                      T.C. Summary Opinion 2003-7



                        UNITED STATES TAX COURT



 WILLIAM HERBERT WHITEHURST, III AND CARLA CHERLENE WHITEHURST,
                         Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8479-01S.               Filed January 30, 2003.



     William Herbert Whitehurst, III and Carla Cherlene

Whitehurst, pro se.

     Innessa Glazman-Molot, for respondent.



     PANUTHOS, Chief Special Trial Judge:     This case was heard

pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect at the time the petition was filed.     The

decision to be entered is not reviewable by any other court, and

this opinion should not be cited as authority.      Unless otherwise

indicated, subsequent section references are to the Internal
                                   - 2 -

Revenue Code in effect for the years in issue, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

       Respondent determined deficiencies in petitioners’ Federal

income taxes of $3,443 for 1997, $2,740 for 1998, and $3,370 for

1999.       After concessions by the parties,1 the issues for decision

are:       (1) Whether petitioner Carla Whitehurst’s bowling activity

constitutes an activity not engaged in for profit; (2) if the

activity was engaged in for profit, to what extent petitioners

are entitled to deduct the claimed Schedule C expenses; and (3)

whether petitioners are entitled to certain claimed itemized

deductions.2

       Petitioners resided in Annapolis, Maryland, and in Bermuda

at the time they filed their petition.       Some of the facts have

been stipulated and are so found.       For clarity and convenience we

have combined our findings of fact and conclusions.


       1
        Petitioners concede that they are not entitled to a
deduction for an additional personal exemption for 1998 claimed
on their return and that they are not entitled to the deductions
claimed for Mr. Whitehurst’s work clothes and shoes for 1997,
1998, and 1999.
     Respondent concedes that petitioners are entitled to
deductions for State taxes of $1,501 for 1999; union dues of $264
for 1997, $264 for 1998, and $260 for 1999; cleaning expenses of
$250 for 1997, $260 for 1998, and $270 in 1999; subscription
expenses of $100 for 1997, $250 for 1998, and $250 for 1999; job
agency expenses of $125 for 1997; and tax preparation fees of
$180 for 1997.
       2
        Respondent also adjusted petitioners’ additional child
tax credits for 1998 and 1999 and petitioners’ education credits
for 1998 and 1999. These adjustments are computational;
therefore, we need not address them.
                                - 3 -

Issue 1.   Bowling Activity

     Petitioner Carla Whitehurst (Mrs. Whitehurst) has been an

avid bowler since she was 5 years old.    As a child growing up in

Bermuda, she bowled nearly every day.    Mrs. Whitehurst competed

internationally as a top junior bowler in Bermuda.    Her parents

also competed in bowling tournaments.

     In 1995 Mrs. Whitehurst began competing in amateur bowling

tournaments in which cash prizes were awarded to the top-scoring

competitors.    The bowling tournaments that she competed in

generally offered cash prizes that ranged from $1,500 for first

place to $50 for a lower place finish, though some of the larger

tournaments offered prize winnings as high as $10,000, $20,000,

or $40,000 for first place.    She competed in tournaments for

amateur bowlers with a “handicap”; that is, points added to the

competitor’s score.    Tournaments for professional or “scratch”

bowlers without handicaps offered smaller prize winnings than the

tournaments for amateur bowlers because they had fewer

participants.    Most of the tournaments in which she competed were

sponsored by National Amateur Bowling, Inc. (NABI), for which the

entry fees ranged from $25 up to $85.    Mrs. Whitehurst was a

member of NABI.    She believed that the entry fees for

professional bowling tournaments, which were up to $400, were too

high in comparison to the prize winnings offered, which ranged
                                - 4 -

from $8,000 to $15,000; therefore, she did not compete in

professional tournaments.

     Mrs. Whitehurst practiced bowling several times during the

week, including evenings and lunch breaks from her full-time job.

She also bowled in a league.

     Except for one tournament in Las Vegas, Nevada, to which she

flew, Mrs. Whitehurst drove to bowling tournaments in Delaware,

Maryland, Virginia, North Carolina, South Carolina, and Florida.

Although she usually traveled alone, on occasion she traveled

with her husband, children, or James Godwin, her father and

coach.   Most tournaments began on either a Thursday or Friday and

ended on a Sunday.

     Mrs. Whitehurst competed in 39 bowling tournaments in 1997,

48 in 1998, and 43 in 1999.    She placed first in three

tournaments, second in five tournaments, and in the top 20 in

eight tournaments from 1997 through 1999.    Discouraged by her

lack of success in winning tournaments, Mrs. Whitehurst did not

compete in bowling tournaments after 2000, and her bowling

activity ceased.   At the time of trial, she continued to bowl

with a bowling league.
                                 - 5 -

     Petitioners reported income and claimed deductions for

expenses with respect to the bowling activity as follows:

                                         1997          1998          1999
     Income:
       Prize winnings                $3,052        $2,725            $889
     Expenses:
       Car and truck1                 5,889         6,240         6,258
       Repairs and maintenance          703           605           542
       Supplies                         350           157           226
       Travel                         3,540         3,998         3,137
       Meals and entertainment        1,271         1,295         1,034
       Other (entry fees)             8,700         7,968         7,415
         Total expenses:             20,453        20,263        18,612
           Loss                     (17,401)      (17,538)      (17,723)
          1
           Petitioners claimed deductions for the standard
     mileage rate for the years at issue.

     In the notice of deficiency respondent disallowed the

claimed Schedule C deductions for 1997, 1998, and 1999 and

determined that Mrs. Whitehurst did not engage in the bowling

activity for a profit.   Respondent asserts that the element of

personal pleasure is inherently present in the bowling activity.

     As an alternative position in the notice of deficiency

respondent disallowed the following claimed deductions:

                                  1997          1998          1999

     Car and truck           $2,532          $763          $894
     Supplies                   350           157           226
     Repairs and maintenance    703           605           542
     Travel                   2,220         3,332         2,610
     Meals and entertainment    825           977           629
     Other (entry fees)       5,483         4,562         6,246

Respondent disallowed the claimed deductions because either

petitioners did not provide books and records reflecting the
                               - 6 -

claimed amounts, or the expense deductions were not otherwise

allowable.

     A taxpayer seeking to deduct trade or business expenses

under section 162 must establish that the underlying activity was

engaged in with an actual and honest profit objective.       Dreicer

v. Commissioner, 78 T.C. 642, 645 (1982), affd. without published

opinion 702 F.2d 1205 (D.C. Cir. 1983).    The taxpayer must have

entered into or continued the activity with the actual, honest,

and bona fide objective of making a profit.      Filios v.

Commissioner, 224 F.3d 16, 23 (1st Cir. 2000), affg. T.C. Memo.

1999-92; Dreicer v. Commissioner, supra at 644-645; sec. 1.183-

2(a), Income Tax Regs.   In determining whether the taxpayer has

the objective of making a profit, it may be sufficient that there

is a small chance of making a large profit.     Sec. 1.183-2(a),

Income Tax Regs.   Objective indicia may be considered to

establish the taxpayer’s true intent.     Id.   We consider all of

the facts and circumstances in determining whether a taxpayer

entered into the activity for a profit, placing greater weight

upon objective facts than the taxpayer’s statements of intent.

Dreicer v. Commissioner, supra at 645.

     The following nine nonexclusive factors are relevant in

determining whether the taxpayer engaged in the activity for

profit:   (1) The manner in which the taxpayer carries on the

activity; (2) the expertise of the taxpayer or her advisers; (3)
                                - 7 -

the time and effort expended by the taxpayer in carrying on the

activity; (4) the expectation that assets used in the activity

may appreciate in value; (5) the success of the taxpayer in

carrying on other similar or dissimilar activities; (6) the

taxpayer’s history of income or losses with respect to the

activity; (7) the amount of occasional profits, if any, which are

earned; (8) the financial status of the taxpayer; and (9) the

elements of personal pleasure or recreation.    Sec. 1.183-2(b),

Income Tax Regs.

      We now consider whether Mrs. Whitehurst’s bowling activity

was an activity she pursued with the objective of making a

profit.    Not all of the factors listed above are applicable to

the facts of this case; therefore, we focus on only those factors

that are relevant.

      a.   Manner in Which the Taxpayer Carries On the Activity

      When considering the manner in which the taxpayer carried on

the activity, we may consider whether she carried on the activity

in a businesslike manner and maintained complete and accurate

books and records that indicate that she engaged in the bowling

activity for a profit.    Sec. 1.183-2(b)(1), Income Tax Regs.    A

change of operating methods, adoption of new techniques, or

abandonment of unprofitable methods may indicate a profit motive.

Id.
                               - 8 -

     Mrs. Whitehurst did not maintain or produce to either

respondent’s agent or the Court a journal or a book of accounts

for the bowling activity.   Mrs. Whitehurst, however, maintained

and produced numerous hotel, restaurant, gasoline, credit card,

and rental car receipts, airplane tickets, copies of canceled

checks, bank records, and bowling tournament score sheets that

reflect the expenses incurred with respect to the bowling

activity.   Mrs. Whitehurst recorded her expenses by “just jotting

information down on the tournament flyer” because the tournaments

were hectic.   While her records were somewhat disorganized and

partially incomplete, they generally reflect her receipts and

expenses.   Petitioners did not maintain a separate bank account

for the bowling activity.

     Because Mrs. Whitehurst had not been able to win any of the

large tournaments offering large prize winnings (i.e., $20,000 or

$40,000), she changed her strategy during 1998 and decided to

compete in more local and smaller tournaments.   In 1999, Mrs.

Whitehurst changed her strategy again and she decided to compete

in more tournaments in Florida that offered the larger prize

winnings.   She stopped competing in tournaments in 2000.   Her

changes in strategy and ultimate decision to stop competing in

tournaments both support her claim that she entered into the

activity with a profit objective.   See id.
                               - 9 -

     b.   Expertise of the Taxpayer or Her Advisers

     Preparation for the activity by extensive study of its

accepted business and economic practices or consultation with

experts may indicate that the taxpayer has a profit objective

where the taxpayer carries on the activity in accordance with

those practices.   Sec. 1.183-2(b)(2), Income Tax Regs.

     Before Mrs. Whitehurst began competing in bowling

tournaments, she consulted with other bowlers and tournament

directors to determine the likelihood of her success in the

tournaments.   Mrs. Whitehurst was concerned that she would not be

able to successfully compete against the male bowlers.    A NABI

tournament director assuaged her concerns by discussing bowling

lane conditions that were favorable to women and the women’s

records of winnings.

     Petitioners consulted with a tax return preparer.    Upon the

advice of the tax return preparer, petitioners amended their 1995

return and filed a Form 1040X on which they claimed a loss from

the bowling activity.   The tax adviser also advised Mrs.

Whitehurst to keep receipts.

     The consultations with experts support the claim that Mrs.

Whitehurst entered into the bowling activity with a profit

objective.   See id.

     c.   Time and Effort Expended by the Taxpayer

     The fact that a taxpayer devotes much of her personal time
                                 - 10 -

and effort to carrying on the activity may indicate an intent to

profit, particularly if the activity does not have substantial

personal or recreational aspects.     Sec. 1.183-2(b)(3), Income Tax

Regs.

     The fact that Mrs. Whitehurst has devoted much of her

personal time and effort to bowling generally supports her claim

that she entered into the bowling activity with a profit

objective.     See id.   Nevertheless, as we discuss in greater

detail below, bowling has substantial personal or recreational

aspects for Mrs. Whitehurst.     See id.   This factor is neutral.

     d.     History of Income or Losses

        A series of losses during the initial stage of an activity

is not necessarily an indication that the activity is not engaged

in for profit.     Sec. 1.183-2(b)(6), Income Tax Regs.   However,

continued losses which cannot be explained may be indicative that

the activity is not engaged in for profit.      Id.

        Mrs. Whitehurst did not earn prize winnings in excess of her

expenses during the 5 years that she engaged in the bowling

activity.     Petitioners claimed a loss of $4,712 for 1995 and a

loss of $12,038 for 1996 with respect to the bowling activity.

Her bowling scores had improved and were better in 1999 than they

were in 1997 and her handicap was lower, yet she won fewer

tournaments that offered large prize winnings and received less

prize money.     She explained that her lack of success in winning
                               - 11 -

tournaments was essentially attributable to bad luck, but not to

her skills as a bowler, which had improved.   We find her

explanation of the reason for her losses to be reasonable, and we

conclude that this factor neither supports nor undercuts the

claim that she entered into the bowling activity with a profit

objective.   See id.

     e.   Amount of Occasional Profits, If Any

     An opportunity to earn a substantial profit in a highly

speculative venture is ordinarily sufficient to indicate that the

activity is engaged in for profit even though losses or only

occasional small profits are actually generated.    Sec. 1.183-

2(b)(7), Income Tax Regs.

     Mrs. Whitehurst earned prize winnings of $1,528 in 1995,

$3,030 in 1996, $3,052 in 1997, $2,725 in 1998, and $889 in 1999,

but, as discussed above, her expenses exceeded her winnings.

Although she did not win one of the top prizes of $10,000,

$20,000, or $40,000, we are satisfied that she had an objective

to win, and we find her testimony to be credible.    Her stated

objective is supported by the fact that she would have earned

significant prize winnings had she won one or more tournaments

that offered a large prize.    See Bolt v. Commissioner, 50 T.C.

1007 (1968); Canale v. Commissioner, T.C. Memo. 1989-619; sec.

1.183-2(a), Income Tax Regs.   The fact that these tournaments

were for amateur bowlers is not relevant because the prize
                                - 12 -

winnings offered were significant.       While Mrs. Whitehurst did not

earn a profit with respect to the activity, opportunity for

profit existed.   These facts support the claim that she entered

into the bowling activity with a profit objective.

     f.   Financial Status of the Taxpayer

     The fact that the taxpayer does not have substantial income

from sources other than the activity may indicate that the

activity is engaged in for profit.       Sec. 1.183-2(b)(8), Income

Tax Regs.   Substantial income from other sources may indicate

that the activity is not engaged in for profit especially if

there are personal or recreational elements in the activity.          Id.

     Petitioners’ combined wages totaled $81,104 in 1997, $87,667

in 1998, and $89,764 in 1999.    Although Mrs. Whitehurst explained

that she and her husband did not earn as much income as they

wanted, their combined wage income for each of the 3 years at

issue is not insignificant.   Given that personal and recreational

elements are involved in the bowling activity, as we discuss

below, this factor does not support an intent to profit.       See id.

     g.   Elements of Personal Pleasure

     The presence of personal motives in carrying on an activity

may indicate that the activity is not engaged in for profit,

especially where there are recreational or personal elements

involved.   Sec. 1.183-2(b)(9), Income Tax Regs.      The fact that

the taxpayer derives personal pleasure from engaging in the
                                - 13 -

activity is not sufficient to cause the activity to be classified

as not engaged in for profit.    Id.

     Mrs. Whitehurst has been an avid bowler nearly all of her

life.   During the years at issue and at the time of trial she was

a member of a bowling league, and she bowled with her family.

Mrs. Whitehurst testified that the bowling tournaments were long,

tiring, and difficult, but not pleasurable, and that driving to

tournaments in Florida was especially difficult.   Although we

recognize that driving long hours to a bowling tournament is an

arduous task, we are not convinced that Mrs. Whitehurst does not

derive personal pleasure from or recreation in bowling.      The

personal pleasure or recreation that she derives from the bowling

activity, however, is not sufficient to cause the bowling

activity to be classified as not engaged in for profit.      See id.

Therefore, this factor is neutral.

     Having considered the above factors and recognizing that no

one factor is controlling, we conclude that Mrs. Whitehurst

entered into the bowling activity with a profit objective and

thus hold for petitioners on this issue.    See Engdahl v.

Commissioner, 72 T.C. 659, 671 (1979).

Issue 2.   Expense Deductions

     We now consider respondent’s alternative position that

petitioners are not entitled to certain claimed Schedule C

expenses related to the bowling activity.    We will consider the
                               - 14 -

expenses in the order and by the categories as deducted on

petitioners’ returns.

       Generally, the burden of proof is on the taxpayer.   Rule

142(a)(1).    The burden of proof may shift to the Commissioner

under section 7491 if the taxpayer establishes that he introduced

credible evidence and complied with the requirements of section

7491(a)(2)(A) and (B) to substantiate items, maintain required

records, and fully cooperate with the Secretary’s reasonable

requests.    Section 7491 is effective with respect to Court

proceedings arising in connection with examinations by the

Commissioner commencing after July 22, 1998, the date of its

enactment by section 3001(a) of the Internal Revenue Service

Restructuring and Reform Act of 1998, Pub. L. 105-206, 112 Stat.

726.

       Petitioners timely filed their return for the 1997 year.

Petitioners have not alleged, and it is not clear from the

record, that the examination of the 1997 return commenced after

July 22, 1998; accordingly, we conclude that the burden remains

on petitioners for 1997.    The returns for 1998 and 1999 were

filed after the effective date of section 7491; therefore, the

examinations necessarily commenced after the effective date of

section 7491.    Petitioners have argued neither that section 7491

is applicable nor that they have satisfied the requirements of
                               - 15 -

section 7491.   Therefore, the burden of proof remains on

petitioners for 1998 and 1999.

     a.   Car and Truck Expenses

     A taxpayer may be allowed to deduct all ordinary and

necessary expenses paid or incurred during the taxable year.

Sec. 162(a).    Deductible business expenses include actual

operating expenses of automobiles used in the trade or business

and traveling expenses while away from home solely in the pursuit

of a trade or business.    Sec. 1.162-1(a), Income Tax Regs.

     Although generally a taxpayer is required to keep records to

establish the amount of his deductions under section 6001 and

section 1.6001-1(a), Income Tax Regs., if there is evidence that

deductible expenses were incurred, the Court may estimate the

amount of expenses and allow a deduction based upon an

approximation of expenses, notwithstanding the lack of

substantiating documentary evidence in the record.     Cohan v.

Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v.

Commissioner, 85 T.C. 731, 742-743 (1985).

     Deductions claimed with respect to certain expenses are

subject to additional substantiation requirements as provided

under section 274.    No deduction or credit shall be allowed under

section 162 with respect to, among other items, any listed

property, as defined under section 280F(d)(4), unless the

taxpayer substantiates the expense.     Sec. 274(d); sec. 1.274-
                                 - 16 -

5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6,

1985).   “Listed property” includes any passenger automobile.

Sec. 280F(d)(4)(A)(i).     The taxpayer must substantiate the

expense as follows:

     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, * * * (C) the business purpose of the
     expense or other item, and * * * [Sec. 274(d).]

See sec. 1.274-5T(b)(6), Temporary Income Tax Regs., 50 Fed. Reg.

46016 (Nov. 6, 1985).     The taxpayer must substantiate each

element of an expenditure by adequate records or sufficient

evidence corroborating his statements.     Sec. 1.274-5T(c)(1),

Temporary Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).

Written evidence has more probative value than oral evidence

alone.   Id.     The taxpayer must establish that the expenditure was

directly related to the active conduct of the taxpayer’s trade or

business.      Sec. 1.274-2(a)(1)(i), Income Tax Regs.

     A self-employed individual may deduct a mileage allowance

for ordinary and necessary expenses of local transportation and

travel away from home.     Sec. 62(a)(1); sec. 1.62-2(e)(2), Income

Tax Regs.; sec. 1.62-2T(e)(2), Temporary Income Tax Regs., 63

Fed. Reg. 52600 (Oct. 1, 1998); sec. 1.274(d)-1(a)(1), Income Tax

Regs.; sec. 1.274(d)-1T, Temporary Income Tax Regs., 63 Fed. Reg.

52601 (Oct. 1, 1998).     The Commissioner is authorized to

establish the standard mileage rate that is deemed to satisfy the
                               - 17 -

substantiation requirements.   Sec. 1.274(d)-1(a)(1), Income Tax

Regs., supra.   A taxpayer may use the standard mileage rate in

lieu of actual operating and fixed costs of the automobile

allocable to business purposes, including depreciation,

maintenance and repairs, tires, gasoline, oil, and insurance.

Sec. 1.274(d)-1(a)(2)(iii), Income Tax Regs.; sec. 1.274(d)-

1T(b), Temporary Income Tax Regs., supra; Rev. Proc. 96-63 sec.

5.03, 1996-2 C.B. 420, 422; Rev. Proc. 97-58 sec. 5.03, 1997-2

C.B. 587, 589; Rev. Proc. 98-63 sec. 5.03, 1998-2 C.B. 818, 820.

Tolls attributable to the use of an automobile for business

purposes may be deducted as separate items.   Rev. Proc. 96-63

sec. 5.04, 1996-2 C.B. at 422; Rev. Proc. 97-58 sec. 5.04, 1997-2

C.B. at 589; Rev. Proc. 98-63 sec. 5.04, 1998-2 C.B. at 820.

     Petitioners claimed deductions for an amount equal to the

standard mileage rate times the miles that Mrs. Whitehurst drove

in her automobile to and from bowling tournaments.   On the basis

of a review of the record, we are satisfied that she drove

approximately 11,899 miles in 1997, 16,900 miles in 1998, and

17,303 miles in 1999 with respect to her bowling activity.

Petitioners also produced receipts for tolls paid while driving

to and from bowling tournaments, for $9 in 1997, $25.35 in 1998,

and $21.95 in 1999.
                               - 18 -

     b.   Supplies and Repairs and Maintenance Expenses

     Petitioners did not produce any documentary evidence or

provide any testimony with respect to the deductions for supplies

and repairs and maintenance; therefore, we sustain respondent’s

disallowance.

     c.   Travel Expenses (Lodging, Airfare, and Rental
          Automobile)

     Deductible travel expenses include fares, lodging, and

expenses incident to travel.    Sec. 1.162-2(a), Income Tax Regs.

No deduction shall be allowed with respect to traveling away from

home unless the taxpayer substantiates each element of the

expenditure or use, as described in section 1.274-5T(b),

Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985), in

the manner provided in section 1.274-5T(c), Temporary Income Tax

Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).    Sec. 274(d)(1); sec.

1.274-5T(a)(1), Temporary Income Tax Regs., supra.    The elements

to be substantiated are the amount of each separate expenditure,

dates of departure and return and number of days spent away from

home on business, destination or locality of travel, and the

business reason for travel.    Sec. 1.274-5T(b)(2), Temporary

Income Tax Regs., supra.   Documentary evidence, such as receipts

or paid bills, shall be required for any expenditure for lodging

while traveling away from home and any expenditure of $75 or

more, except with respect to transportation charges, if not
                               - 19 -

readily available.    Sec. 1.274-5T(c)(2)(iii)(B), Temporary Income

Tax Regs., 62 Fed. Reg. 13990 (Mar. 25, 1997).

     Petitioners claimed deductions for actual travel expenses

that Mrs. Whitehurst incurred while she traveled to and from and

competed in bowling tournaments during the years at issue.

Petitioners produced hotel bills and credit card receipts for

hotel bills totaling $1,321.33 for 1997.    Mrs. Whitehurst’s

airplane tickets to Las Vegas and letters from a travel agent and

the director of a bowling group reflect that the airfare in 1997

was $249.03.   A receipt reflects an expense of $172.15 for a

rental car in 1997.   We are satisfied that petitioners are

entitled to a deduction of $1,742.51 for travel expenses incurred

in 1997.

     Petitioners produced hotel bills and receipts totaling

$934.71 in 1998, and we are satisfied that petitioners are

entitled to a deduction in this amount for travel expenses

incurred in 1998.

     Petitioners produced hotel bills and receipts totaling

$972.89 in 1999, and we are satisfied that petitioners are

entitled to a deduction in this amount for travel expenses

incurred in 1999.

     d.    Meals and Entertainment

     A taxpayer may be allowed to deduct 50 percent of any

expense incurred for food or beverages.    Sec. 274(n)(1)(A).   No
                               - 20 -

deduction shall be allowed under section 162 for any traveling

expense, which includes meals, unless the taxpayer substantiates

each element of the expenditure or use, as described in section

1.274-5T(b), Temporary Income Tax Regs., supra, in the manner

provided in section 1.274-5T(c), Temporary Income Tax Regs.,

supra.    Sec. 1.274-5T(a)(1), Temporary Income Tax Regs., supra.

The elements to be substantiated with respect to meals are the

amount of each separate expenditure, dates of departure and

return and number of days spent away from home on business,

destination or locality of travel, and the business reason for

travel.    Sec. 1.274-5T(b)(2), Temporary Income Tax Regs., supra.

     A self-employed taxpayer may use the Federal meal and

incidental expenses (M&IE) rate for meal expenses paid or

incurred while traveling away from home in lieu of substantiating

the actual cost of meals; however, the taxpayer must substantiate

the time, place, and business purpose of the travel.   Sec. 1.274-

5T(j), Temporary Income Tax Regs., 50 Fed. Reg. 46032 (Nov. 6,

1985); Rev. Proc. 96-64 sec. 2.04, 1996-2 C.B. 427, 427; Rev.

Proc. 97-59, 1997-2 C.B. 594; Rev. Proc. 98-64, 1998-2 C.B. 825.

The M&IE rate depends upon the locality of travel.   41 C.F.R. ch.

301 (1997, 1998, 1999); Rev. Proc. 96-64 sec. 3.02(1), 1996-2

C.B. at 428; Rev. Proc. 97-59 sec. 3.02(1), 1997-2 C.B. at 596;

Rev. Proc. 98-64 sec. 3.02(1), 1998-2 C.B. at 827.   A self-

employed individual may use an amount computed at the Federal
                               - 21 -

M&IE rate for the locality of travel for each calendar day (or

part thereof) that she is away from home for the 1997 tax year,

under Rev. Proc. 96-64 sec. 5.03, 1996-2 C.B. at 429, or a

prorated amount for the 1998 and 1999 tax years, under Rev. Proc.

97-59 secs. 5.03, 6.04, 1997-2 C.B. at 597, 600, and Rev. Proc.

98-64 secs. 5.03, 6.04, 1998-2 C.B. at 828, 831, respectively.

     Petitioners deducted 50 percent of the actual expenses that

Mrs. Whitehurst incurred for meals consumed while she traveled to

and from and competed in bowling tournaments.   Respondent allowed

petitioners deductions for the M&IE rate only for days that Mrs.

Whitehurst actually competed in a bowling tournament, but not for

days when she traveled to and from each tournament.

     Mrs. Whitehurst produced a small number of receipts from

grocery stores and restaurants.   Because respondent has already

conceded that petitioners are entitled to use the M&IE rate in

lieu of actual expenses, we allow petitioners deductions for the

M&IE rate in lieu of actual meal expenses during days Mrs.

Whitehurst traveled to and from and competed in bowling

tournaments.   Mrs. Whitehurst is entitled to use the M&IE rate

for 44 days in 1997, 33 days in 1998, and 27 days in 1999, and

the M&IE rate for travel to a high-cost locality for 4 days of

travel in 1998 and 9 days in 1999.

     e.   Other (Entry Fees)

     Petitioners produced fliers from bowling tournaments and
                               - 22 -

bowling scoring sheets that reflected most, but not all, of the

claimed deductions for the entry fees for the bowling tournaments

in which Mrs. Whitehurst competed.      On the basis of a review of

the evidence in the record, we are satisfied that petitioners are

entitled to deductions for entry fees of $8,700 in 1997, $7,968

in 1998, and $7,415 in 1999.

Issue 3.   Schedule A Itemized Deductions

     a.    Charitable Contributions

     Petitioners claimed deductions for charitable contributions

of $2,960 made in cash or by check and $500 made other than in

cash or by check for 1997, $2,570 made in cash or by check and

$500 made other than in cash or by check for 1998, and $2,255

made in cash or by check and $500 made other than in cash or by

check for 1999.

     The notice of deficiency disallowed the claimed deductions

for charitable contributions in part as follows:     $1,980 for

1997, $1,785 for 1998, and $1,628 for 1999.     Respondent

disallowed portions of the claimed charitable contributions

because petitioners did not substantiate the claimed amounts.

     Section 170(a)(1) allows as a deduction a charitable

contribution payment of which is made within the taxable year.        A

charitable contribution includes a contribution or gift to or for

the use of a corporation, trust, community chest, fund, or

foundation organized and operated exclusively for religious,
                               - 23 -

charitable, scientific, literary, or educational purposes.    Sec.

170(c)(2)(B).

     If a taxpayer makes a charitable contribution in cash or by

check, the taxpayer shall maintain for each contribution either a

canceled check, a receipt or letter from the donee charitable

organization, or other reliable written records showing the name

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

Cavalaris v. Commissioner, T.C. Memo. 1996-308; sec. 1.170A-

13(a)(1), Income Tax Regs.   If the contribution is made in

property other than money, the taxpayer must also maintain a

receipt or letter from the donee showing the name of the donee,

the date and location of the contribution, and a description of

the property.   Sec. 1.170A-13(b)(1), Income Tax Regs.   In the

case where a receipt would be impractical to obtain, the taxpayer

shall maintain reliable written records with respect to each item

of donated property.   Id.   A deduction for a contribution of $250

or more will not be allowed unless the taxpayer substantiates the

contribution with a contemporaneous written acknowledgment from

the donee organization.   Sec. 1.170A-13(f)(1), Income Tax Regs.

     Petitioners did not provide any documentary evidence that

reflects their claimed charitable contributions.   Mrs. Whitehurst

provided conflicting testimony at trial concerning receipts for

the claimed charitable contributions; on the one hand, she

alleged that she was in possession of receipts, but she also
                               - 24 -

explained that, at the time of trial, she resided in Bermuda and

could not find her receipts.   She also testified that she

contributed money to her church but did not provide any details

to support these contributions.   Accordingly, respondent is

sustained on this issue.

     b.   Telephone Expenses

     Petitioners claimed deductions for 1997, 1998, and 1999 for

unreimbursed employee expenses for a second telephone line in

their home.   Respondent disallowed the claimed telephone line

expense deductions in full because petitioners did not

substantiate the claimed amounts.   Also, respondent was not

satisfied that Mrs. Whitehurst worked out of a home office, that

she had a home office for the convenience of her employer, and

that she had a business purpose for the use of the computer.

     Mrs. Whitehurst was employed full time during the years at

issue as an environmental specialist for Horne Engineering

Services Inc. (Horne), an engineering company.   From 1995 to 1997

Horne had a contract with the U.S. Army, and Mrs. Whitehurst

worked at the Aberdeen Proving Ground in Edgewood, Maryland.

Mrs. Whitehurst operated the Army’s environmental hotline and

issued daily environmental regulatory summaries for Army staff.

     In November 1997, around the time that Horne’s contract with

the Army ended, Mrs. Whitehurst worked at Horne’s offices in Bel

Air, Maryland.   Because Horne did not have a desk or computer at
                               - 25 -

its office for Mrs. Whitehurst to use while she worked, she

requested permission from her supervisor to work at home.

Although her supervisor initially resisted the idea, he

eventually approved her request.    Mrs. Whitehurst produced a

letter dated November 30, 2000, and signed by her office manager

which states:

     Given the insufficient office work space and lack of a
     computer, Carla worked in her home. This was
     convenient for the company in that we did not have to
     lease more office space or purchase a computer to
     accommodate the needs of her project.

She visited Horne’s offices approximately once a week for an

hour.

     She installed a second telephone line in her home to access

the Internet and her e-mail, and so her clients could call her

when they needed.   Horne did not reimburse her for either the

additional telephone line or the computer.    Petitioners produced

a copy of a telephone bill for $119.17 dated April 23, 1998, on

which “64.30 work related” was handwritten.    Petitioners also

produced carbon copies of checks made payable to the telephone

company reflecting the same account number as that on the

aforementioned telephone bill for the following amounts on the

following dates:    $41.75 dated September 20, 1997; $119.17 dated

May 19, 1998; $193.74 dated what appears to be September 16,

1998; and $44.79 dated June 18, 1999.
                               - 26 -

     Performance of services as an employee constitutes a trade

or business.    O’Malley v. Commissioner, 91 T.C. 352, 363-364

(1988).    Telephone expenses may be deductible under section

162(a) if the expenses incurred are ordinary and necessary in

carrying on a trade or business.    Hairston v. Commissioner, T.C.

Memo. 1995-566, affd. without published opinion 116 F.3d 492

(11th Cir. 1997); Green v. Commissioner, T.C. Memo. 1989-599.

Any charge for basic local telephone service with respect to the

first telephone line provided to any residence of the taxpayer

shall be treated as a personal expense.    Sec. 262(b).

     We conclude that petitioners are entitled to deductions for

expenses for the second telephone line used in connection with

Mrs. Whitehurst’s trade or business of $41.75 for 1997, $258.04

for 1998, and $44.79 for 1999.

     Petitioners also produced carbon copies of checks made

payable to the telephone company that reflect an account number

different from the account number written on the bill discussed

above.    These checks were not written to pay for the telephone

line used by Mrs. Whitehurst in connection with her trade or

business but were for a personal home telephone; therefore, the

amounts reflected therein are not deductible.    Id.

     c.    Equipment and Supplies

     Petitioners claimed deductions for unreimbursed employee

expenses for equipment and supplies for 1997, 1998, and 1999,
                               - 27 -

specifically for a computer and computer-related equipment Mrs.

Whitehurst purchased and work-related supplies Mr. Whitehurst

purchased.   Respondent disallowed the claimed deductions for

equipment and supplies in full.

     A copy of a checking account statement from the 1998 tax

year reflects the following:   A purchase of $253.99 and a

handwritten notation of “work fax machine”; a purchase from “X

Technologies” of $624 and a handwritten notation of “work

computer”; and a purchase from “X Technologies” of $45, which is

encircled but otherwise bears no notation.   A sales receipt from

1998 for computer software diskettes reflects a shipping charge

totaling $54.   A copy of a check carbon copy dated February 13,

1998, indicates a “computer + monitor purchase”.   A receipt from

1999 from “Best Buy” reflects a purchase of $31.49 and bears a

handwritten notation of “printer cable”.   A service activity

report from 1999 reflects the repair of computer software

problems for $85.

     Mr. Whitehurst was employed full time during the years at

issue by the Prince George’s County government in Maryland as a

construction standards inspector.   His duties related to building

construction and site development inspection and included

weighing inspection, monitoring and regulating wetlands, and

sediment control monitoring.   His employer did not provide new

equipment and did not replace worn-out equipment that was
                              - 28 -

required or helpful for the position.   Mr. Whitehurst testified

that he purchased, for example, respirators, cleaning supplies

for his automobile, insect repellant, ratchet wrenches, shovels,

safety glasses, hard hats, tape measures, and flashlights.   Mr.

Whitehurst’s employer provided him with an annual $250 allowance

for “uniforms or whatever”.

     A taxpayer may be entitled to a depreciation deduction for

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

business.   Sec. 167(a)(1); INDOPCO, Inc. v. Commissioner, 503

U.S. 79 (1992).3   A taxpayer may be entitled to a depreciation

deduction for computer software under section 167(f).    A computer

or peripheral equipment, which is defined in section

168(i)(2)(B), is “listed property” under section 274(d)(4) as

defined under section 280F(d)(4)(A)(iv) and will be subject to

the substantiation requirements of section 274.   A computer or

peripheral equipment may be excepted from the section 274

requirements under section 280F(d)(4)(B) if it is used

exclusively at a regular business establishment and owned or

leased by the person operating such establishment and only if the

requirements of section 280A(c)(1) are met with respect to the

regular business establishment.



     3
        Petitioners have not elected to deduct the cost of the
computer or the computer-related equipment as a current expense
under sec. 179.
                              - 29 -

     A “regular business establishment” includes a portion of a

dwelling unit that is exclusively used on a regular basis as the

principal place of business for the taxpayer’s trade or business.

Sec. 280A(c)(1)(A).   For tax years beginning after December 31,

1998, in the case of an employee, the exclusive use must be for

the convenience of his employer, and the term “principal place of

business” includes a place of business which is used by the

taxpayer for the administrative or management activities of a

trade or business if there is no other fixed location of such

trade or business where the taxpayer conducts substantial

administrative or management activities.   Sec. 280A(c)(1).4

     Although Mrs. Whitehurst regularly worked in her home for

the convenience of her employer, it is not clear that she used

any portion of the home exclusively for the purpose of carrying

on her trade or business.   See sec. 280A(c)(1)(A).   Because Mrs.

Whitehurst’s computer and computer-related equipment do not fall

under the home office exception to section 274 under sections

280F(d)(4)(B) and 280A(c)(1)(A), they are listed property under

section 274(d)(4), and their deductibility is subject to the

strict substantiation requirements of section 274(d) (i.e.,

amount, time and place, and business purpose of the expense).



     4
        Congress amended sec. 280A(c) to read as reflected above
in the Taxpayer Relief Act of 1997, Pub. L. 105-34, sec. 932(a),
111 Stat. 881.
                                - 30 -

     Petitioners have established that Mrs. Whitehurst purchased

and used the computer and computer-related equipment in her trade

or business and have satisfied the requirements of section 274.

We conclude that petitioners are entitled to a depreciation

deduction for the fax machine, the computer, and the software

diskettes, purchased in 1998 for $931.99.    We also conclude that

petitioners are entitled to a deduction for computer services of

$85 for 1999 and a depreciation deduction for the printer cable

purchased in 1999 for $31.49.

     Mr. Whitehurst did not provide any testimony or written

evidence as to the amount spent on supplies purchased and used in

the course of his employment.    It is not clear that the expenses,

if any, were unreimbursed by his employer or that they were

ordinary and necessary to the carrying on of his trade or

business under section 162(a).    We conclude that petitioners are

not entitled to a deduction for unreimbursed employee expenses

for equipment and supplies purchased with respect to Mr.

Whitehurst’s employment.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,


                                      Decision will be entered

                                 under Rule 155.
