                        T.C. Memo. 1999-94



                      UNITED STATES TAX COURT



         THOMAS M. AND DOLORES F. GOMEZ, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 16207-96.           Filed March 25, 1999.



     Thomas M. Gomez, pro se.

     Sandy Hwang, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     MARVEL, Judge:   Respondent determined a deficiency in

petitioners' Federal income tax in the amount of $10,299 and an

accuracy-related penalty under section 6662(a)1 in the amount of

$2,060 for the taxable year 1993.


     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure. All dollar amounts are rounded to the nearest dollar.
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     The issues for decision are as follows:

     (1)    Whether petitioners are entitled to deduct unreimbursed

employee business expenses in the amount of $34,120 as claimed on

their 1993 Federal income tax return;

     (2)    whether petitioners are entitled to deduct additional

charitable contributions in excess of the amount allowed by

respondent for 1993; and

     (3)    whether petitioners are liable for the accuracy-related

penalty authorized by section 6662(a) with respect to the

aforementioned deductions.

     We hold that petitioners are not entitled to the deductions

claimed in excess of the amount allowed by respondent and that

petitioners are liable for the accuracy-related penalty under

section 6662(a).

                           FINDINGS OF FACT

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

The stipulation of facts with attached exhibits is incorporated

herein by this reference.

     Thomas M. Gomez (petitioner) and Dolores F. Gomez resided in

La Habra, California, during 1993 and at the time they filed

their petition in this case.

Unreimbursed Employee Business Expense Deduction

     During the first quarter of 1993, petitioner was employed as

a salesman for Information Handling Services (IHS) of Englewood,

Colorado.   IHS had a company policy of paying its sales personnel

a $600 monthly allowance for automobile expenses.    In accordance
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with that policy, IHS paid petitioner $1,800 in automobile

allowances during 1993.   IHS also had a company policy of

reimbursing its sales personnel for all ordinary and necessary

business expenses upon submission of periodic expense reports.

During the first quarter of 1993, petitioner prepared and

submitted to IHS periodic expense reports for expenses incurred

in 1993.   IHS reimbursed him $2,129 for his 1993 employee

business expenses in addition to the automobile allowance.

     Starting in April 1993, petitioner was employed as a

salesman for the Human Resource Information Group (HRIG), a

division of ETSI, Inc., of Gaithersburg, Maryland.    HRIG had a

company policy of reimbursing all ordinary and necessary business

expenses incurred by its employees.    During 1993, petitioner

prepared and submitted to HRIG periodic expense reports for

expenses incurred in 1993.   HRIG reimbursed him $23,044 for his

1993 employee business expenses.
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     On their 1993 joint income tax return, petitioners claimed a

deduction of $35,667 for unreimbursed employee business

expenses.2

Charitable Contribution Deduction

     On their 1993 return, petitioners claimed a deduction for

charitable contributions as follows:

     La Habra Christian Church                $9,286
     Pacific Christian College                 4,800
     Angeles Christian College                 4,800
     Calvary Chapel                            7,200

     Total deduction claimed                  26,086

     The amount of the charitable contribution deduction for 1993

was estimated by petitioner and given to the return preparer who

prepared petitioners' 1993 return.       Petitioners did not maintain

any documentation regarding the contributions claimed.3




     2
      The deduction was calculated as follows:

             Form 2106 employee business expenses      $12,048
             Meals and entertainment expense             8,500
                  Less 20% reduction                    (1,700)
             Other business expenses
                  Fares                                  7,346
                  Lodging                                7,573
             Miscellaneous expenses
                  Telephone bills                        1,900

             Total unreimbursed
               employee business expenses               35,667
     3
      Two of the charitable organizations listed on the return--
Pacific Christian College and La Habra Christian Church--had no
record of any charitable giving by petitioners during 1993. The
record is silent with respect to the other organizations listed
on petitioners' 1993 return.
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The Notice of Deficiency

     Following an examination of petitioners' 1993 return,

respondent issued a notice of deficiency disallowing all of the

deduction for unreimbursed employee business expenses and all but

$1,3004 of the deduction claimed for charitable contributions due

to lack of substantiation.    Respondent also determined that

petitioners were liable for the accuracy-related penalty

authorized by section 6662.

                               OPINION

     Deductions are a matter of legislative grace, and the

taxpayer bears the burden of proving that he or she is entitled

to the claimed deductions.    See Rule 142(a); INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v.

Helvering, 292 U.S. 435, 440 (1934); Welch v. Helvering, 290 U.S.

111, 115 (1933).   With this well-established proposition in mind,

we must determine whether petitioners have satisfied their burden

of proving that they are entitled to deductions for unreimbursed

employee business expenses and charitable contributions in excess

of the amount allowed by respondent.




     4
      The parties stipulated that petitioners were entitled to a
charitable contribution in the amount of $750 (30 donations of
$25 each) to Calvary Chapel. According to respondent's
Memorandum of Law, that amount was included in respondent's
calculation of the $1,300 charitable contribution deduction
allowed for 1993 in the notice of deficiency.
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Issue 1.    Unreimbursed Employee Business Expense Deduction

     In order to deduct unreimbursed employee business expenses,

a taxpayer must satisfy the requirements of section 162, and,

with respect to certain expenses, section 274.

     Section 162(a) authorizes a deduction for all ordinary and

necessary expenses paid or incurred during a taxable year in

carrying on a trade or business.    An "ordinary" expense is one

that relates to a transaction "of common or frequent occurrence

in the type of business involved", Deputy v. du Pont, 308 U.S.

488, 495 (1940), and a "necessary" expense is one that is

"appropriate and helpful" for "the development of the

petitioner's business", Welch v. Helvering, supra at 113.      A

"trade or business" includes the trade or business of being an

employee.    O'Malley v. Commissioner, 91 T.C. 352, 363-364 (1988);

Primuth v. Commissioner, 54 T.C. 374, 377-378 (1970).

     In this case, petitioner satisfied the trade or business

requirement of section 162 because he was in the trade or

business of being an employee.    However, he failed to convince us

that he had incurred ordinary and necessary employee business

expenses in excess of those reimbursed to him by his employers.

     Each of petitioner's employers in 1993 had a policy of

reimbursing its employees for ordinary and necessary business

expenses.    Pursuant to those policies, petitioner received $1,800

in automobile allowance and $25,173 ($2,129 from IHS and $23,044

from HRIG) in 1993 expense reimbursements.    Although petitioner

introduced documentation of alleged business expenses at trial
                               - 7 -


which he claimed had not been reimbursed, he offered no credible

explanation of why the expenses in question were not reimbursed

or reimbursable under his employers' reimbursement policies.

     When a taxpayer has the right to obtain reimbursement for

his employee business expenses from his employer but fails to

seek reimbursement, the taxpayer cannot deduct the expenses

because it is not "necessary" for the taxpayer to remain

unreimbursed.   See Orvis v. Commissioner, 788 F.2d 1406, 1408

(9th Cir. 1986), affg. T.C. Memo. 1984-533; Roach v.

Commissioner, 20 B.T.A. 919, 925 (1930)("[O]ne taxpayer may not

take deductions properly belonging to another.   A similar rule

should apply * * * where one spends money for the benefit of

another and is not reimbursed").   In general, only those

unreimbursed employee business expenses that are not reimbursable

by the taxpayer's employer are deductible by the taxpayer under

section 162.

     Petitioner's attempt to deduct employee business expenses

also must fail because petitioner did not satisfy the

requirements of section 274.   Section 274 imposes additional

stringent substantiation requirements for certain kinds of

business expenses.   Section 274(d) provides, in pertinent part:

          SEC. 274(d). Substantiation Required.--No deduction or
     credit shall be allowed--

               (1) under section 162 or 212 for any
          traveling expense (including meals and lodging
          while away from home),

          (2) for any item with respect to an activity
          which is of a type generally considered to
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           constitute entertainment, amusement, or
           recreation, or with respect to a facility used in
           connection with such an activity,

                     *    *    *    *      *   *   *

     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,
     entertainment, amusement, recreation, or use of the
     facility or property, or the date and description of
     the gift, (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. * * *

     The expenses petitioner deducted as unreimbursed employee

business expenses consisted of meals and entertainment, travel,

lodging, and telephone expenses.        For petitioner to prevail, he

had to satisfy the substantiation requirements of section 274

with respect to all expenses claimed except the telephone

expense.   He failed to do so.

     Documentation for some but not all of the unreimbursed

employee business expenses claimed was admitted into evidence in

the trial of this case.   During cross-examination regarding the

documentation, petitioner admitted that some of the expenses were

included on his 1993 travel expense reports and had been

reimbursed.   He also admitted that some of the expenses were

really personal expenses.     As to all of the remaining expenses,

petitioner failed to prove (1) the business purpose or nature of

the expenses and (2) the reason, if any, why the expenses, even
                                - 9 -


if business related, were not included on his expense reports and

reimbursed by his employers.5

     We conclude, therefore, that petitioners failed to satisfy

the requirements of sections 162 and 274.    Respondent's

determination on this issue is sustained.

Issue 2. Charitable Contribution Deduction

     Petitioners claimed total charitable contributions for 1993

in the amount of $26,086.   Of that amount, respondent allowed a

charitable contribution deduction of $1,300 and disallowed the

balance.

     Subject to certain limitations,6 section 170(a) authorizes a

deduction for charitable contributions made to or for the use of

organizations described in section 170(c) within a taxable year.

However, a charitable contribution deduction is allowed only if

it is verified under regulations prescribed by the Secretary. See

sec. 170(a)(1).



     5
      Although petitioner testified that one of his employers
imposed a limit of $50,000 on the amount of expenses that would
be reimbursed, the total amount of expenses claimed did not
exceed that limit even if such a limit did exist. Petitioner did
not testify which employer imposed the limit, nor did he call a
representative of the employer as a witness. Letters from the
employers, included as exhibits to the stipulation of facts, made
no reference to any limit on reimbursement.
     6
      Sec. 170(b)(1)(A) provides, in pertinent part, that, in the
case of an individual, any charitable contribution to a church or
an educational organization meeting certain requirements shall be
allowed "to the extent that the aggregate of such contributions
does not exceed 50 percent of the taxpayer's contribution base
for the taxable year." Sec. 170(b)(1)(F) defines the term
"contribution base" to mean adjusted gross income (computed
without regard to any net operating loss carryback to the taxable
year under sec. 172).
                               - 10 -


     Section 1.170A-13(a), Income Tax Regs., provides that, if a

contribution of money is made in a taxable year beginning after

December 31, 1982, the taxpayer shall maintain, for each

contribution, one of the following:

     (1)   A canceled check;

     (2)   a receipt, letter, or other communication from the

donee charitable organization acknowledging receipt of the

contribution and showing the name of the donee, the date of the

contribution, and the amount of the contribution; or

     (3)   in the absence of a canceled check or receipt from the

donee organization, other reliable written records showing the

name of the donee and the date and amount of the contribution.

     In addition, the taxpayer must establish the reliability of

the written records.   See sec. 1.170A-13(a)(2)(i), Income Tax

Regs.

     Petitioners have the burden of proving their entitlement to

the charitable deductions claimed.      See Rule 142(a).   To do so,

petitioners must substantiate their charitable contributions.

See sec. 6001; Brown v. Commissioner, T.C. Memo. 1996-43; Paige

v. Commissioner, T.C. Memo. 1994-638.      In this case, petitioners

did not substantiate the charitable contributions claimed on

their 1993 return in excess of those allowed by respondent.

Petitioners kept no records regarding their 1993 contributions.

In addition, petitioner's testimony regarding petitioners'

charitable deductions was not credible.      Petitioner testified at

trial that petitioners made a cash contribution of $5,000 to La
                              - 11 -


Habra Christian Church (also referred to as La Habra Episcopalian

Church) during a stewardship dinner in January 1993 and that the

funds to make the contribution were withdrawn from his bank

account at the Certified Federal Credit Union the day before the

dinner.7   However, La Habra Christian Church had no record of any

charitable contribution, much less a substantial one, from

petitioners during 1993.

     Similar claims were made concerning alleged contributions to

Calvary Chapel and/or Pacific Christian College.   Petitioner

testified that petitioners made a cash contribution of $5,000 to

Pacific Christian College in November 1993 and a cash

contribution of $5,000 to Calvary Chapel8 in December 1993.

Petitioner also testified that, the day before each contribution

was made, petitioner withdrew the cash to make the contribution

from his bank account at Certified Federal Credit Union.

However, Pacific Christian College, one of the alleged donees,

had no record of any charitable contribution, much less a

substantial one, from petitioners during 1993, and the record

contains nothing to substantiate petitioner's testimony regarding

the alleged $5,000 gift to Calvary Chapel.




     7
      We allowed the record to remain open for 30 days after
completion of the trial to give petitioners an opportunity to
submit documentation such as their bank records in support of
their charitable contribution deductions. Petitioners failed to
produce the documentation.
     8
      This testimony was not consistent with the listing of
charitable contributions contained in petitioners' 1993 return.
                                - 12 -


       We hold, therefore, that petitioners have failed to prove

that they are entitled to any charitable deduction for 1993 in

excess of that allowed by respondent.

Issue 3. The Accuracy-Related Penalty

       The final issue that we must decide is whether petitioners

are liable for the accuracy-related penalty authorized by section

6662.

       Section 6662 authorizes the imposition of a 20-percent

penalty on the portion of an underpayment of tax attributable to

negligence or disregard of rules or regulations.    For purposes of

section 6662, the term "negligence" includes any failure to make

a reasonable attempt to comply with the provisions of the Code.

See sec. 6662(c).    Negligence also includes any failure by the

taxpayer to keep adequate books and records or to substantiate

items properly.    See sec. 1.6662-3(b)(1), Income Tax Regs.    The

term    "disregard" includes any careless, reckless, or intentional

disregard.    Sec. 6662(c).

       Petitioners in this case did not make a reasonable effort to

comply with the requirements of the Code or the regulations.

They failed to maintain any records sufficient to support their

entitlement to the deductions claimed.    Failure to maintain

documentation in support of claimed deductions has been held to

constitute negligence or disregard of rules or regulations for

purposes of section 6662.     See Witherspoon v. Commissioner, T.C.

Memo. 1994-593.
                             - 13 -


     We conclude, therefore, that petitioners are liable for the

accuracy-related penalty under section 6662.


                                   Decision will be entered for

                              respondent.
