                         T.C. Memo. 2000-39



                       UNITED STATES TAX COURT



           JOHN CHARLES TREADAWAY, SR., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8583-98.                      Filed February 8, 2000.



     John Charles Treadaway, Sr., pro se.

     Katherine Holmes Ankeny, Richard A. Rappazzo, and

J. Robert Cuatto, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     CHIECHI, Judge:    Respondent determined the following defi-

ciencies in, and accuracy-related penalties under section

6662(a)1 on, petitioner’s Federal income tax (tax):


     1
      All section references are to the Internal Revenue Code in
                                                   (continued...)
                              - 2 -

   Year        Deficiency         Accuracy-Related Penalty
   1994          $27,859                   $5,572
   1995           18,975                    3,795

     We must decide whether to sustain the determinations in the

notice of deficiency (notice) that respondent has not conceded.

We hold that those determinations should be sustained except to

the extent stated herein.

                        FINDINGS OF FACT2

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

     Petitioner resided in Phoenix, Arizona, at the time the

petition was filed.

     Petitioner, who has a B.S. in engineering, an M.A. in

philosophy, and a law degree, was married to Anne P. Treadaway

(Ms. Treadaway) until she died at the age of 94 on June 12, 1995.

He has two children from that marriage, Penelope Treadaway and

John Treadaway, Jr.

     Petitioner and, until she died, Ms. Treadaway lived together

with their son John Treadaway, Jr., in a 5,400-square-foot house

(petitioner’s residence) located at 3140 North 83d Avenue in

Phoenix, Arizona (North 83d Avenue property).   Petitioner’s

daughter Penelope Treadaway, her son, and her boyfriend lived in


     1
      (...continued)
effect for the years at issue. All Rule references are to the
Tax Court Rules of Practice and Procedure.
     2
      Unless otherwise indicated or needed for clarity, our
Findings of Fact and Opinion pertain to the years at issue.
                                - 3 -

a 2,000-square-foot house located on that property.     The North

83d Avenue property also contained a guest house which adjoined

petitioner’s residence and a swimming pool.

      At least five automotive vehicles were used and/or kept at

the North 83d Avenue property, including two pickup trucks and

three automobiles.   Neither petitioner nor Ms. Treadaway was able

to drive any of those vehicles during the years at issue.

     As of the trial in this case, petitioner had been operating

a tax consulting business (tax consulting business) for approxi-

mately 30 years.   As part of that activity, petitioner repre-

sented taxpayers before the Internal Revenue Service.     During the

years at issue, petitioner operated the tax consulting business

from a room located in petitioner’s residence.

     Ms. Treadaway, who began riding horses when she was about

six years old, started providing horse-training and other horse-

related services around 1929.   (We shall refer to those horse-

related services as horse-training activities.)     At least during

the years at issue, the horse-training activities were conducted

on the North 83d Avenue property.   Ms. Treadaway continued her

riding and the horse-training activities until she was no longer

able to do so because of her deteriorating medical condition,

which included Alzheimer’s disease.     As of July 1994, Ms.

Treadaway’s Alzheimer’s disease was in an advanced stage.      As a

result of Ms. Treadaway’s medical condition, Ms. Treadaway was
                                - 4 -

not able to participate actively in the horse-training activities

during the years at issue.

     Penelope Treadaway, who has been riding horses since she was

four years old, was involved in the horse-training activities at

least throughout the years at issue.    During 1995, Penelope

Treadaway gave horseback riding lessons to approximately four or

five people.    After Ms. Treadaway died in June 1995, Penelope

Treadaway continued to operate the horse-training activities and

also started a full-time job in construction.

     On May 5, 1994, Ms. Treadaway sold to Grapevine 7, Inc.,

certain real property that she owned which was located in Brenda,

Arizona (Brenda real property).    Ms. Treadaway received $3,000 at

the closing of that sale.

     Petitioner owned about 10 acres of real property in Tonapah,

Arizona (Tonapah property), on which a house was situated.

Petitioner did not rent that house or property, nor was that

property used for any of the horse-training activities.

     During the years at issue, petitioner and Ms. Treadaway

received the following Social Security benefits:

                                1994                  1995
Petitioner                     $8,641                $8,880
Ms. Treadaway                   4,320                 2,220

     Sometime after Ms. Treadaway died, petitioner remarried and

moved from petitioner’s residence to a house located at 3138
                                 - 5 -

North 43d Avenue in Phoenix, Arizona (North 43d Avenue house).

In October 1996, the North 43d Avenue house was burglarized

(October 1996 burglary).   The Phoenix police department investi-

gated the October 1996 burglary.    The investigating police

officers prepared several reports on behalf of the Phoenix police

department with respect to that burglary (police reports).     The

police reports listed various items of property that petitioner

and/or his then spouse had told the investigating police officers

were missing as a result of the October 1996 burglary (claimed

missing property).   The claimed missing property listed in the

police reports did not include any records identified as tax

records, banker boxes, or steel filing cabinets.

     At a time not established by the record, an individual

(plaintiff) instituted litigation against petitioner.    The

plaintiff claimed in that litigation that petitioner had improp-

erly used for petitioner’s personal use $150,000 that belonged to

the plaintiff.   After that litigation was concluded, petitioner

pled guilty in December 1989 under the applicable criminal

statutes of the State of Arizona to obtaining a signature by

deception on October 27, 1986.

     Petitioner and Ms. Treadaway filed a Form 1040, U.S. Indi-

vidual Income Tax Return (tax return), for each of the years 1991

through 1994.    They indicated in each of those tax returns that

their filing status was “Married filing joint return (even if
                                 - 6 -

only one had income)”.   The 1994 joint return was signed by

petitioner and Anne Treadaway.    The signature of Anne Treadaway

on the 1994 joint return is different from petitioner’s signature

on that return.   Petitioner, as the surviving spouse, filed a tax

return for 1995 on behalf of his deceased spouse Ms. Treadaway

and himself.    Petitioner indicated in that tax return that their

filing status was “Married filing joint return (even if only one

had income)”.   The 1995 return was signed by petitioner.   There

was no signature on that return by Ms. Treadaway, who was de-

ceased at the time the return was filed.    Instead, the following

statement was typed on the line for her signature:    “Filing as

surviving spouse”.   (We shall refer to the joint tax returns

filed by petitioner and Ms. Treadaway for 1991 through 1994 and

by petitioner as the surviving spouse for 1995 on behalf of his

deceased spouse Ms. Treadaway and himself as joint returns.)

     Petitioner retained Anna Sheets (Ms. Sheets) to prepare the

1994 and 1995 joint returns.   He provided Ms. Sheets with all of

the income and expense figures that are reflected in those

returns.

     Included in each of the joint returns for 1991 through 1995

were a Schedule C, Profit or Loss From Business, and a Schedule

F, Profit or Loss From Farming.    Schedule C of each of those

joint returns identified petitioner as the proprietor and showed

business counsel services or counsel services as the services
                                    - 7 -

that he was providing.        Petitioner and Ms. Treadaway claimed in

Schedules C of the 1994 and 1995 joint returns expenses for legal

and professional services of $13,588 and $13,823, respectively.

       Schedule F of each of the joint returns for 1991 through

1995 identified Ms. Treadaway as the proprietor and, except for

the 1995 joint return,3 showed training horses as the activity in

which she was engaged.        Schedules F of those joint returns

reported the following income, expenses, and net loss:

Year       Income Reported   Total Expenses Claimed      Net Loss Claimed
1991           $22,285                $72,512                $50,227
1992            24,806                 47,328                 22,522
1993            25,820                 59,805                 33,985
1994            27,245                 60,100                 32,855
1995            32,170                 48,036                 15,326

Included within the foregoing expenses claimed for 1995 were the

following amounts of expenses paid during that year with respect

to the horse-training activities:

                 Nature of Expense          Amount Paid
                          Feed               $9,351.46
                Veterinary expense              200.00
                 for shoeing horses
                   Horse supplies               279.91
                         Sawdust                270.00

Also included within the foregoing expenses claimed for 1994 and


       3
      Schedule F of the 1995 joint return did not identify the
activity in which Ms. Treadaway was engaged.
                              - 8 -

1995 were the total amounts of real property taxes and utilities

paid with respect to petitioner’s residence.

     The joint returns for 1991 through 1995 claimed net operat-

ing loss deductions in the respective amounts of $68,739,

$75,593, $48,533, $57,136, and $40,343 with respect to claimed

net operating loss carryovers from prior years.

     Petitioner and Ms. Treadaway did not report in the 1994

joint return the $3,000 that Ms. Treadaway received from the sale

of the Brenda property on May 5, 1994.

     Petitioner and Ms. Treadaway did not report as income in the

1994 and 1995 joint returns any of the Social Security benefits

that they received during those years.

     Respondent issued the notice with respect to 1994 and 1995

to petitioner and Anna P. Treadaway, deceased.4   In that notice,

respondent disallowed the deductions claimed for legal expenses

in Schedules C of the 1994 and 1995 joint returns because it was

not established that those claimed expenses (1) were expended,

(2) were expended for the purposes stated in those schedules, and

(3) constitute ordinary and necessary business expenses.

     Respondent further disallowed in the notice the deductions

claimed for expenses in Schedules F of the 1994 and 1995 joint

returns because it was not established that those claimed ex-

penses (1) were expended, (2) were expended for the purposes


     4
      Ms. Treadaway’s first name was Anne, not Anna.
                               - 9 -

stated in those schedules, and (3) constitute ordinary and

necessary business expenses.   Respondent determined in the

alternative that the deductions claimed in Schedules F of the

1994 and 1995 joint returns were for expenses incurred in an

activity not entered into for profit and increased the taxable

income reported in those returns by the respective losses of

$32,855 and $15,326 claimed in those schedules (i.e., by the

excess of the deductions claimed over the income reported in each

such schedule).

     Respondent further disallowed in the notice the net operat-

ing loss deductions claimed in the 1994 and 1995 joint returns.

     Respondent also determined in the notice that the joint

return for 1994 improperly did not report the $3,000 that Ms.

Treadaway received in that year from the sale of the Brenda

property, that no basis in excess of zero in that property was

established, and that that amount is capital gain.

     Respondent further determined in the notice that, because of

other determinations therein, 85 percent of the respective

amounts of Social Security benefits that petitioner and Ms.

Treadaway received during 1994 and 1995 are includible in taxable

income for those years.

     Respondent also determined in the notice that all of the

underpayment of tax for 1994 and 1995, as determined therein, was

due to negligence or disregard of rules or regulations and
                                - 10 -

therefore imposed the accuracy-related penalty under section

6662(a) on each such underpayment.5

                                OPINION

     Petitioner bears the burden of proving that the determina-

tions in the notice are erroneous.       See Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933).      Petitioner attempted to

satisfy that burden through his own testimony and certain docu-

mentary evidence.   We found petitioner’s testimony to be ques-

tionable, vague, conclusory, evasive, and/or uncorroborated in

certain material respects.     Under these circumstances, we are not

required to, and we shall not, rely on petitioner’s testimony to

sustain his burden of establishing error in the determinations of

respondent that remain at issue.    See Lerch v. Commissioner, 877

F.2d 624, 631-632 (7th Cir. 1989), affg. T.C. Memo. 1987-295;

Geiger v. Commissioner, 440 F.2d 688, 689-690 (9th Cir. 1971),

affg. per curiam T.C. Memo. 1969-159; Tokarski v. Commissioner,

87 T.C. 74, 77 (1986).   As for the documentary evidence on which

petitioner relies, except as discussed below, we are not per-

suaded by that evidence that the determinations which respondent

does not concede are wrong.6

     5
      Because of the determinations in the notice that increased
self-employment income, respondent also determined in the notice
to make correlative adjustments to self-employment tax for 1994
and 1995.
     6
      We note that petitioner attempted to attach to his opening
                                                   (continued...)
                              - 11 -

     We shall first address petitioner’s position regarding the

determinations in the notice with respect to (1) the deductions

claimed in Schedules F of the 1994 and 1995 joint returns,

(2) the amount that Ms. Treadaway received during 1994 from the

sale of the Brenda property, (3) the Social Security benefits

that Ms. Treadaway received during the years at issue, and

(4) the net operating loss deductions claimed in the 1994 and

1995 joint returns.   As we understand petitioner’s position, the

property used in the horse-training activities and the income

therefrom, the Brenda property and the income therefrom, and the

Social Security benefits that Ms. Treadaway received constituted

the separate property of Ms. Treadaway, and not community prop-

erty, under the community property law of the State of Arizona.

Consequently, according to petitioner, he is not liable for the

     6
      (...continued)
brief certain documents that are not part of the record. The
Court had those documents returned to petitioner. We also note
that we have serious reservations about petitioner’s claim that
documentation substantiating the expenses claimed in Schedules C
of the 1994 and 1995 joint returns was stolen or destroyed during
the October 1996 burglary. The claimed missing property listed
in the police reports with respect to that burglary did not
include any records identified as tax records, banker boxes, or
steel filing cabinets in which petitioner claims he kept records
relating to those returns. Moreover, even if petitioner had
persuaded us that documentation substantiating the expenses
claimed in Schedules C of the 1994 and 1995 joint returns had
been stolen or destroyed during the October 1996 burglary,
petitioner would have to meet his burden of proof in this case by
presenting credible secondary evidence. As noted above, we are
unwilling to rely on petitioner’s testimony in this case to
support his position that respondent’s determinations in the
notice are erroneous.
                              - 12 -

portion of the deficiency (and the accuracy-related penalty) for

each of the years 1994 and 1995 that is attributable to determi-

nations in the notice with respect to that alleged separate

property of Ms. Treadaway.   Petitioner also argues that he is not

liable for the portion of the deficiency (and the accuracy-

related penalty) for each of the years 1994 and 1995 that is

attributable to the determinations in the notice disallowing the

net operating loss deduction claimed in the joint return for each

of those years.   That is because, according to petitioner, those

claimed net operating loss deductions were generated by the

horse-training activities which petitioner maintains utilized

property and generated income that were the separate property of

Ms. Treadaway.

     Based on our examination of the record in this case, we find

that petitioner has failed to establish that any of the property

that petitioner claims was the separate property of Ms. Treadaway

did in fact constitute her separate property under the law of the

State of Arizona.

     Assuming arguendo that petitioner had established that the

property in question was the separate property of Ms. Treadaway,

on the record before us, we nonetheless reject petitioner’s

position that he is not liable for the portion of the deficiency

(and the accuracy-related penalty) for each of the years at issue

that is attributable to respondent’s determinations which we
                             - 13 -

sustain below with respect to the deductions claimed in Schedules

F of the 1994 and 1995 joint returns, the amount that Ms.

Treadaway received during 1994 from the sale of the Brenda

property, the Social Security benefits that Ms. Treadaway re-

ceived during the years at issue, and the net operating loss

deductions claimed in the 1994 and 1995 joint returns.   That is

because petitioner and Ms. Treadaway filed a joint return for

1994, and pursuant to section 6013(a)(3),7 petitioner, as the

surviving spouse, filed a joint return for 1995 on behalf of his

deceased spouse Ms. Treadaway and himself.   Since a joint return

was made for each of the years at issue, the tax is to be com-

puted on the aggregate income for each such year, and the liabil-

ity with respect to that tax is to be joint and several.    See

sec. 6013(d)(3).

     In an apparent effort to avoid joint and several liability

under section 6013(d)(3) with respect to the 1994 and 1995 joint

returns, petitioner asserts that “the purpose for filing a form


     7
      Sec. 6013(a)(3) provides that in the case of the death of
one spouse the joint return may be made by the surviving spouse
with respect to both himself and the deceased spouse if no return
for the taxable year has been made by the deceased spouse, no
executor or administrator has been appointed, and no executor or
administrator is appointed before the last day prescribed by law
for filing the return of the surviving spouse. On the record
before us, we find that petitioner has failed to show that a
return for 1995 was made by Ms. Treadaway, that an executor or
administrator was appointed, or that an executor or administrator
was appointed before the last day prescribed by law for filing
the 1995 return of petitioner.
                               - 14 -

on a 1040, wherein the filing status was designated as ‘married,

filing joint returns’ * * * [was] that Anne P. Treadaway had

advanced Alzheimer’s disease”.    That petitioner may have filed

joint returns for 1994 and 1995 because Ms. Treadaway had ad-

vanced Alzheimer’s disease does not mean that he is not jointly

and severally liable for any deficiencies and accuracy-related

penalties that the Court determines for those years.    Petitioner

was not required to file a joint return for 1994 or for 1995, nor

was he required to file a separate return for each of those

years.   He had a choice.   Consistent with the practice of Ms.

Treadaway and petitioner who filed joint returns since at least

taxable year 1991, petitioner decided to file (1) a joint return

with Ms. Treadaway for 19948 and (2) a joint return for 1995 as

the surviving spouse of Ms. Treadaway pursuant to section

6013(a)(3).9

     On the record before us, we find that petitioner has failed

to establish that he is not jointly and severally liable for a

portion of the deficiencies and the accuracy-related penalties



     8
      The 1994 joint return was signed by petitioner and Anne
Treadaway. The signature of Anne Treadaway on the 1994 joint
return is different from petitioner’s signature on that return.
     9
      The 1995 joint return was signed by petitioner. There was
no signature on that return by Ms. Treadaway who was deceased at
the time the return was filed. Instead, the following statement
was typed on the line for her signature: “Filing as surviving
spouse”.
                                - 15 -

that we determine for 1994 and 1995.10    See sec. 6013(d)(3).

     We shall now turn to the determinations in the notice that

remain at issue.     With respect to the claimed expenses that were

deducted in Schedules F of the joint returns for 1994 and 1995,

on the record before us, we find that petitioner has failed to

establish that those claimed expenses (1) were paid during those

years, except for expenses totaling $10,101.37 that we have found

were paid during 1995;11 (2) were paid for the purposes specified

in those schedules, except for expenses totaling $10,101.37 that

we have found were paid during 1995 for feed, veterinary care,

horse supplies, and sawdust;12 and (3) constitute ordinary and

necessary business expenses under section 162(a).    On the instant

record, we further find that petitioner has failed to show that

the horse-training activities constitute an activity engaged in

for profit within the meaning of section 183.

     Based on our examination of the record in this case, we

sustain, except to the extent stated below, respondent’s determi-

     10
      Petitioner does not contend that he is entitled to inno-
cent spouse relief.
     11
      Respondent concedes on brief that $5,306 was paid during
1995 with respect to the horse-training activities. However,
respondent’s concession fails to take into account additional
expenses totaling $4,795.37 with respect to the horse-training
activities that documentary evidence prepared by respondent’s
revenue agent who testified at trial showed, and we have found,
were paid during 1995.
     12
          See supra note 11.
                               - 16 -

nations to disallow the deductions claimed in Schedules F of the

1994 and 1995 joint returns.   The exception is that we hold that

petitioner is entitled for 1995 to deduct from the income re-

ported in Schedule F of the 1995 joint return a total of

$10,101.37 paid for expenses relating to the horse-training

activities.13   See sec. 183(b)(2).

     With respect to the claimed legal expenses that were de-

ducted in Schedules C of the joint returns for 1994 and 1995, on

the instant record, we find that petitioner has failed to estab-

lish that those claimed legal expenses (1) were paid during those

years, (2) were paid for the purpose stated in those schedules,

and (3) constitute ordinary and necessary business expenses under

section 162(a).   Accordingly, we sustain respondent’s determina-

tions to disallow those claimed deductions for the years at

issue.

     With respect to the $3,000 that Ms. Treadaway received

during 1994 from the sale of the Brenda property which was not

reported in the 1994 joint return, on the instant record, we find

that petitioner has failed to show (1) that Ms. Treadaway had a

basis in excess of zero in the Brenda property and (2) that that

amount should not be included as capital gain for 1994.    Conse-

quently, we sustain respondent’s determination to include $3,000


     13
      Schedule F of the 1995 joint return reported income of
$32,170 from the horse-training activities.
                              - 17 -

as capital gain for that year.

     With respect to the net operating loss deductions claimed in

the 1994 and 1995 joint returns, on the record before us, we find

that petitioner has failed to show entitlement to those deduc-

tions.   Accordingly, we sustain respondent’s determinations to

disallow those claimed deductions for the years at issue.

     With respect to the respective Social Security benefits that

Ms. Treadaway and petitioner received during 1994 and 1995, none

of which was included in taxable income in the joint returns for

those years, on the record before us, we sustain respondent’s

determinations to include in taxable income for the years at

issue 85 percent of the respective Social Security benefits that

Ms. Treadaway and petitioner received during those years.    See

sec. 86(a)(2)(B).

     With respect to the accuracy-related penalty under section

6662(a) that respondent determined for each of the years at

issue, respondent concedes on brief that that penalty should not

be imposed on the portion of the underpayment for each of those

years that is attributable to the failure to include in taxable

income for each such year 85 percent of the respective Social

Security benefits that Ms. Treadaway and petitioner received

during each such year.   In addition, we have held that petitioner

is entitled for 1995 to deduct from the income reported in

Schedule F of the 1995 joint return $10,101.37 of expenses that
                              - 18 -

we found were paid during that year with respect to the horse-

training activities.   We further hold that the underpayment for

1995 for purposes of section 6662(a) must be reduced to reflect

that holding.

     On the record before us, we find that, except to the extent

stated above, petitioner has failed to establish that he is not

liable for the accuracy-related penalty under section 6662(a) for

each of the years 1994 and 1995.   Accordingly, except to that

extent, we sustain respondent’s determinations that petitioner is

liable for the accuracy-related penalty for each of those

years.14

     We have considered all of the contentions and arguments of

petitioner that are not discussed herein, and we find them to be

without merit and/or irrelevant.

     To reflect the foregoing and the concessions of respondent,



                                    Decision will be entered under

                               Rule 155.




     14
      Because certain of our holdings increase self-employment
income for each of the years at issue, correlative adjustments
must be made to self-employment tax for each such year. See
supra note 5.
