                    T.C. Summary Opinion 2002-8



                      UNITED STATES TAX COURT



         DAVID LLEWELLYN AND KAY MARIE ROSE, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 6434-00S.               Filed February 5, 2002.


     David Llewellyn Rose, pro se.

     Timothy F. Salel, for respondent.



     COUVILLION, Special Trial Judge:    This case was heard

pursuant to section 7463 of the Internal Revenue Code in effect

at the time the petition was filed.1    The decision to be entered

is not reviewable by any other court, and this opinion should not

be cited as authority.



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


     Respondent determined deficiencies of $1,924, $2,479, and

$3,146 in petitioners' Federal income taxes for 1995, 1996, and

1997, respectively.

     The issues for decision are:   (1) Whether, for 1995, 1996,

and 1997, petitioners are entitled to deduct travel expenses of

$37,668, $36,393, and $14,726, respectively, in connection with

an air racing activity of David L. Rose (petitioner); (2)

whether, for each of the years at issue, petitioners are entitled

to deduct labor expenses in connection with petitioner's air

racing activity in excess of amounts allowed by respondent; and

(3) whether, for 1996, respondent properly disallowed $8,737 of

petitioners' claimed basis in a 1970 Plymouth Barracuda

automobile sold during that year.   The remaining adjustments to

petitioners' itemized deductions, for each of the years at issue,

are computational and will be resolved by the Court's holdings on

the aforementioned issues.

     Some of the facts were stipulated, and those facts, with the

annexed exhibits, are so found and are incorporated herein by

reference.   At the time the petition was filed, petitioners’

legal residence was La Jolla, California.

     Petitioner was a commercial airline pilot for American

Airlines for 33 years prior to his retirement in May 1997.    In

general, commercial airline pilots are required to retire at age

60, and that was the reason for petitioner's 1997 retirement.
                               - 3 -


Soon after he began flying with American Airlines, petitioner's

flight base was San Francisco, California, where he lived until

1974.   In 1972, petitioner took advantage of the opportunity to

change his flight base to San Diego, California, and fly routes

primarily from San Diego to the east coast.   After flying out of

San Diego for 2 years, petitioner moved his personal residence

there sometime during 1974.

     In 1994, American Airlines closed its crew base at San

Diego, requiring pilots to bid for other flight bases in the

existing system.   Consequently, from June 1994 to June 1995,

petitioner's flight base was Miami, Florida; from June 1995

through June 1996, petitioner's flight base was Chicago,

Illinois; and from June 1996 through May 1997, petitioner's

flight base was Seattle, Washington.    During the last 3 years of

his employment with American Airlines, petitioner primarily

captained international flights to Europe, South America, and

Asia.   Petitioner maintained his personal residence in the San

Diego area during all of these years.

     Around 1990, petitioner began to realize that his retirement

was imminent, and he needed to become involved in new financial

endeavors that he could continue upon his retirement.

Petitioner's background in aviation led him to embark on an

activity commonly known as air racing.   Air racing competitions

are held worldwide, in which participants fly private aircraft to
                               - 4 -


compete for monetary prizes.   Some races, known as pylon races,

are held on circular courses that provide starts and finishes at

a single location.   For instance, at the National Championship

Air Races held in Reno, Nevada, each September, the "closed-

circuit" course is approximately 9 miles long, and some classes

of participants approach flight speeds of 500 miles per hour.     At

this rate of speed, one lap can be completed in little more than

one minute.   All of the racing action takes place in clear view

of the spectators.   In cross-country races, the participants race

from one geographic location to another.

     In 1991, petitioner purchased his first aircraft and began

racing in September 1992.   During the years at issue, as well as

years subsequent thereto, petitioner was heavily involved in air

racing.   In 1994 and 1995, petitioner designed his own racing

aircraft, the Mach Buster, which he began building in 1995.    Some

expenses related to the building of the Mach Buster are at issue

in this case.

     In the late 1980s, petitioner became involved in buying,

restoring, and selling classic automobiles.   During 1989,

petitioner purchased a 1970 Plymouth Barracuda automobile

(Barracuda), on which he spent several years restoring.

Petitioner had some degree of difficulty selling the Barracuda

but eventually sold it in 1996 at a significant loss.   The
                               - 5 -


adjusted basis in the car at the time of its sale is at issue in

this case.

     On their joint Federal income tax returns for 1995, 1996,

and 1997, petitioners included Schedules C, Profit or Loss From

Business (Schedules C), in connection with petitioner’s air

racing activity.   In pertinent part, petitioners claimed the

following travel expenses and labor expenses in connection with

the air racing activity:


     Expenses          1995              1996        1997

     Travel          $37,668           $36,393     $14,726
     Labor            60,722            19,019      37,605


In the notice of deficiency, respondent disallowed all of the

travel expenses claimed for each of the years at issue.     Of the

labor expenses claimed, respondent disallowed $12,250 for 1995,

$5,000 for 1996, and $17,000 for 1997.

     Additionally, on their 1996 return, petitioners included a

Schedule C in connection with petitioner's classic car

restoration and sales activity.   On this Schedule C, petitioners

reported sales income of $29,000 and an adjusted basis of $76,771

(reported as cost of goods sold) in connection with the sale of

the aforementioned restored 1970 Plymouth Barracuda automobile.

Thus, petitioners reported a loss of $47,771 from the sale of the
                               - 6 -


Barracuda.   In the notice of deficiency, respondent disallowed

$8,737 of the claimed basis in the Barracuda.

     As a result of these adjustments, respondent made

computational adjustments to petitioners' itemized deductions for

each of the years at issue.

     The first issue is whether, for each of the years at issue,

petitioners are entitled to deduct travel expenses in connection

with petitioner's air racing activity.     The parties have agreed

that petitioner's tax home for the years at issue was not San

Diego but, rather, was either Miami, Chicago, or Seattle during

those years.2

     Petitioner conducted his air racing activity in San Diego

during each of the years at issue.     Therefore, petitioner

deducted away-from-home travel expenses for each day that he was

in San Diego during the years at issue.     These included expenses

for lodging, meals, and incidental expenses while in San Diego

but did not include a deduction of expenses for travel to and

from his various tax home locations and San Diego.     Rather than

deducting his actual expenses in San Diego, petitioner elected a



     2
          A "home" for purposes of sec. 162(a)(2) means the
vicinity of the taxpayer's principal place of business rather
than the personal residence of the taxpayer, when the personal
residence is not in the same vicinity as the place of employment.
Mitchell v. Commissioner, 74 T.C. 578, 581 (1980); Daly v.
Commissioner, 72 T.C. 190, 195 (1979), affd. en banc 662 F.2d 253
(4th Cir. 1981).
                              - 7 -


per diem amount for each day he was in San Diego.     Petitioner

determined the number of days he was in San Diego during each of

the years at issue and then multiplied that by a high-cost

locality per diem rate provided in various Internal Revenue

Service revenue procedures for the years at issue.3

     For each of the years at issue, petitioner also deducted

expenses for traveling from San Diego to various air races and

air shows in locations such as Reno, Nevada.   The travel expenses

claimed by petitioner for each of the years at issue in

connection with his air racing activity were in the following

amounts:


     Expenses                   1995      1996         1997

     Per Diem in San Diego    $35,112   $31,212     $13,832
     Travel to air races        2,556     5,181         894
       Total                  $37,668   $36,393     $14,726


As stated previously, respondent disallowed all of the claimed

air racing travel expenses for each of the years at issue.

     Section 162(a) allows a deduction for the ordinary and

necessary expenses paid or incurred during the taxable year in


     3
          Rev. Proc. 94-77, 1994-2 C.B. 825, was in effect for
1995, Rev. Proc. 96-28, 1996-1 C.B. 686, was in effect for 1996
(as of April 1, 1996), and Rev. Proc. 96-64, 1996-2 C.B. 427, was
in effect for 1997. These publications provided high-cost
locality per diem rates of $152 for 1995 and 1996 and $166 for
1997. In calculating his San Diego expenses, petitioner, for
reasons unexplained, used a per diem rate of $152 for 1995 and
1997 but used a rate of $153 for 1996.
                                - 8 -


carrying on a trade or business.    Section 162(a)(2) expressly

permits the deduction of traveling expenses, including meals and

lodging, while away from home in the pursuit of a trade or

business.    A taxpayer may deduct a traveling expense under

section 162(a)(2) if the following three conditions are

satisfied:    (1) The expense must be reasonable (e.g., lodging,

transportation, fares, and food); (2) it must be incurred while

away from home; and (3) it must be an ordinary and necessary

expense incurred in the pursuit of a trade or business.

Commissioner v. Flowers, 326 U.S. 465, 470 (1946).    The rationale

in allowing such a deduction is to alleviate the burden falling

upon a taxpayer whose business requires that he or she incur

duplicate living expenses.    Tucker v. Commissioner, 55 T.C. 783,

786 (1971); Kroll v. Commissioner, 49 T.C. 557, 562 (1968).

Whether the taxpayer satisfies the three recited conditions is

purely a question of fact.    Commissioner v. Flowers, supra at

470; Wills v. Commissioner, 411 F.2d 537, 540 (9th Cir. 1969),

affg. 48 T.C. 308 (1967).    Expenses that do not meet these

criteria are considered personal expenses and are not deductible

under section 262(a).

     Moreover, a taxpayer generally is required to maintain

records to substantiate the amount of his or her income and

deductions.    Sec. 6001; sec. 1.6001-1(a), Income Tax Regs.   Under

certain circumstances, where a taxpayer establishes entitlement
                                - 9 -


to a deduction but does not establish the amount of the

deduction, the Court is allowed to estimate an allowable amount.

Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930).     However,

section 274(d) precludes use of the so-called Cohan rule and

provides that no deduction is allowable under section 162 for any

traveling expenses, including meals and lodging while away from

home unless the taxpayer complies with strict substantiation

rules.   Sec. 274(d)(1), (4).   Particularly, the taxpayer must

substantiate the amount, time, place, and business purpose of the

enumerated types of expenses by adequate records or by sufficient

evidence corroborating his own statement.    Sec. 274(d); sec.

1.274-5T(b)(2), (6), (c), Temporary Income Tax Regs., 50 Fed.

Reg. 46014, 46016 (Nov. 6, 1985).

     To address circumstances under which it would be

impracticable or overly burdensome to require detailed

documentary evidence, section 274(d) and the regulations

thereunder vest the Secretary with the authority to promulgate

regulations that prescribe alternative methods for substantiating

expenses covered by section 274.    Sec. 1.274-5T(j), Temporary

Income Tax Regs., 50 Fed. Reg. 46032 (Nov. 6, 1985).    Pursuant to

this authority, the Secretary issued Rev. Proc. 94-77, 1994-2

C.B. 825; Rev. Proc. 96-28, 1996-1 C.B. 686; and Rev. Proc. 96-

64, 1996-2 C.B. 427, in effect for the years 1995, 1996, and

1997, respectively, providing rules under which the amount of
                                - 10 -


ordinary and necessary business expenses of an employee for

lodging, meals, and/or incidental expenses incurred while

traveling away from home will be deemed substantiated for

purposes of section 274(d).     These revenue procedures also

provide an optional method for employees and self-employed

individuals to substantiate the amount of business, meal, and

incidental expenses incurred while traveling away from home.

Petitioner relies on these revenue procedures to support the per

diem expense deductions claimed for the days he was in San Diego

during the years at issue.4

     While section 4.01 of each of the aforementioned revenue

procedures authorizes the per diem method to substantiate

lodging, meal, and incidental costs, the per diem method is

available only to employers who pay a per diem allowance in lieu

of reimbursing the actual expenses an employee incurs while

traveling away from home.     Therefore, petitioner’s claimed San

Diego expenses are not included within this provision because he

was self-employed in connection with the air racing activity.

Although petitioner, as a self-employed individual, is entitled

to rely on the per diem method allowed under section 4.03 of each

of the aforementioned revenue procedures, such reliance is


     4
          Petitioner repeatedly made reference to Rev. Proc. 93-
50, 1993-2 C.B. 586; however, this revenue procedure was not in
effect for any of the years at issue but, rather, was effective
from Jan. 1 through Dec. 31, 1994.
                             - 11 -


limited to only meals and incidental expenses and not lodging.

Accordingly, petitioner’s claimed San Diego lodging expenses for

each of the years at issue are not deemed substantiated under the

aforementioned revenue procedures, and, since petitioner

maintained no independent records under section 274(d) to

substantiate these expenses, he is not entitled to a deduction of

the claimed lodging expenses for those years.

     As stated, section 4.03 of each of the aforementioned

revenue procedures allows a self-employed taxpayer the per-diem

method for meals and incidental expenses, but only if the

taxpayer "substantiates the elements of time, place, and business

purpose of the travel expenses".   Respondent argues that

petitioner failed to substantiate these elements and, therefore,

is not entitled to the per diem method for meals and incidental

expenses for the years at issue.

     Upon an exhaustive examination of the record in this case,

the Court finds that petitioner has adequately substantiated the

time and place but not the business purpose of his days in San

Diego during the years at issue.   Petitioner's personal residence

was in San Diego during each of the years at issue, and the Court

is satisfied that petitioner would have spent the same number of

days there regardless of whether or not he was conducting a trade

or business in San Diego during those years.    Moreover, section

1.162-2(b)(1), Income Tax Regs., provides that, if travel
                               - 12 -


expenses are incurred for both business and other purposes, such

expenses are deductible only if the travel is primarily related

to the taxpayer's trade or business.    If a trip is primarily

personal in nature, expenses incurred are not deductible even if

the taxpayer engaged in some business activities at the

destination.   Id.

     Whether travel is related primarily to the taxpayer's trade

or business or is primarily personal is a question of fact.      Sec.

1.162-2(b)(2), Income Tax Regs.; Holswade v. Commissioner, 82

T.C. 686, 698, 701 (1984).    The amount of time during the period

of the trip that is spent on personal activity, compared to the

amount of time spent on activities directly relating to the

taxpayer's trade or business, is an important factor in

determining whether the trip is primarily personal.    The taxpayer

must prove that the trip was primarily related to the trade or

business.   Rule 142(a).   Petitioners failed to establish that

petitioner spent more time on his air racing activity than on

personal endeavors during his days in San Diego.5


     5
          As the Court understands the evidence presented,
petitioner attributed the entire time he was not flying
commercially to time in San Diego that was devoted exclusively to
his trade or business activities in San Diego, with no allowances
made for personal time petitioner spent with his wife and family
or other personal endeavors. There is also some indication that
the records of American Airlines reflected that petitioner was
flying for the airline on certain days; yet, petitioner claimed
these same days in San Diego attending to his trade or business
                                                   (continued...)
                              - 13 -


     Although petitioner may have devoted numerous hours during

his time in San Diego to the air racing activity, the Court

concludes that petitioner's travel to San Diego was primarily

personal in nature and was not primarily related to his air

racing activity.   Moreover, the Court is satisfied that, but for

the fact that his personal residence was in San Diego, petitioner

would not have conducted his air racing activity there but would

have chosen whatever location coincided with his personal

residence.   Consequently, the Court holds that petitioner is not

entitled to the per diem method for meals and incidental expenses

for his time spent in San Diego during 1995, 1996, and 1997.

Thus, the Court holds that petitioners are not entitled to deduct

any travel expenses in connection with the air racing activity

for the days petitioner was in San Diego during the years at

issue.

     With respect to the other travel expenses claimed in

connection with the air racing activity for petitioner's trips to

various air races, the Court is satisfied that petitioner did

incur travel expenses in connection with these trips.

Unfortunately, however, petitioners failed to substantiate the



     5
      (...continued)
activities. Other records of American Airlines reflected
petitioner was not flying on certain days because of illness;
yet, petitioner claimed those same days as being engaged in his
trade or business in San Diego.
                              - 14 -


amount, time, place, and business purpose of these expenses as

required by section 274(d).   Under this circumstance, the Court

is precluded from using the Cohan doctrine to estimate the amount

of the travel expenses incurred in connection with such travel.

Accordingly, the Court holds that petitioners are not entitled to

deduct travel expenses in connection with petitioner's trips to

air races for any of the years at issue.   Thus, petitioners are

not entitled to deduct any travel expenses in connection with

petitioner's air racing activity for any of the years at issue.

Respondent is sustained on this issue.

     The second issue is whether petitioners are entitled to

deduct labor expenses for each year at issue in connection with

the air racing activity in excess of amounts allowed by

respondent.   On Schedules C of their returns, petitioners

deducted labor expenses of $60,722 for 1995, $19,019 for 1996,

and $37,605 for 1997.   In the notice of deficiency, respondent

disallowed labor expenses of $12,250, $5,000, and $17,000,

respectively, for 1995, 1996, and 1997, due primarily to lack of

substantiation.   Respondent also argues that, if the Court finds

that petitioners substantiated the disallowed amounts, such

amounts represented expenses for construction of the Mach Buster

airplane, and, thus, these amounts are not deductible with

respect to the air racing activity and should be capitalized

subject to depreciation with respect to the Mach Buster.
                              - 15 -


     As to the question of substantiation, the Court finds on

this record that petitioners substantiated labor expenses of

$60,096 for 1995, $17,406 for 1996, and $41,960 for 1997.

Therefore, in addition to the labor expenses respondent allowed

for each year in the notice of deficiency, the Court finds that

petitioners substantiated labor expenses of $11,624 for 1995,

$3,387 for 1996, and $21,355 for 1997.   The Court next considers

whether these additional labor expenses were related to

construction of the Mach Buster airplane, in which event such

expenses would be capitalized, or whether these expenses were

incurred in connection with the air racing activities.

     Section 263(a)(1) provides generally that no deduction shall

be allowed for "Any amount paid out for new buildings or for

permanent improvements or betterments made to increase the value

of any property or estate."   The Treasury regulations interpret

this text by listing the following item as an example of a

capital expenditure:   "The cost of acquisition, construction, or

erection of buildings, machinery and equipment, furniture and

fixtures, and similar property having a useful life substantially

beyond the taxable year."   Sec. 1.263(a)-2(a), Income Tax Regs.

     Whether an expense is deductible under section 162(a) or

must be capitalized under section 263(a)(1) is a factual

determination for which there is no controlling rule.    "[E]ach

case 'turns on its special facts'", and "the cases sometimes

appear difficult to harmonize."   INDOPCO, Inc. v. Commissioner,
                               - 16 -


503 U.S. 79, 86 (1992) (quoting Deputy v. du Pont, 308 U.S. 488,
496 (1940)).   Petitioners bear the burden of establishing their

right to deduct the disputed expenses.   Id. at 84, 86; Welch v.

Helvering, 290 U.S. 111, 114-116 (1933); A.E. Staley

Manufacturing Co. & Subs. v. Commissioner, 119 F.3d 482, 486 (7th

Cir. 1997), revg. and remanding 105 T.C. 166 (1995).

     Under the current law on capitalization, an expenditure may

be deductible in one setting but capitalizable in a different

setting.   For example, in Commissioner v. Idaho Power Co., 418

U.S. 1, 13 (1974), the Supreme Court observed the following as to

wages paid by a taxpayer in its trade or business:


     Of course, reasonable wages paid in the carrying on of
     a trade or business qualify as a deduction from gross
     income. * * * But when wages are paid in connection
     with the construction or acquisition of a capital
     asset, they must be capitalized and are then entitled
     to be amortized over the life of the capital asset so
     acquired. * * *


Thus, when an expense creates a separate and distinct asset, it
usually must be capitalized.   Commissioner v. Lincoln Sav. & Loan

Association, 403 U.S. 345 (1971); FMR Corp. & Subs. v.

Commissioner, 110 T.C. 402, 417 (1998); Iowa-Des Moines Natl.

Bank v. Commissioner, 68 T.C. 872, 878, (1977), affd. 592 F.2d

433 (8th Cir. 1979).   When an expense does not create such an

asset, the most critical factors to consider are the period of

time over which the taxpayer will derive a benefit from the

expense and the significance to the taxpayer of that benefit.
                              - 17 -


INDOPCO, Inc. v. Commissioner, supra at 87-88; United States v.
Miss. Chem. Corp., 405 U.S. 298, 310 (1972); FMR Corp. & Subs. v.

Commissioner, supra at 426; Conn. Mut. Life Ins. Co. v.

Commissioner, 106 T.C. 445, 453 (1996).

     The record reflects that the additional labor expenses

substantiated by petitioners were incurred in connection with the

construction of the Mach Buster airplane, an asset having a

useful life substantially beyond the years in which the

expenditures were incurred.   Therefore, the Court holds that the

aforementioned additional labor expenses substantiated by

petitioners, i.e., $11,624, $3,387, and $21,355 for 1995, 1996,

and 1997, respectively, are not currently deductible but, rather,

must be capitalized and eventually depreciated as a portion of

the cost of constructing the Mach Buster airplane.

     Finally, petitioners contend that the Mach Buster airplane

was placed in service in 1997, and, thus, some depreciation

should be allowed for that year.   Conversely, respondent contends

that the Mach Buster was placed in service no earlier than 1998,

and perhaps later, therefore, no depreciation for the airplane

should be allowed for any of the years at issue.

     Section 167(a) allows taxpayers a depreciation deduction for

the exhaustion and wear and tear of property used in a trade or

business or held for the production of income.   Property becomes

depreciable beginning when it is "placed in service".     Piggly

Wiggly S., Inc., v. Commissioner, 84 T.C. 739, 745 (1985), affd.
                              - 18 -


on another issue 803 F.2d 1572 (11th Cir. 1986); Clemente v.
Commissioner, T.C. Memo. 1985-367; sec. 1.167(a)-10(b), Income

Tax Regs.   Property is considered "placed in service" when it is

ready and available for a specifically assigned function.     Piggly

Wiggly S., Inc., v. Commissioner, supra; Williams v.

Commissioner, T.C. Memo. 1987-308; sec. 1.167(a)-11(e)(1)(i),

Income Tax Regs.   Consequently, although the Mach Buster had not

been flown in an air race during any of the years at issue, it

could still be considered depreciable in the year in which it

became "ready and available" for flying in air races.

     The record reflects that the Mach Buster airplane was not

ready and available for air racing until sometime after 1997.

Although it appears that construction of the aircraft was

completed in early 1997, a so-called "flutter analysis" was

conducted on the Mach Buster by a third party during most of the

remainder of 1997.   A flutter analysis was described by

petitioner as "an examination of the basic aerodynamics of the

airplane and the structure as completed."   The flutter analysis

determines how an airplane will "react to the airloads on it"

during flight; i.e., whether the aircraft components will fly

smoothly or "flutter so rapidly that they destroy themselves."

The flutter analysis findings were not published until February

1998.

     Petitioner contends that, even though the flutter analysis

findings were not published until February 1998, he could have
                               - 19 -


flown the airplane at any time after its completion in early

1997.    In connection with that argument, the following testimony

was offered at trial:


     COURT: * * * So then from what you're telling me, while
     this process [the flutter analysis] was underway, the
     FAA probably would not have allowed you to fly that
     plane.

     PETITIONER: Oh, actually, they would have, Your Honor.
     A flutter analysis is not required on an aircraft.

     COURT:   Well, then why were you having it done?

     PETITIONER: Because I am cautious. I don't want to
     kill myself in an airplane that comes apart due to
     flutter. * * *


The Court is satisfied that the Mach Buster was not ready and

available for its specifically assigned function, i.e., air

racing, until at least February 1998, when petitioner became

satisfied by the flutter analysis results that the aircraft was

airworthy.6   Thus, the Court finds that the Mach Buster airplane

was not placed in service during the years at issue.    Therefore,

petitioners are not entitled to depreciation deductions on the

Mach Buster for any of the years at issue.

     The final issue for decision is whether, for 1996,

respondent properly disallowed $8,737 of petitioners' claimed

     6
          The Court finds it also notable, although not
determinative, that petitioner attempted to enter the Mach Buster
in the National Championship Air Races at Reno, Nevada, for Sept.
1999; however, the Reno Air Race Association rejected the entry
because the Mach Buster had not been previously demonstrated on
the race course.
                               - 20 -


adjusted basis in a 1970 Plymouth Barracuda automobile sold

during that year.    During 1989, in connection with his classic

car restoration and sales activity, petitioner purchased a 1970

Plymouth Barracuda automobile for restoration and resale.    After

extensively restoring the Barracuda, petitioner encountered some

difficulty in selling the car.    However, petitioner eventually

sold the Barracuda during 1996 for $29,000, at a substantial

loss.   On the classic car restoration Schedule C of their 1996

return, petitioners reported sales income of $29,000 in

connection with the Barracuda and an adjusted basis in the car

(reported as cost of goods sold) of $76,771.    Thus, petitioners

claimed a loss of $47,771 from the sale of the Barracuda.    After

deducting $1,770 in other various expenses, petitioners claimed a

net loss of $49,541 from the classic car restoration and sales

activity.   In the notice of deficiency, respondent disallowed

$8,737 of the $76,771 claimed adjusted basis in the Barracuda.

     Section 1011(a) provides that the adjusted basis for

determining gain or loss from the sale or other disposition of

property is the basis determined under section 1012, adjusted as

provided in section 1016.    Generally, under section 1012, the

basis of property is its cost.    The cost is the amount paid for

such property in cash or other property.    Sec. 1.1012-1(a),

Income Tax Regs.    The cost basis is increased by the cost of

capital improvements and betterments made to the property.      Sec.

1016(a)(1); sec. 1.1016-2(a), Income Tax Regs.    Moreover, the
                                - 21 -


cost basis is decreased by the amount of any depreciation

previously allowed but not by less than the amount allowable with

respect to the property.    Sec. 1016(a)(2); sec. 1.1016-3(a),

Income Tax Regs.

     Taxpayers generally bear the burden of proving entitlement

to costs and deductions claimed.     Bennett Paper Corp. & Subs. v.
Commissioner, 699 F.2d 450, 453 (8th Cir. 1983), affg. 78 T.C.

458 (1982).   However, as stated previously herein, this Court may

estimate costs and allowable deductions under certain

circumstances.     Cohan v. Commissioner, 39 F.2d at 543-544.    Any

such estimate, however, must have a reasonable evidentiary basis.

Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985).    Without

such a basis, any allowance would amount to unguided largesse.

Williams v. United States, 245 F.2d 559, 560 (5th Cir. 1957).

     After reviewing the evidence presented by petitioners in

support of their claimed adjusted basis in the Barracuda, the

Court finds that petitioners failed to substantiate a basis in
the Barracuda in excess of the amount allowed by respondent in

the notice of deficiency.    Respondent is sustained on this issue.

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                      Decision will be entered

                                 for respondent.
