                       T.C. Memo. 1997-89



                     UNITED STATES TAX COURT



             ELI AND KAREN YECHESKEL, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 10938-95.                Filed February 20, 1997.


     Eli Yecheskel, pro se.

     Ruth Perez, for respondent.


                       MEMORANDUM OPINION


     COUVILLION, Special Trial Judge:   This case was heard

pursuant to section 7443A(b)(3)1 and Rules 180, 181, and 182.

     Respondent determined a deficiency of $5,359 in petitioners'

Federal income tax for 1992.



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


     The issues for decision are whether petitioners, for their

1992 tax year, are entitled to a deduction for the cost of an

automobile used in the trade or business activity of Eli

Yecheskel (petitioner) and deductions for other expenses incurred

in that activity.2

     Some of the facts were stipulated.   Those facts, with the

exhibits annexed thereto, are so found and are incorporated

herein by reference.   At the time the petition was filed,

petitioners were legal residents of Silver Spring, Maryland.

     Petitioner was self-employed during 1992.   He holds a doctor

of philosophy degree in management science.   For a time prior to

the year in question, petitioner was a professor at Johns Hopkins

University.   Petitioner left the academic field to pursue a self-


2
     Two other adjustments in the notice of deficiency were
conceded by petitioner at trial: a disallowed casualty loss
deduction of $16,190 and disallowed legal expenses of $20,700.
The $16,190 casualty loss represented the amount of the loss
prior to the limitation provisions of sec. 165(h)(1) and (2).
After applying these limitations, the net casualty deduction
claimed was $10,000. In a memorandum of authorities and at
trial, petitioner argued that the Court should "deviate from the
general rule and look behind the notice of deficiency" to
establish that "the deficiency notice stems from incompetent
examination of Petitioners' 1992 Tax Return or alternatively that
the examination was not instituted or conducted in good faith or
for a legitimate purpose." The Court rejects that argument under
the well-recognized rule, which petitioner is familiar with, that
this Court generally will not look behind a notice of deficiency
to examine evidence used or the propriety of the Commissioner's
motives, administrative policies, or procedures involved in
making the determinations in the notice. Proesel v.
Commissioner, 73 T.C. 600 (1979); Greenberg's Express, Inc. v.
Commissioner, 62 T.C. 324, 327 (1974).
                               - 3 -


employed activity.   Petitioners filed a Schedule C, Profit or

Loss From Business, with their 1992 return that described

petitioner's activity as research and development.   At trial,

petitioner testified that he was the creator of software for

internet use relating to national health information and patient

care management.   He presented a lengthy list of clients, from

all parts of the United States, which included doctors,

hospitals, medical schools, scientific institutions, health

organizations, academies, and government or quasi-government

agencies.

     On the 1992 Schedule C of their return, petitioners reported

$500 gross income from petitioner's activity, expenses of

$16,053, and a net loss of $15,553.    In the notice of deficiency,

respondent disallowed all the expenses claimed but allowed

petitioners a deduction of $510 for telephone expenses that

petitioner had substantiated during the audit process.    The

telephone expenses allowed had not been claimed on petitioners'

1992 return.3

     The expenses claimed by petitioners on their Schedule C,

which respondent disallowed, are the following:

3
     The adjustment in the notice of deficiency of $15,543 is
based upon a disallowance of all the expenses claimed, $16,053
less $510 allowed for telephone expenses, which petitioners had
not claimed on the return. Respondent did not reduce the $15,543
by the $500 gross income reported for the reason that petitioners
failed to establish that any of the expenses claimed had been
paid or incurred.
                              - 4 -



               Insurance                      $   600
               Rent or lease of vehicles       15,333
               Taxes and licenses                 120
                 Total                        $16,053


Respondent disallowed the expenses on the ground that the

expenses related to travel and transportation, and petitioners

had failed to establish that the expenses were (a) incurred

during the taxable year, and (b) were ordinary and necessary

business expenses.

     The determinations of the Commissioner in a notice of

deficiency are presumed correct, and the taxpayer bears the

burden of proving that the determinations are incorrect.    Rule

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

     The $15,333 item that petitioner claimed as an expense for

the rent or lease of vehicles represented the cost of a Mercury

Sable automobile petitioner purchased for cash on July 3, 1992.

That automobile was used exclusively in petitioner's Schedule C

activity by himself and his clients.4   Petitioners presented no

documentary information to substantiate the $600 claimed for

insurance and the $120 claimed for taxes and licenses.




4
     Petitioner paid for the automobile by issuance of a check in
the amount of $15,313 payable to the dealer. No explanation was
advanced to account for the $20 difference between the amount of
the check, $15,313, and the amount claimed as an expense on
Schedule C, $15,333.
                               - 5 -


     Petitioners presented no evidence and cited no authority

supporting their claim of a deduction for the entire cost of the

automobile in the year of purchase.     It is elementary tax law

that an expenditure that results in the acquisition of property

with a useful life extending beyond the year of purchase is

generally a capital expenditure, and the recovery of such

expenditure is an allowance for depreciation under section 167

over the useful life or recovery period of the asset.     Section

167(a) provides generally that there shall be allowed as a

depreciation deduction a reasonable allowance for the exhaustion,

and wear and tear (including a reasonable allowance for

obsolescence) of property used in a trade or business or property

held for the production of income.     It is patently clear,

therefore, that petitioners could not, during 1992, claim the

entire cost of the automobile as an ordinary and necessary

business expense.   If petitioners are entitled to any deduction

at all for the automobile, it would be depreciation, and the

Court next considers that question.

     For years after 1985, a deduction for transportation

expenses (which includes depreciation) is allowed only if the

taxpayer meets the strict substantiation requirements of section

274(d).   Sec. 274(d)(1); sec. 1.274-5T(a)(1), Temporary Income

Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).     Section 274(d),

for taxable years beginning after December 31, 1985, was amended
                               - 6 -


to provide that no deduction shall be allowed with respect to any

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


     unless the taxpayer substantiates by adequate records or by
     sufficient evidence corroborating the taxpayer's own
     statement (A) the amount of such expense or other item, (B)
     the time and place of the travel * * *, (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, or receiving the gift. * * *


     Listed property, as defined in section 280F(d)(4), includes

any passenger automobile or any other property used as a means of

transportation.   In addition, section 274(d)(1) requires the same

substantiation for any deduction claimed "under section 162 or

212 for any traveling expense".

     The elements required to substantiate a claimed

transportation expense deduction under section 274(d) include the

amount of each separate expenditure with respect to an item of

listed property, such as the cost of acquisition of the listed

property.   Sec. 1.274-5T(b)(6), Temporary Income Tax Regs., 50

Fed. Reg. 46016 (Nov. 6, 1985).   Although petitioner did not

maintain records that would satisfy the substantiation

requirements of section 274(d) for expenses incurred in

connection with the use of the automobile, petitioners did

satisfy the substantiation requirements for the cost of the

automobile by offering into evidence the original canceled check

issued for payment of the vehicle in the amount of $15,313.     To
                                - 7 -


that extent, therefore, and since the automobile was used

exclusively in the trade or business activity, petitioners have

satisfied the substantiation requirements of section 274(d) and

the requirements of section 280F to allow them a depreciation

recovery deduction under sections 167 and 168(a).         Petitioners,

therefore, are sustained to the extent of a depreciation

allowance for the automobile.

     As to the other disallowed Schedule C expenses, petitioners

presented no evidence to substantiate those expenses.

Respondent, therefore, is sustained on those items.

     To account for the allowed depreciation,



                                             Decision will be entered

                                        under Rule 155.
