                        T.C. Memo. 1999-212



                      UNITED STATES TAX COURT



                MELVIN L. LEVINSON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6618-97.                        Filed June 29, 1999.



     Melvin L. Levinson, pro se.

     Brendan G. King, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     FOLEY, Judge:   By notice dated February 11, 1997, respondent

determined the following deficiencies and penalties relating to

petitioner's Federal income taxes:
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                                               Penalty
          Year         Deficiency           Sec. 6662(a)
          1993         $12,720.79            $2,544.16
          1994           8,307.00             1,661.40
     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.

     After concessions by the parties, the remaining issues for

decision are whether petitioner is liable for self-employment

tax, entitled to deduct expenses relating to his patents, and

liable for accuracy-related penalties.

                         FINDINGS OF FACT

     Petitioner resided in Edison, New Jersey, at the time his

petition was filed.   From 1948 until his retirement in 1989,

petitioner operated a retail store that sold electronic goods and

collectibles (i.e., comic books, baseball cards, and stamps).

While operating his retail business, petitioner, in his spare

time, created and patented inventions.   His inventions ranged

from microwave power sources to methods for preparing beverages.

In 1981, petitioner was issued a patent for a microwave cookware

container.

     In 1989, petitioner filed a civil suit against Northland

Aluminum Products, Inc. (d/b/a Nordic), and Regal Ware, Inc.

(Regal), for infringing upon petitioner's 1981 patent.     That same

year, petitioner and Nordic entered into a settlement agreement
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in which Nordic agreed to pay petitioner $500,000, in five

installments, for the past use of petitioner's patent.

Petitioner and Nordic also entered into a license agreement

relating to Nordic's continued use of petitioner's patent.     In

1990, petitioner and Regal entered into a settlement agreement in

which Regal agreed to pay petitioner $210,000, in three

installments, for the past use of petitioner's patent.

Petitioner and Regal also entered into a license agreement

relating to Regal's continued use of petitioner's patent.

     On his 1993 and 1994 returns, petitioner reported royalties

of $158,611 (i.e., $145,000 relating to Regal's settlement

payments and $13,611 from various companies) and $75,810 (i.e.,

$75,000 relating to Nordic's settlement payment and $810 from

various companies), respectively.   Petitioner also reported

$72,227 and $34,201 of business expenses relating to 1993 and

1994, respectively.

                              OPINION

     Respondent contends that the settlement awards and royalties

petitioner received in 1993 and 1994 are subject, pursuant to

section 1401, to self-employment tax.   Petitioner contends he is

not in the trade or business of inventing and, therefore, not

liable for self-employment tax.

     Section 1401(a) imposes a tax on the self-employment income

of every individual.   In general, self-employment income consists
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of the net earnings from a trade or business carried on by an

individual.     See sec. 1402(a) and (b).   An individual is engaged

in a trade or business if such individual's activities are

conducted with continuity and regularity, and primarily for

income or profit.     See sec. 1402(c) (stating that the term "trade

or business" for the purposes of self-employment income generally

has the same meaning as it does for the purposes of section 162);

Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987).

     Petitioner was not engaged in the trade or business of

inventing.    He did not develop or design inventions on a

continuous or regular basis.     Petitioner testified:

     I could sit here in front of you all for the next year
     and I might not even think of an invention, never even
     come to my mind. All of a sudden, I'll get two more
     [ideas] in a stroke of genius, they say, but it's
     really not a stroke of genius, it's just luck.

Indeed, petitioner conducted his activities sporadically.

Accordingly, the settlement awards and royalties petitioner

received in 1993 and 1994 are not subject to self-employment tax.

     Respondent determined that petitioner is not entitled to

deductions for the following: (1) $155 of automobile expenses

relating to 1993; (2) $565 and $1,130 of depreciation relating to

1993 and 1994, respectively; (3) $738 and $519 of utility

expenses relating to 1993 and 1994, respectively; and (4) $7,406

and $3,401 of miscellaneous expenses relating to 1993 and 1994,

respectively.    Petitioner bears the burden of proof, yet has
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failed to present sufficient evidence to establish that

respondent's determinations are incorrect.   See Welch v.

Helvering, 290 U.S. 111, 115 (1933).    Accordingly, respondent's

determinations are sustained.

     Respondent determined that petitioner is liable for section

6662(a) accuracy-related penalties for failing to pay self-

employment tax and failing to substantiate deductions relating to

petitioner's patents.   The penalty applies to the portion of

petitioner's underpayment that is attributable to negligence or

disregard of the rules or regulations.   Sec. 6662(b)(1).

Petitioner is not liable for self-employment tax, and he acted in

good faith and had reasonable cause for claiming the disallowed

deductions.   See sec. 1.6664-4(a), Income Tax Regs.   At trial,

petitioner failed to substantiate a portion of the expenses he

deducted on his return.   At the time he filed his return,

however, he made reasonable efforts to determine the

deductibility of these expenses (e.g., he relied on his records,

conducted tax research, and attended tax seminars).    Accordingly,

petitioner is not liable for the accuracy-related penalties.

     Contentions we have not addressed are irrelevant, moot, or

meritless.
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To reflect the foregoing,

                               Decision will be entered

                            under Rule 155.
