living and work quarters which would be

physically and economically suitable for use by artists,
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artisans, and similarly-situated individuals (artists).     It was

further found that the public will benefit by making such

buildings available for joint living and work quarters for

artists because the new use contributes to the revitalization of

central city areas, the conversion results in building

improvements and rehabilitation, and the cultural life of cities

will be enhanced by the residence of large numbers of persons

regularly engaged in the arts.    Moreover, it was found that

artists require larger spaces for the pursuit of their artistic

endeavors and for the storage of materials and products than are

regularly found in dwellings, the financial remunerations to be

obtained from a career in the arts are generally small, artists

generally find it financially difficult to maintain quarters for

their artistic endeavors separate and apart from their places of

residence, high property values and resulting rental costs make

it particularly difficult for artists to obtain the space

required for their work, and the residential use of such space is

accessory to the primary use of such space as a place of work.

As stated, this California Law was relied upon by petitioner to

support her argument that she should be allowed to deduct her

rent expense under section 162(a).

     Although we may sympathize with petitioner's argument, such

an argument is not dispositive here.     "The proper place for a

consideration of petitioner's complaint is the halls of Congress,
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not here."    Hays Corporation v. Commissioner, 40 T.C. 436, 443

(1963), affd. 331 F.2d 422 (7th Cir. 1964).

       A review of the legislative history of section 280A

indicates that Congress was concerned with alleged use of

business space in a residence.     In the statute, Congress made no

exception for business use in a residence in a building which

formerly was used only for commercial purposes.

       As to the Tenth Street property, the parties agree that

petitioner lived with her son on the top floor.     The parties also

agree that the lower floor was used exclusively and regularly for

petitioner's business.     The only point in issue is whether

section 280A and the overall limitation of section 280A(c)(5)

applies to petitioner's claimed business expenses because of her

joint use of the premises for living and business purposes.

Respondent states that respondent has found no legal authority

making a distinction where the building was zoned for commercial

use.    Nor have we.

       On the other hand, the Senate Finance Committee stated in

its report, S. Rept. 94-938 (1976), 1976-3 C.B. (Vol. 3) 49,

186-187, that:

       the committee amendment provides that a deduction will not
       be disallowed in the case of a taxpayer who, in connection
       with his trade or business, uses a separate structure which
       is not attached to his dwelling unit (e.g., an artist's
       studio in a structure adjacent to but unattached to his
       residence).

               *       *      *       *     *      *      *
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          The committee amendment also provides an overall
     limitation on the amount of deductions that a taxpayer may
     take for the business use of the home or separate unattached
     structure. The allowable deductions attributable to the use
     of a residence or separate unattached structure for trade or
     business purposes may not exceed the amount of the gross
     income derived from the use of the residence or separate
     unattached structure for that trade or business reduced by
     the deductions which are allowed without regard to their
     connection with the taxpayer's trade or business (e.g.,
     interest and taxes).

The applicable rules are set forth in section 280A(c)(1) and (5).

(We note that to the extent deductions are disallowed under these

rules, they may be carried forward to the succeeding taxable

years subject to certain limitations.     Sec. 280A(c)(5).)

     If a separate studio adjacent to an artist's residence is

subject to the section 280A(c)(5) overall limitation, it follows

that a studio attached to an artist's residence likewise would be

subject to the overall limitation.

     California Law permitted the conversion of the Tenth Street

premises into joint living and work quarters.     The second floor

became petitioner's dwelling unit.      Petitioner herself referred

to her premises as a live/work unit.     Petitioner used her

dwelling unit as a residence.   Because that dwelling unit/

residence was on the second floor, the deductions for her

business use of the first floor became subject to section 280A

and the overall limitation of section 280A(c)(5).     This case

cannot be distinguished from the opinions of this Court in

Cunningham v. Commissioner, T.C. Memo. 1996-141, affd. per curiam
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without published opinion 110 F.3d 59 (4th Cir. 1997), and

Burkhart v. Commissioner, T.C. Memo. 1989-417.

     For the foregoing reasons, we are compelled to sustain

respondent's determination.

                                           Decision will be entered

                                      for respondent.
