                       T.C. Memo. 2006-8



                 UNITED STATES TAX COURT



DESTA TAYE-CHANNELL AND BRUCE C. CHANNELL, Petitioners v.
       COMMISSIONER OF INTERNAL REVENUE, Respondent


 Docket No. 4166-04.               Filed January 18, 2006.


      The Telecommunication Relay Service (TRS) enables a
 hearing-impaired individual to communicate with a hearing
 individual over the telephone through the use of a relay
 operator. Ps subscribed to the AdaCom program which
 provided an alternative to the TRS through the use of a
 computer rather than a relay operator. On their 2000
 Federal income tax return, Ps claimed a disabled access
 credit. See sec. 44, I.R.C. Ps also claimed a sec. 162,
 I.R.C., trade or business expense deduction. R disallowed
 the credit and deduction.

      Held: Because the AdaCom program was not acquired by
 Ps in order for them to comply with the applicable
 requirements of the Americans with Disabilities Act of 1990,
 Pub. L. 101-336, 104 Stat. 327, the AdaCom program is not an
 “eligible access expenditure” for purposes of sec. 44(c),
 I.R.C. Svoboda v. Commissioner, T.C. Memo. 2006-1.

     Held, further: Ps are not entitled to deduct the cost
of the AdaCom program as a trade or business expense
pursuant to sec. 162, I.R.C., as they did not use the AdaCom
program in a trade or business.
                                - 2 -

     Scott M. Estill and Stephanie F. Long, for petitioners.

     Richard D. D’Estrada, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION

     VASQUEZ, Judge:    Respondent determined a deficiency of

$1,935 in petitioners’ Federal income tax for 2000.

     The issues for decision are:

     (1) Whether petitioners are entitled to claim a tax credit

pursuant to sections 381 and 44 for their subscription to the

AdaCom program (program);

     (2) whether petitioners are entitled to claim a trade or

business expense deduction under section 162 with respect to the

program; and

     (3) if petitioners are entitled to a credit and/or deduction

for their investment in the program, the proper valuation of the

program.

                          FINDINGS OF FACT

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.    At the time they filed

the petition, petitioners resided in Denver, Colorado.



     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.
                                 - 3 -

     During the year in issue, petitioners subscribed to the

program, which was sold, sponsored, and administered by AdaCon

Advantage Co., Inc. (AdaCom2).    AdaCom is a Colorado corporation

headquartered in Colorado Springs, Colorado.     AdaCom developed a

program to enable deaf or hearing-impaired individuals to

communicate with hearing individuals and/or businesses.

Current Technology

     A text telephone (TTY) is an electronic device that allows a

person to type conversations over telephone lines.     TTYs do not

amplify sound or convert speech to text.

     A TTY user can use the Telecommunications Relay Services

(TRS) to call a person using a standard telephone and vice versa.

TRS is a system by which a hearing person and a deaf person can

communicate over the telephone.    TRS employs a relay operator who

receives the text from the deaf person.     The relay operator then

reads the text to the hearing party.     When a hearing party

provides a voice response, the relay operator types the text of

the spoken message and transmits the text to the TTY.     TRS is

available in all States in the United States and, as required by

law, is provided free of charge by the local telephone company.




     2
        As the parties refer to the company as “AdaCom”, for
clarity we shall do the same.
                                - 4 -

Normal charges do apply to long distance telephone calls.    TRS is

available 7 days per week, 24 hours per day.

AdaCom Technology

     During the year at issue, AdaCom maintained a computer with

TTY software to allow a hearing-impaired person to use a TTY to

call the AdaCom computer.    The computer then sent the text to a

program subscriber who was required to have a computer with a

standard modem.

     A program subscriber could also use his computer equipped

with a modem to contact the AdaCom computer to initiate calls to

a TTY user.   The AdaCom computer was available 7 days per week,

24 hours per day.

     If a program subscriber was unavailable when an attempt was

made by the AdaCom computer to contact him, a message was

transmitted that could be retrieved at a later time.    Once a

communication was completed, the text of the communication was

deleted from the AdaCom computer.

     Program subscribers were listed in the AdaCom yellow pages

directory.    The AdaCom yellow pages directory listed only the

subscribers to the program and contained information on how to

communicate with the subscriber by listing a number code to

access the AdaCom computer.
                               - 5 -

     AdaCom also maintained a Web site directory of its program

subscribers.   AdaCom listed only program subscribers on the Web

site.

     In addition to receiving a listing in the AdaCom yellow

pages directory and on the Web site, the program entitled each

program subscriber to 5 hours of interpretative services of a

sign language interpreter.   Additionally, the program entitled

each program subscriber to 5 hours of audit defense, which

consisted of representation before the Internal Revenue Service

(IRS) to defend the claiming of the section 44 credit and

associated deductions of the program.   The audit defense services

did not cover representation at the IRS Appeals level or the cost

of litigation.

The Subscription

     The subscription price of the program was $10,250 annually.

The program subscribers were entitled to pay $2,500 in cash and

provide $7,750 in promotional services to be performed by the

program subscribers.   The promotional service programs, which

AdaCom valued at $7,750, were as follows:   (1) Program A–11

referrals by the program subscribers; (2) program B–7 referrals

by the program subscribers and the program subscribers were to

display and distribute AdaCom brochures; and (3) program C–4

referrals by the program subscribers, and the program subscribers
                               - 6 -

were to display and distribute AdaCom brochures and display an

AdaCom window decal.

     AdaCom advised program subscribers to include $7,750 in

income, deduct $5,250 as an ordinary and necessary business

expense pursuant to section 162, and claim a credit equal to

$5,000 pursuant to sections 38 and 44.   The deduction of $5,250

comprised the $2,500 cash paid plus the excess of the promotional

services income over the claimed credit amount--$7,750 minus

$5,000, which equals $2,750.   AdaCom issued a Form 1099-MISC,

Miscellaneous Income, in the amount of $7,750 to each program

subscriber.

     None of the people referred by the program subscribers were

required to subscribe to the program in order for the referring

program subscriber to obtain credit towards the purchase price of

the program.

Petitioners’ Tax Return

     During the 2000 tax year, petitioner Bruce Channell was

employed as a financial analyst, and petitioner Desta Taye-

Channell was employed as a job coordinator.   For 2000,

petitioners filed a Schedule C, Profit or Loss From Business,

claiming a business of “Membership Sales and Prepaid Legal

Services”.

     On December 30, 2000, petitioners subscribed to the program.

Petitioners chose promotional service program C and furnished
                                - 7 -

four referrals in the subscription agreement.    Although

promotional service program C required petitioners to display and

distribute AdaCom brochures and display an AdaCom window decal,

petitioner Bruce Channell testified that he did not remember

whether he displayed an AdaCom window decal and that AdaCom did

not check to see whether he had displayed a window decal or

distributed brochures.

     Petitioners paid AdaCom $2,500 and were credited with $7,750

in promotional services for a subscription to the program for the

tax year 2000.

     AdaCom issued a Form 1099 to petitioners in the amount of

$7,750 for the 2000 tax year.   This amount represented the

alleged bartering income from AdaCom for promotional services and

was reported on petitioners’ Schedule C for the taxable year

2000.   This was the only income reported on petitioners’ Schedule

C.

     Based on their subscription to the program, petitioners

claimed a $5,250 business expense deduction and a $5,000 section

44 credit on their income tax return for 2000.

     Respondent determined a deficiency in petitioners’ Federal

income tax for 2000 in the amount of $1,935.    Respondent issued a

notice of deficiency which stated:

     We adjusted your Schedule C, Gross Receipts, and Other
     Expenses. The adjustments are to decrease income by
     monies recorded as received from bartering in the
     amount of $7,750.00, to disallow the advertising
                               - 8 -

     expense/Other Expenses of $5,250.00 and to disallow the
     claimed disabled access credit of $5,000.00.

     You have not established that any amounts were paid to
     AdaCon Advantage Company or, if paid, are ordinary and
     necessary business expenses. Accordingly, these
     amounts have been disallowed.

     You have not established that any amounts were paid to
     AdaCon Advantage Company or, if paid, qualify for the
     Disabled Access Credit under Section 44 of the Internal
     Revenue Code. Accordingly, the credit has been
     disallowed.

     Accordingly, your net Schedule C Income/Loss is
     adjusted $2,500.00 for taxable year ended December 31,
     2000.

     We have disallowed your claimed General Business Credit
     since you have not established that you are entitled to
     the credit.

                              OPINION

Burden of Proof

     As a general rule, the notice of deficiency is entitled to a

presumption of correctness, and the taxpayer bears the burden of

proving the Commissioner’s deficiency determinations incorrect.

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

Section 7491(a), however, provides that if a taxpayer introduces

credible evidence and meets certain other prerequisites, the

Commissioner shall bear the burden of proof with respect to

factual issues relating to the liability of the taxpayer for a

tax imposed under subtitle A or B of the Internal Revenue Code

(Code).   For the burden to shift, however, the taxpayer must

comply with the substantiation and recordkeeping requirements as
                                 - 9 -

provided in the Code and cooperate with the Commissioner.      See

sec. 7491(a)(2).

     Although petitioners claimed that section 7491(a) applies,

petitioners failed to introduce sufficient evidence to shift the

burden to respondent.    Nonetheless, our findings in this case are

based on a preponderance of the evidence.     See Arevalo v.

Commissioner, 124 T.C. 244 (2005).

ADA Tax Credit

     Section 44(a) is included in calculating the general

business credit pursuant to section 38.     Sec. 38(a) and (b).

Section 44(a) provides a disabled access credit for an “eligible

small business”.    The amount of this credit is equal to 50

percent of the “eligible access expenditures” of an “eligible

small business” that exceed $250 but that do not exceed $10,250

for the year.    Sec. 44(a).   Therefore, in order to claim the

disabled access credit, a taxpayer must demonstrate that (1) the

taxpayer is an “eligible small business” for the year in which

the credit is claimed, and (2) the taxpayer has made an “eligible

access expenditure” during that year.     If the taxpayer cannot

fulfill both of these requirements, the taxpayer is not eligible

to claim the section 44 credit for that year.

     “Eligible small business” is defined as any person that had

gross receipts of not more than $1 million for the preceding

taxable year or not more than 30 employees during the preceding
                                  - 10 -

year and elects the application of section 44 for the year.        Sec.

44(b).

     “Eligible access expenditure” is defined as an amount paid

or incurred by eligible small businesses for the purpose of

complying with the Americans with Disabilities Act of 1990 (ADA),

Pub. L. 101-336, 104 Stat. 327.      Sec. 44(c)(1).   Such

expenditures include amounts paid or incurred (1) for the purpose

of removing architectural, communication, physical, or

transportation barriers that prevent a business from being

accessible to, or usable by, individuals with disabilities; (2)

to provide qualified interpreters or other effective methods of

making aurally delivered materials available to individuals with

hearing impairments; (3) to acquire or modify equipment or

devices for individuals with disabilities; or (4) to provide

other similar services, modifications, materials, or equipment.

See sec. 44(c)(2).    Eligible access expenditures, however, do not

include expenditures that are unnecessary to accomplish such

purposes.    See sec. 44(c)(3).    Additionally, eligible access

expenditures do not include amounts that are paid or incurred for

the purpose of removing architectural, communication, physical,

or transportation barriers that prevent a business from being

accessible to, or usable by, individuals with disabilities with

respect to any facility first placed in service after November 5,

1990.    See sec. 44(c)(4).
                               - 11 -

       Petitioners contend that they are eligible to claim the

disabled access credit under section 44(a) because (1) they had

an eligible small business, and (2) their investment in the

program was an eligible access expenditure.     Respondent contends,

among other things, that a subscription to the program is not

necessary to comply with the ADA and thus is not an eligible

access expenditure pursuant to section 44(c).

       In order for an expenditure to qualify as an eligible access

expenditure within the meaning given that term by section 44(c),

the expenditure must have been made to enable an eligible small

business to comply with the applicable requirements under the

ADA.    Arevalo v. Commissioner, supra; Fan v. Commissioner, 117

T.C. 32 (2001).

       Title IV of the ADA requires “Each common carrier providing

telephone voice transmission services” to provide “throughout the

area in which it offers service, telecommunications relay

services”.    47 U.S.C. sec. 225(c) (2000).   “Telecommunications

relay services” is defined as:

       telephone transmission services that provide the ability for
       an individual who has a hearing impairment or speech
       impairment to engage in communication by wire or radio with
       a hearing individual in a manner that is functionally
       equivalent to the ability of an individual who does not have
       a hearing impairment or speech impairment to communicate
       using voice communication services by wire or radio. Such
       term includes services that enable two-way communication
       between an individual who uses a TDD or other nonvoice
       terminal device and an individual who does not use such a
       device. [47 U.S.C. sec. 225(a)(3).]
                                - 12 -

     TTY supersedes the term TDD.    47 C.F.R. sec. 64.601(15)

(2004). Congress further directed the Federal Communications

Commission (FCC) to enforce these provisions and to:

     (A) Establish functional requirements, guidelines, and

operations procedures for TRS;

     (B) establish minimum standards that shall be met;

     (C) require that TRS operate every day for 24 hours per day;

     (D) require that users of TRS pay rates no greater than the

rates paid for functionally equivalent voice communication

services with respect to such factors as the duration of the

call, the time of day, and the distance from point of origin to

point of termination;

     (E) prohibit relay operators from failing to fulfill the

obligations of common carriers by refusing calls or limiting the

length of calls that use TRS;

     (F) prohibit relay operators from disclosing the content of

any relayed conversation and from keeping records of the content

of any such conversation beyond the duration of the call; and

     (G) prohibit relay operators from intentionally altering a

relayed conversation.

47 U.S.C. sec. 225 (d) and (e).

     As mentioned supra, all States utilize TRS and follow the

aforementioned requirements.    Since Congress mandated the

adoption of TRS by common carriers, any place with a telephone is
                                 - 13 -

currently in compliance with the ADA.     Petitioners argue that the

program is an alternative to TRS and provides improvements to

TRS.

       However, petitioners’ subscription to the program did not

enable them to comply with the ADA--they already were in

compliance with the ADA through the use of TRS.      Svoboda v.

Commissioner, T.C. Memo. 2006-1.     Therefore, the cost of the

program is not an eligible access expenditure within the meaning

of section 44(c), and, consequently, they do not qualify for the

disabled access credit.    Id.   Respondent’s determination

disallowing the credit is sustained.

Section 162 Trade or Business Activity

       Deductions are a matter of legislative grace, and taxpayers

bear the burden of proving that they are entitled to any

deductions claimed.    Rule 142(a); INDOPCO, Inc. v. Commissioner,

503 U.S. 79, 84 (1992).    Taxpayers are allowed a deduction for

ordinary and necessary expenses paid or incurred in carrying on a

trade or business.    Sec. 162(a).   The Supreme Court has stated

that "to be engaged in a trade or business, the taxpayer must be

involved in the activity with continuity and regularity and that

the taxpayer's primary purpose for engaging in the activity must

be for income or profit.    A sporadic activity, a hobby, or an

amusement diversion does not qualify."      Commissioner v.

Groetzinger, 480 U.S. 23, 35 (1987).      Whether a taxpayer is in a
                               - 14 -

trade or business requires an examination of the facts and

circumstances of each case.    Higgins v. Commissioner, 312 U.S.

212, 217 (1941); see also Commissioner v. Groetzinger, supra at

36.

      Respondent contends that petitioners were not in a trade or

business within the meaning of section 162.   Petitioners contend

that they were in a trade or business entitled “Membership Sales

and Prepaid Legal Services”.   However, petitioners offered no

evidence other than the Schedule C and self-serving testimony

regarding their business.

      A tax return is merely a statement of a taxpayer’s position

and is not evidence of the correctness of the figures and

information contained therein.    Wilkinson v. Commissioner, 71

T.C. 633, 639 (1979).   Moreover, the Court is not required to

accept petitioners’ unsubstantiated testimony.   See Wood v.

Commissioner, 338 F.2d 602, 605 (9th Cir. 1964), affg. 41 T.C.

593 (1964).

      As petitioners reported no gross receipts on the Schedule C

other than the bartering income and offered no documentary

evidence whatsoever of the conduct of a business, we conclude

that petitioners did not use the program in a trade or business,

and petitioners are not entitled to a section 162 deduction for

their subscription to the program.
                             - 15 -

Conclusion

     We sustain respondent’s determination in the notice of

deficiency, decreasing petitioners’ income by the amount of

bartering services income reported and disallowing a section 44

credit and a section 162 deduction.    As we conclude that

petitioners are not entitled to a section 44 credit or a section

162 deduction, it is unnecessary for us to decide the proper

valuation of the program.

     To reflect the foregoing,

                                           Decision will be entered

                                      for respondent.
