                          T.C. Memo. 1999-163



                        UNITED STATES TAX COURT



             RICK AND RUTH BAIME RICHARDS, Petitioners v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent


        Docket No. 12430-97.             Filed May 14, 1999.


        Rick and Ruth Baime Richards, pro sese.

        Patrick Lucas, for respondent.


                          MEMORANDUM OPINION


        NAMEROFF, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7443A(b)(3) and Rules 180, 181, and

182.1




        1
        Unless otherwise specified, all section references are to
the Internal Revenue Code in effect for the year in issue. All
Rule references are to the Tax Court Rules of Practice and
Procedure.
                              - 2 -

     Respondent determined a deficiency in petitioners’ 1994

Federal income tax in the amount of $1,328 and an accuracy-

related penalty under section 6662(a) in the amount of $266.

     The issues for decision are:   (1) Whether petitioner Rick

Richards (Mr. Richards) conducted his writing activity with the

objective of making a profit within the meaning of section 183;

if so, (2) whether petitioners have substantiated the ordinary

and necessary business expenses of this activity; (3) whether

petitioner Ruth Baime Richards (Mrs. Richards) conducted her

actress-model activity with the objective of making a profit

within the meaning of section 183; if so, (4) whether petitioners

have substantiated the ordinary and necessary business expenses

of this activity; (5) whether petitioners are entitled to carry

forward a net operating loss from a prior tax year; and (6)

whether petitioners are liable for the accuracy-related penalty

under section 6662(a).

     No stipulation of facts has been filed.   At the time their

petition was filed, petitioners resided in Palm Springs,

California.

     On Schedule C, Profit or Loss From Business, filed with

their 1994 income tax return, petitioners reported $1,574 in

gross income2 and the following expenses:   (1) “Allowable



     2
        The actual amount of gross income is $1,674, but $100 of
this amount was reported on line 7 of the return as wages.
                                - 3 -

materials” expenses of $21,270; (2) “allowable” auto/business

expenses of $8,540; and (3) “allowable” office/household expenses

of $5,132.    The total amount of expenses claimed was $34,942,

resulting in a net loss of $33,368.      The expenses are the

combined expenses from Mr. and Mrs. Richards’ separate

activities.   There are attachments to the Schedule C which

separate the expenses.

     Respondent disallowed the $34,942 of expenses and calculated

self-employment tax (and the self-employment tax deduction) on

the $1,574 of income.    Respondent also disallowed a loss

carryover of $15,892 from 1993 and determined that petitioners

are liable for the accuracy-related penalty.

     For the years 1991 to 1993, 1995, and 1996, petitioners’

returns reflected the following income and expenses for their

activities:

     Year             Income1           Expenses      Profit/(loss)
     1991              ---              $28,307        ($28,307)
     1992              ---               29,103         (29,103)
     1993              ---               30,616         (30,616)
     19952             ---                 ---          (24,278)
     1996             $814               30,877         (30,063)
     1
        While petitioners received income from their activities
in 1991 to 1993, this income was reported on line 7 of their Form
1040 as wages.
     2
        Only the Form 1040 was provided showing the net loss.

1. Writing Activity

     In the 1940's, Mr. Richards’ first job as a writer was

writing stage material for Bob Crosby’s band.      He wrote comical
                                - 4 -

lyrics, parodies, and original songs.    Mr. Richards also worked

for music publishers in New York, and, at one point, he served in

the military.   Then in the 1950's, Mr. Richards switched to

writing short stories.   While living in eastern Pennsylvania, Mr.

Richards wrote 88 short stories, of which 39 were sold for

publication.    Around this time, Mr. Richards also started writing

novels.

     After they married in the early 1960's, petitioners moved to

Palm Springs.   Mr. Richards continued to write novels when

petitioners first moved, but shortly thereafter he put that aside

to work in the entertainment business.   Mr. Richards had contacts

with comedians in California and through them he met producers.

This led to writing situation comedies (sitcoms) for television

which Mr. Richards primarily did through the 1960's and 1970's.

The television shows for which Mr. Richards wrote did not have

regular staff writers, and he freelanced.   Mr. Richards wrote

episodes for “The Lucy Show”, “The Odd Couple”, “Love American

Style”, “The Addams Family”, “The Beverly Hillbillies”, and

“Petticoat Junction”.    In 1974, Mr. Richards sold a screenplay he

had written to a Canadian company.

     In the 1980's, Mr. Richards no longer felt that writing

sitcoms was rewarding, so he switched to 90-minute television

movies.   While there was interest in what Mr. Richards was

writing, the television networks canceled their 90-minute movie
                                 - 5 -

programs.   Mr. Richards then wrote screenplays either for the

movie industry or for 2-hour television movies.

     During the 1980's and 1990's, Mr. Richards engaged in a

variety of writing activities.    He tried to sell his screenplays

to the various studios; one project was scheduled for production

on three occasions, but it fell through before the deal was

signed.   On another occasion, Columbia Pictures paid Mr. Richards

an option of $1,500 but did not purchase his screenplay.

According to Mr. Richards, there was a lot of interest in his

work, but if an executive who liked his screenplay left the

company, then his project was dropped.    Mr. Richards experienced

numerous setbacks.    He approached specific actors for whom he

wrote screenplays, and it appears they were interested in the

screenplays.    However, due to unforeseen personal problems of one

actor, the busy schedules of all performers, and disputes with

movie executives, these projects were placed on hold.

     Mr. Richards did not have a regular agent.    He would hire an

agent when it came time to discuss money with the movie

executives.    Apparently an agent can obtain a higher price.   Mr.

Richards testified that he works on four to six different

screenplays at a time, and he believes he could receive a lot of

money if he sold one.    In 1993 or 1994, Mr. Richards pitched an

idea about a screenplay he was thinking about writing to an agent

at Creative Artists Agency.    The agent thought it was a great
                               - 6 -

idea and told Mr. Richards he would try to market it.     Mr.

Richards wrote the screenplay, and, as of the date of trial, the

agent was still helping with the marketing of this screenplay.

     Mr. Richards also wrote lyrics to country and gospel songs.

Mr. Richards does not know how to write melodies, so he

collaborates with other people.   Mr. Richards traveled to

numerous country and gospel concerts in furtherance of this

activity.   Mr. Richards has not sold a song.

     Attached to Schedule C is a list of the items which were

allocated under the “allowable materials expense” for Mr.

Richards’ writing activity.   They are as follows:

        Expense                                      Amount
     Typewriter (ribbons & repairs)                    $198
     Stationery, desk & office supplies                 940
     Registry                                           680
     Copies                                             370
     Research books, magazines & trade pub.             760
     Must-see movies, stage plays, country
        & gospel concerts                             1,140
     Travel trailer maint., supplies
        & repairs                                     2,480
     Research trip to Alaska                          3,296
     Research trip to Mexico                          1,319
     Miscellaneous1                                   3,120
     TV sets, VCR & video tapes                         569
     Audio tape recording & copying equip.
        plus studio time fees                           560
     Audio master & 10 min. demo tapes                  414
     Fax messages and responses                         115
     Shipping costs                                   1,189
     Office preparation                                 180
     Long distance calls                              1,114
     Cash telephone calls                               240
        Total                                        18,684
     1
         These appear to be travel expenses.
                               - 7 -

     Section 183(a) generally provides that if an activity

engaged in by an individual is not entered into for profit, no

deduction attributable to the activity shall be allowed, except

as otherwise provided in section 183(b).   An “activity not

engaged in for profit” means any activity other than one for

which deductions are allowable under section 162 or under

paragraphs (1) and (2) of section 212.   Sec. 183(c).

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

necessary expenses paid or incurred during the taxable year in

carrying on a trade or business.   To be engaged in a trade or

business within the meaning of section 162, “the taxpayer must be

involved in the activity with continuity and regularity and * * *

the taxpayer’s primary purpose for engaging in the activity must

be for income or profit.”   Commissioner v. Groetzinger, 480 U.S.

23, 35 (1987).

     In order for taxpayers to deduct expenses of an activity

pursuant to section 162, profit must be their primary or dominant

purpose for engaging in the activity.    See Wolf v. Commissioner,

4 F.3d 709, 713 (9th Cir. 1993), affg. T.C. Memo. 1991-212;

Polakof v. Commissioner, 820 F.2d 321 (9th Cir. 1987), affg. per

curiam T.C. Memo. 1985-197; Independent Elec. Supply, Inc. v.

Commissioner, 781 F.2d 724, 726 (9th Cir. 1986), affg. Lahr v.

Commissioner, T.C. Memo. 1984-472; Carter v. Commissioner, 645

F.2d 784, 786 (9th Cir. 1981), affg. T.C. Memo. 1978-202; Hirsch
                               - 8 -

v. Commissioner, 315 F.2d 731, 736 (9th Cir. 1963), affg. T.C.

Memo. 1961-256.   Whether the taxpayer had the requisite profit

objective is a question of fact to be resolved from all relevant

facts and circumstances.   See, e.g., Drobny v. Commissioner, 86

T.C. 1326, 1341 (1986), affd. 113 F.3d 670 (7th Cir. 1997); sec.

1.183-2(b), Income Tax Regs.   Profit in this context means

economic profit independent of tax savings.   See, e.g., Antonides

v. Commissioner, 91 T.C. 686, 694 (1988), affd. 893 F.2d 656 (4th

Cir. 1990).

     Section 1.183-2(b), Income Tax Regs., provides a non-

exclusive list of factors we consider to determine whether the

taxpayers are engaged in the venture with a profit objective.

They include:   (1) The manner in which the taxpayers carried on

the activity; (2) the expertise of the taxpayers or their

advisers; (3) the time and effort expended by the taxpayers in

carrying on the activity; (4) the expectation that the assets

used in the activity may appreciate in value; (5) the success of

the taxpayers in carrying on other similar or dissimilar

activities; (6) the taxpayers’ history of income or loss with

respect to the activity; (7) the amount of occasional profits

that are earned; (8) the financial status of the taxpayers; and

(9) whether elements of personal pleasure or recreation are

involved.   No single factor is controlling, and we do not reach

our decision by merely counting factors that support each party’s
                               - 9 -

position.   See Dunn v. Commissioner, 70 T.C. 715, 720 (1978),

affd. 615 F.2d 578 (2d Cir. 1980); sec. 1.183-2(b), Income Tax

Regs.   Certain elements are given more weight than others because

they are more meaningfully applied to the facts in our case.

     Upon reviewing the entire record, we conclude that, during

the year at issue, Mr. Richards was engaged in his writing

activity with the requisite profit objective.

     We first look to the manner in which Mr. Richards carried on

the activity.   Mr. Richards managed some aspects of this activity

in a businesslike fashion.   He hired agents to help him with

negotiating prices for the sale of his screenplays.   Moreover,

Mr. Richards has a long professional history as a writer--and as

a successful writer.   Mr. Richards has numerous contacts and

devotes much of his time and energy to carrying on this activity.

Mr. Richards did not have income from other sources, and

petitioners did not derive great tax benefits from the claimed

losses.

     Although Mr. Richards’ efforts were not successful in

producing net profits for a number of years, this may be the

result of at least two factors:   (1) The precarious nature of the

entertainment business, and (2) the claiming of expenses not

properly allocable to the writing activity.   We do not believe

that the lack of unreported income in this situation negates the

presence of a profit objective.   We hold that Mr. Richards was a
                                - 10 -

professional writer and engaged in his writing activity with a

profit objective.

2. Writing Activity Expenses

     Section 162(a) allows the deduction of “ordinary and

necessary” expenses paid or incurred during the taxable year in

carrying on any trade or business.       Whether an expenditure is

ordinary and necessary is a question of fact.       See Commissioner

v. Heininger, 320 U.S. 467, 475 (1943).       An ordinary and

necessary expense is one which is appropriate and helpful to the

taxpayer’s business and which results from an activity which is a

common and accepted practice.    See Boser v. Commissioner, 77 T.C.

1124, 1132 (1981), affd. without published opinion (9th Cir.

1983).

     Deductions are a matter of legislative grace.       See INDOPCO,

Inc. v. Commissioner, 503 U.S. 79, 84 (1992).       Taxpayers must

keep sufficient records to establish deduction amounts.         See sec.

6001; Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965).

Generally, except as otherwise provided by section 274(d), when

evidence shows that a taxpayer incurred a deductible expense, but

the exact amount cannot be determined, the Court may approximate

the amount.   See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d

Cir. 1930).   The Court, however, must have some basis upon which

an estimate can be made.   See Vanicek v. Commissioner, 85 T.C.

731, 742-743 (1985).
                                  - 11 -

       Petitioners submitted numerous copies of canceled checks and

receipts.       Some canceled checks correspond with the receipts,

while others, along with copies of credit card statements, bear

no indication of the precise nature of the underlying expenses.

       Supplies

       Petitioners claimed a deduction of $198 for IBM typewriter

ribbons and repairs.       Mr. Richards testified that he typed all of

his written material on his typewriter.       Petitioners provided a

receipt for the purchase of typewriter ribbons in the amount of

$74.       We find that this is an ordinary and necessary expense for

Mr. Richard’s writing activity.       Accordingly, we hold that

petitioners are entitled to a deduction of $74 for typewriter

ribbons.

       Petitioners claimed a deduction for stationery, a desk, and

office supplies in the amount of $940.       These supplies include

reams of paper, envelopes, pens and markers, tape, files,

folders, and fasteners.       Petitioners provided receipts which

support their claim that they purchased paper, envelopes, labels,

etc., which total $128.3      We find this an ordinary and necessary

business expense for a writer, and therefore, petitioners are

entitled to a deduction of $128.




       3
        There were many receipts that simply stated “school
supplies” which we did not take into consideration, since there
is no indication as to what was purchased.
                              - 12 -

     Registration

     Petitioners claimed a deduction of $680 for registration of

Mr. Richards’ screenplays and lyrics with the Writers Guild of

America and the U.S. Register of Copyrights.    Petitioners

submitted canceled checks made out to the Writers Guild of

America and the U.S. Register of Copyrights which total $180.

Accordingly, we hold that petitioners are entitled to a deduction

of $180 for registration.

     Copies

     Petitioners claimed a deduction of $370 for photocopies of

Mr. Richards’ novels, screenplays, lyrics, and outlines of such.

Petitioners provided receipts and canceled checks in the amount

of $87.   We hold that this is a legitimate business expense and

that petitioners are entitled to a deduction of $87 for

photocopies.

     Research Books, Magazines and Trade Publications

     Petitioners claimed a deduction of $760 for books,

magazines, and trade publications.     In petitioners’ documents are

bills or correspondence from The Desert Sun (which appears to be

a local newspaper), Country Woman, Bottom Line, Condé Nast

Traveler, and Better Homes and Gardens.    There are also numerous

receipts from The College of the Desert,4 which show generally




     4
        Mrs. Richards worked part time at this school’s
bookstore.
                             - 13 -

that books were purchased, but there is no indication what types

of books were purchased.

     Generally the cost of a daily newspaper of general

circulation is a nondeductible personal expense.   See sec. 262;

Wallendal v. Commissioner, 31 T.C. 1249, 1252 (1959).

Petitioners have not demonstrated that they subscribed to the

newspaper solely or principally for business purposes.    See id.

A general circulation newspaper clearly contains a significant

amount of information which is inherently of a personal interest.

See Pollak v. Commissioner, T.C. Memo. 1984-597.    Petitioners are

not entitled to a deduction for the local newspaper.

      Additionally, taxpayers must provide evidence sufficient to

establish a specific connection between the expenditures and the

taxpayer’s trade or business as a writer.   See Gorman v.

Commissioner, T.C. Memo. 1986-344.    Petitioners did not establish

a business connection to any of the magazines or the books.

These types of magazines are inherently personal, and we conclude

that they are not business expenses under section 162.

Furthermore, even if there were other subscriptions that were

related to Mr. Richards’ business, petitioners have failed to

prove any amounts for those items.    Accordingly, petitioners are

not entitled to a deduction for these items.
                              - 14 -

     Movies, Plays, and Country and Gospel Music Concerts

     Petitioners claimed a deduction of $1,140 for tickets to

movies, plays, and music concerts.     Mr. Richards testified that

it is a lesson to him to see an actor give a great performance.

Mr. Richards also stated that one of his greatest ambitions is to

write the book and lyrics for a Broadway musical comedy and that

is why petitioners go to the theater.    We find that these

expenses are inherently personal, and Mr. Richards has not

established a business connection to his writing activity.

     Travel, Meals, and Entertainment

     Mr. Richards testified that he traveled to Branson,

Missouri, and Las Vegas and Laughlin, Nevada, to see and work

with country and gospel performers, to work on screenplay

projects, and to meet with contacts.    Petitioners deducted the

expenses of these trips as business expenses in the amount of

$3,120.   Petitioners retained receipts from hotels and

campgrounds but did not maintain any other records.

     Petitioners claimed a deduction of $2,480 for travel trailer

maintenance, supplies, and repairs.    The trailer was pulled

behind petitioners’ Ford truck.   On their return, petitioners

claimed that the trailer was used exclusively for business and

research trips.   Included in the $2,480 are expenses for

registration, insurance, repairs, annual campground fees, and

incidental expenses.
                                - 15 -

     Taxpayers may deduct travel expenses incurred while away

from home in pursuit of a trade or business.      See sec. 162(a)(2).

Traveling expenses are governed by the strict substantiation

requirements of section 274(d).    Under section 274(d),

petitioners must substantiate by adequate records or by

sufficient evidence corroborating their own statement:      (1) The

amount of the expense; (2) the time of travel; (3) the place of

travel; and (4) the business purpose of the expense.      See sec.

274(d); sec. 1.274-5T(b)(2), (c)(1), Temporary Income Tax Regs.,

50 Fed. Reg. 46014 (Nov. 6, 1985).       If petitioners fail to meet

the provisions of section 274(d), we cannot employ the principles

of Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930), to estimate

petitioners’ travel expenses.    See Keating v. Commissioner, T.C.

Memo. 1995-101; sec. 1.274-5(a), Income Tax Regs.

     To substantiate a deduction by means of adequate records, a

taxpayer must maintain an account book, diary, log, statement of

expense, trip sheets, and/or other documentary evidence which, in

combination, are sufficient to establish each element of

expenditure or use.   See sec. 1.274-5T(c)(2)(i), Temporary Income

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

     Petitioners did not provide any records that would

substantiate when and where they traveled and the business

purpose of each trip.   The receipts that petitioners submitted do

not satisfy the provisions of section 274(d).      Petitioners have
                               - 16 -

not met the stringent requirements of section 274(d), and they

are not entitled to a deduction for travel, meals, and

entertainment.

     Petitioners also took two “research” trips in 1994.

Petitioners went to Alaska and Mexico; these trips cost $3,296

and $1,319, respectively.   On petitioners’ return it is explained

that the purpose of these trips was to “obtain on-site data and

photos for in-progress development of screenplay project.”    Mr.

Richards testified that Mrs. Richards went along on the trips as

his photographer.   The costs included airfare for both

petitioners, cruise fare, escorted side tours, travel insurance,

and incidental expenses.    Mr. Richards testified that they went

to Mexico to see a comedienne, a prospect for whom he thought he

could write material.   Mr. Richards did not state whether he ever

wrote material for the comedienne.

     The expenses for these research trips also fall under the

requirements of section 274(d), and we find that petitioners have

failed to satisfy such requirements.    Petitioners have proven

that they incurred these expenses, but they have not established

that these expenses were sufficiently connected to a trade or

business.   Trips consisting of cruises, sightseeing, and tours

are essentially for personal enjoyment, and petitioners have not

proven otherwise.   Therefore, respondent is sustained on this

issue.
                                - 17 -

     Television Sets, VCR, and Video Tapes

     Petitioners claimed a deduction of $569 for two television

sets, a VCR, and video tapes.    In the attachment to Schedule C,

petitioners claim the video tapes are for research film and tape

library.    Some of the videos are demo tapes of gospel and country

artists and songs.   Petitioners did not address this issue at

trial.

     Television sets and VCR’s are inherently personal items

under section 262.   These are items that most households have for

personal entertainment, and petitioners have not established

otherwise.    Furthermore, petitioners have not shown that the cost

of video tapes of artists is an ordinary and necessary expense to

Mr. Richards’ business as a writer.      Therefore, petitioners are

not entitled to a deduction of $569 for these items.

     Audio Tape Recording, Studio Fees, Audio Master Tapes, and

Demo Tapes

     Petitioners claimed a deduction of $560 for the rental of

recording equipment and for the mixing of tapes.     Petitioners

also claimed a deduction of $414 for the cost of audio tapes and

demo tapes.   Mr. Richards would send the demo tapes to music

contacts.

     It appears that paying for studio time for recording artists

and then sending out the demo tapes is beyond the scope of Mr.

Richards’ business as a writer.    This activity is ordinarily that
                                - 18 -

of a promoter or manager.     Mr. Richards did not adequately

address this issue at trial, and there is no evidence in the

record to further explain these expenses.     We do not find these

expenses to be ordinary and necessary with regard to Mr.

Richards’ writing activity.

     Fax

     Petitioners claimed a deduction of $115 for the transmission

of scripts and lyrics by fax via retail establishments that

offered fax services.     In the record are receipts for fax

services in the amount of $7.     Petitioners did not maintain any

records detailing what was faxed and to whom.     Without adequate

substantiation, we cannot allow this deduction.     Therefore,

petitioners are not entitled to a deduction of $115.

     Shipping

     Petitioners claimed a deduction of $1,189 for shipping

costs.     Mr. Richards claimed that he sent scripts via Federal

Express, United Parcel Service, and the U.S. Postal Service.       Mr.

Richards would also send his screenplays and lyrics to himself by

U.S. registered mail for copyright protection of his work.       The

record contains receipts from the U.S. Postal Service totaling

$439 for shipping costs and registered mail.     While there are no

notations on the receipts as to what was shipped, there are

notations on some of the canceled checks that indicate that the

expenses were for Mr. Richards’ writing activity.     We believe
                               - 19 -

this is an ordinary and necessary business expense that

petitioners incurred.   Accordingly, petitioners are entitled to a

deduction of $439.

     Telephone

     Petitioners claimed deductions of $1,114 for long distance

and $240 for “estimated” cash telephone calls.    Petitioners

claimed these were business calls to producers, agents, artists,

managers, movie executives, and casting directors.    Petitioners

provided copies of their telephone bills for 1994.    It appears

that petitioners designated all long distance calls from their

residence as business calls.     Petitioners did not detail whom

they called or the business purpose.

     Since petitioners did not identify the business purpose of

any long distance calls, they are deemed to be personal under

section 262 and not deductible.

     Vehicle Expense

     Petitioners drove a 1970 Ford truck during the year at

issue.   Petitioners claimed a vehicle expense of $8,540 for the

business use of their vehicle.    This amount is based on 80

percent of actual expenses attributed to the vehicle.

Petitioners retained receipts for gas purchases, repairs,

insurance, and registration.   Petitioners did not maintain

records of the business or personal use of the vehicle.
                              - 20 -

     Under section 280F(d)(4), petitioners’ truck is listed

property and is subject to the stringent substantiation

requirements of section 274(d).   See sec. 280F(d)(4)(A)(i), (ii),

(5)(A).   Petitioners must substantiate by adequate records the

four requirements of section 274(d).    See sec. 274(d); sec.

1.274-5T(b)(6), (c)(1), Temporary Income Tax Regs., 50 Fed. Reg.

46016 (Nov. 6, 1985).

     While petitioners did retain receipts which indicate the

amount of each expenditure, petitioners have failed to show the

business and total usage of the truck.    Petitioners did not

establish how they came up with the 80-percent figure, nor did

they maintain any logs or records on the use of their truck.

Based on this lack of evidence, we cannot find that petitioners

are entitled to a deduction for vehicle expenses.    Therefore,

respondent is sustained on this issue.

     Office/Household Expenses

     Petitioners claimed a deduction of $5,132 for “allowable

office/household expenses”.   This amount reflects 33 1/3 percent

of petitioners’ household expenses.    The household expenses

consist of insurance, mortgage interest, utilities, cable

television, pool service, yard service, home improvements, and

numerous expenses at retail stores.

     Section 262 disallows any deduction for personal, living, or

family expenses, and included in this category is the expense of
                                - 21 -

maintaining a household.    See sec. 1.262-1(b)(3), Income Tax

Regs.    Section 262(b) provides that any charge (including taxes

thereon) for basic local telephone service with respect to the

first telephone line provided to any residence of the taxpayer

shall be treated as a personal expense.

     Under section 280A(a) and (c)(1)(A), ordinary business

expenses relating to use of any portion of a taxpayer’s home are

not allowable unless the taxpayer establishes that the portion of

the taxpayer’s home to which the expenses relate was used

exclusively and on a regular basis as the principal place of the

taxpayer’s trade or business.    See Hamacher v. Commissioner, 94

T.C. 348, 353 (1990).

     Petitioners have not shown how these expenses, which are

clearly personal, are related to a trade or business.    Mr.

Richards stated at trial that he had an office in the corner of a

partially converted garage, but none of these expenses appear to

relate to the garage.    Petitioners offered no further evidence or

testimony on whether any portion of their house was used

exclusively for business.    Accordingly, respondent is sustained

on this issue.5




     5
        We note that petitioners are entitled to deduct their
mortgage interest paid during 1994 on Schedule A. However, it
does not appear that this amount would exceed petitioners’
standard deduction.
                                - 22 -

     Petitioners claimed a deduction of $180 for office

preparation.   As claimed on the attachment to Schedule C, this

includes supplies for a “slowly-in-progress conversion of garage-

to-office already in use as my primary workplace”.      Petitioners

did not address this issue at trial, nor have we been able to

locate any receipts for expenditures on this issue.      Therefore,

petitioners are not entitled to a deduction for office

preparation.

3. Actress-Model Activity

     Mrs. Richards was born in 1922 and started acting while a

child in the “Our Gang” comedies.    She did not act for a number

of years, but, during her marriage to her first husband who was

an actor, she decided that she wanted to get back into acting.

She appeared in the television series “The Defenders” and was in

the movie “Splendor in the Grass”.       Mrs. Richards’ first husband

died in 1959, and, 3 years later, she married Mr. Richards.      When

petitioners moved to Palm Springs in the early 1960's, she hired

an agent.   She has had an agent ever since.     During the year at

issue, Mrs. Richards’ agent was with Don Schwartz and Associates.

     According to her resume, Mrs. Richards has performed for

television productions and commercials, motion pictures, radio,

and the theater.   Mrs. Richards also did some modeling for

catalogs and brochures.     Mrs. Richards maintained a notebook in

which she would record whether she had an audition, where it was
                                - 23 -

located, and what she was to wear.       She would also note whether

she had a callback and whether she was hired.      According to the

diary, during 1994 Mrs. Richards had one modeling shoot with

United States Purchasing Corp. (for their catalog) and four

auditions.

     Since the acting jobs were sporadic, Mrs. Richards worked as

a clerk, registrar, and secretary for the Palm Springs Unified

School District (PSUSD).     Mrs. Richards worked for PSUSD for 29

years and had retired before the year at issue.      During 1994,

Mrs. Richards received income from her pension, from the College

of the Desert (a book store where she worked part time), and from

serving as a proctor in administering the Scholastic Aptitude

Test.     Mrs. Richards received as compensation $1,574 for the

modeling shoot with United States Purchasing Corp.

     On their 1994 Schedule C, petitioners claimed the following

expenses with respect to Mrs. Richards’ actress-model activity:

            Expense                                 Amount
        Academy players directory (listing)           $60
        Agent fees                                    262
        Photo session                                 267
        Duplicate photo                               231
        Must-see shows, plays & movies                480
        Miscellaneous                                 960
        Long distance telephone calls                 270
        Cash telephone calls                           56
          Total                                     2,586

        As before, we initially must decide whether Mrs. Richards’

actress-model activity was engaged in for profit.      Upon reviewing

the entire record, we conclude that during 1994, Mrs. Richards
                               - 24 -

was engaged in the actress-model activity with the requisite

profit objective.

     Mrs. Richards managed some aspects of this activity in a

businesslike fashion.   She had an agent and kept a journal of her

auditions and callbacks.    Moreover, Mrs. Richards has a long

history in the acting profession.    She has been in numerous

plays, commercials, television shows, and a few movies.

4. Actress-Model Expenses

     Expenses for the Academy Players Directory, agent fees,

photo session, and duplicate photos are all ordinary and

necessary expenses of an actress-model activity.    Petitioners

submitted documentation to show that they incurred these expenses

in 1994, and, therefore, we find that petitioners are entitled to

deductions of $60, $262, $267, and $231, respectively for these

expenses.

     Petitioners claimed a deduction of $960 for miscellaneous

expenses for hair and wig preparation, cosmetics, clothing,

alterations, cleaning, supplies, fur coat storage, gifts,

supplies, and meals.    Petitioners did not offer any documentation

or testimony on the breakdown of how much was spent on each item.

Furthermore, some of these expenses are not deductible business

expenses.6   Therefore, without any help from the record, we


     6
        It is well settled that clothing that is suitable for
general or personal wear does not qualify as a business expense
                                                   (continued...)
                              - 25 -

cannot determine the amounts of any of these expenses, and

petitioners are not entitled to a deduction of $960 for

miscellaneous expenses.

     For the remainder of the expenses, must-see movies of $480

and telephone expenses of $326,7 we hold that they are not

deductible expenses for the same reasons explained under Mr.

Richards’ writing activity.

5. Loss Carryforward

     Petitioners claimed a loss carryforward from their 1993

income tax return in the amount of $15,892.   Petitioners

submitted their 1993 return, which appears very similar to the

1994 return.   Petitioners did not provide any evidence to prove

that they are entitled to carry over the loss from 1993.

     Petitioners’ return for 1993 does not alone establish that

petitioners incurred the loss in question, and it is not evidence

of the correctness of the figures and information contained

therein.   See Wilkinson v. Commissioner, 71 T.C. 633, 639 (1979).


     6
      (...continued)
under sec. 162. See, e.g., Green v. Commissioner, T.C. Memo.
1989-599. Such costs are not deductible even when it has been
shown that the particular clothes would not have been purchased
but for the employment. See Stiner v. United States, 524 F.2d
640 (10th Cir. 1975); Donnelly v. Commissioner, 262 F.2d 411 (2d
Cir. 1959), affg. 28 T.C. 1278 (1957). Furthermore, expenses
related to hair salon visits and cosmetics are inherently
personal expenses under sec. 262.
     7
       Mrs. Richards gave the Court the phone number of her
agent. However, we could not find this number on any of the
bills.
                               - 26 -

Therefore, petitioners are not entitled to a loss carryforward of

$15,892.

6. Accuracy-Related Penalty

     Mr. Richards prepared petitioners’ tax return for the year

at issue.

     Section 6662(a) imposes a penalty of 20 percent on any

portion of an underpayment of tax that is attributable to

negligence or disregard of rules or regulations.     See sec.

6662(a) and (b)(1).   “Negligence” is defined as any failure to

make a reasonable attempt to comply with the provisions of the

Internal Revenue Code, and the term “disregard” includes any

careless, reckless, or intentional disregard.     Sec. 6662(c).   A

position with respect to an item is attributable to negligence if

it lacks a reasonable basis.   See sec. 1.6662-3(b)(1), Income Tax

Regs.   Moreover, taxpayers are required to keep adequate books

and records sufficient to establish the amount of deductions or

other items required to be shown on their returns.     Failure to

maintain adequate books and records or to substantiate items

properly also constitutes negligence.   See id.

     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 with respect to that portion and that the taxpayer acted

in good faith with respect to that portion.   See sec. 6664(c)(1).
                              - 27 -

     The record herein establishes that petitioners were

negligent.   Petitioners did not maintain proper records for the

majority of their claimed deductions.   Petitioners also claimed

deductions that were clearly personal expenses.   Accordingly,

petitioners are liable for the accuracy-related penalty for

negligence under section 6662(a).

     To reflect the foregoing,

                                        Decision will be entered

                                    under Rule 155.
