                        T.C. Memo. 1997-189



                      UNITED STATES TAX COURT



               ROBERT P. PETROCINE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 15828-94, 5424-95.      Filed April 23, 1997.



     Robert P. Petrocine, pro se.

     Julia A. Roy, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     SWIFT, Judge:   Respondent determined deficiencies, an

addition to tax, and accuracy-related penalties with respect to

petitioner's 1991 and 1992 Federal income taxes as follows:
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                                               Accuracy-Related
                           Addition to Tax          Penalty
Year        Deficiency     Sec. 6651(a)(1)       Sec. 6662(a)

1991         $15,983          $2,693                $3,196
1992           8,798            --                   1,760


       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 settlement, the issues for decision in these

consolidated cases are:    (1) Whether petitioner may exclude from

gross income a $37,767 bonus received from his employer; (2)

whether petitioner may deduct $5,433 as an investment interest

expense; (3) whether petitioner has substantiated $31,796 in

claimed business expenses; (4) whether, for 1992, petitioner is

entitled to "single" filing status; (5) whether petitioner is

subject to the alternative minimum tax; and (6) whether

petitioner is liable for the addition to tax and the accuracy-

related penalties.


                          FINDINGS OF FACT

       Many of the facts have been stipulated and are so found.    At

the time the petition was filed, petitioner resided in Verona,

New Jersey.

       In 1988, petitioner was employed as a stockbroker by Dean

Witter Reynolds, Inc. (Dean Witter).    As an inducement for and
                               - 3 -

upon commencement of his employment, petitioner received $103,000

as a loan from Dean Witter.   As reflected in a promissory note

signed by petitioner, beginning in 1989 this loan was to be

repaid by petitioner in three annual installments of

approximately $34,333 each, plus 10-percent annual interest, for

a total annual payment due of $37,767.

     Under the terms of the loan agreement, as long as petitioner

worked for Dean Witter during 1989 through 1991, petitioner would

receive a yearend bonus in the amount of $37,767, which

petitioner was required to return to Dean Witter, via a personal

check, in order to cover the annual $37,767 payment due on the

$103,000 loan from Dean Witter.   Of the $37,767 annual payment

due, $3,433 reflected interest due on the loan.

     On his 1988 Federal income tax return, petitioner did not

report the $103,000 loan proceeds received as income.    For 1988,

Dean Witter also apparently treated the $103,000 as a loan to

petitioner.

     For 1989 and 1990, the record does not indicate how

petitioner and Dean Witter treated the $37,767 yearend bonuses

received by petitioner.   For 1991, Dean Witter included the

$37,767 yearend bonus paid to petitioner in the "wages" portion

of the Form W-2 that it issued to petitioner for 1991.

     On August 2, 1991, petitioner filed for bankruptcy.

Petitioner's bankruptcy proceedings were closed on December 23,

1991.
                              - 4 -

     In 1991, petitioner apparently incurred an additional $2,000

in interest expense, but the record does not indicate to what

debt this $2,000 is attributable.

     In 1992, petitioner incurred $9,740 in expenses relating to

his membership in the Glen Ridge Country Club (the Club).

Petitioner frequently played golf and socialized with other

members of the Club, for approximately 80 percent of whom

petitioner performed stock brokerage services.   On the Club's

records, the $9,740 in expenses that petitioner incurred at the

Club in 1992 is reflected only by general category of expense,

and petitioner has provided no other records relating to these

expenses.

     Also during 1992, petitioner apparently incurred an

additional $24,796 in expenses for, among other things, travel,

business periodicals, and legal advice on investment matters.

Petitioner has not provided any records itemizing the specific

nature or purpose of these expenses.

     On December 21, 1992, petitioner and his wife appeared in

the Superior Court of New Jersey, Chancery Division--Family Part,

Essex County for the purpose of obtaining a divorce.   In court on

December 21, 1992, petitioner and his wife agreed to and executed

a court-approved property settlement agreement, and the court

orally granted petitioner and his wife a divorce.

     The proposed form for the judgment of divorce (divorce

decree) that was submitted by the parties to the court had typed
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on its face as the date of entry for the judgment "_____ day of

December, 1992".

     On February 4, 1993, the written divorce decree was entered

by the judge.   On the written decree, the judge crossed out "____

day of December, 1992", and wrote in "4th day of February, 1993".

     On petitioner's 1991 Federal income tax return, the $37,767

bonus that petitioner received from Dean Witter in 1991 was

reported as taxable wages.   Petitioner also claimed $76,243 in

itemized deductions, including $5,433 as an investment interest

expense.   Despite large deductions claimed on petitioner's 1991

Federal income tax return, no calculation of an alternative

minimum tax was reflected on the return.

     Petitioner timely requested an automatic extension to file

his 1991 Federal income tax return, but petitioner failed to

properly estimate and make a payment of tax with the extension

request.   On August 14, 1992, petitioner filed his 1991 Federal

income tax return as a married person filing separately from his

spouse.

     On August 18, 1993, petitioner timely filed a 1992 Federal

income tax return.   On his 1992 Federal income tax return,

petitioner claimed, among other things, that his filing status

was "single", and petitioner claimed $31,796 in deductions, as

indicated in the schedule below:
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               Type of Expense           Amount Claimed

               Vehicle                      $10,096*
               Business                       3,450**
               Meals and
                 Entertainment                7,000***
               Miscellaneous                 11,250****

                    Total                   $31,796

       * Includes claimed travel mileage (miles x 28 cents),
         parking fees, tolls, and other local transportation.

      ** Not explained.

     *** Includes claimed expenses associated with the Club
         (after statutory 2-percent floor).

    **** Includes claimed expenses associated with periodicals,
         clerical help, and legal advice regarding investment
         matters.


     On audit, with regard to petitioner's 1991 Federal income

tax return, respondent refused to allow petitioner to

recharacterize the $37,767 bonus as nontaxable loan proceeds.

Based on petitioner's lack of investment income, respondent

disallowed petitioner's claimed $5,433 investment interest

expense deduction for 1991.   Respondent also determined that,

based on calculations resulting in a tentative minimum tax

equaling $33,080 and a regular income tax equaling $22,807,

petitioner was subject to the alternative minimum tax (AMT) and

owed additional income tax thereunder.

     Also for 1991, respondent determined an addition to tax for

petitioner's failure to timely file his Federal income tax

return.
                                 - 7 -

     With respect to petitioner's 1992 Federal income tax return,

based on lack of substantiation, respondent disallowed all but

$9,138 of petitioner's claimed $31,796 expenses.

     Also for 1992, on the ground that petitioner's divorce did

not become final in 1992, respondent determined that petitioner

had incorrectly identified his filing status on his 1992 Federal

income tax return as "single", and respondent recalculated

petitioner's income tax using the rate applicable to married

persons filing separately.   Finally, respondent determined

accuracy-related penalties under section 6662(a) for 1991 and

1992.


                              OPINION

1991 -- $37,767 Bonus

     Income includes compensation for services.    Sec. 61(a); sec.

1.61-1(a)(1), Income Tax Regs.    Funds received as loans, however,

are not properly treated as taxable income.    James v. United

States, 366 U.S. 213, 219 (1961).

     Petitioner argues that the $103,000 received from Dean

Witter in 1988 constituted a "forgivable" rather than a bona fide

loan, that the $103,000 should have been included in his income

in 1988, and that because of his obligation to immediately

transfer back to Dean Witter the annual $37,767 bonus to be

received, the $37,767 bonus petitioner received in 1991 should be

treated as nontaxable "illusory" income.
                               - 8 -

     Respondent argues that in 1988 the $103,000 was properly

treated as a bona fide loan from Dean Witter to petitioner and

that the $37,767 bonus received by petitioner in 1991 was

properly included in petitioner's taxable income in 1991.

     The evidence indicates that the $103,000 that petitioner

received from Dean Witter in 1988 constituted a loan, not

compensation for services to be rendered.    There existed a good-

faith agreement between Dean Witter and petitioner that the

$103,000 petitioner received from Dean Witter in 1988 would be

repaid.

     The evidence further indicates that the $37,767 bonus

petitioner received in 1991 from Dean Witter constitutes taxable

income to petitioner for services rendered by petitioner to Dean

Witter.   Dean Witter properly included the $37,767 bonus as wages

on petitioner's 1991 Form W-2, and petitioner properly treated

the $37,767 bonus he received in 1991 as taxable income on his

1991 Federal income tax return.


1991 -- Claimed Investment Interest Expense

     Section 163 allows taxpayers a deduction for the payment of

interest on indebtedness allocable to property held for

investment.   Sec. 163(a), (d)(1), (3)(A).

     Petitioner argues in the alternative to the above argument

that the $3,433 interest payment he made to Dean Witter with

respect to the $103,000 loan constitutes a deductible investment
                                - 9 -

interest expense because that interest payment related to the

$103,000 he received from Dean Witter, which petitioner claims he

used for investment purposes.

     Petitioner has not established that he used the $103,000

loan proceeds for investment purposes.   Petitioner fails to make

any argument regarding the remaining $2,000 in claimed interest

expense.   Petitioner has failed in his burden of proof on this

issue.

     We sustain respondent's disallowance of petitioner's $5,433

claimed investment interest expense deduction for 1991.


1992 -- Claimed Business and Other Deductions

     Section 274(a) and (d) allows deductions for certain meal

and entertainment expenses, including dues for membership in

social clubs.   To be deductible, such expenses must be directly

related to taxpayers' active conduct of a trade or business.

     With regard to business expenses for meals and

entertainment, section 274(a) limits the deduction to those

expenses incurred directly preceding or following a bona fide

business discussion relating to the taxpayers' active conduct of

a trade or business.   Sec. 274(a)(1)(A) and (2)(A).

     The substantiation required for meal and entertainment

expenses should include the nature (including the amount, time,

and place of the meal or entertainment), the business purpose of

the claimed business expense, and the business relationship to
                                 - 10 -

the taxpayers of the person being entertained.   Sec. 274(d).

Unsupported, self-serving testimony and vague approximations by

taxpayers regarding expenditures for meals and entertainment

generally will not constitute sufficient substantiation.      Geiger

v. Commissioner, 440 F.2d 688, 689-690 (9th Cir. 1971), affg. per

curiam T.C. Memo. 1969-159.

     Under certain circumstances, when taxpayers establish that

they have incurred a trade or business expense but do not

substantiate the amount of the expense, this Court may estimate

the amount of deductible business expenses (the Cohan rule).

Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930), affg.

in part and remanding in part 11 B.T.A. 743 (1928).   The estimate

must, however, have some reasonable evidentiary basis.     Vanicek

v. Commissioner, 85 T.C. 731, 743 (1985).   Where, however,

section 274(d) (regarding meal, entertainment, and travel

expenses) applies, the Cohan rule is inapplicable.    Sanford v.

Commissioner, 50 T.C. 823, 827-828 (1968), affd. per curiam 412

F.2d 201 (2d Cir. 1969).

     With respect to dues for club memberships, taxpayers must

establish that the club was used primarily for the furtherance of

the taxpayers' trade or business and that the dues were directly

related to the active conduct of the taxpayers' trade or

business.   Sec. 274(a)(2)(C).
                              - 11 -

     Taxpayers generally bear the burden to substantiate claimed

meal, entertainment, and travel expenses.   Sec. 274(d)(1) and

(2); Rule 142(a).

     Petitioner argues that because he worked solely on

commission as a stockbroker, all of his time spent at the Club

involved either the solicitation of potential clients or the

conduct of business with current clients, and therefore that the

$7,000 (after the statutory 2-percent adjustment) claimed as

business expenses incurred at the Glen Ridge Country Club should

be allowed.

     Respondent argues that petitioner has adequately

substantiated only $9,138 of the total $31,796 claimed expenses.

     With respect to petitioner's claimed business expenses

incurred at the Club, petitioner has failed to offer any credible

documentation to support the deduction of these expenses.

Petitioner's records from the Club that are in evidence indicate

only the general category of expenses petitioner incurred, and

petitioner offers no records or other verification relating the

specific expenses incurred to specific business-related activity.

     With respect to petitioner's other claimed expenses, we find

the record devoid of any documentation or other basis to support

any credible estimate.   Cohan v. Commissioner, supra.

     Petitioner has failed to meet his burden of proving that he

is entitled to any of the above claimed expense deductions other

than the $9,138 that respondent has allowed.
                                - 12 -


1992 -- Filing Status

     A taxpayer's filing status is determined as of the close of

the year and generally turns on whether the taxpayer is legally

separated from his or her spouse under a decree of divorce.

Secs. 2(b)(2)(B), 7703(a)(1).    Generally, the State law of the

marital domicile controls the determination of whether a taxpayer

is legally separated under a decree of divorce.    Dunn v.

Commissioner, 70 T.C. 361, 365-366 (1978), affd. without

published opinion 601 F.2d 599 (7th Cir. 1979).

     Generally, under the law of New Jersey, a judgment does not

take effect before it is entered.    N.J. Ct. C.P.R. 4:47.   An

exception to this rule is when the court in the written judgment

specifies that the judgment will take effect from the time it is

signed.   Id.

     Another exception under New Jersey law permits a judgment to

be effective nunc pro tunc when, at the close of a proceeding, a

court, orally or in some other manner, clearly and conclusively

decides the outcome of the proceeding.    Mahonchak v. Mahonchak,

459 A.2d 1207, 1208-1209 (N.J. Super. Ct. App. Div. 1983).     If it

"is clear that upon the close of the divorce trial the court made

a definitive adjudication of the controversy, reflecting its

conclusive determination that each party be granted a divorce[,]

* * * we [the New Jersey courts] subscribe to the view that the

entry of a written judgment is essentially a non-discretionary
                               - 13 -

act by [which evidence of the judicial act is] recorded."      Parker

v. Parker, 319 A.2d 750, 751 (N.J. Super. Ct. App. Div. 1974);

see also Mahonchak v. Mahonchak, supra at 1208 ("It is well

settled that the oral pronouncement of a judgment in open court

on the record constitutes the jural act and that the entry of the

written judgment is merely a ministerial memorialization

thereof").

     The evidence establishes that in court on December 21, 1992,

the divorce court judge orally pronounced petitioner and his wife

divorced.    Under the law of New Jersey, such a pronouncement is

sufficient to render a divorce judgment effective nunc pro tunc.

We conclude that, for Federal income tax purposes, petitioner was

divorced from his wife as of December 21, 1992, qualifying

petitioner to file his 1992 Federal income tax return as a single

taxpayer.    Mahonchak v. Mahonchak, supra at 1208-1209.


1991 -- AMT

     The AMT was established to prevent high income taxpayers

from using large amounts of deductions and credits to reduce

their taxable income to a lower tax bracket than that of

taxpayers who have more modest taxable income.   1 Mertens, Law of

Federal Income Taxation, sec. 2A.01, at 1 (1990).    The AMT

applies to the extent that taxpayers' tentative minimum tax

exceeds the taxpayers' regular income tax.   Sec. 55(a).
                              - 14 -

     In the instant case, petitioner argues that the AMT does not

apply because the $37,767 bonus received from Dean Witter in 1991

that petitioner originally reported on his 1991 Federal income

tax return constituted "illusory" income that incorrectly was

included in his taxable income for 1991.    If the $37,767 bonus

were excluded from his taxable income, the AMT would not be

triggered.

     We have already concluded that the $37,767 bonus received by

petitioner in 1991 is includable in petitioner's taxable income.

We sustain respondent's determination with regard to the AMT.


1991 and 1992 Addition to Tax and Accuracy-Related Penalties

     Section 6651(a) imposes an addition to tax for the failure

of taxpayers to timely file Federal income tax returns, unless

the failure is due to reasonable cause.    Sec. 6651(a)(1).

Whether reasonable cause exists is a question of fact.     United

States v. Boyle, 469 U.S. 241, 249 n.8 (1985).    Reasonable cause

for failure to timely file tax returns may exist where taxpayers

prove that they exercised ordinary business care and prudence and

were nevertheless unable to file the returns within the

prescribed time.   Sec. 301.6651-1(c)(1), Proced. & Admin. Regs.

     Filing extensions are taken into account in determining

whether tax returns are timely filed.   Sec. 6651(a)(1).   For an

extension to be valid, however, generally the amount of tax due

should be properly estimated and the estimated tax should be
                               - 15 -

remitted with the extension request.    Sec. 1.6081-4, Income Tax

Regs.   Taxpayers "properly estimate" the tax liability when a

bona fide and reasonable estimate of tax liability is made based

on information available at the time of the request for the

extension.   Crocker v. Commissioner, 92 T.C. 899, 908 (1989).

Reliance on invalid extensions of time to file tax returns will

not generally constitute reasonable cause for taxpayers' failure

to timely file tax returns.    Id. at 913.

     Because petitioner failed to properly estimate his Federal

income tax due for 1991, petitioner's request for extension of

time to file a 1991 Federal income tax return was invalid.

Because petitioner's extension was invalid, petitioner's 1991

Federal income tax return was untimely filed, and petitioner has

not shown reasonable cause for his failure to properly estimate

his 1991 Federal income tax and therefore to timely file his 1991

Federal income tax return.    We sustain respondent's imposition of

the addition to tax for the late filing of petitioner's 1991

Federal income tax return.

     For 1991 and 1992, respondent imposed accuracy-related

penalties equal to 20 percent of the portion of petitioner’s

underpayment in tax attributable to negligence (namely, with

respect to 1991, the disallowed $5,433 investment interest

expense and petitioner’s failure to reflect on the return his

liability for the AMT; with respect to 1992, the disallowed
                              - 16 -

business and other expense deductions claimed).    Sec. 6662(a) and

(b)(1).

     Negligence may be indicated by the failure to make a

reasonable attempt to comply with the Internal Revenue Code

provisions and supporting regulations, to exercise ordinary and

reasonable care in preparing a tax return, to keep adequate books

and records, or to properly substantiate items.    Sec. 1.6662-3(b)

and (c), Income Tax Regs.   Negligence also may be indicated by

the failure to do what a reasonable and ordinarily prudent person

would do under the circumstances.    Neely v. Commissioner, 85 T.C.

934, 947 (1985).

     The accuracy-related penalties do not apply to any portion

of underpayments for which there was reasonable cause and with

respect to which taxpayers acted in good faith.    Sec. 6664(c);

sec. 1.6664-4(a), Income Tax Regs.     Taxpayers generally have the

burden of showing that they were not negligent.    Rule 142(a);

Bixby v. Commissioner, 58 T.C. 757, 791-792 (1972).

     Petitioner argues, with regard to the accuracy-related

penalties for 1991 and 1992, that his bankruptcy and his divorce

made it difficult for him to maintain adequate records regarding

his claimed business expenses and establish reasonable cause for

the errors on his income tax returns.

     With respect to the accuracy-related penalties for 1991 and

1992, petitioner offers no credible evidence with regard to the

disallowed investment interest expense item for 1991, the
                              - 17 -

calculation of his AMT liability for 1991, or the claimed

business and other expense deductions for 1992 not allowed by

respondent.   Petitioner has not established his lack of

negligence in this case with respect to these items.   Sec. 6001;

Stovall v. Commissioner, 762 F.2d 891, 895 (11th Cir. 1985),

affg. T.C. Memo. 1983-450; Crocker v. Commissioner, supra at 917.

We sustain respondent's determination of the addition to tax

under section 6651(a) and the accuracy-related penalties under

section 6662(a).

     To reflect the foregoing,


                                  Decisions will be entered

                             under Rule 155.
