                     T.C. Summary Opinion 2007-74



                       UNITED STATES TAX COURT



              LAURENCE L. GRABOWSKI, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13861-05S.               Filed May 17, 2007.



     Laura Perrin (specially recognized), for petitioner.

     Steven W. LaBounty, for respondent.



     FOLEY, Judge:    This case was heard pursuant to section 74631

of the Internal Revenue Code.    Pursuant to the provisions of

section 7463(b), the decision to be entered is not reviewable by

any other court, and this opinion shall not be treated as

precedent for any other case.    The issues for decision are


     1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue.
                               - 2 -

whether petitioner is entitled to certain deductions and is

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

to 1998.

                            Background

     During 1998, petitioner and his brother, Patrick Grabowski,

operated several businesses including a property management

company, a trailer park, and two motels (collectively, the

businesses).   Petitioner was responsible for the onsite

management of the businesses while Patrick paid the expenses and

maintained the books and records.

     Petitioner, on his 1998 Federal income tax return, reported

losses relating to the businesses.     On April 25, 2005, respondent

issued petitioner a notice of deficiency relating to 1998.

Respondent determined that petitioner did not substantiate the

losses relating to the businesses and was liable for the section

6662(a) accuracy-related penalty.

     On July 25, 2005, petitioner, while residing in Lake Ozark,

Missouri, filed his petition with the Court.

                            Discussion

     Petitioner contends that the losses relating to the motels

and trailer park are deductible pursuant to section 162.    Section

162(a) allows as a deduction all the ordinary and necessary

expenses paid or incurred during the taxable year in carrying on

a trade or business.   Petitioner must maintain sufficient records
                                   - 3 -

to substantiate the amounts of the deductions.         Sec. 6001; sec.

1.6001-1(a), Income Tax Regs.       Petitioner did not produce

evidence to substantiate the losses claimed.         Accordingly, we

sustain respondent’s determinations.2

       Section 6662(a) imposes a penalty equal to 20 percent of the

amount of any underpayment attributable to various factors

including negligence or a substantial understatement of income

tax.       See sec. 6662(b)(1) and (2).    Negligence includes any

failure to make a reasonable attempt to comply with the law or

maintain adequate books and records.         Sec. 6662(c); sec. 1.6662-

3(b)(1), Income Tax Regs.       An understatement is substantial if it

exceeds the greater of $5,000 or 10 percent of the tax required

to be shown on the return.       Sec. 6662(d)(1)(A)(i) and (ii).

Respondent bears the burden of production relating to the

penalty.       Sec. 7491(c).

       Respondent established that petitioner erroneously reported

income resulting in a $25,643 understatement of tax relating to

1998.       Section 6664(c)(1), however, provides that no penalty

shall be imposed if a taxpayer demonstrates that there was

reasonable cause for the underpayment and the taxpayer acted in

good faith.       The determination of whether a taxpayer acted with

reasonable cause and in good faith depends upon the facts and

circumstances.       See sec. 1.6664-4(b)(1), Income Tax Regs.



       2
       Sec. 7491(a) is inapplicable because petitioner failed to
introduce credible evidence within the meaning of sec.
7491(a)(1).
                                 - 4 -

     Petitioner contends that he was unable to substantiate the

losses because Patrick refused to provide the businesses’

records.   On August 16, 2002, the Superior Court of California,

County of Orange, issued an order requiring Patrick to provide

petitioner with the business records.       Patrick did not comply

with the California Court’s order.       On February 26, 2007, Patrick

evaded service of a subpoena for the 1998 records and did not

provide petitioner with access to such records.       Petitioner has

earnestly and diligently attempted to obtain the requisite

documentation.   Thus, he has demonstrated reasonable cause for

his failure to substantiate the losses and has acted in good

faith.   Accordingly, petitioner is not liable for the section

6662(a) accuracy-related penalty.

     Contentions we have not addressed are irrelevant, moot, or

meritless.

     To reflect the foregoing,

                                         Decision will be entered

                                 for respondent as to the

                                 deficiency; decision will be

                                 entered for petitioner as to

                                 the accuracy-related penalty.
