                       T.C. Memo. 2005-169



                     UNITED STATES TAX COURT



 PETER MILTON JOSEPH AND ELLA JOSEPH, DECEASED, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14270-03.                 Filed July 11, 2005.


     Peter Milton Joseph, pro se.

     Jason W. Anderson, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     GOLDBERG, Special Trial Judge:   Respondent determined a

deficiency in petitioners’ Federal income tax of $9,187 and an

accuracy-related penalty in the amount of $1,837.40 pursuant to

section 6662(a) for the taxable year 1999.   Unless otherwise

indicated, section references are to the Internal Revenue Code in
                               - 2 -

effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.

     The issues for decision are:   (1) Whether petitioners are

entitled to claim a deduction for medical and dental expenses in

the amount of $21,358; (2) whether petitioners are entitled to

claim a deduction for real estate taxes in the amount of $3,456;

(3) whether petitioners are entitled to claim a deduction for

home mortgage interest in the amount of $4,937; (4) whether

petitioners are entitled to claim miscellaneous deductions in the

amount of $33,785; (5) whether petitioners failed to report in

their gross income an individual retirement account (IRA)

distribution in the amount of $1,493; and (6) whether petitioners

are subject to an accuracy-related penalty pursuant to section

6662(a).

                         FINDINGS OF FACT

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   Petitioners resided in

Chicago, Illinois, on the date the petition was filed in this

case.   Peter Milton Joseph appeared before the Court and
                                - 3 -

presented petitioners’ case.    Ella Joseph did not appear.1

References to petitioner are to Peter Milton Joseph.

     For taxable year 1999, petitioners filed a joint Federal

income tax return, which included a Schedule A, Itemized

Deductions.    During the year in issue, petitioners were married

and resided in Chicago, Illinois.

     On their jointly filed 1999 tax return, petitioners reported

wage income of $60,236, interest income of $107, and taxable

Social Security benefits of $9,399.     Petitioners did not report

any IRA distribution income on their jointly filed 1999 tax

return.    Petitioners reported adjusted gross income of $69,100,

and claimed Schedule A itemized deductions in the amount of

$60,603.    Their 1999 income tax return reported a total tax in

the amount of $36 and a refund amount of $140.46, after reducing

their total tax by the amount of tax withheld, $176.46.


     1
      Ella Joseph passed away on Oct. 23, 2004, after the filing
of the petition in this case, but prior to trial. On Nov. 29,
2004, respondent filed a Motion to Dismiss for Lack of
Prosecution, with respect to Ella Joseph, on the ground that
there is no duly authorized representative or fiduciary to act on
behalf of Ella Joseph, deceased. By the time of trial, the
Motion to Dismiss for Lack of Prosecution had not been ruled upon
by this Court. Further, the record in this case was held open
for 30 days after trial to give petitioner an opportunity to
provide letters testamentary or be appointed personal
representative. The record was closed on Feb. 10, 2005. To
date, petitioner has not provided us with proof that he (or
anyone else) has been appointed personal representative. The
case will be dismissed as to Ella Joseph, deceased, for lack of
prosecution. The decision to be entered, with respect to her,
will reflect the disposition of the issues considered in this
opinion.
                                      - 4 -

     On their Schedule A, petitioners claimed as follows, in

pertinent part:

            Itemized Deductions                              Amount

            Line    1   Medical and dental expenses         $21,358
            Line    4   Net medical deduction                16,175
            Line    5   State and local income taxes          1,630
            Line    6   Real estate taxes                     3,456
            Line    9   Total taxes                           5,086
            Line   10   Mortgage interest (financial)         4,937
            Line   14   Total interest deduction              4,937
            Line   18   Total contributions                   2,000
            Line   23   Total limited misc. expenses         33,785
            Line   26   Net limited misc. deduction          32,403
            Line   28   Total itemized deductions            60,603


     As shown above, petitioners claimed a Schedule A deduction

for real estate taxes paid of $3,456 on their 1999 Federal income

tax return.    During taxable year 1999 petitioners owned four

distinct properties.         The first property was located in the

Bahamas.    This property was inherited by petitioner from his

mother when she passed away in 1980.            This property consisted of

a vacant lot, which had been zoned for duplexes.            Petitioners

owned two pieces of property located in Punta Gorda, Florida.

One of these properties was located 10 miles from Port Charlotte

and was inherited from petitioner’s mother.             The other property

was purchased by petitioners and was located about 10 miles from

the first Florida property.          The fourth property owned by

petitioners was their principal residence, located in Chicago,

Illinois.    This property was situated on two adjoining tracts of

land.   The real estate taxes on the Chicago property were paid

through petitioners’ mortgage loan with EMC Mortgage Corporation.
                               - 5 -

     Also, as shown above, petitioners claimed a Schedule A

deduction for medical and dental expenses paid of $21,358 on

their 1999 Federal income tax return.    Ella Joseph was diagnosed

with Parkinson’s disease in approximately 1980.

     During the taxable year 1999, Ella Joseph received a

distribution in the amount of $1,493 from Bank One.    Bank One

sent a Form 1099-R, Distributions From Pensions, Annuities,

Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts,

etc., to respondent indicating that this distribution was made to

Ella Joseph.

     On January 14, 2003, respondent issued petitioners a notice

of deficiency for taxable year 1999.    In the notice of

deficiency, respondent disallowed petitioners’ claimed itemized

deductions, determined petitioners had unreported income in the

amount of $1,493, and determined petitioners were liable for a

tax deficiency in the amount of $9,187, and an accuracy-related

penalty of $1,837.40 pursuant to section 6662(a).

     At trial, petitioner claimed that he had documents and other

evidence to support petitioners’ claimed itemized deductions, but

did not have them at trial.   As previously noted, the Court left

the record open and gave petitioner 30 days to send these

documents and other support to respondent.    Petitioner did not

avail himself of the opportunity to submit this evidence, and on

February 10, 2005, the record in this case was closed.
                                 - 6 -

                                OPINION

     As a general rule, the determinations of the Commissioner in

a notice of deficiency are presumed correct, and the taxpayer

bears the burden of proving the Commissioner’s determinations in

the notice of deficiency to be in error.      Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933).      As one exception to this

rule, section 7491(a) places upon the Commissioner the burden of

proof with respect to any factual issue relating to liability for

tax if the taxpayer maintained adequate records, satisfied the

substantiation requirements, cooperated with the Commissioner,

and introduced during the Court proceeding credible evidence with

respect to the factual issue.    In the present case, the burden of

proof does not shift with respect to any factual issue relating

to petitioners’ liability for the income tax deficiency because

petitioners neither alleged that section 7491 was applicable nor

established that they complied with the substantiation

requirements of section 7491(a), as shown below.      Sec.

7491(a)(2)(A) and (B).   However, respondent has the burden of

production with respect to the accuracy-related penalty.      Sec.

7491(c); Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001).

Therefore, petitioners bear the burden of showing that they are

entitled to the claimed itemized deductions and that the IRA

distribution should not be included in their gross income.

Deductions are a matter of legislative grace and are allowed only
                                 - 7 -

as specifically provided by statute, and, as previously stated,

petitioners bear the burden of proving that they are entitled to

the claimed deductions.     INDOPCO, Inc. v. Commissioner, 503 U.S.

79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435,

440 (1934).

     Section 6001 and the regulations promulgated thereunder

require taxpayers to maintain records sufficient to permit

verification of income and expenses.     As a general rule, if the

trial record provides sufficient evidence that the taxpayer has

incurred a deductible expense, but the taxpayer is unable to

adequately substantiate the precise amount of the deduction to

which he or she is otherwise entitled, the Court may estimate the

amount of the deductible expense, bearing heavily against the

taxpayer whose inexactitude in substantiating the amount of the

expense is of his own making, and allow the deduction to that

extent.   Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930).

However, in order for the Court to estimate the amount of an

expense, the Court must have some basis upon which an estimate

may be made.   Vanicek v. Commissioner, 85 T.C. 731, 742-743

(1985).   Without such a basis, any allowance would amount to

unguided largesse.     Williams v. United States, 245 F.2d 559, 560-

561 (5th Cir. 1957).    With these well-established propositions in

mind, we must determine whether petitioners have satisfied their
                                - 8 -

burden of proving that they are entitled to the claimed itemized

deductions mentioned above.

1.     Medical and Dental Expenses

       As previously stated, on their Schedule A for taxable year

1999, petitioners claimed a deduction of $21,358 for medical and

dental expenses incurred during taxable year 1999.    Respondent

disallowed the aforesaid deduction in full.    Respondent

determined that petitioners did not prove that the expenses were

incurred or, if incurred, that they were paid during taxable year

1999.

       Section 213(a) allows as a deduction any expenses that are

paid during the taxable year for the medical care of the

taxpayer, his spouse, and dependents, and that are not

compensated for by insurance or otherwise.    Estate of Smith v.

Commissioner, 79 T.C. 313, 318 (1982).    The deduction is allowed

only to the extent the amount exceeds 7.5 percent of adjusted

gross income.    Sec. 213(a); sec. 1.213-1(a)(3), Income Tax Regs.

The term “medical care” includes amounts paid “for the diagnosis,

cure, mitigation, treatment or prevention of disease, or for the

purpose of affecting any structure or function of the body”.

Sec. 213(d)(1)(A); Estate of Smith v. Commissioner, supra at 318-

319.

       Petitioners claim they are entitled to a deduction for

medical expenses incurred mainly on account of Ella Joseph who,
                                - 9 -

as previously noted, was diagnosed with Parkinson’s disease in

approximately 1980.    However, petitioners have provided no

substantiation that such expenses were incurred.     At trial,

petitioner did not testify as to any medical expenses that were

incurred during taxable year 1999.      Petitioner did not submit any

evidence either before, during, or after trial that would prove

any medical expenses were incurred during taxable year 1999.

     Upon the basis of the record and because petitioners have

failed to provide any substantiation to support their claimed

deduction for medical and dental expenses, we find that we cannot

estimate any amounts of petitioners’ deduction under the Cohan

rule, and we sustain respondent’s disallowance of petitioners’

claimed deduction for medical and dental expenses in the amount

of $21,358.   Sec. 6001; sec. 1.6001-1(a), (e), Income Tax Regs.

2.   Real Estate Taxes

     Petitioners claimed a Schedule A deduction for real estate

taxes paid during taxable year 1999 of $3,456 on their Federal

income tax return.    Respondent agrees that petitioners are

entitled to deduct, under section 164, $1,017 of the claimed

Schedule A deduction for real estate taxes.     However, respondent

contends that petitioners are not entitled to the additional

$2,439.   Respondent determined that petitioners did not prove

that the claimed real estate taxes were incurred or, if incurred,

that they were paid during taxable year 1999.
                               - 10 -

     Section 164 allows a deduction for certain taxes, including

State and local real property taxes, paid or accrued during the

taxable year.   Sec. 164(a)(1).    In general, taxes are deductible

only by the person upon whom they are imposed.    See sec. 1.164-

1(a), Income Tax Regs.

     Specifically, section 164(a) provides, in pertinent part:

           SEC. 164(a).   TAXES.

                (a) General Rule.--Except as otherwise provided
           in this section, the following taxes shall be
           allowed as a deduction for the taxable year within
           which paid or accrued:

                     (1) State and local, and foreign, real
                property taxes.

     During taxable year 1999, petitioners owned four distinct

properties.   One such property was located in the Bahamas.

Petitioner testified that petitioners paid tax on this property

and claimed the tax paid as a portion of the deduction claimed

for real estate taxes on their Schedule A.    However, petitioner

did not testify to the specific amount of the tax paid on the

Bahamas property.   The only corroborating evidence in the record,

which petitioner alleges shows that a tax was paid on this

property, is a Reminder Notice from Lucaya Service Company

Limited.   The Reminder Notice references lot, Lucayan Glen Unit 1

Block 17 Lot 37, and shows a total due from petitioner of $100.

However, the Reminder Notice describes the reason for payment due

as “service charge arrears”.    Upon the basis of the record in
                               - 11 -

this case, we conclude that petitioners have failed to provide

any substantiation to support any claimed deduction for real

estate tax paid on their Bahamas property.

       Petitioners also owned two pieces of property located in

Punta Gorda, Florida.    Petitioner testified that petitioners paid

real estate taxes on these properties and claimed the taxes paid

as a portion of the deduction claimed for real estate taxes on

their Schedule A.    However, petitioner again did not testify to

the specific amounts of the taxes paid on the Florida properties.

The only corroborating evidence in the record, which petitioner

alleges shows that taxes were paid on these properties, is a

Statement of Annual Maintenance Assessment in the amount of

$96.43.    Respondent reported, at trial, that the $1,017 portion

allowed by respondent, pursuant to section 164, of petitioners’

claimed Schedule A deduction for real estate taxes, consisted of

real estate taxes paid in respect to the Florida properties.

However, it is not clear from the record if the amount of the

Annual Maintenance Assessment has already been included in the

$1,017 allowed by respondent or if such amount is considered a

tax.

       Based on the foregoing, we conclude that petitioners have

failed to provide any substantiation to support any claimed

deduction for real estate taxes paid on their Florida properties

in excess of the $1,017 allowed by respondent.
                              - 12 -

     Petitioners further owned property in Chicago, Illinois,

which was their principal residence.   This property was located

on two adjoining tracts of land.   Petitioner testified that the

real estate taxes on this property were paid through petitioners’

mortgage loan with EMC Mortgage Corporation.   Petitioner offered

into evidence a monthly billing statement dated December 16,

1999, from EMC Mortgage Corporation, along with a 1997 annual

billing statement to corroborate his testimony.   Both documents

were received into evidence by the Court.   Petitioner testified

that the taxes paid in 1999 were approximately similar to the

taxes paid in 1997.   The monthly billing statement reflects four

instances of “County Tax Payments” during taxable year 1999;

September 8, October 7, October 11, and December 17, in the

amounts of $368.45, $381.59, $798.97, and $381.59, respectively.

The monthly billing statement reflects total real estate taxes

paid during taxable year 1999 in the amount of $1,930.60.

Petitioner testified that the reason for several individual

payments of tax was due to the fact that the property was located

on two tracts of land and the taxes were assessed per tract.    The

1997 annual billing statement reflected two total tax amounts,

one for each separate tract of land, in the amounts of $736.89

and $736.89.   The 1997 annual billing statement reflected a total

of real estate taxes paid in the amount of $1,473.78.
                                - 13 -

     Upon the basis of the record in this case and giving

petitioners the benefit of the doubt, we conclude that they have

substantiated real estate taxes paid in the amount of $1,930.60

with respect to their Chicago, Illinois, property.    This amount

is in addition to the portion of $1,017 of the Schedule A

deduction for real estate taxes allowed by respondent with

respect to petitioners’ Florida properties.

3.   Home Mortgage Interest

     On their Schedule A for taxable year 1999, petitioners

claimed a deduction of $4,937 for home mortgage interest paid

during taxable year 1999.     Respondent agrees that petitioners are

entitled to deduct, under section 163, $4,796 of the claimed

deduction for home mortgage interest.    However, respondent

contends that petitioners are not entitled to the additional

$141.   Respondent determined that petitioners did not prove that

they paid home mortgage interest in excess of $4,796 during

taxable year 1999.

     Section 163(a) allows a deduction for all interest paid or

accrued within the taxable year on indebtedness.    Section

163(h)(1), however, provides that, in the case of a taxpayer

other than a corporation, no deduction is allowed for personal

interest.   Qualified residence interest is excluded from the

definition of personal interest and thus is deductible under

section 163(a).   See sec. 163(h)(2)(D).   Qualified residence
                              - 14 -

interest is any interest which is paid or accrued during the

taxable year on acquisition indebtedness or home equity

indebtedness.   See sec. 163(h)(3)(A).    Acquisition indebtedness

is any indebtedness secured by the qualified residence of the

taxpayer or incurred in acquiring, constructing, or substantially

improving the qualified residence.     See sec. 163(h)(3)(B).    Home

equity indebtedness is any other indebtedness secured by the

qualified residence to the extent the aggregate amount of such

indebtedness does not exceed the fair market value of the

qualified residence reduced by the amount of acquisition

indebtedness on the residence.   See sec. 163(h)(3)(C)(i).      The

amount of home equity indebtedness for any taxable year cannot

exceed $100,000.   See sec. 163(h)(3)(C)(ii).    The indebtedness

generally must be an obligation of the taxpayer and not an

obligation of another.   See Golder v. Commissioner, 604 F.2d 34,

35 (9th Cir. 1979), affg. T.C. Memo. 1976-150.

     Petitioners provided no documentation before, during, or

after trial, such as canceled checks, that substantiates their

claim that they made payments of home mortgage interest in excess

of $4,796 during taxable year 1999.     At trial, petitioner did not

testify as to any specific payments of home mortgage interest.

Petitioners’ only evidence, in this respect, is a monthly billing

statement from EMC Mortgage Corporation (EMC) reflecting that

petitioners paid $187.45 of home mortgage interest during taxable
                                - 15 -

year 1999.   However, it is not clear from the record if this

payment of home mortgage interest to EMC has already been

included in the $4,796 allowed by respondent.

     Therefore, we find that petitioners have failed to provide

any substantiation to support their claimed payments of home

mortgage interest in excess of the $4,796 allowed by respondent.

We find we cannot estimate any amounts of petitioners’ deductions

under the Cohan rule, and we sustain respondent’s disallowance of

petitioners’ claimed payments of home mortgage interest in excess

of $4,796.   Sec. 6001; sec. 1.6001-1(a), (e), Income Tax Regs.

4.   Miscellaneous Deductions

     On their Schedule A for taxable year 1999, petitioners

claimed miscellaneous deductions of $33,785 for job expenses

incurred during taxable year 1999.       The deduction was claimed for

expenses incurred while petitioner attended English Literature

courses at Worcester College in Oxford, England.      Respondent

disallowed the aforesaid deduction in full.      Respondent

determined that petitioners did not prove that the expenses were

incurred or, if incurred, that they were paid during taxable year

1999, nor did petitioners prove that if the expenses were

incurred and paid, the expenses were ordinary and necessary to

petitioner’s business.

     Section 162(a) allows a deduction for ordinary and necessary

business expenses paid or incurred during the taxable year in
                              - 16 -

carrying on any trade or business.     For an expense to be

“ordinary” the transaction that gives rise to the expense must be

of a common or frequent occurrence in the type of business

involved.   Deputy v. du Pont, 308 U.S. 488, 495 (1940).      To be

“necessary” an expense must be “appropriate and helpful” to the

taxpayer’s business.   Welch v. Helvering, 290 U.S. at 113-114.

The performance of services as an employee constitutes a trade or

business.   See sec. 1.162-17(a), Income Tax Regs.    The employee

must show the relationship between the expenditures and the

employment.   See Evans v. Commissioner, T.C. Memo. 1974-267.         The

taxpayer bears the burden of substantiation.     Hradesky v.

Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d

821 (5th Cir. 1976).

     Expenditures made by a taxpayer for education are

deductible, with certain exceptions not relevant here,2 if the

education either:   (1) Maintains or improves skills required in

an individual’s employment or other trade or business; or (2)

meets the express requirements of the individual’s employer, or

meets the requirements of applicable law or regulations, imposed

as a condition to the retention of employment, status, or rate of

compensation.   See sec. 1.162-5(a), Income Tax Regs.


     2
      The courses given by Worcester College do not meet the
minimum educational requirements of petitioner’s employment.
They do not qualify petitioner for a new trade or business.
Thus, deductions associated with the courses are not prohibited
under sec. 1.162-5(b), Income Tax Regs.
                             - 17 -

     In the case of travel expenses, entertainment expenses, and

expenses paid or incurred with respect to listed property, e.g.,

passenger automobiles, section 274 overrides the Cohan doctrine,

and expenses are deductible only if the taxpayer meets the

section’s stringent substantiation requirements.   Secs. 274(d),

280F(d)(4); Sanford v. Commissioner, 50 T.C. 823, 827-828 (1968),

affd. 412 F.2d 201 (2d Cir. 1969); sec. 1.274-5T(a), Temporary

Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).

     Section 274(d) specifically provides:

          SEC. 274(d). Substantiation Required.--No deduction or
     credit shall be allowed–-

               (1) under section 162 or 212 for any traveling
          expense (including meals and lodging while away
          from home),

               (2) for any item with respect to an activity which
          is of a type generally considered to constitute
          entertainment, amusement, or recreation, or with
          respect to a facility used in connection with such
          an activity,

               (3) for any expense for gifts, or

               (4) with respect to any listed property (as
          defined in section 280F(d)(4)),

     unless the taxpayer substantiates by adequate records or by
     sufficient evidence corroborating the taxpayer’s own
     statement (A) the amount of such expense or other item, (B)
     the time and place of the travel, entertainment, amusement,
     recreation, or use of the facility or property, or the date
     and description of the gift, (C) the business purpose of the
     expense or other item, and (D) the business relationship to
     the taxpayer of persons entertained, using the facility or
     property, or receiving the gift. * * *
                              - 18 -

This section “contemplates that no deduction or credit shall be

allowed a taxpayer on the basis of such approximations or

unsupported testimony of the taxpayer.”   Sec. 1.274-5T(a),

Temporary Income Tax Regs., supra.

     In order to substantiate a deduction by means of adequate

records, a taxpayer must maintain a diary, log, statement of

expenses, trip sheet, or similar record, and documentary evidence

which, in combination, are sufficient to establish each element

of each expense or use.   Sec. 1.274-5T(c)(2)(i), Temporary Income

Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985).   A contemporaneous

log is not required, but corroborative evidence to support a

taxpayer’s record of the elements of expenditure or use must have

“a high degree of probative value to elevate such statement and

evidence” to the level of credibility of a contemporaneous

record.   Sec. 1.274-5T(c)(1), Temporary Income Tax Regs., supra.

Thus, no deduction for expenses under section 274(d) may be

allowed on the basis of any approximation or the unsupported

testimony of the taxpayer.   See, e.g., Murata v. Commissioner,

T.C. Memo. 1996-321; Golden v. Commissioner, T.C. Memo. 1993-602.

     Petitioner testified that the job expenses incurred during

taxable year 1999 were for expenses incurred in furtherance of

his occupation as a high school English teacher employed by the

Chicago Department of Education.   Petitioner also testified that

the expenses were incurred in attending English literature
                              - 19 -

courses given at Worcester College at Oxford, England.

Petitioner further testified that the courses’ objective was to

aid teachers in their teaching of high school English courses,

including advanced placement courses.   Petitioner did admit that

these courses were not required as a condition for his employment

with the Chicago Department of Education and that he and his wife

had made this trip every summer for several years, during which

time he attended these courses at Worcester College at Oxford.

     In this case, petitioner has attempted to substantiate his

expenditures through his own self-serving testimony.   At trial,

petitioner testified:   (1) In taxable year 1999 and preceding

years, he and his wife would fly to England for the last 2 weeks

in July; (2) while in England, petitioner attended courses at

Worcester College at Oxford; (3) these courses furthered his

ability of teaching English and advanced placement courses.

Petitioner further testified that while in England, he and his

wife stayed at Bruern Cottages and that he rented a Mazda RX-7 in

order to get back and forth from Bruern Cottages to Worcester

College.

     Petitioner claims that the $33,785 miscellaneous deductions

for job expenses incurred during taxable year 1999 were for the

price of his and his wife’s air fare to England, meals while in

England, books purchased for the courses at Worcester College,

the rental cost of the Mazda RX-7, and the price of the Bruern
                              - 20 -

Cottages rental.   The only corroborating evidence in the record

showing that petitioners did travel to England is a “Copy

Statement” from Bruern Cottages reflecting a rental cost of

£4,556 (United Kingdom currency, pounds), which petitioner

requested in anticipation of litigation.   Petitioner also

testified that he asked for reimbursement for these expenses from

his employer, the Chicago Department of Education.   As of the

time of trial, the Chicago Department of Education had refused to

reimburse petitioner for said expenses.

     We have taken into consideration petitioner’s testimony and

the “Copy Statement”, and we conclude that petitioners have

failed to satisfy the requirements of sections 162 and 274 as to

all job expenditures claimed as miscellaneous deductions in the

amount of $33,785.   We find we cannot estimate any amounts of

petitioners’ deductions under the Cohan rule, and we sustain

respondent’s disallowance of petitioners’ claimed miscellaneous

deductions.   Sec. 6001; sec. 1.6001-1(a), (e), Income Tax Regs.

     Even had petitioners substantiated their claimed

miscellaneous deductions of $33,785 for expenses incurred during

taxable year 1999, they still would not be permitted the

deductions unless they demonstrated that the educational courses

taken maintained or improved the skills required in petitioner’s

employment as a high school English teacher.
                               - 21 -

     Whether education maintains or improves skills required by

the taxpayer’s employment is a question of fact.    See Boser v.

Commissioner, 77 T.C. 1124, 1131; Schwartz v. Commissioner, 69

T.C. 877, 889 (1978); Baker v. Commissioner, 51 T.C. 243, 247

(1968).   The burden of proof is on the taxpayer.   See Rule

142(a); Welch v. Helvering, supra; Boser v. Commissioner, supra

at 1131; cf. sec. 7491.   The fact that petitioner’s education is

helpful to him in the performance of his employment does not

establish that its cost is deductible as a business expense.     See

Carroll v. Commissioner, 51 T.C. 213, 215 (1968), affd. 418 F.2d

91 (7th Cir. 1969).   Petitioner must establish that there is a

direct and proximate relationship between the Worcester courses

and the skills required in his employment as a high school

English teacher.    See Kornhauser v. United States, 276 U.S. 145,

153 (1928); Boser v. Commissioner, supra at 1131.    A precise

correlation is not necessary, but the expenditure must enhance

existing employment skills.   See Boser v. Commissioner, supra.

Petitioner’s employer did not expressly require him to take the

courses at issue.   We therefore assess whether the Worcester

College courses attended by petitioner maintained or improved his

skills as a high school English teacher.   See sec. 1.162-5(a),

Income Tax Regs.

     Petitioner has not provided specific examples of how his

teaching skills were enhanced by the Worcester courses.
                              - 22 -

Petitioner did not provide any materials as evidence of the

specific content of the English and advanced placement courses he

taught or the Worcester courses.   We find that petitioners have

failed to demonstrate a connection between petitioner’s

attendance at the Worcester courses and his job as a high school

English teacher.   See Takahashi v. Commissioner, 87 T.C. 126

(1986) (taxpayers failed to demonstrate a connection between

their attendance at a seminar in Hawaii on “Hawaiian Cultural

Transition in a Diverse Society” and their jobs as science

teachers).   Thus, we conclude petitioner has failed to prove that

the Worcester courses had a direct and proximate relationship to

maintaining or improving his skills as a high school English and

advanced placement teacher.

     Since petitioner has failed to demonstrate that the

Worcester courses had a direct and proximate relationship to

maintaining or improving his skills as a high school English and

advanced placement teacher, we need not determine whether the

expenses incurred by petitioner in attending the Worcester

courses were “ordinary and necessary” within the meaning of

section 162(a).

     Therefore, we disallow for lack of substantiation the

claimed miscellaneous deductions of $33,785 for job expenses

incurred during taxable year 1999.
                               - 23 -

5.   IRA Distribution

     In the stipulation of facts, petitioner stipulated that

during the taxable year 1999, Ella Joseph received a distribution

in the amount of $1,493 from Bank One.   Petitioner testified that

he did not know the source of the $1,493 distribution.

Respondent contends that this distribution was reported to him

from Bank One on a Form 1099-R, which reported this distribution

as an IRA distribution to Ella Joseph and income to petitioners.

Petitioners did not include this distribution in gross income on

their jointly filed 1999 Federal income tax return.

     Gross income includes all income from whatever source

derived.   Sec. 61(a).   Section 61(b) specifically includes items

included under section 72 (relating to annuities and IRAs).

     As a general rule, amounts paid or distributed out of

individual retirement plans, including IRAs, are included in

gross income when received by the payee or distributee under

provisions of section 72.   Sec. 408(d)(1).   The regulations

provide in relevant part as follows:

     Except as otherwise provided in this section, any amount
     actually paid or distributed or deemed paid or distributed
     from an individual retirement account or individual
     retirement annuity shall be included in the gross income of
     the payee or distributee for the taxable year in which the
     payment or distribution is received.

Sec. 1.408-4(a)(1), Income Tax Regs.

     As stated previously, petitioner does not dispute that Ella

Joseph received the money from Bank One in 1999.    Petitioner does
                                - 24 -

not state any reason why petitioners did not include the

distribution in their gross income in taxable year 1999, and

petitioner does not claim any exception applies to this

distribution.    Therefore, we conclude that the $1,493

distribution from Bank One to Ella Joseph is income to

petitioners, and we sustain respondent’s inclusion of this amount

in petitioners’ gross income.

6.   Accuracy-Related Penalty

     As stated previously, respondent determined that petitioners

are liable for an accuracy-related penalty pursuant to section

6662(a) with respect to petitioners’ disallowed deductions and

unreported income.

     Section 7491(c) provides that the Commissioner shall have

the burden of production in any court proceeding with respect to

the liability of any individual for any penalty, addition to tax,

or additional amount.    Specifically, section 7491(c), which was

enacted by the Internal Revenue Service Restructuring and Reform

Act of 1998 (RRA 1998), Pub. L. 105-206, sec. 3001(a), 112 Stat.

726, provides:

               SEC. 7491(c). Penalties.--Notwithstanding any
          other provision of this title, the Secretary shall have
          the burden of production in any court proceeding with
          respect to the liability of any individual for any
          penalty, addition to tax, or additional amount imposed
          by this title.

     Section 7491(c) is effective with respect to court

proceedings arising in connection with examinations commencing
                                  - 25 -

after July 22, 1998.   RRA 1998 sec. 3001(c)(1), 112 Stat. 727.

There is no dispute that the examination in the present case

commenced after July 22, 1998.

     Section 6662(a) imposes a 20-percent penalty on the portion

of any underpayment attributable to any of various factors, one

of which is negligence or disregard of rules or regulations.

Sec. 6662(b)(1).   “Negligence” includes any failure to make a

reasonable attempt to comply with the provisions of the Internal

Revenue Code, including failure to keep adequate books and

records or to substantiate items properly.      Sec. 6662(c); sec.

1.6662-4(b)(1), Income Tax Regs.      Section 6664(c)(1) provides

that the penalty under section 6662(a) shall not apply to any

portion of an underpayment if it is shown that there was

reasonable cause for the taxpayer’s position and that the

taxpayer acted in good faith with respect to that portion.      The

determination of whether a taxpayer acted with reasonable cause

and in good faith is made on a case-by-case basis, taking into

account all the pertinent facts and circumstances.      Sec. 1.6664-

4(b)(1), Income Tax Regs.    The most important factor is the

extent of the taxpayer’s effort to assess his or her proper tax

liability for the year.     Id.

     Upon the basis of the record in this case, petitioners have

not pleaded that the accuracy-related penalty, pursuant to

section 6662(a) with respect to the disallowed deductions and
                              - 26 -

unreported income, was not properly determined by respondent.

Even had petitioners contended that this penalty was not properly

determined by respondent, we find nothing in the record to

support such a contention.   Respondent has shown that petitioners

did not keep adequate books and records to properly substantiate

their items claimed on their return, and thus petitioners failed

to make a reasonable attempt to comply with the provisions of the

Internal Revenue Code.   Therefore, we find that petitioners were

negligent in their filing of their tax return which reported an

incorrect tax.   Thus, we sustain respondent’s determination with

respect to the section 6662(a) accuracy-related penalty.

     To reflect the foregoing,


                                      An appropriate order and

                                 decision will be entered under

                                 Rule 155.
