                        T.C. Memo. 1999-300



                      UNITED STATES TAX COURT


       GERALD Q. AND PATRICIA R. ASHBROOK, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 17659-97.                      Filed September 8, 1999.



     William M. Zehner, for petitioners.

     T. Richard Sealy III, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     SWIFT, Judge:   For the years in issue, respondent determined

deficiencies in petitioners' Federal income taxes, additions to

tax, and accuracy-related penalties as follows:


                            Additions to Tax     Accuracy-Related Penalty
      Year     Deficiency    Sec. 6651(a)(1)           Sec. 6662(a)
      1991      $ 4,916          $ 733                   $ 983
      1992       11,546           2,408                   1,549
      1993       14,698           3,675                   2,940
      1994        4,850            -0-                      970
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     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.

     After concessions, the issues for decision are whether

petitioners have substantiated claimed net operating losses

(NOL's) for 1980 through 1990 to carry forward to 1991 through

1994 and whether petitioners are liable for accuracy-related

penalties.   All references to petitioner in the singular are to

Gerald Q. Ashbrook.


                          FINDINGS OF FACT

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

     At the time the petition was filed, petitioners resided in

Corpus Christi, Texas.

     In 1978, petitioner formed an accounting partnership with

Patricia Brink.

     Beginning in 1979, petitioner participated with petitioner's

stepfather and mother (parents) and with H.T. and Holley Bailey

(the Baileys), unrelated individuals, in a farm and ranch joint

venture (the farm).   The Baileys jointly held a 50-percent equity

interest in the farm.    Petitioner's parents jointly held a 25-

percent equity interest in the farm, and petitioner held a 25-

percent equity interest in the farm.    Petitioner's parents
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managed the farm and maintained the books and records relating to

the farm.

     In 1981, the Baileys transferred their 50-percent equity

interest in the farm to petitioner and to petitioner's parents,

and thereafter petitioner and his parents together owned 100

percent of the farm.

     On June 15, 1982, petitioner transferred to his parents his

interest in the farm.

     In October 1982 and subsequent years, petitioner invested at

least $17,000 in several oil and gas wells in Texas.

     In 1986, petitioner terminated the accounting partnership

with Patricia Brink and established an accounting partnership

with Terry Hankins.    In 1987, petitioner terminated the

accounting partnership with Terry Hankins and established an

accounting practice as a sole proprietor.

     On April 29, 1988, petitioner filed in the U.S. Bankruptcy

Court for the Southern District of Texas (Bankruptcy Court) a

petition, case No. 88-00732, for relief under chapter 7 of the

Bankruptcy Code.   On September 1, 1988, the Bankruptcy Court

issued an order discharging petitioner's then-existing

dischargeable debts.

     On July 2, 1990, a storage unit that petitioner rented was

broken into, and petitioner's property was stolen therefrom.    On

a report of the theft filed with the rental storage company,
                              - 4 -

petitioner indicated that the only property stolen was a tool

chest.

     On May 29, 1991, petitioner's bankruptcy proceedings were

closed.

     On April 18, 1994, petitioners untimely filed their 1991

joint Federal income tax return.

     On February 27, 1995, petitioners untimely filed their 1992

and 1993 joint Federal income tax returns.

     On October 15, 1995, petitioners timely filed their 1994

joint Federal income tax return.

     On their 1991 through 1994 joint Federal income tax returns,

petitioners claimed NOL carryovers that purportedly originated

primarily in 1987 and prior years as follows:


            Tax Return        NOL Carryovers Claimed
               1991                  $225,127
               1992                   174,729
               1993                   106,089
               1994                    31,784


     On their 1991 through 1994 joint Federal income tax returns,

after applying the above claimed NOL carryovers, petitioners' net

taxable income or net losses were reflected as follows:

             Tax Return       Taxable Income or Loss
                1991               ($186,017)
                1992                (118,378)
                1993                 (36,484)
                1994                  10,461
                               - 5 -

     On audit, due to lack of substantiation, respondent

disallowed petitioners' claimed NOL carryovers for 1991 through

1994, and respondent determined petitioners' joint taxable income

and joint Federal income tax liability for 1991 through 1994 as

follows:


           Year     Taxable Income      Tax Liability
           1991         $32,758            $ 4,916
           1992          57,327             11,397
           1993          69,605             14,698
           1994          40,567              6,421


                              OPINION

     In general, taxpayers are expected to maintain adequate

records to substantiate claimed losses, and taxpayers bear the

burden of proving that they are entitled to claimed losses.    See

sec. 6001; Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933).

     Respondent argues that petitioners have not substantiated

the NOL carryovers claimed on their 1991 through 1994 joint

Federal income tax returns.   Alternatively under section 108(b),

respondent argues that if the NOL carryovers are found to be

substantiated, petitioners' discharge of indebtedness from the

bankruptcy proceeding in 1988 would eliminate the NOL carryovers.

     Petitioners assert that during 1980 through 1987 they

incurred large losses from their farm and oil and gas exploration

activities that generated the large claimed NOL carryovers
                                 - 6 -

reflected on their 1991 through 1994 joint Federal income tax

returns.   Petitioners argue that through a reconstruction of

their records they have adequately established and substantiated

the claimed NOL carryovers.   Petitioners also assert that under

section 108 only a small portion of the claimed NOL carryovers

would be eliminated.

     With limited exceptions, petitioners' Federal income tax

returns and records relating to 1980 through 1989 were not

introduced into evidence.    Petitioners' testimony is inconsistent

and not credible.   Based on the evidence, we hold that

petitioners have not met their burden of substantiating the

claimed NOL carryovers, and we sustain respondent's disallowance

thereof.

     Apparent copies of petitioners' Federal income tax returns

for 1980, 1987, and 1988 are in evidence and show claimed NOL's.

No further books and records or credible evidence, however,

support the claimed NOL's.

     Petitioners allege that copies of their income tax returns

were stolen from their rental storage unit.   Petitioners' report

of the theft, however, did not indicate any loss of petitioners'

income tax returns or records.

     Petitioner testified that his mother had custody of records

relating to the farm and to petitioners' oil and gas activities

and that petitioners' reconstruction of their income tax returns
                                 - 7 -

for 1980 through 1989 was based on these records.       These alleged

records, however, were not introduced into evidence.

     In 1982, petitioner transferred his interest in the farm to

his parents, and petitioners therefore would not have realized

farm losses after 1982.

     In summary, the credible evidence fails completely to

substantiate the claimed NOL carryforwards.

     With regard to the additions to tax, petitioners have

conceded the additions to tax under section 6651(a)(1), and

petitioners present no credible argument as to the accuracy-

related penalties under section 6662(a).       We sustain respondent’s

determination of the additions to tax and accuracy-related

penalties.

     To reflect the foregoing,

                                         Decision will be entered

                                 for respondent.
