                          T.C. Memo. 2001-45



                      UNITED STATES TAX COURT



         AZIZ A. TOKH AND SUSAN K. TOKH, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 169-00.                Filed February 27, 2001.



     Aziz A. and Susan K. Tokh, pro se.

     Jennifer L. Nuding and William E. Bogner, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     COHEN, Judge:   For 1996 and 1997, respondent determined

deficiencies in petitioners’ Federal income tax of $14,018 and

$10,850 and penalties under section 6662(a) of $1,329.60 and

$877.20, respectively.    By amendment to the answer, respondent

asserts increased penalties under section 6662(a) in the amounts

of $863.40 and $605.80 for 1996 and 1997, respectively.
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     After concessions, the issues for decision are:

(1) Whether, pursuant to section 162(a), petitioners are entitled

to deductions in the amounts claimed for unreimbursed employment

expenses; (2) whether, pursuant to section 212, petitioners are

entitled to deductions in the amounts claimed for investment

expenses; (3) whether, pursuant to section 170, petitioners are

entitled to deductions in the amounts claimed for charitable

contributions; (4) whether, pursuant to section 212, petitioners

are entitled to a deduction in the amount claimed for expenses

attributable to real property held for the production of income;

(5) whether, pursuant to section 280A(c)(1), petitioners are

entitled to deductions for expenses attributable to an office in

the home; and (6) whether, pursuant to section 6662(a),

petitioners are liable for penalties due to negligence or

disregard of rules or regulations.       Unless otherwise indicated,

all section references are to the Internal Revenue Code in effect

for the years in issue, and all Rule references are to the Tax

Court Rules of Practice and Procedure.

                        FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.

     At the time of the filing of the petition, petitioners

resided in Elmhurst, Illinois.    Aziz A. Tokh (petitioner) is an

architect at Northeast Illinois Railroad Corporation (NIRC), and
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Susan K. Tokh is a registered nurse at Elmhurst Memorial

Hospital.

     Petitioners claimed the following miscellaneous deductions

for unreimbursed expenses associated with their employment:

                                           1996      1997
      Petitioner
            Work equipment & tools        $ 500     $   500
            Supplies                         300        250
            Printing                         750        750
            Safety shoes                     300        167
            Mud boots                        160        133
      Susan K. Tokh
            Uniforms                       1,200     1,200
            Hospital scrubs                  450       450
            Shoes                            480       480
            Hosiery                        1,800     1,750
            Laundry services               1,250     1,500
      Both
            Licenses, dues, publications,
                books, and classes           313       662
      Total                               $7,503    $7,842

     Several of the items claimed as unreimbursed employment

expenses were based on estimates made by petitioners.

Specifically, petitioners made estimates for employment expenses

allegedly incurred by petitioner for work equipment and tools

($10 per week for 50 weeks in both years), supplies ($6 and $5

per week for 50 weeks in 1996 and 1997, respectively), printing

($15 per week for 50 weeks in both years), safety shoes (two

pairs at $150 each in 1996), and mud boots (two pairs at $80 each

in 1996).   Petitioners also made estimates for employment

expenses allegedly incurred by Susan K. Tokh for uniforms (six at

$200 each in both years), hospital scrubs (six sets at $75 each
                                - 4 -


in both years), shoes (four pairs at $120 each in both years),

hosiery ($36 and $35 per week for 50 weeks in 1996 and 1997,

respectively), and laundry services ($25 and $30 per week for 50

weeks in 1996 and 1997, respectively).   Although the remaining

claimed deductions for unreimbursed employment expenses were not

based on estimates, petitioners did not maintain any receipts,

records, or logbooks to prove that these expenses were actually

incurred.

     Petitioners owned shares of 15 different mutual funds in

1996 and 16 different mutual funds in 1997.   Each mutual fund

passed income through to its shareholders on a net basis, i.e.,

gross income minus operating expenses.   In annual reports

distributed to the shareholders, each mutual fund disclosed the

annual operating expenses incurred by the fund.   The annual

operating expenses are paid by the mutual funds and are not

expenses of the shareholders.   Petitioners claimed investment

expense deductions for a pro rata portion of the annual operating

expenses of the mutual funds.   Petitioners also claimed $220 in

1996 for Individual Retirement Account (IRA) maintenance fees.

     Petitioners estimate that they spent $2.25 per week for 50

weeks on weekend issues of the Chicago Tribune.   Petitioners also

estimate that they sent four letters per year for each different

mutual fund and that they spent $40.32 per letter for typing and

mailing.    Petitioners claimed investment expense deductions equal
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to their estimated costs for newspapers and letters.     In

addition, petitioners claimed other miscellaneous deductions in

1997 of $64 for Reader’s Digest publications, $30 for Newsweek

publications, and $25 for issues of a local newspaper.     In the

notice of deficiency, respondent allowed total combined

deductions for employment, investment, and other miscellaneous

expenses equal to $760 in 1996 and $5,149 in 1997.

     Petitioner is a Moslem.   Petitioners claimed charitable

deductions for cash contributions to an Islamic Culture Center

(ICC) and several mosques equal to $13,750 in 1996 and $14,930 in

1997.   Petitioners calculated the deduction as an “estimate” of

$225 per week for 50 weeks.    Petitioners also claimed deductions

for charitable transportation costs of $1,840 in both years and

cash contributions to other charities equal to $145 in 1997.     The

charitable transportation costs were based on trips between

petitioners’ home and the ICC and mosques.     In addition,

petitioners claimed that they donated over 300 items of used

clothing and household devices to the Cancer Federation and

Military Order of the Purple Heart.     Petitioners created

“receipts” for these contributions that total $680 for 1996 and

$891 for 1997.   The “receipts” were on forms provided by the

charities, but the lists of items and values were attached by

petitioners.   Petitioners claimed deductions for contributions of

used clothing and household items equal to $680 in 1996 and
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$1,394 in 1997.   In the notice of deficiency, petitioners were

allowed a deduction for cash contributions equal to $1,300 and

noncash contributions equal to $340 in 1996.   In 1997,

petitioners were allowed a combined deduction for cash and

noncash contributions of $1,439.

     As beneficiaries of a land trust, petitioners owned a

condominium that they rented to tenants during 1996.   Petitioners

were allowed a deduction for expenses relating to the condominium

totaling $4,411 for repairs, advertising, legal fees, taxes,

utilities, trust fees, and association fees.   Petitioners claimed

additional deductions associated with the rental of the

condominium totaling $10,378, which include estimates for auto

and travel expense, cleaning, insurance, management fees,

additional repairs, supplies, and collection fees.   The amounts

claimed for payments to petitioners’ son totaling $1,400 were

claimed twice, as management fees and as cleaning expenses.

     As part of his employment at NIRC, petitioner is provided

with an office containing a desk, computer, and telephone.

Petitioner also maintains an office in the family home where he

keeps a drafting table, drafting equipment, and reference books.

Besides working at the office at NIRC and the office in the home,

petitioner also spends time at various job sites.    Sixty percent

of his working hours is spent in the NIRC office, and 40 percent

of his hours is spent working at home or in the field.
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Petitioner has 24-hour access to the office at NIRC.    NIRC does

not require petitioner to maintain an office in the home.

Petitioners did not keep receipts or records for any of their

expenses associated with the office in the home, and petitioners

used an inflated basis in calculating depreciation expenses.

Petitioners claimed deductions for expenses relating to

maintaining the office in the home in 1996 and 1997.

     On their 1991, 1994, and 1995 Federal income tax returns,

petitioners claimed deductions for estimated employment expenses,

investment expenses, charitable contributions, and office in the

home expenses that are similar to those claimed during the years

in issue.   Petitioners prepared all of the tax returns themselves

without the assistance of a paid tax return preparer.   Respondent

examined petitioners’ 1991 income tax return and issued a notice

of deficiency.   Petitioners filed a timely petition with the

Court, and, on October 20, 1994, a stipulated decision was

entered.

                              OPINION

     Respondent argues that petitioners are not entitled to the

deductions claimed on their returns because petitioners did not

provide any substantiation for the amounts reported.    Petitioners

assert that they are entitled to the claimed deductions; however,

for the most part, they offered no books or records to prove that

they expended the amounts in question.   Only petitioner Aziz A.
                                - 8 -


Tokh appeared at trial.   For the most part, his uncorroborated

testimony was inherently unlikely and not credible.

Unreimbursed Employment Expenses

     Petitioners claim that they are entitled to miscellaneous

deductions of $7,503 in 1996 and $7,842 in 1997 for unreimbursed

employment expenses for work equipment and tools, supplies,

printing, clothing, footwear, laundry services, licenses, dues,

publications, books, and classes.   A trade or business expense

deduction is not allowable to an employee to the extent that the

employee is entitled to reimbursement from an employer.    See

Heidt v. Commissioner, 274 F.2d 25 (7th Cir. 1959), affg. T.C.

Memo. 1959-31; Lucas v. Commissioner, 79 T.C. 1, 7 (1982).       The

cost of acquisitions and maintenance of clothing and footwear is

deductible as a trade or business expense if the item is

(1) specifically required as a condition of employment, (2) is

not adaptable to general usage, and (3) is exclusively worn for

employment purposes.   See Yeomans v. Commissioner, 30 T.C. 757,

767 (1958).   If taxpayers establish that deductible expenses were

incurred but do not establish the amount allowable, the Court may

estimate the amount allowable, bearing heavily upon the

taxpayers.    See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d

Cir. 1930).

     Other than the testimony of petitioner, there is no evidence

that the alleged expenses were incurred by petitioners.    We are
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not required to accept a taxpayer’s uncorroborated testimony, and

we decline to do so here.    See Tokarski v. Commissioner, 87 T.C.

74, 77 (1986).    Furthermore, petitioners have failed to show that

they were not entitled to reimbursement from their employers for

the claimed deductions.    Therefore, the record does not sustain a

deduction for unreimbursed employment expenses in excess of what

respondent has already allowed.

Investment Expenses

     Petitioners claim that they are entitled to investment

expense deductions for their pro rata share of the annual

operating expenses incurred by the mutual funds in which they

owned shares.    Petitioners also claim investment expense

deductions for their alleged IRA maintenance, newspaper,

magazine, and letter-writing costs.     Section 212 allows a

deduction for all ordinary and necessary expenses paid or

incurred for management, conservation, or maintenance of property

held for the production of income.

     The annual operating expenses for the mutual funds are

expenses of the individual funds and are not expenses of

petitioners.    Publicly offered mutual funds pass through income

to shareholders on a net basis, i.e., gross income minus

operating expenses.    Therefore, petitioners have already received

the benefit of a reduction in income for these costs and are not

allowed to deduct the operating expenses as investment expenses.
                                - 10 -


     With regard to the alleged newspaper, magazine,

letter-writing, and IRA maintenance costs, there is no credible

evidence that these costs were incurred.    Furthermore, although

newspapers and magazines could have been useful in connection

with petitioners’ employment or investment activities,

petitioners have not shown that these publications were

principally used for employment or investment activities rather

than for personal activities.    See Wallendal v. Commissioner, 31

T.C. 1249, 1252 (1959).    They are not entitled to deductions

claimed for these items.

Charitable Contributions

     Petitioners argue that they are entitled to charitable

deductions for alleged cash contributions made to several

religious organizations and for used clothing contributions to

other local charities.    In addition, petitioners claim that they

are entitled to deduct their transportation expenses for trips

between their home and the religious organizations.    Section 170

allows a deduction for charitable contributions made for

religious purposes.   For monetary contributions, taxpayers must

maintain canceled checks, receipts from the donee organizations

showing the date and amount of the contributions, or other

reliable written records showing the name of the donee, date, and

amount of the contribution.    See sec. 1.170A-13(a)(1), Income Tax

Regs.
                               - 11 -


     Petitioner testified that a fundamental principle of the

Moslem faith is to make charitable contributions each year equal

to 2.5 percent of an individual’s possessions.    Petitioners argue

that the amounts claimed are roughly equal to 2.5 percent of

their possessions.

     Petitioners have failed to meet the substantiation

requirements of section 1.170A-13(a)(1), Income Tax Regs.,

because they did not produce any records that would identify the

recipient or prove that the contributions were actually made.

Therefore, petitioners are not entitled to deductions for

monetary contributions in excess of the amounts already allowed

by respondent.    Neither are petitioners entitled to deduct their

travel expenses of commuting between their home and the ICC or

mosques.   Travel expenses related to attending religious

functions are personal in nature and are not deductible as

charitable contributions.    See Churukian v. Commissioner, T.C.

Memo. 1980-205.

     Where a charitable contribution is made in property other

than money, a deduction is allowed for the fair market value of

the property at the time of contribution.    See sec. 1.170A-

1(c)(1), Income Tax Regs.    Petitioners attached “receipts” to

their Federal income tax returns that included descriptions and

estimated fair market values for over 300 items donated to the

Cancer Federation and the Military Order of the Purple Heart.
                              - 12 -


The “receipts” were contemporaneously created by petitioners on

forms provided by the charities without specification of the

items donated at the time that the donations were made.

Respondent argues that these receipts are inadequate because they

do not show the original cost, age, or condition of the donated

items.   Petitioner was unable to cure any defects in the

documentation by his testimony.

     Petitioners’ claimed deductions of $680 in 1996 and $1,394

in 1997 for the donated items.    However, the lists of items for

1997 total only $891.   We conclude that the self-generated

“receipts” are unreliable.   Petitioners are not entitled to

deductions for noncash charitable contributions in excess of the

amounts already allowed by respondent.

Rental Property Expenses

     Petitioners claimed deductions in excess of the amount

allowed by respondent for expenses attributable to the

condominium that they held for rental purposes in 1996.

Respondent conceded that petitioners are entitled to deductions

equal to $4,411 for rental property expenses.   For the remainder

of the alleged expenses, petitioners either failed to produce

receipts and records to substantiate their claims or petitioners

produced receipts that appear to relate to petitioners’ private

residence rather than to the condominium.
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     Section 212 provides a deduction for all ordinary and

necessary expenses paid or incurred with respect to management,

conservation, and maintenance of property held for the production

of income, including real property rental.     See also sec. 1.212-

1(h), Income Tax Regs.   However, because the record is void of

adequate receipts or records that would substantiate petitioners’

claimed expenses, petitioners are not entitled to deductions in

excess of the amount already conceded by respondent.

Office in the Home Expenses

     Petitioners claim that they are entitled to a deduction for

maintaining an office in their home.    Section 280A(a) prohibits

deductions “with respect to the use of a dwelling unit which is

used by the taxpayer during the taxable year as a residence.”

Nonetheless, taxpayers may deduct expenses attributable to the

business use of their home if they qualify under one of the

exceptions to this prohibition.   Section 280A(c)(1) provides:

     SEC. 280A. DISALLOWANCE OF CERTAIN EXPENSES IN
          CONNECTION WITH BUSINESS USE OF HOME, RENTAL OF
          VACATION HOMES, ETC.

               (1) Certain Business Use.--Subsection (a)
          shall not apply to any item to the extent such
          item is allocable to a portion of the dwelling
          unit which is exclusively used on a regular
          basis--

                    (A) [as] the principal place of business
               for any trade or business of the taxpayer,

          *       *        *       *       *        *        *
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          In the case of an employee, the preceding sentence
          shall apply only if the exclusive use referred to
          in the preceding sentence is for the convenience
          of his employer.

     In deciding whether a residence is the principal place of

business, it must be compared to all of the other places where

business is transacted.   See Commissioner v. Soliman, 506 U.S.

168, 174 (1993) (superseded in part by statute on another issue

for tax years beginning after 1998).     A deduction is allowed only

when the residence is the most important or significant place for

the business.   The two primary considerations are the relative

importance of the activities performed at each business location

and the time spent at each place.    See id. at 175.   The relative

importance of business activities engaged in at the office in the

home may be substantially outweighed by business activities

engaged in at another location.    See Strohmaier v. Commissioner,

113 T.C. 106, 112 (1999).

     For an architect, drafting is an important function of the

taxpayer’s trade or business.    Petitioner uses the office in his

residence to perform most of the drafting required by his

employment.   However, petitioner testified that he spends

60 percent of his working hours in the office at NIRC, and the

remainder of his time is split between working in the field or in

the office in the home.   The record does not show what functions

were performed by petitioner at the other locations.    Because a
                                - 15 -


comparison of the functions performed at the other locations

yields no definitive answer, and because petitioner spends a

small amount of time in the office in the home relative to the

remainder of his working hours, the office in the home is not the

principal place of business.    Therefore, petitioners fail to meet

the requirements of section 280A(c)(1)(A).    Furthermore, because

NIRC does not require petitioner to maintain an office in the

home and because the NIRC office building is available for

petitioner to use 24 hours a day, petitioner does not maintain

the office in the home for the convenience of his employer.

Thus, petitioners are not entitled to deductions for the alleged

expenses of maintaining the office in the home.

Penalties

     Section 6662(a) and (b)(1) imposes a penalty equal to

20 percent of the portion of the underpayment that is

attributable to negligence or disregard of rules or regulations.

Negligence is defined as a lack of due care or failure to do what

a reasonable or ordinarily prudent person would do under similar

circumstances.    See Neely v. Commissioner, 85 T.C. 934, 947

(1985).     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 deductions for unsubstantiated estimated expenses,

duplicate deductions of amounts paid to their son, and deductions
                              - 16 -


not authorized by law (such as transportation for charitable

purposes) show a pattern of negligence and disregard of the

applicable rules or regulations.   Petitioners were put on notice

during the audit of their 1991 income tax return that they were

not entitled to deductions for estimated expenses or for expenses

that were not substantiated by receipts and records.   Petitioners

are well-educated individuals who knew or should have known that

proper record keeping is essential to their entitlement to

deductions.   Petitioner testified at trial that he was aware of

the record keeping obligations, that he was too busy to comply

with them, and that he would not change his methodology.   With

respect to the claimed investment deductions for expenses of the

mutual funds, petitioners ignored information in their annual

reports that showed that income was reported on a net basis and

that they were not entitled to a deduction for the operating

expenses.   Petitioners claimed the deductions mentioned above

without consulting an accountant or attorney.   Their actions are

not the actions of reasonable and ordinarily prudent persons.

Thus, petitioners are liable for penalties under section 6662(a)

for both years in issue.

     We have considered all remaining arguments made by

petitioners for a result contrary to that expressed herein, and,

to the extent not discussed above, they are irrelevant or without

merit.
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To reflect the foregoing and the concessions of the parties,

                                   Decision will be entered

                              under Rule 155.
