                        T.C. Memo. 2000-255



                      UNITED STATES TAX COURT



          HAROLD L. & LACHEER A. DOZIER, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10087-99.                     Filed August 11, 2000.


     Harold L. Dozier and LaCheer A. Dozier, pro se.

     Eric B. Jorgensen, for respondent.



                        MEMORANDUM OPINION

     PAJAK, Special Trial Judge:   Respondent determined

deficiencies in petitioners’ 1995 and 1996 Federal income taxes

in the amounts of $6,382 and $1,440, respectively, and an

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

$1,276 for 1995.   Unless otherwise indicated, all section

references are to the Internal Revenue Code in effect for the

years in issue.
                                -2-

     After a concession by respondent that petitioners are not

liable for the accuracy-related penalty under section 6662(a) for

1995, we must decide whether petitioners are entitled to deduct

claimed Schedule C expenses of $26,860 and $4,800 in 1995 and

1996, respectively.

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

Petitioners resided in Decatur, Georgia, at the time the petition

was filed.

     Petitioner Harold L. Dozier was a welder, and petitioner

LaCheer A. Dozier was a laundry worker.   For 1995, on a Schedule

C listing Public Pay Telephone/Long Distance Services as the

principal business, petitioners claimed a loss of $24,500.     On

that Schedule C, petitioners claimed total deductions of $26,860

as follows: commissions and fees - $17,500, legal and

professional services - $650, office expenses - $4,200, rent or

lease: vehicles, machinery and equipment - $4,200, supplies -

$310.   For 1996, on a Schedule C listing Long Distance/

Information Services as the principal business, petitioners

reported a gain of $8,386.   On that Schedule C, petitioners

claimed a deduction of $4,800 for rent or lease: vehicles,

machinery and equipment.   Respondent disallowed the Schedule C

deductions of $26,860 for 1995 and $4,800 for 1996 on the grounds

that it was not established that any of the amounts claimed were

for ordinary and necessary business expenses or were expended for
                                 -3-

the purposes designated.

     Deductions are strictly a matter of legislative grace.

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New

Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).

Taxpayers must substantiate any deductions claimed.    Hradesky v.

Commissioner, 65 T.C. 87 (1975), affd. per curiam 540 F.2d 821

(5th Cir. 1976).    Section 6001 imposes upon every person liable

for any tax a duty to maintain records that are sufficient to

enable the Commissioner to determine the taxpayer’s correct tax

liability.    Sec. 1.6001-1(a), Income Tax Regs.

     Petitioner Harold L. Dozier claimed he was in business with

Ms. Faye Williams and Mr. Leonard Campbell to buy and sell names

“over the Web”.

     Mr. Herman Tyler, petitioners’ tax return preparer,

testified.    Mr. Tyler claimed that petitioners borrowed

approximately $25,000 from Keanon Thompson, a 14 year-old boy, so

they could participate in the business.    Mr. Tyler asserted that

he arranged the loan because he had Keanon Thompson’s power of

attorney.    Mr. Tyler referred to a promissory note, but no

promissory note was introduced in evidence.    According to his

testimony, the funds never went to petitioners, but remained in

Mr. Tyler’s hands.    Mr. Tyler also testified that he held funds

in trust for petitioners and made wire transfers to Mr. Leonard

Campbell of California.    He said these wire transfers represented
                                 -4-

payment of petitioners’ expenses to Mr. Campbell.       Many of the

wire transfers by Mr. Tyler were to Ms. Faye Williams, who was

Mr. Campbell’s sister.    No agreement between Mr. Campbell and

petitioners or between Ms. Williams and petitioners was

introduced in evidence.    Mr. Tyler alleged payments also were

made by petitioners to Mr. Campbell by means of payments made by

Mr. Tyler to Mr. Tyler’s brother, Ed Tyler, of Colorado for an

alleged purchase of real estate.       No agreement of sale and no

agreement relating to a real estate commission was introduced in

evidence.   Mr. Tyler testified petitioners leased office space

from Mr. Campbell who leased it from another brother of Mr.

Tyler, Ernest Tyler, of Colorado.       No lease between Mr. Ernest

Tyler and Mr. Campbell or between Mr. Campbell and petitioners

was introduced in evidence.

     Petitioners had no books or records of this alleged

business.   Petitioners had no copies of lease agreements with

respect to this alleged business.       Petitioners had no copies of

agreements with any of the individuals named above.       Petitioners

had no copies of loan agreements with respect to this alleged

business.   Petitioners had no checks to evidence payment of any

expenses with respect to this alleged business.       Petitioners had

no receipts for payment of alleged expenses of this alleged

business.

     We need not accept self-serving testimony of a petitioner or
                                  -5-

of a witness if we find it to be unworthy of belief.     Tokarski v.

Commissioner, 87 T.C. 74, 77 (1986).     We decide whether a witness

is credible based on objective facts, the reasonableness of the

testimony, and the demeanor of the witness.     Quock Ting v. United

States, 140 U.S. 417, 420-421 (1891); Wood v. Commissioner, 338

F.2d 602, 605 (9th Cir. 1964), affg. 41 T.C. 593 (1964).

     Mr. Tyler may have been attempting to support the tax

returns he prepared.   He did not do so.   There was nothing in the

documents detailing the wire transfers which tied them to

petitioners.   Mr. Tyler had no written records of his own to

prove he held funds in trust for petitioners or that moneys

flowed in and out of the purported trust account.    We found the

statements of Mr. Tyler to be unreasonable and not consistent

with normal business practices.     We observed Mr. Tyler’s demeanor

and did not find him credible.

     Petitioners offered no business records, checks, or receipts

to prove that the sums claimed as deductions were actually spent

and no documentary evidence to substantiate that any claimed

expenditures were for a business purpose.    In sum, petitioners

failed to substantiate the deductions in issue.    We have no
                               -6-

choice but to sustain respondent’s determination of the

deficiencies for each of the years in issue.



                                          Decision will be entered

                                     for respondent in the amount

                                     of the deficiencies and for

                                     petitioners with respect to

                                     the accuracy-related penalty

                                     under section 6662(a).
