                        T.C. Memo. 1998-43



                      UNITED STATES TAX COURT



     SHANE L. APPLING AND MARINA L. APPLING, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4678-97.                   Filed February 5, 1998.



     Shane L. Appling, pro se.

     Gerald L. Brantley, for respondent.



                        MEMORANDUM OPINION

     FOLEY, Judge:   Respondent determined the following

deficiencies and accuracy-related penalties relating to

petitioners' Federal income taxes:

                                          Penalty
     Year            Deficiency         Sec. 6662(a)

     1992             $4,350                $870
     1993              5,224               1,045
                               - 2 -


     1994              4,012               802


Unless otherwise indicated, all section references are to the

Internal Revenue Code in effect for the years in issue, and all

Rule references are to the Tax Court Rules of Practice and

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

Whether petitioners are entitled to deduct certain unreimbursed

employee expenses; (2) whether petitioners are entitled to

Schedule C losses; and (3) whether petitioners are liable for

accuracy-related penalties pursuant to section 6662(b)(1).

     At the time Shane and Marina Appling filed their petition,

they resided in El Paso, Texas, where Mr. Appling was employed as

a civil engineer for Silverton Construction Co. (Silverton).    On

their 1992, 1993, and 1994 Federal income tax returns,

petitioners deducted $17,418, $19,132, and $14,590, respectively,

for unreimbursed employee expenses relating to Mr. Appling's job

with Silverton.   Respondent determined that petitioners were only

entitled to deduct $3,009, $3,207, and $3,438, respectively, of

such expenses.

     Generally, an employee may deduct unreimbursed employee

expenses pursuant to section 162(a).   An employee may not deduct

such expenses, however, if the expenses are not substantiated or

if the employee has a right to, but fails to seek, reimbursement

from the employer.   Kennelly v. Commissioner, 56 T.C. 936, 943

(1971), affd. without published opinion 456 F.2d 1335 (2d Cir.
                                 - 3 -


1972).   Petitioners did not satisfy their burden of

substantiating their expenses.     In addition, they failed to

establish that Silverton would not have reimbursed Mr. Appling

for the expenses at issue.   Accordingly, petitioners are not

entitled to deduct the unreimbursed employee expenses at issue

for 1992, 1993, and 1994.

     On their 1992 Federal income tax return, petitioners also

claimed a $10,809 Schedule C loss ($3,700 of gross receipts minus

$14,509 of expenses) relating to a business which marketed a car

wash product called "Dri Wash 'N Guard".    Respondent determined

that petitioners were not entitled to deduct any losses

attributable to this activity.    Respondent concedes, however,

that petitioners purchased $4,246 of the car wash product.       Based

on concessions, testimony, reconstructed records, and executed

checks, we conclude that petitioners had expenses totaling

$4,831.23.   Accordingly, petitioners are entitled to a $1,131.23

Schedule C loss for 1992.

     On their 1993 and 1994 Federal income tax returns,

petitioners also claimed Schedule C losses of $18,008 and

$14,981, respectively, for a mining business.    Petitioners have

failed, however, to prove that they sustained such losses.

Accordingly, petitioners are not entitled to Schedule C losses

for 1993 and 1994.
                                 - 4 -


     Respondent determined that petitioners are liable for

accuracy-related penalties pursuant to section 6662(b)(1).       The

penalty applies to any underpayment due to negligence or

intentional disregard of rules or regulations.       Petitioners did

not maintain adequate books and records.       Sec. 6001.   In

addition, they failed to exercise due care in reporting their

income.   Accordingly, petitioners are liable for the section 6662

accuracy-related penalties.

     To reflect the foregoing,

                                              Decision will be entered

                                         pursuant to Rule 155.
