                            T.C. Memo. 1996-390



                          UNITED STATES TAX COURT



                      KATHLEEN A. CARR, Petitioner v.
               COMMISSIONER OF INTERNAL REVENUE, Respondent


       Docket No. 6054-95.                        Filed August 21, 1996.


       Kathleen A. Carr, pro se.


       David R. Jojola, for respondent.


                            MEMORANDUM OPINION


       NAMEROFF, Special Trial Judge:     This case was heard pursuant

to the provisions of section 7443A(b)(3)1 and Rules 180, 181, and

182.       Respondent determined a deficiency in petitioner's 1991

Federal income tax in the amount of $1,819.

       1
        Unless otherwise indicated, all 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 sole issue for decision is whether various Schedule C

expenses were ordinary and necessary in carrying on petitioner's

business as a personal manager.

     Some of the facts have been stipulated, and they are so

found.    The stipulation of facts, the stipulation of settled

issues, and the attached exhibits are incorporated herein by this

reference.    At the time of the filing of the petition, petitioner

resided in Los Angeles, California.

     When she was 3 years old, petitioner became involved in the

entertainment industry as an actress with the Broadway touring

company production of "The Sound of Music".    In 1985, petitioner

became a talent agent for Emerald Artists Agency (Emerald).2     In

1987, petitioner received a subagent franchise from the Screen

Actors Guild, Inc., which licensed petitioner as a talent agent

and allowed her to work under her own name rather than Emerald's

name.    Petitioner was a successful talent agent.



     2
        A talent agent is a person or corporation who engages in
the occupation of procuring, offering, promising, or attempting
to procure employment or engagements for artists. In addition, a
talent agent may counsel artists in the development of their
professional careers. Cal. Lab. Code sec. 1700.4(a) (West 1989).
To procure employment for artists, the talent agent must obtain a
license from the California Labor Commissioner. Cal. Lab. Code
secs. 1700.4 and 1700.5 (West 1989). For this purpose the term
"artist" includes actors, actresses, radio artists, musical
artists, directors, writers, cinematographers, composers,
lyricists, arrangers, models, or others rendering professional
services in radio, movies, theater, or television. Cal. Lab.
Code sec. 1700.4(b) (West 1989).
                                 - 3 -


     At the end of 1988, petitioner decided to leave Emerald to

start her own agency.   At the beginning of 1989, petitioner left

Emerald and started K.C. & Co.    Through K.C. & Co., petitioner

functioned as a personal manager for various artists.3

     When she left Emerald, petitioner took six artists with her

and began looking for other artists to represent.     By the end of

1990, petitioner had developed her own "stable" of artists,

including 17 artists who had signed contractual agreements with

K.C. & Co.   In these contracts, K.C. & Co. agreed to advise,

counsel, and direct the development and enhancement of the

artists' careers in exchange for compensation of 10 percent of

the artists' gross earnings.     Several artists did not sign

contracts with K.C. & Co. because they were newly referred to

petitioner and their relationship was on a trial basis.

     Part of petitioner's role as personal manager was to promote

the careers of her artists.    To promote her artists, petitioner

     3
        Unlike a talent agent, a personal manager is not covered
by the Talent Agencies Act, Cal. Lab. Code secs. 1700-1700.47
(West 1989), or any other statutory scheme and is not required to
obtain a license. The primary function of a personal manager is
that of advertising, counseling, directing, and coordinating the
artist in the development of the artist's career. This function
can include personal and business matters of the artist.
Waisbren v. Peppercorn Prods., Inc., 41 Cal. App. 4th 246, 253,
48 Cal. Rptr. 2d 437, 440 (1995). Personal managers may find
themselves in situations where they would like to procure
employment for their artists; however, to do so, the personal
manager must become a licensed talent agent or work in
conjunction with a licensed talent agent. Cal. Lab. Code secs.
1700.4, 1700.5, 1700.44; see Waisbren v. Peppercorn Prods., Inc.,
supra.
                                 - 4 -


used showcases4 to demonstrate their talents.   Petitioner used

the showcases as a method to familiarize entertainment industry

professionals with the names, faces, and talents of petitioner's

artists so that they would be invited to interviews, and

ultimately, obtain a job in the entertainment industry.    Numerous

casting people, directors, and producers who were involved in the

entertainment industry were invited to the showcases so that they

could see the work of petitioner's clients.

     Petitioner put together a showcase in January 1991, at a

small theater in North Hollywood.    The theater space was free and

held 26 people.   The theater was filled by directors, producers,

and casting people who were invited by petitioner.    Petitioner

also organized a showcase at the Coronet Theatre in La Cienega in

March 1991.   The Coronet Theatre space was free because

petitioner knew someone who let her use the space.    The 350-

person theater was filled with invited entertainment industry

people.   Some of petitioner's artists obtained interviews or work

after this showcase.

     In July 1991, petitioner and her artists were invited by

Steven Wright Productions to present a showcase at the Convention

Center in St. Louis, Missouri.    Petitioner's artists were paid


     4
        As we understand it, a showcase is a production of short
skits, excerpts from theatrical works, musical numbers, or other
forms of entertainment which are performed by actors and
actresses.
                               - 5 -


$1,000 for the showcase.   In September 1991, petitioner organized

a country and western showcase at the Court Theatre in La

Cienega.   The theater space was free.   The theater was filled

with about 200 entertainment industry people.    Some of

petitioner's artists obtained interviews and employment after

this showcase.

     Petitioner incurred numerous expenses in connection with

these showcases.   These expenses included advertising and

publicity photographs of the showcase which were mailed to

producers, directors, and casting agents to invite them to attend

the showcases.   In addition, petitioner rented a tape recorder

and hired a musician, a choreographer, and a musical director to

work on the showcases.   Petitioner also incurred costs for props

and sets for the showcases.   Further, petitioner incurred dry

cleaning expenses in connection with borrowed costumes that were

worn by the artists during the showcases.

     Petitioner incurred other expenses in connection with her

work as a personal manager.   Specifically, petitioner incurred

expenses for resumes that contained background information on her

artists.   These resumes were sent to entertainment industry

professionals to promote her artists.    In addition, petitioner

incurred expenses for resumes for K.C. & Co. that were used to

advertise her services and to attract more artists to her agency.

In addition, petitioner incurred expenses for reference books and
                               - 6 -


other materials that she used to find out about the latest trends

in the entertainment industry and to obtain information about

directors, producers, and casting people.

     In 1991, petitioner received wages from Medcom Billing

Services of $25,157.05 and gross income from K.C. & Co. of

$3,229.75.   On the Schedule C, petitioner claimed expenses

related to K.C. & Co. which totaled $26,913.43.    In the notice of

deficiency, respondent disallowed all or part of the expenses

claimed, as follows:

        Expense           Claimed        Allowed    Disallowed
     Advertising         $2,500.00         -0-        $2,500
     Union dues             177.50        $147            30
     Education            3,752.00         -0-         3,752
     Photos               1,800.00         -0-         1,800
     Resumes                 53.00         -0-            53
     Instrument rental    2,593.00         -0-         2,593
     Props/sets           4,270.00         -0-         4,270
     Education materials    354.75         -0-           355
     Airline tickets      1,553.00       1,243           310
     Dry cleaning            46.00         -0-            46
     Car and truck        3,422.00       2,910           512

     In the stipulation of settled issues and the stipulation of

facts, the parties stipulated that petitioner was entitled to

deduct a total of $3,422 for Schedule C car and truck expenses.

At trial, respondent's counsel stipulated that petitioner was

entitled to deduct an additional $30 for union dues and $310 for

airline tickets.   Therefore, these amounts are no longer in

dispute.5

     5
         We note that petitioner claimed a Schedule C deduction
                                                    (continued...)
                                 - 7 -


     Petitioner has substantiated the amounts in dispute.     The

issue for decision is whether these expenses are ordinary and

necessary.

Preliminary Matters

     In the stipulation of facts, respondent reserved objections

to several joint exhibits.   Specifically, respondent objected on

the basis of relevancy to Joint Exhibit 4-D, a subagent franchise

agreement; Joint Exhibit 5-E, a directory from the Conference of

Personal Managers; and Joint Exhibit 10-J, a breakdown of

available jobs in the entertainment industry.    In addition,

respondent objected on the basis of hearsay to Joint Exhibit 7-G,

excerpts from a book entitled "Managers', Entertainers', & Agents

Book"; Joint Exhibit 8-H, excerpts from a book entitled "How to

Manage Talent"; and Joint Exhibit 9-I, an excerpt entitled "But,

What Does a Personal Manager Do?" from the National Conference of

Personal Managers.

     Proceedings in this Court are conducted in accordance with

the Federal Rules of Evidence.    Sec. 7453; Rule 143.   Relevant

evidence means evidence having any tendency to make the existence

of any fact that is of consequence to the determination of the

action more or less probable than it would be without the

     5
      (...continued)
for repairs and maintenance of $129.47 which was neither allowed
nor disallowed by the notice of deficiency and was not mentioned
in the stipulation of facts of stipulation of settled issues.
Thus, we will assume such amount is not in dispute.
                                 - 8 -


evidence.   Fed. R. Evid. 401.   Joint Exhibits 4-D and 5-E support

petitioner's testimony that she was a licensed talent agent and

that she offered her services as a talent agent.       These facts are

relevant, and we overrule respondent's objection.

     With respect to Joint Exhibit 10-J, which is an example of

the service petitioner used to find acting parts for her artists,

we sustain respondent's objection.       The amount claimed by

petitioner for this service was allowed in the notice of

deficiency and is not in dispute.    Therefore, this exhibit is not

relevant.

     With respect to respondent's hearsay objections, we sustain

them.   The Federal Rules of Evidence define hearsay as "a

statement, other than one made by the declarant while testifying

at the trial or hearing, offered in evidence to prove the truth

of the matter asserted."   Fed. R. Evid. 801(c).      Normally,

hearsay is excluded from evidence unless an exception to the

hearsay rule applies.   Snyder v. Commissioner, 93 T.C. 529, 532

(1989).   Joint Exhibits 7-G, 8-H, and 9-I are excerpts from

reference books and articles which were offered by petitioner to

show that her expenses were ordinary and necessary for personal

managers.   Thus, these exhibits are hearsay.

     An exception to the hearsay rule allows the introduction of

learned treatises in evidence when they have been established as

reliable authority by an expert witness at trial and have been
                                - 9 -


either relied upon by an expert witness on direct examination or

called to his attention on cross-examination.      Fed. R. Evid.

803(18).    The certain implication from this exception is that

statements from treatises that (1) have not been established as

reliable authority, (2) were not relied on by an expert at trial,

or (3) were not called to an expert's attention at trial are not

admissible.    Snyder v. Commissioner, supra.    The excerpts in

issue were neither relied on nor referred to by an expert witness

at trial.    They were not established as reliable authority by any

expert or by judicial notice.    Thus, these excerpts are not

admissible under the exception to the hearsay rule for learned

treatises.    None of the other exceptions to the hearsay rule

applies in this case.    Accordingly, we sustain respondent's

objections to these exhibits.

Discussion

     Deductions are strictly a matter of legislative grace, and

petitioner bears the burden of proving that she is entitled to

any deductions claimed.    Rule 142(a); New Colonial Ice Co. v.

Helvering, 292 U.S. 435 (1934).    Section 162(a) provides for the

deduction of all ordinary and necessary expenses paid or incurred

during the taxable year in carrying on any trade or business.

The terms "ordinary" and "necessary" mean that the expenditure

must be normal, usual, and customary, as well as appropriate and

helpful to the operation of the business.       Commissioner v.
                               - 10 -


Tellier, 383 U.S. 687, 689 (1966); Commissioner v. Heininger, 320

U.S. 467, 471 (1943); Deputy v. du Pont, 308 U.S. 488, 495-496

(1940).   This usually requires that the expenditure bear a

reasonably direct relationship to the taxpayer's trade or

business.   Commissioner v. Heininger, supra at 470; Deputy v. du

Pont, supra at 495; Kennelly v. Commissioner, 56 T.C. 936, 941

(1971), affd. without published opinion 456 F.2d 1335 (2d Cir.

1972); Sholund v. Commissioner, 50 T.C. 503, 508 (1968); sec.

1.162-1(a), Income Tax Regs.   The issue of whether the expenses

are ordinary and necessary is a question of fact.   Commissioner

v. Heininger, supra at 475; Walliser v. Commissioner, 72 T.C.

433, 437 (1979).

     Because the entertainment industry is visual, publicity is

extremely important.   As a talent manager, petitioner guided the

careers of at least 17 artists.   To get these artists work, and

generate income for her business, petitioner organized,

advertised, and put on showcases for directors, producers, and

casting people involved in the entertainment industry to

demonstrate the talents of her artists.   Because her artists were

lesser known individuals, petitioner put together several

showcases in an effort to get her artists maximum exposure.

Showcases are a common method used by talent managers to get

their clients work in the entertainment industry.
                              - 11 -


     All of the expenses at issue were incurred in connection

with these showcases or petitioner's business as a talent

manager.   We find that the expenses incurred by petitioner both

were "ordinary and necessary" within the meaning of section

162(a) and arose out of the conduct of petitioner's business.     In

reaching our decision, we have relied on the testimony of

petitioner, whom we had an opportunity to observe at trial.     We

found her testimony to be candid and credible, as well as

supported by the record.   Accordingly, petitioner is entitled to

a deduction for the expenses at issue.

     To reflect the foregoing resolution of the issues in this

case,


                                              Decision will be

                                         entered under Rule 155.
