                          T.C. Memo. 2000-27



                        UNITED STATES TAX COURT



              EMMANUEL I. NWACHUKWU, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6797-98.              Filed January 21, 2000.



     Emmanuel I. Nwachukwu, pro se.

     Wendy Abkin, for respondent.



                MEMORANDUM FINDINGS OF FACT AND OPINION


     PARR, Judge:     Respondent determined a deficiency of $9,421

and an accuracy-related penalty of $1,763 for petitioner's 1995

taxable year.
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     After concessions,1 the issues for decision are:    (1)

Whether petitioner is entitled to claim his son, Bradley C. Njoku

(Bradley), as a dependent.   We hold he is not.   (2) Whether

petitioner has established entitlement to deductions claimed for

medical expenses claimed on his return.     We hold he has, to the

extent set out below.   (3) Whether petitioner is entitled to

claim a credit for child care expenses.     We hold he may, to the

extent set out below. (4) Whether petitioner is entitled to

deduct expenses he claimed were incurred in searching for a job.

We hold he is not.   (5) Whether petitioner is liable for the

section 6662(a) accuracy-related penalty for the underpayment of

income tax attributable to negligence or disregard of rules or

regulations.2   We hold he is.

                         FINDINGS OF FACT

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


     1
      Initially, respondent disallowed the dependency exemptions
claimed by petitioner for his son and daughter for the year at
issue. Respondent also determined that petitioner had unreported
income of $24,583 and that petitioner was not entitled to head-
of-household filing status. At trial, respondent conceded the
unreported income issue, and that petitioner was entitled to head
of household filing status and one dependency exemption for his
daughter, Michelle.

     2
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the taxable year in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure. All dollar amounts are rounded to the
nearest dollar, unless otherwise indicated.
                               - 3 -

The stipulated facts and the accompanying exhibits are

incorporated into our findings by this reference.   At the time

the petition in this case was filed, petitioner resided in San

Leandro, California.

     Petitioner has a college degree in finance and was employed

as a tax auditor by the State Board of Equalization of California

during the year at issue.

     Petitioner claimed a dependency exemption deduction for two

children--his son, Bradley, and daughter, Michelle.    Bradley

lived with petitioner until sometime in June, after which time he

lived with his mother in Texas.   After Bradley went to live with

his mother, petitioner did not provide any financial support for

the child.

     On his return, petitioner reported that he paid $5,760 for

medical expenses and $4,800 for child care for his two children.

Respondent disallowed these deductions for lack of substantiation

of the amounts claimed and because petitioner did not establish

that he had two dependent children.

     As a result of an investigation, petitioner was terminated

from his job at the State Board of Equalization sometime during

May of 1995.   Upon termination, petitioner's briefcase was taken

from him for a while, and he was not allowed back inside the

building.

     After losing his position at the State Board of
                                - 4 -

Equalization, petitioner went to Nigeria for 1 month, during

which time he visited relatives and attended one job interview

arranged by his cousin.   Because petitioner did not take any

business attire with him to Nigeria, after his arrival,

petitioner bought a new suit, shirt, and shoes for the interview.

Petitioner deducted the cost of the trip to Nigeria, including

the cost of the new clothes, as a job-search expense.   Petitioner

also deducted the costs of trips to Los Angeles and Texas as job-

search expenses.   Petitioner was not able to find another job,

and he collected unemployment insurance for the remaining portion

of 1995.

                               OPINION

     Respondent determined that petitioner was not entitled to

the deductions he claimed on his return because petitioner did

not provide any substantiation for the amounts reported.

Petitioner has no receipts, canceled checks, or other records to

substantiate his claimed deductions; however, he did proffer a

reconstruction of the expenses, which he prepared for trial, that

he asserts supports his claims.

     We begin by noting that, as a general rule, respondent's

determinations are presumed correct, and petitioner bears the

burden of proving otherwise.   See Rule 142(a); Welch v.
                                - 5 -

Helvering, 290 U.S. 111, 115 (1933).3    Taxpayers do not have an

inherent right to take tax deductions.    Deductions are a matter

of legislative grace, and a taxpayer bears the burden of proving

entitlement to any deduction claimed.     See Deputy v. du Pont, 308

U.S. 488, 493 (1940); New Colonial Ice Co. v. Helvering, 292 U.S.

435, 440 (1934).   This includes the burden of substantiating the

amount and purpose of the item claimed.    See sec. 6001; Hradesky

v. Commissioner, 65 T.C. 87, 89-90 (1975), affd. per curiam 540

F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), Income Tax Regs.

     If a taxpayer has established that deductible expenses were

incurred but has not established the amount of such expenses, we

may estimate the amount allowable, bearing heavily if we so

choose upon the taxpayer whose inexactitude is of his own making.

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

However, there must be evidence in the record that provides a

rational basis for our estimate.   See Vanicek v. Commissioner, 85

T.C. 731, 742-743 (1985).

Issue 1.   Personal Exemption

     Petitioner claimed a dependency exemption for his son,

Bradley, on his 1995 Federal income tax return.    Respondent


     3
      On his pretrial memorandum, petitioner referenced the
Taxpayer Bill of Rights as applying in this case. However, the
burden of proof provisions of sec. 7491 do not apply here because
the examination in this case began prior to July 22, 1998. See
IRS Restructuring and Reform Act of 1998, Pub. L. 105-206, 112
Stat. 726.
                                - 6 -

determined that petitioner is not entitled to the dependency

exemption for Bradley because petitioner has not substantiated

that he had custody of the child for the greater portion of the

year in issue.

     Section 151(a) and (c) allows a deduction for a dependent as

defined in section 152.   A son or a daughter of the taxpayer,

over half of whose support during the calendar year is provided

for by the taxpayer, is a dependent.    See sec. 152(a).   However,

section 152(e)(1) further provides that if a child receives over

half of his support during the calendar year from his parents who

live apart at all times during the last 6 months of the calendar

year, and if the child is in the custody of one or both of his

parents for more than one-half of the calendar year, then the

child is treated as receiving over half of his support during the

calendar year from the parent having custody for a greater

portion of the calendar year.   The regulations provide that "In

the event of so-called 'split' custody, or if neither a decree or

agreement establishes * * * custody, * * * 'custody' will be

deemed to be with the parent who * * * has the physical custody

of the child for the greater portion of the calendar year."    Sec.

1.152-4(b), Income Tax Regs.

     During the year at issue, petitioner and the mother of

Bradley did not reside together.   However, petitioner has not

established that he alone, or that he and the mother of Bradley
                               - 7 -

together, provided over half of the support the child received

during the calendar year.   Furthermore, although petitioner

reported on his return that Bradley lived with him for all 12

months of 1995, it is clear from the record that Bradley's mother

had custody of the child for the majority of the calendar year.

Therefore, we hold that petitioner is not entitled to a

dependency deduction for Bradley for the year at issue.

Issue 2.   Medical Expense Deduction

     On a Schedule A, Itemized Deductions, attached to his

return, petitioner claimed medical expenses of $5,760.    After

accounting for the section 213(a) limitation, petitioner claimed

a medical expense deduction of $3,865 for 1995.   In the notice of

deficiency, respondent disallowed the deduction because

petitioner did not establish that the amounts were paid or

incurred during the year at issue.

     At trial, petitioner testified that his daughter, Michelle,

had asthma and that he paid for two medical devices used to help

her condition, in addition to prescription drugs, medical

insurance, and the required copayments for doctors' services.

     Section 213 allows a deduction for expenses paid during the

taxable year, not compensated for by insurance or otherwise, for

medical care of the taxpayer, his spouse, or a dependent, to the

extent that such expenses exceed 7.5 percent of the adjusted

gross income.   The taxpayer must substantiate any deductions
                                 - 8 -

claimed under section 213 by furnishing the name and address of

each person to whom payment for medical expenses was made and the

amount and date for each payment.    See sec. 1.213-1(h), Income

Tax Regs.   Moreover, the taxpayer must be prepared to

substantiate any claimed deductions by furnishing statements or

itemized invoices from the individual or entity to which payment

for medical expenses was made.     These statements or invoices

should indicate the nature of the services rendered, and to or

for whom rendered.    See id.

     At trial, petitioner testified that he could not remember

the name or the cost of the medical devices.    Furthermore,

petitioner testified that the more expensive of the two devices

may have cost as much as $500; however, in his reconstruction of

costs, petitioner represented that the combined cost of the two

devices was $2,712.    Clearly, if the more expensive device was

$500, the total cost of both devices must be substantially less

than the amount petitioner represented he paid in his

reconstruction.

     Petitioner had no receipt or other evidence to substantiate

the date of purchase or cost of either device.    He testified that

he had no receipt for the more expensive device because it was

actually purchased by someone else who was able to buy it at a

discount.   Petitioner did not call that person as a witness to

testify as to the details of the transaction.    We cannot assume
                               - 9 -

the testimony of absent witnesses would have been favorable to

petitioner.   Rather, the normal inference is that it would have

been unfavorable.   See Pollack v. Commissioner, 47 T.C. 92, 108

(1966), affd. 392 F.2d 409 (5th Cir. 1968); Wichita Terminal

Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162

F.2d 513 (10th Cir. 1947).   Under these circumstances, we cannot

find that petitioner expended the claimed amounts for medical

devices during the year at issue.

     In his reconstruction of costs, petitioner represented that

he paid $2,300 for prescription medicine during 1995.   Although

this amount is substantial, and although petitioner testified at

trial that his daughter continued to suffer from asthma,

petitioner could not remember the names of the drugs that his

daughter was prescribed.

     The only credible evidence petitioner produced at trial to

substantiate his claim that he paid for medical care was a

computer printout of his financial history from the clinic where

he took Michelle for treatment.   The printout has columns for the

date, patient's name, payment history, diagnosis, and cost of the

service.

     Petitioner testified that he began taking Michelle to the

clinic in early 1995; however, the printout shows that as of

August 4, 1995, Michelle was a new patient with no previous

history.   The printout also shows that, except for $12 paid by
                                 - 10 -

petitioner, insurance paid for the cost of the medical care

provided by the clinic during 1995.

     The printout is corroborating evidence that petitioner had

medical insurance and that he incurred some expense for medical

care during the year at issue.     Accordingly, on the basis of the

record presented, and using our best estimate, we find that

petitioner is entitled to claim medical expenses of $592.    See

Cohan v. Commissioner, supra.     This expense is allowable as a

deduction to the extent that it exceeds 7.5 percent of

petitioner's adjusted gross income.

Issue 3.   Child Care Expenses

     Pursuant to section 21, petitioner reported child and

dependent care expenses of $4,800 for two children, and claimed a

credit of $1,056.   Respondent disallowed the credit because

petitioner did not substantiate that the amounts were paid or

that petitioner had qualifying children.

     Section 21(a) generally provides an allowance for a credit

against the tax to any individual taxpayer who maintains a

household that includes as a member one or more qualifying

individuals and who incurs employment-related expense.    See Turay

v. Commissioner, T.C. Memo. 1999-315; Hopkins v. Commissioner,

T.C. Memo. 1992-326.   The term "qualifying individual", under

section 21(b), includes a dependent of the taxpayer under the age

of 13 with respect to whom the taxpayer is entitled to a
                             - 11 -

dependency exemption deduction under section 151(c).    The

allowable credit, under section 21(b)(2), generally is based upon

employment-related expenses that are incurred to enable the

taxpayer to be gainfully employed, including expenses incurred

for the care of a qualifying individual.   Other provisions and

conditions of the credit are not pertinent here.

     We have concluded that petitioner is not entitled to a

dependency exemption deduction pursuant to section 151(c) for

Bradley; therefore, Bradley is not a qualifying individual.

Respondent has conceded that Michelle is a qualifying individual;

however, respondent has determined that petitioner is not

entitled to the credit because he has not substantiated that he

paid the amounts claimed for child care.

     On his return, petitioner reported that he paid child care

to one child care facility, Crib to Crayon, and to two

individuals who occasionally babysat his child.    Petitioner

produced no canceled checks, receipts, or other records to

substantiate his claimed expense.   At trial, petitioner estimated

that during the year at issue he paid $375 per month for child

care for Michelle.

     We think it unlikely that petitioner could have held a job

from January until some time in May without incurring some

expense for the care of his daughter.   Petitioner, however, was

not employed after May 1995; the Court cannot conclude that child
                                 - 12 -

care expenses were incurred while petitioner was not employed.

See Collins v. Commissioner, T.C. Memo. 1997-129.

     Accordingly, we find that petitioner expended $1,500 for

child care during 1995.   See Cohan v. Commissioner, supra.          The

amount of the section 21 credit allowable for this expense must

be determined by the parties in their Rule 155 calculations.

Issue 4.   Job-Search Expenses

     Petitioner claimed a Schedule A deduction for job-search

expenses of $5,570.   Petitioner testified that he searched in

Nigeria, Los Angeles, and Texas for a job in either banking or

accounting.

     Section 162(a) allows a deduction for all the ordinary and

necessary expenses paid or incurred during the taxable year in

carrying on any trade or business.        Such deductible expenses

include those incurred in searching for new employment in the

employee's same trade or business.        See Cremona v. Commissioner,

58 T.C. 219 (1972); Primuth v. Commissioner, 54 T.C. 374 (1970).

Petitioner bears the burden of proving that the expenses were of

a business nature rather than personal and that the expenses were

ordinary and necessary.   See Rule 142(a); Welch v. Helvering,

supra.

     With respect to petitioner's 1-month trip to Nigeria,

petitioner did not present any documentation or detailed

testimony concerning the specific job-search activities in which
                              - 13 -

he engaged during his trip.   Although we believe that petitioner

did engage in some job-search activities, there were personal

reasons for him to be in Nigeria.   The record shows that, except

for one interview and the delivery of one resume, petitioner

spent the month visiting his cousin.   Furthermore, the fact that

petitioner went to Nigeria without the business attire he

required for a job interview and without first speaking

personally with the prospective employer, leads us to believe

that the purpose of the trip was not to search for a job.    These

facts, together with the fact that the time spent on job-search

activities was minimal, support a conclusion that the portion of

the expenses that could be allocated to any job-search activities

would be minimal at best.   Accordingly, petitioner is not

entitled to a deduction for expenses associated with this trip.

     With respect to petitioner's claims for the expenses of the

job searches in Los Angeles and Texas, petitioner did not have

any records, receipts, canceled checks, or any other

documentation to substantiate the expenditures.   Nor could he

remember whether certain amounts he listed in his reconstruction

were expended during his trip to Los Angeles or during his trip

to Texas.   Moreover, petitioner was unable to provide any details

of where he stayed or the name of the firms with which he

interviewed.   Finally, petitioner claimed he expended $2,346 on

miscellaneous items related to his job search; however, he could
                               - 14 -

not remember what these items were.

     On the basis of these facts, we find that petitioner has not

met his burden of proving that he expended the amount he claimed

as a job-search expense.   Respondent is sustained on this issue.

Issue 5.   Accuracy-Related Penalty

     Finally, we must decide whether petitioner is liable for the

accuracy-related penalty under section 6662(a).     Section 6662

imposes a penalty equal to 20 percent of the portion of the

underpayment that is attributable to negligence or disregard of

rules or regulations.   See sec. 6662(a) and (b)(1).

     For purposes of this section, the term "negligence" includes

any failure to make a reasonable attempt to comply with the

provisions of the internal revenue laws, a failure to exercise

ordinary and reasonable care in the preparation of a tax return,

and a failure to keep adequate books and records or to

substantiate items properly.   See sec. 1.6662-3(b)(1), Income Tax

Regs.   Negligence is defined as a lack of due care or failure to

do what a reasonable and ordinarily prudent person would do under

the circumstances.   See Zmuda v. Commissioner, 731 F.2d 1417,

1422 (9th Cir. 1984), affg. 79 T.C. 714 (1982); Neely v.

Commissioner, 85 T.C. 934, 947 (1985).      The term "disregard"

includes any careless, reckless, or intentional disregard of the

rules or regulations.   See sec. 6662(c).

     Just as with respondent's deficiency determination, his
                                - 15 -

determination of negligence or intentional disregard of rules or

regulations is presumptively correct with the burden of proof to

the contrary on petitioner.   See Neely v. Commissioner, supra.

Petitioner bears the burden of proving that respondent's

determinations are erroneous.    See Rule 142(a); Luman v.

Commissioner, 79 T.C. 846, 860-861 (1982).

     Petitioner claimed numerous deductions, which, for the most

part, were contrary to the regulations or were without

substantiation.   Furthermore, petitioner's story of why he has no

records or other documentation to substantiate the claimed

deductions is not credible.

     For instance, petitioner testified that he was preparing his

tax returns while at work for the State of California Board of

Equalization, and the records substantiating his medical and job-

search expenses were in his briefcase that was confiscated when

he was terminated from employment.       To the extent that any

medical and job-search expenses may have been incurred, they

would have been incurred after May, and the records would not

have existed at the time the briefcase was confiscated.

Furthermore, even if other records had been in the briefcase,

they were not permanently unavailable to petitioner as he

testified that the briefcase was later returned to him.

Finally, we question petitioner's story that he was preparing his

tax returns for 1995 in May of that year.
                              - 16 -

     Petitioner was employed as a tax auditor for the State of

California and had a college degree in finance.   Therefore,

petitioner is aware, or should be aware, of the importance of

maintaining adequate records and documenting expenditures.

     Considering all the facts, we find petitioner was negligent

and disregarded rules and regulations in preparing his 1995

return.   Thus, we sustain respondent's determination that

petitioner is liable for the accuracy-related penalty on the

amount of the underpayment for 1995.

     To reflect the foregoing,

                                         Decision will be entered

                                    under Rule 155.
