                   T.C. Summary Opinion 2001-97



                      UNITED STATES TAX COURT


                    ENG GUEK KANG, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent

                     KOK H. NGO, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 10272-99S, 10902-99S.          Filed June 26, 2001.


     Eng Guek Kang and Kok H. Ngo, pro sese.

     Julie L. Payne, for respondent.


     GOLDBERG, Special Trial Judge:    These consolidated cases

were heard pursuant to the provisions of section 7463 of the

Internal Revenue Code in effect at the time each petition was

filed.   The decisions to be entered are not reviewable by any

other court, and this opinion should not be cited as authority.

Unless otherwise indicated, subsequent section references are to

the Internal Revenue Code in effect for the years in issue, and
                              - 2 -

all Rule references are to the Tax Court Rules of Practice and

Procedure.

     In separate notices of deficiency, respondent determined

that petitioners are liable for the following deficiencies in

Federal income taxes:

Docket No. 10272-99S                  Eng Guek Kang

   Taxable Year                       Deficiency

         1995                          $3,148
         1996                           2,443
         1997                           1,709


Docket No. 10902-99S                  Kok H. Ngo

   Taxable Year                       Deficiency

         1995                           $10,084
         1996                            19,597
         1997                            13,911

     After concessions by the parties,1 the issues for decision



     1
          The items and amounts listed below represent cost of
goods sold and deductions disallowed by respondent that were not
addressed by Mr. Ngo at trial. As a result, Mr. Ngo is deemed to
have conceded these items. See Rules 142(a), 149; Pearson v.
Commissioner, T.C. Memo. 2000-160.
                                             Amount
                                    1995      1996      1997
     Cost of Goods Sold            $1,652      $253    $9,566

     Claimed Deduction                             Amount
                                       1995         1996     1997
     Car and truck                    $3,120          ---   $1,893
     Advertising                         108          ---      160
     Commission                          ---          $30      ---
     Office expenses                      43          ---      —--
     Travel/meals/entertainment           10          ---      —--
     Other expenses                    1,664          ---      270
                              - 3 -

are: (1) Whether petitioners are entitled to head of household

filing status on their respective individual Federal income tax

returns during the years at issue; (2) whether petitioner Eng

Geuk Kang (Ms. Kang) is entitled to earned income credits during

the years at issue; (3) whether petitioner Kok H. Ngo2 (Mr. Ngo)

is entitled to earned income credits during the years at issue;

(4) whether Mr. Ngo failed to report gross receipts of $7,275,

$21,421, and $5,409, respectively, during the years at issue, on

Schedules C, Profit or Loss From Business; and (5) whether Mr.

Ngo is entitled to deduct certain Schedule C expenses in excess

of amounts allowed by respondent for the years at issue.3   The

resolution of the first three issues turns on whether petitioners

were considered married pursuant to the provisions of section

7703(b).

     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.   At the time the

respective petitions were filed, petitioners resided in Auburn,

Washington.




     2
          Mr. Ngo is also known as Guo Xing Woo; however, for the
purpose of this opinion, we shall refer to him as Mr. Ngo.
     3
          Our resolution of the issues in this case at docket No.
10902-99S will also resolve respondent’s adjustment to the amount
of self-employment income tax for each year and the deduction
therefor.
                                - 4 -

Background

     Petitioners were born in Cambodia but speak a dialect of

Chinese spoken in the Chaozhou region of South China, the source

of their shared ethnic roots.    Petitioners met at a refugee camp

in Vietnam where Ms. Kang was alone because her entire family had

been killed during Pol Pot’s reign in Cambodia.     Ms. Kang lived

with Mr. Ngo and his family in the refugee camp.     In 1989, under

the sponsorship of Mr. Ngo’s brother, petitioners immigrated

directly from the refugee camp to Seattle, Washington.

Petitioners spoke no English when they first arrived in the

United States in 1989 and currently speak only limited English.

It is unclear from the record whether petitioners made

representations on the immigration documents that they were

husband and wife.    Petitioners are now naturalized citizens of

the United States.

     In 1989, some time after their arrival in the United States,

Ms. Kang gave birth to their child, Winson You Ngo (Winson).     Ms.

Kang has a child, Fong Siu Ngo4 (Fong), who was born in 1984 in

Vietnam, from a prior relationship.     Mr. Ngo also has a child,

Long You Ngo (Long), who was born in 1979 in Vietnam from a prior

relationship.   Fong and Long immigrated with petitioners to the

United States in 1989.


     4
          Although Fong carries Mr. Ngo’s surname, the record
shows that at all times relevant, Ms. Kang always used her
surname “Kang” and never used or was known as “Ngo”.
                                - 5 -

     Petitioners and their children reside in a 2-story home

located at 2602 17th Street, S.E., Auburn, Washington (Auburn

residence).    However, petitioners claim that they live separately

with Mr. Ngo and Long residing on the first floor and Ms. Kang,

Winson, and Fong residing on the second floor.    The only kitchen

in the residence is located on the second floor.    The Auburn

residence was purchased by petitioners on October 24, 1994, by

statutory warranty deed as “KOK H. NGO AND ENG G. KANG, HUSBAND

AND WIFE”.    Petitioners refinanced the Auburn residence on

November 8, 1998, via a deed of trust stating “GUO XING WOO* AND

ENG G. KANG, HUSBAND AND WIFE” “*WHO ACQUIRED TITLE AS KOK H.

NGO”.

     In 1992, Mr. Ngo purchased a preexisting donut business

known as Donut Star.    Ms. Kang was the only employee of Donut

Star.   Mr. Ngo prepared a variety of donuts at 4 a.m., and Ms.

Kang sold the donuts during the day to customers.    Coffee, milk,

and other beverages were also sold at Donut Star.    Mr. Ngo used

an Ekonimik Financial Record Summary ledger (business ledger) to

maintain Donut Star’s daily books and records.    Mr. Ngo testified

that at the end of each month he recorded the total cash register

receipts as income and also recorded various expenditures made

during the month.    However, for some months Mr. Ngo recorded no

income.   The expenses were itemized into the following

categories:    Food, supplies, repair and maintenance, tax and
                                               - 6 -

license, sales tax, utilities, rent, advertising and insurance,

professional services, linens and laundry, dues, wages, bank,

auto, phone bill, loan, membership card fee, and miscellaneous.

At the end of the year, Mr. Ngo turned over the business ledger

to his accountant, K.B. Accounting (K.B.), for the preparation of

his income tax return.

          Petitioners filed joint Federal income tax returns from 1990

through 1993.

          In the notice of deficiency issued to Mr. Ngo, respondent

made the following adjustments to Schedule C deductions by Mr.

Ngo:

                        1995                            1996                         1997
            Claimed   Allowed   Dis-      Claimed     Allowed   Dis-      Claimed   Allowed   Dis-
                                allowed                         allowed                       allowed
Advert.       $108        $0      $108       --           --        --      $160        $0      $160
Car and      3,462       342     3,120            0      422      (422)    2,032       139     1,893
truck
Deprec.     12,245         0    12,245     8,746           0     8,746     3,124         0     3,124
Commis.         --        --        --        30           0        30        --        --        --
Insur.          --        --        --     1,738       2,036      (298)    1,535         0     1,535
Legal          600       300       300       --           --        --     4,861         0     4,861
and prof.
services
Office          43         0        43            0       13       (13)        0       150      (150)
expense
Rent or     15,531    15,581       (50)   16,972      15,520     1,452    16,945    11,067     5,878
Lease
Taxes        1,412     3,522    (2,110)    2,085       2,238      (153)        0     3,097    (3,097)
Travel/         10         0        10       --           --        --        --        --        --
Meals/
Entert.
Supplies     2,451     5,407    (2,956)      --           --        --        --        --        --
Util.        8,180     5,929     2,251     5,241       5,455      (214)    7,922     2,033     5,889
Salaries/   12,000    10,329     1,671    12,000       8,465     3,535    12,618     4,618     8,000
Wages
Other        3,548     1,884     1,664       --           --        --       270         0       270
Expenses
Dues             0       143      (143)           0      147      (147)        0       900      (900)
Service         --        --        --            0       40       (40)       --        --        --
Phone           --        --        --       --           --        --         0       362      (362)
Freight         --        --        --       --           --        --         0       972      (972)
Sign            --        --        --       --           --        --         0     1,719    (1,719)
Repairs/       315         0       315    15,860           0    15,860        --        --        --
Maint.
Total       59,905    43,437    16,468    62,672      34,336    28,336    49,467    25,057    24,410
                                              - 7 -

Cost of Goods Sold
          Claimed    Allowed   Dis-      Claimed   Allowed    Dis-      Claimed   Allowed   Dis-
                               allowed                        allowed                       allowed
          36,092     34,440     1,652    35,000    34,747        253    19,298     9,732     9,566



      Respondent disallowed deductions in the amounts shown above

because Mr. Ngo failed to maintain adequate records to

substantiate the claimed deductions.                         However, respondent allowed

Mr. Ngo adjusted deductions for 1995, 1996, and 1997, of $1,794,

$3,533, and $2,782, respectively, for one-half of the self-

employment tax due.

      Respondent further determined that Mr. Ngo had unreported

gross income for the years in issue.                         Because the business ledger

reflected no recorded income for some months, respondent

calculated that the omitted income was at least equal to the

expenses for those months.                Using the bank deposits method,

respondent determined that Mr. Ngo failed to report gross income

of $7,275, $21,421, and $5,409, for 1995, 1996, and 1997,

respectively.         Finally, respondent determined that Mr. Ngo was

not entitled to earned income credits during the years at issue,

and his filing status was married filing separate, not head of

household.

      In the notice of deficiency issued to Ms. Kang, respondent

determined that she was not entitled to earned income credits

during the years at issue, and her filing status was married

filing separate, not head of household.
                               - 8 -

Filing Status

     Petitioners contend that they were never married and

therefore are entitled to file their respective individual

Federal income tax returns as head of household.

      Generally, an individual’s marital status for determining

his filing status under section 1 is made on the last day of such

individual’s tax year.   See sec. 7703(a)(1).   An individual will

not be considered married if he is legally separated from his

spouse under a decree of divorce or of separate maintenance.     See

sec. 7703(a)(2).

     For Federal tax purposes, determination of marital status is

made in accordance with the law of the State of the marital

domicile.   See Eccles v. Commissioner, 19 T.C. 1049, 1051 (1953),

affd. per curiam 208 F.2d 796 (4th Cir. 1953); Calhoun v.

Commissioner, T.C. Memo. 1992-246, affd. without published

opinion 993 F.2d 1533 (2d Cir. 1993).    The existence or

dissolution of a marriage has typically been within the province

of the States.   See Sosna v. Iowa, 419 U.S. 393, 404 (1975);

Eccles v. Commissioner, supra at 1051.    This Court looks to the

law of the State of petitioners’ residence, Washington in this

instance, to determine whether petitioners were married on the

last day of 1995, 1996, or 1997.   See Lee v. Commissioner, 64

T.C. 552, 556-559 (1975), affd. 550 F.2d 1201 (9th Cir. 1977).

     Under Washington law, the burden of proof is upon the party
                               - 9 -

alleging the existence of a marriage.   In this case, the burden

falls on respondent.   On the other hand, there is such a strong

public policy in favor of marriage that the law seizes upon all

presumptions in order to repel the conclusion of unmarried

cohabitation.   See Thomas v. Thomas, 53 Wash. 297, 101 P. 865

(1909); Goldwater v. Burnside, 22 Wash. 215, 219, 60 P. 490

(1900).   Such presumptions of marriage may be overcome only by

the weight of clear, cogent, and convincing evidence.5     See In re

Sloan’s Estate, 50 Wash. 86, 88-89, 96 P. 684 (1908).

     A presumption of marriage exists upon proof of continual

cohabitation and reputation of marriage in the community due to

the parties’ holding themselves out to be married.   See

Weatherall v. Weatherall, 56 Wash. 344, 349-351, 105 P. 822

(1911).

     Section 5.44.140 of the Washington Code states as follows:

           In any proceeding regarding the determination
           of a family relationship, including but not
           limited to the parent and child relationship
           and the marriage relationship, a
           determination of family relationships
           regarding any person or persons who
           immigrated to the United States from a
           foreign country which was made or accepted by
           the United States immigration and
           naturalization service at the time of that
           person or persons’ entry into the United
           States creates a rebuttable presumption that


     5
          The clear, cogent, and convincing evidence is a higher
standard of evidence than a mere preponderance of evidence due to
the strong public policy in support of marriage. See In re
Sloan’s Estate, 50 Wash. 86, 88-89, 96 P. 684 (1908).
                               - 10 -

            the determination is valid and that the
            family relationship under foreign law is as
            made or accepted at the time of entry. * * *

This presumption may be overcome by a preponderance of evidence

showing that a living person other than the person named by the

U. S. Immigration and Naturalization Service is in the

relationship in question.    Wash. Rev. Code sec. 5.44.140 (1995).

     Respondent argues that the following evidence supports the

presumption of the validity of petitioners’ marital status:      (1)

Petitioners filed joint income tax returns for the years 1990

through 1993; (2) public records filed with the King County

Recorder’s Office in 1994 and 1998 show that petitioners held

themselves out to the public as husband and wife; (3) Ms. Kang

was sponsored by Mr. Ngo’s brother, who is not her blood

relative, thus alleging that the Immigration and Nnaturalization

Service believed petitioners were married upon immigrating to the

United States; and (4) Fong’s surname is that of Mr. Ngo even

though Mr. Ngo is not Fong’s biological father, thus evidencing

petitioners’ intent to hold themselves out to the public as a

family.   We find respondent’s arguments persuasive.

     Petitioners’ naked assertions that they were never married

are insufficient to overcome the presumption of the validity of

marriage.    Petitioners testified that due to their very poor

knowledge of English upon their arrival in 1989, they relied on

persons assisting them during the immigration process and the
                               - 11 -

purchase of their home to accurately prepare the documents.

Although we are not unsympathetic to the language barriers new

immigrants face upon their arrival into the United States, we

note that petitioners made no effort to correct the warranty deed

and deed of trust documents upon the refinancing of their home 9

years after their arrival in the United States, if, in fact they

were never married.    Furthermore, we find it persuasive that Mr.

Ngo aptly conveyed the change of his name to Guo Xing Woo to the

finance company, and, yet, failed to convey the information that

he and Ms. Kang were not husband and wife (as was reflected on

their original property documents and refinance documents).

     On the basis of the record, we find that for Federal income

tax purposes petitioners were married on the last day of the tax

years 1995, 1996, and 1997.    Therefore, we hold that petitioners

are not entitled to head of household filing status.

Earned Income Credit

     Section 32 provides for an earned income credit.    However,

if a taxpayer is married, the earned income credit is available

only if a joint return is filed for the taxable year under

section 6013.   See sec. 32(d).

     Because we found above that petitioners are considered

married under section 7703(a), and because petitioners filed

their returns separately and not jointly, an earned income credit

is not allowable as a matter of law.    See Presley v.
                                - 12 -

Commissioner, T.C. Memo. 1996-553; Becker v. Commissioner, T.C.

Memo. 1995-177.

     Respondent is sustained on this issue.

Schedule C--Gross Receipts

     Mr. Ngo reported gross receipts for 1995, 1996, and 1997, of

$106,989, $106,755, and $73,928, respectively.   Respondent used

the bank deposits method to determine that the correct amounts of

gross receipts are $114,264, $128,176, and $79,337, respectively.

     Gross income includes all income from whatever source

derived.   See sec. 61(a).   Section 61(a)(2) specifically includes

income derived from business.    It is required under Federal law

that taxpayers maintain adequate and accurate tax records.     See

sec. 6001; see also Jones v. Commissioner, 903 F.2d 1301, 1303

(10th Cir. 1990), affg. in part and revg. in part and remanding

T.C. Memo. 1988-373.   It is well settled that the Commissioner is

entitled to use any reasonable methods of determining a

taxpayer’s income where the taxpayer either has inadequate

records or does not make his books and records available for

audit.   See Holland v. United States, 348 U.S. 121, 130-132

(1954); Gordon v. Commissioner, 63 T.C. 51, 78 (1974),

supplemented by 63 T.C. 501 (1975), affd. in part and revd. in

part 572 F.2d 193 (9th Cir. 1977); Giddio v. Commissioner, 54

T.C. 1530, 1533 (1970).

     The use of the bank deposits method for computing income has
                                - 13 -

long been sanctioned by this Court.      See DiLeo v. Commissioner,

96 T.C. 858, 867 (1991), affd. 959 F.2d 16 (2d Cir. 1992); Estate

of Mason v. Commissioner, 64 T.C. 651 (1975), affd. 566 F.2d 2

(6th Cir. 1977).   The bank deposit method assumes all money

deposited into a taxpayer's bank account during a given period is

income.   See DiLeo v. Commissioner, supra at 868.     Bank deposits

are prima facie evidence of income.      See Tokarski v.

Commissioner, 87 T.C. 74, 77 (1986); Estate of Mason v.

Commissioner, supra at 656.     In analyzing a bank deposits case,

deposits are considered income when there is no evidence that

they represent anything other than income.     See Price v. United

States, 335 F.2d 671, 677 (5th Cir. 1964); United States v.

Doyle, 234 F.2d 788, 793 (7th Cir. 1956).

     The record consists of the business ledger and a few random

Donut Star checks payable to Seafirst Bank and the Internal

Revenue Service.   Mr. Ngo has not provided bank statements, cash

register receipts, or any testimony to support his position that

the original claimed gross receipts are correct.

     After review of the record, we find that Mr. Ngo failed to

prove the gross receipts of Donut Star, and, therefore,

respondent’s determination is sustained for all years at issue.

Schedule C Expense Deductions

     Deductions are a matter of legislative grace, and taxpayers

bear the burden of proving the entitlement to any deduction
                                - 14 -

claimed.    See INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84

(1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440

(1934).     A taxpayer is required to maintain records sufficient to

establish the amount of his or her income and deductions.      See

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

     Section 162(a) allows a taxpayer to deduct all ordinary and

necessary business expenses paid or incurred during the taxable

year in carrying on any trade or business.     To be “necessary” an

expense must be “appropriate and helpful” to the taxpayer’s

business.     Welch v. Helvering, 290 U.S. 111, 113 (1933).    To be

“ordinary” the transaction which 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).    No

deduction is allowed for personal, living, or family expenses.

See sec. 262(a).

     Generally, if a claimed business expense is deductible, but

the taxpayer is unable to substantiate it, the Court is permitted

to make as close an approximation as it can, bearing heavily

against the taxpayer whose inexactitude is of his or her own

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

1930).     The estimate must have a reasonable evidentiary basis.

See Vanicek v. Commissioner, 85 T.C. 731, 743 (1985).

     1.    Rent or Lease

     Mr. Ngo claimed a deduction for rent or lease payments of
                              - 15 -

$16,972 and $16,945, in 1996 and 1997, respectively.    Respondent

allowed $15,520 and $11,067, respectively.

     At trial, Mr. Ngo provided rent statements for 1996 and 1997

from PHI Excess Properties showing the amounts paid by Mr. Ngo on

behalf of Donut Star.   We find that Mr. Ngo has satisfied his

burden to substantiate the rent or lease payments made on behalf

of Donut Star during 1996 and 1997.     Mr. Ngo’s claimed deduction

is sustained.

     2.   Utilities

     Mr. Ngo claimed utility expense deductions of $8,180 and

$7,922 in 1995 and 1997, respectively.    Respondent allowed $5,929

and $2,033, respectively.

     After reviewing the record, we find that Mr. Ngo’s business

ledger sufficiently supports, and thus substantiates, the utility

expenses of Donut Star in the following amounts.    For 1995, Mr.

Ngo is entitled to a total deduction of $7,897.54.    For 1997, Mr.

Ngo is entitled to a total deduction of $4,355.82.

     3.   Legal and Professional Fees

     Mr. Ngo claimed a deduction for legal and professional fees

of $600 and $4,861 in 1995 and 1997, respectively.    Respondent

disallowed $300 in 1995 and the entire amount in 1997.

     Generally, legal fees may be deductible under section 162(a)

only if they are connected to a taxpayer’s trade or business.

See Guill v. Commissioner, 112 T.C. 325, 328-329 (1999); Davis v.
                               - 16 -

Commissioner, T.C. Memo. 1999-250.      Mr. Ngo has not introduced

evidence supporting a deduction in excess of that determined by

respondent for 1995.    Accordingly, respondent is sustained on

this issue for 1995.

     In regards to 1997, Mr. Ngo’s business ledger reflects

$11,448.63 in legal and professional fees incurred during 1997.

After review of the business ledger, we find that $6,269.43 was

not legal in nature, but instead pertained to various

professional fees including window service and electrician fees.

Accordingly, these amounts are not allowed as legal and

professional fees.6    Additionally, of the $5,179.20 balance, $300

was paid to K.B. for accounting fees and $4,879.20 was paid to

Clement Law Center.    Mr. Ngo did not testify as to the purpose of

services rendered by Clement Law Center.     We also find that Mr.

Ngo has failed to show that the claimed legal expenses of

$4,879.20 were incurred in carrying on his or Donut Star’s trade

or business.   Accordingly, Mr. Ngo is entitled to $300 in legal

and professional fees for 1997.

     4. Repair/Maintenance

     Mr. Ngo claimed repair/maintenance deductions of $315 and

$15,860 for 1995 and 1996, respectively.     Respondent disallowed

these claimed deductions.

     Mr. Ngo’s business ledger shows a total of $6,684.36 for


     6
          See infra Repairs and Maintenance.
                                - 17 -

1995.     Of this amount, we find that $5,657.62 was substantiated

from the description of the expense in the business ledger.

Although Mr. Ngo only claimed a repair/maintenance expense of

$315, we find that he is entitled to a deduction of $5,657.62.

     Likewise, Mr. Ngo’s business ledger shows a total of

$16,347.87 in repair/maintenance expenses.     After review of the

business ledger and notations contained therein, we find that Mr.

Ngo is entitled to a deduction of $14,730.55 for repair/

maintenance expenses in 1996.

     In 1997, Mr. Ngo did not claim a repair/maintenance expense

deduction.     However, in our review of his legal and professional

fees above, we found that many of the entries were erroneously

categorized as legal and professional fees.     Of the misplaced

entries, we find that $3,552.83 was properly recharacterized as

repair/maintenance expenses.     Furthermore, after reviewing Mr.

Ngo’s entire business ledger for 1997, we find that he is also

entitled to a deduction for repair/maintenance expenses of

$3,910.67.     Accordingly, for 1997 Mr. Ngo is entitled to a total

deduction of $7,473.50 in repair/ maintenance expenses for 1997.

     5.     Salary/Wages

        Mr. Ngo claimed salary/wages deductions of $12,000, $12,000,

and $12,618, respectively, for the years at issue.     Respondent

allowed $10,329, $8,465, and $4,618, respectively.

        Reasonable compensation for services actually rendered is
                                 - 18 -

deductible under section 162 as an ordinary and necessary

business expense.      See sec. 162(a)(1).

     Ms. Kang was the only employee of Donut Star.     She received

Forms W-2, Wage and Tax Statement, during the years in issue

reporting $12,000, $12,000, and $5,000, respectively, for 1995,

1996, and 1997.    From the record, we note that during 1995 Mr.

Ngo paid Ms. Kang a monthly salary or wage of $923.50, totaling

$11,082; however, the claimed deduction is for a gross amount of

$12,000.    Due to lack of substantiation, Mr. Ngo is entitled to a

deduction of $11,082.     Furthermore, Mr. Ngo’s records do not

substantiate salary/wages expenses of $12,000 during 1996.     In

examining Mr. Ngo’s business ledger for 1996, we find that Ms.

Kang was paid only $8,464.50, corresponding to the amount allowed

by respondent.    Therefore, respondent’s determination is

sustained as to 1996.

     For 1997, we find that Ms. Kang actually received $12,617.50

for her services rendered to Donut Star, despite the inconsistent

Form W-2 issued to her.     Therefore, Mr. Ngo is entitled to a

deduction of $12,617.50, less employment credits.

     6.    Insurance

     Mr. Ngo claimed insurance expense deductions of $1,535 in

1997.     Respondent disallowed the entire amount.   After reviewing

the record, we find that Mr. Ngo’s business ledger sufficiently

supports, and thus substantiates, the insurance expense of
                                - 19 -

$1,535.   Accordingly, we hold for Mr. Ngo as to this issue.

     7.   Depreciation

     Section 167(a) permits a depreciation deduction for the

exhaustion and wear and tear of property used in a trade or

business.   Mr. Ngo claimed depreciation deductions of $12,245,

$8,746, and $3,124, respectively, during the years at issue.

Respondent disallowed all claimed depreciation expenses.

     At trial, Mr. Ngo provided asset entry worksheets for the

years 1996 and 1997.     Mr. Ngo has satisfied his burden, and his

claimed deductions are sustained for these years.       However, Mr.

Ngo failed to provide any records for the basis of his claimed

depreciation expense deduction for 1995, and, therefore,

respondent’s determination is sustained for 1995.

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                           Decisions will be entered

                                      under Rule 155.
